Media Center

February 6, 2014

KKR & Co. L.P. Announces Fourth Quarter and Full Year 2013 Results

Strong Investment Returns Drive Record Economic Net Income

GAAP net income (loss) attributable to KKR & Co. L.P. was $277.9 million and $691.2 million for the quarter and year ended December 31, 2013, respectively, up from $96.7 million and $560.8 million in the comparable periods of 2012.

Assets under management ("AUM") totaled $94.3 billion as of December 31, 2013, up from $75.5 billion as of December 31, 2012. Fee paying assets under management ("FPAUM") totaled $77.4 billion as of December 31, 2013, up from $60.8 billion as of December 31, 2012.

Total distributable earnings were $510.4 million for the quarter ended December 31, 2013, down from $546.3 million for the quarter ended December 31, 2012. Total distributable earnings were $1,455.9 million for the year December 31, 2013, up from $1,449.4 million in the comparable period of 2012.

Economic net income ("ENI") was $789.6 million and $2,195.6 million for the quarter and year ended December 31, 2013, respectively, up from $347.7 million and $2,130.9 million in the comparable periods of 2012. Return on equity was 27.4% for the year ended December 31, 2013.

After-tax ENI was $1.08 and $2.99 per adjusted unit for the quarter and year ended December 31, 2013, respectively, up from $0.48 and $2.90 per adjusted unit in the comparable periods on 2012.

Fee related earnings ("FRE") were $120.1 million and $412.3 million for the quarter and year ended December 31, 2013, respectively, up from $86.0 million and $319.8 million in the comparable periods of 2012.

Book value was $7.8 billion on a total reportable segment basis as of December 31, 2013 or $10.83 per adjusted unit.

KKR & Co. L.P. declares a fourth quarter distribution of $0.48 per common unit, bringing year-to-date distributions for 2013 to $1.40 per common unit, up from $1.22 per common unit for 2012.

KKR & Co. L.P. announced a transaction to acquire KKR Financial Holdings LLC ("KFN").

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

For the fourth quarter and year ended December 31, 2013, the carrying value of our private equity investment portfolio appreciated 8.4% and 20.2%, respectively.

AUM and FPAUM were $94.3 billion and $77.4 billion, respectively, as of December 31, 2013, both up from September 30, 2013.

We recently held our final close for our North America Fund XI L.P., Real Estate Partners Americas L.P., and Special Situations Fund L.P. Including general partner, employee and affiliate commitments, our North America Fund XI L.P. closed with $9.0 billion of commitments, Real Estate Partners Americas L.P. closed with $1.5 billion of commitments, and the Special Situations Fund L.P. closed with $2.0 billion of commitments.

On December 16, 2013, KKR announced the signing of a definitive merger agreement where KKR will acquire KFN through a stock-for-stock merger. KFN is a specialty finance company with a portfolio of assets spanning a complementary range of strategies, principally leveraged credit through ownership of subordinated and mezzanine notes across a number of CLOs; special situations; and Private Markets strategies including natural resources, commercial real estate and private equity. KFN is externally managed by KKR. The merger, which is subject to KFN shareholder approval, customary regulatory approvals and other customary closing conditions, is expected to close in the first half of 2014.

In the near term, we expect to close on the acquisition of Avoca Capital (Unlimited) and its affiliates ("Avoca"), a European credit investment manager. The addition of Avoca provides KKR with a leading presence in the European leveraged credit markets and will enable us to expand our credit platform to offer a full spectrum of credit opportunities globally for our fund investors. As of December 31, 2013, Avoca had $8.4 billion in assets under management, which are not included in either AUM or FPAUM.

"Our investment performance, cash flow generation, and balance sheet income translated into $1.5 billion in total distributable earnings, a 27% return on equity, and a distribution of $1.40 per unit for 2013, our highest annual distribution as a public company," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "We continued to see progress across our capital raising, investment performance, monetization and strategic initiatives."

_______________________________________________________________________________________________________

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

GAAP RESULTS

GAAP results for the quarter and year ended December 31, 2013 included net income attributable to KKR & Co. L.P. of $277.9 million and $691.2 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.89 and $2.30, respectively, on a diluted basis. For the quarter and year ended December 31, 2012, net income attributable to KKR & Co. L.P. was $96.7 million and $560.8 million, respectively, and net income attributable to KKR & Co. L.P. per common unit were $0.36 and $2.21, respectively, on a diluted basis. The increase quarter over quarter was primarily due to (i) an increase in management fees attributable to new capital raised; (ii) higher transaction fees; (iii) a higher level of total investment income; and (iv) an increase in KKR & Co. L.P.'s ownership percentage in the KKR business. The year over year increase was primarily due to (i) an increase in management fees attributable to new capital raised; (ii) higher transaction fees; (iii) the acquisition of Prisma; and (iv) an increase in KKR & Co. L.P.'s ownership percentage in the KKR business.

SEGMENT RESULTS

Private Markets

AUM was $61.2 billion as of December 31, 2013, an increase of $1.5 billion, or 2.5%, compared to AUM of $59.7 billion as of September 30, 2013. The increase was primarily attributable to appreciation in the fair value of our private equity portfolio and to a lesser extent new capital raised from fund investors. The increase was partially offset by distributions to the limited partners of our private equity funds arising from realizations.

FPAUM was $50.2 billion as of December 31, 2013, an increase of $0.3 billion, or 0.6%, compared to FPAUM of $49.9 billion as of September 30, 2013. The increase was primarily attributable to new capital raised from fund investors largely offset by distributions to the limited partners of our private equity funds arising from realizations.

FRE was $30.5 million for the quarter ended December 31, 2013, a decrease of $1.9 million, or 5.9%, compared to FRE of $32.4 million for the quarter ended December 31, 2012. The decrease was primarily driven by higher compensation expense due to additional headcount and higher other operating expenses. The decrease was partially offset by higher management fees resulting from new capital raised and higher transaction fees.

FRE was $158.3 million for the year ended December 31, 2013, an increase of $7.3 million, or 4.8%, compared to FRE of $151.0 million for the year ended December 31, 2012. The increase was primarily driven by higher management fees resulting from new capital raised and higher transaction fees. The increase was partially offset by higher compensation expense due to additional headcount and higher other operating expenses.

ENI was $368.6 million for the quarter ended December 31, 2013, an increase of $190.8 million, or 107.3%, compared to ENI of $177.8 million for the quarter ended December 31, 2012. The increase was primarily attributable to higher net carried interest resulting from a higher level of appreciation in our private equity portfolio.

ENI was $952.5 million for the year ended December 31, 2013, an increase of $120.8 million, or 14.5%, compared to ENI of $831.7 million for the year ended December 31, 2012. The increase was primarily attributable to higher net carried interest resulting from a lower level of management fee refunds and the increase in FRE discussed above.

Public Markets

AUM was $33.1 billion as of December 31, 2013, an increase of $2.6 billion, or 8.5%, compared to AUM of $30.5 billion as of September 30, 2013. FPAUM was $27.2 billion as of December 31, 2013, an increase of $3.5 billion, or 14.8%, compared to FPAUM of $23.7 billion as of September 30, 2013. For both AUM and FPAUM, the increases were primarily attributable to net new capital raised from fund investors.

FRE was $63.6 million for the quarter ended December 31, 2013, an increase of $34.2 million, or 116.3%, compared to FRE of $29.4 million for the quarter ended December 31, 2012. The increase was principally attributable to higher incentive fees earned and higher management fees related to new capital raised from fund investors. The increase was partially offset by higher operating expenses.

FRE was $155.4 million for the year ended December 31, 2013, an increase of $74.9 million, or 93.0%, compared to FRE of $80.5 million for the year ended December 31, 2012. The increase was primarily attributable to (i) higher management fees related to new capital raised from fund investors,(ii) the acquisition of Prisma and (iii) higher incentive fees earned. The increase was partially offset by higher operating expenses primarily related to one-time expenses incurred in connection with the launch of a closed-end fund in 2013.

ENI was $73.3 million for the quarter ended December 31, 2013, an increase of $35.9 million, or 96.0%, compared to ENI of $37.4 million for the quarter ended December 31, 2012. The increase was primarily driven by the increase in FRE discussed above.

ENI was $191.4 million for the year ended December 31, 2013, an increase of $88.5 million, or 86.0%, compared to ENI of $102.9 million for the year ended December 31, 2012. The increase was primarily driven by the increase in FRE discussed above and to a lesser extent higher net carried interest due to certain credit investment vehicles beginning to earn carry in 2013.

Capital Markets and Principal Activities

FRE was $26.0 million for the quarter ended December 31, 2013, an increase of $1.8 million, or 7.4%, compared to FRE of $24.2 million for the quarter ended December 31, 2012. FRE was $98.7 million for the year ended December 31, 2013, an increase of $10.4 million, or 11.8%, compared to FRE of $88.3 million for the year ended December 31, 2012. The increases in both comparable periods were primarily driven by a higher level of overall capital markets transaction activity, partially offset by higher compensation expense.

ENI was $347.8 million for the quarter ended December 31, 2013, an increase of $215.2 million, or 162.3%, compared to ENI of $132.6 million for the quarter ended December 31, 2012. The increase was primarily attributable to a higher level of investment income from our principal investments.

ENI was $1,051.7 million for the year ended December 31, 2013, a decrease of $144.5 million, or 12.1%, compared to ENI of $1,196.2 million for the year ended December 31, 2012. The decrease was primarily due to a lower level of investment income from our principal investments, partially offset by the increase in FRE discussed above. While the fair value of our principal investments increased during the year ended December 31, 2013, the level of appreciation was lower than in 2012.

CAPITAL AND LIQUIDITY

As of December 31, 2013, KKR had $2.2 billion of cash and short-term investments on a total reportable segment basis and $1.0 billion of outstanding debt obligations. KKR's availability for borrowings was $750.0 million (which is reduced by an outstanding letter of credit), which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of December 31, 2013.

As of December 31, 2013, KKR's portion of total uncalled commitments to its investment funds was $1.2 billion, consisting of the following (amounts in thousands):

      Uncalled

Commitments

Private Markets

North America Fund XI $ 324,800
Energy Income and Growth Fund 227,500
Real Estate Partners Americas 123,200
European Fund III 121,500
Asian Fund II 72,400
2006 Fund 61,700
Infrastructure 19,900
Natural Resources 11,100
China Growth Fund 6,400
Asian Fund 3,700
E2 Investors (Annex Fund) 900
Co-Investment Vehicles   39,200
Total Private Markets Commitments   1,012,300
 

Public Markets

Special Situations Vehicles 125,900
Mezzanine Fund 21,200
Direct Lending Vehicles   12,600
Total Public Markets Commitments   159,700
 
Total Uncalled Commitments $ 1,172,000
 

DISTRIBUTION

A distribution of $0.48 per common unit has been declared, comprised of (i) $0.12 per common unit from after-tax FRE, (ii) $0.22 per common unit from realized cash carry, and (iii) $0.14 per common unit from net realized principal investment income. The distribution will be paid on March 4, 2014 to unitholders of record as of the close of business on February 18, 2014. Please refer to the distribution policy presented later in this release.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Thursday, February 6, 2014 at 10:00 a.m. EST. 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 Investors 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 35363339 beginning approximately two hours after the broadcast.

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

ABOUT KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $94.3 billion in assets under management as of December 31, 2013. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with fund investors through its client relationships and capital markets platform. KKR & Co. L.P. is publicly traded on the New York Stock Exchange (NYSE: KKR) and "KKR", as used in this release, includes its subsidiaries, their managed investment funds and accounts, and/or their affiliated investment vehicles, as appropriate. For additional information, please visit KKR's website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, committed dollars invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized principal investment income and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR's business strategies including the ability to realize the anticipated synergies from acquisitions or strategic partnerships such as Prisma, Nephila, Avoca or KFN; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR's competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR's business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 22, 2013, and other filings with the SEC, which are available at www.sec.gov.

KKR
CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
       
 
Quarter Ended Year Ended
December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Revenues
Fees $ 224,902   $ 177,621   $ 762,546   $ 568,442  
 
Expenses
Compensation and Benefits 405,687 261,454 1,266,592 1,280,854
Occupancy and Related Charges 15,684 14,569 61,720 58,205
General, Administrative and Other   158,920     82,249     438,826     259,729  
Total Expenses   580,291     358,272     1,767,138     1,598,788  
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities 3,227,327 874,507 7,826,082 7,871,673
Dividend Income 325,507 677,590 695,521 940,888
Interest Income 122,509 98,929 474,759 358,598
Interest Expense   (26,923 )   (16,407 )   (99,616 )   (69,164 )
Total Investment Income (Loss)   3,648,420     1,634,619     8,896,746     9,101,995  
 
Income (Loss) Before Taxes 3,293,031 1,453,968 7,892,154 8,071,649
 
Income Taxes   12,401     5,628     37,926     43,405  
 
Net Income (Loss) 3,280,630 1,448,340 7,854,228 8,028,244
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests 36,263 16,412 62,255 34,963
Net Income (Loss) Attributable to
Noncontrolling Interests 2,966,454 1,335,200 7,100,747 7,432,445
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ 277,913   $ 96,728   $ 691,226   $ 560,836  
 
Distributions Declared per KKR & Co. L.P. Common Unit $ 0.48 $ 0.70 $ 1.40 $ 1.22
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ 0.96 $ 0.39 $ 2.51 $ 2.35
Diluted (a) $ 0.89 $ 0.36 $ 2.30 $ 2.21
Weighted Average Common Units Outstanding
Basic 288,045,501 249,303,558 274,910,628 238,503,257
Diluted (a) 312,340,336 268,192,128 300,254,090 254,093,160
 

 

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

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
         
Quarter Ended Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Fees
Management and incentive fees:
Management fees $ 175,246 $ 173,245 $ 144,355 $ 665,630 $ 529,107
Incentive fees   36,695     1,225     12,350     72,359     43,845  
Management and incentive fees   211,941     174,470     156,705     737,989     572,952  
 
Monitoring and transaction fees:
Monitoring fees 26,282 33,010 32,988 120,267 116,565
Transaction fees 104,475 129,127 76,840 336,686 240,108
Fee credits   (47,014 )   (61,782 )   (37,991 )   (166,612 )   (105,730 )
Net monitoring and transaction fees   83,743     100,355     71,837     290,341     250,943  
 
Total fees   295,684     274,825     228,542     1,028,330     823,895  
 
Expenses
Compensation and benefits 95,945 92,229 76,001 343,772 272,811
Occupancy and related charges 14,264 15,674 13,763 56,327 55,068
Other operating expenses   65,342     60,884     52,799     215,883     176,205  
Total expenses   175,551     168,787     142,563     615,982     504,084  
 
Fee Related Earnings   120,133     106,038     85,979     412,348     319,811  
 
Investment income (loss)
Realized carried interest 250,500 81,532 168,320 690,027 475,707
Unrealized carried interest   347,239     278,004     100,616     754,423     956,203  
Gross carried interest 597,739 359,536 268,936 1,444,450 1,431,910
Less: allocation to KKR carry pool (241,397 ) (145,512 ) (107,514 ) (582,949 ) (581,206 )
Less: management fee refunds (a)   (8,564 )   (7,767 )   (8,712 )   (30,282 )   (143,723 )
Net carried interest   347,778     206,257     152,710     831,219     706,981  
Realized other investment income (loss) 250,856 102,766 366,878 657,139 866,776
Unrealized other investment income (loss)   72,825     200,706     (256,642 )   301,262     244,346  
Total other investment income (loss)   323,681     303,472     110,236     958,401     1,111,122  
Total investment income (loss)   671,459     509,729     262,946     1,789,620     1,818,103  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 791,592 615,767 348,925 2,201,968 2,137,914
Income (Loss) attributable to
noncontrolling interests   1,943     2,020     1,245     6,387     7,043  
 
Economic Net Income (Loss) $ 789,649   $ 613,747   $ 347,680   $ 2,195,581   $ 2,130,871  
 
Provision for Income Taxes 16,048 11,950 10,632 61,601 102,420
 
Economic Net Income (Loss), After Taxes (b) $ 773,601   $ 601,797   $ 337,048   $ 2,133,980   $ 2,028,451  
 
Economic Net Income (Loss), After Taxes per Adjusted Unit (b) $ 1.08 $ 0.84 $ 0.48 $ 2.99 $ 2.90
                   
Assets Under Management $ 94,320,300 $ 90,169,200 $ 75,527,500 $ 94,320,300 $ 75,527,500
Fee Paying Assets Under Management $ 77,397,500 $ 73,611,900 $ 60,846,000 $ 77,397,500 $ 60,846,000
Committed Dollars Invested and Syndicated Capital $ 2,943,500 $ 2,848,700 $ 1,715,700 $ 8,506,000 $ 4,354,900
Uncalled Commitments   $ 22,463,900   $ 22,718,400     $ 16,071,900     $ 22,463,900     $ 16,071,900  
                   
Other Information
Fee Related Earnings $ 120,133 $ 106,038 $ 85,979 $ 412,348 $ 319,811
Plus: depreciation and amortization   3,658     3,601     3,580     14,648     12,499  
Fee Related EBITDA $ 123,791   $ 109,639   $ 89,559   $ 426,996   $ 332,310  
 
Total Distributable Earnings (b) $ 510,351 $ 251,137 $ 546,290 $ 1,455,878 $ 1,449,396
 
GAAP interest expense $ 26,923 $ 25,056 $ 16,407 $ 99,616 $ 69,164
Less: interest expense related to debt obligations
from investment financing arrangements   9,919     8,841     7,014     33,954     31,050  
Core Interest Expense (b) $ 17,004   $ 16,215   $ 9,393   $ 65,662   $ 38,114  
 
Economic Net Income (Loss),
After Taxes and Equity-based Charges (b) $ 743,473 $ 570,570 $ 321,850 $ 2,019,271 $ 1,965,574
 
Return on Equity (c) 27.4 % 31.0 %
 
     
(a)   As of December 31, 2013, there is no carried interest subject to management fee refunds, which may reduce carried interest in future periods.
(b) See definitions for economic net income (loss), after taxes, adjusted units, total distributable earnings, core interest expense and economic net income (loss), after taxes and equity-based charges under "Notes to Reportable Segments."
(c) Return on equity measures the amount of net income generated as a percentage of capital invested in KKR's business. Return on equity is calculated by dividing Economic Net Income (Loss), After Taxes and Equity-based Charges by the average book value during the period.
 

         
KKR
SUPPLEMENTAL STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION (SAMPLE)
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 
Quarter Ended Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Segment Revenues
Fees $ 295,684 $ 274,825 $ 228,542 $ 1,028,330 $ 823,895
Gross Carried Interest - net of Management Fee Refunds 589,175 351,769 260,224 1,414,168 1,288,187
Investment Income (Loss)   323,681   303,472   110,236   958,401     1,111,122  

Total Segment Revenues

  1,208,540   930,066   599,002   3,400,899     3,223,204  
 
Segment Expenses
Allocation to Carry Pool 241,397 145,512 107,514 582,949 581,206
Compensation and benefits 95,945 92,229 76,001 343,772 272,811
Equity-based Charges 30,128 31,227 15,198 114,709 62,877
Occupancy and Related Charges 14,264 15,674 13,763 56,327 55,068
Other Operating Expenses   65,342   60,884   52,799   215,883     176,205  
Total Segment Expenses   447,076   345,526   265,275   1,313,640     1,148,167  
 
Income (Loss) attributable to noncontrolling interests   1,943   2,020   1,245   6,387     7,043  
 
 
Economic Net Income (Loss) After Equity-based Charges $ 759,521 $ 582,520 $ 332,482 $ 2,080,872   $ 2,067,994  
 
Provision for Income Taxes 16,048 11,950 10,632 61,601 102,420
 
Economic Net Income (Loss),
After Taxes and Equity-based Charges $ 743,473 $ 570,570 $ 321,850 $ 2,019,271   $ 1,965,574  
 
Economic Net Income (Loss),
After Taxes and Equity-based Charges Per Adjusted Unit $ 1.04 $ 0.80 $ 0.46 $ 2.82 $ 2.81
 
Weighted Average Adjusted Units (Fully Diluted Basis) 716,807,180 715,781,663 704,805,537 714,835,941 699,988,443
 
Return on Equity 27.4 % 31.0 %
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENTS (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Fees
Management and incentive fees:
Management fees $ 118,781 $ 119,410 $ 104,804 $ 459,496 $ 423,921
Incentive fees   -     -     -     -     -  
Management and incentive fees   118,781     119,410     104,804     459,496     423,921  
 
Monitoring and transaction fees:
Monitoring fees 26,282 33,010 32,988 120,267 116,565
Transaction fees 53,507 54,968 41,231 150,118 96,454
Fee credits   (39,509 )   (46,597 )   (37,721 )   (136,662 )   (97,362 )
Net monitoring and transaction fees   40,280     41,381     36,498     133,723     115,657  
 
Total fees   159,061     160,791     141,302     593,219     539,578  
 
Expenses
Compensation and benefits 66,994 65,400 53,383 231,911 192,765
Occupancy and related charges 12,110 13,367 12,075 48,045 48,562
Other operating expenses   49,466     37,586     43,463     154,982     147,253  
Total expenses   128,570     116,353     108,921     434,938     388,580  
 
Fee Related Earnings   30,491     44,438     32,381     158,281     150,998  
 
Investment income (loss)
Realized carried interest 250,500 81,532 168,320 690,027 475,707
Unrealized carried interest   330,113     263,982     86,976     692,085     917,048  
Gross carried interest 580,613 345,514 255,296 1,382,112 1,392,755
Less: allocation to KKR carry pool (234,547 ) (139,903 ) (102,058 ) (558,014 ) (565,543 )
Less: management fee refunds   (8,564 )   (7,767 )   (8,712 )   (30,282 )   (143,723 )
Net carried interest   337,502     197,844     144,526     793,816     683,489  
Realized other investment income (loss) - - - - -
Unrealized other investment income (loss)   824     3,357     1,158     1,897     599  
Total other investment income (loss)   824     3,357     1,158     1,897     599  
Total investment income (loss)   338,326     201,201     145,684     795,713     684,088  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 368,817 245,639 178,065 953,994 835,086
Income (Loss) attributable to
noncontrolling interests   256     433     292     1,498     3,390  
 
Economic Net Income (Loss) $ 368,561   $ 245,206   $ 177,773   $ 952,496   $ 831,696  
                     
Assets Under Management $ 61,242,900 $ 59,678,300 $ 49,127,600 $ 61,242,900 $ 49,127,600
Fee Paying Assets Under Management $ 50,156,300 $ 49,889,500 $ 41,173,000 $ 50,156,300 $ 41,173,000
Committed Dollars Invested $ 2,122,600 $ 1,805,800 $ 1,220,800 $ 5,840,900 $ 3,026,300
Uncalled Commitments   $ 20,101,600     $ 21,103,800     $ 14,271,100     $ 20,101,600     $ 14,271,100  
 

         
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENTS (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Fees
Management and incentive fees:
Management fees $ 56,465 $ 53,835 $ 39,551 $ 206,134 $ 105,186
Incentive fees   36,695     1,225     12,350     72,359     43,845  

Management and incentive fees

  93,160     55,060     51,901     278,493     149,031  
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 9,431 20,534 1,974 40,314 14,495
Fee credits   (7,505 )   (15,185 )   (270 )   (29,950 )   (8,368 )
Net monitoring and transaction fees   1,926     5,349     1,704     10,364     6,127  
 
Total fees   95,086     60,409     53,605     288,857     155,158  
 
Expenses
Compensation and benefits 17,082 18,606 16,097 77,378 50,705
Occupancy and related charges 1,800 1,906 1,479 6,863 5,606
Other operating expenses (a)   12,567     19,670     6,596     49,210     18,350  
Total expenses   31,449     40,182     24,172     133,451     74,661  
 
Fee Related Earnings (a)   63,637     20,227     29,433     155,406     80,497  
 
Investment income (loss)
Realized carried interest - - - - -
Unrealized carried interest   17,126     14,022     13,640     62,338     39,155  
Gross carried interest 17,126 14,022 13,640 62,338 39,155
Less: allocation to KKR carry pool (6,850 ) (5,609 ) (5,456 ) (24,935 ) (15,663 )
Less: management fee refunds   -     -     -     -     -  
Net carried interest   10,276     8,413     8,184     37,403     23,492  
Realized other investment income (loss) - - - - -
Unrealized other investment income (loss)   36     (4 )   30     116     20  
Total other investment income (loss)   36     (4 )   30     116     20  
Total investment income (loss)   10,312     8,409     8,214     37,519     23,512  
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 73,949 28,636 37,647 192,925 104,009
Income (Loss) attributable to
noncontrolling interests   625     202     292     1,560     1,079  
 
Economic Net Income (Loss) $ 73,324   $ 28,434   $ 37,355   $ 191,365   $ 102,930  
                     
Assets Under Management $ 33,077,400 $ 30,490,900 $ 26,399,900 $ 33,077,400 $ 26,399,900
Fee Paying Assets Under Management $ 27,241,200 $ 23,722,400 $ 19,673,000 $ 27,241,200 $ 19,673,000
Committed Dollars Invested $ 690,900 $ 326,400 $ 226,400 $ 1,553,000 $ 784,800
Uncalled Commitments $ 2,362,300 $ 1,614,600 $ 1,800,800 $ 2,362,300 $ 1,800,800
Gross Dollars Invested   $ 1,481,100     $ 1,498,000     $ 365,600     $ 4,213,300     $ 1,678,700  
 
     
(a)   For the quarter ended September 30, 2013 and for the year ended December 31, 2013, other operating expenses include $9.7 million of one-time expenses incurred in connection with the launch of a closed-end fund.
 

         
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENTS (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Fees
Management and incentive fees:
Management fees $ - $ - $ - $ - $ -
Incentive fees   -   -   -     -   -
Management and incentive fees   -   -   -     -   -
 
Monitoring and transaction fees:
Monitoring fees - - - - -
Transaction fees 41,537 53,625 33,635 146,254 129,159
Fee credits   -   -   -     -   -
Net monitoring and transaction fees   41,537   53,625   33,635     146,254   129,159
 
Total fees   41,537   53,625   33,635     146,254   129,159
 
Expenses
Compensation and benefits 11,869 8,223 6,521 34,483 29,341
Occupancy and related charges 354 401 209 1,419 900
Other operating expenses   3,309   3,628   2,740     11,691   10,602
Total expenses   15,532   12,252   9,470     47,593   40,843
 
Fee Related Earnings   26,005   41,373   24,165     98,661   88,316
 
Investment income (loss)
Realized carried interest - - - - -
Unrealized carried interest   -   -   -     -   -
Gross carried interest - - - - -
Less: allocation to KKR carry pool - - - - -
Less: management fee refunds   -   -   -     -   -
Net carried interest   -   -   -     -   -
Realized other investment income (loss) 250,856 102,766 366,878 657,139 866,776
Unrealized other investment income (loss)   71,965   197,353   (257,830 )   299,249   243,727
Total other investment income (loss) (a)   322,821   300,119   109,048     956,388   1,110,503
Total investment income (loss)   322,821   300,119   109,048     956,388   1,110,503
 
Income (Loss) before noncontrolling interests
in Income of consolidated entities 348,826 341,492 133,213 1,055,049 1,198,819
Income (Loss) attributable to
noncontrolling interests   1,062   1,385   661     3,329   2,574
 
Economic Net Income (Loss) $ 347,764 $ 340,107 $ 132,552   $ 1,051,720 $ 1,196,245
                     
Syndicated Capital   $ 130,000   $ 716,500   $ 268,500     $ 1,112,100   $ 543,800
 
     
(a)   Amount is net of (i) interest expense and (ii) certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income that is not included in "Compensation and benefits" and "Other operating expenses" above and on both page 6 and page 7.

           
KKR
BALANCE SHEETS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
 
 
As of December 31, 2013
Capital
Markets and
Private Public Principal Total
Markets Markets Activities Reportable
Segment Segment Segment Segments
 
Cash and short-term investments $ 177,547 $ 19,571 $ 1,963,979 $ 2,161,097
Investments - - 4,980,265 (a) 4,980,265
Unrealized carry 1,116,996 62,342 - 1,179,338
Other assets   305,890   278,978   77,489   662,357
Total assets $ 1,600,433 $ 360,891 $ 7,021,733 $ 8,983,057
 
Debt obligations $ - $ - $ 1,000,000 $ 1,000,000
Other liabilities   77,374   18,622   53,200   149,196
Total liabilities   77,374   18,622   1,053,200   1,149,196
 
Noncontrolling interests 1,302 1,071 68,888 71,261
       
Book value $ 1,521,757 $ 341,198 $ 5,899,645 $ 7,762,600
 
Book value per adjusted unit $ 10.83
 
 
As of December 31, 2012
Capital
Markets and
Private Public Principal Total
Markets Markets Activities Reportable
Segment Segment Segment Segments
 
Cash and short-term investments $ 358,237 $ 28,690 $ 1,147,360 $ 1,534,287
Investments - - 4,758,157 4,758,157
Unrealized carry 730,292 24,939 - 755,231
Other assets   207,047   280,472   62,119   549,638
Total assets $ 1,295,576 $ 334,101 $ 5,967,636 $ 7,597,313
 
Debt obligations $ - $ - $ 500,000 $ 500,000
Other liabilities   78,724   16,433   24,275   119,432
Total liabilities   78,724   16,433   524,275   619,432
 
Noncontrolling interests 1,339 739 18,619 20,697
       
Book value $ 1,215,513 $ 316,929 $ 5,424,742 $ 6,957,184
 
Book value per adjusted unit $ 9.87
     
(a)   See Capital Markets and Principal Activities segment schedule of investments that follows.
 

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

Value

Fair Value as

a Percentage

of Investments

 
Co-investments in Portfolio Companies of
Private Equity Investment Vehicles $ 1,544,331 $ 2,130,058 42.8 %
 
Private Equity Investment Vehicles
KKR 2006 Fund L.P. 330,066 389,879 7.8 %
KKR European Fund III L.P. 244,292 312,279 6.3 %
KKR North America Fund XI L.P. 96,340 106,079 2.1 %
KKR Asian Fund L.P. 89,978 101,380 2.0 %
KKR European Fund II L.P. 39,013 43,052 0.9 %
KKR Millenium Fund L.P. 47,430 39,793 0.8 %
KKR E2 Investors, L.P. 14,209 27,707 0.6 %
Co-Investments 16,249 17,064 0.3 %
KKR China Growth Fund L.P. 3,452 4,303 0.1 %
KKR European Fund L.P. 47,664 4,273 0.1 %
KKR Asian Fund II L.P.   2,624   2,563 0.1 %
  931,317   1,048,372 21.1 %
 
Private Equity Total   2,475,648   3,178,430 63.9 %
 
Real Assets
Energy Income and Growth 207,661 211,301 4.2 %
Real Estate Fund 79,363 108,487 2.2 %
Infrastructure Fund 36,778 38,420 0.8 %
Co-Investments 11,241 13,117 0.3 %
Natural Resources   12,842   8,147 0.2 %
Real Assets Total   347,885   379,472 7.7 %
 
Private Markets Total   2,823,533   3,557,902 71.6 %
 
Public Markets Investment Vehicles
Liquid Credit 187,262 198,784 4.0 %
Special Situations 125,795 138,881 2.8 %
Credit Relative Value 122,000 136,643 2.7 %
Long/Short Equities 100,000 121,098 2.4 %
Direct Lending 56,720 63,163 1.3 %
Mezzanine Fund   20,380   24,659 0.5 %
Public Markets Total   612,157   683,228 13.7 %
 
Other   715,477   739,135 14.7 %
 
Total Investments $ 4,151,167 $ 4,980,265 100.0 %
 
             
 
Significant Aggregate Investments: (a)
Alliance Boots GmbH $ 228,769 $ 640,717 12.9 %
HCA Inc. 70,117 287,324 5.8 %
First Data Corporation   327,211   265,062 5.3 %
  626,097   1,193,103 24.0 %
 
Other investments   3,525,070   3,787,162 76.0 %
Total Investments $ 4,151,167 $ 4,980,265 100.0 %
     
(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 December 31, 2013. The fair value figures include the co-investment and the limited partner and/or general partner interests in the underlying portfolio company.
 

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

Private
Markets
Segment

Public
Markets
Segment

Total
Reportable
Segments

Quarter Ended December 31, 2013

 
September 30, 2013 $ 59,678,300 $ 30,490,900 $ 90,169,200
New Capital Raised 1,294,100 2,523,800 3,817,900
Distributions (3,088,900 ) (735,100 ) (b) (3,824,000 )
Foreign Exchange 10,700 - 10,700
Change in Value   3,348,700     797,800     4,146,500  
December 31, 2013 $ 61,242,900   $ 33,077,400   $ 94,320,300  
 
 

Year Ended December 31, 2013

 
December 31, 2012 $ 49,127,600 $ 26,399,900 $ 75,527,500
New Capital Raised 13,613,100 7,580,400 21,193,500
Distributions (9,197,900 ) (2,687,600 ) (c) (11,885,500 )
Net Changes in Fee Base of Certain Funds (a) (272,300 ) - (272,300 )
Foreign Exchange 32,800 - 32,800
Change in Value   7,939,600     1,784,700     9,724,300  
December 31, 2013 $ 61,242,900   $ 33,077,400   $ 94,320,300  
 
 
 
KKR
FEE PAYING ASSETS UNDER MANAGEMENT* (UNAUDITED)
(Amounts in thousands)
 
 

Private
Markets
Segment

 

Public
Markets
Segment

Total
Reportable
Segments

Quarter Ended December 31, 2013

 
September 30, 2013 $ 49,889,500 $ 23,722,400 $ 73,611,900
New Capital Raised 1,469,800 3,473,700 4,943,500
Distributions (1,327,000 ) (591,100 ) (b) (1,918,100 )
Foreign Exchange 65,300 - 65,300
Change in Value   58,700     636,200     694,900  
December 31, 2013 $ 50,156,300   $ 27,241,200   $ 77,397,500  
 
 

Year Ended December 31, 2013

 
December 31, 2012 $ 41,173,000 $ 19,673,000 $ 60,846,000
New Capital Raised 13,200,600 7,927,500 21,128,100
Distributions (3,860,800 ) (1,875,900 ) (c) (5,736,700 )
Net Changes in Fee Base of Certain Funds (a) (654,700 ) - (654,700 )
Foreign Exchange 172,700 - 172,700
Change in Value   125,500     1,516,600     1,642,100  
December 31, 2013 $ 50,156,300   $ 27,241,200   $ 77,397,500  
 
     
*   Exclude those assets managed by entities where KKR holds less than a 50% ownership interest.
 
(a) Represents the impact of certain funds entering the post-investment period.
(b) Includes $327.3 million of redemptions by fund investors.
(c) Includes $1,021.8 million of redemptions by fund investors.
 

 
KKR

INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)

As of December 31, 2013
(Amounts in millions, except percentages)
                 
 
Investment Period Amount
Percentage
Committed
Commencement Uncalled by General Remaining Remaining Fair
Date   End Date Commitment   Commitments   Partner   Invested   Realized   Cost   Value
Private Markets
 
Private Equity Funds
Asian Fund II 4/2013 4/2019 $ 5,825.0 $ 5,615.1 1.3% $ 209.9 $ - $ 209.9 $ 201.1
North America Fund XI 9/2012 9/2018 8,718.4 5,903.3 2.9% 2,815.1 3.9 2,815.1 3,079.3
China Growth Fund 11/2010 11/2016 1,010.0 674.5 1.0% 335.5 32.6 318.0 399.9
E2 Investors (Annex Fund) 8/2009 11/2013 209.5 13.6 4.5% 195.9 - 195.9 426.3
European Fund III 3/2008 3/2014 6,241.1 1,689.4 4.6% 4,551.7 653.5 4,194.4 5,660.0
Asian Fund 7/2007 4/2013 3,983.3 134.1 2.5% 3,849.2 1,693.6 2,979.1 5,128.3
2006 Fund 9/2006 9/2012 17,642.2 1,205.4 2.1% 16,436.8 11,719.7 9,770.5 15,094.9
European Fund II 11/2005 10/2008 5,750.8 - 2.1% 5,750.8 4,513.2 2,220.4 3,960.0
Millennium Fund 12/2002 12/2008 6,000.0 - 2.5% 6,000.0 10,119.1 1,837.9 3,181.2
European Fund 12/1999 12/2005   3,085.4   - 3.2%   3,085.4   8,720.0     -   51.6
Total Private Equity Funds 58,465.7 15,235.4 43,230.3 37,455.6 24,541.2 37,182.6
 
Co-Investment Vehicles Various Various   3,166.3   974.5 Various   2,191.8   2,418.8   1,583.3   2,044.3
Total Private Equity   61,632.0   16,209.9   45,422.1   39,874.4   26,124.5   39,226.9
 
Real Assets
Energy Income and Growth Fund 9/2013 9/2018 1,413.5 1,269.4 17.9% 144.1 6.1 137.6 140.7
Natural Resources Fund Various Various 876.1 303.1 Various 573.0 73.2 519.4 327.8
Global Energy Opportunities Various Various 861.0 716.6 Various 144.4 0.7 144.4 132.3
Infrastructure Fund Various Various 1,042.4 388.6 4.8% 653.8 24.3 653.8 710.3
Infrastructure Co-Investments Various Various 1,356.0 251.5 Various 1,104.5 226.8 1,104.5 1,319.5
Real Estate Partners Americas 5/2013 12/2016   1,229.1   962.5 16%   266.6   -   266.6   368.4
Real Assets   6,778.1   3,891.7   2,886.4   331.1   2,826.3   2,999.0
 
Private Markets Total   68,410.1   20,101.6   48,308.5   40,205.5     28,950.8   42,225.9
 
Public Markets
 
Special Situations Vehicles Various Various 3,519.1 1,703.7 Various 1,815.4 729.2 1,452.7 1,660.7
Mezzanine Fund 3/2010 8/2015 987.0 464.1 4.6% 522.9 146.6 464.9 545.3
Direct Lending Vehicles Various Various 748.8 194.5 Various 554.3 27.3 554.3 596.6
           
Public Markets Total   5,254.9   2,362.3   2,892.6   903.1   2,471.9   2,802.6
 
Grand Total $ 73,665.0 $ 22,463.9 $ 51,201.1 $ 41,108.6 $ 31,422.7 $ 45,028.5
 
     
(a)   Reflects investment vehicles for which KKR has the ability to earn carried interest.
 

         
KKR
DISTRIBUTION CALCULATION (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 

Quarter Ended

Year Ended
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Cash Revenues
Fees $ 295,684 $ 274,825 $ 228,542 $ 1,028,330 $ 823,895
Realized cash carry 250,500 81,532 168,320 690,027 475,707
Net realized principal investment income   250,856     102,766     366,878     657,139     866,776  
Total Cash Revenue   797,040     459,123     763,740     2,375,496     2,166,378  
 
Cash Expenses
Realized cash carry allocated to carry pool 100,200 32,613 67,328 276,011 190,283
Compensation and benefits 95,945 92,229 76,001 343,772 272,811
Occupancy and related charges 14,264 15,674 13,763 56,327 55,068
Other operating expenses   65,342     60,884     52,799     215,883     176,205  
Total Cash Expenses   275,751     201,400     209,891     891,993     694,367  
 
Cash income (loss) before noncontrolling interests and local taxes 521,289 257,723 553,849 1,483,503 1,472,011
 
Less: local income taxes (8,995 ) (4,566 ) (6,314 ) (21,238 ) (15,572 )
Less: noncontrolling interests   (1,943 )   (2,020 )   (1,245 )   (6,387 )   (7,043 )
Total distributable earnings 510,351 251,137 546,290 1,455,878 1,449,396
 
Less: estimated current corporate income taxes   (26,809 )   (30,140 )   (23,078 )   (98,814 )   (66,733 )
 
Distributable Earnings, net of taxes 483,542 220,997 523,212 1,357,064 1,382,663
 
Less: Undistributed net realized principal investment income     (150,514 )   (61,660 )   (44,497 )   (394,285 )   (544,395 )
 
Distributed Earnings $ 333,028   $ 159,337   $ 478,715   $ 962,779   $ 838,268  
 
Distribution per KKR & Co. L.P. common unit $ 0.48 $ 0.23 $ 0.70 $ 1.40 $ 1.22
                     

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

 
After-tax FRE $ 0.12 $ 0.10 $ 0.08 $ 0.42 $ 0.32
Realized Cash Carry $ 0.22 $ 0.07 $ 0.15 $ 0.60 $ 0.43
Distributed Net Realized Principal Investment Income   $ 0.14     $ 0.06     $ 0.47     $ 0.38     $ 0.47  
 
Adjusted Units (Reduced for Unvested Common Units) 692,512,345 689,795,274 685,916,967
 
Payout Ratio 68.9 % 72.1 % 91.5 % 70.9 % 60.6 %
 
 
 

DISTRIBUTION POLICY

 
KKR intends to make quarterly cash distributions in amounts that in the aggregate are expected to constitute substantially all of the cash earnings of its investment management business and 40% of the net cash income from realized principal investments, in each case in excess of amounts determined by KKR to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its investment funds and to comply with applicable law and any of its debt instruments or other obligations. For purposes of KKR's distribution policy, its distributions are expected to consist of (i) FRE, (ii) carry distributions received from KKR's investment funds which have not been allocated as part of its carry pool and (iii) a percentage of net realized principal investment income. This amount is expected to be reduced by (i) corporate and applicable local taxes, if any, (ii) non-controlling interests, and (iii) amounts determined by KKR to be necessary or appropriate for the conduct of its business and other matters as discussed above.
 
The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P., which may change the distribution policy at any time, and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all or that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKR business), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships.

KKR

Notes to Reportable Segments (Unaudited)

The segment key performance measures that follow are used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR's reportable business segments. The reportable segments for KKR's business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings L.P. and as such represent the business in total. In addition, KKR's reportable segments are presented without giving effect to the consolidation of the funds that KKR manages.

KKR discloses the following financial measures in this earnings release that are calculated and presented using methodologies other than in accordance with GAAP. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to unitholders in assessing the overall performance of KKR's businesses. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included elsewhere within this earnings release.

Fee related earnings ("FRE") is comprised of segment fees less segment expenses (other than certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income). This measure is used by management as an alternative measurement of the operating earnings of KKR and its business segments before investment income. We believe this measure is useful to unitholders as it provides additional insight into the operating profitability of our fee generating management companies and capital markets businesses. The components of FRE on a segment basis differ from the equivalent GAAP amounts on a consolidated basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of charges relating to carry pool allocations; (v) the exclusion of non-cash equity charges and other non-cash compensation charges borne by KKR Holdings or incurred under the KKR & Co. L.P. 2010 Equity Incentive Plan; (vi) the exclusion of certain reimbursable expenses; and (vii) the exclusion of certain non-recurring items.

Economic net income (loss) ("ENI") is a measure of profitability for KKR's reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. We believe this measure is useful to unitholders as it provides additional insight into the overall profitability of KKR's businesses inclusive of investment income and carried interest. ENI is comprised of: (i) FRE plus (ii) segment investment income (loss), which is reduced for carry pool allocations, management fee refunds, interest expense and certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income; 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.

Net realized principal investment income refers to net cash income from (i) realized investment gains and losses excluding certain realized investment losses from principal investments during the second quarter of 2013 to the extent unrealized losses on these investments were recognized prior to the combination with KPE on October 1, 2009, (ii) dividend income and (iii) interest income net of interest expense less certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income in each case generated by KKR's principal investments held on or through KKR's balance sheet in our Capital Markets and Principal Activities segment. This is a term to describe a portion of KKR's quarterly distribution.

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

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

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

Committed dollars invested is the aggregate amount of capital commitments that have been invested by KKR's investment funds and carry-yielding co-investment vehicles and is used as a measure of investment activity for KKR and its business segments during a given period. We believe this measure is useful to unitholders as it provides additional insight into KKR's investment of committed capital. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a fee or carried interest and (ii) capital invested by KKR's investment funds and vehicles.

Gross dollars invested is the aggregate amount of capital that has been invested by all of KAM's investment vehicles in our private credit non-liquid strategies and is used as a measure of investment activity for KAM in a given period. We believe this measure is useful to unitholders as it provides additional insight into KAM's investment of capital across its private credit non-liquid strategies for all the investment vehicles which it manages. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KAM is entitled to a fee or carried interest and (ii) internal and proprietary capital invested by KAM's investment funds and vehicles.

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

Uncalled commitments are used as a measure of unfunded capital commitments that KKR's investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments. We believe this measure is useful to unitholders as it provides additional insight into the amount of capital that is available to KKR's investment funds and vehicles to make future investments.

Adjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. and KKR Holdings and represent the fully diluted unit count using the if-converted method. We believe this measure is useful to unitholders as it provides an indication of the total equity ownership of KKR as if all outstanding KKR Holdings units had been exchanged for common units of KKR & Co. L.P.

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

Book value is a measure of the net assets of KKR's reportable segments and is used by management primarily in assessing the unrealized value of 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.

Fee related EBITDA is comprised of FRE before the impact of depreciation of fixed assets and amortization of intangible assets and is used by management as a measure of the cash earnings of KKR and its business segments before investment income. We believe this measure is useful to unitholders as it provides additional insight into the amount of cash earnings generated by KKR's management companies and capital markets businesses.

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

     
KKR

EXHIBIT A

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT (GAAP BASIS)
TO ENI AFTER TAXES PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter Ended
December 31, 2013 September 30, 2013 December 31, 2012
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 0.96 $ 0.73 $ 0.39
Weighted Average Common Units Outstanding - Basic 288,045,501 282,148,802 249,303,558
Net income (loss) attributable to KKR & Co. L.P. 277,913 204,740 96,728

Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

393,739 300,169 170,256
Plus: Non-cash equity based charges 60,331 85,215 70,170
Plus: Amortization of intangibles and other, net 45,265 15,979 4,898
Plus: Income taxes   12,401   7,644   5,628
Economic net income (loss) 789,649 613,747 347,680
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   30,128   31,227   15,198
Economic net income (loss) after equity-based charges 759,521 582,520 332,482
Less: Provision for income taxes   16,048   11,950   10,632
Economic net income (loss) after taxes and equity-based charges 743,473 570,570 321,850
Plus: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   30,128   31,227   15,198
Economic net income (loss) after taxes 773,601 601,797 337,048
Weighted Average Adjusted Units   716,807,180   715,781,663   704,805,537
Economic net income (loss) after taxes per adjusted unit 1.08 0.84 0.48
Weighted Average Adjusted Units   716,807,180   715,781,663   704,805,537
Economic net income (loss) after taxes 773,601 601,797 337,048
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   30,128   31,227   15,198
Economic net income (loss) after taxes and equity-based charges 743,473 570,570 321,850
Weighted Average Adjusted Units   716,807,180   715,781,663   704,805,537
Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 1.04 $ 0.80 $ 0.46
 
 
Year Ended
December 31, 2013 December 31, 2012
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 2.51 $ 2.35
Weighted Average Common Units Outstanding - Basic 274,910,628 238,503,257
Net income (loss) attributable to KKR & Co. L.P. 691,226 560,836

Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

1,056,126 1,116,740
Plus: Non-cash equity based charges 307,514 400,207
Plus: Amortization of intangibles and other, net 102,789 9,683
Plus: Income taxes   37,926   43,405
Economic net income (loss) 2,195,581 2,130,871
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   114,709   62,877
Economic net income (loss) after equity-based charges 2,080,872 2,067,994
Less: Provision for income taxes   61,601   102,420
Economic net income (loss) after taxes and equity-based charges 2,019,271 1,965,574
Plus: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   114,709   62,877
Economic net income (loss) after taxes 2,133,980 2,028,451
Weighted Average Adjusted Units   714,835,941   699,988,443
Economic net income (loss) after taxes per adjusted unit 2.99 2.90
Weighted Average Adjusted Units   714,835,941   699,988,443
Economic net income (loss) after taxes 2,133,980 2,028,451
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan   114,709   62,877
Economic net income (loss) after taxes and equity-based charges 2,019,271 1,965,574
Weighted Average Adjusted Units   714,835,941   699,988,443
Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 2.82 $ 2.81
 

     
KKR

EXHIBIT A (CONTINUED)

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS)
TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS, FEE RELATED EBITDA, AND TOTAL DISTRIBUTABLE EARNINGS (UNAUDITED)
(Amounts in thousands)
 
Quarter Ended
December 31, 2013 September 30, 2013 December 31, 2012
 
Net income (loss) attributable to KKR & Co. L.P. $ 277,913 $ 204,740 $ 96,728
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

393,739 300,169 170,256
Plus: Non-cash equity based charges 60,331 85,215 70,170
Plus: Amortization of intangibles and other, net 45,265 15,979 4,898
Plus: Income taxes   12,401   7,644   5,628
Economic net income (loss) 789,649 613,747 347,680
Plus: Income attributable to segment noncontrolling interests 1,943 2,020 1,245
Less: Investment income (loss)   671,459   509,729   262,946
Fee related earnings 120,133 106,038 85,979
Plus: Depreciation and amortization   3,658   3,601   3,580
Fee related EBITDA $ 123,791 $ 109,639 $ 89,559
Less: Depreciation and amortization 3,658 3,601 3,580
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 150,300 48,919 100,992
Plus: Net realized principal investment income 250,856 102,766 366,878
Less: Local income taxes and noncontrolling interests   10,938   6,586   7,559
Total distributable earnings $ 510,351 $ 251,137 $ 546,290
 
 
 
Year Ended
December 31, 2013 December 31, 2012
 
Net income (loss) attributable to KKR & Co. L.P. $ 691,226 $ 560,836
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

1,056,126 1,116,740
Plus: Non-cash equity based charges 307,514 400,207
Plus: Amortization of intangibles and other, net 102,789 9,683
Plus: Income taxes   37,926   43,405
Economic net income (loss) 2,195,581 2,130,871
Plus: Income attributable to segment noncontrolling interests 6,387 7,043
Less: Investment income (loss)   1,789,620   1,818,103
Fee related earnings 412,348 319,811
Plus: Depreciation and amortization   14,648   12,499
Fee related EBITDA $ 426,996 $ 332,310
Less: Depreciation and amortization 14,648 12,499
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 414,016 285,424
Plus: Net realized principal investment income 657,139 866,776
Less: Local income taxes and noncontrolling interests   27,625   22,615
Total distributable earnings $ 1,455,878 $ 1,449,396
 

   
KKR

EXHIBIT A (CONTINUED)

RECONCILIATION OF KKR & CO. L.P. PARTNERS' CAPITAL (GAAP BASIS)
TO BOOK VALUE AND BOOK VALUE PER ADJUSTED UNIT (UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
As of As of
December 31, 2013 December 31, 2012
 
KKR & Co. L.P. partners' capital $ 2,722,010 $ 2,004,359
 
Noncontrolling interests held by KKR Holdings L.P. 5,116,761 4,981,864
 
Equity impact of KKR Management Holdings Corp. and other   (76,171 )   (29,039 )
 
Book value 7,762,600 6,957,184
 
Adjusted units 716,676,699 704,780,484
   
Book value per adjusted unit $ 10.83   $ 9.87  
 
         
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (SEGMENT BASIS) (UNAUDITED)
(Amounts in thousands)
 
As of As of
December 31, 2013 December 31, 2012
 
Cash and cash equivalents $ 1,306,383 $ 1,230,464
 
Liquid short-term investments 854,714 303,823
   
Cash and short-term investments $ 2,161,097   $ 1,534,287  
 

     
KKR

EXHIBIT B

 
RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING TO WEIGHTED AVERAGE ADJUSTED UNITS (UNAUDITED)
 
The following table provides a reconciliation of KKR's Weighted Average GAAP Common Units Outstanding to Weighted Average Adjusted Units.
 
Quarter Ended
December 31, 2013 September 30, 2013 December 31, 2012
Weighted Average GAAP Common Units Outstanding - Basic 288,045,501 282,148,802 249,303,558
Weighted Average Unvested Common Units(a) 24,294,835 25,986,389 18,888,570
Weighted Average GAAP Common Units Outstanding - Diluted 312,340,336 308,135,191 268,192,128
Adjustments:
Weighted Average KKR Holdings Units(b) 404,466,844 407,646,472 436,613,409
Weighted Average Adjusted Units 716,807,180 715,781,663 704,805,537
 
 
Year Ended
December 31, 2013 December 31, 2012
Weighted Average GAAP Common Units Outstanding - Basic 274,910,628 238,503,257
Weighted Average Unvested Common Units(a) 25,343,462 15,589,903
Weighted Average GAAP Common Units Outstanding - Diluted 300,254,090 254,093,160
Adjustments:
Weighted Average KKR Holdings Units(b) 414,581,851 445,895,283
Weighted Average Adjusted Units 714,835,941 699,988,443
 
             
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING TO ADJUSTED UNITS (UNAUDITED)
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units.
 
As of As of
December 31, 2013 December 31, 2012
GAAP Common Units Outstanding - Basic 288,143,327 253,363,691
Unvested Common Units(a) 24,164,354 18,863,517
GAAP Common Units Outstanding - Diluted 312,307,681 272,227,208
Adjustments:
KKR Holdings Units(b) 404,369,018 432,553,276
Adjusted Units 716,676,699 704,780,484
 
     
(a)   Represents equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. The issuance of common units of KKR & Co. L.P. pursuant to awards under its equity incentive plan dilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business.
(b) Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units.

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

Source: KKR & Co. L.P.

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