NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
1.
|
ORGANIZATION AND BASIS OF PRESENTATION
|
Organization
Lazard Ltd, a Bermuda holding company, and its subsidiaries (collectively referred to as “Lazard Ltd”, “Lazard”, “we” or the “Company”), including Lazard Ltd’s indirect investment in Lazard Group LLC, a Delaware limited liability company (collectively referred to, together with its subsidiaries, as “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 March 31, 2021 and December 31, 2020. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group, which is governed by an Amended and Restated Operating Agreement, dated as of February 4, 2019 (the “Operating Agreement”).
Lazard Ltd’s primary operating asset is its indirect ownership of the common membership interests of, and managing member interests in, Lazard Group, whose principal operating activities are included in two 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”), restructurings, capital advisory, shareholder advisory, sovereign advisory, capital raising and other strategic advisory matters; and
|
|
•
|
Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients.
|
In addition, we record selected other activities in our Corporate segment, including management of cash, investments, deferred tax assets, outstanding indebtedness, certain contingent obligations, and assets and liabilities associated with (i) Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”) and (ii) a special purpose acquisition company sponsored by an affiliate of the Company, Lazard Growth Acquisition Corp. I (“LGAC”).
Basis of Presentation
The accompanying condensed consolidated financial statements of Lazard Ltd 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 Ltd’s Annual Report on Form 10-K for the year ended December 31, 2020. The accompanying December 31, 2020 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 that 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 period ended March 31, 2021 are not indicative of the results to be expected for any future interim or annual period.
9
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The condensed consolidated financial statements include Lazard Ltd, 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 20).
|
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.
Lazard Growth Acquisition Corp. I
In February 2021, LGAC consummated its $575,000 initial public offering (the “LGAC IPO”). LGAC is a special purpose acquisition company, incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). LGACo 1 LLC, a Delaware series limited liability company and the Company’s subsidiary, is the sponsor of LGAC. The Company controls LGAC through the sponsor’s ownership of Class B founder shares of LGAC. As a result, both LGAC and the sponsor are consolidated in the Company’s financial statements.
The proceeds from the LGAC IPO of $575,000 are held in a trust account, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds in the trust account to the LGAC shareholders in connection with the redemption of LGAC’s Class A ordinary shares, subject to certain conditions. The cash held in the trust account is recorded in “Restricted Cash” on the condensed consolidated statements of financial condition.
Transaction costs, which consisted of a net underwriting fee of $8,500, $20,125 of non-cash deferred underwriting fees and $808 of other offering costs, were charged against the gross proceeds of the LGAC IPO as consistent with SEC Staff Accounting Bulletin (SAB) Topic 5.
“Redeemable noncontrolling interests” of $575,000 associated with the publicly held LGAC Class A ordinary shares are recorded on the Company’s condensed consolidated statements of financial condition as of March 31, 2021 at redemption value and classified as temporary equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. Changes in redemption value are recognized immediately as they occur and will adjust the carrying value of redeemable noncontrolling interests to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable noncontrolling interests shall be affected by charges to additional paid-in-capital.
The warrants exercisable for LGAC Class A ordinary shares that were issued in connection with the LGAC IPO meet the definition of a liability under FASB ASC Topic 815 and are classified as derivative liabilities remeasured at fair value at each balance sheet date until exercised, with changes in fair value each period reported to earnings. See Note 7.
Restricted Cash
Restricted cash primarily represents LGAC deposits discussed above and other restricted cash deposits made by the Company, including those to satisfy the requirements of clearing organizations.
10
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
2.
|
RECENT ACCOUNTING DEVELOPMENTS
|
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. The Company adopted the new guidance on January 1, 2021. The Company evaluated each of the amendments, and the adoption of the amendments did not have a material impact to the Company’s financial statements.
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
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Financial Advisory (a)
|
|
$
|
318,412
|
|
|
$
|
298,966
|
|
|
|
|
|
|
|
|
|
|
Asset Management:
|
|
|
|
|
|
|
|
|
Management Fees and Other (b)
|
|
$
|
314,513
|
|
|
$
|
281,007
|
|
Incentive Fees (c)
|
|
|
32,977
|
|
|
|
1,514
|
|
Total Asset Management
|
|
$
|
347,490
|
|
|
$
|
282,521
|
|
(a)
|
Financial Advisory is comprised of a wide array of financial advisory services regarding M&A advisory, restructuring, capital advisory, shareholder advisory, sovereign advisory, capital raising and other strategic advisory work for clients. The benefits of these advisory services are generally transferred to the Company’s clients over time, and consideration for these advisory services typically includes transaction completion, transaction announcement and retainer fees. Retainer fees are generally fixed and recognized over the period in which the advisory services are performed. However, transaction announcement and transaction completion fees are variable and subject to constraints, and they are typically not recognized until there is an announcement date or a completion date, respectively, due to the uncertainty associated with those events. Therefore, in any given period, advisory fees recognized for certain transactions will relate to services performed in prior periods. The advisory fees that may be unrecognized as of the end of a reporting period, primarily comprised of fees associated with transaction announcements and transaction completions, generally remain unrecognized due to the uncertainty associated with those events.
|
(b)
|
Management fees and other is primarily comprised of management services. The benefits of these management services are transferred to the Company’s clients over time. Consideration for these management services generally includes management fees, which are based on assets under management and recognized over the period in which the management services are performed. The selling or distribution of fund interests is a separate performance obligation within management fees and other, and the benefits of such services are transferred to the Company’s clients at the point in time that such fund interests are sold or distributed.
|
(c)
|
Incentive fees is primarily comprised of management services. The benefits of these management services are transferred to the Company’s clients over time. Consideration for these management services is generally variable and includes performance or incentive fees. The fees allocated to these management services that are unrecognized as of the end of the reporting period are generally amounts that are subject to constraints due to the uncertainty associated with performance targets and clawbacks.
|
In addition to the 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.
11
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, 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.
The Company’s receivables represent fee receivables, amounts due from customers and other receivables. The fee receivables are generally due within 60 days from the date of invoice, except as related to certain Restructuring services and certain Capital Raising activities, specifically Private Capital Advisory services, which have fee receivables due upon specified contractual payment terms. For customer loans within customers and other receivables, the Company has elected to apply the practical expedient, in accordance with current expected credit losses (“CECL”) guidance, for financial assets with collateral maintenance provisions, which results in no expected credit losses given that these loans are maintained with collateral having a fair value in excess of the carrying amount of the loans as of March 31, 2021.
Receivables are stated net of an estimated allowance for doubtful accounts determined in accordance with the CECL model, for general credit risk of the overall portfolio and for specific accounts deemed uncollectible, which may include situations where a fee is in dispute.
For fee receivables, the allowance for doubtful accounts is determined together for all Financial Advisory fees, except for Private Capital Advisory given the different nature of the business, client composition and risk characteristics. In addition, a separate allowance for doubtful accounts is determined for all Asset Management fees. The allowance is measured by the application of an average charge-off rate, determined annually based on historical bad debt charge-off experience, to the fee receivable balance of the respective services, adjusted for specific allowance recognized based on current conditions of individual clients. The current factors are considered on a quarterly basis and include the aging of the receivables, the client’s ability to make payments, and the Company’s relationship with the client. In addition, the Company also performs a qualitative assessment on a quarterly basis to monitor economic factors and other uncertainties that may require additional adjustment to the expected credit loss allowance.
With respect to fees receivable from Financial Advisory activities, such receivables are generally deemed past due when they are outstanding 60 days from the date of invoice, except for certain transactions that include specific contractual payment terms that may vary from approximately one month to four years following the invoice date (as is the case for certain Private Capital Advisory fees) or may be subject to court approval (as is the case with Restructuring activities that include bankruptcy proceedings). In such cases, receivables are deemed past due when payment is not received by the agreed-upon contractual date or the court approval date, respectively. Financial Advisory fee receivables past due, from the date of invoice or the specific contractual payment terms, in excess of 180 days are fully provided for unless there is evidence that the balance is collectible. Notwithstanding our policy for receivables past due, any receivables that we determine are impaired result in specific reserves against such exposures. Asset Management fees are fully provided for when such receivables are outstanding 12 months after the invoice date. In addition, the Company specifically reserves against exposures relating to Asset Management fees where we determine receivables are impaired prior to being outstanding for 12 months.
Activity in the allowance for doubtful accounts for the three month periods ended March 31, 2021 and 2020 was as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning Balance
|
|
$
|
36,649
|
|
|
$
|
27,130
|
|
Adjustment for adoption of new accounting guidance
|
|
|
-
|
|
|
|
7,575
|
|
Bad debt expense, net of reversals
|
|
|
375
|
|
|
|
(527
|
)
|
Charge-offs, foreign currency translation and other
adjustments
|
|
|
(2,022
|
)
|
|
|
(2,891
|
)
|
Ending Balance *
|
|
$
|
35,002
|
|
|
$
|
31,287
|
|
12
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
*The allowance for doubtful accounts balances are substantially all related to M&A and Restructuring fee receivables that include recoverable expense receivables.
Bad debt expense, net of reversals represents the current period provision of expected credit losses and is included in “operating expenses—other” on the condensed consolidated statements of operations.
Of the Company’s fee receivables at March 31, 2021 and December 31, 2020, $90,826 and $90,521, respectively, represented financing receivables for our Private Capital Advisory fees. Based upon our historical loss experience, the credit quality of the counterparties, and the lack of uncollectible amounts, there was no allowance for doubtful accounts required at those dates related to such receivables.
At March 31, 2021 and December 31, 2020, customers and other receivables included $110,954 and $99,965, respectively, of customer loans, which are fully collateralized and closely monitored for counterparty creditworthiness, with such collateral having a fair value in excess of the carrying amount of the loans as of March 31, 2021 and December 31, 2020.
The aggregate carrying amount of all other receivables of $537,835 and $552,655 at March 31, 2021 and December 31, 2020, respectively, approximates fair value.
The Company’s investments and securities sold, not yet purchased, consist of the following at March 31, 2021 and December 31, 2020:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Debt
|
|
$
|
99,994
|
|
|
$
|
99,987
|
|
Equities
|
|
|
48,184
|
|
|
|
37,365
|
|
Funds:
|
|
|
|
|
|
|
|
|
Alternative investments (a)
|
|
|
39,371
|
|
|
|
34,264
|
|
Debt (a)
|
|
|
140,053
|
|
|
|
123,554
|
|
Equity (a)
|
|
|
415,056
|
|
|
|
325,795
|
|
Private equity
|
|
|
39,693
|
|
|
|
37,567
|
|
|
|
|
634,173
|
|
|
|
521,180
|
|
Investments, at fair value
|
|
$
|
782,351
|
|
|
$
|
658,532
|
|
Securities sold, not yet purchased, at fair value
(included in “other liabilities”)
|
|
$
|
3,221
|
|
|
$
|
1,176
|
|
(a)
|
Interests in alternative investment funds, debt funds and equity funds include investments with fair values of $15,254, $107,207 and $351,548, respectively, at March 31, 2021 and $11,128, $90,758 and $277,725, respectively, at December 31, 2020, held in order to satisfy the Company’s liability upon vesting of previously granted Lazard Fund Interests (“LFI”) and other similar 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 13).
|
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.
13
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
Debt funds primarily consist of seed investments in funds related to our Asset Management business that invest in debt securities, amounts related to LFI discussed above and an investment in a Lazard-managed debt fund.
Equity funds primarily consist of seed investments in funds related to our Asset Management business that invest in equity securities, and amounts related to LFI discussed above.
Private equity investments include those owned by Lazard and those consolidated but not owned by Lazard. Private equity investments owned by Lazard are primarily comprised of investments in private equity funds. Such investments primarily include (i) Edgewater Growth Capital Partners III, L.P. (“EGCP III”), a fund primarily making equity and buyout investments in middle market companies and (ii) a fund targeting significant noncontrolling-stake investments in established private companies.
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 periods ended March 31, 2021 and 2020, 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
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net unrealized investment gains (losses)
|
|
$
|
1,054
|
|
|
$
|
(44,432
|
)
|
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.
|
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 interests in private companies are generally classified as Level 3.
The fair value of investments in alternative investment funds, debt funds and equity funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund.
The fair value of investments in private equity funds is classified as Level 3 for certain investments that are valued based on the potential transaction value.
The fair value of securities sold, not yet purchased, is classified as Level 1 when the fair values are based on unadjusted quoted prices in active markets.
14
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The fair value of derivatives entered into by the Company and classified as Level 2 is based on the values of the related underlying assets, indices or reference rates as follows: the fair value of forward foreign currency exchange rate contracts is a function of the spot rate and the interest rate differential of the two currencies from the trade date to settlement date; the fair value of total return swaps is based on the change in fair value of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. The fair value of derivatives entered into by the Company and classified as Level 3 is based on a Black-Scholes valuation model that utilizes both observable and unobservable inputs. Unobservable inputs include model adjustments for valuation uncertainity. See Note 7.
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 March 31, 2021 and December 31, 2020, the classification of (i) investments and certain other assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy and (ii) investments measured at NAV or its equivalent as a practical expedient:
|
|
March 31, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
NAV
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
99,994
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
99,994
|
|
Equities
|
|
|
46,543
|
|
|
|
-
|
|
|
|
1,641
|
|
|
|
-
|
|
|
|
48,184
|
|
Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments
|
|
|
17,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,252
|
|
|
|
39,371
|
|
Debt
|
|
|
140,048
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
140,053
|
|
Equity
|
|
|
415,008
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
415,056
|
|
Private equity
|
|
|
-
|
|
|
|
-
|
|
|
|
1,472
|
|
|
|
38,221
|
|
|
|
39,693
|
|
Derivatives
|
|
|
-
|
|
|
|
1,254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,254
|
|
Total
|
|
$
|
718,712
|
|
|
$
|
1,254
|
|
|
$
|
3,113
|
|
|
$
|
60,526
|
|
|
$
|
783,605
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
3,221
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,221
|
|
Derivatives
|
|
|
-
|
|
|
|
383,924
|
|
|
|
11,500
|
|
|
|
-
|
|
|
|
395,424
|
|
Total
|
|
$
|
3,221
|
|
|
$
|
383,924
|
|
|
$
|
11,500
|
|
|
$
|
-
|
|
|
$
|
398,645
|
|
15
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
|
|
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
NAV
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
99,987
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
99,987
|
|
Equities
|
|
|
35,694
|
|
|
|
-
|
|
|
|
1,671
|
|
|
|
-
|
|
|
|
37,365
|
|
Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investments
|
|
|
17,411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,853
|
|
|
|
34,264
|
|
Debt
|
|
|
123,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
123,554
|
|
Equity
|
|
|
325,749
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
325,795
|
|
Private equity
|
|
|
-
|
|
|
|
-
|
|
|
|
1,486
|
|
|
|
36,081
|
|
|
|
37,567
|
|
Derivatives
|
|
|
-
|
|
|
|
536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
536
|
|
Total
|
|
$
|
602,390
|
|
|
$
|
536
|
|
|
$
|
3,157
|
|
|
$
|
52,985
|
|
|
$
|
659,068
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
1,176
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,176
|
|
Derivatives
|
|
|
-
|
|
|
|
314,485
|
|
|
|
-
|
|
|
|
-
|
|
|
|
314,485
|
|
Total
|
|
$
|
1,176
|
|
|
$
|
314,485
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
315,661
|
|
The following tables provide a summary of changes in fair value of the Company’s Level 3 assets and liabilities for the three month periods ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31, 2021
|
|
|
|
Beginning
Balance
|
|
|
Net Unrealized/
Realized
Gains/Losses
Included In
Earnings (a)
|
|
|
Purchases/
Acquisitions/
Issuances
|
|
|
Sales/
Dispositions/
Settlements
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Ending
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
1,671
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(31
|
)
|
|
$
|
1,641
|
|
Private equity funds
|
|
|
1,486
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
1,472
|
|
Total Level 3 Assets
|
|
$
|
3,157
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(45
|
)
|
|
$
|
3,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,500
|
|
Total Level 3 Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,500
|
|
|
|
Three Months Ended March 31, 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
|
|
|
$
|
(99
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(76
|
)
|
|
$
|
1,425
|
|
Private equity funds
|
|
|
1,371
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,347
|
|
Total Level 3 Assets
|
|
$
|
2,971
|
|
|
$
|
(123
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(76
|
)
|
|
$
|
2,772
|
|
16
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
(a)
|
Earnings recorded in “other revenue” for investments in Level 3 assets for the three month periods ended March 31, 2021 and 2020 include net unrealized gains (losses) of $1 and $(123), respectively.
|
There were no transfers into or out of Level 3 within the fair value hierarchy during the three month periods ended March 31, 2021 and 2020.
The following tables present, at March 31, 2021 and December 31, 2020, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
Redeemable
|
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
|
% of
Fair Value
Not
Redeemable
|
|
|
Redemption
Frequency
|
|
Redemption
Notice Period
|
Alternative investment funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
$
|
21,635
|
|
|
$
|
-
|
|
|
NA
|
|
|
(a)
|
|
30-60 days
|
Other
|
|
|
617
|
|
|
|
-
|
|
|
NA
|
|
|
(b)
|
|
<30-30 days
|
Debt funds
|
|
|
5
|
|
|
|
-
|
|
|
NA
|
|
|
(c)
|
|
<30 days
|
Equity funds
|
|
|
48
|
|
|
|
-
|
|
|
NA
|
|
|
(d)
|
|
<30-60 days
|
Private equity funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth
|
|
|
38,221
|
|
|
|
5,865
|
|
(e)
|
|
100
|
%
|
(f)
|
NA
|
|
NA
|
Total
|
|
$
|
60,526
|
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
(a)
|
monthly (79%) and quarterly (21%)
|
(b)
|
daily (8%) and monthly (92%)
|
(d)
|
monthly (39%) and annually (61%)
|
(e)
|
Unfunded commitments to private equity investments consolidated but not owned by Lazard of $10,022 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.
|
(f)
|
Distributions from each fund will be received as the underlying investments of the funds are liquidated.
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
Redeemable
|
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
|
% of
Fair Value
Not
Redeemable
|
|
|
Redemption
Frequency
|
|
Redemption
Notice Period
|
Alternative investment funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
$
|
16,216
|
|
|
$
|
-
|
|
|
NA
|
|
|
(a)
|
|
30-60 days
|
Other
|
|
|
637
|
|
|
|
-
|
|
|
NA
|
|
|
(b)
|
|
<30-30 days
|
Debt funds
|
|
|
5
|
|
|
|
-
|
|
|
NA
|
|
|
(c)
|
|
<30 days
|
Equity funds
|
|
|
46
|
|
|
|
-
|
|
|
NA
|
|
|
(d)
|
|
<30-60 days
|
Private equity funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity growth
|
|
|
36,081
|
|
|
|
5,865
|
|
(e)
|
|
100
|
%
|
(f)
|
NA
|
|
NA
|
Total
|
|
$
|
52,985
|
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
(a)
|
monthly (99%) and quarterly (1%)
|
(b)
|
daily (8%) and monthly (92%)
|
(d)
|
monthly (39%) and annually (61%)
|
(e)
|
Unfunded commitments to private equity investments consolidated but not owned by Lazard of $10,022 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.
|
(f)
|
Distributions from each fund will be received as the underlying investments of the funds are liquidated.
|
17
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
Investment Capital Funding Commitments—At March 31, 2021, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $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.
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 13) on the accompanying condensed consolidated statements of financial condition as of March 31, 2021 and December 31, 2020:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts
|
|
$
|
1,254
|
|
|
$
|
536
|
|
|
|
$
|
1,254
|
|
|
$
|
536
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange rate contracts
|
|
$
|
340
|
|
|
$
|
333
|
|
Total return swaps and other (a)
|
|
|
718
|
|
|
|
2,752
|
|
Warrants
|
|
|
11,500
|
|
|
|
-
|
|
LFI and other similar deferred compensation arrangements
|
|
|
382,866
|
|
|
|
311,400
|
|
|
|
$
|
395,424
|
|
|
$
|
314,485
|
|
|
(a)
|
For total return swaps and for contracts with the same counterparty under legally enforceable master netting agreements, (i) as of March 31, 2021 amounts represent the netting of gross derivative assets and liabilities of $704 and $4,418, respectively, and receivables for net cash collateral under such contracts of $2,996, and (ii) as of December 31, 2020 amounts represent the netting of gross derivative assets and liabilities of $152 and $9,797, respectively, and receivables for net cash collateral under such contracts of $6,893. Such amounts are recorded “net” by counterparty in “other assets” and “other liabilities”.
|
Net gains (losses) with respect to derivative instruments (included in “revenue-other”) and the Company’s derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements (included in “compensation and benefits” expense) as reflected on the accompanying condensed consolidated statements of operations for the three month periods ended March 31, 2021 and 2020, were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Forward foreign currency exchange rate contracts
|
|
$
|
6,818
|
|
|
$
|
1,772
|
|
LFI and other similar deferred compensation arrangements
|
|
|
(7,487
|
)
|
|
|
19,637
|
|
Total return swaps and other
|
|
|
(4,279
|
)
|
|
|
18,845
|
|
Total
|
|
$
|
(4,948
|
)
|
|
$
|
40,254
|
|
18
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
At March 31, 2021 and December 31, 2020, property consisted of the following:
|
|
Estimated
Depreciable
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Life in Years
|
|
|
2021
|
|
|
2020
|
|
Buildings
|
|
|
33
|
|
|
$
|
148,518
|
|
|
$
|
155,434
|
|
Leasehold improvements
|
|
3-20
|
|
|
|
220,376
|
|
|
|
220,975
|
|
Furniture and equipment
|
|
3-10
|
|
|
|
239,135
|
|
|
|
240,825
|
|
Construction in progress
|
|
|
|
|
|
|
41,477
|
|
|
|
42,824
|
|
Total
|
|
|
|
|
|
|
649,506
|
|
|
|
660,058
|
|
Less - Accumulated depreciation and amortization
|
|
|
|
|
|
|
398,968
|
|
|
|
402,471
|
|
Property
|
|
|
|
|
|
$
|
250,538
|
|
|
$
|
257,587
|
|
9.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
The components of goodwill and other intangible assets at March 31, 2021 and December 31, 2020 are presented below:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Goodwill
|
|
$
|
381,752
|
|
|
$
|
383,861
|
|
Other intangible assets (net of accumulated
amortization)
|
|
|
195
|
|
|
|
210
|
|
|
|
$
|
381,947
|
|
|
$
|
384,071
|
|
At March 31, 2021 and December 31, 2020, goodwill of $317,211 and $319,320, 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 three month periods ended March 31, 2021 and 2020 are as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Balance, January 1
|
|
$
|
383,861
|
|
|
$
|
371,773
|
|
Foreign currency translation adjustments
|
|
|
(2,109
|
)
|
|
|
(16,053
|
)
|
Balance, March 31
|
|
$
|
381,752
|
|
|
$
|
355,720
|
|
All changes in the carrying amount of goodwill for the three month periods ended March 31, 2021 and 2020 are attributable to the Company’s Financial Advisory segment.
The gross cost and accumulated amortization of other intangible assets as of March 31, 2021 and December 31, 2020, by major intangible asset category, are as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
Gross
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Success/incentive fees
|
|
$
|
35,409
|
|
|
$
|
35,409
|
|
|
$
|
-
|
|
|
$
|
35,385
|
|
|
$
|
35,385
|
|
|
$
|
-
|
|
Management fees, customer relationships and
non-compete agreements
|
|
|
34,984
|
|
|
|
34,789
|
|
|
|
195
|
|
|
|
34,980
|
|
|
|
34,770
|
|
|
|
210
|
|
|
|
$
|
70,393
|
|
|
$
|
70,198
|
|
|
$
|
195
|
|
|
$
|
70,365
|
|
|
$
|
70,155
|
|
|
$
|
210
|
|
19
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
Amortization expense of intangible assets, included in “amortization of intangible assets related to acquisitions” in the condensed consolidated statements of operations, for the three month periods ended March 31, 2021 and 2020 was $15 and $446, respectively. Estimated future amortization expense is as follows:
Year Ending December 31,
|
|
Amortization
Expense
|
|
2021 (April 1 through December 31)
|
|
$
|
45
|
|
2022
|
|
|
60
|
|
2023
|
|
|
60
|
|
2024
|
|
|
30
|
|
Total amortization expense
|
|
$
|
195
|
|
Senior debt is comprised of the following as of March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of
|
|
|
|
Initial
|
|
|
|
|
Annual
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
Principal
Amount
|
|
|
Maturity
Date
|
|
Interest
Rate(a)
|
|
|
Principal
|
|
|
Unamortized
Debt Costs
|
|
|
Carrying
Value
|
|
|
Principal
|
|
|
Unamortized
Debt Costs
|
|
|
Carrying
Value
|
|
Lazard Group 2025
Senior Notes
|
|
$
|
400,000
|
|
|
2/13/25
|
|
|
3.75
|
%
|
|
$
|
400,000
|
|
|
$
|
1,830
|
|
|
$
|
398,170
|
|
|
$
|
400,000
|
|
|
$
|
1,948
|
|
|
$
|
398,052
|
|
Lazard Group 2027
Senior Notes
|
|
|
300,000
|
|
|
3/1/27
|
|
|
3.625
|
%
|
|
|
300,000
|
|
|
|
2,308
|
|
|
|
297,692
|
|
|
|
300,000
|
|
|
|
2,405
|
|
|
|
297,595
|
|
Lazard Group 2028
Senior Notes
|
|
|
500,000
|
|
|
9/19/28
|
|
|
4.50
|
%
|
|
|
500,000
|
|
|
|
6,355
|
|
|
|
493,645
|
|
|
|
500,000
|
|
|
|
6,568
|
|
|
|
493,432
|
|
Lazard Group 2029
Senior Notes
|
|
|
500,000
|
|
|
3/11/29
|
|
|
4.375
|
%
|
|
|
500,000
|
|
|
|
6,145
|
|
|
|
493,855
|
|
|
|
500,000
|
|
|
|
6,338
|
|
|
|
493,662
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,700,000
|
|
|
$
|
16,638
|
|
|
$
|
1,683,362
|
|
|
$
|
1,700,000
|
|
|
$
|
17,259
|
|
|
$
|
1,682,741
|
|
(a)
|
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 Lazard Group’s 4.375% senior notes due March 11, 2029 (the “2029 Notes”) are 3.87%, 3.76%, 4.67% and 4.53%, respectively.
|
The Company’s senior debt at March 31, 2021 and December 31, 2020 is carried at historical amounts of $1,683,362 and $1,682,741, respectively. At those dates, the fair value of such senior debt was approximately $1,885,000 and $1,954,000, respectively. The fair value of the Company’s senior debt is based on market quotations. The Company’s senior debt would be categorized within Level 2 of the hierarchy of fair value measurements if carried at fair value.
On July 22, 2020, Lazard Group entered into an Amended and Restated Credit Agreement for a three-year, $200,000 senior revolving credit facility with a group of lenders, which expires in July 2023 (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement amended and restated Lazard Group’s amended and restated credit agreement, dated September 25, 2015, in its entirety. Borrowings under the Amended and Restated Credit Agreement generally will bear interest at LIBOR plus an applicable margin for specific interest periods determined based on Lazard Group’s highest credit rating from an internationally recognized credit agency. The Amended and Restated Credit Agreement contains certain covenants, events of default and other customary provisions, including customary LIBOR-replacement mechanics. At March 31, 2021 and December 31, 2020, no amounts were outstanding under the Amended and Restated Credit Agreement.
20
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
As of March 31, 2021, the Company had approximately $213,000 in unused lines of credit available to it, including the credit facility provided under the Amended and Restated Credit Agreement and unused lines of credit available to LFB of approximately $12,000.
The Amended and Restated Credit Agreement and the indenture and the supplemental indentures relating to Lazard Group’s senior notes contain certain covenants, events of default and other customary provisions, including a customary make-whole provision in the event of early redemption, where applicable. As of March 31, 2021, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.
11.
|
COMMITMENTS AND CONTINGENCIES
|
Other Commitments—The Company has various other contractual commitments arising in the ordinary course of business. In addition, from time to time, LFB and LFNY may enter into underwriting commitments in which it will participate as an underwriter. At March 31, 2021, LFB and LFNY had no such underwriting commitments.
See Notes 6 and 14 for information regarding commitments relating to investment capital funding commitments and obligations to fund our pension plans, respectively.
In the opinion of management, the fulfillment of the commitments described herein will not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations.
Legal—The Company is involved from time to time in judicial, governmental, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses, including proceedings initiated by former employees alleging wrongful termination. The Company reviews such matters on a case-by-case basis and establishes any required accrual if a loss is probable and the amount of such loss can be reasonably estimated. The Company experiences significant variation in its revenue and earnings on a quarterly basis. Accordingly, the results of any pending matter or matters could be significant when compared to the Company’s earnings in any particular fiscal quarter. The Company believes, however, based on currently available information, that the results of any pending matters, in the aggregate, will not have a material effect on its business or financial condition.
Share Repurchase Program— Since 2019 and through the three month period ended March 31, 2021, the Board of Directors of Lazard authorized the repurchase of Lazard Ltd Class A common stock (“common stock”), the only class of common stock of Lazard outstanding, as set forth in the table below:
Date
|
|
Repurchase
Authorization
|
|
|
Expiration
|
February 2019
|
|
$
|
300,000
|
|
|
December 31, 2020
|
October 2019
|
|
$
|
300,000
|
|
|
December 31, 2021
|
The Company expects that the share repurchase program will 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, as amended (the “2018 Plan”). Pursuant to the share repurchase program, purchases have been made in the open market or through privately negotiated transactions. The rate at which the Company purchases shares in connection with the share repurchase program may vary from period to period due to a variety of factors. Purchases with respect to such program are set forth in the table below:
Three Months Ended March 31:
|
|
Number of
Shares
Purchased
|
|
|
Average
Price Per
Share
|
|
2020
|
|
|
2,912,035
|
|
|
$
|
32.70
|
|
2021
|
|
|
2,899,541
|
|
|
$
|
42.30
|
|
21
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
During the three month periods ended March 31, 2021 and 2020, certain of our executive officers received 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 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 three month periods ended March 31, 2021 and 2020, the Company purchased shares of common stock from certain of our executive officers. The aggregate value of all such purchases during the three month periods ended March 31, 2021 and 2020 was approximately $18,600 and $10,000, respectively. Such shares of common stock are reported at cost.
As of March 31, 2021, a total of $177,348 of share repurchase authorization remained available under the Company’s share repurchase program, which will expire on December 31, 2021.
In addition, on April 29, 2021, the Board of Directors of Lazard authorized the repurchase of up to $300,000 of additional shares of common stock, which authorization will expire on December 31, 2022, bringing the total available share repurchase authorization as of April 29, 2021 to approximately $439,000.
During the three month period ended March 31, 2021, the Company 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.
Preferred Stock—Lazard Ltd has 15,000,000 authorized shares of preferred stock, par value $0.01 per share, inclusive of its Series A and Series B preferred stock. Series A and Series B preferred shares were issued in connection with certain prior year business acquisitions and were each non-participating securities convertible into common stock, and had no voting or dividend rights. As of both March 31, 2021 and December 31, 2020, no shares of Series A or Series B preferred stock were outstanding.
Accumulated Other Comprehensive Income (Loss) (“AOCI”), Net of Tax—The tables below reflect the balances of each component of AOCI at March 31, 2021 and 2020 and activity during the three month periods then ended:
|
|
Three Months Ended March 31, 2021
|
|
|
|
Currency
Translation
Adjustments
|
|
|
Employee
Benefit
Plans
|
|
|
Total
AOCI
|
|
|
Amount
Attributable to
Noncontrolling
Interests
|
|
|
Total
Lazard Ltd
AOCI
|
|
Balance, January 1, 2021
|
|
$
|
(67,724
|
)
|
|
$
|
(170,644
|
)
|
|
$
|
(238,368
|
)
|
|
$
|
-
|
|
|
$
|
(238,368
|
)
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before
reclassifications
|
|
|
(19,743
|
)
|
|
|
1,065
|
|
|
|
(18,678
|
)
|
|
|
1
|
|
|
|
(18,679
|
)
|
Adjustments for items reclassified to earnings,
net of tax
|
|
|
-
|
|
|
|
1,336
|
|
|
|
1,336
|
|
|
|
-
|
|
|
|
1,336
|
|
Net other comprehensive income (loss)
|
|
|
(19,743
|
)
|
|
|
2,401
|
|
|
|
(17,342
|
)
|
|
|
1
|
|
|
|
(17,343
|
)
|
Balance, March 31, 2021
|
|
$
|
(87,467
|
)
|
|
$
|
(168,243
|
)
|
|
$
|
(255,710
|
)
|
|
$
|
1
|
|
|
$
|
(255,711
|
)
|
22
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
|
|
Three Months Ended March 31, 2020
|
|
|
|
Currency
Translation
Adjustments
|
|
|
Employee
Benefit
Plans
|
|
|
Total
AOCI
|
|
|
Amount
Attributable to
Noncontrolling
Interests
|
|
|
Total
Lazard Ltd
AOCI
|
|
Balance, January 1, 2020
|
|
$
|
(120,586
|
)
|
|
$
|
(173,064
|
)
|
|
$
|
(293,650
|
)
|
|
$
|
(2
|
)
|
|
$
|
(293,648
|
)
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before
reclassifications
|
|
|
(50,746
|
)
|
|
|
9,088
|
|
|
|
(41,658
|
)
|
|
|
1
|
|
|
|
(41,659
|
)
|
Adjustments for items reclassified to earnings,
net of tax
|
|
|
-
|
|
|
|
1,895
|
|
|
|
1,895
|
|
|
|
-
|
|
|
|
1,895
|
|
Net other comprehensive income (loss)
|
|
|
(50,746
|
)
|
|
|
10,983
|
|
|
|
(39,763
|
)
|
|
|
1
|
|
|
|
(39,764
|
)
|
Balance, March 31, 2020
|
|
$
|
(171,332
|
)
|
|
$
|
(162,081
|
)
|
|
$
|
(333,413
|
)
|
|
$
|
(1
|
)
|
|
$
|
(333,412
|
)
|
The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month periods ended March 31, 2021 and 2020:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Amortization relating to employee benefit plans (a)
|
|
$
|
1,717
|
|
|
$
|
2,233
|
|
Less - related income taxes
|
|
|
381
|
|
|
|
338
|
|
Total reclassifications, net of tax
|
|
$
|
1,336
|
|
|
$
|
1,895
|
|
(a)
|
Included in the computation of net periodic benefit cost (see Note 14). Such amounts are included in “operating expenses—other” on the condensed consolidated statements of operations.
|
Noncontrolling Interests—Noncontrolling interests principally represent (i) interests held in Edgewater’s management vehicles that the Company is deemed to control, but does not own, (ii) profits interest participation rights (see Note 13), (iii) LGAC interests (see Note 1) and (iv) consolidated VIE interests held by employees (see Note 20).
The tables below summarize net income (loss) attributable to noncontrolling interests for the three month periods ended March 31, 2021 and 2020 and noncontrolling interests as of March 31, 2021 and December 31, 2020 in the Company’s condensed consolidated financial statements:
|
|
Net Income (Loss)
Attributable to Noncontrolling
Interests
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Edgewater
|
|
$
|
1,456
|
|
|
$
|
(1,403
|
)
|
Consolidated VIEs
|
|
|
2,268
|
|
|
|
(4,288
|
)
|
LGAC
|
|
|
(200
|
)
|
|
|
-
|
|
Other
|
|
|
2
|
|
|
|
-
|
|
Total
|
|
$
|
3,526
|
|
|
$
|
(5,691
|
)
|
23
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
|
|
Noncontrolling Interests as of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Edgewater
|
|
$
|
45,808
|
|
|
$
|
45,352
|
|
Profits interest participation rights
|
|
|
2,311
|
|
|
|
1,776
|
|
Consolidated VIEs
|
|
|
50,560
|
|
|
|
40,517
|
|
LGAC
|
|
|
2,997
|
|
|
|
-
|
|
Other
|
|
|
18
|
|
|
|
16
|
|
Total
|
|
$
|
101,694
|
|
|
$
|
87,661
|
|
Dividends Declared, April 29, 2021—On April 29, 2021, the Board of Directors of Lazard declared a quarterly dividend of $0.47 per share on our common stock. The dividend is payable on May 21, 2021, to stockholders of record on May 10, 2021.
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 periods ended March 31, 2021 and 2020 is presented below.
Shares Available Under the 2018 Plan, 2008 Plan and 2005 Plan
The 2018 Plan became effective on April 24, 2018 and was amended on April 29, 2021 to increase the aggregate number of shares authorized for issuance under the 2018 plan. The 2018 Plan replaced the 2008 Plan, which was terminated on April 24, 2018. The 2018 Plan originally authorized issuance of up to 30,000,000 shares of common stock, plus any shares of common stock that were subject to outstanding awards under the 2008 Plan as of March 14, 2018 that are forfeited, canceled or settled in cash following April 24, 2018, which was the date that the 2018 Plan was approved by our shareholders. The amendment that our shareholders approved on April 29, 2021 increased the shares of common stock available pursuant to the 2018 Plan by 20,000,000 shares, which is in addition to any shares of common stock that remain available under the original authorization. Such shares may be issued pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), profits interest participation rights, including performance-based restricted participation units (“PRPUs”), and other share-based awards.
The 2008 Plan authorized the issuance of shares of common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs, PRSUs and other share-based awards. Under the 2008 Plan, the maximum number of shares available was based on a formula that limited the aggregate number of shares that could, at any time, be subject to awards that were considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of common stock. The 2008 Plan was terminated on April 24, 2018, and no additional awards have been or will be granted under the 2008 Plan after its termination, although outstanding awards granted under the 2008 Plan before its termination continue to be subject to its terms.
The 2005 Plan authorized the issuance of up to 25,000,000 shares of common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other share-based awards. The 2005 Plan expired in the second quarter of 2015, although outstanding deferred stock unit (“DSU”) awards granted under the 2005 Plan before its expiration continue to be subject to its terms.
24
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, 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, restricted stock, 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 periods ended March 31, 2021 and 2020:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Share-based incentive awards:
|
|
|
|
|
|
|
|
|
RSUs
|
|
$
|
34,805
|
|
|
$
|
42,917
|
|
PRSUs
|
|
|
5,559
|
|
|
|
4,361
|
|
Restricted Stock
|
|
|
6,067
|
|
|
|
8,531
|
|
Profits interest participation rights
|
|
|
21,573
|
|
|
|
16,166
|
|
DSUs
|
|
|
187
|
|
|
|
186
|
|
Total
|
|
$
|
68,191
|
|
|
$
|
72,161
|
|
The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates or performance results in a cumulative adjustment to compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.
The Company’s share-based incentive plans and awards are described below.
RSUs and DSUs
RSUs generally require future service as a condition for the delivery of the underlying shares of common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of common stock on a one-for-one basis after the stipulated vesting periods. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods (generally, one-third after two years and the remaining two-thirds after the third year) and is adjusted for actual forfeitures over such period.
RSUs generally include a dividend participation right that provides that, during the applicable vesting period, each RSU is attributed additional RSUs equivalent to any dividends paid on common stock during such period. During the three month period ended March 31, 2021, dividend participation rights required the issuance of 138,585 RSUs and the associated charge to “retained earnings”, net of estimated forfeitures (with corresponding credits to “additional paid-in-capital”) was $5,429.
Non-executive members of the Board of Directors (“Non-Executive Directors”) receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of common stock at the time of cessation of service to the Board of Directors. DSUs include a cash dividend participation right equivalent to dividends paid on common stock.
Lazard Ltd’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of common stock on the date immediately preceding the date of the grant. During the three month period ended March 31, 2021, 4,457 DSUs had been granted pursuant to such Plan.
DSU awards are expensed at their fair value on their date of grant, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan.
25
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The following is a summary of activity relating to RSUs and DSUs during the three month period ended March 31, 2021:
|
|
RSUs
|
|
|
DSUs
|
|
|
|
Units
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Units
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance, January 1, 2021
|
|
|
9,266,344
|
|
|
$
|
42.96
|
|
|
|
478,800
|
|
|
$
|
36.36
|
|
Granted (including 138,585 RSUs relating to
dividend participation)
|
|
|
2,776,805
|
|
|
$
|
43.13
|
|
|
|
4,457
|
|
|
$
|
41.92
|
|
|
Forfeited
|
|
|
(63,425
|
)
|
|
$
|
41.05
|
|
|
|
-
|
|
|
|
-
|
|
Settled
|
|
|
(3,690,643
|
)
|
|
$
|
47.52
|
|
|
|
-
|
|
|
|
-
|
|
Balance, March 31, 2021
|
|
|
8,289,081
|
|
|
$
|
41.00
|
|
|
|
483,257
|
|
|
$
|
36.41
|
|
In connection with RSUs that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,348,433 shares of common stock during such three month period. Accordingly, 2,342,210 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
As of March 31, 2021, estimated unrecognized RSU compensation expense was $177,587, with such expense expected to be recognized over a weighted average period of approximately 1.0 years subsequent to March 31, 2021.
Restricted Stock
The following is a summary of activity related to shares of restricted common stock associated with compensation arrangements during the three month period ended March 31, 2021:
|
|
Restricted
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance, January 1, 2021
|
|
|
1,144,959
|
|
|
$
|
41.09
|
|
Granted (including 10,571 relating to dividend participation)
|
|
|
425,692
|
|
|
$
|
43.23
|
|
|
Forfeited
|
|
|
(11,364
|
)
|
|
$
|
41.44
|
|
Settled
|
|
|
(428,298
|
)
|
|
$
|
43.34
|
|
Balance, March 31, 2021
|
|
|
1,130,989
|
|
|
$
|
41.04
|
|
26
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
In connection with shares of restricted common stock that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 162,533 shares of common stock during such three month period. Accordingly, 265,765 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
Restricted stock awards granted in 2021 and 2020 generally include a dividend participation right that provides that during the applicable vesting period each restricted stock award is attributed additional shares of restricted common stock equivalent to any dividends paid on common stock during such period. During the three month period ended March 31, 2021, dividend participation rights required the issuance of 10,571 shares of restricted common stock and the associated charge to “retained earnings”, net of estimated forfeitures (with corresponding credits to “additional paid-in-capital”) was $430. With respect to awards granted prior to 2020, the restricted stock awards include a cash dividend participation right equivalent to dividends paid on common stock during the period, which will vest concurrently with the underlying restricted stock award. At March 31, 2021, estimated unrecognized restricted stock expense was $28,420, with such expense to be recognized over a weighted average period of approximately 1.0 years subsequent to March 31, 2021.
PRSUs
PRSUs are RSUs that are subject to performance-based and service-based vesting conditions, and beginning with awards granted in February 2021, a market-based condition. The number of shares of common stock that a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance-based and, for awards granted in February 2021, market-based metrics that relate to Lazard Ltd’s performance over a three-year period. The target number of shares of common stock subject to each PRSU is one; however, based on the achievement of the performance criteria, the number of shares of common stock that may be received in connection with each PRSU generally can range from zero to two times the target number for awards granted prior to February 2021. For awards granted in February 2021, based on both the performance-based and market-based criteria, the number of shares of common stock can range from zero to 2.4 times the target number. PRSUs will vest on a single date approximately three years following the date of the grant, provided the applicable service and performance conditions are satisfied. PRSUs granted prior to February 2021 include dividend participation rights that provide that during vesting periods, the target number of PRSUs receive dividend equivalents at the same rate that dividends are paid on common stock during such periods. These dividend equivalents are credited as RSUs that are not subject to the performance-based vesting criteria but are otherwise subject to the same restrictions as the underlying PRSUs to which they relate. PRSUs granted in February 2021 include dividend participation rights that are subject to the same vesting restrictions (including performance criteria) as the underlying PRSUs to which they relate and are settled in cash at the same rate that dividends are paid on common stock.
The following is a summary of activity relating to PRSUs during the three month period ended March 31, 2021:
|
|
PRSUs
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance, January 1, 2021
|
|
|
546,959
|
|
|
$
|
53.48
|
|
Granted
|
|
|
32,394
|
|
|
$
|
46.63
|
|
Settled
|
|
|
(546,959
|
)
|
|
$
|
53.48
|
|
Balance, March 31, 2021
|
|
|
32,394
|
|
|
$
|
46.63
|
|
In connection with certain PRSUs that settled during the three month period ended March 31, 2021, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 100,882 shares of common stock during such three month period. Accordingly, 446,077 shares of common stock held by the Company were delivered during the three month period ended March 31, 2021.
Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of March 31, 2021, the total estimated unrecognized compensation expense was $1,817, and the Company expects to amortize such expense over a weighted-average period of approximately 1.5 years subsequent to March 31, 2021.
27
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
Profits Interest Participation Rights
Profits interest participation rights are equity incentive awards that, subject to certain conditions, may be exchanged for shares of common stock pursuant to the 2018 Plan. The Company granted profits interest participation rights subject to service-based and performance-based vesting criteria and other conditions, and beginning in February 2021, incremental market-based vesting criteria, which we refer to as performance-based restricted participation units (“PRPUs”), to certain of our executive officers. The Company also granted profits interest participation rights subject to service-based vesting criteria and other conditions, but not the performance-based and incremental market-based vesting criteria associated with PRPUs, to a limited number of other senior employees. Profits interest participation rights generally provide for vesting approximately three years following the grant date, so long as applicable conditions have been satisfied.
Profits interest participation rights are a class of membership interests in Lazard Group that are intended to qualify as “profits interests” for U.S. federal income tax purposes, and are recorded as noncontrolling interests within stockholders’ equity in the Company’s condensed consolidated statements of financial condition until they are exchanged into common stock, at which time there is a reclassification to additional paid-in-capital. The profits interest participation rights generally allow the recipient to realize value only to the extent that both (i) the service-based vesting conditions and, if applicable, the performance-based and incremental market-based conditions, are satisfied, and (ii) an amount of economic appreciation in the assets of Lazard Group occurs as necessary to satisfy certain partnership tax rules (referred to as the "Minimum Value Condition") before the fifth anniversary of the grant date, otherwise the profits interest participation rights will be forfeited. Upon satisfaction of such conditions, profits interest participation rights that are in parity with the value of common stock will be exchanged on a one-for-one basis for shares of common stock. If forfeited based solely on failing to meet the Minimum Value Condition, the associated compensation expense would not be reversed. With regard to the profits interest participation rights granted in February 2019 and February 2020, the Minimum Value Condition was met during the year ended December 31, 2020 and during February 2021, respectively.
Like outstanding RSUs and similar awards, profits interest participation rights are subject to continued employment and other conditions and restrictions and are forfeited if those conditions and restrictions are not fulfilled. More specifically, vesting of profits interest participation rights are subject to compliance with restrictive covenants including non-compete, non-solicitation of clients, no hire of employees and confidentiality, which are similar to those applicable to PRSUs and RSUs. In addition, profits interest participation rights must satisfy the Minimum Value Condition.
The number of shares of common stock that a recipient will receive upon the exchange of a PRPU award is calculated by reference to applicable performance-based and, beginning with PRPUs granted in 2021, incremental market-based conditions and only result in value to the recipient to the extent the conditions are satisfied. The target number of shares of common stock subject to each PRPU is one. Based on the achievement of performance criteria, as determined by the Compensation Committee, the number of shares of common stock that may be received in connection with the PRPU awards granted in February 2019 and February 2020 will range from zero to two times the target number. For the PRPU awards granted in February 2021, subject to both performance-based and incremental market-based criteria, the number of shares will range from zero to 2.4 times the target number. Unless applicable conditions are satisfied during the three year performance period, and the Minimum Value Condition is satisfied within five years following the grant date, all PRPUs will be forfeited, and the recipients will not be entitled to any such awards.
In addition, the performance metrics applicable to the PRPU awards granted in February 2019 and February 2020 will be evaluated on an annual basis at the end of each fiscal year during the performance period, and, if Lazard Ltd has achieved a threshold level of performance with respect to the fiscal year, 25% of the target number of PRPUs will no longer be at risk of forfeiture based on the achievement of performance criteria. Profits interest participation rights are allocated income, subject to vesting and settled in cash, in respect of dividends paid on common stock.
28
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The following is a summary of activity relating to profits interest participation rights, including PRPUs, during the three month period ended March 31, 2021:
|
|
Profits Interest Participation Rights
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance, January 1, 2021
|
|
|
2,523,075
|
|
|
$
|
40.43
|
|
Granted
|
|
|
1,159,864
|
|
|
$
|
44.73
|
|
Balance, March 31, 2021 (a)
|
|
|
3,682,939
|
|
|
$
|
41.78
|
|
(a)
|
Table includes 1,561,120 PRPUs, which represents the target number of PRPUs granted as of March 31, 2021, including 510,342 PRPUs granted during the three month period ended March 31, 2021. The weighted average grant date fair values for PRPUs and other profits interest participation rights outstanding as of January 1, 2021 were $40.61 and $40.30, respectively. The weighted average grant date fair values for PRPUs and other profits interest participation rights granted during the three month period ended March 31, 2021 were $46.63 and $43.23, respectively. The weighted average grant date fair values for PRPUs and other profits interest participation rights outstanding as of March 31, 2021 were $42.58 and $41.20, respectively.
|
Compensation expense recognized for profits interest participation rights, including PRPUs, is determined by multiplying the number of shares of common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of March 31, 2021, the total estimated unrecognized compensation expense was $68,529. The Company expects to amortize such expense over a weighted-average period of approximately 0.7 years subsequent to March 31, 2021.
LFI and Other Similar Deferred Compensation Arrangements
In connection with LFI and other similar deferred compensation arrangements, granted to eligible employees, which generally require future service as a condition for vesting, the Company recorded a prepaid compensation asset and a corresponding compensation liability on the grant date based upon the fair value of the award. The prepaid asset is amortized on a straight-line basis over the applicable vesting periods or requisite service periods (which are generally similar to the comparable periods for RSUs) and is charged to “compensation and benefits” expense within the Company’s condensed 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 three month period ended March 31, 2021:
|
|
Prepaid
Compensation
Asset
|
|
|
Compensation
Liability
|
|
Balance, January 1, 2021
|
|
$
|
101,631
|
|
|
$
|
311,400
|
|
Granted
|
|
|
161,892
|
|
|
|
161,892
|
|
Settled
|
|
|
-
|
|
|
|
(95,904
|
)
|
Forfeited
|
|
|
(346
|
)
|
|
|
(2,928
|
)
|
Amortization
|
|
|
(30,413
|
)
|
|
|
-
|
|
Change in fair value related to:
|
|
|
|
|
|
|
|
|
Change in fair value of underlying
investments
|
|
|
-
|
|
|
|
7,487
|
|
Adjustment for estimated forfeitures
|
|
|
-
|
|
|
|
2,192
|
|
Other
|
|
|
2
|
|
|
|
(1,273
|
)
|
Balance, March 31, 2021
|
|
$
|
232,766
|
|
|
$
|
382,866
|
|
The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 1.0 years subsequent to March 31, 2021.
29
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The following is a summary of the impact of LFI and other similar deferred compensation arrangements on “compensation and benefits” expense within the accompanying condensed consolidated statements of operations for the three month periods ended March 31, 2021 and 2020:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Amortization, net of forfeitures
|
|
$
|
30,023
|
|
|
$
|
26,248
|
|
Change in the fair value of underlying investments
|
|
|
7,487
|
|
|
|
(19,637
|
)
|
Total
|
|
$
|
37,510
|
|
|
$
|
6,611
|
|
14.
|
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 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 periods ended March 31, 2021 and 2020:
|
|
Pension Plans
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Components of Net Periodic Benefit Cost (Credit):
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
226
|
|
|
$
|
135
|
|
Interest cost
|
|
|
2,115
|
|
|
|
2,983
|
|
Expected return on plan assets
|
|
|
(6,534
|
)
|
|
|
(6,628
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
30
|
|
|
|
27
|
|
Net actuarial loss (gain)
|
|
|
1,687
|
|
|
|
2,206
|
|
Settlement loss
|
|
|
380
|
|
|
|
922
|
|
Net periodic benefit cost (credit)
|
|
$
|
(2,096
|
)
|
|
$
|
(355
|
)
|
Lazard Ltd, through its subsidiaries, is subject to U.S. federal income taxes on all of its U.S. operating income, as well as on the portion of non-U.S. income attributable to its U.S. subsidiaries. In addition, Lazard Ltd, 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 $43,464 and $25,766 for the three month periods ended March 31, 2021 and 2020, respectively, representing effective tax rates of 32.4% and 30.6%, respectively. The difference between the U.S. federal statutory rate of 21.0% and the effective tax rates reflected above principally relates to (i) the tax impact of differences in the value of share based incentive compensation and other discrete items, (ii) foreign source income (loss) not subject to U.S. income taxes
30
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
(including interest on intercompany financings), (iii) taxes payable to foreign jurisdictions that are not offset against U.S. income taxes, (iv) change in the U.S. federal 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.
16.
|
NET INCOME PER SHARE OF COMMON STOCK
|
The Company issued certain profits interest participation rights, including certain PRPUs, that the Company is required under U.S. GAAP to treat as participating securities and therefore the Company is required to utilize the “two-class” method of computing basic and diluted net income per share.
The Company’s basic and diluted net income per share calculations using the “two-class” method for the three month periods ended March 31, 2021 and 2020 are presented below:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net income attributable to Lazard Ltd
|
|
$
|
87,300
|
|
|
$
|
64,022
|
|
Add - adjustment for earnings attributable to participating
securities
|
|
|
(1,292
|
)
|
|
|
(1,013
|
)
|
Net income attributable to Lazard Ltd - basic
|
|
|
86,008
|
|
|
|
63,009
|
|
Add - adjustment for earnings attributable to participating
securities
|
|
|
1,292
|
|
|
|
1,013
|
|
Net income attributable to Lazard Ltd - diluted
|
|
$
|
87,300
|
|
|
$
|
64,022
|
|
Weighted average number of shares of common
stock outstanding
|
|
|
105,545,273
|
|
|
|
104,462,177
|
|
Add - adjustment for shares of common stock
issuable on a non-contingent basis
|
|
|
1,746,287
|
|
|
|
1,841,785
|
|
Weighted average number of shares of common
stock outstanding - basic
|
|
|
107,291,560
|
|
|
|
106,303,962
|
|
Add - dilutive effect, as applicable, of:
|
|
|
|
|
|
|
|
|
Weighted average number of incremental shares of
common stock issuable from share-based
incentive compensation
|
|
|
8,530,734
|
|
|
|
7,816,217
|
|
Weighted average number of shares of common stock
outstanding - diluted
|
|
|
115,822,294
|
|
|
|
114,120,179
|
|
Net income attributable to Lazard Ltd per share of common stock:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.80
|
|
|
$
|
0.59
|
|
Diluted
|
|
$
|
0.75
|
|
|
$
|
0.56
|
|
31
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, 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 $173,678 and $135,955 for the three month periods ended March 31, 2021 and 2020, respectively, and are included in “asset management fees” on the condensed consolidated statements of operations. Of such amounts, $78,046 and $72,076 remained as receivables at March 31, 2021 and December 31, 2020, respectively, and are included in “fees receivable” on the condensed consolidated statements of financial condition.
Tax Receivable Agreement
The Second Amended and Restated Tax Receivable Agreement, dated as of October 26, 2015 (the “TRA”), between Lazard and LTBP Trust, a Delaware statutory trust (the “Trust”), provides for the payment by our subsidiaries to the Trust of (i) approximately 45% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of the increases in the tax basis of certain assets and of certain other tax benefits related to the TRA, and (ii) an amount that we currently expect will equal 85% of the cash tax savings that may arise from tax benefits attributable to payments under the TRA. Our subsidiaries expect to benefit from the balance of cash savings, if any, in income tax that our subsidiaries realize from such tax benefits. Any amount paid by our subsidiaries to the Trust will generally be distributed pro rata to the owners of the Trust, who include certain of our executive officers.
For purposes of the TRA, cash savings in income and franchise tax will be computed by comparing our subsidiaries’ actual income and franchise tax liability to the amount of such taxes that our subsidiaries would have been required to pay had there been no increase in the tax basis of certain assets of Lazard Group and had our subsidiaries not entered into the TRA. The term of the TRA will continue until approximately 2033 or, if earlier, until all relevant tax benefits have been utilized or expired.
The amount of the TRA liability is an undiscounted amount based upon the current tax laws and structure of the Company and various assumptions regarding potential future operating profitability. The assumptions reflected in the estimate involve significant judgment and if our structure or income assumptions were to change, we could be required to accelerate payments under the TRA. As such, the actual amount and timing of payments under the TRA could differ materially from our estimates. Any changes in the amount of the estimated liability would be recorded as a non-compensation expense in the condensed consolidated statement of operations. Adjustments, if necessary, to the related deferred tax assets would be recorded through the “provision (benefit) for income taxes”.
The cumulative liability relating to our obligations under the TRA as of March 31, 2021 and December 31, 2020 was $211,236 and $221,451, respectively, and is recorded in “tax receivable agreement obligation” on the condensed consolidated statements of financial condition. The balance at March 31, 2021 reflects a payment made under the TRA in the three months ended March 31, 2021 of $10,215.
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 March 31, 2021, LFNY’s regulatory net capital was $142,039, which exceeded the minimum requirement by $138,286. LFNY’s aggregate indebtedness to net capital ratio was 0.40:1 as of March 31, 2021.
Certain U.K. subsidiaries of the Company, including LCL, Lazard Fund Managers Limited and Lazard Asset Management Limited (collectively, the “U.K. Subsidiaries”) are regulated by the Financial Conduct Authority. At March 31, 2021, the aggregate regulatory net capital of the U.K. Subsidiaries was $185,727, which exceeded the minimum requirement by $161,659.
32
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
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 March 31, 2021, the consolidated regulatory net capital of CFLF was $141,077, which exceeded the minimum requirement set for regulatory capital levels by $72,867. In addition, pursuant to the consolidated supervision rules in the European Union, LFB, in particular, as a French credit institution, is required to be supervised by a regulatory body, either in the U.S. or in the European Union. 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 December 31, 2020, the regulatory net capital of the combined European regulated group was $184,842, which exceeded the minimum requirement set for regulatory capital levels by $66,782. Additionally, the combined European regulated group, together with our European Financial Advisory entities, is required to perform an annual risk assessment and provide certain other information on a periodic basis, including financial reports and information relating to financial performance, balance sheet data and capital structure.
Certain other U.S. and non-U.S. subsidiaries are subject to various capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At March 31, 2021, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $208,178, which exceeded the minimum required capital by $179,051.
At March 31, 2021, each of these subsidiaries individually was in compliance with its regulatory capital requirements.
Any new or expanded rules and regulations that may be adopted in countries in which we operate (including regulations that have not yet been proposed) could affect us in other ways.
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 periods ended March 31, 2021 and 2020 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.
33
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
Management evaluates segment results based on net revenue and operating income (loss) and believes that the following information provides a reasonable representation of each segment’s contribution with respect to net revenue, operating income (loss) and total assets:
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
Financial Advisory
|
|
Net Revenue
|
|
$
|
318,412
|
|
|
$
|
298,966
|
|
|
|
Operating Expenses
|
|
|
258,047
|
|
|
|
246,847
|
|
|
|
Operating Income
|
|
$
|
60,365
|
|
|
$
|
52,119
|
|
Asset Management
|
|
Net Revenue
|
|
$
|
347,490
|
|
|
$
|
282,521
|
|
|
|
Operating Expenses
|
|
|
232,103
|
|
|
|
204,769
|
|
|
|
Operating Income
|
|
$
|
115,387
|
|
|
$
|
77,752
|
|
Corporate
|
|
Net Revenue
|
|
$
|
(5,795
|
)
|
|
$
|
(43,473
|
)
|
|
|
Operating Expenses
|
|
|
35,667
|
|
|
|
2,301
|
|
|
|
Operating Loss
|
|
$
|
(41,462
|
)
|
|
$
|
(45,774
|
)
|
Total
|
|
Net Revenue
|
|
$
|
660,107
|
|
|
$
|
538,014
|
|
|
|
Operating Expenses
|
|
|
525,817
|
|
|
|
453,917
|
|
|
|
Operating Income
|
|
$
|
134,290
|
|
|
$
|
84,097
|
|
|
|
As Of
|
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Financial Advisory
|
|
$
|
1,162,247
|
|
|
$
|
1,181,783
|
|
Asset Management
|
|
|
893,605
|
|
|
|
958,588
|
|
Corporate
|
|
|
4,153,707
|
|
|
|
3,831,490
|
|
Total
|
|
$
|
6,209,559
|
|
|
$
|
5,971,861
|
|
34
LAZARD LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(UNAUDITED)
(dollars in thousands, except for per share data, unless otherwise noted)
The Company’s consolidated VIEs as of March 31, 2021 and December 31, 2020 include certain funds that were established for the benefit of employees participating in the Company’s existing LFI deferred compensation arrangement. Lazard invests in these funds and is the investment manager and is therefore deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these funds. The Company’s consolidated VIE assets and liabilities as reflected in the condensed consolidated statements of financial condition consist of the following at March 31, 2021 and December 31, 2020. The Company’s consolidated VIE assets, except as it relates to $170,080 and $121,376 of LFI held by Lazard Group as of March 31, 2021 and December 31, 2020, respectively, can only be used to settle the obligations of the consolidated VIEs.
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,425
|
|
|
$
|
3,558
|
|
Customers and other receivables
|
|
|
108
|
|
|
|
160
|
|
Investments
|
|
|
217,876
|
|
|
|
158,370
|
|
Other assets
|
|
|
767
|
|
|
|
400
|
|
Total Assets
|
|
$
|
221,176
|
|
|
$
|
162,488
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits and other customer payables
|
|
$
|
67
|
|
|
$
|
104
|
|
Other liabilities
|
|
|
469
|
|
|
|
491
|
|
Total Liabilities
|
|
$
|
536
|
|
|
$
|
595
|
|
35