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

Assets under management (“AUM”) totaled $61.9 billion as of June 30, 2011, up from $54.4 billion as of June 30, 2010.

Fee related earnings (“FRE”) were $76.1 million and $202.3 million for the quarter and six months ended June 30, 2011, respectively, up from FRE of $63.3 million and $153.7 million in the comparable periods of 2010.

Gross distributable earnings were $103.2 million and $296.2 million for the quarter and six months ended June 30, 2011, respectively, up from gross distributable earnings of $77.1 million and $161.9 million in the comparable periods of 2010.

Economic net income (“ENI”) was $315.0 million and $1,057.5 million for the quarter and six months ended June 30, 2011, respectively, down from ENI of $433.1 million and $1,107.9 million in the comparable periods of 2010.

After-tax ENI was $0.36 and $1.32 per adjusted unit for the quarter and six months ended June 30, 2011, respectively, down from $0.48 and $1.41 per adjusted unit in the comparable periods of 2010.

GAAP net income attributable to KKR & Co. L.P. was $39.6 million and $199.2 million for the quarter and six months ended June 30, 2011, respectively, up from $29.9 million and $143.7 million in the comparable periods of 2010.

Book value was $6.3 billion on a segment basis as of June 30, 2011, representing $9.22 per adjusted unit.

KKR & Co. L.P. declares a second quarter distribution of $0.11 per common unit.

NEW YORK--()--KKR & Co. L.P. (NYSE: KKR) today reported its second quarter 2011 results.

AUM was $61.9 billion as of June 30, 2011, up 13.8% from June 30, 2010. The increase resulted from continued investment appreciation as well as new capital raised, partially offset by distributions to the limited partners of our investment funds. Fee paying assets under management (“FPAUM”) were $46.4 billion as of June 30, 2011, up 11.5% from June 30, 2010. The increase was driven primarily by new capital raised.

For the quarter and six months ended June 30, 2011, our private equity investments appreciated 3.8% and 10.1%, respectively. ENI was $315.0 million for the quarter ended June 30, 2011, a decrease of $118.1 million, or 27.3%, as compared to ENI of $433.1 million for the quarter ended June 30, 2010. ENI was $1,057.5 million for the first six months of 2011, a decrease of $50.4 million, or 4.5%, as compared to ENI of $1,107.9 million for the first six months of 2010. The decrease in both comparative periods was primarily due to a lower level of investment income earned from our principal investments. While the fair value of our principal investments increased during the second quarter and first six months of 2011, the level of appreciation was lower than in the comparable periods of 2010.

“In an increasingly challenged global economic environment, our business continued its growth trajectory across all segments,” said Henry R. Kravis and George R. Roberts, Co-Founders, Co-Chairmen, and Co-Chief Executive Officers of KKR. “Our private equity investments outperformed the S&P 500 by nearly 400 basis points for the quarter, while our liquid credit strategies maintained top-quartile rankings, beating their benchmarks since inception. In addition, activity has been particularly robust despite the market volatility. This is especially true for our Private Markets segment, where we have announced 12 new investments and several realizations around the world since March 31.”

_______________________________________________________________________________________________________________________________
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. See calculation of gross distributable earnings under “Distribution Calculation”.

GAAP RESULTS

GAAP results for the quarter and six months ended June 30, 2011 included net income attributable to KKR & Co. L.P. of $39.6 million and $199.2 million, respectively, and net income per common unit attributable to KKR & Co. L.P. of $0.18 and $0.92, respectively. For the quarter and six months ended June 30, 2010, net income attributable to KKR & Co. L.P. was $29.9 million and $143.7 million, respectively, and net income per common unit attributable to KKR & Co. L.P. was $0.15 and $0.70, respectively.

SEGMENT RESULTS

Private Markets

AUM was $47.1 billion as of June 30, 2011, an increase of $0.9 billion, or 1.9%, compared to AUM of $46.2 billion as of March 31, 2011. The increase was primarily due to appreciation in the fair value of KKR’s private equity portfolio and new capital raised for the natural resources strategy, partially offset by distributions to the limited partners of KKR’s private equity funds arising from realizations.

FPAUM was $38.4 billion as of June 30, 2011, an increase of $0.5 billion, or 1.3%, compared to FPAUM of $37.9 billion as of March 31, 2011. The increase was primarily due to new capital raised for the natural resources strategy, partially offset by distributions to the limited partners of KKR’s private equity funds arising from realizations.

FRE was $37.8 million for the quarter ended June 30, 2011, a decrease of $4.3 million, or 10.2%, compared to FRE of $42.1 million for the quarter ended June 30, 2010. The decrease was primarily due to higher compensation and other operating expenses in connection with the expansion of KKR’s business, partially offset by an increase in management fees related to new capital raised over the past year.

FRE was $128.4 million for the six months ended June 30, 2011, an increase of $30.1 million, or 30.6%, compared to FRE of $98.3 million for the six months ended June 30, 2010. The increase was primarily driven by (i) higher monitoring fees as a result of $76.6 million of termination payments on monitoring agreements with three portfolio companies during the six months ended June 30, 2011, which impacted FRE by $39.7 million net of associated fee credits and (ii) an increase in management fees related to new capital raised. These increases were partially offset by higher compensation and other operating expenses in connection with the expansion of KKR’s business.

ENI was $128.2 million for the quarter ended June 30, 2011, a decrease of $26.9 million, or 17.3%, compared to ENI of $155.1 million for the quarter ended June 30, 2010. The decrease was primarily due to lower net carried interest resulting from a higher level of management fee refunds and to a lesser extent the decrease in FRE discussed above.

ENI was $404.9 million for the six months ended June 30, 2011, an increase of $56.0 million, or 16.1%, compared to ENI of $348.9 million for the six months ended June 30, 2010. The increase was primarily driven by (i) the increase in FRE discussed above and (ii) higher net carried interest resulting from a lower level of management fee refunds.

Public Markets

AUM was $14.9 billion as of June 30, 2011, an increase of $0.1 billion, or 0.7%, compared to AUM of $14.8 billion as of March 31, 2011. FPAUM was $8.0 billion as of June 30, 2011, an increase of $0.2 billion, or 2.6%, compared to FPAUM of $7.8 billion as of March 31, 2011. For both AUM and FPAUM, the increases were attributable to appreciation in the net asset value of certain investment vehicles and new capital raised, partially offset by distributions to and redemptions by credit strategy investors.

FRE was $20.8 million for the quarter ended June 30, 2011, an increase of $9.0 million, or 76.3%, compared to FRE of $11.8 million for the quarter ended June 30, 2010. FRE was $35.3 million for the six months ended June 30, 2011, an increase of $7.9 million, or 28.8%, compared to FRE of $27.4 million for the six months ended June 30, 2010. The increase in both comparative periods was primarily due to growth in management fees related to new capital raised and higher incentive fees, partially offset by higher compensation expense in connection with the development of the equity strategies platform.

ENI was $21.4 million for the quarter ended June 30, 2011, an increase of $9.2 million, or 75.4%, compared to ENI of $12.2 million for the quarter ended June 30, 2010. ENI was $37.2 million for the six months ended June 30, 2011, an increase of $8.8 million, or 31.0%, compared to ENI of $28.4 million for the six months ended June 30, 2010. The increase in both comparative periods was primarily driven by the increase in FRE discussed above.

Capital Markets and Principal Activities

FRE was $17.5 million for the quarter ended June 30, 2011, an increase of $8.0 million, or 84.2%, compared to FRE of $9.5 million for the quarter ended June 30, 2010. FRE was $38.6 million for the six months ended June 30, 2011, an increase of $10.7 million, or 38.4%, compared to FRE of $27.9 million for the six months ended June 30, 2010. The increase in both comparative periods was primarily driven by a higher level of overall capital markets transaction activity partially offset by higher compensation expense, both of which reflect the growth and continued build-out of this business.

ENI was $165.5 million for the quarter ended June 30, 2011, a decrease of $100.3 million, or 37.7%, compared to ENI of $265.8 million for the quarter ended June 30, 2010. ENI was $615.4 million for the six months ended June 30, 2011, a decrease of $115.1 million, or 15.8%, compared to ENI of $730.5 million for the six months ended June 30, 2010. The decrease in both comparative periods was primarily due to a lower level of investment income. While the fair value of KKR’s principal investments increased during the second quarter and first six months of 2011, the level of appreciation was lower than in the comparable periods of 2010.

CAPITAL AND LIQUIDITY

As of June 30, 2011, KKR had an available cash balance of $952.5 million and $500.0 million of outstanding debt obligations under its senior notes. KKR’s availability for further borrowings was approximately $1.3 billion (which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of June 30, 2011).

As of June 30, 2011, KKR’s portion of total uncalled commitments to its investment funds was $835.3 million, consisting of the following (amounts in thousands):

     
Commitments

Private Markets

2006 Fund $ 306,226
European Fund III 292,636
Asian Fund 97,413
Infrastructure Fund 50,000
E2 Investors (Annex Fund) 29,978
China Growth Fund 8,506
Natural Resources I 5,112
Other Private Markets Commitments   1,027
Total Private Markets Commitments   790,898
 

Public Markets

Mezzanine Fund 34,300
Special Situations Vehicles   10,100
Total Public Markets Commitments   44,400
 
Total Uncalled Commitments $ 835,298

DISTRIBUTION

A distribution of $0.11 per common unit will be paid on August 30, 2011 to unitholders of record as of the close of business on August 15, 2011.

CONFERENCE CALL

A conference call to discuss KKR’s financial results will be held on Wednesday, August 3, 2011 at 10:00 a.m. EDT. The conference call may be accessed by dialing (888) 820-9418 (U.S. callers) or +1 (913) 312-0406 (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 4638167, 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 $61.9 billion in assets under management as of June 30, 2011. With 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 platform. 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 AUM, FPAUM, FRE, gross distributable earnings, ENI, 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, Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed with the SEC on May 5, 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 Six Months Ended
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Revenues
Fees $ 117,612   $ 87,070   $ 349,455   $ 193,101  
 
Expenses
Compensation and Benefits 272,415 348,621 628,969 714,152
Occupancy and Related Charges 12,829 9,510 25,383 19,195
General, Administrative and Other 32,903 58,046 78,024 135,770
Fund Expenses   13,139     14,409     22,662     24,777  
Total Expenses   331,286     430,586     755,038     893,894  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 1,319,089 1,031,568 3,806,298 3,318,121
Dividend Income 31,215 147,373 36,023 590,280
Interest Income 88,749 56,152 154,117 104,455
Interest Expense   (17,371 )   (10,134 )   (34,623 )   (23,961 )
Total Investment Income (Loss)   1,421,682     1,224,959     3,961,815     3,988,895  
 
Income (Loss) Before Taxes 1,208,008 881,443 3,556,232 3,288,102
 
Income Taxes   25,605     31,283     56,388     44,735  
 
Net Income (Loss) 1,182,403 850,160 3,499,844 3,243,367
 
Less: Net Income (Loss) Attributable to
Noncontrolling Interests in Consolidated Entities 1,014,756 676,816 2,763,728 2,663,946
Less: Net Income (Loss) Attributable to
Noncontrolling Interests Held by KKR Holdings L.P. 128,026 143,437 536,930 435,678
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ 39,621   $ 29,907   $ 199,186   $ 143,743  
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.11 $ 0.08 $ 0.32 $ 0.16
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.18 $ 0.15 $ 0.92 $ 0.70
Diluted (a) $ 0.18 $ 0.15 $ 0.92 $ 0.70

Weighted Average Common Units Outstanding

Basic 219,188,351 204,902,226 216,349,760 204,902,226
Diluted (a) 220,213,799 204,902,226 216,880,234 204,902,226

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(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 Six Months Ended
June 30, 2011 March 31, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Fees
Management and incentive fees:
Management fees $ 126,229 $ 127,550 $ 110,669 $ 253,779 $ 221,698
Incentive fees   16,146     12,013     8,350     28,159     20,850  
Management and incentive fees   142,375     139,563     119,019     281,938     242,548  
 
Monitoring and transaction fees:
Monitoring fees 30,653 90,427 20,512 121,080 43,044
Transaction fees 34,885 87,276 37,441 122,161 92,975
Fee credits   (12,211 )   (72,992 )   (15,278 )   (85,203 )   (29,545 )
Net monitoring and transaction fees   53,327     104,711     42,675     158,038     106,474  
 
Total fees   195,702     244,274     161,694     439,976     349,022  
 
Expenses
Compensation and benefits (a) 63,110 63,140 49,431 126,250 101,684
Occupancy and related charges 12,122 11,859 9,533 23,981 19,218
Other operating expenses   44,337     43,072     39,394     87,409     74,395  
Total expenses   119,569     118,071     98,358     237,640     195,297  
 
Fee Related Earnings   76,133     126,203     63,336     202,336     153,725  
 
Investment income (loss)
Gross carried interest 201,384 332,121 229,494 533,505 552,705
Less: allocation to KKR carry pool (79,591 ) (139,515 ) (96,029 ) (219,106 ) (195,411 )
Less: management fee refunds (b)   (31,905 )   (4,804 )   (17,907 )   (36,709 )   (101,647 )
Net carried interest 89,888 187,802 115,558 277,690 255,647
Other investment income (loss)   149,956     430,175     255,031     580,131     699,733  
Total investment income (loss)   239,844     617,977     370,589     857,821     955,380  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 315,977 744,180 433,925 1,060,157 1,109,105
Income (Loss) attributable to
noncontrolling interests   951     1,660     874     2,611     1,250  
 
Economic Net Income (Loss) $ 315,026   $ 742,520   $ 433,051   $ 1,057,546   $ 1,107,855  
 
Provision for Income Taxes 69,721 88,739 104,935 158,460 145,012
 
Economic Net Income (Loss), After Taxes (c) $ 245,305   $ 653,781   $ 328,116   $ 899,086   $ 962,843  
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (c) $ 0.36 $ 0.96 $ 0.48 $ 1.32 $ 1.41
                               
Assets Under Management $ 61,940,200 $ 61,043,200 $ 54,398,300 $ 61,940,200 $ 54,398,300
Fee Paying Assets Under Management $ 46,435,900 $ 45,716,600 $ 41,643,400 $ 46,435,900 $ 41,643,400
Committed Dollars Invested $ 497,100 $ 1,127,100 $ 879,200 $ 1,624,200 $ 2,021,900
Uncalled Commitments     $ 13,698,900     $ 13,303,600     $ 13,264,200     $ 13,698,900     $ 13,264,200  
                               

Other Information

Fee Related Earnings $ 76,133 $ 126,203 $ 63,336 $ 202,336 $ 153,725
Plus: depreciation and amortization   2,609     2,641     3,762       5,250       6,200  
Fee Related EBITDA $ 78,742   $ 128,844   $ 67,098     $ 207,586     $ 159,925  
 
Gross Distributable Earnings $ 103,248 $ 192,938 $ 77,085 $ 296,186 $ 161,898
 
GAAP interest expense $ 17,371 $ 17,252 $ 10,134 $ 34,623 $ 23,961
Less: interest expense related to debt obligations
from investment financing arrangements   6,772     6,557     6,205       13,329       12,918  
Core Interest Expense (c) $ 10,599   $ 10,695   $ 3,929     $ 21,294     $ 11,043  
                                               

______________________________________________________________________________________________

(a) Excludes a $4.4 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

(b) As of June 30, 2011, $48.8 million of carried interest is subject to management fee refunds, which may reduce carried interest in future periods.

(c) See definitions for ENI, after taxes, adjusted units, and core interest expense under “Notes to Reportable Segments”.

           
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Six Months Ended
June 30, 2011 March 31, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Fees
Management and incentive fees:
Management fees $ 106,679 $ 110,257 $ 97,046 $ 216,936 $ 195,206
Incentive fees   -     -     -     -     -  
Management and incentive fees   106,679     110,257     97,046     216,936     195,206  
 
Monitoring and transaction fees:
Monitoring fees 30,653 90,427 20,512 121,080 43,044
Transaction fees 8,132 53,178 20,128 61,310 45,242
Fee credits   (12,113 )   (70,787 )   (13,872 )   (82,900 )   (23,949 )
Net monitoring and transaction fees   26,672     72,818     26,768     99,490     64,337  
 
Total fees   133,351     183,075     123,814     316,426     259,543  
 
Expenses
Compensation and benefits (a) 46,205 45,975 38,463 92,180 79,304
Occupancy and related charges 10,944 10,575 8,751 21,519 17,676
Other operating expenses   38,424     35,884     34,486     74,308     64,232  
Total expenses   95,573     92,434     81,700     188,007     161,212  
 
Fee Related Earnings   37,778     90,641     42,114     128,419     98,331  
 
Investment income (loss)
Gross carried interest 201,331 329,047 228,413 530,378 551,253
Less: allocation to KKR carry pool (79,570 ) (138,285 ) (95,597 ) (217,855 ) (194,830 )
Less: management fee refunds   (31,905 )   (4,804 )   (17,907 )   (36,709 )   (101,647 )
Net carried interest 89,856 185,958 114,909 275,814 254,776
Other investment income (loss)   690     1,067     (1,462 )   1,757     (4,056 )
Total investment income (loss)   90,546     187,025     113,447     277,571     250,720  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 128,324 277,666 155,561 405,990 349,051
Income (Loss) attributable to
noncontrolling interests   168     927     436     1,095     186  
 
Economic Net Income (Loss) $ 128,156   $ 276,739   $ 155,125   $ 404,895   $ 348,865  
 
 
Assets Under Management $ 47,071,900 $ 46,239,100 $ 41,031,100 $ 47,071,900 $ 41,031,100
Fee Paying Assets Under Management $ 38,430,300 $ 37,883,600 $ 35,317,500 $ 38,430,300 $ 35,317,500
Committed Dollars Invested $ 420,300 $ 809,700 $ 839,200 $ 1,230,000 $ 1,834,700
Uncalled Commitments $ 12,456,800 $ 12,071,700 $ 11,901,100 $ 12,456,800 $ 11,901,100

______________________________________________________________________________________________________

(a) Excludes a $0.7 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

           
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
   
Quarter Ended Six Months Ended
June 30, 2011 March 31, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Fees
Management and incentive fees:
Management fees $ 19,550 $ 17,293 $ 13,623 $ 36,843 $ 26,492
Incentive fees   16,146     12,013     8,350     28,159     20,850  
Management and incentive fees   35,696     29,306     21,973     65,002     47,342  
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 356 3,729 2,330 4,085 8,153
Fee credits   (98 )   (2,205 )   (1,406 )   (2,303 )   (5,596 )
Net monitoring and transaction fees   258     1,524     924     1,782     2,557  
 
Total fees   35,954     30,830     22,897     66,784     49,899  
 
Expenses
Compensation and benefits (a) 10,664 11,159 7,474 21,823 14,616
Occupancy and related charges 818 955 580 1,773 1,148
Other operating expenses   3,634     4,208     3,093     7,842     6,690  
Total expenses   15,116     16,322     11,147     31,438     22,454  
 
Fee Related Earnings   20,838     14,508     11,750     35,346     27,445  
 
Investment income (loss)
Gross carried interest 53 3,074 1,081 3,127 1,452
Less: allocation to KKR carry pool (21 ) (1,230 ) (432 ) (1,251 ) (581 )
Less: management fee refunds   -     -     -     -     -  
Net carried interest 32 1,844 649 1,876 871
Other investment income (loss)   661     (351 )   (126 )   310     382  
Total investment income (loss)   693     1,493     523     2,186     1,253  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 21,531 16,001 12,273 37,532 28,698
Income (Loss) attributable to
noncontrolling interests   178     138     110     316     255  
 
Economic Net Income (Loss) $ 21,353   $ 15,863   $ 12,163   $ 37,216   $ 28,443  
 
Assets Under Management $ 14,868,300 $ 14,804,100 $ 13,367,200 $ 14,868,300 $ 13,367,200
Fee Paying Assets Under Management $ 8,005,600 $ 7,833,000 $ 6,325,900 $ 8,005,600 $ 6,325,900
Committed Dollars Invested $ 76,800 $ 317,400 $ 40,000 $ 394,200 $ 187,200
Uncalled Commitments $ 1,242,100 $ 1,231,900 $ 1,363,100 $ 1,242,100 $ 1,363,100

______________________________________________________________________________________________________

(a) Excludes a $3.7 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

           
KKR
STATEMENTS OF OPERATIONS
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
   
Quarter Ended Six Months Ended
June 30, 2011 March 31, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Fees
Management and incentive fees:
Management fees $ - $ - $ - $ - $ -
Incentive fees   -   -   -   -   -
Management and incentive fees   -   -   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 26,397 30,369 14,983 56,766 39,580
Fee credits   -   -   -   -   -
Net monitoring and transaction fees   26,397   30,369   14,983   56,766   39,580
 
Total fees   26,397   30,369   14,983   56,766   39,580
 
Expenses
Compensation and benefits 6,241 6,006 3,494 12,247 7,764
Occupancy and related charges 360 329 202 689 394
Other operating expenses   2,279   2,980   1,815   5,259   3,473
Total expenses   8,880   9,315   5,511   18,195   11,631
 
Fee Related Earnings   17,517   21,054   9,472   38,571   27,949
 
Investment income (loss)
Gross carried interest - - - - -
Less: allocation to KKR carry pool - - - - -
Less: management fee refunds   -   -   -   -   -
Net carried interest - - - - -
Other investment income (loss)   148,605   429,459   256,619   578,064   703,407
Total investment income (loss)   148,605   429,459   256,619   578,064   703,407
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 166,122 450,513 266,091 616,635 731,356
Income (Loss) attributable to
noncontrolling interests   605   595   328   1,200   809
 
Economic Net Income (Loss) $ 165,517 $ 449,918 $ 265,763 $ 615,435 $ 730,547
             
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended June 30, 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 $ 106,679 $ 19,550 $ - $ 126,229
Incentive fees   -     16,146     -   16,146  
Management and incentive fees   106,679     35,696     -   142,375  
 
Monitoring and transaction fees:
Monitoring fees 30,653 - - 30,653
Transaction fees 8,132 356 26,397 34,885
Fee credits   (12,113 )   (98 )   -   (12,211 )
Net monitoring and transaction fees   26,672     258     26,397   53,327  
 
Total fees   133,351     35,954     26,397   195,702  
 
Expenses
Compensation and benefits (a) 46,205 10,664 6,241 63,110
Occupancy and related charges 10,944 818 360 12,122
Other operating expenses   38,424       3,634     2,279   44,337  
Total expenses   95,573       15,116     8,880   119,569  
 
Fee Related Earnings   37,778     20,838     17,517   76,133  
 
Investment income (loss)
Gross carried interest 201,331 53 - 201,384
Less: allocation to KKR carry pool (79,570 ) (21 ) - (79,591 )
Less: management fee refunds   (31,905 )   -     -   (31,905 )
Net carried interest 89,856 32 - 89,888
Other investment income (loss)   690     661     148,605   149,956  
Total investment income (loss)   90,546     693     148,605   239,844  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 128,324 21,531 166,122 315,977
Income (Loss) attributable to
noncontrolling interests 168 178 605 951
       
Economic Net Income (Loss) $ 128,156   $ 21,353   $ 165,517 $ 315,026  

______________________________________________________________________________________________________

(a) Excludes a $4.4 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 (Private Markets - $0.7 million and Public Markets - $3.7 million) associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

             
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 June 30, 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 $ 97,046 $ 13,623 $ - $ 110,669
Incentive fees   -     8,350     -   8,350  
Management and incentive fees   97,046     21,973     -   119,019  
 
Monitoring and transaction fees:
Monitoring fees 20,512 - - 20,512
Transaction fees 20,128 2,330 14,983 37,441
Fee credits   (13,872 )   (1,406 )   -   (15,278 )
Net monitoring and transaction fees   26,768     924     14,983   42,675  
 
Total fees   123,814     22,897     14,983   161,694  
 
Expenses
Compensation and benefits 38,463 7,474 3,494 49,431
Occupancy and related charges 8,751 580 202 9,533
Other operating expenses   34,486       3,093     1,815   39,394  
Total expenses   81,700       11,147     5,511   98,358  
 
Fee Related Earnings   42,114     11,750     9,472   63,336  
 
Investment income (loss)
Gross carried interest 228,413 1,081 - 229,494
Less: allocation to KKR carry pool (95,597 ) (432 ) - (96,029 )
Less: management fee refunds   (17,907 )   -     -   (17,907 )
Net carried interest 114,909 649 - 115,558
Other investment income (loss)   (1,462 )   (126 )   256,619   255,031  
Total investment income (loss)   113,447     523     256,619   370,589  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 155,561 12,273 266,091 433,925
Income (Loss) attributable to
noncontrolling interests 436 110 328 874
       
Economic Net Income (Loss) $ 155,125   $ 12,163   $ 265,763 $ 433,051  
             
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Six Months Ended June 30, 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 $ 216,936 $ 36,843 $ - $ 253,779
Incentive fees   -     28,159     -   28,159  
Management and incentive fees   216,936     65,002     -   281,938  
 
Monitoring and transaction fees:
Monitoring fees 121,080 - - 121,080
Transaction fees 61,310 4,085 56,766 122,161
Fee credits   (82,900 )   (2,303 )   -   (85,203 )
Net monitoring and transaction fees   99,490     1,782     56,766   158,038  
 
Total fees   316,426     66,784     56,766   439,976  
 
Expenses
Compensation and benefits (a) 92,180 21,823 12,247 126,250
Occupancy and related charges 21,519 1,773 689 23,981
Other operating expenses   74,308       7,842     5,259   87,409  
Total expenses   188,007       31,438     18,195   237,640  
 
Fee Related Earnings   128,419     35,346     38,571   202,336  
 
Investment income (loss)
Gross carried interest 530,378 3,127 - 533,505
Less: allocation to KKR carry pool (217,855 ) (1,251 ) - (219,106 )
Less: management fee refunds   (36,709 )   -     -   (36,709 )
Net carried interest 275,814 1,876 - 277,690
Other investment income (loss)   1,757     310     578,064   580,131  
Total investment income (loss)   277,571     2,186     578,064   857,821  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 405,990 37,532 616,635 1,060,157
Income (Loss) attributable to
noncontrolling interests 1,095 316 1,200 2,611
       
Economic Net Income (Loss) $ 404,895   $ 37,216   $ 615,435 $ 1,057,546  

______________________________________________________________________________________________________

(a) Excludes a $4.4 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 (Private Markets - $0.7 million and Public Markets - $3.7 million) associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

             
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Six Months Ended June 30, 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 $ 195,206 $ 26,492 $ - $ 221,698
Incentive fees   -     20,850     -   20,850  
Management and incentive fees   195,206     47,342     -   242,548  
 
Monitoring and transaction fees:
Monitoring fees 43,044 - - 43,044
Transaction fees 45,242 8,153 39,580 92,975
Fee credits   (23,949 )   (5,596 )   -   (29,545 )
Net monitoring and transaction fees   64,337     2,557     39,580   106,474  
 
Total fees   259,543     49,899     39,580   349,022  
 
Expenses
Compensation and benefits 79,304 14,616 7,764 101,684
Occupancy and related charges 17,676 1,148 394 19,218
Other operating expenses   64,232     6,690     3,473   74,395  
Total expenses   161,212     22,454     11,631   195,297  
 
Fee Related Earnings   98,331     27,445     27,949   153,725  
 
Investment income (loss)
Gross carried interest 551,253 1,452 - 552,705
Less: allocation to KKR carry pool (194,830 ) (581 ) - (195,411 )
Less: management fee refunds   (101,647 )   -     -   (101,647 )
Net carried interest 254,776 871 - 255,647
Other investment income (loss)   (4,056 )   382     703,407   699,733  
Total investment income (loss)   250,720     1,253     703,407   955,380  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 349,051 28,698 731,356 1,109,105
Income (Loss) attributable to
noncontrolling interests 186 255 809 1,250
       
Economic Net Income (Loss) $ 348,865   $ 28,443   $ 730,547 $ 1,107,855  
           
KKR
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
   
As of June 30, 2011

Private
Markets
Segment

Public
Markets
Segment

Capital
Markets and
Principal
Activities
Segment

Total
Reportable
Segments

 
Cash and cash equivalents $ 256,578 $ 7,573 $ 688,341 $ 952,492
Investments - - 5,181,945 (a) 5,181,945
Unrealized carry 675,148 4,877 - 680,025
Other assets   123,114     61,922   76,163   261,199
Total assets $ 1,054,840   $ 74,372 $ 5,946,449 $ 7,075,661
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   181,680     13,512   59,355   254,547
Total liabilities $ 181,680   $ 13,512 $ 559,355 $ 754,547
 
Noncontrolling interests (1,841 ) 787 17,131 16,077
       
Partners' capital $ 875,001   $ 60,073 $ 5,369,963 $ 6,305,037
 
Book value per adjusted unit (b) $ 1.28 $ 0.09 $ 7.85 $ 9.22
 
 
 
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 on pages 16 and 17.

(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 June 30, 2011
Investment Cost

Fair
Value

Fair Value as
a Percentage
of Investments

 
Private Equity Investments
 
Co-investments in portfolio companies of
private equity funds:
Dollar General Corporation $ 164,291 $ 636,321 12.3 %
HCA Inc. 171,228 499,127 9.6
The Nielsen Company B.V. 156,839 324,872 6.3
Alliance Boots GmbH 301,352 313,026 6.0
NXP B.V. 207,964 210,619 4.1
Biomet, Inc. 151,443 136,299 2.6
U.S. Foodservice, Inc. 100,000 120,000 2.3
ProSiebenSat.1 Media AG 226,913 115,768 2.2
KION Group GmbH 128,058 101,697 2.0
First Data Corporation 135,258 81,155 1.6
Energy Future Holdings Corp. 200,000 40,000 0.8
PagesJaunes Groupe S.A. 235,201
Capmark Financial Group Inc.   137,321  
  2,315,868   2,578,884 49.8
Private equity funds:
KKR 2006 Fund L.P. 1,083,813 1,170,033 22.7
KKR Asian Fund L.P. 196,029 276,253 5.3
KKR European Fund III, Limited Partnership 173,032 193,377 3.7
KKR Millennium Fund L.P. 181,961 179,282 3.5
KKR European Fund, Limited Partnership 97,388 105,978 2.0
KKR European Fund II, Limited Partnership 89,899 79,372 1.5
KKR E2 Investors, L.P. 10,282 15,978 0.3
KKR China Growth Fund L.P.   1,479   2,217 0.0
  1,833,883   2,022,490 39.0
 
Other Investments   564,327   580,571 11.2
 
$ 4,714,078 $ 5,181,945 100.0 %
       
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS, CONTINUED
(Amounts in thousands, except percentage amounts)
 
As of June 30, 2011
Investment Cost

Fair
Value

Fair Value as
a Percentage
of Investments

 
Significant Aggregate Investments: (a)
Dollar General Corporation $ 227,972 $ 846,374 16.3 %
HCA Inc. 217,011 615,051 11.9
Alliance Boots GmbH 426,523 448,882 8.8
The Nielsen Company B.V.   172,841   354,775 6.8
1,044,347 2,265,082 43.8
Other portfolio companies (b) 3,105,404 2,336,292 45.1
Other investments   564,327   580,571 11.1
$ 4,714,078 $ 5,181,945 100.0 %
 
 
Investments by Geography:
North America $ 2,805,193 $ 3,533,343 68.2 %
Europe 1,640,910 1,267,396 24.5
Asia-Pacific   267,975   381,206 7.3
$ 4,714,078 $ 5,181,945 100.0 %
 
 
Investments by Industry:
Healthcare $ 929,123 $ 1,327,734 25.6 %
Retail 536,984 1,154,260 22.3
Media/Telecom 889,449 741,111 14.3
Financial Services 904,868 654,344 12.6
Technology 462,932 510,712 9.9
Industrial 304,611 325,551 6.3
Energy 518,161 258,125 5.0
Consumer Products 155,060 182,113 3.5
Other   12,890   27,995 0.5
$ 4,714,078 $ 5,181,945 100.0 %

_______________________________________________________________________________________________

(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 June 30, 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 June 30, 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

Quarter Ended June 30, 2011

 
March 31, 2011 $ 46,239,100 $ 14,804,100 $ 61,043,200
 
New Capital Raised 750,000 123,600 873,600
Distributions (1,400,400) (259,600) (1,660,000)
Foreign Exchange 60,400 - 60,400
Change in Value 1,422,800 200,200 1,623,000
     
June 30, 2011 $ 47,071,900 $ 14,868,300 $ 61,940,200
 
 

Six Months Ended June 30, 2011

 

December 31, 2010

$ 46,223,900 $ 14,773,600 $ 60,997,500
 
New Capital Raised 816,200 351,400 1,167,600
Distributions (3,873,300) (748,200) (4,621,500)
Foreign Exchange 206,400 - 206,400
Change in Value 3,698,700 491,500 4,190,200
     

June 30, 2011

$ 47,071,900 $ 14,868,300 $ 61,940,200
 
 
 
Fee Paying Assets Under Management

Private Markets
Segment

Public Markets
Segment

Total
Reportable
Segments

Quarter Ended June 30, 2011

 

March 31, 2011

$ 37,883,600 $ 7,833,000 $ 45,716,600
 
New Capital Raised 750,000 114,300 864,300
Distributions (351,100) (125,300) (476,400)
Foreign Exchange 150,400 - 150,400
Change in Value (2,600) 183,600 181,000
     

June 30, 2011

$ 38,430,300 $ 8,005,600 $ 46,435,900
 
 

Six Months Ended June 30, 2011

 

December 31, 2010

$ 38,186,700 $ 7,824,400 $ 46,011,100
 
New Capital Raised 816,200 341,800 1,158,000
Distributions (1,126,600) (600,000) (1,726,600)
Foreign Exchange 542,500 - 542,500
Change in Value 11,500 439,400 450,900
     

June 30, 2011

$ 38,430,300 $ 8,005,600 $ 46,435,900
 
KKR
INVESTMENT VEHICLE SUMMARY (UNAUDITED)
As of June 30, 2011
(Amounts in millions, except percentages)
       
Investment Period Amount

Commencement
Date

 

End
Date

Commitment  

Uncalled
Commitments

 

Percentage
Committed by
General
Partner

 

Invested

  Realized  

Remaining
Cost

  Fair Value

Private Markets

             
 
Private Equity Funds
China Growth Fund 11/2010 11/2016 $ 1,010.0 $ 903.7 1.0 % $ 106.3 $ - $ 106.3 $ 162.0
E2 Investors (Annex Fund) 8/2009 11/2011 554.8 427.9 4.1 % 126.9 - 126.9 204.4
European Fund III 3/2008 3/2014 6,147.1 3,789.8 4.4 % 2,357.3 - 2,357.3 2,626.2
Asian Fund 7/2007 7/2013 3,983.2 1,323.3 2.5 % 2,659.9 119.1 2,597.4 3,984.2
2006 Fund 9/2006 9/2012 17,642.2 3,988.3 2.1 % 13,653.9 2,927.0 12,055.3 14,869.1
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 1,380.2 4,780.1 4,459.8
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 6,810.9 3,484.7 5,785.3
European Fund 12/1999 12/2005   3,085.4     - 3.2 %   3,085.4     7,719.0     217.0     1,270.2
 
Total Private Equity Funds 44,173.5 10,433.0 33,740.5 18,956.2 25,725.0 33,361.2
 
Co-Investment Vehicles Various Various   1,992.1     551.3 Various   1,440.8     335.0     1,353.8     2,107.2
 
Total Private Equity   46,165.6     10,984.3   35,181.3     19,291.2     27,078.8     35,468.4
 
Energy / Infrastructure
Natural Resources I 3/2010 10/2013 1,007.0 925.0 0.7 % 82.0 - 82.0 82.0
Infrastructure Fund 9/2010 9/2016 515.0 515.0 9.7 % - - - -
Co-Investment Vehicles Various Various   1,187.3     32.5 Various   1,154.8     35.3     1,154.8     1,286.9
 
Total Energy / Infrastructure   2,709.3     1,472.5   1,236.8     35.3     1,236.8     1,368.9
 
Private Markets Total   48,874.9     12,456.8   36,418.1     19,326.5     28,315.6     36,837.3
 

Public Markets

 

Special Situations Vehicles

Various Various 1,861.5 746.1 Various 1,115.4 14.1 1,115.4 1,193.4
Mezzanine Fund 3/2010 8/2015   642.8     496.0 7.0 %   146.8     2.2     146.8     154.3
 
Public Markets Total   2,504.3     1,242.1   1,262.2     16.3     1,262.2     1,347.7
 
Total $ 51,379.2   $ 13,698.9 $ 37,680.3   $ 19,342.8   $ 29,577.8   $ 38,185.0
       
KKR
DISTRIBUTION CALCULATION
(Amounts in thousands, except unit and per unit amounts)
 
Quarter Ended
June 30, 2011
 
FRE $ 76,133
Realized cash carry 32,725
Less: local income taxes (4,659 )
Less: noncontrolling interests   (951 )
Gross distributable earnings   103,248  
 
Distributable earnings to KKR & Co. L.P. (32.58%) 33,639
 
Less: estimated current corporate income taxes (8,492 )
 
Total distribution $ 25,147  
 
Distribution per KKR & Co. L.P. common unit $ 0.11
 
Outstanding KKR & Co. L.P. common units (As of June 30, 2011)   222,531,607  

_____________________________________________________________________________________________________________________________________

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 or incurred under the KKR & Co. L.P. 2010 Equity Incentive Plan; (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.

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.

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; (iv) the value of outstanding structured finance vehicles; and (v) the fair value of other assets managed by KKR. 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.

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

Core interest expense excludes interest expense related to debt obligations from investment financing arrangements related to certain of KKR’s private equity funds, investment vehicles 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.

Fee Credits require KKR to share an agreed upon percentage of monitoring and transaction fees received from portfolio companies with limited partners in certain of its investment funds. Limited partners receive fee credits only with respect to monitoring and transaction fees that are allocable to their fund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee credits are calculated after deducting certain fund-related expenses and generally amount to 80% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may vary from fund to fund.

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, ENI, after taxes, AUM and FPAUM may differ from the calculation of other investment managers and, as a result, its measurements of FRE, ENI, ENI, after taxes, 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
June 30, 2011 March 31, 2011 June 30, 2010
Total reportable segments fee related earnings $ 76,133 $ 126,203 $ 63,336
Investment income 239,844 617,977 370,589
Less: Income attributable to noncontrolling interests   (951 )   (1,660 )   (874 )
Economic net income (loss) 315,026 742,520 433,051
Income taxes (25,605 ) (30,783 ) (31,283 )
Amortization of intangibles and other, net (1,081 ) (1,286 ) (1,341 )
Non-cash equity based charges (120,693 ) (141,982 ) (227,083 )
Allocation to noncontrolling
interests held by KKR Holdings L.P.   (128,026 )   (408,904 )   (143,437 )
Net (income) loss attributable to KKR & Co. L.P. $ 39,621   $ 159,565   $ 29,907  
 
 
 
Six Months Ended Six Months Ended
June 30, 2011 June 30, 2010
Total reportable segments fee related earnings $ 202,336 $ 153,725
Investment income 857,821 955,380
Less: Income attributable to noncontrolling interests   (2,611 )   (1,250 )
Economic net income (loss) 1,057,546 1,107,855
Income taxes (56,388 ) (44,735 )
Amortization of intangibles and other, net (2,367 ) (3,857 )
Non-cash equity based charges (262,675 ) (479,842 )
Allocation to noncontrolling
interests held by KKR Holdings L.P.   (536,930 )   (435,678 )
Net (income) loss attributable to KKR & Co. L.P. $ 199,186   $ 143,743  

___________________________________________________________________________________________________________________

   

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

(GAAP BASIS UNAUDITED)

(Amounts in thousands)

 
As of

June 30, 2011

As of

December 31, 2010

Total Reportable Segments Partners' Capital $ 6,305,037 $ 5,725,626
 
Plus: Equity impact of KKR Management Holdings Corp. and other (52,766 ) (52,745 )
Less: Noncontrolling Interests held by KKR Holdings L.P. 4,727,983 4,346,388
   
Total KKR & Co. L.P. Partners' Capital $ 1,524,288   $ 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
June 30, 2011 March 31, 2011 June 30, 2010
Weighted Average GAAP Common Units Outstanding - Basic 219,188,351 213,479,630 204,902,226
Weighted Average Unvested Common Units(a) 1,025,448 30,000 -
Weighted Average GAAP Common Units Outstanding - Diluted 220,213,799 213,509,630 204,902,226
Adjustments:
Weighted Average KKR Holdings Units (b) 463,829,657 469,527,790 478,105,194
Weighted Average Adjusted Units 684,043,456 683,037,420 683,007,420
 
 
 
Six Months Ended
June 30, 2011 June 30, 2010
Weighted Average GAAP Common Units Outstanding - Basic 216,349,760 204,902,226
Adjustments:
Weighted Average Unvested Common Units(a) 530,474 -
Weighted Average GAAP Common Units Outstanding - Diluted 216,880,234 204,902,226
Adjustments:
Weighted Average KKR Holdings Units (b) 466,662,983 478,105,194
Weighted Average Adjusted Units 683,543,217 683,007,420
         
 
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
June 30, 2011 December 31, 2010
GAAP Common Units Outstanding - Basic 222,531,607 212,770,091
Unvested Common Units(a) 1,099,616 30,000
GAAP Common Units Outstanding - Diluted 223,631,223 212,800,091
Adjustments:
KKR Holdings Units (b) 460,493,018 470,237,329
Adjusted Units 684,124,241 683,037,420

_______________________________________________________________________________________________

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