KKR & Co. L.P. Announces Fourth Quarter and Full Year 2012 Results

KKR & Co. L.P. Announces Fourth Quarter and Full Year 2012 Results

Significant realization activity drives record total distributable earnings

GAAP net income (loss) attributable to KKR & Co. L.P. was $96.7 million and $560.8 million for the quarter and year ended December 31, 2012, respectively, up from $46.1 million and $1.9 million in the comparable periods of 2011.


Assets under management ("AUM") totaled $75.5 billion as of December 31, 2012, up from $66.3 billion as of September 30, 2012.

Fee related earnings ("FRE") were $86.0 million and $319.8 million for the quarter and year ended December 31, 2012, respectively, down from $116.6 million and $417.2 million in the comparable periods of 2011.

Total distributable earnings were $546.3 million and $1,449.4 million for the quarter and year ended December 31, 2012, respectively, up from $146.5 million and $782.6 million in the comparable periods of 2011.

Economic net income (loss) ("ENI") was $347.7 million and $2,130.9 million for the quarter and year ended December 31, 2012, respectively, up from $285.5 million and $750.9 million in the comparable periods of 2011.

After-tax ENI was $0.48 and $2.90 per adjusted unit for the quarter and year ended December 31, 2012, respectively, up from $0.33 and $0.73 per adjusted unit in the comparable periods of 2011.

Book value was $7.0 billion on a segment basis as of December 31, 2012, representing $9.87 per adjusted unit.

KKR & Co. L.P. declares a fourth quarter distribution of $0.70 per common unit, bringing year-to-date distributions for 2012 to $1.22 per common unit, up from $0.74 per common unit for 2011.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE: KKR) today reported its fourth quarter and full year 2012 results.

For the fourth quarter and full year 2012, the carrying value of KKR's private equity investment portfolio appreciated 4.0% and 23.8%, respectively, driving meaningful ENI.

ENI was $347.7 million for the quarter ended December 31, 2012, an increase of $62.2 million compared to the quarter ended December 31, 2011. The increase was primarily attributable to higher net carried interest earned from our investment funds. ENI was $2,130.9 million for the year ended December 31, 2012, an increase of $1,380.0 million compared to the year ended December 31, 2011. The increase was primarily due to a higher level of appreciation in the carrying value of our principal investments and greater net carried interest earned from our investment funds.

Total distributable earnings was $546.3 million and $1,449.4 million for the quarter and year ended December 31, 2012, respectively, an increase of $399.8 million and $666.8 million from the comparable periods in 2011. The increase in both comparative periods is due to a higher level of realization activity in our private equity investment portfolio.

On October 1, 2012, we closed our acquisition of Prisma Capital Partners LP and its affiliates ("Prisma"), a leading provider of customized hedge fund solutions. Prisma's results have been reported as part of our Public Markets segment in the fourth quarter of 2012. As of December 31, 2012, Prisma had $8.5 billion of assets under management.

AUM was $75.5 billion as of December 31, 2012, an increase of $9.2 billion, or 13.9%, compared to AUM of $66.3 billion as of September 30, 2012. Fee paying assets under management ("FPAUM") was $60.8 billion as of December 31, 2012, an increase of $10.5 billion, or 20.9%, compared to FPAUM of $50.3 billion as of September 30, 2012. The increases in both AUM and FPAUM were primarily attributable to new capital from the acquisition of Prisma and to a lesser extent new capital raised and appreciation in the fair value of our investment vehicles. The increases were partially offset by distributions to limited partners of our investment funds. Neither AUM nor FPAUM include $4.0 biillion (includes general partner commitment) of capital raised for our second Asian private equity fund.

On January 23, 2013, we announced the acquisition of a 24.9% interest in Nephila Capital Ltd. ("Nephila"). Nephila is a leading investment manager that offers a broad range of investment products focusing on reinsurance risk, investing in instruments such as insurance-linked securities, catastrophe bonds, and weather derivatives. Nephila has assets under management of approximately $8 billion as of January 1, 2013 and has been managing institutional assets in this space since it was founded in 1998. This strategic partnership increases our breadth of liquid product offerings through a strategy which is uncorrelated to the global financial markets relative to other asset classes. Nephila's assets under management are not included in KKR's results.

"Our private equity portfolio and our balance sheet both appreciated 24% in 2012, outperforming the S&P 500 and MSCI World indices by over 700 basis points," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "In addition, in 2012 we completed transactions which returned over $9 billion to all investors in our private equity funds and co-investment vehicles, the highest figure in our 36-year history, and contributed to a record annual distribution of $1.22 per common unit. We are pleased with our results."

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

GAAP RESULTS

GAAP results for the quarter and year ended December 31, 2012 included net income attributable to KKR & Co. L.P. of $96.7 million and $560.8 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.36 and $2.21, respectively, on a diluted basis. For the quarter and year ended December 31, 2011, net income attributable to KKR & Co. L.P. was $46.1 million and $1.9 million, respectively, and net income attributable to KKR & Co. L.P. per common unit was $0.20 and $0.01, respectively, on a diluted basis. The increases in both comparable periods were primarily due to a greater level of investment appreciation for the quarter and year ended December 31, 2012 compared to the quarter and year ended December 31, 2011. This increase in investment appreciation, which is recorded in net gains (losses) from investment activities, was partially offset by an increase in compensation and benefits expense

SEGMENT RESULTS

Private Markets

AUM was $49.1 billion as of December 31, 2012, a decrease of $0.7 billion, or 1.4%, compared to AUM of $49.8 billion as of September 30, 2012. The decrease was primarily attributable to distributions to the limited partners of our private equity funds arising from realizations. The decrease was partially offset by the appreciation in the fair value of our private equity portfolio and new capital raised.

FPAUM was $41.2 billion as of December 31, 2012, an increase of $0.8 billion, or 2.0%, compared to FPAUM of $40.4 billion as of September 30, 2012. The increase was primarily due to new capital raised, partially offset by distributions to the limited partners of our private equity funds arising from realizations.

FRE was $32.4 million for the quarter ended December 31, 2012, a decrease of $24.6 million, or 43.2%, compared to FRE of $57.0 million for the quarter ended December 31, 2011. The decrease was principally attributable to (i) a lower level of transaction fees during the quarter ended December 31, 2012, as a result of closing relatively smaller transaction fee-generating investments, which in turn produced lower transaction fees and (ii) higher compensation expense in connection with increased headcount. The decrease was partially offset by a higher level of monitoring fees as a result of new monitoring agreements with portfolio companies acquired over the past year.

FRE was $151.0 million for the year ended December 31, 2012, a decrease of $75.6 million, or 33.4%, compared to FRE of $226.6 million for year ended December 31, 2011. The decrease was primarily attributable to (i) a lower level of transaction fees during the year ended December 31, 2012 as a result of closing relatively smaller transaction fee-generating investments, which in turn produced lower transaction fees; (ii) lower monitoring fees as a result of $76.6 million of termination payments on monitoring agreements with three portfolio companies during the year ended December 31, 2011, which increased FRE by $39.7 million net of associated fee credits and (iii) higher compensation expense in connection with increased headcount.

ENI was $177.8 million for the quarter ended December 31, 2012, an increase of $68.0 million, or 61.9%, compared to ENI of $109.8 million for the quarter ended December 31, 2011. ENI was $831.7 million for the year ended December 31, 2012, an increase of $468.9 million, or 129.2%, compared to ENI of $362.8 million for the year ended December 31, 2011. The increase in both comparative periods was primarily attributable to higher net carried interest driven by a greater level of appreciation in our private equity portfolio, partially offset by the decrease in FRE discussed above.

Public Markets

AUM was $26.4 billion as of December 31, 2012, an increase of $9.9 billion, or 60.0%, compared to AUM of $16.5 billion as of September 30, 2012. FPAUM was $19.7 billion as of December 31, 2012, an increase of $9.8 billion, or 99.0%, compared to FPAUM of $9.9 billion as of September 30, 2012. The increase in both AUM and FPAUM were primarily attributable to new capital from the acquisition of Prisma and to a lesser extent net new capital raised.

FRE was $29.4 million for the quarter ended December 31, 2012, an increase of $17.6 million compared to FRE of $11.8 million for the quarter ended December 31, 2011. FRE was $80.5 million for the year ended December 31, 2012, an increase of $20.9 million compared to FRE of $59.6 million for year ended December 31, 2011. The increase in both comparable periods was primarily due to (i) higher management fees related to new capital raised as well as the acquisition of Prisma and (ii) higher incentive fees earned.

ENI was $37.4 million for the quarter ended December 31, 2012, an increase of $25.6 million compared to ENI of $11.8 million for the quarter ended December 31, 2011. The increase was primarily attributable to the increase in FRE discussed above and to a lesser extent a higher level of net carried interest recognized driven by the appreciation in the net asset value of certain carry-eligible investment vehicles.

ENI was $102.9 million for the year ended December 31, 2012, an increase of $44.9 million compared to ENI of $58.0 million for year ended December 31, 2011. The increase was principally attributable to the increase in FRE discussed above and net carried interest recognized for the year ended December 31, 2012 driven by the appreciation in the net asset value of certain carry-eligible investment vehicles. For the year ended December 31, 2011, there was a reversal of previously recognized net carried interest due to a decline in the carrying value of certain carry-eligible investment vehicles.

Capital Markets and Principal Activities

FRE was $24.2 million for the quarter ended December 31, 2012, a decrease of $23.6 million, or 49.4%, compared to FRE of $47.8 million for the quarter ended December 31, 2011. FRE was $88.3 million for the year ended December 31, 2012, a decrease of $42.6 million, or 32.5%, compared to FRE of $130.9 million for year ended December 31, 2011.The decrease in both comparative periods was primarily driven by a lower level of overall capital markets transaction activity.

ENI was $132.6 million for the quarter ended December 31, 2012, a decrease of $31.2 million, or 19.0%, compared to ENI of $163.8 million for the quarter ended December 31, 2011. The decrease was principally attributable to the decrease in FRE discussed above and to a lesser extent a lower level of investment income. While the fair value of our principal investments increased during the fourth quarter of 2012, the level of appreciation was lower than in the comparable period of 2011.

ENI was $1,196.2 million for the year ended December 31, 2012, an increase of $866.0 million compared to ENI of $330.2 million for year ended December 31, 2011. The increase was primarily driven by a higher level of appreciation in the carrying value of our principal investments, partially offset by the decrease in FRE discussed above.

CAPITAL AND LIQUIDITY

As of December 31, 2012, KKR had $1,534.3 million of cash and short-term investments on a segment basis and $500.0 million of outstanding debt obligations under its senior notes. KKR's availability for further borrowings was approximately $750.0 million (which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of December 31, 2012).

On February 1, 2013, KKR issued $500.0 million of 5.5% senior notes due in 2043. The senior notes are rated A and A- by Fitch and Standard & Poor's, respectively.

As of December 31, 2012, KKR's portion of total uncalled commitments to its investment funds was $677.9 million, consisting of the following (amounts in thousands):

Uncalled

Commitments

Private Markets

North America Fund XI

$

232,100

European Fund III

174,000

2006 Fund

64,700

Asian Fund

35,400

Infrastructure

34,100

E2 Investors (Annex Fund)

14,000

Natural Resources

13,600

China Growth Fund

6,400

Other

10,800

Total Private Markets Commitments

585,100

Public Markets

Direct Lending Vehicles

33,700

Special Situations Vehicles

29,200

Mezzanine Fund

29,900

Total Public Markets Commitments

92,800

Total Uncalled Commitments

$

677,900

DISTRIBUTION

A distribution of $0.70 per common unit will be paid on March 5, 2013 to unitholders of record as of the close of business on February 19, 2013.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Thursday, February 7, 2013 at 10:00 a.m. EST. The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Public Investors 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) and +1 (404) 537-3406 (non-U.S. callers), pass code 86899275, 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 Public Investors section of KKR's website at http://ir.kkr.com/kkr_ir/alerts.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 Public Investors section of the website.

ABOUT KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $75.5 billion in assets under management as of December 31, 2012. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with fund investors through its client relationships and capital markets platform. KKR & Co. L.P. is publicly traded on the New York Stock Exchange (NYS: KKR) , and "KKR," as used in this release, includes its subsidiaries, their managed investment funds and accounts, and/or their affiliated investment vehicles, as appropriate. For additional information, please visit KKR's website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, after-tax ENI, fee related EBITDA, committed dollars invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments 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 the acquisitions or strategic partnerships such as Prisma or Nephila; 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, 2011, filed with the SEC on February 27, 2012 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on November 2, 2012, and other filings with the SEC, which are available at www.sec.gov.

KKR

CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)

(Amounts in thousands, except common unit and per common unit amounts)

Quarter Ended

Year Ended

December 31, 2012

December 31, 2011

December 31, 2012

December 31, 2011

Revenues

Fees

$

177,621

$

209,357

$

568,442

$

723,620

Expenses

Compensation and Benefits

261,454

190,832

1,280,854

868,749

Occupancy and Related Charges

14,569

15,197

58,205

54,282

General, Administrative and Other

82,249

124,108

259,729

290,974

Total Expenses

358,272

330,137

1,598,788

1,214,005

Investment Income (Loss)

Net Gains (Losses) from Investment Activities

874,507

514,580

7,871,673

981,858

Dividend Income

677,590

117,944

940,888

225,073

Interest Income

98,929

102,968

358,598

321,943

Interest Expense

(16,407

)

(20,393

)

(69,164

)

(72,758

)

Total Investment Income (Loss)

1,634,619

715,099

9,101,995

1,456,116

Income (Loss) Before Taxes

1,453,968

594,319

8,071,649

965,731

Income Taxes

5,628

21,322

43,405

89,245

Net Income (Loss)

1,448,340

572,997

8,028,244

876,486

Net Income (Loss) Attributable to

Redeemable Noncontrolling Interests

16,412

4,318

34,963

4,318

Net Income (Loss) Attributable to

Noncontrolling Interests

1,335,200

522,542

7,432,445

870,247

Net Income (Loss) Attributable to KKR & Co. L.P.

$

96,728

$

46,137

$

560,836

$

1,921

Distributions Declared per KKR & Co. L.P. Common Unit

$

0.70

$

0.32

$

1.22

$

0.74

Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit

Basic

$

0.39

$

0.20

$

2.35

$

0.01

Diluted (a)

$

0.36

$

0.20

$

2.21

$

0.01

Weighted Average Common Units Outstanding

Basic

249,303,558

225,382,001

238,503,257

220,235,469

Diluted (a)

268,192,128

231,361,032

254,093,160

222,519,174

(a)

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

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION

TOTAL REPORTABLE SEGMENTS (UNAUDITED)

(Amounts in thousands, except unit and per unit amounts)

Quarter Ended

Year Ended

December 31, 2012

September 30, 2012

December 31, 2011

December 31, 2012

December 31, 2011

Fees

Management and incentive fees:

Management fees

$

144,355

$

126,483

$

127,556

$

529,107

$

515,384

Incentive fees

12,350

17,768

6,084

43,845

34,243

Management and incentive fees

156,705

144,251

133,640

572,952

549,627

Monitoring and transaction fees:

Monitoring fees

32,988

29,969

21,797

116,565

163,769

Transaction fees

76,840

75,264

128,338

240,108

349,130

Fee credits

(37,991

)

(31,707

)

(36,862

)

(105,730

)

(150,858

)

Net monitoring