Filed by KKR & Co. L.P.

Pursuant to Rule 425 under the

Securities Act of 1933, as amended

Subject Company:  KKR Private Equity Investors, L.P.

Registration No.: 333-144335

 

KKR Private Equity Investors Reports its Financial Results for the Fourth Quarter and Year Ended December 31, 2008

 

 NAV per Unit of $12.78 as of December 31, 2008

 

Guernsey, Channel Islands, March 2, 2009 – KKR Private Equity Investors, L.P. (Euronext Amsterdam: KPE), a Guernsey limited partnership that is invested predominantly in private equity investments identified by Kohlberg Kravis Roberts & Co. (“KKR”), today reported its financial results for the quarter and year ended December 31, 2008. As of December 31, 2008, KPE’s net asset value (“NAV”) was $2,618.7 million, or $12.78 per unit.

 

Henry R. Kravis, Co-Founder of KKR and Co-Chairman of KPE’s Managing Partner’s Board of Directors, commented, “The steep declines in global capital markets during the fourth quarter had a sizable negative impact on KPE’s quarterly NAV.  We believe that the valuations of KPE’s underlying private equity investments are more reflective of broader global macroeconomic conditions and mark-to-market considerations than they are of the fundamentals of KPE. KKR has full confidence that KPE’s portfolio will ultimately produce realizations which will accrue to the benefit of KPE unitholders after the economy has stabilized.”

 

George R. Roberts, Co-Founder of KKR and Co-Chairman of KPE’s Managing Partner’s Board of Directors, commented, “Private equity is inherently a long-term asset class.  Our success is never predicated on short-term gains or single-quarter valuations, but on working to improve the operations of our portfolio companies over years and through economic cycles. We believe that we have positioned the companies in KPE’s portfolio well for an extended period of slower global growth by managing costs, anticipating refinancing issues and deleveraging. We maintain our adherence to our core values of patience, discipline, multifaceted stakeholder engagement and strong corporate governance, as these are the best ways we know to grow and improve businesses in the long run.”

 

Results of Operations

 

Operating results of KPE for the quarter ended December 31, 2008 are highlighted as follows:

 

·                  Net unrealized depreciation on investments and foreign currency transactions was $1,178.1 million. The most significant changes in the unrealized fair value of investments from September 30, 2008 to December 31, 2008 were:

 



 

·                  A decrease of $164.6 million in the value of the investment in First Data Corporation (“First Data”), which was marked from 1.0 times cost as of September 30, 2008 to 0.6 times as of December 31, 2008;

 

·                  A decrease of $128.2 million in the value of the investment in Alliance Boots GmbH (“Alliance Boots”), which was marked from 1.0 times cost as of September 30, 2008 to 0.8 times as of December 31, 2008. Including the impact of foreign currency translation, the Alliance Boots investment was marked on a U.S. dollar basis from 0.9 times to 0.6 times as of December 31, 2008;

 

·                  A decrease of $121.2 million in the value of the investment in HCA Inc. (“HCA”), which was marked from 1.2 times cost as of September 30, 2008 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $111.3 million in the value of the investment in NXP B.V. (“NXP”), which was marked on a U.S. dollar basis from 0.5 times cost as of September 30, 2008 to 0.1 times as of December 31, 2008;

 

·                  A decrease of $109.6 million in the value of the investment in Energy Future Holdings Corp. (“EFH”), which was marked from 1.0 times cost as of September 30, 2008 to 0.7 times as of December 31, 2008;

 

·                  A decrease of $106.2 million in the value of the investment in Capmark Financial Group Inc. (“Capmark”), which was marked from 0.8 times cost as of September 30, 2008 to 0.1 times as of December 31, 2008;

 

·                  A decrease of $77.1 million in the value of the investment in PagesJaunes Groupe S.A. (“PagesJaunes”), which is held through a leveraged holding company, based on a market quotation on a U.S. dollar basis;

 

·                  A decrease of $68.0 million in the value of the investment in KION Group GmbH (“KION”), which was marked on a Euro basis from 0.7 times cost as of September 30, 2008 to 0.2 times as of December 31, 2008. Including the impact of foreign currency translation, the KION investment was marked on a U.S. dollar basis from 0.8 times to 0.2 times as of December 31, 2008;

 

·                  A decrease of $60.9 million in the value of the investment in Biomet, Inc. (“Biomet”), which was marked from 1.0 times cost as of September 30, 2008 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $42.8 million in the value of the investment in The Nielsen Company B.V. (“Nielsen”), which was marked from 1.1 times cost as of September 30, 2008 to 0.9 times as of December 31, 2008;

 

·                  A decrease of $38.6 million in the value of the investment in U.S. Foodservice, Inc. (“U.S. Foodservice”), which was marked from 1.0 times cost as of September 30, 2008 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $30.5 million in the value of the investment in ProSiebenSat.1 Media AG (“ProSieben”). KPE’s original investment of $220.2 million in ProSieben was marked on both a Euro and U.S. dollar basis from 0.1 times cost as of September 30, 2008 to nil as of December 31, 2008. During the quarter ended December 31, 2008, KPE invested an additional $30.2 million in ProSieben, which was marked to 0.8 times cost as of December 31, 2008 on both a Euro and a U.S. dollar basis. Overall,

 

2



 

the ProSieben investment remained at 0.1 times cost on both a Euro basis and a U.S. dollar basis as of December 31, 2008; and

 

·                  An increase of $32.5 million in the value of the investment in Dollar General Corporation (“Dollar General”), which was marked from 1.0 times cost as of September 30, 2008 to 1.1 times as of December 31, 2008.

 

·                  Net investment loss was $19.4 million, which principally represented interest expense, general and administrative expenses and management fees, offset by interest and dividend income;

 

·                  Net realized loss on investments and foreign currency was $46.2 million. The net realized loss was primarily comprised of $62.8 million from the sale of opportunistic investments in public equities, related derivative instruments and the sale of fixed income investments and $21.7 million from the sale of investments by KKR Strategic Capital Institutional Fund, Ltd. (“SCF”), offset by a realized gain of $38.3 million related to the termination of certain transactions under forward foreign currency contracts; and

 

·                  The net decrease in net assets resulting from operations was $1,243.6 million and KPE’s total return was (32.2) percent during the quarter.

 

Operating results of KPE for the year ended December 31, 2008 are highlighted as follows:

 

·                  Net unrealized depreciation on investments and foreign currency transactions was $2,177.6 million. The most significant changes in the unrealized fair value of investments from December 31, 2007 to December 31, 2008 were:

 

·                  A decrease of $240.3 million in the value of the investment in PagesJaunes, which is held through a leveraged holding company, based on a market quotation on a U.S. dollar basis;

 

·                  A decrease of $211.0 million in the value of the investment in NXP, which was marked on a U.S. dollar basis from 0.9 times cost as of December 31, 2007 to 0.1 times as of December 31, 2008;

 

·                  A decrease of $183.1 million in the value of the investment in ProSieben. KPE’s original investment of $220.2 million in ProSieben was marked on a Euro basis from 0.7 times cost as of December 31, 2007 to nil as of December 31, 2008. Including the impact of foreign currency translation, the ProSieben investment was marked on a U.S. dollar basis from 0.8 times to nil as of December 31, 2008. During the quarter ended December 31, 2008, KPE invested an additional $30.2 million in ProSieben, which was marked to 0.8 times cost as of December 31, 2008 on both a Euro and a U.S. dollar basis. Overall, the ProSieben investment was marked on a Euro basis from 0.7 times to 0.1 times and from 0.8 times to 0.1 times on a U.S. dollar basis as of December 31, 2008;

 

3



 

·                  A decrease of $181.6 million in the value of the investment in Capmark, which was marked from 1.3 times cost as of December 31, 2007 to 0.1 times as of December 31, 2008;

 

·                  A decrease of $170.1 million in the value of the investment in Alliance Boots, which was marked on a Euro basis from 1.0 times cost as of December 31, 2007 to 0.8 times as of December 31, 2008. Including the impact of foreign currency translation, the Alliance Boots investment was marked on a U.S. dollar basis from 1.0 times to 0.6 times as of December 31, 2008;

 

·                  A decrease of $167.4 million in the value of the convertible senior note investment in Sun Microsystems, Inc.;

 

·                  A decrease of $164.6 million in the value of the investment in First Data, which was marked from 1.0 times cost as of December 31, 2007 to 0.6 times as of December 31, 2008;

 

·                  A decrease of $123.4 million in the value of the investment in HCA, which was marked from 1.2 times cost as of December 31, 2007 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $118.5 million in the value of the investment in Aero Technical Support & Services, S.à r.l. (the operating company changed its name from Air Canada Technical Services (ACTS) to Aveos Fleet Performance Inc.), which was marked on both a Canadian dollar and U.S. dollar basis from 1.0 times cost as of December 31, 2007 to nil as of December 31, 2008;

 

·                  A decrease of $112.4 million in the value of the investment in KION, which was marked on a Euro basis from 1.0 times cost as of December 31, 2007 to 0.2 times as of December 31, 2008. Including the impact of foreign currency translation, the KION investment was marked on a U.S. dollar basis from 1.1 times to 0.2 times as of December 31, 2008;

 

·                  A decrease of $109.6 million in the value of the investment in EFH, which was marked from 1.0 times cost as of December 31, 2007 to 0.7 times as of December 31, 2008;

 

·                  A net decrease of $65.8 million in the value of the convertible preferred stock investment in Orient Corporation and the related foreign currency exchange contract;

 

·                  A decrease of $73.4 million in the value of the investment in Legrand Holdings S.A., based on a market quotation on a U.S. dollar basis;

 

·                  A decrease of $60.9 million in the value of the investment in Biomet, which was marked from 1.0 times cost as of December 31, 2007 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $38.6 million in the value of the investment in U.S. Foodservice, which was marked from 1.0 times cost as of December 31, 2007 to 0.8 times as of December 31, 2008;

 

·                  A decrease of $21.6 million in the value of the investment in Nielsen, which was marked from 1.0 times cost as of December 31, 2007 to 0.9 times as of December 31, 2008; and

 

4



 

·                  An increase of $32.5 million in the value of the investment in Dollar General, which was marked from 1.0 times cost as of December 31, 2007 to 1.1 times as of times as of December 31, 2008.

 

·                  Net investment loss was $86.2 million, which principally represented interest expense, management fees and general and administrative expenses, offset by interest and dividend income;

 

·                  Net realized loss on investments and foreign currency was $104.4 million. The net realized loss was primarily comprised of $88.3 million from the sale of opportunistic investments in public equities, related derivative instruments and the sale of fixed income investments, $46.9 million from the sale of investments by SCF and $23.5 million from the secondary sales of investments in limited partner interests of the KKR 2006 Fund and the KKR Millennium Fund, offset by realized gains of $38.3 million from the termination of certain transactions under forward foreign currency contracts and $16.0 million from the sale of and partial sale of investments in certain portfolio companies by KKR’s private equity funds; and

 

·                  The net decrease in net assets resulting from operations was $2,368.1 million and KPE’s total return was (47.5) percent during the year ended December 31, 2008.

 

Investments

 

KPE invests its capital as the sole limited partner of KKR PEI Investments, L.P. (the “Investment Partnership”). As of December 31, 2008, the fair value of the Investment Partnership’s portfolio of private equity investments, net of related financing, and opportunistic investments was $3,002.6 million, which consisted of:

 

·                  Investments of $1,185.0 million in the following KKR private equity funds:

 

·

 

KKR 2006 Fund L.P.

·

 

KKR Asian Fund, L.P.

·

 

KKR European Fund, Limited Partnership

·

 

KKR European Fund II, Limited Partnership

·

 

KKR European Fund III, Limited Partnership

·

 

KKR Millennium Fund L.P.

 

·                  Co-investments of $1,414.7 million in the following portfolio companies of KKR’s private equity funds:

 

·

 

Alliance Boots GmbH

·

 

Biomet, Inc.

·

 

Capmark Financial Group Inc.

·

 

Dollar General Corporation

·

 

Energy Future Holdings Corp.

·

 

First Data Corporation

·

 

HCA Inc.

·

 

KION Group GmbH

·

 

The Nielsen Company B.V.

·

 

NXP B.V.

·

 

PagesJaunes Groupe S.A.

·

 

ProSiebenSat.1 Media AG

·

 

U.S. Foodservice, Inc.

 

5



 

·                  Negotiated equity investments of $299.1 million, net of related financing, in the following companies:

 

·                  Sun Microsystems, Inc.

·                  Orient Corporation

·                  Aero Technical Support & Services S.à r.l.

 

·                  Opportunistic investments of $103.8 million as follows:

 

·                  Investments by KKR Strategic Capital Institutional Fund, Ltd.

·                  Fixed income investments

·                  Investments in publicly traded securities

 

Please refer to the schedule of investments as of December 31, 2008, included elsewhere in this release, for detailed amounts of the investments listed above.

 

Commitments

 

As of December 31, 2008, the Investment Partnership’s remaining capital commitments related to limited partner interests in KKR’s private equity funds were as follows, with amounts in millions:

 

KKR 2006 Fund L.P.

 

$

449.2

 

KKR European Fund III, Limited Partnership

 

291.2

 

KKR Asian Fund L.P.

 

218.9

 

 

 

$

959.3

 

 

We expect that the unfunded capital commitments presented above will be called over a period of several years.

 

Liquidity and Capital Resources

 

As of December 31, 2008, the Investment Partnership had a cash balance of $623.3 million and had $951.2 million outstanding on its $1.0 billion five-year senior secured credit facility established on June 11, 2007.

 

The Investment Partnership’s availability for further borrowings under the credit facility was $51.4 million as of February 27, 2009 or $7.5 million assuming that the commitment held by Lehman Commercial Paper Inc., which has declared bankruptcy, will not fund any part of its remaining commitments.

 

Subsequent to December 31, 2008 and through February 27, 2009, the Investment Partnership sold the remainder of its opportunistic investments in fixed income investments and public equities with a fair value of $41.2 million as of December 31, 2008 for proceeds of $47.4 million. In addition, the Investment Partnership settled securities sold short, not yet purchased, with a fair value of $1.9 million as of December 31, 2008 for $1.6 million. As of February 27, 2009, the Investment Partnership’s pro forma cash balance was $669.1 million as of February 27, 2009, which represented the cash balance as of December 31, 2008 and the net proceeds from the transactions described above.

 

6



 

Business Environment

 

Global capital markets continued to experience duress during the fourth quarter of 2008 as the contraction brought on by the global financial and economic crisis accelerated. During the fourth quarter, the valuations of equity and debt securities continued to decline; credit remained generally constricted and credit markets weak; consumer spending deteriorated; home prices continued to fall; unemployment rates rose; equity market volatility levels remained historically elevated; and financial intermediation was challenging. We anticipate that worldwide economies and capital markets will remain under stress for the foreseeable future as the investment community works with governmental and regulatory bodies to implement solutions to the credit crisis and restore confidence in global financial systems. As a result, sources of liquidity may be not only more difficult, but also impossible to obtain in the current market environment.

 

In addition, subsequent to December 31, 2008 and through February 27, 2009, there has been a further decline in the global economy and capital markets.  Until the close of the first quarter and the completion of the first quarter valuation process, KPE and the Investment Partnership will not know the exact impact of this decline on first quarter valuations or results of operations.  The state of the financial markets may also adversely impact other aspects of the business, operations, investments or prospects of KPE and the Investment Partnership in ways that are not currently foreseeable.

 

Business Combination Transaction

 

On July 27, 2008, KPE and KKR & Co. L.P. announced a transaction for KKR & Co. L.P. to acquire all of the assets and all of the liabilities of KPE in return for the issuance to KPE unitholders of certain interests in KKR & Co. L.P. (the “Transaction”). KKR & Co. L.P. is an affiliate of KKR. The financial world and markets have changed dramatically since July 2008. KKR and the independent directors of KPE’s general partner are in the process of evaluating the impact of these changes on the continued advisability of the Transaction and hope to complete their analysis over the next several weeks.

 

Reinvestment by KKR

 

Pursuant to the Investment Agreement between KPE and KKR, whereby KKR agreed to cause its affiliates to reinvest in KPE common units, on a periodic basis, an amount equal to 25% of the aggregate pre-tax cash distributions, if any and subject to certain exceptions, that are made in respect of the carried interests and incentive distribution rights, one or more affiliates of KKR will be purchasing $0.2 million of KPE common units through open market transactions over the Euronext Amsterdam stock exchange or in privately negotiated transactions, based on market conditions. As required by the Investment Agreement, such purchased common units will be subject to a three-year lock-up. Affiliates investing in KPE’s common units will not include KKR’s traditional private equity funds.

 

7



 

Financial Report

 

KPE’s annual financial report, which includes its financial statements and the consolidated financial statements of the Investment Partnership, will be available on its website (www.kkrprivateequityinvestors.com) following the close of Euronext Amsterdam on Monday, March 2, 2009. KPE encourages investors to carefully read these documents accompanying this news release.

 

Information for Investors – Teleconference and Webcast

 

KPE will discuss its financial results on a teleconference to be broadcast live on the Internet on Monday, March 2, 2009 at 7:00 p.m. CET (Amsterdam) / 6:00 p.m. GMT (Guernsey) / 1:00 p.m. EST (New York City). A webcast (listen only) of the teleconference can be accessed via the Investor Relations section of KPE’s website at www.kkrprivateequityinvestors.com.

 

About KPE

 

KKR Private Equity Investors, L.P. (Euronext Amsterdam: KPE) is a Guernsey limited partnership that seeks to create long-term value by participating in private equity and other investments identified by Kohlberg Kravis Roberts & Co. (“KKR”). As of December 31, 2008, over 95% of KPE’s $3.4 billion portfolio was comprised of limited partner interests in six KKR private equity funds, co-investments in 13 companies alongside the private equity funds and negotiated equity investments. The remainder of KPE’s portfolio as of December 31, 2008 was invested primarily in cash and other temporary and opportunistic investments. KPE is governed by its general partner’s board of directors, which is required to have a majority of independent directors, and makes its investments as the sole limited partner of another Guernsey limited partnership, KKR PEI Investments, L.P.

 

The common units and related restricted depositary units of KPE are subject to a number of ownership and transfer restrictions. Information concerning these ownership and transfer restrictions is included in the Investor Relations section of KPE’s website at www.kkrprivateequityinvestors.com.

 

No Offering Statement

 

This release does not constitute an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from KPE and that will contain detailed information about KPE and management, as well as financial statements.

 

8



 

Forward-Looking Statements

 

This release may contain certain forward-looking statements with respect to the financial condition, results of operations, liquidity, investments, business, net asset value and prospects of KPE and the transaction with KKR & Co. L.P. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future, and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. KPE does not undertake to update any of these forward-looking statements.

 

******

 

 

Investor Contact:

 

Media Contacts:

Kate de Mul

 

Kohlberg Kravis Roberts & Co.

Investor Relations Manager

 

Peter McKillop

KKR KPE LLC

 

Kristi Huller

+1.212.659.2026

 

+1.212.750.8300

 

 

media@kkr.com

 

 

Additional Information about the Transaction and Where to Find It

 

This release contains information in respect of the proposed transaction involving KKR & Co. L.P. and KPE. In connection with the proposed transaction, KKR & Co. L.P. has filed with the Securities Exchange Commission (“SEC”) an amendment to its existing Registration Statement on Form S-1 (file no. 333-144335) and will be filing other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS OF KPE ARE URGED TO READ THE REGISTRATION STATEMENT AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The final prospectus contained in the registration statement will be mailed or otherwise disseminated to the holders of KPE’s common units. Holders of KPE’s common units will be able to obtain free copies of the final prospectus (when available) and other documents filed with the SEC by KKR & Co. L.P. through the web site maintained by the SEC at www.sec.gov. Free copies of the final prospectus (when available) and other documents filed with the SEC can also be obtained by directing a request to KKR & Co. L.P., 9 W. 57th Street, Suite 4200, New York, New York 10019, Attention: Investor Relations.

 

 

FINANCIAL SCHEDULES FOLLOW

 

9



 

KKR PRIVATE EQUITY INVESTORS, L.P.

 

STATEMENTS OF ASSETS AND LIABILITIES

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

 

 

 

December 31,
2008

 

December 31,
2007

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Investments in limited partner interests of KKR PEI Investments, L.P., at fair value

 

$

2,622,970

 

$

4,984,533

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,095

 

452

 

Prepaid expenses

 

171

 

141

 

 

 

 

 

 

 

Total assets

 

2,625,236

 

4,985,126

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Accrued liabilities

 

4,927

 

1,823

 

Due to affiliate

 

1,640

 

930

 

 

 

 

 

 

 

Total liabilities

 

6,567

 

2,753

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

NET ASSETS

 

$

2,618,669

 

$

4,982,373

 

 

 

 

 

 

 

NET ASSETS CONSIST OF:

 

 

 

 

 

Partners’ capital contributions, net (common units outstanding of 204,902,226 and 204,550,001, respectively)

 

$

4,834,517

 

$

4,830,110

 

Distributable earnings (loss)

 

(2,215,848

)

152,263

 

 

 

 

 

 

 

 

 

$

2,618,669

 

$

4,982,373

 

 

 

 

 

 

 

Net asset value per common unit

 

$

12.78

 

$

24.36

 

 

 

 

 

 

 

Market price per common unit

 

$

3.50

 

$

18.16

 

 

10



 

KKR PRIVATE EQUITY INVESTORS, L.P.

 

STATEMENTS OF OPERATIONS
(Amounts in thousands)

 

 

 

Quarter Ended (Unaudited)

 

Year Ended

 

 

 

December 31,
2008

 

December 31,
2007

 

December 31,
2008

 

December 31,
2007

 

NET INVESTMENT INCOME (LOSS) ALLOCATED FROM THE KKR PRIVATE EQUITY INVESTMENTS, L.P:

 

 

 

 

 

 

 

 

 

Investment income

 

$

4,742

 

$

16,776

 

$

45,277

 

$

126,540

 

Expenses

 

18,704

 

36,497

 

109,934

 

100,707

 

 

 

(13,692

)

(19,721

)

(64,657

)

25,833

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME—Interest income

 

1

 

14

 

88

 

70

 

 

 

 

 

 

 

 

 

 

 

EXPENSES—General and administrative expenses

 

5,432

 

2,505

 

21,605

 

6,874

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(19,393

)

(22,212

)

(86,174

)

19,029

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY ALLOCATED FROM KKR PRIVATE EQUITY INVESTMENTS, L.P.:

 

 

 

 

 

 

 

 

 

Net realized gain (loss)

 

(46,153

)

(8,222

)

(104,356

)

113,196

 

Net change in unrealized depreciation

 

(1,178,079

)

(259,378

)

(2,177,581

)

(136,359

)

 

 

 

 

 

 

 

 

 

 

Net loss on investments and foreign currency transactions

 

(1,224,232

)

(267,600

)

(2,281,937

)

(23,163

)

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(1,243,625

)

$

(289,812

)

$

(2,368,111

)

$

(4,134

)

 

11



 

KKR PRIVATE EQUITY INVESTORS, L.P.

 

STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in thousands, except common units)

 

NET ASSETS—DECEMBER 31, 2006

 

$

5,035,599

 

 

 

 

 

NET DECREASE IN NET ASSETS FROM OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007:

 

 

 

Net investment income

 

19,029

 

Net loss on investments and foreign currency transactions

 

(23,163

)

 

 

 

 

Net decrease in net assets resulting from operations

 

(4,134

)

 

 

 

 

Distribution to unitholders

 

(49,092

)

 

 

 

 

NET ASSETS—DECEMBER 31, 2007

 

$

4,982,373

 

 

 

 

 

NET DECREASE IN NET ASSETS FROM OPERATIONS FOR THE YEAR ENDED DCEMBER 31, 2008:

 

 

 

Net investment loss

 

(86,174

)

Net loss on investments and foreign currency transactions

 

(2,281,937

)

 

 

 

 

Net decrease in net assets resulting from operations

 

(2,368,111

)

 

 

 

 

Partners’ capital contributions (issued 352,225 common units)

 

4,407

 

 

 

 

 

NET ASSETS—DECEMBER 31, 2008

 

$

2,618,669

 

 

12



 

KKR PRIVATE EQUITY INVESTORS, L.P.

 

STATEMENTS OF CASH FLOWS
(Amounts in thousands)

 

 

 

Year Ended

 

 

 

December 31,
2008

 

December 31,
2007

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

(2,368,111

)

$

(4,134

)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to cash and cash equivalents provided by (used in) operating activities:

 

 

 

 

 

Net investment loss (income) allocated from KKR PEI Investments, L.P.

 

64,657

 

(25,833

)

Net loss on investments and foreign currency transactions allocated from KKR PEI Investments, L.P.

 

2,281,937

 

23,163

 

Share-based compensation expense

 

49

 

25

 

Changes in operating assets and liabilities:

 

 

 

 

 

Distribution received from KKR PEI Investments, L.P.

 

14,969

 

54,082

 

Increase in prepaid expenses

 

(30

)

(30

)

Increase in accrued liabilities

 

3,055

 

589

 

Increase in due to affiliate

 

710

 

566

 

 

 

 

 

 

 

Net cash flows provided by (used in) operating activities

 

(2,764

)

48,428

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Partners’ capital contributions

 

4,407

 

 

Distribution to unitholders

 

 

(49,092

)

 

 

 

 

 

 

Net cash flow provided by (used in) financing activities

 

4,407

 

(49,092

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

1,643

 

(664

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

452

 

1,116

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS—End of period

 

$

2,095

 

$

452

 

 

13



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(Amounts in thousands)

 

 

 

December 31,
2008

 

December 31,
2007

 

 

 

 

 

 

 

ASSETS:

 

 

 

 

 

Investments, at fair value:

 

 

 

 

 

Opportunistic investments—Class A (cost of $84,852 and $512,607, respectively)

 

$

41,181

 

$

458,792

 

Co-investments in portfolio companies of private equity funds—Class B (cost of $2,663,611 and $2,635,583, respectively)

 

1,414,743

 

2,653,039

 

Negotiated equity investments—Class B (cost of $992,582 and $992,582, respectively)

 

649,155

 

985,557

 

Private equity funds—Class C (cost of $1,683,609 and $1,813,751, respectively)

 

1,184,958

 

1,847,887

 

Non-private equity fund—Class D (cost of $161,148 and $195,869, respectively)

 

62,583

 

189,345

 

 

 

3,352,620

 

6,134,620

 

 

 

 

 

 

 

Cash and cash equivalents

 

623,316

 

255,415

 

Cash and cash equivalents held by a non-private equity fund

 

88

 

1,091

 

Restricted cash

 

18,011

 

42,237

 

Unrealized gain on foreign currency exchange contract

 

3,000

 

 

Other assets

 

7,689

 

8,044

 

Total assets

 

4,004,724

 

6,441,407

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Accrued liabilities

 

37,691

 

30,730

 

Due to affiliates

 

2,864

 

11,961

 

Securities sold, not yet purchased (proceeds of $1,785 and $0, respectively)

 

1,916

 

 

Options written (proceeds of $0 and $7,290, respectively)

 

 

5,265

 

Unrealized loss on foreign currency exchange contracts and an interest rate swap, net

 

32,331

 

46,051

 

Other liabilities

 

117

 

182

 

Revolving credit agreement

 

951,214

 

1,002,240

 

Long-term debt

 

350,000

 

350,000

 

Total liabilities

 

1,376,133

 

1,446,429

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

NET ASSETS

 

$

2,628,591

 

$

4,994,978

 

 

 

 

 

 

 

NET ASSETS CONSIST OF:

 

 

 

 

 

Partners’ capital contributions

 

$

4,836,568

 

$

4,836,568

 

Distributable earnings (loss)

 

(2,207,977

)

158,410

 

 

 

 

 

 

 

 

 

$

2,628,591

 

$

4,994,978

 

 

14



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED SCHEDULE OF INVESTMENTS

(Amounts in thousands, except percentage amounts)

 

 

 

 

 

December 31, 2008

 

Investment

 

Class

 

Cost

 

Fair
Value

 

Fair Value as
a Percentage
of Net Assets

 

 

 

 

 

 

 

 

 

 

 

INVESTMENTS BY TYPE:

 

 

 

 

 

 

 

 

 

Opportunistic investments:

 

A

 

 

 

 

 

 

 

Fixed income investments

 

 

 

$

83,215

 

$

40,109

 

1.5

%

Public equities — common stocks

 

 

 

1,637

 

1,072

 

0.0

 

 

 

 

 

84,852

 

41,181

 

1.5

 

Co-investments in portfolio companies of private equity funds:

 

B

 

 

 

 

 

 

 

Dollar General Corporation

 

 

 

250,000

 

275,000

 

10.5

 

HCA Inc.

 

 

 

250,000

 

200,000

 

7.6

 

The Nielsen Company B.V.

 

 

 

200,000

 

180,000

 

6.8

 

Alliance Boots GmbH

 

 

 

301,352

 

175,123

 

6.7

 

Biomet, Inc.

 

 

 

200,000

 

160,000

 

6.1

 

Energy Future Holdings Corp.

 

 

 

200,000

 

140,000

 

5.3

 

First Data Corporation

 

 

 

200,000

 

120,000

 

4.6

 

U.S. Foodservice, Inc.

 

 

 

100,000

 

80,000

 

3.0

 

NXP B.V.

 

 

 

250,000

 

25,000

 

1.0

 

KION Group GmbH

 

 

 

112,824

 

23,961

 

0.9

 

ProSiebenSat.1 Media AG

 

 

 

226,913

 

22,159

 

0.8

 

Capmark Financial Group Inc.

 

 

 

137,321

 

13,500

 

0.5

 

PagesJaunes Groupe S.A.

 

 

 

235,201

 

 

 

 

 

 

 

2,663,611

 

1,414,743

 

53.8

 

Negotiated equity investments:

 

B

 

 

 

 

 

 

 

Sun Microsystems, Inc. convertible senior notes

 

 

 

701,164

 

500,500

 

19.0

 

Orient Corporation convertible preferred stock

 

 

 

169,706

 

148,655

 

5.7

 

Aero Technical Support & Services S.à r.l. (Aveos)

 

 

 

121,712

 

 

 

 

 

 

 

992,582

 

649,155

 

24.7

 

Private equity funds:

 

C

 

 

 

 

 

 

 

KKR 2006 Fund L.P.

 

 

 

1,105,787

 

821,234

 

31.2

 

KKR Millennium Fund L.P.

 

 

 

203,718

 

132,084

 

5.0

 

KKR European Fund, Limited Partnership

 

 

 

202,115

 

128,298

 

4.9

 

KKR Asian Fund L.P.

 

 

 

66,057

 

49,259

 

1.9

 

KKR European Fund II, Limited Partnership

 

 

 

96,955

 

49,032

 

1.9

 

KKR European Fund III, Limited Partnership

 

 

 

8,977

 

5,051

 

0.2

 

 

 

 

 

1,683,609

 

1,184,958

 

45.1

 

Non-private equity funds — Investments by KKR Strategic Capital Institutional Fund, Ltd.

 

D

 

161,148

 

62,583

 

2.4

 

 

 

 

 

$

5,585,802

 

$

3,352,620

 

127.5

%

 

Continued on the following page.

 

15



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

(Amounts in thousands, except percentage amounts)

 

 

 

December 31, 2008

 

Investment

 

Cost

 

Fair
Value

 

Fair Value as
a Percentage
of Net Assets

 

 

 

 

 

 

 

 

 

INVESTMENTS BY GEOGRAPHY :

 

 

 

 

 

 

 

North America

 

$

3,596,303

 

$

2,521,953

 

95.9

%

Europe

 

1,656,846

 

554,227

 

21.1

 

Asia Pacific

 

332,653

 

276,440

 

10.5

 

 

 

$

5,585,802

 

$

3,352,620

 

127.5

%

 

 

 

 

 

 

 

 

INVESTMENTS BY INDUSTRY :

 

 

 

 

 

 

 

Health Care

 

$

1,079,698

 

$

773,065

 

29.4

%

Technology

 

1,124,591

 

624,850

 

23.8

 

Retail

 

625,548

 

561,093

 

21.3

 

Financial Services

 

947,595

 

540,861

 

20.6

 

Media/Telecom

 

889,276

 

329,742

 

12.5

 

Energy

 

371,414

 

259,161

 

9.9

 

Industrial

 

436,989

 

187,043

 

7.1

 

Consumer Products

 

91,520

 

59,194

 

2.2

 

Chemicals

 

19,171

 

17,611

 

0.7

 

 

 

$

5,585,802

 

$

3,352,620

 

127.5

%

 

16



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands)

 

 

 

Quarter Ended (Unaudited)

 

Year Ended

 

 

 

December 31,
2008

 

December 31,
2007

 

December 31,
2008

 

December 31,
2007

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

Interest income, net of withholding taxes of $155, $0, $155 and $0, respectively

 

$

4,587

 

$

15,822

 

$

36,250

 

$

102,605

 

Dividend income, net of withholding taxes of $60, $361, $394 and $1,446, respectively

 

166

 

988

 

9,121

 

24,197

 

Total investment income

 

4,753

 

16,810

 

45,371

 

126,802

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fees

 

4,759

 

12,079

 

43,057

 

46,629

 

Incentive fees

 

 

30

 

 

956

 

Interest expense

 

13,068

 

22,894

 

61,843

 

48,557

 

Dividend expense

 

230

 

 

1,320

 

 

General and administrative expenses

 

677

 

1,543

 

3,855

 

4,677

 

Total expenses

 

18,734

 

36,546

 

110,075

 

100,819

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(13,981

)

(19,736

)

(64,704

)

25,983

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY:

 

 

 

 

 

 

 

 

 

Net realized gain (loss), net of withholding tax (benefit) of $0, $0, $(37) and $977, respectively

 

(46,249

)

(8,239

)

(104,573

)

113,432

 

Net change in unrealized depreciation

 

(1,180,530

)

(259,916

)

(2,182,110

)

(136,642

)

 

 

 

 

 

 

 

 

 

 

Net loss on investments and foreign currency transactions

 

(1,226,779

)

(268,155

)

(2,286,683

)

(23,210

)

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(1,240,760

)

$

(287,891

)

$

(2,351,387

)

$

2,773

 

 

17



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Amounts in thousands)

 

 

 

General
Partner

 

Limited
Partner

 

Total

 

 

 

 

 

 

 

 

 

NET ASSETS—DECEMBER 31, 2006

 

$

10,454

 

$

5,035,945

 

$

5,046,399

 

 

 

 

 

 

 

 

 

DECREASE IN NET ASSETS FROM OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007:

 

 

 

 

 

 

 

Net investment income

 

150

 

25,833

 

25,983

 

Net realized gain on investments and foreign currency transactions

 

236

 

113,196

 

113,432

 

Net change in unrealized depreciation on investments and foreign currency transactions

 

(283

)

(136,359

)

(136,642

)

Net increase in net assets resulting from operations

 

103

 

2,670

 

2,773

 

 

 

 

 

 

 

 

 

Fair value of distributions

 

(112

)

(54,082

)

(54,194

)

DECREASE IN NET ASSETS

 

(9

)

(51,412

)

(51,421

)

 

 

 

 

 

 

 

 

NET ASSETS—DECEMBER 31, 2007

 

10,445

 

4,984,533

 

4,994,978

 

 

 

 

 

 

 

 

 

DECREASE IN NET ASSETS FROM OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008:

 

 

 

 

 

 

 

Net investment loss

 

(47

)

(64,657

)

(64,704

)

Net realized loss on investments and foreign currency transactions

 

(217

)

(104,356

)

(104,573

)

Net change in unrealized depreciation on investments and foreign currency transactions

 

(4,529

)

(2,177,581

)

(2,182,110

)

Net decrease in net assets resulting from operations

 

(4,793

)

(2,346,594

)

(2,351,387

)

 

 

 

 

 

 

 

 

Fair value of distributions

 

(31

)

(14,969

)

(15,000

)

DECREASE IN NET ASSETS

 

(4,824

)

(2,361,563

)

(2,366,387

)

 

 

 

 

 

 

 

 

NET ASSETS—DECEMBER 31, 2008

 

$

5,621

 

$

2,622,970

 

$

2,628,591

 

 

18



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

 

 

Year Ended

 

 

 

December 31,
2008

 

December 31,
2007

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

(2,351,387

)

$

2,773

 

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to cash and cash equivalents provided by (used in) operating activities:

 

 

 

 

 

Amortization of deferred financing costs

 

869

 

505

 

Net realized loss (gain) on investments

 

104,573

 

(113,432

)

Net change in unrealized depreciation on investments

 

2,198,830

 

96,303

 

Increase (decrease) in net unrealized loss on foreign currency exchange contracts and an interest rate swap

 

(16,720

)

40,339

 

Changes in operating assets and liabilities:

 

 

 

 

 

Purchase of opportunistic investments

 

(124,078

)

(969,179

)

Purchase of securities to settle short sales

 

(244,936

)

 

Purchase of options

 

(7,121

)

(1,805

)

Purchase of co-investments in portfolio companies of private equity funds

 

(28,028

)

(1,685,438

)

Purchase of negotiated equity investments

 

 

(642,582

)

Purchase of investments by private equity funds

 

(199,211

)

(1,269,765

)

Purchase of investments by KKR Strategic Capital Institutional Fund, Ltd.

 

(14,249

)

(130,031

)

Proceeds from sale of opportunistic investments

 

446,484

 

633,207

 

Proceeds from securities sold short, not yet purchased

 

259,085

 

 

Proceeds from options written

 

3,529

 

12,528

 

Proceeds from termination of certain transactions under forward foreign exchange contracts

 

38,381

 

 

Proceeds from sale of investments by private equity funds

 

321,788

 

174,934

 

Proceeds from sale of investments by KKR Strategic Capital Institutional Fund, Ltd.

 

2,013

 

19,245

 

Decrease (increase) in cash and cash equivalents held by a non-private equity fund

 

1,003

 

(1,091

)

Decrease in time deposit

 

 

1,000,000

 

Decrease (increase) in other assets

 

(514

)

24,058

 

Decrease (increase) in restricted cash

 

24,226

 

(42,237

)

Increase in accrued liabilities

 

6,961

 

29,227

 

Increase (decrease) in due to affiliates

 

(9,097

)

6,239

 

Decrease in other liabilities

 

(65

)

(17,916

)

Net cash flows provided by (used in) operating activities

 

412,336

 

(2,834,118

)

 

Continued on the following page.

 

19



 

KKR PEI INVESTMENTS, L.P. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Amounts in thousands)

 

 

 

Year Ended

 

 

 

December 31,
2008

 

December 31,
2007

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings under the revolving credit agreement

 

549,921

 

999,266

 

Payments on borrowings under the revolving credit agreement

 

(565,324

)

 

Distributions to partners

 

(15,000

)

(54,194

)

Deferred financing costs

 

 

(4,405

)

Net cash flows provided by (used in) financing activities

 

(30,403

)

940,667

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

(14,032

)

9,245

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

367,901

 

(1,884,206

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

255,415

 

2,139,621

 

CASH AND CASH EQUIVALENTS—End of period

 

$

623,316

 

$

255,415

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

Interest paid

 

$

50,381

 

$

17,938

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

Increase (decrease) in revolving credit agreement - foreign currency adjustments

 

$

(20,730

)

$

2,974

 

Increase in long-term debt related to Sun financing

 

 

350,000

 

 

20