KKR & Co. L.P. Announces Fourth Quarter and Full Year 2012 Results

Significant realization activity drives record total distributable earnings

GAAP net income (loss) attributable to KKR & Co. L.P. was $96.7 million and $560.8 million for the quarter and year ended December 31, 2012, respectively, up from $46.1 million and $1.9 million in the comparable periods of 2011.

Assets under management (“AUM”) totaled $75.5 billion as of December 31, 2012, up from $66.3 billion as of September 30, 2012.

Fee related earnings (“FRE”) were $86.0 million and $319.8 million for the quarter and year ended December 31, 2012, respectively, down from $116.6 million and $417.2 million in the comparable periods of 2011.

Total distributable earnings were $546.3 million and $1,449.4 million for the quarter and year ended December 31, 2012, respectively, up from $146.5 million and $782.6 million in the comparable periods of 2011.

Economic net income (loss) (“ENI”) was $347.7 million and $2,130.9 million for the quarter and year ended December 31, 2012, respectively, up from $285.5 million and $750.9 million in the comparable periods of 2011.

After-tax ENI was $0.48 and $2.90 per adjusted unit for the quarter and year ended December 31, 2012, respectively, up from $0.33 and $0.73 per adjusted unit in the comparable periods of 2011.

Book value was $7.0 billion on a segment basis as of December 31, 2012, representing $9.87 per adjusted unit.

KKR & Co. L.P. declares a fourth quarter distribution of $0.70 per common unit, bringing year-to-date distributions for 2012 to $1.22 per common unit, up from $0.74 per common unit for 2011.

NEW YORK--()--KKR & Co. L.P. (NYSE: KKR) today reported its fourth quarter and full year 2012 results.

For the fourth quarter and full year 2012, the carrying value of KKR’s private equity investment portfolio appreciated 4.0% and 23.8%, respectively, driving meaningful ENI.

ENI was $347.7 million for the quarter ended December 31, 2012, an increase of $62.2 million compared to the quarter ended December 31, 2011. The increase was primarily attributable to higher net carried interest earned from our investment funds. ENI was $2,130.9 million for the year ended December 31, 2012, an increase of $1,380.0 million compared to the year ended December 31, 2011. The increase was primarily due to a higher level of appreciation in the carrying value of our principal investments and greater net carried interest earned from our investment funds.

Total distributable earnings was $546.3 million and $1,449.4 million for the quarter and year ended December 31, 2012, respectively, an increase of $399.8 million and $666.8 million from the comparable periods in 2011. The increase in both comparative periods is due to a higher level of realization activity in our private equity investment portfolio.

On October 1, 2012, we closed our acquisition of Prisma Capital Partners LP and its affiliates (“Prisma”), a leading provider of customized hedge fund solutions. Prisma’s results have been reported as part of our Public Markets segment in the fourth quarter of 2012. As of December 31, 2012, Prisma had $8.5 billion of assets under management.

AUM was $75.5 billion as of December 31, 2012, an increase of $9.2 billion, or 13.9%, compared to AUM of $66.3 billion as of September 30, 2012. Fee paying assets under management (“FPAUM”) was $60.8 billion as of December 31, 2012, an increase of $10.5 billion, or 20.9%, compared to FPAUM of $50.3 billion as of September 30, 2012. The increases in both AUM and FPAUM were primarily attributable to new capital from the acquisition of Prisma and to a lesser extent new capital raised and appreciation in the fair value of our investment vehicles. The increases were partially offset by distributions to limited partners of our investment funds. Neither AUM nor FPAUM include $4.0 biillion (includes general partner commitment) of capital raised for our second Asian private equity fund.

On January 23, 2013, we announced the acquisition of a 24.9% interest in Nephila Capital Ltd. (“Nephila”). Nephila is a leading investment manager that offers a broad range of investment products focusing on reinsurance risk, investing in instruments such as insurance-linked securities, catastrophe bonds, and weather derivatives. Nephila has assets under management of approximately $8 billion as of January 1, 2013 and has been managing institutional assets in this space since it was founded in 1998. This strategic partnership increases our breadth of liquid product offerings through a strategy which is uncorrelated to the global financial markets relative to other asset classes. Nephila’s assets under management are not included in KKR’s results.

“Our private equity portfolio and our balance sheet both appreciated 24% in 2012, outperforming the S&P 500 and MSCI World indices by over 700 basis points,” said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “In addition, in 2012 we completed transactions which returned over $9 billion to all investors in our private equity funds and co-investment vehicles, the highest figure in our 36-year history, and contributed to a record annual distribution of $1.22 per common unit. We are pleased with our results.”

 

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 and reconciliation of total distributable earnings under “Distribution Calculation.”
 

GAAP RESULTS

GAAP results for the quarter and year ended December 31, 2012 included net income attributable to KKR & Co. L.P. of $96.7 million and $560.8 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.36 and $2.21, respectively, on a diluted basis. For the quarter and year ended December 31, 2011, net income attributable to KKR & Co. L.P. was $46.1 million and $1.9 million, respectively, and net income attributable to KKR & Co. L.P. per common unit was $0.20 and $0.01, respectively, on a diluted basis. The increases in both comparable periods were primarily due to a greater level of investment appreciation for the quarter and year ended December 31, 2012 compared to the quarter and year ended December 31, 2011. This increase in investment appreciation, which is recorded in net gains (losses) from investment activities, was partially offset by an increase in compensation and benefits expense

SEGMENT RESULTS

Private Markets

AUM was $49.1 billion as of December 31, 2012, a decrease of $0.7 billion, or 1.4%, compared to AUM of $49.8 billion as of September 30, 2012. The decrease was primarily attributable to distributions to the limited partners of our private equity funds arising from realizations. The decrease was partially offset by the appreciation in the fair value of our private equity portfolio and new capital raised.

FPAUM was $41.2 billion as of December 31, 2012, an increase of $0.8 billion, or 2.0%, compared to FPAUM of $40.4 billion as of September 30, 2012. The increase was primarily due to new capital raised, partially offset by distributions to the limited partners of our private equity funds arising from realizations.

FRE was $32.4 million for the quarter ended December 31, 2012, a decrease of $24.6 million, or 43.2%, compared to FRE of $57.0 million for the quarter ended December 31, 2011. The decrease was principally attributable to (i) a lower level of transaction fees during the quarter ended December 31, 2012, as a result of closing relatively smaller transaction fee-generating investments, which in turn produced lower transaction fees and (ii) higher compensation expense in connection with increased headcount. The decrease was partially offset by a higher level of monitoring fees as a result of new monitoring agreements with portfolio companies acquired over the past year.

FRE was $151.0 million for the year ended December 31, 2012, a decrease of $75.6 million, or 33.4%, compared to FRE of $226.6 million for year ended December 31, 2011. The decrease was primarily attributable to (i) a lower level of transaction fees during the year ended December 31, 2012 as a result of closing relatively smaller transaction fee-generating investments, which in turn produced lower transaction fees; (ii) lower monitoring fees as a result of $76.6 million of termination payments on monitoring agreements with three portfolio companies during the year ended December 31, 2011, which increased FRE by $39.7 million net of associated fee credits and (iii) higher compensation expense in connection with increased headcount.

ENI was $177.8 million for the quarter ended December 31, 2012, an increase of $68.0 million, or 61.9%, compared to ENI of $109.8 million for the quarter ended December 31, 2011. ENI was $831.7 million for the year ended December 31, 2012, an increase of $468.9 million, or 129.2%, compared to ENI of $362.8 million for the year ended December 31, 2011. The increase in both comparative periods was primarily attributable to higher net carried interest driven by a greater level of appreciation in our private equity portfolio, partially offset by the decrease in FRE discussed above.

Public Markets

AUM was $26.4 billion as of December 31, 2012, an increase of $9.9 billion, or 60.0%, compared to AUM of $16.5 billion as of September 30, 2012. FPAUM was $19.7 billion as of December 31, 2012, an increase of $9.8 billion, or 99.0%, compared to FPAUM of $9.9 billion as of September 30, 2012. The increase in both AUM and FPAUM were primarily attributable to new capital from the acquisition of Prisma and to a lesser extent net new capital raised.

FRE was $29.4 million for the quarter ended December 31, 2012, an increase of $17.6 million compared to FRE of $11.8 million for the quarter ended December 31, 2011. FRE was $80.5 million for the year ended December 31, 2012, an increase of $20.9 million compared to FRE of $59.6 million for year ended December 31, 2011. The increase in both comparable periods was primarily due to (i) higher management fees related to new capital raised as well as the acquisition of Prisma and (ii) higher incentive fees earned.

ENI was $37.4 million for the quarter ended December 31, 2012, an increase of $25.6 million compared to ENI of $11.8 million for the quarter ended December 31, 2011. The increase was primarily attributable to the increase in FRE discussed above and to a lesser extent a higher level of net carried interest recognized driven by the appreciation in the net asset value of certain carry-eligible investment vehicles.

ENI was $102.9 million for the year ended December 31, 2012, an increase of $44.9 million compared to ENI of $58.0 million for year ended December 31, 2011. The increase was principally attributable to the increase in FRE discussed above and net carried interest recognized for the year ended December 31, 2012 driven by the appreciation in the net asset value of certain carry-eligible investment vehicles. For the year ended December 31, 2011, there was a reversal of previously recognized net carried interest due to a decline in the carrying value of certain carry-eligible investment vehicles.

Capital Markets and Principal Activities

FRE was $24.2 million for the quarter ended December 31, 2012, a decrease of $23.6 million, or 49.4%, compared to FRE of $47.8 million for the quarter ended December 31, 2011. FRE was $88.3 million for the year ended December 31, 2012, a decrease of $42.6 million, or 32.5%, compared to FRE of $130.9 million for year ended December 31, 2011. The decrease in both comparative periods was primarily driven by a lower level of overall capital markets transaction activity.

ENI was $132.6 million for the quarter ended December 31, 2012, a decrease of $31.2 million, or 19.0%, compared to ENI of $163.8 million for the quarter ended December 31, 2011. The decrease was principally attributable to the decrease in FRE discussed above and to a lesser extent a lower level of investment income. While the fair value of our principal investments increased during the fourth quarter of 2012, the level of appreciation was lower than in the comparable period of 2011.

ENI was $1,196.2 million for the year ended December 31, 2012, an increase of $866.0 million compared to ENI of $330.2 million for year ended December 31, 2011. The increase was primarily driven by a higher level of appreciation in the carrying value of our principal investments, partially offset by the decrease in FRE discussed above.

CAPITAL AND LIQUIDITY

As of December 31, 2012, KKR had $1,534.3 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 December 31, 2012).

On February 1, 2013, KKR issued $500.0 million of 5.5% senior notes due in 2043. The senior notes are rated A and A- by Fitch and Standard & Poor’s, respectively.

As of December 31, 2012, KKR’s portion of total uncalled commitments to its investment funds was $677.9 million, consisting of the following (amounts in thousands):

 
Uncalled

Commitments

Private Markets

North America Fund XI $ 232,100
European Fund III 174,000
2006 Fund 64,700
Asian Fund 35,400
Infrastructure 34,100
E2 Investors (Annex Fund) 14,000
Natural Resources 13,600
China Growth Fund 6,400
Other   10,800
Total Private Markets Commitments   585,100
 

Public Markets

Direct Lending Vehicles 33,700
Special Situations Vehicles 29,200
Mezzanine Fund   29,900
Total Public Markets Commitments   92,800
 
Total Uncalled Commitments $ 677,900
 

DISTRIBUTION

A distribution of $0.70 per common unit will be paid on March 5, 2013 to unitholders of record as of the close of business on February 19, 2013.

CONFERENCE CALL

A conference call to discuss KKR’s financial results will be held on Thursday, February 7, 2013 at 10:00 a.m. EST. The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (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 (855) 859-2056 (U.S. callers) and +1 (404) 537-3406 (non-U.S. callers), pass code 86899275, 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 $75.5 billion in assets under management as of December 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 fund investors through its client relationships and capital markets platform. KKR & Co. L.P. is publicly traded on the New York Stock Exchange (NYSE: KKR), and "KKR," as used in this release, includes its subsidiaries, their managed investment funds and accounts, and/or their affiliated investment vehicles, as appropriate. 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, total distributable earnings, ENI, after-tax ENI, fee related EBITDA, committed dollars invested and syndicated capital, 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 including the ability to realize the anticipated synergies from the acquisitions or strategic partnerships such as Prisma or Nephila; 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on November 2, 2012, and other filings with the SEC, which are available at www.sec.gov.

       
KKR
CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended Year Ended
December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Revenues
Fees $ 177,621   $ 209,357   $ 568,442   $ 723,620  
 
Expenses
Compensation and Benefits 261,454 190,832 1,280,854 868,749
Occupancy and Related Charges 14,569 15,197 58,205 54,282
General, Administrative and Other   82,249     124,108     259,729     290,974  
Total Expenses   358,272     330,137     1,598,788     1,214,005  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 874,507 514,580 7,871,673 981,858
Dividend Income 677,590 117,944 940,888 225,073
Interest Income 98,929 102,968 358,598 321,943
Interest Expense   (16,407 )   (20,393 )   (69,164 )   (72,758 )
Total Investment Income (Loss)   1,634,619     715,099     9,101,995     1,456,116  
 
Income (Loss) Before Taxes 1,453,968 594,319 8,071,649 965,731
 
Income Taxes   5,628     21,322     43,405     89,245  
 
Net Income (Loss) 1,448,340 572,997 8,028,244 876,486
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests 16,412 4,318 34,963 4,318
Net Income (Loss) Attributable to
Noncontrolling Interests 1,335,200 522,542 7,432,445 870,247
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ 96,728   $ 46,137   $ 560,836   $ 1,921  
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.70 $ 0.32 $ 1.22 $ 0.74
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.39 $ 0.20 $ 2.35 $ 0.01
Diluted (a) $ 0.36 $ 0.20 $ 2.21 $ 0.01
Weighted Average Common Units Outstanding
Basic 249,303,558 225,382,001 238,503,257 220,235,469
Diluted (a) 268,192,128 231,361,032 254,093,160 222,519,174
     
(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 Year Ended
December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Fees
Management and incentive fees:
Management fees $ 144,355 $ 126,483 $ 127,556 $ 529,107 $ 515,384
Incentive fees   12,350     17,768     6,084     43,845     34,243  
Management and incentive fees   156,705     144,251     133,640     572,952     549,627  
 
Monitoring and transaction fees:
Monitoring fees 32,988 29,969 21,797 116,565 163,769
Transaction fees 76,840 75,264 128,338 240,108 349,130
Fee credits   (37,991 )   (31,707 )   (36,862 )   (105,730 )   (150,858 )
Net monitoring and transaction fees   71,837     73,526     113,273     250,943     362,041  
 
Total fees   228,542     217,777     246,913     823,895     911,668  
 
Expenses
Compensation and benefits 76,001 71,340 65,038 272,811 257,951
Occupancy and related charges 13,763 13,605 14,353 55,068 51,009
Other operating expenses   52,799     42,128     50,947     176,205     185,555  
Total expenses (a)   142,563     127,073     130,338     504,084     494,515  
 
Fee Related Earnings   85,979     90,704     116,575     319,811     417,153  
 
Investment income (loss)
Gross carried interest 268,936 410,736 96,503 1,431,910 263,621
Less: allocation to KKR carry pool (107,514 ) (169,633 ) (40,410 ) (581,206 ) (108,325 )
Less: management fee refunds (b)   (8,712 )   (61,499 )   (1,993 )   (143,723 )   (17,587 )
Net carried interest 152,710 179,604 54,100 706,981 137,709
Other investment income (loss)   110,236     240,876     117,039     1,111,122     202,758  
Total investment income (loss)   262,946     420,480     171,139     1,818,103     340,467  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 348,925 511,184 287,714 2,137,914 757,620
Income (Loss) attributable to
noncontrolling interests   1,245     1,310     2,220     7,043     6,671  
 
Economic Net Income (Loss) $ 347,680   $ 509,874   $ 285,494   $ 2,130,871   $ 750,949  
 
Provision for Income Taxes 10,632 22,548 59,988 102,420 248,082
 
Economic Net Income (Loss), After Taxes (c) $ 337,048   $ 487,326   $ 225,506   $ 2,028,451   $ 502,867  
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (c) $ 0.48 $ 0.69 $ 0.33 $ 2.90 $ 0.73
                     
Assets Under Management $ 75,527,500 $ 66,278,700 $ 59,008,600 $ 75,527,500 $ 59,008,600
Fee Paying Assets Under Management $ 60,846,000 $ 50,266,000 $ 46,397,300 $ 60,846,000 $ 46,397,300
Committed Dollars Invested and Syndicated Capital $ 1,715,700 $ 926,000 $ 2,582,600 $ 4,354,900 $ 6,014,000
Uncalled Commitments   $ 16,071,900     $ 15,845,900     $ 11,400,500     $ 16,071,900     $ 11,400,500  
                     

Other Information

Fee Related Earnings $ 85,979 $ 90,704 $ 116,575 $ 319,811 $ 417,153
Plus: depreciation and amortization   3,580     3,273     2,528     12,499     9,925  
Fee Related EBITDA $ 89,559   $ 93,977   $ 119,103   $ 332,310   $ 427,078  
 
Distributed Earnings $ 179,412 $ 187,174 $ 195,725 $ 582,620 $ 596,306
Plus: Net realized principal investment income   366,878     145,700     (49,237 )   866,776     186,288  
Total Distributable Earnings (c) $ 546,290   $ 332,874   $ 146,488   $ 1,449,396   $ 782,594  
 
GAAP interest expense $ 16,407 $ 17,868 $ 20,393 $ 69,164 $ 72,758
Less: interest expense related to debt obligations
from investment financing arrangements   7,014     8,502     9,598     31,050     30,160  
Core Interest Expense (c) $ 9,393   $ 9,366   $ 10,795   $ 38,114   $ 42,598  
 
     
(a)   Excludes a $15.2 million, $17.4 million and $5.5 million charge for non-cash equity based compensation during the quarters ended December 31, 2012, September 30, 2012, and December 31, 2011, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. Excludes a $62.9 million and $16.7 million charge for non-cash equity based compensation during the years ended December 31, 2012 and 2011, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.
(b) As of December 31, 2012, there is no carried interest subject to management fee refunds, which may reduce carried interest in future periods.
(c) See definitions for after-tax ENI, adjusted units, total distributable earnings, 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 Year Ended
December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Fees
Management and incentive fees:
Management fees $ 104,804 $ 105,035 $ 106,716 $ 423,921 $ 430,400
Incentive fees   -     -     -     -     -  
Management and incentive fees   104,804     105,035     106,716     423,921     430,400  
 
Monitoring and transaction fees:
Monitoring fees 32,988 29,969 21,797 116,565 163,769
Transaction fees 41,231 32,788 65,148 96,454 166,654
Fee credits   (37,721 )   (26,293 )   (34,799 )   (97,362 )   (144,928 )
Net monitoring and transaction fees   36,498     36,464     52,146     115,657     185,495  
 
Total fees   141,302     141,499     158,862     539,578     615,895  
 
Expenses
Compensation and benefits 53,383 48,905 46,139 192,765 185,709
Occupancy and related charges 12,075 12,049 12,902 48,562 45,694
Other operating expenses   43,463     35,885     42,825     147,253     157,901  
Total expenses   108,921     96,839     101,866     388,580     389,304  
 
Fee Related Earnings   32,381     44,660     56,996     150,998     226,591  
 
Investment income (loss)
Gross carried interest 255,296 391,168 96,115 1,392,755 266,211
Less: allocation to KKR carry pool (102,058 ) (161,805 ) (40,255 ) (565,543 ) (109,361 )
Less: management fee refunds   (8,712 )   (61,499 )   (1,993 )   (143,723 )   (17,587 )
Net carried interest 144,526 167,864 53,867 683,489 139,263
Other investment income (loss)   1,158     1,779     (364 )   599     (549 )
Total investment income (loss)   145,684     169,643     53,503     684,088     138,714  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 178,065 214,303 110,499 835,086 365,305
Income (Loss) attributable to
noncontrolling interests   292     444     651     3,390     2,536  
 
Economic Net Income (Loss) $ 177,773   $ 213,859   $ 109,848   $ 831,696   $ 362,769  
 
 
Assets Under Management $ 49,127,600 $ 49,771,000 $ 43,627,900 $ 49,127,600 $ 43,627,900
Fee Paying Assets Under Management $ 41,173,000 $ 40,354,200 $ 37,869,700 $ 41,173,000 $ 37,869,700
Committed Dollars Invested $ 1,220,800 $ 623,000 $ 2,148,400 $ 3,026,300 $ 5,033,300
Uncalled Commitments $ 14,271,100 $ 14,594,700 $ 10,070,300 $ 14,271,100 $ 10,070,300
 

 

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Year Ended
December 31, 2012 September 30, 2012 December 31, 2011   December 31, 2012 December 31, 2011
Fees
Management and incentive fees:
Management fees $ 39,551 $ 21,448 $ 20,840 $ 105,186 $ 84,984
Incentive fees   12,350     17,768     6,084     43,845     34,243  
Management and incentive fees   51,901     39,216     26,924     149,031     119,227  
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 1,974 8,780 4,151 14,495 11,996
Fee credits   (270 )   (5,414 )   (2,063 )   (8,368 )   (5,930 )
Net monitoring and transaction fees   1,704     3,366     2,088     6,127     6,066  
 
Total fees   53,605     42,582     29,012     155,158     125,293  
 
Expenses
Compensation and benefits 16,097 13,997 12,166 50,705 46,133
Occupancy and related charges 1,479 1,343 1,189 5,606 4,059
Other operating expenses   6,596     3,897     3,834     18,350     15,483  
Total expenses   24,172     19,237     17,189     74,661     65,675  
 
Fee Related Earnings   29,433     23,345     11,823     80,497     59,618  
 
Investment income (loss)
Gross carried interest 13,640 19,568 388 39,155 (2,590 )
Less: allocation to KKR carry pool (5,456 ) (7,828 ) (155 ) (15,663 ) 1,036
Less: management fee refunds   -     -     -     -     -  
Net carried interest 8,184 11,740 233 23,492 (1,554 )
Other investment income (loss)   30     25     (93 )   20     505  
Total investment income (loss)   8,214     11,765     140     23,512     (1,049 )
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 37,647 35,110 11,963 104,009 58,569
Income (Loss) attributable to
noncontrolling interests   292     233     119     1,079     599  
 
Economic Net Income (Loss) $ 37,355   $ 34,877   $ 11,844   $ 102,930   $ 57,970  
 
Assets Under Management $ 26,399,900 $ 16,507,700 $ 15,380,700 $ 26,399,900 $ 15,380,700
Fee Paying Assets Under Management $ 19,673,000 $ 9,911,800 $ 8,527,600 $ 19,673,000 $ 8,527,600
Committed Dollars Invested $ 226,400 $ 278,300 $ 434,200 $ 784,800 $ 980,700
Uncalled Commitments $ 1,800,800 $ 1,251,200 $ 1,330,200 $ 1,800,800 $ 1,330,200
 

         
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Year Ended
December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Fees
Management and incentive fees:
Management fees $ - $ - $ - $ - $ -
Incentive fees   -   -   -   -   -
Management and incentive fees   -   -   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 33,635 33,696 59,039 129,159 170,480
Fee credits   -   -   -   -   -
Net monitoring and transaction fees   33,635   33,696   59,039   129,159   170,480
 
Total fees   33,635   33,696   59,039   129,159   170,480
 
Expenses
Compensation and benefits 6,521 8,438 6,733 29,341 26,109
Occupancy and related charges 209 213 262 900 1,256
Other operating expenses   2,740   2,346   4,288   10,602   12,171
Total expenses   9,470   10,997   11,283   40,843   39,536
 
Fee Related Earnings   24,165   22,699   47,756   88,316   130,944
 
Investment income (loss)
Gross carried interest - - - - -
Less: allocation to KKR carry pool - - - - -
Less: management fee refunds   -   -   -   -   -
Net carried interest - - - - -
Other investment income (loss)   109,048   239,072   117,496   1,110,503   202,802
Total investment income (loss)   109,048   239,072   117,496   1,110,503   202,802
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 133,213 261,771 165,252 1,198,819 333,746
Income (Loss) attributable to
noncontrolling interests   661   633   1,450   2,574   3,536
 
Economic Net Income (Loss) $ 132,552 $ 261,138 $ 163,802 $ 1,196,245 $ 330,210
 
 
Syndicated Capital $ 268,500 $ 24,700 $ 1,151,900 $ 543,800 $ 2,426,600
 

       
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended December 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 $ 104,804 $ 39,551 $ - $ 144,355
Incentive fees   -     12,350     -   12,350  
Management and incentive fees   104,804     51,901     -   156,705  
 
Monitoring and transaction fees:
Monitoring fees 32,988 - - 32,988
Transaction fees 41,231 1,974 33,635 76,840
Fee credits   (37,721 )   (270 )   -   (37,991 )
Net monitoring and transaction fees   36,498     1,704     33,635   71,837  
 
Total fees   141,302     53,605     33,635   228,542  
 
Expenses
Compensation and benefits 53,383 16,097 6,521 76,001
Occupancy and related charges 12,075 1,479 209 13,763
Other operating expenses   43,463     6,596     2,740   52,799  
Total expenses   108,921     24,172     9,470   142,563  
 
Fee Related Earnings   32,381     29,433     24,165   85,979  
 
Investment income (loss)
Gross carried interest 255,296 13,640 - 268,936
Less: allocation to KKR carry pool (102,058 ) (5,456 ) - (107,514 )
Less: management fee refunds   (8,712 )   -     -   (8,712 )
Net carried interest 144,526 8,184 - 152,710
Other investment income (loss)   1,158     30     109,048   110,236  
Total investment income (loss)   145,684     8,214     109,048   262,946  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 178,065 37,647 133,213 348,925
Income (Loss) attributable to
noncontrolling interests 292 292 661 1,245
       
Economic Net Income (Loss) $ 177,773   $ 37,355   $ 132,552 $ 347,680  
 

       
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended September 30, 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 $ 105,035 $ 21,448 $ - $ 126,483
Incentive fees   -     17,768     -   17,768  
Management and incentive fees   105,035     39,216     -   144,251  
 
Monitoring and transaction fees:
Monitoring fees 29,969 - - 29,969
Transaction fees 32,788 8,780 33,696 75,264
Fee credits   (26,293 )   (5,414 )   -   (31,707 )
Net monitoring and transaction fees   36,464     3,366     33,696   73,526  
 
Total fees   141,499     42,582     33,696   217,777  
 
Expenses
Compensation and benefits 48,905 13,997 8,438 71,340
Occupancy and related charges 12,049 1,343 213 13,605
Other operating expenses   35,885     3,897     2,346   42,128  
Total expenses   96,839     19,237     10,997   127,073  
 
Fee Related Earnings   44,660     23,345     22,699   90,704  
 
Investment income (loss)
Gross carried interest 391,168 19,568 - 410,736
Less: allocation to KKR carry pool (161,805 ) (7,828 ) - (169,633 )
Less: management fee refunds   (61,499 )   -     -   (61,499 )
Net carried interest 167,864 11,740 - 179,604
Other investment income (loss)   1,779     25     239,072   240,876  
Total investment income (loss)   169,643     11,765     239,072   420,480  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 214,303 35,110 261,771 511,184
Income (Loss) attributable to
noncontrolling interests 444 233 633 1,310
       
Economic Net Income (Loss) $ 213,859   $ 34,877   $ 261,138 $ 509,874  
 

       
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (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 (UNAUDITED)
Year Ended December 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 $ 423,921 $ 105,186 $ - $ 529,107
Incentive fees   -     43,845     -   43,845  
Management and incentive fees   423,921     149,031     -   572,952  
 
Monitoring and transaction fees:
Monitoring fees 116,565 - - 116,565
Transaction fees 96,454 14,495 129,159 240,108
Fee credits   (97,362 )   (8,368 )   -   (105,730 )
Net monitoring and transaction fees   115,657     6,127     129,159   250,943  
 
Total fees   539,578     155,158     129,159   823,895  
 
Expenses
Compensation and benefits 192,765 50,705 29,341 272,811
Occupancy and related charges 48,562 5,606 900 55,068
Other operating expenses   147,253     18,350     10,602   176,205  
Total expenses   388,580     74,661     40,843   504,084  
 
Fee Related Earnings   150,998     80,497     88,316   319,811  
 
Investment income (loss)
Gross carried interest 1,392,755 39,155 - 1,431,910
Less: allocation to KKR carry pool (565,543 ) (15,663 ) - (581,206 )
Less: management fee refunds   (143,723 )   -     -   (143,723 )
Net carried interest 683,489 23,492 - 706,981
Other investment income (loss)   599     20     1,110,503   1,111,122  
Total investment income (loss)   684,088     23,512     1,110,503   1,818,103  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 835,086 104,009 1,198,819 2,137,914
Income (Loss) attributable to
noncontrolling interests 3,390 1,079 2,574 7,043
       
Economic Net Income (Loss) $ 831,696   $ 102,930   $ 1,196,245 $ 2,130,871  
 

       
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Year 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 $ 430,400 $ 84,984 $ - $ 515,384
Incentive fees   -     34,243     -   34,243  
Management and incentive fees   430,400     119,227     -   549,627  
 
Monitoring and transaction fees:
Monitoring fees 163,769 - - 163,769
Transaction fees 166,654 11,996 170,480 349,130
Fee credits   (144,928 )   (5,930 )   -   (150,858 )
Net monitoring and transaction fees   185,495     6,066     170,480   362,041  
 
Total fees   615,895     125,293     170,480   911,668  
 
Expenses
Compensation and benefits 185,709 46,133 26,109 257,951
Occupancy and related charges 45,694 4,059 1,256 51,009
Other operating expenses   157,901     15,483     12,171   185,555  
Total expenses   389,304     65,675     39,536   494,515  
 
Fee Related Earnings   226,591     59,618     130,944   417,153  
 
Investment income (loss)
Gross carried interest 266,211 (2,590 ) - 263,621
Less: allocation to KKR carry pool (109,361 ) 1,036 - (108,325 )
Less: management fee refunds   (17,587 )   -     -   (17,587 )
Net carried interest 139,263 (1,554 ) - 137,709
Other investment income (loss)   (549 )   505     202,802   202,758  
Total investment income (loss)   138,714     (1,049 )   202,802   340,467  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 365,305 58,569 333,746 757,620
Income (Loss) attributable to
noncontrolling interests 2,536 599 3,536 6,671
       
Economic Net Income (Loss) $ 362,769   $ 57,970   $ 330,210 $ 750,949  
 

 
KKR
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
 
As of December 31, 2012
 

Private
Markets
Segment

 

Public
Markets
Segment

 

Capital
Markets and
Principal
Activities
Segment

   

Total
Reportable
Segments

 
Cash and short-term investments $ 358,237 $ 28,690 $ 1,147,360 $ 1,534,287
Investments - - 4,758,157 (a) 4,758,157
Unrealized carry 730,292 24,939 - 755,231
Other assets   207,047     280,472   62,119   549,638
Total assets $ 1,295,576   $ 334,101 $ 5,967,636 $ 7,597,313
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   78,724     16,433   24,275   119,432
Total liabilities   78,724     16,433   524,275   619,432
 
Noncontrolling interests 1,339 739 18,619 20,697
       
Book value $ 1,215,513   $ 316,929 $ 5,424,742 $ 6,957,184
 
Book value per adjusted unit $ 1.72 $ 0.45 $ 7.70 $ 9.87
 
 
 
As of December 31, 2011

Private
Markets
Segment

Public
Markets
Segment

Capital
Markets and
Principal
Activities
Segment

Total
Reportable
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.
 

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

 

 

Fair Value as
Fair a Percentage of

Investment

Cost

Value Total Investments
 
Co-Investments in Portfolio Companies of
Private Equity Investment Vehicles:
Alliance Boots GmbH 195,640 426,561 9.0%
HCA Inc. 141,983 378,387 8.0%
The Nielsen Company B.V. 134,603 273,712 5.8%
NXP B.V. 207,964 207,388 4.4%
Samson Resources Corporation 237,514 190,012 4.0%
Dollar General Corporation 37,733 185,107 3.9%
KION Group GmbH 128,058 172,748 3.6%
ProSiebenSat.1 Media AG 226,913 144,919 3.0%
US Foods 100,000 140,000 2.9%
Biomet, Inc. 151,444 121,155 2.5%
First Data Corporation 135,258 94,681 2.0%
Energy Future Holdings Corp. 200,000 10,000 0.2%
PagesJaunes Groupe S.A. 235,201 - 0.0%
2,132,311 2,344,670 49.3%
 
Private Equity Investment Vehicles
KKR 2006 Fund L.P. 380,803 436,552 9.2%
KKR European Fund III L.P. 189,441 221,393 4.7%
KKR Asian Fund L.P. 64,324 82,641 1.7%
KKR European Fund II L.P. 65,649 57,616 1.2%
KKR Millennium Fund L.P. 59,426 50,111 1.1%
KKR North America Fund XI L.P. 22,788 22,788 0.5%
KKR E2 Investors, L.P. 10,418 19,261 0.4%
KKR European Fund L.P. 47,664 4,299 0.1%
KKR China Growth Fund L.P. 3,611 4,051 0.1%
Co-Investment Vehicles 528 598 0.0%
844,652 899,310 19.0%
 
Private Equity Total 2,976,963 3,243,980 68.3%
 
Energy & Infrastructure Investment Vehicles
Royalties and Drilling 93,755 93,755 2.0%
Infrastructure Fund 24,447 25,678 0.5%
Co-Investment Vehicles 10,718 13,217 0.3%
Natural Resources 9,747 5,796 0.1%
Energy & Infrastructure Total 138,667 138,446 2.9%
 
Private Markets Total 3,115,630 3,382,426 71.2%
 
Public Markets Investment Vehicles
Liquid Credit SMAs/Funds 187,163 194,658 4.1%
Long/Short Equities Funds 100,000 105,648 2.2%
Credit Relative Value Fund 50,000 52,507 1.1%
Direct Lending 36,739 39,649 0.8%
Special Situations Vehicles 20,148 22,172 0.5%
Mezzanine Fund 14,735 17,235 0.4%
Public Markets Total 408,785 431,869 9.1%
 
Other 947,040 943,862 19.7%
 
Total Investments $ 4,471,455 $ 4,758,157 100.0%
 

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

 

 

As of December 31, 2012

   

Fair Value as

 

 

a Percentage

Fair

of Total

Investment

Cost

Value

 

Investments

 
Significant Aggregate Investments: (a)
Alliance Boots GmbH $ 228,769 $ 491,530 10.3 %
HCA Inc. 173,443 451,752 9.5 %
The Nielsen Company B.V. 134,603 273,712 5.8 %
Dollar General Corporation   52,359   245,432 5.2 %
  589,174   1,462,426 30.8 %
 
Other investments   3,882,281   3,295,731 69.2 %
Total Investments $ 4,471,455 $ 4,758,157 100.0 %
 
 
Investments by Geography:
North America $ 2,911,143 $ 3,232,122 67.9 %
Europe 1,391,256 1,355,801 28.5 %
Asia-Pacific   169,056   170,234 3.6 %
Total Investments $ 4,471,455 $ 4,758,157 100.0 %
 
     
(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 December 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
(Amounts in thousands)
       
 

Private
Markets
Segment

 

Public
Markets
Segment

 

Total
Reportable
Segments

Quarter Ended December 31, 2012

 
September 30, 2012 $ 49,771,000 $ 16,507,700 $ 66,278,700
New Capital Raised 934,100 1,794,000 2,728,100
Acquisitions (a) - 8,086,900 8,086,900
Distributions (3,097,100 ) (485,600 ) (b) (3,582,700 )
Foreign Exchange 17,400 - 17,400
Change in Value   1,502,200     496,900     1,999,100  
December 31, 2012 $ 49,127,600   $ 26,399,900   $ 75,527,500  
 
 

Year Ended December 31, 2012

 
December 31, 2011 $ 43,627,900 $ 15,380,700 $ 59,008,600
New Capital Raised 7,360,100 3,219,600 10,579,700
Acquisitions (a) - 8,086,900 8,086,900
Distributions (9,023,900 ) (1,543,200 ) (c) (10,567,100 )
Net Changes in Fee Base of Certain Funds (d) (1,327,900 ) - (1,327,900 )
Foreign Exchange 16,000 - 16,000
Change in Value   8,475,400     1,255,900     9,731,300  
December 31, 2012 $ 49,127,600   $ 26,399,900   $ 75,527,500  
 
 
 
KKR
FEE PAYING ASSETS UNDER MANAGEMENT
(Amounts in thousands)
 
 

Private
Markets
Segment

 

Public
Markets
Segment

 

Total
Reportable
Segments

Quarter Ended December 31, 2012

 
September 30, 2012 $ 40,354,200 $ 9,911,800 $ 50,266,000
New Capital Raised 1,272,000 1,559,100 2,831,100
Acquisitions (a) - 8,078,400 8,078,400
Distributions (551,100 ) (257,200 ) (b) (808,300 )
Foreign Exchange 83,600 - 83,600
Change in Value   14,300     380,900     395,200  
December 31, 2012 $ 41,173,000   $ 19,673,000   $ 60,846,000  
 
 

Year Ended December 31, 2012

 
December 31, 2011 $ 37,869,700 $ 8,527,600 $ 46,397,300
New Capital Raised 7,451,700 2,999,200 10,450,900
Acquisitions (a) - 8,078,400 8,078,400
Distributions (1,089,400 ) (851,400 ) (c) (1,940,800 )
Net Changes in Fee Base of Certain Funds (d) (3,205,400 ) - (3,205,400 )
Foreign Exchange 99,600 - 99,600
Change in Value   46,800     919,200     966,000  
December 31, 2012 $ 41,173,000   $ 19,673,000   $ 60,846,000  
 
     
(a)   Represents AUM and FPAUM of Prisma as of October 1, 2012, the date of acquisition. These figures exclude new capital raised and distributions during the quarter ended December 31, 2012.
(b) Includes $169.9 million of redemptions by fund investors.
(c) Includes $421.8 million of redemptions by fund investors.
(d) Represents the impact of including certain funds entering the post-investment period including KKR 2006 Fund L.P.
 

 
KKR
INVESTMENT VEHICLE SUMMARY* (UNAUDITED)
As of December 31, 2012
(Amounts in millions, except percentages)
                     
 
Investment Period Amount

Commencement
Date

  End Date Commitment  

Uncalled
Commitments

 

Percentage
Committed by
General
Partner

  Invested   Realized      

Remaining
Cost

 

Remaining
Fair Value

Private Markets

 
Private Equity Funds
North America Fund XI 9/2012 9/2018 $ 6,331.2 $ 5,908.7 3.9% $ 422.5 $ - $ 422.5 $ 422.5
China Growth Fund 11/2010 11/2016 1,010.0 674.9 1.0% 335.1 - 335.1 370.8
E2 Investors (Annex Fund) 8/2009 11/2013 346.3 192.1 4.3% 154.2 - 154.2 303.7
European Fund III 3/2008 3/2014 6,087.7 2,410.9 4.6% 3,676.8 - 3,676.8 4,360.3
Asian Fund 7/2007 7/2013 3,983.2 860.5 2.5% 3,122.7 732.0 2,612.9 4,783.5
2006 Fund 9/2006 9/2012 17,642.2 1,315.2 2.1% 16,327.0 9,291.5 10,594.0 14,422.5
European Fund II 11/2005 10/2008 5,750.8 - 2.1% 5,750.8 2,271.7 4,091.5 4,855.1
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5% 6,000.0 7,907.9 3,050.9 4,362.3
European Fund 12/1999 12/2005   3,085.4     - 3.2%   3,085.4     8,720.0   -     51.5
Total Private Equity Funds 50,236.8 11,362.3 38,874.5 28,923.1 24,937.9 33,932.2
 
Co-Investment Vehicles Various Various   2,133.5     213.1 Various   1,920.4     2,032.4   1,363.0     1,830.2
Total Private Equity   52,370.3     11,575.4   40,794.9     30,955.5   26,300.9     35,762.4
 
Energy & Infrastructure
Natural Resources Various Various 1,225.8 805.0 Various 420.8 35.2 408.1 253.7
Infrastructure Various Various 1,041.7 736.2 4.8% 305.5 1.7 305.5 323.9
Co-Investment Vehicles Various Various   2,369.8     1,154.5 Various   1,215.3     150.9   1,215.3     1,491.6
Energy & Infrastructure Total   4,637.3     2,695.7   1,941.6     187.8   1,928.9     2,069.2
               
Private Markets Total   57,007.6     14,271.1   42,736.5     31,143.3   28,229.8     37,831.6
 
Public Markets
 
Special Situations Vehicles Various Various 2,189.3 641.4 Various 1,547.9 164.2 1,547.9 1,800.4
Mezzanine Fund 3/2010 8/2015 987.0 655.8 4.6% 331.2 31.9 331.2 378.5
Direct Lending Various Various 668.5 503.6 Various 164.9 - 164.9 175.1
               
Public Markets Total   3,844.8   1,800.8   2,044.0     196.1   2,044.0     2,354.0
 
Grand Total $ 60,852.4 $ 16,071.9 $ 44,780.5   $ 31,339.4 $ 30,273.8   $ 40,185.6
 
 
* Reflects only 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 Year Ended

December 31,
2012

September 30,
2012

December 31,
2011

December 31,
2012

December 31,
2011

 
FRE (a) $ 85,979 $ 90,704 $ 116,575 $ 319,811 $ 417,153
Realized cash carry 100,992 100,145 83,226 285,424 202,115
Net realized principal investment income 366,878 145,700 (49,237 ) 866,776 186,288
Less: local income taxes (6,314 ) (2,365 ) (1,856 ) (15,572 ) (16,291 )
Less: noncontrolling interests   (1,245 )   (1,310 )   (2,220 )   (7,043 )   (6,671 )
Total Distributable Earnings   546,290     332,874     146,488     1,449,396     782,594  
 
Less: net realized principal investment income (366,878 ) (145,700 ) 49,237 (866,776 ) (186,288 )
         
Distributed Earnings   179,412     187,174     195,725     582,620     596,306  
 
Distributed Earnings to KKR & Co. L.P. (b) 66,275 66,015 65,059 206,491 193,876
 
Less: estimated current corporate income taxes   (8,525 )   (6,890 )   (22,924 )   (23,705 )   (57,048 )
 
Distributed Earnings to KKR & Co. L.P., After Taxes 57,750 59,125 42,135 182,786 136,828
 
Additional Distribution (c) 119,081 - 29,530 119,081 29,530
         
Total Distribution to KKR & Co. L.P. $ 176,831   $ 59,125   $ 71,665   $ 301,867   $ 166,358  
 
Distribution per KKR & Co. L.P. common unit $ 0.70 $ 0.24 $ 0.32 $ 1.22 $ 0.74
 
Outstanding KKR & Co. L.P. common units 253,363,691 241,407,805 227,150,182
 
     
(a)   See Exhibit A for a reconciliation of such measure to financial results prepared in accordance with GAAP.
(b) Represents the amount of distributed earnings allocable to KKR & Co. L.P. based on its ownership in the KKR business as of December 31, 2012.
(c) Additional distribution is provided primarily from certain realizations on investments within KKR’s capital markets and principal activities segment and was calculated for certain taxes as described in our distribution policy. 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 net realized principal investment income, 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 segment key performance measures that follow are used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportable business segments. 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. In addition, KKR’s reportable segments are presented without giving effect to the consolidation of the funds that KKR manages.

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 unitholders 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 unitholders 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 unitholders 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 unitholders 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.

Total distributable earnings is the sum 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) net realized principal investment income; less (i) applicable local income taxes, if any, and (ii) noncontrolling interests. Net realized principal investment income includes, with respect to KKR’s principal investments (i) realized investment gains and losses, (ii) dividend income and (iii) interest income, net of interest expense, earned from KKR’s principal investments. KKR does not intend to distribute net realized principal investment income other than certain additional distributions that KKR may determine to make, which are intended to cover certain tax liabilities, as calculated by KKR. See “Distribution Policy.” We believe this measure is useful to unitholders as it provides a supplemental measure to assess performance, excluding the impact of mark-to-market gains (losses), and amounts available for distribution to KKR unitholders, however, total distributable earnings is not a measure that calculates actual distributions under KKR’s current distribution policy.

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 unitholders 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 unitholders 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 unitholdersas 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 unitholders 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 unitholders 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 unitholders 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 unitholders 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 unitholders 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 attributable to KKR Holdings L.P.

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 unitholders 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 unitholders 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
December 31, 2012 September 30, 2012 December 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. per common unit $ 0.39 $ 0.53 $ 0.20
Weighted Average Common Units Outstanding 249,303,558 239,696,358 225,382,001
Net income (loss) attributable to KKR & Co. L.P. 96,728 127,411 46,137
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

170,256 249,460 133,301
Plus: Non-cash equity based charges 70,170 122,157 83,688
Plus: Amortization of intangibles and other, net 4,898 1,234 1,046
Plus: Income taxes   5,628   9,612   21,322
Economic net income (loss) 347,680 509,874 285,494
Less: Provision for income taxes   10,632   22,548   59,988
Economic net income (loss) after taxes 337,048 487,326 225,506
Weighted Average Adjusted Units   704,805,537   702,252,548   689,335,706
Economic net income (loss) after taxes per adjusted unit $ 0.48 $ 0.69 $ 0.33
 
Year Ended Year Ended
December 31, 2012 December 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. per common unit $ 2.35 $ 0.01
Weighted Average Common Units Outstanding 238,503,257 220,235,469
Net income (loss) attributable to KKR & Co. L.P. 560,836 1,921
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

1,116,740 185,352
Plus: Non-cash equity based charges 400,207 470,221
Plus: Amortization of intangibles and other, net 9,683 4,210
Plus: Income taxes   43,405   89,245
Economic net income (loss) 2,130,871 750,949
Less: Provision for income taxes   102,420   248,082
Economic net income (loss) after taxes 2,028,451 502,867
Weighted Average Adjusted Units   699,988,443   685,386,132
Economic net income (loss) after taxes per adjusted unit $ 2.90 $ 0.73
 
 
             
 
 
 
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
December 31, 2012 September 30, 2012 December 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. $ 96,728 $ 127,411 $ 46,137
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

170,256 249,460 133,301
Plus: Non-cash equity based charges 70,170 122,157 83,688
Plus: Amortization of intangibles and other, net 4,898 1,234 1,046
Plus: Income taxes   5,628   9,612   21,322
Economic net income (loss) 347,680 509,874 285,494
Plus: Income attributable to segment noncontrolling interests 1,245 1,310 2,220
Less: Investment income (loss)   262,946   420,480   171,139
Fee related earnings 85,979 90,704 116,575
Plus: depreciation and amortization   3,580   3,273   2,528
Fee related EBITDA $ 89,559 $ 93,977 $ 119,103
 
Year Ended Year Ended
December 31, 2012 December 31, 2011
 
Net income (loss) attributable to KKR & Co. L.P. $ 560,836 $ 1,921
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

1,116,740 185,352
Plus: Non-cash equity based charges 400,207 470,221
Plus: Amortization of intangibles and other, net 9,683 4,210
Plus: Income taxes   43,405   89,245
Economic net income (loss) 2,130,871 750,949
Plus: Income attributable to segment noncontrolling interests 7,043 6,671
Less: Investment income (loss)   1,818,103   340,467
Fee related earnings 319,811 417,153
Plus: depreciation and amortization   12,499   9,925
Fee related EBITDA $ 332,310 $ 427,078
 

 
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
December 31, 2012 December 31, 2011
 
KKR & Co. L.P. partners’ capital $ 2,004,359 $ 1,328,698
 
Noncontrolling interests held by KKR Holdings L.P. 4,981,864 4,342,157
 
Equity impact of KKR Management Holdings Corp. and other   (29,039 )   39,729
 
Book value 6,957,184 5,710,584
 
Adjusted units 704,780,484 689,392,861
   
Book value per adjusted unit $ 9.87   $ 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
December 31, 2012 December 31, 2011
 
Cash and cash equivalents $ 1,230,464 $ 843,261
 
Liquid short-term investments 303,823 146,180
   
Cash and short-term investments $ 1,534,287   $ 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
December 31, 2012 September 30, 2012 December 31, 2011
Weighted Average GAAP Common Units Outstanding - Basic 249,303,558 239,696,358 225,382,001
Weighted Average Unvested Common Units(a) 18,888,570 17,950,264 5,979,031
Weighted Average GAAP Common Units Outstanding - Diluted 268,192,128 257,646,622 231,361,032
Adjustments:
Weighted Average KKR Holdings Units(b) 436,613,409 444,605,926 457,974,674
Weighted Average Adjusted Units 704,805,537 702,252,548 689,335,706
 
Year Ended
December 31, 2012 December 31, 2011
Weighted Average GAAP Common Units Outstanding - Basic 238,503,257 220,235,469
Weighted Average Unvested Common Units(a) 15,589,903 2,283,705
Weighted Average GAAP Common Units Outstanding - Diluted 254,093,160 222,519,174
Adjustments:
Weighted Average KKR Holdings Units(b) 445,895,283 462,866,958
Weighted Average Adjusted Units 699,988,443 685,386,132
             
 
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
December 31, 2012 December 31, 2011
GAAP Common Units Outstanding - Basic 253,363,691 227,150,182
Unvested Common Units(a) 18,863,517 6,028,444
GAAP Common Units Outstanding - Diluted 272,227,208 233,178,626
Adjustments:
KKR Holdings Units(b) 432,553,276 456,214,235
Adjusted Units 704,780,484 689,392,861
     
(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

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

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Contacts

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