KKR & Co. L.P. Announces Fourth Quarter and Full Year 2014 Results

Realization Activity Drives Strong Full Year Distribution

GAAP net income (loss) attributable to KKR & Co. L.P. was ($0.6) million and $477.6 million for the quarter and year ended December 31, 2014, respectively, down from $277.9 million and $691.2 million in the comparable periods of 2013.

Total distributable earnings was $376.3 million for the quarter ended December 31, 2014, down from $510.4 million in the quarter ended December 31, 2013. Total distributable earnings was $2,028.9 million for the year ended December 31, 2014, up from $1,455.9 million for the year ended December 31, 2013.

Distribution per common unit was $0.35 for the quarter ended December 31, 2014, down from $0.48 in the quarter ended December 31, 2013. Distribution per common unit was $1.90 for the year ended December 31, 2014, up from $1.40 in the year ended December 31, 2013.

Economic net income (“ENI”) was $86.6 million and $1,727.2 million for the quarter and year ended December 31, 2014, respectively, down from $789.6 million and $2,195.6 million in the comparable periods of 2013.

ENI after taxes per adjusted unit(1) was $0.05 and $1.84 for the quarter and year ended December 31, 2014, respectively, down from $1.04 and $2.82 in the comparable periods of 2013.

Fee and yield earnings were $208.4 million and $733.3 million for the quarter and year ended December 31, 2014, respectively, up from $140.1 million and $433.9 million in the comparable periods of 2013.

Book value was $10.1 billion on a total reportable segment basis as of December 31, 2014 or $12.07 per adjusted unit.

Return on equity and cash return on equity were 16% and 21%, respectively.

Assets under management (“AUM”) and fee paying assets under management (“FPAUM”) totaled $98.6 billion and $83.0 billion, respectively, as of December 31, 2014.

NEW YORK--()--KKR & Co. L.P. (NYSE: KKR) today reported its fourth quarter and full year 2014 results.

For the quarter and year ended December 31, 2014, the fair value of our private equity portfolio appreciated 2.7% and 12.8%, respectively.

During the fourth quarter of 2014, KKR held the first closes of its European Fund IV, Infrastructure Fund II and Special Situations Fund II, and held the second close for its Lending Partners II Fund, which added capital commitments of $1.6 billion, $2.0 billion, $0.7 billion and $0.5 billion, respectively.

KKR declares a distribution of $0.35 per common unit, which includes $0.15 of realized cash carry, the 19th consecutive quarter that realized cash carry has been a component of the distribution, bringing full-year distributions to $1.90 per common unit.

“Our realization activity and increasing balance sheet yield translated into $2.0 billion of total distributable earnings and an annual distribution of $1.90 per unit for the year ended December 31, 2014, both of which are the highest figures we’ve reported as a public company,” said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “Additionally, our balance sheet continued to generate strong cash flow, resulting in a 21% cash return on equity in 2014.”

Note: Certain financial measures, including FRE, ENI, ENI after taxes, fee and yield earnings, 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 B and C for a reconciliation of such measures to financial results prepared in accordance with GAAP.

(1) KKR’s reporting of ENI after taxes now includes a reduction for equity-based charges.

GAAP RESULTS

GAAP net income (loss) for the quarter and year ended December 31, 2014, included net income (loss) attributable to KKR & Co. L.P. of ($0.6) million and $477.6 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit of $0.00 and $1.16, respectively, on a diluted basis. For the quarter and year ended December 31, 2013, net income (loss) attributable to KKR & Co. L.P. was $277.9 million and $691.2 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit was $0.89 and $2.30, respectively, on a diluted basis. The decreases in net income (loss) were primarily due to a decrease in investment income, partially offset by an increase in KKR & Co. L.P.’s ownership percentage in the KKR business.

SEGMENT RESULTS*

 
KEY METRICS
(Amounts in millions, except per adjusted unit amounts)
             
Quarter Ended Year Ended
December 31, 2014 December 31, 2013 % Change December 31, 2014 December 31, 2013 % Change

Total Distributable Earnings

Fees $256 $296 $1,147 $1,028
Realized Cash Carry 199 250 1,194 690
Net Realized Investment Income 181 251 901 657
Total Cash Revenues $636 $797 -20% $3,242 $2,375 37%
Total Cash Expenses and Other 260 287 1,213 919
Total Distributable Earnings $376 $510 -26% $2,029 $1,456 39%
Estimated Current Corporate Income Taxes 15 27 97 99
Distributable Earnings, net of taxes $361 $483 -25% $1,932 $1,357 42%

Distributable Earnings, net of taxes per KKR & Co. L.P. common unit

$0.44 $0.70 -37% $2.47 $1.97 25%

Distribution per KKR & Co. L.P. common unit

$0.35 $0.48 -27% $1.90 $1.40 36%
Payout ratio 80% 69% 77% 71%
 

Economic Net Income

Management, Monitoring and Transaction Fees, Net $244 $259 $1,099 $956
Performance Income 256 626 1,352 1,487
Investment Income (143) 324 505 958
Total Segment Revenues $357 $1,209 -70% $2,956 $3,401 -13%
Total Segment Expenses and Other 311 466 1,482 1,382
Economic Net Income, After-Taxes $46 $743 -94% $1,474 $2,019 -27%
 
Economic Net Income, After-Taxes per Adjusted Unit $0.05 $1.04 -95% $1.84 $2.82 -35%
 
Fee and Yield Earnings $208 $140 49% $733 $434 69%
 

Other

Book Value per Adjusted Unit $12.07 $10.83 11%
 
 
 
Year Ended
December 31, 2014 December 31, 2013
Return on Equity 16% 28%
Cash Return on Equity 21% 19%
 

* All segment financial information presented in this release reflects a new presentation as of the second quarter of 2014 following the closing of the acquisition of KFN.

Private Markets

AUM was $61.5 billion as of December 31, 2014, an increase of $2.3 billion, compared to AUM of $59.2 billion as of September 30, 2014. The increase was primarily attributable to new capital raised in our European Fund IV and Infrastructure Investors Fund II as well as appreciation in the fair value of our private equity portfolio. These increases were offset by distributions to limited partners of our private equity funds arising from realizations.

FPAUM was $47.3 billion as of December 31, 2014, an increase of $1.7 billion, compared to FPAUM of $45.6 billion as of September 30, 2014. The increase was primarily attributable to new capital raised in our European Fund IV and Infrastructure Fund II offset by distributions to limited partners of our private equity funds arising from realizations.

Total segment revenues were $283.4 million for the quarter ended December 31, 2014, a decrease of $730.3 million, compared to total segment revenues of $1,013.7 million for the quarter ended December 31, 2013. Total segment revenues were $2,288.5 million for the year ended December 31, 2014, a decrease of $532.6 million, compared to total segment revenues of $2,821.1 million for the year ended December 31, 2013. The decrease in revenues for the quarter and year ended December 31, 2014 was principally attributable to a decrease in investment income due primarily to net unrealized losses in our energy portfolio, which were only partially offset by appreciation in our private equity portfolio. Additionally, the 2014 period reflected a lower level of carried interest as a result of a lower level of appreciation in our private equity portfolio in the 2014 periods. While the value of our private equity portfolio increased in the 2014 periods, the amount of appreciation was less than that in the prior periods.

ENI was $76.8 million for the quarter ended December 31, 2014, a decrease of $573.5 million, compared to ENI of $650.3 million for the quarter ended December 31, 2013. ENI was $1,337.4 million for the year ended December 31, 2014, a decrease of $489.3 million, compared to ENI of $1,826.7 million for the year ended December 31, 2013. The decreases are primarily the result of the decreases in total segment revenues discussed above.

Public Markets

AUM was $37.1 billion as of December 31, 2014, an increase of $0.1 billion, compared to AUM of $37.0 billion as of September 30, 2014. FPAUM was $35.8 billion as of December 31, 2014, unchanged from FPAUM of $35.8 billion as of September 30, 2014. For both AUM and FPAUM, new capital raised, primarily in our Lending Partners II Fund and our CLOs was largely offset by distributions and redemptions across multiple strategies.

Total segment revenues were $33.5 million for the quarter ended December 31, 2014, a decrease of $116.6 million, compared to total segment revenues of $150.1 million for the quarter ended December 31, 2013. Total segment revenues were $429.9 million for the year ended December 31, 2014, an increase of $10.4 million, compared to total segment revenues of $419.5 million for the year ended December 31, 2013. The decrease in revenues for the quarter ended December 31, 2014 was principally attributable to a decrease in investment income due primarily to net unrealized losses in our CLO and credit portfolios, partially offset by an increase in net interest and dividends relating to the inclusion of yielding assets held by KKR Financial Holdings LLC (“KFN”). The increase in revenues for the year ended December 31, 2014 was principally attributable to an increase in net interest and dividends relating to the inclusion of yielding assets held by KFN as well as a higher level of management fees reflecting new capital raised and acquisitions. These increases were offset by net unrealized losses in our CLO portfolio.

ENI was ($11.4) million for the quarter ended December 31, 2014, a decrease of $122.6 million, compared to ENI of $111.2 million for the quarter ended December 31, 2013. ENI was $240.1 million for the year ended December 31, 2014, a decrease of $19.4 million, compared to ENI of $259.5 million for the year ended December 31, 2013. The decrease for the quarter ended December 31, 2014 was principally attributable to a decrease in investment income due primarily to net unrealized losses in our CLO and credit portfolios, partially offset by an increase in net interest and dividends relating to the inclusion of yielding assets held by KFN. The decrease for the year ended December 31, 2014 was principally attributable to net unrealized losses in our CLO portfolio and higher expenses reflecting acquisitions. These decreases were partially offset by an increase in net interest and dividends relating to the inclusion of yielding assets held by KFN as well as a higher level of management fees reflecting new capital raised and acquisitions.

KFN was acquired on April 30, 2014 and its results are included in KKR’s results beginning on May 1, 2014.

Capital Markets and Other

Total segment revenues were $40.6 million for the quarter ended December 31, 2014, a decrease of $4.1 million, compared to total segment revenues of $44.7 million for the quarter ended December 31, 2013. Total segment revenues were $237.1 million for the year ended December 31, 2014, an increase of $76.8 million, compared to total segment revenues of $160.3 million for the year ended December 31, 2013. The fluctuations in revenues primarily reflect a lower level of overall capital markets transaction activity for the quarter ended December 31, 2014 and a higher level of overall capital markets transaction activity for the year ended December 31, 2014.

ENI was $21.1 million for the quarter ended December 31, 2014, a decrease of $7.0 million, compared to ENI of $28.1 million for the quarter ended December 31, 2013. ENI was $149.6 million for the year ended December 31, 2014, an increase of $40.2 million, compared to ENI of $109.4 million for the year ended December 31, 2013. The decrease for the quarter ended December 31, 2014 primarily reflects a lower level of overall capital markets transaction activity in the 2014 period. The increase for the year ended December 31, 2014 reflects a higher level of overall capital markets transaction activity in the 2014 period, partially offset by higher compensation expense.

CAPITAL AND LIQUIDITY

As of December 31, 2014, KKR had $1.1 billion of cash and short-term investments and $2.6 billion of outstanding debt and preferred share obligations on a total reportable segment basis. This includes KFN’s debt obligations of $657.3 million and KFN’s 7.375% Series A LLC preferred shares of $373.8 million, which are non-recourse to KKR beyond the assets of KFN. As of December 31, 2014, KKR had a $1.0 billion revolving credit facility, which was undrawn. In addition, KKR has a $500.0 million revolving credit facility for use in its capital markets business that had $27.0 million drawn as of December 31, 2014.

As of December 31, 2014, KKR’s portion of total uncalled commitments to its investment funds was $1.2 billion. See Exhibit A for details.

DISTRIBUTION

A distribution of $0.35 per common unit has been declared, comprised of (i) $0.07 per common unit from after-tax FRE, (ii) $0.15 per common unit from realized cash carry, (iii) $0.06 per common unit from KKR’s net realized investment income and (iv) $0.07 per common unit from KFN’s net realized investment income. The distribution will be paid on March 6, 2015 to unitholders of record as of the close of business on February 20, 2015.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Tuesday, February 10, 2015 at 10:00 a.m. EDT. 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 Investor Center 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) or +1 (404) 537-3406 (non-U.S. callers), pass code 70933841, beginning approximately two hours after the broadcast.

From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Center for KKR & Co. L.P. at http://ir.kkr.com/kkr_ir/kkr_events.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 Investor Center on the website.

ABOUT KKR

KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners' capital and brings opportunities to others through its capital markets business. References to KKR’s investments may include the activities of its sponsored funds. For additional information about KKR & Co. L.P. (NYSE: KKR), 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, ENI after taxes, fee and yield earnings, fee and yield EBITDA, equity invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized principal investment income 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 acquisitions or strategic partnerships such as Prisma, Nephila, Avoca or KFN; 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, 2013, filed with the SEC on February 24, 2014, quarterly reports on Form 10-Q for subsequent quarters 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, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Revenues
Fees $ 212,944   $ 224,902   $ 1,110,008   $ 762,546  
 
Expenses
Compensation and Benefits 253,661 405,687 1,263,852 1,266,592
Occupancy and Related Charges 15,596 15,684 62,564 61,720
General, Administrative and Other   363,904     158,920     869,651     438,826  
Total Expenses   633,161     580,291     2,196,067     1,767,138  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 535,943 3,227,327 4,778,232 7,826,082
Dividend Income 205,875 325,507 1,174,501 695,521
Interest Income 271,083 122,509 909,207 474,759
Interest Expense   (119,846 )   (26,923 )   (317,192 )   (99,616 )
Total Investment Income (Loss)   893,055     3,648,420     6,544,748     8,896,746  
 
Income (Loss) Before Taxes 472,838 3,293,031 5,458,689 7,892,154
 
Income Taxes   6,524     12,401     63,669     37,926  
 
Net Income (Loss) 466,314 3,280,630 5,395,020 7,854,228
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests (4,707 ) 36,263 (3,341 ) 62,255
Net Income (Loss) Attributable to
Noncontrolling Interests 471,604 2,966,454 4,920,750 7,100,747
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ (583 ) $ 277,913   $ 477,611   $ 691,226  
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.00 $ 0.96 $ 1.25 $ 2.51
Diluted (a) $ 0.00 $ 0.89 $ 1.16 $ 2.30
Weighted Average Common Units Outstanding
Basic 431,432,521 288,045,501 381,092,394 274,910,628
Diluted (a) 458,982,859 312,340,336 412,049,275 300,254,090
 
 
(a) KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit since the exchange of these units would not dilute KKR’s respective ownership interests in the KKR Group Partnerships.
 

 
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, 2014 September 30, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 178,064 $ 173,912 $ 175,246 $ 726,043 $ 665,630
Monitoring Fees 38,738 30,449 26,282 135,160 120,267
Transaction Fees 53,292 158,564 104,475 459,677 336,686
Fee Credits   (25,728 )   (61,811 )   (47,014 )   (222,037 )   (166,612 )
Total Management, Monitoring and Transaction Fees, Net   244,366     301,114     258,989     1,098,843     955,971  
 
Performance Income
Realized Carried Interest 198,597 246,026 250,500 1,193,661 690,027
Incentive Fees 11,301 8,009 36,695 47,807 72,359
Unrealized Carried Interest   46,120     56,192     338,675     110,133     724,141  
Total Performance Income   256,018     310,227     625,870     1,351,601     1,486,527  
 
Investment Income (Loss)
Net Realized Gains (Losses) 62,219 162,795 230,882 628,403 635,633
Net Unrealized Gains (Losses)   (324,416 )   (37,833 )   72,825     (396,425 )   301,262  
Total Realized and Unrealized (262,197 ) 124,962 303,707 231,978 936,895
Net Interest and Dividends   119,325     82,254     19,974     273,175     21,506  
Total Investment Income (Loss)   (142,872 )   207,216     323,681     505,153     958,401  
 
Total Segment Revenues   357,512     818,557     1,208,540     2,955,597     3,400,899  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 90,556 108,790 95,945 399,705 343,772
Realized Allocation to Carry Pool 79,439 98,411 100,200 477,465 276,011
Unrealized Allocation to Carry Pool   21,508     22,696     141,197     49,459     306,938  
Total Compensation and Benefits 191,503 229,897 337,342 926,629 926,721
Occupancy and Related Charges 14,383 14,458 14,264 57,787 56,327
Other Operating Expenses   61,685     60,272     65,342     229,069     215,883  
Total Segment Expenses   267,571     304,627     416,948     1,213,485     1,198,931  
 
Income (Loss) attributable to noncontrolling interests   3,349     5,189     1,943     14,946     6,387  
 
Economic Net Income (Loss) (a) $ 86,592 $ 508,741 $ 789,649 $ 1,727,166 $ 2,195,581
 
Provision for Income Taxes 3,951 47,361 16,048 94,223 61,601
Equity-based Charges   36,607     42,090     30,128     158,927     114,709  
 
Economic Net Income (Loss), After Taxes (b) $ 46,034   $ 419,290   $ 743,473   $ 1,474,016   $ 2,019,271  
 
Economic Net Income (Loss), After Taxes Per Adjusted Unit $ 0.05 $ 0.50 $ 1.04 $ 1.84 $ 2.82
 
Weighted Average Adjusted Units (Fully Diluted Basis) (a) 838,067,975 835,957,683 716,807,180 800,247,988 714,835,941
                       
Assets Under Management $ 98,612,500 $ 96,149,900 $ 94,320,300 $ 98,612,500 $ 94,320,300
Fee Paying Assets Under Management $ 83,046,400 $ 81,356,700 $ 77,397,500 $ 83,046,400 $ 77,397,500
Equity Invested and Syndicated Capital $ 2,343,900 $ 4,751,400 $ 2,943,500 $ 12,818,100 $ 8,506,000
Uncalled Commitments     $ 21,113,700     $ 17,555,400     $ 22,463,900     $ 21,113,700     $ 22,463,900  
                       

Other Information

Fee Related Earnings $ 89,043 $ 125,603 $ 120,133 $ 460,089 $ 412,348
Plus: Net Interest and Dividends   119,325     82,254     19,974     273,175     21,506  
Fee and Yield Earnings (a) $ 208,368 $ 207,857 $ 140,107 $ 733,264 $ 433,854
Plus: Depreciation and Amortization 3,830 3,777 3,658 15,782 14,648
Plus: Core Interest Expense   27,050     23,347     17,004     88,002     65,662  
Fee and Yield EBITDA (a) $ 239,248   $ 234,981   $ 160,769   $ 837,048   $ 514,164  
 
Total Distributable Earnings (a) $ 376,326 $ 504,817 $ 510,351 $ 2,028,924 $ 1,455,878
 
GAAP interest expense $ 119,846 $ 96,618 $ 26,923 $ 317,192 $ 99,616
Less: interest expense related to debt obligations
from investment financing arrangements and KFN   92,796     73,271     9,919     229,190     33,954  
Core Interest Expense (a) $ 27,050   $ 23,347   $ 17,004   $ 88,002   $ 65,662  
       
 
 
(a) See definitions for economic net income (loss), adjusted units, fee and yield earnings, fee and yield EBITDA, total distributable earnings and core interest expense under “Notes to Reportable Segments.”
(b) Represents economic net income (loss) after reductions for income taxes and equity-based charges.
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
           
Quarter Ended Year Ended
December 31, 2014 September 30, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 111,186 $ 107,443 $ 118,781 $ 453,210 $ 459,496
Monitoring Fees 38,738 30,449 26,282 135,160 120,267
Transaction Fees 8,480 67,772 53,507 214,612 150,118
Fee Credits   (16,054 )   (58,810 )   (39,509 )   (198,680 )   (136,662 )
Total Management, Monitoring and Transaction Fees, Net   142,350     146,854     159,061     604,302     593,219  
 
Performance Income
Realized Carried Interest 198,597 236,126 250,500 1,159,011 690,027
Incentive Fees - - - - -
Unrealized Carried Interest   34,070     53,776     321,549     70,058     661,803  
Total Performance Income   232,667     289,902     572,049     1,229,069     1,351,830  
 
Investment Income (Loss)
Net Realized Gains (Losses) 60,768 165,047 230,532 609,905 632,282
Net Unrealized Gains (Losses)   (201,497 )   8,293     42,312     (245,260 )   252,466  
Total Realized and Unrealized (140,729 ) 173,340 272,844 364,645 884,748
Net Interest and Dividends   49,084     21,463     9,745     90,499     (8,665 )
Total Investment Income (Loss)   (91,645 )   194,803     282,589     455,144     876,083  
 
Total Segment Revenues   283,372     631,559     1,013,699     2,288,515     2,821,132  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 55,750 59,991 66,994 239,161 231,911
Realized Allocation to Carry Pool 79,439 94,451 100,200 463,605 276,011
Unrealized Allocation to Carry Pool   16,688     21,729     134,347     33,430     282,003  
Total Compensation and Benefits 151,877 176,171 301,541 736,196 789,925
Occupancy and Related Charges 10,687 11,460 12,110 45,471 48,045
Other Operating Expenses   43,754     44,619     49,466     168,021     154,982  
Total Segment Expenses   206,318     232,250     363,117     949,688     992,952  
 
Income (Loss) attributable to noncontrolling interests   232     342     256     1,424     1,498  
 
Economic Net Income (Loss) $ 76,822   $ 398,967   $ 650,326   $ 1,337,403   $ 1,826,682  
                       
Assets Under Management $ 61,505,800 $ 59,168,300 $ 61,242,900 $ 61,505,800 $ 61,242,900
Fee Paying Assets Under Management $ 47,262,500 $ 45,591,600 $ 50,156,300 $ 47,262,500 $ 50,156,300
Equity Invested $ 828,000 $ 2,389,200 $ 2,122,600 $ 7,223,400 $ 5,840,900
Uncalled Commitments     $ 18,272,400     $ 14,907,300     $ 20,101,600     $ 18,272,400     $ 20,101,600  
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
           
Quarter Ended Year Ended
December 31, 2014 September 30, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 66,878 $ 66,469 $ 56,465 $ 272,833 $ 206,134
Monitoring Fees - - - - -
Transaction Fees 10,511 3,262 9,431 27,145 40,314
Fee Credits   (9,674 )   (3,001 )   (7,505 )   (23,357 )   (29,950 )
Total Management, Monitoring and Transaction Fees, Net   67,715     66,730     58,391     276,621     216,498  
 
Performance Income
Realized Carried Interest - 9,900 - 34,650 -
Incentive Fees 11,301 8,009 36,695 47,807 72,359
Unrealized Carried Interest   12,050     2,416     17,126     40,075     62,338  
Total Performance Income   23,351     20,325     53,821     122,532     134,697  
 
Investment Income (Loss)
Net Realized Gains (Losses) 1,417 (630 ) 2,404 20,550 8,532
Net Unrealized Gains (Losses)   (121,340 )   (46,118 )   29,127     (148,893 )   43,108  
Total Realized and Unrealized (119,923 ) (46,748 ) 31,531 (128,343 ) 51,640
Net Interest and Dividends   62,398     53,335     6,393     159,132     16,622  
Total Investment Income (Loss)   (57,525 )   6,587     37,924     30,789     68,262  
 
Total Segment Revenues   33,541     93,642     150,136     429,942     419,457  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 25,174 26,787 17,082 105,610 77,378
Realized Allocation to Carry Pool - 3,960 - 13,860 -
Unrealized Allocation to Carry Pool   4,820     967     6,850     16,029     24,935  
Total Compensation and Benefits 29,994 31,714 23,932 135,499 102,313
Occupancy and Related Charges 3,026 2,518 1,800 10,260 6,863
Other Operating Expenses   11,502     10,929     12,567     42,412     49,210  
Total Segment Expenses   44,522     45,161     38,299     188,171     158,386  
 
Income (Loss) attributable to noncontrolling interests   394     335     625     1,636     1,560  
 
Economic Net Income (Loss) $ (11,375 ) $ 48,146   $ 111,212   $ 240,135   $ 259,511  
                       
Assets Under Management $

37,106,700

$ 36,981,600 $ 33,077,400 $

37,106,700

$ 33,077,400
Fee Paying Assets Under Management $ 35,783,900 $ 35,765,100 $ 27,241,200 $ 35,783,900 $ 27,241,200
Equity Invested $ 1,126,700 $ 442,200 $ 690,900 $ 3,027,400 $ 1,553,000
Uncalled Commitments $ 2,841,300 $ 2,648,100 $ 2,362,300 $ 2,841,300 $ 2,362,300
Gross Dollars Invested     $ 1,545,600     $ 1,122,100     $ 1,481,100     $ 4,425,600     $ 4,213,300  
 

 

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION

CAPITAL MARKETS AND OTHER SEGMENTS (UNAUDITED)

(Amounts in thousands)

 
    Quarter Ended           Year Ended    
December 31, 2014   September 30, 2014   December 31, 2013   December 31, 2014   December 31, 2013
Segment Revenues      
Management, Monitoring and Transaction Fees, Net
Management Fees $ - $ - $ - $ - $ -
Monitoring Fees - - - - -
Transaction Fees 34,301 87,530 41,537 217,920 146,254
Fee Credits   -     -     -     -     -  
Total Management, Monitoring and Transaction Fees, Net   34,301     87,530     41,537     217,920     146,254  
 
Performance Income
Realized Carried Interest - - - - -
Incentive Fees - - - - -
Unrealized Carried Interest   -     -     -     -     -  
Total Performance Income   -     -     -     -     -  
 
Investment Income (Loss)
Net Realized Gains (Losses) 34 (1,622 ) (2,054 ) (2,052 ) (5,181 )
Net Unrealized Gains (Losses)   (1,579 )   (8 )   1,386     (2,272 )   5,688  
Total Realized and Unrealized (1,545 ) (1,630 ) (668 ) (4,324 ) 507
Net Interest and Dividends   7,843     7,456     3,836     23,544     13,549  
Total Investment Income (Loss)   6,298     5,826     3,168     19,220     14,056  
 
Total Segment Revenues   40,599     93,356     44,705     237,140     160,310  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 9,632 22,012 11,869 54,934 34,483
Realized Allocation to Carry Pool - - - - -
Unrealized Allocation to Carry Pool   -     -     -     -     -  
Total Compensation and Benefits 9,632 22,012 11,869 54,934 34,483
Occupancy and Related Charges 670 480 354 2,056 1,419
Other Operating Expenses   6,429     4,724     3,309     18,636     11,691  
Total Segment Expenses   16,731     27,216     15,532     75,626     47,593  
 
Income (Loss) attributable to noncontrolling interests   2,723     4,512     1,062     11,886     3,329  
 
Economic Net Income (Loss) $ 21,145   $ 61,628   $ 28,111   $ 149,628   $ 109,388  
                       
Syndicated Capital     $

389,200

    $ 1,920,000     $ 130,000     $

2,567,300

    $ 1,112,100  
 

 
KKR
BALANCE SHEET
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
   

As of
December 31, 2014

 

As of
December 31, 2013

 
 
Cash and short-term investments $ 1,121,385 $ 2,161,097
Investments 9,807,606 (a) 4,980,265
Unrealized carry 1,283,022

(b)

1,179,338

(b)

Other assets   999,654   662,357
Total assets $ 13,211,667 $ 8,983,057
 
Debt obligations - KKR (ex-KFN) $ 1,527,000 $ 1,000,000
Debt obligations - KFN 657,310 -
Preferred shares - KFN 373,750 -
Other liabilities   413,808   149,196
Total liabilities   2,971,868   1,149,196
 
Noncontrolling interests 121,574 71,261
   
Book value $ 10,118,225 $ 7,762,600
 
Book value per adjusted unit $ 12.07 $ 10.83
 
                 
 
 
 
(a) See schedule of investments that follows on the next page.
 

(b) Unrealized Carry

As of
December 31, 2014

As of
December 31, 2013

Private Markets $ 1,196,633 $ 1,116,996
Public Markets   86,389   62,342
Total $ 1,283,022 $ 1,179,338
 

 
KKR
SCHEDULE OF INVESTMENTS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except percentage amounts)
             
 
As of December 31, 2014
Investments Cost

Fair
Value

Fair Value as a
Percentage of
Total Investments

 
Private Equity Co-Investments $ 2,604,897 $ 3,102,928 31.6 %
Private Equity Funds   860,019   1,055,443 10.8 %
Private Equity Total   3,464,916   4,158,371 42.4 %
 
Energy 918,361 694,862 7.1 %
Real Estate 495,922 514,115 5.2 %
Infrastructure   78,356   82,673 0.8 %
Real Assets Total   1,492,639   1,291,650 13.1 %
 
 
Private Markets Total   4,957,555   5,450,021 55.5 %
 
CLOs 1,611,056 1,497,923 15.3 %
Alternative Credit 1,041,013 1,103,807 11.3 %
Liquid Credit   312,581   332,006 3.4 %
Public Markets Total   2,964,650   2,933,736 30.0 %
 
 
Other 1,141,216 1,168,325 11.9 %
Specialty Finance   266,083   255,524 2.6 %
 
Capital Markets and Other Total   1,407,299   1,423,849 14.5 %
     
Total Investments $ 9,329,504 $ 9,807,606 100.0 %
 
                     
 
Significant Aggregate Portfolio Company Investments: (a)
First Data Corporation $ 1,061,332 $ 1,123,462 11.5 %
Alliance Boots GmbH 221,684 738,320 7.5 %
Biomet, Inc. 164,644 229,342 2.3 %
HCA Inc. 29,455 183,666 1.9 %
Kion Group GmbH   87,536   116,539 1.2 %
  1,564,651   2,391,329 24.4 %
Other Investments   7,764,853   7,416,277 75.6 %
Total Investments $ 9,329,504 $ 9,807,606 100.0 %
 
 
(a) The significant aggregate portfolio company investments include the top five private equity investments in portfolio companies (other than investments expected to be syndicated or transferred in connection with new fundraising) based on their fair market value as of December 31, 2014. 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* (UNAUDITED)
(Amounts in thousands)
           
 

Private
Markets
Segment

Public
Markets
Segment

Total
Reportable
Segments

Quarter Ended December 31, 2014

 
September 30, 2014 $ 59,168,300 $ 36,981,600 $ 96,149,900
New Capital Raised 3,607,000 2,231,000 5,838,000
Distributions (2,100,600 ) (1,982,600 ) (d) (4,083,200 )
Change in Value   831,100     (123,300 )   707,800  
December 31, 2014 $ 61,505,800   $ 37,106,700   $ 98,612,500  
 

Year Ended December 31, 2014

 
December 31, 2013 $ 61,242,900 $ 33,077,400 $ 94,320,300
New Capital Raised 6,056,000 7,253,000 13,309,000
Acquisitions (a) - 8,423,000 8,423,000
KFN Acquisition (b) - (4,511,900 ) (4,511,900 )
Distributions (10,724,800 ) (7,271,200 ) (e) (17,996,000 )
Net Changes in Fee Base of Certain Funds (c) (933,800 ) - (933,800 )
Change in Value   5,865,500     136,400     6,001,900  
December 31, 2014 $ 61,505,800   $ 37,106,700   $ 98,612,500  
 
 
 
KKR
FEE PAYING ASSETS UNDER MANAGEMENT* (UNAUDITED)
(Amounts in thousands)
 
 

Private
Markets
Segment

Public
Markets
Segment

Total
Reportable
Segments

Quarter Ended December 31, 2014

 
September 30, 2014 $ 45,591,600 $ 35,765,100 $ 81,356,700
New Capital Raised 3,279,200 2,056,700 5,335,900
Distributions (1,445,700 ) (1,847,400 ) (d) (3,293,100 )
Change in Value   (162,600 )   (190,500 )   (353,100 )
December 31, 2014 $ 47,262,500   $ 35,783,900   $ 83,046,400  
 

Year Ended December 31, 2014

 
December 31, 2013 $ 50,156,300 $ 27,241,200 $ 77,397,500
New Capital Raised 5,298,500 8,913,800 14,212,300
Acquisitions (a) - 7,971,000 7,971,000
KFN Acquisition (b) - (2,684,700 ) (2,684,700 )
Distributions (6,833,800 ) (5,233,400 ) (e) (12,067,200 )
Net Changes in Fee Base of Certain Funds (c) (964,700 ) - (964,700 )
Change in Value   (393,800 )   (424,000 )   (817,800 )
December 31, 2014 $ 47,262,500   $ 35,783,900   $ 83,046,400  
 
 
* Excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest.
 
(a) Represents the AUM and FPAUM of Avoca.
(b) Certain assets that were externally managed prior to the acquisition of KFN are now reported on the balance sheet and excluded from AUM and FPAUM.
(c) Represents the impact of certain funds entering the post-investment period.
(d) Includes $1,136.1 million of redemptions by fund investors.
(e) Includes $3,303.9 million of redemptions by fund investors.
 

 
KKR
INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)
As of December 31, 2014
(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
European Fund IV 12/2014 12/2020 $ 1,609.8 $ 1,609.8 12.0 % $ - $ - $ - $ -
Asian Fund II 4/2013 4/2019 5,825.0 4,065.0 1.3 % 1,760.0 - 1,760.0 2,180.0
North America Fund XI 9/2012 9/2018 8,718.4 4,535.3 2.9 % 4,183.1 205.6 4,183.1 5,308.1
China Growth Fund 11/2010 11/2016 1,010.0 507.5 1.0 % 502.5 42.4 485.0 540.5
E2 Investors (Annex Fund) 8/2009 11/2013 208.7 12.9 4.6 % 195.8 163.1 36.1 152.2
European Fund III 3/2008 3/2014 6,177.4 693.7 4.6 % 5,483.7 3,635.6 3,848.3 4,797.3
Asian Fund 7/2007 4/2013 3,983.3 168.0 2.5 % 3,815.3 4,192.9 2,405.3 3,632.2
2006 Fund 9/2006 9/2012 17,642.2 553.1 2.1 % 17,089.1 13,758.1 9,782.6 15,886.9
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 5,559.5 1,470.3 2,487.2
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 11,342.9 1,318.7 2,288.0
European Fund 12/1999 12/2005   3,085.4   - 3.2 %   3,085.4   8,736.6     -   40.9
Total Private Equity Funds 60,011.0 12,145.3 47,865.7 47,636.7 25,289.4 37,313.3
 
Co-Investment Vehicles Various Various 3,462.0 786.5 Various 2,675.5 1,034.7 2,356.4 3,058.4
 
           
Total Private Equity   63,473.0   12,931.8   50,541.2   48,671.4   27,645.8   40,371.7
 
Real Assets
Energy Income and Growth Fund 9/2013 9/2018 1,974.2 1,476.1 12.8 % 498.1 78.1 467.0 352.6
Natural Resources Fund Various Various 889.5 72.0 Various 817.5 96.6 742.9 273.7
Global Energy Opportunities Various Various 1,032.5 909.1 Various 123.4 27.7 118.8 53.5
Infrastructure Fund 9/2010 10/2014 1,040.7 153.1 4.8 % 887.6 81.8 887.6 922.0
Infrastructure Fund II 10/2014 10/2020 1,990.7 1,940.3 6.3 % 50.4 - 50.4 47.2
Infrastructure Co-Investments Various Various 1,104.5 - Various 1,104.5 296.6 1,104.5 1,470.6
Real Estate Partners Americas 5/2013 12/2016   1,330.2   790.0 16.3 %   540.2   229.8   438.8   484.0
Real Assets   9,362.3   5,340.6   4,021.7   810.6   3,810.0   3,603.6
 
Private Markets Total   72,835.3   18,272.4   54,562.9   49,482.0     31,455.8   43,975.3
 

Public Markets

 
Special Situations Fund 12/2012 12/2015 1,441.6 149.3 11.6 % 1,292.3 39.0 1,292.3 1,530.4
Special Situations Fund II 12/2014 (b) 659.0 659.0 22.9 % - - - -
Mezzanine Fund 3/2010 8/2015 1,022.8 269.0 3.5 % 753.8 248.2 628.3 759.3
Direct Lending Fund 12/2011 12/2014 414.3 - 15.6 % 414.3 93.0 402.0 412.6
Direct Lending Fund II 06/2014 06/2017 1,046.4 529.1 4.8 % 517.3 - 517.3 522.2
Other Alternative Credit Vehicles Various Various 3,647.4 1,234.9 Various 2,412.5 1,090.1 1,802.7 2,106.6
           
Public Markets Total   8,231.5   2,841.3   5,390.2   1,470.3   4,642.6   5,331.1
 
Grand Total $ 81,066.8 $ 21,113.7 $ 59,953.1 $ 50,952.3 $ 36,098.4 $ 49,306.4
 
 
(a)   Reflects investment vehicles for which KKR has the ability to earn carried interest.
(b) Three years from final close.
 

 
KKR
DISTRIBUTION CALCULATION (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
           
 
Quarter Ended Year Ended
December 31, 2014   September 30, 2014   December 31, 2013   December 31, 2014   December 31, 2013
Cash Revenues
Fees $ 255,667 $ 309,123 $ 295,684 $ 1,146,650 $ 1,028,330
Realized cash carry 198,597 246,026 250,500 1,193,661 690,027
Net realized investment income - KKR (ex-KFN) 120,618 192,146 250,856 751,367 657,139
Net realized investment income - KFN   60,926     52,903     -     150,211     -  
Total Cash Revenues   635,808     800,198     797,040     3,241,889     2,375,496  
 
Cash Expenses
Cash compensation and benefits 90,556 108,790 95,945 399,705 343,772
Realized cash carry allocated to carry pool 79,439 98,411 100,200 477,465 276,011
Occupancy and related charges 14,383 14,458 14,264 57,787 56,327
Other operating expenses   61,685     60,272     65,342     229,069     215,883  
Total Cash Expenses   246,063     281,931     275,751     1,164,026     891,993  
 
 
Cash income (loss) before noncontrolling interests and local taxes 389,745 518,267 521,289 2,077,863 1,483,503
 
Less: local income taxes (10,070 ) (8,261 ) (8,995 ) (33,993 ) (21,238 )
Less: noncontrolling interests   (3,349 )   (5,189 )   (1,943 )   (14,946 )   (6,387 )
Total Distributable Earnings 376,326 504,817 510,351 2,028,924 1,455,878
 
Less: estimated current corporate income taxes   (15,113 )   (29,505 )   (26,809 )   (97,088 )   (98,814 )
 
Distributable Earnings, net of taxes 361,213 475,312 483,542 1,931,836 1,357,064
 
Less: Undistributed net realized investment income - KKR (ex-KFN)     (72,371 )   (115,288 )   (150,514 )   (450,821 )   (394,285 )
 
Distributed Earnings $ 288,842   $ 360,024   $ 333,028   $ 1,481,015   $ 962,779  
 
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit $ 0.44 $ 0.59 $ 0.70 $ 2.47 $ 1.97
 
Distribution per KKR & Co. L.P. common unit $ 0.35 $ 0.45 $ 0.48 $ 1.90 $ 1.40
 
                       

Components of Distribution per KKR & Co. L.P. Common unit

 
After-tax FRE $ 0.07 $ 0.10 $ 0.12 $ 0.41 $ 0.42
Realized Cash Carry $ 0.15 $ 0.18 $ 0.22 $ 0.91 $ 0.60
Distributed Net Realized Investment Income - KKR (ex-KFN) $ 0.06 $ 0.10 $ 0.14 $ 0.39 $ 0.38
Distributed Net Realized Investment Income - KFN     $ 0.07     $ 0.07     $ -     $ 0.19     $ -  
                       
Fee and yield earnings distribution per KKR & Co. L.P. common unit     $ 0.18     $ 0.18     $ 0.13     $ 0.67     $ 0.43  
 
Adjusted Units Eligible For Distribution 813,647,533 808,698,012 692,512,345
 
Payout Ratio 80.0 % 75.7 % 68.9 % 76.7 % 70.9 %
 

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 the KKR’s investment management business, 40% of the net realized investment income of KKR (other than KFN), and 100% of the net realized investment income of KFN, in each case 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 obligations. 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, (iii) 40% of the net realized investment income from KKR (other than KFN) and (iv) 100% of the net realized investment income from KFN. 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., which may change the distribution policy at any time, 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 unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. 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.

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 (i) total management, monitoring and transaction fees, net, plus incentive fees, less (ii) cash compensation and benefits, occupancy and related charges and other operating expenses. This measure is used by management as an alternative measurement of the operating earnings of KKR and its business segments before carried interest and related carry pool allocations and 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-based charges and other non-cash compensation charges borne by KKR Holdings or incurred under the KKR & Co. L.P. 2010 Equity Incentive Plan (“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 carried interest and related carry pool allocations and investment income. ENI is comprised of total segment revenues less total segment expenses and 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 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 non-cash equity-based charges and other non-cash compensation charges borne by KKR Holdings or incurred under the Equity Incentive Plan or other securities that are exchangeable for common units of KKR & Co. L.P.; (v) the exclusion of certain non-recurring items; (vi) the exclusion of investment income (loss) relating to noncontrolling interests; and (vii) the exclusion of income taxes.

Fee and Yield Earnings is comprised of FRE and net interest and dividends from KKR’s business segments. This measure is used by management as a measure of the cash earnings of KKR and its business segments’ investment income. We believe this measure is useful to unitholders as it provides insight into the amount of KKR’s cash earnings, significant portions of which tend to be more recurring than realized carried interest and net realized gains from quarter to quarter.

Fee and Yield EBITDA is comprised of Fee and Yield Earnings before the impact of depreciation of fixed assets and core interest expense. This is used by management as another measure of the cash earnings of KKR and its business segments investment income. We believe this measure is also useful to unitholders as it provides insight into the amount of KKR’s cash earnings before the impact of interest expense, significant portions of which tend to be more recurring than realized carried interest and realized investment income from quarter to quarter.

Net realized investment income – KKR (ex-KFN) refers to net cash income from (i) realized investment gains and losses excluding certain realized investment losses to the extent unrealized losses on these investments were recognized prior to the combination with KPE on October 1, 2009, (ii) dividend income, and (iii) interest income net of interest expense in each case generated by KKR (excluding KFN). This term describes a portion of KKR’s quarterly distribution and excludes net realized investment income of KFN.

Net realized investment income – KFN refers to net cash income from (i) realized investment gains and losses, (ii) dividend income and (iii) interest income net of interest expense less certain general and administrative expenses incurred in the generation of net realized investment income in each case generated by KFN. This term describes a portion of KKR’s quarterly distribution.

Investments is a term used solely for purposes of financial presentation of a portion of KKR’s balance sheet and includes majority investments in subsidiaries that operate KKR’s asset management and broker-dealer businesses, including the general partner interests of KKR’s investment funds.

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, (iii) net realized investment income — KKR (ex-KFN) and (iv) net realized investment income — KFN; less (i) applicable local income taxes, if any, and (ii) noncontrolling interests. 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. 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 CLOs (excluding CLOs wholly-owned by KKR); and (v) the fair value of other assets managed by KKR. AUM excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest. 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 management 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 or CLOs, for only those funds or CLOs 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.

Equity invested is the aggregate amount of equity capital that has 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 unitholders as it provides additional insight into KKR’s investments among its investment funds and carry-yielding co-investment vehicles and replaces committed dollars invested. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a carried interest and (ii) capital invested by KKR’s investment funds, including investments made using investment financing arrangements.

Gross dollars invested is the aggregate amount of capital that has been invested by all of KKR’s Public Markets investment vehicles in our private credit non-liquid strategies and is used as a measure of investment activity for a portion of KKR’s Public Markets segment in a given period. We believe this measure is useful to unitholders as it provides additional insight into KKR’s investment of capital across private credit non-liquid strategies for all the investment vehicles in the Public Markets segment. Such amounts include capital invested by fund investors and co-investors with respect to which KKR’s Public Markets business is entitled to a fee or carried interest.

Syndicated capital is generally the aggregate amount of capital in transactions originated by KKR investment funds and carry-yielding co-investment vehicles, which has been distributed to third parties in exchange for a fee. It does not include (i) capital invested in such transactions by KKR investment funds and carry-yielding co-investment vehicles, which is instead reported in equity invested and (ii) debt capital that is arranged as part of the acquisition financing of transactions originated by KKR investment funds. 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 Other 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 to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements.

Adjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. (including equity awards issued under the Equity Incentive Plan), KKR Holdings and other holders of securities exchangeable into common units of KKR & Co. L.P. 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, equity awards issued under the Equity Incentive Plan and other exchangeable securities 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 investment funds, investment vehicles and principal investments and also excludes interest expense incurred by KFN. The financing arrangements excluded from core interest expense are not direct obligations of the general partners of KKR’s private equity funds or its management companies, and in the case of debt obligations of KFN are non-recourse to KKR beyond the assets of KFN. On a segment basis, interest expense is included in net interest and dividends within total 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, other noncontrolling interest holders and KFN. Additionally, we believe this measure is useful for analyzing KKR’s ability to service its debt obligations other than the debt obligations of KFN.

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 KKR’s investment portfolio, including carried interest, as well as KKR’s 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 KKR & Co. L.P. partners’ capital on a GAAP basis primarily as a result of the exclusion of ownership interests attributable to KKR Holdings.

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.

Return on equity measures the amount of net income generated as a percentage of capital invested in KKR’s business. Return on equity is calculated by dividing Economic Net Income (Loss), After Taxes on a trailing twelve-month basis by the average book value during the period.

Cash return on equity measures the amount of cash income generated as a percentage of capital invested in KKR’s business. Cash return on equity is calculated by dividing Distributable Earnings, net of taxes on a trailing twelve-month basis by the average book value during the period.

 
KKR

EXHIBIT A

KKR'S PORTION OF TOTAL UNCALLED COMMITMENTS TO ITS INVESTMENT FUNDS
(Amounts in thousands)
     
 

Uncalled
Commitments

Private Markets

European Fund IV $ 192,700
Energy Income and Growth Fund 191,100
North America Fund XI 171,000
Real Estate Partners Americas 128,600
Infrastructure II 121,600
European Fund III 53,700
Asian Fund II 52,000
2006 Fund 23,400
Other Private Markets Funds 19,000
Co-Investment Vehicles   29,500
Total Private Markets Commitments   982,600
 

Public Markets

Special Situations Vehicles 218,700
Direct Lending Vehicles 16,300
Mezzanine Fund 11,700
Other Credit Vehicles   2,000
Total Public Markets Commitments   248,700
 
Total Uncalled Commitments $ 1,231,300
 

 
KKR

EXHIBIT B

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT - BASIC (GAAP BASIS)  
TO ENI AFTER TAXES PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
     
 
Quarter Ended
December 31, 2014 September 30, 2014 December 31, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ (0.00 ) $ 0.21 $ 0.96
Weighted Average Common Units Outstanding - Basic 431,432,521 419,961,455 288,045,501
Net income (loss) attributable to KKR & Co. L.P. (583 ) 89,938 277,913
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

(3,365 ) 100,910 393,739
Plus: Non-cash equity-based charges 55,968 83,950 60,331
Plus: Amortization of intangibles and other, net 28,048 204,676 45,265
Plus: Income taxes   6,524     29,267   12,401
Economic net income (loss) 86,592 508,741 789,649
Less: Provision for income taxes 3,951 47,361 16,048
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   36,607     42,090   30,128
Economic net income (loss) after taxes 46,034 419,290 743,473
Weighted Average Adjusted Units   838,067,975     835,957,683   716,807,180
Economic net income (loss) after taxes per adjusted unit $ 0.05   $ 0.50 $ 1.04
 
 
Year Ended
December 31, 2014 December 31, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 1.25   $ 2.51
Weighted Average Common Units Outstanding - Basic 381,092,394 274,910,628
Net income (loss) attributable to KKR & Co. L.P. 477,611 691,226
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

585,135 1,056,126
Plus: Non-cash equity-based charges 310,403 307,514
Plus: Amortization of intangibles and other, net 290,348 102,789
Plus: Income taxes   63,669     37,926
Economic net income (loss) 1,727,166 2,195,581
Less: Provision for income taxes 94,223 61,601
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   158,927     114,709
Economic net income (loss) after taxes 1,474,016 2,019,271
Weighted Average Adjusted Units   800,247,988     714,835,941
Economic net income (loss) after taxes per adjusted unit $ 1.84   $ 2.82
 

 
KKR

EXHIBIT B (CONTINUED)

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS)
TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS, FEE AND YIELD EARNINGS, FEE AND YIELD EBITDA, TOTAL DISTRIBUTABLE EARNINGS, AND TOTAL EBITDA (UNAUDITED)
(Amounts in thousands)
       
Quarter Ended
December 31, 2014 September 30, 2014 December 31, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ (583) $ 89,938 $ 277,913
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

(3,365) 100,910 393,739
Plus: Non-cash equity-based charges 55,968 83,950 60,331
Plus: Amortization of intangibles and other, net 28,048 204,676 45,265
Plus: Income taxes 6,524 29,267 12,401
Economic net income (loss) 86,592 508,741 789,649
Plus: Income attributable to segment noncontrolling interests 3,349 5,189 1,943
Less: Total investment income (loss) (142,872) 207,216 323,681
Less: Net carried interest 143,770 181,111 347,778
Fee related earnings 89,043 125,603 120,133
Plus: Net interest and dividends 119,325 82,254 19,974
Fee and yield earnings 208,368 207,857 140,107
Plus: Depreciation and amortization 3,830 3,777 3,658
Plus: Core interest expense 27,050 23,347 17,004
Fee and yield EBITDA 239,248 234,981 160,769
Less: Depreciation and amortization 3,830 3,777 3,658
Less: Core interest expense 27,050 23,347 17,004
Less: Net interest and dividends 119,325 82,254 19,974
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 119,158 147,615 150,300
Plus: Net realized investment income - KKR (ex-KFN) 120,618 192,146 250,856
Plus: Net realized investment income - KFN 60,926 52,903 -
Less: Local income taxes and noncontrolling interests 13,419 13,450 10,938
Total distributable earnings 376,326 504,817 510,351
Plus: Depreciation and amortization 3,830 3,777 3,658
Plus: Core interest expense 27,050 23,347 17,004
Plus: Local income taxes and noncontrolling interests 13,419 13,450 10,938
Total EBITDA $ 420,625 $ 545,391 $ 541,951
 
Year Ended
December 31, 2014 December 31, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ 477,611 $ 691,226
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

585,135 1,056,126
Plus: Non-cash equity-based charges 310,403 307,514
Plus: Amortization of intangibles and other, net 290,348 102,789
Plus: Income taxes 63,669 37,926
Economic net income (loss) 1,727,166 2,195,581
Plus: Income attributable to segment noncontrolling interests 14,946 6,387
Less: Total investment income (loss) 505,153 958,401
Less: Net carried interest 776,870 831,219
Fee related earnings 460,089 412,348
Plus: Net interest and dividends 273,175 21,506
Fee and yield earnings 733,264 433,854
Plus: Depreciation and amortization 15,782 14,648
Plus: Core interest expense 88,002 65,662
Fee and yield EBITDA 837,048 514,164
Less: Depreciation and amortization 15,782 14,648
Less: Core interest expense 88,002 65,662
Less: Net interest and dividends 273,175 21,506
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 716,196 414,016
Plus: Net realized investment income - KKR (ex-KFN) 751,367 657,139
Plus: Net realized investment income - KFN 150,211 -
Less: Local income taxes and noncontrolling interests 48,939 27,625
Total distributable earnings 2,028,924 1,455,878
Plus: Depreciation and amortization 15,782 14,648
Plus: Core interest expense 88,002 65,662
Plus: Local income taxes and noncontrolling interests 48,939 27,625
Total EBITDA $ 2,181,647 $ 1,563,813
 

 
KKR

EXHIBIT B (CONTINUED)

RECONCILIATION OF KKR & CO. L.P. PARTNERS' CAPITAL (GAAP BASIS)
TO BOOK VALUE AND BOOK VALUE PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
       
 
December 31, 2014 December 31, 2013
 
KKR & Co. L.P. partners’ capital $ 5,382,691 $ 2,722,010
 
Noncontrolling interests held by KKR Holdings L.P. 4,661,679 5,116,761
 
Equity impact of KKR Management Holdings Corp. and other   73,855   (76,171 )
 
Book value 10,118,225 7,762,600
 
Adjusted units 838,020,974 716,676,699
   
Book value per adjusted unit $ 12.07 $ 10.83  
 
             
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (UNAUDITED)
(Amounts in thousands)
 
December 31, 2014 December 31, 2013
 
Cash and cash equivalents $ 918,080 $ 1,306,383
 
Liquid short-term investments 203,305 854,714
   
Cash and short-term investments $ 1,121,385 $ 2,161,097  
 

 
KKR

EXHIBIT C

 
RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING - BASIC TO WEIGHTED AVERAGE ADJUSTED UNITS (UNAUDITED)
 
The following table provides a reconciliation of KKR's Weighted Average GAAP Common Units Outstanding to Weighted Average Adjusted Units.
       
Quarter Ended
December 31, 2014 September 30, 2014 December 31, 2013
Weighted Average GAAP Common Units Outstanding - Basic 431,432,521 419,961,455 288,045,501
Adjustments:
Weighted Average Unvested Common Units and Other Securities(a) 27,550,338 32,058,287 24,294,835
Weighted Average GAAP Common Units Outstanding - Diluted 458,982,859 452,019,742 312,340,336
Adjustments:
Weighted Average KKR Holdings Units (b) 379,085,116 383,937,941 404,466,844
Weighted Average Adjusted Units 838,067,975 835,957,683 716,807,180
 
Year Ended
December 31, 2014 December 31, 2013
Weighted Average GAAP Common Units Outstanding - Basic 381,092,394 274,910,628
Adjustments:
Weighted Average Unvested Common Units and Other Securities(a) 30,956,881 25,343,462
Weighted Average GAAP Common Units Outstanding - Diluted 412,049,275 300,254,090
Adjustments:
Weighted Average KKR Holdings Units (b) 388,198,713 414,581,851
Weighted Average Adjusted Units 800,247,988 714,835,941
           
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING - BASIC TO ADJUSTED UNITS AND ADJUSTED UNITS ELIGIBLE FOR DISTRIBUTION (UNAUDITED)
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units and Adjusted Units Eligible for Distribution.
 
December 31, 2014 December 31, 2013
GAAP Common Units Outstanding - Basic 433,330,540 288,143,327
Unvested Common Units and Other Securities(a) 27,493,685 24,164,354
GAAP Common Units Outstanding - Diluted 460,824,225 312,307,681
Adjustments:
KKR Holdings Units (b) 377,196,749 404,369,018
Adjusted Units 838,020,974 716,676,699
Adjustments:
Unvested Common Units and Other Securities(a) (24,373,441) (24,164,354)
Adjusted Units Eligible For Distribution 813,647,533 692,512,345
 
 
(a) Represents equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan and in the case of the twelve months ended December 31, 2014 other securities that are exchangeable into KKR & Co. L.P common units. The issuance of common units of KKR & Co. L.P. pursuant to such equity awards or other securities 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

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