| SEGMENT REPORTING | SEGMENT REPORTING KKR operates through four reportable business segments. These segments, which are differentiated primarily by their business objectives and investment strategies, are presented below. These financial results represent the combined financial results of the KKR Group Partnerships on a segment basis. Private Markets Through KKR’s Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsors a group of funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate. Public Markets KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business advises funds, CLOs, separately managed accounts, and investment companies registered under the Investment Company Act, including a business development company or BDC, undertakings for collective investment in transferable securities or UCITS, and alternative investment funds or AIFs, which invest capital in (i) leveraged credit strategies, such as leveraged loans, high yield bonds and opportunistic credit, and (ii) alternative credit strategies such as mezzanine investments, direct lending investments, special situations investments, and revolving credit investments. KKR’s Public Markets segment also includes its hedge funds business that offers a variety of investment strategies, including customized hedge fund portfolios and hedge fund-of-fund solutions and strategic partnerships comprised of minority stakes in other hedge fund managers. Capital Markets The Capital Markets segment is comprised primarily of KKR’s global capital markets business. KKR’s capital markets business supports the firm, portfolio companies, and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other types of capital markets services. When KKR underwrites an offering of securities or a loan on a firm commitment basis, KKR commits to buy and sell an issue of securities or indebtedness and generate revenue by purchasing the securities or indebtedness at a discount or for a fee. When KKR acts in an agency capacity, KKR generates revenue for arranging financing or placing securities or debt with capital markets investors. We may also provide issuers with capital markets advice on security selection, access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. Principal Activities Through KKR's Principal Activities segment, we manage the firm’s assets and deploy capital to support and grow our businesses. We use KKR's Principal Activities assets to support KKR's investment management and capital markets businesses. Typically, the funds in our Private Markets and Public Markets businesses contractually require KKR, as general partner of the funds, to make sizable capital commitments from time to time. KKR also deploys Principal Activities assets in order to help establish a track record for fundraising purposes in new strategies. KKR may also use its own capital to seed investments for new funds, to bridge capital selectively for its funds’ investments or finance strategic acquisitions and partnerships, although the financial results of an acquired businesses or strategic partnership may be reported in other segments. Principal Activities assets also provide the required capital to fund the various commitments of the Capital Markets business when underwriting or syndicating securities, or when providing term loan commitments for transactions involving portfolio companies and for third parties. Principal Activities assets also may be utilized to satisfy regulatory requirements for the Capital Markets business and risk retention requirements for CLOs. KKR earns the majority of its fees from subsidiaries located in the United States. Key Performance Measure - Economic Net Income (“ENI”) ENI is used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportable business segments. The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings and as such represents the business in total. In addition, KKR’s reportable segments are presented without giving effect to the consolidation of the funds that KKR manages. ENI is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. ENI is comprised of total segment revenues; less total segment expenses and certain economic interests in KKR’s segments held by third parties. Modification of Segment Information As of December 31, 2015, KKR’s management reevaluated the manner in which it made operational and resource deployment decisions and assessed the overall performance of each of KKR’s operating segments. As a result, as of December 31, 2015, KKR modified the presentation of its segment financial information relative to the presentation in prior periods. In addition, since becoming a public company, KKR's Principal Activities assets have grown in significance and are a meaningful contributor to its financial results. In connection with these modifications, segment information for the three and six months ended June 30, 2015 has been presented in conformity with KKR’s current segment presentation. Consequently, this information will not be consistent with historical segment financial results previously reported. While the modified segment presentation impacted the amount of economic net income reported by each operating segment, it had no impact on KKR’s economic net income on a total reportable segment basis. Certain of the more significant changes between KKR’s current segment presentation and its previously reported segment presentation are described in the following commentary. Inclusion of a Fourth Segment All income (loss) on investments is attributed to the Principal Activities segment. Prior to December 31, 2015, income on investments held directly by KKR was reported in the Private Markets segment, Public Markets segment or Capital Markets segment based on the character of the income generated. For example, income from private equity investments was previously included in the Private Markets segment. However, the financial results of acquired businesses and strategic partnerships have been reported in our other segments. Expense Allocations As of December 31, 2015 KKR has changed the manner in which expenses are allocated among its operating segments. Specifically, as described below, (i) a portion of expenses, except for broken deal expenses, previously reflected in the Private Markets, Public Markets or Capital Markets segments are now reflected in the Principal Activities segment and (ii) corporate expenses are allocated across all segments. Expenses Allocated to Principal Activities As of December 31, 2015, a portion of the cash compensation and benefits, occupancy and related charges and other operating expenses previously included in the Private Markets, Public Markets and Capital Markets segments is now allocated to the Principal Activities segment. The Principal Activities segment incurs its own direct costs, and an allocation from the other segments is also made to reflect the estimated amount of costs that are necessary to operate the Principal Activities segment, which are incremental to those costs incurred directly by the Principal Activities segment. The total amount of expenses (other than its direct costs) that is allocated to Principal Activities is based on the proportion of revenue earned by Principal Activities, relative to other operating segments, over the preceding four calendar years. This allocation percentage is updated annually or more frequently if there are material changes to KKR's business. Once the total amount of expense to be allocated to the Principal Activities segment is estimated for each reporting period, the amount of this expense will be allocated from the Private Markets, Public Markets and Capital Markets segments based on the proportion of headcount in each of these three segments. Allocations of Corporate Overhead As of December 31, 2015, corporate expenses are allocated to each of the Private Markets, Public Markets, Capital Markets and Principal Activities segments based on the proportion of revenues earned by each segment over the preceding four calendar years. In KKR's segment presentation reported prior to December 31, 2015, all corporate expenses were allocated to the Private Markets segment. In connection with these modifications, segment information for the three and six months ended June 30, 2015 has been presented in conformity with KKR’s current segment presentation. Consequently, this information will not be consistent with historical segment financial results reported prior to December 31, 2015. While the modified segment presentation impacted the amount of economic net income reported by each operating segment, it had no impact on KKR’s economic net income on a total reportable segment basis. The following tables present the financial data for KKR’s reportable segments: As of and for the Three Months Ended June 30, 2016 Private Markets Public Markets Capital Markets Principal Activities Total Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $ 118,783 $ 84,834 $ — $ — $ 203,617 Monitoring Fees 28,998 — — — 28,998 Transaction Fees 23,400 5,888 39,276 — 68,564 Fee Credits (33,319 ) (5,754 ) — — (39,073 ) Total Management, Monitoring and Transaction Fees, Net 137,862 84,968 39,276 — 262,106 Performance Income (Loss) Realized Incentive Fees — 4,645 — — 4,645 Realized Carried Interest 305,275 — — — 305,275 Unrealized Carried Interest 9,974 8,724 — — 18,698 Total Performance Income (Loss) 315,249 13,369 — — 328,618 Investment Income (Loss) Net Realized Gains (Losses) — — — 224,699 224,699 Net Unrealized Gains (Losses) — — — (297,448 ) (297,448 ) Total Realized and Unrealized — — — (72,749 ) (72,749 ) Interest Income and Dividends — — — 74,451 74,451 Interest Expense — — — (48,447 ) (48,447 ) Net Interest and Dividends — — — 26,004 26,004 Total Investment Income (Loss) — — — (46,745 ) (46,745 ) Total Segment Revenues 453,111 98,337 39,276 (46,745 ) 543,979 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 45,675 20,117 7,403 23,695 96,890 Realized Performance Income Compensation 122,110 1,858 — — 123,968 Unrealized Performance Income Compensation 5,035 3,490 — — 8,525 Total Compensation and Benefits 172,820 25,465 7,403 23,695 229,383 Occupancy and Related Charges 9,039 2,007 943 3,670 15,659 Other Operating Expenses 26,009 9,930 3,222 10,372 49,533 Total Segment Expenses 207,868 37,402 11,568 37,737 294,575 Income (Loss) attributable to noncontrolling interests — — 575 — 575 Economic Net Income (Loss) $ 245,243 $ 60,935 $ 27,133 $ (84,482 ) $ 248,829 Total Assets $ 1,792,584 $ 1,165,388 $ 321,000 $ 9,744,199 $ 13,023,171 As of and for the Three Months Ended June 30, 2015 Private Markets Public Markets Capital Markets Principal Activities Total Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $ 115,346 $ 66,055 $ — $ — $ 181,401 Monitoring Fees 47,713 — — — 47,713 Transaction Fees 40,321 3,873 48,757 — 92,951 Fee Credits (53,286 ) (3,172 ) — — (56,458 ) Total Management, Monitoring and Transaction Fees, Net 150,094 66,756 48,757 — 265,607 Performance Income (Loss) Realized Incentive Fees — 5,893 — — 5,893 Realized Carried Interest 243,274 8,953 — — 252,227 Unrealized Carried Interest 312,379 27,987 — — 340,366 Total Performance Income (Loss) 555,653 42,833 — — 598,486 Investment Income (Loss) Net Realized Gains (Losses) — — — 176,260 176,260 Net Unrealized Gains (Losses) — — — 131,984 131,984 Total Realized and Unrealized — — — 308,244 308,244 Interest Income and Dividends — — — 127,878 127,878 Interest Expense — — — (52,472 ) (52,472 ) Net Interest and Dividends — — — 75,406 75,406 Total Investment Income (Loss) — — — 383,650 383,650 Total Segment Revenues 705,747 109,589 48,757 383,650 1,247,743 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 44,273 16,302 10,039 25,900 96,514 Realized Performance Income Compensation 97,310 5,938 — — 103,248 Unrealized Performance Income Compensation 125,371 11,195 — — 136,566 Total Compensation and Benefits 266,954 33,435 10,039 25,900 336,328 Occupancy and Related Charges 8,405 2,307 646 4,117 15,475 Other Operating Expenses 25,908 10,508 3,573 11,624 51,613 Total Segment Expenses 301,267 46,250 14,258 41,641 403,416 Income (Loss) attributable to noncontrolling interests 143 478 3,762 — 4,383 Economic Net Income (Loss) $ 404,337 $ 62,861 $ 30,737 $ 342,009 $ 839,944 Total Assets $ 1,970,392 $ 607,704 $ 253,246 $ 11,543,531 $ 14,374,873 As of and for the Six Months Ended June 30, 2016 Private Markets Public Markets Capital Markets Principal Activities Total Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $ 236,581 $ 161,636 $ — $ — $ 398,217 Monitoring Fees 41,035 — — — 41,035 Transaction Fees 60,798 7,020 96,831 — 164,649 Fee Credits (55,915 ) (5,965 ) — — (61,880 ) Total Management, Monitoring and Transaction Fees, Net 282,499 162,691 96,831 — 542,021 Performance Income (Loss) Realized Incentive Fees — 6,238 — — 6,238 Realized Carried Interest 398,725 3,838 — — 402,563 Unrealized Carried Interest (184,725 ) (20,382 ) — — (205,107 ) Total Performance Income (Loss) 214,000 (10,306 ) — — 203,694 Investment Income (Loss) Net Realized Gains (Losses) — — — 200,516 200,516 Net Unrealized Gains (Losses) — — — (862,439 ) (862,439 ) Total Realized and Unrealized — — — (661,923 ) (661,923 ) Interest Income and Dividends — — — 182,571 182,571 Interest Expense — — — (96,991 ) (96,991 ) Net Interest and Dividends — — — 85,580 85,580 Total Investment Income (Loss) — — — (576,343 ) (576,343 ) Total Segment Revenues 496,499 152,385 96,831 (576,343 ) 169,372 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 94,642 39,171 15,571 48,405 197,789 Realized Performance Income Compensation 159,490 4,030 — — 163,520 Unrealized Performance Income Compensation (69,965 ) (8,152 ) — — (78,117 ) Total Compensation and Benefits 184,167 35,049 15,571 48,405 283,192 Occupancy and Related Charges 17,964 4,682 1,571 7,392 31,609 Other Operating Expenses 63,135 19,208 7,318 21,758 111,419 Total Segment Expenses 265,266 58,939 24,460 77,555 426,220 Income (Loss) attributable to noncontrolling interests — — 1,242 — 1,242 Economic Net Income (Loss) $ 231,233 $ 93,446 $ 71,129 $ (653,898 ) $ (258,090 ) Total Assets $ 1,792,584 $ 1,165,388 $ 321,000 $ 9,744,199 $ 13,023,171 As of and for the Six Months Ended June 30, 2015 Private Markets Public Markets Capital Markets Principal Activities Total Segment Revenues Management, Monitoring and Transaction Fees, Net Management Fees $ 224,622 $ 130,559 $ — $ — $ 355,181 Monitoring Fees 145,551 — — — 145,551 Transaction Fees 86,920 17,303 92,014 — 196,237 Fee Credits (123,192 ) (13,760 ) — — (136,952 ) Total Management, Monitoring and Transaction Fees, Net 333,901 134,102 92,014 — 560,017 Performance Income (Loss) Realized Incentive Fees — 11,558 — — 11,558 Realized Carried Interest 545,699 8,953 — — 554,652 Unrealized Carried Interest 439,316 40,334 — — 479,650 Total Performance Income (Loss) 985,015 60,845 — — 1,045,860 Investment Income (Loss) Net Realized Gains (Losses) — — — 356,927 356,927 Net Unrealized Gains (Losses) — — — 121,263 121,263 Total Realized and Unrealized — — — 478,190 478,190 Interest Income and Dividends — — — 224,311 224,311 Interest Expense — — — (98,230 ) (98,230 ) Net Interest and Dividends — — — 126,081 126,081 Total Investment Income (Loss) — — — 604,271 604,271 Total Segment Revenues 1,318,916 194,947 92,014 604,271 2,210,148 Segment Expenses Compensation and Benefits Cash Compensation and Benefits 96,398 33,295 18,891 52,692 201,276 Realized Performance Income Compensation 218,280 8,203 — — 226,483 Unrealized Performance Income Compensation 176,064 16,133 — — 192,197 Total Compensation and Benefits 490,742 57,631 18,891 52,692 619,956 Occupancy and Related Charges 16,136 4,785 1,282 8,068 30,271 Other Operating Expenses 57,480 22,546 7,079 25,454 112,559 Total Segment Expenses 564,358 84,962 27,252 86,214 762,786 Income (Loss) attributable to noncontrolling interests 862 653 6,490 — 8,005 Economic Net Income (Loss) $ 753,696 $ 109,332 $ 58,272 $ 518,057 $ 1,439,357 Total Assets $ 1,970,392 $ 607,704 $ 253,246 $ 11,543,531 $ 14,374,873 The following tables reconcile KKR’s total reportable segments to the most directly comparable financial measures calculated and presented in accordance with GAAP: Fees Three Months Ended Six Months Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Total Segment Revenues $ 543,979 $ 1,247,743 $ 169,372 $ 2,210,148 Management fees relating to consolidated funds and other entities (44,048 ) (129,864 ) (82,318 ) (255,439 ) Fee credits relating to consolidated funds 1,921 53,738 2,349 126,687 Net realized and unrealized carried interest - consolidated funds (19,186 ) (592,593 ) (9,625 ) (1,034,302 ) Total investment income (loss) 46,745 (383,650 ) 576,343 (604,271 ) Revenue earned by oil & gas producing entities 18,225 35,700 31,786 60,644 Reimbursable expenses 18,638 17,542 34,519 27,320 Other 10,483 7,258 17,136 16,432 Fees and Other $ 576,757 $ 255,874 $ 739,562 $ 547,219 Expenses Three Months Ended Six Months Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Total Segment Expenses $ 294,575 $ 403,416 $ 426,220 $ 762,786 Equity based compensation 60,657 69,478 124,480 146,028 Reimbursable expenses 30,525 26,547 54,632 46,406 Operating expenses relating to consolidated funds, CFEs and other entities 21,281 11,082 64,952 22,052 Expenses incurred by oil & gas producing entities 20,392 26,053 38,218 47,131 Intangible amortization, acquisition, and litigation (3,865 ) 6,051 13,528 21,522 Other (347 ) 11,550 9,511 23,285 Total Expenses $ 423,218 $ 554,177 $ 731,541 $ 1,069,210 Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders Three Months Ended Six Months Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Economic net income (loss) $ 248,829 $ 839,944 $ (258,090 ) $ 1,439,357 Income tax (6,045 ) (30,547 ) (7,935 ) (46,685 ) Amortization of intangibles and other, net (1) (9,144 ) (37,910 ) (38,026 ) (35,120 ) Equity based compensation (60,657 ) (69,478 ) (124,480 ) (146,028 ) Net income (loss) attributable to noncontrolling interests held by KKR Holdings (73,400 ) (325,703 ) 198,175 (564,711 ) Preferred Distribution (5,693 ) — (5,693 ) — Net income (loss) Attributable to KKR & Co. L.P. Common Unitholders $ 93,890 $ 376,306 $ (236,049 ) $ 646,813 (1) Other primarily represents the statement of operations impact of the accounting convention differences for (i) direct interests in oil & natural gas properties outside of investment funds and (ii) certain interests in consolidated CLOs and other entities. On a segment basis, direct interests in oil & natural gas properties outside of investment funds are carried at fair value with changes in fair value recorded in Economic Net Income (Loss) and certain interests in consolidated CLOs and other entities are carried at cost. See Note 2 "Summary of Significant Accounting Policies" for the GAAP accounting for these direct interests in oil and natural gas producing properties outside investment funds and interests in consolidated CLOs and other entities. The items that reconcile KKR’s total reportable segments to the corresponding condensed consolidated amounts calculated and presented in accordance with GAAP for net income (loss) attributable to redeemable noncontrolling interests and income (loss) attributable to noncontrolling interests are primarily attributable to the impact of KKR Holdings L.P., KKR's consolidated funds and certain other entities. Assets As of June 30, 2016 As of June 30, 2015 Total Segment Assets $ 13,023,171 $ 14,374,873 Impact of Consolidation of Investment Vehicles and Other Entities (1) 23,086,165 55,791,356 Carry Pool Reclassification from Liabilities 1,107,578 1,280,854 Impact of KKR Management Holdings Corp. 289,957 246,614 Total Assets $ 37,506,871 $ 71,693,697 (1) Includes accounting basis difference for oil & natural gas properties of $39,430 and $58,343 as of June 30, 2016 and June 30, 2015, respectively. |
