KKR & Co. L.P.

KKR & Co. L.P. Announces First Quarter 2013 Results

04.25.2013

Initiates quarterly distribution of 40% of balance sheet income

Strong investment appreciation drives meaningful economic net income

GAAP net income (loss) attributable to KKR & Co. L.P. was $193.4 million for the quarter ended March 31, 2013, up from $190.4 million for the quarter ended March 31, 2012.

Assets under management ("AUM") totaled $78.3 billion as of March 31, 2013, up from $75.5 billion as of December 31, 2012.

Fee related earnings ("FRE") were $88.0 million for the quarter ended March 31, 2013, up from $73.4 million for the quarter ended March 31, 2012.

Total distributable earnings were $290.6 million for the quarter ended March 31, 2013, up from $164.1 million for the quarter ended March 31, 2012.

Economic net income (loss) ("ENI") was $647.7 million for the quarter ended March 31, 2013, down from $727.2 million for the quarter ended March 31, 2012.

After-tax ENI was $0.88 per adjusted unit for the quarter ended March 31, 2013, down from $0.99 per adjusted unit for the quarter ended March 31, 2012.

Book value was $7.1 billion on a segment basis as of March 31, 2013, representing $9.89 per adjusted unit.

KKR & Co. L.P. declares a first quarter distribution of $0.27 per common unit, which includes $0.09 per common unit of net realized principal investment income.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE: KKR) today reported its first quarter 2013 results.

For the quarter ended March 31, 2013, the carrying value of KKR's private equity investment portfolio appreciated 5.9% driving ENI of $647.7 million for the quarter ended March 31, 2013. This represented a decrease of $79.5 million or 10.9%, as compared to ENI of $727.2 million for the quarter ended March 31, 2012, primarily due to a lower level of investment income from our principal investments, partially offset by higher management and incentive fees. While the fair value of our principal investments increased during the first quarter of 2013, the level of appreciation was lower than in the comparable period of 2012.

AUM and fee paying assets under management ("FPAUM") were $78.3 billion and $62.5 billion, respectively as of March 31, 2013, increasing 3.7% and 2.8% from December 31, 2012, respectively. The increase in AUM was primarily attributable to investment appreciation and new capital raised during the period, partially offset by distributions to limited partners of our investment funds. FPAUM was higher primarily due to new capital raised. During the first quarter of 2013, our North America Fund XI had new capital raised of approximately $900 million, which is included in both AUM and FPAUM.

KKR also announced a change to its distribution policy. Beginning with this quarter, KKR will distribute 40% of realized balance sheet income in addition to its traditional distribution of after-tax FRE and realized cash carry earned in each quarter. The quarterly distribution of 40% of realized balance sheet income will replace the annual, additional distribution that historically was announced with respect to fourth quarter earnings.

"We had a good start to the year with strong returns, cash flow generation, and balance sheet income," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "We continue to scale both our private equity and non-private equity businesses, growing our assets under management."

 
Note: Certain financial measures, including FRE, ENI, after-tax ENI, after-tax ENI per adjusted unit, fee related EBITDA, total distributable 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 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 ended March 31, 2013 included net income attributable to KKR & Co. L.P. of $193.4 million and net income attributable to KKR & Co. L.P. per common unit of $0.69 on a diluted basis. For the quarter ended March 31, 2012, net income attributable to KKR & Co. L.P. was $190.4 million and net income attributable to KKR & Co. L.P. per common unit was $0.80 on a diluted basis. The increase was primarily due to higher fees and a decrease in compensation and benefits expense, partially offset by a lower level of investment appreciation, which is recorded in net gains (losses) from investment activities for the quarter ended March 31, 2013 compared to the quarter ended March 31, 2012.

SEGMENT RESULTS

Private Markets

AUM was $50.3 billion as of March 31, 2013, an increase of $1.2 billion, or 2.4%, compared to AUM of $49.1 billion as of December 31, 2012. The increase was primarily due to investment appreciation and to a lesser extent new capital raised, partially offset by distributions to limited partners of our private equity funds arising from realizations.

FPAUM was $41.2 billion as of March 31, 2013 unchanged from December 31, 2012. New capital raised was offset by distributions to the limited partners of our private equity funds arising from realizations and unfavorable changes in foreign exchange related to euro-denominated commitments and invested capital.

FRE was $40.7 million for the quarter ended March 31, 2013, an increase of $3.0 million, or 8.0%, compared to FRE of $37.7 million for the quarter ended March 31, 2012. The increase was primarily driven by higher monitoring fees and higher transaction fees resulting from closing more transaction fee-generating investments. These increases were partially offset by higher compensation expense due to additional headcount.

ENI was $266.7 million for the quarter ended March 31, 2013, an increase of $1.4 million compared to ENI of $265.3 million for the quarter ended March 31, 2012. The increase was primarily attributable to the increase in FRE discussed above.

Public Markets

AUM was $27.9 billion as of March 31, 2013, an increase of $1.5 billion, or 5.7%, compared to AUM of $26.4 billion as of December 31, 2012. FPAUM was $21.2 billion as of March 31, 2013, an increase $1.5 billion, or 7.6%, compared to FPAUM of $19.7 billion as of December 31, 2012. For both AUM and FPAUM, the increases were primarily attributable to net new capital raised as well as appreciation in the net asset value of certain investment vehicles.

FRE was $37.2 million for the quarter ended March 31, 2013, an increase of $21.8 million, or 141.6%, compared to FRE of $15.4 million for the quarter ended March 31, 2012. The increase was primarily due to (i) higher incentive fees earned, (ii) higher management fees related to new capital raised over the past twelve months and (iii) the acquisition of Prisma.

ENI was $49.1 million for the quarter ended March 31, 2013, an increase of $25.2 million, or 105.4%, compared to ENI of $23.9 million for the quarter ended March 31, 2012. The increase was primarily attributable to the increase in FRE discussed above and to a lesser extent higher net carried interest due to investment appreciation of certain carry-earning investment vehicles.

Capital Markets and Principal Activities

FRE was $10.1 million for the quarter ended March 31, 2013, a decrease of $10.1 million, or 50.0%, compared to FRE of $20.2 million for the quarter ended March 31, 2012. The decrease was primarily driven by a lower level of overall capital markets transaction activity.

ENI was $331.9 million for the quarter ended March 31, 2013, a decrease of $106.1 million, or 24.2%, compared to ENI of $438.0 million for the quarter ended March 31, 2012. The decrease was primarily attributable to a lower level of investment income. While the fair value of our principal investments increased during the first quarter of 2013, the level of appreciation was lower than in the comparable period of 2012.

CAPITAL AND LIQUIDITY

As of March 31, 2013, KKR had $2.0 billion of cash and short-term investments on a segment basis and $1.0 billion of outstanding debt obligations. KKR's availability for borrowings was $750.0 million (reduced for an outstanding letter of credit), which does not include $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of March 31, 2013.

As of March 31, 2013, KKR's portion of total uncalled commitments to its investment funds was $653.3 million, consisting of the following (amounts in thousands):

     
Uncalled

Commitments

Private Markets

North America Fund XI $ 231,500
European Fund III 172,800
2006 Fund 64,300
Infrastructure 30,300
Asian Fund 21,200
E2 Investors (Annex Fund) 14,000
Natural Resources 10,000
China Growth Fund 6,500
Other   10,800
Total Private Markets Commitments   561,400
 

Public Markets

Direct Lending Vehicles 38,800
Mezzanine Fund 31,600
Special Situations Vehicles   21,500
Total Public Markets Commitments   91,900
 
Total Uncalled Commitments $ 653,300
 

DISTRIBUTION

A distribution of $0.27 per common unit has been declared, comprised of (i) $0.10 per common unit from after-tax FRE, (ii) $0.08 per common unit from realized cash carry, and (iii) $0.09 per common unit from net realized principal investment income. The distribution will be paid on May 21, 2013 to unitholders of record as of the close of business on May 6, 2013. Please refer to the changed distribution policy presented later in this release.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Thursday, April 25, 2013 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 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 32116366, 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

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $78.3 billion in assets under management as of March 31, 2013. 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, 2012, filed with the SEC on February 22, 2013, and other filings with the SEC, which are available at www.sec.gov.

       
 
KKR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended
March 31, 2013 March 31, 2012
Revenues
Fees $ 151,240   $ 116,307  
 
Expenses
Compensation and Benefits 331,121 372,410
Occupancy and Related Charges 14,521 15,197
General, Administrative and Other   93,688     57,651  
Total Expenses   439,330     445,258  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 2,269,817 3,086,865
Dividend Income 39,469 172,939
Interest Income 109,369 76,199
Interest Expense   (23,023 )   (18,005 )
Total Investment Income (Loss)   2,395,632     3,317,998  
 
Income (Loss) Before Taxes 2,107,542 2,989,047
 
Income Taxes   9,356     17,072  
 
Net Income (Loss) 2,098,186 2,971,975
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests 24,623 5,272
Net Income (Loss) Attributable to
Noncontrolling Interests 1,880,124 2,776,267
   
Net Income (Loss) Attributable to KKR & Co. L.P. $ 193,439   $ 190,436  
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.27 $ 0.15
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.75 $ 0.83
Diluted (a) $ 0.69 $ 0.80
Weighted Average Common Units Outstanding
Basic 257,044,184 229,099,335
Diluted (a) 282,042,521 237,832,106
 
 

(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) (a)
(Amounts in thousands, except unit and per unit amounts)
 
Quarter Ended
March 31, 2013 December 31, 2012   March 31, 2012
Fees
Management and incentive fees:
Management fees $ 152,963 $ 144,355 $ 128,643
Incentive fees   18,849     12,350     9,670  
Management and incentive fees   171,812     156,705     138,313  
 
Monitoring and transaction fees:
Monitoring fees 32,068 32,988 25,822
Transaction fees 40,299 76,840 44,298
Fee credits   (23,065 )   (37,991 )   (19,343 )
Net monitoring and transaction fees   49,302     71,837     50,777  
 
Total fees   221,114     228,542     189,090  
 
Expenses
Compensation and benefits 75,162 76,001 62,724
Occupancy and related charges 13,322 13,763 14,461
Other operating expenses   44,630     52,799     38,549  
Total expenses   133,114     142,563     115,734  
 
Fee Related Earnings   88,000     85,979     73,356  
 
Investment income (loss)
Realized carried interest 88,167 168,320 74,878
Unrealized carried interest   331,198     100,616     394,486  
Gross carried interest 419,365 268,936 469,364
Less: allocation to KKR carry pool (169,504 ) (107,514 ) (191,506 )
Less: management fee refunds (b)   (9,216 )   (8,712 )   (40,708 )
Net carried interest 240,645 152,710 237,150
Other investment income (loss)   320,198     110,236     419,907  
Total investment income (loss)   560,843     262,946     657,057  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 648,843 348,925 730,413
Income (Loss) attributable to
noncontrolling interests   1,101     1,245     3,211  
 
Economic Net Income (Loss) $ 647,742   $ 347,680   $ 727,202  
 
Provision for Income Taxes 20,117 10,632 43,383
 
Economic Net Income (Loss), After Taxes (c) $ 627,625   $ 337,048   $ 683,819  
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (c) $ 0.88 $ 0.48 $ 0.99
                 
Assets Under Management $ 78,253,400 $ 75,527,500 $ 62,292,600
Fee Paying Assets Under Management $ 62,454,100 $ 60,846,000 $ 47,226,500
Committed Dollars Invested and Syndicated Capital $ 824,400 $ 1,715,700 $ 1,033,000
Uncalled Commitments       $ 16,207,300     $ 16,071,900     $ 11,015,100  
                 

Other Information

Fee Related Earnings $ 88,000 $ 85,979 $ 73,356
Plus: depreciation and amortization   3,681     3,580     2,553  
Fee Related EBITDA $ 91,681   $ 89,559   $ 75,909  
 
Distributed Earnings $ 198,720 $ 179,412 $ 111,486
Plus: Undistributed net realized principal investment income   91,894     366,878     52,618  
Total Distributable Earnings (c) $ 290,614   $ 546,290   $ 164,104  
 
GAAP interest expense $ 23,023 $ 16,407 $ 18,005
Less: interest expense related to debt obligations
from investment financing arrangements   6,790     7,014     8,073  
Core Interest Expense (c) $ 16,233   $ 9,393   $ 9,932  
                 
 
(a)   Excludes a $27.4 million, $15.2 million and $16.3 million charge for non-cash equity based compensation during the quarters ended March 31, 2013, December 31, 2012, and March 31, 2012, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. Excludes certain non-recurring litigation charges of $12.5 million during the quarter ended March 31, 2013.
 
(b) As of March 31, 2013, 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
March 31, 2013   December 31, 2012   March 31, 2012
Fees
Management and incentive fees:
Management fees $ 106,605 $ 104,804 $ 106,912
Incentive fees   -     -     -  
Management and incentive fees   106,605     104,804     106,912  
 
Monitoring and transaction fees:
Monitoring fees 32,068 32,988 25,822
Transaction fees 16,412 41,231 11,667
Fee credits   (21,009 )   (37,721 )   (17,706 )
Net monitoring and transaction fees   27,471     36,498     19,783  
 
Total fees   134,076     141,302     126,695  
 
Expenses
Compensation and benefits 48,001 53,383 44,486
Occupancy and related charges 11,425 12,075 12,805
Other operating expenses   33,942     43,463     31,675  
Total expenses   93,368     108,921     88,966  
 
Fee Related Earnings   40,708     32,381     37,729  
 
Investment income (loss)
Realized carried interest 88,167 168,320 74,878
Unrealized carried interest   310,799     86,976     379,627  
Gross carried interest 398,966 255,296 454,505
Less: allocation to KKR carry pool (161,344 ) (102,058 ) (185,562 )
Less: management fee refunds   (9,216 )   (8,712 )   (40,708 )
Net carried interest 228,406 144,526 228,235
Other investment income (loss)   (2,035 )   1,158     1,652  
Total investment income (loss)   226,371     145,684     229,887  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 267,079 178,065 267,616
Income (Loss) attributable to
noncontrolling interests   398     292     2,296  
 
Economic Net Income (Loss) $ 266,681   $ 177,773   $ 265,320  
 
 
Assets Under Management $ 50,340,400 $ 49,127,600 $ 45,986,400
Fee Paying Assets Under Management $ 41,218,000 $ 41,173,000 $ 37,974,800
Committed Dollars Invested $ 598,500 $ 1,220,800 $ 576,200
Uncalled Commitments $ 14,560,900 $ 14,271,100 $ 9,596,700
 

         
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended
March 31, 2013   December 31, 2012   March 31, 2012
Fees
Management and incentive fees:
Management fees $ 46,358 $ 39,551 $ 21,731
Incentive fees   18,849     12,350     9,670  
Management and incentive fees   65,207     51,901     31,401  
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 3,106 1,974 2,422
Fee credits   (2,056 )   (270 )   (1,637 )
Net monitoring and transaction fees   1,050     1,704     785  
 
Total fees   66,257     53,605     32,186  
 
Expenses
Compensation and benefits 19,700 16,097 11,382
Occupancy and related charges 1,542 1,479 1,418
Other operating expenses   7,826     6,596     3,977  
Total expenses   29,068     24,172     16,777  
 
Fee Related Earnings   37,189     29,433     15,409  
 
Investment income (loss)
Realized carried interest - - -
Unrealized carried interest   20,399     13,640     14,859  
Gross carried interest 20,399 13,640 14,859
Less: allocation to KKR carry pool (8,160 ) (5,456 ) (5,944 )
Less: management fee refunds   -     -     -  
Net carried interest 12,239 8,184 8,915
Other investment income (loss)   62     30     (23 )
Total investment income (loss)   12,301     8,214     8,892  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 49,490 37,647 24,301
Income (Loss) attributable to
noncontrolling interests   355     292     431  
 
Economic Net Income (Loss) $ 49,135   $ 37,355   $ 23,870  
 
Assets Under Management $ 27,913,000 $ 26,399,900 $ 16,306,200
Fee Paying Assets Under Management $ 21,236,100 $ 19,673,000 $ 9,251,700
Committed Dollars Invested $ 164,900 $ 226,400 $ 206,200
Uncalled Commitments $ 1,646,400 $ 1,800,800 $ 1,418,400
 

         
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended
March 31, 2013   December 31, 2012   March 31, 2012
Fees
Management and incentive fees:
Management fees $ - $ - $ -
Incentive fees   -   -   -
Management and incentive fees   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - -
Transaction fees 20,781 33,635 30,209
Fee credits   -   -   -
Net monitoring and transaction fees   20,781   33,635   30,209
 
Total fees   20,781   33,635   30,209
 
Expenses
Compensation and benefits 7,461 6,521 6,856
Occupancy and related charges 355 209 238
Other operating expenses   2,862   2,740   2,897
Total expenses   10,678   9,470   9,991
 
Fee Related Earnings   10,103   24,165   20,218
 
Investment income (loss)
Realized carried interest - - -
Unrealized carried interest   -   -   -
Gross carried interest - - -
Less: allocation to KKR carry pool - - -
Less: management fee refunds   -   -   -
Net carried interest - - -
Other investment income (loss)   322,171   109,048   418,278
Total investment income (loss)   322,171   109,048   418,278
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 332,274 133,213 438,496
Income (Loss) attributable to
noncontrolling interests   348   661   484
 
Economic Net Income (Loss) $ 331,926 $ 132,552 $ 438,012
 
 
Syndicated Capital $ 61,000 $ 268,500 $ 250,600

 

           
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended March 31, 2013
(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 $ 106,605 $ 46,358 $ - $ 152,963
Incentive fees   -     18,849     -   18,849  
Management and incentive fees   106,605     65,207     -   171,812  
 
Monitoring and transaction fees:
Monitoring fees 32,068 - - 32,068
Transaction fees 16,412 3,106 20,781 40,299
Fee credits   (21,009 )   (2,056 )   -   (23,065 )
Net monitoring and transaction fees   27,471     1,050     20,781   49,302  
 
Total fees   134,076     66,257     20,781   221,114  
 
Expenses
Compensation and benefits 48,001 19,700 7,461 75,162
Occupancy and related charges 11,425 1,542 355 13,322
Other operating expenses   33,942     7,826     2,862   44,630  
Total expenses   93,368     29,068     10,678   133,114  
 
Fee Related Earnings   40,708     37,189     10,103   88,000  
 
Investment income (loss)
Realized carried interest 88,167 - - 88,167
Unrealized carried interest   310,799     20,399     -   331,198  
Gross carried interest 398,966 20,399 - 419,365
Less: allocation to KKR carry pool (161,344 ) (8,160 ) - (169,504 )
Less: management fee refunds   (9,216 )   -     -   (9,216 )
Net carried interest 228,406 12,239 - 240,645
Other investment income (loss)   (2,035 )   62     322,171   320,198  
Total investment income (loss)   226,371     12,301     322,171   560,843  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 267,079 49,490 332,274 648,843
Income (Loss) attributable to
noncontrolling interests 398 355 348 1,101
       
Economic Net Income (Loss) $ 266,681   $ 49,135   $ 331,926 $ 647,742  
 

           
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)
Realized carried interest 168,320 - - 168,320
Unrealized carried interest   86,976     13,640     -   100,616  
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 March 31, 2012
(Amounts in thousands)
 
 
Capital Markets Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 106,912 $ 21,731 $ - $ 128,643
Incentive fees   -     9,670     -   9,670  
Management and incentive fees   106,912     31,401     -   138,313  
 
Monitoring and transaction fees:
Monitoring fees 25,822 - - 25,822
Transaction fees 11,667 2,422 30,209 44,298
Fee credits   (17,706 )   (1,637 )   -   (19,343 )
Net monitoring and transaction fees   19,783     785     30,209   50,777  
 
Total fees   126,695     32,186     30,209   189,090  
 
Expenses
Compensation and benefits 44,486 11,382 6,856 62,724
Occupancy and related charges 12,805 1,418 238 14,461
Other operating expenses   31,675     3,977     2,897   38,549  
Total expenses   88,966     16,777     9,991   115,734  
 
Fee Related Earnings   37,729     15,409     20,218   73,356  
 
Investment income (loss)
Realized carried interest 74,878 - - 74,878
Unrealized carried interest   379,627     14,859     -   394,486  
Gross carried interest 454,505 14,859 - 469,364
Less: allocation to KKR carry pool (185,562 ) (5,944 ) - (191,506 )
Less: management fee refunds   (40,708 )   -     -   (40,708 )
Net carried interest 228,235 8,915 - 237,150
Other investment income (loss)   1,652     (23 )   418,278   419,907  
Total investment income (loss)   229,887     8,892     418,278   657,057  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 267,616 24,301 438,496 730,413
Income (Loss) attributable to
noncontrolling interests 2,296 431 484 3,211
       
Economic Net Income (Loss) $ 265,320   $ 23,870   $ 438,012 $ 727,202  
 

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

As of March 31, 2013

Private
Markets
Segment

Public
Markets
Segment

Capital
Markets and
Principal
Activities
Segment

Total
Reportable
Segments

 
Cash and short-term investments $ 224,496 $ 20,132 $ 1,751,709 $ 1,996,337
Investments - - 4,634,383 (a) 4,634,383
Unrealized carry 897,747 37,178 - 934,925
Other assets   256,193   325,903   72,378   654,474
Total assets $ 1,378,436 $ 383,213 $ 6,458,470 $ 8,220,119
 
Debt obligations $ - $ - $ 1,000,000 $ 1,000,000
Other liabilities   88,962   23,300   18,961   131,223
Total liabilities   88,962   23,300   1,018,961   1,131,223
 
Noncontrolling interests

1,444

801 18,259 20,504
       
Book value $ 1,288,030 $ 359,112 $ 5,421,250 $ 7,068,392
 
Book value per adjusted unit $ 1.80 $ 0.50 $ 7.59 $ 9.89
 
 

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 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
 
 
(a)   See Capital Markets and Principal Activities segment schedule of investments that follows.

 
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS (UNAUDITED)
(Amounts in thousands, except percentage amounts)
         
As of March 31, 2013

 

 

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 195,640 445,082 9.6 %
HCA Inc. 96,289 345,580 7.5 %
The Nielsen Company B.V. 110,966 265,407 5.7 %
Dollar General Corporation 37,733 211,028 4.6 %
NXP B.V. 167,276 191,975 4.2 %
Samson Resources Corporation 237,514 190,012 4.1 %
KION Group GmbH 128,058 172,732 3.7 %
ProSiebenSat.1 Media AG 226,913 142,646 3.1 %
US Foods, Inc. 100,000 130,000 2.8 %
Biomet, Inc. 151,444 121,155 2.6 %
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 %
  2,022,292   2,320,298 50.1 %
 
Private Equity Investment Vehicles
KKR 2006 Fund L.P. 371,155 450,932 9.7 %
KKR European Fund III L.P. 190,681 229,628 5.0 %
KKR Asian Fund L.P. 77,033 102,601 2.2 %
KKR European Fund II L.P. 63,819 56,074 1.2 %
KKR Millennium Fund L.P. 56,463 46,671 1.0 %
KKR E2 Investors, L.P. 10,418 19,824 0.4 %
KKR North America Fund XI L.P. 18,287 19,358 0.4 %
KKR European Fund L.P. 47,664 4,314 0.1 %
KKR China Growth Fund L.P. 3,449 3,584 0.1 %
Co-Investment Vehicles   490   592 0.0 %
  839,459   933,578 20.1 %
 
Private Equity Total   2,861,751   3,253,876 70.2 %
 
Energy & Infrastructure Investment Strategies
Royalties and Drilling 112,925 121,898 2.6 %
Infrastructure Fund 24,447 25,778 0.6 %
Co-Investments 10,718 13,076 0.3 %
Natural Resources   13,372   8,871 0.2 %
Energy & Infrastructure Total   161,462   169,623 3.7 %
 
Private Markets Total   3,023,213   3,423,499 73.9 %
 
Public Markets Investment Strategies
Liquid Credit SMAs 187,163 197,572 4.3 %
Long/Short Equities 100,000 112,172 2.4 %
Credit Relative Value 65,000 69,583 1.5 %
Direct Lending 30,424 34,485 0.7 %
Special Situations 24,408 27,428 0.6 %
Mezzanine Fund   12,560   15,481 0.3 %
Public Markets Total   419,555   456,721 9.8 %
 
Other   747,364   754,163 16.3 %
 
Total Investments $ 4,190,132 $ 4,634,383 100.0 %
 

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

 

As of March 31, 2013

 

 

Fair Value as
a Percentage

Investment

Cost

Fair

Value

of Total

Investments

 
Significant Aggregate Investments: (a)
Alliance Boots GmbH $ 228,769 $ 513,427 11.1 %
HCA Inc. 117,624 411,104 8.9 %
Dollar General Corporation 52,359 279,391 6.0 %
The Nielsen Company B.V.   110,966   265,407 5.7 %
  509,718   1,469,329 31.7 %
 
Other investments   3,680,414   3,165,054 68.3 %
Total Investments $ 4,190,132 $ 4,634,383 100.0 %
 
 
(a)   The significant aggregate investments include investments in portfolio companies with individual fair values of 5% or more of the Capital Markets and Principal Activities segment investments balance as of March 31, 2013. 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 March 31, 2013

 
December 31, 2012 $ 49,127,600 $ 26,399,900 $ 75,527,500
New Capital Raised 967,200 1,531,500 2,498,700
Distributions (1,832,000 ) (679,700 ) (b) (2,511,700 )
Foreign Exchange (23,600 ) - (23,600 )
Change in Value   2,101,200     661,300     2,762,500  
March 31, 2013 $ 50,340,400   $ 27,913,000   $ 78,253,400  
 

 

Trailing Twelve Months Ended March 31, 2013

 
March 31, 2012 $ 45,986,400 $ 16,306,200 $ 62,292,600
New Capital Raised 8,267,800 4,256,200 12,524,000
Acquisitions (a) - 8,086,900 8,086,900
Distributions (10,104,700 ) (2,101,100 ) (c) (12,205,800 )
Net Changes in Fee Base of Certain Funds (d) (1,327,900 ) - (1,327,900 )
Foreign Exchange (58,800 ) - (58,800 )
Change in Value   7,577,600     1,364,800     8,942,400  
March 31, 2013 $ 50,340,400   $ 27,913,000   $ 78,253,400  
 
 
 
 
KKR
FEE PAYING ASSETS UNDER MANAGEMENT (UNAUDITED)
(Amounts in thousands)
 
 

Private
Markets
Segment

Public

Markets

Segment

Total Reportable
Segments

Quarter Ended March 31, 2013

 
December 31, 2012 $ 41,173,000 $ 19,673,000 $ 60,846,000
New Capital Raised 961,800 1,531,300 2,493,100
Distributions (841,100 ) (536,500 ) (b) (1,377,600 )
Foreign Exchange (103,700 ) - (103,700 )
Change in Value   28,000     568,300     596,300  
March 31, 2013 $ 41,218,000   $ 21,236,100   $ 62,454,100  
 
 

Trailing Twelve Months Ended March 31, 2013

 
March 31, 2012 $ 37,974,800 $ 9,251,700 $ 47,226,500
New Capital Raised 8,354,700 4,019,400 12,374,100
Acquisitions (a) - 8,078,400 8,078,400
Distributions (1,807,200 ) (1,345,500 ) (c) (3,152,700 )
Net Changes in Fee Base of Certain Funds (d) (3,205,400 ) - (3,205,400 )
Foreign Exchange (156,000 ) - (156,000 )
Change in Value   57,100     1,232,100     1,289,200  
March 31, 2013 $ 41,218,000   $ 21,236,100   $ 62,454,100  
 
 
(a)   Represents AUM and FPAUM of Prisma as of October 1, 2012, the date of acquisition. These figures exclude new capital raised and distributions since the acquisition.
(b) Includes $345.7 million of redemptions by fund investors.
(c) Includes $767.5 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 March 31, 2013
(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 $ 7,230.7 $ 6,784.4 3.5% $ 446.3 $ - $ 446.3 $ 473.4
China Growth Fund 11/2010 11/2016 1,010.0 692.4 1.0% 317.6 - 317.6 331.6
E2 Investors (Annex Fund) 8/2009 11/2013 345.0 190.8 4.3% 154.2 - 154.2 314.2
European Fund III 3/2008 3/2014 6,065.5 2,361.6 4.6% 3,703.9 - 3,703.9 4,526.6
Asian Fund 7/2007 4/2013 3,983.2 584.0 2.5% 3,399.2 793.3 2,926.2 5,325.7
2006 Fund 9/2006 9/2012 17,642.2 1,293.5 2.1% 16,348.7 9,668.9 10,330.0 15,028.7
European Fund II 11/2005 10/2008 5,750.8 - 2.1% 5,750.8 2,390.2 3,975.2 4,867.2
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5% 6,000.0 9,148.5 2,302.5 3,620.3
European Fund 12/1999 12/2005   3,085.4     - 3.2%   3,085.4     8,720.0     -     51.6
Total Private Equity Funds 51,112.8 11,906.7 39,206.1 30,720.9 24,155.9 34,539.3
 
Co-Investment Vehicles Various Various   2,133.5     207.1 Various   1,926.4     2,080.8     1,352.9     1,944.3
Total Private Equity   53,246.3     12,113.8   41,132.5     32,801.7     25,508.8     36,483.6
 
Energy & Infrastructure
Natural Resources Fund Various Various 1,222.6 649.7 Various 572.9 35.2 559.1 387.3
Global Energy Opportunities Various Various 1,011.0 900.3 Various 110.7 - 110.7 97.7
Infrastructure Fund Various Various 1,041.2 644.5 4.8% 396.7 1.7 396.7 415.1
Infrastructure Co-Investments Various Various   1,357.1     252.6 Various   1,104.5     167.8     1,104.5     1,378.5
Energy & Infrastructure Total   4,631.9     2,447.1   2,184.8     204.7     2,171.0     2,278.6
 
Private Markets Total   57,878.2     14,560.9   43,317.3     33,006.4     27,679.8     38,762.2
 

Public Markets

 
Special Situations Vehicles Various Various 2,119.5 500.4 Various 1,619.1 260.1 1,566.8 1,895.0
Mezzanine Fund 3/2010 8/2015 987.0 695.1 4.6% 291.9 48.8 291.9 339.5
Direct Lending Vehicles Various Various 668.5 450.9 Various 217.6 4.1 217.6 234.8
                 
Public Markets Total   3,775.0     1,646.4   2,128.6     313.0     2,076.3     2,469.3
 
Grand Total $ 61,653.2   $ 16,207.3 $ 45,445.9   $ 33,319.4   $ 29,756.1   $ 41,231.5
 
 
*   Reflects investment vehicles for which KKR has the ability to earn carried interest.

         
KKR
DISTRIBUTION CALCULATION (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 
 
Quarter Ended
March 31, 2013   December 31, 2012   March 31, 2012
 
FRE (a) $ 88,000 $ 85,979 $ 73,356
Realized cash carry 52,900 100,992 44,927
Net realized principal investment income 153,156 366,878 52,618
Less: local income taxes (2,341 ) (6,314 ) (3,586 )
Less: noncontrolling interests   (1,101 )   (1,245 )   (3,211 )
Total Distributable Earnings   290,614     546,290     164,104  
 
Less: Undistributed net realized principal investment income (91,894 ) (366,878 ) (52,618 )
     
Distributed Earnings   198,720     179,412     111,486  
 
Distributed Earnings to KKR & Co. L.P. (b) 75,749 66,275 37,800
 
Less: estimated current corporate income taxes   (6,376 )   (8,525 )   (4,022 )
 
Distributed Earnings to KKR & Co. L.P., After Taxes 69,373 57,750 33,778
 
Additional Distribution (c) - 119,081 -
     
Total Distribution to KKR & Co. L.P. $ 69,373   $ 176,831   $ 33,778  
 
Distribution per KKR & Co. L.P. common unit $ 0.27 $ 0.70 $ 0.15

 

     

 

       

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

 
After-tax FRE $ 0.10 $ 0.08 $ 0.08
Realized Cash Carry $ 0.08 $ 0.15 $ 0.07

Distributed Net Realized Principal Investment Income / Other

      $ 0.09     $ 0.47     $ -  
 
Outstanding KKR & Co. L.P. common units 261,781,303 253,363,691 231,698,206
 
 
(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.
 
(c) Additional distribution was calculated for certain taxes in respect of 2012 and prior years.

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 and 40% of the net cash proceeds from realized principal investments, 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 and (iii) a percentage of net realized principal investment income. 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 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.

Net realized principal investment income refers to net cash income from (i) realized investment gains and losses, (ii) dividend income and (iii) interest income net of interest expense, in each case generated by KKR's principal investments held on or through KKR's balance sheet in our Capital Markets and Principal Activities segment. This is a term to describe a portion of KKR's quarterly distribution.

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. 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 also assess 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 unitholders as it provides additional insight into KKR's investment of committed capital. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a fee or carried interest and (ii) capital invested by KKR's investment funds and vehicles.

Syndicated capital is the aggregate amount of debt or equity capital in transactions originated by KKR investment funds and vehicles, which has been distributed to third parties in exchange for a fee. It does not include capital committed to such transactions by carry-yielding co-investment vehicles, which is instead reported in committed dollars invested. Syndicated capital is used as a measure of investment activity for KKR and its business segments during a given period, and we believe that this measure is useful to 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)
TO AFTER TAX ENI PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended Quarter Ended Quarter Ended
March 31, 2013 December 31, 2012 March 31, 2012
 

Net income (loss) attributable to KKR & Co. L.P. per common unit

$ 0.75 $ 0.39 $ 0.83
Weighted Average Common Units Outstanding 257,044,184 249,303,558 229,099,335
Net income (loss) attributable to KKR & Co. L.P. 193,439 96,728 190,436
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 334,112 170,256 404,191
Plus: Non-cash equity based charges 81,650 70,170 114,341
Plus: Amortization of intangibles and other, net 29,185 4,898 1,162
Plus: Income taxes   9,356   5,628   17,072
Economic net income (loss) 647,742 347,680 727,202
Less: Provision for income taxes   20,117   10,632   43,383
Economic net income (loss) after taxes 627,625 337,048 683,819
Weighted Average Adjusted Units   711,229,881   704,805,537   692,097,188
Economic net income (loss) after taxes per adjusted unit $ 0.88 $ 0.48 $ 0.99
 
 
                 
 
 
 
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS)
TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS, FEE RELATED EBITDA, AND TOTAL DISTRIBUTABLE EARNINGS (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Quarter Ended Quarter Ended
March 31, 2013 December 31, 2012 March 31, 2012
 
Net income (loss) attributable to KKR & Co. L.P. $ 193,439 $ 96,728 $ 190,436
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 334,112 170,256 404,191
Plus: Non-cash equity based charges 81,650 70,170 114,341
Plus: Amortization of intangibles and other, net 29,185 4,898 1,162
Plus: Income taxes   9,356   5,628   17,072
Economic net income (loss) 647,742 347,680 727,202
Plus: Income attributable to segment noncontrolling interests 1,101 1,245 3,211
Less: Investment income (loss)   560,843   262,946   657,057
Fee related earnings 88,000 85,979 73,356
Plus: depreciation and amortization   3,681   3,580   2,553
Fee related EBITDA $ 91,681 $ 89,559 $ 75,909
Less: depreciation and amortization 3,681 3,580 2,553
Plus: Realized carried interest, net of allocation to KKR carry pool 52,900 100,992 44,927
Plus: Net realized principal investment income 153,156 366,878 52,618
Less: Local income taxes and noncontrolling interests   3,442   7,559   6,797
Total distributable earnings $ 290,614 $ 546,290 $ 164,104
 

 
KKR

EXHIBIT A (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)
       
 
As of As of
March 31, 2013 December 31, 2012
 
KKR & Co. L.P. partners' capital $ 2,156,069 $ 2,004,359
 
Noncontrolling interests held by KKR Holdings L.P. 4,950,914 4,981,864
 
Equity impact of KKR Management Holdings Corp. and other   (38,591 )   (29,039 )
 
Book value 7,068,392 6,957,184
 
Adjusted units 714,680,891 704,780,484
   
Book value per adjusted unit $ 9.89   $ 9.87  
 
 
             
 
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (SEGMENT BASIS) (UNAUDITED)
(Amounts in thousands)
 
 
As of As of
March 31, 2013 December 31, 2012
 
Cash and cash equivalents $ 1,500,672 $ 1,230,464
 
Liquid short-term investments 495,665 303,823
   
Cash and short-term investments $ 1,996,337   $ 1,534,287  
 

         
KKR

EXHIBIT B

 
RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING 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
March 31, 2013 December 31, 2012 March 31, 2012
Weighted Average GAAP Common Units Outstanding - Basic 257,044,184 249,303,558 229,099,335
Weighted Average Unvested Common Units(a) 24,998,337 18,888,570 8,732,771
Weighted Average GAAP Common Units Outstanding - Diluted 282,042,521 268,192,128 237,832,106
Adjustments:
Weighted Average KKR Holdings Units(b) 429,187,360 436,613,409 454,265,082
Weighted Average Adjusted Units 711,229,881 704,805,537 692,097,188
 
                 
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING TO ADJUSTED UNITS (UNAUDITED)
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units.
 
As of As of
March 31, 2013 December 31, 2012
GAAP Common Units Outstanding - Basic 261,781,303 253,363,691
Unvested Common Units(a) 27,919,623 18,863,517
GAAP Common Units Outstanding - Diluted 289,700,926 272,227,208
Adjustments:
KKR Holdings Units(b) 424,979,965 432,553,276
Adjusted Units 714,680,891 704,780,484
 
 
(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.

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

Source: KKR & Co. L.P.

News Provided by Acquire Media