Media Center

November 4, 2011

KKR & Co. L.P. Announces Third Quarter 2011 Results

Economic net loss was driven primarily by mark-to-market declines in unrealized private equity investments. Underlying business performance and transaction activity remained strong.

Assets under management ("AUM") totaled $58.7 billion as of September 30, 2011, up from $55.5 billion as of September 30, 2010.

Fee related earnings ("FRE") were $98.2 million and $300.6 million for the quarter and nine months ended September 30, 2011, respectively, up from $69.5 million and $223.2 million in the comparable periods of 2010.

Gross distributable earnings were $104.4 million for the quarter ended September 30, 2011, down from $166.8 million for the quarter ended September 30, 2010. Gross distributable earnings were $400.6 million for the nine months ended September 30, 2011, up from $328.7 million for the nine months ended September 30, 2010.

Economic net income (loss) ("ENI") was ($592.1) million and $465.5 million for the quarter and nine months ended September 30, 2011, respectively, down from $317.3 million and $1,425.2 million in the comparable periods of 2010.

After-tax ENI was ($0.91) and $0.41 per adjusted unit for the quarter and nine months ended September 30, 2011, respectively, down from $0.39 and $1.80 per adjusted unit in the comparable periods of 2010.

GAAP net income (loss) attributable to KKR & Co. L.P. was ($243.4) million and ($44.2) million for the quarter and nine months ended September 30, 2011, respectively, down from $8.9 million and $152.6 million in the comparable periods of 2010.

Book value was $5.6 billion on a segment basis as of September 30, 2011, representing $8.17 per adjusted unit.

KKR & Co. L.P. declares a third quarter distribution of $0.10 per common unit, bringing year-to-date distributions for 2011 to $0.42 per common unit up from $0.31 per common unit in the comparable period of 2010.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE: KKR) today reported its third quarter 2011 results.

AUM was $58.7 billion as of September 30, 2011, up 5.8% from September 30, 2010. The increase resulted from investment appreciation as well as new capital raised, partially offset by distributions to limited partners of our investment funds. Fee paying assets under management ("FPAUM") were $46.2 billion as of September 30, 2011, up 8.2% from September 30, 2010. The increase was driven primarily by new capital raised.

The carrying value of private equity investments declined by 8.5% for the quarter ended September 30, 2011, but is up 1.5% for the nine months ended September 30, 2011. ENI was ($592.1) million for the quarter ended September 30, 2011, a decrease of $909.4 million, as compared to ENI of $317.3 million for the quarter ended September 30, 2010. The decrease resulted primarily from a decline in the carrying value of our principal investments and a reversal of previously recognized net carried interest due to a decline in the carrying value of our private equity funds. ENI was $465.5 million for the first nine months of 2011, a decrease of $959.7 million, as compared to ENI of $1,425.2 million for the first nine months of 2010. The decrease was primarily due to a lower level of investment income earned from our principal investments and net carried interest earned from our private equity funds. While the fair value of our principal investments and private equity portfolio increased during the first nine months of 2011, the level of appreciation was lower than that in the comparable period of 2010.

"For the nine months to September 30, our private equity investments outperformed the S&P 500 by over 1,000 basis points despite the recent market volatility," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "We have capitalized on attractive opportunities in all of our segments, leading to investments or commitments of nearly $3.5 billion since June 30 and a record quarter in our capital markets business. Our ability to take advantage of volatile market environments stems from the long-dated capital entrusted to us by a growing base of limited partners across our diverse set of strategies."

Note: Certain financial measures, including FRE, ENI, After-tax ENI and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). See Exhibits A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP. See calculation of gross distributable earnings under "Distribution Calculation."

GAAP RESULTS

GAAP results for the quarter and nine months ended September 30, 2011 included net income (loss) attributable to KKR & Co. L.P. of ($243.4) million and ($44.2) million, respectively, and net income (loss) per common unit attributable to KKR & Co. L.P. of ($1.09) and ($0.20), respectively. For the quarter and nine months ended September 30, 2010, net income (loss) attributable to KKR & Co. L.P. was $8.9 million and $152.6 million, respectively, and net income (loss) per common unit attributable to KKR & Co. L.P. was $0.04 and $0.74, respectively.

SEGMENT RESULTS

Private Markets

AUM was $43.7 billion as of September 30, 2011, a decrease of $3.4 billion, or 7.2%, compared to AUM of $47.1 billion as of June 30, 2011. The decrease was primarily due to a decline in the carrying value of KKR's private equity portfolio and distributions to the limited partners of our private equity funds arising from realizations.

FPAUM was $37.9 billion as of September 30, 2011, a decrease of $0.5 billion, or 1.3%, compared to FPAUM of $38.4 billion as of June 30, 2011. The decrease was primarily due to unfavorable changes in foreign exchange related to Euro-denominated commitments and invested capital.

FRE was $41.2 million for the quarter ended September 30, 2011, a decrease of $1.7 million, or 4.0%, compared to FRE of $42.9 million for the quarter ended September 30, 2010. The decrease was primarily due to higher compensation and other operating expenses in connection with the expansion of this business, which was largely offset by an increase in management fees related to new capital raised over the past year and higher transaction fees resulting from the closing of more transaction fee-generating investments.

FRE was $169.6 million for the nine months ended September 30, 2011, an increase of $28.4 million, or 20.1%, compared to FRE of $141.2 million for the nine months ended September 30, 2010. The increase was primarily driven by (i) higher monitoring fees as a result of $76.6 million of termination payments on monitoring agreements with three portfolio companies during the nine months ended September 30, 2011, which impacted FRE by $39.7 million net of associated fee credits; (ii) higher transaction fees as a result of closing more transaction fee-generating investments; and (iii) an increase in management fees related to new capital raised. These increases were partially offset by higher compensation and other operating expenses in connection with the expansion of this business.

ENI was ($152.0) million for the quarter ended September 30, 2011, a decrease of $325.7 million compared to ENI of $173.7 million for the quarter ended September 30, 2010. The decrease was primarily due to a reversal of previously recognized net carried interest due to a decline in the carrying value of our private equity funds.

ENI was $252.9 million for the nine months ended September 30, 2011, a decrease of $269.7 million compared to ENI of $522.6 million for the nine months ended September 30, 2010. The decrease was primarily due to lower net carried interest driven by a lower level of appreciation in our private equity portfolio, partially offset by the increase in FRE discussed above.

Public Markets

AUM was $15.0 billion as of September 30, 2011, an increase of $0.1 billion, or 0.7%, compared to AUM of $14.9 billion as of June 30, 2011. FPAUM was $8.3 billion as of September 30, 2011, an increase of $0.3 billion, or 3.8%, compared to FPAUM of $8.0 billion as of June 30, 2011. For both AUM and FPAUM, the increases were principally attributable to new capital raised, partially offset by distributions to and redemptions by credit strategy investors and a decline in the net asset value of certain vehicles.

FRE was $12.4 million for the quarter ended September 30, 2011, a decrease of $0.8 million, or 6.1%, compared to FRE of $13.2 million for the quarter ended September 30, 2010. The decrease was primarily due to no incentive fees having been earned in the third quarter of 2011 and higher compensation expense as a result of the expansion of this business. These factors were partially offset by an increase in management fees related to new capital raised and a $7.1 million catch-up management fee associated with the final closing of the Mezzanine Fund.

FRE was $47.8 million for the nine months ended September 30, 2011, an increase of $7.1 million, or 17.4%, compared to FRE of $40.7 million for the nine months ended September 30, 2010. The increase was primarily due to growth in management fees related to new capital raised, partially offset by higher compensation expense in connection with the expansion of this business including the development of the equity strategies platform.

ENI was $8.9 million for the quarter ended September 30, 2011, a decrease of $5.0 million, or 36.0%, compared to ENI of $13.9 million for the quarter ended September 30, 2010. The decrease was primarily due to a reversal of previously recognized net carried interest due to a decline in the carrying value of certain carry-earning investment vehicles.

ENI was $46.1 million for the nine months ended September 30, 2011, an increase of $3.7 million, or 8.7%, compared to ENI of $42.4 million for the nine months ended September 30, 2010. The increase was primarily due to the increase in FRE discussed above, partially offset by a reversal of previously recognized net carried interest due to a decline in the carrying value of certain carry-earning investment vehicles.

Capital Markets and Principal Activities

FRE was $44.6 million for the quarter ended September 30, 2011, an increase of $31.2 million compared to FRE of $13.4 million for the quarter ended September 30, 2010. FRE was $83.2 million for the nine months ended September 30, 2011, an increase of $41.8 million compared to FRE of $41.4 million for the nine months ended September 30, 2010. The increases in both comparative periods were primarily driven by a higher level of overall capital markets transaction activity, partially offset by higher compensation and other operating expenses in connection with the expansion of the capital markets business.

ENI was ($449.0) million for the quarter ended September 30, 2011, a decrease of $578.7 million compared to ENI of $129.7 million for the quarter ended September 30, 2010. The decrease was primarily due to a decline in the carrying value of our principal investments.

ENI was $166.4 million for the nine months ended September 30, 2011, a decrease of $693.8 million compared to ENI of $860.2 million for the nine months ended September 30, 2010. The decrease was primarily due to a lower level of investment income. While the fair value of our principal investments increased during the first nine months of 2011, the level of appreciation was lower than in the comparable period of 2010.

CAPITAL AND LIQUIDITY

As of September 30, 2011, KKR had an available cash balance of $839.2 million and $500.0 million of outstanding debt obligations under its senior notes. KKR's availability for further borrowings was approximately $1.2 billion (which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of September 30, 2011).

As of September 30, 2011, KKR's portion of total uncalled commitments to its investment funds was $746.1 million, consisting of the following (amounts in thousands):

  Commitments

Private Markets

European Fund III $ 274,200
2006 Fund 217,200
Asian Fund 99,100
Infrastructure Fund 46,100
E2 Investors (Annex Fund) 28,100
Natural Resources 20,500
China Growth Fund 8,000
Other Private Markets Commitments   4,700
Total Private Markets Commitments   697,900
 

Public Markets

Mezzanine Fund 38,600
Special Situations Vehicles   9,600
Total Public Markets Commitments   48,200
 
Total Uncalled Commitments $ 746,100

DISTRIBUTION

A distribution of $0.10 per common unit will be paid on November 29, 2011 to unitholders of record as of the close of business on November 14, 2011.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Friday, November 4, 2011 at 10:00 a.m. EDT. The conference call may be accessed by dialing (866) 316-1366 (U.S. callers) or +1 (913) 312-4372 (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 Relations section of KKR's website at http://ir.kkr.com/kkr_ir/kkr_events.cfm. A replay of the live broadcast will be available on KKR's website or by dialing (888) 203-1112 (U.S. callers) and +1 (719) 457-0820 (non-U.S. callers), pass code 4027204, 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 Relations section of KKR's website at www.kkr.com. In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the "Email Alerts" area of the Public Investors section of the website.

ABOUT KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $58.7 billion in assets under management as of September 30, 2011. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platform. KKR is publicly traded on the New York Stock Exchange (NYSE: KKR). For additional information, please visit KKR's website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, gross distributable earnings, ENI, committed dollars invested, uncalled commitments and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR's business strategies; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR's competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR's business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 7, 2011, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, filed with the SEC on May 5, 2011 and August 5, 2011 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 Nine Months Ended
September 30, 2011 September 30, 2010 September 30, 2011 September 30, 2010
Revenues
Fees $ 164,808 $ 96,018 $ 514,263 $ 289,119
 
Expenses
Compensation and Benefits 48,948 331,180 677,917 1,045,332
Occupancy and Related Charges 13,702 10,373 39,085 29,568
General, Administrative and Other 52,555 94,000 130,579 229,770
Fund Expenses   13,625   14,314   36,287   39,091
Total Expenses   128,830   449,867   883,868   1,343,761
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities (3,339,020) 1,450,124 467,278 4,768,245
Dividend Income 71,106 218,232 107,129 808,512
Interest Income 64,858 66,603 218,975 171,058
Interest Expense   (17,742)   (10,432)   (52,365)   (34,393)
Total Investment Income (Loss)   (3,220,798)   1,724,527   741,017   5,713,422
 
Income (Loss) Before Taxes (3,184,820) 1,370,678 371,412 4,658,780
 
Income Taxes   11,535   16,263   67,923   60,998
 
Net Income (Loss) (3,196,355) 1,354,415 303,489 4,597,782
 
Less: Net Income (Loss) Attributable to
Noncontrolling Interests in Consolidated Entities (2,468,074) 1,293,373 295,654 3,957,319
Less: Net Income (Loss) Attributable to
Noncontrolling Interests Held by KKR Holdings L.P. (484,879) 52,186 52,051 487,864
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ (243,402) $ 8,856 $ (44,216) $ 152,599
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.10 $ 0.15 $ 0.42 $ 0.31
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ (1.09) $ 0.04 $ (0.20) $ 0.74
Diluted (a) $ (1.09) $ 0.04 $ (0.20) $ 0.74

Weighted Average Common Units Outstanding

Basic 222,733,648 204,902,226 218,501,107 204,902,226
Diluted (a) 222,733,648 204,902,226 218,501,107 204,902,226

(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. For the three and nine months ended September 30, 2011, equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan have been excluded from the calculation of diluted earnings per common unit given the awards would have an anti-dilutive effect as a result of the net loss incurred for the respective periods.

KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
         
Quarter Ended Nine Months Ended
September 30, 2011 June 30, 2011 September 30, 2010 September 30, 2011 September 30, 2010
Fees
Management and incentive fees:
Management fees $ 134,049 $ 126,229 $ 112,545 $ 387,828 $ 334,243
Incentive fees   -   16,146   9,555   28,159   30,405
Management and incentive fees   134,049   142,375   122,100   415,987   364,648
 
Monitoring and transaction fees:
Monitoring fees 20,892 30,653 21,780 141,972 64,824
Transaction fees 98,631 34,885 40,634 220,792 133,609
Fee credits   (28,793)   (12,211)   (13,683)   (113,996)   (43,228)
Net monitoring and transaction fees   90,730   53,327   48,731   248,768   155,205
 
Total fees   224,779   195,702   170,831   664,755   519,853
 
Expenses
Compensation and benefits (a) 66,663 63,110 49,056 192,913 150,740
Occupancy and related charges 12,675 12,122 10,373 36,656 29,591
Other operating expenses   47,199   44,337   41,896   134,608   116,291
Total expenses   126,537   119,569   101,325   364,177   296,622
 
Fee Related Earnings   98,242   76,133   69,506   300,578   223,231
 
Investment income (loss)
Gross carried interest (366,387) 201,384 237,923 167,118 790,628
Less: allocation to KKR carry pool 151,191 (79,591) (91,156) (67,915) (286,567)
Less: management fee refunds (b)   21,115   (31,905)   (17,387)   (15,594)   (119,034)
Net carried interest (194,081) 89,888 129,380 83,609 385,027
Other investment income (loss)   (494,412)   149,956   120,006   85,719   819,739
Total investment income (loss)   (688,493)   239,844   249,386   169,328   1,204,766
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

(590,251) 315,977 318,892 469,906 1,427,997

Income (Loss) attributable to noncontrolling interests

  1,840   951   1,567   4,451   2,817
 
Economic Net Income (Loss) $ (592,091) $ 315,026 $ 317,325 $ 465,455 $ 1,425,180
 
Provision for Income Taxes 29,634 69,721 47,784 188,094 192,843
 
Economic Net Income (Loss), After Taxes (c) $ (621,725) $ 245,305 $ 269,541 $ 277,361 $ 1,232,337
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (c) $ (0.91) $ 0.36 $ 0.39 $ 0.41 $ 1.80
                     
Assets Under Management $ 58,720,800 $ 61,940,200 $ 55,498,500 $ 58,720,800 $ 55,498,500
Fee Paying Assets Under Management $ 46,221,200 $ 46,435,900 $ 42,705,200 $ 46,221,200 $ 42,705,200
Committed Dollars Invested $ 1,807,200 $ 497,100 $ 540,400 $ 3,431,400 $ 2,562,300
Uncalled Commitments   $ 12,807,200   $ 13,698,900   $ 13,750,900   $ 12,807,200   $ 13,750,900
 

Other Information

Fee Related Earnings $ 98,242 $ 76,133 $ 69,506 $ 300,578 $ 223,231
Plus: depreciation and amortization   2,147   2,609   2,674     7,397     8,874
Fee Related EBITDA $ 100,389 $ 78,742 $ 72,180   $ 307,975   $ 232,105
 
Gross Distributable Earnings $ 104,395 $ 103,248 $ 166,791 $ 400,581 $ 328,689
 
GAAP interest expense $ 17,742 $ 17,371 $ 10,432 $ 52,365 $ 34,393

Less: interest expense related to debt obligations from investment financing arrangements

  7,233   6,772   6,849   20,562   21,087
Core Interest Expense (c) $ 10,509 $ 10,599 $ 3,583   $ 31,803   $ 13,306

(a) Excludes a $6.8 million and $11.2 million charge for non-cash equity based compensation during the quarter and nine months ended September 30, 2011, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. Excludes a $4.4 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

(b) As of September 30, 2011, $81.2 million of carried interest is subject to management fee refunds, which may reduce carried interest in future periods.

(c) See definitions for After-tax ENI, adjusted units, and core interest expense under "Notes to Reportable Segments."

KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Nine Months Ended

September 30, 2011

June 30, 2011

September 30, 2010

September 30, 2011

September 30, 2010

Fees
Management and incentive fees:
Management fees $ 106,748 $ 106,679 $ 98,337 $ 323,684 $ 293,543
Incentive fees   -   -   -   -   -
Management and incentive fees   106,748   106,679   98,337   323,684   293,543
 
Monitoring and transaction fees:
Monitoring fees 20,892 30,653 21,780 141,972 64,824
Transaction fees 40,196 8,132 19,816 101,506 65,058
Fee credits   (27,229)   (12,113)   (12,941)   (110,129)   (36,890)
Net monitoring and transaction fees   33,859   26,672   28,655   133,349   92,992
 
Total fees   140,607   133,351   126,992   457,033   386,535
 
Expenses
Compensation and benefits (a) 47,390 46,205 37,861 139,570 117,165
Occupancy and related charges 11,273 10,944 9,513 32,792 27,189
Other operating expenses   40,768   38,424   36,733   115,076   100,965
Total expenses   99,431   95,573   84,107   287,438   245,319
 
Fee Related Earnings   41,176   37,778   42,885   169,595   141,216
 
Investment income (loss)
Gross carried interest (360,282) 201,331 236,792 170,096 788,045
Less: allocation to KKR carry pool 148,749 (79,570) (90,704) (69,106) (285,534)
Less: management fee refunds   21,115   (31,905)   (17,387)   (15,594)   (119,034)
Net carried interest (190,418) 89,856 128,701 85,396 383,477
Other investment income (loss)   (1,942)   690   2,524   (185)   (1,532)
Total investment income (loss)   (192,360)   90,546   131,225   85,211   381,945
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

(151,184) 128,324 174,110 254,806 523,161

Income (Loss) attributable to noncontrolling interests

  790   168   394   1,885   580
 
Economic Net Income (Loss) $ (151,974) $ 128,156 $ 173,716 $ 252,921 $ 522,581
 
 
Assets Under Management $ 43,744,400 $ 47,071,900 $ 41,878,700 $ 43,744,400 $ 41,878,700
Fee Paying Assets Under Management $ 37,936,800 $ 38,430,300 $ 36,032,300 $ 37,936,800 $ 36,032,300
Committed Dollars Invested $ 1,654,900 $ 420,300 $ 349,500 $ 2,884,900 $ 2,184,200
Uncalled Commitments $ 11,243,600 $ 12,456,800 $ 12,495,400 $ 11,243,600 $ 12,495,400

(a) Excludes a $4.2 million and $4.9 million charge for non-cash equity based compensation during the quarter and nine months ended September 30, 2011, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. Excludes a $0.7 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Nine Months Ended

September 30, 2011

June 30, 2011

September 30, 2010

September 30, 2011

September 30, 2010

Fees
Management and incentive fees:
Management fees $ 27,301 $ 19,550 $ 14,208 $ 64,144 $ 40,700
Incentive fees   -   16,146   9,555   28,159   30,405
Management and incentive fees   27,301   35,696   23,763   92,303   71,105
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 3,760 356 1,672 7,845 9,825
Fee credits   (1,564)   (98)   (742)   (3,867)   (6,338)
Net monitoring and transaction fees   2,196   258   930   3,978   3,487
 
Total fees   29,497   35,954   24,693   96,281   74,592
 
Expenses
Compensation and benefits (a) 12,144 10,664 7,708 33,967 22,324
Occupancy and related charges 1,097 818 615 2,870 1,763
Other operating expenses   3,807   3,634   3,160   11,649   9,850
Total expenses   17,048   15,116   11,483   48,486   33,937
 
Fee Related Earnings   12,449   20,838   13,210   47,795   40,655
 
Investment income (loss)
Gross carried interest (6,105) 53 1,131 (2,978) 2,583
Less: allocation to KKR carry pool 2,442 (21) (452) 1,191 (1,033)
Less: management fee refunds   -   -   -   -   -
Net carried interest (3,663) 32 679 (1,787) 1,550
Other investment income (loss)   288   661   148   598   530
Total investment income (loss)   (3,375)   693   827   (1,189)   2,080
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

9,074 21,531 14,037 46,606 42,735

Income (Loss) attributable to noncontrolling interests

  164   178   125   480   380
 
Economic Net Income (Loss) $ 8,910 $ 21,353 $ 13,912 $ 46,126 $ 42,355
 
Assets Under Management $ 14,976,400 $ 14,868,300 $ 13,619,800 $ 14,976,400 $ 13,619,800
Fee Paying Assets Under Management $ 8,284,400 $ 8,005,600 $ 6,672,900 $ 8,284,400 $ 6,672,900
Committed Dollars Invested $ 152,300 $ 76,800 $ 190,900 $ 546,500 $ 378,100
Uncalled Commitments $ 1,563,600 $ 1,242,100 $ 1,255,500 $ 1,563,600 $ 1,255,500

(a) Excludes a $2.5 million and $6.2 million charge for non-cash equity based compensation during the quarter and nine months ended September 30, 2011, respectively, associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. Excludes a $3.7 million charge for non-cash equity based compensation during the quarter ended June 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

KKR
STATEMENTS OF OPERATIONS
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Nine Months Ended

September 30, 2011

June 30, 2011

September 30, 2010

September 30, 2011

September 30, 2010

Fees
Management and incentive fees:
Management fees $ - $ - $ - $ - $ -
Incentive fees   -   -   -   -   -
Management and incentive fees   -   -   -   -   -
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 54,675 26,397 19,146 111,441 58,726
Fee credits   -   -   -   -   -
Net monitoring and transaction fees   54,675   26,397   19,146   111,441   58,726
 
Total fees   54,675   26,397   19,146   111,441   58,726
 
Expenses
Compensation and benefits (a) 7,129 6,241 3,487 19,376 11,251
Occupancy and related charges 305 360 245 994 639
Other operating expenses   2,624   2,279   2,003   7,883   5,476
Total expenses   10,058   8,880   5,735   28,253   17,366
 
Fee Related Earnings   44,617   17,517   13,411   83,188   41,360
 
Investment income (loss)
Gross carried interest - - - - -
Less: allocation to KKR carry pool - - - - -
Less: management fee refunds   -   -   -   -   -
Net carried interest - - - - -
Other investment income (loss)   (492,758)   148,605   117,334   85,306   820,741
Total investment income (loss)   (492,758)   148,605   117,334   85,306   820,741
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

(448,141) 166,122 130,745 168,494 862,101

Income (Loss) attributable to noncontrolling interests

  886   605   1,048   2,086   1,857
 
Economic Net Income (Loss) $ (449,027) $ 165,517 $ 129,697 $ 166,408 $ 860,244

(a) Excludes a $0.1 million charge for non-cash equity based compensation during the quarter and nine months ended September 30, 2011 associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan.

KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended September 30, 2011
(Amounts in thousands)
      Capital Markets   Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 106,748 $ 27,301 $ - $ 134,049
Incentive fees   -   -   -   -
Management and incentive fees   106,748   27,301   -   134,049
 
Monitoring and transaction fees:
Monitoring fees 20,892 - - 20,892
Transaction fees 40,196 3,760 54,675 98,631
Fee credits   (27,229)   (1,564)   -   (28,793)
Net monitoring and transaction fees   33,859   2,196   54,675   90,730
 
Total fees   140,607   29,497   54,675   224,779
 
Expenses
Compensation and benefits (a) 47,390 12,144 7,129 66,663
Occupancy and related charges 11,273 1,097 305 12,675
Other operating expenses   40,768     3,807   2,624   47,199
Total expenses   99,431     17,048   10,058   126,537
 
Fee Related Earnings   41,176   12,449   44,617   98,242
 
Investment income (loss)
Gross carried interest (360,282) (6,105) - (366,387)
Less: allocation to KKR carry pool 148,749 2,442 - 151,191
Less: management fee refunds   21,115   -   -   21,115
Net carried interest (190,418) (3,663) - (194,081)
Other investment income (loss)   (1,942)   288   (492,758)   (494,412)
Total investment income (loss)   (192,360)   (3,375)   (492,758)   (688,493)
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

(151,184) 9,074 (448,141) (590,251)

Income (Loss) attributable to noncontrolling interests

  790   164   886   1,840
Economic Net Income (Loss) $ (151,974) $ 8,910 $ (449,027) $ (592,091)

(a) Excludes a $6.8 million charge for non-cash equity based compensation associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan (Private Markets — $4.2 million; Public Markets — $2.5 million; Capital Markets and Principal Activities — $0.1 million).

KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended June 30, 2011
(Amounts in thousands)
 
      Capital Markets   Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 106,679 $ 19,550 $ - $ 126,229
Incentive fees   -   16,146   -   16,146
Management and incentive fees   106,679   35,696   -   142,375
 
Monitoring and transaction fees:
Monitoring fees 30,653 - - 30,653
Transaction fees 8,132 356 26,397 34,885
Fee credits   (12,113)   (98)   -   (12,211)
Net monitoring and transaction fees   26,672   258   26,397   53,327
 
Total fees   133,351   35,954   26,397   195,702
 
Expenses
Compensation and benefits (a) 46,205 10,664 6,241 63,110
Occupancy and related charges 10,944 818 360 12,122
Other operating expenses   38,424     3,634   2,279   44,337
Total expenses   95,573     15,116   8,880   119,569
 
Fee Related Earnings   37,778   20,838   17,517   76,133
 
Investment income (loss)
Gross carried interest 201,331 53 - 201,384
Less: allocation to KKR carry pool (79,570) (21) - (79,591)
Less: management fee refunds   (31,905)   -   -   (31,905)
Net carried interest 89,856 32 - 89,888
Other investment income (loss)   690   661   148,605   149,956
Total investment income (loss)   90,546   693   148,605   239,844
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

128,324 21,531 166,122 315,977

Income (Loss) attributable to noncontrolling interests

168 178 605 951
       
Economic Net Income (Loss) $ 128,156 $ 21,353 $ 165,517 $ 315,026

(a) Excludes a $4.4 million charge for non-cash equity based compensation associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan (Private Markets — $0.7 million; Public Markets — $3.7 million).

KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Quarter Ended September 30, 2010
(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 $ 98,337 $ 14,208 $ - $ 112,545
Incentive fees   -   9,555   -   9,555
Management and incentive fees   98,337   23,763   -   122,100
 
Monitoring and transaction fees:
Monitoring fees 21,780 - - 21,780
Transaction fees 19,816 1,672 19,146 40,634
Fee credits   (12,941)   (742)   -   (13,683)
Net monitoring and transaction fees   28,655   930   19,146   48,731
 
Total fees   126,992   24,693   19,146   170,831
 
Expenses
Compensation and benefits 37,861 7,708 3,487 49,056
Occupancy and related charges 9,513 615 245 10,373
Other operating expenses   36,733     3,160   2,003   41,896
Total expenses   84,107     11,483   5,735   101,325
 
Fee Related Earnings   42,885   13,210   13,411   69,506
 
Investment income (loss)
Gross carried interest 236,792 1,131 - 237,923
Less: allocation to KKR carry pool (90,704) (452) - (91,156)
Less: management fee refunds   (17,387)   -   -   (17,387)
Net carried interest 128,701 679 - 129,380
Other investment income (loss)   2,524   148   117,334   120,006
Total investment income (loss)   131,225   827   117,334   249,386
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

174,110 14,037 130,745 318,892

Income (Loss) attributable to noncontrolling interests

394 125 1,048 1,567
       
Economic Net Income (Loss) $ 173,716 $ 13,912 $ 129,697 $ 317,325
KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Nine Months Ended September 30, 2011
(Amounts in thousands)
       
Capital Markets Total
Private Markets Public Markets and Principal Reportable
Segment Segment Activities Segment Segments
 
Fees
Management and incentive fees:
Management fees $ 323,684 $ 64,144 $ - $ 387,828
Incentive fees   -   28,159   -   28,159
Management and incentive fees   323,684   92,303   -   415,987
 
Monitoring and transaction fees:
Monitoring fees 141,972 - - 141,972
Transaction fees 101,506 7,845 111,441 220,792
Fee credits   (110,129)   (3,867)   -   (113,996)
Net monitoring and transaction fees   133,349   3,978   111,441   248,768
 
Total fees   457,033   96,281   111,441   664,755
 
Expenses
Compensation and benefits (a) 139,570 33,967 19,376 192,913
Occupancy and related charges 32,792 2,870 994 36,656
Other operating expenses   115,076     11,649   7,883   134,608
Total expenses   287,438     48,486   28,253   364,177
 
Fee Related Earnings   169,595   47,795   83,188   300,578
 
Investment income (loss)
Gross carried interest 170,096 (2,978) - 167,118
Less: allocation to KKR carry pool (69,106) 1,191 - (67,915)
Less: management fee refunds   (15,594)   -   -   (15,594)

Net carried interest

85,396 (1,787) - 83,609
Other investment income (loss)   (185)   598   85,306   85,719
Total investment income (loss)   85,211   (1,189)   85,306   169,328
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

254,806 46,606 168,494 469,906

Income (Loss) attributable to noncontrolling interests

1,885 480 2,086 4,451
       
Economic Net Income (Loss) $ 252,921 $ 46,126 $ 166,408 $ 465,455

(a) Excludes a $11.2 million charge for non-cash equity based compensation associated with equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan (Private Markets — $4.9 million; Public Markets — $6.2 million; Capital Markets and Principal Activities — $0.1 million).

KKR
STATEMENTS OF OPERATIONS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
Nine Months Ended September 30, 2010
(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 $ 293,543 $ 40,700 $ - $ 334,243
Incentive fees   -   30,405   -   30,405
Management and incentive fees   293,543   71,105   -   364,648
 
Monitoring and transaction fees:
Monitoring fees 64,824 - - 64,824
Transaction fees 65,058 9,825 58,726 133,609
Fee credits   (36,890)   (6,338)   -   (43,228)
Net monitoring and transaction fees   92,992   3,487   58,726   155,205
 
Total fees   386,535   74,592   58,726   519,853
 
Expenses
Compensation and benefits 117,165 22,324 11,251 150,740
Occupancy and related charges 27,189 1,763 639 29,591
Other operating expenses   100,965     9,850   5,476   116,291
Total expenses   245,319     33,937   17,366   296,622
 
Fee Related Earnings   141,216   40,655   41,360   223,231
 
Investment income (loss)
Gross carried interest 788,045 2,583 - 790,628
Less: allocation to KKR carry pool (285,534) (1,033) - (286,567)
Less: management fee refunds   (119,034)   -   -   (119,034)
Net carried interest 383,477 1,550 - 385,027
Other investment income (loss)   (1,532)   530   820,741   819,739
Total investment income (loss)   381,945   2,080   820,741   1,204,766
 

Income (Loss) before noncontrolling interests in Income of consolidated entities

523,161 42,735 862,101 1,427,997

Income (Loss) attributable to noncontrolling interests

580 380 1,857 2,817
       
Economic Net Income (Loss) $ 522,581 $ 42,355 $ 860,244 $ 1,425,180
KKR
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
       
As of September 30, 2011

Private

Markets

Segment

 

Public

Markets

Segment

 

Capital

Markets and

Principal

Activities

Segment

 

Total

Reportable

Segments

 

 
Cash and cash equivalents $ 300,452 $ 22,528 $ 516,238 $ 839,218
Investments - - 4,865,176 (a) 4,865,176
Unrealized carry 459,681 1,214 - 460,895
Other assets   141,127   45,389   57,946   244,462
Total assets $ 901,260 $ 69,131 $ 5,439,360 $ 6,409,751
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   215,959   20,970   45,511   282,440
Total liabilities   215,959   20,970   545,511   782,440
 
Noncontrolling interests (1,219) 774 18,059 17,614
       
Partners' capital $ 686,520 $ 47,387 $ 4,875,790 $ 5,609,697
 
Book value per adjusted unit (b) $ 1.00 $ 0.07 $ 7.10 $ 8.17
 
 
As of December 31, 2010

Private

Markets

Segment

 

Public

Markets

Segment

 

Capital

Markets and

Principal

Activities

Segment

 

Total

Reportable

Segments

 

 
Cash and cash equivalents $ 229,729 $ 10,007 $ 516,544 $ 756,280
Investments - - 4,831,798 4,831,798
Unrealized carry 523,002 3,001 - 526,003
Other assets   194,424   53,222   39,730   287,376
Total assets $ 947,155 $ 66,230 $ 5,388,072 $ 6,401,457
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   104,248   10,193   45,837   160,278
Total liabilities   104,248   10,193   545,837   660,278
 
Noncontrolling interests (1,750) 766 16,537 15,553
       
Partners' capital $ 844,657 $ 55,271 $ 4,825,698 $ 5,725,626
 
Book value per adjusted unit (b) $ 1.24 $ 0.08 $ 7.06 $ 8.38

(a) See Capital Markets and Principal Activities segment schedule of investments that follows on pages 16 and 17.

(b) Adjusted units represent the fully diluted unit count using the if-converted method. See Exhibit B for a reconciliation of this item to the comparable GAAP measure.

KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS
(Amounts in thousands, except percentage amounts)
     
As of September 30, 2011

 

 

Fair Value as

 

Fair a Percentage

Investment

Cost

Value of Investments
 
 

Co-investments in portfolio companies of private equity funds:

Dollar General Corporation $ 145,306 $ 627,057 12.9 %
HCA Inc. 171,228 304,921 6.3
Alliance Boots GmbH 301,352 303,939 6.2
The Nielsen Company B.V. 156,839 271,908 5.6
Biomet, Inc. 151,443 136,299 2.8
U.S. Foodservice, Inc. 100,000 120,000 2.5
NXP B.V. 207,964 111,259 2.3
ProSiebenSat.1 Media AG 226,913 106,867 2.2
First Data Corporation 135,258 81,155 1.7
KION Group GmbH 128,058 70,915 1.5
Energy Future Holdings Corp. 200,000 20,000 0.3
PagesJaunes Groupe S.A. 235,201

--

--

Capmark Financial Group Inc. 137,321

--

--

2,296,883 2,154,320 44.3
Private equity funds:
KKR 2006 Fund L.P. 1,165,192 1,187,381 24.4
KKR Asian Fund L.P. 188,531 257,759 5.3
KKR European Fund III L.P. 195,603 205,311 4.2
KKR Millennium Fund L.P. 181,961 152,976 3.1
KKR European Fund L.P. 97,388 80,057 1.6
KKR European Fund II L.P. 89,769 70,571 1.5
KKR E2 Investors, L.P. 12,188 17,463 0.4
KKR China Growth Fund L.P. 1,957 3,017 0.1
1,932,589 1,974,535 40.6
 
Fixed income securities 517,731 530,006 10.9
Other 233,169 206,315 4.2
 
Total Investments $ 4,980,372 $ 4,865,176 100.0 %
KKR
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS, CONTINUED
(Amounts in thousands, except percentage amounts)
     
As of September 30, 2011

 

 

Fair Value as
Fair a Percentage

Investment

Cost

Value of Investments
 
Significant Aggregate Investments: (a)
Dollar General Corporation $ 201,607 $ 832,766 17.1 %
Alliance Boots GmbH 426,523 437,359 9.1
HCA Inc. 217,011 379,303 7.8
The Nielsen Company B.V. 172,841 297,458 6.1
1,017,982 1,946,886 40.1
Other portfolio companies (b) 3,211,490 2,181,969 44.9
Other investments 750,900 736,321 15.0
Total Investments $ 4,980,372 $ 4,865,176 100.0 %
 
 
Investments by Geography:
North America $ 3,032,037 $ 3,393,962 69.8 %
Europe 1,675,859 1,108,647 22.8
Asia-Pacific 272,476 362,567 7.4
Total Investments $ 4,980,372 $ 4,865,176 100.0 %
 
 
Investments by Industry:
Retail $ 562,136 $ 1,185,322 24.4 %
Healthcare 936,025 1,090,491 22.4
Financial Services 1,123,432 833,366 17.1
Media/Telecom 832,284 610,972 12.6
Technology 461,668 372,338 7.7
Industrial 355,941 338,593 7.0
Energy 472,062 179,306 3.7
Consumer Products 147,353 160,792 3.3
Other 89,471 93,996 1.8
Total Investments $ 4,980,372 $ 4,865,176 100.0 %

(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 September 30, 2011. The fair value figures include the co-investment and the limited partner and/or general partner interests in the underlying portfolio company.

(b) Other portfolio companies includes investments in private equity portfolio companies with individual fair values less than 5% of the Capital Markets and Principal Activities segment investments balance as of September 30, 2011.

KKR
ASSETS UNDER MANAGEMENT AND FEE PAYING ASSETS UNDER MANAGEMENT
(Amounts in thousands)
     
Assets Under Management

Private Markets

Segment

Public Markets

Segment

Total

Reportable

Segments

Quarter Ended September 30, 2011

 
June 30, 2011 $ 47,071,900 $ 14,868,300 $ 61,940,200
 
New Capital Raised 172,800 784,100 956,900
Distributions (546,000) (438,000) (984,000)
Foreign Exchange (193,300) - (193,300)
Change in Value (2,761,000) (238,000) (2,999,000)
     
September 30, 2011 $ 43,744,400 $ 14,976,400 $ 58,720,800
 
 

Nine Months Ended September 30, 2011

 
December 31, 2010 $ 46,223,900 $ 14,773,600 $ 60,997,500
 
New Capital Raised 989,000 1,135,500 2,124,500
Distributions (4,419,300) (1,186,200) (5,605,500)
Foreign Exchange 13,100 - 13,100
Change in Value 937,700 253,500 1,191,200
     
September 30, 2011 $ 43,744,400 $ 14,976,400 $ 58,720,800
 
 

Trailing Twelve Months Ended September 30, 2011

 
September 30, 2010 $ 41,878,700 $ 13,619,800 $ 55,498,500
 
New Capital Raised 3,472,100 2,128,700 5,600,800
Distributions (5,819,800) (1,245,300) (7,065,100)
Foreign Exchange (32,800) - (32,800)
Change in Value 4,246,200 473,200 4,719,400
     
September 30, 2011 $ 43,744,400 $ 14,976,400 $ 58,720,800
 
 
Fee Paying Assets Under Management

Private Markets

Segment

Public Markets

Segment

Total

Reportable

Segments

Quarter Ended September 30, 2011

 
June 30, 2011 $ 38,430,300 $ 8,005,600 $ 46,435,900
 
New Capital Raised 103,500 682,200 785,700
Distributions (7,000) (226,800) (233,800)
Foreign Exchange (552,400) - (552,400)
Change in Value (37,600) (176,600) (214,200)
     
September 30, 2011 $ 37,936,800 $ 8,284,400 $ 46,221,200
 
 

Nine Months Ended September 30, 2011

 
December 31, 2010 $ 38,186,700 $ 7,824,400 $ 46,011,100
 
New Capital Raised 919,700 1,024,000 1,943,700
Distributions (1,133,600) (826,800) (1,960,400)
Foreign Exchange (9,900) - (9,900)
Change in Value (26,100) 262,800 236,700
     
September 30, 2011 $ 37,936,800 $ 8,284,400 $ 46,221,200
 
 

Trailing Twelve Months Ended September 30, 2011

 
September 30, 2010 $ 36,032,300 $ 6,672,900 $ 42,705,200
 
New Capital Raised 3,356,800 2,015,700 5,372,500
Distributions (1,285,600) (885,900) (2,171,500)
Foreign Exchange (147,800) - (147,800)
Change in Value (18,900) 481,700 462,800
     
September 30, 2011 $ 37,936,800 $ 8,284,400 $ 46,221,200
KKR
SELECTED INVESTMENT VEHICLE SUMMARY (UNAUDITED)
As of September 30, 2011
(Amounts in millions, except percentages)
  Investment Period   Amount

Commencement

Date

 

End

Date

Commitment

 

Uncalled

Commitments

 

Percentage

Committed by

General Partner

 

Invested

  Realized  

Remaining

Cost

  Fair Value

Private Markets

           
 
Private Equity Funds
China Growth Fund 11/2010 11/2016 $ 1,010.0 $ 852.3 1.0% $ 157.7 $ - $ 157.7 $ 236.6
E2 Investors (Annex Fund) 8/2009 11/2012 540.8 386.5 4.2% 154.3 - 154.3 220.0
European Fund III 3/2008 3/2014 5,967.8 3,371.3 4.5% 2,596.5 - 2,596.5 2,657.0
Asian Fund 7/2007 7/2013 3,983.2 1,323.3 2.5% 2,659.9 191.9 2,533.5 3,755.7
2006 Fund 9/2006 9/2012 17,642.2 2,833.7 2.1% 14,808.5 3,282.2 13,039.0 15,013.9
European Fund II 11/2005 10/2008 5,750.8 - 2.1% 5,750.8 1,445.0 4,715.3 3,838.5
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5% 6,000.0 6,810.9 3,484.7 4,814.6
European Fund 12/1999 12/2005   3,085.4     - 3.2%   3,085.4     7,719.0     217.0     949.7
 
Total Private Equity Funds 43,980.2 8,767.1 35,213.1 19,449.0 26,898.0 31,486.0
 
Co-Investment Vehicles Various Various   2,140.7     494.6 Various   1,646.1     457.7     1,511.5     2,242.5
 
Total Private Equity   46,120.9     9,261.7   36,859.2     19,906.7     28,409.5     33,728.5
 
Energy / Infrastructure
Natural Resources 3/2010 10/2013 1,086.5 1,004.5 Various 82.0 6.9 82.0 66.9
Infrastructure Fund 9/2010 9/2016 513.7 473.6 9.7% 40.1 - 40.1 38.4
Co-Investment Vehicles Various Various   1,608.3     503.8 Various   1,104.5     50.3     1,104.5     1,275.1
 
Total Energy / Infrastructure   3,208.5     1,981.9   1,226.6     57.2     1,226.6     1,380.4
 
Private Markets Total   49,329.4     11,243.6   38,085.8     19,963.9     29,636.1     35,108.9
 

Public Markets

 
Special Situations Vehicles Various Various 2,003.1 718.1 Various 1,285.0 22.3 1,285.0 1,293.8
Mezzanine Fund 3/2010 8/2015   987.0     845.5 4.6%   141.5     3.4     141.5     148.2
 
Public Markets Total   2,990.1     1,563.6   1,426.5     25.7     1,426.5     1,442.0
 
Total $ 52,319.5   $ 12,807.2 $ 39,512.3   $ 19,989.6   $ 31,062.6   $ 36,550.9
KKR
DISTRIBUTION CALCULATION
(Amounts in thousands, except unit and per unit amounts)
         
Quarter Ended Nine Months Ended
September 30,

2011

  June 30,

2011

  September 30,

2010

September 30,

2011

  September 30,

2010

 
FRE $ 98,242 $ 76,133 $ 69,506 $ 300,578 $ 223,231
Realized cash carry 12,937 32,725 98,852 118,889 115,195
Less: local income taxes (4,944) (4,659) - (14,435) (6,920)
Less: noncontrolling interests   (1,840)   (951)   (1,567)   (4,451)   (2,817)
Gross distributable earnings   104,395   103,248   166,791   400,581   328,689
 
Distributable earnings to KKR & Co. L.P. 34,075 33,639 50,037 128,817 98,607
- -
Less: estimated current corporate income taxes (11,035) (8,492) (19,005) (34,124) (35,017)
         
Total distribution $ 23,040 $ 25,147 $ 31,032 $ 94,693 $ 63,590
 
Distribution per KKR & Co. L.P. common unit $ 0.10 $ 0.11 $ 0.15 $ 0.42 $ 0.31
 
Outstanding KKR & Co. L.P. common units   222,944,668   222,531,607   204,902,226

DISTRIBUTION POLICY

KKR intends to make quarterly cash distributions in amounts that in the aggregate are expected to constitute substantially all of the cash earnings of its investment management business each year in excess of amounts determined by KKR to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its investment funds and to comply with applicable law and any of its debt instruments or other agreements. KKR does not intend to distribute gains on principal investments, other than certain additional distributions that KKR may determine to make. These additional distributions, if any, are intended to cover certain tax liabilities, as calculated by KKR. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKR business), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships. For purposes of KKR's distribution policy, its distributions are expected to consist of (i) FRE, (ii) carry distributions received from KKR's investment funds which have not been allocated as part of its carry pool, and (iii) any additional distributions for certain taxes as described above. This amount is expected to be reduced by (i) corporate and applicable local taxes, if any, (ii) noncontrolling interests, and (iii) amounts determined by KKR to be necessary or appropriate for the conduct of its business and other matters as discussed above.

The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P. and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all or that such distributions will be sufficient to pay any particular KKR unitholder's actual U.S. or non-U.S. tax liability.

KKR

Notes to Reportable Segments (Unaudited)

The reportable segments for KKR's business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings L.P. and as such represent the business in total.

Definitions

Fee related earnings ("FRE") is comprised of segment operating revenues, less segment operating expenses. 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 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 calculated by deducting from ENI the implied income tax provision that has been calculated assuming that all income is allocated to KKR & Co. L.P., which would occur following an exchange of all KKR Holdings units for common units of KKR & Co. L.P. The assumptions and methodology used to calculate the implied income tax provision are consistent with those used in calculating the tax provision for KKR & Co. L.P. under GAAP. The implied income tax provision does not give effect to any tax savings or deductions that may result from the exchange of KKR Holdings units.

Assets under management ("AUM") represent the assets from which KKR is entitled to receive fees or a carried interest and general partner capital. 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 is set forth in the agreements governing the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory requirements.

Fee paying AUM ("FPAUM") represents only those assets under management from which KKR receives fees. 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 during a given period. 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.

Uncalled commitments represent 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.

Adjusted units represent the weighted-average fully diluted unit count for ENI purposes using the if-converted method. See Exhibit B for a reconciliation of this item to the comparable GAAP measure.

Core interest expense 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.

Fee credits require KKR to share an agreed upon percentage of monitoring and transaction fees received from portfolio companies with limited partners in certain of its investment funds. Limited partners receive fee credits only with respect to monitoring and transaction fees that are allocable to their fund's investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee credits are calculated after deducting certain fund-related expenses and generally amount to 80% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may vary from fund to fund.

KKR carry pool represents a portion of the carried interest earned in relation to certain of KKR's active and future investment funds and co-investment vehicles that will be allocated to its principals, other professionals and selected other individuals.

Management fee refunds represent 20% of any cash management fees earned from limited partners in the event that certain of KKR's investment funds recognize a carried interest. At such time as the fund recognizes a carried interest in an amount sufficient to cover 20% of the cash management fees earned or a portion thereof, carried interest is reduced, not to exceed 20% of cash management fees earned.

Noncontrolling interests represent economic interests that will (i) allocate to a former principal an aggregate of 1% of profits and losses of KKR's management companies until a future date and (ii) allocate to a third party investor an aggregate of 2% of the equity in KKR's capital markets business.

You should note that KKR's calculation of FRE, ENI, After—tax ENI, AUM and FPAUM may differ from the calculation of other investment managers and, as a result, its measurements of FRE, ENI, After—tax ENI, AUM and FPAUM may not be comparable to similar measures presented by other investment managers.

KKR

EXHIBIT A

RECONCILIATION OF TOTAL REPORTABLE SEGMENTS FEE RELATED EARNINGS AND ECONOMIC NET INCOME
TO NET INCOME ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS - UNAUDITED)
(Amounts in thousands)
     
Quarter Ended Quarter Ended Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
Total reportable segments fee related earnings $ 98,242 $ 76,133 $ 69,506
Investment income (loss) (688,493) 239,844 249,386
Less: Income attributable to noncontrolling interests   (1,840)   (951)   (1,567)
Economic net income (loss) (592,091) 315,026 317,325
Income taxes (11,535) (25,605) (16,263)
Amortization of intangibles and other, net (797) (1,081) (1,678)
Non-cash equity based charges (123,858) (120,693) (238,342)

Allocation to noncontrolling interests held by KKR Holdings L.P.

  484,879   (128,026)   (52,186)
Net (income) loss attributable to KKR & Co. L.P. $ (243,402) $ 39,621 $ 8,856
 
Nine Months Ended Nine Months Ended
September 30, 2011 September 30, 2010
Total reportable segments fee related earnings $ 300,578 $ 223,231
Investment income (loss) 169,328 1,204,766
Less: Income attributable to noncontrolling interests   (4,451)   (2,817)
Economic net income (loss) 465,455 1,425,180
Income taxes (67,923) (60,998)
Amortization of intangibles and other, net (3,164) (6,566)
Non-cash equity based charges (386,533) (717,153)

Allocation to noncontrolling interests held by KKR Holdings L.P.

  (52,051)   (487,864)
Net (income) loss attributable to KKR & Co. L.P. $ (44,216) $ 152,599

RECONCILIATION OF TOTAL REPORTABLE SEGMENTS PARTNERS' CAPITAL TO KKR & CO. L.P. PARTNERS' CAPITAL

(GAAP BASIS UNAUDITED)

   
As of

September 30, 2011

As of

December 31, 2010

Total Reportable Segments Partners' Capital $ 5,609,697 $ 5,725,626
 
Equity impact of KKR Management Holdings Corp. and other (55,533) (52,745)
Noncontrolling Interests held by KKR Holdings L.P. (4,288,925) 4,346,388
   
Total KKR & Co. L.P. Partners' Capital $ 1,265,239 $ 1,326,493
KKR

EXHIBIT B

     
RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING TO WEIGHTED AVERAGE ADJUSTED UNITS
 
The following table provides a reconciliation of KKR's Weighted Average GAAP Common Units Outstanding to Weighted Average Adjusted Units.
 
Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
Weighted Average GAAP Common Units Outstanding - Basic 222,733,648 219,188,351 204,902,226
Weighted Average Unvested Common Units(a) - 1,025,448 -
Weighted Average GAAP Common Units Outstanding - Diluted 222,733,648 220,213,799 204,902,226
Adjustments:
Weighted Average KKR Holdings Units(b) 460,290,977 463,829,657 478,105,194
Weighted Average Adjusted Units 683,024,625 684,043,456 683,007,420
 
Nine Months Ended
September 30, 2011 September 30, 2010
Weighted Average GAAP Common Units Outstanding - Basic 218,501,107 204,902,226
Adjustments:
Weighted Average Unvested Common Units(a) - -
Weighted Average GAAP Common Units Outstanding - Diluted 218,501,107 204,902,226
Adjustments:
Weighted Average KKR Holdings Units(b) 464,515,640 478,105,194
Weighted Average Adjusted Units 683,016,747 683,007,420
             
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING TO ADJUSTED UNITS
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units.
 
As of As of
September 30, 2011 December 31, 2010
GAAP Common Units Outstanding - Basic 222,944,668 212,770,091
Unvested Common Units(a) 3,739,066 30,000
GAAP Common Units Outstanding - Diluted 226,683,734 212,800,091
Adjustments:
KKR Holdings Units(b) 460,079,957 470,237,329
Adjusted Units 686,763,691 683,037,420

(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. For the three and nine months ended September 30, 2011, equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan have been excluded from the calculation of diluted earnings per common unit given the awards would have an anti-dilutive effect as a result of the net loss incurred for the respective periods.

(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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