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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(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, 2006

OR



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

For the transition period from
 to

333-126751

(Commission File Number)



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LAZARD GROUP LLC

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 51-0278097                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



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30 Rockefeller Plaza

New York, New York 10020

(Address of principal executive offices)

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



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

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

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  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 October 31, 2006, in addition to profit participation interests, there were 99,602,116 units of common membership interests and two managing member interests outstanding.



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TABLE OF CONTENTS

When we use the terms Lazard Group, Lazard, we, our,
us and the Company, we mean Lazard Group LLC (formerly named Lazard LLC), a Delaware limited liability company that is the current holding company for the subsidiaries that conduct our businesses. Lazard Ltd is a Bermuda
exempt company whose shares of Class A common stock are publicly traded on the New York Stock Exchange under the Symbol LAZ. Lazard Ltds subsidiaries include Lazard Group and its respective subsidiaries. Lazard Ltd has no material
assets other than indirect ownership as of September 30, 2006 of approximately 37.7% of the common membership interests in Lazard Group. Lazard Ltd controls Lazard Group through two of its indirect wholly-owned subsidiaries who are co-managing
members of Lazard Group.

Lazard Group has two primary holders of its common membership interests: Lazard Ltd and LAZ-MD Holdings LLC (LAZ-MD
Holdings), a holding company that is owned by current and former managing directors of Lazard Group. The Lazard Group common membership interests held by LAZ-MD Holdings are effectively exchangeable over time on a one-for-one basis with Lazard
Ltd for shares of Lazard Ltds Class A common stock. In addition, Lazard Group has granted profit participation interests in Lazard Group to certain of its managing directors in connection with the recapitalization of Lazard Group at the time
of Lazard Ltds equity public offering. The profit participation interests are discretionary profits interests that are intended to enable Lazard Group to compensate its managing directors in a manner consistent with historical practices.



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|Part I. Financial Information                                                                 |  |     
|                                                                                              | 
|Item 1. Financial Statements (Unaudited)                                                      |  | 1   
|                                                                                              | 
|Item 1A. Pro Forma Financial Information (Unaudited)                                          |  | 32  
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 35  
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 65  
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 65  
|                                                                                              | 
|Part II. Other Information                                                                    |  |     
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 66  
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 66  
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 66  
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  | 67  
|                                                                                              | 
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 67  
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 67  
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 69  
|                                                                                              | 
|Signatures                                                                                    |  | 73  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

Condensed Consolidated Financial
Statements (Unaudited)*



|                                                                                                                         |  |     
|------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                         |  | Page
|Condensed Consolidated Statements of Financial Condition as of September 30, 2006 and December 31, 2005                  |  | 2   
|Condensed Consolidated Statements of Income for the three month and nine month periods ended September 30, 2006 and 2005 |  | 4   
|Condensed Consolidated Statements of Cash Flows for the nine month periods endedSeptember 30, 2006 and 2005              |  | 5   
|Condensed Consolidated Statement of Changes in Members Deficiency for the nine month period ended September 30, 2006    |  | 6   
|Notes to Unaudited Condensed Consolidated Financial Statements                                                           |  | 7   

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|* | These unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of Lazard Group LLC, formerly known as Lazard LLC and
referred to herein as Lazard Group, Lazard and the Company for all periods presented. 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 for the three month and nine month periods ended September 30, 2005 do not reflect what the results of operations would have been had these companies been
stand-alone, public companies for such periods. In addition, the results of operations for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods. 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. As a result, prior to May 10, 2005, Lazard Groups operating income included within the accompanying
unaudited condensed consolidated financial statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering and financing transactions, the Company now
includes all payments for services rendered by its managing directors and distributions to holders of profit participation interests in Lazard Group (profit participation members) in compensation and benefits expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



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LAZARD GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                                                               |  |                    |           |                  |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ---------------- | - | ---------
|                                                                                                                                               |  | September 30, 2006 |           | December 31,2005
|ASSETS                                                                                                                                         |  |                    |           |                  |   |          
|Cash and cash equivalents                                                                                                                      |  | $                  | 518,210   |                  | $ | 490,446  
|Cash and securities segregated for regulatory purposes                                                                                         |  |                    | 29,334    |                  |   | 20,596   
|Securities purchased under agreements to resell                                                                                                |  |                    | 10,001    |                  |   | 23,358   
|Securities ownedat fair value:                                                                                                                |  |                    |           |                  |   |          
|BondsCorporate                                                                                                                                |  |                    | 368,448   |                  |   | 228,927  
|Non-U.S. Government and agency securities                                                                                                      |  |                    | 18,900    |                  |   | 40,285   
|Equities                                                                                                                                       |  |                    | 3,004     |                  |   | 2,964    
|                                                                                                                                               |  |                    |           |                  |   |          
|                                                                                                                                               |  |                    | 390,352   |                  |   | 272,176  
|Swaps and other contractual agreements                                                                                                         |  |                    | 111       |                  |   | 186      
|                                                                                                                                               |  |                   
|Receivablesnet:                                                                                                                               |  |                    |           |                  |   |          
|Banks                                                                                                                                          |  |                    | 331,205   |                  |   | 347,912  
|Fees                                                                                                                                           |  |                    | 275,759   |                  |   | 280,923  
|Customers                                                                                                                                      |  |                    | 66,844    |                  |   | 65,253   
|Related parties                                                                                                                                |  |                    | 17,060    |                  |   | 54,549   
|                                                                                                                                               |  |                    |           |                  |   |          
|                                                                                                                                               |  |                    | 690,868   |                  |   | 748,637  
|                                                                                                                                               |  |                   
|Long-term investments                                                                                                                          |  |                    | 84,776    |                  |   | 80,843   
|Other investments                                                                                                                              |  |                    | 4,758     |                  |   | 4,473    
|                                                                                                                                               |  |                   
|Property (net of accumulated amortization and depreciation of $174,414 and $156,935 at September 30, 2006 and December 31, 2005,
respectively) |  |                    | 161,525   |                  |   | 156,630  
|Goodwill                                                                                                                                       |  |                    | 16,580    |                  |   | 15,996   
|Other assets                                                                                                                                   |  |                    | 103,201   |                  |   | 93,792   
|                                                                                                                                               |  |                    |           |                  |   |          
|Total assets                                                                                                                                   |  | $                  | 2,009,716 |                  | $ | 1,907,133
|                                                                                                                                               |  |                    |           |                  |   |          

See notes to unaudited condensed consolidated financial statements.



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LAZARD GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Continued)

SEPTEMBER 30, 2006 AND
DECEMBER 31, 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                                        |  |                    |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                        |  | September 30, 2006 |           |   | December 31,2005 |  
|LIABILITIES, MINORITY INTEREST AND MEMBERS DEFICIENCY                                                                  |  |                    |           |   |                  |   |           |  
|Liabilities:                                                                                                            |  |                    |           |   |                  |   |           |  
|Securities sold under agreements to repurchase                                                                          |  | $                  | 6,584     |   |                  | $ | 31,853    |  
|Deposits and other customer payables                                                                                    |  |                    | 676,870   |   |                  |   | 521,433   |  
|Related party payables                                                                                                  |  |                    | 4,442     |   |                  |   | 9,514     |  
|Accrued compensation and benefits                                                                                       |  |                    | 282,747   |   |                  |   | 346,090   |  
|Swaps and other contractual agreements                                                                                  |  |                    | 718       |   |                  |   | 3,028     |  
|Senior borrowings                                                                                                       |  |                    | 1,083,512 |   |                  |   | 1,022,082 |  
|Capital lease obligations                                                                                               |  |                    | 24,690    |   |                  |   | 23,844    |  
|Other liabilities                                                                                                       |  |                    | 404,506   |   |                  |   | 507,899   |  
|Subordinated borrowings                                                                                                 |  |                    | 200,000   |   |                  |   | 200,000   |  
|                                                                                                                        |  |                    |           |   |                  |   |           |  
|Total liabilities                                                                                                       |  |                    | 2,684,069 |   |                  |   | 2,665,743 |  
|Commitments and contingencies                                                                                           |  |                    |           |   |                  |   |           |  
|Minority interest                                                                                                       |  |                    | 42,481    |   |                  |   | 111,729   |  
|                                                                                                                        |  |                   
|MEMBERS DEFICIENCY                                                                                                     |  |                    |           |   |                  |   |           |  
|Members deficiency (net of 115,000 shares of Lazard Ltd Class A common stock, at cost of $4,179 at September 30,
2006) |  |                    | (708,764  | ) |                  |   | (835,997  | )
|Accumulated other comprehensive income (loss), net of tax                                                               |  |                    | (8,070    | ) |                  |   | (34,342   | )
|                                                                                                                        |  |                    |           |   |                  |   |           |  
|Total members deficiency                                                                                               |  |                    | (716,834  | ) |                  |   | (870,339  | )
|                                                                                                                        |  |                    |           |   |                  |   |           |  
|Total liabilities, minority interest and members deficiency                                                            |  | $                  | 2,009,716 |   |                  | $ | 1,907,133 |  
|                                                                                                                        |  |                    |           |   |                  |   |           |  

See notes to unaudited condensed consolidated financial statements.



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LAZARD GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | ---- | ------------------------------- | ------- | ---- |  | ---- | --------- |  | - | ------- | -
|                                                                                                                                                                        |  | Three Months Ended September 30, |         |      | Nine Months Ended September 30, |        
|                                                                                                                                                                        |  | 2006                             |         | 2005 |                                 |         | 2006 |  | 2005 |          
|REVENUE                                                                                                                                                                 |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|Investment banking and other advisory fees                                                                                                                              |  | $                                | 183,318 |      | $                               | 251,663 |      |  | $    | 655,704   |  | $ | 615,361 |  
|Money management fees                                                                                                                                                   |  |                                  | 116,113 |      |                                 | 101,282 |      |  |      | 346,584   |  |   | 302,507 |  
|Commissions                                                                                                                                                             |  |                                  | 3,195   |      |                                 | 3,569   |      |  |      | 12,474    |  |   | 11,354  |  
|Underwriting                                                                                                                                                            |  |                                  | 2,487   |      |                                 | 4,626   |      |  |      | 12,912    |  |   | 10,155  |  
|Investment gains and lossesnet                                                                                                                                         |  |                                  | 4,448   |      |                                 | 4,944   |      |  |      | 13,673    |  |   | 8,446   |  
|Interest income                                                                                                                                                         |  |                                  | 11,661  |      |                                 | 10,209  |      |  |      | 29,433    |  |   | 24,259  |  
|Other                                                                                                                                                                   |  |                                  | 2,707   |      |                                 | 5,206   |      |  |      | 26,632    |  |   | 15,822  |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|Total revenue                                                                                                                                                           |  |                                  | 323,929 |      |                                 | 381,499 |      |  |      | 1,097,412 |  |   | 987,904 |  
|Interest expense                                                                                                                                                        |  |                                  | 26,543  |      |                                 | 24,598  |      |  |      | 76,987    |  |   | 53,541  |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|Net revenue                                                                                                                                                             |  |                                  | 297,386 |      |                                 | 356,901 |      |  |      | 1,020,425 |  |   | 934,363 |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|OPERATING EXPENSES                                                                                                                                                      |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|Compensation and benefits (and, commencing May 10, 2005, distributions to profit participation members)(*)                                                              |  |                                  | 180,979 |      |                                 | 215,199 |      |  |      | 615,261   |  |   | 482,228 |  
|Premises and occupancy costs                                                                                                                                            |  |                                  | 16,820  |      |                                 | 16,653  |      |  |      | 50,948    |  |   | 50,505  |  
|Professional fees                                                                                                                                                       |  |                                  | 20,069  |      |                                 | 12,278  |      |  |      | 54,949    |  |   | 35,844  |  
|Travel and entertainment                                                                                                                                                |  |                                  | 10,643  |      |                                 | 10,662  |      |  |      | 30,594    |  |   | 30,767  |  
|Communications and information services                                                                                                                                 |  |                                  | 6,853   |      |                                 | 7,424   |      |  |      | 21,282    |  |   | 22,316  |  
|Equipment costs                                                                                                                                                         |  |                                  | 4,973   |      |                                 | 5,975   |      |  |      | 15,213    |  |   | 15,543  |  
|Other                                                                                                                                                                   |  |                                  | 7,819   |      |                                 | 10,935  |      |  |      | 19,656    |  |   | 31,305  |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|Total operating expenses                                                                                                                                                |  |                                  | 248,156 |      |                                 | 279,126 |      |  |      | 807,903   |  |   | 668,508 |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|OPERATING INCOME FROM CONTINUING OPERATIONS(*)                                                                                                                          |  |                                  | 49,230  |      |                                 | 77,775  |      |  |      | 212,522   |  |   | 265,855 |  
|                                                                                                                                                                        |  |                                  |         |     
|Provision for income taxes                                                                                                                                              |  |                                  | 8,081   |      |                                 | 14,748  |      |  |      | 36,727    |  |   | 45,781  |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN NET INCOME(*)                                                                                             |  |                                  | 41,149  |      |                                 | 63,027  |      |  |      | 175,795   |  |   | 220,074 |  
|Minority interest in net income                                                                                                                                         |  |                                  | 603     |      |                                 | 4,729   |      |  |      | 3,144     |  |   | 18,521  |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|INCOME FROM CONTINUING OPERATIONS(*)                                                                                                                                    |  |                                  | 40,546  |      |                                 | 58,298  |      |  |      | 172,651   |  |   | 201,553 |  
|LOSS FROM DISCONTINUED OPERATIONS (net of income tax provision of $253 and $3,330 for the three month and nine month periods ended
September 30, 2005, respectively)(*) |  |                                  |         |      |                                 | (408    | )    |  |      |           |  |   | (17,576 | )
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  
|NET INCOME ALLOCABLE TO MEMBERS(*)                                                                                                                                      |  | $                                | 40,546  |      |                                 | $57,890 |      |  | $    | 172,651   |  | $ | 183,977 |  
|                                                                                                                                                                        |  |                                  |         |      |                                 |         |      |  |      |           |  |   |         |  

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|(*) | 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 had 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.



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LAZARD GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | ---------- | -
|                                                                                                                                              |  | Nine Months Ended September 30, |         
|                                                                                                                                              |  | 2006                            |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                         |  |                                 |          |   |      |   |            |  
|Net income allocable to members                                                                                                               |  | $                               | 172,651  |   |      | $ | 183,977    |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities:                                                   |  |                                 |          |   |      |   |            |  
|Noncash charges included in net income:                                                                                                       |  |                                 |          |   |      |   |            |  
|Depreciation and amortization of property                                                                                                     |  |                                 | 10,684   |   |      |   | 11,339     |  
|Amortization of deferred expenses, stock units and interest rate hedge                                                                        |  |                                 | 17,648   |   |      |   | 961        |  
|Gain on termination of strategic alliance in Italy                                                                                            |  |                                 | (13,695  | ) |      |   |            |  
|Minority interest in net income                                                                                                               |  |                                 | 3,144    |   |      |   | 18,521     |  
|(Increase) decrease in operating assets:                                                                                                      |  |                                 |          |   |      |   |            |  
|Cash and securities segregated for regulatory purposes                                                                                        |  |                                 | (7,088   | ) |      |   | (10,498    | )
|Securities purchased under agreements to resell                                                                                               |  |                                 | 14,797   |   |      |   | (5,058     | )
|Securities owned, at fair value and swaps and other contractual agreements                                                                    |  |                                 | (96,455  | ) |      |   | 52,773     |  
|Receivables                                                                                                                                   |  |                                 | 91,515   |   |      |   | (80,852    | )
|Marketable, long-term and other investments                                                                                                   |  |                                 | 682      |   |      |   | 168,793    |  
|Other assets                                                                                                                                  |  |                                 | (7,019   | ) |      |   | 3,526      |  
|Assets of discontinued operations                                                                                                             |  |                                 |          |   |      |   | 1,485,363  |  
|Increase (decrease) in operating liabilities:                                                                                                 |  |                                 |          |   |      |   |            |  
|Securities sold under agreements to repurchase                                                                                                |  |                                 | (27,107  | ) |      |   | (28,600    | )
|Swaps and other contractual agreements                                                                                                        |  |                                 | (2,486   | ) |      |   | 427        |  
|Deposits and other payables                                                                                                                   |  |                                 | 112,741  |   |      |   | 112,218    |  
|Accrued compensation and other liabilities                                                                                                    |  |                                 | (120,030 | ) |      |   | 68,481     |  
|Liabilities of discontinued operations                                                                                                        |  |                                 |          |   |      |   | (1,223,257 | )
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|Net cash provided by operating activities                                                                                                     |  |                                 | 149,982  |   |      |   | 758,114    |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                         |  |                                 |          |   |      |   |            |  
|Additions to property                                                                                                                         |  |                                 | (5,253   | ) |      |   | (3,284     | )
|Disposals and retirements of property                                                                                                         |  |                                 | 602      |   |      |   | 9,761      |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|Net cash provided by (used in) investing activities                                                                                           |  |                                 | (4,651   | ) |      |   | 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 period January 1, 2005 through May 9, 2005                                           |  |                                 |          |   |      |   | (418,602   | )
|Distributions to members for the periods January 1, 2006 through September 30, 2006 and May 10, 2005 through September 30,
2005, respectively |  |                                 | (60,991  | ) |      |   | (5,180     | )
|Repurchase of common membership interest from LAZ-MD Holdings                                                                                 |  |                                 |          |   |      |   | (4,507     | )
|Purchase contracts relating to equity security units                                                                                          |  |                                 |          |   |      |   | (6,013     | )
|Settlement of interest rate hedge                                                                                                             |  |                                 |          |   |      |   | (11,003    | )
|Redemption of historical partner interests (including mandatorily redeemable preferred stock of $100,000)                                     |  |                                 |          |   |      |   | (1,617,032 | )
|Distribution of separated business                                                                                                            |  |                                 |          |   |      |   | (243,178   | )
|Distribution to LAZ-MD Holdings and LFCM Holdings                                                                                             |  |                                 |          |   |      |   | (150,000   | )
|Indemnity from LFCM Holdings relating to U.K. pension                                                                                         |  |                                 |          |   |      |   | 53,600     |  
|Capital contributions from profit participators                                                                                               |  |                                 | 880      |   |      |   |            |  
|Proceeds from issuance of Lazard Group senior notes, net of original discount and other expenses of $4,417                                    |  |                                 |          |   |      |   | 545,583    |  
|Proceeds from other senior borrowings                                                                                                         |  |                                 |          |   |      |   | 17,509     |  
|Repayment of senior borrowings, including make-whole payment of $7,650 in 2005                                                                |  |                                 | (34,570  | ) |      |   | (74,239    | )
|Repayment of capital lease obligations                                                                                                        |  |                                 | (882     | ) |      |   | (21,960    | )
|Distributions relating to minority interest                                                                                                   |  |                                 | (22,984  | ) |      |   | (52,468    | )
|Purchase of Lazard Ltd Class A common stock                                                                                                   |  |                                 | (4,179   | ) |      |   |            |  
|Additional costs relating to the financing transactions                                                                                       |  |                                 | (2,677   | ) |      |   |            |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|Net cash used in financing activities                                                                                                         |  |                                 | (125,403 | ) |      |   | (694,275   | )
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                                                       |  |                                 | 7,836    |   |      |   | (4,525     | )
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                                                     |  |                                 | 27,764   |   |      |   | 65,791     |  
|CASH AND CASH EQUIVALENTSJanuary 1                                                                                                           |  |                                 | 490,446  |   |      |   | 305,753    |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|CASH AND CASH EQUIVALENTS September 30                                                                                                       |  | $                               | 518,210  |   |      | $ | 371,544    |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  
|Supplemental financing non-cash transaction:                                                                                                  |  |                                 |          |   |      |   |            |  
|Issuance of senior promissory note for the acquisition of equity interest in Lazard Italy                                                     |  | $                               | 96,000   |   |      |   |            |  
|                                                                                                                                              |  |                                 |          |   |      |   |            |  

See notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

LAZARD GROUP LLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS DEFICIENCY

FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006

(UNAUDITED)

(dollars in thousands)



|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          
|------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------------------------------------------- | - | ------- | ----------------------- |  | - | ---------
|                                                                                            |  | MembersDeficiency |           |   | AccumulatedOtherComprehensiveIncome (Loss),Net of Tax |   |         | TotalMembersDeficiency
|BalanceJanuary 1, 2006                                                                     |  | $                  | (835,997  | ) |                                                       | $ | (34,342 | )                       |  | $ | (870,339)
|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          
|Comprehensive income:                                                                       |  |                    |           |   |                                                       |   |         |                         |  |   |          
|Net income allocable to members                                                             |  |                    | 172,651   |   |                                                       |   |         |                         |  |   | 172,651  
|Other comprehensive incomenet of tax:                                                      |  |                    |           |   |                                                       |   |         |                         |  |   |          
|Currency translation adjustment                                                             |  |                    |           |   |                                                       |   | 24,868  |                         |  |   | 24,868   
|Minimum pension liability adjustment                                                        |  |                    |           |   |                                                       |   | 579     |                         |  |   | 579      
|Amortization of interest rate hedge                                                         |  |                    |           |   |                                                       |   | 825     |                         |  |   | 825      
|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          
|Comprehensive income                                                                        |  |                    |           |   |                                                       |   |         |                         |  |   | 198,923  
|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          
|                                                                                            |  |                    |          
|Distribution to members                                                                     |  |                    | (60,991)  |   |                                                       |   |         |                         |  |   | (60,991) 
|                                                                                            |  |                    |          
|Purchase of 115,000 shares of Lazard Ltd Class A common stock                               |  |                    | (4,179)   |   |                                                       |   |         |                         |  |   | (4,179)  
|                                                                                            |  |                    |          
|Amortization of stock units                                                                 |  |                    | 15,544    |   |                                                       |   |         |                         |  |   | 15,544   
|                                                                                            |  |                    |          
|Capital contributions from profit participation members                                     |  |                    | 880       |   |                                                       |   |         |                         |  |   | 880      
|                                                                                            |  |                    |          
|Other capital activities, including additional costs relating to the financing transactions |  |                    | 3,328     |   |                                                       |   |         |                         |  |   | 3,328    
|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          
|BalanceSeptember 30, 2006                                                                  |  | $                  | (708,764) |   |                                                       | $ | (8,070) |                         |  | $ | (716,834)
|                                                                                            |  |                    |           |   |                                                       |   |         |                         |  |   |          

See notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, unless otherwise noted)



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

Organization

The accompanying unaudited condensed consolidated financial statements of Lazard Group LLC and subsidiaries (a Delaware limited
liability company, formerly known as Lazard LLC and collectively referred to with its subsidiaries as Lazard Group, Lazard 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 Groups annual report on Form 10-K for the year ended December
31, 2005 (the Form 10-K). The December 31, 2005 unaudited condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited
condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.
Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on managements best
knowledge of current events and actions that Lazard may undertake in the future, actual results may differ materially from the estimates. The consolidated results of operations for the three month and nine month periods ended September 30, 2006 are
not necessarily indicative of the results to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.

Lazard Ltd is a Bermuda holding company that was incorporated in October 2004. Pursuant to a Registration Statement on Form S-1 (File No. 333-121407)
declared effective by the SEC on May 4, 2005 (the Registration Statement) for the initial public offering of shares of Lazard Ltds Class A common stock, par value $0.01 per share (Class A common stock), Lazard Ltd
issued on May 10, 2005, at $25 per share, 34,183,162 shares of its Class A common stock in a registered initial public offering (the equity public offering). In addition, on May 10, 2005, pursuant to the IXIS Placements (see Note 2 of
Notes to Unaudited Condensed Consolidated Financial Statements) and the cashless exchange of certain of our chief executive officers interests in Lazard Group with Lazard Ltd, 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 at the time of the equity public offering. 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% of Lazard Groups
total common membership interests as of May 10, 2005, and, after giving effect to (i) the repurchase and forfeiture of a portion of the Lazard Group common membership interests held by LAZ-MD Holdings LLC (LAZ-MD Holdings), as well as
(ii) certain other share issuances by Lazard Ltd subsequent to December 31, 2005, approximately 37.7% and 37.6% of all outstanding Lazard Group common membership interests as of September 30, 2006 and December 31, 2005, respectively. Lazard
Ltd, through its control of the managing members of Lazard Group, controls Lazard Group.

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



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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



| |  |  | Financial Advisory, which includes providing advice on mergers and acquisitions, restructurings, capital raising and similar transactions, 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 Lazard Groups Paris-based Lazard Frères Banque SA (LFB). LFB is a registered bank regulated by the Banque de France. LFBs primary commercial banking operations include the
management of the treasury positions of Lazard Groups Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of Lazard Frères Gestion SAS (LFG) and
custodial oversight over assets of various clients. In addition, LFB operates many support functions of the Paris House. Lazard Group also allocates outstanding indebtedness to Corporate.

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

The unaudited condensed consolidated financial
statements include Lazard Group and Lazard Groups 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.



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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.

The Recapitalization

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

The Financing Transactions

On May 10, 2005, Lazard Group and Lazard Ltd 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.

The Company 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 Lazard Ltd 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 the goodwill of Lazard Group if a fundamental
transaction occurred,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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



| |  |  | 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 Group, Lazard Ltd, LAZ-MD Holdings and LFCM Holdings (the master separation agreement).

Basis of Presentation

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

In accordance with Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46 (R), Consolidation of Variable Interest Entities (FIN 46 R), the
Company also consolidates any VIEs for which it is the primary beneficiary. In connection with the separation, Lazard Group transferred its general partnership interests in various VIEs to a subsidiary of LFCM Holdings. Lazard Group has determined
that it is no longer the primary beneficiary with respect to those VIEs and, as a result, the Company no longer consolidates such VIEs. Amounts related to consolidation of such VIEs, for the three month and nine month periods ended September 30,
2005 are included in loss from discontinued operations on the unaudited condensed consolidated statements of income.

The accompanying
unaudited condensed consolidated statement of income and the unaudited condensed consolidated statement of cash flows for the nine month period ended September 30, 2005 do not reflect what the results of operations and cash flows of the Company
would have been had it been a stand-alone, public company prior to May 10, 2005. In addition, the results of operations for periods until the equity public offering on May 10, 2005 are not comparable to results of operations for subsequent periods
as described below.



| |  |  | Payments for services rendered by the Company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,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



| | 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 did not reflect payments for services rendered by its managing directors. For periods 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, the Company 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 in net income and since
that date such payments, together with distributions to profit participation members, have been included within compensation and benefits expense.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------

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



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

Equity Public OfferingAs described above, on May 10, 2005, Lazard Ltd consummated its equity public offering. The aggregate gross proceeds relating to the offering amounted to $854,579, and net
proceeds to Lazard Ltd, after $65,844 of estimated expenses incurred by Lazard Ltd in connection with the issuance and distribution of the Lazard Ltd Class A common stock (including underwriting discounts and commissions, expenses paid to the
underwriters and certain other expenses), was $788,735. Lazard Ltd contributed all the net proceeds from this offering to Lazard Group in exchange for a controlling interest in Lazard Group. In the nine month period ended September 30, 2006,
additional costs of $2,677 relating to issuance of Lazard Ltd Class A common stock were incurred, representing amounts in excess of estimated costs associated with the equity public offering. Such amount was recorded as a reduction of members
equity.

Other Financing TransactionsOn May 10, 2005, Lazard Group and Lazard Ltd 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 its Class A common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a
6.12% senior note due 2035 of an affiliate, Lazard Group Finance LLC, a Delaware limited liability company (Lazard Group Finance), with a principal amount of $1 (the Lazard Group Finance Senior Notes). Prior to its merger
with Lazard Group discussed below, Lazard Group Finance was a wholly-owned subsidiary of Lazard Group that was controlled by Lazard Ltd. In the event of any issuance of shares of Lazard Ltd Class A common stock pursuant to the ESUs, Lazard Ltd
intends to cause Lazard Group to issue a proportionate amount of Lazard Group common membership interests to subsidiaries of Lazard Ltd in exchange for Lazard Ltds contribution of the consideration received from the issuance of the shares of
Lazard Ltd Class A common stock pursuant to the ESUs.



11



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



In connection with the quarterly contract adjustment payments on the purchase contracts, Lazard Group
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 members equity. The liability
will accrete over the three year period ending May 15, 2008, with a corresponding charge to interest expense.

Lazard Ltd began making
quarterly contract adjustment payments on the purchase contracts at an annual rate of 0.505% on August 15, 2005 with a corresponding payment being paid by Lazard Group to Lazard Ltd. 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.

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

On December 19, 2005, Lazard Group consummated a Plan of Merger (the Merger Agreement) with Lazard Group Finance. The Merger Agreement provided for the merger of Lazard Group Finance with and into Lazard
Group (the Merger). Pursuant to the Merger, Lazard Group Finance merged with and into Lazard Group, with Lazard Group continuing as the surviving company. In addition, Lazard Group Finance ceased to be the managing member of Lazard
Group, and the co-managing members of Lazard Group Finance, which are two indirect wholly-owned subsidiaries of Lazard Ltd, became the co-managing members of Lazard Group. In connection with the Merger, Lazard Group became the successor registrant
for Lazard Group Finance under the Securities Exchange Act of 1934, as amended.

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

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s securities on May 10, 2005, $150,000 of which were ESUs (the
IXIS ESU placement) and $50,000 of which were shares of Lazard Ltd Class A common stock. The terms of the ESUs issued in connection with the IXIS ESU placement are the same as the ESUs



12



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



described above. The price per security paid by IXIS was equal, in the case of Lazard Ltd shares of Class A common stock, to the price per share in the
equity public offering and, in the case of ESUs, the price per unit in the ESU offering. Lazard Ltd contributed the net proceeds from the sale of Lazard Ltd Class A common stock to Lazard Group. Lazard Group Finance used the net proceeds from the
IXIS ESU placement to purchase Lazard Group Notes with a principal amount of $150,000.

Lazard Group Senior
NotesConcurrent with the equity public offering, Lazard Group issued, in a private placement, $550,000 aggregate principal amount of 7.125% senior notes due May 15, 2015 (the Lazard Group Senior Notes). The Lazard Group
Senior Notes were issued net of original issue discount of $435. Interest on the notes is due May 15 and November 15 of each year, commencing on November 15, 2005. The notes are unsecured. A registration rights agreement, dated as of May 10, 2005,
among Lazard Group and the initial purchasers of the Lazard Group senior notes provided the holders of the Lazard Group senior notes with registration rights. In that agreement Lazard Group agreed to register the offer and sale of substantially
identical notes (the exchange notes) in exchange for the privately-placed notes (the old notes). In connection therewith, Lazard Group filed a registration statement on Form S-4 that was declared effective by the SEC on
September 28, 2005 and Lazard Group commenced an exchange offer (the exchange offer) on that date to exchange an aggregate principal amount of up to $550,000 of the old notes for an equal aggregate principal amount of the exchange notes.
The exchange offer expired on October 26, 2005. On October 31, 2005, Lazard Group closed the exchange offer, at which time it exchanged $546,000 in aggregate principal amount of its old notes (approximately 99.3% of the aggregate principal amount of
old notes outstanding) for $546,000 in aggregate principal amount of its exchange notes. The exchange notes are substantially identical to the old notes, except that the exchange notes have been registered under the Securities Act of 1933, as
amended; and, as a result, the transfer restrictions applicable to the old notes do not apply to the exchange notes.

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

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

Credit FacilityConcurrent
with the equity public offering, Lazard Group entered into a five year, $125,000 senior revolving credit facility (the Credit Facility) with a group of lenders. On May 17, 2006, the Credit Facility was amended to provide for an increase
in the aggregate commitments from $125,000 to $150,000. As of September 30, 2006 and December 31, 2005, $0 and $30,000, respectively, were outstanding under the Credit Facility. The Credit Facility bears interest at either a Eurodollar or Federal
Funds rate, plus an applicable margin, which varies from 125 to 200 basis points, depending on Lazard Groups rating as determined by designated credit rating agencies.



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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

3.    SIGNIFICANT ACCOUNTING POLICIES

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

Share-Based PaymentsIn December 2004, the FASB issued SFAS No. 123R, Share-Based
Payments (SFAS 123R). SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and its related guidance. SFAS 123R is effective for the Companys fiscal year beginning January 1, 2006. Prior to May 10, 2005, the date of the equity
public offering, Lazard operated as a series of related partnerships under the control of the partners and Lazard did not have a capital structure that permitted share based compensation. In connection with equity awards granted pursuant to the
Lazard Ltds 2005 Equity Incentive Plan (described in more detail in Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements), the Company adopted the fair value recognition provisions under SFAS 123. Accordingly,
subsequent to the dates of grant during 2005, Lazard recognized in compensation expense the amortized portion of the fair value of the equity awards, net of an estimated forfeiture rate, over the service period specified in the award.

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

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

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

As a result of the Company adopting certain
provisions consistent with SFAS 123R upon the introduction of Lazard Ltds 2005 Equity Incentive Plan while under the provisions of SFAS 123, there is no significant effect resulting from the adoption of the provisions of SFAS 123R.

Investments in Limited PartnershipsOn January 1, 2006, the Company adopted, as required, the provisions of Emerging Issues Task
Force (EITF) Issue No. 04-5, Determining Whether a General Partner,



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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

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

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

In July 2006, the FASB issued FIN No. 48
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a
tax position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a more-likely-than-not recognition criteria, and a measurement attribute that measures the position as the largest
amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in
the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. We are currently assessing the impact of adopting FIN 48 on the financial condition, results of operations, and cash
flows of the Company.

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require the use of fair
value measurements. SFAS 157 is effective for interim and annual financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the impact of adopting SFAS 157 on the financial condition, results of
operations, and cash flows of the Company.



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



In September 2006, the FASB issued SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Post-Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires an entity to recognize in its statement of financial condition the funded
status of its defined benefit post-retirement plans, measured as the difference between the fair value of the plan assets and the applicable benefit obligations. SFAS 158 also requires an entity to recognize changes in the funded status of a defined
benefit post-retirement plan within accumulated other comprehensive income, net of tax, to the extent such changes are not recognized in earnings as components of periodic net benefit cost. SFAS 158 is effective for interim and annual financial
statements issued for fiscal years ending after December 15, 2006. We are currently assessing the impact of adopting SFAS 158 on the financial condition, results of operations, and cash flows of the Company.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 permits the Company to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of
the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of
adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously filed reports with the SEC to be amended. The Company is currently assessing the impact of adoption of SAB 108
on the financial condition, results of operations, and cash flows as of and for the year ended December 31, 2006.



|4. | MINORITY INTEREST
|-- | -----------------

Minority interest
consists of a number of components, including minority interests in LAM and the Companys business in Italy which was owned 40% by Banca Intesa S.p.A. (Intesa) through May 15, 2006 (see Note 5 of Notes to Unaudited Condensed
Consolidated Financial Statements). In addition, the Company consolidates various LAM related general partnership interests that it controls but does not wholly own. As a result of consolidating these companies, the Company recognizes the portion of
income not associated with the Companys ownership as minority interest.

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



|5. | STRATEGIC ALLIANCE IN ITALY
|-- | ---------------------------

Pursuant to a
strategic alliance in effect from January 2003 until its termination, as described below, on May 15, 2006, Lazard Group and Intesa conducted selected Italian investment banking business solely through Lazard & Co. S.r.l. (Lazard
Italy), an indirect subsidiary of Lazard Group. As part of the strategic alliance, Intesa:



| |  |  | purchased in March 2003 from Lazard Funding Limited LLC (Lazard Funding), a wholly-owned subsidiary of Lazard Group, a $150,000 subordinated convertible promissory note
(the $150,000 Subordinated Convertible Note) issued by Lazard Funding, which was convertible into a contractual right that entitled the holder to receive payments that would be equivalent to the distributions that a holder of a three
percent equity goodwill interest in Lazard Group would have been entitled to receive (i.e., distributions of the net proceeds of selected fundamental corporate events affecting Lazard Group, such as a sale of all or substantially all of the assets
of Lazard Group or a disposition of a line of business);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



| |  |  | invested in June 2003 in Lazard Italy an amount of Euros then equal to $100,000 in exchange for 40% of the capital stock in Lazard Italy (the Intesa JV Interest); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | purchased in June 2003 a $50,000 subordinated promissory note issued by Lazard Italy (the $50,000 Subordinated Promissory Note).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

The $150,000 Subordinated Convertible Note, which was guaranteed by Lazard Group (the Guarantee), had a scheduled maturity date in March 2018
and had interest payable annually at a variable interest rate of not less than 3%, and not more than 3.25%, per annum. The $50,000 Subordinated Promissory Note had a scheduled maturity date in the year 2078 (subject to extension), with interest
payable annually at the rate of 3.0% per annum.

The proceeds from the sale of capital stock in Lazard Italy exceeded the underlying book
value of the net assets purchased by Intesa by approximately $56,000. This amount had been deferred and included in other liabilities on the unaudited consolidated statement of financial condition as of December 31, 2005 as the Company
could have been required to repurchase such amount of capital stock held by Intesa in the event of a termination of the strategic alliance.

On May 15, 2006, Lazard Group completed the termination of its joint venture relationship with Intesa, in accordance with the provisions of the Termination Agreement, dated as of March 31, 2006, by and among Intesa, Lazard Group and Lazard
Italy. In connection with the termination, the following adjustments were made to the terms of Intesas investment in Lazard Italy and Lazard Funding:



| |  |  | The $150,000 Subordinated Convertible Note, was amended and restated, among other things, to provide for its convertibility into shares of Lazard Ltd Class A common stock at an
effective conversion price of $57 per share. The amended $150,000 subordinated convertible note (the Amended $150,000 Subordinated Convertible Note) matures on September 30, 2016 and has a fixed interest rate of 3.25% per annum.
One-third in principal amount will generally be convertible after July 1, 2008, an additional one-third after July 1, 2009 and the last one-third after July 1, 2010, and no principal amount will be convertible after June 30, 2011. Lazard Ltd will
enter into a Registration Rights Agreement with Intesa providing for certain customary registration rights with respect to the shares of its Class A common stock Intesa receives upon conversion. The Guaranty by Lazard Group was also amended and
restated to reflect the terms of the Amended $150,000 Subordinated Convertible Note. The covenants and events of default in the Amended $150,000 Subordinated Convertible Note were not materially changed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Intesas 40% equity interest in Lazard Italy and the $50,000 Subordinated Promissory Note of Lazard Italy held by Intesa were acquired by Lazard Group in exchange for the
issuance to Intesa of a $96,000 senior promissory note of Lazard Group due February 28, 2008 (the $96,000 Senior Promissory Note) and a $50,000 subordinated promissory note of Lazard Group due February 28, 2008 (the $50,000
Subordinated Promissory Note), respectively. The $96,000 Senior Promissory Note and the $50,000 Subordinated Promissory Note have fixed interest rates of 4.25% and 4.6% per annum, respectively, and each Note contains customary events of
default for indebtedness of its type. On May 15, 2006, Intesa sold and assigned all its rights and interests relating to the $96,000 Senior Promissory Note and the $50,000 Subordinated Promissory Note to a commercial bank.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group paid Intesa an amount equal to a 3% annualized return on the Intesa JV Interest from April 1, 2006 through the termination closing and the accrued and unpaid interest
on the $50,000 Subordinated Promissory Note as of the termination closing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the termination of the joint
venture relationship and Lazard Groups repurchase of the Intesa JV Interest, the Company realized a gain of $13,695, excluding transaction and other costs, which is included in



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



revenueother on the unaudited condensed consolidated statements of income for the nine month period ended September 30, 2006 (with all of
such gain being recorded in the second quarter of 2006) and, after transaction and other costs, this transaction increased operating income by $5,274.



|6. | SENIOR AND SUBORDINATED DEBT
|-- | ----------------------------

Senior
DebtSenior debt is comprised of the following as of September 30, 2006 and December 31, 2005:



|                                                        |  |                  |         |               |                   |     |                      |         |      |                   |   |           |  |   |          
|------------------------------------------------------- |  | ---------------- | ------- | ------------- | ----------------- | --- | -------------------- | ------- | ---- | ----------------- | - | --------- |  | - | ---------
|                                                        |  | Principal Amount |         | Maturity Date |                   |     | Annual Interest Rate |         |      | Outstanding as of
|                                                        |  |                  |         |               | September 30,2006 |     | December 31,2005    
|Lazard Group Senior Notes(a)                            |  | $                | 550,000 |               | 2015              |     |                      | 7.125   | %    |                   | $ | 550,000   |  | $ | 550,000  
|Lazard Group Senior Note(b)                             |  |                  | 96,000  |               | 2008              |     |                      | 4.25    | %    |                   |   | 96,000    |  |   |         
|Lazard Group Notes issued in connectionwith the ESUs(a) |  |                  | 437,500 |               | 2008-2035         | (c) |                      | 6.12    | %    |                   |   | 437,500   |  |   | 437,500  
|Revolving Credit Agreement(a)                           |  |                  | 150,000 |               | 2010              |     |                      | 5.37    | %(d) |                   |   |          |  |   | 30,000   
|Other                                                   |  |                  |         |               | 2006-2008         |     |                      | Various |      |                   |   | 12        |  |   | 4,582    
|                                                        |  |                  |         |               |                   |     |                      |         |      |                   |   |           |  |   |          
|Total                                                   |  |                  |         |               |                   |     |                      |         |      |                   | $ | 1,083,512 |  | $ | 1,022,082
|                                                        |  |                  |         |               |                   |     |                      |         |      |                   |   |           |  |   |          

---

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

|(b) | See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements.
|--- | -----------------------------------------------------------------------------

|(c) | Maturity date can vary based on a remarketing of the Lazard Group Notes, and will mature (i) 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, (ii) in the event of a failed remarketing, on May 15, 2008 and (iii) otherwise on May 15, 2035.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | 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 December 31, 2005, the annual interest rate,
including the applicable margin, was 5.37%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subordinated DebtSubordinated debt at September 30, 2006 and
December 31, 2005 amounted to $200,000 and consist of amounts associated with the strategic alliance transaction in Italy and the termination thereof (see Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements).

As of September 30, 2006, the Company is in compliance with all obligations under its various senior and subordinated borrowing arrangements.



|7. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

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

During the nine month period
ended September 30, 2005, the Company recorded impairment costs of approximately $6,300 relating to certain abandoned leased facilities in the U.K, which is included in loss from discontinued operations on the unaudited condensed
consolidated statement of income (with all such impairment costs recorded during the first quarter of 2005). These costs represent a provision for lease obligations recorded prior to the lease indemnity from LFCM of $25,000 (described below) and as
such are excluded from the indemnification. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the provision recorded for lease obligations on the cease-use date was
determined



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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 the
Company, based on the remaining lease rentals, reduced by estimated sublease rentals.

With respect to the abandoned facilities discussed
above, at September 30, 2006 and December 31, 2005 the Company has recorded liabilities of $32,394 and $37,490, respectively, exclusive of the indemnification described below, which are included in other liabilities on the unaudited
condensed consolidated statements of financial condition. Payments toward the liabilities continue through the remaining term of the leases. Such liabilities are based on the discounted future commitment, net of expected sublease income.

Under the master separation agreement and a related lease indemnity agreement, dated as of May 10, 2005, by and between LFCM Holdings and one of our
London subsidiaries, LFCM Holdings is obligated to indemnify Lazard Group for certain liabilities relating to abandoned leased space in the U.K., up to a maximum of $29,000. In connection with Lazard Groups entry into subleases with respect to
a portion of this abandoned leased space and the incurrence of the related liabilities, during the fourth quarter of 2005 Lazard Group entered into an agreement with LFCM Holdings which provides for LFCM Holdings to pay to Lazard Group $25,000 in
full satisfaction of LFCMs indemnification obligations with respect to the abandoned leased space.

The receivable relating to the
indemnity from LFCM Holdings of $25,000 was recorded at its present value. After payments received in the nine month period ended September 30, 2006 and the year ended December 31, 2005 of $3,899 and $6,209, respectively, the net present value of
the balance due at September 30, 2006 and December 31, 2005 of $13,741 and $17,031, respectively, is included in receivablesrelated parties on the unaudited condensed consolidated statements of financial condition (see Note 11
of Notes to Unaudited Condensed Consolidated Financial Statements). The balance is due based on a schedule of periodic payments through May 10, 2010.

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

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

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



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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 plaintiffs in the putative class action lawsuits filed in the U.S. District
Court for the Southern District of New York have filed a consolidated amended complaint, and the defendants have filed a motion to dismiss that complaint. The defendants in the putative class action lawsuit filed in the Supreme Court of the State of
New York have served plaintiffs with a motion to dismiss the complaint or, in the alternative, stay the action pending resolution of the putative class action in the U.S. District Court for the Southern District of New York. 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. We believe that the suits are without merit and intend to defend them vigorously.



|8. | MEMBERS DEFICIENCY
|-- | -------------------

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

In connection with the consummation of the equity public offering, during the period
January 1 through May 9, 2005, members equity was reduced by approximately $145,000 for the repurchase of working member interests prior to 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. At September 30, 2006, approximately 37.7% and 62.3% 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. During the nine month period ended September 30, 2006, Lazard Group distributed $16,768 to LAZ-MD Holdings and $10,115 to subsidiaries of Lazard Ltd, which latter
amount was used by Lazard Ltd to pay dividends to third party stockholders of its Class A common stock. In addition, during the nine month period ended September 30, 2006, Lazard Group made tax distributions of $34,108, including $21,268 to LAZ-MD
Holdings and $12,840 to subsidiaries of Lazard Ltd.

A description of Lazard Ltds 2005 Equity Incentive Plan, and activity with
respect thereto during the nine month period ended September 30, 2006 is presented below.

Shares Available Under the Lazard Ltd 2005
Equity Incentive Plan (the Equity Incentive Plan)

The Equity Incentive Plan authorizes the issuance of up to 25,000,000
shares of Lazard Ltd Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock, stock



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LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



units and other equity-based awards. Each stock unit granted under the Equity Incentive Plan represents a contingent right to receive one share of Lazard Ltd
Class A common stock at no cost to the recipient. The fair value of such stock unit awards is determined based on the closing market price of Lazard Ltds Class A common stock at the date of grant.

Restricted Stock Unit (RSUs) Grants

During the nine month period ended September 30, 2006, the Company granted 3,038,483 RSUs to eligible employees. These RSUs include a dividend participation right during the vesting period that provides that each RSU
receives additional RSUs (or fractions thereof) equivalent to any ordinary quarterly dividends paid on Lazard Ltd Class A common stock. During the nine month period ended September 30, 2006, such dividend participation rights required the issuance
of 19,034 RSUs. During the nine month period ended September 30, 2006, 126,428 RSUs granted in 2006 were forfeited, including those relating to the dividend participation rights, as well as an additional 6,400 shares forfeited relating to RSUs
granted in 2005.

The RSUs convert into Lazard Ltd Class A common stock on a one-for-one basis after the stipulated vesting periods. The
fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods as required under SFAS 123 or SFAS 123R. Expense relating to RSUs is charged to compensation and benefits
within the unaudited condensed consolidated statements of income, and amounted to $6,309 and $15,544 for the three month and nine month periods ended September 30, 2006, respectively, and $74 for the three month and nine month periods ended
September 30, 2005.

Deferred Stock Unit (DSUs) Grants

As part of their compensation for serving as members of the Board of Directors and its various committees, during the nine month period ended September
30, 2006, the Non-Executive Directors of Lazard Ltd (who are also the same Non-Executive Directors of Lazard Group) were granted 12,735 DSUs (with such grants inclusive of DSUs granted pursuant to the Directors Fee Deferral Unit Plan described
below). The DSUs include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Lazard Ltd Class A common stock. DSU awards are expensed at their full fair value on their date of grant, and $8 and $260 of expense
was charged to Lazard Group in connection with the DSUs during the three month and nine month periods ended September 30, 2006, respectively.

On May 9, 2006, the Board of Directors adopted the Directors Fee Deferral Unit Plan, which allows the Companys Non-Executive Directors to elect to receive additional DSUs pursuant to the Equity Incentive Plan in lieu of some or
all of their cash fees. The number of DSUs that shall be granted to a Non-Executive Director pursuant to this election shall equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election,
divided by the market value of a share of Lazard Ltd Class A common stock on the date on which the foregone cash fees would otherwise have been paid. As of September 30, 2006, 414 DSUs were granted pursuant to the Directors Fee Deferral Unit
Plan.



21



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



The following is a summary of activity relating to RSUs and DSUs during the nine month period ended
September 30, 2006:



|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      
|------------------------------------------------------------------ |  | --------- | - |  | -------------------------------------- | ----- |  | ----- | ------ | - | -------------------------------------- | - | -----
|                                                                   |  | RSUs      |   |  | DSUs                                  
|                                                                   |  | Units     |   |  | Grant Date Weighted Average Fair Value |       |  | Units |        |   | Grant Date Weighted Average Fair Value
|Balance, January 1, 2006                                           |  | 1,033,733 |   |  | $                                      | 23.87 |  |       | 9,968  |   |                                        | $ | 25.33
|Granted (including 19,034 RSUs relating to dividend participation) |  | 3,038,483 |   |  | $                                      | 34.73 |  |       | 12,735 |   |                                        | $ | 40.82
|Forfeited                                                          |  | (132,828  | ) |  | $                                      | 34.23 |  |       |        |   |                                        |   |      
|Converted                                                          |  |           |   |  |                                        |       |  |       | (3,668 | ) |                                        | $ | 26.89
|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      
|Balance, September 30, 2006                                        |  | 3,939,388 |   |  | $                                      | 31.90 |  |       | 19,035 |   |                                        | $ | 35.40
|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      

As of September 30, 2006, unrecognized RSU compensation expense, adjusted for estimated
forfeitures, was approximately $84,272, with such compensation expense expected to be recognized over a weighted average period of approximately 3.6 years. The ultimate amount of such expense is dependent upon the actual number of RSUs that will
vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates could cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated
unrecognized compensation expense described herein.

Share Repurchase Program

On February 7, 2006, the Board of Directors of Lazard Ltd authorized the repurchase of up to $100,000 in aggregate cost of Lazard Ltds Class A
common stock. The Companys intention is that the share repurchase program will be used primarily to offset shares to be issued under the Equity Incentive Plan. Purchases may be made in the open market or through privately negotiated
transactions in 2006 and 2007. During the nine month period ended September 30, 2006, Lazard Group purchased 115,000 shares of Lazard Ltd Class A common stock in the open market at an average price of $36.34 per share, which was recorded at cost as
a reduction of members equity within the unaudited condensed consolidated statement of financial condition as of September 30, 2006.



22



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



|9. | EMPLOYEE BENEFIT PLANS
|-- | ----------------------

The Company, through
its subsidiaries, provides retirement and other post-employment benefits to certain of its employees through defined contribution and defined benefit pension plans and other post-retirement benefit plans. The Company has the right to amend or
terminate its benefit plans at any time subject to the terms of such plans. Expenses incurred related to the defined benefit pension plans, the defined benefit pension plan supplement and the post-retirement health care plans are included in
compensation and benefits and, with respect to the separated businesses, loss from discontinued operations on the unaudited condensed consolidated statements of income. Such expenses for the three month and nine month periods
ended September 30, 2006 and 2005 are shown in the tables below.



|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|------------------------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---------------------- | - | -- | ---------------------------- |  | - | ------ | -
|                                                                                                 |  | PensionPlans |        |   | Pension PlanSupplement |   |    | Post-RetirementMedical Plans | 
|Three month period ended September 30, 2006                                                      |  |              |        |   |                        |   |    |                              |  |   |        |  
|Service cost                                                                                     |  | $            | 25     |   |                        |   |    |                              |  | $ | 35     |  
|Interest cost                                                                                    |  |              | 6,293  |   |                        | $ | 15 |                              |  |   | 109    |  
|Expected return on plan assets                                                                   |  |              | (7,342 | ) |                        |   |    |                              |  |   |        |  
|Amortization of prior service cost                                                               |  |              |        |   |                        |   |    |                              |  |   | (363   | )
|Recognized actuarial (gain) loss                                                                 |  |              | 427    |   |                        |   |    |                              |  |   | 80     |  
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                               |  |              | (597   | ) |                        |   | 15 |                              |  |   | (139   | )
|Settlements and curtailments                                                                     |  |              | 135    |   |                        |   |    |                              |  |   | (2,279 | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|Total benefit cost (credit)                                                                      |  | $            | (462   | ) |                        | $ | 15 |                              |  | $ | (2,418 | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|                                                                                                 |  |              |       
|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    |  
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                               |  |              | 2,371  |   |                        |   | 19 |                              |  |   | (150   | )
|Settlements and curtailments                                                                     |  |              | (1,250 | ) |                        |   |    |                              |  |   | (2,169 | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|Total benefit cost (credit)                                                                      |  | $            | 1,121  |   |                        | $ | 19 |                              |  | $ | (2,319 | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|The total 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    | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  
|                                                                                                 |  | $            | 1,121  |   |                        | $ | 19 |                              |  | $ | (2,319 | )
|                                                                                                 |  |              |        |   |                        |   |    |                              |  |   |        |  



23



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)





|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|------------------------------------------------------------------------------------------------ |  | ------------ | ------- | - | ---------------------- | - | -- | ---------------------------- |  | - | ------ | -
|                                                                                                 |  | PensionPlans |         |   | Pension PlanSupplement |   |    | Post-RetirementMedical Plans | 
|Nine month period ended September 30, 2006                                                       |  |              |         |   |                        |   |    |                              |  |   |        |  
|Service cost                                                                                     |  | $            | 1,575   |   |                        |   |    |                              |  | $ | 99     |  
|Interest cost                                                                                    |  |              | 18,408  |   |                        | $ | 47 |                              |  |   | 307    |  
|Expected return on plan assets                                                                   |  |              | (21,537 | ) |                        |   |    |                              |  |   |        |  
|Amortization of prior service cost                                                               |  |              |         |   |                        |   |    |                              |  |   | (1,019 | )
|Recognized actuarial (gain) loss                                                                 |  |              | 1,341   |   |                        |   |    |                              |  |   | 240    |  
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                               |  |              | (213    | ) |                        |   | 47 |                              |  |   | (373   | )
|Settlements and curtailments                                                                     |  |              | 1,045   |   |                        |   | (7 | )                            |  |   | (6,332 | )
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|Total benefit cost (credit)                                                                      |  | $            | 832     |   |                        | $ | 40 |                              |  | $ | (6,705 | )
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|                                                                                                 |  |              |        
|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    |  
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|Net periodic benefit cost (credit)                                                               |  |              | 7,378   |   |                        |   | 57 |                              |  |   | (444   | )
|Settlements and curtailments                                                                     |  |              | 2,710   |   |                        |   |    |                              |  |   | (6,184 | )
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|Total benefit cost (credit)                                                                      |  | $            | 10,088  |   |                        | $ | 57 |                              |  | $ | (6,628 | )
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|The total 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    |  
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  
|                                                                                                 |  | $            | 10,088  |   |                        | $ | 57 |                              |  | $ | (6,628 | )
|                                                                                                 |  |              |         |   |                        |   |    |                              |  |   |        |  

LFNY Defined Benefit Pension Plan and Post-Retirement Medical Plan Settlement
TransactionsDuring the three month and nine month periods ended September 30, 2006, the Company recognized a settlement loss of $135 and $1,038, respectively, which represents the pro-rata share of actuarial losses attributable
to settlements with pension plan participants who elected lump sum payments upon their retirement or discontinuation of service to the Company. Additionally, during the nine month period ended September 30, 2006, the Company recognized a settlement
loss of $303 (all of which occurred in the second quarter of 2006) as a result of the settlement of post-retirement medical plan obligations associated with employees in the separated businesses.

As a result of the separation and in accordance with SFAS No. 88, Employers Accounting for Settlement andCurtailments of Defined
Benefit Pension Plans and for Termination Benefits, the Company recorded a charge of $3,255 (comprised of $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 loss from
discontinued operations and $835 is included in compensation and benefits expense on the unaudited condensed consolidated statements of income. 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 loss from discontinued operation.



24



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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, the Company is recognizing the effect of such termination as a reduction of employee compensation and benefits expense over the period ending February 2007. For the three
month and nine month periods ended September 30, 2006 and for the three month and nine month periods ended September 30, 2005, compensation and benefits expense was reduced by $2,279, $6,635, $2,169 and $6,729, respectively, related to the effect of
such termination.

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

Employer Contributions and Indemnities from LFCM HoldingsAs of December 31, 2005, Lazard Groups principal U.K.
pension plans had a combined deficit of approximately $46,800 (or approximately 27.2 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 such pension 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. In addition, the
pensions regulator in the U.K. may have the power to require contributions to be made to plans, and to impose support in respect of the funding of plans by related companies other than the direct obligors. As part of the separation, the Company made
a contribution to LFCM Holdings of $55,000 in connection with the provision by LFCM Holdings of support relating to U.K. pension liabilities and other indemnities.

During the year ended December 31, 2005 and during the second quarter of 2006, contributions of approximately $29,800 and $30,500, respectively (equaling 16.4 million British pounds for both periods) were made to the
Companys defined benefit pension plans in the U.K, of which 15.0 million British pounds were reimbursed by LFCM Holdings for each period (see Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements). The Company is obligated
to make further payments amounting to 8.2 million British pounds on both June 1, 2007 and June 1, 2008.



|10. | INCOME TAXES
|--- | ------------

The provision for income taxes
for the three month and nine month periods ended September 30, 2006 and for the three month and nine month periods ended September 30, 2005 was $8,081, $36,727, $14,748 and $45,781, respectively, representing effective tax rates on operating income
from continuing operations of 16.4%, 17.3%, 19.0% and 17.2%, respectively. The difference between the U.S. federal statutory tax rate of 35% and the effective tax rates described above is due to Lazard Group historically operating in the U.S. as a
limited liability company that is 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 represent obligations of
the individual partners. Outside the U.S., Lazard Group has operated principally through subsidiary corporations that are subject to local income taxes. Additionally, Lazard Group is subject to New York City Unincorporated Business Tax attributable
to Lazard Groups operations apportioned to New York City which are incremental to the U.S. federal statutory tax rate. Lazard Groups provision for income taxes is accounted for under the provisions of SFAS No. 109Accounting for
Income Taxes.



25



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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.

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

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



|11. | RELATED PARTIES
|--- | ---------------

Amounts receivable from and
payable to related parties as of September 30, 2006 and December 31, 2005 are set forth below:



|                        |  |                   |        |                  |   |       
|----------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                        |  | September 30,2006 |        | December 31,2005
|Receivables             |  |                   |        |                  |   |       
|LFCM Holdings           |  | $                 | 16,993 |                  | $ | 53,787
|LAZ-MD Holdings         |  |                   |        |                  |   | 145   
|Lazard Ltd Subsidiaries |  |                   | 67     |                  |   | 617   
|                        |  |                   |        |                  |   |       
|Total                   |  | $                 | 17,060 |                  | $ | 54,549
|                        |  |                   |        |                  |   |       
|Payables                |  |                   |        |                  |   |       
|LFCM Holdings           |  | $                 | 745    |                  | $ | 1,234 
|Lazard Ltd Subsidiaries |  |                   | 3,697  |                  |   | 8,280 
|                        |  |                   |        |                  |   |       
|Total                   |  | $                 | 4,442  |                  | $ | 9,514 
|                        |  |                   |        |                  |   |       

LFCM Holdings

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

Under the employee benefits agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group, 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. The Company retained all accrued liabilities under, and assets of, the pension plans in the U.S. and
the U.K. as well as the 401(k) Plan accounts of the inactive employees of



26



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



LFCM Holdings and its subsidiaries. See Note 9 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.

The
services provided by Lazard Group to LFCM Holdings and by LFCM Holdings to Lazard Group under the administrative services agreement generally will be provided until December 31, 2008. LFCM Holdings and Lazard Group have a right to terminate the
services earlier if there is a change of control of either party or 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 Group, will introduce execution and settlement transactions to newly-formed broker-dealer
entities affiliated with LFCM Holdings. The term of the business alliance will expire on the fifth anniversary of the equity public offering, subject to periodic automatic renewal, unless either party elects to terminate in connection with any such
renewal or elects to terminate on account of a change of control of either party.

For the three month and nine month periods ended
September 30, 2006, amounts recorded by Lazard Group relating to administrative and support services amounted to $1,940 and $3,997, respectively, and referral fees for underwriting transactions amounted to $1,044 and $3,297, respectively. For the
three month period ended September 30, 2005, amounts recorded by Lazard Group relating to administrative and support services and referral fees for underwriting transactions amounted to $1,761 and $1,630, respectively, and 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. Such amounts are reported as
reductions to operating expenses and as underwriting revenue, respectively.

Receivables from LFCM Holdings and its subsidiaries as of
September 30, 2006 and December 31, 2005 include $13,741 and $17,031, respectively, related to the lease indemnity agreement, and $26,800 as of December 31, 2005 related to the U.K. pension indemnity. During the second quarter of 2006, the Company
received $26,800 from LFCM for the settlement of the U.K. pension indemnity. The remaining receivables of $3,252 and $9,956 at September 30, 2006 and December 31, 2005, respectively, relate primarily to administrative and support services and
reimbursement of expenses paid on behalf of LFCM Holdings ($1,600 and $2,615 as of September 30, 2006 and December 31, 2005, respectively) and referral fees for underwriting transactions ($1,403 and $6,307 as of September 30, 2006 and December
31, 2005, respectively).



27



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



LAZ-MD Holdings

As of September 30, 2006, LAZ-MD Holdings holds an approximate 62.3% common membership interest in Lazard Group and Lazard Ltd holds the remaining 37.7%
common membership interest. Additionally, LAZ-MD Holdings is the sole owner of the one issued and outstanding share of Class B common stock (the Class B common stock) of Lazard Ltd. As of September 30, 2006, the Lazard Ltd Class B common
stock provides LAZ-MD Holdings with approximately 62.3% of the voting power but no economic rights in Lazard Ltd. Subject to certain limitations, LAZ-MD Holdings exchangeable interests are exchangeable for Lazard Ltd Class A common stock. However,
the Lazard Ltd Class B common stock will represent no less than 50.1% of the voting power until December 31, 2007.

Lazard Group provides
selected administrative and support services to LAZ-MD Holdings through the administrative services agreement as discussed above. Lazard Group charges LAZ-MD Holdings for these services based on Lazard Groups cost allocation methodology and,
for the three month and nine month periods ended September 30, 2006, such charges amounted to $50 and $150, respectively. For the period May 10, 2005 through September 30, 2005, Lazard Groups charges to LAZ-MD Holdings for such services were
not material.

Lazard Ltd Subsidiaries

As of September 30, 2006 and December 31, 2005, Lazard Groups receivables from Lazard Ltd subsidiaries primarily relate to amounts paid by Lazard Group on behalf of such wholly-owned subsidiaries of Lazard Ltd.

As of September 30, 2006 and December 31, 2005, Lazard Groups payables to Lazard Ltd subsidiaries primarily relate to the liability
for the quarterly contract adjustment payments on the purchase contracts associated with the ESUs (see Note 2 of Notes to Consolidated Financial Statements) of $3,638 and $5,647, respectively, and, as of December 31, 2005, a $2,000 interest-bearing
loan payable to a wholly-owned subsidiary of Lazard Ltd, plus accrued interest thereon. The $2,000 interest-bearing loan payable to a wholly-owned subsidiary of Lazard Ltd was repaid during the third quarter of 2006. For the three month and nine
month periods ended September 30, 2006, interest expense relating to Lazard Groups payable to Lazard Ltd subsidiaries amounted to $94 and $295, respectively.



|12. | 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). Under the basic method permitted by this rule, the minimum required net
capital, as defined, is a specified fixed percentage of total aggregate indebtedness recorded on LFNYs statement of financial condition, or $5, whichever is greater. At September 30, 2006, LFNYs regulatory net capital was $42,380, which
exceeded the minimum requirement by $37,138.

Certain U.K. subsidiaries of the Company, including LCL, Lazard Fund Managers Limited and
Lazard Asset Management Limited (the U.K. Subsidiaries) are regulated by the Financial Services Authority (the FSA). The Company presently estimates that at September 30, 2006, the aggregate regulatory net capital of the U.K.
Subsidiaries was $164,896, which exceeded the minimum requirement by $99,885.

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



28



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



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, 2006, the consolidated
regulatory net capital of LF was $159,722, which exceeded the minimum requirement set for regulatory capital levels by $67,082.

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, 2006, for those subsidiaries with
regulatory capital requirements, their aggregate net capital was $40,587, which exceeded the minimum required capital by $29,252.

During
the nine month period ended September 30, 2006, each of these subsidiaries individually was in compliance with its regulatory capital requirements.



|13. | SEGMENT OPERATING RESULTS
|--- | -------------------------

The
Companys reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments transactions. Each segment is reviewed to determine
the allocation of resources and to assess its performance. Prior to May 10, 2005, the Company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 as discussed in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements. Consequently, subsequent to May 10, 2005, the Company has two
segments: Financial Advisory which includes providing advice on mergers and acquisitions, restructurings, capital raising and similar transactions, 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, the Company records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the commercial banking activities of LFB. The Company 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.

The Companys segment information for the three month and nine month periods ended September 30, 2006 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company allocates 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) compensation and benefits expenses, including amounts for certain senior advisors 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:



|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|------------------ |  | ----------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | ------- | -
|                   |  |                         |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                   |  |                         |  | 2006                             |         |   | 2005                            |   |         | 2006 |  |   | 2005      |  
|Financial Advisory |  | Net Revenue             |  | $                                | 187,050 |   |                                 | $ | 257,785 |      |  | $ | 671,245   |   |  | $ | 626,610 |  
|                   |  | Operating Expenses      |  |                                  | 142,696 |   |                                 |   | 174,754 |      |  |   | 498,619   |   |  |   | 412,639 |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  | Operating Income        |  | $                                | 44,354  |   |                                 | $ | 83,031  |      |  | $ | 172,626   |   |  | $ | 213,971 |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  |                         |  |                                  |        
|Asset Management   |  | Net Revenue             |  | $                                | 125,388 |   |                                 | $ | 110,994 |      |  | $ | 376,792   |   |  | $ | 326,695 |  
|                   |  | Operating Expenses      |  |                                  | 103,080 |   |                                 |   | 90,935  |      |  |   | 294,512   |   |  |   | 244,970 |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  | Operating Income        |  | $                                | 22,308  |   |                                 | $ | 20,059  |      |  | $ | 82,280    |   |  | $ | 81,725  |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  |                         |  |                                  |        
|Corporate          |  | Net Revenue             |  | $                                | (15,052 | ) |                                 | $ | (11,878 | )    |  | $ | (27,612   | ) |  | $ | (18,942 | )
|                   |  | Operating Expenses      |  |                                  | 2,380   |   |                                 |   | 13,437  |      |  |   | 14,772    |   |  |   | 10,899  |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  | Operating Income (Loss) |  | $                                | (17,432 | ) |                                 | $ | (25,315 | )    |  | $ | (42,384   | ) |  | $ | (29,841 | )
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  |                         |  |                                  |        
|Total              |  | Net Revenue             |  | $                                | 297,386 |   |                                 | $ | 356,901 |      |  | $ | 1,020,425 |   |  | $ | 934,363 |  
|                   |  | Operating Expenses      |  |                                  | 248,156 |   |                                 |   | 279,126 |      |  |   | 807,903   |   |  |   | 668,508 |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|                   |  | Operating Income        |  | $                                | 49,230  |   |                                 | $ | 77,775  |      |  | $ | 212,522   |   |  | $ | 265,855 |  
|                   |  |                         |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  

|                   |  |   |           |                    |   |                   |  | 
|------------------ |  | - | --------- | ------------------ | - | ----------------- |  | 
|                   |  |  
|                   |  |   |           | As of             
|                   |  |   |           | September 30, 2006 |   | December 31, 2005
|Total Assets:      |  |   |           |                    |   |                   |  | 
|Financial Advisory |  | $ | 363,767   |                    | $ | 336,576          
|Asset Management   |  |   | 331,358   |                    |   | 308,054          
|Corporate          |  |   | 1,314,591 |                    |   | 1,262,503        
|                   |  |   |           |                    |   |                   |  | 
|Total              |  | $ | 2,009,716 |                    | $ | 1,907,133        
|                   |  |   |           |                    |   |                   |  | 



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##### Table of Contents

LAZARD GROUP LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in
thousands, unless otherwise noted)



14.     DISCONTINUED OPERATIONS

Loss from discontinued operations for the three month and nine month periods ended September 30, 2005 was comprised of the following:



|                                               |  |                                       |        |   |                                     |   |         |  
|---------------------------------------------- |  | ------------------------------------- | ------ | - | ----------------------------------- | - | ------- | -
|                                               |  | Three Months Ended September 30, 2005 |        |   | Nine Months EndedSeptember 30, 2005 |  
|                                               |  |                                      
|Net revenue                                    |  | $                                     | (1,079 | ) |                                     | $ | 39,599  |  
|                                               |  |                                       |        |   |                                     |   |         |  
|Pre-tax loss                                   |  | $                                     | (155   | ) |                                     | $ | (14,246 | )
|Provision for income taxes                     |  |                                       | 253    |   |                                     |   | 3,330   |  
|                                               |  |                                       |        |   |                                     |   |         |  
|Loss from discontinued operations (net of tax) |  | $                                     | (408   | ) |                                     | $ | (17,576 | )
|                                               |  |                                       |        |   |                                     |   |         |  



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##### Table of Contents

Item 1A.   Pro Forma Financial Information (Unaudited)

|                                                                                                                  |  |     
|----------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                  |  | Page
|Unaudited Pro Forma Condensed Consolidated Statement of Income For The Nine Month Period Ended September 30, 2005 |  | 33  

As described below and elsewhere in this quarterly report on Form 10-Q, the historical results of
operations for periods prior to May 10, 2005, the date of the equity public offering, are not comparable to results of operations for subsequent periods. Accordingly, for periods prior to May 10, 2005, Lazard believes that pro forma results provide
the most meaningful basis for comparison of historical periods.

The following unaudited pro forma condensed consolidated statement of
income for the nine month period ended September 30, 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, 2005. 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. The adjustments are described in the notes to the unaudited pro forma condensed
consolidated statement 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 has 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, Lazard Groups operating income
prior to May 10, 2005 included within the accompanying unaudited condensed consolidated financial statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public
offering, as described in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, Lazard now includes all payments for services rendered by its managing directors and distributions to profit participation members 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 the Company should be read together with the accompanying Managements Discussion and
Analysis of Financial Condition and Results of Operations and Lazards historical unaudited condensed consolidated financial statements and the related notes included elsewhere herein.

The unaudited pro forma condensed consolidated financial information is included for informational purposes only and does not purport to reflect the
results of operations of Lazard Group that would have occurred had it operated as a separate, independent company during the period presented. Actual results might have differed from pro forma results if Lazard Group had operated independently. The
unaudited pro forma condensed consolidated financial information should not be relied upon as being indicative of Lazard Groups 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, 2005. The unaudited pro forma condensed consolidated financial information also does not project the results of operations for any future
period or date.



32



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LAZARD GROUP LLC

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME



|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | ---- | -------------------- | - | ------- | ----- |  | - | ------------------------------------------------ | - |  | --------------------------------- | ------- | ---- |  | - | ------- | -
|                                                                                                      |  | Nine Month Period Ended September 30, 2005 |        
|                                                                                                      |  | Historical                                 |         |      | Pro FormaAdjustments |   |         | Total |  |   | Pro FormaAdjustmentsFor TheFinancingTransactions |   |  | Lazard GroupPro Forma,as Adjusted |        
|                                                                                                      |  | ($ in thousands)                           |        
|Total revenues                                                                                        |  | $                                          | 987,904 |      |                      |   |         |       |  | $ | 987,904                                          |   |  |                                   |         |      |  | $ | 987,904 |  
|Interest expense                                                                                      |  |                                            | (53,541 | )(a) |                      | $ | 1,661   | (b)   |  |   | (51,880                                          | ) |  | $                                 | (22,626 | )(e) |  |   | (74,506 | )
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|Net revenues                                                                                          |  |                                            | 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 |      |                      |   | 75,476  | (c)   |  |   | 557,704                                          |   |  |                                   |         |      |  |   | 557,704 |  
|Premises and occupancy costs                                                                          |  |                                            | 50,505  |      |                      |   |         |       |  |   | 50,505                                           |   |  |                                   |         |      |  |   | 50,505  |  
|Professional fees                                                                                     |  |                                            | 35,844  |      |                      |   | (2,935  | )(b)  |  |   | 32,909                                           |   |  |                                   |         |      |  |   | 32,909  |  
|Travel and entertainment                                                                              |  |                                            | 30,767  |      |                      |   |         |       |  |   | 30,767                                           |   |  |                                   |         |      |  |   | 30,767  |  
|Other                                                                                                 |  |                                            | 69,164  |      |                      |   |         |       |  |   | 69,164                                           |   |  |                                   |         |      |  |   | 69,164  |  
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|Operating expenses                                                                                    |  |                                            | 668,508 |      |                      |   | 72,541  |       |  |   | 741,049                                          |   |  |                                   |         |      |  |   | 741,049 |  
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|Operating income from continuing operations                                                           |  |                                            | 265,855 |      |                      |   | (70,880 | )     |  |   | 194,975                                          |   |  |                                   | (22,626 | )    |  |   | 172,349 |  
|Provision (benefit) for income taxes                                                                  |  |                                            | 45,781  |      |                      |   | 463     | (d)   |  |   | 46,244                                           |   |  |                                   | (8,515  | )(f) |  |   | 37,729  |  
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|Income from continuing operations before minority interest in net income                              |  |                                            | 220,074 |      |                      |   | (71,343 | )     |  |   | 148,731                                          |   |  |                                   | (14,111 | )    |  |   | 134,620 |  
|Minority interest in net income                                                                       |  |                                            | 18,521  |      |                      |   | (9,081  | )(c)  |  |   | 9,440                                            |   |  |                                   |         |      |  |   | 9,440   |  
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  
|Income from continuing operations                                                                     |  | $                                          | 201,553 |      |                      | $ | (62,262 | )     |  | $ | 139,291                                          |   |  | $                                 | (14,111 | )    |  | $ | 125,180 |  
|                                                                                                      |  |                                            |         |      |                      |   |         |       |  |   |                                                  |   |  |                                   |         |      |  |   |         |  

See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income



33



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##### Table of Contents

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



|(a) | Interest expense includes a credit of $8,000 which represents accrued dividends relating to Lazard Groups mandatorily redeemable preferred stock which were cancelled in
connection with the redemption of membership interests of historical partners.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 in net income in the case of payments to LAM managing directors and certain key LAM employee members through May 9, 2005, rather than as compensation and benefits expense. As a result, the Companys compensation and benefits
expense and income from continuing operations did not reflect most payments for services rendered by Lazard Groups managing directors. 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 prior to May 10, 2005. Accordingly, the unaudited pro forma condensed consolidated statement of income data reflects 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. Lazard defines operating revenue for these purposes as consolidated total gross revenue less
interest expense related to LFB, our Paris-based banking affiliate, and certain revenue related to the consolidation of LAM general partnerships, with such operating revenue being $969,918.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The overall net adjustment to increase historical compensation and benefits expense is $75,476. The net adjustments are the result of aggregating the distributions representing
payments for services rendered by managing directors and employee members of LAM prior to May 10, 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Represents a net tax expense of $463 which reflects the application of the historical effective Lazard Group income tax rates against the applicable pro forma adjustments, and a
$295 tax benefit reclassified from LAM minority interest.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



34



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##### Table of Contents

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

The following discussion should be read in conjunction with Lazard Group unaudited condensed consolidated financial statements and the related notes
included elsewhere in this Form 10-Q.

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

Management has included in Parts I and II of this Quarterly Report on Form 10-Q, including in its Managements Discussion and Analysis of Financial
Condition and Results of Operations (the MD&A), 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 our Annual Report on Form 10-K for the
year ended December 31, 2005 (the Form 10-K) 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.
| | - |  | ---------------------

The Company operates 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 management assess the impact of all factors on our 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, management cannot guarantee future results, level of activity, performance or achievements. Moreover, neither
management 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. The Company is 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 the:



| |  |  | 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 our businesses,
| | - |  | -----------------------------------------------------------



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



35



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##### Table of Contents

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



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



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



| |  |  | 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,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effects on our businesses resulting from the separation and recapitalization transactions, including the equity public offering and the financing transactions,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effects of competition on our businesses, and
| | - |  | ---------------------------------------------



| |  |  | impact of future legislation and regulation on our businesses.
| | - |  | --------------------------------------------------------------

Lazard Group is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information
about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information and the posting of updates of assets under management (AUM) 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) by 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 MD&A and the historical consolidated financial data of Lazard Group, reflects the historical results of operations and financial position of Lazard Group and includes the
separated businesses in discontinued operations. In addition to other adjustments, the pro forma financial data included in this Form 10-Q reflects financial data of Lazard Group 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.

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.

Business Summary

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



| |  |  | Financial Advisory, which includes providing advice on mergers and acquisitions (M&A), restructurings, capital raising and similar transactions, and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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



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In addition, the Company records selected other activities in Corporate, including cash, certain
long-term investments and the commercial banking activities of Lazard Groups Paris-based Lazard Frères Banque SA (LFB). LFB is a registered bank regulated by the Banque de France. LFBs primary commercial banking
operations include the management of the treasury positions of the Company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. The Company 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, the Company 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. The Company transferred its Capital Markets and Other segment to LFCM Holdings on May 10, 2005 and it is no longer a segment of the Company. The operating
results of the former segment are reflected as discontinued operations.

For the three month and nine month periods ended September 30,
2006 and 2005, the Companys consolidated net revenue was derived from the following business segments:



|                   |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|------------------ |  | -------------------------------- | - |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|                   |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|                   |  | 2006                             |   |  | 2005                            |   |  | 2006 |   |  | 2005 |  
|Financial Advisory |  | 63                               | % |  | 72                              | % |  | 66   | % |  | 67   | %
|Asset Management   |  | 42                               |   |  | 31                              |   |  | 37   |   |  | 35   |  
|Corporate          |  | (5                               | ) |  | (3                              | ) |  | (3   | ) |  | (2   | )
|                   |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Total              |  | 100                              | % |  | 100                             | % |  | 100  | % |  | 100  | %
|                   |  |                                  |   |  |                                 |   |  |      |   |  |      |  

Business Environment

Economic and market conditions, particularly global 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 its 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 Form 10-K. Net income and revenue 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.

Financial Advisory

Activity with respect to completed and announced M&A transactions for the industry in the
three month and nine month periods ended September 30, 2006 and 2005 are set forth below:



|                            |  |                                 |     |      |                                |                |     |    |      |   |       |  |                |  |    |  
|--------------------------- |  | ------------------------------- | --- | ---- | ------------------------------ | -------------- | --- | -- | ---- | - | ----- |  | -------------- |  | -- | -
|                            |  | Three Months EndedSeptember 30, |     |      | Nine Months EndedSeptember 30, |               
|                            |  | 2006                            |     | 2005 |                                | % Incr /(Decr) |     |    | 2006 |   | 2005  |  | % Incr /(Decr) | 
|                            |  | ($ in billions)                 |    
|Completed M&A Transactions: |  |                                 |     |      |                                |                |     |    |      |   |       |  |                |  |    |  
|Global                      |  | $                               | 559 |      | $707                           |                | (21 | )% |      | $ | 1,876 |  | $1,563         |  | 20 | %
|Trans-Atlantic              |  |                                 | 57  |      | 38                             |                | 50  | %  |      |   | 166   |  | 93             |  | 78 | %
|                            |  |                                 |     |      |                                |               
|Announced M&A Transactions: |  |                                 |     |      |                                |                |     |    |      |   |       |  |                |  |    |  
|Global                      |  |                                 | 686 |      | 616                            |                | 11  | %  |      |   | 2,471 |  | 1,968          |  | 26 | %
|Trans-Atlantic              |  |                                 | 50  |      | 61                             |                | (18 | )% |      |   | 205   |  | 115            |  | 78 | %

---

|Source: | Thomson Financial as of October 23, 2006
|------- | ----------------------------------------



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Lazard believes that its Financial Advisory business should continue to benefit from any sustained
increase in M&A volume.

Over the same time frame, financial restructuring activity declined sharply, with the amount of corporate debt
defaults, according to Moodys Investors Service, Inc, for the nine month periods ended September 30, 2006 and 2005 at $4 billion versus $17 billion, respectively. While the rate of global corporate debt defaults continues to be at near all
time low levels, we believe our financial restructuring business should benefit from any future increase in global restructuring activity.

Asset Management

For the nine month period ended September 30, 2006, activity in the global stock markets
strengthened in both the U.S. and European markets as evidenced by the indices shown on the table below.

Market performance over the
twelve month period from October 1, 2005 until September 30, 2006 was also strong across global stock markets, with European and world indices generally growing at a faster rate than U.S. indices.



|                             |  |                                         |   |  |                |  
|---------------------------- |  | --------------------------------------- | - |  | -------------- | -
|                             |  | Percentage ChangeSeptember 30, 2006 vs. |  
|                             |  | December 31,2005                        |   |  | October 1,2005 |  
|MSCI World Index             |  | 9                                       | % |  | 12             | %
|CAC 40                       |  | 11                                      | % |  | 14             | %
|DAX                          |  | 11                                      | % |  | 19             | %
|FTSE 100                     |  | 6                                       | % |  | 9              | %
|Dow Jones Industrial Average |  | 9                                       | % |  | 11             | %
|NASDAQ                       |  | 2                                       | % |  | 5              | %
|S&P 500                      |  | 7                                       | % |  | 9              | %

The changes in global market indices generally correspond to Lazards market-related changes
in its AUM.

Key Financial Measures and Indicators

Net Revenue

The majority of Lazards Financial Advisory net revenue is earned from the
successful completion of mergers, acquisitions, restructurings, capital raising and similar transactions. 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 focuses. 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s Financial Advisory segment
also earns revenue from public and private securities offerings, including in conjunction with activities of its former Capital Markets and Other segment. In general, fees in conjunction with activities of its former Capital Markets and Other
segment are shared equally. As a result of the consummation of the equity public offering, Lazard 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s Financial Advisory business in a manner similar to its practice prior to the equity public offering.

Lazard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 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



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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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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 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. Incentive fees earned for the years ended December 31, 2005, 2004, and 2003 of $45 million, $27 million
and $38 million, respectively, demonstrate the volatility incentive fees may have on total net revenue.

Corporate net revenue consists
primarily of investment income generated from long-term investments, including principal investments that Lazard 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 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 included in Corporate net revenue.
Corporate net revenue can fluctuate due to mark-to-market adjustments on long-term investments, changes in interest rates and in interest rate spreads earned by LFB and changes in the levels of Lazards cash, long-term investments and
indebtedness. In addition, during the nine month period ended September 30, 2006, Corporate net revenue includes a gain of approximately $14 million, excluding transaction and other costs, relating to the termination of the Intesa joint venture
(with such gain, after transaction and other costs, increasing operating income by approximately $5 million). Although Corporate net revenue during the nine month period ended September 30, 2006 represented (3)% of Lazards net revenue,
total assets in this segment represented 65% of Lazards consolidated total assets as of September 30, 2006, principally attributable to the relatively significant amounts of assets associated with LFB, and, to a lesser extent, cash 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, financial restructuring or capital raising activity, 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 are recorded in the fourth quarter of Lazards fiscal year.

Operating Expenses

The majority of Lazards operating expenses relate to compensation and benefits. As a limited liability company, prior to the consummation of the equity public offering on May 10, 2005 payments for services rendered by the
majority of Lazard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 in net income. See Minority Interest. Subsequent to the consummation of the equity public offering, Lazard 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. As a result, while Lazards compensation and benefits expense and operating income for the nine month period ended September 30,
2006 includes all such



39



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payments, compensation and benefits expense and operating income for the nine month period ended September 30, 2005 did not include those payments for
services rendered by Lazards managing directors prior to May 10, 2005.

The balance of Lazard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 includes the added costs Lazard incurred as a
result of the equity public offering after May 10, 2005. Lazard has incurred additional expenses for, among other things, directors fees, SEC reporting and compliance, insurance, investor relations, legal, accounting and other costs associated
with being a public company.

Provision for Income Taxes

Lazard 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 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 historically has operated principally through corporations
and has been subject to local 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.

Minority Interest

Minority interest consists of a number of components. As described
below, amounts recorded as minority interest for the three month and nine month periods ended September 30, 2006 are not comparable to amounts recorded as minority interest for the three month and nine month periods ended September 30, 2005.

The Company consolidates various LAM related general partnership interests that it controls but does not wholly own, and its business in
Italy which was 40% owned by Banca Intesa S.p.A (Intesa) until May 15, 2006.

As described in Note 5of Notes to
Unaudited Condensed Consolidated Financial Statements, on May 15, 2006 Lazard Group, Lazard & Co. S.r.l. (Lazard Italy), an indirect subsidiary of Lazard Group, and Intesa completed the termination of their joint venture relationship
in Italy. Accordingly, as a result of the termination, Lazard Group now owns 100% of Lazard Italy, and therefore minority interest excludes Intesas formerly owned interest in Lazard Italy.

As described in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, commencing May 10, 2005, the Company 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 expense and distributions to profit
participation members.

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



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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, this former segment generated investment income and net interest income principally from long-term
investments, cash balances and securities financing transactions.

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 in net income 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,
the Company 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.

Consolidated Results of Operations

Lazard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 condensed consolidated statements of income.

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.



41



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A discussion of the Companys consolidated results of operations for the three month and nine month
periods ended September 30, 2006 and 2005, is set forth below, followed by a more detailed discussion of business segment results.



|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- | ------------------------------ | ------- | ---- |  | ---- | --------- |  | - | ------- | -
|                                                                                                                                                                        |  | Three Months EndedSeptember 30, |         |      | Nine Months EndedSeptember 30, |        
|                                                                                                                                                                        |  | 2006                            |         | 2005 |                                |         | 2006 |  | 2005 |          
|                                                                                                                                                                        |  | ($ in thousands)                |        
|Revenue                                                                                                                                                                 |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Investment banking and other advisory fees                                                                                                                              |  | $                               | 183,318 |      | $                              | 251,663 |      |  | $    | 655,704   |  | $ | 615,361 |  
|Money management fees                                                                                                                                                   |  |                                 | 116,113 |      |                                | 101,282 |      |  |      | 346,584   |  |   | 302,507 |  
|Commissions                                                                                                                                                             |  |                                 | 3,195   |      |                                | 3,569   |      |  |      | 12,474    |  |   | 11,354  |  
|Underwriting                                                                                                                                                            |  |                                 | 2,487   |      |                                | 4,626   |      |  |      | 12,912    |  |   | 10,155  |  
|Investment gains and lossesnet                                                                                                                                         |  |                                 | 4,448   |      |                                | 4,944   |      |  |      | 13,673    |  |   | 8,446   |  
|Interest income                                                                                                                                                         |  |                                 | 11,661  |      |                                | 10,209  |      |  |      | 29,433    |  |   | 24,259  |  
|Other                                                                                                                                                                   |  |                                 | 2,707   |      |                                | 5,206   |      |  |      | 26,632    |  |   | 15,822  |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Total revenue                                                                                                                                                           |  |                                 | 323,929 |      |                                | 381,499 |      |  |      | 1,097,412 |  |   | 987,904 |  
|Interest expense                                                                                                                                                        |  |                                 | 26,543  |      |                                | 24,598  |      |  |      | 76,987    |  |   | 53,541  |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Net revenue                                                                                                                                                             |  |                                 | 297,386 |      |                                | 356,901 |      |  |      | 1,020,425 |  |   | 934,363 |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Operating Expenses                                                                                                                                                      |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Compensation and benefits (and, commencing May 10, 2005, distributions to profit participation members)(*)                                                              |  |                                 | 180,979 |      |                                | 215,199 |      |  |      | 615,261   |  |   | 482,228 |  
|Non-compensation expense                                                                                                                                                |  |                                 | 67,177  |      |                                | 63,927  |      |  |      | 192,642   |  |   | 186,280 |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Total operating expenses                                                                                                                                                |  |                                 | 248,156 |      |                                | 279,126 |      |  |      | 807,903   |  |   | 668,508 |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Operating Income from Continuing Operations(*)                                                                                                                          |  |                                 | 49,230  |      |                                | 77,775  |      |  |      | 212,522   |  |   | 265,855 |  
|Provision for income taxes                                                                                                                                              |  |                                 | 8,081   |      |                                | 14,748  |      |  |      | 36,727    |  |   | 45,781  |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Income from Continuing Operations Before Minority Interest inNet Income(*)                                                                                              |  |                                 | 41,149  |      |                                | 63,027  |      |  |      | 175,795   |  |   | 220,074 |  
|Minority interest in net income                                                                                                                                         |  |                                 | 603     |      |                                | 4,729   |      |  |      | 3,144     |  |   | 18,521  |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Income from Continuing Operations(*)                                                                                                                                    |  |                                 | 40,546  |      |                                | 58,298  |      |  |      | 172,651   |  |   | 201,553 |  
|Loss from Discontinued Operations(*) (net of income tax provision of $253 and $3,330 for the three month and nine month
periods ended September 30, 2005, respectively) |  |                                 |         |      |                                | (408    | )    |  |      |           |  |   | (17,576 | )
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  
|Net Income Allocable to Members(*)                                                                                                                                      |  | $                               | 40,546  |      | $                              | 57,890  |      |  | $    | 172,651   |  | $ | 183,977 |  
|                                                                                                                                                                        |  |                                 |         |      |                                |         |      |  |      |           |  |   |         |  

---

|(*) | Excludes, as applicable, with respect to the periods prior to May 10, 2005 (a) 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company calculates operating revenue for the three month and nine month periods ended September 30, 2006 and 2005 as follows:



|                                                             |  |                                  |   |  |                                |   |  |            |   |  |          |  
|------------------------------------------------------------ |  | -------------------------------- | - |  | ------------------------------ | - |  | ---------- | - |  | -------- | -
|                                                             |  | Three Months Ended September 30, |   |  | Nine Months EndedSeptember 30, |  
|                                                             |  | 2006                             |   |  | 2005                           |   |  | 2006       |   |  | 2005     |  
|                                                             |  | ($ in thousands)                 |  
|Historical total revenue                                     |  | $323,929                         |   |  | $381,499                       |   |  | $1,097,412 |   |  | $987,904 |  
|Deduct:                                                      |  |                                  |   |  |                                |   |  |            |   |  |          |  
|LFB interest expense                                         |  | (5,817                           | ) |  | (4,489                         | ) |  | (14,866    | ) |  | (15,234  | )
|Revenue related to consolidation of LAM general partnerships |  | (600                             | ) |  | (2,752                         | ) |  | (3,137     | ) |  | (2,752   | )
|                                                             |  |                                  |   |  |                                |   |  |            |   |  |          |  
|Operating revenue                                            |  | $317,512                         |   |  | $374,258                       |   |  | $1,079,409 |   |  | $969,918 |  
|                                                             |  |                                  |   |  |                                |   |  |            |   |  |          |  



42



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Certain ratios and headcount information for the three month and nine month periods ended September 30,
2006 and 2005 are set forth below:



|                                            |  |                                  |   |  |                                |   |  |      |   |  |      |  
|------------------------------------------- |  | -------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|                                            |  | Three Months Ended September 30, |   |  | Nine Months EndedSeptember 30, |  
|                                            |  | 2006                             |   |  | 2005                           |   |  | 2006 |   |  | 2005 |  
|As a % of Net Revenue, By Revenue Category: |  |                                  |   |  |                                |   |  |      |   |  |      |  
|Investment banking and other advisory fees  |  | 62                               | % |  | 71                             | % |  | 64   | % |  | 66   | %
|Money management fees                       |  | 39                               |   |  | 28                             |   |  | 34   |   |  | 32   |  
|Commissions                                 |  | 1                                |   |  | 1                              |   |  | 1    |   |  | 1    |  
|Underwriting                                |  | 1                                |   |  | 1                              |   |  | 1    |   |  | 1    |  
|Investment gains and lossesnet             |  | 1                                |   |  | 1                              |   |  | 1    |   |  | 1    |  
|Interest income                             |  | 4                                |   |  | 3                              |   |  | 3    |   |  | 3    |  
|Other                                       |  | 1                                |   |  | 2                              |   |  | 3    |   |  | 2    |  
|Interest expense                            |  | (9                               | ) |  | (7                             | ) |  | (7   | ) |  | (6   | )
|                                            |  |                                  |   |  |                                |   |  |      |   |  |      |  
|Net revenue                                 |  | 100                              | % |  | 100                            | % |  | 100  | % |  | 100  | %
|                                            |  |                                  |   |  |                                |   |  |      |   |  |      |  
|As a % of Net Revenue:                      |  |                                  |   |  |                                |   |  |      |   |  |      |  
|Operating Income                            |  | 17                               | % |  | 22                             | % |  | 21   | % |  | 28   | %
|                                            |  |                                  |   |  |                                |   |  |      |   |  |      |  



|                                          |  |                     |  |      
|----------------------------------------- |  | ------------------- |  | -----
|                                          | 
|                                          |  | As of September 30,
|                                          |  | 2006                |  | 2005 
|                                          |  |                    
|Headcount:                                |  |                     |  |      
|Managing Directors:                       |  |                     |  |      
|Financial Advisory                        |  | 125                 |  | 123  
|Asset Management                          |  | 43                  |  | 38   
|Corporate                                 |  | 8                   |  | 8    
|Limited Managing Directors                |  | 5                   |  | 16   
|Other Employees:                          |  |                     |  |      
|Business segment professionals            |  | 794                 |  | 769  
|All other professionals and support staff |  | 1,197               |  | 1,244
|                                          |  |                     |  |      
|Total                                     |  | 2,172               |  | 2,198
|                                          |  |                     |  |      

Revenue and Operating Expenses

Three Months Ended September 30, 2006 versus September 30, 2005

Net revenue was $297 million for the three month period ended September 30, 2006, a decrease of $60 million, or 17%, versus net revenue of $357 million in the corresponding period in 2005. During the 2006 period, fees
from investment banking and other advisory activities were $183 million, a decrease of $69 million or 27% versus fees of $252 million in the corresponding period in 2005. The decrease is due primarily to three factors: the number of M&A
transactions closing in the third quarter of 2006; the relatively high number of transactions closing in the second quarter of 2006; and comparison with the unusually high 2005 third-quarter revenue, due particularly to our Financial Restructuring
and Private Fund Advisory Group activities. Money management fees were $116 million, an increase of $15 million, or 15%, versus $101 million in the corresponding period in 2005. The increase in money management fees was principally the result of a
$11.8 billion, or 14% increase in average AUM for the three month period ended September 30, 2006 as compared to the three month period ended September 30, 2005, and, to a lesser extent, an increase in incentive fees recorded in the 2006 period.
Underwriting revenue, including referral fees from LFCM, of $2.5 million decreased by $2.1 million, or 46%, versus $4.6 million in the corresponding period in 2005 due to lower underwriting activity in the 2006 period. Other revenue of $2.7 million
decreased by $2.5 million, or 48%, versus $5.2 million in the corresponding period



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in 2005 principally due to foreign exchange losses resulting from the revaluation of certain assets and liabilities. Interest expense of $27 million
increased by $2 million primarily from the commercial banking activities in LFB.

Compensation and benefits expense was $181 million for
the three month period ended September 30, 2006, a decrease of $34 million, or 16%, versus expense of $215 million in the corresponding period in 2005. The decrease was primarily due to lower accruals for performance-based bonus awards consistent
with the decrease in operating revenues. Headcount (including managing directors and all other employees) as of September 30, 2006 was 2,172, down 26 versus headcount as of September 30, 2005, representing reductions principally in support
personnel, partially offset by increases in Asset Management headcount as a result of hirings in selected areas.

Non-compensation expense
was $67 million or 21% of operating revenue of $318 million in the three month period ended September 30, 2006, compared with $64 million or 17% of operating revenue of $374 million for the corresponding period in 2005. The increase in the ratio
reflects reduced operating revenues and an $8 million increase in professional fees versus the comparable period in 2005, partially offset by a decrease in all other non-compensation expenses by an aggregate of $5 million versus the 2005 period. The
increase in professional fees was principally due to higher legal fees, fees for outsourced services, as well as consulting fees related to the Companys activities to comply with the Sarbanes-Oxley Act of 2002. The decrease in all other
non-compensation expenses was principally due to declines in unrecovered VAT expense, and various other miscellaneous expenses.

Operating
income, was $49 million for the three month period ended September 30, 2006, a decrease of $29 million, or 37% lower than operating income of $78 million for the corresponding period in 2005. Operating income as a percentage of net revenue was
17% for the third quarter of 2006 versus 22% for the corresponding period in 2005, with the decrease in operating income and the relative margin primarily resulting from the decrease in revenue. Our quarterly revenue and profits can fluctuate
materially depending on the number, size and timing of completed transactions on which we advise, as well as seasonality and other factors.

Revenue and
Operating Expenses

Nine Months Ended September 30, 2006 versus September 30, 2005

Net revenue was $1,020 million for the nine month period ended September 30, 2006, up $86 million, or 9%, versus net revenue of $934 million in the
corresponding period in 2005. During the 2006 period, fees from investment banking and other advisory activities were $656 million, an increase of $40 million, or 7%, versus fees of $615 million in the corresponding period in 2005, a result of
strong M&A performance in the first half of 2006. Money management fees were $347 million, an increase of $44 million, or 15%, versus $303 million in the corresponding period in 2005. The increase in money management fees was principally the
result of a $8.6 billion, or 10%, increase in average AUM for the nine month period ended September 30, 2006 as compared to the nine month period ended September 30, 2005, as well as an increase in incentive fees recorded in the 2006 period.
Underwriting, including referred fees from LFCM, of $13 million increased by $3 million or 27% versus the corresponding period in 2005 principally due to an increase in underwriting activity in the 2006 period. Net investment gains of $14 million
increased by $5 million, or 62%, primarily related to higher dividend income in the 2006 period as well as certain losses incurred in the 2005 period which did not recur in 2006. Interest Income of $29 million increased $5 million, or 21%,
principally due to average higher cash balances throughout the 2006 period. Other revenue of $27 million increased by $11 million, or 68%, versus the corresponding period in 2005 principally due to the impact of a gain of approximately $14 million
(excluding transaction and other costs) recognized on the termination of the Intesa joint venture (see Liquidity and Capital Resources below). Interest expense of $77 million increased by $23 million due to the incremental interest
expense on financings primarily related to the issuance of debt and equity security units that occurred on May 10, 2005 in connection with the equity public offering and recapitalization, with such debt and equity security units outstanding for the
full period in 2006 as compared to only part of the 2005 period.

Compensation and benefits expense was $615 million for the nine month
period ended September 30, 2006, an increase of $133 million, or 28%, versus expense of $482 million in the corresponding period in 2005. The



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increase was due to higher accruals for performance-based bonus awards consistent with the increase in operating revenues as well as the Companys
inclusion, for the period subsequent to the consummation of the equity public offering, of all payments for services rendered by our 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), the latter of which previously had been accounted for as minority interest in net income.

Non-compensation expense was $193 million, or 18% of operating revenue of $1,079 million in the nine month period ended September 30, 2006, compared with
$186 million, or 19% of operating revenue of $970 million for the corresponding period in 2005. The decrease in the year-to-date ratio is due to the operating leverage from higher operating revenues. For the nine month period ended September 30,
2006, professional fees increased approximately $19 million versus the 2005 period, partially offset by a decrease in all other non-compensation expenses by an aggregate of $12 million versus the 2005 period. The increase in professional fees was
due to consulting and audit fees related to the Companys activities to comply with the Sarbanes-Oxley Act of 2002, various legal fees, recording of a commitment to a former managing director, and increased fees relating to outsourced services.
The decrease in other non-compensation expenses primarily reflects the recovery of VAT costs expensed in prior years, and declines in unrecoverable deal-related expenses and insurance expense.

Operating income, including the one-time gain on termination of the Intesa joint venture as described above, which, after transaction and other costs,
served to increase operating income by approximately $5 million, was $213 million for the nine month period ended September 30, 2006, a decrease of $53 million, or 20% lower than operating income of $266 million for the corresponding period in
2005. Operating income as a percentage of net revenue was 21% for the first nine months of 2006 versus 28% for the corresponding period in 2005, with the decrease in operating income and the relative margin primarily resulting from the increase in
compensation and benefits expense described above partially offset by the increase in revenues. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.

Income Taxes

For the three month
period ended September 30, 2006, the provision for income taxes was $8 million, a decrease of approximately $7 million versus $15 million for the corresponding period in 2005. For the nine month period ended September 30,
2006, the provision for income taxes was $37 million, a decrease of approximately $9 million versus $46 million for the corresponding period in 2005. The decrease in both the three and nine month periods of 2006 was principally due to
decreased tax provisions recorded for those locations that are subject to corporate income taxes.

Minority Interest In Net Income

For the three month period ended September 30, 2006, minority interest in net income was $0.6 million, a decrease of $4.1 million versus $4.7 million for
the 2005 period. For the nine month period ended September 30, 2006, minority interest was $3.1 million, a decrease of $15.4 million versus $18.5 million for the corresponding period in 2005. Minority interest recorded for the three and nine month
periods ended September 30, 2006 represents the elimination of revenue from LAM general partnerships held directly by certain of our LAM managing directors. For the three and nine month periods ended September 30, 2005, $2.8 million was recorded
with respect to such LAM general partnerships.

The decrease in the three month and nine month periods ended September 30, 2006 was
principally due to there being no expense relating to the minority interest in net income associated with the Intesa joint venture in the 2006 periods, as well as compensation for LAM members now being recorded in compensation and benefits expense
commencing with the consummation of the equity public offering on May 10, 2005, while, prior thereto, such amounts were recorded in minority interest in net income. As described above, amounts recorded as minority interest in net income for periods
prior to May 10, 2005 are not comparable to amounts recorded as minority interest in net income for periods commencing May 10, 2005.



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Discontinued Operations

The Company had no income from discontinued operations during the three month and nine month periods ended September 30, 2006, versus losses from discontinued operations of $0.4 million and $17.6 million,
respectively, for the corresponding periods in 2005.

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, which, apart from interest expense, contributes a relatively minor amount to operating income. 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 Ended September 30, |         |     | Nine Months Ended September 30, |  
|                                                                                                             |  | 2006                             |         |     | 2005                            |   |         | 2006                |  |   | 2005    |  
|                                                                                                             |  | ($ in thousands)                 |        
|M&A                                                                                                          |  | $                                | 153,215 |     |                                 | $ | 187,241 |                     |  | $ | 545,054 |   |  | $ | 491,559 |  
|Financial Restructuring                                                                                      |  |                                  | 15,562  |     |                                 |   | 39,956  |                     |  |   | 50,202  |   |  |   | 80,367  |  
|Corporate Finance and Other                                                                                  |  |                                  | 18,273  |     |                                 |   | 30,588  |                     |  |   | 75,989  |   |  |   | 54,684  |  
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Net Revenue                                                                                                  |  |                                  | 187,050 |     |                                 |   | 257,785 |                     |  |   | 671,245 |   |  |   | 626,610 |  
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Direct Compensation and Benefits and, commencing May 10, 2005, distributions to profit participation members |  |                                  | 94,615  |     |                                 |   | 130,476 |                     |  |   | 360,983 |   |  |   | 269,388 |  
|Other Operating Expenses(a)                                                                                  |  |                                  | 48,081  |     |                                 |   | 44,278  |                     |  |   | 137,636 |   |  |   | 143,251 |  
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                     |  |                                  | 142,696 |     |                                 |   | 174,754 |                     |  |   | 498,619 |   |  |   | 412,639 |  
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Operating Income                                                                                             |  | $                                | 44,354  |     |                                 | $ | 83,031  |                     |  | $ | 172,626 |   |  | $ | 213,971 |  
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Operating Income as a Percentage of Net Revenue                                                              |  |                                  | 24      | %   |                                 |   | 32      | %                   |  |   | 26      | % |  |   | 34      | %
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|                                                                                                             |  |                                  |        
|                                                                                                             |  |                                  |         |     |                                 |   |         | As of September 30, | 
|                                                                                                             |  |                                  |         |     |                                 |   |         | 2006                |  |   | 2005    |  
|Headcount (b):                                                                                               |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Managing Directors                                                                                           |  |                                  |         | 125 |                                 |   |         | 123                 | 
|Limited Managing Directors                                                                                   |  |                                  |         | 2   |                                 |   |         | 5                   | 
|Other Employees:                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Business segment professionals                                                                               |  |                                  |         | 501 |                                 |   |         | 488                 | 
|All other professionals and support staff                                                                    |  |                                  |         | 246 |                                 |   |         | 259                 | 
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Total                                                                                                        |  |                                  |         | 874 |                                 |   |         | 875                 | 
|                                                                                                             |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  

---

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------



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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 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 client statistics are set forth below:



|                                                             |  |                                 |   |  |                                |   |  |      |   |  |      |  
|------------------------------------------------------------ |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|                                                             |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                                             |  | 2006                            |   |  | 2005                           |   |  | 2006 |   |  | 2005 |  
|Lazard Statistics:                                           |  |                                 |   |  |                                |   |  |      |   |  |      |  
|Number of Clients:                                           |  |                                 |   |  |                                |   |  |      |   |  |      |  
|Total                                                        |  | 120                             |   |  | 135                            |   |  | 377  |   |  | 371  |  
|With Fees Greater than $1 million                            |  | 41                              |   |  | 52                             |   |  | 144  |   |  | 130  |  
|Percentage of Total Fees from Top 10 Clients                 |  | 48                              | % |  | 41                             | % |  | 25   | % |  | 24   | %
|Number of M&A Transactions Completed Greater than $1 billion |  | 6                               |   |  | 17                             |   |  | 33   |   |  | 33   |  

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, Spain and Germany) and the rest of the world (principally in Asia).



|              |  |                                 |   |  |                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|              |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|              |  | 2006                            |   |  | 2005                           |   |  | 2006 |   |  | 2005 |  
|North America |  | 41                              | % |  | 51                             | % |  | 54   | % |  | 44   | %
|Europe        |  | 58                              |   |  | 48                             |   |  | 44   |   |  | 54   |  
|Rest of World |  | 1                               |   |  | 1                              |   |  | 2    |   |  | 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 financial restructuring transactions, depending on clients needs. This flexibility allows Lazard to better match its professional staff with the
counter-cyclical business cycles of mergers and acquisitions and financial restructurings. While Lazard measures revenue by practice area, Lazard does not separately measure the separate costs or profitability of mergers and acquisitions services as
compared to financial restructuring services. Accordingly, Lazard 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, 2006 versus September 30, 2005

In the 2006 period, Financial
Advisory net revenue was $187 million, a decrease of $71 million, or 27%, versus net revenue of $258 million in the corresponding period in 2005. M&A net revenue of $153 million decreased $34 million, or 18%, versus the corresponding period in
2005. In addition, Financial Restructuring net revenue declined by $24 million, or 61%, versus the corresponding period in 2005. Corporate Finance and Other net revenue of $18 million decreased by approximately $12 million, or 40%, versus net
revenue of $30 million in the 2005 period.

The decrease in M&A net revenue is due primarily to three factors: the number of M&A
transactions closing in the third quarter of 2006; the relatively high number of transactions closing in the second quarter of 2006; and comparison with the unusually high 2005 third-quarter revenue. The third quarter of 2005 was both a record third



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quarter and the strongest quarter in 2005. Transactions completed in the third quarter of 2006 on which Lazards M&A Group advised included
Resolution plcs £3.6 billion acquisition of Abbey National plcs Life businesses, International Papers $1.4 billion sale of its coated and super calendared papers business to CMP Holdings LLC, an affiliate of Apollo Management
L.P., Unilands 1.1 billion sale to Cementos Portland Valderrivas, Camfins 1.0 billion joint venture with Gaz de France for the sale of natural gas in Italy, and Iberostar Hoteles 884 million sale to Carlyle. Other
clients with whom we transacted significant business during the third quarter of 2006 included Bridgepoint Capital, KeySpan Corporation, The McKenzie River Corporation, Muehlstein, Paroc, Permira and Saint-Gobain. Among the pending M&A
transactions announced on which Lazard is advising are Gaz de Frances 37.8 billion merger with Suez, Abertis Infraestructuras 22.9 billion merger of equals with Autostrade, Pfizers $16.6 billion sale of its Consumer
Healthcare business to Johnson & Johnson, Cerberus $14.0 billion consortium acquisition of a controlling stake in GMAC, Fisher Scientifics $12.8 billion merger with Thermo Electron, KeySpans $11.8 billion sale to National Grid,
Chicago Board of Trades (advisors to Special Transaction Committee) $8.0 billion merger with the Chicago Mercantile Exchange, International Papers $6.1 billion sale of 5.1 million acres of U.S. forestlands, Schneider Electrics $6.1
billion acquisition of American Power Conversion, and UCBs 4.4 billion acquisition of Schwarz Pharma.

Financial Restructuring
net revenue decreased as compared to the three month period ended September 30, 2005, principally due to the low level of debt defaults experienced in the last twelve months. Recently completed Restructuring assignments include Armstrong Holdings.
Notable Restructuring assignments announced since the second quarter include our retention to advise Radnor Holdings in connection with its Chapter 11 filing. Additionally, we are continuing our work on a number of other Restructuring assignments,
including those involving Adelphia, Collins & Aikman, Eurotunnel, Meridian Automotive, Olympic Airlines, Owens-Corning, SunCom Wireless and Tower Automotive. Additionally, we continue to advise Calpines Unsecured Creditors Committee,
Northwest Airlines Creditors Committee and the UAW in connection with Delphis bankruptcy and with regard to alternatives for restructuring Chryslers post-retirement healthcare obligations.

Corporate Finance net revenues in the 2006 period also declined principally in our private equity fund raising group, which advised on a number of large
fund closings in the third quarter of 2005.

Operating expenses were $143 million in the 2006 period, a decrease of approximately $32
million, or 18%, versus operating expenses of $175 million in the corresponding period in 2005. Compensation and benefits expense decreased by $36 million, or 27%, as compared to the corresponding period in 2005, primarily reflecting a decrease in
accruals for performance-based bonus awards consistent with the decrease in operating revenues. All other operating expenses increased by $4 million, or 9%, principally due to increased support costs.

Financial Advisory operating income was $44 million for the 2006 period, a decrease of $39 million, or 47%, versus operating income of $83 million in the
corresponding period in 2005. Operating income as a percentage of segment net revenue was 24% for the 2006 period versus 32% in the corresponding period in 2005, with the decrease in operating income and relative margin principally the result of
lower revenues. Our quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which we advise, as well as seasonality and other factors.

Nine Months Ended September 30, 2006 versus September 30, 2005

In the 2006 period, Financial Advisory net revenue was $671 million, an increase of $45 million, or 7%, versus net revenue of $627 million in the corresponding period in 2005. M&A net revenue of $545 million
increased $53 million, or 11%, versus the corresponding period in 2005, driven by the environment for mergers and acquisitions activity and by improved productivity of our managing directors. The increase in M&A net revenue was partially offset
by a $30 million, or 38%, decrease in Financial Restructuring net revenue versus the corresponding period in 2005. Corporate Finance and Other net revenue increased by approximately $21 million, or 39%, principally as a result of a higher level of
private equity fund raising.



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Operating expenses were $499 million in 2006 period, an increase of $86 million, or 21%, versus operating
expenses of $413 million in the corresponding period in 2005. Compensation and benefits expense increased by $92 million, or 34%, as compared to the corresponding period in 2005. The increase was principally due to the inclusion, for the period
subsequent to the consummation of the equity public offering, of all payments for services rendered by our managing directors, including distributions to profit participation members, in compensation and benefits expense. In addition, accruals for
performance-based bonus awards increased in the 2006 period consistent with the increase in operating revenues. Other operating expenses decreased by $6 million, or 4%, principally due to the recovery of VAT costs expensed in prior years, and
declines in premises costs, and unrecoverable deal-related expenses.

Financial Advisory operating income was $173 million for the 2006
period, $41 million lower than the corresponding period in 2005. Operating income as a percentage of segment net revenue was 26% for 2006 versus 34% in the corresponding period in 2005, with the increase in recorded compensation expense in the 2006
period being partially offset by the leverage resulting from higher revenues. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.

Asset Management

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



|                           |  |                   |        |                  |   |       
|-------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                           |  | As of            
|                           |  | September 30,2006 |        | December 31,2005
|                           |  | ($ in millions)  
|AUM:                       |  |                   |        |                  |   |       
|International Equities     |  | $                 | 47,122 |                  | $ | 42,104
|Global Equities            |  |                   | 21,995 |                  |   | 15,872
|U.S. Equities              |  |                   | 12,669 |                  |   | 12,920
|                           |  |                   |        |                  |   |       
|Total Equities             |  |                   | 81,786 |                  |   | 70,896
|                           |  |                   |        |                  |   |       
|International Fixed Income |  |                   | 7,685  |                  |   | 6,604 
|Global Fixed Income        |  |                   | 1,006  |                  |   | 2,135 
|U.S. Fixed Income          |  |                   | 2,422  |                  |   | 2,374 
|                           |  |                   |        |                  |   |       
|Total Fixed Income         |  |                   | 11,113 |                  |   | 11,113
|                           |  |                   |        |                  |   |       
|Alternative Investments    |  |                   | 3,653  |                  |   | 3,394 
|Merchant Banking           |  |                   | 854    |                  |   | 826   
|Cash Management            |  |                   | 1,928  |                  |   | 2,005 
|                           |  |                   |        |                  |   |       
|Total AUM                  |  | $                 | 99,334 |                  | $ | 88,234
|                           |  |                   |        |                  |   |       

Average AUM for the three month and nine month periods ended September 30, 2006 and 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,
|            |  | 2006                             |        | 2005                            |   | 2006   |  | 2005
|            |  | ($ in millions)                 
|Average AUM |  | $                                | 96,618 |                                 | $ | 84,802 |  | $    | 94,151 |  | $ | 85,574
|            |  |                                  |        |                                 |   |        |  |      |        |  |   |       



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The following is a summary of changes in AUM for the three month and nine month periods ended September
30, 2006 and 2005.



|                             |  |                                  |        |   |                                 |   |        |      |  |      |        |  |   |        |  
|---------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                             |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|                             |  | 2006                             |        |   | 2005                            |   |        | 2006 |  | 2005 |       
|                             |  | ($ in millions)                  |       
|AUMBeginning of Period      |  | $                                | 93,901 |   |                                 | $ | 83,012 |      |  | $    | 88,234 |  | $ | 86,435 |  
|Net Flows                    |  |                                  | 1,693  |   |                                 |   | (1,751 | )    |  |      | 983    |  |   | (4,349 | )
|Market Appreciation          |  |                                  | 3,792  |   |                                 |   | 5,369  |      |  |      | 9,337  |  |   | 5,654  |  
|Foreign Currency Adjustments |  |                                  | (52    | ) |                                 |   | (38    | )    |  |      | 780    |  |   | (1,148 | )
|                             |  |                                  |        |   |                                 |   |        |      |  |      |        |  |   |        |  
|AUMEnd of Period            |  | $                                | 99,334 |   |                                 | $ | 86,592 |      |  | $    | 99,334 |  | $ | 86,592 |  
|                             |  |                                  |        |   |                                 |   |        |      |  |      |        |  |   |        |  

AUM as of September 30, 2006 was $99.3 billion, up $11.1 billion from AUM of $88.2 billion as of
December 31, 2005. Merchant banking AUM as of September 30, 2006 and December 31, 2005 includes approximately $0.5 billion and $0.4 billion, respectively, of assets held by an investment company for which Lazard may earn carried interests.
During the nine month period ended September 30, 2006, market appreciation of $9.3 billion was accompanied by net inflows of $1.0 billion and the positive impact of changes in foreign currency exchange rates of approximately $0.8 billion. Net
inflows were experienced in Emerging Markets, Global Thematic Equity, U.K. and European Equity products partially offset by outflows in International Equity products.

For the three month period ended September 30, 2006, average AUM was $96.6 billion, an increase of $11.8 billion, or 14%, versus $84.8 billion in the corresponding period in 2005. For the nine month period ended
September 30, 2006, average AUM was $94.2 billion, an increase of $8.6 billion, or 10%, versus $85.6 billion in the corresponding period in 2005.



50



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



|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | --- | ------------------------------- | - | ------- | ------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                              |  | Three Months Ended September 30, |         |     | Nine Months Ended September 30, |  
|                                                                                                              |  | 2006                             |         |     | 2005                            |   |         | 2006                |  |   | 2005    |  
|                                                                                                              |  | ($ in thousands)                 |        
|Management Fees                                                                                               |  | $                                | 112,726 |     |                                 | $ | 98,269  |                     |  | $ | 328,734 |   |  | $ | 291,047 |  
|Incentive Fees                                                                                                |  |                                  | 3,423   |     |                                 |   | 2,717   |                     |  |   | 17,362  |   |  |   | 10,650  |  
|Other                                                                                                         |  |                                  | 8,639   |     |                                 |   | 7,256   |                     |  |   | 27,559  |   |  |   | 22,246  |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Sub-Total                                                                                                     |  |                                  | 124,788 |     |                                 |   | 108,242 |                     |  |   | 373,655 |   |  |   | 323,943 |  
|LAM GP-Related Revenue                                                                                        |  |                                  | 600     |     |                                 |   | 2,752   |                     |  |   | 3,137   |   |  |   | 2,752   |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Net Revenue                                                                                                   |  |                                  | 125,388 |     |                                 |   | 110,994 |                     |  |   | 376,792 |   |  |   | 326,695 |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Direct Compensation and Benefits, and, commencing May 10, 2005, distributions to profit participation members |  |                                  | 60,708  |     |                                 |   | 55,225  |                     |  |   | 173,698 |   |  |   | 133,438 |  
|Other Operating Expenses(a)                                                                                   |  |                                  | 42,372  |     |                                 |   | 35,710  |                     |  |   | 120,814 |   |  |   | 111,532 |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                      |  |                                  | 103,080 |     |                                 |   | 90,935  |                     |  |   | 294,512 |   |  |   | 244,970 |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Operating Income                                                                                              |  | $                                | 22,308  |     |                                 | $ | 20,059  |                     |  | $ | 82,280  |   |  | $ | 81,725  |  
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Operating Income as a Percentage of Net Revenue                                                               |  |                                  | 18      | %   |                                 |   | 18      | %                   |  |   | 22      | % |  |   | 25      | %
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|                                                                                                              |  |                                  |        
|                                                                                                              |  |                                  |         |     |                                 |   |         | As of September 30, | 
|                                                                                                              |  |                                  |         |     |                                 |   |         | 2006                |  |   | 2005    |  
|Headcount(b):                                                                                                 |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Managing Directors                                                                                            |  |                                  |         | 43  |                                 |   |         | 38                  | 
|Limited Managing Directors                                                                                    |  |                                  |         | 2   |                                 |   |         | 2                   | 
|Other Employees:                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Business segment professionals                                                                                |  |                                  |         | 285 |                                 |   |         | 270                 | 
|All other professionals and support staff                                                                     |  |                                  |         | 326 |                                 |   |         | 321                 | 
|                                                                                                              |  |                                  |         |     |                                 |   |         |                     |  |   |         |   |  |   |         |  
|Total                                                                                                         |  |                                  |         | 656 |                                 |   |         | 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 Ended September 30, |   |  | Nine Months Ended September 30, |  
|              |  | 2006                             |   |  | 2005                            |   |  | 2006 |   |  | 2005 |  
|North America |  | 55                               | % |  | 59                              | % |  | 56   | % |  | 58   | %
|Europe        |  | 37                               |   |  | 34                              |   |  | 36   |   |  | 34   |  
|Rest of World |  | 8                                |   |  | 7                               |   |  | 8    |   |  | 8    |  
|              |  |                                  |   |  |                                 |   |  |      |   |  |      |  
|Total         |  | 100                              | % |  | 100                             | % |  | 100  | % |  | 100  | %
|              |  |                                  |   |  |                                 |   |  |      |   |  |      |  



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Asset Management Results of Operations

Three Months Ended September 30, 2006 versus September 30, 2005

Asset Management net revenue was $125 million for the 2006 period, an increase of $14 million, or 13%, versus net revenue of approximately $111 million for the corresponding period in 2005. Management fees for the
2006 period were $113 million, up $14 million, or 15%, slightly higher than the increase in average AUM for the corresponding period in 2005 principally due to a shift in AUM to higher fee based products. Incentive fees earned for the 2006 period
were $3.4 million, an increase of $0.7 million versus $2.7 million recorded for the corresponding period in 2005 due to better performance in certain funds that provide for such incentive fees with a measurement date in the respective three month
periods. Other income was $9 million, an increase of $1 million. In addition, during the three month period ended September 30, 2006, revenue of $0.6 million from LAM general partnerships held directly by certain of our LAM managing directors was
recorded, versus $2.8 million in the corresponding period in 2005, with these amounts being also added as minority interest in net income.

Operating expenses were $103 million for the 2006 period, an increase of $12 million, or 13%, versus operating expenses of $91 million for the corresponding period in 2005. Compensation and benefits expense increased by $5 million, or 10%,
as compared to the corresponding period in 2005. The increase was principally due to higher performance-based bonus awards, consistent with the increase in operating revenues. All other operating expenses increased by $7 million versus the
corresponding period in 2005 principally due to increased professional fees for outsourced services, legal fees as well as higher support costs.

Asset Management operating income was $22 million for 2006 period, an increase of $2 million, or 11%, versus operating income of $20 million for the corresponding period in 2005. Operating income as a percentage of segment net revenue was
18% for the 2006 period, flat versus the corresponding period in 2005.

Nine Months Ended September 30, 2006 versus September 30, 2005

Asset Management net revenue was $377 million for the 2006 period, an increase of $50 million, or 15%, versus net revenue of
approximately $327 million for the corresponding period in 2005. Management fees for the 2006 period were $329 million, up $38 million, or 13%, slightly higher than the increase in average AUM for the corresponding period in 2005 principally due to
a shift in AUM to higher fee based products. Incentive fees earned for the 2006 period were $17 million, an increase of $7 million versus approximately $10 million recorded for the corresponding period in 2005 due to better performance in certain
funds that provide for such incentive fees with a measurement date in the respective nine month periods. Other income was $28 million, an increase of $5 million. In addition, during both the nine month periods ended September 30, 2006 and 2005,
revenue of approximately $3 million was recorded from LAM general partnerships held directly by certain of our LAM managing directors, with these amounts being added as minority interest in net income.

Operating expenses were $295 million for the 2006 period, an increase of $50 million, or 20%, versus operating expenses of $245 million for the
corresponding period in 2005. Compensation and benefits expense increased by $40 million or 30% as compared to the corresponding period in 2005. The increase was principally due to increases in accruals for performance-based bonus awards as a result
of the increase in operating revenues as well as the inclusion, for periods subsequent to the consummation of the equity public offering, of all payments for services rendered by managing directors of LAM (and employee members of LAM), including
distributions to profit participation members, in compensation and benefits expense which had previously been accounted for as minority interest in net income. All other operating expenses increased by $9 million, or 8%, versus the corresponding
period in 2005, principally due to higher professional fees for outsourced services and legal fees.

Asset Management operating income was
$82 million for 2006 period, flat versus operating income of $82 million for the corresponding period in 2005. Operating income as a percentage of segment net revenue was 22%



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for the 2006 period versus 25% for the corresponding period in 2005, with the decline in the 2006 period attributable to the increase in recorded
compensation expense in the 2006 period as described above, partially offset by higher revenues versus the corresponding period in 2005. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and
subsequent thereto are not comparable.

Cash Flows

The Companys cash flows are influenced primarily by the timing of receipt of Financial Advisory and Asset Management fees, the timing of distributions to shareholders and payment of bonuses to employees. The
M&A and Asset Management fee receivable collection period generally is 60 days or less. However, the collection time for restructuring transactions may extend beyond 60 days, particularly those that involve bankruptcies due to issues such as
court-ordered holdbacks. In addition, fee receivables from our private fund advisory activities are generally collected over a four year period.

Cash and cash equivalents were $518 million at September 30, 2006, an increase of $28 million versus cash and cash equivalents of $490 million at December 31, 2005. During the nine month period ended September 30, 2006,
cash of $150 million was provided by operating activities, comprised of (i) $173 million provided from net income allocable to members, (ii) approximately $18 million provided by noncash charges, principally consisting of depreciation
and amortization of $11 million relating to property, $18 million relating to the amortization of deferred expenses, stock units and an interest rate hedge, and approximately $3 million relating to minority interest in net income, with
these items being partially offset by the $14 million gain on the termination of the Intesa joint venture, and (iii) partially offset by $41 million being used by net changes in other operating assets and operating liabilities. Cash of
$5 million was used for investing activities, principally for net acquisitions of property. Financing activities during the period used cash of $125 million, primarily for distributions to minority interest holders and repayments of senior
borrowings. Exchange rate changes provided cash of $8 million. 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 following year-end. 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 following year-end. 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 remainder 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, 2006, Lazard had $234 million in unused lines of credit available to it, including $52 million of unused lines of credit available to LFB.

Lazard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. Concurrent with the equity



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public offering, Lazard Group entered into a five year, $125 million senior revolving credit facility with a group of lenders, with such revolving credit
facility being amended on May 17, 2006 to provide for aggregate commitments of $150 million. As of September 30, 2006 there were no amounts outstanding under this credit facility. The senior revolving credit facility contains customary
affirmative and negative covenants and events of default for facilities of this type. In addition, 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 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.

On May 15, 2006, Lazard Group completed the termination of its joint venture relationship with
Intesa, in accordance with the provisions of the Termination Agreement, dated as of March 31, 2006, by and among Intesa, Lazard Group and Lazard Italy. In connection with the termination, the following adjustments were made to the terms of
Intesas investment in Lazard Italy and Lazard Funding:



| |  |  | The existing $150 million subordinated convertible note of Lazard Funding Limited LLC, a wholly-owned subsidiary of Lazard Group, held by Intesa was amended and restated, among
other things, to provide for its convertibility into shares of Lazard Ltd Class A common stock at an effective conversion price of $57 per share. The amended $150 million subordinated convertible note (the Amended $150 million Subordinated
Convertible Note) matures on September 30, 2016 and has a fixed interest rate of 3.25% per annum. One-third in principal amount will generally be convertible after July 1, 2008, an additional one-third after July 1, 2009 and the last one-third
after July 1, 2010, and no principal amount will be convertible after June 30, 2011. Lazard Ltd will enter into a Registration Rights Agreement with Intesa providing for certain customary registration rights with respect to the shares of Class A
common stock Intesa receives upon conversion. The Guaranty of the existing note by Lazard Group was also amended and restated to reflect the terms of the Amended $150 million Subordinated Convertible Note. The covenants and events of default in the
Amended $150 million Subordinated Convertible Note were not materially changed.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Intesas 40% equity interest in Lazard Italy and the $50 million Subordinated Promissory Note of Lazard Italy held by Intesa were acquired by Lazard Group in exchange for the
issuance to Intesa of a $96 million senior promissory note of Lazard Group due February 28, 2008 (the $96 million Senior Promissory Note) and a $50 million subordinated promissory note of Lazard Group due February 28, 2008 (the
$50 million Subordinated Promissory Note), respectively. The $96 million Senior Promissory Note and the $50 million Subordinated Promissory Note have fixed interest rates of 4.25% and 4.6% per annum, respectively, and each Note contains
customary events of default for indebtedness of its type. On May 15, 2006, Intesa sold and assigned all its rights and interests relating to the $96 million Senior Promissory Note and the $50 million Subordinated Promissory Note to a commercial
bank.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group paid Intesa an amount equal to a 3% annualized return on the Intesa JV Interest from April 1, 2006 through the termination closing and the accrued and unpaid interest
on the $50 million Subordinated Promissory Note as of the termination closing.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the termination of the
joint venture relationship and Lazard Groups repurchase of the Intesa JV Interest, the Company realized a gain of approximately $14 million, excluding transaction and other costs, which is included in revenueother on the
unaudited condensed consolidated statements of income for the nine month period ended September 30, 2006 (with all of such gain being recorded in the second quarter of 2006) and, after transaction and other costs, this transaction increased
operating income by approximately $5 million. See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements for further information.

As of September 30, 2006, Lazard was in compliance with all of its obligations under its various borrowing arrangements.



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On February 7, 2006, the Board of Directors of Lazard Ltd authorized the repurchase of up to
$100 million in aggregate cost of the Lazard Ltds Class A common stock. The Companys intention is that the share repurchase program will be used primarily to offset shares to be issued under Lazard Ltds 2005 Equity Incentive
Plan. Purchases may be made in the open market or through privately negotiated transactions in 2006 and 2007. During the nine month period ended September 30, 2006, Lazard Group purchased 115,000 shares of Lazard Ltd Class A common stock in the open
market at an average price of $36.34 per share.

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 12 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 Item
1-BusinessRegulation included in the Form 10-K.

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 end of the applicable measurement period, which
is generally the fourth quarter of Lazards fiscal year, when potential uncertainties regarding the ultimate realizable amounts have been determined.



55



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Contractual Obligations

The following table sets forth information relating to Lazards contractual obligations as of December 31, 2005 (see Note (e) below for updated information):



|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    
|--------------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | --------------- | - | --------- |  | - | --------- | --- | ----------------- | - | ------- |  | - | --------- | ---
|                                                                                        |  | Contractual Obligations Payment Due by Period |          
|                                                                                        |  | Total                                         |           | Less than1 Year |   | 1-3 Years |  |   | 3-5 Years |     | More than 5 Years |  
|                                                                                        |  | ($ in thousands)                              |          
|Operating Leases (exclusive of $70,546 of sublease income)                              |  | $                                             | 491,977   |                 | $ | 57,815    |  | $ | 107,637   |     |                   | $ | 84,334  |  | $ | 242,191   |    
|Capital Leases (including interest)                                                     |  |                                               | 34,584    |                 |   | 2,491     |  |   | 4,982     |     |                   |   | 4,982   |  |   | 22,129    |    
|Senior Debt (including interest)                                                        |  |                                               | 1,458,307 |                 |   | 72,754    |  |   | 555,730   | (a) |                   |   | 108,376 |  |   | 721,447   |    
|Subordinated Loans (including interest)                                                 |  |                                               | 258,192   |                 |   | 6,000     |  |   | 60,644    | (b) |                   |   | 9,000   |  |   | 182,548   | (b)
|Repurchase of Equity Interest in Lazard Italy                                           |  |                                               | 100,000   |                 |   |           |  |   | 100,000   | (b) |                   |   |         |  |   |           |    
|Merchant Banking CommitmentsLAI managed funds (c)                                      |  |                                               | 126,289   |                 |   | 44,118    |  |   | 82,171    |     |                   |   |         |  |   |           |    
|Merchant Banking Commitmentscompany sponsored funds                                    |  |                                               | 4,622     |                 |   | 3,873     |  |   |           |     |                   |   | 716     |  |   | 33        |    
|Contractual Commitments to Managing Directors, Senior Advisors, Employees and Other (d) |  |                                               | 83,395    |                 |   | 50,939    |  |   | 29,995    |     |                   |   | 1,016   |  |   | 1,445     |    
|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    
|Total (e)                                                                               |  | $                                             | 2,557,366 |                 | $ | 237,990   |  | $ | 941,159   |     |                   | $ | 208,424 |  | $ | 1,169,793 |    
|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    

---

|(a) | Includes $437.5 million relating to Lazard Group Notes issued in connection with the issuance of the ESUs, for which the maturity date of the debt component can vary based on a
remarketing of the Lazard Group Notes, and will mature (1) 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, (2) in the event of a failed
remarketing, on May 15, 2008 and (3) otherwise on May 15, 2035. While the Company currently expects a successful remarketing of the Lazard Group Notes, for purposes of the table above, a maturity in 2008, the earliest possible date,
was assumed to be the maturity date of the Lazard Group Notes.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The contractual obligation table above is based on amounts outstanding as of December 31, 2005, including the then estimated amount required to repurchase the equity interest in
Lazard Italy. Accordingly, the table does not include developments subsequent to December 31, 2005 relating to the Termination Agreement entered into with Intesa on May 15, 2006. See Liquidity and Capital Resources and Note 5 of
Notes to Unaudited Condensed Consolidated Financial Statements. The table includes interest expense based on the terms in effect as of December 31, 2005, which provided for interest on (i) the $50 million subordinated promissory note at its fixed
rate of interest of 3.0% per annum through February 4, 2008 and (ii) the $150 million subordinated convertible note through its scheduled maturity date of March 26, 2018, at its minimum annual interest rate of 3% per annum based on the terms in
effect as of December 31, 2005. See Note (e) 8 below for information relating to the termination of the Intesa joint venture.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Pursuant to the business alliance agreement, Lazard Group has commitments to fund certain investment funds managed by Lazard Alternative Investments Holdings LLC
(LAI). Amounts in the table above relate to (1) obligations related to Corporate Partners II Limited, a 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 December 31, 2005, Lazard Group contributed approximately $0.1 million of its capital commitment). For purposes of the table above,
Lazards remaining commitment of approximately $99.9 million as of December 31, 2005 was estimated to be funded in the amounts of $37.5 million, $37.5 million, and $24.9 million in the years ending December 31, 2006, 2007 and 2008,
respectively; (2) obligations related to the Lazard Senior Housing Partners LP, a private equity fund formed in July 2005, with capital commitments of $201 million, including, as estimated as of December 31, 2005, a minimum and maximum
capital commitment from us of $10 million and $27 million, respectively, the principal portion of which will
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | require funding at any time through 2008 (as of December 31, 2005, Lazard Group contributed its initial capital commitment which amounted to
approximately $0.6 million. For purposes of this table, included is the then estimated maximum remaining commitment of $27 million and Lazards remaining maximum commitment of approximately $26.4 million as of December 31, 2005 was
estimated to be funded in the amounts of $6.6 million, $18.7 million, and $1.1 million in the years ending December 31, 2006, 2007 and 2008, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The Company has agreements for the years shown in the table above relating to future minimum distributions to certain managing directors and compensation to certain employees
incurred for the purpose of recruiting and retaining these senior professionals. Also included are guaranteed compensation arrangements with advisors and a commitment to a former managing director.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | The table above does not include:
|--- | ---------------------------------

| | (1) | any contingent obligations relating to the LAM equity rights;
| | --- | -------------------------------------------------------------

| | (2) | any potential payment related to the IXIS cooperation arrangement (the level of this contingent payment to IXIS would depend, among other things, on the level of revenue generated
by the cooperation activities, and the potential payment is limited, as of September 30, 2006, to a maximum of approximately 8 million (subject to further reduction in certain circumstances) which would only occur if the cooperation activities
generate no revenue over the course of the remaining initial period of such activities, the cooperation agreement is not renewed and Lazard Ltds stock price fails to sustain certain price levels);
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | any contingent limited partner capital commitments as described in Note 7 of Notes to Consolidated Financial Statements included in the Form 10-K;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | interest expense relating to Lazard Groups revolving credit agreement, which is a variable rate obligation;
| | --- | ------------------------------------------------------------------------------------------------------------

| | (5) | the lending commitments and indemnifications provided by LFB to third parties as described in Note 12 of Notes to Consolidated Financial Statements included in the Form 10-K;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | with respect to obligations related to (a) Corporate Partners II Limited, as described in Note(c)(1) above, Lazard Group has contributed an additional $1.2 million of its capital
commitment during the nine month period ended September 30, 2006. Lazards remaining commitment of $98.7 million is currently estimated to be funded in the amounts of $8.7 million in the fourth quarter of 2006 and $45 million in each of
the years ending December 31, 2007 and 2008, and (b) Lazard Senior Housing Partners LP, as described in Note (c)(2) above, Lazard Group has contributed an additional $1.6 million of its capital commitment during the nine month period ended September
30, 2006. In addition, the Companys maximum commitment has been reduced from $27 million to $10 million, with Lazards remaining commitment of $7.8 million now estimated to be funded in the year ending December 31, 2007;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | additional guaranteed compensation arrangements entered into during the nine month period ended September 30, 2006, that requires additional payments of $25.1 million, $10.2 million
and $1.8 million for 2006, 2007 and 2008, respectively; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | additional indebtedness and changes to the terms of existing indebtedness resulting from the May 15, 2006 termination of the Intesa joint venture relationship (see Note 5 of Notes
to Unaudited Condensed Consolidated Financial Statements). Such additional indebtedness relates to the $96 million Senior Promissory Note due February 28, 2008, with interest expense at the rate of 4.25% per annum. Changes to the terms of existing
indebtedness relates to (i) the $50 million Subordinated Promissory Note, the maturity date for which was changed to February 28, 2008 and the interest rate for which was changed to 4.6% per annum and (ii) the Amended $150 million Subordinated
Convertible Note, the maturity date for which was changed to September 30, 2016, and the interest rate for which was fixed at 3.25% per annum.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition the table above does not include any recognition of the May, 2008 settlement of the purchase contracts component of the ESUs which require the holders to purchase an aggregate of $437.5 million of the
Lazard Ltds Class A common stock for cash or exchange of outstanding debt, depending on the success of the remarketing of such debtsee Note (a) above. This obligation is collateralized by the entire $437.5 million principal amount of
Lazard Group Notes outstanding.



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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 collected within 60 days of billing (or over longer periods of time with respect to billings related to restructurings and our private fund advisory activities). The Company also earns performance-based
incentive fees on some investment products, such as hedge funds and merchant banking funds. Incentive fees on hedge funds generally are recorded at the end of the year, when potential uncertainties regarding the ultimate realizable amounts have been
determined, and typically are calculated based on a specified percentage of a funds net appreciation during the year. Incentive fees on hedge funds generally are subject to loss carry-forward provisions in which losses incurred by the funds in
any year are applied against future period net appreciation before any incentive fees can be earned.

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 deferred tax assets will be recovered from future taxable income, and, to
the extent it believes that recovery is not more likely than not, 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



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

Long-term investments consist principally of investments in merchant banking and alternative investment funds, and other privately managed investments. These investments are carried at fair value on the consolidated statements
of financial condition, with unrealized gains and losses reflected net on the consolidated statements of income. Gains and losses on 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.

Where applicable, the fair value of a publicly traded investment is
determined by quoted market prices. Most of the Companys investments included in long-term investments, however, are not publicly traded and, as a result, are valued based upon managements best estimate. The fair value of
such investments is based upon an analysis of the investees financial results, condition, cash flows and prospects. The carrying value of such investments is adjusted when changes in the underlying fair values are readily ascertainable,
generally as evidenced by third party transactions or transactions that directly affect the value of such investments. 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. The Companys investments in 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 partnerships 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 (SFAS) 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 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.



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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 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.

Lazard 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 was the primary beneficiary were
consolidated at December 31, 2004 in accordance with FIN 46R. Those VIEs included company sponsored venture capital investment vehicles established in connection with Lazard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, the Company no longer consolidates
such VIEs.



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Risk Management

We encounter risk as part of the normal course of our business and we design risk management processes to help manage such risks considering both the nature of our business and our operating model. The Company is
subject to varying degrees of credit, market, operational and liquidity risks (see Liquidity and Capital Resources) and monitors these risks on a consolidated basis. Management within each of Lazards operating locations are
principally responsible for managing the risks within its respective businesses on a day-to day basis.

Market and Credit Risks

Lazard, in general, is not a capital-intensive organization and as such, is not subject to significant credit or market risks.
Nevertheless, Lazard has established procedures to assess both the credit and market risk, as well as specific interest rate, currency and credit limits related to various positions.

With respect to LFBs operations, LFB engages in banking activities that primarily include investing in securities, deposit taking and lending. In
addition, LFB may take open foreign exchange positions with a view to profit, but does not sell foreign exchange options in this context, and enters into 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.

At September 30, 2006, substantially all of the
$390 million of securities owned, at fair value, were fixed-income securities within LFBs portfolio, 91% of which were rated investment grade credit quality. At December 31, 2005, substantially all of the $272 million of securities owned, at
fair value, were fixed-income securities within the LFB portfolio, 92% of which were rated investment grade credit quality.

At September
30, 2006 and December 31, 2005, derivative contracts, all of which related to LFBs operations and which are recorded at fair value, were as follows:



|                             |  |                   |     |                   |   |      
|---------------------------- |  | ----------------- | --- | ----------------- | - | -----
|                             |  | September 30,2006 |     | December 31, 2005
|                             | 
|                             |  | ($ in thousands) 
|Assets:                      |  |                   |     |                   |   |      
|Interest rate swap contracts |  | $                 | 111 |                   | $ | 186  
|                             |  |                  
|Liabilities:                 |  |                   |     |                   |   |      
|Interest rate swap contracts |  | $                 | 718 |                   | $ | 3,028

The primary market risks associated with LFBs securities inventory, foreign exchange,
hedging and securities financing activities are sensitivity to changes in the general level of credit spreads and, with respect to foreign currency risk, specific exchange rate spreads. The risk management strategies that we employ use various risk
sensitivity metrics to measure such risks and to examine behavior under significant adverse market conditions.



| |  |  | LFBs annual interest rate risk, as measured by a 1% +/ change in interest rates, amounted to approximately $764 thousand and $93 thousand as of September 30, 2006
and December 31, 2005, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreign currency risk associated with LFBs open positions, in aggregate, as measured by a 2% +/- change against the U.S. dollar, amounted to approximately $33 thousand
and $2 thousand as of September 30, 2006 and December 31, 2005, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LFB fully collateralizes its repurchase
transactions with fixed income securities.



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Risks Related to Receivables

We maintain an allowance for bad debts to provide coverage for probable losses from our fee and customer receivables, including our lending portfolio in
LFB. We determine the adequacy of the allowance by estimating the probability of loss based on managements analysis of the clients creditworthiness and specifically reserve against exposures where, in our judgment, the receivables are
impaired. At September 30, 2006 total receivables amounted to $691 million, net of an allowance for bad debts of $14 million. As of that date, inter-bank lending, financial advisory and asset management fee, customer receivables and related party
receivables comprised 48%, 40%, 10% and 2% of total receivables, respectively. At December 31, 2005 total receivables amounted to $749 million, net of an allowance for bad debts of $13 million. As of that date, inter-bank lending, financial advisory
and asset management fee, and customer receivables and related party receivables comprised 46%, 38%, 9% and 7% of total receivables, respectively.

Credit Concentration

To reduce the exposure to concentrations of credit from banking activities within LFB, the
Company has established limits for corporate counterparties and monitors the exposure against such limits. At September 30, 2006 the Company had no exposure to an individual counterparty that exceeded $42 million, in the aggregate, excluding
inter-bank counterparties.

Risks Related to Short-Term Investments and Corporate Indebtedness

A significant portion of the Companys interest-bearing liabilities has fixed interest rates or maximum interest rates, while its cash and short-term
investments generally have floating interest rates. Lazard estimates that operating income relating to cash and short-term investments and corporate indebtedness balances as of September 30, 2006 would change by approximately $4 million, on an
annual basis, in the event interest rates were to increase or decrease by 1%.

Operational Risks

Operational risk is inherent in all our businesses and may, for example, manifest itself in the form of errors, breaches in the system of internal
controls, business interruptions, fraud or legal actions due to operating deficiencies or noncompliance. The Company maintains a framework including policies and a system of internal controls designed to monitor and manage operational risk and
provide management with timely and accurate information. Management within each of the operating companies is primarily responsible for its operational risk programs. The Company has in place a business continuity and disaster recovery programs that
manages its capabilities to provide services in the case of a disruption. We purchase insurance programs designed to protect the Company against accidental loss and losses, which may significantly affect our financial objectives, personnel,
property, or our ability to continue to meet our responsibilities to our various stakeholder groups.

Recently Issued Accounting Standards

Share-Based PaymentsIn December 2004, the Financial Accounting Standards Board, (FASB) issued SFAS
No. 123R, Share-Based Payments (SFAS 123R). SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), and supersedes Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and its related guidance. SFAS 123R is effective for the Companys fiscal year beginning January 1, 2006. Prior to May 10, 2005, the
date of the equity public offering, Lazard operated as a series of related partnerships under the control of the partners and Lazard did not have a capital structure that permitted share based compensation. In connection with equity awards granted
pursuant to the Companys 2005 Equity Incentive Plan (described in more detail in Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements), the Company adopted the fair value recognition provisions under SFAS 123.
Accordingly, subsequent to the dates of grant during 2005, Lazard recognized in compensation expense the amortized portion of the fair value of the equity awards, net of an estimated forfeiture rate, over the service period specified in the award.



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

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

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

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

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

Recent Accounting Pronouncements

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

In March 2006, the FASB issued SFAS No. 156 Accounting for Servicing of Financial Assets  an amendment of
FASB Statement No. 140(SFAS 156),which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits
an entity to choose either the amortization method or the fair value measurement method for each class



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of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after
September 15, 2006. The impact of adopting SFAS 156 is not expected to have a material impact on the financial condition, results of operations, and cash flows of the Company.

In July 2006, the FASB issued FIN No. 48 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No.
109(FIN 48)whichclarifies the criteria that must be met prior to recognition of the financial statement benefit of a tax position taken in a tax return. FIN 48 provides a benefit recognition model
with a two-step approach consisting of a more-likely-than-not recognition criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements FIN 48 is effective as of the beginning of the first
annual period beginning after December 15, 2006. We are currently assessing the impact of adopting FIN 48 on the financial condition, results of operations, and cash flows of the Company.

In September 2006, FASB issued SFAS No. 157 Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value, and enhances disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require the use of fair value measurements. SFAS 157 is effective for interim
and annual financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the impact of adopting SFAS 157 on the financial condition, results of operations, or cash flows of the Company.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Post-retirement
Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires an entity to recognize in its statement of financial condition the funded status of its defined benefit post-retirement plans,
measured as the difference between the fair value of the plan assets and the applicable benefit obligations. SFAS 158 also requires an entity to recognize changes in the funded status of a defined benefit post-retirement plan within accumulated
other comprehensive income, net of tax, to the extent such changes are not recognized in earnings as components of periodic net benefit cost. SFAS 158 is effective for interim and annual financial statements issued for fiscal years ending after
December 15, 2006. We are currently assessing the impact of adopting SFAS 158 on the financial condition, results of operations, or cash flows of the Company.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 permits the Company to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of
the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of
adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously filed reports with the SEC to be amended. The Company is currently assessing the impact of adoption of SAB 108
on the financial condition, results of operations, and cash flows as of and for the year ended December 31, 2006.



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

Risk
Management

Quantitative and qualitative disclosures about 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 the Company in connection with the separation on May 10, 2005, the market
risks specific to the Capital Markets and Other segment no longer apply to the Company.



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

Our management, including
our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief 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 we are required to disclose in reports that we file or submit 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 our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

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



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PART II. OTHER INFORMATION



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

Our businesses, as well as the
financial services industry generally, are subject to extensive regulation throughout the world. We are involved in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct
of our businesses. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition but might be material to our operating results or
cash flows for any particular period, depending upon the operating results for such period.

We received a request for information from the
NASD as part of what we understand 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, we received requests for information from the NASD, SEC and the U.S. Attorneys Office for the District of Massachusetts seeking information concerning gifts and entertainment involving an unaffiliated mutual fund
company, which are also focused on that same business. We believe that other broker-dealers also received requests for information. In the course of an internal review of these matters, there were resignations or discipline of certain individuals
associated with Lazards former Capital Markets business. These investigations are continuing and we cannot predict their potential outcomes, which outcomes, if any, could include the consequences discussed in the caption Regulation
in our Annual Report on Form 10-K for the year ended December 31, 2005.

Lazard Ltd and Goldman Sachs & Co., the lead underwriter of
Lazard Ltds equity public offering of its 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 plaintiffs in
the putative class action lawsuits filed in the U.S. District Court for the Southern District of New York have filed a consolidated amended complaint, and the defendants have filed a motion to dismiss that complaint. The defendants in the putative
class action lawsuit filed in the Supreme Court of the State of New York have served plaintiffs with a motion to dismiss the complaint or, in the alternative, stay the action pending resolution of the putative class action in the U.S. District Court
for the Southern District of New York. 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. We believe that the suits are without merit and intend to defend them vigorously.



|Item 1A. | Risk Factors
|-------- | ------------

There were no material changes from
the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December 31, 2005.



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

Not applicable.



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

None.



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

None.



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

On November 6, 2006, Lazard
Ltd, Lazard Group and LAZ-MD Holdings entered into certain modifications to the arrangements between each of the parties as requested by LAZ-MD Holdings on behalf of its members primarily related to the terms of exchangeability of the LAZ-MD
Holdings exchangeable interests and the registration rights associated with the shares of Lazard Ltd common stock issuable upon exchange of those interests. The following is a summary of the material terms of the modifications, which have been
approved by the boards of directors of Lazard Ltd, Lazard Group and LAZ-MD Holdings, and, in accordance with the terms of the LAZ-MD Holdings stockholders agreement, the requisite vote of the holders of LAZ-MD Holdings exchangeable interests
party thereto. The modifications involve changes to the following documents:



| |  |  | the stockholders agreement dated as of May 10, 2005, by and among LAZ-MD Holdings, Lazard Ltd and certain members of LAZ-MD Holdings (the LAZ-MD Holdings
stockholders agreement),
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the master separation agreement, dated as of May 10, 2005, by and among Lazard Ltd, LAZ-MD Holdings, Lazard Group and LFCM Holdings, as amended, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the retention agreements entered into with each managing director of Lazard in connection with the equity public offering of Lazard Ltd.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

The following summary of the material terms of the modifications to these agreements does not purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the amended and restated LAZ-MD Holdings stockholders agreement, the amendment to the master separation agreement and the acknowledgment letter regarding the retention agreements, which were entered into to
effect the changes. Copies of these documents have been filed with the SEC as exhibits to this Quarterly Report on Form 10-Q.

Amended and Restated
LAZ-MD Holdings Stockholders Agreement

The amended and restated LAZ-MD Holdings stockholders agreement, dated as of
November 6, 2006 (the amended and restated stockholders agreement) modified in certain respects the terms of the registration rights granted to holders of the LAZ-MD Holdings exchangeable interests who are party to that agreement.
The changes include the following:



| |  |  | For purposes of determining what are registrable securities under the amended and restated stockholders agreement, both shares of our common stock already issued in exchange
for LAZ-MD Holdings exchangeable interests and shares of our common stock then issuable in exchange for LAZ-MD Holdings exchangeable interests are included.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The minimum number of registrable securities necessary to effect a demand registration is the lesser of (1) the number of shares having a market value in excess of
$50 million at such time (or $20 million after the ninth anniversary of our equity public offering (May 10, 2014)) or (2) 2,000,000 shares of our common stock.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Any amendments to the registration rights provisions of the amended and restated stockholders agreement shall require the affirmative approval of holders
holding two-thirds of the shares of Lazard Ltd common stock covered under the amended and restated stockholders agreement in addition to the
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | consent of Lazard Ltd and LAZ-MD Holdings, and any amendment that materially and adversely impacts the rights of any holder under the amended and restated
stockholders agreement will also require the consent of such holder or it will not apply to such person unless such amendment applies to and affects the rights of all holders equally, regardless of whether or not such person is providing
services to Lazard Ltd.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each holder of registrable securities party to the amended and restated stockholders agreement may enforce his or her registration rights directly against Lazard Ltd, although
LAZ-MD Holdings may elect to assume, seek and conduct the enforcement of any claims itself on behalf of such holder.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amendment to the
Master Separation Agreement

On November 6, 2006, Lazard Ltd, Lazard Group and LAZ-MD Holdings entered into Amendment No. 1 to the
master separation agreement (the amendment). The amendment modified the provisions of the master separation agreement relating to the exchange terms of the LAZ-MD Holdings exchangeable interests. The modifications include the following:



| |  |  | An exchange of LAZ-MD Holdings exchangeable interests may be conditioned upon the actual sale of all or any portion (such amount designated by the holder) of the LAZ-MD Holdings
exchangeable interests in connection with a registered offering.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition, the amendment provides that holders of LAZ-MD Holdings exchangeable interests that are then exchangeable would be able to exchange them not only at annual registration
periods but also in connection with demand and piggy-back registration opportunities and during window periods after the filing of selected Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K by Lazard Ltd.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition to requiring the consent of Lazard Ltd, Lazard Group and LAZ-MD Holdings to amend the exchangeability provisions, any provisions that materially and adversely impact the
rights of any holder thereunder would also need the consent of such holder or it will not apply to such person unless such amendment applies to and affects the rights of all holders equally, regardless of whether or not such person is providing
services to Lazard Ltd.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Acknowledgment Letter Regarding the Retention Agreements

On November 6, 2006, Lazard Group delivered to LAZ-MD Holdings an acknowledgement letter (the acknowledgement letter) modifying the terms of
the retention agreements of persons party to the amended and restated LAZ-MD stockholders agreement who are currently managing directors. The modifications include Lazard Groups agreement that, in the event that any such person shall
become entitled to exchangeability immediately following the third anniversary of the initial equity public offering (May 10, 2008) of his or her LAZ-MD Holdings exchangeable interests, that person will not forfeit the right to early exchangeability
with respect to the first tranche of his or her LAZ-MD Holdings exchangeable interests if he or she breaches the restrictive covenants (i.e., non-compete and non-solicitation provisions) in the retention agreement of such individual (although
shares in the second and third tranches that would otherwise become exchangeable would not be exchangeable until the eighth anniversary of our equity public offering (May 10, 2013) in such an instance).



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



|     |  |                                                                                                                                                                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Lazard Group LLCs Certificate of Formation (incorporated by reference to Exhibit 3.1 to Lazard Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on
July 21, 2005).                                                                                                                                                           
|     | 
|3.2  |  | Lazard Group LLCs Certificate of Amendment of Certificate of Formation of Lazard Group LLC, changing name to Lazard Group LLC (incorporated by reference to Exhibit 3.2 to the Lazard
Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                    
|     | 
|3.3  |  | 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).                                                                                                                                                
|     | 
|3.4  |  | Amendment No. 1 to the Operating Agreement of Lazard Group LLC, dated as of December 19, 2005 (incorporated by reference to Exhibit 3.01 to the Lazard Group LLCs Current Report on Form
8-K (File No. 333-126751) filed on December 19, 2005).                                                                                                        
|     | 
|4.1  |  | Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Lazard Group LLCs
Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                                             
|     | 
|4.2  |  | First Supplemental Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Lazard Group
LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                      
|     | 
|4.3  |  | Registration Rights Agreement, dated as of May 10, 2005, by and between Lazard Group LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as representatives for the Initial
Purchasers (incorporated by reference to Exhibit 4.3 to Lazard Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).
|     | 
|4.4  |  | Second Supplemental Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.37 to Lazard Group
LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                       
|     | 
|4.5  |  | Third Supplemental Indenture, dated as of December 19, 2005, by and among Lazard Group LLC, The Bank of New York, as trustee, and for purposes of consent, Lazard Group Finance LLC
(incorporated by reference to Exhibit 4.02 to the Lazard Group LLCs Current Report on Form 8-K (Commission File No. 333-126751) filed on December 19, 2005).       
|     | 
|4.6  |  | 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).                                                                             
|     | 
|4.7  |  | 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).  
|     | 
|4.8  |  | 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).    
|     | 
|4.9  |  | Form of Normal Equity Security Units Certificate (included in Exhibit 4.6).                                                                                                                                                                                                                                                                             
|     | 
|4.10 |  | Form of Stripped Equity Security Units Certificate (included in Exhibit 4.6).                                                                                                                                                                                                                                                                           
|     | 
|4.11 |  | Form of Senior Note (included in Exhibit 4.5).                                                                                                                                                                                                                                                                                                          
|     | 
|4.12 |  | $546 million 7.125% Senior Notes Due 2015, issued by Lazard Group LLC (incorporated by reference to Exhibit 4.5 to Lazard Group LLCs Quarterly Report (File No. 333-126751) on Form 10-Q
filed on November 10, 2005).                                                                                                                                  



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | Master Separation Agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group LLC, LAZ-MD Holdings LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 2.1 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                               
|      | 
|10.2  |  | Amendment No. 1, dated as of November 6, 2006, to the Master Separation Agreement, dated as of May 10, 2005, by and among the Lazard Ltd, Lazard Group LLC and LAZ-MD Holdings LLC.                                                                                                                                                             
|      | 
|10.3  |  | Class B-1 and Class C Members Transaction Agreement (incorporated by reference to Exhibit 2.2 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1 filed on December
17, 2004).                                                                                                                                             
|      | 
|10.4  |  | Amended and Restated Stockholders Agreement, dated as of November 6, 2006, by and among LAZ-MD Holdings LLC, Lazard Ltd and certain members of LAZ-MD Holdings LLC.                                                                                                                                                                            
|      | 
|10.5  |  | Employee Benefits Agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group LLC, LAZ-MD Holdings LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.4 to
Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                              
|      | 
|10.6  |  | Insurance Matters Agreement, dated as of May 10, 2005, by and between Lazard Group LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.5 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                             
|      | 
|10.7  |  | License Agreement, dated as of May 10, 2005, by and among Lazard Strategic Coordination Company, LLC, Lazard Frères & Co. LLC, Lazard Frères S.A.S., Lazard & Co.
Holdings Limited and LFCM Holdings LLC (incorporated by reference to Exhibit 10.6 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005). 
|      | 
|10.8  |  | Administrative Services Agreement, dated as of May 10, 2005, by and among LAZ-MD Holdings LLC, LFCM Holdings LLC and Lazard Group LLC (incorporated by reference to Exhibit 10.7 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                    
|      | 
|10.9  |  | Business Alliance Agreement, dated as of May 10, 2005, by and between Lazard Group LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.8 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                             
|      | 
|10.10 |  | First Amended and Restated Limited Liability Company Agreement of Lazard Asset Management LLC, dated as of January 10, 2003 (incorporated by reference to Exhibit 10.10 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                 
|      | 
|10.11 |  | Amended and Restated Operating Agreement of Lazard Strategic Coordination Company LLC, dated as of January 1, 2002 (incorporated by reference to Exhibit 10.16 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                          
|      | 
|10.12 |  | Lease, dated as of January 27, 1994, by and between Rockefeller Center Properties and Lazard Frères & Co. LLC (incorporated by reference to Exhibit 10.19 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                               
|      | 
|10.13 |  | Lease with an Option to Purchase, dated as of July 11, 1990, by and between Sicomibail and Finabail and SCI du 121 Boulevard Hausmann (English translation) (incorporated by reference to
Exhibit 10.20 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                 
|      | 
|10.14 |  | Occupational Lease, dated as of August 9, 2002, Burford (Stratton) Nominee 1 Limited, Burford (Stratton) Nominee 2 Limited, Burford (Stratton) Limited, Lazard & Co., Limited and Lazard
LLC (incorporated by reference to Exhibit 10.21 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).
|      | 
|10.15 |  | Lazard Ltds 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.21 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on May 2,
2005).                                                                                                                                                           



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Lazard Ltds 2005 Bonus Plan (incorporated by reference to Exhibit 10.23 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on March 21,
2005).                                                                                                                                                                                                                                                                                              
|      | 
|10.17 |  | Agreement Relating to Retention and Noncompetition and Other Covenants, dated as of May 4, 2005, by and among Lazard Ltd, Lazard Group LLC and Bruce Wasserstein (incorporated by
reference to Exhibit 10.23 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                   
|      | 
|10.18 |  | Agreement Relating to Reorganization of Lazard, dated as of May 10, 2005, by and among Lazard LLC and Bruce Wasserstein (incorporated by reference to Exhibit 10.24 to Lazard Ltds
Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                                                            
|      | 
|10.19 |  | Agreement Relating to Retention and Noncompetition and Other Covenants, dated as of May 4, 2005, by and among Lazard Ltd, Lazard Group LLC and Steven J. Golub (incorporated by reference
to Exhibit 10.25 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                     
|      | 
|10.20 |  | Form of Agreement Relating to Retention and Noncompetition and Other Covenants, dated as ofMay 4, 2005, applicable to, and related Schedule I for, each of Michael J. Castellano, Scott D.
Hoffman and Charles G. Ward III (incorporated by reference to Exhibit 10.26 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                         
|      | 
|10.21 |  | Agreements Relating to Retention and Noncompetition and Other Covenants (incorporated by reference to Exhibit 10.27 to Lazard Ltds Registration Statement (File No. 333-121407) on
FormS-1/A filed on April 11, 2005).                                                                                                                                                                                                                                                    
|      | 
|10.22 |  | Amended and Restated Letter Agreement, effective as of January 1, 2004, between Vernon E. Jordan, Jr. and Lazard Frères & Co. LLC (incorporated by reference to Exhibit 10.28 to
Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                                                  
|      | 
|10.23 |  | Acknowledgement Letter, dated as of November 6, 2006, from Lazard Group LLC to certain managing directors of Lazard Group LLC modifying the terms of the retention agreements of persons party
to the Amended and Restated Stockholders Agreement, dated as of November 6, 2006.                                                                                                                                                                                          
|      | 
|10.24 |  | 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 10.27 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on March 21, 2005).                                                                                                                                                                                                        
|      | 
|10.25 |  | Registration Rights Agreement, dated as of May 10, 2005 by and among Lazard Group Finance LLC, the Registrant, Lazard Group 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).                                                                                                                                                             
|      | 
|10.26 |  | Letter Agreement, dated as of May 10, 2005, with Bruce Wasserstein family trusts (incorporated by reference to Exhibit 10.31 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                                                                                                   
|      | 
|10.27 |  | Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank, N.A., The Bank of New York, New York
Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.32 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16,
2005).                                                        
|      | 
|10.28 |  | First Amendment, dated as of March 28, 2006, to the Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank,
N.A., The Bank of New York, New York Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.38 to the Registrants Quarterly Report on Form 10-Q (File No. 333-126751)
filed on May 11, 2006).



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Second Amendment, dated as of May 17, 2006, to the Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank,
N.A., The Bank of New York, New York Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 333-126751)
filed on May 17, 2006).
|      | 
|10.30 |  | Description of Non-Executive Director Compensation (incorporated by reference to Exhibit 10.33 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q for the quarter
ended June 30, 2005).                                                                                                                                                                                                                                                               
|      | 
|10.31 |  | Form of Award Letter for Annual Grant of Deferred Stock Units to Non-Executive Directors (incorporated by reference to Exhibit 99.1 to Lazard Ltds Current Report on Form 8-K (File
No.001-32492) filed on September 8, 2005).                                                                                                                                                                                                                                       
|      | 
|10.32 |  | Form of Agreement evidencing a grant of Restricted Stock Units to Executive Officers under the Lazard Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Lazard Ltds
Current Report on Form 8-K (File No. 001-32492) filed on January 26, 2006).                                                                                                                                                                                                    
|      | 
|10.33 |  | Termination Agreement, dated as of March 31, 2006, by and among Banca Intesa S.p.A., Lazard Group LLC, and Lazard & Co. S.r.l. (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K (File No. 333-126751) filed on April 4, 2006).                                                                                                                                                                                               
|      | 
|10.34 |  | Amended and Restated $150 Million Subordinated Convertible Promissory Note due 2018, issued by Lazard Funding LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                                                                                                      
|      | 
|10.35 |  | Amended and Restated Guaranty of Lazard Group LLC to Banca Intesa S.p.A., dated as of May 15, 2006 (incorporated by reference to Exhibit 10.4 to the Registrants Current Report on Form
8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                                                                                                                                            
|      | 
|10.36 |  | $96 Million Senior Promissory Note due 2008, issued by Lazard Group LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.5 to the Registrants Current Report on Form 8-K
(File No. 333-126751) filed on May 17, 2006).                                                                                                                                                                                                                                
|      | 
|10.37 |  | $50 Million Subordinated Promissory Note due 2008, issued by Lazard Group LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.6 to the Registrants Current Report on Form
8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                                                                                                                                          
|      | 
|10.38 |  | Certificate of Transfer and Assignment with Amendments, dated as of May 15, 2006, by and between Banca Intesa S.p.A. and Citibank, N.A., acknowledged and accepted for certain purposes by
Lazard Group LLC (incorporated by reference to Exhibit 10.7 to the Registrants Current Report on Form 8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                                   
|      | 
|10.39 |  | Directors Fee Deferral Unit Plan. (incorporated by reference to Exhibit 10.37 to the Registrants Quarterly Report on Form 10-Q (File No. 333-126751) filed on May 11,
2006).                                                                                                                                                                                                                                                                                        
|      | 
|12.1  |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                                                                                    
|      | 
|31.1  |  | Rule 13a-14(a) Certification of Bruce Wasserstein.                                                                                                                                                                                                                                                                                                                                                                                                                    
|      | 
|31.2  |  | Rule 13a-14(a) Certification of Michael J. Castellano.                                                                                                                                                                                                                                                                                                                                                                                                                
|      | 
|32.1  |  | Section 1350 Certification for Bruce Wasserstein.                                                                                                                                                                                                                                                                                                                                                                                                                     
|      | 
|32.2  |  | Section 1350 Certification for Michael J. Castellano.                                                                                                                                                                                                                                                                                                                                                                                                                 



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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 7, 2006



LAZARD GROUP LLCBy:

/s/    Bruce WassersteinName: Bruce Wasserstein Title:   Chairman
and Chief Executive OfficerBy:

/s/    Michael J. CastellanoName: Michael J. Castellano Title:   Chief
Financial Officer




73