Media Center

October 27, 2015

KKR & Co. L.P. Announces Third Quarter 2015 Results

KKR adopts a $500 million unit repurchase program

KKR to change distribution policy to fixed $0.16 per common unit per quarter beginning with the fourth quarter of 2015

GAAP net income (loss) attributable to KKR & Co. L.P. was $(190.6) million and $456.2 million for the quarter and nine months ended September 30, 2015, respectively, down from $89.9 million and $478.2 million in the comparable periods of 2014.

Total distributable earnings was $349.1 million and $1,357.1 million for the quarter and nine months ended September 30, 2015, respectively, down from $504.8 million and $1,652.6 million in the comparable periods of 2014.

Distribution per common unit was $0.35 and $1.23 for the quarter and nine months ended September 30, 2015, respectively, down from $0.45 and $1.55 in the comparable periods of 2014.

Economic net income (loss) ("ENI") was $(286.0) million and $1,153.3 million for the quarter and nine months ended September 30, 2015, respectively, down from $508.7 million and $1,640.6 million in the comparable periods of 2014.

ENI after taxes per adjusted unit was $(0.37) and $1.13 for the quarter and nine months ended September 30, 2015, respectively, down from $0.50 and $1.81 in the comparable periods of 2014.

Book value was $10.2 billion on a total reportable segment basis as of September 30, 2015 or $12.01 per adjusted unit.

Return on equity and cash return on equity were 9.6% and 15.8%, respectively on a trailing twelve month basis.

Assets under management ("AUM") and fee paying assets under management ("FPAUM") totaled $98.7 billion and $82.9 billion, respectively, as of September 30, 2015.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE:KKR) today reported its third quarter 2015 results.

KKR has adopted a repurchase program for up to $500 million in the aggregate of its outstanding common units. Under this program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise.

In addition, KKR has amended its distribution policy effective beginning with the distribution anticipated to be declared in early 2016 with respect to the quarter ending December 31, 2015. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter. The distribution declared for the quarter ended September 30, 2015 was calculated under the prior distribution policy.

On September 9, 2015, KKR announced a long-term strategic partnership with Marshall Wace LLP and its affiliates. Under the terms of the agreement and subject to customary closing conditions, KKR will acquire at closing a 24.9% interest in Marshall Wace through a combination of cash and common units. In addition, KKR and Marshall Wace have the option to grow KKR's ownership interest over time to 39.9%.

"Our announcements today, including the introductions of a fixed distribution per quarter and a share buyback program, reflect important changes to our capital management strategy," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "Our strong balance sheet, with approximately $14 billion in assets, allows us to support a meaningful fixed quarterly distribution. We will use incremental retained capital to invest behind our ideas and buy back our units. Over time, we think the market will value what we do with our balance sheet, including repurchasing our own units, more than the variable distributions we have been paying. These changes, coupled with continued investment performance, will allow us to create significant long-term equity value for our unitholders."

 
Note: Certain financial measures, including total distributable earnings, 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.
 

GAAP RESULTS

GAAP net income (loss) for the quarter and nine months ended September 30, 2015, included net income (loss) attributable to KKR & Co. L.P. of $(190.6) million and $456.2 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit of $(0.42) and $0.95, respectively, on a diluted basis. For the quarter and nine months ended September 30, 2014, net income (loss) attributable to KKR & Co. L.P. was $89.9 million and $478.2 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit was $0.20 and $1.21, respectively, on a diluted basis. The decrease in both comparable periods was primarily due to a decrease in investment income and to a lesser extent a decrease in transaction fees.

SEGMENT RESULTS

 
KEY METRICS (UNAUDITED)
(Amounts in millions, except per adjusted unit amounts)
       
   
Quarter Ended Nine Months Ended
September 30, 2015   September 30, 2014   % Change September 30, 2015   September 30, 2014   % Change

Total Distributable Earnings

 
Fees $ 246 $ 309 $ 817 $ 891
Realized Cash Carry 265 246 820 995
Net Realized Investment Income 110   245   593   720  
Total Cash Revenues $ 621 $ 800 (22 )% $ 2,230 $ 2,606 (14 )%
Total Cash Expenses and Other 272   295   873   953  
Total Distributable Earnings $ 349 $ 505 (31 )% $ 1,357 $ 1,653 (18 )%
Less: Estimated Current Corporate Income Taxes (18 ) (30 ) (73 ) (82 )
Distributable Earnings, net of taxes $ 331 $ 475 (30 )% $ 1,284 $ 1,571 (18 )%
 
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit $ 0.40 $ 0.59 (32 )% $ 1.57 $ 2.03 (23 )%
Distribution per KKR & Co. L.P. common unit $ 0.35 $ 0.45 (22 )% $ 1.23 $ 1.55 (21 )%
 
Payout ratio 88 % 76 % 79 % 76 %
 
 

Economic Net Income

 
Management, Monitoring and Transaction Fees, Net $ 245 $ 301 $ 805 $ 854
Performance Income (162 ) 310 884 1,096
Investment Income (274 ) 207   330   648  
Total Segment Revenues $ (191 ) $ 818 (123 )% $ 2,019 $ 2,598 (22 )%
Total Segment Expenses and Other 124   399   1,061   1,170  
Economic Net Income, After-Taxes $ (315 ) $ 419 (175 )% $ 958 $ 1,428 (33 )%
 
Economic Net Income, After-Taxes per Adjusted Unit $ (0.37 ) $ 0.50 (174 )% $ 1.13 $ 1.81 (38 )%
 
Fee and Yield Earnings $ 139 $ 208 (33 )% $ 487 $ 525 (7 )%
 
 

Other

 
Book Value per Adjusted Unit $ 12.01 $ 12.51 (4 )%
 
 
 
Last Twelve Months Ended
September 30, 2015 September 30, 2014
Return on Equity 9.6% 24.7%
Cash Return on Equity 15.8% 23.3%
 

Private Markets

AUM was $60.8 billion as of September 30, 2015, a decrease of $2.3 billion, compared to AUM of $63.1 billion as of June 30, 2015. The decrease was primarily attributable to distributions to limited partners of our private equity funds arising from realizations and to a lesser extent, a decline in the fair value of our private equity portfolio. For the three months ended September 30, 2015, the fair value of our private equity portfolio decreased 1.4%. These decreases were offset by new capital raised primarily in European Fund IV and Global Infrastructure Investors II.

FPAUM was $46.2 billion as of September 30, 2015, a decrease of $0.6 billion, compared to FPAUM of $46.8 billion as of June 30, 2015. The decrease was primarily attributable to distributions to limited partners of our private equity funds arising from realizations which were partially offset by new capital raised in European Fund IV and Global Infrastructure Investors II.

Total segment revenues were $(74.6) million for the quarter ended September 30, 2015, a decrease of $706.2 million, compared to total segment revenues of $631.6 million for the quarter ended September 30, 2014. The decrease was principally attributable to net carried interest losses reflecting a decline in the value of our private equity portfolio and to a lesser extent, net investment losses reflecting overall decreases in the value of our energy and private equity portfolios.

Total segment revenues were $1,798.3 million for the nine months ended September 30, 2015, a decrease of $206.8 million, compared to total segment revenues of $2,005.1 million for the nine months ended September 30, 2014. The decrease was largely attributable to (i) a lower level of net carried interest primarily reflecting a lower level of investment gains at carry earning funds during the current period and (ii) a lower level of investment income primarily relating to investment losses in our energy portfolio during the nine months ended September 30, 2015. For the nine months ended September 30, 2015, the fair value of our private equity portfolio increased 10.5%.

ENI was $(133.7) million for the quarter ended September 30, 2015, a decrease of $532.7 million, compared to ENI of $399.0 million for the quarter ended September 30, 2014. The decrease was primarily attributable to lower total segment revenues as described above partially offset by lower allocations to the carry pool resulting from the lower levels of net carried interest.

Public Markets

AUM was $37.9 billion as of September 30, 2015, a decrease of $0.5 billion, compared to AUM of $38.4 billion as of June 30, 2015. FPAUM was $36.7 billion as of September 30, 2015, a decrease of $0.3 billion, compared to FPAUM of $37.0 billion as of June 30, 2015. For both AUM and FPAUM, the decreases were primarily attributable to distributions and redemptions across multiple strategies, offset by new capital either raised or invested, primarily in Special Situations Fund II and our CLOs.

Total segment revenues were $(163.6) million for the quarter ended September 30, 2015, a decrease of $257.2 million, compared to total segment revenues of $93.6 million for the quarter ended September 30, 2014. The decrease in revenues was principally attributable to (i) net investment losses in the third quarter of 2015 across multiple strategies, primarily in our Special Situations platform and our domestic CLOs, and (ii) net carried interest losses in the third quarter of 2015 primarily reflecting overall decreases in the value of our carry paying vehicles, the most significant of which was our Special Situations Fund.

Total segment revenues were $74.6 million for the nine months ended September 30, 2015, a decrease of $321.8 million, compared to total segment revenues of $396.4 million for the nine months ended September 30, 2014. The decrease was principally attributable to (i) net investment losses for the nine months ended September 30, 2015 due primarily to net unrealized losses in our CLOs and certain other Public Markets related investments and (ii) lower performance income for the period. These decreases were partially offset by an increase in net interest and dividends relating primarily to the yielding assets of KFN, which was acquired on April 30, 2014 but was not contributing to our investment income for the first four months of 2014.

ENI was $(183.3) million for the quarter ended September 30, 2015, a decrease of $231.4 million, compared to ENI of $48.1 million for the quarter ended September 30, 2014. The decrease was principally attributable to the decrease in total segment revenues as described above.

ENI was $(43.9) million for the nine months ended September 30, 2015, a decrease of $295.4 million, compared to ENI of $251.5 million for the nine months ended September 30, 2014. The decrease was principally attributable to the decrease in total segment revenues as described above.

Capital Markets

Total segment revenues were $46.4 million for the quarter ended September 30, 2015, a decrease of $47.0 million, compared to total segment revenues of $93.4 million for the quarter ended September 30, 2014. The decrease in revenues primarily reflects a lower level of overall capital markets transaction activity for the quarter ended September 30, 2015.

Total segment revenues were $145.5 million for the nine months ended September 30, 2015, a decrease of $51.0 million, compared to total segment revenues of $196.5 million for the nine months ended September 30, 2014. The decrease in revenues primarily reflects a lower level of overall capital markets transaction activity for the nine months ended September 30, 2015.

ENI was $30.9 million for the quarter ended September 30, 2015, a decrease of $30.7 million, compared to ENI of $61.6 million for the quarter ended September 30, 2014. The decrease primarily reflects the decrease in total segment revenues as described above.

ENI was $96.2 million for the nine months ended September 30, 2015, a decrease of $32.3 million, compared to ENI of $128.5 million for the nine months ended September 30, 2014. The decrease primarily reflects the decrease in total segment revenues as described above.

CAPITAL AND LIQUIDITY

As of September 30, 2015, KKR had $2.1 billion of cash and short-term investments and $3.0 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, 2015, KKR had a $1.0 billion revolving credit facility, which was undrawn. In addition, KKR has a $500.0 million revolving credit facility for use in its capital markets business, which was undrawn as of September 30, 2015.

As of September 30, 2015, KKR's portion of total uncalled commitments to its investment funds was $1.3 billion. See Exhibit A for details.

DISTRIBUTION

A distribution of $0.35 per common unit has been declared, comprised of (i) $0.08 per common unit from after-tax FRE, (ii) $0.19 per common unit from realized cash carry, (iii) $0.03 per common unit from KKR's net realized investment income and (iv) $0.05 per common unit from KFN's net realized investment income. The distribution will be paid on November 24, 2015 to unitholders of record as of the close of business on November 6, 2015. This distribution was calculated under KKR's prior distribution policy.

The declaration and payment of any distributions including distributions made under KKR's new policy are subject to the discretion of the board of directors of the general partner of KKR, and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all, that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR or that any particular distribution policy will be maintained.

SUPPLEMENTAL INFORMATION

A slide presentation containing supplemental commentary about the Company's financial results for the fiscal quarter ended September 30, 2015 may be accessed through the KKR Investor Relations section of the KKR website at http://ir.kkr.com/kkr_ir/kkr_events.cfm. The presentation will be referenced on the conference call discussed below.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Tuesday, October 27, 2015 at 5:00 p.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 33603948, 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 and on Twitter @KKR_Co.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements, including the statements with respect to the strategic partnership with Marshall Wace LLP, the declaration and payment of distributions on common units of KKR and the timing, manner and volume of repurchases of common units pursuant to a repurchase program. 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, 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 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; 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. All forward looking statements speak only as of the date hereof. 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, 2014, filed with the SEC on February 27, 2015, 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, 2015   September 30, 2014 September 30, 2015   September 30, 2014
Revenues
Fees and Other $ 188,626   $ 344,768   $ 735,845   $ 897,064  
Expenses
Compensation and Benefits 96,959 320,423 873,649 1,010,191
Occupancy and Related Charges 16,484 15,501 48,388 46,968
General, Administrative and Other 163,477   168,486   424,093   505,747  
Total Expenses 276,920   504,410   1,346,130   1,562,906  
Investment Income (Loss)
Net Gains (Losses) from Investment Activities (1,555,681 ) 298,259 3,474,748 4,242,289
Dividend Income 270,759 599,020 710,130 968,626
Interest Income 299,485 260,292 898,628 638,124
Interest Expense (151,554 ) (96,618 ) (402,944 ) (197,346 )
Total Investment Income (Loss) (1,136,991 ) 1,060,953   4,680,562   5,651,693  
 
Income (Loss) Before Taxes (1,225,285 ) 901,311 4,070,277 4,985,851
 
Income Tax (Benefit) (7,390 ) 29,267   39,295   57,145  
 
Net Income (Loss) (1,217,895 ) 872,044 4,030,982 4,928,706
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests (12,925 ) (2,462 ) (11,883 ) 1,366
Net Income (Loss) Attributable to
Noncontrolling Interests and Appropriated Capital (1,014,382 ) 784,568 3,586,640 4,449,146
       
Net Income (Loss) Attributable to KKR & Co. L.P. $ (190,588 ) $ 89,938   $ 456,225   $ 478,194  
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic $ (0.42 ) $ 0.21 $ 1.03 $ 1.31
Diluted (a) $ (0.42 ) $ 0.20 $ 0.95 $ 1.21
Weighted Average Common Units Outstanding
Basic 452,165,697 419,961,455 444,675,159 364,127,956
Diluted (a) 452,165,697 452,019,742 480,338,335 396,232,828
 
   

 

    (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. For the three months ended September 30, 2015, unvested common units and other securities are excluded from the calculation of diluted earnings per common unit because inclusion of such unvested common units and other securities would be anti-dilutive (decrease the loss per common unit).
 

 
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, 2015   June 30, 2015   September 30, 2014 September 30, 2015   September 30, 2014
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 181,780 $ 181,401 $ 173,912 $ 536,961 $ 547,979
Monitoring Fees 24,964 47,713 30,449 170,515 96,422
Transaction Fees 61,437 92,951 158,564 257,674 406,385
Fee Credits (23,293 ) (56,458 ) (61,811 ) (160,245 ) (196,309 )
Total Management, Monitoring and Transaction Fees, Net 244,888   265,607   301,114   804,905   854,477  
Performance Income
Realized Carried Interest 265,291 252,227 246,026 819,943 995,064
Incentive Fees 880 5,893 8,009 12,438 36,506
Unrealized Carried Interest (428,493 ) 340,366   56,192   51,157   64,013  
Total Performance Income (162,322 ) 598,486   310,227   883,538   1,095,583  
Investment Income (Loss)
Net Realized Gains (Losses) 61,439 176,260 162,795 418,366 566,184
Net Unrealized Gains (Losses) (384,460 ) 131,984   (37,833 ) (263,197 ) (72,009 )
Total Realized and Unrealized (323,021 ) 308,244 124,962 155,169 494,175
Net Interest and Dividends 48,637   75,406   82,254   174,718   153,850  
Total Investment Income (Loss) (274,384 ) 383,650   207,216   329,887   648,025  
Total Segment Revenues (191,818 ) 1,247,743   818,557   2,018,330   2,598,085  
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 88,033 98,871 108,790 293,931 309,149
Realized Allocation to Carry Pool 106,116 100,891 98,411 327,977 398,026
Unrealized Allocation to Carry Pool (170,621 ) 136,566   22,696   21,576   27,951  
Total Compensation and Benefits 23,528 336,328 229,897 643,484 735,126
Occupancy and Related Charges 15,720 15,475 14,458 45,991 43,404
Other Operating Expenses 52,081   51,613   60,272   164,640   167,384  
Total Segment Expenses 91,329   403,416   304,627   854,115   945,914  
Income (Loss) attributable to noncontrolling interests 2,902   4,383   5,189   10,907   11,597  
Economic Net Income (Loss) (a) $ (286,049 ) $ 839,944 $ 508,741 $ 1,153,308 $ 1,640,574
Provision for Income Tax (Benefit) (19,505 ) 44,836 47,361 46,566 90,272
Equity-based Charges 48,252   48,453   42,090   148,970   122,320  
Economic Net Income (Loss), After Taxes (b) $ (314,796 ) $ 746,655   $ 419,290   $ 957,772   $ 1,427,982  
 
Economic Net Income (Loss), After Taxes Per Adjusted Unit $ (0.37 ) $ 0.88 $ 0.50 $ 1.13 $ 1.81
Weighted Average Adjusted Units (Fully Diluted Basis) (a) 851,704,303 852,128,762 835,957,683 850,644,918 787,502,790
                         
Assets Under Management $ 98,708,500 $ 101,569,600 $ 96,149,900 $ 98,708,500 $ 96,149,900
Fee Paying Assets Under Management $ 82,889,000 $ 83,732,800 $ 81,356,700 $ 82,889,000 $ 81,356,700
Equity Invested and Syndicated Capital $ 1,462,900 $ 2,011,100 $ 4,751,400 $ 6,419,400 $ 10,474,200
Uncalled Commitments       $ 26,892,300     $ 25,906,300     $ 17,555,400     $ 26,892,300     $ 17,555,400  
                         

Other Information

Fee Related Earnings $ 89,934 $ 105,541 $ 125,603 $ 312,781 $ 371,046
Plus: Net Interest and Dividends 48,637   75,406   82,254   174,718   153,850  
Fee and Yield Earnings (a) $ 138,571 $ 180,947 $ 207,857 $ 487,499 $ 524,896
Plus: Depreciation and Amortization 3,745 3,918 3,777 11,544 11,952
Plus: Core Interest Expense 30,429   30,750   23,347   86,511   60,952  
Fee and Yield EBITDA (a) $ 172,745   $ 215,615   $ 234,981   $ 585,554   $ 597,800  
 
Total Distributable Earnings (a) $ 349,115   $ 491,407   $ 504,817   $ 1,357,053   $ 1,652,598  
GAAP interest expense $ 151,554 $ 139,427 $ 96,618 $ 402,944 $ 197,346
Less: interest expense related to debt obligations
from investment financing arrangements and KFN 121,125   108,677   73,271   316,433   136,394  
Core Interest Expense (a)       $ 30,429     $ 30,750     $ 23,347     $ 86,511     $ 60,952  
 
    (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 FINANCIAL INFORMATION
PRIVATE MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
       
Quarter Ended Nine Months Ended
September 30, 2015   June 30, 2015   September 30, 2014 September 30, 2015   September 30, 2014
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 118,250 $ 115,346 $ 107,443 $ 342,872 $ 342,024
Monitoring Fees 24,964 47,713 30,449 170,515 96,422
Transaction Fees 17,732 40,321 67,772 104,652 206,132
Fee Credits (20,266 ) (53,286 ) (58,810 ) (143,458 ) (182,626 )
Total Management, Monitoring and Transaction Fees, Net 140,680   150,094   146,854   474,581   461,952  
 
Performance Income
Realized Carried Interest 265,291 243,274 236,126 810,990 960,414
Incentive Fees

Unrealized Carried Interest (394,126 ) 312,379   53,776   45,190   35,988  
Total Performance Income (128,835 ) 555,653   289,902   856,180   996,402  
 
Investment Income (Loss)
Net Realized Gains (Losses) 59,880 145,817 165,047 388,961 549,137
Net Unrealized Gains (Losses) (149,865 ) 145,094   8,293   74,592   (43,763 )
Total Realized and Unrealized (89,985 ) 290,911 173,340 463,553 505,374
Net Interest and Dividends 3,538   8,234   21,463   3,941   41,415  
Total Investment Income (Loss) (86,447 ) 299,145   194,803   467,494   546,789  
Total Segment Revenues (74,602 ) 1,004,892   631,559   1,798,255   2,005,143  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 57,991 65,939 59,991 197,897 183,411
Realized Allocation to Carry Pool 106,116 97,310 94,451 324,396 384,166
Unrealized Allocation to Carry Pool (156,874 ) 125,371   21,729   19,190   16,742  
Total Compensation and Benefits 7,233 288,620 176,171 541,483 584,319
Occupancy and Related Charges 11,937 11,832 11,460 34,785 34,784
Other Operating Expenses 39,674   38,125   44,619   119,915   124,267  
Total Segment Expenses 58,844   338,577   232,250   696,183   743,370  
 
Income (Loss) attributable to noncontrolling interests 250   143   342   1,112   1,192  
 
Economic Net Income (Loss) $ (133,696 ) $ 666,172   $ 398,967   $ 1,100,960   $ 1,260,581  
                         
Assets Under Management $ 60,781,200 $ 63,129,200 $ 59,168,300 $ 60,781,200 $ 59,168,300
Fee Paying Assets Under Management $ 46,199,000 $ 46,758,800 $ 45,591,600 $ 46,199,000 $ 45,591,600
Equity Invested $ 867,000 $ 1,258,200 $ 2,389,200 $ 4,172,600 $ 6,395,400
Uncalled Commitments       $ 21,610,400     $ 21,078,400     $ 14,907,300     $ 21,610,400     $ 14,907,300  
 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
       
Quarter Ended Nine Months Ended
September 30, 2015   June 30, 2015   September 30, 2014 September 30, 2015   September 30, 2014
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ 63,530 $ 66,055 $ 66,469 $ 194,089 $ 205,955
Monitoring Fees
Transaction Fees 3,386 3,873 3,262 20,689 16,634
Fee Credits (3,027 ) (3,172 ) (3,001 ) (16,787 ) (13,683 )
Total Management, Monitoring and Transaction Fees, Net 63,889   66,756   66,730   197,991   208,906  
 
Performance Income
Realized Carried Interest 8,953 9,900 8,953 34,650
Incentive Fees 880 5,893 8,009 12,438 36,506
Unrealized Carried Interest (34,367 ) 27,987   2,416   5,967   28,025  
Total Performance Income (33,487 ) 42,833   20,325   27,358   99,181  
 
Investment Income (Loss)
Net Realized Gains (Losses) 1,538 31,192 (630 ) 33,414 19,133
Net Unrealized Gains (Losses) (230,569 ) (11,988 ) (46,118 ) (330,434 ) (27,553 )
Total Realized and Unrealized (229,031 ) 19,204 (46,748 ) (297,020 ) (8,420 )
Net Interest and Dividends 34,995   59,390   53,335   146,257   96,734  
Total Investment Income (Loss) (194,036 ) 78,594   6,587   (150,763 ) 88,314  
Total Segment Revenues (163,634 ) 188,183   93,642   74,586   396,401  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 21,002 22,785 26,787 67,792 80,436
Realized Allocation to Carry Pool 3,581 3,960 3,581 13,860
Unrealized Allocation to Carry Pool (13,747 ) 11,195   967   2,386   11,209  
Total Compensation and Benefits 7,255 37,561 31,714 73,759 105,505
Occupancy and Related Charges 3,096 2,977 2,518 9,195 7,234
Other Operating Expenses 9,004   10,617   10,929   34,575   30,910  
Total Segment Expenses 19,355   51,155   45,161   117,529   143,649  
 
Income (Loss) attributable to noncontrolling interests 305   478   335   958   1,242  
 
Economic Net Income (Loss) $ (183,294 ) $ 136,550   $ 48,146   $ (43,901 ) $ 251,510  
                         
Assets Under Management $ 37,927,300 $ 38,440,400 $ 36,981,600 $ 37,927,300 $ 36,981,600
Fee Paying Assets Under Management $ 36,690,000 $ 36,974,000 $ 35,765,100 $ 36,690,000 $ 35,765,100
Equity Invested $ 583,400 $ 320,800 $ 442,200 $ 1,553,500 $ 1,900,700
Uncalled Commitments $ 5,281,900 $ 4,827,900 $ 2,648,100 $ 5,281,900 $ 2,648,100
Gross Dollars Invested       $ 1,181,400     $ 1,110,100     $ 1,122,100     $ 3,502,300     $ 2,880,000  

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
         
Quarter Ended Nine Months Ended
September 30, 2015   June 30, 2015   September 30, 2014 September 30, 2015 September 30, 2014
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees $ $ $ $ $
Monitoring Fees
Transaction Fees 40,319 48,757 87,530 132,333 183,619
Fee Credits          
Total Management, Monitoring and Transaction Fees, Net 40,319   48,757   87,530   132,333   183,619  
 
Performance Income
Realized Carried Interest
Incentive Fees
Unrealized Carried Interest          
Total Performance Income          
 
Investment Income (Loss)
Net Realized Gains (Losses) 21 (749 ) (1,622 ) (4,009 ) (2,086 )
Net Unrealized Gains (Losses) (4,026 ) (1,122 ) (8 ) (7,355 ) (693 )
Total Realized and Unrealized (4,005 ) (1,871 ) (1,630 ) (11,364 ) (2,779 )
Net Interest and Dividends 10,104   7,782   7,456   24,520   15,701  
Total Investment Income (Loss) 6,099   5,911   5,826   13,156   12,922  
Total Segment Revenues 46,418   54,668   93,356   145,489   196,541  
 
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits 9,040 10,147 22,012 28,242 45,302
Realized Allocation to Carry Pool
Unrealized Allocation to Carry Pool          
Total Compensation and Benefits 9,040 10,147 22,012 28,242 45,302
Occupancy and Related Charges 687 666 480 2,011 1,386
Other Operating Expenses 3,403   2,871   4,724   10,150   12,207  
Total Segment Expenses 13,130   13,684   27,216   40,403   58,895  
 
Income (Loss) attributable to noncontrolling interests 2,347   3,762   4,512   8,837   9,163  
 
Economic Net Income (Loss) $ 30,941   $ 37,222   $ 61,628   $ 96,249   $ 128,483  
                         
Syndicated Capital       $ 12,500     $ 432,100     $ 1,920,000     $ 693,300     $ 2,178,100  
 

 
KKR
BALANCE SHEET
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
           
 
As of As of
September 30, 2015 December 31, 2014
Cash and short-term investments $ 2,062,633 $ 1,121,385
Investments 9,278,102 (a) 9,807,606
Unrealized carry (b) 1,341,473 (b) 1,283,022 (b)
Other assets 1,066,591   999,654  
Total assets $ 13,748,799   $ 13,211,667  
 
Debt obligations - KKR (ex-KFN) $ 2,000,000 $ 1,527,000
Debt obligations - KFN 657,310 657,310
Preferred shares - KFN 373,750 373,750
Other liabilities 361,557   413,808  
Total liabilities 3,392,617   2,971,868  
Noncontrolling interests 124,619   121,574  
Book value $ 10,231,563   $ 10,118,225  
 
Book value per adjusted unit $ 12.01 $ 12.07
 
                     
 
(a) See schedule of investments that follows on the next page.
 
As of As of

(b) Unrealized Carry

September 30, 2015 December 31, 2014
Private Markets $ 1,251,503 $ 1,196,633
Public Markets 89,970   86,389  
Total $ 1,341,473   $ 1,283,022  
 

 
KKR
SCHEDULE OF INVESTMENTS
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except percentage amounts)
     
As of September 30, 2015
   
Investments Cost Fair

Value

Fair Value as a

Percentage of

Total Investments

 
Private Equity Co-Investments $ 2,338,853 $ 2,930,212 31.6 %
Private Equity Funds 812,983   1,045,475   11.3 %
Private Equity Total 3,151,836   3,975,687   42.9 %
Energy 950,476 636,479 6.9 %
Real Estate 754,913 801,544 8.6 %
Infrastructure 176,814   188,440   2.0 %
Real Assets Total 1,882,203   1,626,463   17.5 %
 
Private Markets Total 5,034,039   5,602,150   60.4 %
 
Special Situations 799,103 791,583 8.5 %
Direct Lending 116,468 112,714 1.2 %
Mezzanine 89,991   95,173   1.0 %
Alternative Credit Total 1,005,562 999,470 10.7 %
CLOs (a) 1,415,896 1,137,612 12.3 %
Liquid Credit 203,706   203,084   2.2 %
Credit Total 2,625,164   2,340,166   25.2 %
 
Specialty Finance 277,421 236,753 2.6 %
 
Public Markets Total 2,902,585   2,576,919   27.8 %
 
Other 1,149,469 1,099,033 11.8 %
 
Total Investments $ 9,086,093   $ 9,278,102   100.0 %
 
                 
 
Significant Aggregate Portfolio Company Investments: (b)
First Data Corporation $ 1,061,332 $ 1,310,542 14.1 %
Walgreens Boots Alliance 165,776 659,487 7.1 %
HCA Inc. 29,455 193,538 2.1 %
U.S. Foodservice, Inc. 80,000 96,000 1.0 %
Zimmer Biomet Holdings Inc. 68,572   86,755   0.9 %
1,405,135   2,346,322   25.2 %
Other Investments 7,680,958   6,931,780   74.8 %
Total Investments $ 9,086,093   $ 9,278,102   100.0 %
 
         
    (a)   Includes approximately $80.6 million of CLOs that are not held for investment purposes and are held at cost. For prior periods, all CLOs were held at fair value.
(b) 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 in connection with new fundraising) based on their fair market value as of September 30, 2015. The fair value figures include the co-investment and the limited partner and/or general partner interests held by KKR 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, 2015

June 30, 2015 $ 63,129,200 $ 38,440,400 $ 101,569,600
New Capital Raised 999,500 1,897,300 2,896,800
Distributions (2,697,400 ) (1,559,200 ) (b) (4,256,600

)

Change in Value (650,100 ) (851,200 ) (1,501,300

)

September 30, 2015 $ 60,781,200   $ 37,927,300   $ 98,708,500
 

Nine Months Ended September 30, 2015

December 31, 2014 $ 61,505,800 $ 37,106,700 $ 98,612,500
New Capital Raised 3,733,300 6,346,900 10,080,200
Distributions (9,111,400 ) (4,793,100 ) (c) (13,904,500

)

Net Changes in Fee Base of Certain Funds (a) (238,600 ) (238,600

)

Change in Value 4,653,500   (494,600 ) 4,158,900  
September 30, 2015 $ 60,781,200   $ 37,927,300   $ 98,708,500  
 

Trailing Twelve Months Ended September 30, 2015

September 30, 2014 $ 59,168,300 $ 36,981,600 $ 96,149,900
New Capital Raised 7,340,300 8,577,900 15,918,200
Distributions (11,212,000 ) (6,775,700 ) (d) (17,987,700

)

Net Changes in Fee Base of Certain Funds (a) (238,600 ) (238,600

)

Change in Value 5,484,600   (617,900 ) 4,866,700  
September 30, 2015 $ 60,781,200   $ 37,927,300   $ 98,708,500  
 
 
Supplemental AUM Information:
Private
Markets
Segment
Public
Markets
Segment
Total
Reportable
Segments
 
 
Net AUM of Strategic Partnerships (Pro-rata based on ownership interest) $ 200,800 $ 2,772,000 $ 2,972,800
Capital Commitments Excluded from AUM ("Shadow AUM") 5,794,600 4,938,600 10,733,200
AUM as Reported at September 30, 2015 60,781,200   37,927,300   98,708,500  
Total at September 30, 2015 $ 66,776,600   $ 45,637,900   $ 112,414,500  
 
 
*Except as shown under "Supplemental AUM Information," excludes those assets managed by strategic partnerships where KKR does not hold more than a 50% ownership interest and excludes capital commitments for which KKR is entitled to management fees or carried interest upon the satisfaction of certain conditions in the future.
(a) Represents the impact of certain funds entering the post-investment period
(b) Includes $394.2 million of redemptions by fund investors.
(c) Includes $1,511.1 million of redemptions by fund investors.
(d) Includes $2,647.2 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, 2015

June 30, 2015 $ 46,758,800 $ 36,974,000 $ 83,732,800
New Capital Raised 1,028,800 1,804,900 2,833,700
Distributions (1,645,400 ) (1,474,000 ) (b) (3,119,400 )
Change in Value 56,800   (614,900 ) (558,100 )
September 30, 2015 $ 46,199,000   $ 36,690,000   $ 82,889,000  
 

Nine Months Ended September 30, 2015

December 31, 2014 $ 47,262,500 $ 35,783,900 $ 83,046,400
New Capital Raised 3,472,900 6,021,900 9,494,800
Distributions (4,330,100 ) (4,254,200 ) (c) (8,584,300 )
Net Changes in Fee Base of Certain Funds (a) (325,200 ) (325,200 )
Change in Value (206,300 ) (536,400 ) (742,700 )
September 30, 2015 $ 46,199,000   $ 36,690,000   $ 82,889,000  
 

Trailing Twelve Months Ended September 30, 2015

September 30, 2014 $ 45,591,600 $ 35,765,100 $ 81,356,700
New Capital Raised 6,752,100 8,078,600 14,830,700
Distributions (5,775,800 ) (6,101,600 ) (d) (11,877,400 )
Net Changes in Fee Base of Certain Funds (a) (325,200 ) (325,200 )
Change in Value (368,900 ) (726,900 ) (1,095,800 )
September 30, 2015 $ 46,199,000   $ 36,690,000   $ 82,889,000  
 
 

* Excludes those assets managed by strategic partnerships where KKR does not hold more than a 50% ownership interest and excludes capital commitments for which KKR is entitled to management fees or carried interest upon the satisfaction of certain conditions in the future.

 
(a) Represents the impact of certain funds entering the post-investment period.
(b) Includes $394.2 million of redemptions by fund investors.
(c) Includes $1,511.1 million of redemptions by fund investors.
(d) Includes $2,647.2 million of redemptions by fund investors.
 

 
KKR
INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)
As of September 30, 2015
(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
European Fund IV (b) 12/2014 12/2020 $ 3,418.6 $ 3,257.7 5.8% $ 160.9 $ $ 160.9 $ 197.2
Asian Fund II (b) 4/2013 4/2019 5,825.0 3,839.1 1.3% 2,599.7 613.7 1,985.9 2,731.2
North America Fund XI (b) 9/2012 9/2018 8,718.4 3,981.2 2.9% 5,555.7 1,597.7 4,357.9 6,268.5
China Growth Fund 11/2010 11/2016 1,010.0 399.5 1.0% 610.5 166.6 535.0 686.9
E2 Investors (Annex Fund) 8/2009 11/2013 195.8 4.9% 195.8 195.7 18.1 48.2
European Fund III 3/2008 3/2014 6,138.5 828.8 4.6% 5,309.7 4,392.7 3,278.6 4,312.4
Asian Fund 7/2007 4/2013 3,983.3 129.5 2.5% 3,853.8 5,343.1 1,973.0 2,541.8
2006 Fund 9/2006 9/2012 17,642.2 525.7 2.1% 17,116.5 17,585.2 8,178.0 13,456.0
European Fund II 11/2005 10/2008 5,750.8 2.1% 5,750.8 6,574.3 841.1 1,859.3
Millennium Fund 12/2002 12/2008 6,000.0 2.5% 6,000.0 11,901.7 1,156.2 2,156.7
European Fund 12/1999 12/2005 3,085.4       3.2% 3,085.4     8,748.0         17.8
Total Private Equity Funds 61,768.0 12,961.5 50,238.8 57,118.7 22,484.7 34,276.0
 
Co-Investment Vehicles (b) Various Various 5,701.3 2,757.4 Various 3,038.5 1,801.7 2,183.5 3,177.9
                   
Total Private Equity 67,469.3     15,718.9   53,277.3     58,920.4     24,668.2     37,453.9
 
Real Assets
Energy Income and Growth Fund 9/2013 9/2018 1,974.2 1,217.7 12.8% 756.5 127.1 673.8 518.2
Natural Resources Fund Various Various 887.4 2.9 Various 884.5 96.6 809.9 243.6
Global Energy Opportunities (b) Various Various 1,026.4 807.9 Various 252.7 53.8 220.9 139.8
Global Infrastructure Investors (b) 9/2011 10/2014 1,040.1 129.8 4.8% 938.2 128.0 910.3 1,014.3
Global Infrastructure Investors II 10/2014 10/2020 3,037.5 2,842.1 4.1% 195.4 195.4 215.8
Infrastructure Co-Investments Various Various 1,125.0 Various 1,125.0 356.5 1,125.0 1,542.3
Real Estate Partners Americas (b) 5/2013 12/2016 1,229.1 614.1 16.3% 755.5 303.6 614.6 690.7
Real Estate Partners Europe (b) 9/2015 (d) 277.0     277.0   36.1%      
Real Assets 10,596.7     5,891.5   4,907.8     1,065.6     4,549.9     4,364.7
 
Private Markets Total 78,066.0     21,610.4   58,185.1     59,986.0     29,218.1     41,818.6
 
Public Markets
Special Situations Fund 12/2012 12/2015 2,184.1 168.4 11.6% 2,015.7 184.2 2,015.7 2,230.1
Special Situations Fund II 12/2014 (c) 1,694.5 1,319.5 8.9% 375.0 375.0 268.1
Mezzanine Fund 3/2010 3/2015 1,022.8 150.6 4.4% 872.2 435.2 666.6 715.2
Lending Partners 12/2011 12/2014 460.2 91.7 15.2% 368.5 167.7 324.7 306.3
Lending Partners II 06/2014 06/2017 1,335.9 889.6 3.7% 446.3 13.0 446.3 466.7
Lending Partners Europe 03/2015 03/2018 556.6 543.2 7.3% 13.4 13.4 22.0
Other Alternative Credit Vehicles Various Various 4,430.9 2,118.9 Various 2,312.0 1,359.3 1,521.2 1,755.5
                   
Public Markets Total 11,685.0     5,281.9   6,403.1     2,159.4     5,362.9     5,763.9
 
Grand Total $ 89,751.0     $ 26,892.3   $ 64,588.2     $ 62,145.4     $ 34,581.0     $ 47,582.5
 
         
    (a)   Reflects investment vehicles for which KKR has the ability to earn carried interest.
(b) The "Invested" and "Realized" columns include the amounts of any realized investments that restored the unused capital commitments of the fund investors.
(c) Three years from final close.
(d) Four years from final close.

 
KKR
DISTRIBUTION CALCULATION (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
       
 
Quarter Ended Nine Months Ended
September 30, 2015   June 30, 2015   September 30, 2014 September 30, 2015   September 30, 2014
Cash Revenues
Fees $ 245,768 $ 271,500 $ 309,123 $ 817,343 $ 890,983
Realized cash carry 265,291 252,227 246,026 819,943 995,064
Net realized investment income - KKR (ex-KFN) 67,942 195,408 192,146 454,827 630,749
Net realized investment income - KFN 42,134   56,258   52,903   138,257   89,285  
Total Cash Revenues 621,135   775,393   800,198   2,230,370   2,606,081  
 
Cash Expenses
Cash compensation and benefits 88,033 98,871 108,790 293,931 309,149
Realized cash carry allocated to carry pool 106,116 100,891 98,411 327,977 398,026
Occupancy and related charges 15,720 15,475 14,458 45,991 43,404
Other operating expenses 52,081   51,613   60,272   164,640   167,384  
Total Cash Expenses 261,950   266,850   281,931   832,539   917,963  
 
Cash income (loss) before noncontrolling interests and local taxes 359,185 508,543 518,267 1,397,831 1,688,118
 
Less: local income taxes (7,168 ) (12,753 ) (8,261 ) (29,871 ) (23,923 )
Less: noncontrolling interests (2,902 ) (4,383 ) (5,189 ) (10,907 ) (11,597 )
Total Distributable Earnings 349,115 491,407 504,817 1,357,053 1,652,598
Less: estimated current corporate income taxes (18,005 ) (26,155 ) (29,505 ) (73,015 ) (81,975 )
Distributable Earnings, net of taxes 331,110 465,252 475,312 1,284,038 1,570,623
Less: Undistributed net realized investment income - KKR (ex-KFN) (40,765 ) (117,245 ) (115,288 ) (272,896 ) (378,450 )
Distributed Earnings $ 290,345   $ 348,007   $ 360,024   $ 1,011,142   $ 1,192,173  
 
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit $ 0.40 $ 0.57 $ 0.59 $ 1.57 $ 2.03
 
Distribution per KKR & Co. L.P. common unit $ 0.35 $ 0.42 $ 0.45 $ 1.23 $ 1.55
                         

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

 
After-tax FRE $ 0.08 $ 0.07 $ 0.10 $ 0.25 $ 0.34
Realized Cash Carry $ 0.19 $ 0.18 $ 0.18 $ 0.59 $ 0.76
Distributed Net Realized Investment Income - KKR (ex-KFN) $ 0.03 $ 0.10 $ 0.10 $ 0.22 $ 0.33
Distributed Net Realized Investment Income - KFN       $ 0.05     $ 0.07     $ 0.07     $ 0.17     $ 0.12  
                         
Fee and yield earnings distribution per KKR & Co. L.P. common unit       $ 0.12     $ 0.15     $ 0.18     $ 0.42     $ 0.49  
 
Adjusted Units Eligible For Distribution 820,963,035 820,963,434 808,698,012
 
Payout Ratio 87.7 % 74.8 % 75.7 % 78.7 % 75.9 %
 

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. It is a measure of the operating earnings of KKR and its business segments before carried interest and related carry pool allocations and investment income and comprises a portion of KKR's quarterly distribution under its prior distribution policy. 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. After tax FRE represents FRE after deductions for current corporate and local income taxes and noncontrolling interests.

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 and 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 under KKR's prior distribution policy 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 under KKR's prior distribution policy.

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 prior or 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 and its 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 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

European Fund IV $ 184,700
Energy Income and Growth Fund 157,300
North America Fund XI 129,700
Global Infrastructure Investors II 116,900
Real Estate Partners Europe 100,000
Real Estate Partners Americas 99,900
European Fund III 66,300
Asian Fund II 49,100
2006 Fund 22,700
Co-Investment Vehicles 69,500
Other Private Markets Funds 12,500
Total Private Markets Commitments 1,008,600
 

Public Markets

Special Situations Fund 19,600
Special Situations Fund II 117,200
Mezzanine Fund 6,500
Lending Partners 14,000
Lending Partners II 33,300
Lending Partners Europe 39,500
Other Alternative Credit Vehicles 78,800
Total Public Markets Commitments 308,900
 
Total Uncalled Commitments $ 1,317,500
 

 
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, 2015   June 30, 2015   September 30, 2014
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ (0.42 ) $ 0.84 $ 0.21
Weighted Average Common Units Outstanding - Basic 452,165,697 446,794,950 419,961,455
Net income (loss) attributable to KKR & Co. L.P. (190,588 ) 376,306 89,938
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

(166,078 ) 325,703 100,910
Plus: Non-cash equity-based charges 67,821 69,478 83,950
Plus: Amortization of intangibles and other, net 10,186 37,910 204,676
Plus: Income tax (benefit) (7,390 ) 30,547 29,267
Economic net income (loss) (286,049 ) 839,944 508,741
Less: Provision for income tax (benefit) (19,505 ) 44,836 47,361
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 48,252   48,453 42,090
Economic net income (loss) after taxes (314,796 ) 746,655 419,290
Weighted Average Adjusted Units 851,704,303   852,128,762 835,957,683
Economic net income (loss) after taxes per adjusted unit $ (0.37 ) $ 0.88 $ 0.50
 
 
Nine Months Ended
September 30, 2015 September 30, 2014
 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 1.03   $ 1.31
Weighted Average Common Units Outstanding - Basic 444,675,159 364,127,956
Net income (loss) attributable to KKR & Co. L.P. 456,225 478,194
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

398,633 588,500
Plus: Non-cash equity-based charges 213,849 254,435
Plus: Amortization of intangibles and other, net 45,306 262,300
Plus: Income tax (benefit) 39,295   57,145
Economic net income (loss) 1,153,308 1,640,574
Less: Provision for income tax (benefit) 46,566 90,272
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 148,970   122,320
Economic net income (loss) after taxes 957,772 1,427,982
Weighted Average Adjusted Units 850,644,918   787,502,790
Economic net income (loss) after taxes per adjusted unit $ 1.13   $ 1.81
 

 
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, 2015   June 30, 2015   September 30, 2014
 
Net income (loss) attributable to KKR & Co. L.P. $ (190,588 ) $ 376,306 $ 89,938
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

(166,078 ) 325,703 100,910
Plus: Non-cash equity-based charges 67,821 69,478 83,950
Plus: Amortization of intangibles and other, net 10,186 37,910 204,676
Plus: Income tax (benefit) (7,390 ) 30,547   29,267
Economic net income (loss) (286,049 ) 839,944 508,741
Plus: Income attributable to segment noncontrolling interests 2,902 4,383 5,189
Less: Total investment income (loss) (274,384 ) 383,650 207,216
Less: Net carried interest (98,697 ) 355,136   181,111
Fee related earnings 89,934 105,541 125,603
Plus: Net interest and dividends 48,637   75,406   82,254
Fee and yield earnings 138,571 180,947 207,857
Plus: Depreciation and amortization 3,745 3,918 3,777
Plus: Core interest expense 30,429   30,750   23,347
Fee and yield EBITDA 172,745 215,615 234,981
Less: Depreciation and amortization 3,745 3,918 3,777
Less: Core interest expense 30,429 30,750 23,347
Less: Net interest and dividends 48,637 75,406 82,254
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 159,175 151,336 147,615
Plus: Net realized investment income - KKR (ex-KFN) 67,942 195,408 192,146
Plus: Net realized investment income - KFN 42,134 56,258 52,903
Less: Local income taxes and noncontrolling interests 10,070   17,136   13,450
Total distributable earnings 349,115 491,407 504,817
Plus: Depreciation and amortization 3,745 3,918 3,777
Plus: Core interest expense 30,429 30,750 23,347
Plus: Local income taxes and noncontrolling interests 10,070   17,136   13,450
Total EBITDA $ 393,359   $ 543,211   $ 545,391
 
 
Nine Months Ended
September 30, 2015 September 30, 2014
 
Net income (loss) attributable to KKR & Co. L.P. $ 456,225 $ 478,194
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

398,633 588,500
Plus: Non-cash equity-based charges 213,849 254,435
Plus: Amortization of intangibles and other, net 45,306 262,300
Plus: Income tax (benefit) 39,295   57,145  
Economic net income (loss) 1,153,308 1,640,574
Plus: Income attributable to segment noncontrolling interests 10,907 11,597
Less: Total investment income (loss) 329,887 648,025
Less: Net carried interest 521,547   633,100  
Fee related earnings 312,781 371,046
Plus: Net interest and dividends 174,718   153,850  
Fee and yield earnings 487,499 524,896
Plus: Depreciation and amortization 11,544 11,952
Plus: Core interest expense 86,511   60,952  
Fee and yield EBITDA 585,554 597,800
Less: Depreciation and amortization 11,544 11,952
Less: Core interest expense 86,511 60,952
Less: Net interest and dividends 174,718 153,850
Plus: Realized cash carry, net of realized cash carry allocated to carry pool 491,966 597,038
Plus: Net realized investment income - KKR (ex-KFN) 454,827 630,749
Plus: Net realized investment income - KFN 138,257 89,285
Less: Local income taxes and noncontrolling interests 40,778   35,520  
Total distributable earnings 1,357,053 1,652,598
Plus: Depreciation and amortization 11,544 11,952
Plus: Core interest expense 86,511 60,952
Plus: Local income taxes and noncontrolling interests 40,778   35,520  
Total EBITDA $ 1,495,886   $ 1,761,022  
 

 
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, 2015 December 31, 2014
 
KKR & Co. L.P. partners' capital $ 5,658,646 $ 5,382,691
Noncontrolling interests held by KKR Holdings L.P. 4,482,900 4,661,679
Equity impact of KKR Management Holdings Corp. and other 90,017   73,855
 
Book value 10,231,563 10,118,225
Adjusted units 851,670,762   838,020,974
Book value per adjusted unit $ 12.01   $ 12.07
 
             
 
 
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (UNAUDITED)
(Amounts in thousands)
 
As of As of
September 30, 2015 December 31, 2014
 
Cash and cash equivalents $ 1,756,918 $ 918,080
Liquid short-term investments 305,715   203,305
Cash and short-term investments $ 2,062,633   $ 1,121,385
 

 
KKR

EXHIBIT C

RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING - BASIC

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
September 30, 2015     June 30, 2015   September 30, 2014
Weighted Average GAAP Common Units Outstanding - Basic 452,165,697 446,794,950 419,961,455
Adjustments:
Weighted Average Unvested Common Units and Other Securities (a)   (c) 35,856,541   32,058,287
Weighted Average GAAP Common Units Outstanding - Diluted 452,165,697 482,651,491 452,019,742
Adjustments:
Weighted Average KKR Holdings Units (b) 365,717,358 369,477,271 383,937,941
Weighted Average Unvested Common Units and Other Securities (a) 33,821,248   (c)  
Weighted Average Adjusted Units 851,704,303   852,128,762   835,957,683
                     
 
Nine Months Ended
September 30, 2015 September 30, 2014
Weighted Average GAAP Common Units Outstanding - Basic 444,675,159 364,127,956
Adjustments:
Weighted Average Unvested Common Units and Other Securities (a) 35,663,176   32,104,872  
Weighted Average GAAP Common Units Outstanding - Diluted 480,338,335 396,232,828
Adjustments:
Weighted Average KKR Holdings Units (b) 370,306,583   391,269,962  
Weighted Average Adjusted Units 850,644,918   787,502,790  
 
                     
 
RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING - BASIC TO ADJUSTED UNITS AND ADJUSTED UNITS ELIGIBLE FOR DISTRIBUTION (UNAUDITED)
 
The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units and Adjusted Units Eligible for Distribution.