News Column

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

February 6, 2014

Strong Investment Returns Drive Record Economic Net Income GAAP net income (loss) attributable to KKR & Co. L.P. was $277.9 million and $691.2 million for the quarter and year ended December 31, 2013 , respectively, up from $96.7 million and $560.8 million in the comparable periods of 2012. Assets under management (“AUM”) totaled $94.3 billion as of December 31, 2013 , up from $75.5 billion as of December 31, 2012 . Fee paying assets under management (“FPAUM”) totaled $77.4 billion as of December 31, 2013 , up from $60.8 billion as of December 31, 2012 . Total distributable earnings were $510.4 million for the quarter ended December 31, 2013 , down from $546.3 million for the quarter ended December 31, 2012 . Total distributable earnings were $1,455.9 million for the year December 31, 2013 , up from $1,449.4 million in the comparable period of 2012. Economic net income (“ENI”) was $789.6 million and $2,195.6 million for the quarter and year ended December 31, 2013 , respectively, up from $347.7 million and $2,130.9 million in the comparable periods of 2012. Return on equity was 27.4% for the year ended December 31, 2013 . After-tax ENI was $1.08 and $2.99 per adjusted unit for the quarter and year ended December 31, 2013 , respectively, up from $0.48 and $2.90 per adjusted unit in the comparable periods on 2012. Fee related earnings (“FRE”) were $120.1 million and $412.3 million for the quarter and year ended December 31, 2013 , respectively, up from $86.0 million and $319.8 million in the comparable periods of 2012. Book value was $7.8 billion on a total reportable segment basis as of December 31, 2013 or $10.83 per adjusted unit. KKR & Co. L.P. declares a fourth quarter distribution of $0.48 per common unit, bringing year-to-date distributions for 2013 to $1.40 per common unit, up from $1.22 per common unit for 2012. KKR & Co. L.P. announced a transaction to acquire KKR Financial Holdings LLC (“KFN”). NEW YORK --(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE:KKR) today reported its fourth quarter and full year 2013 results. For the fourth quarter and year ended December 31, 2013 , the carrying value of our private equity investment portfolio appreciated 8.4% and 20.2%, respectively. AUM and FPAUM were $94.3 billion and $77.4 billion , respectively, as of December 31, 2013 , both up from September 30, 2013 . We recently held our final close for our North America Fund XI L.P. , Real Estate Partners Americas L.P. , and Special Situations Fund L.P. Including general partner, employee and affiliate commitments, our North America Fund XI L.P. closed with $9.0 billion of commitments, Real Estate Partners Americas L.P. closed with $1.5 billion of commitments, and the Special Situations Fund L.P. closed with $2.0 billion of commitments. On December 16, 2013 , KKR announced the signing of a definitive merger agreement where KKR will acquire KFN through a stock-for-stock merger. KFN is a specialty finance company with a portfolio of assets spanning a complementary range of strategies, principally leveraged credit through ownership of subordinated and mezzanine notes across a number of CLOs; special situations; and Private Markets strategies including natural resources, commercial real estate and private equity. KFN is externally managed by KKR. The merger, which is subject to KFN shareholder approval, customary regulatory approvals and other customary closing conditions, is expected to close in the first half of 2014. In the near term, we expect to close on the acquisition of Avoca Capital (Unlimited) and its affiliates (“Avoca”), a European credit investment manager. The addition of Avoca provides KKR with a leading presence in the European leveraged credit markets and will enable us to expand our credit platform to offer a full spectrum of credit opportunities globally for our fund investors. As of December 31, 2013 , Avoca had $8.4 billion in assets under management, which are not included in either AUM or FPAUM. “Our investment performance, cash flow generation, and balance sheet income translated into $1.5 billion in total distributable earnings, a 27% return on equity, and a distribution of $1.40 per unit for 2013, our highest annual distribution as a public company,” said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “We continued to see progress across our capital raising, investment performance, monetization and strategic initiatives." _______________________________________________________________________________________________________ Note: Certain financial measures, including FRE, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, book value, cash and short-term investments and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Exhibits A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP. GAAP RESULTS GAAP results for the quarter and year ended December 31, 2013 included net income attributable to KKR & Co. L.P. of $277.9 million and $691.2 million , respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.89 and $2.30 , respectively, on a diluted basis. For the quarter and year ended December 31, 2012 , net income attributable to KKR & Co. L.P. was $96.7 million and $560.8 million , respectively, and net income attributable to KKR & Co. L.P. per common unit were $0.36 and $2.21 , respectively, on a diluted basis. The increase quarter over quarter was primarily due to (i) an increase in management fees attributable to new capital raised; (ii) higher transaction fees; (iii) a higher level of total investment income; and (iv) an increase in KKR & Co. L.P.’s ownership percentage in the KKR business. The year over year increase was primarily due to (i) an increase in management fees attributable to new capital raised; (ii) higher transaction fees; (iii) the acquisition of Prisma; and (iv) an increase in KKR & Co. L.P.’s ownership percentage in the KKR business. SEGMENT RESULTS Private Markets AUM was $61.2 billion as of December 31, 2013 , an increase of $1.5 billion , or 2.5%, compared to AUM of $59.7 billion as of September 30, 2013 . The increase was primarily attributable to appreciation in the fair value of our private equity portfolio and to a lesser extent new capital raised from fund investors. The increase was partially offset by distributions to the limited partners of our private equity funds arising from realizations. FPAUM was $50.2 billion as of December 31, 2013 , an increase of $0.3 billion , or 0.6%, compared to FPAUM of $49.9 billion as of September 30, 2013 . The increase was primarily attributable to new capital raised from fund investors largely offset by distributions to the limited partners of our private equity funds arising from realizations. FRE was $30.5 million for the quarter ended December 31, 2013 , a decrease of $1.9 million , or 5.9%, compared to FRE of $32.4 million for the quarter ended December 31, 2012 . The decrease was primarily driven by higher compensation expense due to additional headcount and higher other operating expenses. The decrease was partially offset by higher management fees resulting from new capital raised and higher transaction fees. FRE was $158.3 million for the year ended December 31, 2013 , an increase of $7.3 million , or 4.8%, compared to FRE of $151.0 million for the year ended December 31, 2012 . The increase was primarily driven by higher management fees resulting from new capital raised and higher transaction fees. The increase was partially offset by higher compensation expense due to additional headcount and higher other operating expenses. ENI was $368.6 million for the quarter ended December 31, 2013 , an increase of $190.8 million , or 107.3%, compared to ENI of $177.8 million for the quarter ended December 31, 2012 . The increase was primarily attributable to higher net carried interest resulting from a higher level of appreciation in our private equity portfolio. ENI was $952.5 million for the year ended December 31, 2013 , an increase of $120.8 million , or 14.5%, compared to ENI of $831.7 million for the year ended December 31, 2012 . The increase was primarily attributable to higher net carried interest resulting from a lower level of management fee refunds and the increase in FRE discussed above. Public Markets AUM was $33.1 billion as of December 31, 2013 , an increase of $2.6 billion , or 8.5%, compared to AUM of $30.5 billion as of September 30, 2013 . FPAUM was $27.2 billion as of December 31, 2013 , an increase of $3.5 billion , or 14.8%, compared to FPAUM of $23.7 billion as of September 30, 2013 . For both AUM and FPAUM, the increases were primarily attributable to net new capital raised from fund investors. FRE was $63.6 million for the quarter ended December 31, 2013 , an increase of $34.2 million , or 116.3%, compared to FRE of $29.4 million for the quarter ended December 31, 2012 . The increase was principally attributable to higher incentive fees earned and higher management fees related to new capital raised from fund investors. The increase was partially offset by higher operating expenses. FRE was $155.4 million for the year ended December 31, 2013 , an increase of $74.9 million , or 93.0%, compared to FRE of $80.5 million for the year ended December 31, 2012 . The increase was primarily attributable to (i) higher management fees related to new capital raised from fund investors,(ii) the acquisition of Prisma and (iii) higher incentive fees earned. The increase was partially offset by higher operating expenses primarily related to one-time expenses incurred in connection with the launch of a closed-end fund in 2013. ENI was $73.3 million for the quarter ended December 31, 2013 , an increase of $35.9 million , or 96.0%, compared to ENI of $37.4 million for the quarter ended December 31, 2012 . The increase was primarily driven by the increase in FRE discussed above. ENI was $191.4 million for the year ended December 31, 2013 , an increase of $88.5 million , or 86.0%, compared to ENI of $102.9 million for the year ended December 31, 2012 . The increase was primarily driven by the increase in FRE discussed above and to a lesser extent higher net carried interest due to certain credit investment vehicles beginning to earn carry in 2013. Capital Markets and Principal Activities FRE was $26.0 million for the quarter ended December 31, 2013 , an increase of $1.8 million , or 7.4%, compared to FRE of $24.2 million for the quarter ended December 31, 2012 . FRE was $98.7 million for the year ended December 31, 2013 , an increase of $10.4 million , or 11.8%, compared to FRE of $88.3 million for the year ended December 31, 2012 . The increases in both comparable periods were primarily driven by a higher level of overall capital markets transaction activity, partially offset by higher compensation expense. ENI was $347.8 million for the quarter ended December 31, 2013 , an increase of $215.2 million , or 162.3%, compared to ENI of $132.6 million for the quarter ended December 31, 2012 . The increase was primarily attributable to a higher level of investment income from our principal investments. ENI was $1,051.7 million for the year ended December 31, 2013 , a decrease of $144.5 million , or 12.1%, compared to ENI of $1,196.2 million for the year ended December 31, 2012 . The decrease was primarily due to a lower level of investment income from our principal investments, partially offset by the increase in FRE discussed above. While the fair value of our principal investments increased during the year ended December 31, 2013 , the level of appreciation was lower than in 2012. CAPITAL AND LIQUIDITY As of December 31, 2013 , KKR had $2.2 billion of cash and short-term investments on a total reportable segment basis and $1.0 billion of outstanding debt obligations. KKR’s availability for borrowings was $750.0 million (which is reduced by an outstanding letter of credit), which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of December 31, 2013 . As of December 31, 2013 , KKR’s portion of total uncalled commitments to its investment funds was $1.2 billion , consisting of the following (amounts in thousands): Uncalled Commitments Private Markets North America Fund XI $ 324,800 Energy Income and Growth Fund 227,500 Real Estate Partners Americas 123,200 European Fund III 121,500 Asian Fund II 72,400 2006 Fund 61,700 Infrastructure 19,900 Natural Resources 11,100 China Growth Fund 6,400 Asian Fund 3,700 E2 Investors ( Annex Fund ) 900 Co-Investment Vehicles 39,200 Total Private Markets Commitments 1,012,300 Public Markets Special Situations Vehicles 125,900 Mezzanine Fund 21,200 Direct Lending Vehicles 12,600 Total Public Markets Commitments 159,700 Total Uncalled Commitments $ 1,172,000 DISTRIBUTION A distribution of $0.48 per common unit has been declared, comprised of (i) $0.12 per common unit from after-tax FRE, (ii) $0.22 per common unit from realized cash carry, and (iii) $0.14 per common unit from net realized principal investment income. The distribution will be paid on March 4, 2014 to unitholders of record as of the close of business on February 18, 2014 . Please refer to the distribution policy presented later in this release. CONFERENCE CALL A conference call to discuss KKR’s financial results will be held on Thursday, February 6, 2014 at 10:00 a.m. EST . The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Investors Center section of KKR’s website at http://ir.kkr.com/kkr_ir/kkr_events.cfm . A replay of the live broadcast will be available on KKR’s website or by dialing (855) 859-2056 (U.S. callers) or +1 (404) 537-3406 (non-U.S. callers), pass code 35363339 beginning approximately two hours after the broadcast. From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Center for KKR & Co. L.P. at http://ir.kkr.com/kkr_ir/kkr_events.cfm . In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the “Email Alerts” area of the Investor Center on the website. ABOUT KKR Founded in 1976 and led by Henry Kravis and George Roberts , KKR is a leading global investment firm with $94.3 billion in assets under management as of December 31, 2013 . With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with fund investors through its client relationships and capital markets platform. KKR & Co. L.P. is publicly traded on the New York Stock Exchange (NYSE: KKR) and “KKR”, as used in this release, includes its subsidiaries, their managed investment funds and accounts, and/or their affiliated investment vehicles, as appropriate. For additional information, please visit KKR’s website at www.kkr.com . FORWARD-LOOKING STATEMENTS This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR’s business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, committed dollars invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized principal investment income and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR’s business strategies including the ability to realize the anticipated synergies from acquisitions or strategic partnerships such as Prisma, Nephila, Avoca or KFN; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR’s competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR’s business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 , filed with the SEC on February 22, 2013 , and other filings with the SEC , which are available at www.sec.gov . KKR CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED) (Amounts in thousands, except common unit and per common unit amounts) Quarter Ended Year Ended December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Revenues Fees $ 224,902 $ 177,621 $ 762,546 $ 568,442 Expenses Compensation and Benefits 405,687 261,454 1,266,592 1,280,854 Occupancy and Related Charges 15,684 14,569 61,720 58,205 General, Administrative and Other 158,920 82,249 438,826 259,729 Total Expenses 580,291 358,272 1,767,138 1,598,788 Investment Income (Loss) Net Gains (Losses) from Investment Activities 3,227,327 874,507 7,826,082 7,871,673 Dividend Income 325,507 677,590 695,521 940,888 Interest Income 122,509 98,929 474,759 358,598 Interest Expense (26,923 ) (16,407 ) (99,616 ) (69,164 ) Total Investment Income (Loss) 3,648,420 1,634,619 8,896,746 9,101,995 Income (Loss) Before Taxes 3,293,031 1,453,968 7,892,154 8,071,649 Income Taxes 12,401 5,628 37,926 43,405 Net Income (Loss) 3,280,630 1,448,340 7,854,228 8,028,244 Net Income (Loss) Attributable to Redeemable Noncontrolling Interests 36,263 16,412 62,255 34,963 Net Income (Loss) Attributable to Noncontrolling Interests 2,966,454 1,335,200 7,100,747 7,432,445 Net Income (Loss) Attributable to KKR & Co. L.P. $ 277,913 $ 96,728 $ 691,226 $ 560,836 Distributions Declared per KKR & Co. L.P. Common Unit $ 0.48 $ 0.70 $ 1.40 $ 1.22 Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit Basic $ 0.96 $ 0.39 $ 2.51 $ 2.35 Diluted (a) $ 0.89 $ 0.36 $ 2.30 $ 2.21 Weighted Average Common Units Outstanding Basic 288,045,501 249,303,558 274,910,628 238,503,257 Diluted (a) 312,340,336 268,192,128 300,254,090 254,093,160 (a) KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit given that the exchange of these units would proportionally increase KKR & Co. L.P.’s interests in KKR’s business and would have an anti-dilutive effect on earnings per common unit as a result of certain tax benefits KKR & Co. L.P. is assumed to receive upon the exchange. KKR STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION TOTAL REPORTABLE SEGMENTS (UNAUDITED) (Amounts in thousands, except unit and per unit amounts) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Fees Management and incentive fees: Management fees $ 175,246 $ 173,245 $ 144,355 $ 665,630 $ 529,107 Incentive fees 36,695 1,225 12,350 72,359 43,845 Management and incentive fees 211,941 174,470 156,705 737,989 572,952 Monitoring and transaction fees: Monitoring fees 26,282 33,010 32,988 120,267 116,565 Transaction fees 104,475 129,127 76,840 336,686 240,108 Fee credits (47,014 ) (61,782 ) (37,991 ) (166,612 ) (105,730 ) Net monitoring and transaction fees 83,743 100,355 71,837 290,341 250,943 Total fees 295,684 274,825 228,542 1,028,330 823,895 Expenses Compensation and benefits 95,945 92,229 76,001 343,772 272,811 Occupancy and related charges 14,264 15,674 13,763 56,327 55,068 Other operating expenses 65,342 60,884 52,799 215,883 176,205 Total expenses 175,551 168,787 142,563 615,982 504,084 Fee Related Earnings 120,133 106,038 85,979 412,348 319,811 Investment income (loss) Realized carried interest 250,500 81,532 168,320 690,027 475,707 Unrealized carried interest 347,239 278,004 100,616 754,423 956,203 Gross carried interest 597,739 359,536 268,936 1,444,450 1,431,910 Less: allocation to KKR carry pool (241,397 ) (145,512 ) (107,514 ) (582,949 ) (581,206 ) Less: management fee refunds (a) (8,564 ) (7,767 ) (8,712 ) (30,282 ) (143,723 ) Net carried interest 347,778 206,257 152,710 831,219 706,981 Realized other investment income (loss) 250,856 102,766 366,878 657,139 866,776 Unrealized other investment income (loss) 72,825 200,706 (256,642 ) 301,262 244,346 Total other investment income (loss) 323,681 303,472 110,236 958,401 1,111,122 Total investment income (loss) 671,459 509,729 262,946 1,789,620 1,818,103 Income (Loss) before noncontrolling interests in Income of consolidated entities 791,592 615,767 348,925 2,201,968 2,137,914 Income (Loss) attributable to noncontrolling interests 1,943 2,020 1,245 6,387 7,043 Economic Net Income (Loss) $ 789,649 $ 613,747 $ 347,680 $ 2,195,581 $ 2,130,871 Provision for Income Taxes 16,048 11,950 10,632 61,601 102,420 Economic Net Income (Loss), After Taxes (b) $ 773,601 $ 601,797 $ 337,048 $ 2,133,980 $ 2,028,451 Economic Net Income (Loss), After Taxes per Adjusted Unit (b) $ 1.08 $ 0.84 $ 0.48 $ 2.99 $ 2.90 Assets Under Management $ 94,320,300 $ 90,169,200 $ 75,527,500 $ 94,320,300 $ 75,527,500 Fee Paying Assets Under Management $ 77,397,500 $ 73,611,900 $ 60,846,000 $ 77,397,500 $ 60,846,000 Committed Dollars Invested and Syndicated Capital $ 2,943,500 $ 2,848,700 $ 1,715,700 $ 8,506,000 $ 4,354,900 Uncalled Commitments $ 22,463,900 $ 22,718,400 $ 16,071,900 $ 22,463,900 $ 16,071,900 Other Information Fee Related Earnings $ 120,133 $ 106,038 $ 85,979 $ 412,348 $ 319,811 Plus: depreciation and amortization 3,658 3,601 3,580 14,648 12,499 Fee Related EBITDA $ 123,791 $ 109,639 $ 89,559 $ 426,996 $ 332,310 Total Distributable Earnings (b) $ 510,351 $ 251,137 $ 546,290 $ 1,455,878 $ 1,449,396 GAAP interest expense $ 26,923 $ 25,056 $ 16,407 $ 99,616 $ 69,164 Less: interest expense related to debt obligations from investment financing arrangements 9,919 8,841 7,014 33,954 31,050 Core Interest Expense (b) $ 17,004 $ 16,215 $ 9,393 $ 65,662 $ 38,114 Economic Net Income (Loss), After Taxes and Equity-based Charges (b) $ 743,473 $ 570,570 $ 321,850 $ 2,019,271 $ 1,965,574 Return on Equity (c) 27.4 % 31.0 % (a) As of December 31, 2013 , there is no carried interest subject to management fee refunds, which may reduce carried interest in future periods. (b) See definitions for economic net income (loss), after taxes, adjusted units, total distributable earnings, core interest expense and economic net income (loss), after taxes and equity-based charges under “Notes to Reportable Segments.” (c) Return on equity measures the amount of net income generated as a percentage of capital invested in KKR’s business. Return on equity is calculated by dividing Economic Net Income (Loss), After Taxes and Equity-based Charges by the average book value during the period. KKR SUPPLEMENTAL STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION (SAMPLE) TOTAL REPORTABLE SEGMENTS (UNAUDITED) (Amounts in thousands, except unit and per unit amounts) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Segment Revenues Fees $ 295,684 $ 274,825 $ 228,542 $ 1,028,330 $ 823,895 Gross Carried Interest - net of Management Fee Refunds 589,175 351,769 260,224 1,414,168 1,288,187 Investment Income (Loss) 323,681 303,472 110,236 958,401 1,111,122 Total Segment Revenues 1,208,540 930,066 599,002 3,400,899 3,223,204 Segment Expenses Allocation to Carry Pool 241,397 145,512 107,514 582,949 581,206 Compensation and benefits 95,945 92,229 76,001 343,772 272,811 Equity-based Charges 30,128 31,227 15,198 114,709 62,877 Occupancy and Related Charges 14,264 15,674 13,763 56,327 55,068 Other Operating Expenses 65,342 60,884 52,799 215,883 176,205 Total Segment Expenses 447,076 345,526 265,275 1,313,640 1,148,167 Income (Loss) attributable to noncontrolling interests 1,943 2,020 1,245 6,387 7,043 Economic Net Income (Loss) After Equity-based Charges $ 759,521 $ 582,520 $ 332,482 $ 2,080,872 $ 2,067,994 Provision for Income Taxes 16,048 11,950 10,632 61,601 102,420 Economic Net Income (Loss), After Taxes and Equity-based Charges $ 743,473 $ 570,570 $ 321,850 $ 2,019,271 $ 1,965,574 Economic Net Income (Loss), After Taxes and Equity-based Charges Per Adjusted Unit $ 1.04 $ 0.80 $ 0.46 $ 2.82 $ 2.81 Weighted Average Adjusted Units (Fully Diluted Basis) 716,807,180 715,781,663 704,805,537 714,835,941 699,988,443 Return on Equity 27.4 % 31.0 % KKR STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION PRIVATE MARKETS SEGMENTS (UNAUDITED) (Amounts in thousands) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Fees Management and incentive fees: Management fees $ 118,781 $ 119,410 $ 104,804 $ 459,496 $ 423,921 Incentive fees - - - - - Management and incentive fees 118,781 119,410 104,804 459,496 423,921 Monitoring and transaction fees: Monitoring fees 26,282 33,010 32,988 120,267 116,565 Transaction fees 53,507 54,968 41,231 150,118 96,454 Fee credits (39,509 ) (46,597 ) (37,721 ) (136,662 ) (97,362 ) Net monitoring and transaction fees 40,280 41,381 36,498 133,723 115,657 Total fees 159,061 160,791 141,302 593,219 539,578 Expenses Compensation and benefits 66,994 65,400 53,383 231,911 192,765 Occupancy and related charges 12,110 13,367 12,075 48,045 48,562 Other operating expenses 49,466 37,586 43,463 154,982 147,253 Total expenses 128,570 116,353 108,921 434,938 388,580 Fee Related Earnings 30,491 44,438 32,381 158,281 150,998 Investment income (loss) Realized carried interest 250,500 81,532 168,320 690,027 475,707 Unrealized carried interest 330,113 263,982 86,976 692,085 917,048 Gross carried interest 580,613 345,514 255,296 1,382,112 1,392,755 Less: allocation to KKR carry pool (234,547 ) (139,903 ) (102,058 ) (558,014 ) (565,543 ) Less: management fee refunds (8,564 ) (7,767 ) (8,712 ) (30,282 ) (143,723 ) Net carried interest 337,502 197,844 144,526 793,816 683,489 Realized other investment income (loss) - - - - - Unrealized other investment income (loss) 824 3,357 1,158 1,897 599 Total other investment income (loss) 824 3,357 1,158 1,897 599 Total investment income (loss) 338,326 201,201 145,684 795,713 684,088 Income (Loss) before noncontrolling interests in Income of consolidated entities 368,817 245,639 178,065 953,994 835,086 Income (Loss) attributable to noncontrolling interests 256 433 292 1,498 3,390 Economic Net Income (Loss) $ 368,561 $ 245,206 $ 177,773 $ 952,496 $ 831,696 Assets Under Management $ 61,242,900 $ 59,678,300 $ 49,127,600 $ 61,242,900 $ 49,127,600 Fee Paying Assets Under Management $ 50,156,300 $ 49,889,500 $ 41,173,000 $ 50,156,300 $ 41,173,000 Committed Dollars Invested $ 2,122,600 $ 1,805,800 $ 1,220,800 $ 5,840,900 $ 3,026,300 Uncalled Commitments $ 20,101,600 $ 21,103,800 $ 14,271,100 $ 20,101,600 $ 14,271,100 KKR STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION PUBLIC MARKETS SEGMENTS (UNAUDITED) (Amounts in thousands) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Fees Management and incentive fees: Management fees $ 56,465 $ 53,835 $ 39,551 $ 206,134 $ 105,186 Incentive fees 36,695 1,225 12,350 72,359 43,845 Management and incentive fees 93,160 55,060 51,901 278,493 149,031 Monitoring and transaction fees: Monitoring fees - - - - - Transaction fees 9,431 20,534 1,974 40,314 14,495 Fee credits (7,505 ) (15,185 ) (270 ) (29,950 ) (8,368 ) Net monitoring and transaction fees 1,926 5,349 1,704 10,364 6,127 Total fees 95,086 60,409 53,605 288,857 155,158 Expenses Compensation and benefits 17,082 18,606 16,097 77,378 50,705 Occupancy and related charges 1,800 1,906 1,479 6,863 5,606 Other operating expenses (a) 12,567 19,670 6,596 49,210 18,350 Total expenses 31,449 40,182 24,172 133,451 74,661 Fee Related Earnings (a) 63,637 20,227 29,433 155,406 80,497 Investment income (loss) Realized carried interest - - - - - Unrealized carried interest 17,126 14,022 13,640 62,338 39,155 Gross carried interest 17,126 14,022 13,640 62,338 39,155 Less: allocation to KKR carry pool (6,850 ) (5,609 ) (5,456 ) (24,935 ) (15,663 ) Less: management fee refunds - - - - - Net carried interest 10,276 8,413 8,184 37,403 23,492 Realized other investment income (loss) - - - - - Unrealized other investment income (loss) 36 (4 ) 30 116 20 Total other investment income (loss) 36 (4 ) 30 116 20 Total investment income (loss) 10,312 8,409 8,214 37,519 23,512 Income (Loss) before noncontrolling interests in Income of consolidated entities 73,949 28,636 37,647 192,925 104,009 Income (Loss) attributable to noncontrolling interests 625 202 292 1,560 1,079 Economic Net Income (Loss) $ 73,324 $ 28,434 $ 37,355 $ 191,365 $ 102,930 Assets Under Management $ 33,077,400 $ 30,490,900 $ 26,399,900 $ 33,077,400 $ 26,399,900 Fee Paying Assets Under Management $ 27,241,200 $ 23,722,400 $ 19,673,000 $ 27,241,200 $ 19,673,000 Committed Dollars Invested $ 690,900 $ 326,400 $ 226,400 $ 1,553,000 $ 784,800 Uncalled Commitments $ 2,362,300 $ 1,614,600 $ 1,800,800 $ 2,362,300 $ 1,800,800 Gross Dollars Invested $ 1,481,100 $ 1,498,000 $ 365,600 $ 4,213,300 $ 1,678,700 (a) For the quarter ended September 30, 2013 and for the year ended December 31, 2013 , other operating expenses include $9.7 million of one-time expenses incurred in connection with the launch of a closed-end fund. KKR STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENTS (UNAUDITED) (Amounts in thousands) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Fees Management and incentive fees: Management fees $ - $ - $ - $ - $ - Incentive fees - - - - - Management and incentive fees - - - - - Monitoring and transaction fees: Monitoring fees - - - - - Transaction fees 41,537 53,625 33,635 146,254 129,159 Fee credits - - - - - Net monitoring and transaction fees 41,537 53,625 33,635 146,254 129,159 Total fees 41,537 53,625 33,635 146,254 129,159 Expenses Compensation and benefits 11,869 8,223 6,521 34,483 29,341 Occupancy and related charges 354 401 209 1,419 900 Other operating expenses 3,309 3,628 2,740 11,691 10,602 Total expenses 15,532 12,252 9,470 47,593 40,843 Fee Related Earnings 26,005 41,373 24,165 98,661 88,316 Investment income (loss) Realized carried interest - - - - - Unrealized carried interest - - - - - Gross carried interest - - - - - Less: allocation to KKR carry pool - - - - - Less: management fee refunds - - - - - Net carried interest - - - - - Realized other investment income (loss) 250,856 102,766 366,878 657,139 866,776 Unrealized other investment income (loss) 71,965 197,353 (257,830 ) 299,249 243,727 Total other investment income (loss) (a) 322,821 300,119 109,048 956,388 1,110,503 Total investment income (loss) 322,821 300,119 109,048 956,388 1,110,503 Income (Loss) before noncontrolling interests in Income of consolidated entities 348,826 341,492 133,213 1,055,049 1,198,819 Income (Loss) attributable to noncontrolling interests 1,062 1,385 661 3,329 2,574 Economic Net Income (Loss) $ 347,764 $ 340,107 $ 132,552 $ 1,051,720 $ 1,196,245 Syndicated Capital $ 130,000 $ 716,500 $ 268,500 $ 1,112,100 $ 543,800 (a) Amount is net of (i) interest expense and (ii) certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income that is not included in “Compensation and benefits” and “Other operating expenses” above and on both page 6 and page 7. KKR BALANCE SHEETS TOTAL REPORTABLE SEGMENTS (UNAUDITED) (Amounts in thousands, except per unit amounts) As of December 31, 2013 Capital Markets and Private Public Principal Total Markets Markets Activities Reportable Segment Segment Segment Segments Cash and short-term investments $ 177,547 $ 19,571 $ 1,963,979 $ 2,161,097 Investments - - 4,980,265 (a) 4,980,265 Unrealized carry 1,116,996 62,342 - 1,179,338 Other assets 305,890 278,978 77,489 662,357 Total assets $ 1,600,433 $ 360,891 $ 7,021,733 $ 8,983,057 Debt obligations $ - $ - $ 1,000,000 $ 1,000,000 Other liabilities 77,374 18,622 53,200 149,196 Total liabilities 77,374 18,622 1,053,200 1,149,196 Noncontrolling interests 1,302 1,071 68,888 71,261 Book value $ 1,521,757 $ 341,198 $ 5,899,645 $ 7,762,600 Book value per adjusted unit $ 10.83 As of December 31, 2012 Capital Markets and Private Public Principal Total Markets Markets Activities Reportable Segment Segment Segment Segments Cash and short-term investments $ 358,237 $ 28,690 $ 1,147,360 $ 1,534,287 Investments - - 4,758,157 4,758,157 Unrealized carry 730,292 24,939 - 755,231 Other assets 207,047 280,472 62,119 549,638 Total assets $ 1,295,576 $ 334,101 $ 5,967,636 $ 7,597,313 Debt obligations $ - $ - $ 500,000 $ 500,000 Other liabilities 78,724 16,433 24,275 119,432 Total liabilities 78,724 16,433 524,275 619,432 Noncontrolling interests 1,339 739 18,619 20,697 Book value $ 1,215,513 $ 316,929 $ 5,424,742 $ 6,957,184 Book value per adjusted unit $ 9.87 (a) See Capital Markets and Principal Activities segment schedule of investments that follows. KKR CAPITAL MARKETS AND PRINCIPAL ACTIVITIES SEGMENT SCHEDULE OF INVESTMENTS (UNAUDITED) (Amounts in thousands, except percentage amounts) As of December 31, 2013 Investment Cost Fair Value Fair Value as a Percentage of Investments Co-investments in Portfolio Companies of Private Equity Investment Vehicles $ 1,544,331 $ 2,130,058 42.8 % Private Equity Investment Vehicles KKR 2006 Fund L.P. 330,066 389,879 7.8 % KKR European Fund III L.P. 244,292 312,279 6.3 % KKR North America Fund XI L.P. 96,340 106,079 2.1 % KKR Asian Fund L.P. 89,978 101,380 2.0 % KKR European Fund II L.P. 39,013 43,052 0.9 % KKR Millenium Fund L.P. 47,430 39,793 0.8 % KKR E2 Investors, L.P. 14,209 27,707 0.6 % Co-Investments 16,249 17,064 0.3 % KKR China Growth Fund L.P. 3,452 4,303 0.1 % KKR European Fund L.P. 47,664 4,273 0.1 % KKR Asian Fund II L.P. 2,624 2,563 0.1 % 931,317 1,048,372 21.1 % Private Equity Total 2,475,648 3,178,430 63.9 % Real Assets Energy Income and Growth 207,661 211,301 4.2 % Real Estate Fund 79,363 108,487 2.2 % Infrastructure Fund 36,778 38,420 0.8 % Co-Investments 11,241 13,117 0.3 % Natural Resources 12,842 8,147 0.2 % Real Assets Total 347,885 379,472 7.7 % Private Markets Total 2,823,533 3,557,902 71.6 % Public Markets Investment Vehicles Liquid Credit 187,262 198,784 4.0 % Special Situations 125,795 138,881 2.8 % Credit Relative Value 122,000 136,643 2.7 % Long/Short Equities 100,000 121,098 2.4 % Direct Lending 56,720 63,163 1.3 % Mezzanine Fund 20,380 24,659 0.5 % Public Markets Total 612,157 683,228 13.7 % Other 715,477 739,135 14.7 % Total Investments $ 4,151,167 $ 4,980,265 100.0 % Significant Aggregate Investments: (a) Alliance Boots GmbH $ 228,769 $ 640,717 12.9 % HCA Inc. 70,117 287,324 5.8 % First Data Corporation 327,211 265,062 5.3 % 626,097 1,193,103 24.0 % Other investments 3,525,070 3,787,162 76.0 % Total Investments $ 4,151,167 $ 4,980,265 100.0 % (a) The significant aggregate investments include investments in portfolio companies with individual fair values of 5% or more of the Capital Markets and Principal Activities segment investments balance as of December 31, 2013 . The fair value figures include the co-investment and the limited partner and/or general partner interests in the underlying portfolio company. KKR ASSETS UNDER MANAGEMENT* (UNAUDITED) (Amounts in thousands) Private Markets Segment Public Markets Segment Total Reportable Segments Quarter Ended December 31, 2013 September 30, 2013 $ 59,678,300 $ 30,490,900 $ 90,169,200 New Capital Raised 1,294,100 2,523,800 3,817,900 Distributions (3,088,900 ) (735,100 ) (b) (3,824,000 ) Foreign Exchange 10,700 - 10,700 Change in Value 3,348,700 797,800 4,146,500 December 31, 2013 $ 61,242,900 $ 33,077,400 $ 94,320,300 Year Ended December 31, 2013 December 31, 2012 $ 49,127,600 $ 26,399,900 $ 75,527,500 New Capital Raised 13,613,100 7,580,400 21,193,500 Distributions (9,197,900 ) (2,687,600 ) (c) (11,885,500 ) Net Changes in Fee Base of Certain Funds (a) (272,300 ) - (272,300 ) Foreign Exchange 32,800 - 32,800 Change in Value 7,939,600 1,784,700 9,724,300 December 31, 2013 $ 61,242,900 $ 33,077,400 $ 94,320,300 KKR FEE PAYING ASSETS UNDER MANAGEMENT* (UNAUDITED) (Amounts in thousands) Private Markets Segment Public Markets Segment Total Reportable Segments Quarter Ended December 31, 2013 September 30, 2013 $ 49,889,500 $ 23,722,400 $ 73,611,900 New Capital Raised 1,469,800 3,473,700 4,943,500 Distributions (1,327,000 ) (591,100 ) (b) (1,918,100 ) Foreign Exchange 65,300 - 65,300 Change in Value 58,700 636,200 694,900 December 31, 2013 $ 50,156,300 $ 27,241,200 $ 77,397,500 Year Ended December 31, 2013 December 31, 2012 $ 41,173,000 $ 19,673,000 $ 60,846,000 New Capital Raised 13,200,600 7,927,500 21,128,100 Distributions (3,860,800 ) (1,875,900 ) (c) (5,736,700 ) Net Changes in Fee Base of Certain Funds (a) (654,700 ) - (654,700 ) Foreign Exchange 172,700 - 172,700 Change in Value 125,500 1,516,600 1,642,100 December 31, 2013 $ 50,156,300 $ 27,241,200 $ 77,397,500 * Exclude those assets managed by entities where KKR holds less than a 50% ownership interest. (a) Represents the impact of certain funds entering the post-investment period. (b) Includes $327.3 million of redemptions by fund investors. (c) Includes $1,021.8 million of redemptions by fund investors. KKR INVESTMENT VEHICLE SUMMARY (a) (UNAUDITED) As of December 31, 2013 (Amounts in millions, except percentages) Investment Period Amount Percentage Committed Commencement Uncalled by General Remaining Remaining Fair Date End Date Commitment Commitments Partner Invested Realized Cost Value Private Markets Private Equity Funds Asian Fund II 4/2013 4/2019 $ 5,825.0 $ 5,615.1 1.3% $ 209.9 $ - $ 209.9 $ 201.1 North America Fund XI 9/2012 9/2018 8,718.4 5,903.3 2.9% 2,815.1 3.9 2,815.1 3,079.3 China Growth Fund 11/2010 11/2016 1,010.0 674.5 1.0% 335.5 32.6 318.0 399.9 E2 Investors ( Annex Fund ) 8/2009 11/2013 209.5 13.6 4.5% 195.9 - 195.9 426.3 European Fund III 3/2008 3/2014 6,241.1 1,689.4 4.6% 4,551.7 653.5 4,194.4 5,660.0 Asian Fund 7/2007 4/2013 3,983.3 134.1 2.5% 3,849.2 1,693.6 2,979.1 5,128.3 2006 Fund 9/2006 9/2012 17,642.2 1,205.4 2.1% 16,436.8 11,719.7 9,770.5 15,094.9 European Fund II 11/2005 10/2008 5,750.8 - 2.1% 5,750.8 4,513.2 2,220.4 3,960.0 Millennium Fund 12/2002 12/2008 6,000.0 - 2.5% 6,000.0 10,119.1 1,837.9 3,181.2 European Fund 12/1999 12/2005 3,085.4 - 3.2% 3,085.4 8,720.0 - 51.6 Total Private Equity Funds 58,465.7 15,235.4 43,230.3 37,455.6 24,541.2 37,182.6 Co-Investment Vehicles Various Various 3,166.3 974.5 Various 2,191.8 2,418.8 1,583.3 2,044.3 Total Private Equity 61,632.0 16,209.9 45,422.1 39,874.4 26,124.5 39,226.9 Real Assets Energy Income and Growth Fund 9/2013 9/2018 1,413.5 1,269.4 17.9% 144.1 6.1 137.6 140.7 Natural Resources Fund Various Various 876.1 303.1 Various 573.0 73.2 519.4 327.8 Global Energy Opportunities Various Various 861.0 716.6 Various 144.4 0.7 144.4 132.3 Infrastructure Fund Various Various 1,042.4 388.6 4.8% 653.8 24.3 653.8 710.3 Infrastructure Co-Investments Various Various 1,356.0 251.5 Various 1,104.5 226.8 1,104.5 1,319.5 Real Estate Partners Americas 5/2013 12/2016 1,229.1 962.5 16% 266.6 - 266.6 368.4 Real Assets 6,778.1 3,891.7 2,886.4 331.1 2,826.3 2,999.0 Private Markets Total 68,410.1 20,101.6 48,308.5 40,205.5 28,950.8 42,225.9 Public Markets Special Situations Vehicles Various Various 3,519.1 1,703.7 Various 1,815.4 729.2 1,452.7 1,660.7 Mezzanine Fund 3/2010 8/2015 987.0 464.1 4.6% 522.9 146.6 464.9 545.3 Direct Lending Vehicles Various Various 748.8 194.5 Various 554.3 27.3 554.3 596.6 Public Markets Total 5,254.9 2,362.3 2,892.6 903.1 2,471.9 2,802.6 Grand Total $ 73,665.0 $ 22,463.9 $ 51,201.1 $ 41,108.6 $ 31,422.7 $ 45,028.5 (a) Reflects investment vehicles for which KKR has the ability to earn carried interest. KKR DISTRIBUTION CALCULATION (UNAUDITED) (Amounts in thousands, except unit and per unit amounts) Quarter Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Cash Revenues Fees $ 295,684 $ 274,825 $ 228,542 $ 1,028,330 $ 823,895 Realized cash carry 250,500 81,532 168,320 690,027 475,707 Net realized principal investment income 250,856 102,766 366,878 657,139 866,776 Total Cash Revenue 797,040 459,123 763,740 2,375,496 2,166,378 Cash Expenses Realized cash carry allocated to carry pool 100,200 32,613 67,328 276,011 190,283 Compensation and benefits 95,945 92,229 76,001 343,772 272,811 Occupancy and related charges 14,264 15,674 13,763 56,327 55,068 Other operating expenses 65,342 60,884 52,799 215,883 176,205 Total Cash Expenses 275,751 201,400 209,891 891,993 694,367 Cash income (loss) before noncontrolling interests and local taxes 521,289 257,723 553,849 1,483,503 1,472,011 Less: local income taxes (8,995 ) (4,566 ) (6,314 ) (21,238 ) (15,572 ) Less: noncontrolling interests (1,943 ) (2,020 ) (1,245 ) (6,387 ) (7,043 ) Total distributable earnings 510,351 251,137 546,290 1,455,878 1,449,396 Less: estimated current corporate income taxes (26,809 ) (30,140 ) (23,078 ) (98,814 ) (66,733 ) Distributable Earnings, net of taxes 483,542 220,997 523,212 1,357,064 1,382,663 Less: Undistributed net realized principal investment income (150,514 ) (61,660 ) (44,497 ) (394,285 ) (544,395 ) Distributed Earnings $ 333,028 $ 159,337 $ 478,715 $ 962,779 $ 838,268 Distribution per KKR & Co. L.P. common unit $ 0.48 $ 0.23 $ 0.70 $ 1.40 $ 1.22 Components of Distribution per KKR & Co. L.P. common unit After-tax FRE $ 0.12 $ 0.10 $ 0.08 $ 0.42 $ 0.32 Realized Cash Carry $ 0.22 $ 0.07 $ 0.15 $ 0.60 $ 0.43 Distributed Net Realized Principal Investment Income $ 0.14 $ 0.06 $ 0.47 $ 0.38 $ 0.47 Adjusted Units (Reduced for Unvested Common Units) 692,512,345 689,795,274 685,916,967 Payout Ratio 68.9 % 72.1 % 91.5 % 70.9 % 60.6 % DISTRIBUTION POLICY KKR intends to make quarterly cash distributions in amounts that in the aggregate are expected to constitute substantially all of the cash earnings of its investment management business and 40% of the net cash income from realized principal investments, in each case in excess of amounts determined by KKR to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its investment funds and to comply with applicable law and any of its debt instruments or other obligations. For purposes of KKR’s distribution policy, its distributions are expected to consist of (i) FRE, (ii) carry distributions received from KKR’s investment funds which have not been allocated as part of its carry pool and (iii) a percentage of net realized principal investment income. This amount is expected to be reduced by (i) corporate and applicable local taxes, if any, (ii) non-controlling interests, and (iii) amounts determined by KKR to be necessary or appropriate for the conduct of its business and other matters as discussed above. The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR & Co. L.P. , which may change the distribution policy at any time, and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all or that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies of the KKR business), KKR Holdings receives its pro rata share of such distributions from the KKR Group Partnerships. KKR Notes to Reportable Segments (Unaudited) The segment key performance measures that follow are used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportable business segments. The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings L.P. and as such represent the business in total . In addition, KKR’s reportable segments are presented without giving effect to the consolidation of the funds that KKR manages. KKR discloses the following financial measures in this earnings release that are calculated and presented using methodologies other than in accordance with GAAP. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to unitholders in assessing the overall performance of KKR’s businesses. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included elsewhere within this earnings release. Fee related earnings (“FRE”) is comprised of segment fees less segment expenses (other than certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income). This measure is used by management as an alternative measurement of the operating earnings of KKR and its business segments before investment income. We believe this measure is useful to unitholders as it provides additional insight into the operating profitability of our fee generating management companies and capital markets businesses. The components of FRE on a segment basis differ from the equivalent GAAP amounts on a consolidated basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of charges relating to carry pool allocations; (v) the exclusion of non-cash equity charges and other non-cash compensation charges borne by KKR Holdings or incurred under the KKR & Co. L.P. 2010 Equity Incentive Plan; (vi) the exclusion of certain reimbursable expenses; and (vii) the exclusion of certain non-recurring items. Economic net income (loss) (“ENI”) is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. We believe this measure is useful to unitholders as it provides additional insight into the overall profitability of KKR’s businesses inclusive of investment income and carried interest. ENI is comprised of: (i) FRE plus (ii) segment investment income (loss), which is reduced for carry pool allocations, management fee refunds, interest expense and certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income; less (iii) certain economic interests in KKR’s segments held by third parties. ENI differs from net income (loss) on a GAAP basis as a result of: (i) the exclusion of the items referred to in FRE above; (ii) the exclusion of investment income (loss) relating to noncontrolling interests; and (iii) the exclusion of income taxes. Net realized principal investment income refers to net cash income from (i) realized investment gains and losses excluding certain realized investment losses from principal investments during the second quarter of 2013 to the extent unrealized losses on these investments were recognized prior to the combination with KPE on October 1, 2009 , (ii) dividend income and (iii) interest income net of interest expense less certain compensation and general and administrative expenses incurred in the generation of net realized principal investment income in each case generated by KKR’s principal investments held on or through KKR’s balance sheet in our Capital Markets and Principal Activities segment. This is a term to describe a portion of KKR’s quarterly distribution . Total distributable earnings is the sum of (i) FRE, (ii) carry distributions received from KKR’s investment funds which have not been allocated as part of its carry pool and (iii) net realized principal investment income; less (i) applicable local income taxes, if any, and (ii) noncontrolling interests. We believe this measure is useful to unitholders as it provides a supplemental measure to assess performance, excluding the impact of mark-to-market gains (losses), and also assess amounts available for distribution to KKR unitholders. However, total distributable earnings is not a measure that calculates actual distributions under KKR’s current distribution policy. Assets under management (“AUM”) represent the assets from which KKR is entitled to receive fees or a carried interest and general partner capital. We believe this measure is useful to unitholders as it provides additional insight into KKR’s capital raising activities and the overall activity in its investment funds and vehicles. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR’s investment funds plus uncalled capital commitments from these funds; (ii) the fair value of investments in KKR’s co-investment vehicles; (iii) the net asset value of certain of KKR's fixed income products; (iv) the value of outstanding structured finance vehicles; and (v) the fair value of other assets managed by KKR. KKR’s definition of AUM is not based on any definition of AUM that may be set forth in the agreements governing the investment funds, vehicles or accounts that it manages or calculated pursuant to any regulatory definitions. Fee paying AUM (“FPAUM”) represents only those assets under management from which KKR receives fees. We believe this measure is useful to unitholders as it provides additional insight into the capital base upon which KKR earns management fees. This relates to KKR’s capital raising activities and the overall activity in its investment funds and vehicles, for only those funds and vehicles where KKR receives fees (i.e., excluding vehicles that receive only carried interest or general partner capital). FPAUM is the sum of all of the individual fee bases that are used to calculate KKR’s fees and differs from AUM in the following respects: (i) assets from which KKR does not receive a fee are excluded (i.e., assets with respect to which it receives only carried interest) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments. Committed dollars invested is the aggregate amount of capital commitments that have been invested by KKR’s investment funds and carry-yielding co-investment vehicles and is used as a measure of investment activity for KKR and its business segments during a given period. We believe this measure is useful to unitholders as it provides additional insight into KKR’s investment of committed capital. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a fee or carried interest and (ii) capital invested by KKR’s investment funds and vehicles. Gross dollars invested is the aggregate amount of capital that has been invested by all of KAM’s investment vehicles in our private credit non-liquid strategies and is used as a measure of investment activity for KAM in a given period. We believe this measure is useful to unitholders as it provides additional insight into KAM’s investment of capital across its private credit non-liquid strategies for all the investment vehicles which it manages. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KAM is entitled to a fee or carried interest and (ii) internal and proprietary capital invested by KAM’s investment funds and vehicles. Syndicated capital is generally the aggregate amount of capital in transactions originated by KKR investment funds and carry-yielding co-investment vehicles, which has been distributed to third parties in exchange for a fee. It does not include (i) capital invested in such transactions by KKR investment funds and carry-yielding co-investment vehicles, which is instead reported in committed dollars invested and (ii) debt capital that is arranged as part of the acquisition financing of transactions originated by KKR investment funds and vehicles. Syndicated capital is used as a measure of investment activity for KKR and its business segments during a given period, and we believe that this measure is useful to unitholders as it provides additional insight into levels of syndication activity in KKR’s Capital Markets and Principal Activities segment and across its investment platform. Uncalled commitments are used as a measure of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments. We believe this measure is useful to unitholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and vehicles to make future investments. Adjusted units are used as a measure of the total equity ownership of KKR that is held by KKR & Co. L.P. and KKR Holdings and represent the fully diluted unit count using the if-converted method. We believe this measure is useful to unitholders as it provides an indication of the total equity ownership of KKR as if all outstanding KKR Holdings units had been exchanged for common units of KKR & Co. L.P. Core interest expense is used by management as an alternative measurement of interest expense incurred by KKR on a segment basis and excludes interest expense related to debt obligations from investment financing arrangements related to certain of KKR’s private equity funds, investment vehicles and principal investments. These financing arrangements are not direct obligations of the general partners of KKR’s private equity funds or its management companies. On a segment basis, interest expense is included in other investment income. We believe this measure is useful to unitholders as it provides an indication of the amount of interest expense borne by KKR excluding interest expense that is allocated to KKR’s investment funds and vehicles and other noncontrolling interest holders. Additionally, we believe this measure is useful for analyzing KKR’s ability to service its debt obligations. Book value is a measure of the net assets of KKR’s reportable segments and is used by management primarily in assessing the unrealized value of KKR’s investment portfolio, including carried interest, as well as KKR’s overall liquidity position. We believe this measure is useful to unitholders as it provides additional insight into the assets and liabilities of KKR excluding the assets and liabilities that are allocated to noncontrolling interest holders. Book value differs from KKR & Co. L.P. Partners’ Capital on a GAAP basis primarily as a result of the exclusion of ownership interests attributable to KKR Holdings . Fee related EBITDA is comprised of FRE before the impact of depreciation of fixed assets and amortization of intangible assets and is used by management as a measure of the cash earnings of KKR and its business segments before investment income. We believe this measure is useful to unitholders as it provides additional insight into the amount of cash earnings generated by KKR’s management companies and capital markets businesses. Cash and short-term investments represent cash and liquid short-term investments in high-grade, short-duration cash management strategies used by KKR to generate additional yield on our excess liquidity and is used by management in evaluating KKR’s liquidity position. We believe this measure is useful to unitholders as it provides additional insight into KKR’s available liquidity. Cash and short-term investments differ from cash and cash equivalents on a GAAP basis as a result of the inclusion of liquid short-term investments in cash and short-term investments. KKR EXHIBIT A RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT (GAAP BASIS) TO ENI AFTER TAXES PER ADJUSTED UNIT (UNAUDITED) (Amounts in thousands, except common unit and per common unit amounts) Quarter Ended December 31, 2013 September 30, 2013 December 31, 2012 Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 0.96 $ 0.73 $ 0.39 Weighted Average Common Units Outstanding - Basic 288,045,501 282,148,802 249,303,558 Net income (loss) attributable to KKR & Co. L.P. 277,913 204,740 96,728 Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. 393,739 300,169 170,256 Plus: Non-cash equity based charges 60,331 85,215 70,170 Plus: Amortization of intangibles and other, net 45,265 15,979 4,898 Plus: Income taxes 12,401 7,644 5,628 Economic net income (loss) 789,649 613,747 347,680 Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 30,128 31,227 15,198 Economic net income (loss) after equity-based charges 759,521 582,520 332,482 Less: Provision for income taxes 16,048 11,950 10,632 Economic net income (loss) after taxes and equity-based charges 743,473 570,570 321,850 Plus: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 30,128 31,227 15,198 Economic net income (loss) after taxes 773,601 601,797 337,048 Weighted Average Adjusted Units 716,807,180 715,781,663 704,805,537 Economic net income (loss) after taxes per adjusted unit 1.08 0.84 0.48 Weighted Average Adjusted Units 716,807,180 715,781,663 704,805,537 Economic net income (loss) after taxes 773,601 601,797 337,048 Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 30,128 31,227 15,198 Economic net income (loss) after taxes and equity-based charges 743,473 570,570 321,850 Weighted Average Adjusted Units 716,807,180 715,781,663 704,805,537 Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 1.04 $ 0.80 $ 0.46 Year Ended December 31, 2013 December 31, 2012 Net income (loss) attributable to KKR & Co. L.P. per common unit - Basic $ 2.51 $ 2.35 Weighted Average Common Units Outstanding - Basic 274,910,628 238,503,257 Net income (loss) attributable to KKR & Co. L.P. 691,226 560,836 Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. 1,056,126 1,116,740 Plus: Non-cash equity based charges 307,514 400,207 Plus: Amortization of intangibles and other, net 102,789 9,683 Plus: Income taxes 37,926 43,405 Economic net income (loss) 2,195,581 2,130,871 Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 114,709 62,877 Economic net income (loss) after equity-based charges 2,080,872 2,067,994 Less: Provision for income taxes 61,601 102,420 Economic net income (loss) after taxes and equity-based charges 2,019,271 1,965,574 Plus: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 114,709 62,877 Economic net income (loss) after taxes 2,133,980 2,028,451 Weighted Average Adjusted Units 714,835,941 699,988,443 Economic net income (loss) after taxes per adjusted unit 2.99 2.90 Weighted Average Adjusted Units 714,835,941 699,988,443 Economic net income (loss) after taxes 2,133,980 2,028,451 Less: Equity-based charges associated with the KKR & Co. L.P. 2010 equity incentive plan 114,709 62,877 Economic net income (loss) after taxes and equity-based charges 2,019,271 1,965,574 Weighted Average Adjusted Units 714,835,941 699,988,443 Economic net income (loss) after taxes and equity-based charges per adjusted unit $ 2.82 $ 2.81 KKR EXHIBIT A (CONTINUED) RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. (GAAP BASIS) TO ECONOMIC NET INCOME (LOSS), FEE RELATED EARNINGS, FEE RELATED EBITDA, AND TOTAL DISTRIBUTABLE EARNINGS (UNAUDITED) (Amounts in thousands) Quarter Ended December 31, 2013 September 30, 2013 December 31, 2012 Net income (loss) attributable to KKR & Co. L.P. $ 277,913 $ 204,740 $ 96,728 Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. 393,739 300,169 170,256 Plus: Non-cash equity based charges 60,331 85,215 70,170 Plus: Amortization of intangibles and other, net 45,265 15,979 4,898 Plus: Income taxes 12,401 7,644 5,628 Economic net income (loss) 789,649 613,747 347,680 Plus: Income attributable to segment noncontrolling interests 1,943 2,020 1,245 Less: Investment income (loss) 671,459 509,729 262,946 Fee related earnings 120,133 106,038 85,979 Plus: Depreciation and amortization 3,658 3,601 3,580 Fee related EBITDA $ 123,791 $ 109,639 $ 89,559 Less: Depreciation and amortization 3,658 3,601 3,580 Plus: Realized cash carry, net of realized cash carry allocated to carry pool 150,300 48,919 100,992 Plus: Net realized principal investment income 250,856 102,766 366,878 Less: Local income taxes and noncontrolling interests 10,938 6,586 7,559 Total distributable earnings $ 510,351 $ 251,137 $ 546,290 Year Ended December 31, 2013 December 31, 2012 Net income (loss) attributable to KKR & Co. L.P. $ 691,226 $ 560,836 Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. 1,056,126 1,116,740 Plus: Non-cash equity based charges 307,514 400,207 Plus: Amortization of intangibles and other, net 102,789 9,683 Plus: Income taxes 37,926 43,405 Economic net income (loss) 2,195,581 2,130,871 Plus: Income attributable to segment noncontrolling interests 6,387 7,043 Less: Investment income (loss) 1,789,620 1,818,103 Fee related earnings 412,348 319,811 Plus: Depreciation and amortization 14,648 12,499 Fee related EBITDA $ 426,996 $ 332,310 Less: Depreciation and amortization 14,648 12,499 Plus: Realized cash carry, net of realized cash carry allocated to carry pool 414,016 285,424 Plus: Net realized principal investment income 657,139 866,776 Less: Local income taxes and noncontrolling interests 27,625 22,615 Total distributable earnings $ 1,455,878 $ 1,449,396 KKR EXHIBIT A (CONTINUED) RECONCILIATION OF KKR & CO. L.P. PARTNERS' CAPITAL (GAAP BASIS) TO BOOK VALUE AND BOOK VALUE PER ADJUSTED UNIT (UNAUDITED) (Amounts in thousands, except common unit and per common unit amounts) As of As of December 31, 2013 December 31, 2012 KKR & Co. L.P. partners’ capital $ 2,722,010 $ 2,004,359 Noncontrolling interests held by KKR Holdings L.P. 5,116,761 4,981,864 Equity impact of KKR Management Holdings Corp. and other (76,171 ) (29,039 ) Book value 7,762,600 6,957,184 Adjusted units 716,676,699 704,780,484 Book value per adjusted unit $ 10.83 $ 9.87 RECONCILIATION OF CASH AND CASH EQUIVALENTS (GAAP BASIS) TO CASH AND SHORT-TERM INVESTMENTS (SEGMENT BASIS) (UNAUDITED) (Amounts in thousands) As of As of December 31, 2013 December 31, 2012 Cash and cash equivalents $ 1,306,383 $ 1,230,464 Liquid short-term investments 854,714 303,823 Cash and short-term investments $ 2,161,097 $ 1,534,287 KKR EXHIBIT B RECONCILIATION OF WEIGHTED AVERAGE GAAP COMMON UNITS OUTSTANDING TO WEIGHTED AVERAGE ADJUSTED UNITS (UNAUDITED) The following table provides a reconciliation of KKR's Weighted Average GAAP Common Units Outstanding to Weighted Average Adjusted Units. Quarter Ended December 31, 2013 September 30, 2013 December 31, 2012 Weighted Average GAAP Common Units Outstanding - Basic 288,045,501 282,148,802 249,303,558 Weighted Average Unvested Common Units(a) 24,294,835 25,986,389 18,888,570 Weighted Average GAAP Common Units Outstanding - Diluted 312,340,336 308,135,191 268,192,128 Adjustments: Weighted Average KKR Holdings Units(b) 404,466,844 407,646,472 436,613,409 Weighted Average Adjusted Units 716,807,180 715,781,663 704,805,537 Year Ended December 31, 2013 December 31, 2012 Weighted Average GAAP Common Units Outstanding - Basic 274,910,628 238,503,257 Weighted Average Unvested Common Units(a) 25,343,462 15,589,903 Weighted Average GAAP Common Units Outstanding - Diluted 300,254,090 254,093,160 Adjustments: Weighted Average KKR Holdings Units(b) 414,581,851 445,895,283 Weighted Average Adjusted Units 714,835,941 699,988,443 RECONCILIATION OF GAAP COMMON UNITS OUTSTANDING TO ADJUSTED UNITS (UNAUDITED) The following table provides a reconciliation of KKR's GAAP Common Units Outstanding to Adjusted Units. As of As of December 31, 2013 December 31, 2012 GAAP Common Units Outstanding - Basic 288,143,327 253,363,691 Unvested Common Units(a) 24,164,354 18,863,517 GAAP Common Units Outstanding - Diluted 312,307,681 272,227,208 Adjustments: KKR Holdings Units(b) 404,369,018 432,553,276 Adjusted Units 716,676,699 704,780,484 (a) Represents equity awards granted under the KKR & Co. L.P. 2010 Equity Incentive Plan. The issuance of common units of KKR & Co. L.P. pursuant to awards under its equity incentive plan dilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business. (b) Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units. Investor Relations: Kohlberg Kravis Roberts & Co. L.P. Craig Larson +1-877-610-4910 (U.S.) / +1-212-230-9410 investor-relations@kkr.com or Media: Kohlberg Kravis Roberts & Co. L.P. Kristi Huller +1-212-750-8300 media@kkr.com Source: KKR & Co. L.P.


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