Edgar Filing: Lazard Ltd

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

001-32492

(Commission File Number)

LAZARD LTD

(Exact name of registrant as specified in its charter)


Bermuda		98-0437848
(State or Other Jurisdiction of Incorporation		(I.R.S. Employer Identification No.)
or Organization)

Clarendon House

2 Church Street

Hamilton HM11, Bermuda

(Address of principal executive offices)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨

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 July 25, 2011, there were 120,426,321 shares of the Registrant’s Class A common stock (including 4,339,875 shares held by a subsidiary) and one share of the Registrant’s Class B common stock outstanding.

TABLE OF CONTENTS

When we use the terms “Lazard”, “we”, “us”, “our” and “the Company”, we mean Lazard Ltd, a company incorporated under the laws of Bermuda, and its subsidiaries, including Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), that is the current holding company for our businesses. Lazard Ltd has no operating assets other than indirect ownership as of June 30, 2011 of approximately 94.6% of the common membership interests in Lazard Group and its controlling interest in Lazard Group.


	Page
Part I. Financial Information

Item 1. Financial Statements (Unaudited)		1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

Item 3. Quantitative and Qualitative Disclosures About Market Risk		72

Item 4. Controls and Procedures		72

Part II. Other Information

Item 1. Legal Proceedings		73

Item 1A. Risk Factors		73

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		73

Item 3. Defaults Upon Senior Securities		74

Item 4. (Removed and Reserved)		74

Item 5. Other Information		74

Item 6. Exhibits		76

Signatures		81

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)


	Page
Condensed Consolidated Statements of Financial Condition as of June 30, 2011 and December 31, 2010		2

Condensed Consolidated Statements of Operations for the three month and six month periods ended June 30, 2011 and 2010		4

Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and 2010		5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six month periods ended June 30, 2011 and 2010		6

Notes to Condensed Consolidated Financial Statements		8

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2011 AND DECEMBER 31, 2010

(UNAUDITED)

(dollars in thousands, except for per share data)


	June 30, 2011		December 31, 2010
ASSETS
Cash and cash equivalents	$	984,012		$1,209,695
Deposits with banks		248,944		356,539
Cash deposited with clearing organizations and other segregated cash		100,162		92,911

Receivables-net:
Fees		418,126		480,340
Customers and other		100,513		63,490
Related parties		13,502		24,874

		532,141		568,704
Investments		435,139		417,410

Property (net of accumulated amortization and depreciation of $272,369 and $250,898 at June 30, 2011 and December 31, 2010, respectively)		153,006		150,524

Goodwill and other intangible assets (net of accumulated amortization of $18,187 and $15,007 at June 30, 2011 and December 31, 2010, respectively)		365,441		361,439
Other assets		262,169		265,310

Total assets	$	3,081,014	$	3,422,532

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

JUNE 30, 2011 AND DECEMBER 31, 2010

(UNAUDITED)

(dollars in thousands, except for per share data)


	June 30, 2011			December 31, 2010
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits and other customer payables	$	273,465		$	361,553
Accrued compensation and benefits		183,660			498,880
Senior debt		1,076,850			1,076,850
Capital lease obligations		23,101			22,903
Related party payables		3,464			2,819
Other liabilities		512,682			513,410
Subordinated debt		150,000			150,000

Total liabilities		2,223,222			2,626,415

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Preferred stock, par value $.01 per share; 15,000,000 shares authorized:
Series A - 22,021 shares issued and outstanding at June 30, 2011 and December 31, 2010		–			–
Series B - no shares issued and outstanding		–			–
Common stock:
Class A, par value $.01 per share (500,000,000 shares authorized; 120,426,321 and 119,697,936 shares issued at June 30, 2011 and December 31, 2010, respectively, including shares held by a subsidiary as indicated below)		1,204			1,197
Class B, par value $.01 per share (1 share authorized, issued and outstanding at June 30, 2011 and December 31, 2010)		–			–
Additional paid-in-capital		642,269			758,841
Retained earnings		244,633			166,468
Accumulated other comprehensive loss, net of tax		(17,827	)		(46,158	)

		870,279			880,348
Class A common stock held by a subsidiary, at cost (4,339,875 and 6,847,508 shares at June 30, 2011 and December 31, 2010, respectively)		(159,763	)		(227,950	)

Total Lazard Ltd stockholders’ equity		710,516			652,398
Noncontrolling interests		147,276			143,719

Total stockholders’ equity		857,792			796,117

Total liabilities and stockholders’ equity	$	3,081,014		$	3,422,532

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2011 AND 2010

(UNAUDITED)

(dollars in thousands, except for per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
REVENUE
Investment banking and other advisory fees		$243,096		$245,282		$463,423		$514,491
Money management fees		230,906		180,899		445,598		358,002
Interest income		4,363		5,500		7,855		10,607
Other		22,240		11,472		45,070		23,861

Total revenue		500,605		443,153		961,946		906,961
Interest expense		23,313		24,118		46,631		49,715

Net revenue		477,292		419,035		915,315		857,246

OPERATING EXPENSES
Compensation and benefits		286,480		263,021		556,479		563,398
Occupancy and equipment		22,977		21,320		45,685		42,590
Marketing and business development		20,879		18,252		38,990		33,855
Technology and information services		20,582		16,996		40,149		34,648
Professional services		13,120		10,814		22,961		18,985
Fund administration and outsourced services		13,507		10,996		26,758		22,370
Amortization of intangible assets related to acquisitions		1,706		1,769		3,180		3,539
Restructuring		–		–		–		87,108
Other		8,839		8,816		18,465		18,183

Total operating expenses		388,090		351,984		752,667		824,676

OPERATING INCOME		89,202		67,051		162,648		32,570
Provision for income taxes		17,636		13,523		31,099		19,936

NET INCOME		71,566		53,528		131,549		12,634

LESS - NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		9,562		8,956		14,538		1,596

NET INCOME ATTRIBUTABLE TO LAZARD LTD		$ 62,004		$ 44,572		$117,011		$ 11,038

ATTRIBUTABLE TO LAZARD LTD CLASS A COMMON STOCKHOLDERS:

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic		119,107,386		103,527,014		117,221,070		96,631,576
Diluted		139,347,933		139,944,310		138,969,263		108,995,837

NET INCOME PER SHARE OF COMMON STOCK:
Basic		$0.52		$0.43		$1.00		$0.11

Diluted		$0.48		$0.39		$0.91		$0.10

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.16		$0.125		$0.285		$0.25

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2011 AND 2010

(UNAUDITED)

(dollars in thousands)


	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	131,549		$	12,634
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Noncash items included in net income:
Depreciation and amortization of property		11,820			10,122
Amortization of deferred expenses, share-based incentive compensation and interest rate hedge		164,713			207,786
Amortization of intangible assets related to acquisitions		3,180			3,539
Loss on extinguishment of debt		–			424
(Increase) decrease in operating assets:
Deposits with banks		132,672			(44,179	)
Cash deposited with clearing organizations and other segregated cash		(845	)		(2,190	)
Receivables-net		52,477			45,832
Investments		(13,164	)		(17,312	)
Other assets		12,237			(3,589	)
Increase (decrease) in operating liabilities:
Deposits and other payables		(112,956	)		(3,421	)
Accrued compensation and benefits and other liabilities		(366,816	)		(301,056	)

Net cash provided by (used in) operating activities		14,867			(91,410	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions relating to equity method investments		–			51,437
Additions to property		(5,676	)		(5,465	)
Disposals of property		199			254
Proceeds from sales and maturities of available-for-sale securities		–			52,786

Net cash provided by (used in) investing activities		(5,477	)		99,012

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Contribution from noncontrolling interests		980			2,000
Excess tax benefits from share-based incentive compensation		2,848			–
Other financing activities		1,688			5,554
Payments for:
Senior borrowings		–			(10,375	)
Capital lease obligations		(1,397	)		(1,096	)
Distributions to noncontrolling interests		(8,034	)		(9,491	)
Repurchase of common membership interests from members of LAZ-MD Holdings		(794	)		–
Purchase of Class A common stock		(126,237	)		(22,733	)
Class A common stock dividends		(32,855	)		(23,022	)
Settlement of vested share-based incentive compensation		(90,635	)		(44,536	)
Other financing activities		(46	)		(34	)

Net cash used in financing activities		(254,482	)		(103,733	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		19,409			(23,766	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(225,683	)		(119,897	)
CASH AND CASH EQUIVALENTS—January 1		1,209,695			917,329

CASH AND CASH EQUIVALENTS—June 30	$	984,012		$	797,432

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011

(UNAUDITED)

(dollars in thousands)


	Series A Preferred Stock				Common Stock				Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Class A Common Stock Held By a Subsidiary						Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares		$		*Shares ()**		$		Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Shares			$			Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balance – January 1, 2011		22,021	$	–		119,697,937	$	1,197	$	758,841		$	166,468		$	(46,158	)		6,847,508		$	(227,950	)	$	652,398		$	143,719		$	796,117

Comprehensive income (loss):
Net income													117,011												117,011			14,538			131,549
Other comprehensive income (loss) - net of tax:
Currency translation adjustments																30,418									30,418			1,756			32,174
Amortization of interest rate hedge																498									498			29			527
Employee benefit plans:
Net actuarial loss																(3,434	)								(3,434	)		(196	)		(3,630	)
Adjustments for items reclassified to earnings																1,054									1,054			60			1,114

Comprehensive income																									145,547			16,187			161,734

Class A common stock issued/issuable in connection with business acquisitions and LAM Merger and related amortization										4,180															4,180			240			4,420
Amortization of share-based incentive compensation										144,261															144,261			8,272			152,533
Dividend-equivalents										5,958			(5,991	)											(33	)		(2	)		(35	)
Class A common stock dividends													(32,855	)											(32,855	)					(32,855	)
Purchase of Class A common stock																			3,156,416			(126,237	)		(126,237	)					(126,237	)
Delivery of Class A common stock in connection with share-based incentive compensation and related tax benefits of $2,178										(282,956	)								(5,664,049	)		194,424			(88,532	)		75			(88,457	)
Repurchase of common membership interests from LAZ-MD Holdings										(751	)														(751	)		(43	)		(794	)
Class A common stock issued in exchange for Lazard Group common membership interests						728,385		7		(7	)														–						–
Adjustment related to the change in Lazard Ltd’s ownership in Lazard Group										(1,580	)														(1,580	)					(1,580	)
Distributions to noncontrolling interests, net																									–			(7,054	)		(7,054	)
Adjustments related to noncontrolling interests										14,323						(205	)								14,118			(14,118	)		–

Balance – June 30, 2011		22,021	$	–		120,426,322	$	1,204	$	642,269		$	244,633		$	(17,827	)		4,339,875		$	(159,763	)	$	710,516		$	147,276		$	857,792

^(*)	Includes 119,697,936 and 120,426,321 shares of the Company’s Class A common stock issued at January 1, 2011 and June 30, 2011, respectively, and 1 share of the Company’s Class B common stock at each such date.

See notes to condensed consolidated financial statements.

LAZARD LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2010

(UNAUDITED)

(dollars in thousands)


	Series A Preferred Stock				Common Stock				Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Class A Common Stock Held by a Subsidiary						Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares		$		*Shares ()**		$		Additional Paid-In- Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Shares			$			Total Lazard Ltd Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balance – January 1, 2010		26,883		$ –		92,165,913		$922		$549,931			$52,726			$(57,048	)		5,850,775			$(191,140)			$355,391			$167,706			$523,097

Comprehensive income (loss):
Net income													11,038												11,038			1,596			12,634
Other comprehensive income (loss) - net of tax:
Currency translation adjustments																(51,932	)								(51,932	)		(6,397	)		(58,329	)
Amortization of interest rate hedge																480									480			59			539
Available-for-sale securities:
Net unrealized loss																(755	)								(755	)		(93	)		(848	)
Adjustments for items reclassified to earnings																2,102									2,102			259			2,361
Employee benefit plans:
Net actuarial loss																(2,556	)								(2,556	)		(315	)		(2,871	)
Adjustments for items reclassified to earnings																460									460			57			517

Comprehensive income (loss)																									(41,163	)		(4,834	)		(45,997	)

Class A common stock issued/issuable in connection with business acquisitions and LAM Merger and related amortization										2,800															2,800			345			3,145
Amortization of share-based incentive compensation										180,443															180,443			22,055			202,498
Dividend-equivalents										5,232			(5,255	)											(23	)					(23	)
Class A common stock dividends													(23,022	)											(23,022	)					(23,022	)
Purchase of Class A common stock																			712,950			(22,733	)		(22,733	)					(22,733	)
Delivery of Class A common stock in connection with share-based incentive compensation										(242,352	)								(5,738,601	)		197,816			(44,536	)					(44,536	)
Issuance of Class A common stock						3,000,000		30		116,070									3,000,000			(116,100	)		–						–
Class A common stock issued in exchange for Lazard Group common membership interests, including in connection with secondary offering						17,645,747		176		(176	)														–						–
Distributions to noncontrolling interests, net																									–			(7,491	)		(7,491	)
Adjustments related to noncontrolling interests										31,973						(8,545	)								23,428			(23,428	)		–

Balance – June 30, 2010		26,883		$ –		112,811,660		$1,128		$643,921			$35,487			$(117,794	)		3,825,124			$(132,157	)		$430,585			$154,353			$584,938

^(*)	Includes 92,165,912 and 112,811,659 shares of the Company’s Class A common stock issued at January 1, 2010 and June 30, 2010, respectively, and 1 share of the Company’s Class B common stock at each such date.

See notes to condensed consolidated financial statements.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Lazard Ltd, a Bermuda holding company, and its subsidiaries (collectively referred to as “Lazard Ltd”, “Lazard”, “we” or the “Company”), including Lazard Ltd’s indirect investment in Lazard Group LLC, a Delaware limited liability company (collectively referred to, together with its subsidiaries, as “Lazard Group”), is one of the world’s preeminent financial advisory and asset management firms and has long specialized in crafting solutions to the complex financial and strategic challenges of our clients. We serve a diverse set of clients around the world, including corporations, partnerships, institutions, governments and high net worth individuals.

Lazard Ltd indirectly held approximately 94.6% and 94.0% of all outstanding Lazard Group common membership interests as of June 30, 2011 and December 31, 2010, respectively. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group. LAZ-MD Holdings LLC (“LAZ-MD Holdings”), an entity owned by Lazard Group’s current and former managing directors, held approximately 5.4% and 6.0% of the outstanding Lazard Group common membership interests as of June 30, 2011 and December 31, 2010, respectively. Additionally, LAZ-MD Holdings was the sole owner of the one issued and outstanding share of Lazard Ltd’s Class B common stock (the “Class B common stock”) which provided LAZ-MD Holdings with approximately 5.4% and 6.0% of the voting power but no economic rights in the Company as of such respective dates. Subject to certain limitations, LAZ-MD Holdings’ interests in Lazard Group are exchangeable for Lazard Ltd Class A common stock, par value $0.01 per share (“Class A common stock”). Lazard Group is governed by an Operating Agreement dated as of May 10, 2005, as amended (the “Operating Agreement”).

The Company’s sole operating asset is its indirect ownership of common membership interests of Lazard Group and its managing member interest of Lazard Group, whose principal operating activities are included in two business segments:

•

Financial Advisory, which includes providing general strategic and transaction-specific advice on mergers and acquisitions (“M&A”) and other strategic matters, restructurings, capital structure, capital raising and various other corporate finance matters, and

•

Asset Management, which includes strategies for the management of equity and fixed income securities and alternative investment and private equity funds, as well as wealth management.

In addition, the Company records selected other activities in its Corporate segment, including management of cash, certain investments and the commercial banking activities of Lazard Group’s Paris-based Lazard Frères Banque SA (“LFB”). The Company also allocates outstanding indebtedness to its Corporate segment.

LFB is a registered bank regulated by the Banque de France and its primary operations include asset and liability management for Lazard Group’s businesses in France through its money market desk and commercial banking operations, deposit taking and, to a lesser extent, financing activities and custodial oversight over assets of various clients. LFB also engages in underwritten offerings of securities in France.

Basis of Presentation

The accompanying condensed consolidated financial statements of Lazard Ltd have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Ltd’s annual report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”). The accompanying December 31, 2010 unaudited condensed consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying 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 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 six month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for any future interim or annual period.

The condensed consolidated financial statements include Lazard Ltd, 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”); its French limited liability companies Compagnie Financière Lazard Frères SAS (“CFLF”) along with its subsidiaries, LFB and Lazard Frères Gestion SAS (“LFG”), and Maison Lazard SAS and its subsidiaries; 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 Company’s policy is to consolidate (i) entities in which it has a controlling financial interest, (ii) variable interest entities (“VIEs”) where the Company has a variable interest and is deemed to be the primary beneficiary and (iii) limited partnerships where the Company is the general partner, unless the presumption of control is overcome. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity’s operating and financial decisions, the Company applies the equity method of accounting in which it records in earnings its share of earnings or losses of the entity. All material intercompany transactions and balances have been eliminated.

Certain prior period amounts have been reclassified to conform to the manner of presentation in the current period.

2. RECENT ACCOUNTING DEVELOPMENTS

On January 1, 2011, the Company adopted the fair value measurement disclosure guidance regarding presenting purchases, sales, issuances and settlements on a gross basis in the roll forward of activities in Level 3 of the hierarchy of fair value measurements, which did not have a material impact on the Company’s condensed consolidated financial statements.

During May 2011, the FASB amended its fair value measurement guidance, which it states was designed to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Although many of the changes for U.S. GAAP purposes are clarifications of existing guidance or wording changes to align with IFRS, additional disclosures about fair value measurements would be required, including (i) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (ii) the valuation processes used and the sensitivity of fair value measurements related to investments categorized within Level 3 of the hierarchy of fair value measurements to

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

changes in unobservable inputs and the interrelationships between those unobservable inputs, if any, and (iii) the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial condition but for which the fair value is required to be disclosed. The amended fair value measurement guidance will become effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The Company does not anticipate that the adoption of the amended fair value measurement guidance will have a material impact on the Company’s consolidated financial statements.

During June 2011, the FASB amended its guidance regarding the presentation of comprehensive income, which it states was designed to improve comparability, consistency and transparency. The amendment requires that all changes in comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the one-statement approach, the Company would present total net income, including its components, followed by other comprehensive income, including its components, and a total of comprehensive income. In the two-statement approach, the first statement would present total net income and its components as currently presented by the Company in its statement of operations, followed consecutively by a second statement that would present the components of other comprehensive income, total other comprehensive income and the total of comprehensive income. The amendment is to be applied retrospectively and is effective with interim and annual periods beginning after December 15, 2011, with early adoption permitted.

3. RECEIVABLES - NET

The Company’s “receivables - net” represents receivables from fees, customers and other, and related parties.

Receivables are stated net of an allowance for doubtful accounts of $16,525 and $15,017 at June 30, 2011 and December 31, 2010, respectively, for accounts deemed past due and for specific accounts deemed uncollectible, which may include situations where a fee is in dispute. The Company recorded bad debt expense of $2,463 and $3,430 for the three month and six month periods ended June 30, 2011, respectively, and $2,322 and $9,190 for the three month and six month periods ended June 30, 2010, respectively. In addition, the Company recorded charge-offs, foreign currency translation and other adjustments, resulting in a net decrease to the allowance for doubtful accounts of $1,435 and $1,922 for the three month and six month periods ended June 30, 2011, respectively, and $937 and $1,894 for the three month and six month periods ended June 30, 2010, respectively. At June 30, 2011 and December 31, 2010, the Company had receivables deemed past due or uncollectible of $18,023 and $17,101, respectively.

Customers and other receivables at June 30, 2011 and December 31, 2010 include $1,534 and $2,121, respectively, of loans to managing directors and employees of the Company that are made in the ordinary course of business at market terms.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

4. INVESTMENTS

The Company’s investments and securities sold, not yet purchased, consist of the following at June 30, 2011 and December 31, 2010:


	June 30, 2011		December 31, 2010
	June 30, 2011		December 31, 2010
Debt:
U.S. Government and agencies	$	31,889	$	31,900
Fixed income funds (a)		40,403		33,951
Corporate and other debt and interest-bearing deposits		26,868		29,693

		99,160		95,544

Equities (a)		110,634		88,437

Other:
Interests in LAM alternative asset management funds		39,360		58,656
Private equity		174,704		163,482
Equity method investments		11,281		11,291

		225,345		233,429

Total investments		435,139		417,410
Less:
Interest-bearing deposits		7,660		7,754
Equity method investments		11,281		11,291

Investments, at fair value	$	416,198	$	398,365

Securities sold, not yet purchased, at fair value (included in “other liabilities”)	$	1,262		$2,897

(a)

At June 30, 2011 fixed income funds and equities include investments with fair values of $2,051 and $23,051, respectively, held in connection with previously granted Lazard Fund Interest awards (“Lazard Fund Interests”), which will serve to satisfy the Company’s liability upon vesting. Lazard Fund Interests represent grants by the Company to eligible employees of actual or notional interests in several Lazard managed fixed income and equity investment funds (see Note 13 of Notes to Condensed Consolidated Financial Statements).

The Company’s debt securities included in the table above are categorized as trading securities. Fixed income funds primarily consist of amounts seeding products of our Asset Management segment, as well as amounts held in connection with Lazard Fund Interests. Corporate and other debt primarily consist of United Kingdom (the “U.K.”) government and U.S. state and municipal debt securities.

Equities principally represent the Company’s investments in marketable equity securities of large-, mid- and small-cap domestic, international and global companies to seed new Asset Management products and includes investments in public and private asset management funds managed both by LAM and third-party asset managers, as well as amounts held in connection with Lazard Fund Interests.

Interests in LAM alternative asset management funds represent (i) GP interests owned by Lazard in LAM-managed alternative asset management funds and (ii) GP interests consolidated by the Company pertaining to noncontrolling interests in LAM alternative asset management funds, the latter of which aggregated $5,735 and $8,219

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

at June 30, 2011 and December 31, 2010, respectively. Such noncontrolling interests in LAM alternative asset management funds, which represent GP interests held directly by certain of our LAM managing directors or employees of the Company, are deemed to be controlled by, and therefore consolidated by, the Company in accordance with U.S. GAAP. Noncontrolling interests are presented within “stockholders’ equity” on the consolidated statements of financial condition (see Note 12 of Notes to Condensed Consolidated Financial Statements).

Private equity investments include those owned by Lazard and those consolidated but not owned by Lazard. Private equity investments owned by Lazard are primarily comprised of investments in private equity funds and direct private equity interests. Such investments primarily include (i) a mezzanine fund, which invests in mezzanine debt of a diversified selection of small- to mid-cap European companies; (ii) Corporate Partners II Limited (“CP II”), a private equity fund targeting significant noncontrolling-stake investments in established public and private companies and (iii) Lazard Senior Housing Partners LP (“Senior Housing”), which acquires companies and assets in the senior housing, extended-stay hotel and shopping center sectors. Private equity investments consolidated but not owned by Lazard relate solely to Lazard’s establishment of a private equity business with the Edgewater Funds (“Edgewater”), a Chicago-based private equity firm, through the acquisition of Edgewater’s management vehicles on July 15, 2009, and aggregated $74,505 and $67,206 at June 30, 2011 and December 31, 2010, respectively. The economic interests that the Company does not own are owned by the leadership team and other investors in the Edgewater management vehicles (see Note 8 of Notes to Condensed Consolidated Financial Statements).

On January 24, 2008, Sapphire Industrials Corp. (“Sapphire”), a then newly-organized special purpose acquisition company formed by the Company, completed an initial public offering (the “Sapphire IPO”). Sapphire had been included in equity method investments prior to its dissolution discussed below. Sapphire was formed for the purpose of effecting a business combination within a 24-month period (the “Business Combination”) and net proceeds from the Sapphire IPO were placed in a trust account by Sapphire (the “Trust Account”) pending consummation of the Business Combination. In connection with the Sapphire IPO, the Company purchased warrants from Sapphire for a total purchase price of $12,500 and Sapphire common stock for an aggregate purchase price of $50,000. The Company’s investment in Sapphire had been accounted for using the equity method of accounting. On January 6, 2010, Sapphire announced it had not completed the Business Combination and it would dissolve and distribute the funds in the Trust Account to all of its public shareholders, to the extent they were holders of shares issued in the Sapphire IPO. Pursuant to such dissolution, on January 26, 2010, Sapphire made an initial distribution to the Company aggregating $50,319. All Sapphire warrants expired without value.

During the three month and six month periods ended June 30, 2011 and 2010, the Company recognized gross investment gains and losses in “revenue-other” on its condensed consolidated statements of operations as follows:


	Three Month Period Ended June 30,				Six Month Period Ended June 30,
	2011		2010		2011		2010
Gross investment gains	$	8,830	$	3,724	$	15,205	$	13,482
Gross investment losses	$	2,235	$	6,368	$	3,251	$	11,129

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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


The table above includes gross unrealized investment gains and losses pertaining to “trading” securities as follows:
	Three Month Period Ended June 30,				Six Month Period Ended June 30,
	2011		2010		2011		2010
Gross unrealized investment gains	$	641	$	–	$	1,214	$	101
Gross unrealized investment losses	$	193	$	1,497	$	313	$	1,325

During the six month period ended June 30, 2010, the Company recorded within “accumulated other comprehensive loss, net of tax” (“AOCI”) gross pre-tax unrealized investment gains of $5,456 and gross pre-tax unrealized investment losses of $6,013 pertaining to debt securities held at LFB that were designated as “available-for-sale.” With respect to adjustments for items reclassified to earnings, the average cost basis was utilized for purposes of calculating realized investment gains and losses. There were no other-than-temporary impairment charges recognized during the six month period ended June 30, 2010.

During the fourth quarter of 2010, the Company sold its remaining “available-for-sale” debt securities. Accordingly, there were no gross pre-tax investment gains or losses recorded within AOCI during the six month period ended June 30, 2011.

5. FAIR VALUE MEASUREMENTS

Lazard categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

Level 1.

Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Lazard has the ability to access.

Level 2.

Assets and liabilities whose values are based on quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in non-active markets or inputs other than quoted prices that are directly observable or derived principally from or corroborated by market data.

Level 3.

Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis.

The Company’s investments in U.S. Government and agency debt securities as well as its corporate and other debt securities are considered Level 1 assets with the respective fair values based on unadjusted quoted prices in active markets. The Company’s investments in fixed income funds are considered Level 1 assets when their fair values are based on the reported closing price for the fund or Level 2 assets when their fair values are primarily based on broker quotes as provided by external pricing services.

The fair value of equities is principally classified as Level 1 or Level 2 as follows: marketable equity securities are classified as Level 1 and are valued based on the last trade price on the primary exchange for that security; public asset management funds are classified as Level 1 and are valued based on the reported closing

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

price for the fund; and investments in private asset management funds are classified as Level 2 and are primarily valued based on information provided by fund managers and, secondarily, from external pricing services to the extent managed by LAM.

The fair value of interests in LAM alternative asset management funds is classified as Level 2, and is based on information provided by external pricing services.

The fair value of private equity investments is classified as Level 3, and is based on financial statements provided by fund managers, appraisals and internal valuations.

Where information reported is based on broker quotes, the Company generally obtains one quote/price per instrument. In some cases, quotes related to corporate bonds obtained through external pricing services represent the average of several broker quotes. Where information reported is based on data received from fund managers or from external pricing services, the Company reviews such information to ascertain at which level within the fair value hierarchy to classify the investment.

The following tables present the categorization of investments and certain other assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 into the three-level fair value hierarchy in accordance with fair value measurement disclosure requirements:


	June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Debt:
U.S. Government and agencies	$	31,889	$	–	$	–	$	31,889
Fixed income funds		3,157		37,246		–		40,403
Corporate and other debt		19,208		–		–		19,208
Equities		88,896		21,603		135		110,634
Other (excluding equity method investments):
Interest in LAM alternative asset management funds		–		39,360		–		39,360
Private equity		–		–		174,704		174,704
Derivatives		–		2,328		–		2,328

Total Assets	$	143,150	$	100,537	$	174,839	$	418,526

Liabilities:
Securities sold, not yet purchased	$	1,262	$	–	$	–	$	1,262
Derivatives		–		2,200		–		2,200

Total Liabilities	$	1,262	$	2,200	$	–	$	3,462

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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


	December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Debt:
U.S. Government and agencies	$	31,900	$	–	$	–	$	31,900
Fixed income funds		–		33,951		–		33,951
Corporate and other debt		21,939		–		–		21,939
Equities		66,269		21,852		316		88,437
Other (excluding equity method investments):
Interest in LAM alternative asset management funds		–		58,656		–		58,656
Private equity		–		–		163,482		163,482
Derivatives		–		1,874		–		1,874

Total Assets	$	120,108	$	116,333	$	163,798	$	400,239

Liabilities:
Securities sold, not yet purchased	$	2,897	$	–	$	–	$	2,897
Derivatives		–		3,230		–		3,230

Total Liabilities	$	2,897	$	3,230	$	–	$	6,127

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy during the three month and six month periods ended June 30, 2011 and 2010.

The following tables provide a summary of changes in fair value of the Company’s Level 3 assets for the three month and six month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
	Beginning Balance				Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
Investments:
Equities	$	129	$	3	$	–	$	–		$	3	$	135
Private equity		171,487		3,545		922		(2,052	)		802		174,704

Total Level 3 Assets	$	171,616	$	3,548	$	922	$	(2,052	)	$	805	$	174,839


	Six Months Ended June 30, 2011
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue- Other		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
	Beginning Balance				Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
Investments:
Equities	$	316	$	3	$	–	$	(195	)		$ 11	$	135
Private equity		163,482		3,824		13,075		(9,160	)		3,483		174,704

Total Level 3 Assets	$	163,798	$	3,827	$	13,075	$	(9,355	)		$3,494	$	174,839

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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


	Three Months Ended June 30, 2010
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue-Other			Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance					Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	298	$	(4	)		$ 5	$	–			$ –		$	299
Private equity		136,264		1,535			5,554		(1,190	)		(3,754	)		138,409

Total Level 3 Assets	$	136,562	$	1,531			$5,559	$	(1,190	)		$(3,754	)	$	138,708


	Six Months Ended June 30, 2010
	Beginning Balance		Net Unrealized/ Realized Gains (Losses) Included In Revenue-Other			Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
	Beginning Balance					Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	305	$	(12	)		$ 6	$	–			$ –		$	299
Private equity		135,914		4,753			5,554		(1,193	)		(6,619	)		138,409

Total Level 3 Assets	$	136,219	$	4,741			$5,560	$	(1,193	)		$(6,619	)	$	138,708

With respect to Level 3 assets held at June 30, 2011 and 2010, net gains (losses) included in earnings for the three month and six month periods ended June 30, 2011 and the three month and six month periods ended June 30, 2010 in connection with the change in unrealized gains and losses relating to such assets were $3,538, $3,817, $1,531 and $4,741, respectively.

6. DERIVATIVES

The Company enters into forward foreign currency exchange rate contracts, interest rate swaps, interest rate futures, equity and fixed income swaps and other derivative contracts to hedge exposures to fluctuations in interest rates, currency exchange rates and equity and debt markets. The Company reports its derivative instruments separately as assets and liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. The Company’s derivative instruments are recorded at their fair value, and are included in “other assets” and “other liabilities” on the consolidated statements of financial condition. Except for derivatives hedging “available-for-sale” debt securities, which were sold in the fourth quarter of 2010 (see Note 4 of Notes to Condensed Consolidated Financial Statements), the Company elected to not apply hedge accounting to its other derivative instruments held. Gains and losses on the Company’s derivatives not designated as hedging instruments, as well as gains and losses on derivatives then accounted for as fair value hedges, are included in “interest income” and “interest expense”, respectively, or “revenue-other”, depending on the nature of the underlying item, on the consolidated statements of operations. Furthermore, with respect to derivatives then designated as fair value hedges, the hedged item was required to be adjusted for changes in fair value of the risk being hedged, with such adjustment accounted for in the consolidated statements of operations.

As a result of the sale of the Company’s “available-for-sale” debt securities during the fourth quarter of 2010 as discussed above, there were not any derivatives designated as hedging instruments for the three month and six month periods ended June 30, 2011. During the three month and six month periods ended June 30, 2010,

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

the Company recognized pre-tax losses pertaining to interest rate swaps designated as hedging instruments of $1,765 and $3,756, respectively. These losses were substantially offset by gains recognized on the hedged risk portion of such “available-for-sale” securities.

The table below represents the fair values of the Company’s derivative assets and liabilities reported within “other assets” and “other liabilities” on the accompanying condensed consolidated statements of financial condition as of June 30, 2011 and December 31, 2010:


	June 30, 2011		December 31, 2010
Derivative Assets:
Forward foreign currency exchange rate contracts	$	242	$	1,432
Interest rate swaps		51		57
Equity swaps		2,035		385

	$	2,328	$	1,874

Derivative Liabilities:
Forward foreign currency exchange rate contracts	$	1,507	$	2,151
Interest rate swaps		323		326
Equity and fixed income swaps		370		753

	$	2,200	$	3,230

Gains (losses) with respect to derivatives not designated as hedging instruments on the accompanying condensed consolidated statements of operations for the three month and six month periods ended June 30, 2011 and 2010 (predominantly reflected in “revenue-other”), by type of derivative, were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Forward foreign currency exchange rate contracts	$	(3,139	)	$	7,133		$	(9,397	)	$	12,351
Interest rate swaps		(1	)		(10	)		(3	)		34
Equity and fixed income swaps		(431	)		5,382			(2,718	)		4,050

	$	(3,571	)	$	12,505		$	(12,118	)	$	16,435

7. LAM MERGER TRANSACTION

On September 25, 2008, the Company, LAM and LAZ Sub I, LLC, a then newly-formed subsidiary of LFNY, completed the merger of LAZ Sub I, LLC with and into LAM (the “LAM Merger”). Prior to the LAM Merger, the common equity interests of LAM were held by LFNY, and certain other equity interests of LAM, representing contingent payments should certain specified fundamental transactions occur, were held by present and former employees of LAM. Following the LAM Merger, all equity interests of LAM are owned directly or indirectly by LFNY.

The aggregate non-contingent consideration relating to the equity interests of LAM held by present and former employees of LAM and its subsidiaries (the “Transaction Consideration”) consists of (i) cash payments made from the closing of the LAM Merger through January 2, 2009 of approximately $60,100, (ii) a cash

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

payment on October 31, 2011 of approximately $90,300 and (iii) an issuance on October 31, 2011 of 2,201,457 shares of Class A common stock (plus additional shares of Class A common stock in an amount determined by reference to the cash dividends paid on Class A common stock since the closing of the LAM Merger), subject, in the case of clause (ii) and (iii) and, with respect to certain present employees of LAM and its subsidiaries, to delayed payment/issuance until the eighth anniversary of the closing of the LAM Merger if the applicable employee is no longer employed by Lazard or its affiliates on October 31, 2011, subject to certain exceptions. The merger agreement also generally provides that if there is a change in control of the Company or a sale of LAM, any and all of the Transaction Consideration will be payable as of the date of such change in control. The related liabilities for the present value of the unpaid cash consideration have been recorded in the accompanying condensed consolidated statements of financial condition in “accrued compensation and benefits” and “other liabilities”, and amounted to $15,473 and $73,752, respectively, as of June 30, 2011, and $15,152 and $71,394, respectively, as of December 31, 2010.

8. BUSINESS ACQUISITIONS

On July 15, 2009, the Company established a private equity business with Edgewater. Edgewater manages funds primarily focused on buy-out and growth equity investments in middle market companies. The acquisition was structured as a purchase by Lazard Group of interests in a holding company that in turn owns interests in the general partner and management company entities of the current Edgewater private equity funds (the “Edgewater Acquisition”). Following the Edgewater Acquisition, Edgewater’s current leadership team retained a substantial economic interest in such entities.

The aggregate fair value of the consideration recognized by the Company at the acquisition date was $61,624. Such consideration consisted of (i) a one-time cash payment, (ii) 1,142,857 shares of Class A common stock (the “Initial Shares”) and (iii) up to 1,142,857 additional shares of Class A common stock subject to earnout criteria and payable over time (the “Earnout Shares”). The Initial Shares are subject to forfeiture provisions that lapse only upon the achievement of certain performance thresholds and transfer restrictions during the four year period ending December 2014. The Earnout Shares will be issued only if certain performance thresholds are met.

In prior years, the Company made certain other business acquisitions. These purchases were affected through an exchange of a combination of cash, Class A common stock, and by Lazard Ltd issuing shares of non-participating convertible Series A and Series B preferred stock, which are or were each convertible into Class A common stock. In connection with such acquisitions, as of June 30, 2011 and December 31, 2010, 1,295,029 shares of Class A common stock were issuable on a non-contingent basis. Additionally, at June 30, 2011 and December 31, 2010, 4,862 shares of Series A preferred stock were convertible into Class A common shares on a non-contingent basis, with the number of Class A common shares dependent, in part, upon future prices of the Class A common stock. Depending upon the future performance of such businesses acquired, at June 30, 2011 and December 31, 2010, 17,159 shares of Series A preferred stock were contingently convertible into shares of Class A common stock. The Class A common stock described above related to such acquisitions is primarily issuable during the remainder of 2011.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

9. GOODWILL AND OTHER INTANGIBLE ASSETS

The components of goodwill and other intangible assets as of June 30, 2011 and December 31, 2010 are presented below:


	June 30, 2011		December 31, 2010
Goodwill	$	320,411	$	313,229
Other intangible assets (net of accumulated amortization)		45,030		48,210

	$	365,441	$	361,439

At June 30, 2011 and December 31, 2010, goodwill of $258,781 and $251,599, respectively, was attributable to the Company’s Financial Advisory segment and, at each such date, $61,630 of goodwill was attributable to the Company’s Asset Management segment.

Changes in the carrying amount of goodwill for the six month periods ended June 30, 2011 and 2010 are as follows:


	Six Months Ended June 30,
	2011		2010
Balance, January 1	$	313,229	$	261,703
Foreign currency translation adjustments		7,182		(7,408	)

Balance, June 30	$	320,411	$	254,295

The gross cost and accumulated amortization of other intangible assets as of June 30, 2011 and December 31, 2010, by major intangible asset category, are as follows:


	June 30, 2011						December 31, 2010
	Gross Cost		Accumulated Amortization		Net Carrying Amount		Gross Cost		Accumulated Amortization		Net Carrying Amount
Success/performance fees	$	30,740	$	1,121	$	29,619	$	30,740	$	890	$	29,850
Management fees, customer relationships and non-compete agreements		32,477		17,066		15,411		32,477		14,117		18,360

	$	63,217	$	18,187	$	45,030	$	63,217	$	15,007	$	48,210

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Amortization expense of intangible assets for the three month and six month periods ended June 30, 2011 was $1,706 and $3,180, respectively, and for the three month and six month periods ended June 30, 2010 was $1,769 and $3,539, respectively. Estimated future amortization expense is as follows:


Year Ending December 31,	Amortization Expense (a)
2011 (July 1 through December 31)	$	2,778
2012		6,302
2013		12,742
2014		9,803
2015		7,220
Thereafter		6,185

Total amortization expense	$	45,030

(a)

Approximately 48% of intangible asset amortization is attributable to a noncontrolling interest.

10. SENIOR AND SUBORDINATED DEBT

Senior Debt—Senior debt is comprised of the following as of June 30, 2011 and December 31, 2010:


	Initial Principal Amount		Maturity Date		Annual Interest Rate			Outstanding As Of
	Initial Principal Amount		Maturity Date		Annual Interest Rate			June 30, 2011		December 31, 2010
Lazard Group 7.125% Senior Notes	$	550,000		5/15/15		7.125	%	$	528,500	$	528,500
Lazard Group 6.85% Senior Notes		600,000		6/15/17		6.85	%		548,350		548,350
Lazard Group Credit Facility (a)		150,000		4/29/13		1.88	%		–		–

Total								$	1,076,850	$	1,076,850

(a)

On April 29, 2010, Lazard Group entered into a $150,000, three-year senior revolving credit facility with a group of lenders (the “Credit Facility”). The Credit Facility, as amended, replaced the prior revolving credit facility, which was terminated as a condition to effectiveness of the Credit Facility. Interest rates under the Credit Facility vary and are based on either a Federal Funds rate or a Eurodollar rate, in each case plus an applicable margin. As of June 30, 2011, the annual interest rate for a loan accruing interest (based on the Federal Funds overnight rate), including the applicable margin, was 1.88%. As of June 30, 2011 and December 31, 2010, no amounts were outstanding under the Credit Facility.

Subordinated Debt—Subordinated debt at June 30, 2011 and December 31, 2010 represents a note amounting to $150,000 at each date. The note had a maturity date of September 30, 2016 and had a fixed interest rate of 3.25% per annum. Until June 30, 2011 the note had a conversion feature which permitted the holder to convert the note into a maximum of 2,631,570 shares of Class A common stock at an effective conversion price of $57 per share. No conversions had occurred through that date and the note was no longer convertible. On July 22, 2011, the Company repurchased its outstanding 3.25% subordinated note, at a cost, excluding accrued interest, of $131,829. Such repurchase resulted in a pre-tax gain of $18,171, which is being recognized by the Company in the third quarter of 2011.

The Credit Facility contains customary terms and conditions, including certain financial covenants. In addition, the Credit Facility, the indenture and supplemental indentures relating to Lazard Group’s senior notes, contain certain covenants (none of which relate to financial condition), events of default and other customary

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

provisions, including a customary make-whole provision in the event of early redemption where applicable. As of June 30, 2011, the Company was in compliance with all of these provisions. All of the Company’s senior and subordinated debt obligations are unsecured.

As of June 30, 2011, the Company had approximately $285,000 in unused lines of credit available to it, including the Credit Facility, and unused lines of credit available to LFB of approximately $107,000 (at June 30, 2011 exchange rates) and Edgewater of $20,000. In addition, LFB has access to the Eurosystem Covered Bond Purchase Program of the Banque de France.

The Company’s senior and subordinated debt are recorded at historical amounts. At June 30, 2011 and December 31, 2010, the fair value of the Company’s senior and subordinated debt was approximately $1,338,000 and $1,271,000, respectively, and exceeded the aggregate carrying value by approximately $111,000 and $44,000, respectively. The fair value of the Company’s senior and subordinated debt was estimated using a discounted cash flow analysis based on the Company’s current borrowing rates for similar types of borrowing arrangements or based on market quotations, where available.

11. COMMITMENTS AND CONTINGENCIES

Leases—Lazard has various leases and other contractual commitments arising in the ordinary course of business. At June 30, 2011, minimum rental commitments under non-cancelable operating leases, net of sublease income, are approximately as follows:


Year Ending December 31,
2011 (July 1 through December 31)	$	36,267
2012		54,468
2013		57,671
2014		66,289
2015		62,559
Thereafter		808,662

Total minimum lease payments		1,085,916

Sublease proceeds		185,784

Net lease payments	$	900,132

Guarantees—In the normal course of business, LFB provides indemnifications to third parties to protect them in the event of non-performance by its clients. At June 30, 2011, LFB had $4,671 of such indemnifications and held $3,144 of collateral/counter-guarantees to secure these commitments. The Company believes the likelihood of loss with respect to these indemnities is remote. Accordingly, no liability is recorded in the consolidated statement of financial condition.

Private Equity Funding Commitments—At June 30, 2011, the principal unfunded commitment by the Company for capital contributions to private equity investment funds related to CP II, and is an amount not to exceed $3,022 for potential “follow-on investments” and/or for CP II expenses through the earlier of February 25, 2017 or the liquidation of the fund.

Other Commitments—In the normal course of business, LFB enters into commitments to extend credit, predominately at variable interest rates. Such commitments at June 30, 2011 aggregated $27,103. These

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

commitments have varying expiration dates and are fully collateralized and generally contain requirements for the counterparty to maintain a minimum collateral level. These commitments may not represent future cash requirements as they may expire without being drawn upon.

See Notes 7, 8 and 14 of Notes to Condensed Consolidated Financial Statements for information regarding commitments relating to the LAM Merger, business acquisitions and obligations to fund our pension plans, respectively.

The Company has various other contractual commitments arising in the ordinary course of business. In addition, from time to time, LFB enters into underwriting commitments in which it participates as a joint underwriter. The settlement of such transactions are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

In the opinion of management, the fulfillment of the commitments described herein will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Legal—The Company is involved from time to time in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses, including proceedings initiated by former employees alleging wrongful termination. The Company reviews such matters on a case-by-case basis and establishes any required accrual if a loss is probable and the amount of such loss can be reasonably estimated. The Company does experience significant variation in its revenue and earnings on a quarterly basis. Accordingly, the results of any pending matter or matters could be significant when compared to the Company’s earnings in any particular fiscal quarter. The Company believes, however, based on currently available information, that the results of any pending matters, in the aggregate, will not have a material effect on its business or financial condition.

12. STOCKHOLDERS’ EQUITY

Issuance of Class A Common Shares—During the three month period ended March 31, 2010, 3,000,000 shares of Class A common stock were newly issued by Lazard Ltd to Lazard Group in connection with the settlement of vested restricted stock unit grants denominated in shares of Class A common stock (“RSUs”). Such shares were authorized as part of the 25,000,000 shares of Class A common stock that may be issued under the Lazard Ltd 2005 Equity Incentive Plan (the “2005 Plan”).

Secondary Offerings—Pursuant to the applicable Prospectus Supplements, certain selling shareholders of Lazard Ltd (which include current and former managing directors of Lazard (and, from time to time, certain of our directors, executive officers or former executive officers) and their permitted transferees (collectively, the “Selling Shareholders”) who hold LAZ-MD Holdings exchangeable interests and/or Class A common stock), may offer to sell shares of Class A common stock pursuant to applicable underwriting and pricing agreements. During the three month period ended March 31, 2010 one such secondary offering occurred, which is described below (no secondary offerings occurred during the three month period ended June 30, 2010 or during the six month period ended June 30, 2011).

In March 2010, certain Selling Shareholders sold 7,869,311 shares of Class A common stock (including (i) 7,262 shares of Class A common stock previously received upon the exchange of a like number of LAZ-MD Holdings exchangeable interests, (ii) 6,180,639 shares of Class A common stock received upon a simultaneous exchange of a like number of LAZ-MD Holdings exchangeable interests (including 5,958,000 shares held by the

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Estate of Lazard’s former Chairman and Chief Executive Officer and related trusts (collectively, the “Estate”) and (iii) 1,681,410 shares held by the Estate) at a price of $35.90 per share (collectively, the “March 2010 Secondary Offering”).

Lazard Ltd did not receive any net proceeds from the sales of Class A common stock from the March 2010 Secondary Offering.

Lazard Group Distributions—As previously described, Lazard Group’s common membership interests are held by subsidiaries of Lazard Ltd and by LAZ-MD Holdings. Pursuant to provisions of the Operating Agreement, Lazard Group distributions in respect of its common membership interests are allocated to the holders of such interests on a pro rata basis. 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 six month periods ended June 30, 2011 and 2010, Lazard Group distributed the following amounts to LAZ-MD Holdings and the subsidiaries of Lazard Ltd (none of which related to tax distributions):


	Six Months Ended June 30,
	2011		2010
LAZ-MD Holdings	$	2,174	$	7,103
Subsidiaries of Lazard Ltd		32,855		23,022

	$	35,029	$	30,125

Pursuant to Lazard Group’s Operating Agreement, Lazard Group allocates and distributes to its members a substantial portion of its distributable profits in installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February.

Exchange of Lazard Group Common Membership Interests—In addition to the simultaneous exchanges that occurred in connection with the March 2010 Secondary Offering, during the six month periods ended June 30, 2011 and 2010, Lazard Ltd issued 728,385 and 11,465,108 shares of Class A common stock, respectively, in connection with the exchange of a like number of Lazard Group common membership interests (received from members of LAZ-MD Holdings in exchange for a like number of LAZ-MD Holdings exchangeable interests).

See “Noncontrolling Interests” below for additional information regarding Lazard Ltd’s and LAZ-MD Holdings’ ownership interests in Lazard Group.

Share Repurchase Program—In January 2010, the Board of Directors of Lazard Ltd authorized, on a cumulative basis, the repurchase of up to $200,000 in aggregate cost of its Class A common stock and Lazard Group common membership interests through December 31, 2011. The Company’s prior share repurchase program expired on December 31, 2009. In February 2011, the Board of Directors of Lazard Ltd authorized the repurchase of up to an additional $250,000 in aggregate cost of Lazard Ltd Class A common stock and Lazard Group common membership interests through December 31, 2012. The Company expects that the share repurchase program, with respect to the Class A common stock, will continue to be used primarily to offset a portion of the shares that have been or will be issued under the 2005 Plan and the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 Plan”). Pursuant to such authorizations, purchases have been made in the open market or through privately negotiated

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

transactions, and since the inception of the program in February 2006 through June 30, 2011, purchases by Lazard Group with respect to such program are set forth in the table below (including, in the six month period ended June 30, 2011, purchases of 3,156,416 Class A common shares, at an aggregate cost of $126,237, and the purchase of 19,032 Lazard Group common membership interests, at an aggregate cost of $794):


	Number of Shares/Common Membership Interests Purchased		Average Price Per Share/Common Membership Interest
Class A common stock		19,930,075		$33.92
Lazard Group common membership interests		1,400,089		$32.66

As a result of Lazard Group’s delivery of shares of Class A common stock during the four year and six month period ended June 30, 2011 relating to (i) the settlement of vested RSUs and deferred stock unit grants (“DSUs”), (ii) the incentive plan share awards of shares of restricted Class A common stock and (iii) the issuance of shares of restricted Class A common stock in exchange for RSUs, there were 4,339,875 and 6,847,508 shares of Class A common stock held by Lazard Group at June 30, 2011 and December 31, 2010, respectively. Such Class A common shares are reported, at cost, as “Class A common stock held by a subsidiary” on the accompanying condensed consolidated statements of financial condition.

As of June 30, 2011, $165,740 of the current $450,000 share repurchase authorization remained available under the share repurchase program. In addition, under the terms of the 2005 Plan and the 2008 Plan, upon the vesting of RSUs, shares of Class A common stock may be withheld by the Company to cover estimated income taxes (see Note 13 of Notes to Condensed Consolidated Financial Statements).

Preferred Stock—Lazard Ltd has 15,000,000 authorized shares of preferred stock, par value $0.01 per share, inclusive of its Series A preferred stock and Series B preferred stock. The Series A and Series B preferred shares are each non-participating securities that are or were each convertible into Class A common stock, and have no voting or dividend rights. As of June 30, 2011 and December 31, 2010, 22,021 shares of Series A preferred stock were outstanding, and no shares of Series B preferred stock were outstanding at such dates.

At June 30, 2011 and December 31, 2010, 4,862 shares of the Series A preferred shares outstanding were convertible into shares of Class A common stock. The remaining 17,159 shares of Series A preferred stock outstanding at June 30, 2011 and December 31, 2010 may become convertible into shares of Class A common stock upon completion or satisfaction of specified obligations in the applicable acquisition agreement (see Note 8 of Notes to Condensed Consolidated Financial Statements). The initial conversion rate, at the time of the acquisition, was 100 shares of Class A common stock to one share of Series A preferred stock, with the ultimate conversion rate dependent on certain variables, including the value of the Class A common stock, as defined, and the currency exchange rate on the date of conversion.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Accumulated Other Comprehensive Income (Loss), Net of Tax—The components of AOCI at June 30, 2011 and December 31, 2010 are as follows:


	June 30, 2011			December 31, 2010
	June 30, 2011			December 31, 2010
Currency translation adjustments	$	45,367		$	13,193
Interest rate hedge		(4,084	)		(4,611	)
Employee benefit plans		(59,111	)		(56,595	)

Total AOCI		(17,828	)		(48,013	)
Less amount attributable to noncontrolling interests		(1	)		(1,855	)

Total Lazard Ltd AOCI	$	(17,827	)	$	(46,158	)

Noncontrolling Interests—Noncontrolling interests principally represent interests held in (i) Lazard Group by LAZ-MD Holdings, (ii) Edgewater’s management vehicles that the Company is deemed to control, but does not own, and (iii) various LAM-related GP interests which are deemed to be controlled by the Company.

As of June 30, 2011 and December 31, 2010, LAZ-MD Holdings held approximately 5.4% and 6.0%, respectively, of the outstanding Lazard Group common membership interests. Subject to certain limitations, LAZ-MD Holdings’ interests in Lazard Group are exchangeable for Class A common stock.

The following tables summarize the changes in ownership interests in Lazard Group held by Lazard Ltd and LAZ-MD Holdings during the six month periods ended June 30, 2011 and 2010:


	Lazard Ltd					LAZ-MD Holdings						Total Lazard Group Common Membership Interests
	Common Membership Interests		% Ownership			Common Membership Interests			% Ownership			Total Lazard Group Common Membership Interests
Balance, January 1, 2010		92,165,912		74.5	%		31,520,426			25.5	%		123,686,338
Activity January 1, 2010 to June 30, 2010:
Common membership interest activity in connection with:
Equity compensation		3,000,000					–						3,000,000
March 2010 Secondary Offering		6,180,639					(6,180,639	)					–
Exchanges for Class A common stock		11,465,108					(11,465,108	)					–

Balance, June 30, 2010		112,811,659		89.0	%		13,874,679			11.0	%		126,686,338


Balance, January 1, 2011		119,697,936		94.0	%		7,652,625			6.0	%		127,350,561
Activity January 1, 2011 to June 30, 2011:
Common membership interest activity in connection with:
Exchanges for Class A common stock		728,385					(728,385	)					–
Repurchase of common membership interests from LAZ-MD Holdings		–					(19,032	)					(19,032	)

Balance, June 30, 2011		120,426,321		94.6	%		6,905,208			5.4	%		127,331,529

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The change in Lazard Ltd’s ownership in Lazard Group in the six month periods ended June 30, 2011 and 2010 did not materially impact Lazard Ltd’s stockholders’ equity.

The tables below summarize net income (loss) attributable to noncontrolling interests for the three month and six month periods ended June 30, 2011 and 2010 and noncontrolling interests as of June 30, 2011 and December 31, 2010 in the Company’s condensed consolidated financial statements:


	Net Income (Loss) Attributable To Noncontrolling Interests
	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
LAZ-MD Holdings	$	4,012		$	8,476		$	7,746		$	(1,243	)
Edgewater		5,882			1,270			6,905			3,877
LAM GPs		(159	)		(598	)		13			(728	)
Other		(173	)		(192	)		(126	)		(310	)

Total	$	9,562		$	8,956		$	14,538		$	1,596



	Noncontrolling Interests As Of
	June 30, 2011		December 31, 2010
LAZ-MD Holdings	$	23,803	$	22,167
Edgewater		115,808		111,289
LAM GPs		5,735		8,219
Other		1,930		2,044

Total	$	147,276	$	143,719

Dividend Declared, July 2011—On July 27, 2011, the Board of Directors of Lazard Ltd declared a quarterly dividend of $0.16 per share on its Class A common stock, payable on August 26, 2011, to stockholders of record on August 8, 2011.

13. INCENTIVE PLANS

Share-Based Incentive Plan Awards

A description of Lazard Ltd’s 2005 Plan and 2008 Plan, and activity with respect thereto during the six month periods ended June 30, 2011 and 2010, is presented below.

Shares Available Under the 2005 Plan and 2008 Plan

The 2005 Plan authorizes the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock, stock units and other equity-based awards. Each stock unit granted under the 2005 Plan represents a contingent right to receive one share of 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.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

In addition to the shares available under the 2005 Plan, additional shares of Class A common stock are available under the 2008 Plan. The maximum number of shares available under the 2008 Plan is based on a formula that limits the aggregate number of shares that may, at any time, be subject to awards that are considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of Class A common stock (treating, for this purpose, the then-outstanding exchangeable interests of LAZ-MD Holdings on a “fully-exchanged” basis as described in the 2008 Plan).

Restricted and Deferred Stock Units

RSUs require future service as a condition for the delivery of the underlying shares of Class A common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into Class A common stock on a one-for-one basis after the stipulated vesting periods. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods, and, for purposes of calculating diluted net income per share, are included in the diluted weighted average shares of Class A common stock outstanding using the treasury stock method. Expense relating to RSUs was as follows within the Company’s condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Compensation and benefits (*)	$	57,552	$	50,530	$	142,410	$	154,343
Restructuring		-		-		-		46,880

Total	$	57,552	$	50,530	$	142,410	$	201,223

(*)	Includes, during the six month period ended June 30, 2010, $24,860 relating to the January 2010 amendment of the Company’s retirement policy (described below).

RSUs issued subsequent to December 31, 2005 generally include a dividend participation right that provides that during vesting periods each RSU is attributed additional RSUs (or fractions thereof) equivalent to any ordinary quarterly dividends paid on Class A common stock during such period. During the six month periods ended June 30, 2011 and 2010, issuances of RSUs pertaining to such dividend participation rights and respective charges to “retained earnings”, net of estimated forfeitures (with corresponding credits to “additional paid-in-capital”), consisted of the following:


	Six Months Ended June 30
	2011		2010
Issuance of RSUs		140,613		163,146
Charges to retained earnings, net of estimated forfeitures		$5,337		$4,732

In January 2010, the Company amended its retirement policy with respect to RSU awards. Such amendment served to modify the retirement eligibility vesting requirements of existing and future RSU awards, and, as noted above, Lazard accelerated the recognition of compensation expense for the affected RSU awards. Accordingly, the Company recorded a non-cash charge to “compensation and benefits” expense of $24,860 in the three month period ended March 31, 2010 relating to prior years’ awards.

Non-Executive members of the Board of Directors receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs, which resulted in 26,859 and

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

31,588 DSUs granted during the six month periods ended June 30, 2011 and 2010, respectively. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into Class A common stock at the time of cessation of service to the Board. The DSUs include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Class A common stock, and resulted in nominal cash payments for the six month periods ended June 30, 2011 and 2010.

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 2005 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 will 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 Class A common stock on the date on which the foregone cash fees would otherwise have been paid. During the six month periods ended June 30, 2011 and 2010, 2,942 and 4,120 DSUs, respectively, had been granted pursuant to such Plan.

DSU awards are expensed at their fair value on their date of grant, which, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan, totaled $1,068 and $1,124 during the three month and six month periods ended June 30, 2011, respectively, and $1,039 and $1,115 during the three month and six month periods ended June 30, 2010, respectively.

The following is a summary of activity relating to RSUs and DSUs during the six month periods ended June 30, 2011 and 2010:


	RSUs					DSUs
	Units			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value

Balance, January 1, 2011		22,108,635		$	35.67		121,737		$	34.46
Granted (including 140,613 RSUs relating to dividend participation)		6,309,310		$	44.93		29,801		$	37.72
Forfeited		(223,365	)	$	37.90		–			–
Vested/Converted		(7,616,386	)	$	39.21		(16,120	)	$	34.76

Balance, June 30, 2011		20,578,194		$	37.18		135,418		$	35.14


Balance, January 1, 2010		23,367,813		$	37.01		103,146		$	35.75
Granted (including 163,146 RSUs relating to dividend participation)		6,853,747		$	35.98		35,708		$	31.25
Forfeited		(315,002	)	$	34.57		–			–
Vested/Converted		(6,952,061	)	$	39.88		(20,435	)	$	35.38

Balance, June 30, 2010		22,954,497		$	35.88		118,419		$	34.46

During the six month periods ended June 30, 2011 and 2010, 7,616,386 RSUs and 6,952,061 RSUs vested, respectively. In connection with such vested RSUs, the Company satisfied certain employees’ tax obligations in lieu of issuing 2,226,829 and 1,288,331 shares of Class A common stock in the respective periods. Accordingly, 5,389,557 and 5,663,730 shares of Class A common stock held by Lazard Group were delivered during the six month periods ended June 30, 2011 and 2010, respectively.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

As of June 30, 2011, unrecognized RSU compensation expense, adjusted for estimated forfeitures, was approximately $348,000, with such unrecognized compensation expense expected to be recognized over a weighted average period of approximately 1.8 years subsequent to June 30, 2011. The ultimate amount of such expense is dependent upon the actual number of RSUs that vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described herein.

Restricted Stock

The following is a summary of activity related to shares of restricted Class A common stock during the six month periods ended June 30, 2011 and 2010:


	Restricted Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2011		95,332		$	37.63
Granted (a)		327,238		$	43.70
Vested (a)		(327,238	)	$	43.70

Balance, June 30, 2011		95,332		$	37.63


Balance, January 1, 2010		–			–
Granted		54,437		$	38.78
Vested		–			–

Balance, June 30, 2010		54,437		$	38.78

(a)	Includes 143,816 restricted shares pertaining to an award that was accounted for as a liability award through its vesting date.

During the six month period ended June 30, 2011, 327,238 shares of restricted Class A common stock vested. In connection with such vested shares of restricted Class A common stock, the Company satisfied certain employees’ tax obligations in lieu of delivering 68,866 shares of Class A common stock by Lazard Group. Accordingly, 258,372 shares of Class A common stock held by Lazard Group were delivered during the six month period ended June 30, 2011.

Expense relating to restricted stock awards is charged to “compensation and benefits” expense within the Company’s condensed consolidated statements of operations, and amounted to $356 and $8,999 for the three month and six month periods ended June 30, 2011, respectively, and $160 for the three month and six month periods ended June 30, 2010. The awards include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At June 30, 2011, unrecognized restricted stock expense was approximately $1,600, with such expense to be recognized over a weighted average period of approximately 1.2 years subsequent to June 30, 2011.

For purposes of calculating diluted net income per share, such awards are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

Other Incentive Awards

As described above, in February 2011, the Company granted to eligible employees Lazard Fund Interests, which had an aggregate fair value on the date of grant of approximately $26,000, with such aggregate fair values excluding potential forfeitures. At June 30, 2011, the aggregate fair value of such liability amounted to $25,102.

The Lazard Fund Interests granted provide for one-third vesting on March 1, 2013 and two-thirds vesting on March 3, 2014. Compensation expense with respect to the Lazard Fund Interests amounted to $2,413 and $5,054 for the three month and six month periods ended June 30, 2011, respectively, and is being recognized over the applicable vesting periods or requisite service periods, the ultimate amount of which will vary based on the then vested value of the underlying Lazard Fund Interests, with such compensation expense to be recognized over a weighted average period of approximately 2.3 years subsequent to June 30, 2011.

14. EMPLOYEE BENEFIT PLANS

The Company provides retirement and other post-retirement benefits to certain of its employees through defined contribution and defined benefit pension plans and other post-retirement plans. These plans generally provide benefits to participants based on average levels of compensation. Expenses related to the Company’s employee benefit plans are included in “compensation and benefits” expense on the consolidated statements of operations.

Employer Contributions to Pension Plans—In accordance with agreements reached with the Trustees of certain U.K. pension plans in 2005, the Company was obligated to make further contributions to such pension plans based upon the cumulative performance of the plans’ assets against specific benchmarks as measured on June 1, 2009 (the “measurement date”) and subsequently remeasured on June 1, 2010 (the “remeasurement date”). As of December 31, 2009, the obligation related to the cumulative underperformance of the plans’ assets (the “underperformance obligation”) was payable in equal monthly installments through May 2013. During the year ended December 31, 2010, the Company contributed approximately $8,600 to settle the plans’ underperformance obligation in full.

In addition, on June 30, 2009 the Company and Trustees concluded the December 31, 2007 triennial valuation of the U.K. pension plans discussed above, pursuant to which: (i) the Company agreed to contribute, in addition to amounts to cover administrative expenses under the plans, 2.3 million British pounds ($3,683 at June 30, 2011 exchange rates), during each year from 2011 to 2018 inclusive, subject to adjustment resulting from the December 31, 2010 triennial valuation, which the Company expects to have concluded prior to the contribution payment scheduled for 2011, and (ii) to secure the Company’s obligations thereunder, on July 15, 2009 the Company placed in escrow 12.5 million British pounds, with a final redemption date of December 31, 2018. This amount is subject to adjustment based on the results of the December 31, 2010 triennial valuation and subsequent triennial valuations. The aggregate escrow balance has been recorded in “cash deposited with clearing organizations and other segregated cash” and “investments”, respectively, on the accompanying condensed consolidated statements of financial condition. Income on the escrow balance accretes to the Company and is recorded in interest income.

During the six month period ended June 30, 2011, no contribution to these U.K. pension plans was required, and no contributions were required to be made to other pension plans.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The following tables summarize the components of total benefit cost (credit) for the three month and six month periods ended June 30, 2011 and 2010:


	Pension Plans						Post-Retirement Medical Plans
	Three Months Ended June 30,
	2011			2010			2011		2010
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	169		$	(88	)	$	19	$	22
Interest cost		7,092			6,702			69		73
Expected return on plan assets		(7,644	)		(7,056	)		-		-
Amortization of:
Prior service cost (credit)		762			725			-		(435	)
Net actuarial loss		66			198			-		-

Net periodic benefit cost (credit)	$	445		$	481		$	88	$	(340	)


	Pension Plans						Post-Retirement Medical Plans
	Six Months Ended June 30,
	2011			2010			2011		2010
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	332		$	260		$	34	$	40
Interest cost		14,159			13,787			139		146
Expected return on plan assets		(15,266	)		(14,429	)		-		-
Amortization of:
Prior service cost (credit)		1,502			1,476			-		(691	)
Net actuarial loss		129			399			-		-

Net periodic benefit cost (credit)	$	856		$	1,493		$	173	$	(505	)

15. RESTRUCTURING PLANS

In the three month period ended March 31, 2010, the Company announced a restructuring plan which included certain staff reductions and realignments of personnel (the “2010 Restructuring Plan”). In connection with the 2010 Restructuring Plan, the Company recorded a charge in the first quarter of 2010 of $87,108, inclusive of $46,880 relating to the acceleration of RSUs (in aggregate, the “2010 Restructuring Charge”).

The 2010 Restructuring Charge primarily consisted of compensation-related expenses, including the acceleration of unrecognized expenses pertaining to RSUs previously granted to individuals who were terminated pursuant to the restructuring, severance and benefit payments and other costs. As of June 30, 2011 and December 31, 2010, the remaining liability associated with the 2010 Restructuring Plan was $13,145 and $21,381, respectively. In the first quarter of 2009 the Company also announced a restructuring plan (the “2009 Restructuring Plan”). As of June 30, 2011 and December 31, 2010, the remaining liability associated with the 2009 Restructuring Plan was $5,128 and $5,427, respectively. During the six month period ended June 30, 2011, other than cash payments of $8,236 and $299 for the 2010 Restructuring Plan and the 2009 Restructuring Plan, respectively, there were no adjustments to the amounts relating to the 2010 and 2009 Restructuring Plans. Liabilities relating to the 2010 and 2009 Restructuring Plans are reported within “accrued compensation and benefits” and “other liabilities” on the accompanying condensed consolidated statements of financial condition.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

16. INCOME TAXES

Lazard Ltd is subject to U.S. federal income taxes on its portion of Lazard Group’s operating income. Although a portion of Lazard Group’s income is subject to U.S. federal income taxes, Lazard Group primarily operates 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 from its U.S. operations is generally not subject to U.S. federal income taxes because such income is attributable to the partners. In addition, Lazard Group is subject to New York City Unincorporated Business Tax (“UBT”), which is attributable to Lazard Group’s operations apportioned to New York City. UBT is incremental to the U.S. federal statutory tax rate. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes.

The Company recorded income tax provisions of $17,636 and $31,099 for the three month and six month periods ended June 30, 2011, respectively, and $13,523 and $19,936 for the three month and six month periods ended June 30, 2010, respectively, representing effective tax rates of 19.8%, 19.1%, 20.2% and 61.2%, respectively. The difference between the U.S. federal statutory rate of 35.0% and the effective tax rates described above principally relates to (i) Lazard Group primarily operating as a limited liability company in the U.S., (ii) foreign source income (loss) not subject to U.S. income taxes, (iii) Lazard Group’s income from U.S. operations attributable to noncontrolling interests, (iv) valuation allowance changes affecting the provision for income taxes and (v) U.S. state and local taxes (primarily UBT), which are incremental to the U.S. federal statutory tax rate.

Substantially all of Lazard’s foreign operations are conducted in “pass-through” entities for U.S. income tax purposes and the Company provides for U.S. income taxes on a current basis for substantially all of those earnings. The repatriation of prior earnings attributable to “non-pass-through” entities would not result in the recognition of a material amount of additional U.S. income taxes.

Tax Receivable Agreement

The redemption of historical partner interests in connection with the Company’s separation and recapitalization that occurred in May 2005 and subsequent exchanges of LAZ-MD Holdings exchangeable interests for shares of Class A common stock have resulted, and future exchanges of LAZ-MD Holdings exchangeable interests for shares of Class A common stock may result, in increases in the tax basis of the tangible and/or intangible assets of Lazard Group. The tax receivable agreement dated as of May 10, 2005 with LFCM Holdings requires the Company to pay LFCM Holdings 85% of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of the above-mentioned increases in tax basis. The Company calculates this provision annually and includes such amounts in operating expenses on its consolidated statements of operations once the results of operations for the full year are known. As a result, there is no provision for such payments in the six month periods ended June 30, 2011 and 2010. If any provision is required pursuant to the tax receivable agreement, such amount would be fully offset by a reduction in the Company’s income tax expense.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

17. NET INCOME PER SHARE OF CLASS A COMMON STOCK

The Company’s basic and diluted net income per share calculations for the three month and six month periods ended June 30, 2011 and 2010 are computed as described below.

Basic Net Income Per Share

Numerator—utilizes net income attributable to Lazard Ltd for the respective periods, plus applicable adjustments to such net income associated with the inclusion of shares of Class A common stock issuable on a non-contingent basis.

Denominator—utilizes the weighted average number of shares of Class A common stock outstanding for the respective periods, plus applicable adjustments to such shares associated with shares of Class A common stock issuable on a non-contingent basis.

Diluted Net Income Per Share

Numerator—utilizes net income attributable to Lazard Ltd for the respective periods as in the basic net income per share calculation described above, plus, to the extent applicable and dilutive, (i) interest expense on convertible debt, (ii) changes in net income attributable to noncontrolling interests resulting from assumed Class A common stock issuances in connection with share-based incentive compensation, convertible debt and convertible preferred stock and, on an “as-if-exchanged” basis, amounts applicable to LAZ-MD Holdings exchangeable interests and (iii) income tax related to (i) and (ii) above.

Denominator—utilizes the weighted average number of shares of Class A common stock outstanding for the respective periods as in the basic net income per share calculation described above, plus, to the extent dilutive, the incremental number of shares of Class A common stock to settle share-based incentive compensation, convertible debt, convertible preferred stock and LAZ-MD Holdings exchangeable interests, using the “treasury stock” method, the “if converted” method or the “as-if-exchanged” basis, as applicable.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

The calculations of the Company’s basic and diluted net income per share and weighted average shares outstanding for the three month and six month periods ended June 30, 2011 and 2010 are presented below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Net income attributable to Lazard Ltd		$62,004		$44,572		$117,011		$11,038
Add (deduct) - adjustment associated with Class A common stock issuable on a non-contingent basis		103		192		199		(20	)

Net income attributable to Lazard Ltd - basic		62,107		44,764		117,210		11,018
Add (deduct) - dilutive effect, as applicable, of:
Adjustments to income relating to interest expense and changes in net income attributable to noncontrolling interests resulting from assumed Class A common stock issuances in connection with share-based incentive compensation, convertible debt, convertible preferred stock and exchangeable interests, net of tax		4,649		9,258		9,074		(212	)

Net income attributable to Lazard Ltd - diluted		$66,756		$54,022		$126,284		$10,806


Weighted average number of shares of Class A common stock outstanding		115,326,051		100,608,379		113,503,750		93,717,395
Add - adjustment for shares of Class A common stock issuable on a non-contingent basis		3,781,335		2,918,635		3,717,320		2,914,181

Weighted average number of shares of Class A common stock outstanding - basic		119,107,386		103,527,014		117,221,070		96,631,576
Add - dilutive effect, as applicable, of:
Weighted average number of incremental shares of Class A common stock issuable from share-based incentive compensation, convertible debt, convertible preferred stock and exchangeable interests		20,240,547		36,417,296		21,748,193		12,364,261

Weighted average number of shares of Class A common stock outstanding - diluted		139,347,933		139,944,310		138,969,263		108,995,837

Net income attributable to Lazard Ltd per share of Class A common stock:
Basic		$0.52		$0.43		$1.00		$0.11

Diluted		$0.48		$0.39		$0.91		$0.10

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

18. RELATED PARTIES

Amounts receivable from, and payable to, related parties as of June 30, 2011 and December 31, 2010 are set forth below:


	June 30, 2011		December 31, 2010
Receivables
LFCM Holdings	$	12,764	$	24,785
Other		738		89

Total	$	13,502	$	24,874

Payables
LFCM Holdings	$	2,479	$	2,819
Other		985		–

Total	$	3,464	$	2,819

LFCM Holdings

LFCM Holdings owns and operates the capital markets business and fund management activities, as well as other specified non-operating assets and liabilities, that were transferred to it by Lazard Group (referred to as the “separated businesses”) in May 2005 and is owned by various current and former working members, including certain of Lazard’s current and former managing directors (which also include the Company’s executive officers) who were also members of LAZ-MD Holdings. In addition to the master separation agreement, which effected the separation and recapitalization that occurred in May 2005, LFCM Holdings entered into certain agreements that addressed various business matters associated with the separation, including agreements related to administrative and support services (the “administrative services agreement”), employee benefits, insurance matters and licensing. In addition, LFCM Holdings and Lazard Group entered into a business alliance agreement. Certain of these agreements are described in more detail in the Company’s Form 10-K.

For the three month and six month periods ended June 30, 2011, amounts recorded by Lazard Group relating to the administrative services agreement amounted to $578 and $1,192, respectively, and net referral fees for underwriting, private placement, M&A and restructuring transactions under the business alliance agreement amounted to $6,200 and $13,147, respectively. For the three month and six month periods ended June 30, 2010, amounts recorded by Lazard Group relating to the administrative services agreement amounted to $513 and $1,059, respectively, and net referral fees for underwriting, private placement, M&A and restructuring transactions under the business alliance agreement amounted to $3,384 and $6,729, respectively. Amounts relating to the administrative services agreement are reported as reductions to operating expenses. Net referral fees for underwriting transactions under the business alliance agreement are reported in “revenue-other”. Net referral fees for private placement, M&A and restructuring transactions under the business alliance agreement are reported in advisory fee revenue.

Receivables from LFCM Holdings and its subsidiaries as of June 30, 2011 and December 31, 2010 primarily include $1,616 and $12,775, respectively, related to administrative and support services and reimbursement of expenses incurred on behalf of LFCM Holdings, and $10,397 and $11,413, respectively, related to referral fees for underwriting and private placement transactions. Payables to LFCM Holdings and its subsidiaries at June 30, 2011 and December 31, 2010 relate primarily to obligations pursuant to the tax receivable agreement of $2,361 (see Note 16 of Notes to Condensed Consolidated Financial Statements) and $118 and $458, respectively, principally relating to referral fees for Financial Advisory transactions.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

LAZ-MD Holdings

Lazard Group provides selected administrative and support services to LAZ-MD Holdings through the administrative services agreement as discussed above, with such services generally to be provided until December 31, 2014 unless terminated earlier because of a change in control of either party. Lazard Group charges LAZ-MD Holdings for these services based on Lazard Group’s cost allocation methodology and, for the three month and six month periods ended June 30, 2011, such charges amounted to $187 and $375, respectively. For the three month and six month periods ended June 30, 2010, such charges amounted to $187 and $375, respectively.

19. 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. 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 in LFNY’s Financial and Operational Combined Uniform Single (“FOCUS”) report filed with the Financial Industry Regulatory Authority (“FINRA”), or $100, whichever is greater. At June 30, 2011, LFNY’s regulatory net capital was $142,556, which exceeded the minimum requirement by $135,750.

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. At June 30, 2011, the aggregate regulatory net capital of the U.K. Subsidiaries was $128,624, which exceeded the minimum requirement by $83,099.

CFLF, through which non-corporate finance advisory activities are carried out in France, is subject to regulation by the Autorité de Contrôle Prudentiel for its banking activities conducted through its subsidiary, LFB. In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries of CFLF, primarily LFG (asset management), are subject to regulation and supervision by the Autorité des Marchés Financiers. At June 30, 2011, the consolidated regulatory net capital of CFLF was $196,350, which exceeded the minimum requirement set for regulatory capital levels by $90,589.

Certain other U.S. and non-U.S. subsidiaries are subject to various capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At June 30, 2011, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $80,680, which exceeded the minimum required capital by $55,686.

At June 30, 2011, each of these subsidiaries individually was in compliance with its regulatory capital requirements.

Lazard Ltd has been subject to supervision by the SEC as a Supervised Investment Bank Holding Company (“SIBHC”). As a SIBHC, Lazard Ltd was subject to group-wide supervision, which required it to compute allowable capital and risk allowances on a consolidated basis. However, pursuant to Section 617 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the SEC’s SIBHC program was eliminated on July 21, 2011. Pursuant to relevant rules in Europe, Lazard Ltd is required to be supervised by another regulatory body, either in the U.S. or Europe. The Dodd-Frank Act allows certain securities holding companies seeking consolidated supervision, including Lazard Ltd, to elect to be supervised by the Board of Governors of the Federal Reserve. Lazard Ltd anticipates that the Board of Governors of the Federal Reserve will adopt regulations pursuant to Section 618 of the Dodd-Frank Act in the near future for companies

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

that seek to come under their consolidated supervision. Once we understand the final scope of such regulations, Lazard Ltd will determine whether it will elect to comply with such regulations and register to come under the consolidated supervision of the Federal Reserve. Until such regulations are adopted, however, we cannot determine the full impact of such regulations on us. The Dodd-Frank Act and the rules and regulations that may be adopted thereunder (including regulations that have not yet been proposed) could have other effects on us. We continue to monitor the process as such rules are proposed and adopted.

20. SEGMENT INFORMATION

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. The Company’s principal operating activities are included in the two business segments as described in Note 1 above – Financial Advisory and Asset Management. In addition, as described in Note 1 above, the Company records selected other activities in its Corporate segment.

The Company’s segment information for the three month and six month periods ended June 30, 2011 and 2010 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.

•

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 incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

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 with respect to net revenue, operating income (loss) and total assets:


		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
Financial Advisory
	Net Revenue	$	249,191		$	245,973		$	478,036		$	514,469
	Operating Expenses		214,217			213,900			427,783			451,700

	Operating Income (a)	$	34,974		$	32,073		$	50,253		$	62,769


Asset Management
	Net Revenue	$	244,855		$	189,414		$	471,708		$	377,167
	Operating Expenses		160,914			136,886			310,118			266,326

	Operating Income (a)	$	83,941		$	52,528		$	161,590		$	110,841


Corporate
	Net Revenue	$	(16,754	)	$	(16,352	)	$	(34,429	)	$	(34,390	)
	Operating Expenses		12,959			1,198			14,766			106,650

	Operating Loss (a)	$	(29,713	)	$	(17,550	)	$	(49,195	)	$	(141,040	)


Total
	Net Revenue	$	477,292		$	419,035		$	915,315		$	857,246
	Operating Expenses		388,090			351,984			752,667			824,676

	Operating Income (a)	$	89,202		$	67,051		$	162,648		$	32,570


	As Of
	June 30, 2011		December 31, 2010
Total Assets
Financial Advisory	$	731,184	$	799,090
Asset Management		689,118		687,323
Corporate		1,660,712		1,936,119

Total	$	3,081,014	$	3,422,532

LAZARD LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

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

(a)	Operating income (loss) for the six month period ended June 30, 2010 was significantly impacted by certain charges related to the three month period ended March 31, 2010. Such impact, including the amounts attributable to each of the Company’s business segments, is described in the table below:


Financial Advisory
Operating income, as reported above	$	62,769
Special item:
Acceleration of amortization expense pertaining to the amendment of Lazard’s retirement policy with respect to RSU awards		19,571

Operating income, excluding impact of special item	$	82,340


Asset Management
Operating income, as reported above	$	110,841
Special item:
Acceleration of amortization expense pertaining to the amendment of Lazard’s retirement policy with respect to RSU awards		2,902

Operating income, excluding impact of special item	$	113,743


Corporate
Operating loss, as reported above	$	(141,040	)
Special items:
Restructuring expense		87,108
Acceleration of amortization expense pertaining to the amendment of Lazard’s retirement policy with respect to RSU awards		2,387

Operating loss, excluding impact of special items	$	(51,545	)


Consolidated
Operating income, as reported above	$	32,570
Special items:
Restructuring expense		87,108
Acceleration of amortization expense pertaining to the amendment of Lazard’s retirement policy with respect to RSU awards		24,860

Operating income, excluding impact of special items	$	144,538

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Lazard Ltd’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”). All references to “2011”, “2010”, “second quarter”, “first half”, or “the period” refer to, as the context requires, the three month and six month periods ended June 30, 2011 and June 30, 2010.

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

Management has included in Parts I and II of this Form 10-Q, including in its 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 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 on our businesses and on our ability to retain our employees.

These risks and uncertainties are not exhaustive. Other sections of the Form 10-K may include additional factors, which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can 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 we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do 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,

•

future acquisitions, including the consideration to be paid and the timing of consummation,

•

potential growth opportunities available to our businesses,

•

recruitment and retention of our managing directors and employees,

•

target levels of compensation expense,

•

business’ potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts,

•

likelihood of success and impact of litigation,

•

expected tax rates,

•

changes in interest and tax rates,

•

expectations with respect to the economy, securities markets, the market for mergers, acquisitions and strategic advisory and restructuring activity, the market for asset management activity and other industry trends,

•

effects of competition on our business, and

•

impact of future legislation and regulation on our business.

The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, the Company uses its websites to convey information about our 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 mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC and its subsidiaries (“LAM”). Monthly updates of these funds are posted to the LAM website (www.lazardnet.com) on the third business day following the end of each month. Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com. Our websites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q.

Business Summary

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

•

Asset Management, which includes strategies for the management of equity and fixed income securities and alternative investment and private equity funds, as well as wealth management.

LFB is a registered bank regulated by the Banque de France and its primary operations include asset and liability management for Lazard Group’s businesses in France through its money market desk and commercial banking operations, deposit taking and, to a lesser extent, financing activities and custodial oversight over assets of various clients. LFB engages in underwritten offerings of securities in France and may expand its scope to include placements elsewhere in Europe.

Lazard invests or may invest its own capital usually alongside capital of qualified institutional and individual investors in alternative investments or private equity investments and, since 2005, we have engaged in a number of alternative investments and private equity activities, including private equity investments in

Corporate Partners II Limited (“CP II”) and Lazard Senior Housing Partners LP (“Senior Housing”), consistent with our obligations to LFCM Holdings LLC (“LFCM Holdings”) and through The Edgewater Funds (“Edgewater”), our Chicago-based private equity firm (see Note 8 of Notes to Condensed Consolidated Financial Statements). We continue to explore and discuss opportunities to expand the scope of our alternative investment and private equity activities in Europe, the U.S. and elsewhere. These opportunities could include internal growth of new funds and direct investments by us, partnerships or strategic relationships, investments with third parties or acquisitions of existing funds or management companies. Also, consistent with our obligations to LFCM Holdings, we may explore discrete capital markets opportunities.

The Company’s consolidated net revenue was derived from the following segments:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Financial Advisory		52	%		59	%		52	%		60	%
Asset Management		51			45			52			44
Corporate		(3	)		(4	)		(4	)		(4	)

Total		100	%		100	%		100	%		100	%

Business Environment

Economic and global financial market conditions can materially affect our financial performance. As described above, the Company’s principal sources of revenue are derived from activities in our Financial Advisory and Asset Management business segments. As our Financial Advisory revenues are for the most part dependent on the successful completion of merger, acquisition, restructuring or similar transactions, and our Asset Management revenues are primarily driven by the levels of AUM, weak economic and global financial market conditions can result in a challenging business environment for M&A and fundraising activity as well as our Asset Management business, but may provide opportunities for our restructuring business, which tends to be counter-cyclical.

Global market performance, capital-raising and M&A activity were mixed during the first half of 2011. Overall, global equity markets at June 30, 2011 were up modestly since December 31, 2010, despite volatility during both the first and second quarters of 2011. While the announced value of M&A activity increased in the second quarter of 2011 as compared to the corresponding period in 2010, M&A activity slowed as compared to the first quarter of 2011 due to economic uncertainty caused by concerns over the public-finance situation in Europe and continuing high U.S. unemployment. Restructuring activity continued at low levels due to the decline in the number of corporate defaults.

During the past few years we have expanded our geographic reach and industry expertise. We believe that in this environment, companies, government bodies and investors will seek independent advice with a geographic perspective, deep understanding of capital structure, informed research and knowledge of global economic conditions, and that our business model as an independent, unconflicted adviser will continue to create opportunities for us to attract new clients and key personnel.

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 potentially applicable 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 our Form 10-K. Furthermore, 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

For the first half of 2011, the value of global completed and announced M&A transactions increased significantly, while the number of such transactions reflected no significant change as compared to the 2010 period, reflecting transactions with higher average values. During the second quarter of 2011 the value of completed and announced transactions increased as compared to the corresponding period in 2010, while the number of such transactions generally declined.


	Three Months Ended June 30,							Six Months Ended June 30,
	2011		2010		% Incr / (Decr)			2011		2010		% Incr / (Decr)
	($ in billions)
Completed M&A Transactions:
Global:
Value	$	784		$609		29	%	$	1,483		$1,128		31	%
Number		10,084		10,944		(8	)%		20,860		21,311		(2	)%
Trans-Atlantic:
Value	$	91	$	30		203	%	$	121	$	99		22	%
Number		378		392		(4	)%		787		768		2	%
Announced M&A Transactions:
Global:
Value	$	774	$	608		27	%	$	1,560	$	1,240		26	%
Number		10,649		11,024		(3	)%		21,723		21,552		1	%
Trans-Atlantic:
Value	$	66	$	52		27	%	$	135	$	106		27	%
Number		409		400		2	%		833		765		9	%

Source:

Dealogic as of July 8, 2011.

We continue to believe that we are relatively well positioned as our clients refinance, restructure and reposition their asset portfolios for growth.

Global restructuring activity during the 2011 six month period decreased from the corresponding prior year period due to the decelerating pace of corporate debt defaults. According to Moody’s Investors Service, Inc., in the twelve month period ended June 30, 2011 a total of 43 issuers defaulted, as compared to 121 in the twelve months ended June 30, 2010, which includes a total of 12 issuers in the six month period ended June 30, 2011, as compared to 27 in the corresponding 2010 period. We believe that the number and value of corporate defaults for the full year of 2011 will be significantly lower as compared to 2010, but due to our Restructuring assignments currently in progress, we expect that our Restructuring business will remain active, albeit at a lower level as compared to the prior year. Our Restructuring activities include advising companies on matters relating to debt restructurings, refinancings and other on- and off-balance sheet assignments. Our Restructuring assignments are generally executed over a six- to eighteen-month period.

Our Private Fund Advisory Group, which is part of our Financial Advisory segment and is conducted in the U.S. through Lazard Freres & Co. LLC (“LFNY”), an SEC-registered broker-dealer and municipal advisor and member of the Financial Industry Regulatory Authority (“FINRA”) and the Municipal Securities Rulemaking Board (the “MSRB”), acts as placement agent for investment funds, including investment funds that have historically received capital from certain public pension funds. In April 2009, governmental officials in New York announced a new policy banning the use of placement agents by funds seeking investment contributions from the New York State and New York City public pension funds. The use of placement agents has also been prohibited or otherwise restricted with respect to investments by public pension funds in Illinois, Ohio, California and New Mexico, and similar measures are being considered or have been implemented in other jurisdictions. On June 22, 2011, the SEC approved an amendment to its June 30, 2010 rule which, among other things, will place

certain restrictions on the use of placement agents. As amended, the SEC rule will prohibit investment advisors from paying a third-party placement agent for soliciting investment advisory business from a U.S. governmental entity, unless the placement agent is (i) an SEC-registered investment advisor complying with the rule, (ii) an SEC-registered broker-dealer that is a member of FINRA and thus subject to FINRA’s forthcoming “pay-to-play” rule, or (iii) a “municipal advisor” that is registered with the SEC under Section 15B of the Securities Exchange Act of 1934, as amended, and subject to the “pay-to-play” rules that will be adopted by the MSRB. We are continuing to evaluate the potential impact of state, local and other restrictions on our Private Fund Advisory business.

Asset Management

As shown in the table below, major global market indices at June 30, 2011 were generally unchanged in most markets as compared to such indices at March 31, 2011 and increased modestly as compared to December 31, 2010, with more significant increases as compared to June 30, 2010.


	Percentage Change June 30, 2011 vs.
	March 31, 2011			December 31, 2010			June 30, 2010
MSCI World Index		0	%		4	%		28	%
CAC 40		0	%		5	%		16	%
DAX		5	%		7	%		24	%
FTSE 100		1	%		1	%		21	%
TOPIX 100		(3	)%		(8	)%		1	%
MSCI Emerging Market		(2	)%		0	%		25	%
Dow Jones Industrial Average		1	%		7	%		27	%
NASDAQ		0	%		5	%		32	%
S&P 500		0	%		5	%		28	%

The fees that we receive for providing investment management and advisory services are primarily driven by the level of AUM. Accordingly, since market movements and foreign currency volatility impact the level of our AUM, such items will impact the level of revenues we receive from our Asset Management business. A substantial portion of our AUM is invested in equities, and market movements reflected in the changes in Lazard’s AUM during the period generally corresponded to the changes in global market indices. Our AUM at June 30, 2011 increased 4% versus AUM at December 31, 2010, with our average AUM during the first half of 2011 increasing 23%, as compared to our average AUM for the corresponding period of 2010, the latter primarily reflecting significant market appreciation as well as net inflows in the six month period ended December 31, 2010. The higher level of AUM contributed to significantly higher management fee revenues in the 2011 periods.

Financial Statement Overview

Net Revenue

The majority of Lazard’s Financial Advisory net revenue is earned from the successful completion of M&A transactions, strategic advisory matters, restructuring and capital structure advisory services, capital raising and similar transactions. The main drivers of Financial Advisory net revenue are overall M&A activity, the level of corporate debt defaults and the environment for capital raising activities, 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, and may also earn fees from public and private securities offerings for referring opportunities to LFCM Holdings for underwriting and distribution

of securities. Significant fluctuations in Financial Advisory net revenue can occur over the course of any given year, because a significant portion of such net revenue is earned upon the successful completion of a transaction, restructuring or capital raising activity, the timing of which is uncertain and is not subject to Lazard’s control.

Lazard’s Asset Management segment principally includes LAM, Lazard Frères Gestion SAS (“LFG”), Edgewater and Lazard Wealth Management LLC. 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 by Lazard’s investment performance, its ability to successfully attract and retain assets, the broader performance of the global equity markets and, to a lesser extent, fixed income markets. As a result, fluctuations in financial markets and client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. Asset Management fees are generally based on the level of AUM measured daily, monthly or quarterly, and an increase or reduction in AUM, due to market price fluctuations, currency fluctuations, net client asset flows or otherwise, will result in a corresponding increase or decrease in management fees. The majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less. Institutional and individual clients, and firms with which we have strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. In addition, as Lazard’s AUM includes significant amounts of assets that are denominated in currencies other than U.S. dollars, changes in the value of the U.S. dollar relative to foreign currencies will impact the value of Lazard’s AUM. Fees vary with the type of assets managed and the vehicle in which they are managed, with higher fees earned on equity assets, alternative investments (such as hedge funds) and private equity investments, and lower fees earned on fixed income and cash management products.

The Company earns performance-based incentive fees on various investment products, including traditional products and alternative investment funds such as hedge funds and private equity funds.

For hedge funds, incentive fees are calculated based on a specified percentage of a fund’s net appreciation, in some cases in excess of established benchmarks. The Company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period, when potential uncertainties regarding the ultimate realizable amounts have been determined. The incentive fee measurement period is generally an annual period (unless an account terminates during the year), and therefore such incentive fees are usually recorded in the fourth quarter of Lazard’s fiscal year. These incentive fees received at the end of the measurement period are not subject to reversal or payback. Incentive fees on hedge funds generally are subject to loss carryforward provisions in which losses incurred by the funds in any year are applied against certain future period net appreciation before any incentive fees can be earned.

For private equity funds, incentive fees may be earned in the form of a “carried interest” if profits arising from realized investments exceed a specified threshold. Typically, such carried interest is ultimately calculated on a whole-fund basis and, therefore, clawback of carried interests during the life of the fund can occur. As a result, incentive fees earned on our private equity funds are not recognized until potential uncertainties regarding the ultimate realizable amounts have been determined, including any potential for clawback.

Corporate segment net revenue consists primarily of interest income and interest expense, including amounts earned at LFB, investment gains and losses on the Company’s “seed investments” in LAM equity funds and principal investments in equities and alternative investment funds, investments at LFB, and “equity method” investments. Corporate net revenue can fluctuate due to changes in the fair value of investments classified as “trading”, and with respect to “available-for-sale” investments, when realized, or, with respect to “available-for-sale” and “held-to-maturity” investments, when a decline is determined to be other than temporary, as well as due to changes in interest and currency exchange rates and in the levels of cash, investments and indebtedness. As of December 31, 2010, the Company no longer held “available-for-sale” or “held-to-maturity” investments.

Although Corporate segment net revenue during the first half of 2011 represented (4)% of Lazard’s net revenue, total assets in Corporate represented 54% of Lazard’s consolidated total assets as of June 30, 2011, which is attributable to assets associated with LFB, investments in government bonds, fixed income funds, LAM-managed funds and other securities, private equity investments and cash.

Operating Expenses

The majority of Lazard’s operating expenses relate to compensation and benefits for employees and managing directors. Our compensation and benefits expense includes (i) salaries and benefits, (ii) amortization of the relevant portion of (a) share-based incentive compensation under the Lazard Ltd 2005 Equity Incentive Plan (“2005 Plan”) and the Lazard Ltd 2008 Incentive Compensation Plan (the “2008 Plan”) and (b) Lazard Fund Interests, with such aggregate amortization generally determined on a straight-line basis over the applicable vesting periods, and not on the basis of revenue recognition (see Note 13 of Notes to Condensed Consolidated Financial Statements) and (iii) a provision for discretionary bonuses and profit pools. Compensation expense in any given period is dependent on many factors, including general economic and market conditions, our operating and financial performance, staffing levels, competitive pay conditions, the nature of revenues earned, as well as the mix between current and deferred compensation. As reflected in the tables below, our compensation expense-to-operating revenue ratios for the second quarters of 2011 and 2010 were 58.1% and 59.8%, respectively, and for the six month periods of 2011 and 2010 were 58.5% and 60.0%, respectively (with such ratio for the six month period of 2010 excluding the compensation charge of approximately $25 million in connection with the accelerated vesting of share-based incentive awards related to the Company’s change in retirement policy).

Lazard’s operating expenses also include “non-compensation expense” (which includes costs for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services and other expenses), amortization of intangible assets related to acquisitions and, in 2010, restructuring expense. Amortization of intangible assets relates primarily to the acquisition of Edgewater. Restructuring expense relates to certain staff reductions and realignment of personnel in the first quarter of 2010, and includes severance and related benefits expense, the acceleration of unrecognized expense pertaining to restricted stock unit awards denominated in shares of Lazard Ltd Class A common stock (“RSUs”) previously granted to individuals who were terminated and certain other costs related to these initiatives.

Provision for Income Taxes

Lazard Group primarily operates 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 pertaining to the limited liability company is not subject to U.S. federal income taxes because taxes associated with such income represent obligations of the individual partners. Outside the U.S., Lazard Group operates principally through corporations and is subject to local income taxes. Income taxes shown on Lazard’s consolidated statements of operations are principally related to non-U.S. entities and to New York City Unincorporated Business Tax (“UBT”) attributable to Lazard’s operations apportioned to New York City. The Company’s provision for income taxes also includes a U.S. income tax provision attributable to Lazard Ltd’s ownership interest in Lazard Group’s operating income.

Noncontrolling Interests

Noncontrolling interests primarily relate to the charge attributable to LAZ-MD Holdings’ ownership interest in the net income attributable to Lazard Group, amounts related to Edgewater and various LAM-related general partnership interests (“GPs”) in limited partnerships held directly by certain of our LAM managing directors. See Note 12 of Notes to Condensed Consolidated Financial Statements for information regarding the Company’s noncontrolling interests.

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 based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of members’/stockholders’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included in the consolidated statements of operations.

During the first quarter of 2010, the Company reported certain charges (the “2010 special items”) that adversely impacted operating results for that period. The impact of such special items on the Company’s condensed consolidated statements of operations for the first half of 2010 is described in more detail in the table below. There were no special items recorded in the 2011 periods.


	Six Months Ended June 30, 2010
	Restructuring (a)			RSU Amortization Amendment (b)			Total
	($ in thousands)
Compensation				$	24,860		$	24,860
Restructuring	$	87,108						87,108

Operating Loss		(87,108	)		(24,860	)		(111,968	)
Income Tax Benefit		5,680			1,363			7,043
Noncontrolling Interest Benefit		18,400			5,988			24,388

Net Loss Attributable to Lazard Ltd	$	(63,028	)	$	(17,509	)	$	(80,537	)

(a)	Restructuring plan announced in the first quarter of 2010.

(b)	Accelerated amortization expense recognized in connection with the vesting of share-based incentive awards related to the amendment of the Company’s retirement policy.

A discussion of the Company’s consolidated results of operations for the 2011 and 2010 periods is set forth below, followed by a more detailed discussion of business segment results. For comparability purposes in the discussion that follows, the results for the six month period of 2010 are shown in the table below, on both an “as reported” U.S. GAAP and “excluding special items” non-U.S. GAAP basis that management believes provides the most meaningful comparison between historical, present and future periods. There were no special items in the 2011 periods.


	Three Months Ended June 30,
	2011		2010
	($ in thousands)

*Net Revenue*	$	477,292	$	419,035


*Operating Expenses:*
Compensation and benefits		286,480		263,021
Non-compensation expense		99,904		87,194
Amortization of intangible assets related to acquisitions		1,706		1,769