Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

The components of the Company’s provision (benefit) for income taxes for the years ended December 31, 2013, 2012 and 2011, and a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rates for such years, are shown below.


	Year Ended December 31,
	2013			2012			2011
Current:
Federal	$	(3,678	)	$	2,094		$	(501	)
Foreign		41,084			27,650			35,885
State and local (primarily UBT)		(167	)		5,813			2,342

Total current		37,239			35,557			37,726

Deferred:
Federal		19,934			(3,330	)		16,167
Foreign		(4,520	)		(1,127	)		(2,832	)
State and local (primarily UBT)		(960	)		–			(6,121	)

Total deferred		14,454			(4,457	)		7,214

Total	$	51,693		$	31,100		$	44,940

Schedule of Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Tax Rates

Year Ended December 31,
	2013			2012			2011
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Income of noncontrolling interests		(0.8	)		(2.4	)		(2.0	)
Share-based incentive compensation		–			7.4			–
Foreign source income not subject to U.S. income tax		(12.7	)		(34.6	)		(13.8	)
Foreign taxes		14.1			13.5			8.3
State and local taxes (primarily UBT)		2.6			3.4			0.9
Change in U.S. federal valuation allowance		(14.9	)		1.4			(8.3	)
Other, net		0.5			1.4			(1.0	)

Effective income tax rate		23.8	%		25.1	%		19.1	%

Schedule of Deferred Tax Assets and Liabilities

Details of the Company’s deferred tax assets and liabilities, which are included in “other assets” and “other liabilities”, respectively, on the consolidated statements of financial condition, are as follows:


	December 31,
	2013			2012
Deferred Tax Assets:
Basis adjustments (primarily as a result of the separation and recapitalization transactions that occurred during 2005 and from secondary offerings)	$	739,059		$	820,229
Compensation and benefits		250,413			243,564
Net operating loss and tax credit carryforwards		348,433			308,233
Depreciation and amortization		8,169			3,404
Other		58,273			30,626

Gross deferred tax assets		1,404,347			1,406,056
Valuation allowance		(1,225,305	)		(1,238,765	)

Deferred tax assets (net of valuation allowance)	$	179,042		$	167,291

Deferred Tax Liabilities:
Depreciation and amortization	$	19,296		$	33,715
Compensation and benefits		30,042			4,292
Goodwill		15,434			15,843
Other		70,394			50,648

Deferred tax liabilities	$	135,166		$	104,498

The basis adjustments recorded as of December 31, 2013 and 2012 are the result of:

•

purchases and redemptions of historical and working member interests consummated in connection with the separation and recapitalization of the Company, which resulted in deferred tax assets of $123,027 and $158,459 at December 31, 2013 and 2012, respectively,

•

tax basis step-ups resulting from the exchange of LAZ-MD exchangeable interests and from secondary offerings, and associated with the LAM Merger, which in the aggregate resulted in deferred tax assets of $603,552 and $638,993 at December 31, 2013 and 2012, respectively,

•

tax basis step-up for U.S. income tax purposes on certain U.K. assets, which resulted in deferred tax assets of $6,538 and $16,083 at December 31, 2013 and 2012, respectively, and

•

tax basis step-up for payments made under the tax receivable agreement of $5,942 and $6,694 at December 31, 2013 and 2012, respectively.

Schedule of Gross Unrecognized Tax Benefits

A reconciliation of the beginning to the ending amount of gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2013, 2012 and 2011 is as follows:


	Year Ended December 31,
	2013			2012			2011
Balance, January 1 (excluding interest and penalties of $14,799, $8,454 and $7,099, respectively)	$	55,947		$	62,200		$	58,605
Increases in gross unrecognized tax benefits relating to tax positions taken during:
Prior years		417			1,393			1,081
Current year		17,596			19,690			16,928
Decreases in gross unrecognized tax benefits relating to:
Tax positions taken during prior years		(385	)		(5,397	)		(5,133	)
Settlements with tax authorities		(5,587	)		(12,077	)		–
Lapse of the applicable statute of limitations		(5,083	)		(9,862	)		(9,281	)

Balance, December 31 (excluding interest and penalties of $12,200, $14,799 and $8,454, respectively)	$	62,905		$	55,947		$	62,200

Schedule of Additional Information Relating to Unrecognized Tax Benefits

Additional information with respect to unrecognized tax benefits is as follows:


	Year Ended December 31,
	2013			2012		2011
Unrecognized tax benefits at the end of the year that, if recognized, would favorably affect the effective tax rate (includes interest and penalties of $12,200, $14,799 and $8,454, respectively)	$	36,272		$	44,452	$	44,545
Offset to deferred tax assets for unrecognized tax benefits that, if recognized, would not affect the effective tax rate	$	38,833		$	26,294	$	26,109
Interest and penalties recognized in current income tax expense (after giving effect to the reversal of interest and penalties of $7,326, $3,130 and $1,785, respectively)	$	(2,599	)	$	6,345	$	1,355