Apollo Global Management, LLC Reports Third Quarter 2011 Results

Apollo Global Management, LLC (NYSE: APO) and its consolidated subsidiaries (collectively, “Apollo”) today reported results for the third quarter ended September 30, 2011.

Apollo reported a total economic net loss of $1,140.5 million for the third quarter of 2011, compared to $315.3 million of economic net income for the third quarter of 2010. The change was primarily driven by Apollo’s Incentive Business, which reported an economic net loss of $1,162.2 million for the third quarter of 2011, compared to economic net income of $230.8 million for the third quarter of 2010. The economic net loss for the third quarter of 2011 was largely driven by lower unrealized mark-to-market valuations within Apollo’s private equity and capital markets segments. Apollo’s Management Business reported $21.7 million of economic net income for the third quarter of 2011 compared to $44.5 million for the third quarter of 2010, after excluding a $40.0 million gain from insurance proceeds received during the third quarter of 2010.

Total revenue for Apollo’s Management Business was $151.5 million during the third quarter of 2011, an increase of $13.8 million, or 10%, from the third quarter of 2010. This includes management fee revenues of $123.0 million for the third quarter of 2011, which increased $16.3 million or 15% from the third quarter of 2010, and net transaction and advisory fee revenue of $17.2 million for the third quarter of 2011 decreased slightly from $19.5 million during the third quarter of 2010.

Total expenses for Apollo’s Management Business were $120.3 million during the third quarter of 2011, an increase of $17.9 million or 17% from the third quarter of 2010. Compensation and benefits expense for Apollo’s Management Business was $68.4 million during the third quarter of 2011, an increase of $8.0 million, or 13%, from the third quarter of 2010, which was driven by increased headcount. Non-compensation expenses for Apollo’s Management Business were $51.9 million during the third quarter of 2011, an increase of $9.9 million or 24% from the third quarter of 2010, which was primarily driven by the continued expansion of Apollo’s global investment platform.

Total AUM was $65.1 billion as of September 30, 2011, compared to $57.8 billion as of September 30, 2010, an increase of $7.3 billion, or 12.6%. The growth in total AUM was driven by both organic and strategic growth in Apollo’s capital markets and real estate segments. Fee-generating AUM was $49.7 billion as of September 30, 2011, compared to $44.2 billion as of September 30, 2010, an increase of $5.5 billion, or 12.4%.

GAAP results for the third quarter ended September 30, 2011 included net loss attributable to Apollo Global Management, LLC of $467.0 million, compared to net income attributable to Apollo Global Management, LLC of $24.1 million for the third quarter ended September 30, 2010.

Leon Black, Chairman and Chief Executive Officer said, “Although volatile global equity and credit markets resulted in lower unrealized values in our portfolios during the third quarter, today's environment plays to our strength as a contrarian, value-oriented investor. We are confident that our funds will generate long-term value for our investors, and I believe Apollo is well-positioned for the secular trends taking place in our industry.”

Private Equity Segment

The economic net loss from Apollo’s private equity segment was $881.1 million for the third quarter of 2011, compared to economic net income of $213.8 million for the third quarter of 2010. Apollo’s private equity segment had an unrealized carried interest loss of $1,399.1 million for the third quarter of 2011, which was partially offset by realized carried interest income of $40.5 million that was largely driven by interest and dividend income earned by Fund VI and Fund VII.

The $1,399.1 million unrealized loss during the third quarter of 2011 was primarily due to lower unrealized mark-to-market valuations in Fund VI and Fund VII, the most significant components of which were debt and equity investments in Charter Communications, Inc. and LyondellBasell Industries N.V. for Fund VII, and Ceva Group plc, Momentive Performance Materials Holdings LLC, Noranda Aluminum, Inc, Realogy Corporation and Rexnord LLC for Fund VI. Despite the unrealized loss, aggregate revenues among Apollo’s Fund VI and Fund VII portfolio company investments were up an estimated 14% during the third quarter of 2011 compared to the third quarter of 2010, and EBITDA was up an estimated 17% in aggregate over the same period. In addition, the combined fair value of Apollo’s underlying private equity investments was 26% above cost as of September 30, 2011.

Apollo’s private equity funds continued to generate positive IRRs during the quarter despite the previously mentioned lower unrealized mark-to-market valuations. From its inception in 2008 through September 30, 2011, Fund VII generated an annual gross and net IRR of 23% and 15%, respectively. Fund VI, which began investing in 2006 during the peak of the credit and housing market boom, was still generating an annual gross and net IRR of 5.4% and 4.7%, respectively, since its inception through September 30, 2011. Uncalled private equity commitments, or “dry powder”, were $9.4 billion as of September 30, 2011.

Capital Markets Segment

The economic net loss from Apollo’s capital markets segment was $256.7 million for the third quarter of 2011, compared to economic net income of $110.1 million for the third quarter of 2010. Apollo’s capital markets segment had an unrealized carried interest loss of $284.1 million for the third quarter of 2011, which was partially offset by realized carried interest income of $23.7 million that was largely driven by interest income earned by Apollo’s senior credit and mezzanine investment strategies. The $284.1 million unrealized loss was primarily driven by lower unrealized mark-to-market valuations in Apollo’s senior credit funds.

Apollo’s capital markets growth initiatives and underlying investment thesis remain intact despite the recent market volatility. During October 2011, Apollo closed on a $500 million strategic account with a global sovereign wealth fund to invest across Apollo’s European credit platform. In addition, Apollo’s acquisition of Gulf Stream Asset Management (“Gulf Stream”) closed in October 2011. Gulf Stream managed 10 Collateralized Loan Obligations with approximately $3.0 billion in AUM, which is not yet included in Apollo’s AUM as of September 30, 2011.

Real Estate Segment

Apollo’s real estate segment had an economic net loss of $2.7 million for the third quarter of 2011, compared to an $8.6 million loss for the third quarter of 2010. Total revenues for the real estate segment during the third quarter of 2011 were $11.0 million, as compared to $1.8 million in the third quarter of 2010. The $9.2 million increase in revenues was primarily driven by increased management fees following Apollo’s acquisition of Citi Property Investors (“CPI”) in November 2010.

AUM in Apollo’s real estate segment has increased significantly compared to the prior year. As of September 30, 2011, AUM was $7.9 billion, compared to $2.6 billion at September 30, 2010 largely as a result of Apollo’s acquisition of CPI.

Capital and Liquidity

As of September 30, 2011, Apollo had $808.3 million of cash and cash equivalents and $738.6 million of debt. These amounts exclude cash and debt associated with Apollo’s consolidated funds and consolidated variable interest entities. As of September 30, 2011, Apollo also had a $634.7 million carried interest receivable and corresponding profit sharing payable of $284.5 million. At September 30, 2011, Apollo had investments in its own funds of $253.6 million.

Distribution

Apollo Global Management, LLC has declared a third quarter 2011 cash distribution of $0.20 per Class A share, which comprises a regular distribution of $0.07 per Class A share and a quarterly distribution of $0.13 per Class A share paid largely as a result of realizations from interest and dividend income. This distribution will be paid on December 2, 2011 to holders of record at the close of business on November 25, 2011.

Apollo intends to distribute to its shareholders on a quarterly basis substantially all of its net after-tax cash flow in excess of amounts determined by its manager to be necessary or appropriate to provide for the conduct of its business. However, we cannot assure shareholders that they will receive any distributions.

Conference Call

Apollo will host a conference call on Thursday, November 3, 2011 at 10:00 am EDT. During the call Marc Spilker, President; Gene Donnelly, Chief Financial Officer; and Gary Stein, Head of Corporate Communications, will review Apollo's financial results. The conference call can be accessed by dialing (888) 868-4188 (U.S. domestic) or +1 (615) 800-6914 (international), and by providing conference call ID 1736894 when prompted by the operator. The number should be dialed at least ten minutes prior to the start of the call. A simultaneous webcast of the conference call will be available to the public on a listen-only basis and can be accessed through the Investor Relations section of Apollo's website at www.agm.com.

Following the call a replay of the event may be accessed either telephonically or via audio webcast. A telephonic replay of the live broadcast will be available approximately two hours after the live broadcast by dialing (800) 585-8367 (U.S. callers) or +1 (404) 537-3406 (non-U.S. callers), passcode 1736894. To access the audio webcast, please visit Events in the Investor Relations section of Apollo's website at www.agm.com.

About Apollo

Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Mumbai and Hong Kong. Apollo had assets under management of approximately $65 billion as of September 30, 2011, in private equity, credit-oriented capital markets and real estate funds invested across a core group of nine industries where Apollo has considerable knowledge and resources. For more information about Apollo, please visit www.agm.com.

Forward-Looking Statements

This press release may contain forward looking statements that are within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, discussions related to Apollo’s expectations regarding the performance of its business, its 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 release, 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, capital markets 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 prospectus filed in accordance with Rule 424(b) of the Securities Act with the Securities and Exchange Commission (“SEC”) on March 30, 2011, and 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 release and in 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. This release does not constitute an offer of any Apollo fund.

Non-GAAP Financial Information

Economic Net Income, or ENI, is a key performance measure used by management in evaluating the performance of Apollo’s private equity, capital markets and real estate segments, as management believes the amount of management fees, advisory and transaction fees and carried interest income are indicative of the Company’s performance. Management also uses ENI in making key operating decisions such as the following:

• Decisions related to the allocation of resources such as staffing decisions including hiring and locations for deployment of the new hires;
• Decisions related to capital deployment such as providing capital to facilitate growth for the business and/or to facilitate expansion into new businesses; and
• Decisions related to compensation expense, such as determining annual discretionary bonuses to its employees. As it relates to compensation, management seeks to align the interests of certain professionals and selected other individuals who have a profit sharing interest in the carried interest income earned in relation to the funds, with those of the investors in such funds and those of the Company’s shareholders. To achieve that objective, a certain amount of compensation is based on the Company’s performance and growth for the year.

ENI is a measure of profitability and has certain limitations in that it does not take into account certain items included under U.S. GAAP. ENI represents segment income (loss) attributable to Apollo Global Management, LLC, which excludes the impact of non-cash charges related to equity-based compensation, income taxes and Non-Controlling Interests. In addition, segment data excludes the assets, liabilities and operating results of the funds and VIEs that are included in the consolidated financial statements.