Media Center

October 23, 2014

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

Realization Activity Drives Strong Year-to-Date Distributable Earnings

NEW YORK--(BUSINESS WIRE)-- GAAP net income (loss) attributable to KKR & Co. L.P. was $89.9 million for the quarter ended September 30, 2014, down from $204.7 million in the quarter ended September 30, 2013. GAAP net income (loss) attributable to KKR & Co. L.P. was $478.2 million for the nine months ended September 30, 2014, up from $413.3 million in the nine months ended September 30, 2013.

Total distributable earnings was $504.8 million and $1,652.6 million for the quarter and nine months ended September 30, 2014, respectively, up from $251.1 million and $945.5 million in the comparable periods of 2013.

Distribution per common unit was $0.45 and $1.55 for the quarter and nine months ended September 30, 2014, respectively, up from $0.23 and $0.92 in the comparable periods of 2013.

Economic net income ("ENI") was $508.7 million for the quarter ended September 30, 2014, down from $613.7 million in the quarter ended September 30, 2013. ENI was $1,640.6 million for the nine months ended September 30, 2014, up from $1,405.9 million in the nine months ended September 30, 2013.

ENI after taxes per adjusted unit(1) was $0.50 for the quarter ended September 30, 2014, down from $0.80 in the quarter ended September 30, 2013. ENI after taxes per adjusted unit was $1.81 for the nine months ended September 30, 2014, up from $1.79 in the nine months ended September 30, 2013.

Fee and yield earnings were $207.9 million and $524.9 million for the quarter and nine months ended September 30, 2014, respectively, up from $105.3 million and $293.7 million in the comparable periods of 2013.

Book value was $10.5 billion on a total reportable segment basis as of September 30, 2014 or $12.51 per adjusted unit.

Return on equity and cash return on equity were 24.7% and 23.3%, respectively, on a trailing twelve month basis.

Assets under management ("AUM") and fee paying assets under management ("FPAUM") totaled $96.1 billion and $81.4 billion as of September 30, 2014, respectively.

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

For the three, nine and trailing twelve months ended September 30, 2014, the carrying value of our private equity portfolio appreciated 2.2%, 10.5%, and 19.2%, respectively.

KKR declares a distribution of $0.45 per common unit, which includes $0.18 of realized cash carry, the 18th consecutive quarter that realized cash carry has been a component of the distribution.

"Our realization activity in the first nine months of 2014 drove a 68% increase in our year-to-date distribution per unit to $1.55," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "Additionally, our investment portfolio and balance sheet continue to perform, resulting in a 25% return on equity and 23% cash return on equity over the last twelve months."

___________________________________________________________________________________________________

Note: Certain financial measures, including FRE, ENI, ENI after taxes, fee and yield earnings, book value, cash and short-term investments and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). See Exhibits B and C for a reconciliation of such measures to financial results prepared in accordance with GAAP.

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

GAAP RESULTS

GAAP results for the quarter and nine months ended September 30, 2014, included net income attributable to KKR & Co. L.P. of $89.9 million and $478.2 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.20 and $1.21, respectively, on a diluted basis. For the quarter and nine months ended September 30, 2013, net income attributable to KKR & Co. L.P. was $204.7 million and $413.3 million, respectively, and net income attributable to KKR & Co. L.P. per common unit was $0.66 and $1.40, respectively, on a diluted basis. The decrease in net income in the quarter ended September 30, 2014 was primarily due to a decrease in investment income, partially offset by an increase in fees and an increase in KKR & Co. L.P.'s ownership percentage in the KKR business. The increase in net income in the nine months ended September 30, 2014 was primarily due to (i) an increase in investment income; (ii) higher fees; and (iii) an increase in KKR & Co. L.P.'s ownership percentage in the KKR business.

SEGMENT RESULTS*

 
KEY METRICS
(Amounts in millions, except per adjusted unit amounts)
 
 
 
Quarter Ended     Nine Months Ended
September 30, 2014   September 30, 2013   % Change September 30, 2014   September 30, 2013   % Change  
  Total Distributable Earnings
Fees   $ 309 $ 275 $ 891 $ 733
Realized Cash Carry 246 82 995 440
Net Realized Investment Income   245     103     720     406  
Total Cash Revenues $ 800 $ 459 74 % $ 2,606 $ 1,578 65 %
Total Cash Expenses and Other   295     208     953     633  

Total Distributable Earnings

$ 505 $ 251 101 % $ 1,653 $ 946 75 %
Estimated Current Corporate Income Taxes   30     30     82     72  
Distributable Earnings, net of taxes $ 475 $ 221 115 % $ 1,571 $ 875 80 %
Distributable Earnings, net of taxes per unit $ 0.59 $ 0.32 84 % $ 2.03 $ 1.27 60 %
Distribution per unit $ 0.45 $ 0.23 96 % $ 1.55 $ 0.92 68 %
Payout ratio 76 % 72 % 76 % 73 %
 
Economic Net Income
Management, Monitoring and Transaction Fees, Net $ 301 $ 274 $ 854 $ 697
Performance Income 310 353 1,096 861
Investment Income   207     303     648     635  
Total Segment Revenues $ 819 $ 930 (12 %) $ 2,598 $ 2,192 19 %
Total Segment Expenses and Other   399     359     1,170     917  
Economic Net Income, After-Taxes $ 419 $ 571 (27 %) $ 1,428 $ 1,276 12 %
 
Economic Net Income, After-Taxes per Adjusted Unit $ 0.50 $ 0.80 (38 %) $ 1.81 $ 1.79 1 %
 
Fee and Yield Earnings $ 208 $ 105 98 % $ 525 $ 294 79 %
 
Other
Book Value per Adjusted Unit $ 12.51 $ 10.07 24 %
 
 
 
Last Twelve Months Ended
September 30, 2014 September 30, 2013
Return on Equity 25 % 23 %

Cash Return on Equity

23 % 20 %
 

________________________________________________________________________________________________

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

Private Markets

AUM was $59.2 billion as of September 30, 2014, a decrease of $0.2 billion, compared to AUM of $59.4 billion as of June 30, 2014. The decrease was primarily attributable to distributions to the limited partners of our private equity funds arising from realizations which were offset by appreciation in the fair value of our private equity portfolio and new capital raised.

FPAUM was $45.6 billion as of September 30, 2014, a decrease of $0.6 billion, compared to FPAUM of $46.2 billion as of June 30, 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 new capital raised.

Total segment revenues were $631.6 million for the quarter ended September 30, 2014, a decrease of $156.9 million compared to total segment revenues of $788.5 million for the quarter ended September 30, 2013. Total segment revenues were $2,005.1 million for the nine months ended September 30, 2014, an increase of $197.7 million compared to total segment revenues of $1,807.4 million for the nine months ended September 30, 2013. The decrease in revenues in the quarter ended September 30, 2014 was principally attributable to a lower level of both total investment income and carried interest reflecting a lower level of appreciation in our private equity portfolio in the 2014 period. While the value of our private equity portfolio increased in the 2014 period, the amount of appreciation was less than that in the prior period. The increase in revenues in the nine months ended September 30, 2014 was principally attributable to a higher level of carried interest reflecting the initial recognition of carried interest in our North America Fund XI and Asian Fund II in the 2014 period.

ENI was $399.0 million for the quarter ended September 30, 2014, a decrease of $132.8 million compared to ENI of $531.8 million for the quarter ended September 30, 2013. ENI was $1,260.6 million for the nine months ended September 30, 2014, an increase of $84.2 million compared to ENI of $1,176.4 million for the nine months ended September 30, 2013. The decrease in the quarter ended September 30, 2014 was principally attributable to a lower level of total investment income reflecting a lower level of appreciation in our private equity portfolio and a lower level of carried interest. The decrease was partially offset by a lower level of allocations to the carry pool driven by a lower level of carried interest. The increase in the nine months ended September 30, 2014 was principally attributable to a higher level of carried interest reflecting the initial recognition of carried interest in our North America Fund XI and Asian Fund II in the 2014 period, partially offset by higher allocations to the carry pool driven by the higher level of carried interest.

Public Markets

AUM was $37.0 billion as of September 30, 2014, a decrease of $1.5 billion, compared to AUM of $38.5 billion as of June 30, 2014. FPAUM was $35.8 billion as of September 30, 2014, an increase of $2.3 billion, compared to FPAUM of $33.5 billion as of June 30, 2014. For AUM, the decrease was primarily attributable to distributions and redemptions which were partially offset by new capital raised. For FPAUM, the increases were primarily attributable to the inclusion of $2.6 billion of CLOs partially owned by KKR that were not previously included in FPAUM, partially offset by distributions and redemptions in our credit strategies.

Total segment revenues were $93.6 million for the quarter ended September 30, 2014, an increase of $10.1 million compared to total segment revenues of $83.5 million for the quarter ended September 30, 2013. Total segment revenues were $396.4 million for the nine months ended September 30, 2014, an increase of $127.1 million compared to total segment revenues of $269.3 million for the nine months ended September 30, 2013. The increase in the quarter ended September 30, 2014 was principally attributable to a higher level of management fees reflecting new capital raised and acquisitions. The increase in the nine months ended September 30, 2014 was principally attributable to a higher level of management fees reflecting new capital raised and acquisitions as well as higher total investment income primarily relating to the inclusion of KKR Financial Holdings LLC ("KFN") during the 2014 periods beginning on May 1, 2014.

ENI was $48.1 million for the quarter ended September 30, 2014, an increase of $10.5 million compared to ENI of $37.6 million for the quarter ended September 30, 2013. ENI was $251.5 million for the nine months ended September 30, 2014, an increase of $103.2 million compared to ENI of $148.3 million for the nine months ended September 30, 2013. The increase in the quarter ended September 30, 2014 was principally attributable to a higher level of management fees reflecting new capital raised and acquisitions. The increase in the nine months ended September 30, 2014 was principally attributable to a higher level of management fees reflecting new capital raised and acquisitions as well as higher total investment income primarily relating to the inclusion of KFN during the 2014 periods beginning on May 1, 2014.

Capital Markets and Other

Total segment revenues were $93.4 million for the quarter ended September 30, 2014, an increase of $35.4 million compared to total segment revenues of $58.0 million for the quarter ended September 30, 2013. Total segment revenues were $196.5 million for the nine months ended September 30, 2014, an increase of $80.9 million compared to total segment revenues of $115.6 million for the nine months ended September 30, 2013. The increase in total segment revenues was primarily driven by higher overall capital markets transaction activity.

ENI was $61.6 million for the quarter ended September 30, 2014, an increase of $17.2 million compared to ENI of $44.4 million for the quarter ended September 30, 2013. ENI was $128.5 million for the nine months ended September 30, 2014, an increase of $47.2 million compared to ENI of $81.3 million for the nine months ended September 30, 2013. The increase in both periods was principally attributable to higher transaction fees driven by higher overall capital markets transaction activity, partially offset by higher compensation expense.

CAPITAL AND LIQUIDITY

As of September 30, 2014, KKR had $2.1 billion of cash and short-term investments and $2.5 billion of outstanding debt and preferred share obligations on a total reportable segment basis. This includes KFN's debt obligations of $657.3 million and KFN's 7.375% Series A LLC preferred shares of $373.8 million, which are non-recourse to KKR beyond the assets of KFN. As of September 30, 2014, KKR had a $750.0 million revolving credit facility, 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, 2014. On October 22, 2014, KKR refinanced its $750.0 million corporate credit facility with a new credit facility providing for availability of $1.0 billion of borrowings and maturing in October 2019.

As of September 30, 2014, KKR's portion of total uncalled commitments to its investment funds was $862.1 million. See Exhibit A for details.

DISTRIBUTION

A distribution of $0.45 per common unit has been declared, comprised of (i) $0.10 per common unit from after-tax FRE, (ii) $0.18 per common unit from realized cash carry, (iii) $0.10 per common unit from KKR's net realized investment income and (iv) $0.07 per common unit from KFN's net realized investment income. The distribution will be paid on November 18, 2014 to unitholders of record as of the close of business on November 3, 2014.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Thursday, October 23, 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 13870720, beginning approximately two hours after the broadcast.

From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Center for KKR & Co. L.P. at http://ir.kkr.com/kkr_ir/kkr_events.cfm. In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the "Email Alerts" area of the Investor Center on the website.

ABOUT KKR

KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners' capital and brings opportunities to others through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. L.P. (NYSE: KKR), please visit KKR's website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, ENI after taxes, fee and yield earnings, fee and yield EBITDA, equity invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized principal investment income and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR's business strategies including the ability to realize the anticipated synergies from acquisitions or strategic partnerships such as Prisma, Nephila, Avoca or KFN; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR's competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR's business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on February 24, 2014, quarterly reports on Form 10-Q for subsequent quarters and other filings with the SEC, which are available at www.sec.gov.

 
KKR
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, 2014   September 30, 2013 September 30, 2014   September 30, 2013
Revenues
Fees $ 344,768   $ 220,028   $ 897,064   $ 537,644  
 
Expenses
Compensation and Benefits 320,423 329,182 1,010,191 860,905
Occupancy and Related Charges 15,501 17,637 46,968 46,036
General, Administrative and Other   168,486     108,676     505,747     279,906  
Total Expenses   504,410     455,495     1,562,906     1,186,847  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 298,259 2,230,401 4,242,289 4,598,755
Dividend Income 599,020 121,059 968,626 370,014
Interest Income 260,292 114,861 638,124 352,250
Interest Expense   (96,618 )   (25,056 )   (197,346 )   (72,693 )
Total Investment Income (Loss)   1,060,953     2,441,265     5,651,693     5,248,326  
 
Income (Loss) Before Taxes 901,311 2,205,798 4,985,851 4,599,123
 
Income Taxes   29,267     7,644     57,145     25,525  
 
Net Income (Loss) 872,044 2,198,154 4,928,706 4,573,598
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests (2,462 ) 9,169 1,366 25,992
Net Income (Loss) Attributable to
Noncontrolling Interests 784,568 1,984,245 4,449,146 4,134,293
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ 89,938   $ 204,740   $ 478,194   $ 413,313  
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.21 $ 0.73 $ 1.31 $ 1.53
Diluted (a) $ 0.20 $ 0.66 $ 1.21 $ 1.40
Weighted Average Common Units Outstanding
Basic 419,961,455 282,148,802 364,127,956 270,484,224
Diluted (a) 452,019,742 308,135,191 396,232,828 296,181,070
 

__________________________________________________________________________________

(a) KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit since the exchange of these units would not dilute KKR's respective ownership interests in the KKR Group Partnerships.

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 
  Quarter Ended Nine Months Ended
September 30, 2014   June 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013
  Segment Revenues
  Management, Monitoring and Transaction Fees, Net
  Management Fees $ 173,912 $ 178,674 $ 173,245 $ 547,979 $ 490,384
Monitoring Fees 30,449 29,610 33,010 96,422 93,985
Transaction Fees 158,564 84,305 129,127 406,385 232,211
Fee Credits   (61,811 )   (49,830 )   (61,782 )   (196,309 )   (119,598 )
  Total Management, Monitoring and Transaction Fees, Net   301,114     242,759     273,600     854,477     696,982  
 
Performance Income
Realized Carried Interest 246,026 555,488 81,532 995,064 439,527
Incentive Fees 8,009 11,478 1,225 36,506 35,664
Unrealized Carried Interest   56,192     (137,826 )   270,237     64,013     385,466  
Total Performance Income   310,227     429,140     352,994     1,095,583     860,657  
 
Investment Income (Loss)
Net Realized Gains (Losses) 162,795 221,661 103,545 566,184 404,751
Net Unrealized Gains (Losses)   (37,833 )   (119,935 )   200,706     (72,009 )   228,437  
Total Realized and Unrealized 124,962 101,726 304,251 494,175 633,188
Net Interest and Dividends   82,254     60,432     (779 )   153,850     1,532  
Total Investment Income (Loss)   207,216     162,158     303,472     648,025     634,720  
 
Total Segment Revenues   818,557     834,057     930,066     2,598,085     2,192,359  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 108,790 91,444 92,229 309,149 247,827
Realized Allocation to Carry Pool 98,411 222,195 32,613 398,026 175,811
Unrealized Allocation to Carry Pool   22,696     (53,435 )   112,899     27,951     165,741  
Total Compensation and Benefits 229,897 260,204 237,741 735,126 589,379
Occupancy and Related Charges 14,458 14,757 15,674 43,404 42,063
Other Operating Expenses   60,272     54,311     60,884     167,384     150,541  
Total Segment Expenses   304,627     329,272     314,299     945,914     781,983  
 
Income (Loss) attributable to noncontrolling interests   5,189     3,206     2,020     11,597     4,444  
 
Economic Net Income (Loss) (a) $ 508,741 $ 501,579 $ 613,747 $ 1,640,574 $ 1,405,932
 
Provision for Income Taxes 47,361 6,330 11,950 90,272 45,553
Equity-based Charges   42,090     40,877     31,227     122,320     84,581  
 
Economic Net Income (Loss), After Taxes (b) $ 419,290   $ 454,372   $ 570,570   $ 1,427,982   $ 1,275,798  
 
Economic Net Income (Loss), After Taxes Per Adjusted Unit $ 0.50 $ 0.57 $ 0.80 $ 1.81 $ 1.79
 
Weighted Average Adjusted Units (Fully Diluted Basis) (a) 835,957,683 800,747,528 715,781,663 787,502,790 714,171,641
 
Assets Under Management $ 96,149,900 $ 97,957,900 $ 90,169,200 $ 96,149,900 $ 90,169,200
Fee Paying Assets Under Management $ 81,356,700 $ 79,656,300 $ 73,611,900 $ 81,356,700 $ 73,611,900
Equity Invested and Syndicated Capital $ 4,751,400 $ 2,345,500 $ 2,848,700 $ 10,474,200 $ 5,562,500
  Uncalled Commitments     $ 17,555,400       $ 19,784,200     $ 22,718,400     $ 17,555,400       $ 22,718,400  
 
Other Information
Fee Related Earnings $ 125,603 $ 93,725 $ 106,038 $ 371,046 $ 292,215
Plus: Net Interest and Dividends   82,254     60,432     (779 )   153,850     1,532  
Fee and Yield Earnings (a) $ 207,857 $ 154,157 $ 105,259 $ 524,896 $ 293,747
Plus: Depreciation and Amortization 3,777 4,140 3,601 11,952 10,990
Plus: Core Interest Expense   23,347     19,205     16,215     60,952     48,658  
Fee and Yield EBITDA (a) $ 234,981   $ 177,502   $ 125,075   $ 597,800   $ 353,395  
 
Total Distributable Earnings (a) $ 504,817 $ 700,973 $ 251,137 $ 1,652,598 $ 945,527
 
GAAP interest expense $ 96,618 $ 65,997 $ 25,056 $ 197,346 $ 72,693
Less: interest expense related to debt obligations
from investment financing arrangements and KFN   73,271     46,792     8,841     136,394     24,035  
Core Interest Expense (a) $ 23,347   $ 19,205   $ 16,215   $ 60,952   $ 48,658  
 

_____________________________________________________________________________________________

(a) See definitions for economic net income (loss), adjusted units, fee and yield earnings, fee and yield EBITDA, total distributable earnings and core interest expense under "Notes to Reportable Segments."

(b) Represents economic net income (loss) after reductions for income taxes and equity-based charges.

 

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINACIAL INFORMATION

PRIVATE MARKETS SEGMENT (UNAUDITED)

(Amounts in thousands)

 
Quarter Ended   Nine Months Ended
September 30, 2014   June 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013
Segment Revenues
  Management, Monitoring and Transaction Fees, Net
  Management Fees $ 107,443 $ 111,542 $ 119,410 $ 342,024 $ 340,715
Monitoring Fees 30,449 29,610 33,010 96,422 93,985
Transaction Fees 67,772 45,340 54,968 206,132 96,611
Fee Credits   (58,810 )   (43,478 )   (46,597 )   (182,626 )   (97,153 )
  Total Management, Monitoring and Transaction Fees, Net   146,854     143,014     160,791     461,952     434,158  
 
Performance Income
Realized Carried Interest 236,126 555,488 81,532 960,414 439,527
Incentive Fees - - - - -
Unrealized Carried Interest   53,776     (163,564 )   256,215     35,988     340,254  
Total Performance Income   289,902     391,924     337,747     996,402     779,781  
 
Investment Income (Loss)
Net Realized Gains (Losses) 165,047 207,892 104,061 549,137 401,750
Net Unrealized Gains (Losses)   8,293     (122,729 )   194,270     (43,763 )   210,154  
Total Realized and Unrealized 173,340 85,163 298,331 505,374 611,904
Net Interest and Dividends   21,463     22,760     (8,344 )   41,415     (18,410 )
Total Investment Income (Loss)   194,803     107,923     289,987     546,789     593,494  
 
Total Segment Revenues   631,559     642,861     788,525     2,005,143     1,807,433  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 59,991 56,522 65,400 183,411 164,917
Realized Allocation to Carry Pool 94,451 222,195 32,613 384,166 175,811
Unrealized Allocation to Carry Pool   21,729     (63,730 )   107,290     16,742     147,656  
Total Compensation and Benefits 176,171 214,987 205,303 584,319 488,384
Occupancy and Related Charges 11,460 11,764 13,367 34,784 35,935
Other Operating Expenses   44,619     39,589     37,586     124,267     105,516  
Total Segment Expenses   232,250     266,340     256,256     743,370     629,835  
 
Income (Loss) attributable to noncontrolling interests   342     335     433     1,192     1,242  
 
Economic Net Income (Loss) $ 398,967   $ 376,186   $ 531,836   $ 1,260,581   $ 1,176,356  
                                       
Assets Under Management $ 59,168,300 $ 59,417,000 $ 59,678,300 $ 59,168,300 $ 59,678,300
Fee Paying Assets Under Management $ 45,591,600 $ 46,167,300 $ 49,889,500 $ 45,591,600 $ 49,889,500
Equity Invested $ 2,389,200 $ 1,454,400 $ 1,805,800 $ 6,395,400 $ 3,718,300
Uncalled Commitments   $ 14,907,300       $ 17,109,800     $ 21,103,800       $ 14,907,300       $ 21,103,800  
 

 

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINACIAL INFORMATION

PUBLIC MARKETS SEGMENT (UNAUDITED)

(Amounts in thousands)

 
        Quarter Ended   Nine Months Ended
September 30, 2014   June 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 66,469 $ 67,132 $ 53,835 $ 205,955 $ 149,669
Monitoring Fees - - - - -
Transaction Fees 3,262 7,350 20,534 16,634 30,883
Fee Credits   (3,001 )   (6,352 )   (15,185 )   (13,683 )   (22,445 )
Total Management, Monitoring and Transaction Fees, Net   66,730     68,130     59,184     208,906     158,107  
 
Performance Income
Realized Carried Interest 9,900 - - 34,650 -
Incentive Fees 8,009 11,478 1,225 36,506 35,664
Unrealized Carried Interest   2,416     25,738     14,022     28,025     45,212  
Total Performance Income   20,325     37,216     15,247     99,181     80,876  
 
Investment Income (Loss)
Net Realized Gains (Losses) (630 ) 14,284 979 19,133 6,128
Net Unrealized Gains (Losses)   (46,118 )   3,751     4,653     (27,553 )   13,981  
Total Realized and Unrealized (46,748 ) 18,035 5,632 (8,420 ) 20,109
Net Interest and Dividends   53,335     33,822     3,481     96,734     10,229  
Total Investment Income (Loss)   6,587     51,857     9,113     88,314     30,338  
 
Total Segment Revenues   93,642     157,203     83,544     396,401     269,321  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 26,787 26,904 18,606 80,436 60,296
Realized Allocation to Carry Pool 3,960 - - 13,860 -
Unrealized Allocation to Carry Pool   967     10,295     5,609     11,209     18,085  
Total Compensation and Benefits 31,714 37,199 24,215 105,505 78,381
Occupancy and Related Charges 2,518 2,544 1,906 7,234 5,063
Other Operating Expenses   10,929     11,474     19,670     30,910     36,643  
Total Segment Expenses   45,161     51,217     45,791     143,649     120,087  
 
Income (Loss) attributable to noncontrolling interests   335     385     202     1,242     935  
 
Economic Net Income (Loss) $ 48,146   $ 105,601   $ 37,551   $ 251,510   $ 148,299  
                                       
Assets Under Management $ 36,981,600 $ 38,540,900 $ 30,490,900 $ 36,981,600 $ 30,490,900
Fee Paying Assets Under Management $ 35,765,100 $ 33,489,000 $ 23,722,400 $ 35,765,100 $ 23,722,400
Equity Invested $ 442,200 $ 724,400 $ 326,400 $ 1,900,700 $ 862,100
Uncalled Commitments $ 2,648,100 $ 2,674,400 $ 1,614,600 $ 2,648,100 $ 1,614,600
Gross Dollars Invested   $ 1,122,100       $ 768,200     $ 1,506,900       $ 2,880,000       $ 2,732,200  
 

 

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINACIAL INFORMATION

CAPITAL MARKETS AND OTHER SEGMENT (UNAUDITED)

(Amounts in thousands)

 
    Quarter Ended   Nine Months Ended

September 30, 2014

  June 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013
Segment Revenues
  Management, Monitoring and Transaction Fees, Net
  Management Fees $ - $ - $ - $ - $ -
Monitoring Fees - - - - -
Transaction Fees 87,530 31,615 53,625 183,619 104,717
Fee Credits   -     -     -     -     -  
  Total Management, Monitoring and Transaction Fees, Net   87,530     31,615     53,625     183,619     104,717  
 
Performance Income
Realized Carried Interest - - - - -
Incentive Fees - - - - -
Unrealized Carried Interest   -     -     -     -     -  
Total Performance Income   -     -     -     -     -  
 
Investment Income (Loss)
Net Realized Gains (Losses) (1,622 ) (515 ) (1,495 ) (2,086 ) (3,127 )
Net Unrealized Gains (Losses)   (8 )   (957 )   1,783     (693 )   4,302  
Total Realized and Unrealized (1,630 ) (1,472 ) 288 (2,779 ) 1,175
Net Interest and Dividends   7,456     3,850     4,084     15,701     9,713  
Total Investment Income (Loss)   5,826     2,378     4,372     12,922     10,888  
 
Total Segment Revenues   93,356     33,993     57,997     196,541     115,605  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 22,012 8,018 8,223 45,302 22,614
Realized Allocation to Carry Pool - - - - -
Unrealized Allocation to Carry Pool   -     -     -     -     -  
Total Compensation and Benefits 22,012 8,018 8,223 45,302 22,614
Occupancy and Related Charges 480 449 401 1,386 1,065
Other Operating Expenses   4,724     3,248     3,628     12,207     8,382  
Total Segment Expenses   27,216     11,715     12,252     58,895     32,061  
 
Income (Loss) attributable to noncontrolling interests   4,512     2,486     1,385     9,163     2,267  
 
Economic Net Income (Loss) $ 61,628   $ 19,792   $ 44,360   $ 128,483   $ 81,277  
                                           
Syndicated Capital         $ 1,920,000       $ 166,700     $ 716,500       $ 2,178,100       $ 982,100  
 

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

As of

September 30, 2014

 

       

As of

December 31, 2013

 
 
Cash and short-term investments $ 2,140,056 $ 2,161,097
Investments 9,221,448 (a) 4,980,265
Unrealized carry 1,248,605 (b) 1,179,338 (b)
Other assets   905,746   662,357
Total assets $ 13,515,855 $ 8,983,057
 
Debt obligations - KKR $ 1,500,000 $ 1,000,000
Debt obligations - KFN 657,310 -
Preferred shares - KFN 373,750 -
Other liabilities   382,925   149,196

Total liabilities

  2,913,985   1,149,196
 
Noncontrolling interests 123,617 71,261
   
Book value $ 10,478,253 $ 7,762,600
 
Book value per adjusted unit $ 12.51 $ 10.83
 
 
 
                               
 
 
 
(a) See schedule of investments that follows on the next page.
 
(b) Unrealized Carry As of

September 30, 2014

  As of

December 31, 2013

 
Private Markets $ 1,169,447 $ 1,116,996
Public Markets   79,158   62,342

Total

$ 1,248,605 $ 1,179,338
 

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

Value

Fair Value as a
Percentage of
Total Investments

 
Private Equity Co-Investments $ 2,302,767 $ 2,703,230 29.3 %
Private Equity Funds   903,401   1,098,504 11.9 %
Private Equity Total   3,206,168   3,801,734 41.2 %
 
Energy 814,165 926,853 10.1 %
Real Estate 288,385 313,400 3.4 %
Infrastructure   51,436   56,012 0.6 %
Real Assets Total   1,153,986   1,296,265 14.1 %
 
 
Private Markets Total   4,360,154   5,097,999 55.3 %
 
Alternative Credit 898,790 967,903 10.6 %
CLOs 1,544,225 1,506,631 16.3 %
Liquid Credit   278,468   305,129 3.3 %
Credit Total 2,721,483 2,779,663 30.2 %
 
Other   56,700   57,100 0.6 %
 
Public Markets Total   2,778,183   2,836,763 30.8 %
 
Specialty Finance 229,293 234,419 2.5 %
Other   1,008,673   1,052,267 11.4 %
 
Capital Markets and Other Total   1,237,966   1,286,686 13.9 %
     
Total Investments $ 8,376,303 $ 9,221,448 100.0 %
 
                   
 
Significant Aggregate Portfolio Company Investments: (a)
First Data Corporation $ 1,061,332 $ 998,749 10.8 %
Alliance Boots GmbH 221,684 690,564 7.5 %
Biomet, Inc. 164,644 213,142 2.3 %
HCA Inc. 29,455 176,526 1.9 %
Kion Group GmbH   103,033   137,560 1.5 %
  1,580,148   2,216,541 24.0 %
Other Investments   6,796,155   7,004,907 76.0 %
Total Investments $ 8,376,303 $ 9,221,448 100 %
 

____________________________________________________________________________________________

(a) The significant aggregate portfolio company investments include the top five private equity investments in portfolio companies (other than investments expected to be syndicated or transferred to a fund) based on their fair market value as of September 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 September 30, 2014
 
June 30, 2014 $ 59,417,000 $ 38,540,900 $ 97,957,900
New Capital Raised 745,900 1,955,200 2,701,100
Distributions (1,989,400 ) (2,901,000 ) (d) (4,890,400 )
Change in Value   994,800     (613,500 )   381,300  
September 30, 2014 $ 59,168,300   $ 36,981,600   $ 96,149,900  
 
Nine Months Ended September 30, 2014
 
December 31, 2013 $ 61,242,900 $ 33,077,400 $ 94,320,300
New Capital Raised 2,449,000 5,022,000 7,471,000
Acquisitions (a) - 8,423,000 8,423,000
KFN Acquisition (b) - (4,511,900 ) (4,511,900 )
Distributions (8,624,200 ) (5,288,600 ) (e) (13,912,800 )
Net Changes in Fee Base of Certain Funds (c) (933,800 ) - (933,800 )
Change in Value   5,034,400     259,700     5,294,100  
September 30, 2014 $ 59,168,300   $ 36,981,600   $ 96,149,900  
 
Trailing Twelve Months Ended September 30, 2014
 
September 30, 2013 $ 59,678,300 $ 30,490,900 $ 90,169,200
New Capital Raised 3,743,100 7,545,800 11,288,900
Acquisitions (a) - 8,423,000 8,423,000
KFN Acquisition (b) - (4,511,900 ) (4,511,900 )
Distributions (11,713,100 ) (6,023,700 ) (f) (17,736,800 )
Net Changes in Fee Base of Certain Funds (c) (933,800 ) - (933,800 )
Change in Value   8,393,800     1,057,500     9,451,300  
September 30, 2014 $ 59,168,300   $ 36,981,600   $ 96,149,900  
 

______________________________________________________________________________________________

* Excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest.

(a) Represents the AUM of Avoca.

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

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

(d) Includes $879.4 million of redemptions by fund investors.

(e) Includes $2,167.8 million of redemptions by fund investors.

(f) Includes $2,495.1 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 September 30, 2014
 
June 30, 2014 $ 46,167,300 $ 33,489,000 $ 79,656,300
New Capital Raised 662,300 4,097,800 (d) 4,760,100
Distributions (1,021,200 ) (1,055,900 ) (e) (2,077,100 )
Change in Value   (216,800 )   (765,800 )   (982,600 )
September 30, 2014 $ 45,591,600   $ 35,765,100   $ 81,356,700  
 
Nine Months Ended September 30, 2014
 
December 31, 2013 $ 50,156,300 $ 27,241,200 $ 77,397,500
New Capital Raised 2,019,300 6,857,100 8,876,400
Acquisitions (a) - 7,971,000 7,971,000
KFN Acquisition (b) - (2,684,700 ) (2,684,700 )
Distributions (5,388,100 ) (3,386,000 ) (f) (8,774,100 )
Net Changes in Fee Base of Certain Funds (c) (964,700 ) - (964,700 )
Change in Value   (231,200 )   (233,500 )   (464,700 )
September 30, 2014 $ 45,591,600   $ 35,765,100   $ 81,356,700  
 
Trailing Twelve Months Ended September 30, 2014
 
September 30, 2013 $ 49,889,500 $ 23,722,400 $ 73,611,900
New Capital Raised 3,489,100 10,330,800 13,819,900
Acquisitions (a) - 7,971,000 7,971,000
KFN Acquisition (b) - (2,684,700 ) (2,684,700 )
Distributions (6,715,100 ) (3,977,100 ) (g) (10,692,200 )
Net Changes in Fee Base of Certain Funds (c) (964,700 ) - (964,700 )
Change in Value   (107,200 )   402,700     295,500  
September 30, 2014 $ 45,591,600   $ 35,765,100   $ 81,356,700  
 

______________________________________________________________________________________________

* Excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest.

(a) Represents the FPAUM of Avoca.

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

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

(d) Includes $2.6 billion of CLOs partially owned by KKR that were not previously included in FPAUM and was not new capital raised during the quarter.

(e) Includes $879.4 million of redemptions by fund investors.

(f) Includes $2,167.8 million of redemptions by fund investors.

(g) Includes $2,495.1 million of redemptions by fund investors.

KKR
INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)
As of September 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 $ 4,050.0 1.3 % $ 1,775.0 $ - $ 1,775.0 $ 2,104.7
North America Fund XI 9/2012 9/2018 8,718.4 4,494.2 2.9 % 4,224.2 185.5 4,224.2 5,036.2
China Growth Fund 11/2010 11/2016 1,010.0 507.5 1.0 % 502.5 42.4 485.0 549.0
E2 Investors (Annex Fund) 8/2009 11/2013 209.0 13.2 4.5 % 195.8 144.4 54.5 279.2
European Fund III 3/2008 3/2014 6,204.8 624.3 4.6 % 5,580.5 2,232.9 4,464.4 6,450.4
Asian Fund 7/2007 4/2013 3,983.3 139.8 2.5 % 3,843.5 4,054.6 2,471.0 3,636.5
2006 Fund 9/2006 9/2012 17,642.2 553.1 2.1 % 17,089.1 13,634.2 9,839.0 15,204.7
European Fund II 11/2005 10/2008 5,750.8 - 2.1 % 5,750.8 5,475.2 1,554.2 2,652.8
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5 % 6,000.0 11,332.0 1,318.7 2,263.6
European Fund 12/1999 12/2005   3,085.4   - 3.2 %   3,085.4   8,736.6     -   40.8
Total Private Equity Funds 58,428.9 10,382.1 48,046.8 45,837.8 26,186.0 38,217.9
 
Co-Investment Vehicles Various Various 3,287.4 699.1 Various 2,588.3 1,031.4 2,266.9 2,900.6
 
           

Total Private Equity

 

  61,716.3   11,081.2   50,635.1   46,869.2   28,452.9   41,118.5
 
Real Assets

Energy Income and Growth Fund

9/2013 9/2018 1,974.2 1,614.1 12.8 % 360.1 32.4 336.6 359.0
Natural Resources Fund Various Various 891.6 198.5 Various 693.1 95.1 619.9 433.1
Global Energy Opportunities Various Various 1,028.8 905.0 Various 123.8 27.7 118.8 75.5
Infrastructure Fund Various Various 1,041.1 272.9 4.8 % 768.2 69.6 768.2 814.0
Infrastructure Co-Investments Various Various 1,104.5 - Various 1,104.5 279.0 1,104.5 1,377.7
Real Estate Partners Americas 5/2013 12/2016   1,289.1   835.6 15.5 %   453.5   180.1   393.2   443.1
Real Assets   7,329.3   3,826.1   3,503.2   683.9   3,341.2   3,502.4
 
Private Markets Total   69,045.6   14,907.3   54,138.3   47,553.1     31,794.1   44,620.9
 
Public Markets
 
Special Situations Vehicles Various Various 4,725.1 1,609.1 Various 3,116.0 1,043.8 2,540.6 2,991.4
Mezzanine Fund 3/2010 8/2015 987.0 268.6 4.6 % 718.4 235.3 599.5 726.8
Direct Lending Vehicles Various Various 1,345.7 770.4 Various 575.3 63.3 575.3 625.3
           
Public Markets Total   7,057.8   2,648.1   4,409.7   1,342.4   3,715.4   4,343.5
 
Grand Total $ 76,103.4 $ 17,555.4 $ 58,548.0 $ 48,895.5 $ 35,509.5 $ 48,964.4

_____________________________________________________________________________________________

(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   Nine Months Ended
September 30, 2014 June 30, 2014   September 30, 2013   September 30, 2014 September 30, 2013
Cash Revenues
Fees $ 309,123 $ 254,237 $ 274,825 $ 890,983 $ 732,646
Realized cash carry 246,026 555,488 81,532 995,064 439,527
Net realized investment income - KKR (ex-KFN) 192,146 245,711 102,766 630,749 406,283
Net realized investment income - KFN   52,903     36,382     -     89,285     -  
Total Cash Revenues   800,198     1,091,818     459,123     2,606,081     1,578,456  
 
Cash Expenses
Cash compensation and benefits 108,790 91,444 92,229 309,149 247,827
Realized cash carry allocated to carry pool 98,411 222,195 32,613 398,026 175,811
Occupancy and related charges 14,458 14,757 15,674 43,404 42,063
Other operating expenses   60,272     54,311     60,884     167,384     150,541  
Total Cash Expenses   281,931     382,707     201,400     917,963     616,242  
 
 
Cash income (loss) before noncontrolling interests and local taxes 518,267 709,111 257,723 1,688,118 962,214
 
Less: local income taxes (8,261 ) (4,932 ) (4,566 ) (23,923 ) (12,243 )
Less: noncontrolling interests   (5,189 )   (3,206 )   (2,020 )   (11,597 )   (4,444 )
Total Distributable Earnings 504,817 700,973 251,137 1,652,598 945,527
 
Less: estimated current corporate income taxes   (29,505 )   (19,025 )   (30,140 )   (81,975 )   (72,005 )
 
Distributable Earnings, net of taxes 475,312 681,948 220,997 1,570,623 873,522
 
Less: Undistributed net realized investment income - KKR (ex-KFN)     (115,288 )   (147,427 )   (61,660 )   (378,450 )   (243,770 )
 
Distributed Earnings $ 360,024   $ 534,521   $ 159,337   $ 1,192,173   $ 629,752  
 
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit $ 0.59 $ 0.85 $ 0.32 $ 2.03 $ 1.27
 
Distribution per KKR & Co. L.P. common unit $ 0.45 $ 0.67 $ 0.23 $ 1.55 $ 0.92
 
                             

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

 
After-tax FRE $ 0.10 $ 0.09 $ 0.10 $ 0.34 $ 0.30
Realized Cash Carry $ 0.18 $ 0.41 $ 0.07 $ 0.76 $ 0.38
Distributed Net Realized Investment Income - KKR (ex-KFN) $ 0.10 $ 0.12 $ 0.06 $ 0.33 $ 0.24
Distributed Net Realized Investment Income - KFN   $ 0.07     $ 0.05     $ -     $ 0.12     $ -  
                             
Fee and yield earnings distribution per KKR & Co. L.P. common unit $ 0.18     $ 0.15     $ 0.10     $ 0.49     $ 0.30  
 
Adjusted Units Eligible For Distribution 808,698,012 803,719,050 689,795,274
 
Payout Ratio 75.7 % 78.4 % 72.1 % 75.9 % 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 of (i) total management, monitoring and transaction fees, net, plus incentive fees, less (ii) cash compensation and benefits, occupancy and related charges and other operating expenses. This measure is used by management as an alternative measurement of the operating earnings of KKR and its business segments before carried interest and related carry pool allocations and investment income. We believe this measure is useful to unitholders as it provides additional insight into the operating profitability of our fee generating management companies and capital markets businesses. The components of FRE on a segment basis differ from the equivalent GAAP amounts on a consolidated basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of charges relating to carry pool allocations; (v) the exclusion of non-cash equity-based charges and other non-cash compensation charges borne by KKR Holdings or incurred under the KKR & Co. L.P. 2010 Equity Incentive Plan ("Equity Incentive Plan"); (vi) the exclusion of certain reimbursable expenses; and (vii) the exclusion of certain non-recurring items.

Economic net income (loss) ("ENI") is a measure of profitability for KKR's reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. We believe this measure is useful to unitholders as it provides additional insight into the overall profitability of KKR's businesses inclusive of carried interest and related carry pool allocations and investment income. ENI is comprised of total segment revenues less total segment expenses and certain economic interests in KKR's segments held by third parties. ENI differs from net income (loss) on a GAAP basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of non-cash equity-based charges and other non-cash compensation charges borne by KKR Holdings or incurred under the Equity Incentive Plan or other securities that are exchangeable for common units of KKR & Co. L.P.; (v) the exclusion of certain non-recurring items; (vi) the exclusion of investment income (loss) relating to noncontrolling interests; and (vii) the exclusion of income taxes.

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

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

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

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

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

Total distributable earnings is the sum of (i) FRE, (ii) carry distributions received from KKR's investment funds which have not been allocated as part of its carry pool, (iii) net realized investment income — KKR (ex-KFN) and (iv) net realized investment income — KFN; less (i) applicable local income taxes, if any, and (ii) noncontrolling interests. We believe this measure is useful to unitholders as it provides a supplemental measure to assess performance, excluding the impact of mark-to-market gains (losses), and amounts available for distribution to KKR unitholders. However, total distributable earnings is not a measure that calculates actual distributions under KKR's current distribution policy.

Assets under management ("AUM") represent the assets from which KKR is entitled to receive fees or a carried interest and general partner capital. We believe this measure is useful to unitholders as it provides additional insight into KKR's capital raising activities and the overall activity in its investment funds. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR's investment funds plus uncalled capital commitments from these funds; (ii) the fair value of investments in KKR's co-investment vehicles; (iii) the net asset value of certain of KKR's fixed income products; (iv) the value of outstanding CLOs (excluding CLOs wholly-owned by KKR); and (v) the fair value of other assets managed by KKR. AUM excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest. KKR's definition of AUM is not based on any definition of AUM that may be set forth in the agreements governing the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory definitions.

Fee paying AUM ("FPAUM") represents only those assets under management from which KKR receives management fees. We believe this measure is useful to unitholders as it provides additional insight into the capital base upon which KKR earns management fees. This relates to KKR's capital raising activities and the overall activity in its investment funds or CLOs, for only those funds or CLOs where KKR receives fees (i.e., excluding vehicles that receive only carried interest or general partner capital). FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's fees and differs from AUM in the following respects: (i) assets from which KKR does not receive a fee are excluded (i.e., assets with respect to which it receives only carried interest) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.

Equity invested is the aggregate amount of equity capital that has been invested by KKR's investment funds and carry-yielding co-investment vehicles and is used as a measure of investment activity for KKR and its business segments during a given period. We believe this measure is useful to unitholders as it provides additional insight into KKR's investments among its investment funds and carry-yielding co-investment vehicles and replaces committed dollars invested. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a carried interest and (ii) capital invested by KKR's investment funds, including investments made using investment financing arrangements.

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

Syndicated capital is generally the aggregate amount of capital in transactions originated by KKR investment funds and carry-yielding co-investment vehicles, which has been distributed to third parties in exchange for a fee. It does not include (i) capital invested in such transactions by KKR investment funds and carry-yielding co-investment vehicles, which is instead reported in equity invested and (ii) debt capital that is arranged as part of the acquisition financing of transactions originated by KKR investment funds. Syndicated capital is used as a measure of investment activity for KKR and its business segments during a given period, and we believe that this measure is useful to unitholders as it provides additional insight into levels of syndication activity in KKR's Capital Markets and Other segment and across its investment platform.

Uncalled commitments are used as a measure of unfunded capital commitments that KKR's investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments. We believe this measure is useful to unitholders as it provides additional insight into the amount of capital that is available to KKR's investment funds to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements.

Adjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. (including equity awards issued under the Equity Incentive Plan), KKR Holdings and other holders of securities exchangeable into common units of KKR & Co. L.P. and represent the fully diluted unit count using the if-converted method. We believe this measure is useful to unitholders as it provides an indication of the total equity ownership of KKR as if all outstanding KKR Holdings units, equity awards issued under the Equity Incentive Plan and other exchangeable securities had been exchanged for common units of KKR & Co. L.P.

Core interest expense is used by management as an alternative measurement of interest expense incurred by KKR on a segment basis and excludes interest expense related to debt obligations from investment financing arrangements related to certain of KKR's investment funds, investment vehicles and principal investments and also excludes interest expense incurred by KFN. The financing arrangements excluded from core interest expense are not direct obligations of the general partners of KKR's private equity funds or its management companies, and in the case of debt obligations of KFN are non-recourse to KKR beyond the assets of KFN. On a segment basis, interest expense is included in net interest and dividends within total investment income. We believe this measure is useful to unitholders as it provides an indication of the amount of interest expense borne by KKR excluding interest expense that is allocated to KKR's investment funds, other noncontrolling interest holders and KFN. Additionally, we believe this measure is useful for analyzing KKR's ability to service its debt obligations other than the debt obligations of KFN.

Book value is a measure of the net assets of KKR's reportable segments and is used by management primarily in assessing the unrealized value of KKR's investment portfolio, including carried interest, as well as KKR's overall liquidity position. We believe this measure is useful to unitholders as it provides additional insight into the assets and liabilities of KKR excluding the assets and liabilities that are allocated to noncontrolling interest holders. Book value differs from KKR & Co. L.P. partners' capital on a GAAP basis primarily as a result of the exclusion of ownership interests attributable to KKR Holdings.

Cash and short-term investments represent cash and liquid short-term investments in high-grade, short-duration cash management strategies used by KKR to generate additional yield on our excess liquidity and is used by management in evaluating KKR's liquidity position. We believe this measure is useful to unitholders as it provides additional insight into KKR's available liquidity. Cash and short-term investments differ from cash and cash equivalents on a GAAP basis as a result of the inclusion of liquid short-term investments in cash and short-term investments.

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

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

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

Commitments

Private Markets

Energy Income and Growth Fund $ 208,500
North America Fund XI 169,700
Real Estate Partners Americas 136,000
Asian Fund II 51,800
European Fund III 47,300
2006 Fund 23,400
Infrastructure 10,600
Natural Resources 8,200
Other Private Equity Funds 9,400
Co-Investment Vehicles   29,300
Total Private Markets Commitments   694,200

Public Markets

 

Special Situations Vehicles 89,000
Direct Lending Vehicles 64,400
Mezzanine Fund 12,200
Other Credit Vehicles   2,300
Total Public Markets Commitments   167,900
Total Uncalled Commitments $ 862,100

 
KKR
EXHIBIT B
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT - BASIC (GAAP BASIS)
TO ENI AFTER TAXES PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
   
 
Quarter Ended
September 30, 2014 June 30, 2014 September 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 0.21 $ 0.47 $ 0.73
Weighted Average Common Units Outstanding - Basic 419,961,455 377,542,161 282,148,802
Net income (loss) attributable to KKR & Co. L.P. 89,938 178,215 204,740
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

100,910 186,776 300,169
Plus: Non-cash equity-based charges 83,950 92,957 85,215
Plus: Amortization of intangibles and other, net 204,676 37,455 15,979
Plus: Income taxes   29,267   6,176   7,644
Economic net income (loss) 508,741 501,579 613,747
Less: Provision for income taxes 47,361 6,330 11,950
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   42,090   40,877   31,227
Economic net income (loss) after taxes 419,290 454,372 570,570
Weighted Average Adjusted Units   835,957,683   800,747,528   715,781,663
Economic net income (loss) after taxes per adjusted unit $ 0.50 $ 0.57 $ 0.80
 
 
Nine Months Ended
September 30, 2014 September 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 1.31 $ 1.53
Weighted Average Common Units Outstanding - Basic 364,127,956 270,484,224
Net income (loss) attributable to KKR & Co. L.P. 478,194 413,313
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

588,500 662,387
Plus: Non-cash equity-based charges 254,435 247,183
Plus: Amortization of intangibles and other, net 262,300 57,524
Plus: Income taxes   57,145   25,525
Economic net income (loss) 1,640,574 1,405,932
Less: Provision for income taxes 90,272 45,553
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   122,320   84,581
Economic net income (loss) after taxes 1,427,982 1,275,798
Weighted Average Adjusted Units   787,502,790   714,171,641
Economic net income (loss) after taxes per adjusted unit $ 1.81 $ 1.79
 

 
KKR
EXHIBIT B (CONTINUED)
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS)

TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS, FEE AND YIELD EARNINGS, FEE AND YIELD EBITDA, TOTAL DISTRIBUTABLE EARNINGS, AND TOTAL EBITDA
(UNAUDITED)

(Amounts in thousands)
 
Quarter Ended
September 30, 2014   June 30, 2014   September 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ 89,938 $ 178,215 $ 204,740
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

100,910 186,776 300,169
Plus: Non-cash equity-based charges 83,950 92,957 85,215
Plus: Amortization of intangibles and other, net 204,676 37,455 15,979
Plus: Income taxes   29,267   6,176   7,644  
Economic net income (loss) 508,741 501,579 613,747
Plus: Income attributable to segment noncontrolling interests 5,189 3,206 2,020
Less: Total investment income (loss) 207,216 162,158 303,472
Less: Net carried interest   181,111   248,902   206,257  
Fee related earnings 125,603 93,725 106,038
Plus: Net interests and dividends   82,254   60,432   (779 )
Fee and yield earnings 207,857 154,157 105,259
Plus: Depreciation and amortization 3,777 4,140 3,601
Plus: Core interest expense   23,347   19,205   16,215  
Fee and yield EBITDA 234,981 177,502 125,075
Less: Depreciation and amortization 3,777 4,140 3,601
Less: Core interest expense 23,347 19,205 16,215
Less: Net interests and dividends 82,254 60,432 (779 )
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 147,615 333,293 48,919
Plus: Net realized investment income - KKR (ex-KFN) 192,146 245,711 102,766
Plus: Net realized investment income - KFN 52,903 36,382 -
Less: Local income taxes and noncontrolling interests   13,450   8,138   6,586  
Total distributable earnings   504,817   700,973   251,137  
Plus: Depreciation and amortization 3,777 4,140 3,601
Plus: Core interest expense 23,347 19,205 16,215
Plus: Local income taxes and noncontrolling interests   13,450   8,138   6,586  
Total EBITDA $ 545,391 $ 732,456 $ 277,539  
 
Nine Months Ended
September 30, 2014 September 30, 2013
 
Net income (loss) attributable to KKR & Co. L.P. $ 478,194 $ 413,313
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

588,500 662,387
Plus: Non-cash equity-based charges 254,435 247,183
Plus: Amortization of intangibles and other, net 262,300 57,524
Plus: Income taxes   57,145   25,525
Economic net income (loss) 1,640,574 1,405,932
Plus: Income attributable to segment noncontrolling interests 11,597 4,444
Less: Total investment income (loss) 648,025 634,720
Less: Net carried interest   633,100   483,441
Fee related earnings 371,046 292,215
Plus: Net interests and dividends   153,850   1,532
Fee and yield earnings 524,896 293,747
Plus: Depreciation and amortization 11,952 10,990
Plus: Core interest expense   60,952   48,658
Fee and yield EBITDA 597,800 353,395
Less: Depreciation and amortization 11,952 10,990
Less: Core interest expense 60,952 48,658
Less: Net interests and dividends 153,850 1,532
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 597,038 263,716
Plus: Net realized investment income - KKR (ex-KFN) 630,749 406,283
Plus: Net realized investment income - KFN 89,285 -
Less: Local income taxes and noncontrolling interests   35,520   16,687
Total distributable earnings   1,652,598   945,527
Plus: Depreciation and amortization 11,952 10,990
Plus: Core interest expense 60,952 48,658
Plus: Local income taxes and noncontrolling interests   35,520   16,687
Total EBITDA $ 1,761,022 $ 1,021,862
 

 
KKR
EXHIBIT B (CONTINUED)
RECONCILIATION OF KKR & CO. L.P. PARTNERS' CAPITAL (GAAP BASIS)
TO BOOK VALUE AND BOOK VALUE PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
   
 
As of As of
September 30, 2014 December 31, 2013