SEGMENT REPORTING

KKR operates through one operating and reportable segment. This single reportable segment reflects how the chief operating decision makers allocate resources and assess performance under KKR's "one-firm approach," which includes operating collaboratively across business lines, with predominantly a single expense pool.

KKR’s segment reporting is presented prior to giving effect to the allocation of income (loss) between KKR & Co. Inc. and KKR Holdings L.P. and as such represents the business in total. In addition, KKR’s segment reporting is presented without giving effect to the consolidation of the investment funds and CFEs that KKR manages as well as other consolidated entities that are not subsidiaries of KKR & Co. Inc. The segment measures used in KKR’s segment reporting, including segment revenues, segment expenses, after-tax distributable earnings and segment assets, are used by management in making operational and resource deployment decisions as well as assessing the overall performance of KKR’s business.

After-tax Distributable Earnings

After-tax distributable earnings is a measure of KKR’s earnings on a segment basis excluding mark-to-market gains (losses). Starting with the second quarter of 2018, it is defined as the amount of realized earnings of KKR that would be available for distribution as dividends to Class A common stockholders for a given reporting period, after deducting equity-based compensation. KKR revised the definition of after-tax distributable earnings starting in the second quarter of 2018 because it currently reflects how the chief operating decision makers allocate resources and assess performance of KKR’s business. KKR believes that after-tax distributable earnings is useful to stockholders as it aligns KKR’s net realization performance with the manner in which KKR receives its revenues and determines the compensation of its employees. After-tax distributable earnings does not represent and is not used to calculate actual dividends under KKR’s dividend policy. Historically, equity-based compensation expense relating to the Equity Incentive Plan was not reflected in the calculation of after-tax distributable earnings. Under KKR’s current segment presentation, equity-based compensation expense is included in after-tax distributable earnings as a component of compensation expense in order to reflect the dilutive nature of these non-cash equity-based awards. For comparability, after-tax distributable earnings for the comparable prior periods have been calculated using this new definition.

Modification of Segment Information

In connection with a change to KKR's chief operating decision makers, KKR's management has reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of KKR's business. Effective with the three months ended June 30, 2018, the items detailed below have changed with respect to the preparation of the reports used by KKR's chief operating decision makers. As a result, KKR has modified the presentation of its segment financial information effective as of and for the three months ended June 30, 2018, with retrospective application to all prior periods presented.

The most significant changes between KKR's current segment presentation and its previous segment presentation reported prior to the three months ended June 30, 2018, are as follows:

•

After-tax Distributable Earnings - After-tax distributable earnings is the performance measure for KKR's profitability and is used by management in making operational and resource deployment decisions since after-tax distributable earnings aligns KKR's net realized performance with the manner in which KKR receives its revenues and determines the compensation of its employees. Previously, economic net income was a key performance measure. The key distinction between after-tax distributable earnings and economic net income is that after-tax distributable earnings reflects the earnings of KKR excluding mark-to-market gains (losses).

•

Single Reportable Segment - KKR operates through one operating and reportable segment as the chief operating decision makers assess performance of and allocate resources to all of its business lines on a collective basis. These performance assessments and resource allocation decisions are based both on individual and group performance and on broad considerations reflecting KKR's "one-firm approach," which includes operating collaboratively across business lines with predominantly a single expense pool. Historically, KKR operated as four reportable segments.

•

Elimination of Expense Allocation Process - In previous periods, certain expenses were allocated among four historical reportable segments. For the reasons discussed above, a majority of our expenses, namely compensation expense and interest expense, are not specifically allocated among our business lines. Accordingly, KKR has eliminated the expense allocation process that was used in prior periods.

•

Inclusion of Equity Based Compensation in After-tax Distributable Earnings - Historically, equity-based compensation expense relating to the Equity Incentive Plan was not reflected in our calculation of after-tax distributable earnings. Under KKR's current segment presentation, equity-based compensation expense is included in after-tax distributable earnings as a component of compensation expense in order to reflect the dilutive nature of these non-cash equity-based awards. For comparability, after-tax distributable earnings for the comparable prior periods have been calculated using this new definition.

•

Interest Expense Excluded from Segment Revenues - Historically, KKR's interest expense on its debt capital was allocated entirely to the Principal Activities business line (one of the four historical reportable segments) as a reduction of investment income. As such, interest expense was included as a reduction to total segment revenues. Under KKR's current segment presentation, interest expense is not allocated among its business lines, as its debt capital supports KKR's entire business and not just the Principal Activities business line. As such, KKR's current segment presentation excludes interest expense from total segment revenues.

In connection with these modifications, segment information as of and for the three and nine months ended September 30, 2017 has been presented in this Quarterly Report on Form 10-Q to conform to KKR's current segment presentation for comparability purposes. Consequently, this information will be different from the historical segment financial results previously reported by KKR in its reports filed with the SEC.

The following tables set forth information regarding KKR's segment results.




	As of and for the Three Months Ended						As of and for the Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Segment Revenues
Fees and Other, Net
Management Fees	$	276,595		$	232,954		$	789,630		$	670,807
Transaction Fees	289,030			179,167			609,800			578,667
Monitoring Fees	20,176			14,342			63,100			58,072
Fee Credits	(82,187		)	(70,747		)	(178,982		)	(211,148		)
Total Fees and Other, Net	503,614			355,716			1,283,548			1,096,398

Realized Performance Income (Loss)
Carried Interest	414,609			419,438			959,253			890,310
Incentive Fees	18,001			4,074			52,059			8,384
Total Realized Performance Income (Loss)	432,610			423,512			1,011,312			898,694

Realized Investment Income (Loss)
Net Realized Gains (Losses) ⁽¹⁾	181,026			76,053			286,381			162,684
Interest Income and Dividends	61,717			70,557			205,522			195,275
Total Realized Investment Income (Loss)	242,743			146,610			491,903			357,959
Total Segment Revenues	$	1,178,967		$	925,838		$	2,786,763		$	2,353,051

Segment Expenses
Compensation and Benefits ⁽²⁾	469,107			363,247			1,138,149			933,107
Occupancy and Related Charges	14,571			14,672			42,819			42,448
Other Operating Expenses ⁽³⁾	73,402			70,517			194,868			177,084
Total Segment Expenses	$	557,080		$	448,436		$	1,375,836		$	1,152,639

Segment Operating Earnings	621,887			477,402			1,410,927			1,200,412

Interest Expense	44,696			45,613			140,362			134,348
Preferred Dividends	8,341			8,341			25,023			25,023
Income (Loss) Attributable to Noncontrolling Interests	2,272			1,046			4,557			3,810
Income Taxes Paid	69,880			12,869			103,868			54,228
After-tax Distributable Earnings	$	496,698		$	409,533		$	1,137,117		$	983,003

Total Segment Assets	$	18,772,875		$	15,347,999		$	18,772,875		$	15,347,999


(1)	Given the extraordinary nature of the Conversion, the reported segment financial results for the nine months ended September 30, 2018 exclude approximately $729.4 million of losses on certain investments which were realized in the second quarter in advance of the Conversion.


(2)	Includes equity-based compensation of $59,801 and $54,921 for the three months ended September 30, 2018 and 2017, respectively, and $185,795 and $149,840 for the nine months ended September 30, 2018 and 2017, respectively.


(3)	For the nine months ended September 30, 2018, excludes approximately $11.5 million of non-recurring costs in connection with the Conversion.

KKR's business lines are differentiated primarily by their business objectives, investment strategies and sources of revenue, and are summarized below.

Through KKR's Private Markets business line, KKR manages and sponsors private equity funds and co-investment vehicles, which invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. In addition to its traditional private equity funds, KKR sponsors investment funds that invest in growth equity and core equity investments. KKR also manages and sponsors investment funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate.

Through KKR's Public Markets business line, KKR operates its combined credit and hedge funds platforms. KKR's credit platform invests capital in leveraged credit strategies, including leveraged loans, high-yield bonds, opportunistic credit and revolving credit strategies, and alternative credit strategies including special situations and private credit opportunities, such as direct lending and private opportunistic credit investment strategies. KKR's hedge funds platform consists of hedge fund partnerships with third-party hedge fund managers in which KKR owns a minority stake.

KKR's Capital Markets business line 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, placing and underwriting securities offerings and providing other types of capital markets services.

Through KKR's Principal Activities business line, KKR manages the firm's assets and deploys capital to support and grow its business lines including making capital commitments as general partner to its funds, to seed new business strategies or investments for new funds or to bridge capital selectively for its funds' investments. The Principal Activities business line also provides the required capital to fund the various commitments of KKR's Capital Markets business line or to meet regulatory capital requirements.

The following tables provide KKR's segment revenues on a disaggregated basis by business line for the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30, 2018
	Private Markets			Public Markets			Capital Markets		Principal Activities		Total
Fees and Other, Net
Management Fees	$	176,071		$	100,524		$	—	$	—	$	276,595
Transaction Fees	93,866			8,666			186,498		—		289,030
Monitoring Fees	20,176			—			—		—		20,176
Fee Credits	(73,571		)	(8,616		)	—		—		(82,187		)
Total Fees and Other, Net	216,542			100,574			186,498		—		503,614

Realized Performance Income (Loss)
Carried Interest	404,709			9,900			—		—		414,609
Incentive Fees	—			18,001			—		—		18,001
Total Realized Performance Income (Loss)	404,709			27,901			—		—		432,610

Realized Investment Income (Loss)
Net Realized Gains (Losses)	—			—			—		181,026		181,026
Interest Income and Dividends	—			—			—		61,717		61,717
Total Realized Investment Income (Loss)	—			—			—		242,743		242,743
Total	$	621,251		$	128,475		$	186,498	$	242,743	$	1,178,967



	Three Months Ended September 30, 2017
	Private Markets			Public Markets			Capital Markets		Principal Activities		Total
Fees and Other, Net
Management Fees	$	153,841		$	79,113		$	—	$	—	$	232,954
Transaction Fees	82,258			11,469			85,440		—		179,167
Monitoring Fees	14,342			—			—		—		14,342
Fee Credits	(59,854		)	(10,893		)	—		—		(70,747		)
Total Fees and Other, Net	190,587			79,689			85,440		—		355,716

Realized Performance Income (Loss)
Carried Interest	419,438			—			—		—		419,438
Incentive Fees	—			4,074			—		—		4,074
Total Realized Performance Income (Loss)	419,438			4,074			—		—		423,512

Realized Investment Income (Loss)
Net Realized Gains (Losses)	—			—			—		76,053		76,053
Interest Income and Dividends	—			—			—		70,557		70,557
Total Realized Investment Income (Loss)	—			—			—		146,610		146,610
Total	$	610,025		$	83,763		$	85,440	$	146,610	$	925,838



	Nine Months Ended September 30, 2018
	Private Markets			Public Markets			Capital Markets		Principal Activities		Total
Fees and Other, Net
Management Fees	$	490,556		$	299,074		$	—	$	—	$	789,630
Transaction Fees	189,122			21,897			398,781		—		609,800
Monitoring Fees	63,100			—			—		—		63,100
Fee Credits	(158,163		)	(20,819		)	—		—		(178,982		)
Total Fees and Other, Net	584,615			300,152			398,781		—		1,283,548

Realized Performance Income (Loss)
Carried Interest	949,353			9,900			—		—		959,253
Incentive Fees	—			52,059			—		—		52,059
Total Realized Performance Income (Loss)	949,353			61,959			—		—		1,011,312

Realized Investment Income (Loss)
Net Realized Gains (Losses)	—			—			—		286,381		286,381
Interest Income and Dividends	—			—			—		205,522		205,522
Total Realized Investment Income (Loss)	—			—			—		491,903		491,903
Total	$	1,533,968		$	362,111		$	398,781	$	491,903	$	2,786,763



	Nine Months Ended September 30, 2017
	Private Markets			Public Markets			Capital Markets		Principal Activities		Total
Fees and Other, Net
Management Fees	$	419,606		$	251,201		$	—	$	—	$	670,807
Transaction Fees	237,392			41,040			300,235		—		578,667
Monitoring Fees	58,072			—			—		—		58,072
Fee Credits	(177,254		)	(33,894		)	—		—		(211,148		)
Total Fees and Other, Net	537,816			258,347			300,235		—		1,096,398

Realized Performance Income (Loss)
Carried Interest	890,310			—			—		—		890,310
Incentive Fees	—			8,384			—		—		8,384
Total Realized Performance Income (Loss)	890,310			8,384			—		—		898,694

Realized Investment Income (Loss)
Net Realized Gains (Losses)	—			—			—		162,684		162,684
Interest Income and Dividends	—			—			—		195,275		195,275
Total Realized Investment Income (Loss)	—			—			—		357,959		357,959
Total	$	1,428,126		$	266,731		$	300,235	$	357,959	$	2,353,051

The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with GAAP to KKR's segment information:

Revenues



	Three Months Ended				Nine Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Total GAAP Revenues	$	1,129,666	$	749,652	$	2,573,892	$	2,533,207
Add: Management Fees - Consolidated Funds and Other	104,356		53,454		270,383		155,418
Deduct: Fee Credits - Consolidated Funds	8,283		106		41,178		3,752
Deduct: Capital Allocation-Based Income (GAAP)	638,163		394,234		1,274,149		1,416,825
Add: Segment Realized Carried Interest	414,609		419,438		959,253		890,310
Add: Segment Realized Investment Income (Loss)	242,743		146,610		491,903		357,959
Deduct: Revenue Earned by Other Consolidated Entities	27,749		21,470		84,342		76,135
Deduct: Expense Reimbursements	38,212		27,506		108,999		87,131
Total Segment Revenues	$	1,178,967	$	925,838	$	2,786,763	$	2,353,051

Expenses



	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Total GAAP Expenses	$	740,090		$	530,247		$	1,851,741		$	1,699,989
Deduct: Equity-based and Other Compensation - KKR Holdings L.P.	25,327			23,807			87,269			127,864
Deduct: Segment Unrealized Performance Income Compensation	57,407			(19,826		)	81,376			157,162
Deduct: Amortization of Intangibles	681			2,473			7,028			13,901
Deduct: Reimbursable Expenses	43,382			35,098			125,787			107,335
Deduct: Operating Expenses relating to Other Consolidated Entities	37,845			43,818			135,268			121,691
Deduct: One-time Non-recurring Costs ⁽¹⁾	—			—			11,501			—
Add: Other	(18,368		)	3,559			(27,676		)	(19,397		)
Total Segment Expenses	$	557,080		$	448,436		$	1,375,836		$	1,152,639


(1)	Represents non-recurring costs in connection with the Conversion.

Net Income (Loss) Attributable to KKR & Co. Inc. Class A Common Stockholders



	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
GAAP Net Income (Loss) Attributable to KKR & Co. Inc. Class A Common Stockholders	$	640,198		$	153,563		$	1,490,681		$	818,552

Add: Net Income (Loss) Attributable to Noncontrolling Interests held by KKR Holdings L.P.	293,659			115,434			864,520			637,146
Add: Equity-based and Other Compensation - KKR Holdings L.P.	25,537			23,807			87,479			127,864
Add: Amortization of Intangibles and Other, net	60,948			20,464			58,014			57,825
Add: One-time Non-recurring Costs ⁽¹⁾	—			—			11,501			—
Add: Realized Losses on Certain Investments ⁽²⁾	—			—			729,425			—
Deduct: Unrealized Carried Interest	130,420			(59,638		)	182,130			377,707
Deduct: Net Unrealized Gains (Losses)	251,346			(50,902		)	1,849,077			461,111
Add: Unrealized Performance Income Compensation	57,407			(19,826		)	81,376			157,162
Add: Income Tax Provision	(129,405		)	18,420			(50,804		)	77,500
Deduct: Income Taxes Paid	69,880			12,869			103,868			54,228

After-tax Distributable Earnings	$	496,698		$	409,533		$	1,137,117		$	983,003


(1)	Represents non-recurring costs in connection with the Conversion.


(2)	Represents losses on certain investments which were realized in the second quarter in advance of the Conversion.

The items that reconcile KKR's reportable segment income (loss) attributable to noncontrolling interests to the corresponding 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 September 30,
	2018		2017
Total GAAP Assets	$	50,343,948	$	44,305,639
Deduct: Impact of Consolidation of Funds and Other Entities	30,354,674		27,524,641
Deduct: Carry Pool Reclassification from Liabilities	1,300,165		1,131,071
Add: Tax Reclassifications	83,766		—
Deduct: Impact of KKR Management Holdings Corp.	—		301,928
Total Segment Assets	$	18,772,875	$	15,347,999