Och-Ziff Capital Management Group LLC Reports 2009 Third Quarter Results
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NEW YORK, Nov. 3 /PRNewswire-FirstCall/ -- Och-Ziff Capital Management Group LLC (NYSE: OZM) (the "Company" or "Och-Ziff") today reported a GAAP Net Loss(1) of $80.0 million, or $1.02 per basic and $1.06 per diluted Class A Share, for the third quarter ended September 30, 2009. The Company also declared a $0.07 per share third quarter cash dividend on its Class A Shares.
Summary Highlights
-- Distributable Earnings of $34.2 million, or $0.08 per Adjusted Class A
Share, for the 2009 third quarter
-- Assets under management of $22.6 billion as of November 1, 2009,
compared to $22.1 billion as of October 1, 2009
-- Year-to-date net returns through October 31, 2009 of the OZ Master Fund
of 21.3%, the OZ Europe Master Fund of 15.6%, the OZ Asia Master Fund of
28.0% and the OZ Global Special Investments Master Fund of 7.2%
"We continued to generate very strong investment performance across all of our funds during the third quarter and in the month of October," said Daniel Och, Chairman and Chief Executive Officer of Och-Ziff. "We have now surpassed the high water marks for the majority of our capital. Our diversified, multi-strategy approach, which adheres to disciplined investment and risk management processes and the limited use of leverage, has driven the consistency and low volatility of our investment returns since our founding in 1994 and this year has been no different.
"We believe that redemptions have now normalized to historical levels for the hedge fund industry as a whole as market conditions have further improved and investor confidence has increased. We remain confident that as investors re-deploy capital to alternative investments, we will be a leading beneficiary of those flows because of our track record, infrastructure, transparency and the consistency of our model."
(1) References to the Company's GAAP Net Loss throughout this press release refer to the Company's GAAP Net Loss Allocated to Class A Shareholders.
GAAP Net Loss Allocated to Class A Shareholders
For the 2009 third quarter, Och-Ziff reported a GAAP Net Loss of $80.0 million, or $1.02 per basic and $1.06 per diluted Class A Share, compared to a GAAP Net Loss of $69.4 million, or $0.94 per basic and $1.07 per diluted Class A Share, for the 2008 third quarter. The primary drivers of the year-over-year increase were a decline in Management Fees due to lower assets under management and higher compensation expenses, as discussed below.
For the first nine months of 2009, Och-Ziff reported a GAAP Net Loss of $250.2 million, or $3.23 per basic and $3.25 per diluted Class A Share, compared to a GAAP Net Loss of $398.4 million, or $5.37 per basic and diluted Class A Share, for the first nine months of 2008. The primary driver of the year-over-year decrease was an increase in the Net Loss Allocated to Partners' and Others' Interests in Income of Consolidated Subsidiaries resulting from the adoption of SFAS No. 160, partially offset by a decline in Management Fees due to lower assets under management and higher compensation expenses, as discussed below.
The GAAP Net Loss in the 2009 third quarter and first nine months primarily resulted from non-cash expenses of $417.5 million and $1.3 billion, respectively, associated with the Company's reorganization in connection with its initial public offering ("IPO") in November 2007. These expenses are related to the amortization of Och-Ziff Operating Group A Units ("Group A Units"), which represent equity interests in the Company's principal operating subsidiaries (the "Och-Ziff Operating Group") that were issued to the Company's pre-IPO owners in exchange for their pre-IPO interests in those subsidiaries. The Group A Units vest annually over five years until November 2012. Accordingly, the amortization of these expenses is expected to result in a GAAP Net Loss each quarter through the end of 2012. Once vested, the Group A Units may be exchanged on a one-to-one basis for Class A Shares.
Additionally, the GAAP Net Loss in the 2009 third quarter and first nine months were driven by non-cash expenses of $33.5 million and $86.1 million, respectively, for the amortization of equity-based compensation. This expense relates primarily to Class A Restricted Share Units ("RSUs") awarded to all of the Company's employees in connection with the IPO, which vest annually over four years from the closing of the IPO, and subsequent compensation-related grants. Each RSU represents the right to receive one Class A Share upon vesting.
Also contributing to the GAAP Net Loss in the 2009 third quarter and first nine months was compensation expense relating to the accrual of estimated discretionary cash bonuses. These cash bonuses are funded by total annual revenues, which are significantly influenced by incentive income earned by the Company at the end of the year. In the second quarter of 2009, the Company began to accrue for the estimated discretionary cash bonuses that it expected to pay its employees at year-end. The Company did this in order to provide a competitive compensation structure taking into account the high-water marks in its funds, which if not recovered could preclude it from earning any incentive income, and the fact that its funds had generated strong year-to-date investment performance due to the efforts of the Company's employees. In the third quarter of 2009, management revised its annual discretionary bonus compensation methodology for years in which high-water marks are in effect. During the second and third quarter, the Company accrued a total of $31.5 million. Any remaining amount will be expensed in the fourth quarter. The actual cash bonuses paid in the 2009 fourth quarter may vary materially from management's current estimate as discretionary cash bonuses are based on total annual revenues, including any year-end incentive income, which is influenced by, among other things, the Company's funds' investment performance, the level of assets under management, the ability of its funds to continue to satisfy the high-water marks at the end of the year and global economic and market conditions. As the Company has done historically, it will determine the actual amount of annual discretionary cash bonuses in the fourth quarter of this year.
Throughout this press release, the Company presents financial measures that are not prepared in accordance with GAAP. For a discussion of all of the Company's non-GAAP financial measures, please see the discussion "Non-GAAP and Segment Financial Measures" at the end of this press release.
Distributable Earnings (NON-GAAP)
The Company's Distributable Earnings for the 2009 third quarter were $34.2 million, or $0.08 per Adjusted Class A Share, compared with $52.7 million, or $0.13 per Adjusted Class A Share, in the 2008 third quarter. Distributable Earnings for the first nine months of 2009 were $73.9 million, or $0.18 per Adjusted Class A Share, compared with $156.2 million, or $0.39 per Adjusted Class A Share, in the first nine months of 2008. The year-over-year reduction in Distributable Earnings for both periods was primarily attributable to the decline in Management Fees due to lower assets under management and higher compensation expenses (as discussed above), partially offset by lower Non-compensation Expenses and lower taxes.
Distributable Earnings is a non-GAAP financial measure. For reconciliations of Distributable Earnings to the respective GAAP Net Losses for the periods described above, please see Exhibits 3 through 6 of the financial tables that accompany this press release. Additionally, please see the discussion of "Non-GAAP and Segment Financial Measures" at the end of this press release.
Assets Under Management
Och-Ziff's assets under management were $22.3 billion as of September 30, 2009, 2% higher than the $21.9 billion in assets under management as of June 30, 2009 and 29% lower than the $31.2 billion in assets under management as of September 30, 2008. The $8.9 billion year-over-year decrease was driven by net outflows of $9.3 billion, partially offset by performance-related appreciation of $424 million during the period. During the 2009 third quarter, the $358 million increase in assets under management was driven by performance-related appreciation of approximately $1.5 billion, partially offset by net outflows of approximately $1.1 billion. The net outflows for the 2009 third quarter included redemption requests received for June 30, 2009, but excluded redemption requests received for September 30, 2009 as these redemptions were reflected in assets under management as of October 1, 2009.
Assets under management as of October 1, 2009 were $22.1 billion, which reflected redemption requests received for September 30, 2009 (net of October 1, 2009 capital inflows) of approximately $200 million. Virtually all redemptions for a quarter generally are paid on the first day of the month following the quarter in which the redemption notice was submitted, and capital inflows for that month are accepted on the same day. The Company believes that redemptions have now normalized to historical levels for the hedge fund industry as a whole as market conditions have further stabilized and institutional investor confidence has improved.
Estimated assets under management as of November 1, 2009 were $22.6 billion, which reflected November 1, 2009 capital inflows (net of redemption requests received for October 31, 2009) of approximately $400 million, and performance-related appreciation of approximately $100 million.
Assets under management by fund:
% Change (1)
----------------------
Sep. 2009 Sep. 2009
Sep. 30, June 30, Sep. 30, vs. vs.
(dollars in billions) 2009 2009 2008 Jun. 2009 Sep. 2008
---- ---- ---- --------- ---------
OZ Master Fund 14.8 14.4 18.8 2% -22%
OZ Europe Master Fund 3.0 3.0 5.8 0% -49%
OZ Asia Master Fund 1.3 1.4 3.2 -5% -59%
OZ Global Special
Investments Master Fund 2.0 1.9 2.0 2% -2%
Other (1)(2) 1.2 1.2 1.4 NM NM
(1) Rounding differences may occur.
(2) Includes real estate funds, managed accounts and other funds not
significant to the Company's assets under management.
Investment Performance
In the 2009 third quarter, performance-related appreciation was due primarily to attractive investment opportunities globally in long/short equities, convertible arbitrage, credit and structured credit.
Performance by fund(1):
2009
-------------------------------------------
July August September 3Q YTD
----- ------ --------- ------ ------
OZ Master Fund 3.26% 1.37% 2.51% 7.30% 20.49%
OZ Europe Master Fund 2.36% 2.06% 3.28% 7.90% 15.47%
OZ Asia Master Fund 9.50% 0.24% 1.70% 11.63% 26.36%
OZ Global Special
Investments Master Fund 1.55% 0.33% 1.47% 3.38% 7.09%
(1) Please see important disclosures on Exhibit 10 of the financial
supplement accompanying this press release.
ECONOMIC INCOME OF THE OCH-ZIFF FUNDS SEGMENT
The Company conducts substantially all of its business through the Och-Ziff Funds segment, which is currently the Company's only reportable segment. This segment provides management and advisory services to the Company's hedge funds and separately managed accounts.
The measures discussed below are presented on an Economic Income basis. For reconciliations of these segment measures to the respective GAAP measures, please see Exhibits 3 through 6 of the financial tables that accompany this press release. Additionally, please see the discussion of "Non-GAAP and Segment Financial Measures" at the end of this press release.
Total Revenues - Economic Income Basis
Total Revenues for the 2009 third quarter were $89.6 million, a 41% decrease from Total Revenues for the 2008 third quarter of $153.0 million. Management Fees were $86.3 million, 42% lower than Management Fees in the prior year period of $147.7 million.
Total Revenues for the first nine months of 2009 were $267.3 million, a 40% decrease from Total Revenues for the first nine months of 2008 of $446.7 million. Management Fees were $263.2 million, 40% lower than Management Fees in the prior year period of $438.0 million.
Total Revenues were lower year-over-year for both periods as a result of lower Management Fees due to the decline in assets under management, which was driven by performance-related depreciation in the second half of 2008 and investor redemptions in the fourth quarter of 2008 and first half of 2009.
Compensation and Benefits - Economic Income Basis
Compensation and Benefits expenses for the 2009 third quarter totaled $23.5 million, 18% lower than Compensation and Benefits expense for the 2008 third quarter of $28.8 million. The year-over-year decrease was attributable to lower salaries and benefits expense due to lower headcount as assets under management declined. The decrease was also attributable to a lower level of one-time, non-recurring bonus payments as well as lower guaranteed bonus expense due to reduced hiring activity. These factors were partially offset by the $5.9 million expense recorded in the 2009 third quarter for the estimated, annual discretionary cash bonuses the Company anticipates paying its employees in the Och-Ziff Funds segment in the fourth quarter (as discussed above).
Compensation and Benefits expenses for the first nine months of 2009 totaled $86.5 million, 12% higher than Compensation and Benefits expenses for the first nine months of 2008 of $77.0 million. The year-over-year increase for this period was due primarily to the $30.5 million expense recorded in the 2009 second and third quarters for the estimated, annual discretionary cash bonuses the Company anticipates paying its employees in the Och-Ziff Funds segment in the fourth quarter (as discussed above). Partially offsetting this increase was the year-over-year decline in salaries and benefits expense due to lower headcount as assets under management declined. Additionally there was a lower level of one-time, non-recurring bonus payments, as well as lower guaranteed bonus accruals due to reduced hiring activity.
Non-compensation Expenses - Economic Income Basis
Non-compensation Expenses for the 2009 third quarter were $22.3 million, a 27% decrease from Non-compensation Expenses for the 2008 third quarter of $30.5 million. Non-compensation Expenses for the first nine months of 2009 were $68.1 million, a 28% decrease from Non-compensation Expenses for the first nine months of 2008 of $95.0 million.
The decrease in both periods was driven principally by lower professional services fees and lower business development costs. Also contributing to the decrease was lower interest expense on the Company's variable rate borrowings due to the decline in LIBOR. The overall decline in Non-compensation Expenses in both periods was partially offset by higher occupancy expense related to the expansion of leased office space, and higher insurance costs.
Economic Income
Economic Income for the Och-Ziff Funds segment for the 2009 third quarter was $43.8 million, compared with $93.8 million for the 2008 third quarter. Economic Income for the Och-Ziff Funds segment for the first nine months of 2009 was $112.6 million, compared with $274.7 million for the first nine months of 2008.
ECONOMIC INCOME OF THE COMPANY'S OTHER OPERATIONS (NON-GAAP)
The Company's Other Operations are comprised of its real estate business, which manages and provides advisory services to its real estate funds, and investments in new businesses established to expand certain of the Company's private investment platforms. The businesses within Other Operations are currently in early growth stages, and are not included in the results of the Och-Ziff Funds segment.
Economic Income for the Company's Other Operations for the 2009 third quarter was a net loss of $4.3 million, compared with a net loss of $1.6 million for the 2008 third quarter. Economic Income for the Company's Other Operations for the first nine months of 2009 was a net loss of $12.8 million, compared with a net loss of $5.0 million for the first nine months of 2008. The increase in the Economic Income net losses for the 2009 third quarter and first nine months was principally the result of compensation costs associated with the Company's Asia real estate business, as well as the expense recorded during the 2009 second and third quarters for the estimated, annual discretionary cash bonuses the Company anticipates paying the employees in its domestic real estate business in the fourth quarter of 2009 (as discussed above). For the 2009 third quarter and first nine months, this expense was $0.2 million and $0.9 million, respectively. The Economic Income net losses for the 2008 third quarter and first nine months were primarily due to the net losses from the Company's share of the start-up costs associated with its African joint venture, which more than offset the Economic Income earned in the Company's domestic real estate business.
Economic Income for Other Operations as discussed above is a non-GAAP measure. For reconciliations of Economic Income of the Company's Other Operations to the respective GAAP Net Losses for the periods described above, please see Exhibits 3 through 6 of the financial tables that accompany this press release. Additionally, please see the discussion of "Non-GAAP and Segment Financial Measures" at the end of this press release.
ECONOMIC INCOME OF THE TOTAL COMPANY (NON-GAAP)
Economic Income for the Total Company for the 2009 third quarter was $39.5 million, a 57% decrease from Economic Income for the 2008 third quarter of $92.1 million. Economic Income for the Total Company for the first nine months of 2009 was $99.8 million, a 63% decrease from Economic Income for the first nine months of 2008 of $269.7 million.
Economic Income for the Total Company as discussed above is a non-GAAP measure. For reconciliations of Economic Income for the Total Company to the respective GAAP Net Losses for the periods described above, please see Exhibits 3 through 6 of the financial tables that accompany this press release. Additionally, please see the discussion of "Non-GAAP and Segment Financial Measures" at the end of this press release.
CAPITAL
As of September 30, 2009, the number of Class A Shares outstanding was 79,830,851. For purposes of calculating Distributable Earnings per Share, the Company assumes that all Partner Units (as defined below) and RSUs outstanding as of September 30, 2009 have been converted on a one-to-one basis into Class A Shares. For the third quarter and first nine months ended September 30, 2009, the total weighted-average Adjusted Class A Shares outstanding were 403,594,032 and 403,235,945, respectively.
DIVIDEND
The Board of Directors of Och-Ziff declared a 2009 third quarter dividend of $0.07 per Class A Share, to be paid on November 10, 2009 to holders of record at the close of business on October 1, 2009.
For U.S. federal income tax purposes, the dividend will be treated as a partnership distribution. Based on the best information currently available, the Company estimates that when calculating withholding taxes, the entire amount of the 2009 third quarter dividend will be treated as U.S. source dividend income.
Non-U.S. holders of Class A Shares are generally subject to U.S. federal withholding tax at a rate of 30% (subject to reduction by applicable treaty or other exception) on their share of U.S. source dividends and certain other types of U.S. source income realized by the Company. With respect to interest, however, no withholding is generally required if proper certification (on an IRS Form W-8) of a beneficial owner's foreign status has been filed with the withholding agent. In addition, non-U.S. holders must generally provide the withholding agent with a properly completed IRS Form W-8 to obtain any reduction in withholding.
* * * *
Och-Ziff will host a conference call today, November 3, 2009, at 8:30 a.m. Eastern Time to discuss the Company's 2009 third quarter results. The call will be open to the public and can be accessed by dialing 888-713-4214 (callers inside the U.S.) or 617-213-4866 (callers outside the U.S.). The number should be dialed at least ten minutes prior to the start of the call. The passcode for the call will be 72523219. A simultaneous webcast of the call will be available to the public on a listen-only basis on the For Shareholders page of the Company's website at www.ozcap.com.
For those unable to listen to the live broadcast, a replay will be available by dialing 888-286-8010 (callers inside the U.S.) or 617-801-6888 (callers outside the U.S.), passcode 54636117, beginning approximately two hours after the event for two weeks. A webcast replay of the event will also be available on the For Shareholders page of the Company's website.
* * * *
Non-GAAP and Segment Financial Measures
In addition to analyzing the Company's results on a GAAP basis, Och-Ziff's management also reviews the Company's results on an "Economic Income basis." Economic Income excludes the adjustments described below that are required for presentation of the Company's results on a GAAP basis, but that management does not consider when evaluating the operating performance of the Company in any given period. Management therefore uses Economic Income as the basis on which it evaluates the performance of the Company's business and makes resource allocation and other operating decisions. In addition, management believes that Economic Income provides a more comparable view of the Company's operating performance from period to period. Management considers it important that investors review the same operating information that it uses.
Economic Income is a measure of pre-tax operating performance that excludes the following from the Company's GAAP Net Loss:
-- income allocations to the Company's partners and Ziff Brothers
Investments (the "Ziffs") on their direct interests in the Och-Ziff
Operating Group. Management reviews operating performance at the
Och-Ziff Operating Group level, where substantially all of the Company's
operations are performed, prior to making any income allocations;
-- reorganization expenses related to the Company's IPO, equity-based
compensation expenses and depreciation and amortization expenses, as
management does not consider these non-cash expenses when evaluating
operating performance;
-- changes in the tax receivable agreement liability and gain on early
retirement of debt, as management does not consider these items to be
reflective of the Company's operating performance;
-- net earnings (losses) on the deferred balances and investments in
Och-Ziff funds, as these amounts primarily relate to earnings (losses)
on amounts due to the Company's partners and the Ziffs for pre-IPO
deferred or reinvested incentive income, and earnings (losses) on
amounts due to employees under deferred cash compensation arrangements,
and as such are not reflective of the Company's operating performance;
and
-- amounts related to the consolidated Och-Ziff funds, including the
related eliminations of management fees and incentive income, as
management reviews the total amount of management fees and incentive
income earned from the Och-Ziff funds in relation to total assets under
management and fund performance.
In addition, deferred cash compensation expense is recognized in the period in which it is awarded, as management determines the total amount of compensation based on the Company's performance in the year of the award.
Management evaluates Economic Income for the Och-Ziff Funds segment, the Company's one reportable segment under GAAP, and for the Company's Other Operations. Economic Income for Other Operations is a non-GAAP measure that is calculated on the same basis as the methodology that is used to calculate Economic Income for the Och-Ziff Funds segment. Management also evaluates Economic Income for the Total Company, which is a non-GAAP measure that equals the sum of Economic Income for the Och-Ziff Funds segment and Other Operations. In addition, as a result of the adjustments described above, Management Fees, Compensation and Benefits, Non-compensation Expenses and Net Loss (Income) Allocated to Partners' and Others' Interests in Income of Consolidated Subsidiaries are presented on an Economic Income basis for Other Operations and the Total Company and are also Non-GAAP measures. No adjustments to the GAAP basis have been made for Incentive Income, Other Revenues and Net Losses on Joint Ventures. For reconciliations of these Non-GAAP measures to the respective GAAP measures, please see Exhibits 3 through 6 of the financial tables that accompany this press release.
Distributable Earnings is a non-GAAP measure of after-tax operating performance and equals Economic Income for the Total Company (as defined above) less Adjusted Income Taxes. Adjusted Income Taxes are estimated assuming the conversion of all outstanding Partner Units into Class A Shares, on a one-to-one basis. Therefore, all income (loss) of the Och-Ziff Operating Group allocated to the partners is treated as if it were allocated to Och-Ziff Capital Management Group LLC. Partner Units represent interests in the Och-Ziff Operating Group held by the partners and the Ziffs, including the Group A Units and other non-equity interests. Distributable Earnings per Share is equal to Distributable Earnings divided by the weighted-average number of Adjusted Class A Shares. Adjusted Class A Shares are determined assuming all Partner Units and RSUs were converted on a one-to-one basis into Class A Shares. Management uses Distributable Earnings, among other financial data, to determine the earnings available to distribute as dividends to holders of the Company's Class A Shares and to the Company's partners and the Ziffs with respect to their Partner Units.
The Company's non-GAAP financial measures should not be considered as alternatives to the Company's GAAP Net Loss or cash flow from operations, or as indicative of liquidity or the cash available to fund operations.
Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the tables attached to this press release.
* * * *
Forward-Looking Statements
The information contained in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the current views of the Company with respect to, among other things, its future financial or business performance, events, strategies or expectations, including but not limited to its ability to generate returns and preserve capital and its ability to expand its investment platforms. Such forward-looking statements are generally identified by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may," "will," "should," "could," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "opportunity," "assume," "remain," "sustain," "achieve" or the negative version of those words or other comparable words.
Any forward-looking statements contained in this press release are based upon historical performance of the Company and its subsidiaries and on current plans, estimates and expectations of the Company and its subsidiaries. The inclusion of this forward-looking information should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated by the Company will be achieved. Such forward-looking statements are subject to various risks and uncertainties, including but not limited to global and domestic market and business conditions, the Company's ability to successfully compete for fund investors, talent and investment opportunities, successful formulation and execution of its business and growth strategies, the Company's ability to appropriately manage conflicts of interest, and tax and other regulatory factors relevant to the Company's structure and status as a public company, as well as assumptions relating to the Company's operations, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if the Company's assumptions prove to be incorrect, the Company's actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in the Company's filings with the Securities and Exchange Commission, including but not limited to the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Any forward-looking statements contained in this press release are made only as of the date hereof. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
This press release does not constitute an offer of any Och-Ziff fund.
* * * *
About Och-Ziff Capital Management Group LLC
Och-Ziff Capital Management Group LLC is one of the world's largest institutional alternative asset managers with offices in New York, London, Hong Kong, Tokyo, Bangalore and Beijing. Och-Ziff's funds seek to deliver consistent, positive, risk-adjusted returns throughout market cycles, with a strong focus on capital preservation. Och-Ziff's multi-strategy approach combines global investment strategies, including merger arbitrage, convertible and derivative arbitrage, equity restructuring, credit and distressed investments, private investments and real estate.
As of November 1, 2009, Och-Ziff had approximately $22.6 billion in assets under management with approximately 600 investor relationships. For more information, please visit www.ozcap.com.
Exhibit 1
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues
Management fees $88,127 $148,976 $268,598 $441,770
Incentive income 3,071 4,373 3,336 5,483
Other revenues 355 925 908 3,179
Income of consolidated
Och-Ziff funds 10,127 2,768 21,629 7,654
------ ----- ------ -----
Total Revenues 101,680 157,042 294,471 458,086
------- ------- ------- -------
Expenses
Compensation and
benefits 64,074 50,377 191,975 155,388
Allocations to non-
equity partner
interests 8,052 (3,039) 12,627 (865)
Reorganization
expenses 417,486 425,585 1,262,171 1,276,753
Profit sharing 663 (305) 954 (1,736)
Interest expense 2,168 7,118 10,823 24,791
General,
administrative and
other 40,687 24,732 84,069 83,771
Expenses of
consolidated
Och-Ziff funds 880 1,043 2,776 2,400
--- ----- ----- -----
Total Expenses 534,010 505,511 1,565,395 1,540,502
------- ------- --------- ---------
Other Income (Loss)
Net earnings
(losses) on
deferred balances 20,840 (18,776) 24,270 (18,975)
Net gains (losses)
on investments in
Och-Ziff funds and
joint ventures 730 (2,049) 1,036 (6,020)
Gain on early
retirement of debt - - 2,013 -
Net gains (losses)
of consolidated
Och-Ziff funds (47) 1,290 (145) 787
--- ----- ---- ---
Total Other Income
(Loss) 21,523 (19,535) 27,174 (24,208)
------ ------- ------ -------
Loss before Income
Taxes (410,807) (368,004) (1,243,750) (1,106,624)
Income taxes (20,889) 14,735 (17,611) 22,696
------- ------ ------- ------
Consolidated Net
Loss $(389,918) $(382,739) $(1,226,139) $(1,129,320)
========= ========= =========== ===========
Net Loss Allocated
to Partners' and
Others' Interests
in Income of
Consolidated
Subsidiaries $(309,891) $(313,295) $(975,945) $(730,957)
========= ========= ========= =========
Net Loss Allocated
to Class A
Shareholders $(80,027) $(69,444) $(250,194) $(398,363)
======== ======== ========= =========
Net Loss per Class
A Share
Basic $(1.02) $(0.94) $(3.23) $(5.37)
====== ====== ====== ======
Diluted $(1.06) $(1.07) $(3.25) $(5.37)
====== ====== ====== ======
Weighted-Average
Class A Shares
Outstanding
Basic (1) 78,818,314 74,138,572 77,398,416 74,138,572
========== ========== ========== ==========
Diluted 387,874,793 385,238,096 387,719,637 74,138,572
=========== =========== =========== ==========
(1) Includes fully-vested RSUs that have not been exchanged into Class A
Shares as of the end of the period.
Exhibit 2
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
Economic Income Summary (Unaudited)
(dollars in thousands)
Three Months Ended September 30, 2009
-------------------------------------
Other Total
Och-Ziff Operations Company
Economic Income Basis Funds Segment (1) (Non-GAAP) (2) (Non-GAAP) (2)
--------------------- ----------------- -------------- --------------
Management fees $86,262 $1,312 $87,574
Incentive income 3,071 - 3,071
Other revenues 268 87 355
Total Economic Income
revenues 89,601 1,399 91,000
Compensation and
benefits 23,539 4,578 28,117
Non-compensation
expenses 22,255 811 23,066
Total Economic Income
expenses 45,794 5,389 51,183
Net losses on joint
ventures (3) - (244) (244)
Net loss (income)
allocated to
partners' and others'
interests in income
of consolidated
subsidiaries (4) - (47) (47)
Economic Income 43,807 (4,281) 39,526
Three Months Ended September 30, 2008
-------------------------------------
Other Total
Och-Ziff Operations Company
Economic Income Basis Funds Segment (1) (Non-GAAP) (2) (Non-GAAP) (2)
--------------------- ----------------- -------------- --------------
Management fees $147,747 $1,312 $149,059
Incentive income 4,373 - 4,373
Other revenues 919 6 925
Total Economic Income
revenues 153,039 1,318 154,357
Compensation and
benefits 28,813 1,015 29,828
Non-compensation
expenses 30,463 283 30,746
Total Economic Income
expenses 59,276 1,298 60,574
Net losses on joint
ventures (3) - (1,544) (1,544)
Net loss (income)
allocated to
partners' and others'
interests in income
of consolidated
subsidiaries (4) - (107) (107)
Economic Income 93,763 (1,631) 92,132
Nine Months Ended September 30, 2009
------------------------------------
Other Total
Och-Ziff Operations Company
Economic Income Basis Funds Segment (1) (Non-GAAP) (2) (Non-GAAP) (2)
--------------------- ----------------- -------------- --------------
Management fees $263,209 $3,953 $267,162
Incentive income 3,336 - 3,336
Other revenues 713 195 908
Total Economic Income
revenues 267,258 4,148 271,406
Compensation and
benefits 86,502 12,995 99,497
Non-compensation
expenses 68,149 2,717 70,866
Total Economic Income
expenses 154,651 15,712 170,363
Net losses on joint
ventures (3) - (1,236) (1,236)
Net loss (income)
allocated to
partners' and others'
interests in income
of consolidated
subsidiaries (4) - 28 28
Economic Income 112,607 (12,772) 99,835
Nine Months Ended September 30, 2008
------------------------------------
Other Total
Och-Ziff Operations Company
Economic Income Basis Funds Segment (1) (Non-GAAP) (2) (Non-GAAP) (2)
--------------------- ----------------- -------------- --------------
Management fees $438,034 $3,934 $441,968
Incentive income 5,483 - 5,483
Other revenues 3,149 30 3,179
Total Economic Income
revenues 446,666 3,964 450,630
Compensation and
benefits 76,989 1,674 78,663
Non-compensation
expenses 94,967 632 95,599
Total Economic Income
expenses 171,956 2,306 174,262
Net losses on joint
ventures (3) - (6,144) (6,144)
Net loss (income)
allocated to
partners' and others'
interests in income
of consolidated
subsidiaries (4) - (524) (524)
Economic Income 274,710 (5,010) 269,700
(1) The Och-Ziff Funds segment is the Company's only reportable segment.
Management uses Economic Income to evaluate the financial performance
of and to make operating decisions for the segment. For
reconciliations of these segment measures to the nearest U.S. GAAP
measures, see Exhibits 3 through 6.
(2) Each of the measures below is a non-GAAP financial measure, with the
exception of incentive income, other revenues and net losses on joint
ventures, for which no adjustments to the U.S. GAAP basis have been
made. Management calculates non-GAAP financial measures on an
Economic Income basis for the Company's Other Operations and for the
Company as a whole to assess the financial performance of the
Company's entire business. For reconciliations of these non-GAAP
measures to the nearest U.S. GAAP measures, see Exhibits 3 through 6.
(3) Represents the Company's losses in joint ventures established to
expand certain of the Company's private investments platforms.
(4) Represents the residual interests in the domestic real estate
management business not owned by the Company.
Exhibit 3
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
Reconciliation of Non-GAAP and Segment Financial Measures to U.S. GAAP
Measures
(dollars in thousands, except per share amount)
OCH-ZIFF FUNDS SEGMENT
----------------------
Reconciling Adjustments (1)
---------------------------
Three Months
Ended Economic U.S.
September 30, Income Funds Other GAAP
2009 Basis (2) Consolidation Adjustments Basis
-------------- --------- ------------- ----------- -----
Management
fees $86,262 $(56) $609 (a) $86,815
Incentive
income 3,071 - - 3,071
Other revenues 268 - - 268
Income of
consolidated
Och-Ziff funds - - - -
Total revenues 89,601 (56) 609 90,154
Compensation
and benefits 23,539 - 29,197 (b) (c) 52,736
Allocations to
non-equity
partner
interests - - 8,052 (d) 8,052
Reorganization
expenses - - 417,486 (e) 417,486
Profit sharing - - 663 (f) 663
Interest
expense 2,168 - - 2,168
General,
administrative
and other 20,087 - 19,600 (a) (g) 39,687
Expenses of
consolidated
Och-Ziff funds - 11 - 11
Total expenses 45,794 11 474,998 520,803
Net earnings
(losses) on
deferred
balances and
investments in
Och-Ziff funds
and joint
ventures - - 21,814 (h) 21,814
Net gains
(losses) of
consolidated
Och-Ziff funds - (57) - (57)
Income taxes - - (21,077) (g) (21,077)
Net loss
(income)
allocated to
partners' and
others'
interests in
income of
consolidated
subsidiaries - 124 318,776 (i) 318,900
Net Income
(Loss)
Allocated to
Class A
Shareholders 43,807 - (112,722) (68,915)
OTHER OPERATIONS
----------------
Reconciling Adjustments (1)
---------------------------
Three Months Economic
Ended Income U.S.
September 30, Basis Funds Other GAAP
2009 (Non-GAAP) (3) Consolidation Adjustments Basis
-------------- -------------- ------------- ----------- -----
Management
fees $1,312 $- $- $1,312
Incentive
income - - - -
Other revenues 87 - - 87
Income of
consolidated
Och-Ziff funds - 10,127 - 10,127
Total revenues 1,399 10,127 - 11,526
Compensation
and benefits 4,578 - 6,760 (c) 11,338
Allocations to
non-equity
partner
interests - - - -
Reorganization
expenses - - - -
Profit sharing - - - -
Interest
expense - - - -
General,
administrative
and other 811 - 189 (g) 1,000
Expenses of
consolidated
Och-Ziff funds - 869 - 869
Total expenses 5,389 869 6,949 13,207
Net earnings
(losses) on
deferred
balances and
investments in
Och-Ziff funds
and joint
ventures (244) (99) 99 (h) (244)
Net gains
(losses) of
consolidated
Och-Ziff funds - 10 - 10
Income taxes - - 188 (g) 188
Net loss
(income)
allocated to
partners' and
others'
interests in
income of
consolidated
subsidiaries (47) (9,169) 207 (i) (9,009)
Net Income
(Loss)
Allocated to
Class A
Shareholders (4,281) - (6,831) (11,112)
TOTAL COMPANY
-------------
Economic
Income
Basis U.S. GAAP
Three Months Ended September 30, 2009 (Non-GAAP) (3) Basis
------------------------------------- -------------- ---------
Management fees $87,574 $88,127
Incentive income 3,071 3,071
Other revenues 355 355
Income of consolidated Och-Ziff funds - 10,127
Total revenues 91,000 101,680
Compensation and benefits 28,117 64,074
Allocations to non-equity partner
interests - 8,052
Reorganization expenses - 417,486
Profit sharing - 663
Interest expense 2,168 2,168
General, administrative and other 20,898 40,687
Expenses of consolidated Och-Ziff funds - 880
Total expenses 51,183 534,010
Net earnings (losses) on deferred
balances and investments in Och-Ziff funds
and joint ventures (244) 21,570
Net gains (losses) of consolidated
Och-Ziff funds - (47)
Income taxes - (20,889)
Net loss (income) allocated to partners'
and others' interests in income of
consolidated subsidiaries (47) 309,891
Net Income (Loss) Allocated to
Class A Shareholders 39,526 (80,027)
Adjusted Income Taxes - Non-GAAP (4) (5,357)
------
Distributable Earnings - Non-GAAP $34,169
=======
Weighted-Average Class A Shares
Outstanding 78,818,314
Weighted-Average Partner Units 309,074,414
Weighted-Average Class A Restricted Share
Units (RSUs) 15,701,304
----------
Weighted-Average Adjusted Class A Shares 403,594,032
===========
Distributable Earnings Per Adjusted
Class A Share - Non-GAAP 0.08
====
(1) See Exhibit 7 for a description of the adjustments made to arrive at
Total Company U.S. GAAP Net Loss.
(2) The Och-Ziff Funds segment is the Company's only reportable segment.
Management uses Economic Income to evaluate the financial performance
of and to make operating decisions for the segment.
(3) Each of the measures below is a non-GAAP financial measure, with the
exception of incentive income, other revenues and net losses on joint
ventures, for which no adjustments to the U.S. GAAP basis have been
made. Management calculates non-GAAP financial measures on an
Economic Income basis for the Company's Other Operations and for the
Company as a whole to assess the financial performance of the
Company's entire business.
(4) Presents an estimate of income tax expense by assuming the conversion
of all outstanding Partner Units into Class A Shares, on a one-to-one
basis. Therefore, all income (loss) of the Och-Ziff Operating Group
allocated to the partners is treated as if it were allocated to Och-
Ziff Capital Management Group LLC.
Exhibit 4
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
Reconciliation of Non-GAAP and Segment Financial Measures to U.S. GAAP
Measures
(dollars in thousands, except per share amount)
OCH-ZIFF FUNDS SEGMENT
----------------------
Reconciling Adjustments (1)
---------------------------
Three Months
Ended Economic U.S.
September Income Funds Other GAAP
30, 2008 Basis (2) Consolidation Adjustments Basis
------------ --------- ------------- ----------- -----
Management
fees $147,747 $(83) $- $147,664
Incentive
income 4,373 - - 4,373
Other
revenues 919 - - 919
Income of
consolidated
Och-Ziff funds - 72 - 72
Total
revenues 153,039 (11) - 153,028
Compensation
and benefits 28,813 - 19,686 (b) (c) 48,499
Allocations
to non-
equity
partner
interests - - (3,039) (d) (3,039)
Reorganization
expenses - - 425,585 (e) 425,585
Profit
sharing - - (305) (f) (305)
Interest
expense 7,118 - - 7,118
General,
administrative
and other 23,345 - 915 (g) 24,260
Expenses of
consolidated
Och-Ziff funds - 146 - 146
Total
expenses 59,276 146 442,842 502,264
Net earnings
(losses) on
deferred
balances and
investments
in Och-Ziff
funds and
joint
ventures - - (19,281) (h) (19,281)
Net gains
(losses) of
consolidated
Och-Ziff funds (569) - (569)
Income taxes - - 14,716 (g) 14,716
Net loss
(income)
allocated to
partners' and
others'
interests in
income of
consolidated
subsidiaries - 726 316,445 (i) 317,171
Net Income
(Loss)
Allocated to
Class A
Shareholders 93,763 - (160,394) (66,631)
OTHER OPERATIONS
----------------
Reconciling Adjustments (1)
---------------------------
Three Months Economic
Ended Income U.S.
September Basis Funds Other GAAP
30, 2008 (Non-GAAP) (3) Consolidation Adjustments Basis
------------ -------------- ------------- ----------- -----
Management
fees $1,312 $- $- $1,312
Incentive
income - - - -
Other
revenues 6 - - 6
Income of
consolidated
Och-Ziff funds - 2,696 - 2,696
Total
revenues 1,318 2,696 - 4,014
Compensation
and benefits 1,015 - 863 (c) 1,878
Allocations
to non-
equity
partner
interests - - - -
Reorganization
expenses - - - -
Profit
sharing - - - -
Interest
expense - - - -
General,
administrative
and other 283 - 189 (g) 472
Expenses of
consolidated
Och-Ziff funds - 897 - 897
Total expenses 1,298 897 1,052 3,247
Net earnings
(losses) on
deferred
balances and
investments
in Och-Ziff
funds and
joint
ventures (1,544) (36) 36 (h) (1,544)
Net gains
(losses) of
consolidated
Och-Ziff funds - 1,859 - 1,859
Income taxes - - 19 (g) 19
Net loss
(income)
allocated to
partners' and
others'
interests in
income of
consolidated
subsidiaries (107) (3,622) (147) (i) (3,876)
Net Income
(Loss)
Allocated to
Class A
Shareholders (1,631) - (1,182) (2,813)
TOTAL COMPANY
-------------
Economic
Income
Basis U.S. GAAP
Three Months Ended September 30, 2008 (Non-GAAP) (3) Basis
------------------------------------- -------------- ---------
Management fees $149,059 $148,976
Incentive income 4,373 4,373
Other revenues 925 925
Income of consolidated Och-Ziff funds - 2,768
Total revenues 154,357 157,042
Compensation and benefits 29,828 50,377
Allocations to non-equity partner
interests - (3,039)
Reorganization expenses - 425,585
Profit sharing - (305)
Interest expense 7,118 7,118
General, administrative and other 23,628 24,732
Expenses of consolidated Och-Ziff funds - 1,043
Total expenses 60,574 505,511
Net earnings (losses) on deferred
balances and investments in Och-Ziff funds
and joint ventures (1,544) (20,825)
Net gains (losses) of consolidated
Och-Ziff funds - 1,290
Income taxes - 14,735
Net loss (income) allocated to partners'
and others' interests in income of
consolidated subsidiaries (107) 313,295
Net Income (Loss) Allocated to
Class A Shareholders 92,132 (69,444)
Adjusted Income Taxes - Non-GAAP (4) (39,452)
-------
Distributable Earnings - Non-GAAP $52,680
=======
Weighted-Average Class A Shares
Outstanding 74,138,572
Weighted-Average Partner Units 311,099,524
Weighted-Average Class A Restricted Share
Units (RSUs) 15,132,928
----------
Weighted-Average Adjusted Class A Shares 400,371,024
===========
Distributable Earnings Per Adjusted
Class A Share - Non-GAAP 0.13
====
(1) See Exhibit 7 for a description of the adjustments made to arrive at
Total Company U.S. GAAP Net Loss.
(2) The Och-Ziff Funds segment is the Company's only reportable segment.
Management uses Economic Income to evaluate the financial performance
of and to make operating decisions for the segment.
(3) Each of the measures below is a non-GAAP financial measure, with the
exception of incentive income, other revenues and net losses on joint
ventures, for which no adjustments to the U.S. GAAP basis have
been made. Management calculates non-GAAP financial measures on an
Economic Income basis for the Company's Other Operations and for the
Company as a whole to assess the financial performance of the
Company's entire business.
(4) Presents an estimate of income tax expense by assuming the conversion
of all outstanding Partner Units into Class A Shares, on a one-to-one
basis. Therefore, all income (loss) of the Och-Ziff Operating Group
allocated to the partners is treated as if it were allocated to Och-
Ziff Capital Management Group LLC.
Exhibit 5
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
Reconciliation of Non-GAAP and Segment Financial Measures to U.S. GAAP
Measures
(dollars in thousands, except per share amount)
OCH-ZIFF FUNDS SEGMENT
----------------------
Reconciling Adjustments (1)
---------------------------
Nine Months
Ended Economic U.S.
September Income Funds Other GAAP
30, 2009 Basis (2) Consolidation Adjustments Basis
------------ --------- ------------- ----------- -----
Management
fees $263,209 $(167) $1,622 (a) $264,664
Incentive
income 3,336 -
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