View:
January 14, 2005
Mail Stop 0408
By U.S. Mail and facsimile to (212) 403-2000.
Scott D. Hoffman
General Counsel and V.P.
Lazard Ltd.
30 Rockefeller Plaza
New York, NY 10020
Re: Lazard Ltd.
Form S-1 filed December 17, 2004
File No. 333-121407
Dear Mr. Hoffman:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General comments on your filing
1. We note on page 45 that the "additional financing transactions"
have not been finalized. When you have more information regarding
these transactions, please revise future amendments to the
registration statement to describe the transactions and the
resulting
financial condition of Lazard after the offering.
2. Please confirm the staff`s understanding that the offering and
related transactions will not qualify as a "fundamental
transaction"
for the purposes of LAM equity unit payments.
3. We note that extensive amounts of information regarding the
offering, including the ownership percentages owed to LAZ-MD and
other entities that represent the ownership of former members of
Lazard Group and its subsidiaries, are left blank. Please revise
the
registration statement to include all information not covered by
Rule
430A as soon as possible. Also, if you are not able to provide
the
information in your next amendment, please provide the staff with
the
valuation of the various transactions supplementally.
4. Please note the updating requirements of Rule3-12 (g) of
Regulation S-X when filing your next amendment.
5. Please file an updated consent from your independent
accountants
with your next amendment.
Our Core Values; Introductory Note - pages i-ii
6. Item 501 of Regulation S-K calls for the Summary to follow the
inside cover of the prospectus. Much of the information in these
sections appears to be either summary-like disclosure or
disclosure
of information that should be clear from the context. Please
revise
the Summary to include information similar to what is disclosed on
the first page following the Cover Page.
Prospectus Summary - page 1
7. Since the shares that investors will receive after the offering
will represent ownership interest in a partnership and that the
tax
treatment for those membership interests will depend extensively
on
how the business is operated after the offering, please summarize
the
material tax consequences of investing in the offering and cross
reference to the Material Federal Income Tax Consequences section
beginning on page 156.
8. Since there are substantial differences between the rights of a
shareholder of a Bermuda chartered company and a State-chartered
corporation in the United States, please add a separate sub-
section
that briefly describes the rights and risks of investing in a
Bermuda
company with a comparison to the rights of shareholders in a U.S.
(i.e. Delaware) company.
Risk Factors - page 20
9. Many of your risk factors state that you "cannot assure" or
"cannot be certain" of a specific outcome when the real risk in
not
your inability to give assurance but the underlying situation.
Please revise to eliminate this and similar language.
10. The preamble of this section includes language that described
the
generic risk that Lazard may face altered risks or unforeseen
risks
in the future. Such a description could apply to any company or
investment, where future events could radically change the
material
risks that a company could face. Consequently, remove the third
from
last sentence from the preamble and the final clause of the
preceding
sentence. Also, please revise the language used in the preamble,
avoiding legalese like "hereby."
Our ability to retain our managing directors and other key
professional employees... - page 20
11. Revise this risk factor to include more specific information.
In
particular, we note that newspaper accounts that a number of
partners, possibly representing a significant amount of your
Financial Advisory revenue, have not yet agreed to the public
offering plan and therefore may leave Lazard for other firms.
A majority of our revenue is derived from Financial Advisory Fees
- -
page 21
12. Revise the heading to this risk factor and review the
remainder
of the risk factor headings to ensure that they refrain from
merely
stating a fact and instead describe the risk so that the investor
is
better able to understand the accompanying discussion. For
example,
make similar changes to the last risk factor on page 24 and the
last
risk factor on page 34.
We may pursue acquisitions or joint ventures... - page 25
13. Please revise this risk factor to clarify whether you are
currently exploring potential acquisitions. Also, please note
your
recent acquisition or joint-venture activity and discuss any
problems
that you have had with these activities in the past.
Extensive regulation of our business limits our activities and
results... - page 27
14. Please revise this risk factor to note the amount that you
rely
upon "soft dollars" to fund your research activities, particularly
for your continuing businesses.
We are exposed to foreign currency exchange rate risks - page 28
15. Revise this risk factor to quantify the extent to which your
revenues are denominated in currencies other that U.S. Dollars.
Reorganizing our business from a privately held firm - page 31
16. Revise this risk factor to note that you intend to reduce
employee expenses, from 81% to 57.5%.
Our financial performance depends on our ability to achieve our
target compensation - page 33
17. Also, please note the compensation levels currently and after
the
offering, including the targeted rate. Also, consider moving this
risk factor so that it appears in tandem with the risk factor on
page
31 regarding the risk of lowering your compensation expense.
The separation and recapitalization transactions - page 36
18. Please explain the risk to equity holders.
Investment Company Act considerations - page 37
19. Revise this risk factor and its heading to clarify why
determination that either Lazard Ltd. or LAZ-MD are investment
companies would present a risk to an investor who purchases
Lazard`s
shares.
The Separation and Recapitalization Transactions - The Separation
- -
page 44
20. We note your disclosure on page 24 that you may exercise your
option under the business alliance agreement between Lazard Group
and
LFCM Holdings to acquire certain merchant banking investment
management vehicles and related principal investments from LFCM
Holdings. Please revise to describe the nature of the business
alliance agreement and the provision for the repurchase of these
investments. Quantify the fair value and agreed upon purchase
price
of the investments that you will retain the option to repurchase
subsequent to the Separation and disclose when you would have the
ability to repurchase these assets. Alternatively, include a
reference to your discussion on page 143.
21. Please advise the staff regarding the identity and value of
the
"specified non-operating assets and liabilities."
The Separation and Recapitalization Transactions: The
Recapitalization of LAZ-MD Holdings and Lazard Group - page 45
22. We note your disclosure on page 45 that the historical partner
interests are entitled to approximately $585 million of capital.
Please revise to more clearly describe how this amount was
determined
and supplementally provide us with your calculation of this
amount.
23. Please revise footnote (e) to explain how dividends on your
mandatory redeemable preferred stock are allocated among your
segments.
24. Please expand your discussion regarding the capital that
working
members have underlying their membership interests in Lazard
Group.
In particular, please clarify whether this capital can increase
after
the separation. Also, please clarify the amount of capital that
will
require redemption.
Lazard Ownership Structure after the Separation and
Recapitalization
Transactions - page 48
25. Please clarify whether the votes cast by LAZ-MD membership
holders would be aggregated with votes cast by class A
shareholders
or whether the votes of the membership holders would be totaled
independently to determine how the Class B share would be voted.
Dilution, page 54
26. Please compare the public contribution under the offering and
the
effective cash contribution of insiders.
Capitalization, page 55
27. Since "cash and cash equivalents" is not a required or
appropriate item for inclusion in the Capitalization table, please
delete it.
Unaudited Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Statement of Income -
page
63
28. Please revise to present a subtotal column for your historical
results adjusted for pro forma employee compensation and income
taxes
before showing the impact of the separation. Present the weighted
average historical limited liability corporation shares
outstanding
and net income per share data based on historical results adjusted
for pro forma employee compensation and income taxes. In
addition,
please include this pro forma historical net income per share data
in
you Selected Consolidated Financial Data disclosure on page 56.
29. Please revise to present your pro forma adjustments for this
offering in a separate column from the pro forma adjustments from
the
additional financing transactions. In addition, describe how the
additional financial transactions are factually supportable.
Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Income - page 66
30. Please revise note (c) to more clearly describe how you
determined the amounts of your pro forma adjustments to
compensation
expense, reconciling these adjustments to the adjusted employee
compensation and benefits disclosed on page 77. Explain how your
pro
forma adjustments are factually supportable as required by Rule
11-02
(b) of Regulation S-X. Although you disclose that your future
target
policy will be to limit compensation expense to 57.5% of operating
revenues, based upon your disclosure on page 77 it does not appear
as
though using the 57.5% target ratio would be factually
supportable.
Management`s Discussion and Analysis - page 70
Net Income Allocable to Members - page 76
31. Please clarify whether you intend to add additional non-cash
forms of compensation, including stock options, which might not
affect the current ratio.
32. We note your disclosure on page 77 that you exclude interest
expense related to LFB in arriving at operating revenue. Please
revise to explain why you do not deduct the entire amount of
interest
expense as presented in you statements of income in determining
operating revenue.
Business Segments: Financial Advisory - pages 83
33. Please revise to provide an analysis that explains the
underlying
reasons for material fluctuations or trends in revenues earned
from
your financial advisory activities. For example,
* Your list of clients with whom you have transacted business does
not provide sufficient insight into why revenues from financial
advisory services were higher or lower in a given period.
Correlate
the impact that the economy had on M&A activity in general
described
on page 71 with the volume of your different types of financial
advisory transactions during the periods and any significant deals
with which you were involved to better explain any fluctuations.
* Consider presenting volume data in a tabular format.
* Correlate the volume of transactions and the amount of net
revenues
for each category of financial advisory services, describing any
trends in gross profit margins (gross revenues less direct
transaction-related expenses) during the periods presented.
* On page 2 you disclose that your financial restructuring
practice
provides countercyclical balance to your M&A practice. Describe
how
this can be evidenced by your revenue trends.
34. Please quantify the significant components of the segment`s
operating expenses for each period presented. Please similarly
revise your MD&A regarding your other segments` operating results.
Asset Management Results of Operations - page 87
35. Revise this section to explain why your fees grew
significantly
faster than your average assets under management.
Business Segments: Capital Markets and Other - pages 89
36. To help facilitate a reader`s understanding of the future
financial statement impact of pending separation transaction,
please
disclose the specific line items that comprise this segment`s net
revenues. Describe the nature of activities, if any, categorized
within this segment that you intend to continue subsequent to the
separation transaction and disclose the segment in which you
intend
to report the results of the activities.
Liquidity and Capital Resources - pages 91
37. If material, revise this section to note the amount of the
capital of your regulatory subsidiaries is restricted under their
various capital requirements. Also, if material, please note the
amount of capital held by your subsidiaries which is available to
be
paid without regulatory approval.
38. Please revise to describe your trend of increasing liabilities
relative to assets. Describe and quantify the estimated impact of
the separation transaction on this ratio.
39. Please revise to describe and quantify the impact of foreign
currency translation adjustments for each period presented.
40. Please revise to describe the impact that this offering and
the
additional financing transactions, as well as the separation
transaction, will have on your liquidity and capital resources.
Critical Accounting Policies and Estimates - page 95
41. Please refer to Item V of Release No. 33-8350 and revise your
discussion of the valuation of investments to address the
following:
* Provide both a qualitative and quantitative discussion that
describes the significant assumptions underlying your critical
accounting estimates.
* Discuss the judgments and uncertainties affecting the
application
of your critical accounting policies and the likelihood that
materially different amounts would be reported under different
conditions or using different assumptions.
* Disclose how accurate your estimates and assumptions related to
these policies have been in the past, how much they have changed
in
the past, and whether they are likely to change in the future.
* Discuss how you analyze the sensitivity to change and provide
quantitative disclosure, to the extent available.
42. Please supplementally explain why you do not consider your
accounting policies and estimates related to determining whether
to
consolidate VIEs (i.e., calculation of expected losses and
expected
residual returns to determine the primary beneficiary) to be
critical
accounting policies or estimates. Alternatively, refer to Item V
of
Release No. 33-8350 and revise your MD&A based on the guidance set
forth therein.
Risk Management - page 97
43. Expand your discussion of your exposure to interest rate risk
to
disclose the model that you used to determine that you stood to
lose
$1.5 million for every 1% change in the US Dollar to euro exchange
rate and $1 million for a 1% change in the Dollar to pound
exchange
rate. Please refer to Item 305 of Regulation S-K. Make similar
changes to your discussion of your evaluation of your value at
risk
for your securities portfolio.
Concentrations of Credit Risk - page 100
44. We note your disclosure that you have a significant
concentration
of credit risk with the U.S. Government. Please advise the staff
supplementally if you have any other concentrations of credit risk
of
a material size.
Business - page 106
Merchant Banking - page 116
45. Expand this section to provide more detail regarding your
growth
plans for rebuilding your merchant banking investments after your
current operations and given to LFCM after the separation.
Management - Executive Compensation - page 125
46. We note that you have not provided information regarding
executive compensation and regarding your current retirement
benefits. In your next amendment, include the information
required
by Item 402 of Regulation S-K.
Certain Relationships with Our Directors, Executive Officers and
Employees - page 148
47. Please disclose the terms of any loans to officers or
directors.
Description of Capital Stock, page 150
48. Form S-1 does not require you to summarize the provision of
the
certificate of incorporation and the memorandum of association and
bye-laws. Consequently you cannot qualify the description of
capital
stock by reference. See Rule 411.
Certain Material U.S. Federal Income Tax and Bermuda Tax
Considerations - page 156
49. Revise the section heading to eliminate the term "certain" as
this term indicates that there may be material tax consequences
which
are not addressed.
50. Since the tax considerations are material to investors, please
revise to base the discussion on opinions, not advice, and please
file the opinions.
51. Please clarify what "should" means in the final sentence of
the
first paragraph of page 157.
Lazard LLC Consolidated Financial Statements
Note 2 - Significant Accounting Policies: Marketable and Long-
Term
Investments - page F-9
52. Please revise to describe how management determines its best
estimate of fair value of non-marketable investments.
Note 2 - Significant Accounting Policies: Swaps and Other
Contractual Agreements - page F-10
53. Please revise to clarify whether your non-trading derivatives
transactions receive accounting hedge treatment in accordance with
SFAS 133. If so, please provide the disclosures required by
paragraph 45 of SFAS 133.
54. Please revise to describe the types of contracts that are
typically afforded extended settlement and explain why you record
these transactions on a settlement date basis. Clarify what you
mean
when you state that your "obligation to deliver such securities is
accounted for similar to a forward contract."
Note 2 - Significant Accounting Policies: Revenue Recognition -
page
F-12
55. Please supplementally describe your basis, including the
specific
accounting guidance upon which you rely, for deferring expenses
incurred in performing mergers and acquisitions and financial
restructuring advisory services until the related transactions are
consummated.
56. Please revise to describe how you report client reimbursement
of
expenses and quantify the amount of client reimbursements for each
period presented.
57. We note your disclosure on page 28 that if the use of "soft
dollar" arrangements was limited or prohibited you may have to
bear
the costs of research services that were previously paid for using
soft dollars. Please revise to describe your accounting policies
for
"soft dollar" arrangements. Quantify the increase in your
operating
expenses or reduction of revenues, as applicable, if the use of
"soft
dollars" was eliminated in 2003.
58. Please revise to explain why you recognize merchant banking
incentive fees when the underlying investments have been
liquidated.
Describe the impact, if any, of future underperformance by the
merchant banking funds. Quantify the amount of merchant banking
incentive fees that you have earned but not recognized as of
December
31, 2003, separately identifying amounts attributable to your
Capital
Markets and Other segment and your continuing operations.
59. Please revise your discussion of trading gains and losses to
disclose gross trading gains and losses for each period presented.
In addition, disclose gross non-trading investment gains and
losses.
Note 4 - Trading Activities and Related Risks - pages F-15 - F-18
60. When referring to hedging strategies, please clarify whether
you
are referring to derivative transactions that qualify for hedge
accounting treatment in accordance with SFAS 133 or economic
hedges.
For derivative transactions that qualify for hedge accounting
treatment, please disclose the nature of the hedge accounting
treatment (i.e. fair value, cash flow hedges). Please similarly
revise your Risk Management disclosures.
61. Please revise to explain why you report gains and losses
resulting from changes in the fair value of your non-trading
derivatives as trading gains and losses in your statements of
income.
Note 6 - Formation of LAM - page F-19
62. Please revise to disclose the company`s ownership percentage
of
LAM.
63. Please revise to describe the accounting treatment for the
equity
units in LAM issued in connection with its formation. Please
supplementally explain your basis for the treatment, citing the
specific accounting guidance upon which you rely.
Note 11 - Commitments and Contingencies - pages F-27 & F-28
64. We note your disclosure on page F-20 that you have $12,000 of
remaining commitments to a company-sponsored investment vehicle
under
your incentive compensation plan. Please revise to reconcile or
differentiate between this amount and your commitment of $3,012 to
sponsored investment funds disclosed on page F-28. Please
supplementally explain why the $12,000 of remaining commitments
related to your incentive compensation plan is not presented on
your
table of contractual obligations on page 95.
65. Please revise to provide a more detailed discussion of your
contractual commitments to certain members and employees. Discuss
the nature and business purpose of such commitments and the
potential
effects on your liquidity and results of operations.
66. We note your disclosure on page F-28 that you believe the
ultimate outcome of certain legal actions may be material to the
company`s operating results for any particular period. In light
of
the potential impact on future financial statements, please revise
to
describe these pending legal actions and provide an estimate of
the
possible loss or range of loss. In addition, state whether you
have
recorded an accrual for such estimated losses. Refer to
paragraphs 9
and 10 of SFAS 5.
Note 12 - Members` Equity - page F-28
67. Please revise to describe the nature of the provisions in your
Operating Agreement or other contractual arrangements that provide
for a fixed return on Member`s equity. Describe the financial
statement impact of the provisions.
68. Please revise to describe how you determined the amount of the
aggregate preferences of Members that exceeds the amount on the
accompanying consolidated statement of financial condition as
Members` equity. Explain how and when the $410,000 of aggregate
preferences of Members in excess of Members` equity is distributed
to
the members. Supplementally provide us with your supporting
calculation.
Note 14 - Income Taxes - pages F-29 - F-31
69. We note your disclosure on page F-30 that certain deferred tax
assets have been offset by a valuation allowance primarily due to
the
uncertainty of realizing the benefit of certain foreign net
operating
loss carryforwards. Please revise to describe the uncertainty of
realizing the benefits, especially in light of your disclosure
that
net operating loss carryforwards for your foreign subsidiaries may
be
carried forward indefinitely.
Note 15 - Segment Operating Results - page F-31
70. Please supplementally provide us with your analysis describing
how you determined that LFB does not meet the definition of a
reportable segment. Refer to paragraphs 16 - 19 of SFAS 131.
71. Please revise to explain how trading gains and losses,
investment
gains and losses, interest income, and interest expense are
allocated
among your segments.
Note 17 - Fair Value of Financial Instruments - page F-35
72. Please revise to clarify whether the carrying value of
subordinated loans approximates the estimated fair value.
Note 18 - Subsequent Events - Initial Public Offering - page F-37
73. We note your disclosure on page 24 that you may exercise your
option under the business alliance agreement between Lazard Group
and
LFCM Holdings to acquire certain merchant banking investment
management vehicles and related principal investments from LFCM
Holdings. Please revise to describe the nature of the business
alliance agreement and the provision for the repurchase of these
investments. Quantify the amount of investments that you will
retain
the option to repurchase subsequent to the Separation and disclose
when you would have the ability to repurchase these assets.
Describe
how earned but unrecorded merchant banking incentive fees related
to
your Capital Markets and Other segment will be impacted by the
Separation transaction and if you exercise your option to
repurchase
the investments.
74. Supplementally tell us how you intend to presents the results
of
your Capital Markets and Other segment at the time the separation
transaction is completed.
Lazard LLC Unaudited Condensed Consolidated Financial Statements
General
75. Please revise as appropriate based on the comments above.
Exhibits
76. We note that several exhibits will be filed by amendment.
Please
ensure that those exhibits are filed as soon as possible so that
the
staff is able to review them in a timely manner.
* * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We direct your attention to Rules 460 and 461 regarding
acceleration of a registration statement. Please allow adequate
time
after the filing of any amendment for further review before
submitting a request for acceleration. Please provide this
request
at least two business days in advance of the requested effective
date.
You may contact Angela Jackson, Staff Accountant, at (202)
942-
2865 or Joyce Sweeney, Senior Accountant, at (202) 942-1939 if you
have questions regarding comments on the financial statements and
related matters. Please contact Christian Windsor, Special
Counsel
at (202) 942-1974 or me at (202) 942-1874 with any other
questions.
Sincerely,
Mark Webb,
Branch Chief
cc: Via Facsimile: (212) 403-2000
Adam D. Chinn, Esq.
Craig M. Wasserman, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
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Lazard LTD
Scott Hoffman, General Counsel, V.P.
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