Lazard Ltd Reports Third-Quarter and Nine-Month 2010 Results

Highlights

  • Net income per share(a) of $0.46 (diluted) for the third quarter of 2010, on a fully exchanged basis(b); net income per share of $1.30 (diluted) for the first nine months of 2010, on a fully exchanged basis, and before special charges in the 2010 first quarter(c)
  • Net income increased 18%, on a fully exchanged basis, compared to the 2009 third quarter
  • Core operating business revenue(d) increased 11% to $462.4 million for the third quarter, and increased 26% to a record $1,348.1 million for the first nine months, compared to the equivalent 2009 periods
  • M&A and Strategic Advisory operating revenue increased 29% to $160.7 million for the third quarter and increased 28% to $454.1 million for the first nine months, compared to the equivalent 2009 periods
  • Restructuring operating revenue decreased 45% for the third quarter and 10% for the first nine months, compared to the equivalent 2009 periods
  • Asset Management third-quarter management fees increased 38% to a record $184.0 million and increased 54% to a record $512.8 million for the first nine months, compared to the equivalent 2009 periods
  • Assets Under Management increased 19% to a record $143.6 billion at September 30, 2010, compared to $120.2 billion at September 30, 2009, and increased 16% compared to $123.5 billion at June 30, 2010; achieved net inflows of $1.1 billion and $6.2 billion for the 2010 third quarter and first nine months, respectively

NEW YORK--()--Lazard Ltd (NYSE: LAZ) today announced financial results for the third quarter and first nine months ended September 30, 2010. Net income on a fully exchanged basis was $62.2 million, or $0.46 per share (diluted), for the third quarter of 2010, compared to a net income of $52.5 million, or $0.41 per share (diluted), for the third quarter of 2009. Net income on a fully exchanged basis was $176.6 million, or $1.30 per share (diluted), for the first nine months of 2010, compared to $65.9 million, or $0.53 per share (diluted) for the first nine months of 2009, excluding in each period special charges in the first quarter of the applicable year.(c)(e)

Net income, on a U.S. GAAP basis, which is before exchange of exchangeable interests, was $64.1 million, or $0.51 per share (diluted), for the third quarter of 2010, compared to a net income of $37.4 million, or $0.41 per share (diluted), for the third quarter of 2009. Net income, on a U.S. GAAP basis, which includes the first quarter special charges in the 2010 and 2009 periods, was $75.1 million, or $0.58 per share (diluted), for the first nine months of 2010, compared to net income of $12.1 million, or $0.16 per share (diluted), for the first nine months of 2009.

A reconciliation of the U.S. GAAP results to the adjusted results is presented on page 12 of this release.

Lazard believes that results assuming full exchange of outstanding exchangeable interests and excluding special charges provide the most meaningful basis for comparison among present, historical and future periods.

Operating Revenue and Operating Income

Operating revenue for the third quarter of 2010 increased 10% to $473.2 million, compared to $431.5 million for the third quarter of 2009. Operating income increased 9% to $79.5 million for the 2010 third quarter, compared to operating income of $73.2 million for the third quarter of 2009.

Operating revenue increased 24% to $1,368.4 million for the 2010 first nine months, compared to $1,103.2 million for the first nine months of 2009. Operating income increased 120% to $224.0 million for the 2010 first nine months, compared to operating income of $101.9 million for the first nine months of 2009, excluding special charges in both periods.

The Company’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality and other factors. Accordingly, the revenue and profits in any particular quarter may not be indicative of future results. As such, Lazard management believes that annual results are the most meaningful.

Comments

“Our core business, which consists of Financial Advisory and Asset Management, reported record revenue for the first nine months,” said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. “We grew nearly thirty percent in M&A and Strategic Advisory, and Asset Management achieved a record in assets under management, against a backdrop of a gradual but uneven upturn in the cycle. We are continuing to invest in our businesses by making strategic senior level hires worldwide.”

“Lazard’s performance in this quarter and year-to-date underscores the power of our firm’s advice-driven, intellectual capital model in a climate marked by uneven economic recovery, aftershocks from the financial crisis and shifting flows of investment capital between developed and developing markets,” said Mr. Jacobs. “In this new environment, companies, government bodies and investors demand independent advice, with a geographic perspective, deep understanding of capital structure, informed research, and knowledge of global economic conditions. Lazard, through its Financial Advisory and Asset Management businesses, is the only global independent firm positioned to meet that need. ”

“Our fundamentals and financial position remain strong. We continue to generate significant cash flow and we remain focused on containing discretionary spending while investing in our businesses for future growth,” said Michael J. Castellano, Chief Financial Officer of Lazard. “Our previously stated goal is to grow annual compensation expense at a slower rate than revenues. We have achieved that goal for the first nine months of 2010.”

Revenue

Core Operating Business

Lazard’s core operating business includes its Financial Advisory and Asset Management businesses. Core operating business revenue increased 11% to $462.4 million for the 2010 third quarter, compared to $417.5 million for the third quarter of 2009. Core operating business revenue increased 26% to a nine-month record of $1,348.1 million in 2010, compared to $1,068.6 million for the first nine months of 2009.

Financial Advisory

Financial Advisory operating revenue decreased 2% to $254.4 million for the third quarter of 2010, compared to $260.2 million for the third quarter of 2009, and increased 4% compared to $245.7 million for the second quarter of 2010. Third quarter 2010 revenue from M&A and Strategic Advisory, Capital Markets and Other Advisory in the aggregate increased $47.3 million, or 34%, compared to third quarter 2009 revenue and increased $22.6 million, or 14%, compared to second quarter 2010 revenue, while third quarter 2010 revenue from Restructuring decreased $53.1 million, or 45%, compared to third quarter 2009 revenue and decreased $13.9 million, or 17%, compared to second quarter 2010 revenue.

Financial Advisory operating revenue increased 14% to $769.1 million for the first nine months of 2010, compared to $676.8 million for the first nine months of 2009. The nine-month 2010 revenue was positively impacted by an aggregate revenue increase of $119.5 million, or 30%, from M&A and Strategic Advisory, Capital Markets and Other Advisory, partially offset by a $27.2 million, or 10%, decrease in Restructuring revenue.

M&A and Strategic Advisory

M&A and Strategic Advisory operating revenue increased 29% to $160.7 million for the third quarter of 2010, compared to $124.7 million for the third quarter of 2009, and increased 10% compared to $145.9 million for the second quarter of 2010. For the first nine months of 2010, M&A and Strategic Advisory operating revenue increased 28% to $454.1 million, compared to $356.0 million for the first nine months of 2009. M&A and Strategic Advisory operating revenue generally does not include M&A fees for the sale of distressed assets, which are recognized in Restructuring operating revenue. Strategic Advisory also includes our sovereign advisory work.

Among the publicly announced M&A transactions completed during the third quarter of 2010 on which Lazard advised were the following:

  • Coca-Cola Enterprises in transactions valued at $14.4 billion with The Coca-Cola Company, including the sale of its North American operations
  • Newcrest Mining’s A$9.5 billion acquisition of Lihir Gold
  • Deutsche Bahn's £2.6bn acquisition of Arriva
  • Healthscope’s A$2.7 billion sale to a private equity consortium
  • Honeywell’s $1.4 billion acquisition of Sperian Protection
  • The Carlyle Group’s €480 million acquisition of B&B Hotels
  • Silpada Designs’ $650 million sale to Avon
  • Micrus Endovascular’s $480 million sale to Johnson & Johnson
  • Alaven Pharmaceutical’s $350 million sale to Meda
  • DeCrane Aerospace’s $280 million sale of its Cabin Management business to Goodrich
  • Continental Airlines’ merger of equals with UAL Corporation
  • ITT’s $235 million sale of its CAS SETA services business to Wyle
  • France Telecom’s and Orascom Telecom’s agreement on Mobinil and ECMS
  • PAIG Investments’ sale of Sell GmbH to Zodiac Aerospace
  • Creative Artists Agency in the sale of a non-controlling interest to TPG

Among the pending, publicly announced M&A transactions on which Lazard advised in the third quarter, continued to advise, or completed since September 30, 2010, are the following:

  • Weather Investments’ $21 billion combination with VimpelCom to create a new global telecom group
  • Qwest's $22.4 billion merger with CenturyLink
  • Northeast Utilities’ $17.5 billion merger of equals with NSTAR
  • BASF’s €3.1 billion acquisition of Cognis
  • SSL International in the £2.5 billion recommended cash offer by Reckitt Benckiser to acquire SSL
  • 3G Capital’s $4.0 billion acquisition of Burger King Holdings
  • Caisse des Dépôts’ and the French State’s €2.7 billion investment in La Poste
  • Lazard Real Estate Partners’ $3.1 billion sale of Atria Senior Living’s real estate assets to Ventas
  • Abraxis BioScience’s $2.9 billion sale to Celgene
  • Crucell N.V.’s (Supervisory Board) €1.75 billion recommended cash tender offer by Johnson & Johnson
  • CSR’s A$1.75 billion sale of Sucrogen to Wilmar International
  • Vedanta Resources’ $1.3 billion acquisition of the zinc assets of Anglo American
  • Endo Pharmaceuticals’ $1.2 billion acquisition of Qualitest Pharmaceuticals and its $144 million acquisition of Penwest Pharmaceuticals
  • Asda Stores’ $1.1 billion acquisition of Netto Foodstores
  • BSS Group in the £557.6 million recommended offer for BSS by Travis Perkins
  • Oil States International’s $681 million acquisition of The MAC Services Group
  • MSA’s $280 million acquisition of General Monitors
  • Actividades de Construcción y Servicios' announced tender offer to acquire shares in Hochtief
  • Danone’s merger of its Fresh Dairy Products businesses in the CIS area with Unimilk
  • Pirelli & C. Real Estate on the spin-off of Pirelli RE from the Pirelli Group
  • Österreichische Volksbanken’s sale of Europolis to CA Immobilien Anlagen AG
  • Caja Madrid’s proposed integration with Bancaja, Caja Insular de Canarias, Caixa Laietana, Caja Ávila, Caja Segovia and Caja Rioja
  • Veolia Environnement in the merger of its Veolia Transport division with Transdev

Publicly announced sovereign and government advisory assignments that occurred during or since the 2010 third quarter include advising the PNG State Holding Company on financing and a potential strategic partnership in a gas upstream development project and a midstream LNG project in Papua New Guinea. We also continue to advise the Republic of Côte d’Ivoire on its debt restructuring, Greece for general financial advice, the US Treasury with respect to General Motors, including its potential IPO, and the Islamic Republic of Mauritania on various strategic sovereign financial issues.

Restructuring

Restructuring operating revenue decreased 45% to $66.0 million for the third quarter of 2010, compared to $119.1 million for the third quarter of 2009, and decreased 17% compared to $79.9 million for the second quarter of 2010. Restructuring operating revenue decreased 10% to $246.1 million for the first nine months of 2010, compared to $273.3 million for the first nine months of 2009. Restructuring operating revenue reflects continued restructuring advisory activity in the US and Europe.

The decrease in the third quarter of 2010, compared to both the third quarter of 2009 and the second quarter of 2010, was due primarily to a decrease in completion fees and retainer fees earned, related to the continuing decline of the number and value of corporate defaults since the peak in early 2009. The decrease in the first nine months of 2010 was due primarily to a decrease in retainer fees, partially offset by increased completion fees.

Completed Restructuring assignments during the third quarter of 2010 include: U.S. Concrete and Trump Entertainment Resorts in connection with their Chapter 11 proceedings; BTA Bank JSC and Italtel in their debt restructurings; Highstreet investors on Karstadt’s restructuring; Voyage Group in the renegotiation of its senior credit facilities; EEMS on the renegotiation of its debt and sale of its Singapore unit to ASE Taiwan; and LNR Property Corp. on its recapitalization.

Notable Chapter 11 bankruptcies on which Lazard advised debtors or creditors during or since the third quarter of 2010, are:

  • Chemicals: Chemtura
  • Gaming, Entertainment and Hospitality: Extended Stay Hotels, Station Casinos
  • Healthcare: Chem Rx
  • Paper and Packaging: AbitibiBowater, White Birch Paper Company
  • Professional/Financial Services: Lehman Brothers
  • Real Estate/Property Development: Capmark Financial
  • Technology/Media/Telecom: MIG Inc., Nortel, TerreStar Networks, Tribune Co.

Among other publicly announced restructuring and debt advisory assignments on which Lazard has advised during or since the third quarter of 2010, are:

  • Alinta Energy on its debt restructuring
  • Belvédère – advising the FRN noteholder committee
  • Frans Bonhomme on its covenant reset
  • iStar Financial on its debt and capital structure matters
  • Local InSight Media on its debt restructuring
  • Jost on its debt restructuring
  • Lucchini on the refinancing of its current indebtedness
  • Satmex on balance sheet restructuring and satellite financing
  • Sacyr Vallehermoso on the refinancing of its real estate unit Vallehermoso
  • Värde Partners in its acquisition of debt and equity in Crest Nicholson
  • Wheelabrator Allevard on its debt restructuring

Capital Markets and Other Advisory

Capital Markets and Other Advisory operating revenue increased 69% to $27.8 million for the third quarter of 2010, compared to $16.4 million for the third quarter of 2009. Capital Markets and Other Advisory operating revenue increased 45% to $69.0 million for the first nine months of 2010, compared to $47.5 million for the first nine months of 2009. The increase in the third-quarter and nine-month revenue was due primarily to growth in the number and value of fund closings by our Private Fund Advisory Group, partially offset by a decrease in underwriting for public offerings.

Capital Markets and Other Advisory assignments in the third quarter of 2010 included advising on:

  • IPOs: IntraLinks Holdings and NuPathe
  • PIPEs, Registered Directs, Underwritten Registered Directs and Private Placements as well as other Convertible and Capital Markets transactions: MAP Pharmaceuticals, Pacific Ethanol, PDL BioPharma

Asset Management

Asset Management operating revenue increased 32% to a record $208.0 million for the third quarter of 2010, compared to $157.3 million for the 2009 third quarter. Asset Management operating revenue increased 48% to a record $578.9 million for the first nine months of 2010, compared to $391.8 million for the first nine months of 2009.

Assets Under Management at September 30, 2010, were $143.6 billion, representing a 19% increase over Assets Under Management of $120.2 billion at September 30, 2009, and a 16% increase compared to Assets Under Management of $123.5 billion at June 30, 2010. Assets Under Management were primarily impacted in the third quarter by positive market and foreign exchange movements. Net inflows were $1.1 billion in the 2010 third quarter and $6.2 billion in the 2010 first nine months.

Average Assets Under Management were $133.5 billion for the third quarter of 2010, representing a 22% increase over average Assets Under Management of $109.1 billion for the third quarter of 2009. Average Assets Under Management were $132.9 billion for the first nine months of 2010, a 36% increase, compared to $97.6 billion for the first nine months of 2009.

Management fees increased 38% to a record $184.0 million for the third quarter of 2010, compared to $133.4 million for the 2009 third quarter, and increased 54% to a record $512.8 million for the first nine months of 2010, compared to $334.0 million for the first nine months of 2009.

Incentive fees, primarily related to traditional long-only investment strategies, were $15.5 million and $41.9 million for the third quarter and first nine months of 2010, respectively, compared to $15.2 million and $33.8 million for the comparable periods in 2009. Incentive fees are recorded on the measurement date, which for most of our alternative strategies that are subject to incentive fees occurs in the fourth quarter.

Our Asset Management business provides investment management and advisory services to governments, institutions, financial intermediaries, private clients and investment vehicles around the world. Our goal in our Asset Management business is to produce superior risk-adjusted investment returns and provide investment solutions customized for our clients. Asset Management includes the management of equity and fixed income securities as well as alternative investment and private equity funds.

Expenses

Compensation and Benefits

Compensation and benefits expense includes base salaries and benefits, amortization of deferred incentive awards and an accrual for estimated year-end discretionary cash incentive compensation. The expense was $282.5 million and $250.9 million for the third quarters of 2010 and 2009, respectively. The expense was $821.1 million and $693.7 million for the first nine months of 2010 and 2009, respectively, excluding the 2010 first-quarter special charge. While operating revenue increased 24% for the first nine months of 2010, compensation and benefits expense increased 18%, compared to the same 2009 period.

The ratio of compensation and benefits expense to operating revenue was 59.7% for the third quarter of 2010 compared to 58.2% for the same 2009 period, and was 60.0% and 62.9% for the first nine months of 2010 and 2009, respectively, excluding the 2010 first-quarter special charge. The reduction in the compensation ratio for the first nine months of 2010 is due primarily to execution on our previously announced goals to grow annual compensation expense at a slower rate than operating revenues, and to achieve over the cycle compensation levels on average consistent with the targets established at the time we went public in 2005.

Non-Compensation

The ratio of non-compensation expense to operating revenue, excluding amortization of intangibles related to acquisitions, was 18.9% and 19.0% for the third quarter and first nine months of 2010, respectively, compared to 19.8% and 21.5% for the respective 2009 periods. Total non-compensation expense increased 4% to $91.2 million for the third quarter of 2010 and increased 11% to $265.4 million for the first nine months of 2010, compared to $87.6 million and $240.1 million for the respective periods in 2009, including amortization of intangibles related to acquisitions of $1.7 million and $5.3 million in the respective 2010 periods and $2.0 million and $2.7 million in the respective 2009 periods. Factors contributing to the third-quarter and first-nine-months 2010 increases include higher business development expenses for travel and market related data and fund administration expenses related to the increased level of business activity and assets under management, and partially offset by lower professional fees.

The percentage of non-compensation expenses to operating revenue can vary from quarter to quarter due to quarterly fluctuation in revenues, among other things. Accordingly, the results in a particular quarter may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison.

Provision for Income Taxes

The provision for income taxes, on a fully exchanged basis, was $17.2 million and $44.4 million for the third quarter and first nine months of 2010, respectively, compared to $18.6 million and $34.7 million for the third quarter and first nine months of 2009, respectively, excluding the effects of special charges in each period. The effective tax rate on the same basis was 21.7% and 20.1% for the third quarter and first nine months of 2010, respectively, exclusive of noncontrolling interests.

Noncontrolling interests

Net income attributable to noncontrolling interests, on a fully exchanged basis, amounted to $0.1 million and $2.9 million for the third quarter and first nine months of 2010, respectively, compared to $2.0 million and $1.2 million for the respective periods of 2009. Noncontrolling interests, on a fully exchanged basis, principally represents interests that the Company is deemed to control but not own in (i) various LAM-related general partnerships and (ii) in Edgewater management vehicles acquired during the third quarter of 2009.

Liquidity, Capital Resources and Other Items

  • Lazard continues to maintain a strong liquidity position with over $1 billion in cash, US Government and agency securities, and marketable equity securities at September 30, 2010.
  • At September 30, 2010, total stockholders’ equity related to Lazard’s interests was $488.6 million.
  • During the third quarter of 2010, current and former Lazard Managing Directors who held LAZ-MD Holdings exchangeable interests and/or Class A common stock (the “Selling Shareholders”) sold 7.4 million shares of Lazard Ltd Class A common stock in a public offering. Lazard did not receive any proceeds from such sales.
  • During the third quarter of 2010, Lazard separately repurchased 2.75 million shares of Class A common stock and 167,286 exchangeable interests at an aggregate cost of $88.7 million, the majority of which were in separate transactions with the Selling Shareholders. Lazard’s remaining share repurchase authorization at September 30, 2010, was $88.6 million.
  • At September 30, 2010, current and former Lazard Managing Directors and employees now own 32% of Lazard Ltd, assuming full vesting of their deferred equity-based incentive awards and including exchangeable interests and Class A shares that they own.

Non-GAAP Information

Lazard discloses certain non-GAAP financial information, which management believes provides the most meaningful basis for comparison among present, historical and future periods. The following are non-GAAP measures used in the accompanying financial information:

  • Net income (loss) attributable to Lazard Ltd, assuming full exchange of exchangeable interests (or fully exchanged basis) and excluding special charges
  • Net income (loss) assuming full exchange of exchangeable interests (or fully exchanged basis) and excluding special charges
  • Core operating business revenue
  • Operating revenue
  • Operating income, excluding special charges
  • Compensation and benefits, excluding special charges
  • Noncontrolling interests assuming full exchange of exchangeable interests
  • Weighted average shares outstanding, assuming full exchange of exchangeable interests and excluding special charges
  • Net income (loss) per share, assuming full exchange of exchangeable interests and excluding special charges
  • Provision for income taxes on a fully exchanged basis
  • Net income (loss) attributable to LAZ-MD
  • Net income (loss) attributable to other noncontrolling interests

Additional financial, statistical and business-related information is included in a financial supplement. This earnings release, the financial supplement and selected transaction information will be available today on our website at www.lazard.com.

Lazard, one of the world's preeminent financial advisory and asset management firms, operates from 41 cities across 26 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating back to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements.” In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, and the negative of these terms and other comparable terminology. These forward-looking statements are not historical facts but instead represent only our belief regarding future results, many of which, by their nature, are inherently uncertain and outside of our control. 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 these forward-looking statements.

These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A “Risk Factors,” and also disclosed from time to time in our reports on Forms 10-Q and 8-K including the following:

  • A decline in general economic conditions or the global financial markets;
  • 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.

Lazard Ltd is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of assets under management in various hedge funds and mutual funds and other investment products managed by Lazard Asset Management LLC and its subsidiaries. Monthly updates of these funds will be posted to the Lazard Asset Management website (www.lazardnet.com) on the third business day following the end of each month. Investors can link to Lazard and its operating company websites through www.lazard.com.

 
 

(a)

   

Refers to net income or loss attributable to Lazard Ltd.

(b)

Refers to the full conversion of all outstanding exchangeable interests held by the members of LAZ-MD holdings and is a non-GAAP measure.

(c)

Refers to first-quarter 2010 pre-tax charges of $87.1 million as a result of staff reductions and realignments, and a $24.9 million non-cash special charge related to the implementation and amendment of a previously approved retirement policy, which accelerated the accounting for certain deferred stock awards during the same period.

(d)

Core operating business revenue includes the Financial Advisory and Asset Management businesses, and excludes revenues from the Corporate business.

(e)

Refers to first-quarter 2009 pre-tax charge of $62.6 million as a result of staff reductions and realignments.

 
LAZARD LTD
OPERATING REVENUE
(unaudited)
 
   

Three Months Ended September 30,

  Nine Months Ended September 30,
       
  2010     2009   % Change     2010     2009   % Change  
($ in thousands)
Financial Advisory
M&A and Strategic Advisory $ 160,662 $ 124,691 29 % $ 454,073 $ 356,020 28 %
Restructuring 66,000 119,101 (45 %) 246,066 273,261 (10 %)
Capital Markets & Other Advisory   27,750     16,390   69 %   69,000     47,489   45 %
Total 254,412 260,182 (2 %) 769,139 676,770 14 %
 
Asset Management
Management Fees 183,975 133,377 38 % 512,758 334,000 54 %
Incentive Fees 15,469 15,202 2 % 41,891 33,807 24 %
Other Revenue   8,523     8,769   (3 %)   24,266     24,042   1 %
Total   207,967     157,348   32 %   578,915     391,849   48 %
 
Core Operating Business Revenue (a) 462,379 417,530 11 % 1,348,054 1,068,619 26 %
 
Corporate   10,786     13,953   (23 %)   20,389     34,616   (41 %)
 
Operating Revenue (b) 473,165 431,483 10 % 1,368,443 1,103,235 24 %
 
Revenue related to noncontrolling interests (c) 2,000 3,716 9,137 2,903
Other Interest Expense   (21,928 )   (23,484 )   (67,097 )   (70,403 )
 
Net Revenue $ 453,237   $ 411,715   10 % $ 1,310,483   $ 1,035,735   27 %
 
(a) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of Corporate.
(b) Operating revenue excludes interest expense relating to financing activities and revenue relating to noncontrolling interests, each of which are included in net revenue.
(c) Represents the revenues related to noncontrolling interests other than LAZ-MD in which the company has no economic interest.
 
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             
Three Months Ended Nine Months Ended
September 30, September 30,
 
  2010     2009   % Change   2010     2009   % Change
($ in thousands, except per share data)
 
Total revenue (a) $ 475,310 $ 434,558 9 % $ 1,375,134 $ 1,113,956 23 %
LFB interest expense   (2,145 )   (3,075 )   (6,691 )   (10,721 )
Operating revenue 473,165 431,483 10 % 1,368,443 1,103,235 24 %
Revenue related to noncontrolling interests 2,000 3,716 9,137 2,903
Other interest expense   (21,928 )   (23,484 )   (67,097 )   (70,403 )
Net revenue 453,237 411,715 10 % 1,310,483 1,035,735 27 %
Operating expenses:
Compensation and benefits 282,528 250,914 13 % 845,926 693,725 22 %
 
Occupancy and equipment 22,414 23,690 65,004 63,774
Marketing and business development 17,503 14,070 51,358 43,311
Technology and information services 18,904 17,592 53,552 49,670
Professional services 10,731 11,823 29,716 31,883
Fund administration and outsourced services 12,037 10,272 34,407 26,075
Amortization of intangible assets related to acquisitions 1,719 2,032 5,258 2,720
Other   7,934     8,157     26,117     22,685  
Total non-compensation expense 91,242 87,636 4 % 265,412 240,118 11 %
 
Restructuring expense (b)   -     -     87,108     62,550  
Operating expenses   373,770     338,550   10 %   1,198,446     996,393   20 %
 
Operating income 79,467 73,165 9 % 112,037 39,342 NM
 
Provision for income taxes   9,113     19,968   (54 %)   29,049     29,312   (1 %)
Net income 70,354 53,197 32 % 82,988 10,030 NM
Net income (loss) attributable to LAZ-MD 6,152 13,749 4,909 (3,297 )
Net income attributable to other noncontrolling interests   111     2,030     2,950     1,218  
Net income attributable to Lazard Ltd $ 64,091   $ 37,418   71 % $ 75,129   $ 12,109   NM
 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding (c):
Basic 111,059,071 80,756,718 38 % 101,440,741 75,278,905 35 %
Diluted 138,094,101 131,468,085 5 % 135,554,131 75,278,905 80 %
Net income per share:
Basic $ 0.58 $ 0.47 $ 0.74 $ 0.16
Diluted $ 0.51 $ 0.41 $ 0.58 $ 0.16
                           
Supplemental Information Assuming Full Exchange of Exchangeable Interests and excluding Special Charges (d):
 
Compensation and benefits excluding special charges $ 282,528   $ 250,914   13 % $ 821,066   $ 693,725   18 %
 
Operating income excluding special charges $ 79,467   $ 73,165   9 % $ 224,005   $ 101,892   120 %
 
Net income attributable to Lazard Ltd assuming full exchange
of exchangeable interests and excluding special charges $ 62,156   $ 52,487   18 % $ 176,623   $ 65,941   NM
 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding, assuming full
exchange of exchangeable interests and excluding
special charges (e):
Basic 123,061,969 114,664,437 7 % 122,596,008 115,478,681 6 %
Diluted 138,094,101 131,468,085 5 % 138,185,702 123,400,695 12 %
Net income per share - assuming full exchange
of exchangeable interests and excluding
special charges:
Basic $ 0.51 $ 0.46 $ 1.44 $ 0.57
Diluted $ 0.46 $ 0.41 $ 1.30 $ 0.53
 
Ratio of compensation to operating revenue (f) 59.7 % 58.2 % 60.0 % 62.9 %
Ratio of non-compensation to operating revenue (g) 18.9 % 19.8 % 19.0 % 21.5 %
                           
 
See Notes to Unaudited Condensed Consolidated Statements of Operations
and Reconciliation of US GAAP Results to Full Exchange Excluding Special Charges
 
LAZARD LTD
RECONCILIATION OF U.S. GAAP RESULTS TO FULL EXCHANGE EXCLUDING SPECIAL CHARGES (d)
(unaudited)
Three Months Ended   Nine Months Ended
September 30, September 30,
   
  2010     2009   2010     2009  
($ in thousands, except per share data)
 
Compensation & Benefits
Compensation & benefits - U.S. GAAP Basis $ 282,528 $ 250,914 $ 845,926 $ 693,725
 
Adjustments to exclude special charges (d):
Acceleration of restricted stock unit vesting related to retirement policy change   -     -   (24,860 )   -  
 
Compensation & benefits excluding special charges $ 282,528   $ 250,914 $ 821,066   $ 693,725  
               
 
Operating Income
Operating income - U.S. GAAP Basis $ 79,467 $ 73,165 $ 112,037 $ 39,342
 
Adjustments to exclude special charges (d):
Acceleration of restricted stock unit vesting related to retirement policy change - - 24,860 -
Restructuring expense   -     -   87,108     62,550  
 
Operating income excluding special charges $ 79,467   $ 73,165 $ 224,005   $ 101,892  
               
 
Net Income attributable to Lazard Ltd
Net income attributable to Lazard Ltd - U.S. GAAP Basis $ 64,091 $ 37,418 $ 75,129 $ 12,109
 
Adjustments to exclude special charges (d, h):
Acceleration of restricted stock unit vesting related to retirement policy change - - 24,860 -
Restructuring expense - - 87,108 62,550
Tax benefits associated with special charges (7,068 ) (14,111 ) (6,401 )
Net loss attributable to LAZ-MD - - (24,388 ) (21,075 )
 
Adjustment for full exchange of exchangeable interests (e):
Tax adjustment for full exchange (1,019 ) 1,320 (1,272 ) 980
Amount attributable to LAZ-MD   6,152     13,749   29,297     17,778  
 
Net income attributable to Lazard Ltd assuming full exchange
of exchangeable interests and excluding special charges $ 62,156   $ 52,487 $ 176,623   $ 65,941  
               
 
Diluted net income per share (c):
U.S. GAAP Basis - Net income attributable to Lazard Ltd $ 0.51 $ 0.41 $ 0.58 $ 0.16
 
Net income assuming full exchange of exchangeable interests
and excluding special charges $ 0.46 $ 0.41 $ 1.30 $ 0.53
 
This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, see item (d) in notes to unaudited condensed consolidated statements of operations and reconciliation of US GAAP results to full exchange excluding special charges. Lazard believes that results assuming full exchange of outstanding exchangeable interests and excluding special charges provides the most meaningful basis for comparison among present, historical and future periods.
 
See Notes to Unaudited Condensed Consolidated Statements of Operations
and Reconciliation of US GAAP Results to Full Exchange Excluding Special Charges
 
 
LAZARD LTD
 
Notes to Unaudited Condensed Consolidated Statements of Operations
and Reconciliation of US GAAP Results to Full Exchange Excluding Special Charges
 
 
 
(a) Excludes revenue related to noncontrolling interests.
 
(b) Expenses related to severance, benefits and other charges in connection with the reduction and realignment of staff.
 
(c) See "Reconciliation of Shares Outstanding and Basic & Diluted Net Income Per Share".
 
(d) For the nine month periods ended September 30, 2010 and 2009, special charges consist of (i) the expenses related to the reduction and realignment of staff noted in (b) above and (ii) for the nine months ended September 30, 2010, a charge aggregating $24,860 recorded to compensation and benefits expense in connection with the accelerated vesting of restricted stock units related to the Company's change in retirement policy.
 
(e) Represents a reversal of noncontrolling interests related to LAZ-MD Holdings’ ownership of Lazard Group common membership interests net of an adjustment for Lazard Ltd entity-level taxes to effect a full exchange of interests and excluding the items noted in (d) above (see "Reconciliation of US GAAP to Full Exchange Excluding Special Charges").
 
(f) For the nine month period ended September 30, 2010, excludes the charges noted in (d) above.
 
(g) Excludes the amortization of intangible assets related to acquisitions for the three and nine month periods ended September 30, 2010 and 2009.
 
(h) For the three and nine month periods ended September 30, 2010, includes an aggregate $7,068 adjustment to increase previously recognized tax benefits related to the 2010 special charges as described in (d) above.
 
NM Not meaningful
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION

($ in thousands)

    September 30,   December 31,
  2010     2009  

ASSETS

Cash and cash equivalents $ 847,431 $ 917,329
Cash deposited with clearing organizations and other segregated cash 24,449 20,217
Receivables 787,477 669,475
Investments (a)
Debt:
U.S. Government and agencies 148,177 147,507
Other   264,490     313,342  
412,667 460,849
Equities 85,215 82,442
Other   214,401     264,402  
712,283 807,693
Goodwill and other intangible assets 318,541 317,780
Other assets   433,517     415,268  
 
Total Assets $ 3,123,698   $ 3,147,762  
 

LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities
Deposits and other customer payables $ 408,768 $ 322,101
Accrued compensation and benefits 320,663 515,033
Senior debt 1,076,850 1,086,850
Other liabilities 531,423 550,681
Subordinated debt   150,000     150,000  
Total liabilities 2,487,704 2,624,665
 
Commitments and contingencies
 
Stockholders' equity
Preferred stock, par value $.01 per share:
Series A - -
Series B - -
Common stock, par value $.01 per share:
Class A 1,166 922
Class B - -
Additional paid-in capital 666,705 549,931
Accumulated other comprehensive loss, net of tax (70,519 ) (57,048 )
Retained earnings   83,348     52,726  
680,700 546,531
Class A common stock held by a subsidiary, at cost   (192,129 )   (191,140 )
Total Lazard Ltd stockholders' equity 488,571 355,391
Noncontrolling interests   147,423     167,706  
Total stockholders' equity   635,994     523,097  
 
Total liabilities and stockholders' equity $ 3,123,698   $ 3,147,762  
 
(a) At fair value, with the exception of $148,897 and $199,188 of investments at September 30, 2010 and December 31, 2009, respectively, at amortized cost and equity method.
 
LAZARD LTD
SELECTED QUARTERLY OPERATING RESULTS EXCLUDING SPECIAL CHARGES, WHERE APPLICABLE
(unaudited)
 
    Three Months Ended
               
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2010 (a) 2010 2010 (b) 2009 (c) 2009 2009 2009 (d) 2008 2008 (e)
($ in thousands, except per share data)
Financial Advisory
M&A and Strategic Advisory $ 160,662 $ 145,854 $ 147,557 $ 170,206 $ 124,691 $ 134,855 $ 96,474 $ 192,678 $ 230,890
Restructuring 66,000 79,879 100,188 103,449 119,101 93,231 60,929 47,135 23,944
Capital Markets & Other Advisory   27,750     19,918   21,331     39,943     16,390   25,005   6,094     12,542   15,349  
Total 254,412 245,651 269,076 313,598 260,182 253,091 163,497 252,355 270,183
 
Asset Management
Management Fees 183,975 166,987 161,796 152,810 133,377 107,123 93,500 107,987 145,332
Incentive Fees 15,469 12,635 13,787 40,988 15,202 13,170 5,435 16,353 10,179
Other Revenue   8,523     7,597   8,147     10,324     8,769   11,273   4,000     1,018   536  
Total   207,967     187,219   183,730     204,122     157,348   131,566   102,935     125,358   156,047  
 
Core operating business revenue (f) 462,379 432,870 452,806 517,720 417,530 384,657 266,432 377,713 426,230
 
Corporate   10,786     5,498   4,104     (3,327 )   13,953   14,190   6,473     24,835   11,076  
 
Operating revenue (g) $ 473,165   $ 438,368 $ 456,910   $ 514,393   $ 431,483 $ 398,847 $ 272,905   $ 402,548 $ 437,306  
 
Operating income (loss) (h) $ 79,467   $ 67,051 $ 77,487   $ (74,550 ) $ 73,165 $ 56,946 $ (28,219 ) $ 54,093 $ 64,837  
 
Net income (loss) attributable to
Lazard Ltd $ 57,023   $ 44,572 $ 47,003   $ (34,705 ) $ 37,418 $ 28,187 $ (18,422 ) $ 37,979 $ 31,671  
 
Net income (loss) per share
attributable to Lazard Ltd
Basic $ 0.51 $ 0.43 $ 0.53 ($0.40 ) $ 0.47 $ 0.38 ($0.27 ) $ 0.54 $ 0.48
Diluted $ 0.46 $ 0.39 $ 0.46 ($0.40 ) $ 0.41 $ 0.34 ($0.27 ) $ 0.50 $ 0.44
                                       
Supplemental Information:
 
Net income (loss) attributable to
Lazard Ltd assuming full exchange
of exchangeable interests $ 62,156   $ 53,036 $ 61,431   $ (54,870 ) $ 52,487 $ 43,145 $ (29,691 ) $ 61,154 $ 54,750  
 
Net income (loss) attributable to
Lazard Ltd per share assuming full
exchange of exchangeable interests
Basic $ 0.51 $ 0.43 $ 0.51 ($0.46 ) $ 0.46 $ 0.37 ($0.26 ) $ 0.52 $ 0.47
Diluted $ 0.46 $ 0.39 $ 0.46 ($0.46 ) $ 0.41 $ 0.34 ($0.26 ) $ 0.50 $ 0.44
Assets Under Management ($ millions) $ 143,573 $ 123,483 $ 134,972 $ 129,543 $ 120,185 $ 98,020 $ 81,084 $ 91,109 $ 113,287
 
(a) The three month period ended September 30, 2010 represents U.S. GAAP results less an aggregate $7,068 adjustment to increase previously recognized tax benefit related to the March 31, 2010 charges noted in (b) below.
(b) The three month period ended March 31, 2010 represents U.S. GAAP results less restructuring expense of $87,108 and operating expenses related to the accelerated vesting of restricted stock units in connection with the company's change in retirement policy of $24,860 and related tax effect.
(c) The three month period ended December 31, 2009 represents U.S. GAAP results less operating expenses related to the acceleration of unamortized restricted stock units previously granted to our former Chairman and Chief Executive Officer and the accelerated vesting of deferred cash awards previously granted of $86,514 and $60,512, respectively and related tax effect.
(d) The three month period ended March 31, 2009 represents U.S. GAAP results less restructuring expense of $62,550 and related tax effect.
(e) The three month period ended September 30, 2008 represents U.S. GAAP results less an operating expense charge of $199,550 and related tax effect in connection with the company's purchase of all outstanding LAM Equity units held by certain current and former MDs and employees of LAM.
(f) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of Corporate.
(g) Operating revenue excludes interest expense relating to financing activities and revenue/(loss) related to the consolidation of noncontrolling interests, each of which are included in net revenue.
(h) Operating income is after interest expense and before income taxes and noncontrolling interests.
 
LAZARD LTD
RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME (LOSS) PER SHARE
(unaudited)
 

BEFORE FULL EXCHANGE

         
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009
($ in thousands, except per share data)
Net income attributable to Lazard Ltd $ 64,091 $ 37,418 $ 75,129 $ 12,109
Add - net income (loss) associated with Class A
common shares issuable on a non-contingent basis   116   349   95   (125 )
Basic net income attributable to Lazard Ltd 64,207 37,767 75,224 11,984
Add - dilutive effect, as applicable, of (a):
Adjustments to income relating to interest expense
and changes in net income attributable to noncontrolling
interests resulting from assumed incremental Class A
common share issuances, net of tax   5,992   15,518   3,988   -  
Diluted net income attributable to Lazard Ltd $ 70,199 $ 53,285 $ 79,212 $ 11,984  
 
Weighted average shares outstanding 108,302,438 77,707,395 98,579,076 72,124,816
Add - adjustment for shares of Class A common
issuable on a non-contingent basis   2,756,633   3,049,323   2,861,665   3,154,089  
Basic weighted average shares outstanding 111,059,071 80,756,718 101,440,741 75,278,905
Add - dilutive effect, as applicable, of:
Weighted average number of incremental Class A
common shares issuable from equity-based
compensation awards, convertible notes, convertible
preferred stock and exchangeable interests   27,035,030   50,711,367   34,113,390   -  
Diluted weighted average shares outstanding   138,094,101   131,468,085   135,554,131   75,278,905  
 
Basic net income per share attributable to Lazard Ltd $ 0.58 $ 0.47 $ 0.74 $ 0.16  
 
Diluted net income per share attributable to Lazard Ltd $ 0.51 $ 0.41 $ 0.58 $ 0.16  
 

ASSUMING FULL EXCHANGE OF EXCHANGEABLE INTERESTS

& EXCLUDING SPECIAL CHARGES (b)

 
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009
Net income attributable to Lazard Ltd $ 62,156 $ 52,487 $ 176,623 $ 65,941
Add - dilutive effect of adjustments to income for:
Interest expense on convertible notes, net of tax   975   798   2,958   -  
Diluted net income attributable to Lazard Ltd $ 63,131 $ 53,285 $ 179,581 $ 65,941  
 
Weighted average shares outstanding 108,302,438 77,707,395 98,579,076 72,124,816
Add - adjustment for shares of Class A common
issuable on a non-contingent basis 2,756,633 3,049,323 2,861,665 3,154,089
Add - adjustment for shares of Class A common issuable
relating to exchangable interests   12,002,898   33,907,719   21,155,267   40,199,776  
Basic weighted average shares outstanding 123,061,969 114,664,437 122,596,008 115,478,681
Add - dilutive effect, as applicable, of:
Weighted average number of incremental Class A
common shares issuable from equity-based
compensation awards, convertible notes and
convertible preferred stock   15,032,132   16,803,648   15,589,694   7,922,014  
Diluted weighted average shares outstanding   138,094,101   131,468,085   138,185,702   123,400,695  
 
Basic net income per share attributable to Lazard Ltd $ 0.51 $ 0.46 $ 1.44 $ 0.57  
 
Diluted net income per share attributable to Lazard Ltd $ 0.46 $ 0.41 $ 1.30 $ 0.53  
 
(a) Incremental income included if related shares are dilutive.
(b) Special Charges for the nine month period ended September 30, 2010 refers to (i) a pre-tax charge related to the reduction and realignment of staff of $87,108 and (ii) a pre-tax charge aggregating $24,860 recorded to compensation and benefits expense in connection with the accelerated vesting of restricted stock units related to the Company's change in retirement policy. For the nine month period ended September 30, 2009, the pre-tax special charge consists of the expenses related to the reduction and realignment of staff of $62,550.
 
LAZARD LTD
ASSETS UNDER MANAGEMENT ("AUM")
           
As of Variance
September 30, June 30, December 31,
2010 2010 2009 Qtr to Qtr YTD
($ in millions) ($ in millions)
Equities $ 120,538 $ 102,666 $ 106,603 17.4 % 13.1 %
Fixed Income 17,485 15,469 18,056 13.0 % (3.2 %)
Alternative Investments 4,603 4,336 3,936 6.2 % 16.9 %
Private Equity 864 950 839 (9.1 %) 3.0 %
Cash   83     62     109   33.9 %   (23.9 %)
Total AUM $ 143,573   $ 123,483   $ 129,543   16.3 %   10.8 %
 
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009
($ in millions) ($ in millions)
AUM - Beginning of Period $ 123,483 $ 98,020 $ 129,543 $ 91,109
 
Net Flows 1,142 7,743 6,173 5,650
Acquisitions (dispositions) - (831 ) - (831 )
Market and foreign exchange
appreciation (depreciation)   18,948     15,253     7,857     24,257  
 
AUM - End of Period $ 143,573   $ 120,185   $ 143,573   $ 120,185  
 
Average AUM (a) $ 133,528   $ 109,102   $ 132,893   $ 97,599  
 
% Change in average AUM   22.4 %   36.2 %
 
 

(a) Average AUM is based on an average of quarterly ending balances for the respective periods.

 

LAZ-G

Contacts

Lazard Ltd
Media:
Judi Frost Mackey, +1-212-632-1428
judi.mackey@lazard.com
or
Richard Creswell, +44 207 187 2305
richard.creswell@lazard.com
or
Investors:
Michael J. Castellano, +1-212-632-8262
Chief Financial Officer
or
Investor Relations, +1-212-632-2685
or 1-877-266-8601 (U.S. only)
investorrelations@lazard.com

Sharing

Contacts

Lazard Ltd
Media:
Judi Frost Mackey, +1-212-632-1428
judi.mackey@lazard.com
or
Richard Creswell, +44 207 187 2305
richard.creswell@lazard.com
or
Investors:
Michael J. Castellano, +1-212-632-8262
Chief Financial Officer
or
Investor Relations, +1-212-632-2685
or 1-877-266-8601 (U.S. only)
investorrelations@lazard.com