Exhibit 99.1
The Blackstone Group Reports Second Quarter Earnings
Second Quarter 2007 Net Income of $774.4 Million Up from
$224.1 Million in the Quarter Ending June 2006
SECOND QUARTER 2007 BUSINESS HIGHLIGHTS
| | • | | Corporate Private Equity revenues increased to $426.1 million vs. $125.6 million in the prior year |
| | • | | Real Estate revenues increased to $320.2 million vs. $92.0 million in the prior year |
| | • | | Marketable Alternative Asset Management revenues increased to $168.6 million vs. $32.5 million in the prior year |
| | • | | Financial Advisory revenues increased to $98.6 million vs. $83.8 million in the prior year |
SIX MONTHS ENDED JUNE 30, 2007 BUSINESS HIGHLIGHTS
| | • | | Corporate Private Equity revenues increased to $653.4 million from $387.4 million in the prior year |
| | • | | Real Estate revenues increased to $1,106.9 million from $275.7 million in the prior year |
| | • | | Marketable Alternative Asset Management revenues increased to $324.9 million from $121.6 million in the prior year |
| | • | | Financial Advisory revenues increased to $192.8 million from $122.8 million in the prior year |
NEW YORK, August 13, 2007 – The Blackstone Group (NYSE: BX) today reported its second quarter 2007 results.
Revenues of $975.3 million and net income of $774.4 million for the three months ended June 30, 2007 compared with revenues of $324.6 million and net income of $224.1 million a year ago. Strong growth in all four business segments - corporate private equity, real estate, marketable alternative asset management and financial advisory - drove the increase.
Revenues of $2,201.7 million and net income of $1,906.4 million for the six months ended June 30, 2007 compared with revenues of $880.1 million and net income of $711.2 million a year ago. As in the case of the three months ended June 30, 2007, strong growth in all four business segments - corporate private equity, real estate, marketable alternative asset management and financial advisory - drove this six month increase.
Blackstone’s business was historically conducted through a large number of entities as to which there was no single holding entity. Accordingly, operating results for the three and six months ended June 30, 2007 and 2006 are for the consolidated and combined entities. In connection with the initial public offering of the common units of The Blackstone Group L.P. (the publicly traded partnership), Blackstone effected a reorganization as of the close of business on June 18, 2007, which affects the comparison of the current year’s periods with those of the prior year’s. In addition, net loss per common unit is for the twelve days ended June 30, 2007.
Stephen A. Schwarzman, Chairman and Chief Executive Officer of Blackstone, said: “We are pleased to report such strong results in each of our business segments. In the face of current market volatility and challenges, we remain confident about delivering superior long-term returns for the investors in our funds, which we believe is the key to driving value and growth for our unit holders.”
Throughout much of the second quarter, the operating environment was fundamentally positive, with global equity markets approaching near-record levels and the global economy, particularly in the U.S., remaining healthy. Concerns over weakness in the U.S. housing market and sub-prime mortgage market, coupled with a large volume of debt financing backlog related to leveraged equity transactions, served to create more challenging financing conditions starting in the last week of the quarter, which continue to date.
SEGMENT REVIEW(1)
Economic Net Income for the three months ended June 30, 2007 totaled $845.6 million as compared to $233.7 million for the three months ended June 30, 2006. Pro Forma Economic Net Income After Taxes for the three months ended June 30, 2007 totaled $515.5 million as compared to $118.1 million for the comparable prior year period.
Economic Net Income for the six months ended June 30, 2007 totaled $1,991.6 million as compared to $726.7 million for the six months ended June 30, 2006. Pro Forma Economic Net Income After Taxes for the six months ended June 30, 2007 totaled $1,209.5 million as compared to $376.2 million for the comparable prior year period.
(1) | See the attached supplemental schedules for reconciliations of the differences between the non-GAAP financial measures presented in this release with the most directly comparable financial measures calculated and presented in accordance with GAAP. These non-GAAP financial measures should be considered in addition to and not as a substitute for, or superior to, measures of financial performance presented in accordance with GAAP. |
2
Net Cash Flow Provided by Operating Activities was $671.2 million for the six months ended June 30, 2007 as compared to Net Cash Flow Used in Operating Activities of $(94.6) million for the comparable prior period. Pro Forma Adjusted Cash Flow from Operations for the six months ended June 30, 2007 was $1,019.8 million as compared to $775.9 million for the comparable prior period.
The table below details Blackstone’s Economic Net Income for the three and six month periods ending June 30, 2007 and June 30, 2006, respectively. Management considers Economic Net Income, which excludes non-cash amortization of compensation and intangibles and includes unrealized gains and compensation related to those gains, an important measurement of value creation and benchmarks its performance against Economic Net Income.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | (Dollars in Thousands) | |
Economic Net Income, Total Reportable Segments | | $ | 845,575 | | | $ | 233,710 | | | $ | 1,991,620 | | | $ | 726,738 | |
Pro Forma Adjustments | | | | | | | | | | | | | | | | |
Elimination of Non-contributed Entities | | | (34,703 | ) | | | 1,914 | | | | (69,105 | ) | | | (131,877 | ) |
Increase in Compensation Expense | | | (230,009 | ) | | | (64,958 | ) | | | (539,403 | ) | | | (129,905 | ) |
Eliminate Interest Expense | | | 15,180 | | | | 12,692 | | | | 26,302 | | | | 20,180 | |
| | | | | | | | | | | | | | | | |
Pro Forma Economic Net Income | | | 596,043 | | | | 183,358 | | | | 1,409,414 | | | | 485,136 | |
Pro Forma Provision for Income Taxes | | | (80,581 | ) | | | (65,291 | ) | | | (199,886 | ) | | | (108,962 | ) |
| | | | | | | | | | | | | | | | |
Pro Forma Economic Net Income After Taxes | | $ | 515,462 | | | $ | 118,067 | | | $ | 1,209,528 | | | $ | 376,174 | |
| | | | | | | | | | | | | | | | |
Pro Forma Adjusted Cash Flow from Operations | | | | | | | | | | $ | 1,019,763 | | | $ | 775,888 | |
| | | | | | | | | | | | | | | | |
Corporate Private Equity
Corporate Private Equity reported a strong second quarter with revenues up 239% from the second quarter of 2006, largely driven by a rise in performance fees and carried interest allocations and investment income as net appreciation from underlying funds increased $1.7 billion from the second quarter 2006. Management fees declined slightly over the same period.
Weighted average fee-earning assets in the quarter totaled $23.5 billion compared with $20.5 billion a year ago.
Limited Partner (“LP”) capital deployed in the quarter totaled $1.6 billion compared with $2.4 billion a year ago. At July 3, 2007, $5.9 billion of LP capital had been committed by Blackstone’s Corporate Private Equity funds to deals that are scheduled to close in subsequent periods.
Real Estate
For the quarter ended June 30, 2007, the Real Estate segment generated revenues of $320.2 million, up 248% from the second quarter 2006. Management, performance fees and carried interest allocations and investment income were all up significantly.
3
Weighted average fee-earning assets under management in the quarter totaled $15.3 billion compared with $9.0 billion a year ago.
LP capital deployed in the quarter ended June 2007 totaled $71.1 million, down from $612.7 million last year. Currently, approximately $2.9 billion of LP capital has been committed by Blackstone’s Real Estate funds to deals not yet closed. Included in the information regarding capital committed for both Real Estate and Corporate Private Equity is the purchase of Hilton Hotels Corporation, which has committed financing and is expected to close in the fourth quarter.
Marketable Alternative Asset Management (MAAM)
MAAM achieved second quarter revenues of $168.6 million, an increase of 419% from the same period last year, reflecting solid investment performance and a significant increase in assets managed.
Weighted average fee-earning assets under management in the quarter totaled $32.7 billion compared with $18.7 billion last year, as investor flows remained robust and investment performance was favorable. MAAM includes hedge funds investing across several asset classes, geographies and investment styles and therefore is not tied to any one market or the direction of those markets.
Financial Advisory
Revenues rose 18% to $98.6 million in this year’s second quarter, as compared to the same period last year, reflecting a favorable environment for mergers and acquisitions and Park Hill’s capital raising for alternative assets, which offset a generally soft environment for the restructuring and reorganization business. The level of business activity was up across all three businesses within the financial advisory segment.
CAPITAL
On June 27, 2007, The Blackstone Group completed the initial public offering of its common units and the sale of non-voting common units to an investment vehicle established by The People’s Republic of China with respect to its foreign exchange reserve. In aggregate, The Blackstone Group sold approximately 255 million units for net proceeds of $7.5 billion. Of that amount, $2.9 billion was retained for primary purposes, of which $1,210 million was used to repay indebtedness outstanding under the revolving credit agreement, with the balance having now been invested as general partner investments in Blackstone sponsored funds and temporary interest bearing investments as appropriate. For economic net income purposes, the fully diluted unit count at period end was approximately 1,120 million and the total outstanding units entitled to cash distributions were 1,088 million.
4
DISTRIBUTION POLICY
The Blackstone Group intends to distribute to its common unitholders on a quarterly basis substantially all of its net after-tax annual adjusted cash flow from operations in excess of amounts needed to provide for the conduct of its business, to make appropriate investments in the business, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to common unitholders for one or more of the ensuing four quarters. Until December 31, 2009, Blackstone’s professionals and other pre-initial public offering owners will not receive distributions with respect to their Blackstone Holdings partnership units until common unitholders receive aggregate distributions of $1.20 per common unit on an annualized basis for such year. The Blackstone Group expects that its first quarterly distribution will be paid in December 2007.
# # #
Blackstone will host a conference call on August 13, 2007 at 11:00 a.m. EST to discuss second quarter 2007 results. The conference call can be accessed by dialing (888) 713-4218 for U.S. callers or (617) 213-4870 for non-U.S. callers. The pass code is 92341915. Additionally, the call may be accessed via a live audio webcast available through a link on the Investor Relations page of Blackstone’s website at http://ir.blackstone.com. On-demand replay will be available approximately 2 hours after the call at the same web address.
About The Blackstone Group
The Blackstone Group is a leading global alternative asset manager and provider of financial advisory services. Its alternative asset management businesses include the management of corporate private equity funds, real estate opportunity funds, funds of hedge funds, mezzanine funds, senior debt vehicles, proprietary hedge funds and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com.
Investor Relations Contact:
Joan Solotar
The Blackstone Group
Tel: +1 212 583 5068
solotar@blackstone.com
Media Relations Contact:
John Ford
The Blackstone Group
Tel: +1 212 583 5559
ford@blackstone.com
Forward-Looking Statements
This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our prospectus dated June 21, 2007, filed with the SEC in accordance with Rule 424(b) of the Securities Act on June 25, 2007, which is accessible on the Securities and Exchange Commission’s website at 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 the prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
This release does not constitute an offer of any Blackstone fund.
5
THE BLACKSTONE GROUP L.P.
Condensed Consolidated and Combined Statements of Income (Unaudited)
(Dollars in Thousands, Except Unit and Per Unit Data)
| | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | | Six Months Ended
June 30, |
| | | 2007 | | | 2006 | | | 2007 | | 2006 |
Revenues | | | | | | | | | | | | | | |
Management and Advisory Fees (includes fees earned from affiliates of $97,183 and $91,966 for the three months ended June 30, 2007 and 2006, respectively, and $327,115 and $158,803 for the six months ended June 30, 2007 and 2006, respectively) | | $ | 341,695 | | | $ | 278,668 | | | $ | 789,096 | | $ | 484,109 |
| | | | |
Performance Fees and Allocations | | | 453,750 | | | | 47,781 | | | | 1,116,247 | | | 313,457 |
Investment Income and Other | | | 179,875 | | | | (1,883 | ) | | | 296,345 | | | 82,497 |
| | | | | | | | | | | | | | |
Total Revenues | | | 975,320 | | | | 324,566 | | | | 2,201,688 | | | 880,063 |
| | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | |
Compensation and Benefits | | | 345,545 | | | | 56,463 | | | | 424,752 | | | 109,313 |
Interest | | | 15,180 | | | | 12,692 | | | | 26,302 | | | 20,180 |
General, Administrative and Other | | | 50,687 | | | | 31,009 | | | | 78,819 | | | 51,191 |
Fund Expenses | | | 19,531 | | | | 38,694 | | | | 30,968 | | | 56,770 |
| | | | | | | | | | | | | | |
Total Expenses | | | 430,943 | | | | 138,858 | | | | 560,841 | | | 237,454 |
| | | | | | | | | | | | | | |
Other Income | | | | | | | | | | | | | | |
Net Gains from Fund Investment Activities | | | 601,682 | | | | 55,500 | | | | 1,197,563 | | | 1,407,373 |
| | | | | | | | | | | | | | |
Income Before Non-Controlling Interests in Income of Consolidated Entities and Provision (Benefit) for Taxes | | | 1,146,059 | | | | 241,208 | | | | 2,838,410 | | | 2,049,982 |
Non-Controlling Interests in Income of Consolidated Entities | | | 374,117 | | | | 7,498 | | | | 920,423 | | | 1,323,244 |
| | | | | | | | | | | | | | |
Income Before Provision (Benefit) for Taxes | | | 771,942 | | | | 233,710 | | | | 1,917,987 | | | 726,738 |
Provision (Benefit) for Taxes | | | (2,409 | ) | | | 9,647 | | | | 11,560 | | | 15,520 |
| | | | | | | | | | | | | | |
Net Income | | $ | 774,351 | | | $ | 224,063 | | | $ | 1,906,427 | | $ | 711,218 |
| | | | | | | | | | | | | | |
| | | | | | |
| | | June 19, 2007
through
June 30, 2007 | | | |
Net Loss | | $ | (52,324 | ) | | |
| | | | | | |
Net Loss Per Common Unit | | | | | | |
Basic | | $ | (0.20 | ) | | |
| | | | | | |
Diluted | | $ | (0.20 | ) | | |
| | | | | | |
Weighted-Average Common Units | | | | | | |
Basic | | | 256,502,271 | | | |
| | | | | | |
Diluted | | | 256,502,271 | | | |
| | | | | | |
6
THE BLACKSTONE GROUP L.P.
Condensed Consolidated and Combined Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Unit Data)
| | | | | | |
| | | June 30,
2007 | | December 31,
2006 |
Assets | | | | | | |
Cash and Cash Equivalents | | $ | 1,433,363 | | $ | 129,443 |
Cash Held by Blackstone Funds | | | 467,766 | | | 810,725 |
Investments, at Fair Value | | | 10,779,425 | | | 31,263,573 |
Accounts Receivable | | | 294,124 | | | 656,165 |
Due from Brokers | | | 604,312 | | | 398,196 |
Investment Subscriptions Paid in Advance | | | 879,073 | | | 280,917 |
Due from Affiliates | | | 373,011 | | | 257,225 |
Other Assets | | | 93,258 | | | 94,800 |
Intangible Assets | | | 715,088 | | | — |
Goodwill | | | 1,551,175 | | | — |
Deferred Tax Assets | | | 1,589,296 | | | — |
| | | | | | |
Total Assets | | $ | 18,779,891 | | $ | 33,891,044 |
| | | | | | |
Liabilities and Partners’ Capital | | | | | | |
Loans Payable | | $ | 176,930 | | $ | 975,981 |
Amounts Due to Non-Controlling Interest Holders | | | 293,310 | | | 647,418 |
Securities Sold, Not Yet Purchased | | | 638,982 | | | 422,788 |
Due to Affiliates | | | 2,092,719 | | | 103,428 |
Accrued Compensation and Benefits | | | 108,891 | | | 66,301 |
Accounts Payable, Accrued Expenses and Other Liabilities | | | 149,874 | | | 157,355 |
| | | | | | |
Total Liabilities | | | 3,460,706 | | | 2,373,271 |
| | | | | | |
Commitments and Contingencies | | | | | | |
| | |
Non-Controlling Interests in Consolidated Entities | | | 10,760,330 | | | 28,794,894 |
| | | | | | |
Partners’ Capital | | | | | | |
Partners’ Capital (common units, 260,171,677 issued and outstanding as of June 30, 2007) | | | 4,558,505 | | | 2,712,605 |
Accumulated Other Comprehensive Income | | | 350 | | | 10,274 |
| | | | | | |
Total Partners’ Capital | | | 4,558,855 | | | 2,722,879 |
| | | | | | |
Total Liabilities and Partners’ Capital | | $ | 18,779,891 | | $ | 33,891,044 |
| | | | | | |
7
THE BLACKSTONE GROUP L.P.
Segment Information
(Dollars in Thousands)
The following tables present the financial data for Blackstone’s four reportable segments for the three and six month periods ended June 30, 2007 and 2006, respectively:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2007 |
| | | Corporate
Private Equity | | | Real
Estate | | Marketable
Alternative
Asset
Management | | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 106,268 | | | $ | 78,933 | | $ | 75,602 | | | $ | 97,518 | | $ | 358,321 |
Performance Fees and Allocations | | | 254,466 | | | | 157,425 | | | 61,906 | | | | — | | | 473,797 |
Investment Income and Other | | | 65,415 | | | | 83,853 | | | 31,138 | | | | 1,034 | | | 181,440 |
| | | | | | | | | | | | | | | | | |
Total Revenues | | | 426,149 | | | | 320,211 | | | 168,646 | | | | 98,552 | | | 1,013,558 |
| | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 24,603 | | | | 22,077 | | | 42,000 | | | | 20,636 | | | 109,316 |
Other Operating Expenses | | | 19,887 | | | | 8,183 | | | 20,253 | | | | 10,344 | | | 58,667 |
| | | | | | | | | | | | | | | | | |
Total Expenses | | | 44,490 | | | | 30,260 | | | 62,253 | | | | 30,980 | | | 167,983 |
| | | | | | | | | | | | | | | | | |
Economic Net Income | | $ | 381,659 | | | $ | 289,951 | | $ | 106,393 | | | $ | 67,572 | | $ | 845,575 |
| | | | | | | | | | | | | | | | | |
| |
| | | Three Months Ended June 30, 2006 |
| | | Corporate
Private Equity | | | Real
Estate | | Marketable
Alternative
Asset
Management | | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 108,155 | | | $ | 53,845 | | $ | 43,390 | | | $ | 83,005 | | $ | 288,395 |
Performance Fees and Allocations | | | 22,228 | | | | 30,920 | | | (7,737 | ) | | | — | | | 45,411 |
Investment Income and Other | | | (4,765 | ) | | | 7,259 | | | (3,181 | ) | | | 755 | | | 68 |
| | | | | | | | | | | | | | | | | |
Total Revenues | | | 125,618 | | | | 92,024 | | | 32,472 | | | | 83,760 | | | 333,874 |
| | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 14,088 | | | | 15,741 | | | 16,946 | | | | 9,689 | | | 56,464 |
Other Operating Expenses | | | 15,590 | | | | 7,769 | | | 13,949 | | | | 6,392 | | | 43,700 |
| | | | | | | | | | | | | | | | | |
Total Expenses | | | 29,678 | | | | 23,510 | | | 30,895 | | | | 16,081 | | | 100,164 |
| | | | | | | | | | | | | | | | | |
Economic Net Income | | $ | 95,940 | | | $ | 68,514 | | $ | 1,577 | | | $ | 67,679 | | $ | 233,710 |
| | | | | | | | | | | | | | | | | |
8
THE BLACKSTONE GROUP L.P.
Segment Information
(Dollars in Thousands)
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2007 |
| | | Corporate
Private Equity | | Real Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 166,026 | | $ | 325,834 | | $ | 138,571 | | $ | 190,044 | | $ | 820,475 |
Performance Fees and Allocations | | | 394,888 | | | 633,783 | | | 129,967 | | | — | | | 1,158,638 |
Investment Income and Other | | | 92,511 | | | 147,324 | | | 56,397 | | | 2,718 | | | 298,950 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 653,425 | | | 1,106,941 | | | 324,935 | | | 192,762 | | | 2,278,063 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 41,881 | | | 40,405 | | | 70,630 | | | 35,607 | | | 188,523 |
Other Operating Expenses | | | 32,071 | | | 14,612 | | | 34,749 | | | 16,488 | | | 97,920 |
| | | | | | | | | | | | | | | |
Total Expenses | | | 73,952 | | | 55,017 | | | 105,379 | | | 52,095 | | | 286,443 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 579,473 | | $ | 1,051,924 | | $ | 219,556 | | $ | 140,667 | | $ | 1,991,620 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2006 |
| | | Corporate
Private Equity | | Real
Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 186,588 | | $ | 111,291 | | $ | 83,777 | | $ | 121,418 | | $ | 503,074 |
Performance Fees and Allocations | | | 168,617 | | | 135,495 | | | 16,510 | | | — | | | 320,622 |
Investment Income and Other | | | 32,174 | | | 28,889 | | | 21,292 | | | 1,371 | | | 83,726 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 387,379 | | | 275,675 | | | 121,579 | | | 122,789 | | | 907,422 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 27,204 | | | 31,257 | | | 32,452 | | | 18,399 | | | 109,312 |
Other Operating Expenses | | | 24,324 | | | 14,220 | | | 23,459 | | | 9,369 | | | 71,372 |
| | | | | | | | | | | | | | | |
Total Expenses | | | 51,528 | | | 45,477 | | | 55,911 | | | 27,768 | | | 180,684 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 335,851 | | $ | 230,198 | | $ | 65,668 | | $ | 95,021 | | $ | 726,738 |
| | | | | | | | | | | | | | | |
9
THE BLACKSTONE GROUP L.P.
Economic Net Income
(Dollars in Thousands)
The table below details Blackstone’s Economic Net Income for the three and six month periods ending June 30, 2007 and June 30, 2006, respectively. Management considers Economic Net Income, which excludes non-cash amortization of compensation and intangibles and includes unrealized gains and compensation related to those gains, an important measurement of value creation and benchmarks its performance against Economic Net Income.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Economic Net Income, Total Reportable Segments | | $ | 845,575 | | | $ | 233,710 | | | $ | 1,991,620 | | | $ | 726,738 | |
Pro Forma Adjustments (a) | | | | | | | | | | | | | | | | |
Elimination of Non-contributed Entities (b) | | | (34,703 | ) | | | 1,914 | | | | (69,105 | ) | | | (131,877 | ) |
Increase in Compensation Expense (c) | | | (230,009 | ) | | | (64,958 | ) | | | (539,403 | ) | | | (129,905 | ) |
Eliminate Interest Expense (d) | | | 15,180 | | | | 12,692 | | | | 26,302 | | | | 20,180 | |
| | | | | | | | | | | | | | | | |
Pro Forma Economic Net Income | | | 596,043 | | | | 183,358 | | | | 1,409,414 | | | | 485,136 | |
Pro Forma Provision for Income Taxes (e) | | | (80,581 | ) | | | (65,291 | ) | | | (199,886 | ) | | | (108,962 | ) |
| | | | | | | | | | | | | | | | |
Pro Forma Economic Net Income After Taxes | | $ | 515,462 | | | $ | 118,067 | | | $ | 1,209,528 | | | $ | 376,174 | |
| | | | | | | | | | | | | | | | |
| (a) | Pro Forma Economic Net Income is based upon historical results of operations and gives effect to the pre-initial public offering reorganization and initial public offering as if they were completed as of January 1, 2006. These pro forma adjustments are consistent with Rule 11.01 of Regulation S–X. |
| (b) | Represent adjustments to eliminate from Pro Forma Economic Net Income the revenues and expenses of the businesses that were not contributed as part of the reorganization. |
| (c) | Represent adjustments to reflect in Pro Forma Economic Net Income expenses related to employee compensation and profit sharing arrangements that were not effective prior to the reorganization. |
| (d) | Represent adjustments to eliminate interest expense in Pro Forma Economic Net Income on the assumption that the revolving credit facility was repaid in full from the proceeds of the offering as of January 1, 2006. |
| (e) | Represents provisions for income taxes calculated using the same methodology applied in calculating the tax provision (benefit) for the period after the reorganization. |
10
THE BLACKSTONE GROUP L.P.
Segment Reconciliation Information
(Dollars in Thousands)
The following tables reconcile the Total Reportable Segments to Blackstone’s Income before Provision (Benefit) for Taxes for the three and six month periods ended June 30, 2007, respectively:
| | | | | | | | | | |
| | | Three Months Ended June 30, 2007 |
| | | Total
Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Consolidated
and Combined |
Revenues | | $ | 1,013,558 | | $ | (38,238) | (a) | | $ | 975,320 |
Expenses | | $ | 167,983 | | $ | 262,960 | (b) | | $ | 430,943 |
Other Income | | $ | — | | $ | 601,682 | (c) | | $ | 601,682 |
Economic Net Income | | $ | 845,575 | | $ | (73,633) | (d) | | $ | 771,942 |
| |
| | | Six Months Ended June 30, 2007 |
| | | Total
Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Consolidated
and Combined |
Revenues | | $ | 2,278,063 | | $ | (76,375) | (a) | | $ | 2,201,688 |
Expenses | | $ | 286,443 | | $ | 274,398 | (b) | | $ | 560,841 |
Other Income | | $ | — | | $ | 1,197,563 | (c) | | $ | 1,197,563 |
Economic Net Income | | $ | 1,991,620 | | $ | (73,633) | (d) | | $ | 1,917,987 |
| (a) | The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds to arrive at Blackstone consolidated and combined revenues which were eliminated in consolidation. |
| (b) | The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses, amortization of intangibles and expenses related to share-based payments to arrive at Blackstone consolidated and combined expenses. |
| (c) | The Other Income adjustment results from the following: |
| | | | | | |
| | | Three Months
Ended
June 30, 2007 | | Six Months
Ended
June 30, 2007 |
Fund Management Fees Eliminated in Consolidation | | $ | 38,238 | | $ | 76,375 |
Fund Expenses Added in Consolidation | | | 19,531 | | | 30,968 |
Non-Controlling Interests in Income of Consolidated Entities | | | 543,913 | | | 1,090,220 |
| | | | | | |
Total Consolidation Adjustments | | $ | 601,682 | | $ | 1,197,563 |
| | | | | | |
11
THE BLACKSTONE GROUP L.P.
Segment Reconciliation Information
(Dollars in Thousands)
| (d) | The following table reconciles Economic Net Income to Income Before Provision (Benefit) for Taxes as reported in the Condensed Consolidated and Combined Statements of Income: |
| | | | | | | | |
| | | Three Months
Ended
June 30, 2007 | | | Six Months
Ended
June 30, 2007 | |
Economic Net Income | | $ | 845,575 | | | $ | 1,991,620 | |
| | | | | | | | |
Consolidation Adjustments | | | | | | | | |
Amortization of Intangibles | | | (7,200 | ) | | | (7,200 | ) |
Expenses Related to Share-Based Payments | | | (236,228 | ) | | | (236,228 | ) |
Decrease in Loss Associated with Non-Controlling Interests in Income (Loss) of Consolidated Entities Primarily Relating to the Blackstone Holdings Partnership Units Held by Existing Owners | | | 169,795 | | | | 169,795 | |
| | | | | | | | |
Total Adjustments | | | (73,633 | ) | | | (73,633 | ) |
| | | | | | | | |
Income Before Provision (Benefit) for Taxes | | $ | 771,942 | | | $ | 1,917,987 | |
| | | | | | | | |
The following tables reconcile the Total Reportable Segments to Blackstone’s Condensed Consolidated and Combined Income Before Provision (Benefit) for Taxes for the three and six month periods ended June 30, 2006, respectively:
| | | | | | | | | | |
| | | Three Months Ended June 30, 2006 |
| | | Total Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Combined |
Revenues | | $ | 333,874 | | $ | (9,308) | (a) | | $ | 324,566 |
Expenses | | $ | 100,164 | | $ | 38,694 | (b) | | $ | 138,858 |
Other Income | | $ | — | | $ | 55,500 | (c) | | $ | 55,500 |
Economic Net Income | | $ | 233,710 | | $ | — | | | $ | 233,710 |
| |
| | | Six Months Ended June 30, 2006 |
| | | Total Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Combined |
Revenues | | $ | 907,422 | | $ | (27,359) | (a) | | $ | 880,063 |
Expenses | | $ | 180,684 | | $ | 56,770 | (b) | | $ | 237,454 |
Other Income | | $ | — | | $ | 1,407,373 | (c) | | $ | 1,407,373 |
Economic Net Income | | $ | 726,738 | | $ | — | | | $ | 726,738 |
| (a) | The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds to arrive at Blackstone combined revenues which were eliminated in consolidation. |
| (b) | The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses. |
12
THE BLACKSTONE GROUP L.P.
Segment Reconciliation Information
(Dollars in Thousands)
| (c) | The Other Income adjustment results from the following: |
| | | | | | |
| | | Three
Months Ended
June 30, 2006 | | Six
Months Ended
June 30, 2006 |
Fund Management Fees Eliminated in Consolidation | | $ | 9,308 | | $ | 27,359 |
Fund Expenses Added in Consolidation | | | 38,694 | | | 56,770 |
Non-Controlling Interests in Income of Consolidated Entities | | | 7,498 | | | 1,323,244 |
| | | | | | |
Total Consolidation Adjustments | | $ | 55,500 | | $ | 1,407,373 |
| | | | | | |
The following table provides a reconciliation of Blackstone’s Net Cash Flows Provided by (Used in) Operating Activities to Blackstone’s Adjusted Cash Flow from Operations and Pro Forma Adjusted Cash Flow from Operations:
| | | | | | | | |
| | | Six Months Ended June 30, | |
| | | 2007 | | | 2006 | |
Net Cash Flows Provided by (Used In) Operating Activities | | $ | 671,220 | | | $ | (94,587 | ) |
Changes in Operating Assets and Liabilities | | | (564,468 | ) | | | (6,025 | ) |
Blackstone Funds Related Investment Activity | | | 412,379 | | | | 434,854 | |
Net Realized Gains on Investments | | | 1,178,043 | | | | 3,368,904 | |
Non-Controlling Interests in Income of Consolidated Entities | | | (38,830 | ) | | | (2,649,017 | ) |
Other Non-Cash Adjustments | | | (4,775 | ) | | | 25,084 | |
| | | | | | | | |
Adjusted Cash Flow from Operations | | | 1,653,569 | | | | 1,079,213 | |
| | |
Pro Forma Cash Flow from Operations - Adjustments (a) | | | | | | | | |
Elimination of Non-Contributed Entities (b) | | | (46,523 | ) | | | (104,232 | ) |
Increase in Compensation Expense (c) | | | (255,426 | ) | | | (125,831 | ) |
Eliminate Interest Expense (d) | | | 26,302 | | | | 20,180 | |
Units Held by Existing Owners | | | (169,833 | ) | | | — | |
Incremental Tax Effect (e) | | | (188,326 | ) | | | (93,442 | ) |
| | | | | | | | |
Pro Forma Adjusted Cash Flow from Operations | | $ | 1,019,763 | | | $ | 775,888 | |
| | | | | | | | |
| (a) | Pro Forma Adjusted Cash Flow from Operations is based upon historical results of operations and gives effect to the pre-initial public offering reorganization and initial public offering as if they were completed as of January 1, 2006. These pro forma adjustments are consistent with Rule 11.01 of Regulation S–X. |
| (b) | Represent adjustments to eliminate from Pro Forma Adjusted Cash Flow from Operations the cash flows of the businesses that were not contributed as part of the reorganization. |
| (c) | Represent adjustments to reflect in Pro Forma Adjusted Cash Flow from Operations the cash portion of expenses related to employee compensation that were not effective prior to the reorganization. |
| (d) | Represent adjustments to eliminate interest expense in Pro Forma Adjusted Cash Flow from Operations on the assumption that the revolving credit facility was repaid in full from the proceeds of the offering. |
| (e) | Represent the provisions for income taxes that were calculated using the same methodology applied in calculating the tax provision (benefit) for the period after the reorganization. |
13
THE BLACKSTONE GROUP L.P.
Supplemental Metrics
(Dollars in Thousands)
| | | | | | |
| | | As of and for the
Three Months Ended June 30, |
| | | 2007 | | 2006 |
Total Assets Under Management (End of Period) | | | | | | |
Corporate Private Equity | | $ | 31,758,025 | | $ | 27,731,709 |
Real Estate | | | 23,060,599 | | | 11,006,750 |
MAAM | | | 36,950,246 | | | 21,773,845 |
| | | | | | |
| | $ | 91,768,870 | | $ | 60,512,304 |
| | | | | | |
Fee Earning Assets Under Management (End of Period) | | | | | | |
Corporate Private Equity | | $ | 23,611,474 | | $ | 19,721,653 |
Real Estate | | | 15,089,702 | | | 8,973,377 |
MAAM | | | 34,319,376 | | | 19,547,651 |
| | | | | | |
| | $ | 73,020,552 | | $ | 48,242,681 |
| | | | | | |
Weighted-Average Fee Earning Assets Under Management | | | | | | |
Corporate Private Equity | | $ | 23,483,800 | | $ | 20,490,503 |
Real Estate | | | 15,294,258 | | | 9,030,767 |
MAAM | | | 32,680,550 | | | 18,693,397 |
| | | | | | |
| | $ | 71,458,608 | | $ | 48,214,667 |
| | | | | | |
Limited Partner Capital Deployed | | | | | | |
Corporate Private Equity | | $ | 1,603,508 | | $ | 2,412,834 |
Real Estate | | | 71,088 | | | 612,709 |
| | | | | | |
| | $ | 1,674,596 | | $ | 3,025,543 |
| | | | | | |
| |
| | | As of June 30, |
| | | 2007 | | 2006 |
Fund Level Unrealized Value (a) | | | | | | |
Corporate Private Equity | | | | | | |
Cost | | $ | 10,971,492 | | $ | 6,919,879 |
| | | | | | |
Unrealized Value | | $ | 14,559,772 | | $ | 9,069,320 |
| | | | | | |
Real Estate | | | | | | |
Cost | | $ | 6,650,861 | | $ | 2,303,182 |
| | | | | | |
Unrealized Value | | $ | 11,531,535 | | $ | 3,191,651 |
| | | | | | |
| (a) | Cost and unrealized value represents the cost of those fund investments and related unrealized value on which Blackstone is entitled to receive carried interest when a fund achieves cumulative investment returns in excess of a specified rate. |
14
