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July 24, 2014

KKR & Co. L.P. Announces Second Quarter 2014 Results

Exit Activity Drives Record Total Distributable Earnings

GAAP net income (loss) attributable to KKR & Co. L.P. was $178.2 million and $388.3 million for the quarter and six months ended June 30, 2014, respectively, up from $15.1 million and $208.6 million in the comparable periods of 2013.

Total distributable earnings was $701.0 million and $1,147.8 million for the quarter and six months ended June 30, 2014, respectively, up from $403.8 million and $694.4 million in the comparable periods of 2013.

Distribution per common unit was $0.67 and $1.10 for the quarter and six months ended June 30, 2014, respectively, up from $0.42 and $0.69 in the comparable periods of 2013.

Economic net income ("ENI") was $501.6 million and $1,131.8 million for the quarter and six months ended June 30, 2014, respectively, up from $144.4 million and $792.2 million in the comparable periods of 2013.

ENI after taxes per adjusted unit was $0.62 and $1.43 for the quarter and six months ended June 30, 2014, respectively, up from $0.18 and $1.06 in the comparable periods of 2013. (1)

ENI after taxes and equity-based charges per adjusted unit was $0.57 and $1.32 for the quarter and six months ended June 30, 2014, respectively, up from $0.15 and $0.99 for the quarter and six months ended June 30, 2013. (1)

Fee and yield earnings were $154.2 million and $317.0 million for the quarter and six months ended June 30, 2014, respectively, up from $101.0 million and $188.5 million in the comparable periods of 2013.

Book value was $10.4 billion on a total reportable segment basis as of June 30, 2014 or $12.52 per adjusted unit.

Return on equity and cash return on equity were 28.7% and 22.2%, respectively, on a trailing twelve month basis.

Assets under management ("AUM") and fee paying assets under management ("FPAUM") totaled $98.0 billion and $79.7 billion as of June 30, 2014, respectively.

Previously announced acquisition of KFN has closed.

NEW YORK--(BUSINESS WIRE)--

KKR & Co. L.P. (NYSE:KKR) today reported its second quarter 2014 results.

On April 30, 2014, KKR completed its acquisition of KKR Financial Holdings LLC ("KFN"). Through the acquisition, KKR increased the scale, liquidity, and yield profile of its balance sheet and added over $2 billion of net assets to support the continued growth of its business.

For the three, six and trailing twelve months ended June 30, 2014, the carrying value of our private equity portfolio appreciated 5.0%, 9.3%, and 23.7%, respectively.

KKR declares a distribution of $0.67 per common unit, which includes $0.41 of realized cash carry, the 17th consecutive quarter that realized cash carry has been a component of the distribution.

"Our realization activity in the second quarter drove the highest cash carry and total distributable earnings we've reported since going public, contributing to a quarterly distribution of $0.67. Additionally, our cash flow generation, investment performance, and balance sheet income resulted in a 29% return on equity and 22% cash return on equity over the last twelve months," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "We also closed the KFN acquisition in the second quarter, bringing us recurring cash earnings and more permanent capital to grow the firm."

_________________________________________________________________________________________________

Note: Certain financial measures, including FRE, ENI, after-tax ENI, ENI after taxes and equity-based charges, 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 A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP.

(1) Prospectively, KKR plans to only report ENI after taxes and equity-based charges per adjusted unit

GAAP RESULTS

GAAP results for the quarter and six months ended June 30, 2014, included net income attributable to KKR & Co. L.P. of $178.2 million and $388.3 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.43 and $1.06, respectively, on a diluted basis. For the quarter and six months ended June 30, 2013, net income attributable to KKR & Co. L.P. was $15.1 million and $208.6 million, respectively, and net income attributable to KKR & Co. L.P. per common unit was $0.05 and $0.72, respectively, on a diluted basis. The increases in both comparable periods were primarily due to (i) an increase in investment income; (ii) higher transaction fees; and (iii) an increase in KKR & Co. L.P.'s ownership percentage in the KKR business.

SEGMENT RESULTS*

Private Markets

AUM was $59.4 billion as of June 30, 2014, a decrease of $1.1 billion, or 1.8%, compared to AUM of $60.5 billion as of March 31, 2014. The decrease was primarily attributable to distributions to the limited partners of our private equity funds arising from realizations which were partially offset by appreciation in the fair value of our private equity portfolio and new capital raised.

FPAUM was $46.2 billion as of June 30, 2014, a decrease of $2.0 billion, or 4.1%, compared to FPAUM of $48.2 billion as of March 31, 2014. The decrease was primarily attributable to the bankruptcy filing of Energy Future Holdings during the second quarter, and to a lesser extent, distributions to the limited partners of our private equity funds arising from realizations. These decreases were partially offset by new capital raised.

Total segment revenues were $642.9 million for the quarter ended June 30, 2014, an increase of $445.1 million compared to total segment revenues of $197.8 million for the quarter ended June 30, 2013. Total segment revenues were $1,373.6 million for the six months ended June 30, 2014, an increase of $354.7 million compared to total segment revenues of $1,018.9 million for the six months ended June 30, 2013. The increase in both comparable periods was principally attributable to a higher level of net carried interest and total investment income reflecting a higher level of appreciation in our private equity portfolio.

ENI was $376.2 million for the quarter ended June 30, 2014, an increase of $297.7 million compared to ENI of $78.5 million for the quarter ended June 30, 2013. ENI was $861.6 million for the six months ended June 30, 2014, an increase of $217.1 million compared to ENI of $644.5 million for the six months ended June 30, 2013. The increase in both comparable periods was principally attributable to a higher level of net carried interest and total investment income reflecting a higher level of appreciation in our private equity portfolio. The increased total segment revenues were partially offset by higher total segment expenses reflecting an increase in allocations to the carry pool driven by a higher level of carried interest recognized during the 2014 periods.

Public Markets

AUM was $38.5 billion as of June 30, 2014, a decrease of $3.3 billion, or 7.9%, compared to AUM of $41.8 billion as of March 31, 2014. FPAUM was $33.5 billion as of June 30, 2014, a decrease of $1.9 billion, or 5.4%, compared to FPAUM of $35.4 billion as of March 31, 2014. For both AUM and FPAUM, the decreases were primarily attributable to the acquisition of KFN which decreased AUM by approximately $4.5 billion and FPAUM by approximately $2.7 billion, partially offset by new capital raised and appreciation in net asset values in our public markets strategies.

Total segment revenues were $157.2 million for the quarter ended June 30, 2014, an increase of $76.6 million compared to total segment revenues of $80.6 million for the quarter ended June 30, 2013. Total segment revenues were $302.8 million for the six months ended June 30, 2014, an increase of $117.0 million compared to total segment revenues of $185.8 million for the six months ended June 30, 2013. The increase in both comparable periods was principally attributable to higher total investment income primarily relating to the inclusion of KFN during the 2014 periods beginning on May 1, 2014 and to a lesser extent higher management fees reflecting new capital raised.

ENI was $105.6 million for the quarter ended June 30, 2014, an increase of $62.4 million compared to ENI of $43.2 million for the quarter ended June 30, 2013. ENI was $203.4 million for the six months ended June 30, 2014, an increase of $92.7 million compared to ENI of $110.7 million for the six months ended June 30, 2013. The increase in both comparable periods was principally attributable to higher total investment income primarily due to the income generated by KFN's operations during the 2014 periods beginning on May 1, 2014 and to a lesser extent higher management fees reflecting new capital raised. These increases were partially offset by higher compensation expense.

Capital Markets and Other

Total segment revenues were $34.0 million for the quarter ended June 30, 2014, up slightly when compared to total segment revenues of $32.5 million for the quarter ended June 30, 2013. Total segment revenues were $103.2 million for the six months ended June 30, 2014, an increase of $45.6 million compared to total segment revenues of $57.6 million for the quarter ended June 30, 2013. The increase in total segment revenues in both comparable periods was primarily driven by higher overall capital markets transaction activity.

ENI was $19.8 million for the quarter ended June 30, 2014, a decrease of $3.0 million compared to ENI of $22.8 million for the quarter ended June 30, 2013. The decrease was principally attributable to higher compensation expense. ENI was $66.9 million for the six months ended June 30, 2014, an increase of $30.0 million compared to ENI of $36.9 million for the six months ended June 30, 2013. The increase was principally attributable to higher transaction fees driven by higher overall capital markets transaction activity, partially offset by higher compensation expense.

___________________________________________________________________________________________

* All segment financial information presented in this release reflect a new presentation as of the second quarter of 2014. For example, certain investment income previously reported in our Capital Markets and Principal Activities segment (which is now named Capital Markets and Other) is now reported in either our Private Markets or Public Markets segment, depending upon the nature of such income, and economic net income is presented as total segment revenue less total segment expenses. As a result of the revised presentation, segment information for historical periods has been restated from previously published results and, consequently, is not consistent with such previously reported information. The Investor Center for KKR & Co. L.P. at http://ir.kkr.com/kkr_ir/kkr_events.cfm contains historical segment financial information for the quarter ended March 31, 2014 and each of the quarterly periods in the fiscal year ended December 31, 2013, as revised to give effect to the new presentation.

CAPITAL AND LIQUIDITY

As of June 30, 2014, KKR had $3.4 billion of cash and short-term investments and $2.5 billion of outstanding debt obligations on a total reportable segment basis. In addition, with the acquisition of KFN, KKR reports KFN's debt obligations of $657.3 million and KFN's 7.375% Series A LLC preferred shares of $373.8 million. KFN's debt obligations and preferred shares are non-recourse to KKR beyond the assets of KFN. KKR's availability for borrowings was $750.0 million (which is reduced by an outstanding letter of credit), which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of June 30, 2014.

As of June 30, 2014, KKR's portion of total uncalled commitments to its investment funds was $976.9 million, consisting of the following (amounts in thousands):

   
Uncalled

Commitments

Private Markets

Energy Income and Growth Fund $ 208,600
North America Fund XI 178,200
Real Estate Partners Americas 141,300
Asian Fund II 62,600
European Fund III 59,800
2006 Fund 57,900
Infrastructure 15,000
Natural Resources 11,600
Other Private Equity Funds 7,700
Co-Investment Vehicles   32,200
Total Private Markets Commitments   774,900
 

Public Markets

Special Situations Vehicles 120,300
Direct Lending Vehicles 66,300
Mezzanine Fund 13,100
Other Credit Vehicles   2,300
Total Public Markets Commitments   202,000
 
Total Uncalled Commitments $ 976,900
 

DISTRIBUTION

A distribution of $0.67 per common unit has been declared, comprised of (i) $0.09 per common unit from after-tax FRE, (ii) $0.41 per common unit from realized cash carry, (iii) $0.12 per common unit from KKR's net realized investment income and (iv) $0.05 per common unit from KFN's net realized investment income earned for the two months ended June 30, 2014. The distribution will be paid on August 19, 2014 to unitholders of record as of the close of business on August 4, 2014. Please refer to the distribution policy presented later in this release.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Thursday, July 24, 2014 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 71626990, 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, after-tax ENI, ENI after taxes and equity-based charges, fee and yield earnings, fee and yield EBITDA, committed dollars 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 Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 7, 2014 and other filings with the SEC, which are available at www.sec.gov.

       
KKR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
Quarter Ended Six Months Ended
June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Revenues
Fees $ 249,370   $ 166,376   $ 552,296   $ 317,616  
 
Expenses
Compensation and Benefits 358,730 200,602 689,768 531,723
Occupancy and Related Charges 16,059 13,878 31,467 28,399
General, Administrative and Other   210,536     77,542     337,261     171,230  
Total Expenses   585,325     292,022     1,058,496     731,352  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 1,971,850 98,537 3,944,030 2,368,354
Dividend Income 272,902 209,486 369,606 248,955
Interest Income 215,872 128,020 377,832 237,389
Interest Expense   (65,997 )   (24,614 )   (100,728 )   (47,637 )
Total Investment Income (Loss)   2,394,627     411,429     4,590,740     2,807,061  
 
Income (Loss) Before Taxes 2,058,672 285,783 4,084,540 2,393,325
 
Income Taxes   6,176     8,525     27,878     17,881  
 
Net Income (Loss) 2,052,496 277,258 4,056,662 2,375,444
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests (6,809 ) (7,800 ) 3,828 16,823
Net Income (Loss) Attributable to
Noncontrolling Interests 1,881,090 269,924 3,664,578 2,150,048
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ 178,215   $ 15,134   $ 388,256   $ 208,573  
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.47 $ 0.06 $ 1.16 $ 0.79
Diluted (a) $ 0.43 $ 0.05 $ 1.06 $ 0.72
Weighted Average Common Units Outstanding
Basic 377,542,161 271,983,811 335,748,498 264,555,267
Diluted (a) 410,179,838 298,078,764 367,877,049 290,104,942
 

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(a)

   

KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit given that the exchange of these units would proportionally increase KKR & Co. L.P.'s interests in KKR's business and would have an anti-dilutive effect on earnings per common unit as a result of certain tax benefits KKR & Co. L.P. is assumed to receive upon the exchange.

         
 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 
Quarter Ended Six Months Ended

June 30, 2014

March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 178,674 $ 195,393 $ 164,176 $ 374,067 $ 317,139
Monitoring Fees 29,610 36,363 28,907 65,973 60,975
Transaction Fees 84,305 163,516 62,785 247,821 103,084
Fee Credits   (49,830 )   (84,668 )   (34,751 )   (134,498 )   (57,816 )
Total Management, Monitoring and Transaction Fees, Net   242,759     310,604     221,117     553,363     423,382  
 
Performance Fees
Realized Carried Interest 555,488 193,550 269,828 749,038 357,995
Incentive Fees 11,478 17,019 15,590 28,497 34,439
Unrealized Carried Interest   (137,826 )   145,647     (206,753 )   7,821     115,229  
Total Performance Fees   429,140     356,216     78,665     785,356     507,663  
 
Investment Income (Loss)
Net Realized Gains (Losses) 221,661 181,728 147,579 403,389 301,206
Net Unrealized Gains (Losses)   (119,935 )   85,759     (139,311 )   (34,176 )   27,731  
Total Realized and Unrealized 101,726 267,487 8,268 369,213 328,937
Net Interest and Dividends   60,432     11,164     2,782     71,596     2,311  
Total Investment Income (Loss)   162,158     278,651     11,050     440,809     331,248  
 
Total Segment Revenues   834,057     945,471     310,832     1,779,528     1,262,293  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 91,444 108,915 80,436 200,359 155,598
Realized Allocation to Carry Pool 222,195 77,420 107,931 299,615 143,198
Unrealized Allocation to Carry Pool   (53,435 )   58,690     (81,395 )   5,255     52,842  
Total Compensation and Benefits 260,204 245,025 106,972 505,229 351,638
Occupancy and related charges 14,757 14,189 13,067 28,946 26,389
Other operating expenses   54,311     52,801     45,027     107,112     89,657  
Total Segment Expenses   329,272     312,015     165,066     641,287     467,684  
 
Income (Loss) attributable to noncontrolling interests   3,206     3,202     1,323     6,408     2,424  
 
Economic Net Income (Loss) $ 501,579   $ 630,254   $ 144,443   $ 1,131,833   $ 792,185  
 
Provision for Income Taxes   6,330     36,581     13,486     42,911     33,603  
 
Economic Net Income (Loss), After Taxes (a) $ 495,249   $ 593,673   $ 130,957   $ 1,088,922   $ 758,582  
 
Equity-based Charges   40,877     39,353     25,936     80,230     53,354  
 
Economic Net Income (Loss), After Taxes and Equity-based Charges $ 454,372   $ 554,320   $ 105,021   $ 1,008,692   $ 705,228  
 
Economic Net Income (Loss), After Taxes and Equity-based Charges Per Adjusted Unit $ 0.57 $ 0.77 $ 0.15 $ 1.32 $ 0.99
 
Weighted Average Adjusted Units (Fully Diluted Basis) (a) 800,747,528 724,579,220 715,453,358 762,873,784 713,353,287
                     
Assets Under Management $ 97,957,900 $ 102,277,500 $ 83,500,900 $ 97,957,900 $ 83,500,900
Fee Paying Assets Under Management $ 79,656,300 $ 83,611,600 $ 67,956,400 $ 79,656,300 $ 67,956,400
Committed Dollars Invested and Syndicated Capital $ 2,345,500 $ 3,377,300 $ 1,889,400 $ 5,722,800 $ 2,713,800
Uncalled Commitments   $ 19,784,200     $ 19,985,100     $ 21,364,400     $ 19,784,200     $ 21,364,400  
                     

Other Information

Fee Related Earnings $ 93,725 $ 151,718 $ 98,177 $ 245,443 $ 186,177
Plus: Net interest and dividends   60,432     11,164     2,782     71,596     2,311  
Fee and Yield Earnings (a) $ 154,157   $ 162,882   $ 100,959   $ 317,039   $ 188,488  
Plus: Depreciation and amortization 4,140 4,035 3,708 8,175 7,389
Plus: Core Interest Expense   19,205     18,400     16,210     37,605     32,443  
Fee and Yield EBITDA (a) $ 177,502   $ 185,317   $ 120,877   $ 362,819   $ 228,320  
 
Total Distributable Earnings (a) $ 700,973 $ 446,808 $ 403,776 $ 1,147,781 $ 694,390
 
GAAP interest expense $ 65,997 $ 34,731 $ 24,614 $ 100,728 $ 47,637
Less: interest expense related to debt obligations
from investment financing arrangements and KFN   46,792     16,331     8,404     63,123     15,194  
Core Interest Expense (a) $ 19,205   $ 18,400   $ 16,210   $ 37,605   $ 32,443  
                     
 

_____________________________________________________________________________________________

(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."

         
 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Six Months Ended
June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 111,542 $ 123,039 $ 114,700 $ 234,581 $ 221,305
Monitoring Fees 29,610 36,363 28,907 65,973 60,975
Transaction Fees 45,340 93,020 25,231 138,360 41,643
Fee Credits   (43,478 )   (80,338 )   (29,547 )   (123,816 )   (50,556 )
Total Management, Monitoring and Transaction Fees, Net   143,014     172,084     139,291     315,098     273,367  
 
Performance Fees
Realized Carried Interest 555,488 168,800 269,828 724,288 357,995
Incentive Fees - - - - -
Unrealized Carried Interest   (163,564 )   145,776     (217,544 )   (17,788 )   84,039  
Total Performance Fees   391,924     314,576     52,284     706,500     442,034  
 
Investment Income (Loss)
Net Realized Gains (Losses) 207,892 176,198 148,827 384,090 297,689
Net Unrealized Gains (Losses)   (122,729 )   70,673     (138,758 )   (52,056 )   15,884  
Total Realized and Unrealized 85,163 246,871 10,069 332,034 313,573
Net Interest and Dividends   22,760     (2,808 )   (3,868 )   19,952     (10,066 )
Total Investment Income (Loss)   107,923     244,063     6,201     351,986     303,507  
 
Total Segment Revenues   642,861     730,723     197,776     1,373,584     1,018,908  
 
Segment Expenses

Compensation and Benefits

Cash Compensation and Benefits 56,522 66,898 51,516 123,420 99,517
Realized Allocation to Carry Pool 222,195 67,520 107,931 289,715 143,198
Unrealized Allocation to Carry Pool   (63,730 )   58,743     (85,711 )   (4,987 )   40,366  
Total Compensation and Benefits 214,987 193,161 73,736 408,148 283,081
Occupancy and related charges 11,764 11,560 11,143 23,324 22,568
Other operating expenses   39,589     40,059     33,988     79,648     67,930  
Total Segment Expenses   266,340     244,780     118,867     511,120     373,579  
 
Income (Loss) attributable to noncontrolling interests   335     515     411     850     809  
 
Economic Net Income (Loss) $ 376,186   $ 485,428   $ 78,498   $ 861,614   $ 644,520  
                     
Assets Under Management $ 59,417,000 $ 60,520,300 $ 54,452,400 $ 59,417,000 $ 54,452,400
Fee Paying Assets Under Management $ 46,167,300 $ 48,211,000 $ 45,907,500 $ 46,167,300 $ 45,907,500
Committed Dollars Invested $ 1,454,400 $ 2,551,800 $ 1,314,000 $ 4,006,200 $ 1,912,500
Uncalled Commitments   $ 17,109,800     $ 18,256,800     $ 19,972,800     $ 17,109,800     $ 19,972,800  
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Six Months Ended
June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 67,132 $ 72,354 $ 49,476 $ 139,486 $ 95,834
Monitoring Fees - - - - -
Transaction Fees 7,350 6,022 7,243 13,372 10,349
Fee Credits   (6,352 )   (4,330 )   (5,204 )   (10,682 )   (7,260 )
Total Management, Monitoring and Transaction Fees, Net   68,130     74,046     51,515     142,176     98,923  
 
Performance Fees
Realized Carried Interest - 24,750 - 24,750 -
Incentive Fees 11,478 17,019 15,590 28,497 34,439
Unrealized Carried Interest   25,738     (129 )   10,791     25,609     31,190  
Total Performance Fees   37,216     41,640     26,381     78,856     65,629  
 
Investment Income (Loss)
Net Realized Gains (Losses) 14,284 5,479 (64 ) 19,763 5,149
Net Unrealized Gains (Losses)   3,751     14,814     (741 )   18,565     9,328  
Total Realized and Unrealized 18,035 20,293 (805 ) 38,328 14,477
Net Interest and Dividends   33,822     9,577     3,508     43,399     6,748  
Total Investment Income (Loss)   51,857     29,870     2,703     81,727     21,225  
 
Total Segment Revenues   157,203     145,556     80,599     302,759     185,777  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 26,904 26,745 21,990 53,649 41,690
Realized Allocation to Carry Pool - 9,900 - 9,900 -
Unrealized Allocation to Carry Pool   10,295     (53 )   4,316     10,242     12,476  
Total Compensation and Benefits 37,199 36,592 26,306 73,791 54,166
Occupancy and related charges 2,544 2,172 1,615 4,716 3,157
Other operating expenses   11,474     8,507     9,147     19,981     16,973  
Total Segment Expenses   51,217     47,271     37,068     98,488     74,296  
 
Income (Loss) attributable to noncontrolling interests   385     522     378     907     733  
 
Economic Net Income (Loss) $ 105,601   $ 97,763   $ 43,153   $ 203,364   $ 110,748  
                     
Assets Under Management $ 38,540,900 $ 41,757,200 $ 29,048,500 $ 38,540,900 $ 29,048,500
Fee Paying Assets Under Management $ 33,489,000 $ 35,400,600 $ 22,048,900 $ 33,489,000 $ 22,048,900
Committed Dollars Invested $ 724,400 $ 734,100 $ 370,800 $ 1,458,500 $ 535,700
Uncalled Commitments $ 2,674,400 $ 1,728,300 $ 1,391,600 $ 2,674,400 $ 1,391,600
Gross Dollars Invested   $ 768,200     $ 989,700     $ 847,300     $ 1,757,900     $ 1,225,300  
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS AND OTHER SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Six Months Ended
June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ - $ - $ - $ - $ -
Monitoring Fees - - - - -
Transaction Fees 31,615 64,474 30,311 96,089 51,092
Fee Credits   -     -   -     -     -  
Total Management, Monitoring and Transaction Fees, Net   31,615     64,474   30,311     96,089     51,092  
 
Performance Fees
Realized Carried Interest - - - - -
Incentive Fees - - - - -
Unrealized Carried Interest   -     -   -     -     -  
Total Performance Fees   -     -   -     -     -  
 
Investment Income (Loss)
Net Realized Gains (Losses) (515 ) 51 (1,184 ) (464 ) (1,632 )
Net Unrealized Gains (Losses)   (957 )   272   188     (685 )   2,519  
Total Realized and Unrealized (1,472 ) 323 (996 ) (1,149 ) 887
Net Interest and Dividends   3,850     4,395   3,142     8,245     5,629  
Total Investment Income (Loss)   2,378     4,718   2,146     7,096     6,516  
 
Total Segment Revenues   33,993     69,192   32,457     103,185     57,608  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 8,018 15,272 6,930 23,290 14,391
Realized Allocation to Carry Pool - - - - -
Unrealized Allocation to Carry Pool   -     -   -     -     -  
Total Compensation and Benefits 8,018 15,272 6,930 23,290 14,391
Occupancy and related charges 449 457 309 906 664
Other operating expenses   3,248     4,235   1,892     7,483     4,754  
Total Segment Expenses   11,715     19,964   9,131     31,679     19,809  
 
Income (Loss) attributable to noncontrolling interests   2,486     2,165   534     4,651     882  
 
Economic Net Income (Loss) $ 19,792   $ 47,063 $ 22,792   $ 66,855   $ 36,917  
                     
Syndicated Capital   $ 166,700     $ 91,400   $ 204,600     $ 258,100     $ 265,600  
 

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

June 30, 2014

As of

December 31, 2013

 
Cash and short-term investments $ 3,375,164 $ 2,161,097
Investments 8,125,042 (a) 4,980,265
Unrealized carry 1,207,172 (b) 1,179,338 (b)
Other assets   746,828   662,357
Total assets $ 13,454,206 $ 8,983,057
 
Debt obligations - KKR $ 1,500,000 $ 1,000,000
Debt obligations - KFN 657,310 -
Preferred shares - KFN 373,750 -
Other liabilities   356,874   149,196
Total liabilities   2,887,934   1,149,196
Noncontrolling interests 122,686 71,261
   
Book value $ 10,443,586 $ 7,762,600
Book value per adjusted unit $ 12.52 $ 10.83
 
 
                   
 
 
(a) See schedule of investments that follows on the next page.
 

(b) Unrealized Carry

As of

June 30, 2014

As of

December 31, 2013

Private Markets $ 1,129,463 $ 1,116,996
Public Markets   77,709   62,342
Total $ 1,207,172 $ 1,179,338
 

 
KKR
SCHEDULE OF INVESTMENTS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except percentage amounts)
         
As of June 30, 2014
Investments Cost Fair

Value

Fair Value as a
Percentage of
Investments

 
Private Equity Co-Investments $ 1,522,326 $ 2,032,431 25 %
Private Equity Funds   970,662   1,190,723 15 %
Private Equity Total   2,492,988   3,223,154 40 %
 
Energy 794,981 787,389 10 %
Real Estate 280,432 293,896 3 %
Infrastructure   49,545   53,916 1 %
Real Assets Total   1,124,958   1,135,201 14 %
 
Other 137,000 145,346 2 %
 
Private Markets Total   3,754,946   4,503,701 56 %
 
Special Situations 575,752 625,272 8 %
Mezzanine 123,455 129,458 1 %
Direct Lending   52,920   58,883 1 %
Alternative Credit 752,127 813,613 10 %
CLOs 1,590,350 1,595,038 20 %
Liquid Credit   307,869   339,196 3 %
Credit Total   2,650,346   2,747,847 33 %
 
Other 58,623 59,242 1 %
 
Public Markets Total   2,708,969   2,807,089 34 %
 
Specialty Finance 256,219 260,790 3 %
Other 513,793 553,462 7 %
 
Capital Markets and Other Total   770,012   814,252 10 %
     
Total Investments $ 7,233,927 $ 8,125,042 100 %
 
                 
 
Significant Aggregate Portfolio Company Investments: (a)
Alliance Boots GmbH $ 228,769 $ 743,446 9 %
First Data Corporation 327,212 265,062 3 %
Biomet, Inc. 164,644 213,245 3 %
HCA Inc. 35,583 172,072 2 %
The Nielsen Company B.V.   52,900   171,818 2 %
  809,108   1,565,643 19 %
Other Investments   6,424,819   6,559,399 81 %
Total Investments $ 7,233,927 $ 8,125,042 100 %
 

____________________________________________________________________________________________

(a)

   

The significant aggregate portfolio company investments include the top five investments in portfolio companies based on their fair market value as of June 30, 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 June 30, 2014

 
March 31, 2014 $ 60,520,300 $ 41,757,200 $ 102,277,500
New Capital Raised 1,114,200 1,945,800 3,060,000
KFN Acquisition (a) - (4,511,900 ) (4,511,900 )
Distributions (4,445,200 ) (1,061,300 ) (d) (5,506,500 )
Change in Value   2,227,700     411,100     2,638,800  
June 30, 2014 $ 59,417,000   $ 38,540,900   $ 97,957,900  
 

Six Months Ended June 30, 2014

 
December 31, 2013 $ 61,242,900 $ 33,077,400 $ 94,320,300
New Capital Raised 1,703,100 3,066,800 4,769,900
Acquisitions (b) - 8,423,000 8,423,000
KFN Acquisition (a) - (4,511,900 ) (4,511,900 )
Distributions (6,634,800 ) (2,387,600 ) (e) (9,022,400 )
Net Changes in Fee Base of Certain Funds (c) (933,800 ) - (933,800 )
Change in Value   4,039,600     873,200     4,912,800  
June 30, 2014 $ 59,417,000   $ 38,540,900   $ 97,957,900  
 

Trailing Twelve Months Ended June 30, 2014

 
June 30, 2013 $ 54,452,400 $ 29,048,500 $ 83,500,900
New Capital Raised 7,668,000 7,412,300 15,080,300
Acquisitions (b) - 8,423,000 8,423,000
KFN Acquisition (a) - (4,511,900 ) (4,511,900 )
Distributions (11,315,300 ) (3,675,000 ) (f) (14,990,300 )
Net Changes in Fee Base of Certain Funds (c) (933,800 ) - (933,800 )
Change in Value   9,545,700     1,844,000     11,389,700  
June 30, 2014 $ 59,417,000   $ 38,540,900   $ 97,957,900  
 

______________________________________________________________________________________________

*

   

Exclude those assets managed by entities where KKR holds less than a 50% ownership interest.

 

(a)

Certain assets that were externally managed prior to the acquisition of KFN are now reported on the balance sheet and excluded from AUM.

(b)

Represents the AUM of Avoca.

(c)

Represents the impact of certain funds entering the post-investment period.

(d)

Includes $745.9 million of redemptions by fund investors.

(e)

Includes $1,288.4 million of redemptions by fund investors.

(f)

Includes $1,771.0 million of redemptions by fund investors.

 
 
KKR
FEE PAYING ASSETS UNDER MANAGEMENT* (UNAUDITED)
(Amounts in thousands)
         

Private
Markets
Segment

Public
Markets
Segment

Total
Reportable
Segments

Quarter Ended June 30, 2014

 
March 31, 2014 $ 48,211,000 $ 35,400,600 $ 83,611,600
New Capital Raised 921,700 1,649,100 2,570,800
KFN Acquisition (a) - (2,684,700 ) (2,684,700 )
Distributions (2,940,400 ) (b) (1,094,600 ) (e) (4,035,000 )
Change in Value   (25,000 )   218,600     193,600  
June 30, 2014 $ 46,167,300   $ 33,489,000   $ 79,656,300  
 

Six Months Ended June 30, 2014

 
December 31, 2013 $ 50,156,300 $ 27,241,200 $ 77,397,500
New Capital Raised 1,357,000 2,759,300 4,116,300
Acquisitions (c) - 7,971,000 7,971,000
KFN Acquisition (a) - (2,684,700 ) (2,684,700 )
Distributions (4,366,900 ) (b) (2,330,100 ) (f) (6,697,000 )
Net Changes in Fee Base of Certain Funds (d) (964,700 ) - (964,700 )
Change in Value   (14,400 )   532,300     517,900  
June 30, 2014 $ 46,167,300   $ 33,489,000   $ 79,656,300  
 

Trailing Twelve Months Ended June 30, 2014

 
June 30, 2013 $ 45,907,500 $ 22,048,900 $ 67,956,400
New Capital Raised 7,193,700 7,952,500 15,146,200
Acquisitions (c) - 7,971,000 7,971,000
KFN Acquisition (a) - (2,684,700 ) (2,684,700 )
Distributions (6,276,700 ) (b) (3,232,300 ) (g) (9,509,000 )
Net Changes in Fee Base of Certain Funds (d) (964,700 ) - (964,700 )
Change in Value   307,500     1,433,600     1,741,100  
June 30, 2014 $ 46,167,300   $ 33,489,000   $ 79,656,300  
 

______________________________________________________________________________________________

*

   

Exclude those assets managed by entities where KKR holds less than a 50% ownership interest.

(a)

Certain assets that were externally managed prior to the acquisition of KFN are now reported on the balance sheet and excluded from AUM.

(b)

Includes the reduction in FPAUM attributed to the invested capital of Energy Future Holdings due to its bankruptcy.

(c)

Represents the FPAUM of Avoca.

(d)

Represents the impact of certain funds entering the post-investment period.

(e)

Includes $745.9 million of redemptions by fund investors.

(f)

Includes $1,288.4 million of redemptions by fund investors.

(g)

Includes $1,771.0 million of redemptions by fund investors.

                   
 
KKR
INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)
As of June 30, 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
Asian Fund II 4/2013 4/2019 $ 5,825.0 $ 4,889.8 1.3 % $ 935.2 $ - $ 935.2 $ 1,012.1
North America Fund XI 9/2012 9/2018 8,718.4 4,712.4 2.9 % 4,006.0 95.4 4,006.0 4,583.7
China Growth Fund 11/2010 11/2016 1,010.0 560.2 1.0 % 449.8 32.6 432.4 512.9
E2 Investors (Annex Fund) 8/2009 11/2013 209.4 13.6 4.5 % 195.8 144.4 54.5 302.6
European Fund III 3/2008 3/2014 6,229.8 816.3 4.6 % 5,413.5 1,494.3 4,620.7 6,601.4
Asian Fund 7/2007 4/2013 3,983.3 57.5 2.5 % 3,925.8 3,864.7 2,585.1 3,618.5
2006 Fund 9/2006 9/2012 17,642.2 1,067.9 2.1 % 16,574.3 12,881.7 9,538.5 15,500.0
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 5,352.4 1,655.9 3,207.1
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 11,246.2 1,320.8 2,265.5
European Fund 12/1999 12/2005   3,085.4     - 3.2 %   3,085.4     8,736.6     -     40.8
Total Private Equity Funds 58,454.3 12,117.7 46,336.6 43,848.3 25,149.1 37,644.6
 
Co-Investment Vehicles Various Various 2,903.9 780.3 Various 2,123.6 1,005.1 1,814.0 2,393.7
                 
Total Private Equity   61,358.2     12,898.0   48,460.2     44,853.4   26,963.1     40,038.3
 
Real Assets
Energy Income and Growth Fund 9/2013 9/2018 1,974.2 1,617.7 12.8 % 356.5 22.2 339.1 351.2
Natural Resources Fund Various Various 893.8 320.9 Various 572.9 95.1 496.4 312.8
Global Energy Opportunities Various Various 1,028.4 894.2 Various 134.2 6.1 134.2 108.5
Infrastructure Fund Various Various 1,042.2 259.9 4.8 % 782.3 34.1 782.3 819.7
Infrastructure Co-Investments Various Various 1,355.3 250.8 Various 1,104.5 261.6 1,104.5 1,395.2
Real Estate Partners Americas 5/2013 12/2016   1,229.1     868.3 16.0 %   360.8     129.2   360.4     402.2
Real Assets   7,523.0     4,211.8   3,311.2     548.2   3,216.9     3,389.6
     
Private Markets Total   68,881.2     17,109.8   51,771.4     45,401.6     30,180.0     43,427.9
 

Public Markets

 
Special Situations Vehicles Various Various 4,713.8 1,939.7 Various 2,774.1 981.4 2,231.4 2,660.6
Mezzanine Fund 3/2010 8/2015 987.0 287.3 4.6 % 699.7 198.5 611.1 721.7
Direct Lending Vehicles Various Various 1,001.9 447.4 Various 554.5 51.0 554.5 604.3
                   
Public Markets Total   6,702.7     2,674.4   4,028.3     1,230.9     3,397.0     3,986.6
 
Grand Total $ 75,583.9   $ 19,784.2 $ 55,799.7   $ 46,632.5   $ 33,577.0   $ 47,414.5
 

_____________________________________________________________________________________________

(a)

   

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 Six Months Ended
June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Cash Revenues
Fees $ 254,237 $ 327,623 $ 236,707 $ 581,860 $ 457,821
Realized cash carry 555,488 193,550 269,828 749,038 357,995
Net realized investment income - KKR 245,711 192,892 150,361 438,603 303,517
Net realized investment income - KFN   36,382     -     -     36,382     -  
Total Cash Revenue   1,091,818     714,065     656,896     1,805,883     1,119,333  
 
Cash Expenses
Compensation and benefits 91,444 108,915 80,436 200,359 155,598
Realized cash carry allocated to carry pool 222,195 77,420 107,931 299,615 143,198
Occupancy and related charges 14,757 14,189 13,067 28,946 26,389
Other operating expenses   54,311     52,801     45,027     107,112     89,657  
Total Cash Expenses   382,707     253,325     246,461     636,032     414,842  
 
 
Cash income (loss) before noncontrolling interests and local taxes 709,111 460,740 410,435 1,169,851 704,491
 
Less: local income taxes (4,932 ) (10,730 ) (5,336 ) (15,662 ) (7,677 )
Less: noncontrolling interests   (3,206 )   (3,202 )   (1,323 )   (6,408 )   (2,424 )
Total Distributable Earnings 700,973 446,808 403,776 1,147,781 694,390
 
Less: estimated current corporate income taxes   (19,025 )   (33,445 )   (25,138 )   (52,470 )   (41,865 )
 
Distributable Earnings, net of taxes 681,948 413,363 378,638 1,095,311 652,525
 
Less: Undistributed net realized investment income - KKR   (147,427 )   (115,735 )   (90,217 )   (263,162 )   (182,110 )
 
Distributed Earnings $ 534,521   $ 297,628   $ 288,421   $ 832,149   $ 470,415  
 
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit $ 0.85 $ 0.59 $ 0.55 $ 1.44 $ 0.95
 
Distribution per KKR & Co. L.P. common unit $ 0.67 $ 0.43 $ 0.42 $ 1.10 $ 0.69
 
                     

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

 
After-tax FRE $ 0.09 $ 0.15 $ 0.10 $ 0.24 $ 0.20
Realized Cash Carry $ 0.41 $ 0.17 $ 0.23 $ 0.58 $ 0.31
Distributed Net Realized Investment Income - KKR $ 0.12 $ 0.11 $ 0.09 $ 0.23 $ 0.18
Distributed Net Realized Investment Income - KFN   $ 0.05     $ -     $ -     $ 0.05     $ -  
                     
Fee and yield earnings distribution per KKR & Co. L.P. common unit   $ 0.15     $ 0.16     $ 0.10     $ 0.31     $ 0.20  
 
Adjusted Units Eligible For Distribution 803,719,050 696,070,615 689,795,274
 
Payout Ratio 78.4 % 72.0 % 76.2 % 76.0 % 72.1 %
 

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 (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; (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 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.

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 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 less certain compensation and general and administrative expenses incurred in the generation of net realized investment income 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 and excludes net realized investment income of KKR.

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 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 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. 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. 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, for only those funds, 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 carried interest and (ii) capital invested by KKR's investment funds.

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 KKR's Public Markets in a given period. We believe this measure is useful to unitholders as it provides additional insight into KAM's investment of capital across its private credit non-liquid strategies for all the investment vehicles which it manages. 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 committed dollars 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.

Adjusted units are used as a measure of the total equity ownership of KKR that is held primarily 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 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 private equity 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 and Equity-based Charges 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 Total Distributable Earnings on a trailing twelve-month basis by the average book value during the period.

     
KKR

EXHIBIT A

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT (GAAP BASIS)
TO ENI AFTER TAXES AND EQUITY-BASED CHARGES PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended
June 30, 2014 March 31, 2014 June 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 0.47 $ 0.72 $ 0.06
Weighted Average Common Units Outstanding - Basic 377,542,161 293,490,461 271,983,811
Net income (loss) attributable to KKR & Co. L.P. 178,215 210,041 15,134
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 186,776 300,814 28,106
Plus: Non-cash equity based charges 92,957 77,528 80,318
Plus: Amortization of intangibles and other, net 37,455 20,169 12,360
Plus: Income taxes   6,176   21,702   8,525
Economic net income (loss) 501,579 630,254 144,443
Less: Provision for income taxes   6,330   36,581   13,486
Economic net income (loss) after taxes 495,249 593,673 130,957
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   40,877   39,353   25,936
Economic net income (loss) after taxes and equity-based charges 454,372 554,320 105,021
Weighted Average Adjusted Units   800,747,528   724,579,220   715,453,358
Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 0.57 $ 0.77 $ 0.15
 
 
Six Months Ended
June 30, 2014 June 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 1.16 $ 0.79
Weighted Average Common Units Outstanding - Basic 335,748,498 264,555,267
Net income (loss) attributable to KKR & Co. L.P. 388,256 208,573
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 487,590 362,218
Plus: Non-cash equity based charges 170,485 161,968
Plus: Amortization of intangibles and other, net 57,624 41,545
Plus: Income taxes   27,878   17,881
Economic net income (loss) 1,131,833 792,185
Less: Provision for income taxes   42,911   33,603
Economic net income (loss) after taxes 1,088,922 758,582
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   80,230   53,354
Economic net income (loss) after taxes and equity-based charges 1,008,692 705,228
Weighted Average Adjusted Units   762,873,784   713,353,287
Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 1.32 $ 0.99

 
KKR

EXHIBIT A (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, AND TOTAL DISTRIBUTABLE EARNINGS (UNAUDITED)
(Amounts in thousands)
     
Quarter Ended
June 30, 2014 March 31, 2014 June 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ 178,215 $ 210,041 $ 15,134
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 186,776 300,814 28,106
Plus: Non-cash equity based charges 92,957 77,528 80,318
Plus: Amortization of intangibles and other, net 37,455 20,169 12,360
Plus: Income taxes   6,176   21,702   8,525
Economic net income (loss) 501,579 630,254 144,443
Plus: Income attributable to segment noncontrolling interests 3,206 3,202 1,323
Less: Total investment income (loss) 162,158 278,651 11,050
Less: Net carried interest   248,902   203,087   36,539
Fee related earnings 93,725 151,718 98,177
Plus: Net interests and dividends   60,432   11,164   2,782
Fee and yield earnings $ 154,157 $ 162,882 $ 100,959
Plus: Depreciation and amortization 4,140 4,035 3,708
Plus: Core interest expense   19,205   18,400   16,210
Fee and yield EBITDA $ 177,502 $ 185,317 $ 120,877
Less: Depreciation and amortization 4,140 4,035 3,708
Less: Core interest expense 19,205 18,400 16,210
Less: Net interests and dividends 60,432 11,164 2,782
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 333,293 116,130 161,897
Plus: Net realized investment income - KKR 245,711 192,892 150,361
Plus: Net realized investment income - KFN 36,382 - -
Less: Local income taxes and noncontrolling interests   8,138   13,932   6,659
Total distributable earnings $ 700,973 $ 446,808 $ 403,776
Plus: Depreciation and amortization 4,140 4,035 3,708
Plus: Core interest expense 19,205 18,400 16,210
Plus: Local income taxes and noncontrolling interests   8,138   13,932   6,659
Total EBITDA $ 732,456 $ 483,175 $ 430,353
 
Six Months Ended
June 30, 2014 June 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ 388,256 $ 208,573
Plus: Net income (loss) attributable to noncontrolling
interests held by KKR Holdings L.P. 487,590 362,218
Plus: Non-cash equity based charges 170,485 161,968
Plus: Amortization of intangibles and other, net 57,624 41,545
Plus: Income taxes   27,878   17,881
Economic net income (loss) 1,131,833 792,185
Plus: Income attributable to segment noncontrolling interests 6,408 2,424
Less: Total investment income (loss) 440,809 331,248
Less: Net carried interest   451,989   277,184
Fee related earnings 245,443 186,177
Plus: Net interests and dividends   71,596   2,311
Fee and yield earnings $ 317,039 $ 188,488
Plus: Depreciation and amortization 8,175 7,389
Plus: Core interest expense   37,605   32,443
Fee and yield EBITDA $ 362,819   $ 228,320
Less: Depreciation and amortization 8,175 7,389
Less: Core interest expense 37,605 32,443
Less: Net interests and dividends 71,596 2,311
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 449,423 214,797
Plus: Net realized investment income - KKR 438,603 303,517
Plus: Net realized investment income - KFN 36,382 -
Less: Local income taxes and noncontrolling interests   22,070   10,101
Total distributable earnings $ 1,147,781 $ 694,390
Plus: Depreciation and amortization 8,175 7,389
Plus: Core interest expense 37,605 32,443
Plus: Local income taxes and noncontrolling interests   22,070   10,101
Total EBITDA $ 1,215,631 $ 744,323
 

   
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
June 30, 2014 December 31, 2013
 
KKR & Co. L.P. partners' capital $ 5,491,877 $ 2,722,010
 
Noncontrolling interests held by KKR Holdings L.P. 5,082,655 5,116,761
 
Equity impact of KKR Management Holdings Corp. and other   (130,946 )   (76,171 )
 
Book value 10,443,586 7,762,600
 
Adjusted units 833,951,053 716,676,699
   
Book value per adjusted unit $ 12.52   $ 10.83  
 
         
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (SEGMENT BASIS) (UNAUDITED)
(Amounts in thousands)
 
As of As of
June 30, 2014 December 31, 2013
 
Cash and cash equivalents $ 2,504,205 $ 1,306,383
 
Liquid short-term investments 870,959 854,714
   
Cash and short-term investments $ 3,375,164   $ 2,161,097  

 
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
June 30, 2014 March 31, 2014 June 30, 2013
Weighted Average GAAP Common Units Outstanding - Basic 377,542,161 293,490,461 271,983,811
Adjustments:
Weighted Average Unvested Common Units(a) 27,536,748 29,379,509 26,094,953
Weighted Average Other Exchangeable Securities 5,100,929   2,234,259   -
Weighted Average GAAP Common Units Outstanding - Diluted 410,179,838 325,104,229 298,078,764
Adjustments:
Weighted Average KKR Holdings Units (b) 390,567,690   399,474,991   417,374,594
Weighted Average Adjusted Units 800,747,528   724,579,220   715,453,358
 
Six Months Ended
June 30, 2014 June 30, 2013
Weighted Average GAAP Common Units Outstanding - Basic 335,748,498 264,555,267
Adjustments:
Weighted Average Unvested Common Units(a) 28,453,038 25,549,675
Weighted Average Other Exchangeable Securities 3,675,513   -  
Weighted Average GAAP Common Units Outstanding - Diluted 367,877,049 290,104,942
Adjustments:
Weighted Average KKR Holdings Units (b) 394,996,735   423,248,345  
Weighted Average Adjusted Units 762,873,784   713,353,287  
       
 
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
June 30, 2014 December 31, 2013
GAAP Common Units Outstanding - Basic 415,469,452 288,143,327
Unvested Common Units(a) 27,395,289 24,164,354
Other Exchangeable Securities 5,195,584   -  
GAAP Common Units Outstanding - Diluted 448,060,325 312,307,681
Adjustments:
KKR Holdings Units (b) 385,890,728   404,369,018  
Adjusted Units 833,951,053   716,676,699  
Adjustments:
Unvested Common Units (27,395,289 ) (24,164,354 )
Unvested Other Exchangeable Securities (2,836,714 ) -  
Adjusted Units Eligible For Distribution 803,719,050   692,512,345  
 

________________________________________________________________________________________________

(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.

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

Source: KKR & Co. L.P.

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