UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 20052006

OR

For the transition period from                        to                        

001-32492

(Commission File Number)

LAZARD LTD

(Exact name of registrant as specified in its charter)

Clarendon House

2 Church Street

Hamilton HM11, Bermuda

(Address of principal executive offices)

Registrant’s telephone number: (441) 295-1422

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

    Large Accelerated Filer  ¨    NoAccelerated Filer  ¨    Non-Accelerated Filer  x

Indicate by check mark whether the registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 16, 2005,April 28, 2006, there were 37.5 million37,503,059 shares of the registrant’s Class A common stock and one share of the registrant’s Class B common stock outstanding.

TABLE OF CONTENTS

UnlessWhen we use the context otherwise requires, “Lazard,” “we,”terms “Lazard”, “we”, “us”, “our”, and “us” refer to“the Company”, we mean Lazard Ltd, a company incorporated under the laws of Bermuda, exempted company, and its subsidiaries, including Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), that is the current holding company for our businesses. Lazard Ltd has no material assets other than indirect ownership of approximately 37.6% of the common membership interests in Lazard Group and its subsidiaries.controlling interest in Lazard Group.

PART I. FINANCIAL INFORMATION

Condensed Consolidated Financial Statements (Unaudited)*

ownership interest in Lazard Group and all net income was allocable to the then members of Lazard Group. Commencing May 10, 2005, minority interest in net income includes LAZ-MD Holdings’ ownership interest of Lazard Group’s common membership interests.

LAZARD GROUP LLCLTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

DECEMBERMARCH 31, 20042006 AND MARCHDECEMBER 31, 2005

(UNAUDITED)

($dollars in thousands)thousands, except for per share data)

See notes to unaudited condensed consolidated financial statements.

LAZARD GROUP LLCLTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(UNAUDITED)

DECEMBERMARCH 31, 20042006 AND MARCHDECEMBER 31, 2005

(UNAUDITED)

($dollars in thousands)thousands, except for per share data)

See notes to unaudited condensed consolidated financial statements.

LAZARD GROUP LLCLTD

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 20042006 AND 2005

(UNAUDITED)

($dollars in thousands)thousands, except for per share data)

See notes to unaudited condensed consolidated financial statements.

LAZARD GROUP LLCLTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 20042006 AND 2005

(UNAUDITED)

($dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

LAZARD GROUP LLCLTD

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITYSTOCKHOLDERS’ DEFICIENCY

(UNAUDITED)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 20052006

(UNAUDITED)

($dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

LAZARD GROUP LLCLTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands, except for per share amounts,data, unless otherwise noted)

Organization

The accompanying unaudited condensed consolidated financial statements of Lazard Ltd and subsidiaries (collectively referred to as “Lazard Ltd” or the “Company”) including, subsequent to May 10, 2005, Lazard Ltd’s investment in Lazard Group LLC (formerly known as Lazard LLC and(a Delaware limited liability company, collectively referred to, with its subsidiaries, as “Lazard Group”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S.United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Ltd’s Registration Statementannual report on Form S-1 declared effective by10-K for the SEC on May 4,year ended December 31, 2005 (the “Registration Statement”) for the initial public offering of shares of Class A common stock, par value $0.01 per share (“Class A Common Stock”“Form 10-K”). The December 31, 2005 unaudited condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that Lazard Group may undertake in the future, actual results may be different than the estimates. The consolidated results of operations for the three month period ended March 31, 20052006 are not necessarily indicative of the results to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.

Lazard Ltd is a Bermuda holding company that was incorporated in October 2004. Pursuant to a Registration Statement on Form S-1 (File No. 333-121407) declared effective by the SEC on May 4, 2005 (the “Registration Statement”) for the initial public offering of shares of Lazard Ltd’s Class A common stock, par value $0.01 per share (“Class A common stock”), Lazard Ltd issued on May 10, 2005, at $25 per share, 34,183,162 shares of its Class A common stock in a registered initial public offering (the “equity public offering”). In addition, on May 10, 2005, pursuant to the IXIS Placements (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements) and the cashless exchange of certain of our chief executive officer’s interests in Lazard Group with Lazard Ltd, the Company issued 2,000,000 shares of its Class A common stock and 1,316,838 shares of its Class A common stock, respectively. These issuances, together with the 34,183,162 shares of Class A common stock issued pursuant to the equity public offering, resulted in the Company having 37,500,000 shares of its Class A common stock outstanding at the time of the equity public offering. The Company, through a number of newly-formed, wholly-owned subsidiaries, contributed the net proceeds from the equity public offering, along with the net proceeds it received from the financing transactions (as described in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements), to Lazard Group in exchange for 37,500,000 Lazard Group common membership interests, representing 37.5% of Lazard Group’s total common membership interests as of May 10, 2005, and, after giving effect to (i) the repurchase of a portion of the Lazard Group common membership interests held by LAZ-MD Holdings LLC (“LAZ-MD Holdings”) subsequent to May 10, 2005, as well as (ii) certain other share issuances by Lazard Ltd subsequent to December 31, 2005, approximately 37.6% of all outstanding Lazard Group common membership interests as of both December 31, 2005 and March 31, 2006. The Company, through its control of the managing members of Lazard Group, controls Lazard Group.

Lazard Group is a Delaware limited liability company, and is governed by its Amended and Restatedan Operating Agreement which wasdated as of May 10, 2005, as amended and restated in its entirety on May 10,December 19, 2005 (the “Operating Agreement”).

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The Company’s sole operating asset is its ownership of the common membership interest of Lazard Group’sGroup and its managing member interest of Lazard Group, whose current principal activities are divided into threetwo business segments:

In addition, Lazard Group records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the commercial banking activities of Lazard Group’s Paris-based Lazard Frères Banque SA (“LFB”). LFB is a registered bank regulated by the Banque de France. LFB’s primary commercial banking operations include the management of the treasury positions of Lazard Group’s Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of Lazard Frères Gestion SAS (“LFG”) and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. Lazard Group also allocates outstanding indebtedness to Corporate.

Prior to May 10, 2005, Lazard Group also had a business segment called Capital Markets and Other, which consisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services and merchant banking fund management activities outside of France as well as other specified non-operating assets and liabilities. This business segment’s assets and liabilities (referred to below as the “separated businesses”) were separated from Lazard Group on May 10, 2005, and the operating results of this former segment are reflected as discontinued operations for the three month period ended March 31, 2005. We refer to the transfer of the separated business as the “separation.”

The unaudited condensed consolidated financial statements include Lazard Ltd, Lazard Group and Lazard Group’s principal operating subsidiaries,subsidiaries: Lazard Frères & Co. LLC (“LFNY”), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as “LAM”); Lazard Frères SAS and Maison Lazard SAS, French limited liability companies, along with their respective subsidiaries, including LFB and LFG (collectively referred to as “LFP”); and Lazard & Co., Limited (“LCL”), through Lazard & Co., Holdings Limited, an English private limited company (“LCH”); together with their jointly-owned affiliates and subsidiaries.

The Separation and Recapitalization Transactions

On May 10, 2005, Lazard completed the separation and recapitalization transactions, including the financing transactions described in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements.

The Separation

In the separation, Lazard Group transferred the separated businesses to LFCM Holdings LLC (“LFCM Holdings”) through several steps. First, LAZ-MD Holdings was formed as the new holding company for Lazard Group. Pursuant to this formation, all of the persons who were members of Lazard Group prior to the formation became members of LAZ-MD Holdings and ceased to hold any membership interests in Lazard Group. Lazard Group then contributed the separated businesses to LFCM Holdings, which was then a subsidiary of Lazard Group, and distributed all of the LFCM Holdings interests to LAZ-MD Holdings. After the redemption of the

LAZARD GROUP LLCLTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—STATEMENTS—(Continued)

(dollars in thousands, except for per share amounts,data, unless otherwise noted)

historical partners described below, LAZ-MD Holdings distributed all of the LFCM Holdings interests to its members. Accordingly, after the separation, LFCM Holdings was wholly owned by the members of LAZ-MD Holdings, including Lazard Group’s December 31, 2004 condensed consolidated statementmanaging directors at the time of financial condition includes a reclassification of $44,171 from cash and securities segregated for regulatory purposes to cash and cash equivalents and other investments of $40,270 and $3,901, respectively. Such reclassification was made to conform to the presentation at March 31, 2005.separation.

See Note 9 for information regardingIn the initial public offering,separation, Lazard Group retained all of the additional financing transactionsCompany’s Financial Advisory and certain separated businesses (each as defined in Note 9). The separated businesses became a part of LFCM Holdings, effectiveAsset Management businesses. In addition, under the business alliance agreement, dated as of May 10, 2005, between Lazard Group and LFCM Holdings (the “business alliance agreement”), Lazard Group was granted the option to acquire the North American and European merchant banking businesses of LFCM Holdings.

The Recapitalization

On the same day as the separation, LAZ-MD Holdings and Lazard Group effected a recapitalization of their companies. The recapitalization had three principal parts—the financing transactions, the redemption of the historical partners’ interests and mandatorily redeemable preferred interests of Lazard Group and the issuance of LAZ-MD Holdings exchangeable interests to working members. “Historical partners” refers to certain former members of Lazard Group that existed prior to the recapitalization, which consisted of Eurazeo S.A., descendants and relations of Lazard Group’s founders, several historical partners of Lazard Group’s predecessor entities, several current and former managing directors and the other members of these classes. “Working members” refers to members of Lazard Group that existed prior to the recapitalization, which consisted of current and former managing directors of Lazard Group and the separated businesses.

The Financing Transactions

On May 10, 2005, the Company completed the financing transactions, which consisted of:

For a further description of the financing transactions, see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements.

The Company used the net proceeds from the financing transactions primarily to:

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The Redemption of the Historical Partners’ Interests

As noted above, a primary purpose of the financing transactions was the redemption of the historical partners’ interests. Prior to the separation and recapitalization, Lazard Group had three general classes of membership interests:

As part of the recapitalization transactions, historical partner interests and preferred interests generally were redeemed for cash.

Exchange of Working Member Interests for LAZ-MD Holdings Interests

In connection with the formation of LAZ-MD Holdings, the working member interests were exchanged with LAZ-MD Holdings for limited liability company interests in LAZ-MD Holdings. Each holder of a working member interest at the time of the separation and recapitalization transactions received, in exchange for his or her working member interest, a redeemable capital interest in LAZ-MD Holdings consisting of an equivalent amount of capital of LAZ-MD Holdings, an exchangeable interest in LAZ-MD Holdings and, if applicable, a right to receive distributions from LAZ-MD Holdings. The former holders of working member interests hold all of the limited liability company interests in LAZ-MD Holdings.

The separation and recapitalization transactions were consummated pursuant to the master separation agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings (the “master separation agreement”).

Basis of Presentation

The consolidated financial statements are prepared in conformity with U.S. GAAP. The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest as well as variable interest entities (“VIEs”) where the Company is deemed to be the primary beneficiary. All material intercompany transactions and balances have been eliminated.

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46 (R),“Consolidation of Variable Interest Entities” (“FIN 46 R”), the Company also consolidates any VIEs for which it is the primary beneficiary. In connection with the separation, Lazard Group transferred its general partnership interests in various VIEs to a subsidiary of LFCM Holdings. Lazard Group has determined that it is no longer the primary beneficiary with respect to those VIEs and, as a result, the Company no longer consolidates such VIEs. Amounts related to consolidation of such VIEs, for the three month period ended March 31, 2005 are included in loss from discontinued operations on the unaudited condensed consolidated statements of income.

The Company prepared an assessment that considered quantitative factors and qualitative factors that included, but was not limited to, the structure and purpose of the separation and recapitalization transactions, corporate governance and the controlling parties of Lazard Group, and management concluded that Lazard Ltd is the entity that is most closely associated with Lazard Group and therefore should consolidate the operations of Lazard Group. Accordingly, the accompanying unaudited condensed consolidated statements of financial condition as of March 31, 2006 and December 31, 2005 reflect the consolidated statements of financial condition of Lazard Ltd. The

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

unaudited condensed consolidated statements of income and cash flows for the three month period ended March 31, 2006 reflect the consolidated operating results and cash flows of Lazard Ltd and its subsidiaries. The unaudited condensed consolidated statements of income and cash flows for the three month period ended March 31, 2005 relate to Lazard Group and its subsidiaries.

The accompanying unaudited condensed consolidated statements of income and cash flows for the three month period ended March 31, 2005 do not reflect what the results of operations and cash flows of the Company would have been had it been a stand-alone, public company prior to May 10, 2005. In addition, the results of operations for periods until the equity public offering on May 10, 2005 are not comparable to results of operations for subsequent periods as described below.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

In accordance with U.S. GAAP, the results of operations of the separated businesses have been segregated and are reported as discontinued operations in the unaudited condensed consolidated statements of income for the three month period ended March 31, 2005. See Note 15 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information relating to discontinued operations.

Equity Public Offering—As described above, on May 10, 2005, Lazard Ltd consummated its equity public offering. The aggregate gross proceeds relating to the offering amounted to $854,579, and net proceeds to Lazard Ltd, after $65,844 of estimated expenses incurred by Lazard Ltd in connection with the issuance and distribution of the Lazard Ltd Class A common stock (including underwriting discounts and commissions, expenses paid to the underwriters and certain other expenses), was $788,735. Lazard Ltd contributed all the net proceeds from this offering to Lazard Group in exchange for a controlling interest in Lazard Group. In the three months ended March 31, 2006, additional costs of $2,677 relating to issuance of Class A common stock were incurred, representing amounts in excess of estimated costs associated with the equity public offering. Such amount was recorded as a reduction to additional paid-in-capital.

Other Financing Transactions—On May 10, 2005, the Company also completed the other financing transactions which are described below.

ESU Offering—Concurrently with the equity public offering, the Company issued, for $25 per unit, equity security units (the “ESUs”) for an aggregate offering amount of $287,500 (and net proceeds of $276,535) in the ESU offering. Each unit consists of (a) a contract which obligates holders to purchase, and the Company to sell, on May 15, 2008, a number of newly-issued shares of Class A common stock equal to a settlement rate based on the trading price of its Class A common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a 6.120% senior note due 2035 of an affiliate, Lazard Group Finance LLC, a Delaware limited liability company (“Lazard Group Finance”), with a principal amount of $1 (the “Lazard Group Finance Senior Notes”). Prior to its subsequent merger with Lazard Group discussed below, Lazard Group Finance was a wholly owned subsidiary of Lazard Group that was controlled by Lazard Ltd.

In connection with the quarterly contract adjustment payments on the purchase contracts, the Company recorded a liability as of May 10, 2005 for $6,013 for the present value of such payments (including the similar contract adjustment payments related to IXIS as described below), with a corresponding charge to additional paid-in-capital. The liability will accrete over the three year period ending May 15, 2008, with a corresponding charge to interest expense.

The Company began making quarterly contract adjustment payments on the purchase contracts at an annual rate of 0.505% on August 15, 2005. The Company has the right to defer these quarterly contract adjustment payments. In general, during any period in which it defers such payments, the Company cannot declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock.

The Lazard Group Finance Senior Notes, which bear interest at an annual rate of 6.12%, will mature (a) in the event of a successful remarketing, on any date no earlier than May 15, 2010 and no later than May 15, 2035, as we may elect, (b) in the event of a failed remarketing, on May 15, 2008 (the “stock purchase date”) and (c) otherwise on May 15, 2035. Lazard Group Finance used the proceeds from the ESU offering to purchase 6.120% senior notes from Lazard Group due 2035 (the “Lazard Group Notes”) with a principal amount of $287,500. The Lazard Group Notes, which have substantially similar terms to the Lazard Group Finance Senior Notes, were pledged to secure the obligations of the Lazard Group Finance Senior Notes.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

On December 19, 2005, Lazard Group consummated a Plan of Merger (the “Merger Agreement”) with Lazard Group Finance. The Merger Agreement provided for the merger of Lazard Group Finance with and into Lazard Group (the “Merger”).

Pursuant to the Merger, Lazard Group Finance merged with and into Lazard Group, with Lazard Group continuing as the surviving company. In addition, Lazard Group Finance ceased to be the managing member of Lazard Group, and the co-managing members of Lazard Group Finance, which are two indirect wholly owned subsidiaries of Lazard Ltd, became the co-managing members of Lazard Group. In connection with the Merger, Lazard Group became the successor registrant for Lazard Group Finance under the Securities Exchange Act of 1934, as amended.

Pursuant to the Merger and in accordance with the Indenture, dated as of May 10, 2005 (the “Lazard Group Finance Indenture”), Lazard Group assumed the obligations, including the remarketing, of Lazard Group Finance with respect to an aggregate principal amount of $437,500 of Lazard Group Finance Senior Notes issued pursuant to the Lazard Group Finance Indenture (including an aggregate principal amount of $150,000 related to IXIS as described below), which notes form a part of the 6.625% ESUs previously issued by Lazard Ltd. Simultaneously with the consummation of the Merger, in accordance with the terms of the Lazard Group Finance Indenture, all of the outstanding Lazard Group Finance Senior Notes were exchanged for, and replaced by, an aggregate principal amount of $437,500 of Lazard Group Notes issued pursuant to the Indenture, dated as of May 10, 2005 (the “Lazard Group Indenture”), which Lazard Group Notes were previously held by Lazard Group Finance, and the Lazard Group Finance Indenture was discharged. In accordance with the terms of the Lazard Group Finance Indenture, after the completion of this exchange, the Lazard Group Notes replaced the Lazard Group Finance Senior Notes for all purposes under the ESUs, including by serving as collateral for the obligations of the holders of the ESUs in substitution for the Lazard Group Finance Senior Notes.

Prior to the issuance of the Class A common stock upon settlement of the purchase contracts, the ESUs will be reflected in Lazard Ltd’s diluted net income per share using the treasury stock method. See Note 9 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding net income per share of Class A common stock.

IXIS Placements—Under the IXIS placements, IXIS, which is a subsidiary of Caisse Nationale des Caisses d’Epargne, purchased an aggregate of $200,000 of the Company’s securities on May 10, 2005, $150,000 of which were ESUs (the “IXIS ESU placement”) and $50,000 of which were shares of Class A common stock. The terms of the ESUs issued in connection with the IXIS ESU placement are the same as the ESUs described above. The price per security paid by IXIS was equal, in the case of shares of Class A common stock, to the price per share in the equity public offering and, in the case of ESUs, the price per unit in the ESU offering. The Company contributed the net proceeds from the sale of Class A common stock to Lazard Group. Lazard Group Finance used the net proceeds from the IXIS ESU placement to purchase Lazard Group Notes with a principal amount of $150,000.

Lazard Group Senior Notes—Concurrent with the equity public offering, Lazard Group issued, in a private placement, $550,000 aggregate principal amount of 7.125% senior notes due May 15, 2015 (the “Lazard Group Senior Notes”). The Lazard Group Senior Notes were issued net of original issue discount of $435. Interest on the notes is due May 15 and November 15 of each year, commencing on November 15, 2005. The notes are unsecured. A registration rights agreement, dated as of May 10, 2005, among Lazard Group and the initial purchasers of the Lazard Group senior notes provided the holders of the Lazard Group senior notes with registration rights. In that agreement Lazard Group agreed to register the offer and sale of substantially identical

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

notes (the “exchange notes”) in exchange for the privately-placed notes (the “old notes”). In connection therewith, Lazard Group filed a registration statement on Form S-4 that was declared effective by the SEC on September 28, 2005 and Lazard Group commenced an exchange offer (the “exchange offer”) on that date to exchange an aggregate principal amount of up to $550,000 of the old notes for an equal aggregate principal amount of the exchange notes. The exchange offer expired on October 26, 2005. On October 31, 2005, Lazard Group closed the exchange offer, at which time it exchanged $546,000 in aggregate principal amount of its old notes (approximately 99.3% of the aggregate principal amount of old notes outstanding) for $546,000 in aggregate principal amount of its exchange notes. The exchange notes are substantially identical to the old notes, except that the exchange notes have been registered under the Securities Act of 1933, as amended; and, as a result, the transfer restrictions applicable to the old notes do not apply to the exchange notes.

The indenture governing the Lazard Group Senior Notes contains covenants that limit Lazard Group’s ability and that of its subsidiaries, subject to important exceptions and qualifications, to, among other things, create a lien on any shares of capital stock of any designated subsidiary, and consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries. The indenture also contains a customary make-whole provision in the event of early redemption.

In connection with the issuance of the Lazard Group Senior Notes, on April 1, 2005, Lazard Group entered into an interest rate forward agreement with a bank for a notional amount of $650,000. By entering into this interest rate forward agreement, Lazard Group was able to ensure that the base rate (excluding market-driven credit spreads) on the Lazard Group Senior Notes would be no greater than 4.5%. Lazard Group settled the interest rate forward agreement with the bank as of May 9, 2005, which required a payment by Lazard Group of $13,004. Of this amount, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, $11,003 was deemed to be the effective portion of the hedge and has been recorded within other comprehensive income (loss) and is being amortized as a charge to interest expense over the ten year term of the Lazard Group Senior Notes.

Credit Facilities—Concurrent with the equity public offering, Lazard Group entered into a five year, $125,000 senior revolving credit facility with a group of lenders. As of March 31, 2006 and December 31, 2005, $25,000 and $30,000, respectively, was outstanding under this credit facility. The $125,000 senior revolving credit facility bears interest at either a Eurodollar or Federal Funds rate, plus an applicable margin, which varies from 125 to 200 basis points, depending on Lazard Group’s rating as determined by designated credit rating agencies.

The senior revolving credit facility contains affirmative and negative covenants. Such covenants include, among other things, limitations on the ability of Lazard Group to incur debt, grant liens, pay dividends, enter into mergers or to sell all or substantially all of its assets, as well as financial covenants that must be maintained.

3.    SIGNIFICANT ACCOUNTING POLICIES

The policies below represent recent changes to the Company’s significant accounting policies. A complete discussion of the Company’s significant accounting policies are included in Lazard Ltd’s Form 10-K.

Share-Based Payments—In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments” (“SFAS 123R”). SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and its related guidance. SFAS 123R is effective for the Company’s fiscal year beginning January 1, 2006. Prior to May 10, 2005, the date of the equity public offering, Lazard operated as a

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

series of related partnerships under the control of the partners and Lazard did not have a capital structure that permitted share based compensation. In connection with equity awards granted pursuant to the Company’s 2005 Equity Incentive Plan (described in more detail in Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements), the Company adopted the fair value recognition provisions under SFAS 123. Accordingly, subsequent to the dates of grant during 2005, Lazard recognized in compensation expense the amortized portion of the fair value of the equity awards, net of an estimated forfeiture rate, over the service period specified in the award.

Effective for the first quarter of 2006, Lazard adopted SFAS 123R. Under SFAS 123R, share-based awards that do not require future service are expensed immediately. Share-based employee awards that require future service are amortized over the requisite service period. Lazard adopted SFAS 123R under the modified prospective method. Under that method, the provisions of SFAS 123R are generally applied only to share-based awards granted subsequent to adoption. Share-based awards granted to employees prior to the adoption of SFAS 123R must continue to be amortized over the stated service periods of the awards, however, should the awards vest upon retirement, any unamortized cost would be recognized when the employee retires.

Additionally, SFAS 123R changed SFAS 123 by eliminating alternative methods for recognition of the costs of equity awards and recognition of award forfeitures. First, SFAS 123R changed SFAS 123 by precluding the use of the intrinsic method as provided for under APB 25 and requiring fair value recognition. Second, SFAS 123R differed from SFAS 123 by precluding the recognition of forfeitures on an actual basis by requiring the application of an estimated forfeiture rate to the amortizable cost of the award for all unvested awards. The Company adopted both the fair value recognition and the estimated forfeiture rate methods required under SFAS 123R in 2005 while accounting for equity awards under the provisions of SFAS 123.

SFAS 123R also requires that the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under prior accounting standards. This requirement reduces net operating cash flows and increases net financing cash flows in periods beginning with and subsequent to adoption of SFAS 123R. Total net cash flow remains unchanged from what would have been reported under prior accounting rules.

As a result of the Company adopting certain provisions consistent with SFAS 123R upon the introduction of its 2005 Equity Incentive Plan while under the provisions of SFAS 123, there is no significant effect resulting from the adoption of the provisions of SFAS 123R which would require restatement of its prior period financial statements.

Investments in Limited Partnerships—On January 1, 2006, the Company adopted, as required, the provisions of Emerging Issues Task Force (“EITF”) Issue No. 04-5,“Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or, Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). The EITF consensus requires a general partner in a limited partnership to consolidate the limited partnership unless the presumption of control is overcome. The general partner may overcome this presumption of control and not consolidate the entity if the limited partners have: (a) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partner without having to show cause; or (b) substantive participating rights in managing the partnership. EITF 04-5 was effective for general partners of all newly-formed limited partnerships and for existing limited partnerships for which the partnership agreements are modified after June 29, 2005, and for general partners in all other limited partnerships, no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of the provisions of EITF 04-5 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Recent Accounting Pronouncements—In February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140”(“SFAS 155”).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 155, but does not expect the standard to have a material impact on the financial condition, results of operations, or cash flows of the Company.

In March 2006, the FASB issued SFAS No. 156“Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140”(“SFAS 156”),which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 156, but does not expect the standard to have a material impact on the financial condition, results of operations, or cash flows of the Company.

Minority interest consists of a number of components, including minority interests in LAM and the Company’s business in Italy which, through a strategic alliance, is owned 40% by Banca Intesa S.p.A. (“Intesa”). In addition, the Company consolidates various LAM related general partnership interests that it controls but does not wholly own. As a result of consolidating these companies, the Company recognizes the portion of income not associated with the Company’s ownership as minority interest.

Payments for services rendered by managing directors of LAM (and employee members of LAM) had, prior to May 10, 2005, been accounted for as minority interest in net income and since that date such payments, together with distributions to profit participation members, have been included in “compensation and benefits” expense on the unaudited condensed consolidated statements of income.

Commencing May 10, 2005, the Company records a charge to minority interest in net income relating to LAZ-MD Holdings’ ownership interest in Lazard Group (which approximated 62.4% at March 31, 2006), with such minority interest in net income amounting to $37,228 for the three month period ended March 31, 2006. Accordingly, for the reasons stated in this and the preceding paragraph, amounts recorded as minority interest in net income for periods prior to May 10, 2005 are not comparable to amounts recorded as minority interest in net income for periods commencing May 10, 2005.

The Company classifies LAZ-MD Holdings’ ownership of Lazard Group’s common membership interests as a reduction of the Company’s additional paid-in capital rather than as minority interest, since the balance of such minority interest as of March 31, 2006 and December 31, 2005 of $513,667 and $542,713, respectively, is negative. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements with respect to distributions paid to LAZ-MD Holdings.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

In September 2002,Pursuant to the existing strategic alliance in effect since January 2003, Lazard Group and Banca Intesa S.p.A.have conducted selected Italian investment banking business solely through Lazard & Co. S.r.l. (“Intesa”Lazard Italy”) announced, an agreement to form aindirect subsidiary of Lazard Group. As part of the strategic alliance, (the “Strategic Alliance”Intesa made the following investments:

The subordinated promissory note$150,000 Subordinated Convertible Note, which is guaranteed by Lazard Group (the “Guarantee”), currently has a scheduled maturity date in March 2018 and has interest payable annually at a variable interest rate of not less than 3%, and not more than 3.25%, per annum. The $50,000 Subordinated Promissory Note currently has a scheduled maturity date in the year 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum. The strategic alliance was governed by a Master Transaction and Relationship Agreement dated as of March 26, 2003 (the “Master Agreement”) among Lazard Group, Intesa and Lazard Italy.

From time to time, Lazard Group has considered appropriate modifications to its relationship with Intesa. Lazard Group has held various discussions with IntesaAs previously disclosed, in connection with the separation and recapitalization transactions in connection with the equity public offering of Lazard Ltd, Lazard Group and Intesa hasheld various discussions concerning the joint venture relationship and the impact of the equity public offering. In the course of such discussions, Intesa notified Lazard Group of its intention not to extend the term of the joint venture relationship beyond theits initial expiration date of December 31, 2007. AsThe strategic alliance accordingly is due to expire on December 31, 2007, as a result underof which Lazard Group would be obligated to acquire the Intesa JV Interest and the $50,000 Subordinated Promissory Note on or about February 4, 2008 for an aggregate amount in cash not to exceed $150,000.

On March 31, 2006, Lazard Group, Lazard Italy and Intesa reached an agreement regarding their future business relationship in Italy and entered into a Termination Agreement (the “Termination Agreement”), which provides for the termination of the joint venture relationship and the Master Agreement at the closing of the transactions contemplated by the Termination Agreement and mutual release arrangements with respect to matters concerning the joint venture relationship. At this termination closing, which is expected to occur promptly after receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions, the following adjustments will be made to the terms of the Strategic Alliance, unlessIntesa’s investment in Lazard Group and its affiliates:

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise agree,noted)

Senior Debt—Senior debt is comprised of the following as of March 31, 2006 and December 31, 2005:

Subordinated Debt—Subordinated debt at March 31, 2006 and December 31, 2005 amounted to $200,000 and consist of amounts due to Intesa in connection with the joint venture,Strategic Alliance transaction in Italy (See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements).

As of March 31, 2006, the Company is in compliance with all obligations under its various senior and subordinated borrowing arrangements.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Commitments—Lazard has various leases and other contractual commitments arising in the ordinary course of business. In the opinion of management, the fulfillment of such commitments in accordance with their terms will not have a material adverse effect on Lazard’s consolidated financial position or results of operations.

During the three months ended March 31, 2005, the Company recorded impairment costs of approximately $6,300 relating to certain abandoned leased facilities in the U.K, which is included in “loss from discontinued operations” on the unaudited condensed consolidated statement of income. These costs represent a provision for lease obligations recorded prior to February 4, 2008. Basedthe lease indemnity from LFCM of $25,000 (described below) and as such are excluded from the indemnification. In accordance with SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities”, the provision recorded for lease obligations on the current performancecease-use date was determined based on the fair value of the joint venture,liability for costs that will continue to be incurred for the remaining term of the lease without economic benefit to the Company, based on the remaining lease rentals, reduced by estimated sublease rentals.

With respect to the abandoned facilities discussed above, at March 31, 2006 and December 31, 2005 the Company has recorded liabilities of $35,208 and $37,490, respectively, exclusive of the indemnification described below, which are included in “other liabilities” on the unaudited condensed consolidated statements of financial condition. Payments toward the liabilities continue through the remaining term of the leases. Such liabilities are based on the discounted future commitment, net of expected sublease income.

Under the master separation agreement and a related lease indemnity agreement, dated as of May 10, 2005, by and between LFCM Holdings and one of our London subsidiaries, LFCM Holdings is obligated to indemnify Lazard Group does not currently expectfor certain liabilities relating to abandoned leased space in the expirationU.K., up to a maximum of $29,000. In connection with Lazard Group’s recent entry into subleases with respect to a portion of this abandoned leased space and the incurrence of the joint venturerelated liabilities, during the fourth quarter of 2005 Lazard Group entered into an agreement with LFCM Holdings which provides for LFCM Holdings to pay to Lazard Group $25,000 in full satisfaction of LFCM’s indemnification obligations with respect to the abandoned leased space.

The receivable relating to the indemnity from LFCM Holdings of $25,000 was recorded at its present value. After payments received in 2005 of $6,209, the net present value of the balance due at March 31, 2006 and December 31, 2005 of $17,275 and $17,031, respectively, is included in “receivables - related parties” on the unaudited condensed consolidated statements of financial condition (see Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements). The balance is due based on a schedule of periodic payments through May 10, 2010.

Legal—The Company businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. The Company is involved in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses. The Company reviews such matters on a case by case basis and establishes its reserves in accordance with SFAS No. 5,“Accounting For Contingencies”. Management believes, based on currently available information, that the results of such matters, in the aggregate, will not have a material adverse effect on its financial condition but might be material to its operating results.results or cash flows for any particular period, depending upon the operating results for such period.

The Company received a request for information from the NASD as part of what it understands to be an industry investigation relating to gifts and gratuities, which is focused primarily on the Company’s former

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Capital Markets business, which business was transferred to LFCM Holdings as a part of the separation. In addition, the Company received requests for information from the NASD, SEC and the U.S. Attorney’s Office for the District of Massachusetts seeking information concerning gifts and entertainment involving an unaffiliated mutual fund company, which are also focused on that same business. The Company believes that other broker-dealers also received requests for information. In the course of an internal review of these matters, there were resignations or discipline of certain individuals associated with Lazard’s former Capital Markets business. These investigations are continuing and the Company cannot predict their potential outcomes. Accordingly, the Company has not recorded an accrual for losses related to any such judicial, regulatory or arbitration proceedings.

The Company and Goldman Sachs & Co., the lead underwriter of the Company’s equity public offering of its Class A common stock, as well as several members of the Company’s management and board of directors, have been named as defendants in several putative class action lawsuits and a putative stockholder derivative lawsuit filed in the U.S. District Court for the Southern District of New York, and in a putative class action lawsuit and a putative stockholder derivative lawsuit filed in the Supreme Court of the State of New York. The defendants removed the putative class action lawsuit filed in the Supreme Court of the State of New York to the U.S. District Court for the Eastern District of New York, and the plaintiffs moved for remand. The motion for remand was referred to a Magistrate Judge, who has issued a Report and Recommendation recommending that the plaintiffs’ motion be granted. The defendants removed the putative derivative lawsuit filed in the Supreme Court of the State of New York to the U.S. District Court for the Southern District of New York, and the plaintiff moved for remand. By Decision and Order dated February 17, 2006, the U.S. District Court for the Southern District of New York granted the plaintiff’s motion for remand. The defendants have filed a Notice of Appeal. The plaintiffs in the putative class action lawsuits filed in the U.S. District Court for the Southern District of New York have filed a consolidated amended complaint, and the defendants have filed a motion to dismiss that complaint. The putative class action lawsuits purport to have been filed on behalf of persons who purchased securities of the Company in connection with the equity public offering or in the open market. The putative class actions allege various violations of the federal securities laws and seek, inter alia, compensatory damages, rescission or rescissory damages and other unspecified equitable, injunctive or other relief. The putative derivative actions purport to be brought on behalf of the Company against its directors and Goldman Sachs & Co. and allege, among other things, that the directors breached their fiduciary duties to the Company in connection with matters related to the equity public offering and seek compensatory damages, punitive damages and other unspecified equitable or other relief. We believe that the suits are without merit and intend to defend them vigorously.

For a description of recent developments involving the Company’s relationship with Intesa, see Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements.

Pursuant to Lazard Group’s Operating Agreement as in effect prior to the amended and restated Operating Agreement, Lazard Group allocated and distributed to its members a substantial portion of its distributable profits in three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually began in February. In addition, other periodic distributions to members included, as applicable, capital withdrawals, fixed return on members’ equity and income tax advances made on behalf of members.

In connection with the consummation of the equity public offering, during the period January 1 through May 9, 2005, Lazard Group’s members’ equity was reduced by approximately $145,000 (including $18,000 in the three month period ended March 31, 2005) for the repurchase of working member interests prior to consummation of the equity public offering.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Pursuant to provisions of its amended and restated Operating Agreement, Lazard Group distributions in respect of common membership interests are allocated to the holders of such interests on a pro rata basis. At March 31, 2006, approximately 37.6% and 62.4% of the outstanding Lazard Group common membership interests are held by subsidiaries of the Company and by LAZ-MD Holdings, respectively. Such distributions represent amounts necessary to fund (i) any dividends the Company may declare on its Class A common stock and (ii) tax distributions in respect of income taxes that the Company’s subsidiaries and the members of LAZ-MD Holdings incur as a result of holding Lazard Group common membership interests. In February 2006, Lazard Group distributed $5,591 to LAZ-MD Holdings and $3,375 to the Company’s subsidiaries, which latter amount was used by the Company to pay dividends to holders of its Class A common stock. In March 2006, Lazard Group made tax distributions of $12,239, including $7,632 to LAZ-MD Holdings and $4,607 to subsidiaries of Lazard Ltd.

On May 9, 2006, the Board of Directors of Lazard Ltd declared a quarterly dividend of $0.09 per share on Class A common stock, totaling $3,375, to be paid on May 31, 2006 to stockholders of record on May 19, 2006.

A description of the Company’s 2005 Equity Incentive Plan, and activity with respect thereto during the three month period ended March 31, 2006 is presented below.

Shares Available Under the 2005 Equity Incentive Plan (the “Equity Incentive Plan”)

The Equity Incentive Plan authorizes the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock, stock units and other equity-based awards. Each stock unit granted under the Equity Incentive Plan represents a contingent right to receive one share of Class A common stock of the Company, at no cost to the recipient. The fair value of such stock unit awards is equal to the closing market price of the Company’s Class A common stock at the date of grant.

Deferred Stock Unit (“DSUs”) Grants

As part of their compensation for serving as members of the Board of Directors and its various committees, during the three month period ended March 31, 2006, certain of the Non-Executive Directors of the Company were granted approximately 1,625 DSUs, with an average fair value on the dates of grant of $39.10 per unit. DSU awards are expensed at their full fair value on their date of grant, which totaled approximately $64 during the three month period ended March 31, 2006.

On May 9, 2006, the Board of Directors adopted the Directors’ Fee Deferral Unit Plan, which allows the Company’s Non-Executive Directors to elect to receive additional DSUs pursuant to the Equity Incentive Plan in lieu of some or all of their cash fees. The number of DSUs that shall be granted to a Non-Executive Director pursuant to this election shall equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of Lazard Ltd Class A common stock on the date on which the foregone cash fees would otherwise have been paid.

Restricted Stock Unit (“RSUs”) Grants

On January 24, 2006, the Company granted 2,711,041 RSUs to eligible employees. These RSUs include a dividend participation right during the vesting period that provides that each RSU receives additional RSUs (or fractions thereof) equivalent to any ordinary quarterly dividends paid on Class A common stock. During the three month period ended March 31, 2006, such dividend participation rights resulted in the issuance of 6,341 additional RSUs. The issuance of the 6,341 additional RSUs resulted in a charge to retained earnings and a credit to additional paid-in-capital in the amount of $244 based on a grant date fair value of $38.48 per share. Through March 31, 2006, 32,943 of the RSUs granted in 2006 were forfeited, including those relating to the dividend participation rights. In addition, during the three month period ended March 31, 2006, 4,000 shares relating to RSUs granted in 2005 were forfeited.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The RSUs convert into Class A common stock on a one-for-one basis after the stipulated vesting periods. The aggregate fair value of the RSUs is amortized, as compensation expense, over the vesting periods and, for purposes of calculating diluted net income per share, are included in the diluted weighted average shares of Class A common stock outstanding using the treasury stock method. Expense relating to RSUs is charged to “compensation and benefits” within the unaudited condensed consolidated statement of income, and for the three month period ended March 31, 2006 amounted to approximately $4,200.

The following is a summary of activity relating to DSUs and RSUs during the three month period ended March 31, 2006:

As of March 31, 2006, unrecognized RSU compensation expense, adjusted for estimated forfeitures, was approximately $85,192. Such compensation expense is expected to be recognized over a weighted average period of approximately 4.0 years and the ultimate amount of such expense is dependent upon the actual number of RSUs that will vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates could cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense as of March 31, 2006.

Share Repurchase Program

On February 7, 2006, the Board of Directors of Lazard Ltd authorized the repurchase of up to $100,000 in aggregate cost of Lazard Ltd’s Class A common stock. The share repurchase program will be used primarily to offset shares to be issued under the Equity Incentive Plan. Purchases may be made in the open market or through privately negotiated transactions in 2006 and 2007. There were no share repurchases during the three month period ended March 31, 2006.

The Company’s net income (all of which relates to its continuing operations) and weighted average shares outstanding for the three month period ended March 31, 2006 consists of the following:

Net income per share information is not applicable for reporting periods prior to May 10, 2005, the date of the consummation of the equity public offering. The calculation of basic and diluted net income per share amounts for the three month period ended March 31, 2006 is described and presented below.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Basic Net Income Per Share

Numerator—utilizes net income for the three month period ended March 31, 2006.

Denominator—utilizes the 37,502,889 shares of Class A common stock, which represents the weighted average shares for the three month period ended March 31, 2006.

Diluted Net Income Per Share

Numerator—utilizes net income for the three month period ended March 31, 2006 as in the basic net income per share calculation described above, plus, to the extent dilutive, (i) income adjustments relating to assumed share issuances in connection with DSUs, RSUs and ESUs and (ii) on an as-if-exchanged basis, amounts applicable to LAZ-MD Holdings exchangeable interests, and corporate tax related to (i) and (ii) herein.

Denominator—utilizes the 37,502,889 shares of Class A common stock as in the basic net income per share calculation described above, plus DSU and RSU awards issued to Non-Executive Directors and employees of the Company, respectively, as calculated using the treasury stock method. In addition, the denominator includes, to the extent dilutive, shares issuable relating to (i) ESUs using the treasury stock method and (ii) LAZ-MD Holdings exchangeable interests, on an as-if-exchanged basis.

The LAZ-MD Holdings exchangeable interests (which, as of March 31, 2006, represent the right to receive 62,118,749 shares of Class A common stock upon exchange) were antidilutive and consequently the effect of their conversion into shares of Class A common stock has been excluded from diluted net income per share of Class A common stock.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Prior to the issuance of the Class A common stock upon settlement of the purchase contracts, the ESUs will be reflected in the Company’s diluted net income per share using the treasury stock method.Under the treasury stock method, as defined by SFAS No. 128, “Earning Per Share” the number of shares of common stock included in the calculation of diluted income per share is the excess, if any, of the number of shares expected to be issued upon settlement of the purchase contracts less the number of shares that could be purchased by the Company with the proceeds to be received upon settlement at the average market closing price during the reporting period. The number of shares of common stock Lazard Ltd will issue upon settlement of the forward purchase contract component of the ESUs is not fixed, but instead is dependent on the closing price per share of its common stock for each of the 20 trading days beginning on April 15, 2008. Because the settlement terms of the purchase contracts vary, the number of shares to be issued depends on whether the closing price of the stock for the last 20 trading days in the reporting period is less than or equal to $25 per share, greater than $25 per share and less than $30 per share or greater than or equal to $30 per share. Dilution of income per share will occur (i) in reporting periods when the average stock price is over $30 per share and (ii) in reporting periods when the average closing price of common stock for a reporting period is greater than $25 and is greater than the average market price for the last 20 days of such reporting period.

Both the FASB and the EITF continue to study the accounting for financial instruments and derivative instruments, including instruments such as the ESUs. It is possible that the Company’s accounting for the ESUs could be affected by any new accounting rules that might be issued by these groups. Accordingly, there can be no assurance that the method in which the ESUs are reflected in the Company’s diluted income per share will not change in the future if accounting rules or interpretations evolve.

As further discussed in Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements, on March 31, 2006 the Company and Intesa entered into the Termination Agreement. Among its various terms, the Termination Agreement provides for Lazard Group to issue an amended $150,000 subordinated note that is convertible into approximately 2,632,000 shares of Class A common stock. Should the transactions contemplated by the Termination Agreement be consummated, to the extent dilutive, the shares potentially issuable under the terms of the amended $150,000 subordinated convertible note would be included in future periods’ calculations of net income per share using the “if converted” method, for purposes of calculating diluted net income per share. Additionally, interest expense related to the amended $150,000 subordinated convertible note would be excluded from net income for purposes of calculating net income per share on a diluted basis.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Lazard Group,The Company, through its subsidiaries, provides certain retirement and other post-employment benefits to certain of its employees through defined contribution and defined benefit pension plans and other post-retirement benefit plans. The Company has the right to amend or terminate its benefit plans at any time subject to the terms of such plans. Expenses incurred related to the defined benefit pension plans, the defined benefit pension plan supplement and the post-retirement health care plans are included in “compensation and benefits” and, with respect to the separated businesses, “loss from discontinued operations” on the unaudited condensed consolidated statements of income. Such expenses for the three month periods ended March 31, 20042006 and 2005 are shown in the tabletables below.

LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Lazard Group has the right to amend or terminate its benefit plans at any time, subject to the terms of such plans and applicable law. Recent amendments and terminations are described below.

Amendments to LFNY Employee Benefit Plans

Termination of LCH’s Post-Retirement Medical Plan—In April 2004, LCH announced a plan to terminate its Post-Retirement Medical Plan. As a result of such action, benefits available to eligible active employees and retirees will cease on February 28, 2007. In accordance with Statement of Financial Accounting Standards (“SFAS”)SFAS No. 106, “Employers’ Accounting for Post-Retirement Benefits Other Than Pensions, Lazard Group” the Company is recognizing the effect of such termination which resulted inas a reduction in Lazard Group’s accumulated post-retirement benefit obligation of approximately $24,000, the effect of which will reduce employee compensation and benefits expense over the period ending February 2007. For the three month periodperiods ended March 31, 2006 and 2005, employee compensation and benefits expense was reduced by approximately $2,300$2,134 and $2,302, respectively, related to the effect of such termination.

LAZARD GROUP LLCLTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—STATEMENTS—(Continued)

(dollars in thousands, except for per share amounts,data, unless otherwise noted)

Amendments to LCH Pension Plans—Effective March 31, 2006, the LCH pension plans were amended to cease future accruals. As a result of such amendment, future service and compensation increases will not count for purposes of future benefit accruals under the plans. Vested benefits for active participants as of March 31, 2006 will be retained.

Employer Contributions and Indemnities from LFCM Holdings—As reflected in Lazard Group’sof December 31, 2004 consolidated financial statements included in the Registration Statement,2005, Lazard Group’s principal U.K. pension plans had a combined deficit of approximately $95,000$46,800 (or approximately 49,20027.2 million British pounds). This deficit would ordinarily be funded over time. Lazard Group has been in discussions withIn the trusteesthird quarter of the pension plans aimed at reaching agreement regarding a deficit reduction plan. In May 2005, “Heads of Terms” have been agreedagreements were executed between Lazard Group and the trustees of thesuch pension plans dealing with a plan for the future funding of the deficit as well as with asset allocation. In June 2005, Lazard Group expects to execute a final agreement with the trustees. Irrespective of the terms in the final executed agreement,of these agreements, in considering their duties to beneficiaries, the trustees also have the power to change the asset allocation. Any changes in the asset allocation could changeincrease or decrease the unfunded liability that would be funded over time, depending on asset mix, any increase in liabilities and investment returns. It is also the case thatIn addition, the pensions regulator in the U.K. may have the power to require contributions to be made to plans, and to impose support in respect of the funding of plans by related companies other than the direct obligors. As part of the separation, (see Note 9), Lazard Groupthe Company made a contribution to LFCM Holdings of $55,000 in connection with the provision by LFCM Holdings of support relating to U.K. pension liabilities and other indemnities. Lazard Group anticipates that as part of the separation, LFCM Holdings will make payments of 30,000 British pounds in the aggregate to reimburse Lazard Group when Lazard Group or one of its subsidiaries makes payments to reduce the pension plan deficit.

Approximately $31,000Contributions of approximately $29,800 (or 16,40016.4 million British pounds) of contributions were made to Lazard Group’sthe Company’s defined benefit pension plans in the U.K during the year ended December 31, 2005, of which 15.0 million British pounds were reimbursed by LFCM Holdings.

The Company will make further payments amounting to 16.4 million British pounds on June 1, 2006, 8.2 million British pounds on June 1, 2007 and 8.2 million British pounds on June 1, 2008. Relating to the June 1, 2006 payment, Lazard Group recorded a receivable of approximately $26,800 from LFCM Holdings relating to the 15.0 million British pounds which is the remaining amount that LFCM Holdings is obligated to reimburse the Company (see Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements).

Prior to May 10, 2005, the Company was not subject to U.S. federal income taxes. However, the Company was subject to UBT attributable to its operations apportioned in New York City. In addition, certain non-U.S. subsidiaries of the U.K. OfCompany were subject to income taxes in their local jurisdictions. Commencing May 10, 2005, a portion of the Company’s income is also subject to U.S. federal income tax and the Company’s provision for income taxes is accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes.”

Deferred income taxes reflect the net tax effects of temporary differences between the book and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such amount, approximately $1,600differences are expected to reverse. Such temporary differences are reflected in deferred tax assets and liabilities and are included in “other assets” and “other liabilities,” respectively, on the unaudited condensed consolidated statements of financial condition.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the level of historical taxable income, scheduled reversals of deferred taxes, projected future taxable income and tax planning strategies that can be implemented by the Company in making this assessment.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The Company’s provision for income taxes for the three month periods ended March 31, 2006 and 2005 was contributed during$15,940 and $7,803, respectively, representing effective tax rates on operating income from continuing operations of 20.4% and 7.9%, respectively.

For the three month period ended March 31, 20052006, the effective tax rate of 20.4% is a rate comprised of a blend of (i) an estimated 28% effective rate applicable to Lazard Ltd’s ownership interest in Lazard Group’s operating income from continuing operations (less its applicable share of LAM general partnership related revenues) and (ii) Lazard Group’s estimated effective tax rate of 17.0% applicable to the remainder was contributed on June 1, 2005 when LFCM Holdings also satisfied its obligation to reimburse 15,000 British pounds toremaining ownership interest in Lazard Group.

During the three month period ended March 31, 2006, the difference between the U.S. federal statutory tax rate of 35% and the 28% estimated effective tax rate applicable to Lazard Ltd’s ownership interest in Lazard Group will make further payments amountingprincipally relates to 16,400 British pounds on June 1, 2006, 8,200 British pounds on June 1, 2007foreign source income not subject to U.S. income taxes and 8,200 British pounds on June 1, 2008.the amortization associated with the tax basis step-up resulting from the separation and recapitalization, partially offset by U.S. state and local taxes, including UBT, which are incremental to the U.S. federal statutory tax rate.

The difference between the U.S. federal statutory tax rate of 35% and Lazard Group’s estimated effective tax rates of 17.0% and 7.9% for the three month periods ended March 31, 2006 and 2005, respectively, with respect to the ownership interests not held by Lazard Ltd, is principally due to Lazard Group’s U.S. limited liability company status, which is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income is not subject to U.S. federal income taxes because taxes related to its income represent obligations of the individual partners. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes. Additionally, Lazard Group is subject to UBT attributable to Lazard Group’s operations apportioned to New York City.

Tax Receivable AgreementIn January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 46, which provides additional guidance on the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, for enterprises that have interests in entities that meet the definition of a Variable Interest Entity (“VIE”). On December 24, 2003, the FASB issued FIN 46R,Consolidation of Certain Variable Interest Entities—an interpretation of ARB No. 51, which requires that an entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.

Lazard Group is involved with various entities in the normal courseThe redemption of business that are VIEs and hold variablehistorical partner interests in such VIEs. Transactions associated with these entities primarily include investment management, real estate and private equity investments. Those VIEs for which Lazard Group is the primary beneficiary were consolidated beginning in 2004 in accordance with FIN 46R. Those VIEs include company sponsored venture capital investment vehicles established in connection with the separation and recapitalization has resulted, and the exchanges of LAZ-MD Holdings exchangeable interests for shares of Class A common stock may result, in increases in the tax basis of the tangible and/or intangible assets of Lazard Group’s compensation plans.

Lazard Group’s merchant banking activities consistGroup. The tax receivable agreement, dated as of making private equity, venture capitalMay 10, 2005, with LFCM Holdings requires the Company to pay LFCM Holdings 85% of the cash savings, if any, in U.S. federal, state and real estate investments on behalflocal income tax or franchise tax that the Company actually realizes as a result of customers. Atthe above-mentioned increases in tax basis. During the year ended December 31, 2005, the Company recorded a provision of $2,685 pursuant to the tax receivable agreement, with the liability related thereto included within payable to related parties as of March 31, 2006 and December 31, 2005 on the unaudited condensed consolidated statements of financial position. The Company calculates this provision annually once the results of operations for the full year are known. As a result, there is no provision for such payments in connection with its merchant banking activities, the net assets of entities for which Lazard Group has a significant variable interest was approximately $102,000. Lazard Group’s variable interests associated with these entities, consisting of investments, carried interest and management fees, were approximately $24,350, which represents the maximum exposure to loss, only if totalthree month period ended March 31, 2006.

LAZARD GROUP LLCLTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—STATEMENTS—(Continued)

(dollars in thousands, except for per share amounts,data, unless otherwise noted)

assets declined 100% at March 31, 2005. At March 31, 2005, the consolidated statement of financial condition included $22,552 of incremental assets relating to the consolidation of VIEs for such merchant banking activities in which Lazard Group was deemed to be the primary beneficiary.

In connection with its Capital Markets and Other segment activities, Lazard Group holds a significant variable interest in an entity with liabilities of $12,800 at March 31, 2005. Lazard Group’s variable interests associated with this entity, primarily paid-in-kind notes, were approximately $12,800 at March 31, 2005. As the noteholders have sole recourse only to the underlying assets, Lazard Group has no exposure to loss at March 31, 2005. Also, as Lazard Group is not the primary beneficiary, the entity has not been consolidated.

Amounts receivable from and payable to related parties as of March 31, 2006 and December 31, 2005 are set forth below:

Commitments—LFCM Holdings

LFCM Holdings owns and operates the separated businesses and is owned by the working members, including Lazard’s managing directors who are also members of LAZ-MD Holdings. In addition to the master separation agreement which effected the separation and recapitalization as discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, LFCM Holdings entered into an insurance matters agreement and a license agreement that addressed various business matters associated with the separation, as well as several other agreements discussed below.

Under the employee benefits agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group, has various leasesLAZ-MD Holdings and LFCM Holdings, LFCM Holdings generally assumed, as of the completion of the separation and recapitalization transactions, all outstanding and future liabilities in respect of the current and former employees of the separated businesses. The Company retained all accrued liabilities under, and assets of, the pension plans in the U.S. and the U.K. as well as the 401(k) Plan accounts of the inactive employees of LFCM Holdings and its subsidiaries. See Note 10 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding employer contributions and indemnities from LFCM Holdings.

Pursuant to the administrative services agreement dated as of May 10, 2005, by and among LAZ-MD Holdings, LFCM Holdings and Lazard Group (the “administrative services agreement”), Lazard Group provides selected administrative and support services to LAZ-MD Holdings and LFCM Holdings, such as cash management and debt service administration, accounting and financing activities, tax, payroll, human resources administration, financial transaction support, information technology, public communications, data processing, procurement, real estate management, and other contractual commitments arising in the ordinary course of business. In the opinion of management, the fulfillment of such commitments in accordance with their terms will not have a material adverse effectgeneral administrative functions. Lazard Group charges for these services based on Lazard Group’s consolidated financial positioncost allocation methodology.

The services provided by Lazard Group to LFCM Holdings and by LFCM Holdings to Lazard Group under the administrative services agreement generally will be provided until December 31, 2008. LFCM Holdings and Lazard Group have a right to terminate the services earlier if there is a change of control of either party or resultsthe business alliance provided in the business alliance agreement expires or is terminated. The party receiving a service may also terminate a service earlier upon 180 days’ notice as long as the receiving party pays the service provider an additional three months of operations.service fee for terminated service.

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The business alliance agreement provides that Lazard Group will refer to LFCM Holdings selected opportunities for underwriting and distribution of securities. In addition Lazard Group will provide assistance in the execution of any such referred business. In exchange for the referral obligation and assistance, Lazard Group will receive a referral fee from LFCM Holdings equal to approximately half of the revenue obtained by LFCM Holdings in respect of any underwriting or distribution opportunity. In addition, LFCM Holdings will refer opportunities in the Financial Advisory and Asset Management businesses to Lazard Group. In exchange for this referral, LFCM Holdings will be entitled to a customary finders’ fee from Lazard Group. The business alliance agreement further provides that, during the term of the business alliance, LFNY and LAM Securities, subsidiaries of Lazard Group, will introduce execution and settlement transactions to newly-formed broker-dealer entities affiliated with LFCM Holdings. The term of the business alliance will expire on the fifth anniversary of the equity public offering, subject to periodic automatic renewal, unless either party elects to terminate in connection with any such renewal or elects to terminate on account of a change of control of either party.

For the three month period ended March 31, 2005,2006, amounts recorded by Lazard Group recorded a provisionrelating to administrative and support services and referral fees for underwriting transactions amounted to approximately $1,015 and $551, respectively.

Receivables from LFCM Holdings and its subsidiaries as of March 31, 2006 and December 31, 2005 include $17,275 and $17,031, respectively, outstanding related to the lease indemnity agreement and $26,800 as of March 31, 2006 and December 31, 2005 related to the U.K. pension indemnity. The remaining receivables of $7,716 and $9,956 at March 31, 2006 and December 31, 2005, respectively, relate primarily to administrative and support services and reimbursement of expenses paid on behalf of LFCM Holdings ($4,300 and $2,600 as of March 31, 2006 and December 31, 2005, respectively) and referral fees for underwriting transactions ($2,900 and $6,300 as of March 31, 2006 and December 31, 2005, respectively). Payables to LFCM Holdings and its subsidiaries at March 31, 2006 and December 31, 2005 include $2,685 pursuant to the tax receivable agreement described in Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements.

LAZ-MD Holdings

As of March 31, 2006, LAZ-MD Holdings holds an approximate 62.4% common membership interest in Lazard Group and Lazard Ltd holds the remaining 37.6% common membership interest. Additionally, LAZ-MD Holdings is the sole owner of the one issued and outstanding share of Class B common stock (the “Class B common stock”) of Lazard Ltd. As of March 31, 2006, the Class B common stock provides LAZ-MD Holdings with approximately $6,30062.4% of the voting power but no economic rights in Lazard Ltd. Subject to certain limitations, LAZ-MD Holdings exchangeable interests are exchangeable for abandoned leased space. In accordance with SFAS No. 146,AccountingClass A common stock. However, the Class B common stock will represent no less than 50.1% of the voting power until December 31, 2007.

Lazard Group provides selected administrative and support services to LAZ-MD Holdings through the administrative services agreement as discussed above. Lazard Group charges LAZ-MD Holdings for Costs Associated with Exit or Disposal Activities, this provision, recorded on the cease-use date, was determinedthese services based on the fair value of the liability for costs that will continue to be incurred for the remaining term of the lease without economic benefit to Lazard Group, based on the remaining lease rentals, reduced by estimated sublease rentals. Such amount was recorded as “premisesGroup’s cost allocation methodology and, occupancy costs” on the condensed consolidated statement of income for the three month period ended March 31, 2005.

See Note 9 with regard2006 such charges amounted to formation of new private equity fund, Corporate Partners II Limited.

Legal—Lazard Group’s businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. Lazard Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on Lazard Group’s financial condition but might be material to its operating results for any particular period, depending, in part, upon the operating results for such period.

Lazard Group has received a request for information from the NASD as part of what it understands to be an industry investigation relating to gifts and gratuities, which is focused primarily on the Capital Markets business that is part of the separated businesses now owned and operated by LFCM Holdings. In addition, Lazard Group has received requests for information from the SEC and the U.S. Attorney’s Office for the District of Massachusetts seeking information concerning gifts and entertainment involving an unaffiliated mutual fund company, which are also focused on the Capital Markets business that is part of the separated businesses. Lazard Group believes that other broker-dealers have also received requests for information. These investigations are continuing and Lazard Group cannot predict their potential outcomes, which outcomes, if any, could include regulatory consequences, nor can Lazard Group estimate any potential loss or range of losses related to them. Accordingly, Lazard Group has not recorded an accrual for losses related to any such judicial, regulatory or arbitration proceedings.$50.

Pursuant to Lazard Group’s Operating Agreement as in effect on March 31, 2005 and prior to the amendment and restatement of such agreement on May 10, 2005, Lazard Group allocates and distributes to its

LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

members a substantial portion of its distributable profits in three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February. In addition, other periodic distributions to members include, as applicable, capital withdrawals, fixed return on members’ equity and income tax advances made on behalf of members.

In connection with the consummation of the initial public offering (see Note 9), during the three month period ended March 31, 2005, members’ equity was reduced by approximately $18,000 for the repurchase of working member interests. Additional repurchases of working member interests and redemptions of working members’ capital made subsequent to March 31, 2005, in connection with the consummation of the initial public offering, approximated $126,000 with all such payments having been made by May 9, 2005.

LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under the alternativebasic method permitted by this rule, the minimum required net capital, as defined, is 2%a specified fixed percentage of total aggregate debit items arising from customer transactions

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

indebtedness recorded on LFNY’s statement of financial condition, or $1,500,$5, whichever is greater. At March 31, 2006, LFNY’s regulatory net capital at March 31, 2005 was $70,982,$35,133, which exceeded the minimum requirement by $69,482.$30,465.

Certain U.K. subsidiaries of Lazard Group, namelythe Company, including LCL, Lazard Brothers & Co., Limited, Lazard Fund Managers Limited and Lazard Asset Management Limited and Lazard European Private Equity Partners LLP (the “U.K. Subsidiaries”) are regulated by the Financial Services Authority (“FSA”(the “FSA”). AtThe Company presently estimates that at March 31, 2005,2006, the aggregate regulatory net capital of the U.K. subsidiariesSubsidiaries was $181,741,$169,676, which exceeded the minimum requirement by $76,078. As a result of the separation, Lazard European Private Equity Partners LLP is now owned by LFCM Holdings.$101,219.

The Financial Advisory activities of Lazard Frères SAS (“LF”) and its wholly-owned subsidiaries, including LFB, are authorized by the Comité des Etablissements de Crédit et des Entreprises d’Investissement and are regulated by the Comité de la Réglementation Bancaire et Financière. Supervision is exercised by the Commission Bancaire, which is responsible, in liaison with the Banque de France, for ensuring compliance with the regulations. In this context LF has the status of a bank holding company (“Compagnie Financière”) and LFB is a registered bank (“Etablissement de Crédit”). In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries, primarily LFG (asset management) and Fonds Partenaires Gestion (private equity, merchant banking), are subject to regulation and supervision by the Autorité des Marchés Financiers. At March 31, 2005,2006, the consolidated regulatory net capital of LF was $148,183,$153,770, which exceeded the minimum requirement set for regulatory capital levels by $53,318.$65,198.

Certain other U.S. and non-U.S. subsidiaries are subject to various other capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At March 31, 2005,2006, for those subsidiaries with regulatory capital requirements, their aggregate net capital of those subsidiaries were $35,787,was $38,549, which exceeded the minimum required capital by $25,137.$26,824.

AtDuring the three month period ended March 31, 2005,2006, each of these subsidiaries individually were in compliance with its regulatory capital requirements.

Lazard Group’sThe Company’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each

LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

segment is reviewed to determine the allocation of resources and to assess its performance. In reportingPrior to management, Lazard Group’sMay 10, 2005, the Company’s business results arewere categorized into the following three segments: Financial Advisory, Asset Management and Capital Markets and Other. On May 10, 2005 the Capital Markets and Other segment was disposed of in connection with the separation as discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements. Consequently, subsequent to May 10, 2005, the Company has two segments: Financial Advisory which includes providing advice on mergers, acquisitions, restructurings and other financial matters.matters; and Asset Management which includes the management of equity and fixed income securities and merchant banking funds. Capital Markets and Other consistsconsisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities. In addition, Lazard Groupthe Company records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the commercial banking activities of LFB. Lazard GroupThe Company also allocates outstanding indebtedness to Corporate.

Lazard Group’sAs discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, historical results of operations are reported as an historical partnership until the equity public offering on May 10, 2005 and do not include payments for services rendered by managing directors as compensation expense and a provision

LAZARD LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

for U.S. federal income taxes. Such payments and tax provisions are included in subsequent periods. Therefore, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.

The Company’s segment information for the three month periods ended March 31, 20042006 and 2005 is prepared using the following methodology:

Lazard GroupThe Company allocates trading gains and losses, investment gains and losses, interest income and interest expense among the various segments based on the segment in which the underlying asset or liability is reported.

Each segment’s operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.

LAZARD LTD

Lazard GroupNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Management evaluates segment results based on net revenue and operating income.

LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Managementincome and believes that the following information provides a reasonable representation of each segment’s contribution to continuing operations with respect to net revenue, operating income and total assets: