10-Q 1 d165106d10q.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, 2016

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 22, 2016, there were 129,766,091 shares of the Registrant’s Class A common stock outstanding (including 5,545,541 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, 2016 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

     41   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     76   

Item 4. Controls and Procedures

     76   

Part II. Other Information

  

Item 1. Legal Proceedings

     77   

Item 1A. Risk Factors

     77   

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

     77   

Item 3. Defaults Upon Senior Securities

     79   

Item 4. Mine Safety Disclosures

     79   

Item 5. Other Information

     79   

Item 6. Exhibits

     80   

Signatures

     83   

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

     Page  

Condensed Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015

     2   

Condensed Consolidated Statements of Operations for the three month and six month periods ended
June 30, 2016 and 2015

     4   

Condensed Consolidated Statements of Comprehensive Income for the three month and six month periods ended June 30, 2016 and 2015

     5   

Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2016 and 2015

     6   

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six month periods ended June 30, 2016 and 2015

     7   

Notes to Condensed Consolidated Financial Statements

     9   

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2016 AND DECEMBER 31, 2015

(UNAUDITED)

(dollars in thousands, except for per share data)

 

     June 30,
    2016    
     December 31,
    2015    
 

ASSETS

     
Cash and cash equivalents    $ 646,454       $ 1,132,083   
Deposits with banks and short-term investments      667,313         389,861   
Cash deposited with clearing organizations and other segregated cash      33,522         34,948   

Receivables (net of allowance for doubtful accounts of $13,569 and $12,882 at June 30, 2016 and December 31, 2015, respectively):

     

Fees

     402,986         423,817   

Customers and other

     92,330         73,396   
  

 

 

    

 

 

 
     495,316         497,213   

Investments

     491,346         541,911   
     

Property (net of accumulated amortization and depreciation of $282,732 and $265,506 at June 30, 2016 and December 31, 2015, respectively)

     201,929         207,165   

Goodwill and other intangible assets (net of accumulated amortization of $58,534 and $57,561 at June 30, 2016 and December 31, 2015, respectively)

     328,181         326,976   

Deferred tax assets

     1,123,369         1,130,595   
Other assets      228,191         217,022   
  

 

 

    

 

 

 

Total Assets

   $ 4,215,621       $ 4,477,774   
  

 

 

    

 

 

 

 

See notes to condensed consolidated financial statements.

 

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LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2016 AND DECEMBER 31, 2015

(UNAUDITED)

(dollars in thousands, except for per share data)

 

     June 30,
    2016    
    December 31,
    2015    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Liabilities:

    

Deposits and other customer payables

   $ 721,171      $ 506,665   

Accrued compensation and benefits

     270,468        570,409   

Senior debt

     990,111        989,358   

Tax receivable agreement obligation

     513,623        523,962   

Deferred tax liabilities

     10,046        11,104   

Capital lease obligations

     8,391        9,028   

Other liabilities

     497,467        499,942   
  

 

 

   

 

 

 

Total Liabilities

     3,011,277        3,110,468   

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, 2016 and December 31, 2015

              

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, 2016 and December 31, 2015, including shares held by subsidiaries as indicated below)

     1,298        1,298   

Additional paid-in-capital

     569,154        600,034   

Retained earnings

     998,132        1,123,728   

Accumulated other comprehensive loss, net of tax

     (237,030     (234,356
  

 

 

   

 

 

 
     1,331,554        1,490,704   

Class A common stock held by subsidiaries, at cost (5,210,619 and 4,253,381 shares at June 30, 2016 and December 31, 2015, respectively)

     (185,353     (177,249
  

 

 

   

 

 

 

Total Lazard Ltd Stockholders’ Equity

     1,146,201        1,313,455   

Noncontrolling interests

     58,143        53,851   
  

 

 

   

 

 

 

Total Stockholders’ Equity

     1,204,344        1,367,306   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 4,215,621      $ 4,477,774   
  

 

 

   

 

 

 

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, 2016 AND 2015

(UNAUDITED)

(dollars in thousands, except for per share data)

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
          2016                 2015                 2016                 2015        

REVENUE

       

Investment banking and other advisory fees

    $286,609        $      314,277        $   551,752        $       615,649   

Asset management fees

    241,397        268,754        475,128        530,709   

Interest income

    1,168        1,362        2,540        2,291   

Other

    17,468        36,196        27,338        65,825   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    546,642        620,589        1,056,758        1,214,474   

Interest expense

    11,962        11,497        23,860        27,633   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    534,680        609,092        1,032,898        1,186,841   
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

       

Compensation and benefits

    308,310        336,719        605,520        665,221   

Occupancy and equipment

    27,163        27,272        54,170        54,611   

Marketing and business development

    23,877        18,324        43,565        37,514   

Technology and information services

    24,296        23,034        47,227        45,927   

Professional services

    11,245        13,883        21,007        25,342   

Fund administration and outsourced services

    15,895        17,493        29,330        33,641   

Amortization of intangible assets related to acquisitions

    330        1,857        974        2,890   

Provision pursuant to tax receivable agreement

           961,948               968,483   

Other

    10,328        9,938        19,492        79,925   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    421,444        1,410,468        821,285        1,913,554   
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

    113,236        (801,376     211,613        (726,713

Provision (benefit) for income taxes

    31,872        (1,176,531     59,526        (1,164,514
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    81,364        375,155        152,087        437,801   

LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

    1,007        1,042        4,907        7,735   
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO LAZARD LTD

    $  80,357        $      374,113        $   147,180        $       430,066   
 

 

 

   

 

 

   

 

 

   

 

 

 

ATTRIBUTABLE TO LAZARD LTD CLASS A COMMON STOCKHOLDERS:

       

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

       

Basic

    125,461,948        126,212,645        125,751,195        124,934,167   

Diluted

    132,341,522        132,806,045        132,616,403        133,270,996   

NET INCOME PER SHARE OF COMMON STOCK:

       

Basic

    $0.64        $2.96        $1.17        $3.44   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    $0.61        $2.82        $1.11        $3.23   
 

 

 

   

 

 

   

 

 

   

 

 

 

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

    $0.38        $0.35        $1.93        $1.65   
 

 

 

   

 

 

   

 

 

   

 

 

 

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, 2016 AND 2015

(UNAUDITED)

(dollars in thousands)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
         2016             2015             2016             2015      

NET INCOME

   $ 81,364      $ 375,155      $ 152,087      $ 437,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

        

Currency translation adjustments (including a tax benefit of $1,723 for the three months ended June 30, 2016 and $2,869 for the six months ended June 30, 2016)

     (16,104     11,791        (4,365     (22,342

Employee benefit plans:

        

Actuarial loss (net of tax benefit of $228 and $8,121 for the three months ended June 30, 2016 and 2015, respectively, and $298 and $8,006 for the six months ended June 30, 2016 and 2015, respectively)

     (475     (14,836     (616     (14,617

Adjustment for items reclassified to earnings (net of tax expense of $403 and $538 for the three months ended June 30, 2016 and 2015, respectively, and $796 and $1,101 for the six months ended June 30, 2016 and 2015, respectively)

     1,121        1,190        2,307        2,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE LOSS, NET OF TAX

     (15,458     (1,855     (2,674     (34,583
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

     65,906        373,300        149,413        403,218   

LESS - COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     1,007        1,042        4,907        7,735   
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD LTD

   $ 64,899      $ 372,258      $ 144,506      $ 395,483   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2016 AND 2015

(UNAUDITED)

(dollars in thousands)

 

     Six Months Ended
June 30,
 
    2016     2015  

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net income

  $ 152,087      $ 437,801   

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

   

Depreciation and amortization of property

    16,630        15,900   

Amortization of deferred expenses and share-based incentive compensation

    199,217        171,397   

Amortization of intangible assets related to acquisitions

    974        2,890   

Deferred tax provision (benefit)

    25,159        (1,195,319

Provision pursuant to tax receivable agreement

           968,483   

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

    (271,010     (95,877

Cash deposited with clearing organizations and other segregated cash

    1,697        8,438   

Receivables-net

    120        39,023   

Investments

    51,342        52,674   

Other assets

    (52,586     (97,621

Increase (decrease) in operating liabilities:

   

Deposits and other payables

    207,503        81,574   

Accrued compensation and benefits and other liabilities

    (312,862     (213,892
 

 

 

   

 

 

 

Net cash provided by operating activities

    18,271        211,302   
 

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Additions to property

    (11,118     (13,438

Disposals of property

    159        336   
 

 

 

   

 

 

 

Net cash used in investing activities

    (10,959     (13,102
 

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Proceeds from:

   

Contributions from noncontrolling interests

    93        57   

Issuance of senior debt, net of expenses

           396,272   

Excess tax benefits from share-based incentive compensation

    2,340        9,516   

Other financing activities

    8,004          

Payments for:

   

Senior debt

           (509,098

Capital lease obligations

    (835     (1,019

Distributions to noncontrolling interests

    (708     (11,940

Payments under tax receivable agreement

    (10,086       

Purchase of Class A common stock

    (194,729     (117,733

Class A common stock dividends

    (242,085     (202,635

Settlement of vested share-based incentive compensation

    (54,164     (102,634

Other financing activities

    (2,327     (1,624
 

 

 

   

 

 

 

Net cash used in financing activities

    (494,497     (540,838
 

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

    1,556        (22,770
 

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

    (485,629     (365,408

CASH AND CASH EQUIVALENTS—January 1

    1,132,083        1,066,580   
 

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS—June 30

  $ 646,454      $ 701,172   
 

 

 

   

 

 

 

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.

 

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Table of Contents

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2016

(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, 2016

    7,921        $      –        129,766,091        $1,298        $600,034        $1,123,728        $(234,356     4,253,381        $(177,249     $1,313,455        $53,851        $1,367,306   

Comprehensive income:

                       

Net income

              147,180              147,180        4,907        152,087   

Other comprehensive loss - net of tax

                (2,674         (2,674 )         (2,674

Amortization of share-based incentive compensation

            155,325                155,325       

 

155,325

  

Dividend-equivalents

            28,364        (30,691           (2,327       (2,327

Class A common stock dividends

              (242,085           (242,085       (242,085

Purchase of Class A common stock

                  5,646,092        (194,729     (194,729       (194,729

Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $7,090

            (203,406         (3,889,417     156,332        (47,074       (47,074

Business acquisitions and related equity transactions:

                       

Delivery of Class A common stock and related tax benefit of $11,126

            (19,167         (799,437     30,293        11,126          11,126   

Distributions to noncontrolling interests, net

                             (615     (615

Other

            8,004                8,004          8,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance – June 30, 2016

    7,921        $      –        129,766,091        $1,298        $569,154        $   998,132        $(237,030)        5,210,619        $(185,353 )      $1,146,201        $58,143        $1,204,344   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

8


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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, 2016 and December 31, 2015. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group, which is governed by an Amended and Restated Operating Agreement dated as of October 26, 2015 (the “Operating Agreement”).

Lazard Ltd’s primary operating asset is its indirect ownership of the common membership interests of, and managing member interests in, Lazard Group, whose principal operating activities are included in two business segments:

 

   

Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions (“M&A”) and other strategic matters, restructurings, capital structure, capital raising, corporate preparedness 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 and liabilities associated with Lazard Group’s Paris-based subsidiary Lazard Frères Banque SA (“LFB”).

LFB, as a registered bank, 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.

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, 2015 (the “Form 10-K”). The accompanying December 31, 2015 unaudited condensed consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures

 

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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)

 

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, 2016 are not 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:

 

   

Voting interest entities (“VOEs”) where the Company holds a majority of the voting interest in such VOEs and,

 

   

Variable interest entities (“VIEs”) where the Company is the primary beneficiary having the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or receive benefits from, the VIE that could be potentially significant to the VIE.

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 as a result of the adoption of the current guidance on classification of debt issuance costs and the impact of such guidance on the condensed consolidated statements of financial condition.

 

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

 

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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)

 

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. During 2016, the FASB issued additional clarifications for certain aspects of the new revenue recognition guidance. 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 adopted this guidance using the modified retrospective method with an effective adoption date of January 1, 2016. The adoption of this guidance did not 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 and is to be applied on a retrospective basis. The adoption of this guidance by the Company in the first quarter of 2016 resulted in a reclassification as of December 31, 2015 of $8,992 from “other assets” to “senior debt” on our condensed consolidated statements of financial condition.

Intangibles—Goodwill and Other—Internal-Use Software: Customers Accounting for Fees Paid in a Cloud Computing Arrangement—In April 2015, the FASB issued updated guidance providing clarification on whether a cloud computing arrangement that contains a software license should be accounted for as internal-use software. The new guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance by the Company in the first quarter of 2016 did not have a material impact on our consolidated financial statements.

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 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV as a practical expedient. 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 elected to early adopt this guidance in the quarter ended September 30, 2015 and has removed investments that are measured at NAV as a practical expedient from the fair value hierarchy in all periods presented in the consolidated financial statements and related disclosures.

Leases—In February 2016, the FASB issued updated guidance for leases. The guidance requires a lessee to (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial condition, (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (iii) classify all cash payments

 

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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)

 

within operating activities in the statement of cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance is to be applied on a modified retrospective basis. The Company is currently evaluating the new guidance.

Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting—In March 2016, the FASB issued new guidance regarding equity-based incentive compensation. The new guidance includes several amendments which affect various aspects of the accounting for equity-based incentive compensation transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The Company is currently evaluating the new guidance.

Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments—In June 2016, the FASB issued new guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The new guidance is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the new guidance.

 

3. RECEIVABLES

The Company’s receivables represent fee receivables, 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, 2016 and 2015 was as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2016              2015              2016             2015      

Beginning Balance

     $11,230       $ 18,459         $12,882      $ 23,540   

Bad debt expense, net of recoveries

     2,065         2,061         2,579        3,293   

Charge-offs, foreign currency translation and other adjustments

     274         551         (1,892     (5,762
  

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance

     $13,569       $ 21,071         $13,569      $ 21,071   
  

 

 

    

 

 

    

 

 

   

 

 

 

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, 2016 and December 31, 2015, the Company had receivables past due or deemed uncollectible of $19,839 and $19,923, respectively.

Of the Company’s fee receivables at June 30, 2016 and December 31, 2015, $82,244 and $81,774, 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 $413,072 and $415,439 at June 30, 2016 and December 31, 2015, respectively, approximates fair value.

 

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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)

 

4. INVESTMENTS

The Company’s investments and securities sold, not yet purchased, consist of the following at June 30, 2016 and December 31, 2015:

 

     June 30,
2016
     December 31,
2015
 

Interest-bearing deposits

   $ 463       $ 54,885   
  

 

 

    

 

 

 

Debt

     30,631         535   
  

 

 

    

 

 

 

Equities

     48,968         44,834   
  

 

 

    

 

 

 

Funds:

     

Alternative investments (a)

     50,233         67,600   

Debt (a)

     75,463         67,134   

Equity (a)

     171,252         197,787   

Private equity

     105,561         100,219   
  

 

 

    

 

 

 
     402,509         432,740   
  

 

 

    

 

 

 

Equity method

     8,775         8,917   
  

 

 

    

 

 

 

Total investments

     491,346         541,911   

Less:

     

Interest-bearing deposits

     463         54,885   

Equity method

     8,775         8,917   
  

 

 

    

 

 

 

Investments, at fair value

     $482,108       $ 478,109   
  

 

 

    

 

 

 

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

   $ 33,791       $ 3,239   
  

 

 

    

 

 

 

 

(a) Interests in alternative investment funds, debt funds and equity funds include investments with fair values of $15,834, $38,350 and $131,204, respectively, at June 30, 2016 and $10,996, $31,598 and $156,081, respectively, at December 31, 2015, 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).

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.

Investments in debt securities and securities sold, not yet purchased (included in “other liabilities”) at June 30, 2016 primarily consist of convertible debt securities.

Equities primarily consist of seed investments invested in marketable equity securities of large-, mid- and small-cap domestic, international and global companies held within separately managed accounts related to our Asset Management business.

Alternative investment funds primarily consist of interests in various Lazard-managed hedge funds, funds of funds and mutual funds.

 

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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)

 

Debt funds primarily consist of seed investments in funds related to our Asset Management business that invest in debt securities, amounts related to LFI discussed above and an investment in a Lazard-managed debt fund.

Equity funds primarily consist of seed investments in funds related to our Asset Management business that invest in equity securities, and amounts related to LFI discussed above.

Private equity investments include those owned by Lazard and those consolidated but not owned by Lazard. Private equity investments owned by Lazard are primarily comprised of investments in private equity funds. Such investments primarily include (i) Edgewater Growth Capital Partners III, L.P. (“EGCP III”), a fund primarily making equity and buyout investments in middle market companies, (ii) until the fourth quarter of 2015, Lazard Australia Corporate Opportunities Fund 2 (“COF2”), an Australian fund targeting Australian 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. 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.

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, 2016 and 2015, 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,
 
     2016      2015      2016      2015  

Net unrealized investment gains (losses)

   $ 859       $ (3,308)       $ 6,174       $ (1,115)   

 

5. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy of Investments and Certain Other Assets and Liabilities—Lazard categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

 

Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Lazard has the ability to access.

 

Level 2. Assets and liabilities whose values are based on (i) quoted prices for similar assets or liabilities in an active market, or quoted prices for identical or similar assets or liabilities in non-active markets, or (ii) inputs other than quoted prices that are directly observable or derived principally from, or corroborated by, market data.

 

Level 3.

Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our

 

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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)

 

  own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose trading volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis.

The Company’s investments in debt securities and securities sold, not yet purchased 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 based on inputs that generally can be corroborated by observable market data.

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

The fair value of investments in alternative investment funds, debt funds and equity funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund.

The fair value of investments in private equity funds were classified as Level 3 for certain investments that were valued based on a potential transaction value as of June 30, 2015.

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.

Investments Measured at Net Asset Value—As a practical expedient, the Company uses NAV or its equivalent to measure the fair value of certain investments. NAV is primarily determined based on information provided by external fund administrators. The Company’s investments valued at NAV as a practical expedient in (i) alternative investment funds, debt funds and equity funds are redeemable in the near term, and (ii) in private equity funds are not redeemable in the near term as a result of redemption restrictions.

 

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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 tables present, as of June 30, 2016 and December 31, 2015, the classification of (i) investments and certain other assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy and (ii) investments measured at NAV or its equivalent as a practical expedient:

 

    June 30, 2016  
    Level 1     Level 2     Level 3     NAV (a)     Total  

Assets:

         

Investments:

         

Debt

  $      $ 30,631      $      $      $ 30,631   

Equities

    47,670               1,298               48,968   

Funds:

         

Alternative investments

    27,379                 22,854        50,233   

Debt

    75,457                      6        75,463   

Equity

    171,213                      39        171,252   

Private equity

                         105,561        105,561   

Derivatives

           716                      716   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 321,719      $ 31,347      $ 1,298      $ 128,460      $ 482,824   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Securities sold, not yet purchased

  $ 3,160      $ 30,631      $      $      $ 33,791   

Derivatives

           185,893                      185,893   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,160      $ 216,524      $      $      $ 219,684   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2015  
    Level 1     Level 2     Level 3     NAV (a)     Total  

Assets:

         

Investments:

         

Debt

  $ 535      $      $      $      $ 535   

Equities

    43,558               1,276               44,834   

Funds:

         

Alternative investments

    45,135                      22,465        67,600   

Debt

    67,128                      6        67,134   

Equity

    197,745                      42        197,787   

Private equity

                         100,219        100,219   

Derivatives

           1,048                      1,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 354,101      $ 1,048      $ 1,276      $ 122,732      $ 479,157   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Securities sold, not yet purchased

  $ 3,239      $      $      $      $ 3,239   

Derivatives

           195,689                      195,689   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,239      $ 195,689      $      $      $ 198,928   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents certain investments measured at NAV or its equivalent as a practical expedient in determining fair value. In accordance with current accounting guidance, these investments have not been classified in the fair value hierarchy. See Note 2 for additional information.

 

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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 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, 2016 and 2015:

 

     Three Months Ended June 30, 2016  
     Beginning
Balance
     Net Unrealized/
Realized
Gains (Losses)
Included
In Revenue-
Other (b)
     Purchases/
Acquisitions
     Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 

Investments:

               

Equities

   $ 1,301       $ 7       $       $      $ (10   $ 1,298   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

   $ 1,301       $ 7       $       $      $ (10   $ 1,298   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30, 2016  
     Beginning
Balance
     Net  Unrealized/
Realized
Gains (Losses)
Included

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

Investments:

               

Equities

   $ 1,276       $ 10       $       $      $ 12      $ 1,298   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

   $ 1,276       $ 10       $       $      $ 12      $ 1,298   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30, 2015 (a)  
     Beginning
Balance
     Net Unrealized/
Realized
Gains (Losses)
Included
In Revenue-
Other (b)
     Purchases/
Acquisitions
     Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 

Investments:

               

Equities

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

Private equity funds

     22,125         142                               22,267   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

   $ 23,414       $ 150       $       $      $ 2      $ 23,566   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

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

In Revenue-
Other (b)
     Purchases/
Acquisitions/

Transfers (c)
     Sales/
Dispositions
    Foreign
Currency
Translation
Adjustments
    Ending
Balance
 
               

Investments:

               

Equities

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

Private equity funds

             2,771         19,887         (391            22,267   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Level 3 Assets

   $ 1,315       $ 2,781       $ 19,887       $ (391   $ (26   $ 23,566   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

17


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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) The tables for the three month and six month periods ended June 30, 2015 reflect the retrospective application of new disclosure guidance adopted by the Company for investments using NAV or its equivalent as a practical expedient when measuring fair value. See Note 2.

 

(b) Earnings for the three month and six month periods ended June 30, 2016 and the three month and six month periods ended June 30, 2015 include net unrealized gains of $2, $5, $150 and $2,781, respectively.

 

(c) Certain investments that were valued at NAV as of December 31, 2014 of $19,255 were transferred to Level 3 from the NAV category in the six months ended June 30, 2015 as these investments were valued based on potential transaction value as of June 30, 2015.

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, 2016 and 2015.

The following tables present, at June 30, 2016 and December 31, 2015, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:

 

    June 30, 2016
                % 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

    $21,806      $      NA   NA   NA   NA   (a)   <30-60 days

Funds of funds

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

Other

    579             NA   NA   NA   NA   (c)   <30-60 days

Debt funds

    6             NA   NA   NA   NA   (d)   30 days

Equity funds

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

Private equity funds:

               

Equity growth

    72,187        9,183 (f)    100%   16%   38%   46%   NA   NA

Mezzanine debt

    33,374             100%       100%   NA   NA
 

 

 

   

 

 

             

Total

  $ 128,460      $ 9,183               
 

 

 

   

 

 

             

 

(a) weekly (44%), monthly (46%) and quarterly (10%)
(b) monthly (98%) and quarterly (2%)
(c) daily (4%) and monthly (96%)
(d) daily (100%)
(e) daily (19%), monthly (52%) and quarterly (29%)
(f) Unfunded commitments to private equity investments consolidated but not owned by Lazard of $6,890 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

 

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)

 

    December 31, 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

  $ 20,410      $      NA     NA        NA      NA     (a)      <30-60 days

Funds of funds

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

Other

    1,590             NA     NA        NA      NA     (c)      <30-60 days

Debt funds

    6             NA     NA        NA      NA     (d)      30 days

Equity funds

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

Private equity funds:

               

Equity growth

    67,895        10,242 (f)    100%     18%        39%      43%     NA      NA

Mezzanine debt

    32,324             100%                 100%     NA      NA
 

 

 

   

 

 

             

Total

  $ 122,732      $ 10,242               
 

 

 

   

 

 

             

 

(a) weekly (23%), monthly (69%) and quarterly (8%)
(b) monthly (98%) and quarterly (2%)
(c) daily (20%) and monthly (80%)
(d) daily (100%)
(e) daily (18%), monthly (54%) and quarterly (28%)
(f) Unfunded commitments to private equity investments consolidated but not owned by Lazard of $5,501 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

Investment Capital Funding Commitments—At June 30, 2016, the Company’s maximum unfunded commitments for capital contributions to investment funds primarily arose from commitments to EGCP III, which amounted to $8,613, 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.

 

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 economic 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.

 

19


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

 

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.

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 reported within “accrued compensation and benefits” (see Note 12) on the accompanying condensed consolidated statements of financial condition as of June 30, 2016 and December 31, 2015:

 

   

June 30,

    December 31,  
    2016     2015  

Derivative Assets:

   

Forward foreign currency exchange rate contracts

  $ 663      $ 1,015   

Total return swaps and other (a)

    53        33   
 

 

 

   

 

 

 
  $ 716      $ 1,048   
 

 

 

   

 

 

 

Derivative Liabilities:

   

Forward foreign currency exchange rate contracts

  $ 1,911      $ 1,584   

Total return swaps and other (a)

    6,853        531   

LFI and other similar deferred compensation arrangements

    177,129        193,574   
 

 

 

   

 

 

 
  $ 185,893      $ 195,689   
 

 

 

   

 

 

 

 

(a) For total return swaps, amounts represent the netting of gross derivative assets and liabilities of $327 and $7,127 as of June 30, 2016, respectively, and $460 and $958 as of December 31, 2015, 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 $10,996 and $9,636 as of June 30, 2016 and December 31, 2015, 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, 2016 and 2015, were as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2016     2015     2016     2015  

Forward foreign currency exchange rate contracts

   $ 446      $ (4,023   $ (6,854   $ 11,377   

LFI and other similar deferred compensation arrangements

     (312     1,894        2,202        (2,242

Total return swaps and other

     (763     (16     (1,462     (3,184
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (629   $ (2,145   $ (6,114   $ 5,951   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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, 2016 and December 31, 2015, property consists of the following:

 

     Estimated
Depreciable
Life in Years
               
        June 30,
2016
     December 31,
2015
 

Buildings

     33         $139,890       $ 137,181   

Leasehold improvements

     3-20         167,494         167,838   

Furniture and equipment

     3-10         163,725         160,553   

Construction in progress

        13,552         7,099   
     

 

 

    

 

 

 

Total

        484,661         472,671   

Less - Accumulated depreciation and amortization

        282,732         265,506   
     

 

 

    

 

 

 

Property

        $201,929       $ 207,165   
     

 

 

    

 

 

 

 

8. GOODWILL AND OTHER INTANGIBLE ASSETS

The components of goodwill and other intangible assets at June 30, 2016 and December 31, 2015 are presented below:

 

     June 30,
2016
     December 31,
2015
 

Goodwill

     $322,939       $ 320,761   

Other intangible assets (net of accumulated amortization)

     5,242         6,215   
  

 

 

    

 

 

 
     $328,181       $ 326,976   
  

 

 

    

 

 

 

At June 30, 2016 and December 31, 2015, goodwill of $258,398 and $256,220, 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, 2016 and 2015 are as follows:

 

     Six Months Ended
June 30,
 
     2016      2015  

Balance, January 1

     $320,761       $ 335,402   

Foreign currency translation adjustments

     2,178         (8,580
  

 

 

    

 

 

 

Balance, June 30

     $322,939       $ 326,822   
  

 

 

    

 

 

 

All changes in the carrying amount of goodwill for the six month periods ended June 30, 2016 and 2015 are attributable to the Company’s Financial Advisory segment.

 

21


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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, 2016 and December 31, 2015, by major intangible asset category, are as follows:

 

     June 30, 2016      December 31, 2015  
     Gross
Cost
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Cost
     Accumulated
Amortization
     Net
Carrying
Amount
 

Performance fees

   $ 30,740         $25,506         $5,234       $ 30,740       $ 25,192       $ 5,548   

Management fees, customer relationships and non-compete agreements

     33,036         33,028         8         33,036         32,369         667   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 63,776         $58,534         $5,242       $ 63,776       $ 57,561       $ 6,215   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense of intangible assets for the three month and six month periods ended June 30, 2016 was $330 and $974, respectively, and for the three month and six month periods ended June 30, 2015 was $1,857 and $2,890, respectively. Estimated future amortization expense is as follows:

 

Year Ending December 31,

   Amortization
Expense (a)
 

2016 (July 1 through December 31)

   $ 4,693   

2017

     549   
  

 

 

 

Total amortization expense

   $ 5,242   
  

 

 

 

 

  (a) Approximately 47% of intangible asset amortization is attributable to a noncontrolling interest.

 

9. SENIOR DEBT

Senior debt is comprised of the following as of June 30, 2016 and December 31, 2015:

 

                       Outstanding as of,  
     Initial
Principal
Amount
    Maturity
Date
    Annual
Interest
Rate(b)
    June 30, 2016     December 31, 2015  
          Principal     Unamortized
Debt Costs
    Carrying
Value
    Principal     Unamortized
Debt Costs
    Carrying
Value
 

Lazard Group 2017 Senior Notes (a)

    600,000        6/15/17        6.85   $ 98,350      $ 105      $ 98,245      $ 98,350      $ 159      $ 98,191   

Lazard Group 2020 Senior Notes

    500,000        11/14/20        4.25     500,000        4,030        495,970        500,000        4,491        495,509   

Lazard Group 2025 Senior Notes (a)

    400,000        2/13/25        3.75     400,000        4,104        395,896        400,000        4,342        395,658   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

        $ 998,350      $ 8,239      $ 990,111      $ 998,350      $ 8,992      $ 989,358   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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

 

22


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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)

 

  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.
(b) The effective interest rates of the 2017 Notes, Lazard Group’s 4.25% senior notes due November 14, 2020 (the “2020 Notes”) and the 2025 Notes are 6.96%, 4.43% and 3.87%, respectively.

The table, as of December 31, 2015, reflects the retrospective application of new guidance adopted by the Company for debt issuance costs. See Note 2.

On September 25, 2015, Lazard Group entered into an Amended and Restated Credit Agreement for a five-year $150,000 senior revolving credit facility with a group of lenders (the “Amended and Restated Credit Agreement”), which expires in September 2020. The Amended and Restated Credit Agreement amended and restated the previous credit agreement dated September 25, 2012. Borrowings under the Amended and Restated Credit Agreement generally will bear interest at LIBOR plus an applicable margin for specific interest periods determined based on Lazard Group’s highest credit rating from an internationally recognized credit agency. At June 30, 2016 and December 31, 2015, no amounts were outstanding under the Amended and Restated Credit Agreement.

The Amended and Restated Credit Agreement, 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, 2016, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.

As of June 30, 2016, the Company had approximately $215,000 in unused lines of credit available to it, including the credit facility provided under the Amended and Restated Credit Agreement, and unused lines of credit available to LFB of approximately $11,000 (at June 30, 2016 exchange rates) and Edgewater of $52,000. The unused lines of credit available to Edgewater are guaranteed by certain Edgewater private equity funds and can be drawn upon only by the applicable general partner, fund, or individual portfolio companies for the benefit of the applicable funds and individual portfolio companies of such funds. 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, 2016 and December 31, 2015 is carried at historical amounts. At those dates, the fair value of such senior debt was approximately $1,037,000 and $994,000, 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, 2016, LFB had $5,394 of such indemnifications and held $5,337 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

 

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)

 

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, 2016 and December 31, 2015, 114,285 and 913,722 shares, respectively, are issuable on a contingent basis, and 2,171,429 and 1,371,992 shares, respectively, have been earned because applicable performance thresholds have been satisfied. As of June 30, 2016 and December 31, 2015, 2,171,429 and 1,371,992, respectively, 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, 2016, LFB and LFNY had no such underwriting commitments.

See Notes 5 and 13 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.

 

24


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

 

11. STOCKHOLDERS’ EQUITY

Share Repurchase Program—During the six month period ended June 30, 2016 and since 2013, the Board of Directors of Lazard authorized the repurchase of Class A common stock as set forth in the table below.

 

Date

   Repurchase
Authorization
     Expiration  

October, 2013

   $ 100,000         December 31, 2015   

April, 2014

   $ 200,000         December 31, 2015   

February, 2015

   $ 150,000         December 31, 2016   

January, 2016

   $ 200,000         December 31, 2017   

April, 2016

   $ 113,182         December 31, 2017   

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 2008 Incentive Compensation Plan (the “2008 Plan”) and the Lazard Ltd 2005 Equity Incentive Plan (the “2005 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:

     

2015

     2,306,694       $ 51.04   

2016

     5,646,092       $ 34.49   

During the six month periods ended June 30, 2016 and 2015, certain of our executive officers received Class A common stock in connection with the vesting of previously-granted deferred equity incentive awards. The vesting of such equity awards gave rise to a tax payable by the executive officers, and, consistent with our past practice, the Company purchased shares of Class A common stock from the executive officers equal in value to the estimated amount of such tax. In addition, during the three month period ended June 30, 2016, the Company purchased shares of Class A common stock from an executive officer. The aggregate value of all such purchases during the six month periods ended June 30, 2016 and 2015 was approximately $4,900 and $17,700, respectively.

As of June 30, 2016, a total of $224,614 of share repurchase authorization remained available under the Company’s share repurchase program, which will expire on December 31, 2017.

During the six month period ended June 30, 2016, 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, 2016 and December 31, 2015, 7,921 shares of Series A preferred stock were outstanding, and no shares of Series B preferred stock were

 

25


Table of Contents

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

 

outstanding. At June 30, 2016 and December 31, 2015, 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 the balances of each component of AOCI at June 30, 2016 and 2015 and activity during the six month periods then ended:

 

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

Balance, January 1, 2016

  $ (97,284   $ (137,073   $ (234,357   $ (1   $ (234,356
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Activity January 1 to June 30, 2016:

         

Other comprehensive loss before reclassifications

    (4,365     (616     (4,981            (4,981

Adjustments for items reclassified to earnings, net of tax

           2,307        2,307               2,307   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

    (4,365     1,691        (2,674            (2,674
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2016

  $ (101,649   $ (135,382   $ (237,031   $ (1   $ (237,030
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The table below reflects adjustments for items reclassified out of AOCI, by component, for the three month and six month periods ended June 30, 2016 and 2015:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2016              2015              2016              2015      

Amortization relating to employee benefit plans (a)

   $ 1,524       $ 1,728       $ 3,103       $ 3,477   

Less – related income taxes

     403         538         796         1,101   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total reclassifications, net of tax

   $ 1,121       $ 1,190       $ 2,307       $ 2,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Included in the computation of net periodic benefit cost (see Note 13). Such amounts are included in “compensation and benefits” expense on 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)

 

Noncontrolling Interests—Noncontrolling interests principally represent interests held in Edgewater’s management vehicles that the Company is deemed to control, but does not own.

The tables below summarize net income attributable to noncontrolling interests for the three month and six month periods ended June 30, 2016 and 2015 and noncontrolling interests as of June 30, 2016 and December 31, 2015 in the Company’s condensed consolidated financial statements:

 

     Net Income
Attributable to Noncontrolling
Interests
 
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
          2016                2015                2016                2015       

Edgewater

   $ 1,007       $ 1,041       $ 4,907       $ 7,734   

Other

             1                 1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,007       $ 1,042       $ 4,907       $ 7,735   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Noncontrolling Interests As Of  
     June 30,      December 31,  
     2016          2015      

Edgewater

   $ 57,425       $ 53,132   

Other

     718         719   
  

 

 

    

 

 

 

Total

   $ 58,143       $ 53,851   
  

 

 

    

 

 

 

Dividends Declared, July 27, 2016— On July 27, 2016, the Board of Directors of Lazard declared a quarterly dividend of $0.38 per share on our Class A common stock, payable on August 19, 2016, to stockholders of record on August 8, 2016.

 

12. INCENTIVE PLANS

Share-Based Incentive Plan Awards

A description of Lazard Ltd’s 2008 Plan and 2005 Plan and activity with respect thereto during the three month and six month periods ended June 30, 2016 and 2015 is presented below.

Shares Available Under the 2008 Plan and 2005 Plan

The 2008 Plan authorizes the issuance of shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”) 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 RSU or similar award granted under the 2005 Plan represents a contingent right to receive one share of Class A common

 

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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)

 

stock, at no cost to the recipient. The fair value of such awards is generally determined based on the closing market price of Class A common stock at the date of grant. The 2005 Plan expired in the second quarter of 2015, although unvested awards granted under the 2005 Plan remain outstanding and continue to be subject to its terms.

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, 2016 and 2015:

 

    Three Months Ended 
June 30,
    Six Months Ended
June 30,
 
            2016                      2015                     2016                      2015          

Share-based incentive awards:

         

RSUs

    $40,564       $ 32,263        $94,972       $ 91,334   

PRSUs

    10,335         8,414        27,024         14,612   

Restricted Stock

    8,342         2,830        31,818         15,453   

DSUs

    1,446         1,363        1,511         1,394   
 

 

 

    

 

 

   

 

 

    

 

 

 

Total

    $60,687       $ 44,870        $155,325       $ 122,793   
 

 

 

    

 

 

   

 

 

    

 

 

 

The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of Class A common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates 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 share-based incentive plans and awards are described below.

RSUs and DSUs

RSUs generally require future service as a condition for the delivery of the underlying shares of Class A common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of Class A common stock 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, 2016 and 2015, 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,
 
         2016              2015      

Number of RSUs issued

     841,433         529,616   

Charges to retained earnings, net of estimated forfeitures

   $ 28,364       $ 26,461   

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 38,771 and 23,961 DSUs granted in connection with annual compensation during the six month periods ended June 30, 2016 and 2015, 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 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, 2016 and 2015, 4,467 and 1,183 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, 2016 and 2015:

 

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

Balance, January 1, 2016

    9,599,658      $ 44.06        312,670      $ 35.98   

Granted (including 841,433 RSUs relating to dividend participation)

    6,486,463      $ 34.47        43,238      $ 34.95   

Forfeited

    (94,692   $ 40.75                 

Vested

    (4,233,894   $ 39.10        (84,759   $ 35.30   
 

 

 

     

 

 

   

Balance, June 30, 2016

    11,757,535      $ 40.58        271,149      $ 36.02   
 

 

 

     

 

 

   

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   
 

 

 

     

 

 

   

In connection with RSUs that vested during the six month periods ended June 30, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,382,153 and 1,895,301 shares of Class A common stock during such respective six month periods. Accordingly, 2,851,741 and 4,978,051 shares of Class A common stock held by the Company were delivered during the six month periods ended June 30, 2016 and 2015, respectively.

As of June 30, 2016, estimated unrecognized RSU compensation expense was approximately $211,443, with such expense expected to be recognized over a weighted average period of approximately 1.0 years subsequent to June 30, 2016.

 

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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, 2016 and 2015:

 

     Restricted
Shares
     Weighted
Average
Grant Date
Fair Value
 

Balance, January 1, 2016

     713,738       $ 47.12   

Granted

     1,795,258       $ 36.78   

Forfeited

     (30,412    $ 39.96   

Vested

     (729,457    $ 36.72   
  

 

 

    

Balance, June 30, 2016

     1,749,127       $ 40.96   
  

 

 

    

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   
  

 

 

    

In connection with shares of restricted Class A common stock that vested during the six month periods ended June 30, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 129,389 and 92,500 shares of Class A common stock during such respective six month periods. Accordingly, 600,068 and 408,798 shares of Class A common stock held by the Company were delivered during the six month periods ended June 30, 2016 and 2015, respectively.

The restricted stock awards include a cash dividend participation right equivalent to dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At June 30, 2016, estimated unrecognized restricted stock expense was approximately $45,100, with such expense to be recognized over a weighted average period of approximately 1.1 years subsequent to June 30, 2016.

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. PRSUs will vest on a single date three years following the date of the grant, provided the applicable service and performance conditions are satisfied. However, PRSUs granted in 2013 vested 33% in March 2015 and 67% in March 2016. 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 each PRSU will no longer be at risk of forfeiture based on the achievement of performance criteria. PRSUs include dividend participation rights that provide that during vesting periods the target number of PRSUs (or, following the

 

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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)

 

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, 2016 and 2015:

 

      PRSUs     Weighted
Average
Grant Date
Fair Value
 

Balance, January 1, 2016

     1,019,038      $ 44.49   

Granted (a)

     627,956      $ 32.91   

Vested

     (417,018   $ 38.43   
  

 

 

   

Balance, June 30, 2016

     1,229,976      $ 40.63   
  

 

 

   

Balance, January 1, 2015

     1,347,148      $ 37.79   

Granted (a)

     368,389      $ 52.85   

Vested

     (696,499   $ 35.96   
  

 

 

   

Balance, June 30, 2015

     1,019,038      $ 44.49   
  

 

 

   

 

(a) Represents PRSU awards granted during the relevant year at the target payout level.

In connection with PRSUs that vested during the six month periods ended June 30, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 64,169 and 32,086 shares of Class A common stock during such respective six month periods. Accordingly, 352,849 and 664,413 shares of Class A common stock held by the Company were delivered during the six month periods ended June 30, 2016 and 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, 2016, the total estimated unrecognized compensation expense was approximately $19,783, and the Company expects to amortize such expense over a weighted-average period of approximately 0.8 years subsequent to June 30, 2016.

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

 

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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)

 

liability, which contemplates the impact of estimated forfeitures, and is adjusted for changes in fair value primarily related to changes in value of the underlying investments.

The following is a summary of activity relating to LFI and other similar deferred compensation arrangements during the six month periods ended June 30, 2016 and 2015:

 

    Prepaid
Compensation
Asset
      Compensation  
Liability
 

Balance, January 1, 2016

  $ 75,703      $ 193,574   

Granted

    51,871        51,871   

Settled

           (68,628

Forfeited

    (704     (1,228

Amortization

    (37,890       

Change in fair value related to:

   

Decrease in fair value of underlying investments

           (2,202

Adjustment for estimated forfeitures

           3,385   

Other

    (873     357   
 

 

 

   

 

 

 

Balance, June 30, 2016

  $ 88,107      $ 177,129   
 

 

 

   

 

 

 
    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   
 

 

 

   

 

 

 

The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 0.9 years subsequent to June 30, 2016.

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, 2016 and 2015:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2016              2015              2016              2015      

Amortization, net of forfeitures

   $ 19,852       $ 18,260       $ 40,751       $ 44,924   

Change in the fair value of underlying investments

     312         (1,894      (2,202      2,242   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,164       $ 16,366       $ 38,549       $ 47,166   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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.

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, 2016 and 2015:

 

    Pension Plans     Medical Plan  
    Three Months Ended June 30,  
        2016             2015             2016             2015      

Components of Net Periodic Benefit Cost (Credit):

       

Service cost

  $ 314      $ 353      $ 2      $ 5   

Interest cost

    5,246        6,153        38        41   

Expected return on plan assets

    (7,233     (7,019    

Amortization of:

       

Prior service cost

    604        591       

Net actuarial loss (gain)

    1,012        1,137        (92  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

  $ (57   $ 1,215      $ (52   $ 46   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Pension Plans     Medical Plan  
    Six Months Ended June 30,  
        2016             2015             2016             2015      

Components of Net Periodic Benefit Cost (Credit):

       

Service cost

  $ 621      $ 713      $ 6      $ 13   

Interest cost

    10,459        12,259        83        90   

Expected return on plan assets

    (14,399     (14,090    

Amortization of:

       

Prior service cost

    1,194        1,194       

Net actuarial loss (gain)

    2,001        2,283        (92  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

  $ (124   $ 2,359      $ (3   $ 103   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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.

 

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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 Company recorded income tax provisions (benefits) of $31,872 and $59,526 for the three month and six month periods ended June 30, 2016, respectively, and $(1,176,531) and $(1,164,514) for the three month and six month periods ended June 30, 2015, respectively, representing effective tax rates of 28.1%, 28.1%, 146.8% and 160.2%, respectively. The difference between the U.S. federal statutory rate of 35.0% and the effective tax rates reflected above principally relates to (i) taxes payable to foreign jurisdictions that are not offset against U.S. income taxes, (ii) foreign source income (loss) not subject to U.S. income taxes (including interest on intercompany financings), (iii) change in the U.S. federal valuation allowance affecting the provision for income taxes, and (iv) U.S. state and local taxes (primarily UBT), which are incremental to the U.S. federal statutory tax rate.

As of December 31, 2014, the Company had a valuation allowance on substantially all of our deferred tax assets. 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 periods 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. At that time, we concluded that there was a sufficient history of sustained profitability at these entities that it was more likely than not that these entities would 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.

As a result, during the year ended December 31, 2015, we recorded a deferred tax benefit of approximately $878,000, including $821,000 recorded in the second quarter of 2015. In addition, we also recorded (i) in the second quarter of 2015, a separate deferred tax benefit of approximately $378,000 that reflected the tax deductibility of payments under the tax receivable agreement and (ii) in the third quarter of 2015, a deferred tax expense of approximately $161,000 relating to the reduction of a deferred tax asset as a result of the partial extinguishment of our tax receivable agreement obligation. See Note 16 for more information regarding our accrual under the tax receivable agreement in the second quarter of 2015 and the partial extinguishment of our tax receivable agreement obligation in the third quarter of 2015.

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.

 

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, 2016 and 2015 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.

 

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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, 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 (ii) income tax related to (i) above.

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.

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, 2016 and 2015 are presented below:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2016     2015     2016     2015  

Net income attributable to Lazard Ltd - basic

    $80,357        $       374,113        $147,180        $       430,066   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Lazard Ltd - diluted

    $80,357        $       374,113        $147,180        $       430,066   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of Class A common stock outstanding

    125,389,937        126,140,634        125,679,184        124,862,156   

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

    72,011        72,011        72,011        72,011   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    125,461,948        126,212,645        125,751,195        124,934,167   

Add - dilutive effect, as applicable, of:

       

Weighted average number of incremental shares of Class A common stock issuable from share-based incentive compensation

    6,879,574        6,593,400        6,865,208        8,336,829   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    132,341,522        132,806,045        132,616,403        133,270,996   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Basic

    $0.64        $2.96        $1.17        $3.44   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    $0.61        $2.82        $1.11        $3.23   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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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. RELATED PARTIES

Sponsored Funds

The Company serves as an investment advisor for certain affiliated investment companies and fund entities and receives management fees and, for the alternative investment funds, performance fees for providing such services. Investment advisory fees relating to such services were $124,794 and $243,704 for the three month and six month periods ended June 30, 2016, respectively, and $140,275 and $275,621 for the three month and six month periods ended June 30, 2015, respectively, and are included in “asset management fees” on the condensed consolidated statements of operations. Of such amounts, $49,762 and $42,002 remained as a receivable at June 30, 2016 and December 31, 2015, respectively, and is included in “fees receivable” on the condensed consolidated statements of financial condition.

Tax Receivable Agreement

The Second Amended and Restated Tax Receivable Agreement, dated as of October 26, 2015 (the “Amended and Restated Tax Receivable Agreement”), between Lazard and LTBP Trust, a Delaware statutory trust (the “Trust”), provides for the payment by our subsidiaries to the Trust of (i) approximately 45% (following

the July 2015 purchase described below) 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 certain increases in tax basis and of certain other tax benefits related to the Amended and Restated Tax Receivable Agreement, and (ii) an amount that we currently expect will approximate 85% of the cash tax savings that may arise from 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 certain tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group 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.

As described in Note 14, 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 at that time.

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 condensed consolidated statement of operations. Adjustments, if necessary, to the related deferred tax assets would be recorded through the “provision (benefit) for income taxes”.

 

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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)

 

In July 2015, we purchased approximately 47% 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 a significant portion of our payment obligations under the Amended and Restated Tax Receivable Agreement. The extinguishment of these payment obligations resulted in a pre-tax gain of $420,792 recorded in “provision pursuant to tax receivable agreement” on the consolidated statement of operations for the year ended December 31, 2015. In addition, the extinguishment of these payment obligations resulted in a reduction of the tax benefits that would have been attributable to the actual payments and, accordingly, we recorded a deferred tax expense of approximately $161,000 on the consolidated statement of operations for the year ended December 31, 2015.

For the three month and six month periods ended June 30, 2015, the Company recorded a “provision pursuant to tax receivable agreement” on the condensed consolidated statements of operations of $961,948 and $968,483, respectively. The cumulative liability relating to our obligations under the Amended and Restated Tax Receivable Agreement as of June 30, 2016 and December 31, 2015 was $513,623 and $523,962, respectively, and is recorded in “tax receivable agreement obligation” on the condensed consolidated statements of financial condition. The balance at June 30, 2016 reflects a payment made under the Amended and Restated Tax Receivable Agreement in the first quarter of 2016 of $10,086.

Other

See Note 11 for information regarding related party transactions pertaining to shares repurchased from certain of our executive officers.

 

17. 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, 2016, LFNY’s regulatory net capital was $74,673, which exceeded the minimum requirement by $71,156. LFNY’s aggregate indebtedness to net capital ratio was 0.71:1 as of June 30, 2016.

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, 2016, the aggregate regulatory net capital of the U.K. Subsidiaries was $131,369, which exceeded the minimum requirement by $115,629.

CFLF, under which asset management and commercial banking activities are carried out in France, is subject to regulation by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”) for its banking activities conducted through its subsidiary, LFB. 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, 2016, the consolidated regulatory net capital of CFLF was $132,672, which exceeded the minimum requirement set for regulatory capital levels by $88,184. 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.

 

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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)

 

During the third quarter of 2013, the Company and the ACPR agreed on terms for the consolidated supervision of LFB and certain other non-Financial Advisory European subsidiaries of the Company (referred to herein, on a combined basis, as the “combined European regulated group”) under such rules. Under this supervision, the combined European regulated group is required to comply with minimum requirements for regulatory net capital to be reported on a quarterly basis and satisfy periodic financial and other reporting obligations. At March 31, 2016, the regulatory net capital of the combined European regulated group was $175,874, which exceeded the minimum requirement set for regulatory capital levels by $102,363. Additionally, the combined European regulated group, together with our European Financial Advisory entities, is required to perform an annual risk assessment and provide certain other information on a periodic basis, including financial reports and information relating to financial performance, balance sheet data and capital structure.

Certain other U.S. and non-U.S. subsidiaries are subject to various capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At June 30, 2016, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $103,005, which exceeded the minimum required capital by $77,533.

At June 30, 2016, 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.

 

18. SEGMENT INFORMATION

The Company’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each segment is reviewed to determine the allocation of resources and to assess its performance. The Company’s principal operating activities are included in its Financial Advisory and Asset Management business segments as described in Note 1. In addition, as described in Note 1 above, 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, 2016 and 2015 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.

 

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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 segment’s operating expenses include (i) compensation and benefits expenses incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, human resources, legal, facilities management and senior management activities.

Management evaluates segment results based on net revenue and operating income (loss) and believes that the following information provides a reasonable representation of each segment’s contribution with respect to net revenue, operating income (loss) and total assets:

 

          Three Months Ended
June 30,
    Six Months Ended
June 30,
 
          2016           2015           2016     2015  

Financial Advisory

   Net Revenue    $ 286,965      $ 316,384      $ 552,979      $ 617,903   
   Operating Expenses      233,727        253,221        460,805        496,156   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Operating Income    $ 53,238      $ 63,163      $ 92,174      $ 121,747   
     

 

 

   

 

 

   

 

 

   

 

 

 

Asset Management

   Net Revenue    $ 254,126      $ 305,838      $ 499,885      $ 585,645   
   Operating Expenses      182,702        193,791        357,863        375,583   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Operating Income    $ 71,424      $ 112,047      $ 142,022      $ 210,062   
     

 

 

   

 

 

   

 

 

   

 

 

 

Corporate

   Net Revenue    $ (6,411   $ (13,130   $ (19,966   $ (16,707
   Operating Expenses (a)      5,015        963,456        2,617        1,041,815   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Operating Loss    $ (11,426   $ (976,586   $ (22,583   $ (1,058,522
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

   Net Revenue    $ 534,680      $ 609,092      $ 1,032,898      $ 1,186,841   
   Operating Expenses      421,444        1,410,468        821,285        1,913,554   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Operating Income    $ 113,236      $ (801,376   $ 211,613      $ (726,713
     

 

 

   

 

 

   

 

 

   

 

 

 

 

     As Of  
     June 30,
2016
     December 31,
2015
 

Total Assets

     

Financial Advisory

   $ 732,462       $ 763,374   

Asset Management

     583,487         640,034   

Corporate (b)

     2,899,672         3,074,366   
  

 

 

    

 

 

 

Total (b)

   $ 4,215,621       $ 4,477,774   
  

 

 

    

 

 

 

 

(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 16 for information regarding the tax receivable agreement obligation.
(b) As of December 31, 2015, reflects the retrospective application of new disclosure guidance adopted by the Company for debt issuance costs. See Note 2.

 

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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, 2015 (the “Form 10-K”). All references to “2016”, “2015”, “second quarter”, “first half” or “the period” refer to, as the context requires, the three month and six month periods ended June 30, 2016 and June 30, 2015.

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, in our Form 10-Q for the quarter ended March 31, 2016 and in this Form 10-Q 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, our Form 10-Q for the quarter ended March 31, 2016 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;

 

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

 

   

ability to offset stockholder dilution through share repurchases;

 

   

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

 

   

strategies and investment policies;

 

   

financing plans and the availability of short-term borrowing;

 

   

competitive position;

 

   

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

 

   

potential growth opportunities available to our businesses;

 

   

recruitment and retention of our managing directors and employees;

 

   

potential levels of compensation expense, including awarded compensation and benefits expense and adjusted compensation and benefits expense, and non-compensation expense;

 

   

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

 

   

likelihood of success and impact of litigation;

 

   

expected tax rates, including effective tax rates;

 

   

changes in interest and tax rates;

 

   

availability of certain tax benefits, including certain potential deductions;

 

   

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

 

   

changes in foreign currency exchange rates;

 

   

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

 

   

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 42 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.

 

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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.

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, corporate preparedness 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 and liabilities associated with Lazard Group’s Paris-based subsidiary, Lazard Frères Banque SA (“LFB”).

LFB, as a registered bank, 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,
 
         2016             2015         2016     2015  

Financial Advisory

     54     52     54     52

Asset Management

     47        50        48        49   

Corporate

     (1     (2     (2     (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) a mezzanine fund, which invests in mezzanine debt of a diversified selection of small-to mid-cap European companies and (iii) 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

 

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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.

Equity market indices for developed markets at June 30, 2016 generally decreased as compared to such indices at June 30, 2015. Emerging markets equity indices at June 30, 2016 decreased as compared to June 30, 2015, but increased in the first half of 2016 compared to December 31, 2015. In the global M&A markets during the first half of 2016, the value and number of all completed M&A transactions decreased 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 and number of all announced M&A transactions, including the subset of such transactions involving values greater than $500 million, also decreased. During the first half of 2016, global restructuring activity, as measured by the number of corporate defaults, increased as compared to the first half of 2015, primarily due to a higher level of defaults in the commodity sector.

In the first half of 2016, volatile market conditions continued. On an ongoing basis, volatile conditions may persist, and regional macroeconomic and geopolitical factors, including the United Kingdom’s vote to leave the European Union, may impact our business. However, corporate cash balances remain high, and interest rates remain low for companies with strong credit ratings. Although market volatility may continue and may affect our business in 2016, the longer-term trends appear to remain favorable for both of our businesses.

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

 

   

Financial Advisory – The fundamentals for continued M&A activity 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 position us for growth in these markets, while enhancing our relationships with, and the services that we can provide to, clients in other economies.

 

   

Asset Management – In the short to intermediate term, we expect most investor demand 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: European Long/Short Equity, various Quantitative Equity strategies and Middle East North African Equities.

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, our Form 10-Q for the quarter ended March 31, 2016 and this Form 10-Q. 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 and number of all completed transactions, including completed transactions with values greater than $500 million, decreased in the first half of 2016 as compared to 2015. With respect to announced M&A transactions, the value and number of all transactions, including announced transactions with values greater than $500 million, also decreased in the first half of 2016 as compared to 2015.

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2016     2015     %
Incr /  (Decr)
    2016     2015     %
Incr /  (Decr)
 
    ($ in billions)  

Completed M&A Transactions:

           

All deals:

           

Value

  $ 843      $ 1,077        (22 )%    $ 1,720      $ 1,979        (13 )% 

Number

    8,011        10,265        (22 )%      17,341        20,446        (15 )% 

Deals Greater than $500 million:

           

Value

  $ 663      $ 835        (21 )%    $ 1,338      $ 1,530        (13 )% 

Number

    242        312        (22 )%      492        594        (17 )% 

Announced M&A Transactions:

           

All deals:

           

Value

  $ 954      $ 1,176        (19 )%    $ 1,715      $ 2,087        (18 )% 

Number

    8,905        10,547        (16 )%      18,727        20,853        (10 )% 

Deals Greater than $500 million:

           

Value

  $ 720      $ 904        (20 )%    $ 1,258      $ 1,604        (22 )% 

Number

    310        324        (4 )%      563        599        (6 )% 

 

Source: Dealogic as of July 6, 2016.

Global restructuring activity during the first half of 2016, as measured by the number of corporate defaults, increased as compared to the first half of 2015. The number of defaulting issuers increased to 88 in the first half of 2016, according to Moody’s Investors Service, Inc., as compared to 38 in the first half of 2015, primarily due to a higher level of defaults in the commodity sector.