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Private Equity Investors, L.P.
2007 Annual Financial Report
As of and for the Year Ended December 31, 2007
 
KKR Private Equity Investors, L.P. 2007 Annual Report
Table Of Contents
Co-Chairmen’s Statement 2Operating and Financial Review 7Management’s Overview 35Review of Operations for the Three Months Ended December 31, 2007and December 31, 2006, the Year Ended December 31, 2007 and for the Period from April 18, 2006 to December 31, 2006 36Liquidity and Capital Resources 49Commitments and Contingencies 51Exposure to Market Risks 56Application of Critical Accounting Policies 58Recently Issued Accounting Pronouncements 62Financial Statements of KKR Private Equity Investors, L.P. F-1Consolidated Financial Statements of KKR PEI Investments, L.P.and Subsidiaries F-22
 
KKR Private Equity Investors, L.P. 22007 Annual Report
Co-Chairmen’s Statement
Two thousand seven marked KPE’s second year as a publicly-traded vehicle. Buildingon the successes of 2006, which included commencing operations, hiring a team of full-time professionals and making initial private equity and opportunistic investments,KPE used 2007 to fully invest the capital from the initial offering across a broadly
diversied array of private equity and opportunistic investments, arrange favorablenancing terms and lay the groundwork for continued growth in years to come. KPE
makes its investments through the Investment Partnership as its sole limited partner.
Accomplishments
2007 was in many respects a bifurcated year. While the rst six
months were characterized by generally positive equity returns,relatively low volatility, ample liquidity and stable interest rates, thelast six months witnessed a reversal of these conditions, with equityreturns falling, volatility spiking, liquidity growing scarcer and spreads
widening. As the ramications of the crisis that began in the U.S.
housing market grew wider, global credit markets contracted and riskaversion heightened.We have always believed that the hallmark of a well-managedorganization is its ability to prosper in times of turbulence as well as in
times of tranquility. The uctuations of 2007 put that belief to the test,
yet we ended the year in a stronger position than when we began.
Private Equity Portfolio
The Investment Partnership, through participation in ve KKR
private equity funds as well as co-investments in individual portfoliocompanies within those funds, added a host of world-class investmentsto its portfolio in 2007. These are large-scale, complex, nationaland global businesses which we believe, over time, will alter thecompetitive landscapes of their respective industries. They include companies suchas Alliance Boots, Biomet, Inc., Dollar General Corporation, Energy Future Holdings
(formerly known as TXU Corp.), First Data Corporation, PagesJaunes Group S.A.,ProSiebenSat.1 Media AG and U.S. Foodservice, Inc.The principal value inherent in these businesses is their potential for signicantoperational improvement. Using the full range of resources at KKR, including
industry specialists on the KKR deal teams, KKR’s in-house Capstone consultants,senior advisors and longstanding relationships with key-decision makers at leading
companies and nancial institutions around the world, KKR seeks to improve
operations at our portfolio companies. All areas of a company’s business, rangingfrom supply chain management and information technology to sales and marketingand inventory control, are reviewed. Most of the value we expect to receive upon exit,generally through initial public offerings or sales to strategic buyers, derives from thework KKR has done to effect operational change.
George R. Roberts & Henry R. Kravis
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