UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
333-126751
(Commission File Number)
LAZARD GROUP LLC
(Exact name of registrant as specified in its charter)
Delaware | 51-0278097 |
(State or Other Jurisdiction of Incorporation | (I.R.S. Employer Identification No.) |
or Organization) |
|
30 Rockefeller Plaza
New York, NY 10112
(Address of principal executive offices)
Registrant’s telephone number: (212) 632-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | None | None |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |
|
| Emerging growth company | ☐ |
If the Registrant is an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 20, 2017,April 23, 2021, in additionadditions to profit participation interests, there were two2 managing member interests outstanding.
interests..
TABLE OF CONTENTS
When we use the terms “Lazard Group”,“”Lazard”, “we”, “us”, “our” and “the Company”, we mean Lazard Group LLC, a Delaware limited liability company, that is the current holding company for the subsidiaries that conduct our businesses. Lazard Ltd is a Bermuda exempt company whose shares of Class A common stock (the “Class A (“common stock”), the only class of common stock of Lazard outstanding, are publicly traded on the New York Stock Exchange under the symbol “LAZ”. Lazard Ltd’s subsidiaries include Lazard Group and their respective subsidiaries. Lazard Ltd’s primary operating asset is its indirect ownership as of September 30, 2017March 31, 2021 of all of the common membership interests in Lazard Group and its controlling interest in Lazard Group. Lazard Ltd controls Lazard Group through two of its indirect wholly-owned subsidiaries that are co-managing members of Lazard Group.
Lazard Group has granted profit participation interests in Lazard Group to certain of its managing directors. The profit participation interests are discretionary profits interests that are intended to enable Lazard Group to compensate its managing directors in a manner consistent with historical practices. Lazard Group has also granted profits interest participation rights to certain of its managing directors. See Note 13 of Notes to Condensed Consolidated Financial Statements.
i
PART I. FINANCIALFINANCIAL INFORMATION
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LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2017MARCH 31, 2021 AND DECEMBER 31, 20162020
(UNAUDITED)
(dollars in thousands)
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
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| 2016 |
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| 2021 |
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| 2020 |
| ||||
ASSETS |
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|
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Cash and cash equivalents |
| $ | 1,241,702 |
|
| $ | 1,131,440 |
|
| $ | 967,324 |
|
| $ | 1,319,712 |
|
Deposits with banks and short-term investments |
|
| 652,484 |
|
|
| 419,668 |
|
|
| 1,014,145 |
|
|
| 1,134,463 |
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Cash deposited with clearing organizations and other segregated cash |
|
| 35,369 |
|
|
| 29,030 |
| ||||||||
Receivables (net of allowance for doubtful accounts of $27,464 and $16,386 at September 30, 2017 and December 31, 2016, respectively): |
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| ||||||||
Restricted cash |
|
| 615,090 |
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|
| 44,488 |
| ||||||||
Receivables (net of allowance for doubtful accounts of $34,997 and $36,649 at March 31, 2021 and December 31, 2020, respectively): |
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|
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| ||||||||
Fees |
|
| 450,968 |
|
|
| 564,291 |
|
|
| 555,993 |
|
|
| 621,880 |
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Customers and other |
|
| 100,617 |
|
|
| 73,991 |
|
|
| 183,376 |
|
|
| 121,261 |
|
Lazard Ltd subsidiaries |
|
| 19,434 |
|
|
| 28,702 |
|
|
| 134,748 |
|
|
| 131,380 |
|
|
|
| 571,019 |
|
|
| 666,984 |
|
|
| 874,117 |
|
|
| 874,521 |
|
Investments |
|
| 426,948 |
|
|
| 459,422 |
|
|
| 782,351 |
|
|
| 658,532 |
|
Property (net of accumulated amortization and depreciation of $314,708 and $285,997 at September 30, 2017 and December 31, 2016, respectively) |
|
| 200,702 |
|
|
| 208,997 |
| ||||||||
Goodwill and other intangible assets (net of accumulated amortization of $60,918 and $59,618 at September 30, 2017 and December 31, 2016, respectively) |
|
| 368,331 |
|
|
| 358,982 |
| ||||||||
Property (net of accumulated amortization and depreciation of $397,910 and $401,505 at March 31, 2021 and December 31, 2020, respectively) |
|
| 249,934 |
|
|
| 256,908 |
| ||||||||
Operating lease right-of-use assets |
|
| 491,817 |
|
|
| 513,616 |
| ||||||||
Goodwill and other intangible assets (net of accumulated amortization of $67,516 and $67,501 at March 31, 2021 and December 31, 2020, respectively) |
|
| 359,535 |
|
|
| 361,892 |
| ||||||||
Deferred tax assets |
|
| 59,814 |
|
|
| 59,767 |
|
|
| 34,068 |
|
|
| 48,166 |
|
Other assets |
|
| 219,731 |
|
|
| 181,694 |
|
|
| 448,191 |
|
|
| 303,449 |
|
Total Assets |
| $ | 3,776,100 |
|
| $ | 3,515,984 |
|
| $ | 5,836,572 |
|
| $ | 5,515,747 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2017MARCH 31, 2021 AND DECEMBER 31, 20162020
(UNAUDITED)
(dollars in thousands)
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
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| 2021 |
|
| 2020 |
| ||||
LIABILITIES AND MEMBERS’ EQUITY |
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|
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LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND MEMBERS’ EQUITY |
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Liabilities: |
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Deposits and other customer payables |
| $ | 702,014 |
|
| $ | 472,283 |
|
| $ | 1,239,716 |
|
| $ | 1,201,150 |
|
Accrued compensation and benefits |
|
| 488,858 |
|
|
| 539,944 |
|
|
| 485,224 |
|
|
| 732,692 |
|
Operating lease liabilities |
|
| 581,858 |
|
|
| 606,600 |
| ||||||||
Senior debt |
|
| 1,189,936 |
|
|
| 1,188,600 |
|
|
| 1,683,362 |
|
|
| 1,682,741 |
|
Payable to Lazard Ltd subsidiaries |
|
| 64,166 |
|
|
| 60,898 |
|
|
| 54,963 |
|
|
| 59,584 |
|
Deferred tax liabilities |
|
| 4,009 |
|
|
| 8,625 |
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|
| 2,202 |
|
|
| 1,041 |
|
Other liabilities |
|
| 549,233 |
|
|
| 509,494 |
|
|
| 562,087 |
|
|
| 521,070 |
|
Total Liabilities |
|
| 2,998,216 |
|
|
| 2,779,844 |
|
|
| 4,609,412 |
|
|
| 4,804,878 |
|
Commitments and contingencies |
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|
|
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|
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|
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|
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Redeemable noncontrolling interests |
|
| 575,000 |
|
|
| - |
| ||||||||
MEMBERS’ EQUITY |
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Members' equity (net of 8,716,667 and 6,697,790 shares of Lazard Ltd Class A common stock, at a cost of $353,972 and $244,518 at September 30, 2017 and December 31, 2016, respectively) |
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| 942,454 |
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| 949,669 |
| ||||||||
Members' equity (net of 6,635,606 and 6,911,911 shares of Lazard Ltd Class A common stock, at a cost of $257,600 and $254,406 at March 31, 2021 and December 31, 2020, respectively) |
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| 763,859 |
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| 818,430 |
| ||||||||
Accumulated other comprehensive loss, net of tax |
|
| (224,632 | ) |
|
| (270,775 | ) |
|
| (211,082 | ) |
|
| (193,446 | ) |
Total Lazard Group LLC Members' Equity |
|
| 717,822 |
|
|
| 678,894 |
|
|
| 552,777 |
|
|
| 624,984 |
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Noncontrolling interests |
|
| 60,062 |
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|
| 57,246 |
|
|
| 99,383 |
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|
| 85,885 |
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Total Members’ Equity |
|
| 777,884 |
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|
| 736,140 |
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|
| 652,160 |
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|
| 710,869 |
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Total Liabilities and Members’ Equity |
| $ | 3,776,100 |
|
| $ | 3,515,984 |
| ||||||||
Total Liabilities, Redeemable Noncontrolling Interests and Members’ Equity |
| $ | 5,836,572 |
|
| $ | 5,515,747 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2021 AND 2020
(UNAUDITED)
(dollars in thousands)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
REVENUE |
|
|
|
|
|
|
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Investment banking and other advisory fees |
| $ | 316,940 |
|
| $ | 297,673 |
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Asset management fees |
|
| 326,950 |
|
|
| 269,218 |
|
Interest income |
|
| 1,382 |
|
|
| 2,252 |
|
Other |
|
| 33,835 |
|
|
| (11,488 | ) |
Total revenue |
|
| 679,107 |
|
|
| 557,655 |
|
Interest expense |
|
| 19,758 |
|
|
| 20,075 |
|
Net revenue |
|
| 659,349 |
|
|
| 537,580 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 399,309 |
|
|
| 318,283 |
|
Occupancy and equipment |
|
| 34,580 |
|
|
| 32,045 |
|
Marketing and business development |
|
| 6,640 |
|
|
| 20,136 |
|
Technology and information services |
|
| 33,622 |
|
|
| 31,316 |
|
Professional services |
|
| 14,596 |
|
|
| 14,236 |
|
Fund administration and outsourced services |
|
| 29,279 |
|
|
| 26,390 |
|
Amortization of intangible assets related to acquisitions |
|
| 15 |
|
|
| 428 |
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Other |
|
| 4,915 |
|
|
| 9,016 |
|
Total operating expenses |
|
| 522,956 |
|
|
| 451,850 |
|
OPERATING INCOME |
|
| 136,393 |
|
|
| 85,730 |
|
Provision for income taxes |
|
| 26,777 |
|
|
| 15,995 |
|
NET INCOME |
|
| 109,616 |
|
|
| 69,735 |
|
LESS - NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 3,527 |
|
|
| (5,691 | ) |
NET INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 106,089 |
|
| $ | 75,426 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020
(UNAUDITED)
(dollars in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Investment banking and other advisory fees |
| $ | 305,530 |
|
| $ | 343,154 |
|
| $ | 1,050,471 |
|
| $ | 894,906 |
|
Asset management fees |
|
| 301,719 |
|
|
| 254,551 |
|
|
| 868,522 |
|
|
| 729,679 |
|
Interest income |
|
| 1,615 |
|
|
| 1,146 |
|
|
| 4,959 |
|
|
| 3,881 |
|
Other |
|
| 29,155 |
|
|
| 22,094 |
|
|
| 81,092 |
|
|
| 49,318 |
|
Total revenue |
|
| 638,019 |
|
|
| 620,945 |
|
|
| 2,005,044 |
|
|
| 1,677,784 |
|
Interest expense |
|
| 14,248 |
|
|
| 13,068 |
|
|
| 42,770 |
|
|
| 38,592 |
|
Net revenue |
|
| 623,771 |
|
|
| 607,877 |
|
|
| 1,962,274 |
|
|
| 1,639,192 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 359,294 |
|
|
| 353,468 |
|
|
| 1,134,142 |
|
|
| 958,962 |
|
Occupancy and equipment |
|
| 29,082 |
|
|
| 26,962 |
|
|
| 87,334 |
|
|
| 81,114 |
|
Marketing and business development |
|
| 20,045 |
|
|
| 16,891 |
|
|
| 63,463 |
|
|
| 60,456 |
|
Technology and information services |
|
| 31,371 |
|
|
| 24,175 |
|
|
| 87,329 |
|
|
| 71,402 |
|
Professional services |
|
| 11,005 |
|
|
| 9,672 |
|
|
| 31,559 |
|
|
| 29,488 |
|
Fund administration and outsourced services |
|
| 18,292 |
|
|
| 17,097 |
|
|
| 52,539 |
|
|
| 46,427 |
|
Amortization and other acquisition-related costs |
|
| 335 |
|
|
| 746 |
|
|
| 1,946 |
|
|
| 1,720 |
|
Other |
|
| 9,153 |
|
|
| 9,233 |
|
|
| 30,510 |
|
|
| 28,609 |
|
Total operating expenses |
|
| 478,577 |
|
|
| 458,244 |
|
|
| 1,488,822 |
|
|
| 1,278,178 |
|
OPERATING INCOME |
|
| 145,194 |
|
|
| 149,633 |
|
|
| 473,452 |
|
|
| 361,014 |
|
Provision for income taxes |
|
| 27,367 |
|
|
| 21,653 |
|
|
| 81,802 |
|
|
| 49,110 |
|
NET INCOME |
|
| 117,827 |
|
|
| 127,980 |
|
|
| 391,650 |
|
|
| 311,904 |
|
LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 2,261 |
|
|
| 83 |
|
|
| 5,660 |
|
|
| 4,989 |
|
NET INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 115,566 |
|
| $ | 127,897 |
|
| $ | 385,990 |
|
| $ | 306,915 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
NET INCOME |
| $ | 109,616 |
|
| $ | 69,735 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
| (20,038 | ) |
|
| (46,966 | ) |
Employee benefit plans: |
|
|
|
|
|
|
|
|
Actuarial gain (net of tax expense of $762 and $1,826 for the three months ended March 31, 2021 and 2020, respectively) |
|
| 1,065 |
|
|
| 9,088 |
|
Adjustment for items reclassified to earnings (net of tax expense of $381 and $338 for the three months ended March 31, 2021 and 2020, respectively) |
|
| 1,336 |
|
|
| 1,895 |
|
OTHER COMPREHENSIVE LOSS, NET OF TAX |
|
| (17,637 | ) |
|
| (35,983 | ) |
COMPREHENSIVE INCOME |
|
| 91,979 |
|
|
| 33,752 |
|
LESS - COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 3,526 |
|
|
| (5,691 | ) |
COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 88,453 |
|
| $ | 39,443 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECASH FLOWS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020
(UNAUDITED)
(dollars in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
NET INCOME |
| $ | 117,827 |
|
| $ | 127,980 |
|
| $ | 391,650 |
|
| $ | 311,904 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments (including a tax expense of $3 for the three months ended September 30, 2016 and $9 for the nine months ended September 30, 2016) |
|
| 17,818 |
|
|
| (1,828 | ) |
|
| 56,440 |
|
|
| (10,106 | ) |
Employee benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (net of tax benefit of $1,197 and $17 for the three months ended September 30, 2017 and 2016, respectively, and $3,673 and $315 for the nine months ended September 30, 2017 and 2016, respectively) |
|
| (4,715 | ) |
|
| (33 | ) |
|
| (13,819 | ) |
|
| (649 | ) |
Adjustment for items reclassified to earnings (net of tax expense of $204 and $375 for the three months ended September 30, 2017 and 2016, respectively, and $676 and $1,171 for the nine months ended September 30, 2017 and 2016, respectively) |
|
| 1,081 |
|
|
| 1,134 |
|
|
| 3,523 |
|
|
| 3,441 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
|
| 14,184 |
|
|
| (727 | ) |
|
| 46,144 |
|
|
| (7,314 | ) |
COMPREHENSIVE INCOME |
|
| 132,011 |
|
|
| 127,253 |
|
|
| 437,794 |
|
|
| 304,590 |
|
LESS - COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 2,261 |
|
|
| 82 |
|
|
| 5,661 |
|
|
| 4,989 |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 129,750 |
|
| $ | 127,171 |
|
| $ | 432,133 |
|
| $ | 299,601 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
| $ | 109,616 |
|
| $ | 69,735 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property |
|
| 9,285 |
|
|
| 8,908 |
|
Noncash lease expense |
|
| 17,172 |
|
|
| 15,453 |
|
Amortization of deferred expenses and share-based incentive compensation |
|
| 100,178 |
|
|
| 100,952 |
|
Amortization of intangible assets related to acquisitions |
|
| 15 |
|
|
| 428 |
|
Deferred tax provision |
|
| 13,191 |
|
|
| 3,034 |
|
(Increase) decrease in operating assets and increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Receivables-net |
|
| (10,608 | ) |
|
| 26,477 |
|
Investments |
|
| (202,534 | ) |
|
| 23,325 |
|
Other assets |
|
| (15,968 | ) |
|
| (171,365 | ) |
Accrued compensation and benefits and other liabilities |
|
| (140,538 | ) |
|
| (253,157 | ) |
Net cash used in operating activities |
|
| (120,191 | ) |
|
| (176,210 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Additions to property |
|
| (7,498 | ) |
|
| (11,994 | ) |
Disposals of property |
|
| 628 |
|
|
| 69 |
|
Net cash used in investing activities |
|
| (6,870 | ) |
|
| (11,925 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from: |
|
|
|
|
|
|
|
|
LGAC IPO |
|
| 575,000 |
|
|
| - |
|
Contribution from members |
|
| 14,000 |
|
|
| - |
|
Other financing activities |
|
|
|
|
|
| 25 |
|
Payments for: |
|
|
|
|
|
|
|
|
Customer deposits |
|
| (58,739 | ) |
|
| (70,652 | ) |
Distributions to noncontrolling interests |
|
| (1,000 | ) |
|
| (1,411 | ) |
Payments of LGAC IPO underwriting fees and other offering costs |
|
| (9,308 | ) |
|
| - |
|
Purchase of Class A common stock |
|
| (122,652 | ) |
|
| (95,227 | ) |
Distributions to members |
|
| (13,934 | ) |
|
| - |
|
Settlement of share-based incentive compensation |
|
| (64,804 | ) |
|
| (66,728 | ) |
Other financing activities |
|
| (14,321 | ) |
|
| (1,869 | ) |
Net cash provided by (used in) financing activities |
|
| 304,242 |
|
|
| (235,862 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| (79,285 | ) |
|
| (61,440 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 97,896 |
|
|
| (485,437 | ) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH— January 1 |
|
| 2,498,663 |
|
|
| 2,388,101 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH— March 31 |
| $ | 2,596,559 |
|
| $ | 1,902,664 |
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION: |
|
|
|
|
|
|
|
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Cash and cash equivalents |
| $ | 967,324 |
|
| $ | 1,319,712 |
|
Deposits with banks and short-term investments |
|
| 1,014,145 |
|
|
| 1,134,463 |
|
Restricted cash |
|
| 615,090 |
|
|
| 44,488 |
|
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
| $ | 2,596,559 |
|
| $ | 2,498,663 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
(dollars in thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
| $ | 391,650 |
|
| $ | 311,904 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property |
|
| 23,203 |
|
|
| 24,586 |
|
Amortization of deferred expenses and share-based incentive compensation |
|
| 283,995 |
|
|
| 275,894 |
|
Amortization and other acquisition-related costs |
|
| 1,946 |
|
|
| 1,720 |
|
Deferred tax provision (benefit) |
|
| 2,413 |
|
|
| (4,537 | ) |
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Deposits with banks and short-term investments |
|
| (171,734 | ) |
|
| (135,152 | ) |
Cash deposited with clearing organizations and other segregated cash |
|
| (5,138 | ) |
|
| 115 |
|
Receivables-net |
|
| 122,056 |
|
|
| 38,482 |
|
Investments |
|
| 27,927 |
|
|
| 68,499 |
|
Other assets |
|
| (70,944 | ) |
|
| (54,409 | ) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Deposits and other payables |
|
| 164,784 |
|
|
| 32,186 |
|
Accrued compensation and benefits and other liabilities |
|
| (75,202 | ) |
|
| (225,337 | ) |
Net cash provided by operating activities |
|
| 694,956 |
|
|
| 333,951 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Additions to property |
|
| (15,387 | ) |
|
| (22,070 | ) |
Disposals of property |
|
| 285 |
|
|
| 865 |
|
Net cash used in investing activities |
|
| (15,102 | ) |
|
| (21,205 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from: |
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests |
|
| - |
|
|
| 93 |
|
Excess tax benefits from share-based incentive compensation |
|
| - |
|
|
| 2,343 |
|
Other financing activities |
|
| - |
|
|
| 30,518 |
|
Payments for: |
|
|
|
|
|
|
|
|
Capital lease obligations |
|
| (7,329 | ) |
|
| (1,234 | ) |
Distributions to noncontrolling interests |
|
| (3,049 | ) |
|
| (966 | ) |
Purchase of Lazard Ltd Class A common stock |
|
| (252,538 | ) |
|
| (228,865 | ) |
Distributions to members |
|
| (294,966 | ) |
|
| (248,742 | ) |
Settlement of vested share-based incentive compensation |
|
| (67,384 | ) |
|
| (55,562 | ) |
Other financing activities |
|
| (10,083 | ) |
|
| (3,080 | ) |
Net cash used in financing activities |
|
| (635,349 | ) |
|
| (505,495 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| 65,757 |
|
|
| 48 |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 110,262 |
|
|
| (192,701 | ) |
CASH AND CASH EQUIVALENTS—January 1 |
|
| 1,131,440 |
|
|
| 1,025,844 |
|
CASH AND CASH EQUIVALENTS—September 30 |
| $ | 1,241,702 |
|
| $ | 833,143 |
|
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE NINETHREE MONTH PERIOD ENDED SEPTEMBER 30, 2016MARCH 31, 2020
(UNAUDITED)
(dollars in thousands)
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
| |||
|
| Members' |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
| |||||
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| |||||
Balance - January 1, 2016 (*) |
| $ | 839,517 |
|
| $ | (189,758 | ) |
| $ | 649,759 |
|
| $ | 53,141 |
|
| $ | 702,900 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 306,915 |
|
|
|
|
|
|
| 306,915 |
|
|
| 4,989 |
|
|
| 311,904 |
|
Other comprehensive loss - net of tax |
|
|
|
|
|
| (7,314 | ) |
|
| (7,314 | ) |
|
| - |
|
|
| (7,314 | ) |
Amortization of share-based incentive compensation |
|
| 213,144 |
|
|
|
|
|
|
| 213,144 |
|
|
|
|
|
|
| 213,144 |
|
Distributions to members and noncontrolling interests, net |
|
| (248,742 | ) |
|
|
|
|
|
| (248,742 | ) |
|
| (873 | ) |
|
| (249,615 | ) |
Purchase of Lazard Ltd Class A common stock |
|
| (228,865 | ) |
|
|
|
|
|
| (228,865 | ) |
|
|
|
|
|
| (228,865 | ) |
Delivery of Lazard Ltd Class A common stock in connection with share-based incentive compensation and related tax benefit of $140 |
|
| (55,422 | ) |
|
|
|
|
|
| (55,422 | ) |
|
|
|
|
|
| (55,422 | ) |
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery of Lazard Ltd Class A common stock and related tax benefit of $144 |
|
| 2,984 |
|
|
|
|
|
|
| 2,984 |
|
|
|
|
|
|
| 2,984 |
|
Other |
|
| 6,479 |
|
|
|
|
|
|
| 6,479 |
|
|
|
|
|
|
| 6,479 |
|
Balance - September 30, 2016 (*) |
| $ | 836,010 |
|
| $ | (197,072 | ) |
| $ | 638,938 |
|
| $ | 57,257 |
|
| $ | 696,195 |
|
|
|
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
|
|
| Total |
| |||
|
| Members' |
|
|
|
| Income (Loss), |
|
| Members' |
|
|
|
| Noncontrolling |
|
| Members' |
| |||||
|
| Equity |
|
|
|
| Net of Tax |
|
| Equity |
|
|
|
| Interests |
|
| Equity |
| |||||
Balance - January 1, 2020 (*) |
| $ | 469,324 |
|
|
|
| $ | (250,404 | ) |
| $ | 218,920 |
|
|
|
| $ | 68,406 |
|
| $ | 287,326 |
|
Adjustment for cumulative effect on prior years from the adoption of new accounting guidance |
|
| (7,571 | ) |
|
|
|
|
|
|
|
| (7,571 | ) |
|
|
|
|
|
|
|
| (7,571 | ) |
Balance, as adjusted January 1, 2020 |
|
| 461,753 |
|
|
|
|
| (250,404 | ) |
|
| 211,349 |
|
|
|
|
| 68,406 |
|
|
| 279,755 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| 75,426 |
|
|
|
|
|
|
|
|
| 75,426 |
|
|
|
|
| (5,691 | ) |
|
| 69,735 |
|
Other comprehensive loss - net of tax |
|
|
|
|
|
|
|
| (35,983 | ) |
|
| (35,983 | ) |
|
|
|
|
|
|
|
| (35,983 | ) |
Amortization of share-based incentive compensation |
|
| 72,161 |
|
|
|
|
|
|
|
|
| 72,161 |
|
|
|
|
|
|
|
|
| 72,161 |
|
Distributions to members and noncontrolling interests, net |
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| (1,411 | ) |
|
| (1,411 | ) |
Purchase of Class A common stock |
|
| (95,227 | ) |
|
|
|
|
|
|
|
| (95,227 | ) |
|
|
|
|
|
|
|
| (95,227 | ) |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $3 |
|
| (66,725 | ) |
|
|
|
|
|
|
|
| (66,725 | ) |
|
|
|
|
|
|
|
| (66,725 | ) |
Contributions from members |
|
| 55,941 |
|
|
|
|
|
|
|
|
| 55,941 |
|
|
|
|
|
|
|
|
| 55,941 |
|
Consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| 8,452 |
|
|
| 8,452 |
|
Other |
|
| (1,839 | ) |
|
|
|
|
|
|
|
| (1,839 | ) |
|
|
|
|
|
|
|
| (1,839 | ) |
Balance - March 31, 2020 (*) |
| $ | 501,490 |
|
|
|
| $ | (286,387 | ) |
| $ | 215,103 |
|
|
|
| $ | 69,756 |
|
| $ | 284,859 |
|
(*) | At |
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE NINETHREE MONTH PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2021
(UNAUDITED)
(dollars in thousands)
|
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
| |||
|
|
| Members' |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
| |||||
|
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| |||||
Balance - January 1, 2017 (*) |
|
| $ | 949,669 |
|
| $ | (270,775 | ) |
| $ | 678,894 |
|
| $ | 57,246 |
|
| $ | 736,140 |
|
Adjustment for the cumulative effect on prior years from the adoption of new accounting guidance related to share-based incentive compensation |
|
|
| 4,945 |
|
|
|
|
|
|
| 4,945 |
|
|
|
|
|
|
| 4,945 |
|
Balance, as adjusted - January 1, 2017 |
|
|
| 954,614 |
|
|
| (270,775 | ) |
|
| 683,839 |
|
|
| 57,246 |
|
|
| 741,085 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
| 385,990 |
|
|
|
|
|
|
| 385,990 |
|
|
| 5,660 |
|
|
| 391,650 |
|
Other comprehensive income - net of tax |
|
|
|
|
|
|
| 46,143 |
|
|
| 46,143 |
|
|
| 1 |
|
|
| 46,144 |
|
Amortization of share-based incentive compensation |
|
|
| 220,648 |
|
|
|
|
|
|
| 220,648 |
|
|
|
|
|
|
| 220,648 |
|
Distributions to members and noncontrolling interests, net |
|
|
| (294,966 | ) |
|
|
|
|
|
| (294,966 | ) |
|
| (3,049 | ) |
|
| (298,015 | ) |
Purchase of Lazard Ltd Class A common stock |
|
|
| (252,538 | ) |
|
|
|
|
|
| (252,538 | ) |
|
|
|
|
|
| (252,538 | ) |
Delivery of Lazard Ltd Class A common stock in connection with share-based incentive compensation |
|
|
| (67,384 | ) |
|
|
|
|
|
| (67,384 | ) |
|
|
|
|
|
| (67,384 | ) |
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lazard Ltd Class A common stock issuable (including related amortization) |
|
|
| 278 |
|
|
|
|
|
|
| 278 |
|
|
|
|
|
|
| 278 |
|
Delivery of Lazard Ltd Class A common stock and related tax benefit of $10 |
|
|
| 615 |
|
|
|
|
|
|
| 615 |
|
|
|
|
|
|
| 615 |
|
Other |
|
|
| (4,803 | ) |
|
|
|
|
|
| (4,803 | ) |
|
| 204 |
|
|
| (4,599 | ) |
Balance - September 30, 2017 (*) |
|
| $ | 942,454 |
|
| $ | (224,632 | ) |
| $ | 717,822 |
|
| $ | 60,062 |
|
| $ | 777,884 |
|
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
|
| Redeemable |
| ||||
|
| Members' |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
|
| Noncontrolling |
| ||||||
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
|
| Interests |
| ||||||
Balance - January 1, 2021 |
| $ | 818,430 |
|
| $ | (193,446 | ) |
| $ | 624,984 |
|
| $ | 85,885 |
|
| $ | 710,869 |
|
| $ | - |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 106,089 |
|
|
|
|
|
|
| 106,089 |
|
|
| 3,527 |
|
|
| 109,616 |
|
|
|
|
|
Other comprehensive loss - net of tax |
|
|
|
|
|
| (17,636 | ) |
|
| (17,636 | ) |
|
| (1 | ) |
|
| (17,637 | ) |
|
|
|
|
Amortization of share-based incentive compensation |
|
| 68,191 |
|
|
|
|
|
|
| 68,191 |
|
|
|
|
|
|
| 68,191 |
|
|
|
|
|
Distributions to members and noncontrolling interests, net |
|
| (13,934 | ) |
|
|
|
|
|
| (13,934 | ) |
|
| (1,000 | ) |
|
| (14,934 | ) |
|
|
|
|
Purchase of Class A common stock |
|
| (122,652 | ) |
|
|
|
|
|
| (122,652 | ) |
|
|
|
|
|
| (122,652 | ) |
|
|
|
|
Delivery of Class A common stock in connection with share-based incentive compensation and related tax expense of $34 |
|
| (64,838 | ) |
|
|
|
|
|
| (64,838 | ) |
|
|
|
|
|
| (64,838 | ) |
|
|
|
|
Contributions from members |
|
| 14,000 |
|
|
|
|
|
|
| 14,000 |
|
|
|
|
|
|
| 14,000 |
|
|
|
|
|
Transfer of Class A common stock to Lazard Ltd Subsidiaries |
|
| 4,967 |
|
|
|
|
|
|
| 4,967 |
|
|
|
|
|
|
| 4,967 |
|
|
|
|
|
Consolidated VIEs |
|
|
|
|
|
|
|
|
|
| - |
|
|
| 7,775 |
|
|
| 7,775 |
|
|
|
|
|
Contribution from redeemable noncontrolling interests, net |
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 534,075 |
|
Change in redemption value of redeemable noncontrolling interests |
|
| (44,122 | ) |
|
|
|
|
|
| (44,122 | ) |
|
| 3,197 |
|
|
| (40,925 | ) |
|
| 40,925 |
|
Other |
|
| (2,272 | ) |
|
|
|
|
|
| (2,272 | ) |
|
|
|
|
|
| (2,272 | ) |
|
|
|
|
Balance - March 31, 2021 |
| $ | 763,859 |
|
| $ | (211,082 | ) |
| $ | 552,777 |
|
| $ | 99,383 |
|
| $ | 652,160 |
|
| $ | 575,000 |
|
(*) | At |
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
1. | ORGANIZATION AND BASIS OF PRESENTATION |
Organization
The accompanying condensed consolidated financial statements are those of Lazard Group LLC and its subsidiaries (collectively referred to as “Lazard Group”, “we” or the “Company”). Lazard Group is a Delaware limited liability company, andwhich is governed by an Amended and Restated Operating Agreement dated as of October 26, 2015, as amendedFebruary 4, 2019 (the “Operating Agreement”).
Lazard Ltd, a Bermuda holding company, and its subsidiaries (collectively referred to as “Lazard Ltd”), including its indirect investment in Lazard Group, is one of the world’s preeminent financial advisory and asset management firms and has long specialized in crafting solutions to the complex financial and strategic challenges of our clients. We serve a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals.
Lazard Ltd indirectly held 100% of all outstanding Lazard Group common membership interests as of September 30, 2017March 31, 2021 and December 31, 2016.2020. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group.
Lazard Group’s principal operating activities are included in two2 business segments:
Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions (“M&A”) and other strategic matters, restructurings, capital structure, capital raising, shareholder advisory, and various other financial matters, and
• | Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions (“M&A”), restructurings, capital advisory, shareholder advisory, sovereign advisory, capital raising and other strategic advisory matters; and |
Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients.
• | Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients. |
In addition, we record selected other activities in our Corporate segment, including management of cash, investments, deferred tax assets, outstanding indebtedness, certain contingent obligations, and assets and liabilities associated with (i) Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”) and (ii) a special purpose acquisition company sponsored by an affiliate of the Company, Lazard Growth Acquisition Corp. I (“LGAC”).
Basis of Presentation
The accompanying condensed consolidated financial statements of Lazard Group have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Group’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. The accompanying December 31, 20162020 unaudited condensed consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed consolidated financial statements reflect all adjustments whichthat are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.
Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. For example, discretionary compensation and benefits expense for interim periods is accrued based on the year-to-date amount of revenue earned, and an assumed annual ratio of compensation and benefits expense to revenue, with the applicable amounts adjusted for certain items. Although these estimates are based on management’s knowledge of current events and actions that Lazard may undertake in the future, actual results may differ materially from the estimates.
The consolidated results of operations for the three month and nine month periodsperiod ended September 30, 2017March 31, 2021 are not indicative of the results to be expected for any future interim or annual period.
9
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The condensed consolidated financial statements include Lazard Group and Lazard Group’s principal operating subsidiaries: Lazard Frères & Co. LLC (“LFNY”), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as “LAM”); the French limited liability companies Compagnie Financière Lazard Frères SAS (“CFLF”), along with its subsidiaries, LFB and Lazard Frères Gestion SAS (“LFG”), and Maison Lazard SAS and its subsidiaries; and Lazard & Co., Limited (“LCL”), through Lazard & Co., Holdings Limited (“LCH”), an English private limited company, together with their jointly owned affiliates and subsidiaries.
The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates:
Voting interest entities (“VOEs”) where the Company holds a majority of the voting interest in such VOEs, and
• | Voting interest entities (“VOEs”) where the Company holds a majority of the voting interest in such VOEs, and |
Variable interest entities (“VIEs”) where the Company is the primary beneficiary having the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or receive benefits from, the VIE that could be potentially significant to the VIE.
• | Variable interest entities (“VIEs”) where the Company is the primary beneficiary having the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or receive benefits from, the VIE that could be potentially significant to the VIE (see Note 19). |
When the Company does not have a controlling interest in an entity, but exerts significant influence over such entity’s operating and financial decisions, the Company either (i) applies the equity method of accounting in which it records a proportionate share of the entity’s net earnings or (ii) elects the option to measure its investment at fair value. Intercompany transactions and balances have been eliminated.
Certain prior period amounts have been reclassified to conformLazard Growth Acquisition Corp. I
In February 2021, LGAC consummated its $575,000 initial public offering (the “LGAC IPO”). LGAC is a special purpose acquisition company, incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). LGACo 1 LLC, a Delaware series limited liability company and the Company’s subsidiary, is the sponsor of LGAC. The Company controls LGAC through the sponsor’s ownership of Class B founder shares of LGAC. As a result, both LGAC and the sponsor are consolidated in the Company’s financial statements.
The proceeds from the LGAC IPO of $575,000 are held in a trust account, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds in the trust account to the current period presentation, specifically by including capital lease obligations, previously presented separately,LGAC shareholders in other liabilitiesconnection with the redemption of LGAC’s Class A ordinary shares, subject to certain conditions. The cash held in the trust account is recorded in “Restricted Cash” on the condensed consolidated statements of financial condition.
Transaction costs, which consisted of a net underwriting fee of $8,500, $20,125 of non-cash deferred underwriting fees and $808 of other offering costs, were charged against the gross proceeds of the LGAC IPO as consistent with SEC Staff Accounting Bulletin (SAB) Topic 5.
|
|
Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting—In“Redeemable noncontrolling interests” of $575,000 associated with the publicly held LGAC Class A ordinary shares are recorded on the Company’s condensed consolidated statements of financial condition as of March 2016, the31, 2021 at redemption value and classified as temporary equity in accordance with Financial Accounting Standards Board (the “FASB”(“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. Changes in redemption value are recognized immediately as they occur and will adjust the carrying value of redeemable noncontrolling interests to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable noncontrolling interests shall be affected by charges to additional paid-in-capital.
The warrants exercisable for LGAC Class A ordinary shares that were issued new guidance regarding share-based incentive compensation. The new guidance includes several amendments which affect various aspectsin connection with the LGAC IPO meet the definition of the accounting for share-based incentive compensation transactions, including the income tax consequences, estimation of forfeitures, effect on earnings per share, classification of awardsa liability under FASB ASC Topic 815 and are classified as either equity orderivative liabilities remeasured at fair value at each balance sheet date until exercised, with changes in fair value each period reported to earnings. See Note 7.
Restricted Cash
Restricted cash primarily represents LGAC deposits discussed above and classification on the statement ofother restricted cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2016. The Company adopted this new guidance on January 1, 2017. The new guidance has since January 1, 2017 affected, anddeposits made by the Company, expects that in future periodsincluding those to satisfy the new guidance will affect, the provision for income taxes for the deliveryrequirements of stock under share-based incentive compensation arrangements, as well as the effective tax rate in the relevant periods, which could be material to the condensed consolidated statements of operations and the classification of cash flows in the relevant periods. The inclusion of excess tax benefits as an operating activity within the statement of cash flows was adopted on a prospective basis, with prior periods unadjusted. Upon adoption of the new guidance, the Company also recorded deferred tax assets of $4,945, net of a valuation allowance of $12,090, for previously unrecognized excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based incentive compensation arrangements, with an offsetting adjustment to retained earnings. With respect to forfeiture rates, the Company will continue to estimate the number of awards expected to be forfeited, rather than electing the option to account for forfeitures as they occur. See Note 14.clearing organizations.
Revenue from Contracts with Customers—In May 2014, the FASB issued comprehensive new revenue recognition guidance. The guidance requires a company to recognize revenue when it transfers promised services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those services and requires enhanced disclosures. The guidance also changes the accounting for certain contract costs, including whether they may be offset against revenue in the condensed consolidated statements of operations. On July 9, 2015, the FASB approved the deferral of the effective date of the new revenue guidance by one year to annual reporting periods beginning after December 15, 2017. The guidance may be adopted using a full retrospective approach or a modified cumulative effect approach. The Company will adopt the revenue recognition guidance upon its effective date of January 1, 2018 and it intends to apply the modified cumulative effect approach upon transition. The Company’s implementation efforts include the identification of revenue within the scope of the guidance and the evaluation of revenue contracts.
The Company continues to evaluate the potential impact of the new guidance including (i) the timing of revenue recognition for Financial Advisory fees and (ii) the presentation of certain contract costs. With respect to revenue recognition, the Company is assessing the potential impact of the new guidance on the Company’s recognition of certain M&A Advisory fees (e.g., transaction completion, transaction announcement and retainer fees), including whether the Company’s fulfillment of its performance obligations
10
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
under M&A Advisory engagement contracts would be deemed to occur over time, or at specific points in time, under
2. | RECENT ACCOUNTING DEVELOPMENTS |
Simplifying the new guidance. Interpretive guidance on this particular issue continues to be deliberated by the Financial Reporting Executive Committee of the American Institute of Certified Public Accountants. With respect to the potential impact of the new guidance on the Company’s presentation of certain contract costs, the Company anticipates that the new guidance will result in the gross basis of presentation of certain contract costs that are currently presented net of certain items in revenues. The most significant changes identified to date with respect to presentation relate to (a) certain distribution costs within our Asset Management business and (b) certain reimbursable deal costs within our Financial Advisory business, both of which are currently presented net against revenues and will be presented as expenses on a gross basis under the new guidance. The Company is currently evaluating the impact of this presentation.
Classification of Certain Cash Receipts and Cash Payments—Accounting for Income Taxes—In August and November 2016,December 2019, the FASB issued updated guidance which clarifies how a company should classify certain cash receipts and cash payments on the statement of cash flows and clarifies that restricted cash should be included in the total of cash and cash equivalents on the statement of cash flows. The new guidance to simplify the accounting for both updates is effective for annualincome taxes. The amendments include the removal of certain exceptions and interim periods beginning after December 15, 2017 and early adoption is permitted. The new guidance is to be applied on a retrospective basis. The Company is currently evaluating the new guidance.
Clarifying the Definition of a Business—In January 2017, the FASB issued updated guidance to clarify the definition of a business within the context of business combinations. The updated guidance requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This updated guidance is expected to reduce the number of transactions that need to be further evaluated as business combinations. If further evaluation is necessary, the updated guidance will require that a business set include, at a minimum, an input and a substantive process that together significantly contributevarious improvements. These improvements are related to the ability to create output. The updated guidance will remove theaccounting for franchise tax based on income, evaluation of whether a market participant could replace missing elements.step up in tax basis of goodwill, allocation of consolidated tax expense to standalone legal entities, recognition of enacted change in tax laws or rates, and other minor changes. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and is to be applied on a prospective basis.2020. The Company is currently evaluatingadopted the new guidance.
Compensation—Retirement Benefits—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost—In March 2016, the FASB issued updated guidance on January 1, 2021. The Company evaluated each of the presentation of net benefit cost in the statement of operationsamendments, and the components eligible for capitalization. The new guidance requires that onlyadoption of the service cost component of net periodic pension cost and net periodic postretirement benefit cost be presented with other employee compensation costs in operating expenses. The other components of net benefit cost, including amortization of prior service cost, and gains and losses from settlements and curtailments, areamendments did not have a material impact to be included in non-operating expenses. The new guidance also stipulates that only the service cost component of net benefit cost is eligible for capitalization. This new guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Company’s financial statements.
3. | REVENUE RECOGNITION |
The Company is currently evaluating the new guidance.
Compensation—Stock Compensation: Scope of Modification Accounting—In May 2017, the FASB issued updated guidancedisaggregates revenue based on modifications to share-based payment awards. The updated guidance requires entities to account for the effects of a modification to a share-based payment award unlessits business segment results and believes that the following are allinformation provides a reasonable representation of how performance obligations relate to the same immediately beforenature, amount, timing and afteruncertainty of revenue and cash flows:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net Revenue: |
|
|
|
|
|
|
|
|
Financial Advisory (a) |
| $ | 317,522 |
|
| $ | 298,970 |
|
|
|
|
|
|
|
|
|
|
Asset Management: |
|
|
|
|
|
|
|
|
Management Fees and Other (b) |
| $ | 314,513 |
|
| $ | 281,007 |
|
Incentive Fees (c) |
|
| 32,977 |
|
|
| 1,514 |
|
Total Asset Management |
| $ | 347,490 |
|
| $ | 282,521 |
|
(a) | Financial Advisory is comprised of a wide array of financial advisory services regarding M&A advisory, restructuring, capital advisory, shareholder advisory, sovereign advisory, capital raising and other strategic advisory work for clients. The benefits of these advisory services are generally transferred to the Company’s clients over time, and consideration for these advisory services typically includes transaction completion, transaction announcement and retainer fees. Retainer fees are generally fixed and recognized over the period in which the advisory services are performed. However, transaction announcement and transaction completion fees are variable and subject to constraints, and they are typically not recognized until there is an announcement date or a completion date, respectively, due to the uncertainty associated with those events. Therefore, in any given period, advisory fees recognized for certain transactions will relate to services performed in prior periods. The advisory fees that may be unrecognized as of the end of a reporting period, primarily comprised of fees associated with transaction announcements and transaction completions, generally remain unrecognized due to the uncertainty associated with those events. |
(b) | Management fees and other is primarily comprised of management services. The benefits of these management services are transferred to the Company’s clients over time. Consideration for these management services generally includes management fees, which are based on assets under management and recognized over the period in which the management services are performed. The selling or distribution of fund interests is a separate performance obligation within management fees and other, and the benefits of such services are transferred to the Company’s clients at the point in time that such fund interests are sold or distributed. |
(c) | Incentive fees is primarily comprised of management services. The benefits of these management services are transferred to the Company’s clients over time. Consideration for these management services is generally variable and includes performance or incentive fees. The fees allocated to these management services that are unrecognized as of the end of the reporting period are generally amounts that are subject to constraints due to the uncertainty associated with performance targets and clawbacks. |
In addition to the modification: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as an equity instrument or a liability instrument. This new guidanceabove, contracts with clients include trade-based commission income, which is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The new guidance is to be applied on a prospective basis. The Company is currently evaluating the new guidance.
Leases—In February 2016, the FASB issued updated guidance for leases. The guidance requires a lessee to (i) recognize a right-of-use asset and a lease liability, initially measuredrecognized at the present valuepoint in time of the lease payments, in the statement of financial condition, (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis,execution and (iii) classify all cash paymentspresented within operating activities in the statement of cash flows. The new guidance is effective for annualother revenue. Such income may be earned by providing trade facilitation, execution, clearance and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance issettlement, custody, and trade administration services to be applied on a modified retrospective basis. The Company is currently evaluating the new guidance.
Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments—In June 2016, the FASB issued new guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The new guidance is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the new guidance.clients.
11
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Intangibles—Goodwill and Other: SimplifyingWith regard to the Testdisclosure requirement for Goodwill Impairment—In January 2017,remaining performance obligations, the FASB issued updatedCompany elected the practical expedients permitted in the guidance which eliminated Step 2 from the goodwill impairment test. Step 2 is the process of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidancerequires entities to measure a goodwill impairment loss as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to thecarrying amount ofgoodwill. The FASB also eliminated the requirements for entities that have reporting units with zero or negative carrying amounts to perform a qualitative assessment for the goodwill impairment test. Instead, those entities would be required to disclose the amount of goodwill allocated to each reporting unit(i) exclude contracts with a zeroduration of one year or negative carrying amount. The new guidanceless; and (ii) exclude variable consideration, such as transaction completion and transaction announcement fees, that is effective for interimallocated entirely to unsatisfied performance obligations. Excluded variable consideration typically relates to contracts with a duration of one year or annualgoodwill impairment tests performed in fiscal years beginning after December 15, 2019, with early adoption permitted. The Companyless, and is currentlyevaluatinggenerally constrained due to uncertainties. Therefore, when applying the newguidance.practical expedients, amounts related to remaining performance obligations are not material to the Company’s financial statements.
| RECEIVABLES |
The Company’s receivables represent fee receivables, amounts due from customers and other receivables, and amounts due from Lazard Ltd subsidiaries. The fee receivables are generally due within 60 days from the date of invoice, except as related to certain Restructuring services and certain Capital Raising activities, specifically Private Capital Advisory services, which have fee receivables due upon specified contractual payment terms. For customer loans within customers and other receivables, the Company has elected to apply the practical expedient, in accordance with current expected credit losses (“CECL”) guidance, for financial assets with collateral maintenance provisions, which results in no expected credit losses given that these loans are maintained with collateral having a fair value in excess of the carrying amount of the loans as of March 31, 2021.
Receivables are stated net of an estimated allowance for doubtful accounts determined in accordance with the CECL model, for past due amountsgeneral credit risk of the overall portfolio and for specific accounts deemed uncollectible, which may include situations where a fee is in dispute.
For fee receivables, the allowance for doubtful accounts is determined together for all Financial Advisory fees, except for Private Capital Advisory given the different nature of the business, client composition and risk characteristics. In addition, a separate allowance for doubtful accounts is determined for all Asset Management fees. The allowance is measured by the application of an average charge-off rate, determined annually based on historical bad debt charge-off experience, to the fee receivable balance of the respective services, adjusted for specific allowance recognized based on current conditions of individual clients. The current factors are considered on a quarterly basis and include the aging of the receivables, the client’s ability to make payments, and the Company’s relationship with the client. In addition, the Company also performs a qualitative assessment on a quarterly basis to monitor economic factors and other uncertainties that may require additional adjustment to the expected credit loss allowance.
With respect to fees receivable from Financial Advisory activities, such receivables are generally deemed past due when they are outstanding 60 days from the date of invoice, except for certain transactions that include specific contractual payment terms that may vary from approximately one month to four years following the invoice date (as is the case for certain Private Capital Advisory fees) or may be subject to court approval (as is the case with Restructuring activities that include bankruptcy proceedings). In such cases, receivables are deemed past due when payment is not received by the agreed-upon contractual date or the court approval date, respectively. Financial Advisory fee receivables past due, from the date of invoice or the specific contractual payment terms, in excess of 180 days are fully provided for unless there is evidence that the balance is collectible. Notwithstanding our policy for receivables past due, any receivables that we determine are impaired result in specific reserves against such exposures. Asset Management fees are fully provided for when such receivables are outstanding 12 months after the invoice date. In addition, the Company specifically reserves against exposures relating to Asset Management fees where we determine receivables are impaired prior to being outstanding for 12 months.
Activity in the allowance for doubtful accounts for the three month and nine month periods ended September 30, 2017March 31, 2021 and 20162020 was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Beginning Balance |
| $ | 25,094 |
|
| $ | 13,569 |
|
| $ | 16,386 |
|
| $ | 12,882 |
|
| $ | 36,649 |
|
| $ | 27,130 |
|
Bad debt expense, net of recoveries |
|
| 4,753 |
|
|
| 1,545 |
|
|
| 18,584 |
|
|
| 4,124 |
| ||||||||
Adjustment for adoption of new accounting guidance |
|
| - |
|
|
| 7,571 |
| ||||||||||||||||
Bad debt expense, net of reversals |
|
| 370 |
|
|
| (527 | ) | ||||||||||||||||
Charge-offs, foreign currency translation and other adjustments |
|
| (2,383 | ) |
|
| (2,147 | ) |
|
| (7,506 | ) |
|
| (4,039 | ) |
|
| (2,022 | ) |
|
| (2,890 | ) |
Ending Balance |
| $ | 27,464 |
|
| $ | 12,967 |
|
| $ | 27,464 |
|
| $ | 12,967 |
| ||||||||
Ending Balance* |
| $ | 34,997 |
|
| $ | 31,284 |
|
Bad debt expense, net of recoveries is included in “investment banking and other advisory fees” on the condensed consolidated statements of operations.
At September 30, 2017 and December 31, 2016, the Company had receivables past due or deemed uncollectible of $44,372 and $22,212, respectively.
Of the Company’s fee receivables at September 30, 2017 and December 31, 2016, $64,965 and $76,133, respectively, represented interest-bearing financing receivables. In addition, at September 30, 2017 and December 31, 2016, the Company had interest-bearing receivables from Lazard Ltd subsidiaries of $3,742 and $20,365, respectively.�� Based upon our historical loss experience, the credit quality of the counterparties, and the lack of past due or uncollectible amounts, there was no allowance for doubtful accounts required at those dates related to such receivables.
The aggregate carrying amount of our non-interest bearing receivables of $502,312 and $570,486 at September 30, 2017 and December 31, 2016, respectively, approximates fair value.
12
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
*The allowance for doubtful accounts balances are substantially all related to M&A and Restructuring fee receivables that include recoverable expense receivables.
Bad debt expense, net of reversals represents the current period provision of expected credit losses and is included in “operating expenses—other” on the condensed consolidated statements of operations.
Of the Company’s fee receivables at March 31, 2021 and December 31, 2020, $90,826 and $90,521, respectively, represented financing receivables for our Private Capital Advisory fees. In addition, at both March 31, 2021 and December 31, 2020, the Company had interest-bearing receivables from Lazard Ltd subsidiaries of $86,800. Based upon our historical loss experience, the credit quality of the counterparties, and the lack of uncollectible amounts, there was 0 allowance for doubtful accounts required at those dates related to such receivables.
At March 31, 2021 and December 31, 2020, customers and other receivables included $110,954 and $99,965, respectively, of customer loans, which are fully collateralized and closely monitored for counterparty creditworthiness, with such collateral having a fair value in excess of the carrying amount of the loans as of March 31, 2021 and December 31, 2020.
The aggregate carrying amount of all other receivables of $585,537 and $597,235 at March 31, 2021 and December 31, 2020, respectively, approximates fair value.
The Company’s investments and securities sold, not yet purchased, consist of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Interest-bearing deposits |
| $ | 552 |
|
| $ | 456 |
| ||||||||
Debt |
|
| 6 |
|
|
| - |
|
| $ | 99,994 |
|
| $ | 99,987 |
|
Equities |
|
| 46,181 |
|
|
| 41,017 |
|
|
| 48,184 |
|
|
| 37,365 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments (a) |
|
| 23,518 |
|
|
| 32,441 |
|
|
| 39,371 |
|
|
| 34,264 |
|
Debt (a) |
|
| 86,900 |
|
|
| 74,597 |
|
|
| 140,053 |
|
|
| 123,554 |
|
Equity (a) |
|
| 191,193 |
|
|
| 188,268 |
|
|
| 415,056 |
|
|
| 325,795 |
|
Private equity |
|
| 78,376 |
|
|
| 122,421 |
|
|
| 39,693 |
|
|
| 37,567 |
|
|
|
| 379,987 |
|
|
| 417,727 |
|
|
| 634,173 |
|
|
| 521,180 |
|
Equity method |
|
| 222 |
|
|
| 222 |
| ||||||||
Total investments |
|
| 426,948 |
|
|
| 459,422 |
| ||||||||
Less: |
|
|
|
|
|
|
|
| ||||||||
Interest-bearing deposits |
|
| 552 |
|
|
| 456 |
| ||||||||
Equity method |
|
| 222 |
|
|
| 222 |
| ||||||||
Investments, at fair value |
| $ | 426,174 |
|
| $ | 458,744 |
|
| $ | 782,351 |
|
| $ | 658,532 |
|
Securities sold, not yet purchased, at fair value (included in “other liabilities”) |
| $ | 5,921 |
|
| $ | 4,482 |
|
| $ | 3,221 |
|
| $ | 1,176 |
|
(a) | Interests in alternative investment funds, debt funds and equity funds include investments with fair values of |
Interest-bearing deposits haveDebt primarily consists of U.S. Treasury securities with original maturities of greater than three months but equal to orand less than one year and are carried at cost that approximates fair value due to their short-term maturities.year.
Equities primarily consist of seed investments invested in marketable equity securities of large-, mid- and small-cap domestic, international and global companies held within separately managed accounts related to our Asset Management business.
Alternative investment funds primarily consist of interests in various Lazard-managed hedge funds, funds of funds and mutual funds. Such amounts primarily consist of seed investments in funds related to our Asset Management business and amounts related to LFI discussed above.
13
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Debt funds primarily consist of seed investments in funds related to our Asset Management business that invest in debt securities, amounts related to LFI discussed above and an investment in a Lazard-managed debt fund.
Equity funds primarily consist of seed investments in funds related to our Asset Management business that invest in equity securities, and amounts related to LFI discussed above.
Private equity investments include those owned by Lazard and those consolidated but not owned by Lazard. Private equity investments owned by Lazard are primarily comprised of investments in private equity funds. Such investments primarily include (i) Edgewater Growth Capital Partners III, L.P. (“EGCP III”), a fund primarily making equity and buyout investments in middle market companies and (ii) a fund targeting significant noncontrolling-stake investments in established private companies and (iii) until the second quarter of 2017, a mezzanine fund (the “Mezzanine Fund”), which invests in mezzanine debt of a diversified selection of small- to mid-cap European companies. Lazard sold its interest in the Mezzanine Fund in May 2017.
13
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Private equity investments consolidated but not owned by Lazard relate to the economic interests that are owned by the management team and other investors in the Edgewater Funds (“Edgewater”).
During the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016,2020, the Company reported in “revenue-other” on its condensed consolidated statements of operations net unrealized investment gains and losses pertaining to “trading”“equity securities and trading debt securities” still held as of the reporting date as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net unrealized investment gains |
| $ | 6,949 |
|
| $ | 9,975 |
|
| $ | 27,932 |
|
| $ | 15,221 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net unrealized investment gains (losses) |
| $ | 1,054 |
|
| $ | (44,432 | ) |
| FAIR VALUE MEASUREMENTS |
Fair Value Hierarchy of Investments and Certain Other Assets and Liabilities—Lazard categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:
Level 1. | Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Lazard has the ability to access. |
Level 2. | Assets and liabilities whose values are based on (i) quoted prices for similar assets or liabilities in an active market, or quoted prices for identical or similar assets or liabilities in non-active markets, or (ii) inputs other than quoted prices that are directly observable or derived principally from, or corroborated by, market data. |
Level 3. | Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose trading volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis. |
The fair value of debt is classified as Level 1 when the fair values are based on unadjusted quoted prices in active markets.
The fair value of equities is classified as Level 1 or Level 3 as follows: marketable equity securities are classified as Level 1 and are valued based on the last trade price on the primary exchange for that security as provided by external pricing services; equity securitiesinterests in private companies are generally classified as Level 3.
The fair value of investments in alternative investment funds, debt funds and equity funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund.
The fair value of investments in private equity funds is classified as Level 3 for certain investments that are valued based on the potential transaction value.
The fair value of securities sold, not yet purchased, is classified as Level 1 when the fair values are based on unadjusted quoted prices in active markets.
The fair value of the contingent consideration liability is classified as Level 3 and the estimated fair value of the liability is remeasured at each reporting period. The inputs used to derive the fair value of the contingent consideration include the application of probabilities when assessing certain performance thresholds for the relevant periods. Any change14
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in the fair value is recognized in “amortization and other acquisition-related costs” in the condensed consolidated statement of operations. Our business acquisitions may involve the potential payment of contingent consideration upon the achievement of certain performance thresholds. The contingent consideration liability is initially recorded at the estimated fair value of the contingent payments on the acquisition date and is included in “other liabilities” on the condensed consolidated statements of financial condition. See Note 10.thousands, unless otherwise noted)
The fair value of derivatives entered into by the Company isand classified as Level 2 and is based on the values of the related underlying assets, indices or reference rates as follows: the fair value of forward foreign currency exchange rate contracts is a function of the spot rate and the interest rate differential of the two currencies from the trade date to settlement date; the fair value of total return swaps is based on the change in fair value of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. The fair value of derivatives entered into by the Company and classified as Level 3 is based on a Black-Scholes valuation model that utilizes both observable and unobservable inputs. Unobservable inputs include model adjustments for valuation uncertainity. See Note 6.7.
14
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Investments Measured at Net Asset Value (“NAV”)—As a practical expedient, the Company uses NAV or its equivalent to measure the fair value of certain investments. NAV is primarily determined based on information provided by external fund administrators. The Company’s investments valued at NAV as a practical expedient in (i) alternative investment funds, debt funds and equity funds are redeemable in the near term, and (ii) private equity funds are not redeemable in the near term as a result of redemption restrictions.
The following tables present, as of September 30, 2017March 31, 2021 and December 31, 2016,2020, the classification of (i) investments and certain other assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy and (ii) investments measured at NAV or its equivalent as a practical expedient:
|
| September 30, 2017 |
|
| March 31, 2021 |
| ||||||||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
| $ | 6 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 6 |
|
| $ | 99,994 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 99,994 |
|
Equities |
|
| 44,634 |
|
|
| - |
|
|
| 1,547 |
|
|
| - |
|
|
| 46,181 |
|
|
| 46,543 |
|
|
| - |
|
|
| 1,641 |
|
|
| - |
|
|
| 48,184 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 15,798 |
|
|
| - |
|
|
| - |
|
|
| 7,720 |
|
|
| 23,518 |
|
|
| 17,119 |
|
|
| - |
|
|
| - |
|
|
| 22,252 |
|
|
| 39,371 |
|
Debt |
|
| 86,894 |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| 86,900 |
|
|
| 140,048 |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 140,053 |
|
Equity |
|
| 191,144 |
|
|
| - |
|
|
| - |
|
|
| 49 |
|
|
| 191,193 |
|
|
| 415,008 |
|
|
| - |
|
|
| - |
|
|
| 48 |
|
|
| 415,056 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 78,376 |
|
|
| 78,376 |
|
|
| - |
|
|
| - |
|
|
| 1,472 |
|
|
| 38,221 |
|
|
| 39,693 |
|
Derivatives |
|
| - |
|
|
| 3,443 |
|
|
| - |
|
|
| - |
|
|
| 3,443 |
|
|
| - |
|
|
| 1,254 |
|
|
| - |
|
|
| - |
|
|
| 1,254 |
|
Total |
| $ | 338,476 |
|
| $ | 3,443 |
|
| $ | 1,547 |
|
| $ | 86,151 |
|
| $ | 429,617 |
|
| $ | 718,712 |
|
| $ | 1,254 |
|
| $ | 3,113 |
|
| $ | 60,526 |
|
| $ | 783,605 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 5,921 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 5,921 |
|
| $ | 3,221 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,221 |
|
Contingent consideration liability |
|
| - |
|
|
| - |
|
|
| 4,010 |
|
|
| - |
|
|
| 4,010 |
| ||||||||||||||||||||
Derivatives |
|
| - |
|
|
| 189,142 |
|
|
| - |
|
|
| - |
|
|
| 189,142 |
|
|
| - |
|
|
| 383,924 |
|
|
| 11,500 |
|
|
| - |
|
|
| 395,424 |
|
Total |
| $ | 5,921 |
|
| $ | 189,142 |
|
| $ | 4,010 |
|
| $ | - |
|
| $ | 199,073 |
|
| $ | 3,221 |
|
| $ | 383,924 |
|
| $ | 11,500 |
|
| $ | - |
|
| $ | 398,645 |
|
|
| December 31, 2016 |
| |||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 39,509 |
|
| $ | - |
|
| $ | 1,508 |
|
| $ | - |
|
| $ | 41,017 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 25,316 |
|
|
| - |
|
|
| - |
|
|
| 7,125 |
|
|
| 32,441 |
|
Debt |
|
| 74,591 |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| 74,597 |
|
Equity |
|
| 188,229 |
|
|
| - |
|
|
| - |
|
|
| 39 |
|
|
| 188,268 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 122,421 |
|
|
| 122,421 |
|
Derivatives |
|
| - |
|
|
| 1,993 |
|
|
| - |
|
|
| - |
|
|
| 1,993 |
|
Total |
| $ | 327,645 |
|
| $ | 1,993 |
|
| $ | 1,508 |
|
| $ | 129,591 |
|
| $ | 460,737 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 4,482 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 4,482 |
|
Contingent consideration liability |
|
| - |
|
|
| - |
|
|
| 3,364 |
|
|
| - |
|
|
| 3,364 |
|
Derivatives |
|
| - |
|
|
| 182,223 |
|
|
| - |
|
|
| - |
|
|
| 182,223 |
|
Total |
| $ | 4,482 |
|
| $ | 182,223 |
|
| $ | 3,364 |
|
| $ | - |
|
| $ | 190,069 |
|
15
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| December 31, 2020 |
| |||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
| $ | 99,987 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 99,987 |
|
Equities |
|
| 35,694 |
|
|
| - |
|
|
| 1,671 |
|
|
| - |
|
|
| 37,365 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 17,411 |
|
|
| - |
|
|
| - |
|
|
| 16,853 |
|
|
| 34,264 |
|
Debt |
|
| 123,549 |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 123,554 |
|
Equity |
|
| 325,749 |
|
|
| - |
|
|
| - |
|
|
| 46 |
|
|
| 325,795 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| 1,486 |
|
|
| 36,081 |
|
|
| 37,567 |
|
Derivatives |
|
| - |
|
|
| 536 |
|
|
| - |
|
|
| - |
|
|
| 536 |
|
Total |
| $ | 602,390 |
|
| $ | 536 |
|
| $ | 3,157 |
|
| $ | 52,985 |
|
| $ | 659,068 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 1,176 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,176 |
|
Derivatives |
|
| - |
|
|
| 314,485 |
|
|
| - |
|
|
| - |
|
|
| 314,485 |
|
Total |
| $ | 1,176 |
|
| $ | 314,485 |
|
| $ | - |
|
| $ | - |
|
| $ | 315,661 |
|
The following tables provide a summary of changes in fair value of the Company’s Level 3 assets and liabilities for the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016:2020:
|
| Three Months Ended September 30, 2017 |
|
| Three Months Ended March 31, 2021 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions/ Issuances |
|
| Sales/ Dispositions/ Settlements |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 3,072 |
|
| $ | 130 |
|
| $ | - |
|
| $ | (1,661 | ) |
| $ | 6 |
|
| $ | 1,547 |
|
| $ | 1,671 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (31 | ) |
| $ | 1,641 |
|
Private equity funds |
|
| 1,486 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (14 | ) |
|
| 1,472 |
| ||||||||||||||||||||||||
Total Level 3 Assets |
| $ | 3,072 |
|
| $ | 130 |
|
| $ | - |
|
| $ | (1,661 | ) |
| $ | 6 |
|
| $ | 1,547 |
|
| $ | 3,157 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (45 | ) |
| $ | 3,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 4,108 |
|
| $ | (98 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 4,010 |
| ||||||||||||||||||||||||
Derivatives |
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,500 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,500 |
| ||||||||||||||||||||||||
Total Level 3 Liabilities |
| $ | 4,108 |
|
| $ | (98 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 4,010 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,500 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 11,500 |
|
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,508 |
|
| $ | 4 |
|
| $ | 1,661 |
|
| $ | (1,669 | ) |
| $ | 43 |
|
| $ | 1,547 |
|
Total Level 3 Assets |
| $ | 1,508 |
|
| $ | 4 |
|
| $ | 1,661 |
|
| $ | (1,669 | ) |
| $ | 43 |
|
| $ | 1,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 3,364 |
|
| $ | 646 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 4,010 |
|
Total Level 3 Liabilities |
| $ | 3,364 |
|
| $ | 646 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 4,010 |
|
|
| Three Months Ended September 30, 2016 |
|
| Three Months Ended March 31, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions/ Settlements |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,298 |
|
| $ | 2 |
|
| $ | - |
|
| $ | - |
|
| $ | 21 |
|
| $ | 1,321 |
|
| $ | 1,600 |
|
| $ | (99 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | (76 | ) |
| $ | 1,425 |
|
Private equity funds |
|
| 1,371 |
|
|
| (24 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,347 |
| ||||||||||||||||||||||||
Total Level 3 Assets |
| $ | 1,298 |
|
| $ | 2 |
|
| $ | - |
|
| $ | - |
|
| $ | 21 |
|
| $ | 1,321 |
|
| $ | 2,971 |
|
| $ | (123 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | (76 | ) |
| $ | 2,772 |
|
16
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,276 |
|
| $ | 12 |
|
| $ | - |
|
| $ | - |
|
| $ | 33 |
|
| $ | 1,321 |
|
Total Level 3 Assets |
| $ | 1,276 |
|
| $ | 12 |
|
| $ | - |
|
| $ | - |
|
| $ | 33 |
|
| $ | 1,321 |
|
(a) | Earnings recorded in “other revenue” for investments in |
There were no0 transfers between anyinto or out of the Level 1, 2 and 3 categories inwithin the fair value measurement hierarchy during the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016. Certain investments that were valued at NAV as of December 31, 2016 were transferred to Level 2 from the NAV category in the six months ended June 30, 2017, as these investments were valued based on a probable transaction value as of the reporting date that differs from NAV. Such investments were sold in the second quarter of 2017.2020.
The following tables present, at September 30, 2017March 31, 2021 and December 31, 2016,2020, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:
|
| September 30, 2017 |
| March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Liquidation Period of Investments Not Redeemable |
|
| Investments Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments Redeemable | |||||||||||||
|
| Fair Value |
|
| Unfunded Commitments |
|
|
| % of Fair Value Not Redeemable |
|
| % Next 5 Years |
|
| % 5-10 Years |
|
| % Thereafter |
|
| Redemption Frequency |
| Redemption Notice Period |
| Fair Value |
|
| Unfunded Commitments |
|
|
| % of Fair Value Not Redeemable |
|
| Redemption Frequency |
| Redemption Notice Period | |||||||||
Alternative investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds |
| $ | 6,617 |
|
| $ | - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (a) |
| <30-60 days |
| $ | 21,635 |
|
| $ | - |
|
|
| NA |
|
| (a) |
| 30-60 days | |||||
Funds of funds |
|
| 517 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (b) |
| <30-90 days | |||||||||||||||||||||
Other |
|
| 586 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (c) |
| <30-60 days |
|
| 617 |
|
|
| - |
|
|
| NA |
|
| (b) |
| <30-30 days | |||||
Debt funds |
|
| 6 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (d) |
| 30 days |
|
| 5 |
|
|
| - |
|
|
| NA |
|
| (c) |
| <30 days | |||||
Equity funds |
|
| 49 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (e) |
| <30-90 days |
|
| 48 |
|
|
| - |
|
|
| NA |
|
| (d) |
| <30-60 days | |||||
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 78,376 |
|
|
| 10,085 |
| (f) |
|
| 100 | % |
|
| 16 | % |
|
| 39 | % |
|
| 45 | % |
| NA |
| NA |
|
| 38,221 |
|
|
| 5,865 |
| (e) |
|
| 100 | % | (f) | NA |
| NA |
Total |
| $ | 86,151 |
|
| $ | 10,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 60,526 |
|
| $ | 5,865 |
|
|
|
|
|
|
|
|
|
|
(a) |
|
(b) |
|
(c) |
|
| daily (100%) |
|
|
| Unfunded commitments to private equity investments consolidated but not owned by Lazard of |
(f) | Distributions from each fund will be received as the underlying investments of the funds are liquidated. |
|
| December 31, 2020 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments Redeemable | ||
|
| Fair Value |
|
| Unfunded Commitments |
|
|
| % of Fair Value Not Redeemable |
|
| Redemption Frequency |
| Redemption Notice Period | |||
Alternative investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds |
| $ | 16,216 |
|
| $ | - |
|
|
| NA |
|
| (a) |
| 30-60 days | |
Other |
|
| 637 |
|
|
| - |
|
|
| NA |
|
| (b) |
| <30-30 days | |
Debt funds |
|
| 5 |
|
|
| - |
|
|
| NA |
|
| (c) |
| <30 days | |
Equity funds |
|
| 46 |
|
|
| - |
|
|
| NA |
|
| (d) |
| <30-60 days | |
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 36,081 |
|
|
| 5,865 |
| (e) |
|
| 100 | % | (f) | NA |
| NA |
Total |
| $ | 52,985 |
|
| $ | 5,865 |
|
|
|
|
|
|
|
|
|
|
(a) | monthly (99%) and quarterly (1%) |
(b) | daily (8%) and monthly (92%) |
(c) | daily (100%) |
(d) | monthly (39%) and annually (61%) |
(e) | Unfunded commitments to private equity investments consolidated but not owned by Lazard of $10,022 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders. |
(f) | Distributions from each fund will be received as the underlying investments of the funds are liquidated. |
17
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| December 31, 2016 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Liquidation Period of Investments Not Redeemable |
|
| Investments Redeemable | |||||||||||
|
| Fair Value |
|
| Unfunded Commitments |
|
|
| % of Fair Value Not Redeemable |
|
| % Next 5 Years |
|
| % 5-10 Years |
|
| % Thereafter |
|
| Redemption Frequency |
| Redemption Notice Period | ||||||
Alternative investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds |
| $ | 6,190 |
|
| $ | - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (a) |
| <30-60 days | ||||
Funds of funds |
|
| 492 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (b) |
| <30-90 days | ||||
Other |
|
| 443 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (c) |
| <30-60 days | ||||
Debt funds |
|
| 6 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (d) |
| 30 days | ||||
Equity funds |
|
| 39 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (e) |
| <30-90 days | ||||
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 90,824 |
|
|
| 9,183 |
| (f) |
|
| 100 | % |
|
| 12 | % |
|
| 33 | % |
|
| 55 | % |
| NA |
| NA |
Mezzanine debt |
|
| 31,597 |
|
|
| - |
|
|
|
| 100 | % |
|
| - |
|
|
| - |
|
|
| 100 | % |
| NA |
| NA |
Total |
| $ | 129,591 |
|
| $ | 9,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Capital Funding Commitments—At September 30, 2017,March 31, 2021, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $8,613.$5,370. The investment period for EGCP III ended on October 12, 2016, after which point the Company’s obligation to fund capital contributions for new investments in EGCP III expired. The Company remains obligated until October 12, 2023 (or any earlier liquidation of EGCP III) to make capital contributions necessary to fund follow-on investments and to pay for fund expenses.
| DERIVATIVES |
The Company enters into forward foreign currency exchange rate contracts, interest rate swaps, interest rate futures, total return swap contracts on various equity and debt indices and other derivative contracts to economically hedge exposures to fluctuations in currency exchange rates, interest rates and equity and debt prices. The Company reports its derivative instruments separately as assets and liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. The Company’s derivative instruments are recorded at their fair value, and are included in “other assets” and “other liabilities” on the condensed consolidated statements of financial condition. Gains and losses on the Company’s derivative instruments are generally included in “interest income” and “interest expense”, respectively, or “revenue-other”, depending on the nature of the underlying item, in the condensed consolidated statements of operations.
In addition to the derivative instruments described above, the Company records derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements, the fair value of which is based on the value of the underlying investments, adjusted for estimated forfeitures, and is included in “accrued compensation and benefits” in the condensed consolidated statements of financial condition. Changes in the fair value of the derivative liabilities are included in “compensation and benefits” in the condensed consolidated statements of operations, the impact of which equally offsets the changes in the fair value of investments which are currently expected to be delivered upon settlement of LFI and other similar deferred compensation arrangements, which are reported in “revenue-other” in the condensed consolidated statements of operations.
18
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The table below presents the fair value of the Company’s derivative instruments reported within “other assets” and “other liabilities” and the fair value of the Company’s derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements reported within “accrued compensation and benefits” (see Note 12)13) on the accompanying condensed consolidated statements of financial condition as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Derivative Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts |
| $ | 2,938 |
|
| $ | 1,993 |
|
| $ | 1,254 |
|
| $ | 536 |
|
Total return swaps and other (a) |
|
| 505 |
|
|
| - |
| ||||||||
|
| $ | 3,443 |
|
| $ | 1,993 |
|
| $ | 1,254 |
|
| $ | 536 |
|
Derivative Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts |
| $ | 3,835 |
|
| $ | 2,792 |
|
| $ | 340 |
|
| $ | 333 |
|
Total return swaps and other (a) |
|
| 9,557 |
|
|
| 9,043 |
|
|
| 718 |
|
|
| 2,752 |
|
Warrants |
|
| 11,500 |
|
|
| - |
| ||||||||
LFI and other similar deferred compensation arrangements |
|
| 175,750 |
|
|
| 170,388 |
|
|
| 382,866 |
|
|
| 311,400 |
|
|
| $ | 189,142 |
|
| $ | 182,223 |
|
| $ | 395,424 |
|
| $ | 314,485 |
|
| (a) | For total return swaps and for contracts with the same counterparty under legally enforceable master netting agreements, (i) as of March 31, 2021 amounts represent the netting of gross derivative assets and liabilities of |
Net gains (losses) with respect to derivative instruments (predominantly reflected(included in “revenue-other”) and the Company’s derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements (included in “compensation and benefits” expense) as reflected on the accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016,2020, were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Forward foreign currency exchange rate contracts |
| $ | (2,991 | ) |
| $ | (1,591 | ) |
| $ | (8,149 | ) |
| $ | (8,445 | ) |
LFI and other similar deferred compensation arrangements |
|
| (4,875 | ) |
|
| (6,909 | ) |
|
| (17,981 | ) |
|
| (4,707 | ) |
Total return swaps and other |
|
| (3,890 | ) |
|
| (3,674 | ) |
|
| (12,872 | ) |
|
| (3,880 | ) |
Total |
| $ | (11,756 | ) |
| $ | (12,174 | ) |
| $ | (39,002 | ) |
| $ | (17,032 | ) |
|
|
At September 30, 2017 and December 31, 2016, property consisted of the following:
|
| Estimated Depreciable |
|
| September 30, |
|
| December 31, |
| |||
|
| Life in Years |
|
| 2017 |
|
| 2016 |
| |||
Buildings |
|
| 33 |
|
| $ | 149,548 |
|
| $ | 132,821 |
|
Leasehold improvements |
| 3-20 |
|
|
| 174,129 |
|
|
| 175,810 |
| |
Furniture and equipment |
| 3-10 |
|
|
| 179,890 |
|
|
| 172,325 |
| |
Construction in progress |
|
|
|
|
|
| 11,843 |
|
|
| 14,038 |
|
Total |
|
|
|
|
|
| 515,410 |
|
|
| 494,994 |
|
Less - Accumulated depreciation and amortization |
|
|
|
|
|
| 314,708 |
|
|
| 285,997 |
|
Property |
|
|
|
|
| $ | 200,702 |
|
| $ | 208,997 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Forward foreign currency exchange rate contracts |
| $ | 6,818 |
|
| $ | 1,772 |
|
LFI and other similar deferred compensation arrangements |
|
| (7,487 | ) |
|
| 19,637 |
|
Total return swaps and other |
|
| (4,279 | ) |
|
| 18,845 |
|
Total |
| $ | (4,948 | ) |
| $ | 40,254 |
|
1918
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
At March 31, 2021 and December 31, 2020, property consisted of the following:
|
| Estimated Depreciable |
|
| March 31, |
|
| December 31, |
| |||
|
| Life in Years |
|
| 2021 |
|
| 2020 |
| |||
Buildings |
|
| 33 |
|
| $ | 148,518 |
|
| $ | 155,434 |
|
Leasehold improvements |
| 3-20 |
|
|
| 219,262 |
|
|
| 219,871 |
| |
Furniture and equipment |
| 3-10 |
|
|
| 238,587 |
|
|
| 240,284 |
| |
Construction in progress |
|
|
|
|
|
| 41,477 |
|
|
| 42,824 |
|
Total |
|
|
|
|
|
| 647,844 |
|
|
| 658,413 |
|
Less - Accumulated depreciation and amortization |
|
|
|
|
|
| 397,910 |
|
|
| 401,505 |
|
Property |
|
|
|
|
| $ | 249,934 |
|
| $ | 256,908 |
|
9. | GOODWILL AND OTHER INTANGIBLE ASSETS |
The components of goodwill and other intangible assets at September 30, 2017March 31, 2021 and December 31, 20162020 are presented below:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Goodwill |
| $ | 362,773 |
|
| $ | 352,124 |
|
| $ | 359,340 |
|
| $ | 361,682 |
|
Other intangible assets (net of accumulated amortization) |
|
| 5,558 |
|
|
| 6,858 |
|
|
| 195 |
|
|
| 210 |
|
|
| $ | 368,331 |
|
| $ | 358,982 |
|
| $ | 359,535 |
|
| $ | 361,892 |
|
At September 30, 2017March 31, 2021 and December 31, 2016,2020, goodwill of $298,232$294,799 and $287,583,$297,141, respectively, was attributable to the Company’s Financial Advisory segment and, at each such respective date, $64,541 of goodwill was attributable to the Company’s Asset Management segment.
Changes in the carrying amount of goodwill for the ninethree month periods ended September 30, 2017March 31, 2021 and 20162020 are as follows:
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Balance, January 1 |
| $ | 352,124 |
|
| $ | 320,761 |
|
| $ | 361,682 |
|
| $ | 350,029 |
|
Foreign currency translation adjustments |
|
| 10,649 |
|
|
| 4,906 |
|
|
| (2,342 | ) |
|
| (14,132 | ) |
Balance, September 30 |
| $ | 362,773 |
|
| $ | 325,667 |
| ||||||||
Balance, March 31 |
| $ | 359,340 |
|
| $ | 335,897 |
|
All changes in the carrying amount of goodwill for the ninethree month periods ended September 30, 2017March 31, 2021 and 20162020 are attributable to the Company’s Financial Advisory segment.
The gross cost and accumulated amortization of other intangible assets as of September 30, 2017March 31, 2021 and December 31, 2016,2020, by major intangible asset category, are as follows:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
Success/performance fees |
| $ | 33,040 |
|
| $ | 27,693 |
|
| $ | 5,347 |
|
| $ | 33,040 |
|
| $ | 26,543 |
|
| $ | 6,497 |
|
Management fees, customer relationships and non-compete agreements |
|
| 33,436 |
|
|
| 33,225 |
|
|
| 211 |
|
|
| 33,436 |
|
|
| 33,075 |
|
|
| 361 |
|
|
| $ | 66,476 |
|
| $ | 60,918 |
|
| $ | 5,558 |
|
| $ | 66,476 |
|
| $ | 59,618 |
|
| $ | 6,858 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
Success/incentive fees |
| $ | 33,040 |
|
| $ | 33,040 |
|
| $ | - |
|
| $ | 33,040 |
|
| $ | 33,040 |
|
| $ | - |
|
Management fees, customer relationships and non-compete agreements |
|
| 34,671 |
|
|
| 34,476 |
|
|
| 195 |
|
|
| 34,671 |
|
|
| 34,461 |
|
|
| 210 |
|
|
| $ | 67,711 |
|
| $ | 67,516 |
|
| $ | 195 |
|
| $ | 67,711 |
|
| $ | 67,501 |
|
| $ | 210 |
|
Amortization expense of intangible assets, included in “amortization and other acquisition-related costs” in the condensed consolidated statements of operations, for the three month and nine month periods ended September 30, 2017 was $433 and $1,300, respectively, and for the three month and nine month periods ended September 30, 2016 was $746 and $1,720, respectively. Estimated future amortization expense is as follows:
Year Ending December 31, |
| Amortization Expense (a) |
| |
2017 (October 1 through December 31) |
| $ | 284 |
|
2018 |
|
| 5,274 |
|
Total amortization expense |
| $ | 5,558 |
|
|
|
2019
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Amortization expense of intangible assets, included in “amortization of intangible assets related to acquisitions” in the condensed consolidated statements of operations, for the three month periods ended March 31, 2021 and 2020 was $15 and $428, respectively. Estimated future amortization expense is as follows:
Year Ending December 31, |
| Amortization Expense |
| |
2021 (April 1 through December 31) |
| $ | 45 |
|
2022 |
|
| 60 |
|
2023 |
|
| 60 |
|
2024 |
|
| 30 |
|
Total amortization expense |
| $ | 195 |
|
Senior debt is comprised of the following as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
|
| Outstanding as of |
|
|
|
|
|
|
|
|
|
|
|
| Outstanding as of |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Initial |
|
|
|
| Annual |
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| Initial |
|
|
|
| Annual |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Principal Amount |
|
| Maturity Date |
| Interest Rate(a) |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal Amount |
|
| Maturity Date |
| Interest Rate(a) |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
| ||||||||||||||||
Lazard Group 2020 Senior Notes |
|
| 500,000 |
|
| 11/14/20 |
|
| 4.25 | % |
| $ | 500,000 |
|
| $ | 2,878 |
|
| $ | 497,122 |
|
| $ | 500,000 |
|
| $ | 3,569 |
|
| $ | 496,431 |
| ||||||||||||||||||||||||||||||||||
Lazard Group 2025 Senior Notes |
|
| 400,000 |
|
| 2/13/25 |
|
| 3.75 | % |
|
| 400,000 |
|
|
| 3,479 |
|
|
| 396,521 |
|
|
| 400,000 |
|
|
| 3,833 |
|
|
| 396,167 |
|
| $ | 400,000 |
|
| 2/13/25 |
|
| 3.75 | % |
| $ | 400,000 |
|
| $ | 1,830 |
|
| $ | 398,170 |
|
| $ | 400,000 |
|
| $ | 1,948 |
|
| $ | 398,052 |
|
Lazard Group 2027 Senior Notes |
|
| 300,000 |
|
| 3/1/27 |
|
| 3.625 | % |
|
| 300,000 |
|
|
| 3,707 |
|
|
| 296,293 |
|
|
| 300,000 |
|
|
| 3,998 |
|
|
| 296,002 |
|
|
| 300,000 |
|
| 3/1/27 |
|
| 3.625 | % |
|
| 300,000 |
|
|
| 2,308 |
|
|
| 297,692 |
|
|
| 300,000 |
|
|
| 2,405 |
|
|
| 297,595 |
|
Lazard Group 2028 Senior Notes |
|
| 500,000 |
|
| 9/19/28 |
|
| 4.50 | % |
|
| 500,000 |
|
|
| 6,355 |
|
|
| 493,645 |
|
|
| 500,000 |
|
|
| 6,568 |
|
|
| 493,432 |
| ||||||||||||||||||||||||||||||||||
Lazard Group 2029 Senior Notes |
|
| 500,000 |
|
| 3/11/29 |
|
| 4.375 | % |
|
| 500,000 |
|
|
| 6,145 |
|
|
| 493,855 |
|
|
| 500,000 |
|
|
| 6,338 |
|
|
| 493,662 |
| ||||||||||||||||||||||||||||||||||
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 1,200,000 |
|
| $ | 10,064 |
|
| $ | 1,189,936 |
|
| $ | 1,200,000 |
|
| $ | 11,400 |
|
| $ | 1,188,600 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,700,000 |
|
| $ | 16,638 |
|
| $ | 1,683,362 |
|
| $ | 1,700,000 |
|
| $ | 17,259 |
|
| $ | 1,682,741 |
|
(a) | The effective interest rates of |
The Company’s senior debt at March 31, 2021 and December 31, 2020 is carried at historical amounts of $1,683,362 and $1,682,741, respectively. At those dates, the fair value of such senior debt was approximately $1,885,000 and $1,954,000, respectively. The fair value of the Company’s senior debt is based on market quotations. The Company’s senior debt would be categorized within Level 2 of the hierarchy of fair value measurements if carried at fair value.
On September 25, 2015,July 22, 2020, Lazard Group entered into an Amended and Restated Credit Agreement for a five-year $150,000three-year, $200,000 senior revolving credit facility with a group of lenders, which expires in July 2023 (the “Amended and Restated Credit Agreement”), which expires in September 2020.. The Amended and Restated Credit Agreement amended and restated the previousLazard Group’s amended and restated credit agreement, dated September 25, 2012.2015, in its entirety. Borrowings under the Amended and Restated Credit Agreement generally will bear interest at LIBOR plus an applicable margin for specific interest periods determined based on Lazard Group’s highest credit rating from an internationally recognized credit agency. The Amended and Restated Credit Agreement contains certain covenants, events of default and other customary provisions, including customary LIBOR-replacement mechanics. At September 30, 2017March 31, 2021 and December 31, 2016, no2020, 0 amounts were outstanding under the Amended and Restated Credit Agreement.
20
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
As of March 31, 2021, the Company had approximately $213,000 in unused lines of credit available to it, including the credit facility provided under the Amended and Restated Credit Agreement and unused lines of credit available to LFB of approximately $12,000.
The Amended and Restated Credit Agreement and the indenture and the supplemental indentures relating to Lazard Group’s senior notes contain certain covenants, events of default and other customary provisions, including a customary make-whole provision in the event of early redemption, where applicable. As of September 30, 2017,March 31, 2021, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.
As of September 30, 2017, the Company had approximately $175,000 in unused lines of credit available to it, including the credit facility provided under the Amended and Restated Credit Agreement and unused lines of credit available to LFB of approximately $24,000 (at September 30, 2017 exchange rates).
The Company’s senior debt at September 30, 2017 and December 31, 2016 is carried at historical amounts of $1,189,936 and $1,188,600, respectively. At those dates, the fair value of such senior debt was approximately $1,230,000 and $1,204,000, respectively. The fair value of the Company’s senior debt is based on market quotations. The Company’s senior debt would be categorized within Level 2 of the hierarchy of fair value measurements if carried at fair value.
| COMMITMENTS AND CONTINGENCIES |
Leases—The Company has various leases and other contractual commitments arising in the ordinary course of business.
Guarantees—In the normal course of business, LFB provides indemnifications to third parties to protect them in the event of non-performance by its clients. At September 30, 2017, LFB had $2,948 of such indemnifications and held $2,948 of collateral/counter-guarantees to secure these commitments. The Company believes the likelihood of loss with respect to these indemnities is remote. Accordingly, no liability is recorded in the condensed consolidated statement of financial condition.
Business Acquisitions—For a business acquired in 2016, consideration consists of (i) previously paid one-time cash payment and 60,817 shares of Class A common stock subject to non-compete provisions and (ii) up to 210,431 additional shares of Class A common stock that are subject to certain performance thresholds. As of September 30, 2017, none of the contingent shares had been earned.
21
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Other Commitments—The Company has various other contractual commitments arising in the ordinary course of business. In addition, from time to time, each of LFB and LFNY may enter into underwriting commitments in which it will participate as an underwriter. At September 30, 2017,March 31, 2021, LFB and LFNY had no0 such underwriting commitments.
See Notes 56 and 1314 for information regarding commitments relating to investment capital funding commitments and obligations to fund our pension plans, respectively.
In the opinion of management, the fulfillment of the commitments described herein will not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations.
Legal—The Company is involved from time to time in judicial, governmental, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses, including proceedings initiated by former employees alleging wrongful termination. The Company reviews such matters on a case-by-case basis and establishes any required accrual if a loss is probable and the amount of such loss can be reasonably estimated. The Company experiences significant variation in its revenue and earnings on a quarterly basis. Accordingly, the results of any pending matter or matters could be significant when compared to the Company’s earnings in any particular fiscal quarter. The Company believes, however, based on currently available information, that the results of any pending matters, in the aggregate, will not have a material effect on its business or financial condition.
| MEMBERS’ EQUITY |
Lazard Group Distributions—Distributions in respect of Lazard Group’s common membership interests are allocated to the holders of such interests in accordance with the provisions of the Operating Agreement. Such distributions primarily represent amounts necessary to fund (i) any dividends Lazard Ltd may declare on its Class A common stock (“common stock”), the only class of common stock of Lazard outstanding, and (ii) tax distributions in respect of income taxes that Lazard Ltd’s subsidiaries incur.
During the ninethree month periodsperiod ended September 30, 2017 and 2016,March 31, 2021, Lazard Group distributed $294,966 and $248,742, respectively,$13,934 to the subsidiaries of Lazard Ltd.
Pursuant to Lazard Group’s Operating Agreement, Lazard Group allocates and distributes to its members a substantial portion of its distributable profits in installments as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February.
Share Repurchase Program—During Since 2019 and through the ninethree month period ended September 30, 2017 and since 2014,March 31, 2021, the Board of Directors of Lazard authorized the repurchase of Lazard Ltd Class A common stock, as set forth in the table below:
Date |
| Repurchase Authorization |
|
| Expiration | |
April 2014 |
| $ | 200,000 |
|
| December 31, 2015 |
February 2015 |
| $ | 150,000 |
|
| December 31, 2016 |
January 2016 |
| $ | 200,000 |
|
| December 31, 2017 |
April 2016 |
| $ | 113,182 |
|
| December 31, 2017 |
November 2016 |
| $ | 236,000 |
|
| December 31, 2018 |
Date |
| Repurchase Authorization |
|
| Expiration | |
February 2019 |
| $ | 300,000 |
|
| December 31, 2020 |
October 2019 |
| $ | 300,000 |
|
| December 31, 2021 |
The Company expects that the share repurchase program will primarilycontinue to be used to offset a portion of the shares that have been or will be issued under the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 Plan”) and the Lazard Ltd 2018 Incentive
21
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Compensation Plan, as amended (the “2018 Plan”). Pursuant to the share repurchase program, purchases have been made in the open market or through privately negotiated transactions. The rate at which the Company purchases shares in connection with the share repurchase program may vary from quarterperiod to quarterperiod due to a variety of factors. Purchases with respect to such program are set forth in the table below:
Nine Months Ended September 30: |
| Number of Shares Purchased |
|
| Average Price Per Share |
| ||
2016 |
|
| 6,656,250 |
|
| $ | 34.38 |
|
2017 |
|
| 5,838,520 |
|
| $ | 43.25 |
|
Three Months Ended March 31: |
| Number of Shares Purchased |
|
| Average Price Per Share |
| ||
2020 |
|
| 2,912,035 |
|
| $ | 32.70 |
|
2021 |
|
| 2,899,541 |
|
| $ | 42.30 |
|
22
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
During the ninethree month periods ended September 30, 2017March 31, 2021 and 2016,2020, certain of our executive officers received Lazard Ltd Class A common stock in connection with the vesting or settlement of previously-granted deferred equity incentive awards. The vesting or settlement of such equity awards gave rise to a tax payable by the executive officers, and, consistent with our past practice, the Company purchased shares of Lazard Ltd Class A common stock from thecertain of our executive officers equal in value to all or a portion of the estimated amount of such tax. In addition, during the ninethree month periods ended September 30, 2017March 31, 2021 and 2016,2020, the Company purchased shares of Lazard Ltd Class A common stock from ancertain of our executive officer.officers. The aggregate value of all such purchases during the ninethree month periods ended September 30, 2017March 31, 2021 and 20162020 was approximately $14,700$18,600 and $4,900,$10,000, respectively. Such shares of common stock are reported at cost.
As of September 30, 2017,March 31, 2021, a total of $102,587$177,348 of share repurchase authorization remained available under Lazard Ltd’s share repurchase program, which will expire on December 31, 2018.2021.
In addition, on October 25, 2017,April 29, 2021, the Board of Directors of Lazard authorized the repurchase of up to $200,000$300,000 of additional shares of Lazard Ltd’s Class A common stock, which authorization will expire on December 31, 2019.2022, bringing the total available share repurchase authorization as of April 29, 2021 to approximately $439,000.
During the ninethree month period ended September 30, 2017,March 31, 2021, Lazard Ltd had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to which it effected stock repurchases in the open market.
Accumulated Other Comprehensive Income (Loss) (“AOCI”), Net of Tax (“AOCI”)—The tables below reflect the balances of each component of AOCI at September 30, 2017March 31, 2021 and 20162020 and activity during the three month and nineperiods then ended:
|
| Three Months Ended March 31, 2021 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2021 |
| $ | (20,438 | ) |
| $ | (173,006 | ) |
| $ | (193,444 | ) |
| $ | 2 |
|
| $ | (193,446 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (20,038 | ) |
|
| 1,065 |
|
|
| (18,973 | ) |
|
| (1 | ) |
|
| (18,972 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| 0 |
|
|
| 1,336 |
|
|
| 1,336 |
|
|
|
|
|
|
| 1,336 |
|
Net other comprehensive income (loss) |
|
| (20,038 | ) |
|
| 2,401 |
|
|
| (17,637 | ) |
|
| (1 | ) |
|
| (17,636 | ) |
Balance, March 31, 2021 |
| $ | (40,476 | ) |
| $ | (170,605 | ) |
| $ | (211,081 | ) |
| $ | 1 |
|
| $ | (211,082 | ) |
22
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Three Months Ended March 31, 2020 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2020 |
| $ | (74,369 | ) |
| $ | (176,035 | ) |
| $ | (250,404 | ) |
| $ | - |
|
| $ | (250,404 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (46,966 | ) |
|
| 9,088 |
|
|
| (37,878 | ) |
|
| - |
|
|
| (37,878 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| 0 |
|
|
| 1,895 |
|
|
| 1,895 |
|
|
| - |
|
|
| 1,895 |
|
Net other comprehensive income (loss) |
|
| (46,966 | ) |
|
| 10,983 |
|
|
| (35,983 | ) |
|
| - |
|
|
| (35,983 | ) |
Balance, March 31, 2020 |
| $ | (121,335 | ) |
| $ | (165,052 | ) |
| $ | (286,387 | ) |
| $ | - |
|
| $ | (286,387 | ) |
The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month periods then ended:ended March 31, 2021 and 2020:
|
| Three Months Ended September 30, 2017 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, July 1, 2017 |
| $ | (70,684 | ) |
| $ | (168,133 | ) |
| $ | (238,817 | ) |
| $ | (1 | ) |
| $ | (238,816 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| 17,818 |
|
|
| (4,715 | ) |
|
| 13,103 |
|
|
| - |
|
|
| 13,103 |
|
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 1,081 |
|
|
| 1,081 |
|
|
| - |
|
|
| 1,081 |
|
Net other comprehensive income (loss) |
|
| 17,818 |
|
|
| (3,634 | ) |
|
| 14,184 |
|
|
| - |
|
|
| 14,184 |
|
Balance, September 30, 2017 |
| $ | (52,866 | ) |
| $ | (171,767 | ) |
| $ | (224,633 | ) |
| $ | (1 | ) |
| $ | (224,632 | ) |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Amortization relating to employee benefit plans (a) |
| $ | 1,717 |
|
| $ | 2,233 |
|
Less - related income taxes |
|
| 381 |
|
|
| 338 |
|
Total reclassifications, net of tax |
| $ | 1,336 |
|
| $ | 1,895 |
|
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2017 |
| $ | (109,306 | ) |
| $ | (161,471 | ) |
| $ | (270,777 | ) |
| $ | (2 | ) |
| $ | (270,775 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| 56,440 |
|
|
| (13,819 | ) |
|
| 42,621 |
|
|
| 1 |
|
|
| 42,620 |
|
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 3,523 |
|
|
| 3,523 |
|
|
|
|
|
|
| 3,523 |
|
Net other comprehensive income (loss) |
|
| 56,440 |
|
|
| (10,296 | ) |
|
| 46,144 |
|
|
| 1 |
|
|
| 46,143 |
|
Balance, September 30, 2017 |
| $ | (52,866 | ) |
| $ | (171,767 | ) |
| $ | (224,633 | ) |
| $ | (1 | ) |
| $ | (224,632 | ) |
(a) | Included in the computation of net periodic benefit cost (see Note 14). Such amounts are included in “operating expenses—other” on the condensed consolidated statements of operations. |
Noncontrolling Interests—Noncontrolling interests principally represent (i) interests held in Edgewater’s management vehicles that the Company is deemed to control, but does not own, (ii) LGAC interests (see Note 1) and (iii) consolidated VIE interests held by employees (see Note 19).
The tables below summarize net income (loss) attributable to noncontrolling interests for the three month periods ended March 31, 2021 and 2020 and noncontrolling interests as of March 31, 2021 and December 31, 2020 in the Company’s condensed consolidated financial statements:
|
| Net Income (Loss) Attributable to Noncontrolling Interests |
| |||||
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Edgewater |
| $ | 1,456 |
|
| $ | (1,403 | ) |
Consolidated VIEs |
|
| 2,268 |
|
|
| (4,288 | ) |
LGAC |
|
| (200 | ) |
|
| - |
|
Other |
|
| 3 |
|
|
| - |
|
Total |
| $ | 3,527 |
|
| $ | (5,691 | ) |
23
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Three Months Ended September 30, 2016 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, July 1, 2016 |
| $ | (60,965 | ) |
| $ | (135,382 | ) |
| $ | (196,347 | ) |
| $ | (1 | ) |
| $ | (196,346 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
| (1,828 | ) |
|
| (33 | ) |
|
| (1,861 | ) |
|
| (1 | ) |
|
| (1,860 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 1,134 |
|
|
| 1,134 |
|
|
| - |
|
|
| 1,134 |
|
Net other comprehensive income (loss) |
|
| (1,828 | ) |
|
| 1,101 |
|
|
| (727 | ) |
|
| (1 | ) |
|
| (726 | ) |
Balance, September 30, 2016 |
| $ | (62,793 | ) |
| $ | (134,281 | ) |
| $ | (197,074 | ) |
| $ | (2 | ) |
| $ | (197,072 | ) |
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2016 |
| $ | (52,687 | ) |
| $ | (137,073 | ) |
| $ | (189,760 | ) |
| $ | (2 | ) |
| $ | (189,758 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
| (10,106 | ) |
|
| (649 | ) |
|
| (10,755 | ) |
|
| - |
|
|
| (10,755 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 3,441 |
|
|
| 3,441 |
|
|
| - |
|
|
| 3,441 |
|
Net other comprehensive income (loss) |
|
| (10,106 | ) |
|
| 2,792 |
|
|
| (7,314 | ) |
|
| - |
|
|
| (7,314 | ) |
Balance, September 30, 2016 |
| $ | (62,793 | ) |
| $ | (134,281 | ) |
| $ | (197,074 | ) |
| $ | (2 | ) |
| $ | (197,072 | ) |
The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month and nine month periods ended September 30, 2017 and 2016:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Amortization relating to employee benefit plans (a) |
| $ | 1,285 |
|
| $ | 1,509 |
|
| $ | 4,199 |
|
| $ | 4,612 |
|
Less - related income taxes |
|
| 204 |
|
|
| 375 |
|
|
| 676 |
|
|
| 1,171 |
|
Total reclassifications, net of tax |
| $ | 1,081 |
|
| $ | 1,134 |
|
| $ | 3,523 |
|
| $ | 3,441 |
|
|
| Noncontrolling Interests as of |
| |||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Edgewater |
| $ | 45,808 |
|
| $ | 45,352 |
|
Consolidated VIEs |
|
| 50,560 |
|
|
| 40,517 |
|
LGAC |
|
| 2,997 |
|
|
| - |
|
Other |
|
| 18 |
|
|
| 16 |
|
Total |
| $ | 99,383 |
|
| $ | 85,885 |
|
|
|
Noncontrolling Interests—Noncontrolling interests principally represent interests heldShare-Based Incentive Plan Awards
A description of Lazard Ltd’s 2018 Plan, 2008 Plan and 2005 Equity Incentive Plan (the “2005 Plan”) and activity with respect thereto during the three month periods ended March 31, 2021 and 2020 is presented below.
Shares Available Under the 2018 Plan, 2008 Plan and 2005 Plan
The 2018 Plan became effective on April 24, 2018 and was amended on April 29, 2021 to increase the aggregate number of shares authorized for issuance under the 2018 plan. The 2018 Plan replaced the 2008 Plan, which was terminated on April 24, 2018. The 2018 Plan originally authorized issuance of up to 30,000,000 shares of common stock, plus any shares of common stock that were subject to outstanding awards under the 2008 Plan as of March 14, 2018 that are forfeited, canceled or settled in Edgewater’s management vehiclescash following April 24, 2018, which was the date that the Company2018 Plan was approved by our shareholders. The amendment that our shareholders approved on April 29, 2021 increased the shares of common stock available pursuant to the 2018 Plan by 20,000,000 shares, which is deemedin addition to control, but does not own.any shares of common stock that remain available under the original authorization. Such shares may be issued pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), profits interest participation rights, including performance-based restricted participation units (“PRPUs”), and other share-based awards.
The 2008 Plan authorized the issuance of shares of common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs, PRSUs and other share-based awards. Under the 2008 Plan, the maximum number of shares available was based on a formula that limited the aggregate number of shares that could, at any time, be subject to awards that were considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of common stock. The 2008 Plan was terminated on April 24, 2018, and no additional awards have been or will be granted under the 2008 Plan after its termination, although outstanding awards granted under the 2008 Plan before its termination continue to be subject to its terms.
The 2005 Plan authorized the issuance of up to 25,000,000 shares of common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other share-based awards. The 2005 Plan expired in the second quarter of 2015, although outstanding deferred stock unit (“DSU”) awards granted under the 2005 Plan before its expiration continue to be subject to its terms.
24
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The tables below summarize net income attributable to noncontrolling interests for the three month and nine month periods ended September 30, 2017 and 2016 and noncontrolling interests as of September 30, 2017 and December 31, 2016 in the Company’s condensed consolidated financial statements:
|
| Net Income Attributable to Noncontrolling Interests |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Edgewater |
| $ | 2,260 |
|
| $ | 81 |
|
| $ | 5,657 |
|
| $ | 4,988 |
|
Other |
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| 1 |
|
Total |
| $ | 2,261 |
|
| $ | 83 |
|
| $ | 5,660 |
|
| $ | 4,989 |
|
|
| Noncontrolling Interests as of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Edgewater |
| $ | 60,050 |
|
| $ | 57,238 |
|
Other |
|
| 12 |
|
|
| 8 |
|
Total |
| $ | 60,062 |
|
| $ | 57,246 |
|
12.INCENTIVE PLANS
Share-Based Incentive Plan Awards
A description of Lazard Ltd’s 2008 Plan and 2005 Equity Incentive Plan (the “2005 Plan”) and activity with respect thereto during the three month and nine month periods ended September 30, 2017 and 2016 is presented below.
Shares Available Under the 2008 Plan and 2005 Plan
The 2008 Plan authorizes the issuance of shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and other share-based awards. Under the 2008 Plan, the maximum number of shares available is based on a formula that limits the aggregate number of shares that may, at any time, be subject to awards that are considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of Class A common stock.
The 2005 Plan authorized the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other share-based awards. Each RSU or similar award granted under the 2005 Plan represents a contingent right to receive one share of Class A common stock, at no cost to the recipient. The fair value of such awards is generally determined based on the closing market price of Class A common stock at the date of grant. The 2005 Plan expired in the second quarter of 2015, although unvested awards granted under the 2005 Plan remain outstanding and continue to be subject to its terms.
25
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The following reflects the amortization expense recorded with respect to share-based incentive plans within “compensation and benefits” expense (with respect to RSUs, PRSUs, and restricted stock, profits interest participation rights, including PRPUs, and other share-based awards) and “professional services” expense (with respect to deferred stock units (“DSUs”))DSUs) within the Company’s accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016:2020:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Share-based incentive awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
| $ | 39,898 |
|
| $ | 39,447 |
|
| $ | 150,193 |
|
| $ | 134,419 |
|
| $ | 34,805 |
|
| $ | 42,917 |
|
PRSUs |
|
| 9,896 |
|
|
| 11,252 |
|
|
| 38,095 |
|
|
| 38,276 |
|
|
| 5,559 |
|
|
| 4,361 |
|
Restricted Stock |
|
| 7,697 |
|
|
| 7,015 |
|
|
| 30,507 |
|
|
| 38,833 |
|
|
| 6,067 |
|
|
| 8,531 |
|
Profits interest participation rights |
|
| 21,573 |
|
|
| 16,166 |
| ||||||||||||||||
DSUs |
|
| 78 |
|
|
| 53 |
|
|
| 926 |
|
|
| 808 |
|
|
| 93 |
|
|
| 93 |
|
Total |
| $ | 57,569 |
|
| $ | 57,767 |
|
| $ | 219,721 |
|
| $ | 212,336 |
|
| $ | 68,097 |
|
| $ | 72,068 |
|
The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of Class A common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates or performance results in a cumulative adjustment to previously recorded compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.
The Company’s share-based incentive plans and awards are described below.
RSUs and DSUsRestricted Stock
RSUs generally require future service as a condition for the delivery of the underlying shares of Class A common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of Class A common stock on a one-for-one basis after the stipulated vesting periods. PRSUs, which are RSUs that are also subject to service-based vesting conditions, have additional performance conditions, and are described below. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods (generally one-third after two years, and the remaining two-thirds after the third year), and is adjusted for actual forfeitures over such period.
RSUs generally include a dividend participation right that provides that during vesting periods each RSU is attributed additional RSUs (or fractions thereof) equivalent to any dividends paid on Class A common stock during such period. During the nine month periods ended September 30, 2017 and 2016, dividend
6,067
8,531
Profits interest participation rights required the issuance of 866,914 and 969,054 RSUs, respectively.
Non-executive members of the Board of Directors of Lazard Group, who are the same Non-Executive Directors of Lazard Ltd (“Non-Executive Directors”), receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs, which resulted in 31,280 and 38,771 DSUs granted during the nine month periods ended September 30, 2017 and 2016, respectively. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of Class A common stock at the time of cessation of service to the Board of Directors. DSUs include a cash dividend participation right equivalent to dividends paid on Class A common stock.
The Company’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of Class A common stock on the date immediately preceding the date of the grant. During the nine month periods ended September 30, 2017 and 2016, 10,541 and 7,407 DSUs, respectively, had been granted pursuant to such Plan.
DSU awards are expensed at their fair value on their date of grant, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan.
26
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The following is a summary of activity relating to RSUs and DSUs during the nine month periods ended September 30, 2017 and 2016:21,573
|
| RSUs |
|
| DSUs |
| ||||||||||
|
| Units |
|
| Weighted Average Grant Date Fair Value |
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| ||||
Balance, January 1, 2017 |
|
| 11,698,138 |
|
| $ | 40.65 |
|
|
| 276,725 |
|
| $ | 36.05 |
|
Granted (including 866,914 RSUs relating to dividend participation) |
|
| 5,294,156 |
|
| $ | 43.01 |
|
|
| 41,821 |
|
| $ | 44.30 |
|
Forfeited |
|
| (162,320 | ) |
| $ | 39.97 |
|
|
| - |
|
|
| - |
|
Vested |
|
| (3,977,477 | ) |
| $ | 45.27 |
|
|
| (43,465 | ) |
| $ | 35.77 |
|
Balance, September 30, 2017 |
|
| 12,852,497 |
|
| $ | 40.20 |
|
|
| 275,081 |
|
| $ | 37.35 |
|
Balance, January 1, 2016 |
|
| 9,599,658 |
|
| $ | 44.06 |
|
|
| 312,670 |
|
| $ | 35.98 |
|
Granted (including 969,054 RSUs relating to dividend participation) |
|
| 6,649,625 |
|
| $ | 34.64 |
|
|
| 46,178 |
|
| $ | 34.98 |
|
Forfeited |
|
| (181,337 | ) |
| $ | 39.79 |
|
|
| - |
|
|
| - |
|
Vested |
|
| (4,527,559 | ) |
| $ | 39.16 |
|
|
| (84,759 | ) |
| $ | 35.30 |
|
Balance, September 30, 2016 |
|
| 11,540,387 |
|
| $ | 40.62 |
|
|
| 274,089 |
|
| $ | 36.02 |
|
In connection with RSUs that vested during the nine month periods ended September 30, 2017 and 2016, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,282,843 and 1,416,643 shares of Class A common stock during such respective nine month periods. Accordingly, 2,694,634 and 3,110,916 shares of Class A common stock held by the Company were delivered during the nine month periods ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, estimated unrecognized RSU compensation expense was approximately $178,321, with such expense expected to be recognized over a weighted average period of approximately 0.9 years subsequent to September 30, 2017.16,166
DSUs
93
93
Total
$
68,097
$
72,068
The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates or performance results in a cumulative adjustment to compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.
The Company’s share-based incentive plans and awards are described below.
Restricted Stock
The following is a summary of activity related to shares of restricted Class A common stock associated with compensation arrangements during the nine month periods ended September 30, 2017 and 2016:
|
| Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2017 |
|
| 1,655,073 |
|
| $ | 40.95 |
|
Granted |
|
| 841,355 |
|
| $ | 42.58 |
|
Forfeited |
|
| (65,086 | ) |
| $ | 40.80 |
|
Vested |
|
| (483,811 | ) |
| $ | 45.42 |
|
Balance, September 30, 2017 |
|
| 1,947,531 |
|
| $ | 40.54 |
|
Balance, January 1, 2016 |
|
| 713,738 |
|
| $ | 47.12 |
|
Granted |
|
| 1,795,258 |
|
| $ | 36.74 |
|
Forfeited |
|
| (33,943 | ) |
| $ | 40.49 |
|
Vested |
|
| (802,276 | ) |
| $ | 37.09 |
|
Balance, September 30, 2016 |
|
| 1,672,777 |
|
| $ | 40.92 |
|
In connection with shares of restricted Class A common stock that vested during the nine month periods ended September 30, 2017 and 2016, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 147,775 and 132,984 shares of Class A common stock during such respective nine month periods. Accordingly, 336,036 and 669,292 shares of Class A common stock held by the Company were delivered during the nine month periods ended September 30, 2017 and 2016, respectively.6,067
27
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
8,531
Profits interest participation right equivalent to dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At September 30, 2017, estimated unrecognized restricted stock expense was approximately $35,369, with such expense to be recognized over a weighted average period of approximately 0.8 years subsequent to September 30, 2017.rights
PRSUs
PRSUs are RSUs that are subject to both performance-based and service-based vesting conditions. The number of shares of Class A common stock that a recipient will receive upon vesting of a PRSU will be calculated by reference to certain
21,573
16,166
DSUs
93
93
Total
$
68,097
$
72,068
The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates or performance results in a cumulative adjustment to compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.
The Company’s share-based incentive plans and awards are described below.
RSUs and DSUs
RSUs generally require future service as a condition for the delivery of the underlying shares of common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of common stock on a one-for-one basis after the stipulated vesting periods. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods (generally, one-third after two years and the remaining two-thirds after the third year) and is adjusted for actual forfeitures over such period.
RSUs generally include a dividend participation right that provides that, during the applicable vesting period, each RSU is attributed additional RSUs equivalent to any dividends paid on common stock during such period. During the three month period ended March 31, 2021, dividend participation rights required the issuance of 138,585 RSUs.
Non-executive members of the Board of Directors of Lazard Group, who are the same Non-Executive Directors of Lazard Ltd (“Non-Executive Directors”), receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of common stock at the time of cessation of service to the Board of Directors. DSUs include a cash dividend participation right equivalent to dividends paid on common stock.
Lazard Ltd’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of common stock on the date immediately preceding the date of the grant. During the three month period ended March 31, 2021, 4,457 DSUs had been granted pursuant to such Plan.
DSU awards are expensed at their fair value on their date of grant, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan.
25
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The following is a summary of activity relating to RSUs and DSUs during the three month period ended March 31, 2021:
|
| RSUs |
|
| DSUs |
| |||||||||||
|
| Units |
|
| Weighted Average Grant Date Fair Value |
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| |||||
Balance, January 1, 2021 |
|
| 9,266,344 |
|
| $ | 42.96 |
|
|
| 478,800 |
|
| $ | 36.36 |
| |
Granted (including 138,585 RSUs relating to dividend participation) |
|
| 2,776,805 |
|
| $ | 43.13 |
|
|
| 4,457 |
|
| $ | 41.92 |
| |
Forfeited |
|
| (63,425 | ) |
| $ | 41.05 |
|
|
| - |
|
|
| - |
| |
Settled |
|
| (3,690,643 | ) |
| $ | 47.52 |
|
|
| - |
|
|
| - |
| |
Balance, March 31, 2021 |
|
| 8,289,081 |
|
| $ | 41.00 |
|
|
| 483,257 |
|
| $ | 36.41 |
|
In connection with RSUs that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,348,433 shares of common stock during such three month period. Accordingly, 2,342,210 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
As of March 31, 2021, estimated unrecognized RSU compensation expense was $177,587, with such expense expected to be recognized over a weighted average period of approximately 1.0 years subsequent to March 31, 2021.
Restricted Stock
The following is a summary of activity related to shares of restricted common stock associated with compensation arrangements during the three month period ended March 31, 2021:
|
| Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
| |||
Balance, January 1, 2021 |
|
| 1,144,959 |
|
| $ | 41.09 |
| |
Granted (including 10,571 relating to dividend participation) |
|
| 425,692 |
|
| $ | 43.23 |
| |
Forfeited |
|
| (11,364 | ) |
| $ | 41.44 |
| |
Settled |
|
| (428,298 | ) |
| $ | 43.34 |
| |
Balance, March 31, 2021 |
|
| 1,130,989 |
|
| $ | 41.04 |
|
26
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
In connection with shares of restricted common stock that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 162,533 shares of common stock during such three month period. Accordingly, 265,765 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
Restricted stock awards granted in 2021 and 2020 generally include a dividend participation right that provides that during the applicable vesting period each restricted stock award is attributed additional shares of restricted common stock equivalent to any dividends paid on common stock during such period. During the three month period ended March 31, 2021, dividend participation rights required the issuance of 10,571 shares of restricted common stock. With respect to awards granted prior to 2020, the restricted stock awards include a cash dividend participation right equivalent to dividends paid on common stock during the period, which will vest concurrently with the underlying restricted stock award. At March 31, 2021, estimated unrecognized restricted stock expense was $28,420, with such expense to be recognized over a weighted average period of approximately 1.0 years subsequent to March 31, 2021.
PRSUs
PRSUs are RSUs that are subject to performance-based and service-based vesting conditions, and beginning with awards granted in February 2021, a market-based condition. The number of shares of common stock that a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance-based and, for awards granted in February 2021, market-based metrics that relate to Lazard Ltd’s performance over a three-year period. The target number of shares of Class A common stock subject to each PRSU is one; however, based on the achievement of the performance criteria, the number of shares of Class A common stock that may be received in connection with each PRSU generally can range from zero to two times the target number. PRSUs will vest on a single date three years following the date of the grant, provided the applicable service and performance conditions are satisfied. In addition, the performance metrics applicable to each PRSU is one; however, based on the achievement of the performance criteria, the number of shares of common stock that may be received in connection with each PRSU generally can range from zero to two times the target number for awards granted prior to February 2021. For awards granted in February 2021, based on both the performance-based and market-based criteria, the number of shares of common stock can range from zero to 2.4 times the target number. PRSUs will vest on a single date approximately three years following the date of the grant, provided the applicable service and performance conditions are satisfied. PRSUs granted prior to February 2021 include dividend participation rights that provide that during vesting periods, the target number of PRSUs receive dividend equivalents at the same rate that dividends are paid on common stock during such periods. These dividend equivalents are credited as RSUs that are not subject to the performance-based vesting criteria but are otherwise subject to the same restrictions as the underlying PRSUs to which they relate. PRSUs granted in February 2021 include dividend participation rights that are subject to the same vesting restrictions (including performance criteria) as the underlying PRSUs to which they relate and are settled in cash at the same rate that dividends are paid on common stock.
The following is a summary of activity relating to PRSUs during the three month period ended March 31, 2021:
|
| PRSUs |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2021 |
|
| 546,959 |
|
| $ | 53.48 |
|
Granted |
|
| 32,394 |
|
| $ | 46.63 |
|
Settled |
|
| (546,959 | ) |
| $ | 53.48 |
|
Balance, March 31, 2021 |
|
| 32,394 |
|
| $ | 46.63 |
|
In connection with certain PRSUs that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 100,882 shares of common stock during such three month period. Accordingly, 446,077 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of March 31, 2021, the total estimated unrecognized compensation expense was $1,817, and the Company expects to amortize such expense over a weighted-average period of approximately 1.5 years subsequent to March 31, 2021.
27
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Profits Interest Participation Rights
Profits interest participation rights are equity incentive awards that, subject to certain conditions, may be exchanged for shares of common stock pursuant to the 2018 Plan. The Company granted profits interest participation rights subject to service-based and performance-based vesting criteria and other conditions, and beginning in February 2021, incremental market-based vesting criteria, which we refer to as performance-based restricted participation units (“PRPUs”), to certain of our executive officers. The Company also granted profits interest participation rights subject to service-based vesting criteria and other conditions, but not the performance-based and incremental market-based vesting criteria associated with PRPUs, to a limited number of other senior employees. Profits interest participation rights generally provide for vesting approximately three years following the grant date, so long as applicable conditions have been satisfied.
Profits interest participation rights are a class of membership interests in the Company that are intended to qualify as “profits interests” for U.S. federal income tax purposes, and are recorded within members’ equity in the Company’s condensed consolidated statements of financial condition. The profits interest participation rights generally allow the recipient to realize value only to the extent that both (i) the service-based vesting conditions and, if applicable, the performance-based and incremental market-based conditions, are satisfied, and (ii) an amount of economic appreciation in the assets of the Company occurs as necessary to satisfy certain partnership tax rules (referred to as the "Minimum Value Condition") before the fifth anniversary of the grant date, otherwise the profits interest participation rights will be forfeited. Upon satisfaction of such conditions, profits interest participation rights that are in parity with the value of common stock will be exchanged on a one-for-one basis for shares of common stock. If forfeited based solely on failing to meet the Minimum Value Condition, the associated compensation expense would not be reversed. With regard to the profits interest participation rights granted in February 2019 and February 2020, the Minimum Value Condition was met during the year ended December 31, 2020 and during February 2021, respectively.
Like outstanding RSUs and similar awards, profits interest participation rights are subject to continued employment and other conditions and restrictions and are forfeited if those conditions and restrictions are not fulfilled. More specifically, vesting of profits interest participation rights are subject to compliance with restrictive covenants including non-compete, non-solicitation of clients, no hire of employees and confidentiality, which are similar to those applicable to PRSUs and RSUs. In addition, profits interest participation rights must satisfy the Minimum Value Condition.
The number of shares of common stock that a recipient will receive upon the exchange of a PRPU award is calculated by reference to applicable performance-based and, beginning with PRPUs granted in 2021, incremental market-based conditions and only result in value to the recipient to the extent the conditions are satisfied. The target number of shares of common stock subject to each PRPU is one. Based on the achievement of performance criteria, as determined by the Compensation Committee, the number of shares of common stock that may be received in connection with the PRPU awards granted in February 2019 and February 2020 will range from zero to two times the target number. For the PRPU awards granted in February 2021, subject to both performance-based and incremental market-based criteria, the number of shares will range from zero to 2.4 times the target number. Unless applicable conditions are satisfied during the three year performance period, and the Minimum Value Condition is satisfied within five years following the grant date, all PRPUs will be forfeited, and the recipients will not be entitled to any such awards.
In addition, the performance metrics applicable to the PRPU awards granted in February 2019 and February 2020 will be evaluated on an annual basis at the end of each fiscal year during the performance period, and, if Lazard Ltd has achieved a threshold level of performance with respect to the fiscal year, 25% of the target number of PRPUs will no longer be at risk of forfeiture based on the achievement of performance criteria. Profits interest participation rights are allocated income, subject to vesting and settled in cash, in respect of dividends paid on common stock.
The following is a summary of activity relating to profits interest participation rights, including PRPUs, during the three month period ended March 31, 2021:
|
| Profits Interest Participation Rights |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2021 |
|
| 2,523,075 |
|
| $ | 40.43 |
|
Granted |
|
| 1,159,864 |
|
| $ | 44.73 |
|
Balance, March 31, 2021 (a) |
|
| 3,682,939 |
|
| $ | 41.78 |
|
28
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
(a) | Table includes 1,561,120 PRPUs, which represents the target number of
|
Compensation expense recognized for profits interest participation rights, including PRPUs, is determined by multiplying the number of shares of common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of March 31, 2021, the total estimated unrecognized compensation expense was $68,529. The Company expects to amortize such expense over a weighted-average period of approximately 0.7 years subsequent to March 31, 2021.
LFI and Other Similar Deferred Compensation Arrangements
Commencing in February 2011, the Company granted LFI to eligible employees. In connection with LFI and other similar deferred compensation arrangements, granted to eligible employees, which generally require future service as a condition for vesting, the Company recorded a prepaid compensation asset and a corresponding compensation liability on the grant date based upon the fair value of the award. The prepaid asset is amortized on a straight-line basis over the applicable vesting periods or requisite service periods (which are generally similar to the comparable periods for RSUs), and is charged to “compensation and benefits” expense within the Company’s condensed
28
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
consolidated statement of operations. LFI and similar deferred compensation arrangements that do not require future service are expensed immediately. The related compensation liability is accounted for at fair value as a derivative liability, which contemplates the impact of estimated forfeitures, and is adjusted for changes in fair value primarily related to changes in value of the underlying investments.
The following is a summary of activity relating to LFI and other similar deferred compensation arrangements during the ninethree month periodsperiod ended September 30, 2017 and 2016:March 31, 2021:
|
| Prepaid Compensation Asset |
|
| Compensation Liability |
| ||
Balance, January 1, 2017 |
| $ | 49,650 |
|
| $ | 170,388 |
|
Granted |
|
| 77,580 |
|
|
| 77,580 |
|
Settled |
|
| - |
|
|
| (95,718 | ) |
Forfeited |
|
| (866 | ) |
|
| (1,647 | ) |
Amortization |
|
| (52,702 | ) |
|
| - |
|
Change in fair value related to: |
|
|
|
|
|
|
|
|
Increase in fair value of underlying investments |
|
| - |
|
|
| 17,981 |
|
Adjustment for estimated forfeitures |
|
| - |
|
|
| 5,333 |
|
Other |
|
| 1,515 |
|
|
| 1,833 |
|
Balance, September 30, 2017 |
| $ | 75,177 |
|
| $ | 175,750 |
|
|
| Prepaid Compensation Asset |
|
| Compensation Liability |
|
| Prepaid Compensation Asset |
|
| Compensation Liability |
| ||||
Balance, January 1, 2016 |
| $ | 75,703 |
|
| $ | 193,574 |
| ||||||||
Balance, January 1, 2021 |
| $ | 101,631 |
|
| $ | 311,400 |
| ||||||||
Granted |
|
| 51,871 |
|
|
| 51,871 |
|
|
| 161,892 |
|
|
| 161,892 |
|
Settled |
|
| - |
|
|
| (75,583 | ) |
|
| - |
|
|
| (95,904 | ) |
Forfeited |
|
| (1,967 | ) |
|
| (3,435 | ) |
|
| (346 | ) |
|
| (2,928 | ) |
Amortization |
|
| (56,784 | ) |
|
| - |
|
|
| (30,413 | ) |
|
| - |
|
Change in fair value related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in fair value of underlying investments |
|
| - |
|
|
| 4,707 |
| ||||||||
Change in fair value of underlying investments |
|
| - |
|
|
| 7,487 |
| ||||||||
Adjustment for estimated forfeitures |
| - |
|
|
| 3,551 |
|
|
| - |
|
|
| 2,192 |
| |
Other |
|
| (1,232 | ) |
|
| 585 |
|
|
| 2 |
|
|
| (1,273 | ) |
Balance, September 30, 2016 |
| $ | 67,591 |
|
| $ | 175,270 |
| ||||||||
Balance, March 31, 2021 |
| $ | 232,766 |
|
| $ | 382,866 |
|
The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 0.91.0 years subsequent to September 30, 2017.March 31, 2021.
29
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The following is a summary of the impact of LFI and other similar deferred compensation arrangements on “compensation and benefits” expense within the accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016:2020:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Amortization, net of forfeitures |
| $ | 15,961 |
|
| $ | 18,116 |
|
| $ | 57,254 |
|
| $ | 58,867 |
|
| $ | 30,023 |
|
| $ | 26,248 |
|
Change in the fair value of underlying investments |
|
| 4,875 |
|
|
| 6,909 |
|
|
| 17,981 |
|
|
| 4,707 |
|
|
| 7,487 |
|
|
| (19,637 | ) |
Total |
| $ | 20,836 |
|
| $ | 25,025 |
|
| $ | 75,235 |
|
| $ | 63,574 |
|
| $ | 37,510 |
|
| $ | 6,611 |
|
29
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The Company provides retirement and other post-retirement benefits to certain of its employees through defined benefit pension plans (the “pension plans”) and, until December 2016, in the U.S., a partially funded contributory medical post-retirement plan covering certain qualifying U.S. employees (the “medical plan” and together with the pension plans, the “post-retirement plans”). The Company also offers defined contribution plans to its employees. The post-retirementpension plans generally provide benefits to participants based on average levels of compensation. Expenses related to the Company’s employee benefit plans are included in “compensation and benefits” expense for the service cost component, and “operating expenses—other” for the other components of benefit costs on the condensed consolidated statements of operations.
Employer Contributions to Pension Plans—The Company’s funding policy for its U.S. and non-U.S. pension plans is to fund when required or when applicable upon an agreement with the plans’ trustees (the “Trustees”).trustees. Management also evaluates from time to time whether to make voluntary contributions to the plans.
The following table summarizes the components of net periodic benefit cost (credit) related to the Company’s post-retirementpension plans for the three month and nine month periods ended September 30, 2017March 31, 2021 and 2016:2020:
|
| Pension Plans |
|
| Medical Plan |
|
| Pension Plans |
| |||||||||||||||
|
| Three Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Components of Net Periodic Benefit Cost (Credit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 373 |
|
| $ | 313 |
|
| $ | - |
|
| $ | 3 |
|
| $ | 226 |
|
| $ | 135 |
|
Interest cost |
|
| 4,191 |
|
|
| 4,833 |
|
|
| - |
|
|
| 42 |
|
|
| 2,115 |
|
|
| 2,983 |
|
Expected return on plan assets |
|
| (6,295 | ) |
|
| (6,648 | ) |
|
| - |
|
|
| - |
|
|
| (6,534 | ) |
|
| (6,628 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
| - |
|
|
| 599 |
|
|
| - |
|
|
| - |
|
|
| 30 |
|
|
| 27 |
|
Net actuarial loss (gain) |
|
| 1,285 |
|
|
| 957 |
|
|
| - |
|
|
| (47 | ) |
|
| 1,687 |
|
|
| 2,206 |
|
Settlement loss |
|
| 380 |
|
|
| 922 |
| ||||||||||||||||
Net periodic benefit cost (credit) |
| $ | (446 | ) |
| $ | 54 |
|
| $ | - |
|
| $ | (2 | ) |
| $ | (2,096 | ) |
| $ | (355 | ) |
|
| Pension Plans |
|
| Medical Plan |
| ||||||||||
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Components of Net Periodic Benefit Cost (Credit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 1,048 |
|
| $ | 934 |
|
| $ | - |
|
| $ | 9 |
|
Interest cost |
|
| 12,258 |
|
|
| 15,292 |
|
|
| - |
|
|
| 125 |
|
Expected return on plan assets |
|
| (18,855 | ) |
|
| (21,047 | ) |
|
| - |
|
|
| - |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
| 30 |
|
|
| 1,793 |
|
|
| - |
|
|
| - |
|
Net actuarial loss (gain) |
|
| 4,169 |
|
|
| 2,958 |
|
|
| - |
|
|
| (139 | ) |
Net periodic benefit cost (credit) |
| $ | (1,350 | ) |
| $ | (70 | ) |
| $ | - |
|
| $ | (5 | ) |
| INCOME TAXES |
Although a portion of Lazard Group’s income is subject to U.S. federal income taxes, Lazard Group primarily operates in the U.S. as a limited liability company that is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income from its U.S. operations is generally not subject to U.S. federal income taxes because such income is attributable to its partners. Lazard Group, through its subsidiaries, is subject to state and local taxes on its income apportioned to various state and local jurisdictions. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes in foreign jurisdictions. Lazard Group is also subject to New York City Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.
The Company recorded income tax provisions of $26,777 and $15,995 for the three month periods ended March 31, 2021 and 2020, respectively, representing effective tax rates of 19.6% and 18.7%, respectively. The difference between the U.S. federal
30
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The Company recorded income tax provisions of $27,367 and $81,802 for the three month and nine month periods ended September 30, 2017, respectively, and $21,653 and $49,110 for the three month and nine month periods ended September 30, 2016, respectively, representing effective tax rates of 18.8%, 17.3%, 14.5% and 13.6%, respectively. The difference between the U.S. federal statutory rate of 35.0%21.0% and the effective tax rates reflected above principally relates to (i) Lazard Group primarily operating as a limited liability company in the U.S., (ii) taxes payable to foreign jurisdictions, (iii) the tax impact of differences in the value of share based incentive compensation and other discrete items, (iv) change in the valuation allowance affecting the provision for income taxes, (iii) taxes payable to foreign jurisdictions, (iv) excess net tax benefit for share-based incentive compensation, and (v) U.S. state and local taxes, which are incremental to the U.S. federal statutory tax rate.
On January 1, 2017, the Company adopted new accounting guidance on share-based incentive compensation. As a resultrate, and (vi) impact of the adoption of this new guidance, the Company recognized excessU.S. tax benefits of $2,047 from the vesting of share-based incentive compensation in the provision for income taxes in the condensed consolidated statements of operations for the nine month period ended September 30, 2017. The Company also recorded deferred tax assets of $4,945, net of a valuation allowance of $12,090, as of January 1, 2017, for previously unrecognized excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based incentive compensation, with an offsetting adjustment to retained earnings. See Note 2 for further information on the adoption of this new guidance.
Substantially all of Lazard’s operations outside the U.S. are conducted in “pass-through” entities for U.S. income tax purposes. The Company provides for U.S. income taxes on a current basis for the relevant portion of those earnings. The repatriation of prior earnings attributable to “non-pass-through” entities would not result in the recognition of a material amount of additional U.S. income taxes.reform, including base erosion and anti-abuse tax.
| RELATED PARTIES |
ReceivableReceivables from and PayablePayables to Lazard Ltd Subsidiaries
Lazard Group’s receivables from subsidiaries of Lazard Ltd at September 30, 2017both March 31, 2021 and December 31, 20162020 included interest- bearinginterest-bearing loans of $3,742 and $20,365, respectively, including accrued interest thereon.$86,800. Interest income relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $5$30 and $148$15 for the three month and nine month periods ended September 30, 2017, respectively,March 31, 2021 and $23 and $233 for the three month and nine month periods ended September 30, 2016,2020, respectively.
Lazard Group’s payables to subsidiaries of Lazard Ltd at September 30, 2017March 31, 2021 and December 31, 2016 2020 included interest-bearing loans including interest thereon, of $63,726$45,033 and $60,500,$50,000, respectively. Interest expense relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $976$18 and $2,851$54 for the three month and nine month periods ended September 30, 2017, respectively,March 31, 2021 and $8752020, respectively. The partial settlement of the interest-bearing loans in the first quarter of 2021 of $4,967 reflects the transfer of 121,794 shares of common stock from Lazard Group to a subsidiary of Lazard Ltd. Such amount was reflected in members’ equity as of March 31, 2021 and $2,604 forwas a non-cash transaction.
In the three monthfirst quarter of 2020, a subsidiary of Lazard Ltd contributed an interest-bearing intercompany loan, including interest thereon, of $55,941 due from a Lazard Group subsidiary to Lazard Group. Such amount was reflected in members’ equity as of March 31, 2020 and nine month periods ended September 30, 2016, respectively.was a non-cash transaction.
Sponsored Funds
The Company serves as an investment advisor for certain affiliated investment companies and fund entities and receives management fees and, for the alternative investment funds, performanceperformance-based incentive fees for providing such services. Investment advisory fees relating to such services were $163,767$173,678 and $471,727$135,955 for the three month and nine month periods ended September 30, 2017, respectively,March 31, 2021 and $130,546 and $374,250 for the three month and nine month periods ended September 30, 2016,2020, respectively, and are included in “asset management fees” on the condensed consolidated statements of operations. Of such amounts, $57,156$78,046 and $49,944$72,076 remained as receivables at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively, and are included in “fees receivable” on the condensed consolidated statements of financial condition.
Other
See Note 1112 for information regarding related party transactions pertaining to shares repurchased from certain of our executive officers.
31
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Exchange Act. Under the basic method permitted by this rule, the minimum required net capital, as defined, is a specified fixed percentage (6 2/(6 2/3%) of total aggregate indebtedness recorded in LFNY’s Financial and Operational Combined Uniform Single (“FOCUS”) report filed with the Financial Industry Regulatory Authority (“FINRA”), or $100,$5, whichever is greater. In addition, the ratio of aggregate indebtedness (as defined) to net capital may not exceed 15:1. At September 30, 2017,March 31, 2021, LFNY’s regulatory net capital was $254,141,$142,039, which exceeded the minimum requirement by $247,866.$138,286. LFNY’s aggregate indebtedness to net capital ratio was 0.37:0.40:1 as of September 30, 2017.March 31, 2021.
Certain U.K. subsidiaries of the Company, including LCL, Lazard Fund Managers Limited and Lazard Asset Management Limited (collectively, the “U.K. Subsidiaries”) are regulated by the Financial Conduct Authority. At September 30, 2017,March 31, 2021, the aggregate regulatory net capital of the U.K. Subsidiaries was $190,884,$185,727, which exceeded the minimum requirement by $172,104.$161,659.
CFLF, under which asset management and commercial banking activities are carried out in France, is subject to regulation by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”) for its banking activities conducted through its subsidiary, LFB. LFB, as a registered bank, is engaged primarily in commercial and private banking services for clients and funds managed by LFG (asset management) and other clients, and asset-liability management. The investment services activities of the Paris group, exercised through LFB and other subsidiaries of CFLF, primarily LFG, (asset management), also are subject to regulation and supervision by the Autorité des
31
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Marchés Financiers. At September 30, 2017,March 31, 2021, the consolidated regulatory net capital of CFLF was $137,988,$141,077, which exceeded the minimum requirement set for regulatory capital levels by $89,582.$72,867. In addition, pursuant to the consolidated supervision rules in the European Union, LFB, in particular, as a French credit institution, is required to be supervised by a regulatory body, either in the U.S. or in the European Union. InDuring the third quarter of 2013, the Company and the ACPR agreed on terms for the consolidated supervision of LFB and certain other non-Financial Advisory European subsidiaries of the Company (referred to herein, on a combined basis, as the “combined European regulated group”) under such rules. Under this supervision, the combined European regulated group is required to comply with minimum requirements for regulatory net capital to be reported on a quarterly basis and satisfy periodic financial and other reporting obligations. At June 30, 2017,December 31, 2020, the regulatory net capital of the combined European regulated group was $167,325,$184,842, which exceeded the minimum requirement set for regulatory capital levels by $81,079.$66,782. Additionally, the combined European regulated group, together with our European Financial Advisory entities, is required to perform an annual risk assessment and provide certain other information on a periodic basis, including financial reports and information relating to financial performance, balance sheet data and capital structure.
Certain other U.S. and non-U.S. subsidiaries are subject to various capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At September 30, 2017,March 31, 2021, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $151,460,$208,178, which exceeded the minimum required capital by $124,535.$179,051.
At September 30, 2017,March 31, 2021, each of these subsidiaries individually was in compliance with its regulatory capital requirements.
Any new or expanded rules and regulations that may be adopted in countries in which we operate (including regulations that have not yet been proposed) could affect us in other ways.
| SEGMENT INFORMATION |
The Company’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each segment is reviewed to determine the allocation of resources and to assess its performance. The Company’s principal operating activities are included in its Financial Advisory and Asset Management business segments as described in Note 1. In addition, as described in Note 1, the Company records selected other activities in its Corporate segment.
32
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The Company’s segment information for the three month and nine month periods ended September 30, 2017March 31, 2021 and 20162020 is prepared using the following methodology:
Revenue and expenses directly associated with each segment are included in determining operating income.
• | Revenue and expenses directly associated with each segment are included in determining operating income. |
Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.
• | Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors. |
Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most relevant measures applicable, including headcount, square footage and other factors.
• | Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most relevant measures applicable, including headcount, square footage and other factors. |
The Company allocates investment gains and losses,records other revenue, interest income and interest expense among the various segments based on the segment in which the underlying asset or liability is reported.
Each segment’s operating expenses include (i) compensation and benefits expenses incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, human resources, legal, facilities management and senior management activities.
32
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Management evaluates segment results based on net revenue and operating income (loss) and believes that the following information provides a reasonable representation of each segment’s contribution with respect to net revenue, operating income (loss) and total assets:
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
|
| Three Months Ended |
| |||||||||||||||
|
|
|
| September 30, |
|
| September 30, |
|
|
|
| March 31, |
| |||||||||||||||
|
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
|
| 2021 |
|
| 2020 |
| ||||||
Financial Advisory |
| Net Revenue |
| $ | 305,890 |
|
| $ | 343,488 |
|
| $ | 1,052,206 |
|
| $ | 896,467 |
|
| Net Revenue |
| $ | 317,522 |
|
| $ | 298,970 |
|
|
| Operating Expenses |
|
| 243,421 |
|
|
| 257,561 |
|
|
| 814,068 |
|
|
| 718,366 |
|
| Operating Expenses |
|
| 255,907 |
|
|
| 244,247 |
|
|
| Operating Income |
| $ | 62,469 |
|
| $ | 85,927 |
|
| $ | 238,138 |
|
| $ | 178,101 |
|
| Operating Income |
| $ | 61,615 |
|
| $ | 54,723 |
|
Asset Management |
| Net Revenue |
| $ | 320,487 |
|
| $ | 267,725 |
|
| $ | 913,728 |
|
| $ | 767,610 |
|
| Net Revenue |
| $ | 347,490 |
|
| $ | 282,521 |
|
|
| Operating Expenses |
|
| 217,233 |
|
|
| 185,753 |
|
|
| 621,885 |
|
|
| 543,616 |
|
| Operating Expenses |
|
| 232,103 |
|
|
| 204,769 |
|
|
| Operating Income |
| $ | 103,254 |
|
| $ | 81,972 |
|
| $ | 291,843 |
|
| $ | 223,994 |
|
| Operating Income |
| $ | 115,387 |
|
| $ | 77,752 |
|
Corporate |
| Net Revenue |
| $ | (2,606 | ) |
| $ | (3,336 | ) |
| $ | (3,660 | ) |
| $ | (24,885 | ) |
| Net Revenue |
| $ | (5,663 | ) |
| $ | (43,911 | ) |
|
| Operating Expenses |
|
| 17,923 |
|
|
| 14,930 |
|
|
| 52,869 |
|
|
| 16,196 |
|
| Operating Expenses |
|
| 34,946 |
|
|
| 2,834 |
|
|
| Operating Loss |
| $ | (20,529 | ) |
| $ | (18,266 | ) |
| $ | (56,529 | ) |
| $ | (41,081 | ) |
| Operating Loss |
| $ | (40,609 | ) |
| $ | (46,745 | ) |
Total |
| Net Revenue |
| $ | 623,771 |
|
| $ | 607,877 |
|
| $ | 1,962,274 |
|
| $ | 1,639,192 |
|
| Net Revenue |
| $ | 659,349 |
|
| $ | 537,580 |
|
|
| Operating Expenses |
|
| 478,577 |
|
|
| 458,244 |
|
|
| 1,488,822 |
|
|
| 1,278,178 |
|
| Operating Expenses |
|
| 522,956 |
|
|
| 451,850 |
|
|
| Operating Income |
| $ | 145,194 |
|
| $ | 149,633 |
|
| $ | 473,452 |
|
| $ | 361,014 |
|
| Operating Income |
| $ | 136,393 |
|
| $ | 85,730 |
|
|
| As Of |
| |||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,137,054 |
|
| $ | 1,157,844 |
|
Asset Management |
|
| 893,605 |
|
|
| 958,588 |
|
Corporate |
|
| 3,805,913 |
|
|
| 3,399,315 |
|
Total |
| $ | 5,836,572 |
|
| $ | 5,515,747 |
|
33
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
19. | CONSOLIDATED VIEs |
The Company’s consolidated VIEs as of March 31, 2021 and December 31, 2020 include certain funds that were established for the benefit of employees participating in the Company’s existing LFI deferred compensation arrangement. Lazard invests in these funds and is the investment manager and is therefore deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these funds. The Company’s consolidated VIE assets and liabilities as reflected in the condensed consolidated statements of financial condition consist of the following at March 31, 2021 and December 31, 2020. The Company’s consolidated VIE assets, except as it relates to $170,080 and $121,376 of LFI held by Lazard Group as of March 31, 2021 and December 31, 2020, respectively, can only be used to settle the obligations of the consolidated VIEs.
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,425 |
|
| $ | 3,558 |
|
Customers and other receivables |
|
| 108 |
|
|
| 160 |
|
Investments |
|
| 217,876 |
|
|
| 158,370 |
|
Other assets |
|
| 767 |
|
|
| 400 |
|
Total Assets |
| $ | 221,176 |
|
| $ | 162,488 |
|
|
| As Of |
| |||||
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 808,564 |
|
| $ | 883,384 |
|
Asset Management |
|
| 668,410 |
|
|
| 645,653 |
|
Corporate |
|
| 2,299,126 |
|
|
| 1,986,947 |
|
Total |
| $ | 3,776,100 |
|
| $ | 3,515,984 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 67 |
|
| $ | 104 |
|
Other liabilities |
|
| 469 |
|
|
| 491 |
|
Total Liabilities |
| $ | 536 |
|
| $ | 595 |
|
The following discussion should be read in conjunction with Lazard Group’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 20162020 (the “Form 10-K”). All references to “2017,“2021,” “2016,” “third quarter,“2020,” “first nine months”quarter” or “the period” refer to, as the context requires, the three month and nine month periods ended September 30, 2017March 31, 2021 and September 30, 2016.2020.
Forward-Looking Statements and Certain Factors that May Affect Our Business
Management has included in Parts I and II of this Form 10-Q, including in its MD&A, statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements, including with respect to the current COVID-19 pandemic, are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in our Form 10-K under the caption “Risk Factors,” including the following:
a decline in general economic conditions or global or regional financial markets;
• | a decline in general economic conditions or the global or regional financial markets; |
a decline in our revenues, for example due to a decline in overall mergers and acquisitions (“M&A”) activity, our share of the M&A market or our assets under management (“AUM”);
• | a decline in our revenues, for example due to a decline in overall mergers and acquisitions (“M&A”) activity, our share of the M&A market or our assets under management (“AUM”); |
losses caused by financial or other problems experienced by third parties;
• | losses caused by financial or other problems experienced by third parties; |
losses due to unidentified or unanticipated risks;
• | losses due to unidentified or unanticipated risks; |
a lack of liquidity, i.e., ready access to funds, for use in our businesses; and
• | a lack of liquidity, i.e., ready access to funds, for use in our businesses; and |
competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels.
• | competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels. |
These risks and uncertainties are not exhaustive. Other sections of the Form 10-K and this Form 10-Q describe additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
financial goals, including the ratio of awarded compensation and benefits expense to operating revenue;
ability to deploy surplus cash through distributions to members, purchases of Lazard Ltd Class A common stock and debt repurchases;
possible or assumed future results of operations and operating cash flows;
strategies and investment policies;
financing plans and the availability of short-term borrowing;
competitive position;
future acquisitions, including the consideration to be paid and the timing of consummation;
potential growth opportunities available to our businesses;
recruitment and retention of our managing directors and employees;
• | financial goals, including ratios of compensation and benefits expense to operating revenue; |
| • | ability to deploy surplus cash through distributions to members, purchases of common stock and debt repurchases; |
• | possible or assumed future results of operations and operating cash flows; |
• | strategies and investment policies; |
• | financing plans and the availability of short-term borrowing; |
• | competitive position; |
• | future acquisitions, including the consideration to be paid and the timing of consummation; |
• | potential growth opportunities available to our businesses; |
• | potential impact of investments in our technology infrastructure and data science capabilities; |
• | recruitment and retention of our managing directors and employees; |
• | potential levels of compensation expense, including awarded compensation and benefits expense and adjusted compensation and benefits expense, and non-compensation expense; |
potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts;
• | potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts; |
likelihood of success and impact of litigation;
• | likelihood of success and impact of litigation; |
expected tax rates, including effective tax rates;
• | expected tax rates, including effective tax rates; |
changes in interest and tax rates;
• | changes in interest and tax rates; |
availability of certain tax benefits, including certain potential deductions;
• | availability of certain tax benefits, including certain potential deductions; |
potential impact of certain events or circumstances on our financial statements;
• | potential impact of certain events or circumstances on our financial statements and operations, including the ongoing COVID-19 pandemic; |
changes in foreign currency exchange rates;
• | changes in foreign currency exchange rates; |
expectations with respect to the economy, the securities markets, the market for mergers, acquisitions and strategic advisory and restructuring activity, the market for asset management activity and other macroeconomic and industry trends;
• | expectations with respect to the economy, the securities markets, the market for mergers, acquisitions, restructuring and other financial advisory activity, the market for asset management activity and other macroeconomic, regional and industry trends; |
effects of competition on our business; and
• | effects of competition on our business; and |
impact of future legislation and regulation on our business.
• | impact of new or future legislation and regulation, including tax laws and regulations, on our business. |
The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, the Company uses its website, its twitter account (twitter.com/Lazard) and other social media sites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in various mutual funds, hedge funds and other investment products managed by our Asset Management business. Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com. Our websites and social media sites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q.
Business SummaryFinancial Advisory
Lazard is one
Net Revenue
$
317,522
$
298,970
Operating Expenses
255,907
244,247
Operating Income
$
61,615
$
54,723
Asset Management
Net Revenue
$
347,490
$
282,521
Operating Expenses
232,103
204,769
Operating Income
$
115,387
$
77,752
Corporate
Net Revenue
$
(5,663
)
$
(43,911
)
Operating Expenses
34,946
2,834
Operating Loss
$
(40,609
)
$
(46,745
)
Total
Net Revenue
$
659,349
$
537,580
Operating Expenses
522,956
451,850
Operating Income
$
136,393
$
85,730
|
| As Of |
| |||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,137,054 |
|
| $ | 1,157,844 |
|
Asset Management |
|
| 893,605 |
|
|
| 958,588 |
|
Corporate |
|
| 3,805,913 |
|
|
| 3,399,315 |
|
Total |
| $ | 5,836,572 |
|
| $ | 5,515,747 |
|
33
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
19. | CONSOLIDATED VIEs |
The Company’s consolidated VIEs as of March 31, 2021 and December 31, 2020 include certain funds that were established for the benefit of employees participating in the Company’s existing LFI deferred compensation arrangement. Lazard invests in these funds and is the investment manager and is therefore deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these funds. The Company’s consolidated VIE assets and liabilities as reflected in the condensed consolidated statements of financial condition consist of the following at March 31, 2021 and December 31, 2020. The Company’s consolidated VIE assets, except as it relates to $170,080 and $121,376 of LFI held by Lazard Group as of March 31, 2021 and December 31, 2020, respectively, can only be used to settle the obligations of the consolidated VIEs.
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,425 |
|
| $ | 3,558 |
|
Customers and other receivables |
|
| 108 |
|
|
| 160 |
|
Investments |
|
| 217,876 |
|
|
| 158,370 |
|
Other assets |
|
| 767 |
|
|
| 400 |
|
Total Assets |
| $ | 221,176 |
|
| $ | 162,488 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 67 |
|
| $ | 104 |
|
Other liabilities |
|
| 469 |
|
|
| 491 |
|
Total Liabilities |
| $ | 536 |
|
| $ | 595 |
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with Lazard Group’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”). All references to “2021,” “2020,” “first quarter” or “the period” refer to, as the context requires, the three month periods ended March 31, 2021 and 2020.
Forward-Looking Statements and Certain Factors that May Affect Our Business
Management has included in Parts I and II of this Form 10-Q, including in its MD&A, statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements, including with respect to the current COVID-19 pandemic, are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in our Form 10-K under the caption “Risk Factors,” including the following:
• | a decline in general economic conditions or the global or regional financial markets; |
• | a decline in our revenues, for example due to a decline in overall mergers and acquisitions (“M&A”) activity, our share of the |
• | losses caused by financial |
• | losses due to unidentified or unanticipated risks; |
• | a lack of liquidity, i.e., ready access to funds, for use in our businesses; and |
• | competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels. |
These risks and uncertainties are not exhaustive. Other sections of the Form 10-K and this Form 10-Q describe additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
• | financial goals, including ratios of compensation and benefits expense to operating revenue; |
• | ability to deploy surplus cash through distributions to members, purchases of common stock and debt repurchases; |
• | possible or assumed future results of operations and operating cash flows; |
• | strategies and investment policies; |
• | financing plans and the availability of short-term borrowing; |
• | competitive position; |
• | future acquisitions, including the consideration to be paid and the timing of consummation; |
• | potential growth opportunities available to our businesses; |
• | potential impact of investments in |
• | recruitment and
|
| • | potential levels of compensation expense, including awarded compensation and benefits expense and adjusted compensation and benefits expense, and non-compensation expense; |
• | potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts; |
• | likelihood of success and impact of litigation; |
• | expected tax rates, including effective tax rates; |
• | changes in |
• | availability of |
| • | changes in foreign currency exchange rates; |
• | expectations with respect to
|
• | effects of |
|
|
We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge continuously, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the
•
impact of all potentially applicable factorsnew or future legislation and regulation, including tax laws and regulations, on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. See Item 1A, “Risk Factors” in our Form 10-K. Furthermore, net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter.business.
Overall, we continue to focus on the development of our business, including the generation of stable revenue growth, earnings growth and member returns, the evaluation of potential growth opportunities, the prudent management of our costs and expenses, the efficient use of our assets and the return of equity to our members.
The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, the Company uses its website, its twitter account (twitter.com/Lazard) and other social media sites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in our Asset Management business. Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com. Our websites and social media sites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q.
Certain data with respect to our Financial Advisory and Asset Management businesses is included below.
Financial Advisory
As reflected in the following table, which sets forth global M&A industry statistics, the value of all completed transactions, including completed transactions with values greater than $500 million, decreased in the first nine months of 2017 as compared to 2016. With respect to announced M&A transactions, the number of all transactions, including the number of announced transactions involving values greater than $500 million, increased in the first nine months of 2017 as compared to 2016.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| % Incr / (Decr) |
|
| 2017 |
|
| 2016 |
|
| % Incr / (Decr) |
| ||||||
|
| ($ in billions) |
| |||||||||||||||||||||
Completed M&A Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All deals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 860 |
|
| $ | 932 |
|
|
| (8 | )% |
| $ | 2,632 |
|
| $ | 2,781 |
|
|
| (5 | )% |
Number |
|
| 9,467 |
|
|
| 9,296 |
|
|
| 2 | % |
|
| 29,260 |
|
|
| 29,035 |
|
|
| 1 | % |
Deals Greater than $500 million: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 655 |
|
| $ | 696 |
|
|
| (6 | )% |
| $ | 1,990 |
|
| $ | 2,093 |
|
|
| (5 | )% |
Number |
|
| 258 |
|
|
| 280 |
|
|
| (8 | )% |
|
| 826 |
|
|
| 821 |
|
|
| 1 | % |
Announced M&A Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All deals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 886 |
|
| $ | 868 |
|
|
| 2 | % |
| $ | 2,505 |
|
| $ | 2,523 |
|
|
| (1 | )% |
Number |
|
| 9,822 |
|
|
| 9,214 |
|
|
| 7 | % |
|
| 29,970 |
|
|
| 28,975 |
|
|
| 3 | % |
Deals Greater than $500 million: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 663 |
|
| $ | 641 |
|
|
| 3 | % |
| $ | 1,831 |
|
| $ | 1,837 |
|
|
| (0 | )% |
Number |
|
| 311 |
|
|
| 302 |
|
|
| 3 | % |
|
| 887 |
|
|
| 843 |
|
|
| 5 | % |
Net Revenue
|
| $ | 317,522 | $ | 298,970 |
Global restructuring activity during the first nine months of 2017, as measured by the number of corporate defaults, decreased as compared to the first nine months of 2016. The number of defaulting issuers decreased to 64 in the first nine months of 2017, according to Moody’s Investors Service, Inc., as compared to 115 in the first nine months of 2016.
Net revenue trends in Financial Advisory for M&A and Strategic Advisory and Restructuring are generally correlated to the level of completed industry-wide M&A transactions and restructuring transactions occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur in any given year for a number of reasons. For instance, our results can diverge from industry-wide activity where there are material variances from the level of industry-wide M&A activity in a particular market where Lazard has significant market share, or regarding the relative number of our advisory engagements with respect to larger-sized transactions, and where we are involved in non-public or sovereign advisory assignments. For example, our M&A and Strategic Advisory revenue, which includes M&A Advisory, Capital Advisory, Capital Raising, Sovereign Advisory and Shareholder Advisory revenue, increased 13% in the first nine months of 2017 as compared to 2016. The industry statistics for global M&A transactions described above reflect a 5% decrease in the value of all completed transactions in the first nine months of 2017 as compared to 2016. In addition, with respect to our restructuring activity, revenue increased 38% in the first nine months of 2017 as compared to 2016, in contrast to a 44% decrease in global default activity in the first nine months of 2017 as compared to 2016.
Operating Expenses
255,907
244,247
Operating Income
$
61,615
$
54,723
Asset Management
The percentage change in major equity market indices at September 30, 2017, as compared to such indices at June 30, 2017, December 31, 2016, and at September 30, 2016, is shown in the table below.
Net Revenue
$
347,490
$
282,521
Operating Expenses
232,103
204,769
Operating Income
$
115,387
$
77,752
Corporate
Net Revenue
$
(5,663
)
$
(43,911
)
Operating Expenses
34,946
2,834
Operating Loss
$
(40,609
)
$
(46,745
)
Total
Net Revenue
$
659,349
$
537,580
Operating Expenses
522,956
451,850
Operating Income
$
136,393
$
85,730
|
| As Of |
| |||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,137,054 |
|
| $ | 1,157,844 |
|
Asset Management |
|
| 893,605 |
|
|
| 958,588 |
|
Corporate |
|
| 3,805,913 |
|
|
| 3,399,315 |
|
Total |
| $ | 5,836,572 |
|
| $ | 5,515,747 |
|
33
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Percentage Changes September 30, 2017 vs. |
| |||||||||
|
| June 30, 2017 |
|
| December 31, 2016 |
|
| September 30, 2016 |
| |||
MSCI World Index |
|
| 4 | % |
|
| 14 | % |
|
| 16 | % |
Euro Stoxx |
|
| 4 | % |
|
| 9 | % |
|
| 20 | % |
MSCI Emerging Market |
|
| 7 | % |
|
| 25 | % |
|
| 20 | % |
S&P 500 |
|
| 4 | % |
|
| 13 | % |
|
| 16 | % |
19. | CONSOLIDATED VIEs |
The Company’s consolidated VIEs as of March 31, 2021 and December 31, 2020 include certain funds that were established for the benefit of employees participating in the Company’s existing LFI deferred compensation arrangement. Lazard invests in these funds and is the investment manager and is therefore deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these funds. The Company’s consolidated VIE assets and liabilities as reflected in the condensed consolidated statements of financial condition consist of the following at March 31, 2021 and December 31, 2020. The Company’s consolidated VIE assets, except as it relates to $170,080 and $121,376 of LFI held by Lazard Group as of March 31, 2021 and December 31, 2020, respectively, can only be used to settle the obligations of the consolidated VIEs.
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,425 |
|
| $ | 3,558 |
|
Customers and other receivables |
|
| 108 |
|
|
| 160 |
|
Investments |
|
| 217,876 |
|
|
| 158,370 |
|
Other assets |
|
| 767 |
|
|
| 400 |
|
Total Assets |
| $ | 221,176 |
|
| $ | 162,488 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 67 |
|
| $ | 104 |
|
Other liabilities |
|
| 469 |
|
|
| 491 |
|
Total Liabilities |
| $ | 536 |
|
| $ | 595 |
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with Lazard Group’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”). All references to “2021,” “2020,” “first quarter” or “the period” refer to, as the context requires, the three month periods ended March 31, 2021 and 2020.
Forward-Looking Statements and Certain Factors that May Affect Our Business
Management has included in Parts I and II of this Form 10-Q, including in its MD&A, statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements, including with respect to the current COVID-19 pandemic, are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in our Form 10-K under the caption “Risk Factors,” including the following:
|
| a decline in general economic conditions or the global or regional financial markets; |
• | a decline in our revenues, for |
• | losses caused by financial or other problems experienced by third parties; |
• | losses due to unidentified or unanticipated risks; |
• | a lack of liquidity, i.e., ready access to funds, for use in our |
• | competitive pressure on our
|
These risks and uncertainties are not exhaustive. Other sections of the Form 10-K and this Form 10-Q describe additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
• | financial
|
• | ability to deploy surplus cash through distributions to members, purchases of common stock and |
• | possible or assumed future results of operations and |
• | strategies and |
| • | financing plans and the |
• | competitive position; |
• | future acquisitions, including the consideration to be paid and |
• | potential growth opportunities available to |
• | potential impact of investments in our technology infrastructure and data science capabilities; |
• | recruitment and retention of our managing directors and employees; |
• | potential levels of compensation |
• | potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts; |
• | likelihood of success and impact of litigation; |
• | expected tax rates, including effective tax rates; |
• | changes in interest and tax rates; |
• | availability of certain tax benefits, including certain potential deductions; |
• | potential impact of certain events or circumstances on our financial statements and operations, including the ongoing COVID-19 pandemic; |
• | changes in foreign currency exchange rates; |
• | expectations with respect to the economy, the securities markets, the market for mergers, acquisitions, restructuring and other financial advisory activity, the market for asset management activity and other macroeconomic, regional and industry trends; |
• | effects of competition on our business; and |
• | impact of new or future legislation and regulation, including tax laws and regulations, on our business. |
The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, the Company uses its website, its twitter account (twitter.com/Lazard) and other social media sites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in our Asset Management business. Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com. Our websites and social media sites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q.
Business Summary
Lazard is one of the world’s preeminent financial advisory and asset management firms. We have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals. Founded in 1848 in New Orleans, we currently operate from more than 40 cities and 25 countries across key business and financial centers in North America, Europe, Asia, Australia, and Central and South America.
Our primary business purpose is to serve our clients. Our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations, governments and investing institutions. This network is both a competitive strength and a powerful resource for Lazard and our clients. As a firm that competes on the quality of our advice, we have two fundamental assets: our people and our reputation.
We operate in cyclical businesses across multiple geographies, industries and asset classes. In recent years, we have expanded our geographic reach, bolstered our industry expertise and continued to build in growth areas. Companies, government bodies and investors seek independent advice with a geographic perspective, deep understanding of capital structure, informed research and knowledge of global, regional and local economic conditions. We believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel.
Our principal sources of revenue are derived from activities in the following business segments:
• | Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding M&A, restructurings, capital advisory, shareholder advisory, sovereign advisory, capital raising and other strategic advisory matters, and |
• | Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients. |
In addition, we record selected other activities in our Corporate segment, including management of cash, investments, deferred tax assets, outstanding indebtedness, certain contingent obligations, and assets and liabilities associated with (i) Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”) and (ii) a special purpose acquisition company sponsored by an affiliate of the Company, Lazard Growth Acquisition Corp. I (“LGAC”).
Our consolidated net revenue was derived from the following segments:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Financial Advisory |
|
| 48 | % |
|
| 56 | % |
Asset Management |
|
| 53 |
|
|
| 53 |
|
Corporate |
|
| (1 | ) |
|
| (9 | ) |
Total |
|
| 100 | % |
|
| 100 | % |
We also invest our own capital from time to time, generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments, and, since 2005, we have engaged in a number of alternative investments and private equity activities, including, historically, investments through (i) Edgewater, our Chicago-based private equity firm and (ii) a fund targeting significant noncontrolling-stake investments in established private companies. We also make investments to seed our Asset Management strategies.
Business Environment and Outlook
Economic and global financial market conditions can materially affect our financial performance. As described above, our principal sources of revenue are derived from activities in our Financial Advisory and Asset Management business segments. As our Financial Advisory revenues are primarily dependent on the successful completion of merger, acquisition, restructuring, capital raising or similar transactions, and our Asset Management revenues are primarily driven by the levels of AUM, weak economic and global financial market conditions can result in a challenging business environment for M&A and capital-raising activity as well as our Asset Management business, but may provide opportunities for our restructuring business.
While the coronavirus (“COVID-19”) pandemic continues to have a negative impact on economic activity around the world, the rollout of COVID-19 vaccines is raising expectations in the developed economies that the health crisis can be mitigated. Governments and central banks have taken extraordinary measures to support local economies and capital markets, but the macroeconomic outlook remains uncertain while significant health risks persist.
Lazard’s offices around the world have continued to operate in the context of applicable local regulations and guidelines regarding business activity, and in the first quarter of 2021, the majority of our employees worked remotely.
Our outlook with respect to our Financial Advisory and Asset Management businesses is described below.
• | Financial Advisory—During this period of financial stress and uncertainty, we are focused on serving clients with our depth of expertise in capital structure, capital raising, debt negotiations and restructuring and exchange offers. Announced M&A transaction volumes are recovering in both the U.S. and Europe, particularly in France and the U.K., but we still expect there to be elevated uncertainty in the near term due to the ongoing health crisis. However, fiscal and monetary stimulus in developed countries and the rollout of vaccines globally have created heightened levels of optimism and CEO confidence. The global scale and breadth of our Financial Advisory business allows us to advise on a wide range of strategic and restructuring transactions across a variety of industries. In addition, we continue to invest in our Financial Advisory business by selectively hiring talented senior professionals and continuing to focus on our M&A, restructuring and other advisory services. |
• | Asset Management—In the short to intermediate term, we normally would expect most investor demand to come through financial institutions, and from defined benefit and defined contribution plans in developed economies because of their sheer scope and size. However, continued uncertainties in capital markets arising from the COVID-19 pandemic may negatively impact our business in a manner that we cannot predict. Over the longer term, and depending upon local and global market conditions, we would expect an increasing share of our AUM to come from the developing economies around the globe, as their retirement systems evolve and individual wealth is increasingly deployed in the financial markets. Given our diversified investment platform and our ability to provide investment solutions for a
|
We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge continuously, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. See Item 1A, “Risk Factors” in our Form 10-K. Furthermore, net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter.
Overall, we continue to focus on the development of our business, including the generation of stable revenue growth, earnings growth and member returns, the evaluation of potential growth opportunities, the investment in new technology to support the development of existing and new business opportunities, the prudent management of our costs and expenses, the efficient use of our assets and the return of equity to our members.
Certain market data with respect to our Financial Advisory and Asset Management businesses is included below.
Financial Advisory
As reflected in the following table, which sets forth global M&A industry statistics, the value of all completed transactions, including the subset of completed transactions involving values greater than $500 million, increased in the first quarter of 2021 as compared to 2020. With respect to announced M&A transactions, the value of all transactions, including the subset of announced transactions involving values greater than $500 million, increased in the first quarter of 2021 as compared to 2020.
|
| Three Months Ended |
| |||||||||
|
| March 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| % Incr / (Decr) |
| |||
|
| ($ in billions) |
| |||||||||
Completed M&A Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
All deals: |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 1,001 |
|
| $ | 707 |
|
|
| 42 | % |
Number |
|
| 7,044 |
|
|
| 8,714 |
|
|
| (19 | )% |
Deals Greater than $500 million: |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 788 |
|
| $ | 519 |
|
|
| 52 | % |
Number |
|
| 277 |
|
|
| 268 |
|
|
| 3 | % |
Announced M&A Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
All deals: |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 1,441 |
|
| $ | 667 |
|
|
| 116 | % |
Number |
|
| 7,722 |
|
|
| 8,635 |
|
|
| (11 | )% |
Deals Greater than $500 million: |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
| $ | 1,177 |
|
| $ | 486 |
|
|
| 142 | % |
Number |
|
| 450 |
|
|
| 225 |
|
|
| 100 | % |
Source: Dealogic as of April 7, 2021.
Global restructuring activity during the first quarter of 2021, as measured by the number of corporate defaults, decreased as compared to the first quarter of 2020. The number of defaulting issuers was 13 in the first quarter of 2021 according to Moody’s Investors Service, Inc., as compared to 30 in the first quarter of 2020.
Net revenue trends in Financial Advisory are generally correlated to the level of completed industry-wide M&A transactions and restructuring transactions occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur in any given year for a number of reasons. For instance, our results can diverge from industry-wide activity where there are material variances from the level of industry-wide M&A activity in a particular market where Lazard has significant market share, or regarding the relative number of our advisory engagements with respect to larger-sized transactions, and where we are involved in non-public or sovereign advisory assignments.
Asset Management
Equity market indices for major markets at March 31, 2021 generally increased as compared to such indices at December 31, 2020 and March 31, 2020. The percentage change in major equity market indices at March 31, 2021, as compared to such indices at December 31, 2020 and at March 31, 2020, is shown in the table below.
|
| Percentage Changes March 31, 2021 vs. |
| |||||
|
| December 31, 2020 |
|
| March 31, 2020 |
| ||
MSCI World Index |
|
| 5 | % |
|
| 55 | % |
Euro Stoxx |
|
| 11 | % |
|
| 44 | % |
MSCI Emerging Market |
|
| 2 | % |
|
| 59 | % |
S&P 500 |
|
| 6 | % |
|
| 56 | % |
The fees that we receive for providing investment management and advisory services are primarily driven by the level of AUM and the nature of the AUM product mix. Accordingly, market movements, foreign currency exchange rate volatility and changes in our AUM product mix will impact the level of revenues we receive from our Asset Management business when comparing periodic results. A substantial portion of our AUM is invested in equities. Movements in AUM during the period generally reflect the changes in equity market indices.
Financial Statement Overview
Net Revenue
The majority of Lazard’s Financial Advisory net revenue historically has been earned from the successful completion of M&A transactions, restructuring, capital advisory services, shareholder advisory, sovereign advisory, capital raising and other strategic advisory matters. The main drivers of Financial Advisory net revenue are overall M&A activity, the level of corporate debt defaults and the environment for capital raising activities, particularly in the industries and geographic markets in which Lazard focuses. In some client engagements, often those involving financially distressed companies, revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction. In addition, Lazard also earns fees from providing strategic advice to clients, with such fees not being dependent on a specific transaction, and may also earn fees in connection with public and private securities offerings. Significant fluctuations in Financial Advisory net revenue can occur over the course of any given year, because a significant portion of such net revenue is earned upon the successful completion of a transaction, restructuring or capital raising activity, the timing of which is uncertain and is not subject to Lazard’s control.
Lazard’s Asset Management segment principally includes Lazard Asset Management LLC (together with its subsidiaries, “LAM”), Lazard Frères Gestion SAS (“LFG”) and Edgewater. Asset Management net revenue is derived from fees for investment management and advisory services provided to clients. As noted above, the main driver of Asset Management net revenue is the level and product mix of AUM, which is generally influenced by the performance of the global equity markets and, to a lesser extent, fixed income markets as well as Lazard’s investment performance, which impacts its ability to successfully attract and retain assets. As a result, fluctuations (including timing thereof) in financial markets and client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. Asset Management fees are generally based on the level of AUM measured daily, monthly or quarterly, and an increase or reduction in AUM, due to market price fluctuations, currency fluctuations, changes in product mix, or net client asset flows will result in a corresponding increase or decrease in management fees. The majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less. Institutional and individual clients, and firms with which we have strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their
funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. In addition, as Lazard’s AUM includes significant amounts of assets that are denominated in currencies other than U.S. Dollars, changes in the value of the U.S. Dollar relative to foreign currencies will impact the value of Lazard’s AUM and the overall amount of management fees generated by the AUM. Fees vary with the type of assets managed and the vehicle in which they are managed, with higher fees earned on equity assets and alternative investment funds, such as hedge funds and private equity funds, and lower fees earned on fixed income and cash management products.
The Company earns performance-based incentive fees on various investment products, including traditional products and alternative investment funds, such as hedge funds and private equity funds.
For hedge funds, incentive fees are calculated based on a specified percentage of a fund’s net appreciation, in some cases in excess of established benchmarks or thresholds. The Company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period, when potential uncertainties regarding the ultimate realizable amounts have been determined. The incentive fee measurement period is generally an annual period (unless an account terminates or redemption occurs during the year). The incentive fees received at the end of the measurement period are not subject to reversal or payback. Incentive fees on hedge funds are often subject to loss carryforward provisions in which losses incurred by the hedge funds in any year are applied against certain gains realized by the hedge funds in future periods before any incentive fees can be earned.
For private equity funds, incentive fees may be earned in the form of a “carried interest” if profits arising from realized investments exceed a specified threshold. Typically, such carried interest is ultimately calculated on a whole-fund basis and, therefore, clawback of carried interest during the life of the fund can occur. As a result, incentive fees earned on our private equity funds are not recognized until potential uncertainties regarding the ultimate realizable amounts have been determined, including any potential for clawback.
Corporate segment net revenue consists primarily of investment gains and losses on the Company’s “seed investments” related to our Asset Management business and principal investments in private equity funds, net of hedging activities, as well as gains and losses on investments held in connection with Lazard Fund Interests (“LFI”) and interest income and interest expense. Corporate net revenue also can fluctuate due to changes in the fair value of debt and equity securities, as well as due to changes in interest and currency exchange rates and in the levels of cash, investments and indebtedness.
Corporate segment total assets represented 65% of Lazard’s consolidated total assets as of March 31, 2021, which are attributable to cash and cash equivalents, restricted cash associated with LGAC, investments in debt and equity securities, interests in alternative investment, debt, equity and private equity funds, deferred tax assets and certain other assets associated with LFB and LGAC.
Operating Expenses
The majority of Lazard’s operating expenses relate to compensation and benefits for managing directors and employees. Our compensation and benefits expense includes (i) salaries and benefits, (ii) amortization of the relevant portion of previously granted deferred incentive compensation awards, including (a) share-based incentive compensation under the Lazard Ltd 2018 Incentive Compensation Plan, as amended (the “2018 Plan”) and the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 Plan”) and (b) LFI and other similar deferred compensation arrangements (see Note 13 of Notes to Condensed Consolidated Financial Statements), (iii) a provision for discretionary or guaranteed cash bonuses and profit pools and (iv) when applicable, severance payments. Compensation expense in any given period is dependent on many factors, including general economic and market conditions, our actual and forecasted operating and financial performance, staffing levels, estimated forfeiture rates, competitive pay conditions and the nature of revenues earned, as well as the mix between current and deferred compensation.
For interim periods, we use “adjusted compensation and benefits expense” and the ratio of “adjusted compensation and benefits expense” to “operating revenue,” both non-GAAP measures, for comparison of compensation and benefits expense between periods. For the reconciliations and calculations with respect to “adjusted compensation and benefits expense” and related ratios to “operating revenue,” see the table under “Consolidated Results of Operations” below.
We believe that “awarded compensation and benefits expense” and the ratio of “awarded compensation and benefits expense” to “operating revenue,” both non-GAAP measures, when presented in conjunction with accounting principles generally accepted in the United States of America (“U.S. GAAP”) measures, are appropriate measures to assess the annual cost of compensation and provide a meaningful and useful basis for comparison of compensation and benefits expense between present, historical and future years. “Awarded compensation and benefits expense” for a given year is calculated using “adjusted compensation and benefits expense,” also a non-GAAP measure, as modified by the following items:
• | we deduct amortization expense recorded for U.S. GAAP purposes in the fiscal year associated with deferred incentive compensation awards; |
• | we add incentive compensation with respect to the fiscal year, which is comprised of:
Compensation and benefits expense is the largest component of our operating expenses. We seek to maintain discipline with respect to compensation, including the rate at which we award deferred compensation. Our goal is to maintain a ratio of awarded compensation and benefits expense to operating revenue and a ratio of adjusted compensation and benefits expense to operating revenue over the cycle in the mid- to high-50s percentage range. While we have implemented policies and initiatives that we believe will assist us in maintaining ratios within this range, there can be no guarantee that we will continue to maintain such ratios, or that our policies or initiatives will not change, in the future. We may benefit from pressure on compensation costs within the financial services industry in future periods; however, increased competition for senior professionals, changes in the macroeconomic environment or the financial markets generally, lower operating revenue resulting from, for example, a decrease in M&A activity, our share of the M&A market or our AUM levels, changes in the mix of revenues from our businesses, investments in our businesses or various other factors could prevent us from achieving this goal. Our operating expenses also include “non-compensation expense”, which includes costs for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services and other expenses. Our occupancy costs represent a significant portion of our aggregate operating expenses and are subject to change from time to time, particularly as leases for real property expire and are renewed or replaced with new, long-term leases for the same or other real property. We believe that “adjusted non-compensation expense”, a non-GAAP measure, when presented in conjunction with U.S. GAAP measures provides a meaningful and useful basis for our investors to assess our operating results. For calculations with respect to “adjusted non-compensation expense”, see the table under “Consolidated Results of Operations” below. Our operating expenses also include “amortization of intangible assets related to acquisitions”.
Provision for Income Taxes Lazard Group primarily operates in the U.S. as a limited liability company that is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income pertaining to the limited liability company is not subject to U.S. federal income tax because taxes associated with such income represent obligations of See “Critical Accounting Policies and Estimates—Income Taxes” below and Note Noncontrolling interests primarily consist of (i) amounts related to Edgewater’s management vehicles that the Company is deemed to control but not Consolidated Results of Operations Lazard’s condensed consolidated financial statements are presented in U.S. Dollars. Many of our non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. Dollar, generally the currency of the country in which the subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. Dollars using exchange rates as of the respective balance sheet date, while revenue and expenses are translated at average exchange rates during the respective periods based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of members’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included in the condensed consolidated statements of operations.
The condensed consolidated financial statements are prepared in conformity with U.S. GAAP. Selected financial data derived from the Company’s reported condensed consolidated results of operations is set forth below, followed by a more detailed discussion of both the consolidated and business segment results.
The tables below describe the components of operating revenue, adjusted compensation and benefits expense, adjusted non-compensation expense, earnings from operations and related key ratios, which are
Headcount information is set forth below:
The Company’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality, the performance of equity markets and other factors. Accordingly, the revenue and profits in any particular quarter may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended The Company reported net income attributable to Lazard Group of Net revenue increased Compensation and benefits expense increased Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was Non-compensation expense Amortization Operating income Earnings from operations increased The provision for income taxes reflects an effective tax rate of Net income (loss) attributable to noncontrolling interests
Business Segments The following is a discussion of net revenue and operating income for the Company’s segments: Financial Advisory, Asset Management and Corporate. Each segment’s operating expenses include (i) compensation and benefits expenses that are incurred directly in support of the segment and (ii) other operating expenses, which include directly incurred expenses for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourcing, and indirect support costs (including compensation and benefits expense and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, human resources, legal, information technology, facilities management and senior management activities. Such support costs are allocated to the relevant segments based on various statistical drivers such as revenue, headcount, square footage and other factors.
Financial Advisory The following table summarizes the reported operating results attributable to the Financial Advisory segment:
Certain Lazard fee and transaction statistics for the Financial Advisory segment are set forth below:
The geographical distribution of Financial Advisory net revenue is set forth below in percentage terms and is based on the Lazard offices that generate Financial Advisory net revenue, which are located in the Americas
The Company’s managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on M&A, restructuring and other strategic advisory matters, Financial Advisory Results of Operations Financial Advisory’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality and other factors. Accordingly, the revenue and profits in any particular quarter or period may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended Financial Advisory net revenue Operating expenses Financial Advisory operating income was $62 million
Asset Management The following table shows the composition of AUM for the Asset Management segment:
Total AUM at As of As of The following is a summary of changes in AUM by asset class for the three month
As of Average AUM for the three month
The following table summarizes the reported operating results attributable to the Asset Management segment:
The geographical distribution of Asset Management net revenue is set forth below in percentage terms, and is based on the Lazard offices that manage and distribute the respective AUM amounts. Such geographical distribution may not be reflective of the geography of the investment products or clients.
Asset Management Results of Operations Asset Management’s quarterly revenue and profits in any particular quarter or period may not be indicative of future results and may fluctuate based on the performance of the equity and other capital markets. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended Asset Management net revenue increased Operating expenses increased Asset Management operating income was
Corporate The following table summarizes the reported operating results attributable to the Corporate segment:
Corporate Results of Operations Corporate operating results in any particular quarter or period may not be indicative of future results and may fluctuate based on a variety of factors. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended Net interest expense Other revenue increased
Operating expenses increased Cash Flows The Company’s cash flows are influenced primarily by the timing of the receipt of Financial Advisory and Asset Management fees, the timing of distributions to members, payments of incentive compensation to managing directors and employees and purchases of M&A and Private Capital Advisory The Company makes cash payments for, or in respect of, a significant portion of its incentive compensation during the first three months of each calendar year with respect to the prior year’s results. Summary of Cash Flows:
Liquidity and Capital Resources The Company’s liquidity and capital resources are derived from operating activities, financing activities and equity offerings. Operating Activities Net revenue, operating income and cash receipts fluctuate significantly between Liquidity is significantly impacted by cash payments for, or in respect of, incentive compensation, a significant portion of which are made during the first three months of the year. As a consequence, cash on hand generally declines in the beginning of the year and gradually builds over the remainder of the year. We also pay certain tax advances during the year on behalf of Liquidity is also affected by the level of deposits and other customer payables, principally at LFB. To the extent that such deposits and other customer payables rise or fall, this has a corresponding impact on liquidity held at LFB, with the majority of such amounts generally being recorded in “deposits with banks and short-term investments” Lazard’s condensed consolidated financial statements are presented in U.S. Dollars. Many of Lazard’s non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. Dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. Dollars at the respective balance sheet date exchange rates, while revenue and expenses are translated at average exchange rates during the year based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of members’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included on the condensed consolidated statements of operations. We regularly monitor our liquidity position, including cash levels, investments in U.S. Treasury securities, credit lines, principal investment commitments, interest and principal payments on debt, capital expenditures, distributions to members, purchases of shares of
The Amended and Restated Credit Agreement contains customary terms and conditions, including limitations on consolidations, mergers, indebtedness and certain payments, as well as financial condition covenants relating to leverage and interest coverage ratios. Lazard Group’s obligations under the Amended and Restated Credit Agreement may be accelerated upon customary events of default, including non-payment of principal or interest, breaches of covenants, cross-defaults to other material debt, a change in control and specified bankruptcy events.
As long as the lenders’ commitments remain in effect, any loan pursuant to the Amended and Restated Credit Agreement remains outstanding and unpaid or any other amount is due to the lending bank group, the Amended and Restated Credit Agreement includes financial covenants that require that Lazard Group not permit (i) its Consolidated Leverage Ratio (as defined in the Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be greater than 3.25 to 1.00, provided that the Consolidated Leverage Ratio may be greater than 3.25 to 1.00 for two (consecutive or nonconsecutive) quarters so long as it is not greater than 3.50 to 1.00 on the last day of any such quarter, or (ii) its Consolidated Interest Coverage Ratio (as defined in the Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be less than 3.00 to 1.00. For the 12-month period ended In addition, the Amended and Restated Credit Agreement Lazard’s annual cash flow generated from operations historically has been sufficient to enable it to meet its annual obligations. We believe that our cash flows from operating activities should be sufficient for us to fund our current obligations for the next 12 months. Financing Activities The table below sets forth our corporate indebtedness as of March 31, 2021 and December 31, 2020. The agreements with respect to this indebtedness are discussed in more detail in our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Form 10-K.
The indenture and supplemental indentures relating to Lazard Group’s senior notes contain certain covenants (none of which relate to financial condition), events of default and other customary provisions. At See Note Members’ Equity At
The Board of Directors of Lazard has issued a series of authorizations to repurchase
As of In addition, on During the
See Notes Regulatory Capital We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure their general financial soundness and liquidity, which require, among other things, that we comply with rules regarding certain minimum capital requirements, record-keeping, reporting procedures, relationships with customers, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to and from affiliates. See Note Contractual Obligations The following table sets forth information relating to Lazard’s contractual obligations as of
Critical Accounting Policies and Estimates Management’s discussion and analysis of our condensed consolidated financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of Lazard’s condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Lazard evaluates its estimates, including those related to revenue recognition, income taxes, investing activities and goodwill. Lazard bases these estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments, including judgments regarding the carrying values of assets and liabilities, that are not readily apparent from other sources. Actual results may differ from these estimates. Lazard believes that the critical accounting policies set forth below comprise the most significant estimates and judgments used in the preparation of its condensed consolidated financial statements. Revenue Recognition Lazard generates substantially all of its net revenue from providing Financial Advisory and Asset Management services to clients. Lazard recognizes revenue when the following criteria are met:
The Company earns performance-based incentive fees on various investment products, including traditional products and alternative investment funds such as hedge funds and private equity funds. See “Financial Statement Overview” for a description of our revenue recognition policies on such fees. If, in Lazard’s judgment, collection of a fee is not probable, Lazard will not recognize revenue until the uncertainty is removed. We maintain an allowance for doubtful accounts to provide coverage for estimated losses from our receivables. We determine the adequacy of the allowance under CECL by (i) applying a bad debt charge-off rate based on historical charge-off experience; (ii) estimating the probability of loss based on our analysis of the client’s creditworthiness and specifically reserve against exposures where we determine the receivables are impaired, which may include situations where a fee is in dispute or litigation has With respect to fees receivable from Financial Advisory activities, such receivables are generally deemed past due when they are outstanding 60 days from the date of Compensation Liabilities Annual discretionary compensation represents a significant portion of our annual compensation and benefits expense. We allocate the estimated amount of such annual discretionary compensation to interim periods in proportion to the amount of operating revenue earned in such periods based on an assumed annual ratio of awarded compensation and benefits expense to operating revenue. See “Financial Statement Overview—Operating Expenses” for more information on our periodic compensation and benefits expense. As part of the process of preparing our consolidated financial statements, we estimate our income taxes for each of our tax-paying entities in its respective jurisdiction. In addition to estimating actual current tax liabilities for these jurisdictions, we also must account for the tax effects of differences between the financial reporting and tax reporting of items, such as basis adjustments, compensation and benefits expense, and depreciation and amortization. Differences which are temporary in nature result in deferred tax assets and liabilities. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, any valuation allowance recorded against our deferred tax assets and our unrecognized tax benefits. We recognize a deferred tax asset if it is more likely than not (defined as a likelihood of greater than 50%) that a tax benefit will be accepted by a taxing authority. The measurement of deferred tax assets and liabilities is based upon currently enacted tax rates in the applicable jurisdictions. At December 31, Subsequent to the initial recognition of deferred tax assets, we also must continually assess the likelihood that such deferred tax assets will be realized. If we determine that we may not fully derive the benefit from a deferred tax asset, we consider whether it would be appropriate to apply a valuation allowance against the applicable deferred tax asset, taking into account all available information. The ultimate realization of a deferred tax asset for a particular entity depends, among other things, on the generation of taxable income by such entity in the applicable jurisdiction. We consider multiple possible sources of taxable income when assessing a valuation allowance against a deferred tax asset, including:
The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available information, including the following:
The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. We give greater weight to the recent results of operations of a relevant entity. Pre-tax operating losses on a three year cumulative basis or lack of sustainable profitability are considered objectively verifiable evidence and will generally outweigh a projection of future taxable income. Certain of our tax-paying entities have individually experienced losses on a cumulative three year We record tax positions taken or expected to be taken in a tax return based upon our estimates regarding the amount that is more likely than not to be realized or paid, including in connection with the resolution of any related appeals or other legal processes. Accordingly, we recognize liabilities for certain unrecognized tax benefits based on the amounts that are more likely than not to be settled with the relevant taxing authority. Such liabilities are evaluated periodically as new information becomes available and any changes in the amounts of such liabilities are recorded as adjustments to “income tax expense.” Liabilities for unrecognized tax benefits involve significant judgment and the ultimate resolution of such matters may be materially different from our estimates.
In addition to the discussion above regarding deferred tax assets and associated valuation allowances, as well as unrecognized tax benefit liability estimates, other factors affect our provision for income taxes, including changes in the geographic mix of our business, the level of our annual pre-tax income, transfer pricing and intercompany transactions. See Item 1A, “Risk Factors” in our Form 10-K and Note Investments Investments consist primarily of These Lazard is subject to market and credit risk on investments held. As such, gains and losses on investment positions held, which arise from sales or changes in the fair value of the investments, are not predictable and can cause periodic fluctuations in net income. Data relating to investments is set forth below:
At As of As of For additional information regarding risks associated with our investments, see “Risk Management—Investments” below as well as Item 1A, “Risk Factors—Other Business Risks—Our results of operations may be affected by fluctuations in the fair value of positions held in our investment portfolios” in our Form 10-K. Assets Under Management AUM primarily consists of debt and equity instruments, which have a value that is readily available based on either prices quoted on a recognized exchange or prices provided by external pricing services. Prices of equity and debt securities and other instruments that comprise our AUM are provided by well-recognized, independent, third-party vendors. Such third-party vendors rely on prices provided by external pricing services which are obtained from recognized exchanges or markets, or, for certain fixed income securities, from an evaluated bid or other similarly sourced price. Either directly, or through our third-party vendors, we perform a variety of regular due diligence procedures on our pricing service providers. Those procedures include oversight by our internal operations group, review of the pricing service providers’ internal control frameworks, review of the pricing service providers’ valuation methodologies, reconciliation to client custodial account values and comparison of significant pricing differences. Goodwill In accordance with current accounting guidance, goodwill has an indefinite life and is tested for impairment annually, as of November 1, or more frequently if circumstances indicate impairment may have occurred. The Company performs a qualitative evaluation about whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount in lieu of actually calculating the fair value of the reporting unit. See Note Consolidation The condensed consolidated financial statements include the accounts of Lazard Group and entities in which it has a controlling interest. Lazard determines whether it has a controlling interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”) under U.S. GAAP.
Lazard’s involvement with various entities that are VOEs or VIEs primarily arises from LFI investments and investment management contracts with fund entities in our Asset Management business. Lazard is not required to consolidate such entities because, with the exception of certain seed and LFI investments, as discussed below, we do not hold more than an inconsequential equity interest in such entities and we do not hold other variable interests (including our investment management agreements, which do not meet the definition of variable interests) in such entities. Lazard makes seed and LFI investments in certain entities that are considered VOEs and VIEs and often require consolidation as a result of our investment. The impact of seed and LFI investment entities that require consolidation on the condensed consolidated financial statements, including any consolidation or deconsolidation of such entities, is not material to our financial statements. Our exposure to loss from entities in which we have made Generally, when the Company initially invests to seed an investment entity, the Company is the majority owner of the entity. Our majority ownership in seed investment entities represents a controlling interest, except when we are the general partner in such entities and the third-party investors have the right to replace the general partner. To the extent material, we consolidate seed and LFI investment entities in which we own a controlling interest, and we would deconsolidate any such entity when we no longer have a controlling interest in such entity. Risk Management Investments The Company has investments in a variety of asset classes, primarily debt and equity securities, and interests in alternative investments, debt, equity and private equity funds. The Company makes investments primarily to seed strategies in our Asset Management business or to reduce exposure arising from LFI and other similar deferred compensation arrangements. The Company measures its net economic exposure to market and other risks arising from investments that it owns, excluding (i) investments held in connection with LFI and other similar deferred compensation arrangements, (ii) investments in funds owned entirely by the noncontrolling interest holders of certain acquired entities and (iii) interest-bearing deposits with maturities over 90 days that allow daily withdrawals without principal penalties. Risk sensitivities include the effects of economic hedging. For equity market price risk, investment portfolios and their corresponding hedges are beta-adjusted to the All-Country World equity index. Fair value and sensitivity measurements presented herein are based on various portfolio exposures at a particular point in time and may not be representative of future results. Risk exposures may change as a result of ongoing portfolio activities and changing market conditions, among other things. Equity Market Price Risk—At Interest Rate/Credit Spread Risk—At Foreign Exchange Rate Risk—At Private Equity—The Company invests in private equity primarily as a part of its co-investment activities and in connection with certain legacy businesses. At Risks Related to Receivables We maintain an allowance for doubtful accounts to provide coverage for probable losses from our receivables. We determine the adequacy of the allowance by estimating the probability of loss based on our analysis of the client’s creditworthiness, among other things, and specifically provide for exposures where we determine the receivables are impaired. At LFB engages in lending activities, including commitments to extend credit (primarily for clients of LFG). At Credit Concentrations To reduce the exposure to concentrations of credit, the Company monitors large exposures to individual counterparties. Lazard enters into forward foreign currency exchange contracts and interest rate swaps to hedge exposures to currency exchange rates and interest rates and uses total return swap contracts on various equity and debt indices to hedge a portion of its market exposure with respect to certain seed investments related to our Asset Management business. Derivative contracts are recorded at fair value. Derivative assets amounted to The Company records the warrants exercisable for LGAC Class A ordinary shares that were issued in connection with the LGAC IPO, which amounted to $12 million at March 31, 2021, as derivative liabilities at fair value with remeasurement gains and losses recorded in earnings. The Company also records derivative liabilities relating to its obligations pertaining to LFI awards and other similar deferred compensation arrangements, the fair value of which is based on the value of the underlying investments, adjusted for estimated forfeitures. Changes in the fair value of the derivative liabilities are equally offset by the changes in the fair value of investments which are expected to be delivered upon settlement of LFI awards. Derivative liabilities relating to LFI amounted to Risks Related to Cash and Cash Equivalents and Corporate Indebtedness A significant portion of the Company’s indebtedness has fixed interest rates, while its cash and cash equivalents generally have market interest rates. Based on account balances as of As of Operational Risk Operational risk is inherent in all of our Recent Accounting Developments For a discussion of recently issued accounting developments and their impact or potential impact on Lazard’s consolidated financial statements, see Note 2 of Notes to Condensed Consolidated Financial Statements. Risk Management Quantitative and qualitative disclosures about market risk are included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management”. Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION The Company is involved from time to time in judicial, governmental, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses, including proceedings initiated by former employees alleging wrongful termination. The Company reviews such matters on a case-by-case basis and establishes any required accrual if a loss is probable and the amount of such loss can be reasonably estimated. The Company experiences significant variation in its revenue and earnings on a quarterly basis. Accordingly, the results of any pending matter or matters could be significant when compared to the Company’s earnings in any particular fiscal quarter. The Company believes, however, based on currently available information, that the results of any pending matters, in the aggregate, will not have a material effect on its business or financial condition. There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31,
None. Not applicable.
None.
PART IV
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated:
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