Organization and Basis of Presentation

The Carlyle Group L.P., together with its consolidated subsidiaries (the “Partnership” or “Carlyle”), is one of the world’s largest global alternative asset management firms that originates, structures and acts as lead equity investor in management-led buyouts, strategic minority equity investments, equity private placements, consolidations and buildups, growth capital financings, real estate opportunities, bank loans, high-yield debt, distressed assets, mezzanine debt and other investment opportunities. The Partnership is a Delaware limited partnership formed on July 18, 2011. The Partnership is managed and operated by its general partner, Carlyle Group Management L.L.C., which is in turn wholly-owned and controlled by Carlyle’s founders and other senior Carlyle professionals.

Carlyle provides investment management services to, and has transactions with, various private equity funds, real estate funds, business development companies, collateralized loan obligations (“CLOs”), hedge funds and other investment products sponsored by the Partnership for the investment of client assets in the normal course of business. Carlyle typically serves as the general partner, investment manager or collateral manager, making day-to-day investment decisions concerning the assets of these products. Carlyle operates its business through four reportable segments: Corporate Private Equity, Global Market Strategies, Real Assets and Investment Solutions (see Note 18).

Basis of Presentation

The accompanying financial statements include the accounts of the Partnership and its consolidated subsidiaries. In addition, certain Carlyle-affiliated funds, related co-investment entities, certain CLOs managed by the Partnership (collectively the “Consolidated Funds”) and a real estate development company (see Note 17) have been consolidated in the accompanying financial statements pursuant to accounting principles generally accepted in the United States (“U.S. GAAP”), as described in Note 2. The consolidation of the Consolidated Funds generally has a gross-up effect on assets, liabilities and cash flows, and has no effect on the net income attributable to the Partnership. The majority economic ownership interests of the investors in the Consolidated Funds are reflected as non-controlling interests in consolidated entities, partners’ capital appropriated for Consolidated Funds and redeemable non-controlling interests in consolidated entities in the accompanying consolidated financial statements.

June 2015 Public Offering of Partnership Common Units

On June 5, 2015, the Partnership completed a public offering of 7,000,000 common units priced at $30.07 per common unit. The Partnership received net proceeds of approximately $209.9 million after deduction of offering expenses. The Partnership’s wholly owned subsidiaries used the net proceeds to acquire 7,000,000 Carlyle Holdings partnership units from the other limited partners of Carlyle Holdings, including certain of the Partnership’s directors and executive officers.

As the sole general partner of Carlyle Holdings, the Partnership consolidates the financial position and results of operations of Carlyle Holdings into its financial statements, and the other ownership interests in Carlyle Holdings are reflected as non-controlling interests in the Partnership's consolidated financial statements. The Partnership accounted for this public offering as an acquisition of ownership interests in a subsidiary while retaining a controlling interest in the subsidiary. Accordingly, the carrying value of the non-controlling interest was adjusted to reflect the change in the ownership interests in Carlyle Holdings. The excess of the fair value consideration paid by the Partnership over the carrying amount of the non-controlling interest acquired was recognized directly as a reduction to partners’ capital.

The adjustment to partners’ capital for the excess of fair value of the consideration transferred over the carrying value of the non-controlling interest acquired was derived as follows (Dollars in millions):



Acquisition-date fair value of consideration transferred:
Cash	$	209.9
Carrying value of non-controlling interest acquired	(45.4		)
Excess of fair value of consideration transferred over carrying value of non-controlling interest acquired	$	164.5

The following summarizes the adjustments within partners’ capital related to the June 2015 public offering (Dollars in millions):



	Partners’ Capital / Accumulated Other Comprehensive Loss			Non-controlling interests in Carlyle Holdings			Total Partners’ Capital
Proceeds from The Carlyle Group L.P. common units issued	$	209.9		$	—		$	209.9
Acquisition of non-controlling interest in Carlyle Holdings	(164.5		)	(45.4		)	$	(209.9	)
Total increase (decrease)	$	45.4		$	(45.4	)	$	—

The acquisition by the Partnership of the 7,000,000 Carlyle Holdings partnership units from the other limited partners of Carlyle Holdings also is subject to the terms of the tax receivable agreement. Accordingly, the Partnership recorded a deferred tax asset of $59.6 million, an increase to the liability owed under the tax receivable agreement of $51.5 million, and an increase in partners’ capital of $8.1 million, inclusive of subsequent adjustments. The liability is expected to be paid as the deferred tax asset is realized as a reduction in taxes payable.

Additionally, the Partnership recorded a deferred tax liability related to outside tax basis difference as a result of the Partnership’s acquisition of additional interests in Carlyle Holdings of $2.6 million with a corresponding decrease to partners' capital.

Following the issuance of common units in the June 2015 public offering, the vesting of deferred restricted common units, and the cancellation of certain unvested common units (see Note 16), the total number of Partnership common units outstanding as of December 31, 2015 was 80,408,702.

March 2014 Public Offering of Partnership Common Units

On March 10, 2014, the Partnership completed a public offering of 13,800,000 common units priced at $33.50 per common unit. The Partnership received net proceeds of approximately $449.5 million, after deduction of the underwriting discount and offering expenses. The Partnership’s wholly-owned subsidiaries used $146.1 million of the net proceeds to acquire 4,500,000 newly issued Carlyle Holdings partnership units from Carlyle Holdings. These proceeds are being used by Carlyle Holdings for general corporate purposes, including investments in Carlyle’s funds as well as investment capital for acquisitions of new fund platforms and strategies or other growth initiatives, to drive innovation across the broader Carlyle platform. The Partnership’s wholly-owned subsidiaries used the remaining net proceeds of $303.4 million to acquire 9,300,000 Carlyle Holding partnership units from the other limited partners of Carlyle Holdings, including certain of the Partnership’s directors and executive officers.

As it relates to the 4,500,000 newly issued Carlyle Holdings partnership units that the Partnership acquired, because the Partnership acquired these partnership units at a valuation in excess of the proportion of the book value of the net assets acquired, the Partnership incurred an immediate dilution of approximately $116.8 million. This dilution was reflected within partners’ capital as a reallocation from partners’ capital to non-controlling interests in Carlyle Holdings.

As it relates to the 9,300,000 Carlyle Holdings partnership units that the Partnership acquired from the other limited partners of Carlyle Holdings, the Partnership accounted for this transaction as an acquisition of ownership interests in a subsidiary while retaining a controlling interest in the subsidiary. Accordingly, the carrying value of the non-controlling interest was adjusted to reflect the change in the ownership interests in Carlyle Holdings. The excess of the fair value of the consideration issued by the Partnership over the carrying amount of the non-controlling interest acquired was recognized directly as a reduction to partners’ capital. The adjustment to partners’ capital was derived as follows (Dollars in millions):



Acquisition-date fair value of consideration transferred:
Cash	$	303.4
Carrying value of non-controlling interest acquired	(66.4		)
Excess of fair value of consideration transferred over carrying value of non-controlling interest acquired	$	237.0

The following summarizes the adjustments within partners’ capital related to the March 2014 public offering (Dollars in millions):



	Partners’ Capital			Non-controlling interests in Carlyle Holdings			Total Partners’ Capital
Proceeds from The Carlyle Group L.P. common units issued	$	449.5		$	—		$	449.5
Dilution associated with the acquisition of 4,500,000 Carlyle Holdings partnership units	(116.8		)	116.8			—
Acquisition of non-controlling interest in Carlyle Holdings	(237.0		)	(66.4		)	(303.4		)
Total increase	$	95.7		$	50.4		$	146.1

Additionally, the acquisition by the Partnership of the 9,300,000 Carlyle Holdings partnership units from the other limited partners of Carlyle Holdings is subject to the terms of the tax receivable agreement. Accordingly, the Partnership recorded a deferred tax asset of $67.8 million, an increase to the liability owed under the tax receivable agreement of $58.1 million, and an increase in partners’ capital of $9.7 million, inclusive of subsequent adjustments. The liability is expected to be paid as the deferred tax asset is realized as a reduction in taxes payable.