KKR Annual Review 2008

Can value still be created?

Ko h l b e r g K r av i s r o b e r t s & C o.

2 0 0 8 A n n u A l R e v i e w

C o n t e n t s

Letter from Our Founders 1

Operational and Strategic Review 8

KKR’s Integrated Approach to Value Creation 28

Dedicated Process for Value Creation 30

KKR Portfolio Company Case Studies 49

Investments of the KKR Private Equity Funds 61

l e t t e r f ro m o u r f o u n d e r s

Two thousand eight was a year of severe dislocation and extraordinary challenge. It began with many predicting an economic slowdown and ended, as far fewer anticipated, with the economy mired in the worst financial contraction since the 1930s.

There were many ramifications of the year’s turmoil, including a sharp increase in unemployment, a widespread decline in asset prices, a fall in global industrial activity and the dismantling of institutions once thought to be indispensable to capital formation. Even more traumatic was the erosion of trust in financial institutions, in business and in capitalism itself. Capitalism relies on confidence: confidence that markets are efficient, that economic behavior is rational, that risk can be assessed and managed and, most importantly, that measures of value accurately represent actual underlying value. The events of 2008 undermined this confidence and, with it, many of the investment community’s deepest convictions. It will take the collective efforts of many organizations to restore the trust necessary for capitalism to flourish once again. Know that at KKR, we strive to earn your trust each day and intend to maintain your confidence through good times and bad.

As we write this letter in April 2009, the financial and economic outlook remains sobering. Industrial activity, consumer spending, the housing market and unemploy-ment figures, together, indicate a long and protracted global slowdown. Global debt and equity markets con-tinue to experience turbulence. While progress has been made by governments to stabilize markets, significant work remains to be done. Although the challenges are daunting, we remain confident that they will be overcome through the efforts of the public and private sectors working together. KKR is committed to helping craft solutions to the problems facing global markets in close cooperation with other institutions.

In the wake of the events of 2008, we asked ourselves a difficult question: Can value still be created? The answer is yes. This Annual Review shows how.

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u n i q u e , i n t e g r at e d a n d m u lt i fac e t e d a p p roac h to Va l u e c r e at i o n

In the wake of the events of 2008, we asked ourselves a difficult question: Can value still be created? The answer is yes. This Annual Review shows how.

As we have run and grown KKR since its founding in 1976, we have invested through many cycles. Some of these have been rough going. Others have been less grueling. All of them have taught us that for our firm to create lasting value, we must be rigid enough to stick to what we know while being flexible enough to adapt to a changing future.

Our breadth of experience in successfully returning value to investors in all economic cycles is one of KKR’s important differentiators. Many of our professionals who achieved strong returns during challenging periods in the late 1970s, early 1980s, early 1990s and in 2001 remain at KKR today. Collectively, we have deployed capital through recessions, credit curtailments, banking crises and bear markets, helping KKR to consistently outperform the S&P 500 Index and other leading benchmarks. These experiences provide important lessons about when to invest, how best to help our companies and optimal times for exit that are indispensable to our investors and companies today.

Over 33 years, KKR has created value for investors by having a deep understanding of the companies and industries in which we invest, selecting the right assets for long-term outperformance, focusing meticulously on operational improvement initiatives for our current invest-ments, adhering to strict processes and procedures for monitoring our investments, working with our clients and partners to help them achieve their investment goals and being a trustworthy, dependable partner.

Throughout KKR’s existence, we have learned that challenging times yield interesting investment opportuni-ties up and down companies’ capital structures. We are capitalizing on these opportunities to create value by carefully evolving our business to encompass asset classes and strategies contiguous to and synergistic with private equity, including infrastructure, fixed income, mezzanine and capital markets, We have also created value by consistently bringing the knowledge of our entire firm to bear on every investment decision that we make. Our executives possess tremendous insight into compa-nies, industries, sectors, economies and business processes due to their experiences at KKR, as well as our experi-ences prior to joining the firm. We share this insight with each other and it is a key part of our decision making.

Because we believe so firmly that any investment that we make benefits from the collective knowledge, insight and experience of all of our professionals across asset classes and around the world, we have built businesses that are completely integrated and have access to profes-sionals across the entire firm. There are no silos at KKR.

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George R. Roberts (left) and Henry R. Kravis (right), photographed flanked by the skyscrapers of midtown Manhattan and the trees of Central Park, lead KKR into its thirty-third year as one of the world’s preeminent investment management firms.

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Our private equity and infrastructure professionals, our capital markets professionals and our credit and mezza-nine professionals work seamlessly together, subject to appropriate information-sharing processes, to make the most informed investment decisions that we can. The world has changed over the past year and it is changing as we write. It will no longer be possible to invest success-fully without this integration. Ours is a unique approach but we are confident that as we evolve our business, it will allow us to invest in a smarter and more nimble way that will benefit our clients and partners over the long term.

2 0 0 8 : a Y e a r o f f o c u s a n d e Vo l u t i o nOur most urgent and focused priority in 2008 was active

oversight and management of our current private equity portfolio. After 33 years, we understand that value creation is heavily dependent on the hard work that is done every day to make our portfolio companies successful. We are helping our companies to weather the current economic storm by managing cost structures, controlling cash flows, deleveraging, and, with the help of our capital markets team, opportunistically accessing the capital markets. As always, we are focused on growing EBITDA, generating cash and paying down debt across our portfolio. Many of our companies also took advantage of the market disloca-tion of 2008 to consolidate and grow market share, in many cases solidifying competitive advantages and leadership positions and making acquisitions.

Our KKR Capstone operational teams, credit team, capital markets team, global public affairs team, Senior Advisors and talent management team are critical to these efforts, and we significantly enhanced the resources available through all of these groups during 2008. We are now among the very few firms worldwide with the ability to have dedicated experts in strategy, financial manage-ment, information technology, procurement, human resources, debt and equity capital markets, regulatory analysis and stakeholder engagement and Lean Sigma, to name several capabilities, available to our portfolio companies. All of these capabilities strengthen our private equity efforts by deepening our ability to both find and execute transactions in the current environment and to add value to our companies once we invest in them. They also yield unparalleled insight into current market dynamics, enabling us to better understand and capitalize on market dislocations. We continue, as we have for decades, to be grateful to the leaders and employees of our private equity portfolio companies, who understand what it means to think and act as owners and who accept the responsibilities that accompany ownership.

The 12 case studies at the end of this Annual Review provide examples of the numerous ways we are working with our North American, European and Asian portfolio companies to create durable value. As a result of ongoing operational and productivity improvements and new product and service initiatives, these companies have

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shown strong progress and have become significant contributors to economic growth.

The intense focus on the portfolio was not at the expense of pursuing investment opportunities during 2008, and we are prepared in 2009 to take advantage of opportunities created by the market dislocation. Across asset classes, we remain well-positioned to act on transactions that meet our strict investment criteria, no matter the size. We added a number of world-class companies to our private equity portfolio in 2008, making traditional private equity control transactions as well as growth equity transactions, ranging in size from $100.0 million to well over $1.0 billion. As we always have, we focused on companies with leading market positions, high and sustainable barriers to entry, stable and predictable cash flows, proven management teams and prudently-designed capital structures.

Global equity market valuations have become more attractive, and we expect companies to welcome the option of becoming private as a shield from the current volatility. We also continue to see that the turbulence in the financing markets causes companies to look for non- traditional sources of capital to grow and, in many cases, survive. In a world where anxiety reigns and capital is no longer a commodity, we believe that there will be very attractive investments to make, and we have positioned our team accordingly.

In addition to continuing to strengthen our industry knowledge, our operational capabilities and our global relationships, we are also building new strengths in how we access capital through our capital markets efforts and how we create differentiation through a focus on manag-ing regulatory and stakeholder issues.

Our capital markets business represents a natural outgrowth of our experience in helping our portfolio companies manage their balance sheets. We understand intricately that global equity and debt market knowledge and differentiated access to capital will be critical drivers of success for investment management firms in the future. Given the broken architecture of global finance, expertise in structuring and directly accessing debt capital, raising incremental equity capital and serving as a source of market expertise are of paramount importance. We are pursuing an integrated effort to help our investors and our companies access both new opportunities and capital.

While it has always been relevant, attention to stake-holders is no longer optional. Within the current climate, the ability of our portfolio companies and investors to understand and manage increased levels of government regulation and public scrutiny around the world can materially impact our return on investment. At the same time, there will be significant opportunities for private investors to partner with government authorities in strengthening financial institutions and building infra-structure. Recognizing both these new challenges and opportunities, we established an in-house global public

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affairs capability to ensure that our firm as a whole, including current investments in our portfolio and our future investments across asset classes, employs best practices in managing environmental, social and regulatory issues. Paying attention to these issues will also, in many circumstances, allow us to differentiate ourselves at the front end of a transaction.

e n h a n c i n g o u r c r e d i t a n d i n f r a s t ru c t u r e i n V e s t m e n t p l at f o r m s

In addition to further developing our private equity efforts, we have prudently and deliberately sought to leverage our core aptitudes over the last several years into asset classes adjacent to private equity, thereby enhancing the natural synergies of these asset classes and maximizing our potential for value creation. We believe that this will serve us well in the current environment by providing us with new opportunities to build relationships, new opportunities to find direct sources of capital and new opportunities to build businesses. We made significant progress on this long-term strategic goal in 2008.

The formalization of our KKR Asset Management business represents a recognition that investors are looking for new and tailored solutions across the capital structure. Thirty three years of investing in industries we know have provided us with an understanding of where industries are heading and what companies need. Investing up and down the capital structure, in companies we know well, makes sense in all environments, but particularly today. Given the dislocation in the markets, patient investors are in a unique position to achieve attractive returns in an ever-expanding group of asset classes, many of which offer less risk and greater structural protection than have historically been available to private equity investors.

In credit, we have been pursuing initiatives to expand our assets under management and deploy capital in senior secured term loans and high yield debt since 2004. These assets are trading near all-time lows in the second-ary market and new issues are being structured and priced with better risk/return characteristics than have been available to debt investors in several years. Our develop-ment of a separately managed account platform acknowledges that many of our investors have unique needs which necessitate customized debt investment portfolios. We have made mezzanine investments since the inception of our credit platform and continue to see mezzanine finance positioned to become an increasingly attractive form of financing for companies given the constrained credit environment and resulting corporate deleveraging.

In a similar vein, our dedicated infrastructure effort represents our response to an area where we see a great need which can benefit from our approach and experience. This initiative recognizes the fact that the global demand for infrastructure investment is enormous, with studies estimating a need for more than $3.0 trillion in annual

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$10

$20

$30

$40

$50

$60

2004

$14.4

$15.2$0.8

2005

$19.7

$23.4

$3.7

2006

$5.2

$43.9

$38.7

2007

$42.2

$11.0

$53.2

2008

$35.3

$48.5

$13.2

priVate equitY

credit

a s s e t s u n d e r m a n ag e m e n t 2 0 0 4 – 2 0 0 8

Billions of Dollars

cagr: 33.6%

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infrastructure projects. We have been investing in infra-structure assets for many years through our private equity energy team, but the current need for capital has risen so significantly that we have designated a separate initiative to target these opportunities.

We are a global firm with 13 offices worldwide, and we firmly believe that our geographic reach gives us a com-petitive advantage across our businesses. Understanding the compelling demographics and economic growth of China, India, the Middle East and Australia, we deepened our presence in these regions during 2008 by growing our teams and expanding our capabilities. Within the past 18 months we have opened offices in Beijing, Mumbai, Sydney and Dubai. We believe that these regions will provide superior long-term investment opportunities to us in many asset classes.

c o n c l u s i o nSo much has changed in the past year. What has not

changed is our culture and who we are. We continue to adhere to our core competencies and to the proper align-ment of interests with our investors. Ours will always be a skill-based asset class. Yet in the face of fundamental change to investment management as it has been prac-ticed – and to capitalism itself – KKR is evolving and extending our aptitudes with new strategic initiatives. We have every confidence that this evolution will benefit you, our clients and partners, and that it will allow KKR to remain a leader in value creation for years to come.

In these challenging times, nothing is more important than a robust and honest dialogue with our clients and partners. In order to enhance that dialogue and continue to provide you with industry-leading service, we made significant investments in our relationship management efforts during 2008, adding new, seasoned leadership and professionals to our team as well as increasing the frequency and caliber of our communications.

Please do not hesitate to ask us if there is anything we can be doing to be helpful to you. In our experience, it is times like these when friendships are made, partnerships are deepened and character is revealed. We look forward to helping you in any way we can and finding new ways to work together to capitalize on what we believe will prove to be one of the most exciting investing environments in our 40 years in the business.

Thank you.

Sincerely,

h e n rY r . K r aV i s g e o r g e r . ro b e rt s

April 2009

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KKR’s investment activities are conducted through three key global business segments: Private Equity, Asset Management and Infrastructure. In turn, these business segments are supported by a global platform with sophisti-cated capabilities in capital markets, communications, compliance, finance, human resources, information tech-nology, legal, public affairs, risk management and tax. Resources were added in all of these support areas during 2008 to allow KKR to meet the increased level of invest-ment opportunity it identified across asset classes, as well as to enable it to continue to operate with globally coordi-nated support functions across all of its key businesses.

As we grow, we continue to professionalize KKR as an institution, as we see the processes by which we make and monitor investment decisions, develop the careers of our professionals, use and share information and maintain the unique culture of the firm as core competitive advantages. We have also implemented dedicated, formal global compliance oversight to monitor information barriers and the handling of confidential information and to respond in a nimble manner to more frequent regulatory filings, inquiries and assessments.

o p e r at i o n a l a n d s t r at e g i c r e V i e w

At KKR, we are working to build a business that is unique. Our vision is that any invest-ment we make in any business anywhere in the world benefits from the collective knowledge, insight and experience of all of our executives globally. Most asset management firms operate in silos. At KKR we are different.

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Global Private Equity Group

KKR’s Global Private Equity Group sponsors and manages private equity funds and co-investment vehicles that make equity investments for long-term appreciation, either through controlling ownership of a company or strategic minority positions. Since 1976, KKR has raised 14 traditional private equity funds with approximately $59.4 billion of capital commitments. The firm has also developed innovative private equity products that have allowed a broader base of investors to participate in KKR transactions and have, in turn, increased the amount of capital available to the firm to commit to transactions.

The mission of the Global Private Equity Group is to make primarily control-oriented investments at attrac-tive prices in companies ascertained as having the ability to generate substantial long-term returns. In so doing, Global Private Equity Group investment professionals:• Identify companies that KKR, through its active

governance model, can help to become more competi-tive, more profitable and more sustainable enterprises;

• Work with portfolio company management teams to improve company performance, and profitably drive growth, generate cash and aggressively pursue strategic goals;

• Develop and implement prudent capital structures that allow portfolio companies to invest for growth and withstand economic downturns;

• Work with company management to ensure that companies engage constructively with key stakeholders impacted by their operations, including employees, the communities in which they operate and the envi-ronment; and

• Provide portfolio companies with access to a global network of resources and relationships to strengthen their operations.

The Global Private Equity Group consists of over 120 investment professionals who are predominantly organized by industry to allow for the development of specialized knowledge and experience. Each industry team is responsible for mastering its industry, developing a network of industry experts, identifying attractive investment opportunities within that industry, and proac-tively sharing ideas and information with peer groups. KKR firmly believes that this focused, disciplined, multi-sector approach yields the depth of knowledge and relationships necessary to achieve long-term success in private equity.

The Global Private Equity Group industry teams apply rigorous standards of due diligence when making investment decisions, implement strategic and operational changes that drive value creation in acquired businesses, carefully monitor investments during KKR’s ownership and make highly informed decisions when developing

health care

retail

technologY

financial serVices

manufacturing

media/

communications

energY

telecom

education

recYcling

consumer products

chemicals

transportation

hotels/leisure

K K r p r i Vat e e q u i t Y p o rt f o l i o :

fa i r Va l u e b Y i n d u s t rY

As of December 31, 2008

18.7%

14.4%

12.7%

0.1%

12.6%

11.8%

8.1%

7.2%

5.4%2.6%2.5%1.6%1.3%1.0%

america

france

england

singapore

denmarK

germanY

india

netherlands

australia

china

turKeY

taiwan

K K r p r i Vat e e q u i t Y p o rt f o l i o :

fa i r Va l u e b Y g e o g r a p h Y


56.6%

10.9%

10.7%

5.1%

3.9%3.4%2.7%2.3%2.0%1.2%1.0%0.2%

Nigel Newman (left), Store Manager of the Boots Pharmacy in Sedley Place, London and Dominic Murphy (right), who heads the European health care group in KKR’s private equity team, discuss Sedley Place store operations amidst displays for No7 Protect & Perfect beauty products, perennial favorites with customers and exclusively available at Boots.

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investment exit strategies. The teams also build partner-ships with motivated management teams, who put their own capital at risk alongside KKR and our investors. These disciplined approaches to private equity investing are a hallmark of KKR and have contributed to KKR’s leading position in private equity and investment management. The Global Private Equity Group approach leverages the full scope of KKR resources, including KKR’s capital markets and asset management teams and KKR Senior Advisors, during all stages of the investment process.

KKR Capstone executives are fully integrated into KKR’s Global Private Equity Group, working closely with the investment professionals to ensure the long-term success of private equity investments. The KKR Capstone team, comprised of nearly 50 operating executives and functional specialists with expertise in procurement, information technology and Lean Sigma, is skilled at identifying new ways to improve companies for the long term. For nearly a decade, this team has been a critical part of KKR’s comprehensive value creation strategy. We expanded the size of the KKR Capstone team in 2008 and increased the number of portfolio companies with which the team was involved.

A critical focus of the Global Private Equity Group in 2008 was ensuring that operations of current portfolio companies were positioned for an extended period of dramatically slower global growth. The Global Private Equity Group industry teams, KKR Capstone teams, portfolio company management teams and capital markets team were critical to this effort. Expansion in each of these areas permitted more executive oversight of our portfolio. The combined KKR team focused on controlling costs and working capital, closely monitoring liquidity and compliance with financial covenants and, where needed, conducting refinancing activities to enable portfolio companies to meet their existing obligations and strengthen their balance sheets for the future.

During 2008, as part of this enhanced oversight of our current portfolio and future investments, Mike Michelson and Alex Navab were named co-heads of KKR’s North American Private Equity business. Mr. Michelson and Mr. Navab are both senior investment professionals, serve on the Private Equity Investment Committee and lead industry teams. Their appointments ensure that best practices are being shared and deployed across our portfolio during this difficult time. These appointments also make the North American practice congruent with Europe and Asia, where Private Equity is led by Johannes Huth and Joe Bae, respectively. Mr. Michelson, Mr. Navab, Mr. Huth and Mr. Bae work closely with Paul Raether, who heads our Global Portfolio Management Committee.

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Given the increasing size and scope of the Global Private Equity business, and the importance of carefully managing the current portfolio while seeking new oppor-tunities and continuing to focus by industry, we made a number of appointments and changes during 2008 to the team around the world. These included naming four new Members of the firm in Private Equity, Simon Brown, Sir Deryck Maughan, Jim Momtazee and Justin Reizes; the appointment of Sanjay Nayar as CEO of KKR in India, where the firm opened an office in Mumbai; hiring Makram Azar to spearhead our efforts in the Middle East, where KKR opened an office in Dubai; a number of changes to industry team heads, including Sir Deryck Maughan to oversee the North American financial institu-tions industry team; the appointment of Sir John Bond as Chairman of KKR Asia; further building out the Private Equity team in Beijing; and the appointment of Senior Advisors in North America, Europe and Asia.

c u r r e n t p r i Vat e e q u i t Y p o rt f o l i oSince KKR’s founding in 1976 through December 31,

2008, our more mature private equity funds (including funds from 1976 through the Millennium Fund) have generated a compounded annual gross return of 26.1% and a 2.6 gross multiple of invested capital (net return and net multiple of 19.8% and 2.2x, respectively). We achieved these results through dramatically different economic cycles by employing a disciplined and adaptable approach to investing, by staying rigorously focused on the long term and by learning from our experiences during 33 years of investing.

As of December 31, 2008, our entire private equity portfolio, held among a number of private equity funds and co-investment vehicles, consisted of 49 companies with more than $200.0 billion of aggregate annual revenues and 850,000 employees worldwide. These companies are headquartered in 13 countries and operate in 14 different industry groups. Each company in the private equity portfolio is independently managed and financed, and each has its own board of directors, including KKR representatives.

realized Value

unrealized Value

$17.7

$60.1

amount inVested

total Value

$44.4

$0

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K K r ’ s t r ac K r e c o r d f ro m i t s f o u n d i n g

i n 1 9 7 6 to d e c e m b e r 3 1 , 2 0 0 8 ( a l l f u n d s )

Billions of Dollars

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n e w i n V e s t m e n t sWhile vigilantly maintaining oversight of current

portfolio companies, the Global Private Equity Group made approximately $2.6 billion of new investments during 2008, identifying instances where companies could benefit from KKR’s management, expertise and resources.

The pace of investment activity in 2008 was slower than in the two preceding years. However, we remain confident that, based on our experience in previous economic downturns, there will be a significant number of attractive investment opportunities that can be priced and structured properly. We firmly believe that a carefully selected, diversified portfolio of investments can with-stand the effects of the global slowdown and can prosper over the long term.

As careful investors, we invest in a very small percent-age of the opportunities that we evaluate in a given year. Consequently, these are investments that we thoroughly understand, sometimes following them for years before investing. In difficult economic markets, we acquire companies with an eye towards a future turn in the busi-ness cycle. We believe that retaining our capital to take advantage of these future opportunities will ultimately benefit our investors. Consequently, as of December 31, 2008, we had available approximately $15.0 billion of committed, but not yet invested, private equity capital across our private equity funds.

New investments in 2008 included both traditional private equity control transactions as well as growth equity transactions. KKR has historically undertaken the latter to fund special investment opportunities when the firm has identified high-caliber management teams and strong long-term growth prospects. The newest additions to the KKR private equity portfolio span a range of industry sectors, including consumer products, financial services, information technology and telecommunications. They were also, in keeping with new market realities, smaller in size than in the recent past, a trend that we anticipate will continue and for which we are ably equipped given our past experience, as well as current capabilities.

The 2008 investments included: Legg Mason, Inc., Bharti Infratel Limited., KKR Debt Investors 2006 S.à.r.l., Northgate Information Solutions Limited, Unisteel Technology Limited and Ma Anshan Modern Farming Co. Ltd.

KKR currently manages three traditional private equity funds that are in their investment periods as well as a number of other funds that are fully invested. The three active funds are geographically differentiated and consist of the KKR 2006 Fund L.P., the KKR Asian Fund L.P. and the KKR European Fund III, Limited Partnership.

KKr 2006 fund l.p.

Vintage: 2006size: $17.6 billiongeographic focus: Invests principally in North American businesses

KKr asian fund l.p.

Vintage: 2007size: $4.0 billiongeographic focus: Invests in Asian businesses with its main focus in Greater China, Japan and Australia

KKr european fund iii, limited partnership

Vintage: 2008size: $6.8 billiongeographic focus: Invests across Europe with its main focus in Western Europe including Germany, France, Scandinavia, the Netherlands, the U.K. and Southern Europe

Chad Fargason (left) and Vikas Parekh (middle) of KKR Capstone discuss Biomet’s minimally invasive system for implants with Mark Valentine (right), SVP, Sales and Sales Operations, in a Biomet laboratory in Parsippany, New Jersey.

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l e g g m a s o n , i n c .KKR invested $603.5 million of equity in a $1.25 billion

convertible debt security issued by Legg Mason, Inc. (Legg Mason) in January 2008, with the remaining capital provided by other financing sources. The $1.25 billion seven-year convertible senior notes bear interest at a rate of 2.5% per year and are convertible into shares of Legg Mason common stock. Founded in 1899 as a brokerage firm in Baltimore, Maryland, Legg Mason has evolved into one of the largest asset management firms in the world, serving individual and institutional investors in 190 countries on six continents and managing approximately $698.0 billion as of December 31, 2008. Our investment in Legg Mason represented an opportunity to invest in a leading franchise in the asset management sector utilizing a structure that provided significant upside while minimiz-ing downside risk. We are working closely with Legg Mason’s management team to optimize distribution, efficiencies and alignment across all of the company’s affiliates.

b h a rt i i n f r at e l l i m i t e dIn March 2008, KKR invested $247.6 million in Bharti

Infratel Limited (Bharti Infratel) as part of a larger growth equity financing round consisting of $1.35 billion. KKR and Temasek Holding are the co-lead investors and the only investors with Board representation and preferential governance rights. KKR’s investment in Bharti Infratel was driven by the following key theses:• Creation of the market leader in Indian wireless

infrastructure with the largest portfolio of towers of any company in the world and the most comprehensive offering across India. In addition, through Bharti Infratel and the Indus joint venture, Bharti Infratel gained access to relationships with three of India’s leading wireless operators;

• Strong mobile infrastructure growth fundamentals, with India’s wireless penetration still only standing at 33% (versus greater than 100% for more developed markets) and with the market adding greater than10 million subscribers per month. In addition, there have been a number of new license and spectrum awards made to both existing and new operators, and addi-tional upside is expected from the soon-to-be held auctions for 3G and Wimax auctions;

• Attractive risk/return profile with low fundamental business risk due to the long-term infrastructure contracts with solid mobile businesses, combined with exposure to one of the fastest-growing wireless markets in the world; and

• Excellent management team and promoter (Airtel) with a proven track record of value creation.

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K K r d e b t i n V e s to r s 2 0 0 6 s . à . r . l .KKR invested $500.0 million in KKR Debt Investors

2006 S.à.r.l. (KKR Debt Investors) in April 2008 with the objective of generating attractive risk-adjusted returns through investments principally in corporate debt. As of December 31, 2008, the KKR Debt Investors portfolio included concentrated positions in credits managed by credit professionals in KKR Asset Management, including senior unsecured bonds, subordinated bonds, first lien term loans, second lien term loans, mezzanine loans and senior secured bonds. We believe that the potential returns for KKR Debt Investors are attractive, especially relative to the risk.

northgate information solutions limitedIn March 2008, KKR closed the £1.1 billion acquisition

of Northgate Information Solutions Limited (Northgate). In total, the KKR funds invested $831.9 million. Northgate is a U.K.-based provider of specialist software and out-sourcing solutions to the global human resources and U.K. public service sectors. The company has a presence in over 30 countries and has essential local knowledge to deliver human resources solutions across more than 50 countries. Northgate serves a collection of large and growing markets (e.g., human resources business process outsourcing globally, U.K. public sector) with a portfolio of unique software and associated services. The attractiveness of the investment rested initially on a view, borne out by the progress made to date, that these sectors would provide significant growth opportunities, but also be defensive in the case of a global economic downturn. Further, the KKR team believed that Northgate had all of the ingredients to achieve a market leadership position. A number of operational improvement areas were identified early on, and tackled in a broad scope transfor-mation program, led by the CEO with active support from KKR Capstone.

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u n i s t e e l t e c h n o l o g Y l i m i t e dKKR invested $326.6 million in the $605.0 million

acquisition of Unisteel Technology Limited (Unisteel) in September 2008. Unisteel is a precision engineering solutions provider with multidisciplinary competencies in the areas of fastening systems, stamped, cold forged and machined metal components, optical plastics and surface treatment technology. Key tenets of KKR’s investment in Unisteel include:• Significant barriers to entry and significant competitive

advantages;• Excellent growth opportunities into new industries and

the development of relationships with new customers;• Identifiable operational improvement and cost-saving

opportunities; and• Robust cash flow dynamics.

KKR is actively involved in developing a comprehen-sive revenue build-out plan with Unisteel’s senior management and sales force in order to target specific subsets of key industries. We have also identified mean-ingful opportunities for cost rationalization, including reducing labor costs by optimizing capacity in low-cost locations, shifting procurement to a centralized and strategic effort and continuous improvement in cost management. A rigorous performance management system is being put in place to track progress against each key initiative and to tie the impact of each initiative to Unisteel’s financial performance.

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m a a n s h a n m o d e r n fa r m i n g c o. lt d.In December 2008, KKR made a minority investment

of $99.2 million in Ma Anshan Modern Farming Co. Ltd.(Modern).Modern is a leading dairy cow farming company in China, whose main business is operating large-scale dairy farms to raise dairy cows and sell raw milk to branded dairy companies to be processed into consumer dairy products. China’s dairy farming sector, currently dominated by over one million individual farmers with five to ten cows each on average, is shifting to large scale farms which have significantly higher operational effi-ciency, higher milk productivity and lower collection cost for dairy processors, and produce milk with higher nutri-tional quality. Furthermore, large scale farms such as Modern maintain strict control over the entire manufactur-ing process and therefore ensure product safety.

Modern is using the proceeds from KKR to set up new farms at selected strategic locations in China in order to capitalize on the attractive growth potential driven by the increasing dairy consumption and the supply chain shift opportunity in China. The KKR team has been focused on helping Modern improve its operation to international best practices, by bringing in additional outstanding senior management team members and global leading experts specialized in the dairy farming business, enhancing its financial management capability and setting up a long-term incentive plan for the management team. Additionally, KKR has helped Modern complete an acquisition of another leading dairy farm in China to further expand its operations.

f o l l ow- o n i n V e s t m e n t sDuring 2008, KKR made follow-on investments

in private equity portfolio companies including Arcient Inc., A.T.U. Auto-Teile-Unger Holding GmbH, Jazz Pharmaceuticals, Inc., Laureate Education, Inc., ProSiebenSat.1 Media AG, Tianrui Group Cement Co., Ltd. and Yageo Corportion. In aggregate, these follow- on investments totaled approximately $500.0 million.

n ota b l e e x i t s a n d r e a l i z at i o n s o f Va l u eDistributions made during 2008 totaled $605.5 million,

the majority of which were derived from the final sale of Demag Holdings S.à.r.l. and a secondary sale of Rockwood Holdings, Inc. common stock.

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s u b h e a d t e x t g o e s h e r e

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Biomet, Inc.Biomet designs, manufactures and markets orthopedic medical devices, including reconstructive products such as hip and knee implants as well as spine, trauma, dental and other products used by orthopedic surgeons and other musculoskeletal medical specialists. An affiliate of KKR entered into an agreement to acquire Biomet with The Blackstone Group, Goldman Sachs Capital Partners and TPG on December 18, 2006. The transaction closed on September 25, 2007.

K K r Va l u e c r e at i o n i m pac t

Turn a division wiTh years of negaTive financial

performance inTo a revenue-generaTing division

wiTh significanT long-Term growTh

opporTuniTy

elevaTe The inTellecTual and professional

caliber of a sales force and rekindle morale,

Thereby sTemming aTTriTion raTes

raise producT fill raTes by over 30%

sTrengThen cusTomer relaTionships beTween a

leading developer and producer of medical

devices and physicians

conTribuTe To conTinued sTrong consolidaTed

ebiTda growTh and free cash flow generaTion

for biomeT overall, up [13.0%] and [16.0%],

respecTively, for The firsT half of fiscal year 2009

versus The firsT half of fiscal year 2008, Thereby

enabling significanT deleveraging

At BIS headquarters in North Sydney, Australia, Nino Fasolo, Chief Information Officer, BIS (left) discusses how operational data collected and analyzed by the OSCAR information technology system can improve the on-site performance of coal haulage contracts with Justin Reizes (middle), who leads KKR’s private equity team in Australia, and Matt Davies (right),of the Australian private equity team. OSCAR, an acronym for “Operational System for Capture, Analysis and Reporting,” is being developed to assist in business improvement across the full spectrum of BIS services.

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Asset Management Group

In December 2008, KKR Asset Management (KAM) was launched to consolidate the credit investing business that KKR started in 2004 into a platform that allows for scaled growth, as well as the future addition of new market-based asset classes. KKR believes that the experi-ence of our people, global platform, collaborative culture, and ability to source, research and diligence different investments create a unique competitive advantage. This advantage allows the firm to capitalize on investment opportunities throughout a company’s capital structure.

In 2004, KKR actively began pursuing corporate credit investments as a separate asset class. The firm now manages across the spectrum of corporate credit invest-ments – senior secured term loans, high yield, debtor- in-possession financing, mezzanine and structured credit. The assets under management initially consisted of a publicly-traded permanent capital vehicle, KKR Financial Holdings LLC (KFN), launched in July 2004, several private investment funds and structured finance vehicles. During 2008, KKR launched a separately managed account platform to manage the assets of individual investors in a manner tailored to their specific investment objectives, needs and risk objectives. KAM also offers fund structures for investors that do not meet the minimum size require-ments for separately managed accounts.

In 2008, KKR established a dedicated global mezzanine effort as an integrated effort within its asset management platform. Mezzanine securities are privately negotiated debt instruments located in the middle of a company’s capital structure, senior to common or preferred equity but subordinate to senior secured bank debt. Generally, mezzanine securities take the form of privately negotiated subordinated debt, with some form of equity participation. A substantial portion of the return is generated through a current cash coupon. The ongoing dislocation in the credit markets has created an environment where liquidity and capital resources are increasingly scarce. Banks and other traditional sources of credit have been significantly impacted and their ability to provide financing has been greatly reduced. During 2008, mezzanine capital increas-ingly became a necessary component of many leveraged private equity transactions, since the amount of senior debt capital available for these transactions as a percent-age of the acquisition price has been reduced and other markets for junior capital (i.e., the high yield market) have been essentially closed.

senior secured loans

high Yield bonds

second lien and mezzanine

K K r a s s e t m a n ag e m e n t p o rt f o l i o :

fa i r Va l u e b Y a s s e t t Y p e


80%

14%

6%

K K r a s s e t m a n ag e m e n t p o rt f o l i o :

fa i r Va l u e b Y i n d u s t rY


industrials

financial serVices

retail

utilities

health care

consumer staples

broadcasting/

entertainment

energY

diVersified serVices

telecom

consumer

discretionarY

printing/publishing

automobile

14%

12%

10%

9%

7%

6%

6%

5%

12%

10%

4%3%2%

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This commitment to the mezzanine financing market leverages the full resources of KKR, including the strong experience in credit investing, workouts and restructuring resident in the KAM investment team. The team utilizes the broader KKR network to access local market relation-ships, knowledge and expertise in order to effectively source, assess and execute mezzanine investments. The mezzanine effort is lead by Frederick Goltz, who has 13 years of experience structuring private equity investments at KKR, including several of the firm’s most complex financial and regulatory transactions.

KAM consists of over 70 professionals worldwide, 32 of whom are investment professionals. The investment professionals have significant experience in the credit markets and are organized into industry teams correspond-ing to the Global Private Equity Group structure. This organization provides these investment professionals with a deep understanding of global industries, capabili-ties of management teams and critical business drivers. While the vast majority of companies are not appropriate for traditional private equity, investing in their capital structures may offer attractive risk-adjusted returns for KKR and our investors. Particularly in today’s capital-constrained environment, KKR believes that investors with access to capital, who understand key industries and companies and who possess a disciplined investment process, are in a strong position to benefit from attractive investment opportunities.

Investing up and down the capital structure, in indus-tries and companies where KKR has differentiated insight, is a good approach in all environments, but it particularly makes sense today. Patient investors are in a unique position to achieve attractive returns in an increasing number of asset classes, many of which offer reduced levels of risk and greater structural protection than have historically been available to equity investors.

KKR’s approach to making debt investments focuses on creating investment portfolios that generate attractive risk-adjusted returns on invested capital by:• Selecting high-quality investments that may be made

at attractive prices;• Applying rigorous standards of due diligence when

making investment decisions (involving, where appro-priate, all of KKR’s resources); and

• Subjecting investments to regular monitoring and oversight.

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Where appropriate, other resources of the firm (i.e., KKR Capstone and Senior Advisors) are utilized to maxi-mize the value of investments. Investment decisions and monitoring are made using a very similar approach to KKR’s private equity business, including the use of an investment committee. Debt investments are sourced through a variety of channels, including KKR’s private equity, asset management and capital markets profession-als and KKR’s global network of relationships at major corporations, banks, financial intermediaries and other investment advisory institutions. Investments in KKR-affiliated companies are governed by strict conflict of interest mitigation policies and procedures.

As of December 31, 2008, KAM had assets under management of $13.2 billion focused on credit, including $12.4 billion in separately managed accounts, private funds and structured finance vehicles and approximately $800.0 million at KFN. During 2008, KKR recruited William Sonneborn to lead KAM. Prior to joining KKR, Mr. Sonneborn was President and COO of The TCW Group, Inc., an investment management firm with approximately $130.0 billion in assets under management.

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Global Infrastructure Group

KKR recognizes the increasingly important role that infrastructure plays in the growth of both developed and developing countries. The global investment demand for infrastructure is enormous, with studies estimating a need for more than $3.0 trillion in annual infrastructure projects. The firm believes that the global infrastructure market provides an opportunity for KKR’s unique combination of investment, operational improvement and regulatory and stakeholder management experience and skills. In May 2008, KKR announced plans to launch a dedicated initia-tive to invest in infrastructure assets on a global basis.

The launch of the Global Infrastructure Group was a natural outgrowth of KKR’s expertise in managing investments in large, complex and regulated businesses – including Dayton Power & Light, International Transmission Company, Oncor Electric Delivery and Texas Genco – and the firm’s record of driving operational improvements in a wide range of industries. We believe that infrastructure presents an opportunity to generate attractive risk-adjusted returns through both income and capital appreciation and to create significant value for communities around the world.

KKR’s infrastructure investment strategy focuses on utilities, energy and transportation assets, and also includes communications, social infrastructure and infra-structure-related assets. Investments will be considered globally with a focus on North America and Europe and positions of significant influence in companies will be sought to insure the ability to drive value creation in the investment. KKR’s strategy is founded on certain core strengths, which we believe provide a competitive advan-tage in infrastructure investing, including: • The experience of the investment professionals in

the Global Infrastructure Group;• Skills at driving operational improvement;• Stakeholder and regulatory management expertise; and• Global reach and investment sourcing capabilities.

The Global Infrastructure Group is headed by Marc Lipschultz, whose tenure with KKR spans 13 years and who is currently the head of the Global Private Equity Group energy industry team.

While Doug Brody (left) and Rich Chand (right) monitor developments in global debt and equity markets, colleagues Aren LeeKong (middle left), Mariko Uyeda (middle) and Bill Lyons (middle right) discuss financing strategies on the KKR Capital Markets desk in New York.

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Capital Markets

KKR Capital Markets (KCM) works closely with and advises all of KKR’s investment businesses, including private equity, infrastructure and asset management. As an integrated part of KKR, KCM plays an important role in the investment process and is a central provider of current market intelligence to the firm and its portfolio compa-nies, clients, partners and executives globally. The KCM team consists of 15 professionals with longstanding experience in primary and secondary markets and unique structuring expertise. KCM operates under broker dealer licenses in the U.S., U.K., Canada, Japan, Dubai and a number of Western European countries, and has com-mitted long-term funding that allows it to underwrite transactions for KKR and its portfolio companies. KCM is headed by Craig Farr, a former managing director at Citigroup Global Markets and co-head of North American Equity Capital Markets.

KCM’s activities complement the firm’s traditional capital raising capabilities and the services provided to KKR by investment banks. Much of its work builds on the natural sourcing abilities of the firm and the intellectual capital and relationships of its people. In a capital-constrained environment such as the present, KCM’s activities have increased significance for our value creation process, as they facilitate the sourcing of capital from both traditional and non-traditional sources and allow our professionals to take greater control over capital formation and the manner in which our investments are structured and exited.

The KCM team amasses a wealth of information and data on global capital markets through its daily interaction with KKR portfolio companies, financial institutions and market participants, making it uniquely positioned to provide the firm’s external and internal constituents with current insights on global capital markets. Due to its centrality in the firm and the experience and expertise of its people, we believe that KCM is ideally positioned to help structure and deliver appropriate tailored products to investors across a broad range of asset classes.

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During 2008, KCM worked closely with Global Private Equity Group investment professionals on initiatives to strengthen the balance sheets of KKR private equity portfolio companies by monitoring liquidity outlooks and projected compliance with financial covenants. The teams anticipated deteriorating credit markets and sought to proactively address any potential refinancing issues that could impact the firm’s private equity portfolio, even though 88% of KKR portfolio company indebtedness has maturities extending beyond 2012 and 79% have maturi-ties extending beyond 2013. Through these initiatives, a number of our portfolio companies identified opportuni-ties to refinance their debt and improve their financial position in a challenging market.

KCM’s involvement with our portfolio companies is broad and can take many forms, including raising addi-tional equity or debt financing in public and private transactions, providing capital markets advice, assisting with hedging strategies and identifying creative opportu-nities and structures to deleverage or fund growth initiatives. With a global capital markets platform and source of long-term funding, KCM is also well positioned to underwrite securities offerings and provide an addi-tional source of committed financing for issuers pursuing transactions.

During 2008, KCM participated as an underwriter, arranger and placement agent or finance provider in a number of transactions. Two examples include the following:• s u n g a r d data s Ys t e m s , i n c . KCM provided

committed bridge financing on an expedited basis to help the company finance its acquisition of GL Trade and acted as an initial purchaser in the bond offering that was used to take out the bridge. KCM’s willingness to commit capital served as an additional validation of the proposed acquisition and sent a positive signal to other financing providers, helping ensure a successful execution in a difficult market environment.

• n o rt h g at e i n f o r m at i o n s o l u t i o n s l i m i t e d KCM acted as an arranger of mezzanine financing for Northgate in connection with its original public-to-private acquisition and in a subsequent “bolt-on” acquisition completed by the company. The initial placement of mezzanine financing lowered transaction risk for the company by eliminating pricing and structural flex provisions from its financing package, as well as providing attractive overall cost, while the subsequent placement provided the company with capital to close a highly synergistic and strategic acquisition.

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Client and Partner Group

Frequent and direct communication is critical in challenging times. To that end, we significantly enhanced our Client and Partner Group (CPG) resources and capa-bilities during 2008.

CPG manages investor relations and capital activities with partners and clients of KKR. Working on a global basis, the executives in CPG serve as the conduit of information between the firm and KKR investors, making the full capabilities of KKR available to address investors’ needs and meet their particular investment goals.

The core of CPG is a group of relationship managers, who address investors’ broad need for alpha and become their solutions provider across the full range of KKR products, including Private Equity, Asset Management and Infrastructure. Relationship managers maintain close contact with investors, addressing investor inquiries, organizing investor meetings and conferences, responding to investor requests and sourcing new investor relationships.

Supporting the relationship managers are KKR product specialists, who are available to provide specialized consulting on particular KKR products and customized product delivery; a globally integrated support team, with 24-hour data and information availability for investors; and KCM, with the ability to provide direct product delivery capability to investors interested in direct equity and debt investing. CPG team members have access to the entire firm to help address client and partner issues and develop advice and solutions.

KKR’s approach to investor relations is premised on honest, direct, frequent communication with investors and best-in-class solutions and idea-driven distribution capa-bilities. The firm’s integrated approach, which leverages all KKR executives and resources globally, has allowed the firm to become a trusted advisor to a wide range of organi-zations. KKR’s partners and clients include public and private pension funds, endowments, charitable organiza-tions, corporations, family offices, sovereign wealth funds, investment consultants, insurance companies, financial institutions, government entities, mutual funds, fund of funds and hedge funds, among others.

Suzanne Donohoe joined us in April 2009 as Global Head of CPG. Prior to joining KKR, Ms. Donohoe was a Partner at Goldman Sachs Group, Inc., where she worked for nearly 17 years, most recently as Head of Goldman Sachs Asset Management International.

KKR’s Integrated Approach to Value Creation

At KKR, we are working to build a business that is unique. Our vision is that any investment we make in any business anywhere in the world benefits from the collective knowledge, insight and experience of all of our executives globally.

Most asset management firms operate in silos. They add products that they believe they can sell and their investing process for new products often does not benefit from interaction with other investing teams. At KKR we are different.

We only want to build businesses that we can make special. Our experience investing globally across industries and cycles makes us unique, as do the the longevity of our investment teams and tenure of our senior management.

We view KKR as an institution that has a “big brain” that we can access, as appropriate, to make informed investing decisions across the capital structure, asset classes and geographies. We are building businesses that are completely integrated and have access to the entire firm to inform market assessments and investing decisions. The following are some examples of how this works:

KKR Asset Management head Bill Sonneborn (left) discusses global credit markets with Suzanne Donohoe, head of KKR’s Client and Partner Group, and Chris Sheldon, Portfolio Manager at KKR Asset Management, at KKR Asset Management’s office in San Francisco.

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p r i Vat e e q u i t Y / i n f r a s t r u c t u r e :

When a private equity transaction is sourced, a team is staffed comprised of the following:priVate equitY/infrastructure inVestment team Includes all private equity/infrastructure investment professionals globally who have relevant experience in the industry or a background with the company;senior adVisors Work with the investment teams to provide their insights and in many cases work on due diligence with the investment team to provide operational input;KKr capstone team Works together on due diligence with the investment team to jointly assess value creation opportunities so that these opportunities may be incorporated into a 100-Day Plan with continuity;KKr capital marKets team Works with the investment team to assess capital structure alternatives, advise as to what can get done in the market and in some cases places debt and equity for the transaction directly with KKR investors who have a specific interest in direct equity and debt investing opportunities;KKr asset management team Relevant industry group will be brought “over the wall,” as appropriate, in many instances to assess the specific investment opportunity, give a read of how the market will think about a situation and in some cases put in an early order for debt in the transaction if the team likes the opportunity; andclient and partner group Works with KKR Capital Markets team and investing team to reach out to KKR investors who have expressed an interest in direct debt or equity investment opportunities so we can deliver specific live-time deal opportunities to our partners with direct investing efforts.

K K r a s s e t m a n a g e m e n t :

When KKR Asset Management is working to source a debt or mezzanine investment, the teams work together in a similar manner. A typical KKR Asset Management due diligence would include the following:KKr asset management mezzanine team Develops relationships with corporates and sponsors who need capital to finance acquisitions or refinance existing balance sheets and focuses on negotiating and structuring mezzanine investments;KKr asset management credit team KKR Asset Management’s credit analysts are segmented by industry group just like their private equity counterparts. However, they are credit experts that can invest up and down the capital structure from senior debt through mezzanine. The KKR Asset Management credit teams are involved in all of our credit investments and work in an integrated fashion with our KKR Asset Management mezzanine origination team to analyze opportunities;priVate equitY/infrastructure inVestment team The KKR Asset Management team has access to all of KKR’s private equity and infrastructure professionals, Senior Advisors, KKR Capstone professionals and portfolio company management teams. If anyone in the private equity or infrastructure business has a view on the potential opportunity or can leverage an existing relationship to help KKR Asset Management, we make sure, subject to appropriate information sharing procedures, that input is part of the decision making and deal process;KKr capital marKets team Works with the KKR Asset Management team to provide insight on market pricing and with the Client and Partner Group to help syndicate co-investment opportunities to KKR investors in situations where the capital required is greater than that we have to invest from our vehicles; andclient and partner group Reaches out to KKR investors that have expressed an interest in direct debt investment opportunities so that we can deliver specific live-time deal opportunities to our partners in debt and mezzanine investments.

All of these parts of the firm work together to ensure that we make the most informed investments we can and that we access, as appropriate, anyone in the firm, the current portfolio, former portfolio company management teams and the like who may have an informed view of the opportunity. We source more invest-ments and make better investment decisions for all of our investments, across all asset classes and around the world, by working together.

It is this unique approach that makes us confident that as we build new businesses and expand our efforts, you, our partners, are getting the benefit of everything we know in everything we do.

That is why we know you can trust us to do things the right way.We appreciate your trust and support as we build what we believe is a truly unique business and approach

to asset management.

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Thirty-three years of experience in up and down markets, combined with unsurpassed industry knowledge, enables KKR to make careful and prudent asset selection decisions. Once a company is within the KKR private equity, infrastructure or asset management portfolio, it benefits from the firm’s integrated approach to its investments. The entire firm’s experience and knowledge is at the disposal of portfolio companies, a synergistic approach ensuring that world-class manage-ment techniques and international best practices are deployed in the creation of value.

In the KKR model, the path to ownership starts with rigorous and substantial due diligence. When a company is under review as a potential addition to the KKR portfolio, the KKR industry team, KKR Capstone team, KKR’s Senior Advisors, KKR’s dedicated talent management team and a public affairs team conduct a comprehensive due diligence review. This review encompasses not only the financial and operational condition of the potential investment, but also the company’s management team, the industry in which it competes, the cyclical and secular forces acting within the industry, macroeconomic developments likely to impact the company and relevant

d e d i c at e d p ro c e s s f o r Va l u e c r e at i o n

Value creation at KKR begins with responsible ownership, ownership that embodies the firm’s commitment to invest in and continually improve its portfolio companies.

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environmental, social, regulatory and governance issues. All of these components are closely examined and care-fully evaluated. During the due diligence phase, KKR focuses on a company’s past and present performance, as well as on future growth and development. Before KKR invests in a company, we devote significant time and resources to understanding the opportunities for opera-tional improvement and risks the company could face, quantifying both, and developing an action plan for real value enhancement and risk mitigation.

Once an investment has been made, the process of operating and improving a business or “value creation” begins in earnest. Over the last three decades, KKR has developed a disciplined approach to value creation that includes:• A crisp and clear investment thesis;• A 100-Day Plan, prepared jointly with portfolio

company management teams, laying out objectives and key priorities;

• Unique operational expertise, through the KKR Capstone operating team and KKR’s Senior Advisors, who work closely with management teams to accelerate operational change and execute the thesis for the 100-Day Plan;

• Organizational and human resource expertise, through KKR’s dedicated talent management group, which assists companies in recruiting and developing world-class talent in key executive roles;

• Proactive monitoring and governance, through KKR’s Portfolio Management Committee; and

• Stakeholder expertise, through understanding and managing key regulations likely to impact the company and through constructive engagement with stakeholders impacted by the company’s operations.

While all these elements work together to create value, a closer look at KKR Capstone, KKR’s Senior Advisors, the KKR talent management team, the KKR Portfolio Management Committee and the public affairs team helps to understand KKR’s value proposition. In many ways, these key functions are critical parts in the engine that drives KKR’s productive, active engagement with its portfolio companies and investors — a skill-based engagement that differentiates it from other, more passive investors.

Exiting a cab in front of KKR’s New York offices, Webster Chua (left) and Mike Kuharski (middle), who cover financial institutions as part of KKR’s private equity team, discuss First Data’s GO-Tag™ Solution with Dom Morea, the SVP of Mobile Commerce Solutions at First Data. Mr. Morea leads the team that developed and launched GO-Tag™, a mobile payments product that can be used to conduct transactions in a contactless manner, making everyday payments – such as cab rides – fast, secure and convenient.

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KKR Capstone

Formed in 2000 and expanded significantly in 2008, KKR Capstone is a dedicated team of operating executives who work with both KKR private equity industry groups and portfolio company management teams to identify and execute against the key operating improvements that underpin KKR’s investment theses. KKR Capstone execu-tives are fully integrated with KKR’s global private equity business and, together with the private equity industry teams, work with KKR portfolio companies over their investment lifecycle: from due diligence, to a 100-Day Plan formation, to on-the-ground execution with manage-ment teams, to ongoing monitoring.

When involved in due diligence, KKR Capstone execu-tives typically evaluate key market and competitive trends and “pressure-test” potential operating improve-ments that are critical to the successful execution of KKR’s investment thesis. The industry-specific and functional expertise of KKR Capstone executives complements that of the KKR industry teams and provides additional insight into the value and feasibility of potential improvements. The KKR Capstone team helped shape operating improvements critical to the investment thesis of the following companies, among many others: Avago Technologies Limited, Biomet, Inc., Dollar General Corporation, Northgate Information Solutions Limited, Maxeda B.V., Rockwood Holdings, Inc., Unisteel Technology Limited, U.S. Foodservice, Inc. and Yellow Pages Group Co.

When a transaction closes, a KKR team, usually comprised of both KKR Capstone and KKR deal team executives, partners with the company’s management team to develop a 100-Day Plan. For approximately four to eight weeks, KKR industry team investment professionals and KKR Capstone executives work closely with management to review key business units and company functions. Their analysis encompasses every-thing from sales and pricing practices to procurement and manufacturing capabilities. The focus of this effort is to pinpoint key operating priorities, resource require-ments, performance objectives and tracking metrics for the first major period of implementation – usually 12 to 24 months of KKR’s ownership.

The initial 12 to 24 months are critical for a new investment because it is during this period that the overall performance trajectory for an investment is generally set. Consequently, it is at this point that KKR Capstone becomes fully immersed in the portfolio company. During this stage, KKR Capstone executives work on-the-ground with company managers and employees to drive the performance improvements set during due diligence and delineated in the 100-Day Plan. Priorities are tailored for each company and target those areas with the greatest

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potential for financial impact. Among the more common areas of focus are:• Accelerating revenue growth through:

– More effective pricing and promotional strategies;– Enhanced sales force effectiveness measures, such

as reallocating resources to underdeveloped territo-ries or channels and implementing consistent sales metrics;

– Refinement of product offers and distribution approaches based on a deeper understanding of customer segments;

– Increased new product innovation; and– Rationalization of under-performing product

categories and re-deployment of savings into higher-return spending and products.

• Driving year-on-year productivity and cost reduction improvements through:– Accelerated procurement efforts;– Improved manufacturing and supply chain

performance and Lean Sigma programs; and– Moving companies to best-in-class general and

administrative cost structures.• Increasing the return on investment of capital expendi-

tures and improving cash flow through better working capital management practices.

• Creating effective and efficient organizational structures.

• Developing new product, geographic-expansion, and acquisition strategies and execution efforts.

KKR Capstone senior executive teams typically work in-depth with one portfolio company at a time, displaying a ‘nose-for-the money’ orientation toward the largest potential opportunities and rolling up their sleeves to lead critical initiatives and bottom-line directives. It is this hands-on approach – more than simply developing strate-gic plans and recommendations – combined with industry expertise that results in accelerated operational improve-ment at portfolio companies.

The KKR Capstone team, which has grown from three professionals in 2000 to nearly 50 at the end of 2008, is composed of general management executives and functional specialists with expertise in areas such as procurement, information technology and Lean Sigma. For example, KKR Capstone professionals, prior to joining KKR Capstone, headed energy and media businesses, were partners in leading management consulting firms, led businesses in Asia Pacific, served in the U.S. Army, founded technology companies and oversaw supply chain management at leading industrial manufacturers. KKR Capstone’s compensation structure is similar to KKR’s, including “dollars at work” in our funds. As a result, the interests of KKR Capstone executives are aligned with KKR fund investors, as well as with those of portfolio company management teams and KKR employees.

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One of the key components of KKR’s value creation process is the 100-Day Plan. Developed by the KKR industry professionals, KKR Capstone professionals and the management team of a new portfolio company, a 100-Day Plan details the steps necessary for the team to achieve specific strategic, financial and operational goals. How will margins be improved? How will supply chains be shortened? What departments need more resources? Who will be accountable for what? Line by line and business unit by business unit, the 100-Day Plan charts a path to value creation by ensuring that everyone involved in the running of a portfolio company agrees upon a plan for improvement, is committed to executing it and is held accountable to it from day one. Because they find the experience of forging and adhering to the first 100-Day Plan so valuable, KKR and portfolio company management teams often develop and implement second and third 100-Day Plans. 100-Day Plans tend to focus on identifying critical, forward-looking operating metrics, such as customer satisfaction measures, on-time delivery and sales pipelines. At times, this enables KKR portfolio management team to identify challenges facing a business before those challenges are revealed in the financial data, thus allowing teams to make difficult operational decisions as early as possible in KKR’s ownership.

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While the majority of KKR Capstone’s work is per-formed without taking a formal title within portfolio companies, KKR Capstone executives can, in order to fill capability gaps, assume management roles when situations warrant. KKR Capstone executives have served as the CEO of TDC A/S, Chief Marketing Officer at Sealy Corporation, COO at Northgate Information Solutions Limited and various senior roles at other companies.

Once initial progress has been made on key initiatives, the KKR Capstone team focuses on developing clear metrics, tracking tools and processes and ensuring that the proper organizational structure and capabilities are in place to deliver long-term, sustainable improvement. An elegantly delineated plan that cannot be executed and sustained for the long term is worthless. Likewise, a capability that is new to a company will not take root and grow over the long term without substantive early over-sight. Therefore, the KKR Capstone team invests significant time and energy to ensure that improvements are sufficiently entrenched to endure over time. After removing themselves from day-to-day involvement at portfolio companies, KKR Capstone professionals remain actively involved in monitoring success through monthly and quarterly Portfolio Management Committee reviews and ongoing management team and board discussions.

There is tight integration between KKR Capstone, KKR’s private equity industry teams, Senior Advisors and others at KKR. KKR Capstone leaders are members of KKR’s Portfolio Management Committee, and KKR Capstone senior executives participate with KKR industry teams, KKR Asset Management and KKR’s infrastructure initiative, continuing to share and build upon their areas of expertise.

KKR Capstone executives are driven by the desire to create long-term, sustainable value in KKR portfolio companies. “The most rewarding aspect about working at KKR Capstone,” says Bill Cornog, a senior KKR Capstone executive, “is realizing results. Hitting a quota, making a budget, getting to your target – when you take an initiative from an idea, to a test or prototype and then on to demonstrable results – and then you see that result make a meaningful difference in a company’s overall performance – that is the best part about being at KKR Capstone.”

Simon Brown (left) and Alex Navab (second from left), KKR investment professionals who are responsible for the firm’s investment in the Nielsen Company, discuss Nielsen’s innovations in

“People Meter” technology used to measure the viewing habits of television and cable audiences with Itzhak Fisher, Nielsen Head of Global Product Leadership, and Susan Whiting, Nielsen Vice Chair.

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Senior Advisors

KKR’s Senior Advisors have all held leading positions in major corporations and public agencies in the U.S., Europe and Asia. They are critical to successful value creation at KKR. Senior Advisors work in cooperation with KKR industry teams, KKR Capstone executives and portfolio company management teams throughout the private equity investment process, from conception and due diligence to operational improvement and exit. They also serve on Boards of Directors and work in conjunction with KKR’s talent management team to provide support and executive coaching to senior leaders at KKR portfolio companies.

The Senior Advisors of KKR include:sanjiV ahuja, former CEO of Orange SAsir john bond, former Group Chairman of HSBC Holdings plcjohn e. brYson, former Chairman and CEO of Edison International and former Chairman of the California State Water Resources Control Boardliu chuanzhi, founder of the Lenovo Group and President of Legend Holdingsleigh clifford, current Chairman of Qantas Airways Limited and former CEO of Rio TintodaVid cote, Chairman and CEO of Honeywelllewis m. eisenberg, Co-Founder and Co-Chairman of Granite Capital International Group, L.P.george m.c. fisher, former Chairman and CEO of Eastman Kodak and Motorolajoe w. forehand, former Chairman and CEO of AccentureYoshiharu fuKuhara, Honorary Chairman of Shiseidopaul m. hazen, former Chairman and CEO of Wells Fargolord cliVe hollicK, former Chairman of SBS Broadcasting and former Member of KKRr. clint johnstone, former Director and CFO of the Bechtel Grouppaul j. norris, non-executive Chairman and former CEO of W.R. Grace & Co.gianemilio osculati, Chairman of Valore S.p.A. and McKinsey’s Mediterranean Complexlee r. raYmond, former chairman and CEO of ExxonMobil edward tian suning, Founder and Chairman of China Broadband Capital Partners, L.P., and Vice Chairman and former CEO of China Netcom Group

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Talent Management

During 2008, KKR launched a dedicated talent manage-ment effort to ensure that best-in-industry management teams and organizational capabilities were in place across the firm’s private equity portfolio. Peter Fasolo, former Chief Talent Officer at Johnson & Johnson, leads the effort, working in cooperation with the KKR industry teams, Senior Advisors and senior managers at portfolio companies in all geographies, from North Sydney to Nashville and from Sèvres to Singapore.

“Studies have proven that differences in the quality of executive leadership have a direct impact on an organiza-tion’s performance,” said Mr. Fasolo. “Companies with enlightened talent management policies have higher returns on sales, investments, assets and equity, and individuals who work at these companies are generally more engaged with their work and focused on long-term outperformance. Talent management is an ever-widening circle, bringing positive benefits to company leaders, employees, communities and investors.”

The KKR talent management team focuses on the following:• Developing a 100-Day Plan for talent in new portfolio

companies;• Ensuring that the right executives are recruited to

lead portfolio companies;• Supporting these executives as they execute on the

100-Day Plan for the business with detailed develop-ment plans, individual and team executive coaching, networking and performance evaluation;

• Ensuring that compensation structures are aligned with responsibilities and attract and retain superior talent such that managers become owners, as KKR is, of portfolio company businesses; and

• Implementing human resources practices that are top-class in all portfolio companies and enable the success of KKR’s long-term investment thesis.

Increasing the probability of selecting and retaining managers, who substantially enhance value creation, requires an honest, rigorous assessment framework involv-ing multiple factors. Many executives have little or no training in interviewing and can default to general, vague characteristics of whether people are “good” or “not good.” Talent management at KKR starts with portfolio company priorities, the specific operating challenges or targeted improvements and then determines whether an individual candidate has the skills and experience to accomplish those goals.

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Successful candidates to lead KKR private equity portfolio companies must demonstrate a strong track record of performance, learning and change agility, high self-awareness, a lack of arrogance and congruence with company culture. Candidates must also fit a private equity ownership model, meaning that they can make decisions with due speed, have extraordinary financial acumen, take calculated risks with a sense of urgency, build rela-tionships and have a transparent dialogue with the board of directors.

A host of portfolio companies have already benefited from the work of the talent management team. During 2008, for example, the team worked with the heads of human resources and senior management team on recruiting the following individuals:• Chief Merchandising Officer, Chief People Officer,

Chief Information Officer and Senior Vice President, Global Sourcing to Dollar General Corporation;

• Senior Vice President, Operations & Supply Chain to Accellent Inc.;

• CEO to Aricent Inc.;• CFO and COO to Laureate Education, Inc.;• CEO to Primedia Inc.; and• President, Arcade and Vice President, Strategy &

Business Development to Visant Corporation.

The team also spearheaded projects with the CEOs and heads of human resources at Rockwood Holdings, Inc., Sealy Corporation, U.S. Foodservice, Inc., Dollar General Corporation and Visant Corporation on critical projects, including reviews of management equity plans to ensure alignment of top teams, analysis of leadership develop-ment practices, assessments of senior level succession and executive coaching.

Surrounded by coils of raw wire that will soon become precision micro-fasteners for the hard disk drive industry, Kennie Tay (middle), Unisteel Operations Manager, and Jamie Bolton (left) and Sam Allen (right) of KKR Capstone, examine tooling used to manufacture micro-fasteners in Unisteel’s factory in Singapore.

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Portfolio Monitoring

KKR’s Portfolio Management Committee (PMC) is responsible for an additional layer of focused oversight and experienced management of KKR’s private equity portfo-lio. In executing this oversight, the PMC instills discipline in the process of creating value in KKR’s private equity portfolio companies and acts as an early warning system to identify and address challenges. The PMC consists of 13 senior professionals drawn from KKR private equity industry teams, KKR Capstone and KKR Senior Advisors.

The PMC holds conference calls and meetings to review the portfolio. Both proceed according to strict agendas set in advance and work off of detailed operational, strategic and financial reports submitted by each industry team on their portfolio companies. The intent is to advance the team’s in-depth knowledge of the investment and to focus on the factors that contribute to value creation. Each portfolio company is put through a regular and systematic review on the calls, with the PMC asking questions such as:• How is the company currently performing?• How does current performance compare to historical

performance? • What is the forecast for the year? For the next several

years?• What changes in the cost structure are we targeting to

improve margins?• What is the liquidity situation? • Are we complying with all financial covenants? • What does the company’s counter-party risk look like?• How is the company’s management team performing? • How is KKR engaging with the company’s employees?• Has the competitive landscape changed? How?• Has the regulatory landscape changed? How? • What environmental initiatives is the company

undertaking?

In addition, members of the PMC are engaged with the KKR private equity portfolio companies on a near- daily basis through conversations with KKR private equity teams, KKR Capstone, portfolio company management teams and other constituents. Both the degree of informa-tion exchanged and the frequency of these exchanges define KKR’s differentiated operational focus on its portfolio.

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Stakeholder Engagement

Thirty-three years of investing has taught us that value creation, which comes through building better companies, often requires active engagement with key stakeholders on critical environmental, social, and governance (ESG) issues. Today’s turbulent economic environment, coupled with the explosive growth of communications, makes effective stakeholder engagement more important than ever. Around the world, companies are being held to a different and more rigorous set of standards by investors, customers, non-governmental organizations, activists and governments who can instantaneously communicate with each other and companies through a variety of social media and other Internet Platforms. At the same time, there are new opportunities to partner with governments and other public entities to provide capital and expertise to assist troubled financial institutions and build needed infrastructure.

Over the past year, KKR has built regulatory, communi-cation and stakeholder management into its investment process and portfolio management. The firm has assem-bled a global team of internal experts and outside advisors to assist the firm and its portfolio companies to understand ESG issues. The team is led by Ken Mehlman, who joined KKR in 2008; prior to joining KKR, Mr. Mehlman led a bipartisan practice focused on regulatory and legislative issues, crisis management and sensitive transactions at the international law firm Akin, Gump, Strauss, Hauer & Feld LLP. He previously served as the Chairman of the U.S. Republican National Committee and held senior positions at the White House and in the U.S. government. KKR’s approach is to identify regulatory and stakeholder issues that may affect potential investments and portfolio companies’ value and to develop effective approaches to managing those issues. In today’s environment, the firm recognizes that this approach to stakeholder issues is a business necessity, but it also understands that it is the right thing to do.

i n V e s t m e n t p ro c e s sRegulatory and stakeholder screening is part and parcel

of KKR’s investment due diligence process. Early assess-ment of ESG issues can help in two ways. First, it can identify risks that can materially impact company value. Second, it can uncover potential areas of improvement that can enhance the success of an investment. Therefore, for new investments and significant transactions involving a portfolio company, KKR’s global public affairs team now assesses regulatory and stakeholder issues, including regulatory approvals required to complete the investment, labor and employee relations issues, the company’s envi-ronmental footprint and performance, the company’s involvement in local communities and future regulatory and legislative trends likely to impact the company and industry, among other factors.



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Biomet, Inc.Biomet designs, manufactures and markets orthopedic medical devices, including reconstructive products such as hip and knee implants as well as spine, trauma, dental and other products used by orthopedic surgeons and other musculoskeletal medical specialists. An affiliate of KKR entered into an agreement to acquire Biomet with The Blackstone Group, Goldman Sachs Capital Partners and TPG on December 18, 2006. The transaction closed on September 25, 2007.


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While Nathan Wallen (foreground), Corporate Chef at U.S. Foodservice, spices a new dish in the kitchen of the Culinary Innovation Center in Rosemont, Illinois, Chris Hsu (left) and Anne Arlinghaus (second from right) of KKR Capstone discuss the success of the Foundations Sales Excellence program with Steve Horan (right), VP of Sales Excellence and Training at U.S. Foodservice and Mark Eggerding (second from left), SVP Street Sales, U.S. Foodservice. The Foundations Sales Excellence program has contributed to market share gains and improved salesforce effectiveness in Street Sales, U.S. Foodservice’s most profitable business segment.

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p o rt f o l i o m a n ag e m e n tAround the world, governments are reforming laws

and regulations impacting financial services, health care, energy and other areas. Many of these proposed changes may well have a material impact on KKR and the companies in which we invest. The global public affairs team works with KKR portfolio company management teams to assess these trends, ensuring that they under-stand them, engage where appropriate with policymakers and are positioned to fully comply, and where possible, benefit for doing so. Oversight of these issues is built in to the rigorous KKR portfolio management process.

KKR has also identified and engaged best-in-class advisors who can help portfolio companies forecast trends, resolve stakeholder disputes and, when relevant, engage with the public or key stakeholders. For example, former Congressman Richard Gephardt is an advisor to KKR and several KKR portfolio companies on labor issues. Through many years in the U.S. Congress, Congressman Gephardt developed close working relationships with many leaders and participants in the U.S. labor movement. He is convinced that collaborative engagement and creative “win-win” approaches are the right approach to labor-management relations and assists KKR portfolio companies to develop and implement these efforts. As with KKR’s approach to new investments, the goal is to provide portfolio companies with a competitive advantage and to help them avoid material harm.

In addition, KKR became a signatory of the United Nations Principles for Responsible Investment (UN PRI) in 2008. While the firm has long considered environmen-tal, social and governance issues as part of its investments, becoming a signatory to the UN PRI is part of a more conscious, systematic and comprehensive approach to incorporate these issues into all aspects of KKR’s invest-ment process going forward.

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Guidelines for Responsible Investment

Consistent with KKR’s incorporation of regulatory and stakeholder management into its investment process, the firm worked with other members of the Private Equity Council (PEC) to craft industry investment guidelines regarding ESG matters. In accordance with these guide-lines, KKR will:

1 consider environmental, public health, safety and social issues associated with target companies when evaluating whether to invest in a particular company or entity, as well as during the period of ownership.

2 seeK to be accessible to, and engage with, relevant stakeholders either directly or through representatives of portfolio companies, as appropriate.

3 seeK to grow and improVe the companies in which they invest for long-term sustainability and to benefit multiple stakeholders, including on environmental, social and governance issues. To that end, PEC members will work through appropriate governance structures (e.g., board of directors) with portfolio companies with respect to environmental, public health, safety and social issues, with the goal of improving performance and minimizing adverse impacts in these areas.

4 seeK to use goVernance structures that provide appropriate levels of oversight in the areas of audit, risk management and potential conflicts of interest and to implement compensation and other policies that align the interests of owners and management.

5 remain committed to compliance with applicable national, state and local labor laws in the countries in which they invest; support the payment of competitive wages and benefits to employees; provide a safe and healthy workplace in conformance with national and local law; and, consistent with applicable law, will respect the rights of employees to decide whether or not to join a union and engage in collective bargaining.

6 maintain strict policies that prohibit bribery and other improper payments to public officials consistent with the U.S. Foreign Corrupt Practices Act, similar laws in other countries and the OECD Anti-Bribery Convention.

7 respect the human rights of those affected by their investment activities and seek to confirm that their investments do not flow to companies that utilize child or forced labor or maintain discriminatory policies.

8 proVide timelY information to their limited partners on the matters addressed herein, and work to foster transparency about their activities.

9 encourage their portfolio companies to advance these same principles in a way which is consistent with their fiduciary duties.

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e n V i ro n m e n ta l d e f e n s e f u n d a l l i a n c eJust as we work to share best practices on purchasing

and information technology across our portfolio, it is also our goal to share creative approaches to ESG issues. In May 2008, KKR announced a unique and historic partnership with the Environmental Defense Fund (EDF) to develop and implement best practices around environ-mental performance. EDF has partnered with a number of businesses to develop innovative tools and processes that improve environmental performance, including improving packaging materials, greening global supply chains and jump starting a market transformation in the commercial truck industry.

Through this alliance, KKR is working to identify best practices to reduce energy use, water consumption, the use of forest products and the generation of waste in key portfolio companies. In additional to their environmental impact, these environmental performance areas have been selected because each can generate business benefits. KKR’s approach is to work with portfolio company man-agement and, where relevant, with KKR Capstone to access a company’s environmental footprint in these areas and to identify opportunities for improvements that may also generate cost savings. Once this assessment is com-pleted, KKR and EDF and the portfolio company work together to establish specific environmental performance goals that will also generate business benefits.

In the first nine months of this effort, the firm launched a portfolio company-wide energy awareness campaign called Green Savings that provides companies and their employees with common sense tools to save energy and cut costs at work and at home. An intranet site is under development so that KKR portfolio companies can share best practices for reducing energy use.

Other specific results in the early months of this alliance include:• u.s. foodserVice, inc., one of the country’s premier

foodservice distributors, implemented new driver policies, business processes and truck technologies to improve its operational efficiency and reduce emissions from its delivery fleet. During 2008, U.S. Foodservice saved $8.2 million in fuel costs and avoided 22,000 metric tons of carbon dioxide emissions (equivalent to more than 4,400 cars) by improving the efficiency of its fleet (gallons/ton of product moved) by more than 4% compared to a 2007 baseline. During 2009, Foodservice plans to further improve fleet productivity by scaling up successful initiatives, such as driver awareness programs, automatic idle shutoff, maximum speed controls and assessing and implementing new initiatives, including improved trailer cooling practices and other technology solutions.

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• primedia inc., a leading provider of print, Internet and mobile solutions designed to enable consumers to find a place to live, increased online efforts and resized its publications to reduce its use of forest resources. During 2008, PRIMEDIA saved $2.9 million in material costs and reduced more than 3,000 tons of paper use (equivalent to over 40,000 trees) by improving effi-ciency (paper use/revenue) by 22% compared to a 2007 baseline. During 2009, PRIMEDIA plans to reduce paper consumption an additional 20% by redesigning publications and pursuing additional online strategies and is exploring opportunities to expand publication recycling programs currently encouraged at all loca-tions. Also in 2009, PRIMEDIA will focus on measuring and reducing its greenhouse gas emissions 10% by improving sales and delivery routing and continuing efforts to consolidate office and warehouse space.

• sealY corporation, the largest bedding manufacturer in North America, recycled raw materials used for producing bedding and improved delivery fleet effi-ciency through improved driver policies and truck technologies to reduce waste and decrease greenhouse gas emissions. During 2008, Sealy saved $1.2 million in fuel costs and avoided more than 3,000 metric tons of carbon dioxide emissions (equivalent to more than 600 cars) by improving the efficiency of its fleet (gal-lons/stop) by almost 9% compared to a 2007 baseline. In addition, Sealy saved more than $4.0 million in material costs and avoided 650 tons of solid waste (equivalent to the capacity of more than 46 garbage trucks) by reducing scrap per bed (pounds/unit) by 16% compared to a 2007 baseline. During 2009, Sealy plans to roll out improved fleet routing software, install speed governors on its trucks, reduce idling time and incen-tivize drivers to improve fuel economy. The company will continue reducing solid waste by improving manu-facturing processes and reducing packaging. In addition, Sealy will focus on improving the energy efficiency of its facilities.

KKR recently expanded this alliance at five additional companies: Accellent Inc., Biomet, Inc., Dollar General Corporation, HCA Inc. and SunGard Data Systems, Inc. and is exploring expansion to several KKR portfolio companies in Europe. The goal will be to develop metrics, tools and best practices that can be shared, and drive improved environmental and financial performance across KKR’s entire portfolio. In addition, KKR and EDF will share the tools and resources publicly to help drive broader change across industries.

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d i s c l o s u r e & t r a n s pa r e n c YAnother important area where public expectations have

changed involves transparency and disclosure. Over the last two years, KKR has been working to increase the transparency of its investments.

Lord Clive Hollick, a Senior Advisor to KKR, served as a member of the working group that issued the “Guidelines for Disclosure and Transparency in Private Equity,” known as the Walker Report, which was issued in the U.K. in November 2007. Today, KKR portfolio companies with significant operations in the U.K., including Alliance Boots GmbH and Northgate Information Solutions Limited, release annual reports as part of KKR’s compliance with Walker guidelines.

KKR is also actively involved in similar initiatives across Europe, including initiatives that are currently being undertaken by the German Private Equity and Venture Capital Association (BVK) and the French Private Equity Association (AFIC). KKR is committed to supporting these initiatives and is pleased that senior KKR profession-als actively serve on the BVK and AFIC working groups that are responsible for developing and implementing disclosure and transparency standards for those bodies. Most recently, KKR launched a German language version of its website, in keeping with the transparency commit-ments made with the BVK. We expect to report further on our engagement with key stakeholder issues at the end of 2009 and on a regular basis going forward.

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K K r p o rt f o l i o c o m pa n Y c a s e s t u d i e s

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overall TransformaTion program run-raTe

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AB Acquisitions Limited, a company controlled by funds advised by KKR and Stefano Pessina, who currently serves as Executive Chairman, entered into an agreement to acquire Alliance Boots in April 2007. The transaction closed in July 2007.

A key element of our investment thesis for Alliance Boots concerned the opportunity to strengthen the operations of the Alliance Boots health and beauty division, comprising health and beauty retail and pharmacy outlets across Europe.

Immediately after the transaction, a team of KKR private equity investment professionals and KKR Capstone operational professionals, in partnership with Mr. Pessina, created a transformation program office charged with identifying the overall improvement potential for the health and beauty business and launching specific initiatives aimed at exploiting that potential. These initiatives target both gross profit improvement opportunities and cost savings and span the value creation spectrum including from the integration of multiple headquar-ters, to the new range of products offered in the stores, to the new supply chain masterplan.

The transformation program initiatives were all launched in the 100 days following the closing of the transaction. Post-launch execution has been driven by management in partnership with KKR Capstone and we are now entering the final phase where projects are being finally transitioned into business-as-usual practices at Alliance Boots.

For instance, three key projects for the team since the close of the transaction have included converting Alliance-branded pharmacies into Boots-branded pharmacies, enhancing procurement practices and extending payment terms with suppliers.

Regarding the first of these examples, because of the Boots history, high brand recognition, trust in the Boots name on the part of consum-ers particularly in the U.K. and potential for growth, KKR, Mr. Pessina and the management team recognized that accelerating the re-branding of Alliance pharmacies into Boots pharmacies was an opportunity to increase revenue growth and enhance margins. Since the close of the transaction, more than 300 Alliance stores have been converted into Boots stores, with the full conversion of the remaining stores estimated to be complete within a year.

Secondly, improving procurement systems across the health and beauty division has also been a focus of the KKR and Alliance Boots management team. Projects to date have targeted multiple areas such as information technology, headquarters costs and more recently, rent and other store-specific costs.

Finally, extending payment terms with suppliers, changing working capital management and thoroughly reviewing the processes in place for dealing with our partners in the value chain has also been a focus of KKR and the Alliance Boots management team.

These initiatives are only three of several key transformation efforts underway at Alliance Boots. Collectively, we believe that the work of the Alliance Boots team, in partnership with KKR investment execu-tives and KKR Capstone operational executives is driving positive change, as Alliance Boots continues to validate our investment thesis of owning a market leader in a defensive industry with significant potential for revenue enhancement and cost savings.

Alliance Boots GmbHAlliance Boots is an international pharmacy- led health and beauty group comprising over 3,100 outlets and a wholesale network of warehouses serving over 120,000 pharmacies, including Associates and JVs. Alliance Boots also distributes healthcare and pharmaceutical products and services.

Va l u e c r e at i o n c a s e s t u dY n o. 1

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semiconducTor company

Avago Technologies LimitedAvago has a 40-year history of innovation dating back to origins within Hewlett-Packard. The company designs, develops and supplies a broad range of analog semiconductor devices globally. Avago’s diversified end-market products include cellular phones, data networking equipment, enterprise storage and optical mice.

Avago was carved out of Agilent for $2.8 billion in December 2005 by KKR and Silver Lake Partners. Avago is a diversified, largely fabless, analog company characterized by lower volatility, longer product life cycles and higher barriers-to-entry relative to digital semiconductors. These factors, along with the low cost footprint in Asia and carve-out savings, contribute to a more stable, higher cash flow business. Additionally, the ability to monetize non-core assets substantially de-risked the investment.

Over the years, Avago has assembled an experienced team of approximately 1,000 analog design engineers and has more than 5,000 U.S. and foreign patents and patent applications. Avago has a diversi-fied and well-established customer base of approximately 40,000 customers including large original equipment manufacturers such as Cisco Systems Inc., Hewlett-Packard Co.(HP), International Business Machines Corp., Logitech International SA and Samsung Electronics Co. Ltd.

While Avago inherited a strong intellectual property and product portfolio at the time of carve-out, the company’s portfolio lacked focus. In the first 12 months of KKR’s ownership, Avago sold three non-core assets. With little impact on profitability, these asset sales generated approximately $750.0 million of cash. KKR Capstone led Avago’s carve-out from Agilent, including putting in place the initial budget for operating expenses and the key outsourcing partnerships with Automatic Data Processing, Inc., Oracle Corporation, Wipro Limited and HP. Additionally, KKR Capstone drove the organizational design which included moving many previously U.S.-based functions to Singapore and Malaysia to improve efficiency. KKR Capstone’s expertise allowed Avago to complete the carve-out in a timely and cost-effective manner. Over $150.0 million of annual cost savings have been achieved since closing. Management continues to streamline operations with the aim of further simplifying Avago’s core business processes.

The company reallocated and increased its R&D investment for core target markets with more attractive growth and profitability characteristics. In 2006, total R&D was $209.0 million (13.8% of sales): by 2008, R&D had increased to $265.0 million (approximately15.6% of sales). As a result, the company’s wireless and wired infrastructure businesses generated substantial top-line growth, with revenues growing in excess of 30% and 10%, respectively, in 2008 while Avago expanded gross margins by over 300 basis points. The portfolio is now well positioned, giving Avago the ability to acquire businesses and technology that complement its existing portfolio.

Avago has a highly efficient operating model. The company is headquartered in Singapore and has over 35 years of operating history in Asia, where approximately 60% of employees are located. In addition to providing a low-cost footprint, the presence in Asia allows for close proximity to many customers and places Avago at the center of worldwide electronics manufacturing. The business principally utilizes third-party foundry, assembly and test capabilities. The resulting outsourced manufacturing business model provides flexibility, simplifies operations and reduces capital requirements. These factors and an efficient tax structure allow Avago to generate strong, relatively stable, cash flows. These cash flows, along with asset sale proceeds, have allowed Avago to reduce net debt from approximately $1.7 billion at the time of acquisition (approximately 5.3x net debt/EBITDA) to approximately $500 million today (approximately 1.4x net debt/EBITDA), which represents significant deleveraging.

The success of these initiatives and the business has largely been driven by the management team recruited after closing. The team at Avago, led by Hock Tan and Doug Bettinger, is comprised of a seasoned group of semiconductor executives. Together, KKR and the management team have increased efficiency through the carve-out and outsourced business model, reduced risk and delevered the business through non-core asset sales and positioned the company for growth through R&D investment. Avago has become a world class semiconduc-tor company well positioned for the future.


5 2


Turn spine and Trauma, a division wiTh years of

negaTive financial performance, inTo a revenue-

generaTing division wiTh significanT long-Term

growTh opporTuniTy










for biomeT overall, up 13.0% and 16.0%,




Since identifying Biomet as an attractive business, the KKR team, including both KKR Capstone executives and KKR industry executives, has undertaken a number of operational improvement initiatives in cooperation with Biomet’s CEO, CFO and management team, as well as the other partners in the transaction. These initiatives fall into two broad categories:reVenue growth: Including initiatives to launch products with cutting-edge technological capabilities, hire key senior managers, increase sales force effectiveness, improve business planning and reporting and reverse sales declines at Biomet’s spine and trauma division.cost saVings: Including initiatives to deploy lean manufacturing techniques, optimize manufacturing operations, develop a company-wide procurement function and control global general and administrative expenses.

An examination of KKR’s immersion in the spine and trauma division demonstrates how KKR’s ownership can be the catalyst for significant positive change in company operations.

Prior to Biomet’s acquisition, spine and trauma sales had declined 13%(1) from fiscal year 2006 to fiscal year 2007 (fiscal year ends in May). Sales force attrition was over 40%, average sales tenure was declining, product fill rates were below 60% and new products were not being launched effectively. The divison’s underperformance threatened Biomet’s positive performance and its otherwise strong growth from orthopedic and dental implants. Therefore, it was critical to Biomet’s overall success that the spine and trauma division be restored to health.

Working with the spine and trauma management team, the KKR Capstone team conducted a comprehensive review of the division’s operations and product offerings and identified key areas to stabilize and re-build the business. They then formed a detailed plan for turning what they had identified as challenges into viable, long-term, bottom-line oriented solutions, and implemented a metrics-driven turnaround plan pivoted on key initiatives including:adding dedicated sales resources to underperforming territories;deVeloping sales force incentive plans to reduce attrition and attract professionals with greater levels of sales experience and medical device training;professionalizing the management of the sales force;hiring skilled leaders in critical functional areas including supply chain management and surgeon relations;identifYing opportunities to lower manufacturing costs, including moving production of selected products to China, consolidating plant and warehousing operations and consolidating vendors; andstandardizing product launches and new product development.

To date, the turnaround has been a success. Sales force attrition has fallen by 50%, the sales force has grown by 20%, fill rates ended fiscal year 2008 at over 95% and new products have been greeted with enthusiasm by the medical community. Importantly, following six consecutive quarters of declining sales, Spine and Trauma sales increased during fiscal year 2008 and have continued to accelerate, with sales in the second and third quarters of fiscal year 2009 increasing 7% versus the same time period in fiscal year 2008.(1)

Glen Kashuba, President of Biomet’s spine and trauma division said: “The KKR Capstone team and our management team worked together to strengthen a business with declining revenues, which we have now positioned for long-run success. The KKR Capstone team helped us accomplish this turnaround by leading several critical, high-impact efforts that allowed spine and trauma to drive better results in a very short period of time. I found that the KKR Capstone executives provided not only important expertise but were extremely practical and milestone-driven. They have been terrific partners helping to turn around this business.”

(1) Calculated as average fixation and spine segment domestic revenue growth

Biomet, Inc.Biomet designs, manufactures and markets orthopedic medical devices, including reconstructive products such as hip and knee implants, as well as spine, trauma, dental and other products used by orthopedic surgeons and other musculoskeletal medical specialists. An affiliate of KKR entered into an agreement to acquire Biomet with The Blackstone Group, The Goldman Sachs Group, Inc. and TPG in December 2006. The transaction closed in September 2007.


5 3


sTrucTuring of an acquisiTion finance package

providing bis wiTh capiTal To pursue growTh

opporTuniTies, including acquisiTions

implemenTaTion of daily operaTing meTrics

across all bis siTes

raTionalizaTion of overhead sTrucTure

leveraging kkr capsTone procuremenT experTise

and global neTwork

achievemenT of sTrong financial performance

resulTs, wiTh fiscal year (june) 2008 ebiTda

growing approximaTely 12% versus 2007 ebiTda

negoTiaTing The sale of cleanaway (~50% of The

ebiTda of The combined business acquired) in may

2007 for 12.4x 2007e ebiTda

BIS’s business model is highly differentiated from other service providers to the Australian mining sector given its focus on:contracting with blue-chip mining customers, including Rio Tinto Limited, BHP Billiton Limited, Xstrata plc, Glencore International AG, Onesteel and BlueScope Steel Limited, which comprise the majority of BIS’s revenue and represent long-standing customer relationships;proViding safety-centered services and highly value-added services that are vital to customers and which have made BIS an industry leader in safety performance, with a best practice lost-time-to-injury-fre-quency rate;worKing at low-cost mine sites, which reduces the risk of shutdowns during depressed pricing environments;proViding services during the production phase of the mine lifecycle, rather than the exploration phase, which reduces the cyclicality of earnings to BIS; contracting for long time periods, ranging from 3 to 15 years in duration; maKing innovative use of cutting-edge technologies, including dual power road trains and automated guided vehicles; and pursuing best-in-class contract protections that generally include a combination of cost pass-throughs, rise and fall provisions based on volume and capital cost guarantees upon a mine shutdown.

This differentiation was a key factor in the strong performance of BIS during 2008 and early 2009 despite a pullback in activity across the Australian mining sector. It should also position BIS well as the mining sector globally experiences what appears to be an extended period of slower growth, as it enables BIS to benefit from the continu-ing trend towards outsourcing and to capture medium to long-term growth opportunities as customers place an increasing emphasis on these capabilities.

As part of KKR’s due diligence process for BIS, the industry team was focused on structuring an acquisition finance package that provided BIS with capital required to pursue significant growth opportunities. As part of the original acquisition, KKR negotiated an attractive and flexible financing structure, which included a A$275 million revolving capital expenditure facility with the capability to both fund growth capital and acquisitions. This facility represents long-term, committed, low-cost capital that provides BIS with a distinct competitive advantage, particularly in the current environment where capital is constrained.

The KKR industry team and KKR Capstone team have worked actively with BIS’s senior management since 2006 on a range of initiatives, including growth projects and strategic mergers and acquisitions, procurement efficiency, rationalization of the overhead structure and implementation of operating metrics. Immediately after the transaction closed, KKR Capstone began to work with the BIS management team to develop a comprehensive and consistent set of operating metrics. As each BIS site is unique, KKR Capstone worked with the managers from each site to determine the relevant metrics. Throughout, the focus was on providing the line managers with the information needed to make timely and fact-based decisions. Once the metrics were identified, KKR Capstone worked with the BIS team to quickly develop and roll-out the tools to get the metrics in place and to develop training materials and processes to ensure that the metrics are used to drive meaningful improvements.

The KKR team is confident that these combined efforts will further enhance BIS’s position as one of the leading industrial logistics and services providers in Australia and position the company for long-term, sustainable growth. To date, BIS’s performance has been strong with fiscal year 2008 EBITDA growing approximately 12% versus 2007 EBITDA performance.

BIS Industries LimitedBIS provides industrial logistics and services to the Australian coal, metals and minerals and steel industries. BIS specializes in performing processes that are non-core but critical to operations, including specialist on- and off-road logistics solutions, on-site raw material and customer product handling solutions, inventory and stockpile management, coal pulverization and coil and package handling. Funds advised by KKR purchased BIS from Brambles Limited in July 2006.


5 4


insTallaTion of a world-class managemenT Team

wiTh decades of collecTive experience

in elecTronic commerce, paymenT processing and

leadership Through periods of change

eliminaTion of redundanT cosTs, sparking

an overall reducTion of The cosT base by nearly

10%

reorienTaTion To meeT The needs of cusTomers,

resulTing in improved sales force effecTiveness

dedicaTion of resources and sTraTegic

refocusing Towards innovaTive Technological

producT developmenT, resulTing in producTs

designed To make everyday purchases fasTer,

more reliable and more efficienT

First Data CorporationFirst Data provides electronic commerce and payment solutions for merchants, financial institutions and card issuers globally. The company has operations in 36 countries, serving over 5.3 million merchants and 2,000 card issuers. With leading market positions in its core businesses, First Data is well-positioned to capitalize on the continued shift from cash to electronic transactions. An affiliate of KKR entered into an agreement to acquire First Data in April 2007. The transaction closed in September 2007.

KKR’s focus during the first full year of its ownership of First Data included assembling a senior management team with the capabilities and experience necessary to successfully reinvigorate First Data, as well as reorganizing First Data’s business units to improve efficiencies, eliminate redundancies and better meet the needs of customers.

The buildout of First Data’s management team began with the hiring of Michael Capellas as Chairman and CEO. Mr. Capellas, formerly the CEO and Chairman of Compaq Computer Corporation and the President and CEO of MCI Inc., was selected by the KKR team due to his proven ability to lead large, technology-driven companies during periods of change. Following the hiring of Mr. Capellas, First Data and KKR expanded the roles of several internal leaders and supplemented existing talent with individuals hired from outside the company, including the former CIO of The Home Depot, Inc. and a former managing partner in the communications and technology practice of Accenture Ltd. First Data’s senior management team has significant industry experience in electronic commerce and payment processing and a successful track record in acquisitions and post- acquisition integrations.

With the senior leadership in place, First Data’s management and KKR initiated a large-scale restructuring of First Data shortly after the KKR investment was completed. The intent of the restructuring was two-fold: first, to make First Data more attuned and responsive to the needs of customers, and second, to reduce costs. During the restructur-ing, business segments were reorganized and consolidated, and core strategic functions were centralized and streamlined. Spending on redundant overhead functions within each business unit was rational-ized. In addition, the reorganization improved customer service levels, reenergized the sales force and reduced the overall cost base by nearly 10%.

First Data has reinvested the capital saved from the restructuring towards initiatives geared at generating a higher level of organic growth. These initiatives have primarily focused on shifting First Data’s approach to technology from that of a cost center to that of an area of differentiation. Whereas in the past, First Data distinguished itself from peers through its scale and relied on acquisitions as gateways to innovation, the KKR team and senior management saw an opportunity for the company to create an internal, technology-based competitive advantage. Product development has been a key area of focus for these initiatives.

KKR and First Data management formed dedicated teams to pursue technology development in key areas, and worked to streamline in-house processes to bring new products to market quickly and efficiently. Management identified four areas of strategic focus, Mobile Commerce, Loyalty, Security and Fraud and Data Analytics to extend the reach of the product development initiative and make product development congruent with customer needs. One of the most exciting products to emerge from these initiatives has been First Data’s GO-Tag™ Solution, an innovative contactless payment technology which debuted at the U.S. 2008 Democratic National Convention. The GO-Tag™ Solution is a sticker attachable to personal items such as mobile phones, employee badges and personal digital assistants. The sticker eliminates the need to carry cash, as purchases can be made simply through tapping the sticker against appropriately equipped point of sale payment devices. The GO-Tag™ technology was developed solely within First Data and is gaining significant momentum with both consumers and merchants as it makes its way into the commercial marketplace.

The assembly of a world-class management team and the reorgani-zation effort helped to drive First Data’s strong growth in 2008, despite the tumultuous economic conditions during the latter half of the year. Revenues grew 5% during 2008 and adjusted EBITDA grew 7%, signaling significant traction in operational improvements and position-ing First Data for future success.


5 5


parTnered wiTh a world-class and proven

managemenT Team To address The rapidly

growing global demand for qualiTy higher

educaTion

raised aTTracTive debT financing for The

TransacTion, which conTains no mainTenance

covenanTs and provides flexibiliTy for funding

ongoing acquisiTions

sTrucTured foreign exchange hedges To reduce

currency risk

parTnered wiTh The ceo To build ouT a

nimble global corporaTe finance funcTion

by improving cash managemenT, Treasury

planning, cash repaTriaTion Techniques

and financial conTrols

supporTed global growTh Through acquisiTions,

resulTing in The purchase of 15 universiTies in 11

counTries, including significanT plaTform

acquisiTions in cenTral and laTin america and

asia

increased lTm adjusTed ebiTda from $270.0 million

aT TransacTion close in 2007 To $370.0 million

aT year-end 2008 Through boTh organic and

acquisiTion-based enrollmenT growTh

Laureate Education, Inc.Laureate Education is a leading international provider of higher education services. Laureate International Universities is the company’s global network of 43 accredited campus-based and online universities offering undergraduate and graduate degree programs to nearly 500,000 students across 20 countries and more than 100 campuses throughout North America, Latin America, Europe and Asia. An investor consortium led by Doug Becker, Chairman and CEO, with an affiliate of KKR as its largest investor, acquired Laureate Education in August 2007.

In many ways, the long-term success of a private equity investment depends on the strength of the relationship between the sponsor and a company’s senior management team, and the ability of that senior management team to assess opportunity and drive operational change. Laureate is a commendable example of the power of this directive.

“Doug Becker’s strategic leadership, coupled with his world-class management team, is what attracted us to this investment,” said Brian Carroll, the senior KKR private equity investment professional who leads the Laureate investment. “Laureate has developed a significant first-mover advantage in providing private post-secondary education in developing markets. Doug and his team are able to identify attrac-tive acquisition candidates around the world, work with the founders of these academic institutions to ensure that Laureate is the right custodian for their legacy, and then integrate these institutions into the Laureate network by applying the company’s global best practices.”

The KKR team has focused on a number of financial and strategic initiatives since closing the Laureate transaction. In corporate finance, KKR executives have supported the expansion and strengthening of Laureate’s global finance organization and partnered with management to improve cash management, treasury planning, cash repatriation techniques, financial controls and monthly reporting. As a result, Laureate’s finance function is more efficient and is better able to support the management team in monitoring, analyzing and managing the business. KKR initiatives within Laureate have allowed manage-ment to monitor and centrally control global cash balances on a real-time basis, and to efficiently repatriate cash to the U.S. KKR executives have also helped Laureate’s finance team implement foreign exchange hedges to manage foreign currency exposure, which is critical to the long-term success of a company whose revenue is derived from 14 different currencies.

Strategically, the KKR team has advised Laureate on optimizing its capital structure and evaluating potential acquisition opportunities. Since the close of the transaction, Laureate has made 15 acquisitions in 11 countries, raising an additional $477.0 million from investors to support these growth initiatives.During 2008, the company completed the largest acquisition in its history when it purchased Universidad Tecnológica de México (UNITEC), a Mexican university with a 40-year tradition of providing undergraduate and graduate education to over 30,000 students on campuses in Mexico City, Guadalajara and Monterrey. As is the case with many Laureate institutions, UNITEC holds the highest-available level of governmental accreditation. Laureate also made a large platform acquisition in Brazil during 2008 when it purchased Centro Universitário do Norte, an institution founded in 1994 which provides graduate and postgraduate education to 20,000 students in Manaus, Amazonas. Universities in China and Malaysia joined Laureate International Universities’ network in 2008, and have provided a platform for further growth in a region with attractive demographics and low post-secondary participation rates. David Liu, a senior KKR private equity professional in Beijing, helped structure the Asian acquisitions in keeping with local requirements as well as Laureate’s desire to deepen relationships with local partners.

Simultaneous with expanding Laureate’s network around the world, Mr. Becker and the senior management team have broadened Laureate’s product offerings. During 2008, Laureate launched 15 new online programs (including four health sciences programs), received new medical school licenses in Spain, Mexico, and Ecuador and was granted accreditation for two large campuses in Chile, thereby increas-ing Laureate’s educational standing in the Chilean market and qualifying enrolled students for government loans.


5 6


leadership by a largely new, focused and deeply

experienced senior managemenT Team

execuTion on invesTmenT Thesis and 100-day plan

have conTribuTed To increasing ebiTda over 30%

from 2006 Through 2008

well-posiTioned To benefiT from demand for

measuremenT services for new and alTernaTive

media Through sTraTegic acquisiTions compleTed

under kkr and sponsor sTewardship

sale of non-sTraTegic divisions has sTreamlined

focus and generaTed proceeds of over $400

million for deleveraging and re-invesTmenT

approximaTely $1.1 billion of capiTal deployed in

sTraTegic invesTmenTs, including neTraTings/

buzzmeTrics, Telephia and iag research

increased inTernal communicaTion and

operaTional efficiency Through re-energized

corporaTe culTure, including The one

nielsen iniTiaTive

re-invigoraTed ouTreach To service The

markeT research and media measuremenT needs

of cusTomers has been meT wiTh posiTive

reacTion from key cusTomers

Prior to the take-private transaction, KKR had been following Nielsen closely as part of the firm’s media efforts in the U.S. and Europe, and was attracted to the company’s stable cash flow profile and strong positions in key information services markets. KKR began to evaluate a possible transaction with the company in early 2005 and commenced formal interactions with Nielsen following the November 2005 termination of the company’s announced merger with IMS Health Incorporated. Over the course of KKR’s due diligence, substantial work by KKR, its equity partners and advisors confirmed the attractive-ness of Nielsen’s core franchises and identified meaningful profit improvement opportunities within the business, which formed an additional core component of the investment thesis.

Since the acquisition, Nielsen management, KKR and the partners in the sponsor group have worked together closely to implement the key initiatives of the investment thesis and the 100-Day Plan.

An important part of the thesis around Nielsen was attracting a world-class CEO. David Calhoun, former Vice Chairman of General Electric Company (GE) and President and CEO of GE Infrastructure, was selected following an extensive search. A strong team – including Brian West (CFO, former CFO of GE Aviation), James Cuminale (General Counsel, former General Counsel of PanAmSat, a prior KKR portfolio company), Mitchell Habib (EVP – Global Business Services, former CIO of Citigroup Inc.’s North American Consumer Business and Credit Card Divisions), Roberto Llamas (Chief Human Resources and Public Affairs Officer, former Head of Human Resources at Lehman Brothers, GE Lighting, and GE Capital), John Burbank (CEO of Nielsen Online, former Chief Marketing Officer at AOL and VP of Marketing at AT&T Inc.), and Itzhak Fisher (Head of Global Product Leadership, previously founder of Trendum and RSL Communications) – is in place around Mr. Calhoun. This senior team is functioning very effectively and is focused on executing the operating plan laid out at the time of the acquisition.

Operational realignment activities identified during the initial due diligence and through subsequent work by management and KKR Capstone, as well as work by the sponsors with management on procurement and six-sigma initiatives, have resulted in significant cost savings and margin expansion at the company to date. In addition, numerous organic and strategic growth initiatives are underway, with recent merger and acquisition activity (including the acquisitions of Telephia, IAG Research and outstanding minority interests in NetRatings/BuzzMetrics) positioning the company to benefit from strong demand for measurement services for new and alternative media.

KKR and its partners have also taken steps to rationalize the Nielsen portfolio in non-strategic areas, completing the sale of Nielsen Business Media Europe, which was identified as a non-core division during initial due diligence, for $414.0 million in February 2007. A substantial portion of these proceeds were used for deleveraging.

Finally, the introduction of the One Nielsen culture – with all the parts of Nielsen now working together to provide integrated solutions to customers – has permeated the business and is helping to dismantle historical silos in the company, fostering better internal communication and results for clients.

Customers are noticing the company’s re-invigorated efforts to service their needs and are responding positively. Through a combina-tion of these factors, Nielsen has been able to increase EBITDA by over 30% from 2006 through 2008. Overall, significant value is being created for the investment in Nielsen through the comprehensive approach to operational change being undertaken by Nielsen management, KKR and the partners in the sponsor group, unlocking the potential identi-fied within Nielsen by KKR.

The Nielsen Company B.V.Nielsen is an information company providing marketing and media measurement information, analytics and industry expertise to clients. Nielsen tracks sales of consumer products and reports on television viewing habits and online usage trends in countries representing over 60% of the world’s population. KKR and a group of other sponsors acquired Nielsen in August 2006.


5 7


implemenTed business TransformaTion program

covering producT sTraTegy, cosT improvemenTs,

balance sheeT and cash flow improvemenTs,

organizaTional realignmenTs and recruiTmenT,

which conTribuTed To revenue growTh of 14% in

2008 and significanT markeT share gains

proacTively launched cosT reducTion and cash

improvemenT iniTiaTives To counTer

macroeconomic headwinds

developed key performance indicaTor

dashboard, now used by execuTives consisTenTly

on a monThly basis To Track progress and impacT

formal managemenT role assumed by kkr

capsTone execuTive, who serves as coo

Northgate Information Solutions LimitedNorthgate is a global provider of specialist software, outsourcing and systems integration solutions to the human resources and public sectors. Northgate operates three divisions: NorthgateArinso, focused on human resources solutions; Northgate Public Services, focused on solutions to the U.K. public sector; and Northgate Managed Services, focused on information technology outsourcing solutions. An affiliate of KKR entered into an agreement to acquire Northgate in December 2007. The transaction closed in March 2008.

Together with Northgate management, the KKR team designed and launched a business transformation program addressing key strategic and operational improvement levers. Initiatives covered product strategy, cost improvements, balance sheet and cash flow improvements, organizational realignments and recruitment of senior executives. During the design phase, KKR Capstone spearheaded the structuring, detailed target-setting and resourcing of initiatives. The program was launched by Northgate’s CEO one month after the transaction closed. It mobilizes approximately 170 employees and its detailed follow-up is a core element of Northgate’s monthly executive committee meetings.

Within NorthgateArinso, the transformation program has addressed three main value-creation drivers:clarifYing the product/service strategy by confirming which products and services would be sold in which geographies. As part of this strategy, previously separate R&D organizations were merged, “on-demand” versions of leading software products were launched and the interna-tional expansion efforts were redirected towards North America, a promising market.improVing the effectiveness of the sales effort by overhauling pricing processes and improving account management, including implementa-tion of a global pipeline tracking and CRM tool and redeployment of sales reps and account managers to priority customer segments.implementing a network of global delivery centers by standardizing program management and operational processes and migrating work to lower-cost offshore delivery hubs. NorthgateArinso has more than doubled its headcount in low-cost centers in Asia and South America and closed higher-cost delivery centers.

A number of senior executives were hired during KKR’s first year of ownership and the organizational structures of the Asia-Pacific, European and North American regions were aligned by separating cost and profit centers and removing a layer of sub-regional managers.

Within the public services and managed services divisions, the transformation program focused on the clarification of product profitability, which sparked the discontinuation of several product suites, the reallocation of sales resources, pricing revisions, the creation of more efficient procurement and logistics platforms and the integra-tion of an acquisition.

To counter gathering macroeconomic headwinds, the team also proactively launched a number of focused cost reduction and cash improvement initiatives. Throughout, tracking of progress and impact has been monitored with an operational key performance indicator dashboard, now used by executives consistently on a monthly basis.

Since June 2008, at the request of Northgate’s CEO, a senior KKR Capstone executive, Jerome Losson, has been acting as interim COO. He has been working on the transformation program’s implemen-tation and taken direct responsibility for NorthgateArinso’s global delivery platforms and research and development activities. Mr. Losson has also onboarded senior executives who will gradually assume his responsibilities.

The work executed during the first year of KKR’s ownership contributed to Northgate growing revenues by 10% versus the previous year, EBITDA faster than revenues and gaining market share.

“A lot of private equity firms talk about adding value to their portfolio companies. KKR’s approach, which combines a well- diligenced investment with experienced operating professionals, has delivered enormous value to Northgate,” said Chris Stone, CEO of Northgate. “We have been able to accelerate strategic and operational improvement work that would have been difficult to implement in a public company environment. The support we have enjoyed from KKR Capstone has allowed us to complete work thoroughly and swiftly, and the results of the work now underpin the way we run the business. Working together has been a very positive experience and we look forward to continued success in years to come.”


5 8


from 2005 To 2008, sungard grew revenue and

operaTing income 11.8% and 9.3%, respecTively, on

a compounded annual basis

from 2006 To 2008, sungard acquired 17 companies

for an aggregaTe $1.3 billion To complemenT

exisTing producT plaTforms, exTend inTo new

producT areas and expand geographically

a kkr capsTone Team led The sTreamlining

of financial sysTems’ operaTions Through The

consolidaTion of 65 business uniTs inTo 14,

Thereby eliminaTing $50.0 million of annual cosT

redundancies and conTribuTing To 2007 and 2008

organic revenue growTh of 17% and 18%,

respecTively

in 2008, kkr capsTone and The availabiliTy services

presidenT reposiTioned availabiliTy services To

beTTer address emergenT markeT developmenTs by

resTrucTuring The organizaTion To a general

manager-model, adding key leadership posiTions

and esTablishing comprehensive meTrics To Track

salesforce success and asseT uTilizaTion

SunGard Data Systems, Inc.SunGard provides software and processing solutions and information availability services globally through four segments: (1) financial systems, serving financial services companies, corporate and government treasury departments and energy companies; (2) higher education; (3) public sector, serving state/local governments and K-12 education; and (4) availability services, providing information availability and backup across industry sectors. In August 2005, KKR and a group of investors led a public-to-private transaction of SunGard for $11.6 billion.

SunGard supports more than 25,000 customers in over 50 countries, including the world’s 25 largest financial services companies. The company is highly diversified by end market, customer type and geography, with leadership positions in nearly all of its fragmented product and services markets. In addition, many of SunGard’s offerings, including regulatory, compliance, risk management and real-time data tools exhibit a great deal of “stickiness” and address customers’ mission-critical needs.

SunGard has a highly recurring and cash-flow generative business model. Licenses, which are one-time product sales that are generally very susceptible to market cyclicality, comprise only 5% of total revenue and are significantly less penetrated than SunGard’s software peers. The remaining business is substantially comprised of contracted sales, as exemplified by availability services with over 90% contracted revenue. SunGard’s extensive portfolio of businesses and the largely recurring nature of its revenue across all segments have historically reduced volatility in revenues and profitability. In addition, the compa-ny’s proprietary technologies enable favorable pricing and its scale drives strong operating leverage. In 2008, for example, the company posted an operating margin of 21.6%. SunGard’s limited capital expenditures and working capital requirements result in a strong cash flow profile. In 2008, free cash flow, defined as EBITDA less capital expenditures and working capital, was approximately $1.2 billion, or 20.6% of sales, excluding adjustments related to the unwinding of the accounts receivable facility.

KKR and the investor consortium have worked closely with CEO Cris Conde to facilitate SunGard’s operational improvement initiatives. Upon the close of the transaction, KKR led the creation and implemen-tation of the 100-Day Plan, which drove several key measures including the establishment of a new metrics package and a comprehensive review of all key products to reallocate R&D dollars to areas of highest productivity.

In addition, KKR Capstone has assisted SunGard on a range of value creation opportunities including further metrics implementation for improved sales, expense and capital tracking, acquisition integration and offshore resource development. Most notably, KKR Capstone led a reorganization of the financial systems segment to streamline opera-tions, yielding substantial efficiency gains. Prior to KKR’s involvement with SunGuard, financial systems had been formed through 135 separate acquisitions in under two decades, and operated as a loosely integrated unit consisting of five group CEOs, 65 business units, 55 sales forces, 22 accounting centers and disparate human resource teams. The management team and KKR Capstone executives designed and implemented a more nimble organizational structure that consolidated financial systems into 14 business units, each with a dedicated sales function, as well as four accounting centers and one human resources team. The initiatives enhanced customer focus through greater sub-segment coordination and accelerated revenue growth, while also eliminating $50.0 million in annual cost redundancies.

KKR and the investor consortium have worked closely with SunGuard management to evaluate, execute and finance a number of synergistic and strategic acquisitions. From 2006 to 2008, SunGard acquired 17 businesses for an aggregate $1.3 billion, ranging from add-on investments to augment existing product suites to market transformative acquisitions. Despite the significant reinvestment through these acquisitions, SunGard’s strong financial performance and free cash flow production have enabled the company to delever significantly, from 7.0x at the time of acquisition to 5.0x at 2008 year-end. Under the ownership of KKR and the investor consortium, and with the strong leadership of its senior executives, SunGard has emerged as a global player with deeper market positions, greater geographic reach and improved product solutions. From 2005 to 2008, revenue and operating income increased 11.8% and 9.3%, respectively, on a compounded annual basis.

Va l u e c r e at i o n c a s e s t u dY n o. 1 0

5 9

Shortly after closing the transaction, KKR Capstone, working with Unisteel management and the KKR private equity team, crafted Unisteel’s first 100-Day plan. The plan highlighted a number of opportunities for improvement, including:optimizing working capital and inventory management;reducing production costs through improved procurement practices and relocation of operations to lower cost countries in Asia;improVing sales performance by implementing pipeline management and account planning processes; anddeVeloping a weekly performance reporting and management system for senior executives that includes key forward-looking metrics across functions.

The KKR Capstone and Unisteel management teams are working together to drive these improvements forward. One of the critical initiatives spearheaded by KKR Capstone involves supply chain management. Jamie Bolton, a senior KKR Capstone executive who previously ran the North Asia Supply Chain Practice for a leading consulting firm, led a comprehensive review of Unisteel’s operations and worked with management to identify high priority opportunities for improvement. This review highlighted that coordination of sourcing information across the group could be improved, and that there would be benefits in adopting a more strategic approach to managing the supply base and building a deeper sourcing capability within Unisteel. Addressing these areas will help Unisteel improve costs and inventory levels, build more flexibility in materials supply and support the improvement of service levels to customers.

Working with the management team and individual business units, the KKR Capstone team supported an initial set of strategic sourcing efforts in key categories, such as chemicals, steel and aluminum, to ensure sourcing costs were better aligned with market conditions and to begin building the sourcing capability within the Unisteel organiza-tion. Initial results have been encouraging, with improvement in cost structure and establishing a foundation for a leaner and more respon-sive supply chain.

Following the success of these initial activities, the KKR Capstone team is currently working with the Unisteel management team to develop a performance management system and metrics and processes for tracking ongoing performance and productivity improvement.

“We are very fortunate to have KKR as our business partner and equally fortunate that KKR has a dedicated operations team in KKR Capstone that can work with us and bring the right skills and experi-ence to help a local organization such as Unisteel grow and develop into a potential multi-national corporation,” said Bernard Toh, Unisteel’s CEO. “KKR Capstone has introduced the 100-Day Plan methodology and a key part of this methodology is to work with our management team and business units to appoint executive sponsor and initiative owner of each initiative. We discuss the progress of both the process and the results on a fortnightly basis. This rigorous process has facilitated the successful implementation of the 100-Day Plan initia-tives, the realization of benefits and has also resulted in the identification of additional opportunities for the company. Given the impact of this process, it has now lasted beyond the first 100 days and will continue to be a key part of the Unisteel management approach.”

“Unisteel is a company that has benefited significantly from growth in the hard disk drive business over the past few years and has posi-tioned itself as a leader in fasteners and “niche” precision engineering,” said KKR Capstone team member Sam Allen. “With the current economic climate we see this as an opportunity to work with Unisteel to help strengthen the “foundational” capabilities and performance measures that will make the business leaner, more responsive, more diversified and, therefore, better positioned in the future.”


commencemenT of program To shorTen business

cycle-Time and increase cusTomer responsiveness

implemenTaTion of weekly and monThly

performance reporTing and a performance

managemenT sysTem for senior execuTives

reducTion of working capiTal and ongoing

focus on invenTory managemenT

alignmenT of raw maTerials prices To currenT

markeT condiTions and developmenT of

alTernaTe supply opTions

migraTion of producTion To lower cosT

counTries

improvemenT of operaTions planning

and meTrics

creaTion of sales pipeline managemenT

and implemenTaTion of accounT planning

Techniques

Unisteel Technology LimitedUnisteel is a precision engineering solutions provider with competencies in the areas of fastening systems, stamped, cold-forged and machined metal components, plastics, optics and surface treatment technology. Unisteel serves customers in the hard disk drive, mobile telecommunications, consumer electronics, industrial and automotive sectors, and has manufacturing facilities in Singapore, Malaysia and China. An affiliate of KKR entered into an agreement to acquire Unisteel in June 2008. The transaction closed in September 2008.


6 0

During due diligence, KKR worked with U.S. Foodservice management to assess the potential for operating improvements at the company. KKR Capstone supported KKR in its assessment of the operating initiatives and the long term potential for the business. Of the major initiatives that were being implemented, improving sales force effectiveness within the independent restaurant “street sales” segment (the largest and most profitable business segment) was identified as the highest priority in anticipation of the economy moving into a challenging period.

A team of KKR Capstone executives worked with management to determine the most important factors positively impacting Street Sales profit growth. Simultaneously, they developed a performance manage-ment scorecard and ranking system supported by a review process to focus sales force representatives on key priorities. This allowed the company to have a unified view and consistent tracking of street sales performance across the company. KKR Capstone worked with sales management to build a comprehensive sales growth and effectiveness program to aid the sales force in acquiring new accounts, growing current accounts and reducing account turnover. A success in several pilot markets, this sales program is currently being deployed across the country. To support this effort, a new customer relationship manage-ment system was installed. Given the importance of this initiative, a team of senior U.S. Foodservice employees has been recruited to institutionalize the program by becoming experts in the program and assuming the responsibility for training their colleagues. The manage-ment team also worked with KKR Capstone on several other initiatives including a new merchandising and promotion program to stimulate sales growth and “cluster buying” to reduce purchase costs of products for resale by leveraging scale across local operating divisions.

Results have been encouraging. In one of the most challenging restaurant markets in decades, market share and net accounts in the street sales segment increased. Customer account turnover has declined, while critical performance gaps with the competition have been significantly narrowed and the sales force has experienced a rekindled sense of momentum.

“In my 30-year career in foodservice, I have rarely had the pleasure of working closely with as talented, dedicated, responsive and diligent a team as the KKR Capstone team,” said Mark Eggerding, Senior Vice President, Street Sales. “Their ability to learn quickly, assimilate our business and deliver meaningful programs that drive unprecedented results is not only refreshing, but unique.”

“The U.S. Foodservice sales program is having a meaningful impact on the organization and is key to delivering KKR’s investment thesis,” said Vincent Letteri of KKR Capstone. “It has provided the company’s 5,000-plus person sales force the tools needed to win in today’s environment as evidenced by recent share gains. The company is well positioned for future growth.”


increased markeT share and neT accounT

growTh in sTreeT sales, The company’s mosT

profiTable segmenT

successful developmenT and deploymenT

of company wide sales growTh and process

improvemenT program

implemenTaTion of performance managemenT

scorecard and ranking sysTem criTical

To reinforcing performance on key meTrics

selecTion, design and implemenTaTion of

cusTomer relaTionship managemenT sysTem

creaTion and implemenTaTion of new

merchandising and promoTion program To

generaTe incremenTal sales and markeT

share growTh

developmenT of a procuremenT approach To

leverage purchasing scale across operaTing

divisions To reduce cosT of goods sold

U.S. Foodservice, Inc.U.S. Foodservice is the second largest broadline foodservice distributor in the U.S., providing food and related products to restaurants, healthcare and hospitality customers, educational institutions, and the government. An affiliate of KKR entered into an agreement to acquire U.S. Foodservice with Clayton, Dubilier & Rice, Inc. in May 2007, and the transaction closed in July 2007.


6 2

inVestment accellent, inc.

headquarters Wilmington, Massachusetts 2008 reVenue $525 million emploYees 3,229 chairman Kenneth W. Freeman ceo Robert E. Kirby Year of inVestment 2005 business Leading provider of fully integrated

outsourced manufacturing and engineering services to the medical device industry

website www.accellent.com

inVestment alliance boots gmbh

headquarters Zug, Switzerland 2008 reVenue £15,304 million* emploYees 110,000 executiVe chairman Stefano Pessina Year of inVestment 2007 business Leading international pharmacy-led health

and beauty group with two core businesses: pharmacy-led health and beauty retailing and pharmaceutical wholesaling

website www.allianceboots.com *Represents LTM revenue at fiscal year ended March 31, 2008.

6 1

KKR is particularly effective in growing businesses with real potential and revitalizing companies facing change or transition because our focus is on long-term value creation, not short term gain. In today’s economy, this approach is particularly important.

i n V e s t m e n t s o f t h e K K r p r i Vat e e q u i t Y f u n d s

6 2

inVestment aricent inc.

headquarters Palo Alto, California 2008 reVenue $382 million* emploYees 8,000 chairman Joe Forehand ceo Sudip Nandy Year of inVestment 2006 business Global innovation, technology, and services

company focused exclusively on communi-cations, and a strategic supplier to the world’s leading network and telecom companies

website www.aricent.com

*Represents revenue at fiscal year ended March 31, 2008.

inVestment a.t.u. - auto-teile-unger holding gmbh

headquarters Weiden, Germany 2008 reVenue €1,275 million emploYees 12,495 chairman Reinhard Gorenflos ceo Michael Kern Year of inVestment 2004 business Germany’s leading operator of automotive

retail stores and repair shops, with an expanding international footprint

website www.atu.de

inVestment aVago technologies limited

headquarters Singapore San Jose, California

2008 reVenue $1,699 million emploYees 3,699 chairman Dick M. Chang ceo Hock E. Tan Year of inVestment 2005 business Leading supplier of analog interface

components for communications, industrial and consumer applications to approximately 40,000 end customers; Avago’s products serve four diverse end markets: industrial and automotive electronics, wired infra-structure, wireless communications, and consumer and computer peripherals

website www.avagotech.com

inVestment bharti infratel limited

headquarters New Delhi, India 2008 reVenue INR 41,271 million emploYees 579 chairman Sunil Bharti Mittal ceo Prem Pradeep Year of inVestment 2008 business Leading ‘Passive Telecom Infrastructure’

provider company in India owning and operates more than 27,000 towers for mobile services

website www.bharti-infratel.com

6 3

inVestment biomet, inc.

headquarters Warsaw, Indiana 2008 reVenue $2,383 million* emploYees 6,903 ceo Jeffrey R. Binder Year of inVestment 2007 business Designer, manufacturer and marketer of

products used primarily by musculoskeletal medical specialists in surgical and non- surgical therapy

website www.biomet.com

*Represents revenue at fiscal year ended May 31, 2008.

inVestment bis industries limited

headquarters North Sydney, Australia 2008 reVenue A$495 million emploYees 1,217 chairman Mark Luby ceo Chris Berkefeld Year of inVestment 2006 business A leading outsourced supplier of on-site

and off-site materials handling and logistics services to the minerals, metals, and coal mining sectors

website www.bislimited.com

inVestment capmarK financial group inc.

headquarters Horsham, Pennsylvania 2008 net reVenue $1,071 million (excluding provisions and gains/losses) emploYees 1,945 chairman Dennis D. Dammerman ceo Jay N. Levine Year of inVestment 2006 business Diversified company providing a broad

range of financial services to investors in commercial real estate-related assets

website www.capmark.com

inVestment “der grüne punKt”

duales sYstem deutschland gmbh

headquarters Cologne, Germany 2008 reVenue €822 million emploYees 276 chairman Reinhard Gorenflos ceo Stefan Schreiter Year of inVestment 2005 business Front-ranking provider of take-back

systems, including close-to-home collection and recovery of sales packages, plus eco-friendly, cost-efficient recycling of used electrical and electronic equipment, together with transport packaging, facility-referenced disposal services and deposit clearing

website www.gruener-punkt.de

6 4

inVestment dollar general corporation

headquarters Goodlettsville, Tennessee 2008 reVenue $10,458 million* emploYees 71,714 chairman & ceo Richard W. Dreiling Year of inVestment 2007 business Discount retailer of basic consumable

merchandise and other home, apparel, and seasonal products, with more than 8,400 small-box stores in 35 U.S. states

website www.dollargeneral.com

*Represents revenue at fiscal year ended January 31, 2009.

inVestment energY future holdings corp.

headquarters Dallas, Texas 2008 reVenue $11,364 million emploYees 8,400 non-executiVe

chairman Donald L. Evans president & ceo John F. Young Year of inVestment 2007 business Energy holding company with a portfolio

of competitive and regulated energy subsidiaries, including Luminant, TXU Energy and Oncor

website www.energyfutureholdings.com

inVestment first data corporation

headquarters Greenwood Village, Colorado 2008 reVenue $8,800 million emploYees 26,000 chairman & ceo Michael D. Capellas Year of inVestment 2007 business A leader in powering the global economy

by making it easy, fast, and secure for people and businesses to buy goods and services using virtually any form of electronic payment

website www.firstdata.com

inVestment harman international industries,

incorporated

headquarters Stamford, Connecticut 2008 reVenue $4,100 million* emploYees 10,500 chairman & ceo Dinesh C. Paliwal Year of inVestment 2007 business Designer, manufacturer and marketer of

a wide range of audio and infotainment products for the automotive, consumer and professional markets

website www.harman.com

*Represents revenue at fiscal year ended June 30, 2008.

6 5

inVestment hca inc.

headquarters Nashville, Tennessee 2008 reVenue $28,374 million emploYees Over 183,000 chairman Jack Oliver Bovender, Jr. ceo Richard Michael Bracken Year of inVestment 2006 business Leading provider of healthcare services,

composed of locally managed facilities that include approximately 163 hospitals and 112 outpatient centers in 20 U.S. states and England

website www.hcahealthcare.com

inVestment jazz pharmaceuticals, inc.

headquarters Palo Alto, California 2008 reVenue $68 million emploYees 239 chairman & ceo Bruce C. Cozadd Year of inVestment 2004 business Specilaty pharmaceutical company that

identifies, develops, and commercializes innovative treatments for important, underserved markets in psychiatry and neurology

website www.jazzpharmaceuticals.com

inVestment Kion group gmbh

headquarters Wiesbaden, Germany 2008 reVenue €4,554 million emploYees 21,168 chairman Johannes Huth ceo Gordon Riske Year of inVestment 2006 business European market leader (globally #2) in

material handling products with its Linde, STILL, OM and Baoli brands

website www.kiongroup.com

inVestment Ksl resorts

headquarters La Quinta, California 2008 reVenue $150 million emploYees 1,000 chairman & ceo Michael S. Shannon Year of inVestment 2003 business Owner and operator of the Hotel del

Coronado, a luxury resort in San Diego, CA website www.kslresorts.com

inVestment laureate education, inc.

headquarters Baltimore, Maryland 2008 reVenue $2,000 million emploYees 46,087 chairman & ceo Douglas L. Becker Year of inVestment 2007 business Leading international provider of higher

education services. The Laureate International Universities global network of 43 campus-based and online universities in 20 countries offers degree programs to nearly 500,000 students

website www.laureate-inc.com

inVestment legg mason, inc.

headquarters Baltimore, Maryland 2008 reVenue $3,809 million emploYees 4,014 chairman & ceo Mark R. Fetting Year of inVestment 2008 business Global asset management firm offering a

broad spectrum of investment solutions to institutional, retail and wealth management clients around the world

website www.leggmason.com

inVestment legrand holdings s.a.

headquarters Limoges, France 2008 reVenue €4,202 million emploYees 34,830 chairman & ceo Gilles Schnepp Year of inVestment 2002 business Global specialist in products and systems

for electrical installations and information networks where people live and work

website www.legrandelectric.com

inVestment ma anshan modern farming co. ltd.

headquarters Ma Anshan, China 2008 reVenue RMB221 million emploYees 1,419 chairman Jiuqiang Deng ceo Lina Gao business Leading dairy farming group in China

operating large-scale farms to raise dairy cows, and selling raw milk to branded dairy companies to be processed into consumer dairy products

website www.xiandaimuye.com/en/

inVestment masonite international corporation

headquarters Tampa, Florida 2008 reVenue $1,816 million emploYees 8,608* chairman Kenneth W. Freeman ceo Fred Lynch Year of inVestment 2005 business Leading global manufacturer of doors and

door components website www.masonite.com

*Represents employees as of January 30, 2009. 6 6

6 7

inVestment maxeda b.V.

headquarters Amsterdam, the Netherlands 2008 reVenue €2,979 million emploYees 27,671 chairman & ceo Tony DeNunzio Year of inVestment 2004 business Leading non-food retailer in the

Netherlands, with 11 retail formats includ-ing department, fashion and “do-it-yourself” stores operating in 13 countries

website www.maxeda.com

inVestment medcath corporation

headquarters Charlotte, North Carolina 2008 reVenue $620 million emploYees 4,084 chairman John T. Casey ceo O. Edwin French Year of inVestment 1998 business Healthcare provider focused on high

acuity services website www.medcath.com

inVestment mmi holdings limited

headquarters Singapore 2008 reVenue $542 million emploYees 8,000 ceo Bong Lim Teh Year of inVestment 2007 business Precision machining and electro-mechanical

systems integration company serving global market leaders in hard-disk drives, oil and gas, aerospace and other industrial sectors

website www.mmi.com.sg

inVestment the nielsen companY b.V.

headquarters New York, New York Haarlem, the Netherlands

2008 reVenue $5,012 million emploYees 35,882 chairman & ceo David L. Calhoun Year of inVestment 2006 business Leading global information and media

company providing essential integrated marketing and media measurement information, analytics, and media expertise to clients across the world

website www.nielsen.com

6 8

inVestment northgate information solutions limited

headquarters Hemel Hempstead, United Kingdom 2008 reVenue £543 million* emploYees 8,141 chairman Todd. A. Fisher ceo Christopher Stone Year of inVestment 2008 business Market leader in providing specialist

software, outsourcing and information technology services to the human resources, local government, education and public safety markets.

website www.northgate-is.com

*Represents LTM revenue at fiscal year ended April 30, 2008.

inVestment nuVox, inc.

headquarters Greenville, South Carolina 2008 reVenue $550 million emploYees 1,800 chairman David L. Solomon ceo James W. Akerhielm Year of inVestment 2000 business Provider of customized managed communi-

cations services, information technology, data, security and voice solutions designed specifically for business customers

website www.nuvox.com

inVestment nxp b.V.

headquarters Eindhoven, the Netherlands 2008 reVenue $5,443 million emploYees 30,174 chairman & ceo Richard L. Clemmer Year of inVestment 2006 business Leading semiconductor company founded

by Philips more than 50 years ago which creates semiconductors, system solutions

and software that deliver better sensory experiences in a wide range of electronic devices

website www.nxp.com

inVestment pagesjaunes groupe s.a.

headquarters Paris, France 2008 reVenue €1,193 million emploYees 5,284 chairman Jacques Garaïalde ceo Michel Datchary Year of inVestment 2006 business Leading European publisher of directories

on the Internet (pagesjaunes.fr, qdq.com) and the leading publisher of printed directories in France (the PagesJaunes directory and l’Annuaire)

website www.pagesjaunesgroupe.com

6 9

inVestment primedia inc.

headquarters Atlanta, Georgia 2008 reVenue $304 million emploYees 1,004 chairman Dean Nelson ceo Charles Stubbs Year of inVestment 1989 business Integrated media company that publishes

and distributes advertising-supported print and online consumer guides for apartment communities and other residential real estate sectors

website www.primedia.com

inVestment prosiebensat.1 media ag

headquarters Munich, Germany 2008 reVenue €3,054 million emploYees 5,847 chairman Götz Mäuser ceo Thomas Ebeling Year of inVestment 2007 business The largest commercial television corpora-

tion in Germany and the second-largest broadcasting group in Europe, operating television, radio and online digital services in 14 countries

website www.prosiebensat1.com

inVestment rocKwood holdings, inc.

headquarters Princeton, New Jersey 2008 reVenue $3,380 million emploYees 9,968 chairman & ceo Seifi Ghasemi Year of inVestment 2000 business Leading global specialty chemicals and

advanced materials company, focusing on global niche segments of the specialty chemicals, pigments and additives and advanced materials markets

website www.rocksp.com

inVestment sealY corporation

headquarters Trinity, North Carolina 2008 reVenue $1,498 million* emploYees 4,988 chairman Paul Norris ceo Lawrence J. Rogers Year of inVestment 2004 business Through its subsidiaries, the largest

bedding manufacturer in North America and producer of a diversified line of mattress and foundation products

website www.sealy.com

*Represents revenue at fiscal year ended November 30, 2008.

7 0

inVestment seVen media group

headquarters Sydney, Australia 2008 reVenue A$1,600 million emploYees 2,942 chairman Kerry Stokes ceo David Leckie Year of inVestment 2006 business A 50/50 joint venture with Seven Network

Limited that consists of Australia’s leading free-to-air TV network (Seven Network), second-largest magazine business (Pacific Magazines), and second most-visited entertainment portal (Yahoo!7) through a 50/50 joint venture that was formed with Yahoo in February 2006

website http://au.tv.yahoo.com/

inVestment sungard data sYstems, inc.

headquarters Wayne, Pennsylvania 2008 reVenue $5,596 million emploYees 20,000 chairman Glenn H. Hutchins ceo Cristóbal Conde Year of inVestment 2005 business Global leader in software for financial

services, higher education and public sector and information technology business continuity solutions

website www.sungard.com

inVestment tarKett s.a.

headquarters Nanterre, France 2008 reVenue €2,069 million emploYees 8,576 chairman Didier Deconinck ceo Michel Giannuzzi Year of inVestment 2007 business Designer, manufacturer and retailer of PVC,

wood, laminate, sports and other specialty flooring products, for the residential and commercial markets in Europe and North America

website www.tarkett.com

inVestment tdc a/s

headquarters Copenhagen, Denmark 2008 reVenue €5,210 million emploYees 14,745 chairman Vagn Sørensen ceo Henrik Poulsen Year of inVestment 2006 business Leading provider of telecommunications

solutions in Denmark, the second-largest full-range telecommunications provider in the Swiss market with a significant presence in the pan-Nordic market and Hungary

website www.tdc.com

7 1

inVestment tianrui group cement companY limited

headquarters Henan, China 2008 reVenue RMB 3,360 million emploYees 4,000 chairman & ceo Xiao Jiaxiang Year of inVestment 2007 business One of China’s largest cement producers

with state-of-the-art production faclities and leading positions in its two target markets

website www.trcement.com

inVestment toYs “r” us, inc

headquarters Wayne, New Jersey 2008 reVenue $13,724 million emploYees 91,445 chairman & ceo Gerald L. Storch Year of inVestment 2005 business The world’s leading dedicated toy and

baby products retailer, selling merchandise through more than 1,500 stores in 33 countries and on its website www.toysrus.com

website www.toysrusinc.com

inVestment u.n ro-ro isletmeleri a.s.

headquarters Istanbul, Turkey 2008 reVenue €171 million emploYees 328 chairman John Phillip Lindell Pfeffer ceo Cüneyt Solakoglu Year of inVestment 2007 business Leading roll-on/roll-off (ro-ro) operator

in Turkey and one of the largest in Mediterrenean Europe, operating 10 ro-ro vessels between Turkey and Italy

website www.unroro.com.tr

inVestment unisteel technologY

headquarters Singapore 2008 reVenue $174 million emploYees 1,869 ceo Bernard Toh Bee Yong Year of inVestment 2008 business Leading precision engineering solutions

provider with multi-disciplinary competen-cies in the areas of fastening systems, stamped, cold forged, and machined metal components, plastics optics and surface treatment technology

website www.unisteel.com.sg

7 2

inVestment u.s. foodserVice, inc.

headquarters Rosemont, Illinois 2008 reVenue $19,800 million emploYees 26,108 chairman Charles A. Banks ceo Robert B. Aiken, Jr. Year of inVestment 2007 business One of the premier foodservice distributors

in the U.S., providing the finest quality food and related products to restaurants, hospitals, schools, hotels, government entities and other eating establishments

website www.usfoodservice.com

inVestment Van gansewinKel group

headquarters Eindhoven, the Netherlands 2008 reVenue €1,200 million emploYees 6,000 chairman Reinhard Gorenflos ceo Ruud Sondag Year of inVestment 2006 business Comprehensive waste and environmental

services company which is active in eight countries

website www.vangansewinkelgroep.com

inVestment Visant corporation

headquarters Armonk, New York 2008 reVenue $1,365 million* emploYees 4,874 chairman & ceo Marc L. Reisch Year of inVestment 2004 business Through its subsidiaries, a leading market-

ing and publishing services enterprise servicing the school affinity, direct market-ing, fragrance and cosmetics sampling and educational and trade publishing segments

website www.visant.net

*Represents revenue at fiscal year ended January 3, 2009.

inVestment Yageo corporation

headquarters Taipei, Taiwan 2008 reVenue NTD$22,477 million emploYees 7,146 chairman & ceo Pierre T. M. Chen Year of inVestment 2007 business World-class provider of passive components

with production and sales facilities in Asia, Europe and the Americas

website www.yageo.com

inVestment zhone technologies, inc.

headquarters Oakland, California 2008 reVenue $146 million emploYees 375 chairman & ceo Morteza Ejabat Year of inVestment 1999 business Designer, developer and manufacturer

of communications network equipment for telephone companies and cable operators worldwide

website www.zhone.com

7 3

u s a

n e w Yo r KKohlberg Kravis Roberts & Co. L.P.9 West 57th StreetSuite 4200New York, New York 10019+ 1 212 750-8300

m e n l o pa r KKohlberg Kravis Roberts & Co. L.P.2800 Sand Hill RoadSuite 200Menlo Park, California 94025+ 1 650 233-6560

s a n f r a n c i s c oKKR Asset Management555 California Street50th FloorSan Francisco, California 94104+ 1 415 315-3620

h o u s to nKohlberg Kravis Roberts & Co. L.P.600 Travis StreetSuite 6270Houston, Texas 77002+ 1 713 343-5142

wa s h i n g to n , d. c .Kohlberg Kravis Roberts & Co. L.P.101 Constitution Avenue N.W.Suite 800Washington, D.C. 20001+ 1 202 742-4430

e u ro p e

l o n d o nKohlberg Kravis Roberts & Co. Ltd.Stirling Square7 Carlton GardensLondon SW1Y 5AD+ 44 20 7839 9800

pa r i sKohlberg Kravis Roberts & Co. SAS24 rue Jean Goujon75008 Paris+ 33 1 53 53 96 00

a s i a

h o n g Ko n gKKR Asia Limited25/F, AIG Tower1 Connaught Road, CentralHong Kong+ 852 3602-7300

to K YoKKR Japan Limited6F, Tokyo Ginko Kyokai Building1-3-1, MarunouchiChiyoda-kuTokyo 100-0005+ 81 3-6268-6000

b e i j i n gKKR Investment Consultancy (Beijing) Company Limited15/F Beijing Yintai Office Tower CNo.2 Jianguomenwai StreetChaoyang DistrictBeijing 100022, China+ 86 10 6563-7001

m u m b a iKKR India Advisors Private LimitedTrident Nariman PointSuite 1201Nariman Point, Mumbai 400021, India+ 91 22 4355-1300

s Y d n e YKKR Australia Pty LimitedLevel 42, Gateway Building,1 Macquarie PlaceSydney NSW 2000Australia+ 61 2 8298 5500

d u b a iKKR (MENA) LimitedLevel 12, Gate Building DIFC, P.O. Box 121208Dubai, UAE+ 971 4 401 9879

K K r o f f i c e s

This annual report was printed on Monadnock Astrolite – a Forest Stewardship Council certified paper that is manufactured carbon neutral using 100% renewable electricity.

Sandy Alexander derives 100% of its electricity from Green-e certified renewable wind energy sources. The printing of this project avoided the emission of 4,757.46 pounds of CO2, a major contributor to global warming.

This amount of wind generated electricity is equivalent to: Eliminating 4,127.63 of automobile miles being driven or planting 323.64 trees.

d e s i g n SVP Partners

p h oto g r a p h y Dan Bigelow: pages 10 and 36; Tay Kay Chin: page 40; Jeff Corwin: pages 14, 24, 32 and 43; Vance Jacobs: page 28; Jon Love: page 19; Gary Spector: page 3

w w w. K K r . C o m

Documents

KKR Annual Review 2008