10-Q 1 d916678d10q.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

001-32492

(Commission File Number)

 

 

LAZARD LTD

(Exact name of registrant as specified in its charter)

 

Bermuda    98-0437848
(State or Other Jurisdiction of Incorporation    (I.R.S. Employer Identification No.)
or Organization)   

 

 

Clarendon House

2 Church Street

Hamilton HM11, Bermuda

(Address of principal executive offices)

Registrant’s telephone number: (441) 295-1422

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x    Accelerated filer  ¨
Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 17, 2015, there were 129,766,091 shares of the Registrant’s Class A common stock outstanding (including 3,678,861 shares held by subsidiaries).

 

 

 


Table of Contents

TABLE OF CONTENTS

When we use the terms “Lazard”, “we”, “us”, “our” and “the Company”, we mean Lazard Ltd, a company incorporated under the laws of Bermuda, and its subsidiaries, including Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), that is the current holding company for our businesses. Lazard Ltd’s primary operating asset is its indirect ownership as of June 30, 2015 of all of the common membership interests in Lazard Group and its controlling interest in Lazard Group.

 

     Page  

Part I. Financial Information

  

Item 1. Financial Statements (Unaudited)

     1   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     77   

Item 4. Controls and Procedures

     78   

Part II. Other Information

  

Item 1. Legal Proceedings

     79   

Item 1A. Risk Factors

     79   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     79   

Item 3. Defaults Upon Senior Securities

     80   

Item 4. Mine Safety Disclosures

     80   

Item 5. Other Information

     80   

Item 6. Exhibits

     81   

Signatures

     86   

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

     Page  

Condensed Consolidated Statements of Financial Condition as of June 30, 2015 and December 31, 2014

     2   

Condensed Consolidated Statements of Operations for the three month and six month periods ended
June 30, 2015 and 2014

     4   

Condensed Consolidated Statements of Comprehensive Income for the three month and six month periods ended June 30, 2015 and 2014

     5   

Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2015 and 2014

     6   

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six month periods ended June 30, 2015 and 2014

     7   

Notes to Condensed Consolidated Financial Statements

     9   

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(dollars in thousands, except for per share data)

 

    

June 30,

     December 31,  
     2015      2014  

ASSETS

     
Cash and cash equivalents    $ 701,172       $ 1,066,580   
Deposits with banks and short-term investments      287,677         207,760   
Cash deposited with clearing organizations and other segregated cash      33,726         43,290   

Receivables (net of allowance for doubtful accounts of $21,071 and $23,540 at
June 30, 2015 and December 31, 2014, respectively):

     

Fees

     443,682         483,681   

Customers and other

     57,849         73,915   
  

 

 

    

 

 

 
     501,531         557,596   

Investments

     557,751         620,352   
     

Property (net of accumulated amortization and depreciation of $255,463 and $256,286 at June 30, 2015 and December 31, 2014, respectively)

     213,745         222,569   

Goodwill and other intangible assets (net of accumulated amortization of $54,629 and $51,754 at June 30, 2015 and December 31, 2014, respectively)

     335,969         347,438   

Deferred tax assets

     1,255,440         59,041   
Other assets      264,930         207,610   
  

 

 

    

 

 

 

Total Assets

   $ 4,151,941       $ 3,332,236   
  

 

 

    

 

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(dollars in thousands, except for per share data)

 

                               
     June 30,
2015
    December  31,
2014
 
      

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Liabilities:

    

Deposits and other customer payables

   $ 375,835      $ 316,601   

Accrued compensation and benefits

     387,467        606,290   

Senior debt

     998,350        1,048,350   

Tax receivable agreement obligation

     988,085        19,577   

Capital lease obligations

     10,089        12,015   

Other liabilities

     522,746        559,346   
  

 

 

   

 

 

 

Total Liabilities

     3,282,572        2,562,179   

Commitments and contingencies

    

STOCKHOLDERS’ EQUITY

    

Preferred stock, par value $.01 per share; 15,000,000 shares authorized:

    

Series A - 7,921 shares issued and outstanding at June 30, 2015 and December 31, 2014

              

Series B - no shares issued and outstanding

              

Common stock:

    

Class A, par value $.01 per share (500,000,000 shares authorized;
129,766,091 shares issued at June 30, 2015 and December 31, 2014, including shares held by subsidiaries as indicated below)

     1,298        1,298   

Additional paid-in-capital

     527,454        702,800   

Retained earnings

     664,001        464,655   

Accumulated other comprehensive loss, net of tax

     (235,349     (200,766
  

 

 

   

 

 

 
     957,404        967,987   

Class A common stock held by subsidiaries, at cost (3,678,861 and 7,450,745 shares at June 30, 2015 and December 31, 2014, respectively)

     (147,200     (261,243
  

 

 

   

 

 

 

Total Lazard Ltd Stockholders’ Equity

     810,204        706,744   

Noncontrolling interests

     59,165        63,313   
  

 

 

   

 

 

 

Total Stockholders’ Equity

     869,369        770,057   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 4,151,941      $ 3,332,236   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands, except for per share data)

 

                                                               
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2015     2014     2015     2014  

REVENUE

       

Investment banking and other advisory fees

  $ 314,277      $ 279,907      $ 615,649      $ 552,582   

Asset management fees

    268,754        275,877        530,709        528,908   

Interest income

    1,362        1,153        2,291        2,572   

Other

    36,196        25,668        65,825        47,896   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    620,589        582,605        1,214,474        1,131,958   

Interest expense

    11,497        15,709        27,633        31,662   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    609,092        566,896        1,186,841        1,100,296   
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

       

Compensation and benefits

    336,719        345,924        665,221        667,489   

Occupancy and equipment

    27,272        28,367        54,611        56,679   

Marketing and business development

    18,324        20,894        37,514        40,127   

Technology and information services

    23,034        21,954        45,927        45,441   

Professional services

    13,883        14,120        25,342        21,711   

Fund administration and outsourced services

    17,493        16,002        33,641        31,456   

Amortization of intangible assets related to acquisitions

    1,857        706        2,890        1,926   

Provision pursuant to tax receivable agreement

    961,948        9,240        968,483        9,240   

Other

    9,938        10,709        79,925        20,067   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    1,410,468        467,916        1,913,554        894,136   
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

    (801,376     98,980        (726,713     206,160   

Provision (benefit) for income taxes

    (1,176,531     13,071        (1,164,514     34,822   
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    375,155        85,909        437,801        171,338   

LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

    1,042        717        7,735        5,304   
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO LAZARD LTD

  $ 374,113      $   85,192      $ 430,066      $ 166,034   
 

 

 

   

 

 

   

 

 

   

 

 

 

ATTRIBUTABLE TO LAZARD LTD CLASS A COMMON STOCKHOLDERS:

       

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

       

Basic

    126,212,645        123,116,776        124,934,167        122,446,492   

Diluted

    132,806,045        133,575,652        133,270,996        133,800,822   

NET INCOME PER SHARE OF COMMON STOCK:

       

Basic

    $2.96        $0.69        $3.44        $1.36   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    $2.82        $0.64        $3.23        $1.25   
 

 

 

   

 

 

   

 

 

   

 

 

 

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

    $0.35        $0.30        $1.65        $0.60   
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015     2014     2015     2014  

NET INCOME

   $ 375,155      $ 85,909      $ 437,801      $ 171,338   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

        

Currency translation adjustments

     11,791        4,547        (22,342     10,460   

Employee benefit plans:

        

Actuarial loss (net of tax benefit of $8,121 and $3,600 for the three months ended June 30, 2015 and 2014, respectively, and $8,006 and $3,650 for the six months ended June 30, 2015 and 2014, respectively)

     (14,836     (6,389     (14,617     (6,946

Adjustment for items reclassified to earnings (net of tax expense of $538 and $331 for the three months ended June 30, 2015 and 2014, respectively, and $1,101 and $863 for the six months ended June 30, 2015 and 2014, respectively)

     1,190        1,280        2,376        2,569   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

     (1,855     (562     (34,583     6,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

     373,300        85,347        403,218        177,421   

LESS - COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     1,042        693        7,735        5,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD LTD

   $ 372,258      $ 84,654      $ 395,483      $ 172,117   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands)

 

                               
     Six Months Ended 
June 30,
 
    2015     2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net income

  $ 437,801      $ 171,338   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

Depreciation and amortization of property

    15,900        17,656   

Amortization of deferred expenses and share-based incentive compensation

    171,397        158,040   

Amortization of intangible assets related to acquisitions

    2,890        1,926   

Deferred tax provision (benefit)

    (1,195,319     2,274   

Provision pursuant to tax receivable agreement

    968,483        9,240   

Loss on extinguishment of debt

    60,219          

Gain on disposal of subsidiaries

    (24,388       

(Increase) decrease in operating assets:

   

Deposits with banks and short-term investments

    (95,877     (80,047

Cash deposited with clearing organizations and other segregated cash

    8,438        (5,331

Receivables-net

    39,023        (29,483

Investments

    52,674        (60,399

Other assets

    (97,621     (94,490

Increase (decrease) in operating liabilities:

   

Deposits and other payables

    81,574        125,909   

Accrued compensation and benefits and other liabilities

    (213,892     (86,991
 

 

 

   

 

 

 

Net cash provided by operating activities

    211,302        129,642   
 

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Additions to property

    (13,438     (5,830

Disposals of property

    336        350   
 

 

 

   

 

 

 

Net cash used in investing activities

    (13,102     (5,480
 

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Proceeds from:

   

Contributions from noncontrolling interests

    57        437   

Issuance of senior debt, net of expenses

    396,272          

Excess tax benefits from share-based incentive compensation

    9,516        1,925   

Other financing activities

           20,000   

Payments for:

   

Senior debt

    (509,098       

Capital lease obligations

    (1,019     (1,168

Distributions to noncontrolling interests

    (11,940     (5,907

Purchase of Class A common stock

    (117,733     (142,317

Class A common stock dividends

    (202,635     (72,981

Settlement of vested share-based incentive compensation

    (102,634     (82,526

Other financing activities

    (1,624     (1,426
 

 

 

   

 

 

 

Net cash used in financing activities

    (540,838     (283,963
 

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

    (22,770     2,810   
 

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

    (365,408     (156,991

CASH AND CASH EQUIVALENTS—January 1

    1,066,580        841,482   
 

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS—June 30

  $ 701,172      $ 684,491   
 

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2014

(UNAUDITED)

(dollars in thousands)

 

 

    Series A
Preferred Stock
    Common Stock     Additional
Paid-In-
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
    Class A
Common Stock
Held By Subsidiaries
    Total
Lazard Ltd
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Stockholders’
Equity
 
                   
    Shares       $       Shares(*)         $               Shares       $          

Balance – January 1, 2014

    7,921      $  –        129,056,082      $ 1,291      $ 737,899      $ 203,236      $ (133,004     8,317,065      $ (249,213   $ 560,209      $ 69,789      $ 629,998   
                       

Comprehensive income:

                       

Net income

              166,034              166,034        5,304        171,338   

Other comprehensive income - net of tax

                6,083            6,083          6,083   

Amortization of share-based incentive compensation

            112,308                112,308          112,308   

Dividend-equivalents

            9,387        (10,813           (1,426       (1,426

Class A common stock dividends

              (72,981           (72,981       (72,981

Purchase of Class A common stock

                  4,114,206        (192,657     (192,657       (192,657

Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $1,776

            (250,436         (4,702,740     169,686        (80,750       (80,750

Class A common stock issued in exchange for Lazard Group common membership interests

        710,009        7        (7                        

Business acquisitions and related equity transactions:

                       

Class A common stock issuable (including related amortization)

            258                258          258   

Distributions to noncontrolling interests, net

                             (5,470     (5,470

Adjustments related to noncontrolling interests

            3,543          (559         2,984        (2,984       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance – June 30, 2014

    7,921      $  –        129,766,091      $ 1,298      $ 612,952      $ 285,476      $ (127,480     7,728,531      $ (272,184   $ 500,062      $ 66,639      $ 566,701   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  

 

(*)

Includes 129,056,081 and 129,766,091 shares of the Company’s Class A common stock issued at January 1, 2014 and June 30, 2014, respectively, and 1 share of the Company’s Class B common stock issued at January 1, 2014.

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2015

(UNAUDITED)

(dollars in thousands)

 

    Series A
Preferred Stock
    Common Stock     Additional
Paid-In-
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
    Class A
Common Stock
Held By Subsidiaries
    Total
Lazard Ltd
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Stockholders’
Equity
 
                   
    Shares       $       Shares         $               Shares       $          

Balance – January 1, 2015

    7,921      $  –        129,766,091      $ 1,298      $ 702,800      $ 464,655      $ (200,766     7,450,745      $ (261,243   $ 706,744      $ 63,313      $ 770,057   

Comprehensive income (loss):

                       

Net income

              430,066              430,066        7,735        437,801   

Other comprehensive loss - net of tax

                (34,583         (34,583       (34,583

Amortization of share-based incentive compensation

            122,793                122,793          122,793   

Dividend-equivalents

            26,461        (28,085           (1,624       (1,624

Class A common stock dividends

              (202,635           (202,635       (202,635

Purchase of Class A common stock

                  2,306,694        (117,733     (117,733       (117,733

Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $9,495

            (323,588         (6,051,262     230,449        (93,139       (93,139

Business acquisitions and related equity transactions:

                       

Class A common stock issuable (including related amortization)

            315                315          315   

Delivery of Class A common stock

            (1,327         (27,316)        1,327                   

Distributions to noncontrolling interests, net

                             (11,883     (11,883
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance – June 30, 2015

    7,921      $        129,766,091      $ 1,298      $ 527,454      $ 664,001      $ (235,349     3,678,861      $ (147,200   $ 810,204      $ 59,165      $ 869,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

8


Table of Contents

LAZARD LTD

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 June 30, 2015 and December 31, 2014. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group, which is governed by an Operating Agreement dated as of May 10, 2005, as amended (the “Operating Agreement”). LAZ-MD Holdings LLC (“LAZ-MD Holdings”), an entity formerly owned by Lazard Group’s current and former managing directors, held approximately 0.5% of the outstanding Lazard Group common membership interests as of January 1, 2014. As of January 1, 2014, LAZ-MD Holdings was also the sole owner of the one issued and outstanding share of Lazard Ltd’s Class B common stock (the “Class B common stock”). In May 2014, the remaining outstanding Lazard Group common membership interests held by LAZ-MD Holdings were exchanged for shares of the Company’s Class A common stock, par value $0.01 per share (“Class A common stock”), and the sole issued and outstanding share of the Company’s Class B common stock was automatically converted into one share of the Company’s Class A common stock pursuant to the provisions of the Company’s bye-laws, resulting in only one outstanding class of common stock (the “Final Exchange of LAZ-MD Interests”). Following the Final Exchange of LAZ-MD Interests, Lazard Group became a wholly-owned indirect subsidiary of Lazard Ltd.

Lazard Ltd’s primary operating asset is its indirect ownership of the common membership interests of, and managing member interest 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”) and other strategic matters, restructurings, capital structure, capital raising and various other financial matters, and

 

   

Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income 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 and assets associated with Lazard Group’s Paris-based subsidiary Lazard Frères Banque SA (“LFB”).

LFB is a registered bank regulated by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”). It is engaged primarily in commercial and private banking services for clients and funds managed by Lazard Frères Gestion SAS (“LFG”) and other clients, investment banking activities, including participation in underwritten offerings of securities in France, and asset-liability management.

 

9


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

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, 2014 (the “Form 10-K”). The accompanying December 31, 2014 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 which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. For example, discretionary compensation and benefits expense for interim periods is accrued based on the year-to-date amount of revenue earned, and an assumed annual ratio of compensation and benefits expense to revenue, with the applicable amounts adjusted for certain items. Although these estimates are based on management’s knowledge of current events and actions that Lazard may undertake in the future, actual results may differ materially from the estimates.

The consolidated results of operations for the three month and six month periods ended June 30, 2015 are not necessarily indicative of the results to be expected for any future interim or annual period.

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 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 (i) a voting interest entity (“VOE”) where the Company either holds a majority of the voting interest in such entity or is the general partner in such entity and the third-party investors do not have the right to replace the general partner and (ii) a variable interest entity (“VIE”) where the Company absorbs a majority of the expected losses, expected residual returns, or both, of such entity. 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 applies the equity method of accounting in which it records in earnings its share of earnings or losses of the entity. Intercompany transactions and balances have been eliminated.

Certain prior period amounts have been reclassified to conform to the current period presentation, primarily by separately presenting deferred tax assets and the tax receivable agreement obligation in the condensed consolidated statements of financial condition and the condensed consolidated statements of cash flows.

 

10


Table of Contents

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

Revenue from Contracts with Customers—In May 2014, the Financial Accounting Standards Board (the “FASB”) issued comprehensive new revenue recognition guidance. The guidance requires a company to recognize revenue when it transfers promised services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those services and requires enhanced disclosures. The new guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is not permitted. On July 9, 2015, the FASB approved the deferral of the effective date of the new revenue guidance by one year to annual reporting periods beginning after December 15, 2017, with early adoption being permitted for annual periods beginning after December 15, 2016. The Company is currently evaluating the new guidance.

Amendments to the Consolidation Analysis—In February 2015, the FASB issued updated guidance for the consolidation of certain legal entities. The updated guidance eliminates the deferral of certain consolidation standards for entities considered to be investment companies and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or VOEs. The new guidance is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material impact on our consolidated financial statements or related disclosures.

Interest—Imputation of Interest—In April 2015, the FASB issued updated guidance which requires a company to classify debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The new guidance is to be applied on a retrospective basis. The Company does not expect that the adoption of this guidance will have a material impact on our consolidated financial statements or related disclosures.

Fair Value Measurement—In May 2015, the FASB issued updated guidance for the classification and disclosure of certain investments using the net asset value (“NAV”), as a practical expedient, to measure the fair value of the investment. The guidance requires a company to remove from within the fair value hierarchy all investments for which fair value is measured using NAV. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The new guidance is to be applied on a retrospective basis. The Company does not expect that the adoption of this guidance will have a material impact on our consolidated financial statements, but does expect that this guidance will affect the disclosures related to investments and fair value measurements.

 

11


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

3. RECEIVABLES

The Company’s receivables represent fee receivables and amounts due from customers and other receivables.

Receivables are stated net of an estimated allowance for doubtful accounts, for past due amounts and for specific accounts deemed uncollectible, which may include situations where a fee is in dispute. Activity in the allowance for doubtful accounts for the three month and six month periods ended June 30, 2015 and 2014 was as follows:

 

      Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2015              2014              2015              2014      

Beginning balance

   $ 18,459       $ 31,324       $ 23,540       $ 28,777   

Bad debt expense, net of recoveries

    
2,061
  
     (1,633      3,293         7,503   

Charge-offs, foreign currency translation and other adjustments

     551         252         (5,762      (6,337
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 21,071       $ 29,943       $ 21,071       $ 29,943   
  

 

 

    

 

 

    

 

 

    

 

 

 

Bad debt expense, net of recoveries is included in “investment banking and other advisory fees” on the condensed consolidated statements of operations.

At June 30, 2015 and December 31, 2014, the Company had receivables past due or deemed uncollectible of $22,833 and $24,578, respectively.

Of the Company’s fee receivables at June 30, 2015 and December 31, 2014, $81,302 and $86,221, respectively, represented interest-bearing financing receivables. Based upon our historical loss experience, the credit quality of the counterparties, and the lack of past due or uncollectible amounts, there was no allowance for doubtful accounts required at those dates related to such receivables.

The aggregate carrying amount of our non-interest bearing receivables of $420,229 and $471,375 at June 30, 2015 and December 31, 2014, respectively, approximates fair value.

 

12


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

4. INVESTMENTS

The Company’s investments and securities sold, not yet purchased, consist of the following at June 30, 2015 and December 31, 2014:

 

    

June 30,

     December 31,  
     2015      2014  

Interest-bearing deposits

   $ 56,411       $ 84,575   
  

 

 

    

 

 

 

Debt

     1,870         10,426   
  

 

 

    

 

 

 

Equities

     53,147         57,302   
  

 

 

    

 

 

 

Funds:

     

Alternative investments (a)

     32,247         34,705   

Debt (a)

     73,177         82,889   

Equity (a)

     232,244         228,209   

Private equity

     101,802         114,470   
  

 

 

    

 

 

 
     439,470         460,273   
  

 

 

    

 

 

 

Equity method

     6,853         7,776   
  

 

 

    

 

 

 

Total investments

     557,751         620,352   

Less:

     

Interest-bearing deposits

     56,411         84,575   

Equity method

     6,853         7,776   
  

 

 

    

 

 

 

Investments, at fair value

   $ 494,487       $ 528,001   
  

 

 

    

 

 

 

Securities sold, not yet purchased, at fair value (included in “other liabilities”)

   $ 3,515       $ 9,290   
  

 

 

    

 

 

 

 

(a) Interests in alternative investment funds, debt funds and equity funds include investments with fair values of $12,153, $32,226 and $170,003, respectively, at June 30, 2015 and $8,321, $42,070 and $162,798, respectively, at December 31, 2014, 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 6 and 12 of Notes to Condensed Consolidated Financial Statements).

Interest-bearing deposits have original maturities of greater than three months but equal to or less than one year and are carried at cost that approximates fair value due to their short-term maturities.

Debt securities primarily consist of seed investments invested in debt securities held within separately managed accounts related to our Asset Management business.

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 and funds of funds.

 

13


Table of Contents

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 debt fund held by the Company’s broker-dealer subsidiary.

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) a mezzanine fund, which invests in mezzanine debt of a diversified selection of small- to mid-cap European companies, (ii) Corporate Partners II Limited (“CP II”), a fund targeting significant noncontrolling-stake investments in established private companies, (iii) Edgewater Growth Capital Partners III, L.P. (“EGCP III”), a fund primarily making equity and buyout investments in middle market companies and (iv) Lazard Australia Corporate Opportunities Fund 2 (“COF2”), an Australian fund targeting Australian mid-market investments. The Company disposed of its private equity business in Australia in the second quarter of 2015 in a transaction with the management of the disposed business. Revenue of $24,388 relating to the disposal of the business primarily represents the realization of carried interest at fair value and is included in “revenue-other” on the condensed consolidated statements of operations for the three month and six month periods ended June 30, 2015. See Note 5 of Notes to Condensed Consolidated Financial Statements.

Private equity investments consolidated but not owned by Lazard relate to the economic interests that are owned by the management team and other investors in the Edgewater Funds (“Edgewater”).

During the three month and six month periods ended June 30, 2015 and 2014, the Company reported in “revenue-other” on its condensed consolidated statements of operations net unrealized investment gains and losses pertaining to “trading” securities still held as of the reporting date as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
       2015            2014          2015         2014    

Net unrealized investment gains (losses)

   $ (3,308)       $ 13,331       $ (1,115   $ 13,822   

 

5. FAIR VALUE MEASUREMENTS

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, (ii) assets valued based on NAV or its equivalent redeemable at the measurement date or within the near term without redemption restrictions, or (iii) 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

 

14


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

  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, as well as assets valued based on NAV or its equivalent, but not redeemable within the near term as a result of redemption restrictions.

The Company’s investments in debt securities are classified as Level 1 when their respective fair values are based on unadjusted quoted prices in active markets and are classified as Level 2 when their fair values are primarily based on prices as provided by external pricing services.

The fair value of equities is classified as Level 1 or Level 3 as follows: marketable equity securities are classified as Level 1 and are valued based on the last trade price on the primary exchange for that security as provided by external pricing services; equity securities in private companies are generally classified as Level 3.

The fair value of investments in alternative investment funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund, and classified as Level 2 when (i) the fair values are primarily based on NAV or its equivalent, which is primarily determined based on information provided by external fund administrators, and (ii) the investments are redeemable within the near term.

The fair value of investments in debt funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund, and classified as Level 2 when the fair values are primarily based on NAV or its equivalent and are redeemable within the near term.

The fair value of investments in equity funds is classified as Level 1 or 2 as follows: publicly traded asset management funds are classified as Level 1 and are valued based on the reported closing price for the fund; and investments in asset management funds redeemable in the near term are classified as Level 2 and are valued at NAV or its equivalent, which is primarily determined based on information provided by external fund administrators.

The fair value of investments in private equity funds is classified as Level 3, and is primarily based on NAV or its equivalent, except for certain investments that are valued based on potential transaction value. Such investments are not redeemable within the near term.

The fair values of derivatives entered into by the Company are classified as Level 2 and are 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 values of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. See Note 6 of Notes to Condensed Consolidated Financial Statements.

Where reported information regarding an investment is based on data received from external fund administrators or pricing services, the Company reviews such information and classifies the investment at the relevant level within the fair value hierarchy.

 

15


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

The following tables present the classification of investments and certain other assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014 within the fair value hierarchy:

 

    June 30, 2015  
    Level 1     Level 2     Level 3     Total  

Assets:

       

Investments:

       

Debt

  $ 1,868      $ 2      $      $ 1,870   

Equities

    51,848               1,299        53,147   

Funds:

       

Alternative investments

    7,191        25,056               32,247   

Debt

    73,171        6               73,177   

Equity

    232,197        47               232,244   

Private equity

                  101,802        101,802   

Derivatives

           1,582               1,582   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 366,275      $ 26,693      $ 103,101      $ 496,069   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Securities sold, not yet purchased

  $ 3,515      $      $      $ 3,515   

Derivatives

           203,273               203,273   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,515      $ 203,273      $      $ 206,788   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2014  
    Level 1     Level 2     Level 3     Total  

Assets:

       

Investments:

       

Debt

  $ 5,540      $ 4,886      $      $ 10,426   

Equities

    55,987               1,315        57,302   

Funds:

       

Alternative investments

           34,705               34,705   

Debt

    82,885        4               82,889   

Equity

    228,166        43               228,209   

Private equity

                  114,470        114,470   

Derivatives

           2,355               2,355   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 372,578      $ 41,993      $ 115,785      $ 530,356   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Securities sold, not yet purchased

  $ 9,290      $      $      $ 9,290   

Derivatives

           208,093               208,093   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 9,290      $ 208,093      $      $ 217,383   
 

 

 

   

 

 

   

 

 

   

 

 

 

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy during the three month and six month periods ended June 30, 2015 and 2014.

 

16


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

The following tables provide a summary of changes in fair value of the Company’s Level 3 assets for the three month and six month periods ended June 30, 2015 and 2014:

 

    Three Months Ended June 30, 2015  
    Beginning
Balance
    Net  Unrealized/
Realized
Gains (Losses)
Included

In Revenue-
Other (a)
    Purchases/
Acquisitions
    Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 
           

Investments:

           

Equities

  $        1,289      $ 8      $      $      $ 2      $ 1,299   

Private equity funds

    107,440        54        138        (7,354     1,524        101,802   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

  $ 108,729      $ 62      $ 138      $ (7,354   $ 1,526      $ 103,101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Six Months Ended June 30, 2015  
    Beginning
Balance
    Net  Unrealized/
Realized
Gains (Losses)
Included

In Revenue-
Other (a)
    Purchases/
Acquisitions
    Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 
           

Investments:

           

Equities

  $        1,315      $ 10      $      $      $ (26   $ 1,299   

Private equity funds

    114,470        7,902        847        (17,885     (3,532     101,802   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

  $ 115,785      $ 7,912      $ 847      $ (17,885   $ (3,558   $ 103,101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Three Months Ended June 30, 2014  
    Beginning
Balance
    Net  Unrealized/
Realized
Gains (Losses)
Included
In Revenue-
Other (a)
    Purchases/
Acquisitions
    Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 
           

Investments:

           

Equities

  $        1,337      $ 12      $      $      $ 21      $ 1,370   

Private equity funds

    115,537        1,254        864        (416     (344     116,895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

  $ 116,874      $ 1,266      $ 864      $ (416   $ (323   $ 118,265   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Six Months Ended June 30, 2014  
    Beginning
Balance
    Net  Unrealized/
Realized
Gains (Losses)
Included

In Revenue-
Other (a)
    Purchases/
Acquisitions
    Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 
           

Investments:

           

Equities

  $        1,340      $ 14      $      $      $ 16      $ 1,370   

Private equity funds

    114,193        6,836        1,211        (5,085     (260     116,895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

  $ 115,533      $ 6,850      $ 1,211      $ (5,085   $ (244   $ 118,265   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Earnings for the three month and six month periods ended June 30, 2015 and the three month and six month periods ended June 30, 2014 include net unrealized gains (losses) of $(1,418), $4,679, $1,123 and $5,536, respectively.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

Fair Value of Certain Investments Based on NAV—The Company’s Level 2 and Level 3 investments at June 30, 2015 and December 31, 2014 include certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value. Information with respect thereto was as follows:

 

    June 30, 2015
                % of
Fair Value
Not
Redeemable
  Estimated Liquidation Period of
Investments Not Redeemable
  Investments Redeemable
    Fair Value     Unfunded
Commitments
      %
Next
5 Years
  %
5-10
Years
  %
Thereafter
  Redemption
Frequency
    Redemption
Notice Period

Alternative investment funds:

               

Hedge funds

  $ 22,893      $      NA   NA   NA   NA     (a)      <30-60 days

Funds of funds

    484             NA   NA   NA   NA     (b)      <30-90 days

Other

    1,679             NA   NA   NA   NA     (c)      <30-60 days

Debt funds

    6             NA   NA   NA   NA     (d)      30 days

Equity funds

    47             NA   NA   NA   NA     (e)      <30-90 days

Private equity funds:

               

Equity growth

    44,682        5,131 (f)    100%   7%   91%   2%     NA      NA

Mezzanine debt

    34,853             100%       100%     NA      NA
 

 

 

   

 

 

             

Total

  $ 104,644      $ 5,131               
 

 

 

   

 

 

             

 

(a) weekly (22%), monthly (61%) and quarterly (17%)
(b) monthly (98%) and quarterly (2%)
(c) daily (19%) and monthly (81%)
(d) daily (100%)
(e) daily (13%), monthly (60%) and quarterly (27%)
(f) Unfunded commitments to private equity investments consolidated but not owned by Lazard of $6,588 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

 

    December 31, 2014
                % of
Fair Value
Not
Redeemable
  Estimated Liquidation Period of
Investments Not Redeemable
  Investments Redeemable
    Fair Value     Unfunded
Commitments
      %
Next
5 Years
  %
5-10
Years
  %
Thereafter
  Redemption
Frequency
    Redemption
Notice Period

Alternative investment funds:

               

Hedge funds

  $ 31,042      $      NA   NA   NA   NA     (a)      <30-60 days

Funds of funds

    475             NA   NA   NA   NA     (b)      <30-90 days

Other

    3,188             NA   NA   NA   NA     (c)      <30-60 days

Debt funds

    4             NA   NA   NA   NA     (d)      30 days

Equity funds

    43             NA   NA   NA   NA     (e)      30-90 days

Private equity funds:

               

Equity growth

    75,578        18,676 (f)    100%   10%   63%   27%     NA      NA

Mezzanine debt

    38,892             100%       100%     NA      NA
 

 

 

   

 

 

             

Total

  $ 149,222      $ 18,676               
 

 

 

   

 

 

             

 

18


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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

 

(a) weekly (15%), monthly (66%) and quarterly (19%)
(b) monthly (98%) and quarterly (2%)
(c) daily (11%), weekly (3%) and monthly (86%)
(d) daily (100%)
(e) daily (14%), monthly (58%) and quarterly (28%)
(f) Unfunded commitments to private equity investments consolidated but not owned by Lazard of $6,888 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

See Note 4 of Notes to Condensed Consolidated Financial Statements for discussion of significant investment strategies for investments with value based on NAV.

Investment Capital Funding Commitments—At June 30, 2015, the Company’s maximum unfunded commitments for capital contributions to investment funds arose from (i) commitments to CP II, which amounted to $570 for potential “follow-on investments” and/or for fund expenses through the earlier of February 25, 2017 or the liquidation of the fund, (ii) commitments to EGCP III, which amounted to $12,036, through the earlier of October 12, 2016 (i.e., the end of the investment period) for investments and/or expenses (with a portion of the undrawn amount of such commitments as of that date remaining committed until October 12, 2023 in respect of “follow-on investments” and/or fund expenses) or the liquidation of the fund and (iii) commitments to COF2, which amounted to $4,192, through the earlier of November 11, 2016 (i.e., the end of the investment period) for investments and/or fund expenses (with a portion of the undrawn amount of such commitments as of that date remaining committed until November 11, 2019 in respect of “follow-on investments” and/or fund expenses) or the liquidation of the fund.

In July 2015, our commitments to COF2 were reduced to approximately $230.

 

6. DERIVATIVES

The Company enters into forward foreign currency exchange rate contracts, interest rate swaps, interest rate futures, total return swap contracts on various equity and debt indices and other derivative contracts to economically hedge exposures to fluctuations in currency exchange rates, interest rates and equity and debt prices. The Company reports its derivative instruments separately as assets and liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. The Company’s derivative instruments are recorded at their fair value, and are included in “other assets” and “other liabilities” on the condensed consolidated statements of financial condition. Gains and losses on the Company’s derivative instruments not designated as hedging instruments are included in “interest income” and “interest expense”, respectively, or “revenue-other”, depending on the nature of the underlying item, in the condensed consolidated statements of operations.

In addition to the derivative instruments described above, the Company records derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements, the fair value of which is based on the value of the underlying investments, adjusted for estimated forfeitures, and is included in “accrued compensation and benefits” in the condensed consolidated statements of financial condition. Changes in the fair value of the derivative liabilities are included in “compensation and benefits” in the condensed consolidated statements of operations, the impact of which equally offsets the changes in the fair value of investments which are currently expected to be delivered upon settlement of LFI and other similar deferred compensation arrangements, which are reported in “revenue-other” in the condensed consolidated statements of operations.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

The tables below present the fair values of the Company’s derivative instruments reported within “other assets” and “other liabilities” and the fair values of the Company’s derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements (see Note 12 of Notes to Condensed Consolidated Financial Statements) on the accompanying condensed consolidated statements of financial condition as of June 30, 2015 and December 31, 2014:

 

    June 30,
2015
    December 31,
2014
 

Derivative Assets:

   

Forward foreign currency exchange rate contracts

  $ 480      $ 2,355   

Total return swaps and other

    1,102          
 

 

 

   

 

 

 

Total

  $ 1,582      $ 2,355   
 

 

 

   

 

 

 

Derivative Liabilities:

   

Forward foreign currency exchange rate contracts

  $ 1,210      $
124
  

Total return swaps and other (a)

           663   

LFI and other similar deferred compensation arrangements

    202,063        207,306   
 

 

 

   

 

 

 
  $ 203,273      $ 208,093   
 

 

 

   

 

 

 

 

(a) For total return swaps, amounts represent the netting of gross derivative assets and liabilities of $1,323 and $221 as of June 30, 2015, respectively, and $1,123 and $1,786 as of December 31, 2014, respectively, for contracts with the same counterparty under legally enforceable master netting agreements. Such amounts are recorded “net” in “other assets”, with receivables for net cash collateral under such contracts of $9,954 and $12,364 as of June 30, 2015 and December 31, 2014, respectively.

Net gains (losses) with respect to derivative instruments (predominantly reflected in “revenue-other”) and the Company’s derivative liabilities relating to its obligations pertaining to LFI and other similar deferred compensation arrangements (included in “compensation and benefits” expense) as reflected on the accompanying condensed consolidated statements of operations for the three month and six month periods ended June 30, 2015 and 2014, were as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015     2014     2015     2014  

Forward foreign currency exchange rate contracts

   $ (4,023   $ 178      $ 11,377      $ (975

LFI and other similar deferred compensation arrangements

     1,894        (8,906     (2,242     (11,532

Total return swaps and other

     (16     (6,325     (3,184     (8,271
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (2,145   $ (15,053   $ 5,951      $ (20,778
  

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

7. PROPERTY

At June 30, 2015 and December 31, 2014, property consists of the following:

 

     Estimated
Depreciable
Life in Years
     June 30,
2015
     December 31,
2014
 

Buildings

     33       $ 140,986       $ 152,982   

Leasehold improvements

     3-20        
168,192
  
     167,837   

Furniture and equipment

     3-10         153,107         150,458   

Construction in progress

        6,923         7,578   
     

 

 

    

 

 

 

Total

       
469,208
  
     478,855   

Less - Accumulated depreciation and amortization

        255,463         256,286   
     

 

 

    

 

 

 

Property

      $ 213,745       $ 222,569   
     

 

 

    

 

 

 

 

8. GOODWILL AND OTHER INTANGIBLE ASSETS

The components of goodwill and other intangible assets at June 30, 2015 and December 31, 2014 are presented below:

 

    June 30,
2015
    December 31,
2014
 

Goodwill

  $ 326,822      $ 335,402   

Other intangible assets (net of accumulated amortization)

    9,147        12,036   
 

 

 

   

 

 

 
  $ 335,969      $ 347,438   
 

 

 

   

 

 

 

At June 30, 2015 and December 31, 2014, goodwill of $262,281 and $270,861, 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 six month periods ended June 30, 2015 and 2014 are as follows:

 

    Six Months Ended
June 30,
 
    2015     2014  

Balance, January 1

  $
335,402
  
  $ 345,453   

Foreign currency translation adjustments

    (8,580     6,590   
 

 

 

   

 

 

 

Balance, June 30

  $ 326,822      $ 352,043   
 

 

 

   

 

 

 

All changes in the carrying amount of goodwill for the six month periods ended June 30, 2015 and 2014 are attributable to the Company’s Financial Advisory segment.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

The gross cost and accumulated amortization of other intangible assets as of June 30, 2015 and December 31, 2014, by major intangible asset category, are as follows:

 

    June 30, 2015     December 31, 2014  
    Gross
Cost
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Cost
    Accumulated
Amortization
    Net
Carrying
Amount
 

Performance fees

  $ 30,740      $ 22,985      $ 7,755      $ 30,740      $ 21,116      $ 9,624   

Management fees, customer relationships and non-compete agreements

    33,036        31,644        1,392        33,050        30,638        2,412   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 63,776      $ 54,629      $ 9,147      $ 63,790      $ 51,754      $ 12,036   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortization expense of intangible assets for the three month and six month periods ended June 30, 2015 was $1,857 and $2,890, respectively, and for the three month and six month periods ended June 30, 2014 was $706 and $1,926, respectively. Estimated future amortization expense is as follows:

 

Year Ending December 31,

   Amortization
Expense (a)
 

2015 (July 1 through December 31)

   $ 3,668   

2016

     5,479   
  

 

 

 

Total amortization expense

   $ 9,147   
  

 

 

 

 

  (a) Approximately 45% of intangible asset amortization is attributable to a noncontrolling interest.

 

9. SENIOR DEBT

Senior debt is comprised of the following as of June 30, 2015 and December 31, 2014:

 

      Initial
Principal

Amount
    Maturity
Date
     Annual
Interest
Rate
     Outstanding As Of  
             June 30,
2015
     December 31,
2014
 

Lazard Group 6.85% Senior Notes

     600,000        6/15/17         6.85      98,350         548,350   

Lazard Group 4.25% Senior Notes

     500,000        11/14/20         4.25      500,000         500,000   

Lazard Group 3.75% Senior Notes (a)

     400,000        2/13/25         3.75      400,000           

Lazard Group Credit Facility

     150,000        9/25/15         0.79                
          

 

 

    

 

 

 

Total

           $ 998,350       $ 1,048,350   
          

 

 

    

 

 

 

 

(a) During February 2015, Lazard Group completed an offering of $400,000 aggregate principal amount of 3.75% senior notes due 2025 (the “2025 Notes”). Lazard Group also issued a notice to redeem $450,000 of Lazard Group’s 6.85% senior notes due June 15, 2017 (the “2017 Notes”) in February 2015. Interest on the 2025 Notes is payable semi-annually on March 1 and September 1 of each year beginning September 1, 2015. Lazard Group used the net proceeds of the 2025 Notes, together with cash on hand, to redeem or otherwise retire $450,000 of the 2017 Notes, which, including the recognition of unamortized issuance costs, resulted in a loss on debt extinguishment of $60,219. Such loss on debt extinguishment was recorded in “operating expenses—other” on the condensed consolidated statement of operations for the six month period ended June 30, 2015.

On September 25, 2012, Lazard Group entered into a $150,000, three-year senior revolving credit facility with a group of lenders (the “Credit Facility”). The Credit Facility replaced a similar revolving credit facility which was

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

terminated as a condition to effectiveness of the Credit Facility. Interest rates under the Credit Facility vary and are based on either a Federal Funds rate or a Eurodollar rate, in each case plus an applicable margin. As of June 30, 2015, the annual interest rate for a loan accruing interest (based on the Federal Funds overnight rate), including the applicable margin, was 0.79%. At June 30, 2015 and December 31, 2014, no amounts were outstanding under the Credit Facility.

The Credit Facility expires in September 2015 and contains customary terms and conditions, including certain financial covenants. In addition, the Credit Facility, 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 June 30, 2015, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.

As of June 30, 2015, the Company had approximately $247,000 in unused lines of credit available to it, including the Credit Facility, and unused lines of credit available to LFB of approximately $39,000 (at June 30, 2015 exchange rates) and Edgewater of $55,000. In addition, LFB has access to the Eurosystem Covered Bond Purchase Program of the Banque de France.

The Company’s senior debt at June 30, 2015 and December 31, 2014 is carried at historical amounts. At those dates, the fair value of such senior debt was approximately $1,010,000 and $1,135,000, respectively, and exceeded the aggregate carrying value by approximately $12,000 and $87,000, 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.

 

10. COMMITMENTS AND CONTINGENCIES

Leases—The Company has various leases and other contractual commitments arising in the ordinary course of business.

Guarantees—In the normal course of business, LFB provides indemnifications to third parties to protect them in the event of non-performance by its clients. At June 30, 2015, LFB had $4,868 of such indemnifications and held $4,429 of collateral/counter-guarantees to secure these commitments. The Company believes the likelihood of loss with respect to these indemnities is remote. Accordingly, no liability is recorded in the condensed consolidated statement of financial condition.

Certain Business Transactions—On July 15, 2009, the Company established a private equity business with Edgewater. Edgewater manages funds primarily focused on buy-out and growth equity investments in middle market companies. The acquisition was structured as a purchase by Lazard Group of interests in a holding company that in turn owns interests in the general partner and management company entities of the current Edgewater private equity funds (the “Edgewater Acquisition”). Following the Edgewater Acquisition, Edgewater’s leadership team retained a substantial economic interest in such entities.

The aggregate fair value of the consideration recognized by the Company at the acquisition date was $61,624. Such consideration consisted of (i) a one-time cash payment, (ii) 1,142,857 shares of Class A common stock (the “Initial Shares”) and (iii) up to 1,142,857 additional shares of Class A common stock (the “Earnout Shares”) that are subject to earnout criteria and payable over time. The Earnout Shares will be issued only if certain performance thresholds are met. As of June 30, 2015 and December 31, 2014, 913,722 shares are

 

23


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

issuable on a contingent basis, and 1,371,992 shares have been earned because applicable performance thresholds have been satisfied. As of June 30, 2015 and December 31, 2014, 1,371,992 of the earned shares have been settled.

Contingent Consideration Relating To Other Business Acquisitions—For a business acquired in 2012, at December 31, 2012, 170,988 shares of Class A common stock (including dividend equivalent shares) were issuable on a non-contingent basis. Such shares were delivered in the first quarter of 2013. During the second quarter of 2015, the achievement of certain performance thresholds related to the acquired business were satisfied, resulting in the issuance of 27,316 shares of Class A common stock.

Other Commitments—The Company has various other contractual commitments arising in the ordinary course of business. In addition, from time to time, each of LFB and LFNY may enter into underwriting commitments in which it will participate as an underwriter. At June 30, 2015, LFB and LFNY had no such underwriting commitments.

See Notes 5 and 13 of Notes to Condensed Consolidated Financial Statements for information regarding commitments relating to investment capital funding commitments and obligations to fund our pension plans, respectively.

In the opinion of management, the fulfillment of the commitments described herein will not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations.

Legal—The Company is involved from time to time in judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses, including proceedings initiated by former employees alleging wrongful termination. The Company reviews such matters on a case-by-case basis and establishes any required accrual if a loss is probable and the amount of such loss can be reasonably estimated. The Company experiences significant variation in its revenue and earnings on a quarterly basis. Accordingly, the results of any pending matter or matters could be significant when compared to the Company’s earnings in any particular fiscal quarter. The Company believes, however, based on currently available information, that the results of any pending matters, in the aggregate, will not have a material effect on its business or financial condition.

 

11. STOCKHOLDERS’ EQUITY

Share Repurchase Program—During the six month period ended June 30, 2015 and for the years ended December 31, 2014, 2013, and 2012, the Board of Directors of Lazard authorized the repurchase of Class A common stock and Lazard Group common membership interests as set forth in the table below.

 

Date

   Repurchase
Authorization
     Expiration  

October 2012

   $ 200,000         December 31, 2014   

October 2013

   $ 100,000         December 31, 2015   

April 2014

   $ 200,000         December 31, 2015   

February 2015

   $ 150,000         December 31, 2016   

The Company expects that the share repurchase program will primarily be used to offset a portion of the shares that have been or will be issued under the Lazard Ltd 2005 Equity Incentive Plan (the “2005 Plan”) and

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 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 quarter to quarter due to a variety of factors. Purchases with respect to such program are set forth in the table below:

 

     Number  of
Shares

Purchased
     Average
Price  Per
Share
 

Six Months Ended June 30:

     

2014

     4,114,206       $ 46.83   

2015

     2,306,694       $ 51.04   

The shares purchased in the six months ended June 30, 2014 included 1,000,000 shares purchased from Natixis S.A. on June 26, 2014 for $50,340 in connection with the sale by Natixis S.A. of its entire investment in the Company’s Class A common stock. The purchase transaction closed on July 1, 2014. The effect of this transaction is excluded from financing activities on the condensed consolidated statement of cash flows for the six month period ended June 30, 2014.

As of June 30, 2015, a total of $161,199 of share repurchase authorizations remained available under the Company’s share repurchase program, $11,199 of which will expire on December 31, 2015 and $150,000 of which will expire on December 31, 2016.

During the six month period ended June 30, 2015, the Company had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, 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 are each non-participating securities convertible into Class A common stock, and have no voting or dividend rights. As of both June 30, 2015 and December 31, 2014, 7,921 shares of Series A preferred stock were outstanding, and no shares of Series B preferred stock were outstanding. At June 30, 2015 and December 31, 2014, no shares of Series A preferred stock were convertible into shares of Class A common stock on a contingent or a non-contingent basis.

Accumulated Other Comprehensive Income (Loss), Net of Tax (“AOCI”)The tables below reflect changes in the balances of each component of AOCI during the six month periods ended June 30, 2015 and 2014:

 

    Currency
Translation
Adjustments
    Employee
Benefit
Plans
    Total
AOCI
    Amount
Attributable to
Noncontrolling
Interests
    Total
Lazard Ltd
AOCI
 

Balance, January 1, 2015

  $ (46,102   $ (154,665   $ (200,767   $ (1   $ (200,766
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Activity January 1 to June 30, 2015:

         

Other comprehensive loss before reclassifications

    (22,342     (14,617     (36,959            (36,959

Adjustments for items reclassified to earnings, net of tax

           2,376        2,376               2,376   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive loss

    (22,342     (12,241     (34,583            (34,583
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2015

  $ (68,444   $ (166,906   $ (235,350   $ (1   $ (235,349
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

    Currency
Translation
Adjustments
    Employee
Benefit
Plans
    Total
AOCI
    Amount
Attributable to
Noncontrolling
Interests
    Total
Lazard Ltd
AOCI
 

Balance, January 1, 2014

  $ 3,869      $ (137,431   $ (133,562   $ (558   $ (133,004
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Activity January 1 to June 30, 2014:

         

Other comprehensive income (loss) before reclassifications

    10,460        (6,946     3,514        559        2,955   

Adjustments for items reclassified to earnings, net of tax

           2,569        2,569               2,569   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

    10,460        (4,377     6,083        559        5,524   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

  $ 14,329      $ (141,808   $ (127,479   $ 1      $ (127,480
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month and six month periods ended June 30, 2015 and 2014:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2015              2014              2015              2014      

Amortization relating to employee benefit plans (a)

   $ 1,728       $ 1,611       $ 3,477       $ 3,432   

Less – related income taxes

     538         331         1,101         863   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total reclassifications, net of tax

   $ 1,190       $ 1,280       $ 2,376       $ 2,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Included in the computation of net periodic benefit cost (see Note 13 of Notes to Condensed Consolidated Financial Statements). Such amount is included in “compensation and benefits” expense on the condensed consolidated statement of operations.

Noncontrolling Interests—Noncontrolling interests principally represent interests held in (i) Edgewater’s management vehicles that the Company is deemed to control, but does not own, and (ii) Lazard Group by LAZ-MD Holdings until May 2014. Following the Final Exchange of LAZ-MD Interests, Lazard Group became a wholly-owned indirect subsidiary of Lazard Ltd.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

The tables below summarize net income attributable to noncontrolling interests for the three month and six month periods ended June 30, 2015 and 2014 and noncontrolling interests as of June 30, 2015 and December 31, 2014 in the Company’s condensed consolidated financial statements:

 

     Net Income
Attributable to Noncontrolling
Interests
 
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
          2015                2014                2015                2014       

Edgewater

   $  1,041       $ 552       $ 7,734       $ 4,672   

LAZ-MD Holdings

             164                 631   

Other

     1         1         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $  1,042       $ 717       $ 7,735       $ 5,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Noncontrolling Interests As Of  
     June 30,
2015
     December 31,
2014
 

Edgewater

   $  58,446       $ 62,584   

Other

     719         729   
  

 

 

    

 

 

 

Total

   $ 59,165       $ 63,313   
  

 

 

    

 

 

 

Dividends Declared, July 2015— On July 22, 2015, the Board of Directors of Lazard Ltd declared a quarterly dividend of $0.35 per share on its Class A common stock, payable on August 14, 2015, to stockholders of record on August 3, 2015.

 

12. INCENTIVE PLANS

Share-Based Incentive Plan Awards

A description of Lazard Ltd’s 2005 Plan and 2008 Plan and activity with respect thereto during the three month and six month periods ended June 30, 2015 and 2014, is presented below.

Shares Available Under the 2008 Plan and the 2005 Plan

The 2008 Plan authorizes the issuance of shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”) and other equity-based awards. Under the 2008 Plan, the maximum number of shares available is based on a formula that limits the aggregate number of shares that may, at any time, be subject to awards that are considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of Class A common stock.

The 2005 Plan authorized the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other equity-based awards. Each stock unit or similar award granted under the 2005 Plan represented a contingent right to receive one share of Class A common stock, at no cost to the recipient. The fair value of such awards was generally determined based on the closing market price of Class A common stock at the date of grant. The 2005 Plan expired in the second quarter of 2015.

 

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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, performance-based restricted stock units (“PRSUs”) and restricted stock awards) and “professional services” expense (with respect to deferred stock units (“DSUs”)) within the Company’s accompanying condensed consolidated statements of operations for the three month and six month periods ended June 30, 2015 and 2014:

 

     Three Months Ended
June 30,
     Six Months Ended
June  30,
 
           2015                  2014                  2015                  2014        

Share-based incentive awards:

           

RSUs

   $ 32,263       $ 40,931       $ 91,334       $ 93,216   

PRSUs

     8,414         4,902         14,612         6,700   

Restricted Stock

     2,830         4,244         15,453         10,856   

DSUs

     1,363         1,434         1,394         1,536   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44,870       $ 51,511       $ 122,793       $ 112,308   
  

 

 

    

 

 

    

 

 

    

 

 

 

The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of Class A common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates results in a cumulative adjustment to previously recorded compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.

For purposes of calculating diluted net income per share, RSUs, DSUs and restricted stock awards are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method. PRSUs are included in the diluted weighted average shares of Class A common stock outstanding to the extent the performance conditions are met at the end of the reporting period, also using the “treasury stock” method.

The Company’s incentive plans are described below.

RSUs and DSUs

RSUs generally require future service as a condition for the delivery of the underlying shares of Class A common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of Class A common stock on a one-for-one basis after the stipulated vesting periods. PRSUs, which are RSUs that are also subject to service-based vesting conditions, have additional performance conditions, and are described below. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods (generally one-third after two years, and the remaining two-thirds after the third year), and is adjusted for actual forfeitures over such period.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

RSUs generally include a dividend participation right that provides that during vesting periods each RSU is attributed additional RSUs (or fractions thereof) equivalent to any dividends paid on Class A common stock during such period. During the six month periods ended June 30, 2015 and 2014, issuances of RSUs pertaining to such dividend participation rights and respective charges to “retained earnings”, net of estimated forfeitures (with corresponding credits to “additional paid-in-capital”), consisted of the following:

 

      Six Months Ended
June 30,
 
           2015                  2014        

Number of RSUs issued

     529,616         203,537   

Charges to retained earnings, net of estimated forfeitures

   $ 26,461       $ 9,387   

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, which resulted in 23,961 and 26,360 DSUs granted in connection with annual compensation during the six month periods ended June 30, 2015 and 2014, respectively. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of Class A common stock at the time of cessation of service to the Board of Directors and, for purposes of calculating diluted net income per share, are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method. DSUs include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Class A common stock.

The Company’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs that shall be granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of Class A common stock on the date immediately preceding the date of the grant. During the six month periods ended June 30, 2015 and 2014, 1,183 and 4,383 DSUs, respectively, had been granted pursuant to such Plan.

DSU awards are expensed at their fair value on their date of grant, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan.

 

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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 six month periods ended June 30, 2015 and 2014:

 

    RSUs     DSUs  
    Units     Weighted
Average
Grant Date
Fair Value
    Units     Weighted
Average
Grant Date
Fair Value
 

Balance, January 1, 2015

    13,529,116      $ 35.19        286,227      $ 34.21   

Granted (including 529,616 RSUs relating to dividend participation)

    3,982,135      $ 48.83        25,144      $ 55.45   

Forfeited

    (397,637   $ 43.04                 

Vested

    (6,873,352   $ 30.79                 
 

 

 

     

 

 

   

Balance, June 30, 2015

    10,240,262      $ 43.14        311,371      $ 35.92   
 

 

 

     

 

 

   

Balance, January 1, 2014

    16,630,009      $ 34.51        251,434      $ 32.02   

Granted (including 203,537 RSUs relating to dividend participation)

    3,625,734      $ 42.87        30,743      $ 49.97   

Forfeited

    (77,368   $ 37.01                 

Vested

    (6,381,080   $ 37.98                 
 

 

 

     

 

 

   

Balance, June 30, 2014

    13,797,295      $ 35.09        282,177      $ 33.97   
 

 

 

     

 

 

   

In connection with RSUs that vested during the six month periods ended June 30, 2015 and 2014, the Company satisfied its minimum statutory tax withholding requirements in lieu of issuing 1,895,301 and 1,853,416 shares of Class A common stock in the respective six month periods. Accordingly, 4,978,051 and 4,527,664 shares of Class A common stock held by the Company were delivered during the six month periods ended June 30, 2015 and 2014, respectively.

As of June 30, 2015, estimated unrecognized RSU compensation expense was approximately $192,787, with such expense expected to be recognized over a weighted average period of approximately 1.0 year subsequent to June 30, 2015.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

Restricted Stock

The following is a summary of activity related to shares of restricted Class A common stock associated with compensation arrangements during the six month periods ended June 30, 2015 and 2014:

 

     Restricted
Shares
     Weighted
Average
Grant Date
Fair Value
 

Balance, January 1, 2015

     729,827       $ 38.63   

Granted

     576,886       $ 50.88   

Forfeited

     (44,769    $ 50.23   

Vested

     (501,298    $ 39.19   
  

 

 

    

Balance, June 30, 2015

     760,646       $ 46.87   
  

 

 

    

Balance, January 1, 2014

     575,054       $ 32.72   

Granted

     449,911       $ 45.52   

Forfeited

     (9,438    $ 41.45   

Vested

     (205,075    $ 35.23   
  

 

 

    

Balance, June 30, 2014

     810,452       $ 39.09   
  

 

 

    

In connection with shares of restricted Class A common stock that vested during the six month periods ended June 30, 2015 and 2014, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 92,500 and 29,999 shares of Class A common stock during such respective six month periods. Accordingly, 408,798 and 175,076 shares of Class A common stock held by the Company were delivered during the six month periods ended June 30, 2015 and 2014, respectively.

The restricted stock awards include a cash dividend participation right equivalent to any ordinary dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At June 30, 2015, estimated unrecognized restricted stock expense was approximately $21,470, with such expense to be recognized over a weighted average period of approximately 1.1 years subsequent to June 30, 2015.

PRSUs

PRSUs are subject to both performance-based and service-based vesting conditions. The number of shares of Class A common stock that a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics that relate to the Company’s performance over a three-year period. The target number of shares of Class A common stock subject to each PRSU is one; however, based on the achievement of the performance criteria, the number of shares of Class A common stock that may be received in connection with each PRSU generally can range from zero to two times the target number (with the exception of the PRSUs granted in 2013, for which (i) the performance period ended on December 31, 2014 and (ii) the number of shares of Class A common stock that may be received is equal to approximately 2.2 times the target number). The PRSUs granted in 2015 and 2014 will vest on a single date three years following the date of the grant and the PRSUs granted in 2013 vested 33% in March 2015 and will vest 67% in March 2016, in each case provided the applicable service and performance conditions are satisfied, other than with respect to the PRSUs granted in 2013, which performance conditions have been satisfied as of December 31, 2014. In addition, the performance metrics applicable to each PRSU will be evaluated on an annual basis at the end of each fiscal year during the performance period and, if the Company has achieved a threshold level of performance with respect to the fiscal year, 25% of the target number of shares of Class A common stock subject to

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

each PRSU award will no longer be at risk of forfeiture based on the achievement of performance criteria. PRSUs include dividend participation rights that provide that during vesting periods the target number of PRSUs (or, following the relevant performance period, the actual number of shares of Class A common stock that are no longer subject to performance conditions) receive dividend equivalents at the same rate that dividends are paid on Class A common stock during such period. These dividend equivalents are credited as RSUs that are not subject to the performance-based vesting criteria but are otherwise subject to the same restrictions as the underlying PRSUs to which they relate.

The following is a summary of activity relating to PRSUs during the six month periods ended June 30, 2015 and 2014:

 

     PRSUs     Weighted
Average
Grant Date
Fair Value
 

Balance January 1, 2015

     1,347,148      $ 37.79   

Granted

     368,389      $ 52.85   

Vested

     (696,499   $ 35.96   
  

 

 

   

Balance June 30, 2015

     1,019,038      $ 44.49   
  

 

 

   

Balance, January 1, 2014

     448,128      $ 36.11   

Granted

     360,783      $ 44.46   
  

 

 

   

Balance, June 30, 2014

     808,911      $ 39.83   
  

 

 

   

In connection with PRSUs that vested during the six month period ended June 30, 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of issuing 32,086 shares of Class A common stock in the period. Accordingly, 664,413 shares of Class A common stock held by the Company were delivered during the six month period ended June 30, 2015.

Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of Class A common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of June 30, 2015, the total estimated unrecognized compensation expense was approximately $24,406, and the Company expects to amortize such expense over a weighted-average period of approximately 0.8 years subsequent to June 30, 2015.

LFI and Other Similar Deferred Compensation Arrangements

Commencing in February 2011, the Company granted LFI to eligible employees. In connection with LFI and other similar deferred compensation arrangements, which generally require future service as a condition for vesting, the Company recorded a prepaid compensation asset and a corresponding compensation liability on the grant date based upon the fair value of the award. The prepaid asset is amortized on a straight-line basis over the applicable vesting periods or requisite service periods (which are generally similar to the comparable periods for RSUs), and is charged to “compensation and benefits” expense within the Company’s condensed consolidated statement of operations. LFI and similar deferred compensation arrangements that do not require future service are expensed immediately. The related compensation liability is accounted for at fair value as a derivative liability, which contemplates the impact of estimated forfeitures, and is adjusted for changes in fair value primarily related to changes in value of the underlying investments.

 

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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 LFI and other similar deferred compensation arrangements during the six month periods ended June 30, 2015 and 2014:

 

    Prepaid
Compensation
Asset
      Compensation  
Liability
 

Balance, January 1, 2015

  $ 73,278      $ 207,306   

Granted

    89,817        89,817   

Settled

           (92,893

Forfeited

    (3,259     (6,290

Amortization

    (44,522       

Change in fair value related to:

   

Increase in fair value of underlying investments

           2,242   

Adjustment for estimated forfeitures

           3,433   

Other

    176        (1,552
 

 

 

   

 

 

 

Balance, June 30, 2015

  $ 115,490      $ 202,063   
 

 

 

   

 

 

 
    Prepaid
Compensation

Asset
      Compensation  
Liability
 

Balance, January 1, 2014

  $ 60,433      $ 162,422   

Granted

    92,711        92,711   

Settled

           (52,944

Forfeited

    (1,189     (1,659

Amortization

    (39,457       

Change in fair value related to:

   

Increase in fair value of underlying investments

           11,532   

Adjustment for estimated forfeitures

           2,929   

Other

    37        172   
 

 

 

   

 

 

 

Balance, June 30, 2014

  $ 112,535      $ 215,163   
 

 

 

   

 

 

 

The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 1.0 year subsequent to June 30, 2015.

The following is a summary of the impact of LFI and other similar deferred compensation arrangements on “compensation and benefits” expense within the accompanying condensed consolidated statements of operations for the three month and six month periods ended June 30, 2015 and 2014:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2015              2014              2015              2014      

Amortization, net of forfeitures

   $ 18,260       $ 21,603       $ 44,924       $ 41,916   

Change in the fair value of underlying investments

     (1,894      8,906         2,242         11,532   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,366       $ 30,509       $ 47,166       $ 53,448   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

13. 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”) and, in the U.S., a partially funded contributory post-retirement plan covering qualifying U.S. employees (the “medical plan” and together with the pension plans, the “post-retirement plans”). The Company also offers defined contribution plans to its employees. The post-retirement 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 on the condensed consolidated statements of operations.

Employer Contributions to Pension Plans—The Company’s funding policy for its U.S. and non-U.S. pension plans is to fund when required or when applicable upon an agreement with the plans’ trustees (the “Trustees”). Management also evaluates from time to time whether to make voluntary contributions to the plans.

On March 31, 2015, the Company and the Trustees of the U.K. defined benefit pension plans concluded the December 31, 2013 triennial valuations of the plans. In connection with such valuations, the Company and the Trustees agreed upon pension funding terms pursuant to which the Company agreed, among other things, (i) to make contributions of 11.2 million British pounds into the plans by way of three equal contributions at June 30, September 30 and December 31, 2015, and (ii) that the Company’s existing account security arrangement would be dissolved and the cash balance within such accounts would be paid into the plans by June 30, 2015. On June 4, 2015, the full balance of 11.2 million British pounds in the account security arrangement was paid into the plans. At December 31, 2014, the balance of the account security arrangement was $17,500 and was recorded in “cash deposited with clearing organizations and other segregated cash” on the accompanying condensed consolidated statements of financial condition. Income on the account security arrangement accreted to the Company and is recorded in interest income.

The following table summarizes the components of net periodic benefit cost (credit) related to the Company’s post-retirement plans for the three month and six month periods ended June 30, 2015 and 2014:

 

    Pension Plans     Medical Plan  
    Three Months Ended June 30,  
        2015             2014             2015             2014      

Components of Net Periodic Benefit Cost (Credit):

       

Service cost

  $ 353      $ 228      $ 5      $ 5   

Interest cost

    6,153        7,640        41        44   

Expected return on plan assets

    (7,019     (8,228              

Amortization of:

       

Prior service cost

    591        735                 

Net actuarial loss (gain)

    1,137        1,118               (242
 

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

  $ 1,215      $ 1,493      $ 46      $ (193
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

    Pension Plans     Medical Plan  
    Six Months Ended June 30,  
        2015             2014             2015             2014      

Components of Net Periodic Benefit Cost (Credit):

       

Service cost

  $ 713      $ 451      $ 13      $ 17   

Interest cost

    12,259        15,171        90        97   

Expected return on plan assets

    (14,090     (16,307              

Amortization of:

       

Prior service cost

    1,194        1,468                 

Net actuarial loss (gain)

    2,283        2,229               (265
 

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

  $ 2,359      $ 3,012      $ 103      $ (151
 

 

 

   

 

 

   

 

 

   

 

 

 

 

14. INCOME TAXES

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. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes in foreign jurisdictions. Lazard Group is also subject to New York City Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.

The Company recorded income tax provisions (benefits) of $(1,176,531) and $(1,164,514) for the three month and six month periods ended June 30, 2015, respectively, and $13,071 and $34,822 for the three month and six month periods ended June 30, 2014, respectively, representing effective tax rates of 146.8%, 160.2%, 13.2% and 16.9%, respectively. The difference between the U.S. federal statutory rate of 35.0% and the effective tax rates reflected above principally relates to (i) change in the valuation allowance affecting the provision for income taxes, (ii) recognition of a deferred tax asset associated with the recording of the tax receivable agreement obligation (see below), (iii) taxes payable to foreign jurisdictions that are not offset against U.S. income taxes, (iv) foreign source income (loss) not subject to U.S. income taxes (including interest on intercompany financings), and (v) U.S. state and local taxes (primarily UBT), which are incremental to the U.S. federal statutory tax rate.

Certain of our tax-paying entities at which we have historically recorded significant valuation allowances were profitable on a cumulative basis for the three year period ended June 30, 2015. In assessing our valuation allowance as of June 30, 2015, we considered all available information, including the magnitude of recent and current operating results, the relatively long duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these entities and our assessment regarding the sustainability of their profitability. We concluded that there is now a sufficient history of sustained profitability at these entities that it is more likely than not that these entities will be able to realize deferred tax assets. Accordingly, during the period ended June 30, 2015, we released substantially all of the valuation allowance against the deferred tax assets held by these entities, with the exception of the portion of the valuation allowance that we currently expect to utilize in the current year.

As a result, during the quarter ended June 30, 2015, we recorded a deferred tax benefit of approximately $821,000. In addition, we also recorded a separate deferred tax benefit of approximately $378,000 that reflects the tax deductibility of payments under the tax receivable agreement. See “—Tax Receivable Agreement” below for more information regarding our accrual under the tax receivable agreement.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

Substantially all of Lazard’s operations outside the U.S. are conducted in “pass-through” entities for U.S. income tax purposes. The Company provides for U.S. income taxes on a current basis for those earnings. The repatriation of prior earnings attributable to “non-pass-through” entities would not result in the recognition of a material amount of additional U.S. income taxes.

Tax Receivable Agreement

In connection with our initial public offering and related transactions in May 2005, we entered into a tax receivable agreement with the predecessor of LMDC Holdings LLC (“LMDC Holdings”) on May 10, 2005 (the “Tax Receivable Agreement”). The agreement was based on the mutual recognition that the redemption of Lazard Group membership interests that were held by the historical partners of Lazard Group on May 10, 2005 for cash resulted in an increase in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group that otherwise would not have been available. The agreement also was based on the mutual recognition that the exchange from time to time by such historical partners of exchangeable interests in LAZ-MD Holdings LLC for shares of our Class A common stock could subsequently result in additional increases in such tax basis. Included in our deferred tax assets as of June 30, 2015 are approximately $1,177,000 of deferred tax assets which are subject to the Tax Receivable Agreement.

On June 16, 2015, Lazard and LMDC Holdings amended the Tax Receivable Agreement and entered into an Amended and Restated Tax Receivable Agreement (the “Amended and Restated Tax Receivable Agreement”). Pursuant to the Amended and Restated Tax Receivable Agreement, among other things, (i) LMDC Holdings assigned all of its obligations thereunder, including the obligation to receive payments and promptly distribute them to historical partners of Lazard Group, to LTBP Trust, a new Delaware statutory trust (the “Trust”), and the Trust assumed all of LMDC Holdings’ obligations thereunder, (ii) LMDC Holdings distributed the interests in the Trust to certain owners of LMDC Holdings, and (iii) holders of interests in the Trust obtained the ability, subject to certain restrictions and conditions, to transfer such interests to certain additional persons and entities, including Lazard.

Consistent with the original Tax Receivable Agreement, the Amended and Restated Tax Receivable Agreement provides for the payment by our subsidiaries to the Trust of a specified percentage (originally 85%, subject to downward adjustment in the event of any Lazard purchases of Trust interests) 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 tax basis and of certain other tax benefits related to the Amended and Restated Tax Receivable Agreement, including tax benefits attributable to payments under the Amended and Restated Tax Receivable Agreement. Our subsidiaries expect to benefit from the balance of cash savings, if any, in income tax that our subsidiaries realize. Any amount paid by our subsidiaries to the Trust will generally be distributed to the owners of the Trust, including our executive officers, in proportion to their beneficial interests in the Trust.

For purposes of the Amended and Restated Tax Receivable Agreement, 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 the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group as a result of the redemption and exchanges and had our subsidiaries not entered into the Amended and Restated Tax Receivable Agreement. The term of the Amended and Restated Tax Receivable Agreement will continue until approximately 2033 or, if earlier, until all relevant tax benefits have been utilized or expired.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

As described above, during the period ended June 30, 2015, we released substantially all of our valuation allowance against deferred tax assets. As a result, we accrued a corresponding liability of $961,948 during the quarter ended June 30, 2015 for amounts relating to the Amended and Restated Tax Receivable Agreement. The cumulative liability recorded as of June 30, 2015 was $988,085.

The amount of the Amended and Restated Tax Receivable Agreement liability is an undiscounted amount based upon currently enacted tax laws, the current structure of the Company and various assumptions regarding potential future operating profitability. The assumptions reflected in the estimate involve significant judgment. As such, the actual amount and timing of payments under the Amended and Restated Tax Receivable Agreement 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 consolidated statement of operations. Adjustments, if necessary, to the related deferred tax assets would be recorded through income tax expense.

Subsequent Event

In July 2015, we purchased approximately 46.9% of the then-outstanding beneficial interests in the Trust from certain owners of the Trust for $42,222 in cash, which resulted in the automatic cancellation of such beneficial interests and the extinguishment of the corresponding portion of our payment obligations under the Amended and Restated Tax Receivable Agreement. The Company expects that the extinguishment of the obligations described above, and the corresponding reduction of related deferred tax assets, will have the effect of increasing our net income by approximately $290,000 in the third quarter of 2015 and will be reflected in our condensed consolidated financial statements in the third quarter of 2015.

 

15. NET INCOME PER SHARE OF CLASS A COMMON STOCK

The Company’s basic and diluted net income per share calculations for the three month and six month periods ended June 30, 2015 and 2014 are computed as described below.

Basic Net Income Per Share

Numerator—utilizes net income attributable to Lazard Ltd for the respective periods, plus applicable adjustments to such net income associated with the inclusion of shares of Class A common stock issuable on a non-contingent basis.

Denominator—utilizes the weighted average number of shares of Class A common stock outstanding for the respective periods, plus applicable adjustments to such shares associated with shares of Class A common stock issuable on a non-contingent basis.

Diluted Net Income Per Share

Numerator—utilizes net income attributable to Lazard Ltd for the respective periods as in the basic net income per share calculation described above, plus, to the extent applicable and dilutive, (i) changes in net income attributable to noncontrolling interests resulting from assumed Class A common stock issuances in connection with share-based incentive compensation and, in 2014, on an “as-if-exchanged” basis, amounts applicable to LAZ-MD Holdings exchangeable interests and (ii) income tax related to (i) above.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

Denominator—utilizes the weighted average number of shares of Class A common stock outstanding for the respective periods as in the basic net income per share calculation described above, plus, to the extent dilutive, the incremental number of shares of Class A common stock required to settle share-based incentive compensation and, in 2014, LAZ-MD Holdings exchangeable interests, using the “treasury stock” method or the “as-if-exchanged” basis, as applicable.

The calculations of the Company’s basic and diluted net income per share and weighted average shares outstanding for the three month and six month periods ended June 30, 2015 and 2014 are presented below:

 

                                                                                                               
    Three Months Ended 
June 30,
    Six Months Ended
June 30,
 
    2015     2014     2015     2014  

Net income attributable to Lazard Ltd

    $374,113        $85,192       
$430,066
  
    $166,034   

Add (deduct) - adjustment associated with Class A common stock issuable on a non-contingent basis

                        

  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Lazard Ltd - basic

    374,113        85,192        430,066        166,034   

Add - dilutive effect, as applicable, of:

       

Adjustments to income relating to interest expense and changes in net income attributable to noncontrolling interests resulting from assumed Class A common stock issuances in connection with share-based incentive compensation, and, in 2014, exchangeable interests, net of tax

           174       

  
   
607
  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Lazard Ltd - diluted

    $374,113        $85,366        $430,066        $166,641   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of Class A common stock outstanding

    126,140,634        122,701,779        124,862,156       
122,031,495
  

Add - adjustment for shares of Class A common stock issuable on a non-contingent basis

    72,011        414,997        72,011        414,997   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of Class A common stock outstanding - basic

    126,212,645        123,116,776        124,934,167        122,446,492   

Add - dilutive effect, as applicable, of:

       

Weighted average number of incremental shares of Class A common stock issuable from share-based incentive compensation and, in 2014, exchangeable interests

    6,593,400        10,458,876        8,336,829        11,354,330   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of Class A common stock outstanding - diluted

    132,806,045        133,575,652        133,270,996        133,800,822   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Lazard Ltd per share of Class A common stock:

       

Basic

    $2.96        $0.69        $3.44        $1.36   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    $2.82        $0.64        $3.23        $1.25   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

16. REGULATORY AUTHORITIES

LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. 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 $100, whichever is greater. In addition, the ratio of aggregate indebtedness (as defined) to net capital may not exceed 15:1. At June 30, 2015, LFNY’s regulatory net capital was $112,976, which exceeded the minimum requirement by $110,110. LFNY’s aggregate indebtedness to net capital ratio was 0.38:1 as of June 30, 2015.

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 June 30, 2015, the aggregate regulatory net capital of the U.K. Subsidiaries was $115,445, which exceeded the minimum requirement by $97,014.

CFLF, under which asset management and commercial banking activities are carried out in France, is subject to regulation by the ACPR for its banking activities conducted through its subsidiary, LFB. The investment services activities of the Paris group, exercised through LFB and other subsidiaries of CFLF, primarily LFG (asset management), also are subject to regulation and supervision by the Autorité des Marchés Financiers. At June 30, 2015, the consolidated regulatory net capital of CFLF was $133,985, which exceeded the minimum requirement set for regulatory capital levels by $95,785. 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 new 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 March 31, 2015, the regulatory net capital of the combined European regulated group was $201,766, which exceeded the minimum requirement set for regulatory capital levels by $126,478. 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 (which is similar to the information that the Company had already been providing informally). This new supervision under, and provision of information to, the ACPR became effective December 31, 2013.

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 June 30, 2015, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $116,436, which exceeded the minimum required capital by $89,831.

At June 30, 2015, 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.

 

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LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

 

17. SEGMENT INFORMATION

The Company’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each segment is reviewed to determine the allocation of resources and to assess its performance. The Company’s principal operating activities are included in its Financial Advisory and Asset Management business segments, as described in Note 1 of Notes to Condensed Consolidated Financial Statements. In addition, as described in Note 1 of Notes to Condensed Consolidated Financial Statements, the Company records selected other activities in its Corporate segment.

The Company’s segment information for the three month and six month periods ended June 30, 2015 and 2014 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 allocates investment gains and losses, 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.

 

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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
June 30,
    Six Months Ended
June 30,
 
              2015                 2014               2015             2014      

Financial Advisory

  Net Revenue   $ 316,384      $ 280,769      $ 617,903      $ 556,265   
  Operating Expenses     253,221        253,804        496,156        499,219   
   

 

 

   

 

 

   

 

 

   

 

 

 
  Operating Income   $ 63,163      $ 26,965      $ 121,747      $ 57,046   
   

 

 

   

 

 

   

 

 

   

 

 

 

Asset Management

  Net Revenue   $ 305,838      $ 288,164      $ 585,645      $ 556,728   
  Operating Expenses     193,791        185,237        375,583        360,998   
   

 

 

   

 

 

   

 

 

   

 

 

 
  Operating Income   $ 112,047      $ 102,927      $ 210,062      $ 195,730   
   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate

  Net Revenue   $ (13,130   $ (2,037   $ (16,707   $ (12,697
  Operating Expenses (a)     963,456        28,875        1,041,815        33,919   
   

 

 

   

 

 

   

 

 

   

 

 

 
  Operating Loss   $ (976,586   $ (30,912   $ (1,058,522   $ (46,616
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Net Revenue   $ 609,092      $ 566,896      $ 1,186,841        1,100,296   
  Operating Expenses     1,410,468        467,916        1,913,554        894,136   
   

 

 

   

 

 

   

 

 

   

 

 

 
  Operating Income (Loss)   $ (801,376   $ 98,980      $ (726,713   $ 206,160   
   

 

 

   

 

 

   

 

 

   

 

 

 

 

     As Of  
     June 30,
2015
     December 31,
2014
 

Total Assets

     

Financial Advisory

   $ 773,432       $ 785,557   

Asset Management

     486,851         588,403   

Corporate (b)

     2,891,658         1,958,276   
  

 

 

    

 

 

 

Total

   $ 4,151,941       $ 3,332,236   
  

 

 

    

 

 

 

 

(a) Operating expenses include $961,948 and $968,483 in the three month and six month periods ended June 30, 2015, respectively, recorded for the provision pursuant to the tax receivable agreement. See Note 14 of Notes to Condensed Consolidated Financial Statements for information regarding the tax receivable agreement obligation.
(b) Corporate segment assets include amounts recorded for deferred tax assets of $1,255,440 and $59,041 at June 30, 2015 and December 31, 2014, respectively. See Note 14 of Notes to Condensed Consolidated Financial Statements for information regarding deferred tax assets.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Lazard Ltd’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”). All references to “2015”, “2014”, “second quarter”, “first half” or “the period” refer to, as the context requires, the three month and six month periods ended June 30, 2015 and June 30, 2014.

Forward-Looking Statements and Certain Factors that May Affect Our Business

Management has included in Parts I and II of this Form 10-Q, including in its MD&A, statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in our Form 10-K under the caption “Risk Factors,” including the following:

 

   

a decline in general economic conditions or global or regional financial markets;

 

   

a decline in our revenues, for example due to a decline in overall mergers and acquisitions (“M&A”) activity, our share of the M&A market or our assets under management (“AUM”);

 

   

losses caused by financial or other problems experienced by third parties;

 

   

losses due to unidentified or unanticipated risks;

 

   

a lack of liquidity, i.e., ready access to funds, for use in our businesses; and

 

   

competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels.

These risks and uncertainties are not exhaustive. Other sections of the Form 10-K and this Form 10-Q describe additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do not intend to do so.

Forward-looking statements include, but are not limited to, statements about:

 

   

financial goals, including the ratio of awarded compensation and benefits expense to operating revenue;

 

   

ability to deploy surplus cash through dividends, share repurchases and debt repurchases;

 

   

ability to offset stockholder dilution through share repurchases;

 

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possible or assumed future results of operations and operating cash flows;

 

   

strategies and investment policies;

 

   

financing plans and the availability of short-term borrowing;

 

   

competitive position;

 

   

future acquisitions, including the consideration to be paid and the timing of consummation;

 

   

potential growth opportunities available to our businesses;

 

   

recruitment and retention of our managing directors and employees;

 

   

potential levels of compensation expense and non-compensation expense;

 

   

potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts;

 

   

likelihood of success and impact of litigation;

 

   

expected tax rates, including effective tax rates;

 

   

changes in interest and tax rates;

 

   

availability of certain tax benefits, including certain potential deductions;

 

   

potential impact of certain events or circumstances on our financial statements;

 

   

expectations with respect to the economy, the securities markets, the market for mergers, acquisitions and strategic advisory and restructuring activity, the market for asset management activity and other macroeconomic and industry trends;

 

   

effects of competition on our business; and

 

   

impact of future legislation and regulation on our business.

The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, the Company uses its websites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in various mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC (together with its subsidiaries, “LAM”) and Lazard Frères Gestion SAS (“LFG”). Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com. Our websites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q.

Business Summary

Lazard is one of the world’s preeminent financial advisory and asset management firms. We have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals. Founded in 1848 in New Orleans, we currently operate from 43 cities in key business and financial centers across 27 countries throughout North America, Europe, Asia, Australia, the Middle East, and Central and South America.

Our primary business purpose is to serve our clients. Our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations, governments and investing institutions. This network is both a competitive strength and a powerful resource for Lazard and our clients. As a firm that competes on the quality of our advice, we have two fundamental assets: our people and our reputation.

We operate in cyclical businesses across multiple geographies, industries and asset classes. In recent years, we have expanded our geographic reach, bolstered our industry expertise and continued to build in growth areas. Companies, government bodies and investors seek independent advice with a geographic perspective, deep understanding of capital structure, informed research and knowledge of global economic conditions. We believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel.

 

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Our principal sources of revenue are derived from activities in the following business segments:

 

   

Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding M&A and other strategic matters, restructurings, capital structure, capital raising and various other financial matters, and

 

   

Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income 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 and assets associated with Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”).

LFB is a registered bank regulated by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”). It is engaged primarily in commercial and private banking services for clients and funds managed by LFG and other clients, investment banking activities, including participation in underwritten offerings of securities in France, and asset-liability management.

Our consolidated net revenue was derived from the following segments:

 

      Three Months Ended 
June 30,
    Six Months Ended
June 30,
 
         2015             2014             2015             2014      

Financial Advisory

     52     49     52     50

Asset Management

     50        51        49        51   

Corporate

     (2            (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

We also invest our own capital from time to time, generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments, and, since 2005, we have engaged in a number of alternative investments and private equity activities, including, historically, investments through (i) the Edgewater Funds (“Edgewater”), our Chicago-based private equity firm (see Note 10 of Notes to Condensed Consolidated Financial Statements), (ii) Lazard Australia Corporate Opportunities Fund 2 (“COF2”), an Australian fund targeting Australasian mid-market investments, (iii) a mezzanine fund, which invests in mezzanine debt of a diversified selection of small-to mid-cap European companies and (iv) a fund targeting significant noncontrolling-stake investments in established private companies. We also make investments to seed our Asset Management strategies.

Business Environment and Outlook

Economic and global financial market conditions can materially affect our financial performance. As described above, our principal sources of revenue are derived from activities in our Financial Advisory and Asset Management business segments. As our Financial Advisory revenues are primarily dependent on the successful completion of merger, acquisition, restructuring, capital raising or similar transactions, and our Asset Management revenues are primarily driven by the levels of AUM, weak economic and global financial market conditions can result in a challenging business environment for M&A and capital-raising activity as well as our Asset Management business, but may provide opportunities for our restructuring business.

Despite market volatility in the early part of the first half of 2015, equity market indices for developed markets at June 30, 2015 generally increased or remained stable as compared to such indices at December 31, 2014. Emerging markets indices at June 30, 2015 have generally increased as compared to December 31, 2014.

 

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In the global M&A markets during the first half of 2015, the value of all completed M&A transactions increased as compared to the same period in the prior year, as did the subset of such transactions involving values greater than $500 million. During the same time, the value of all announced M&A transactions, including the subset of such transactions involving values greater than $500 million, also increased, reflecting an active global M&A environment. While the value of completed and announced transactions increased as compared to the prior period, the number of announced transactions (excluding the subset of announced transactions involving values greater than $500 million) decreased. During the first half of 2015, global restructuring activity remained low, consistent with the last several years.

In the first half of 2015, corporate cash balances remain high and interest rates remain low. The U.S. macroeconomic environment has improved, but Europe and many of the developing markets remain unsettled, particularly with respect to foreign exchange markets. Although market and foreign currency volatility may continue, the longer-term trends appear to remain favorable for both of our businesses.

We intend to leverage our existing infrastructure to capitalize on any global macroeconomic recovery, positive momentum in the M&A cycle, and strength in the global equity markets. We believe that we can generate revenue growth by remaining adequately staffed to capitalize on any macroeconomic recovery and deploying our intellectual capital to generate new revenue streams.

Our outlook with respect to our Financial Advisory and Asset Management businesses is described below.

 

  Financial Advisory – The fundamentals for continued growth of a strategic M&A cycle appear to remain in place. Demand continues for expert, independent strategic advice that can be levered across geographies and our range of advisory capabilities. The global scale and breadth of our Financial Advisory business allows us to advise on large, complex cross-border transactions across a variety of industries. In addition, we believe our businesses throughout the emerging markets, Japan and Australia position us for growth in these markets, while enhancing our relationships with, and the services that we can provide to, clients in developed economies.

 

  Asset Management – Generally, we have seen increased investor demand across regions and investment platforms. In the short to intermediate term, we expect most of our growth will come from defined benefit and defined contribution plans in the developed economies because of their sheer scope and size. Over the longer term, we expect an increasing share of our AUM to come from the developing economies in Asia, Latin America and the Middle East, as their retirement systems evolve and individual wealth is increasingly deployed in the financial markets. Our global footprint is already well established in the developed economies and we expect our business in the developing economies will continue to expand. Given our globally diversified platform and our ability to provide investment solutions for a global mix of clients, we believe we are positioned to benefit from growth that may occur in the asset management industry. In recent years, we have expanded the global footprint of our Asset Management business by opening offices in Singapore, Dubai and Dublin. We are continually developing and seeding new investment strategies that extend our existing platforms. Recent examples of growth initiatives include the following investment strategies: Emerging Markets Debt, Emerging Markets Small Cap Equity, Middle East North African Equities, Asian Equities, U.S. Long/Short Equity and International Concentrated Equity.

We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge continuously, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. See Item 1A, “Risk Factors” in our Form 10-K. Furthermore, net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter.

 

 

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Overall, we continue to focus on the development of our business, including the generation of stable revenue growth, earnings growth and shareholder returns, the prudent management of our costs and expenses, the efficient use of our assets and the return of capital to our shareholders.

Certain data with respect to our Financial Advisory and Asset Management businesses is included below.

Financial Advisory

As reflected in the following table, which sets forth global M&A industry statistics, the value of all completed transactions, including completed transactions with values greater than $500 million, increased in the first half of 2015 as compared to the first half of 2014, while the number of all completed transactions decreased over the same period. With respect to announced M&A transactions, the value of all announced transactions, including announced transactions with values greater than $500 million, increased in the first half of 2015 as compared to the first half of 2014, while the number of all announced transactions decreased over the same period.

 

      Three Months Ended
June 30, 
    Six Months Ended
June 30,
 
      2015      2014      %
Incr /  (Decr)
    2015      2014      %
Incr /  (Decr)
 
    

($ in billions)

 

Completed M&A Transactions:

                

All deals:

                

Value

   $ 903       $ 613         47   $ 1,756       $ 1,354         30

Number

     7,925         10,083         (21 )%      17,254         19,754         (13 )% 

Deals Greater than $500 million:

                

Value

   $ 715       $ 401         78   $ 1,380       $ 959         44

Number

     263         229         15     526         491         7

Announced M&A Transactions:

                

All deals:

                

Value

   $ 1,375       $ 1,010         36   $ 2,277       $ 1,671         36

Number

     8,819         10,474         (16 )%      18,650         20,301         (8 )% 

Deals Greater than $500 million:

                

Value

   $ 1,133       $ 772         47   $ 1,828       $ 1,246         47

Number

     330         308         7