filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
To the General Partner and Unitholders of The Blackstone Group L.P.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of The Blackstone Group L.P. and subsidiaries (“Blackstone”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, changes in partners’ capital, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). We also have audited Blackstone’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blackstone as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Blackstone maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
Blackstone’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report on internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on Blackstone’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Blackstone in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
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includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 1, 2018
We have served as Blackstone’s auditor since 2006.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Unit Data)
| December 31, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Cash and Cash Equivalents | $ | 1,992,497 | $ | 1,837,253 | ||||
| Cash Held by Blackstone Funds and Other | 1,929,531 | 1,005,161 | ||||||
| Investments (including assets pledged of $169,746 and $119,139 at December 31, 2017 and December 31, 2016, respectively) | 24,434,049 | 17,694,975 | ||||||
| Accounts Receivable | 887,162 | 772,695 | ||||||
| Reverse Repurchase Agreements | — | 118,495 | ||||||
| Due from Affiliates | 2,028,984 | 1,442,378 | ||||||
| Intangible Assets, Net | 409,828 | 262,604 | ||||||
| Goodwill | 1,778,192 | 1,718,519 | ||||||
| Other Assets | 242,697 | 264,788 | ||||||
| Deferred Tax Assets | 725,970 | 1,286,469 | ||||||
| Total Assets | $ | 34,428,910 | $ | 26,403,337 | ||||
| Liabilities and Partners’ Capital | ||||||||
| Loans Payable | $ | 14,815,436 | $ | 8,866,366 | ||||
| Due to Affiliates | 937,158 | 1,321,772 | ||||||
| Accrued Compensation and Benefits | 2,630,019 | 2,327,762 | ||||||
| Securities Sold, Not Yet Purchased | 154,380 | 215,398 | ||||||
| Repurchase Agreements | 118,840 | 75,324 | ||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 2,043,522 | 1,081,782 | ||||||
| Total Liabilities | 20,699,355 | 13,888,404 | ||||||
| Commitments and Contingencies | ||||||||
| Redeemable Non-Controlling Interests in Consolidated Entities | 210,944 | 185,390 | ||||||
| Partners’ Capital | ||||||||
| The Blackstone Group L.P. Partners’ Capital | ||||||||
| Partners’ Capital (common units: 659,526,093 issued and outstanding as of December 31, 2017; 643,459,542 issued and outstanding as of December 31, 2016) | 6,670,365 | 6,523,929 | ||||||
| Accumulated Other Comprehensive Income | (34,018 | ) | (62,887 | ) | ||||
| Total The Blackstone Group L.P. Partners’ Capital | 6,636,347 | 6,461,042 | ||||||
| Non-Controlling Interests in Consolidated Entities | 3,253,148 | 2,428,964 | ||||||
| Non-Controlling Interests in Blackstone Holdings | 3,629,116 | 3,439,537 | ||||||
| Total Partners’ Capital | 13,518,611 | 12,329,543 | ||||||
| Total Liabilities and Partners’ Capital | $ | 34,428,910 | $ | 26,403,337 | ||||
continued…
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Financial Condition
(Dollars in Thousands)
The following presents the portion of the consolidated balances presented above attributable to consolidated Blackstone Funds which are variable interest entities. The following assets may only be used to settle obligations of these consolidated Blackstone Funds and these liabilities are only the obligations of these consolidated Blackstone Funds and they do not have recourse to the general credit of Blackstone.
| December 31, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Cash Held by Blackstone Funds and Other | $ | 1,580,296 | $ | 740,760 | ||||
| Investments | 12,948,653 | 6,459,355 | ||||||
| Accounts Receivable | 470,156 | 355,364 | ||||||
| Due from Affiliates | 46,112 | 21,300 | ||||||
| Other Assets | 5,189 | 2,602 | ||||||
| Total Assets | $ | 15,050,406 | $ | 7,579,381 | ||||
| Liabilities | ||||||||
| Loans Payable | $ | 11,300,621 | $ | 5,466,444 | ||||
| Due to Affiliates | 86,393 | 72,609 | ||||||
| Securities Sold, Not Yet Purchased | 89,907 | 81,309 | ||||||
| Repurchase Agreements | 118,840 | 66,221 | ||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 1,562,534 | 545,481 | ||||||
| Total Liabilities | $ | 13,158,295 | $ | 6,232,064 | ||||
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Operations
(Dollars in Thousands, Except Unit and Per Unit Data)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Revenues | ||||||||||||
| Management and Advisory Fees, Net | $ | 2,729,056 | $ | 2,442,975 | $ | 2,542,505 | ||||||
| Performance Fees | ||||||||||||
| Realized | ||||||||||||
| Carried Interest | 3,439,754 | 1,474,830 | 3,205,290 | |||||||||
| Incentive Fees | 374,571 | 170,537 | 193,238 | |||||||||
| Unrealized | ||||||||||||
| Carried Interest | (100,477 | ) | 481,304 | (1,595,174 | ) | |||||||
| Incentive Fees | (8,692 | ) | 49,660 | (6,688 | ) | |||||||
| Total Performance Fees | 3,705,156 | 2,176,331 | 1,796,666 | |||||||||
| Investment Income (Loss) | ||||||||||||
| Realized | 635,769 | 278,737 | 555,171 | |||||||||
| Unrealized | 42,605 | 77,314 | (350,529 | ) | ||||||||
| Total Investment Income | 678,374 | 356,051 | 204,642 | |||||||||
| Interest and Dividend Revenue | 139,696 | 95,724 | 94,957 | |||||||||
| Other | (133,229 | ) | 54,753 | 7,782 | ||||||||
| Total Revenues | 7,119,053 | 5,125,834 | 4,646,552 | |||||||||
| Expenses | ||||||||||||
| Compensation and Benefits | ||||||||||||
| Compensation | 1,442,485 | 1,335,408 | 1,726,191 | |||||||||
| Performance Fee Compensation | ||||||||||||
| Realized | ||||||||||||
| Carried Interest | 1,226,561 | 455,954 | 793,801 | |||||||||
| Incentive Fees | 160,683 | 78,096 | 85,945 | |||||||||
| Unrealized | ||||||||||||
| Carried Interest | 105,372 | 312,838 | (312,696 | ) | ||||||||
| Incentive Fees | (4,286 | ) | 21,134 | (2,490 | ) | |||||||
| Total Compensation and Benefits | 2,930,815 | 2,203,430 | 2,290,751 | |||||||||
| General, Administrative and Other | 466,316 | 520,309 | 576,103 | |||||||||
| Interest Expense | 197,486 | 152,654 | 144,522 | |||||||||
| Fund Expenses | 132,787 | 52,181 | 79,499 | |||||||||
| Total Expenses | 3,727,404 | 2,928,574 | 3,090,875 | |||||||||
| Other Income | ||||||||||||
| Reduction of Tax Receivable Agreement Liability | 403,855 | — | 82,707 | |||||||||
| Net Gains from Fund Investment Activities | 321,597 | 184,750 | 176,364 | |||||||||
| Total Other Income | 725,452 | 184,750 | 259,071 | |||||||||
| Income Before Provision for Taxes | 4,117,101 | 2,382,010 | 1,814,748 | |||||||||
| Provision for Taxes | 743,147 | 132,362 | 190,398 | |||||||||
| Net Income | 3,373,954 | 2,249,648 | 1,624,350 | |||||||||
| Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities | 13,806 | 3,977 | 11,145 | |||||||||
| Net Income Attributable to Non-Controlling Interests in Consolidated Entities | 497,439 | 246,152 | 219,900 | |||||||||
| Net Income Attributable to Non-Controlling Interests in Blackstone Holdings | 1,391,879 | 960,284 | 683,516 | |||||||||
| Net Income Attributable to The Blackstone Group L.P. | $ | 1,470,830 | $ | 1,039,235 | $ | 709,789 | ||||||
| Net Income Per Common Unit | ||||||||||||
| Common Units, Basic | $ | 2.21 | $ | 1.60 | $ | 1.12 | ||||||
| Common Units, Diluted | $ | 2.21 | $ | 1.56 | $ | 1.04 | ||||||
| Weighted-Average Common Units Outstanding | ||||||||||||
| Common Units, Basic | 665,453,198 | 649,475,264 | 634,337,179 | |||||||||
| Common Units, Diluted | 666,246,846 | 1,195,114,590 | 1,188,085,411 | |||||||||
| Revenues Earned from Affiliates | ||||||||||||
| Management and Advisory Fees, Net | $ | 161,153 | $ | 185,769 | $ | 210,672 | ||||||
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net Income | $ | 3,373,954 | $ | 2,249,648 | $ | 1,624,350 | ||||||
| Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment | 80,366 | (22,194 | ) | (49,238 | ) | |||||||
| Comprehensive Income | 3,454,320 | 2,227,454 | 1,575,112 | |||||||||
| Less: | ||||||||||||
| Comprehensive Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities | 13,806 | 3,977 | 11,145 | |||||||||
| Comprehensive Income Attributable to Non-Controlling Interests in Consolidated Entities | 548,936 | 234,326 | 202,318 | |||||||||
| Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings | 1,391,879 | 960,284 | 683,516 | |||||||||
| Comprehensive Income Attributable to The Blackstone Group L.P. | $ | 1,499,699 | $ | 1,028,867 | $ | 678,133 | ||||||
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statement of Changes in Partners’ Capital
(Dollars in Thousands, Except Unit Data)
| The Blackstone Group L.P. | ||||||||||||||||||||||||||||||||||||
| Common Units | Partners’ Capital | Appro- priated Partners’ Capital | Accumulated Other Compre- hensive (Loss) | Total | Non- Controlling Interests in Consolidated Entities | Non- Controlling Interests in Blackstone Holdings | Total Partners’ Capital | Redeemable Non- Controlling Interests in Consolidated Entities | ||||||||||||||||||||||||||||
| Balance at December 31, 2014 | 595,624,855 | $ | 6,999,830 | $ | 81,301 | $ | (20,864 | ) | $ | 7,060,267 | $ | 3,415,356 | $ | 4,416,070 | $ | 14,891,693 | $ | 2,441,854 | ||||||||||||||||||
| Deconsolidation of CLOs and Funds on Adoption of ASU 2015-02 | — | — | (90,928 | ) | — | (90,928 | ) | (1,002,728 | ) | — | (1,093,656 | ) | (2,258,289 | ) | ||||||||||||||||||||||
| Adjustment to Appropriated Partners’ Capital on Adoption of ASU 2014-13 | — | — | 9,627 | — | 9,627 | — | — | 9,627 | — | |||||||||||||||||||||||||||
| Net Income | — | 709,789 | — | — | 709,789 | 219,900 | 683,516 | 1,613,205 | 11,145 | |||||||||||||||||||||||||||
| Currency Translation Adjustment | — | — | — | (31,655 | ) | (31,655 | ) | (39,475 | ) | — | (71,130 | ) | — | |||||||||||||||||||||||
| Capital Contributions | — | — | — | — | — | 491,456 | — | 491,456 | 2,357 | |||||||||||||||||||||||||||
| Capital Distributions | — | (1,812,602 | ) | — | — | (1,812,602 | ) | (663,536 | ) | (1,684,744 | ) | (4,160,882 | ) | (13,608 | ) | |||||||||||||||||||||
| Distributions Associated with the Spin-Off | — | (232,034 | ) | — | — | (232,034 | ) | — | (135,204 | ) | (367,238 | ) | — | |||||||||||||||||||||||
| Transfer of Non-Controlling Interests in Consolidated Entities | — | — | — | — | — | (12,272 | ) | — | (12,272 | ) | — | |||||||||||||||||||||||||
| Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders | — | 65,027 | — | — | 65,027 | — | — | 65,027 | — | |||||||||||||||||||||||||||
| Equity-Based Compensation | — | 356,440 | — | — | 356,440 | — | 315,442 | 671,882 | — | |||||||||||||||||||||||||||
| Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units | 12,180,703 | (59,128 | ) | — | — | (59,128 | ) | — | (1,903 | ) | (61,031 | ) | — | |||||||||||||||||||||||
| Excess Tax Benefits Related to Equity-Based Compensation, Net | — | 70,317 | — | — | 70,317 | — | — | 70,317 | — | |||||||||||||||||||||||||||
| Change in The Blackstone Group L.P.’s Ownership Interest | — | 92,785 | — | — | 92,785 | — | (92,785 | ) | — | — | ||||||||||||||||||||||||||
| Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units | 16,644,604 | 131,883 | — | — | 131,883 | — | (131,883 | ) | — | — | ||||||||||||||||||||||||||
| Balance at December 31, 2015 | 624,450,162 | $ | 6,322,307 | $ | — | $ | (52,519 | ) | $ | 6,269,788 | $ | 2,408,701 | $ | 3,368,509 | $ | 12,046,998 | $ | 183,459 |
continued…
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statement of Changes in Partners’ Capital
(Dollars in Thousands, Except Unit Data)
| The Blackstone Group L.P. | ||||||||||||||||||||||||||||||||
| Common Units | Partners’ Capital | Accumulated Other Compre- hensive (Loss) | Total | Non- Controlling Interests in Consolidated Entities | Non- Controlling Interests in Blackstone Holdings | Total Partners’ Capital | Redeemable Non- Controlling Interests in Consolidated Entities | |||||||||||||||||||||||||
| Balance at December 31, 2015 | 624,450,162 | $ | 6,322,307 | $ | (52,519 | ) | $ | 6,269,788 | $ | 2,408,701 | $ | 3,368,509 | $ | 12,046,998 | $ | 183,459 | ||||||||||||||||
| Net Income | — | 1,039,235 | — | 1,039,235 | 246,152 | 960,284 | 2,245,671 | 3,977 | ||||||||||||||||||||||||
| Currency Translation Adjustment | — | — | (10,368 | ) | (10,368 | ) | (11,826 | ) | — | (22,194 | ) | — | ||||||||||||||||||||
| Capital Contributions | — | — | — | — | 324,630 | — | 324,630 | 15,000 | ||||||||||||||||||||||||
| Capital Distributions | — | (1,068,017 | ) | — | (1,068,017 | ) | (530,415 | ) | (950,652 | ) | (2,549,084 | ) | (17,046 | ) | ||||||||||||||||||
| Transfer of Non-Controlling Interests in Consolidated Entities | — | — | — | — | (8,278 | ) | — | (8,278 | ) | — | ||||||||||||||||||||||
| Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders | — | 5,369 | — | 5,369 | — | — | 5,369 | — | ||||||||||||||||||||||||
| Equity-Based Compensation | — | 166,206 | — | 166,206 | — | 147,848 | 314,054 | — | ||||||||||||||||||||||||
| Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units | 6,241,282 | (26,572 | ) | — | (26,572 | ) | — | (1,051 | ) | (27,623 | ) | — | ||||||||||||||||||||
| Change in The Blackstone Group L.P.’s Ownership Interest | — | 7,881 | — | 7,881 | — | (7,881 | ) | — | — | |||||||||||||||||||||||
| Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units | 12,768,098 | 77,520 | — | 77,520 | — | (77,520 | ) | — | — | |||||||||||||||||||||||
| Balance at December 31, 2016 | 643,459,542 | $ | 6,523,929 | $ | (62,887 | ) | $ | 6,461,042 | $ | 2,428,964 | $ | 3,439,537 | $ | 12,329,543 | $ | 185,390 |
continued…
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statement of Changes in Partners’ Capital
(Dollars in Thousands, Except Unit Data)
| The Blackstone Group L.P. | ||||||||||||||||||||||||||||||||
| Common Units | Partners’ Capital | Accumulated Other Compre- hensive (Loss) | Total | Non- Controlling Interests in Consolidated Entities | Non- Controlling Interests in Blackstone Holdings | Total Partners’ Capital | Redeemable Non- Controlling Interests in Consolidated Entities | |||||||||||||||||||||||||
| Balance at December 31, 2016 | 643,459,542 | $ | 6,523,929 | $ | (62,887 | ) | $ | 6,461,042 | $ | 2,428,964 | $ | 3,439,537 | $ | 12,329,543 | $ | 185,390 | ||||||||||||||||
| Consolidation of Fund Entity | — | — | — | — | 387,006 | — | 387,006 | — | ||||||||||||||||||||||||
| Net Income | — | 1,470,830 | — | 1,470,830 | 497,439 | 1,391,879 | 3,360,148 | 13,806 | ||||||||||||||||||||||||
| Currency Translation Adjustment | — | — | 28,869 | 28,869 | 51,497 | — | 80,366 | — | ||||||||||||||||||||||||
| Capital Contributions | — | — | — | — | 730,793 | — | 730,793 | 58,920 | ||||||||||||||||||||||||
| Capital Distributions | — | (1,534,586 | ) | — | (1,534,586 | ) | (836,535 | ) | (1,307,996 | ) | (3,679,117 | ) | (47,172 | ) | ||||||||||||||||||
| Transfer of Non-Controlling Interests in Consolidated Entities | — | — | — | — | (6,016 | ) | — | (6,016 | ) | — | ||||||||||||||||||||||
| Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders | — | 11,057 | — | 11,057 | — | — | 11,057 | — | ||||||||||||||||||||||||
| Equity-Based Compensation | — | 183,484 | — | 183,484 | — | 151,539 | 335,023 | — | ||||||||||||||||||||||||
| Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units | 7,084,888 | (28,486 | ) | — | (28,486 | ) | — | (1,706 | ) | (30,192 | ) | — | ||||||||||||||||||||
| Change in The Blackstone Group L.P.’s Ownership Interest | — | (15,197 | ) | — | (15,197 | ) | — | 15,197 | — | — | ||||||||||||||||||||||
| Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units | 8,981,663 | 59,334 | — | 59,334 | — | (59,334 | ) | — | — | |||||||||||||||||||||||
| Balance at December 31, 2017 | 659,526,093 | $ | 6,670,365 | $ | (34,018 | ) | $ | 6,636,347 | $ | 3,253,148 | $ | 3,629,116 | $ | 13,518,611 | $ | 210,944 | ||||||||||||||||
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Operating Activities | ||||||||||||
| Net Income | $ | 3,373,954 | $ | 2,249,648 | $ | 1,624,350 | ||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities | ||||||||||||
| Blackstone Funds Related | ||||||||||||
| Net Realized Gains on Investments | (4,613,531 | ) | (2,023,503 | ) | (4,121,003 | ) | ||||||
| Changes in Unrealized (Gains) Losses on Investments | (21,589 | ) | (241,617 | ) | 722,064 | |||||||
| Non-Cash Performance Fees | 109,169 | (305,559 | ) | 1,391,946 | ||||||||
| Non-Cash Performance Fee Compensation | 1,488,330 | 868,022 | 564,560 | |||||||||
| Equity-Based Compensation Expense | 338,687 | 323,651 | 629,642 | |||||||||
| Excess Tax Benefits Related to Equity-Based Compensation | — | — | (70,318 | ) | ||||||||
| Amortization of Intangibles | 46,776 | 82,943 | 101,437 | |||||||||
| Other Non-Cash Amounts Included in Net Income | 362,865 | 16,711 | 144,657 | |||||||||
| Cash Flows Due to Changes in Operating Assets and Liabilities | ||||||||||||
| Cash Held by Blackstone Funds and Other | (807,551 | ) | (452,108 | ) | 1,220,959 | |||||||
| Cash Relinquished with Deconsolidation and Liquidation of Fund Entity | (33,566 | ) | — | (442,370 | ) | |||||||
| Accounts Receivable | 282,026 | 87,074 | (213,706 | ) | ||||||||
| Reverse Repurchase Agreements | 118,495 | 86,398 | (204,893 | ) | ||||||||
| Due from Affiliates | (298,501 | ) | (57,907 | ) | (97,487 | ) | ||||||
| Other Assets | 17,377 | 99,108 | (149,732 | ) | ||||||||
| Accrued Compensation and Benefits | (1,177,852 | ) | (572,814 | ) | (917,428 | ) | ||||||
| Securities Sold, Not Yet Purchased | (62,730 | ) | 42,761 | 96,780 | ||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | (755,165 | ) | (214,651 | ) | (474,652 | ) | ||||||
| Repurchase Agreements | 43,516 | 34,286 | 11,012 | |||||||||
| Due to Affiliates | (9,652 | ) | 39,035 | (102,847 | ) | |||||||
| Investments Purchased | (19,573,153 | ) | (8,798,358 | ) | (7,937,114 | ) | ||||||
| Cash Proceeds from Sale of Investments | 18,723,355 | 8,195,594 | 10,621,186 | |||||||||
| Net Cash Provided by (Used in) Operating Activities | (2,448,740 | ) | (541,286 | ) | 2,397,043 | |||||||
| Investing Activities | ||||||||||||
| Purchase of Furniture, Equipment and Leasehold Improvements | (24,347 | ) | (21,826 | ) | (59,247 | ) | ||||||
| Net Cash Paid for Acquisitions, Net of Cash Acquired | (168,913 | ) | — | — | ||||||||
| Changes in Restricted Cash | 5,052 | (7,150 | ) | 5,843 | ||||||||
| Net Cash Used in Investing Activities | (188,208 | ) | (28,976 | ) | (53,404 | ) | ||||||
continued…
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Financing Activities | ||||||||||||
| Distributions to Non-Controlling Interest Holders in Consolidated Entities | (813,987 | ) | (533,925 | ) | (677,110 | ) | ||||||
| Contributions from Non-Controlling Interest Holders in Consolidated Entities | 759,907 | 329,005 | 479,678 | |||||||||
| Cash Relinquished in Conjunction with the Spin-Off | — | — | (55,412 | ) | ||||||||
| Payments Under Tax Receivable Agreement | (135,831 | ) | (78,985 | ) | (84,484 | ) | ||||||
| Net Delivery of Vested Common Units and Repurchase of Common and Holdings Units | (30,192 | ) | (27,623 | ) | (61,031 | ) | ||||||
| Excess Tax Benefits Related to Equity-Based Compensation | — | — | 70,318 | |||||||||
| Proceeds from Loans Payable | 7,600,153 | 3,321,081 | 2,423,614 | |||||||||
| Repayment and Repurchase of Loans Payable | (1,766,129 | ) | (420,714 | ) | (517,629 | ) | ||||||
| Distributions to Unitholders | (2,842,582 | ) | (2,018,669 | ) | (3,497,346 | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | 2,771,339 | 570,170 | (1,919,402 | ) | ||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 20,853 | 21 | 615 | |||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 155,244 | (71 | ) | 424,852 | ||||||||
| Cash and Cash Equivalents, Beginning of Period | 1,837,253 | 1,837,324 | 1,412,472 | |||||||||
| Cash and Cash Equivalents, End of Period | $1,992,497 | $1,837,253 | $1,837,324 | |||||||||
| Supplemental Disclosure of Cash Flows Information | ||||||||||||
| Payments for Interest | $ | 160,178 | $ | 151,948 | $ | 126,167 | ||||||
| Payments for Income Taxes | $ | 106,032 | $ | 65,790 | $ | 115,814 | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||||||
| Non-Cash Contributions from Non-Controlling Interest Holders | $ | 1,112 | $ | 1,155 | $ | 2,277 | ||||||
| Non-Cash Distributions to Non-Controlling Interest Holders | $ | (69,721 | ) | $ | (13,536 | ) | $ | (34 | ) | |||
| Non-Cash Consideration for Acquisition | $ | (95,262 | ) | $ | — | $ | — | |||||
| Net Assets Associated with the Spin-Off | $ | — | $ | — | $ | (311,826 | ) | |||||
| Net Activities Related to Capital Transactions of Consolidated Blackstone Funds | $ | — | $ | — | $ | (295 | ) | |||||
| Net Assets Related to the Consolidation of Certain Fund Entities | $ | 387,006 | $ | — | $ | — | ||||||
| Notes Issuance Costs | $ | 5,582 | $ | 5,491 | $ | 5,269 | ||||||
| Transfer of Interests to Non-Controlling Interest Holders | $ | (6,016 | ) | $ | (8,278 | ) | $ | (12,272 | ) | |||
| Change in The Blackstone Group L.P.’s Ownership Interest | $ | (15,197 | ) | $ | 7,881 | $ | 92,785 | |||||
| Net Settlement of Vested Common Units | $ | 127,392 | $ | 101,898 | $ | 139,941 | ||||||
| Conversion of Blackstone Holdings Units to Common Units | $ | 59,334 | $ | 77,520 | $ | 131,883 | ||||||
| Acquisition of Ownership Interests from Non-Controlling Interest Holders Deferred Tax Asset | $ | (74,487 | ) | $ | (59,304 | ) | $ | (195,291 | ) | |||
| Due to Affiliates | $ | 63,430 | $ | 53,935 | $ | 130,264 | ||||||
| Partners’ Capital | $ | 11,057 | $ | 5,369 | $ | 65,027 | ||||||
See notes to consolidated financial statements.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| 1. | ORGANIZATION |
|---|
The Blackstone Group L.P., together with its subsidiaries (“Blackstone” or the “Partnership”), is a leading global manager of private capital. The alternative asset management business includes the management of private equity funds, real estate funds, real estate investment trusts (“REITs”), funds of hedge funds, hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, separately managed accounts and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone’s business is organized into four segments: private equity, real estate, hedge fund solutions and credit.
The Partnership was formed as a Delaware limited partnership on March 12, 2007. The Partnership is managed and operated by its general partner, Blackstone Group Management L.L.C., which is in turn wholly owned by Blackstone’s senior managing directors and controlled by one of Blackstone’s founders, Stephen A. Schwarzman (the “Founder”). The activities of the Partnership are conducted through its holding partnerships: Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (collectively, “Blackstone Holdings”, “Blackstone Holdings Partnerships” or the “Holding Partnerships”). The Partnership, through its wholly owned subsidiaries, is the sole general partner in each of these Holding Partnerships.
Generally, holders of the limited partner interests in the Holding Partnerships may, four times each year, exchange their limited partnership interests (“Partnership Units”) for Blackstone common units, on a one-to-one basis, exchanging one Partnership Unit from each of the Holding Partnerships for one Blackstone common unit.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Basis of Presentation
The accompanying consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The consolidated financial statements include the accounts of the Partnership, its wholly owned or majority-owned subsidiaries, the consolidated entities which are considered to be variable interest entities and for which the Partnership is considered the primary beneficiary, and certain partnerships or similar entities which are not considered variable interest entities but in which the general partner is presumed to have control.
All intercompany balances and transactions have been eliminated in consolidation.
Restructurings within consolidated CLOs are treated as investment purchases or sales, as applicable, in the Consolidated Statements of Cash Flows.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that estimates utilized in the preparation of the consolidated financial statements are prudent and reasonable. Such estimates include those used in the valuation of investments and financial instruments and the accounting for Goodwill and equity-based compensation. Actual results could differ from those estimates and such differences could be material.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Consolidation
The Partnership consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner has a controlling financial interest. The Partnership has a controlling interest in Blackstone Holdings because the limited partners do not have the right to dissolve the partnerships or have substantive kick out rights or participating rights that would overcome the presumption of control by the Partnership. Accordingly, the Partnership consolidates Blackstone Holdings and records non-controlling interests to reflect the economic interests of the limited partners of Blackstone Holdings.
In addition, the Partnership consolidates all variable interest entities (“VIE”) in which it is the primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine (a) whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.
The Partnership determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continually. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly or indirectly by the Partnership. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.
Assets of consolidated VIEs that can only be used to settle obligations of the consolidated VIE and liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of Blackstone are presented in a separate section in the Consolidated Statements of Financial Condition.
Blackstone’s other disclosures regarding VIEs are discussed in Note 9. “Variable Interest Entities”.
Revenue Recognition
Revenues primarily consist of management and advisory fees, performance fees, investment income, interest and dividend revenue and other.
Management and Advisory Fees, Net — Management and Advisory Fees, Net are comprised of management fees, including base management fees, transaction and other fees and advisory fees net of management fee reductions and offsets.
The Partnership earns base management fees from limited partners of funds in each of its managed funds, at a fixed percentage of assets under management, net asset value, total assets, committed capital or invested capital, or in some cases, a fixed fee. Base management fees are recognized based on contractual terms specified in the underlying investment advisory agreements.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Transaction and other fees (including monitoring fees) are fees charged directly to managed funds and portfolio companies. The investment advisory agreements generally require that the investment adviser reduce the amount of management fees payable by the limited partners to the Partnership (“management fee reductions”) by an amount equal to a portion of the transaction and other fees directly paid to the Partnership by the portfolio companies. The amount of the reduction varies by fund, the type of fee paid by the portfolio company and the previously incurred expenses of the fund.
Management fee offsets are reductions to management fees payable by the limited partners of the Blackstone Funds, which are granted based on the amount such limited partners reimburse the Blackstone Funds for placement fees.
Advisory fees consist of transaction-based fee arrangements. Transaction-based fees are recognized when (a) there is evidence of an arrangement with a client, (b) agreed upon services have been provided, (c) fees are fixed or determinable, and (d) collection is reasonably assured.
Accrued but unpaid Management and Advisory Fees, net of management fee reductions and management fee offsets, as of the reporting date are included in Accounts Receivable or Due from Affiliates in the Consolidated Statements of Financial Condition. Management fees paid by limited partners to the Blackstone Funds and passed on to Blackstone are not considered affiliate revenues.
Performance Fees — Performance Fees earned on the performance of Blackstone’s hedge fund structures (“Incentive Fees”) are recognized based on fund performance during the period, subject to the achievement of minimum return levels, or high water marks, in accordance with the respective terms set out in each hedge fund’s governing agreements. Accrued but unpaid Incentive Fees charged directly to investors in Blackstone’s offshore hedge funds as of the reporting date are recorded within Due from Affiliates in the Consolidated Statements of Financial Condition. Accrued but unpaid Incentive Fees on onshore funds as of the reporting date are reflected in Investments in the Consolidated Statements of Financial Condition. Incentive Fees are realized at the end of a measurement period, typically annually. Once realized, such fees are not subject to clawback or reversal.
In certain fund structures, specifically in private equity, real estate and certain hedge fund solutions and credit-focused funds (“carry funds”), performance fees (“Carried Interest”) are allocated to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. At the end of each reporting period, the Partnership calculates the Carried Interest that would be due to the Partnership for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Carried Interest to reflect either (a) positive performance resulting in an increase in the Carried Interest allocated to the general partner or (b) negative performance that would cause the amount due to the Partnership to be less than the amount previously recognized as revenue, resulting in a negative adjustment to Carried Interest allocated to the general partner. In each scenario, it is necessary to calculate the Carried Interest on cumulative results compared to the Carried Interest recorded to date and make the required positive or negative adjustments. The Partnership ceases to record negative Carried Interest allocations once previously recognized Carried Interest allocations for such fund have been fully reversed. The Partnership is not obligated to pay guaranteed returns or hurdles, and therefore, cannot have negative Carried Interest over the life of a fund. Accrued but unpaid Carried Interest as of the reporting date is reflected in Investments in the Consolidated Statements of Financial Condition.
Carried Interest is realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return or, in limited instances, after certain thresholds for return of capital are
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
met. Carried Interest is subject to clawback to the extent that the Carried Interest received to date exceeds the amount due to Blackstone based on cumulative results. As such, the accrual for potential repayment of previously received Carried Interest, which is a component of Due to Affiliates, represents all amounts previously distributed to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone carry funds if the Blackstone carry funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain funds, including certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability.
Investment Income (Loss) — Investment Income (Loss) represents the unrealized and realized gains and losses on the Partnership’s principal investments, including its investments in Blackstone Funds that are not consolidated, its equity method investments, and other principal investments. Investment Income (Loss) is realized when the Partnership redeems all or a portion of its investment or when the Partnership receives cash income, such as dividends or distributions. Unrealized Investment Income (Loss) results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain (loss) at the time an investment is realized.
Interest and Dividend Revenue — Interest and Dividend Revenue comprises primarily interest and dividend income earned on principal investments held by Blackstone.
Other Revenue — Other Revenue consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.
Fair Value of Financial Instruments
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
| • | Level I — Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments in Level I include listed equities, listed derivatives and mutual funds with quoted prices. The Partnership does not adjust the quoted price for these investments, even in situations where Blackstone holds a large position and a sale could reasonably impact the quoted price. |
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| • | Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Financial instruments which are generally included in this category include corporate bonds and loans, including corporate bonds and loans held within CLO vehicles, government and agency securities, less liquid and restricted equity securities, and certain over-the-counter derivatives where the fair value is based on observable inputs. Senior and subordinated notes issued by CLO vehicles are classified within Level II of the fair value hierarchy. |
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| • | Level III — Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair |
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| value require significant management judgment or estimation. Financial instruments that are included in this category generally include general and limited partnership interests in private equity and real estate funds, credit-focused funds, distressed debt and non-investment grade residual interests in securitizations, certain corporate bonds and loans held within CLO vehicles, and certain over-the-counter derivatives where the fair value is based on unobservable inputs. |
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In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Transfers between levels of the fair value hierarchy are recognized at the beginning of the reporting period.
Level II Valuation Techniques
Financial instruments classified within Level II of the fair value hierarchy comprise debt instruments, including certain corporate loans and bonds held by Blackstone’s consolidated CLO vehicles and debt securities sold, not yet purchased. Certain equity securities and derivative instruments valued using observable inputs are also classified as Level II.
The valuation techniques used to value financial instruments classified within Level II of the fair value hierarchy are as follows:
| • | Debt Instruments and Equity Securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction. |
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| • | Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads. |
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| • | Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services. |
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Level III Valuation Techniques
In the absence of observable market prices, Blackstone values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks. Investments for which market prices are not observable include private investments in the equity of operating companies, real estate properties, certain funds of hedge funds and credit-focused investments.
Private Equity Investments — The fair values of private equity investments are determined by reference to projected net earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”), the discounted
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
cash flow method, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are based on unaudited information at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (for example, multiplying a key performance metric of the investee company such as EBITDA by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.
Real Estate Investments — The fair values of real estate investments are determined by considering projected operating cash flows, sales of comparable assets, if any, and replacement costs among other measures. The methods used to estimate the fair value of real estate investments include the discounted cash flow method and/or capitalization rates (“cap rates”) analysis. Valuations may be derived by reference to observable valuation measures for comparable companies or assets (for example, multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Where a discounted cash flow method is used, a terminal value is derived by reference to an exit EBITDA multiple or capitalization rate. Additionally, where applicable, projected distributable cash flow through debt maturity will be considered in support of the investment’s fair value.
Credit-Focused Investments — The fair values of credit-focused investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. For credit-focused investments that are not publicly traded or whose market prices are not readily available, Blackstone may utilize other valuation techniques, including the discounted cash flow method or a market approach. The discounted cash flow method projects the expected cash flows of the debt instrument based on contractual terms, and discounts such cash flows back to the valuation date using a market-based yield. The market-based yield is estimated using yields of publicly traded debt instruments issued by companies operating in similar industries as the subject investment, with similar leverage statistics and time to maturity.
The market approach is generally used to determine the enterprise value of the issuer of a credit investment, and considers valuation multiples of comparable companies or transactions. The resulting enterprise value will dictate whether or not such credit investment has adequate enterprise value coverage. In cases of distressed credit instruments, the market approach may be used to estimate a recovery value in the event of a restructuring.
Level III Valuation Process
Investments classified within Level III of the fair value hierarchy are valued on a quarterly basis, taking into consideration factors including any changes in Blackstone’s weighted-average cost of capital assumptions, discounted cash flow projections and exit multiple assumptions, as well as any changes in economic and other relevant conditions, and valuation models are updated accordingly. The valuation process also includes a review by an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee chaired by Blackstone’s Vice Chairman and includes senior heads of each of Blackstone’s businesses, as well as representatives of legal and finance. Each quarter, the valuations of Blackstone’s investments are also reviewed by the Audit Committee in a meeting attended by the chairman of the valuation committee. The valuations are further tested by comparison to actual sales prices obtained on disposition of the investments.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Investments, at Fair Value
The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide, Investment Companies, and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. Such consolidated funds’ investments are reflected in Investments on the Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of Net Gains (Losses) from Fund Investment Activities in the Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, at current market conditions (i.e., the exit price).
Blackstone’s principal investments are presented at fair value with unrealized appreciation or depreciation and realized gains and losses recognized in the Consolidated Statements of Operations within Investment Income (Loss).
For certain instruments, the Partnership has elected the fair value option. Such election is irrevocable and is applied on an investment by investment basis at initial recognition. The Partnership has applied the fair value option for certain loans and receivables and certain investments in private debt securities that otherwise would not have been carried at fair value with gains and losses recorded in net income. Accounting for these financial instruments at fair value is consistent with how the Partnership accounts for its other principal investments. Loans extended to third parties are recorded within Accounts Receivable within the Consolidated Statements of Financial Condition. Debt securities for which the fair value option has been elected are recorded within Investments. The methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity, real estate, credit-focused and funds of hedge funds investments. Changes in the fair value of such instruments are recognized in Investment Income (Loss) in the Consolidated Statements of Operations. Interest income on interest bearing loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.
In addition, the Partnership has elected the fair value option for the assets and liabilities of CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of variable interest entity consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts or the acquisition of the share capital of CLO managers. Historically, the adjustment resulting from the difference between the fair value of assets and liabilities for each of these events was presented as a transition and acquisition adjustment to Appropriated Partners’ Capital. Assets of the consolidated CLOs are presented within Investments within the Consolidated Statements of Financial Condition and Liabilities within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by non-consolidated affiliates. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption and acquisition are presented within Net Gains (Losses) from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses. Historically, amounts attributable to Non-Controlling Interests in Consolidated Entities had a corresponding adjustment to Appropriated Partners’ Capital. On the adoption of the new CLO measurement guidance, there is no attribution of amounts to Non-Controlling Interests and no corresponding adjustments to Appropriated Partners’ Capital.
The Partnership has elected the fair value option for certain proprietary investments that would otherwise have been accounted for using the equity method of accounting. The fair value of such investments is based on quoted prices in an active market or using the discounted cash flow method. Changes in fair value are recognized in Investment Income (Loss) in the Consolidated Statements of Operations.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Further disclosure on instruments for which the fair value option has been elected is presented in Note 7. “Fair Value Option”.
The investments of consolidated Blackstone Funds in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. In limited circumstances, the Partnership may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP.
Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-focused funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or lock-ups, the institution of gates on redemptions or the suspension of redemptions or an ability to side pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side pocket are liquidated or it is deemed that the conditions existing at the time that required the investment to be included in the side pocket no longer exist. As the timing of either of these events is uncertain, the timing at which the Partnership may redeem an investment held in a side pocket cannot be estimated. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value”.
Security and loan transactions are recorded on a trade date basis.
Equity Method Investments
Investments in which the Partnership is deemed to exert significant influence, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, the Partnership’s share of earnings (losses) from equity method investments is included in Investment Income (Loss) in the Consolidated Statements of Operations. The carrying amounts of equity method investments are reflected in Investments in the Consolidated Statements of Financial Condition. As the underlying investments of the Partnership’s equity method investments in Blackstone Funds are reported at fair value, the carrying value of the Partnership’s equity method investments approximates fair value.
Cash and Cash Equivalents
Cash and Cash Equivalents represents cash on hand, cash held in banks, money market funds and liquid investments with original maturities of three months or less. Interest income from cash and cash equivalents is recorded in Interest and Dividend Revenue in the Consolidated Statements of Operations.
Cash Held by Blackstone Funds and Other
Cash Held by Blackstone Funds and Other represents cash and cash equivalents held by consolidated Blackstone Funds and other consolidated entities. Such amounts are not available to fund the general liquidity needs of Blackstone.
Accounts Receivable
Accounts Receivable includes management fees receivable from limited partners, receivables from underlying funds in the fund of hedge funds business, placement and advisory fees receivables, receivables relating to unsettled
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
sale transactions and loans extended to unaffiliated third parties. Accounts Receivable, excluding those for which the fair value option has been elected, are assessed periodically for collectability. Amounts determined to be uncollectible are charged directly to General, Administrative and Other Expenses in the Consolidated Statements of Operations.
Intangibles and Goodwill
Blackstone’s intangible assets consist of contractual rights to earn future fee income, including management and advisory fees, Incentive Fees and Carried Interest. Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from three to twenty years, reflecting the contractual lives of such assets. Amortization expense is included within General, Administrative and Other in the Consolidated Statements of Operations. The Partnership does not hold any indefinite-lived intangible assets. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill comprises goodwill arising from the contribution and reorganization of the Partnership’s predecessor entities in 2007 immediately prior to its IPO, the acquisition of GSO in 2008, the acquisition of Strategic Partners in 2013 and the acquisition of Harvest Fund Advisors LLC (“Harvest”) in 2017. Goodwill is reviewed for impairment at least annually utilizing a qualitative or quantitative approach, and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of Blackstone’s operating segments is less than their respective carrying values. The operating segment is the reporting level for testing the impairment of goodwill. If it is determined that it is more likely than not that an operating segment’s fair value is less than its carrying value or when the quantitative approach is used, a two-step quantitative assessment is performed to (a) calculate the fair value of the operating segment and compare it to its carrying value, and (b) if the carrying value exceeds its fair value, to measure an impairment loss.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist primarily of leasehold improvements, furniture, fixtures and equipment, computer hardware and software and are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful economic lives, which for leasehold improvements are the lesser of the lease terms or the life of the asset, generally ten to fifteen years, and three to seven years for other fixed assets. The Partnership evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Foreign Currency
In the normal course of business, the Partnership may enter into transactions not denominated in United States dollars. Foreign exchange gains and losses arising on such transactions are recorded as Other Revenue in the Consolidated Statements of Operations. Foreign currency transaction gains and losses arising within consolidated Blackstone Funds are recorded in Net Gains (Losses) from Fund Investment Activities. In addition, the Partnership consolidates a number of entities that have a non-U.S. dollar functional currency. Non-U.S. dollar denominated assets and liabilities are translated to U.S. dollars at the exchange rate prevailing at the reporting date and income, expenses, gains and losses are translated at the prevailing exchange rate on the dates that they were recorded. Cumulative translation adjustments arising from the translation of non-U.S. dollar denominated operations are recorded in Other Comprehensive Income and allocated to Non-Controlling Interests in Consolidated Entities, as applicable.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Comprehensive Income
Comprehensive Income consists of Net Income and Other Comprehensive Income. The Partnership’s Other Comprehensive Income is comprised of foreign currency cumulative translation adjustments.
Non-Controlling Interests in Consolidated Entities
Non-Controlling Interests in Consolidated Entities represent the component of Partners’ Capital in consolidated Blackstone Funds held by third party investors and employees. The percentage interests held by third parties and employees is adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-focused funds which occur during the reporting period. In addition, all non-controlling interests in consolidated Blackstone Funds are attributed a share of income (loss) arising from the respective funds and a share of other comprehensive income, if applicable. Income (Loss) is allocated to non-controlling interests in consolidated entities based on the relative ownership interests of third party investors and employees after considering any contractual arrangements that govern the allocation of income (loss) such as fees allocable to The Blackstone Group L.P.
Redeemable Non-Controlling Interests in Consolidated Entities
Non-controlling interests related to funds of hedge funds are subject to annual, semi-annual or quarterly redemption by investors in these funds following the expiration of a specified period of time, or may be withdrawn subject to a redemption fee during the period when capital may not be withdrawn. As limited partners in these types of funds have been granted redemption rights, amounts relating to third party interests in such consolidated funds are presented as Redeemable Non-Controlling Interests in Consolidated Entities within the Consolidated Statements of Financial Condition. When redeemable amounts become legally payable to investors, they are classified as a liability and included in Accounts Payable, Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition. For all consolidated funds in which redemption rights have not been granted, non-controlling interests are presented within Partners’ Capital in the Consolidated Statements of Financial Condition as Non-Controlling Interests in Consolidated Entities.
Non-Controlling Interests in Blackstone Holdings
Non-Controlling Interests in Blackstone Holdings represent the component of Partners’ Capital in the consolidated Blackstone Holdings Partnerships held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships.
Certain costs and expenses are borne directly by the Holdings Partnerships. Income (Loss), excluding those costs directly borne by and attributable to the Holdings Partnerships, is attributable to Non-Controlling Interests in Blackstone Holdings. This residual attribution is based on the year to date average percentage of Blackstone Holdings Partnership Units held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships.
Compensation and Benefits
Compensation and Benefits — Compensation — Compensation and Benefits consists of (a) employee compensation, comprising salary and bonus, and benefits paid and payable to employees and senior managing directors and (b) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors. Compensation cost relating to the issuance of equity-based awards to senior managing
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
directors and employees is measured at fair value at the grant date, taking into consideration expected forfeitures, and expensed over the vesting period on a straight-line basis, except in the case of (a) equity-based awards that do not require future service, which are expensed immediately, and (b) certain awards to recipients that meet specified criteria making them eligible for retirement treatment (allowing such recipient to keep a percentage of those awards upon departure from Blackstone after becoming eligible for retirement), for which the expense for the portion of the award that would be retained in the event of retirement is either expensed immediately or amortized to the retirement date. Cash settled equity-based awards are classified as liabilities and are remeasured at the end of each reporting period.
Compensation and Benefits — Performance Fee — Performance Fee Compensation consists of Carried Interest (which may be distributed in cash or in-kind) and Incentive Fee allocations, and may in future periods also include allocations of investment income from Blackstone’s firm investments, to employees and senior managing directors participating in certain profit sharing initiatives. Such compensation expense is subject to both positive and negative adjustments. Unlike Carried Interest and Incentive Fees, compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis. Compensation received from advisory clients in the form of securities of such clients may also be allocated to employees and senior managing directors.
Other Income
Net Gains (Losses) from Fund Investment Activities in the Consolidated Statements of Operations include net realized gains (losses) from realizations and sales of investments, the net change in unrealized gains (losses) resulting from changes in the fair value of investments and interest income and expense and dividends attributable to the consolidated Blackstone Funds’ investments.
Expenses incurred by consolidated Blackstone funds are separately presented within Fund Expenses in the Consolidated Statements of Operations.
Other Income also includes amounts attributable to the Reduction of the Tax Receivable Agreement Liability. See Note 14. “Income Taxes — Other Income — Reduction of the Tax Receivable Agreement Liability” for additional information.
Income Taxes
The Blackstone Holdings Partnerships and certain of their subsidiaries operate in the U.S. as partnerships for U.S. federal income tax purposes and generally as corporate entities in non-U.S. jurisdictions. Accordingly, these entities in some cases are subject to New York City unincorporated business taxes or non-U.S. income taxes. In addition, certain of the wholly owned subsidiaries of the Partnership and the Blackstone Holdings Partnerships will be subject to federal, state and local corporate income taxes at the entity level and the related tax provision attributable to the Partnership’s share of this income tax is reflected in the Consolidated Financial Statements.
Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current and deferred tax liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Blackstone uses the flow-through method to account for investment tax credits. Under this method, the investment tax credits are recognized as a reduction to income tax expense.
Blackstone analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. Blackstone records uncertain tax positions on the basis of a two-step process: (a) determination is made whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (b) those tax positions that meet the more likely than not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Blackstone recognizes accrued interest and penalties related to uncertain tax positions in General, Administrative, and Other expenses within the Consolidated Statements of Operations.
Net Income (Loss) Per Common Unit
Basic Income (Loss) Per Common Unit is calculated by dividing Net Income (Loss) Attributable to The Blackstone Group L.P. by the weighted-average number of common units and unvested participating common units outstanding for the period. Diluted Income (Loss) Per Common Unit reflects the assumed conversion of all dilutive securities. Diluted Income (Loss) Per Common Unit excludes the anti-dilutive effect of Blackstone Holdings Partnership Units and deferred restricted common units, as applicable.
Repurchase and Reverse Repurchase Agreements
Securities purchased under agreements to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprised primarily of U.S. and non-U.S. government and agency securities, asset-backed securities and corporate debt, represent collateralized financing transactions. Such transactions are recorded in the Consolidated Statements of Financial Condition at their contractual amounts and include accrued interest. The carrying value of repurchase and reverse repurchase agreements approximates fair value.
The Partnership manages credit exposure arising from reverse repurchase agreements and repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Partnership, in the event of a counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
The Partnership takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver or otherwise use such securities. The Partnership also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments in the Consolidated Statements of Financial Condition. Additional disclosures relating to reverse repurchase and repurchase agreements are discussed in Note 10. “Reverse Repurchase and Repurchase Agreements”.
Blackstone does not offset assets and liabilities relating to reverse repurchase agreements and repurchase agreements in its Consolidated Statements of Financial Condition. Additional disclosures relating to offsetting are discussed in Note 12. “Offsetting of Assets and Liabilities”.
Securities Sold, Not Yet Purchased
Securities Sold, Not Yet Purchased consist of equity and debt securities that the Partnership has borrowed and sold. The Partnership is required to “cover” its short sale in the future by purchasing the security at prevailing
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
market prices and delivering it to the counterparty from which it borrowed the security. The Partnership is exposed to loss in the event that the price at which a security may have to be purchased to cover a short sale exceeds the price at which the borrowed security was sold short.
Securities Sold, Not Yet Purchased are recorded at fair value in the Consolidated Statements of Financial Condition.
Derivative Instruments
The Partnership recognizes all derivatives as assets or liabilities on its Consolidated Statements of Financial Condition at fair value. On the date the Partnership enters into a derivative contract, it designates and documents each derivative contract as one of the following: (a) a hedge of a recognized asset or liability (“fair value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (c) a hedge of a net investment in a foreign operation, or (d) a derivative instrument not designated as a hedging instrument (“freestanding derivative”). For a fair value hedge, Blackstone records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk, in current period earnings in General, Administrative and Other in the Consolidated Statements of Operations. Changes in the fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being hedged, which are excluded from the assessment of hedge effectiveness, are recognized in current period earnings. Gains or losses on a derivative instrument that is designated as, and is effective as, an economic hedge of a net investment in a foreign operation are reported in the cumulative translation adjustment section of other comprehensive income to the extent it is effective as a hedge. The ineffective portion of a net investment hedge is recognized in current period earnings.
The Partnership formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Partnership’s evaluation of effectiveness of its hedged transaction. At least monthly, the Partnership also formally assesses whether the derivative it designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in estimated fair values or cash flows of the hedged items using either the regression analysis or the dollar offset method. For net investment hedges, the Partnership uses a method based on changes in spot rates to measure effectiveness. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. The Partnership may also at any time remove a designation of a fair value hedge. The fair values of hedging derivative instruments are reflected within Other Assets in the Consolidated Statements of Financial Condition.
For freestanding derivative contracts, the Partnership presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains (Losses) from Fund Investment Activities or, where derivative instruments are held by the Partnership, within Investment Income (Loss) in the Consolidated Statements of Operations. The fair value of freestanding derivative assets of the consolidated Blackstone Funds are recorded within Investments, the fair value of freestanding derivative assets that are not part of the consolidated Blackstone Funds are recorded within Other Assets and the fair value of freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition.
The Partnership has elected to not offset derivative assets and liabilities or financial assets in its Consolidated Statements of Financial Condition, including cash, that may be received or paid as part of collateral arrangements, even when an enforceable master netting agreement is in place that provides the Partnership, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Blackstone’s other disclosures regarding derivative financial instruments are discussed in Note 6. “Derivative Financial Instruments”.
Blackstone’s disclosures regarding offsetting are discussed in Note 12. “Offsetting of Assets and Liabilities”.
Affiliates
Blackstone considers its Founder, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates.
Distributions
Distributions are reflected in the consolidated financial statements when declared.
Recent Accounting Developments
In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance on revenue from contracts with customers. The guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
The guidance introduces new qualitative and quantitative disclosure requirements about contracts with customers including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations. Information is required about significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and determining the transaction price and amounts allocated to performance obligations. Additional disclosures are required about assets recognized from the costs to obtain or fulfill a contract.
In August 2015, the FASB issued new guidance deferring the effective date of the new revenue recognition standard by one year. The new guidance should be applied for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
Blackstone has concluded that capital allocation-based Performance Fees (“Capital Allocation-Based Arrangements”) represent equity method investments that are not in the scope of the amended revenue recognition guidance. Therefore, effective January 1, 2018, Blackstone will amend the recognition and measurement of Capital Allocation-Based Arrangements. This accounting change will not change the timing or amount of revenue recognized related to Capital Allocation-Based Arrangements. These amounts are currently recognized within Realized and Unrealized Performance Fees — Carried Interest and Incentive Fees in the Consolidated Statements of Operations. Under the equity method of accounting Blackstone will recognize its allocations of Carried Interest or Incentive Fees within Investment Income along with the allocations proportionate to Blackstone’s ownership interests in the Blackstone Funds. Blackstone will apply a retrospective application and prior periods shall be restated. The impact of adoption is a reclassification of Carried Interest to Investment Income. This change will
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
have no impact on Net Income Attributable to The Blackstone Group L.P. Blackstone has concluded that the majority of its Incentive Fees are not part of a Capital Allocation-Based Arrangement (“Contractual Incentive Fees”), and are within the scope of the amended revenue recognition guidance. This accounting change will delay recognition of Contractual Incentive Fees compared to our current accounting treatment, and it is not expected to have a material impact on Blackstone’s financial statements.
The Partnership has evaluated the impact of the amended revenue recognition guidance on other revenue streams including management fees and it is not expected to have a material impact on Blackstone’s financial statements.
In February 2016, the FASB issued amended guidance on the accounting for leases. The guidance requires the recognition of lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. The guidance retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not changed significantly from previous GAAP.
For operating leases, a lessee is required to do the following: (a) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the Statement of Financial Condition, (b) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (c) classify all cash payments within operating activities in the statement of cash flows.
The guidance is effective for fiscal periods beginning after December 15, 2018. Early application is permitted. Blackstone is evaluating the impact of the amended guidance on the Consolidated Statement of Financial Condition. It is not expected to have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.
In November 2016, the FASB issued amended guidance on classification and presentation of restricted cash on the statement of cash flows. Under the new guidance, reporting entities are required to explain the changes in the combined total of restricted and unrestricted balances in the statement of cash flows. Therefore, amounts generally described as restricted cash or restricted cash equivalents (hereinafter referred to as “restricted cash”) should be combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. Reporting entities will also be required to disclose how the statement of cash flows reconciles to the balance sheet in any situation in which the balance sheet includes more than one line item of cash, cash equivalents, and restricted cash. The new guidance should be applied for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period using a retrospective transition method to each period presented. Early application is permitted. The Partnership is currently evaluating the impact of this guidance on the financial statements.
In January 2016, the FASB issued amended guidance on the classification and measurement of financial instruments. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new guidance should be applied for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period using a modified retrospective
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively. Early application is permitted. This amended guidance is not expected to have a material impact on Blackstone’s financial statements.
| 3. | GOODWILL AND INTANGIBLE ASSETS |
|---|
On October 16, 2017, Blackstone completed its acquisition of Harvest, an independent investment management firm, which resulted in an increase of Goodwill of $59.7 million and an increase in Intangible Assets, primarily comprising contractual rights to earn future fee income, of $194.0 million. Goodwill arising from the acquisition has been allocated to the Credit segment.
The carrying value of goodwill was $1.8 billion and $1.7 billion as of December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the Partnership determined there was no evidence of Goodwill impairment.
At December 31, 2017, goodwill has been allocated to each of the Partnership’s four segments as follows: Private Equity ($778.3 million), Real Estate ($421.7 million), Hedge Fund Solutions ($172.1 million), and Credit ($406.1 million). At December 31, 2016, goodwill has been allocated to each of the Partnership’s four segments as follows: Private Equity ($778.3 million), Real Estate ($421.7 million), Hedge Fund Solutions ($172.1 million), and Credit ($346.4 million).
Intangible Assets, Net consists of the following:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Finite-Lived Intangible Assets / Contractual Rights | $ | 1,594,876 | $ | 1,400,876 | ||||
| Accumulated Amortization | (1,185,048 | ) | (1,138,272 | ) | ||||
| Intangible Assets, Net | $ | 409,828 | $ | 262,604 | ||||
Changes in the Partnership’s Intangible Assets, Net consists of the following:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Balance, Beginning of Year | $ | 262,604 | $ | 345,547 | $ | 458,833 | ||||||
| Amortization Expense | (46,776 | ) | (82,943 | ) | (101,437 | ) | ||||||
| Acquisitions | 194,000 | — | — | |||||||||
| Intangibles Transferred to PJT Partners Inc. at Spin-Off | — | — | (11,849 | ) | ||||||||
| Balance, End of Year | $ | 409,828 | $ | 262,604 | $ | 345,547 | ||||||
Amortization of Intangible Assets held at December 31, 2017 is expected to be $57.9 million, $57.9 million, $57.9 million, $57.9 million, and $50.2 million for each of the years ending December 31, 2018, 2019, 2020, 2021, and 2022, respectively. Blackstone’s intangible assets as of December 31, 2017 are expected to amortize over a weighted-average period of 9.2 years.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| 4. | INVESTMENTS |
|---|
Investments consist of the following:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Investments of Consolidated Blackstone Funds | $ | 12,954,121 | $ | 6,480,674 | ||||
| Equity Method Investments | 3,263,131 | 3,092,378 | ||||||
| Corporate Treasury Investments | 2,566,043 | 2,518,438 | ||||||
| Performance Fees | 5,328,280 | 5,320,994 | ||||||
| Other Investments | 322,474 | 282,491 | ||||||
| $ | 24,434,049 | $ | 17,694,975 | |||||
Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $488.4 million and $384.4 million at December 31, 2017 and December 31, 2016, respectively.
Investments of Consolidated Blackstone Funds
The following table presents the Realized and Net Change in Unrealized Gains (Losses) on investments held by the consolidated Blackstone Funds and a reconciliation to Other Income (Loss) — Net Gains (Losses) from Fund Investment Activities in the Consolidated Statements of Operations:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Realized Gains | $ | 165,106 | $ | 123,524 | $ | 223,078 | ||||||
| Net Change in Unrealized Losses | (21,016 | ) | (61,045 | ) | (161,398 | ) | ||||||
| Realized and Net Change in Unrealized Gains (Losses) from Consolidated Blackstone Funds | 144,090 | 62,479 | 61,680 | |||||||||
| Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds | 177,507 | 122,271 | 114,684 | |||||||||
| Other Income — Net Gains from Fund Investment Activities | $ | 321,597 | $ | 184,750 | $ | 176,364 | ||||||
Equity Method Investments
Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds and credit-focused funds and other proprietary investments, which are not consolidated but in which the Partnership exerts significant influence.
Blackstone evaluates each of its equity method investments to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission (“SEC”). As of and for the years ended December 31, 2017, 2016 and 2015, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present separate financial statements for any of its equity method investments.
Blackstone holds a 40% non-controlling equity interest in Pátria Investments Limited and Pátria Investimentos Ltda. (collectively, “Pátria”) and accounts for this interest using the equity method of accounting.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The Partnership recognized net gains related to its equity method investments of $609.5 million, $214.4 million and $82.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The summarized financial information of the Partnership’s equity method investments for December 31, 2017 are as follows:
| December 31, 2017 and the Year Then Ended | ||||||||||||||||||||||||
| Private | Real | Hedge Fund | ||||||||||||||||||||||
| Equity | Estate | Solutions | Credit | Other (a) | Total | |||||||||||||||||||
| Statement of Financial Condition | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Investments | $ | 50,339,913 | $ | 67,780,737 | $ | 21,639,763 | $ | 22,593,717 | $ | 363 | $ | 162,354,493 | ||||||||||||
| Other Assets | 2,283,602 | 3,077,573 | 1,969,832 | 1,573,279 | 154,131 | 9,058,417 | ||||||||||||||||||
| Total Assets | $ | 52,623,515 | $ | 70,858,310 | $ | 23,609,595 | $ | 24,166,996 | $ | 154,494 | $ | 171,412,910 | ||||||||||||
| Liabilities and Partners’ Capital | ||||||||||||||||||||||||
| Debt | $ | 6,779,634 | $ | 6,329,068 | $ | 53,787 | $ | 4,896,346 | $ | — | $ | 18,058,835 | ||||||||||||
| Other Liabilities | 430,763 | 1,618,408 | 1,150,307 | 420,988 | 39,923 | 3,660,389 | ||||||||||||||||||
| Total Liabilities | 7,210,397 | 7,947,476 | 1,204,094 | 5,317,334 | 39,923 | 21,719,224 | ||||||||||||||||||
| Partners’ Capital | 45,413,118 | 62,910,834 | 22,405,501 | 18,849,662 | 114,571 | 149,693,686 | ||||||||||||||||||
| Total Liabilities and Partners’ Capital | $ | 52,623,515 | $ | 70,858,310 | $ | 23,609,595 | $ | 24,166,996 | $ | 154,494 | $ | 171,412,910 | ||||||||||||
| Statement of Operations | ||||||||||||||||||||||||
| Interest Income | $ | 362,788 | $ | 485,751 | $ | 2,942 | $ | 928,670 | $ | — | $ | 1,780,151 | ||||||||||||
| Other Income | 45,770 | 1,334,544 | 91,006 | 178,281 | 107,204 | 1,756,805 | ||||||||||||||||||
| Interest Expense | (121,876 | ) | (180,258 | ) | (2,086 | ) | (127,153 | ) | — | (431,373 | ) | |||||||||||||
| Other Expenses | (568,369 | ) | (703,165 | ) | (435,974 | ) | (258,157 | ) | (57,830 | ) | (2,023,495 | ) | ||||||||||||
| Net Realized and Unrealized Gain from Investments | 7,892,937 | 12,223,852 | 1,054,516 | 584,366 | — | 21,755,671 | ||||||||||||||||||
| Net Income | $ | 7,611,250 | $ | 13,160,724 | $ | 710,404 | $ | 1,306,007 | $ | 49,374 | $ | 22,837,759 | ||||||||||||
| (a) | Other represents the summarized financial information of equity method investments whose results, for segment reporting purposes, have been allocated across more than one of Blackstone’s segments. |
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The summarized financial information of the Partnership’s equity method investments for December 31, 2016 are as follows:
| December 31, 2016 and the Year Then Ended | ||||||||||||||||||||||||
| Private | Real | Hedge Fund | ||||||||||||||||||||||
| Equity | Estate | Solutions | Credit | Other (a) | Total | |||||||||||||||||||
| Statement of Financial Condition | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Investments | $ | 49,751,021 | $ | 62,370,093 | $ | 21,007,134 | $ | 17,804,292 | $ | 7,354 | $ | 150,939,894 | ||||||||||||
| Other Assets | 2,815,042 | 4,384,031 | 2,434,590 | 1,478,119 | 173,917 | 11,285,699 | ||||||||||||||||||
| Total Assets | $ | 52,566,063 | $ | 66,754,124 | $ | 23,441,724 | $ | 19,282,411 | $ | 181,271 | $ | 162,225,593 | ||||||||||||
| Liabilities and Partners’ Capital | ||||||||||||||||||||||||
| Debt | $ | 3,715,079 | $ | 4,034,184 | $ | 73,915 | $ | 2,495,778 | $ | — | $ | 10,318,956 | ||||||||||||
| Other Liabilities | 1,254,211 | 1,591,727 | 1,837,583 | 701,986 | 51,266 | 5,436,773 | ||||||||||||||||||
| Total Liabilities | 4,969,290 | 5,625,911 | 1,911,498 | 3,197,764 | 51,266 | 15,755,729 | ||||||||||||||||||
| Partners’ Capital | 47,596,773 | 61,128,213 | 21,530,226 | 16,084,647 | 130,005 | 146,469,864 | ||||||||||||||||||
| Total Liabilities and Partners’ Capital | $ | 52,566,063 | $ | 66,754,124 | $ | 23,441,724 | $ | 19,282,411 | $ | 181,271 | $ | 162,225,593 | ||||||||||||
| Statement of Operations | ||||||||||||||||||||||||
| Interest Income | $ | 353,179 | $ | 445,166 | $ | 439 | $ | 849,508 | $ | — | $ | 1,648,292 | ||||||||||||
| Other Income | 10,620 | 1,499,503 | 35,264 | 32,628 | 104,669 | 1,682,684 | ||||||||||||||||||
| Interest Expense | (82,370 | ) | (141,097 | ) | (1,410 | ) | (157,921 | ) | — | (382,798 | ) | |||||||||||||
| Other Expenses | (473,790 | ) | (605,538 | ) | (150,964 | ) | (224,345 | ) | (56,407 | ) | (1,511,044 | ) | ||||||||||||
| Net Realized and Unrealized Gain from Investments | 4,870,332 | 5,368,361 | 226,368 | 1,186,038 | 515 | 11,651,614 | ||||||||||||||||||
| Net Income | $ | 4,677,971 | $ | 6,566,395 | $ | 109,697 | $ | 1,685,908 | $ | 48,777 | $ | 13,088,748 | ||||||||||||
| (a) | Other represents the summarized financial information of equity method investments whose results, for segment reporting purposes, have been allocated across more than one of Blackstone’s segments. |
|---|
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The summarized financial information of the Partnership’s equity method investments for December 31, 2015 are as follows:
| December 31, 2015 and the Year Then Ended | ||||||||||||||||||||||||
| Private | Real | Hedge Fund | ||||||||||||||||||||||
| Equity | Estate | Solutions | Credit | Other (a) | Total | |||||||||||||||||||
| Statement of Financial Condition | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Investments | $ | 48,210,598 | $ | 61,971,919 | $ | 21,858,491 | $ | 16,136,543 | $ | 11,577 | $ | 148,189,128 | ||||||||||||
| Other Assets | 1,041,591 | 6,210,557 | 1,927,535 | 1,174,601 | 53,825 | 10,408,109 | ||||||||||||||||||
| Total Assets | $ | 49,252,189 | $ | 68,182,476 | $ | 23,786,026 | $ | 17,311,144 | $ | 65,402 | $ | 158,597,237 | ||||||||||||
| Liabilities and Partners’ Capital | ||||||||||||||||||||||||
| Debt | $ | 2,178,261 | $ | 5,562,806 | $ | 275,068 | $ | 2,086,670 | $ | — | $ | 10,102,805 | ||||||||||||
| Other Liabilities | 1,315,572 | 1,573,370 | 1,462,072 | 956,305 | 52,269 | 5,359,588 | ||||||||||||||||||
| Total Liabilities | 3,493,833 | 7,136,176 | 1,737,140 | 3,042,975 | 52,269 | 15,462,393 | ||||||||||||||||||
| Partners’ Capital | 45,758,356 | 61,046,300 | 22,048,886 | 14,268,169 | 13,133 | 143,134,844 | ||||||||||||||||||
| Total Liabilities and Partners’ Capital | $ | 49,252,189 | $ | 68,182,476 | $ | 23,786,026 | $ | 17,311,144 | $ | 65,402 | $ | 158,597,237 | ||||||||||||
| Statement of Operations | ||||||||||||||||||||||||
| Interest Income | $ | 384,174 | $ | 361,249 | $ | 170 | $ | 533,591 | $ | — | $ | 1,279,184 | ||||||||||||
| Other Income | 8,506 | 1,313,956 | 35,112 | 49,042 | 84,975 | 1,491,591 | ||||||||||||||||||
| Interest Expense | (33,416 | ) | (91,985 | ) | (3,228 | ) | (61,971 | ) | — | (190,600 | ) | |||||||||||||
| Other Expenses | (278,911 | ) | (355,617 | ) | (125,393 | ) | (167,385 | ) | (45,203 | ) | (972,509 | ) | ||||||||||||
| Net Realized and Unrealized Gain from Investments | 3,272,934 | 3,740,127 | 449,930 | (954,692 | ) | 17,778 | 6,526,077 | |||||||||||||||||
| Net Income | $ | 3,353,287 | $ | 4,967,730 | $ | 356,591 | $ | (601,415 | ) | $ | 57,550 | $ | 8,133,743 | |||||||||||
| (a) | Other represents the summarized financial information of equity method investments whose results, for segment reporting purposes, have been allocated across more than one of Blackstone’s segments. |
|---|
Corporate Treasury Investments
The portion of corporate treasury investments included in Investments represents the Partnership’s investments into primarily fixed income securities, mutual fund interests, and other fund interests. These strategies are managed by a combination of Blackstone personnel and third party advisors. The following table presents the Realized and Net Change in Unrealized Gains (Losses) on these investments:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Realized Gains (Losses) | $ | 4,378 | $ | (20,263 | ) | $ | (15,525 | ) | ||||
| Net Change in Unrealized Gains (Losses) | 50,222 | 19,671 | (35,709 | ) | ||||||||
| $ | 54,600 | $ | (592 | ) | $ | (51,234 | ) | |||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Performance Fees
Performance Fees allocated to the general partner in respect of performance of certain carry funds, funds of hedge funds and credit-focused funds were as follows:
| Private Equity | Real Estate | Hedge Fund Solutions | Credit | Total | ||||||||||||||||
| Performance Fees, December 31, 2016 | $ | 1,984,450 | $ | 2,970,448 | $ | 6,132 | $ | 359,964 | $ | 5,320,994 | ||||||||||
| Performance Fees Allocated as a Result of Changes in Fund Fair Values | 1,143,974 | 1,980,830 | 54,986 | 225,774 | 3,405,564 | |||||||||||||||
| Foreign Exchange Gain | — | 65,029 | — | — | 65,029 | |||||||||||||||
| Fund Distributions | (1,211,453 | ) | (2,157,000 | ) | (47,316 | ) | (47,538 | ) | (3,463,307 | ) | ||||||||||
| Performance Fees, December 31, 2017 | $ | 1,916,971 | $ | 2,859,307 | $ | 13,802 | $ | 538,200 | $ | 5,328,280 | ||||||||||
Other Investments
Other Investments consist primarily of proprietary investment securities held by Blackstone. The following table presents Blackstone’s Realized and Net Change in Unrealized Gains (Losses) in other investments:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Realized Gains | $ | 4,886 | $ | 2,495 | $ | 80 | ||||||
| Net Change in Unrealized Gains (Losses) | 14,324 | 11,128 | (4,079 | ) | ||||||||
| $ | 19,210 | $ | 13,623 | $ | (3,999 | ) | ||||||
| 5. | NET ASSET VALUE AS FAIR VALUE |
|---|
A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of December 31, 2017 is presented below:
| Strategy | Fair Value | Unfunded Commitments | Redemption Frequency (if currently eligible) | Redemption Notice Period | ||||||||||||
| Diversified Instruments | $ | 268,470 | $ | 135 | (a | ) | (a | ) | ||||||||
| Credit Driven | 135,450 | 268 | (b | ) | (b | ) | ||||||||||
| Equity | 59,565 | — | (c | ) | (c | ) | ||||||||||
| Commodities | 1,975 | — | (d | ) | (d | ) | ||||||||||
| $ | 465,460 | $ | 403 | |||||||||||||
| (a) | Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing 3% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 97% of investments in this category are redeemable as of the reporting date. |
|---|
| (b) | The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 52% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 48% of investments in this category are redeemable as of the reporting date. |
|---|
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| (c) | The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. |
|---|
| (d) | The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. |
|---|
| 6. | DERIVATIVE FINANCIAL INSTRUMENTS |
|---|
Blackstone and the Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone may also enter into derivative contracts in order to hedge its foreign currency risk exposure against the effects of a portion of its non-U.S. dollar denominated currency net investments. As a result of the use of derivative contracts, Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.
Net Investment Hedges
To manage the potential exposure from adverse changes in currency exchange rates arising from Blackstone’s net investment in foreign operations, during December 2014, Blackstone entered into several foreign currency forward contracts to hedge a portion of the net investment in Blackstone’s non-U.S. dollar denominated foreign operations.
Blackstone uses foreign currency forward contracts to hedge portions of Blackstone’s net investments in foreign operations. The gains and losses due to change in fair value attributable to changes in spot exchange rates on foreign currency derivatives designated as net investment hedges were recognized in Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment. For the year ended December 31, 2017 the resulting loss was $7.1 million.
Freestanding Derivatives
Freestanding derivatives are instruments that Blackstone and certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include interest rate swaps, foreign exchange contracts, equity swaps, options, futures and other derivative contracts.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts.
| December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||||||
| Notional | Fair Value | Notional | Fair Value | Notional | Fair Value | Notional | Fair Value | |||||||||||||||||||||||||
| Net Investment Hedges | ||||||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | — | $ | — | $ | 50,857 | $ | 453 | $ | — | $ | — | $ | 51,267 | $ | 587 | ||||||||||||||||
| Freestanding Derivatives | ||||||||||||||||||||||||||||||||
| Blackstone | ||||||||||||||||||||||||||||||||
| Interest Rate Contracts | 225,550 | 2,042 | 1,530,751 | 27,275 | 2,651,583 | 2,356 | 546,211 | 2,355 | ||||||||||||||||||||||||
| Foreign Currency Contracts | 279,050 | 2,097 | 296,252 | 2,975 | 164,247 | 1,037 | 127,444 | 966 | ||||||||||||||||||||||||
| Credit Default Swaps | 2,073 | 304 | 2,073 | 304 | — | — | 3,819 | 215 | ||||||||||||||||||||||||
| Investments of Consolidated Blackstone Funds | ||||||||||||||||||||||||||||||||
| Foreign Currency Contracts | 493,181 | 24,087 | 264,693 | 5,628 | 254,162 | 25,050 | 136,025 | 3,903 | ||||||||||||||||||||||||
| Credit Default Swaps | 45,670 | 3,731 | 45,582 | 5,163 | — | — | 113,057 | 3,350 | ||||||||||||||||||||||||
| Total Return Swaps | 25,645 | 526 | — | — | — | — | — | — | ||||||||||||||||||||||||
| 1,071,169 | 32,787 | 2,139,351 | 41,345 | 3,069,992 | 28,443 | 926,556 | 10,789 | |||||||||||||||||||||||||
| $ | 1,071,169 | $ | 32,787 | $ | 2,190,208 | $ | 41,798 | $ | 3,069,992 | $ | 28,443 | $ | 977,823 | $ | 11,376 | |||||||||||||||||
The table below summarizes the impact to the Consolidated Statements of Operations from derivative financial instruments:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net Investment Hedges — Foreign Currency Contracts | ||||||||||||
| Hedge Ineffectiveness | $ | (75 | ) | $ | (108 | ) | $ | 283 | ||||
| Freestanding Derivatives | ||||||||||||
| Realized Gains (Losses) | ||||||||||||
| Interest Rate Contracts | $ | (2,400 | ) | $ | (1,600 | ) | $ | (8,716 | ) | |||
| Foreign Currency Contracts | (6,333 | ) | (5,079 | ) | 12,828 | |||||||
| Credit Default Swaps | (3,764 | ) | (5,141 | ) | 2,336 | |||||||
| Total Return Swaps | 295 | — | — | |||||||||
| Equity Options | (417 | ) | — | — | ||||||||
| $ | (12,619 | ) | $ | (11,820 | ) | $ | 6,448 | |||||
| Net Change in Unrealized Gains (Losses) | ||||||||||||
| Interest Rate Contracts | $ | (24,629 | ) | $ | 1,253 | $ | 3,933 | |||||
| Foreign Currency Contracts | (3,556 | ) | 25,839 | (7,930 | ) | |||||||
| Credit Default Swaps | 4,881 | (3,027 | ) | (7,518 | ) | |||||||
| Total Return Swaps | (447 | ) | — | — | ||||||||
| Equity Options | 129 | — | — | |||||||||
| $ | (23,622 | ) | $ | 24,065 | $ | (11,515 | ) | |||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
As of December 31, 2017, 2016 and 2015, the Partnership had not designated any derivatives as cash flow hedges.
| 7. | FAIR VALUE OPTION |
|---|
The following table summarizes the financial instruments for which the fair value option has been elected:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Loans and Receivables | $ | 239,659 | $ | 211,359 | ||||
| Equity and Preferred Securities | 475,485 | 444,713 | ||||||
| Debt Securities | 418,061 | — | ||||||
| Assets of Consolidated CLO Vehicles | ||||||||
| Corporate Loans | 10,825,759 | 4,762,071 | ||||||
| Corporate Bonds | 690,125 | 710,947 | ||||||
| Other | 458 | — | ||||||
| $ | 12,649,547 | $ | 6,129,090 | |||||
| Liabilities | ||||||||
| Liabilities of Consolidated CLO Vehicles | ||||||||
| Senior Secured Notes | ||||||||
| Loans Payable | $ | 10,594,656 | $ | 5,125,804 | ||||
| Due to Affiliates | 996 | — | ||||||
| Subordinated Notes | ||||||||
| Loans Payable | 703,164 | 337,846 | ||||||
| Due to Affiliates | 40,390 | 7,748 | ||||||
| $ | 11,339,206 | $ | 5,471,398 | |||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following table presents the Realized and Net Change in Unrealized Gains (Losses) on financial instruments on which the fair value option was elected:
| Year Ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| Realized Gains (Losses) | Net Change in Unrealized Gains (Losses) | Realized Gains (Losses) | Net Change in Unrealized Gains (Losses) | Realized Gains (Losses) | Net Change in Unrealized Gains (Losses) | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Loans and Receivables | $ | (1,214 | ) | $ | 6,590 | $ | (42 | ) | $ | 3,375 | $ | — | $ | (4,793 | ) | |||||||||
| Equity and Preferred Securities | 4,611 | 22,326 | (476 | ) | 16,033 | (300 | ) | (17,269 | ) | |||||||||||||||
| Debt Securities | 4,866 | (3,390 | ) | (2,404 | ) | 426 | — | (426 | ) | |||||||||||||||
| Assets of Consolidated CLO Vehicles | ||||||||||||||||||||||||
| Corporate Loans | (3,827 | ) | (6,603 | ) | (6,128 | ) | 66,601 | (1,895 | ) | (36,502 | ) | |||||||||||||
| Corporate Bonds | 12,442 | (36,219 | ) | 4,793 | 18,859 | (551 | ) | 1,188 | ||||||||||||||||
| Other | — | 454 | 264 | — | 4,431 | (3,589 | ) | |||||||||||||||||
| $ | 16,878 | $ | (16,842 | ) | $ | (3,993 | ) | $ | 105,294 | $ | 1,685 | $ | (61,391 | ) | ||||||||||
| Liabilities | ||||||||||||||||||||||||
| Liabilities of Consolidated CLO Vehicles | ||||||||||||||||||||||||
| Subordinated Notes | $ | — | $ | 81,460 | $ | (2,400 | ) | $ | (69,103 | ) | $ | — | $ | 57,119 | ||||||||||
The following table presents information for those financial instruments for which the fair value option was elected:
| December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
| For Financial Assets Past Due (a) | For Financial Assets Past Due (a) | |||||||||||||||||||||||
| Excess (Deficiency) of Fair Value Over Principal | Fair Value | Excess of Fair Value Over Principal | Excess (Deficiency) of Fair Value Over Principal | Fair Value | Excess of Fair Value Over Principal | |||||||||||||||||||
| Loans and Receivables | $ | 1,207 | $ | — | $ | — | $ | (6,476 | ) | $ | — | $ | — | |||||||||||
| Debt Securities | (372 | ) | — | — | — | — | — | |||||||||||||||||
| Assets of Consolidated CLO Vehicles | ||||||||||||||||||||||||
| Corporate Loans | (13,495 | ) | 57,778 | (19,633 | ) | 2,616 | — | — | ||||||||||||||||
| Corporate Bonds | (21,455 | ) | — | — | 7,259 | — | — | |||||||||||||||||
| $ | (34,115 | ) | $ | 57,778 | $ | (19,633 | ) | $ | 3,399 | $ | — | $ | — | |||||||||||
| (a) | Corporate Loans and Corporate Bonds within CLO assets are classified as past due if contractual payments are more than one day past due. |
|---|
As of December 31, 2017 and 2016, no Loans and Receivables for which the fair value option was elected were past due or in non-accrual status. As of December 31, 2017 and 2016, no Corporate Bonds included within the Assets of Consolidated CLO Vehicles for which the fair value option was elected were past due or in non-accrual status.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| 8. | FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS |
|---|
The following tables summarize the valuation of the Partnership’s financial assets and liabilities by the fair value hierarchy:
| December 31, 2017 | ||||||||||||||||||||
| Level I | Level II | Level III | NAV | Total | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and Cash Equivalents — Money Market Funds | $ | 853,680 | $ | — | $ | — | $ | — | $ | 853,680 | ||||||||||
| Investments | ||||||||||||||||||||
| Investments of Consolidated Blackstone Funds (a) | ||||||||||||||||||||
| Investment Funds | — | — | — | 130,339 | 130,339 | |||||||||||||||
| Equity Securities | 67,443 | 44,026 | 131,867 | — | 243,336 | |||||||||||||||
| Partnership and LLC Interests | — | 2,549 | 331,448 | — | 333,997 | |||||||||||||||
| Debt Instruments | — | 643,608 | 58,155 | — | 701,763 | |||||||||||||||
| Freestanding Derivatives | ||||||||||||||||||||
| Foreign Currency Contracts | — | 101 | — | — | 101 | |||||||||||||||
| Credit Default Swaps | — | 3,731 | — | — | 3,731 | |||||||||||||||
| Total Return Swaps | — | 526 | — | — | 526 | |||||||||||||||
| Assets of Consolidated CLO Vehicles | ||||||||||||||||||||
| Corporate Loans | — | 10,318,316 | 507,443 | — | 10,825,759 | |||||||||||||||
| Corporate Bonds | — | 690,125 | — | — | 690,125 | |||||||||||||||
| Freestanding Derivatives — Foreign Currency Contracts | — | 23,986 | — | — | 23,986 | |||||||||||||||
| Other | — | — | 458 | — | 458 | |||||||||||||||
| Total Investments of Consolidated Blackstone Funds | 67,443 | 11,726,968 | 1,029,371 | 130,339 | 12,954,121 | |||||||||||||||
| Corporate Treasury Investments | ||||||||||||||||||||
| Equity Securities | 282,866 | — | — | — | 282,866 | |||||||||||||||
| Debt Instruments | — | 1,943,654 | 24,249 | — | 1,967,903 | |||||||||||||||
| Other | — | — | — | 315,274 | 315,274 | |||||||||||||||
| Total Corporate Treasury Investments | 282,866 | 1,943,654 | 24,249 | 315,274 | 2,566,043 | |||||||||||||||
| Other Investments | 193,072 | 14,162 | 95,393 | 19,847 | 322,474 | |||||||||||||||
| Total Investments | 543,381 | 13,684,784 | 1,149,013 | 465,460 | 15,842,638 | |||||||||||||||
| Accounts Receivable — Loans and Receivables | — | — | 239,659 | — | 239,659 | |||||||||||||||
| Other Assets | ||||||||||||||||||||
| Freestanding Derivatives | ||||||||||||||||||||
| Interest Rate Contracts | 575 | 1,467 | — | — | 2,042 | |||||||||||||||
| Foreign Currency Contracts | — | 2,097 | — | — | 2,097 | |||||||||||||||
| Credit Default Swaps | — | 304 | — | — | 304 | |||||||||||||||
| Total Other Assets | 575 | 3,868 | — | — | 4,443 | |||||||||||||||
| $ | 1,397,636 | $ | 13,688,652 | $ | 1,388,672 | $ | 465,460 | $ | 16,940,420 | |||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| December 31, 2017 | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Loans Payable — Liabilities of Consolidated CLO Vehicles (a) | ||||||||||||||||
| Senior Secured Notes (b) | $ | — | $ | 10,594,656 | $ | — | $ | 10,594,656 | ||||||||
| Subordinated Notes (b) | — | 703,164 | — | 703,164 | ||||||||||||
| Total Loans Payable | — | 11,297,820 | — | 11,297,820 | ||||||||||||
| Due to Affiliates — Liabilities of Consolidated CLO Vehicles (a) | ||||||||||||||||
| Senior Secured Notes (b) | — | 996 | — | 996 | ||||||||||||
| Subordinated Notes (b) | — | 40,390 | — | 40,390 | ||||||||||||
| Total Due to Affiliates | — | 41,386 | — | 41,386 | ||||||||||||
| Securities Sold, Not Yet Purchased | — | 154,380 | — | 154,380 | ||||||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | ||||||||||||||||
| Liabilities of Consolidated Blackstone Funds — | ||||||||||||||||
| Freestanding Derivatives (a) | ||||||||||||||||
| Foreign Currency Contracts | — | 5,628 | — | 5,628 | ||||||||||||
| Credit Default Swaps | — | 5,163 | — | 5,163 | ||||||||||||
| Total Liabilities of Consolidated Blackstone Funds | — | 10,791 | — | 10,791 | ||||||||||||
| Freestanding Derivatives | ||||||||||||||||
| Interest Rate Contracts | 415 | 26,860 | — | 27,275 | ||||||||||||
| Foreign Currency Contracts | — | 2,975 | — | 2,975 | ||||||||||||
| Credit Default Swaps | — | 304 | — | 304 | ||||||||||||
| Total Freestanding Derivatives | 415 | 30,139 | — | 30,554 | ||||||||||||
| Net Investment Hedges — Foreign Currency Contracts | — | 453 | — | 453 | ||||||||||||
| Total Accounts Payable, Accrued Expenses and Other Liabilities | 415 | 41,383 | — | 41,798 | ||||||||||||
| $ | 415 | $ | 11,534,969 | $ | — | $ | 11,535,384 | |||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| December 31, 2016 | ||||||||||||||||||||
| Level I | Level II | Level III | NAV | Total | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and Cash Equivalents — Money Market Funds | $ | 443,442 | $ | — | $ | — | $ | — | $ | 443,442 | ||||||||||
| Investments | ||||||||||||||||||||
| Investments of Consolidated Blackstone Funds (a) | ||||||||||||||||||||
| Investment Funds | — | — | — | 148,993 | 148,993 | |||||||||||||||
| Equity Securities | 76,381 | 70,544 | 93,657 | — | 240,582 | |||||||||||||||
| Partnership and LLC Interests | — | 29,430 | 337,230 | — | 366,660 | |||||||||||||||
| Debt Instruments | — | 219,049 | 7,322 | — | 226,371 | |||||||||||||||
| Freestanding Derivatives — Foreign Currency Contracts | — | 2,327 | — | — | 2,327 | |||||||||||||||
| Assets of Consolidated CLO Vehicles | ||||||||||||||||||||
| Corporate Loans | — | 4,514,407 | 247,664 | — | 4,762,071 | |||||||||||||||
| Corporate Bonds | — | 710,947 | — | — | 710,947 | |||||||||||||||
| Freestanding Derivatives — Foreign Currency Contracts | — | 22,723 | — | — | 22,723 | |||||||||||||||
| Total Investments of Consolidated Blackstone Funds | 76,381 | 5,569,427 | 685,873 | 148,993 | 6,480,674 | |||||||||||||||
| Corporate Treasury Investments | ||||||||||||||||||||
| Equity Securities | 281,505 | — | — | — | 281,505 | |||||||||||||||
| Debt Instruments | — | 1,944,171 | 30,424 | 54,907 | 2,029,502 | |||||||||||||||
| Other | — | — | — | 207,431 | 207,431 | |||||||||||||||
| Total Corporate Treasury Investments | 281,505 | 1,944,171 | 30,424 | 262,338 | 2,518,438 | |||||||||||||||
| Other Investments | 163,548 | — | 100,164 | 18,779 | 282,491 | |||||||||||||||
| Total Investments | 521,434 | 7,513,598 | 816,461 | 430,110 | 9,281,603 | |||||||||||||||
| Accounts Receivable — Loans and Receivables | — | — | 211,359 | — | 211,359 | |||||||||||||||
| Other Assets | ||||||||||||||||||||
| Freestanding Derivatives | ||||||||||||||||||||
| Interest Rate Contracts | 1,883 | 473 | — | — | 2,356 | |||||||||||||||
| Foreign Currency Contracts | — | 1,037 | — | — | 1,037 | |||||||||||||||
| Total Freestanding Derivatives | 1,883 | 1,510 | — | — | 3,393 | |||||||||||||||
| Total Other Assets | 1,883 | 1,510 | — | — | 3,393 | |||||||||||||||
| $ | 966,759 | $ | 7,515,108 | $ | 1,027,820 | $ | 430,110 | $ | 9,939,797 | |||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| December 31, 2016 | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Loans Payable — Liabilities of Consolidated CLO Vehicles (a) | ||||||||||||||||
| Senior Secured Notes (b) | $ | — | $ | 5,125,804 | $ | — | $ | 5,125,804 | ||||||||
| Subordinated Notes (b) | — | 337,846 | — | 337,846 | ||||||||||||
| Total Loans Payable | — | 5,463,650 | — | 5,463,650 | ||||||||||||
| Due to Affiliates — Liabilities of Consolidated CLO Vehicles (a) | ||||||||||||||||
| Subordinated Notes (b) | — | 7,748 | — | 7,748 | ||||||||||||
| Total Due to Affiliates | — | 7,748 | — | 7,748 | ||||||||||||
| Securities Sold, Not Yet Purchased | — | 215,398 | — | 215,398 | ||||||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | ||||||||||||||||
| Liabilities of Consolidated Blackstone Funds — Freestanding Derivatives (a) | ||||||||||||||||
| Foreign Currency Contracts | — | 3,903 | — | 3,903 | ||||||||||||
| Credit Default Swaps | — | 3,350 | — | 3,350 | ||||||||||||
| Total Liabilities of Consolidated Blackstone Funds | — | 7,253 | — | 7,253 | ||||||||||||
| Freestanding Derivatives | ||||||||||||||||
| Interest Rate Contracts | 750 | 1,605 | — | 2,355 | ||||||||||||
| Foreign Currency Contracts | — | 966 | — | 966 | ||||||||||||
| Credit Default Swaps | — | 215 | — | 215 | ||||||||||||
| Total Freestanding Derivatives | 750 | 2,786 | — | 3,536 | ||||||||||||
| Net Investment Hedges — Foreign Currency Contracts | — | 587 | — | 587 | ||||||||||||
| Total Accounts Payable, Accrued Expenses and Other Liabilities | 750 | 10,626 | — | 11,376 | ||||||||||||
| $ | 750 | $ | 5,697,422 | $ | — | $ | 5,698,172 | |||||||||
| (a) | Pursuant to GAAP consolidation guidance, the Partnership is required to consolidate all VIEs in which it has been identified as the primary beneficiary, including certain CLO vehicles, and other funds in which a consolidated entity of the Partnership, as the general partner of the fund, has a controlling financial interest. While the Partnership is required to consolidate certain funds, including CLO vehicles, for GAAP purposes, the Partnership has no ability to utilize the assets of these funds and there is no recourse to the Partnership for their liabilities since these are client assets and liabilities. |
|---|
| (b) | Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services. |
|---|
The following table summarizes the fair value transfers between Level I and Level II for positions that existed as of December 31, 2017 and 2016, respectively:
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Transfers from Level I into Level II (a) | $ | 938 | $ | 2,114 | ||||
| Transfers from Level II into Level I (b) | $ | — | $ | 39,974 |
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| (a) | Transfers out of Level I represent those financial instruments for which restrictions exist and adjustments were made to an otherwise observable price to reflect fair value at the reporting date. |
|---|
| (b) | Transfers into Level I represent those financial instruments for which an unadjusted quoted price in an active market became available for the identical asset. |
|---|
The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2017:
| Fair Value | Valuation Techniques | Unobservable Inputs | Ranges | Weighted Average (a) | ||||||||||||||||
| Financial Assets | ||||||||||||||||||||
| Investments of Consolidated Blackstone Funds | ||||||||||||||||||||
| Equity Securities | $ | 91,753 | Discounted Cash Flows | Discount Rate | 7.1% - 31.4% | 12.6% | ||||||||||||||
| Revenue CAGR | 1.0% - 49.4% | 7.1% | ||||||||||||||||||
| Exit Capitalization Rate | 5.0% - 11.4% | 8.5% | ||||||||||||||||||
| Exit Multiple - EBITDA | 4.0x - 16.0x | 9.9x | ||||||||||||||||||
| Exit Multiple - NOI | 8.8x - 12.5x | 10.5x | ||||||||||||||||||
| Exit Multiple - P/E | 9.5x - 17.0x | 11.0x | ||||||||||||||||||
| 862 | Market Comparable Companies | Book Value Multiple | 0.8x - 0.9x | 0.9x | ||||||||||||||||
| Exit Multiple - EBITDA | 8.0x | N/A | ||||||||||||||||||
| 17,536 | Other | N/A | N/A | N/A | ||||||||||||||||
| 21,716 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Partnership and LLC Interests | 293,744 | Discounted Cash Flows | Discount Rate | 4.6% - 26.5% | 9.8% | |||||||||||||||
| Revenue CAGR | -22.2% - 71.5% | 8.4% | ||||||||||||||||||
| Exit Capitalization Rate | 3.1% - 10.0% | 5.7% | ||||||||||||||||||
| Exit Multiple - EBITDA | 0.1x - 15.0x | 8.6x | ||||||||||||||||||
| Exit Multiple - NOI | 12.5x | N/A | ||||||||||||||||||
| 530 | Market Comparable Companies | Book Value Multiple | 1.0x | N/A | ||||||||||||||||
| 22,346 | Other | N/A | N/A | N/A | ||||||||||||||||
| 758 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| 14,070 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Debt Instruments | 6,122 | Discounted Cash Flows | Discount Rate | 6.6% - 18.4% | 9.6% | |||||||||||||||
| Revenue CAGR | 7.7% | N/A | ||||||||||||||||||
| Exit Capitalization Rate | 8.3% | N/A | ||||||||||||||||||
| Exit Multiple - NOI | 12.0x | N/A | ||||||||||||||||||
| 50,136 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| 1,897 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Assets of Consolidated CLO Vehicles | 8,277 | Market Comparable Companies | EBITDA Multiple | 7.0x | N/A | |||||||||||||||
| 499,624 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| Total Investments of Consolidated Blackstone Funds | 1,029,371 |
continued …
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| Fair Value | Valuation Techniques | Unobservable Inputs | Ranges | Weighted Average (a) | ||||||||
| Corporate Treasury Investments | $ | 8,886 | Discounted Cash Flows | Discount Rate | 5.1% - 6.3% | 5.4% | ||||||
| Default Rate | 2.0% | N/A | ||||||||||
| Pre-payment Rate | 20% | N/A | ||||||||||
| Recovery Lag | 12 Months | N/A | ||||||||||
| Recovery Rate | 30.0% - 70.0% | 68.1% | ||||||||||
| Reinvestment Rate | LIBOR + 400 bps | N/A | ||||||||||
| 15,363 | Third Party Pricing | N/A | N/A | N/A | ||||||||
| Loans and Receivables | 239,659 | Discounted Cash Flows | Discount Rate | 7.1% - 10.3% | 8.8% | |||||||
| Other Investments | 65,821 | Discounted Cash Flows | Discount Rate | 0.7% - 13.0% | 2.2% | |||||||
| Default Rate | 2.0% | N/A | ||||||||||
| Pre-payment Rate | 20.0% | N/A | ||||||||||
| Recovery Lag | 12 Months | N/A | ||||||||||
| Recovery Rate | 70.0% | N/A | ||||||||||
| Reinvestment Rate | LIBOR + 400 bps - | LIBOR + 401 | ||||||||||
| LIBOR + 413 bps | bps | |||||||||||
| 29,572 | Transaction Price | N/A | N/A | N/A | ||||||||
| $ | 1,388,672 | |||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2016:
| Fair Value | Valuation Techniques | Unobservable Inputs | Ranges | Weighted Average (a) | ||||||||||||||||
| Financial Assets | ||||||||||||||||||||
| Investments of Consolidated Blackstone Funds | ||||||||||||||||||||
| Equity Securities | $ | 58,826 | Discounted Cash Flows | Discount Rate | 7.3% - 28.7% | 12.7% | ||||||||||||||
| Revenue CAGR | -0.2% - 20.1% | 6.3% | ||||||||||||||||||
| Exit Capitalization Rate | 5.0% - 11.4% | 8.5% | ||||||||||||||||||
| Exit Multiple - EBITDA | 4.0x - 20.0x | 10.0x | ||||||||||||||||||
| Exit Multiple - P/E | 10.5x - 17.0x | 11.0x | ||||||||||||||||||
| 2,032 | Market Comparable Companies | Book Value Multiple | 0.9x | N/A | ||||||||||||||||
| 22,843 | Other | N/A | N/A | N/A | ||||||||||||||||
| 9,956 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Partnership and LLC Interests | 303,281 | Discounted Cash Flows | Discount Rate | 3.4% - 27.6% | 9.4% | |||||||||||||||
| Revenue CAGR | -27.1% - 47.3% | 7.2% | ||||||||||||||||||
| Exit Capitalization Rate | 3.0% - 11.0% | 6.0% | ||||||||||||||||||
| Exit Multiple - EBITDA | 3.9x - 18.3x | 10.5x | ||||||||||||||||||
| Exit Multiple - P/E | 9.3x | N/A | ||||||||||||||||||
| 13,945 | Market Comparable Companies | Capitalization Rate | 5.0% - 5.6% | 5.2% | ||||||||||||||||
| 12,916 | Other | N/A | N/A | N/A | ||||||||||||||||
| 1,238 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| 5,850 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Debt Instruments | 5,002 | Discounted Cash Flows | Discount Rate | 8.3% - 20.0% | 12.9% | |||||||||||||||
| Revenue CAGR | 4.8% - 70.8% | 33.8% | ||||||||||||||||||
| Exit Capitalization Rate | 4.7% - 8.3% | 7.5% | ||||||||||||||||||
| Exit Multiple - EBITDA | 9.6x - 12.0x | 11.0x | ||||||||||||||||||
| 2,227 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| 93 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| Assets of Consolidated CLO Vehicles | 13,723 | Market Comparable Companies | EBITDA Multiple | 9.6x | N/A | |||||||||||||||
| 233,941 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| Total Investments of Consolidated Blackstone Funds | 685,873 | |||||||||||||||||||
| Corporate Treasury Investments | 9,783 | Discounted Cash Flows | Discount Rate | 6.1% - 10.0% | 7.1% | |||||||||||||||
| Default Rate | 1.0% - 2.0% | 1.8% | ||||||||||||||||||
| Pre-payment Rate | 20.0% | N/A | ||||||||||||||||||
| Recovery Lag | 12 Months | N/A | ||||||||||||||||||
| Recovery Rate | 18.5% - 76.5% | 66.4% | ||||||||||||||||||
| Reinvestment Rate | LIBOR + 350 bps - LIBOR + 400 bps | LIBOR +390 bps | ||||||||||||||||||
| 20,641 | Third Party Pricing | N/A | N/A | N/A | ||||||||||||||||
| Loans and Receivables | 211,359 | Discounted Cash Flows | Discount Rate | 12.0% - 16.4% | 13.3% | |||||||||||||||
| Other Investments | 78,619 | Discounted Cash Flows | Discount Rate | 1.2% - 15.0% | 3.1% | |||||||||||||||
| Default Rate | 2.0% | N/A | ||||||||||||||||||
| Pre-payment Rate | 20.0% | N/A | ||||||||||||||||||
| Recovery Lag | 12 Months | N/A | ||||||||||||||||||
| Recovery Rate | 70.0% | N/A | ||||||||||||||||||
| Reinvestment Rate | LIBOR + 400 bps | N/A | ||||||||||||||||||
| 21,545 | Transaction Price | N/A | N/A | N/A | ||||||||||||||||
| $ | 1,027,820 | |||||||||||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| N/A | Not applicable. | |
| CAGR | Compound annual growth rate. | |
| EBITDA | Earnings before interest, taxes, depreciation and amortization. | |
| Exit Multiple | Ranges include the last twelve months EBITDA, forward EBITDA and price/earnings exit multiples. | |
| NOI | Net operating income. | |
| P/E | Price-earnings ratio. | |
| Third Party Pricing | Third Party Pricing is generally determined on the basis of unadjusted prices between market participants provided by reputable dealers or pricing services. | |
| Transaction Price | Includes recent acquisitions or transactions. | |
| (a) | Unobservable inputs were weighted based on the fair value of the investments included in the range. |
The significant unobservable inputs used in the fair value measurement of corporate treasury investments, debt instruments and other investments are discount rates, default rates, recovery rates, recovery lag, pre-payment rates and reinvestment rates. Increases (decreases) in any of the discount rates, default rates, recovery lag and pre-payment rates in isolation would result in a lower (higher) fair value measurement. Increases (decreases) in any of the recovery rates and reinvestment rates in isolation would result in a higher (lower) fair value measurement. Generally, a change in the assumption used for default rates may be accompanied by a directionally similar change in the assumption used for recovery lag and a directionally opposite change in the assumption used for recovery rates and pre-payment rates.
The significant unobservable inputs used in the fair value measurement of equity securities, partnership and limited liability company (“LLC”) interests, debt instruments, assets of consolidated CLO vehicles and loans and receivables are discount rates, exit capitalization rates, exit multiples, EBITDA multiples and revenue compound annual growth rates. Increases (decreases) in any of discount rates and exit capitalization rates in isolation can result in a lower (higher) fair value measurement. Increases (decreases) in any of exit multiples and revenue compound annual growth rates in isolation can result in a higher (lower) fair value measurement.
Since December 31, 2015, there have been no changes in valuation techniques within Level II and Level III that have had a material impact on the valuation of financial instruments.
The following tables summarize the changes in financial assets and liabilities measured at fair value for which the Partnership has used Level III inputs to determine fair value and does not include gains or losses that were reported in Level III in prior years or for instruments that were transferred out of Level III prior to the end of the respective reporting period. Total realized and unrealized gains and losses recorded for Level III investments are
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
reported in either Investment Income (Loss) or Net Gains (Losses) from Fund Investment Activities in the Consolidated Statements of Operations.
| Level III Financial Assets at Fair Value Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||||||||
| Investments of Consolidated Funds | Loans and Receivables | Other Investments (a) | Total | Investments of Consolidated Funds | Loans and Receivables | Other Investments (a) | Total | |||||||||||||||||||||||||
| Balance, Beginning of Period | $ | 685,873 | $ | 211,359 | $ | 130,588 | $ | 1,027,820 | $ | 774,392 | $ | 261,994 | $ | 155,841 | $ | 1,192,227 | ||||||||||||||||
| Transfer In Due to Consolidation and Acquisition | 34,651 | — | — | 34,651 | — | — | — | — | ||||||||||||||||||||||||
| Transfer Out Due to Deconsolidation | (38,629 | ) | — | — | (38,629 | ) | — | — | — | — | ||||||||||||||||||||||
| Transfer In to Level III (b) | 59,473 | — | 27,127 | 86,600 | 84,472 | — | 19,691 | 104,163 | ||||||||||||||||||||||||
| Transfer Out of Level III (b) | (168,986 | ) | — | (22,111 | ) | (191,097 | ) | (97,841 | ) | — | (33,162 | ) | (131,003 | ) | ||||||||||||||||||
| Purchases | 869,817 | 856,042 | 25,335 | 1,751,194 | 373,522 | 546,060 | 24,158 | 943,740 | ||||||||||||||||||||||||
| Sales | (473,178 | ) | (835,426 | ) | (54,039 | ) | (1,362,643 | ) | (485,254 | ) | (598,232 | ) | (31,251 | ) | (1,114,737 | ) | ||||||||||||||||
| Settlements | — | (12,584 | ) | (1,573 | ) | (14,157 | ) | — | (8,599 | ) | (512 | ) | (9,111 | ) | ||||||||||||||||||
| Changes in Gains (Losses) Included in Earnings and Other Comprehensive Income (Loss) | 60,350 | 20,268 | 14,315 | 94,933 | 36,582 | 10,136 | (4,177 | ) | 42,541 | |||||||||||||||||||||||
| Balance, End of Period | $ | 1,029,371 | $ | 239,659 | $ | 119,642 | $ | 1,388,672 | $ | 685,873 | $ | 211,359 | $ | 130,588 | $ | 1,027,820 | ||||||||||||||||
| Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date | $ | 14,083 | $ | 21,482 | $ | (91 | ) | $ | 35,474 | $ | (36,074 | ) | $ | 10,178 | $ | 3,443 | $ | (22,453 | ) | |||||||||||||
| (a) | Represents corporate treasury investments and Other Investments. |
|---|
| (b) | Transfers in and out of Level III financial assets and liabilities were due to changes in the observability of inputs used in the valuation of such assets and liabilities. |
|---|
There were no Level III financial liabilities as of and for the year ended December 31, 2017 and 2016.
| 9. | VARIABLE INTEREST ENTITIES |
|---|
Pursuant to GAAP consolidation guidance, the Partnership consolidates certain VIEs in which it is determined that the Partnership is the primary beneficiary either directly or indirectly, through a consolidated entity or affiliate. VIEs include certain private equity, real estate, credit-focused or funds of hedge funds entities and CLO vehicles. The purpose of such VIEs is to provide strategy specific investment opportunities for investors in exchange for management and performance based fees. The investment strategies of the Blackstone Funds differ by product; however, the fundamental risks of the Blackstone Funds have similar characteristics, including loss of invested capital and loss of management fees and performance based fees. In Blackstone’s role as general partner, collateral manager or investment adviser, it generally
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
considers itself the sponsor of the applicable Blackstone Fund. The Partnership does not provide performance guarantees and has no other financial obligation to provide funding to consolidated VIEs other than its own capital commitments.
The assets of consolidated variable interest entities may only be used to settle obligations of these consolidated Blackstone Funds. In addition, there is no recourse to the Partnership for the consolidated VIEs’ liabilities including the liabilities of the consolidated CLO vehicles.
The Partnership holds variable interests in certain VIEs which are not consolidated as it is determined that the Partnership is not the primary beneficiary. The Partnership’s involvement with such entities is in the form of direct equity interests and fee arrangements. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to non-consolidated entities, any amounts due to non-consolidated entities and any clawback obligation relating to previously distributed carried interest. The assets and liabilities recognized in the Partnership’s Consolidated Statements of Financial Condition related to the Partnership’s interest in these non-consolidated VIEs and the Partnership’s maximum exposure to loss relating to non-consolidated VIEs were as follows:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Investments | $ | 805,501 | $ | 644,546 | ||||
| Accounts Receivable | 15,760 | 12,308 | ||||||
| Due from Affiliates | 81,465 | 35,099 | ||||||
| Total VIE Assets | 902,726 | 691,953 | ||||||
| Due to Affiliates | 179 | 577 | ||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | — | 38 | ||||||
| Potential Clawback Obligation | 98,331 | 81,936 | ||||||
| Maximum Exposure to Loss | $ | 1,001,236 | $ | 774,504 | ||||
| 10. | REVERSE REPURCHASE AND REPURCHASE AGREEMENTS |
|---|
At December 31, 2017, the Partnership pledged securities with a carrying value of $169.7 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.
At December 31, 2016, the Partnership received securities, primarily U.S. and non-U.S. government and agency securities, asset-backed securities and corporate debt, with a fair value of $117.8 million as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $68.8 million and cash were used to cover Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $119.1 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following tables provide information regarding the Partnership’s Repurchase Agreements obligation by type of collateral pledged:
| December 31, 2017 | ||||||||||||||||||||
| Remaining Contractual Maturity of the Agreements | ||||||||||||||||||||
| Overnight and Continuous | Up to 30 Days | 30 - 90 Days | Greater than 90 days | Total | ||||||||||||||||
| Repurchase Agreements | ||||||||||||||||||||
| Asset-Backed Securities | $ | — | $ | 22,756 | $ | 96,084 | $ | — | $ | 118,840 | ||||||||||
| Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 12. “Offsetting of Assets and Liabilities” | $ | 118,840 | ||||||||||||||||||
| Amounts Related to Agreements Not Included in Offsetting Disclosure in Note 12. “Offsetting of Assets and Liabilities” | $ | — | ||||||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Remaining Contractual Maturity of the Agreements | ||||||||||||||||||||
| Overnight and Continuous | Up to 30 Days | 30 - 90 Days | Greater than 90 days | Total | ||||||||||||||||
| Repurchase Agreements | ||||||||||||||||||||
| U.S. Treasury and Agency Securities | $ | 7,034 | $ | — | $ | — | $ | — | $ | 7,034 | ||||||||||
| Asset-Backed Securities | — | 12,805 | 30,796 | 24,689 | 68,290 | |||||||||||||||
| $ | 7,034 | $ | 12,805 | $ | 30,796 | $ | 24,689 | $ | 75,324 | |||||||||||
| Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 12. “Offsetting of Assets and Liabilities” | $ | 75,324 | ||||||||||||||||||
| Amounts Related to Agreements Not Included in Offsetting Disclosure in Note 12. “Offsetting of Assets and Liabilities” | $ | — | ||||||||||||||||||
| 11. | OTHER ASSETS AND ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES |
|---|
Other Assets consists of the following:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Furniture, Equipment and Leasehold Improvements | $ | 345,875 | $ | 338,292 | ||||
| Less: Accumulated Depreciation | (219,309 | ) | (211,508 | ) | ||||
| Furniture, Equipment and Leasehold Improvements, Net | 126,566 | 126,784 | ||||||
| Prepaid Expenses | 78,723 | 96,888 | ||||||
| Other Assets | 32,965 | 37,723 | ||||||
| Freestanding Derivatives | 4,443 | 3,393 | ||||||
| $ | 242,697 | $ | 264,788 | |||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Depreciation expense of $25.2 million, $32.0 million and $26.0 million related to furniture, equipment and leasehold improvements for the years ended December 31, 2017, 2016 and 2015, respectively, is included in General, Administrative and Other in the Consolidated Statements of Operations.
Accounts Payable, Accrued Expenses and Other Liabilities includes $27.2 million and $10.1 million as of December 31, 2017 and 2016, respectively, relating to redemptions that were legally payable to investors of the consolidated Blackstone Funds and $1.5 billion and $615.0 million, respectively, of payables relating to unsettled purchases.
| 12. | OFFSETTING OF ASSETS AND LIABILITIES |
|---|
The following tables present the offsetting of assets and liabilities as of December 31, 2017:
| Gross and Net Amounts of Assets Presented in the Statement of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | |||||||||||||||
| Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||||
| Assets | ||||||||||||||||
| Freestanding Derivatives | $ | 8,801 | $ | 3,279 | $ | — | $ | 5,522 | ||||||||
| Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | |||||||||||||||
| Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||
| Liabilities | ||||||||||||||||
| Net Investment Hedges | $ | 453 | $ | — | $ | — | $ | 453 | ||||||||
| Freestanding Derivatives | 36,234 | 3,279 | 32,405 | 550 | ||||||||||||
| Repurchase Agreements | 118,840 | 118,840 | — | — | ||||||||||||
| $ | 155,527 | $ | 122,119 | $ | 32,405 | $ | 1,003 | |||||||||
The following tables present the offsetting of assets and liabilities as of December 31, 2016:
| Gross and Net Amounts of Assets Presented in the Statement of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | |||||||||||||||
| Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||||
| Assets | ||||||||||||||||
| Freestanding Derivatives | $ | 5,720 | $ | 1,064 | $ | 2,892 | $ | 1,764 | ||||||||
| Reverse Repurchase Agreements | 118,495 | 117,775 | — | 720 | ||||||||||||
| $ | 124,215 | $ | 118,839 | $ | 2,892 | $ | 2,484 | |||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | |||||||||||||||
| Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||
| Liabilities | ||||||||||||||||
| Net Investment Hedges | $ | 587 | $ | — | $ | — | $ | 587 | ||||||||
| Freestanding Derivatives | 6,886 | 1,064 | 5,638 | 184 | ||||||||||||
| Repurchase Agreements | 75,324 | 72,195 | 3,129 | — | ||||||||||||
| $ | 82,797 | $ | 73,259 | $ | 8,767 | $ | 771 | |||||||||
Reverse Repurchase Agreements and Repurchase Agreements are presented separately on the Statements of Financial Condition. Freestanding Derivative assets are included in Other Assets in the Statements of Financial Condition. See Note 11. “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities” for the components of Other Assets.
Freestanding Derivative liabilities are included in Accounts Payable, Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition and are not a significant component thereof.
Notional Pooling Arrangement
Blackstone has a notional cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals based upon aggregate cash balances on deposit at the same financial institution. Cash withdrawals cannot exceed aggregate cash balances on deposit. The net balance of cash on deposit and overdrafts is used as a basis for calculating net interest expense or income. As of December 31, 2017, the aggregate cash balance on deposit relating to the cash pooling arrangement was $1.0 billion, which was offset with an accompanying overdraft of $1.0 billion.
| 13. | BORROWINGS |
|---|
On October 2, 2017, Blackstone, through its indirect subsidiary Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), issued $300 million aggregate principal amount of senior notes maturing October 2, 2027 (the “2027 Notes”) and $300 million aggregate principal amount of senior notes maturing October 2, 2047 (the “2047 Notes”). The 2027 Notes have an interest rate of 3.150% per annum, accruing from October 2, 2017. The 2047 Notes have an interest rate of 4.000% per annum, accruing from October 2, 2017. Interest on the 2027 Notes and 2047 Notes is payable semi-annually in arrears on October 2 and April 2 of each year, commencing on April 2, 2018. The 2027 Notes and 2047 Notes are unsecured and unsubordinated obligations of the Issuer. The 2027 Notes and 2047 Notes are fully and unconditionally guaranteed, jointly and severally, by the Partnership and its indirect subsidiaries, Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (the “Guarantors”). The guarantees are unsecured and unsubordinated obligations of the Guarantors. Transaction costs related to the issuance of the 2027 Notes and 2047 Notes have been capitalized and are being amortized over the life of the 2027 Notes and 2047 Notes. Blackstone used the proceeds from these notes to repurchase all of its 6.625% senior notes maturing on August 15, 2019 (the “2019 Notes”). Blackstone recognized a loss of $32.9 million in conjunction with the extinguishment of the 2019 Notes and is included in Interest Expense in the Consolidated Statement of Operations.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The Partnership borrows and enters into credit agreements for its general operating and investment purposes and certain Blackstone Funds borrow to meet financing needs of their operating and investing activities. Borrowing facilities have been established for the benefit of selected Blackstone Funds. When a Blackstone Fund borrows from the facility in which it participates, the proceeds from the borrowing are strictly limited for its intended use by the borrowing fund and not available for other Partnership purposes. The Partnership’s credit facilities consist of the following:
| December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Credit Available | Borrowing Outstanding | Weighted Average Interest Rate | Credit Available | Borrowing Outstanding | Weighted Average Interest Rate | |||||||||||||||||||
| Revolving Credit Facility (a) | $ | 1,500,000 | $ | 683 | 0.88 | % | $ | 1,500,000 | $ | 683 | 0.88 | % | ||||||||||||
| Blackstone Issued Senior Notes (b) | ||||||||||||||||||||||||
| 6.625%, Due 8/15/2019 (c) | — | — | — | 585,000 | 585,000 | 6.63 | % | |||||||||||||||||
| 5.875%, Due 3/15/2021 | 400,000 | 400,000 | 5.88 | % | 400,000 | 400,000 | 5.88 | % | ||||||||||||||||
| 4.750%, Due 2/15/2023 | 400,000 | 400,000 | 4.75 | % | 400,000 | 400,000 | 4.75 | % | ||||||||||||||||
| 6.250%, Due 8/15/2042 | 250,000 | 250,000 | 6.25 | % | 250,000 | 250,000 | 6.25 | % | ||||||||||||||||
| 5.000%, Due 6/15/2044 | 500,000 | 500,000 | 5.00 | % | 500,000 | 500,000 | 5.00 | % | ||||||||||||||||
| 4.450%, Due 7/15/2045 | 350,000 | 350,000 | 4.45 | % | 350,000 | 350,000 | 4.45 | % | ||||||||||||||||
| 2.000%, Due 5/19/2025 | 360,150 | 360,150 | 2.00 | % | 315,510 | 315,510 | 2.00 | % | ||||||||||||||||
| 1.000%, Due 10/5/2026 | 720,300 | 720,300 | 1.00 | % | 631,020 | 631,020 | 1.00 | % | ||||||||||||||||
| 3.150%, Due 10/2/2027 | 300,000 | 300,000 | 3.15 | % | — | — | — | |||||||||||||||||
| 4.000%, Due 10/2/2047 | 300,000 | 300,000 | 4.00 | % | — | — | — | |||||||||||||||||
| 5,080,450 | 3,581,133 | 3.76 | % | 4,931,530 | 3,432,213 | 4.37 | % | |||||||||||||||||
| Blackstone Fund Facilities (d) | 2,803 | 2,803 | 2.79 | % | 2,793 | 2,793 | 2.32 | % | ||||||||||||||||
| CLO Vehicles (e) | 11,583,607 | 11,583,607 | 2.32 | % | 5,506,976 | 5,506,976 | 2.02 | % | ||||||||||||||||
| $ | 16,666,860 | $ | 15,167,543 | 2.54 | % | $ | 10,441,299 | $ | 8,941,982 | 2.92 | % | |||||||||||||
| (a) | Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), an indirect subsidiary of the Partnership, has a revolving credit facility (the “Credit Facility”) with Citibank, N.A., as Administrative Agent in the amount of $1.5 billion with a maturity date of August 31, 2021. Interest on the borrowings is based on an adjusted LIBOR rate or alternate base rate, in each case plus a margin, and undrawn commitments bear a commitment fee. Borrowings may also be made in U.K. sterling or euros, in each case subject to certain sub-limits. The Credit Facility contains customary representations, covenants and events of default. Financial covenants consist of a maximum net leverage ratio and a requirement to keep a minimum amount of fee-earning assets under management, each tested quarterly. The Borrowing Outstanding at each date represent outstanding but undrawn letters of credit against the credit facility. |
|---|
| (b) | The Issuer, has issued long term borrowings in the form of senior notes (the “Notes”). The Notes are unsecured and unsubordinated obligations of the Issuer. The Notes are fully and unconditionally guaranteed, jointly and severally, by the Partnership, Blackstone Holdings (the “Guarantors”), and the Issuer. The guarantees are unsecured and unsubordinated obligations of the Guarantors. Transaction costs related to the issuance of the Notes have been deducted from the Note liability and are being amortized over the life of the Notes. The indentures include covenants, including limitations on the Issuer’s and the Guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The indentures also provide for events of |
|---|
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| default and further provide that the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Notes may declare the Notes immediately due and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy, insolvency, receivership or reorganization, the principal amount of the Notes and any accrued and unpaid interest on the Notes automatically become due and payable. All or a portion of the Notes may be redeemed at the Issuer’s option in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the Notes. If a change of control repurchase event occurs, the holders of the Notes may require the Issuer to repurchase the Notes at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased plus any accrued and unpaid interest on the Notes repurchased to, but not including, the date of repurchase. Interest expense on the Notes was $200.4 million, $145.6 million and $136.5 million for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, respectively. |
|---|
| (c) | The Credit Available and Borrowing Outstanding are determined using the original $600 million par amount less $15 million attributable to these notes which were acquired but not retired by Blackstone during 2012. The entire amount of these bonds were retired in 2017. |
|---|
| (d) | Represents borrowing facilities for the various consolidated Blackstone Funds used to meet liquidity and investing needs. Certain borrowings under these facilities were used for bridge financing and general liquidity purposes. Other borrowings were used to finance the purchase of investments with the borrowing remaining in place until the disposition or refinancing event. Such borrowings have varying maturities and are rolled over until the disposition or a refinancing event. Because the timing of such events is unknown and may occur in the near term, these borrowings are considered short-term in nature. Borrowings bear interest at spreads to market rates. Borrowings were secured according to the terms of each facility and are generally secured by the investment purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective fund. Certain facilities have commitment fees. When a fund borrows, the proceeds are available only for use by that fund and are not available for the benefit of other funds. Collateral within each fund is also available only against the borrowings by that fund and not against the borrowings of other funds. |
|---|
| (e) | Represents borrowings due to the holders of debt securities issued by CLO vehicles consolidated by Blackstone. These amounts are included within Loans Payable and Due to Affiliates within the Consolidated Statements of Financial Condition. |
|---|
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following table presents the general characteristics of each of our Notes, as well as their carrying value and fair value. The Notes are included in Loans Payable within the Consolidated Statements of Financial Condition. All of the Notes were issued at a discount. All of the Notes accrue interest from the Issue Date and all pay interest in arrears on a semi-annual basis or annual basis as indicated by the Interest Payment Dates.
| December 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
| Senior Notes | Carrying Value | Fair Value (a) | Carrying Value (b) | Fair Value (a) | ||||||||||||
| 6.625%, Due 8/15/2019 (c) | $ | — | $ | — | $ | 607,121 | $ | 648,765 | ||||||||
| 5.875%, Due 3/15/2021 | 398,514 | 438,320 | 398,105 | 447,600 | ||||||||||||
| 4.750%, Due 2/15/2023 | 394,137 | 434,200 | 393,158 | 426,520 | ||||||||||||
| 6.250%, Due 8/15/2042 | 238,019 | 328,200 | 237,830 | 285,450 | ||||||||||||
| 5.000%, Due 6/15/2044 | 488,536 | 574,100 | 488,337 | 497,200 | ||||||||||||
| 4.450%, Due 7/15/2045 | 343,925 | 372,575 | 343,816 | 322,525 | ||||||||||||
| 2.000%, Due 5/19/2025 | 355,425 | 385,433 | 310,805 | 331,096 | ||||||||||||
| 1.000%, Due 10/5/2026 | 709,871 | 711,440 | 620,750 | 598,270 | ||||||||||||
| 3.150%, Due 10/2/2027 | 296,399 | 295,320 | — | — | ||||||||||||
| 4.000%, Due 10/2/2047 | 289,989 | 296,940 | — | — | ||||||||||||
| Total | $ | 3,514,815 | $ | 3,836,528 | $ | 3,399,922 | $ | 3,557,426 | ||||||||
| (a) | Fair value is determined by broker quote and these notes would be classified as Level II within the fair value hierarchy. |
|---|
| (b) | The carrying value has been adjusted to reflect the presentation of debt issuance costs as a direct deduction from the related liability for all periods presented in accordance with amended guidance on simplifying the presentation of such costs. |
|---|
| (c) | The carrying and fair values are determined using the original $600 million par amount less $15 million attributable to these notes which were acquired but not retired by Blackstone during 2012. |
|---|
Included within Loans Payable and Due to Affiliates within the Consolidated Statements of Financial Condition are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. Borrowings through the consolidated CLO vehicles consisted of the following:
| December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Borrowing Outstanding | Weighted Average Interest Rate | Weighted Average Remaining Maturity in Years | Borrowing Outstanding | Weighted Average Interest Rate | Weighted Average Remaining Maturity in Years | |||||||||||||||||||
| Senior Secured Notes | $ | 10,689,240 | 2.35 | % | 4.1 | $ | 5,124,241 | 2.17 | % | 5.4 | ||||||||||||||
| Subordinated Notes | 894,367 | (a | ) | N/A | 382,735 | (a | ) | N/A | ||||||||||||||||
| $ | 11,583,607 | $ | 5,506,976 | |||||||||||||||||||||
| (a) | The Subordinated Notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the CLO vehicles. |
|---|
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Senior Secured Notes and Subordinated Notes comprise the following amounts:
| December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Amounts Due to Non- Consolidated Affiliates | Amounts Due to Non- Consolidated Affiliates | |||||||||||||||||||||||
| Fair Value | Borrowing Outstanding | Fair Value | Fair Value | Borrowing Outstanding | Fair Value | |||||||||||||||||||
| Senior Secured Notes | $ | 10,595,652 | $ | 1,000 | $ | 996 | $ | 5,125,804 | $ | — | $ | — | ||||||||||||
| Subordinated Notes | 743,554 | 53,400 | 40,390 | 345,594 | 10,000 | 7,748 | ||||||||||||||||||
| $ | 11,339,206 | $ | 54,400 | $ | 41,386 | $ | 5,471,398 | $ | 10,000 | $ | 7,748 | |||||||||||||
The Loans Payable of the consolidated CLO vehicles are collateralized by assets held by each respective CLO vehicle and assets of one vehicle may not be used to satisfy the liabilities of another. As of December 31, 2017 and 2016, the fair value of the consolidated CLO assets was $13.4 billion and $6.4 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.
As part of Blackstone’s borrowing arrangements, the Partnership is subject to certain financial and operating covenants. The Partnership was in compliance with all of its loan covenants as of December 31, 2017.
Scheduled principal payments for borrowings at December 31, 2017 are as follows:
| Operating Borrowings | Blackstone Fund Facilities / CLO Vehicles | Total Borrowings | ||||||||||
| 2018 | $ | — | $ | 290,437 | $ | 290,437 | ||||||
| 2019 | — | — | — | |||||||||
| 2020 | — | 540,225 | 540,225 | |||||||||
| 2021 | 400,000 | — | 400,000 | |||||||||
| 2022 | — | — | — | |||||||||
| Thereafter | 3,180,450 | 10,755,747 | 13,936,197 | |||||||||
| Total | $ | 3,580,450 | $ | 11,586,409 | $ | 15,166,859 | ||||||
| 14. | INCOME TAXES |
|---|
The Income Before Provision for Taxes consists of the following:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Income Before Provision for Taxes | ||||||||||||
| U.S. Domestic Income | $ | 3,955,351 | $ | 2,215,380 | $ | 1,754,969 | ||||||
| Foreign Income | 161,750 | 166,630 | 59,779 | |||||||||
| $ | 4,117,101 | $ | 2,382,010 | $ | 1,814,748 | |||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The Provision for Taxes consists of the following:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Current | ||||||||||||
| Federal Income Tax | $ | 31,457 | $ | 32,383 | $ | 45,506 | ||||||
| Foreign Income Tax | 36,083 | 17,322 | 16,769 | |||||||||
| State and Local Income Tax | 40,507 | 32,572 | 28,137 | |||||||||
| 108,047 | 82,277 | 90,412 | ||||||||||
| Deferred | ||||||||||||
| Federal Income Tax | 613,518 | 42,042 | 80,307 | |||||||||
| Foreign Income Tax | (34 | ) | 363 | (398 | ) | |||||||
| State and Local Income Tax | 21,616 | 7,680 | 20,077 | |||||||||
| 635,100 | 50,085 | 99,986 | ||||||||||
| Provision for Taxes | $ | 743,147 | $ | 132,362 | $ | 190,398 | ||||||
The following table summarizes Blackstone’s tax position:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Income Before Provision for Taxes | $ | 4,117,101 | $ | 2,382,010 | $ | 1,814,748 | ||||||
| Provision for Taxes | $ | 743,147 | $ | 132,362 | $ | 190,398 | ||||||
| Effective Income Tax Rate | 18.1 | % | 5.6 | % | 10.5 | % |
The following table reconciles the effective income tax rate to the U.S. federal statutory tax rate:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Statutory U.S. Federal Income Tax Rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| Income Passed Through to Common Unitholders and Non-Controlling Interest Holders (a) | -25.8 | % | -28.6 | % | -26.3 | % | ||||||
| State and Local Income Taxes | 1.5 | % | 1.3 | % | 1.8 | % | ||||||
| Equity-Based Compensation | -0.1 | % | -0.2 | % | 1.8 | % | ||||||
| Impact of the Tax Reform Bill | 8.3 | % | — | — | ||||||||
| Other | -0.8 | % | -1.9 | % | -1.8 | % | ||||||
| Effective Income Tax Rate | 18.1 | % | 5.6 | % | 10.5 | % | ||||||
| (a) | Includes income that is not taxable to the Partnership and its subsidiaries. Such income is directly taxable to the Partnership’s unitholders and the non-controlling interest holders. |
|---|
U.S. federal income tax reform legislation, known as the Tax Cuts and Jobs Act, was signed into law on December 22, 2017 (the “Tax Reform Bill”). In December 2017 the SEC staff issued guidance on accounting for the tax effects of the Tax Reform Bill. The guidance provides that the income tax effects of those aspects of the Tax Reform Bill for which the Partnership’s accounting for income taxes is complete must be reflected in the current period and allows for reporting provisional amounts during a measurement period until the evaluation is complete.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The Partnership believes that the tax effects of the material provisions have been properly included in the consolidated financial statements at December 31, 2017.
The Tax Reform Bill reduces the corporate federal income tax rate from 35% to 21% effective January 1, 2018. Consequently, the Partnership has recorded a decrease related to the net deferred tax assets of $500.6 million with a corresponding net adjustment to deferred income tax expense of $500.6 million for the year ended December 31, 2017. The remeasurement was partially offset by $160.3 million tax benefit resulting from the $403.9 million reduction to the liability under the Tax Receivable Agreement resulting from the reduction of the federal income tax rate. The net impact to the effective tax rate was an 8.3% increase.
Further, the Tax Reform Bill includes a one-time deemed repatriation on undistributed foreign earnings and profits (referred to as the transition tax), which the Partnership believes is not material.
The Partnership continues to evaluate the provisions of the Tax Reform Bill that become effective January 1, 2018 and will impact future financial statement periods.
Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. A summary of the tax effects of the temporary differences is as follows:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Deferred Tax Assets | ||||||||
| Fund Management Fees | $ | 9,938 | $ | 10,235 | ||||
| Equity-Based Compensation | 54,699 | 68,642 | ||||||
| Amortization and Depreciation | 754,924 | 1,297,669 | ||||||
| Net Operating Loss Carry Forward | 8,885 | 17,969 | ||||||
| Total Deferred Tax Assets | 828,446 | 1,394,515 | ||||||
| Deferred Tax Liabilities | ||||||||
| Unrealized Gains from Investments | 65,883 | 72,750 | ||||||
| Other | 36,593 | 35,296 | ||||||
| Total Deferred Tax Liabilities | 102,476 | 108,046 | ||||||
| Net Deferred Tax Assets | $ | 725,970 | $ | 1,286,469 | ||||
As a result of the reduction in the corporate federal tax rate from 35% to 21% pursuant to the Tax Reform Bill, the net deferred tax assets were reduced by $500.6 million.
Future realization of tax benefits depends on the expectation of taxable income within a period of time that the tax benefits will reverse. The Partnership has recorded a significant deferred tax asset for the future amortization of tax basis intangibles acquired from the predecessor owners and current owners. The amortization period for these tax basis intangibles is 15 years; accordingly, the related deferred tax assets will reverse over the same period. The Partnership had a taxable loss of $43.2 million and $10.3 million for the years ended December 31, 2015 and 2016, respectively, of which $10.3 million was carried back and utilized against taxable income generated in the tax year ended December 31, 2014, $6.9 million will be utilized in the tax year ended December 31, 2017 and $36.3 million is available for carryforward to 2018. The Partnership has considered the 15 year amortization period for the tax
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
basis intangibles and the 20 year carryforward period for its taxable loss in evaluating whether it should establish a valuation allowance.
In evaluating its ability to utilize deferred tax assets, the Partnership considers projections of taxable income, beginning with historic results and incorporating assumptions of the amount of future pretax operating income. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that the Partnership uses to manage its business. At this time, the Partnership’s projections of future taxable income that include the effects of originating and reversing temporary differences, including those for the tax basis intangibles, indicate that it is more likely than not that the benefits from the deferred tax asset will be realized. Therefore, the Partnership has determined that no valuation allowance is needed at December 31, 2017.
Currently, the Partnership does not believe it meets the indefinite reversal criteria that would cause the Partnership to not recognize a deferred tax liability with respect to its foreign subsidiaries. Where applicable, Blackstone will record a deferred tax liability for any outside basis difference of an investment in a foreign subsidiary.
Blackstone files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, Blackstone is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2017, Blackstone’s U.S. federal income tax returns for the years 2014 through 2016 are open under the normal three-year statute of limitations and therefore subject to examination. State and local tax returns are generally subject to audit from 2013 through 2016. The City of New York is examining certain other subsidiaries’ tax returns for the years 2007 through 2014. The Income Tax Department of the Government of India is examining the tax returns of the Indian subsidiaries for the years 2008 and 2009. HM Revenue and Customs in the U.K. is examining certain U.K. subsidiaries’ tax returns for 2011. Blackstone believes that during 2018 certain tax audits have a reasonable possibility of being completed and does not expect the results of these audits to have a material impact on the consolidated financial statements.
Blackstone’s unrecognized tax benefits, excluding related interest and penalties, were:
| December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Unrecognized Tax Benefits — January 1 | $ | 3,581 | $ | 15,698 | $ | 19,836 | ||||||
| Additions based on Tax Positions Related to Current Year | — | 902 | 1,031 | |||||||||
| Reductions for Tax Positions of Current Year | — | (851 | ) | — | ||||||||
| Additions for Tax Positions of Prior Years | 11,167 | — | — | |||||||||
| Reductions for Tax Positions of Prior Years | (1,860 | ) | (7,837 | ) | (4,032 | ) | ||||||
| Reductions for Tax Positions as a Result of a Lapse of the Applicable Statute of Limitations | — | (3,774 | ) | — | ||||||||
| Settlements | (1,382 | ) | (357 | ) | — | |||||||
| Exchange Rate Fluctuations | (52 | ) | (200 | ) | (1,137 | ) | ||||||
| Unrecognized Tax Benefits — December 31 | $ | 11,454 | $ | 3,581 | $ | 15,698 | ||||||
If the above tax benefits were recognized, $11.4 million and $3.6 million for the years ended December 31, 2017 and 2016, respectively, would reduce the annual effective rate. Blackstone does not believe that it will have a material increase or decrease in its unrecognized tax benefits during the coming year.
The unrecognized tax benefits are recorded in Accounts Payable, Accrued Expense and Other Liabilities in the Consolidated Statements of Financial Condition.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Blackstone recognizes interest and penalties accrued related to unrecognized tax positions in General, Administrative and Other Expenses. During the years ended December 31, 2017, 2016 and 2015, $(0.4) million, $(4.1) million and $(0.4) million of interest expense were accrued (reversed), respectively. During the years ended December 31, 2017, 2016 and 2015, no penalties were accrued.
Other Income — Reduction of the Tax Receivable Agreement Liability
In 2017, the $403.9 million Reduction of the Tax Receivable Agreement Liability was primarily attributable to the reduction in the corporate federal tax rate from 35% to 21% pursuant to the Tax Reform Bill.
In 2015, the $82.7 million Reduction of the Tax Receivable Agreement Liability was primarily attributable to the October 1, 2015 spin-off of the financial advisory business.
| 15. | NET INCOME PER COMMON UNIT |
|---|
Basic and diluted net income per common unit for the years ended December 31, 2017, 2016 and 2015 was calculated as follows:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net Income for Per Common Unit Calculations | ||||||||||||
| Net Income Attributable to The Blackstone Group L.P., Basic | $ | 1,470,830 | $ | 1,039,235 | $ | 709,789 | ||||||
| Incremental Net Income from Assumed Exchange of Blackstone Holdings Partnership Units | — | 828,244 | 524,353 | |||||||||
| Net Income Attributable to The Blackstone Group L.P., Diluted | $ | 1,470,830 | $ | 1,867,479 | $ | 1,234,142 | ||||||
| Units Outstanding | ||||||||||||
| Weighted-Average Common Units Outstanding, Basic | 665,453,198 | 649,475,264 | 634,337,179 | |||||||||
| Weighted-Average Unvested Deferred Restricted Common Units | 793,648 | 1,445,277 | 2,993,398 | |||||||||
| Weighted-Average Blackstone Holdings Partnership Units | — | 544,194,049 | 550,754,834 | |||||||||
| Weighted-Average Common Units Outstanding, Diluted | 666,246,846 | 1,195,114,590 | 1,188,085,411 | |||||||||
| Net Income Per Common Unit, Basic | $ | 2.21 | $ | 1.60 | $ | 1.12 | ||||||
| Net Income Per Common Unit, Diluted | $ | 2.21 | $ | 1.56 | $ | 1.04 | ||||||
| Distributions Declared Per Common Unit (a) | $ | 2.32 | $ | 1.66 | $ | 2.90 | ||||||
| (a) | Distributions declared reflects the calendar date of the declaration for each distribution. The fourth quarter distribution, if any, for any fiscal year will be declared and paid in the subsequent fiscal year. |
|---|
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following table summarizes the anti-dilutive securities for the periods indicated:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Weighted-Average Blackstone Holdings Partnership Units | 533,982,613 | — | — |
Unit Repurchase Program
In January 2008, Blackstone announced that the Board of Directors of its general partner, Blackstone Group Management L.L.C., had authorized the repurchase by Blackstone of up to $500 million of Blackstone common units and Blackstone Holdings Partnership Units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of Blackstone common units and Blackstone Holdings Partnership Units repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date.
During the years ended December 31, 2017, 2016 and 2015, no units were repurchased. As of December 31, 2017, the amount remaining available for repurchases under this program was $335.8 million.
| 16. | EQUITY-BASED COMPENSATION |
|---|
The Partnership has granted equity-based compensation awards to Blackstone’s senior managing directors, non-partner professionals, non-professionals and selected external advisers under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with Blackstone’s initial public offering (“IPO”). The Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone common units or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2017, the Partnership had the ability to grant 170,379,944 units under the Equity Plan.
For the years ended December 31, 2017, 2016 and 2015 the Partnership recorded compensation expense of $338.7 million, $323.7 million, and $629.6 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $47.1 million, $33.8 million, and $41.0 million, respectively.
As of December 31, 2017, there was $785.2 million of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 4.0 years.
Total vested and unvested outstanding units, including Blackstone common units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,200,759,045 as of December 31, 2017. Total outstanding unvested phantom units were 45,543 as of December 31, 2017.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
A summary of the status of the Partnership’s unvested equity-based awards as of December 31, 2017 and of changes during the period January 1, 2017 through December 31, 2017 is presented below:
| Blackstone Holdings | The Blackstone Group L.P. | |||||||||||||||||||||||
| Equity Settled Awards | Cash Settled Awards | |||||||||||||||||||||||
| Unvested Units | Partnership Units | Weighted- Average Grant Date Fair Value | Deferred Restricted Common Units | Weighted- Average Grant Date Fair Value | Phantom Units | Weighted- Average Grant Date Fair Value | ||||||||||||||||||
| Balance, December 31, 2016 | 34,568,726 | $ | 33.58 | 12,206,016 | $ | 24.65 | 40,460 | $ | 28.14 | |||||||||||||||
| Granted | 2,471,571 | 32.89 | 3,484,875 | 29.30 | 12,214 | 30.79 | ||||||||||||||||||
| Vested | (6,632,473 | ) | 28.94 | (6,268,037 | ) | 20.32 | (4,708 | ) | 30.73 | |||||||||||||||
| Forfeited | (384,635 | ) | 26.40 | (402,880 | ) | 29.67 | (3,770 | ) | 33.32 | |||||||||||||||
| Balance, December 31, 2017 | 30,023,189 | $ | 35.26 | 9,019,974 | $ | 30.03 | 44,196 | $ | 31.85 | |||||||||||||||
Units Expected to Vest
The following unvested units, after expected forfeitures, as of December 31, 2017, are expected to vest:
| Units | Weighted-Average Service Period in Years | |||||||
| Blackstone Holdings Partnership Units | 25,832,787 | 3.8 | ||||||
| Deferred Restricted Blackstone Common Units | 7,926,153 | 1.9 | ||||||
| Total Equity-Based Awards | 33,758,940 | 3.4 | ||||||
| Phantom Units | 34,752 | 2.9 | ||||||
Deferred Restricted Common Units and Phantom Units
The Partnership has granted deferred restricted common units to certain senior and non-senior managing director professionals, analysts and senior finance and administrative personnel and selected external advisers and phantom units (cash settled equity-based awards) to other senior and non-senior managing director employees. Holders of deferred restricted common units and phantom units are not entitled to any voting rights. Only phantom units are to be settled in cash.
The fair values of deferred restricted common units have been derived based on the closing price of Blackstone’s common units on the date of the grant, multiplied by the number of unvested awards and expensed over the assumed service period, which ranges from 1 to 5 years. Additionally, the calculation of the compensation expense assumes forfeiture rates based upon historical turnover rates, ranging from 1.0% to 11.6% annually by employee class, and a per unit discount, ranging from $0.48 to $10.88.
The phantom units vest over the assumed service period, which ranges from 1 to 5 years. On each such vesting date, Blackstone delivered or will deliver cash to the holder in an amount equal to the number of phantom units held multiplied by the then fair market value of the Blackstone common units on such date. Additionally, the calculation of the compensation expense assumes forfeiture rates based upon historical turnover rates, ranging from 9.9% to 11.6% annually by employee class. Blackstone is accounting for these cash settled awards as a liability.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Blackstone paid $0.3 million, $0.2 million and $1.1 million to non-senior managing director employees in settlement of phantom units for the years ended December 31, 2017, 2016 and 2015, respectively.
Blackstone Holdings Partnership Units
The Partnership has granted deferred restricted Blackstone Holdings Partners Units to certain newly hired and pre-existing senior managing directors. Holders of deferred restricted Blackstone Holdings Partnership Units are not entitled to any voting rights.
The fair values of deferred restricted Blackstone Holdings Partnership Units have been derived based on the closing price of Blackstone’s common units on the date of the grant, multiplied by the number of unvested awards and expensed over the assumed service period, which ranges from 1 to 9 years. Additionally, the calculation of the compensation expense assumes a forfeiture rate of up to 10.0%, based on historical experience.
| 17. | RELATED PARTY TRANSACTIONS |
|---|
Affiliate Receivables and Payables
Due from Affiliates and Due to Affiliates consisted of the following:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Due from Affiliates | ||||||||
| Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees Principally for Investments in Blackstone Funds | $ | 410,877 | $ | 342,943 | ||||
| Amounts Due from Portfolio Companies and Funds | 587,955 | 456,469 | ||||||
| Management and Performance Fees Due from Non-Consolidated Funds | 595,330 | 445,280 | ||||||
| Payments Made on Behalf of Non-Consolidated Entities | 355,767 | 196,134 | ||||||
| Investments Redeemed in Non-Consolidated Funds of Hedge Funds | 77,943 | 1,552 | ||||||
| Accrual for Potential Clawback of Previously Distributed Carried Interest | 1,112 | — | ||||||
| $ | 2,028,984 | $ | 1,442,378 | |||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Due to Affiliates | ||||||||
| Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreements | $ | 715,734 | $ | 1,186,145 | ||||
| Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees | 87,829 | 28,012 | ||||||
| Distributions Received on Behalf of Blackstone Entities | 38,789 | 80,034 | ||||||
| Payments Made by Non-Consolidated Entities | 51,249 | 19,833 | ||||||
| Due to Note Holders of Consolidated CLO Vehicles | 41,386 | 7,748 | ||||||
| Accrual for Potential Repayment of Previously Received Performance Fees | 2,171 | — | ||||||
| $ | 937,158 | $ | 1,321,772 | |||||
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Interests of the Founder, Senior Managing Directors, Employees and Other Related Parties
The Founder, senior managing directors, employees and certain other related parties invest on a discretionary basis in the consolidated Blackstone Funds both directly and through consolidated entities. These investments generally are subject to preferential management fee and performance fee arrangements. As of December 31, 2017 and 2016, such investments aggregated $813.2 million and $740.3 million, respectively. Their share of the Net Income Attributable to Redeemable Non-Controlling and Non-Controlling Interests in Consolidated Entities aggregated $113.9 million, $79.7 million and $49.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Revenues Earned from Affiliates
Management and Advisory Fees, Net earned from affiliates totaled $161.2 million, $185.8 million and $210.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. Fees relate primarily to transaction and monitoring fees which are negotiated in the ordinary course of fundraising and investment activities.
Loans to Affiliates
Loans to affiliates consist of interest bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing and such interest totaled $3.4 million, $1.4 million and $5.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Contingent Repayment Guarantee
Blackstone and its personnel who have received carried interest distributions have guaranteed payment on a several basis (subject to a cap) to the carry funds of any clawback obligation with respect to the excess carried interest allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. The Accrual for Potential Repayment of Previously Received Performance Fees represents amounts previously paid to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone Funds if the carry funds were to be liquidated based on the fair value of their underlying investments as of December 31, 2017. See Note 18. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)”.
Aircraft and Other Services
In the normal course of business, Blackstone personnel make use of aircraft owned as personal assets by Stephen A. Schwarzman; an aircraft owned jointly as a personal asset by Hamilton E. James, Blackstone’s Executive Vice Chairman and a Director of Blackstone, and another senior managing director; an aircraft owned as a personal asset by Jonathan D. Gray, Blackstone’s President and Chief Operating Officer and a Director of Blackstone; and an aircraft owned jointly as a personal asset by Bennett J. Goodman, Co-Founder of GSO Capital and a Director of Blackstone, and another senior managing director (each such aircraft, “Personal Aircraft”). Mr. Schwarzman paid for his purchases of his Personal Aircraft himself. Mr. James paid for his interest in his jointly owned Personal Aircraft. Mr. Goodman paid for his interest in his jointly owned Personal Aircraft. Mr. Gray paid for his purchase of his Personal Aircraft himself. Mr. Schwarzman, Mr. James, Mr. Goodman and Mr. Gray respectively bear operating, personnel and maintenance costs associated with the operation of such Personal Aircraft. Payment by Blackstone for the use of the Personal Aircraft by Blackstone employees is made based on market rates.
In addition, on occasion, certain of Blackstone’s executive officers and employee directors and their families may make personal use of aircraft owned by Blackstone or in which Blackstone owns a fractional interest, as well as
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
other assets of Blackstone. Any such personal use of Blackstone assets is charged to the executive officer or employee director based on market rates and usage. Personal use of Blackstone resources is also reimbursed to Blackstone based on market rates.
The transactions described herein are not material to the Consolidated Financial Statements.
Tax Receivable Agreements
Blackstone used a portion of the proceeds from the IPO and the sale of non-voting common units to Beijing Wonderful Investments to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units may exchange their Blackstone Holdings Partnership Units for Blackstone common units on a one-for-one basis. The purchase and subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings and therefore reduce the amount of tax that Blackstone’s wholly owned subsidiaries would otherwise be required to pay in the future.
One of the subsidiaries of the Partnership which is a corporate taxpayer has entered into tax receivable agreements with each of the predecessor owners and additional tax receivable agreements have been executed, and will continue to be executed, with newly-admitted senior managing directors and others who acquire Blackstone Holdings Partnership Units. The agreements provide for the payment by the corporate taxpayer to such owners of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the corporate taxpayers actually realize as a result of the aforementioned increases in tax basis and of certain other tax benefits related to entering into these tax receivable agreements. For purposes of the tax receivable agreements, cash savings in income tax will be computed by comparing the actual income tax liability of the corporate taxpayers to the amount of such taxes that the corporate taxpayers would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Blackstone Holdings as a result of the exchanges and had the corporate taxpayers not entered into the tax receivable agreements.
As a result of the Tax Cuts and Jobs Act of 2017 that was signed into law on December 22, 2017, there was a reduction of $403.9 million of the tax receivable agreement liability due to the pre-IPO owners and others mentioned above. Assuming no future material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $715.7 million over the next 15 years. The after-tax net present value of these estimated payments totals $252.7 million assuming a 15% discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreements are not conditioned upon continued ownership of Blackstone equity interests by the pre-IPO owners and the others mentioned above. Prior to December 31, 2017, payments totaling $76.3 million were made to certain pre-IPO owners and others mentioned above in accordance with the tax receivable agreement and related to tax benefits the Partnership received for the 2016 taxable year.
Amounts related to the deferred tax asset resulting from the increase in tax basis from the exchange of Blackstone Holdings Partnership Units to Blackstone common units, the resulting remeasurement of net deferred tax assets at the Blackstone ownership percentage at the balance sheet date, the due to affiliates for the future payments resulting from the tax receivable agreements and resulting adjustment to partners’ capital are included as Acquisition of Ownership Interests from Non-Controlling Interest Holders in the Supplemental Disclosure of Non-Cash Investing and Financing Activities in the Consolidated Statements of Cash Flows.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
Other
Blackstone does business with and on behalf of some of its Portfolio Companies; all such arrangements are on a negotiated basis.
Additionally, please see Note 18. “Commitments and Contingencies — Contingencies — Guarantees” for information regarding guarantees provided to a lending institution for certain loans held by employees.
| 18. | COMMITMENTS AND CONTINGENCIES |
|---|
Commitments
Operating Leases
The Partnership leases office space under non-cancelable lease and sublease agreements, which expire on various dates through 2030. Occupancy lease agreements, in addition to base rentals, generally are subject to escalation provisions based on certain costs incurred by the landlord, and are recognized on a straight-line basis over the term of the lease agreement. Rent expense includes base contractual rent and variable costs such as building expenses, utilities, taxes and insurance. Rent expense for the years ended December 31, 2017, 2016 and 2015, was $104.7 million, $97.2 million and $112.0 million, respectively. At December 31, 2017 and 2016, the Partnership maintained irrevocable standby letters of credit and cash deposits as security for the leases of $8.9 million and $11.4 million, respectively. As of December 31, 2017, the aggregate minimum future payments, net of sublease income, required on the operating leases are as follows:
| 2018 | $ | 77,802 | ||
| 2019 | 72,441 | |||
| 2020 | 67,727 | |||
| 2021 | 77,615 | |||
| 2022 | 76,520 | |||
| Thereafter | 343,625 | |||
| Total | $ | 715,730 | ||
Investment Commitments
Blackstone had $2.4 billion of investment commitments as of December 31, 2017 representing general partner capital funding commitments to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. The consolidated Blackstone Funds had signed investment commitments of $170.5 million as of December 31, 2017 which includes $72.8 million of signed investment commitments for portfolio company acquisitions in the process of closing.
Contingencies
Guarantees
Certain of Blackstone’s consolidated real estate funds guarantee payments to third parties in connection with the on-going business activities and/or acquisitions of their Portfolio Companies. There is no direct recourse to the Partnership to fulfill such obligations. To the extent that underlying funds are required to fulfill guarantee obligations, the Partnership’s invested capital in such funds is at risk. Total investments at risk in respect of guarantees extended by consolidated real estate funds was $6.0 million as of December 31, 2017.
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The Blackstone Holdings Partnerships provided guarantees to a lending institution for certain loans held by employees either for investment in Blackstone Funds or for members’ capital contributions to Blackstone Group International Partners LLP. The amount guaranteed as of December 31, 2017 was $179.2 million.
Litigation
From time to time, Blackstone is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, Blackstone does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial position or cash flows.
Contingent Obligations (Clawback)
Carried Interest is subject to clawback to the extent that the Carried Interest received to date with respect to a fund exceeds the amount due to Blackstone based on cumulative results of that fund. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability. The lives of the carry funds, including available contemplated extensions, for which a liability for potential clawback obligations has been recorded for financial reporting purposes, are currently anticipated to expire at various points through 2028. Further extensions of such terms may be implemented under given circumstances.
For financial reporting purposes, when applicable, the general partners record a liability for potential clawback obligations to the limited partners of some of the carry funds due to changes in the unrealized value of a fund’s remaining investments and where the fund’s general partner has previously received Carried Interest distributions with respect to such fund’s realized investments.
The following table presents the clawback obligations by segment:
| December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Segment | Blackstone Holdings | Current and Former Personnel | Total | Blackstone Holdings | Current and Former Personnel | Total | ||||||||||||||||||
| Credit | $ | 1,059 | $ | 1,112 | $ | 2,171 | $ | — | $ | — | $ | — | ||||||||||||
For Private Equity, Real Estate, and certain Credit Funds, a portion of the carried interest paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the Consolidated Financial Statements of the Partnership, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At December 31, 2017, $655.9 million was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.
In the Credit segment, payment of carried interest to the Partnership by the majority of the stressed/distressed, mezzanine and credit alpha strategies funds are substantially deferred under the terms of the partnership agreements. This deferral mitigates the need to hold funds in segregated accounts in the event of a cash clawback obligation.
If, at December 31, 2017, all of the investments held by our carry funds were deemed worthless, a possibility that management views as remote, the amount of Carried Interest subject to potential clawback would be $6.2 billion, on an after tax basis where applicable, of which Blackstone Holdings is potentially liable for
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
$5.7 billion if current and former Blackstone personnel default on their share of the liability, a possibility that management also views as remote.
| 19. | EMPLOYEE BENEFIT PLANS |
|---|
The Partnership provides a 401(k) plan (the “Plan”) for eligible employees in the United States. Through December 31, 2016 for certain administrative employees who were eligible for participation in the Plan, the Partnership made a non-elective contribution of 2% of such employee’s annual compensation up to a maximum of one thousand six hundred dollars regardless of whether the employee made any elective contributions to the Plan. In addition, the Partnership also contributed 50% of certain eligible employee’s contribution to the Plan with a maximum matching contribution of one thousand six hundred dollars. As of January 1, 2017, the Partnership contributes 50% of certain eligible administrative employee’s contribution to the Plan with a maximum matching contribution of five thousand dollars. For the years ended December 31, 2017, 2016 and 2015, the Partnership incurred expenses of $3.7 million, $2.1 million and $2.0 million in connection with such Plan.
| 20. | REGULATED ENTITIES |
|---|
The Partnership has a registered broker-dealer that is subject to the minimum net capital requirements of the SEC. This entity has continuously operated in excess of these requirements. The Partnership also has certain entities based in Australia, Hong Kong, Ireland, Japan, Luxembourg, Singapore and the United Kingdom, which are subject to the capital requirements of the Australian Securities and Investments Commission, the Hong Kong Securities and Futures Commission, the Central Bank of Ireland, the Japan Financial Services Agency, the Commission de Surveillance du Secteur Financier, the Monetary Authority of Singapore and the Financial Conduct Authority, respectively. These entities have continuously operated in excess of their regulatory capital requirements.
Certain other U.S. and non-U.S. entities are subject to various investment adviser, commodity pool operator and trader regulations. This includes a number of U.S. entities that are registered as investment advisers with the SEC.
The regulatory capital requirements referred to above may restrict the Partnership’s ability to withdraw capital from its entities. At December 31, 2017, $37.2 million of net assets of consolidated entities may be restricted as to the payment of cash dividends and advances to the Partnership.
| 21. | SEGMENT REPORTING |
|---|
Blackstone transacts its primary business in the United States and substantially all of its revenues are generated domestically.
Blackstone conducts its alternative asset management businesses through four segments:
| • | Private Equity — Blackstone’s Private Equity segment primarily comprises its management of flagship corporate private equity-funds, sector-focused corporate private equity funds, including energy-focused funds, a core private equity fund, an opportunistic investment platform, a secondary private equity fund of funds business, a multi-asset investment program for eligible high net worth investors and a capital markets services business. |
|---|
| • | Real Estate — Blackstone’s Real Estate segment primarily comprises its management of global, European focused and Asian focused opportunistic real estate funds, high yield real estate debt funds, liquid real estate debt funds, core+ real estate funds, a NYSE-listed REIT and a non-exchange traded REIT. |
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| • | Hedge Fund Solutions — Blackstone’s Hedge Fund Solutions segment is comprised principally of Blackstone Alternative Asset Management (“BAAM”), which manages a broad range of commingled and |
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THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| customized hedge fund of fund solutions and also includes investment platforms that seed new hedge fund businesses, purchase minority ownership interests in more established hedge funds, invest in special situation opportunities, create alternative solutions in regulated structures and trade directly. |
|---|
| • | Credit — Blackstone’s Credit segment consists principally of GSO Capital Partners LP (“GSO”), which is organized into performing credit strategies (which include mezzanine lending funds, middle market direct lending funds and other performing credit strategies), distressed strategies (which include credit alpha strategies, stressed/distressed funds and energy strategies), long only strategies (which consist of CLOs, closed end funds, commingled funds and separately managed accounts), Harvest (which invests in publicly traded master limited partnerships holding primarily midstream energy assets in the U.S.), and Blackstone Insurance Solutions (which partners with insurers to deliver customizable and diversified portfolios of Blackstone products across asset classes, as well as the option for full management of insurance companies’ investment portfolios). |
|---|
These business segments are differentiated by their various sources of income. The Private Equity, Real Estate, Hedge Fund Solutions and Credit segments primarily earn their income from management fees and investment returns on assets under management.
Blackstone uses Economic Income as a key measure of value creation, a benchmark of its performance and in making resource deployment and compensation decisions across its four segments. Economic Income represents segment net income before taxes excluding transaction-related charges. Transaction-related charges arise from Blackstone’s IPO and certain long-term retention programs outside of annual deferred compensation and other corporate actions, including acquisitions. Transaction-related charges include certain equity-based compensation charges, the amortization of intangible assets and contingent consideration associated with acquisitions. Economic Income presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages. Economic Net Income (“ENI”) represents Economic Income adjusted to include current period taxes. Taxes represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes and adjusted to exclude the tax impact of any divestitures.
Senior management makes operating decisions and assesses the performance of each of Blackstone’s business segments based on financial and operating metrics and data that is presented without the consolidation of any of the Blackstone Funds that are consolidated into the Consolidated Financial Statements. Consequently, all segment data excludes the assets, liabilities and operating results related to the Blackstone Funds.
On October 1, 2015, Blackstone completed the spin-off of the operations that historically constituted Blackstone’s Financial Advisory segment, other than Blackstone’s capital markets services business. Blackstone’s capital markets services business was retained and was not part of the spin-off. These historical operations included various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. As of October 1, 2015, Blackstone no longer reported a Financial Advisory segment. Results of the historical Financial Advisory segment are included herein for comparative purposes only. The results of Blackstone’s capital markets services business were reclassified from the Financial Advisory segment to the Private Equity segment.
Effective December 31, 2017, Total Segment measures have been redefined to eliminate inter-segment interest revenue and expense. This adjustment results in no change to Economic Income on a Total Segment basis, but results in changes to each segment’s Economic Income. All prior periods have been recast to reflect this adjustment.
Effective December 31, 2017, an insurance related multi-asset product in Blackstone’s Private Equity segment was reclassified to Blackstone’s Credit segment. All prior periods have been recast to reflect this reclassification.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following tables present the financial data for Blackstone’s four segments as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015.
| December 31, 2017 and the Year Then Ended | ||||||||||||||||||||
| Private Equity | Real Estate | Hedge Fund Solutions | Credit | Total Segments | ||||||||||||||||
| Segment Revenues | ||||||||||||||||||||
| Management and Advisory Fees, Net | ||||||||||||||||||||
| Base Management Fees | $ | 724,818 | $ | 872,191 | $ | 516,048 | $ | 567,334 | $ | 2,680,391 | ||||||||||
| Transaction, Advisory and Other Fees, Net | 57,624 | 82,781 | 2,980 | 13,431 | 156,816 | |||||||||||||||
| Management Fee Offsets | (18,007 | ) | (15,934 | ) | (93 | ) | (32,382 | ) | (66,416 | ) | ||||||||||
| Total Management and Advisory Fees, Net | 764,435 | 939,038 | 518,935 | 548,383 | 2,770,791 | |||||||||||||||
| Performance Fees | ||||||||||||||||||||
| Realized | ||||||||||||||||||||
| Carried Interest | 1,157,188 | 2,124,472 | — | 158,293 | 3,439,953 | |||||||||||||||
| Incentive Fees | — | 96,402 | 154,343 | 126,554 | 377,299 | |||||||||||||||
| Unrealized | ||||||||||||||||||||
| Carried Interest | (13,214 | ) | (146,476 | ) | 4,806 | 54,233 | (100,651 | ) | ||||||||||||
| Incentive Fees | — | 569 | 2,965 | (12,011 | ) | (8,477 | ) | |||||||||||||
| Total Performance Fees | 1,143,974 | 2,074,967 | 162,114 | 327,069 | 3,708,124 | |||||||||||||||
| Investment Income (Loss) | ||||||||||||||||||||
| Realized | 154,837 | 255,903 | 9,074 | 16,380 | 436,194 | |||||||||||||||
| Unrealized | (51,417 | ) | (122,220 | ) | 41,012 | 1,419 | (131,206 | ) | ||||||||||||
| Total Investment Income | 103,420 | 133,683 | 50,086 | 17,799 | 304,988 | |||||||||||||||
| Interest and Dividend Revenue | 32,838 | 58,084 | 21,525 | 30,473 | 142,920 | |||||||||||||||
| Other | (35,662 | ) | (51,425 | ) | (24,380 | ) | (28,584 | ) | (140,051 | ) | ||||||||||
| Total Revenues | 2,009,005 | 3,154,347 | 728,280 | 895,140 | 6,786,772 | |||||||||||||||
| Expenses | ||||||||||||||||||||
| Compensation and Benefits | ||||||||||||||||||||
| Compensation | 362,674 | 427,211 | 176,782 | 236,449 | 1,203,116 | |||||||||||||||
| Performance Fee Compensation | ||||||||||||||||||||
| Realized | ||||||||||||||||||||
| Carried Interest | 404,544 | 743,011 | — | 79,006 | 1,226,561 | |||||||||||||||
| Incentive Fees | — | 46,193 | 53,348 | 61,142 | 160,683 | |||||||||||||||
| Unrealized | ||||||||||||||||||||
| Carried Interest | 71,095 | 13,688 | 1,786 | 18,803 | 105,372 | |||||||||||||||
| Incentive Fees | — | (31 | ) | 1,111 | (5,366 | ) | (4,286 | ) | ||||||||||||
| Total Compensation and Benefits | 838,313 | 1,230,072 | 233,027 | 390,034 | 2,691,446 | |||||||||||||||
| Interest Expense | 51,129 | 71,341 | 31,618 | 38,750 | 192,838 | |||||||||||||||
| Other Operating Expenses | 120,997 | 136,042 | 68,265 | 99,562 | 424,866 | |||||||||||||||
| Total Expenses | 1,010,439 | 1,437,455 | 332,910 | 528,346 | 3,309,150 | |||||||||||||||
| Economic Income | $ | 998,566 | $ | 1,716,892 | $ | 395,370 | $ | 366,794 | $ | 3,477,622 | ||||||||||
| Segment Assets as of December 31, 2017 | $ | 6,369,491 | $ | 7,597,147 | $ | 2,107,502 | $ | 3,927,071 | $ | 20,001,211 | ||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| December 31, 2016 and the Year Then Ended | ||||||||||||||||||||
| Private Equity | Real Estate | Hedge Fund Solutions | Credit | Total Segments | ||||||||||||||||
| Segment Revenues | ||||||||||||||||||||
| Management and Advisory Fees, Net | ||||||||||||||||||||
| Base Management Fees | $ | 555,593 | $ | 795,161 | $ | 521,736 | $ | 525,289 | $ | 2,397,779 | ||||||||||
| Transaction, Advisory and Other Fees, Net | 39,283 | 95,324 | 1,061 | 9,190 | 144,858 | |||||||||||||||
| Management Fee Offsets | (34,810 | ) | (7,322 | ) | — | (37,512 | ) | (79,644 | ) | |||||||||||
| Total Management and Advisory Fees, Net | 560,066 | 883,163 | 522,797 | 496,967 | 2,462,993 | |||||||||||||||
| Performance Fees | ||||||||||||||||||||
| Realized | ||||||||||||||||||||
| Carried Interest | 245,268 | 1,203,484 | — | 26,163 | 1,474,915 | |||||||||||||||
| Incentive Fees | — | 29,625 | 42,177 | 100,299 | 172,101 | |||||||||||||||
| Unrealized | ||||||||||||||||||||
| Carried Interest | 425,691 | (150,997 | ) | 504 | 206,043 | 481,241 | ||||||||||||||
| Incentive Fees | — | 39,527 | 785 | 9,417 | 49,729 | |||||||||||||||
| Total Performance Fees | 670,959 | 1,121,639 | 43,466 | 341,922 | 2,177,986 | |||||||||||||||
| Investment Income (Loss) | ||||||||||||||||||||
| Realized | 73,377 | 122,712 | (7,224 | ) | 11,004 | 199,869 | ||||||||||||||
| Unrealized | (4,593 | ) | (1,119 | ) | 15,462 | 10,671 | 20,421 | |||||||||||||
| Total Investment Income | 68,784 | 121,593 | 8,238 | 21,675 | 220,290 | |||||||||||||||
| Interest and Dividend Revenue | 25,364 | 38,453 | 13,864 | 18,718 | 96,399 | |||||||||||||||
| Other | 20,458 | 16,523 | 8,157 | 9,574 | 54,712 | |||||||||||||||
| Total Revenues | 1,345,631 | 2,181,371 | 596,522 | 888,856 | 5,012,380 | |||||||||||||||
| Expenses | ||||||||||||||||||||
| Compensation and Benefits | ||||||||||||||||||||
| Compensation | 309,968 | 385,352 | 185,320 | 202,576 | 1,083,216 | |||||||||||||||
| Performance Fee Compensation | ||||||||||||||||||||
| Realized | ||||||||||||||||||||
| Carried Interest | 110,882 | 332,622 | — | 12,450 | 455,954 | |||||||||||||||
| Incentive Fees | — | 12,085 | 19,397 | 46,614 | 78,096 | |||||||||||||||
| Unrealized | ||||||||||||||||||||
| Carried Interest | 163,937 | 44,775 | 181 | 103,945 | 312,838 | |||||||||||||||
| Incentive Fees | — | 16,872 | 292 | 3,970 | 21,134 | |||||||||||||||
| Total Compensation and Benefits | 584,787 | 791,706 | 205,190 | 369,555 | 1,951,238 | |||||||||||||||
| Interest Expense | 49,126 | 49,849 | 24,524 | 24,523 | 148,022 | |||||||||||||||
| Other Operating Expenses | 130,685 | 137,581 | 75,870 | 87,700 | 431,836 | |||||||||||||||
| Total Expenses | 764,598 | 979,136 | 305,584 | 481,778 | 2,531,096 | |||||||||||||||
| Economic Income | $ | 581,033 | $ | 1,202,235 | $ | 290,938 | $ | 407,078 | $ | 2,481,284 | ||||||||||
| Segment Assets as of December 31, 2016 | $ | 6,493,236 | $ | 7,643,123 | $ | 2,160,688 | $ | 2,905,081 | $ | 19,202,128 | ||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| Year Ended December 31, 2015 | ||||||||||||||||||||||||
| Private Equity | Real Estate | Hedge Fund Solutions | Credit | Financial Advisory | Total Segments | |||||||||||||||||||
| Segment Revenues | ||||||||||||||||||||||||
| Management and Advisory Fees, Net | ||||||||||||||||||||||||
| Base Management Fees | $ | 502,640 | $ | 668,575 | $ | 524,386 | $ | 500,982 | $ | — | $ | 2,196,583 | ||||||||||||
| Transaction, Advisory and Other Fees, Net | 46,819 | 110,577 | 317 | 6,371 | 297,732 | 461,816 | ||||||||||||||||||
| Management Fee Offsets | (36,760 | ) | (26,840 | ) | 171 | (30,065 | ) | — | (93,494 | ) | ||||||||||||||
| Total Management and Advisory Fees, Net | 512,699 | 752,312 | 524,874 | 477,288 | 297,732 | 2,564,905 | ||||||||||||||||||
| Performance Fees | ||||||||||||||||||||||||
| Realized | ||||||||||||||||||||||||
| Carried Interest | 1,474,987 | 1,634,733 | — | 96,156 | — | 3,205,876 | ||||||||||||||||||
| Incentive Fees | — | 17,153 | 68,197 | 109,396 | — | 194,746 | ||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||
| Carried Interest | (717,955 | ) | (680,542 | ) | 2,021 | (198,820 | ) | — | (1,595,296 | ) | ||||||||||||||
| Incentive Fees | — | 20,802 | (8,084 | ) | (19,967 | ) | — | (7,249 | ) | |||||||||||||||
| Total Performance Fees | 757,032 | 992,146 | 62,134 | (13,235 | ) | — | 1,798,077 | |||||||||||||||||
| Investment Income (Loss) | ||||||||||||||||||||||||
| Realized | 189,649 | 235,582 | (12,741 | ) | 7,186 | (868 | ) | 418,808 | ||||||||||||||||
| Unrealized | (116,338 | ) | (231,889 | ) | (1,435 | ) | (16,258 | ) | (39 | ) | (365,959 | ) | ||||||||||||
| Total Investment Income (Loss) | 73,311 | 3,693 | (14,176 | ) | (9,072 | ) | (907 | ) | 52,849 | |||||||||||||||
| Interest and Dividend Revenue | 22,685 | 33,501 | 11,194 | 18,268 | 10,013 | 95,661 | ||||||||||||||||||
| Other | 5,854 | (1,422 | ) | 200 | 5,171 | (1,303 | ) | 8,500 | ||||||||||||||||
| Total Revenues | 1,371,581 | 1,780,230 | 584,226 | 478,420 | 305,535 | 4,519,992 | ||||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| Compensation and Benefits | ||||||||||||||||||||||||
| Compensation | 280,248 | 358,381 | 179,484 | 190,189 | 180,917 | 1,189,219 | ||||||||||||||||||
| Performance Fee Compensation | ||||||||||||||||||||||||
| Realized | ||||||||||||||||||||||||
| Carried Interest | 256,922 | 484,037 | — | 52,841 | — | 793,800 | ||||||||||||||||||
| Incentive Fees | — | 8,678 | 27,155 | 50,113 | — | 85,946 | ||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||
| Carried Interest | (10,172 | ) | (196,347 | ) | 823 | (107,000 | ) | — | (312,696 | ) | ||||||||||||||
| Incentive Fees | — | 8,817 | (2,912 | ) | (8,395 | ) | — | (2,490 | ) | |||||||||||||||
| Total Compensation and Benefits | 526,998 | 663,566 | 204,550 | 177,748 | 180,917 | 1,753,779 | ||||||||||||||||||
| Interest Expense | 45,068 | 42,562 | 21,049 | 21,207 | 9,956 | 139,842 | ||||||||||||||||||
| Other Operating Expenses | 142,985 | 125,513 | 63,468 | 66,879 | 49,730 | 448,575 | ||||||||||||||||||
| Total Expenses | 715,051 | 831,641 | 289,067 | 265,834 | 240,603 | 2,342,196 | ||||||||||||||||||
| Economic Income | $ | 656,530 | $ | 948,589 | $ | 295,159 | $ | 212,586 | $ | 64,932 | $ | 2,177,796 | ||||||||||||
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
The following tables reconcile the Total Segments to Blackstone’s Income Before Provision for Taxes for the years ended December 31, 2017, 2016 and 2015 along with Total Assets as of December 31, 2017 and 2016:
| December 31, 2017 and the Year Then Ended | ||||||||||||
| Total Segments | Consolidation Adjustments and Reconciling Items | Blackstone Consolidated | ||||||||||
| Revenues | $ | 6,786,772 | $ | 332,281 | (a) | $ | 7,119,053 | |||||
| Expenses | $ | 3,309,150 | $ | 418,254 | (b) | $ | 3,727,404 | |||||
| Other Income | $ | — | $ | 725,452 | (c) | $ | 725,452 | |||||
| Economic Income | $ | 3,477,622 | $ | 639,479 | (d) | $ | 4,117,101 | |||||
| Total Assets | $ | 20,001,211 | $ | 14,427,699 | (e) | $ | 34,428,910 |
| December 31, 2016 and the Year Then Ended | ||||||||||||
| Total Segments | Consolidation Adjustments and Reconciling Items | Blackstone Consolidated | ||||||||||
| Revenues | $ | 5,012,380 | $ | 113,454 | (a) | $ | 5,125,834 | |||||
| Expenses | $ | 2,531,096 | $ | 397,478 | (b) | $ | 2,928,574 | |||||
| Other Income | $ | — | $ | 184,750 | (c) | $ | 184,750 | |||||
| Economic Income | $ | 2,481,284 | $ | (99,274 | )(d) | $ | 2,382,010 | |||||
| Total Assets | $ | 19,202,128 | $ | 7,201,209 | (e) | $ | 26,403,337 |
| Year Ended December 31, 2015 | ||||||||||||
| Total Segments | Consolidation Adjustments and Reconciling Items | Blackstone Consolidated | ||||||||||
| Revenues | $ | 4,519,992 | $ | 126,560 | (a) | $ | 4,646,552 | |||||
| Expenses | $ | 2,342,196 | $ | 748,679 | (b) | $ | 3,090,875 | |||||
| Other Income | $ | — | $ | 259,071 | (c) | $ | 259,071 | |||||
| Economic Income | $ | 2,177,796 | $ | (363,048 | )(d) | $ | 1,814,748 |
| (a) | The Revenues adjustment represents management and performance fees earned from Blackstone Funds that were eliminated in consolidation to arrive at Blackstone consolidated revenues and non-segment related Investment Income (Loss), which is included in Blackstone consolidated revenues. |
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| (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 transaction-related equity-based compensation. |
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Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| (c) | The Other Income adjustment results from the following: |
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| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Fund Management Fees and Performance Fees Eliminated in Consolidation and Transactional Investment Loss | $ | (329,871 | ) | $ | (65,849 | ) | $ | (100,657 | ) | |||
| Fund Expenses Added in Consolidation | 137,433 | 7,329 | 48,239 | |||||||||
| Income Associated with Non-Controlling Interests of Consolidated Entities | 511,245 | 250,129 | 231,045 | |||||||||
| Transaction-Related Other Income (Loss) | 406,645 | (6,859 | ) | 80,444 | ||||||||
| Total Consolidation Adjustments and Reconciling Items | $ | 725,452 | $ | 184,750 | $ | 259,071 | ||||||
| (d) | The reconciliation of Economic Income to Income Before Provision for Taxes as reported in the Consolidated Statements of Operations consists of the following: |
|---|
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Economic Income | $ | 3,477,622 | $ | 2,481,284 | $ | 2,177,796 | ||||||
| Adjustments | ||||||||||||
| Amortization of Intangibles | (48,297 | ) | (84,466 | ) | (104,530 | ) | ||||||
| Transaction-Related Charges | 176,531 | (264,937 | ) | (489,563 | ) | |||||||
| Income Associated with Non-Controlling Interests of Consolidated Entities | 511,245 | 250,129 | 231,045 | |||||||||
| Total Consolidation Adjustments and Reconciling Items | 639,479 | (99,274 | ) | (363,048 | ) | |||||||
| Income Before Provision for Taxes | $ | 4,117,101 | $ | 2,382,010 | $ | 1,814,748 | ||||||
| (e) | The Total Assets adjustment represents the addition of assets of the consolidated Blackstone Funds to the Blackstone unconsolidated assets to arrive at Blackstone consolidated assets. |
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| 22. | SUBSEQUENT EVENTS |
|---|
There have been no events since December 31, 2017 that require recognition or disclosure in the Consolidated Financial Statements.
Table of Contents
THE BLACKSTONE GROUP L.P.
Notes to Consolidated Financial Statements—Continued
(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)
| 23. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
|---|
| Three Months Ended | ||||||||||||||||
| March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 (a) | |||||||||||||
| Revenues | $ | 1,940,723 | $ | 1,549,355 | $ | 1,746,777 | $ | 1,882,198 | ||||||||
| Expenses | 929,650 | 885,112 | 903,760 | 1,008,882 | ||||||||||||
| Other Income | 66,132 | 110,054 | 63,448 | 485,818 | ||||||||||||
| Income Before Provision for Taxes | $ | 1,077,205 | $ | 774,297 | $ | 906,465 | $ | 1,359,134 | ||||||||
| Net Income | $ | 1,019,768 | $ | 744,689 | $ | 846,953 | $ | 762,544 | ||||||||
| Net Income Attributable to The Blackstone Group L.P. | $ | 461,825 | $ | 342,775 | $ | 384,642 | $ | 281,588 | ||||||||
| Net Income Per Common Unit | ||||||||||||||||
| Common Units, Basic | $ | 0.70 | $ | 0.52 | $ | 0.58 | $ | 0.42 | ||||||||
| Common Units, Diluted | $ | 0.69 | $ | 0.51 | $ | 0.56 | $ | 0.42 | ||||||||
| Distributions Declared (b) | $ | 0.47 | $ | 0.87 | $ | 0.54 | $ | 0.44 | ||||||||
| Three Months Ended | ||||||||||||||||
| March 31, 2016 (c) | June 30, 2016 | September 30, 2016 | December 31, 2016 | |||||||||||||
| Revenues | $ | 932,354 | $ | 1,192,426 | $ | 1,431,685 | $ | 1,569,369 | ||||||||
| Expenses | 617,710 | 712,603 | 773,777 | 824,484 | ||||||||||||
| Other Income | 19,142 | 30,703 | 61,395 | 73,510 | ||||||||||||
| Income Before Provision for Taxes | $ | 333,786 | $ | 510,526 | $ | 719,303 | $ | 818,395 | ||||||||
| Net Income | $ | 324,640 | $ | 463,111 | $ | 691,589 | $ | 770,308 | ||||||||
| Net Income Attributable to The Blackstone Group L.P. | $ | 159,753 | $ | 198,626 | $ | 312,905 | $ | 367,951 | ||||||||
| Net Income Per Common Unit | ||||||||||||||||
| Common Units, Basic | $ | 0.23 | $ | 0.31 | $ | 0.48 | $ | 0.56 | ||||||||
| Common Units, Diluted | $ | 0.23 | $ | 0.30 | $ | 0.47 | $ | 0.55 | ||||||||
| Distributions Declared (b) | $ | 0.61 | $ | 0.28 | $ | 0.36 | $ | 0.41 | ||||||||
| (a) | The Tax Reform Bill enacted in the three months ended December 31, 2017 resulted in a reduction to the liability under the Tax Receivable Agreement of $403.9 million which is included in Other Income and a decrease in the deferred tax assets of $500.6 million which is a component of the Provision for Taxes. See Note 14. “Income Taxes”. |
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| (b) | Distributions declared reflects the calendar date of the declaration of each distribution. |
|---|
| (c) | Blackstone adopted new GAAP stock compensation guidance for the three months ended June 30, 2016 and applied a modified retrospective approach as of January 1, 2016. Adoption changed Provision for Taxes, Net Income, Net Income Attributable to The Blackstone Group L.P. and the number of GAAP Weighted Average Units Outstanding – Diluted for the quarter ended March 31, 2016. Such amounts have been recast here from the amounts originally reported for the quarter ended March 31, 2016. |
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Table of Contents
Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 8A. UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION