KKR & Co. L.P. Announces First Quarter 2011 Results

Assets under management (“AUM”) totaled $61.0 billion as of March 31, 2011, up from $54.7 billion as of March 31, 2010.

Fee related earnings (“FRE”) were $126.2 million for the quarter ended March 31, 2011, up from $90.4 million for the quarter ended March 31, 2010.

Gross distributable earnings1 were $192.9 million for the quarter ended March 31, 2011, up from $84.8 million for the quarter ended March 31, 2010.

Economic net income (“ENI”) was $742.5 million for the quarter ended March 31, 2011, up from $674.8 million for the quarter ended March 31, 2010.

After-tax ENI was $0.96 per adjusted unit for the quarter ended March 31, 2011, up from $0.93 per adjusted unit for the quarter ended March 31, 2010.

GAAP net income attributable to KKR & Co. L.P. was $159.6 million for the quarter ended March 31, 2011, up from $113.8 million for the quarter ended March 31, 2010.

Book value was $6.2 billion on a segment basis as of March 31, 2011, representing $9.08 per adjusted unit.

KKR & Co. L.P. declares a first quarter distribution of $0.21 per common unit.

NEW YORK--()--KKR & Co. L.P. (NYSE: KKR) today reported its first quarter results for 2011. ENI was $742.5 million for the quarter ended March 31, 2011, an increase of $67.7 million or 10.0%, as compared to ENI of $674.8 million for the quarter ended March 31, 2010. The 6.5% appreciation of KKR’s private equity investments along with increased fees in our private markets segment were the key contributors to the positive results.

AUM was $61.0 billion as of March 31, 2011, up 11.6% from March 31, 2010. The increase resulted from continued investment appreciation as well as new capital raised, partially offset by distributions to the limited partners of our funds. Fee paying assets under management (“FPAUM”) were $45.7 billion as of March 31, 2011, up 7.5% from March 31, 2010, driven primarily by new capital raised.

“The first quarter represented a good start to 2011 for each of our businesses. In particular, this quarter’s strong financial results benefited from a growing number of monetization and exit events across our private equity portfolio, which generated the most distributable cash carry we have had in a quarter since going public. We also achieved meaningful outperformance in our credit strategies, all of which continue to outperform benchmark indices. Finally, our capital markets business has continued to scale, demonstrating well rounded transaction activity across geographies and products,” said Henry R. Kravis and George R. Roberts, Co-Founders, Co-Chairmen and Co-Chief Executive Officers of KKR.

_______________________________________________________________________________________________________________________________

Note: Certain financial measures, including FRE, ENI, after-tax ENI and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Exhibits A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP.

1 See Distribution Calculation on page 18 for the calculation of gross distributable earnings.

GAAP RESULTS

Net income attributable to KKR & Co. L.P. for the quarter ended March 31, 2011 was $159.6 million or $0.75 per common unit, an increase of $45.8 million or $0.19 per common unit, as compared to net income attributable to KKR & Co. L.P. of $113.8 million or $0.56 per common unit for the quarter ended March 31, 2010. The growth was primarily driven by an increase in fees earned and a decrease in equity-based payments recognized.

SEGMENT RESULTS

Private Markets

AUM in the private markets segment was $46.2 billion as of March 31, 2011, unchanged from December 31, 2010, as appreciation in KKR’s private equity portfolio was offset by distributions to limited partners arising from realizations.

FPAUM in the private markets segment was $37.9 billion as of March 31, 2011, a decrease of $0.3 billion or 0.8%, as compared to FPAUM of $38.2 billion as of December 31, 2010. The decrease was primarily due to realization activity in KKR’s private equity portfolio, partially offset by favorable changes in foreign exchange related to Euro denominated commitments and invested capital as well as new capital raised.

FRE in the private markets segment was $90.6 million for the quarter ended March 31, 2011, an increase of $34.4 million or 61.2%, as compared to FRE of $56.2 million for the quarter ended March 31, 2010. The increase was primarily due to (i) higher monitoring fees as a result of $68.8 million of termination payments on monitoring agreements with two portfolio companies during the first quarter of 2011, which impacted FRE by $37.8 million net of associated fee credits and (ii) higher transaction fees as a result of an increase in transaction fee-generating investment activity. These increases were partially offset by higher compensation and other operating expenses.

ENI in the private markets segment was $276.7 million for the quarter ended March 31, 2011, an increase of $83.0 million or 42.8%, as compared to ENI of $193.7 million for the quarter ended March 31, 2010. The increase was primarily due to higher net carried interest resulting from a lower level of management fee refunds and the increase in FRE discussed above.

Public Markets

AUM and FPAUM in the public markets segment as of March 31, 2011 were $14.8 billion and $7.8 billion, respectively, both unchanged from December 31, 2010. Appreciation in the net asset value of certain investment vehicles and new capital raised were largely offset by redemptions.

FRE in the public markets segment was $14.5 million for the quarter ended March 31, 2011, a decrease of $1.2 million or 7.6%, as compared to FRE of $15.7 million for the quarter ended March 31, 2010. The decrease was primarily due to higher compensation and other operating expenses in connection with the development of the equity strategies platform, partially offset by an increase in management fees related to new capital raised.

ENI in the public markets segment was $15.9 million for the quarter ended March 31, 2011, a decrease of $0.4 million or 2.5%, as compared to ENI of $16.3 million for the quarter ended March 31, 2010. The decrease was primarily due to the decline in FRE discussed above, partially offset by higher net carried interest resulting from an increase in the amount of carry-generating invested capital as compared to the prior period.

Capital Markets and Principal Activities

FRE in the capital markets and principal activities segment was $21.1 million for the quarter ended March 31, 2011, an increase of $2.6 million or 14.1%, as compared to FRE of $18.5 million for the quarter ended March 31, 2010. The increase was primarily due to a higher level of overall capital markets transaction activity resulting from an improved environment and the continued growth of this business.

ENI in the capital markets and principal activities segment was $449.9 million for the quarter ended March 31, 2011, a decrease of $14.9 million or 3.2%, as compared to ENI of $464.8 million for the quarter ended March 31, 2010. The decrease was primarily due to a lower level of investment income. While the fair value of KKR’s principal investments increased during the first quarter of 2011, the level of appreciation was slightly lower than in the first quarter of 2010.

CAPITAL AND LIQUIDITY

As of March 31, 2011, KKR had an available cash balance of $1.1 billion and $500.0 million of outstanding debt obligations under its senior notes. KKR’s availability for further borrowings was approximately $1.6 billion (which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of March 31, 2011).

As of March 31, 2011, KKR’s portion of total uncalled commitments to its investment funds was $864.8 million, consisting of the following (amounts in thousands):

 
 
Commitments

Private Markets

2006 Fund $ 313,327
European Fund III 297,452
Asian Fund 115,476
Infrastructure Fund 50,000
E2 Investors (Annex Fund) 30,833
China Growth Fund 8,506
Natural Resources I 5,936
Other Private Markets Commitments   1,126
Total Private Markets Commitments   822,656
 

Public Markets

Mezzanine Fund 30,300
Special Situations Vehicles   11,800
Total Public Markets Commitments   42,100
 
Total Uncalled Commitments $ 864,756

DISTRIBUTION

A distribution of $0.21 per common unit will be paid on May 27, 2011 to unitholders of record as of the close of business on May 16, 2011.

CONFERENCE CALL

A conference call to discuss KKR’s financial results will be held on Wednesday, May 4, 2011 at 10:00 a.m. EDT. The conference call may be accessed by dialing (888) 211-7360 (U.S. callers) or +1 (913) 312-1390 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Investor Relations section of KKR’s website at http://www.kkr.com/kkr_ir/kkr_events.cfm. A replay of the live broadcast will be available on KKR’s website or by dialing (888) 203-1112 (U.S. callers) and +1 (719) 457-0820 (non-U.S. callers), pass code 6213651, beginning approximately two hours after the broadcast.

From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Relations section of KKR’s website at www.kkr.com. In addition, you may automatically receive email alerts and other information about KKR by enrolling your email within the “Email Alerts” area of the Investor Relations section of the website.

ABOUT KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $61.0 billion in assets under management as of March 31, 2011. With 14 offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platforms. KKR is publicly traded on the New York Stock Exchange (NYSE: KKR). For additional information, please visit KKR’s website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR’s business, financial condition, liquidity and results of operations, including but not limited to assets under management, fee paying assets under management, fee related earnings, economic net income, committed dollars invested, uncalled commitments and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR’s business strategies; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR’s competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR’s business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 7, 2011 and other filings with the SEC, which are available at www.sec.gov.

KKR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
       
 
Quarter Ended
March 31, 2011 March 31, 2010
Revenues
Fees $ 231,843   $ 106,031  
 
Expenses
Compensation and Benefits 356,554 365,531
Occupancy and Related Charges 12,554 9,685
General, Administrative and Other 45,121 77,724
Fund Expenses   9,523     10,368  
Total Expenses   423,752     463,308  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 2,487,209 2,286,553
Dividend Income 4,808 442,907
Interest Income 65,368 48,303
Interest Expense   (17,252 )   (13,827 )
Total Investment Income (Loss)   2,540,133     2,763,936  
 
Income (Loss) Before Taxes 2,348,224 2,406,659
 
Income Taxes   30,783     13,452  
 
Net Income (Loss) 2,317,441 2,393,207
 
Less: Net Income (Loss) Attributable to
Noncontrolling Interests in Consolidated Entities 1,748,972 1,987,130
Less: Net Income (Loss) Attributable to
Noncontrolling Interests Held by KKR Holdings L.P. 408,904 292,241
   
Net Income (Loss) Attributable to KKR & Co. L.P. $ 159,565   $ 113,836  
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.75 $ 0.56
Diluted (a) $ 0.75 $ 0.56
Weighted Average Common Units Oustanding
Basic 213,479,630 204,902,226
Diluted (a) 213,509,630 204,902,226

______________________________________________________________________________________________________________

(a) KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit given that the exchange of these units would proportionally increase KKR & Co. L.P.’s interests in KKR’s business and would have an anti-dilutive effect on earnings per common unit as a result of certain tax benefits KKR & Co. L.P. is assumed to receive upon the exchange.

KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
         
Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Fees
Management and incentive fees:
Management fees $ 127,550 $ 119,043 $ 111,029
Incentive fees   12,013     8,427     12,500  
Management and incentive fees   139,563     127,470     123,529  
 
Monitoring and transaction fees:
Monitoring fees 90,427 22,108 22,532
Transaction fees 87,276 86,774 55,534
Fee credits   (72,992 )   (21,671 )   (14,267 )
Net monitoring and transaction fees   104,711     87,211     63,799  
 
Total fees   244,274     214,681     187,328  
 
Expenses
Compensation and benefits 63,140 55,594 52,253
Occupancy and related charges 11,859 10,124 9,685
Other operating expenses   43,072     53,872     35,001  
Total expenses   118,071     119,590     96,939  
 
Fee Related Earnings   126,203     95,091     90,389  
 
Investment income (loss)
Gross carried interest 332,121 416,442 323,211
Less: allocation to KKR carry pool (139,515 ) (169,305 ) (99,382 )
Less: management fee refunds (a)   (4,804 )   (24,412 )   (83,740 )
Net carried interest 187,802 222,725 140,089
Other investment income (loss)   430,175     398,389     444,702  
Total investment income (loss)   617,977     621,114     584,791  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 744,180 716,205 675,180
Income (Loss) attributable to
noncontrolling interests   1,660     1,592     376  
 
Economic Net Income (Loss) $ 742,520   $ 714,613   $ 674,804  
 
 
Provision for Income Taxes 88,739 17,400 40,078
 
Economic Net Income, After Taxes (b) $ 653,781   $ 697,213   $ 634,726  
 
Economic Net Income, After Taxes per Adjusted Unit (c) $ 0.96 $ 1.02 $ 0.93
                       
Assets Under Management $ 61,043,200 $ 60,997,500 $ 54,708,700
Fee Paying Assets Under Management $ 45,716,600 $ 46,011,100 $ 42,528,900
Committed Dollars Invested $ 1,127,100 $ 2,691,000 $ 1,142,700
Uncalled Commitments     $ 13,303,600     $ 14,074,700     $ 14,234,800  
                       

Other Information

Fee Related Earnings $ 126,203 $ 95,091 $ 90,389
Plus: Depreciation and Amortization   2,641     2,790     2,438  
Fee Related EBITDA $ 128,844   $ 97,881   $ 92,827  
 
Gross Distributable Earnings $ 192,938 $ 157,346 $ 84,813
 
GAAP interest expense $ 17,252 $ 18,706 $ 13,827
Less: interest expense related to debt obligations
from investment financing arrangements   6,557     7,535     7,628  
Core Interest Expense (d) $ 10,695   $ 11,171   $ 6,199  

______________________________________________________________________________________________________________

(a) As of March 31, 2011, $62.4 million of carried interest is subject to management fee refunds, which may reduce carried interest in future periods.

(b) ENI, After Taxes is calculated by deducting from ENI the implied income tax provision that has been calculated assuming that all income is allocated to KKR & Co. L.P., which would occur following an exchange of all KKR Holdings units for common units of KKR & Co. L.P. The assumptions and methodology used to calculate the implied income tax provision are consistent with those used in calculating the tax provision for KKR & Co. L.P. under GAAP. The implied income tax provision does not give effect to any tax savings or deductions that may result from the exchange of KKR Holdings units.

(c) Adjusted units represent the weighted-average fully diluted unit count for Economic Net Income purposes using the if-converted method. See Exhibit B for a reconciliation of this item to the comparable GAAP measure.

(d) Core interest expense excludes interest expense related to debt obligations from investment financing arrangements related to certain of KKR’s private equity funds and principal investments. These financing arrangements are not direct obligations of the general partners of KKR’s private equity funds or its management companies. On a segment basis, interest expense is included in other investment income.

KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Fees
Management and incentive fees:
Management fees $ 110,257 $ 102,684 $ 98,160
Incentive fees   -     -     -  
Management and incentive fees   110,257     102,684     98,160  
 
Monitoring and transaction fees:
Monitoring fees 90,427 22,108 22,532
Transaction fees 53,178 30,942 25,114
Fee credits   (70,787 )   (15,673 )   (10,077 )
Net monitoring and transaction fees   72,818     37,377     37,569  
 
Total fees   183,075     140,061     135,729  
 
Expenses
Compensation and benefits 45,975 42,396 40,841
Occupancy and Related Charges 10,575 9,206 8,925
Other operating expenses   35,884     47,392     29,746  
Total expenses   92,434     98,994     79,512  
 
Fee Related Earnings   90,641     41,067     56,217  
 
Investment income (loss)
Gross carried interest 329,047 414,025 322,840
Less: allocation to KKR carry pool (138,285 ) (168,338 ) (99,233 )
Less: management fee refunds   (4,804 )   (24,412 )   (83,740 )
Net carried interest 185,958 221,275 139,867
Other investment income (loss)   1,067     (111 )   (2,594 )
Total investment income (loss)   187,025     221,164     137,273  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 277,666 262,231 193,490
Income (Loss) attributable to
noncontrolling interests   927     259     (250 )
 
Economic Net Income (Loss) $ 276,739   $ 261,972   $ 193,740  
 
 
Assets Under Management $ 46,239,100 $ 46,223,900 $ 40,943,100
Fee Paying Assets Under Management $ 37,883,600 $ 38,186,700 $ 35,901,900
Committed Dollars Invested $ 809,700 $ 2,371,500 $ 995,500
Uncalled Commitments $ 12,071,700 $ 12,625,900 $ 12,844,300
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Fees
Management and incentive fees:
Management fees $ 17,293 $ 16,359 $ 12,869
Incentive fees   12,013     8,427     12,500  
Management and incentive fees   29,306     24,786     25,369  
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 3,729 9,292 5,823
Fee credits   (2,205 )   (5,998 )   (4,190 )
Net monitoring and transaction fees   1,524     3,294     1,633  
 
Total fees   30,830     28,080     27,002  
 
Expenses
Compensation and benefits 11,159 7,586 7,142
Occupancy and related charges 955 612 568
Other operating expenses   4,208     3,580     3,597  
Total expenses   16,322     11,778     11,307  
 
Fee Related Earnings   14,508     16,302     15,695  
 
Investment income (loss)
Gross carried interest 3,074 2,417 371
Less: allocation to KKR carry pool (1,230 ) (967 ) (149 )
Less: management fee refunds   -     -     -  
Net carried interest 1,844 1,450 222
Other investment income (loss)   (351 )   188     508  
Total investment income (loss)   1,493     1,638     730  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 16,001 17,940 16,425
Income (Loss) attributable to
noncontrolling interests   138     157     145  
 
Economic Net Income (Loss) $ 15,863   $ 17,783   $ 16,280  
 
Assets Under Management $ 14,804,100 $ 14,773,600 $ 13,765,600
Fee Paying Assets Under Management $ 7,833,000 $ 7,824,400 $ 6,627,000
Committed Dollars Invested $ 317,400 $ 319,500 $ 147,200
Uncalled Commitments $ 1,231,900 $ 1,448,800 $ 1,390,500
KKR
STATEMENTS OF OPERATIONS
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Fees
Management and incentive fees:
Management fees $ - $ - $ -
Incentive fees   -   -   -
Management and incentive fees   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 30,369 46,540 24,597
Fee credits   -   -   -
Net monitoring and transaction fees   30,369   46,540   24,597
 
Total fees   30,369   46,540   24,597
 
Expenses
Compensation and benefits 6,006 5,612 4,270
Occupancy and related charges 329 306 192
Other operating expenses   2,980   2,900   1,658
Total expenses   9,315   8,818   6,120
 
Fee Related Earnings   21,054   37,722   18,477
 
Investment income (loss)
Gross carried interest - - -
Less: allocation to KKR carry pool - - -
Less: management fee refunds   -   -   -
Net carried interest - - -
Other investment income (loss)   429,459   398,312   446,788
Total investment income (loss)   429,459   398,312   446,788
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 450,513 436,034 465,265
Income (Loss) attributable to
noncontrolling interests   595   1,176   481
 
Economic Net Income (Loss) $ 449,918 $ 434,858 $ 464,784
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended March 31, 2011
(Amounts in thousands)
           
Capital Markets Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 110,257 $ 17,293 $ - $ 127,550
Incentive fees   -     12,013     -   12,013  
Management and incentive fees   110,257     29,306     -   139,563  
 
Monitoring and transaction fees:
Monitoring fees 90,427 - - 90,427
Transaction fees 53,178 3,729 30,369 87,276
Fee credits   (70,787 )   (2,205 )   -   (72,992 )
Net monitoring and transaction fees   72,818     1,524     30,369   104,711  
 
Total fees   183,075     30,830     30,369   244,274  
 
Expenses
Compensation and benefits 45,975 11,159 6,006 63,140
Occupancy and related charges 10,575 955 329 11,859
Other operating expenses   35,884       4,208     2,980   43,072  
Total expenses   92,434       16,322     9,315   118,071  
 
Fee Related Earnings   90,641     14,508     21,054   126,203  
 
Investment income (loss)
Gross carried interest 329,047 3,074 - 332,121
Less: allocation to KKR carry pool (138,285 ) (1,230 ) - (139,515 )
Less: management fee refunds   (4,804 )   -     -   (4,804 )
Net carried interest 185,958 1,844 - 187,802
Other investment income (loss)   1,067     (351 )   429,459   430,175  
Total investment income (loss)   187,025     1,493     429,459   617,977  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 277,666 16,001 450,513 744,180
Income (Loss) attributable to
noncontrolling interests 927 138 595 1,660
       
Economic Net Income (Loss) $ 276,739   $ 15,863   $ 449,918 $ 742,520  
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended December 31, 2010
(Amounts in thousands)
           
 
Capital Markets Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 102,684 $ 16,359 $ - $ 119,043
Incentive fees   -     8,427     -   8,427  
Management and incentive fees   102,684     24,786     -   127,470  
 
Monitoring and transaction fees:
Monitoring fees 22,108 - - 22,108
Transaction fees 30,942 9,292 46,540 86,774
Fee credits   (15,673 )   (5,998 )   -   (21,671 )
Net monitoring and transaction fees   37,377     3,294     46,540   87,211  
 
Total fees   140,061     28,080     46,540   214,681  
 
Expenses
Compensation and benefits 42,396 7,586 5,612 55,594
Occupancy and related charges 9,206 612 306 10,124
Other operating expenses   47,392       3,580     2,900   53,872  
Total expenses   98,994       11,778     8,818   119,590  
 
Fee Related Earnings   41,067     16,302     37,722   95,091  
 
Investment income (loss)
Gross carried interest 414,025 2,417 - 416,442
Less: allocation to KKR carry pool (168,338 ) (967 ) - (169,305 )
Less: management fee refunds   (24,412 )   -     -   (24,412 )
Net carried interest 221,275 1,450 - 222,725
Other investment income (loss)   (111 )   188     398,312   398,389  
Total investment income (loss)   221,164     1,638     398,312   621,114  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 262,231 17,940 436,034 716,205
Income (Loss) attributable to
noncontrolling interests 259 157 1,176 1,592
       
Economic Net Income (Loss) $ 261,972   $ 17,783   $ 434,858 $ 714,613  
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended March 31, 2010
(Amounts in thousands)
           
Capital Markets Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees 98,160 $ 12,869 $ - $ 111,029
Incentive fees   -     12,500     -   12,500  
Management and incentive fees   98,160     25,369     -   123,529  
 
Monitoring and transaction fees:
Monitoring fees 22,532 - - 22,532
Transaction fees 25,114 5,823 24,597 55,534
Fee credits   (10,077 )   (4,190 )   -   (14,267 )
Net monitoring and transaction fees   37,569     1,633     24,597   63,799  
 
Total fees   135,729     27,002     24,597   187,328  
 
Expenses
Compensation and benefits 40,841 7,142 4,270 52,253
Occupancy and related charges 8,925 568 192 9,685
Other operating expenses   29,746     3,597     1,658   35,001  
Total expenses   79,512     11,307     6,120   96,939  
 
Fee Related Earnings   56,217     15,695     18,477   90,389  
 
Investment income (loss)
Gross carried interest 322,840 371 - 323,211
Less: allocation to KKR carry pool (99,233 ) (149 ) - (99,382 )
Less: management fee refunds   (83,740 )   -     -   (83,740 )
Net carried interest 139,867 222 - 140,089
Other investment income (loss)   (2,594 )   508     446,788   444,702  
Total investment income (loss)   137,273     730     446,788   584,791  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 193,490 16,425 465,265 675,180
Income (Loss) attributable to
noncontrolling interests (250 ) 145 481 376
       
Economic Net Income (Loss) $ 193,740   $ 16,280   $ 464,784 $ 674,804  
KKR
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
       
As of March 31, 2011

Private
Markets
Segment

Public
Markets
Segment

Capital
Markets and
Principal
Activities
Segment

Total

Reportable
Segments

 
Cash and cash equivalents $ 400,668 $ 6,324 $ 659,052 $ 1,066,044
Investments - - 5,045,625 (a) 5,045,625
Unrealized carry 615,573 4,845 - 620,418
Other assets   120,316     54,608   77,452   252,376
Total assets $ 1,136,557   $ 65,777 $ 5,782,129 $ 6,984,463
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   218,536     10,987   36,941   266,464
Total liabilities $ 218,536   $ 10,987 $ 536,941 $ 766,464
 
Noncontrolling interests (1,082 ) 747 16,773 16,438
       
Partners' capital $ 919,103   $ 54,043 $ 5,228,415 $ 6,201,561
 
Book value per adjusted unit (b) $ 1.35 $ 0.08 $ 7.65 $ 9.08
 
 
 
As of December 31, 2010

Private
Markets
Segment

Public
Markets
Segment

Capital
Markets and
Principal
Activities
Segment

Total

Reportable
Segments

 
Cash and cash equivalents $ 229,729 $ 10,007 $ 516,544 $ 756,280
Investments - - 4,831,798 4,831,798
Unrealized carry 523,002 3,001 - 526,003
Other assets   194,424     53,222   39,730   287,376
Total assets $ 947,155   $ 66,230 $ 5,388,072 $ 6,401,457
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   104,248     10,193   45,837   160,278
Total liabilities   104,248     10,193   545,837   660,278
 
Noncontrolling interests (1,750 ) 766 16,537 15,553
       
Partners' capital $ 844,657   $ 55,271 $ 4,825,698 $ 5,725,626
 
Book value per adjusted unit (b) $ 1.24 $ 0.08 $ 7.06 $ 8.38

_______________________________________________________________________________

(a) See capital markets and principal activities segment schedule of investments that follows in this press release.

(b) Adjusted units represent the fully diluted unit count using the if-converted method. See Exhibit B for a reconciliation of this item to the comparable GAAP measure.

KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT
SCHEDULE OF INVESTMENTS
(Amounts in thousands, except percentage amounts)
     

 

As of March 31, 2011

 

 

Fair Value as

 

a Percentage

Investment

Cost

Fair

Value

of Total

Investments

 
Private Equity Investments:
Co-investments in portfolio companies of
private equity funds:
Dollar General Corporation $ 164,291 $ 588,630 11.7 %
HCA Inc. 171,228 512,286 10.2
Alliance Boots GmbH. 301,352 312,870 6.2
The Nielsen Company B.V. 156,839 284,732 5.6
NXP B.V. 250,000 282,357 5.6
Biomet, Inc. 151,443 151,443 3.0
U.S. Foodservice, Inc. 100,000 120,000 2.4
ProSiebenSat.1 Media AG 226,913 113,149 2.2
First Data Corporation 135,258 81,155 1.6
KION Group GmbH. 128,058 59,988 1.2
Energy Future Holdings Corp. 200,000 40,000 0.8
PagesJaunes Groupe S.A. 235,201 - -
Capmark Financial Group Inc.   137,321   - -
  2,357,904   2,546,610 50.5 %
Private equity funds:
KKR 2006 Fund L.P. 1,098,580 1,157,132 23.0 %
KKR Asian Fund L.P. 174,703 248,019 4.9
KKR European Fund III, Limited Partnership 168,243 184,689 3.7
KKR Millennium Fund L.P. 186,024 182,581 3.6
KKR European Fund, Limited Partnership 106,256 123,217 2.4
KKR European Fund II, Limited Partnership 92,939 81,210 1.6
KKR E2 Investors, L.P. 9,432 14,000 0.3
KKR China Growth Fund   1,479   1,775 -
  1,837,656   1,992,623 39.5 %
 
Other Investments   493,386   506,392 10.0 %
 
Total Investments $ 4,688,946 $ 5,045,625 100.0 %
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT
SCHEDULE OF INVESTMENTS, CONTINUED
(Amounts in thousands, except percentage amounts)
     
As of March 31, 2011

 

 

Fair Value as
a Percentage
of Total

Investments

 

Investment

Cost

Fair

Value

 
Significant Aggregate Investments: (a)
Dollar General Corporation $ 227,972 $ 783,895 15.5 %
HCA Inc. 217,011 631,025 12.5
Alliance Boots GmbH 426,523 448,791 9.0
NXP B.V 279,089 314,472 6.2
The Nielsen Company B.V.   172,841   311,336 6.2
1,323,436 2,489,519 49.4
Other portfolio companies (b) 2,872,124 2,049,714 40.6
Other investments   493,386   506,392 10.0
$ 4,688,946 $ 5,045,625 100.0 %
 
 
Investments by Geography:
North America $ 2,745,450 $ 3,376,265 66.9 %
Europe 1,682,065 1,287,156 25.5
Asia Pacific   261,431   382,204 7.6
$ 4,688,946 $ 5,045,625 100.0 %
 
 
Investments by Industry:
Healthcare $ 976,295 $ 1,414,821 28.0 %
Retail 559,998 1,115,324 22.1
Media/Telecom 822,569 625,403 12.4
Financial Services 870,567 615,171 12.2
Technology 513,963 597,648 11.8
Industrial 301,587 272,526 5.4
Consumer Products 150,853 174,671 3.5
Energy 472,467 189,754 3.8
Other   20,647   40,307 0.8
$ 4,688,946 $ 5,045,625 100.0 %

_______________________________________________________________________________

(a) The significant aggregate investments include investments in portfolio companies with individual fair values of 5% or more of the capital markets and principal activities segment investments balance as of March 31, 2011. The fair value figures include the co-investment and the limited partner and/or general partner interests in the underlying portfolio company.

(b) Other portfolio companies includes investments in private equity portfolio companies with individual fair values less than 5% of the capital markets and principal activities segment investments balance as of March 31, 2011.

KKR
ASSETS UNDER MANAGEMENT AND FEE PAYING ASSETS UNDER MANAGEMENT
(Amounts in thousands)
             
 
Assets Under Management

Private Markets
Segment

 

Public Markets
Segment

 

Total
Reportable
Segments

 
 
December 31, 2010 $ 46,223,900 $ 14,773,600 $ 60,997,500
 
New Capital Raised 66,200 227,800 294,000
Distributions (2,472,900 ) (488,600 ) (2,961,500 )
Foreign Exchange 146,000 - 146,000
Change in Value 2,275,900 291,300 2,567,200
     
March 31, 2011 $ 46,239,100   $ 14,804,100   $ 61,043,200  
 
 
 
 
Fee Paying Assets Under Management

Private Markets
Segment

 

Public Markets
Segment

 

Total
Reportable
Segments

 
 
December 31, 2010 $ 38,186,700 $ 7,824,400 $ 46,011,100
 
New Capital Raised 66,200 227,500 293,700
Distributions (775,500 ) (474,700 ) (1,250,200 )
Foreign Exchange 392,100 - 392,100
Change in Value 14,100 255,800 269,900
     
March 31, 2011 $ 37,883,600   $ 7,833,000   $ 45,716,600  
KKR
INVESTMENT VEHICLE SUMMARY (UNAUDITED)
As of March 31, 2011
(Amounts in millions, except percentages)
                 
 
 
Investment Period                            

Private Markets

Commencement

Date

  End

Date

Commitment   Uncalled

Commitments

 

Percentage
Committed
by General
Partner

 

Invested

  Realized   Remaining

Cost

  Fair Value
 
Private Equity Funds
China Growth Fund 11/2010 11/2016 $ 1,010.0 $ 903.7 1.0 % $ 106.3 $ - $ 106.3 $ 127.6
E2 Investors (Annex Fund) 8/2009 11/2011 550.3 435.5 4.1 % 114.8 - 114.8 171.7
European Fund III 3/2008 3/2014 6,091.2 3,795.4 4.4 % 2,295.8 - 2,295.8 2,497.4
Asian Fund 7/2007 7/2013 3,983.2 1,542.1 2.5 % 2,441.1 119.1 2,378.7 3,648.2
2006 Fund 9/2006 9/2012 17,642.2 4,082.3 2.1 % 13,559.9 2,589.6 12,298.7 14,580.6
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 1,084.2 5,076.1 4,502.2
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 6,591.8 3,641.8 5,878.8
European Fund 12/1999 12/2005   3,085.4     - 3.2 %   3,085.4     7,363.9     281.8       1,508.7
 
Total Private Equity Funds 44,113.1 10,759.0 33,354.1 17,748.6 26,194.0 32,915.2
 
Co-Investment Vehicles Various Various 3,194.4 599.9 Various 2,594.5 351.2 2,499.1

 

3,243.9
Natural Resources I 3/2010 10/2013 257.5 197.8 2.9 % 59.7 - 59.7 64.2
Infrastructure Fund 9/2010 9/2016   515.0     515.0 9.7 %   -     -     -       -
 
Private Markets Total   48,080.0     12,071.7   36,008.3     18,099.8   28,752.8     36,223.3
 
Public Markets
Special Situations Vehicles Various Various 1,857.5 858.9 Various 998.6 - 998.6 1,071.7
Mezzanine Fund 3/2010 3/2015   558.6     373.0 8.1 %   185.6     -     185.6       192.2
 
Public Markets Total   2,416.1     1,231.9   1,184.2     -     1,184.2       1,263.9
 
Total $ 50,496.1   $ 13,303.6 $ 37,192.5   $ 18,099.8   $ 29,937.0     $ 37,487.2
KKR
DISTRIBUTION CALCULATION
(Amounts in thousands, except unit and per unit amounts)
     
Quarter Ended
March 31, 2011
 
FRE $ 126,203
Realized cash carry 73,227
Less: local income taxes (4,832 )
Less: noncontrolling interests   (1,660 )
Gross distributable earnings   192,938  
 
Distributable earnings to KKR & Co. L.P. (31.67%) 61,103
 
Less: estimated current corporate income taxes 14,597
 
Total distribution $ 46,506  
 
Distribution per KKR & Co. L.P. common unit $ 0.21
 
Outstanding KKR & Co. L.P. common units   216,317,787  

___________________________________________________________________________________________________________________________________

DISTRIBUTION POLICY

KKR intends to make quarterly cash distributions in amounts that in the aggregate are expected to constitute substantially all of the cash earnings of its investment management business each year in excess of amounts determined by KKR to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its investment funds and to comply with applicable law and any of its debt instruments or other agreements. KKR does not intend to distribute gains on principal investments, other than certain additional distributions that KKR may determine to make. These additional distributions, if any, are intended to cover certain tax liabilities, as calculated by KKR. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKR business), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships. For the purposes of KKR’s distribution policy, its distributions are expected to consist of an amount consisting of (i) FRE, (ii) carry distributions received from KKR’s investment funds which have not been allocated as part of its carry pool, and (iii) any additional distributions for certain taxes as described above. This amount is expected to be reduced by (i) corporate and applicable local taxes, if any, (ii) noncontrolling interests, and (iii) amounts determined by KKR to be necessary or appropriate for the conduct of its business and other matters as discussed above.

The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P. and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all or that such distributions will be sufficient to pay any particular KKR unitholder’s actual U.S. or non-U.S. tax liability.

KKR

Notes to Reportable Segments (Unaudited)

The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings L.P. and as such represent the business in total.

Definitions

Fee related earnings (“FRE”) is comprised of segment operating revenues, less segment operating expenses. The components of FRE on a segment basis differ from the equivalent U.S. GAAP amounts on a consolidated basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of charges relating to carry pool allocations; (v) the exclusion of non-cash equity charges and other non-cash compensation charges borne by KKR Holdings; (vi) the exclusion of certain reimbursable expenses and (vii) the exclusion of certain non-recurring items.

Economic net income (“ENI”) is a measure of profitability for KKR’s reportable segments and is comprised of: (i) FRE; plus (ii) segment investment income, which is reduced for carry pool allocations and management fee refunds; less (iii) certain economic interests in KKR’s segments held by third parties. ENI differs from net income on a GAAP basis as a result of: (i) the exclusion of the items referred to in FRE above; (ii) the exclusion of investment income relating to noncontrolling interests; and (iii) the exclusion of income taxes.

After-tax ENI is calculated by deducting from ENI the implied income tax provision that has been calculated assuming that all income is allocated to KKR & Co. L.P., which would occur following an exchange of all KKR Holdings units for common units of KKR & Co. L.P. The assumptions and methodology used to calculate the implied income tax provision are consistent with those used in calculating the tax provision for KKR & Co. L.P. under GAAP. The implied income tax provision does not give effect to any tax savings or deductions that may result from the exchange of KKR Holdings units.

Assets under management (“AUM”) represent the assets from which KKR is entitled to receive fees or a carried interest and general partner capital. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR’s investment funds plus uncalled capital commitments from these funds; (ii) the fair value of investments in KKR’s co-investment vehicles; (iii) the net asset value of certain of KKR’s fixed income products; and (iv) the value of outstanding structured finance vehicles. KKR’s definition of AUM is not based on any definition of AUM that is set forth in the agreements governing the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory requirements.

Fee paying AUM (“FPAUM”) represents only those assets under management from which KKR receives fees. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR’s fees and differs from AUM in the following respects: (i) assets from which KKR does not receive a fee are excluded (i.e., assets with respect to which it receives only carried interest); and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.

Committed dollars invested is the aggregate amount of capital commitments that have been invested by KKR’s investment funds and carry-yielding co-investment vehicles during a given period. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a carried interest and (ii) capital invested by KKR.

Uncalled commitments represent unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments.

Fee Credits require KKR to share a portion of any monitoring and transaction fees received from portfolio companies with limited partners in certain of its investment funds. Fee credits exclude fees that are not attributable to a fund’s investment in a portfolio company and generally amount to 80% of monitoring and transaction fees after fund related expenses are recovered.

KKR Carry Pool represents a portion of the carried interest earned in relation to certain of KKR’s active and future investment funds and co-investment vehicles that will be allocated to its principals, other professionals and selected other individuals.

Management Fee Refunds represent 20% of any cash management fees earned from limited partners in the event that certain of KKR’s investment funds recognize a carried interest. At such time as the fund recognizes a carried interest in an amount sufficient to cover 20% of the cash management fees earned or a portion thereof, carried interest is reduced, not to exceed 20% of cash management fees earned.

Noncontrolling interests represent economic interests that will (i) allocate to a former principal an aggregate of 1% of profits and losses of its management companies until a future date and (ii) allocate to a third party investor an aggregate of 2% of the equity in KKR’s capital markets business.

You should note that KKR’s calculation of FRE, ENI, after-tax ENI, AUM and FPAUM may differ from the calculation of other investment managers and, as a result, its measurements of FRE, ENI, after-tax ENI, AUM and FPAUM may not be comparable to similar measures presented by other investment managers.

KKR

EXHIBIT A

RECONCILIATION OF TOTAL REPORTABLE SEGMENTS FEE RELATED EARNINGS AND ECONOMIC NET INCOME
TO NET INCOME ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS - UNAUDITED)
(Amounts in thousands)
           
 
Quarter Ended Quarter Ended Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Total reportable segments fee related earnings $ 126,203 $ 95,091 $ 90,389
Investment income 617,977 621,114 584,791
Less: Income attributable to noncontrolling interests   (1,660 )   (1,592 )   (376 )
Economic net income (loss) 742,520 714,613 674,804
Income taxes (30,783 ) (14,362 ) (13,452 )
Amortization of intangibles and other, net (1,286 ) (1,219 ) (2,516 )
Non-cash equity based charges (141,982 ) (107,040 ) (252,759 )
Allocation to noncontrolling
interests held by KKR Holdings L.P.   (408,904 )   (411,413 )   (292,241 )
Net (income) loss attributable to KKR & Co. L.P. $ 159,565   $ 180,579   $ 113,836  

___________________________________________________________________________________________________________________

   
RECONCILIATION OF TOTAL REPORTABLE SEGMENTS PARTNERS' CAPITAL TO KKR & CO. L.P. PARTNERS' CAPITAL

(GAAP BASIS UNAUDITED)

(Amounts in thousands)

As of

March 31, 2011

As of

December 31, 2010

Total Reportable Segments Partners' Capital $ 6,201,561 $ 5,725,626
 
Plus: Equity impact of KKR Management Holdings Corp. and other (52,949 ) (52,745 )
Less: Noncontrolling Interests held by KKR Holdings L.P. 4,687,568 4,346,388
   
Total KKR & Co. L.P. Partners' Capital $ 1,461,044   $ 1,326,493  
KKR

EXHIBIT B

         
RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING TO WEIGHTED AVERAGE ADJUSTED UNITS
 
The following table provides a reconciliation of KKR's Weighted Average GAAP Common Units Outstanding to Weighted Average Adjusted Units.
 
Quarter Ended
March 31, 2011 December 31, 2010 March 31, 2010
Weighted Average GAAP Common Units Outstanding - Basic 213,479,630 209,383,219 204,902,226
Weighted Average Unvested Common Units(a) 30,000 30,000 -
Weighted Average GAAP Common Units Outstanding - Diluted 213,509,630 209,413,219 204,902,226
Adjustments:
Weighted Average KKR Holdings Units (b) 469,527,790 473,624,201 478,105,194
Weighted Average Adjusted Units 683,037,420 683,037,420 683,007,420
 
 
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING TO ADJUSTED UNITS
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units.
 
As of As of
March 31, 2011 December 31, 2010
GAAP Common Units Outstanding - Basic 216,317,787 212,770,091
Unvested Common Units(a) 30,000 30,000
GAAP Common Units Outstanding - Diluted 216,347,787 212,800,091
Adjustments:
KKR Holdings Units (b) 466,689,633 470,237,329
Adjusted Units 683,037,420 683,037,420

____________________________________________________________________________________________________

(a) Represents equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. The issuance of common units of KKR & Co. L.P. pursuant to awards under its equity incentive plan dilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business.

(b) Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units.

Contacts

Investor Relations:
Kohlberg Kravis Roberts & Co. L.P.
Pam Testani
+1 (877) 610-4910 (U.S.) / +1 (212) 230-9410
investor-relations@kkr.com
or
Media Contact:
Kohlberg Kravis Roberts & Co. L.P.
Kristi Huller, +1 (212) 750-8300
media@kkr.com

Sharing

Contacts

Investor Relations:
Kohlberg Kravis Roberts & Co. L.P.
Pam Testani
+1 (877) 610-4910 (U.S.) / +1 (212) 230-9410
investor-relations@kkr.com
or
Media Contact:
Kohlberg Kravis Roberts & Co. L.P.
Kristi Huller, +1 (212) 750-8300
media@kkr.com