Och-Ziff Capital Management Group LLC (NYSE: OZM) reported its results and the declaration of a cash dividend on its Class A Shares for the second quarter ended June 30, 2008.
Second Quarter Highlights
-- Distributable Earnings for the Och-Ziff Funds segment of $53.8 million, or $0.13 per Adjusted Class A Share
-- Dividend of $0.11 per Class A Share to be paid on August 12, 2008 to holders of record as of the close of business on July 1, 2008
-- Assets under management of $33.6 billion as of June 30, 2008, essentially unchanged from March 31, 2008, and 16% higher than June 30, 2007
-- Economic Income Revenues for the Och-Ziff Funds segment of $147.1 million, 23% higher than the 2007 second quarter
For the second quarter and first half ended June 30, 2008, Och-Ziff reported a GAAP net loss of $60.8 million or $0.82 per basic and $1.05 per diluted Class A Share, and $328.9 million or $4.44 per basic and diluted Class A Share, respectively. The GAAP net loss in both periods resulted primarily from second quarter and first half non-cash expenses of $425.6 million and $851.2 million, 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 that were awarded 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 from the date of the IPO. Accordingly, amortization of these expenses is expected to result in a GAAP net loss each quarter through 2012. Once vested, the Group A Units may be exchanged on a one-to-one basis for Class A Shares.
Also contributing to the GAAP net loss in the second quarter and first half of 2008 were non-cash expenses of $24.2 million and $50.2 million, respectively, for the amortization of equity-based compensation, primarily related to Class A restricted share units ("RSUs") awarded to all of the Company's employees in connection with the IPO. These RSUs vest annually over four years from the date of the IPO. Once vested, Class A Shares will be issued on a one-to-one basis.
Distributable Earnings for the Och-Ziff Funds segment for the second quarter and first half ended June 30, 2008 was $53.8 million or $0.13 per Adjusted Class A Share, and $104.9 million or $0.26 per Adjusted Class A Share, respectively. Distributable Earnings is a supplemental non-GAAP financial measure that management believes provides a meaningful basis for comparison of the after-tax operating performance of the Och-Ziff Funds segment, which includes substantially all of the Company's business. Additionally, 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 Ziff Brothers Investments with respect to their Group A Units.
Distributable Earnings is equal to the Economic Income of the Och-Ziff Funds segment less adjusted income taxes. These adjusted income taxes are estimated assuming all Group A Units and RSUs were converted on a one-to-one basis into Class A Shares. Distributable Earnings per Share is equal to Distributable Earnings divided by the number of Adjusted Class A Shares. Distributable Earnings should not be considered as an alternative to GAAP net income or cash flow, and is not necessarily indicative of liquidity or the cash available to fund operations. For a reconciliation of the Company's second quarter and first half 2008 Economic Income to Distributable Earnings, please see Exhibit 8 of the financial tables that accompany this press release.
Och-Ziff's assets under management were $33.6 billion as of June 30, 2008, $357 million higher than the $33.3 billion in assets under management as of March 31, 2008, and up 16% from $29.1 billion in assets under management as of June 30, 2007. The $4.5 billion year-over-year increase was driven by net inflows and appreciation, primarily in each of the Company's most significant master funds.
The increase also included the fourth-quarter 2007 reinvestment by the Company's partners and the Ziffs of approximately $1.6 billion in after-tax proceeds from the Company's IPO and concurrent Class A Share sale to Dubai International Capital. These proceeds were principally invested in the OZ Global Special Investments Master Fund. During the 2008 second quarter, performance-related appreciation of $389 million was partially offset by net outflows of $32 million. During the first half of 2008, net inflows were approximately $232 million while the performance-related change to assets under management was not significant. -- Och-Ziff Capital Management Group LLC
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