Jul 28, 2010

Lazard Ltd Reports Second-Quarter and First-Half 2010 Results

NEW YORK, Jul 28, 2010 (BUSINESS WIRE) -- Lazard Ltd (NYSE: LAZ) today announced financial results for the second quarter and first half ended June 30, 2010. Net income on a fully exchanged basis was $53.0 million, or $0.39 per share (diluted), for the second quarter of 2010, compared to net income of $43.1 million, or $0.34 per share (diluted), for the second quarter of 2009. Net income on a fully exchanged basis was $114.5 million, or $0.84 per share (diluted) for the first half of 2010, compared to $13.5 million, or $0.11 per share (diluted), for the first half of 2009, excluding in each period pre-tax special charges in the first quarter of the applicable year(c)(f).

Net income, on a U.S. GAAP basis, which is before exchange of exchangeable interests, was $44.6 million, or $0.39 per share (diluted), for the second quarter of 2010, compared to net income of $28.2 million, or $0.34 per share (diluted), for the second 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 $11.0 million, or $0.10 per share (diluted), for the first half of 2010, compared to a net loss of $(25.3) million, or $(0.36) per share, for the first half 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 second quarter of 2010 increased 10% to $438.4 million, compared to $398.8 million for the second quarter of 2009. Operating income increased 18% to $67.1 million for the 2010 second quarter, compared to operating income of $56.9 million for the second quarter of 2009.

Operating revenue increased 33% to $895.3 million for the first half of 2010, compared to operating revenue of $671.8 million for the first half of 2009. Operating income increased over 400% to $144.5 million for the first half of 2010, compared to operating income of $28.7 million for the first half 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 Financial Advisory and Asset Management businesses both reported record first-half revenues, with thirty-six percent growth, as we continue to experience a gradual but uneven upturn in the cycle," said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. "We continue to show growth and gain market share in M&A and Strategic Advisory, and our Asset Management professionals continue to attract net inflows against a backdrop of a volatile economic climate."

"Lazard's performance in this quarter and year-to-date underscores the power of Lazard'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."

"We remain focused on containing discretionary spending while investing in our businesses," said Michael J. Castellano, Chief Financial Officer of Lazard. "For the first half of the year, operating revenue increased 33% while compensation and non-compensation expenses increased 22% and 14%, respectively."

Revenue

Core Operating Business

Lazard's core operating business includes its Financial Advisory and Asset Management businesses. Core operating business revenue increased 13% to $432.9 million for the second quarter of 2010, compared to $384.7 million for the second quarter of 2009, and increased 36% to $885.7 million for the first half of 2010, compared to $651.1 million for the first half of 2009.

Financial Advisory

Financial Advisory operating revenue decreased 3% to $245.7 million for the second quarter of 2010, compared to $253.1 million for the second quarter of 2009, and increased 24% to a record of $514.7 million for the first half of 2010, compared to $416.6 million for the first half of 2009.

Lazard's Financial Advisory business of M&A and Strategic Advisory, Restructuring, and Capital Markets and Other Advisory encompasses general strategic and transaction-specific advice to public and private companies, governments and other parties, and includes various corporate finance advisory services. Some of our assignments and, therefore, related revenue, are not reflected in publicly available statistical information.

M&A and Strategic Advisory

M&A and Strategic Advisory operating revenue was $145.9 million for the second quarter of 2010, compared to $134.9 million for the second quarter of 2009. M&A and Strategic Advisory operating revenue was $293.4 million for the first half of 2010, compared to $231.3 million for the first half 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 second quarter of 2010 on which Lazard advised were the following:

  • AREVA's EUR 4.1 billion sale of its transmission and distribution business to Alstom and Schneider Electric
  • OSI Pharmaceuticals' $4.0 billion sale to Astellas Pharma
  • Cisco's NOK 19.0 billion acquisition of Tandberg
  • Royal Bank of Scotland's $1.7 billion sale of RBS Sempra Commodities' Metals, Oil and European Energy business lines to J.P. Morgan
  • CNX Gas's (Special Committee) $967 million sale to CONSOL Energy
  • Protection One's $828 million sale to GTCR
  • GlaxoSmithKline Argentina's $253 million acquisition of Laboratorios Phoenix
  • Buy.com's $250 million sale to Rakuten
  • Al Fayed Family Trust's sale of the Harrods Group to Qatar Holding
  • Accor's demerger of its Hotels and Prepaid Services businesses
  • Société Nationale d'Investissement's (SNI) acquisition of the remaining 50% stake of Omnium Nord Africain and COPROPAR's concurrent acquisition of the remaining 40% stake in SNI

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

  • BHP Billiton's $58.0 billion Western Australian iron ore production joint venture with Rio Tinto
  • Qwest's $22.4 billion merger with CenturyLink
  • Coca-Cola Enterprises' $14.4 billion sale of its North American Operations to The Coca-Cola Company and related transactions
  • Newcrest Mining's A$9.5 billion acquisition of Lihir Gold
  • SSL International in the £2.5 billion recommended cash offer by Reckitt Benckiser to acquire SSL
  • BASF's EUR 3.1 billion acquisition of Cognis
  • Deutsche Bahn's £2.6bn bid for Arriva
  • Abraxis BioScience's $2.9 billion sale to Celgene
  • Healthscope's A$2.7 billion sale to a private equity consortium
  • CSR's A$1.75 billion sale of Sucrogen to Wilmar International
  • Honeywell's $1.4 billion acquisition of Sperian Protection
  • NII Holdings' $1.4 billion sale of a 30% stake in Nextel Mexico to Grupo Televisa
  • Vedanta Resources' $1.3 billion acquisition of the zinc assets of Anglo American
  • Asda Stores' $1.1 billion acquisition of Netto Foodstores
  • BSS Group in the £557.6 million recommended offer for BSS by Travis Perkins
  • Silpada Designs' $650 million sale to Avon
  • Micrus Endovascular's $480 million sale to Johnson & Johnson
  • Continental Airlines' merger of equals with UAL Corporation
  • 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, forming Spain's largest savings bank
  • France Telecom's and Orascom Telecom's agreement on Mobinil and ECMS
  • 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 second quarter include such recent assignments as advising the Republic of Côte d'Ivoire on its bond exchange offer, 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 was $79.9 million for the second quarter of 2010, compared to $93.2 million for the second quarter of 2009. The decrease was due primarily to a reduction in retainer fees earned related to a decrease in the number of active assignments in the second quarter of 2010, compared to the second quarter of 2009, consistent with the industry trend. Restructuring operating revenue was $180.1 million for the first half of 2010, compared to $154.2 million for the first half of 2009. The increase in the first half of 2010 was due primarily to an increase in completion fees earned, which more than offset a decrease in retainer fees. Restructuring operating revenue reflects continued restructuring advisory activity in the US and Europe, although the number and value of corporate defaults has decreased during the first half of 2010 compared to the first half of 2009.

Over the past decade, Lazard's global restructuring team, paired with its M&A industry specialist bankers, has advised on more than 450 restructurings worldwide, with an aggregate value over $1 trillion. The firm is recognized as having the world's leading restructuring advisory group.

Completed second-quarter 2010 Restructuring assignments include Cooper-Standard, LyondellBasell, Six Flags, Twin River Casino, Smurfit-Stone Container, Crescent Resources and Citadel Broadcasting in connection with their Chapter 11 filings, as well as Gala Coral Group, Grupo Reyal Urbis, TAS Group, Technicolor's (formerly Thomson) US noteholders, Trident Resources and Xerium Technologies in connection with their debt restructurings.

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

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

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

  • Air Mauritius on the restructuring of its jet fuel hedging portfolio
  • Belvédère - advising the FRN noteholder committee
  • Chargeurs on its debt maturity rescheduling and convertible bonds issuance
  • EEMS on its debt restructuring
  • Frans Bonhomme on its covenant reset
  • Highstreet - advising certain Highstreet investors on Karstadt's restructuring
  • HP Pelzer Group on its sale and refinancing
  • iStar Financial on its debt and capital structure matters
  • Italtel on its debt restructuring
  • Jost on its debt restructuring
  • LNR Property Corp. on its recapitalization
  • Lucchini on the refinancing of its current indebtedness
  • Polaris World on its debt refinancing
  • Satmex on balance sheet restructuring and satellite financing
  • Voyage Group in the renegotiation of its senior credit facilities
  • Wheelabrator Allevard on its debt restructuring

Capital Markets and Other Advisory

Capital Markets and Other Advisory operating revenue was $19.9 million and $41.2 million for the second quarter and first half of 2010, respectively, compared to $25.0 million and $31.1 million for the respective periods in 2009. The decrease in the second quarter revenue was due primarily to a decrease in underwriting for public offerings, partially offset by an increase in the number and value of fund closings by our Private Fund Advisory Group.

Assignments in the second quarter of 2010 included advising on:

  • IPOs: CBOE Holdings, Inc., Metals USA Holdings Corp., Niska Gas Storage Partners
  • Follow-on offerings: Alphatec Holdings, Inc., BlackRock Kelso Capital Corporation, STR Holdings, Inc.
  • PIPEs, Registered Directs, Underwritten Registered Directs and Private Placements as well as other Convertible and Capital Markets transactions: Anadys Pharmaceuticals, Inc., AspenBio Pharma, Inc., Discovery Labs, FuelCell Energy, Gasco Energy, Inc., NGAS Resources, Inc., Sequenom

Asset Management

Asset Management operating revenue increased 42% to a record $187.2 million for the second quarter of 2010, compared to $131.6 million for the 2009 second quarter. Asset Management operating revenue increased 58% to a record $370.9 million for the first half of 2010, compared to $234.5 million for the first half of 2009.

Assets Under Management at June 30, 2010, were $123.5 billion, representing a 26% increase over Assets Under Management of $98.0 billion at June 30, 2009, and a 9% decrease compared to Assets Under Management of $135.0 billion at March 31, 2010. Assets Under Management were primarily impacted in the second quarter by adverse market and foreign exchange movements. Net inflows were $2.1 billion in the 2010 second quarter and $5.0 billion in the 2010 first half.

Average Assets Under Management were $129.2 billion for the second quarter of 2010, representing a 44% increase over average Assets Under Management of $89.6 billion for the second quarter of 2009. Average Assets Under Management were $129.3 billion for the first half of 2010, a 44% increase, compared to $90.1 billion for the first half of 2009.

Management fees increased 56% to $167.0 million for the second quarter of 2010, compared to $107.1 million for the 2009 second quarter, and increased 64% to $328.8 million for the first half of 2010, compared to $200.6 million for the first half of 2009.

Incentive fees, primarily related to traditional long-only investment strategies, were $12.6 million and $26.4 million for the second quarter and first half of 2010, respectively, compared to $13.2 million and $18.6 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.

Other Asset Management operating revenue was $7.6 million and $15.7 million for the second quarter and first half of 2010, respectively, compared to $11.3 million and $15.3 million for the comparable periods in 2009.

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 $263.0 million and $239.3 million for the second quarters of 2010 and 2009, respectively. The expense was $538.5 million and $442.8 million for the first half of 2010 and 2009, respectively, excluding the 2010 first quarter special charge. While operating revenue increased 33% for the first half of 2010, compensation and benefits expense increased 22%, compared to the same 2009 period.

The ratio of compensation and benefits expense to operating revenue, excluding the 2010 first-quarter special charge, was 60.0% for the second quarters of 2010 and 2009, and was 60.2% and 65.9% for the first halves of 2010 and 2009, respectively. The reduction in the compensation ratio for the first half 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 19.9% and 19.1% for the second quarter and first half of 2010, respectively, compared to 19.8% and 22.6% for the respective 2009 periods. Total non-compensation expense increased 12% to $89.0 million for the second quarter of 2010 and increased 14% to $174.2 million for the first half of 2010, compared to $79.4 million and $152.5 million for the respective periods in 2009, including amortization of intangibles related to acquisitions of $1.8 million and $3.5 million in the respective 2010 periods and $0.3 million and $0.7 million in the respective 2009 periods. Other factors contributing to the second-quarter and first-half 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 $13.5 million and $27.2 million for the second quarter and first half of 2010, respectively, compared to $13.5 million and $16.1 million for the second quarter and first half of 2009, excluding the effects of special charges in each period. The effective tax rate on the same basis was 20.3% and 19.2% for the second quarter and first half of 2010, respectively, exclusive of noncontrolling interests.

Noncontrolling interests

Net income attributable to noncontrolling interests, on a fully exchanged basis, amounted to $0.5 million and $2.8 million for the second quarter and first half of 2010, respectively, compared to $0.3 million and a net loss of $0.8 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 June 30, 2010.

At June 30, 2010, total stockholders' equity related to Lazard's interests was $430.6 million, which includes negative adjustments to total Accumulated Other Comprehensive Loss during the first half of 2010, due primarily to net negative foreign currency translation adjustments of $51.9 million.

During the second quarter of 2010, Lazard repurchased 687.3 thousand shares of Class A common stock, at an aggregate cost of $21.8 million. Lazard's remaining share repurchase authorization at June 30, 2010, was $177.3 million.

During the second quarter of 2010, Lazard repurchased $10.0 million principal amount of its senior notes due in 2015 and recognized an aggregate loss of $0.4 million.

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 40 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.

Conference Call

Lazard plans to host a conference call to discuss the company's financial results for the second quarter and first half of 2010 today at 10:00 a.m. EDT. Kenneth M. Jacobs, Chairman and Chief Executive Officer, and Michael J. Castellano, Chief Financial Officer, will host the call.

The conference call can be accessed via a live audio web cast available through Lazard's Investor Relations website at www.lazard.com, or by dialing 1 877-681-3373 (U.S. and Canada) or +1 719-325-4919 (outside of the U.S. and Canada), 15 minutes prior to the start of the conference call.

A replay of the conference call will be available beginning at 1:00 p.m. EDT today, through August 11, 2010, via the Lazard Investor Relations website, or by dialing 1 888-203-1112 (U.S. and Canada) or +1 719-457-0820 (outside of the U.S. and Canada). The replay access code is 9141991.

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 compensation expense ratio when excluding a $24.9 million charge in the first quarter of 2010 as described in footnote (c) above.

(f)

Refers to first-quarter 2009 pre-tax charge of $62.6 million as a result of staff reductions and realignments.
LAZARD LTD
OPERATING REVENUE
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 % Change 2010 2009 % Change
($ in thousands)
Financial Advisory
M&A and Strategic Advisory $145,854 $134,855 8% $293,411 $231,329 27%
Restructuring 79,879 93,231 (14%) 180,067 154,160 17%
Capital Markets & Other Advisory 19,918 25,005 (20%) 41,249 31,099 33%
Total 245,651 253,091 (3%) 514,727 416,588 24%
Asset Management
Management Fees 166,987 107,123 56% 328,783 200,623 64%
Incentive Fees 12,635 13,170 (4%) 26,422 18,605 42%
Other Revenue 7,597 11,273 (33%) 15,743 15,273 3%
Total 187,219 131,566 42% 370,948 234,501 58%
Core Operating Business Revenue (a) 432,870 384,657 13% 885,675 651,089 36%
Corporate 5,498 14,190 (61%) 9,603 20,663 (54%)
Operating Revenue (b) 438,368 398,847 10% 895,278 671,752 33%
Revenue (loss) related to noncontrolling interests (c) 2,798 257 7,137 (813)
Other Interest Expense (22,131) (23,479) (45,169) (46,919)
Net Revenue $419,035 $375,625 12% $857,246 $624,020 37%
(a) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of Corporate.
(b) Operating revenue excludes interest expense relating to financing activities and revenue (loss) relating to noncontrolling interests, each of which are included in net revenue.
(c) Represents the revenues related to noncontrolling interests other than LAZ-MD in which the company has no economic interest.
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
Ended June 30, Ended June 30,
2010 2009 % Change 2010 2009 % Change
($ in thousands, except per share data)
Total revenue (a) $440,355 $402,476 9 % $899,824 $679,398 32 %
LFB interest expense (1,987 ) (3,629 ) (4,546 ) (7,646 )
Operating revenue 438,368 398,847 10 % 895,278 671,752 33 %
Revenue (loss) related to noncontrolling interests 2,798 257 7,137 (813 )
Other interest expense (22,131 ) (23,479 ) (45,169 ) (46,919 )
Net revenue 419,035 375,625 12 % 857,246 624,020 37 %
Operating expenses:
Compensation and benefits 263,021 239,279 10 % 563,398 442,811 27 %
Occupancy and equipment 21,320 19,990 42,590 40,084
Marketing and business development 18,252 15,788 33,855 29,241
Technology and information services 16,996 16,156 34,648 32,078
Professional services 10,814 11,871 18,985 20,060
Fund administration and outsourced services 10,996 8,057 22,370 15,803
Amortization of intangible assets related to acquisitions 1,769 344 3,539 688
Other 8,816 7,194 18,183 14,528
Total non-compensation expense 88,963 79,400 12 % 174,170 152,482 14 %
Restructuring expense (b) - - 87,108 62,550
Operating expenses 351,984 318,679 10 % 824,676 657,843 25 %
Operating income (loss) 67,051 56,946 18 % 32,570 (33,823 ) NM
Provision for income taxes 13,523 13,519 0 % 19,936 9,344 113 %
Net income (loss) 53,528 43,427 23 % 12,634 (43,167 ) NM
Net income (loss) attributable to LAZ-MD 8,476 14,981 (1,243 ) (17,046 )
Net income (loss) attributable to other noncontrolling interests 480 259 2,839 (812 )
Net income (loss) attributable to Lazard Ltd $44,572 $28,187 58 % $11,038 ($25,309 ) NM
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding (c):
Basic 103,527,014 74,935,658 38 % 96,631,576 72,539,998 33 %
Diluted 139,944,310 127,984,819 9 % 108,995,837 72,539,998 50 %
Net income (loss) per share:
Basic $0.43 $0.38 $0.11 ($0.36 )
Diluted $0.39 $0.34 $0.10 ($0.36 )
Supplemental Information Assuming Full Exchange of Exchangeable Interests and excluding Special Charges (d):
Compensation and benefits excluding special charges $263,021 $239,279 10 % $538,538 $442,811 22 %
Operating income excluding special charges $67,051 $56,946 18 % $144,538 $28,727 403 %

Net income attributable to Lazard Ltd assuming full exchange of exchangeable interests and excluding special charges

$53,036 $43,145 23 % $114,467 $13,454 751 %
Attributable to Lazard Ltd Common Stockholders:

Weighted average shares outstanding, assuming full exchange of exchangeable interests and excluding special charges (e):

Basic 124,579,823 115,759,285 8 % 122,363,027 115,885,804 6 %
Diluted 139,944,310 125,353,249 12 % 138,231,502 120,682,786 15 %

Net income per share - assuming full exchange of exchangeable interests and excluding special charges:

Basic $0.43 $0.37 $0.94 $0.12
Diluted $0.39 $0.34 $0.84 $0.11
Ratio of compensation to operating revenue (f) 60.0 % 60.0 % 60.2 % 65.9 %
Ratio of non-compensation to operating revenue (g) 19.9 % 19.8 % 19.1 % 22.6 %
See Notes to Unaudited Condensed Consolidated Statements of Operations
and Reconciliation of US GAAP Results to Full Exchange Excluding Special Charges
LAZARD LTD
RECONCILIATION OF U.S. GAAP RESULTS TO FULL EXCHANGE EXCLUDING SPECIAL CHARGES (d)
(unaudited)
Three Months Ended Six Months Ended
Ended June 30, Ended June 30,
2010 2009 2010 2009
($ in thousands, except per share data)
Compensation & Benefits
Compensation & benefits - U.S. GAAP Basis $263,021 $239,279 $563,398 $442,811
Adjustments to exclude special charges (d):
Acceleration of restricted stock unit vesting related to retirement policy change - - (24,860) -
Compensation & benefits excluding special charges $263,021 $239,279 $538,538 $442,811
Operating Income (Loss)
Operating income (loss) - U.S. GAAP Basis $67,051 $56,946 $32,570 ($33,823)
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 (loss) excluding special charges $67,051 $56,946 $144,538 $28,727
Net Income (Loss) attributable to Lazard Ltd
Net income (loss) attributable to Lazard Ltd - U.S. GAAP Basis $44,572 $28,187 $11,038 ($25,309)
Adjustments to exclude special charges (d):
Acceleration of restricted stock unit vesting related to retirement policy (net of tax benefit of $1,363) - - 23,497 -
Restructuring expense (net of tax benefit of $5,680 in 2010 and $6,401 in 2009) - - 81,428 56,149
Net loss attributable to LAZ-MD - - (24,388) (21,075)
Adjustment for full exchange of exchangeable interests (e):
Tax adjustment for full exchange (12) (23) (253) (340)
Amount attributable to LAZ-MD 8,476 14,981 23,145 4,029

Net income attributable to Lazard Ltd assuming full exchange of exchangeable interests and excluding special charges

$53,036 $43,145 $114,467 $13,454
Diluted net income (loss) per share (c):
U.S. GAAP Basis - Net income (loss) attributable to Lazard Ltd $0.39 $0.34 $0.10 ($0.36)

Net income assuming full exchange of exchangeable interests and excluding special charges

$0.39 $0.34 $0.84 $0.11
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/(loss) 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 (Loss) Per Share".
(d) For the six month periods ended June 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 six months ended June 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 six month period ended June 30, 2010, excludes the charges noted in (d) above.
(g) Excludes the amortization of intangible assets related to acquisitions for the three and six month periods ended June 30, 2010 and 2009.
NM Not meaningful
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
( $ in thousands)
June 30, December 31,
2010 2009

ASSETS

Cash and cash equivalents $797,432 $917,329
Cash deposited with clearing organizations and other segregated cash 20,631 20,217
Receivables 623,427 669,475
Investments (a)
Debt:
U.S. Government and agencies 147,881 147,507
Other 219,939 313,342
367,820 460,849
Equities 73,978 82,442
Other 235,405 264,402
677,203 807,693
Goodwill and other intangible assets 306,833 317,780
Other assets 383,358 415,268
Total Assets $2,808,884 $3,147,762

LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities
Deposits and other customer payables $289,528 $322,101
Accrued compensation and benefits 227,630 515,033
Senior debt 1,076,850 1,086,850
Other liabilities 479,938 550,681
Subordinated debt 150,000 150,000
Total liabilities 2,223,946 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 1,128 922
Class B - -
Additional paid-in capital 643,921 549,931
Accumulated other comprehensive loss, net of tax (117,794 ) (57,048 )
Retained earnings 35,487 52,726
562,742 546,531
Class A common stock held by a subsidiary, at cost (132,157 ) (191,140 )

Total Lazard Ltd stockholders' equity

430,585 355,391
Noncontrolling interests 154,353 167,706
Total stockholders' equity 584,938 523,097
Total liabilities and stockholders' equity $2,808,884 $3,147,762
(a) At fair value, with the exception of $147,311 and $199,188 of investments at June 30, 2010 and December 31, 2009, respectively, at amortized cost and equity method.
LAZARD LTD
SELECTED QUARTERLY OPERATING RESULTS
(unaudited)
Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2010 2010 (a) 2009 (b) 2009 2009 2009 (c) 2008 2008 (d) 2008
($ in thousands, except per share data)
Financial Advisory
M&A and Strategic Advisory $145,854 $147,557 $170,206 $124,691 $134,855 $96,474 $192,678 $230,890 $225,108
Restructuring 79,879 100,188 103,449 119,101 93,231 60,929 47,135 23,944 32,666
Capital Markets & Other Advisory 19,918 21,331 39,943 16,390 25,005 6,094 12,542 15,349 31,220
Total 245,651 269,076 313,598 260,182 253,091 163,497 252,355 270,183 288,994
Asset Management
Management Fees 166,987 161,796 152,810 133,377 107,123 93,500 107,987 145,332 157,108
Incentive Fees 12,635 13,787 40,988 15,202 13,170 5,435 16,353 10,179 8,429
Other Revenue 7,597 8,147 10,324 8,769 11,273 4,000 1,018 536 13,289
Total 187,219 183,730 204,122 157,348 131,566 102,935 125,358 156,047 178,826
Core operating business revenue (e) 432,870 452,806 517,720 417,530 384,657 266,432 377,713 426,230 467,820
Corporate 5,498 4,104 (3,327 ) 13,953 14,190 6,473 24,835 11,076 26,219
Operating revenue (f) $438,368 $456,910 $514,393 $431,483 $398,847 $272,905 $402,548 $437,306 $494,039
Operating income (loss) (g) $67,051 $77,487 $(74,550 ) $73,165 $56,946 $(28,219 ) $54,093 $64,837 $87,738

Net income (loss) attributable to Lazard Ltd

$44,572 $47,003 $(34,705 ) $37,418 $28,187 $(18,422 ) $37,979 $31,671 $34,317

Net income (loss) per share attributable to Lazard Ltd

Basic $0.43 $0.53 ($0.40 ) $0.47 $0.38 ($0.27 ) $0.54 $0.48 $0.61
Diluted $0.39 $0.46 ($0.40 ) $0.41 $0.34 ($0.27 ) $0.50 $0.44 $0.54
Supplemental Information:

Net income (loss) attributable to Lazard Ltd assuming full exchange of exchangeable interests

$53,036 $61,431 $(54,870 ) $52,487 $43,145 $(29,691 ) $61,154 $54,750 $64,570

Net income (loss) attributable to Lazard Ltd per share assuming full exchange of exchangeable interests

Basic $0.43 $0.51 ($0.46 ) $0.46 $0.37 ($0.26 ) $0.52 $0.47 $0.58
Diluted $0.39 $0.46 ($0.46 ) $0.41 $0.34 ($0.26 ) $0.50 $0.44 $0.54
Assets Under Management ($ millions) $123,483 $134,972 $129,543 $120,185 $98,020 $81,084 $91,109 $113,287 $134,139
(a) 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.
(b) 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.
(c) The three month period ended March 31, 2009 represents U.S. GAAP results less restructuring expense of $62,550 and related tax effect.
(d) 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.
(e) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of Corporate.
(f) 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.
(g) 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 June 30, Six Months Ended June 30,
2010 2009 2010 2009
($ in thousands, except per share data)
Basic
Numerator:
Net income (loss) attributable to Lazard Ltd $44,572 $28,187 $11,038 ($25,309 )

Add - net income (loss) associated with Class A common shares issuable on a non-contingent basis (a)

192 342 (20 ) (473 )
Basic net income (loss) attributable to Lazard Ltd $44,764 $28,529 $11,018 ($25,782 )
Denominator:
Weighted average shares outstanding (a) 103,527,014 74,935,658 96,631,576 72,539,998
Basic net income (loss) per share attributable to Lazard Ltd $0.43 $0.38 $0.11 ($0.36 )
Diluted
Numerator:
Basic net income (loss) attributable to Lazard Ltd $44,764 $28,529 $11,018 ($25,782 )
Add - dilutive effect of adjustments to income for (b):
Interest expense on convertible notes, net of tax 841 654 - -

Noncontrolling interest in net income resulting from assumed share issuances (see incremental issuable shares in the denominator calculation below) and Ltd level income tax effect

8,417 14,915 (212 ) -
Diluted net income (loss) attributable to Lazard Ltd $54,022 $44,098 $10,806 ($25,782 )
Denominator:
Weighted average shares outstanding 103,527,014 74,935,658 96,631,576 72,539,998
Add - dilutive effect of incremental issuable shares (c):
Restricted stock units 11,790,370 8,321,968 12,364,261 -
Convertible notes 2,631,570 2,631,570 - -
Series A convertible preferred stock 942,547 1,271,996 - -
Exchangeable interests 21,052,809 40,823,627 - -
Diluted weighted average shares outstanding 139,944,310 127,984,819 108,995,837 72,539,998
Diluted net income (loss) per share attributable to Lazard Ltd. $0.39 $0.34 $0.10 ($0.36 )
(a) For the three and six month periods ended June 30, 2010, includes 662,015 weighted average shares and for the three and six month period ended June 30, 2009, includes 993,024 weighted average shares, respectively, related to the Class A common stock that are issuable on a non-contingent basis with respect to acquisitions. For the three and six month period ended June 30, 2010, includes 2,256,620 weighted average shares and for the three and six month period ended June 30, 2009, includes 2,225,438 weighted average shares, respectively, related to the Class A common stock that are issuable on a non-contingent basis with respect to the purchase of all outstanding LAM Equity units.
(b) Incremental income included if related shares are dilutive.
(c) Incremental issuable shares included if dilutive.
LAZARD LTD
RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME (LOSS) PER SHARE

ASSUMING FULL EXCHANGE OF EXCHANGEABLE INTERESTS

& EXCLUDING SPECIAL CHARGES (a)

Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
Basic ($ in thousands, except per share data)
Numerator:
Net income attributable to Lazard Ltd $53,036 $43,145 $114,467 $13,454
Denominator:
Weighted average shares outstanding (b) 124,579,823 115,759,285 122,363,027 115,885,804
Basic net income per share attributable to Lazard Ltd $0.43 $0.37 $0.94 $0.12
Diluted
Numerator:
Net income attributable to Lazard Ltd $53,036 $43,145 $114,467 $13,454
Add dilutive effect of adjustments to income for:
Interest expense on convertible notes, net of tax (c) 986 - 1,984 -
Diluted net income attributable to Lazard Ltd $54,022 $43,145 $116,451 $13,454
Denominator:
Weighted average shares outstanding 124,579,823 115,759,285 122,363,027 115,885,804
Add - dilutive effect of incremental issuable shares (d):
Restricted stock units 11,790,370 8,321,968 12,364,261 4,160,984
Convertible notes 2,631,570 - 2,631,570 -
Series A convertible preferred stock (e) 942,547 1,271,996 872,644 635,998
Diluted weighted average shares outstanding 139,944,310 125,353,249 138,231,502 120,682,786
Diluted net income per share attributable to Lazard Ltd $0.39 $0.34 $0.84 $0.11
(a) For the six month period ended June 30, 2010, special charges consist of (i) the expenses related to the reduction and realignment of staff of $87,108 and (ii) 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. For the six month period ended June 30, 2009, special charge consists of the expenses related to the reduction and realignment of staff of $62,550.
(b) For the three and six month periods ended June 30, 2010, includes 662,015 weighted average shares and for the three and six month period ended June 30, 2009, includes 993,024 weighted average shares, respectively, related to the Class A common stock that are issuable on a non-contingent basis with respect to acquisitions. For the three and six month period ended June 30, 2010, includes 2,256,620 weighted average shares and for the three and six month period ended June 30, 2009, includes 2,225,438 weighted average shares, respectively, related to the Class A common stock that are issuable on a non-contingent basis with respect to the purchase of all outstanding LAM Equity units.
(c) For the three and six month periods ended June 30, 2010 includes interest expense, net of tax, related to the convertible notes.
(d) Incremental issuable shares included if dilutive.
(e) For the three and six month periods ended June 30, 2010 includes 7,293 shares of Series A convertible preferred stock and for the three month period ended June 30, 2009 includes 9,724 shares of Series A convertible preferred stock. The rate of conversion into Class A common stock is dependent, in part, on the future value of the Class A common stock and currency exchange rates, therefore, the shares are excluded from the basic net income per share calculation but included in the diluted net income per share calculation.
LAZARD LTD
ASSETS UNDER MANAGEMENT ("AUM")
As of Variance
June 30, March 31, December 31,
2010 2010 2009 Qtr to Qtr YTD
($ in millions)
Equities $102,666 $112,635 $106,603 (8.9 %) (3.7 %)
Fixed Income 15,469 17,073 18,056 (9.4 %) (14.3 %)
Alternative Investments 4,336 4,297 3,936 0.9 % 10.2 %
Private Equity 950 896 839 6.0 % 13.2 %
Cash 62 71 109 (12.7 %) (43.1 %)
Total AUM $123,483 $134,972 $129,543 (8.5 %) (4.7 %)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
($ in millions) ($ in millions)
AUM - Beginning of Period $134,972 $81,084 $129,543 $91,109
Net Flows 2,064 353 5,031 (2,093 )

Market and foreign exchange appreciation (depreciation)

(13,553 ) 16,583 (11,091 ) 9,004
AUM - End of Period (a) $123,483 $98,020 $123,483 $98,020
Average AUM (b) $129,227 $89,551 $129,333 $90,071
% Change in average AUM 44.3 % 43.6 %
(a) AUM as of June 30, 2010, March 31, 2010 and December 31, 2009 reflects $0.6 billion for both dates related to the 2009 third quarter acquisition of Edgewater management vehicles.
(b) Average AUM is based on an average of quarterly ending balances for the respective periods.

LAZ-G

SOURCE: Lazard Ltd

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 / 1 877-266-8601 (US only)
investorrelations@lazard.com

Copyright Business Wire 2010

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