Edgar Filing: Lazard Ltd

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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

For the transition period from to

001-32492

(Commission File Number)

LAZARD LTD

(Exact name of registrant as specified in its charter)


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

Clarendon House

2 Church Street

Hamilton HM11, Bermuda

(Address of principal executive offices)

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

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

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

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


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

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

As of October 16, 2015, there were 129,766,091 shares of the Registrant’s Class A common stock outstanding (including 4,280,678 shares held by subsidiaries).

TABLE OF CONTENTS

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


	Page
Part I. Financial Information

Item 1. Financial Statements (Unaudited)		1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		42

Item 3. Quantitative and Qualitative Disclosures About Market Risk		77

Item 4. Controls and Procedures		78

Part II. Other Information

Item 1. Legal Proceedings		79

Item 1A. Risk Factors		79

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		79

Item 3. Defaults Upon Senior Securities		80

Item 4. Mine Safety Disclosures		80

Item 5. Other Information		80

Item 6. Exhibits		81

Signatures		86

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)


	Page
Condensed Consolidated Statements of Financial Condition as of September 30, 2015 and December 31, 2014		2

Condensed Consolidated Statements of Operations for the three month and nine month periods ended September 30, 2015 and 2014		4

Condensed Consolidated Statements of Comprehensive Income for the three month and nine month periods ended September 30, 2015 and 2014		5

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2015 and 2014		6

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine month periods ended September 30, 2015 and 2014		7

Notes to Condensed Consolidated Financial Statements		9

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(dollars in thousands, except for per share data)


	September 30,		December 31,
	2015		2014
ASSETS
Cash and cash equivalents	$	859,984	$	1,066,580
Deposits with banks and short-term investments		276,585		207,760
Cash deposited with clearing organizations and other segregated cash		34,859		43,290

Receivables (net of allowance for doubtful accounts of $20,327 and $23,540 at September 30, 2015 and December 31, 2014, respectively):
Fees		426,441		483,681
Customers and other		75,968		73,915

		502,409		557,596
Investments		575,204		620,352

Property (net of accumulated amortization and depreciation of $261,856 and $256,286 at September 30, 2015 and December 31, 2014, respectively)		209,814		222,569

Goodwill and other intangible assets (net of accumulated amortization of $55,141 and $51,754 at September 30, 2015 and December 31, 2014, respectively)		325,624		347,438

Deferred tax assets		1,113,060		59,041
Other assets		250,498		207,610

Total Assets	$	4,148,037	$	3,332,236

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(dollars in thousands, except for per share data)


	September 30, 2015			December 31, 2014
	September 30, 2015			December 31, 2014
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits and other customer payables	$	399,824		$	316,601
Accrued compensation and benefits		455,966			606,290
Senior debt		998,350			1,048,350
Tax receivable agreement obligation		523,907			19,577
Capital lease obligations		9,685			12,015
Other liabilities		548,432			559,346

Total Liabilities		2,936,164			2,562,179
Commitments and contingencies

STOCKHOLDERS’ EQUITY
Preferred stock, par value $.01 per share; 15,000,000 shares authorized:
Series A - 7,921 shares issued and outstanding at September 30, 2015 and December 31, 2014		–			–
Series B - no shares issued and outstanding		–			–
Common stock:
Class A, par value $.01 per share (500,000,000 shares authorized; 129,766,091 shares issued at September 30, 2015 and December 31, 2014, including shares held by subsidiaries as indicated below)		1,298			1,298
Additional paid-in-capital		569,535			702,800
Retained earnings		1,014,145			464,655
Accumulated other comprehensive loss, net of tax		(252,525	)		(200,766	)

		1,332,453			967,987
Class A common stock held by subsidiaries, at cost (4,264,125 and 7,450,745 shares at September 30, 2015 and December 31, 2014, respectively)		(177,798	)		(261,243	)

Total Lazard Ltd Stockholders’ Equity		1,154,655			706,744
Noncontrolling interests		57,218			63,313

Total Stockholders’ Equity		1,211,873			770,057

Total Liabilities and Stockholders’ Equity	$	4,148,037		$	3,332,236

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands, except for per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
REVENUE
Investment banking and other advisory fees	$	330,408		$	290,604		$	946,057		$	843,186
Asset management fees		253,752			276,940			784,461			805,848
Interest income		1,102			1,243			3,393			3,815
Other		54			12,936			65,879			60,832

Total revenue		585,316			581,723			1,799,790			1,713,681
Interest expense		11,798			15,512			39,431			47,174

Net revenue		573,518			566,211			1,760,359			1,666,507

OPERATING EXPENSES
Compensation and benefits		319,565			338,612			984,786			1,006,101
Occupancy and equipment		26,278			29,400			80,889			86,079
Marketing and business development		18,244			19,127			55,758			59,254
Technology and information services		22,923			23,025			68,850			68,466
Professional services		10,758			11,184			36,100			32,895
Fund administration and outsourced services		14,367			17,034			48,008			48,490
Amortization of intangible assets related to acquisitions		511			4,020			3,401			5,946
Provision (benefit) pursuant to tax receivable agreement		(420,792	)		(176	)		547,691			9,064
Other		10,920			10,273			90,845			30,340

Total operating expenses		2,774			452,499			1,916,328			1,346,635

OPERATING INCOME (LOSS)		570,744			113,712			(155,969	)		319,872

Provision (benefit) for income taxes		170,954			23,792			(993,560	)		58,614

NET INCOME		399,790			89,920			837,591			261,258

LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		1,269			1,061			9,004			6,365

NET INCOME ATTRIBUTABLE TO LAZARD LTD	$	398,521		$	88,859		$	828,587		$	254,893


ATTRIBUTABLE TO LAZARD LTD CLASS A COMMON STOCKHOLDERS:
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic		125,925,006			122,206,914			125,264,447			122,366,632
Diluted		133,115,419			133,566,684			133,219,137			133,722,776

NET INCOME PER SHARE OF COMMON STOCK:
Basic		$3.16			$0.73			$6.61			$2.08

Diluted		$2.99			$0.67			$6.22			$1.91

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.35			$0.30			$2.00			$0.90

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
NET INCOME	$	399,790		$	89,920		$	837,591		$	261,258

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Currency translation adjustments		(19,034	)		(29,100	)		(41,376	)		(18,640	)

Employee benefit plans:
Actuarial gain (loss) (net of tax (expense) benefit of $(253) and $(1,731) for the three months ended September 30, 2015 and 2014, respectively, and $7,753 and $1,919 for the nine months ended September 30, 2015 and 2014, respectively)		477			3,251			(14,140	)		(3,695	)
Adjustment for items reclassified to earnings (net of tax expense of $368 and $528 for the three months ended September 30, 2015 and 2014, respectively, and $1,469 and $1,391 for the nine months ended September 30, 2015 and 2014, respectively)		1,381			1,145			3,757			3,714

OTHER COMPREHENSIVE LOSS, NET OF TAX		(17,176	)		(24,704	)		(51,759	)		(18,621	)

COMPREHENSIVE INCOME		382,614			65,216			785,832			242,637
LESS - COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		1,269			1,061			9,004			6,365

COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD LTD	$	381,345		$	64,155		$	776,828		$	236,272

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

(dollars in thousands)


	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	837,591		$	261,258
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property		24,251			26,332
Amortization of deferred expenses and share-based incentive compensation		246,129			227,896
Amortization of intangible assets related to acquisitions		3,401			5,946
Deferred tax provision (benefit)		(1,056,659	)		9,843
Provision pursuant to tax receivable agreement		547,691			9,064
Loss on extinguishment of debt		60,219			–
Gain on disposal of subsidiaries		(24,388	)		–
(Increase) decrease in operating assets:
Deposits with banks and short-term investments		(84,386	)		(18,626	)
Cash deposited with clearing organizations and other segregated cash		7,413			15,630
Receivables-net		34,391			(12,982	)
Investments		34,198			(78,820	)
Other assets		(105,902	)		(114,012	)
Increase (decrease) in operating liabilities:
Deposits and other payables		105,215			25,666
Accrued compensation and benefits and other liabilities		(109,770	)		58,227

Net cash provided by operating activities		519,394			415,422

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property		(18,479	)		(14,161	)
Disposals of property		471			1,023

Net cash used in investing activities		(18,008	)		(13,138	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Contributions from noncontrolling interests		268			1,102
Issuance of senior debt, net of expenses		396,272			–
Excess tax benefits from share-based incentive compensation		9,516			1,508
Payments for:
Senior debt		(509,098	)		–
Capital lease obligations		(1,435	)		(1,738	)
Distributions to noncontrolling interests		(15,367	)		(9,182	)
Payments under tax receivable agreement		(1,276	)		–
Partial extinguishment of tax receivable agreement obligation		(42,222	)		–
Purchase of Class A common stock		(159,471	)		(192,657	)
Class A common stock dividends		(246,759	)		(109,592	)
Settlement of vested share-based incentive compensation		(105,007	)		(83,783	)
Other financing activities		(1,998	)		(1,754	)

Net cash used in financing activities		(676,577	)		(396,096	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(31,405	)		(27,086	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(206,596	)		(20,898	)
CASH AND CASH EQUIVALENTS—January 1		1,066,580			841,482

CASH AND CASH EQUIVALENTS—September 30	$	859,984		$	820,584

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2014

(UNAUDITED)

(dollars in thousands)


	Series A Preferred Stock				Common Stock				Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Class A Common Stock Held By Subsidiaries						Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Series A Preferred Stock				Common Stock													Class A Common Stock Held By Subsidiaries
	Shares		$		*Shares()**		$											Shares			$
Balance – January 1, 2014		7,921	$	–		129,056,082	$	1,291	$	737,899		$	203,236		$	(133,004	)		8,317,065		$	(249,213	)	$	560,209		$	69,789		$	629,998

Comprehensive income (loss):
Net income													254,893												254,893			6,365			261,258
Other comprehensive loss - net of tax																(18,621	)								(18,621	)					(18,621	)
Amortization of share-based incentive compensation										159,095															159,095						159,095
Dividend-equivalents										13,489			(15,243	)											(1,754	)					(1,754	)
Class A common stock dividends													(109,592	)											(109,592	)					(109,592	)
Purchase of Class A common stock																			4,114,206			(192,657	)		(192,657	)					(192,657	)
Delivery of Class A common stock in connection with shared-based incentive compensation and related tax benefit of $1,409										(257,127	)								(4,828,479	)		174,753			(82,374	)					(82,374	)
Class A common stock issued in exchange for Lazard Group common membership interests						710,009		7		(7	)														–						–
Business acquisitions and related equity transactions:
Class A common stock issuable (including related amortization)										387															387						387
Distributions to noncontrolling interests, net																									–			(8,080)			(8,080)
Adjustments related to noncontrolling interests										3,543						(559	)								2,984			(2,984	)		–

Balance – September 30, 2014		7,921	$	–		129,766,091	$	1,298	$	657,279		$	333,294		$	(152,184	)		7,602,792		$	(267,117	)	$	572,570		$	65,090		$	637,660

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

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2015

(UNAUDITED)

(dollars in thousands)


	Series A Preferred Stock				Common Stock				Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Class A Common Stock Held By Subsidiaries						Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Series A Preferred Stock				Common Stock													Class A Common Stock Held By Subsidiaries
	Shares		$		Shares		$											Shares			$
Balance – January 1, 2015		7,921	$	–		129,766,091	$	1,298	$	702,800		$	464,655		$	(200,766	)		7,450,745		$	(261,243	)	$	706,744		$	63,313		$	770,057
Comprehensive income (loss):
Net income													828,587												828,587			9,004			837,591
Other comprehensive loss - net of tax																(51,759	)								(51,759	)					(51,759	)
Amortization of share-based incentive compensation										174,823															174,823						174,823
Dividend-equivalents										30,340			(32,338	)											(1,998	)					(1,998	)
Class A common stock dividends													(246,759	)											(246,759	)					(246,759	)
Purchase of Class A common stock																			3,141,526			(159,471	)		(159,471	)					(159,471	)
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefit of $9,495										(337,101	)								(6,300,830	)		241,589			(95,512	)					(95,512	)
Business acquisitions and related equity transactions:
Delivery of Class A common stock										(1,327	)								(27,316)			1,327			–						–
Distributions to noncontrolling interests, net																									–			(15,099	)		(15,099	)

Balance – September 30, 2015		7,921	$	–		129,766,091	$	1,298	$	569,535		$	1,014,145		$	(252,525	)		4,264,125		$	(177,798	)	$	1,154,655		$	57,218		$	1,211,873

See notes to condensed consolidated financial statements.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

1.	*ORGANIZATION AND BASIS OF PRESENTATION*

Organization

Lazard Ltd, a Bermuda holding company, and its subsidiaries (collectively referred to as “Lazard Ltd”, “Lazard”, “we” or the “Company”), including Lazard Ltd’s indirect investment in Lazard Group LLC, a Delaware limited liability company (collectively referred to, together with its subsidiaries, as “Lazard Group”), is one of the world’s preeminent financial advisory and asset management firms and has long specialized in crafting solutions to the complex financial and strategic challenges of our clients. We serve a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals.

Lazard Ltd indirectly held 100% of all outstanding Lazard Group common membership interests as of September 30, 2015 and December 31, 2014. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group, which is governed by an Amended and Restated Operating Agreement dated as of October 26, 2015 (the “Operating Agreement”). LAZ-MD Holdings LLC (“LAZ-MD Holdings”), an entity formerly owned by Lazard Group’s current and former managing directors, held approximately 0.5% of the outstanding Lazard Group common membership interests as of January 1, 2014. As of January 1, 2014, LAZ-MD Holdings was also the sole owner of the one issued and outstanding share of Lazard Ltd’s Class B common stock (the “Class B common stock”). In May 2014, the remaining outstanding Lazard Group common membership interests held by LAZ-MD Holdings were exchanged for shares of the Company’s Class A common stock, par value $0.01 per share (“Class A common stock”), and the sole issued and outstanding share of the Company’s Class B common stock was automatically converted into one share of the Company’s Class A common stock pursuant to the provisions of the Company’s bye-laws, resulting in only one outstanding class of common stock (the “Final Exchange of LAZ-MD Interests”). Following the Final Exchange of LAZ-MD Interests, Lazard Group became a wholly-owned indirect subsidiary of Lazard Ltd.

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

•

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

•

Asset Management, which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients.

In addition, we record selected other activities in our Corporate segment, including management of cash, investments, deferred tax assets, outstanding indebtedness and assets associated with Lazard Group’s Paris-based subsidiary Lazard Frères Banque SA (“LFB”).

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Basis of Presentation

The accompanying condensed consolidated financial statements of Lazard Ltd have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Ltd’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”). The accompanying December 31, 2014 unaudited condensed consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

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

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

The condensed consolidated financial statements include Lazard Ltd, Lazard Group and Lazard Group’s principal operating subsidiaries: Lazard Frères & Co. LLC (“LFNY”), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as “LAM”); the French limited liability companies Compagnie Financière Lazard Frères SAS (“CFLF”) along with its subsidiaries, LFB and LFG, and Maison Lazard SAS and its subsidiaries; and Lazard & Co., Limited (“LCL”), through Lazard & Co., Holdings Limited (“LCH”), an English private limited company, together with their jointly owned affiliates and subsidiaries.

The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates (i) a voting interest entity (“VOE”) where the Company either holds a majority of the voting interest in such entity or is the general partner in such entity and the third-party investors do not have the right to replace the general partner and (ii) a variable interest entity (“VIE”) where the Company absorbs a majority of the expected losses, expected residual returns, or both, of such entity. When the Company does not have a controlling interest in an entity, but exerts significant influence over such entity’s operating and financial decisions, the Company applies the equity method of accounting in which it records in earnings its share of earnings or losses of the entity. Intercompany transactions and balances have been eliminated.

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

2.	*RECENT ACCOUNTING DEVELOPMENTS*

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

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

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

Fair Value Measurement—In May 2015, the FASB issued updated guidance for the classification and disclosure of certain investments using the net asset value (“NAV”) as a practical expedient to measure the fair value of the investment. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV as a practical expedient. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The new guidance is to be applied on a retrospective basis. The Company elected to early adopt this guidance in the quarter ended September 30, 2015 and has removed investments that are measured at NAV as a practical expedient from the fair value hierarchy in all periods presented in the condensed consolidated financial statements and related disclosures.

3.	*RECEIVABLES*

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Beginning balance	$	21,071		$	29,943		$	23,540		$	28,777
Bad debt expense, net of recoveries		(256	)		2,064			3,037			9,567
Charge-offs, foreign currency translation and other adjustments		(488	)		(2,148	)		(6,250	)		(8,485	)

Ending balance	$	20,327		$	29,859		$	20,327		$	29,859

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

At September 30, 2015 and December 31, 2014, the Company had receivables past due or deemed uncollectible of $27,474 and $24,578, respectively.

Of the Company’s fee receivables at September 30, 2015 and December 31, 2014, $82,681 and $86,221, respectively, represented interest-bearing financing receivables. Based upon our historical loss experience, the credit quality of the counterparties, and the lack of past due or uncollectible amounts, there was no allowance for doubtful accounts required at those dates related to such receivables.

The aggregate carrying amount of our non-interest bearing receivables of $419,728 and $471,375 at September 30, 2015 and December 31, 2014, respectively, approximates fair value.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

4.	*INVESTMENTS*

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


	September 30,		December 31,
	2015		2014
Interest-bearing deposits	$	56,441	$	84,575

Debt		1,736		10,426

Equities		46,576		57,302

Funds:
Alternative investments (a)		69,026		34,705
Debt (a)		66,570		82,889
Equity (a)		206,936		228,209
Private equity		121,217		114,470

		463,749		460,273

Equity method		6,702		7,776

Total investments		575,204		620,352
Less:
Interest-bearing deposits		56,441		84,575
Equity method		6,702		7,776

Investments, at fair value	$	512,061	$	528,001

Securities sold, not yet purchased, at fair value (included in “other liabilities”)	$	3,076	$	9,290

(a)

Interests in alternative investment funds, debt funds and equity funds include investments with fair values of $12,001, $31,116 and $153,627, respectively, at September 30, 2015 and $8,321, $42,070 and $162,798, respectively, at December 31, 2014, held in order to satisfy the Company’s liability upon vesting of previously granted Lazard Fund Interests (“LFI”) and other similar deferred compensation arrangements. LFI represent grants by the Company to eligible employees of actual or notional interests in a number of Lazard-managed funds, subject to service-based vesting conditions (see Notes 6 and 12 of Notes to Condensed Consolidated Financial Statements).

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

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

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

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

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

Private equity investments include those owned by Lazard and those consolidated but not owned by Lazard. Private equity investments owned by Lazard are primarily comprised of investments in private equity funds. Such investments primarily include (i) Edgewater Growth Capital Partners III, L.P. (“EGCP III”), a fund primarily making equity and buyout investments in middle market companies, (ii) Lazard Australia Corporate Opportunities Fund 2 (“COF2”), an Australian fund targeting Australian mid-market investments, (iii) a mezzanine fund, which invests in mezzanine debt of a diversified selection of small- to mid-cap European companies, and (iv) a fund targeting significant noncontrolling-stake investments in established private companies. The Company disposed of its private equity business in Australia in the second quarter of 2015 in a transaction with the management of the disposed business. Revenue of $24,388 relating to the disposal of the business primarily represents the realization of carried interest at fair value and is included in “revenue-other” on the condensed consolidated statements of operations for the nine month period ended September 30, 2015. See Note 5 of Notes to Condensed Consolidated Financial Statements.

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

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015			2014
Net unrealized investment gains (losses)	$	(24,962)	$	(13,897	)	$	(26,077	)	$	(75	)

5.	*FAIR VALUE MEASUREMENTS*

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

Level 1.

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

Level 2.

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

Level 3.

Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose trading volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

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

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

The fair value of investments in private equity funds is classified as Level 3 for certain investments that are valued based on potential transaction value.

The fair values of derivatives entered into by the Company are classified as Level 2 and are based on the values of the related underlying assets, indices or reference rates as follows: the fair value of forward foreign currency exchange rate contracts is a function of the spot rate and the interest rate differential of the two currencies from the trade date to settlement date; the fair value of total return swaps is based on the change in fair values of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. See Note 6 of Notes to Condensed Consolidated Financial Statements.

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The following tables present, as of September 30, 2015 and December 31, 2014, the classification of (i) investments and certain other assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy and (ii) investments measured at NAV or its equivalent as a practical expedient:


	September 30, 2015
	Level 1		Level 2		Level 3		NAV (a)		Total
Assets:
Investments:
Debt	$	1,736	$	–	$	–	$	–	$	1,736
Equities		45,300		–		1,276		–		46,576
Funds:
Alternative investments		43,961		–		–		25,065		69,026
Debt		66,564		–		–		6		66,570
Equity		206,893		–		–		43		206,936
Private equity		–		–		25,191		96,026		121,217
Derivatives		–		12,210		–		–		12,210

Total	$	364,454	$	12,210	$	26,467	$	121,140	$	524,271

Liabilities:
Securities sold, not yet purchased	$	3,076	$	–	$	–	$	–	$	3,076
Derivatives		–		189,563		–		–		189,563

Total	$	3,076	$	189,563	$	–	$	–	$	192,639



	December 31, 2014 (b)
	Level 1		Level 2		Level 3		NAV (a)		Total
Assets:
Investments:
Debt	$	5,540	$	4,886	$	–	$	–	$	10,426
Equities		55,987		–		1,315		–		57,302
Funds:
Alternative investments		–		–		–		34,705		34,705
Debt		82,885		–		–		4		82,889
Equity		228,166		–		–		43		228,209
Private equity		–		–		–		114,470		114,470
Derivatives		–		2,355		–		–		2,355

Total	$	372,578	$	7,241	$	1,315	$	149,222	$	530,356

Liabilities:
Securities sold, not yet purchased	$	9,290	$	–	$	–	$	–	$	9,290
Derivatives		–		208,093		–		–		208,093

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

(a)

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

(b)	The table as of December 31, 2014 reflects the retrospective application of new disclosure guidance adopted by the Company for investments using NAV or its equivalent as a practical expedient when measuring fair value. See Note 2 of Notes to Condensed Consolidated Financial Statements.

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


	Three Months Ended September 30, 2015 (a)
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other (b)		Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance				Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,299	$	2	$	–	$	–	$	(25	)	$	1,276
Private equity funds		22,267		633		2,291		–		–			25,191

Total Level 3 Assets	$	23,566	$	635	$	2,291	$	–	$	(25	)	$	26,467


	Nine Months Ended September 30, 2015 (a)
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other (b)		Purchases/ Acquisitions/ Transfers (c)		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance				Purchases/ Acquisitions/ Transfers (c)		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,315	$	12	$	–	$	–		$	(51	)	$	1,276
Private equity funds		–		3,404		22,178		(391	)		–			25,191

Total Level 3 Assets	$	1,315	$	3,416	$	22,178	$	(391	)	$	(51	)	$	26,467


	Three Months Ended September 30, 2014 (a)
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other (b)		Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance				Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,370	$	–	$	–	$	–	$	(36	)	$	1,334

Total Level 3 Assets	$	1,370	$	–	$	–	$	–	$	(36	)	$	1,334


	Nine Months Ended September 30, 2014 (a)
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other (b)		Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance				Purchases/ Acquisitions		Sales/ Dispositions		Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,340	$	14	$	–	$	–	$	(20	)	$	1,334

Total Level 3 Assets	$	1,340	$	14	$	–	$	–	$	(20	)	$	1,334

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

(a)

The tables for the three month and nine month periods ended September 30, 2015 and 2014 reflect the retrospective application of new disclosure guidance adopted by the Company for investments using NAV or its equivalent as a practical expedient when measuring fair value. See Note 2 of Notes to Condensed Consolidated Financial Statements.

(b)	Earnings for the three month and nine month periods ended September 30, 2015 and the three month and nine month periods ended September 30, 2014 include net unrealized gains (losses) of $635, $3,416, $0 and $14, respectively.

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

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

The following tables present, at September 30, 2015 and December 31, 2014, certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value:

September 30, 2015

% of
Fair Value
Not
Redeemable

Estimated Liquidation Period of
Investments Not Redeemable

Investments Redeemable

Fair Value

Unfunded
Commitments

%
Next
5 Years

%
5-10
Years

%
Thereafter

Redemption
Frequency

Redemption
Notice Period

Alternative investment funds:

Hedge funds

23,005

–

(a)

<30-60 days

Funds of funds

457

–

(b)

<30-90 days

Other

1,603

–

(c)

<30-60 days

Debt funds

–

(d)

30 days

Equity funds

–

(e)

<30-90 days

Private equity funds:

Equity growth

61,549

1,078

(f)

100%

25%

73%

Mezzanine debt

34,477

–

100%

–

100%

Total

121,140

1,078

(a)	weekly (22%), monthly (61%) and quarterly (17%)

(b)	monthly (98%) and quarterly (2%)

(c)	daily (19%) and monthly (81%)

(d)	daily (100%)

(e)	daily (17%), monthly (57%) and quarterly (26%)

(f)	Unfunded commitments to private equity investments consolidated but not owned by Lazard of $5,501 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

December 31, 2014

% of
Fair Value
Not
Redeemable

Estimated Liquidation Period of
Investments Not Redeemable

Investments Redeemable

Fair Value

Unfunded
Commitments

%
Next
5 Years

%
5-10
Years

%
Thereafter

Redemption
Frequency

Redemption
Notice Period

Alternative investment funds:

Hedge funds

31,042

–

(a)

<30-60 days

Funds of funds

475

–

(b)

<30-90 days

Other

3,188

–

(c)

<30-60 days

Debt funds

–

(d)

30 days

Equity funds

–

(e)

30-90 days

Private equity funds:

Equity growth

75,578

18,676

(f)

100%

10%

63%

27%

Mezzanine debt

38,892

–

100%

–

100%

Total

149,222

18,676

(a)	weekly (15%), monthly (66%) and quarterly (19%)

(b)	monthly (98%) and quarterly (2%)

(c)	daily (11%), weekly (3%) and monthly (86%)

(d)	daily (100%)

(e)	daily (14%), monthly (58%) and quarterly (28%)

(f)	Unfunded commitments to private equity investments consolidated but not owned by Lazard of $6,888 are excluded. Such commitments are required to be funded by capital contributions from noncontrolling interest holders.

Investment Capital Funding Commitments—At September 30, 2015, the Company’s maximum unfunded commitments for capital contributions to investment funds arose primarily from commitments to EGCP III, which amounted to $9,672, through the earlier of October 12, 2016 (i.e., the end of the investment period) for investments and/or expenses (with a portion of the undrawn amount of such commitments as of that date remaining committed until October 12, 2023 in respect of “follow-on investments” and/or fund expenses) or the liquidation of the fund.

6.	*DERIVATIVES*

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

designated as hedging instruments are included in “interest income” and “interest expense”, respectively, or “revenue-other”, depending on the nature of the underlying item, in the condensed consolidated statements of operations.

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

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


	September 30, 2015		December 31, 2014
Derivative Assets:
Forward foreign currency exchange rate contracts	$	876	$	2,355
Total return swaps and other (a)		11,334		–

Total	$	12,210	$	2,355

Derivative Liabilities:
Forward foreign currency exchange rate contracts	$	926	$	124
Total return swaps and other (a)		–		663
LFI and other similar deferred compensation arrangements		188,637		207,306

	$	189,563	$	208,093

(a)

For total return swaps, amounts represent the netting of gross derivative assets and liabilities of $11,338 and $4 as of September 30, 2015, respectively, and $1,123 and $1,786 as of December 31, 2014, respectively, for contracts with the same counterparty under legally enforceable master netting agreements. Such amounts are recorded “net” in “other assets”, with receivables for net cash collateral under such contracts of $406 and $12,364 as of September 30, 2015 and December 31, 2014, respectively.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Forward foreign currency exchange rate contracts	$	1,109	$	15,355	$	12,486	$	14,380
LFI and other similar deferred compensation arrangements		12,145		5,528		9,903		(6,004	)
Total return swaps and other		10,945		2,835		7,761		(5,436	)

Total	$	24,199	$	23,718	$	30,150	$	2,940

7.	*PROPERTY*

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


	Estimated Depreciable Life in Years		September 30, 2015		December 31, 2014
Buildings		33	$	141,162	$	152,982
Leasehold improvements		3-20		167,410		167,837
Furniture and equipment		3-10		156,642		150,458
Construction in progress				6,456		7,578

Total				471,670		478,855
Less - Accumulated depreciation and amortization				261,856		256,286

Property			$	209,814	$	222,569

8.	*GOODWILL AND OTHER INTANGIBLE ASSETS*

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


	September 30, 2015		December 31, 2014
Goodwill	$	316,989	$	335,402
Other intangible assets (net of accumulated amortization)		8,635		12,036

	$	325,624	$	347,438

At September 30, 2015 and December 31, 2014, goodwill of $252,448 and $270,861, respectively, was attributable to the Company’s Financial Advisory segment and, at each such respective date, $64,541 of goodwill was attributable to the Company’s Asset Management segment.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Changes in the carrying amount of goodwill for the nine month periods ended September 30, 2015 and 2014 are as follows:


	Nine Months Ended September 30,
	2015			2014
Balance, January 1	$	335,402		$	345,453
Business acquisitions		–			3,232
Foreign currency translation adjustments		(18,413	)		(4,909	)

Balance, September 30	$	316,989		$	343,776

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

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


	September 30, 2015						December 31, 2014
	Gross Cost		Accumulated Amortization		Net Carrying Amount		Gross Cost		Accumulated Amortization		Net Carrying Amount
Performance fees	$	30,740	$	23,102	$	7,638	$	30,740	$	21,116	$	9,624
Management fees, customer relationships and non-compete agreements		33,036		32,039		997		33,050		30,638		2,412

	$	63,776	$	55,141	$	8,635	$	63,790	$	51,754	$	12,036

Amortization expense of intangible assets for the three month and nine month periods ended September 30, 2015 was $511 and $3,401, respectively, and for the three month and nine month periods ended September 30, 2014 was $4,020 and $5,946, respectively. Estimated future amortization expense is as follows:


Year Ending December 31,	Amortization Expense (a)
2015 (October 1 through December 31)	$	3,156
2016		5,479

Total amortization expense	$	8,635

(a)

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

9.	*SENIOR DEBT*

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


	Initial Principal Amount		Maturity Date		Annual Interest Rate			Outstanding As Of
	Initial Principal Amount		Maturity Date		Annual Interest Rate			September 30, 2015		December 31, 2014
Lazard Group 6.85% Senior Notes (a)		600,000		6/15/17		6.85	%	$	98,350	$	548,350
Lazard Group 4.25% Senior Notes		500,000		11/14/20		4.25	%		500,000		500,000
Lazard Group 3.75% Senior Notes (a)		400,000		2/13/25		3.75	%		400,000		–

Total								$	998,350	$	1,048,350

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

(a)

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

On September 25, 2015, Lazard Group entered into an Amended and Restated Credit Agreement for a five-year $150,000 senior revolving credit facility with a group of lenders (the “Amended and Restated Credit Agreement”), which expires in September 2020. The Amended and Restated Credit Agreement amended and restated the previous credit agreement dated September 25, 2012. Borrowings under the Amended and Restated Credit Agreement generally will bear interest at LIBOR plus an applicable margin for specific interest periods determined based on Lazard Group’s highest credit rating from an internationally recognized credit agency. At September 30, 2015 and December 31, 2014, no amounts were outstanding under the Amended and Restated Credit Agreement or the prior revolving credit facility, respectively.

The Amended and Restated Credit Agreement, the indenture and the supplemental indentures relating to Lazard Group’s senior notes contain certain covenants, events of default and other customary provisions, including a customary make-whole provision in the event of early redemption, where applicable. As of September 30, 2015, the Company was in compliance with such provisions. All of the Company’s senior debt obligations are unsecured.

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

The Company’s senior debt at September 30, 2015 and December 31, 2014 is carried at historical amounts. At those dates, the fair value of such senior debt was approximately $1,016,000 and $1,135,000, respectively, and exceeded the aggregate carrying value by approximately $18,000 and $87,000, respectively. The fair value of the Company’s senior debt is based on market quotations. The Company’s senior debt would be categorized within Level 2 of the hierarchy of fair value measurements if carried at fair value.

10.

COMMITMENTS AND CONTINGENCIES

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

Guarantees—In the normal course of business, LFB provides indemnifications to third parties to protect them in the event of non-performance by its clients. At September 30, 2015, LFB had $4,818 of such indemnifications and held $4,465 of collateral/counter-guarantees to secure these commitments. The Company believes the likelihood of loss with respect to these indemnities is remote. Accordingly, no liability is recorded in the condensed consolidated statement of financial condition.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

The aggregate fair value of the consideration recognized by the Company at the acquisition date was $61,624. Such consideration consisted of (i) a one-time cash payment, (ii) 1,142,857 shares of Class A common stock (the “Initial Shares”) and (iii) up to 1,142,857 additional shares of Class A common stock (the “Earnout Shares”) that are subject to earnout criteria and payable over time. The Earnout Shares will be issued only if certain performance thresholds are met. As of September 30, 2015 and December 31, 2014, 913,722 shares are issuable on a contingent basis, and 1,371,992 shares have been earned because applicable performance thresholds have been satisfied. As of September 30, 2015 and December 31, 2014, 1,371,992 of the earned shares have been settled.

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

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

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

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

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

11.

STOCKHOLDERS’ EQUITY

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


Date	Repurchase Authorization		Expiration
October 2012	$	200,000		December 31, 2014
October 2013	$	100,000		December 31, 2015
April 2014	$	200,000		December 31, 2015
February 2015	$	150,000		December 31, 2016

The Company expects that the share repurchase program will primarily be used to offset a portion of the shares that have been or will be issued under the Lazard Ltd 2005 Equity Incentive Plan (the “2005 Plan”) and the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 Plan”). Pursuant to the share repurchase program, purchases have been made in the open market or through privately negotiated transactions. The rate at which the Company purchases shares in connection with the share repurchase program may vary from quarter to quarter due to a variety of factors. Purchases with respect to such program are set forth in the table below:


	Number of Shares Purchased		Average Price Per Share
Nine Months Ended September 30:
2014		4,114,206	$	46.83
2015		3,141,526	$	50.76

The shares purchased in the nine months ended September 30, 2014 included 1,000,000 shares purchased from Natixis S.A. on June 26, 2014 for $50,340 in connection with the sale by Natixis S.A. of its entire investment in the Company’s Class A common stock. The purchase transaction closed on July 1, 2014.

As of September 30, 2015, a total of $119,461 of share repurchase authorization remained available under the Company’s share repurchase program, which will expire on December 31, 2016.

During the nine month period ended September 30, 2015, the Company had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, pursuant to which it effected stock repurchases in the open market.

Preferred Stock—Lazard Ltd has 15,000,000 authorized shares of preferred stock, par value $0.01 per share, inclusive of its Series A and Series B preferred stock. Series A and Series B preferred shares were issued in connection with certain prior year business acquisitions and are each non-participating securities convertible into Class A common stock, and have no voting or dividend rights. As of both September 30, 2015 and December 31, 2014, 7,921 shares of Series A preferred stock were outstanding, and no shares of Series B preferred stock were outstanding. At September 30, 2015 and December 31, 2014, no shares of Series A preferred stock were convertible into shares of Class A common stock on a contingent or a non-contingent basis.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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


	Currency Translation Adjustments			Employee Benefit Plans			Total AOCI			Amount Attributable to Noncontrolling Interests			Total Lazard Ltd AOCI
Balance, January 1, 2015	$	(46,102	)	$	(154,665	)	$	(200,767	)	$	(1	)	$	(200,766	)

Activity January 1 to September 30, 2015:
Other comprehensive loss before reclassifications		(41,376	)		(14,140	)		(55,516	)		–			(55,516	)
Adjustments for items reclassified to earnings, net of tax		–			3,757			3,757			–			3,757

Net other comprehensive loss		(41,376	)		(10,383	)		(51,759	)		–			(51,759	)

Balance, September 30, 2015	$	(87,478	)	$	(165,048	)	$	(252,526	)	$	(1	)	$	(252,525	)


	Currency Translation Adjustments			Employee Benefit Plans			Total AOCI			Amount Attributable to Noncontrolling Interests			Total Lazard Ltd AOCI
Balance, January 1, 2014	$	3,869		$	(137,431	)	$	(133,562	)	$	(558	)	$	(133,004	)

Activity January 1 to September 30, 2014:
Other comprehensive income (loss) before reclassifications		(18,640	)		(3,695	)		(22,335	)		559			(22,894	)
Adjustments for items reclassified to earnings, net of tax		–			3,714			3,714			–			3,714

Net other comprehensive income (loss)		(18,640	)		19			(18,621	)		559			(19,180	)

Balance, September 30, 2014	$	(14,771	)	$	(137,412	)	$	(152,183	)	$	1		$	(152,184	)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Amortization relating to employee benefit plans (a)	$	1,749	$	1,673	$	5,226	$	5,105
Less – related income taxes		368		528		1,469		1,391

Total reclassifications, net of tax	$	1,381	$	1,145	$	3,757	$	3,714

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

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


	Net Income Attributable to Noncontrolling Interests
	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Edgewater	$	1,268	$	1,060	$	9,002	$	5,732
LAZ-MD Holdings		–		–		–		631
Other		1		1		2		2

Total	$	1,269	$	1,061	$	9,004	$	6,365


	Noncontrolling Interests As Of
	September 30, 2015		December 31, 2014
Edgewater	$	56,498	$	62,584
Other		720		729

Total	$	57,218	$	63,313

Dividends Declared, October 2015— On October 21, 2015, the Board of Directors of Lazard Ltd declared a quarterly dividend of $0.35 per share on its Class A common stock, payable on November 13, 2015, to stockholders of record on November 2, 2015.

12.

INCENTIVE PLANS

Share-Based Incentive Plan Awards

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

Shares Available Under the 2008 Plan and the 2005 Plan

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

The 2005 Plan authorized the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other equity-based awards. Each RSU or similar award granted under the 2005 Plan represented a contingent right to receive one share of Class A common

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

The following reflects the amortization expense recorded with respect to share-based incentive plans within “compensation and benefits” expense (with respect to RSUs, performance-based restricted stock units (“PRSUs”) and restricted stock awards) and “professional services” expense (with respect to deferred stock units (“DSUs”)) within the Company’s accompanying condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2015 and 2014:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Share-based incentive awards:
RSUs	$	38,156	$	39,091	$	129,490	$	132,307
PRSUs		10,207		4,957		24,819		11,657
Restricted Stock		3,635		2,637		19,088		13,493
DSUs		32		102		1,426		1,638

Total	$	52,030	$	46,787	$	174,823	$	159,095

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

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

The Company’s share-based incentive plans and awards are described below.

RSUs and DSUs

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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


	Nine Months Ended September 30,
	2015		2014
Number of RSUs issued		603,608		288,272
Charges to retained earnings, net of estimated forfeitures	$	30,340	$	13,489

Non-executive members of the Board of Directors (“Non-Executive Directors”) receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs, which resulted in 23,961 and 26,360 DSUs granted in connection with annual compensation during the nine month periods ended September 30, 2015 and 2014, respectively. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of Class A common stock at the time of cessation of service to the Board of Directors and, for purposes of calculating diluted net income per share, are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method. DSUs include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Class A common stock.

The Company’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of Class A common stock on the date immediately preceding the date of the grant. During the nine month periods ended September 30, 2015 and 2014, 1,761 and 6,381 DSUs, respectively, had been granted pursuant to such Plan.

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The following is a summary of activity relating to RSUs and DSUs during the nine month periods ended September 30, 2015 and 2014:


	RSUs					DSUs
	Units			Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Balance, January 1, 2015		13,529,116		$	35.19		286,227	$	34.21
Granted (including 603,608 RSUs relating to dividend participation)		4,111,619		$	48.84		25,722	$	55.43
Forfeited		(461,297	)	$	43.49		–		–
Vested		(7,159,642	)	$	30.87		–		–

Balance, September 30, 2015		10,019,796		$	43.50		311,949	$	35.96

Balance, January 1, 2014		16,630,009		$	34.51		251,434	$	32.02
Granted (including 288,272 RSUs relating to dividend participation)		3,733,113		$	42.75		32,741	$	50.04
Forfeited		(210,458	)	$	33.45		–		–
Vested		(6,529,801	)	$	37.86		–		–

Balance, September 30, 2014		13,622,863		$	35.18		284,175	$	34.10

In connection with RSUs that vested during the nine month periods ended September 30, 2015 and 2014, the Company satisfied its minimum statutory tax withholding requirements in lieu of issuing 1,940,996 and 1,876,398 shares of Class A common stock in the respective nine month periods. Accordingly, 5,218,646 and 4,653,403 shares of Class A common stock held by the Company were delivered during the nine month periods ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, estimated unrecognized RSU compensation expense was approximately $158,948, with such expense expected to be recognized over a weighted average period of approximately 0.9 years subsequent to September 30, 2015.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Restricted Stock

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


	Restricted Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2015		729,827		$	38.63
Granted		576,886		$	50.88
Forfeited		(45,500	)	$	50.24
Vested		(512,516	)	$	39.25

Balance, September 30, 2015		748,697		$	46.94

Balance, January 1, 2014		575,054		$	32.72
Granted		449,911		$	45.52
Forfeited		(12,097	)	$	41.19
Vested		(205,075	)	$	35.23

Balance, September 30, 2014		807,793		$	39.08

In connection with shares of restricted Class A common stock that vested during the nine month periods ended September 30, 2015 and 2014, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 94,745 and 29,999 shares of Class A common stock during such respective nine month periods. Accordingly, 417,771 and 175,076 shares of Class A common stock held by the Company were delivered during the nine month periods ended September 30, 2015 and 2014, respectively.

The restricted stock awards include a cash dividend participation right equivalent to any ordinary dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At September 30, 2015, estimated unrecognized restricted stock expense was approximately $18,183, with such expense to be recognized over a weighted average period of approximately 1.0 years subsequent to September 30, 2015.

PRSUs

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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

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


	PRSUs			Weighted Average Grant Date Fair Value
Balance, January 1, 2015		1,347,148		$	37.79
Granted		368,389		$	52.85
Vested		(696,499	)	$	35.96

Balance, September 30, 2015		1,019,038		$	44.49

Balance, January 1, 2014		448,128		$	36.11
Granted		360,783		$	44.46

Balance, September 30, 2014		808,911		$	39.83

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

Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of Class A common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of September 30, 2015, the total estimated unrecognized compensation expense was approximately $21,631, and the Company expects to amortize such expense over a weighted-average period of approximately 0.5 years subsequent to September 30, 2015.

LFI and Other Similar Deferred Compensation Arrangements

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The following is a summary of activity relating to LFI and other similar deferred compensation arrangements during the nine month periods ended September 30, 2015 and 2014:


	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2015	$	73,278		$	207,306
Granted		89,817			89,817
Settled		–			(94,899	)
Forfeited		(3,610	)		(6,873	)
Amortization		(64,136	)		–
Change in fair value related to:
Decrease in fair value of underlying investments		–			(9,903	)
Adjustment for estimated forfeitures		–			5,219
Other		(184	)		(2,030	)

Balance, September 30, 2015	$	95,165		$	188,637


	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2014	$	60,433		$	162,422
Granted		92,728			92,728
Settled		–			(54,293	)
Forfeited		(1,320	)		(1,908	)
Amortization		(57,287	)		–
Change in fair value related to:
Increase in fair value of underlying investments		–			6,004
Adjustment for estimated forfeitures		–			6,527
Other		(551	)		(1,559	)

Balance, September 30, 2014	$	94,003		$	209,921

The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 0.9 years subsequent to September 30, 2015.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Amortization, net of forfeitures	$	21,168		$	21,310		$	66,092		$	63,226
Change in the fair value of underlying investments		(12,145	)		(5,528	)		(9,903	)		6,004

Total	$	9,023		$	15,782		$	56,189		$	69,230

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

13.

EMPLOYEE BENEFIT PLANS

The Company provides retirement and other post-retirement benefits to certain of its employees through defined benefit pension plans (the “pension plans”) and, in the U.S., a partially funded contributory post-retirement plan covering qualifying U.S. employees (the “medical plan” and together with the pension plans, the “post-retirement plans”). The Company also offers defined contribution plans to its employees. The post-retirement plans generally provide benefits to participants based on average levels of compensation. Expenses related to the Company’s employee benefit plans are included in “compensation and benefits” expense on the condensed consolidated statements of operations.

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

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

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


	Pension Plans						Medical Plan
	Three Months Ended September 30,
	2015			2014			2015		2014
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	440		$	267		$	7	$	7
Interest cost		6,237			7,636			45		49
Expected return on plan assets		(7,146	)		(8,253	)		–		–
Amortization of:
Prior service cost		595			708			–		–
Net actuarial loss (gain)		1,154			1,096			–		(131	)

Net periodic benefit cost (credit)	$	1,280		$	1,454		$	52	$	(75	)

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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


	Pension Plans						Medical Plan
	Nine Months Ended September 30,
	2015			2014			2015		2014
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	1,153		$	718		$	20	$	24
Interest cost		18,496			22,807			135		146
Expected return on plan assets		(21,236	)		(24,560	)		–		–
Amortization of:
Prior service cost		1,789			2,176			–		–
Net actuarial loss (gain)		3,437			3,325			–		(396	)

Net periodic benefit cost (credit)	$	3,639		$	4,466		$	155	$	(226	)

14.

INCOME TAXES

Lazard Ltd, through its subsidiaries, is subject to U.S. federal income taxes on all of its U.S. operating income, as well as on the portion of non-U.S. income attributable to its U.S. subsidiaries. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes in foreign jurisdictions. Lazard Group is also subject to New York City Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.

The Company recorded an income tax provision (benefit) of $170,954 and $(993,560) for the three month and nine month periods ended September 30, 2015, respectively, and $23,792 and $58,614 for the three month and nine month periods ended September 30, 2014, respectively, representing effective tax rates of 30.0%, 637.0%, 20.9% and 18.3%, respectively. The difference between the U.S. federal statutory rate of 35.0% and the effective tax rates reflected above principally relates to (i) change in the valuation allowance affecting the provision for income taxes, (ii) recognition of a deferred tax asset associated with the recording of the tax receivable agreement obligation and reduction of a deferred tax asset as a result of the partial extinguishment of our tax receivable agreement obligation (see below), (iii) taxes payable to foreign jurisdictions that are not offset against U.S. income taxes, (iv) foreign source income (loss) not subject to U.S. income taxes (including interest on intercompany financings), and (v) U.S. state and local taxes (primarily UBT), which are incremental to the U.S. federal statutory tax rate.

Certain of our tax-paying entities at which we have historically recorded significant valuation allowances were profitable on a cumulative basis for the three year periods ended June 30, 2015 and September 30, 2015. Our assessment of such valuation allowance at each such date is described below.

In assessing our valuation allowance as of June 30, 2015, we considered all available information, including the magnitude of recent and current operating results, the relatively long duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these entities and our assessment regarding the sustainability of their profitability. At that time, we concluded that there was a sufficient history of sustained profitability at these entities that it was more likely than not that these entities would be able to realize deferred tax assets. Accordingly, during the period ended June 30, 2015, we released substantially all of the valuation allowance against the deferred tax assets held by these entities, with the exception of the portion of the valuation allowance that we expected to release based on our estimate of operating income in the current year.

As a result, during the quarter ended June 30, 2015, we recorded a deferred tax benefit of approximately $821,000. In addition, we also recorded a separate deferred tax benefit of approximately $378,000 that reflected the tax deductibility of payments under the tax receivable agreement.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

As of September 30, 2015, we continued to conclude that the positive evidence in favor of releasing the valuation allowance in the relevant tax-paying entities outweighed the negative evidence and that it is more likely than not that these entities will be able to realize deferred tax assets. During the quarter ended September 30, 2015, we recorded an additional deferred tax benefit of approximately $18,000 from the release of valuation allowance on deferred tax assets based on our estimate of operating income in 2015. In addition, during the quarter ended September 30, 2015, we recorded a deferred tax expense of approximately $161,000 relating to the reduction of a deferred tax asset as a result of the partial extinguishment of our tax receivable agreement obligation. See “—Tax Receivable Agreement” below for more information regarding our accrual under the tax receivable agreement in the second quarter of 2015 and the partial extinguishment of our tax receivable agreement obligation in the third quarter of 2015.

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

Tax Receivable Agreement

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

On June 16, 2015, Lazard and LMDC Holdings amended and restated the Tax Receivable Agreement and, on October 26, 2015, Lazard and LTBP Trust, a Delaware statutory trust (the “Trust”), entered into a Second Amended and Restated Tax Receivable Agreement (the “Amended and Restated Tax Receivable Agreement”). Pursuant to these transactions, among other things, (i) LMDC Holdings assigned all of its obligations under the Tax Receivable Agreement, including the obligation to receive payments and promptly distribute them to historical partners of Lazard Group, to LTBP Trust, and the Trust assumed all of LMDC Holdings’ obligations thereunder, (ii) LMDC Holdings distributed the interests in the Trust to certain owners of LMDC Holdings, and (iii) holders of interests in the Trust obtained the ability, subject to certain restrictions and conditions, to transfer such interests to certain additional persons and entities, including Lazard.

The Amended and Restated Tax Receivable Agreement provides for the payment by our subsidiaries to the Trust of (i) approximately 45% (following the July 2015 purchase described below) of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of the increases in tax basis and of certain other tax benefits related to the Amended and Restated Tax Receivable Agreement, and (ii) an amount that we currently expect will approximate 85% of the cash tax savings that may arise from tax benefits attributable to payments under the Amended and Restated Tax Receivable Agreement. Our subsidiaries expect to benefit from the balance of cash savings, if any, in income tax that our subsidiaries realize. Any amount paid by our subsidiaries to the Trust will generally be distributed to the owners of the Trust, including our executive officers, in proportion to their beneficial interests in the Trust.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

For purposes of the Amended and Restated Tax Receivable Agreement, cash savings in income and franchise tax will be computed by comparing our subsidiaries’ actual income and franchise tax liability to the amount of such taxes that our subsidiaries would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group as a result of the redemption and exchanges and had our subsidiaries not entered into the Amended and Restated Tax Receivable Agreement. The term of the Amended and Restated Tax Receivable Agreement will continue until approximately 2033 or, if earlier, until all relevant tax benefits have been utilized or expired.

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

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

In July 2015, we purchased approximately 47% of the then-outstanding beneficial interests in the Trust from certain owners of the Trust for $42,222 in cash, which resulted in the automatic cancellation of such beneficial interests and the extinguishment of a significant portion of our payment obligations under the Amended and Restated Tax Receivable Agreement. The extinguishment of these payment obligations resulted in a pre-tax gain of $420,792 recorded in “provision (benefit) pursuant to tax receivable agreement” on the condensed consolidated statement of operations for the three and nine month periods ended September 30, 2015. In addition, the extinguishment of these payment obligations resulted in a reduction of the tax benefits that would have been attributable to the actual payments and, accordingly, we recorded a deferred tax expense of approximately $161,000 on the condensed consolidated statement of operations for the three month and nine month periods ended September 30, 2015.

The cumulative liability relating to our obligations under the Amended and Restated Tax Receivable Agreement as of September 30, 2015 was $523,907.

15.

NET INCOME PER SHARE OF CLASS A COMMON STOCK

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

Basic Net Income Per Share

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

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Diluted Net Income Per Share

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

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

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Net income attributable to Lazard Ltd - basic		$398,521		$88,859			$828,587		$254,893
Add - dilutive effect, as applicable, of:
Adjustments to income relating to interest expense and changes in net income attributable to noncontrolling interests resulting from assumed Class A common stock issuances in connection with share-based incentive compensation, and, in 2014, exchangeable interests, net of tax		–		(3	)		–		604

Net income attributable to Lazard Ltd - diluted		$398,521		$88,856			$828,587		$255,497


Weighted average number of shares of Class A common stock outstanding		125,852,995		121,800,294			125,192,436		121,954,428
Add - adjustment for shares of Class A common stock issuable on a non-contingent basis		72,011		406,620			72,011		412,204

Weighted average number of shares of Class A common stock outstanding - basic		125,925,006		122,206,914			125,264,447		122,366,632
Add - dilutive effect, as applicable, of:
Weighted average number of incremental shares of Class A common stock issuable from share-based incentive compensation and, in 2014, exchangeable interests		7,190,413		11,359,770			7,954,690		11,356,144

Weighted average number of shares of Class A common stock outstanding - diluted		133,115,419		133,566,684			133,219,137		133,722,776

Net income attributable to Lazard Ltd per share of Class A common stock:
Basic		$3.16		$0.73			$6.61		$2.08

Diluted		$2.99		$0.67			$6.22		$1.91

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

16.

REGULATORY AUTHORITIES

LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. Under the basic method permitted by this rule, the minimum required net capital, as defined, is a specified fixed percentage (6 ²/₃%) of total aggregate indebtedness recorded in LFNY’s Financial and Operational Combined Uniform Single (“FOCUS”) report filed with the Financial Industry Regulatory Authority (“FINRA”), or $100, whichever is greater. In addition, the ratio of aggregate indebtedness (as defined) to net capital may not exceed 15:1. At September 30, 2015, LFNY’s regulatory net capital was $207,189, which exceeded the minimum requirement by $203,374. LFNY’s aggregate indebtedness to net capital ratio was 0.28:1 as of September 30, 2015.

Certain U.K. subsidiaries of the Company, including LCL, Lazard Fund Managers Limited and Lazard Asset Management Limited (collectively, the “U.K. Subsidiaries”) are regulated by the Financial Conduct Authority. At September 30, 2015, the aggregate regulatory net capital of the U.K. Subsidiaries was $119,490, which exceeded the minimum requirement by $101,713.

CFLF, under which asset management and commercial banking activities are carried out in France, is subject to regulation by the ACPR for its banking activities conducted through its subsidiary, LFB. The investment services activities of the Paris group, exercised through LFB and other subsidiaries of CFLF, primarily LFG (asset management), also are subject to regulation and supervision by the Autorité des Marchés Financiers. At September 30, 2015, the consolidated regulatory net capital of CFLF was $134,142, which exceeded the minimum requirement set for regulatory capital levels by $89,369. In addition, pursuant to the consolidated supervision rules in the European Union, LFB, in particular, as a French credit institution, is required to be supervised by a regulatory body, either in the U.S. or in the European Union. During the third quarter of 2013, the Company and the ACPR agreed on terms for the consolidated supervision of LFB and certain other non-Financial Advisory European subsidiaries of the Company (referred to herein, on a combined basis, as the “combined European regulated group”) under such rules. Under this new supervision, the combined European regulated group is required to comply with minimum requirements for regulatory net capital to be reported on a quarterly basis and satisfy periodic financial and other reporting obligations. At June 30, 2015, the regulatory net capital of the combined European regulated group was $179,780, which exceeded the minimum requirement set for regulatory capital levels by $115,014. Additionally, the combined European regulated group, together with our European Financial Advisory entities, is required to perform an annual risk assessment and provide certain other information on a periodic basis, including financial reports and information relating to financial performance, balance sheet data and capital structure (which is similar to the information that the Company had already been providing informally). This new supervision under, and provision of information to, the ACPR became effective December 31, 2013.

Certain other U.S. and non-U.S. subsidiaries are subject to various capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At September 30, 2015, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $108,221, which exceeded the minimum required capital by $75,949.

At September 30, 2015, each of these subsidiaries individually was in compliance with its regulatory capital requirements.

Any new or expanded rules and regulations that may be adopted in countries in which we operate (including regulations that have not yet been proposed) could affect us in other ways.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

17.

SEGMENT INFORMATION

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

The Company’s segment information for the three month and nine month periods ended September 30, 2015 and 2014 is prepared using the following methodology:

•

Revenue and expenses directly associated with each segment are included in determining operating income.

•

Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.

•

Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most relevant measures applicable, including headcount, square footage and other factors.

The Company allocates investment gains and losses, interest income and interest expense among the various segments based on the segment in which the underlying asset or liability is reported.

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

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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


		Three Months Ended September 30,						Nine Months Ended September 30,
		2015			2014			2015			2014
Financial Advisory	Net Revenue	$	330,832		$	291,089		$	948,735		$	847,354
	Operating Expenses		261,952			255,230			758,108			754,449

	Operating Income	$	68,880		$	35,859		$	190,627		$	92,905


Asset Management	Net Revenue	$	264,581		$	291,967		$	850,226		$	848,695
	Operating Expenses		179,155			191,501			554,738			552,499

	Operating Income	$	85,426		$	100,466		$	295,488		$	296,196


Corporate	Net Revenue	$	(21,895	)	$	(16,845	)	$	(38,602	)	$	(29,542	)
	Operating Expenses (a)		(438,333	)		5,768			603,482			39,687

	Operating Income (Loss)	$	416,438		$	(22,613	)	$	(642,084	)	$	(69,229	)


Total	Net Revenue	$	573,518		$	566,211		$	1,760,359		$	1,666,507
	Operating Expenses		2,774			452,499			1,916,328			1,346,635

	Operating Income (Loss)	$	570,744		$	113,712		$	(155,969	)	$	319,872


	As Of
	September 30, 2015		December 31, 2014
Total Assets
Financial Advisory	$	742,298	$	785,557
Asset Management		515,544		588,403
Corporate (b)		2,890,195		1,958,276

Total	$	4,148,037	$	3,332,236

(a)

Operating expenses include $(420,792) and $547,691 in the three month and nine month periods ended September 30, 2015, respectively, recorded for the provision (benefit) pursuant to the tax receivable agreement. See Note 14 of Notes to Condensed Consolidated Financial Statements for information regarding the tax receivable agreement obligation.

(b)	Corporate segment assets include amounts recorded for deferred tax assets of $1,113,060 and $59,041 at September 30, 2015 and December 31, 2014, respectively. See Note 14 of Notes to Condensed Consolidated Financial Statements for information regarding deferred tax assets.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

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

•

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

•

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

•

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

•

losses due to unidentified or unanticipated risks;

•

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

•

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

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

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

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

•

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

•

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

•

ability to offset stockholder dilution through share repurchases;

•

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

•

strategies and investment policies;

•

financing plans and the availability of short-term borrowing;

•

competitive position;

•

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

•

potential growth opportunities available to our businesses;

•

recruitment and retention of our managing directors and employees;

•

potential levels of compensation expense and non-compensation expense;

•

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

•

likelihood of success and impact of litigation;

•

expected tax rates, including effective tax rates;

•

changes in interest and tax rates;

•

availability of certain tax benefits, including certain potential deductions;

•

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

•

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

•

effects of competition on our business; and

•

impact of future legislation and regulation on our business.

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

Business Summary

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

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

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

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

•

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

•

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

Our consolidated net revenue was derived from the following segments:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Financial Advisory		58	%		51	%		54	%		51	%
Asset Management		46			52			48			51
Corporate		(4	)		(3	)		(2	)		(2	)

Total		100	%		100	%		100	%		100	%

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

Business Environment and Outlook

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

Equity market indices for developed markets at September 30, 2015 generally decreased as compared to such indices at December 31, 2014. Emerging markets equity indices at September 30, 2015 have also generally

decreased as compared to December 31, 2014. In the global M&A markets during the first nine months of 2015, the value of all completed M&A transactions increased as compared to the same period in the prior year, as did the subset of such transactions involving values greater than $500 million. During the same time, the value of all announced M&A transactions, including the subset of such transactions involving values greater than $500 million, also increased, reflecting an active global M&A environment. While the value of completed and announced transactions increased as compared to the prior period, the number of completed and announced transactions (excluding the subset of completed and announced transactions involving values greater than $500 million) decreased. During the first nine months of 2015, global restructuring activity remained low, consistent with the last several years.

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

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

•

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

•

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

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

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

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

Financial Advisory

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


	Three Months Ended September 30,							Nine Months Ended September 30,
	2015		2014		% Incr / (Decr)			2015		2014			% Incr / (Decr)
	($ in billions)
Completed M&A Transactions:
All deals:
Value	$	957	$	727		32	%	$	2,871	$	2,089			37	%
Number		8,151		10,559		(23	)%		27,035		30,372			(11	)%
Deals Greater than $500 million:
Value	$	767	$	507		51	%	$	2,267	$	1,468			54	%
Number		263		281		(6	)%		830		775			7	%
Announced M&A Transactions:
All deals:
Value	$	1,226	$	955		28	%	$	3,414	$	2,668			28	%
Number		8,921		10,816		(18	)%		28,601		31,082			(8	)%
Deals Greater than $500 million:												&n