Equity-Based Compensation

In May 2012, Carlyle Group Management L.L.C., the general partner of the Partnership, adopted The Carlyle Group L.P. 2012 Equity Incentive Plan (the “Equity Incentive Plan”). The Equity Incentive Plan is a source of equity-based awards permitting the Partnership to grant to Carlyle employees, directors of the Partnership’s general partner and consultants non-qualified options, unit appreciation rights, common units, restricted common units, deferred restricted common units, phantom restricted common units and other awards based on the Partnership’s common units and Carlyle Holdings partnership units. The total number of the Partnership’s common units and Carlyle Holdings partnership units which were initially available for grant under the Equity Incentive Plan was 30,450,000. The Equity Incentive Plan contains a provision which automatically increases the number of the Partnership’s common units and Carlyle Holdings partnership units available for grant based on a pre-determined formula; this increase occurs annually on January 1. As of January 1, 2016, pursuant to the formula, the total number of the Partnership’s common units and Carlyle Holdings partnership units available for grant under the Equity Incentive Plan was 32,402,830.

Unvested Partnership Common Units

On August 1, 2013, the Partnership acquired the remaining 40% equity interest in AlpInvest. As part of the transaction, the Partnership issued 914,087 common units to AlpInvest sellers who are employees of the Partnership that are subject to vesting conditions. In June 2015, 11,674 unvested common units were forfeited and canceled by the Partnership. At the same time, in accordance with the Carlyle Holdings partnership agreements, Carlyle Holdings canceled a corresponding number of Carlyle Holdings partnership units held by the Partnership.

These newly issued common units were unvested at grant and vest over a period of up to five years. The unvested common units are accounted for as equity-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The grant-date fair value of the unvested common units is charged to equity-based compensation on a straight-line basis over the required service period. Additionally, the calculation of the expense assumes a forfeiture rate of up to 5%. For the years ended December 31, 2015, 2014 and 2013, the Partnership recorded $9.0 million, $8.4 million and $5.0 million in equity-based compensation expense associated with these awards, respectively. As of December 31, 2015, the total unrecognized equity-based compensation expense related to unvested common units, considering estimated forfeitures, is $1.8 million, which is expected to be recognized over a weighted-average term of 0.7 years.

Unvested Carlyle Holdings Partnership Units

Unvested Carlyle Holdings partnership units are held by senior Carlyle professionals and other individuals engaged in Carlyle’s business and generally vest ratably over a six-year period. The unvested Carlyle Holdings partnership units are accounted for as equity-based compensation in accordance with ASC 718. The grant-date fair value of the unvested Carlyle Holdings partnership units are charged to equity-based compensation expense on a straight-line basis over the required service period. Additionally, the calculation of the expense assumes a forfeiture rate of up to 2.5%. During the second quarter of 2013, the Partnership revised its estimated forfeiture rate to 2.5% from 7.5%. As a result, the Partnership recognized $5.0 million of equity-based compensation expense during the year ended December 31, 2013 for the cumulative effect of the change in this estimate. Additionally, the Partnership recognized $15.9 million, $17.1 million and $47.9 million of equity-based compensation expense during the years ended December 31, 2015, 2014 and 2013, respectively, related to the difference between the estimated forfeitures and actual forfeitures on Carlyle Holdings partnership units that vested in May 2015, 2014 and 2013, respectively. The Partnership recorded equity-based compensation expense associated with these awards of $191.1 million, $192.6 million and $234.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. No tax benefits have been recorded related to the unvested Carlyle Holdings partnership units, as the vesting of these units does not result in a tax deduction to the corporate taxpayers.

In connection with the Partnership’s investment in NGP Management in December 2012, the Partnership issued 996,572 Carlyle Holdings partnership units to ECM Capital, L.P. which vest ratably over a period of five years. The Partnership also issued 597,944 Carlyle Holdings partnership units to ECM Capital, L.P. that were issued at closing but vest upon the achievement of performance conditions. The fair value of these units will be recognized as a reduction to the Partnership’s investment income in NGP Management over the relevant service or performance period, based on the fair value of the units on each reporting date and adjusted for the actual fair value of the units at each vesting date. For the Carlyle Holdings partnership units that vest based on the achievement of performance conditions, the Partnership uses the minimum number of partnership units within the range of potential values for measurement and recognition purposes.

As of December 31, 2015, the total unrecognized equity-based compensation expense related to unvested Carlyle Holdings partnership units, considering estimated forfeitures, is $437.7 million, which is expected to be recognized over a weighted-average term of 2.3 years.

Deferred Restricted Common Units

The deferred restricted common units are unvested when granted and vest ratably over a service period, which ranges up to six years. The grant-date fair value of the deferred restricted common units granted to Carlyle’s employees is charged to equity-based compensation expense on a straight-line basis over the required service period. Additionally, the calculation of the expense assumes a forfeiture rate that generally ranges from 2.0% to 10.0% and a per unit discount that generally ranges up to 25.0%, as these unvested awards do not participate in any Partnership distributions. During the first quarter of 2015, the Partnership revised its estimated forfeiture rates to a range of 2.0% to 10.0% from a previous range of 5.0% to 15.0%. As a result, the Partnership recognized $7.5 million of equity-based compensation expense for the year ended December 31, 2015 for the cumulative effect of the change in this estimate. The Partnership recorded compensation expense of $176.2 million, $140.3 million and $78.7 million for the years ended December 31, 2015, 2014 and 2013, with $16.4 million, $16.7 million and $8.5 million of corresponding deferred tax benefits, respectively. A portion of the accumulated deferred tax asset associated with equity-based compensation expense was reclassified as a current tax benefit due to units vesting during the years ended December 31, 2015, 2014 and 2013. Equity-based compensation expense generates deferred tax assets, which are realized when the units vest. The net impact of additional deferred tax assets due to equity-based compensation expense less the reduction to the deferred tax assets for units that vested was a net deferred tax benefit of $2.9 million, $3.0 million, and $0.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, the total unrecognized equity-based compensation expense related to unvested deferred restricted common units, considering estimated forfeitures, is $321.1 million, which is expected to be recognized over a weighted-average term of 2.4 years.

Equity-based awards issued to non-employees are recognized as general, administrative and other expenses. The expense associated with the deferred restricted common units granted to NGP personnel by the Partnership are recognized as a reduction of the Partnership’s investment income in NGP Management. The grant-date fair value of deferred restricted common units granted to Carlyle’s non-employee directors are charged to expense on a straight-line basis over the vesting period. The cost of services received in exchange for an equity-based award issued to consultants is measured at each vesting date. Equity-based awards that require the satisfaction of future service criteria are recognized over the relevant service period, adjusted for estimated forfeitures of awards not expected to vest, based on the fair value of the award on each reporting date and adjusted for the actual fair value of the award at each vesting date. The expense for equity-based awards issued to non-employees was not significant for the years ended December 31, 2015, 2014 and 2013.

The vesting of deferred restricted common units creates taxable income for the Partnership's employees in certain jurisdictions. Accordingly, the employees may elect to engage the Partnership's equity plan service provider to sell sufficient common units and generate proceeds to cover their minimum tax obligations.

In February 2016, the Partnership granted approximately 5.0 million deferred restricted common units across a significant number of the Partnership's employees. The total estimated grant-date fair value of these awards was approximately $58 million. The awards vest generally over a period of 18 to 42 months.

Phantom Deferred Restricted Common Units

The phantom deferred restricted common units are unvested when granted and vest ratably over a service period of three years. Upon vesting, the units will be settled in cash and, therefore, are accounted for as liability awards. The fair value of the units is re-measured at each reporting period until settlement and charged to equity-based compensation expense over the vesting period, assuming a forfeiture rate of 10.0%. During the first quarter of 2015, the Partnership revised its estimated forfeiture rate to 10.0% from 15.0%. The cumulative effect of the change in this estimate was not material. Equity-based compensation expense and related tax benefits associated with these awards were not material for the years ended December 31, 2015, 2014 and 2013. Further, as of December 31, 2015, the total unrecognized equity-based compensation expense related to unvested phantom deferred restricted common units, considering estimated forfeitures, was not material and is expected to be recognized within the next year.

A summary of the status of the Partnership’s non-vested equity-based awards as of December 31, 2015 and a summary of changes from December 31, 2012 through December 31, 2015, are presented below:



	Carlyle Holdings			The Carlyle Group, L.P.
				Equity Settled Awards						Cash Settled Awards
Unvested Units	Partnership Units	Weighted- Average Grant Date Fair Value		Deferred Restricted Common Units	Weighted- Average Grant Date Fair Value		Unvested Common Units	Weighted- Average Grant Date Fair Value		Phantom Units	Weighted- Average Grant Date Fair Value
Balance, December 31, 2012	57,850,299	$	22.12	16,707,028	$	22.28	—	$	—	334,614	$	22.00
Granted	52,889	$	30.80	3,067,158	$	31.05	914,087	$	26.83	2,520	$	31.83
Vested	9,650,292	$	22.09	2,828,707	$	22.34	42,027	$	27.99	107,242	$	22.00
Forfeited	1,050,093	$	22.00	695,305	$	22.63	—	$	—	21,381	$	22.00
Balance, December 31, 2013	47,202,803	$	22.13	16,250,174	$	23.91	872,060	$	26.78	208,511	$	22.12
Granted	50,617	$	28.26	7,978,127	$	29.63	—	$	—	12,204	$	34.81
Vested	9,159,216	$	22.10	3,767,550	$	24.69	62,263	$	21.42	101,839	$	22.08
Forfeited	2,096,789	$	22.00	1,531,481	$	24.63	—	$	—	14,806	$	23.85
Balance, December 31, 2014	35,997,415	$	22.16	18,929,270	$	26.12	809,797	$	27.19	104,070	$	23.40
Granted	—	$	—	6,770,420	$	22.39	—	$	—	—	$	—
Vested	8,733,826	$	22.11	5,452,961	$	26.91	31,132	$	21.53	93,109	$	22.52
Forfeited	444,477	$	22.00	1,826,295	$	24.98	11,674	$	27.99	4,220	$	24.80
Balance, December 31, 2015	26,819,112	$	22.18	18,420,434	$	24.62	766,991	$	27.41	6,741	$	34.58