8-K
Lazard, Inc. (LAZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 29, 2020
Lazard Ltd
(Exact name of registrant as specified in its charter)
| Bermuda | |
|---|---|
| (State or other jurisdiction of incorporation) | |
| 001-32492 | 98-0437848 |
| --- | --- |
| (Commission File Number) | (IRS Employer Identification No.) |
| Clarendon House, 2 Church Street, Hamilton, Bermuda | HM 11 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code 441-295-1422
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (seeGeneral Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Class A Common Stock | LAZ | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On October 29, 2020, Lazard Ltd (the “Company”) issued a press release announcing financial results for its third quarter ended September 30, 2020. A copy of the Company’s press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits |
|---|---|
| (d) Exhibits. | The following exhibits are filed or furnished as part of this Report on Form 8-K: |
| --- | --- |
| Exhibit<br>Number | Description of Exhibit |
| --- | --- |
| 99.1 | Press Release issued on October 29, 2020 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
EXHIBIT INDEX
| Exhibit<br>Number | Description of Exhibit |
|---|---|
| 99.1 | Press Release issued on October 29, 2020 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
| LAZARD LTD | |
|---|---|
| (Registrant) | |
| By: | /s/ Scott D. Hoffman |
| Name: | Scott D. Hoffman |
| Title: | Chief Administrative Officer and General Counsel |
Dated: October 29, 2020
EX-99.1
Exhibit 99.1
LAZARD LTD REPORTS
THIRD-QUARTER AND NINE-MONTH 2020 RESULTS
| Operating revenue<br><br><br>momentum in Financial<br><br><br>Advisory and Asset<br><br><br>Management | M&A announcements<br><br><br>accelerated in U.S.<br> <br>andEurope; global leader in<br> <br>restructuring | Average assets under<br><br><br>management increased<br> <br>8%from the<br> <br>second quarter |
|---|
NEW YORK, October 29, 2020 – Lazard Ltd (NYSE: LAZ) today reported operating revenue^1^ of $569 million for the quarter ended September 30, 2020. Net income, as adjusted^2^, was $76 million, or $0.67 per share (diluted) for the quarter. On a U.S. GAAP basis, third-quarter 2020 net income was $75 million, or $0.66 per share (diluted).
For the first nine months of 2020, net income, as adjusted, was $218 million, or $1.92 per share (diluted). On a U.S. GAAP basis, net income for the first nine months was $213 million, or $1.88 per share (diluted).
“We are performing well in a volatile environment, with momentum across our businesses,” said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. “Our services are in demand around the world as our clients seek expert advice and solutions in a period of unprecedented change.”
| ( in millions, except per share data and AUM) | Nine Months EndedSept. 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | %’20-’19 | 2020 | 2019 | %’20-’19 | |||||||||
| Net Income | |||||||||||||
| US GAAP | 75 | $ | 47 | 61 | % | $ | 213 | $ | 210 | 1 | % | ||
| Per share, diluted | 0.66 | $ | 0.40 | 65 | % | $ | 1.88 | $ | 1.77 | 6 | % | ||
| Adjusted2 | 76 | $ | 88 | (14 | )% | $ | 218 | $ | 280 | (22 | )% | ||
| Per share, diluted | 0.67 | $ | 0.76 | (12 | )% | $ | 1.92 | $ | 2.37 | (19 | )% | ||
| Operating Revenue1 | |||||||||||||
| Total operating revenue | 569 | $ | 588 | (3 | )% | $ | 1,675 | $ | 1,838 | (9 | )% | ||
| Financial Advisory | 307 | $ | 304 | 1 | % | $ | 895 | $ | 963 | (7 | )% | ||
| Asset Management | 261 | $ | 283 | (8 | )% | $ | 775 | $ | 858 | (10 | )% | ||
| AUM ( in billions) | |||||||||||||
| Period End | 228 | $ | 231 | (1 | )% | ||||||||
| Average | 226 | $ | 234 | (3 | )% | $ | 219 | $ | 233 | (6 | )% |
All values are in US Dollars.
| Media Contact: Judi Frost Mackey | +1 212 632 1428 | judi.mackey@lazard.com |
|---|---|---|
| Investor Contact: Alexandra Deignan | +1 212 632 6886 | alexandra.deignan@lazard.com |
Note: Endnotes are on page 6 of this release. A reconciliation of U.S. GAAP to adjusted GAAP is on pages 13-14.
1
OPERATING REVENUE
Operating revenue^1^ was $569 million for the third quarter of 2020, and $1,675 million for the first nine months of 2020, down 3% and 9% from the respective 2019 periods.
Financial Advisory
Our Financial Advisory results include M&A Advisory, Capital Advisory, Capital Raising, Restructuring, Shareholder Advisory, Sovereign Advisory, andother strategic advisory work for clients.
For the third quarter of 2020, Financial Advisory operating revenue was $307 million, 1% higher than the third quarter of 2019. These results reflected increasing M&A and Restructuring activity.
For the first nine months of 2020, Financial Advisory operating revenue was $895 million, 7% lower than the first nine months of 2019.
During and since the third quarter of 2020, Lazard has been engaged in significant and complex M&A transactions and other advisory assignments globally, including the following (clients are in italics): Altice Europe in the $45.1 billion take-private offer by Patrick Drahi; Gilead ’ s $21 billion acquisition of Immunomedics; Teladoc Health ’ s $18.5 billion merger with Livongo; AVEVA ’ s $5 billion acquisition of OSIsoft; El Paso Electric ’ s $4.3 billion sale to Infrastructure Investments Fund; Iliad ’ s $4.3 billion acquisition of Play; ENGIE ’ s €3.4 billion sale of a 29.9% stake in Suez to Veolia; MassMutual ’ s $3.4 billion sale of its retirement plan business to Empower Retirement; Aimmune ’ s $2.6 billion sale to Nestlé Health Science; ServiceMaster ’ s $1.6 billion sale of its ServiceMaster Brands franchise business to Roark Capital; Siemens on the spin-off of Siemens Energy; and IBM on the separation of its Managed Infrastructure Services unit.
Lazard has one of the world’s preeminent restructuring practices, with a long track record of successfully advising businesses and governments. During and since the third quarter of 2020, we have been engaged in a broad range of highly visible and complex restructuring and debt advisory assignments for debtors or creditors, including roles involving: 24 Hour Fitness; Abengoa; Diamond Offshore Drilling; FTS International; Gavilan Resources; Hi-Crush; J.C. Penney; J.Crew; Libbey; Neiman Marcus; NMC Health; Premier Oil; Pyxus International; Salt Creek Midstream; Seadrill Limited; Technicolor; Transocean; Ursa Piceance; and Valaris. Lazard was the global leader in completed restructurings for the first nine months of 2020 (Source: Refinitiv).
Our Capital and Shareholder Advisory practices remain active globally, advising on a broad range of public and private assignments. Our Sovereign Advisory practice continues to be active advising governments, sovereign and sub-sovereign entities across developed and emerging markets.
For a list of Lazard’s publicly announced Financial Advisory transactions, please visit our website at www.lazard.com/businesses/transactions.
2
Asset Management
In the text portion of this press release, we present our Asset Management results as 1) Management fees and other revenue, and 2) Incentive fees.
For the third quarter of 2020, Asset Management operating revenue was $261 million, 8% lower than the third quarter of 2019. For the first nine months of 2020, Asset Management operating revenue was $775 million, 10% lower than than the first nine months of 2019.
For the third quarter of 2020, management fees and other revenue was $258 million, 8% lower than the third quarter of 2019, and 5% higher than the second quarter of 2020. For the first nine months of 2020, management fees and other revenue was $770 million, 9% lower than the first nine months of 2019.
Average assets under management (AUM) for the third quarter of 2020 was $226 billion, 3% lower than the third quarter of 2019, and 8% higher than the second quarter of 2020. Average AUM for the first nine months of 2020 was $219 billion, 6% lower than the first nine months of 2019.
AUM as of September 30, 2020, was $228 billion, down 1% from September 30, 2019, and up 6% from June 30, 2020. The sequential increase was driven primarily by market appreciation of $9.5 billion and foreign exchange appreciation of $3.7 billion, offset by net outflows of $0.2 billion.
For the third quarter of 2020, incentive fees were $3 million, compared to $1 million for the third quarter of 2019. For the first nine months of 2020, incentive fees were $6 million, compared to $7 million for the first nine months of 2019.
OPERATING EXPENSES
Compensation and Benefits
In managingcompensation and benefits expense, we focus on annual awarded compensation (cash compensation and benefits plus deferred incentive compensation with respect to the applicable year, net of estimated future forfeitures and excluding charges). Webelieve annual awarded compensation reflects the actual annual compensation cost more accurately than the GAAP measure of compensation cost, which includes applicable-year cash compensation and the amortization of deferred incentive compensationprincipally attributable to previous years’ deferred compensation. We believe that by managing our business using awarded compensation with a consistent deferral policy, we can better manage our compensation costs, increase our flexibility inthe future and build shareholder value over time.
For the third quarter of 2020, we accrued adjusted compensation and benefits expense^1^at an adjusted compensation^1^ ratio of 60%. This resulted in $341 million of adjusted compensation and benefits expense, compared to $338 million for the third quarter of 2019.
For the first nine months of 2020, adjusted compensation and benefits expense^^was $1,005 million, compared to $1,057 million for the first nine months of 2019.
3
We manage our compensation and benefits expense based on awarded compensation with a consistent deferral policy. We take a disciplined approach to compensation, and our goal is to maintain a compensation-to-operating revenue ratio over the cycle in the mid- to high-50s percentage range on both an awarded and adjusted basis, with consistent deferral policies.
Non-Compensation Expense
Adjusted non-compensation expense^1^ for the third quarter of 2020 was $103 million, 18% lower than the third quarter of 2019. The ratio of adjusted non-compensation expense to operating revenue^1^ for the third quarter of 2020 was 18.1%, compared to 21.3% for the third quarter of 2019.
Adjusted non-compensation expense for the first nine months of 2020 was $315 million, 15% lower than the first nine months of 2019. The ratio of adjusted non-compensation expense to operating revenue for the first nine months of 2020 was 18.8%, compared to 20.1% for the first nine months of 2019.
Our goal remains to achieve an adjusted non-compensation expense-to-operating revenue ratio over the cycle of 16% to 20%.
TAXES
The provision for taxes, on an adjusted basis^1^, was $29 million for the third quarter of 2020 and $80 million for the first nine months of 2020. The effective tax rate on the same basis was 27.9% for the third quarter and 26.9% for the first nine months of 2020, compared to 16.6% and 21.7% for the respective 2019 periods.
CAPITAL MANAGEMENT AND BALANCE SHEET
Our primary capital management goals include managing debt and returning capital to shareholders through dividends and share repurchases.
For the third quarter of 2020, Lazard returned $50 million to shareholders, which included: $49 million in dividends and $1 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.
For the first nine months of 2020, Lazard returned $314 million to shareholders, which included: $147 million in dividends; $95 million in share repurchases of our Class A common stock; and $72 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.
During the first nine months of 2020, we repurchased 2.9 million shares at an average price of $32.70 per share. As of September 30, 2020, our remaining share repurchase authorization is $306 million.
4
On October 28, 2020, Lazard declared a quarterly dividend of $0.47 per share on its outstanding common stock. The dividend is payable on November 20, 2020, to stockholders of record on November 9, 2020.
Lazard’s financial position remains strong. As of September 30, 2020, our cash and cash equivalents were $1,110 million. Stockholders’ equity related to Lazard’s interests was $694 million.
COVID-19 ENVIRONMENT UPDATE
During the third quarter of 2020, the COVID-19 pandemic continued to have a negative impact on economic activity around the world. Governments and central banks have taken extraordinary measures to support local economies and capital markets, but the macroeconomic outlook remains uncertain while significant health risks persist.
Lazard’s offices around the world have continued to operate in the context of applicable local regulations and guidelines regarding business activity, and in the third quarter, the majority of our people worked remotely, employing virtual and secure cloud-based systems.
While the global M&A market strengthened in the third quarter, we continue to expect a challenging business environment in the near term due to elevated uncertainty and capital markets volatility. We believe that our strong financial position, the diversity of our business, and our consistent focus on cost discipline will enable us to weather the economic downturn.
***
CONFERENCE CALL
Lazard will host a conference call at 8:00 a.m. EDT on October 29, 2020, to discuss the company’s financial results for the third quarter and first nine months of 2020. The conference call can be accessed via a live audio webcast available through Lazard’s Investor Relations website at www.lazard.com, or by dialing 1 (800) 289-0438 (toll-free, U.S. and Canada) or +1 (323) 794-2423 (outside of the U.S. and Canada), 15 minutes prior to the start of the call.
A replay of the conference call will be available by 10:00 a.m. EDT on October 29, 2020, via the Lazard Investor Relations website, www.lazard.com, or by dialing 1 (888) 203-1112 (toll-free, U.S. and Canada) or +1 (719) 457-0820 (outside of the U.S. and Canada). The replay access code is: 8159566.
ABOUT LAZARD
Lazard, one of the world’s preeminent financial advisory and asset management firms, operates from more than 40 cities across 25 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.
***
5
Cautionary Note Regarding Forward-Looking Statements:
This press release contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”,“might”, “will”, “should”, “could”, “would”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”,“target,” “goal”, or “continue”, and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us,may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements are only predictions based on our current expectations andprojections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed orimplied by these forward-looking statements.
These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A “Risk Factors,” and also discussed from time to time in our reports on Forms 10-Q and 8-K, including thefollowing:
| • | A decline in general economic conditions or the global or regional financial markets;<br> |
|---|---|
| • | A decline in our revenues, for example due to a decline in overall mergers and acquisitions (M&A) activity,our share of the M&A market or our assets under management (AUM); |
| --- | --- |
| • | Losses caused by financial or other problems experienced by third parties; |
| --- | --- |
| • | Losses due to unidentified or unanticipated risks; |
| --- | --- |
| • | A lack of liquidity, i.e., ready access to funds, for use in our businesses; and |
| --- | --- |
| • | Competitive pressure on our businesses and on our ability to retain and attract employees at currentcompensation levels. |
| --- | --- |
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannotguarantee future results, level of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-lookingstatements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this release to conform our prior statements to actual results or revised expectations and we do not intend to doso.
Lazard Ltd is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatoryobligations. To that end, Lazard and its operating companies use their websites, Lazard’s Twitter account (twitter.com/Lazard) and other social media sites to convey information about their businesses, including the anticipated release ofquarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of assets under management in various mutual funds, hedge funds and other investment products managed by Lazard AssetManagement LLC and Lazard Frères Gestion SAS. Investors can link to Lazard and its operating company websites through www.lazard.com.
***
ENDNOTES
^1^ A non-U.S. GAAP measure. See attached financial schedules and related notes for a detailed explanation of adjustments to corresponding U.S. GAAP results. We believe that presenting our results on an adjusted basis, in addition to U.S. GAAP results, is the most meaningful and useful way to compare our operating results across periods.
^2^ Third-quarter and first-nine-months 2020 adjusted results^1^ exclude pre-tax charges of $2.3 million and $8.5 million, respectively, of costs relating to an office space reorganization. On a U.S. GAAP basis, these resulted in a net charge of $1 million, or $0.01 (diluted) per share, for the third quarter, and a net charge of $5.2 million, or $0.05 (diluted) per share, for the first nine months of 2020.
LAZ-EPE
6
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. GAAP)
| Three Months Ended | % Change From | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br>2020 | June 30,<br>2020 | September 30,<br>2019 | June 30,<br>2020 | September 30,<br>2019 | |||||||||
| Total revenue | $ | 598,022 | $ | 592,264 | $ | 611,073 | 1 | % | (2%) | |||||
| Interest expense | (20,344 | ) | (19,972 | ) | (20,005 | ) | ||||||||
| Net revenue | 577,678 | 572,292 | 591,068 | 1 | % | (2%) | ||||||||
| Operating expenses: | ||||||||||||||
| Compensation and benefits | 354,625 | 351,568 | 391,363 | 1 | % | (9%) | ||||||||
| Occupancy and equipment | 31,318 | 30,574 | 29,856 | |||||||||||
| Marketing and business development | 7,562 | 6,517 | 27,318 | |||||||||||
| Technology and information services | 33,457 | 32,629 | 34,076 | |||||||||||
| Professional services | 14,701 | 16,728 | 15,105 | |||||||||||
| Fund administration and outsourced services | 26,196 | 24,053 | 28,425 | |||||||||||
| Amortization and other acquisition-related costs | 458 | 455 | 1,022 | |||||||||||
| Other | 4,681 | 13,903 | 11,530 | |||||||||||
| Subtotal | 118,373 | 124,859 | 147,332 | (5 | %) | (20%) | ||||||||
| Operating expenses | 472,998 | 476,427 | 538,695 | (1 | %) | (12%) | ||||||||
| Operating income | 104,680 | 95,865 | 52,373 | 9 | % | NM | ||||||||
| Provision for income taxes | 28,165 | 22,789 | 4,177 | 24 | % | NM | ||||||||
| Net income | 76,515 | 73,076 | 48,196 | 5 | % | 59% | ||||||||
| Net income (loss) attributable to noncontrolling interests | 1,423 | (382 | ) | 1,492 | ||||||||||
| Net income attributable to Lazard Ltd | $ | 75,092 | $ | 73,458 | $ | 46,704 | 2 | % | 61% | |||||
| Attributable to Lazard Ltd Common Stockholders: | ||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||
| Basic | 107,168,615 | 106,662,064 | 109,285,727 | 0 | % | (2%) | ||||||||
| Diluted | 113,181,564 | 111,487,749 | 113,881,690 | 2 | % | (1%) | ||||||||
| Net income per share: | ||||||||||||||
| Basic | $ | 0.69 | $ | 0.68 | $ | 0.42 | 1 | % | 64% | |||||
| Diluted | $ | 0.66 | $ | 0.66 | $ | 0.40 | 0 | % | 65% |
7
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. GAAP)
| Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br>2020 | September 30,<br>2019 | % Change | ||||||
| Total revenue | $ | 1,748,443 | $ | 1,923,552 | (9 | %) | |||
| Interest expense | (60,459 | ) | (58,120 | ) | |||||
| Net revenue | 1,687,984 | 1,865,432 | (10 | %) | |||||
| Operating expenses: | |||||||||
| Compensation and benefits | 1,025,948 | 1,136,087 | (10 | %) | |||||
| Occupancy and equipment | 94,090 | 89,104 | |||||||
| Marketing and business development | 34,265 | 84,086 | |||||||
| Technology and information services | 97,444 | 104,956 | |||||||
| Professional services | 45,974 | 48,466 | |||||||
| Fund administration and outsourced services | 76,639 | 85,848 | |||||||
| Amortization and other acquisition-related costs | 1,359 | 9,534 | |||||||
| Other | 27,623 | 33,630 | |||||||
| Subtotal | 377,394 | 455,624 | (17 | %) | |||||
| Operating expenses | 1,403,342 | 1,591,711 | (12 | %) | |||||
| Operating income | 284,642 | 273,721 | 4 | % | |||||
| Provision for income taxes | 76,720 | 55,536 | 38 | % | |||||
| Net income | 207,922 | 218,185 | (5 | %) | |||||
| Net income (loss) attributable to noncontrolling interests | (4,650 | ) | 8,662 | ||||||
| Net income attributable to Lazard Ltd | $ | 212,572 | $ | 209,523 | 1 | % | |||
| Attributable to Lazard Ltd Common Stockholders: | |||||||||
| Weighted average shares outstanding: | |||||||||
| Basic | 106,711,547 | 111,070,395 | (4 | %) | |||||
| Diluted | 112,929,830 | 116,959,041 | (3 | %) | |||||
| Net income per share: | |||||||||
| Basic | $ | 1.96 | $ | 1.87 | 5 | % | |||
| Diluted | $ | 1.88 | $ | 1.77 | 6 | % |
8
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
(U.S. GAAP)
| ( in thousands) | December 31,<br>2019 | ||||
|---|---|---|---|---|---|
| ASSETS | **** | ||||
| Cash and cash equivalents | 1,109,745 | $ | 1,231,593 | ||
| Deposits with banks and short-term investments | 1,193,717 | 1,180,686 | |||
| Cash deposited with clearing organizations and other segregated cash | 41,260 | 43,280 | |||
| Receivables | 575,098 | 663,138 | |||
| Investments | 535,245 | 531,995 | |||
| Goodwill and other intangible assets | 373,841 | 373,594 | |||
| Operating lease<br>right-of-use assets | 517,583 | 551,504 | |||
| Deferred tax assets | 557,120 | 586,750 | |||
| Other assets | 563,388 | 477,041 | |||
| Total Assets | 5,466,997 | $ | 5,639,581 | ||
| LIABILITIES & STOCKHOLDERS’ EQUITY | **** | ||||
| Liabilities | |||||
| Deposits and other customer payables | 1,244,562 | $ | 1,246,200 | ||
| Accrued compensation and benefits | 451,180 | 602,777 | |||
| Operating lease liabilities | 609,850 | 644,345 | |||
| Tax receivable agreement obligation | 221,890 | 247,344 | |||
| Senior debt | 1,681,487 | 1,679,562 | |||
| Other liabilities | 479,330 | 537,779 | |||
| Total liabilities | 4,688,299 | 4,958,007 | |||
| Commitments and contingencies | |||||
| Stockholders’ equity | |||||
| Preferred stock, par value .01 per share | — | — | |||
| Common stock, par value .01 per share | 1,128 | 1,128 | |||
| Additional paid-in capital | 95,143 | 41,020 | |||
| Retained earnings | 1,160,310 | 1,193,570 | |||
| Accumulated other comprehensive loss, net of tax | (279,785 | ) | (293,648 | ) | |
| Subtotal | 976,796 | 942,070 | |||
| Class A common stock held by subsidiaries, at cost | (282,983 | ) | (332,079 | ) | |
| Total Lazard Ltd stockholders’ equity | 693,813 | 609,991 | |||
| Noncontrolling interests | 84,885 | 71,583 | |||
| Total stockholders’ equity | 778,698 | 681,574 | |||
| Total liabilities and stockholders’ equity | 5,466,997 | $ | 5,639,581 |
All values are in US Dollars.
9
LAZARD LTD
SELECTED SUMMARY FINANCIAL INFORMATION (a)
(Non-GAAP - unaudited)
| Three Months Ended | % Change From | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br>2020 | June 30,<br>2020 | September 30,<br>2019 | June 30,<br>2020 | September 30,<br>2019 | |||||||
| Revenues: | ||||||||||||
| Financial Advisory | $ | 306,977 | $ | 292,906 | $ | 303,901 | 5% | 1% | ||||
| Asset Management | 261,047 | 245,346 | 282,596 | 6% | (8% | ) | ||||||
| Corporate | 1,023 | 4,662 | 1,765 | (78% | ) | (42% | ) | |||||
| Operating revenue (b) | $ | 569,047 | $ | 542,914 | $ | 588,262 | 5% | (3% | ) | |||
| Expenses: | ||||||||||||
| Adjusted compensation and benefits expense (c) | $ | 341,428 | $ | 325,749 | $ | 338,250 | 5% | 1% | ||||
| Ratio of adjusted compensation to operating revenue | 60.0% | 60.0% | 57.5% | |||||||||
| Non-compensation expense (d) | $ | 103,081 | $ | 99,617 | $ | 125,185 | 3% | (18% | ) | |||
| Ratio of non-compensation to operatingrevenue | 18.1% | 18.3% | 21.3% | |||||||||
| Earnings: | ||||||||||||
| Earnings from operations (e) | $ | 124,538 | $ | 117,548 | $ | 124,827 | 6% | 0% | ||||
| Operating margin (f) | 21.9% | 21.7% | 21.2% | |||||||||
| Adjusted net income (g) | $ | 76,102 | $ | 75,151 | $ | 88,260 | 1% | (14% | ) | |||
| Diluted adjusted net income per share | $ | 0.67 | $ | 0.67 | $ | 0.76 | 0% | (12% | ) | |||
| Diluted weighted average shares (h) | 113,780,625 | 111,845,101 | 115,513,679 | 2% | (2% | ) | ||||||
| Effective tax rate (i) | 27.9% | 23.9% | 16.6% |
This presentation includes non-U.S. GAAP (“non-GAAP”) measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.
10
LAZARD LTD
SELECTED SUMMARY FINANCIAL INFORMATION (a)
(Non-GAAP - unaudited)
| Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br>2020 | September 30,<br>2019 | %<br>Change | ||||||
| Revenues: | |||||||||
| Financial Advisory | $ | 894,656 | $ | 962,709 | (7 | %) | |||
| Asset Management | 775,346 | 857,599 | (10 | %) | |||||
| Corporate | 4,770 | 17,644 | (73 | %) | |||||
| Operating revenue (b) | $ | 1,674,772 | $ | 1,837,952 | (9 | %) | |||
| Expenses: | |||||||||
| Adjusted compensation and benefits expense (c) | $ | 1,004,863 | $ | 1,056,822 | (5 | %) | |||
| Ratio of adjusted compensation to operating revenue | 60.0 | % | 57.5 | % | |||||
| Non-compensation expense (d) | $ | 315,330 | $ | 368,936 | (15 | %) | |||
| Ratio of non-compensation to operatingrevenue | 18.8 | % | 20.1 | % | |||||
| Earnings: | |||||||||
| Earnings from operations (e) | $ | 354,579 | $ | 412,194 | (14 | %) | |||
| Operating margin (f) | 21.2 | % | 22.4 | % | |||||
| Adjusted net income (g) | $ | 217,805 | $ | 279,543 | (22 | %) | |||
| Diluted adjusted net income per share | $ | 1.92 | $ | 2.37 | (19 | %) | |||
| Diluted weighted average shares (h) | 113,261,923 | 117,957,075 | (4 | %) | |||||
| Effective tax rate (i) | 26.9 | % | 21.7 | % |
This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.
11
LAZARD LTD
ASSETS UNDER MANAGEMENT (“AUM”)
(unaudited)
($ inmillions)
| As of | Variance | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30,<br>2020 | June 30,<br>2020 | December 31,<br>2019 | Qtr to Qtr | YTD | ||||||||||
| Equity: | ||||||||||||||
| Emerging Markets | $ | 29,942 | $ | 28,937 | $ | 40,612 | 3.5 | % | (26.3 | %) | ||||
| Global | 48,382 | 45,178 | 49,759 | 7.1 | % | (2.8 | %) | |||||||
| Local | 43,559 | 43,477 | 48,985 | 0.2 | % | (11.1 | %) | |||||||
| Multi-Regional | 61,872 | 55,923 | 66,185 | 10.6 | % | (6.5 | %) | |||||||
| Total Equity | 183,755 | 173,515 | 205,541 | 5.9 | % | (10.6 | %) | |||||||
| Fixed Income: | ||||||||||||||
| Emerging Markets | 12,743 | 12,412 | 14,387 | 2.7 | % | (11.4 | %) | |||||||
| Global | 9,948 | 9,883 | 9,233 | 0.7 | % | 7.7 | % | |||||||
| Local | 5,554 | 5,436 | 5,450 | 2.2 | % | 1.9 | % | |||||||
| Multi-Regional | 11,252 | 9,153 | 9,193 | 22.9 | % | 22.4 | % | |||||||
| Total Fixed Income | 39,497 | 36,884 | 38,263 | 7.1 | % | 3.2 | % | |||||||
| Alternative Investments | 2,283 | 2,028 | 2,149 | 12.6 | % | 6.2 | % | |||||||
| Private Equity | 1,396 | 1,412 | 1,385 | (1.1 | %) | 0.8 | % | |||||||
| Cash Management | 821 | 865 | 901 | (5.1 | %) | (8.9 | %) | |||||||
| Total AUM | $ | 227,752 | $ | 214,704 | $ | 248,239 | 6.1 | % | (8.3 | %) | ||||
| Three Months Ended September 30 | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| AUM - Beginning of Period | $ | 214,704 | $ | 237,466 | $ | 248,239 | $ | 214,734 | ||||||
| Net Flows | (201 | ) | (4,385 | ) | (11,082 | ) | (9,593 | ) | ||||||
| Market and foreign exchange appreciation (depreciation) | 13,249 | (2,207 | ) | (9,405 | ) | 25,733 | ||||||||
| AUM - End of Period | $ | 227,752 | $ | 230,874 | $ | 227,752 | $ | 230,874 | ||||||
| Average AUM | $ | 226,046 | $ | 233,878 | $ | 218,652 | $ | 232,885 | ||||||
| % Change in average AUM | (3.3 | %) | (6.1 | %) |
Note: Average AUM generally represents the average of the monthly ending AUM balances for the period.
12
LAZARD LTD
RECONCILIATION OF U.S. GAAP TO SELECTED SUMMARY FINANCIAL INFORMATION (a)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||
| ($ in thousands, except per share data) | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Operating Revenue | **** | ||||||||||||||
| Net revenue - U.S. GAAP Basis | $ | 577,678 | $ | 572,292 | $ | 591,068 | $ | 1,687,984 | $ | 1,865,432 | |||||
| Adjustments: | |||||||||||||||
| Revenue related to noncontrolling interests (j) | (4,042 | ) | (2,173 | ) | (4,164 | ) | (3,443 | ) | (18,254 | ) | |||||
| Gains related to Lazard Fund Interests (“LFI”) and other similar arrangements | (11,261 | ) | (23,803 | ) | (1,764 | ) | (15,427 | ) | (22,118 | ) | |||||
| Distribution fees, reimbursable deal costs and bad debt expense (k) | (12,016 | ) | (21,936 | ) | (15,413 | ) | (50,336 | ) | (53,102 | ) | |||||
| Private Equity investment adjustment (l) | — | — | — | — | 11,948 | ||||||||||
| Interest expense | 18,688 | 18,534 | 18,535 | 55,994 | 54,046 | ||||||||||
| Operating revenue, as adjusted (b) | $ | 569,047 | $ | 542,914 | $ | 588,262 | $ | 1,674,772 | $ | 1,837,952 | |||||
| Compensation and Benefits Expense | **** | ||||||||||||||
| Compensation and benefits expense - U.S. GAAP Basis | $ | 354,625 | $ | 351,568 | $ | 391,363 | $ | 1,025,948 | $ | 1,136,087 | |||||
| Adjustments: | |||||||||||||||
| Expenses associated with business realignment (m) | — | — | (49,119 | ) | — | (49,119 | ) | ||||||||
| Charges pertaining to LFI and other similar arrangements | (11,261 | ) | (23,803 | ) | (1,764 | ) | (15,427 | ) | (22,118 | ) | |||||
| Compensation related to noncontrolling interests (j) | (1,936 | ) | (2,016 | ) | (2,230 | ) | (5,658 | ) | (8,028 | ) | |||||
| Compensation and benefits expense, as adjusted (c) | $ | 341,428 | $ | 325,749 | $ | 338,250 | $ | 1,004,863 | $ | 1,056,822 | |||||
| Non-Compensation Expense | **** | ||||||||||||||
| Non-compensation expense - Subtotal - U.S. GAAP<br>Basis | $ | 118,373 | $ | 124,859 | $ | 147,332 | $ | 377,394 | $ | 455,624 | |||||
| Adjustments: | |||||||||||||||
| Expenses associated with business realignment (m) | — | — | (1,810 | ) | — | (1,810 | ) | ||||||||
| Expenses associated with ERP system implementation (n) | — | — | (2,362 | ) | — | (13,193 | ) | ||||||||
| Expenses related to office space reorganization (o) | (2,311 | ) | (2,487 | ) | (1,143 | ) | (8,462 | ) | (1,143 | ) | |||||
| Distribution fees, reimbursable deal costs and bad debt expense (k) | (12,016 | ) | (21,936 | ) | (15,413 | ) | (50,336 | ) | (53,102 | ) | |||||
| Amortization and other acquisition-related costs (p) | (458 | ) | (455 | ) | (1,022 | ) | (1,359 | ) | (9,534 | ) | |||||
| Charges pertaining to Senior Debt refinancing (q) | — | — | — | — | (6,505 | ) | |||||||||
| Non-compensation expense related to noncontrolling<br>interests (j) | (507 | ) | (364 | ) | (397 | ) | (1,907 | ) | (1,401 | ) | |||||
| Non-compensation expense, as adjusted (d) | $ | 103,081 | $ | 99,617 | $ | 125,185 | $ | 315,330 | $ | 368,936 | |||||
| Pre-Tax Income and Earnings From Operations | **** | ||||||||||||||
| Operating Income - U.S. GAAP Basis | $ | 104,680 | $ | 95,865 | $ | 52,373 | $ | 284,642 | $ | 273,721 | |||||
| Adjustments: | |||||||||||||||
| Expenses associated with business realignment (m) | — | — | 51,454 | — | 51,454 | ||||||||||
| Expenses associated with ERP system implementation (n) | — | — | 2,362 | — | 13,193 | ||||||||||
| Expenses related to office space reorganization (o) | 2,311 | 2,487 | 1,143 | 8,462 | 1,143 | ||||||||||
| Acquisition-related costs (benefits) (p) | — | — | (74 | ) | — | 7,577 | |||||||||
| Private Equity investment adjustment (l) | — | — | — | — | 11,948 | ||||||||||
| Charges pertaining to Senior Debt refinancing (q) | — | — | — | — | 6,805 | ||||||||||
| Net (income) loss related to noncontrolling interests (j) | (1,423 | ) | 382 | (1,492 | ) | 4,650 | (8,662 | ) | |||||||
| Pre-tax income, as adjusted | 105,568 | 98,734 | 105,766 | 297,754 | 357,179 | ||||||||||
| Interest expense | 18,688 | 18,534 | 18,535 | 55,994 | 53,746 | ||||||||||
| Amortization (LAZ only) | 282 | 280 | 526 | 831 | 1,269 | ||||||||||
| Earnings from operations, as adjusted (e) | $ | 124,538 | $ | 117,548 | $ | 124,827 | $ | 354,579 | $ | 412,194 | |||||
| Net Income attributable to Lazard Ltd | **** | ||||||||||||||
| Net income attributable to Lazard Ltd—U.S. GAAP Basis | $ | 75,092 | $ | 73,458 | $ | 46,704 | $ | 212,572 | $ | 209,523 | |||||
| Adjustments: | |||||||||||||||
| Expenses associated with business realignment (m) | — | — | 51,454 | — | 51,454 | ||||||||||
| Expenses associated with ERP system implementation (n) | — | — | 2,362 | — | 13,193 | ||||||||||
| Expenses related to office space reorganization (o) | 2,311 | 2,487 | 1,143 | 8,462 | 1,143 | ||||||||||
| Acquisition-related costs (benefits) (p) | — | — | (74 | ) | — | 7,577 | |||||||||
| Private Equity investment adjustment (l) | — | — | — | — | 11,948 | ||||||||||
| Charges pertaining to Senior Debt refinancing (q) | — | — | — | — | 6,805 | ||||||||||
| Tax benefit allocated to adjustments | (1,301 | ) | (794 | ) | (13,329 | ) | (3,229 | ) | (22,100 | ) | |||||
| Net income, as adjusted (g) | $ | 76,102 | $ | 75,151 | $ | 88,260 | $ | 217,805 | $ | 279,543 | |||||
| Diluted Weighted Average Shares Outstanding | **** | ||||||||||||||
| Diluted Weighted Average Shares Outstanding - U.S. GAAP Basis | 113,181,564 | 111,487,749 | 113,881,690 | 112,929,830 | 116,959,041 | ||||||||||
| Adjustment: participating securities including profits interest participation rights | 599,061 | 357,352 | 1,631,989 | 332,093 | 998,034 | ||||||||||
| Diluted Weighted Average Shares Outstanding, as adjusted (h) | 113,780,625 | 111,845,101 | 115,513,679 | 113,261,923 | 117,957,075 | ||||||||||
| Diluted net income per share: | |||||||||||||||
| U.S. GAAP Basis | $ | 0.66 | $ | 0.66 | $ | 0.40 | $ | 1.88 | $ | 1.77 | |||||
| Non-GAAP Basis, as adjusted | $ | 0.67 | $ | 0.67 | $ | 0.76 | $ | 1.92 | $ | 2.37 |
This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to comparable U.S. GAAP measures, see Notes to Financial Schedules.
See Notes to Financial Schedules
13
LAZARD LTD
RECONCILIATION OF NON-COMPENSATION U.S. GAAP TO ADJUSTED (a)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||
| ($ in thousands) | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Non-compensation expense - U.S. GAAP Basis: | |||||||||||||||
| Occupancy and equipment | $ | 31,318 | $ | 30,574 | $ | 29,856 | $ | 94,090 | $ | 89,104 | |||||
| Marketing and business development | 7,562 | 6,517 | 27,318 | 34,265 | 84,086 | ||||||||||
| Technology and information services | 33,457 | 32,629 | 34,076 | 97,444 | 104,956 | ||||||||||
| Professional services | 14,701 | 16,728 | 15,105 | 45,974 | 48,466 | ||||||||||
| Fund administration and outsourced services | 26,196 | 24,053 | 28,425 | 76,639 | 85,848 | ||||||||||
| Amortization and other acquisition-related costs | 458 | 455 | 1,022 | 1,359 | 9,534 | ||||||||||
| Other | 4,681 | 13,903 | 11,530 | 27,623 | 33,630 | ||||||||||
| Non-compensation expense - Subtotal - U.S. GAAP<br>Basis | $ | 118,373 | $ | 124,859 | $ | 147,332 | $ | 377,394 | $ | 455,624 | |||||
| Non-compensation expense - Adjustments: | |||||||||||||||
| Occupancy and equipment (j) (o) | ($ | 2,278 | ) | ($ | 2,448 | ) | ($ | 1,195 | ) | ($ | 8,459 | ) | ($ | 1,253 | ) |
| Marketing and business development (j) (k) (m) (n) | (185 | ) | (755 | ) | (3,005 | ) | (3,631 | ) | (12,902 | ) | |||||
| Technology and information services (j) (k) (n) | (169 | ) | (167 | ) | (2,396 | ) | (771 | ) | (13,099 | ) | |||||
| Professional services (j) (k) (n) (o) | (2,269 | ) | (1,658 | ) | (1,392 | ) | (5,705 | ) | (4,847 | ) | |||||
| Fund administration and outsourced services (j) (k) | (13,593 | ) | (10,129 | ) | (13,329 | ) | (35,842 | ) | (41,787 | ) | |||||
| Amortization and other acquisition-related costs (m) (p) | (458 | ) | (455 | ) | (1,022 | ) | (1,359 | ) | (9,534 | ) | |||||
| Other (j) (k) (m) (n) (q) | 3,660 | (9,630 | ) | 192 | (6,297 | ) | (3,266 | ) | |||||||
| Subtotal Non-compensation adjustments | ($ | 15,292 | ) | ($ | 25,242 | ) | ($ | 22,147 | ) | ($ | 62,064 | ) | ($ | 86,688 | ) |
| Non-compensation expense, as adjusted: | |||||||||||||||
| Occupancy and equipment | $ | 29,040 | $ | 28,126 | $ | 28,661 | $ | 85,631 | $ | 87,851 | |||||
| Marketing and business development | 7,377 | 5,762 | 24,313 | 30,634 | 71,184 | ||||||||||
| Technology and information services | 33,288 | 32,462 | 31,680 | 96,673 | 91,857 | ||||||||||
| Professional services | 12,432 | 15,070 | 13,713 | 40,269 | 43,619 | ||||||||||
| Fund administration and outsourced services | 12,603 | 13,924 | 15,096 | 40,797 | 44,061 | ||||||||||
| Amortization and other acquisition-related costs | — | — | — | — | — | ||||||||||
| Other | 8,341 | 4,273 | 11,722 | 21,326 | 30,364 | ||||||||||
| Non-compensation expense, as adjusted (d) | $ | 103,081 | $ | 99,617 | $ | 125,185 | $ | 315,330 | $ | 368,936 |
This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to comparable U.S. GAAP measures, see Notes to Financial Schedules.
See Notes to Financial Schedules
14
LAZARD LTD
Notes to Financial Schedules
| (a) | Selected Summary Financial Information are non-GAAP measures. Lazard<br>believes that presenting results and measures on an adjusted basis in conjunction with U.S. GAAP measures provides a meaningful and useful basis for comparison of its operating results across periods. |
|---|---|
| (b) | A non-GAAP measure which excludes (i) revenue related to<br>noncontrolling interests (see (j) below), (ii) gains related to the changes in the fair value of investments held in connection with Lazard Fund Interests and other similar deferred compensation arrangements for which a corresponding equal<br>amount is excluded from compensation & benefits expense, (iii) revenue related to distribution fees and reimbursable deal costs in accordance with the revenue recognition guidance and bad debt expense (see (k) below), (iv) for the<br>nine month period ended September 30, 2019, private equity investment adjustment (see (l) below), (v) interest expense primarily related to corporate financing activities, and (vi) for the nine month period ended September 30,<br>2019, excess interest expense pertaining to Senior Debt refinancing (see (q) below). |
| --- | --- |
| (c) | A non-GAAP measure which excludes (i) for the three and nine month<br>periods ended September 30, 2019, expenses associated with business realignment plan (see (m) below), (ii) charges related to the changes in the fair value of the compensation liability recorded in connection with Lazard Fund Interests and<br>other similar deferred compensation arrangements, and (iii) compensation and benefits related to noncontrolling interests (see (j) below). |
| --- | --- |
| (d) | A non-GAAP measure which excludes (i) for the three and nine month<br>periods ended September 30, 2019, expenses associated with business realignment plan (see (m) below), (ii) for the three and nine month periods ended September 30, 2019, expenses associated with ERP system implementation (see<br>(n) below), (iii) expenses related to office space reorganization (see (o) below), (iv) expenses related to distribution fees and reimbursable deal costs in accordance with the revenue recognition guidance and bad debt expense (see<br>(k) below), (v) amortization and other acquisition-related costs (see (p) below), (vi) for the nine month period ended September 30, 2019, charges pertaining to Senior Debt refinancing (see (q) below), and (vii) expenses<br>related to noncontrolling interests (see (j) below). |
| --- | --- |
| (e) | A non-GAAP measure which excludes (i) for the three and nine month<br>periods ended September 30, 2019, expenses associated with business realignment plan (see (m) below), (ii) for the three and nine month periods ended September 30, 2019, expenses associated with ERP system implementation (see<br>(n) below), (iii) expenses related to office space reorganization (see (o) below), (iv) amortization and for the three and nine month periods ended September 30, 2019, other acquisition-related costs (benefits) (see (p) below),<br>(v) for the nine month period ended September 30, 2019, private equity investment adjustment (see (l) below), (vi) for the nine month period ended September 30, 2019, charges pertaining to Senior Debt refinancing (see (q) below),<br>(vii) net revenue and expenses related to noncontrolling interests (see (j) below), and (viii) interest expense primarily related to corporate financing activities. |
| --- | --- |
| (f) | Represents earnings from operations as a percentage of operating revenue, and is a non-GAAP measure. |
| --- | --- |
| (g) | A non-GAAP measure which excludes (i) for the three and nine month<br>periods ended September 30, 2019, expenses associated with business realignment plan (see (m) below), (ii) for the three and nine month periods ended September 30, 2019, expenses associated with ERP system implementation (see<br>(n) below), (iii) expenses related to office space reorganization (see (o) below), (iv) for the three and nine month periods ended September 30, 2019, acquisition-related costs (benefits) (see (p) below), (v) for the nine month<br>period ended September 30, 2019, private equity investment adjustment, (see (l) below), and (vi) for the nine month period ended September 30, 2019, charges pertaining to Senior Debt refinancing (see (q) below), net of tax<br>benefits. |
| --- | --- |
| (h) | A non-GAAP measure which includes units of the long-term incentive<br>compensation program consisting of profits interest participation rights, which are equity incentive awards that, subject to certain conditions, may be exchanged for shares of our common stock. Certain profits interest participation rights and other<br>participating securities may be excluded from the computation of outstanding stock equivalents for U.S. GAAP net income per share. |
| --- | --- |
| (i) | Effective tax rate is a non-GAAP measure based upon the U.S. GAAP rate<br>with adjustments for the tax applicable to the non-GAAP adjustments to operating income, generally based upon the effective marginal tax rate in the applicable jurisdiction of the adjustments. The computation<br>is based on a quotient, the numerator of which is the provision for income taxes of $29,466, $23,583, and $17,507 for the three month periods ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, $79,949 and<br>$77,637 for the nine month periods ended September 30, 2020 and 2019 and the denominator of which is pre-tax income of $105,568, $98,734, and $105,766 for the three month periods ended September 30,<br>2020, June 30, 2020, and September 30, 2019, respectively, $297,754 and $357,179 for the nine month periods ended September 30, 2020 and 2019. |
| --- | --- |
| (j) | Noncontrolling interests include revenue and expenses related to Edgewater and ESC funds.<br> |
| --- | --- |
| (k) | Represents certain distribution fees and reimbursable deal costs paid to third parties for which an equal<br>amount is excluded from both non-GAAP operating revenue and non-compensation expense, respectively, and excludes bad debt expense, which represents fees that are deemed<br>uncollectible. |
| --- | --- |
| (l) | Represents write-down of private equity investment to potential transaction value. |
| --- | --- |
| (m) | Represents expenses associated with a business realignment which included employee reductions and the closing<br>of subscale offices and investment strategies. |
| --- | --- |
| (n) | Represents expenses associated with Enterprise Resource Planning (ERP) system implementation.<br> |
| --- | --- |
| (o) | Represents incremental rent expense related to office space reorganization. |
| --- | --- |
| (p) | Primarily represents the change in fair value of the contingent consideration associated with certain business<br>acquisitions. |
| --- | --- |
| (q) | The company incurred charges related to the extinguishment of the remaining 4.25% Senior Notes maturing in<br>November 2020. $168 million of the 2020 Notes were redeemed in March 2019 and the remaining $82 million have been redeemed in April 2019. The charges include a pre-tax loss on the extinguishment of<br>$6.5 million and excess interest expense of $0.3 million (due to the period of time between the issuance of the 2029 notes and the settlement of the 2020 notes). |
| --- | --- |
| NM | Not meaningful |
| --- | --- |
15