##### Table of Contents

---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---



(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



001-32493

(Commission File Number)



---



LAZARD GROUP FINANCE LLC

(Exact name
of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-2281724                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



---



30 Rockefeller Plaza

New York, New York 10020

(Address of principal executive offices)



Registrants telephone number: (212) 632-6000



---



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 an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



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



As of November 10, 2005, there
were two of the registrants Class I interests outstanding and one of the registrants Class II interests outstanding.



---



---

##### Table of Contents

INTRODUCTORY NOTE



Lazard Group Finance LLC, which we refer to as Lazard Group Finance, is a Delaware limited liability company that was formed
on January 27, 2005 to act as the managing member of Lazard Group LLC and to issue certain senior notes (the Lazard Group Finance senior notes) that form a component of equity security units (the ESUs) issued by Lazard Ltd,
which are listed on the New York Stock Exchange (NYSE) under the symbol LDZ. The indenture pursuant to which the Lazard Group Finance senior notes were issued limits the ability of Lazard Group Finance to engage in activities
or transactions unrelated to these two purposes. Lazard Ltd is a company formed under the laws of Bermuda that acts as the holding company through which public investors own equity in the Lazard business. Lazard Ltd indirectly controls Lazard Group
Finance. Lazard Ltds Class A common shares are listed on the NYSE under the symbol LAZ. Lazard Group LLC, which we refer to as Lazard Group, is a Delaware limited liability company formerly named Lazard LLC that acts as the holding
company through which the Lazard businesses are owned and operated.



Lazard Group Finances primary assets are its managing member position in Lazard Group and the Lazard Group notes underlying the Lazard Group Finance senior notes. Since its inception, Lazard Group Finance has conducted no other
material activities or business.



Lazard Group Finance used the
net proceeds from the sale of the ESUs to purchase senior notes from Lazard Group (the Lazard Group notes). The Lazard Group notes, which have substantially similar terms to the Lazard Group Finance senior notes, are pledged to secure
the obligations of Lazard Group Finance under the Lazard Group Finance senior notes. The ability of Lazard Group Finance to pay its obligations under the Lazard Group Finance senior notes depends on its ability to obtain interest and principal
payments on the Lazard Group notes. Because the principal asset of Lazard Group Finance is the Lazard Group notes, the accompanying unaudited condensed consolidated financial statements included herein represent the financial statements of Lazard
Group. While Lazard Group Finance was formed as of January 27, 2005, it did not commence operations until May 10, 2005 and had no significant assets or liabilities prior to that date. Accordingly, the historical financial information for Lazard
Group Finance presented in this quarterly report is as of September 30, 2005 and for the three month period ended September 30, 2005 and for the period May 10, 2005 through September 30, 2005. The accompanying unaudited pro forma financial
information included herein reflects pro forma financial information regarding both Lazard Group Finance and Lazard Group.



Lazard Group Finance currently has two classes of outstanding equity interests. Each Class I interest of Lazard Group Finance entitles its holder to one
vote in all matters submitted to a vote of interest holders. Class I interests of Lazard Group Finance are not entitled to any economic rights. Each Class II interest of Lazard Group Finance generally has no voting rights but does entitle its holder
to a pro rata share of any distribution or dividend to interest holders. All of the outstanding Class I interests of Lazard Group Finance currently are held by indirect wholly-owned and controlled subsidiaries of Lazard Ltd and all of the
outstanding Class II interests of Lazard Group Finance currently are held by Lazard Group. Accordingly, Lazard Ltd currently controls all of the voting power of Lazard Group Finance and Lazard Group holds all of the economic rights associated with
Lazard Group Finances equity interests.



Lazard Group
Finance has no employees and is managed by Lazard Ltd, as the indirect holder of all of the outstanding Class I interests.



---

##### Table of Contents

TABLE OF CONTENTS



Unless the context
otherwise requires, Lazard, we, our and us refer to Lazard Ltd, a Bermuda exempted company, and its subsidiaries, including Lazard Group Finance, Lazard Group and its subsidiaries.



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|Part I. Financial Information                                                                 |  |     
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  | 1   
|                                                                                              | 
|Item 1A. Unaudited Pro Forma Financial Information                                            |  | 36  
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 43  
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 68  
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 68  
|                                                                                              | 
|Part II. Other Information                                                                    |  |     
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 69  
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 69  
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  | 69  
|                                                                                              | 
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 69  
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 69  
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 70  
|                                                                                              | 
|Signatures                                                                                    |  | 71  



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



|                                                                                                                                                                           |  |     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                           |  | Page
|Condensed Financial Statements of Lazard Group Finance LLC (Unaudited)                                                                                                     |  |     
|Condensed Statement of Financial Condition as of September 30, 2005                                                                                                        |  | 2   
|Condensed Statements of Income for the three month period ended September 30, 2005 and for the period May 10, 2005 (commencement of operations) through September 30, 2005 |  | 3   
|Condensed Statement of Cash Flows for the period May 10, 2005 (commencement of operations) through September 30, 2005                                                      |  | 4   
|Condensed Statement of Changes in Members Equity for the period May 10, 2005 (commencement of operations) through September 30, 2005                                      |  | 5   
|Notes to Condensed Financial Statements                                                                                                                                    |  | 6   
|                                                                                                                                                                           | 
|Condensed Consolidated Financial Statements of Lazard Group LLC (Unaudited)*                                                                                               |  |     
|Condensed Consolidated Statements of Financial Condition as of December 31, 2004 and September 30, 2005*                                                                   |  | 8   
|Condensed Consolidated Statements of Income for the three month and nine month periods ended September 30, 2004 and 2005*                                                  |  | 10  
|Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2004 and 2005*                                                              |  | 11  
|Condensed Consolidated Statement of Changes in Members Equity (Deficiency) for the nine month period ended September 30, 2005*                                            |  | 12  
|Notes to Condensed Consolidated Financial Statements*                                                                                                                      |  | 13  

---

|* | These unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of Lazard Group. As described in Note 1 of the
accompanying Notes to Unaudited Condensed Consolidated Financial Statements, Lazard Ltd, using the net proceeds of its equity public offering (as defined in Note 1 of the accompanying Notes to Unaudited Condensed Consolidated Financial Statements),
along with the net proceeds it received from the financing transactions (as described in Note 2 of the accompanying Notes to Unaudited Condensed Consolidated Financial Statements), acquired a 37.5% ownership interest in Lazard Group as of May 10,
2005 (which, after giving effect to the repurchase of Lazard Group common membership interests held by LAZ-MD Holdings LLC subsequent to May 10, 2005, approximated 37.6% at September 30, 2005). The results of operations and financial condition for
certain businesses that Lazard Group no longer owns are reported as discontinued operations. The historical unaudited condensed consolidated financial statements do not reflect what the results of operations and financial position of Lazard Group
would have been had it been a stand-alone, public company for the periods presented. Specifically, prior to May 10, 2005, the historical results of operations of Lazard Group do not give effect to the following matters:
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically has been accounted
for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. Therefore, Lazard Groups operating income prior to May 10, 2005, included within the accompanying
unaudited condensed consolidated financial statements historically has not reflected payments for services rendered by its managing directors. Subsequent to the consummation of the equity public offering and financing transactions, as described in
Note 2 of the accompanying Notes to Unaudited Condensed Consolidated Financial Statements, Lazard Group now includes all payments for services rendered by its managing directors in compensation and benefits and distributions to holders of profit
participation interests in Lazard Group (profit participation members).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the accompanying unaudited condensed consolidated financial statements of Lazard Group do not include a provision for U.S. corporate federal
income taxes, because Lazard Group has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Groups income has not been subject to U.S. federal income
taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been subject to local income taxes.
Accordingly, income taxes reflected within Lazard Groups results of operations included within the accompanying unaudited condensed consolidated financial statements are attributable to taxes incurred in non-U.S. entities and to New York City
Unincorporated Business Tax (UBT) attributable to Lazard Groups operations apportioned to New York City.



1



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



CONDENSED STATEMENT OF FINANCIAL CONDITION

SEPTEMBER 30, 2005

(UNAUDITED)

($ in thousands)



|                                      |  |   |        
|------------------------------------- |  | - | -------
|ASSETS                                |  |   |        
|Cash and cash equivalents             |  | $ | 1,259  
|ReceivablesDue from Lazard Group:    |  |   |        
|Notes                                 |  |   | 437,500
|Interest                              |  |   | 3,421  
|                                      |  |   |        
|                                      |  |   | 440,921
|Other assets                          |  |   | 3,552  
|                                      |  |   |        
|Total assets                          |  | $ | 445,732
|                                      |  |   |        
|                                      | 
|LIABILITIES AND MEMBERS EQUITY       |  |   |        
|Senior notes payable                  |  | $ | 437,500
|Accrued interest payable              |  |   | 3,421  
|Other liabilities                     |  |   | 4,802  
|                                      |  |   |        
|Total liabilities                     |  |   | 445,723
|                                      | 
|Members equity                       |  |   | 9      
|                                      |  |   |        
|Total liabilities and members equity |  | $ | 445,732
|                                      |  |   |        





See notes to unaudited condensed financial statements.



2



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



CONDENSED STATEMENTS OF INCOME

FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2005 AND

FOR THE PERIOD MAY 10, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER 30, 2005

(UNAUDITED)

($ in thousands)



|                                 |  |                                    |        |   |                                                    |   |         |  
|-------------------------------- |  | ---------------------------------- | ------ | - | -------------------------------------------------- | - | ------- | -
|                                 |  | Three MonthsEndedSeptember 30,2005 |        |   | For the PeriodMay 10, 2005throughSeptember 30,2005 |  
|REVENUE                          |  |                                    |        |   |                                                    |   |         |  
|Interest income                  |  | $                                  | 6,822  |   |                                                    | $ | 10,804  |  
|Interest expense                 |  |                                    | (6,812 | ) |                                                    |   | (10,791 | )
|                                 |  |                                    |        |   |                                                    |   |         |  
|NET REVENUE AND OPERATING INCOME |  |                                    | 10     |   |                                                    |   | 13      |  
|                                 |  |                                   
|PROVISION FOR INCOME TAXES       |  |                                    | 3      |   |                                                    |   | 4       |  
|                                 |  |                                    |        |   |                                                    |   |         |  
|NET INCOME ALLOCABLE TO MEMBERS  |  | $                                  | 7      |   |                                                    | $ | 9       |  
|                                 |  |                                    |        |   |                                                    |   |         |  







See notes to unaudited condensed financial statements.



3



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



CONDENSED STATEMENT OF CASH FLOWS

FOR THE PERIOD MAY 10, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER 30, 2005

(UNAUDITED)

($ in
thousands)



|                                                                                                        |  |   |          |  
|------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                   |  |   |          |  
|Net income allocable to members                                                                         |  | $ | 9        |  
|Adjustments to reconcile net income allocable to members to net cash provided by operating activities:  |  |   |          |  
|Noncash items included in net income allocable to members:                                              |  |   |          |  
|Amortization of deferred income                                                                         |  |   | (304     | )
|Amortization of deferred issuance costs                                                                 |  |   | 304      |  
|(Increase) decrease in operating assets:                                                                |  |   |          |  
|Receivablesinterest due from Lazard Group                                                              |  |   | (3,421   | )
|Increase (decrease) in operating liabilities:                                                           |  |   |          |  
|Payablesaccrued interest on Lazard Group Finance senior notes                                          |  |   | 3,421    |  
|                                                                                                        |  |   |          |  
|Net cash provided by operating activities                                                               |  |   | 9        |  
|                                                                                                        |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                   |  |   |          |  
|Notes receivableLazard Group, net of costs of $3,856                                                   |  |   | (433,644 | )
|                                                                                                        |  |   |          |  
|Net cash used in investing activities                                                                   |  |   | (433,644 | )
|                                                                                                        |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                   |  |   |          |  
|Lazard Group Finance senior notes, net of costs of $3,856                                               |  |   | 433,644  |  
|Increase in payables associated with costs relating to the issuance of Lazard GroupFinance senior notes |  |   | 1,250    |  
|                                                                                                        |  |   |          |  
|Net cash provided by financing activities                                                               |  |   | 434,894  |  
|                                                                                                        |  |   |          |  
|NET INCREASE IN CASH                                                                                    |  |   | 1,259    |  
|CASH, beginning of period                                                                               |  |   |         |  
|                                                                                                        |  |   |          |  
|CASH, end of period                                                                                     |  | $ | 1,259    |  
|                                                                                                        |  |   |          |  









See notes to unaudited condensed financial statements.



4



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



CONDENSED STATEMENT OF CHANGES IN MEMBERS EQUITY

FOR THE PERIOD MAY 10, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH
SEPTEMBER 30, 2005

(UNAUDITED)

($ in thousands)



|                                         |  |                            |  |                                                       |  |                    
|---------------------------------------- |  | -------------------------- |  | ----------------------------------------------------- |  | -------------------
|                                         |  | CapitalandRetainedEarnings |  | AccumulatedOtherComprehensiveIncome (Loss),Net of Tax |  | TotalMembersEquity
|BALANCEMay 10, 2005                     |  |                           |  |                                                      |  |                   
|                                         |  |                            |  |                                                       |  |                    
|Comprehensive income (loss):             |  |                            |  |                                                       |  |                    
|Net income allocable to members          |  | $9                         |  |                                                       |  | $9                 
|                                         |  |                            |  |                                                       |  |                    
|Comprehensive income (loss)              |  | 9                          |  |                                                      |  | 9                  
|Distributions and withdrawals to members |  |                           |  |                                                      |  |                   
|                                         |  |                            |  |                                                       |  |                    
|BALANCESeptember 30, 2005               |  | $9                         |  |                                                      |  | $9                 
|                                         |  |                            |  |                                                       |  |                    





See notes to unaudited condensed financial statements.



5



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(dollars in thousands)



|1. | BASIS OF PRESENTATION AND ORGANIZATION
|-- | --------------------------------------



Lazard Group Finance LLC (Lazard Group Finance) was formed on January 27, 2005 to act as the managing member of Lazard Group and to issue
the Lazard Group Finance senior notes (see Note 2 of Notes to Unaudited Condensed Financial Statements of Lazard Group Finance) that form a component of the equity security units (the ESUs) issued by Lazard Ltd, which are listed on the
NYSE under the symbol LDZ. The indenture pursuant to which the Lazard Group Finance senior notes were issued limits the ability of Lazard Group Finance to engage in activities or transactions unrelated to these two purposes. Lazard Ltd
is a company formed under the laws of Bermuda that acts as the holding company through which public investors own equity in the Lazard business. Lazard Ltd indirectly controls Lazard Group Finance. Lazard Ltds Class A common stock (the
Class A common stock) are listed on the NYSE under the symbol LAZ. Lazard Group acts as the holding company through which the Lazard businesses are owned and operated.



Lazard Group Finance is a holding company that owns no material assets other
than its controlling voting interest in Lazard Group and the notes issued by Lazard Group (the Lazard Group notes). Since its inception, Lazard Group Finance has conducted no other material activities or business.



Lazard Group Finance used the net proceeds that it received from the sale of
the ESUs to purchase the Lazard Group notes. The Lazard Group notes, which have substantially similar terms to the Lazard Group Finance senior notes, are pledged to secure the obligations of Lazard Group Finance under the Lazard Group Finance senior
notes. Because the principal asset of Lazard Group Finance is the Lazard Group notes, the accompanying unaudited condensed consolidated financial statements included herein represent the financial statements of Lazard Group. While Lazard Group
Finance was formed as of January 27, 2005, it did not commence operations until May 10, 2005 and had no significant assets or liabilities prior to that date. Accordingly, the historical financial information for Lazard Group Finance
presented in this quarterly report is as of September 30, 2005 and for the three month period ended September 30, 2005 and for the period May 10, 2005 through September 30, 2005.



Lazard Group Finance currently has two classes of outstanding equity
interests. Each Class I interest of Lazard Group Finance entitles its holder to one vote in all matters submitted to a vote of interest holders. Class I interests of Lazard Group Finance are not entitled to any economic rights. Each Class II
interest of Lazard Group Finance generally has no voting rights but does entitle its holder to a pro rata share of any distribution or dividend to interest holders. All of the outstanding Class I interests of Lazard Group Finance currently are held
by indirect subsidiaries of Lazard Ltd and all of the outstanding Class II interests of Lazard Group Finance currently are held by Lazard Group. Accordingly, Lazard Ltd currently controls all of the voting power of Lazard Group Finance and Lazard
Group holds all of the economic rights associated with Lazard Group Finances equity interests.



Lazard Group Finance has no employees and is managed by Lazard Ltd, as the indirect holder of all of the outstanding Class I interests.



|2. | NOTES RECEIVABLE AND SENIOR NOTES PAYABLE
|-- | -----------------------------------------



Concurrently with the equity public offering, Lazard Ltd issued, for $25 per unit, (i) ESUs for an aggregate offering amount of $287,500 in the
initial offering of the ESUs (the ESU offering), and (ii) ESUs to IXIS in a private placement (the IXIS ESU placement), for an aggregate offering amount of $150,000. Each unit consists of (a) a contract which
obligates holders to purchase, and Lazard Ltd 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 Class A common stock during a period preceding
that date and (b) a 1/40, or 2.5%, ownership interest in the Lazard



6



---

##### Table of Contents

LAZARD GROUP FINANCE LLC



NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(dollars in thousands)





Group Finance senior notes with a principal amount of $1. The net costs associated with the Lazard Group Finance senior notes component of the ESU offering
and the IXIS ESU placement was $3,856, which has been capitalized as a deferred cost and is included within other assets in the accompanying condensed statement of financial position of Lazard Group Finance, to be amortized over a five year period.



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 and the IXIS placement to purchase the Lazard Group notes with a principal amount of $437,500 ($433,644, net of costs). The Lazard Group notes, which have substantially similar
terms to the Lazard Group Finance senior notes, are pledged to secure the obligations of the Lazard Group Finance senior notes. In connection with its purchase of the Lazard Group notes, Lazard Group Finance has recorded deferred income which is
included within other liabilities in the accompanying condensed statement of financial position, with such deferred income being amortized over a five year period.



The ability of Lazard Group Finance to pay its obligations under the Lazard Group Finance senior notes depends on its
ability to obtain interest and principal payments on the Lazard Group notes. Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of Lazard Group to transfer funds to Lazard
Group Finance in the form of principal or interest payments, loans or advances. There are no provisions in either the Lazard Group Finance indenture or the Lazard Group Finance senior notes that protect the holders in the event that Lazard Group
incurs substantial additional indebtedness.



Upon a remarketing
of the Lazard Group Finance senior notes, in which the applicable interest rate, payment dates and maturity date on the notes will be reset and the notes remarketed, the interest rate, payment dates and maturity date on the Lazard Group notes also
will be reset on the same terms such that the interest rate, payment dates and maturity date on the Lazard Group notes are the same as those for the Lazard Group Finance senior notes.



*    *    *    *    *



7



---

##### Table of Contents

LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2004 AND SEPTEMBER 30, 2005

(UNAUDITED)

($ in thousands)



|                                                                                   |  |                   |           |                   |   |          
|---------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ---------
|                                                                                   |  | December 31, 2004 |           | September 30,2005
|ASSETS                                                                             |  |                   |           |                   |   |          
|Cash and cash equivalents                                                          |  | $                 | 305,753   |                   | $ | 371,544  
|Cash and securities segregated for regulatory purposes                             |  |                   | 11,260    |                   |   | 20,878   
|Marketable investments                                                             |  |                   | 112,467   |                   |   |          
|Securities purchased under agreements to resell                                    |  |                   | 2,029     |                   |   | 6,623    
|Securities ownedat fair value:                                                    |  |                   |           |                   |   |          
|BondsCorporate                                                                    |  |                   | 329,695   |                   |   | 259,775  
|Non-U.S. Government and agency securities                                          |  |                   | 53,528    |                   |   | 29,616   
|Equities                                                                           |  |                   | 3,726     |                   |   | 3,191    
|                                                                                   |  |                   |           |                   |   |          
|                                                                                   |  |                   | 386,949   |                   |   | 292,582  
|                                                                                   |  |                  
|Swaps and other contractual agreements                                             |  |                   | 666       |                   |   | 229      
|Receivablesnet:                                                                   |  |                   |           |                   |   |          
|Fees                                                                               |  |                   | 282,642   |                   |   | 313,188  
|Customers                                                                          |  |                   | 95,440    |                   |   | 112,332  
|Banks                                                                              |  |                   | 346,283   |                   |   | 270,945  
|Related parties                                                                    |  |                   |           |                   |   | 55,699   
|Other                                                                              |  |                   | 3,002     |                   |   | 1,543    
|                                                                                   |  |                   |           |                   |   |          
|                                                                                   |  |                   | 727,367   |                   |   | 753,707  
|                                                                                   |  |                  
|Long-term investments                                                              |  |                   | 145,718   |                   |   | 89,386   
|Other investments                                                                  |  |                   | 13,019    |                   |   | 8,312    
|Propertynet of accumulated amortization and depreciation of $151,309 and $155,830 |  |                   | 199,453   |                   |   | 161,780  
|Goodwill                                                                           |  |                   | 17,205    |                   |   | 16,252   
|Other assets                                                                       |  |                   | 88,663    |                   |   | 87,858   
|Assets of discontinued operations                                                  |  |                   | 1,488,675 |                   |   |          
|                                                                                   |  |                   |           |                   |   |          
|Total assets                                                                       |  | $                 | 3,499,224 |                   | $ | 1,809,151
|                                                                                   |  |                   |           |                   |   |          



See notes to unaudited
condensed consolidated financial statements.



8



---

##### Table of Contents

LAZARD GROUP LLC



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Continued)

DECEMBER 31, 2004 AND SEPTEMBER 30, 2005

(UNAUDITED)

($ in thousands)



|                                                                       |  |                  |           |                   |   |           |  
|---------------------------------------------------------------------- |  | ---------------- | --------- | ----------------- | - | --------- | -
|                                                                       |  | December 31,2004 |           | September 30,2005 |  
|LIABILITIES AND MEMBERS EQUITY (DEFICIENCY)                           |  |                  |           |                   |   |           |  
|Securities sold under agreements to repurchase                         |  | $                | 52,037    |                   | $ | 18,702    |  
|Swaps and other contractual agreements                                 |  |                  | 4,619     |                   |   | 4,817     |  
|Payables:                                                              |  |                  |           |                   |   |           |  
|Banks                                                                  |  |                  | 379,797   |                   |   | 362,054   |  
|Customers                                                              |  |                  | 130,895   |                   |   | 172,326   |  
|Brokers and dealers                                                    |  |                  | 54        |                   |   |           |  
|Related parties                                                        |  |                  |           |                   |   | 49,204    |  
|                                                                       |  |                  |           |                   |   |           |  
|                                                                       |  |                  | 510,746   |                   |   | 583,584   |  
|                                                                       |  |                 
|Accrued compensation and benefits                                      |  |                  | 152,651   |                   |   | 247,488   |  
|Senior borrowings                                                      |  |                  | 67,497    |                   |   | 1,005,918 |  
|Capital lease obligations                                              |  |                  | 51,546    |                   |   | 24,607    |  
|Other liabilities                                                      |  |                  | 595,000   |                   |   | 532,623   |  
|Subordinated borrowings                                                |  |                  | 200,000   |                   |   | 200,000   |  
|Mandatorily redeemable preferred stock                                 |  |                  | 100,000   |                   |   |           |  
|Liabilities of discontinued operations                                 |  |                  | 1,222,420 |                   |   |           |  
|                                                                       |  |                  |           |                   |   |           |  
|Total liabilities                                                      |  |                  | 2,956,516 |                   |   | 2,617,739 |  
|                                                                       |  |                 
|Commitments and contingencies                                          |  |                  |           |                   |   |           |  
|                                                                       |  |                 
|Minority interest                                                      |  |                  | 157,910   |                   |   | 104,460   |  
|                                                                       |  |                 
|MEMBERS EQUITY (DEFICIENCY)                                           |  |                  |           |                   |   |           |  
|Members equity (deficiency)                                           |  |                  | 366,740   |                   |   | (880,625  | )
|Accumulated other comprehensive income (loss), net of tax              |  |                  | 18,058    |                   |   | (32,423   | )
|                                                                       |  |                  |           |                   |   |           |  
|Total members equity (deficiency)                                     |  |                  | 384,798   |                   |   | (913,048  | )
|                                                                       |  |                  |           |                   |   |           |  
|Total liabilities, minority interest, and members equity (deficiency) |  | $                | 3,499,224 |                   | $ | 1,809,151 |  
|                                                                       |  |                  |           |                   |   |           |  





See notes to unaudited condensed consolidated financial statements.



9



---

##### Table of Contents

LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2005

(UNAUDITED)

($ in thousands)



|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | - |  | ------------------------------- | - |  | -------- |  | -------- | -
|                                                                                                             |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|                                                                                                             |  | 2004                             |   |  | 2005                            |   |  | 2004     |  | 2005     |  
|REVENUE                                                                                                      |  |                                  |   |  |                                 |   |  |          |  |          |  
|Investment banking and other advisory fees                                                                   |  | $127,941                         |   |  | $251,663                        |   |  | $391,064 |  | $615,361 |  
|Money management fees                                                                                        |  | 83,849                           |   |  | 101,282                         |   |  | 270,695  |  | 302,507  |  
|Commissions                                                                                                  |  | 2,615                            |   |  | 3,569                           |   |  | 9,945    |  | 11,354   |  
|Trading gains and lossesnet                                                                                 |  | 492                              |   |  | 2,583                           |   |  | 1,669    |  | 5,132    |  
|Underwriting                                                                                                 |  | 2,562                            |   |  | 4,626                           |   |  | 12,790   |  | 10,155   |  
|Investment gains and losses, non-tradingnet                                                                 |  | 3,823                            |   |  | 4,471                           |   |  | 10,419   |  | 7,385    |  
|Interest income                                                                                              |  | 7,325                            |   |  | 10,209                          |   |  | 20,897   |  | 24,259   |  
|Other                                                                                                        |  | 5,050                            |   |  | 3,096                           |   |  | 16,289   |  | 11,751   |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|Total revenue                                                                                                |  | 233,657                          |   |  | 381,499                         |   |  | 733,768  |  | 987,904  |  
|Interest expense                                                                                             |  | 9,677                            |   |  | 24,598                          |   |  | 29,818   |  | 53,541   |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|Net revenue                                                                                                  |  | 223,980                          |   |  | 356,901                         |   |  | 703,950  |  | 934,363  |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|OPERATING EXPENSES                                                                                           |  |                                  |   |  |                                 |   |  |          |  |          |  
|Compensation and benefits (and, commencing May 10, 2005, distributions to profit participation members)(*)   |  | 109,153                          |   |  | 215,199                         |   |  | 329,116  |  | 482,228  |  
|Premises and occupancy costs                                                                                 |  | 17,791                           |   |  | 16,653                          |   |  | 54,396   |  | 50,505   |  
|Professional fees                                                                                            |  | 9,923                            |   |  | 12,278                          |   |  | 30,598   |  | 35,844   |  
|Travel and entertainment                                                                                     |  | 8,942                            |   |  | 10,662                          |   |  | 33,479   |  | 30,767   |  
|Communications and information services                                                                      |  | 7,103                            |   |  | 7,424                           |   |  | 21,454   |  | 22,316   |  
|Equipment costs                                                                                              |  | 5,239                            |   |  | 5,975                           |   |  | 15,325   |  | 15,543   |  
|Other                                                                                                        |  | 10,398                           |   |  | 10,935                          |   |  | 28,298   |  | 31,305   |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|Total operating expenses                                                                                     |  | 168,549                          |   |  | 279,126                         |   |  | 512,666  |  | 668,508  |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|OPERATING INCOME FROM CONTINUING OPERATIONS(*)                                                               |  | 55,431                           |   |  | 77,775                          |   |  | 191,284  |  | 265,855  |  
|                                                                                                             |  |                                  |   | 
|Provision for income taxes                                                                                   |  | 872                              |   |  | 14,748                          |   |  | 13,214   |  | 45,781   |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST(*)                                                |  | 54,559                           |   |  | 63,027                          |   |  | 178,070  |  | 220,074  |  
|Minority interest                                                                                            |  | 11,717                           |   |  | 4,729                           |   |  | 52,426   |  | 18,521   |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|INCOME FROM CONTINUING OPERATIONS(*)                                                                         |  | 42,842                           |   |  | 58,298                          |   |  | 125,644  |  | 201,553  |  
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS(*) (net of income tax provision of $773, $253, $1,171 and $3,330) |  | (2,942                           | ) |  | (408                            | ) |  | 3,165    |  | (17,576  | )
|EXTRAORDINARY GAIN                                                                                           |  |                                  |   |  |                                 |   |  | 5,507    |  |          |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  
|NET INCOME ALLOCABLE TO MEMBERS(*)                                                                           |  | $  39,900                        |   |  | $  57,890                       |   |  | $134,316 |  | $183,977 |  
|                                                                                                             |  |                                  |   |  |                                 |   |  |          |  |          |  

---

(*) Excludes, as applicable, with respect to periods
ended prior to May 10, 2005, payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically has been accounted for as distributions from
members capital, or in some cases as minority interest, rather than as compensation and benefits expense.



See notes to unaudited condensed consolidated financial statements.



10



---

##### Table of Contents

LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2005

(UNAUDITED)

($ in thousands)



|                                                                                                                 |  |                                 |          |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | ---------- | -
|                                                                                                                 |  | Nine Months Ended September 30, |         
|                                                                                                                 |  | 2004                            |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                            |  |                                 |          |   |      |   |            |  
|Net income allocable to members                                                                                  |  | $                               | 134,316  |   |      | $ | 183,977    |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                |  |                                 |          |   |      |   |            |  
|Noncash charges included in net income:                                                                          |  |                                 |          |   |      |   |            |  
|Depreciation and amortization                                                                                    |  |                                 | 12,569   |   |      |   | 11,866     |  
|Minority interest                                                                                                |  |                                 | 52,426   |   |      |   | 18,521     |  
|(Increase) decrease in operating assets:                                                                         |  |                                 |          |   |      |   |            |  
|Cash and securities segregated for regulatory purposes                                                           |  |                                 | 2,779    |   |      |   | (10,498    | )
|Securities purchased under agreements to resell                                                                  |  |                                 | 110,892  |   |      |   | (5,058     | )
|Securities owned, at fair value and swaps and other contractual agreements                                       |  |                                 | (11,984  | ) |      |   | 52,773     |  
|Receivables                                                                                                      |  |                                 | (6,686   | ) |      |   | (80,852    | )
|Marketable and long-term investments                                                                             |  |                                 | 133,045  |   |      |   | 168,793    |  
|Other assets                                                                                                     |  |                                 | (41,661  | ) |      |   | 3,526      |  
|Assets of discontinued operations                                                                                |  |                                 | (361,527 | ) |      |   | 1,485,363  |  
|Increase (decrease) in operating liabilities:                                                                    |  |                                 |          |   |      |   |            |  
|Securities sold under agreements to repurchase                                                                   |  |                                 | 16,155   |   |      |   | (28,600    | )
|Securities sold, not yet purchased, at fair value and swaps and other contractual agreements                     |  |                                 | (1,780   | ) |      |   | 427        |  
|Payables                                                                                                         |  |                                 | 3,282    |   |      |   | 127,860    |  
|Accrued employee compensation and other liabilities                                                              |  |                                 | (43,599  | ) |      |   | 52,839     |  
|Liabilities of discontinued operations                                                                           |  |                                 | 463,275  |   |      |   | (1,223,257 | )
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|Net cash provided by operating activities                                                                        |  |                                 | 461,502  |   |      |   | 757,680    |  
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                            |  |                                 |          |   |      |   |            |  
|Additions to property                                                                                            |  |                                 | (15,161  | ) |      |   | (3,284     | )
|Disposals and retirements of property                                                                            |  |                                 | 7,244    |   |      |   | 9,761      |  
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|Net cash (used in) provided by investing activities                                                              |  |                                 | (7,917   | ) |      |   | 6,477      |  
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                            |  |                                 |          |   |      |   |            |  
|Proceeds from sale of common ownership interests to Lazard Ltd                                                   |  |                                 |          |   |      |   | 871,656    |  
|Proceeds from issuance of equity security units, net of expenses of $15,941                                      |  |                                 |          |   |      |   | 421,559    |  
|Distributions to members and capital withdrawals for the periods prior to May 10, 2005                           |  |                                 | (321,004 | ) |      |   | (418,602   | )
|Distributions to members for the period May 10, 2005 through September 30, 2005                                  |  |                                 |          |   |      |   | (5,180     | )
|Purchase contracts relating to equity security units                                                             |  |                                 |          |   |      |   | (6,013     | )
|Settlement of interest rate hedge                                                                                |  |                                 |          |   |      |   | (10,569    | )
|Redemption of historical partner interests (including mandatorily redeemable preferred stock of $100,000)        |  |                                 |          |   |      |   | (1,617,032 | )
|Distribution of separated business                                                                               |  |                                 |          |   |      |   | (243,178   | )
|Distributions to LAZ-MD Holdings and LFCM Holdings                                                               |  |                                 |          |   |      |   | (150,000   | )
|Indemnity from LFCM Holdings relating to U.K. pension                                                            |  |                                 |          |   |      |   | 53,600     |  
|Proceeds from issuance of Lazard Group senior notes, net of original issue discount and other expenses of $4,417 |  |                                 |          |   |      |   | 545,583    |  
|Proceeds from other senior borrowings                                                                            |  |                                 | 8,369    |   |      |   | 17,509     |  
|Repayment of senior borrowings, including make-whole payment of $7,650 in 2005                                   |  |                                 | (1,508   | ) |      |   | (74,239    | )
|Repayment of senior borrowings of discontinued operations                                                        |  |                                 | (2,341   | ) |      |   |            |  
|Repayment of capital lease obligations                                                                           |  |                                 | (10,538  | ) |      |   | (21,960    | )
|Repurchase of common membership interest from LAZ-MD Holdings                                                    |  |                                 |          |   |      |   | (4,507     | )
|Capital contributions and distributions relating to minority interest stockholders, net                          |  |                                 | (96,700  | ) |      |   | (52,468    | )
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|Net cash used in financing activities                                                                            |  |                                 | (423,722 | ) |      |   | (693,841   | )
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                          |  |                                 | (56      | ) |      |   | (4,525     | )
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                        |  |                                 | 29,807   |   |      |   | 65,791     |  
|CASH AND CASH EQUIVALENTSJanuary 1                                                                              |  |                                 | 242,032  |   |      |   | 305,753    |  
|                                                                                                                 |  |                                 |          |   |      |   |            |  
|CASH AND CASH EQUIVALENTSSeptember 30                                                                           |  | $                               | 271,839  |   |      | $ | 371,544    |  
|                                                                                                                 |  |                                 |          |   |      |   |            |  



See notes to unaudited
condensed consolidated financial statements.



11



---

##### Table of Contents

LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS EQUITY (DEFICIENCY)

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005

(UNAUDITED)

($ in
thousands)



|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ----------------------------------------------------- | - | ------- | -------------------------------- |  | - | ---------- | -
|                                                                                                                   |  | MembersEquity (Deficiency) |            |   | AccumulatedOtherComprehensiveIncome (Loss),Net of Tax |   |         | TotalMembersEquity (Deficiency) | 
|                                                                                                                   |  |                             |           
|BalanceJanuary 1, 2005                                                                                            |  | $                           | 366,740    |   |                                                       | $ | 18,058  |                                  |  | $ | 384,798    |  
|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|Comprehensive income (loss):                                                                                       |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|Net income allocable to members                                                                                    |  |                             | 183,977    |   |                                                       |   |         |                                  |  |   | 183,977    |  
|                                                                                                                   |  |                             |           
|Other comprehensive income (loss)net of tax:                                                                      |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|Currency translation adjustments                                                                                   |  |                             |            |   |                                                       |   | (31,256 | )                                |  |   | (31,256    | )
|                                                                                                                   |  |                             |           
|Minimum pension liability adjustment                                                                               |  |                             |            |   |                                                       |   | (8,656  | )                                |  |   | (8,656     | )
|                                                                                                                   |  |                             |           
|Interest rate hedge                                                                                                |  |                             |            |   |                                                       |   | (10,569 | )                                |  |   | (10,569    | )
|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|Comprehensive income (loss)                                                                                        |  |                             |            |   |                                                       |   |         |                                  |  |   | 133,496    |  
|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|Distribution of net assets of separated businesses                                                                 |  |                             | (243,178   | ) |                                                       |   |         |                                  |  |   | (243,178   | )
|                                                                                                                   |  |                             |           
|Indemnity from LFCM Holdings relating to U.K. pension                                                              |  |                             | 53,600     |   |                                                       |   |         |                                  |  |   | 53,600     |  
|                                                                                                                   |  |                             |           
|Net proceeds from sale of common membership interests to Lazard Ltd, including $32,921 issued in cashless exchange |  |                             | 871,656    |   |                                                       |   |         |                                  |  |   | 871,656    |  
|                                                                                                                   |  |                             |           
|Distributions and withdrawals to members for the period January 1, 2005 through May 9, 2005                        |  |                             | (418,602   | ) |                                                       |   |         |                                  |  |   | (418,602   | )
|                                                                                                                   |  |                             |           
|Redemption of historical partner interests                                                                         |  |                             | (1,517,032 | ) |                                                       |   |         |                                  |  |   | (1,517,032 | )
|                                                                                                                   |  |                             |           
|Costs related to issuance of purchase contracts associated with equity security units                              |  |                             | (12,086    | ) |                                                       |   |         |                                  |  |   | (12,086    | )
|                                                                                                                   |  |                             |           
|Purchase contracts associated with equity security units                                                           |  |                             | (6,013     | ) |                                                       |   |         |                                  |  |   | (6,013     | )
|                                                                                                                   |  |                             |           
|Distribution to members for the period May 10, 2005 through September 30, 2005                                     |  |                             | (5,180     | ) |                                                       |   |         |                                  |  |   | (5,180     | )
|                                                                                                                   |  |                             |           
|Repurchase of common membership interest from LAZ-MD Holdings                                                      |  |                             | (4,507     | ) |                                                       |   |         |                                  |  |   | (4,507     | )
|                                                                                                                   |  |                             |           
|Distribution to LAZ-MD Holdings and LFCM Holdings                                                                  |  |                             | (150,000   | ) |                                                       |   |         |                                  |  |   | (150,000   | )
|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  
|                                                                                                                   |  |                             |           
|BalanceSeptember 30, 2005                                                                                         |  | $                           | (880,625   | ) |                                                       | $ | (32,423 | )                                |  | $ | (913,048   | )
|                                                                                                                   |  |                             |            |   |                                                       |   |         |                                  |  |   |            |  



See notes to unaudited
condensed consolidated financial statements.



12



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except membership interest amounts, unless otherwise
noted)



|1. | BASIS OF PRESENTATION AND ORGANIZATION
|-- | --------------------------------------



Organization



The accompanying unaudited condensed consolidated financial statements of Lazard Group LLC (a Delaware limited liability company, formerly known as Lazard
LLC and collectively referred to with its subsidiaries as Lazard Group or the Company) 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 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 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). 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 and nine month periods ended September 30, 2005 are not necessarily indicative of the results to be expected
for any future period or the full fiscal year.



Lazard Ltd is a
Bermuda holding company that was incorporated in October 2004. 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)
pursuant to the Registration Statement. 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 the interests of
Lazards chief executive officer in Lazard Group with Lazard Ltd, Lazard Ltd 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 Lazard Ltd having 37,500,000 shares of its Class A common stock outstanding. Lazard Ltd, 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% and, after giving effect to the repurchase of Lazard Group common membership interests held by LAZ-MD Holdings LLC (LAZ-MD Holdings) subsequent to May
10, 2005, approximately 37.6% of all outstanding Lazard Group common interests as of May 10, 2005 and September 30, 2005, respectively, and, through its control of the managing member of Lazard Group, controls Lazard Group.



Lazard Group is governed by an Operating Agreement (the Operating
Agreement), dated as of May 10, 2005.



Lazard
Groups current principal activities are divided into two business segments:



| |  |  | Financial Advisory, which includes providing advice on mergers, acquisitions, restructurings and other financial matters, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset Management, which includes the management of equity and fixed income securities and merchant banking funds.
| | - |  | -----------------------------------------------------------------------------------------------------------------



13



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



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 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. As described below, 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 assets, liabilities
and operating results of this former segment are reflected as discontinued operations. We refer to the transfer of the separated business as the separation.



The unaudited condensed consolidated financial statements include Lazard Group and its principal operating 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 Group and Lazard Ltd 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 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 managing directors at the time of the separation.



In the separation, Lazard Group retained all of its Financial Advisory and
Asset 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 (see Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements).



14



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



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 partner 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, Lazard completed the financing transactions, which consisted of:



| |  |  | the equity public offering,
| | - |  | ---------------------------



| |  |  | the initial offering of equity security units (the ESU offering),
| | - |  | -------------------------------------------------------------------



| |  |  | the private offering of Lazard Group senior notes, and
| | - |  | ------------------------------------------------------



| |  |  | the private placement of securities to IXISCorporate & Investment Bank (IXIS).
| | - |  | ---------------------------------------------------------------------------------



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



Lazard used the net proceeds from the financing
transactions primarily to:



| |  |  | redeem Lazard Group membership interests, including Lazard Groups mandatorily redeemable preferred stock, held by the historical partners for $1,617,032 (including the value
of our chief executive officers historical interests ($32,921), which were exchanged for shares of Class A common stock in lieu of cash, and the exchange of certain of these membership interests for specific Lazard Group long-term investments
valued at $39,774),
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | capitalize LFCM Holdings and LAZ-MD Holdings in the amount of $67,000 and $83,000, respectively,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | repay the 7.53% senior notes due 2011 in aggregate principal amount of $50,000 as well as a related make-whole payment of $7,650, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay transaction fees and expenses.
| | - |  | ----------------------------------



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:



| |  |  | the working member interests, which were owned by working members and consisted of capital and the right to participate in profit and goodwill of Lazard Group,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the historical partner interests, which were owned by the historical partners and consisted of capital and the right to participate in profit and goodwill of Lazard Group, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



| |  |  | the mandatorily redeemable preferred interests, which were owned by certain of the historical partners and consisted of the right to a preferred dividend of 8% per annum and a fixed
liquidation amount.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Lazard Groups historical unaudited condensed
consolidated financial statements do not reflect what the results of operations and financial position of Lazard Group would have been as a stand-alone public company for the periods presented. Specifically, prior to May 10, 2005 the historical
results of operations of Lazard Group do not give effect to the following matters:



| |  |  | Payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically had been
accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense, and distributions to profit participation members. As a result, prior to May 10, 2005, Lazard
Groups operating income included within the accompanying unaudited condensed consolidated financial statements historically has not reflected payments for services rendered by its managing directors. Subsequent to the consummation of the
equity public offering and the financing transactions as described in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements, Lazard Group now includes all payments for services rendered by its managing directors and distributions
to profit participation members in compensation and benefits expense.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 expense and since that
date such payments, together with distributions to profit participation members, have been included within compensation and benefits expense.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the accompanying unaudited condensed consolidated financial statements of Lazard Group do not include a provision for U.S. corporate federal
income taxes, because Lazard Group operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Groups income had not been subject to U.S. federal income taxes.
Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically had operated principally through subsidiary corporations and had been subject to local income taxes.
Accordingly,



16



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



income taxes reflected within Lazard Groups results of operations included within the accompanying unaudited condensed consolidated financial
statements are attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Groups operations apportioned to New York City.



In accordance with U.S. GAAP, the assets and liabilities of the separated businesses have been segregated and reported as assets of discontinued
operations and liabilities of discontinued operations respectively, in the condensed consolidated statement of financial condition as of December 31, 2004, and the related results of operations of the separated businesses are
reported as discontinued operations in the unaudited condensed consolidated statements of income for the three month and nine month periods ended September 30, 2004 and September 30, 2005. See Note 14 of Notes to Unaudited Condensed Consolidated
Financial Statements for additional information relating to discontinued operations.



Certain 2004 amounts have been reclassified to conform to the manner of presentation in 2005. The December 31, 2004 condensed consolidated statement 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. Each of these reclassifications were also reflected in the 2004 condensed consolidated statement of cash
flows.



|2. | EQUITY PUBLIC OFFERING AND FINANCING TRANSACTIONS
|-- | -------------------------------------------------



Equity Public OfferingAs described above, on May 10, 2005, Lazard Ltd consummated its equity public offering pursuant to the
Registration Statement. The aggregate gross proceeds relating to the offering amounted to $854,579, and net proceeds to Lazard Ltd, after $65,844 of expenses incurred by Lazard Ltd in connection with the issuance and distribution of the Class A
common stock (including underwriting discounts and commission, 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.



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



ESU OfferingConcurrently with the equity public offering, Lazard Ltd 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 Lazard Ltd 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 Class A common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a senior note 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).



Lazard Ltd began making quarterly contract adjustment payments on the purchase contracts at an annual rate of 0.505% on
August 15, 2005. Lazard Ltd has the right to defer these quarterly contract adjustment payments. In general, during any period in which it defers such payments, Lazard Ltd 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. In connection with the quarterly contract adjustment payments on the purchase contracts, Lazard Ltd 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. (See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for amounts payable to Lazard Ltd subsidiaries.)



17



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



The Lazard Group Finance senior notes, which bear interest at 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 senior notes from Lazard Group (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, are pledged to secure the obligations of the Lazard Group Finance senior notes.



The ability of Lazard Group Finance to pay its obligations under the Lazard Group Finance senior notes depends on its
ability to obtain interest and principal payments on the Lazard Group notes. Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of Lazard Group to transfer funds to Lazard
Group Finance in the form of principal or interest payments, loans or advances. There are no provisions in either the Lazard Group Finance indenture or the Lazard Group Finance senior notes that protect the holders in the event that Lazard Group
incurs substantial additional indebtedness.



Upon a remarketing
of the Lazard Group Finance senior notes, in which the applicable interest rate, payment dates and maturity date on the notes will be reset and the notes remarketed, the interest rate, payment dates and maturity date on the Lazard Group notes also
will be reset on the same terms such that the interest rate, payment dates and maturity date on the Lazard Group notes are the same as those for the Lazard Group Finance senior notes.



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 Lazard Ltd securities on May 10, 2005, $150,000 of which were equity security units (the IXIS ESU placement) and $50,000 of which were shares of Class A common stock. The terms of the
equity security units issued in connection with the IXIS ESU placement are the same as the equity security units 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 equity security units, the price per unit in the ESU offering. 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 Ltd contributed the net proceeds from the sale of Class A common stock to Lazard Group.



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 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 and, as a result, the transfer restrictions applicable to the old notes do not apply to the exchange notes.



18



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



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, $11,003 was deemed to be the effective portion of the hedge
and has been recorded within other comprehensive income (loss) and will be amortized as a charge to interest expense over the ten year term of the Lazard Group senior notes (with such amortization amounting to $275 and $434 during the three month
and nine month periods ended September 30, 2005, respectively). The remaining $2,001 was charged to interest expense in the three month period ended June 30, 2005.



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 September 30, 2005, $15,000 was outstanding under this credit facility. In addition, Lazard Group entered into a commitment letter dated April 14, 2005 that provides that,
subject to customary conditions precedent for transactions of this nature, including regulatory approval, a group of lenders will provide a separate $25,000 subordinated credit facility for LFNY, our U.S. broker-dealer subsidiary. The LFNY facility
is expected to be a four-year revolving credit facility, and then converts to a term loan facility for an additional year. This commitment letter, as extended, expires November 30, 2005. Both the $125,000 senior revolving credit facility and
the $25,000 subordinated credit facility bear 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 rating
agencies.



The senior revolving credit facility contains
customary affirmative and negative covenants and events of default for facilities of this type, and we expect that the LFNY facility will as well. The senior revolving credit facility, among other things, limits the ability of the borrower to incur
debt, grant liens, pay dividends, enter into mergers or to sell all or substantially all of its assets and contains financial covenants that must be maintained. We expect that the LFNY facility will contain similar restrictions and covenants for a
facility of its type. Upon approval by the NASD, the LFNY facility is intended to qualify as a satisfactory subordination agreement in accordance with the applicable NASD rules and regulations.



|3. | STRATEGIC ALLIANCE IN ITALY
|-- | ---------------------------



Alliance in ItalyIn September 2002, Lazard Group and Banca Intesa S.p.A. (Intesa) announced an agreement to form a
strategic alliance (the Strategic Alliance), pursuant to which, in January 2003, Intesa effectively became a 40% partner in Lazard Groups business in Italy. Pursuant to the terms of the Strategic Alliance, Intesa made a $100,000
investment in Lazard Groups business in Italy, and purchased a $50,000 subordinated promissory note issued by Lazard Groups business in Italy. The subordinated promissory note has a scheduled maturity in 2078 (subject to extension), with
interest payable annually at the rate of 3.0% per annum.



From
time to time, Lazard Group has considered appropriate modifications to its joint venture relationship with Intesa. Lazard has held various discussions with Intesa in connection with the separation and recapitalization transactions, including Lazard
Ltds recent equity public offering, and prior to consummation of



19



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



the equity public offering, Intesa notified Lazard of its intention not to extend the term of the joint venture relationship beyond the expiration date of
December 31, 2007. As a result, under the terms of the strategic alliance, unless Lazard and Intesa otherwise agree, Lazard will repurchase Intesas 40% interest in our business in Italy and repay its related $50,000 subordinated
promissory note for an aggregate amount of approximately $150,000 on or prior to February 4, 2008. Based on the current performance of the joint venture, we do not currently expect an expiration of the joint venture in these circumstances to
have a material adverse effect on our operating results.



As
part of these negotiations and discussions, Lazard Group received a letter from Intesa in July, 2005 informing Lazard Group of its intention to commence arbitration proceedings in order to obtain an order declaring Intesas right to early
termination of the joint venture arrangements and the ineffectiveness of those arrangements on equitable grounds, as a result of the separation and recapitalization transactions and management changes at our Italian business. In the letter, Intesa
stated that pending the determination of any arbitration, it intended to continue to perform in accordance with the joint venture arrangements until the initial expiration date of December 31, 2007. If at the end of an arbitration proceeding,
it were to be determined that Intesa was entitled to early termination on the grounds alleged, Lazard Group would be obligated to repurchase their interest and note at that time if any such determination were finally made before Lazard Group
repurchases such interest and note in connection with the end of the term of the joint venture on December 31, 2007.



In addition to its direct investment in Lazard Groups business in Italy, Intesa also purchased a $150,000 subordinated convertible promissory note
from a wholly-owned subsidiary of Lazard Group. If in an appropriate forum it were to be determined that Intesa was entitled to early termination on the grounds alleged, the $150,000 convertible promissory note could become immediately due and
payable. Intesa has also asserted its intention to seek damages relating to such termination or ineffectiveness.



Lazard Group believes that the allegations are without merit and, in the event an action is actually brought, intends to defend and protect its rights and
interests with respect to these matters and the joint venture arrangements vigorously. Lazard Group also expects to pursue any and all related claims that it may have, including with respect to the nonperformance by Intesa of certain of its
obligations under the arrangements, in connection with any such action, and to seek damages with respect to those claims.



|4. | LAZARD ALTERNATIVE INVESTMENTS
|-- | ------------------------------



Lazard Group and LFCM Holdings entered into a business alliance agreement that granted Lazard Group the option to acquire the North American and European
fund management activities of Lazard Alternative Investments Holdings LLC (LAI), the subsidiary of LFCM Holdings that owns and operates LFCM Holdings merchant banking activities. This option is exercisable at any time prior to the
ninth anniversary of the consummation of the equity public offering, for a total price of $10,000. The option may be exercised by Lazard Group in two parts, consisting of an $8,000 option to purchase the North American merchant banking activities
and a $2,000 option to purchase the European merchant banking activities. LAIs merchant banking activities consist of the merchant banking management and general partner entities, together with Lazard Groups direct investments in related
funds that were transferred to LFCM Holdings pursuant to or in anticipation of the separation.



The business alliance agreement provides Lazard Group with certain governance rights with respect to LAI and provides for support by LFCM Holdings of the business of LAI. With respect to historical investments and
funds transferred to LFCM Holdings as part of the separation, profits realized prior to the option exercise are for the account of LFCM Holdings, whereas profits realized after the exercise of the option are for the account of



20



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



Lazard Group. Lazard Group intends to invest capital in future funds to be managed by LFCM Holdings subsidiaries and is entitled to receive incentive
fee payments from such funds, as well as profits related to such investments, if any, irrespective of whether it exercises its purchase option.



On February 25, 2005, Lazard Group formed a new private equity fund, Corporate Partners II Limited, with $1,000,000 of institutional capital commitments
and a $100,000 capital commitment from Lazard Group, the principal portion of which may require funding at any time through 2010. As of September 30, 2005, Lazard Group has contributed $89 of its capital commitment, which is recorded as a long term
investment. Pursuant to the master separation and business alliance agreements entered into between Lazard Group and LFCM Holdings, this fund is managed by a subsidiary of LFCM Holdings, and Lazard Group retained a capital commitment to the fund and
is entitled to receive the carried interest distributions made by the fund (other than the carried interest distributions made to investment professionals who manage the fund).



In July 2005, LFCM Holdings formed a new private equity fund, Lazard Senior Housing Partners LP. The first closing of the
fund has the ability to raise up to a maximum of $550,000 of capital commitments, including a minimum and maximum capital commitment from Lazard Group of $10,000 and $27,000, respectively, the principal portion of which will require funding at any
time through 2008. In connection with such capital commitment, Lazard Group funded $682 in October 2005.



Pursuant to the business alliance agreement, Lazard Group has certain other limited partner capital commitments to planned investment funds to be managed
and controlled by LFCM Holdings, all of which commitments are contingent upon the formation of such investment funds. As of September 30, 2005 these capital commitments are as followsLazard Technology Partners III$15,000; Lazard European
Mid-Market Buyout Fund10% of the total fund capital commitments, with a maximum capital commitment by Lazard Group of 50 million Euros; Lazard Structured Finance Investors LLC$10,000. As of September 30, 2005, none of these investment
funds have been formed and Lazard Group has not made any payment toward such contingent capital commitments.



21



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



|5. | EMPLOYEE BENEFIT PLANS
|-- | ----------------------



Lazard Group, 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. Expenses incurred related to the defined benefit pension plans, the defined benefit pension plan supplement and the post-retirement health care plans for the
three month and nine month periods ended September 30, 2004 and 2005 are shown in the table below.



|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---------------------- | - | --- | ---------------------------- |  | - | ------ | -
|                                                                                                        |  | PensionPlans |        |   | Pension PlanSupplement |   |     | Post-RetirementMedical Plans | 
|Three month period ended September 30, 2004                                                             |  |              |        |   |                        |   |     |                              |  |   |        |  
|Service cost                                                                                            |  | $            | 2,724  |   |                        | $ | 84  |                              |  | $ | 454    |  
|Interest cost                                                                                           |  |              | 4,839  |   |                        |   | 33  |                              |  |   | 396    |  
|Expected return on plan assets                                                                          |  |              | (5,733 | ) |                        |   |     |                              |  |   |        |  
|Amortization of transition (asset) obligation                                                           |  |              | (27    | ) |                        |   |     |                              |  |   |        |  
|Amortization of prior service cost                                                                      |  |              | (417   | ) |                        |   | 21  |                              |  |   |        |  
|Recognized actuarial (gain) loss                                                                        |  |              | 582    |   |                        |   | (3  | )                            |  |   | 14     |  
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 1,968  |   |                        | $ | 135 |                              |  | $ | 864    |  
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|The net periodic benefit cost (credit) is related to continuing and discontinued operations as follows: |  |              |        |   |                        |   |     |                              |  |   |        |  
|Continuing operations                                                                                   |  | $            | 1,690  |   |                        | $ | 86  |                              |  | $ | 678    |  
|Discontinued operations                                                                                 |  |              | 278    |   |                        |   | 49  |                              |  |   | 186    |  
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 1,968  |   |                        | $ | 135 |                              |  | $ | 864    |  
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|Three month period ended September 30, 2005                                                             |  |              |        |   |                        |   |     |                              |  |   |        |  
|Service cost                                                                                            |  | $            | 1,883  |   |                        |   |     |                              |  | $ | 65     |  
|Interest cost                                                                                           |  |              | 6,413  |   |                        | $ | 22  |                              |  |   | 141    |  
|Expected return on plan assets                                                                          |  |              | (6,611 | ) |                        |   |     |                              |  |   |        |  
|Amortization of prior service cost                                                                      |  |              | (109   | ) |                        |   |     |                              |  |   | (482   | )
|Recognized actuarial (gain) loss                                                                        |  |              | 795    |   |                        |   | (3  | )                            |  |   | 126    |  
|Settlements (curtailments)                                                                              |  |              | (1,250 | ) |                        |   |     |                              |  |   | (2,169 | )
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 1,121  |   |                        | $ | 19  |                              |  | $ | (2,319 | )
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|The net periodic benefit cost (credit) is related to continuing and discontinued operations as follows: |  |              |        |   |                        |   |     |                              |  |   |        |  
|Continuing operations                                                                                   |  | $            | 2,409  |   |                        | $ | 13  |                              |  | $ | (2,272 | )
|Discontinued operations                                                                                 |  |              | (1,288 | ) |                        |   | 6   |                              |  |   | (47    | )
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 1,121  |   |                        | $ | 19  |                              |  | $ | (2,319 | )
|                                                                                                        |  |              |        |   |                        |   |     |                              |  |   |        |  



22



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------------- | - | --- | ---------------------------- |  | - | ------ | -
|                                                                                                        |  | PensionPlans |         |   | Pension PlanSupplement |   |     | Post-RetirementMedical Plans | 
|Nine month period ended September 30, 2004                                                              |  |              |         |   |                        |   |     |                              |  |   |        |  
|Service cost                                                                                            |  | $            | 10,431  |   |                        | $ | 254 |                              |  | $ | 1,363  |  
|Interest cost                                                                                           |  |              | 16,024  |   |                        |   | 100 |                              |  |   | 1,197  |  
|Expected return on plan assets                                                                          |  |              | (17,843 | ) |                        |   |     |                              |  |   |        |  
|Amortization of transition (asset) obligation                                                           |  |              | (85     | ) |                        |   |     |                              |  |   |        |  
|Amortization of prior service cost                                                                      |  |              | (159    | ) |                        |   | 65  |                              |  |   |        |  
|Recognized actuarial (gain) loss                                                                        |  |              | 1,727   |   |                        |   | (9  | )                            |  |   | 42     |  
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 10,095  |   |                        | $ | 410 |                              |  | $ | 2,602  |  
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|The net periodic benefit cost (credit) is related to continuing and discontinued operations as follows: |  |              |         |   |                        |   |     |                              |  |   |        |  
|Continuing operations                                                                                   |  | $            | 9,261   |   |                        | $ | 265 |                              |  | $ | 2,043  |  
|Discontinued operations                                                                                 |  |              | 834     |   |                        |   | 145 |                              |  |   | 559    |  
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 10,095  |   |                        | $ | 410 |                              |  | $ | 2,602  |  
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|Nine month period ended September 30, 2005                                                              |  |              |         |   |                        |   |     |                              |  |   |        |  
|Service cost                                                                                            |  | $            | 5,841   |   |                        |   |     |                              |  | $ | 196    |  
|Interest cost                                                                                           |  |              | 19,844  |   |                        | $ | 66  |                              |  |   | 427    |  
|Expected return on plan assets                                                                          |  |              | (20,439 | ) |                        |   |     |                              |  |   |        |  
|Amortization of prior service cost                                                                      |  |              | (336    | ) |                        |   |     |                              |  |   | (1,446 | )
|Recognized actuarial (gain) loss                                                                        |  |              | 2,468   |   |                        |   | (9  | )                            |  |   | 379    |  
|Settlements (curtailments)                                                                              |  |              | 2,710   |   |                        |   |     |                              |  |   | (6,184 | )
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 10,088  |   |                        | $ | 57  |                              |  | $ | (6,628 | )
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|The net periodic benefit cost (credit) is related to continuing and discontinued operations as follows: |  |              |         |   |                        |   |     |                              |  |   |        |  
|Continuing operations                                                                                   |  | $            | 8,315   |   |                        | $ | 40  |                              |  | $ | (7,031 | )
|Discontinued operations                                                                                 |  |              | 1,773   |   |                        |   | 17  |                              |  |   | 403    |  
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $            | 10,088  |   |                        | $ | 57  |                              |  | $ | (6,628 | )
|                                                                                                        |  |              |         |   |                        |   |     |                              |  |   |        |  



The Company 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



| |  |  | LFNY Defined Benefit Pension Plan and Pension Plan SupplementEffective as of January 31, 2005, the LFNY Employees Pension Plan and the Employees
Pension Plan Supplement were amended to cease future benefit accruals and future participation. As a result of such amendment, active participants will continue to receive credit for service completed after January 31, 2005 for purposes of vesting;
however, future service will not count for purposes of future benefit accruals under the plans. Vested benefits for active participants as of January 31, 2005 will be retained.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | LFNY Defined Contribution PlanEffective January 1, 2005, the LFNY Defined Contribution Plan (the 401(k) Plan) was amended to
implement an employer match to participant pre-tax contributions. LFNY will match 100% of pre-tax contributions to the 401(k) Plan, excluding catch-up contributions,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



| | up to 4% of eligible compensation. Participants will be 100% vested in all employer-matching contributions after three years of service. Any service accrued
prior to January 1, 2005 will count toward this three-year vesting requirement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | LFNY Post-Retirement Medical PlanEffective December 31, 2005, post-retirement health care benefits will no longer be offered to those members and employees hired
on or after the effective date and for those members and employees hired before the effective date who attain the age of 40 after December 31, 2005. In addition, effective January 1, 2006, the cost sharing policy will change for those who qualify
for the benefit.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



LFNY Defined Benefit
Pension Plan and Post-Retirement Medical Plan Settlement TransactionAs a result of the separation and in accordance with SFAS No. 88, Employers Accounting for Settlement and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, Lazard Group recorded a charge of $3,255 ($2,710 and $545 relating to pension and post-retirement medical plan obligations, respectively), for the nine month period ended September 30, 2005 for the estimated
cost relating to the settlement of pension and post-retirement medical plan obligations and special termination benefits to employees in the separated businesses. Of this amount, $2,420 is included in income (loss) from discontinued operations and
$835 is included in compensation and benefits expense. In the three month period ended September 30, 2005, a credit adjustment of $1,250 relating to settlement of the pension obligation was recorded and is included in income (loss) from discontinued
operations.



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
SFAS No. 106, Employers Accounting for Post-Retirement Benefits Other Than Pensions, Lazard Group is recognizing the effect of such termination, which resulted in 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 and nine month periods ended September 30, 2005, compensation and benefits
expense was reduced by $2,169 and $6,729, respectively, related to the effect of such termination.



Employer Contributions and Indemnities from LFCM HoldingsAs reflected in Lazard Groups December 31, 2004 consolidated financial
statements, Lazard Groups principal U.K. pension plans had a combined deficit of approximately $95,000 (or approximately 49.2 million British pounds). This deficit would ordinarily be funded over time. In the third quarter of 2005, agreements
were executed between Lazard Group and the trustees of the plans dealing with a plan for the future funding of the deficit as well as with asset allocation. Irrespective of the terms 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 increase 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 that 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, Lazard Group 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.



Contributions of approximately $31,000 (or 16.4 million British pounds) were
made to Lazard Groups defined benefit pension plans in the U.K during the nine month period ended September 30, 2005, of which 15.0 million British pounds were reimbursed by LFCM Holdings.



24



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



Lazard Group 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 LFCM Holdings is obligated to reimburse Lazard Group (see Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements).



|6. | VARIABLE INTEREST ENTITIES
|-- | --------------------------



In 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 course of business that are VIEs and hold variable 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 was the primary beneficiary were consolidated at December 31, 2004 in accordance with FIN 46R.
Those VIEs included Lazard Group sponsored venture capital investment vehicles established in connection with Lazard Groups compensation plans. In connection with the separation, Lazard Group transferred its general partnership interests in
those 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, Lazard Group no longer consolidates such VIEs.



|7. | SENIOR BORROWINGS
|-- | -----------------



Senior borrowings are comprised of the following as of December 31, 2004 and September 30, 2005:



|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|----------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | ----------------- | --- | -------------------- | --------- | ---- | ----------------- | - | ------ |  | - | ---------
|                                                                                          |  | Principal Amount |         | Maturity Date |                   |     | Annual Interest Rate |           |      | Outstanding as of
|                                                                                          |  |                  |         |               | December 31, 2004 |     | September 30, 2005  
|Third Parties                                                                             |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Lazard Group senior notes(a)                                                              |  | $                | 550,000 |               | 2015              |     |                      | 7.125     | %    |                   |   |        |  | $ | 550,000  
|Lazard Group 7.53% notes (repaid May, 2005)                                               |  |                  | 50,000  |               | 2011              |     |                      | 7.53      | %    |                   | $ | 50,000 |  |   |          
|Senior Revolving Credit Agreement                                                         |  |                  | 125,000 |               | 2010              |     |                      | 5.177     | %(b) |                   |   |        |  |   | 15,000   
|Other                                                                                     |  |                  |         |               | Various           |     |                      | 3.0 - 8.6 | %    |                   |   | 17,497 |  |   | 3,418    
|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Total                                                                                     |  |                  |         |               |                   |     |                      |           |      |                   |   | 67,497 |  |   | 568,418  
|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Related Parties                                                                           |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Lazard Group notes issued to Lazard Group Finance in connection with issuance of the ESUs |  |                  | 437,500 |               | 2035              | (a) |                      | 6.12      | %    |                   |   |        |  |   | 437,500  
|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Total                                                                                     |  |                  |         |               |                   |     |                      |           |      |                   |   |       |  |   | 437,500  
|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          
|Total Senior Borrowings                                                                   |  |                  |         |               |                   |     |                      |           |      |                   | $ | 67,497 |  | $ | 1,005,918
|                                                                                          |  |                  |         |               |                   |     |                      |           |      |                   |   |        |  |   |          

---

|(a) | See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements.
|--- | -----------------------------------------------------------------------------

|(b) | Interest rates vary and are based on either a Federal Funds rate or a Eurodollar rate, in each case plus an applicable margin. As of September 30, 2005, the annual interest rate,
including the applicable margin, is 5.177%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



|8. | INCOME TAXES
|-- | ------------



Lazard Group historically has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes.
As a result, Lazard Groups income has not been subject to U.S. federal income taxes because taxes related to its income represents obligations of the individual partners. Outside the U.S., Lazard Group has operated principally through
corporations and has been subject to local income taxes. Income taxes reflected on the condensed consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Groups operations
apportioned to New York City. Lazard Groups provision for income taxes is accounted for under the provisions of SFAS No. 109Accounting for Income Taxes.



Following the equity public offering, Lazard Group is continuing to operate in the U.S. as a limited liability company
treated as a partnership for U.S. federal income tax purposes and remains subject to local income taxes outside the U.S. and to UBT.



For the three month periods ended September 30, 2004 and 2005 and the nine month periods ended September 30, 2004 and 2005, Lazard Groups
effective tax rates of 1.6%, 19.0%, 6.9% and 17.2%, respectively, on income from continuing operations is lower than the U.S. federal statutory tax rate of 35% because, as described above, a significant portion of income from continuing operations
is not subject to U.S. federal income taxes, partially offset by income taxes attributable to non-U.S. entities based on the tax rates in their local jurisdictions and to UBT.



|9. | MINORITY INTEREST
|-- | -----------------



Lazard Group consolidates various LAM related general partnership interests that it controls but does not wholly own and its business in Italy, which,
through a strategic alliance, is owned 40% by Intesa. As a result of consolidating these companies, Lazard Group recognizes the portion of income not associated with its ownership as minority interest.



Also, as described in Note 1 of Notes to Unaudited Condensed Consolidated
Financial Statements, commencing May 10, 2005, Lazard Group no longer recognizes payments for services rendered by the managing directors of LAM (and employee members of LAM) as charges to minority interest. Effective May 10, 2005, those charges are
now included in compensation and benefits and distributions to profit participation members. Consequently, the amounts recorded as minority interest expense for periods prior to May 10, 2005 are not comparable to amounts recorded as minority
interest expense for periods commencing May 10, 2005.



|10. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------



CommitmentsLazard Group 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 Groups consolidated financial position or results of operations.



In addition to amounts recorded at December 31, 2004 for abandoned leased
space in the U.K., during the nine month period ended September 30, 2005, Lazard Group provided for further costs of approximately $27,300 relating to such abandoned leased space in the U.K., of which approximately $21,000 is reimbursable from LFCM
Holdings under a lease indemnity agreement, which is described further in Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements. The $27,300 is comprised of approximately $10,000 of write-offs



26



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



of leasehold improvements recorded in the three month period ended September 30, 2005 and $17,300 relating to lease obligations recorded during the first six
months of 2005. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the $17,300 provision, recorded on the cease-use date, was determined 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. The amount not covered by the indemnity ($6,300) is included in
income (loss) from discontinued operations on the condensed consolidated statement of income for the nine month period ended September 30, 2005 (with all of such charge recorded during the first six months of 2005). The amount due under
the lease indemnity from LFCM Holdings of $21,000 is reported within receivables - related parties on the condensed consolidated statement of financial condition at September 30, 2005. See Note 11 of Notes to Unaudited Condensed
Consolidated Financial Statements for additional information regarding amounts due from (to) related parties.



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 and inquiries concerning matters arising in connection with the conduct of our businesses. 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 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 Lazard Groups former Capital Markets business, which business was transferred
to LFCM Holdings as a part of the separation. 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 that same business. Lazard Group believes that other broker-dealers have also received requests for information. In the course of an internal review of these matters, prior to
the separation, there were personnel changes in Lazard Groups former Capital Markets business, including resignations by individuals who were formerly associated with such separated business. These investigations are continuing and Lazard
Group cannot predict their potential outcomes, which outcomes, if any, could include regulatory consequences. Accordingly, Lazard Group has not recorded an accrual for losses related to any such judicial, regulatory or arbitration proceedings.



Lazard Ltd and Goldman Sachs & Co., the lead underwriter
of Lazard Ltds equity public offering of its Class A common stock, as well as several members of Lazard Ltd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 have 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 have removed the putative derivative lawsuit filed in that court to the
U.S. District Court for the Southern District of New York. 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. The putative class
action lawsuits purport to have been filed on behalf of persons who purchased securities of Lazard Ltd 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 Lazard Ltd against its
directors and Goldman Sachs & Co. and allege, among other things, that the directors breached their fiduciary duties to Lazard Ltd in connection with



27



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



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 Lazard Groups relationship with Intesa see Note 3 of Notes to Unaudited Condensed Consolidated Financial Statements.



|11. | DUE FROM (TO) RELATED PARTIES
|--- | -----------------------------



Amounts due from and to related parties as of September 30, 2005 are set forth below (there were no such amounts at December 31, 2004):



|                                                                                                                         |  |             |        |          |   |       
|------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------ | -------- | - | ------
|                                                                                                                         |  | Receivables |        | Payables
|LFCM Holdings                                                                                                            |  | $           | 55,042 |          | $ | 40,084
|LAZ-MD Holdings                                                                                                          |  |             |        |          |   | 7     
|Lazard Group Finance (excludes senior debtsee Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements) |  |             |        |          |   | 3,421 
|Lazard Ltd subsidiaries                                                                                                  |  |             | 657    |          |   | 5,692 
|                                                                                                                         |  |             |        |          |   |       
|Totals                                                                                                                   |  | $           | 55,699 |          | $ | 49,204
|                                                                                                                         |  |             |        |          |   |       



LFCM Holdings



LFCM Holdings owns and operates the separated businesses
and is owned by the working members, including Lazard Groups managing directors who are also members of LAZ-MD Holdings. In addition to the master separation agreement which effected the separation and recapitalization 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, LAZ-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. Lazard Group 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 5 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 general administrative functions. Lazard Group charges for these services based on Lazard Groups cost allocation methodology. Notwithstanding Lazard Groups providing data processing services, Lazard Group will not provide any
security administration services, as such services are being transferred to LFCM Holdings.



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



28



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



Lazard Group have a right to terminate the services earlier if there is a change of control of either party or the 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 service fee for
terminated service.



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, 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.



As discussed in Note 4 of Notes to
Unaudited Condensed Consolidated Financial Statements, the business alliance agreement granted Lazard Group options to acquire the North American and European merchant banking activities of LAI.



For the period May 10, 2005 through September 30, 2005, amounts recorded by
Lazard Group relating to administrative and support services and referral fees for underwriting transactions amounted to $2,215 and $2,544, respectively, with such amounts recorded as reductions to operating expenses and as underwriting revenue,
respectively.



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 for selected liabilities relating to abandoned leased space in the U.K., up
to a maximum of $29,000. In connection with Lazards recent entry into subleases with respect to a portion of this abandoned leased space and the incurrence of related liabilities, Lazard expects to enter into an agreement with LFCM Holdings
pursuant to which LFCM Holdings will pay to Lazard approximately $25,700 over a payment schedule to be agreed by such parties in full satisfaction of LFCMs indemnification obligations with respect to the abandoned leased space.



Receivables from LFCM Holdings include approximately $21,000 related to the
lease indemnity agreement and $26,800 related to the U.K. pension indemnity (see Notes 10 and 5 of Notes to Unaudited Condensed Consolidated Financial Statements, respectively). Payables to LFCM Holdings include amounts relating to the separation
under the master separation agreement. Included in such amounts are interest bearing payables of approximately $38,500 for the period commencing July 1, 2005, with such interest expense (at market interest rates) amounting to $466 in the three month
period ended September 30, 2005. Lazard Group currently anticipates paying off this amount concurrent with entry into the agreement with LFCM Holdings regarding the lease indemnity referred to above.



LAZ-MD Holdings



As of September 30, 2005, LAZ-MD Holdings holds an approximate 62.4% common
interest in Lazard Group and Lazard Ltd holds the remaining 37.6% common 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 September 30, 2005, the Class B common stock provides LAZ-MD Holdings with approximately 62.4% of the voting power but no economic rights in Lazard Ltd. Subject to certain limitations,



29



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



LAZ-MD Holdings exchangeable interests are exchangeable for Class 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 intends to charge for these services based on Lazard Groups cost allocation methodology. For the
period May 10, 2005 through September 30, 2005 such amount was not material. Notwithstanding Lazard Groups providing data processing services, Lazard Group will not provide any security administration services, as such services are being
transferred to LFCM Holdings.



Pursuant to the administrative
services agreement, Lazard Group also provides tax services to LAZ-MD Holdings. The services provided by Lazard Group to LAZ-MD Holdings will generally be provided until December 31, 2014, unless terminated earlier because of a change of
control of either party. For the period May 10, 2005 through September 30, 2005, Lazards charges to LAZ-MD Holdings for such services were not material.



Lazard Group Finance



As further discussed in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements, Lazard Group Finance purchased Lazard Group notes and
will receive periodic interest payments from Lazard Group. As of September 30, 2005, interest expense and amounts payable relating to the Lazard Group notes amounted to $10,791 and $3,421, respectively.



Lazard Ltd Subsidiaries



Lazard Groups receivables from Lazard Ltd subsidiaries primarily
relate to amounts paid by Lazard Group on behalf of wholly-owned subsidiaries of Lazard Ltd. Lazard Groups payables to Lazard Ltd subsidiaries primarily relate to the liability of $5,565 (including accretion of $135 through September 30, 2005)
for the quarterly contract adjustment payments on the purchase contracts associated with the ESUs (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements).



|12. | MEMBERS EQUITY
|--- | ---------------



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 (as discussed in Note 2 of Notes to Unaudited Condensed
Consolidated Financial Statements), during the nine month period ended September 30, 2005, members equity was reduced by approximately $145,000 for the repurchase of working member interests prior to the consummation of the equity public
offering.



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. Currently, approximately 37.6% and 62.4% of the outstanding Lazard Group common membership
interests are held by subsidiaries of Lazard Ltd and by LAZ-MD Holdings, respectively. Such distributions represent amounts necessary to fund (i) any dividends Lazard Ltd may declare on its Class A common stock and (ii) tax distributions in respect
of income taxes that Lazard Ltds subsidiaries and the members of LAZ-MD Holdings incur as a result of holding Lazard Group common membership interests. In August 2005, Lazard Group



30



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



distributed $3,230 to LAZ-MD Holdings and $1,950 to Lazard Ltd subsidiaries, which was used by Lazard Ltd to pay dividends to holders of Lazard Ltds
Class A common stock. On October 29, 2005, Lazard Group made total tax distributions of $18,164, including $11,327 paid to LAZ-MD Holdings. On November 8, 2005, the Board of Directors of Lazard Group declared a quarterly distribution to its members
of $8,966, to be paid on November 28, 2005, with such distribution amounting to $3,375 to subsidiaries of Lazard Ltd and $5,591 to LAZ-MD Holdings.



|13. | REGULATORY AUTHORITIES
|--- | ----------------------



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) which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At September 30, 2005, the minimum required
net capital is $4,834. At September 30, 2005, LFNYs regulatory net capital was $34,228, which exceeded the minimum requirement by $29,394, and the ratio of aggregate indebtedness to net capital was 2 to 1. In the second quarter of 2005, the
Company changed from the alternative method, to the aggregate indebtedness method for computing net capital requirements.



Certain U.K. subsidiaries of Lazard Group, namely LCL, Lazard Brothers & Co., Limited, Lazard Fund Managers Limited and Lazard Asset Management
Limited (the U.K. Subsidiaries) are regulated by the Financial Services Authority (the FSA). Recent changes to FSA rules may result in LCL being required to calculate its consolidated regulatory net capital on a basis
consistent with U.K. statutory reporting. As a result, the assets and liabilities of entities within the subgroup of LCH, not all of which are regulated by the FSA, may now be required to be included in LCLs calculation of consolidated
regulatory net capital. The Company has entered into discussion with the FSA in relation to this matter. The Company presently estimates that at September 30, 2005, the aggregate regulatory net capital of the U.K. Subsidiaries was $143,626,
which exceeded the minimum requirement by $69,509. The results of the discussions with the FSA may, however, have a material adverse effect on these amounts.



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 September 30, 2005, the consolidated regulatory net capital of LF was $137,644, which exceeded the minimum requirement set for regulatory
capital levels by $49,526.



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 September 30, 2005, for those subsidiaries with regulatory capital
requirements, aggregate net capital of those subsidiaries were $36,645, which exceeded the minimum required capital by $24,759.



At September 30, 2005, each of these subsidiaries individually were in compliance with its regulatory capital requirements.



|14. | DISCONTINUED OPERATIONS
|--- | -----------------------



In connection with the separation discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, on May 10, 2005 Lazard Group
transferred its Capital Markets and Other segment to



31



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



LFCM Holdings. The disposal qualifies as a discontinued operation under SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived
Assets. The Company transferred net assets with a carrying value of $243,178 and a fair value of approximately $245,600. Because these operations were distributed to the working members of Lazard Group, no gain or loss was recognized on the
separation. The master separation agreement provides a 150 day period for preparation and review of the closing balance sheet of the separated businesses. As a result of this process, during the three month period ended September 30, 2005, Lazard
Group recorded a loss from discontinued operations of $408, which was attributable to the resolution of certain fair value estimates on investments held by the Capital Markets segment transferred to LFCM Holdings, actuarial valuation adjustments for
estimated pension and other post-retirement benefit plan settlements and the settlement of various costs shared prior to the separation.



Operating results of the Capital Markets and Other segment were as follows:



|                                                        |  |                                 |        |   |                                |   |        |      |  |      |         |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | ---- | ------- |  | - | ------- | -
|                                                        |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                        |  | 2004                            |        |   | 2005                           |   |        | 2004 |  | 2005 |        
|Net revenue                                             |  | $                               | 37,775 |   |                                | $ | (1,079 | )    |  | $    | 130,978 |  | $ | 39,599  |  
|                                                        |  |                                 |        |   |                                |   |        |      |  |      |         |  |   |         |  
|Pre-tax income (loss)                                   |  | $                               | (2,169 | ) |                                | $ | (155   | )    |  | $    | 4,336   |  | $ | (14,246 | )
|Income taxes                                            |  |                                 | 773    |   |                                |   | 253    |      |  |      | 1,171   |  |   | 3,330   |  
|                                                        |  |                                 |        |   |                                |   |        |      |  |      |         |  |   |         |  
|Income (loss) from discontinued operations (net of tax) |  | $                               | (2,942 | ) |                                | $ | (408   | )    |  | $    | 3,165   |  | $ | (17,576 | )
|                                                        |  |                                 |        |   |                                |   |        |      |  |      |         |  |   |         |  



|15. | SEGMENT OPERATING RESULTS
|--- | -------------------------



Lazard Group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 segment is reviewed to determine the allocation of resources and to assess its performance. Prior to May 10, 2005, Lazard Groups business results were 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 discussed in Note 1 of Notes to Unaudited
Condensed Consolidated Financial Statements. Consequently, subsequent to May 10, 2005, Lazard Group has two segments: Financial Advisory which includes providing advice on mergers, acquisitions, restructurings and other financial matters; and Asset
Management which includes the management of equity and fixed income securities and merchant banking funds. Capital Markets and Other consisted 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 Group records selected other activities in Corporate, including cash and marketable investments, certain long-term
investments, and the commercial banking activities of LFB. Lazard Group also allocates outstanding indebtedness to Corporate.



As 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. Such payments 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.



Lazard Groups segment information for the three month and nine month periods ended September 30, 2004 and 2005 is prepared using the following methodology:



| |  |  | Revenue and expenses directly associated with each segment are included in determining operating income.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



| |  |  | Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most relevant
measures applicable, including headcount, square footage and other factors.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Lazard Group 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.



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



|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|-------------------------------- |  | --------------------------------------------------- | ------- | ---------------- | - | ------------- |  | --------- | ------- |  | ----- | ---------- | - |  | - | ---------
|                                 |  | For the three month period ended September 30, 2004
|Net Revenue and Operating Income |  | Financial Advisory                                  |         | Asset Management |   | SegmentTotals |  | Corporate |         |  | Total
|Net Revenue                      |  | $                                                   | 131,680 |                  | $ | 89,269        |  | $         | 220,949 |  |       | $   3,031  |   |  | $ | 223,980  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|Operating Income (Loss)          |  | $                                                   | 32,077  |                  | $ | 22,543        |  | $         | 54,620  |  |       | $      811 |   |  | $ | 55,431   
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|                                 | 
|                                 |  | For the three month period ended September 30, 2005
|Net Revenue and Operating Income |  | Financial Advisory                                  |         | Asset Management |   | SegmentTotals |  | Corporate |         |  | Total
|Net Revenue                      |  | $                                                   | 257,785 |                  | $ | 110,994       |  | $         | 368,779 |  |       | $(11,878   | ) |  | $ | 356,901  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|Operating Income (Loss)          |  | $                                                   | 83,031  |                  | $ | 20,059        |  | $         | 103,090 |  |       | $(25,315   | ) |  | $ | 77,775   
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|                                 | 
|                                 |  | For the nine month period ended September 30, 2004 
|Net Revenue and Operating Income |  | Financial Advisory                                  |         | Asset Management |   | SegmentTotals |  | Corporate |         |  | Total
|Net Revenue                      |  | $                                                   | 407,251 |                  | $ | 289,956       |  | $         | 697,207 |  |       | $   6,743  |   |  | $ | 703,950  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|Operating Income (Loss)          |  | $                                                   | 90,823  |                  | $ | 90,350        |  | $         | 181,173 |  |       | $ 10,111   |   |  | $ | 191,284  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|                                 | 
|                                 |  | For the nine month period ended September 30, 2005 
|Net Revenue and Operating Income |  | Financial Advisory                                  |         | Asset Management |   | SegmentTotals |  | Corporate |         |  | Total
|Net Revenue                      |  | $                                                   | 626,610 |                  | $ | 326,695       |  | $         | 953,305 |  |       | $(18,942   | ) |  | $ | 934,363  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|Operating Income (Loss)          |  | $                                                   | 213,971 |                  | $ | 81,725        |  | $         | 295,696 |  |       | $(29,841   | ) |  | $ | 265,855  
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|                                 | 
|                                 |  | As of December 31, 2004 and September 30, 2005     
|Total Assets                     |  | Financial Advisory                                  |         | Asset Management |   | SegmentTotals |  | Corporate |         |  | Total
|December 31, 2004 (*)            |  | $                                                   | 380,331 |                  | $ | 245,449       |  | $         | 625,780 |  | $     | 1,384,769  |   |  | $ | 2,010,549
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          
|September 30, 2005               |  | $                                                   | 419,574 |                  | $ | 285,773       |  | $         | 705,347 |  | $     | 1,103,804  |   |  | $ | 1,809,151
|                                 |  |                                                     |         |                  |   |               |  |           |         |  |       |            |   |  |   |          

---

|(*) | Excludes assets of discontinued operations of $1,488,675 at December 31, 2004.
|--- | ------------------------------------------------------------------------------



33



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



|16. | PANMURE GORDON AND EXTRAORDINARY GAIN
|--- | -------------------------------------



In January 2004, a subsidiary of Lazard Group acquired certain assets, net of certain liabilities, of West LB Panmure Limited, an unrelated entity in the
U.K. Subsequent to the acquisition, the acquired business became part of Lazard Groups Capital Markets and Other segment, operating as Panmure Gordon, a division of LCL. Panmure Gordon provides clients with corporate finance advisory services,
corporate broking capabilities and equity sales and trading. The total purchase price allocated to the net assets of the business acquired was $1,580 related to legal costs incurred to complete the transaction. The fair value of the net assets
acquired exceeded the purchase price of those net assets by $5,658. In accordance with SFAS No. 141, Business Combinations, Lazard Group recognized an extraordinary gain of $5,507 after reducing long-lived assets, principally
representing property, to $0.



On April 26, 2005,
Lazard Group completed the sale of Panmure Gordon to Durlacher Corporation PLC, a U.K. broking firm (Durlacher). As part of the April 2005 transaction, Lazard Group received an ownership interest of 32.8% in Durlacher, which was
transferred to LFCM Holdings in connection with the separation. Lazard Group and LFCM Holdings have agreed to share any cash proceeds, to be derived prior to May 2013, from any subsequent sale by LFCM Holdings of the shares it owns in Durlacher.



|17. | NEW ACCOUNTING PRONOUNCEMENTS
|--- | -----------------------------



On May 30, 2005, the FASB issued SFAS No. 154Accounting and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.
3, which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does
not include specific transition provisions. SFAS No. 154 applies to (a) financial statements of business enterprises and not-for-profit organizations and (b) historical summaries of information based on primary financial statements that include an
accounting period in which an accounting change or error correction is reflected.



SFAS No. 154 eliminates the requirement in APB Opinion No. 20, Accounting Changes, to include the cumulative effect of changes in accounting principle in the income statement in the period of change.
Instead, to enhance the comparability of prior period financial statements, SFAS No. 154 requires that changes in accounting principle be retrospectively applied. Under retrospective application, the new accounting principle is applied as of the
beginning of the first period presented as if that principle had always been used. The cumulative effect of the change is reflected in the carrying value of assets and liabilities as of the first period presented and the offsetting adjustments are
recorded to opening retained earnings. Each period presented is adjusted to reflect the period-specific effects of applying the change. Although retrospective application is similar to restating prior periods, SFAS No. 154 gives the treatment a new
name to differentiate it from restatement for the correction of an error. Only direct effects of the change will be included in the retrospective application; all indirect effects will be recognized in the period of change. If it is impracticable to
determine the cumulative effect for all prior periods, the new accounting principle should be applied as if it were adopted prospectively from the earliest date practicable. Additionally, under SFAS No. 154, a change in reporting entity is
also retrospectively applied as of the beginning of the first period presented. Any correction of an error continues to be reported by restating prior period financial statements as of the beginning of the first period presented.



SFAS No. 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date the Statement was issued. The Statement does not change the transition
provisions of any existing accounting pronouncements, including those that are in a transition phase as of the



34



---

##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, except membership interest amounts, unless otherwise noted)



effective date of the Statement. The adoption of SFAS No. 154 is not expected to have a material impact on the financial condition, results of operations, or
cash flows of Lazard Group.



In December 2004, the FASB issued
SFAS No. 123(R) Share-Based Payment (SFAS 123(R)), a revision to SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS 123(R), which is effective for fiscal years beginning after June
15, 2005, requires that all stock-based compensation be accounted for at fair value, thereby eliminating application of the intrinsic value method under Accounting Principles Board Opinion No. 25. SFAS 123(R) requires that the cost of employee
services received in exchange for an award of equity instruments be measured based on the fair value on the date of grant (with certain limited exceptions). The cost of the employee services are recognized over the period the requisite services are
performed. Any excess tax benefit, as defined by SFAS 123(R), is recognized as an addition to paid-in-capital and cash retained as a result of the excess tax benefit is included in financing activities within the statement of cash flows.



Lazard Groups accounting policy provides for the expensing of the
fair value of any share-based compensation over the stipulated vesting periods. Lazard Group does not currently anticipate that the adoption of SFAS 123(R) will have a significant impact on its results of operations.



35



---

##### Table of Contents

|Item 1A. | Unaudited Pro Forma Financial Information
|-------- | -----------------------------------------



Lazard Group Finance:



The following unaudited pro forma condensed statements of income for the nine month periods ended September 30, 2004 and 2005 present the results of
operations of Lazard Group Finance assuming that the ESU offering and the IXIS ESU placement of the Lazard Group Finance senior notes had been completed as of January 1, 2004. The pro forma adjustments are based on available information and upon
assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the ESU offering and the IXIS ESU placement. The adjustments are described in the notes to the unaudited pro forma condensed statements
of income and principally include the matters set forth below:



| |  |  | The issuance of the Lazard Group Finance senior notes underlying the equity security units, including the equity security units issued pursuant to the IXIS investment agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The incremental expense related to the Lazard Group Finance senior notes.
| | - |  | -------------------------------------------------------------------------



| |  |  | The use of proceeds from the issuance of the Lazard Group Finance senior notes, principally for the purchase of the Lazard Group notes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|Unaudited Pro Forma Condensed Statements of Income For The Nine Month Periods Ended September 30, 2004 and 2005 |  | 38  



Lazard Group:



The following unaudited pro forma condensed consolidated statements of
income for the nine month periods ended September 30, 2004 and 2005 present the consolidated results of operations of Lazard Group assuming that the separation and recapitalization transactions, including the equity public offering and the financing
transactions, had been completed as of January 1, 2004. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the
separation and recapitalization transactions, including the equity public offering and the financing transactions, on the historical financial information of Lazard Group. The adjustments are described in the notes to the unaudited pro forma
condensed consolidated statements of income and principally include the matters set forth below.



| |  |  | The separation, which is described in more detail in Managements Discussion and Analysis of Financial Condition and Results of Operations and the accompanying
Notes to Unaudited Condensed Consolidated Financial Statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, prior to May 10, 2005, had been
accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, Lazard Groups operating income, prior to May 10, 2005, included within the
accompanying unaudited condensed consolidated financial statements historically had not reflected payments for services rendered by its managing directors. Subsequent to the consummation of the equity public offering, as described in Note 1 of the
accompanying Notes to Unaudited Condensed Consolidated Financial Statements, Lazard Group now includes all payments for services rendered by our managing directors in compensation and benefits expense.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental expense related to the financing transactions and the exclusion of certain one-time equity public offering-related costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



The unaudited pro forma financial information of Lazard Group should be read
together with the Registration Statement and the accompanying Managements Discussion and Analysis of Financial Condition and Results of Operations and Lazard Groups historical unaudited condensed consolidated financial
statements



36



---

##### Table of Contents

and the related notes included elsewhere herein. Prior to May 10, 2005, the historical consolidated financial data reflected in the accompanying unaudited
pro forma financial information represent historical consolidated financial data of Lazard Group. Such historical consolidated financial data of Lazard Group reflects the historical results of continuing operations, with the separated businesses
presented within income (loss) from discontinued operations.



|                                                                                                                             |  |     
|---------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                             |  | Page
|Unaudited Pro Forma Condensed Consolidated Statements of Income For The Nine Month Periods Ended September 30, 2004 and 2005 |  | 39  



General:



The pro forma financial information are included for informational purposes
only and do not purport to reflect the results of operations of Lazard Group or Lazard Group Finance that would have occurred had they operated as separate, independent companies during the periods presented. Actual results might have differed from
pro forma results if Lazard Group or Lazard Group Finance had operated independently. The pro forma financial information should not be relied upon as being indicative of Lazard Group or Lazard Group Finance results of operations had the
transactions described in connection with the separation and recapitalization transactions, including the equity public offering and the financing transactions, been completed on January 1, 2004. The pro forma financial information also does not
project the results of operations for any future period or date.



37



---

##### Table of Contents

LAZARD GROUP FINANCE LLC

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME

($ in thousands)



|                                 |  |                                            |   |                      |   |         |                                             |  |   |         |  
|-------------------------------- |  | ------------------------------------------ | - | -------------------- | - | ------- | ------------------------------------------- |  | - | ------- | -
|                                 |  | Nine Month Period Ended September 30, 2004 |  
|                                 |  | Historical                                 |   | Pro FormaAdjustments |   |         | Lazard Group Finance Pro Forma, as Adjusted | 
|Total revenue                    |  | $                                          |  |                      | $ | 20,659  | (a)(c)                                      |  | $ | 20,659  |  
|Interest expense                 |  |                                            |  |                      |   | (20,659 | )(b)(d)                                     |  |   | (20,659 | )
|                                 |  |                                            |   |                      |   |         |                                             |  |   |         |  
|Net revenue and operating income |  |                                            |  |                      |   |        |                                             |  |   |        |  
|Provision for income taxes       |  |                                            |  |                      |   |        |                                             |  |   |        |  
|                                 |  |                                            |   |                      |   |         |                                             |  |   |         |  
|Net income allocable to members  |  | $                                          |  |                      | $ |        |                                             |  | $ |        |  
|                                 |  |                                            |   |                      |   |         |                                             |  |   |         |  



|                                 |  |                                            |         |   |                      |   |        |                                            |  |   |         |  
|-------------------------------- |  | ------------------------------------------ | ------- | - | -------------------- | - | ------ | ------------------------------------------ |  | - | ------- | -
|                                 |  | Nine Month Period Ended September 30, 2005 |        
|                                 |  | Historical                                 |         |   | Pro FormaAdjustments |   |        | Lazard GroupFinance Pro Forma, as Adjusted | 
|Total revenue                    |  | $                                          | 10,804  |   |                      | $ | 9,868  | (a)(c)                                     |  | $ | 20,672  |  
|Interest expense                 |  |                                            | (10,791 | ) |                      |   | (9,868 | )(b)(d)                                    |  |   | (20,659 | )
|                                 |  |                                            |         |   |                      |   |        |                                            |  |   |         |  
|Net revenue and operating income |  |                                            | 13      |   |                      |   |       |                                            |  |   | 13      |  
|Provision for income taxes       |  |                                            | 4       |   |                      |   |       |                                            |  |   | 4       |  
|                                 |  |                                            |         |   |                      |   |        |                                            |  |   |         |  
|Net income allocable to members  |  | $                                          | 9       |   |                      | $ |       |                                            |  | $ | 9       |  
|                                 |  |                                            |         |   |                      |   |        |                                            |  |   |         |  

---

Notes to Lazard Group Finance LLC Unaudited Pro
Forma Condensed Statements of Income

($ in thousands)



|(a) | Including interest income related to the $437,500 principal amount of Lazard Group notes.
|--- | -----------------------------------------------------------------------------------------

|(b) | Including interest expense related to the issuance of $437,500 principal amount of the Lazard Group Finance senior notes.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(c) | Including amortization of deferred interest income associated with the $437,500 principal amount of Lazard Group notes.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(d) | Including amortization of deferred issuance costs associated with the issuance of the Lazard Group Finance senior notes.
|--- | ------------------------------------------------------------------------------------------------------------------------



38



---

##### Table of Contents

LAZARD GROUP LLC



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME



|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|---------------------------------------------------------- |  | ------------------------------------------ | -------- | ---- | --------------------- | ------- | ---- | -------- | - | -------- | ------------------------------------------------ |  | -------- | --------------------------------- |  | -------- | - |  | -------- | ---- |  | - | ------- | -
|                                                           |  | Nine Month Period Ended September 30, 2004 |         
|                                                           |  |                                            |          |      | Pro Forma Adjustments |         |      |          |   |          | Pro FormaAdjustmentsFor TheFinancingTransactions |  |          | Lazard GroupPro Forma,as Adjusted | 
|                                                           |  | Historical                                 |          |      | Separation            |         |      | Subtotal |   |          | Other                                            |  |          | Total                             |  |          |  
|                                                           |  | ($ in thousands)                           |         
|Total revenue                                              |  | $                                          | 733,768  |      |                       |         |      |          | $ | 733,768  |                                                  |  |          |                                   |  | $733,768 |   |  |          |      |  | $ | 733,768 |  
|Interest expense                                           |  |                                            | (29,818  | )(a) |                       |         |      |          |   | (29,818  | )                                                |  |          |                                   |  | (29,818  | ) |  | $(41,831 | )(e) |  |   | (71,649 | )
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Net revenue                                                |  |                                            | 703,950  |      |                       |         |      |          |   | 703,950  |                                                  |  |          |                                   |  | 703,950  |   |  | (41,831  | )    |  |   | 662,119 |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Operating Expenses:                                        |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Compensation and benefits                                  |  |                                            | 329,116  |      |                       |         |      |          |   | 329,116  |                                                  |  | $85,092  | (c)                               |  | 414,208  |   |  |          |      |  |   | 414,208 |  
|Premises and occupancy costs                               |  |                                            | 54,396   |      |                       |         |      |          |   | 54,396   |                                                  |  |          |                                   |  | 54,396   |   |  |          |      |  |   | 54,396  |  
|Professional fees                                          |  |                                            | 30,598   |      |                       |         |      |          |   | 30,598   |                                                  |  |          |                                   |  | 30,598   |   |  |          |      |  |   | 30,598  |  
|Travel and entertainment                                   |  |                                            | 33,479   |      |                       |         |      |          |   | 33,479   |                                                  |  |          |                                   |  | 33,479   |   |  |          |      |  |   | 33,479  |  
|Other                                                      |  |                                            | 65,077   |      |                       |         |      |          |   | 65,077   |                                                  |  |          |                                   |  | 65,077   |   |  |          |      |  |   | 65,077  |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Operating expenses                                         |  |                                            | 512,666  |      |                       |         |      |          |   | 512,666  |                                                  |  | 85,092   |                                   |  | 597,758  |   |  |          |      |  |   | 597,758 |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Operating income from continuing operations                |  |                                            | 191,284  |      |                       |         |      |          |   | 191,284  |                                                  |  | (85,092  | )                                 |  | 106,192  |   |  | (41,831  | )    |  |   | 64,361  |  
|Provision (benefit) for income taxes                       |  |                                            | 13,214   |      |                       |         |      |          |   | 13,214   |                                                  |  | 1,919    | (d)                               |  | 15,133   |   |  | (5,479   | )(f) |  |   | 9,654   |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Income from continuing operations before minority interest |  |                                            | 178,070  |      |                       |         |      |          |   | 178,070  |                                                  |  | (87,011  | )                                 |  | 91,059   |   |  | (36,352  | )    |  |   | 54,707  |  
|Minority interest                                          |  |                                            | 52,426   |      |                       |         |      |          |   | 52,426   |                                                  |  | (55,709  | )(c)                              |  | (3,283   | ) |  |          |      |  |   | (3,283  | )
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Income from continuing operations                          |  |                                            | 125,644  |      |                       |         |      |          |   | 125,644  |                                                  |  | (31,302  | )                                 |  | 94,342   |   |  | (36,352  | )    |  |   | 57,990  |  
|Income from discontinued operations (net of income taxes)  |  |                                            | 3,165    |      |                       | $(3,165 | )(b) |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Extraordinary gain                                         |  |                                            | 5,507    |      |                       | (5,507  | )(b) |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  
|Net income allocable to members                            |  |                                            | $134,316 |      |                       | $(8,672 | )    |          |   | $125,644 |                                                  |  | $(31,302 | )                                 |  | $94,342  |   |  | $(36,352 | )    |  |   | $57,990 |  
|                                                           |  |                                            |          |      |                       |         |      |          |   |          |                                                  |  |          |                                   |  |          |   |  |          |      |  |   |         |  







See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income



39



---

##### Table of Contents

LAZARD GROUP LLC



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME



|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ | ------- | ---- | --------------------- | - | ------ | -------- |  | - | ------------------------------------------------ | - |  | --------------------------------- | ------- | ---- |  | -------- | - |  | - | ------- | ---- |  | - | -------- | -
|                                                                                                       |  | Nine Month Period Ended September 30, 2005 |        
|                                                                                                       |  |                                            |         |      | Pro Forma Adjustments |   |        |          |  |   | Pro FormaAdjustmentsFor TheFinancingTransactions |   |  | Lazard GroupPro Forma,as Adjusted |        
|                                                                                                       |  | Historical                                 |         |      | Separation            |   |        | Subtotal |  |   | Other                                            |   |  | Total                             |         |      | 
|                                                                                                       |  | ($ in thousands)                           |        
|Total revenue                                                                                          |  | $                                          | 987,904 |      |                       |   |        |          |  | $ | 987,904                                          |   |  |                                   |         |      |  | $987,904 |   |  |   |         |      |  | $ | 987,904  |  
|Interest expense                                                                                       |  |                                            | (53,541 | )(a) |                       |   |        |          |  |   | (53,541                                          | ) |  | $                                 | 1,661   | (g)  |  | (51,880  | ) |  | $ | (22,626 | )(e) |  |   | (74,506  | )
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Net revenue                                                                                            |  |                                            | 934,363 |      |                       |   |        |          |  |   | 934,363                                          |   |  |                                   | 1,661   |      |  | 936,024  |   |  |   | (22,626 | )    |  |   | 913,398  |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Operating Expenses:                                                                                    |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Compensation and benefits (and commencing May 10, 2005, distributions to profit participation members) |  |                                            | 482,228 |      |                       |   |        |          |  |   | 482,228                                          |   |  |                                   | 75,476  | (c)  |  | 557,704  |   |  |   |         |      |  |   | 557,704  |  
|Premises and occupancy costs                                                                           |  |                                            | 50,505  |      |                       |   |        |          |  |   | 50,505                                           |   |  |                                   |         |      |  | 50,505   |   |  |   |         |      |  |   | 50,505   |  
|Professional fees                                                                                      |  |                                            | 35,844  |      |                       |   |        |          |  |   | 35,844                                           |   |  |                                   | (2,935  | )(g) |  | 32,909   |   |  |   |         |      |  |   | 32,909   |  
|Travel and entertainment                                                                               |  |                                            | 30,767  |      |                       |   |        |          |  |   | 30,767                                           |   |  |                                   |         |      |  | 30,767   |   |  |   |         |      |  |   | 30,767   |  
|Other                                                                                                  |  |                                            | 69,164  |      |                       |   |        |          |  |   | 69,164                                           |   |  |                                   |         |      |  | 69,164   |   |  |   |         |      |  |   | 69,164   |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Operating expenses                                                                                     |  |                                            | 668,508 |      |                       |   |        |          |  |   | 668,508                                          |   |  |                                   | 72,541  |      |  | 741,049  |   |  |   |         |      |  |   | 741,049  |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Operating income from continuing operations                                                            |  |                                            | 265,855 |      |                       |   |        |          |  |   | 265,855                                          |   |  |                                   | (70,880 | )    |  | 194,975  |   |  |   | (22,626 | )    |  |   | 172,349  |  
|Provision (benefit) for income taxes                                                                   |  |                                            | 45,781  |      |                       |   |        |          |  |   | 45,781                                           |   |  |                                   | 463     | (d)  |  | 46,244   |   |  |   | (8,515  | )(f) |  |   | 37,729   |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Income from continuing operations before minority interest                                             |  |                                            | 220,074 |      |                       |   |        |          |  |   | 220,074                                          |   |  |                                   | (71,343 | )    |  | 148,731  |   |  |   | (14,111 | )    |  |   | 134,620  |  
|Minority interest                                                                                      |  |                                            | 18,521  |      |                       |   |        |          |  |   | 18,521                                           |   |  |                                   | (9,081  | )(c) |  | 9,440    |   |  |   |         |      |  |   | 9,440    |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Income from continuing operations                                                                      |  |                                            | 201,553 |      |                       |   |        |          |  |   | 201,553                                          |   |  |                                   | (62,262 | )    |  | 139,291  |   |  |   | (14,111 | )    |  |   | 125,180  |  
|Loss from discontinued operations (net of income taxes)                                                |  |                                            | (17,576 | )    |                       | $ | 17,576 | (b)      |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  
|Net income allocable to members                                                                        |  | $                                          | 183,977 |      |                       | $ | 17,576 |          |  | $ | 201,553                                          |   |  | $                                 | (62,262 | )    |  | $139,291 |   |  | $ | (14,111 | )    |  |   | $125,180 |  
|                                                                                                       |  |                                            |         |      |                       |   |        |          |  |   |                                                  |   |  |                                   |         |      |  |          |   |  |   |         |      |  |   |          |  



See Notes to Unaudited
Pro Forma Condensed Consolidated Statements of Income



40



---

##### Table of Contents

---

Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Income ($ in thousands):



|(a) | Interest expense includes accrued dividends relating to Lazard Groups mandatorily redeemable preferred stock issued in March 2001, which amounted to $6,000 for the nine month
periods ended September 30, 2004. The nine month period ended September 30, 2005 includes a credit of $8,000, which represents accrued dividends on Lazard Groups mandatorily redeemable preferred stock which were cancelled in connection with
the redemption of membership interests of historical partners.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Reflects adjustments necessary to remove Lazard Groups discontinued operations and when applicable, extraordinary items, related to the separated businesses.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Prior to the equity public offering, payments for services rendered by the Companys managing directors were accounted for as distributions from members capital, or as
minority interest expense in the case of payments to LAM managing directors and certain key LAM employee members during 2004 and through May 9, 2005, rather than as compensation and benefits expense. As a result, the Companys compensation and
benefits expense and net income allocable to members did not reflect most payments for services rendered by Lazard Groups managing directors. Commencing May 10, 2005, payments for services rendered by the Companys managing directors
and employee members of LAM will be reported as compensation and benefits expense. See Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Financial Measures and IndicatorsNet Income
Allocable to Members.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The adjustment
reflects the classification of those payments for services rendered prior to May 10, 2005 as compensation and benefits expense and has been determined as if the new compensation policy described below had been in place for all periods prior to May
10, 2005. Accordingly, the pro forma condensed consolidated statements of income data reflect compensation and benefits expense based on new retention agreements that are in effect.



Following the completion of the equity public offering, the Companys policy is that its compensation and benefits
expense, including that payable to its managing directors, will not exceed 57.5% of operating revenue each year (although the Company retains the ability to change this policy in the future). The Companys managing directors have been informed
of this new policy. The new retention agreements with its managing directors generally provide for a fixed salary and discretionary bonus, which may include an equity-based compensation component. The Company defines operating revenue
for these purposes as consolidated total revenue from continuing operations less interest expense related to LFB and certain revenue related to the consolidation of LAM general partnerships, with such operating revenue being $720,362 and $969,918
for the nine month periods ended September 30, 2004 and 2005, respectively.



The overall net adjustment to increase historical compensation and benefits expense is $85,092 and $75,476 for the nine month periods ended September 30, 2004 and 2005, respectively. The net adjustments are the result
of (i) aggregating the distributions representing payments for services rendered by managing directors and employee members of LAM prior to May 10, 2005, which was $262,220 and $75,476 for the 2004 and 2005 periods, respectively, and,
(ii) with respect to the 2004 period, the net adjustment includes a reduction of $177,128 to reflect the new compensation arrangements with our managing directors to achieve a target compensation expense-to-operating revenue ratio of 57.5% from
its historical ratios of 82.1%. In the 2005 period, the new compensation arrangements were in effect, thus, the Companys employee compensation and benefits expense to operating revenue ratio is 57.5% and no further adjustment is necessary.



|(d) | Reflects net tax expense adjustments of $1,919 and $463 for the nine month periods ended September 30, 2004 and 2005, respectively. The net adjustments consist of (i) the
application of the historical effective Lazard Group income tax rate against the applicable pro forma adjustments, which were $3,059 and $758 for the nine month periods ended September 30, 2004 and 2005, respectively, and (ii) tax benefits of $1,140
and $295 reclassified from LAM minority interest for the nine month periods ended September 30, 2004 and 2005, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



---

##### Table of Contents

|(e) | Reflects net incremental interest expense related to the separation and recapitalization transactions, including the financing transactions and the amortization of capitalized costs
associated with the financing transactions, as if such transactions had been consummated as of January 1, 2004. The adjustments are estimated to be $41,831 and $22,626 for the nine month periods ended September 30, 2004 and 2005, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Reflects the net income tax impact associated with the separation and recapitalization transactions.
|--- | ----------------------------------------------------------------------------------------------------



|(g) | Represents adjustments to exclude non-recurring, one-time costs related to the separation and recapitalization, which consisted of interest of $1,661 and professional fees of $2,935
for the nine month period ended September 30, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



---

##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Forward-Looking Statements and Certain Factors that May Affect Our Business



We have included in Parts I and II of this Quarterly Report on Form 10-Q
statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as may, might, will, should, expect, plan,
anticipate, believe, estimate, predict, potential or continue, and the negative of these terms and other comparable terminology. These forward-looking statements, which are
subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions
based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in Lazards Registration Statements on Form S-1 (File Nos. 333-121407 and 333-123463) and Form
S-4 (File No. 333-126751) (collectively, the Registration Statements) under the caption Risk Factors, including the following:



| |  |  | a decline in general economic conditions or the global financial markets,
| | - |  | -------------------------------------------------------------------------



| |  |  | losses caused by financial or other problems experienced by third parties,
| | - |  | --------------------------------------------------------------------------



| |  |  | losses due to unidentified or unanticipated risks,
| | - |  | --------------------------------------------------



| |  |  | a lack of liquidity, i.e., ready access to funds, for use in our businesses, and
| | - |  | --------------------------------------------------------------------------------



| |  |  | competitive pressure.
| | - |  | ---------------------



Lazard Group and Lazard Group Finance operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to
time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our or Lazard Groups business or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking statements.



Although management believes the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these
forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations and does not intend to do so.



Forward-looking statements include, but are not limited to, statements about Lazard Groups and Lazard Group
Finances:



| |  |  | business possible or assumed future results of operations and operating cash flows,
| | - |  | ------------------------------------------------------------------------------------



| |  |  | business strategies and investment policies,
| | - |  | ---------------------------------------------



| |  |  | business financing plans and the availability of short-term borrowing,
| | - |  | -----------------------------------------------------------------------



| |  |  | business competitive position,
| | - |  | -------------------------------



| |  |  | potential growth opportunities available to its business,
| | - |  | ---------------------------------------------------------



| |  |  | recruitment and retention of its managing directors and employees,
| | - |  | ------------------------------------------------------------------



| |  |  | target levels of compensation,
| | - |  | ------------------------------



| |  |  | business potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts,
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | likelihood of success and impact of litigation,
| | - |  | -----------------------------------------------



43



---

##### Table of Contents

| |  |  | expected tax rate,
| | - |  | ------------------



| |  |  | changes in interest and tax rates,
| | - |  | ----------------------------------



| |  |  | expectation with respect to the economy, securities markets, the market for mergers and acquisitions activity, the market for asset management activity and other industry trends,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | benefits to our business resulting from the effects of the separation and recapitalization transactions, including the equity public offering and the financing transactions,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effects of competition on its business, and
| | - |  | -------------------------------------------



| |  |  | impact of future legislation and regulation on its business.
| | - |  | ------------------------------------------------------------



Lazard Group Finance and Lazard Group (referred to below, with its subsidiaries as Lazard Group, Lazard or the
Company) are committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information
about their businesses, including the anticipated release of quarterly financial results and the posting of updates of assets under management in various hedge funds and mutual funds and other investment products managed by Lazard Asset Management
LLC and its subsidiaries. Monthly updates of these funds will be posted to the Lazard Asset Management website (www.lazardnet.com) on the 3rd business day following the end of each month. Investors can link to Lazard and its operating company
websites through www.lazard.com. Our websites and the information contained therein or connected thereto shall not be deemed to be incorporated into this quarterly report.



Completion of Separation and Recapitalization Transactions



The separation and recapitalization transactions were completed as of May 10, 2005, at which time the separated business
became part of LFCM Holdings. Except as otherwise expressly noted, this quarterly report, including this Managements Discussion and Analysis of Financial Condition and Results of Operations (the MD&A), the
information described below regarding Lazard Group Finance and the historical consolidated financial data of Lazard Group, reflect the historical results of operations and financial position of Lazard Group Finance and Lazard Group, and, with
respect to Lazard Group, includes the separated businesses in discontinued operations. The accompanying pro forma financial data for Lazard Group Finance presents the results of operations of Lazard Group Finance assuming that the ESU offering and
the IXIS ESU placement had been completed as of January 1, 2004. In addition to other adjustments, the Lazard Group pro forma financial data included in this Form 10-Q reflect financial data giving effect to the separation, as well as other
adjustments made as a result of the equity public offering, the financing transactions and the recapitalization.



Lazard Groups 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. Such payments 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. This MD&A includes certain pro forma financial data to present Lazard Groups operating results on a more comparable basis in this regard.



Business Summary



Lazard Group Finance



As described above, Lazard Group Finance used the net proceeds from the ESU offering and the IXIS ESU placement to purchase Lazard Group notes. The Lazard
Group notes, which have substantially similar terms to the Lazard Group Finance senior notes, are pledged to secure the obligations of Lazard Group Finance under the Lazard Group Finance senior notes. Accordingly, Lazard Group Finances results
of operations are structured in such a way so that its interest income earned on the Lazard Group notes are equal to the interest expense related



44



---

##### Table of Contents

to the Lazard Group Finance senior notes. Lazard Group Finance has no other operating activities. Therefore, Lazard Group Finance should not generate
a significant amount of operating income.



The ability of
Lazard Group Finance to pay its obligations under the Lazard Group Finance senior notes depends on its ability to obtain interest and principal payments on the Lazard Group notes. Because the principal asset of Lazard Group Finance is the Lazard
Group notes, the accompanying unaudited condensed consolidated financial statements and related MD&A included herein each relate to Lazard Group.



Lazard Group



Lazard Groups principal sources of revenue are derived from activities in the following business segments:



| |  |  | Financial Advisory, which includes providing advice on mergers, acquisitions, restructurings and other financial matters, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset Management, which includes the management of equity and fixed income securities and merchant banking funds.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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 LFB. LFB is a registered bank regulated by the Banque de France. LFBs primary 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 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. Accordingly, following the equity public offering, the indebtedness and interest expense related to the financing transactions is
accounted for as part of 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, merchant banking fund management activities outside
of France as well as other specified non-operating assets and liabilities. Lazard Group transferred its Capital Markets and Other segment to LFCM Holdings on May 10, 2005 and it is no longer a segment of the Company, and the assets, liabilities and
operating results of the former segment are reflected as discontinued operations.



For the three month period ended September 30, 2005, Financial Advisory, Asset Management, and Corporate contributed approximately 72%, 31% and (3)% of consolidated net revenue, respectively. For the nine month period
ended September 30, 2005, Financial Advisory, Asset Management and Corporate contributed approximately 67%, 35% and (2)% of consolidated net revenue, respectively.



Business Environment



Economic and market conditions, particularly global mergers and acquisitions (M&A) activity, can significantly affect our financial
performance. Lazard operates in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for Lazards management to predict all risks and uncertainties, nor can Lazard
assess the impact of all factors on Lazards business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. See the section entitled
Risk Factors in the Registration Statement. Net income and revenues in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter.



The respective source for the data contained herein
relating to (i) the volume of global and trans-Atlantic completed and announced merger and acquisition transactions is Dealogic as of October 7, 2005, (ii) the amount of corporate debt defaults is Moodys Investors Service, Inc., all
rights reserved.



45



---

##### Table of Contents

Financial Advisory



For the nine month period ended September 30, 2005, the volume of global completed M&A transactions increased 17% versus
the corresponding period ended September 30, 2004, increasing to $1,580 billion from $1,349 billion, respectively, with the volume of trans-Atlantic completed M&A transactions experiencing an 8% increase. Over the same period, the volume of
global announced M&A transactions increased by 45% in 2005, from $1,437 billion to $2,089 billion, and the volume of trans-Atlantic announced M&A transactions increased by 51% from $84 billion to $127 billion, reflecting growing
industry-wide activity. Over the same time frame, financial restructuring activity increased primarily due to defaults in the media and airline sectors, with the amount of corporate debt defaults increasing from $8 billion to $17 billion. Lazard
believes that its Financial Advisory business would benefit from any sustained increase in M&A volume and corporate debt defaults.



For the three month period ended September 30, 2005, Lazard Groups M&A net revenue increased to $187 million from $105 million, or 78%, versus
the corresponding period in 2004 as M&A activity rebounded. At the same time, Financial Restructuring net revenue also increased to $40 million from $21 million, or 92%, over the same time period, reflecting increased restructuring
completions. For the nine month period ended September 30, 2005, Lazards M&A net revenue increased to $492 million from $314 million, or 57% versus the corresponding period in 2004. Financial restructuring net revenue also increased
to $80 million from $53 million or 53% over the same time period.



Asset Management



Global stock, markets
in the first nine months of 2005 continue to be mixed. In the first nine months of 2005, global markets strengthened as evidenced by the MSCI World Index increasing by 9%. European markets, showed gains with the FTSE 100, CAC 40 and DAX indices
gaining 14%, 20% and 19%, respectively. In the U.S., however, the Dow Jones Industrial and NASDAQ indices declined 2% and 1%, respectively, while the S&P 500 increased 1% during the same period. Global stock markets over the last twelve months
remained on the positive side. From October 1, 2004 until September 30, 2005, the MSCI World Index rose by 9%, and the FTSE 100, CAC 40 and DAX indices rose by 20%, 26% and 30%, respectively. In the U.S., the S&P 500, Dow Jones Industrial and
NASDAQ indices showed positive gains of 10%, 5% and 13%, respectively, during the same twelve month period. The changes in global market indices generally correspond with Lazard Groups market-related changes in its Assets Under Management
(AUM).



Key Financial Measures and Indicators



Net Revenue



The majority of Lazard Groups Financial Advisory net revenue is earned
from the successful completion of mergers, acquisitions, restructurings or similar transactions. In some client engagements, often those involving financially distressed companies, revenue is earned in the form of retainers and similar fees that are
contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction. In addition, Lazard also earns fees from providing strategic advice to clients, with such fees not being dependent on a
specific transaction. Lazard Groups Financial Advisory segment also earns revenue from public and private securities offerings in conjunction with activities of its former Capital Markets and Other segment. In general, such fees are shared
equally between Lazard Groups Financial Advisory and its former Capital Markets and Other segments. As a result of the consummation of the equity public offering, Lazard Group now has an arrangement with LFCM Holdings under which the separated
Capital Markets business will continue to distribute securities in public offerings originated by Lazard Groups Financial Advisory business in a manner similar to its practice prior to the equity public offering. The main driver of Financial
Advisory net revenue is overall M&A and restructuring volume, particularly in the industries and geographic markets in which Lazard Group focuses.



Lazard Groups Asset Management segment includes LAM, LFG and merchant banking operations. Asset Management net revenue is derived from fees for
investment management and advisory services provided to



46



---

##### Table of Contents

institutional and private clients. The main driver of Asset Management net revenue is the level of AUM, which is influenced in large part by Lazards
investment performance and by Lazards ability to successfully attract and retain assets, as well as the broader performance of the global equity markets and, to a lesser extent, fixed income markets. As a result, fluctuations in financial
markets and client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. In addition, as Lazard Groups AUM include significant assets that are denominated in currencies other than U.S. dollars,
changes in the value of the U.S. dollar relative to non-U.S. currencies will impact the value of Lazard Groups AUM. Fees vary with the type of assets managed, with higher fees earned on actively managed equity assets, alternative investments
(such as hedge funds) and merchant banking products, and lower fees earned on fixed income and cash management products. Lazard Group also earns performance-based incentive fees on some investment products, such as hedge funds, merchant banking
funds and other investment products. Incentive fees on hedge funds are typically calculated based on a specified percentage of a funds net appreciation during a fiscal period and can be subject to loss carry-forward provisions in which losses
incurred in the current period are applied against future period net appreciation. Incentive fees on merchant banking funds also may be earned in the form of a carried interest when profits from merchant banking investments exceed a specified
threshold. Lazard Groups Asset Management net revenue during the three month and nine month periods ended September 30, 2004 and 2005 demonstrate the volatility that incentive fees have on total net revenue.



Corporate net revenue consists primarily of investment income generated from
long-term investments, including principal investments that Lazard Group has made in merchant banking and alternative investment funds managed by the Asset Management segment, net interest income generated by LFB, interest income related to cash and
marketable investments and interest expense related to outstanding borrowings. As a result of the consummation of the equity public offering, interest expense related to the financing transactions is now included in Corporate net revenue. Corporate
net revenue can fluctuate due to mark-to-market adjustments on long-term and marketable investments, changes in interest rates and in interest rate spreads earned by LFB and changes in the levels of Lazards cash, marketable investments,
long-term investments and indebtedness. Although Corporate net revenue in the first nine months of 2005 represented (2)% of Lazard Groups net revenue, total assets in this segment represented 61% of Lazard Groups consolidated total
assets as of September 30, 2005, principally attributable to the relatively significant amounts of assets associated with LFB, and, to a lesser extent, cash, marketable investments and long-term investment balances.



Lazard expects to experience significant fluctuations in net revenue and
operating income during the course of any given year. These fluctuations arise because a significant portion of Financial Advisory net revenue is earned upon the successful completion of a transaction or financial restructuring, the timing of which
is uncertain and is not subject to Lazards control. Asset Management net revenue is also subject to periodic fluctuations. Asset Management fees are generally based on AUM measured as of the end of a quarter or month, and an increase or
reduction in AUM at such dates, due to market price fluctuations, currency fluctuations, net client asset flows or otherwise, will result in a corresponding increase or decrease in management fees. In addition, incentive fees earned on AUM are
generally not recorded until potential uncertainties regarding the ultimate realizable amounts have been determined. For most of our funds such date is year-end, and therefore such incentive fees would be recorded in the fourth quarter of Lazard
Groups fiscal year.



Discontinued Operations



As described above, in connection with the separation
Lazard Group transferred the Capital Markets and Other segment to LFCM Holdings as of May 10, 2005. Capital Markets and Other net revenue largely consisted of primary revenue earned from underwriting fees from securities offerings and secondary
revenue earned in the form of commissions and trading profits from principal transactions in Lazard Groups equity, fixed income and convertibles businesses and underwriting and other fee revenue from corporate broking in the U.K. Lazard Group
also earned fund management fees and, if applicable, carried interest incentive fees related to merchant banking funds managed as part of this former segment. Such carried interest incentive fees were earned when profits from merchant banking
investments exceeded a specified threshold. In addition, Lazard Group generated investment



47



---

##### Table of Contents

income and net interest income principally from long-term investments, cash balances and securities financing transactions.



Operating Expenses



The majority of Lazard Groups operating expenses relate to
compensation and benefits. As a limited liability company, prior to this consummation of the equity public offering on May 10, 2005 payments for services rendered by the majority of Lazard Groups managing directors were accounted for as
distributions of members capital. In addition, subsequent to January 1, 2003, payments for services rendered by managing directors of LAM (and employee members of LAM) were accounted for as minority interest expense. See Minority
Interest. As a result, Lazard Groups compensation and benefits expense and operating income, for the nine month period ended September 30, 2005, have reflected only those payments for services rendered by Lazard Groups managing
directors for the period May 10, 2005 through September 30, 2005. Subsequent to the consummation of the equity public offering, Lazard Group now includes all payments for services rendered by its managing directors, including the managing directors
of LAM and distributions to profit participation members, in compensation and benefits expense.



The balance of Lazard Groups operating expenses is referred to below as non-compensation expense, which includes costs for premises and
occupancy, professional fees, travel and entertainment, communications and information services, equipment, depreciation and amortization and other expenses.



The operating expenses set forth in Consolidated Results of Operations reflects some, but not all of the added costs Lazard expects to
incur as a result of the equity public offering. Lazard expects that it will incur additional expenses for, among other things, directors fees, SEC reporting and compliance, investor relations, legal, accounting and other costs associated with
being a public company.



Provision for Income Taxes



Lazard Group has historically operated in the U.S. as
a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of
the individual partners. Outside the U.S., Lazard Group historically has operated principally through corporations and has been subject to local income taxes. Income taxes shown on Lazard Groups historical consolidated statements of income are
attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Groups operations apportioned to New York City.



Following the equity public offering, Lazard Group is continuing to operate in the U.S. as a limited liability company treated as a partnership for U.S.
federal income tax purposes and remains subject to local income taxes outside the U.S. and to UBT.



Minority Interest



The Company consolidates various LAM related general partnership interests that it controls but does not wholly own, and its business in Italy which,
through a strategic alliance, is owned 40% by Intesa. As a result of consolidating these companies, the Company recognizes the portion of income not associated with the Companys ownership as minority interest.



Also, as described in Note 1 of Notes to Unaudited Condensed Consolidated
Financial Statements, commencing May 10, 2005, Lazard Group no longer recognizes payments for services rendered by the managing directors of LAM (and employee members of LAM) as charges to minority interest. Effective May 10, 2005, those
charges are now included in compensation and benefits and distributions to profit participation members. Accordingly, for these reasons, amounts recorded as minority interest expense for periods prior to May 10, 2005 are not comparable to
amounts recorded as minority interest expense for periods commencing May 10, 2005.



48



---

##### Table of Contents

Net Income Allocable to Members



Prior to the equity public offering, payments for services rendered by
Lazard Groups managing directors were accounted for as distributions from members capital, or as minority interest expense in the case of payments to LAM managing directors and certain key LAM employee members, rather than as
compensation and benefits expense. As a result, prior to May 10, 2005 Lazard Groups compensation and benefits expense and net income allocable to members, did not reflect most payments for services rendered by its managing directors. Following
the consummation of the equity public offering and financing transactions, Lazard Group now includes all payments for services rendered by its managing directors, including the managing directors of LAM and distributions to profit participation
members, in compensation and benefits expense.



Results of Operations



Lazard Groups consolidated financial statements are
presented in U.S. dollars. Many of our non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in
which the subsidiaries are domiciled. Such subsidiaries assets and liabilities are translated into U.S. dollars using exchange rates as of the respective balance sheet date while revenue and expenses are translated at average exchange rates
during the respective periods. Adjustments that result from translating amounts from a subsidiarys functional currency are reported as a component of members equity. Foreign currency remeasurement gains and losses on transactions
in non-functional currencies are included in the consolidated statements of income.



Historical results of operations are reported as a 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. Such payments 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. This MD&A includes certain pro forma financial
data to present operating results on a more comparable basis.



49



---

##### Table of Contents

The consolidated results of operations for the three month and nine month periods ended September 30,
2004 and 2005 are set forth below:



|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | ---- | ------- |  | - | ------- | -
|                                                                                                           |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                                                                                           |  | 2004                             |         |   | 2005                            |   |         | 2004 |  | 2005 |        
|                                                                                                           |  | ($ in thousands)                 |        
|Net Revenue:                                                                                               |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Financial Advisory                                                                                         |  | $                                | 131,680 |   |                                 | $ | 257,785 |      |  | $    | 407,251 |  | $ | 626,610 |  
|Asset Management                                                                                           |  |                                  | 89,269  |   |                                 |   | 110,994 |      |  |      | 289,956 |  |   | 326,695 |  
|Corporate                                                                                                  |  |                                  | 3,031   |   |                                 |   | (11,878 | )    |  |      | 6,743   |  |   | (18,942 | )
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Net revenue                                                                                                |  |                                  | 223,980 |   |                                 |   | 356,901 |      |  |      | 703,950 |  |   | 934,363 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Operating Expenses:                                                                                        |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Compensation and benefits (and, commencing to May 10, 2005, distributions to profit participation members) |  |                                  | 109,153 |   |                                 |   | 215,199 |      |  |      | 329,116 |  |   | 482,228 |  
|Non-compensation expense                                                                                   |  |                                  | 59,396  |   |                                 |   | 63,927  |      |  |      | 183,550 |  |   | 186,280 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Total operating expenses                                                                                   |  |                                  | 168,549 |   |                                 |   | 279,126 |      |  |      | 512,666 |  |   | 668,508 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Operating Income from Continuing Operations                                                                |  |                                  | 55,431  |   |                                 |   | 77,775  |      |  |      | 191,284 |  |   | 265,855 |  
|Provision (benefit) for income taxes                                                                       |  |                                  | 872     |   |                                 |   | 14,748  |      |  |      | 13,214  |  |   | 45,781  |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Income from Continuing Operations Before Minority Interest                                                 |  |                                  | 54,559  |   |                                 |   | 63,027  |      |  |      | 178,070 |  |   | 220,074 |  
|Minority Interest                                                                                          |  |                                  | 11,717  |   |                                 |   | 4,729   |      |  |      | 52,426  |  |   | 18,521  |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Income from Continuing Operations                                                                          |  |                                  | 42,842  |   |                                 |   | 58,298  |      |  |      | 125,644 |  |   | 201,553 |  
|Income (Loss) from Discontinued Operations                                                                 |  |                                  | (2,942  | ) |                                 |   | (408    | )    |  |      | 3,165   |  |   | (17,576 | )
|Extraordinary Gain                                                                                         |  |                                  |        |   |                                 |   |        |      |  |      | 5,507   |  |   |        |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Net Income Allocable to Members                                                                            |  | $                                | 39,900  |   |                                 | $ | 57,890  |      |  | $    | 134,316 |  | $ | 183,977 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Certain pro forma information with respect to
the periods described above are presented below:             |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|ProForma Net
Revenue                                                                                       |  | $                                | 210,036 |   |                                 | $ | 356,901 |      |  | $    | 662,119 |  | $ | 913,398 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Pro Forma Operating Income from Continuing Operations                                                      |  | $                                | 18,778  |   |                                 | $ | 77,775  |      |  | $    | 64,361  |  | $ | 172,349 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  
|Pro Forma Income from Continuing Operations                                                                |  | $                                | 19,116  |   |                                 | $ | 58,298  |      |  | $    | 57,990  |  | $ | 125,180 |  
|                                                                                                           |  |                                  |         |   |                                 |   |         |      |  |      |         |  |   |         |  



The Company calculates
operating revenue as follows:



|                                                              |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                              |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                                              |  | 2004                             |         |   | 2005                            |   |         | 2004 |  |   | 2005    |  
|                                                              |  | ($ in thousands)                 |        
|Operating Revenue:                                            |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net revenue                                                   |  | $                                | 223,980 |   |                                 | $ | 356,901 |      |  | $ | 703,950 |   |  | $ | 934,363 |  
|Add - interest expense                                        |  |                                  | 9,677   |   |                                 |   | 24,598  |      |  |   | 29,818  |   |  |   | 53,541  |  
|                                                              |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total revenue                                                 |  |                                  | 233,657 |   |                                 |   | 381,499 |      |  |   | 733,768 |   |  |   | 987,904 |  
|Less:                                                         |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|LFB interest expense                                          |  |                                  | (4,332  | ) |                                 |   | (4,489  | )    |  |   | (13,406 | ) |  |   | (15,234 | )
|Revenue relating to consolidation of LAM General Partnerships |  |                                  |        |   |                                 |   | (2,752  | )    |  |   |        |   |  |   | (2,752  | )
|                                                              |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Operating Revenue                                             |  | $                                | 229,325 |   |                                 | $ | 374,258 |      |  | $ | 720,362 |   |  | $ | 969,918 |  
|                                                              |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  



50



---

##### Table of Contents

Certain key ratios, statistics and headcount information for the three month and nine months periods
ended September 30, 2004 and 2005 are set forth below:



|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|---------------------------------------- |  | -------------------------------- | - |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|                                         |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|                                         |  | 2004                             |   |  | 2005                            |   |  | 2004 |   |  | 2005 |  
|As a % of Net Revenue:                   |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Financial Advisory                       |  | 59                               | % |  | 72                              | % |  | 58   | % |  | 67   | %
|Asset Management                         |  | 40                               |   |  | 31                              |   |  | 41   |   |  | 35   |  
|Corporate                                |  | 1                                |   |  | (3                              | ) |  | 1    |   |  | (2   | )
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Net Revenue                              |  | 100                              | % |  | 100                             | % |  | 100  | % |  | 100  | %
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|As a % of Net Revenue:                   |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Operating Incomehistorical              |  | 25                               | % |  | 22                              | % |  | 27   | % |  | 28   | %
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Operating Incomepro forma               |  | 9                                | % |  | 22                              | % |  | 10   | % |  | 19   | %
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|                                         |  |                                  |  
|                                         |  | As of September 30,              |   |  |                                 |   |  |      |  
|                                         |  | 2004*                            |   |  | 2005                            |   |  |      |   |  |      |  
|                                         |  |                                  |   | 
|Headcount, as of the end of each period: |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Managing Directors:                      |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Financial Advisory                       |  | 127                              |   |  | 123                             |   |  |      |   |  |      |  
|Asset Management                         |  | 33                               |   |  | 38                              |   |  |      |   |  |      |  
|Corporate                                |  | 6                                |   |  | 8                               |   |  |      |   |  |      |  
|Limited Managing Directors               |  | 19                               |   |  | 16                              |   |  |      |   |  |      |  
|Other Employees:                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Professional                             |  | 799                              |   |  | 769                             |   |  |      |   |  |      |  
|Other                                    |  | 1,345                            |   |  | 1,244                           |   |  |      |   |  |      |  
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Total                                    |  | 2,329                            |   |  | 2,198                           |   |  |      |   |  |      |  
|                                         |  |                                  |   |  |                                 |   |  |      |   |  |      |  

---

|* | After giving effect to the separation
|- | -------------------------------------



Consolidated Results of Operations



A discussion of the Companys consolidated results of operations is set forth below, followed by a more detailed discussion of business segment
results. Historical results of operations are reported as a 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. Such payments 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. This MD&A includes certain pro forma financial data to present operating
results on a more comparable basis.



Revenues



Three Months Ended September 30, 2005 versus
September 30, 2004



Net revenue was $357 million for the
three month period ended September 30, 2005, up $133 million, or 59%, versus net revenue of $224 million for the corresponding period in 2004. During the 2005 period, M&A net revenue increased by 78%, Financial Restructuring net revenue
increased by 92%, and Asset Management net revenue increased by 24%.



51



---

##### Table of Contents

Nine Months Ended September 30, 2005 versus September 30, 2004



For the nine month period ended September 30, 2005, net revenue was $934
million, up $230 million, or 33%, versus net revenue of $704 million for the corresponding period in 2004. During the 2005 period, M&A net revenue increased by 57%, Financial Restructuring net revenue increased by 53% and Asset Management net
revenue increased by 13%.



Operating Expenses



Three Months Ended September 30, 2005 versus
September 30, 2004



Compensation and benefits expense in
2005 was $215 million for the three month period ended September 30, 2005, an increase of $106 million, or 97%, versus expense of $109 million for the corresponding period in 2004. The expense increase was primarily due to the Companys
inclusion, subsequent to the consummation of the equity public offering, of all payments for services rendered by its managing directors in compensation and benefits expense, including distributions to profit participation members payments for
services rendered by managing directors of LAM (and employee members of LAM) which previously had been accounted for as minority interest expense, partially offset by reductions in pension and post-retirement health benefit costs.



Non-compensation expense was $64 million or 17% of operating revenues in the
three month period ended September 30, 2005, compared with $59 million or 26% of operating revenues in the comparable period in 2004. The decrease in the year-to-date ratio is due to the operating leverage from higher operating revenue more than
offsetting the increase in non-compensation expense. Premises and occupancy expenses in the 2005 period were $17 million, a decrease of approximately $1 million, or 6%, due primarily to less occupied space in London and lower refurbishment costs in
the U.S. Professional fees in the 2005 period were $12 million, up approximately $2 million, or 24%, versus $10 million in the corresponding 2004 period, primarily due to increased legal, audit and directors fees associated with being a
public company, as well as additional legal fees incurred in the normal course of business. Travel and entertainment expenses in the 2005 period were $11 million, an increase of $2 million, or 19%, versus $9 million for the 2004 period primarily due
to increased business development efforts. Communication and information services and equipment costs in the 2005 period, in the aggregate, were $13 million, up $1 million versus the 2004 period. Other expenses were $11 million, an increase of
approximately $1 million, or 5%, versus $10 million for the 2004 period.



Operating income was $78 million for the three month period ended September 30, 2005, an increase of $22 million, or 40% versus operating income of $55 million for the corresponding period in 2004. Operating
income as a percentage of net revenue was 22% for the third quarter in 2005 versus 25% for the corresponding period in 2004, with the decline in margin principally related to the increase in compensation and benefits as described above, partially
offset by the increase in revenues. On a pro forma basis, operating income as a percentage of pro forma net revenue was 22% for the 2005 period versus 9% for the corresponding period in 2004, with the increase due to the operating leverage from
higher operating revenue.



Nine Months Ended September 30,
2005 versus September 30, 2004



Compensation and benefits
expense was $482 million for the nine month period ended September 30, 2005, an increase of $153 million, or 47%, versus expense of $329 million for the corresponding period in 2004. The expense increase was primarily due to the Companys
inclusion, subsequent to the consummation of the equity public offering, of all payments for services rendered by its managing directors in compensation and benefits expense, including distributions to profit participation members and payments for
services rendered by managing directors of LAM (and employee members of LAM) which previously had been accounted for as minority interest expense, partially offset by reductions in pension and post-retirement health benefit costs.



Non-compensation expense was $186 million or 19% of operating revenue in the
nine month period ended September 30, 2005, compared with $184 million or 25% of operating revenue in the comparable period in 2004. On a pro forma basis, which in 2005 excludes one-time professional fees related to the equity public offering,



52



---

##### Table of Contents

non-compensation expense was approximately $183 million or 19% of operating revenue of $970 million in the 2005 period, compared with $184 million or 25% of
operating revenue of $720 million in the 2004 period. The decrease in the year-to-date ratio is due to the operating leverage from higher operating revenues more than offsetting the increase in non-compensation expense. Excluding the one-time
professional fees related to the equity public offering, of approximately $3 million, non-compensation expense was flat in the 2005 period compared with the comparable 2004 period. Premises and occupancy expenses in the 2005 period were $51 million,
a decrease of approximately $4 million, or 7%, due primarily to less occupied space in London and lower refurbishment costs in the U.S. Professional fees in the 2005 period were $36 million, up approximately $5 million, or 17%, versus the
corresponding 2004 period principally due to fees related to the equity public offering and increased costs associated with being a public company as described above. Travel and entertainment expenses in the 2005 period were $31 million, a decrease
of $3 million, or 8%, versus the 2004 period. Communication and information services and equipment costs in the 2005 period, in the aggregate, were $38 million, an increase of $1 million versus the 2004 period. Other expenses were $31 million, an
increase of approximately $3 million, or 11%, versus $28 million for the 2004 period, due to increased fees to rating agencies and regulatory bodies, charitable contributions and all other expenses spread across various businesses with no one
business or location representing a significant portion of the increase.



Operating income was $266 million for the 2005 period, an increase of $75 million, or 39% greater than operating income of $191 million for the corresponding period in 2004. Operating income as a percentage of net
revenue was 28% for the first nine months in 2005 versus 27% for the corresponding period in 2004, with the increase in margin primarily resulting from the increase in revenues, partially offset by the increase in compensation and benefits expense
described above. On a pro forma basis, operating income as a percentage of pro forma net revenue was 19% for the 2005 period versus 10% for the corresponding period in 2004, with the increase due to the operating leverage from higher operating
revenue.



Income Taxes



Provision for income taxes was $15 million for the three month period ended
September 30, 2005 an increase of $14 million versus $1 million for the corresponding period in 2004. For the nine month period ended September 30, 2005 the provision for income taxes was $46 million, an increase of $33 million versus
$13 million for the corresponding period in 2004. The increases in the three month and nine month periods of 2005 are primarily due to increased profitability in locations that are subject to corporate income taxes.



Discontinued Operations



Net losses from discontinued operations were $0.4 million for the three month period ended September 30, 2005, versus
net losses of $3 million in the corresponding period in 2004. For the nine month period ended September 30, 2005, net losses from discontinued operations were $18 million versus net income of $3 million in the corresponding period in 2004.



Minority Interest



Minority interest was $5 million for the three month period ended September
30, 2005, a decrease of $7 million for the corresponding period in 2004. For the nine month period ended September 30, 2005, minority interest was $18 million, a decrease of $34 million versus $52 million for the corresponding period in 2004.



The decrease in both the three month and nine month periods
was principally due to compensation for LAM members now being recorded in compensation and benefits expense commencing with the consummation of equity public offering on May 10, 2005, while prior thereto such amounts were recorded in minority
interest expense, partially offset by increases in 2005 in the minority interest associated with the Strategic Alliance with Intesa due to the increase in profits from our financial advisory business in Italy.



As described above, such amounts recorded as minority interest expense for
periods prior to May 10, 2005 are not comparable to amounts recorded as minority interest expense for periods commencing May 10, 2005.



53



---

##### Table of Contents

Business Segments



The following data discusses net revenue and operating income for the Companys continuing operations by business segment. The operating results
exclude a discussion of Corporate, due to its relatively minor contribution to operating results. Each segments operating expenses include (i) 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
benefits expense 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. Such support
costs are allocated to the relevant segments based on various statistical drivers such as, among other items, headcount, square footage and transactional volume.



Financial Advisory



The following table summarizes the operating results of the Financial Advisory segment.



|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                             |  | Three Months EndedSeptember 30, |         |   | Nine Months Ended September 30, |  
|                                                                                                             |  | 2004                            |         |   | 2005                            |   |         | 2004 |  |   | 2005    |  
|                                                                                                             |  | ($ in thousands)                |        
|M&A                                                                                                          |  | $                               | 105,131 |   |                                 | $ | 187,241 |      |  | $ | 314,073 |   |  | $ | 491,559 |  
|Financial Restructuring                                                                                      |  |                                 | 20,800  |   |                                 |   | 39,956  |      |  |   | 52,500  |   |  |   | 80,367  |  
|Corporate Finance and Other                                                                                  |  |                                 | 5,749   |   |                                 |   | 30,588  |      |  |   | 40,678  |   |  |   | 54,684  |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net Revenue                                                                                                  |  |                                 | 131,680 |   |                                 |   | 257,785 |      |  |   | 407,251 |   |  |   | 626,610 |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Direct Compensation and Benefits and, commencing May 10, 2005, distributions to profit participation members |  |                                 | 52,992  |   |                                 |   | 130,476 |      |  |   | 163,997 |   |  |   | 269,388 |  
|Other Operating Expenses(a)                                                                                  |  |                                 | 46,611  |   |                                 |   | 44,278  |      |  |   | 152,431 |   |  |   | 143,251 |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                     |  |                                 | 99,603  |   |                                 |   | 174,754 |      |  |   | 316,428 |   |  |   | 412,639 |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Operating Income                                                                                             |  | $                               | 32,077  |   |                                 | $ | 83,031  |      |  | $ | 90,823  |   |  | $ | 213,971 |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Operating Income as a Percentage of Net Revenue                                                              |  |                                 | 24      | % |                                 |   | 32      | %    |  |   | 22      | % |  |   | 34      | %
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|                                                                                                             |  |                                 |        
|                                                                                                             |  | As of September 30,             |         |   |                                 |   |         |      | 
|                                                                                                             |  | 2004                            |         |   | 2005                            |   |         |      |  |   |         |  
|Headcount (b):                                                                                               |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Managing Directors                                                                                           |  |                                 | 127     |   |                                 |   | 123     |      |  |   |         |   |  |   |         |  
|Limited Managing Directors                                                                                   |  |                                 | 4       |   |                                 |   | 5       |      |  |   |         |   |  |   |         |  
|Other Employees:                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Professional                                                                                                 |  |                                 | 525     |   |                                 |   | 488     |      |  |   |         |   |  |   |         |  
|Other                                                                                                        |  |                                 | 324     |   |                                 |   | 301     |      |  |   |         |   |  |   |         |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total                                                                                                        |  |                                 | 980     |   |                                 |   | 917     |      |  |   |         |   |  |   |         |  
|                                                                                                             |  |                                 |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  

---

|(a) | Includes indirect support costs (including compensation and benefits expense and other operating expenses related thereto).
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(b) | Excludes headcount related to indirect support functions. Such headcount is included in the Corporate headcount.
|--- | ----------------------------------------------------------------------------------------------------------------



54



---

##### Table of Contents

Net revenue trends in Financial Advisory for M&A and Financial Restructuring generally are correlated
to the volume of completed industry-wide mergers and acquisitions activity and restructurings occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur in any given year for a number of
reasons. For instance, material variances in the level of mergers and acquisitions activity in a particular geography where Lazard Group has significant market share or the number of its advisory engagements with respect to larger-sized transactions
can cause its results to diverge from industry-wide activity. Certain Lazard Group client statistics and global industry statistics are set forth below:



|                                                             |  |                                 |       |   |      |   |       |  
|------------------------------------------------------------ |  | ------------------------------- | ----- | - | ---- | - | ----- | -
|                                                             |  | Nine Months Ended September 30, |      
|                                                             |  | 2004                            |       |   | 2005 |  
|Lazard Statistics:                                           |  |                                 |       |   |      |   |       |  
|Number of Clients:                                           |  |                                 |       |   |      |   |       |  
|Total                                                        |  |                                 | 331   |   |      |   | 371   |  
|With Fees Greater than $1 million                            |  |                                 | 96    |   |      |   | 130   |  
|Percentage of Total Fees from Top 10 Clients                 |  |                                 | 28    | % |      |   | 25    | %
|Number of M&A Transactions Completed Greater than $1 billion |  |                                 | 29    |   |      |   | 32    |  
|                                                             |  |                                
|Industry Statistics ($ in billions):                         |  |                                 |       |   |      |   |       |  
|Volume of Completed M&A Transactions (a):                    |  |                                 |       |   |      |   |       |  
|Global                                                       |  | $                               | 1,349 |   |      | $ | 1,580 |  
|Trans-Atlantic                                               |  |                                 | 91    |   |      |   | 98    |  
|Global Corporate Debt Defaults (b)                           |  |                                 | 8     |   |      |   | 17    |  

---

|(a) | Source: Dealogic as of October 7, 2005
|--- | --------------------------------------

|(b) | Source: Moodys Investor Service, Inc.
|--- | --------------------------------------



Clients with whom Lazard Group transacted significant business in the first nine months of 2005 included Alcan, Charter Communications, Clayton Dubilier
& Rice, Institute for International Research, National Australia Bank, Nextel Communications, Parmalat, Pirelli, Telecom Italia Mobile, and Telesystem International Wireless.



Financial Advisory net revenue for the nine month period ended September 30, 2005 was earned from 371 clients, compared to
331 clients in the corresponding period in 2004. Advisory fees of $1 million or more were earned from 130 of Lazard Groups clients for the nine month period ended September 30, 2005, compared to 96 in the corresponding period in 2004.



The geographical distribution of Financial Advisory net
revenue is set forth below in percentage terms. The offices that generate Financial Advisory net revenue are located in North America, Europe (principally in the U.K., France, Italy and Germany) and the rest of the world (principally in Asia).



|              |  |                                 |   |  |                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|              |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|              |  | 2004                            |   |  | 2005                           |   |  | 2004 |   |  | 2005 |  
|North America |  | 42                              | % |  | 51                             | % |  | 42   | % |  | 44   | %
|Europe        |  | 58                              |   |  | 48                             |   |  | 57   |   |  | 54   |  
|Rest of World |  |                                |   |  | 1                              |   |  | 1    |   |  | 2    |  
|              |  |                                 |   |  |                                |   |  |      |   |  |      |  
|Total         |  | 100                             | % |  | 100                            | % |  | 100  | % |  | 100  | %
|              |  |                                 |   |  |                                |   |  |      |   |  |      |  



The Companys
managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on both mergers and acquisitions and restructuring transactions, depending on clients needs. This
flexibility allows Lazard Group to better match its professional staff with the counter-cyclical business cycles of mergers and acquisitions and financial restructurings. While Lazard Group



55



---

##### Table of Contents

measures revenue by practice area, Lazard Group does not separately measure the separate costs or profitability of mergers and acquisitions services as
compared to financial restructuring services. Accordingly, Lazard Group measures performance in its Financial Advisory segment based on overall segment net revenue and operating income margins.



Financial Advisory Results of Operations



Three Months Ended September 30, 2005 versus September 30, 2004



In the 2005 period, M&A net revenue increased by $82
million, or 78%, driven by the improved environment for mergers and acquisitions activity. The increase in M&A net revenue was also accompanied by a $19 million, or 92%, increase in Financial Restructuring net revenue versus the corresponding
period in 2004. Other Financial Advisory net revenue increased by $25 million principally as a result of a higher level of private equity fund raising.



Operating expenses were $175 million for the 2005 period, an increase of $75 million, or 75%, versus operating expenses of $100 million in the
corresponding period in 2004. Compensation and benefits expense increased by $77 million, or 146%, primarily due to the Companys inclusion, subsequent to the consummation of the equity public offering, of all payments for services rendered by
its managing directors, including distributions to profit participation members, in compensation and benefits expense, partially offset by lower pension and post-retirement health benefit costs. Other operating expenses decreased by $2 million, or
5%.



Financial Advisory operating income was $83 million for
the 2005 period, an increase of $51 million, versus operating income of $32 million for the corresponding period in 2004. Operating income as a percentage of segment net revenue was 32% for the 2005 period versus 24% for the corresponding period in
2004, with the increase in margin in 2005 attributable to the higher revenues in that period, partially offset by the increase in recorded compensation in the 2005 period.



Nine Months Ended September 30, 2005 versus September 30, 2004



In the 2005 period, M&A net revenue increased by $177 million, or 57%,
driven by the improved productivity of our managing directors and the improved environment for mergers and acquisitions activity. The increase in M&A net revenue was also accompanied by an approximate $28 million, or 53%, increase in Financial
Restructuring net revenue versus the corresponding period in 2004. Other Financial Advisory net revenue increased by $14 million principally as a result of a higher level of private equity fund raising.



Operating expenses were $413 million for the 2005 period, an increase of $97
million, or 30%, versus operating expenses of $316 million in the corresponding period in 2004. Compensation and benefits expense increased by $105 million, or 64%, primarily due to the Companys inclusion, subsequent to the consummation of the
equity public offering, of all payments for services rendered by its managing directors, including distributions to profit participation members, in compensation and benefits expense, partially offset by lower pension and post-retirement health
benefit costs. Other operating expenses decreased by $9 million, or 6%. The principal reasons for this decrease related to (i) travel and entertainment expense, which decreased by $4 million, and (ii) premises and occupancy expense, which decreased
by approximately $3 million due to less occupied space in London and lower refurbishment cost in the U.S.



Financial Advisory operating income was $214 million for the 2005 period, an increase of $123 million, versus operating income of $91 million for the
corresponding period in 2004. Operating income as a percentage of segment net revenue was 34% for the 2005 period versus 22% for the corresponding period in 2004, with the increase in margin in 2005 attributable to the increase in revenues,
partially offset by the increase in recorded compensation expense in the 2005 period.



56



---

##### Table of Contents

Asset Management



The following table shows the composition of AUM mandates for the Asset Management segment:



|                           |  |                  |  |                  
|-------------------------- |  | ---------------- |  | -----------------
|                           |  | As of           
|                           |  | December 31,2004 |  | September 30,2005
|                           |  | ($ in millions) 
|AUM:                       |  |                  |  |                  
|International Equities     |  | $39,267          |  | $40,336          
|Global Equities            |  | 17,762           |  | 16,133           
|U.S. Equities              |  | 12,716           |  | 12,685           
|                           |  |                  |  |                  
|Total Equities             |  | 69,745           |  | 69,154           
|                           |  |                  |  |                  
|International Fixed Income |  | 6,226            |  | 6,807            
|Global Fixed Income        |  | 2,008            |  | 2,070            
|U.S. Fixed Income          |  | 2,970            |  | 2,577            
|                           |  |                  |  |                  
|Total Fixed Income         |  | 11,204           |  | 11,454           
|                           |  |                  |  |                  
|Alternative Investments    |  | 2,800            |  | 3,204            
|Merchant Banking           |  | 551              |  | 801              
|Cash Management            |  | 2,135            |  | 1,979            
|                           |  |                  |  |                  
|Total AUM                  |  | $86,435          |  | $86,592          
|                           |  |                  |  |                  



Average AUM for the
three month and nine month periods ended September 30, 2004 and September 30, 2005 is set forth below. Average AUM is based on an average of quarterly ending balances for the respective periods.



|            |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|----------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|            |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|            |  | 2004                             |        | 2005                            |   | 2004   |  | 2005
|            |  | ($ in millions)                 
|Average AUM |  | $                                | 78,238 |                                 | $ | 84,802 |  | $    | 78,712 |  | $ | 85,574
|            |  |                                  |        |                                 |   |        |  |      |        |  |   |       



The following is a
summary of changes in AUM for the three month and nine month periods ended September 30, 2004 and September 30, 2005.



|                                   |  |                                 |   |  |                                |   |  |      |         |   |      |         |  
|---------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | ------- | - | ---- | ------- | -
|                                   |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                   |  | 2004                            |   |  | 2005                           |   |  | 2004 |         |   | 2005 |        
|                                   |  | ($ in millions)                 |  
|AUMBeginning of Period            |  | $77,982                         |   |  | $83,012                        |   |  |      | $78,371 |   |      | $86,435 |  
|Net Flows                          |  | (200                            | ) |  | (1,751                         | ) |  |      | (1,863  | ) |      | (4,349  | )
|Market Appreciation/(Depreciation) |  | 523                             |   |  | 5,369                          |   |  |      | 2,121   |   |      | 5,654   |  
|Foreign Currency Adjustments       |  | 189                             |   |  | (38                            | ) |  |      | (135    | ) |      | (1,148  | )
|                                   |  |                                 |   |  |                                |   |  |      |         |   |      |         |  
|AUMEnd of Period                  |  | $78,494                         |   |  | $86,592                        |   |  |      | $78,494 |   |      | $86,592 |  
|                                   |  |                                 |   |  |                                |   |  |      |         |   |      |         |  



AUM as of September
30, 2005 was $86.6 billion, up marginally from AUM of $86.4 billion as of December 31, 2004. During the nine month period ended September 30, 2005, market appreciation of $5.7 billion was substantially offset by net outflows of $4.3 billion and
decreases related to changes in foreign currency exchange rates of $1.1 billion. Net outflows were experienced primarily in International and Global Equities.



57



---

##### Table of Contents

For the three month period ended September 30, 2005, average AUM was $84.8 billion, an increase of $6.6
billion, or 8%, versus $78.2 billion in the corresponding period in 2004.



For the nine month period ended September 30, 2005, average AUM was $85.6 billion, an increase of approximately $6.9 billion, or 9%, versus $78.7 billion in the corresponding period in 2004.



The following table summarizes the operating results of the Asset Management
segment.



|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                            |  | Three Months EndedSeptember 30, |        |   | Nine Months Ended September 30, |  
|                                                                                                            |  | 2004                            |        |   | 2005                            |   |         | 2004 |  |   | 2005    |  
|                                                                                                            |  | ($ in thousands)                |       
|Management and Other Fees                                                                                   |  | $                               | 93,099 |   |                                 | $ | 108,277 |      |  | $ | 284,638 |   |  | $ | 316,045 |  
|Incentive Fees                                                                                              |  |                                 | (3,830 | ) |                                 |   | 2,717   |      |  |   | 5,318   |   |  |   | 10,650  |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net Revenue                                                                                                 |  |                                 | 89,269 |   |                                 |   | 110,994 |      |  |   | 289,956 |   |  |   | 326,695 |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Direct Compensation and Benefits, and, commencing May 10, 2005, distributions to profit participant members |  |                                 | 29,488 |   |                                 |   | 55,225  |      |  |   | 92,039  |   |  |   | 133,438 |  
|Other Operating Expenses(a)                                                                                 |  |                                 | 37,238 |   |                                 |   | 35,710  |      |  |   | 107,567 |   |  |   | 111,532 |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                    |  |                                 | 66,726 |   |                                 |   | 90,935  |      |  |   | 199,606 |   |  |   | 244,970 |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Operating Income                                                                                            |  | $                               | 22,543 |   |                                 | $ | 20,059  |      |  | $ | 90,350  |   |  | $ | 81,725  |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Operating Income as a Percentage of Net Revenue                                                             |  |                                 | 25     | % |                                 |   | 18      | %    |  |   | 31      | % |  |   | 25      | %
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |       
|                                                                                                            |  | As of September 30,             |        |   |                                 |   |         |      | 
|                                                                                                            |  | 2004                            |        |   | 2005                            |   |         |      |  |   |         |  
|Headcount(b):                                                                                               |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Managing Directors                                                                                          |  |                                 | 33     |   |                                 |   | 38      |      |  |   |         |   |  |   |         |  
|Limited Managing Directors                                                                                  |  |                                 | 2      |   |                                 |   | 2       |      |  |   |         |   |  |   |         |  
|Other Employees:                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Professional                                                                                                |  |                                 | 262    |   |                                 |   | 270     |      |  |   |         |   |  |   |         |  
|Other                                                                                                       |  |                                 | 323    |   |                                 |   | 321     |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total                                                                                                       |  |                                 | 620    |   |                                 |   | 631     |      |  |   |         |   |  |   |         |  
|                                                                                                            |  |                                 |        |   |                                 |   |         |      |  |   |         |   |  |   |         |  

---

|(a) | Includes indirect support costs (including compensation and benefits expense and other operating expenses related thereto).
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(b) | Excludes headcount related to indirect support functions. Such headcount is included in the Corporate headcount.
|--- | ----------------------------------------------------------------------------------------------------------------



The geographical distribution of Asset Management net revenue is set forth
below in percentage terms:



|              |  |                                 |   |  |                                 |   |  |      |   |  |      |  
|------------- |  | ------------------------------- | - |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | Three Months EndedSeptember 30, |   |  | Nine Months Ended September 30, |  
|              |  | 2004                            |   |  | 2005                            |   |  | 2004 |   |  | 2005 |  
|North America |  | 56                              | % |  | 59                              | % |  | 59   | % |  | 58   | %
|Europe        |  | 36                              |   |  | 34                              |   |  | 33   |   |  | 34   |  
|Rest of World |  | 8                               |   |  | 7                               |   |  | 8    |   |  | 8    |  
|              |  |                                 |   |  |                                 |   |  |      |   |  |      |  
|Total         |  | 100                             | % |  | 100                             | % |  | 100  | % |  | 100  | %
|              |  |                                 |   |  |                                 |   |  |      |   |  |      |  



58



---

##### Table of Contents

Asset Management Results of Operations



Three Months Ended September 30, 2005 versus September 30,
2004



Asset Management net revenue was $111 million
in the 2005 period, an increase of $22 million, or 24%, versus net revenue of $89 million in the corresponding period in 2004. Management and Other fees for the 2005 period were $108 million, up $15 million, or 16%, versus the corresponding period
in 2004. The 2005 period includes approximately $3 million of revenue within management and other fee revenue relating to the consolidation of LAM General Partnerships, with a corresponding charge to minority interest expense. Incentive fees earned
in the 2005 period were approximately $3 million, versus $(4) million recorded in the corresponding period in 2004. The 2004 period included an adjustment to the incentive fees recorded for the six month period ended June 30, 2004.



Operating expenses were $91 million for the 2005 period, an increase of
$24 million, or 36%, versus operating expenses of $67 million in the corresponding period in 2004. Compensation and benefits expense increased by $26 million, or 87% versus the corresponding period in 2004, primarily due to the Companys
inclusion, subsequent to the consummation of the equity public offering, of all payments for services rendered by its managing directors in compensation and benefits expense, including distributions to profit participation members and payments for
services rendered by managing directors of LAM (and employee members of LAM) which previously had been accounted for as minority interest expense. Other operating expenses decreased by approximately $2 million, or 4%, versus the corresponding period
in 2004.



Asset Management operating income was $20 million in
the 2005 period, a decrease of $3 million, or 11%, versus operating income of $23 million for the corresponding period in 2004. Operating income as a percentage of segment net revenue was 18% for the 2005 period versus 25% for the corresponding
period in 2004, with the decline in 2005 attributable to the increase in recorded compensation expense in the 2005 period, partially offset by higher revenues in that period.



Nine Months Ended September 30, 2005 versus September 30, 2004



Asset Management net revenue was $327 million in the 2005 period, an
increase of $37 million, or 13%, versus net revenue of $290 million in the corresponding period in 2004. Management and Other fees for the 2005 period were $316 million, up $31 million, or 11%, versus the corresponding period in 2004. The 2005
period includes approximately $3 million of revenue within Management and Other fee revenue relating to the consolidation of LAM General Partnerships, with a corresponding charge to minority interest expense. Excluding the effect of such LAM General
Partnership revenue, the increase in management and other fee revenue is generally consistent with the growth in average AUM. Incentive fees earned in the 2005 period were $11 million, versus $5 million recorded in the corresponding period in 2004.



Operating expenses were $245 million for the 2005 period, an
increase of $45 million, or 23%, versus operating expenses of $200 million in the corresponding period in 2004. Compensation and benefits expense increased by $41 million, or 45% versus the corresponding period in 2004, principally due to the
Companys inclusion, subsequent to the consummation of the equity public offering, of all payments for services rendered by its managing directors in compensation and benefits expense, including distributions to profit participation members and
payments for services rendered by managing directors of LAM (and employee members of LAM) which previously had been accounted for as minority interest expense. Other operating expenses increased by $4 million, or 4%, versus the corresponding period
in 2004 principally due to increased professional fees and travel costs.



Asset Management operating income was $82 million in the 2005 period, a decrease of $8 million, or 10%, versus operating income of $90 million for the corresponding period in 2004. Operating income as a percentage of
segment net revenue was 25% for the 2005 period versus 31% for the corresponding period in 2004, with the decline in 2005 attributable to the increase in recorded compensation expense in the 2005 period, partially offset by higher revenues in that
period.



59



---

##### Table of Contents

Cash Flows



Historically, the Companys cash flows have been influenced primarily by the timing of receipt of Financial Advisory and Asset Management fees, the
timing of distributions to members and payment of bonuses to employees. In general, we collect our accounts receivable within 60 days. In restructuring transactions, particularly restructurings involving bankruptcies, receivables sometimes take
longer to collect than 60 days due to issues such as court-ordered holdbacks. In addition, the receivables of our Private Fund Advisory Group are generally collectible in eight payments over a four year period.



Cash and cash equivalents were $372 million at September 30, 2005, an
increase of $66 million versus cash and cash equivalents of $306 million at December 31, 2004. During the nine month period ended September 30, 2005, cash of $758 million was provided by operating activities, including $184 million from net
income, $30 million of noncash charges, principally consisting of depreciation and amortization of $12 million and minority interest of $18 million and $544 million being provided by net changes in other operating assets and operating liabilities.
Cash of $6 million was provided from investing activities. Financing activities and exchange rate changes during this period used cash of $694 million and $4 million, respectively, primarily for distributions to historical partners, members,
separated businesses and minority interest holders, with these items partially offset by proceeds from the financing transactions. The Company traditionally makes payments for employee bonuses and distributions to members and minority interest
holders primarily in the first four months of the year with respect to the prior years results.



Liquidity and Capital Resources



Historically, the Companys source of liquidity has been cash provided by operations, with a traditional seasonal pattern of cash flow. While employee salaries are paid throughout the year, annual discretionary bonuses have
historically been paid to employees in January relating to the prior year. The Companys managing directors are paid a salary during the year, but a majority of their annual cash distributions with respect to the prior year have historically
been paid to them in three monthly installments in February, March and April. In addition, and to a lesser extent, during the year we pay certain tax advances on behalf of our managing directors, and these advances serve to reduce the amounts due to
the managing directors in the three installments described above. As a consequence, our level of cash on hand generally decreases significantly during the first four months of the year and gradually builds up over the remaining eight months of the
year. We expect this seasonal pattern of cash flow to continue.



We regularly monitor our liquidity position, including cash levels, credit lines, principal investment commitments, interest and principal payments on debt, capital expenditures and matters relating to liquidity and to compliance with
regulatory net capital requirements. We maintain lines of credit in excess of anticipated liquidity requirements. As of September 30, 2005, Lazard Group had $196 million in unused lines of credit available to it, including $49 million of unused
lines of credit available to LFB. This amount excludes a $25 million credit line to Lazard Frères & Co. LLC that is currently covered by a commitment letter described below.



Lazard Groups annual cash flow generated from operations historically has been sufficient to enable it to meet its
annual obligations. We believe that our cash flows from operating activities, including use of our credit lines as needed, should be sufficient for us to fund our current obligations for the next 12 months and beyond. As noted above, we intend to
maintain lines of credit that can be utilized should the need arise. Concurrently with the equity public offering, Lazard Group entered into a five year, $125 million senior revolving credit facility with a group of lenders. In addition, Lazard
Group entered into a commitment letter dated April 14, 2005 which provides that, subject to customary conditions precedent for transactions of this nature, including regulatory approval, a group of lenders will provide a separate $25 million
subordinated credit facility for Lazard Frères & Co. LLC, our U.S. broker-dealer subsidiary. The Lazard Frères & Co. LLC facility is expected to be a four-year revolving credit facility, and then converts to a term loan
facility for an additional year. This commitment letter expires, as extended, November 30, 2005. The senior revolving credit facility contains customary affirmative and



60



---

##### Table of Contents

negative covenants and events of default for facilities of this type, and we expect that the Lazard Frères & Co. LLC facility will as well. The
senior revolving credit facility, among other things, limits the ability of the borrower to incur debt, grant liens, pay dividends, enter into mergers or to sell all or substantially all of its assets and contains financial covenants that must be
maintained. We expect that the Lazard Frères & Co. LLC facility will contain similar restrictions and covenants for a facility of its type. Upon approval by the NASD, the Lazard Frères & Co. LLC facility is intended to qualify
as a satisfactory subordination agreement in accordance with the applicable NASD rules and regulations. We may, to the extent required and subject to restrictions contained in our financing arrangements, use other financing sources in addition to
any new credit facilities.



As of September 30, 2005, Lazard
Group was in compliance with all of its obligations under its various borrowing arrangements.



We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure their general financial soundness and liquidity, which
require, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures, relationships with customers, experience and training requirements for employees and certain other requirements and
procedures. These regulatory requirements may restrict the flow of funds to affiliates. Regulatory approval is generally required for paying dividends in excess of certain established levels. See Note 13 of Notes to Unaudited Condensed Consolidated
Financial Statements for further information. These regulations differ in the U.S., the U.K., France, and other countries in which we operate. Our capital structure is designed to provide each of our subsidiaries with capital and liquidity
consistent with its business and regulatory requirements. For a discussion of regulations relating to us, see BusinessRegulation included in the Registration Statements.



Substantially all of the net proceeds received from the equity public offering and the financing transactions were used in
connection with the recapitalization, and, to a lesser extent, to capitalize LFCM Holdings and LAZ-MD Holdings. See Notes 1 and 2 of Notes to Unaudited Condensed Consolidated Financial Statements. We expect that the net incremental interest cost
related to the financing transactions will be approximately $56 million per year. We expect to service the resultant incremental debt with operating cash flow and the utilization of credit facilities and, to the extent required, other financing
sources.



On October 31, 2005, Lazard Group closed the exchange
offer described in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements whereupon it exchanged $546 million in aggregate principal amount of its old notes (approximately 99.3% of the aggregate principal amount outstanding) for
$546 million 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 and, as a result, the transfer
restrictions applicable to the old notes do not apply to the exchange notes.



Net revenue and operating income historically have fluctuated significantly between quarters. This variability arises from the fact that transaction completion fees comprise the majority of our net revenue, with the
billing and recognition of such fees being dependent upon the successful completion of client transactions, the occurrence and timing of which is irregular and not subject to Lazards control. In addition, incentive fees earned on AUM and
compensation related thereto are generally not recorded until the fourth quarter of Lazard Groups fiscal year, when potential uncertainties regarding the ultimate realizable amounts have been determined.



61



---

##### Table of Contents

Contractual Obligations



The following table sets forth information relating to Lazard Groups contractual obligations as of December 31, 2004:



|                                                                                 |  |                                               |           |                 |   |           |  |           |         |                  |   |        |  |   |        
|-------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | --------------- | - | --------- |  | --------- | ------- | ---------------- | - | ------ |  | - | -------
|                                                                                 |  | Contractual Obligations Payment Due by Period
|                                                                                 |  | Total                                         |           | Less than1 Year |   | 1-3 Years |  | 3-5 Years |         | More than5 Years
|                                                                                 |  | ($ in thousands)                             
|Operating Leases                                                                 |  | $                                             | 542,124   |                 | $ | 50,145    |  | $         | 94,356  |                  | $ | 88,414 |  | $ | 309,209
|Capital Leases                                                                   |  |                                               | 66,554    |                 |   | 26,558    |  |           | 5,770   |                  |   | 5,770  |  |   | 28,456 
|Notes Payable and SubordinatedLoans (a)                                          |  |                                               | 270,777   |                 |   | 20,777    |  |           |         |                  |   |        |  |   | 250,000
|Mandatorily Redeemable PreferredStock (a)                                        |  |                                               | 100,000   |                 |   |           |  |           |         |                  |   |        |  |   | 100,000
|Merchant Banking Commitments (b)                                                 |  |                                               | 14,031    |                 |   | 2,526     |  |           | 11,505  |                  |   |        |  |   |        
|Contractual Commitments to Managing Directors, Senior Advisors and Employees (c) |  |                                               | 72,573    |                 |   | 38,008    |  |           | 33,583  |                  |   | 982    |  |   |        
|                                                                                 |  |                                               |           |                 |   |           |  |           |         |                  |   |        |  |   |        
|Total (d)                                                                        |  | $                                             | 1,066,059 |                 | $ | 138,014   |  | $         | 145,214 |                  | $ | 95,166 |  | $ | 687,665
|                                                                                 |  |                                               |           |                 |   |           |  |           |         |                  |   |        |  |   |        

---

|(a) | In May 2005, the $50 million in aggregate principal amount of 7.53% Senior Notes due 2011 was prepaid and the Mandatorily Redeemable Preferred Stock were redeemed in connection with
the separation and recapitalization transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Lazard Group may be required to fund these merchant banking commitments at any time through 2006, depending on the timing and level of investments by its merchant banking funds.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | During 2002, 2003 and 2004, following the hiring of new senior management, Lazard Group invested significant amounts in the recruitment and retention of senior professionals in an
effort to reinvest in the intellectual capital of Lazard Groups business. The majority of these commitments expired on December 31, 2004. The nature of the commitments to managing directors and employees, which represent most of the future
commitments, is related primarily to guaranteed payments for services of managing directors and guaranteed compensation for employees. These payments and compensation were guaranteed to recruit and retain the professional talent needed to promote
growth in our business. As a result, while payments for services rendered by Lazard Groups managing directors prior to 2002 generally did not exceed net income allocable to members, in 2002, 2003 and 2004 distributions to Lazard Groups
managing directors exceeded our net income allocable to members.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The table above does not include any potential obligations relating to the LAM equity rights.
|--- | ---------------------------------------------------------------------------------------------



The contractual obligations table above does not include the following developments since December 31, 2004: (1) obligations
related to Corporate Partners II Limited, a new private equity fund formed on February 25, 2005, with $1 billion of institutional capital commitments and a $100 million capital commitment from us, the principal portion of which may require funding
at any time through 2010 (as of September 30, 2005, Lazard Group has contributed $89 thousand of its capital commitment); (2) obligations related to the first closing of a new private equity fund formed in July 2005, with the ability to raise up to
a maximum of $550 million of capital commitments, including a minimum and maximum capital commitment from us of $10 million and $27 million, respectively, the principal portion of which will require funding at any time through 2008 (in October 2005,
Lazard Group contributed its initial capital commitment which amounted to $682 thousand); (3) any potential payment related to the IXIS cooperation arrangement (the level of this potential payment to IXIS would depend, among other things, on the
level of revenue generated by the cooperation activities, and the potential payment is limited to a maximum of approximately 16.5 million (subject to reduction in certain circumstances) which would only occur if the cooperation activities
generate no revenue over the course of the three-year initial period of such activities, the cooperation agreement is not renewed and Lazard Ltds stock price fails to sustain certain price levels); (4) any possible change in the relationship
with Intesa (see Note 3 of Notes to Unaudited Condensed Consolidated Financial Statements); (5) the debt



62



---

##### Table of Contents

obligations incurred in May 2005 concurrent with the financing transactions related to Lazard Groups issuance of $550 million in principal amount of
7.125% senior notes due 2015 and $437.5 million in principal amount of 6.12% senior notes issued to Lazard Group Finance in connection with the issuance of the equity security units and any amounts payable with respect to the $125 million senior
revolving credit facility, of which $15 million was outstanding as of September 30, 2005 (see Notes 2 and 7 of Notes to Unaudited Condensed Consolidated Financial Statements); and (6) any contingent limited partner commitments as described in more
detail in Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements.



Critical Accounting Policies and Estimates



Managements discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of
Lazards consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing
basis, Lazard evaluates its estimates, including those related to revenue recognition, compensation liabilities, income taxes, investing activities and goodwill. Lazard bases these estimates on historical experience and various other assumptions
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.



Lazard believes that the critical accounting
policies set forth below comprise the most significant estimates and judgments used in the preparation of its consolidated financial statements.



Revenue Recognition



Lazard generates substantially all of its net revenue from providing financial advisory and asset management services to clients. Lazard recognizes
revenue when the following criteria are met:



| |  |  | there is persuasive evidence of an arrangement with a client,
| | - |  | -------------------------------------------------------------



| |  |  | the agreed-upon services have been provided,
| | - |  | --------------------------------------------



| |  |  | fees are fixed or determinable, and
| | - |  | -----------------------------------



| |  |  | collection is probable.
| | - |  | -----------------------



Lazards clients generally enter into agreements with Lazard that vary in duration depending on the nature of the service provided. Lazard typically
bills clients for the full amounts due under the applicable agreements on or after the dates on which the specified service has been provided. Generally, payments are due within 60 days of billing (or over longer periods of time with respect to
billings related to restructurings and our Private Fund Advisory Group). Lazard assesses whether collection is probable based on a number of factors, including past transaction history with the client and an assessment of the clients current
creditworthiness. If, in Lazards judgment, collection of a fee is not probable, Lazard will not recognize revenue until the uncertainty is removed. In rare cases, an allowance for doubtful collection may be established, for example, if a fee
is in dispute or litigation has commenced.



Income Taxes



As part of the process of preparing its consolidated
financial statements, Lazard is required to estimate its income taxes in each of the jurisdictions in which it operates. This process requires Lazard to estimate its actual current tax liability and to assess temporary differences resulting from
differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense, unrealized gains on long-term investments and depreciation. These temporary differences result in deferred tax assets and liabilities, which
are included within Lazards consolidated statements of financial condition. Lazard must then assess the likelihood that its



63



---

##### Table of Contents

deferred tax assets will be recovered from future taxable income, and, to the extent it believes that recovery is not likely, Lazard must establish a
valuation allowance. Significant management judgment is required in determining Lazards provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. Lazards
determination of the need for a valuation allowance is based on its estimates of future taxable income by jurisdiction, and the period over which its corresponding deferred tax assets will be recoverable. If actual results differ from these
estimates or Lazard adjusts these estimates in future periods, Lazard may need to adjust its valuation allowance, which could materially impact Lazards consolidated financial position and results of operations.



In addition, in order to determine the quarterly tax rate, Lazard is required
to estimate full year pre-tax income and the related annual income tax expense in each jurisdiction. Tax exposures can involve complex issues and may require an extended period of time to resolve. Changes in the geographic mix or estimated level of
annual pre-tax income can affect Lazards overall effective tax rate. Significant management judgment is required in determining Lazards provision for income taxes, its deferred tax assets and liabilities and any valuation allowance
recorded against its net deferred tax assets. Furthermore, Lazards interpretation of complex tax laws may impact its measurement of current and deferred income taxes.



Valuation of Investments



Marketable investments and long-term investments consist principally of investments in exchange
traded funds, merchant banking and alternative investment funds, and other privately managed investments. Gains and losses on marketable investments and long-term investments, which arise from changes in the fair value of the investments, are not
predictable and can cause periodic fluctuations in net income allocable to members.



In determining fair value, Lazard separates its investments into two categories. The first category consists of those investments that are publicly-traded, which, as of September 30, 2005, were approximately 9% of
Lazards marketable investments and long-term investments. For these investments, we determine value by quoted market prices. The second category consists of those that are not publicly-traded. For these investments, Lazard determines value
based upon its best estimate of fair value. As of September 30, 2005, this second category of investments comprises the remaining 91% of Lazards marketable investments and long-term investments.



The fair value of those investments that are not publicly traded is based
upon an analysis of the investees financial results, condition, cash flows and prospects. Adjustments to the carrying value of such investments are made if there are third-party transactions evidencing a change in value. Adjustments also are
made, in the absence of third-party transactions, if Lazard determines that the expected realizable value of the investment differs from its carrying value. In reaching that determination, Lazard considers many factors, including, but not limited
to, the operating cash flows and financial performance of the investee, expected exit timing and strategy, and any specific rights or terms associated with the investment, such as conversion features and liquidation preferences. Partnership
interests, including general partnership and limited partnership interests in real estate funds, are recorded at fair value based on changes in the fair value of the partnerships underlying net assets.



Because of the inherent uncertainty in the valuation of investments that are
not readily marketable, estimated values may differ significantly from the values that would have been reported had a ready market for such investments existed. Lazard seeks to maintain the necessary resources, with the appropriate experience and
training, to ensure that control and independent price verification functions are adequately performed.



Goodwill



In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment
annually or more frequently if circumstances indicate impairment may have occurred. In this process, Lazard makes estimates and assumptions in order to determine the fair value of its



64



---

##### Table of Contents

assets and liabilities and to project future earnings using valuation techniques, including a discounted cash flow model. Lazard uses its best judgment and
information available to it at the time to perform this review. Because Lazards assumptions and estimates are used in projecting future earnings as part of the valuation, actual results could differ.



Consolidation of VIEs



The consolidated financial statements include the accounts of Lazard Group
and all other entities in which we are the primary beneficiary or Lazard Group maintain control. Lazard determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a
variable interest entity (VIE) under U.S. GAAP.



| |  |  | Voting Interest Entities.    Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to
finance itself independently and (ii) the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entitys activities. Voting interest entities are consolidated in
accordance with Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, as amended by SFAS No. 94, Consolidated Financial Statements. ARB No. 51 states that the usual condition for a
controlling financial interest in an entity is ownership of a majority voting interest. SFAS No. 94 amends ARB No. 51 to require consolidation of all majority-owned subsidiaries unless control is temporary or does not rest with the majority owner.
SFAS No. 94 also requires consolidation of a majority-owned subsidiary even if it has non-homogeneous operations, a large minority interest, or a foreign location. Accordingly, Lazard consolidates voting interest entities in which it has the
majority of the voting interest in accordance with ARB No. 51 and SFAS No. 94.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Variable Interest Entities.    VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial
interest in a VIE is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the VIEs expected losses, receive a majority of the VIEs expected residual returns, or both.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The enterprise with a controlling financial
interest, known as the primary beneficiary, consolidates the VIE.



Lazard determines whether it is the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE that includes, among other factors, its capital structure, contractual terms, and related party relationships. Where
qualitative analysis is not conclusive, Lazard performs a quantitative analysis. For purposes of allocating a VIEs expected losses and expected residual returns to the VIEs variable interest holders, Lazard calculates its share of the
VIEs expected losses and expected residual returns using a cash flows model that allocates those expected losses and residual returns to it, based on contractual arrangements and/or Lazards position in the capital structure of the VIE
under various scenarios. Lazard would reconsider its assessment of whether it is the primary beneficiary if there are changes to any of the variables used in determining the primary beneficiary. Those variables may include changes to financial
arrangements, contractual terms, capital structure and related party relationships.



In accordance with FASB Interpretation No. 46R the assets, liabilities and results of operations of the VIE are included in the consolidated financial statements of Lazard if it is determined that we are the primary
beneficiary. Any third party interest in these consolidated entities is reflected as minority interest in our consolidated financial statements.



Risk Management



Risk management is an important part of our business, but historically was focused primarily on the activities of the Capital Markets and Other segment,
which was transferred to LCFM Holdings on May 10, 2005. The discussion below relates to risk management for Lazards continuing operations, namely its Financial Advisory and Asset Management segments and Corporate.



65



---

##### Table of Contents

Lazard believes that, due to the nature of the businesses and the manner in which it conducts our
operations, the Financial Advisory and Asset Management segments are not subject to material market risks such as equity price risk, but are subject to foreign currency exchange rate risks which are summarized below.



Foreign Currency Exchange Rate Risk



Foreign currency exchange rate risk arises from the possibility that our
revenue and expenses may be affected by movements in the rate of exchange between non-U.S. dollar denominated balances (primarily euros and British pounds) and the U.S. dollar, the currency in which our financial statements are presented. In
addition, Asset Management revenues are based primarily on the value of AUM. Accordingly, market appreciation/depreciation, including fluctuation in foreign currency exchange rates, directly impact Asset Management net revenue and net income.



For the nine month period ended September 30, 2005,
approximately 74% of Lazards consolidated operating income was generated in non-U.S. dollar currencies.



Lazard generally does not hedge non-dollar foreign exchange exposure, as described above, arising in its operations outside the U.S. These foreign
operations manage their individual foreign currency exposures with reference to their own base currency. However, Lazard does track and control the foreign currency exchange rate risks arising in each principal operation and has established limits
for such exposures. With respect to LFBs operations, LFB may take open foreign exchange positions with a view to profit within internally defined limits, but LFB does not utilize foreign exchange options in this context.



Lazards Corporate activities are exposed to risks arising from
transactions in trading and non-trading derivatives and to interest rate risk arising from short-term assets and third party loans.



Trading and Non-Trading Derivatives



We enter into forward foreign exchange contracts, interest rate swaps and other contracts for trading purposes, and non-trading derivative contracts,
including forward foreign exchange contracts, interest rate swaps, cross-currency interest rate swaps and other derivative contracts to hedge exposures to interest rate and currency fluctuations. These trading and non-trading contracts are recorded
at their fair values on our statements of financial condition and the related gains and losses on trading contracts are included in trading gains and lossesnet on our consolidated statements of income. Lazards hedging
strategy is an integral part of its trading strategy and therefore the related gains and losses on Lazards hedging activities also are recorded in trading gains and losses-net on the consolidated statements of income.



The table below presents the fair values of Lazards trading and
non-trading derivatives as of:



|                             |  |                   |       |                    |   |      
|---------------------------- |  | ----------------- | ----- | ------------------ | - | -----
|                             |  | December 31, 2004 |       | September 30, 2005
|                             |  | ($ in thousands) 
|Assets:                      |  |                   |       |                    |   |      
|Trading Derivatives:         |  |                   |       |                    |   |      
|Interest rate swap contracts |  | $                 | 377   |                    | $ | 229  
|Exchange rate contracts      |  |                   | 289   |                    |   |     
|                             |  |                   |       |                    |   |      
|Total                        |  | $                 | 666   |                    | $ | 229  
|                             |  |                   |       |                    |   |      
|Liabilities:                 |  |                   |       |                    |   |      
|Trading Derivatives:         |  |                   |       |                    |   |      
|Interest rate swap contracts |  | $                 | 1,124 |                    | $ | 734  
|Exchange rate contracts      |  |                   | 291   |                    |   |     
|                             |  |                   |       |                    |   |      
|Total trading derivatives    |  |                   | 1,415 |                    |   | 734  
|                             |  |                   |       |                    |   |      
|Non-Trading Derivatives:     |  |                   |       |                    |   |      
|Interest rate swap contracts |  |                   | 3,204 |                    |   | 4,083
|                             |  |                   |       |                    |   |      
|Total                        |  | $                 | 4,619 |                    | $ | 4,817
|                             |  |                   |       |                    |   |      



66



---

##### Table of Contents

Interest Rate and Foreign Currency RiskTrading, Non-Trading and Securities Owned



The risk management strategies that we employ use
various stress tests to measure the risks of trading, non-trading and securities owned activities. Based on balances of securities owned, Lazards interest rate risk as measured by a 0.25% +/- movement in interest rates totaled $175 thousand as
of December 31, 2004 and was approximately $70 thousand as of September 30, 2005. Foreign currency risk on those same balances, measured by a 2% +/- movement against the U.S. dollar, totaled $23 thousand as of December 31, 2004 and $20 thousand as
of September 30, 2005.



Interest Rate RiskShort
Term Investments and Corporate Indebtedness



A
significant portion of Lazards liabilities have fixed interest rates or maximum interest rates, while its cash and short-term investments generally have floating interest rates. Lazard Group estimates that operating income relating to cash and
short-term investments and corporate indebtedness would change by approximately $4 million, on an annual basis, in the event interest rates were to increase or decrease by 1%.



Recently Issued Accounting Standards



On May 30, 2005, the FASB issued SFAS No. 154Accounting and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.
3, which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does
not include specific transition provisions. SFAS No. 154 applies to (a) financial statements of business enterprises and not-for-profit organizations and (b) historical summaries of information based on primary financial statements that include an
accounting period in which an accounting change or error correction is reflected.



SFAS No. 154 eliminates the requirement in APB Opinion No. 20, Accounting Changes, to include the cumulative effect of changes in accounting principle in the income statement in the period of change.
Instead, to enhance the comparability of prior period financial statements, SFAS No. 154 requires that changes in accounting principle be retrospectively applied. Under retrospective application, the new accounting principle is applied as of the
beginning of the first period presented as if that principle had always been used. The cumulative effect of the change is reflected in the carrying value of assets and liabilities as of the first period presented and the offsetting adjustments are
recorded to opening retained earnings. Each period presented is adjusted to reflect the period-specific effects of applying the change. Although retrospective application is similar to restating prior periods, SFAS No. 154 gives the treatment a new
name to differentiate it from restatement for the correction of an error. Only direct effects of the change will be included in the retrospective application; all indirect effects will be recognized in the period of change. If it is impracticable to
determine the cumulative effect for all prior periods, the new accounting principle should be applied as if it were adopted prospectively from the earliest date practicable. Additionally, under SFAS No. 154, a change in reporting entity is
also retrospectively applied as of the beginning of the first period presented. Any correction of an error continues to be reported by restating prior period financial statements as of the beginning of the first period presented.



SFAS No. 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date the Statement was issued. The Statement does not change the transition
provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of the Statement. The adoption of SFAS No. 154 is not expected to have a material impact on the financial condition,
results of operations, or cash flows of Lazard.



In December
2004, the FASB issued SFAS No. 123(R) Share-Based Payment (SFAS 123(R)), a revision to SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS 123(R), which is effective for fiscal years
beginning after June 15, 2005, requires that all stock-based compensation be accounted for at fair value, thereby eliminating application of the intrinsic value method under Accounting Principles Board



67



---

##### Table of Contents

Opinion No. 25. SFAS 123(R) requires that the cost of employee services received in exchange for an award of equity instruments be measured based on the fair
value on the date of grant (with certain limited exceptions). The cost of the employee services are recognized over the period the requisite services are performed. Any excess tax benefit, as defined by SFAS 123(R), is recognized as an addition to
paid-in-capital and cash retained as a result of the excess tax benefit is included in financing activities within the statement of cash flows.



The Companys accounting policy provides for the expensing of the fair value of any share-based compensation over the stipulated vesting periods. The
Company does not currently anticipate that the adoption of SFAS 123(R) will have a significant impact on its results of operations.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



Risk Management



Quantitative and qualitative disclosures about Lazard Groups market risk are included under the caption Managements Discussion and
Analysis of Financial Condition and Results of OperationsRisk Management. Because the Capital Markets and Other segment was separated from the operations of Lazard Group in connection with the separation effective May 10, 2005, the
market risks specific to the Capital Markets and Other segment no longer apply to Lazard Group. With respect to Lazard Group Finance, we do not believe we face any material interest rate risk, foreign currency exchange risk, equity price risk or
other market risk.



|Item 4. | Controls and Procedures
|------- | -----------------------



Lazard Group Finances management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer have concluded that, as of
the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective, in all material respects, to ensure that information Lazard Group Finance is required
to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated
and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.



In addition, no change in Lazard Group Finances internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) occurred during the most recent fiscal quarter that has materially affected, or is likely to materially affect, Lazard Group Finances internal control over financial reporting.



68



---

##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



Lazard Group Finance is not currently involved in any judicial, regulatory or arbitration proceedings.



Lazards businesses, as well as the financial services industry
generally, are subject to extensive regulation throughout the world. Lazard is involved in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses. Lazard
Group Finance has been informed that Lazard 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 for any particular period, depending, in part, upon the operating results for such period.



Lazard 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 Lazards former Capital Markets business, which business was transferred to LFCM Holdings as a part of the separation. In addition, Lazard 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 that same business. Lazard believes that other broker-dealers
have also received requests for information. In the course of an internal review of these matters, prior to the separation, there were personnel changes in Lazards former Capital Markets business, including resignations by individuals who were
formerly associated with such separated businesses. These investigations are continuing and we cannot predict their potential outcomes, which outcomes, if any, could include regulatory consequences.



Lazard Ltd and Goldman Sachs & Co., the lead underwriter of Lazard
Ltds equity public offering of its Class A common stock, as well as several members of Lazard Ltd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 have
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 have removed the putative derivative lawsuit filed in that court to the U.S. District
Court for the Southern District of New York. 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. The putative class action lawsuits
purport to have been filed on behalf of persons who purchased securities of Lazard Ltd 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 Lazard Ltd against its directors and Goldman Sachs
& Co. and allege, among other things, that the directors breached their fiduciary duties to Lazard Ltd in connection with matters related to the equity public offering and seek compensatory damages, punitive damages and other unspecified
equitable or other relief. Lazard Group Finance has been informed that Lazard believes that the suits are without merit and intends to defend them vigorously.



For a description of recent developments involving Lazard Groups relationship with Intesa, see Note 3 of Notes to
Unaudited Condensed Consolidated Financial Statements.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



|Item 5. | Other Information
|------- | -----------------



None.



69



---

##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Certificate of Formation of Lazard Group Finance LLC (incorporated by reference to Exhibit 3.4 to the Registrants and Lazard Ltds Registration Statement (File No. 333-123463)
on Form S-1 filed on March 21, 2005).                                                                                                                                
|     | 
|3.2  |  | Limited Liability Company Agreement of Lazard Group Finance LLC, dated as of May 10, 2005 (incorporated by reference to Exhibit 3.2 to the Registrants Quarterly Report (File
No. 001-32493) on Form 10-Q filed on June 16, 2005).                                                                                                                   
|     | 
|4.1  |  | Indenture, dated as of May 10, 2005, by and between Lazard Group Finance LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to Lazard Ltds Quarterly
Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                               
|     | 
|4.2  |  | First Supplemental Indenture, dated as of May 10, 2005, by and between Lazard Group Finance LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.3 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                            
|     | 
|4.3  |  | Second Supplemental Indenture, dated as of May 10, 2005, by and between the Registrant and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.36 to Lazard Group
LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                       
|     | 
|4.4  |  | Purchase Contract Agreement, dated as of May 10, 2005, by and between Lazard Ltd and The Bank of New York, as Purchase Contract Agent (incorporated by reference to Exhibit 4.4 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                           
|     | 
|4.5  |  | Pledge Agreement, dated as of May 10, 2005, by and among Lazard Ltd, The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary and The Bank of New York, as
Purchase Contract Agent (incorporated by reference to Exhibit 4.5 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).
|     | 
|4.6  |  | Pledge Agreement, dated as of May 10, 2005, by and among Lazard Group Finance LLC, The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.6 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).  
|     | 
|4.7  |  | Form of Normal Equity Security Units Certificate (included in Exhibit 4.3).                                                                                                                                                                                                                                                                           
|     | 
|4.8  |  | Form of Stripped Equity Security Units Certificate (included in Exhibit 4.3).                                                                                                                                                                                                                                                                         
|     | 
|4.9  |  | Senior Note (included in Exhibit 4.2).                                                                                                                                                                                                                                                                                                                
|     | 
|10.1 |  | Operating Agreement of Lazard Group LLC, dated as of May 10, 2005 (incorporated by reference to Exhibit 10.2 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed
on June 16, 2005).                                                                                                                                              
|     | 
|10.2 |  | Letter Agreement, dated as of March 15, 2005, from IXIS Corporate and Investment Bank to Lazard LLC and Lazard Ltd (incorporated by reference to Exhibit 10.29 to the Registrants
Registration Statement (File No. 333-121407) on Form S-1/A filed on March 21, 2005).                                                                               
|     | 
|10.3 |  | Registration Rights Agreement, dated as of May 10, 2005, by and among Lazard Group Finance LLC, Lazard Ltd, Lazard LLC and IXIS Corporate and Investment Bank (incorporated by reference to
Exhibit 10.30 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                 
|     | 
|31.1 |  | Rule 13a-14(a) Certification by Steven J. Golub.                                                                                                                                                                                                                                                                                                      
|     | 
|31.2 |  | Rule 13a-14(a) Certification by Michael J. Castellano.                                                                                                                                                                                                                                                                                                
|     | 
|32.1 |  | Section 1350 Certification by Steven J. Golub.                                                                                                                                                                                                                                                                                                        
|     | 
|32.2 |  | Section 1350 Certification by Michael J. Castellano.                                                                                                                                                                                                                                                                                                  



70



---

##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: November 10, 2005



LAZARD GROUP FINANCE LLCBy:

/s/  Steven J. GolubName: Steven J. Golub Title:   President
(Principal Executive Officer)By:

/s/  Michael J. CastellanoName: Michael J. Castellano Title:   Vice
President (Principal Financial             Officer)




71