As of December 31, 2017 or for the quarter and year then ended,
and where applicable, per Class A unit:
- GAAP net income attributable to
Oaktree Capital Group, LLC (“OCG”) was $13.4 million ($0.21 per
unit) and $231.5 million ($3.61) for quarter and full year,
respectively, as compared with $59.3 million ($0.94) and $194.7
million ($3.11) for the comparable 2016 periods. Excluding the
impact of the Tax Act (defined below), GAAP net income attributable
to OCG was $46.6 million ($0.72) and $264.7 million ($4.13) for the
quarter and full year, respectively.
- Adjusted net income was $126.8
million ($0.21 per unit) and $701.1 million ($3.46) for the quarter
and full year, respectively, as compared with $170.4 million
($0.89) and $572.4 million ($3.05) for the comparable 2016 periods.
Excluding the impact of the Tax Act, adjusted net income per Class
A unit was $0.72 and $3.97 for the quarter and full year,
respectively.
- Distributable earnings were
$158.2 million ($0.95 per unit) and $716.3 million ($4.16) for the
quarter and full year, respectively, up from $140.6 million ($0.71)
and $526.6 million ($2.87) for the comparable 2016 periods, on
higher investment income proceeds and, for the full year, higher
incentive income.
- Assets under management were
$100.2 billion, up 1% for the quarter and down slightly for the
full year. Gross capital raised was $1.7 billion and $8.9 billion
for the quarter and full year, respectively. Uncalled capital
commitments (“dry powder”) were $20.5 billion, of which $12.7
billion were not yet generating management fees (“shadow
AUM”).
- Management fee-generating assets
under management were $80.6 billion, up slightly for the
quarter and up 1% for the full year.
- A distribution was declared of
$0.76 per unit, bringing aggregate distributions relating to
full-year 2017 to $3.34.
Oaktree Capital Group, LLC (NYSE: OAK) today reported its
unaudited financial results for the fourth quarter and year ended
December 31, 2017.
Jay Wintrob, Chief Executive Officer, said, “The fourth quarter
of 2017 completed another strong year for Oaktree. Distributable
earnings grew 36 percent in the last twelve months, building on our
solid 19 percent growth in 2016. Highlighting the last year was
strong investment performance resulting in our best annual
incentive income and investment income totals since 2013, as well
as $303 million in net incentives created. Looking ahead, we will
continue to take advantage of buoyant market conditions to sell
assets and return capital and profits to our clients, while
maintaining our disciplined investment process and remaining well
positioned for future opportunities with over $20 billion in dry
powder.”
Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”)
was signed into law, which, among other items, lowers the U.S.
corporate tax rate. The fourth quarter and full-year 2017 results
reflect the estimated impact from the enactment of the Tax Act,
which resulted in a net reduction to the Company’s GAAP net income
and adjusted net income attributable to Oaktree Capital Group, LLC
of $33.2 million, comprised of $178.2 million in additional tax
expense from the remeasurement of our deferred tax assets at lower
corporate tax rates and a $145.1 million benefit to other income
from the remeasurement of our tax receivable agreement liability,
the value of which is based upon an 85% share of certain of our
deferred tax assets.
Debt Issuance and Repayment
On November 16, 2017, as previously announced, the Company
agreed to issue $250 million of 3.78% senior notes due 2032 (the
“Notes”), which subsequently funded on December 18, 2017. In
connection with the Notes offering, the Company entered into a
cross-currency swap agreement to euros, reducing the interest cost
to 1.95% per year. The proceeds from the sale of the Notes and cash
on hand were used to redeem the $250 million of 6.75%
Senior Notes due 2019 (the “2019 Notes”) and to pay the related
make-whole premium to holders thereof. The redemption of the 2019
Notes resulted in a one-time, pre-tax charge of $22
million to GAAP net income and adjusted net income in the
fourth quarter of 2017. For distributable earnings, the charge will
be amortized through the original maturity date of December
2019.
Acquisition
As previously announced, on October 17, 2017, the Company
completed a transaction in which it became the new investment
adviser to two business development companies (the “BDCs”): Oaktree
Specialty Lending Corporation (NASDAQ: OCSL) and Oaktree Strategic
Income Corporation (NASDAQ: OCSI). Upon the closing of the
transaction (the “BDC acquisition”), the Company paid $320 million
in cash to Fifth Street Management LLC, net of certain
transaction-related expenses. The financial results in this
earnings release include the impact of the BDC acquisition
beginning on October 17, 2017.
Distribution
The distribution of $0.76 per Class A unit attributable to
the fourth quarter of 2017 will be paid on February 23, 2018 to
Class A unitholders of record at the close of business on
February 16, 2018.
Conference Call
Oaktree will host a conference call to discuss its fourth
quarter and full-year 2017 results today at 11:00 a.m. Eastern Time
/ 8:00 a.m. Pacific Time. The conference call may be accessed by
dialing (844) 824-3833 (U.S. callers) or +1
(412) 317-5102 (non-U.S. callers), participant password
OAKTREE. Alternatively, a live webcast of the conference call can
be accessed through the Unitholders – Investor Relations section of
the Oaktree website, http://ir.oaktreecapital.com/. For those
individuals unable to listen to the live broadcast of the
conference call, a replay will be available for 30 days on
Oaktree’s website, or by dialing (877) 344-7529 (U.S. callers) or
+1 (412) 317-0088 (non-U.S. callers), access code 10115424,
beginning approximately one hour after the broadcast.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $100 billion in
assets under management as of December 31, 2017. The firm
emphasizes an opportunistic, value-oriented and risk-controlled
approach to investments in distressed debt, corporate debt
(including high yield debt and senior loans), control investing,
convertible securities, real estate and listed equities.
Headquartered in Los Angeles, the firm has over 900 employees and
offices in 18 cities worldwide. For additional information, please
visit Oaktree’s website at www.oaktreecapital.com.
The table below presents (a) GAAP results, (b) non-GAAP results
for both the Operating Group and per Class A unit, and (c)
assets under management and accrued incentives (fund level) data.
Please refer to the Glossary for definitions.
As of or for the Three
MonthsEnded December 31,
As of or for the YearEnded
December 31,
2017 2016 2017 2016
GAAP Results: (in thousands, except per unit data or as
otherwise indicated) Revenues $ 311,095 $ 298,310 $
1,469,767 $ 1,125,746 Net income-OCG (1) 13,414 59,283 231,494
194,705 Net income per Class A unit (1) 0.21 0.94 3.61 3.11
Non-GAAP Results: (2) Adjusted revenues $ 327,405 $
351,437 $ 1,727,710 $ 1,362,202 Adjusted net income 126,846 170,374
701,100 572,374 Adjusted net income-OCG (1) 13,545 56,119 221,701
190,724 Distributable earnings revenues 323,900 309,950
1,674,948 1,270,915 Distributable earnings 158,189 140,649 716,307
526,550 Distributable earnings-OCG 61,582 45,033 266,983 179,432
Fee-related earnings revenues 188,767 192,604 747,261
785,673 Fee-related earnings 63,365 70,081 223,857 255,863
Fee-related earnings-OCG (1) (5,603 ) 21,751 54,496 88,947
Economic net income revenues 387,079 516,726 1,633,952 1,791,082
Economic net income 147,807 244,200 675,410 707,376 Economic net
income-OCG (1) 22,196 87,865 210,953 248,086
Per Class A
Unit: (1) Adjusted net income $ 0.21 $ 0.89 $ 3.46 $
3.05 Distributable earnings 0.95 0.71 4.16 2.87 Fee-related
earnings (0.09 ) 0.35 0.85 1.42 Economic net income 0.34 1.39 3.29
3.97 Weighted average number of Operating Group units
outstanding 156,286 154,934 155,791 154,687 Weighted average number
of Class A units outstanding 64,961 62,986 64,148 62,565
Operating Metrics: Assets under management (in millions):
Assets under management $ 100,228 $ 100,504 $ 100,228 $ 100,504
Management fee-generating assets under management 80,585 79,767
80,585 79,767 Incentive-creating assets under management 32,705
33,627 32,705 33,627 Uncalled capital commitments 20,470 20,755
20,470 20,755 Accrued incentives (fund level): Incentives created
(fund level) 132,531 236,475 637,466 784,032 Incentives created
(fund level), net of associated incentive income compensation
expense 60,470 107,863 302,706 320,472 Accrued incentives (fund
level) 1,920,339 2,014,097 1,920,339 2,014,097 Accrued incentives
(fund level), net of associated incentive income compensation
expense 920,852 946,542 920,852 946,542
Note: Oaktree discloses in this earnings release certain
revenues and financial measures, including measures that are
calculated and presented on a basis other than generally accepted
accounting principles in the United States (“non-GAAP”). Examples
of such non-GAAP measures are identified in the table above and
also include measures excluding the impact of the Tax Act,
identified in the table below. Such non-GAAP measures should be
considered in addition to, and not as a substitute for or superior
to, net income, net income per Class A unit or other financial
measures calculated in accordance with GAAP. Reconciliations of
these non-GAAP financial measures to the most directly comparable
GAAP financial measures are presented at Exhibit A. All non-GAAP
measures and all interim results presented in this release are
unaudited. GAAP results for the year ended December 31, 2017 are
subject to the completion of Oaktree’s annual audit.
(1) The table below presents GAAP and non-GAAP
results attributable to OCG for the fourth quarter and full-year
2017, excluding the impact of the Tax Act:
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
GAAP Results, Excluding Impact of Tax Act: (in thousands,
except per unit data) Net income-OCG $ 46,592 $ 59,283 $
264,672 $ 194,705 Net income per Class A unit 0.72 0.94 4.13 3.11
Non-GAAP Results, Excluding Impact of Tax Act:
Adjusted net income-OCG $ 46,723 $ 56,119 $ 254,879 $ 190,724
Fee-related earnings-OCG 25,449 21,751 85,548 88,947 Economic net
income-OCG 55,374 87,865 244,131 248,086
Per Class A
Unit, Excluding Impact of Tax Act: Adjusted net income $ 0.72 $
0.89 $ 3.97 $ 3.05 Fee-related earnings 0.39 0.35 1.33 1.42
Economic net income 0.85 1.39 3.81 3.97 (2) Beginning
with the second quarter of 2017, the definition of adjusted net
income was modified with respect to third-party placement costs
associated with closed-end funds and liability-classified OCGH
equity value units (“EVUs”) to conform to the GAAP treatment. Under
GAAP, placement costs are expensed as incurred and
liability-classified EVUs are remeasured as of each reporting date.
Previously for adjusted net income, placement costs were
capitalized and amortized in proportion to the associated
management fee stream, and liability-classified EVUs were treated
as equity-classified awards. All prior periods have been recast for
these changes.
GAAP Results
Oaktree consolidates entities in which it has a direct or
indirect controlling financial interest. Investment vehicles in
which we have a significant investment, such as collateralized loan
obligation vehicles (“CLOs”) and certain Oaktree funds, are
consolidated under GAAP. When a CLO or fund is consolidated, the
assets, liabilities, revenues, expenses and cash flows of the
consolidated funds are reflected on a gross basis, and the majority
of the economic interests in those consolidated funds, which are
held by third-party investors, are reflected as debt obligations of
CLOs or non-controlling interests. All of the revenues earned by us
as investment manager of the consolidated funds are eliminated in
consolidation. However, because the eliminated amounts are earned
from and funded by third-party investors, the consolidation of a
fund does not impact net income or loss attributable to OCG.
Total revenues increased $12.8 million, or 4.3%, to $311.1
million for the fourth quarter of 2017, from $298.3 million for the
fourth quarter of 2016. For full-year 2017, total revenues
increased $344.1 million, or 30.6%, to $1,469.8 million from
$1,125.7 million in 2016. Both increases reflected higher incentive
income, partially offset by lower management fees.
Total expenses increased $29.4 million, or 14.0%, to $239.6
million for the fourth quarter of 2017, from $210.2 million for the
fourth quarter of 2016, primarily reflecting increases in incentive
income compensation expense, compensation and benefits expense, and
general and administrative expenses. For full-year 2017, total
expenses increased $236.0 million, or 29.9%, to $1,025.3 million
from $789.3 million in 2016, primarily reflecting higher incentive
income compensation expense, partially offset by lower general and
administrative expenses.
Other income increased $112.3 million, or 114.8%, to $210.1
million for the fourth quarter of 2017, from $97.8 million for the
fourth quarter of 2016. For full-year 2017, other income increased
$188.3 million, or 69.2%, to $460.5 million from $272.2 million in
2016. The increase for both periods reflected the impact of, in the
fourth quarter and full-year 2017, the $145.1 million of income
related to the remeasurement of our tax receivable agreement
liability in connection with the Tax Act and the $22.0 million
make-whole premium expense related to the early repayment of the
2019 Notes, as well as variations in returns on our fund
investments between periods.
Net income attributable to OCG decreased $45.9 million, or
77.4%, to $13.4 million for the fourth quarter of 2017, from $59.3
million for the fourth quarter of 2016, primarily reflecting the
$33.2 million net expense related to the Tax Act and the $22.0
million make-whole premium, both expensed in the fourth quarter of
2017. For full-year 2017, net income attributable to OCG increased
$36.8 million, or 18.9%, to $231.5 million from $194.7 million in
2016, reflecting higher operating profits driven by higher
incentive income, partially offset by the impact of the Tax Act and
the make-whole premium.
Operating Metrics
Assets Under Management
Assets under management (“AUM”) were $100.2 billion as of
December 31, 2017, $99.5 billion as of September 30, 2017 and
$100.5 billion as of December 31, 2016. The $0.7 billion increase
since September 30, 2017 primarily reflected $2.1 billion from the
BDC acquisition, $1.2 billion in market-value gains and $0.7
billion in new capital commitments to closed-end funds, partially
offset by $2.6 billion of distributions to closed-end fund
investors and $0.7 billion of net outflows from open-end funds.
Commitments to closed-end funds included $0.6 billion for our Real
Estate Debt strategy.
The $0.3 billion decrease in AUM since December 31, 2016
primarily reflected $10.6 billion of distributions to closed-end
fund investors and $3.0 billion of net outflows from open-end
funds, partially offset by $6.6 billion in market-value gains, $2.8
billion of capital commitments and fee-generating leverage to
closed-end funds, $2.1 billion from the BDC acquisition, and $1.8
billion in favorable foreign-currency translation. Commitments to
closed-end funds included $1.1 billion for our Real Estate Debt
strategy, $0.5 billion for Oaktree Opportunities Fund Xb and $0.5
billion for our European Private Debt strategy. Distributions to
closed-end fund investors included $5.0 billion from Distressed
Debt funds, $3.1 billion from Control Investing funds and $1.3
billion from Real Estate funds.
Management Fee-generating Assets Under
Management
Management fee-generating assets under management (“management
fee-generating AUM”), a forward-looking metric, were $80.6 billion
as of December 31, 2017, $80.2 billion as of September 30, 2017 and
$79.8 billion as of December 31, 2016. The $0.4 billion increase
since September 30, 2017 primarily reflected $2.1 billion from the
BDC acquisition, $0.4 billion in market-value gains and $0.4
billion increase from capital drawn by funds that pay fees based on
drawn capital, NAV or cost basis. These increases were partially
offset by $1.6 billion attributable to closed-end funds in
liquidation and $0.7 billion of net outflows from open-end
funds.
The $0.8 billion increase in management fee-generating AUM since
December 31, 2016 primarily reflected $3.2 billion in market-value
gains, $2.1 billion from the BDC acquisition, $1.7 billion from
capital drawn by closed-end funds that pay fees based on drawn
capital, NAV or cost basis, $1.6 billion of favorable
foreign-currency translation, and an aggregate $1.3 billion
increase from the start of the investment period for Oaktree
European Principal Fund IV (“EPF IV”) in July 2017 and
fee-generating leverage to closed-end funds. These increases were
partially offset by $4.8 billion attributable to closed-end funds
in liquidation, $3.2 billion of net outflows from open-end funds
and $0.9 billion of distributions by closed-end funds that pay fees
based on NAV.
Incentive-creating Assets Under
Management
Incentive-creating assets under management (“incentive-creating
AUM”) were $32.7 billion as of December 31, 2017, $31.0 billion as
of September 30, 2017 and $33.6 billion as of December 31, 2016.
The $1.7 billion increase since September 30, 2017 reflected an
aggregate $2.4 billion in drawdowns or contributions by closed-end
and evergreen funds and market-value gains, and $2.1 billion from
the BDC acquisition, partially offset by an aggregate $2.8 billion
decline primarily attributable to distributions by closed-end
funds. The $0.9 billion decrease since December 31, 2016 reflected
an aggregate decline of $11.2 billion primarily attributable to
distributions by closed-end funds, partially offset by an aggregate
$8.2 billion in drawdowns or contributions by closed-end and
evergreen funds and market-value gains, and $2.1 billion from the
BDC acquisition.
Of the $32.7 billion in incentive-creating AUM as of December
31, 2017, $21.4 billion (or 65%), was generating incentives at the
fund level, as compared with $21.2 billion (63%), of the $33.6
billion of incentive-creating AUM as of December 31, 2016.
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
Accrued incentives (fund level) were $1.9 billion as of both
December 31, 2017 and September 30, 2017, and $2.0 billion as of
December 31, 2016. The fourth quarter of 2017 reflected $132.5
million of incentives created (fund level) and $72.9 million of
incentive income recognized. The full-year 2017 reflected $637.5
million of incentives created (fund level) and $731.2 million of
incentive income recognized.
Accrued incentives (fund level), net of incentive income
compensation expense (“net accrued incentives (fund level)”), were
$920.9 million as of December 31, 2017, $899.9 million as of
September 30, 2017, and $946.5 million as of December 31, 2016. The
portion of net accrued incentives (fund level) represented by funds
that were currently paying incentives as of December 31, 2017,
September 30, 2017 and December 31, 2016, respectively, was $237.2
million (or 26%), $274.1 million (30%) and $201.7 million (21%),
with the remainder arising from funds that as of that date were not
at the stage of their cash distribution waterfall where Oaktree was
entitled to receive incentives, other than possibly tax-related
distributions.
Uncalled Capital Commitments
Uncalled capital commitments were $20.5 billion as of December
31, 2017, $21.2 billion as of September 30, 2017, and $20.8 billion
as of December 31, 2016. Invested capital during the quarter and
year ended December 31, 2017 aggregated $1.8 billion and $7.1
billion, respectively, as compared with $2.2 billion and $8.5
billion for the comparable 2016 periods.
Non-GAAP Results
Adjusted Revenues
Adjusted revenues decreased $24.0 million, or 6.8%, to $327.4
million in the fourth quarter of 2017, from $351.4 million in the
fourth quarter of 2016, primarily reflecting $21.8 million of lower
investment income and $3.8 million of lower management fees.
For full-year 2017, adjusted revenues increased $365.5 million,
or 26.8%, to $1,727.7 million from $1,362.2 million in 2016,
primarily reflecting $376.0 million of higher incentive income.
Management Fees
Management fees decreased $3.8 million, or 2.0%, to $188.8
million in the fourth quarter of 2017, from $192.6 million in the
fourth quarter of 2016. The decrease reflected an aggregate decline
of $21.2 million primarily attributable to closed-end funds in
liquidation, partially offset by an aggregate increase of $17.4
million principally from the BDC acquisition, the start of the
investment period for EPF IV and closed-end funds that pay
management fees based on drawn capital, NAV or cost basis.
For full-year 2017, management fees decreased $38.4 million, or
4.9%, to $747.3 million from $785.7 million in 2016. The decrease
reflected an aggregate decline of $79.6 million primarily
attributable to closed-end funds in liquidation, partially offset
by an aggregate increase of $41.2 million principally from the
start of the investment period for EPF IV, the BDC acquisition,
closed-end funds that pay management fees based on drawn capital,
NAV or cost basis, and market-value gains in open-end funds.
Incentive Income
Incentive income increased $1.7 million, or 2.4%, to $72.9
million in the fourth quarter of 2017, from $71.2 million in the
fourth quarter of 2016. The fourth quarter of 2017 reflected
incentive income from nine investment strategies, with $33.7
million arising from closed-end funds and $39.2 million from
evergreen funds.
For full-year 2017, incentive income increased $376.0 million,
or 105.9%, to $731.2 million from $355.2 million in 2016. The
increase was primarily attributable to $427.8 million of incentive
income from Oaktree Principal Opportunities Fund IV, which started
paying incentive income (other than tax-related) in the second
quarter of 2017. Tax-related incentive income represented $81.2
million and $72.7 million in 2017 and 2016, respectively.
Investment Income
Investment income decreased $21.8 million, or 24.9%, to $65.8
million in the fourth quarter of 2017, from $87.6 million in the
fourth quarter of 2016. The decrease primarily reflected lower
overall returns on our fund investments. Our one-fifth ownership
stake in DoubleLine Capital LP and its affiliates (collectively,
“DoubleLine”) accounted for investment income of $19.1 million and
$16.8 million in the fourth quarters of 2017 and 2016,
respectively, of which performance fees accounted for $0.7 million
and $0.8 million, respectively.
For full-year 2017, investment income increased $27.8 million,
or 12.6%, to $249.2 million from $221.4 million in 2016. Excluding
the $22.7 million impairment charge taken in the first quarter of
2016 on investments in certain of our CLOs, investment income
increased $5.1 million, or 2.1%. DoubleLine accounted for
investment income of $71.5 million and $66.1 million in 2017 and
2016, respectively, of which performance fees accounted for $4.2
million and $4.7 million, respectively.
Adjusted Expenses
Compensation and Benefits
Compensation and benefits expense increased $0.9 million, or
1.1%, to $84.8 million in the fourth quarter of 2017, from $83.9
million in the fourth quarter of 2016. For the full year,
compensation and benefits expense was $381.9 million for both 2017
and 2016.
Equity-based Compensation
Equity-based compensation expense increased $0.8 million, or
6.7%, to $12.7 million in the fourth quarter of 2017, from $11.9
million in the fourth quarter of 2016. For full-year 2017,
equity-based compensation expense increased $3.5 million, or 7.0%,
to $53.6 million from $50.1 million in 2016.
Incentive Income Compensation
Incentive income compensation expense decreased $3.8 million, or
10.2%, to $33.3 million in the fourth quarter of 2017, from $37.1
million in the fourth quarter of 2016, primarily reflecting
differences in the applicable funds’ compensation percentages. For
full-year 2017, incentive income compensation expense increased
$233.1 million, or 137.4%, to $402.8 million from $169.7 million in
2016, primarily reflecting the growth in incentive income.
General and Administrative
General and administrative expense increased $2.8 million, or
7.9%, to $38.3 million in the fourth quarter of 2017, from $35.5
million in the fourth quarter of 2016, primarily reflecting higher
legal fees. For full-year 2017, general and administrative expense
decreased $3.4 million, or 2.5%, to $132.3 million from $135.7
million in 2016, primarily reflecting lower placement costs,
partially offset by higher legal fees.
Depreciation and Amortization
Depreciation and amortization expense decreased $0.8 million, or
25.8%, to $2.3 million in the fourth quarter of 2017, from $3.1
million in the fourth quarter of 2016. For full-year 2017,
depreciation and amortization expense decreased $3.0 million, or
24.6%, to $9.2 million from $12.2 million in 2016. Both decreases
reflected the final amortization of certain leasehold improvements
in the first quarter of 2017.
Interest Expense, Net
Interest expense, net decreased $0.8 million, or 10.8%, to $6.6
million in the fourth quarter of 2017, from $7.4 million in the
fourth quarter of 2016. For full-year 2017, interest expense, net
decreased $5.4 million, or 17.0%, to $26.4 million from $31.8
million in 2016. Both decreases reflected the maturity of our
senior notes and, for the full year, higher interest income.
Other Expense, Net
Other expense, net increased $20.5 million, to $22.6 million in
the fourth quarter of 2017, from $2.1 million in the fourth quarter
of 2016. For full-year 2017, other expense, net increased $12.0
million, to $20.4 million from $8.4 million in 2016. The fourth
quarter and full-year 2017 primarily reflected the $22.0 million
make-whole premium expensed in the fourth quarter of 2017 in
connection with the early repayment of our 2019 Notes. Full-year
2016 primarily reflected losses associated with non-operating
corporate activities and an impairment charge taken on our
corporate aircraft.
Adjusted Net Income
ANI decreased $43.6 million, or 25.6%, to $126.8 million in the
fourth quarter of 2017, from $170.4 million in the fourth quarter
of 2016, primarily reflecting the $22.0 million make-whole premium
expensed in the fourth quarter of 2017 related to the repayment of
our 2019 Notes and the $21.8 million decline in investment income.
The portion of ANI attributable to our Class A units was $13.5
million, or $0.21 per unit, and $56.1 million, or $0.89 per unit,
for the fourth quarters of 2017 and 2016, respectively. Excluding
the impact of the Tax Act, ANI attributable to our Class A
units for the fourth quarter of 2017 was $46.7 million, or $0.72
per unit.
For full-year 2017, ANI increased $128.7 million, or 22.5%, to
$701.1 million from $572.4 million in 2016, primarily reflecting
increases of $142.9 million in incentive income, net of incentive
income compensation expense (“net incentive income”), and $27.8
million in investment income, partially offset by $32.0 million in
lower fee-related earnings and $12.0 million in higher other
expense, net. The portion of ANI attributable to our Class A
units was $221.7 million, or $3.46 per unit, and $190.7 million, or
$3.05 per unit, for 2017 and 2016, respectively. Excluding the
impact of the Tax Act, ANI attributable to our Class A units
for 2017 was $254.9 million, or $3.97 per unit.
The effective tax rates applied to ANI in the fourth quarters of
2017 and 2016 were 93% and 18%, respectively, resulting from
full-year effective tax rates of 49% and 17%, respectively.
Excluding the impact of the Tax Act, the effective tax rate for
both the fourth quarter and full-year 2017 was 11%. In general, the
annual effective tax rate increases as the proportion of ANI
arising from fee-related earnings, DoubleLine-related investment
income and certain incentive and investment income rises, and vice
versa.
Distributable Earnings
Distributable earnings increased $17.6 million, or 12.5%, to
$158.2 million in the fourth quarter of 2017, from $140.6 million
in the fourth quarter of 2016, primarily reflecting $16.1 million
in higher investment income proceeds. For the fourth quarter of
2017, investment income proceeds totaled $62.3 million, including
$37.2 million from fund distributions and $25.1 million from
DoubleLine, as compared with total investment income proceeds in
the prior-year quarter of $46.2 million, of which $24.8 million and
$21.4 million was attributable to fund distributions and
DoubleLine, respectively. The portion of distributable earnings
attributable to our Class A units was $0.95 and $0.71 per unit
for the fourth quarters of 2017 and 2016, respectively, reflecting
distributable earnings per Operating Group unit of $1.01 and $0.91,
respectively, less costs borne by Class A unitholders for
professional fees and other expenses, cash taxes attributable to
the Intermediate Holding Companies, and amounts payable pursuant to
the tax receivable agreement.
For full-year 2017, distributable earnings increased $189.7
million, or 36.0%, to $716.3 million from $526.6 million in 2016,
reflecting increases of $142.9 million in net incentive income and
$66.4 million in investment income proceeds, partially offset $32.0
million in lower fee-related earnings. For 2017, investment income
proceeds totaled $196.5 million, including $128.5 million from fund
distributions and $68.0 million from DoubleLine, as compared with
total investment income proceeds in 2016 of $130.1 million, of
which $66.4 million and $63.7 million was attributable to fund
distributions and DoubleLine, respectively. The portion of
distributable earnings attributable to our Class A units was
$4.16 and $2.87 per unit for 2017 and 2016, respectively,
reflecting distributable earnings per Operating Group unit of $4.60
and $3.40, respectively, less costs borne by Class A
unitholders.
Fee-related Earnings
Fee-related earnings decreased $6.7 million, or 9.6%, to $63.4
million in the fourth quarter of 2017, from $70.1 million in the
fourth quarter of 2016, primarily reflecting $3.8 million in lower
management fees and $2.8 million in higher general and
administrative expenses. The portion of fee-related earnings
attributable to our Class A units was a loss of $0.09 per unit
and income of $0.35 per unit for the fourth quarters of 2017 and
2016, respectively. Excluding the impact of the Tax Act,
fee-related earnings attributable to our Class A units for the
fourth quarter of 2017 were $0.39 per unit.
For full-year 2017, fee-related earnings decreased $32.0
million, or 12.5%, to $223.9 million from $255.9 million in 2016,
primarily reflecting the $38.4 million decline in management fees,
partially offset by $3.4 million in lower general and
administrative expenses. The portion of fee-related earnings
attributable to our Class A units was $0.85 and $1.42 per unit
for 2017 and 2016, respectively. Excluding the impact of the Tax
Act, fee-related earnings attributable to our Class A units
for 2017 were $1.33 per unit.
The effective tax rates applicable to fee-related earnings for
the fourth quarters of 2017 and 2016 were 103% and 23%,
respectively, resulting from full-year effective rates of 77% and
13%, respectively. Excluding the impact of the Tax Act, the
effective tax rates applicable to fee-related earnings for the
fourth quarter and full-year 2017 were 3% and 6%, respectively. In
general, the annual effective tax rate increases as annual
fee-related earnings increase, and vice versa.
Capital and Liquidity
As of December 31, 2017, Oaktree had $658 million of cash and
U.S. Treasury and other securities, and $746 million of outstanding
debt, which included no borrowings outstanding against its $500
million revolving credit facility. As of December 31, 2017,
Oaktree’s investments in funds and companies on a non-GAAP basis
had a carrying value of $1.7 billion, with the 20% investment in
DoubleLine carried at $39 million based on cost, as adjusted under
the equity method of accounting. Net accrued incentives (fund
level) represented an additional $921 million as of that date.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933, as
amended, and Section 21E of the U.S. Securities Exchange Act
of 1934, as amended, which reflect the current views of Oaktree,
with respect to, among other things, our future results of
operations and financial performance. In some cases, you can
identify forward-looking statements by words such as “anticipate,”
“approximately,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “outlook,” “plan,” “potential,”
“predict,” “seek,” “should,” “will” and “would” or the negative
version of these words or other comparable or similar words. These
statements identify prospective information. Important factors
could cause actual results to differ, possibly materially, from
those indicated in these statements. Forward-looking statements are
based on our beliefs, assumptions and expectations of our future
performance, taking into account all information currently
available to us. Such forward-looking statements are subject to
risks and uncertainties and assumptions relating to our operations,
financial results, financial condition, business prospects, growth
strategy and liquidity, including, but not limited to, changes in
our anticipated revenue and income, which are inherently volatile;
changes in the value of our investments; the pace of our raising of
new funds; changes in assets under management; the timing and
receipt of, and impact of taxes on, carried interest; distributions
from and liquidation of our existing funds; the amount and timing
of distributions on our Class A units; changes in our operating or
other expenses; the degree to which we encounter competition; and
general political, economic and market conditions. The factors
listed in the item captioned “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2016 filed with the SEC
on March 1, 2017, which is accessible on the SEC’s website at
www.sec.gov, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the
expectations described in our forward-looking statements.
Forward-looking statements speak only as of the date the statements
are made. Except as required by law, we do not undertake any
obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
This release and its contents do not constitute and should not
be construed as (a) a recommendation to buy, (b) an offer
to buy or solicitation of an offer to buy, (c) an offer to
sell or (d) advice in relation to, any securities of OCG or
securities of any Oaktree investment fund.
Investor Relations Website
Investors and others should note that Oaktree uses the
Unitholders – Investor Relations section of its corporate website
to announce material information to investors and the marketplace.
While not all of the information that Oaktree posts on its
corporate website is of a material nature, some information could
be deemed to be material. Accordingly, Oaktree encourages
investors, the media, and others interested in Oaktree to review
the information that it shares on its corporate website at the
Unitholders – Investor Relations section of the Oaktree website,
http://ir.oaktreecapital.com/. Information contained on, or
available through, our website is not incorporated by reference
into this document.
GAAP Consolidated Statements of
Operations
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands, except per unit data) Revenues: Management
fees $ 184,146 $ 190,045 $ 726,414 $ 774,587 Incentive income
126,949 108,265 743,353
351,159 Total revenues 311,095
298,310 1,469,767 1,125,746
Expenses: Compensation and benefits (88,114 ) (80,933 ) (392,827 )
(389,892 ) Equity-based compensation (13,808 ) (15,264 ) (59,337 )
(63,724 ) Incentive income compensation (88,955 )
(75,623 ) (416,481 ) (168,276 ) Total compensation
and benefits expense (190,877 ) (171,820 ) (868,645 ) (621,892 )
General and administrative (40,189 ) (32,398 ) (130,892 ) (145,430
) Depreciation and amortization (5,911 ) (4,146 ) (15,776 ) (16,222
) Consolidated fund expenses (2,605 ) (1,801 )
(10,030 ) (5,792 ) Total expenses (239,582 )
(210,165 ) (1,025,343 ) (789,336 ) Other income
(loss): Interest expense (41,091 ) (33,761 ) (169,888 ) (120,610 )
Interest and dividend income 60,027 44,841 215,119 165,066 Net
realized gain on consolidated funds’ investments 18,645 18,946
20,400 27,593 Net change in unrealized appreciation (depreciation)
on consolidated funds’ investments (1,732 ) 3,289 55,061 (12,453 )
Investment income 50,671 62,921 201,289 199,126 Other income, net
123,540 1,598 138,519
13,490 Total other income 210,060
97,834 460,500 272,212
Income before income taxes 281,573 185,979 904,924 608,622 Income
taxes (183,742 ) (12,701 ) (215,442 )
(42,519 ) Net income 97,831 173,278 689,482 566,103 Less: Net
income attributable to non-controlling interests in consolidated
funds (9,661 ) (7,303 ) (33,204 ) (22,921 ) Net income attributable
to non-controlling interests in consolidated subsidiaries
(74,756 ) (106,692 ) (424,784 ) (348,477 ) Net
income attributable to Oaktree Capital Group, LLC $ 13,414 $
59,283 $ 231,494 $ 194,705 Distributions
declared per Class A unit $ 0.56 $ 0.65 $ 3.21
$ 2.25 Net income per unit (basic and diluted): Net income
per Class A unit $ 0.21 $ 0.94 $ 3.61 $ 3.11
Weighted average number of Class A units outstanding
64,961 62,986 64,148
62,565
Operating Metrics
We monitor certain operating metrics that are either common to
the alternative asset management industry or that we believe
provide important data regarding our business. As described below,
these operating metrics include AUM, management fee-generating AUM,
incentive-creating AUM, incentives created (fund level), accrued
incentives (fund level) and uncalled capital commitments.
Assets Under Management As of
December 31,2017
September 30,2017
December 31,2016
(in millions) Assets Under Management: Closed-end
funds $ 56,871 $ 57,769 $ 60,104 Open-end funds 35,441 35,793
35,105 Evergreen funds 7,916 5,953
5,295 Total $ 100,228 $ 99,515 $
100,504
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016 (in
millions) Change in Assets Under Management: Beginning
balance $ 99,515 $ 99,834 $ 100,504 $ 97,359 Closed-end funds:
Capital commitments/other (1) 670 1,927 2,472 5,864 Distributions
for a realization event/other (2) (2,597 ) (2,485 ) (10,633 )
(7,747 ) Change in uncalled capital commitments for funds entering
or in liquidation (3) 69 (1,075 ) 18 (1,084 ) Foreign-currency
translation 144 (420 ) 993 (176 ) Change in market value (4) 830
1,423 3,544 3,754 Change in applicable leverage (14 ) 246 373 63
Open-end funds: Contributions 975 2,793 5,739 5,444 Redemptions
(1,691 ) (1,947 ) (8,741 ) (7,048 ) Foreign-currency translation 98
(291 ) 800 (130 ) Change in market value (4) 266 353 2,538 3,637
Evergreen funds: Contributions or new capital commitments (5) 68 20
733 259 Acquisition (BDCs) 2,110 — 2,110 — Redemptions or
distributions (6) (311 ) (59 ) (731 ) (381 ) Foreign-currency
translation — 7 (1 ) (2 ) Change in market value (4) 96
178 510 692 Ending
balance $ 100,228 $ 100,504 $ 100,228 $
100,504 (1) These amounts include
capital commitments, as well as the aggregate par value of
collateral assets and principal cash related to new CLO formations.
(2) These amounts include distributions for a realization event,
tax-related distributions, reductions in the par value of
collateral assets and principal cash resulting from the repayment
of debt as return of principal by CLOs, and recallable
distributions at the end of the investment period. (3) The change
in uncalled capital commitments reflects declines attributable to
funds entering their liquidation periods, as well as capital
contributions to funds in their liquidation periods for deferred
purchase obligations or other reasons. (4) The change in market
value reflects the change in NAV of our funds, less management fees
and other fund expenses, as well as changes in the aggregate par
value of collateral assets and principal cash held by CLOs. (5)
These amounts include contributions and capital commitments, and
for our publicly-traded BDCs, issuances of equity or debt capital.
(6) These amounts include redemptions and distributions, and for
our publicly-traded BDCs, dividends, repurchases of equity capital
or repayment of debt.
Management Fee-generating AUM
As of
December 31,2017
September 30,2017
December 31,2016
Management Fee-generating Assets Under Management: (in
millions) Closed-end funds: Senior Loans $ 8,066 $ 8,073 $
7,504 Other closed-end funds 30,779 31,953 32,990 Open-end funds
35,188 35,570 35,034 Evergreen funds 6,552
4,574 4,239 Total $ 80,585 $ 80,170
$ 79,767
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016 Change in
Management Fee-generating Assets Under Management: (in
millions) Beginning balance $ 80,170 $ 78,700 $ 79,767 $
78,897 Closed-end funds: Capital commitments to funds that pay fees
based on committed capital/other (1) 1 1,002 969 2,125 Capital
drawn by funds that pay fees based on drawn capital, NAV or cost
basis 394 464 1,663 1,390 Change attributable to funds in
liquidation (2) (1,563 ) (857 ) (4,760 ) (4,162 ) Change in
uncalled capital commitments for funds entering or in liquidation
that pay fees based on committed capital (3) — (382 ) — (881 )
Distributions by funds that pay fees based on NAV/other (4) (170 )
(139 ) (926 ) (636 ) Foreign-currency translation 120 (365 ) 840
(242 ) Change in market value (5) 50 89 217 427 Change in
applicable leverage (13 ) 220 348 184 Open-end funds: Contributions
949 2,741 5,567 5,395 Redemptions (1,691 ) (1,947 ) (8,734 ) (7,024
) Foreign-currency translation 98 (291 ) 800 (130 ) Change in
market value 262 383 2,521 3,658 Evergreen funds: Contributions or
capital drawn by funds that pay fees based on drawn capital or NAV
(6) 109 67 520 533 Acquisition (BDCs) 2,110 — 2,110 — Redemptions
or distributions (7) (316 ) (79 ) (772 ) (413 ) Change in market
value 75 161 455
646 Ending balance $ 80,585 $ 79,767 $ 80,585
$ 79,767 (1) These amounts
include capital commitments to funds that pay fees based on
committed capital, as well as the aggregate par value of collateral
assets and principal cash related to new CLO formations. (2) These
amounts include the change for funds that pay fees based on the
lesser of funded capital or cost basis during the liquidation
period, as well as recallable distributions at the end of the
investment period. For most closed-end funds, management fees are
charged during the liquidation period on the lesser of (a) total
funded capital or (b) the cost basis of assets remaining in the
fund, with the cost basis of assets generally calculated by
excluding cash balances. Thus, changes in fee basis during the
liquidation period are not dependent on distributions made from the
fund; rather, they are tied to the cost basis of the fund’s
investments, which typically declines as the fund sells assets. (3)
The change in uncalled capital commitments reflects declines
attributable to funds entering their liquidation periods, as well
as capital contributions to funds in their liquidation periods for
deferred purchase obligations or other reasons. (4) These amounts
include distributions by funds that pay fees based on NAV, as well
as reductions in the par value of collateral assets and principal
cash resulting from the repayment of debt as return of principal by
CLOs. (5) The change in market value reflects certain funds that
pay management fees based on NAV and leverage, as applicable, as
well as changes in the aggregate par value of collateral assets and
principal cash held by CLOs. (6) These amounts include
contributions and capital commitments, and for our publicly-traded
BDCs, issuances of equity or debt capital. (7) These amounts
include redemptions and distributions, and for our publicly-traded
BDCs, dividends, repurchases of equity capital or repayment of
debt.
As of
December 31,2017
September 30,2017
December 31,2016
Reconciliation of Assets Under Management to Management
Fee-generating Assets Under Management: (in millions)
Assets under management $ 100,228 $ 99,515 $ 100,504
Difference between assets under management
and committed capital or the lesser of funded capital or cost basis
for applicable closed-end funds (1)
(2,331 ) (2,920 ) (4,183 )
Undrawn capital commitments to closed-end
funds that have not yet commenced their investment periods
(8,675 ) (8,675 ) (10,367 )
Undrawn capital commitments to funds for
which management fees are based on drawn capital, NAV or cost
basis
(4,037 ) (3,714 ) (3,109 )
Oaktree’s general partner investments in
management fee-generating funds
(1,937 ) (1,883 ) (1,822 )
Funds that are no longer paying management
fees and co-investments that pay no management fees (2)
(2,663 ) (2,153 ) (1,256 ) Management
fee-generating assets under management $ 80,585 $ 80,170
$ 79,767 (1) This difference is
not applicable to closed-end funds that pay management fees based
on NAV or leverage. (2) This includes certain accounts that pay
administrative fees intended to offset Oaktree’s costs related to
the accounts.
The period-end weighted average annual management fee rates
applicable to the respective management fee-generating AUM balances
above are set forth below.
As of Weighted Average Annual Management Fee
Rates:
December 31,2017
September 30,2017
December 31,2016
Closed-end funds: Senior Loans 0.50 % 0.50 % 0.50 % Other
closed-end funds 1.49 1.49 1.50 Open-end funds 0.46 0.46 0.46
Evergreen funds (1) 1.22 1.17 1.22 Overall 0.92 0.91 0.93
(1) Fee rates reflect the applicable asset-based
management fee rates, exclusive of quarterly incentive fees on
investment income that are included in management fees.
Incentive-creating AUM
As of
December 31,2017
September 30,2017
December 31,2016
Incentive-creating Assets Under Management: (in
millions) Closed-end funds $ 27,322 $ 27,555 $ 30,292 Evergreen
funds 5,383 3,465 3,335 Total $ 32,705 $
31,020 $ 33,627
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
As of or for the Three
MonthsEnded December 31,
As of or for the YearEnded
December 31,
2017 2016 2017 2016
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,860,665 $ 1,848,808 $ 2,014,097
$ 1,585,217 Incentives created (fund level):
Closed-end funds 116,719 223,502 588,220 746,349 Evergreen funds
15,812 12,973 49,246
37,683 Total incentives created (fund level)
132,531 236,475 637,466
784,032 Less: incentive income recognized by us
(72,857 ) (71,186 ) (731,224 ) (355,152 )
Ending balance $ 1,920,339 $ 2,014,097 $ 1,920,339
$ 2,014,097 Accrued incentives (fund level), net of
associated incentive income compensation expense $ 920,852 $
946,542 $ 920,852 $ 946,542
Non-GAAP Results
Our business is comprised of one segment, our investment
management business, which consists of the investment management
services that we provide to our clients. Management makes operating
decisions and assesses the performance of our business based on
financial data that are presented without the consolidation of our
funds. The data most important to management in assessing our
performance are adjusted net income, adjusted net income-OCG,
distributable earnings, distributable earnings-OCG, fee-related
earnings and fee-related earnings-OCG. Reconciliations of these
non-GAAP financial measures to the most directly comparable GAAP
financial measures are presented at Exhibit A.
Adjusted Net Income
Beginning with the second quarter of 2017, the definition of
adjusted net income was modified with respect to third-party
placement costs associated with closed-end funds and
liability-classified EVUs to conform to the GAAP treatment. Under
GAAP, placement costs are expensed as incurred and
liability-classified EVUs are remeasured as of each reporting date.
Previously for adjusted net income, placement costs were
capitalized and amortized in proportion to the associated
management fee stream, and liability-classified EVUs were treated
as equity-classified awards. All prior periods have been recast for
these changes.
The following schedules set forth the components of adjusted net
income and adjusted net income-OCG, as well as per unit data:
Adjusted
Revenues
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Revenues: Management fees $ 188,767 $ 192,604
$ 747,261 $ 785,673 Incentive income 72,857 71,186 731,224 355,152
Investment income 65,781 87,647 249,225
221,377 Total adjusted revenues $ 327,405 $ 351,437 $ 1,727,710 $
1,362,202 Management Fees
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Management fees: Closed-end funds $ 127,123 $
139,573 $ 522,338 $ 575,290 Open-end funds 40,895 39,516 162,402
156,533 Evergreen funds 20,749 13,515 62,521
53,850 Total management fees $ 188,767 $ 192,604 $ 747,261 $
785,673 Investment Income
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
Income (loss) from investments in funds:
(in thousands)
Oaktree funds: Corporate Debt $ 7,414 $ 9,349 $ 35,656 $ 24,375
Convertible Securities 392 31 1,790 (788 ) Distressed Debt 11,744
23,143 58,649 57,605 Control Investing 7,318 14,887 22,373 34,422
Real Estate 4,992 2,672 19,511 11,025 Listed Equities 14,117 19,690
32,855 22,646 Non-Oaktree funds 657 1,004 7,080 5,665 Income from
investments in companies 19,147 16,871 71,311
66,427 Total investment income $ 65,781 $ 87,647 $
249,225 $ 221,377
Adjusted
Expenses
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Expenses: Compensation and benefits $ (84,817
) $ (83,870 ) $ (381,914 ) $ (381,937 ) Equity-based compensation
(12,668 ) (11,906 ) (53,639 ) (50,098 ) Incentive income
compensation (33,348 ) (37,149 ) (402,828 ) (169,683 ) General and
administrative (38,298 ) (35,508 ) (132,340 ) (135,654 )
Depreciation and amortization (2,287 ) (3,145 )
(9,150 ) (12,219 ) Total adjusted expenses $ (171,418
) $ (171,578 ) $ (979,871 ) $ (749,591 )
Adjusted Interest
and Other Expense, Net
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Interest expense, net of interest income (1)
$ (6,580 ) $ (7,387 ) $ (26,375 ) $ (31,845 ) Other expense, net
(22,561 ) (2,098 ) (20,364 ) (8,392 ) (1)
Interest income was $2.1 million and $8.8 million for the quarter
and year ended December 31, 2017, respectively, and $2.0 million
and $6.6 million for the quarter and year ended December 31, 2016,
respectively.
Adjusted Net
Income
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands, except per unit data) Adjusted net income $
126,846 $ 170,374 $ 701,100 $ 572,374 Adjusted net income
attributable to OCGH non-controlling interest (74,122 ) (101,111 )
(412,593 ) (340,718 ) Non-Operating Group income (expense) (1)
144,692 (529 ) 144,143
(1,176 ) Adjusted net income-OCG before income taxes 197,416 68,734
432,650 230,480 Income taxes-OCG (1) (183,871 )
(12,615 ) (210,949 ) (39,756 ) Adjusted net
income-OCG $ 13,545 $ 56,119 $ 221,701 $
190,724 Adjusted net income per Class A unit $ 0.21 $
0.89 $ 3.46 $ 3.05 Weighted average number of
Class A units outstanding 64,961 62,986
64,148 62,565 (1)
The fourth quarter and full-year 2017 include the impact of the Tax
Act, which had the effect of increasing income taxes-OCG by $178.2
million and increasing non-Operating Group income by $145.1
million, resulting in a net reduction to adjusted net income-OCG of
$33.2 million. Excluding the impact of the Tax Act, ANI
attributable to our Class A units for the fourth quarter and
full-year 2017 was $0.72 and $3.97 per unit.
Distributable Earnings and Distribution
Calculation
Distributable earnings and the calculation
of distributions are set forth below:
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
Distributable Earnings: (in thousands, except per unit
data) Adjusted net income $ 126,846 $ 170,374 $ 701,100
$ 572,374 Investment income (65,781 ) (87,647 ) (249,225 ) (221,377
) Receipts of investment income from funds (1) 37,204 24,753
128,468 66,390 Receipts of investment income from companies 25,072
21,407 67,995 63,700 Equity-based compensation 12,668 11,906 53,639
50,098 Other (income) expense, net (2) 21,962 — 21,962 — Operating
Group income taxes 218 (144 ) (7,632 )
(4,635 ) Distributable earnings $ 158,189 $ 140,649
$ 716,307 $ 526,550
Distribution
Calculation: Operating Group distribution with respect to the
period $ 134,390 $ 122,265 $ 609,222 $ 458,584 Distribution per
Operating Group unit $ 0.86 $ 0.79 $ 3.90 $ 2.96 Adjustments per
Class A unit: Distributable earnings-OCG income tax expense (0.01 )
(0.08 ) (0.21 ) (0.20 ) Tax receivable agreement (0.09 ) (0.08 )
(0.33 ) (0.32 ) Non-Operating Group expenses —
— (0.02 ) (0.03 )
Distribution per Class A unit (3)
$ 0.76 $ 0.63 $ 3.34 $ 2.41 (1)
This adjustment characterizes a portion of the
distributions received from funds as receipts of investment income
or loss. In general, the income or loss component of a fund
distribution is calculated by multiplying the amount of the
distribution by the ratio of our investment’s undistributed income
or loss to our remaining investment balance. In addition, if the
distribution is made during the investment period, it is generally
not reflected in distributable earnings until after the investment
period ends. Additionally, any impairment charges on our CLO
investments included in ANI are, for distributable earnings
purposes, amortized over the remaining investment period of the
respective CLO to align with the timing of expected cash flows. (2)
For distributable earnings purposes, the $22 million make-whole
premium charge included in ANI in the fourth quarter of 2017 in
connection with the early repayment of our 2019 Notes is amortized
through the original maturity date of December 2019. (3) With
respect to the quarter ended December 31, 2017, a distribution was
announced on February 6, 2018 and is payable on February 23, 2018.
Units Outstanding
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Weighted Average Units: OCGH 91,325
91,948 91,643 92,122 Class A 64,961 62,986 64,148 62,565 Total
156,286 154,934 155,791 154,687
Units Eligible for Fiscal Period
Distribution: OCGH 90,969 91,756 Class A 65,298 63,010 Total
156,267 154,766
GAAP Statement of Financial Condition
(Unaudited)
As of December 31, 2017
Oaktree
andOperatingSubsidiaries
ConsolidatedFunds
Eliminations Consolidated (in
thousands) Assets: Cash and cash-equivalents $ 481,631 $
— $ — $ 481,631 U.S. Treasury and other securities 176,602 — —
176,602 Corporate investments 1,691,549 — (681,918 ) 1,009,631
Deferred tax assets 202,460 — — 202,460 Receivables and other
assets 790,423 — (2,670 ) 787,753 Assets of consolidated funds
— 6,356,819 (100 ) 6,356,719 Total
assets $ 3,342,665 $ 6,356,819 $ (684,688 ) $ 9,014,796
Liabilities and Capital: Liabilities: Accounts payable and
accrued expenses $ 428,297 $ — $ 5,403 $ 433,700 Due to affiliates
177,873 — — 177,873 Debt obligations 746,274 — — 746,274
Liabilities of consolidated funds — 4,907,039
(131,255 ) 4,775,784 Total liabilities 1,352,444
4,907,039 (125,852 ) 6,133,631 Non-controlling
redeemable interests in consolidated funds — — 860,548 860,548
Capital: Unitholders’ capital attributable to OCG 868,984 233,537
(233,537 ) 868,984 Non-controlling interest in consolidated
subsidiaries 1,121,237 325,299 (325,299 ) 1,121,237 Non-controlling
interest in consolidated funds — 890,944
(860,548 ) 30,396 Total capital 1,990,221
1,449,780 (1,419,384 ) 2,020,617 Total liabilities
and capital $ 3,342,665 $ 6,356,819 $ (684,688 ) $ 9,014,796
Corporate Investments
As of
December 31,2017
September 30,2017
December 31,2016
Investments in funds:
(in thousands) Oaktree funds:
Corporate Debt $ 553,897 $ 550,888 $ 422,330 Convertible Securities
28,537 28,134 1,735 Distressed Debt 354,843 370,152 426,108 Control
Investing 247,546 250,244 265,919 Real Estate 263,732 133,129
141,234 Listed Equities 137,941 139,628 116,988 Non-Oaktree funds
39,802 94,262 71,682 Investments in companies 42,294
24,242 34,932 Total corporate
investments – Non-GAAP 1,668,592 1,590,679 1,480,928 Adjustments
(1) 22,957 17,403 4,263
Total corporate investments – Oaktree and operating subsidiaries
1,691,549 1,608,082 1,485,191 Eliminations (681,918 )
(553,095 ) (361,459 ) Total corporate investments –
Consolidated $ 1,009,631 $ 1,054,987 $ 1,123,732
(1) This adjusts CLO investments
carried at amortized cost to fair value for GAAP reporting.
Fund Data
Information regarding our closed-end, open-end and evergreen
funds, together with benchmark data where applicable, is set forth
below. For our closed-end and evergreen funds, no benchmarks are
presented in the tables as there are no known comparable benchmarks
for these funds’ investment philosophy, strategy and
implementation.
Closed-end
Funds
As of December 31, 2017
Investment Period Total Committed Capital %
Invested (1) %
Drawn (2)
Fund Net Income Since Inception Distri-
butions Since Inception
Net Asset Value Manage-
ment Fee-gener-
ating AUM
Incentive Income Recog-
nized (Non-GAAP)
AccruedIncentives(FundLevel)
(3)
UnreturnedDrawnCapital
PlusAccruedPreferredReturn (4)
IRR Since Inception (5) Multiple of
Drawn Capital (6) Start Date End Date
Gross
Net (in millions) Distressed Debt
Oaktree Opportunities Fund Xb (7) TBD — $8,872 —% —%
$—
$— $— $— $— $— $— n/a n/a n/a Oaktree Opportunities Fund X (7) Jan.
2016 Jan. 2019 3,603 81 54 703 81 2,556 3,450 — 136 2,029 41.2%
25.3% 1.5x Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017 5,066
nm 100 545 1,671 3,940 4,116 — — 4,994 5.5 2.9 1.2 Oaktree
Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 771 2,020
1,443 1,631 52 — 1,832 8.4 5.5 1.4 Special Account B Nov. 2009 Nov.
2012 1,031 nm 100 590 1,441 256 248 16 — 165 13.5 11.1 1.6 Oaktree
Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,456
5,843 1,121 1,123 165 313 538 12.8 9.0 1.6 Special Account A Nov.
2008 Oct. 2012 253 nm 100 309 514 48 47 52 9 — 28.0 22.7 2.3 OCM
Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 8,973 17,844
973 828 1,554 190 — 21.9 16.6 2.0 OCM Opportunities Fund VII Mar.
2007 Mar. 2010 3,598 nm 100 1,472 4,742 328 411 85 — 491 10.2 7.5
1.5 Legacy funds (8) Various Various 12,495 nm 100 10,461 22,923 33
— 1,557 7 — 23.6 18.5 1.9 22.0% 16.2%
Real Estate
Opportunities Oaktree Real Estate Opportunities Fund VII
(9)(10) Jan. 2016 Jan. 2020 $2,921 63% 15% $232 $236 $434 $2,604 $—
$45 $220 nm nm 1.8x Oaktree Real Estate Opportunities Fund VI Aug.
2012 Aug. 2016 2,677 nm 100 1,282 1,780 2,179 1,676 22 226 1,703
15.5% 10.5% 1.6 Oaktree Real Estate Opportunities Fund V Mar. 2011
Mar. 2015 1,283 nm 100 985 1,968 300 153 130 57 — 17.4 12.9 1.9
Special Account D Nov. 2009 Nov. 2012 256 nm 100 203 378 89 — 4 16
14 14.9 12.8 1.8 Oaktree Real Estate Opportunities Fund IV Dec.
2007 Dec. 2011 450 nm 100 392 759 83 64 58 17 — 15.9 10.8 2.0
Legacy funds (8) Various Various 2,341 nm 99 2,010 4,324 2 — 232 —
— 15.2 11.9 1.9 15.6% 11.9%
Real Estate Debt Oaktree Real
Estate Debt Fund II (9)(11) Mar. 2017 Mar. 2020 $1,237 47% 13% $6
$9 $153 $584 $— $1 $150 nm nm 1.1x Oaktree Real Estate Debt Fund
Sep. 2013 Oct. 2016 1,112 nm 81 157 507 552 594 6 17 425 24.9%
18.8% 1.3 Oaktree PPIP Fund (12) Dec. 2009 Dec. 2012 2,322 nm 48
457 1,570 — — 47 — — 28.2 n/a 1.4
Real Estate Income
(13) Special Account G (9)(11) Oct. 2016 Oct. 2020 $615 66%
66% $39 $40 $405 $384 $— $8 $387 nm nm 1.1x
European
Principal (14) Oaktree European Principal Fund IV (7)(9)
Jul. 2017 Jul. 2022 €1,119 77% 54% €(15) €2 €584 €1,090 €— €— €610
nm nm 1.0x Oaktree European Principal Fund III Nov. 2011 Nov. 2016
€3,164 nm 85 €2,200 €1,104 €3,845 €2,682 €— €427 €2,603 19.4% 13.3%
1.9 OCM European Principal Opportunities Fund II Dec. 2007 Dec.
2012 €1,759 nm 100 €399 €1,866 €264 €599 €29 €— €715 8.4 4.3 1.4
OCM European Principal Opportunities Fund Mar. 2006 Mar. 2009 $495
nm 96 $454 $927 $— $— $87 $— $— 11.7 8.9 2.1 13.6% 9.1%
As of December 31, 2017
Investment Period Total Committed Capital
% Invested (1) %
Drawn (2)
Fund Net Income Since Inception Distri-
butions Since Inception
Net Asset Value Manage-
ment Fee-gener-
ating AUM
Incentive Income Recog-nized (Non-GAAP)
AccruedIncentives(FundLevel)
(3)
UnreturnedDrawnCapitalPlusAccruedPreferredReturn
(4)
IRR Since Inception (5) Multiple of
Drawn Capital (6) Start Date End Date
Gross Net (in millions) Power
Opportunities Oaktree Power Opportunities Fund IV Nov. 2015
Nov. 2020 $1,106 65% 65% $53 $1 $770 $1,078 $— $— $777 13.3% 7.0%
1.1x Oaktree Power Opportunities Fund III Apr. 2010 Apr. 2015 1,062
nm 66 505 650 559 369 24 73 268 22.5 14.5 1.8 Legacy funds (8)
Various Various 1,470 nm 63 1,689 2,616 — — 123 — — 35.1 27.4 2.8
34.5% 26.3%
Special Situations (15) Oaktree Special
Situations Fund (7) Nov. 2015 Nov. 2018 $1,377 88% 48% $174 $159
$675 $1,262 $— $34 $552 43.0% 23.8% 1.4x Other funds: Oaktree
Principal Fund V Feb. 2009 Feb. 2015 $2,827 nm 91% $481 $1,674
$1,393 $1,621 $50 $— $2,099 7.6% 3.5% 1.3x Special Account C Dec.
2008 Feb. 2014 505 nm 91 200 413 247 276 21 — 268 10.6 7.4 1.5 OCM
Principal Opportunities Fund IV Oct. 2006 Oct. 2011 3,328 nm 100
3,068 5,887 509 — 450 148 — 12.6 9.1 2.1 Legacy funds (8) Various
Various 3,701 nm 100 2,710 6,404 7 — 405 1 — 14.4 11.1 1.8 13.1%
9.4%
Infrastructure Investing Highstar Capital IV (16) Nov.
2010 Nov. 2016 $2,000 nm 100% $498 $696 $1,802 $1,329 $— $2 $1,939
12.1% 7.7% 1.4x
European Private Debt (14)
Oaktree European Capital Solutions Fund (7)(11) Dec. 2015 Dec. 2018
€703 77% 58% €19 €155 €247 €264 €— €2 €243 10.1% 6.3% 1.1x Oaktree
European Dislocation Fund Oct. 2013 Oct. 2016 €294 nm 57 €39 €182
€39 €24 €2 €4 €18 20.5 14.6 1.3 Special Account E Oct. 2013 Apr.
2015 €379 nm 69 €63 €295 €29 €13 €4 €6 €7 14.2 11.0 1.3 14.8% 10.8%
U.S. Private Debt (17) Oaktree Mezzanine Fund IV (11)
Oct. 2014 Oct. 2019 $852 64% 64% $78 $90 $535 $511 $— $11 $519
11.9% 8.5% 1.2x Oaktree Mezzanine Fund III (18) Dec. 2009 Dec. 2014
1,592 nm 89 437 1,542 318 339 15 28 270 15.0
10.4 / 8.6
1.4 OCM Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 488 1,504
91 — — — 166 10.9 7.4 0.6 OCM Mezzanine Fund (19) Oct. 2001 Oct.
2006 808 nm 96 302 1,075 — — 38 — — 15.4
10.8 / 10.5
1.5 13.0% 8.7%
Emerging Markets Opportunities Oaktree
Emerging Market Opportunities Fund Sep. 2013 Sep. 2017 $384 nm 78%
$112 $212 $198 $140 $— $20 $149 16.4% 11.0% 1.5x Special Account F
Jan. 2014 Sep. 2017 253 nm 96 74 187 129 127 — 15 95 16.0 11.4 1.4
30,576
(14)
1,901
(14)
16.2% 11.2%
Other (20)
8,114 2
Total (21)
$38,690 $1,903 (1) For our incentive-creating
closed-end funds in their investment periods, this percentage
equals invested capital divided by committed capital. Invested
capital for this purpose is the sum of capital drawn from fund
investors plus net borrowings, if any, outstanding, under a
fund-level credit facility where such borrowings were made in lieu
of drawing capital from fund investors. (2) Represents capital
drawn from fund investors, net of distributions to such investors
of uninvested capital, divided by committed capital. The aggregate
change in drawn capital for the three months ended December 31,
2017 was $1.2 billion. (3) Accrued incentives (fund level) exclude
non-GAAP incentive income previously recognized. (4) Unreturned
drawn capital plus accrued preferred return reflects the amount the
fund needs to distribute to its investors as a return of capital
and a preferred return (as applicable) before Oaktree is entitled
to receive incentive income (other than tax distributions) from the
fund. (5) The internal rate of return (“IRR”) is the annualized
implied discount rate calculated from a series of cash flows. It is
the return that equates the present value of all capital invested
in an investment to the present value of all returns of capital, or
the discount rate that will provide a net present value of all cash
flows equal to zero. Fund-level IRRs are calculated based upon the
actual timing of cash contributions/distributions to investors and
the residual value of such investor’s capital accounts at the end
of the applicable period being measured. Gross IRRs reflect returns
before allocation of management fees, expenses and any incentive
allocation to the fund’s general partner. To the extent material,
gross returns include certain transaction, advisory, directors or
other ancillary fees (“fee income”) paid directly to us in
connection with our funds’ activities (we credit all such fee
income back to the respective fund(s) so that our funds’ investors
share pro rata in the fee income’s economic benefit). Net IRRs
reflect returns to non-affiliated investors after allocation of
management fees, expenses and any incentive allocation to the
fund’s general partner. (6) Multiple of drawn capital is calculated
as drawn capital plus gross income and, if applicable, fee income
before fees and expenses divided by drawn capital. (7) Fund data
include the performance of the main fund and any associated
fund-of-one accounts, except the gross and net IRRs presented
reflect only the performance of the main fund. Certain fund-of-one
accounts pay management fees based on cost basis, rather than
committed capital. (8) Legacy funds represent certain predecessor
funds within the relevant strategy that have substantially or
completely liquidated their assets, including funds managed by
certain Oaktree investment professionals while employed at the
Trust Company of the West prior to Oaktree’s founding in 1995. When
these employees joined Oaktree upon, or shortly after, its
founding, they continued to manage the fund through the end of its
term pursuant to a sub-advisory relationship between the Trust
Company of the West and Oaktree. (9) The IRR is not considered
meaningful (“nm”) as the period from the initial capital
contribution through December 31, 2017 was less than 18 months.
(10) A portion of this fund pays management fees based on drawn,
rather than committed, capital. (11) Management fees during the
investment period are calculated on drawn capital or cost basis,
rather than committed capital. As a result, as of December 31, 2017
management fee-generating AUM included only that portion of
committed capital that had been drawn. (12) Due to differences in
the allocation of income and expenses to this fund’s two primary
limited partners, the U.S. Treasury and Oaktree PPIP Private Fund,
a combined net IRR is not presented. Of the $2,322 million in
capital commitments, $1,161 million related to the Oaktree PPIP
Private Fund, whose gross and net IRR were 24.7% and 18.6%,
respectively. (13) Effective August 2017, the Real Estate Value-Add
strategy was renamed Real Estate Income. (14) Aggregate IRRs or
totals are based on the conversion of cash flows or amounts,
respectively, from euros to USD using the December 31, 2017 spot
rate of $1.20. (15) Effective November 2016, the Global Principal
strategy was renamed Special Situations. The aggregate gross and
net IRRs presented for this strategy exclude the performance of
Oaktree Special Situations Fund. (16) The fund follows the
American-style distribution waterfall, whereby the general partner
may receive an incentive allocation as soon as it has returned the
drawn capital and paid a preferred return on the fund’s realized
investments (i.e., on a deal-by-deal basis). However, such cash
distributions of incentives may be subject to repayment, or
clawback. As of December 31, 2017, Oaktree had not recognized any
incentive income from this fund. The accrued incentives (fund
level) amount shown for this fund represents Oaktree’s effective 8%
of the potential incentives generated by this fund in accordance
with the terms of the Highstar acquisition. (17) Effective April
2017, the Mezzanine Finance strategy was renamed U.S. Private Debt,
and includes our Mezzanine Finance and Direct Lending funds. (18)
The fund’s partnership interests are divided into Class A and Class
B interests, with the Class A interests having priority with
respect to the distribution of current income and disposition
proceeds. The net IRR for Class A interests was 10.4% and Class B
interests was 8.6%. The combined net IRR for Class A and Class B
interests was 9.6%. (19) The fund’s partnership interests are
divided into Class A and Class B interests, with the Class A
interests having priority with respect to the distribution of
current income and disposition proceeds. The net IRR for Class A
interests was 10.8% and Class B interests was 10.5%. The combined
net IRR for the Class A and Class B interests was 10.6%. (20) This
includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund
and certain separate accounts and co-investments. (21) The total
excludes one closed-end fund with management fee-generating AUM
aggregating $155 million as of December 31, 2017, which has been
included as part of the Strategic Credit strategy within the
evergreen funds table.
Open-end
Funds
Manage-
ment Fee-gener-
ating AUM
as of
Dec. 31, 2017
Year EndedDecember 31,
2017
Since Inception through December 31, 2017 Strategy
Inception Rates of Return (1) Annualized Rates
of Return (1) Sharpe Ratio Oaktree
Rele-
vant Bench-
mark
Oaktree Rele-
vant Bench-
mark
OaktreeGross
Rele-
vant Bench-
mark
Gross Net Gross Net
(in millions) U.S. High Yield Bonds 1986 $ 16,428 6.1
% 5.5 % 6.9 % 9.3 % 8.7 % 8.3 % 0.81 0.57 Global High Yield Bonds
2010 4,377 6.7 6.2 7.5 7.4 6.9 7.0 1.17 1.14 European High Yield
Bonds 1999 1,012 7.5 7.0 8.2 8.1 7.6 6.4 0.73 0.46 U.S.
Convertibles 1987 2,668 9.1 8.6 13.7 9.4 8.8 8.3 0.50 0.38 Non-U.S.
Convertibles 1994 1,468 8.9 8.3 3.7 8.4 7.8 5.5 0.80 0.41 High
Income Convertibles 1989 1,091 7.6 6.8 7.0 11.3 10.5 8.2 1.07 0.61
U.S. Senior Loans 2008 1,311 4.6 4.1 4.2 6.1 5.5 5.2 1.12 0.66
European Senior Loans 2009 1,753 2.9 2.4 3.3 7.8 7.3 8.5 1.69 1.69
Emerging Markets Equities 2011 4,024 34.7 33.7 37.3 3.2 2.4 2.6
0.16 0.14 Multi-Strategy Credit (2) 2017 702 nm nm nm nm nm nm nm
nm Other 354 Total $ 35,188 (1) Returns
represent time-weighted rates of return, including reinvestment of
income, net of commissions and transaction costs. The returns for
Relevant Benchmarks are presented on a gross basis. (2) Performance
is not considered meaningful (“nm”) as the period from the initial
capital contribution through December 31, 2017 was less than 18
months. As a result, returns for the relevant benchmark and the
Sharpe Ratio have been excluded.
Evergreen
Funds
As of December 31, 2017 Year
Ended
December 31, 2017
Since Inception throughDecember 31, 2017
AUM Manage-
ment
Fee-gener-
ating AUM
Accrued Incen-
tives(Fund Level)
Strategy Inception Rates of Return (1)
Annualized Rates
of Return (1)
Gross Net Gross Net
(in millions) Strategic Credit (2) 2012 $ 5,087 $
4,672 $ 1
(3)
14.2 % 11.1 % 9.4 % 6.9 % Value Opportunities 2007 1,102 1,028 —
(3)
10.7 8.5 9.6 5.8 Emerging Markets Debt (4) 2015 896 315 5
(3)
19.0 14.9 16.6 13.0 Value Equities (5) 2012 461 430 —
(3)
34.3 25.3 22.0 16.0 6,445 6 Other (6) 262 6 Restructured funds
— 5 Total (2) $ 6,707 $ 17 (1)
Returns represent time-weighted rates of return. (2)
Includes our publicly-traded BDCs and one closed-end fund with $135
million and $155 million of AUM and management fee-generating AUM,
respectively. The rates of return reflect the performance of a
composite of certain evergreen accounts and exclude our
publicly-traded BDCs. (3) For the year ended December 31, 2017,
gross incentive income recognized by Oaktree totaled $14.2 million
for Strategic Credit, $5.5 million for Value Opportunities, $8.4
million for Emerging Markets Debt and $15.6 million for Value
Equities. (4) Includes the Emerging Markets Debt Total Return and
Emerging Markets Opportunities strategies. The rates of return
reflect the performance of a composite of accounts for the Emerging
Markets Debt Total Return strategy, including a single account with
a December 2014 inception date. (5) Includes performance of a
proprietary fund with an initial capital commitment of $25 million
since its inception in May 2012. (6) Includes the Emerging Markets
Absolute Return strategy and evergreen separate accounts in the
Real Estate Debt strategy.
GLOSSARY
Accrued incentives (fund level) represents the incentive
income that would be paid to us if the funds were liquidated at
their reported values as of the date of the financial statements.
Incentives created (fund level) refers to the gross amount of
potential incentives generated by the funds during the period. We
refer to the amount of accrued incentives recognized as revenue by
us as incentive income. Amounts recognized by us as incentive
income are no longer included in accrued incentives (fund level),
the term we use for remaining fund-level accruals. Incentives
created (fund level), incentive income and accrued incentives (fund
level) are presented gross, without deduction for direct
compensation expense that is owed to our investment professionals
associated with the particular fund when we earn the incentive
income. We call that charge “incentive income compensation
expense.” Incentive income compensation expense varies by the
investment strategy and vintage of the particular fund, among many
factors.
Adjusted net income (“ANI”) is a measure of profitability
for our investment management business. The components of revenues
(“adjusted revenues”) and expenses (“adjusted expenses”) used in
the determination of ANI do not give effect to the consolidation of
the funds that we manage. Adjusted revenues include investment
income (loss) that is classified in other income (loss) in the GAAP
statements of operations. Adjusted revenues and expenses also
reflect Oaktree’s proportionate economic interest in Highstar,
whereby amounts received for contractually reimbursable costs are
classified for ANI as expenses and under GAAP as other income. In
addition, ANI excludes the effect of (a) non-cash equity-based
compensation expense related to unit grants made before our initial
public offering, (b) acquisition-related items, including
amortization of intangibles and changes in the contingent
consideration liability, (c) income taxes, (d) other income or
expenses applicable to OCG or its Intermediate Holding Companies,
and (e) the adjustment for non-controlling interests.
Moreover, gains and losses resulting from foreign-currency
transactions and hedging activities under GAAP are recognized as
general and administrative expense whether realized or unrealized
in the current period, but for ANI, unrealized gains and losses
from foreign-currency hedging activities are deferred until
realized, at which time they are included in the same revenue or
expense line item as the underlying exposure that was hedged.
Additionally, for ANI, foreign-currency transaction gains and
losses are included in other income (expense), net. Incentive
income and incentive income compensation expense are included in
ANI when the underlying fund distributions are known or knowable as
of the respective quarter end, which may be later than the time at
which the same revenue or expense is included in the GAAP
statements of operations, for which the revenue standard is fixed
or determinable and the expense standard is probable and reasonably
estimable. CLO investments are carried at fair value for GAAP
reporting, whereas for ANI, they are carried at amortized cost,
subject to any impairment charges. Investment income on CLO
investments is recognized in ANI when cash distributions are
received. Cash distributions are allocated between income and
return of capital based on the effective yield method. ANI is
calculated at the Operating Group level.
Beginning with the second quarter of 2017, the definition of ANI
was modified with respect to third-party placement costs associated
with closed-end funds and liability-classified EVUs to conform to
the GAAP treatment. Under GAAP, placement costs are expensed as
incurred and liability-classified EVUs are remeasured as of each
reporting date. Previously for ANI, placement costs were
capitalized and amortized in proportion to the associated
management fee stream, and liability-classified EVUs were treated
as equity-classified awards. All prior periods have been recast for
these changes.
Adjusted net income–OCG, or adjusted net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ANI attributable to their ownership. Adjusted net income-OCG
represents ANI including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Two of our Intermediate Holding Companies
incur federal and state income taxes for their shares of Operating
Group income. Generally, those two corporate entities hold an
interest in the Operating Group’s management fee-generating assets
and a small portion of its incentive and investment
income-generating assets. As a result, historically our fee-related
earnings and investment income arising from our one-fifth ownership
stake in DoubleLine generally have been subject to corporate-level
taxation, and most of our incentive income and other investment
income generally has not been subject to corporate-level taxation.
Thus, the blended effective income tax rate has generally tended to
be higher to the extent that fee-related earnings and
DoubleLine-related investment income represented a larger
proportion of our ANI. Myriad other factors affect income tax
expense and the effective income tax rate, and there can be no
assurance that this historical relationship will continue going
forward.
Assets under management (“AUM”) generally refers to the
assets we manage and equals the NAV of the assets we manage, the
leverage on which management fees are charged, the undrawn capital
that we are entitled to call from investors in our funds pursuant
to their capital commitments. For our CLOs, AUM represents the
aggregate par value of collateral assets and principal cash, and
for our publicly-traded BDCs, gross assets (including assets
acquired with leverage), net of cash. Our AUM includes amounts for
which we charge no management fees.
- Management fee-generating assets
under management (“management fee-generating AUM”) is a
forward-looking metric and reflects the beginning AUM on which we
will earn management fees in the following quarter. Our closed-end
funds typically pay management fees based on committed capital,
drawn capital or cost basis during the investment period, without
regard to changes in NAV, and during the liquidation period on the
lesser of (a) total funded capital or (b) the cost basis
of assets remaining in the fund. The annual management fee rate
generally remains unchanged from the investment period through the
liquidation period. Our open-end and evergreen funds typically pay
management fees based on their NAV, our CLOs pay management fees
based on the aggregate par value of collateral assets and principal
cash, as defined in the applicable CLO indentures, and our
publicly-traded BDCs pay management fees based on gross assets
(including assets acquired with leverage), net of cash. As compared
with AUM, management fee-generating AUM generally excludes the
following:
- Differences between AUM and either
committed capital or cost basis for most closed-end funds, other
than for closed-end funds that pay management fees based on NAV and
leverage, as applicable;
- Undrawn capital commitments to
closed-end funds that have not yet commenced their investment
periods;
- Undrawn capital commitments to funds
for which management fees are based on drawn capital, NAV or cost
basis;
- Oaktree’s general partner investments
in management fee-generating funds; and
- Funds that are no longer paying
management fees and co-investments that pay no management
fees.
- Incentive-creating assets under
management (“incentive-creating AUM”) refers to the AUM that
may eventually produce incentive income. It generally represents
the NAV of our funds for which we are entitled to receive an
incentive allocation, excluding CLOs and investments made by us and
our employees and directors (which are not subject to an incentive
allocation), and gross assets (including assets acquired with
leverage), net of cash, for our publicly-traded BDCs. With respect
to BDCs, only the incentive fee on capital gains can be generated
from incentive-creating AUM. All funds for which we are entitled to
receive an incentive allocation are included in incentive-creating
AUM, regardless of whether or not they are currently above their
preferred return or high-water mark and therefore generating
incentives. Incentive-creating AUM does not include undrawn capital
commitments.
Consolidated funds refers to the funds and CLOs that
Oaktree is required to consolidate as of the respective reporting
date.
Distributable earnings is a non-GAAP performance measure
derived from our non-GAAP results that we use to measure our
earnings at the Operating Group level without the effects of the
consolidated funds for the purpose of, among other things,
assisting in the determination of equity distributions from the
Operating Group. However, the declaration, payment and
determination of the amount of equity distributions, if any, is at
the sole discretion of our board of directors, which may change our
distribution policy at any time.
Distributable earnings and distributable earnings revenues
differ from ANI in that they exclude investment income or loss and
include the receipt of investment income or loss from distributions
by our investments in funds and companies. Additionally, any
impairment charges on our CLO investments included in ANI are, for
distributable earnings purposes, amortized over the remaining
investment period of the respective CLO, in order to align with the
timing of expected cash flows. In addition, distributable earnings
differs from ANI in that make-whole premium charges related to the
repayment of debt included in ANI are, for distributable earnings
purposes, amortized through the original maturity date of the
repaid debt. Finally, distributable earnings differs from ANI in
that it is net of Operating Group income taxes and excludes
non-cash equity-based compensation expense.
Distributable earnings–OCG, or distributable earnings per
Class A unit, a non-GAAP performance measure, is calculated to
provide Class A unitholders with a measure that shows the
portion of distributable earnings attributable to their ownership.
Distributable earnings-OCG represents distributable earnings,
including the effect of (a) the OCGH non-controlling interest,
(b) expenses, such as current income tax expense, applicable
to OCG or its Intermediate Holding Companies and (c) amounts
payable under a tax receivable agreement. The income tax expense
included in distributable earnings-OCG represents the implied
current provision for income taxes calculated using an approach
similar to that which is used in calculating the income tax
provision for adjusted net income-OCG.
Economic net income (“ENI”) is a non-GAAP performance
measure that we use to evaluate the financial performance of our
business by applying the “Method 2,” instead of the “Method 1,”
revenue recognition approach to accounting for incentive income.
ANI follows Method 1, except incentive income is recognized when
the underlying fund distributions are known or knowable as of the
respective quarter end, as opposed to the fixed or determinable
standard of Method 1. The Method 2 approach followed by ENI
recognizes incentive income as if the funds were liquidated at
their reported values as of the date of the financial statements.
ENI is computed by adjusting ANI for the change in accrued
incentives (fund level), net of associated incentive income
compensation expense, during the period.
Economic net income revenues is a non-GAAP measure applying the
Method 2, instead of the Method 1, approach to accounting for
incentive income, and reflects the adjustments described above and
under the definition of ANI.
Economic net income–OCG, or economic net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ENI attributable to their ownership. Economic net income-OCG
represents ENI, including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. The income tax expense included in economic
net income-OCG represents the implied provision for income taxes
calculated using an approach similar to that which is used in
calculating the income tax provision for adjusted net
income-OCG.
Equity value units (“EVUs”) represent special limited
partnership units in Oaktree Capital Group Holdings, L.P. (“OCGH”)
that entitle the holder the right to receive a one-time special
distribution that will be settled in OCGH units based on value
created during a specified period (“Term”) in excess of a fixed
“Base Value.” The Base Value will be reduced by certain
distributions and profit sharing payments received by the holder
and the full value of certain OCGH units granted. The value created
will be measured on a per unit basis, based on Class A unit trading
prices and certain components of quarterly distributions with
respect to the period during the Term. EVUs also give the holder
the right, subject to service vesting and Oaktree performance
relative to the accreting Base Value, to receive certain quarterly
distributions from OCGH. EVUs do not entitle the holder to any
voting rights.
Fee-related earnings (“FRE”) is a non-GAAP performance
measure that we use to monitor the baseline earnings of our
business. FRE is derived from our non-GAAP results and is comprised
of management fees (“fee-related earnings revenues”) less operating
expenses other than incentive income compensation expense and
non-cash equity-based compensation expense. FRE is considered
baseline because it excludes all non-management fee revenue sources
(such as earnings from our minority equity interest in DoubleLine)
and applies all cash compensation and benefits other than incentive
income compensation expense, as well as all general and
administrative expenses, to management fees, even though those
expenses also support the generation of incentive and investment
income. FRE is presented before income taxes.
Fee-related earnings–OCG, or fee-related earnings per Class A
unit, is a non-GAAP performance measure calculated to provide
Class A unitholders with a measure that shows the portion of
FRE attributable to their ownership. Fee-related earnings–OCG
represents FRE including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Fee-related earnings–OCG income taxes is
calculated excluding any incentive income or investment income
(loss).
Intermediate Holding Companies collectively refers to the
subsidiaries wholly owned by us.
Invested capital reflects deployed capital, whether
involving drawn or recycled equity capital, or borrowings from
fund-level credit facilities. This metric is used in connection
with incentive-creating closed-end funds and certain evergreen
funds.
Net asset value (“NAV”) refers to the value of all the
assets of a fund (including cash and accrued interest and
dividends) less all liabilities of the fund (including accrued
expenses and any reserves established by us, in our discretion, for
contingent liabilities) without reduction for accrued incentives
(fund level) because they are reflected in the partners’ capital of
the fund.
Oaktree, OCG, we, us, our or the Company refers to
Oaktree Capital Group, LLC and, where applicable, its subsidiaries
and affiliates.
Oaktree Operating Group (“Operating Group”) refers
collectively to the entities in which we have a minority economic
interest and indirect control that either (i) act as or control the
general partners and investment advisers of our funds or (ii) hold
interests in other entities or investments generating income for
us.
Relevant Benchmark refers, with respect to:
- our U.S. High Yield Bond strategy, to
the Citigroup U.S. High Yield Cash-Pay Capped Index;
- our Global High Yield Bond strategy, to
an Oaktree custom global high yield index that represents 60% ICE
BofAML High Yield Master II Constrained Index and 40% ICE BofAML
Global Non-Financial High Yield European Issuers 3% Constrained,
ex-Russia Index – USD Hedged from inception through December 31,
2012, and the ICE BofAML Non-Financial Developed Markets High Yield
Constrained Index – USD Hedged thereafter;
- our European High Yield Bond strategy,
to the ICE BofAML Global Non-Financial High Yield European Issuers
excluding Russia 3% Constrained Index (USD Hedged);
- our U.S. Senior Loan strategy (with the
exception of the closed-end funds), to the Credit Suisse Leveraged
Loan Index;
- our European Senior Loan strategy, to
the Credit Suisse Western European Leveraged Loan Index (EUR
Hedged);
- our U.S. Convertible Securities
strategy, to an Oaktree custom convertible index that represents
the Credit Suisse Convertible Securities Index from inception
through December 31, 1999, the Goldman Sachs/Bloomberg
Convertible 100 Index from January 1, 2000 through
June 30, 2004, and the ICE BofAML All U.S. Convertibles Index
thereafter;
- our non-U.S. Convertible Securities
strategy, to an Oaktree custom non-U.S. convertible index that
represents the JACI Global ex-U.S. (Local) Index from inception
through December 31, 2014 and the Thomson Reuters Global Focus
ex-U.S. (USD hedged) Index thereafter;
- our High Income Convertible Securities
strategy, to the Citigroup U.S. High Yield Market Index; and
- our Emerging Markets Equities strategy,
to the Morgan Stanley Capital International Emerging Markets Index
(Net).
Sharpe Ratio refers to a metric used to calculate
risk-adjusted return. The Sharpe Ratio is the ratio of excess
return to volatility, with excess return defined as the return
above that of a riskless asset (based on the three-month U.S.
Treasury bill, or for our European senior loan strategy, the Euro
Overnight Index Average) divided by the standard deviation of such
return. A higher Sharpe Ratio indicates a return that is higher
than would be expected for the level of risk compared to the
risk-free rate.
Uncalled capital commitments represent undrawn capital
commitments by partners (including Oaktree as general partner) of
our closed-end funds through their investment periods and certain
evergreen funds. If a fund distributes capital during its
investment period, that capital is typically subject to possible
recall, in which case it is included in uncalled capital
commitments.
EXHIBIT
A
Use of Non-GAAP Financial Information
Oaktree discloses certain non-GAAP financial measures in this
earnings release. Reconciliations of these non-GAAP financial
measures to the most directly comparable financial measures
calculated and presented in accordance with GAAP are presented
below. Management makes operating decisions and assesses the
performance of Oaktree’s business based on these non-GAAP financial
measures. These non-GAAP financial measures should be considered in
addition to, and not as a substitute for or superior to, net
income, net income per Class A unit or other financial measures
presented in accordance with GAAP.
Reconciliation of GAAP to Non-GAAP Results
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income, fee-related
earnings and distributable earnings.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Incentive income
(1) (55,607 ) (38,474 ) (13,653 ) 1,407 Incentive income
compensation (1) 55,607 38,474 13,653 (1,407 ) Investment income
(2) (5,983 ) (2,081 ) (30,613 ) (21,814 ) Equity-based compensation
(3) 1,140 3,358 5,698 13,626 Foreign-currency hedging (4) 2,413
(9,341 ) 1,453 1,496 Acquisition-related items (5) 3,294 827 1,838
(924 ) Income taxes (6) 183,742 12,701 215,442 42,519 Non-Operating
Group (income) expenses (7) (144,692 ) 529 (144,143 ) 1,176
Non-controlling interests (7) 73,518 105,098
419,931 341,590 Adjusted net
income 126,846 170,374 701,100 572,374 Incentive income (72,857 )
(71,186 ) (731,224 ) (355,152 ) Incentive income compensation
33,348 37,149 402,828 169,683 Investment income (65,781 ) (87,647 )
(249,225 ) (221,377 ) Equity-based compensation (8) 12,668 11,906
53,639 50,098 Interest expense, net of interest income 6,580 7,387
26,375 31,845 Other (income) expense, net 22,561
2,098 20,364 8,392
Fee-related earnings 63,365 70,081 223,857 255,863 Incentive income
72,857 71,186 731,224 355,152 Incentive income compensation (33,348
) (37,149 ) (402,828 ) (169,683 ) Receipts of investment income
from funds (9) 37,204 24,753 128,468 66,390 Receipts of investment
income from companies 25,072 21,407 67,995 63,700 Interest expense,
net of interest income (6,580 ) (7,387 ) (26,375 ) (31,845 ) Other
(income) expense, net (599 ) (2,098 ) 1,598 (8,392 ) Operating
Group income taxes 218 (144 ) (7,632 )
(4,635 ) Distributable earnings $ 158,189 $ 140,649
$ 716,307 $ 526,550 (1)
This adjustment adds back the effect of timing differences
associated with the recognition of incentive income and incentive
income compensation expense between adjusted net income and net
income attributable to OCG. (2) This adjustment adds back the
effect of differences in the recognition of investment income
related to corporate investments in CLOs which under GAAP are
marked-to-market but for ANI are accounted for at amortized cost,
subject to impairment. (3) This adjustment adds back the effect of
equity-based compensation expense related to unit grants made
before our initial public offering, which is excluded from adjusted
net income and fee-related earnings because it is a non-cash charge
that does not affect our financial position. (4) This adjustment
adds back the effect of timing differences associated with the
recognition of unrealized gains and losses related to
foreign-currency hedging between adjusted net income and net income
attributable to OCG. (5) This adjustment adds back the effect of
acquisition-related items associated with the amortization of
intangibles and changes in the contingent consideration liability,
which are excluded from adjusted net income. (6) Because adjusted
net income and fee-related earnings are pre-tax measures, this
adjustment adds back the effect of income tax expense. (7) Because
adjusted net income and fee-related earnings are calculated at the
Operating Group level, this adjustment adds back the effect of
items applicable to OCG, its Intermediate Holding Companies or
non-controlling interests. (8) This adjustment adds back the effect
of equity-based compensation expense related to unit grants made
after our initial public offering, which is excluded from
fee-related earnings because it is non-cash in nature and does not
impact our ability to fund our operations. (9) This adjustment
reflects the portion of distributions received from funds
characterized as receipts of investment income or loss. In general,
the income or loss component of a distribution from a fund is
calculated by multiplying the amount of the distribution by the
ratio of our investment’s undistributed income or loss to our
remaining investment balance. In addition, if the distribution is
made during the investment period, it is generally not reflected in
distributable earnings until after the investment period ends.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG, fee-related
earnings-OCG and distributable earnings-OCG.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Incentive income
attributable to OCG (1) (23,113 ) (15,641 ) (6,004 ) 407 Incentive
income compensation attributable to OCG (1) 23,113 15,641 6,004
(407 ) Investment income attributable to OCG (2) (2,487 ) (846 )
(12,608 ) (8,807 ) Equity-based compensation attributable to OCG
(3) 474 1,365 2,341 5,512 Foreign-currency hedging attributable to
OCG (4) 1,003 (3,797 ) 618 572 Acquisition-related items
attributable to OCG (5) 1,369 336 759 (372 ) Non-controlling
interests attributable to OCG (5) (228 ) (222 )
(903 ) (886 ) Adjusted net income-OCG (6) 13,545
56,119 221,701 190,724 Incentive income attributable to OCG (30,283
) (28,939 ) (300,718 ) (143,595 ) Incentive income compensation
attributable to OCG 13,861 15,102 165,669 68,609 Investment income
attributable to OCG (27,342 ) (35,631 ) (102,644 ) (89,698 )
Equity-based compensation attributable to OCG (7) 5,266 4,841
22,089 20,267 Interest expense, net of interest income attributable
to OCG 2,934 3,246 10,720 13,002 Other (income) expense
attributable to OCG 9,378 853 8,474 3,400 Non-fee-related earnings
income taxes attributable to OCG (8) 7,038
6,160 29,205 26,238 Fee-related
earnings-OCG (6) (5,603 ) 21,751 54,496 88,947 Incentive income
attributable to OCG 30,283 28,939 300,718 143,595 Incentive income
compensation attributable to OCG (13,861 ) (15,102 ) (165,669 )
(68,609 ) Receipts of investment income from funds attributable to
OCG 15,464 10,062 52,923 26,879 Receipts of investment income from
companies attributable to OCG 10,421 8,703 28,041 25,784 Interest
expense, net of interest income attributable to OCG (2,934 ) (3,246
) (10,720 ) (13,002 ) Other (income) expense attributable to OCG
(145,313 ) (853 ) (144,409 ) (3,400 ) Non-fee-related earnings
income taxes attributable to OCG (8) (7,038 ) (6,160 ) (29,205 )
(26,238 ) Distributable earnings-OCG income taxes 1,618 (6,467 )
(5,394 ) (11,939 ) Tax receivable agreement (5,415 ) (5,151 )
(21,608 ) (20,469 ) Income taxes of Intermediate Holding Companies
183,960 12,557 207,810
37,884 Distributable earnings-OCG (6) $ 61,582
$ 45,033 $ 266,983 $ 179,432 (1)
This adjustment adds back the effect of timing differences
associated with the recognition of incentive income and incentive
income compensation expense between adjusted net income-OCG and net
income attributable to OCG. (2) This adjustment adds back the
effect of differences in the recognition of investment income
related to corporate investments in CLOs which under GAAP are
marked-to-market but for ANI are accounted for at amortized cost,
subject to impairment. (3) This adjustment adds back the effect of
equity-based compensation expense attributable to OCG related to
unit grants made before our initial public offering, which is
excluded from adjusted net income-OCG and fee-related earnings-OCG
because it is a non-cash charge that does not affect our financial
position. (4) This adjustment adds back the effect of timing
differences associated with the recognition of unrealized gains and
losses related to foreign-currency hedging between adjusted net
income-OCG and net income attributable to OCG. (5) This adjustment
adds back the effect of (a) acquisition-related items associated
with the amortization of intangibles and changes in the contingent
consideration liability and (b) non-controlling interests, which
are both excluded from ANI. (6) Adjusted net income-OCG,
fee-related earnings-OCG and distributable earnings-OCG are
calculated to evaluate the portion of adjusted net income,
fee-related earnings and distributable earnings attributable to
Class A unitholders. These measures are net of income taxes and
other income or expenses applicable to OCG or its Intermediate
Holding Companies. Reconciliations of fee-related earnings to
fee-related earnings-OCG and distributable earnings to
distributable earnings-OCG are presented below.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands, except per unit data) Fee-related earnings $
63,365 $ 70,081 $ 223,857 $ 255,863 Fee-related earnings
attributable to OCGH non-controlling interest (37,026 ) (41,589 )
(131,622 ) (152,347 ) Non-Operating Group income (expense) 144,891
(286 ) 144,005 (1,051 ) Fee-related earnings-OCG income taxes
(176,833 ) (6,455 ) (181,744 ) (13,518
) Fee-related earnings-OCG $ (5,603 ) $ 21,751 $ 54,496
$ 88,947 Fee-related earnings per Class A unit $
(0.09 ) $ 0.35 $ 0.85 $ 1.42 Weighted average
number of Class A units outstanding 64,961
62,986 64,148 62,565
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands, except per unit data) Distributable earnings
$ 158,189 $ 140,649 $ 716,307 $ 526,550 Distributable earnings
attributable to OCGH non-controlling interest (92,438 ) (83,469 )
(421,401 ) (313,534 ) Non-Operating Group expenses (372 ) (529 )
(921 ) (1,176 ) Distributable earnings-OCG income taxes 1,618
(6,467 ) (5,394 ) (11,939 ) Tax receivable agreement (5,415
) (5,151 ) (21,608 ) (20,469 ) Distributable
earnings-OCG $ 61,582 $ 45,033 $ 266,983 $
179,432 Distributable earnings per Class A unit $ 0.95
$ 0.71 $ 4.16 $ 2.87 Weighted average
number of Class A units outstanding 64,961
62,986 64,148 62,565 (7)
This adjustment adds back the effect of equity-based
compensation expense attributable to OCG related to unit grants
made after our initial public offering, which is excluded from
fee-related earnings-OCG, because it is non-cash in nature and does
not impact our ability to fund our operations. (8) This adjustment
adds back income taxes associated with incentive income, incentive
income compensation expense or investment income or loss, which are
not included in the calculation of fee-related earnings-OCG.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to the GAAP and non-GAAP financial
measures included in this earnings release, excluding the impact of
the Tax Act.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Impact of the Tax
Act 33,178 — 33,178
— Net income attributable to Oaktree Capital Group,
LLC, excluding the impact of the Tax Act 46,592 59,283 264,672
194,705 Reconciling adjustments (1) 131 (3,164
) (9,793 ) (3,981 ) Adjusted net income-OCG,
excluding the impact of the Tax Act 46,723 56,119 254,879 190,724
Impact of the Tax Act (2,126 ) — (2,126 ) — Reconciling adjustments
(1) (19,148 ) (34,368 ) (167,205 )
(101,777 ) Fee-related earnings-OCG, excluding the impact of the
Tax Act $ 25,449 $ 21,751 $ 85,548 $ 88,947
(1) Please refer to the table on page
30 for a detailed reconciliation of adjusted GAAP net income
attributable to OCG to adjusted net income-OCG and fee-related
earnings-OCG.
The following table reconciles GAAP revenues to adjusted
revenues, fee-related earnings revenues and distributable earnings
revenues.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) GAAP revenues $ 311,095 $ 298,310 $ 1,469,767
$ 1,125,746 Consolidated funds (1) 27,229 30,761 100,920 57,737
Incentive income (2) (55,607 ) (38,474 ) (13,653 ) 1,407 Investment
income (3) 44,688 60,840 170,676
177,312 Adjusted revenues 327,405 351,437
1,727,710 1,362,202 Incentive income (72,857 ) (71,186 ) (731,224 )
(355,152 ) Investment income (65,781 ) (87,647 )
(249,225 ) (221,377 ) Fee-related earnings revenues
188,767 192,604 747,261 785,673 Incentive income 72,857 71,186
731,224 355,152 Receipts of investment income from funds 37,204
24,753 128,468 66,390 Receipts of investment income from companies
25,072 21,407 67,995
63,700 Distributable earnings revenues $ 323,900
$ 309,950 $ 1,674,948 $ 1,270,915
(1) This adjustment adds back the amounts
attributable to the consolidated funds that were eliminated in
consolidation, the reclassification of gains and losses related to
foreign-currency hedging activities from general and administrative
expense to revenues, and the elimination of non-controlling
interests from adjusted revenues. (2) This adjustment adds back the
effect of timing differences associated with the recognition of
incentive income between adjusted revenues and GAAP revenues. (3)
This adjustment reclassifies consolidated investment income from
other income (loss) to revenues and adds back the effect of
differences in the recognition of investment income related to
corporate investments in CLOs between adjusted revenues and GAAP
revenues.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income and economic net
income.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Reconciling
adjustments (1) 113,432 111,091 469,606
377,669 Adjusted net income 126,846 170,374 701,100 572,374
Change in accrued incentives (fund level), net of associated
incentive income compensation (2) 20,961 73,826
(25,690 ) 135,002 Economic net income (3) $ 147,807 $
244,200 $ 675,410 $ 707,376 (1) Please
refer to the table on page 29 for a detailed reconciliation of net
income attributable to Oaktree Capital Group, LLC to adjusted net
income. (2) The change in accrued incentives (fund level), net of
associated incentive income compensation expense, represents the
difference between (a) our recognition of net incentive income and
(b) the incentive income generated by the funds during the period
that would be due to us if the funds were liquidated at their
reported values as of that date, net of associated incentive income
compensation expense. (3) Please see Glossary for the definition of
economic net income.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG and economic
net income-OCG.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Reconciling
adjustments (1) 131 (3,164 ) (9,793 )
(3,981 ) Adjusted net income-OCG (2) 13,545 56,119 221,701
190,724 Change in accrued incentives (fund level), net of
associated incentive income compensation attributable to OCG 8,713
30,013 (10,572 ) 54,928 Economic net income-OCG income taxes
(183,933 ) (10,882 ) (211,125 ) (37,322 ) Income taxes-OCG
183,871 12,615 210,949
39,756 Economic net income-OCG (2) $ 22,196 $ 87,865
$ 210,953 $ 248,086 (1)
Please refer to the table on page 30 for a detailed reconciliation
of net income attributable to Oaktree Capital Group, LLC to
adjusted net income-OCG. (2) Adjusted net income-OCG and economic
net income-OCG are calculated to evaluate the portion of adjusted
net income and economic net income attributable to Class A
unitholders. These measures are net of income taxes and other
income or expenses applicable to OCG or its Intermediate Holding
Companies. A reconciliation of economic net income to economic net
income-OCG is presented below.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands, except per unit data) Economic net income $
147,807 $ 244,200 $ 675,410 $ 707,376 Economic net income
attributable to OCGH non-controlling interest (86,370 ) (144,924 )
(397,475 ) (420,792 ) Non-Operating Group expenses 144,692 (529 )
144,143 (1,176 ) Economic net income-OCG income taxes
(183,933 ) (10,882 ) (211,125 ) (37,322 )
Economic net income-OCG $ 22,196 $ 87,865 $ 210,953
$ 248,086 Economic net income per Class A unit $ 0.34
$ 1.39 $ 3.29 $ 3.97 Weighted average
number of Class A units outstanding 64,961
62,986 64,148 62,565
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to the GAAP and non-GAAP financial
measures included in this earnings release, excluding the impact of
the Tax Act.
Three Months EndedDecember
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) Net income attributable to Oaktree Capital
Group, LLC $ 13,414 $ 59,283 $ 231,494 $ 194,705 Impact of the Tax
Act 33,178 — 33,178 —
Net income attributable to Oaktree Capital Group, LLC,
excluding the impact of the Tax Act 46,592 59,283 264,672 194,705
Reconciling adjustments (1) 131 (3,164 )
(9,793 ) (3,981 ) Adjusted net income-OCG, excluding the
impact of the Tax Act 46,723 56,119 254,879 190,724 Reconciling
adjustments (2) 8,651 31,746 (10,748 )
57,362 Economic net income-OCG, excluding the impact
of the Tax Act $ 55,374 $ 87,865 $ 244,131 $ 248,086
(1) Please refer to the table on page
30 for a detailed reconciliation of net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG. (2) Please
refer to the table on page 33 for a detailed reconciliation of
adjusted net income-OCG to economic net income-OCG.
The following table reconciles GAAP revenues to adjusted
revenues and economic net income revenues.
Three MonthsEnded December
31,
Year EndedDecember 31,
2017 2016 2017 2016
(in thousands) GAAP revenues $ 311,095 $ 298,310 $ 1,469,767
$ 1,125,746 Consolidated funds (1) 27,229 30,761 100,920 57,737
Incentive income (2) (55,607 ) (38,474 ) (13,653 ) 1,407 Investment
income (3) 44,688 60,840 170,676
177,312 Adjusted revenues 327,405 351,437
1,727,710 1,362,202 Incentives created 132,531 236,475 637,466
784,032 Incentive income (72,857 ) (71,186 )
(731,224 ) (355,152 ) Economic net income revenues $ 387,079
$ 516,726 $ 1,633,952 $ 1,791,082
(1) This adjustment adds back the amounts
attributable to the consolidated funds that were eliminated in
consolidation, the reclassification of gains and losses related to
foreign-currency hedging activities from general and administrative
expense to revenues, and the elimination of non-controlling
interests from adjusted revenues. (2) This adjustment adds back the
effect of timing differences associated with the recognition of
incentive income between adjusted revenues and GAAP revenues. (3)
This adjustment reclassifies consolidated investment income from
other income (loss) to revenues and adds back the effect of
differences in the recognition of investment income related to
corporate investments in CLOs between adjusted revenues and GAAP
revenues.
The following tables reconcile GAAP consolidated financial data
to non-GAAP data:
As of or for the Three Months
EndedDecember 31, 2017
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 184,146 $ 4,621 $
188,767 Incentive income (1) 126,949 (54,092 ) 72,857 Investment
income (1) 50,671 15,110 65,781 Total expenses (2) (239,582 )
68,164 (171,418 ) Interest expense, net (3) (41,091 ) 34,511 (6,580
) Other income (expense), net (4) 123,540 (146,101 ) (22,561 )
Other income of consolidated funds (5) 76,940 (76,940 ) — Income
taxes (183,742 ) 183,742 — Net income attributable to
non-controlling interests in consolidated funds (9,661 ) 9,661 —
Net income attributable to non-controlling interests in
consolidated subsidiaries (74,756 ) 74,756
— Net income attributable to Oaktree Capital Group,
LLC/Adjusted net income $ 13,414 $ 113,432 $ 126,846
(1) The adjustment (a) adds back
amounts earned from the consolidated funds, (b) for management
fees, reclassifies $966 of net losses related to foreign-currency
hedging activities from general and administrative expense, (c) for
incentive income, includes $55,607 related to timing differences in
the recognition of incentive income between net income attributable
to OCG and adjusted net income, and (d) for investment income,
includes $5,983 related to corporate investments in CLOs, which
under GAAP are marked-to-market but for ANI accounted for at
amortized cost, subject to impairment. (2) The expense adjustment
consists of (a) equity-based compensation expense of $1,140 related
to unit grants made before our initial public offering, (b)
consolidated fund expenses of $3,534, (c) expenses incurred by the
Intermediate Holding Companies of $173, (d) the effect of timing
differences in the recognition of incentive income compensation
expense between net income attributable to OCG and adjusted net
income of $55,607, (e) acquisition-related items of $3,294, (f)
adjustments of $433 related to amounts received for contractually
reimbursable costs that are classified as other income under GAAP
and as expenses for ANI, and (g) $3,983 of net losses related to
foreign-currency hedging activities. (3) The interest expense
adjustment removes interest expense of the consolidated funds and
reclassifies interest income from other income of consolidated
funds. (4) The adjustment to other income (expense), net represents
adjustments related to (a) amounts received for contractually
reimbursable costs of $433 that are classified as other income
under GAAP and as expenses for ANI, (b) the reclassification of
$604 in net losses related to foreign-currency hedging activities
from general and administrative expense, and (c) $145,064 related
to the remeasurement of our tax receivable agreement liability in
connection with the Tax Act. (5) The adjustment to other income of
consolidated funds removes interest, dividend and other investment
income attributable to third-party investors in our consolidated
funds, and reclassifies investment income to revenues and interest
income to interest expense, net.
As of or for the Three Months
EndedDecember 31, 2016
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 190,045 $ 2,559 $
192,604 Incentive income (1) 108,265 (37,079 ) 71,186 Investment
income (1) 62,921 24,726 87,647 Total expenses (2) (210,165 )
38,587 (171,578 ) Interest expense, net (3) (33,761 ) 26,374 (7,387
) Other income (expense), net (4) 1,598 (3,696 ) (2,098 ) Other
income of consolidated funds (5) 67,076 (67,076 ) — Income taxes
(12,701 ) 12,701 — Net income attributable to non-controlling
interests in consolidated funds (7,303 ) 7,303 — Net income
attributable to non-controlling interests in consolidated
subsidiaries (106,692 ) 106,692 —
Net income attributable to Oaktree Capital Group,
LLC/Adjusted net income $ 59,283 $ 111,091 $ 170,374
(1) The adjustment (a) adds back amounts
earned from the consolidated funds, (b) for management fees,
reclassifies $678 of net losses related to foreign-currency hedging
activities from general and administrative expense, (c) for
incentive income, includes $38,474 related to timing differences in
the recognition of incentive income between net income attributable
to OCG and adjusted net income, and (d) for investment income,
includes $2,081 related to corporate investments in CLOs, which
under GAAP are marked-to-market but for ANI accounted for at
amortized cost, subject to impairment. (2) The expense adjustment
consists of (a) equity-based compensation expense of $3,358 related
to unit grants made before our initial public offering, (b)
consolidated fund expenses of $609, (c) expenses incurred by the
Intermediate Holding Companies of $286, (d) the effect of timing
differences in the recognition of incentive income compensation
expense between net income attributable to OCG and adjusted net
income of $38,474, (e) acquisition-related items of $827, (f)
adjustments of $4,907 related to amounts received for contractually
reimbursable costs that are classified as other income under GAAP
and as expenses for ANI, and (g) $9,874 of net gains related to
foreign-currency hedging activities. (3) The interest expense
adjustment removes interest expense of the consolidated funds and
reclassifies interest income from other income of consolidated
funds. (4) The adjustment to other income (expense), net represents
adjustments related to (a) amounts received for contractually
reimbursable costs of $4,907 that are classified as other income
under GAAP and as expenses for ANI, and (b) the reclassification of
$1,211 in net gains related to foreign-currency hedging activities
from general and administrative expense. (5) The adjustment to
other income of consolidated funds removes interest, dividend and
other investment income attributable to third-party investors in
our consolidated funds, and reclassifies investment income to
revenues and interest income to interest expense, net.
As of or for the Year
EndedDecember 31, 2017
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 726,414 $ 20,847 $
747,261 Incentive income (1) 743,353 (12,129 ) 731,224 Investment
income (1) 201,289 47,936 249,225 Total expenses (2) (1,025,343 )
45,472 (979,871 ) Interest expense, net (3) (169,888 ) 143,513
(26,375 ) Other income (expense), net (4) 138,519 (158,883 )
(20,364 ) Other income of consolidated funds (5) 290,580 (290,580 )
— Income taxes (215,442 ) 215,442 — Net income attributable to
non-controlling interests in consolidated funds (33,204 ) 33,204 —
Net income attributable to non-controlling interests in
consolidated subsidiaries (424,784 ) 424,784
— Net income attributable to Oaktree Capital Group,
LLC/Adjusted net income $ 231,494 $ 469,606 $ 701,100
(1) The adjustment (a) adds back
amounts earned from the consolidated funds, (b) for management
fees, reclassifies $1,332 of net gains related to foreign-currency
hedging activities from general and administrative expense, (c) for
incentive income, includes $13,653 related to timing differences in
the recognition of incentive income between net income attributable
to OCG and adjusted net income, and (d) for investment income,
includes $30,613 related to corporate investments in CLOs, which
under GAAP are marked-to-market but for ANI accounted for at
amortized cost, subject to impairment. (2) The expense adjustment
consists of (a) equity-based compensation expense of $5,698 related
to unit grants made before our initial public offering, (b)
consolidated fund expenses of $9,284, (c) expenses incurred by the
Intermediate Holding Companies of $1,059, (d) the effect of timing
differences in the recognition of incentive income compensation
expense between net income attributable to OCG and adjusted net
income of $13,653, (e) acquisition-related items of $1,838, (f)
adjustments of $14,180 related to amounts received for
contractually reimbursable costs that are classified as other
income under GAAP and as expenses for ANI, and (g) $240 of net
gains related to foreign-currency hedging activities. (3) The
interest expense adjustment removes interest expense of the
consolidated funds and reclassifies interest income from other
income of consolidated funds. (4) The adjustment to other income
(expense), net represents adjustments related to (a) amounts
received for contractually reimbursable costs of $14,180 that are
classified as other income under GAAP and as expenses for ANI, (b)
the reclassification of $361 in net gains related to
foreign-currency hedging activities from general and administrative
expense, and (c) $145,064 related to the remeasurement of our tax
receivable agreement liability in connection with the Tax Act. (5)
The adjustment to other income of consolidated funds removes
interest, dividend and other investment income attributable to
third-party investors in our consolidated funds, and reclassifies
investment income to revenues and interest income to interest
expense, net.
As of or for the Year
EndedDecember 31, 2016
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 774,587 $ 11,086 $
785,673 Incentive income (1) 351,159 3,993 355,152 Investment
income (1) 199,126 22,251 221,377 Total expenses (2) (789,336 )
39,745 (749,591 ) Interest expense, net (3) (120,610 ) 88,765
(31,845 ) Other income (expense), net (4) 13,490 (21,882 ) (8,392 )
Other income of consolidated funds (5) 180,206 (180,206 ) — Income
taxes (42,519 ) 42,519 — Net income attributable to non-controlling
interests in consolidated funds (22,921 ) 22,921 — Net income
attributable to non-controlling interests in consolidated
subsidiaries (348,477 ) 348,477 —
Net income attributable to Oaktree Capital Group,
LLC/Adjusted net income $ 194,705 $ 377,669 $ 572,374
(1) The adjustment (a) adds back
amounts earned from the consolidated funds, (b) for management
fees, reclassifies $408 of net gains related to foreign-currency
hedging activities from general and administrative expense, (c) for
incentive income, includes $1,407 related to timing differences in
the recognition of incentive income between net income attributable
to OCG and adjusted net income, and (d) for investment income,
includes $21,814 related to corporate investments in CLOs, which
under GAAP are marked-to-market but for ANI accounted for at
amortized cost, subject to impairment. (2) The expense adjustment
consists of (a) equity-based compensation expense of $13,627
related to unit grants made before our initial public offering, (b)
consolidated fund expenses of $4,428, (c) expenses incurred by the
Intermediate Holding Companies of $1,051, (d) the effect of timing
differences in the recognition of incentive income compensation
expense between net income attributable to OCG and adjusted net
income of $1,407, (e) acquisition-related items of $924, (f)
adjustments of $21,194 related to amounts received for
contractually reimbursable costs that are classified as other
income under GAAP and as expenses for ANI, and (g) $1,776 of net
losses related to foreign-currency hedging activities. (3) The
interest expense adjustment removes interest expense of the
consolidated funds and reclassifies interest income from other
income of consolidated funds. (4) The adjustment to other income
(expense), net represents adjustments related to (a) amounts
received for contractually reimbursable costs of $21,194 that are
classified as other income under GAAP and as expenses for ANI, and
(b) the reclassification of $688 in net losses related to
foreign-currency hedging activities from general and administrative
expense. (5) The adjustment to other income of consolidated funds
removes interest, dividend and other investment income attributable
to third-party investors in our consolidated funds, and
reclassifies investment income to revenues and interest income to
interest expense, net.
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version on businesswire.com: http://www.businesswire.com/news/home/20180206005452/en/
Investor Relations:Oaktree Capital Group, LLCAndrea D.
Williams(213)
830-6483investorrelations@oaktreecapital.comorPress
Relations:Sard Verbinnen & CoJohn Christiansen(415)
618-8750jchristiansen@sardverb.comorSard Verbinnen
& CoAlyssa Linn(310)
201-2040alinn@sardverb.com
Oaktree Capital (NYSE:OAK)
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