17. Segment Reporting

Carlyle conducts its operations through four reportable segments:

Corporate Private Equity – The Corporate Private Equity segment is comprised of the Partnership’s operations that advise a diverse group of funds that invest in buyout and growth capital transactions that focus on either a particular geography or a particular industry.

Global Market Strategies – The Global Market Strategies segment advises a group of funds that pursue investment opportunities across various types of credit, equities and alternative instruments, and (as regards certain macroeconomic strategies) currencies, commodities, sovereign debt, and interest rate products and their derivatives.

Real Assets – The Real Assets segment is comprised of the Partnership’s operations that advise U.S. and international funds focused on real estate, infrastructure, energy and renewable energy transactions.

Solutions – The Solutions segment (formerly called Fund of Funds Solutions) was launched upon the Partnership’s acquisition of a 60% equity interest in AlpInvest on July 1, 2011 and advises a global private equity fund of funds program and related co-investment and secondary activities.

The Partnership’s reportable business segments are differentiated by their various investment focuses and strategies. Overhead costs were allocated based on direct base compensation expense for the funds comprising each segment. With the acquisitions of Claren Road, AlpInvest and ESG, the Partnership revised how it evaluates certain financial information to include adjustments to reflect the Partnership’s economic interests in those entities. The Partnership’s earnings from its investment in NGP Management are presented in the respective operating captions within the Real Assets segment.

Economic Net Income (“ENI”) and its components are key performance measures used by management to make operating decisions and assess the performance of the Partnership’s reportable segments. ENI differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it does not include net income (loss) attributable to non-Carlyle interests in Consolidated Funds or charges (credits) related to Carlyle corporate actions and non-recurring items. Charges (credits) related to Carlyle corporate actions and non-recurring items include: charges associated with equity-based compensation that was issued in the initial public offering in May 2012 or is issued in acquisitions or strategic investments, amortization associated with acquired intangible assets, transaction costs associated with acquisitions, gains and losses associated with the mark to market on contingent consideration issued in conjunction with acquisitions or strategic investments, gains and losses from the retirement of debt, charges associated with lease terminations and employee severance, and settlements of legal claims.

Also, for periods prior to the reorganization and initial public offering in May 2012, ENI also differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that ENI reflects a charge for compensation, bonuses and performance fee compensation attributable to Carlyle partners. Subsequent to the reorganization and initial public offering, these compensation charges are included in both ENI and income (loss) before provision for income taxes computed in accordance with U.S. GAAP.

Fee related earnings (“FRE”) is a component of ENI and is used to assess the ability of the business to cover direct base compensation and operating expenses from total fee revenues. FRE differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of ENI and also adjusts ENI to exclude performance fees, investment income from investments in Carlyle funds, and performance fee related compensation.

Distributable earnings is a component of ENI and is used to assess performance and amounts potentially available for distribution. Distributable earnings differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of ENI and also adjusts ENI for unrealized performance fees, unrealized investment income and the corresponding unrealized performance fee compensation expense.

ENI and its components are used by management primarily in making resource deployment and compensation decisions across the Partnership’s four reportable segments. Management makes operating decisions and assesses the performance of each of the Partnership’s business segments based on financial and operating metrics and data that is presented without the consolidation of any of the Consolidated Funds. Consequently, ENI and all segment data exclude the assets, liabilities and operating results related to the Consolidated Funds.

The following table presents the financial data for the Partnership’s four reportable segments as of and for the year ended December 31, 2012:


	December 31, 2012 and the Year Then Ended
	Corporate Private Equity		Global Market Strategies			Real Assets			Solutions		Total
	(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees	$	496.2	$	237.2		$	141.0		$	68.8	$	943.2
Portfolio advisory fees, net		17.8		2.5			1.7			—		22.0
Transaction fees, net		19.0		3.5			5.0			—		27.5

Total fund level fee revenues		533.0		243.2			147.7			68.8		992.7
Performance fees
Realized		639.5		112.4			106.6			10.6		869.1
Unrealized		130.8		(21.2	)		(13.2	)		30.5		126.9

Total performance fees		770.3		91.2			93.4			41.1		996.0
Investment income (loss)
Realized		3.3		13.1			(0.1	)		—		16.3
Unrealized		20.5		9.6			(4.9	)		—		25.2

Total investment income (loss)		23.8		22.7			(5.0	)		—		41.5
Interest and other income		9.0		2.3			1.7			0.7		13.7

Total revenues		1,336.1		359.4			237.8			110.6		2,043.9

Segment Expenses
Compensation and benefits
Direct base compensation		226.2		86.3			71.1			33.8		417.4
Indirect base compensation		92.5		21.3			24.5			6.2		144.5
Equity-based compensation		1.2		0.2			0.4			—		1.8
Performance fee related
Realized		304.7		46.2			7.3			8.8		367.0
Unrealized		71.7		(8.4	)		17.3			23.8		104.4

Total compensation and benefits		696.3		145.6			120.6			72.6		1,035.1
General, administrative, and other indirect expenses		134.0		40.6			41.9			10.7		227.2
Depreciation and amortization expense		12.5		3.5			3.9			1.6		21.5
Interest expense		14.3		4.5			4.4			1.3		24.5

Total expenses		857.1		194.2			170.8			86.2		1,308.3

Economic Net Income	$	479.0	$	165.2		$	67.0		$	24.4	$	735.6

Fee Related Earnings	$	61.3	$	89.1		$	3.2		$	15.9	$	169.5

Net Performance Fees	$	393.9	$	53.4		$	68.8		$	8.5	$	524.6

Realized Net Performance Fees	$	334.8	$	66.2		$	99.3		$	1.8	$	502.1

Investment Income (Loss)	$	23.8	$	22.7		$	(5.0	)	$	—	$	41.5

Distributable Earnings	$	399.4	$	168.4		$	102.4		$	17.7	$	687.9

Segment assets as of December 31, 2012	$	2,449.4	$	1,052.8		$	962.1		$	342.3	$	4,806.6

The following table presents the financial data for the Partnership’s four reportable segments as of and for the year ended December 31, 2011:


	December 31, 2011 and the Year Then Ended
	Corporate Private Equity			Global Market Strategies			Real Assets			Solutions			Total
	(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees	$	511.3		$	173.5		$	150.7		$	35.0		$	870.5
Portfolio advisory fees, net		31.3			3.0			3.2			—			37.5
Transaction fees, net		34.7			—			3.5			—			38.2

Total fund level fee revenues		577.3			176.5			157.4			35.0			946.2
Performance fees
Realized		952.9			204.2			98.0			46.2			1,301.3
Unrealized		(99.3	)		(92.9	)		52.5			(55.4	)		(195.1	)

Total performance fees		853.6			111.3			150.5			(9.2	)		1,106.2
Investment income
Realized		43.2			20.3			2.1			—			65.6
Unrealized		0.3			12.8			2.7			—			15.8

Total investment income		43.5			33.1			4.8			—			81.4
Interest and other income		9.2			4.0			2.0			0.3			15.5

Total revenues		1,483.6			324.9			314.7			26.1			2,149.3

Segment Expenses
Compensation and benefits
Direct base compensation		253.1			61.7			75.3			14.3			404.4
Indirect base compensation		90.4			15.1			28.0			—			133.5
Performance fee related
Realized		487.5			88.4			8.4			39.5			623.8
Unrealized		(47.1	)		(48.2	)		(3.9	)		(48.8	)		(148.0	)

Total compensation and benefits		783.9			117.0			107.8			5.0			1,013.7
General, administrative, and other indirect expenses		133.5			33.2			47.5			7.3			221.5
Depreciation and amortization expense		14.6			2.7			4.3			0.2			21.8
Interest expense		37.5			10.5			11.2			—			59.2

Total expenses		969.5			163.4			170.8			12.5			1,316.2

Economic Net Income	$	514.1		$	161.5		$	143.9		$	13.6		$	833.1

Fee Related Earnings	$	57.4		$	57.3		$	(6.9	)	$	13.5		$	121.3

Net Performance Fees	$	413.2		$	71.1		$	146.0		$	0.1		$	630.4

Realized Net Performance Fees	$	465.4		$	115.8		$	89.6		$	6.7		$	677.5

Investment Income	$	43.5		$	33.1		$	4.8		$	—		$	81.4

Distributable Earnings	$	566.0		$	193.4		$	84.8		$	20.2		$	864.4

Segment assets as of December 31, 2011	$	2,315.2		$	1,060.2		$	566.4		$	353.1		$	4,294.9

The following table presents the financial data for the Partnership’s three reportable segments for the year ended December 31, 2010:


	Year Ended December 31, 2010
	Corporate Private Equity		Global Market Strategies		Real Assets			Total
			(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees	$	537.6	$	81.9	$	144.0		$	763.5
Portfolio advisory fees, net		14.9		2.3		2.6			19.8
Transaction fees, net		21.5		0.1		8.6			30.2

Total fund level fee revenues		574.0		84.3		155.2			813.5
Performance fees
Realized		267.3		9.8		(2.9	)		274.2
Unrealized		996.3		135.1		72.7			1,204.1

Total performance fees		1,263.6		144.9		69.8			1,478.3
Investment income
Realized		4.2		4.8		1.4			10.4
Unrealized		40.6		16.9		3.7			61.2

Total investment income		44.8		21.7		5.1			71.6
Interest and other income		14.8		2.7		4.9			22.4

Total revenues		1,897.2		253.6		235.0			2,385.8

Segment Expenses
Compensation and benefits
Direct base compensation		237.6		40.1		72.4			350.1
Indirect base compensation		70.9		12.0		24.2			107.1
Performance fee related
Realized		136.0		4.2		0.5			140.7
Unrealized		524.8		70.6		(1.6	)		593.8

Total compensation and benefits		969.3		126.9		95.5			1,191.7
General, administrative, and other indirect expenses		83.5		17.6		40.3			141.4
Depreciation and amortization expense		13.7		2.5		4.7			20.9
Interest expense		11.4		2.6		3.8			17.8

Total expenses		1,077.9		149.6		144.3			1,371.8

Economic Net Income	$	819.3	$	104.0	$	90.7		$	1,014.0

Fee Related Earnings	$	171.7	$	12.2	$	14.7		$	198.6

Net Performance Fees	$	602.8	$	70.1	$	70.9		$	743.8

Realized Net Performance Fees	$	131.3	$	5.6	$	(3.4	)	$	133.5

Investment Income	$	44.8	$	21.7	$	5.1		$	71.6

Distributable Earnings	$	307.2	$	22.6	$	12.7		$	342.5

The following tables reconcile the Total Segments to the Partnership’s Income Before Provision for Taxes as of and for the years ended December 31, 2012 and 2011:


	December 31, 2012 and the Year then Ended
	Total Reportable Segments		Consolidated Funds			Reconciling Items			Carlyle Consolidated
			(Dollars in millions)
Revenues	$	2,043.9	$	903.5		$	25.7	(a)	$	2,973.1
Expenses	$	1,308.3	$	923.9		$	59.0	(b)	$	2,291.2
Other income	$	—	$	1,755.5		$	2.5	(c)	$	1,758.0
Economic net income (loss)	$	735.6	$	1,735.1		$	(30.8	)(d)	$	2,439.9
Total assets	$	4,806.6	$	26,834.6		$	(74.6	)(e)	$	31,566.6

	December 31, 2011 and the Year then Ended
	Total Reportable Segments		Consolidated Funds			Reconciling Items			Carlyle Consolidated
			(Dollars in millions)
Revenues	$	2,149.3	$	714.0		$	(18.0	)(a)	$	2,845.3
Expenses	$	1,316.2	$	592.2		$	(561.3	)(b)	$	1,347.1
Other loss	$	—	$	(330.6	)	$	15.2	(c)	$	(315.4	)
Economic net income (loss)	$	833.1	$	(208.8	)	$	558.5	(d)	$	1,182.8
Total assets	$	4,294.9	$	20,460.3		$	(103.5	)(e)	$	24,651.7

The following table reconciles the Total Segments to the Partnership’s Income Before Provision for Taxes for the year ended December 31, 2010:


	Year Ended December 31, 2010
	Total Reportable Segments		Consolidated Funds			Reconciling Items			Carlyle Consolidated
			(Dollars in millions)
Revenues	$	2,385.8	$	452.6		$	(39.5	)(a)	$	2,798.9
Expenses	$	1,371.8	$	278.0		$	(576.0	)(b)	$	1,073.8
Other income (loss)	$	—	$	(251.5	)	$	6.1	(c)	$	(245.4	)
Economic net income (loss)	$	1,014.0	$	(76.9	)	$	542.6	(d)	$	1,479.7

(a)

The Revenues adjustment principally represents fund management and performance fees earned from the Consolidated Funds which were eliminated in consolidation to arrive at the Partnership’s total revenues, adjustments for amounts attributable to non-controlling interests in consolidated entities, adjustments related to expenses associated with the investment in NGP Management that are included in operating captions or are excluded from the segment results, and adjustments to reflect the Partnership’s ownership interests in Claren Road, ESG, Vermillion and AlpInvest which were included in Revenues in the Partnership’s segment reporting.

(b)

The Expenses adjustment represents the elimination of intercompany expenses of the Consolidated Funds payable to the Partnership, adjustments for partner compensation, adjustments related to expenses associated with the investment in NGP Management that are included in operating captions, charges and credits associated with Carlyle corporate actions and non-recurring items and adjustments to reflect the Partnership’s economic interests in Claren Road, ESG, Vermillion and AlpInvest as detailed below (Dollars in millions):


	Year Ended December 31,
	2012			2011			2010
Partner compensation	$	(265.4	)	$	(671.5	)	$	(768.2	)
Equity-based compensation issued in conjuction with the initial public offering		200.1			—			—
Acquisition related charges and amortization of intangibles		128.3			91.5			11.0
Equity issued for affiliate debt financing		—			—			214.0
Other non-operating expenses		7.1			32.0			—
Losses associated with early extinguishment of debt		—			—			2.5
Severance and lease terminations		5.9			4.5			8.5
Non-Carlyle economic interests in acquired business		155.4			121.9			—
Other adjustments		(4.1	)		(0.9	)		0.3
Elimination of expenses of Consolidated Funds		(168.3	)		(138.8	)		(44.1	)

	$	59.0		$	(561.3	)	$	(576.0	)

(c)	The Other Income (Loss) adjustment results from the Consolidated Funds which were eliminated in consolidation to arrive at the Partnership’s total Other Income (Loss).

(d)	The following table is a reconciliation of Income Before Provision for Income Taxes to Economic Net Income, to Fee Related Earnings, and to Distributable Earnings (Dollars in millions):


	Year Ended December 31,
	2012			2011			2010
Income before provision for income taxes	$	2,439.9		$	1,182.8		$	1,479.7
Adjustments:
Partner compensation⁽¹⁾		(265.4	)		(671.5	)		(768.2	)
Equity-based compensation issued in conjuction with the initial public offering		200.1			—			—
Acquisition related charges and amortization of intangibles		128.3			91.5			11.0
Gain on business acquisition		—			(7.9	)		—
Equity issued for affiliate debt financing		—			—			214.0
Other non-operating expenses		7.1			32.0			—
Losses associated with early extinguishment of debt		—			—			2.5
Net income attributable to non-controlling interests in consolidated entities		(1,756.7	)		202.6			66.2
Provision for income taxes attributable to non-controlling interests in consolidated entities		(19.5	)		—			—
Severance and lease terminations		5.9			4.5			8.5
Other adjustments		(4.1	)		(0.9	)		0.3

Economic Net Income	$	735.6		$	833.1		$	1,014.0

Net performance fees ⁽²⁾		524.6			630.4			743.8
Investment income⁽²⁾		41.5			81.4			71.6

Fee Related Earnings	$	169.5		$	121.3		$	198.6

Realized performance fees, net of related compensation		502.1			677.5			133.5
Investment income - realized		16.3			65.6			10.4

Distributable Earnings	$	687.9		$	864.4		$	342.5

(1)

Adjustments for partner compensation reflect amounts due to senior Carlyle professionals for compensation and performance fees allocated to them, which amounts were classified as distributions from partners’ capital in the consolidated financial statements for periods prior to the reorganization and initial public offering in May 2012.

(2)	See reconciliation to most directly comparable U.S. GAAP measure below:

Year Ended December 31, 2012

Carlyle
Consolidated

Adjustments ⁽³⁾

Total
Reportable
Segments

(Dollars in millions)

Performance fees

Realized

907.5

(38.4

)

869.1

Unrealized

133.6

(6.7

)

126.9

Total performance fees

1,041.1

(45.1

)

996.0

Performance fee related compensation expense

Realized

285.5

81.5

367.0

Unrealized

32.2

72.2

104.4

Total performance fee related compensation expense

317.7

153.7

471.4

Net performance fees

Realized

622.0

(119.9

)

502.1

Unrealized

101.4

(78.9

)

22.5

Total net performance fees

723.4

(198.8

)

524.6

Investment income

Realized

16.3

—

16.3

Unrealized

20.1

5.1

25.2

Total investment income

36.4

5.1

41.5


	Year Ended December 31, 2011
	Carlyle Consolidated			Adjustments ⁽³⁾			Total Reportable Segments
	(Dollars in millions)
Performance fees
Realized	$	1,307.4		$	(6.1	)	$	1,301.3
Unrealized		(185.8	)		(9.3	)		(195.1	)

Total performance fees		1,121.6			(15.4	)		1,106.2
Performance fee related compensation expense
Realized		225.7			398.1			623.8
Unrealized		(122.3	)		(25.7	)		(148.0	)

Total performance fee related compensation expense		103.4			372.4			475.8
Net performance fees
Realized		1,081.7			(404.2	)		677.5
Unrealized		(63.5	)		16.4			(47.1	)

Total net performance fees	$	1,018.2		$	(387.8	)	$	630.4

Investment income
Realized	$	65.1		$	0.5		$	65.6
Unrealized		13.3			2.5			15.8

Total investment income	$	78.4		$	3.0		$	81.4


	Year Ended December 31, 2010
	Carlyle Consolidated		Adjustments ⁽³⁾			Total Reportable Segments
	(Dollars in millions)
Performance fees
Realized	$	266.4	$	7.8		$	274.2
Unrealized		1,215.6		(11.5	)		1,204.1

Total performance fees		1,482.0		(3.7	)		1,478.3
Performance fee related compensation expense
Realized		46.6		94.1			140.7
Unrealized		117.2		476.6			593.8

Total performance fee related compensation expense		163.8		570.7			734.5
Net performance fees
Realized		219.8		(86.3	)		133.5
Unrealized		1,098.4		(488.1	)		610.3

Total net performance fees	$	1,318.2	$	(574.4	)	$	743.8

Investment income (loss)
Realized	$	11.9	$	(1.5	)	$	10.4
Unrealized		60.7		0.5			61.2

Total investment income (loss)	$	72.6	$	(1.0	)	$	71.6

(3)

Adjustments to performance fees and investment income (loss) relate to amounts earned from the Consolidated Funds, which were eliminated in the U.S. GAAP consolidation but were included in the segment results, and amounts attributable to non-controlling interests in consolidated entities, which were excluded from the segment results. Adjustments to investment income (loss) also include the reclassification of earnings for the investment in NGP Management to the appropriate operating captions for the segment results, and the exclusion of charges associated with the investment in NGP Management that are excluded from the segment results. Adjustments to performance fee related compensation expense relate to the inclusion of partner compensation in the segment results for periods prior to the reorganization and initial public offering in May 2012. Adjustments are also included in these financial statement captions to reflect the Partnership’s 55% economic interest in Claren Road, ESG and Vermillion and the Partnership’s 60% interest in AlpInvest in the segment results.

(e)	The Total Assets adjustment represents the addition of the assets of the Consolidated Funds which were eliminated in consolidation to arrive at the Partnership’s total assets.

Information by Geographic Location

Carlyle primarily transacts business in the United States and substantially all of its revenues are generated domestically. The Partnership has established investment vehicles whose primary focus is making investments in specified geographical locations. The tables below present consolidated revenues and assets based on the geographical focus of the associated investment vehicle.


	Total Revenues						Total Assets
	Share			%			Share		%
	(Dollars in millions)
Year ended December 31, 2012
Americas ⁽¹⁾	$	1,842.6			62	%	$	16,419.7		52	%
EMEA⁽²⁾		756.2			25	%		14,670.8		46	%
Asia-Pacific⁽³⁾		374.3			13	%		476.1		2	%

Total	$	2,973.1			100	%	$	31,566.6		100	%


	Total Revenues						Total Assets
	Share			%			Share		%
	(Dollars in millions)
Year ended December 31, 2011
Americas ⁽¹⁾	$	2,416.6			85	%	$	12,784.4		52	%
EMEA⁽²⁾		503.0			18	%		11,342.9		46	%
Asia-Pacific⁽³⁾		(74.3	)		(3	%)		524.4		2	%

Total	$	2,845.3			100	%	$	24,651.7		100	%


	Total Revenues						Total Assets
	Share			%			Share		%
	(Dollars in millions)
Year ended December 31, 2010
Americas ⁽¹⁾	$	1,724.2			62	%	$	11,551.6		68	%
EMEA⁽²⁾		586.1			21	%		4,264.5		25	%
Asia-Pacific⁽³⁾		488.6			17	%		1,246.7		7	%

Total	$	2,798.9			100	%	$	17,062.8		100	%

(1)	Relates to investment vehicles whose primary focus is the United States, Mexico or South America.

(2)	Relates to investment vehicles whose primary focus is Europe, the Middle East, and Africa.

(3)	Relates to investment vehicles whose primary focus is Asia, including China, Japan, India and Australia.