Edgar Filing: Lazard Ltd

laz-10q_20190331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

☐	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 ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If the Registrant is an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 19, 2019, there were 129,766,091 shares of the Registrant’s Class A common stock outstanding (including 19,363,492 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 March 31, 2019 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		38

Item 3. Quantitative and Qualitative Disclosures About Market Risk		63

Item 4. Controls and Procedures		63

Part II. Other Information

Item 1. Legal Proceedings		64

Item 1A. Risk Factors		64

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3. Defaults Upon Senior Securities		65

Item 4. Mine Safety Disclosures		65

Item 5. Other Information		65

Item 6. Exhibits		66

Signatures		69

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

		Page

Condensed Consolidated Statements of Financial Condition as of March 31, 2019 and December 31, 2018		2

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2019 and 2018		4

Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2019 and 2018		5

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018		6

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three month periods ended March 31, 2019 and 2018		7

Notes to Condensed Consolidated Financial Statements		9

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

MARCH 31, 2019 AND DECEMBER 31, 2018

(UNAUDITED)

(dollars in thousands, except for per share data)

	March 31,		December 31,
	2019		2018
ASSETS
Cash and cash equivalents	$	1,011,353	$	1,246,537
Deposits with banks and short-term investments		1,138,010		1,006,969
Cash deposited with clearing organizations and other segregated cash		39,302		38,379
Receivables (net of allowance for doubtful accounts of $43,258 and $40,164 at March 31, 2019 and December 31, 2018, respectively):
Fees		503,234		501,397
Customers and other		192,178		184,137
		695,412		685,534
Investments		615,781		575,148
Property (net of accumulated amortization and depreciation of $342,868 and $339,770 at March 31, 2019 and December 31, 2018, respectively)		209,616		212,946
Operating lease right-of-use assets		489,099		-
Goodwill and other intangible assets (net of accumulated amortization of $66,428 and $65,949 at March 31, 2019 and December 31, 2018, respectively)		375,682		375,318
Deferred tax assets		591,704		597,776
Other assets		333,518		258,634
Total Assets	$	5,499,477	$	4,997,241

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

MARCH 31, 2019 AND DECEMBER 31, 2018

(UNAUDITED)

(dollars in thousands, except for per share data)

	March 31,			December 31,
	2019			2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits and other customer payables	$	1,315,867		$	1,154,207
Accrued compensation and benefits		309,794			585,484
Operating lease liabilities		568,108			-
Senior debt		1,759,297			1,434,260
Tax receivable agreement obligation		246,966			270,640
Deferred tax liabilities		952			5,571
Other liabilities		527,121			576,986
Total Liabilities		4,728,105			4,027,148
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, par value $.01 per share; 15,000,000 shares authorized:
Series A - no shares issued and outstanding		-			-
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 March 31, 2019 and December 31, 2018, including shares held by subsidiaries as indicated below)		1,298			1,298
Additional paid-in-capital		535,926			750,692
Retained earnings		1,171,754			1,195,563
Accumulated other comprehensive loss, net of tax		(268,858	)		(273,818	)
		1,440,120			1,673,735
Class A common stock held by subsidiaries, at cost (17,846,122 and 17,574,805 shares at March 31, 2019 and December 31, 2018, respectively)		(738,899	)		(756,884	)
Total Lazard Ltd Stockholders’ Equity		701,221			916,851
Noncontrolling interests		70,151			53,242
Total Stockholders’ Equity		771,372			970,093
Total Liabilities and Stockholders’ Equity	$	5,499,477		$	4,997,241

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2019 AND 2018

(UNAUDITED)

(dollars in thousands, except for per share data)

	Three Months Ended
	March 31,
	2019			2018
REVENUE
Investment banking and other advisory fees	$	335,804		$	408,726
Asset management fees		292,438			338,096
Interest income		3,800			2,710
Other		29,636			18,673
Total revenue		661,678			768,205
Interest expense		18,004			13,507
Net revenue		643,674			754,698
OPERATING EXPENSES
Compensation and benefits		372,254			405,047
Occupancy and equipment		28,295			30,238
Marketing and business development		27,984			25,659
Technology and information services		32,055			33,252
Professional services		14,217			12,431
Fund administration and outsourced services		28,930			35,184
Amortization and other acquisition-related costs		3,470			866
Other		16,806			26,193
Total operating expenses		524,011			568,870
OPERATING INCOME		119,663			185,828
Provision for income taxes		23,187			24,167
NET INCOME		96,476			161,661
LESS - NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(566	)		1,969
NET INCOME ATTRIBUTABLE TO LAZARD LTD	$	97,042		$	159,692
ATTRIBUTABLE TO LAZARD LTD CLASS A COMMON STOCKHOLDERS:
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic		111,944,255			119,930,106
Diluted		120,820,084			132,142,394
NET INCOME PER SHARE OF COMMON STOCK:
Basic	$	0.87		$	1.33
Diluted	$	0.80		$	1.21

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2019 AND 2018

(UNAUDITED)

(dollars in thousands)

	Three Months Ended
	March 31,
	2019			2018
NET INCOME	$	96,476		$	161,661
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Currency translation adjustments		3,780			17,346
Employee benefit plans:
Actuarial gain (loss) (net of tax expense (benefit) of $300 and $(1,342) for the three months ended March 31, 2019 and 2018, respectively)		49			(5,014	)
Adjustment for items reclassified to earnings (net of tax expense of $178 and $216 for the three months ended March 31, 2019 and 2018, respectively)		1,132			1,062
OTHER COMPREHENSIVE INCOME, NET OF TAX		4,961			13,394
COMPREHENSIVE INCOME		101,437			175,055
LESS - COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(565	)		1,969
COMPREHENSIVE INCOME ATTRIBUTABLE TO LAZARD LTD	$	102,002		$	173,086

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2019 AND 2018

(UNAUDITED)

(dollars in thousands)

	Three Months Ended
	March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	96,476		$	161,661
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property		8,186			8,234
Noncash lease expense		11,381			-
Amortization of deferred expenses and share-based incentive compensation		104,953			100,892
Amortization and other acquisition-related costs		3,470			866
Deferred tax provision		4,462			6,398
Loss on extinguishment of debt		4,243			-
(Increase) decrease in operating assets and increase (decrease) in operating liabilities:
Receivables-net		(13,989	)		(95,308	)
Investments		(40,160	)		74,124
Other assets		(84,225	)		(137,635	)
Accrued compensation and benefits and other liabilities		(256,048	)		(157,941	)
Net cash used in operating activities		(161,251	)		(38,709	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property		(5,871	)		(16,158	)
Disposals of property		70			1,231
Net cash used in investing activities		(5,801	)		(14,927	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of senior debt, net of expenses		491,875
Customer deposits		185,871			-
Contributions from noncontrolling interests		996
Payments for:
Senior debt		(171,668	)		-
Customer deposits		-			(100,341	)
Distributions to noncontrolling interests		(615	)		(1,451	)
Payments under tax receivable agreement		(23,674	)		(31,845	)
Purchase of Class A common stock		(192,097	)		(145,949	)
Class A common stock dividends		(103,402	)		(202,384	)
Settlement of share-based incentive compensation		(90,657	)		(101,043	)
Other financing activities		(3,057	)		(3,775	)
Net cash provided by (used in) financing activities		93,572			(586,788	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(29,740	)		49,406
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(103,220	)		(591,018	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—January 1		2,291,885			2,454,806
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—March 31	$	2,188,665		$	1,863,788

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION:
	March 31,			December 31,
	2019			2018
Cash and cash equivalents	$	1,011,353		$	1,246,537
Deposits with banks and short-term investments		1,138,010			1,006,969
Cash deposited with clearing organizations and other segregated cash		39,302			38,379
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	$	2,188,665		$	2,291,885

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2018

(UNAUDITED)

(dollars in thousands)

					Additional						Accumulated Other Comprehensive			Class A Common Stock						Total Lazard Ltd					Total
	Common Stock				Paid-In-			Retained			Income (Loss),			Held By Subsidiaries						Stockholders’			Noncontrolling		Stockholders’
	Shares		$		Capital			Earnings			Net of Tax			Shares			$			Equity			Interests		Equity
Balance - January 1, 2018		129,766,091	$	1,298	$	788,140		$	1,080,413		$	(232,518	)		10,747,142		$	(437,530	)	$	1,199,803		$	59,102	$	1,258,905
Comprehensive income:
Net income									159,692												159,692			1,969		161,661
Other comprehensive income - net of tax												13,394									13,394					13,394
Amortization of share-based incentive compensation						82,820															82,820					82,820
Dividend-equivalents						28,406			(32,173	)											(3,767	)				(3,767	)
Class A common stock dividends ($1.71 per share)									(202,384	)											(202,384	)				(202,384	)
Purchase of Class A common stock															2,662,286			(145,949	)		(145,949	)				(145,949	)
Delivery of Class A common stock in connection with share-based incentive compensation and related tax expense of $6,150						(280,020	)								(4,048,104	)		172,827			(107,193	)				(107,193	)
Business acquisitions and related equity transactions:
Delivery of Class A common stock						(61