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Lazard Ltd Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 3, 2012 07:57AM
Lazard Ltd (LAZ) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Net revenue in the 2012 period increased by $48 million, or 11%, with operating revenue increasing by $42 million, or 9%, respectively, as compared to the 2011 period. Fees from investment banking and other advisory activities increased $53 million, or 24%, primarily reflecting the closing of several significant restructuring, M&A and sovereign and government advisory transactions during the 2012 period, as well as the strong performance of Lazard Middle Market. The number of M&A transactions with fees greater than $1 million also increased as compared to the 2011 period. Restructuring fee revenues in the 2012 period increased $35 million, or 97%, driven primarily by a higher number of closings and increased average fees for assignments with completion fees greater than $1 million. Total Strategic Advisory fees in the 2012 period increased $14 million, or 7%. Money management fees decreased $10 million, or 5%, during the 2012 period primarily due to an $8 billion, or 5%, decrease in average AUM, on which management fees are earned. In the aggregate, interest income, other revenue and interest expense reflected an increase in net revenue of $5 million as compared to the corresponding period in 2011.
Compensation and benefits expense in the 2012 period was $338 million, as compared to $270 million in the corresponding prior year period. Factors contributing to the increase included higher compensation costs relating to the growth in operating revenue and a $22 million charge associated with staff reductions, representing severance costs and benefit payments, including $7 million relating to the acceleration of unrecognized amortization expense of deferred incentive compensation previously granted to individuals being terminated, as well as increased headcount. Adjusted compensation and benefits expense (which excludes certain items that management believes allows for improved comparability between interim periods, and which is described more thoroughly above), was $313 million in the 2012 period, an increase of $44 million, or 16%, when compared to $269 million in the 2011 period. The resulting ratio of adjusted compensation and benefits expense to operating revenue was 62.7% for the 2012 period, which compares to 58.9% and 62.0% for the first quarter and full year of 2011, respectively. The first quarter 2012 ratio of adjusted compensation and benefits expense to operating revenue assumed, based on current market conditions, a ratio of awarded compensation and benefits expense to operating revenue of approximately 60% for the full year of 2012, as compared to 61.7% for the full year of 2011. As described above, when analyzing compensation and benefits expense on a full year basis, we believe that awarded compensation and benefits expense provides the most meaningful basis for comparison of compensation and benefits expense between present, historical and future years.
Non-compensation expense in the 2012 period was $109 million, an increase of $16 million, or 17%, as compared to $93 million in the corresponding period in 2011. Non-compensation expense in the first quarter of 2012 included charges totaling $3 million associated with the staff reductions. When excluding such charges, as well as non-compensation costs relating to noncontrolling interests, non-compensation expense in the first quarter of 2012 increased $12 million, or 13%, primarily attributable to (i) deal-related costs, specific to transactions that closed in the 2012 period, (ii) generally higher levels of business development expenses in our Financial Advisory business and (iii) higher occupancy costs in the 2012 period as a result of our amended lease and associated build-out costs of our Rockefeller Center facility. The ratio of non-compensation expense to operating revenue was 21.1% in the 2012 period versus 20.3% for the corresponding period in 2011. We currently estimate that, on a full year basis in 2012 as compared to 2011, our occupancy-related costs associated with the amended lease at our Rockefeller Center facility will increase by approximately $11 million.
Asset Management net revenue decreased $12 million, or 5%, as compared to the 2011 period. Management fees decreased $7 million, or 3%, as compared to the 2011 period, driven primarily by a 5% decrease in average AUM, partially offset by a favorable change in the mix of AUM into higher margin equity products. Incentive fees, principally consisting of traditional long-only strategies, decreased $2 million, or 50%, as compared to the 2011 period, principally due to a change in fee structure on one mandate from a quarterly to an annual performance fee basis. Other income decreased $3 million, or 19%, as compared to the 2011 period, primarily due to a decline in commission and fee income from an unusually strong 2011 first quarter.
At March 31, 2012 and December 31, 2011, $123 million and $133 million, respectively, of our total investments at a fair value of $376 million and $374 million, respectively, or 33% and 36%, respectively, were classified as Level 3 assets. Substantially all of our Level 3 investments in both periods are priced based on a NAV or its equivalent. During the three month periods ended March 31, 2012 and 2011, gains of approximately $8 million and $0.3 million, respectively, were recognized in revenue-other on the condensed consolidated statements of operations pertaining to Level 3 investments.