Exhibit 99.1
The Blackstone Group Reports Third Quarter Earnings
Third Quarter 2007 Business Highlights
| | • | | Overall revenues increased to $526.7 million vs. $461.5 million in the prior year |
| | • | | Corporate Private Equity revenues increased to $227.3 million vs. $159.6 million in the prior year |
| | • | | Real Estate revenues decreased to $109.1 million vs. $196.1 million in the prior year |
| | • | | Marketable Alternative Asset Management revenues increased to $124.9 million vs. $66.5 million in the prior year |
| | • | | Financial Advisory revenues increased to $84.3 million vs. $52.6 million in the prior year |
Nine Months Ended September 30, 2007 Business Highlights
| | • | | Overall revenues increased to $2.71 billion vs. $1.34 billion in the prior year |
| | • | | Corporate Private Equity revenues increased to $880.7 million from $547.0 million in the prior year |
| | • | | Real Estate revenues increased to $1.22 billion from $471.8 million in the prior year |
| | • | | Marketable Alternative Asset Management revenues increased to $449.8 million from $188.1 million in the prior year |
| | • | | Financial Advisory revenues increased to $277.0 million from $175.3 million in the prior year |
NEW YORK, November 12, 2007: The Blackstone Group L.P. (NYSE: BX) today reported its third quarter 2007 results.
For the three months ended September 30, 2007, revenues and net loss (due to non-cash charges) totaled $526.7 million and $113.2 million, respectively, compared with revenues of $461.5 million and net income of $372.5 million a year ago. The net loss of $113.2 million includes the impact of $802.6 million of non-cash charges associated with the vesting of transaction related equity-based compensation arising from IPO unit awards and the amortization of intangibles. Strong growth in three business segments—Corporate Private Equity, Marketable Alternative Asset Management and Financial Advisory—drove the increase in revenues.
For the nine months ended September 30, 2007, revenues and net income totaled $2.71 billion and $1.79 billion, respectively, compared with revenues of $1.34 billion and net income of $1.08 billion a year ago. The $1.79 billion of net income reflects the impact of $1.05 billion of non-cash charges associated with the vesting of transaction related equity-based compensation arising from IPO unit awards and the amortization of intangibles. Strong growth in all four business segments—Corporate Private Equity, Real Estate, Marketable Alternative Asset Management and Financial Advisory—drove this nine month increase.
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. 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 nine months ended September 30, 2007 and 2006 are for the consolidated and combined entities.
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The Blackstone Group® L.P. 345 Park Avenue New York, NY 10154 212 583-5000 |
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Throughout much of the third quarter, global equity markets were strong, with many approaching near-record levels and the global economy 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 June, which continue to date. The lack of liquidity in the financing markets has had a dampening effect on initiating new, large-sized corporate private equity transactions.
Stephen A. Schwarzman, Chairman and Chief Executive Officer of Blackstone, said: “Blackstone posted year-over-year increases in revenues, cash flow and assets under management despite the very significant credit market dislocations. This environment provides us with both challenges and opportunities. While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable. Additionally, Blackstone’s marketable alternatives and advisory businesses continue to grow and are not dependent on access to the lending markets.”
SEGMENT REVIEW(1)
For the three months ended September 30, 2007, three of Blackstone’s four business segments delivered strong revenue growth. Economic Net Income for the three months ended September 30, 2007 totaled $299.2 million as compared to Pro Forma Adjusted Economic Net Income of $291.0 million for the three months ended September 30, 2006. Economic Net Income After Taxes for the three months ended September 30, 2007 totaled $234.0 million as compared to Pro Forma Adjusted Economic Net Income After Taxes of $239.1 million for the comparable prior year period.
For the nine months ended September 30, 2007, all of Blackstone’s business segments delivered very strong results. Pro Forma Adjusted Economic Net Income for the nine months ended September 30, 2007 totaled $1.99 billion as compared to $780.2 million for the nine months ended September 30, 2006. Pro Forma Adjusted Economic Net Income After Taxes for the nine months ended September 30, 2007 totaled $1.73 billion as compared to $619.4 million for the comparable prior year period.
Net Cash Flow Used In Operating Activities was $1.09 billion for the nine months ended September 30, 2007 as compared to $1.29 billion for the comparable prior period. Pro Forma Adjusted Cash Flow from Operations for the nine months ended September 30, 2007 was $1.27 billion as compared to $814.1 million for the comparable prior period.
The table below details Blackstone’s Economic Net Income for the three months ended September 30, 2007 as compared to Pro Forma Adjusted Economic Net Income for the three months ended September 30, 2006 as well as Blackstone’s Pro Forma Adjusted Economic Net Income for the nine months ended September 30, 2007 and 2006. Management considers Economic Net Income Before Taxes, which includes unrealized gains and compensation related to those gains but excludes the non-cash
| (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. |
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charges associated with the vesting of transaction related equity-based compensation arising from IPO unit awards and the amortization of intangibles, an important measurement of value creation and benchmarks its performance against Economic Net Income.
| | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2007 | | 2006 | | 2007 | | 2006 |
| | | | Pro Forma Adjusted |
| | (Dollars in Thousands) |
Economic Net Income, Total Reportable Segments | | $ | 299,158 | | $ | 290,967 | | $ | 1,992,547 | | $ | 780,177 |
Provision for Income Taxes | | | 65,203 | | | 51,853 | | | 265,089 | | | 160,815 |
| | | | | | | | | | | | |
Economic Net Income After Taxes (a) | | $ | 233,955 | | $ | 239,114 | | $ | 1,727,458 | | $ | 619,362 |
| | | | | | | | | | | | |
Pro Forma Adjusted Cash Flow from Operations | | | | | | | | $ | 1,272,073 | | $ | 814,072 |
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| (a) | Reconciliations of Pro Forma Adjusted Economic Net Income After Taxes to Economic Net Income, Total Reportable Segments and of Pro Forma Adjusted Cash Flow from Operations to Net Cash Used in Operating Activities are presented in the attached tables. |
Corporate Private Equity
Corporate Private Equity reported a strong third quarter with revenues of $227.3 million, up 42% from the third quarter of 2006, largely driven by a rise in performance fees and carried interest allocations and investment income as net appreciation from underlying funds was higher as compared to the third quarter 2006. Additionally, transaction fees rose $11.9 million over the same period.
Weighted average fee-earning assets in the quarter totaled $24.62 billion compared with $19.74 billion a year ago.
This was a strong quarter for Blackstone private equity investing, with Limited Partner (“LP”) Capital deployed totaling $2.34 billion compared with $915.3 million a year ago. At September 30, 2007, $5.29 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 September 30, 2007, the Real Estate segment generated revenues of $109.1 million, down 44% from the third quarter 2006. Performance fees and carried interest allocations and investment income declined as net appreciation from underlying funds’ investments was lower as compared to the third quarter 2006. Fund management fees increased by $39.6 million year over year, reflecting growth in weighted average fee-earning assets under management to $17.09 billion compared with $8.90 billion a year ago. During the periods presented, weakness in the sub-prime residential lending area spread to general commercial real estate lending. Although there was no evidence that these credit problems have significantly affected the underlying operating fundamentals of the investment portfolio, valuation multiples have declined modestly.
LP capital deployed in the quarter ended September 2007 totaled $269.8 million, down from $982.8 million last year. At September 30, 2007 $4.00 billion of LP capital had been committed by Blackstone’s Real Estate funds to deals expected to close after September 30, 2007.
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On October 24, 2007, both the Real Estate and Corporate Private Equity funds together with certain limited partner co-investors closed on the purchase of Hilton Hotels. The total equity investment totaled $5.65 billion including $5.17 billion invested by our private equity and real estate limited partners.
Marketable Alternative Asset Management (MAAM)
MAAM achieved third quarter revenues of $124.9 million, an increase of 88% from the same period last year, reflecting a significant increase in fee-earning assets under management as well as increased investment by Blackstone in its funds of hedge funds and proprietary hedge funds. 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.
Weighted average fee-earning assets under management in the quarter totaled $34.83 billion compared with $20.46 billion last year. Investor flows remained robust and investment performance was favorable. Additionally, Blackstone invested $1.25 billion of its IPO proceeds in its sponsored funds.
Financial Advisory
Revenues rose 60% to $84.3 million in this year’s third quarter as compared to the same period last year, primarily reflecting continued strong growth in our fund placement capital raising for alternative assets business. Combined revenues in the merger and acquisition and corporate advisory and restructuring advisory businesses were modestly lower than the prior year.
CAPITAL
For economic net income purposes, the fully diluted unit count at period end was approximately 1,121 million and the total outstanding units entitled to cash distributions were 1,090 million.
DISTRIBUTION
The Blackstone Group L.P. is pleased to declare a distribution of $0.30 per common unit payable to record holders of common units at the close of business on November 30, 2007. This distribution will be paid on December 14, 2007.
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Blackstone will host a conference call on November 12, 2007 at 10:30 a.m. EST to discuss third quarter 2007 results. The conference call can be accessed by dialing (888) 680-0890 (U.S. domestic) and (617) 213-4857 (international) pass code 57287019. Additionally the conference call will be broadcast live over the internet and can be accessed by all interested parties through the Investor Relations section of The Blackstone Group’s website http://ir.blackstone.com. For those unable to listen to the live broadcast, a replay will be available on our website or by dialing (888) 286-8010 (U.S. domestic) or (617) 801-6888 (international) pass code number 65468460, beginning approximately two hours after the event.
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About The Blackstone Group
The Blackstone Group L.P. 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 L.P. 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:
Peter Rose
The Blackstone Group
Tel: +1 212 583 5871
rose@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, 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 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.
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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 September 30, | | Nine Months Ended September 30, |
| | 2007 | | | 2006 | | 2007 | | | 2006 |
Revenues | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 329,445 | | | $ | 241,389 | | $ | 1,118,541 | | | $ | 725,497 |
Performance Fees and Allocations | | | 150,586 | | | | 177,989 | | | 1,266,833 | | | | 491,448 |
Investment Income and Other | | | 46,655 | | | | 42,152 | | | 319,808 | | | | 124,648 |
| | | | | | | | | | | | | | |
Total Revenues | | | 526,686 | | | | 461,530 | | | 2,705,182 | | | | 1,341,593 |
| | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | |
Compensation and Benefits (1) | | | 929,721 | | | | 61,561 | | | 1,354,472 | | | | 170,873 |
Interest | | | 2,258 | | | | 7,268 | | | 28,560 | | | | 27,449 |
General, Administrative and Other (1) | | | 111,814 | | | | 23,367 | | | 190,633 | | | | 74,558 |
Fund Expenses | | | 7,202 | | | | 40,579 | | | 126,448 | | | | 97,349 |
| | | | | | | | | | | | | | |
Total Expenses (2) | | | 1,050,995 | | | | 132,775 | | | 1,700,113 | | | | 370,229 |
| | | | | | | | | | | | | | |
Other Income | | | | | | | | | | | | | | |
Net Gains from Fund Investment Activities (2) | | | 9,884 | | | | 815,172 | | | 5,406,709 | | | | 2,222,545 |
| | | | | | | | | | | | | | |
Income (Loss) Before Non-Controlling Interests in Income of Consolidated Entities and Provision for Taxes | | | (514,425 | ) | | | 1,143,927 | | | 6,411,778 | | | | 3,193,909 |
Non-Controlling Interests in Income (Loss) of Consolidated Entities (2) | | | (407,076 | ) | | | 761,338 | | | 4,601,139 | | | | 2,084,583 |
| | | | | | | | | | | | | | |
Income (Loss) Before Provision for Taxes | | | (107,349 | ) | | | 382,589 | | | 1,810,639 | | | | 1,109,326 |
Provision for Taxes | | | 5,841 | | | | 10,041 | | | 17,402 | | | | 25,560 |
| | | | | | | | | | | | | | |
Net Income (Loss) (1) | | $ | (113,190 | ) | | $ | 372,548 | | $ | 1,793,237 | | | $ | 1,083,766 |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | June 19, 2007
through
September 30, 2007 | | | |
Net Loss | | $ | (113,190 | ) | | | | | $ | (165,514 | ) | | | |
| | | | | | | | | | | | | | |
Net Loss Per Common Unit | | | | | | | | | | | | | | |
Basic | | $ | (0.44 | ) | | | | | $ | (0.65 | ) | | | |
| | | | | | | | | | | | | | |
Diluted | | $ | (0.44 | ) | | | | | $ | (0.65 | ) | | | |
| | | | | | | | | | | | | | |
Weighted-Average Common Units | | | | | | | | | | | | | | |
Basic | | | 254,390,192 | | | | | | | 254,422,197 | | | | |
| | | | | | | | | | | | | | |
Diluted | | | 254,390,192 | | | | | | | 254,422,197 | | | | |
| | | | | | | | | | | | | | |
(1) Transaction related charges included above were: | | | | | | | | | | | | | | |
Compensation and Benefits—amortization of equity-based compensation arising from IPO unit awards | | $ | 747,406 | | | | | | $ | 983,634 | | | | |
General, Administrative and Other—amortization of intangibles | | | 55,204 | | | | | | | 62,404 | | | | |
| | | | | | | | | | | | | | |
| | $ | 802,610 | | | | | | $ | 1,046,038 | | | | |
| | | | | | | | | | | | | | |
| (2) | As to be more fully described in our September 30, 2007 Form 10-Q, during the third quarter of 2007 and consistent with SEC discussions, Blackstone changed the presentation of certain funds to reflect the consolidated results of those funds in the condensed consolidated and combined financial statements. This change has no effect on Net Income (Loss). |
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THE BLACKSTONE GROUP L.P.
Condensed Consolidated and Combined Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Unit Data)
| | | | | | |
| | | September 30,
2007 | | December 31,
2006 |
Assets | | | | | | |
Cash and Cash Equivalents | | $ | 610,193 | | $ | 129,443 |
Cash Held by Blackstone Funds | | | 312,865 | | | 810,725 |
Investments, at Fair Value | | | 6,703,500 | | | 31,263,573 |
Accounts Receivable | | | 352,766 | | | 656,165 |
Due from Brokers | | | 1,231,497 | | | 398,196 |
Investment Subscriptions Paid in Advance | | | 4,295 | | | 280,917 |
Due from Affiliates | | | 596,126 | | | 257,225 |
Other Assets | | | 99,161 | | | 94,800 |
Intangible Assets | | | 659,884 | | | — |
Goodwill | | | 1,606,514 | | | — |
Deferred Tax Assets | | | 793,213 | | | — |
| | | | | | |
Total Assets | | $ | 12,970,014 | | $ | 33,891,044 |
| | | | | | |
| | |
Liabilities and Partners’ Capital | | | | | | |
Loans Payable | | $ | 144,507 | | $ | 975,981 |
Amounts Due to Non-Controlling Interest Holders | | | 209,338 | | | 647,418 |
Securities Sold, Not Yet Purchased | | | 1,084,803 | | | 422,788 |
Due to Affiliates | | | 1,119,271 | | | 103,428 |
Accrued Compensation and Benefits | | | 118,976 | | | 66,301 |
Accounts Payable, Accrued Expenses and Other Liabilities | | | 164,899 | | | 157,355 |
| | | | | | |
Total Liabilities | | | 2,841,794 | | | 2,373,271 |
| | | | | | |
| | |
Commitments and Contingencies | | | | | | |
| | |
Non-Controlling Interests in Consolidated Entities | | | 5,808,854 | | | 28,794,894 |
| | | | | | |
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Partners’ Capital | | | | | | |
Partners’ Capital (common units, 254,667,568 issued and 254,022,406 outstanding as of September 30, 2007) | | | 4,318,973 | | | 2,712,605 |
Accumulated Other Comprehensive Income | | | 393 | | | 10,274 |
| | | | | | |
Total Partners’ Capital | | | 4,319,366 | | | 2,722,879 |
| | | | | | |
Total Liabilities and Partners’ Capital | | $ | 12,970,014 | | $ | 33,891,044 |
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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 nine month periods ended September 30, 2007 and 2006, respectively:
| | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2007 |
| | Corporate
Private
Equity | | Real
Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 94,208 | | $ | 76,223 | | $ | 89,693 | | $ | 81,911 | | $ | 342,035 |
Performance Fees and Allocations | | | 109,051 | | | 28,479 | | | 2,522 | | | — | | | 140,052 |
Investment Income and Other | | | 24,032 | | | 4,398 | | | 32,658 | | | 2,354 | | | 63,442 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 227,291 | | | 109,100 | | | 124,873 | | | 84,265 | | | 545,529 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 56,319 | | | 39,325 | | | 34,006 | | | 50,020 | | | 179,670 |
Other Operating Expenses | | | 22,798 | | | 12,639 | | | 17,779 | | | 13,485 | | | 66,701 |
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Total Expenses | | | 79,117 | | | 51,964 | | | 51,785 | | | 63,505 | | | 246,371 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 148,174 | | $ | 57,136 | | $ | 73,088 | | $ | 20,760 | | $ | 299,158 |
| | | | | | | | | | | | | | | |
| |
| | | Three Months Ended September 30, 2006 |
| | Corporate
Private
Equity | | Real
Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 83,777 | | $ | 72,933 | | $ | 43,215 | | $ | 51,550 | | $ | 251,475 |
Performance Fees and Allocations | | | 61,918 | | | 108,103 | | | 7,730 | | | — | | | 177,751 |
Investment Income and Other | | | 13,933 | | | 15,066 | | | 15,553 | | | 1,008 | | | 45,560 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 159,628 | | | 196,102 | | | 66,498 | | | 52,558 | | | 474,786 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 15,531 | | | 15,613 | | | 19,669 | | | 10,541 | | | 61,354 |
Other Operating Expenses | | | 10,102 | | | 5,344 | | | 11,002 | | | 4,395 | | | 30,843 |
| | | | | | | | | | | | | | | |
Total Expenses | | | 25,633 | | | 20,957 | | | 30,671 | | | 14,936 | | | 92,197 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 133,995 | | $ | 175,145 | | $ | 35,827 | | $ | 37,622 | | $ | 382,589 |
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THE BLACKSTONE GROUP L.P.
Segment Information
(Dollars in Thousands)
| | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2007 |
| | Corporate
Private
Equity | | Real Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 260,234 | | $ | 402,056 | | $ | 228,263 | | $ | 271,954 | | $ | 1,162,507 |
Performance Fees and Allocations | | | 503,939 | | | 662,263 | | | 132,490 | | | — | | | 1,298,692 |
Investment Income and Other | | | 116,541 | | | 151,722 | | | 89,055 | | | 5,073 | | | 362,391 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 880,714 | | | 1,216,041 | | | 449,808 | | | 277,027 | | | 2,823,590 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 98,200 | | | 79,729 | | | 104,637 | | | 88,273 | | | 370,839 |
Other Operating Expenses | | | 54,869 | | | 27,252 | | | 52,527 | | | 27,327 | | | 161,975 |
| | | | | | | | | | | | | | | |
Total Expenses | | | 153,069 | | | 106,981 | | | 157,164 | | | 115,600 | | | 532,814 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 727,645 | | $ | 1,109,060 | | $ | 292,644 | | $ | 161,427 | | $ | 2,290,776 |
| | | | | | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, 2006 |
| | Corporate
Private
Equity | | Real Estate | | Marketable
Alternative
Asset
Management | | Financial
Advisory | | Total
Reportable
Segments |
Segment Revenues | | | | | | | | | | | | | | | |
Management and Advisory Fees | | $ | 270,364 | | $ | 184,224 | | $ | 126,991 | | $ | 172,967 | | $ | 754,546 |
Performance Fees and Allocations | | | 230,536 | | | 243,597 | | | 24,240 | | | — | | | 498,373 |
Investment Income and Other | | | 46,107 | | | 43,956 | | | 36,845 | | | 2,379 | | | 129,287 |
| | | | | | | | | | | | | | | |
Total Revenues | | | 547,007 | | | 471,777 | | | 188,076 | | | 175,346 | | | 1,382,206 |
| | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | |
Compensation and Benefits | | | 42,735 | | | 46,871 | | | 52,121 | | | 29,146 | | | 170,873 |
Other Operating Expenses | | | 34,426 | | | 19,563 | | | 34,461 | | | 13,557 | | | 102,007 |
| | | | | | | | | | | | | | | |
Total Expenses | | | 77,161 | | | 66,434 | | | 86,582 | | | 42,703 | | | 272,880 |
| | | | | | | | | | | | | | | |
Economic Net Income | | $ | 469,846 | | $ | 405,343 | | $ | 101,494 | | $ | 132,643 | | $ | 1,109,326 |
| | | | | | | | | | | | | | | |
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THE BLACKSTONE GROUP L.P.
Economic Net Income
(Dollars in Thousands)
The table below details Blackstone’s Economic Net Income for the three and nine month periods ending September 30, 2007 and September 30, 2006, respectively. Management considers Economic Net Income (“ENI”) an important measurement of value creation and benchmarks its performance against ENI. ENI represents net income excluding the impact of income taxes, non-cash charges associated with the vesting of transaction related equity-based compensation and the amortization of intangibles. However, the historical condensed combined financial statements do not include these non-cash charges nor do such financial statements reflect compensation expenses including profit sharing arrangements associated with our senior managing directors, departed partners and other selected employees which were accounted for as partnership distributions prior to the IPO but are now included as a component of compensation and benefits expense. Therefore, ENI is equivalent to income before taxes in our historical condensed combined financial statements.
| | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | 2007 | | 2006 | | | 2007 | | | 2006 | |
| | | | Pro Forma | |
Economic Net Income, Total Reportable Segments | | $ | 299,158 | | $ | 382,589 | | | $ | 2,290,776 | | | $ | 1,109,326 | |
Pro Forma Adjustments (a) | | | | | | | | | | | | | | | |
Elimination of Non-contributed Entities (b) | | | — | | | (3,712 | ) | | | (69,105 | ) | | | (135,588 | ) |
Increase in Compensation Expense (c) | | | — | | | (143,537 | ) | | | (539,403 | ) | | | (273,442 | ) |
Eliminate Interest Expense (d) | | | — | | | 6,788 | | | | 26,302 | | | | 26,968 | |
| | | | | | | | | | | | | | | |
Economic Net Income | | | 299,158 | | | | | | | | | | | | |
Pro Forma Economic Net Income | | | | | | 242,128 | | | | 1,708,570 | | | | 727,264 | |
Adjustment to Pro Forma Economic Net Income | | | | | | | | | | | | | | | |
Elimination of Carry Plan Related Expense (e) | | | | | | 48,839 | | | | 283,977 | | | | 52,913 | |
| | | | | | | | | | | | | | | |
Pro Forma Adjusted Economic Net Income | | | | | | 290,967 | | | | 1,992,547 | | | | 780,177 | |
Provision for Income Taxes (f) | | | 65,203 | | | 51,853 | | | | 265,089 | | | | 160,815 | |
| | | | | | | | | | | | | | | |
Economic Net Income After Taxes | | $ | 233,955 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Pro Forma Adjusted Economic Net Income After Taxes | | | | | $ | 239,114 | | | $ | 1,727,458 | | | $ | 619,362 | |
| | | | | | | | | | | | | | | |
| (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 adjustments to reflect that no compensation expense on profit sharing plans adopted post the date of the reorganization was incurred prior thereto for comparability with actual results reported for the three months ended September 30, 2007. |
| (f) | Represents provisions for income taxes calculated using the same methodology applied in calculating the tax provision 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 (Loss) before Provision for Taxes for the three and nine month periods ended September 30, 2007, respectively:
| | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2007 | |
| | Total
Reportable
Segments | | Consolidation
Adjustments | | | | | | Blackstone
Consolidated
and Combined | |
Revenues | | $ | 545,529 | | $ | (18,843 | ) | | (a) | | | $ | 526,686 | |
Expenses | | $ | 246,371 | | $ | 804,624 | | | (b) | | | $ | 1,050,995 | |
Other Income | | $ | — | | $ | 9,884 | | | (c) | | | $ | 9,884 | |
Economic Net Income (Loss) | | $ | 299,158 | | $ | (406,507 | ) | | (d) | | | $ | (107,349 | ) |
| |
| | | Nine Months Ended September 30, 2007 | |
| | Total
Reportable
Segments | | Consolidation
Adjustments | | | | | | Blackstone
Consolidated
and Combined | |
Revenues | | $ | 2,823,590 | | $ | (118,408 | ) | | (a | ) | | $ | 2,705,182 | |
Expenses | | $ | 532,814 | | $ | 1,167,299 | | | (b | ) | | $ | 1,700,113 | |
Other Income | | $ | — | | $ | 5,406,709 | | | (c | ) | | $ | 5,406,709 | |
Economic Net Income | | $ | 2,290,776 | | $ | (480,137 | ) | | (d | ) | | $ | 1,810,639 | |
| (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 equity-based compensation to arrive at Blackstone consolidated and combined expenses. |
| (c) | The Other Income adjustment results from the following: |
| | | | | | | | |
| | | Three Months
Ended
September 30, 2007 | | | Nine Months
Ended
September 30, 2007 | |
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation | | $ | 18,843 | | | $ | 118,408 | |
Intersegment Elimination | | | (5,187 | ) | | | (5,187 | ) |
Fund Expenses Added in Consolidation | | | 7,202 | | | | 126,448 | |
Non-Controlling Interests in Income (Loss) of Consolidated Entities | | | (10,974 | ) | | | 5,167,040 | |
| | | | | | | | |
Total Consolidation Adjustments | | $ | 9,884 | | | $ | 5,406,709 | |
| | | | | | | | |
11
THE BLACKSTONE GROUP L.P.
Segment Reconciliation Information
(Dollars in Thousands)
| (d) | The following table reconciles Economic Net Income to Income (Loss) Before Provision for Taxes as reported in the Condensed Consolidated and Combined Statements of Income: |
| | | | | | | | |
| | | Three Months
Ended
September 30, 2007 | | | Nine Months
Ended
September 30, 2007 | |
Economic Net Income | | $ | 299,158 | | | $ | 2,290,776 | |
| | | | | | | | |
Consolidation Adjustments | | | | | | | | |
Amortization of Intangibles | | | (55,204 | ) | | | (62,404 | ) |
Expenses Related to Equity-Based Compensation | | | (747,406 | ) | | | (983,634 | ) |
Decrease in Loss Associated with Non-Controlling Interests in Income (Loss) of Consolidated Entities Primarily Relating to the Blackstone Holdings Partnership Units Held by Blackstone Holdings Limited Partners | | | 396,103 | | | | 565,901 | |
| | | | | | | | |
Total Adjustments | | | (406,507 | ) | | | (480,137 | ) |
| | | | | | | | |
Income (Loss) Before Provision for Taxes | | $ | (107,349 | ) | | $ | 1,810,639 | |
| | | | | | | | |
The following tables reconcile the Total Reportable Segments to Blackstone’s Income (Loss) Before Provision for Taxes for the three and nine month periods ended September 30, 2006, respectively:
| | | | | | | | | | |
| | | Three Months Ended September 30, 2006 |
| | Total
Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Consolidated
and Combined |
Revenues | | $ | 474,786 | | $ | (13,256 | )(a) | | $ | 461,530 |
Expenses | | $ | 92,197 | | $ | 40,578 | (b) | | $ | 132,775 |
Other Income | | $ | — | | $ | 815,172 | (c) | | $ | 815,172 |
Economic Net Income | | $ | 382,589 | | $ | — | | | $ | 382,589 |
| |
| | | Nine Months Ended September 30, 2006 |
| | Total
Reportable
Segments | | Consolidation
Adjustments | | | Blackstone
Consolidated
and Combined |
Revenues | | $ | 1,382,206 | | $ | (40,613 | )(a) | | $ | 1,341,593 |
Expenses | | $ | 272,880 | | $ | 97,349 | (b) | | $ | 370,229 |
Other Income | | $ | — | | $ | 2,222,545 | (c) | | $ | 2,222,545 |
Economic Net Income | | $ | 1,109,326 | | $ | — | | | $ | 1,109,326 |
| (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. |
| (c) | The Other Income adjustment results from the following: |
12
THE BLACKSTONE GROUP L.P.
Segment Reconciliation Information
(Dollars in Thousands)
| | | | | | |
| | | Three Months
Ended
September 30, 2006 | | Nine Months
Ended
September 30, 2006 |
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation | | $ | 13,256 | | $ | 40,613 |
Fund Expenses Added in Consolidation | | | 40,578 | | | 97,349 |
Non-Controlling Interests in Income of Consolidated Entities | | | 761,338 | | | 2,084,583 |
| | | | | | |
Total Consolidation Adjustments | | $ | 815,172 | | $ | 2,222,545 |
| | | | | | |
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:
| | | | | | | | |
| | | Nine Months Ended
September 30, | |
| | 2007 | | | 2006 | |
Net Cash Used in Operating Activities | | $ | (1,094,055 | ) | | $ | (1,290,590 | ) |
Changes in operating assets and liabilities | | | 913,053 | | | | (101,133 | ) |
Blackstone funds related investment activities | | | 867,129 | | | | 1,893,878 | |
Net realized gains on investments | | | 3,825,604 | | | | 4,013,509 | |
Non-Controlling Interests in Income of Consolidated Entities | | | (2,033,096 | ) | | | (3,150,605 | ) |
Realized Gains - Blackstone Funds (a) | | | 77,033 | | | | (44,715 | ) |
| | | | | | | | |
Adjusted Cash Flow from Operations | | | 2,555,668 | | | | 1,320,344 | |
| | |
Pro Forma Cash Flow from Operations - Adjustments (b) | | | | | | | | |
Elimination of Non-Contributed Entities (c) | | | (46,523 | ) | | | (87,609 | ) |
Increase in Compensation Expense (d) | | | (255,426 | ) | | | (220,529 | ) |
Interests Held by Blackstone Holdings Limited Partners (e) | | | (565,901 | ) | | | — | |
Eliminate Interest Expense (f) | | | 26,302 | | | | 26,968 | |
Realized Gains - Blackstone Funds | | | (242,341 | ) | | | (89,848 | ) |
Incremental Cash Tax Effect (g) | | | (199,706 | ) | | | (135,254 | ) |
| | | | | | | | |
Pro Forma Adjusted Cash Flow from Operations | | $ | 1,272,073 | | | $ | 814,072 | |
| | | | | | | | |
| (a) | Represents modification to Blackstone’s definition of Adjusted Cash Flow From Operations to reflect adjustments to net cash provided by (used in) operating activities to adjust for differences in timing of realized gains between The Blackstone Group L.P. and the Blackstone funds. |
| (b) | 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. |
| (c) | 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. |
| (d) | 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 as well as vested carried interest for departed partners. |
| (e) | Represents an adjustment to add back net income (loss) allocable to interest holders of Blackstone Holdings Limited Partners post-Reorganization recorded as Non-Controlling Interests. |
| (f) | 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. |
| (g) | Represent the provisions for income taxes that were calculated using the same methodology applied in calculating the tax provision 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
September 30, |
| | 2007 | | 2006 |
Total Assets Under Management (End of Period) | | | | | | |
Corporate Private Equity | | $ | 32,658,873 | | $ | 27,829,015 |
Real Estate | | | 25,025,741 | | | 10,973,744 |
MAAM | | | 40,515,897 | | | 23,904,355 |
| | | | | | |
| | $ | 98,200,511 | | $ | 62,707,114 |
| | | | | | |
Fee-Earning Assets Under Management (End of Period) | | | | | | |
Corporate Private Equity | | $ | 24,705,648 | | $ | 19,805,059 |
Real Estate | | | 17,152,390 | | | 8,904,972 |
MAAM | | | 35,756,469 | | | 21,519,586 |
| | | | | | |
| | $ | 77,614,507 | | $ | 50,229,617 |
| | | | | | |
Weighted-Average Fee-Earning Assets Under Management | | | | | | |
Corporate Private Equity | | $ | 24,615,313 | | $ | 19,741,333 |
Real Estate | | | 17,089,143 | | | 8,903,509 |
MAAM | | | 34,828,950 | | | 20,464,467 |
| | | | | | |
| | $ | 76,533,406 | | $ | 49,109,309 |
| | | | | | |
Limited Partner Capital Deployed | | | | | | |
Corporate Private Equity | | $ | 2,337,466 | | $ | 915,287 |
Real Estate | | | 269,846 | | | 982,750 |
| | | | | | |
| | $ | 2,607,312 | | $ | 1,898,037 |
| | | | | | |
| |
| | | As of September 30, |
| | | 2007 | | 2006 |
Fund Level Unrealized Value (a) | | | | | | |
Corporate Private Equity | | | | | | |
Cost | | $ | 12,935,576 | | $ | 7,637,455 |
| | | | | | |
Unrealized Value | | $ | 16,540,549 | | $ | 9,899,093 |
| | | | | | |
Real Estate | | | | | | |
Cost | | $ | 6,924,629 | | $ | 3,182,238 |
| | | | | | |
Unrealized Value | | $ | 11,611,947 | | $ | 4,405,069 |
| | | | | | |
| (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
