KKR & Co. Inc.

Press Release

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

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07.23.15

 

Strong Investment Performance Drives Record Economic Net Income

GAAP net income (loss) attributable to KKR & Co. L.P. was $376.3 million and $646.8 million for the quarter and six months ended June 30, 2015, respectively, up from $178.2 million and $388.3 million in the comparable periods of 2014.

Total distributable earnings was $491.4 million and $1,007.9 million for the quarter and six months ended June 30, 2015, respectively, down from $701.0 million and $1,147.8 million in the comparable periods of 2014.

Distribution per common unit was $0.42 and $0.88 for the quarter and six months ended June 30, 2015, respectively, down from $0.67 and $1.10 in the comparable periods of 2014.

Economic net income ("ENI") was $839.9 million and $1,439.4 million for the quarter and six months ended June 30, 2015, respectively, up from $501.6 million and $1,131.8 million in the comparable periods of 2014.

ENI after taxes per adjusted unit was $0.88 and $1.50 for the quarter and six months ended June 30, 2015, respectively, up from $0.57 and $1.32 in the comparable periods of 2014.

Fee and yield earnings were $180.9 million and $348.9 million for the quarter and six months ended June 30, 2015, respectively, up from $154.2 million and $317.0 million in the comparable periods of 2014.

Book value was $10.9 billion on a total reportable segment basis as of June 30, 2015 or $12.77 per adjusted unit.

Return on equity and cash return on equity were 16.6% and 17.1%, respectively.

Assets under management ("AUM") and fee paying assets under management ("FPAUM") totaled $101.6 billion and $83.7 billion, respectively, as of June 30, 2015.

NEW YORK--(BUSINESS WIRE)--

KKR & Co. L.P. (NYSE: KKR) today reported its second quarter 2015 results.

In April 2015, KKR held its final close for Lending Partners II, the successor fund to the predecessor Lending Partners fund. KKR closed this successor fund with over $1.3 billion of capital commitments, which surpassed the predecessor fund that had $460 million in total capital commitments.

In July 2015, KKR held its final close for Global Infrastructure Investors II, the successor fund to the predecessor Global Infrastructure Investors fund. KKR closed this successor fund with over $3.0 billion of capital commitments, which surpassed the predecessor fund that had $1.0 billion in total capital commitments.

"Our strong investment performance resulted in $840 million of Economic Net Income, a record quarterly figure for KKR," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "Additionally, we continued to scale several growth areas including our infrastructure and alternative credit businesses."

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 six months ended June 30, 2015, included net income (loss) attributable to KKR & Co. L.P. of $376.3 million and $646.8 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit of $0.78 and $1.35, respectively, on a diluted basis. For the quarter and six months ended June 30, 2014, net income (loss) attributable to KKR & Co. L.P. was $178.2 million and $388.3 million, respectively, and net income (loss) attributable to KKR & Co. L.P. per common unit was $0.43 and $1.06, respectively, on a diluted basis. The increase in both comparable periods was primarily due to (i) an increase in investment income and (ii) an increase in KKR & Co. L.P.'s ownership percentage in the KKR business.

 

SEGMENT RESULTS

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

Total Distributable Earnings

                           
                             
Fees       $ 272     $ 254         $ 572     $ 582      
Realized Cash Carry       252     555         555     749      
Net Realized Investment Income       251     282         483     475      
Total Cash Revenues       $ 775     $ 1,091     (29 )%   $ 1,610     $ 1,806     (11 )%
Total Cash Expenses and Other       284     391         601     658      
Total Distributable Earnings       $ 491     $ 700     (30 )%   $ 1,009     $ 1,148     (12 )%
Less: Estimated Current Corporate Income Taxes       (26 )   (19 )       (55 )   (52 )    
Distributable Earnings, net of taxes       $ 465     $ 681     (32 )%   $ 954     $ 1,096     (13 )%
                             
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit       $ 0.57     $ 0.85     (33 )%   $ 1.17     $ 1.44     (19 )%
Distribution per KKR & Co. L.P. common unit       $ 0.42     $ 0.67     (37 )%   $ 0.88     $ 1.10     (20 )%
                             
Payout ratio       75 %   78 %       76 %   76 %    
                             
                             

Economic Net Income

                           
                             
Management, Monitoring and Transaction Fees, Net       $ 266     $ 243         $ 560     $ 553      
Performance Income       598     429         1,046     785      
Investment Income       384     162         604     441      
Total Segment Revenues       $ 1,248     $ 834     50 %   $ 2,210     $ 1,779     24 %
Total Segment Expenses and Other       501     380         937     770      
Economic Net Income, After-Taxes       $ 747     $ 454     65 %   $ 1,273     $ 1,009     26 %
                             
Economic Net Income, After-Taxes per Adjusted Unit       $ 0.88     $ 0.57     54 %   $ 1.50     $ 1.32     14 %
                             
Fee and Yield Earnings       $ 181     $ 154     18 %   $ 349     $ 317     10 %
                             
                             

Other

                           
                             
Book Value per Adjusted Unit       $ 12.77     $ 12.52     2 %            
                             
                             
                             
        Last Twelve Months Ended                
        June 30, 2015   June 30, 2014                
Return on Equity       16.6%   28.7%                
Cash Return on Equity       17.1%   22.2%                
                             

 

Private Markets

AUM was $63.1 billion as of June 30, 2015, an increase of $1.0 billion, compared to AUM of $62.1 billion as of March 31, 2015. The increase was primarily attributable to the appreciation in the fair value of our private equity portfolio and to a lesser extent new capital raised in European Fund IV and Global Infrastructure Investors II. These increases were offset by distributions to limited partners of our private equity funds arising from realizations.

FPAUM was $46.8 billion as of June 30, 2015, a decrease of $0.4 billion, compared to FPAUM of $47.2 billion as of March 31, 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 $1,004.9 million for the quarter ended June 30, 2015, an increase of $362.0 million, compared to total segment revenues of $642.9 million for the quarter ended June 30, 2014. Total segment revenues were $1,872.9 million for the six months ended June 30, 2015, an increase of $499.3 million, compared to total segment revenues of $1,373.6 million for the six months ended June 30, 2014. The increase in both comparable periods was principally attributable to (i) a higher level of investment income reflecting a higher level of appreciation in our private equity portfolio and (ii) an increase in performance income due to higher net carried interest resulting from more private equity funds earning carried interest and higher net overall appreciation in our private equity portfolio. For the three and six months ended June 30, 2015, the fair value of our private equity portfolio appreciated 7.4% and 11.8%, respectively.

ENI was $666.2 million for the quarter ended June 30, 2015, an increase of $290.0 million, compared to ENI of $376.2 million for the quarter ended June 30, 2014. The increase was primarily attributable to higher total segment revenues as described above, partially offset by higher allocations to the carry pool resulting from the higher levels of net carried interest.

Public Markets

AUM was $38.4 billion as of June 30, 2015, an increase of $1.4 billion, compared to AUM of $37.0 billion as of March 31, 2015. FPAUM was $37.0 billion as of June 30, 2015, an increase of $1.3 billion, compared to FPAUM of $35.7 billion as of March 31, 2015. For both AUM and FPAUM, the increases were primarily attributable to new capital raised, primarily in our CLOs, offset by distributions and redemptions across multiple strategies.

Total segment revenues were $188.2 million for the quarter ended June 30, 2015, an increase of $31.0 million, compared to total segment revenues of $157.2 million for the quarter ended June 30, 2014. The increase in revenues was primarily attributable to an increase in investment income across multiple strategies and the impact of yielding assets of KKR Financial Holdings LLC ("KFN"), which was acquired on April 30, 2014 but was not contributing to our investment income for one month of the second quarter of 2014.

Total segment revenues were $238.2 million for the six months ended June 30, 2015, a decrease of $64.6 million, compared to total segment revenues of $302.8 million for the six months ended June 30, 2014. The decrease was principally attributable to (i) a decrease in investment income 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 $136.6 million for the quarter ended June 30, 2015, an increase of $31.0 million, compared to ENI of $105.6 million for the quarter ended June 30, 2014. The increase was principally attributable to the increase in total segment revenues as described above.

ENI was $139.4 million for the six months ended June 30, 2015, a decrease of $64.0 million, compared to ENI of $203.4 million for the six months ended June 30, 2014. The decrease was principally attributable to the decrease in total segment revenues as described above.

Capital Markets

Total segment revenues were $54.7 million for the quarter ended June 30, 2015, an increase of $20.7 million, compared to total segment revenues of $34.0 million for the quarter ended June 30, 2014. The increase in revenues primarily reflect a higher level of overall capital markets transaction activity for the quarter ended June 30, 2015.

Total segment revenues were $99.1 million for the six months ended June 30, 2015, an decrease of $4.1 million, compared to total segment revenues of $103.2 million for the six months ended June 30, 2014. The decrease in revenues primarily reflects a lower level of overall capital markets transaction activity for the six months ended June 30, 2015.

ENI was $37.2 million for the quarter ended June 30, 2015, an increase of $17.4 million, compared to ENI of $19.8 million for the quarter ended June 30, 2014. The increase primarily reflects the increase in total segment revenues as described above.

ENI was $65.3 million for the six months ended June 30, 2015, a decrease of $1.6 million, compared to ENI of $66.9 million for the six months ended June 30, 2014. The decrease primarily reflects the decrease in total segment revenues as described above, largely offset by lower compensation expense.

CAPITAL AND LIQUIDITY

As of June 30, 2015, KKR had $2.0 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 June 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 June 30, 2015.

As of June 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 $0.42 per common unit has been declared, comprised of (i) $0.07 per common unit from after-tax FRE, (ii) $0.18 per common unit from realized cash carry, (iii) $0.10 per common unit from KKR's net realized investment income and (iv) $0.07 per common unit from KFN's net realized investment income. The distribution will be paid on August 18, 2015 to unitholders of record as of the close of business on August 3, 2015.

SUPPLEMENTAL INFORMATION

A slide presentation containing supplemental commentary about the Company's financial results for the fiscal quarter ended June 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 Thursday, July 23, 2015 at 10:00 a.m. EDT. The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Investor Center section of KKR's website at http://ir.kkr.com/kkr_ir/kkr_events.cfm. A replay of the live broadcast will be available on KKR's website or by dialing (855) 859-2056 (U.S. callers) or +1 (404) 537-3406 (non-U.S. callers), pass code 80669130, beginning approximately two hours after the broadcast.

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

ABOUT KKR

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

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, ENI after taxes, fee and yield earnings, fee and yield EBITDA, equity invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized 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. 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   Six Months Ended
        June 30, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Revenues                    
Fees and Other       $ 255,874     $ 249,370     $ 547,219     $ 552,296  
Expenses                    
Compensation and Benefits       411,691     358,730     776,690     689,768  
Occupancy and Related Charges       16,172     16,059     31,904     31,467  
General, Administrative and Other       126,314     210,536     260,616     337,261  
Total Expenses       554,177     585,325     1,069,210     1,058,496  
Investment Income (Loss)                    
Net Gains (Losses) from Investment Activities       3,110,604     1,971,850     5,030,429     3,944,030  
Dividend Income       360,556     272,902     439,371     369,606  
Interest Income       302,985     215,872     599,143     377,832  
Interest Expense       (139,427 )   (65,997 )   (251,390 )   (100,728 )
Total Investment Income (Loss)       3,634,718     2,394,627     5,817,553     4,590,740  
                     
Income (Loss) Before Taxes       3,336,415     2,058,672     5,295,562     4,084,540  
                     
Income Taxes       30,547     6,176     46,685     27,878  
                     
Net Income (Loss)       3,305,868     2,052,496     5,248,877     4,056,662  
                     
Net Income (Loss) Attributable to                    
Redeemable Noncontrolling Interests       (891 )   (6,809 )   1,042     3,828  
Net Income (Loss) Attributable to                    
Noncontrolling Interests and Appropriated Capital       2,930,453     1,881,090     4,601,022     3,664,578  
                     
Net Income (Loss) Attributable to KKR & Co. L.P.       $ 376,306     $ 178,215     $ 646,813     $ 388,256  
                     
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit                    
Basic       $ 0.84     $ 0.47     $ 1.47     $ 1.16  
Diluted (a)       $ 0.78     $ 0.43     $ 1.35     $ 1.06  
Weighted Average Common Units Outstanding                    
Basic       446,794,950     377,542,161     440,867,813     335,748,498  
Diluted (a)       482,651,491     410,179,838     477,467,220     367,877,049  
                             
(a)   KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit since the exchange of these units would not dilute KKR's respective ownership interests in the KKR Group Partnerships.
     

 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
             
        Quarter Ended   Six Months Ended
        June 30, 2015   March 31, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Segment Revenues                        
Management, Monitoring and Transaction Fees, Net                        
Management Fees       $ 181,401     $ 173,780     $ 178,674     $ 355,181     $ 374,067  
Monitoring Fees       47,713     97,838     29,610     145,551     65,973  
Transaction Fees       92,951     103,286     84,305     196,237     247,821  
Fee Credits       (56,458 )   (80,494 )   (49,830 )   (136,952 )   (134,498 )
Total Management, Monitoring and Transaction Fees, Net       265,607     294,410     242,759     560,017     553,363  
Performance Income                        
Realized Carried Interest       252,227     302,425     555,488     554,652     749,038  
Incentive Fees       5,893     5,665     11,478     11,558     28,497  
Unrealized Carried Interest       340,366     139,284     (137,826 )   479,650     7,821  
Total Performance Income       598,486     447,374     429,140     1,045,860     785,356  
Investment Income (Loss)                        
Net Realized Gains (Losses)       176,260     180,667     221,661     356,927     403,389  
Net Unrealized Gains (Losses)       131,984     (10,721 )   (119,935 )   121,263     (34,176 )
Total Realized and Unrealized       308,244     169,946     101,726     478,190     369,213  
Net Interest and Dividends       75,406     50,675     60,432     126,081     71,596  
Total Investment Income (Loss)       383,650     220,621     162,158     604,271     440,809  
Total Segment Revenues       1,247,743     962,405     834,057     2,210,148     1,779,528  
Segment Expenses                        
Compensation and Benefits                        
Cash Compensation and Benefits       98,871     107,027     91,444     205,898     200,359  
Realized Allocation to Carry Pool       100,891     120,970     222,195     221,861     299,615  
Unrealized Allocation to Carry Pool       136,566     55,631     (53,435 )   192,197     5,255  
Total Compensation and Benefits       336,328     283,628     260,204     619,956     505,229  
Occupancy and Related Charges       15,475     14,796     14,757     30,271     28,946  
Other Operating Expenses       51,613     60,946     54,311     112,559     107,112  
Total Segment Expenses       403,416     359,370     329,272     762,786     641,287  
Income (Loss) attributable to noncontrolling interests       4,383     3,622     3,206     8,005     6,408  
Economic Net Income (Loss) (a)       $ 839,944     $ 599,413     $ 501,579     $ 1,439,357     $ 1,131,833  
Provision for Income Taxes       44,836     21,235     6,330     66,071     42,911  
Equity-based Charges       48,453     52,265     40,877     100,718     80,230  
Economic Net Income (Loss), After Taxes (b)       $ 746,655     $ 525,913     $ 454,372     $ 1,272,568     $ 1,008,692  
                         
Economic Net Income (Loss), After Taxes Per Adjusted Unit       $ 0.88     $ 0.62     $ 0.57     $ 1.50     $ 1.32  
Weighted Average Adjusted Units (Fully Diluted Basis) (a)       852,128,762     848,061,661     800,747,528     850,106,448     762,873,784  
                         
Assets Under Management       $ 101,569,600     $ 99,128,000     $ 97,957,900     $ 101,569,600     $ 97,957,900  
Fee Paying Assets Under Management       $ 83,732,800     $ 82,884,500     $ 79,656,300     $ 83,732,800     $ 79,656,300  
Equity Invested and Syndicated Capital       $ 2,011,100     $ 2,945,400     $ 2,345,500     $ 4,956,500     $ 5,722,800  
Uncalled Commitments       $ 25,906,300     $ 21,555,600     $ 19,784,200     $ 25,906,300     $ 19,784,200  
                         

Other Information

                       
Fee Related Earnings       $ 105,541     $ 117,306     $ 93,725     $ 222,847     $ 245,443  
Plus: Net Interest and Dividends       75,406     50,675     60,432     126,081     71,596  
Fee and Yield Earnings (a)       $ 180,947     $ 167,981     $ 154,157     $ 348,928     $ 317,039  
Plus: Depreciation and Amortization       3,918     3,881     4,140     7,799     8,175  
Plus: Core Interest Expense       30,750     25,332     19,205     56,082     37,605  
Fee and Yield EBITDA (a)       $ 215,615     $ 197,194     $ 177,502     $ 412,809     $ 362,819  
                         
Total Distributable Earnings (a)       $ 491,407     $ 516,531     $ 700,973     $ 1,007,938     $ 1,147,781  
GAAP interest expense       $ 139,427     $ 111,963     $ 65,997     $ 251,390     $ 100,728  
Less: interest expense related to debt obligations                        
from investment financing arrangements and KFN       108,677     86,631     46,792     195,308     63,123  
Core Interest Expense (a)       $ 30,750     $ 25,332     $ 19,205     $ 56,082     $ 37,605  
                                             
(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   Six Months Ended
        June 30, 2015   March 31, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Segment Revenues                        
Management, Monitoring and Transaction Fees, Net                        
Management Fees       $ 115,346     $ 109,276     $ 111,542     $ 224,622     $ 234,581  
Monitoring Fees       47,713     97,838     29,610     145,551     65,973  
Transaction Fees       40,321     46,599     45,340     86,920     138,360  
Fee Credits       (53,286 )   (69,906 )   (43,478 )   (123,192 )   (123,816 )
Total Management, Monitoring and Transaction Fees, Net       150,094     183,807     143,014     333,901     315,098  
                         
Performance Income                        
Realized Carried Interest       243,274     302,425     555,488     545,699     724,288  
Incentive Fees                        
Unrealized Carried Interest       312,379     126,937     (163,564 )   439,316     (17,788 )
Total Performance Income       555,653     429,362     391,924     985,015     706,500  
                         
Investment Income (Loss)                        
Net Realized Gains (Losses)       145,817     183,264     207,892     329,081     384,090  
Net Unrealized Gains (Losses)       145,094     79,363     (122,729 )   224,457     (52,056 )
Total Realized and Unrealized       290,911     262,627     85,163     553,538     332,034  
Net Interest and Dividends       8,234     (7,831 )   22,760     403     19,952  
Total Investment Income (Loss)       299,145     254,796     107,923     553,941     351,986  
Total Segment Revenues       1,004,892     867,965     642,861     1,872,857     1,373,584  
                         
Segment Expenses                        
Compensation and Benefits                        
Cash Compensation and Benefits       65,939     73,967     56,522     139,906     123,420  
Realized Allocation to Carry Pool       97,310     120,970     222,195     218,280     289,715  
Unrealized Allocation to Carry Pool       125,371     50,693     (63,730 )   176,064     (4,987 )
Total Compensation and Benefits       288,620     245,630     214,987     534,250     408,148  
Occupancy and Related Charges       11,832     11,016     11,764     22,848     23,324  
Other Operating Expenses       38,125     42,116     39,589     80,241     79,648  
Total Segment Expenses       338,577     298,762     266,340     637,339     511,120  
                         
Income (Loss) attributable to noncontrolling interests       143     719     335     862     850  
                         
Economic Net Income (Loss)       $ 666,172     $ 568,484     $ 376,186     $ 1,234,656     $ 861,614  
                         
Assets Under Management       $ 63,129,200     $ 62,139,400     $ 59,417,000     $ 63,129,200     $ 59,417,000  
Fee Paying Assets Under Management       $ 46,758,800     $ 47,161,900     $ 46,167,300     $ 46,758,800     $ 46,167,300  
Equity Invested       $ 1,258,200     $ 2,047,400     $ 1,454,400     $ 3,305,600     $ 4,006,200  
Uncalled Commitments       $ 21,078,400     $ 18,690,000     $ 17,109,800     $ 21,078,400     $ 17,109,800  
                                             

 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
PUBLIC MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
             
        Quarter Ended   Six Months Ended
        June 30, 2015   March 31, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Segment Revenues                        
Management, Monitoring and Transaction Fees, Net                        
Management Fees       $ 66,055     $ 64,504     $ 67,132     $ 130,559     $ 139,486  
Monitoring Fees                        
Transaction Fees       3,873     13,430     7,350     17,303     13,372  
Fee Credits       (3,172 )   (10,588 )   (6,352 )   (13,760 )   (10,682 )
Total Management, Monitoring and Transaction Fees, Net       66,756     67,346     68,130     134,102     142,176  
                         
Performance Income                        
Realized Carried Interest       8,953             8,953     24,750  
Incentive Fees       5,893     5,665     11,478     11,558     28,497  
Unrealized Carried Interest       27,987     12,347     25,738     40,334     25,609  
Total Performance Income       42,833     18,012     37,216     60,845     78,856  
                         
Investment Income (Loss)                        
Net Realized Gains (Losses)       31,192     684     14,284     31,876     19,763  
Net Unrealized Gains (Losses)       (11,988 )   (87,877 )   3,751     (99,865 )   18,565  
Total Realized and Unrealized       19,204     (87,193 )   18,035     (67,989 )   38,328  
Net Interest and Dividends       59,390     51,872     33,822     111,262     43,399  
Total Investment Income (Loss)       78,594     (35,321 )   51,857     43,273     81,727  
Total Segment Revenues       188,183     50,037     157,203     238,220     302,759  
                         
Segment Expenses                        
Compensation and Benefits                        
Cash Compensation and Benefits       22,785     24,005     26,904     46,790     53,649  
Realized Allocation to Carry Pool       3,581             3,581     9,900  
Unrealized Allocation to Carry Pool       11,195     4,938     10,295     16,133     10,242  
Total Compensation and Benefits       37,561     28,943     37,199     66,504     73,791  
Occupancy and Related Charges       2,977     3,122     2,544     6,099     4,716  
Other Operating Expenses       10,617     14,954     11,474     25,571     19,981  
Total Segment Expenses       51,155     47,019     51,217     98,174     98,488  
                         
Income (Loss) attributable to noncontrolling interests       478     175     385     653     907  
                         
Economic Net Income (Loss)       $ 136,550     $ 2,843     $ 105,601     $ 139,393     $ 203,364  
                         
Assets Under Management       $ 38,440,400     $ 36,988,600     $ 38,540,900     $ 38,440,400     $ 38,540,900  
Fee Paying Assets Under Management       $ 36,974,000     $ 35,722,600     $ 33,489,000     $ 36,974,000     $ 33,489,000  
Equity Invested       $ 320,800     $ 649,300     $ 724,400     $ 970,100     $ 1,458,500  
Uncalled Commitments       $ 4,827,900     $ 2,865,600     $ 2,674,400     $ 4,827,900     $ 2,674,400  
Gross Dollars Invested       $ 1,110,100     $ 1,210,800     $ 768,200     $ 2,320,900     $ 1,757,900  
                                             

 

 
KKR
STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
CAPITAL MARKETS SEGMENT (UNAUDITED)
(Amounts in thousands)
                 
        Quarter Ended   Six Months Ended
        June 30, 2015   March 31, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Segment Revenues                        
Management, Monitoring and Transaction Fees, Net                        
Management Fees       $     $     $     $     $  
Monitoring Fees                        
Transaction Fees       48,757     43,257     31,615     92,014     96,089  
Fee Credits                        
Total Management, Monitoring and Transaction Fees, Net       48,757     43,257     31,615     92,014     96,089  
                         
Performance Income                        
Realized Carried Interest                        
Incentive Fees                        
Unrealized Carried Interest                        
Total Performance Income                        
                         
Investment Income (Loss)                        
Net Realized Gains (Losses)       (749 )   (3,281 )   (515 )   (4,030 )   (464 )
Net Unrealized Gains (Losses)       (1,122 )   (2,207 )   (957 )   (3,329 )   (685 )
Total Realized and Unrealized       (1,871 )   (5,488 )   (1,472 )   (7,359 )   (1,149 )
Net Interest and Dividends       7,782     6,634     3,850     14,416     8,245  
Total Investment Income (Loss)       5,911     1,146     2,378     7,057     7,096  
Total Segment Revenues       54,668     44,403     33,993     99,071     103,185  
                         
Segment Expenses                        
Compensation and Benefits                        
Cash Compensation and Benefits       10,147     9,055     8,018     19,202     23,290  
Realized Allocation to Carry Pool                        
Unrealized Allocation to Carry Pool                        
Total Compensation and Benefits       10,147     9,055     8,018     19,202     23,290  
Occupancy and Related Charges       666     658     449     1,324     906  
Other Operating Expenses       2,871     3,876     3,248     6,747     7,483  
Total Segment Expenses       13,684     13,589     11,715     27,273     31,679  
                         
Income (Loss) attributable to noncontrolling interests       3,762     2,728     2,486     6,490     4,651  
                         
Economic Net Income (Loss)       $ 37,222     $ 28,086     $ 19,792     $ 65,308     $ 66,855  
                         
Syndicated Capital       $ 432,100     $ 248,700     $ 166,700     $ 680,800     $ 258,100  
                                             

 

 
KKR
BALANCE SHEET
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except per unit amounts)
                     
                     
        As of       As of    
        June 30, 2015       December 31, 2014    
Cash and short-term investments       $ 2,025,779         $ 1,121,385      
Investments       9,743,800     (a)   9,807,606      
Unrealized carry (b)       1,579,405     (b)   1,283,022     (b)
Other assets       1,025,889         999,654      
Total assets       $ 14,374,873         $ 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       334,426         413,808      
Total liabilities       3,365,486         2,971,868      
Noncontrolling interests       126,140         121,574      
Book value       $ 10,883,247         $ 10,118,225      
                     
Book value per adjusted unit       $ 12.77         $ 12.07      
                     
                     
                     
(a) See schedule of investments that follows on the next page.
                     
        As of       As of    

(b) Unrealized Carry

      June 30, 2015       December 31, 2014    
Private Markets       $ 1,468,815         $ 1,196,633      
Public Markets       110,590         86,389      
Total       $ 1,579,405         $ 1,283,022      
                             

 

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

Value

  Fair Value as a

Percentage of

Total Investments

                 
Private Equity Co-Investments       $ 2,285,974     $ 2,909,238     29.9 %
Private Equity Funds       822,314     1,103,850     11.3 %
Private Equity Total       3,108,288     4,013,088     41.2 %
Energy       969,845     721,413     7.4 %
Real Estate       729,454     775,054     8.0 %
Infrastructure       172,138     180,351     1.9 %
Real Assets Total       1,871,437     1,676,818     17.3 %
                 
Private Markets Total       4,979,725     5,689,906     58.5 %
                 
Special Situations       769,487     832,958     8.5 %
Direct Lending       126,019     124,702     1.3 %
Mezzanine       89,287     96,125     0.9 %
Alternative Credit       984,793     1,053,785     10.7 %
CLOs       1,493,080     1,309,936     13.4 %
Liquid Credit       177,781     181,120     1.9 %
Credit Total       2,655,654     2,544,841     26.0 %
                 
Specialty Finance       282,648     250,893     2.6 %
                 
Public Markets Total       2,938,302     2,795,734     28.6 %
                 
Other       1,251,224     1,258,160     12.9 %
                 
Total Investments       $ 9,169,251     $ 9,743,800     100.0 %
                 
                 
                 
Significant Aggregate Portfolio Company Investments: (a)                
First Data Corporation       $ 1,061,332     $ 1,309,329     13.4 %
Walgreens Boots Alliance       165,776     615,574     6.3 %
HCA Inc.       29,455     226,780     2.3 %
Zimmer Biomet Holdings Inc.       68,572     100,485     1.0 %
U.S. Foodservice, Inc.       80,000     96,000     1.0 %
        1,405,135     2,348,168     24.0 %
Other Investments       7,764,116     7,395,632     76.0 %
Total Investments       $ 9,169,251     $ 9,743,800     100.0 %
                           
(a)   The significant aggregate portfolio company investments include the top five private equity investments in portfolio companies (other than investments expected to be syndicated or transferred in connection with new fundraising) based on their fair market value as of June 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 June 30, 2015

               
March 31, 2015       $ 62,139,400     $ 36,988,600     $ 99,128,000  
New Capital Raised       1,142,700     2,201,700     3,344,400  
Distributions       (3,447,000 )   (1,385,300 ) (b) (4,832,300 )
Change in Value       3,294,100     635,400     3,929,500  
June 30, 2015       $ 63,129,200     $ 38,440,400     $ 101,569,600  
                 

Six Months Ended June 30, 2015

               
December 31, 2014       $ 61,505,800     $ 37,106,700     $ 98,612,500  
New Capital Raised       2,733,800     4,449,600     7,183,400  
Distributions       (6,414,000 )   (3,233,900 ) (c) (9,647,900 )
Net Changes in Fee Base of Certain Funds (a)           (238,600 )   (238,600 )
Change in Value       5,303,600     356,600     5,660,200  
June 30, 2015       $ 63,129,200     $ 38,440,400     $ 101,569,600  
                 

Trailing Twelve Months Ended June 30, 2015

               
June 30, 2014       $ 59,417,000     $ 38,540,900     $ 97,957,900  
New Capital Raised       7,086,700     8,635,800     15,722,500  
Distributions       (10,504,000 )   (8,117,500 ) (d) (18,621,500 )
Net Changes in Fee Base of Certain Funds (a)           (238,600 )   (238,600 )
Change in Value       7,129,500     (380,200 )   6,749,300  
June 30, 2015       $ 63,129,200     $ 38,440,400     $ 101,569,600  
                             
*  

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

(a)   Represents the impact of certain funds entering the post-investment period.
(b)   Includes $463.7 million of redemptions by fund investors.
(c)   Includes $1,116.9 million of redemptions by fund investors.
(d)   Includes $3,132.4 million of redemptions by fund investors.
     

 

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

Markets

Segment

  Public

Markets

Segment

  Total

Reportable

Segments

Quarter Ended June 30, 2015

               
March 31, 2015       $ 47,161,900     $ 35,722,600     $ 82,884,500  
New Capital Raised       1,123,600     2,023,200     3,146,800  
Distributions       (1,723,600 )   (1,193,800 ) (b) (2,917,400 )
Change in Value       196,900     422,000     618,900  
June 30, 2015       $ 46,758,800     $ 36,974,000     $ 83,732,800  
                 

Six Months Ended June 30, 2015

               
December 31, 2014       $ 47,262,500     $ 35,783,900     $ 83,046,400  
New Capital Raised       2,444,100     4,217,000     6,661,100  
Distributions       (2,684,700 )   (2,780,200 ) (c) (5,464,900 )
Net Changes in Fee Base of Certain Funds (a)           (325,200 )   (325,200 )
Change in Value       (263,100 )   78,500     (184,600 )
June 30, 2015       $ 46,758,800     $ 36,974,000     $ 83,732,800  
                 

Trailing Twelve Months Ended June 30, 2015

               
June 30, 2014       $ 46,167,300     $ 33,489,000     $ 79,656,300  
New Capital Raised       6,385,600     10,371,500     16,757,100  
Distributions       (5,151,600 )   (5,683,500 ) (d) (10,835,100 )
Net Changes in Fee Base of Certain Funds (a)           (325,200 )   (325,200 )
Change in Value       (642,500 )   (877,800 )   (1,520,300 )
June 30, 2015       $ 46,758,800     $ 36,974,000     $ 83,732,800  
                             
*   Excludes those assets managed by entities where KKR does not hold more than a 50% ownership interest.
(a)   Represents the impact of certain funds entering the post-investment period.
(b)   Includes $463.7 million of redemptions by fund investors.
(c)   Includes $1,116.9 million of redemptions by fund investors.
(d)   Includes $3,132.4 million of redemptions by fund investors.
     

 

 
KKR
INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED)
As of June 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     12/2014   12/2020   $ 2,670.1     $ 2,509.1     7.4%   $ 161.0     $     $ 161.0     $ 206.6
Asian Fund II (b)     4/2013   4/2019   5,825.0     4,045.0     1.3%   2,052.0     272.0     1,779.9     3,032.7
North America Fund XI (b)     9/2012   9/2018   8,718.4     4,512.6     2.9%   5,024.4     1,024.2     4,205.7     6,331.8
China Growth Fund     11/2010   11/2016   1,010.0     448.1     1.0%   561.9     61.1     544.5     782.5
E2 Investors (Annex Fund)     8/2009   11/2013   195.8         4.9%   195.8     195.7     18.1     77.2
European Fund III     3/2008   3/2014   6,141.0     789.1     4.6%   5,351.9     4,269.1     3,338.3     4,520.4
Asian Fund     7/2007   4/2013   3,983.3     147.5     2.5%   3,835.8     5,343.1     1,954.9     2,699.1
2006 Fund     9/2006   9/2012   17,642.2     525.6     2.1%   17,116.6     16,154.9     8,760.3     14,972.7
European Fund II     11/2005   10/2008   5,750.8         2.1%   5,750.8     6,574.3     841.1     1,722.1
Millennium Fund     12/2002   12/2008   6,000.0         2.5%   6,000.0     11,699.6     1,219.7     2,232.2
European Fund     12/1999   12/2005   3,085.4         3.2%   3,085.4     8,736.6         44.5
Total Private Equity Funds             61,022.0     12,977.0         49,135.6     54,330.6     22,823.5     36,621.8
                                       
Co-Investment Vehicles (b)     Various   Various   5,506.1     2,531.1     Various   3,072.4     1,710.8     2,243.2     3,265.0
                                       
Total Private Equity             66,528.1     15,508.1         52,208.0     56,041.4     25,066.7     39,886.8
                                       
Real Assets                                      
Energy Income and Growth Fund     9/2013   9/2018   1,974.2     1,217.7     12.8%   756.5     109.9     691.0     582.6
Natural Resources Fund     Various   Various   887.4     2.9     Various   884.5     96.6     809.9     340.1
Global Energy Opportunities (b)     Various   Various   1,026.4     809.6     Various   250.2     53.6     218.4     146.0
Global Infrastructure Investors (b)     9/2011   10/2014   1,040.1     132.8     4.8%   935.2     123.8     907.2     975.3
Global Infrastructure Investors II     10/2014   10/2020   2,838.7     2,788.4     4.4%   50.3         50.3     53.7
Infrastructure Co-Investments     Various   Various   1,125.0         Various   1,125.0     338.3     1,125.0     1,560.2
Real Estate Partners Americas (b)     5/2013   12/2016   1,229.1     618.9     16.3%   718.3     257.3     609.8     688.1
Real Assets             10,120.9     5,570.3         4,720.0     979.5     4,411.6     4,346.0
                                       
Private Markets Total             76,649.0     21,078.4         56,928.0     57,020.9     29,478.3     44,232.8
                                       

Public Markets

                                     
Special Situations Fund     12/2012   12/2015   2,144.0     168.4     11.6%   1,975.6     144.0     1,975.6     2,348.4
Special Situations Fund II     12/2014   (c)   1,694.5     1,609.4     8.9%   85.1         85.0     97.6
Mezzanine Fund     3/2010   3/2015   1,022.8     165.5     4.4%   857.3     354.1     708.6     789.1
Lending Partners     12/2011   12/2014   460.2     81.9     15.2%   378.3     140.3     349.5     347.4
Lending Partners II     06/2014   06/2017   1,335.9     902.6     3.7%   433.3         433.3     469.1
Lending Partners Europe     03/2015   03/2018   556.6     525.2     7.3%   31.4         31.4     36.7
Other Alternative Credit Vehicles     Various   Various   3,650.3     1,374.9     Various   2,275.4     1,242.8     1,537.6     1,814.9
                                       
Public Markets Total             10,864.3     4,827.9         6,036.4     1,881.2     5,121.0     5,903.2
                                       
Grand Total             $ 87,513.3     $ 25,906.3         $ 62,964.4     $ 58,902.1     $ 34,599.3     $ 50,136.0
                                                             
(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.
     

 

 
KKR
DISTRIBUTION CALCULATION (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
             
             
        Quarter Ended   Six Months Ended
        June 30, 2015   March 31, 2015   June 30, 2014   June 30, 2015   June 30, 2014
Cash Revenues                        
Fees       $ 271,500     $ 300,075     $ 254,237     $ 571,575     $ 581,860  
Realized cash carry       252,227     302,425     555,488     554,652     749,038  
Net realized investment income - KKR (ex-KFN)       195,408     191,477     245,711     386,885     438,603  
Net realized investment income - KFN       56,258     39,865     36,382     96,123     36,382  
Total Cash Revenues       775,393     833,842     1,091,818     1,609,235     1,805,883  
                         
Cash Expenses                        
Cash compensation and benefits       98,871     107,027     91,444     205,898     200,359  
Realized cash carry allocated to carry pool       100,891     120,970     222,195     221,861     299,615  
Occupancy and related charges       15,475     14,796     14,757     30,271     28,946  
Other operating expenses       51,613     60,946     54,311     112,559     107,112  
Total Cash Expenses       266,850     303,739     382,707     570,589     636,032  
                         
Cash income (loss) before noncontrolling interests and local taxes       508,543     530,103     709,111     1,038,646     1,169,851  
                         
Less: local income taxes       (12,753 )   (9,950 )   (4,932 )   (22,703 )   (15,662 )
Less: noncontrolling interests       (4,383 )   (3,622 )   (3,206 )   (8,005 )   (6,408 )
Total Distributable Earnings       491,407     516,531     700,973     1,007,938     1,147,781  
Less: estimated current corporate income taxes       (26,155 )   (28,855 )   (19,025 )   (55,010 )   (52,470 )
Distributable Earnings, net of taxes       465,252     487,676     681,948     952,928     1,095,311  
Less: Undistributed net realized investment income - KKR (ex-KFN)       (117,245 )   (114,886 )   (147,427 )   (232,131 )   (263,162 )
Distributed Earnings       $ 348,007     $ 372,790     $ 534,521     $ 720,797     $ 832,149  
                         
Distributable Earnings, net of taxes per KKR & Co. L.P. common unit       $ 0.57     $ 0.60     $ 0.85     $ 1.17     $ 1.44  
                         
Distribution per KKR & Co. L.P. common unit       $ 0.42     $ 0.46     $ 0.67     $ 0.88     $ 1.10  
                         

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

                       
                         
After-tax FRE       $ 0.07     $ 0.10     $ 0.09     $ 0.17     $ 0.24  
Realized Cash Carry       $ 0.18     $ 0.22     $ 0.41     $ 0.40     $ 0.58  
Distributed Net Realized Investment Income - KKR (ex-KFN)       $ 0.10     $ 0.09     $ 0.12     $ 0.19     $ 0.23  
Distributed Net Realized Investment Income - KFN       $ 0.07     $ 0.05     $ 0.05     $ 0.12     $ 0.05  
                         
Fee and yield earnings distribution per KKR & Co. L.P. common unit       $ 0.15     $ 0.15     $ 0.15     $ 0.30     $ 0.31  
                         
Adjusted Units Eligible For Distribution       820,963,434     813,796,584     803,719,050          
                         
Payout Ratio       74.8 %   76.4 %   78.4 %   75.6 %   76.0 %
                                   

 

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. 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 and excludes net realized investment income of KFN.

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

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

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

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

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

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

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

Syndicated capital is generally the aggregate amount of capital in transactions originated by KKR 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
North America Fund XI       166,900
Energy Income and Growth Fund       157,200
Global Infrastructure Investors II       121,600
Real Estate Partners Americas       100,700
European Fund III       63,500
Asian Fund II       51,800
2006 Fund       22,700
Co-Investment Vehicles       69,700
Other Private Markets Funds       13,500
Total Private Markets Commitments       952,300
         

Public Markets

       
Special Situations Fund       19,600
Special Situations Fund II       142,900
Mezzanine Fund       7,000
Lending Partners       12,500
Lending Partners II       33,800
Lending Partners Europe       33,800
Other Alternative Credit Vehicles       65,600
Total Public Markets Commitments       315,200
         
Total Uncalled Commitments       $ 1,267,500
           

 

 
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
        June 30, 2015   March 31, 2015   June 30, 2014
                 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic       $ 0.84     $ 0.62     $ 0.47
Weighted Average Common Units Outstanding - Basic       446,794,950     434,874,820     377,542,161
Net income (loss) attributable to KKR & Co. L.P.       376,306     270,507     178,215
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

      325,703     239,008     186,776
Plus: Non-cash equity-based charges       69,478     76,550     92,957
Plus: Amortization of intangibles and other, net       37,910     (2,790 )   37,455
Plus: Income taxes       30,547     16,138     6,176
Economic net income (loss)       839,944     599,413     501,579
Less: Provision for income taxes       44,836     21,235     6,330
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan       48,453     52,265     40,877
Economic net income (loss) after taxes       746,655     525,913     454,372
Weighted Average Adjusted Units       852,128,762     848,061,661     800,747,528
Economic net income (loss) after taxes per adjusted unit       $ 0.88     $ 0.62     $ 0.57
                 
                 
        Six Months Ended    
        June 30, 2015   June 30, 2014    
                 
Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic       $ 1.47     $ 1.16      
Weighted Average Common Units Outstanding - Basic       440,867,813     335,748,498      
Net income (loss) attributable to KKR & Co. L.P.       646,813     388,256      
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

      564,711     487,590      
Plus: Non-cash equity-based charges       146,028     170,485      
Plus: Amortization of intangibles and other, net       35,120     57,624      
Plus: Income taxes       46,685     27,878      
Economic net income (loss)       1,439,357     1,131,833      
Less: Provision for income taxes       66,071     42,911      
Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan       100,718     80,230      
Economic net income (loss) after taxes       1,272,568     1,008,692      
Weighted Average Adjusted Units       850,106,448     762,873,784      
Economic net income (loss) after taxes per adjusted unit       $ 1.50     $ 1.32      
                         

 

 
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
      June 30, 2015   March 31, 2015   June 30, 2014
               
Net income (loss) attributable to KKR & Co. L.P.     $ 376,306     $ 270,507     $ 178,215
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

    325,703     239,008     186,776
Plus: Non-cash equity-based charges     69,478     76,550     92,957
Plus: Amortization of intangibles and other, net     37,910     (2,790 )   37,455
Plus: Income taxes     30,547     16,138     6,176
Economic net income (loss)     839,944     599,413     501,579
Plus: Income attributable to segment noncontrolling interests     4,383     3,622     3,206
Less: Total investment income (loss)     383,650     220,621     162,158
Less: Net carried interest     355,136     265,108     248,902
Fee related earnings     105,541     117,306     93,725
Plus: Net interest and dividends     75,406     50,675     60,432
Fee and yield earnings     180,947     167,981     154,157
Plus: Depreciation and amortization     3,918     3,881     4,140
Plus: Core interest expense     30,750     25,332     19,205
Fee and yield EBITDA     215,615     197,194     177,502
Less: Depreciation and amortization     3,918     3,881     4,140
Less: Core interest expense     30,750     25,332     19,205
Less: Net interest and dividends     75,406     50,675     60,432
Plus: Realized cash carry, net of realized cash carry allocated to carry pool     151,336     181,455     333,293
Plus: Net realized investment income - KKR (ex-KFN)     195,408     191,477     245,711
Plus: Net realized investment income - KFN     56,258     39,865     36,382
Less: Local income taxes and noncontrolling interests     17,136     13,572     8,138
Total distributable earnings     491,407     516,531     700,973
Plus: Depreciation and amortization     3,918     3,881     4,140
Plus: Core interest expense     30,750     25,332     19,205
Plus: Local income taxes and noncontrolling interests     17,136     13,572     8,138
Total EBITDA     $ 543,211     $ 559,316     $ 732,456
               
               
      Six Months Ended    
      June 30, 2015   June 30, 2014    
               
Net income (loss) attributable to KKR & Co. L.P.     $ 646,813     $ 388,256      
Plus: Net income (loss) attributable to noncontrolling

interests held by KKR Holdings L.P.

    564,711     487,590      
Plus: Non-cash equity-based charges     146,028     170,485      
Plus: Amortization of intangibles and other, net     35,120     57,624      
Plus: Income taxes     46,685     27,878      
Economic net income (loss)     1,439,357     1,131,833      
Plus: Income attributable to segment noncontrolling interests     8,005     6,408      
Less: Total investment income (loss)     604,271     440,809      
Less: Net carried interest     620,244     451,989      
Fee related earnings     222,847     245,443      
Plus: Net interest and dividends     126,081     71,596      
Fee and yield earnings     348,928     317,039      
Plus: Depreciation and amortization     7,799     8,175      
Plus: Core interest expense     56,082     37,605      
Fee and yield EBITDA     412,809     362,819      
Less: Depreciation and amortization     7,799     8,175      
Less: Core interest expense     56,082     37,605      
Less: Net interest and dividends     126,081     71,596      
Plus: Realized cash carry, net of realized cash carry allocated to carry pool     332,791     449,423      
Plus: Net realized investment income - KKR (ex-KFN)     386,885     438,603      
Plus: Net realized investment income - KFN     96,123     36,382      
Less: Local income taxes and noncontrolling interests     30,708     22,070      
Total distributable earnings     1,007,938     1,147,781      
Plus: Depreciation and amortization     7,799     8,175      
Plus: Core interest expense     56,082     37,605      
Plus: Local income taxes and noncontrolling interests     30,708     22,070      
Total EBITDA     $ 1,102,527     $ 1,215,631      
                       

 

 
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
        June 30, 2015   December 31, 2014
             
KKR & Co. L.P. partners' capital       $ 5,947,415     $ 5,382,691
Noncontrolling interests held by KKR Holdings L.P.       4,827,384     4,661,679
Equity impact of KKR Management Holdings Corp. and other       108,448     73,855
             
Book value       10,883,247     10,118,225
Adjusted units       852,145,905     838,020,974
Book value per adjusted unit       $ 12.77     $ 12.07
             
             
             
             
RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS)
TO CASH AND SHORT-TERM INVESTMENTS (UNAUDITED)
(Amounts in thousands)
        As of   As of
        June 30, 2015   December 31, 2014
             
Cash and cash equivalents       $ 1,824,686     $ 918,080
Liquid short-term investments       201,093     203,305
Cash and short-term investments       $ 2,025,779     $ 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
    June 30, 2015   March 31, 2015   June 30, 2014
Weighted Average GAAP Common Units Outstanding - Basic   446,794,950     434,874,820     377,542,161
Adjustments:            
Weighted Average Unvested Common Units and Other Securities (a)   35,856,541     37,350,524     32,637,677
Weighted Average GAAP Common Units Outstanding - Diluted   482,651,491     472,225,344     410,179,838
Adjustments:            
Weighted Average KKR Holdings Units (b)   369,477,271     375,836,317     390,567,690
Weighted Average Adjusted Units   852,128,762     848,061,661     800,747,528
             
             
    Six Months Ended    
    June 30, 2015   June 30, 2014    
Weighted Average GAAP Common Units Outstanding - Basic   440,867,813     335,748,498      
Adjustments:            
Weighted Average Unvested Common Units and Other Securities (a)   36,599,407     32,128,551      
Weighted Average GAAP Common Units Outstanding - Diluted   477,467,220     367,877,049      
Adjustments:            
Weighted Average KKR Holdings Units (b)   372,639,228     394,996,735      
Weighted Average Adjusted Units   850,106,448     762,873,784      
             
             
             
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.
             
    As of   As of    
    June 30, 2015   December 31, 2014    
GAAP Common Units Outstanding - Basic   450,396,361     433,330,540      
Unvested Common Units and Other Securities (a)   34,262,715     27,493,685      
GAAP Common Units Outstanding - Diluted   484,659,076     460,824,225      
Adjustments:            
KKR Holdings Units (b)   367,486,829     377,196,749      
Adjusted Units   852,145,905     838,020,974      
Adjustments:            
Unvested Common Units and Unvested Other Securities (a)   (31,182,471 )   (24,373,441 )    
Adjusted Units Eligible For Distribution   820,963,434     813,647,533      
                 
(a)   Represents equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan and other securities that are exchangeable into KKR & Co. L.P common units. The issuance of common units of KKR & Co. L.P. pursuant to such equity awards or other securities dilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business.
(b)   Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units.

 

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

Source: Kohlberg Kravis Roberts & Co. L.P.

 

 

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