Lazard Ltd Reports Record Nine-Month and Third-Quarter 2007 Results
October 31, 2007 7:00 AM ETHighlights
-- Record nine-month and third-quarter net income of $200.1 million and $83.6 million, respectively, both on a fully exchanged basis(a), a 33% increase over nine-months 2006 and a 139% increase over third-quarter 2006
-- Record nine-month and quarterly operating revenue(b) of $1,397.2 million and $569.5 million, increases of 29% and 79% over the respective 2006 periods
-- Increased Financial Advisory operating revenue by 26% to a record $847.5 million for the first nine months and by 103% to a record quarter of $379.8 million
-- Record M&A nine-month and quarterly revenue of $655.8 million and $295.4 million, with 20% and 93% increases over the respective 2006 periods
-- Asset Management operating revenue increased to record levels with $486.1 million, a 30% increase, for the first nine months and $177.5 million, a 42% increase, for the third quarter, including record management fees of $430.3 million and $157.4 million in the respective periods
-- Achieved net inflows in AUM of $17.5 billion for the first nine months and $3.3 billion in the third quarter
-- Completed Financial Advisory strategic acquisitions in Australia and the US middle market
Lazard Ltd LAZ today announced financial results for the nine months and third quarter ended September 30, 2007. Net income on a fully exchanged basis(a) increased 33% to a record $200.1 million for the first nine months of 2007 from $150.4 million for the first nine months of 2006. Net income per common share (diluted) increased 19% to a record $1.72 for the first nine months of 2007 compared to $1.45 for the first nine months of 2006, reflecting the 13% increase in the weighted average number of shares for the 2007 nine-month period. The increase in shares is primarily due to the issuance of 8.1 million common shares in the December 2006 equity offering and the dilutive effects of the equity securities units and of a convertible note issued in May 2006. Operating income(c) increased 35% to a record $286.0 million for the first nine months of 2007, compared to $212.0 million for the same period in 2006.
Operating revenue(b) increased 29% to a record $1,397.2 million for the first nine months of 2007 compared to $1,079.6 million for the first nine months of 2006, resulting primarily from an increase in completed transactions and other advisory assignments in Financial Advisory in the third quarter, the inclusion of the strategic acquisitions in Australia and the US middle market, and continued growth in Lazard's Asset Management business. Financial Advisory operating revenue increased 26% to a record $847.5 million for the first nine months of 2007, compared to $671.3 million for the first nine months of 2006. This includes a 20% increase in M&A operating revenue to a record $655.8 million in the 2007 nine-month period. Asset Management operating revenue increased 30% during the first nine months of 2007 to a record of $486.1 million, compared to $373.9 million in the first nine months of 2006.
For the third quarter of 2007, net income on a fully exchanged basis increased 139% to $83.6 million, or $0.73 per common share (diluted), a record third quarter, compared to $35.0 million, or $0.34 per common share (diluted) for the third quarter of 2006. Operating income increased 141% to a quarterly record of $118.6 million for the third quarter of 2007, compared to $49.2 million for the third quarter of 2006. Operating revenue for the third quarter of 2007 increased 79% to a quarterly record of $569.5 million compared to $317.6 million for the third quarter of 2006, also resulting primarily from an increase in completed transactions in Financial Advisory and other advisory assignments in the third quarter, the inclusion of the firm's strategic acquisitions in Australia and the US middle market, and continued growth in Lazard's Asset Management business. Financial Advisory operating revenue in the third quarter of 2007 increased 103% to a quarterly record of $379.8 million, compared to $187.1 million in the third quarter of 2006. This includes a 93% increase in M&A operating revenue to a quarterly record of $295.4 million. Asset Management operating revenue increased 42% to a record quarter of $177.5 million, compared to $124.9 million in the third quarter of 2006.
Lazard believes that results assuming full exchange of outstanding exchangeable interests provide the most meaningful basis for comparison among present, historical and future periods.
Before exchange of exchangeable interests, net income increased 70% to a record $95.9 million, or $1.72 per common share (diluted) for the first nine months of 2007, compared to $56.4 million or $1.45 per common share (diluted) for the first nine months of 2006. The 70% increase exceeded the 33% increase in net income on a fully exchanged basis as the minority interest declined as a result of the secondary component of the December 2006 equity offering. Before exchange of exchangeable interests, net income increased 206% to a quarterly record of $40.3 million for the 2007 third quarter, or $0.73 per common share (diluted), compared to $13.2 million, or $0.34 per common share (diluted) for the 2006 third quarter.
"Our Financial Advisory and Asset Management businesses each achieved record outcomes," said Bruce Wasserstein, Chairman and Chief Executive Officer of Lazard Ltd. "The results underscore our differentiated strategy and simple business model. We are an intellectual capital business focused on providing premium advice and asset management. Our diversity by geography, industry and client base contributes to our success, as does the breadth of our advisory practice. For example, we advised the UAW in its negotiations with the automakers regarding retiree health care obligations. As we pointed out last quarter, we have limited exposure to the volatile credit market environment. We are not in the sub-prime business, are not a public hedge fund nor do we have any SIVs. We don't have a significant principal trading book or hanging bridge loans. We believe our exposure to a softening of leveraged buyouts is limited."
"During the past six months we have invested in both our businesses, through acquisitions, hiring of talent, opening of offices, bolstering key industry sectors and investing in new asset products," said Mr. Wasserstein. "We successfully completed and integrated acquisitions in the US Middle Market and in Australia. Through our cooperation agreements with Raiffeisen and MBA, and our joint venture with Signatura, we have broadened our financial advisory presence in Eastern Europe and Latin America. We have strengthened our technology offering through a new office in Boston, and have reinforced our international and UK investment banking business leadership by hiring Ken Costa, former Chairman of Europe Investment Banking for UBS. We expect to continue to invest toward growth across the firm."
"Our results were exceptional across the board," said Steven J. Golub, Lazard's Vice Chairman. "In the first half of this year, we reported that we expected completions for our Financial Advisory backlog to be weighted toward the second half of the year. Our results for this quarter support this statement, as our Financial Advisory business achieved a quarterly record and a record for the first nine months. Therefore, because of the impact of timing of completions of transactions, among other reasons, our results are measured best on an annual basis. In addition, our Asset Management business continued to grow, with $3.3 billion of net asset inflows in the quarter and a record AUM of $142.1 billion at September 30, 2007."
"During the third quarter, Lazard advised on many of the most intellectually challenging and complex transactions of the time," added Mr. Golub. "These included TXU's $45.0 billion sale to an investor group led by KKR and TPG, Mellon Financial's $16.5 billion merger with The Bank of New York, KeySpan's $11.8 billion sale to National Grid, Chicago Board of Trade's $11.1 billion merger with the Chicago Mercantile Exchange, Alinta's A$9.2 billion sale to a consortium of Babcock & Brown and Singapore Power, Dollar General's $7.3 billion sale to KKR, Microsoft's $6.0 billion acquisition of aQuantive, Nestle's $5.5 billion acquisition of Gerber and its $2.5 billion acquisition of the medical nutrition business of Novartis and the $3.8 billion spin-off of WABCO from American Standard."
"We also continue to advise on other major transactions, such as Acciona in its agreement with Enel concerning their EUR 43.7 billion transaction with respect to Endesa, Gaz de France's EUR 37.8 billion merger with Suez, Groupe Danone's EUR 12.3 billion offer for Royal Numico and its $7.2 billion sale of its Biscuits and Cereal Products business to Kraft Foods, Coles Group's A$18.0 billion sale to Wesfarmers, Resolution plc on offers received of about GBP 5 billion to acquire its business, and Penn National Gaming's $8.9 billion sale to funds affiliated with Fortress and Centerbridge," added Mr. Golub.
"We remain focused on controlling costs, are investing for growth, and remain confident that our business model will continue to yield long-term attractive results," added Mr. Golub.
The Company's quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality and other factors. Accordingly, the revenue and profits in any particular quarter may not be indicative of future results. As such, Lazard management believes that annual results are the most meaningful.
Net Revenue
Financial Advisory
Lazard's Financial Advisory business encompasses general strategic and transaction-specific advice to public and private companies, governments and other parties, and includes Financial Restructuring as well as various corporate finance services. Some of our assignments and, therefore, related revenue, are not reflected in publicly available statistical information.
For the first nine months of 2007, Financial Advisory operating revenue increased 26% to a record $847.5 million, compared to $671.3 million for the first nine months of 2006. Financial Advisory operating revenue increased 103% to a record $379.8 million in the third quarter of 2007, compared to $187.1 million in the third quarter of 2006.
M&A
M&A operating revenue increased 20% to $655.8 million and 93% to $295.4 for the first nine months and third quarter of 2007, respectively, both record levels, compared with $545.1 million and $153.2 million for the corresponding 2006 periods.
Lazard advised on the following M&A transactions, which were completed in the third quarter of 2007, including:
-- TXU's $45.0 billion sale to an investor group led by KKR and TPG
-- Mellon Financial's $16.5 billion merger with The Bank of New York
-- KeySpan's $11.8 billion sale to National Grid
-- Chicago Board of Trade's Special Transaction Committee in its $11.1 billion merger with the Chicago Mercantile Exchange
-- Alinta's A$9.2 billion sale to a consortium of Babcock & Brown and Singapore Power
-- Dollar General's $7.3 billion sale to KKR
-- Microsoft's $6.0 billion acquisition of aQuantive
-- Nestle's $5.5 billion acquisition of Gerber and its $2.5 billion acquisition of the medical nutrition business of Novartis
-- American Standard's $3.8 billion spin-off of WABCO
-- First Choice Holidays' GBP 1.7 billion merger with TUI Travel
-- Arrow International's $2.0 billion sale to Teleflex
-- Caisse d'Epargne's EUR 1.3 billion strategic partnership in real estate with Nexity
-- Carlyle Group's EUR 1.0 billion combination of Zodiac's Marine division with WaterPik
-- Barclays Private Equity's EUR 800 million sale of TUJA to Adecco
-- Royal Bank of Scotland's GBP 452 million sale of Bank of America's London HQ at Canary Wharf
-- Air Liquide's EUR 550 million acquisition of Lurgi
-- Ameristar Casinos' $675 million acquisition of Resorts East Chicago
-- Groupama's EUR 486 million sale of the Gan Tower (La Defense business district) to Fonciere des Regions
-- BlueScope Steel's A$700 acquisition of the steel and metal merchandising division of Smorgon Steel
-- America First Apartment Investors' $532 million sale to an affiliate of Sentinel Real Estate
-- IXEurope's GBP 254 million sale to Equinix
-- Eckes in the sale of its spirits division to Oaktree
-- Louis Dreyfus Group's reorganization of family shareholdings
-- MF Global in its separation from Man Group
Pending, announced M&A transactions on which Lazard has advised or continued to advise since September 30, 2007, include:
-- Acciona in its agreement with Enel concerning their EUR 43.7 billion transaction with respect to Endesa
-- Gaz de France's EUR 37.8 billion merger with Suez
-- Groupe Danone's EUR 12.3 billion offer for Royal Numico and its $7.2 billion sale of its Biscuits and Cereal Products business to Kraft Foods
-- Coles Group's A$18.0 billion sale to Wesfarmers
-- Resolution plc on offers received of about GBP 5 billion to acquire its business
-- Penn National Gaming's $8.9 billion sale to funds affiliated with Fortress and Centerbridge
-- Florida Rock's $4.6 billion sale to Vulcan Materials
-- PPG's EUR 2.2 billion offer for SigmaKalon Group
-- Sempra Energy's $2.7 billion commodity marketing joint venture with Royal Bank of Scotland
-- Royal Bank of Scotland's GBP 1.0 billion sale of Citigroup Tower
-- France Telecom's EUR 1.4 billion acquisition of One GmbH with Mid Europa Partners
-- American Standard's $1.8 billion sale of its Bath and Kitchen business to Bain Capital
-- France Telecom's EUR 1.3 billion sale of Orange mobile and internet operations in the Netherlands to Deutsche Telekom
-- ITT's $1.7 billion acquisition of EDO
-- Catalina Marketing's Special Committee in its $1.7 billion sale to Hellman & Friedman
-- Minnesota Steel's sale to Essar and Essar's $1.7 billion investment in an integrated steel plant
-- Aldabra's $1.6 billion acquisition of paper and packaging assets from Boise Cascade
-- Medco Health Solution's $1.5 billion acquisition of PolyMedica
-- American Express' $1.1 billion sale of American Express Bank to Standard Chartered
-- Veolia Environnement's $788 million acquisition of Thermal North America
-- Telent's GBP 398 million sale to Co-Investment No. 5 LP (Pension Corporation)
-- IBM's SEK 5.2 billion acquisition of Telelogic
-- Hearst's $600 million acquisition of the public minority stake in Hearst-Argyle Television
-- InBev's EUR 419 million sale of 90% of Immobrew (Belgian and Dutch real estate) to Cofinimmo
-- Lattelecom's $570 million sale to the Blackstone Group
-- Schneider Electric's EUR 425 million sale of MGE UPS Systems operations in small systems to Eaton
-- Infineon Technologies' EUR 367 million acquisition of the mobility products business of LSI
-- Eiffage S.A. in its defense against an approach by Sacyr
-- Advent and The Carlyle Group's sale of HT Troplast to Arcapita
-- L'Oreal USA's acquisition of Maly's West
-- Emap in its review of its strategic options
Financial Restructuring
Financial Restructuring operating revenue was $94.9 million for the first nine months of 2007, compared to $50.2 million for the first nine months of 2006, and was $56.2 million for the 2007 third quarter, compared to $15.6 million for the third quarter of 2006.
Notable announced assignments since the second quarter of 2007 include: Movie Gallery, Tarragon Corporation and Technical Olympic USA. Restructuring assignments completed in the third quarter of 2007 include Tower Automotive, Northwest Airlines Creditors Committee, Sons of Gwalia and InSight Health Services. In addition, third quarter revenue included our contingent fee in connection with the Eurotunnel restructuring. We are continuing our work on a number of other Restructuring assignments, including those involving Collins & Aikman, Calpine's Unsecured Creditors Committee, an ad hoc committee of second lien holders in connection with Dura Automotive's Chapter 11 filing and the UAW in connection with its ongoing contract discussions with GM, Ford and Chrysler over their retiree health care obligations and in connection with Delphi's bankruptcy.
Corporate Finance and Other
Corporate Finance and Other operating revenue was $96.8 million for the first nine months of 2007, compared to $76.0 million for the first nine months of 2006, and was $28.3 million for the 2007 third quarter compared to $18.3 million for the third quarter of 2006. These increases were primarily driven by the fact that we advised on a number of recent capital markets transactions, including Special Purpose Acquisition Corporation transactions (SPACs) for Hicks Acquisition Co. and Alternative Asset Management Acquisition Corp. Lazard's Equity Capital Markets group advised First Solar on its secondary equity offering, and E-House China Holdings on its IPO, among others.
Our Alternative Capital Finance Group also has served as placement agent on a number of Private Investments in Public Equity (PIPEs) and Registered Direct Offerings (RDs). Notable transactions during the third quarter included a PIPE for Via Pharmaceuticals and an RD for CombinatoRx. We also advised Euromedica on its private placement of equity and convertible bonds.
Asset Management
Asset Management operating revenue increased 30% to $486.1 million and 42% to $177.5 for the first nine months and third quarter of 2007, respectively, both record levels, compared with $373.9 million and $124.9 million for the corresponding 2006 periods.
Management fees increased 31% to a record $430.3 million and 40% to a record $157.4 million for the first nine months and third quarter of 2007, respectively, compared with $328.7 million and $112.7 million for the corresponding 2006 periods. Average AUM rose 44% for the third quarter of 2007 to $138.7 billion from $96.6 billion for the third quarter of 2006. AUM at the end of the third quarter of 2007 were $142.1 billion, representing a 29% increase over the level of AUM at year-end 2006, due principally to net asset inflows of $17.5 billion and market appreciation of $13.1 billion for the first nine months of 2007. With net asset inflows in the third quarter of $3.3 billion, Lazard has now achieved net asset inflows in seven of the last eight quarters.
Incentive fees were $18.1 million and $7.3 million for the first nine months and third quarter of 2007, respectively, compared with $17.4 million and $3.4 million for the comparable 2006 periods. Incentive fees are recorded on the measurement date, which for most of Lazard's funds that are subject to incentive fees fall in the fourth quarter.
Expenses
Compensation and Benefits
The ratio of compensation and benefits expense to operating revenue measured 56.7% for the first nine months and third quarter of 2007, compared to 57.0% for the comparable 2006 periods. Compensation and benefits expense increased 29% to $792.2 million and 79% to $323.2 million for the first nine months and third quarter of 2007, respectively, compared with $615.3 million and $181.0 million for the respective 2006 periods, reflecting increases in operating revenue in the respective periods.
Non-Compensation
Non-compensation expenses, excluding $18.2 million in amortization of intangibles related to acquisitions completed during the third quarter, were $236.2 million or 16.9% of operating revenue and $82.1 million or 14.4% of operating revenue for the first nine months and third quarter of 2007, respectively, compared to $193.4 million or 17.9% of operating revenue and $67.3 million or 21.2% of operating revenue for the comparable 2006 periods. The increase reflects one-time VAT and other recoveries in the first nine months of 2006, as well as increases in 2007 in expenses related to (i) increased business activity, including fund administration and services associated with the growth in AUM, (ii) investments in our businesses including recruitment costs, travel and other market development costs, and (iii) the impact of the strengthening of the Euro, Pound and other currencies against the U.S. Dollar. In addition, the first nine months of 2007 includes a $4 million provision for occupancy and equipment costs relating to leases on abandoned space, which was recorded in the second quarter of 2007.
The percentage of non-compensation expenses to operating revenue can vary from quarter to quarter due to quarterly fluctuation in revenues, among other things. Accordingly, the results in a particular quarter may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison.
Provision for Income Taxes
The provision for income taxes on a U.S. GAAP basis was $65.7 million and $28.3 million for the first nine months and third quarter of 2007, respectively, compared with a provision for income taxes of $44.8 million and $10.2 million for the corresponding 2006 periods. The effective tax rates for the first nine months and third quarter of 2007 were 23.0% and 23.9% respectively, compared to 21.1% and 20.6% for the corresponding 2006 periods. On a fully exchanged basis, the effective tax rate for the first nine months and third quarter of 2007 and 2006 was 28% in each period.
Minority Interest
Minority interest expense, assuming full exchange of minority interests, was $8.1 million and $2.5 million for the first nine months and third quarter of 2007, respectively, representing the LAM general partnership interests held by certain of our managing directors. In the corresponding 2006 periods, minority interest expense was $3.1 million and a $0.6 million, respectively.
Minority interest expense on a US GAAP basis also includes the minority interest attributable to the exchangeable interests held by LAZ-MD Holdings LLC. Such minority interest expense increased due to the significant increase in operating income in the third quarter, offset in part as the decrease in the ownership interest represented by the exchangeable interests declined to 52% in the first nine months and third quarter of 2007 compared to 62% in the corresponding 2006 periods, as a result of the primary and secondary offering of the Company's common stock in December 2006.
Strategic Business Developments
During the third quarter of 2007, Lazard continued to execute on transactions as part of its five-year strategy to enhance the firm's financial advisory capabilities in geographies and markets where it anticipates significant growth opportunities.
-- On July 31, Lazard completed its acquisition of Carnegie, Wylie & Company, one of Australia's leading independent financial advisory firms. We have integrated the acquisition with our existing Australian business, and it is operating as Lazard Carnegie Wylie. Located in Melbourne, Sydney and Brisbane, the firm provides mergers and acquisitions advisory services, and manages a private equity fund.
-- On August 13, Lazard completed the acquisition of Goldsmith Agio Helms, a specialist investment bank focused on financial advisory for U.S. mid-sized private companies. As a result, Lazard added to its geographic footprint, especially in Minneapolis, Los Angeles and Chicago, and through this new growth initiative, Lazard Middle Market will provide access for Lazard's current Financial Advisory clients to mid-sized, U.S. private companies.
-- In September 2007, Lazard expanded into two new markets by opening offices in Boston, as part of its global technology expansion, and Zurich, as part of the firm's commitment to expand its European Financial Advisory business.
-- Also in September 2007, the firm announced it had hired Ken Costa, Chairman of Lazard International, to lead the firm's UK Investment Banking business alongside William Rucker, CEO of Lazard in London. Mr. Costa joined the firm from UBS, where he was Chairman of Investment Banking for Europe, the Middle East and Africa.
-- During the third quarter, Lazard has activated its cooperation agreement with Raiffeisen, to jointly pursue financial advisory assignments in Russia, and Central and Eastern Europe.
Lazard's nine-month and third-quarter 2007 results include $46 million in revenues related to the recent acquisitions of Carnegie Wylie and Goldsmith Agio Helms. However, principally as a result of purchase accounting adjustments, the acquisitions did not significantly impact the firm's fully diluted net income per share for both the nine-month period in 2007 and the third quarter of 2007.
Non-GAAP Information
Lazard discloses certain non-GAAP financial information, which management believes provides the most meaningful basis for comparison among present, historical and future periods. The following are non-GAAP measures used in the accompanying financial information:
-- Net income assuming full exchange of exchangeable interests (or fully exchanged basis)
-- Operating Revenue
-- Minority interest assuming full exchange of exchangeable interests
Additional financial, statistical and business-related information is included in a financial supplement. This earnings release, the financial supplement and selected transaction information will be available today on our website at www.lazard.com.
Lazard, one of the world's preeminent financial advisory and asset management firms, operates from 35 cities across 17 countries in North America, Europe, Asia, Australia and South America. With origins dating back to 1848, the firm provides advice on mergers and acquisitions, restructuring and capital raising, as well as asset management services to corporations, partnerships, institutions, governments, and individuals. For more information on Lazard, please visit www.lazard.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements." In some cases, you can identify these statements by forward-looking words such as "may", "might", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue", and the negative of these terms and other comparable terminology. These forward-looking statements are not historical facts but instead represent only our belief regarding future results, many of which, by their nature, are inherently uncertain and outside of our control. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements.
These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A "Risk Factors," and also disclosed from time to time in reports on Forms 10-Q and 8-K including the following:
-- A decline in general economic conditions or the global financial markets;
-- Losses caused by financial or other problems experienced by third parties;
-- Losses due to unidentified or unanticipated risks;
-- A lack of liquidity, i.e., ready access to funds, for use in our businesses; and
-- Competitive pressure.
Lazard Ltd is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of assets under management in various hedge funds and mutual funds and other investment products managed by Lazard Asset Management LLC and its subsidiaries. Monthly updates of these funds will be posted to the Lazard Asset Management website (www.lazardnet.com) on the third business day following the end of each month. Investors can link to Lazard and its operating company websites through www.lazard.com.
LAZ-G
(a) On a fully exchanged basis, which refers to the full conversion
of all outstanding exchangeable interests held by the members of
LAZ-MD Holdings and is a non-GAAP measure.
(b) Operating revenue excludes interest expense relating to financing
activities and revenue relating to the consolidation of General
Partnerships of Lazard Asset Management (LAM), each of which are
included in net revenue.
(c) Operating income is after interest expense and before income
taxes and minority interests.
LAZARD LTD
OPERATING REVENUE
(unaudited)
Three Months Ended September
30,
-------------------------------
Increase /
2007 2006 (Decrease)
-------- -------- -------------
($ in thousands)
Financial Advisory
M&A $295,401 $153,215 $142,186 93%
Financial Restructuring 56,161 15,562 40,599 261%
Corporate Finance and Other 28,255 18,291 9,964 54%
-------- -------- --------
Total 379,817 187,068 192,749 103%
Asset Management
Management Fees 157,424 112,726 44,698 40%
Incentive Fees 7,315 3,423 3,892 114%
Other Revenue 12,798 8,720 4,078 47%
-------- -------- --------
Total 177,537 124,869 52,668 42%
Corporate 12,164 5,668 6,496 -
-------- -------- --------
Operating Revenue* 569,518 317,605 251,913 79%
LAM GP Related Revenue 2,521 600 1,921 -
Other Interest Expense (29,991) (20,693) (9,298) -
-------- -------- --------
Net Revenue $542,048 $297,512 $244,536 82%
======== ======== ========
Nine Months Ended September 30,
-----------------------------------
Increase /
2007 2006 (Decrease)
----------- ---------- ------------
($ in thousands)
Financial Advisory
M&A $655,787 $545,054 $110,733 20%
Financial Restructuring 94,854 50,202 44,652 89%
Corporate Finance and Other 96,809 76,013 20,796 27%
----------- ---------- --------
Total 847,450 671,269 176,181 26%
Asset Management
Management Fees 430,293 328,734 101,559 31%
Incentive Fees 18,073 17,362 711 4%
Other Revenue 37,737 27,809 9,928 36%
----------- ---------- --------
Total 486,103 373,905 112,198 30%
Corporate 63,688 34,394 29,294 -
----------- ---------- --------
Operating Revenue* 1,397,241 1,079,568 317,673 29%
LAM GP Related Revenue 8,076 3,137 4,939 -
Other Interest Expense (72,711) (62,027) (10,684) -
----------- ---------- --------
Net Revenue $1,332,606 $1,020,678 $311,928 31%
=========== ========== ========
* Operating revenue excludes interest expense relating to financing
activities and revenue relating to the consolidation of LAM General
Partnerships, each of which are included in net revenue.
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Ended September 30,
----------------------------
2007 2006
------------- --------------
($ in thousands, except per
share data)
Total revenue (a) $ 577,601 $ 323,422
LFB interest expense (8,083) (5,817)
------------- --------------
Operating revenue 569,518 317,605
LAM GP related revenue 2,521 600
Other interest expense (29,991) (20,693)
------------- --------------
Net revenue 542,048 297,512
Operating expenses:
Compensation and benefits 323,152 180,982
Occupancy and equipment 21,462 18,257
Marketing and business development 16,898 13,852
Technology and information services 15,204 11,943
Professional services 13,166 14,316
Fund administration and outsourced
services 6,074 3,703
Amortization of intangible assets (b) 18,156 -
Other 9,350 5,266
------------- --------------
Total non-compensation expense 100,310 67,337
------------- --------------
Operating expenses 423,462 248,319
------------- --------------
Operating income 118,586 49,193
Provision for income taxes 28,284 10,153
------------- --------------
Income before minority interest in net
income 90,302 39,040
Minority interest in net income
(excluding LAZ-MD) 2,523 604
Minority interest in net income (LAZ-MD
only) 47,512 25,278
------------- --------------
Net income $ 40,267 $ 13,158
============= ==============
Net income assuming full exchange of
exchangeable interests (c) $ 83,565 $ 34,983
============= ==============
Weighted average shares outstanding (d):
Basic 51,078,444 37,388,185
Diluted 116,344,656 41,577,615
Net income per share:
Basic $ 0.79 $ 0.35
Diluted $ 0.73 $ 0.34
----------------------------------------------------------------------
Weighted average shares outstanding,
assuming full exchange of exchangeable
interests (d):
Basic 106,641,641 99,486,633
Diluted 116,344,656 103,676,063
Net income per share -
assuming full exchange of exchangeable
interests:
Basic $ 0.78 $ 0.35
Diluted $ 0.73 $ 0.34
Nine Months Ended
Ended September 30,
---------------------------
2007 2006
------------- -------------
($ in thousands, except per
share data)
Total revenue (a) $ 1,423,391 $ 1,094,434
LFB interest expense (26,150) (14,866)
------------- -------------
Operating revenue 1,397,241 1,079,568
LAM GP related revenue 8,076 3,137
Other interest expense (72,711) (62,027)
------------- -------------
Net revenue 1,332,606 1,020,678
Operating expenses:
Compensation and benefits 792,236 615,269
Occupancy and equipment 65,436 55,710
Marketing and business development 50,264 41,702
Technology and information services 41,971 35,914
Professional services 35,695 34,366
Fund administration and outsourced
services 15,042 10,831
Amortization of intangible assets (b) 18,156 -
Other 27,789 14,884
------------- -------------
Total non-compensation expense 254,353 193,407
------------- -------------
Operating expenses 1,046,589 808,676
------------- -------------
Operating income 286,017 212,002
Provision for income taxes 65,658 44,827
------------- -------------
Income before minority interest in net
income 220,359 167,175
Minority interest in net income
(excluding LAZ-MD) 8,081 3,144
Minority interest in net income (LAZ-MD
only) 116,361 107,642
------------- -------------
Net income $ 95,917 $ 56,389
============= =============
Net income assuming full exchange of
exchangeable interests (c) $ 200,113 $ 150,376
============= =============
Weighted average shares outstanding (d):
Basic 51,318,879 37,457,275
Diluted 61,879,027 41,747,068
Net income per share:
Basic $ 1.87 $ 1.51
Diluted $ 1.72 $ 1.45
----------------------------------------------------------------------
Weighted average shares outstanding,
assuming full exchange of
exchangeable interests (d):
Basic 107,230,445 99,562,490
Diluted 117,790,593 104,305,340
Net income per share -
assuming full exchange of
exchangeable interests:
Basic $ 1.87 $ 1.51
Diluted $ 1.72 $ 1.45
(a) Excluding LAM General Partnership related revenue
(b) For the three and nine month periods ended September 30, 2007,
includes amortization expense related to the $30,987 of intangible
assets recorded during the quarter ended September 30, 2007, as a
result of the acquisition of Goldsmith Agio Helms & Lynner, LLC
("GAHL") and Carnegie, Wylie & Company ("CWC").
(c) Represents a reversal of the minority interests related to LAZ-MD
Holdings' ownership of Lazard Group common membership interests net
of an adjustment for Lazard Ltd entity-level taxes to effect a full
exchange of interests as of January 1, 2006 (see "Reconciliation of
US GAAP to Full Exchange Results").
(d) See "Reconciliation of Shares Outstanding and Basic & Diluted Net
Income Per Share".
LAZARD LTD
SELECTED QUARTERLY OPERATING RESULTS
(unaudited)
Three Months Ended
-----------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31,
2007 2007 2007 2006
--------- -------- -------- ---------
($ in thousands, except per share
data)
Financial Advisory
M&A $295,401 $164,318 $196,068 $247,483
Financial Restructuring 56,161 29,073 9,620 20,423
Corporate Finance and Other 28,255 51,619 16,935 34,260
--------- -------- -------- ---------
Total 379,817 245,010 222,623 302,166
Asset Management
Management Fees 157,424 142,230 130,639 121,589
Incentive Fees 7,315 5,752 5,006 42,009
Other Revenue 12,798 13,666 11,272 10,961
--------- -------- -------- ---------
Total 177,537 161,648 146,917 174,559
Corporate 12,164 32,868 18,657 14,774
--------- -------- -------- ---------
Operating revenue (b) $569,518 $439,526 $388,197 $491,499
========= ======== ======== =========
Operating income (c) $118,586 $ 89,163 $ 78,268 $115,207
========= ======== ======== =========
Net income $ 40,267 $ 29,296 $ 26,354 $ 36,596
========= ======== ======== =========
Net income per share
Basic $ 0.79 $ 0.57 $ 0.51 $ 0.88
Diluted $ 0.73 $ 0.52 $ 0.47 $ 0.78
----------------------------------------------------------------------
Net income assuming full
exchange
of exchangeable interests $ 83,565 $ 61,515 $ 55,033 $ 85,817
========= ======== ======== =========
Net income per share -
assuming full exchange of
exchangeable interests
Basic $ 0.78 $ 0.57 $ 0.51 $ 0.84
Diluted $ 0.73 $ 0.53 $ 0.47 $ 0.78
Pro
Forma(a)
Sept. 30, June 30, Mar. 31, Dec. 31,
2006 2006 2006 2005
--------- -------- -------- ---------
($ in thousands, except per share data)
Financial Advisory
M&A $153,215 $197,856 $193,983 $182,984
Financial Restructuring 15,562 21,047 13,593 23,037
Corporate Finance and Other 18,291 43,149 14,573 32,216
--------- -------- -------- ---------
Total 187,068 262,052 222,149 238,237
Asset Management
Management Fees 112,726 112,203 103,805 98,366
Incentive Fees 3,423 7,456 6,483 33,977
Other Revenue 8,720 10,159 8,930 7,170
--------- -------- -------- ---------
Total 124,869 129,818 119,218 139,513
Corporate 5,668 18,970 9,756 9,965
--------- -------- -------- ---------
Operating revenue (b) $317,605 $410,840 $351,123 $387,715
========= ======== ======== =========
Operating income (c) $ 49,193 $ 84,693 $ 78,116 $ 77,084
========= ======== ======== =========
Net income $ 13,158 $ 23,545 $ 19,686 $ 21,743
========= ======== ======== =========
Net income per share
Basic $ 0.35 $ 0.63 $ 0.52 $ 0.58
Diluted $ 0.34 $ 0.59 $ 0.51 $ 0.57
----------------------------------------------------------------------
Net income assuming full
exchange
of exchangeable interests $ 34,983 $ 62,939 $ 52,454 $ 57,261
========= ======== ======== =========
Net income per share -
assuming full exchange of
exchangeable interests
Basic $ 0.35 $ 0.63 $ 0.53 $ 0.57
Diluted $ 0.34 $ 0.60 $ 0.51 $ 0.57
(a) The unaudited pro forma selected quarterly operating results for
December 31, 2005 present Lazard's historical financial information
adjusted to reflect the separation and recapitalization transactions,
including its initial public offering and the additional financing
transactions, assuming they had been completed as of January 1, 2005.
(b) Operating revenue excludes interest expense relating to financing
activities and revenue/(loss) relating to the consolidation of LAM
General Partnerships, each of which are included in net revenue.
(c) Operating income is after interest expense and before income taxes
and minority interests.
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
($ in thousands)
September December
30, 31,
2007 2006*
----------- -----------
ASSETS
----------------------------------------------------------------------
Cash and cash equivalents $ 959,122 $ 969,483
Cash segregated for regulatory purposes or
deposited with clearing organizations 29,946 16,023
Securities owned - at fair value ** 765,168 579,335
Receivables 1,021,726 1,234,896
Goodwill and other intangible assets 184,292 16,945
Other assets 547,142 391,983
----------- -----------
Total assets $3,507,396 $3,208,665
=========== ===========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
----------------------------------------------------------------------
Liabilities
Deposits and other customer payables $ 914,039 $1,195,014
Accrued compensation and benefits 341,670 437,738
Other liabilities 534,403 473,712
Senior notes:
Underlying equity security units 437,500 437,500
Others 1,155,351 649,557
Subordinated loans 150,000 200,000
----------- -----------
Total liabilities 3,532,963 3,393,521
Commitments and contingencies
Minority interest 48,972 55,497
Stockholders' deficiency
Preferred stock, par value $.01 per share:
Series A - -
Series B - -
Common stock, par value $.01 per share:
Class A 517 516
Class B - -
Additional paid-in capital (249,602) (396,792)
Accumulated other comprehensive income, net of
tax 52,187 32,494
Retained earnings 194,563 127,608
----------- -----------
(2,335) (236,174)
Less: Class A common stock held by a
subsidiary, at cost (72,204) (4,179)
----------- -----------
Total stockholders' deficiency (74,539) (240,353)
----------- -----------
Total liabilities, minority interest and
stockholders' deficiency $3,507,396 $3,208,665
=========== ===========
* Certain prior year amounts have been reclassified to conform to
current year presentation.
**At September 30, 2007 and December 31, 2006, 29% and 1%,
respectively, of securities owned - at fair value represent corporate
investments primarily in equity securities.
LAZARD LTD
RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME
PER SHARE
BEFORE FULL EXCHANGE
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2007 2006 2007 2006
------------ ----------- ----------- -----------
($ in thousands, except per share data)
Basic
Numerator:
Net income $ 40,267 $ 13,158 $ 95,917 $ 56,389
Add (deduct) - net
income associated
with Class A common
shares issuable
on a non-
contingent
basis (a) 173 - 173 -
------------ ----------- ----------- -----------
Basic net income $ 40,440 $ 13,158 $ 96,090 $ 56,389
============ =========== =========== ===========
Denominator:
Weighted average
shares outstanding
(a) 51,078,444 37,388,185 51,318,879 37,457,275
============ =========== =========== ===========
Basic net income per
share $ 0.79 $ 0.35 $ 1.87 $ 1.51
============ =========== =========== ===========
Diluted
Numerator:
Basic net income $ 40,440 $ 13,158 $ 96,090 $ 56,389
Add (deduct) -
dilutive effect of
adjustments to
income for:
Interest expense
on convertible
notes, net of
tax 460 - 1,385 -
Minority
interest in net
income
resulting from
assumed share
issuances (see
incremental
issuable
shares in the
denominator
calculation
below) and
Ltd level
income tax
effect 43,542 880 9,007 3,938
------------ ----------- ----------- -----------
Diluted net income $ 84,442 $ 14,038 $ 106,482 $ 60,327
============ =========== =========== ===========
Denominator:
Weighted average
shares outstanding 51,078,444 37,388,185 51,318,879 37,457,275
Add - dilutive effect
of incremental
issuable shares:
Equity security
units 4,091,143 3,219,113 5,395,017 3,481,668
Restricted stock
units 2,368,298 970,317 2,329,560 808,125
Convertible
notes (b) 2,631,570 - 2,631,570 -
Exchangeable
interests (c) 55,563,197 - - -
Series A and
Series B
convertible
preferred stock
(d) 612,004 - 204,001 -
------------ ----------- ----------- -----------
Diluted weighted
average shares
outstanding 116,344,656 41,577,615 61,879,027 41,747,068
============ =========== =========== ===========
Diluted net income per
share $ 0.73 $ 0.34 $ 1.72 $ 1.45
============ =========== =========== ===========
(a) For the three and nine month periods ended September 30, 2007,
includes 425,509 and 141,836 weighted average shares, respectively
related to 815,558 shares of Class A common stock that are issuable
on a non-contingent basis with respect to the acquisition of GAHL.
(b) For the three and nine month periods ended September
30, 2006, the shares assumed issued from convertible
notes were not dilutive.
(c) For the nine month period ended September 30, 2007 and for the
three and nine month periods ended September 30, 2006, the LAZ-MD
exchangeable interests were not dilutive, consequently, the effect of
their conversion to shares of Class A common stock has been excluded
from diluted earnings per share during such period.
(d) For the three and nine month periods ended September 30, 2007,
includes 9,724 shares of Series A convertible preferred stock and 277
shares of Series B convertible preferred stock that will be
convertible into Class A common stock on a non-contingent basis with
respect to the acquisition of CWC. The rate of conversion into Class
A common stock will be dependant, in part, on the future value of the
Class A common stock and currency exchange rates, therefore, the
shares are excluded from the basic net income per share calculation
but included in the diluted net income per share calculation.
- - - -
LAZARD LTD
RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME
PER SHARE
ASSUMING FULL EXCHANGE OF EXCHANGEABLE INTERESTS AS OF JANUARY 1, 2006
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
($ in thousands, except per share data)
Basic
Numerator:
Net income $ 83,565 $ 34,983 $ 200,113 $ 150,376
============ ============ ============ ============
Denominator:
Weighted average
shares
outstanding (a) 106,641,641 99,486,633 107,230,445 99,562,490
============ ============ ============ ============
Basic net income
per share $ 0.78 $ 0.35 $ 1.87 $ 1.51
============ ============ ============ ============
Diluted
Numerator:
Net income $ 83,565 $ 34,983 $ 200,113 $ 150,376
Add dilutive
effect of
adjustments to
income for:
Interest
expense on
convertible
debt, net
of tax 877 - 2,633 458
------------ ------------ ------------ ------------
Diluted net
income $ 84,442 $ 34,983 $ 202,746 $ 150,834
============ ============ ============ ============
Denominator:
Weighted average
shares
outstanding 106,641,641 99,486,633 107,230,445 99,562,490
Add - dilutive
effect of
incremental
issuable shares:
Equity
security
units 4,091,143 3,219,113 5,395,017 3,481,668
Restricted
stock units 2,368,298 970,317 2,329,560 808,125
Convertible
notes (b) 2,631,570 - 2,631,570 453,057
Series A and
Series B
convertible
preferred
stock (c) 612,004 - 204,001 -
------------ ------------ ------------ ------------
Diluted
weighted
average
shares
outstanding 116,344,656 103,676,063 117,790,593 104,305,340
============ ============ ============ ============
Diluted net income
per share $ 0.73 $ 0.34 $ 1.72 $ 1.45
============ ============ ============ ============
(a) For the three and nine month periods ended September 30, 2007,
includes 425,509 and 141,836 weighted average shares, respectively
related to 815,558 shares of Class A common stock that are issuable
on a non-contingent basis with respect to the acquisition of GAHL.
(b) For the three month period ended September 30, 2006, the shares
assumed issued from convertible notes were not dilutive.
(c) For the three and nine month periods ended September 30, 2007,
includes 9,724 shares of Series A convertible preferred stock and 277
shares of Series B convertible preferred stock that will be
convertible into Class A common stock on a non-contingent basis with
respect to the acquisition of CWC. The rate of conversion into Class
A common stock will be dependant, in part, on the future value of the
Class A common stock and currency exchange rates, therefore, the
shares are excluded from the basic net income per share calculation
but included in the diluted net income per share calculation.
RECONCILIATION OF US GAAP TO FULL EXCHANGE RESULTS
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2007 2006 2007 2006
--------- -------- --------- ---------
($ in thousands)
Net income - US GAAP $40,267 $13,158 $ 95,917 $ 56,389
Provision for income taxes (d) (4,214) (3,453) (12,165) (13,655)
Minority interest in net income
(LAZ-MD only) (e) 47,512 25,278 116,361 107,642
--------- -------- --------- ---------
Net income assuming full
exchange of exchangeable
interests $83,565 $34,983 $200,113 $150,376
========= ======== ========= =========
(d) Represents an adjustment to the Lazard Ltd tax provision to effect
a full exchange of LAZ-MD Holdings' ownership of Lazard Group common
membership interests at an effective rate of 28.0% of operating
income less LAM GP related revenue.
(e) Represents a reversal of the minority interests related to LAZ-MD
Holdings' ownership of Lazard Group common membership interests to
effect a full exchange of interests as of January 1, 2006.
LAZARD LTD
ASSETS UNDER MANAGEMENT ("AUM")
As of
--------------------------------------------------
September June 30, March December September
30, 31, 31, 30,
2007 2007 2007 2006 2006
---------- --------- -------- --------- ----------
($ in millions)
Equities $120,602 $114,805 $105,483 $ 92,194 $81,786
Fixed Income 13,956 13,232 12,587 11,823 11,113
Alternative
Investments 3,609 3,581 3,292 3,457 3,653
Private Equity 1,117 1,100 936 883 854
Cash 2,800 2,632 2,554 2,080 1,928
---------- --------- -------- --------- ----------
Total AUM $142,084 $135,350 $124,852 $110,437 $99,334
========== ========= ======== ========= ==========
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2007 2006 2007 2006
---------- --------- --------- ----------
($ in millions) ($ in millions)
AUM - Beginning of
Period $135,350 $ 93,901 $110,437 $88,234
Net Flows 3,295 1,693 17,485 983
Market Appreciation 2,733 3,792 13,122 9,337
Foreign Currency
Adjustments 706 (52) 1,040 780
---------- --------- --------- ----------
AUM - End of Period $142,084 $ 99,334 $142,084 $99,334
========== ========= ========= ==========
Average AUM * $138,717 $ 96,618 $128,181 $94,151
========== ========= ========= ==========
* Average AUM is based on an average of quarterly ending balances for
the respective periods.
LAZARD LTD
SCHEDULE OF INCOME TAX PROVISION
Three Months Nine Months Ended
Ended September 30, Ended September 30,
------------------- -------------------
2007 2006 2007 2006
---------- -------- --------- ---------
Lazard Ltd Consolidated ($ in thousands)
Effective Tax Rate
-------------------------------
Operating Income
Lazard Group
Allocable to LAZ-MD Holdings
(weighted average ownership
of 51.8% and
52.0% and 62.3% and
62.4% for the three
and nine month periods
ended
September 30, 2007 and
2006, respectively) $ 61,440 $30,691 $148,917 $132,517
Allocable to Lazard Ltd
(weighted average ownership
of 48.2% and 48.0%
and 37.7% and 37.6% for
the three and nine
month periods ended
September 30, 2007 and
2006, respectively) 57,130 18,539 137,551 80,005
---------- -------- --------- ---------
Total Lazard Group
operating income 118,570 49,230 286,468 212,522
Lazard Ltd and its wholly owned
subsidiaries 16 (37) (451) (520)
---------- -------- ========= =========
Total Lazard Ltd
consolidated operating
income $118,586 $49,193 $286,017 $212,002
========== ======== ========= =========
Provision for income taxes
Lazard Group (effective tax
rates of 20.6% and 19.0% for
the three and nine
month periods ended
September 30, 2007 and
16.4% and 17.3% for
the
three and nine month
periods ended
September 30, 2006,
respectively)
Allocable to LAZ-MD Holdings $ 12,624 $ 5,036 $ 28,356 $ 22,901
Allocable to Lazard Ltd 11,744 3,045 26,208 13,826
---------- -------- --------- ---------
Total Lazard Group
provision for income
taxes 24,368 8,081 54,564 36,727
Tax adjustment for Lazard Ltd
entity-level (a) 3,916 2,072 11,094 8,100
---------- -------- --------- ---------
Lazard Ltd consolidated
provision for income
taxes $ 28,284 $10,153 $ 65,658 $ 44,827
========== ======== ========= =========
Lazard Ltd consolidated
effective tax rate 23.9% 20.6% 23.0% 21.1%
========== ======== ========= =========
Lazard Ltd Fully Exchanged Tax
Rate
-------------------------------
Operating Income
Lazard Ltd consolidated
operating income 118,586 49,193 286,017 212,002
Less: LAM GP related
loss/(revenue) allocable to
Lazard Ltd (2,521) (600) (8,076) (3,137)
---------- -------- --------- ---------
Operating income excluding
LAM GP related revenue $116,065 $48,593 $277,941 $208,865
========== ======== ========= =========
Provision for income taxes
Lazard Ltd consolidated
provision for income taxes $ 28,284 $10,153 $ 65,658 $ 44,827
Tax adjustment for full
exchange (b) 4,214 3,453 12,165 13,655
---------- -------- --------- ---------
Total fully exchanged
provision for income taxes $ 32,498 $13,606 $ 77,823 $ 58,482
========== ======== ========= =========
Lazard Ltd fully exchanged tax
rate 28.0% 28.0% 28.0% 28.0%
========== ======== ========= =========
(a) Represents an adjustment to the Lazard Ltd tax provision for the
three and nine month periods ended September 30, 2007 from $11,744 to
$15,660 and $26,208 to $37,302 and for the three and nine month
periods ended September 30, 2006 from $3,045 to $5,117 and $13,826 to
$21,926 to reflect an effective tax rate of 28.0% of Lazard Ltd's
share of operating income less its share of LAM GP related revenue,
respectively.
(b) Represents an adjustment to the Lazard Ltd tax provision to effect
a full exchange of LAZ-MD Holdings' ownership of Lazard Group common
membership interests at an effective rate of 28.0% of operating
income less LAM GP related revenue.
Contact Information: Lazard Ltd
Media:
Judi Frost Mackey, 212-632-1428
judi.mackey@lazard.com
or
Richard Creswell, +1 44 207 187 2305
richard.creswell@lazard.com
or
Investor:
Michael J. Castellano, 212-632-8262
Chief Financial Officer
or
Jean Greene, 212-632-1905
investorrelations@lazard.comCopyright 2007 BusinessWire