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, 20192020
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 every Interactive Data File required to be submitted 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 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.
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 25, 2019,23, 2020, in addition to profit participation interests, there were 2 managing member interests outstanding.
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”) 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, 20192020 of all of the common membership interests 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 1413 of Notes to Condensed Consolidated Financial Statements.
i
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements (Unaudited) |
|
| Page |
|
|
|
| 2 | |
|
|
|
| 4 | |
|
|
|
| 5 | |
|
|
|
| 6 | |
|
|
|
| 7 | |
|
|
|
| 11 |
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 20192020 AND DECEMBER 31, 20182019
(UNAUDITED)
(dollars in thousands)
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 928,439 |
|
| $ | 1,185,040 |
|
| $ | 1,103,395 |
|
| $ | 1,164,135 |
|
Deposits with banks and short-term investments |
|
| 1,289,288 |
|
|
| 1,006,969 |
|
|
| 1,193,717 |
|
|
| 1,180,686 |
|
Cash deposited with clearing organizations and other segregated cash |
|
| 40,280 |
|
|
| 38,379 |
|
|
| 41,260 |
|
|
| 43,280 |
|
Receivables (net of allowance for doubtful accounts of $31,238 and $40,115 at September 30, 2019 and December 31, 2018, respectively): |
|
|
|
|
|
|
|
| ||||||||
Receivables (net of allowance for doubtful accounts of $38,240 and $27,130 at September 30, 2020 and December 31, 2019, respectively): |
|
|
|
|
|
|
|
| ||||||||
Fees |
|
| 468,393 |
|
|
| 499,068 |
|
|
| 468,261 |
|
|
| 537,342 |
|
Customers and other |
|
| 199,387 |
|
|
| 184,137 |
|
|
| 106,746 |
|
|
| 125,697 |
|
Lazard Ltd subsidiaries |
|
| 32,834 |
|
|
| 21,103 |
|
|
| 44,649 |
|
|
| 34,612 |
|
|
|
| 700,614 |
|
|
| 704,308 |
|
|
| 619,656 |
|
|
| 697,651 |
|
Investments |
|
| 535,848 |
|
|
| 575,148 |
|
|
| 535,245 |
|
|
| 531,995 |
|
Property (net of accumulated amortization and depreciation of $351,532 and $339,448 at September 30, 2019 and December 31, 2018, respectively) |
|
| 215,935 |
|
|
| 211,713 |
| ||||||||
Property (net of accumulated amortization and depreciation of $397,454 and $366,880 at September 30, 2020 and December 31, 2019, respectively) |
|
| 232,725 |
|
|
| 218,871 |
| ||||||||
Operating lease right-of-use assets |
|
| 558,241 |
|
|
| - |
|
|
| 517,253 |
|
|
| 551,050 |
|
Goodwill and other intangible assets (net of accumulated amortization of $65,493 and $63,591 at September 30, 2019 and December 31, 2018, respectively) |
|
| 347,597 |
|
|
| 354,463 |
| ||||||||
Goodwill and other intangible assets (net of accumulated amortization of $67,065 and $65,757 at September 30, 2020 and December 31, 2019, respectively) |
|
| 352,738 |
|
|
| 351,797 |
| ||||||||
Deferred tax assets |
|
| 65,205 |
|
|
| 55,042 |
|
|
| 62,228 |
|
|
| 55,728 |
|
Other assets |
|
| 313,181 |
|
|
| 258,413 |
|
|
| 328,041 |
|
|
| 256,435 |
|
Total Assets |
| $ | 4,994,628 |
|
| $ | 4,389,475 |
|
| $ | 4,986,258 |
|
| $ | 5,051,628 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 20192020 AND DECEMBER 31, 20182019
(UNAUDITED)
(dollars in thousands)
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 1,405,836 |
|
| $ | 1,154,208 |
|
| $ | 1,244,562 |
|
| $ | 1,246,200 |
|
Accrued compensation and benefits |
|
| 416,969 |
|
|
| 583,730 |
|
|
| 449,048 |
|
|
| 599,910 |
|
Operating lease liabilities |
|
| 652,113 |
|
|
| - |
|
|
| 609,460 |
|
|
| 643,808 |
|
Payable to Lazard Ltd subsidiaries |
|
| 8,228 |
|
|
| 63,399 |
| ||||||||
Senior debt |
|
| 1,678,921 |
|
|
| 1,434,260 |
|
|
| 1,681,487 |
|
|
| 1,679,562 |
|
Payable to Lazard Ltd subsidiaries |
|
| 60,689 |
|
|
| 63,185 |
| ||||||||
Deferred tax liabilities |
|
| 1,979 |
|
|
| 5,539 |
|
|
| 2,582 |
|
|
| 3,497 |
|
Other liabilities |
|
| 462,780 |
|
|
| 565,801 |
|
|
| 478,398 |
|
|
| 527,926 |
|
Total Liabilities |
|
| 4,679,287 |
|
|
| 3,806,723 |
|
|
| 4,473,765 |
|
|
| 4,764,302 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' equity (net of 23,112,777 and 16,737,000 shares of Lazard Ltd Class A common stock, at a cost of $922,283 and $729,910 at September 30, 2019 and December 31, 2018, respectively) |
|
| 491,696 |
|
|
| 758,705 |
| ||||||||
Members' equity (net of 6,943,604 and 7,675,688 shares of Lazard Ltd Class A common stock, at a cost of $255,572 and $304,083 at September 30, 2020 and December 31, 2019, respectively) |
|
| 664,557 |
|
|
| 469,324 |
| ||||||||
Accumulated other comprehensive loss, net of tax |
|
| (241,790 | ) |
|
| (228,660 | ) |
|
| (234,356 | ) |
|
| (250,404 | ) |
Total Lazard Group LLC Members' Equity |
|
| 249,906 |
|
|
| 530,045 |
| ||||||||
Total Lazard Group LLC Members’ Equity |
|
| 430,201 |
|
|
| 218,920 |
| ||||||||
Noncontrolling interests |
|
| 65,435 |
|
|
| 52,707 |
|
|
| 82,292 |
|
|
| 68,406 |
|
Total Members’ Equity |
|
| 315,341 |
|
|
| 582,752 |
|
|
| 512,493 |
|
|
| 287,326 |
|
Total Liabilities and Members’ Equity |
| $ | 4,994,628 |
|
| $ | 4,389,475 |
|
| $ | 4,986,258 |
|
| $ | 5,051,628 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 20192020 AND 20182019
(UNAUDITED)
(dollars in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking and other advisory fees |
| $ | 303,495 |
|
| $ | 309,118 |
|
| $ | 949,977 |
|
| $ | 1,136,013 |
|
| $ | 305,004 |
|
| $ | 303,495 |
|
| $ | 906,560 |
|
| $ | 949,977 |
|
Asset management fees |
|
| 287,140 |
|
|
| 312,790 |
|
|
| 876,159 |
|
|
| 986,777 |
|
|
| 265,562 |
|
|
| 287,140 |
|
|
| 780,071 |
|
|
| 876,159 |
|
Interest income |
|
| 3,689 |
|
|
| 3,075 |
|
|
| 11,262 |
|
|
| 8,018 |
|
|
| 1,055 |
|
|
| 3,689 |
|
|
| 4,688 |
|
|
| 11,262 |
|
Other |
|
| 14,570 |
|
|
| 15,250 |
|
|
| 65,577 |
|
|
| 46,315 |
|
|
| 26,456 |
|
|
| 14,570 |
|
|
| 56,460 |
|
|
| 65,577 |
|
Total revenue |
|
| 608,894 |
|
|
| 640,233 |
|
|
| 1,902,975 |
|
|
| 2,177,123 |
|
|
| 598,077 |
|
|
| 608,894 |
|
|
| 1,747,779 |
|
|
| 1,902,975 |
|
Interest expense |
|
| 20,876 |
|
|
| 15,221 |
|
|
| 60,805 |
|
|
| 44,211 |
|
|
| 20,296 |
|
|
| 20,876 |
|
|
| 60,343 |
|
|
| 60,805 |
|
Net revenue |
|
| 588,018 |
|
|
| 625,012 |
|
|
| 1,842,170 |
|
|
| 2,132,912 |
|
|
| 577,781 |
|
|
| 588,018 |
|
|
| 1,687,436 |
|
|
| 1,842,170 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 388,616 |
|
|
| 342,294 |
|
|
| 1,129,316 |
|
|
| 1,160,216 |
|
|
| 351,840 |
|
|
| 388,616 |
|
|
| 1,018,791 |
|
|
| 1,129,316 |
|
Occupancy and equipment |
|
| 29,696 |
|
|
| 28,673 |
|
|
| 88,598 |
|
|
| 87,786 |
|
|
| 31,266 |
|
|
| 29,696 |
|
|
| 93,719 |
|
|
| 88,598 |
|
Marketing and business development |
|
| 27,264 |
|
|
| 21,803 |
|
|
| 83,908 |
|
|
| 75,575 |
|
|
| 7,561 |
|
|
| 27,264 |
|
|
| 34,211 |
|
|
| 83,908 |
|
Technology and information services |
|
| 34,039 |
|
|
| 36,368 |
|
|
| 104,852 |
|
|
| 102,098 |
|
|
| 33,407 |
|
|
| 34,039 |
|
|
| 97,305 |
|
|
| 104,852 |
|
Professional services |
|
| 14,592 |
|
|
| 13,067 |
|
|
| 46,107 |
|
|
| 40,745 |
|
|
| 14,340 |
|
|
| 14,592 |
|
|
| 44,184 |
|
|
| 46,107 |
|
Fund administration and outsourced services |
|
| 28,424 |
|
|
| 34,748 |
|
|
| 85,847 |
|
|
| 103,159 |
|
|
| 26,195 |
|
|
| 28,424 |
|
|
| 76,638 |
|
|
| 85,847 |
|
Amortization and other acquisition-related (benefits) costs |
|
| 1,081 |
|
|
| (1,109 | ) |
|
| 799 |
|
|
| (1,025 | ) | ||||||||||||||||
Amortization and other acquisition-related costs |
|
| 443 |
|
|
| 1,081 |
|
|
| 1,308 |
|
|
| 799 |
| ||||||||||||||||
Other |
|
| 11,488 |
|
|
| 14,436 |
|
|
| 33,449 |
|
|
| 50,860 |
|
|
| 4,674 |
|
|
| 11,488 |
|
|
| 27,530 |
|
|
| 33,449 |
|
Total operating expenses |
|
| 535,200 |
|
|
| 490,280 |
|
|
| 1,572,876 |
|
|
| 1,619,414 |
|
|
| 469,726 |
|
|
| 535,200 |
|
|
| 1,393,686 |
|
|
| 1,572,876 |
|
OPERATING INCOME |
|
| 52,818 |
|
|
| 134,732 |
|
|
| 269,294 |
|
|
| 513,498 |
|
|
| 108,055 |
|
|
| 52,818 |
|
|
| 293,750 |
|
|
| 269,294 |
|
Provision for income taxes |
|
| 9,433 |
|
|
| 25,393 |
|
|
| 42,697 |
|
|
| 75,453 |
|
|
| 17,983 |
|
|
| 9,433 |
|
|
| 40,886 |
|
|
| 42,697 |
|
NET INCOME |
|
| 43,385 |
|
|
| 109,339 |
|
|
| 226,597 |
|
|
| 438,045 |
|
|
| 90,072 |
|
|
| 43,385 |
|
|
| 252,864 |
|
|
| 226,597 |
|
LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 1,492 |
|
|
| 1,652 |
|
|
| 8,662 |
|
|
| 5,037 |
| ||||||||||||||||
LESS - NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 1,423 |
|
|
| 1,492 |
|
|
| (4,650 | ) |
|
| 8,662 |
| ||||||||||||||||
NET INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 41,893 |
|
| $ | 107,687 |
|
| $ | 217,935 |
|
| $ | 433,008 |
|
| $ | 88,649 |
|
| $ | 41,893 |
|
| $ | 257,514 |
|
| $ | 217,935 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 20192020 AND 20182019
(UNAUDITED)
(dollars in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
NET INCOME |
| $ | 43,385 |
|
| $ | 109,339 |
|
| $ | 226,597 |
|
| $ | 438,045 |
|
| $ | 90,072 |
|
| $ | 43,385 |
|
| $ | 252,864 |
|
| $ | 226,597 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
| (24,321 | ) |
|
| (7,631 | ) |
|
| (28,361 | ) |
|
| (29,258 | ) |
|
| 33,763 |
|
|
| (24,321 | ) |
|
| 8,148 |
|
|
| (28,361 | ) |
Employee benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain (net of tax expense (benefit) of $(1,607) and $214 for the three months ended September 30, 2019 and 2018, respectively, and $1,113 and $618 for the nine months ended September 30, 2019 and 2018, respectively) |
|
| 9,050 |
|
|
| 863 |
|
|
| 11,911 |
|
|
| 4,149 |
| ||||||||||||||||
Adjustment for items reclassified to earnings (net of tax expense of $172 and $264 for the three months ended September 30, 2019 and 2018, respectively, and $524 and $948 for the nine months ended September 30, 2019 and 2018, respectively) |
|
| 1,074 |
|
|
| 949 |
|
|
| 3,319 |
|
|
| 2,788 |
| ||||||||||||||||
OTHER COMPREHENSIVE LOSS, NET OF TAX |
|
| (14,197 | ) |
|
| (5,819 | ) |
|
| (13,131 | ) |
|
| (22,321 | ) | ||||||||||||||||
Prior service cost (credit) (net of tax (benefit) expense of $(22) for the three months ended September 30, 2020 and $16 for the nine months ended September 30, 2020) |
|
| (110 | ) |
|
| - |
|
|
| 74 |
|
|
| - |
| ||||||||||||||||
Actuarial gain (loss) (net of tax (benefit) expense of $(1,644) and $(1,607) for the three months ended September 30, 2020 and 2019, respectively, and $(25) and $1,113 for the nine months ended September 30, 2020 and 2019, respectively) |
|
| (6,424 | ) |
|
| 9,050 |
|
|
| 2,971 |
|
|
| 11,911 |
| ||||||||||||||||
Adjustment for items reclassified to earnings (net of tax expense of $412 and $172 for the three months ended September 30, 2020 and 2019, respectively, and $1,088 and $524 for the nine months ended September 30, 2020 and 2019, respectively) |
|
| 1,345 |
|
|
| 1,074 |
|
|
| 4,855 |
|
|
| 3,319 |
| ||||||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
|
| 28,574 |
|
|
| (14,197 | ) |
|
| 16,048 |
|
|
| (13,131 | ) | ||||||||||||||||
COMPREHENSIVE INCOME |
|
| 29,188 |
|
|
| 103,520 |
|
|
| 213,466 |
|
|
| 415,724 |
|
|
| 118,646 |
|
|
| 29,188 |
|
|
| 268,912 |
|
|
| 213,466 |
|
LESS - COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 1,491 |
|
|
| 1,653 |
|
|
| 8,661 |
|
|
| 5,037 |
| ||||||||||||||||
LESS - COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 1,424 |
|
|
| 1,491 |
|
|
| (4,650 | ) |
|
| 8,661 |
| ||||||||||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD GROUP LLC |
| $ | 27,697 |
|
| $ | 101,867 |
|
| $ | 204,805 |
|
| $ | 410,687 |
|
| $ | 117,222 |
|
| $ | 27,697 |
|
| $ | 273,562 |
|
| $ | 204,805 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 20192020 AND 20182019
(UNAUDITED)
(dollars in thousands)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 226,597 |
|
| $ | 438,045 |
|
| $ | 252,864 |
|
| $ | 226,597 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property |
|
| 24,622 |
|
|
| 25,078 |
|
|
| 25,483 |
|
|
| 24,622 |
|
Noncash lease expense |
|
| 40,181 |
|
|
| - |
|
|
| 46,856 |
|
|
| 40,181 |
|
Amortization of deferred expenses and share-based incentive compensation |
|
| 315,726 |
|
|
| 293,027 |
|
|
| 281,580 |
|
|
| 315,726 |
|
Amortization and other acquisition-related (benefits) costs |
|
| 799 |
|
|
| (1,025 | ) | ||||||||
Amortization and other acquisition-related costs |
|
| 1,308 |
|
|
| 799 |
| ||||||||
Deferred tax benefit |
|
| (17,488 | ) |
|
| (1,462 | ) |
|
| (7,213 | ) |
|
| (17,488 | ) |
Loss on extinguishment of debt |
|
| 6,505 |
|
|
| 6,523 |
|
|
| - |
|
|
| 6,505 |
|
(Increase) decrease in operating assets and increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables-net |
|
| (6,848 | ) |
|
| (87,885 | ) |
|
| 75,997 |
|
|
| (6,848 | ) |
Investments |
|
| 43,559 |
|
|
| (184,542 | ) |
|
| (1,035 | ) |
|
| 43,559 |
|
Other assets |
|
| (126,207 | ) |
|
| (144,895 | ) |
|
| (159,031 | ) |
|
| (126,207 | ) |
Accrued compensation and benefits and other liabilities |
|
| (208,236 | ) |
|
| (42,867 | ) |
|
| (253,026 | ) |
|
| (208,236 | ) |
Net cash provided by operating activities |
|
| 299,210 |
|
|
| 299,997 |
|
|
| 263,783 |
|
|
| 299,210 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property |
|
| (40,665 | ) |
|
| (39,141 | ) |
|
| (34,161 | ) |
|
| (40,665 | ) |
Disposals of property |
|
| 98 |
|
|
| 1,365 |
|
|
| 151 |
|
|
| 98 |
|
Net cash used in investing activities |
|
| (40,567 | ) |
|
| (37,776 | ) |
|
| (34,010 | ) |
|
| (40,567 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of senior debt, net of expenses |
|
| 492,032 |
|
|
| 490,970 |
|
|
| - |
|
|
| 492,032 |
|
Customer deposits, net |
|
| 345,394 |
|
|
| 79,960 |
| ||||||||
Customer deposits |
|
| - |
|
|
| 345,394 |
| ||||||||
Contributions from noncontrolling interests |
|
| 268 |
|
|
| 528 |
|
|
| 66 |
|
|
| 268 |
|
Other financing activities |
|
| 925 |
|
|
| - |
|
|
| 25 |
|
|
| 925 |
|
Payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt |
|
| (255,746 | ) |
|
| (255,543 | ) |
|
| - |
|
|
| (255,746 | ) |
Customer deposits |
|
| (37,850 | ) |
|
| - |
| ||||||||
Distributions to noncontrolling interests |
|
| (8,888 | ) |
|
| (10,232 | ) |
|
| (1,921 | ) |
|
| (8,888 | ) |
Purchase of Class A common stock |
|
| (430,281 | ) |
|
| (306,591 | ) |
|
| (95,227 | ) |
|
| (430,281 | ) |
Distributions to members |
|
| (178,935 | ) |
|
| (364,751 | ) |
|
| (120,300 | ) |
|
| (178,935 | ) |
Settlement of share-based incentive compensation |
|
| (96,955 | ) |
|
| (109,485 | ) |
|
| (71,509 | ) |
|
| (96,955 | ) |
Other financing activities |
|
| (6,170 | ) |
|
| (5,541 | ) |
|
| (5,316 | ) |
|
| (6,170 | ) |
Net cash used in financing activities |
|
| (138,356 | ) |
|
| (480,685 | ) |
|
| (332,032 | ) |
|
| (138,356 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| (92,668 | ) |
|
| (66,339 | ) |
|
| 52,530 |
|
|
| (92,668 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 27,619 |
|
|
| (284,803 | ) |
|
| (49,729 | ) |
|
| 27,619 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—January 1 |
|
| 2,230,388 |
|
|
| 2,441,266 |
| ||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—September 30 |
| $ | 2,258,007 |
|
| $ | 2,156,463 |
| ||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH— January 1 |
|
| 2,388,101 |
|
|
| 2,230,388 |
| ||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH— September 30 |
| $ | 2,338,372 |
|
| $ | 2,258,007 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash and cash equivalents |
| $ | 928,439 |
|
| $ | 1,185,040 |
|
| $ | 1,103,395 |
|
| $ | 1,164,135 |
|
Deposits with banks and short-term investments |
|
| 1,289,288 |
|
|
| 1,006,969 |
|
|
| 1,193,717 |
|
|
| 1,180,686 |
|
Cash deposited with clearing organizations and other segregated cash |
|
| 40,280 |
|
|
| 38,379 |
|
|
| 41,260 |
|
|
| 43,280 |
|
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
| $ | 2,258,007 |
|
| $ | 2,230,388 |
|
| $ | 2,338,372 |
|
| $ | 2,388,101 |
|
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 20182019
(UNAUDITED)
(dollars in thousands)
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
| |||||||
|
| Members' |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
|
| Members’ |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
| |||||||||||
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| |||||||||||
Balance - July 1, 2018 (*) |
| $ | 935,787 |
|
| $ | (211,757 | ) |
| $ | 724,030 |
|
| $ | 57,397 |
|
| $ | 781,427 |
| |||||||||||||||||||||
Balance - July 1, 2019 (*) |
| $ | 465,436 |
|
| $ | (227,594 | ) |
| $ | 237,842 |
|
| $ | 63,823 |
|
| $ | 301,665 |
| |||||||||||||||||||||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income |
|
| 107,687 |
|
|
|
|
|
|
| 107,687 |
|
|
| 1,652 |
|
|
| 109,339 |
|
|
| 41,893 |
|
|
|
|
|
|
| 41,893 |
|
|
| 1,492 |
|
|
| 43,385 |
| |
Other comprehensive income (loss) - net of tax |
|
|
|
|
|
| (5,820 | ) |
|
| (5,820 | ) |
|
| 1 |
|
|
| (5,819 | ) | |||||||||||||||||||||
Other comprehensive loss - net of tax |
|
|
|
|
|
| (14,196 | ) |
|
| (14,196 | ) |
|
| (1 | ) |
|
| (14,197 | ) | |||||||||||||||||||||
Amortization of share-based incentive compensation |
|
| 48,356 |
|
|
|
|
|
|
| 48,356 |
|
|
|
|
|
|
| 48,356 |
|
|
| 65,189 |
|
|
|
|
|
|
| 65,189 |
|
|
|
|
|
|
| 65,189 |
| |
Distributions to members and noncontrolling interests, net |
|
| (99,159 | ) |
|
|
|
|
|
| (99,159 | ) |
|
| (5,135 | ) |
|
| (104,294 | ) |
|
| - |
|
|
|
|
|
|
| - |
|
|
| (1,102 | ) |
|
| (1,102 | ) | |
Purchase of Class A common stock |
|
| (82,796 | ) |
|
|
|
|
|
| (82,796 | ) |
|
|
|
|
|
| (82,796 | ) |
|
| (78,569 | ) |
|
|
|
|
|
| (78,569 | ) |
|
|
|
|
|
| (78,569 | ) | |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax expense of $173 |
|
| (439 | ) |
|
|
|
|
|
| (439 | ) |
|
|
|
|
|
| (439 | ) | |||||||||||||||||||||
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $1 |
|
| (865 | ) |
|
|
|
|
|
| (865 | ) |
|
|
|
|
|
| (865 | ) | |||||||||||||||||||||
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class A common stock issuable (including related amortization) |
|
| 93 |
|
|
|
|
|
|
| 93 |
|
|
|
|
|
|
| 93 |
|
|
| 53 |
|
|
|
|
|
|
| 53 |
|
|
|
|
|
|
| 53 |
| |
Consolidated VIEs |
|
| - |
|
|
|
|
|
|
| - |
|
|
| 1,223 |
|
|
| 1,223 |
| |||||||||||||||||||||
Other |
|
| (827 | ) |
|
|
|
|
|
| (827 | ) |
|
|
|
|
|
| (827 | ) |
|
| (1,441 | ) |
|
|
|
|
|
| (1,441 | ) |
|
|
|
|
|
| (1,441 | ) | |
Balance - September 30, 2018 (*) |
| $ | 908,702 |
|
| $ | (217,577 | ) |
| $ | 691,125 |
|
| $ | 53,915 |
|
| $ | 745,040 |
| |||||||||||||||||||||
Balance - September 30, 2019 (*) |
| $ | 491,696 |
|
| $ | (241,790 | ) |
| $ | 249,906 |
|
| $ | 65,435 |
|
| $ | 315,341 |
|
(*) At both July 1, 2018 and September 30, 2018, in addition to profit participation interests, there were two managing member interests.
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2018
(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, 2018 (*) |
| $ | 1,043,574 |
|
| $ | (195,256 | ) |
| $ | 848,318 |
|
| $ | 58,582 |
|
| $ | 906,900 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 433,008 |
|
|
|
|
|
|
| 433,008 |
|
|
| 5,037 |
|
|
| 438,045 |
|
Other comprehensive loss - net of tax |
|
|
|
|
|
| (22,321 | ) |
|
| (22,321 | ) |
|
|
|
|
|
| (22,321 | ) |
Amortization of share-based incentive compensation |
|
| 218,186 |
|
|
|
|
|
|
| 218,186 |
|
|
|
|
|
|
| 218,186 |
|
Distributions to members and noncontrolling interests, net |
|
| (364,751 | ) |
|
|
|
|
|
| (364,751 | ) |
|
| (9,704 | ) |
|
| (374,455 | ) |
Purchase of Class A common stock |
|
| (306,591 | ) |
|
|
|
|
|
| (306,591 | ) |
|
|
|
|
|
| (306,591 | ) |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax expense of $173 |
|
| (109,657 | ) |
|
|
|
|
|
| (109,657 | ) |
|
|
|
|
|
| (109,657 | ) |
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock issuable (including related amortization) |
|
| 278 |
|
|
|
|
|
|
| 278 |
|
|
|
|
|
|
| 278 |
|
Other |
|
| (5,345 | ) |
|
|
|
|
|
| (5,345 | ) |
|
|
|
|
|
| (5,345 | ) |
Balance - September 30, 2018 (*) |
| $ | 908,702 |
|
| $ | (217,577 | ) |
| $ | 691,125 |
|
| $ | 53,915 |
|
| $ | 745,040 |
|
(*) At both January 1, 2018 and September 30, 2018, in addition to profit participation interests, there were two managing member interests.
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2019
(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 - July 1, 2019 (*) |
|
| $ | 465,436 |
|
| $ | (227,594 | ) |
| $ | 237,842 |
|
| $ | 63,823 |
|
| $ | 301,665 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
| 41,893 |
|
|
|
|
|
|
| 41,893 |
|
|
| 1,492 |
|
|
| 43,385 |
|
Other comprehensive loss - net of tax |
|
|
|
|
|
|
| (14,196 | ) |
|
| (14,196 | ) |
|
| (1 | ) |
|
| (14,197 | ) |
Amortization of share-based incentive compensation |
|
|
| 65,189 |
|
|
|
|
|
|
| 65,189 |
|
|
|
|
|
|
| 65,189 |
|
Distributions to members and noncontrolling interests, net |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| (1,102 | ) |
|
| (1,102 | ) |
Purchase of Class A common stock |
|
|
| (78,569 | ) |
|
|
|
|
|
| (78,569 | ) |
|
|
|
|
|
| (78,569 | ) |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $1 |
|
|
| (865 | ) |
|
|
|
|
|
| (865 | ) |
|
|
|
|
|
| (865 | ) |
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock issuable (including related amortization) |
|
|
| 53 |
|
|
|
|
|
|
| 53 |
|
|
|
|
|
|
| 53 |
|
Consolidation of VIEs |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 1,223 |
|
|
| 1,223 |
|
Other |
|
|
| (1,441 | ) |
|
|
|
|
|
| (1,441 | ) |
|
|
|
|
|
| (1,441 | ) |
Balance - September 30, 2019 (*) |
|
| $ | 491,696 |
|
| $ | (241,790 | ) |
| $ | 249,906 |
|
| $ | 65,435 |
|
| $ | 315,341 |
|
(*) At both July 1, 2019 and September 30, 2019, in addition to profit participation interests, there were two managing member interests.
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2019
(UNAUDITED)
(dollars in thousands)
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
|
|
|
|
|
| Accumulated Other Comprehensive |
|
| Total Lazard Group |
|
|
|
|
|
| Total |
| |||||||
|
| Members' |
|
| Income (Loss), |
|
| Members' |
|
| Noncontrolling |
|
| Members' |
|
| Members' |
|
| Income (Loss), |
|
| Members’ |
|
| Noncontrolling |
|
| Members’ |
| |||||||||||
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
|
| Equity |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| |||||||||||
Balance - January 1, 2019 (*) |
| $ | 758,705 |
|
| $ | (228,660 | ) |
| $ | 530,045 |
|
| $ | 52,707 |
|
| $ | 582,752 |
|
| $ | 758,705 |
|
| $ | (228,660 | ) |
| $ | 530,045 |
|
| $ | 52,707 |
|
| $ | 582,752 |
| |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income |
|
| 217,935 |
|
|
|
|
|
|
| 217,935 |
|
|
| 8,662 |
|
|
| 226,597 |
|
|
| 217,935 |
|
|
|
|
|
|
| 217,935 |
|
|
| 8,662 |
|
|
| 226,597 |
| |
Other comprehensive loss - net of tax |
|
|
|
|
|
| (13,130 | ) |
|
| (13,130 | ) |
|
| (1 | ) |
|
| (13,131 | ) |
|
|
|
|
|
| (13,130 | ) |
|
| (13,130 | ) |
|
| (1 | ) |
|
| (13,131 | ) | |
Amortization of share-based incentive compensation |
|
| 226,272 |
|
|
|
|
|
|
| 226,272 |
|
|
|
|
|
|
| 226,272 |
|
|
| 226,272 |
|
|
|
|
|
|
| 226,272 |
|
|
|
|
|
|
| 226,272 |
| |
Distributions to members and noncontrolling interests, net |
|
| (178,935 | ) |
|
|
|
|
|
| (178,935 | ) |
|
| (8,620 | ) |
|
| (187,555 | ) |
|
| (178,935 | ) |
|
|
|
|
|
| (178,935 | ) |
|
| (8,620 | ) |
|
| (187,555 | ) | |
Purchase of Class A common stock |
|
| (430,281 | ) |
|
|
|
|
|
| (430,281 | ) |
|
|
|
|
|
| (430,281 | ) |
|
| (430,281 | ) |
|
|
|
|
|
| (430,281 | ) |
|
|
|
|
|
| (430,281 | ) | |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $100 |
|
| (96,855 | ) |
|
|
|
|
|
| (96,855 | ) |
|
|
|
|
|
| (96,855 | ) |
|
| (96,855 | ) |
|
|
|
|
|
| (96,855 | ) |
|
|
|
|
|
| (96,855 | ) | |
Business acquisitions and related equity transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class A common stock issuable (including related amortization) |
|
| 158 |
|
|
|
|
|
|
| 158 |
|
|
|
|
|
|
| 158 |
|
|
| 158 |
|
|
|
|
|
|
| 158 |
|
|
|
|
|
|
| 158 |
| |
Consolidation of VIEs |
|
| - |
|
|
|
|
|
|
| - |
|
|
| 12,687 |
|
|
| 12,687 |
| |||||||||||||||||||||
Consolidated VIEs |
|
| - |
|
|
|
|
|
|
| - |
|
|
| 12,687 |
|
|
| 12,687 |
| |||||||||||||||||||||
Other |
|
| (5,303 | ) |
|
|
|
|
|
| (5,303 | ) |
|
|
|
|
|
| (5,303 | ) |
|
| (5,303 | ) |
|
|
|
|
|
| (5,303 | ) |
|
|
|
|
|
| (5,303 | ) | |
Balance - September 30, 2019 (*) |
| $ | 491,696 |
|
| $ | (241,790 | ) |
| $ | 249,906 |
|
| $ | 65,435 |
|
| $ | 315,341 |
|
| $ | 491,696 |
|
| $ | (241,790 | ) |
| $ | 249,906 |
|
| $ | 65,435 |
|
| $ | 315,341 |
|
(*) At both January 1, 2019 and September 30, 2019, in addition to profit participation interests, there were two managing member interests.
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 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 - July 1, 2020 (*) |
|
| $ | 538,424 |
|
| $ | (262,929 | ) |
| $ | 275,495 |
|
| $ | 79,971 |
|
| $ | 355,466 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
| 88,649 |
|
|
|
|
|
|
| 88,649 |
|
|
| 1,423 |
|
|
| 90,072 |
|
Other comprehensive income - net of tax |
|
|
|
|
|
|
| 28,573 |
|
|
| 28,573 |
|
|
| 1 |
|
|
| 28,574 |
|
Amortization of share-based incentive compensation |
|
|
| 39,671 |
|
|
|
|
|
|
| 39,671 |
|
|
|
|
|
|
| 39,671 |
|
Distributions to members and noncontrolling interests, net |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| (36 | ) |
|
| (36 | ) |
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $1 |
|
|
| (456 | ) |
|
|
|
|
|
| (456 | ) |
|
|
|
|
|
| (456 | ) |
Consolidated VIEs |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 933 |
|
|
| 933 |
|
Other |
|
|
| (1,731 | ) |
|
|
|
|
|
| (1,731 | ) |
|
|
|
|
|
| (1,731 | ) |
Balance - September 30, 2020 (*) |
|
| $ | 664,557 |
|
| $ | (234,356 | ) |
| $ | 430,201 |
|
| $ | 82,292 |
|
| $ | 512,493 |
|
(*) At both July 1, 2020 and September 30, 2020, in addition to profit participation interests, there were two managing member interests.
See notes to condensed consolidated financial statements.
LAZARD GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 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, 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) |
|
|
| 257,514 |
|
|
|
|
|
|
| 257,514 |
|
|
| (4,650 | ) |
|
| 252,864 |
|
Other comprehensive income - net of tax |
|
|
|
|
|
|
| 16,048 |
|
|
| 16,048 |
|
|
|
|
|
|
| 16,048 |
|
Amortization of share-based incentive compensation |
|
|
| 180,376 |
|
|
|
|
|
|
| 180,376 |
|
|
|
|
|
|
| 180,376 |
|
Distributions to members and noncontrolling interests, net |
|
|
| (120,300 | ) |
|
|
|
|
|
| (120,300 | ) |
|
| (1,855 | ) |
|
| (122,155 | ) |
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 $10 |
|
|
| (71,499 | ) |
|
|
|
|
|
| (71,499 | ) |
|
|
|
|
|
| (71,499 | ) |
Contributions from members |
|
|
| 55,941 |
|
|
|
|
|
|
| 55,941 |
|
|
|
|
|
|
| 55,941 |
|
Consolidated VIEs |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 20,391 |
|
|
| 20,391 |
|
Other |
|
|
| (4,001 | ) |
|
|
|
|
|
| (4,001 | ) |
|
|
|
|
|
| (4,001 | ) |
Balance - September 30, 2020 (*) |
|
| $ | 664,557 |
|
| $ | (234,356 | ) |
| $ | 430,201 |
|
| $ | 82,292 |
|
| $ | 512,493 |
|
(*) At both January 1, 2020 and September 30, 2020, in addition to profit participation interests, there were two managing member interests.
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, which is governed by an Amended and Restated Operating Agreement dated as of February 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, 20192020 and December 31, 2018.2019. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group.
Lazard Group’s principal operating activities are included in 2 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”), capital advisory, restructurings, 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 Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”).
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, 2018.2019. The accompanying December 31, 20182019 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 periods ended September 30, 20192020 are not indicative of the results to be expected for any future interim or annual period.
11
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 |
| • | 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 |
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 conform to the current period presentation.
2. | RECENT ACCOUNTING DEVELOPMENTS |
Leases—In February 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance for leases. The guidance requires a lessee to (i) recognize a right-of-use asset and a lease liability that is initially measured at the present value of the lease payments, in the condensed consolidated 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 straight-line basis and (iii) classify operating lease related cash payments within operating activities and finance lease related principal cash payments within financing activities (with interest included in interest paid) in the condensed consolidated statement of cash flows.
The Company adopted the new guidance on January 1, 2019 using the optional transition method, which allows such guidance to be applied initially at the adoption date with a cumulative-effect adjustment and without restating comparative periods. Lazard elected the package of practical expedients, which allows the carry-forward of the prior conclusions on lease definition, classification and initial direct costs related to the existing leases as of the adoption date.
Substantially all of the Company’s existing lease arrangements are operating leases. The adoption of the new guidance on January 1, 2019 resulted in a recognition of $501,000 of operating lease right-of-use assets (“ROU assets”) and $581,000 of operating lease liabilities in the Company’s condensed consolidated statements of financial condition. The operating lease liabilities at January 1, 2019 reflect any remaining lease payments discounted using an incremental borrowing rate (on a collateralized basis) based on the remaining lease term (the “Discount”), as an implicit rate was not readily determinable for any of the Company’s existing operating leases. The operating lease ROU assets are lower than the operating lease liabilities primarily because lease incentives reduce the ROU assets (see Note 9).
Improvements to Nonemployee Share-Based Payment Accounting—In June 2018, the FASB issued updated guidance to simplify the accounting for nonemployee share-based payment transactions. The new guidance generally requires equity-classified nonemployee share-based payment awards to be measured at the grant date, which is the date at which a grantor and grantee reach a mutual understanding of the key terms and conditions of a share-based payment award. This update generally aligns the accounting for equity-classified share-based payment awards to nonemployees with the measurement date required for employees. The Company adopted the new guidance on January 1, 2019 and its application did not have a material impact on the Company’s financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—In February 2018, the FASB issued updated guidance on the tax effects of items in “accumulated other comprehensive income (loss), net of tax” (“AOCI”). Specifically, the new guidance will permit, but not require, a reclassification from AOCI to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate. The
12
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Company adopted the new guidance on January 1, 2019 without reclassifying any amounts from AOCI to retained earnings. The application of the guidance did not have a material impact on the Company’s financial statements.
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 current expected credit losses (“CECL”) and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.
The Company adopted 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 new guidance is required to be appliedon January 1, 2020 using a modified retrospective approach.approach and recorded a $7,571 cumulative-effect adjustment to retained earnings upon adoption. The impact of the new guidance primarily relates to the Company’s fee receivables.
To comply with the CECL model, the Company applies a bad debt charge-off rate, determined based on historical charge-off experience and adjusted for specific allowance based on current conditions of individual customers, to measure the expected credit loss for fee receivables. The Company is currently evaluatingalso performs a qualitative assessment, on a quarterly basis, to monitor economic factors and other uncertainties that may require additional adjustment to the new guidance.expected credit loss allowance.
See Note 4 for further details on the Company’s receivables and allowance for doubtful accounts.
Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment—In January 2017, the FASB issued updated guidance whichthat 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 guidance requires entities to measure a goodwill impairment loss as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the carrying amount of goodwill. 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 with a zero or negative carrying amount. The Company adopted the new guidance is effective for interim or annualon January 1, 2020 and, in accordance with the new guidance, applied it prospectively to goodwill impairment tests performed in fiscal years beginning after December 15, 2019, with earlythe adoption permitted. The Company is currently evaluating the new guidance.date.
Intangibles—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract—In August 2018, the FASB issued updated guidance on the accounting for implementation costs incurred in a cloud computing arrangement. The new guidance requires the capitalization of the implementation costs incurred in a cloud computing arrangement to be aligned with the requirements for capitalizing costs incurred to develop or obtain internal-use software. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. Upon adoption, the Company may elect to applyadopted the new guidance on either a prospective or retrospective basis. The Company is currently evaluatingas of January 1, 2020 and, in accordance with the new guidance.guidance, applied it prospectively to implementation costs incurred after the adoption date.
12
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Related Party Guidance for Variable Interest Entities—In October 2018, the FASB issued updated guidance that requires consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The new guidance is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The amendments are required to be applied retrospectively with a cumulative-effect adjustment. The Company is currently evaluatingadopted the new guidance.guidance as of January 1, 2020 and its application did not have a material impact to the Company’s financial statements.
Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement—In August 2018, the FASB issued updated guidance which modifies the disclosure requirements on fair value measurement. The updated guidance eliminates or modifies various required disclosures under the current guidance and includes additional requirements. The new guidance is effective for annualadditional disclosures related to Level 3 fair value measurements are to be applied prospectively and interim reporting periods beginning after December 15, 2019, with early adoption permitted. With certain exceptions, the guidance is requiredother amendments are to be applied retrospectively. The Company is currently evaluatingadopted the new guidance.guidance on January 1, 2020 and its application did not have a material impact to the Company’s financial statements.
Compensation–Retirement Benefits: Changes to the Disclosure Requirements for Defined Benefit Plans—In August 2018, the FASB issued updated guidance which modifies the disclosure requirements regarding defined benefit plans and other postretirement plans. The updated guidance eliminates or clarifies certain currently required disclosures and includes additional requirements. The Company adopted the new guidance on January 1, 2020 and will update its annual disclosures in accordance with the new guidance.
Simplifying the Accounting for Income Taxes—In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The amendments include the removal of certain exceptions and various improvements. These improvements are related to the accounting for franchise tax based on income, evaluation of 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, 2020, with early adoption permitted. A retrospective application is required.2020. The Company is currently evaluatingplans to adopt the new guidance.guidance on January 1, 2021 and does not expect the adoption of the amendments to have a material impact to the Company’s financial statements.
3. | REVENUE RECOGNITION |
Investment Banking and Other Advisory Fees—Fees for Financial Advisory services are recorded when: (i) a contract with a client has been identified, (ii) the performance obligations in the contract have been identified, (iii) the fee or other transaction price has been determined, (iv) the fee or other transaction price has been allocated to each performance obligation in the contract, and (v) the Company has satisfied the applicable performance obligation. The expenses that are directly related to such transactions are recorded as incurred and presented within operating expenses when the Company is primarily responsible for fulfilling the promise of
13
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
the arrangement. Revenues associated with the reimbursement of such expenses are recorded when the Company is contractually entitled to reimbursement and presented within investment banking and other advisory fees.
Asset Management Fees—Fees for Asset Management services are primarily comprised of management fees and incentive fees. Management fees are derived from fees for investment management and other services provided to clients. Revenue is recorded in accordance with the same five criteria as Financial Advisory fees, which generally results in management fees being recorded on a daily, monthly or quarterly basis, primarily based on a percentage of client assets managed. Fees vary with the type of assets managed, with higher fees earned on equity assets, alternative investment (such as hedge fund) and private equity funds, and lower fees earned on fixed income and money market products. Expenses that are directly related to the sale or distribution of fund interests are recorded as incurred and presented within operating expenses when the Company is primarily responsible for fulfilling the promise of the arrangement. Revenues associated with the reimbursement of such expenses are recorded when the Company is contractually entitled to reimbursement and presented within asset management fees.
In addition, 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 specific 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 when a significant reversal in the amount of the cumulative revenue to be recognized is not probable, which is typically at the end of the relevant performance measurement period. The incentive fee measurement period is generally an annual period (unless an account is terminated during the year). The incentive fees received at the end of the measurement period are not subject to reversal or payback.
13
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Incentive fees on hedge funds generally are 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 interests during the life of the fund can occur. As a result, the Company records incentive fees earned on our private equity funds when a significant reversal in the amount of the cumulative revenue to be recognized is not probable, which is typically at the end of the relevant performance period.
Receivables relating to asset management and incentive fees are reported in “fees receivable” on the consolidated statements of financial condition.
The Company disaggregates revenue based on its business segment results and believes that the following information provides a reasonable representation of how performance obligations relate to the nature, amount, timing and uncertainty of revenue and cash flows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Advisory (a) |
| $ | 304,174 |
|
| $ | 309,846 |
|
| $ | 953,863 |
|
| $ | 1,137,781 |
|
| $ | 305,478 |
|
| $ | 304,174 |
|
| $ | 908,878 |
|
| $ | 953,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fees and Other (b) |
| $ | 298,752 |
|
| $ | 323,283 |
|
| $ | 910,321 |
|
| $ | 1,012,127 |
|
| $ | 273,964 |
|
| $ | 298,752 |
|
| $ | 809,071 |
|
| $ | 910,321 |
|
Incentive Fees (c) |
|
| 1,263 |
|
|
| 1,957 |
|
|
| 7,118 |
|
|
| 19,984 |
|
|
| 3,279 |
|
|
| 1,263 |
|
|
| 5,542 |
|
|
| 7,118 |
|
Total Asset Management |
| $ | 300,015 |
|
| $ | 325,240 |
|
| $ | 917,439 |
|
| $ | 1,032,111 |
|
| $ | 277,243 |
|
| $ | 300,015 |
|
| $ | 814,613 |
|
| $ | 917,439 |
|
(a) | Financial Advisory is comprised of M&A Advisory, Capital Advisory, Capital Raising, Restructuring, Shareholder Advisory, Sovereign Advisory, 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 |
14
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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 above, contracts with clients include trade-based commission income, which is recognized at the point in time of execution and presented within other revenue. Such income may be earned by providing trade facilitation, execution, clearance and settlement, custody, and trade administration services to clients.
14
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
With regard to the disclosure requirement for remaining performance obligations, the Company elected the practical expedients permitted in the guidance to (i) exclude contracts with a duration of one year or less; and (ii) exclude variable consideration, such as transaction completion and transaction announcement fees, that is allocated entirely to unsatisfied performance obligations. Excluded variable consideration typically relates to contracts with a duration of one year or less, and is generally constrained due to uncertainties. Therefore, when applying the practical expedients, amounts related to remaining performance obligations are not material to the Company’s financial statements.
4. | 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 customer and other receivables, the Company has elected to apply the practical expedient, in accordance with 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 September 30, 2020.
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.
Activity inFor fee receivables, the allowance for doubtful accounts is determined together for all Financial Advisory fees, except for Private Capital Advisory given the three monthdifferent nature of the business, client composition, and nine month periods ended September 30, 2019risk 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 2018 was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Beginning Balance |
| $ | 33,484 |
|
| $ | 34,906 |
|
| $ | 40,115 |
|
| $ | 23,692 |
|
Bad debt expense, net of recoveries |
|
| (546 | ) |
|
| 1,488 |
|
|
| (6,097 | ) |
|
| 18,106 |
|
Charge-offs, foreign currency translation and other adjustments |
|
| (1,700 | ) |
|
| (1,922 | ) |
|
| (2,780 | ) |
|
| (7,326 | ) |
Ending Balance |
| $ | 31,238 |
|
| $ | 34,472 |
|
| $ | 31,238 |
|
| $ | 34,472 |
|
Bad debt expense, netinclude the aging of recoveries is included in “operating expenses—other” on the condensed consolidated statements of operations.
At September 30, 2019receivables, the clients’ ability to make payments, and December 31, 2018,the Company’s relationship with the client. In addition, the Company hadalso 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 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 deemed uncollectiblethe specific contractual payment terms, in excess of $37,682 and $42,260, respectively.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.
15
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Activity in the allowance for doubtful accounts for the three month and nine month periods ended September 30, 2020 and 2019 was as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Beginning Balance |
| $ | 40,951 |
|
| $ | 33,484 |
|
| $ | 27,130 |
|
| $ | 40,115 |
|
Adjustment for adoption of new accounting guidance |
|
| - |
|
|
| - |
|
|
| 7,571 |
|
|
| - |
|
Bad debt expense, net of reversals |
|
| (3,811 | ) |
|
| (546 | ) |
|
| 5,103 |
|
|
| (6,097 | ) |
Charge-offs, foreign currency translation and other adjustments |
|
| 1,100 |
|
|
| (1,700 | ) |
|
| (1,564 | ) |
|
| (2,780 | ) |
Ending Balance * |
| $ | 38,240 |
|
| $ | 31,238 |
|
| $ | 38,240 |
|
| $ | 31,238 |
|
*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 September 30, 20192020 and December 31, 2018, $77,3042019, $82,179 and $90,966,$77,052, respectively, represented interest-bearing financing receivables.receivables for our Private Capital Advisory fees. Based upon our historical loss experience, the credit quality of the counterparties, and the lack of past due or uncollectible amounts, there was 0 allowance for doubtful accounts required at those dates related to such receivables.
The aggregate carrying amount of our non-interest bearing receivables of $623,310$537,477 and $613,342$620,599 at September 30, 20192020 and December 31, 2018,2019, respectively, approximates fair value.
5. | INVESTMENTS |
The Company’s investments and securities sold, not yet purchased, consist of the following at September 30, 20192020 and December 31, 2018:2019:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Interest-bearing deposits |
| $ | 495 |
|
| $ | 510 |
|
| $ | - |
|
| $ | 517 |
|
Debt |
|
| 99,535 |
|
|
| 202,874 |
|
|
| - |
|
|
| 100,000 |
|
Equities |
|
| 38,114 |
|
|
| 32,261 |
|
|
| 38,103 |
|
|
| 48,521 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments (a) |
|
| 27,124 |
|
|
| 17,752 |
|
|
| 33,105 |
|
|
| 16,581 |
|
Debt (a) |
|
| 112,258 |
|
|
| 90,320 |
|
|
| 133,702 |
|
|
| 113,579 |
|
Equity (a) |
|
| 215,821 |
|
|
| 175,088 |
|
|
| 294,956 |
|
|
| 218,435 |
|
Private equity |
|
| 42,501 |
|
|
| 56,343 |
|
|
| 35,379 |
|
|
| 34,362 |
|
|
|
| 397,704 |
|
|
| 339,503 |
|
|
| 497,142 |
|
|
| 382,957 |
|
Total investments |
|
| 535,848 |
|
|
| 575,148 |
|
|
| 535,245 |
|
|
| 531,995 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
| 495 |
|
|
| 510 |
|
|
| - |
|
|
| 517 |
|
Investments, at fair value |
| $ | 535,353 |
|
| $ | 574,638 |
|
| $ | 535,245 |
|
| $ | 531,478 |
|
Securities sold, not yet purchased, at fair value (included in “other liabilities”) |
| $ | 1,555 |
|
| $ | 3,929 |
|
| $ | 1,005 |
|
| $ | 12,894 |
|
(a) | Interests in alternative investment funds, debt funds and equity funds include investments with fair values of |
16
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
deferred compensation arrangements. LFI represent grants by the Company to eligible employees of actual or notional interests in a number of Lazard-managed funds, subject to service-based vesting conditions (see Notes 7 and |
Interest-bearing deposits have original maturities of greater than three months but equal to or less than one year and are carried at cost that approximates fair value due to their short-term maturities.
Debt primarily consists of U.S. Treasury securities with original maturities of greater than three months and less than one 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.
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.
16
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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.
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, 20192020 and 2018,2019, the Company reported in “revenue-other” on its condensed consolidated statements of operations net unrealized investment gains and losses pertaining to “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, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net unrealized investment gains (losses) |
| $ | (590 | ) |
| $ | 1,972 |
|
| $ | 26,562 |
|
| $ | (13,183 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net unrealized investment gains (losses) |
| $ | 17,834 |
|
| $ | (590 | ) |
| $ | 16,896 |
|
| $ | 26,562 |
|
6. | 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. |
17
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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 securities 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 as of September 30, 2019.2020.
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 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
17
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
when assessing certain performance thresholds for the relevant periods. Any change in the fair value is recognized in “amortization and other acquisition-related (benefits) 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 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 12.
The fair value of derivatives entered into by the Company is 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. See Note 7.
18
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, 20192020 and December 31, 2018,2019, 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, 2019 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
| $ | 99,535 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 99,535 |
| ||||||||||||||||||||
Equities |
|
| 36,390 |
|
|
| - |
|
|
| 1,724 |
|
|
| - |
|
|
| 38,114 |
|
| $ | 36,492 |
|
| $ | - |
|
| $ | 1,611 |
|
| $ | - |
|
| $ | 38,103 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 16,930 |
|
|
| - |
|
|
| - |
|
|
| 10,194 |
|
|
| 27,124 |
|
|
| 16,315 |
|
|
| - |
|
|
| - |
|
|
| 16,790 |
|
|
| 33,105 |
|
Debt |
|
| 112,251 |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| 112,258 |
|
|
| 133,697 |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 133,702 |
|
Equity |
|
| 215,782 |
|
|
| - |
|
|
| - |
|
|
| 39 |
|
|
| 215,821 |
|
|
| 294,917 |
|
|
| - |
|
|
| - |
|
|
| 39 |
|
|
| 294,956 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| 2,146 |
|
|
| 40,355 |
|
|
| 42,501 |
|
|
| - |
|
|
| - |
|
|
| 1,165 |
|
|
| 34,214 |
|
|
| 35,379 |
|
Derivatives |
|
| - |
|
|
| 3,278 |
|
|
| - |
|
|
| - |
|
|
| 3,278 |
|
|
| - |
|
|
| 1,925 |
|
|
| - |
|
|
| - |
|
|
| 1,925 |
|
Total |
| $ | 480,888 |
|
| $ | 3,278 |
|
| $ | 3,870 |
|
| $ | 50,595 |
|
| $ | 538,631 |
|
| $ | 481,421 |
|
| $ | 1,925 |
|
| $ | 2,776 |
|
| $ | 51,048 |
|
| $ | 537,170 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 1,555 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,555 |
|
| $ | 1,005 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,005 |
|
Contingent consideration liability |
|
| - |
|
|
| - |
|
|
| 207 |
|
|
| - |
|
|
| 207 |
| ||||||||||||||||||||
Derivatives |
|
| - |
|
|
| 228,116 |
|
|
| - |
|
|
| - |
|
|
| 228,116 |
|
|
| - |
|
|
| 285,946 |
|
|
| - |
|
|
| - |
|
|
| 285,946 |
|
Total |
| $ | 1,555 |
|
| $ | 228,116 |
|
| $ | 207 |
|
| $ | - |
|
| $ | 229,878 |
|
| $ | 1,005 |
|
| $ | 285,946 |
|
| $ | - |
|
| $ | - |
|
| $ | 286,951 |
|
18
|
| December 31, 2019 |
| |||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
| $ | 100,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 100,000 |
|
Equities |
|
| 46,921 |
|
|
| - |
|
|
| 1,600 |
|
|
| - |
|
|
| 48,521 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 15,731 |
|
|
| - |
|
|
| - |
|
|
| 850 |
|
|
| 16,581 |
|
Debt |
|
| 113,574 |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| 113,579 |
|
Equity |
|
| 218,393 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
|
| 218,435 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| 1,371 |
|
|
| 32,991 |
|
|
| 34,362 |
|
Derivatives |
|
| - |
|
|
| 1,395 |
|
|
| - |
|
|
| - |
|
|
| 1,395 |
|
Total |
| $ | 494,619 |
|
| $ | 1,395 |
|
| $ | 2,971 |
|
| $ | 33,888 |
|
| $ | 532,873 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 12,894 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 12,894 |
|
Derivatives |
|
| - |
|
|
| 236,273 |
|
|
| - |
|
|
| - |
|
|
| 236,273 |
|
Total |
| $ | 12,894 |
|
| $ | 236,273 |
|
| $ | - |
|
| $ | - |
|
| $ | 249,167 |
|
19
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| December 31, 2018 |
| |||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
| $ | 202,874 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 202,874 |
|
Equities |
|
| 30,639 |
|
|
| - |
|
|
| 1,622 |
|
|
| - |
|
|
| 32,261 |
|
Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments |
|
| 16,863 |
|
|
| - |
|
|
| - |
|
|
| 889 |
|
|
| 17,752 |
|
Debt |
|
| 90,313 |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| 90,320 |
|
Equity |
|
| 175,054 |
|
|
| - |
|
|
| - |
|
|
| 34 |
|
|
| 175,088 |
|
Private equity |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 56,343 |
|
|
| 56,343 |
|
Derivatives |
|
| - |
|
|
| 11,967 |
|
|
| - |
|
|
| - |
|
|
| 11,967 |
|
Total |
| $ | 515,743 |
|
| $ | 11,967 |
|
| $ | 1,622 |
|
| $ | 57,273 |
|
| $ | 586,605 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased |
| $ | 3,929 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,929 |
|
Contingent consideration liability |
|
| - |
|
|
| - |
|
|
| 1,309 |
|
|
| - |
|
|
| 1,309 |
|
Derivatives |
|
| - |
|
|
| 188,962 |
|
|
| - |
|
|
| - |
|
|
| 188,962 |
|
Total |
| $ | 3,929 |
|
| $ | 188,962 |
|
| $ | 1,309 |
|
| $ | - |
|
| $ | 194,200 |
|
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, 20192020 and 2018:2019:
|
| Three Months Ended September 30, 2019 |
|
| Three Months Ended September 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions/ Transfers |
|
| Sales/ Dispositions/ Settlements |
|
| 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 |
| $ | 1,606 |
|
| $ | 148 |
|
| $ | - |
|
| $ | - |
|
| $ | (30 | ) |
| $ | 1,724 |
|
| $ | 1,580 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 30 |
|
| $ | 1,611 |
|
Private equity funds |
|
| 2,131 |
|
|
| 15 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,146 |
|
|
| 1,012 |
|
|
| 152 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 1,165 |
|
Total Level 3 Assets |
| $ | 3,737 |
|
| $ | 163 |
|
| $ | - |
|
| $ | - |
|
| $ | (30 | ) |
| $ | 3,870 |
|
| $ | 2,592 |
|
| $ | 153 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 31 |
|
| $ | 2,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Contingent consideration liability |
| $ | 203 |
|
| $ | 4 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 207 |
| ||||||||||||||||||||||||
Total Level 3 Liabilities |
| $ | 203 |
|
| $ | 4 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 207 |
|
19
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
| 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 |
| $ | 1,600 |
|
| $ | 58 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (47 | ) |
| $ | 1,611 |
|
Private equity funds |
|
| 1,371 |
|
|
| (207 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 1,165 |
|
Total Level 3 Assets |
| $ | 2,971 |
|
| $ | (149 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | (46 | ) |
| $ | 2,776 |
|
|
| Three Months Ended September 30, 2019 |
| |||||||||||||||||||||
|
| 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 |
| $ | 1,606 |
|
| $ | 148 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (30 | ) |
| $ | 1,724 |
|
Private equity funds |
|
| 2,131 |
|
|
| 15 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,146 |
|
Total Level 3 Assets |
| $ | 3,737 |
|
| $ | 163 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (30 | ) |
| $ | 3,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 203 |
|
| $ | 4 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 207 |
|
Total Level 3 Liabilities |
| $ | 203 |
|
| $ | 4 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 207 |
|
20
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions/ Transfers (b) |
|
| Sales/ Dispositions/ Settlements |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,622 |
|
| $ | 134 |
|
| $ | - |
|
| $ | - |
|
| $ | (32 | ) |
| $ | 1,724 |
|
Private equity funds |
|
| - |
|
|
| 15 |
|
|
| 2,131 |
|
|
| - |
|
|
| - |
|
|
| 2,146 |
|
Total Level 3 Assets |
| $ | 1,622 |
|
| $ | 149 |
|
| $ | 2,131 |
|
| $ | - |
|
| $ | (32 | ) |
| $ | 3,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 1,309 |
|
| $ | (1,102 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 207 |
|
Total Level 3 Liabilities |
| $ | 1,309 |
|
| $ | (1,102 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 207 |
|
|
| Three Months Ended September 30, 2018 |
| |||||||||||||||||||||
|
| Beginning Balance |
|
| Net Unrealized/ Realized Gains/Losses Included In Earnings (a) |
|
| Purchases/ Acquisitions |
|
| Sales/ Dispositions |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,629 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | (1 | ) |
| $ | 1,628 |
|
Total Level 3 Assets |
| $ | 1,629 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | (1 | ) |
| $ | 1,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 3,470 |
|
| $ | (1,763 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,707 |
|
Total Level 3 Liabilities |
| $ | 3,470 |
|
| $ | (1,763 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,707 |
|
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 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/ Transfers (b) |
|
| Sales/ Dispositions/ Settlements |
|
| Foreign Currency Translation Adjustments |
|
| Ending Balance |
| ||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 1,592 |
|
| $ | 61 |
|
| $ | 1 |
|
| $ | - |
|
| $ | (26 | ) |
| $ | 1,628 |
|
| $ | 1,622 |
|
| $ | 134 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (32 | ) |
| $ | 1,724 |
|
Private equity funds |
|
| 0 |
|
|
| 15 |
|
|
| 2,131 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,146 |
| ||||||||||||||||||||||||
Total Level 3 Assets |
| $ | 1,592 |
|
| $ | 61 |
|
| $ | 1 |
|
| $ | - |
|
| $ | (26 | ) |
| $ | 1,628 |
|
| $ | 1,622 |
|
| $ | 149 |
|
| $ | 2,131 |
|
| $ | 0 |
|
| $ | (32 | ) |
| $ | 3,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
| $ | 4,656 |
|
| $ | (2,949 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,707 |
|
| $ | 1,309 |
|
| $ | (1,102 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 207 |
|
Total Level 3 Liabilities |
| $ | 4,656 |
|
| $ | (2,949 | ) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,707 |
|
| $ | 1,309 |
|
| $ | (1,102 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Earnings recorded in “other revenue” for investments in |
(b) | Certain investments that were valued at NAV as of December 31, 2018 were transferred to Level 3 during the nine month period ended September 30, 2019 as these investments are valued based on a potential transaction value that differs from NAV. |
20
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
There were 0 other 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, 20192020 and 2018.2019.
The following tables present, at September 30, 20192020 and December 31, 2018,2019, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:
|
| September 30, 2019 |
| September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| $ | 9,578 |
|
| $ | - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (a) |
| 30-60 days |
| $ | 16,188 |
|
| $ | - |
|
|
| NA |
|
| (a) |
| 30-60 days | ||||
Funds of funds |
|
| 24 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (b) |
| >90 days | ||||||||||||||||||||
Other |
|
| 592 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (c) |
| <30-30 days |
|
| 602 |
|
|
| - |
|
|
| NA |
|
| (b) |
| <30-30 days | ||||
Debt funds |
|
| 7 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (d) |
| <30 days |
|
| 5 |
|
|
| - |
|
|
| NA |
|
| (c) |
| <30 days | ||||
Equity funds |
|
| 39 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (e) |
| <30-90 days |
|
| 39 |
|
|
| - |
|
|
| NA |
|
| (d) |
| <30-60 days | ||||
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 40,355 |
|
|
| 8,264 |
| (f) |
|
| 100 | % |
|
| 20 | % |
|
| 14 | % |
|
| 66 | % |
| NA |
| NA |
|
| 34,214 |
|
|
| 5,935 |
| (e) |
| 100% | (f) |
| NA |
| NA |
Total |
| $ | 50,595 |
|
| $ | 8,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 51,048 |
|
| $ | 5,935 |
|
|
|
|
|
|
|
|
|
(a) | monthly (99%) and quarterly (1%) |
(b) |
|
(c) | daily |
(d) |
|
(e) |
|
| Unfunded commitments to private equity investments consolidated but not owned by Lazard of |
|
| December 31, 2018 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| $ | 299 |
|
| $ | - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (a) |
| 30-60 days | ||||
Funds of funds |
|
| 23 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (b) |
| >90 days | ||||
Other |
|
| 567 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (c) |
| <30-30 days | ||||
Debt funds |
|
| 7 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (d) |
| <30 days | ||||
Equity funds |
|
| 34 |
|
|
| - |
|
|
| NA |
|
| NA |
|
| NA |
|
| NA |
|
| (e) |
| <30-90 days | ||||
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 56,343 |
|
|
| 8,338 |
| (f) |
|
| 100 | % |
|
| 14 | % |
|
| 34 | % |
|
| 52 | % |
| NA |
| NA |
Total |
| $ | 57,273 |
|
| $ | 8,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
|
21
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| December 31, 2019 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments Redeemable | ||
|
| Fair Value |
|
| Unfunded Commitments |
|
|
| % of Fair Value Not Redeemable |
|
|
| Redemption Frequency |
| Redemption Notice Period | |||
Alternative investment funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds |
| $ | 241 |
|
| $ | - |
|
|
| NA |
|
|
| (a) |
| 30-60 days | |
Other |
|
| 609 |
|
|
| - |
|
|
| NA |
|
|
| (b) |
| <30-30 days | |
Debt funds |
|
| 5 |
|
|
| - |
|
|
| NA |
|
|
| (c) |
| <30 days | |
Equity funds |
|
| 42 |
|
|
| - |
|
|
| NA |
|
|
| (d) |
| <30-60 days | |
Private equity funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth |
|
| 32,991 |
|
|
| 6,056 |
| (e) |
|
| 100 | % | (f) |
| NA |
| NA |
Total |
| $ | 33,888 |
|
| $ | 6,056 |
|
|
|
|
|
|
|
|
|
|
|
(a) | monthly (52%) and quarterly (48%) |
(b) | daily (6%) and monthly (94%) |
(c) | daily (100%) |
(d) | monthly (34%) and annually (66%) |
(e) | Unfunded commitments to private equity investments consolidated but not owned by Lazard of $11,155 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. |
Investment Capital Funding Commitments—At September 30, 2019,2020, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $7,602.$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.
7. | 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.
22
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 14)13) on the accompanying condensed consolidated statements of financial condition as of September 30, 20192020 and December 31, 2018:2019:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Derivative Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts |
| $ | 3,278 |
|
| $ | 1,543 |
|
| $ | 1,127 |
|
| $ | 1,395 |
|
Total return swaps and other (a) |
|
| - |
|
|
| 10,424 |
|
|
| 798 |
|
|
| - |
|
|
| $ | 3,278 |
|
| $ | 11,967 |
|
| $ | 1,925 |
|
| $ | 1,395 |
|
Derivative Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts |
| $ | 2,371 |
|
| $ | 939 |
|
| $ | 244 |
|
| $ | 1,720 |
|
Total return swaps and other (a) |
|
| 3,719 |
|
|
| 1 |
|
|
| 118 |
|
|
| 8,527 |
|
LFI and other similar deferred compensation arrangements |
|
| 222,026 |
|
|
| 188,022 |
|
|
| 285,584 |
|
|
| 226,026 |
|
|
| $ | 228,116 |
|
| $ | 188,962 |
|
| $ | 285,946 |
|
| $ | 236,273 |
|
(a) | For total return swaps, amounts represent the netting of gross derivative assets and liabilities of |
22
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Net gains (losses) with respect to derivative instruments (predominantly reflected 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, 20192020 and 2018,2019, were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Forward foreign currency exchange rate contracts |
| $ | 3,969 |
|
| $ | 1,431 |
|
| $ | 5,065 |
|
| $ | 5,184 |
|
| $ | (3,039 | ) |
| $ | 3,969 |
|
| $ | (4,816 | ) |
| $ | 5,065 |
|
LFI and other similar deferred compensation arrangements |
|
| (1,764 | ) |
|
| (3,647 | ) |
|
| (22,118 | ) |
|
| (1,712 | ) |
|
| (11,261 | ) |
|
| (1,764 | ) |
|
| (15,427 | ) |
|
| (22,118 | ) |
Total return swaps and other |
|
| 1,324 |
|
|
| (1,847 | ) |
|
| (8,309 | ) |
|
| 599 |
|
|
| (5,202 | ) |
|
| 1,324 |
|
|
| 1,835 |
|
|
| (8,309 | ) |
Total |
| $ | 3,529 |
|
| $ | (4,063 | ) |
| $ | (25,362 | ) |
| $ | 4,071 |
|
| $ | (19,502 | ) |
| $ | 3,529 |
|
| $ | (18,408 | ) |
| $ | (25,362 | ) |
8. | PROPERTY |
At September 30, 20192020 and December 31, 2018,2019, property consisted of the following:
|
| Estimated Depreciable |
|
| September 30, |
|
| December 31, |
|
| Estimated Depreciable |
|
| September 30, |
|
| December 31, |
| ||||||
|
| Life in Years |
|
| 2019 |
|
| 2018 |
|
| Life in Years |
|
| 2020 |
|
| 2019 |
| ||||||
Buildings |
|
| 33 |
|
| $ | 137,928 |
|
| $ | 145,034 |
|
|
| 33 |
|
| $ | 148,303 |
|
| $ | 142,298 |
|
Leasehold improvements |
| 3-20 |
|
|
| 192,320 |
|
|
| 187,930 |
|
| 3-20 |
|
|
| 226,887 |
|
|
| 196,277 |
| ||
Furniture and equipment |
| 3-10 |
|
|
| 205,291 |
|
|
| 204,057 |
|
| 3-10 |
|
|
| 231,346 |
|
|
| 214,700 |
| ||
Construction in progress |
|
|
|
|
|
| 31,928 |
|
|
| 14,140 |
|
|
|
|
|
|
| 23,643 |
|
|
| 32,476 |
|
Total |
|
|
|
|
|
| 567,467 |
|
|
| 551,161 |
|
|
|
|
|
|
| 630,179 |
|
|
| 585,751 |
|
Less - Accumulated depreciation and amortization |
|
|
|
|
|
| 351,532 |
|
|
| 339,448 |
|
|
|
|
|
|
| 397,454 |
|
|
| 366,880 |
|
Property |
|
|
|
|
| $ | 215,935 |
|
| $ | 211,713 |
|
|
|
|
|
| $ | 232,725 |
|
| $ | 218,871 |
|
|
|
The Company adopted the new lease accounting guidance as of January 1, 2019, which resulted in recognition of ROU assets and lease liabilities related to operating leases on the condensed consolidated statements of financial condition. The Company determines if an arrangement is, or contains, a lease at its inception and reevaluates the arrangement if the terms are modified. Operating lease ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities reflect the obligation to make lease payments arising from the lease. At any given time during the lease term, the operating lease liability represents the present value of the remaining lease payments and the operating lease ROU asset is measured at the amount of the lease liability, adjusted for rent prepayments, unamortized initial direct costs and the remaining balance of lease incentives received. Both the operating lease ROU asset and the operating lease liability are reduced to zero at the end of the lease.
The Company leases office space and equipment under non-cancelable lease agreements, which expire on various dates through 2033. Substantially all of these arrangements are operating leases relating to office space. Certain leases have renewal options that can be exercised at the discretion of the Company. The Company only includes renewal options in the lease term when it is reasonably certain to exercise the option. The Company does not record leases with a lease term of 12 months or less on the condensed consolidated statements of financial condition; lease expense for these leases is recognized over the lease term on a straight-line basis.
For leases commencing on January 1, 2019 or thereafter that are recognized on the condensed consolidated statements of financial condition, the Company applies its estimated Discount. The Company bases this Discount on the information available at the lease commencement date. The Company determines its Discount with consideration of the Company’s public debt issuances as well as publicly available data for instruments with similar characteristics.
For leases commencing on January 1, 2019 or thereafter that relate to office space and equipment, the Company accounts for the lease and non-lease components as a single lease component.
23
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
In addition to rent payments, operating leases for office space generally contain payments for real estate taxes, insurance costs, common area maintenance, and utilities that are not fixed. The Company accounts for these costs as variable payments and does not include them in the lease component. There are certain office leases outside of the U.S. that have annual rent increases that are also accounted for as variable payments and are excluded from the lease component.
The following table summarizes the components of operating lease expense reflected on the accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2019:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Operating lease cost |
| $ | 19,904 |
|
| $ | 58,697 |
|
Variable lease cost |
|
| 4,610 |
|
|
| 13,581 |
|
Less - sublease income |
|
| 1,621 |
|
|
| 5,083 |
|
Total |
| $ | 22,893 |
|
| $ | 67,195 |
|
The following table summarizes the supplemental cash flow information and certain other information related to operating leases for the nine month period ended September 30, 2019:
|
| Nine Months Ended |
| |
|
| September 30, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
| $ | 61,935 |
|
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 602,715 |
|
|
|
|
|
|
Weighted average remaining lease term |
| 12 years |
| |
|
|
|
|
|
Weighted average discount rate |
|
| 3.6 | % |
Maturities of the operating lease liabilities outstanding at September 30, 2019 for each of the years in the period ending December 31, 2024 and thereafter are set forth in the table below.
Year Ending December 31, |
|
|
|
|
2019 (October 1 through December 31) |
| $ | 22,394 |
|
2020 |
|
| 86,668 |
|
2021 |
|
| 82,461 |
|
2022 |
|
| 66,435 |
|
2023 |
|
| 62,065 |
|
2024 |
|
| 60,898 |
|
Thereafter |
|
| 426,209 |
|
Total lease payments |
|
| 807,130 |
|
Less - Discount |
|
| 155,017 |
|
Operating lease liabilities |
| $ | 652,113 |
|
In August 2018, the Company entered into a lease agreement for additional office facilities, which are currently under construction. The lease commenced in the third quarter of 2019 when the facilities were delivered to the Company. The Company recognized the related operating lease right-of-use assets and the operating lease liability on the lease commencement date.
24
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Prior to the adoption of the new lease accounting guidance, the minimum rental commitments under non-cancelable operating leases at December 31, 2018, net of sublease income, were approximately as follows:
Year Ending December 31, |
|
|
|
|
2019 |
| $ | 86,664 |
|
2020 |
|
| 89,260 |
|
2021 |
|
| 83,517 |
|
2022 |
|
| 70,611 |
|
2023 |
|
| 59,973 |
|
Thereafter |
|
| 488,612 |
|
Total minimum rental commitments |
|
| 878,637 |
|
Less - sublease proceeds |
|
| 26,941 |
|
Net rental commitments |
| $ | 851,696 |
|
| GOODWILL AND OTHER INTANGIBLE ASSETS |
The components of goodwill and other intangible assets at September 30, 20192020 and December 31, 20182019 are presented below:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Goodwill |
| $ | 345,564 |
|
| $ | 350,829 |
|
| $ | 352,092 |
|
| $ | 350,029 |
|
Other intangible assets (net of accumulated amortization) |
|
| 2,033 |
|
|
| 3,634 |
|
|
| 646 |
|
|
| 1,768 |
|
|
| $ | 347,597 |
|
| $ | 354,463 |
|
| $ | 352,738 |
|
| $ | 351,797 |
|
At September 30, 20192020 and December 31, 2018,2019, goodwill of $281,023$287,551 and $286,288,$285,488, 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 nine month periods ended September 30, 20192020 and 20182019 are as follows:
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Balance, January 1 |
| $ | 350,829 |
|
| $ | 362,760 |
|
| $ | 350,029 |
|
| $ | 350,829 |
|
Foreign currency translation adjustments |
|
| (5,265 | ) |
|
| (9,479 | ) |
|
| 2,063 |
|
|
| (5,265 | ) |
Balance, September 30 |
| $ | 345,564 |
|
| $ | 353,281 |
|
| $ | 352,092 |
|
| $ | 345,564 |
|
All changes in the carrying amount of goodwill for the nine month periods ended September 30, 20192020 and 20182019 are attributable to the Company’s Financial Advisory segment.
The gross cost and accumulated amortization of other intangible assets as of September 30, 20192020 and December 31, 2018,2019, by major intangible asset category, are as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Cost |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||||||||
Success/incentive fees |
| $ | 33,040 |
|
| $ | 31,292 |
|
| $ | 1,748 |
|
| $ | 33,040 |
|
| $ | 30,043 |
|
| $ | 2,997 |
|
| $ | 33,040 |
|
| $ | 32,665 |
|
| $ | 375 |
|
| $ | 33,040 |
|
| $ | 31,542 |
|
| $ | 1,498 |
|
Management fees, customer relationships and non-compete agreements |
|
| 34,486 |
|
|
| 34,201 |
|
|
| 285 |
|
|
| 34,185 |
|
|
| 33,548 |
|
|
| 637 |
|
|
| 34,671 |
|
|
| 34,400 |
|
|
| 271 |
|
|
| 34,485 |
|
|
| 34,215 |
|
|
| 270 |
|
|
| $ | 67,526 |
|
| $ | 65,493 |
|
| $ | 2,033 |
|
| $ | 67,225 |
|
| $ | 63,591 |
|
| $ | 3,634 |
|
| $ | 67,711 |
|
| $ | 67,065 |
|
| $ | 646 |
|
| $ | 67,525 |
|
| $ | 65,757 |
|
| $ | 1,768 |
|
25Amortization 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, 2020 was $443 and $1,308, respectively, and for the three month and nine month periods ended September 30, 2019 was $1,077 and $1,901, respectively. Estimated future amortization expense is as follows:
Year Ending December 31, |
| Amortization Expense |
| |
2020 (October 1 through December 31) |
| $ | 436 |
|
2021 |
|
| 60 |
|
2022 |
|
| 60 |
|
2023 |
|
| 60 |
|
2024 |
|
| 30 |
|
Total amortization expense |
| $ | 646 |
|
24
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 and other acquisition-related (benefits) costs” in the condensed consolidated statements of operations, for the three month and nine month periods ended September 30, 2019 was $1,077 and $1,901, respectively, and for the three month and nine month periods ended September 30, 2018 was $654 and $1,924, respectively. Estimated future amortization expense is as follows:
Year Ending December 31, |
| Amortization Expense |
| |
2019 (October 1 through December 31) |
| $ | 265 |
|
2020 |
|
| 1,558 |
|
2021 |
|
| 60 |
|
2022 |
|
| 60 |
|
2023 |
|
| 60 |
|
Thereafter |
|
| 30 |
|
Total amortization expense |
| $ | 2,033 |
|
| SENIOR DEBT |
Senior debt is comprised of the following as of September 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
| Outstanding as of |
|
|
|
|
|
|
|
|
|
|
|
| Outstanding as of |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Initial |
|
|
|
| Annual |
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| Initial |
|
|
|
| Annual |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Principal Amount |
|
| Maturity Date |
| Interest Rate(b) |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal Amount |
|
| Maturity Date |
| Interest Rate(b) |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
|
| Principal |
|
| Unamortized Debt Costs |
|
| Carrying Value |
| ||||||||||||||||
Lazard Group 2020 Senior Notes (a) |
| $ | 500,000 |
|
| 11/14/20 |
|
| 4.25 | % |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 250,000 |
|
| $ | 863 |
|
| $ | 249,137 |
| ||||||||||||||||||||||||||||||||||
Lazard Group 2025 Senior Notes |
|
| 400,000 |
|
| 2/13/25 |
|
| 3.75 | % |
|
| 400,000 |
|
|
| 2,534 |
|
|
| 397,466 |
|
|
| 400,000 |
|
|
| 2,888 |
|
|
| 397,112 |
|
| $ | 400,000 |
|
| 2/13/25 |
|
| 3.75 | % |
| $ | 400,000 |
|
| $ | 2,062 |
|
| $ | 397,938 |
|
| $ | 400,000 |
|
| $ | 2,416 |
|
| $ | 397,584 |
|
Lazard Group 2027 Senior Notes |
|
| 300,000 |
|
| 3/1/27 |
|
| 3.625 | % |
|
| 300,000 |
|
|
| 2,920 |
|
|
| 297,080 |
|
|
| 300,000 |
|
|
| 3,215 |
|
|
| 296,785 |
|
|
| 300,000 |
|
| 3/1/27 |
|
| 3.625 | % |
|
| 300,000 |
|
|
| 2,526 |
|
|
| 297,474 |
|
|
| 300,000 |
|
|
| 2,822 |
|
|
| 297,178 |
|
Lazard Group 2028 Senior Notes (a) |
|
| 500,000 |
|
| 9/19/28 |
|
| 4.50 | % |
|
| 500,000 |
|
|
| 8,038 |
|
|
| 491,962 |
|
|
| 500,000 |
|
|
| 8,774 |
|
|
| 491,226 |
| ||||||||||||||||||||||||||||||||||
Lazard Group 2028 Senior Notes |
|
| 500,000 |
|
| 9/19/28 |
|
| 4.50 | % |
|
| 500,000 |
|
|
| 7,142 |
|
|
| 492,858 |
|
|
| 500,000 |
|
|
| 7,814 |
|
|
| 492,186 |
| ||||||||||||||||||||||||||||||||||
Lazard Group 2029 Senior Notes (a) |
|
| 500,000 |
|
| 3/11/29 |
|
| 4.375 | % |
|
| 500,000 |
|
|
| 7,587 |
|
|
| 492,413 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 500,000 |
|
| 3/11/29 |
|
| 4.375 | % |
|
| 500,000 |
|
|
| 6,783 |
|
|
| 493,217 |
|
|
| 500,000 |
|
|
| 7,386 |
|
|
| 492,614 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 1,700,000 |
|
| $ | 21,079 |
|
| $ | 1,678,921 |
|
| $ | 1,450,000 |
|
| $ | 15,740 |
|
| $ | 1,434,260 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,700,000 |
|
| $ | 18,513 |
|
| $ | 1,681,487 |
|
| $ | 1,700,000 |
|
| $ | 20,438 |
|
| $ | 1,679,562 |
|
(a) | During March 2019, Lazard Group completed an offering of $500,000 aggregate principal amount of 4.375% senior notes due 2029 (the “2029 Notes”). Interest on the 2029 Notes is payable semi-annually on March 11 and September 11 of each year, beginning September 11, 2019. Lazard Group used a portion of the net proceeds of the 2029 Notes to redeem or otherwise retire $250,000 aggregate principal amount of the 4.25% senior notes due 2020 (the “2020 Notes”). In March 2019, $167,943 aggregate principal amount was redeemed or otherwise retired, and the remaining $82,057 was redeemed or otherwise retired in April 2019. |
During September 2018, Lazard Group completed an offering of $500,000 aggregate principal amount of the 2028 Notes. Interest on the 2028 Notes is payable semi-annually on March 19 and September 19 of each year, beginning March 19, 2019. Lazard Group used a portion of the net proceeds of the 2028 Notes to redeem or otherwise retire $250,000 aggregate principal amount of the 2020 Notes.
(b) | The effective interest rates of Lazard Group’s 3.75% senior notes due February 13, 2025 (the “2025 Notes”), Lazard Group’s 3.625% senior notes due March 1, 2027 (the “2027 Notes”), Lazard Group’s 4.50% senior notes due September 19, 2028 (the “2028 Notes”), and the 2029 Notes are 3.87%, 3.76%, 4.68% and 4.54%, respectively. |
26
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The Company’s senior debt at September 30, 2020 and December 31, 2019 is carried at historical amounts of $1,681,487 and $1,679,562, respectively. At those dates, the fair value of such senior debt was approximately $1,917,000 and $1,839,000, 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 (the “Previous Credit Agreement”), 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, 20192020 and December 31, 2018,2019, 0 amounts were outstanding under the Amended and Restated Credit Agreement.Agreement or the Previous Credit Agreement, respectively.
As of September 30, 2020, the Company had approximately $219,000 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 $18,000.
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, 2019,2020, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.
As of September 30, 2019, the Company had approximately $167,000
25
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars 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 $16,000.
The Company’s senior debt at September 30, 2019 and December 31, 2018 is carried at historical amounts of $1,678,921 and $1,434,260, respectively. At those dates, the fair value of such senior debt was approximately $1,817,000 and $1,429,000, 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.
thousands, unless otherwise noted)
| COMMITMENTS AND CONTINGENCIES |
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, 2019, LFB had $2,422 of such indemnifications and held $2,422 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, the remaining consideration consists of (i) 40,585 shares of Class A common stock subject to non-compete provisions and employment conditions, and (ii) up to 210,431 additional shares of Class A common stock that are subject to certain performance thresholds. During the nine month period ended September 30, 2019, NaN of the contingent shares were earned.
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, 2019,2020, LFB and LFNY had 0 such underwriting commitments.
See Notes 6 and 1514 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, 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.
27
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
| 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, the only class of common stock of Lazard outstanding (“common stock”), and (ii) tax distributions in respect of income taxes that Lazard Ltd’s subsidiaries incur.
During the nine month periods ended September 30, 20192020 and 2018,2019, Lazard Group distributed $178,935$120,300 and $364,751,$178,935, respectively, 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.
On October 31, 2019, Lazard Group distributed to its managing members, which are subsidiaries of Lazard Ltd, 17,000,000 shares of Class A common stock that were held by Lazard Group. These shares were ultimately received by Lazard Ltd and cancelled. There was no impact on total members' equity asContributions From Members—See Note 17 for information regarding a result of this distribution.related party transaction.
Share Repurchase Program—During Since 2018 and through the nine month period ended September 30, 2019 and since 2017,2020, the Board of Directors of Lazard authorized the repurchase of Class A common stock, as set forth in the table below:
Date |
| Repurchase Authorization |
|
| Expiration |
| Repurchase Authorization |
|
| Expiration | ||
October 2017 |
| $ | 200,000 |
|
| December 31, 2019 | ||||||
April 2018 |
| $ | 300,000 |
|
| December 31, 2020 |
| $ | 300,000 |
|
| December 31, 2020 |
October 2018 |
| $ | 300,000 |
|
| December 31, 2020 |
| $ | 300,000 |
|
| December 31, 2020 |
February 2019 |
| $ | 300,000 |
|
| December 31, 2020 |
| $ | 300,000 |
|
| December 31, 2020 |
October 2019 |
| $ | 300,000 |
|
| December 31, 2021 |
The Company expects that the share repurchase program will continue 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 Compensation Plan (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:
26
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Nine Months Ended September 30: |
| Number of Shares Purchased |
|
| Average Price Per Share |
|
| Number of Shares Purchased |
|
| Average Price Per Share |
| ||||
2018 |
|
| 5,797,789 |
|
| $ | 52.88 |
| ||||||||
2019 |
|
| 11,946,943 |
|
| $ | 36.01 |
|
|
| 11,946,943 |
|
| $ | 36.01 |
|
2020 |
|
| 2,912,035 |
|
| $ | 32.70 |
|
During the nine month periods ended September 30, 20192020 and 2018,2019, certain of our executive officers received 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 Class A common stock from certain of our executive officers equal in value to all or a portion of the estimated amount of such tax. In addition, during the nine month period ended September 30, 2018,2020, the Company purchased shares of Class A common stock from certain of our executive officers. The aggregate value of all such purchases during the nine month periods ended September 30, 20192020 and 20182019 was approximately $14,600$10,000 and $16,400,$14,600, respectively. Such shares of Class A common stock are reported at cost.
As of September 30, 2019,2020, a total of $165,231$305,598 of share repurchase authorization remained available under Lazard Ltd’s share repurchase program, all$5,598 of which will expire on December 31, 2020.
28
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
In addition, on October 30, 2019, the Board of Directors of Lazard authorized the repurchase of up to2020 and $300,000 of additional shares of Class A common stock, which authorization will expire on December 31, 2021, bringing the total available share repurchase authorization as of October 30, 2019 to approximately $437,000.2021.
During the nine month period ended September 30, 2019,2020, 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), Net of Tax—The tables below reflect the balances of each component of AOCI at September 30, 20192020 and 20182019 and activity during the three month and nine month periods then ended:
|
| Three Months Ended September 30, 2019 |
|
| Three Months Ended September 30, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| ||||||||||
Balance, July 1, 2019 |
| $ | (86,869 | ) |
| $ | (140,725 | ) |
| $ | (227,594 | ) |
| $ | - |
|
| $ | (227,594 | ) | ||||||||||||||||||||
Balance, July 1, 2020 |
| $ | (99,984 | ) |
| $ | (162,946 | ) |
| $ | (262,930 | ) |
| $ | (1 | ) |
| $ | (262,929 | ) | ||||||||||||||||||||
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (24,321 | ) |
|
| 9,050 |
|
|
| (15,271 | ) |
|
| (1 | ) |
|
| (15,270 | ) |
|
| 33,763 |
|
|
| (6,534 | ) |
|
| 27,229 |
|
|
| 1 |
|
|
| 27,228 |
|
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 1,074 |
|
|
| 1,074 |
|
|
| - |
|
|
| 1,074 |
|
|
| 0 |
|
|
| 1,345 |
|
|
| 1,345 |
|
|
| - |
|
|
| 1,345 |
|
Net other comprehensive income (loss) |
|
| (24,321 | ) |
|
| 10,124 |
|
|
| (14,197 | ) |
|
| (1 | ) |
|
| (14,196 | ) |
|
| 33,763 |
|
|
| (5,189 | ) |
|
| 28,574 |
|
|
| 1 |
|
|
| 28,573 |
|
Balance, September 30, 2019 |
| $ | (111,190 | ) |
| $ | (130,601 | ) |
| $ | (241,791 | ) |
| $ | (1 | ) |
| $ | (241,790 | ) | ||||||||||||||||||||
Balance, September 30, 2020 |
| $ | (66,221 | ) |
| $ | (168,135 | ) |
| $ | (234,356 | ) |
| $ | - |
|
| $ | (234,356 | ) |
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2019 |
| $ | (82,829 | ) |
| $ | (145,831 | ) |
| $ | (228,660 | ) |
| $ | - |
|
| $ | (228,660 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (28,361 | ) |
|
| 11,911 |
|
|
| (16,450 | ) |
|
| (1 | ) |
|
| (16,449 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 3,319 |
|
|
| 3,319 |
|
|
| - |
|
|
| 3,319 |
|
Net other comprehensive income (loss) |
|
| (28,361 | ) |
|
| 15,230 |
|
|
| (13,131 | ) |
|
| (1 | ) |
|
| (13,130 | ) |
Balance, September 30, 2019 |
| $ | (111,190 | ) |
| $ | (130,601 | ) |
| $ | (241,791 | ) |
| $ | (1 | ) |
| $ | (241,790 | ) |
|
| Nine Months Ended September 30, 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 before reclassifications |
|
| 8,148 |
|
|
| 3,045 |
|
|
| 11,193 |
|
|
| - |
|
|
| 11,193 |
|
Adjustments for items reclassified to earnings, net of tax |
|
| 0 |
|
|
| 4,855 |
|
|
| 4,855 |
|
|
| - |
|
|
| 4,855 |
|
Net other comprehensive income |
|
| 8,148 |
|
|
| 7,900 |
|
|
| 16,048 |
|
|
| - |
|
|
| 16,048 |
|
Balance, September 30, 2020 |
| $ | (66,221 | ) |
| $ | (168,135 | ) |
| $ | (234,356 | ) |
| $ | - |
|
| $ | (234,356 | ) |
|
| Three Months Ended September 30, 2018 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, July 1, 2018 |
| $ | (65,417 | ) |
| $ | (146,341 | ) |
| $ | (211,758 | ) |
| $ | (1 | ) |
| $ | (211,757 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (7,631 | ) |
|
| 863 |
|
|
| (6,768 | ) |
|
| 1 |
|
|
| (6,769 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 949 |
|
|
| 949 |
|
|
| - |
|
|
| 949 |
|
Net other comprehensive income (loss) |
|
| (7,631 | ) |
|
| 1,812 |
|
|
| (5,819 | ) |
|
| 1 |
|
|
| (5,820 | ) |
Balance, September 30, 2018 |
| $ | (73,048 | ) |
| $ | (144,529 | ) |
| $ | (217,577 | ) |
| $ | - |
|
| $ | (217,577 | ) |
2927
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| Nine Months Ended September 30, 2018 |
|
| Three Months Ended September 30, 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| ||||||||||
Balance, January 1, 2018 |
| $ | (43,790 | ) |
| $ | (151,466 | ) |
| $ | (195,256 | ) |
| $ | - |
|
| $ | (195,256 | ) | ||||||||||||||||||||
Balance, July 1, 2019 |
| $ | (86,869 | ) |
| $ | (140,725 | ) |
| $ | (227,594 | ) |
| $ | - |
|
| $ | (227,594 | ) | ||||||||||||||||||||
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (29,258 | ) |
|
| 4,149 |
|
|
| (25,109 | ) |
|
| - |
|
|
| (25,109 | ) |
|
| (24,321 | ) |
|
| 9,050 |
|
|
| (15,271 | ) |
|
| (1 | ) |
|
| (15,270 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| - |
|
|
| 2,788 |
|
|
| 2,788 |
|
|
| - |
|
|
| 2,788 |
|
|
| 0 |
|
|
| 1,074 |
|
|
| 1,074 |
|
|
| - |
|
|
| 1,074 |
|
Net other comprehensive income (loss) |
|
| (29,258 | ) |
|
| 6,937 |
|
|
| (22,321 | ) |
|
| - |
|
|
| (22,321 | ) |
|
| (24,321 | ) |
|
| 10,124 |
|
|
| (14,197 | ) |
|
| (1 | ) |
|
| (14,196 | ) |
Balance, September 30, 2018 |
| $ | (73,048 | ) |
| $ | (144,529 | ) |
| $ | (217,577 | ) |
| $ | - |
|
| $ | (217,577 | ) | ||||||||||||||||||||
Balance, September 30, 2019 |
| $ | (111,190 | ) |
| $ | (130,601 | ) |
| $ | (241,791 | ) |
| $ | (1 | ) |
| $ | (241,790 | ) |
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||
|
| Currency Translation Adjustments |
|
| Employee Benefit Plans |
|
| Total AOCI |
|
| Amount Attributable to Noncontrolling Interests |
|
| Total Lazard Group AOCI |
| |||||
Balance, January 1, 2019 |
| $ | (82,829 | ) |
| $ | (145,831 | ) |
| $ | (228,660 | ) |
| $ | - |
|
| $ | (228,660 | ) |
Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (28,361 | ) |
|
| 11,911 |
|
|
| (16,450 | ) |
|
| (1 | ) |
|
| (16,449 | ) |
Adjustments for items reclassified to earnings, net of tax |
|
| 0 |
|
|
| 3,319 |
|
|
| 3,319 |
|
|
| - |
|
|
| 3,319 |
|
Net other comprehensive income (loss) |
|
| (28,361 | ) |
|
| 15,230 |
|
|
| (13,131 | ) |
|
| (1 | ) |
|
| (13,130 | ) |
Balance, September 30, 2019 |
| $ | (111,190 | ) |
| $ | (130,601 | ) |
| $ | (241,791 | ) |
| $ | (1 | ) |
| $ | (241,790 | ) |
The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month and nine month periods ended September 30, 20192020 and 2018:2019:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Amortization relating to employee benefit plans (a) |
| $ | 1,246 |
|
| $ | 1,213 |
|
| $ | 3,843 |
|
| $ | 3,736 |
|
| $ | 1,757 |
|
| $ | 1,246 |
|
| $ | 5,943 |
|
| $ | 3,843 |
|
Less - related income taxes |
|
| 172 |
|
|
| 264 |
|
|
| 524 |
|
|
| 948 |
|
|
| 412 |
|
|
| 172 |
|
|
| 1,088 |
|
|
| 524 |
|
Total reclassifications, net of tax |
| $ | 1,074 |
|
| $ | 949 |
|
| $ | 3,319 |
|
| $ | 2,788 |
|
| $ | 1,345 |
|
| $ | 1,074 |
|
| $ | 4,855 |
|
| $ | 3,319 |
|
(a) | Included in the computation of net periodic benefit cost (see Note |
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, and (ii) consolidated VIE interests held by employees (see Note 21)20).
The tables below summarize net income attributable to noncontrolling interests for the three month and nine month periods ended September 30, 2019 and 2018 and noncontrolling interests as of September 30, 2019 and December 31, 2018 in the Company’s condensed consolidated financial statements:
|
| Net Income Attributable to Noncontrolling Interests |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Edgewater |
| $ | 1,302 |
|
| $ | 1,651 |
|
| $ | 8,237 |
|
| $ | 5,034 |
|
Consolidated VIEs |
|
| 189 |
|
|
| - |
|
|
| 423 |
|
|
| - |
|
Other |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
Total |
| $ | 1,492 |
|
| $ | 1,652 |
|
| $ | 8,662 |
|
| $ | 5,037 |
|
|
| Noncontrolling Interests as of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Edgewater |
| $ | 52,311 |
|
| $ | 52,695 |
|
Consolidated VIEs |
|
| 13,110 |
|
|
| - |
|
Other |
|
| 14 |
|
|
| 12 |
|
Total |
| $ | 65,435 |
|
| $ | 52,707 |
|
3028
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
The tables below summarize net income (loss) attributable to noncontrolling interests for the three month and nine month periods ended September 30, 2020 and 2019 and noncontrolling interests as of September 30, 2020 and December 31, 2019 in the Company’s condensed consolidated financial statements:
|
| Net Income (Loss) Attributable to Noncontrolling Interests |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Edgewater |
| $ | 168 |
|
| $ | 1,302 |
|
| $ | (4,179 | ) |
| $ | 8,237 |
|
Consolidated VIEs |
|
| 1,253 |
|
|
| 189 |
|
|
| (474 | ) |
|
| 423 |
|
Other |
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
|
| 2 |
|
Total |
| $ | 1,423 |
|
| $ | 1,492 |
|
| $ | (4,650 | ) |
| $ | 8,662 |
|
|
| Noncontrolling Interests as of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Edgewater |
| $ | 44,119 |
|
| $ | 50,151 |
|
Consolidated VIEs |
|
| 38,158 |
|
|
| 18,241 |
|
Other |
|
| 15 |
|
|
| 14 |
|
Total |
| $ | 82,292 |
|
| $ | 68,406 |
|
| INCENTIVE PLANS |
Share-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 and nine month periods ended September 30, 20192020 and 20182019 is presented below.
Shares Available Under the 2018 Plan, 2008 Plan and 2005 Plan
The 2018 Plan became effective on April 24, 2018 and replaced the 2008 Plan, which was terminated on April 24, 2018. The 2018 Plan authorizes the issuance of up to 30,000,000 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”), 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 Class A 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 Class A 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 Class A 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.
29
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, profits interest participation rights, including PRPUs, and other share-based awards) and “professional services” expense (with respect to DSUs) within the Company’s accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 20192020 and 2018:2019:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Share-based incentive awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
| $ | 37,206 |
|
| $ | 38,121 |
|
| $ | 140,597 |
|
| $ | 154,643 |
|
| $ | 29,295 |
|
| $ | 37,206 |
|
| $ | 112,435 |
|
| $ | 140,597 |
|
PRSUs |
|
| 14,291 |
|
|
| 3,107 |
|
|
| 16,540 |
|
|
| 31,125 |
|
|
| 636 |
|
|
| 14,291 |
|
|
| 5,627 |
|
|
| 16,540 |
|
Restricted Stock |
|
| 7,274 |
|
|
| 6,950 |
|
|
| 24,871 |
|
|
| 30,323 |
|
|
| 5,423 |
|
|
| 7,274 |
|
|
| 22,969 |
|
|
| 24,871 |
|
Profits interest participation rights |
|
| 6,224 |
|
|
| - |
|
|
| 42,105 |
|
|
| - |
|
|
| 4,121 |
|
|
| 6,224 |
|
|
| 37,172 |
|
|
| 42,105 |
|
DSUs |
|
| 97 |
|
|
| 89 |
|
|
| 1,079 |
|
|
| 1,048 |
|
|
| 97 |
|
|
| 97 |
|
|
| 1,086 |
|
|
| 1,079 |
|
Total |
| $ | 65,092 |
|
| $ | 48,267 |
|
| $ | 225,192 |
|
| $ | 217,139 |
|
| $ | 39,572 |
|
| $ | 65,092 |
|
| $ | 179,289 |
|
| $ | 225,192 |
|
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 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 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
31
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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 periodsperiod, 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 period ended September 30, 2019,2020, dividend participation rights required the issuance of 725,197489,971 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, which resulted in 51,37960,022 DSUs being granted during the nine month period ended September 30, 2019.2020. 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.
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 Class A common stock on the date immediately preceding the date of the grant. During the nine month period ended September 30, 2019, 16,1032020, 17,754 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.
The following is a summary of activity relating to RSUs and DSUs during the nine month period ended September 30 2019:
|
| RSUs |
|
| DSUs |
| |||||||||||
|
| Units |
|
| Weighted Average Grant Date Fair Value |
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| |||||
Balance, January 1, 2019 |
|
| 11,362,306 |
|
| $ | 43.78 |
|
|
| 323,546 |
|
| $ | 39.27 |
| |
Granted (including 725,197 RSUs relating to dividend participation) |
|
| 5,729,741 |
|
| $ | 38.51 |
|
|
| 67,482 |
|
| $ | 31.99 |
| |
Forfeited |
|
| (673,873 | ) |
| $ | 43.40 |
|
|
| - |
|
|
| - |
| |
Settled |
|
| (5,857,462 | ) |
| $ | 37.09 |
|
|
| - |
|
|
| - |
| |
Balance, September 30, 2019 |
|
| 10,560,712 |
|
| $ | 44.66 |
|
|
| 391,028 |
|
| $ | 38.01 |
|
In connection with RSUs that settled during the nine month period ended September 30, 2019, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 2,047,117 shares of Class A common stock during such nine month period. Accordingly, 3,810,345 shares of Class A common stock held by the Company were delivered during the nine month period ended September 30, 2019.
As of September 30, 2019, estimated unrecognized RSU compensation expense was $147,308, with such expense expected to be recognized over a weighted average period of approximately 0.9 years subsequent to September 30, 2019.
32
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Restricted Stock
The following is a summary of activity relatedrelating to shares of restricted Class A common stock associated with compensation arrangementsRSUs and DSUs during the nine month period ended September 30, 2019:2020:
|
| Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2019 |
|
| 1,541,058 |
|
| $ | 43.16 |
|
Granted |
|
| 1,039,736 |
|
| $ | 35.32 |
|
Forfeited |
|
| (230,787 | ) |
| $ | 40.59 |
|
Settled |
|
| (1,165,568 | ) |
| $ | 38.38 |
|
Balance, September 30, 2019 |
|
| 1,184,439 |
|
| $ | 41.48 |
|
|
| RSUs |
|
| DSUs |
| |||||||||||
|
| Units |
|
| Weighted Average Grant Date Fair Value |
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| |||||
Balance, January 1, 2020 |
|
| 10,387,566 |
|
| $ | 44.66 |
|
|
| 395,973 |
|
| $ | 38.01 |
| |
Granted (including 489,971 RSUs relating to dividend participation) |
|
| 3,332,581 |
|
| $ | 42.63 |
|
|
| 77,776 |
|
| $ | 27.94 |
| |
Forfeited |
|
| (70,964 | ) |
| $ | 41.50 |
|
|
| - |
|
|
| - |
| |
Settled |
|
| (4,469,676 | ) |
| $ | 46.66 |
|
|
| - |
|
|
| - |
| |
Balance, September 30, 2020 |
|
| 9,179,507 |
|
| $ | 42.98 |
|
|
| 473,749 |
|
| $ | 36.35 |
|
In connection with shares of restricted Class A common stockRSUs that settled during the nine month period ended September 30, 2019,2020, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 372,7921,623,353 shares of Class A common stock during such nine month period. Accordingly, 792,7762,846,323 shares of Class A common stock held by the Company were delivered during the nine month period ended September 30, 2019.2020.
As of September 30, 2020, estimated unrecognized RSU compensation expense was $129,255, with such expense expected to be recognized over a weighted average period of approximately 0.8 years subsequent to September 30, 2020.
Restricted Stock
The following is a summary of activity related to shares of restricted common stock associated with compensation arrangements during the nine month period ended September 30, 2020:
|
| Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
| |||
Balance, January 1, 2020 |
|
| 1,039,306 |
|
| $ | 41.79 |
| |
Granted (including 28,948 relating to dividend participation) |
|
| 690,800 |
|
| $ | 42.09 |
| |
Forfeited |
|
| (17,371 | ) |
| $ | 39.37 |
| |
Settled |
|
| (513,792 | ) |
| $ | 43.52 |
| |
Balance, September 30, 2020 |
|
| 1,198,943 |
|
| $ | 41.25 |
|
In connection with shares of restricted common stock that settled during the nine month period ended September 30, 2020, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 175,332 shares of common stock during such nine month period. Accordingly, 338,460 shares of common stock held by the Company were delivered during the nine month period ended September 30, 2020.
31
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Restricted stock awards granted in 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 nine month period ended September 30, 2020, dividend participation rights required the issuance of 28,948 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 Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At September 30, 2019,2020, estimated unrecognized restricted stock expense was $20,080,$22,358, with such expense to be recognized over a weighted average period of approximately 0.90.8 years subsequent to September 30, 2019.2020.
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 performance 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 approximately 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 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 shares of Class A common stock subject to each PRSU will no longer be at risk of forfeiture based on the achievement of performance criteria. PRSUs include dividend participation rights that provide that during vesting periods, the target number of PRSUs (or, following the relevant performance period, the actual number of shares of Class A common stock that are no longer subject to performance conditions) receive dividend equivalents at the same rate that dividends are paid on Class A 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.
The following is a summary of activity relating to PRSUs during the nine month period ended September 30, 2019:2020:
|
| PRSUs |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2019 |
|
| 1,771,795 |
|
| $ | 38.66 |
|
Settled |
|
| (1,171,081 | ) |
| $ | 32.44 |
|
Balance, September 30, 2019 |
|
| 600,714 |
|
| $ | 50.78 |
|
|
| PRSUs |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2020 |
|
| 797,705 |
|
| $ | 47.65 |
|
Settled |
|
| (550,650 | ) |
| $ | 43.54 |
|
Balance, September 30, 2020 |
|
| 247,055 |
|
| $ | 56.80 |
|
33
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
In connection with certain PRSUs that settled during the nine month period ended September 30, 2019,2020, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 203,03691,314 shares of Class A common stock during such nine month period. Accordingly, 968,045459,336 shares of Class A common stock held by the Company were delivered during the nine month period ended September 30, 2019.2020.
Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of Class A 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 September 30, 2019,2020, the total estimated unrecognized compensation expense was $4,465,$1,052, and the Company expects to amortize such expense over a weighted-average period of approximately 0.70.2 years subsequent to September 30, 2019.2020.
Profits Interest Participation Rights
In early 2019, the Company established a new long-term incentive compensation program consisting of profits interest participation rights, which are equity incentive awards that, subject to certain conditions, may be exchanged for shares of Class A common stock pursuant to the 2018 Plan. Pursuant to the program, in February 2019 and February 2020, the Company granted profits interest participation rights subject to service-based and performance-based vesting criteria and other conditions, which we refer to as performance-based restricted participation units (“PRPUs”), to each of the Company’s NEOs, and profits interest participation rights subject to service-based vesting criteria and other conditions to a limited number of other senior employees, pursuant to profits interest
32
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
participation right agreements. 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 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 Class A common stock will be exchanged on a one-for-one basis for shares of Class A 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, the Minimum Value Condition was met during the nine month period ended September 30, 2020.
Like outstanding RSUs and similar awards, profits interest participation rights will beare subject to continued employment and other conditions and restrictions and will beare forfeited if those conditions and restrictions are not fulfilled. More specifically, vesting of profits interest participation rights will beare 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. PRPUs, like outstanding PRSUs, will beare subject to the achievement of incremental pre-established performance conditions and financial metrics and will only result in value to the recipient to the extent the conditions are satisfied.
The number of shares of Class A common stock that a recipient will receive upon the exchange of a PRPU award will beis calculated by reference to applicable financial metrics. The target number of shares of Class A 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 Class A common stock that may be received in connection with each PRPU award will range from zero to two times the target number. Unless applicable performance 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 each PRPU 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 Class A common stock.
34
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 profits interest participation rights, including PRPUs, during the nine month period ended September 30, 2019:2020:
|
| Profits Interest Participation Rights |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2019 |
|
| - |
|
|
| - |
|
Granted (a) |
|
| 1,462,702 |
|
| $ | 38.65 |
|
Balance, September 30, 2019 |
|
| 1,462,702 |
|
| $ | 38.65 |
|
|
| Profits Interest Participation Rights |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance, January 1, 2020 |
|
| 1,462,702 |
|
| $ | 38.65 |
|
Granted |
|
| 1,060,373 |
|
| $ | 42.89 |
|
Balance, September 30, 2020 (a) |
|
| 2,523,075 |
|
| $ | 40.43 |
|
(a) | Table includes 1,050,778 PRPUs, which represents the target number of PRPUs |
Compensation expense recognized for profits interest participation rights, including PRPUs, is determined by multiplying the number of shares of Class A 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 September 30, 2019,2020, the total estimated unrecognized compensation expense was $19,831, $25,754,
33
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
and the Company expects to amortize such expense over a weighted-average period of approximately 1.21.0 years subsequent to September 30, 2019.2020.
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, 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 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 nine month period ended September 30, 2019:2020:
|
| Prepaid Compensation Asset |
|
| Compensation Liability |
|
| Prepaid Compensation Asset |
|
| Compensation Liability |
| ||||
Balance, January 1, 2019 |
| $ | 76,362 |
|
| $ | 188,022 |
| ||||||||
Balance, January 1, 2020 |
| $ | 74,597 |
|
| $ | 226,026 |
| ||||||||
Granted |
|
| 101,552 |
|
|
| 101,529 |
|
|
| 143,289 |
|
|
| 143,289 |
|
Settled |
|
| - |
|
|
| (89,140 | ) |
|
| - |
|
|
| (102,946 | ) |
Forfeited |
|
| (1,571 | ) |
|
| (3,107 | ) |
|
| (1,367 | ) |
|
| (4,485 | ) |
Amortization |
|
| (83,301 | ) |
|
| - |
|
|
| (91,314 | ) |
|
| - |
|
Change in fair value related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in fair value of underlying investments |
|
| - |
|
|
| 22,118 |
|
|
| - |
|
|
| 15,427 |
|
Adjustment for estimated forfeitures |
|
| - |
|
|
| 3,704 |
|
|
| - |
|
|
| 7,126 |
|
Other |
|
| (990 | ) |
|
| (1,100 | ) |
|
| 100 |
|
|
| 1,147 |
|
Balance, September 30, 2019 |
| $ | 92,052 |
|
| $ | 222,026 |
| ||||||||
Balance, September 30, 2020 |
| $ | 125,305 |
|
| $ | 285,584 |
|
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, 2019.
35
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
2020.
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, 20192020 and 2018:2019:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Amortization, net of forfeitures |
| $ | 23,325 |
|
| $ | 19,145 |
|
| $ | 85,469 |
|
| $ | 71,274 |
|
| $ | 25,897 |
|
| $ | 23,325 |
|
| $ | 95,322 |
|
| $ | 85,469 |
|
Change in the fair value of underlying investments |
|
| 1,764 |
|
|
| 3,647 |
|
|
| 22,118 |
|
|
| 1,712 |
|
|
| 11,261 |
|
|
| 1,764 |
|
|
| 15,427 |
|
|
| 22,118 |
|
Total |
| $ | 25,089 |
|
| $ | 22,792 |
|
| $ | 107,587 |
|
| $ | 72,986 |
|
| $ | 37,158 |
|
| $ | 25,089 |
|
| $ | 110,749 |
|
| $ | 107,587 |
|
| EMPLOYEE BENEFIT PLANS |
The Company provides retirement and other post-retirement benefits to certain of its employees through defined benefit pension plans (the “pension plans”). The Company also offers defined contribution plans to its employees. The pension plans generally provide benefits to participants based on average levels of compensation. Expenses related to the Company’s employee benefit plans
34
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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. 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 pension plans for the three month and nine month periods ended September 30, 20192020 and 2018:2019:
|
| Pension Plans |
| |||||||||||||
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Components of Net Periodic Benefit Cost (Credit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 223 |
|
| $ | 217 |
|
| $ | 224 |
|
| $ | 223 |
|
Interest cost |
|
| 3,716 |
|
|
| 3,822 |
|
|
| 3,013 |
|
|
| 3,716 |
|
Expected return on plan assets |
|
| (6,697 | ) |
|
| (7,315 | ) |
|
| (6,750 | ) |
|
| (6,697 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
| 26 |
|
|
| - |
|
|
| 28 |
|
|
| 26 |
|
Net actuarial loss (gain) |
|
| 1,220 |
|
|
| 1,213 |
|
|
| 1,729 |
|
|
| 1,220 |
|
Settlement loss |
|
| 2,280 |
|
|
| - |
|
|
| 622 |
|
|
| 2,280 |
|
Net periodic benefit cost (credit) |
| $ | 768 |
|
| $ | (2,063 | ) |
| $ | (1,134 | ) |
| $ | 768 |
|
|
| Nine Months Ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Components of Net Periodic Benefit Cost (Credit): |
|
|
|
|
|
|
|
|
Service cost |
| $ | 635 |
|
| $ | 670 |
|
Interest cost |
|
| 11,476 |
|
|
| 11,861 |
|
Expected return on plan assets |
|
| (20,596 | ) |
|
| (22,681 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
Prior service cost |
|
| 82 |
|
|
| - |
|
Net actuarial loss (gain) |
|
| 3,761 |
|
|
| 3,736 |
|
Settlement loss |
|
| 5,802 |
|
|
|
|
|
Net periodic benefit cost (credit) |
| $ | 1,160 |
|
| $ | (6,414 | ) |
36
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
|
|
| Pension Plans |
| |||||
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Components of Net Periodic Benefit Cost (Credit): |
|
|
|
|
|
|
|
|
Service cost |
| $ | 594 |
|
| $ | 635 |
|
Interest cost |
|
| 8,906 |
|
|
| 11,476 |
|
Expected return on plan assets |
|
| (19,813 | ) |
|
| (20,596 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
Prior service cost |
|
| 82 |
|
|
| 82 |
|
Net actuarial loss (gain) |
|
| 5,861 |
|
|
| 3,761 |
|
Settlement loss |
|
| 2,132 |
|
|
| 5,802 |
|
Net periodic benefit cost (credit) |
| $ | (2,238 | ) |
| $ | 1,160 |
|
15.BUSINESS REALIGNMENT
The Company conducted a review of ourits business, which resulted in a realignment that included employee reductions and the closing of subscale offices and investment strategies, most of which were completed during the third quarter of 2019.
Expenses associated with the business realignment for the three month and nine month periods ended September 30, 2019 were as follows:
|
| Financial |
|
| Asset |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Advisory |
|
| Management |
|
| Corporate |
|
| Total |
|
| Financial Advisory |
|
| Asset Management |
|
| Corporate |
|
| Total |
| ||||||||
Compensation and benefits |
| $ | 35,658 |
|
| $ | 13,144 |
|
| $ | 317 |
|
| $ | 49,119 |
|
| $ | 35,658 |
|
| $ | 13,144 |
|
| $ | 317 |
|
| $ | 49,119 |
|
Other |
|
| - |
|
|
| 1,335 |
|
|
| 1,000 |
|
|
| 2,335 |
|
|
| - |
|
|
| 1,335 |
|
|
| 1,000 |
|
|
| 2,335 |
|
Total |
| $ | 35,658 |
|
| $ | 14,479 |
|
| $ | 1,317 |
|
| $ | 51,454 |
|
| $ | 35,658 |
|
| $ | 14,479 |
|
| $ | 1,317 |
|
| $ | 51,454 |
|
35
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Activity related to the obligations pursuant to the business realignment during the threenine month period ended September 30, 20192020 was as follows:
|
| Accrued |
|
|
|
|
|
|
|
|
| |
|
| Compensation |
|
| Other |
|
|
|
|
| ||
|
| and Benefits |
|
| Liabilities |
|
| Total |
| |||
Balance, July 1, 2019 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
New charges |
|
| 49,119 |
|
|
| 2,335 |
|
|
| 51,454 |
|
Less: |
|
| - |
|
|
| - |
|
|
| - |
|
Non-cash charges |
|
| (15,447 | ) |
|
| (1,335 | ) |
|
| (16,782 | ) |
Payments |
|
| (1,193 | ) |
|
| - |
|
|
| (1,193 | ) |
Balance, September 30, 2019 |
| $ | 32,479 |
|
| $ | 1,000 |
|
| $ | 33,479 |
|
|
| Accrued Compensation and Benefits |
|
| Other Liabilities |
|
| Total |
| |||
Balance, January 1, 2020 |
| $ | 20,210 |
|
| $ | 5,068 |
|
| $ | 25,278 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs paid or otherwise settled |
|
| (18,304 | ) |
|
| (5,068 | ) |
|
| (23,372 | ) |
Balance, September 30, 2020 |
| $ | 1,906 |
|
| $ | - |
|
| $ | 1,906 |
|
| 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 Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.
The Company recorded income tax provisions of $17,983 and $40,886 for the three month and nine month periods ended September 30, 2020, respectively, and $9,433 and $42,697 for the three month and nine month periods ended September 30, 2019, respectively, and $25,393 and $75,453 for the three month and nine month periods ended September 30, 2018, respectively, representing effective tax rates of 17.9%16.6%, 15.9%13.9%, 18.8%17.9% and 14.7%15.9%, respectively. The difference between the U.S. federal statutory rate of 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 jurisidictions,jurisdictions, (iii) excess netthe tax benefit for share-basedimpact 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, (v) U.S. state and local taxes, which are incremental to the U.S. federal statutory tax rate, and (vi) impact of U.S. tax reform, including base erosion and anti-abuse tax.
37
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
| RELATED PARTIES |
Receivables from and Payables to Lazard Ltd Subsidiaries
Interest income relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $64 for the nine month period ended September 30, 2020 and $89 for the nine month period ended September 30, 2019, and $230 and $451 for the three month and nine month periods ended September 30, 2018, respectively.
Lazard Group’s payables to subsidiaries of Lazard Ltd at September 30, 2019 and December 31, 20182019 included interest-bearing loans, including interest thereon, of $54,955 and $60,875, respectively. $57,160. Interest expense relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $54 for the nine month period ended September 30, 2020, and $872 and $2,688 for the three month and nine month periods ended September 30, 2019, respectively, and $901 and $2,803 forrespectively.
In the three month and nine month periods endedfirst 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 September 30, 2018, respectively.2020 and was a non-cash transaction.
36
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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, performance-based incentive fees for providing such services. Investment advisory fees relating to such services were $131,885 and $386,413 for the three month and nine month periods ended September 30, 2020, respectively, and $141,365 and $438,733 for the three month and nine month periods ended September 30, 2019, respectively, and $158,425 and $510,414 for the three month and nine month periods ended September 30, 2018, respectively, and are included in “asset management fees” on the condensed consolidated statements of operations. Of such amounts, $55,714$40,402 and $59,304$54,561 remained as receivables at September 30, 20192020 and December 31, 2018,2019, respectively, and are included in “fees receivable” on the condensed consolidated statements of financial condition.
Other
During the nine month period ended September 30, 2019, the Company recognized approximately $9,000 of investment banking and other advisory fees pertaining to financial advisory services provided to clients of which a member of the Company’s Board of Directors also served as a member of the client’s board of directors or in a management capacity. The engagement terms were negotiated in the ordinary course of business on an arms-length basis.
See Note 1312 for information regarding related party transactions pertaining to shares repurchased from certain of our executive officers.
| REGULATORY AUTHORITIES |
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, 2019,2020, LFNY’s regulatory net capital was $133,716,$170,634, which exceeded the minimum requirement by $128,376.$166,999. LFNY’s aggregate indebtedness to net capital ratio was 0.60:0.32:1 as of September 30, 2019.2020.
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, 2019,2020, the aggregate regulatory net capital of the U.K. Subsidiaries was $148,962,$163,187, which exceeded the minimum requirement by $132,957.$140,741.
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, also are subject to regulation and supervision by the Autorité des Marchés Financiers. At September 30, 2019,2020, the consolidated regulatory net capital of CFLF was $161,499,$141,052, which exceeded the minimum requirement set for regulatory capital levels by $106,159.$80,801. 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. During 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
38
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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, 2019,2020, the regulatory net capital of the combined European regulated group was $211,440,$168,490, which exceeded the minimum requirement set for regulatory capital levels by $107,119.$66,347. 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, 2019,2020, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $153,873,$154,340, which exceeded the minimum required capital by $125,826.$126,722.
At September 30, 2019,2020, 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.
37
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
| 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.
The Company’s segment information for the three month and nine month periods ended September 30, 20192020 and 20182019 is prepared using the following methodology:
| • | 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. |
| • | 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. |
39
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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.
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 |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
|
|
| September 30, |
|
| September 30, |
|
|
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
|
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Financial Advisory |
| Net Revenue |
| $ | 304,174 |
|
| $ | 309,846 |
|
| $ | 953,863 |
|
| $ | 1,137,781 |
|
| Net Revenue |
| $ | 305,478 |
|
| $ | 304,174 |
|
| $ | 908,878 |
|
| $ | 953,863 |
|
|
| Operating Expenses (a) |
|
| 303,966 |
|
|
| 253,602 |
|
|
| 847,322 |
|
|
| 900,397 |
|
| Operating Expenses |
|
| 263,572 |
|
|
| 303,966 |
|
|
| 756,591 |
|
|
| 847,322 |
|
|
| Operating Income |
| $ | 208 |
|
| $ | 56,244 |
|
| $ | 106,541 |
|
| $ | 237,384 |
|
| Operating Income |
| $ | 41,906 |
|
| $ | 208 |
|
| $ | 152,287 |
|
| $ | 106,541 |
|
Asset Management |
| Net Revenue |
| $ | 300,015 |
|
| $ | 325,240 |
|
| $ | 917,439 |
|
| $ | 1,032,111 |
|
| Net Revenue |
| $ | 277,243 |
|
| $ | 300,015 |
|
| $ | 814,613 |
|
| $ | 917,439 |
|
|
| Operating Expenses (a) |
|
| 225,819 |
|
|
| 211,564 |
|
|
| 652,188 |
|
|
| 670,794 |
|
| Operating Expenses |
|
| 200,194 |
|
|
| 225,819 |
|
|
| 600,012 |
|
|
| 652,188 |
|
|
| Operating Income |
| $ | 74,196 |
|
| $ | 113,676 |
|
| $ | 265,251 |
|
| $ | 361,317 |
|
| Operating Income |
| $ | 77,049 |
|
| $ | 74,196 |
|
| $ | 214,601 |
|
| $ | 265,251 |
|
Corporate |
| Net Revenue |
| $ | (16,171 | ) |
| $ | (10,074 | ) |
| $ | (29,132 | ) |
| $ | (36,980 | ) |
| Net Revenue |
| $ | (4,940 | ) |
| $ | (16,171 | ) |
| $ | (36,055 | ) |
| $ | (29,132 | ) |
|
| Operating Expenses (a) |
|
| 5,415 |
|
|
| 25,114 |
|
|
| 73,366 |
|
|
| 48,223 |
|
| Operating Expenses |
|
| 5,960 |
|
|
| 5,415 |
|
|
| 37,083 |
|
|
| 73,366 |
|
|
| Operating Loss |
| $ | (21,586 | ) |
| $ | (35,188 | ) |
| $ | (102,498 | ) |
| $ | (85,203 | ) |
| Operating Loss |
| $ | (10,900 | ) |
| $ | (21,586 | ) |
| $ | (73,138 | ) |
| $ | (102,498 | ) |
Total |
| Net Revenue |
| $ | 588,018 |
|
| $ | 625,012 |
|
| $ | 1,842,170 |
|
| $ | 2,132,912 |
|
| Net Revenue |
| $ | 577,781 |
|
| $ | 588,018 |
|
| $ | 1,687,436 |
|
| $ | 1,842,170 |
|
|
| Operating Expenses (a) |
|
| 535,200 |
|
|
| 490,280 |
|
|
| 1,572,876 |
|
|
| 1,619,414 |
|
| Operating Expenses |
|
| 469,726 |
|
|
| 535,200 |
|
|
| 1,393,686 |
|
|
| 1,572,876 |
|
|
| Operating Income |
| $ | 52,818 |
|
| $ | 134,732 |
|
| $ | 269,294 |
|
| $ | 513,498 |
|
| Operating Income |
| $ | 108,055 |
|
| $ | 52,818 |
|
| $ | 293,750 |
|
| $ | 269,294 |
|
(a) See Note 16 for information regarding business realignment.
|
| As Of |
| |||||
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,044,961 |
|
| $ | 829,898 |
|
Asset Management |
|
| 703,744 |
|
|
| 728,220 |
|
Corporate |
|
| 3,245,923 |
|
|
| 2,831,357 |
|
Total |
| $ | 4,994,628 |
|
| $ | 4,389,475 |
|
4038
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| As Of |
| |||||
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,066,854 |
|
| $ | 1,113,266 |
|
Asset Management |
|
| 800,309 |
|
|
| 821,641 |
|
Corporate |
|
| 3,119,095 |
|
|
| 3,116,721 |
|
Total |
| $ | 4,986,258 |
|
| $ | 5,051,628 |
|
| CONSOLIDATED VIEs |
The Company’s consolidated VIEs as of September 30, 2020 and December 31, 2019 include certain funds that were recently 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 September 30, 2020 and December 31, 2019:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 3,377 |
|
| $ | 3,848 |
|
| $ | 3,826 |
|
Customers and other receivables |
|
| 519 |
|
|
| 1,061 |
|
| 102 |
| |
Investments (a) |
|
| 89,333 |
|
|
| 154,454 |
|
|
| 97,474 |
|
Other assets |
|
| 769 |
|
|
| 397 |
|
| 245 |
| |
Total Assets |
| $ | 93,998 |
|
| $ | 159,760 |
|
| $ | 101,647 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 462 |
|
| $ | 215 |
|
| $ | 62 |
|
Other liabilities |
|
| 477 |
|
|
| 985 |
|
| 513 |
| |
Total Liabilities |
| $ | 939 |
|
| $ | 1,200 |
|
| $ | 575 |
|
(a) | Includes |
21. | COVID-19 |
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) a pandemic. In response, on March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, and the United States Congress continues to discuss additional stimulus measures. Several governments in jurisdictions that encompass the Company’s largest offices and most significant operations implemented strict social distancing measures in the first quarter of 2020, and such governments continue to review and modify such measures. In response, the Company implemented remote work arrangements for most of its employees and restricted business travel in the first quarter of 2020; these arrangements and restrictions have been modified as governments modified applicable social distancing measures. These arrangements have not materially affected our ability to maintain and conduct our business operations, including the operation of financial reporting systems, internal controls over financial reporting and disclosure controls and procedures. While the COVID-19 pandemic has adversely affected the global economy, the nature and extent of COVID-19’s effect on the Company’s operational and financial performance will continue to depend on future developments, including the course of the pandemic, the success of governments in relaxing social distancing measures and restarting economic activity, the efficacy of monetary and fiscal measures taken or that may be taken in the future and
39
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
the potential for structural damage to the economy due to the sharp drop in aggregate demand and, particularly in the U.S., a high level of unemployment, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
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, 20182019 (the “Form 10-K”). All references to “2019,“2020,” “2018,“2019,” “third quarter,” “first nine months” or “the period” refer to, as the context requires, the three month and nine month periods ended September 30, 20192020 and September 30, 2018.2019.
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 M&A market or our assets under management (“AUM”); |
| • | 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 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 |
| • | 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; |
| • | 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 |
| • | 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 SummaryFinancial Advisory
Asset Management
Corporate
Total
Compensation and benefits
$
35,658
$
13,144
$
317
$
49,119
Other
-
1,335
1,000
2,335
Total
$
35,658
$
14,479
$
1,317
$
51,454
35
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
Activity related to the obligations pursuant to the business realignment during the nine month period ended September 30, 2020 was as follows:
|
| Accrued Compensation and Benefits |
|
| Other Liabilities |
|
| Total |
| |||
Balance, January 1, 2020 |
| $ | 20,210 |
|
| $ | 5,068 |
|
| $ | 25,278 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs paid or otherwise settled |
|
| (18,304 | ) |
|
| (5,068 | ) |
|
| (23,372 | ) |
Balance, September 30, 2020 |
| $ | 1,906 |
|
| $ | - |
|
| $ | 1,906 |
|
16. | 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 Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.
The Company recorded income tax provisions of $17,983 and $40,886 for the three month and nine month periods ended September 30, 2020, respectively, and $9,433 and $42,697 for the three month and nine month periods ended September 30, 2019, respectively, representing effective tax rates of 16.6%, 13.9%, 17.9% and 15.9%, respectively. The difference between the U.S. federal statutory rate of 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, (v) U.S. state and local taxes, which are incremental to the U.S. federal statutory tax rate, and (vi) impact of U.S. tax reform, including base erosion and anti-abuse tax.
17. | RELATED PARTIES |
Receivables from and Payables to Lazard Ltd Subsidiaries
Interest income relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $64 for the nine month period ended September 30, 2020 and $89 for the nine month period ended September 30, 2019, respectively.
Lazard Group’s payables to subsidiaries of Lazard Ltd at December 31, 2019 included interest-bearing loans, including interest thereon, of $57,160. Interest expense relating to interest-bearing loans with subsidiaries of Lazard Ltd amounted to $54 for the nine month period ended September 30, 2020, and $872 and $2,688 for the three month and nine month periods ended September 30, 2019, respectively.
In the first 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 September 30, 2020 and was a non-cash transaction.
36
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
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, performance-based incentive fees for providing such services. Investment advisory fees relating to such services were $131,885 and $386,413 for the three month and nine month periods ended September 30, 2020, respectively, and $141,365 and $438,733 for the three month and nine month periods ended September 30, 2019, respectively, and are included in “asset management fees” on the condensed consolidated statements of operations. Of such amounts, $40,402 and $54,561 remained as receivables at September 30, 2020 and December 31, 2019, respectively, and are included in “fees receivable” on the condensed consolidated statements of financial condition.
See Note 12 for information regarding related party transactions pertaining to shares repurchased from certain of our executive officers.
18. | REGULATORY AUTHORITIES |
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 2/3%) 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 $5, whichever is greater. In addition, the ratio of aggregate indebtedness (as defined) to net capital may not exceed 15:1. At September 30, 2020, LFNY’s regulatory net capital was $170,634, which exceeded the minimum requirement by $166,999. LFNY’s aggregate indebtedness to net capital ratio was 0.32:1 as of September 30, 2020.
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, 2020, the aggregate regulatory net capital of the U.K. Subsidiaries was $163,187, which exceeded the minimum requirement by $140,741.
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, also are subject to regulation and supervision by the Autorité des Marchés Financiers. At September 30, 2020, the consolidated regulatory net capital of CFLF was $141,052, which exceeded the minimum requirement set for regulatory capital levels by $80,801. 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. During 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, 2020, the regulatory net capital of the combined European regulated group was $168,490, which exceeded the minimum requirement set for regulatory capital levels by $66,347. 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, 2020, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $154,340, which exceeded the minimum required capital by $126,722.
At September 30, 2020, 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.
37
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
19. | 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.
The Company’s segment information for the three month and nine month periods ended September 30, 2020 and 2019 is prepared using the following methodology:
• | 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. |
• | 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 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.
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 |
| ||||||||||
|
|
|
| September 30, |
|
| September 30, |
| ||||||||||
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Financial Advisory |
| Net Revenue |
| $ | 305,478 |
|
| $ | 304,174 |
|
| $ | 908,878 |
|
| $ | 953,863 |
|
|
| Operating Expenses |
|
| 263,572 |
|
|
| 303,966 |
|
|
| 756,591 |
|
|
| 847,322 |
|
|
| Operating Income |
| $ | 41,906 |
|
| $ | 208 |
|
| $ | 152,287 |
|
| $ | 106,541 |
|
Asset Management |
| Net Revenue |
| $ | 277,243 |
|
| $ | 300,015 |
|
| $ | 814,613 |
|
| $ | 917,439 |
|
|
| Operating Expenses |
|
| 200,194 |
|
|
| 225,819 |
|
|
| 600,012 |
|
|
| 652,188 |
|
|
| Operating Income |
| $ | 77,049 |
|
| $ | 74,196 |
|
| $ | 214,601 |
|
| $ | 265,251 |
|
Corporate |
| Net Revenue |
| $ | (4,940 | ) |
| $ | (16,171 | ) |
| $ | (36,055 | ) |
| $ | (29,132 | ) |
|
| Operating Expenses |
|
| 5,960 |
|
|
| 5,415 |
|
|
| 37,083 |
|
|
| 73,366 |
|
|
| Operating Loss |
| $ | (10,900 | ) |
| $ | (21,586 | ) |
| $ | (73,138 | ) |
| $ | (102,498 | ) |
Total |
| Net Revenue |
| $ | 577,781 |
|
| $ | 588,018 |
|
| $ | 1,687,436 |
|
| $ | 1,842,170 |
|
|
| Operating Expenses |
|
| 469,726 |
|
|
| 535,200 |
|
|
| 1,393,686 |
|
|
| 1,572,876 |
|
|
| Operating Income |
| $ | 108,055 |
|
| $ | 52,818 |
|
| $ | 293,750 |
|
| $ | 269,294 |
|
38
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
|
| As Of |
| |||||
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Total Assets |
|
|
|
|
|
|
|
|
Financial Advisory |
| $ | 1,066,854 |
|
| $ | 1,113,266 |
|
Asset Management |
|
| 800,309 |
|
|
| 821,641 |
|
Corporate |
|
| 3,119,095 |
|
|
| 3,116,721 |
|
Total |
| $ | 4,986,258 |
|
| $ | 5,051,628 |
|
20. | CONSOLIDATED VIEs |
The Company’s consolidated VIEs as of September 30, 2020 and December 31, 2019 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 September 30, 2020 and December 31, 2019:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 3,848 |
|
| $ | 3,826 |
|
Customers and other receivables |
|
| 1,061 |
|
| 102 |
| |
Investments (a) |
|
| 154,454 |
|
|
| 97,474 |
|
Other assets |
|
| 397 |
|
| 245 |
| |
Total Assets |
| $ | 159,760 |
|
| $ | 101,647 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits and other customer payables |
| $ | 215 |
|
| $ | 62 |
|
Other liabilities |
|
| 985 |
|
| 513 |
| |
Total Liabilities |
| $ | 1,200 |
|
| $ | 575 |
|
(a) | Includes $120,608 and $83,036 of LFI held by Lazard Group which is |
21. | COVID-19 |
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) a pandemic. In response, on March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, and the United States Congress continues to discuss additional stimulus measures. Several governments in jurisdictions that encompass the Company’s largest offices and most significant operations implemented strict social distancing measures in the first quarter of 2020, and such governments continue to review and modify such measures. In response, the Company implemented remote work arrangements for most of its employees and restricted business travel in the first quarter of 2020; these arrangements and restrictions have been modified as governments modified applicable social distancing measures. These arrangements have not materially affected our ability to maintain and conduct our business operations, including the operation of financial reporting systems, internal controls over financial reporting and disclosure controls and procedures. While the COVID-19 pandemic has adversely affected the global economy, the nature and extent of COVID-19’s effect on the Company’s operational and financial performance will continue to depend on future developments, including the course of the pandemic, the success of governments in relaxing social distancing measures and restarting economic activity, the efficacy of monetary and fiscal measures taken or that may be taken in the future and
39
LAZARD GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, unless otherwise noted)
the potential for structural damage to the economy due to the sharp drop in aggregate demand and, particularly in the U.S., a high level of unemployment, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
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, 2019 (the “Form 10-K”). All references to “2020,” “2019,” “third quarter,” “first nine months” or “the period” refer to, as the context requires, the three month and nine month periods ended September 30, 2020 and September 30, 2019.
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 |
• | competitive position; |
• | future acquisitions, including the consideration to be paid and |
| • | potential growth opportunities available to
|