EFTA01085356.pdf

APOLLO GLOBAL MANAGEMENT LLC (APO) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/09/2012 Filed Period 12/31/2011 THOMSON REUTERS ACCELUS- EFTA01085356 Table of l'ontenIs UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, • 20549 Form 10-K (Mark One) al ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011 OR O TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 001-35107 APOLLO GLOBAL MANAGEMENT, LLC (Exact name of Registrant as specified in its charter) Delaware 20-S8130053 (State or other jurbdiction or (I.R.S. Employer incorporation or organization) Identification Not 9 West 57th Street, 43rd Floor New York. New York 10019 (Address of principal catcalls e offices) Codel (212) 515-3200 Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Tide of each class Name a each exchange on which registered Class A shams representing limited liability company interests New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer. as defined in Rule 405 of the Securities. Yes 0 No 0 Indicate by check mask if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes 0 No 0 Indicate by check mask whether the Registrant I 1) has filed all rept:cts required to be filed by Section 13 or I5(d) of the Securities Exchange Act of 1934 during the preceding 12 months tor for inch shorter period that the Registrant was required to file such reports). and (2) has been subset to such (ding requirements foe the past 90 days. Yes 0 No 0 Indicate by check mask whether the registrant has submitted electronically and posted on its corporate N'eb site. if any. every Interactive Data File required to be submitted and posted punriant to Rule 405 of Regulation S-T (1232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 0 No 0 Indicate by check mask if disclosure of delinquent tilers pursuant to Item 405 of Regulation S-K (*229.403 of this chapter) is not contained herein and will not be contained. to the best of the Resists:all's knowledge. in definitive proxy or information statements incorporated by reference an Past III of this Form II).K or any amendment to this Form 10.K. 0 Indicate by check mask whether the Registrant is a large accelerated filer, an accelerated filer. a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated Tiler", "accelerated filer' and 'smaller reporting company' in Rule I 2b-2 of the Exchange Act. Large accelerated filer 0 Accelerated filer 0 Non-accelerated filer 0 (Do not check if a smaller reporting company) Smaller reporting company 0 Indicate by check mask whether the Registrant is a shell company (as defined in Rule 12b'2 of the Exchange Act). Yes 0 No As of lune 30.2011 the aggregate market value of 47.969116 Class A shares held by non-affiliates was approximately 5825 million. As of Mardi 7,''1112 there were 126.309.787 Class A Mures and I Class B share outstanding. DOCUMENTS INCORPORATED BY REFERENCE None EFTA01085357 Table of Contents TABLE OF CONTENTS PART I ITEM I. BUSINESS 7 ITEM IA. RISK FACTORS 29 ITEM I R. UNRESOLVED STAFF COMMENTS 68 ITEM 2. PROPERTIES 69 ITEM 3. LEGAL PROCEEDINGS 69 ITEM 4. MINE SAFETY DISCLOSURES 70 PART II ITEM S. MARKET FOR REGISTRANT'S COMMON EOUITY. RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUiT_Y SECURITIES 71 ITEM 6. SELECTED FINANCIAL DATA 73 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 76 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCI OSURES ABOUT MARKET RISK 155 ITEM a. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 160 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 254 ITEM 9A. CONTROLS AND PROCEDURES 254 ITEM 9B. OTHER INFORMATION 254 PART III ITEM 10. DIRECTORSJIECUTIVE OFFICERS AND CORPORATE GOVERNANCE 255 ITEM II. EXECUTIVE COMPENSATION 262 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 274 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. AND DIRECTOR INDEPENDENCE 277 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 287 PART IV ITEM IS. EXHIBITS. FINANCIAL STATEMENT SCHEDULES 288 SIGNATURES 292 2 EFTA01085358 Table of Contents Forward-Looking Statements This report may contain forward looking statements that arc within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to. discussions related to Apollo's expectations regarding the performance of its business. its liquidity and capital resources and the other non-historical statements in the discussion and analysis. These forward-looking statements are based on management's beliefs, as well as assumptions made by. and information currently available to. management. When used in this report. the words "believe." "anticipate: "estimate." "expect: "intend" and similar expressions are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements arc reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to certain risks, uncertainties and assumptions. including risks relating to our dependence on certain key personnel. our ability to raise new private equity. capital markets or real estate funds. market conditions, generally: our ability to manage our growth. fund performance. changes in our regulatory environment and tax status, the variability of our revenues, net income and cash flow. our use of leverage to finance our businesses and investments by our funds and litigation risks, among others. We believe these factors include but arc not limited to those described under the section entitled "Risk Factors" in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission ("SEC"), which arc accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in other filings. We undertake no obligation to publicly update or review any forward-looking statements. whether as a result of new information, future developments or otherwise, except as required by applicable law. Terms Used in This Report In this report. references to "Apollo: "we: "us: "our" and the "Company" refer collectively to Apollo Global Management. LLC and its subsidiaries, including the Apollo Operating Group and all of its subsidiaries. "AMH" refers to Apollo Management Holdings... a Delaware limited partnership owned by APO Corp. and Holdings: "Apollo funds" and "our funds" refer to the funds, alternative asset companies and other entities that are managed by the Apollo Operating Group. "Apollo Operating Group" refers to: (i) the limited partnerships through which our Managing Partners currently operate our businesses: and (ii) one or more limited partnerships formed for the purpose of, among other activities, holding certain of our gains or losses on our principal investments in the funds. which we refer to as our "principal investments." "Apollo Operating Group" refers to (i) the limited partnerships through which our managing partners currently operate our businesses and (ii) one or more limited partnerships formed for the purpose of, among other activities. holding certain of our gains or losses on our principal investments in the funds, which we refer to as our "principal investments" "Assets Under Management." or "AUM," refers to the investments we manage or with respect to which we have control. including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of: the fair value of our private equity investments plus the capital that we are entitled to call from our investors pursuant to the terms of their capital commitments plus non-recallable capital to the extent a fund is within the commitment period in which management fees are calculated based on total commitments to the fund: 3 EFTA01085359 Table of Contents (ii) the net asset value, or "NAV: of our capital markets funds. other than certain senior credit funds. which are structured as collateralized loan obligations (such as Anus. which we measure by using the mark-to-market value of the aggregate principal amount of the underlying collateralized loan obligations) or certain collateralized loan obligation and collateralized debt obligation credit funds that have a fee generating basis other than mark-to-market asset values, plus used or available leverage and/or capital commitments: (iii) the gross asset values or net asset values of our real estate entities and the structured portfolio vehicle investments included within the funds we manage. which includes the leverage used by such structured portfolio vehicles; (iv) the incremental value associated with the reinsurance investments of the portfolio company assets that we manage: and (v) the fair value of any other investments that we manage plus unused credit facilities. including capital commitments for investments that may require pre-qualification before investment plus any other capital commitments available for investment that are not otherwise included in the clauses above. Our AUM measure includes Assets Under Management for which we charge either no or nominal fees. Our definition of AUM is not based on any definition of Assets Under Management contained in our operating agreement or in any of our Apollo fund management agreements. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to (I) our ability to influence the investment decisions for existing and available assets: (2) our ability to generate income from the underlying assets in our funds: and (3) the AUM measures that we use internally or believe arc used by other investment managers. Given the differences in the investment strategics and structures among other alternative investment managers. our calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers. Pee-generating AUM consists of assets that we manage and on which we earn management fees or monitoring fees pursuant to management agreements on a basis that varies among the Apollo funds. Management fees arc normally based on "net asset value.""gross assets.' "adjusted par asset value: "adjusted cost of all unrealized portfolio investments: "capital commitments: "adjusted assets.""stockholders equity: "invested capital" or 'capital contributions." each as defined in the applicable management agreement. Monitoring fees for AUM purposes arc based on the total value of certain structured portfolio vehicle investments, which normally include leverage. Ins any portion of such total value that is already considered in fee-generating AUM. Non-fee generating AUM consists of assets that do not produce management fees or monitoring fees. These assets generally consist of the following: (a) fair value above invested capital for those funds that earn management fees based on invested capital. (b) net asset values related to general partner and co- investment ownership. (c) unused credit facilities. (d) available commitments on those funds that generate management fees on invested capital. (e) structured portfolio vehicle investments that do not generate monitoring fees and (f) the difference between gross assets and net asset value for those funds that earn management fees based on net asset value. We use non-fee generating AUM combined with fee-generating AUM as a performance measurement of our investment activities, as well as to monitor fund size in relation to professional resource and infrastructure needs. Non-fee generating AUM includes assets on which we could earn carried interest income. "carried interest." "incentive income' and "carried interest income" refer to interests granted to Apollo by an Apollo fund that entitle Apollo to receive allocations distributions or fees calculated by reference to the performance of such fund or its underlying investments: co-founded" means the individual joined Apollo in 1990. the year in which the company commenced business operations: 4 EFTA01085360 Table of Contents 'contributing partners" refers to those of our partners (and their related panics) who indirectly own (through Holdings) Apollo Operating Group units: 'distressed and event-driven hedge funds" refers to certain of our capital markets funds. including SVF. VIF. SOMA. AAOF and certain of our strategic investment accounts: ' feeder funds' refer to funds that operate by placing substantially all of their assets in. and conducting substantially all of their investment and trading activities through. a master fund, which is designed to facilitate collective investment by the participating feeder funds. With respect to certain of our funds that are organized in a master-feeder structure, the feeder funds are permitted to make investments outside the master fund when deemed appropriate by the fund's investment manager: 'gross IRR" of a fund represents the cumulative investment-related cash flows for all of the investors in the fund on the basis of the actual timing of investment inflows and outflows (for unrealized investments assuming disposition on December 31. 2011 or other date specified) aggregated on a gross basis quarterly. and the return is annualized and compounded before management fees. carried interest and certain other fund expenses (including interest incurred by the fund itself) and measures the returns on the fund's investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund's investors: ' Holdings" means AP Professional Holdings. a Cayman Islands exempted limited partnership through which our managing partners and contributing partners hold their Apollo Operating Group units: ' IRS" refers to the Internal Revenue Service: "managing partners" refers to Messrs. Leon Black. Joshua Harris and Marc Rowan collectively and. when used in reference to holdings of interests in Apollo or Holdings. includes certain related parties of such individuals: "net IRR" of a fund means the gross IRR applicable to all investors, including related parties which may not pay fees. net of management fees. organizational expenses. transaction costs, and certain other fund expenses (including interest incurred by the fund itself) and realized carried interest all offset to the extent of interest income, and measures returns based on amounts that. if distributed, would be paid to investors of the fund: to the extent that an Apollo private equity fund exceeds all requirements detailed within the applicable fund agreement. the estimated unrealized value is adjusted such that a percentage of up to 20.0% of the unrealized gain is allocated to the general partner. thereby reducing the balance attributable to fund investors: "net return" for Value Funds, SOMA and AAOF represents the calculated return that is based on month-to-month changes in net assets and is calculated using the returns that have been geometrically linked based on capital contributions. distributions and dividend reinvestments. as applicable: 'our manager" means AGM Management. LW. a Delaware limited liability company that is controlled by our managing partners: ' permanent capital" means capital of funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital. except as required by applicable law. which currently consist of AAA. Apollo Investment Corporation and Apollo Commercial Real Estate Finance. Inc.: such funds may be required. or elect. to return all or a portion of capital gains and investment income: 'private equity investments" refers to (i) direct or indirect investments in existing and future private equity funds managed or sponsored by Apollo. (ii) direct or indirect co-investments with existing and future private equity funds managed or sponsored by Apollo. (iii) direct or indirect investments in securities which are not 5 EFTA01085361 Table of Contents immediately capable of resale in a public market that Apollo identifies but does not pursue through its private equity funds, and (iv) investments of the type described in (i) through (iii) above made by Apollo funds: and 'Strategic Investors" refers to the California Public Employee:: Retirement System. or "CalPERS." and an affiliate of the Abu Dhabi Investment Authority. or "ADIA." 6 EFTA01085362 Table of Contents PART I. ITEM I. BUSINESS Overview Founded in 1990. Apollo is a leading global alternative investment manager. We are contrarian. value-oriented investors in private equity. credit- oriented capital markets and real estate. with significant distressed investment expertise. We have a flexible mandate in the majority of the funds we manage that enables the funds to invest opportunistically across a company's capital stnicture. We raise, invest and manage funds on behalf of some of the world's most prominent pension and endowment funds, as well as other institutional and individual investors. As of December 31.2011- we had total AUM of $75.2 billion across all of our businesses. Our latest private equity buyout fund. Fund VII. held a final closing in December 2008. raising a total of $14.7 billion. and as of December 31. 2011 Fund VII had $6.2 billion of uncalled commitments, or "dry powder". remaining. We have consistently produced attractive long- term investment returns in our private equity funds, generating a 3995 gross IRR and a 25% net IRR on a compound annual basis from inception through December 31. 2011. A number of our capital markets funds have also performed well since their inception through December 31. 2011. Apollo is led by our managing partners. Leon Black. Joshua Harris and Marc Rowan. who have worked together for more than 20 years and lead a team of 548 employees. including 201 investment professionals. as of December 31. 2011. This team possesses a broad range of transaction, financial. managerial and investment skills. We have offices in Ncw York. Los Angeles. Houston. London. Frankfurt. Luxembourg. Singapore. Hong Kong. and Mumbai. We operate our private equity. capital markets and real estate businesses in a highly integrated manner. which we believe distinguishes us from other alternative asset managers. Our investment professionals frequently collaborate across disciplines. We believe that this collaboration, including market insight. management. banking and consultant contacts, and investment opportunities. enables us to more successfully invest across a company's capital structure. This platform and the depth and experience of our investment team have enabled us to deliver strong long-term investment performance in our private equity funds throughout a range of economic cycles. Our objective is to achieve superior long-term risk-adjusted returns for our fund investors. The majority of our investment funds are designed to invest capital over periods of seven or more years from inception, thereby allowing us to generate attractive long-term returns throughout economic cycles. Our investment approach is value-oriented. focusing on nine core industries in which we have considerable knowledge and experience, and emphasizing downside protection and the preservation of capital. We are frequently contrarian in our investment approach. which is reflected in a number of ways. including: . our willingness to invest in industries that our competitors typically avoid: . the often complex structures we employ in some of our investments. including our willingness to pursue difficult corporate carve-out transactions: . our experience investing during periods of uncertainty or distress in the economy or financial markets when many of our competitors simply reduce their investment activity: . our orientation towards sole sponsored transactions when other firms have opted to partner with others: and . our willingness to undertake transactions that have substantial business. regulatory or legal complexity. We have applied this investment philosophy to identify what we believe arc attractive investment opportunities. deploy capital across the balance sheet of industry leading. or "franchise." businesses and create value throughout economic cycles. We rely on our deep industry, credit and financial structuring experience, coupled with our strengths as value-oriented, distressed investors, to deploy significant amounts of new capital within challenging economic 7 EFTA01085363 Table of Contents environments. As in prior market downturns and periods of significant volatility. in the current environment we have been purchasing distressed securities and continue to opportunistically build positions in high quality companies with stressed balance sheets in industries where we have deep expertise. From the fourth quarter of 2007 through December 31. 2011. Apollo's private equity and capital markets funds have acquired approximately $15.6 billion of par value of distressed debt and approximately $37.4 billion of par value of leveraged loans, both at significant discounts to par. Our approach towards investing in distressed situations often requires us to purchase particular debt securities as prices are declining, since this allows us both to reduce our avenge cost and accumulate sizable positions which may enhance our ability to influence any restructuring plans and maximize the value of our distressed investments. As a result. our investment approach may produce negative short-term unrealized returns in certain of the funds we manage. However. we concentrate on generating attractive. long-term. risk-adjusted realized returns for our fund investors and we therefore do not overly depend on short-term results and quarterly fluctuations in the unrealized fair value of the holdings in our funds. In addition to deploying capital in new investments, we seek to enhance value in the investment portfolios of the funds we manage. We have relied on our transaction. restructuring and capital markets experience to work proactively with our private equity funds' portfolio company management teams to identify and execute strategic acquisitions. joint ventures. and other transactions. generate cost and working capital savings, reduce capital expenditures. and optimize capital structures through several means such as debt exchange offers and the purchase of portfolio company debt at discounts to par value. We had total AUM of $75.2 billion as of December 31. 2011, consisting of $35.4 billion in our private equity business. 531.9 billion in our capital markets business and $8.0 billion in our real estate business. We have grown our total AUM at a 31.1% compound annual growth rate. or "CAGR." from December 31.2004 to December 31. 2011. In addition, we benefit from mandates with long-term capital commitments in our private equity. capital markets and real estate businesses. Our long-lived capital base allows us to invest assets with a long-term focus, which is an important component in generating attractive returns for our investors. We believe our long-term capital also leaves us well-positioned during economic downturns. when the fundraising environment for alternative assets has historically been more challenging than during periods of economic expansion. As of December 31. 2011. approximately 92% of our AUM was in funds with a contractual life at inception of seven years or more, and 10% of our AUM was in permanent capital vehicles with unlimited duration. We expect our growth in AUM to continue over time by seeking to create value in our funds' existing private equity. capital markets and real estate investments, continuing to deploy our available capital in what we believe are attractive investment opportunities. and raising new funds and investment vehicles as market opportunities present themselves. See "Item IA. Risk Factors—Risks Related to Our Businesses—We may not be successful in raising new funds or in raising more capital for certain of our funds and may face pressure on fee arrangements of our future funds." 8 EFTA01085364 Table of Contents Our Businesses We have three business segments: private equity. capital markets and real estate. We also manage (i) AAA. a publicly listed permanent capital vehicle. which invests substantially all of its capital in or alongside Apollo-sponsored entities. funds and other investments, and (ii) several strategic investment accounts established to facilitate investments by third-party investors directly in Apollo-sponsored funds and other transactions. We have also raised a dedicated natural resources fund, which we include within our private equity segment. that targets global private equity opportunities in energy. metals and mining and select other natural resources sub-sectors. The diagram below summarizes our current businesses: Apollo Ghana nagontnl, I IA PdvaloEquiltv Capital Slarkate Real Luau. irahnosal bummt. SCWICIOill funds Olotmlapportunt, nrunamous thuisfssof den and ,taffy Dearanal bu.cut.and dam Wetunrni Gods Kunsan/Await/4164010M • Onntend nnd oven -dm -cm Itedgc SCIIkt anJ v.betJmnoidtin P Commie fanrni tui)non. had. • ( onennunAd rmapirc Famed • Naturaltrams ided ...Ind fund • Nuniwrfonnon Lot find savaniu. %um:05A MOW" •UM: Si).' baine •t• 1A:\ Slum lent. W.f .-diner( i.t.intA., t IT, 11 Lim lund.dnd othcr •spoll,..pinnurtd11.111,101..11. (I) All data is as of December 31. 2011. The chart does not reflect legal entities or assets managed by former affiliates. (2) Includes funds that arc denominated in Euros and translated into U.S. dollars at an exchange rate of C1.00 to 51.30 as of December 31. 2011. Our financial results are highly variable, since carried interest (which generally constitutes a large portion of the income from the funds we manage). and the transaction and advisory fees that we receive. can vary significantly from quarter to quarter and year to year. We manage our business and monitor our performance with a focus on long-term performance. an approach that mirrors the investment horizons of the funds we manage and is driven by the investment returns of our funds. Private Equity Private Equity Funds As a result of our long history of private equity investing across market cycles. we believe we have developed a unique set of skills which we rely on to make new investments and to maximize the value of our 9 EFTA01085365 Table of Contents existing investments. As an example. through our experience with traditional private equity buyouts. we apply a highly disciplined approach towards structuring and executing transactions, the key tenets of which include acquiring companies at below industry average purchase price multiples. and establishing flexible capital structures with long-term debt maturities and few. if any. financial maintenance covenants. We believe we have a demonstrated ability to adapt quickly to changing market environments and capitalize on market dislocations through our traditional, distressed and corporate buyout approach. In prior periods of strained financial liquidity and economic recession. our private equity funds have made attractive investments by buying the debt of quality businesses (which we refer to as "classic" distressed debt), convening that debt to equity. seeking to create value through active participation with management and ultimately monetizing the investment. This combination of traditional and corporate buyout investing with a "distressed option" has been deployed through prior economic cycles and has allowed our funds to achieve attractive long-term rates of return in different economic and market environments. In addition, during prior economic downturns we have relied on our restructuring experience and worked closely with our funds portfolio companies to maximize the value of our funds' investments. Traditional Buyouts Traditional buyouts have historically comprised the majority of our investments. We generally target investments in companies where an entrepreneurial management team is comfortable operating in a leveraged environment. We also pursue acquisitions where we believe a non-core business owned by a large corporation will function more effectively if structured as an independent entity managed by a focused. stand-alone management team. Our leveraged buyouts have generally been in situations that involved consolidation through merger or follow-on acquisitions: can•eouts from larger organizations looking to shed non-core assets: situations requiring structured ownership to meet a seller's financial goals: or situations in which the business plan involved substantial departures from past practice to maximize the value of its assets. Distressed Buyouts andDebt Investments Over our history. approximately 46% of our private equity investments have involved distressed buyouts and debt investments. We target assets with high-quality operating businesses but low-quality balance sheets. consistent with our traditional buyout strategies. The distressed securities we purchase include bank debt, public high-yield debt and privately held instruments. often with significant downside protection in the form of a senior position in the capital structure. and in certain situations we also provide debtor-in-possession ("DIP") financing to companies in bankruptcy. Our investment professionals generate these distressed buyout and debt investment opportunities based on their many years of experience in the debt markets. and as such they arc generally proprietary in nature. We believe distressed buyouts and debt investments represent a highly attractive risk/reward profile. Our investments in debt securities have generally resulted in two outcomes. The first has been when we succeed in taking control of a company through its distressed debt. By working proactively through the restructuring process. we are able to equitize our debt position. resulting in a well-financed buyout. Once we control the company. the investment team works closely with management toward an eventual exit typically over a three- to five-year period as with a traditional buyout. The second outcome for debt investments has been when we do not gain control of the company. This is typically driven by an increase in the price of the debt beyond what is considered an attractive acquisition valuation. The run-up in bond prices is usually a result of market interest or a strategic investor's interest in the company at a higher valuation than we are willing to pay. In these cases. we typically sell our securities for cash and seek to realize a high short-term internal rate of return. Corporate Partner Buyouts Corporate partner buyouts or carve-out situations offer another way to capitalize on investment opportunities during environments in which purchase prices for control of companies are at high multiplies of 10 EFTA01085366 Table of Contents earnings, making them less attractive for traditional buyout investors. Corporate partner buyouts focus on companies in need of a financial partner in order to consummate acquisitions. expand product lines. buy back stock or pay down debt. In these investments. we do not seek control but instead make significant investments that typically allow us to demand control rights similar to those that we would require in a traditional buyout. such as control over the direction of the business and our ultimate exit. Although corporate partner buyouts historically have not represented a large portion of our overall investment activity, we do engage in them selectively when we believe circumstances make them an attractive strategy. Corporate partner buyouts typically have lower purchase multiples and a significant amount of downside protection. when compared with traditional buyouts. Downside protection can come in the form of seniority in the capital structure. a guaranteed minimum return from a creditworthy partner. or extensive governance provisions. Importantly. Apollo has often been able to use its position as a preferred security holder in several buyouts to weather difficult times in a portfolio company's lifecycle and to create significant value in investments that otherwise would have been impaired. Other Investments In addition to our traditional, distressed and corporate partner buyout activities, we also maintain the flexibility to deploy capital of our private equity funds in other types of investments such as the creation of new companies. which allows us to leverage our deep industry and distressed expertise and collaborate with experienced management teams to seek to capitalize on market opportunities that we have identified. particularly in asset-intensive industries that arc in distress. In these types of situations. we have the ability to establish new entities that can acquire distressed assets at what we believe are attractive valuations without the burden of managing an existing portfolio of legacy assets. Similar to our corporate partner buyout activities, other investments, such as the creation of new companies. historically have not represented a large portion of our overall investment activities, although we do make these types of investments selectively. NaturalResources Apollo recently established Apollo Natural Resources Partners. (together with any parallel fund or alternative investment vehicle. "ANRP"), and has assembled a team of dedicated investment professionals to capitalize on private equity investment opportunities in the natural resources industry. principally in the metals and mining. energy and select other natural resources sectors. As of December 31. 2011. ANRP had raised nearly $600 million of capital commitments. Building Value in Portfolio Companies We are a "hands-on" investor organized around nine core industries where we believe we have significant knowledge and expertise. and we remain actively involved with the operations of our buyout investments for the duration of the investment. In connection with this strategy. we have established relationships with operating executives that assist in the diligence review of new opportunities and provide strategic and operational oversight for portfolio investments. In addition, we have established a group purchasing program to leverage the combined corporate spending among Apollo and portfolio companies of the funds it manages in order to seek to reduce costs, optimize payment terms and improve service levels for all program participants. Exiting Investments We realize the value of the investments that we have made on behalf of our funds typically through either an initial public offering. or "IPO", of common stock on a nationally recognized exchange or through the private sale of the companies in which we have invested. We believe the advantage of having long-lived funds and complete investment discretion is that we are able to time our exit when we believe we may most appropriately maximize value. II EFTA01085367 Table of Contents Our Portfolio Company Holdings The following table presents the current list of portfolio companies included in our private equity funds as of December 31. 2011. Sole Year ofInitial Financial Company Investment Fund(s) Buyout Type Industry Rectum ti msor in Ascometal 2011 Fund VII & ANRP Corporate Partner Materials Western Europe Yes Brit Insurance 2011 Fund VII Traditional Insurance Western Europe No CKx 2011 Fund VII Traditional Media. Entertainment & Cable North America Yes Stennis Farmers Marken. 2011 Fund VI Traditional Food Retail North Amer ca Yes weispun 2011 Fund VII & ANRP Other Materials India No Akin International 2010 Fund VII & VI Distressed Building Products Global No Athlon 2010 Fund VII Other Oil & Gas North America Yes CKE Restaurants Inc. 2010 Fund VII Traditional Food Retail North America Yes Constellium (formerly Alcan) 2010 Fund VII Corporate Partner Materials Western Europe No liVelteC 2010 Fund VII Traditional Financial Services Puerto Rico No Gala Coral Group 2010 Hind VII & VI 11utresied Gaming&Lemm Western Europe No 1.yondellBasell 2010 Fund VII & VI Distressed Chemicals Global No Monier 2010 Fund VII Distressed Building Products Western Europe No Twin River 2010 Fund VII Ihstressed Gaming & Leisure North America No Veritable Maritime 2010 Fund VII Other North America Yes SluPPMS Charter f:ommunications 2009 Fund VII & VI Distressed Media. Entertainment & Cable North America No Dish TV 2009 Fund VII Other Media. Entertainment & Cable India No Caesars Entertainment 2008 Fund VI Traditional Gaming & Leisure North America No Norwegian Crime Line 2008 Fund VI Corporate Partner Cruise North America Yes Skylark 2008 Fund VII Traditional Lignites North America No Claires 2007 Fund VI Traditional Specialty Retail Global Yes Countrywide 2007 Fund VI Traditional Real Estate Services Western Europe Yes lacuna Brands 7.007 Fund VI Traditional Building Products Global Yes Noranda Aluminum 2007 Fund VI Traditional Materials North America Yes Prestige Cruise Holdings 2007 Hind VII & VI Corporate Partner Cruise North America Yes Realogy 2007 Fund VI Traditional Real Estate Services North America Yes Smart & Final 2007 Fund VI Traditional Food Retail North America Yes Vannum 2007 Fund VII Other Business Services North America Yes Betty Plaslics"),.., 7.006 Fund VI &V Traditional Packaging & Materials North America Yes CEVA Logistics 2006 Fund VI Traditional Logistics Western Europe Yes Hughes Telematics 7.006