Lazard Ltd Reports Third-Quarter and Nine-Month 2018 Results

Record nine-month operating revenue for Financial Advisory and Asset Management

Average assets under management of $240 billion in the third quarter

Strong operating cash flow resulted in record return of capital year to date

Lazard Ltd (NYSE: LAZ) today reported third-quarter operating revenue1 of $606 million for the quarter ended September 30, 2018. Net income, as adjusted1 and excluding a pre-tax charge2, was $111 million, or $0.86 per share (diluted) for the quarter. Third-quarter 2018 net income on a U.S. GAAP basis was $107 million, or $0.82 per share (diluted).

For the first nine months of 2018, net income, as adjusted1 and excluding a pre-tax charge 2, was $420 million, or $3.21 per share (diluted). On a U.S. GAAP basis, net income for the first nine months was $414 million, or $3.16 per share (diluted).

“Record operating revenue for the first nine months of 2018 was tempered by a relatively flat third quarter, but we are well positioned to achieve strong results for the full year,” said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. “We continue to invest in our business to serve clients, capitalize on growth opportunities and build shareholder value.”

($ in millions, except
per share data and AUM)
Quarter Ended
Sept. 30,
      Nine Months Ended
Sept. 30,
2018     2017     %’18-’17 2018     2017     %’18-’17
Net Income
US GAAP $107 $109 (2)% $414 $337 23%
Per share, diluted $0.82 $0.82 0% $3.16 $2.55 24%
Adjusted1,2 $111 $112 (1)% $420 $352 19%
Per share, diluted $0.86 $0.85 1% $3.21 $2.66 21%
Operating Revenue1
Total operating revenue $606 $627 (3)% $2,070 $1,972 5%
Financial Advisory $304 $306 (1)% $1,108 $1,053 5%
Asset Management $302 $315 (4)% $961 $901 7%
AUM ($ in billions)
Period End $240 $238 1%
Average $240 $234 3%   $247 $221 12%

Note: Endnotes are on page 7 of this release. A reconciliation of adjusted GAAP to U.S. GAAP is on page 18.

OPERATING REVENUE

Operating revenue1 was $606 million for the third quarter of 2018, down 3% from the third quarter of 2017, and $2,070 million for the first nine months of 2018, up 5% from the first nine months of 2017.

Financial Advisory

Our Financial Advisory results include M&A Advisory, Capital Advisory, Capital Raising, Restructuring, Shareholder Advisory, Sovereign Advisory, and other strategic advisory work for clients.

Third Quarter

Financial Advisory operating revenue was $304 million for the third quarter of 2018, 1% lower than the third quarter of 2017. The results reflected an increase in M&A Advisory, offset by a decrease in Restructuring.

During the third quarter of 2018, Lazard was engaged in highly visible, complex M&A transactions and other advisory assignments, including cross-border transactions, spin-offs and distressed asset sales, as well as sovereign, capital and shareholder advisory in the Americas, Europe, Australia, Africa and Asia.

Among the major M&A transactions that were completed during the third quarter of 2018 were the following (clients are in italics): WGL Holdings’ $6.4 billion sale to AltaGas; Sky on the sale of its stake in Sky Betting & Gaming (“SBG”) as part of SBG’s $4.7 billion sale to The Stars Group; Quality Care Properties on its $3.9 billion sale to Welltower in conjunction with the sale of HCR ManorCare to ProMedica; Daily Mail & General Trust in the £2.5 billion sale of ZPG to Silver Lake; and Servier’s $2.4 billion acquisition of Shire’s Oncology business.

During or since the third quarter of 2018 we have been engaged in a broad range of highly visible and complex restructuring and debt advisory assignments for debtors and creditors. Publicly announced assignments completed during the third quarter of 2018 on which Lazard advised included: Seadrill; Quality Care Properties; and Danaos.

Our Sovereign and Capital Advisory services remained active globally, advising governments and corporations on balance sheet matters, financing strategy and capital raising.

Please see M&A transactions on which Lazard advised in the third quarter, or continued to advise or completed since September 30, 2018, as well as Capital Advisory, Sovereign Advisory and Restructuring assignments, on pages 8 –11 of this release.

First Nine Months

Financial Advisory operating revenue was a record $1,108 million for the first nine months of 2018, 5% higher than the first nine months of 2017.

Lazard advised or continues to advise on a number of significant and complex M&A transactions announced year to date, including: Express Scripts’ $67 billion sale to Cigna; Forest City’s $11.4 billion sale to Brookfield; MassMutual in the $5.8 billion strategic combination of Invesco and OppenheimerFunds; WestRock’s $4.9 billion acquisition of KapStone; SUPERVALU’s $2.9 billion sale to United Natural Foods; and Archer Daniels Midland’s €1.5 billion acquisition of Neovia.

Asset Management

In the text portion of this press release, we present our Asset Management results as 1) Management fees and other revenue, and 2) Incentive fees.

Third Quarter

Asset Management operating revenue was $302 million for the third quarter of 2018, 4% lower than the third quarter of 2017.

Management fees and other revenue was $300 million for the third quarter of 2018, 4% lower than the third quarter of 2017, and 5% lower than the second quarter of 2018. Both comparisons reflected a change in the mix of average assets under management (AUM), as well as lower average AUM in the third quarter of 2018 compared to the second quarter.

Average AUM for the third quarter of 2018 was $240 billion, 3% higher than the third quarter of 2017, and 2% lower than the second quarter of 2018.

AUM as of September 30, 2018, was $240 billion, up 1% from September 30, 2017, and up 1% from June 30, 2018. The sequential increase was primarily driven by market appreciation, offset by foreign exchange depreciation and net outflows of $288 million.

Incentive fees were $2 million for the third quarter of 2018, compared to $3 million for the third quarter of 2017.

First Nine Months

Asset Management operating revenue was a record $961 million for the first nine months of 2018, 7% higher than the first nine months of 2017.

Management fees and other revenue was a record $941 million for the first nine months of 2018, 8% higher than the first nine months of 2017.

Average AUM for the first nine months of 2018 was $247 billion, 12% higher than the first nine months of 2017. Net outflows were $1.7 billion for the first nine months of 2018.

Incentive fees were $20 million for the first nine months of 2018, compared to $27 million for the first nine months of 2017.

OPERATING EXPENSES

Compensation and Benefits

In managing compensation and benefits expense, we focus on annual awarded compensation (cash compensation and benefits plus deferred incentive compensation with respect to the applicable year, net of estimated future forfeitures and excluding charges). We believe annual awarded compensation reflects the actual annual compensation cost more accurately than the GAAP measure of compensation cost, which includes applicable-year cash compensation and the amortization of deferred incentive compensation principally attributable to previous years’ deferred compensation. We believe that by managing our business using awarded compensation with a consistent deferral policy, we can better manage our compensation costs, increase our flexibility in the future and build shareholder value over time.

For the third quarter of 2018, we accrued adjusted compensation and benefits expense1 at an adjusted compensation1 ratio of 55.8%. This resulted in $338 million of adjusted compensation and benefits expense, compared to $354 million for the third quarter of 2017. The decrease reflected lower operating revenue.

For the first nine months of 2018, adjusted compensation and benefits expense was $1,155 million, compared to $1,114 million for the first nine months of 2017. The increase reflected higher operating revenue.

We manage our compensation and benefits expense based on awarded compensation with a consistent deferral policy. Assuming that the performance of both of our businesses, our hiring levels, and the compensation environment are similar to 2017, we expect our 2018 awarded compensation ratio1 to be in line with the 2017 awarded compensation ratio.

We take a disciplined approach to compensation, and our goal is to maintain a compensation-to-operating revenue ratio over the cycle in the mid- to high-50s percentage range on both an awarded and adjusted basis, with consistent deferral policies.

Non-Compensation Expense

For the third quarter of 2018, adjusted non-compensation expense1 was $109 million, 1% lower than the third quarter of 2017. The ratio of adjusted non-compensation expense to operating revenue1 for the third quarter of 2018 was 18.1%, compared to 17.6% for the third quarter of 2017.

For the first nine months of 2018, adjusted non-compensation expense was $342 million, 2% higher than the first nine months of 2017. The ratio of adjusted non-compensation expense to operating revenue for the first nine months of 2018 was 16.5%, compared to 16.9% for the first nine months of 2017.

Our goal remains to achieve an adjusted non-compensation expense-to-operating revenue ratio over the cycle of 16% to 20%.

TAXES

The provision for taxes, on an adjusted basis1,2, was $33 million for the third quarter of 2018 and $113 million for the first nine months of 2018. The effective tax rate on the same basis was 23.0% for the third quarter and 21.2% for the first nine months of 2018, compared to 24.6% and 27.2% for the respective 2017 periods.

CAPITAL MANAGEMENT AND BALANCE SHEET

Our primary capital management goals include managing debt and returning capital to shareholders through dividends and share repurchases.

For the third quarter of 2018, Lazard returned $136 million to shareholders, which included: $53 million in dividends and $83 million in share repurchases of our Class A common stock.

For the first nine months of 2018, Lazard returned $724 million to shareholders, which included: $308 million in dividends; $307 million in share repurchases of our Class A common stock; and $109 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.

In the third quarter of 2018, we issued $500 million aggregate principal amount of 4.50% Senior Notes due September 2028. We used part of the net proceeds to retire $250 million of the outstanding $500 million of 4.25% Senior Notes due November 2020, and plan to use the remaining net proceeds for general corporate purposes, including potential repurchases of shares of our Class A common stock.

Year to date, we have repurchased 6.2 million shares at an average price of $52.33 per share. In line with our objectives, these repurchases have more than offset the potential dilution from our 2017 year-end equity-based compensation awards (net of estimated forfeitures and tax withholding to be paid in cash in lieu of share issuances), which were granted at an average price of $56.22 per share.

On October 24, 2018, our Board of Directors authorized additional share repurchases of up to $300 million, which expires as of December 31, 2020, bringing our total outstanding share repurchase authorization to $524 million.

On October 24, 2018, Lazard declared a quarterly dividend of $0.44 per share on its outstanding common stock. The dividend is payable on November 16, 2018, to stockholders of record on November 5, 2018.

Lazard’s financial position remains strong. As of September 30, 2018, our cash and cash equivalents were $1,132 million, and stockholders’ equity related to Lazard’s interests was $1,067 million.

***

CONFERENCE CALL

Lazard will host a conference call at 8:00 a.m. EDT on October 25, 2018, to discuss the company’s financial results for the third quarter and first nine months of 2018. The conference call can be accessed via a live audio webcast available through Lazard’s Investor Relations website at www.lazard.com, or by dialing 1 (800) 289-0438 (U.S. and Canada) or +1 (323) 794-2423 (outside of the U.S. and Canada), 15 minutes prior to the start of the call.

A replay of the conference call will be available by 10:00 a.m. EDT on October 25, 2018, via the Lazard Investor Relations website, or by dialing 1 (888) 203-1112 (U.S. and Canada) or +1 (719) 457-0820 (outside of the U.S. and Canada). The replay access code is 5952916.

ABOUT LAZARD

Lazard, one of the world's preeminent financial advisory and asset management firms, operates from 43 cities across 27 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.

***

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”, “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 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 discussed from time to time in our reports on Forms 10-Q and 8-K, including the following:

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. 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 release to conform our prior statements to actual results or revised expectations and we do not intend to do so.

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, Lazard’s Twitter account (twitter.com/Lazard) and other social media sites 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 mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC and Lazard Frères Gestion SAS. Investors can link to Lazard and its operating company websites through www.lazard.com.

***

ENDNOTES

1 A non-U.S. GAAP measure. See attached financial schedules and related notes for a detailed explanation of adjustments to corresponding U.S. GAAP results. We believe that presenting our results on an adjusted basis, in addition to U.S. GAAP results, is the most meaningful and useful way to compare our operating results across periods.

2 Third-quarter and first nine-month 2018 adjusted results exclude pre-tax charges of (i) $6.8 million in the third quarter relating to a debt refinancing by Lazard Ltd’s subsidiary Lazard Group LLC, which redeemed $250 million of its outstanding $500 million of 4.25% Senior Notes maturing in November 2020; (ii) $7.7 million and $20.5 million in the third quarter and first nine months, respectively, of costs associated with the implementation of a new Enterprise Resource Planning (ERP) system; and (iii) $2.4 million, for the nine-month period, of office space reorganization costs primarily relating to incremental rent expense and lease abandonment costs. In addition, third-quarter and first nine-month 2018 adjusted results exclude a benefit of $6.7 million and $16.0 million, respectively, of acquisition-related items, primarily reflecting changes in fair value of contingent consideration associated with certain business acquisitions. On a U.S. GAAP basis, these items resulted in a net charge of $4.4 million, or $0.03 (diluted) per share, in the third quarter, and a net charge of $6.6 million, or $0.05 (diluted) per share, for the first nine months of 2018.

LAZ-EPE

###

FINANCIAL ADVISORY ASSIGNMENTS*

*Note: the timing of completions may not match the timing of fee recognition under U.S. GAAP

Mergers and Acquisitions (Completed in the third quarter of 2018)

Among the large, publicly announced M&A Advisory transactions or assignments completed during the third quarter of 2018 on which Lazard advised were the following:

Mergers and Acquisitions (Announced)

Among the ongoing, large, publicly announced M&A transactions and assignments on which Lazard advised during or since the 2018 third quarter, or completed since September 30, 2018, are the following:

*Transaction completed since September 30, 2018

Capital Advisory

Among the publicly announced Capital Advisory transactions or assignments on which Lazard advised during or since the third quarter of 2018 were the following:

Sovereign Advisory

Among the publicly announced Sovereign Advisory assignments on which Lazard advised during or since the third quarter of 2018 were the following:

Restructuring and Debt Advisory Assignments

Restructuring and debtor or creditor advisory assignments completed during the third quarter of 2018 on which Lazard advised include: secured lenders to Seadrill in connection with its Chapter 11 bankruptcy restructuring; Quality Care Properties on strategic options in relation to HCR ManorCare; lenders to Danaos on the company’s restructuring; financing banks of Kiko on the company’s recapitalization; and Orchestra-Prémaman on its restructuring.

Notable ongoing restructuring and debtor or creditor advisory assignments on which Lazard advised during or since the third quarter of 2018 include: Assured Guaranty in connection with Puerto Rico’s restructuring; Claire’s Stores*, FirstEnergy Solutions, Nine West, Sears Holdings, Toys “R” Us, and Westmoreland Resource Partners in connection with their Chapter 11 bankruptcy restructurings; and an ad hoc group of secured noteholders to Tops Markets with regard to the company’s restructuring.

*Assignment completed since September 30, 2018

LAZARD LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (U.S. GAAP)
             
Three Months Ended % Change From
September 30, June 30, September 30, June 30, September 30,
($ in thousands, except per share data) 2018 2018 2017 2018 2017
 
Total revenue $640,800 $771,528 $638,131 (17%) 0%
Interest expense (14,319) (13,590) (13,272)
Net revenue 626,481 757,938 624,859 (17%) 0%
Operating expenses:
Compensation and benefits 343,987 416,159 361,787 (17%) (5%)
 
Occupancy and equipment 28,848 29,240 29,156
Marketing and business development 21,868 28,228 19,798
Technology and information services 36,394 32,527 31,373
Professional services 13,353 16,714 11,005
Fund administration and outsourced services 34,748 33,227 18,325
Amortization and other acquisition-related (benefits) costs (5,851) (8,483) 172
Other 14,453 10,386 9,031
Subtotal 143,813 141,839 118,860 1% 21%
Operating expenses 487,800 557,998 480,647 (13%) 1%
 
Operating income 138,681 199,940 144,212 (31%) (4%)
 
Provision for income taxes 29,956 51,561 32,742 (42%) (9%)
Net income 108,725 148,379 111,470 (27%) (2%)
Net income attributable to noncontrolling interests 1,651 1,416 2,260
Net income attributable to Lazard Ltd $107,074 $146,963 $109,210 (27%) (2%)
 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding:
Basic 119,456,516 120,306,257 121,243,598 (1%) (1%)
Diluted 129,859,728 130,249,054 132,393,664 (0%) (2%)
 
Net income (loss) per share:
Basic $0.90 $1.22 $0.90 (26%) 0%
Diluted $0.82 $1.13 $0.82 (27%) 0%
LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. GAAP)      
 
Nine Months Ended
September 30, 2018 September 30, 2017 % Change
($ in thousands, except per share data)
 
Total revenue $2,180,533 $2,005,497 9%
Interest expense (41,416) (39,994)
Net revenue 2,139,117 1,965,503 9%
Operating expenses:
Compensation and benefits 1,165,193 1,138,200 2%
 
Occupancy and equipment 88,326 87,468
Marketing and business development 75,755 63,577
Technology and information services 102,173 87,429
Professional services 42,498 33,701
Fund administration and outsourced services 103,159 52,576
Amortization and other acquisition-related (benefits) costs (13,468) 5,003
Other 51,032 30,639
Subtotal 449,475 360,393 25%
Operating expenses 1,614,668 1,498,593 8%
 
Operating income 524,449 466,910 12%
 
Provision for income taxes 105,684 124,109 (15%)
Net income 418,765 342,801 22%
Net income attributable to noncontrolling interests 5,036 5,660
Net income attributable to Lazard Ltd $413,729 $337,141 23%
 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding:
Basic 119,897,626 122,142,303 (2%)
Diluted 130,750,392 132,407,551 (1%)
 
Net income per share:
Basic $3.45 $2.76 25%
Diluted $3.16 $2.55 24%

LAZARD LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION\

(U.S. GAAP)

 

 
 

September 30,
2018

December 31, 2017
($ in thousands)
 
ASSETS
 
Cash and cash equivalents $1,132,395 $1,483,836
Deposits with banks and short-term investments 1,015,872 935,431
Cash deposited with clearing organizations and other segregated cash 37,985 35,539
Receivables 640,787 571,616
Investments 609,595 427,186
Goodwill and other intangible assets 379,241 391,364
Deferred tax assets 610,389 650,260
Other assets 518,514 433,445
 
Total Assets $4,944,778 $4,928,677
 
LIABILITIES & STOCKHOLDERS' EQUITY
 
Liabilities
Deposits and other customer payables $1,056,342 $992,338
Accrued compensation and benefits 489,090 593,781
Senior debt 1,433,702 1,190,383
Tax receivable agreement obligation 277,163 310,275
Other liabilities 566,896 582,995
Total liabilities 3,823,193 3,669,772
 
Commitments and contingencies
 
Stockholders' equity
Preferred stock, par value $.01 per share - -
Common stock, par value $.01 per share 1,298 1,298
Additional paid-in capital 701,849 788,140
Retained earnings 1,140,610 1,080,413
Accumulated other comprehensive loss, net of tax (260,365) (232,518)
Subtotal 1,583,392 1,637,333
Class A common stock held by subsidiaries, at cost (516,267) (437,530)
Total Lazard Ltd stockholders' equity 1,067,125 1,199,803
Noncontrolling interests 54,460 59,102
Total stockholders' equity 1,121,585 1,258,905
 
Total liabilities and stockholders' equity $4,944,778 $4,928,677
LAZARD LTD SELECTED SUMMARY FINANCIAL INFORMATION (a) (Non-GAAP - unaudited)
Three Months Ended       % Change From
September 30, 2018     June 30, 2018     September 30, 2017 June 30, 2018 September 30, 2017
($ in thousands, except per share data)
 
Revenues:
 
Financial Advisory $303,769 $415,006 $305,890 (27%) (1%)
Asset Management 301,527 329,409 315,470 (8%) (4%)
Corporate 314 (3,713) 5,965 NM (95%)
 
Operating revenue (b) $605,610 $740,702 $627,325 (18%) (3%)
             
Expenses:
 
Adjusted compensation and benefits expense (c) $337,930 $413,312 $354,439 (18%) (5%)
Ratio of adjusted compensation to operating revenue 55.8% 55.8% 56.5%
 
Non-compensation expense (d) $109,330 $118,481 $110,507 (8%) (1%)
Ratio of non-compensation to operating revenue 18.1% 16.0% 17.6%
             
Earnings:
 
Earnings from operations (e) $158,350 $208,909 $162,379 (24%) (2%)
Operating margin (f) 26.1% 28.2% 25.9%
 
Adjusted net income (g) $111,424 $143,020 $112,433 (22%) (1%)
 
Diluted adjusted net income per share $0.86 $1.10 $0.85 (22%) 1%
 
Diluted weighted average shares 129,859,728 130,249,054 132,393,664 (0%) (2%)
 
Effective tax rate (h) 23.0% 26.9% 24.6%
 

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the

corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with

U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to

Selected Summary Financial Information and Notes to Financial Schedules.

LAZARD LTD SELECTED SUMMARY FINANCIAL INFORMATION (a) (Non-GAAP - unaudited)
Nine Months Ended
September 30, 2018     September 30, 2017       % Change
($ in thousands, except per share data)
 
Revenues:
 
Financial Advisory $1,107,631 $1,052,584 5%
Asset Management 960,791 900,694 7%
Corporate 1,825 18,642 (90%)
 
Operating revenue (b) $2,070,247 $1,971,920 5%
         
Expenses:
 
Adjusted compensation and benefits expense (c) $1,155,198 $1,114,135 4%
Ratio of adjusted compensation to operating revenue 55.8% 56.5%
 
Non-compensation expense (d) $341,892 $334,088 2%
Ratio of non-compensation to operating revenue 16.5% 16.9%
         
Earnings:
 
Earnings from operations (e) $573,157 $523,697 9%
Operating margin (f) 27.7% 26.6%
 
Adjusted net income (g) $420,359 $352,414 19%
 
Diluted adjusted net income per share $3.21 $2.66 21%
 
Diluted weighted average shares 130,750,392 132,407,551 (1%)
 
Effective tax rate (h) 21.2% 27.2%
 

This presentation includes non-U.S. GAAP ("non-GAAP") measures. Our non-GAAP measures are not meant to be considered

in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in

conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a

detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see

Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.

LAZARD LTD ASSETS UNDER MANAGEMENT ("AUM")
(unaudited)                
($ in millions)
 
As of Variance
September 30, 2018 June 30, 2018 December 31, 2017 Qtr to Qtr YTD
 
Equity:
Emerging Markets $45,449 $47,207 $52,349 (3.7%) (13.2%)
Global 46,088 43,932 43,663 4.9% 5.6%
Local 42,524 40,688 42,650 4.5% (0.3%)
Multi-Regional 66,945 67,014 70,696 (0.1%) (5.3%)
Total Equity 201,006 198,841 209,358 1.1% (4.0%)
Fixed Income:
Emerging Markets 15,964 16,453 17,320 (3.0%) (7.8%)
Global 4,745 4,155 4,109 14.2% 15.5%
Local 6,226 5,306 4,497 17.3% 38.4%
Multi-Regional 7,455 8,151 9,154 (8.5%) (18.6%)
Total Fixed Income 34,390 34,065 35,080 1.0% (2.0%)
Alternative Investments 2,650 2,764 2,846 (4.1%) (6.9%)
Private Equity 1,453 1,458 1,478 (0.3%) (1.7%)
Cash Management 588 748 697 (21.4%) (15.6%)
Total AUM $240,087 $237,876 $249,459 0.9% (3.8%)
 
 
 
Three Months Ended September 30 Nine Months Ended September 30
2018 2017 2018 2017
 
AUM - Beginning of Period $237,876 $225,761 $249,459 $197,910
 
Net Flows (288) 15 (1,727) 2,953
Market and foreign exchange appreciation (depreciation) 2,499 12,349 (7,645) 37,262
 
AUM - End of Period $240,087 $238,125 $240,087 $238,125
 
Average AUM $239,897 $233,808 $246,920 $220,840
 
% Change in average AUM 2.6% 11.8%
 
 
Note: Average AUM generally represents the average of the monthly ending AUM balances for the period.
LAZARD LTD RECONCILIATION OF U.S. GAAP TO SELECTED SUMMARY FINANCIAL INFORMATION (a) (unaudited)
Three Months Ended   Nine Months Ended
September 30, 2018     June 30, 2018     September 30, 2017 September 30, 2018     September 30, 2017
($ in thousands, except per share data)
 
Operating Revenue
Net revenue - U.S. GAAP Basis $626,481 $757,938 $624,859 $2,139,117 $1,965,503
 
Adjustments:
Revenue related to noncontrolling interests (i) (4,512) (5,622) (5,039) (15,351) (13,079)
(Gains) losses related to Lazard Fund Interests ("LFI") and other similar arrangements (3,647) 499 (4,875) (1,712) (17,981)
Distribution fees, reimbursable deal costs and bad debt expense (j) (25,880) (24,718) - (90,112) -
Interest expense 13,168 12,605 12,380 38,305 37,477
 
Operating revenue, as adjusted (b) $605,610 $740,702 $627,325 $2,070,247 $1,971,920
 
Compensation and Benefits Expense
Compensation and benefits expense - U.S. GAAP Basis $343,987 $416,159 $361,787 $1,165,193 $1,138,200
 
Adjustments:
(Charges) credits pertaining to LFI and other similar arrangements (3,647) 499 (4,875) (1,712) (17,981)
Compensation related to noncontrolling interests (i) (2,410) (3,346) (2,473) (8,283) (6,084)
 
Compensation and benefits expense, as adjusted (c) $337,930 $413,312 $354,439 $1,155,198 $1,114,135
 
Non-Compensation Expense
Non-compensation expense - Subtotal - U.S. GAAP Basis $143,813 $141,839 $118,860 $449,475 $360,393
 
Adjustments:
Expenses associated with ERP system implementation (k) (7,659) (5,404) (6,530) (20,489) (15,391)
Expenses related to office space reorganization (l) - (1,036) (1,412) (2,425) (4,573)
Distribution fees, reimbursable deal costs and bad debt expense (j) (25,880) (24,718) - (90,112) -
Amortization and other acquisition-related benefits (costs) (m) 5,851 8,483 (172) 13,468 (5,003)
Charges pertaining to Senior Debt refinancing (n) (6,523) - - (6,523) -
Non-compensation expense related to noncontrolling interests (i) (272) (683) (239) (1,502) (1,338)
 
Non-compensation expense, as adjusted (d) $109,330 $118,481 $110,507 $341,892 $334,088
 
Pre-Tax Income and Earnings From Operations
Operating Income - U.S. GAAP Basis $138,681 $199,940 $144,212 $524,449 $466,910
 
Expenses associated with ERP system implementation (k) 7,659 5,404 6,530 20,489 15,391
Expenses related to office space reorganization (l) - 1,036 1,412 2,425 4,573
Acquisition-related (benefits) costs (m) (6,707) (9,346) (612) (16,020) 2,568
Charges pertaining to Senior Debt refinancing (n) 6,818 - - 6,818 -
Net income related to noncontrolling interests (i) (1,651) (1,416) (2,330) (5,036) (5,661)
Pre-tax income, as adjusted 144,800 195,618 149,212 533,125 483,781
Interest expense 12,873 12,605 12,380 38,010 37,477
Amortization (LAZ only) 677 686 787 2,022 2,439
Earnings from operations, as adjusted (e) $158,350 $208,909 $162,379 $573,157 $523,697
 
 
Net Income (loss) attributable to Lazard Ltd
Net income attributable to Lazard Ltd - U.S. GAAP Basis $107,074 $146,963 $109,210 $413,729 $337,141
Adjustments:
Expenses associated with ERP system implementation (k) 7,659 5,404 6,530 20,489 15,391
Expenses related to office space reorganization (l) - 1,036 1,412 2,425 4,573
Acquisition-related (benefits) costs (m) (6,707) (9,346) (612) (16,020) 2,568
Charges pertaining to Senior Debt refinancing (n) 6,818 - - 6,818 -
Tax benefit allocated to adjustments (3,420) (1,037) (4,107) (7,082) (7,259)
 
Net income, as adjusted (g) $111,424 $143,020 $112,433 $420,359 $352,414
 
Diluted net income per share:
U.S. GAAP Basis $0.82 $1.13 $0.82 $3.16 $2.55
Non-GAAP Basis, as adjusted $0.86 $1.10 $0.85 $3.21 $2.66
 
 

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures,

and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to

comparable U.S. GAAP measures, see Notes to Financial Schedules.

             
See Notes to Financial Schedules
LAZARD LTD
   
Notes to Financial Schedules
 
(a) Selected Summary Financial Information are non-GAAP measures. Lazard believes that presenting results and measures on an adjusted basis in conjunction with U.S. GAAP measures provides the most meaningful basis for comparison of its operating results across periods.
(b) A non-GAAP measure which excludes (i) revenue related to non-controlling interests (see (i) below), (ii) (gains)/losses related to the changes in the fair value of investments held in connection with Lazard Fund Interests and other similar deferred compensation arrangements for which a corresponding equal amount is excluded from compensation & benefits expense, (iii) for the three and nine month periods ended September 30, 2018 and for the three month period ended June 30, 2018, revenue related to distribution fees and reimbursable deal costs in accordance with the newly adopted revenue recognition guidance and bad debt expense (see (j) below), (iv) interest expense primarily related to corporate financing activities, and (v) for the three and nine month periods ended September 30, 2018, excess interest expense pertaining to Senior Debt refinancing (see (n) below).
(c) A non-GAAP measure which excludes (i) (charges) credits related to the changes in the fair value of the compensation liability recorded in connection with Lazard Fund Interests and other similar deferred compensation arrangements, and (ii) compensation and benefits related to noncontrolling interests (see (i) below).
(d) A non-GAAP measure which excludes (i) expenses associated with ERP system implementation (see (k) below), (ii) for the three month periods ended June 30, 2018 and September 30, 2017 and nine month periods ended September 30, 2018 and September 30, 2017, expenses related to office space reorganization (see (l) below), (iii) for the three and nine month periods ended September 30, 2018 and for the three month period ended June 30, 2018, expenses related to distribution fees and reimbursable deal costs in accordance with the newly adopted revenue recognition guidance and bad debt expense (see (j) below), (iv) amortization and other acquisition-related benefits (costs) (see (m) below), (v) expenses related to noncontrolling interests (see (i) below), and (vi) for the three and nine month periods ended September 30, 2018, charges pertaining to Senior Debt refinancing (see (n) below).
(e) A non-GAAP measure which excludes (i) expenses associated with ERP system implementation (see (k) below), (ii) for the three month periods ended June 30, 2018 and September 30, 2017 and nine month periods ended September 30, 2018 and September 30, 2017, expenses related to office space reorganization (see (l) below), (iii) acquisition-related (benefits) costs (see (m) below), (iv) net revenue and expenses related to noncontrolling interests (see (i) below), (v) interest expense primarily related to corporate financing activities, and (vi) for the three and nine month periods ended September 30, 2018, charges pertaining to Senior Debt refinancing (see (n) below).
(f) Represents earnings from operations as a percentage of operating revenue, and is a non-GAAP measure.
(g)

A non-GAAP measure which excludes (i) expenses associated with ERP system implementation (see (k) below), (ii) for the three month periods ended June 30, 2018 and September 30, 2017 and nine month periods ended September 30, 2018 and September 30, 2017, expenses related to office space reorganization (see (l) below), (iii) acquisition-related (benefits) costs, (see (m) below), and (iv) for the three and nine month periods ended September 30, 2018, charges pertaining to Senior Debt refinancing, net of tax benefits (see (n) below).

(h) Effective tax rate is a non-GAAP measure based upon the U.S. GAAP rate with adjustments for the tax applicable to the non-GAAP adjustments to operating income, generally based upon the effective marginal tax rate in the applicable jurisdiction of the adjustments. The computation is based on a quotient, the numerator of which is the provision for income taxes of $33,376, $52,599, and $36,779 for the three month periods ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively, $112,767 and $131,367 for the nine month periods ended September 30, 2018 and 2017, respectively, and the denominator of which is pre-tax income of $144,800, $195,618, and $149,212 for the three month periods ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively, $533,125 and $483,781 for the nine month periods ended September 30, 2018 and 2017, respectively.
(i) Noncontrolling interests include revenue and expenses principally related to Edgewater, and is a non-GAAP measure.
(j) Represents certain distribution fees and reimbursable deal costs paid to third parties for which an equal amount is excluded from both non-GAAP operating revenue and non-compensation expense, respectively, and excludes bad debt expense, which represents fees that are deemed uncollectible.
(k) Represents expenses associated with Enterprise Resource Planning (ERP) system implementation.
(l) Represents incremental rent expense and lease abandonment costs related to office space reorganization and an onerous lease provision.
(m) Primarily represents the change in fair value of the contingent consideration associated with certain business acquisitions.
(n) The company incurred charges related to the extinguishment of $250 million of the $500 million 4.25% Senior Notes maturing in November 2020 and the issuance of $500 million of 4.50% notes maturing in September 2028. The charges include a pre-tax loss on the extinguishment of $6.5 million and excess interest expense of $0.3 million (due to the period of time between the issuance of the 2028 notes and the settlement of the 2020 notes).
NM Not meaningful

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or
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