Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016 OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-35107
APOLLO GLOBAL MANAGEMENT, LLC
(Exact name of Registrant as specified in its charter)
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Delaware | | 20-8880053 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
9 West 57th Street, 43rd Floor
New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 515-3200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | T | | Accelerated filer | | ¨ |
Non-accelerated filer | | o (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No T
As of November 3, 2016 there were 185,479,663 Class A shares and 1 Class B share outstanding.
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| TABLE OF CONTENTS | |
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PART I | FINANCIAL INFORMATION | |
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ITEM 1. | FINANCIAL STATEMENTS | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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PART II | | |
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ITEM 1. | | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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ITEM 5. | | |
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ITEM 6. | | |
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Forward-Looking Statements
This quarterly report may contain forward-looking statements that are within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, discussions related to Apollo’s expectations regarding the performance of its business, liquidity and capital resources and the other non-historical statements in the discussion and analysis. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this quarterly report, the words “believe,” “anticipate,” “estimate,” “expect,” “intend” and similar expressions are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to certain risks, uncertainties and assumptions, including risks relating to our dependence on certain key personnel, our ability to raise new private equity, credit or real estate funds, market conditions generally, our ability to manage our growth, fund performance, changes in our regulatory environment and tax status, the variability of our revenues, net income and cash flow, our use of leverage to finance our businesses and investments by our funds and litigation risks, among others. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on February 29, 2016 (the “2015 Annual Report”); as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this quarterly report and in our other filings. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Terms Used in This Report
In this quarterly report, references to “Apollo,” “we,” “us,” “our” and the “Company” refer collectively to Apollo Global Management, LLC, a Delaware limited liability company, and its subsidiaries, including the Apollo Operating Group and all of its subsidiaries, or as the context may otherwise require;
“AMH” refers to Apollo Management Holdings, L.P., a Delaware limited partnership, that is an indirect subsidiary of Apollo Global Management, LLC;
“Apollo funds”, “our funds” and references to the “funds” we manage, refer to the funds (including the parallel funds and alternative investment vehicles of such funds), partnerships, accounts, including strategic investment accounts or “SIAs,” alternative asset companies and other entities for which subsidiaries of the Apollo Operating Group provide investment management or advisory services;
“Apollo Operating Group” refers to (i) the limited partnerships through which our Managing Partners currently operate our businesses and (ii) one or more limited partnerships formed for the purpose of, among other activities, holding certain of our gains or losses on our principal investments in the funds, which we refer to as our “principal investments”;
“Assets Under Management”, or “AUM”, refers to the assets we manage or advise for the funds, partnerships and accounts to which we provide investment management or advisory services, including, without limitation, capital that such funds, partnerships and accounts have the right to call from investors pursuant to capital commitments. Our AUM equals the sum of:
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(i) | the fair value of the investments of the private equity funds, partnerships and accounts we manage or advise plus the capital that such funds, partnerships and accounts are entitled to call from investors pursuant to capital commitments; |
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(ii) | the net asset value, or “NAV,” of the credit funds, partnerships and accounts for which we provide investment management or advisory services, other than certain collateralized loan obligations (“CLOs”) and collateralized debt obligations (“CDOs”), which have a fee-generating basis other than the mark-to-market value of the underlying assets, plus used or available leverage and/or capital commitments; |
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(iii) | the gross asset value or net asset value of the real estate funds, partnerships and accounts we manage, and the structured portfolio company investments of the funds, partnerships and accounts we manage or advise, which includes the leverage used by such structured portfolio company investments; |
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(iv) | the incremental value associated with the reinsurance investments of the portfolio company assets we manage or advise; and |
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(v) | the fair value of any other assets that we manage or advise for the funds, partnerships and accounts to which we provide investment management or advisory services, plus unused credit facilities, including capital commitments to such funds, partnerships and accounts for investments that may require pre-qualification before investment plus any other capital commitments to such funds, partnerships and accounts 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. In addition our AUM measure includes certain assets for which we do not have investment discretion. 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. Our calculation also differs from the manner in which our related parties registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways;
“Fee-Generating AUM” consists of assets we manage or advise for the funds, partnerships and accounts to which we provide investment management or advisory services and on which we earn management fees, monitoring fees pursuant to management or other fee agreements on a basis that varies among the Apollo funds, partnerships and accounts we manage or advise. Management fees are normally based on “net asset value,” “gross assets,” “adjusted par asset value,” “adjusted cost of all unrealized portfolio investments,” “capital commitments,” “adjusted assets,” “stockholders’ equity,” “invested capital” or “capital contributions,” each as defined in the applicable management agreement. Monitoring fees, also referred to as advisory fees, with respect to the structured portfolio company investments of the funds, partnerships and accounts we manage or advise, are generally based on the total value of such structured portfolio company investments, which normally includes leverage, less any portion of such total value that is already considered in Fee-Generating AUM;
“Non-Fee-Generating AUM” refers to AUM that does not produce management fees or monitoring fees. This measure generally includes the following:
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(i) | fair value above invested capital for those funds that earn management fees based on invested capital; |
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(ii) | net asset values related to general partner and co-investment interests; |
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(iii) | unused credit facilities; |
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(iv) | available commitments on those funds that generate management fees on invested capital; |
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(v) | structured portfolio company investments that do not generate monitoring fees; and |
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(vi) | the difference between gross asset and net asset value for those funds that earn management fees based on net asset value. |
“Carry-Eligible AUM” refers to the AUM that may eventually produce carried interest income. All funds for which we are entitled to receive a carried interest income allocation are included in Carry-Eligible AUM, which consists of the following:
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(i) | “Carry-Generating AUM”, which refers to invested capital of the funds, partnerships and accounts we manage or advise, that is currently above its hurdle rate or preferred return, and profit of such funds, partnerships and accounts is being allocated to the general partner in accordance with the applicable limited partnership agreements or other governing agreements; |
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(ii) | “AUM Not Currently Generating Carry”, which refers to invested capital of the funds, partnerships and accounts we manage or advise that is currently below its hurdle rate or preferred return; and |
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(iii) | “Uninvested Carry-Eligible AUM”, which refers to capital of the funds, partnerships and accounts we manage or advise that is available for investment or reinvestment subject to the provisions of applicable limited partnership agreements or other governing agreements, which capital is not currently part of the NAV or fair value of investments that may eventually produce carried interest income allocable to the general partner. |
“AUM with Future Management Fee Potential” refers to the committed uninvested capital portion of total AUM not
currently earning management fees. The amount depends on the specific terms and conditions of each fund;
We use AUM and capital deployed as a performance measure of our funds’ investment activities, as well as to monitor fund size in relation to professional resource and infrastructure needs. Non-Fee-Generating AUM includes assets on which we could earn carried interest income;
“Advisory” refers to certain assets advised by Apollo Asset Management Europe, LLP (“AAME”), a subsidiary of Apollo;
“capital deployed” or “deployment” is the aggregate amount of capital that has been invested during a given period (which may, in certain cases, include leverage) by (i) our drawdown funds, (ii) SIAs that have a defined maturity date and (iii) funds and SIAs in our real estate debt strategy;
“carried interest”, “carried interest income” and “incentive income” refer to interests granted to Apollo by an Apollo fund that entitle Apollo to receive allocations, distributions or fees which are based on the performance of such fund or its underlying investments;
“Contributing Partners” refer to those of our partners and their related parties (other than our Managing Partners) who indirectly beneficially own (through Holdings) Apollo Operating Group units;
“drawdown” refers to commitment-based funds and certain SIAs in which investors make a commitment to provide capital at the formation of such funds and SIAs and deliver capital when called as investment opportunities become available. It includes assets of Athene Holding Ltd. (“Athene Holding”) and its subsidiaries (collectively “Athene”) managed by Athene Asset Management, L.P. (“Athene Asset Management” or “AAM”) that are invested in commitment-based funds;
“gross IRR” of a private equity fund represents the cumulative investment-related cash flows in the fund itself (and not any one investor in the fund) on the basis of the actual timing of investment inflows and outflows (for unrealized investments assuming disposition on September 30, 2016 or other date specified) aggregated on a gross basis quarterly, and the return is annualized and compounded before management fees, carried interest and certain other fund expenses (including interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors;
“gross IRR” of a credit fund represents the annualized return of a fund based on the actual timing of all cumulative fund cash flows before management fees, carried interest income allocated to the general partner and certain other fund expenses. Calculations may include certain investors that do not pay fees. The terminal value is the net asset value as of the reporting date. Non-U.S. dollar denominated (“USD”) fund cash flows and residual values are converted to USD using the spot rate as of the reporting date;
“gross IRR” of a real estate fund represents the cumulative investment-related cash flows in the fund itself (and not any one investor in the fund), on the basis of the actual timing of cash inflows and outflows (for unrealized investments assuming disposition on September 30, 2016 or other date specified) starting on the date that each investment closes, and the return is annualized and compounded before management fees, carried interest, and certain other fund expenses (including interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date;
“gross return” of a credit or real estate fund is the monthly or quarterly time-weighted return that is equal to the percentage change in the value of a fund’s portfolio, adjusted for all contributions and withdrawals (cash flows) before the effects of management fees, incentive fees allocated to the general partner, or other fees and expenses. Returns of Athene sub-advised portfolios and CLOs represent the gross returns on invested assets, which exclude cash. Returns over multiple periods are calculated by geometrically linking each period’s return over time;
“Holdings” means AP Professional Holdings, L.P., a Cayman Islands exempted limited partnership through which our Managing Partners and Contributing Partners indirectly beneficially own their interests in the Apollo Operating Group units;
“inflows” represents (i) at the individual segment level, subscriptions, commitments, and other increases in available capital, such as acquisitions or leverage, net of inter-segment transfers, and (ii) on an aggregate basis, the sum of inflows across the private equity, credit and real estate segments;
“liquid/performing” includes CLOs and other performing credit vehicles, hedge fund style credit funds, structured credit funds and SIAs, as well as sub-advised managed accounts owned by or related to Athene. Certain commitment-based SIAs are included as the underlying assets are liquid;
“Managing Partners” refer to Messrs. Leon Black, Joshua Harris and Marc Rowan collectively and, when used in reference to holdings of interests in Apollo or Holdings, includes certain related parties of such individuals;
“net IRR” of a private equity fund means the gross IRR, including returns for related parties which may not pay fees or carried interest, net of management fees, certain fund expenses (including interest incurred by the fund itself) and realized carried interest all offset to the extent of interest income, and measures returns on amounts that, if distributed, would be paid to investors of the fund. To the extent that an Apollo private equity fund exceeds all requirements detailed within the applicable fund agreement, the estimated unrealized value is adjusted such that a percentage of up to 20.0% of the unrealized gain is allocated to the general partner of the fund, thereby reducing the balance attributable to fund investors. Net IRR does not represent the return to any fund investor;
“net IRR” of a credit fund represents the annualized return of a fund after management fees, carried interest income allocated to the general partner and certain other fund expenses, calculated on investors that pay such fees. The terminal value is the net asset value as of the reporting date. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date;
“net IRR” of a real estate fund represents the cumulative cash flows in the fund (and not any one investor in the fund), on the basis of the actual timing of cash inflows received from and outflows paid to investors of the fund (assuming the ending net asset value as of September 30, 2016 or other date specified is paid to investors), excluding certain non-fee and non-carry bearing parties, and the return is annualized and compounded after management fees, carried interest, and certain other expenses (including interest incurred by the fund itself) and measures the returns to investors of the fund as a whole. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date;
“net return” of a credit or real estate fund represents the gross return after management fees, incentive fees allocated to the general partner, or other fees and expenses. Returns of Athene sub-advised portfolios and CLOs represent the gross or net returns on invested assets, which exclude cash. Returns over multiple periods are calculated by geometrically linking each period’s return over time;
“our manager” means AGM Management, LLC, a Delaware limited liability company that is controlled by our Managing Partners;
“permanent capital vehicles” refers to (a) assets that are owned by or related to Athene, (b) assets that are owned by or related to MidCap FinCo Limited (“MidCap”) and managed by Apollo Capital Management, L.P., (c) assets of publicly traded vehicles managed by Apollo such as Apollo Investment Corporation (“AINV”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Apollo Tactical Income Fund Inc. (“AIF”), and Apollo Senior Floating Rate Fund Inc. (“AFT”), in each case that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law and (d) a non-traded business development company sub-advised by Apollo. The investment management arrangements of AINV, AIF and AFT have one year terms, are reviewed annually and remain in effect only if approved by the boards of directors of such companies or by the affirmative vote of the holders of a majority of the outstanding voting shares of such companies, including in either case, approval by a majority of the directors who are not “interested persons” as defined in the Investment Company Act of 1940. In addition, the investment management arrangements of AINV, AIF and AFT may be terminated in certain circumstances upon 60 days’ written notice. The investment management arrangement of ARI has a one year term and is reviewed annually by ARI’s board of directors and may be terminated under certain circumstances by an affirmative vote of at least two-thirds of ARI’s independent directors. The investment management arrangements between MidCap and Apollo Capital Management, L.P. and Athene and Athene Asset Management, may also be terminated under certain circumstances;
“private equity fund appreciation (depreciation)” refers to gain (loss) and income for the traditional private equity funds (as defined below), Apollo Natural Resources Partners, L.P. (“ANRP I”), Apollo Natural Resources Partners II, L.P. (“ANRP II”), Apollo Special Situations Fund, L.P. and AION Capital Partners Limited (“AION”) for the periods presented on a total return basis before giving effect to fees and expenses. The performance percentage is determined by dividing (a) the change in the fair value of investments over the period presented, minus the change in invested capital over the period presented, plus the realized value for the period presented, by (b) the beginning unrealized value for the period presented plus the change in invested capital for the period presented. Returns over multiple periods are calculated by geometrically linking each period’s return over time;
“private equity investments” refer to (i) direct or indirect investments in existing and future private equity funds managed or sponsored by Apollo, (ii) direct or indirect co-investments with existing and future private equity funds managed or sponsored by Apollo, (iii) direct or indirect investments in securities which are not immediately capable of resale in a public market that Apollo identifies but does not pursue through its private equity funds, and (iv) investments of the type described in (i) through (iii) above made by Apollo funds;
“Realized Value” refers to all cash investment proceeds received by the relevant Apollo fund, including interest and dividends, but does not give effect to management fees, expenses, incentive compensation or carried interest to be paid by such Apollo fund;
“Remaining Cost” represents the initial investment of the general partner and limited partner investors in a fund, reduced for any return of capital distributed to date, excluding management fees, expenses, and any accrued preferred return;
“Strategic Investors” refer to the California Public Employees’ Retirement System, or “CalPERS,” and an affiliate of the Abu Dhabi Investment Authority, or “ADIA”;
“Total Invested Capital” refers to the aggregate cash invested by the relevant Apollo fund and includes capitalized costs relating to investment activities, if any, but does not give effect to cash pending investment or available for reserves;
“Total Value” represents the sum of the total Realized Value and Unrealized Value of investments;
“traditional private equity funds” refers to Apollo Investment Fund I, L.P. (“Fund I”), AIF II, L.P. (“Fund II”), a mirrored investment account established to mirror Fund I and Fund II for investments in debt securities (“MIA”), Apollo Investment Fund III, L.P. (together with its parallel funds, “Fund III”), Apollo Investment Fund IV, L.P. (together with its parallel funds, “Fund IV”), Apollo Investment Fund V, L.P. (together with its parallel funds, “Fund V”), Apollo Investment Fund VI, L.P. (together with its parallel funds, “Fund VI”), Apollo Investment Fund VII, L.P. (together with its parallel funds, “Fund VII”) and Apollo Investment Fund VIII, L.P. (together with its parallel funds, “Fund VIII”);
“Unrealized Value” refers to the fair value consistent with valuations determined in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), for investments not yet realized and may include pay in kind, accrued interest and dividends receivable, if any. In addition, amounts include committed and funded amounts for certain investments; and
“Vintage Year” refers to the year in which a fund’s final capital raise has occurred.
APOLLO GLOBAL MANAGEMENT, LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AS OF SEPTEMBER 30, 2016 AND DECEMBER 31, 2015
(dollars in thousands, except share data) |
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| As of
September 30, 2016 | | As of
December 31, 2015 |
Assets: | | | |
Cash and cash equivalents | $ | 926,932 |
| | $ | 612,505 |
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Cash and cash equivalents held at consolidated funds | 6,014 |
| | 4,817 |
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Restricted cash | 4,776 |
| | 5,700 |
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Investments | 1,390,998 |
| | 1,154,749 |
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Assets of consolidated variable interest entities: | | | |
Cash and cash equivalents | 53,489 |
| | 56,793 |
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Investments, at fair value | 946,534 |
| | 910,566 |
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Other assets | 49,733 |
| | 63,413 |
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Carried interest receivable | 991,815 |
| | 643,907 |
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Due from related parties | 297,719 |
| | 247,835 |
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Deferred tax assets | 596,228 |
| | 646,207 |
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Other assets | 112,432 |
| | 95,844 |
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Goodwill | 88,852 |
| | 88,852 |
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Intangible assets, net | 24,693 |
| | 28,620 |
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Total Assets | $ | 5,490,215 |
| | $ | 4,559,808 |
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Liabilities and Shareholders’ Equity | | | |
Liabilities: | | | |
Accounts payable and accrued expenses | $ | 116,277 |
| | $ | 92,012 |
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Accrued compensation and benefits | 122,143 |
| | 54,836 |
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Deferred revenue | 204,516 |
| | 177,875 |
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Due to related parties | 661,515 |
| | 594,536 |
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Profit sharing payable | 466,055 |
| | 295,674 |
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Debt | 1,355,994 |
| | 1,025,255 |
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Liabilities of consolidated variable interest entities: | | | |
Debt, at fair value | 838,704 |
| | 801,270 |
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Other liabilities | 54,801 |
| | 85,982 |
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Other liabilities | 59,345 |
| | 43,387 |
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Total Liabilities | 3,879,350 |
| | 3,170,827 |
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Commitments and Contingencies (see note 13) |
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Shareholders’ Equity: | | | |
Apollo Global Management, LLC shareholders’ equity: | | | |
Class A shares, no par value, unlimited shares authorized, 184,743,799 and 181,078,937 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | — |
| | — |
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Class B shares, no par value, unlimited shares authorized, 1 share issued and outstanding at September 30, 2016 and December 31, 2015 | — |
| | — |
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Additional paid in capital | 1,876,342 |
| | 2,005,509 |
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Accumulated deficit | (1,147,798 | ) | | (1,348,384 | ) |
Accumulated other comprehensive loss | (5,450 | ) | | (7,620 | ) |
Total Apollo Global Management, LLC shareholders’ equity | 723,094 |
| | 649,505 |
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Non-Controlling Interests in consolidated entities | 94,500 |
| | 86,561 |
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Non-Controlling Interests in Apollo Operating Group | 793,271 |
| | 652,915 |
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Total Shareholders’ Equity | 1,610,865 |
| | 1,388,981 |
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Total Liabilities and Shareholders’ Equity | $ | 5,490,215 |
| | $ | 4,559,808 |
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See accompanying notes to condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars in thousands, except share data)
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| For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Revenues: | | | | | | | |
Advisory and transaction fees from related parties, net | $ | 29,801 |
| | $ | 9,276 |
| | $ | 102,699 |
| | $ | 34,269 |
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Management fees from related parties | 274,313 |
| | 238,563 |
| | 775,171 |
| | 694,036 |
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Carried interest income (loss) from related parties | 199,617 |
| | (54,571 | ) | | 407,134 |
| | 119,714 |
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Total Revenues | 503,731 |
| | 193,268 |
| | 1,285,004 |
| | 848,019 |
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Expenses: | | | | | | | |
Compensation and benefits: | | | | | | | |
Salary, bonus and benefits | 92,591 |
| | 93,514 |
| | 290,013 |
| | 270,017 |
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Equity-based compensation | 26,163 |
| | 31,404 |
| | 74,203 |
| | 73,786 |
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Profit sharing expense | 90,152 |
| | (20,329 | ) | | 179,767 |
| | 89,935 |
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Total Compensation and Benefits | 208,906 |
| | 104,589 |
| | 543,983 |
| | 433,738 |
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Interest expense | 12,832 |
| | 7,529 |
| | 30,505 |
| | 22,454 |
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General, administrative and other | 32,403 |
| | 21,645 |
| | 92,970 |
| | 65,972 |
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Professional fees | 11,816 |
| | 17,218 |
| | 50,955 |
| | 51,907 |
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Occupancy | 9,701 |
| | 10,137 |
| | 29,221 |
| | 30,226 |
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Placement fees | 1,953 |
| | 2,617 |
| | 5,781 |
| | 5,802 |
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Depreciation and amortization | 4,646 |
| | 11,176 |
| | 14,139 |
| | 33,347 |
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Total Expenses | 282,257 |
| | 174,911 |
| | 767,554 |
| | 643,446 |
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Other Income: | | | | | | | |
Net gains from investment activities | 17,746 |
| | 80,950 |
| | 50,287 |
| | 107,492 |
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Net gains from investment activities of consolidated variable interest entities | 800 |
| | 911 |
| | 2,817 |
| | 8,039 |
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Income from equity method investments | 23,213 |
| | 2,021 |
| | 64,356 |
| | 18,079 |
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Interest income | 1,192 |
| | 818 |
| | 3,073 |
| | 2,403 |
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Other income (loss), net | (40 | ) | | 93 |
| | 485 |
| | 6,742 |
|
Total Other Income | 42,911 |
| | 84,793 |
| | 121,018 |
| | 142,755 |
|
Income before income tax provision | 264,385 |
| | 103,150 |
| | 638,468 |
| | 347,328 |
|
Income tax provision | (29,667 | ) | | (6,591 | ) | | (62,508 | ) | | (21,197 | ) |
Net Income | 234,718 |
| | 96,559 |
| | 575,960 |
| | 326,131 |
|
Net income attributable to Non-Controlling Interests | (140,099 | ) | | (55,508 | ) | | (340,077 | ) | | (197,725 | ) |
Net Income Attributable to Apollo Global Management, LLC | $ | 94,619 |
| | $ | 41,051 |
| | $ | 235,883 |
| | $ | 128,406 |
|
Distributions Declared per Class A Share | $ | 0.37 |
| | $ | 0.42 |
| | $ | 0.90 |
| | $ | 1.61 |
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Net Income Per Class A Share: | | | | | | | |
Net Income Available to Class A Share – Basic | $ | 0.50 |
| | $ | 0.20 |
| | $ | 1.24 |
| | $ | 0.60 |
|
Net Income Available to Class A Share – Diluted | $ | 0.50 |
| | $ | 0.20 |
| | $ | 1.24 |
| | $ | 0.60 |
|
Weighted Average Number of Class A Shares Outstanding – Basic | 184,438,515 |
| | 176,169,986 |
| | 183,602,982 |
| | 170,879,302 |
|
Weighted Average Number of Class A Shares Outstanding – Diluted | 184,438,515 |
| | 176,169,986 |
| | 183,602,982 |
| | 170,879,302 |
|
See accompanying notes to condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Net Income | $ | 234,718 |
| | $ | 96,559 |
| | $ | 575,960 |
| | $ | 326,131 |
|
Other Comprehensive Income, net of tax: | | | | | | | |
Allocation of currency translation adjustment of consolidated CLOs and funds (net of taxes of $0.1 million and $0.1 million for Apollo Global Management, LLC for the three months ended September 30, 2016 and 2015, respectively, and $0.3 million and $0.7 million for Apollo Global Management, LLC for the nine months ended September 30, 2016 and 2015, respectively, and $0.0 million for Non-Controlling Interests in Apollo Operating Group for the three and nine months ended September 30, 2016 and 2015) | 1,144 |
| | 386 |
| | 3,103 |
| | (10,505 | ) |
Net gain from change in fair value of cash flow hedge instruments | 26 |
| | 26 |
| | 79 |
| | 78 |
|
Net income (loss) on available-for-sale securities | 900 |
| | (572 | ) | | 450 |
| | (786 | ) |
Total Other Comprehensive Income (Loss), net of tax | 2,070 |
| | (160 | ) | | 3,632 |
| | (11,213 | ) |
Comprehensive Income | 236,788 |
| | 96,399 |
| | 579,592 |
| | 314,918 |
|
Comprehensive Income attributable to Non-Controlling Interests | (140,644 | ) | | (58,241 | ) | | (341,539 | ) | | (192,153 | ) |
Comprehensive Income Attributable to Apollo Global Management, LLC | $ | 96,144 |
| | $ | 38,158 |
| | $ | 238,053 |
| | $ | 122,765 |
|
See accompanying notes to condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Apollo Global Management, LLC Shareholders | | | | | | | | |
| Class A Shares | | Class B Shares | | Additional Paid in Capital | | Accumulated Deficit | | Appropriated Partners’ Capital | | Accumulated Other Comprehensive Loss | | Total Apollo Global Management, LLC Shareholders’ Equity | | Non- Controlling Interests in Consolidated Entities | | Non- Controlling Interests in Apollo Operating Group | | Total Shareholders’ Equity |
Balance at January 1, 2015 | 163,046,554 |
| | 1 |
| | $ | 2,254,283 |
| | $ | (1,400,661 | ) | | $ | 933,166 |
| | $ | (306 | ) | | $ | 1,786,482 |
| | $ | 3,222,195 |
| | $ | 934,784 |
| | $ | 5,943,461 |
|
Cumulative effect adjustment from adoption of accounting guidance | — |
| | — |
| | 1,771 |
| | (3,350 | ) | | (933,166 | ) | | — |
| | (934,745 | ) | | (3,134,518 | ) | | — |
| | (4,069,263 | ) |
Dilution impact of issuance of Class A shares | — |
| | — |
| | 1,862 |
| | — |
| | — |
| | — |
| | 1,862 |
| | — |
| | — |
| | 1,862 |
|
Capital increase related to equity-based compensation | — |
| | — |
| | 49,952 |
| | — |
| | — |
| | — |
| | 49,952 |
| | — |
| | — |
| | 49,952 |
|
Capital contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,671 |
| | — |
| | 5,671 |
|
Distributions | — |
| | — |
| | (301,368 | ) | | — |
| | — |
| | — |
| | (301,368 | ) | | (16,163 | ) | | (377,663 | ) | | (695,194 | ) |
Payments related to deliveries of Class A shares for RSUs and restricted shares | 9,478,427 |
| | — |
| | 4,921 |
| | (53,019 | ) | | — |
| | — |
| | (48,098 | ) | | — |
| | — |
| | (48,098 | ) |
Exchange of AOG Units for Class A shares | 6,483,121 |
| | — |
| | 39,260 |
| | — |
| | — |
| | — |
| | 39,260 |
| | — |
| | (23,146 | ) | | 16,114 |
|
Net income | — |
| | — |
| | — |
| | 128,406 |
| | — |
| | — |
| | 128,406 |
| | 11,218 |
| | 186,507 |
| | 326,131 |
|
Allocation of currency translation adjustment of consolidated CLOs and fund entities | — |
| | — |
| | — |
| | — |
| | — |
| | (4,889 | ) | | (4,889 | ) | | (5,616 | ) | | — |
| | (10,505 | ) |
Net gain from change in fair value of cash flow hedge instruments | — |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | 34 |
| | — |
| | 44 |
| | 78 |
|
Net loss on available-for-sale securities | — |
| | — |
| | — |
| | — |
| | — |
| | (786 | ) | | (786 | ) | | — |
| | — |
| | (786 | ) |
Balance at September 30, 2015 | 179,008,102 |
| | 1 |
| | $ | 2,050,681 |
| | $ | (1,328,624 | ) | | $ | — |
| | $ | (5,947 | ) | | $ | 716,110 |
| | $ | 82,787 |
| | $ | 720,526 |
| | $ | 1,519,423 |
|
Balance at January 1, 2016 | 181,078,937 |
| | 1 |
| | $ | 2,005,509 |
| | $ | (1,348,384 | ) | | $ | — |
| | $ | (7,620 | ) | | $ | 649,505 |
| | $ | 86,561 |
| | $ | 652,915 |
| | $ | 1,388,981 |
|
Dilution impact of issuance of Class A shares | — |
| | — |
| | 340 |
| | — |
| | — |
| | — |
| | 340 |
| | — |
| | — |
| | 340 |
|
Capital increase related to equity-based compensation | — |
| | — |
| | 53,910 |
| | — |
| | — |
| | — |
| | 53,910 |
| | — |
| | — |
| | 53,910 |
|
Capital contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12,933 |
| | — |
| | 12,933 |
|
Distributions | — |
| | — |
| | (172,095 | ) | | — |
| | — |
| | — |
| | (172,095 | ) | | (10,555 | ) | | (194,371 | ) | | (377,021 | ) |
Payments related to deliveries of Class A shares for RSUs and restricted shares | 4,245,086 |
| | — |
| | 41 |
| | (35,297 | ) | | — |
| | — |
| | (35,256 | ) | | — |
| | — |
| | (35,256 | ) |
Repurchase of Class A shares | (954,447 | ) | | — |
| | (12,902 | ) | | — |
| | — |
| | — |
| | (12,902 | ) | | — |
| | — |
| | (12,902 | ) |
Exchange of AOG Units for Class A shares | 374,223 |
| | — |
| | 1,539 |
| | — |
| | — |
| | — |
| | 1,539 |
| | — |
| | (1,251 | ) | | 288 |
|
Net income | — |
| | — |
| | — |
| | 235,883 |
| | — |
| | — |
| | 235,883 |
| | 3,891 |
| | 336,186 |
| | 575,960 |
|
Allocation of currency translation adjustment of consolidated CLOs and fund entities | — |
| | — |
| | — |
| | — |
| | — |
| | 1,683 |
| | 1,683 |
| | 1,670 |
| | (250 | ) | | 3,103 |
|
Net gain from change in fair value of cash flow hedge instruments | — |
| | — |
| | — |
| | — |
| | — |
| | 37 |
| | 37 |
| | — |
| | 42 |
| | 79 |
|
Net income on available-for-sale securities | — |
| | — |
| | — |
| | — |
| | — |
| | 450 |
| | 450 |
| | — |
| | — |
| | 450 |
|
Balance at September 30, 2016 | 184,743,799 |
| | 1 |
| | $ | 1,876,342 |
| | $ | (1,147,798 | ) | | $ | — |
| | $ | (5,450 | ) | | $ | 723,094 |
| | $ | 94,500 |
| | $ | 793,271 |
| | $ | 1,610,865 |
|
See accompanying notes to condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars in thousands, except share data)
|
| | | | | | | |
| For the Nine Months Ended September 30, |
| 2016 | | 2015 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 575,960 |
| | $ | 326,131 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Equity-based compensation | 74,203 |
| | 73,786 |
|
Depreciation and amortization | 14,139 |
| | 33,347 |
|
Unrealized gains from investment activities | (50,084 | ) | | (108,252 | ) |
Cash distributions of earnings from equity method investments | 17,079 |
| | 24,617 |
|
Satisfaction of contingent obligations | (10,096 | ) | | — |
|
Income from equity method investments | (64,356 | ) | | (18,079 | ) |
Deferred taxes, net | 52,184 |
| | 17,277 |
|
Other non-cash amounts included in net income, net | 970 |
| | (44,379 | ) |
Changes in assets and liabilities: | | | |
Carried interest receivable | (348,815 | ) | | 258,317 |
|
Due from related parties | (49,863 | ) | | (18,481 | ) |
Accounts payable and accrued expenses | 24,306 |
| | 15,506 |
|
Accrued compensation and benefits | 65,602 |
| | 71,790 |
|
Deferred revenue | 29,168 |
| | 4,092 |
|
Due to related parties | 68,726 |
| | (9,285 | ) |
Profit sharing payable | 168,741 |
| | (53,671 | ) |
Other assets and other liabilities, net | (8,082 | ) | | (7,786 | ) |
Apollo Fund and VIE related: | | | |
Net realized and unrealized (gains) losses from investing activities and debt | 621 |
| | (11,517 | ) |
Change in cash held at consolidated variable interest entities | 4,139 |
| | 284,890 |
|
Purchases of investments | (396,810 | ) | | (388,616 | ) |
Proceeds from sale of investments | 422,922 |
| | 264,522 |
|
Changes in other assets and other liabilities, net | (17,483 | ) | | (148,449 | ) |
Net Cash Provided by Operating Activities | $ | 573,171 |
| | $ | 565,760 |
|
Cash Flows from Investing Activities: | | | |
Purchases of fixed assets | $ | (4,921 | ) | | $ | (5,015 | ) |
Purchase of investments | (44,530 | ) | | (25,000 | ) |
Cash contributions to equity method investments | (188,572 | ) | | (136,421 | ) |
Cash distributions from equity method investments | 68,685 |
| | 38,855 |
|
Issuance of related party loans | (3,906 | ) | | (25,016 | ) |
Other investing activities | 919 |
| | 2,182 |
|
Net Cash Used in Investing Activities | $ | (172,325 | ) | | $ | (150,415 | ) |
Cash Flows from Financing Activities: | | | |
Principal repayments of debt | $ | (200,000 | ) | | $ | — |
|
Issuance of debt | 532,706 |
| | — |
|
Satisfaction of tax receivable agreement | — |
| | (48,420 | ) |
Purchase of Class A shares | (13,003 | ) | | (3,050 | ) |
Payments related to deliveries of Class A shares for RSUs | (35,297 | ) | | (53,019 | ) |
Distributions paid | (172,095 | ) | | (275,850 | ) |
Distributions paid to Non-Controlling Interests in Apollo Operating Group | (194,371 | ) | | (377,663 | ) |
Other financing activities | (11,926 | ) | | (21,968 | ) |
Apollo Fund and VIE related: | | | |
Distributions paid to Non-Controlling Interests in consolidated variable interest entities | (4,133 | ) | | (6,794 | ) |
Contributions from Non-Controlling Interests in consolidated variable interest entities | 12,897 |
| | 5,524 |
|
Net Cash Used in Financing Activities | $ | (85,222 | ) | | $ | (781,240 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | 315,624 |
| | (365,895 | ) |
Cash and Cash Equivalents, Beginning of Period | 617,322 |
| | 1,205,663 |
|
Cash and Cash Equivalents, End of Period | $ | 932,946 |
| | $ | 839,768 |
|
Supplemental Disclosure of Cash Flow Information: | | | |
Interest paid | $ | 20,045 |
| | $ | 19,189 |
|
Interest paid by consolidated variable interest entities | 13,911 |
| | 15,007 |
|
Income taxes paid | 5,806 |
| | 6,354 |
|
Supplemental Disclosure of Non-Cash Investing Activities: | | | |
Non-cash contributions to equity method investments | $ | 1,231 |
| | $ | 35,074 |
|
Non-cash distributions from equity method investments | (4,496 | ) | | (5,909 | ) |
Supplemental Disclosure of Non-Cash Financing Activities: | | | |
Declared and unpaid distributions | $ | — |
| | $ | (25,518 | ) |
Capital increases related to equity-based compensation | 53,910 |
| | 49,952 |
|
Other non-cash financing activities | 364 |
| | 1,832 |
|
Adjustments related to exchange of Apollo Operating Group units: | | | |
Deferred tax assets | $ | 1,807 |
| | $ | 60,648 |
|
Due to related parties | (1,519 | ) | | (44,534 | ) |
Additional paid in capital | (288 | ) | | (16,114 | ) |
Non-Controlling Interest in Apollo Operating Group | 1,251 |
| | 23,146 |
|
Net Assets Deconsolidated from Consolidated Variable Interest Entities and Funds: | | | |
Cash and cash equivalents | $ | — |
| | $ | 760,491 |
|
Investments, at fair value | — |
| | 16,930,227 |
|
Other Assets | — |
| | 280,428 |
|
Debt, at fair value | — |
| | (13,229,570 | ) |
Other liabilities | — |
| | (529,080 | ) |
Non-Controlling interest in consolidated entities | — |
| | (3,134,518 | ) |
Appropriated Partners' Capital | — |
| | (929,708 | ) |
See accompanying notes to condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
1. ORGANIZATION
Apollo Global Management, LLC (“AGM”, together with its consolidated subsidiaries, the “Company” or “Apollo”) is a global alternative investment manager whose predecessor was founded in 1990. Its primary business is to raise, invest and manage private equity, credit and real estate funds as well as strategic investment accounts, on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. For these investment management services, Apollo receives management fees generally related to the amount of assets managed, transaction and advisory fees and carried interest income related to the performance of the respective funds that it manages. Apollo has three primary business segments:
| |
• | Private equity—primarily invests in control equity and related debt instruments, convertible securities and distressed debt investments; |
| |
• | Credit—primarily invests in non-control corporate and structured debt instruments including performing, stressed and distressed investments across the capital structure; and |
| |
• | Real estate—primarily invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities. |
Organization of the Company
The Company was formed as a Delaware limited liability company on July 3, 2007 and completed a reorganization of its predecessor businesses on July 13, 2007 (the “2007 Reorganization”). The Company is managed and operated by its manager, AGM Management, LLC, which in turn is indirectly wholly-owned and controlled by Leon Black, Joshua Harris and Marc Rowan, our Managing Partners.
As of September 30, 2016, the Company owned, through five intermediate holding companies that include APO Corp., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, APO Asset Co., LLC, a Delaware limited liability company that is a disregarded entity for U.S. federal income tax purposes, APO (FC), LLC, an Anguilla limited liability company that is treated as a corporation for U.S. federal income tax purposes, APO (FC II), LLC, an Anguilla limited liability company that is treated as a corporation for U.S. federal income tax purposes and APO UK (FC), Limited, a United Kingdom incorporated company that is treated as a corporation for U.S. federal income tax purposes (collectively, the “Intermediate Holding Companies”), 46.1% of the economic interests of, and operated and controlled all of the businesses and affairs of, the Apollo Operating Group through its wholly-owned subsidiaries.
AP Professional Holdings, L.P., a Cayman Islands exempted limited partnership (“Holdings”), is the entity through which the Managing Partners and certain of the Company’s other partners (the “Contributing Partners”) indirectly beneficially own interests in each of the partnerships that comprise the Apollo Operating Group (“AOG Units”). As of September 30, 2016, Holdings owned the remaining 53.9% of the economic interests in the Apollo Operating Group. The Company consolidates the financial results of the Apollo Operating Group and its consolidated subsidiaries. Holdings’ ownership interest in the Apollo Operating Group is reflected as a Non-Controlling Interest in the accompanying condensed consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements and these notes are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting only of normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The condensed consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries, the consolidated entities which are considered to be variable interest entities (“VIEs”) and for which the Company is considered the primary beneficiary, and certain entities which are not considered VIEs but which the Company controls through a majority voting interest. Intercompany accounts and transactions, if any, have been eliminated upon consolidation. These condensed consolidated financial statements should be read in conjunction
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
with the consolidated financial statements of the Company for the year ended December 31, 2015 included in the 2015 Annual Report.
Certain reclassifications, when applicable, have been made to the prior period’s condensed consolidated financial statements and notes to conform to the current period’s presentation and are disclosed accordingly.
Principles of Consolidation—The types of entities with which Apollo is involved generally include subsidiaries (e.g., general partners and management companies related to the funds the Company manages), entities that have all the attributes of an investment company (e.g., funds) and securitization vehicles (e.g., collateralized loan obligations). Each of these entities is assessed for consolidation on a case by case basis depending on the specific facts and circumstances surrounding that entity.
In February 2015, the Financial Accounting Standards Board (“FASB”) issued new consolidation guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. During the second quarter of 2015, the Company elected to adopt this new guidance using the modified retrospective method, which resulted in an effective date of adoption of January 1, 2015. Restatement of prior period results is not required. Amounts presented for the three and nine months ended September 30, 2015 in the condensed consolidated statements of operations reflect the adoption of this accounting guidance as of January 1, 2015.
Pursuant to the new consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. Fees that are customary and commensurate with the level of services provided, and where the Company doesn’t hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. Apollo factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest. As Apollo’s interests in many of these entities are solely through market rate performance fees and/or insignificant indirect interests through related parties, Apollo is not considered to have a variable interest in many of these entities under the new guidance and no further consolidation analysis is performed. For entities where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a variable interest entity (“VIE”).
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of Apollo’s funds may qualify as VIEs under the variable interest model whereas others may qualify as voting interest entities (“VOE”s) under the voting interest model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated.
Under the voting interest model, Apollo consolidates those entities it controls through a majority voting interest. Apollo does not consolidate those VOEs in which substantive kick-out rights have been granted to the unrelated investors to either dissolve the fund or remove the general partner.
Under the variable interest model, Apollo consolidates those entities where it is determined that the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. When Apollo alone is not considered to have a controlling financial interest in the VIE but Apollo and its related parties under common control in the aggregate have a controlling financial interest in the VIE, Apollo will still be deemed the primary beneficiary if it is the party that is most closely associated with the VIE. When Apollo and its related parties not under common control in the aggregate have a controlling financial interest in the VIE then Apollo would be deemed to be the primary beneficiary if substantially all the activities of the entity are performed on behalf of Apollo.
Apollo determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. Investments and redemptions (either by Apollo, related parties of Apollo or third parties) or amendments to the governing documents of the respective entity may affect an entity’s status as a VIE or the determination of the primary beneficiary.
Assets and liabilities of the consolidated VIEs are primarily shown in separate sections within the condensed consolidated statements of financial condition as of September 30, 2016 and December 31, 2015. For additional disclosures regarding VIEs, see note 4.
Deferred Revenue—Apollo earns management fees subject to the Management Fee Offset. When advisory and transaction fees are earned by the management company, the Management Fee Offset reduces the management fee obligation of
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
the fund. When the management company receives cash for advisory and transaction fees, a certain percentage of such advisory and/or transaction fees, as applicable, is allocated as a credit to reduce future management fees, otherwise payable by such fund. Such credit is classified as deferred revenue in the condensed consolidated statements of financial condition. A portion of any excess advisory and transaction fees may be required to be returned to the limited partners of certain funds upon such fund’s liquidation. As the management fees earned by the management company are presented on a gross basis, any Management Fee Offsets calculated are presented as a reduction to advisory and transaction fees from related parties in the condensed consolidated statements of operations.
Additionally, Apollo earns advisory fees pursuant to the terms of the advisory agreements with certain of the portfolio companies that are owned by the funds. When Apollo receives a payment from a portfolio company that exceeds the advisory fees earned at that point in time, the excess payment is classified as deferred revenue in the condensed consolidated statements of financial condition. The advisory agreements with the portfolio companies vary in duration and the associated fees are received monthly, quarterly or annually. Deferred revenue is reversed and recognized as revenue over the period that the agreed upon services are performed.
Under the terms of the funds’ partnership agreements, Apollo is normally required to bear organizational expenses over a set dollar amount and placement fees or costs in connection with the offering and sale of interests in the funds to investors. The placement fees are payable to placement agents, who are independent third parties that assist in identifying potential investors, securing commitments to invest from such potential investors, preparing or revising offering and marketing materials, developing strategies for attempting to secure investments by potential investors and/or providing feedback and insight regarding issues and concerns of potential investors, when a limited partner either commits or funds a commitment to a fund. In certain instances the placement fees are paid over a period of time. Based on the management agreements with the funds, Apollo considers placement fees and organizational costs paid in determining if cash has been received in excess of the management fees earned. Placement fees and organizational costs are normally the obligation of Apollo but can be paid for by the funds. When these costs are paid by the fund, the resulting obligations are included within deferred revenue. The deferred revenue balance will also be reduced during future periods when management fees are earned but not paid.
Investments, at Fair Value—The Company follows U.S. GAAP attributable to fair value measurements which, among other things, requires enhanced disclosures about investments that are measured and reported at fair value. Investments, at fair value represent investments of the consolidated funds, investments of the consolidated VIEs and certain financial instruments for which the fair value option has been elected. The unrealized gains and losses resulting from changes in the fair value are reflected as net gains (losses) from investment activities and net gains (losses) from investment activities of the consolidated VIEs in the condensed consolidated statements of operations. In accordance with U.S. GAAP, investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level I—Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed derivatives. As required by U.S. GAAP, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and the sale of such position would likely deviate from the quoted price.
Level II—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives where the fair value is based on observable inputs. These investments exhibit higher levels of liquid market observability as compared to Level III investments. The Company subjects broker quotes to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level II investment. These criteria include, but are not limited to, the number and quality of broker quotes, the standard deviation of obtained broker quotes, and the percentage deviation from independent pricing services.
Level III—Pricing inputs are unobservable for the investment and includes situations where there is little observable market activity for the investment. The inputs into the determination of fair value may require significant management judgment or estimation. Investments that are included in this category generally include general and limited partner interests in corporate private equity and real estate funds, opportunistic credit funds, distressed debt and non-investment grade residual interests in securitizations
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
and CDOs and CLOs where the fair value is based on observable inputs as well as unobservable inputs. When a security is valued based on broker quotes, the Company subjects those quotes to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level II or Level III investment. These criteria include, but are not limited to, the number and quality of the broker quotes, the standard deviations of the observed broker quotes, and the percentage deviation from independent pricing services.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment when the fair value is based on unobservable inputs.
In cases where an investment or financial instrument that is measured and reported at fair value is transferred between levels of the fair value hierarchy, the Company accounts for the transfer as of the end of the reporting period.
On a quarterly basis, Apollo utilizes valuation committees consisting of members from senior management, to review and approve the valuation results related to the investments of the funds it manages. For certain publicly traded vehicles, a review is performed by an independent board of directors. The Company also retains independent valuation firms to provide third-party valuation consulting services to Apollo, which consist of certain limited procedures that management identifies and requests them to perform. The limited procedures provided by the independent valuation firms assist management with validating their valuation results or determining fair value. The Company performs various back-testing procedures to validate their valuation approaches, including comparisons between expected and observed outcomes, forecast evaluations and variance analyses. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Derivatives—The Company recognizes derivatives as assets or liabilities on its condensed consolidated statements of financial condition at fair value. On the date the Company enters into a derivative contract, it designates and documents the derivative contract as one of the following: (a) a hedge of a recognized asset or liability (“fair value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (c) a hedge of a net investment in a foreign operation (“net investment hedge”) or (d) a derivative instrument not designated as a hedging instrument (“freestanding derivative”). The Company did not have any freestanding derivatives or derivatives designated as fair value or cash flow hedges as of September 30, 2016 or December 31, 2015. In May 2014, the Company entered into a treasury rate lock agreement (“rate lock”) to mitigate the risk of changes in the treasury rate ahead of the final pricing of the 2024 Senior Notes. The rate lock was designated as a cash flow hedge at inception. The Company settled the rate lock in connection with the issuance of the 2024 Senior Notes in May 2014. The Company incurred a $1.0 million loss on settlement of the rate lock during the three months ended June 30, 2014 that is being reclassified out of other comprehensive income into interest expense over the term of the 2024 Senior Notes. For net investment hedges, the Company records changes in the fair value of the derivative in the cumulative translation adjustment section of other comprehensive income to the extent it is effective as a hedge. The fair values of the derivative instruments are reflected in other assets and other liabilities on the condensed consolidated statements of financial condition.
The Company formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Company’s method for evaluating effectiveness of its hedged transactions. At least quarterly, the Company also formally assesses whether the derivatives it designated in each hedging relationship are expected to be, and have been, highly effective in offsetting changes in estimated fair values of the hedged items. The ineffective portion of a net investment hedge, if any, is recognized in current period earnings.
The Company has elected to not offset derivative assets and liabilities or financial assets in its condensed consolidated statements of financial condition, even when an enforceable master netting agreement is in place that provides the Company the right to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative assets and liabilities with the same counterparty.
Equity Method Investments—For investments in entities over which the Company exercises significant influence but which do not meet the requirements for consolidation and for which the Company has not elected the fair value option, the Company uses the equity method of accounting, whereby the Company records its share of the underlying income or loss of such entities. The carrying amounts of equity method investments are reflected in investments in the condensed consolidated statements of
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
financial condition. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value.
Private Equity Investments
The value of liquid investments in Apollo’s private equity funds, where the primary market is an exchange (whether foreign or domestic) is determined using period end market prices. Such prices are generally based on the close price on the date of determination.
Valuation approaches used to estimate the fair value of investments in Apollo’s private equity funds that are less liquid include the market approach and the income approach. The market approach provides an indication of fair value based on a comparison of the subject company to comparable publicly traded companies and transactions in the industry. The market approach is driven more by current market conditions, including actual trading levels of similar companies and, to the extent available, actual transaction data of similar companies. Judgment is required by management when assessing which companies are similar to the subject company being valued. Consideration may also be given to such factors as the Company’s historical and projected financial data, valuations given to comparable companies, the size and scope of the Company’s operations, the Company’s strengths, weaknesses, expectations relating to the market’s receptivity to an offering of the Company’s securities, applicable restrictions on transfer, industry and market information and assumptions, general economic and market conditions and other factors deemed relevant. The income approach provides an indication of fair value based on the present value of cash flows that a business or security is expected to generate in the future. The most widely used methodology in the income approach is a discounted cash flow method. Inherent in the discounted cash flow method are assumptions of expected results and a calculated discount rate.
Credit Investments
The majority of investments in Apollo’s credit funds are valued based on quoted market prices and valuation models. Quoted market prices are valued based on the average of the “bid” and the “ask” quotes provided by multiple brokers wherever possible without any adjustments. Apollo will designate certain brokers to use to value specific securities. In order to determine the designated brokers, Apollo considers the following: (i) brokers with which Apollo has previously transacted, (ii) the underwriter of the security and (iii) active brokers indicating executable quotes. In addition, when valuing a security based on broker quotes wherever possible Apollo tests the standard deviation amongst the quotes received and the variance between the concluded fair value and the value provided by a pricing service. When broker quotes are not available Apollo considers the use of pricing service quotes or other sources to mark a position. When relying on a pricing service as a primary source, Apollo (i) analyzes how the price has moved over the measurement period, (ii) reviews the number of brokers included in the pricing service’s population and (iii) validates the valuation levels with Apollo’s pricing team and traders.
Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value utilizing a model based approach to determine fair value. When determining fair value when no observable market value exists, the value attributed to an investment is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation approaches used to estimate the fair value of illiquid credit investments also may include the market approach and the income approach, as previously described above. The valuation approaches used consider, as applicable, market risks, credit risks, counterparty risks and foreign currency risks.
The credit funds also enter into foreign currency exchange contracts, total return swap contracts, credit default swap contracts, and other derivative contracts, which may include options, caps, collars and floors. Foreign currency exchange contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. If securities are held at the end of this period, the changes in value are recorded in income as unrealized. Realized gains or losses are recognized when contracts are settled. Total return swap and credit default swap contracts are recorded at fair value as an asset or liability with changes in fair value recorded as unrealized appreciation or depreciation. Realized gains or losses are recognized at the termination of the contract based on the difference between the close-out price of the total return or credit default swap contract and the original contract price. Forward contracts are valued based on market rates obtained from counterparties or prices obtained from recognized financial data service providers.
Real Estate Investments
The estimated fair value of commercial mortgage-backed securities (“CMBS”) in Apollo’s real estate funds is determined by reference to market prices provided by certain dealers who make a market in these financial instruments. Broker
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
quotes are only indicative of fair value and may not necessarily represent what the funds would receive in an actual trade for the applicable instrument. Additionally, the loans held-for-investment are stated at the principal amount outstanding, net of deferred loan fees and costs for certain investments. The Company evaluates its loans for possible impairment on a quarterly basis. For Apollo’s real estate funds, valuations of non-marketable underlying investments are determined using methods that include, but are not limited to (i) discounted cash flow estimates or comparable analysis prepared internally, (ii) third party appraisals or valuations by qualified real estate appraisers and (iii) contractual sales value of investments/properties subject to bona fide purchase contracts. Methods (i) and (ii) also incorporate consideration of the use of the income, cost, or sales comparison approaches of estimating property values.
Fair Value of Financial Instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
Except for the Company’s debt obligations (as described in note 9), Apollo’s financial instruments are recorded at fair value or at amounts whose carrying values approximate fair value. See “Investments, at Fair Value” above. While Apollo’s valuations of portfolio investments are based on assumptions that Apollo believes are reasonable under the circumstances, the actual realized gains or losses will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may ultimately differ significantly from the assumptions on which the valuations were based. Financial instruments’ carrying values generally approximate fair value because of the short-term nature of those instruments or variable interest rates related to the borrowings.
Fair Value Option—Apollo has elected the fair value option for the Company’s investment in Athene Holding, assets and liabilities of the consolidated VIEs and the Company’s investments in certain CLOs. Such election is irrevocable and is applied to financial instruments on an individual basis at initial recognition. Apollo has applied the fair value option for certain corporate loans, other investments and debt obligations held by the consolidated VIEs that otherwise would not have been carried at fair value. See notes 3, 4, and 5 for further disclosure on the investments in Athene Holding and financial instruments of the consolidated VIEs for which the fair value option has been elected.
Financial Instruments held by Consolidated VIEs
The Company elected the fair value option for the assets and liabilities of the consolidated CLOs.
During the second quarter of 2015, the Company adopted the measurement alternative included in the collateralized financing entity (“CFE”) guidance using a modified retrospective approach by recording a cumulative-effect adjustment to shareholders’ equity as of January 1, 2015. Restatement of prior period results is not required. Amounts presented for the three and nine months ended September 30, 2015 in the condensed consolidated statements of operations reflect the adoption of this accounting guidance as of January 1, 2015. The Company measures both the financial assets and financial liabilities of the consolidated CLOs in its condensed consolidated financial statements using the fair value of the financial assets of the consolidated CLOs, which are more observable than the fair value of the financial liabilities of the consolidated CLOs. As a result, the financial assets of the consolidated CLOs are measured at fair value and the financial liabilities are measured in consolidation as: (i) the sum of the fair value of the financial assets and the carrying value of any non-financial assets that are incidental to the operations of the CLOs less (ii) the sum of the fair value of any beneficial interests retained by the reporting entity (other than those that represent compensation for services) and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interest retained by the Company) using a reasonable and consistent methodology. Under the measurement alternative, the Company’s condensed consolidated net income reflects the Company’s own economic interests in the consolidated CLOs including (i) changes in the fair value of the beneficial interests retained by the Company and (ii) beneficial interests that represent compensation for collateral management services.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The consolidated VIEs hold investments that could be traded over-the-counter. Investments in securities that are traded on a securities exchange or comparable over-the-counter quotation systems are valued based on the last reported sale price at that date. If no sales of such investments are reported on such date, and in the case of over-the-counter securities or other investments for which the last sale date is not available, valuations are based on independent market quotations obtained from market participants, recognized pricing services or other sources deemed relevant, and the prices are based on the average of the “bid” and “ask” prices, or at ascertainable prices at the close of business on such day. Market quotations are generally based on valuation pricing models or market transactions of similar securities adjusted for security-specific factors such as relative capital structure priority and interest and yield risks, among other factors. When market quotations are not available, a model based approach is used to determine fair value.
The consolidated VIEs also have debt obligations that are recorded at fair value. As previously noted, the Company measures the debt obligations of the consolidated CLOs on the basis of the fair value of the financial assets of the consolidated CLOs.
Revenues
Advisory and Transaction Fees from Related Parties, Net—Advisory and transaction fees, including directors’ fees, are recognized when the underlying services rendered are substantially completed in accordance with the terms of the transaction and advisory agreements. Additionally, during the normal course of business, the Company incurs certain costs related to certain transactions that are not consummated (“broken deal costs”). These costs (e.g., research costs, due diligence costs, professional fees, legal fees and other related items) are determined to be broken deal costs upon management’s decision to no longer pursue the transaction. In accordance with the related fund agreement, in the event the deal is deemed broken, all of the costs are reimbursed by the funds and then included as a component of the calculation of the Management Fee Offset (described below). If a deal is successfully completed, Apollo is reimbursed by the fund or fund’s portfolio company for all costs incurred and no offset is generated. As the Company acts as an agent for the funds it manages, any transaction costs incurred and paid by the Company on behalf of the respective funds relating to successful or broken deals are presented net on the Company’s condensed consolidated statements of operations, and any receivable from the respective funds is presented in due from related parties on the condensed consolidated statements of financial condition.
Advisory and transaction fees from related parties, net, also includes underwriting fees. Underwriting fees include gains, losses and fees, net of syndicate expenses, arising from securities offerings in which one of the Company’s subsidiaries participates in the underwriter syndicate. Underwriting fees are recognized at the time the underwriting is completed and the income is reasonably assured and are included in the condensed consolidated statements of operations. Underwriting fees recognized but not received are included in other assets on the condensed consolidated statements of financial condition.
As a result of providing advisory services to certain private equity and credit portfolio companies, Apollo is generally entitled to receive fees for transactions related to the acquisition, in certain cases, and disposition of portfolio companies as well as ongoing monitoring of portfolio company operations and directors’ fees. The amounts due from portfolio companies are included in due from related parties, which is discussed further in note 12. Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of applicable broken deal costs (“Management Fee Offset”). Advisory and transaction fees from related parties are presented net of the Management Fee Offset in the condensed consolidated statements of operations.
Management Fees from Related Parties—Management fees for private equity, credit, and real estate funds are recognized in the period during which the related services are performed in accordance with the contractual terms of the related agreement, and are generally based upon (1) a percentage of the capital committed during the commitment period, and thereafter based on the remaining invested capital of unrealized investments, or (2) net asset value, gross assets or as otherwise defined in the respective agreements. Included in management fees are certain expense reimbursements where the Company is considered the principal under the agreements and is required to record the expense and related reimbursement revenue on a gross basis.
Carried Interest Income (Loss) from Related Parties—Apollo is entitled to an incentive return that can normally amount to as much as 20% of the total returns on a fund’s capital, depending upon performance. Performance-based fees are assessed as a percentage of the investment performance of the funds. The carried interest income from related parties for any period is based upon an assumed liquidation of the fund’s net assets on the reporting date, and distribution of the net proceeds in accordance with the fund’s income allocation provisions. Carried interest receivable is presented separately in the condensed consolidated statements of financial condition. The carried interest income from related parties may be subject to reversal to the extent that the carried interest income recorded exceeds the amount due to the general partner based on a fund’s cumulative investment returns.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
When applicable, the accrual for potential repayment of previously received carried interest income, which is a component of due to related parties, represents all amounts previously distributed to the general partner that would need to be repaid to the Apollo funds if these funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual general partner obligation, however, would not become payable or realized until the end of a fund’s life.
Compensation and Benefits
Equity-Based Compensation—Equity-based awards granted to employees as compensation are measured based on the grant date fair value of the award. Equity-based awards that do not require future service (i.e., vested awards) are expensed immediately. Equity-based employee awards that require future service are expensed over the relevant service period. The Company estimates forfeitures for equity-based awards that are not expected to vest. Equity-based awards granted to non-employees for services provided to related parties are remeasured to fair value at the end of each reporting period and expensed over the relevant service period.
Salaries, Bonus and Benefits—Salaries, bonus and benefits include base salaries, discretionary and non-discretionary bonuses, severance and employee benefits. Bonuses are generally accrued over the related service period.
The Company sponsors a 401(k) savings plan whereby U.S.-based employees are entitled to participate in the plan based upon satisfying certain eligibility requirements. The Company may provide discretionary contributions from time to time. No contributions relating to this plan were made by the Company for the three and nine months ended September 30, 2016 and 2015.
Profit Sharing Expense—Profit sharing expense primarily consists of a portion of carried interest recognized in one or more funds allocated to employees, former employees and Contributing Partners. Profit sharing expense is recognized on an accrued basis as the related carried interest income is earned. Profit sharing expense can be reversed during periods when there is a decline in carried interest income that was previously recognized. Additionally, profit sharing amounts previously distributed may be subject to clawback from employees, former employees and Contributing Partners. When applicable, the accrual for potential clawback of previously distributed profit sharing amounts, which is a component of due from related parties on the condensed consolidated statements of financial condition, represents all amounts previously distributed to employees, former employees and Contributing Partners that would need to be returned to the general partner if the Apollo funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual general partner receivable, however, would not become realized until the end of a fund’s life.
Changes in the fair value of the contingent consideration obligations that were recognized in connection with certain Apollo acquisitions are reflected in the Company’s condensed consolidated statements of operations as profit sharing expense.
The Company has a performance based incentive arrangement for certain Apollo partners and employees designed to more closely align compensation on an annual basis with the overall realized performance of the Company. This arrangement enables certain partners and employees to earn discretionary compensation based on carried interest realizations earned by the Company in a given year, which amounts are reflected in profit sharing expense in the accompanying condensed consolidated financial statements.
Other Income (Loss)
Net Gains (Losses) from Investment Activities—Net gains (losses) from investment activities include both realized gains and losses and the change in unrealized gains and losses in the Company’s investments, at fair value between the opening reporting date and the closing reporting date.
Net Gains (Losses) from Investment Activities of Consolidated Variable Interest Entities—Changes in the fair value of the consolidated VIEs’ assets and liabilities and related interest, dividend and other income and expenses are presented within net gains (losses) from investment activities of consolidated variable interest entities and are attributable to Non-Controlling Interests in the condensed consolidated statements of operations.
Income from Equity Method Investments—Income from equity method investments includes the Company’s share of net income generated from its investments in the private equity, credit and real estate funds it manages, which are not consolidated, but in which the Company exerts significant influence.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Other Income (Loss), Net—Other income (loss), net includes the recognition of gains (losses) arising from the remeasurement of foreign currency denominated assets and liabilities, reversal of a portion of the tax receivable agreement liability (see note 12), gains arising from extinguishment of contingent consideration obligations and other miscellaneous non-operating income and expenses.
Non-Controlling Interests—For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than Apollo. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included in Non-Controlling Interests in the condensed consolidated financial statements. The Non-Controlling Interests relating to Apollo Global Management, LLC primarily include the ownership interest in the Apollo Operating Group held by the Managing Partners and Contributing Partners through their limited partner interests in Holdings and other ownership interests in consolidated entities. Non-Controlling Interests also include limited partner interests of Apollo managed funds in certain consolidated VIEs.
Non-Controlling Interests are presented as a separate component of shareholders’ equity on the Company’s condensed consolidated statements of financial condition. The primary components of Non-Controlling Interests are separately presented in the Company’s condensed consolidated statements of changes in shareholders’ equity to clearly distinguish the interest in the Apollo Operating Group and other ownership interests in the consolidated entities. Net income (loss) includes the net income (loss) attributable to the holders of Non-Controlling Interests on the Company’s condensed consolidated statements of operations. Profits and losses are allocated to Non-Controlling Interests in proportion to their relative ownership interests regardless of their basis.
Net Income (Loss) Per Class A Share—As Apollo has issued participating securities, U.S. GAAP requires use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for distributions declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for distributions declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity. Participating securities include vested and unvested restricted share units (“RSUs”) that participate in distributions, as well as unvested restricted shares.
Whether during a period of net income or net loss, under the two-class method the remaining earnings are allocated to Class A shares and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Earnings or losses allocated to each class of security are then divided by the applicable weighted average outstanding shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding Class A shares and includes the number of additional Class A shares that would have been outstanding if the dilutive potential Class A shares had been issued. The numerator is adjusted for any changes in income or loss that would result from the issuance of these potential Class A shares.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Apollo’s most significant estimates include goodwill, intangible assets, income taxes, carried interest income from related parties, contingent consideration obligations related to acquisitions, non-cash compensation, and fair value of investments and debt. Actual results could differ materially from those estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance to establish a comprehensive and converged standard on revenue recognition to enable financial statement users to better understand and consistently analyze an entity’s revenue across industries, transactions, and geographies. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As such, this new guidance could impact the timing of revenue recognition. The new guidance also requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance will apply to all entities. In August 2015, the FASB issued its final standard formally amending the effective date of the new revenue recognition guidance. The amended guidance defers the effective date
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
of the new guidance to interim reporting periods within annual reporting periods beginning after December 15, 2017. Entities are permitted to apply the new guidance early, but not before the original effective date (i.e., interim periods within annual periods beginning after December 15, 2016). The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements, including the timing of the recognition of carried interest income.
In August 2014, the FASB issued guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance requires that management evaluate each annual and interim reporting period whether conditions exist that give rise to substantial doubt about the entity’s ability to continue as a going concern within one year from the financial statement issuance date, and if so, provide related disclosures. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. The new guidance applies to all companies. The guidance is effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. This guidance is not expected to have an impact on the condensed consolidated financial statements of the Company.
In May 2015, the FASB issued guidance to eliminate diversity in practice related to how certain investments measured at net asset value are categorized within the fair value hierarchy. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. Pursuant to the guidance, a reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity’s financial statements. The Company adopted the guidance for the quarter ended March 31, 2016 and applied the guidance retrospectively. Adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements. See note 5 for further disclosure related to the adoption of this guidance.
In January 2016, the FASB issued guidance that revises the accounting related to the classification and measurement of investments in equity securities as well as the presentation for certain fair value changes in financial liabilities measured at fair value, and amends certain disclosure requirements. The guidance requires that all equity investments, except those accounted for under the equity method of accounting or those resulting in the consolidation of the investee, be accounted for at fair value with all fair value changes recognized in income. For financial liabilities measured using the fair value option, the guidance requires that any change in fair value caused by a change in instrument-specific credit risk be presented separately in other comprehensive income until the liability is settled or reaches maturity. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted for certain provisions. A reporting entity would generally record a cumulative-effect adjustment to beginning retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
In February 2016, the FASB issued guidance that amends the accounting for leases. The amended guidance requires recognition of a lease asset and a lease liability by lessees for leases classified as operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from existing guidance and accounting applied by a lessor is largely unchanged from existing guidance. The amended guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018. Early application is permitted for all entities. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
In March 2016, the FASB issued guidance that amends the principal versus agent considerations for reporting revenue gross versus net. The amended guidance affects entities that enter into contracts with customers to transfer goods or services in exchange for consideration. Under the amended guidance, when another party is involved in providing goods or services to a customer, an entity must determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The amended guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. The amended guidance affects the guidance in the new revenue standard issued in May 2014, which is not yet effective. The effective date and transition requirements for the amended guidance are the same as the effective date and transition requirements for the new revenue standard. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
In March 2016, the FASB issued guidance that amends the accounting for employee share-based payment awards. The amended guidance affects all entities that issue share-based payment awards to their employees. The amended guidance affects several aspects of accounting for share-based payment transactions including: (1) accounting for income taxes: all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the statements of operations, (2) classification of excess tax benefits on the statements of cash flows: excess tax benefits should be classified along with other income tax cash flows as an operating activity, (3) forfeitures: an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur, (4) minimum statutory tax withholding requirements: the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; and (5) classification of employee taxes paid on the statements of cash flows when an employer withholds shares for tax-withholding purposes: cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. The amended guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
In August 2016, the FASB issued guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investments. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
In October 2016, the FASB issued guidance that amends the consolidation guidance issued in February 2015. Under the amended guidance a decision maker will need to consider only its proportionate indirect interest in a VIE that is held through a related party under common control. Under the originally issued guidance, a decision maker treats the interest of the related party under common control in the VIE as if the decision maker held the interest itself. The amended guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early adoption is permitted for all entities. The Company is in the process of evaluating the impact that this guidance will have on its condensed consolidated financial statements.
3. INVESTMENTS
The following table represents Apollo’s investments:
|
| | | | | | | |
| As of
September 30, 2016 | | As of
December 31, 2015 |
Investments, at fair value | $ | 619,684 |
| | $ | 539,080 |
|
Equity method investments | 771,314 |
| | 615,669 |
|
Total Investments | $ | 1,390,998 |
| | $ | 1,154,749 |
|
Investments, at Fair Value
Investments, at fair value, consist of investments for which the fair value option has been elected and include the Company’s investment in Athene Holding, investments held by the Company’s consolidated funds, investments in debt of unconsolidated CLOs, and other investments held by the Company. See note 5 for further discussion regarding investments, at fair value.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
Net Gains from Investment Activities
The following table presents the realized and net change in unrealized gains on investments, at fair value for the three and nine months ended September 30, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Realized gains on sales of investments | $ | 472 |
| | $ | 33 |
| | $ | 375 |
| | $ | 187 |
|
Net change in unrealized gains due to changes in fair value(1) | 17,274 |
| | 80,917 |
| | 49,912 |
| | 107,305 |
|
Net gains from investment activities | $ | 17,746 |
| | $ | 80,950 |
| | $ | 50,287 |
| | $ | 107,492 |
|
| |
(1) | Primarily relates to the Company’s investment in Athene Holding. See note 5 for further information regarding the Company’s investment in Athene Holding. |
Equity Method Investments
Apollo’s equity method investments include its investments in Apollo private equity, credit and real estate funds, which are not consolidated, but in which the Company exerts significant influence. Apollo’s share of net income generated by these investments is recorded within income from equity method investments in the condensed consolidated statements of operations.
Equity method investments, excluding those for which the fair value option was elected, as of September 30, 2016 and December 31, 2015 consisted of the following:
|
| | | | | | | |
| Equity Held as of |
| September 30, 2016(5) | | December 31, 2015(5) |
Private Equity(1)(2) | $ | 410,018 |
| | $ | 273,074 |
|
Credit(1)(3) | 330,529 |
| | 313,116 |
|
Real Estate | 30,767 |
| | 29,479 |
|
Total equity method investments(4) | $ | 771,314 |
| | $ | 615,669 |
|
| |
(1) | As of September 30, 2016, equity method investments include Fund VIII (Private Equity) and MidCap (Credit) of $242.8 million and $81.0 million, respectively, representing an ownership percentage of 2.2% and 4.7%, respectively. As of December 31, 2015, equity method investments include Fund VIII (Private Equity) and MidCap (Credit) of $116.4 million and $79.3 million, respectively, representing an ownership percentage of 2.2% and 4.9%, respectively. |
| |
(2) | The value of the Company’s investment in AP Alternative Assets, L.P. (“AAA”) was $52,687 and $57,159 based on the quoted market price as of September 30, 2016 and December 31, 2015, respectively. |
| |
(3) | The value of the Company’s investment in AINV was $51,534 and $41,833 based on the quoted market price as of September 30, 2016 and December 31, 2015, respectively. |
| |
(4) | Certain funds invest across multiple segments. The presentation in the table above is based on the classification of the majority of such funds’ investments. |
| |
(5) | Some amounts are included a quarter in arrears. |
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
As of September 30, 2016 and for the nine months ended September 30, 2016, no equity method investment held by Apollo met the significance criteria as defined by the SEC. The following tables present summarized financial information of Athene Holding, for which the fair value option was elected, for the three and nine months ended September 30, 2016 and 2015. Although the disclosure is not required by the significance criteria for the quarter ended September 30, 2016, for consistency purposes the Company chose to include this information as it was included in its quarterly report on Form 10-Q for the quarter ended June 30, 2016.
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2016(1) | | 2015(1) | | 2016(1) | | 2015(1) |
| in millions |
Statements of Operations | | | | | | | |
Revenues | $ | 1,047 |
| | $ | 544 |
| | $ | 2,818 |
| | $ | 2,554 |
|
Expenses | 839 |
| | 413 |
| | 2,309 |
| | 1,981 |
|
Income before income tax provision | 208 |
| | 131 |
| | 509 |
| | 573 |
|
Income tax provision (benefit) | 16 |
| | 27 |
| | (29 | ) | | 62 |
|
Net income | 192 |
| | 104 |
| | 538 |
| | 511 |
|
Net income attributable to Non-Controlling Interests | — |
| | — |
| | — |
| | (46 | ) |
Net income available to Athene common shareholders | $ | 192 |
| | $ | 104 |
| | $ | 538 |
| | $ | 465 |
|
| |
(1) | The financial statement information for the three and nine months ended September 30, 2016 and 2015 is presented a quarter in arrears and is comprised of the financial information for the three and nine months ended June 30, 2016 and 2015, which represents the latest available financial information as of the date of this report. |
4. VARIABLE INTEREST ENTITIES
As described in note 2, the Company consolidates entities that are VIEs for which the Company has been designated as the primary beneficiary. There is no recourse to the Company for the consolidated VIEs’ liabilities.
Consolidated Variable Interest Entities
Apollo has consolidated VIEs in accordance with the policy described in note 2. Through its role as investment manager of these VIEs, the Company determined that Apollo has the power to direct the activities that most significantly impact the economic performance of these VIEs. Additionally, Apollo determined that its interests, both directly and indirectly from these VIEs, represent rights to returns that could potentially be significant to such VIEs. As a result, Apollo determined that it is the primary beneficiary and therefore should consolidate the VIEs.
Consolidated CLOs
Certain CLOs are consolidated by Apollo as the Company is considered to hold a controlling financial interest through direct and indirect interests in these CLOs exclusive of management and performance based fees received. Through its role as collateral manager of these VIEs, the Company determined that Apollo has the power to direct the activities that most significantly impact the economic performance of these VIEs. These CLOs were formed for the sole purpose of issuing collateralized notes to investors. The assets of these VIEs are primarily comprised of senior secured loans and the liabilities are primarily comprised of debt.
The assets of these consolidated CLOs are not available to creditors of the Company. In addition, the investors in these consolidated CLOs have no recourse against the assets of the Company. The Company measures both the financial assets and the financial liabilities of the CLOs using the fair value of the financial assets as further described in note 2. The Company has elected the fair value option for financial instruments held by its consolidated CLOs, which includes investments in loans and corporate bonds, as well as debt obligations and contingent obligations held by such consolidated CLOs. Other assets include amounts due from brokers and interest receivables. Other liabilities include payables for securities purchased, which represent open trades within the consolidated VIEs and primarily relate to corporate loans that are expected to settle within the next 60 days. From time to time, Apollo makes investments in certain consolidated CLOs denominated in foreign currencies. As of September 30, 2016
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
and December 31, 2015, the Company held an investment of $44.2 million and $42.3 million, respectively, in consolidated foreign currency denominated CLOs, which eliminates in consolidation.
Net Gains from Investment Activities of Consolidated Variable Interest Entities
The following table presents net gains from investment activities of the consolidated VIEs for the three and nine months ended September 30, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Net gains (losses) from investment activities | $ | 9,466 |
| | $ | (1,558 | ) | | $ | 7,341 |
| | $ | 8,516 |
|
Net gains (losses) from debt | (7,745 | ) | | 9,727 |
| | (9,182 | ) | | 2,798 |
|
Interest and other income | 11,404 |
| | 9,994 |
| | 34,913 |
| | 28,042 |
|
Interest and other expenses | (12,325 | ) | | (17,252 | ) | | (30,255 | ) | | (31,317 | ) |
Net gains from investment activities of consolidated variable interest entities | $ | 800 |
| | $ | 911 |
| | $ | 2,817 |
| | $ | 8,039 |
|
Senior Secured Notes and Subordinated Notes—Included within debt are amounts due to third-party institutions by the consolidated VIEs. The following table summarizes the principal provisions of the debt of the consolidated VIEs as of September 30, 2016 and December 31, 2015:
|
| | | | | | | | | | | | | | | | | |
| As of September 30, 2016 | | As of December 31, 2015 |
| Principal Outstanding | | Weighted Average Interest Rate | | Weighted Average Remaining Maturity in Years | | Principal Outstanding | | Weighted Average Interest Rate | | Weighted Average Remaining Maturity in Years |
Senior Secured Notes(2)(3) | $ | 761,340 |
| | 1.91 | % | | 11.3 | | $ | 735,792 |
| | 2.17 | % | | 12.1 |
Subordinated Notes(2)(3) | 85,225 |
| | N/A |
| (1) | 14.4 | | 82,365 |
| | N/A |
| (1) | 15.1 |
Total | $ | 846,565 |
| | | | | | $ | 818,157 |
| | | | |
| |
(1) | The subordinated notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the VIEs. |
| |
(2) | The fair value of Senior Secured Notes and Subordinated Notes as of September 30, 2016 and December 31, 2015 was $838.7 million and $801.3 million, respectively. |
| |
(3) | The debt at fair value of the consolidated VIEs is collateralized by assets of the consolidated VIEs and assets of one vehicle may not be used to satisfy the liabilities of another vehicle. As of September 30, 2016 and December 31, 2015, the fair value of the consolidated VIE assets was $1,049.8 million and $1,030.8 million, respectively. This collateral consisted of cash and cash equivalents, investments, at fair value, and other assets. |
The consolidated VIEs’ debt obligations contain various customary loan covenants as described above. As of September 30, 2016, the Company was not aware of any instances of non-compliance with any of these covenants.
Variable Interest Entities Which are Not Consolidated
The Company holds variable interests in certain VIEs which are not consolidated, as it has been determined that Apollo is not the primary beneficiary.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following tables present the carrying amounts of the assets and liabilities of the VIEs for which Apollo has concluded that it holds a significant variable interest, but that it is not the primary beneficiary as of September 30, 2016 and December 31, 2015. In addition, the tables present the maximum exposure to losses relating to these VIEs.
|
| | | | | | | | | | | | |
| As of September 30, 2016 |
| Total Assets | | Total Liabilities | | Apollo Exposure | |
Total | $ | 6,960,498 |
| (1) | $ | 2,764,793 |
| (2) | $ | 262,352 |
| (3) |
| |
(1) | Consists of $327.9 million in cash, $6,609.0 million in investments and $23.5 million in receivables. |
| |
(2) | Represents $2,764.8 million in debt and other payables. |
| |
(3) | Represents Apollo’s direct investment in those entities in which Apollo holds a significant variable interest and certain other investments. Additionally, cumulative carried interest income is subject to reversal in the event of future losses. The maximum amount of future reversal of carried interest income from all of Apollo’s funds, including those entities in which Apollo holds a significant variable interest, was $2.7 billion as of September 30, 2016, as discussed in note 13. |
|
| | | | | | | | | | | | |
| As of December 31, 2015 |
| Total Assets | | Total Liabilities | | Apollo Exposure | |
Total | $ | 5,378,456 |
| (1) | $ | 1,626,743 |
| (2) | $ | 202,146 |
| (3) |
| |
(1) | Consists of $219.8 million in cash, $5,149.0 million in investments and $9.6 million in receivables. |
| |
(2) | Represents $1,626.7 million in debt and other payables. |
| |
(3) | Represents Apollo’s direct investment in those entities in which Apollo holds a significant variable interest. Additionally, cumulative carried interest income is subject to reversal in the event of future losses. The maximum amount of future reversal of carried interest income from all of Apollo’s funds, including those entities in which Apollo holds a significant variable interest, was $2.4 billion as of December 31, 2015. |
5. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
The following tables summarize the valuation of the Company’s financial assets and liabilities for which the fair value option has been elected by the fair value hierarchy as of September 30, 2016 and December 31, 2015, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2016 |
| Level I(1) | | Level II(1) | | Level III | | Total | | Cost of Investments, at Fair Value |
Assets | | | | | | | | | |
Investments, at fair value: | | | | | | | | | |
Investments of Consolidated Apollo Funds | $ | 968 |
| | $ | 13,334 |
| | $ | 321 |
| | $ | 14,623 |
| | $ | 14,869 |
|
Other investments | — |
| | — |
| | 46,232 |
| | 46,232 |
| | 45,340 |
|
Investment in Athene Holding(2) | — |
| | — |
| | 558,829 |
| | 558,829 |
| | 387,526 |
|
Total investments, at fair value | 968 |
| | 13,334 |
| | 605,382 |
| | 619,684 |
| (7) | $ | 447,735 |
|
Investments of VIEs, at fair value(3) | — |
| | 834,834 |
| | 106,534 |
| | 941,368 |
| |
|
|
Investments of VIEs, valued using NAV(4) | — |
| | — |
| | — |
| | 5,166 |
| | |
Total investments of VIEs, at fair value | — |
| | 834,834 |
| | 106,534 |
| | 946,534 |
| | |
Derivative assets | — |
| | 965 |
| | — |
| | 965 |
| | |
Total Assets | $ | 968 |
| | $ | 849,133 |
| | $ | 711,916 |
| | $ | 1,567,183 |
| | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Liabilities of VIEs, at fair value(3)(5) | $ | — |
| | $ | 838,704 |
| | $ | 11,807 |
| | $ | 850,511 |
| | |
Contingent consideration obligations(6) | — |
| | — |
| | 81,219 |
| | 81,219 |
| | |
Derivative liabilities | — |
| | 1,429 |
| | — |
| | 1,429 |
| | |
Total Liabilities | $ | — |
| | $ | 840,133 |
| | $ | 93,026 |
| | $ | 933,159 |
| | |
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
|
| | | | | | | | | | | | | | | | | | | |
| As of December 31, 2015 |
| Level I(1) | | Level II(1) | | Level III | | Total | | Cost of Investments,
at Fair Value |
Assets | | | | | | | | | |
Investments, at fair value: | | | | | | | | | |
Investments of Consolidated Apollo Funds | $ | — |
| | $ | 26,913 |
| | $ | 1,634 |
| | $ | 28,547 |
| | $ | 29,344 |
|
Other investments | — |
| | — |
| | 434 |
| | 434 |
| | 831 |
|
Investment in Athene Holding(2) | — |
| | — |
| | 510,099 |
| | 510,099 |
| | 387,526 |
|
Total investments, at fair value | — |
| | 26,913 |
| | 512,167 |
| | 539,080 |
| (7) | $ | 417,701 |
|
Investments of VIEs, at fair value(3)(4) | — |
| | 803,412 |
| | 100,941 |
| | 904,353 |
| |
|
|
Investments of VIEs, valued using NAV (4) | — |
| | — |
| | — |
| | 6,213 |
| | |
Total investments of VIEs, at fair value | — |
| | 803,412 |
| | 100,941 |
| | 910,566 |
| | |
Total Assets | $ | — |
| | $ | 830,325 |
| | $ | 613,108 |
| | $ | 1,449,646 |
| | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Liabilities of VIEs, at fair value(3)(5) | $ | — |
| | $ | 801,270 |
| | $ | 11,411 |
| | $ | 812,681 |
| | |
Contingent consideration obligations(6) | — |
| | — |
| | 79,579 |
| | 79,579 |
| | |
Total Liabilities | $ | — |
| | $ | 801,270 |
| | $ | 90,990 |
| | $ | 892,260 |
| | |
| |
(1) | All Level I and Level II assets and liabilities were valued using third party pricing. |
| |
(2) | See note 12 for further disclosure regarding the investment in Athene Holding. |
| |
(3) | See note 4 for further disclosure regarding VIEs. |
| |
(4) | Pursuant to the adoption of amended fair value guidance effective January 1, 2016, investments for which fair value is based on NAV are no longer required to be included in the fair value hierarchy. As such, prior periods have been recast to conform with the current period presentation. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy disclosure to the amounts presented in the condensed consolidated statement of financial condition. See note 2 for further discussion of the newly adopted accounting guidance. |
| |
(5) | As of September 30, 2016, liabilities of VIEs, at fair value included debt and other liabilities of $838.7 million and $11.8 million, respectively. As of December 31, 2015, liabilities of VIEs, at fair value included debt and other liabilities of $801.3 million and $11.4 million, respectively. Other liabilities include contingent obligations classified as Level III. |
| |
(6) | See note 13 for further disclosure regarding contingent consideration obligations. |
| |
(7) | See note 3 to our condensed consolidated financial statements for further detail regarding our investments at fair value and reconciliation to the condensed consolidated statements of financial condition. |
There were no transfers of financial assets or liabilities between Level I and Level II for the three and nine months ended September 30, 2016 and 2015.
APOLLO GLOBAL MANAGEMENT, LLC
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands, except share data, except where noted)
The following tables summarize the changes in fair value in financial assets measured at fair value for which Level III inputs have been used to determine fair value for the three months ended September 30, 2016 and 2015, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2016 |
| Investments of Consolidated Apollo Funds | | Other Investments | | Investment in Athene Holding | | Investments of Consolidated VIEs | | Total |
Balance, Beginning of Period | $ | 2,853 |
| | $ | 44,753 |
| | $ | 542,437 |
| | $ | 112,690 |
| | $ | 702,733 |
|
Purchases | — |
| | 334 |
| | — |
| | 11,040 |
| | 11,374 |
|
Sales of investments/distributions | (1,361 | ) | | — |
| | — |
| | (11,204 | ) | | (12,565 | ) |
Net realized gains | 15 |
| | — |
| | — |
| | 86 |
| | 101 |
|
Changes in net unrealized gains (losses) | 107 |
| | 939 |
| | 16,392 |
| | (215 | ) | | 17,223 |
|
Cumulative translation adjustment | — |
| | 206 |
| | — |
| | 1,004 |
| | 1,210 |
|
Transfer into Level III(1) | — |
| | — |
| | — |
| | 8,755 |
| | 8,755 |
|
Transfer out of Level III(1) | (1,293 | ) | | — |
| | — |
| | (15,622 | ) | | (16,915 | ) |
Balance, End of Period | $ | 321 |
| | $ | 46,232 |
| | $ | 558,829 |
| | $ | 106,534 |
| | $ | 711,916 |
|
Change in net unrealized gains included in net gains from investment activities related to investments still held at reporting date | $ | 51 |
| | $ | 939 |
| | $ | 16,392 |
| | $ | — |
| | $ | 17,382 |
|
Change in net unrealized losses included in net gains from investment activities of consolidated VIEs related to investments still held at reporting date | — |
| | — |
| | — |
| | (358 | ) | | (358 | ) |
| |
(1) | Transfers between Level II and III were a result of subjecting the broker quotes on these financial assets to various criteria which include the number and quality of broker quotes, the standard deviation of obtained broker quotes and the percentage deviation from independent pricing services. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2015 |
| Investments of Consolidated Apollo Funds | | Other Investments | | Investment in Athene Holding | | Investment in RCAP(3) | | Investments of Consolidated VIEs | | Total |
Balance, Beginning of Period(1) | $ | 2,003 |
| | $ | 629 |
| | $ | 414,726 |
| | $ | — |
| | $ | 124,699 |
| | $ | 542,057 |
|
Purchases | 1,945 |
| | 3 |
| | — |
| | 25,000 |
| | 4,562 |
| | 31,510 |
|
Sale of investments/Distributions | (2,482 | ) | | (54 | ) | | — |
| | — |
| | (5,184 | ) | | (7,720 | ) |
Net realized gains (losses) | 12 |
| | — |
| | — |
| | — |
| | 2 |
| | 14 |
|
Changes in net unrealized gains (losses) | 18 |
| | (109 | ) | | 81,216 |
| | — |
| | 2,027 |
| | 83,152 |
|
Cumulative translation adjustment | — |
| | — |