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

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