What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-10 compared with 2021-02-11 · 522 added, 595 removed, 1940 unchanged (37% of the section changed)

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We have audited the accompanying consolidated balance sheets of The Carlyle Group Inc.

(the “Company”, formerly The Carlyle Group L.P.) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 10, 2022 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842).

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement of principal equity method investments, including accrued performance allocations

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As discussed in Notes 2 and 4 to the consolidated financial statements, a significant input to the measurement of the Company’s principal equity method investments in the funds, including accrued performance allocations, is management’s estimate of the fair value of the investments held by each fund.

Management estimates the fair value of the funds’ investments, including investments in the equity of private operating companies, real estate properties and certain debt positions, by applying the methodologies outlined in Notes 2 and 4 and using significant unobservable inputs and assumptions.

Management estimates the fair value of the funds’ investments, including investments in the equity of private operating companies, real estate properties and certain debt positions, by applying the methodologies outlined in Notes 2 and 4 to the consolidated financial statements and using significant unobservable inputs and assumptions.

Auditing management’s estimates of the fair value of the funds’ investments, valued using significant unobservable inputs and assumptions, was complex and highly judgmental because these investments exhibit higher estimation uncertainty.

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We also reviewed management’s assessment of subsequent events and transactions and considered whether they corroborated or contradicted the year-end estimates.

Conversion from a Delaware limited partnership to a Delaware corporation

Description of the matter

As described in Note 1 to the consolidated financial statements, effective on January 1, 2020, The Carlyle Group L.P.

converted from a Delaware limited partnership to a Delaware corporation named The Carlyle Group Inc.

(the “Conversion”).

Prior to the Conversion, the Company recorded significant non-controlling interests in Carlyle Holdings I L.P., Carlyle Holdings II L.P.

and Carlyle Holdings III L.P.

(collectively, “Carlyle Holdings”), the holdings partnerships through which the Company and senior Carlyle professionals and other holders of Carlyle Holdings partnership units owned their respective interests in the business.

As discussed in Note 11 to the consolidated financial statements, the Conversion resulted in a step-up in the tax basis of certain assets of Carlyle Holdings that will be recovered as the assets are sold or the basis is amortized.

The Company recorded an estimated net deferred tax asset of $262.1 million relating to this step-up in tax basis.

Auditing the estimated step-up in tax basis resulting from the Conversion required a high degree of auditor judgment and a greater level of effort, including the involvement of our tax professionals and valuation specialists, to evaluate the methodologies and models used to calculate and allocate the step-up in tax basis to the assets of Carlyle Holdings.

How we addressed the matter in our audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls implemented over management’s review of the accounting and disclosures resulting from the Conversion.

This included management's review controls over the completeness and accuracy of the data used in accounting for the Conversion, the appropriateness of the methodologies and models used to calculate and allocate the step-up in tax basis, and the completeness and accuracy of the disclosures related to the Conversion.

Our audit procedures related to the Conversion included, among others, and with the involvement of our tax professionals, testing a sample of the restructuring steps undertaken by the Company to legally effectuate the Conversion by reviewing the transaction agreements;

assessing the appropriateness of the methodologies used in calculating and allocating the step-up in tax basis pursuant to the relevant tax laws and regulations, and assessing the tax positions taken by the Company to determine whether they are more likely than not to be sustained upon examination.

With the assistance of our valuation specialists, we assessed whether the inputs used in the models and methodologies used were appropriate and tested the mathematical accuracy of the models used by management in calculating and allocating the step-up in tax basis.

We compared the objective inputs used in the models to agreements or underlying source documentation provided by the Company.

We also assessed the appropriateness of the assumptions used in calculating and allocating the step-up in tax basis by comparing them to underlying support or available market data and evaluating the appropriateness of any significant adjustments.

We assessed whether the step-up in tax basis was appropriately accounted for in the Company’s income tax provision and related deferred taxes.

We evaluated the financial statement disclosures related to the Conversion pursuant to the relevant authoritative guidance.

Accounting for the Company’s interest in Carlyle FRL L.P.

and consolidation assessment with respect to Fortitude Holdings (a portfolio company of Carlyle FRL L.P.)

Description of the matter

As discussed in Note 5 to the consolidated financial statements, on June 2, 2020, Carlyle FRL, L.P.

(“Carlyle FRL”), a Carlyle-affiliated investment fund, acquired a 51.6% ownership interest in Fortitude Group Holdings, LLC (“Fortitude Holdings”) from American International Group, Inc.

(the “Control Transaction”).

At closing, the Company contributed its existing 19.9% interest in Fortitude Holdings into Carlyle FRL, such that Carlyle FRL holds a 71.5% interest in Fortitude Holdings.

Prior to the Control Transaction, the Company’s investment was accounted for under the equity method of accounting by recognizing its pro rata share of Fortitude Holdings’ U.S.

GAAP earnings.

At the time the Company contributed its existing 19.9% stake in Fortitude Holdings to Carlyle FRL, the Company’s investment became an ownership interest in Carlyle FRL.

Accordingly, the Company began accounting for its investment under the equity method based on its net asset value in Carlyle FRL, which is an investment company that accounts for its investment in Fortitude Holdings at fair value.

This change in measurement resulted in a loss in principal investment income (loss) of $620.7 million.

As discussed in Note 2 to the consolidated financial statements, management has determined that the Company’s Funds are investment companies under U.S.

GAAP for purposes of financial reporting.

Additionally, the Company consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities.

Auditing the Company’s investment company conclusion with respect to its equity method investee, Carlyle FRL, pursuant to ASC Topic 946, Financial Services-Investment Companies , and the Company’s consolidation conclusion with respect to Fortitude Holdings pursuant to ASC Topic 810, Consolidation , was complex and required judgment due to the qualitative nature of these assessments.

How we addressed the matter in our audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the accounting for the Control Transaction, including management’s review controls over its assessment of whether Carlyle FRL is an investment company and whether the Company should consolidate Fortitude Holdings.

To assess management’s conclusions, we read the relevant contractual agreements and inquired of management to understand the purpose and design of Carlyle FRL and Fortitude Holdings.

We also read, among other things, the governing documents, the investment management agreement, the offering materials, other communications with investors, and other available market information to evaluate management’s assertions with respect to the purpose and design of Carlyle FRL and Fortitude Holdings and to evaluate management's investment company and consolidation conclusions for Carlyle FRL and Fortitude Holdings considering the characteristics of an investment company and the consolidation guidance, respectively.

Our evaluation of the characteristics of an investment company with respect to Carlyle FRL included, among other things, consideration of the nature of the asset management relationship between the Company and Fortitude Holdings discussed in Note 5, the nature and extent of fees charged to Carlyle FRL’s limited partners relative to other available market information for similar structures, Carlyle FRL’s plan for capital appreciation, including the related exit strategy, the significance of third-party capital obtained by Carlyle FRL, and the rights held by the limited partners in Carlyle FRL compared to the rights held by limited partners in other Carlyle-sponsored funds.

Our evaluation with respect to the consolidation conclusion included, among other things, an assessment of management’s assertions regarding the decisions that most significantly impact Fortitude Holdings’ economic performance and an assessment of management’s conclusions regarding the entity that has the ability to make those decisions.

/s/ Ernst & Young LLP

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Commitments and contingencies

Partners’ capital (common units, 117,840,651 issued and outstanding as of December 31, 2019)

Common stock, $ 0.01 par value, 100,000,000,000 shares authorized ( 353,520,576 shares issued and outstanding as of December 31, 2020)

Common stock, $ 0.01 par value, 100,000,000,000 shares authorized ( 355,367,876 and 353,520,576 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively)

Additional paid-in-capital 2,717.6 2,546.2

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Non-controlling interests in consolidated entities 427.2 241.0

Non-controlling interests in Carlyle Holdings — 2,017.5

Total equity 5,706.2 2,930.2

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( 56.3 ) 49.6 10.4

Unrealized gains (losses) on Fortitude Re available-for-sale securities, net of income tax (benefit) expense of $( 5.3 ) and $ 4.4 for the years ended December 31, 2020 and 2019, respectively

Unrealized gains (losses) on Fortitude available-for-sale securities, net of income tax (benefit) expense of $( 5.3 ) and $ 4.4 for the years ended December 31, 2020 and 2019, respectively

— ( 20.0 ) 16.8

Defined benefit plans

Unrealized loss for the period, net of income tax (benefit) expense of $( 2.3 ) and $( 2.3 ) for the years ended December 31, 2020 and 2019, respectively

Unrealized net income (loss) for the period, net of income tax (benefit) expense of $ 2.9 , $( 2.3 ) and $( 2.3 ) for the years ended December 31, 2021, 2020 and 2019, respectively

9.5 ( 9.0 ) ( 6.7 )

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Net income — — 35.6 345.3 — — — — 36.6 766.9 1,184.4

Cumulative effect adjustment upon adoption of ASU 2016-16 — — — ( 1.2 ) — — — — — ( 2.9 ) ( 4.1 )

Redemption of Preferred Units (see Note 14) — — ( 405.4 ) — — — — — — — ( 405.4 )

Deconsolidation of a Consolidated Entity — — — — — — — — ( 11.2 ) — ( 11.2 )

Cumulative effect adjustment upon adoption of ASU 2016-2 — — — ( 0.2 ) — — — — — ( 0.5 ) ( 0.7 )

Currency translation adjustments — — — — — — — ( 0.1 ) 10.9 ( 0.4 ) 10.4

Unrealized gains on Fortitude Re available-for-sale securities — — — — — — — 1.0 — 2.2 3.2

Unrealized gains on Fortitude available-for-sale securities — — — — — — — 5.5 — 11.3 16.8

Defined benefit plans, net — — — — — — — ( 2.0 ) — ( 3.7 ) ( 5.7 )

Deferred consideration for Carlyle Holdings Units, net of tax (see Note 10) — — — ( 252.8 ) — — — — — — ( 252.8 )

Balance at December 31, 2019 117.8 — $ — $ 703.8 $ — $ — $ — $ ( 85.2 ) $ 333.5 $ 2,017.5 $ 2,969.6

Reallocation of ownership interests in Carlyle Holdings — — — 64.3 — — — ( 4.1 ) — ( 60.2 ) —

Exchange of Carlyle Holdings units for common units 1.7 — — 15.4 — — — ( 1.2 ) — ( 14.2 ) —

Units repurchased ( 1.6 ) — — ( 34.5 ) — — — — — — ( 34.5 )

Deferred tax effects resulting from acquisition of interests in Carlyle Holdings — — — 1.0 — — — — — — 1.0

Reclassification resulting from Conversion - Partners' Capital ( 117.8 ) 117.8 — ( 703.8 ) 1.2 702.6 — — — — —

Reclassification resulting from Conversion - Non-controlling Interest in Carlyle Holdings — 229.4 — — 2.3 2,180.9 — ( 165.7 ) — ( 2,017.5 ) —

Shares repurchased — ( 1.1 ) — — — ( 26.4 ) — — — — ( 26.4 )

Tax effects resulting from Conversion — — — — — ( 62.9 ) — 22.8 — — ( 40.1 )

Equity-based compensation — — — — — 113.4 — — — — 113.4

Issuances of common units for equity-based awards 10.0 — — — — — — — — — —

Shares issued for equity-based awards — 7.4 — — — — — — — — —

Contributions — — — — — — — — 210.0 210.0

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Net income — — — — — — 348.2 — 34.6 — 382.8

Redemption of Preferred Units (see Note 14) — — ( 405.4 ) — — — — — — — ( 405.4 )

Deconsolidation of a Consolidated Entity — — — — — — — — ( 11.2 ) — ( 11.2 )

Cumulative effect adjustment upon adoption of ASU 2016-2 — — — ( 0.2 ) — — — — — ( 0.5 ) ( 0.7 )

Deconsolidation of Consolidated Entities — — — — — ( 10.1 ) — — ( 262.3 ) — ( 272.4 )

Currency translation adjustments — — — — — — — 46.6 3.0 — 49.6

Unrealized gains on Fortitude Re available-for-sale securities — — — — — — — 5.5 — 11.3 16.8

Unrealized loss on Fortitude available-for-sale securities — — — — — — — ( 20.0 ) — — ( 20.0 )

Defined benefit plans, net — — — — — — — ( 7.2 ) — — ( 7.2 )

Deferred consideration for Carlyle Holdings Units, net of tax (see Note 10) — — — ( 252.8 ) — — — — — — ( 252.8 )

Balance at December 31, 2020 — 353.5 $ — $ — $ 3.5 $ 2,546.2 $ 348.2 $ ( 208.7 ) $ 241.0 $ — $ 2,930.2

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(Dollars and shares in millions)

Units Common Shares Preferred Equity Partners’

Capital Common Stock Additional Paid-in-Capital Retained Earnings (Deficit) Accumulated

Common Shares Common Stock Additional Paid-in-Capital Retained Earnings (Deficit) Accumulated

Comprehensive

Income (Loss) Non-controlling Interests in Consolidated Entities Non-

Holdings Total

Income (Loss) Non-controlling Interests in Consolidated Entities Total

Balance at December 31, 2020 353.5 $ 3.5 $ 2,546.2 $ 348.2 $ ( 208.7 ) $ 241.0 $ 2,930.2

Reclassification resulting from Conversion - Partners' Capital ( 117.8 ) 117.8 — ( 703.8 ) 1.2 702.6 — — — — —

Reclassification resulting from Conversion - Non-controlling Interest in Carlyle Holdings — 229.4 — — 2.3 2,180.9 — ( 165.7 ) — ( 2,017.5 ) —

Shares repurchased ( 3.2 ) — — ( 161.8 ) — — ( 161.8 )

Tax effects resulting from Conversion — — — — — ( 62.9 ) — 22.8 — — ( 40.1 )

Equity-based compensation — 0.1 166.6 — — — 166.7

Shares issued for equity-based awards 5.0 — — — — — —

Shares issued for carry distributed in shares program 0.1 — 4.8 — — — 4.8

Contributions — — — — — 216.2 216.2

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Net income — — — 2,974.7 — 70.5 3,045.2

Deconsolidation of Consolidated Entities — — — — — ( 10.1 ) — — ( 262.3 ) — ( 272.4 )

Currency translation adjustments — — — — ( 50.4 ) ( 5.9 ) ( 56.3 )

Unrealized loss on Fortitude Re available-for-sale securities — — — — — — — ( 20.0 ) — — ( 20.0 )

Defined benefit plans, net — — — — 11.6 — 11.6

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Depreciation and amortization 52.0 52.1 65.6

Right-of-use asset impairment, net of broker fees 24.8 — —

Equity-based compensation 163.1 105.0 140.0

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Change in deferred revenue 35.1 16.2 ( 37.9 )

Net cash (used in) provided by operating activities ( 169.2 ) 358.6 ( 343.5 )

Net cash provided by (used in) operating activities 1,791.0 ( 169.2 ) 358.6

Cash flows from investing activities

Purchases of fixed assets, net ( 41.4 ) ( 61.2 ) ( 27.8 )

Acquisitions, net of cash acquired — — ( 67.8 )

Proceeds from sale of MRE, net of cash sold 5.9 — —

Proceeds from sale of Brazil management entity, net of cash sold 3.3 — —

Net cash used in investing activities ( 32.2 ) ( 61.2 ) ( 27.8 )

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Issuance of 3.500 % senior notes due 2029, net of financing costs

Issuance of 5.650 % senior notes due 2048, net of financing costs

Issuance of 4.625 % subordinated notes due 2061, net of financing costs

Repurchase of 3.875 % senior notes due 2023

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Distributions to non-controlling interest holders ( 94.6 ) ( 77.8 ) ( 62.4 )

Common shares issued for carry distributed in shares program 4.8 — —

Common shares repurchased ( 161.8 ) ( 26.4 ) ( 34.5 )

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Change in due to/from affiliates and other receivables of Consolidated Funds — ( 0.8 ) —

Net cash provided by (used in) financing activities 370.3 ( 149.2 ) 72.0

Net cash (used in) provided by financing activities ( 242.5 ) 370.3 ( 149.2 )

Effect of foreign exchange rate changes ( 30.8 ) 21.7 8.1

Increase (Decrease) in cash, cash equivalents and restricted cash 161.6 189.7 ( 390.5 )

Increase in cash, cash equivalents and restricted cash 1,485.5 161.6 189.7

Cash, cash equivalents and restricted cash, beginning of period 989.6 828.0 638.3

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and its consolidated subsidiaries prior to the Conversion.

Because the Conversion became effective January 1, 2020, the accompanying consolidated financial statements as of and for the year ended December 31, 2019 and for the year ended December 31, 2018 and related notes reflect the results of a partnership, and not a corporation.

Prior to the Conversion, the Company recorded significant non-controlling interests in Carlyle Holdings I L.P., Carlyle Holdings II L.P.

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and its consolidated subsidiaries, net of non-controlling interests in consolidated entities.

Carlyle is one of the world’s largest global investment 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.

Carlyle provides investment management services to, and has transactions with, various private equity funds, real estate funds, private credit funds, collateralized loan obligations (“CLOs”), and other investment products sponsored by the Company for the investment of client assets in the normal course of business.

Additionally, at the time of the exchange, certain senior Carlyle professionals and certain of the other former limited partners of Carlyle Holdings who became holders of shares of common stock in connection with the Conversion were generally required to grant an irrevocable proxy to Carlyle Group Management L.L.C., which is wholly owned by the Company’s founders and other senior Carlyle professionals.

As a result, the Company was a “controlled company” and qualified for exceptions from certain corporate governance and other requirements of the rules of The Nasdaq Global Select Market (“Nasdaq”).

As of August 5, 2021, the Company no longer qualifies as a “controlled company” under the Nasdaq rules.

Carlyle is one of the world’s largest global investment firms that deploys private capital across its business through three reportable segments:

Global Private Equity, Global Credit and Global Investment Solutions (see Note 15).

In the Global Private Equity segment, Carlyle advises buyout, growth, real estate and natural resources funds.

The primary areas of focus for the Global Credit segment are liquid credit, illiquid credit, real assets credit, and other credit such as insurance solutions and loan syndication and capital markets.

The Global Investment Solutions segment provides investment opportunities and resources for investors and clients through fund of funds, secondary purchases of existing portfolios, and managed co-investment programs.

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 three reportable segments:

Global Private Equity, Global Credit and Investment Solutions (see Note 16).

On April 1, 2021, the Company sold 100 % of its interest in Metropolitan Real Estate (“MRE”) and recorded a $ 5 million gain on the sale, which is included in other non-operating expenses (income) on the consolidated statements of operations.

This amount is excluded from the Company’s segment reporting.

The Company retained its existing investments in and commitments to the MRE funds, as well as its interest in the net accrued performance allocations in existing funds.

On August 31, 2021, the Company sold 100 % of its interest in its local Brazilian management entity and entered into a sub-advisory agreement with the acquiring company, which will provide advisory services with respect to Carlyle’s Brazilian portfolio.

The Company recorded a loss on the sale and related transaction costs of $ 4.7 million, which is included in other non-operating expenses (income) on the consolidated statements of operations, as well as a foreign currency translation loss of $ 14.7 million related to amounts previously recorded in accumulated other comprehensive income, which is primarily included in general, administrative and other expenses on the consolidated statements of operations.

These amounts are excluded from the Company’s segment reporting.

Basis of Presentation

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The economic ownership interests of the other investors in the Consolidated Funds are reflected as non-controlling interests in consolidated entities in the accompanying consolidated financial statements (see Note 2).

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

Summary of Significant Accounting Policies

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The Company considers all economic interests, including indirect interests, to determine if a fee is considered a variable interest.

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

For those entities where the Company holds a variable interest, the Company determines whether each of these entities qualifies as a VIE and, if so, whether or not the Company is the primary beneficiary.

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Investments in Unconsolidated Variable Interest Entities

The Company holds variable interests in certain VIEs that are not consolidated because the Company is not the primary beneficiary, including its investments in certain CLOs and strategic investment in NGP Management Company, L.L.C.

The Company holds variable interests in certain VIEs that are not consolidated because the Company is not the primary beneficiary, including its investments in certain CLOs, certain AlpInvest vehicles and strategic investment in NGP Management Company, L.L.C.

(“NGP Management” and, together with its affiliates, “NGP”).

Refer to Note 4 for information on the strategic investment in NGP.

The Company’s involvement with such entities is in the form of direct equity interests and fee arrangements.

The Company’s involvement with such entities is in the form of direct or indirect equity

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

interests and fee arrangements.

The maximum exposure to loss represents the loss of assets recognized by the Company relating to its variable interests in these unconsolidated entities.

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These amounts represent the Company’s maximum exposure to loss related to the unconsolidated VIEs as of December 31, 2021 and 2020.

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

Basis of Accounting

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ASC 606 includes a five-step framework that requires an entity to:

(i) identify the contract(s) with a customer, which includes assessing the collectibility of the consideration to which it will be entitled in exchange for the goods or services transferred to the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation.

(i) identify the contract(s) with a customer, which includes assessing the collectability of the consideration to which it will be entitled in exchange for the goods or services transferred to the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation.

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

The Company accounts for performance allocations that represent a performance-based capital allocation from fund limited partners to the Company (commonly known as “carried interest”, which comprises substantially all of the Company’s previously reported performance fee revenues) as earnings from financial assets within the scope of ASC 323, Investments – Equity Method and Joint Ventures , and therefore are not in the scope of ASC 606.

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While the determination of who is the customer in a contractual arrangement will be made on a contract-by-contract basis, the customer will generally be the investment fund for the Company’s significant management and advisory contracts.

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

The customer determination impacts the Company’s analysis of the accounting for contract costs.

Also, the recovery of certain costs incurred on behalf of Carlyle funds, primarily employee travel and entertainment costs, employee compensation and systems costs, are presented gross in the consolidated statements of operations, as the Company controls the inputs to its investment management performance obligation.

Fund Management Fees

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For closed-end carry funds in the Global Private Equity and Global Credit segments, management fees generally range from 1.0 % to 2.0 % of commitments during the fund’s investment period based on limited partners’ capital commitments to the funds.

Following the expiration or termination of the investment period, management fees generally are based on the lower of cost or fair value of invested capital and the rate charged may also be reduced to between 0.6 % and 2.0 %.

For certain separately managed accounts, longer-dated carry funds, and other closed-end funds, management fees generally range from 0.2 % to 1.0 % based on contributions for unrealized investments, the current value of the investment, or adjusted book value.

Following the expiration or termination of the investment period, management fees generally are based on the lower of cost or fair value of invested capital and the rate charged may also be reduced.

These terms may vary for separately managed accounts, longer-dated carry funds, and other closed-end funds.

The Company will receive management fees during a specified period of time, which is generally ten years from the initial closing date, or, in some instances, from the final closing date, but such termination date may be earlier in certain limited circumstances or later if extended for successive one year periods, typically up to a maximum of two years .

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Management fees for the business development companies are due quarterly in arrears at annual rates that range from 1.25 % of invested capital to 1.5 % of gross assets, excluding cash and cash equivalents.

Management fees for the Company’s private equity and real estate carry fund vehicles in the Investment Solutions segment generally range from 0.25 % to 1.0 % on the vehicle’s capital commitments during the commitment fee period of the relevant fund or the weighted-average investment period of the underlying funds.

Following the expiration of the commitment fee period or weighted-average investment period of such funds, the management fees generally range from 0.25 % to 1.0 % on (i) the lower of cost or fair value of the capital invested, (ii) the net asset value for unrealized investments, or (iii) the contributions for unrealized investments;

however, certain separately managed accounts earn management fees at all times on contributions for unrealized investments or on the initial commitment amount.

Management fees for the Investment Solutions carry fund vehicles are generally due quarterly and recognized over the related quarter.

Management fees for the Interval Fund are due

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

monthly in arrears at the annual rate of 1.0 % of the month-end value of the Interval Fund’s net assets.

Carlyle Aviation Partners’ funds have varying management fee arrangements depending on the strategy of the particular fund.

Management fees for the Company’s carry fund vehicles in the Global Investment Solutions segment generally range from 0.25 % to 1.0 % on the vehicle’s capital commitments during the commitment fee period of the relevant fund.

Following the expiration of the commitment fee period of such funds, the management fees generally range from 0.25 % to 1.0 % on (i) the net invested capital;

(ii) the lower of cost or net asset value of the capital invested, or (iii) the net asset value for unrealized investments.

Management fees for the Global Investment Solutions carry fund vehicles are generally due quarterly and recognized over the related quarter.

As of December 31, 2021 and 2020, management fee receivables, net of allowances for credit losses, were $ 164.5 million and $ 102.7 million, respectively, and are included in due from affiliates and other receivables, net, in the consolidated balance sheets.

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Investment income (loss) represents the unrealized and realized gains and losses resulting from the Company’s equity method investments, including any associated general partner performance allocations, and other principal investments, including CLOs.

General partner performance allocations consist of the allocation of profits from certain of the funds to which the Company is entitled (commonly known as carried interest).

For closed-end carry funds in the Global Private Equity and Global Credit segments, the Company is generally entitled to a 20 % allocation (or 10 % to 20 % on certain open-end and longer-dated carry funds, certain credit funds, and external co-investment vehicles, up to 25 % on certain Global Private Equity funds in the event performance benchmarks are achieved, and approximately 2 % to 10 % for most of the Investment Solutions segment carry fund vehicles) of the net realized income or gain as a carried interest after returning the invested capital, the allocation of preferred returns of generally 7 % to 9 % (or 4 % to 7 % for certain longer-dated carry funds) and return of certain fund costs (generally subject to catch-up provisions as set forth in the fund limited partnership agreement).

Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in each respective partnership agreement.

The Company recognizes revenues attributable to performance allocations based upon the amount that would be due

The Carlyle Group Inc.

Notes to the Consolidated Financial Statements

pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date.

General partner performance allocations consist of the allocation of profits from certain of the funds to which the Company is entitled (commonly known as carried interest).

For closed-end carry funds in the Global Private Equity and Global Credit segments, the Company is generally entitled to a 20 % allocation (or approximately 2 % to 12.5 % for most of the Global Investment Solutions segment carry fund vehicles) of the net realized income or gain as a carried interest after returning the invested capital, the allocation of preferred returns of generally 7 % to 9 % and return of certain fund costs (generally subject to catch-up provisions as set forth in the fund limited partnership agreement).

These terms may vary on longer-dated funds, certain credit funds, and external co-investment vehicles.

Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in each respective partnership agreement.

The Company recognizes revenues attributable to performance allocations based upon the amount that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date.

Accordingly, the amount recognized as investment income for performance allocations reflects the Company’s share of the gains and losses of the associated funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period.

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Unrealized principal investment income (loss) results from the Company’s proportionate share of the investee’s unrealized earnings, including changes in the fair value of the underlying investment, as well as the reversal of unrealized gain (loss) at the time an investment is realized.

Principal investment income (loss) also includes the Company’s allocation of earnings from its investment in Fortitude Re through June 2, 2020 (see Note 5).

Principal investment income (loss) also includes the Company’s allocation of earnings from its investment in Fortitude through June 2, 2020 (see Note 4).

As it relates to the Company’s investments in NGP (see Note 4), principal investment income includes the related amortization of the basis difference between the Company’s carrying value of its investment and the Company’s share of underlying net assets of the investee, as well as the compensation expense associated with compensatory arrangements provided by the Company to employees of its equity method investee.

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Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , which was adopted by the Company on January 1, 2020.

For more information regarding adoption, see “ Recent Accounting Pronouncements Recently Issued Accounting Standards Adopted as of January 1, 2020 ” below.

Under ASU 2016-13, the Company is required to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

As part of its adoption process, the Company assessed the collection risk characteristics of the outstanding amounts in its due from affiliates balance to define the following pools of receivables:

The Company assesses the collection risk characteristics of the outstanding amounts in its due from affiliates balance into the following pools of receivables:

• Reimbursable fund expenses receivables,

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• Transaction fee receivables,

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Notes to the Consolidated Financial Statements

• Portfolio fee receivables, and

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The Company generally utilizes either historical credit loss information or discounted cash flows to calculate expected credit losses for each pool.

The Company’s receivables are predominantly with its investment funds, which have low risk of

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Notes to the Consolidated Financial Statements

credit loss based on the Company’s historical experience.

The Company’s receivables are predominantly with its investment funds, which have low risk of credit loss based on the Company’s historical experience.

Historical credit loss data may be adjusted for current conditions and reasonable and supportable forecasts, including the Company’s expectation of near-term realization based on the liquidity of the affiliated investment funds.

Therefore the adoption of ASU 2016-13 did not have a material impact to the accompanying consolidated financial statements.

Compensation and Benefits

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As of December 31, 2021 and 2020, the Company had recorded a liability of $ 4.1 billion and $ 2.5 billion, respectively, related to the portion of accrued performance allocations and incentive fees due to employees and advisors, respectively, which was included in accrued compensation and benefits in the accompanying consolidated balance sheets.

In October 2021, the Company commenced a program under which, at the Company’s discretion, up to 20 % of the realized performance allocation related compensation over a threshold amount may be distributed in fully vested newly issued shares of the Company’s common stock.

These shares are accounted for as performance allocations and incentive fee related compensation and do not result in incremental compensation expense.

The Carlyle Group Inc.

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federal, state, local and foreign taxing authorities.

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Notes to the Consolidated Financial Statements

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future consequences of events that have been included in the financial statements or tax returns.

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When evaluating the realizability of the Company’s deferred tax assets, all evidence, both positive and negative, is evaluated.

Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future

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Notes to the Consolidated Financial Statements

Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings.

Lastly, the Company accounts for the tax on global intangible low-taxed income (“GILTI”) as incurred and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries.

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If recognized, the entire amount of unrecognized tax positions would be recorded as a reduction in the provision for income taxes.

Tax Receivable Agreement

In connection with the Company’s initial public offering, the Company entered into a tax receivable agreement with the limited partners of the Carlyle Holdings partnerships whereby certain subsidiaries of the Partnership agreed to pay to the limited partners of the Carlyle Holdings partnerships involved in any exchange transaction 85 % of the amount of cash tax savings, if any, in U.S.

federal, state and local income tax realized as a result of increases in tax basis resulting from exchanges of Carlyle Holdings partnership units for common units of The Carlyle Group L.P.

From and after the consummation of the Conversion, holders of the Carlyle Holdings partnership units do not have any rights to payments under the tax receivable agreement except for payment obligations pre-existing at the time of the Conversion with respect to exchanges that occurred prior to the Conversion.

With respect to exchanges that occurred prior to the Conversion, the Company recorded an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the exchange.

All of the effects to the deferred tax asset of changes in any of the Company’s estimates after the tax year of the exchange will be reflected in the provision for income taxes.

Similarly, the effect of subsequent changes in the enacted tax rates will be reflected in the provision for income taxes.

Non-controlling Interests

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Transaction costs incurred in connection with such changes in ownership of a subsidiary are recorded as a direct charge to equity.

Prior to the Conversion, the Company recorded non-controlling interests in Carlyle Holdings, which relates to the ownership interests of the other limited partners of the Carlyle Holdings partnerships.

The Company, through wholly-owned subsidiaries, was the sole general partner of Carlyle Holdings.

Accordingly, the Company consolidated the financial position and results of operations of Carlyle Holdings into its consolidated financial statements, and the other ownership interests in Carlyle Holdings were reflected as non-controlling interests in the Company’s consolidated financial statements.

Any change to the Company’s ownership interest in Carlyle Holdings was accounted for as a transaction within partners’ capital as a reallocation of ownership interests in Carlyle Holdings.

As part of the Conversion, the limited partners of the Carlyle Holdings partnerships exchanged their Carlyle Holdings partnership units for an equivalent number of shares of common stock of The Carlyle Group Inc., which was accounted for as a transaction within equity.

As a result, the consolidated balance sheet and consolidated statement of operations of The Carlyle Group Inc.

do not reflect any non-controlling interests in Carlyle Holdings following the Conversion.

Earnings Per Common Share

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Diluted earnings per common share reflects the assumed conversion of all dilutive securities.

The Company applies the treasury stock method to determine the dilutive weighted-average common shares outstanding for certain equity-based compensation awards.

For certain equity-based compensation awards that contain performance or market conditions, the number of contingently issuable common shares is included in diluted earnings per common share based on the number of common shares, if any, that would be issuable under the terms of the awards if the end of the reporting period were the end of the contingency period, if the result is dilutive.

Prior to the Conversion, the Company applied the “if-converted” method to Carlyle Holdings partnership units to determine the dilutive weighted-average common shares outstanding.

Net income (loss) attributable to the common shares excludes net income (loss) and dividends attributable to any participating securities under the

Net income (loss) attributable to the common shares excludes net income (loss) and dividends attributable to any participating securities under the two-class method of ASC 260.

Subsequent to the Conversion, the Company has a single class of stock and therefore, the “if-converted” method is no longer applied in the computation of diluted earnings per share.

Fair Value of Financial Instruments

The underlying entities that the Company manages and invests in (and in certain cases, consolidates) are primarily investment companies which account for their investments at estimated fair value.

The fair value measurement accounting guidance under ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a hierarchical disclosure framework which ranks the observability of market price inputs used in measuring financial instruments at fair value.

The observability of inputs is impacted by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants.

Financial instruments with readily available quoted prices, or for

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Notes to the Consolidated Financial Statements

two-class method of ASC 260.

Subsequent to the Conversion, the Company has a single class of stock and therefore, the “if-converted” method is no longer be applied in the computation of diluted earnings per share.

Investments include (i) the Company’s ownership interests (typically general partner interests) in the Funds, (ii) strategic investments made by the Company (both of which are accounted for as equity method investments), (iii) the investments held by the Consolidated Funds (which are presented at fair value in the Company’s consolidated financial statements), and (iv) certain credit-oriented investments, including investments in the CLOs and the preferred securities of TCG BDC, Inc.

which fair value can be measured from quoted prices in active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

Level I – inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date.

The type of financial instruments in this category include unrestricted securities, such as equities and derivatives, listed in active markets.

The Company does not adjust the quoted price for these instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date.

The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level III – inputs to the valuation methodology are unobservable and significant to overall fair value measurement.

The inputs into the determination of fair value require significant management judgment or estimation.

The types of financial instruments in this category include investments in privately-held entities, non-investment grade residual interests in securitizations, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

In certain cases, debt and equity securities (including corporate treasury investments) are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services.

In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments and various relationships between investments.

In the absence of observable market prices, the Company values its investments and its funds’ investments using valuation methodologies applied on a consistent basis.

For some investments little market activity may exist.

Management’s determination of fair value is then based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks.

Investments for which market prices are not observable include private investments in the equity and debt of operating companies and real assets, CLO investments and CLO loans payable and fund investments.

The valuation technique for each of these investments is described below:

Investments in Operating Companies and Real Assets – The fair values of private investments in operating companies and real assets are generally determined by reference to the income approach (including the discounted cash flow method and the income capitalization method) and the market approach (including the comparable publicly traded company method and the comparable transaction method).

Valuations under these approaches are typically derived by reference to investment-specific inputs (such as projected cash flows, earnings before interest, taxes, depreciation and amortization (“EBITDA”), and net operating income) combined with market-based inputs (such as discount rates, EBITDA multiples and capitalization rates).

In many cases the investment-specific inputs are unaudited at the time received.

Management may also adjust the market-based inputs to account for differences between the subject investment and the companies, asset or investments used to derive the market-based inputs.

Adjustments to observable valuation measures are frequently made upon the initial investment to calibrate the initial investment valuation to industry observable inputs.

Such adjustments are made to align the investment to observable industry inputs for differences in size, profitability, projected growth rates, geography, capital structure, and other factors as applicable.

The adjustments are then reviewed with each subsequent valuation to assess how the investment has evolved relative

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Notes to the Consolidated Financial Statements

to the observable inputs.

Additionally, the investment may be subject to certain specific risks and/or development milestones which are also taken into account in the valuation assessment.

Option pricing models and similar tools may also be considered but do not currently drive a significant portion of operating company or real asset valuations and are used primarily to value warrants, derivatives, certain restrictions and other atypical investment instruments.

Credit-Oriented Investments – The fair values of credit-oriented investments (including corporate treasury investments) are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services.

Specifically, for investments in distressed debt and corporate loans and bonds, the fair values are generally determined by valuations of comparable investments.

In some instances, the Company may utilize other valuation techniques, including the discounted cash flow method.

CLO Investments and CLO Loans Payable – The Company measures the financial liabilities of its consolidated CLOs based on the fair value of the financial assets of its consolidated CLOs, as the Company believes the fair value of the financial assets are more observable.

The fair values of the CLO loan and bond assets are primarily based on quotations from reputable dealers or relevant pricing services.

In situations where valuation quotations are unavailable, the assets are valued based on similar securities, market index changes, and other factors.

The Company performs certain procedures to ensure the reliability of the quotations from pricing services for its CLO assets and CLO structured asset positions, which generally includes corroborating prices with a discounted cash flow analysis.

Generally, the loan and bond assets of the CLOs are not publicly traded and are classified as Level III.

The fair values of the CLO structured asset positions are determined based on both discounted cash flow analyses and third party quotes.

Those analyses consider the position size, liquidity, current financial condition of the CLOs, the third party financing environment, reinvestment rates, recovery lags, discount rates and default forecasts and are compared to broker quotations from market makers and third party dealers.

The Company measures the CLO loan payables held by third party beneficial interest holders on the basis of the fair value of the financial assets of the CLO and the beneficial interests held by the Company.

The Company continues to measure the CLO loans payable that it holds at fair value based on relevant pricing services or discounted cash flow analyses, as described above.

Fund Investments – The Company’s primary and secondary investments in external funds are valued based on its proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days.

The terms of the investments generally preclude the ability to redeem the investment.

Distributions from these investments will be received as the underlying assets in the funds are liquidated, the timing of which cannot be readily determined.

Investment professionals with responsibility for the underlying investments are responsible for preparing the investment valuations pursuant to the policies, methodologies and templates prepared by the Company’s valuation group, which is a team made up of dedicated valuation professionals reporting to the Company’s chief accounting officer.

The valuation group is responsible for maintaining the Company’s valuation policy and related guidance, templates and systems that are designed to be consistent with the guidance found in ASC 820.

These valuations, inputs and preliminary conclusions are reviewed by the fund accounting teams.

The valuations are then reviewed and approved by the respective fund valuation subcommittees, which include the respective fund head(s), segment head, chief financial officer and chief accounting officer, as well as members of the valuation group.

The valuation group compiles the aggregate results and significant matters and presents them for review and approval by the global valuation committee, which includes the Company’s co-chairmen of the board, chairman emeritus, chief executive officer, chief risk officer, chief financial officer, chief accounting officer, and the business segment heads, and observed by the chief compliance officer, the director of internal audit, the Company’s audit committee and others.

Additionally, each quarter a sample of valuations are reviewed by external valuation firms.

Valuations of the funds’ investments are used in the calculation of accrued performance allocations, or “carried interest”.

Investments, at Fair Value

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Notes to the Consolidated Financial Statements

statements), and (iv) certain credit-oriented investments, including investments in the CLOs and the preferred securities of TCG BDC, Inc.

(the “BDC Preferred Shares”) (which are accounted for as trading securities).

The valuation procedures utilized for investments of the Funds vary depending on the nature of the investment.

The fair value of investments in publicly-traded securities is based on the closing price of the security with adjustments to reflect appropriate discounts if the securities are subject to restrictions.

The fair value of non-equity securities or other investments, which may include instruments that are not listed on an exchange, considers, among other factors, external pricing sources, such as dealer quotes or independent pricing services, recent trading activity or other information that, in the opinion of the Company, may not have been reflected in pricing obtained from external sources.

When valuing private securities or assets without readily determinable market prices, the Company gives consideration to operating results, financial condition, economic and/or market events, recent sales prices and other pertinent information.

These valuation procedures may vary by investment, but include such techniques as comparable public market valuation, comparable acquisition valuation and discounted cash flow analysis.

Because of the inherent uncertainty, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is reasonably possible that the difference could be material.

Furthermore, there is no assurance that, upon liquidation, the Company will realize the values presented herein.

Upon the sale of a security or other investment, the realized net gain or loss is computed on a weighted average cost basis, with the exception of the investments held by the CLOs, which compute the realized net gain or loss on a first in, first out basis.

Securities transactions are recorded on a trade date basis.

Principal Equity Method Investments

Equity Method Investments

The Company accounts for all investments in which it has or is otherwise presumed to have significant influence, including investments in the unconsolidated Funds and strategic investments, using the equity method of accounting.

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Restricted cash primarily represents cash held by the Company’s foreign subsidiaries due to certain government regulatory capital requirements as well as certain amounts held on behalf of Carlyle funds.

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Notes to the Consolidated Financial Statements

Derivative Instruments

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The Company accounts for its leases in accordance with ASU 2016-2, Leases (Topic 842) , and recognizes a lease liability and right-of-use asset in the consolidated balance sheet for contracts that it determines are leases or contain a lease.

The Company’s leases primarily consist of operating leases for office space in various countries around the world.

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Notes to the Consolidated Financial Statements

Company’s leases primarily consist of operating leases for office space in various countries around the world.

The Company also has operating leases for office equipment and vehicles, which are not significant.

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Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company does not recognize a lease liability or right-of-use asset on the balance sheet for short-term leases.

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Finite-lived intangible assets are amortized over their estimated useful lives, which range from four to ten years , and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

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Notes to the Consolidated Financial Statements

Goodwill represents the excess of cost over the identifiable net assets of businesses acquired and is recorded in the functional currency of the acquired entity.

Goodwill is recognized as an asset and is reviewed for impairment annually as of October 1st and between annual tests when events and circumstances indicate that impairment may have occurred.

Goodwill is recognized as an asset and is reviewed for impairment annually as of October 1 and between annual tests when events and circumstances indicate that impairment may have occurred.

Deferred Revenue

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Unrealized losses on defined benefit plans ( 15.7 ) ( 27.3 )

Fortitude Re available-for-sale securities — 6.5

Total $ ( 247.5 ) $ ( 208.7 )

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Notes to the Consolidated Financial Statements

Pursuant to the Conversion and the limited partners of the Carlyle Holdings partnerships exchange of all Carlyle Holdings partnership units for an equivalent number of shares of common stock of The Carlyle Group Inc., the accumulated other comprehensive loss previously attributable to non-controlling interests in Carlyle Holdings is included in the Company’s accumulated other comprehensive loss in the consolidated balance sheet and consolidated statements of changes in equity.

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Recent Accounting Pronouncements

Recently Issued Accounting Standards Effective on January 1, 2020

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement .

ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements.

This guidance was adopted by the Company on January 1, 2020.

In January 2017, the FASB issued ASU 2017-4, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment .

ASU 2017-04 simplifies an entity’s annual goodwill test for impairment by eliminating the requirement to calculate the implied fair value of goodwill, and instead an entity should compare the fair value of a reporting unit with its carrying amount.

The impairment charge will then be the amount by which the carrying amount exceeds the reporting unit’s fair value.

An entity would still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The guidance was adopted by the Company on January 1, 2020 using a prospective transition method, and the impact was not material.

In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments – Credit Losses (Topic 326) .

ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Previously, GAAP required an “incurred

The Company considers the applicability and impact of all accounting standard updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Adopted as of January 1, 2021

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12, among other changes, (i) removes certain exceptions to the general principles in Topic 740, (ii) provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and (iii) provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction.

The guidance was adopted by the Company on January 1, 2021 and the impact was not material.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) .

The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848) , to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

An entity may elect to adopt the amendments in ASU 2020-04 and ASU 2021-01 at any time after March 12, 2020 but no later than December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

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Notes to the Consolidated Financial Statements

loss” methodology that delayed recognition until it was probable a loss had been incurred.

Under the new standard, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected.

The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period.

The Company adopted this guidance using the modified retrospective transition method on January 1, 2020, and the impact was not material.

Acquisition of Carlyle Aviation Partners

On December 19, 2018, the Company acquired 100 % of the equity interests in Apollo Aviation Group, a Miami, Florida-based multi-strategy investment manager that is engaged in commercial aviation aircraft financing and investment and providing investment management services related to the commercial aviation industry.

Upon closing, Apollo Aviation Group was renamed Carlyle Aviation Partners, Ltd.

(“Carlyle Aviation Partners”) and is included in the Company’s Global Credit business segment.

At acquisition, Carlyle Aviation Partners had $ 5.8 billion in assets under management with an investor base that is predominantly institutional, including public and private pension funds, family offices and endowments.

The purchase price consisted of $ 74.5 million in cash.

The transaction also included an earn-out of up to $ 150.0 million that is payable upon the achievement of certain revenue and earnings performance targets during 2020 through 2025, which is accounted for as compensation expense.

As of December 31, 2020, the Company recorded $ 50.6 million in accrued compensation and benefits related to this earn-out.

The Company consolidated the financial position and results of operations of Carlyle Aviation Partners effective December 19, 2018 and accounted for this transaction as a business combination.

In connection with this transaction, the Company incurred approximately $ 4.3 million of acquisition costs that were recorded as an expense for the year ended December 31, 2018.

See Note 3 to the consolidated financial statements included in the Company’s 2018 Annual Report on Form 10-K for additional information on the Carlyle Aviation Partners acquisition.

Fair Value Measurement

The fair value measurement accounting guidance establishes a hierarchical disclosure framework which ranks the observability of market price inputs used in measuring financial instruments at fair value.

Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.