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

The following excerpt is from the company's SEC filing.

KKR adopts a $500 million unit repurchase program

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

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

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

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

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

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

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

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

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

NEW YORK--(BUSINESS WIRE)--October 27, 2015--

KKR & Co. L.P. (NYSE:KKR)

today reported its third quarter 2015 results.

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

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

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

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

Note: Certain financial measures, including total distributable earnings, FRE, ENI, ENI after taxes, fee and yield earnings, book value, cash and short-term investments and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Exhibits B and C for a reconciliation of such measures to financial results prepared in accordance with GAAP.

GAAP RESULTS

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

SEGMENT RESULTS

KEY METRICS (UNAUDITED)

(Amounts in millions, except per adjusted unit amounts)

Quarter Ended

Nine Months Ended

September 30, 2014

% Change

Total Distributable Earnings

Fees

246

309

817

891

Realized Cash Carry

265

820

995

Net Realized Investment Income

110

245

593

720

Total Cash Revenues

621

800

(22

2,230

2,606

(14

Total Cash Expenses and Other

272

295

873

953

Less: Estimated Current Corporate Income Taxes

(18

(30

(73

(82

Distributable Earnings, net of taxes

Distributable Earnings, net of taxes per KKR & Co. L.P. common unit

0.40

0.59

(32

1.57

2.03

(23

Distribution per KKR & Co. L.P. common unit

Payout ratio

88

76

79

Economic Net Income

Management, Monitoring and Transaction Fees, Net

301

805

854

Performance Income

(162

310

884

1,096

Investment Income

(274

207

330

648

Total Segment Revenues

(191

818

(123

2,019

2,598

Total Segment Expenses and Other

124

399

1,061

1,170

Economic Net Income, After-Taxes

Economic Net Income, After-Taxes per Adjusted Unit

Fee and Yield Earnings

139

208

(33

487

525

(7

Book Value per Adjusted Unit

Last Twelve Months Ended

Return on Equity

9.6%

24.7%

Cash Return on Equity

15.8%

23.3%

Private Markets

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

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

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

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

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

Public Markets

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

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

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

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

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

Capital Markets

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

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

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

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

CAPITAL AND LIQUIDITY

As of September 30, 2015, KKR had $2.1 billion of cash and short-term investments and $3.0 billion of outstanding debt and preferred share obligations on a total reportable segment basis. This includes KFN’s debt obligations of $657.3 million and KFN’s 7.375% Series A LLC preferred shares of $373.8 million, which are non-recourse to KKR beyond the assets of KFN. As of September 30, 2015, KKR had a $1.0 billion revolving credit facility, which was undrawn. In addition, KKR has a $500.0 million revolving credit facility for use in its capital markets business, which was undrawn as of September 30, 2015.

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

DISTRIBUTION

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

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

SUPPLEMENTAL INFORMATION

A slide presentation containing supplemental commentary about the Company's financial results for the fiscal quarter ended September 30, 2015 may be accessed through the KKR Investor Relations section of the KKR website at

http://ir.kkr.com/kkr_ir/kkr_events.cfm

. The presentation will be referenced on the conference call discussed below.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Tuesday, October 27, 2015 at 5:00 p.m. EDT. The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Investor Center section of KKR's website at

. A replay of the live broadcast will be available on KKR's website or by dialing (855) 859-2056 (U.S. callers) or +1 (404) 537-3406 (non-U.S. callers), pass code 33603948, beginning approximately two hours after the broadcast.

From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Center for KKR & Co. L.P. at

http://ir.kkr.com/kkr_ir/kkr_events.cfm.

In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the “Email Alerts” area of the Investor Center on the website.

ABOUT KKR

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

www.kkr.com

and on Twitter @KKR_Co.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements, including the statements with respect to the strategic partnership with Marshall Wace LLP, the declaration and payment of distributions on common units of KKR and the timing, manner and volume of repurchases of common units pursuant to a repurchase program. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR’s beliefs, assumptions and expectations, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR’s business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, ENI after taxes, fee and yield earnings, fee and yield EBITDA, equity...


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