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Och-Ziff reports a GAAP net loss for second quarter

Thursday, August 02, 2012
Opalesque Industry Update - Och-Ziff Capital Management Group LLC has reported a GAAP Net Loss of $116.2 million, or $0.82 per basic and diluted Class A Share, for the second quarter ended June 30, 2012. The Company also declared a $0.14 per share cash dividend on its Class A Shares for the 2012 second quarter.

Summary Highlights

  • Distributable Earnings of $67.2 million, or $0.15 per Adjusted Class A Share, for the 2012 second quarter, compared to $67.7 million, or $0.16 per Adjusted Class A Share, for the 2011 second quarter.
  • Assets under management of $29.3 billion as of July 1, 2012, compared to $29.5 billion as of April 1, 2012, and $29.3 billion as of July 1, 2011.
  • Estimated assets under management of $30.3 billion as of August 1, 2012, which reflected year-to-date performance-related appreciation of $1.7 billion and capital net outflows of approximately $200 million.
  • Estimated year-to-date net returns through July 31, 2012 of the OZ Master Fund of +5.6%, the OZ Europe Master Fund of +3.9%, the OZ Asia Master Fund of +2.7% and the OZ Global Special Investments Master Fund of +5.3%.

The Company refinanced the remaining indebtedness outstanding under its term loan due in July 2012, as well as the indebtedness outstanding under its aircraft loan due in May 2014, by borrowing $384.5 million under the delayed draw term loan agreement it entered into in November 2011.

In August 2012, the Company adopted a new Partner Incentive Plan. This plan maintains the alignment of interests of participating executive managing directors with those of the Company's fund investors and Class A Shareholders in relation to managing the Company's current business, as well as its future growth and stability.

"During the second quarter, we protected investor capital in the difficult and often volatile market conditions that characterized May and June. We also maintained the strong absolute returns we generated in the first quarter of this year and continued that trend through July," said Daniel S. Och, Chairman and Chief Executive Officer of Och-Ziff. "The re-emergence of difficult market conditions further reinforced the attractiveness of absolute return strategies and the importance of manager selection.

"We continued to have an active dialog with current and prospective fund investors globally. While the broader market and industry backdrop affects the amount and timing of flows, interest in both our hedge funds and dedicated credit platforms remains strong. Despite a more difficult environment for capital flows right now, we remain confident that capital allocations to the hedge fund industry will increase as markets stabilize globally. We believe that as a leading absolute return manager we are well positioned to increase our market share of new flows over time."

GAAP NET LOSS ALLOCATED TO CLASS A SHAREHOLDERS

For the 2012 second quarter, Och-Ziff reported a GAAP Net Loss of $116.2 million, or $0.82 per basic and diluted Class A Share, compared to a GAAP Net Loss of $93.4 million, or $0.96 per basic and diluted Class A Share, for the 2011 second quarter. For the 2012 first half, Och-Ziff reported a GAAP Net Loss of $239.0 million, or $1.69 per basic and diluted Class A Share, compared to a GAAP Net Loss of $188.8 million, or $1.94 per basic and diluted Class A Share, for the 2011 first half.

The year-over-year increases in the GAAP Net Loss were primarily due to an increase in the Company's interest in its principal operating subsidiaries (the "Och-Ziff Operating Group") driven by the public offering of 33.3 million Class A Shares in November 2011, the issuance of Class A Shares related to the vesting of Class A Restricted Share Units ("RSUs") and the exchange of Och-Ziff Operating Group A Units ("Group A Units") for Class A Shares. Because of the increase in the Company's interest in the Och-Ziff Operating Group, a larger portion of the losses of the Och-Ziff Operating Group was allocated to the Company. Partially offsetting the year-over-year increase in the GAAP Net Loss in both periods was higher profitability in the Och-Ziff Operating Group due to lower operating expenses and higher incentive income.

The GAAP Net Loss in the 2012 second quarter and first half primarily resulted from non-cash expenses of $398.4 million and $796.8 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 Group A Units, which represent equity interests in the Och-Ziff Operating Group that were issued to the Company's pre-IPO limited partners in exchange for their pre-IPO interests in those subsidiaries. The Group A Units generally vest annually over five years through November 2012, and therefore the amortization of these expenses is expected to result in a GAAP Net Loss on an annual basis through the end of this year. Once vested, Group A Units may be exchanged on a one-to-one basis for Class A Shares, pursuant to the new transfer restrictions described on page 7 of this press release.

Additionally, the GAAP Net Loss in the 2012 second quarter and first half was driven by non-cash expenses of $16.3 million and $34.1 million, respectively, for the amortization of equity-based compensation. These expenses primarily relate to RSUs granted to employees and executive managing directors, as well as Group A Units granted to executive managing directors subsequent to the IPO. Each RSU represents the right to receive one Class A Share upon vesting.

Press release

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