Segment Information

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

The Company’s operating segments are the Och-Ziff Funds segment and the Company’s real estate business. The Och-Ziff Funds, which provides asset management services to the Company’s multi-strategy funds, dedicated credit funds and other alternative investment vehicles, is currently the Company’s only reportable operating segment under GAAP. The Company’s real estate business, which provides asset management services to its real estate funds, is included in the Other Operations, as it does not meet the threshold of a reportable operating segment under GAAP.

In addition to analyzing the Company’s results on a GAAP basis, management also reviews its results on an “Economic Income” basis. Economic Income excludes the adjustments described below that are required for presentation of the Company’s results on a GAAP basis, but that management does not consider when evaluating operating performance in any given period. Management uses Economic Income as the basis on which it evaluates the Company’s financial performance and makes resource allocation and other operating decisions. Management considers it important that investors review the same operating information that it uses.

Economic Income is a measure of pre-tax operating performance that excludes the following from the Company’s results on a GAAP basis:

• Income allocations to the Company’s executive managing directors on their direct interests in the Och-Ziff Operating Group. Management reviews operating performance at the Och-Ziff Operating Group level, where the Company’s operations are performed, prior to making any income allocations.

• Equity-based compensation expenses, depreciation and amortization expenses, and gains and losses on assets held for sale, as management does not consider these non-cash expenses to be reflective of operating performance. However, the fair value of RSUs that are settled in cash to employees or executive managing directors is included as an expense at the time of settlement.

• Changes in the tax receivable agreement liability and gains and losses on investments in Och-Ziff funds, as management does not consider these to be reflective of operating performance.

• Amounts related to the consolidated Och-Ziff funds, including the related eliminations of management fees and incentive income, as management reviews the total amount of management fees and incentive income earned in relation to total assets under management and fund performance.

In addition, expenses related to incentive income profit-sharing arrangements are generally recognized at the same time the related incentive income revenue is recognized, as management reviews the total compensation expense related to these arrangements in relation to any incentive income earned by the relevant fund. Deferred cash compensation is expensed in full in the year granted for Economic Income, rather than over the service period for GAAP.

Finally, management reviews Economic Income revenues by presenting management fees net of recurring placement and related service fees, rather than considering these fees an expense, and by excluding the impact of eliminations related to the consolidated Och-Ziff funds.

Management does not regularly review assets by operating segment in assessing operating segment performance and the allocation of company resources; therefore, the Company does not present total assets by operating segment. Substantially all interest income and all interest expense related to outstanding indebtedness is allocated to the Och-Ziff Funds segment. The Company’s FCPA settlements were all allocated to the Och-Ziff Funds segment.

Och-Ziff Funds Segment Results

	Three Months Ended March 31,
	2017		2016
	(dollars in thousands)
Och-Ziff Funds Segment:
Economic Income Revenues	$	126,724	$	166,769
Economic Income	$	43,446	$	(119,939	)

Reconciliation of Och-Ziff Funds Segment Revenues to Consolidated Revenues

	Three Months Ended March 31,
	2017			2016
	(dollars in thousands)
Total consolidated revenues	$	139,152		$	188,442
Adjustment to management fees(1)	(5,444		)	(12,531		)
Adjustment to incentive income(2)	—			—
Other Operations revenues	(6,489		)	(8,776		)
Income of consolidated Och-Ziff funds	(495		)	(366		)
Economic Income Revenues - Och-Ziff Funds Segment	$	126,724		$	166,769

_______________

(1) Adjustment to present management fees net of recurring placement and related service fees, as management considers these fees a reduction in management fees, not an expense. The impact of eliminations related to the consolidated Och-Ziff funds is also removed.

(2) Adjustment to exclude the impact of eliminations related to the consolidated Och-Ziff funds.

Reconciliation of Och-Ziff Funds Segment Economic Income to Loss Attributable to Class A Shareholders

	Three Months Ended March 31,
	2017			2016
	(dollars in thousands)
Net Loss Attributable to Class A Shareholders—GAAP	$	(7,164	)	$	(69,356	)
Change in redemption value of Preferred Units	2,853			—
Net Loss Attributable to Och-Ziff Capital Management Group LLC—GAAP	$	(4,311	)	$	(69,356	)
Net income (loss) attributable to the Och-Ziff Operating Group A Units	9,635			(88,019		)
Equity-based compensation, net of RSUs settled in cash	18,478			18,542
Income taxes	12,056			18,539
Allocations to Och-Ziff Operating Group D Units	3,360			875
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance	1,979			1,264
Changes in tax receivable agreement liability	—			(145		)
Depreciation and amortization and loss on disposal of fixed assets	4,212			3,402
Other adjustments	(1,011		)	(431		)
Other Operations	(952		)	(4,610		)
Economic Income - Och-Ziff Funds Segment	$	43,446		$	(119,939	)