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

Strong investment appreciation drives meaningful economic net income

GAAP net income attributable to KKR & Co. L.P. was $190.4 million for the quarter ended March 31, 2012, up from $159.6 million for the quarter ended March 31, 2011.

Assets under management (“AUM”) totaled $62.3 billion as of March 31, 2012, up from $59.0 billion as of December 31, 2011.

Fee related earnings (“FRE”) were $73.4 million for the quarter ended March 31, 2012, down from $126.2 million for the quarter ended March 31, 2011.

Gross distributable earnings were $111.5 million for the quarter ended March 31, 2012, down from $192.9 million for the quarter ended March 31, 2011.

Economic net income (“ENI”) was $727.2 million for the quarter ended March 31, 2012, down from $742.5 million for the quarter ended March 31, 2011.

After-tax ENI was $0.99 per adjusted unit for the quarter ended March 31, 2012, up from $0.96 per adjusted unit for the quarter ended March 31, 2011.

Book value was $6.1 billion on a segment basis as of March 31, 2012, representing $8.67 per adjusted unit.

KKR & Co. L.P. declares a first quarter distribution of $0.15 per common unit.

NEW YORK--()--KKR & Co. L.P. (NYSE: KKR) today reported its first quarter 2012 results.

For the quarter ended March 31, 2012, the carrying value of KKR’s private equity investment portfolio appreciated 9.0% driving ENI of $727.2 million for the quarter ended March 31, 2012. This represented a decrease of $15.3 million or 2.1%, as compared to ENI of $742.5 million for the quarter ended March 31, 2011, primarily due to lower monitoring and transaction fees, partially offset by higher net carried interest earned from our private equity funds.

AUM and fee paying assets under management (“FPAUM”) were $62.3 billion and $47.2 billion, respectively as of March 31, 2012, increasing 5.6% and 1.7% from December 31, 2011, respectively. The increase in AUM was primarily attributable to continued investment appreciation during the period, partially offset by distributions to limited partners of our investment funds. FPAUM was higher primarily due to new capital raised. Neither of these measures includes capital-raising for our 11th North American private equity fund.

“Our strong ENI in the quarter was largely the result of 9% appreciation in the value of our private equity portfolio,” said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “This performance, combined with continued progress especially in our energy, infrastructure, and alternative credit businesses, contributed to a strong start to the year.”

____________________________________________________________________________________________

Note: Certain financial measures, including FRE, ENI, after-tax ENI, after-tax ENI per adjusted unit, fee related EBITDA, book value, cash and short-term investments 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 ended March 31, 2012 included net income attributable to KKR & Co. L.P. of $190.4 million and net income attributable to KKR & Co. L.P. per common unit of $0.80 on a diluted basis. For the quarter ended March 31, 2011, net income attributable to KKR & Co. L.P. was $159.6 million and net income attributable to KKR & Co. L.P. per common unit was $0.75 on a diluted basis. The increase was primarily due to a higher level of investment appreciation recorded in net gains (losses) from investment activities in the condensed consolidated statements of operations. This increase in net gains (losses) from investment activities was partially offset by (i) a decrease in fees primarily due to lower monitoring and transaction fees and (ii) an increase in compensation and benefits expense. The increase in compensation and benefits expense was primarily attributable to a higher carry pool allocation as a result of the recognition of higher carried interest during the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011.

SEGMENT RESULTS

Private Markets

AUM was $46.0 billion as of March 31, 2012, an increase of $2.4 billion, or 5.5%, compared to AUM of $43.6 billion as of December 31, 2011. The increase was primarily due to investment appreciation, partially offset by distributions to limited partners of our private equity funds arising from realizations.

FPAUM was $38.0 billion as of March 31, 2012, an increase of $0.1 billion, or 0.3%, compared to FPAUM of $37.9 billion as of December 31, 2011. The increase was primarily attributable to favorable changes in foreign exchange related to euro-denominated commitments and invested capital, partially offset by distributions to the limited partners of our private equity funds arising from realizations.

FRE was $37.7 million for the quarter ended March 31, 2012, a decrease of $52.9 million, or 58.4%, compared to FRE of $90.6 million for the quarter ended March 31, 2011. The decrease was primarily driven by (i) lower monitoring fees as a result of $68.8 million of termination payments on monitoring agreements with two portfolio companies during the quarter ended March 31, 2011, which impacted FRE by $37.8 million net of associated fee credits, and (ii) lower transaction fees resulting from closing fewer transaction fee-generating investments.

ENI was $265.3 million for the quarter ended March 31, 2012, a decrease of $11.4 million, or 4.1%, compared to ENI of $276.7 million for the quarter ended March 31, 2011. The decrease was primarily attributable to the decline in FRE discussed above, partially offset by higher net carried interest driven by a higher level of appreciation in our private equity portfolio.

Public Markets

AUM was $16.3 billion as of March 31, 2012, an increase of $0.9 billion, or 5.8%, compared to AUM of $15.4 billion as of December 31, 2011. FPAUM was $9.3 billion as of March 31, 2012, an increase $0.8 billion, or 9.4%, compared to FPAUM of $8.5 billion as of December 31, 2011. For both AUM and FPAUM, the increases were primarily attributable to new capital raised as well as appreciation in the net asset value of certain investment vehicles.

FRE was $15.4 million for the quarter ended March 31, 2012, an increase of $0.9 million, or 6.2%, compared to FRE of $14.5 million for the quarter ended March 31, 2011. The increase was primarily due to a higher level of management fees related to new capital raised over the past year, partially offset by lower incentive fees earned in the first quarter of 2012.

ENI was $23.9 million for the quarter ended March 31, 2012, an increase of $8.0 million, or 50.3%, compared to ENI of $15.9 million for the quarter ended March 31, 2011. The increase was primarily attributable to higher net carried interest due to investment appreciation of certain carry-earning investment vehicles.

Capital Markets and Principal Activities

FRE was $20.2 million for the quarter ended March 31, 2012, a decrease of $0.9 million, or 4.3%, compared to FRE of $21.1 million for the quarter ended March 31, 2011. The decrease was primarily due to higher compensation expense in connection with increased headcount to support the expansion of the capital markets business.

ENI was $438.0 million for the quarter ended March 31, 2012, a decrease of $11.9 million, or 2.6%, compared to ENI of $449.9 million for the quarter ended March 31, 2011. The decrease was primarily attributable to a lower level of investment income. While the fair value of our principal investments increased by a similar percentage during the first quarter of 2012 as they did in the first quarter of 2011, the appreciation was on a slightly smaller investment base.

CAPITAL AND LIQUIDITY

As of March 31, 2012, KKR had $855.5 million of cash and short-term investments on a segment basis and $500.0 million of outstanding debt obligations under its senior notes. KKR’s availability for further borrowings was approximately $750.0 million (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, 2012).

As of March 31, 2012, KKR’s portion of total uncalled commitments to its investment funds was $594.9 million, consisting of the following (amounts in thousands):

   
Commitments

Private Markets

European Fund III $ 266,900
2006 Fund 107,400
Asian Fund 64,300
Infrastructure 40,400
E2 Investors (Annex Fund) 28,100
Natural Resources 16,200
China Growth Fund 6,900
Other Private Markets Commitments   4,000
Total Private Markets Commitments   534,200
 

Public Markets

Mezzanine Fund 29,400
Direct Lending 24,400
Special Situations Vehicles   6,900
Total Public Markets Commitments   60,700
 
Total Uncalled Commitments $ 594,900
 

DISTRIBUTION

A distribution of $0.15 per common unit will be paid on May 21, 2012 to unitholders of record as of the close of business on May 7, 2012.

CONFERENCE CALL

A conference call to discuss KKR’s financial results will be held on Friday, April 27, 2012 at 10:00 a.m. EDT. The conference call may be accessed by dialing (888) 401-4685 (U.S. callers) or +1 (719) 325-2490 (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 Public Investors section of KKR’s website at http://ir.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 8483281, 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 Public Investors section of KKR’s website at http://ir.kkr.com/kkr_ir/alerts.cfm. In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the “Email Alerts” area of the Public Investors 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 $62.3 billion in assets under management as of March 31, 2012. 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, after-tax ENI, fee related EBITDA, committed and syndicated dollars invested, uncalled commitments, core interest expense, cash and short-term investments 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, 2011, filed with the SEC on February 27, 2012, 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, 2012 March 31, 2011
Revenues
Fees $ 116,307   $ 231,843  
 
Expenses
Compensation and Benefits 372,410 356,554
Occupancy and Related Charges 15,197 12,554
General, Administrative and Other   57,651     54,644  
Total Expenses   445,258     423,752  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 3,086,865 2,487,209
Dividend Income 172,939 4,808
Interest Income 76,199 65,368
Interest Expense   (18,005 )   (17,252 )
Total Investment Income (Loss)   3,317,998     2,540,133  
 
Income (Loss) Before Taxes 2,989,047 2,348,224
 
Income Taxes   17,072     30,783  
 
Net Income (Loss) 2,971,975 2,317,441
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests 5,272 -
Net Income (Loss) Attributable to
Noncontrolling Interests 2,776,267 2,157,876
   
Net Income (Loss) Attributable to KKR & Co. L.P. $ 190,436   $ 159,565  
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.15 $ 0.21
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.83 $ 0.75
Diluted (a) $ 0.80 $ 0.75
Weighted Average Common Units Outstanding
Basic 229,099,335 213,479,630
Diluted (a) 237,832,106 213,509,630
 
 

(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, 2012 December 31, 2011 March 31, 2011
Fees
Management and incentive fees:
Management fees $ 128,643 $ 127,556 $ 127,550
Incentive fees   9,670     6,084     12,013  
Management and incentive fees   138,313     133,640     139,563  
 
Monitoring and transaction fees:
Monitoring fees 25,822 21,797 90,427
Transaction fees 44,298 128,338 87,276
Fee credits   (19,343 )   (36,862 )   (72,992 )
Net monitoring and transaction fees   50,777     113,273     104,711  
 
Total fees   189,090     246,913     244,274  
 
Expenses
Compensation and benefits 62,724 65,038 63,140
Occupancy and related charges 14,461 14,353 11,859
Other operating expenses   38,549     50,947     43,072  
Total expenses (a)   115,734     130,338     118,071  
 
Fee Related Earnings   73,356     116,575     126,203  
 
Investment income (loss)
Gross carried interest 469,364 96,503 332,121
Less: allocation to KKR carry pool (191,506 ) (40,410 ) (139,515 )
Less: management fee refunds (b)   (40,708 )   (1,993 )   (4,804 )
Net carried interest 237,150 54,100 187,802
Other investment income (loss)   419,907     117,039     430,175  
Total investment income (loss)   657,057     171,139     617,977  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 730,413 287,714 744,180
Income (Loss) attributable to
noncontrolling interests   3,211     2,220     1,660  
 
Economic Net Income (Loss) $ 727,202   $ 285,494   $ 742,520  
 
Provision for Income Taxes 43,383 59,988 88,739
 
Economic Net Income (Loss), After Taxes (c) $ 683,819   $ 225,506   $ 653,781  
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (c) $ 0.99 $ 0.33 $ 0.96
                   
Assets Under Management $ 62,292,600 $ 59,008,600 $ 61,043,200
Fee Paying Assets Under Management $ 47,226,500 $ 46,397,300 $ 45,716,600
Committed Dollars Invested and Syndicated Capital $ 1,033,000 $ 3,734,500 $ 1,555,800
Uncalled Commitments     $ 11,015,100       $ 11,400,500       $ 13,303,600  
                   

Other Information

Fee Related Earnings $ 73,356 $ 116,575 $ 126,203
Plus: depreciation and amortization   2,553     2,528     2,641  
Fee Related EBITDA $ 75,909   $ 119,103   $ 128,844  
 
Gross Distributable Earnings $ 111,486 $ 195,725 $ 192,938
 
GAAP interest expense $ 18,005 $ 20,393 $ 17,252
Less: interest expense related to debt obligations
from investment financing arrangements   8,073     9,598     6,557  
Core Interest Expense (c) $ 9,932   $ 10,795   $ 10,695  
                               
 

(a)

Excludes a $16.3 million and $5.5 million charge for non-cash equity based compensation during the quarters ended March 31, 2012 and December 31, 2011, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. There was no non-cash equity based compensation charge associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan for the quarter ended March 31, 2011.

 

(b)

As of March 31, 2012, $66.0 million of carried interest is subject to management fee refunds, which may reduce carried interest in future periods.

 

(c)

See definitions for after-tax ENI, 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
March 31, 2012 December 31, 2011 March 31, 2011
Fees
Management and incentive fees:
Management fees $ 106,912 $ 106,716 $ 110,257
Incentive fees   -     -     -  
Management and incentive fees   106,912     106,716     110,257  
 
Monitoring and transaction fees:
Monitoring fees 25,822 21,797 90,427
Transaction fees 11,667 65,148 53,178
Fee credits   (17,706 )   (34,799 )   (70,787 )
Net monitoring and transaction fees   19,783     52,146     72,818  
 
Total fees   126,695     158,862     183,075  
 
Expenses
Compensation and benefits 44,486 46,139 45,975
Occupancy and related charges 12,805 12,902 10,575
Other operating expenses   31,675     42,825     35,884  
Total expenses   88,966     101,866     92,434  
 
Fee Related Earnings   37,729     56,996     90,641  
 
Investment income (loss)
Gross carried interest 454,505 96,115 329,047
Less: allocation to KKR carry pool (185,562 ) (40,255 ) (138,285 )
Less: management fee refunds   (40,708 )   (1,993 )   (4,804 )
Net carried interest 228,235 53,867 185,958
Other investment income (loss)   1,652     (364 )   1,067  
Total investment income (loss)   229,887     53,503     187,025  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 267,616 110,499 277,666
Income (Loss) attributable to
noncontrolling interests   2,296     651     927  
 
Economic Net Income (Loss) $ 265,320   $ 109,848   $ 276,739  
 
 
Assets Under Management $ 45,986,400 $ 43,627,900 $ 46,239,100
Fee Paying Assets Under Management $ 37,974,800 $ 37,869,700 $ 37,883,600
Committed Dollars Invested $ 576,200 $ 2,148,400 $ 809,700
Uncalled Commitments $ 9,596,700 $ 10,070,300 $ 12,071,700
 

                 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended
March 31, 2012 December 31, 2011 March 31, 2011
Fees
Management and incentive fees:
Management fees $ 21,731 $ 20,840 $ 17,293
Incentive fees   9,670     6,084     12,013  
Management and incentive fees   31,401     26,924     29,306  
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 2,422 4,151 3,729
Fee credits   (1,637 )   (2,063 )   (2,205 )
Net monitoring and transaction fees   785     2,088     1,524  
 
Total fees   32,186     29,012     30,830  
 
Expenses
Compensation and benefits 11,382 12,166 11,159
Occupancy and related charges 1,418 1,189 955
Other operating expenses   3,977     3,834     4,208  
Total expenses   16,777     17,189     16,322  
 
Fee Related Earnings   15,409     11,823     14,508  
 
Investment income (loss)
Gross carried interest 14,859 388 3,074
Less: allocation to KKR carry pool (5,944 ) (155 ) (1,230 )
Less: management fee refunds   -     -     -  
Net carried interest 8,915 233 1,844
Other investment income (loss)   (23 )   (93 )   (351 )
Total investment income (loss)   8,892     140     1,493  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 24,301 11,963 16,001
Income (Loss) attributable to
noncontrolling interests   431     119     138  
 
Economic Net Income (Loss) $ 23,870   $ 11,844   $ 15,863  
 
Assets Under Management $ 16,306,200 $ 15,380,700 $ 14,804,100
Fee Paying Assets Under Management $ 9,251,700 $ 8,527,600 $ 7,833,000
Committed Dollars Invested $ 206,200 $ 434,200 $ 317,400
Uncalled Commitments $ 1,418,400 $ 1,330,200 $ 1,231,900
 

               
KKR
STATEMENTS OF OPERATIONS
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended
March 31, 2012 December 31, 2011 March 31, 2011
Fees
Management and incentive fees:
Management fees $ - $ - $ -
Incentive fees   -   -   -
Management and incentive fees   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 30,209 59,039 30,369
Fee credits   -   -   -
Net monitoring and transaction fees   30,209   59,039   30,369
 
Total fees   30,209   59,039   30,369
 
Expenses
Compensation and benefits 6,856 6,733 6,006
Occupancy and related charges 238 262 329
Other operating expenses   2,897   4,288   2,980
Total expenses   9,991   11,283   9,315
 
Fee Related Earnings   20,218   47,756   21,054
 
Investment income (loss)
Gross carried interest - - -
Less: allocation to KKR carry pool - - -
Less: management fee refunds   -   -   -
Net carried interest - - -
Other investment income (loss)   418,278   117,496   429,459
Total investment income (loss)   418,278   117,496   429,459
 
Income (Loss) before noncontrolling interests

in Income of consolidated entities

438,496 165,252 450,513
Income (Loss) attributable to
noncontrolling interests   484   1,450   595
 
Economic Net Income (Loss) $ 438,012 $ 163,802 $ 449,918
 
Syndicated Capital $ 250,600 $ 1,151,900 $ 428,700
 

                     
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS - ACTUAL (UNAUDITED)
Quarter Ended March 31, 2012
(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 $ 106,912 $ 21,731 $ - $ 128,643
Incentive fees   -     9,670     -   9,670  
Management and incentive fees   106,912     31,401     -   138,313  
 
Monitoring and transaction fees:
Monitoring fees 25,822 - - 25,822
Transaction fees 11,667 2,422 30,209 44,298
Fee credits   (17,706 )   (1,637 )   -   (19,343 )
Net monitoring and transaction fees   19,783     785     30,209   50,777  
 
Total fees   126,695     32,186     30,209   189,090  
 
Expenses
Compensation and benefits 44,486 11,382 6,856 62,724
Occupancy and related charges 12,805 1,418 238 14,461
Other operating expenses   31,675       3,977     2,897   38,549  
Total expenses   88,966       16,777     9,991   115,734  
 
Fee Related Earnings   37,729     15,409     20,218   73,356  
 
Investment income (loss)
Gross carried interest 454,505 14,859 - 469,364
Less: allocation to KKR carry pool (185,562 ) (5,944 ) - (191,506 )
Less: management fee refunds   (40,708 )   -     -   (40,708 )
Net carried interest 228,235 8,915 - 237,150
Other investment income (loss)   1,652     (23 )   418,278   419,907  
Total investment income (loss)   229,887     8,892     418,278   657,057  
 
Income (Loss) before noncontrolling interests

in Income of consolidated entities

267,616 24,301 438,496 730,413
Income (Loss) attributable to
noncontrolling interests 2,296 431 484 3,211
       
Economic Net Income (Loss) $ 265,320   $ 23,870   $ 438,012 $ 727,202  
 

                     
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS - ACTUAL (UNAUDITED)
Quarter Ended December 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 $ 106,716 $ 20,840 $ - $ 127,556
Incentive fees   -     6,084     -   6,084  
Management and incentive fees   106,716     26,924     -   133,640  
 

Monitoring and transaction fees:

Monitoring fees 21,797 - - 21,797
Transaction fees 65,148 4,151 59,039 128,338
Fee credits   (34,799 )   (2,063 )   -   (36,862 )
Net monitoring and transaction fees   52,146     2,088     59,039   113,273  
 
Total fees   158,862     29,012     59,039   246,913  
 
Expenses
Compensation and benefits 46,139 12,166 6,733 65,038
Occupancy and related charges 12,902 1,189 262 14,353
Other operating expenses   42,825       3,834     4,288   50,947  
Total expenses   101,866       17,189     11,283   130,338  
 
Fee Related Earnings   56,996     11,823     47,756   116,575  
 
Investment income (loss)
Gross carried interest 96,115 388 - 96,503
Less: allocation to KKR carry pool (40,255 ) (155 ) - (40,410 )
Less: management fee refunds   (1,993 )   -     -   (1,993 )
Net carried interest 53,867 233 - 54,100
Other investment income (loss)   (364 )   (93 )   117,496   117,039  
Total investment income (loss)   53,503     140     117,496   171,139  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 110,499 11,963 165,252 287,714
Income (Loss) attributable to
noncontrolling interests 651 119 1,450 2,220
       
Economic Net Income (Loss) $ 109,848   $ 11,844   $ 163,802 $ 285,494  
 

                     
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS - ACTUAL (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 (a) 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
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
 
As of March 31, 2012
Capital
Markets and
Private Public Principal Total
Markets Markets Activities Reportable
Segment Segment Segment Segments
 
Cash and short-term investments $ 237,040 $ 7,467 $ 611,041 $ 855,548
Investments - - 5,023,016 (a) 5,023,016
Unrealized carry 589,268 10,362 - 599,630
Other assets   151,620     65,088   80,362   297,070
Total assets $ 977,928   $ 82,917 $ 5,714,419 $ 6,775,264
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   158,523     11,631   9,032   179,186
Total liabilities   158,523     11,631   509,032   679,186
 
Noncontrolling interests 910 383 17,629 18,922
       
Book value $ 818,495   $ 70,903 $ 5,187,758 $ 6,077,156
 
Book value per adjusted unit $ 1.17 $ 0.10 $ 7.40 $ 8.67
 
 
 
As of December 31, 2011

Capital

Markets and

Private Public Principal Total
Markets Markets Activities Reportable
Segment Segment Segment Segments
 
Cash and short-term investments $ 296,717 $ 8,087 $ 684,637 $ 989,441
Investments - - 4,743,406 4,743,406
Unrealized carry 419,523 1,447 - 420,970
Other assets   139,432     58,360   63,799   261,591
Total assets $ 855,672   $ 67,894 $ 5,491,842 $ 6,415,408
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   128,590     8,153   49,329   186,072
Total liabilities   128,590     8,153   549,329   686,072
 
Noncontrolling interests (1,358 ) 729 19,381 18,752
       
Book value $ 728,440   $ 59,012 $ 4,923,132 $ 5,710,584
 
Book value per adjusted unit $ 1.06 $ 0.09 $ 7.14 $ 8.29
 
 

(a)

See Capital Markets and Principal Activities segment schedule of investments that follows on pages 14 and 15.

           
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS
(Amounts in thousands, except percentage amounts)
 
As of March 31, 2012

 

 

Fair Value as
Fair a Percentage

Investment

Cost

Value of Investments
 
Co-Investments in Portfolio Companies of
Private Equity Funds:
Dollar General Corporation $ 126,329 $ 643,460 12.7 %
HCA Inc. 171,227 374,194 7.4 %
Alliance Boots GmbH 301,352 333,262 6.6 %
The Nielsen Company B.V. 156,839 312,723 6.2 %
Samson Resources Corporation 237,514 237,514 4.7 %
NXP B.V. 207,963 209,673 4.1 %
U.S. Foodservice, Inc. 100,000 140,000 2.8 %
Biomet, Inc. 151,444 121,155 2.4 %
ProSiebenSat.1 Media AG 226,913 105,933 2.1 %
First Data Corporation 135,258 94,680 1.9 %
KION Group GmbH 128,058 73,048 1.4 %
Energy Future Holdings Corp. 200,000 10,000 0.2 %
PagesJaunes Groupe S.A.   235,201   - 0.0 %
  2,378,098   2,655,642 52.5 %
 
Private Equity Investment Vehicles
KKR 2006 Fund L.P. 839,024 936,040 18.5 %
KKR European Fund III L.P. 164,042 177,005 3.5 %
KKR Millennium Fund L.P. 143,653 154,582 3.1 %
KKR Asian Fund L.P. 94,799 138,564 2.7 %
KKR European Fund II L.P. 89,611 74,692 1.5 %
KKR European Fund L.P. 60,922 41,811 0.8 %
KKR E2 Investors, L.P. 12,187 19,101 0.4 %
KKR China Growth Fund L.P. 3,024 4,272 0.1 %
Co-Investment Vehicles   600   674 0.0 %
  1,407,862   1,546,741 30.6 %
 
Private Equity Total   3,785,960   4,202,383 83.1 %
 
Energy & Infrastructure
Infrastructure Fund 14,490 14,524 0.3 %
Co-Investment Vehicles 10,477 11,668 0.2 %
Natural Resources   6,759   5,797 0.1 %
Energy & Infrastructure Total   31,726   31,989 0.6 %
 
Private Markets Total   3,817,686   4,234,372 83.7 %
 
Public Markets Investment Vehicles
Liquid Credit SMAs/Funds 170,000 184,877 3.7 %
Long/Short Equities Funds 100,000 97,962 1.9 %
Direct Lending 58,321 59,831 1.2 %
Special Situations Vehicles 16,507 18,365 0.4 %
Mezzanine Fund   15,253   16,820 0.3 %
Public Markets Total   360,081   377,855 7.5 %
 
Other   419,216   410,789 8.8 %
 
Total Investments $ 4,596,983 $ 5,023,016 100.0 %
 

           
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS, CONTINUED
(Amounts in thousands, except percentage amounts)
 
As of March 31, 2012

 

 

Fair Value as
Fair a Percentage

Investment

Cost

Value of Investments
 
Significant Aggregate Investments: (a)
Dollar General Corporation $ 175,540 $ 852,699 17.0 %
HCA Inc. 217,011 463,394 9.2 %
Alliance Boots GmbH 352,382 391,717 7.8 %
The Nielsen Company B.V. 172,841 341,613 6.8 %
Samson Resources Corporation   283,143   283,143 5.6 %
  1,200,917   2,332,566 46.4 %
 
Other investments   3,396,066   2,690,450 53.6 %
Total Investments $ 4,596,983 $ 5,023,016 100.0 %
 
 
Investments by Geography:
North America $ 2,890,629 $ 3,674,885 73.2 %
Europe 1,504,208 1,080,726 21.5 %
Asia-Pacific   202,146   267,405 5.3 %
Total Investments $ 4,596,983 $ 5,023,016 100.0 %
 
 
Investments by Industry:
Financial Services $ 1,193,186 $ 1,122,500 22.3 %
Retail 432,157 1,121,643 22.3 %
Healthcare 819,442 1,061,559 21.1 %
Media/Telecom 766,758 584,752 11.6 %
Technology 397,209 428,301 8.5 %
Energy 614,583 344,996 6.9 %
Industrial 254,765 228,615 4.6 %
Consumer Products 92,957 91,393 1.8 %
Other   25,926   39,257 0.9 %
Total Investments $ 4,596,983 $ 5,023,016 100.0 %
 
 

(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, 2012. The fair value figures include the co-investment and the limited partner and/or general partner interests in the underlying portfolio company.

                       
KKR
ASSETS UNDER MANAGEMENT AND FEE PAYING ASSETS UNDER MANAGEMENT
(Amounts in thousands)
 
 
Assets Under Management
Total
Private Markets Public Markets Reportable
Segment Segment Segments

Quarter Ended March 31, 2012

 
December 31, 2011 $ 43,627,900 $ 15,380,700 $ 59,008,600
 
New Capital Raised 59,500 494,900 554,400
Distributions (751,200 ) (121,800 )

(a)

(873,000 )
Foreign Exchange 51,200 - 51,200
Change in Value 2,999,000 552,400 3,551,400
     
March 31, 2012 $ 45,986,400   $ 16,306,200   $ 62,292,600  
 
 
Total
Private Markets Public Markets Reportable
Segment   Segment Segments

Trailing Twelve Months Ended March 31, 2012

 
March 31, 2011 $ 46,239,100 $ 14,804,100 $ 61,043,200
 
New Capital Raised 2,340,400 1,826,200 4,166,600
Distributions (4,741,400 ) (1,068,200 ) (b) (5,809,600 )
Foreign Exchange (151,900 ) - (151,900 )
Change in Value 2,300,200 744,100 3,044,300
     
March 31, 2012 $ 45,986,400   $ 16,306,200   $ 62,292,600  
 
 
 
Fee Paying Assets Under Management
Total
Private Markets Public Markets Reportable
Segment   Segment Segments

Quarter Ended March 31, 2012

 
December 31, 2011 $ 37,869,700 $ 8,527,600 $ 46,397,300
 
New Capital Raised 58,800 511,100 569,900
Distributions (123,300 ) (42,400 ) (a) (165,700 )
Foreign Exchange 151,900 - 151,900
Change in Value 17,700 255,400 273,100
     
March 31, 2012 $ 37,974,800   $ 9,251,700   $ 47,226,500  
 
 
Total
Private Markets Public Markets Reportable
Segment   Segment Segments

Trailing Twelve Months Ended March 31, 2012

 
March 31, 2011 $ 37,883,600 $ 7,833,000 $ 45,716,600
 
New Capital Raised 2,190,000 1,629,900 3,819,900
Distributions (1,624,300 ) (638,300 ) (b) (2,262,600 )
Foreign Exchange (463,100 ) - (463,100 )
Change in Value (11,400 ) 427,100 415,700
     
March 31, 2012 $ 37,974,800   $ 9,251,700   $ 47,226,500  
 
 

(a)

No redemptions during the period.

(b)

Includes $371.5 million of redemptions.

                               
KKR
INVESTMENT VEHICLE SUMMARY* (UNAUDITED)
As of March 31, 2012
(Amounts in millions, except percentages)
   
Investment Period                                      
Percentage
Committed
Commencement End Uncalled by General Amount Remaining Remaining
Date     Date Commitment     Commitment     Partner     Invested     Realized     Cost     Fair Value

Private Markets

 
Private Equity Funds
China Growth Fund 11/2010 11/2016 $ 1,010.0 $ 737.9 1.0   % $ 272.1 $ - $ 272.1 $ 366.0
E2 Investors (Annex Fund) 8/2009 11/2012 539.3 385.1 4.2 % 154.2 - 154.2 247.2
European Fund III 3/2008 3/2014 5,950.3 3,263.8 4.6 % 2,686.5 - 2,686.5 2,825.6
Asian Fund 7/2007 7/2013 3,983.2 1,221.6 2.5 % 2,761.6 211.1 2,616.2 4,453.7
2006 Fund 9/2006 9/2012 17,642.2 1,459.2 2.1 % 16,183.0 4,367.1 13,886.7 16,831.7
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 1,554.1 4,654.1 4,128.7
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 7,252.5 3,319.5 4,951.1
European Fund 12/1999 12/2005   3,085.4   - 3.2 %   3,085.4   8,325.6   95.2   507.9
Total Private Equity Funds 43,961.2 7,067.6 36,893.6 21,710.4 27,684.5 34,311.9
 
Co-Investment Vehicles Various Various   2,290.8   362.7 Various   1,928.1   723.0   1,730.3   2,579.5
Total Private Equity   46,252.0   7,430.3   38,821.7   22,433.4   29,414.8   36,891.4
 
Energy & Infrastructure
Natural Resources Various Various 1,094.0 862.2 Various 231.8 14.4 226.9 194.3
Infrastructure Various Various 780.8 623.5

6.4

 

%

157.3 -

 

157.3 157.6
Co-Investment Vehicles Various Various   1,863.3   680.7 Various   1,182.6   87.8

 

  1,182.6   1,315.7
Energy & Infrastructure Total   3,738.1   2,166.4   1,571.7   102.2   1,566.8   1,667.6
           
Private Markets Total   49,990.1   9,596.7   40,393.4   22,535.6   30,981.6   38,559.0
 

Public Markets

 
Special Situations Vehicles Various Various 2,031.8 641.8 Various 1,390.0 69.1 1,390.0 1,516.2
Mezzanine Fund 3/2010 8/2015 987.0 644.3

4.6

 

%

342.7 8.1 342.7 369.6
Direct Lending 12/2011 12/2014 251.3 132.3

33.1

 

%

119.0 - 119.0 122.1
           
Public Markets Total   3,270.1   1,418.4   1,851.7   77.2   1,851.7   2,007.9
 
Grand Total $ 53,260.2 $ 11,015.1 $ 42,245.1 $ 22,612.8 $ 32,833.3 $ 40,566.9
 
 
* Reflects investment vehicles for which KKR has the ability to earn carried interest.
 

             
KKR
DISTRIBUTION CALCULATION
(Amounts in thousands, except unit and per unit amounts)
 
 
Quarter Ended
March 31,

2012

December 31,

2011

March 31,

2011

 
FRE $ 73,356 $ 116,575 $ 126,203
Realized cash carry 44,927 83,226 73,227
Less: local income taxes (3,586 ) (1,856 ) (4,832 )
Less: noncontrolling interests   (3,211 )   (2,220 )   (1,660 )
Gross distributable earnings   111,486     195,725     192,938  
 
Distributable earnings to KKR & Co. L.P. 37,800 65,059 61,103
 
Less: estimated current corporate income taxes (4,022 ) (22,924 ) (14,597 )
     
Net cash available for distribution $ 33,778 $ 42,135 $ 46,506
 
Additional distribution (a) - 29,530 -
     
Total distribution $ 33,778   $ 71,665   $ 46,506  
 
Distribution per KKR & Co. L.P. common unit $ 0.15 $ 0.32 $ 0.21
 
Outstanding KKR & Co. L.P. common units   231,698,206     227,150,182     216,317,787  
 
 

(a)

Additional distribution is provided primarily from certain realizations on investments within KKR’s Capital Markets and Principal Activities segment and was calculated in accordance with our distribution policy to cover certain tax liabilities. The amount of any additional distribution in the future should not be expected to be consistent or regularly declared.

 

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 purposes of KKR’s distribution policy, its distributions are expected to consist 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) non-controlling 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 unit holder’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.

KKR discloses the following financial measures in this earnings release that are calculated and presented using methodologies other than in accordance with GAAP. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to investors in assessing the overall performance of KKR’s businesses. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included elsewhere within this earnings release.

Fee related earnings (“FRE”) is comprised of segment operating revenues less segment operating expenses and is used by management as an alternative measurement of the operating earnings of KKR and its business segments before investment income. We believe this measure is useful to investors as it provides additional insight into the operating profitability of our fee generating management companies and capital markets businesses. The components of FRE on a segment basis differ from the equivalent 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 (loss) (“ENI”) is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. We believe this measure is useful to investors as it provides additional insight into the overall profitability of KKR’s businesses inclusive of investment income and carried interest. ENI is comprised of: (i) FRE; plus (ii) segment investment income (loss), 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 (loss) 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 (loss) relating to noncontrolling interests; and (iii) the exclusion of income taxes.

After-tax ENI is used to measure KKR’s implied ENI on a fully diluted basis. We believe this measure is useful to investors as it provides an indication of KKR’s ENI as if all outstanding KKR Holdings units had been exchanged for common units of KKR & Co. L.P. 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. We believe this measure is useful to investors as it provides additional insight into KKR’s capital raising activities and the overall activity in its investment funds and vehicles. 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 may be set forth in the agreements governing the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory definitions.

Fee paying AUM (“FPAUM”) represents only those assets under management from which KKR receives fees. We believe this measure is useful to investors as it provides additional insight into the capital base upon which KKR earns management fees. This relates to KKR’s capital raising activities and the overall activity in its investment funds and vehicles, for only those funds and vehicles where KKR receives fees (i.e., excluding vehicles that receive only carried interest or general partner capital). 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 and is used as a measure of investment activity for KKR and its business segments during a given period. We believe this measure is useful to investors as it provides additional insight into KKR’s investment of committed capital. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a fee or carried interest and (ii) capital invested by KKR’s investment funds and vehicles.

Syndicated capital is the aggregate amount of debt or equity capital in transactions originated by KKR investment funds and vehicles, which has been distributed to third parties in exchange for a fee. It does not include capital committed to such transactions by carry-yielding co-investment vehicles, which is instead reported in committed dollars invested. Syndicated capital is used as a measure of investment activity for KKR and its business segments during a given period, and we believe that this measure is useful to investors as it provides additional insight into levels of syndication activity in KKR’s Capital Markets and Principal Activities segment and across its investment platform.

Uncalled commitments are used as a measure of 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. We believe this measure is useful to investors as it provides additional insight into the amount of capital that is available to KKR’s investment funds and vehicles to make future investments.

Adjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. and KKR Holdings and represent the fully diluted unit count using the if-converted method. We believe this measure is useful to investors as it provides an indication of the total equity ownership of KKR as if all outstanding KKR Holdings units had been exchanged for common units of KKR & Co. L.P.

Core interest expense is used by management as an alternative measurement of interest expense incurred by KKR on a segment basis and 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. We believe this measure is useful to investors as it provides an indication of the amount of interest expense borne by KKR excluding interest expense that is allocated to KKR’s investment funds and vehicles and other noncontrolling interest holders. Additionally, we believe this measure is useful for analyzing KKR’s ability to service its debt obligations.

Book value is a measure of the net assets of KKR’s reportable segments and is used by management primarily in assessing the unrealized value of our investment portfolio, including carried interest, as well as our overall liquidity position. We believe this measure is useful to investors as it provides additional insight into the assets and liabilities of KKR excluding the assets and liabilities that are allocated to noncontrolling interest holders. Book value differs from the equivalent GAAP amounts on a consolidated basis primarily as a result of the exclusion of ownership interests in consolidated investment vehicles and other entities that are attributable to noncontrolling interests.

Fee related EBITDA is comprised of FRE before the impact of depreciation of fixed assets and amortization of intangible assets and is used by management as a measure of the cash earnings of KKR and its business segments before investment income. We believe this measure is useful to investors as it provides additional insight into the amount of cash earnings generated by KKR’s management companies and capital markets businesses.

Cash and short-term investments represent cash and liquid short-term investments in high-grade, short-duration cash management strategies used by KKR to generate additional yield on our excess liquidity and is used by management in evaluating KKR’s liquidity position. We believe this measure is useful to investors as it provides additional insight into KKR’s available liquidity. Cash and short-term investments differ from cash and cash equivalents on a GAAP basis as a result of the inclusion of liquid short-term investments in cash and short-term investments.

           
KKR

EXHIBIT A

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT (GAAP BASIS - UNAUDITED)
TO AFTER TAX ENI PER ADJUSTED UNIT
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended Quarter Ended Quarter Ended
March 31, 2012 December 31, 2011 March 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. per common unit $ 0.83   $ 0.20   $ 0.75  
Weighted Average Common Units Outstanding 229,099,335 225,382,001 213,479,630
Net income (loss) attributable to KKR & Co. L.P. 190,436 46,137 159,565
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

404,191 133,301 408,904
Plus: Non-cash equity based charges 114,341 83,688 141,982
Plus: Amortization of intangibles and other, net 1,162 1,046 1,286
Plus: Income taxes   17,072     21,322     30,783  
Economic net income (loss) 727,202 285,494 742,520
Less: Provision for income taxes   (43,383 )   (59,988 )   (88,739 )
Economic net income (loss) after taxes 683,819 225,506 653,781
Adjusted units   692,097,188     689,335,706     683,037,420  
Economic net income (loss) after taxes per adjusted unit $ 0.99   $ 0.33   $ 0.96  
 
                   
 
 
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS - UNAUDITED)
TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS AND FEE RELATED EBITDA
(Amounts in thousands)
 
Quarter Ended Quarter Ended Quarter Ended
March 31, 2012 December 31, 2011 March 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. $ 190,436 $ 46,137 $ 159,565
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

404,191 133,301 408,904
Plus: Non-cash equity based charges 114,341 83,688 141,982
Plus: Amortization of intangibles and other, net 1,162 1,046 1,286
Plus: Income taxes   17,072     21,322     30,783  
Economic net income (loss) 727,202 285,494 742,520
Plus: Income attributable to segment noncontrolling interests 3,211 2,220 1,660
Plus: Investment income (loss)   (657,057 )   (171,139 )   (617,977 )
Fee related earnings 73,356 116,575 126,203
Plus: depreciation and amortization   2,553     2,528     2,641  
Fee related EBITDA $ 75,909   $ 119,103   $ 128,844  
 

       
KKR

EXHIBIT A (CONTINUED)

RECONCILIATION OF KKR & CO. L.P. PARTNERS' CAPITAL (GAAP BASIS - UNAUDITED)
TO BOOK VALUE AND BOOK VALUE PER ADJUSTED UNIT
(Amounts in thousands, except common unit and per common unit amounts)
 
 
As of As of
March 31, 2012 December 31, 2011
 
KKR & Co. L.P. partners’ capital $ 1,510,273 $ 1,328,698
 
Plus: Noncontrolling interests held by KKR Holdings L.P. 4,560,614 4,342,157
 
Plus: Equity impact of KKR Management Holdings Corp. and other   6,269   39,729
 
Book value 6,077,156 5,710,584
 
Adjusted units 701,042,870 689,392,861
   
Book value per adjusted unit $ 8.67 $ 8.29
 
 
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS - UNAUDITED)
TO CASH AND SHORT-TERM INVESTMENTS (SEGMENT BASIS)
(Amounts in thousands)
 
As of As of
March 31, 2012 December 31, 2011
 
Cash and cash equivalents $ 611,213 $ 843,261
 
Plus: Liquid short-term investments 244,335 146,180
   
Cash and short-term investments $ 855,548 $ 989,441
 

                   
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, 2012 December 31, 2011 March 31, 2011
Weighted Average GAAP Common Units Outstanding - Basic 229,099,335 225,382,001 213,479,630
Weighted Average Unvested Common Units(a) 8,732,771 5,979,031 30,000
Weighted Average GAAP Common Units Outstanding - Diluted 237,832,106 231,361,032 213,509,630
Adjustments:
Weighted Average KKR Holdings Units(b) 454,265,082 457,974,674 469,527,790
Weighted Average Adjusted Units 692,097,188 689,335,706 683,037,420
 
                             
 
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, 2012 December 31, 2011
GAAP Common Units Outstanding - Basic 231,698,206 227,150,182
Unvested Common Units(a) 17,678,453 6,028,444
GAAP Common Units Outstanding - Diluted 249,376,659 233,178,626
Adjustments:
KKR Holdings Units(b) 451,666,211 456,214,235
Book Value Per Adjusted Units 701,042,870 689,392,861
 

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

Sharing

Contacts

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