Lazard Ltd Reports First-Quarter 2008 Results

Lazard Ltd (NYSE: LAZ) today announced financial results for the quarter ended March 31, 2008. Net income on a fully exchanged basis was $16.0 million ($0.14 per share, diluted) for the first quarter of 2008 compared to $55.0 million ($0.47 per share, diluted) for the first quarter of 2007. Core operating business revenue increased 3% to $380.9 million in the first quarter of 2008, compared to $369.5 million in the first quarter of 2007, reflecting continued solid performance in Lazard’s core operating business revenue of Financial Advisory and Asset Management. Financial Advisory operating revenue, which includes M&A and Strategic Advisory, Restructuring and Corporate Finance, decreased 5% to $212.4 million for the first quarter of 2008, compared to $222.6 million for the first quarter of 2007. Asset Management operating revenue increased 15% during the first quarter of 2008 to $168.4 million, compared to $146.9 million in the first quarter of 2007. Total operating revenue for the first quarter of 2008 was $341.2 million, compared to $388.2 million for the first quarter of 2007. Operating revenue for the first quarter of 2008 includes negative Corporate revenue of $39.7 million. Corporate revenue included markdowns and losses of $28.5 million in our Paris bank’s portfolio of debt securities of corporate issuers and losses in our Corporate portfolio of equity securities to seed new Asset Management products and for temporary investments. Operating income(d) was $18.0 million for the first quarter of 2008, compared to $78.3 million for the first quarter of 2007, primarily due to the reduction in operating revenue and to higher facilities costs, business development expenses and continued investment in our businesses. Lazard believes that results assuming full exchange of outstanding exchangeable interests provide the most meaningful basis for comparison among present, historical and future periods. "Even in this challenging and volatile environment, revenue in our core operating business of Financial Advisory and Asset Management increased modestly,” said Bruce Wasserstein, Chairman and Chief Executive Officer of Lazard Ltd. "There is little transparency or certainty about the level of liquidity and market activity over the remainder of this year, but we expect some improvement in market activity by year end. Our Asset Management business is an ongoing success, with positive net inflows for the quarter. Our Financial Advisory business continues to hold its strong position in this softened market, and our leading Financial Restructuring business is seeing heightened activity, which we expect will be reflected in our results over the next several years.” "Our first-quarter results are not, we believe, representative of the outlook for the year,” said Michael J. Castellano, Chief Financial Officer of Lazard. "The unprecedented market and credit environments negatively impacted the value of the debt of even investment grade corporate issuers and, therefore, our Paris bank’s portfolio of debt securities,” said Mr. Castellano. "In addition, the declines in the global equity markets during the quarter negatively impacted the investments in our Corporate portfolio of equity securities.” "During the first quarter, we transitioned our Paris bank’s portfolio, to more closely align it with the bank’s long-term hold strategy, by reducing the portion of the portfolio designated as trading and by designating all new purchases as non-trading,” said Mr. Castellano. "We expect that these changes should also lessen the volatility of our earnings in the future. In April, our Corporate results for both the Paris bank’s debt and the Corporate equity portfolios are positive.” "Our Asset Management business has continued to provide a wider range of investment solutions for our clients on a global scale,” said Steven J. Golub, Lazard’s Vice Chairman. "We are also continuing to expand our Asset Management presence in major markets around the world.” "We are seeing a change in the mix of our Financial Advisory business to a combination of strategic, complex and cross-border M&A, traditional and non-traditional restructuring assignments and investments by Sovereign Wealth Funds, as well as advisory for capital raising through a variety of vehicles,” said Mr. Golub. "Examples of recent assignments in these categories include advising MBIA in Warburg Pincus’ equity commitment; Bear Stearns in its sale to JP Morgan; the Kuwait Investment Authority in its investment in Citigroup; ING in its acquisition of CitiStreet; H&R Block in the sale of its mortgage servicing business to WL Ross; International Paper in its acquisition of Weyerhaeuser’s packaging business; Zinifex in its merger with Oxiana; and Tata Chemicals in its acquisition of General Chemical Industrial Products.” "Financial Advisory revenue and income fluctuate from quarter to quarter,” said Mr. Golub. "This is why it is best to measure our results on an annual basis.” The Company’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality and other factors. Accordingly, the revenue and profits in any particular quarter may not be indicative of future results. As such, Lazard management believes that annual results are the most meaningful. Operating Revenue Core Operating Business Lazard’s core operating business includes a balance of Financial Advisory and Asset Management businesses. Operating revenue for our core operating business increased 3% to $380.9 million in the first quarter of 2008. This included a slight decrease of 5% in our Financial Advisory revenue, and a 15% increase in Asset Management revenue for the quarter. Financial Advisory Lazard’s Financial Advisory business encompasses general strategic and transaction-specific advice to public and private companies, governments and other parties, and includes Financial Restructuring as well as various corporate finance services. Some of our assignments and, therefore, related revenue are not reflected in publicly available statistical information. Restructuring assignments normally are executed over a six- to eighteen-month period. For the first quarter of 2008, Financial Advisory operating revenue decreased 5% to $212.4 million, compared to $222.6 million for the first quarter of 2007. This is due primarily to the timing of transaction completions. M&A and Strategic Advisory M&A and Strategic Advisory operating revenue decreased 15% to $166.0 million for the first quarter of 2008, compared with $196.1 million for the first quarter of 2007. Among the completed transactions in the 2008 first quarter on which Lazard advised, were the following: IBM’s $5.0 billion acquisition of Cognos Emap’s £2.0 billion sale to Eden Bidco and sale of Emap Consumer Media and Emap Radio to Heinrich Bauer Verlag Rank Group’s $2.7 billion acquisition of Alcoa’s packaging and consumer businesses Aldabra’s $1.6 billion acquisition of paper and packaging assets from Boise Cascade Carillion’s £572 million acquisition of Alfred McAlpine American Express’ $1.1 billion sale of American Express Bank to Standard Chartered Tata Chemicals’ $1.0 billion acquisition of General Chemical Industrial Products MBIA in Warburg Pincus’ $1.0 billion equity commitment Kesa Electricals’ €550 million sale of its furniture and electricals business to a consortium Mitiska’s €263 million sale of AS Adventure Government of Tasmania’s A$350 million sale of Hobart International Airport Government Offices of Sweden’s SEK2.1 billion sale of the Swedish State’s 6.6% stake in OMX to Borse Dubai Amazon.com’s $300 million acquisition of Audible.com Pfizer’s $195 million acquisition of Encysive Pharmaceuticals Kuwait Investment Authority’s investment in Citigroup Among the pending, announced M&A transactions on which Lazard advised in the first quarter or continued to advise since March 31, 2008, are: BHP Billiton’s $147.4 billion offer for Rio Tinto Gaz de France’s €44.6 billion merger with Suez Trane’s $10.1 billion sale to Ingersoll-Rand Resolution plc’s £5.0 billion sale to Pearl Group Penn National Gaming’s $8.9 billion sale to funds affiliated with Fortress and Centerbridge International Paper’s $6.0 billion acquisition of Weyerhaeuser’s packaging business Zinifex’s A$6.2 billion merger with Oxiana Louis Dreyfus’ €2.1 billion sale of its 29% stake in Neuf Cegetel to SFR Geodis’ $2.5 billion sale to SNCF Participations Meinl Bank’s €1.3 billion sale of right to manage Meinl European Land and new investment in Meinl European Land by Gazit Globe and Citi Property Investors Quanex’ $1.7 billion merger with Gerdau and spin-off of its building products business to shareholders Bear Stearns’ $1.4 billion sale to JPMorgan Chase Cookson’s £626 million acquisition of Foseco H&R Block’s $1.1 billion sale of Option One mortgage loan servicing business to WL Ross ING in its $900 million acquisition of CitiStreet Alfa Corp.’s Special Committee in its $840 million privatization IBM’s SEK 5.2 billion acquisition of Telelogic Church & Dwight’s $380 million acquisition of Del Pharmaceuticals from Coty Eiffage S.A. in its defense against an approach by Sacyr Financial Restructuring Financial Restructuring operating revenue increased to $15.5 million for the first quarter of 2008 compared to $9.6 million for the first quarter of 2007, due to increases in retainer fees. Recently announced Restructuring assignments include: Tropicana Casino & Resorts, Inc. with its on-going creditor negotiations Vertis Inc. in developing and implementing its restructuring plan Centro Properties Limited in connection with its refinancing efforts, asset sales and creditor negotiations Journal Register Company in its review of financial and strategic alternatives BLB Management Services, Inc. in its review of financial and strategic alternatives Plastech Engineered Products in connection with its Chapter 11 filing Wellman Inc. in connection with its Chapter 11 filing We are continuing our work on a number of other Restructuring assignments, including those involving the UAW in implementing its VEBA settlements with GM, Ford and Chrysler and in the Delphi bankruptcy, Movie Gallery, Tarragon Corporation, Technical Olympic USA (TOUSA), the Hellenic Republic and an ad hoc committee of second lien holders in connection with Dura Automotive's Chapter 11 filing. Corporate Finance and Other Corporate Finance and Other operating revenue increased to $30.9 million for the first quarter of 2008, compared to $16.9 million for the first quarter of 2007. Our Private Fund Advisory and Equity Capital Markets Groups each contributed to the increase in revenue during the quarter. Our Equity Capital Markets Group advised on a number of recent transactions in the first quarter of 2008, including Special Purpose Acquisition Company transactions (SPACs) for Aldabra Acquisition Corp., Overture Acquisition, Atlas Acquisition and Polaris Acquisition. The Group advised Acorda Therapeutics, Orexigen, and Evergreen Solar, among others, on their follow-on equity offerings. Our Alternative Capital Finance Group also has served as placement agent on a number of Private Investment in Public Equity transactions (PIPEs) and Registered Direct Offerings (RDs). Notable assignments during the first quarter included PIPEs for Verenium Corporation and TXCO Resources. Asset Management Asset Management operating revenue increased 15% to $168.4 million for the first quarter of 2008, compared to $146.9 million for the first quarter of 2007. Management fees increased 21% to $158.0 million for the first quarter of 2008 compared to $130.6 million for the first quarter of 2007. AUM at the end of the first quarter were $134.2 billion, primarily reflecting market depreciation of $10.0 billion, and partially offset by net inflows of $1.7 billion for the quarter. AUM increased 7.5% from the first quarter of 2007 and decreased 5% from year-end 2007. Corporate Corporate operating revenues were a negative $39.7 million in the first quarter of 2008, compared to income of $18.7 million in the first quarter of 2007, adversely impacted by mark-downs and losses of $28.5 million in our Paris bank’s portfolio of debt securities of corporate issuers and losses in our Corporate portfolio of equity securities to seed new Asset Management products and for temporary investments. These results reflect the unprecedented market and credit environment, and the declines in the global equity markets. At March 31, 2008, net unrealized losses that have already been included in our results were $18.6 million, or 7% of cost, in the Paris bank’s portfolio. Expenses Compensation and Benefits The ratio of compensation and benefits expense to operating revenue was 56.7% for the first quarters of both 2008 and 2007. Compensation and benefits expense decreased 12% to $193.6 million for the first quarter of 2008, compared to $220.0 million for the first quarter of 2007, consistent with the decrease in operating revenue in 2008 compared to 2007. Non-Compensation Non-compensation expenses were $95.3 million or 27.9% of operating revenue for the first quarter of 2008, compared to $70.9 million or 18.3% of operating revenue for the first quarter of 2007, excluding in the 2008 period the effect of $1.2 million in amortization of intangibles related to acquisitions completed in the second half of 2007. Factors contributing to the quarter-over-quarter increase include the impact of new offices and acquisitions made in the second half of 2007 and increased (i) business development expenses for travel and market related data, (ii) fund administration expenses related to the growth in AUM, and (iii) consulting and deal-related legal fees, as well as the continued impact of the weakened U.S. Dollar. In addition, the first quarter of 2008 includes a $6 million provision for costs related to leases on abandoned space. The percentage of non-compensation expenses to operating revenue can vary from quarter to quarter due to quarterly fluctuation in revenues, among other things. Accordingly, the results in a particular quarter may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison. Provision for Income Taxes The provision for income taxes on a fully exchanged basis was $5.3 million for the first quarter of 2008, compared to $21.4 million for the first quarter of 2007. The effective tax rate for the first quarter of 2008 was 25%, compared to 28% for the first quarter of 2007, exclusive of LAM general partnership interest-related revenue. On a U.S. GAAP basis, the provision for income taxes was $4.8 million and $17.1 million in the first quarter of 2008 and 2007, respectively, or an effective tax rate of 26.9% and 21.8% for the respective quarters. Minority Interest Minority interest, assuming full exchange of minority interests, amounted to a $3.3 million loss in the 2008 first quarter, compared to $1.8 million of income in the first quarter of 2007. Minority interest was included in net revenues and is attributable to various LAM-related general partnership interests held by our managing directors. Minority interest expense on a US GAAP basis also includes the minority interest attributable to the exchangeable interests held by LAZ-MD Holdings LLC. Capital and Other Matters At March 31, 2008, Lazard reported total stockholder’s equity of $36 million, having repurchased 3.2 million shares of Class A common stock for an aggregate cost of $116.9 million during the first quarter of 2008. On May 5, 2008, the Board of Directors of Lazard Ltd approved an additional share repurchase authorization of $200 million, for purchases through December 31, 2009. The remaining repurchase authorization, including the newly authorized amount, is $270 million. On May 2, 2008, Lazard Group completed the remarketing of the $437.5 million in Senior Notes underlying our Equity Security Units (ESUs) by purchasing the remarketed Senior Notes. On May 15, 2008, Lazard expects that the Forward Purchase Contracts underlying the ESUs will settle for $437.5 million in cash and issuance of approximately 14.6 million shares, based on the closing price of Lazard’s Class A common stock on May 5, 2008. "We are pleased that by utilizing our strong cash position we were able to repurchase the remarketed Senior Notes,” said Mr. Castellano. "After the above transactions, we will have enhanced our equity capital position. We also will have retired $437.5 million of senior debt, without affecting our cash position.” Strategic Business Developments During the first quarter of 2008, Lazard continued to invest in both its Financial Advisory and Asset Management businesses. The investments support the firm’s five-year strategy to create growth opportunities. We continued to bolster our Financial Advisory business with new senior advisory talent, adding to our global infrastructure, transportation, and power & energy sectors as well as in debt and corporate finance advisory. We also hired a chairman in our Japan Financial Advisory business. In Asset Management we continued to seed new strategies in our traditional and alternatives businesses, and have been expanding our operations in Asia. Non-GAAP Information Lazard discloses certain non-GAAP financial information, which management believes provides the most meaningful basis for comparison among present, historical and future periods. The following are non-GAAP measures used in the accompanying financial information: Net income assuming full exchange of exchangeable interests (or fully exchanged basis) Operating revenue Minority interest assuming full exchange of exchangeable interests Additional financial, statistical and business-related information is included in a financial supplement. This earnings release, the financial supplement and selected transaction information will be available today on our website at www.lazard.com. Lazard, one of the world's preeminent financial advisory and asset management firms, operates from 39 cities across 21 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating back to 1848, the firm provides advice on mergers and acquisitions, restructuring and capital raising, as well as asset management services to corporations, partnerships, institutions, governments, and individuals. For more information on Lazard, please visit www.lazard.com. Cautionary Note Regarding Forward-Looking Statements This press release contains "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 are not historical facts but instead represent only our belief regarding future results, many of which, by their nature, are inherently uncertain and outside of our control. 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 these forward-looking statements. These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A "Risk Factors,” and also disclosed from time to time in reports on Forms 10-Q and 8-K including the following: A decline in general economic conditions or the global financial markets; Losses caused by financial or other problems experienced by third parties; Losses due to unidentified or unanticipated risks; A lack of liquidity, i.e., ready access to funds, for use in our businesses; and Competitive pressure. Lazard Ltd is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of assets under management in various hedge funds and mutual funds and other investment products managed by Lazard Asset Management LLC and its subsidiaries. Monthly updates of these funds will be posted to the Lazard Asset Management website (www.lazardnet.com) on the third business day following the end of each month. Investors can link to Lazard and its operating company websites through www.lazard.com. LAZ-G (a) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses, and excludes the results of all investments in Corporate.   (b) Operating revenue excludes interest expense relating to financing activities and revenue/(loss) relating to the consolidation of General Partnerships, each of which are included in net revenue.   (c) Refers to the full conversion of all outstanding exchangeable interests held by the members of LAZ-MD Holdings and is a non-GAAP measure.   (d) Operating income is after interest expense and before income taxes and minority interests. LAZARD LTD OPERATING REVENUE (unaudited)   Three Months Ended March 31,     Increase / 2008 2007 (Decrease) ($ in thousands) Financial Advisory   M&A and Strategic Advisory $ 165,984 $ 196,068 $ (30,084 ) (15 %) Financial Restructuring 15,538 9,620 5,918 62 % Corporate Finance and Other   30,906     16,935     13,971   82 % Total 212,428 222,623 (10,195 ) (5 %)   Asset Management Management Fees 158,009 130,639 27,370 21 % Incentive Fees - 5,006 (5,006 ) NM Other Revenue   10,424     11,272     (848 ) (8 %) Total   168,433     146,917     21,516   15 %   Core Operating Business Revenue (a) 380,861 369,540 11,321 3 %   Corporate   (39,658 )   18,657     (58,315 ) NM   Operating Revenue (b) 341,203 388,197 (46,994 ) (12 %)   LAM GP Related Revenue/(Loss) (3,253 ) 1,831 (5,084 ) - Other Interest Expense   (29,871 )   (20,830 )   (9,041 ) -   Net Revenue $ 308,079   $ 369,198   $ (61,119 ) (17 %)       (a) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of all investments in Corporate.   (b) Operating revenue excludes interest expense relating to financing activities and revenue/(loss) relating to the consolidation of LAM General Partnerships, each of which are included in net revenue.   NM - Not meaningful LAZARD LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME     Three Months Ended Ended March 31, 2008 2007 ($ in thousands, except per share data)   Total revenue (a) $ 350,104 $ 398,612 LFB interest expense   (8,901 )   (10,415 ) Operating revenue 341,203 388,197 LAM GP related revenue/(loss) (3,253 ) 1,831 Other interest expense   (29,871 )   (20,830 ) Net revenue 308,079 369,198 Operating expenses: Compensation and benefits 193,561 220,038   Occupancy and equipment 29,494 19,689 Marketing and business development 20,464 16,402 Technology and information services 16,241 12,606 Professional services 13,267 8,818 Fund administration and outsourced services 6,570 4,509 Amortization of intangible assets (b) 1,220 - Other   9,240     8,868   Total non-compensation expense   96,496     70,892   Operating expenses   290,057     290,930     Operating income 18,022 78,268   Provision for income taxes   4,840     17,061   Income before minority interest in net income 13,182 61,207 Minority interest in net income (excluding LAZ-MD) (3,253 ) 1,833 Minority interest in net income (LAZ-MD only)   8,636     33,020   Net income $ 7,799   $ 26,354     Net income assuming full exchange of exchangeable interests (c) $ 15,956   $ 55,033     Weighted average shares outstanding (d): Basic 49,980,193 51,439,068 Diluted 110,396,898 118,216,333 Net income per share: Basic $ 0.16 $ 0.51 Diluted $ 0.14 $ 0.47           Supplemental Information:   Weighted average shares outstanding, assuming full exchange of exchangeable interests (d): Basic 105,302,985 107,537,516 Diluted 110,396,898 118,216,333 Net income per share - assuming full exchange of exchangeable interests: Basic $ 0.15 $ 0.51 Diluted $ 0.14 $ 0.47   Ratio of compensation to operating revenue 56.7 % 56.7 % Ratio of non-compensation to operating revenue 28.3 % 18.3 % Ratio of non-compensation to operating revenue as adjusted (e) 27.9 % 18.3 %             (a) Excluding LAM General Partnership related revenue   (b) For the three month period ended March 31, 2008, includes amortization of intangible assets resulting from the acquisition of Goldsmith Agio Helms & Lynner, LLC ("GAHL") and Carnegie, Wylie & Company ("CWC").   (c) Represents a reversal of the minority interests related to LAZ-MD Holdings’ ownership of Lazard Group common membership interests net of an adjustment for Lazard Ltd entity-level taxes to effect a full exchange of interests as of January 1, 2007 (see "Reconciliation of US GAAP to Full Exchange Results").   (d) See "Reconciliation of Shares Outstanding and Basic & Diluted Net Income Per Share".   (e) For the three month period ended March 31, 2008, excludes the amortization of intangible assets. LAZARD LTD SELECTED QUARTERLY OPERATING RESULTS (unaudited)   Three Months Ended                 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 2008 2007 2007 2007 2007 2006 2006 2006 2006 ($ in thousands, except per share data) Financial Advisory M&A and Strategic Advisory $ 165,984 $ 313,622 $ 295,401 $ 164,318 $ 196,068 $ 247,483 $ 153,215 $ 197,856 $ 193,983 Financial Restructuring 15,538 32,321 56,161 29,073 9,620 20,423 15,562 21,047 13,593 Corporate Finance and Other   30,906     47,190     28,255   51,619   16,935   34,260   18,291   43,149   14,573 Total 212,428 393,133 379,817 245,010 222,623 302,166 187,068 262,052 222,149   Asset Management Management Fees 158,009 165,432 157,424 142,230 130,639 121,589 112,726 112,203 103,805 Incentive Fees - 48,959 7,315 5,752 5,006 42,009 3,423 7,456 6,483 Other Revenue   10,424     16,782     12,798   13,666   11,272   10,961   8,720   10,159   8,930 Total   168,433     231,173     177,537   161,648   146,917   174,559   124,869   129,818   119,218   Core operating business revenue (a) 380,861 624,306 557,354 406,658 369,540 476,725 311,937 391,870 341,367   Corporate   (39,658 )   (6,710 )   12,164   32,868   18,657   14,774   5,668   18,970   9,756   Operating revenue (b) $ 341,203   $ 617,596   $ 569,518 $ 439,526 $ 388,197 $ 491,499 $ 317,605 $ 410,840 $ 351,123     Operating income (c) $ 18,022   $ 132,278   $ 118,586 $ 89,163 $ 78,268 $ 115,207 $ 49,193 $ 84,693 $ 78,116     Net income $ 7,799   $ 59,125   $ 40,267 $ 29,296 $ 26,354 $ 36,596 $ 13,158 $ 23,545 $ 19,686     Net income per share Basic $ 0.16 $ 1.17 $ 0.79 $ 0.57 $ 0.51 $ 0.88 $ 0.35 $ 0.63 $ 0.52 Diluted $ 0.14 $ 1.04 $ 0.73 $ 0.52 $ 0.47 $ 0.78 $ 0.34 $ 0.59 $ 0.51                                       Supplemental Information:   Net income assuming full exchange of exchangeable interests $ 15,956   $ 122,577   $ 83,565 $ 61,515 $ 55,033 $ 85,817 $ 34,983 $ 62,939 $ 52,454     Net income per share - assuming full exchange of exchangeable interests Basic $ 0.15 $ 1.16 $ 0.78 $ 0.57 $ 0.51 $ 0.84 $ 0.35 $ 0.63 $ 0.53 Diluted $ 0.14 $ 1.04 $ 0.73 $ 0.53 $ 0.47 $ 0.78 $ 0.34 $ 0.60 $ 0.51 Assets Under Management ($ millions) $ 134,193 $ 141,413 $ 142,084 $ 135,350 $ 124,852 $ 110,437 $ 99,334 $ 93,901 $ 95,133   (a) Core operating business revenue includes the results of Financial Advisory and Asset Management businesses and excludes the results of all investments in Corporate.   (b) Operating revenue excludes interest expense relating to financing activities and revenue/(loss) relating to the consolidation of LAM General Partnerships, each of which are included in net revenue.   (c) Operating income is after interest expense and before income taxes and minority interests. LAZARD LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION ($ in thousands)   March 31,   December 31, 2008 2007 ASSETS Cash and cash equivalents $ 729,098 $ 1,055,844 Cash segregated for regulatory purposes or deposited with clearing organizations 14,914 24,585 Receivables 1,048,278 1,097,178 Investments* Debt 455,063 585,433 Equity 232,672 333,796 Other   251,967     169,612   939,702 1,088,841   Goodwill and other intangible assets 200,210 187,909 Other assets   424,774     386,056     Total assets $ 3,356,976   $ 3,840,413   LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Deposits and other customer payables $ 766,114 $ 858,733 Accrued compensation and benefits 97,988 498,058 Other liabilities 673,330 623,008 Senior notes: Underlying equity security units 437,500 437,500 Others 1,150,000 1,150,000 Subordinated loans   150,000     150,000   Total liabilities 3,274,932 3,717,299   Commitments and contingencies Minority interest 45,614 52,775   Stockholders' equity Preferred stock, par value $.01 per share: Series A - - Series B - - Common stock, par value $.01 per share: Class A 517 517 Class B - - Additional paid-in capital (98,764 ) (161,924 ) Accumulated other comprehensive income, net of tax 69,410 52,491 Retained earnings   249,405     248,551   220,568 139,635 Less: Class A common stock held by a subsidiary, at cost   (184,138 )   (69,296 ) Total stockholders' equity   36,430     70,339     Total liabilities, minority interest and stockholders' equity $ 3,356,976   $ 3,840,413     * Principally at fair value, with the exception of $76,215 and $755 of investments accounted for under the equity method at March 31, 2008 and December 31, 2007, respectively. LAZARD LTD RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME PER SHARE     BEFORE FULL EXCHANGE   Three Months Ended March 31, 2008 2007 ($ in thousands, except per share data) Basic Numerator: Net income $ 7,799 $ 26,354 Add (deduct) - net income associated with Class A common shares issuable on a non-contingent basis (a)   89   - Basic net income $ 7,888 $ 26,354 Denominator: Weighted average shares outstanding (a)   49,980,193   51,439,068   Basic net income per share $ 0.16 $ 0.51     Diluted Numerator: Basic net income $ 7,888 $ 26,354 Add (deduct) - dilutive effect of adjustments to income for: Interest expense on convertible notes, net of tax - 461 Minority interest in net income resulting from assumed share issuances (see incremental issuable shares in the denominator calculation below) and Ltd level income tax effect   8,068   29,095 Diluted net income $ 15,956 $ 55,910   Denominator: Weighted average shares outstanding 49,980,193 51,439,068 Add - dilutive effect of incremental issuable shares: Restricted stock units 3,474,809 2,019,444 Equity security units (b) - 6,027,803 Convertible notes (b) - 2,631,570 Series A and Series B convertible preferred stock (c) 1,619,104 - Exchangeable interests   55,322,792   56,098,448 Diluted weighted average shares outstanding   110,396,898   118,216,333   Diluted net income per share $ 0.14 $ 0.47   (a) For the three month period ended March 31, 2008, includes 1,185,282 weighted average shares, related to the Class A common stock that are issuable on a non-contingent basis with respect to the acquisition of GAHL.   (b) For the three month period ended March 31, 2008, the shares assumed issued from equity security units and convertible notes were not dilutive.   (c) For the three month period ended March 31, 2008, includes 12,155 shares of Series A convertible preferred stock and 277 shares of Series B convertible preferred stock that will be convertible into Class A common stock on a non-contingent basis with respect to the acquisition of CWC. The rate of conversion into Class A common stock will be dependant, in part, on the future value of the Class A common stock and currency exchange rates, therefore, the shares are excluded from the basic net income per share calculation but included in the diluted net income per share calculation. LAZARD LTD RECONCILIATION OF SHARES OUTSTANDING AND BASIC & DILUTED NET INCOME PER SHARE     ASSUMING FULL EXCHANGE OF EXCHANGEABLE INTERESTS AS OF JANUARY 1, 2007   Three Months Ended March 31, 2008 2007 ($ in thousands, except per share data) Basic Numerator: Net income $ 15,956   $ 55,033   Denominator: Weighted average shares outstanding (a)   105,302,985     107,537,516     Basic net income per share $ 0.15   $ 0.51     Diluted Numerator: Net income $ 15,956 $ 55,033 Add dilutive effect of adjustments to income for: Interest expense on convertible debt, net of tax   -     877   Diluted net income $ 15,956   $ 55,910     Denominator: Weighted average shares outstanding 105,302,985 107,537,516 Add - dilutive effect of incremental issuable shares: Restricted stock units 3,474,809 2,019,444 Equity security units (b) - 6,027,803 Convertible notes (b) - 2,631,570 Series A and Series B convertible preferred stock (c)   1,619,104     -   Diluted weighted average shares outstanding   110,396,898     118,216,333     Diluted net income per share $ 0.14   $ 0.47     (a) For the three month period ended March 31, 2008, includes 1,185,282 weighted average shares, related to the Class A common stock that are issuable on a non-contingent basis with respect to the acquisition of GAHL.   (b) For the three month period ended March 31, 2008, the shares assumed issued from equity security units and convertible notes were not dilutive.   (c) For the three month period ended March 31, 2008, includes 12,155 shares of Series A convertible preferred stock and 277 shares of Series B convertible preferred stock that will be convertible into Class A common stock on a non-contingent basis with respect to the acquisition of CWC. The rate of conversion into Class A common stock will be dependant, in part, on the future value of the Class A common stock and currency exchange rates, therefore, the shares are excluded from the basic net income per share calculation but included in the diluted net income per share calculation.   RECONCILIATION OF US GAAP TO FULL EXCHANGE RESULTS   Three Months Ended March 31, 2008 2007 ($ in thousands) Net income - US GAAP $ 7,799 $ 26,354 Provision for income taxes (d) (479 ) (4,341 ) Minority interest in net income (LAZ-MD only) (e)   8,636     33,020   Net income assuming full exchange of exchangeable interests $ 15,956   $ 55,033     (d) Represents an adjustment to the Lazard Ltd tax provision to effect a full exchange of LAZ-MD Holdings’ ownership of Lazard Group common membership interests at an effective rate on operating income less LAM GP related revenue of 25.0% for the three month period ended March 31, 2008 and 28.0% for the three month period ended March 31, 2007 respectively.   (e) Represents a reversal of the minority interests related to LAZ-MD Holdings’ ownership of Lazard Group common membership interests to effect a full exchange of interests as of January 1, 2007. LAZARD LTD ASSETS UNDER MANAGEMENT ("AUM")           As of Variance March 31, December 31, March 31, 2008 2007 2007 YTD Year over Year ($ in millions) Equities $ 110,018 $ 119,276 $ 105,483 (7.8 %) 4.3 % Fixed Income 15,398 14,233 12,587 8.2 % 22.3 % Alternative Investments 3,941 3,577 3,292 10.2 % 19.7 % Private Equity 1,547 1,401 936 10.4 % 65.3 % Cash   3,289   2,926   2,554 12.4 % 28.8 % Total AUM $ 134,193 $ 141,413 $ 124,852 (5.1 %) 7.5 %       Year Ended Three Months Ended March 31, December 31, 2008 2007 2007 ($ in millions) ($ in millions) AUM - Beginning of Period $ 141,413 $ 110,437 $ 110,437   Net Flows 1,716 11,564 16,745 Market Appreciation / (Depreciation) (10,005 ) 2,708 12,641 Foreign Currency Adjustments   1,069     143   1,590   AUM - End of Period $ 134,193   $ 124,852 $ 141,413   Average AUM * $ 137,803   $ 117,645 $ 130,827   % Change in average AUM   17.1 %     * Average AUM is based on an average of quarterly ending balances for the respective periods. LAZARD LTD SCHEDULE OF INCOME TAX PROVISION       Three Months Ended March 31,   2008 2007 Lazard Ltd Consolidated Effective Tax Rate ($ in thousands)   Operating Income Lazard Group Allocable to LAZ-MD Holdings (weighted average ownership of 51.7% and 52.1% for the three month periods ended March 31, 2008 and 2007, respectively) $ 9,196 $ 40,786   Allocable to Lazard Ltd (weighted average ownership of 48.3% and 47.9% for the three month periods ended March 31, 2008 and 2007, respectively)   8,601     37,482   Total Lazard Group operating income 17,797 78,268 Lazard Ltd and its wholly owned subsidiaries   225     -   Total Lazard Ltd consolidated operating income $ 18,022   $ 78,268     Provision for income taxes Lazard Group (effective tax rates of 24.4% and 16.7% for the three month periods ended March 31, 2008 and 2007, respectively) Allocable to LAZ-MD Holdings $ 2,240 $ 6,812 Allocable to Lazard Ltd   2,097     6,259   Total Lazard Group provision for income taxes 4,337 13,071 Tax adjustment for Lazard Ltd entity-level (a)   503     3,990   Lazard Ltd consolidated provision for income taxes $ 4,840   $ 17,061     Lazard Ltd consolidated effective tax rate   26.9 %   21.8 %   Lazard Ltd Fully Exchanged Tax Rate   Operating Income Lazard Ltd consolidated operating income 18,022 78,268 Adjustments for LAM GP related loss/(revenue)   3,253     (1,831 ) Operating income excluding LAM GP related revenue $ 21,275   $ 76,437     Provision for income taxes Lazard Ltd consolidated provision for income taxes $ 4,840 $ 17,061 Tax adjustment for full exchange (b)   479     4,341   Total fully exchanged provision for income taxes $ 5,319   $ 21,402     Lazard Ltd fully exchanged tax rate   25.0 %   28.0 %   (a) Represents an adjustment to the Lazard Ltd tax provision for the three month period March 31, 2008 from $2,097 to $2,600 and for the three month period March 31, 2007 from $6,259 to $10,249 an effective rate on operating income less LAM GP related revenue of 25.0% for the three month period ended March 31, 2008 and 28.0% for the three month period March 31, 2007 respectively.   (b) Represents an adjustment to the Lazard Ltd tax provision to effect a full exchange of LAZ-MD Holdings’ ownership of Lazard Group common membership interests at an effective rate on operating income less LAM GP related revenue of 25% for the three month period ended March 31, 2008 and 28.0% for the three month period ended March 31, 2007 respectively.