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Apollo Global Management, LLC Reports Third Quarter 2012 Results

APOLLO GLOBAL MANAGEMENT, LLC

CARRIED INTEREST RECEIVABLE AND CARRIED INTEREST INCOME

(LOSS) SUMMARY (UNAUDITED)

The table below presents an analysis of our (i) carried interest receivable and (ii) realized and unrealized carried interest (loss) income for our combined segments as of and for the three and nine months ended September 30, 2012:

         

As of September 30, 2012

For the Three Months Ended September 30, 2012 For the Nine Months Ended September 30, 2012
Carried Interest Receivable Unrealized Carried Interest Income (Loss)   Realized Carried Interest Income (Loss)   Total Carried Interest Income (Loss)

Unrealized Carried Interest Income (Loss)

 

Realized Carried Interest Income (Loss)

 

Total Carried Interest Income (Loss)

(in millions)
Private Equity Funds:
Fund VII $ 1,007.9 $ 237.2

$

116.4 $ 353.6 $ 539.1 $ 167.6 $ 706.7
Fund VI

 

(26.4

) (2)

 

36.2 9.8

(94.9

) (2) 141.7 46.8
Fund V 125.4 (58.8 ) 33.4 (25.4 ) 0.4 33.4 33.8
Fund IV 12.1 (1.0 ) 0.0

(1.0

) (5.8 ) 0.8 (5.0

)

Other (AAA, Stanhope)   24.0     1.4     2.2   3.6     1.9     10.2   12.1  
Total Private Equity Funds   1,169.4     152.4     188.2   340.6     440.7     353.7   794.4  
 
Credit Funds:
Distressed and Event-Driven Hedge Funds (Value Funds, SOMA, AAOF) 16.9

14.0

(2)

0.6 14.6

18.4

(2)

0.6 19.0
Mezzanine Funds (AIE II, AINV) 15.0 5.4 9.7 15.1 10.3 28.5 38.8
Non-Performing Loan Fund (EPF) 88.1 19.4

 

19.4 34.0

 

34.0
Senior Credit Funds (COF I/COF II, ACLF, AEC, AESI, CLOs) 279.8 99.4 32.8 132.2 189.0 66.1 255.1
Stone Tower Funds/CLOs 39.4 43.6 0.7 44.3 61.7 1.2 62.9
Sub-Advisory Arrangements   12.8     5.2     7.5   12.7     5.2     9.7   14.9  
Total Credit Funds   452.0     187.0     51.3   238.3     318.6     106.1   424.7  
 
Real Estate Funds:
CPI Other   6.5     4.8  

 

  4.8     6.4     4.3   10.7  
Total Real Estate Funds   6.5     4.8  

 

  4.8     6.4     4.3   10.7  
 
Total $

1,627.9

(1)

$ 344.2   $ 239.5 $ 583.7   $ 765.7   $ 464.1 $ 1,229.8  
 
(1)   There was a corresponding profit sharing payable of $825.6 million as of September 30, 2012 that results in a net carried interest receivable amount of $802.3 million as of September 30, 2012. Included within profit sharing payable are contingent consideration obligations of $134.5 million.
(2) See the table below summarizing the fair value gains on investments and income needed to generate carried interest for funds and the related general partner obligation to return previously distributed carried interest income.

The following table summarizes the fair value gains on investments and income to reverse the general partner obligation to return previously distributed carried interest income based on the current fair value of the underlying funds’ investments as of September 30, 2012:

         
Fund

General Partner Obligation (1)

Fair Value of Investments /Net Asset Value as of September 30, 2012

Fair Value Gain on Investments and Income to Reverse General Partner Obligation (2)

(in millions)
Fund VI $ 170.2 $

10,435.5

(3)

$ 394.9
SOMA

 

3.9  

1,016.7

(4)

  3.9
$ 174.1 $ 11,452.2   $ 398.8
 
(1)   Based upon a hypothetical liquidation as of September 30, 2012, Apollo has recorded a general partner obligation to return previously distributed carried interest income, which represents amounts due to this fund. The actual determination and any required payment of a general partner obligation would not take place until the final disposition of the fund’s investments based on contractual termination of the fund.
(2) The fair value gain on investments and income to reverse the general partner obligation is based on the life-to-date activity of the entire fund and assumes a hypothetical liquidation of the fund as of September 30, 2012.
(3) Represents fair value of investments.
(4) Represents net asset value.

APOLLO GLOBAL MANAGEMENT, LLC

SUPPLEMENTAL SHARE INFORMATION (UNAUDITED)

The table below presents Non-GAAP weighted average diluted shares outstanding for the three and nine months ended September 30, 2012 and 2011:

       
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2012   2011 2012   2011
Total GAAP Weighted Average Outstanding Class A Shares:
Basic 128,980,438 122,381,069 126,909,962 113,941,869
Non-GAAP Adjustments:
AOG Units 240,000,000 240,000,000 240,000,000 240,000,000
Vested RSUs (1) 17,966,334 15,651,977 18,623,887 15,347,800
Non-GAAP Weighted Average Diluted Shares Outstanding 386,946,772 378,033,046 385,533,849 369,289,669
 

(1)

 

Vested RSUs have not been issued in the form of Class A shares. As a result, the amount of Vested RSUs has been excluded from the outstanding Class A share basic and diluted amounts.

The table below presents Non-GAAP diluted shares outstanding as of September 30, 2012 and 2011:

     
As of September 30,
2012   2011
Total GAAP Outstanding Class A Shares:
Basic 129,874,286 122,990,227
Non-GAAP Adjustments:
AOG Units 240,000,000 240,000,000
Vested RSUs (1) 18,354,474 16,317,957
Non-GAAP Diluted Shares Outstanding 388,228,760 379,308,184
 

(1)

Vested RSUs have not been issued in the form of Class A shares. As a result, the amount of Vested RSUs has been excluded from the outstanding Class A share basic and diluted amounts.

Note:

 

In addition to fully diluted shares outstanding above, there were approximately 5.3 million and 6.4 million unvested RSUs that participate in distributions as of September 30, 2012 and 2011, respectively.

APOLLO GLOBAL MANAGEMENT, LLC

NON-GAAP FINANCIAL INFORMATION AND DEFINITIONS (UNAUDITED)

Non-GAAP Financial Information

Apollo discloses the following financial measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles in the United States of America (“Non-GAAP”):

  • Economic Net Income, or ENI, as well as ENI after taxes are key performance measures used by management in evaluating the performance of Apollo’s private equity, credit and real estate segments. Management also believes the components of ENI such as the amount of management fees, advisory and transaction fees and carried interest income are indicative of Apollo’s performance. Management uses these performance measures in making key operating decisions such as the following:
    • Decisions related to the allocation of resources such as staffing decisions including hiring and locations for deployment of the new hires;
    • Decisions related to capital deployment such as providing capital to facilitate growth for the business and/or to facilitate expansion into new businesses; and
    • Decisions related to expenses, such as determining annual discretionary bonuses and equity-based compensation awards to its employees. As it relates to compensation, management seeks to align the interests of certain professionals and selected other individuals with those of the investors in such funds and those of the Company’s shareholders by providing such individuals a profit sharing interest in the carried interest income earned in relation to the funds. To achieve that objective, a certain amount of compensation is based on the Company’s performance and growth for the year.

These measures of profitability have certain limitations in that they do not take into account certain items included under U.S. GAAP. ENI represents segment income (loss) attributable to Apollo Global Management, LLC, which excludes the impact of non-cash charges related to RSUs granted in connection with the 2007 private placement and amortization of AOG units, income tax expense, amortization of intangibles associated with the 2007 Reorganization as well as acquisitions and Non-Controlling Interests excluding the remaining interest held by certain individuals who receive an allocation of income from certain of our credit management companies. In addition, segment data excludes the assets, liabilities and operating results of the consolidated funds and VIEs that are included in the consolidated financial statements.

  • ENI After Taxes represents ENI adjusted to reflect Income tax provision on ENI that has been calculated assuming that all income is allocated to Apollo Global Management, LLC, which would occur following an exchange of all AOG units for Class A shares of Apollo Global Management, LLC. The assumptions and methodology impact the implied income tax provision which is consistent with those methodologies and assumptions used in calculating the income tax provision for Apollo’s consolidated statements of operations under U.S. GAAP. We believe this measure is more consistent with how we assess the performance of our segments which is described above in our definition of ENI.
  • ENI After Taxes per Share represents ENI After Taxes which is divided by Non-GAAP Weighted Average Diluted Shares Outstanding. We believe ENI After Taxes per Share provides useful information to shareholders because management uses ENI After Taxes per Share as the basis to derive our earnings available for the determination of distributions to Class A shareholders.
  • Non-GAAP Weighted Average Diluted Shares Outstanding is calculated using the GAAP Weighted Average Outstanding Class A Shares plus Non-GAAP adjustments assuming (i) the exchange of all of the AOG units for 240,000,000 Class A shares and (ii) the settlement of the weighted average vested RSUs in the form of Class A shares during the period. Management uses this measure in determining ENI After Taxes per Share described above.
  • Non-GAAP Diluted Shares Outstanding is calculated using the GAAP Outstanding Class A Shares plus Non-GAAP adjustments assuming (i) the exchange of all of the AOG units for 240,000,000 Class A shares and (ii) the settlement of the vested RSUs in the form of Class A shares during the period. Management uses this measure, taking into account the unvested RSUs that participate in distributions, in determining our Class A shares eligible for cash distributions.

Definitions

  • Assets Under Management, or AUM, refers to the investments we manage or with respect to which we have control, including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of:(i) the fair value of our private equity investments plus the capital that we are entitled to call from our investors pursuant to the terms of their capital commitments plus non-recallable capital to the extent a fund is within the commitment period in which management fees are calculated based on total commitments to the fund;(ii) the net asset value, or “NAV,” of our credit funds, other than certain senior credit funds, which are structured as collateralized loan obligations (such as Artus, which we measure by using the mark-to-market value of the aggregate principal amount of the underlying collateralized loan obligations) or certain collateralized loan obligation and collateralized debt obligation credit funds that have a fee generating basis other than mark-to-market asset, plus used or available leverage and/or capital commitments;(iii) the gross asset values or net asset value of our real estate entities and the structured portfolio vehicle investments included within the funds we manage, which includes the leverage used by such structured portfolio vehicles;(iv) the incremental value associated with the reinsurance investments of the portfolio company assets that we manage; and(v) the fair value of any other investments that we manage plus unused credit facilities, including capital commitments for investments that may require pre-qualification before investment plus any other capital commitments available for investment that are not otherwise included in the clauses above.

Our AUM measure includes Assets Under Management for which we charge either no or nominal fees. Our definition of AUM is not based on any definition of Assets Under Management contained in our operating agreement or in any of our Apollo fund management agreements. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to (1) our ability to influence the investment decisions for existing and available assets; (2) our ability to generate income from the underlying assets in our funds; and (3) the AUM measures that we use internally or believe are used by other investment managers. Given the differences in the investment strategies and structures among other alternative investment managers, our calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers.

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