NFP Announces Fourth Quarter & Full Year 2011 Results

Full Year 2011 Revenue Grew 3.2% & Organic Revenue Grew 2.3% YOY Driven by Strength in Corporate Client and Advisor Services Groups

$50 Million Share Repurchase Program Completed; New $50 Million Repurchase Program Authorized

Feb 07, 2012, 16:15 ET from NFP

NEW YORK, Feb. 7, 2012 /PRNewswire/ --


Financial Highlights(1)

Q4 2011

Q4 2010

% Change


Q4 2011

Q3 2011

% Change


YTD 2011

YTD 2010

% Change


(Dollars in millions, except per share data)


























Revenue

$       289.2

$ 284.3

1.7%


$ 289.2

$ 251.5

15.0%


$ 1,013.4

$   981.9

3.2%


Net income

11.2

15.3

-26.4%


11.2

9.3

20.6%


36.9

42.6

-13.2%


Net income per diluted share

0.27

0.34

-20.6%


0.27

0.21

28.6%


0.84

0.96

-12.5%


Cash earnings

27.7

27.4

1.2%


27.7

23.0

20.5%


90.8

96.8

-6.2%


Cash earnings per diluted share

$         0.65

$   0.60

8.3%


$   0.65

$   0.53

22.6%


$      2.07

$     2.19

-5.5%


Adjusted EBITDA

$         40.1

$   36.1

11.1%


$   40.1

$   32.2

24.7%


$    126.4

$   116.8

8.2%


Adjusted EBITDA margin

13.9%

12.7%



13.9%

12.8%



12.5%

11.9%



Net cash provided by (used in) operating activities

$         36.4

$   43.1

-15.5%


$   36.4

$   45.8

-20.6%


$    116.2

$   119.4

-2.7%














(1)  This summary includes financial measures not calculated based on generally accepted accounting principles.  



(Logo: http://photos.prnewswire.com/prnh/20100920/NY67494LOGO)

National Financial Partners Corp. (NYSE: NFP), a leading provider of benefits, insurance and wealth management services, today reported financial results for the fourth quarter ended December 31, 2011.

Commenting on today's announcements, Jessica M. Bibliowicz, chairman, president and chief executive officer, said, "2011 was a solid year for NFP and we accomplished a great deal.  Our revenue grew to more than $1 billion, which was driven by organic growth and acquisitions.  We grew Adjusted EBITDA by 8% and expanded our margins.  We saw particular strength in the Corporate Client and Advisor Services Groups, where we generated growth in revenue and Adjusted EBITDA.  In the Individual Client Group, we continued to face market challenges in life insurance while strong trends continued for us in our wealth management business."

Ms. Bibliowicz continued, "In 2011 we executed on our balanced capital allocation strategy.  We allocated approximately $50 million of cash for acquisitions in 2011, and recently completed our $50 million share repurchase program. We plan to continue executing on a balanced capital allocation strategy in 2012 which will include acquisitions, a new repurchase program and investments in our Company.  We believe these actions will continue to enhance shareholder value and NFP's client value proposition, as well as our leadership position in our core markets of benefits, insurance and wealth management."

Fourth Quarter 2011 Results - Consolidated

NFP reported fourth quarter 2011 net income of $11.2 million, or $0.27 per diluted share, compared with net income of $15.3 million, or $0.34 per diluted share, in the prior year period.  

Fourth quarter 2011 cash earnings was $27.7 million, or $0.65 per diluted share, compared with $27.4 million, or $0.60 per diluted share, in the fourth quarter 2010. Cash earnings is a non-GAAP financial measure and a reconciliation of net income to this non-GAAP financial measure is provided in the attached tables.  

Adjusted EBITDA in the fourth quarter 2011 was $40.1 million, an increase of 11.1%, compared with $36.1 million in the fourth quarter 2010.  Adjusted EBITDA margin of 13.9% in the fourth quarter 2011 improved compared with an Adjusted EBITDA margin of 12.7% in the prior year period.  Adjusted EBITDA is a non-GAAP financial measure and a reconciliation of net income to this non-GAAP financial measure is provided in the attached tables.

Revenue was $289.2 million in the fourth quarter 2011, an increase of $4.9 million, or 1.7%, compared with $284.3 million in the fourth quarter 2010. Organic revenue decreased 0.6% in the fourth quarter 2011, compared with the prior year period.  Revenue and organic revenue included positive contributions from the Corporate Client and Advisor Services Groups and pressure from the life insurance business in the Individual Client Group.  

Total operating expenses were $267.2 million, compared with $259.2 million in the prior year period.  Total operating expenses in the fourth quarter 2011 included $8.3 million of impairments related to expected dispositions and management contract buyouts in the first quarter of 2012.

Cash flow from operations for the fourth quarter 2011 was $36.4 million compared with cash flow from operations of $43.1 million in the fourth quarter 2010.

Fourth Quarter 2011 Results – Segments

NFP reports results in three segments that provide unique products and services to corporate and high net worth individual clients: the Corporate Client Group, the Individual Client Group and the Advisor Services Group.  

Corporate Client Group (CCG)

CCG is one of the leading corporate benefits advisors in the middle market, offering independent solutions for health and welfare, retirement planning, executive benefits, and property and casualty insurance.  

CCG accounted for 40.3% of NFP's revenue in the fourth quarter 2011 and 38.2% in the fourth quarter 2010.  CCG revenue was $116.6 million in the fourth quarter 2011 compared with $108.5 million in the prior year period, an increase of $8.1 million, or 7.4%.  CCG revenue in the fourth quarter 2011 included full quarter results from the Lapre Scali & Company Insurance Services, LLC and DA Financial Group acquisitions and sub-acquisitions.  CCG organic revenue growth was 1.4% in the quarter.  

CCG Adjusted EBITDA was $21.7 million in the fourth quarter 2011 compared with $20.3 million in the prior year period.  Adjusted EBITDA margin was 18.6% in the fourth quarter 2011 compared with 18.7% in the prior year period.

Individual Client Group (ICG)

ICG is a leader in the delivery of independent life insurance and wealth transfer solutions for high net worth individuals.  ICG's advisors provide wealth accumulation, preservation and transfer solutions, including estate and business planning and financial advisory services.  

ICG accounted for 37.0% of NFP's revenue in the fourth quarter 2011 and 41.1% in the fourth quarter 2010.  ICG revenue was $107.0 million in the fourth quarter 2011 compared with $116.9 million in the prior year period.  ICG revenue and organic revenue declined 8.5% and 8.7%, respectively, in the quarter.  

ICG Adjusted EBITDA was $15.8 million in the fourth quarter 2011 compared with $12.6 million in the prior year period. Adjusted EBITDA margin was 14.8% in the fourth quarter 2011 compared with 10.8% in the prior year period.  

Advisor Services Group (ASG)

ASG serves independent financial advisors whose clients are high net worth individuals and companies by offering an open choice of broker-dealer and asset management products and services.  

ASG accounted for 22.7% of NFP's revenue in the fourth quarter 2011 and 20.7% for the fourth quarter 2010.  ASG revenue was $65.6 million in the fourth quarter 2011 compared with $58.9 million in the prior year period, an increase of $6.7 million.  Growth in revenue and organic revenue was 11.3%.  

ASG Adjusted EBITDA was $2.6 million in the fourth quarter 2011 compared with $3.3 million in the prior year period. Adjusted EBITDA margin was 4.0% in the fourth quarter 2011 compared with 5.5% in the prior year period.

As of December 31, 2011, assets under management at NFP's corporate registered investment advisor were $9.7 billion, compared with $9.3 billion as of December 31, 2010.  

Share Repurchase

On May 2, 2011, the Company announced its authorization to repurchase up to $50.0 million of NFP's common stock.   During the fourth quarter 2011, NFP repurchased 1.03 million shares at an average cost of $12.80 per share, or $13.2 million.  As of December 31, 2011, the remaining outstanding share repurchase authorization was $8.2 million.

As of February 6, 2012, NFP completed the current program.  In aggregate, NFP repurchased 3.99 million shares at an average cost of $12.45, for approximately $50 million.

NFP has a new authorization to repurchase up to $50.0 million of NFP's common stock.  This new program will not start immediately in order to conform with the constraints of NFP's credit facility that allows expenditures on share repurchases of $50 million only on a trailing four-quarter basis.  The previous authorization began in the second quarter of 2011.  Under the repurchase authorization, the Company can repurchase shares from time to time for cash in the open market in accordance with applicable federal securities laws and subject to market and other conditions.

Earnings Conference Call & Presentation

On February 8, 2012 at 8:30 a.m. (ET), members of senior management will discuss fourth quarter results during a live conference call. The call can be accessed via telephone by dialing 866-510-0708 (domestic) or 617-597-5377 (international) approximately 10 minutes prior to the start of the call (when prompted, callers should provide the access code NFP). The conference call will also be broadcast live over the Internet at www.nfp.com/investor-relations. To listen to the live audio webcast, please go to the Web site at least 10-15 minutes prior to the start of the call to register. The conference call and webcast will be accompanied by a presentation. The presentation will be available for electronic download on NFP's Web site before the conference call and webcast is scheduled to begin. The presentation may also be viewed automatically upon connecting to the webcast. Listeners can access an audio replay of the conference call over the Internet at www.nfp.com/investor-relations, or via telephone by dialing 888-286-8010 (domestic) or 617-801-6888 (international). The access code for the replay is 32336722. The replay will be available for approximately 90 days.

About NFP

National Financial Partners Corp. (NYSE: NFP), and its benefits, insurance and wealth management businesses provide diversified advisory and brokerage services to companies and high net worth individuals, partnering with them to preserve their assets and prosper over the long term.  NFP advisors provide innovative and comprehensive solutions, backed by NFP's national scale and resources. NFP operates in three business segments.  The Corporate Client Group provides corporate and executive benefits, retirement plans and property and casualty insurance.  The Individual Client Group includes retail and wholesale life insurance brokerage and wealth management advisory services.  The Advisor Services Group serves independent financial advisors by offering broker-dealer and asset management products and services.  Most recently NFP was ranked as the eighth Top Global Insurance Broker by Best's Review; operated the fourth largest Executive Benefits Provider of nonqualified deferred compensation plans administered for recordkeeping clients as ranked by PlanSponsor; operated a top ten Independent Broker Dealer as ranked by Financial Planning and Financial Advisor; had three advisors ranked in Barron's Top 100 Independent Financial Advisors and is a leading independent life insurance distributor according to many top-tier carriers.  For more information, visit www.nfp.com.  

Reconciliation of Non-GAAP Financial Measures  

The Company analyzes its performance using historical and forward-looking non-GAAP financial measures called cash earnings, cash earnings per diluted share, Adjusted EBITDA and percentages or calculations using these measures.  The Company believes these non-GAAP financial measures provide additional meaningful methods of evaluating certain aspects of the Company's operating performance from period to period on a basis that may not be otherwise apparent under GAAP.  Cash earnings is defined as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets, the after-tax impact of non-cash interest, the after-tax impact of change in estimated acquisition earn-out payables recorded in accordance with purchase accounting that have been subsequently adjusted and recorded in the consolidated statements of operations, the after-tax impact of management contract buyouts and the after-tax impact of certain non-recurring items.  Cash earnings per diluted share is calculated by dividing cash earnings by the number of weighted average diluted shares outstanding for the period indicated.  Cash earnings and cash earnings per diluted share should not be viewed as substitutes for net income and net income per diluted share, respectively.  Adjusted EBITDA is defined as net income excluding income tax expense, interest income, interest expense, gain on early extinguishment of debt, other, net, amortization of intangibles, depreciation, impairment of goodwill and intangible assets, (gain) loss on sale of businesses, net, the accelerated vesting of certain RSUs, any change in estimated acquisition earn-out payables recorded in accordance with purchase accounting that have been subsequently adjusted and recorded in the consolidated statements of operations and the expense related to management contract buyouts.  Adjusted EBITDA should not be viewed as a substitute for net income.  A reconciliation of these non-GAAP financial measures to their GAAP counterparts is provided in the attached tables and the Company's quarterly financial supplement for the period ended December 31, 2011, which is available on the Investor Relations section of the Company's Web site at www.nfp.com.

Organic Revenue Growth  

The Company uses organic revenue growth as a comparable revenue measurement for future periods.  The Company excludes revenue from new acquisitions, sub-acquisitions, and the revenue derived from businesses fully disposed of for the first twelve months after the respective transaction.  With respect to situations where a significant portion of a business' assets have been disposed, the Company reduces the prior year's comparable revenue proportionally to the percentage of assets that have been disposed to facilitate an equitable organic growth comparison.

Forward-Looking Statements

This release contains statements which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "anticipate," "expect," "intend," "plan," "believe," "estimate," "may," "project," "will," "continue" and similar expressions of a future or forward-looking nature. Forward-looking statements may include discussions concerning revenue, expenses, earnings, cash flow, impairments, losses, dividends, capital structure, market and industry conditions, premium and commission rates, interest rates, contingencies, the direction or outcome of regulatory investigations and litigation, income taxes and the Company's operations or strategy.  These forward-looking statements are based on management's current views with respect to future results. Forward-looking statements are based on beliefs and assumptions made by management using currently-available information, such as market and industry materials, experts' reports and opinions, and current financial trends. These statements are only predictions and are not guarantees of future performance. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include, without limitation: (1) the ability of the Company to execute on its strategy of increasing recurring revenue and other business initiatives; (2) NFP's ability, through its operating structure, to respond quickly to operational, financial or regulatory situations impacting its businesses; (3) the ability of the Company's businesses to perform successfully following acquisition, including through the diversification of product and service offerings, and NFP's ability to manage its business effectively and profitably through its principals and employees and through the Company's reportable segments; (4) any losses that NFP may take with respect to dispositions, restructures or otherwise; (5) seasonality or an economic environment that results in fewer sales of financial products or services; (6) NFP's success in acquiring and retaining high-quality independent financial services businesses; (7) changes in premiums and commission rates or the rates of other fees paid to the Company's businesses, due to requirements related to medical loss ratios stemming from the Patient Protection and Affordable Care Act or otherwise; (8) NFP's ability to operate effectively within the restrictive covenants of its credit facility; (9) changes that adversely affect NFP's ability to manage its indebtedness or capital structure, including changes in interest rates or credit market conditions; (10) the impact of capital markets behavior, such as fluctuations in the price of NFP's common stock, or the dilutive impact of capital raising efforts; (11) adverse results or other consequences from matters including litigation, arbitration, settlements, regulatory investigations or compliance initiatives, such as those related to business practices, compensation agreements with insurance companies, policy rescissions or chargebacks, or activities within the life settlements industry; (12) the impact of legislation or regulations on NFP's businesses, such as the possible adoption of exclusive federal regulation over interstate insurers, the uncertain impact of legislation regulating the financial services industry, such as the recent Dodd-Frank Wall Street Reform and Consumer Protection Act, the impact of the adoption of the Patient Protection and Affordable Care Act and resulting changes in business practices, potential changes in estate tax laws, or changes in regulations affecting the value or use of benefits programs, any of which may adversely affect the demand for or profitability of the Company's services; (13) adverse developments in the Company's markets, such as those related to compensation agreements with insurance companies or activities within the life settlements industry, which could result in decreased sales of financial products or services; (14) the effectiveness or financial impact of NFP's incentive plans; (15) the impact of the adoption or change in interpretation of certain accounting treatments or policies and changes in underlying assumptions relating to such treatments or policies, which may lead to adverse financial statement results; (16) the loss of services of key members of senior management; (17) failure by the Company's broker-dealers to comply with net capital requirements; (18) the Company's ability to compete against competitors with greater resources, such as those with greater name recognition; (19) developments in the availability, pricing, design, tax treatment or underwriting of insurance products, including insurance carriers' potential change in accounting for deferred acquisition costs, revisions in mortality tables by life expectancy underwriters or changes in the Company's relationships with insurance companies; (20) the reduction of the Company's revenue and earnings due to the elimination or modification of compensation arrangements, including contingent compensation arrangements and the adoption of internal initiatives to enhance compensation transparency, including the transparency of fees paid for life settlements transactions; (21) the occurrence of adverse economic conditions or an adverse regulatory climate in New York, Florida or California; and (22) the Company's ability to effect smooth succession planning.

Additional factors are set forth in NFP's filings with the Securities and Exchange Commission (the "SEC"), including its Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on February 10, 2011.

Forward-looking statements speak only as of the date on which they are made. NFP expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited-in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Revenue:

Commissions and fees

$ 289,162

$ 284,276

$ 1,013,392

$ 981,917

Operating expenses:

Commissions and fees

93,896

91,336

330,179

303,794

Compensation expense - employees

70,409

65,110

267,528

256,181

Fees to principals

46,202

52,308

135,911

161,958

Non-compensation expense

38,525

39,391

153,357

156,538

Amortization of intangibles

8,271

8,211

32,478

33,013

Depreciation

3,313

3,095

12,553

12,123

Impairment of goodwill and intangible assets

8,319

-

11,705

2,901

Gain on sale of businesses, net

(1,291)

(274)

(1,238)

(10,295)

Change in estimated acquisition earn-out payables

(467)

-

(414)

-

Total operating expenses

267,177

259,177

942,059

916,213

Income from operations

21,985

25,099

71,333

65,704

Non-operating income and expenses

Interest income

733

1,209

3,333

3,854

Interest expense

(3,982)

(4,084)

(15,733)

(18,533)

Gain on early extinguishment of debt

-

-

-

9,711

Other, net

568

2,787

6,386

8,303

Non-operating income and expenses, net

(2,681)

(88)

(6,014)

3,335

Income before income taxes

19,304

25,011

65,319

69,039

Income tax expense

8,059

9,742

28,387

26,481

Net income

$   11,245

$   15,269

$      36,932

$   42,558

Earnings per share:

Basic

$       0.27

$       0.35

$          0.86

$       1.00

Diluted

$       0.27

$       0.34

$          0.84

$       0.96

Weighted average shares outstanding:

Basic

41,289

43,669

42,867

42,638

Diluted

42,400

45,274

43,863

44,136

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

GAAP net income

$ 11,245

$ 15,269

$   36,932

$   42,558

Income tax expense

8,059

9,742

28,387

26,481

Interest income

(733)

(1,209)

(3,333)

(3,854)

Interest expense

3,982

4,084

15,733

18,533

Gain on early extinguishment of debt

-

-

-

(9,711)

Other, net

(568)

(2,787)

(6,386)

(8,303)

Income from operations

$ 21,985

$ 25,099

$   71,333

$   65,704

Amortization of intangibles

8,271

8,211

32,478

33,013

Depreciation

3,313

3,095

12,553

12,123

Impairment of goodwill and intangible assets

8,319

-

11,705

2,901

Gain on sale of businesses, net

(1,291)

(274)

(1,238)

(10,295)

Accelerated vesting of certain RSUs

-

-

-

13,395

Change in estimated acquisition earn-out payables

(467)

-

(414)

-

Adjusted EBITDA (1)

$ 40,130

$ 36,131

$ 126,417

$ 116,841

RECONCILIATION OF NET INCOME TO CASH EARNINGS

(Unaudited-in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

GAAP net income

$ 11,245

$ 15,269

$   36,932

$   42,558

Amortization of intangibles

8,271

8,211

32,478

33,013

Depreciation

3,313

3,095

12,553

12,123

Impairment of goodwill and intangible assets

8,319

-

11,705

2,901

Tax benefit of impairment of goodwill and

intangible assets

(3,390)

(15)

(4,729)

(1,147)

Non-cash interest, net of tax

670

802

2,602

5,094

Accelerated vesting of certain RSUs, net of tax

-

-

-

8,174

Gain on early extinguishment of debt, net of tax

-

-

-

(5,914)

Change in estimated acquisition earn-out payables, net of tax

(731)

-

(699)

-

Cash earnings (2)

$ 27,697

$ 27,362

$   90,842

$   96,802

GAAP net income per share - diluted

$     0.27

$     0.34

$       0.84

$       0.96

Amortization of intangibles

0.20

0.18

0.74

0.75

Depreciation

0.08

0.07

0.29

0.27

Impairment of goodwill and intangible assets

0.20

-

0.27

0.07

Tax benefit of impairment of goodwill and

intangible assets

(0.08)

-

(0.11)

(0.03)

Non-cash interest, net of tax

0.02

0.02

0.06

0.12

Accelerated vesting of certain RSUs, net of tax

-

-

-

0.19

Gain on early extinguishment of debt, net of tax

-

-

-

(0.13)

Change in estimated acquisition earn-out payables, net of tax

(0.02)

-

(0.02)

-

Cash earnings per share - diluted (3)

$     0.65

$     0.60

$       2.07

$       2.19

(1)  Adjusted EBITDA is a non-GAAP financial measure, which the Company defines as net income excluding income tax expense, interest  

 income, interest expense, gain on early extinguishment of debt, other, net, amortization of intangibles, depreciation, impairment  

 of goodwill and intangible assets, (gain) loss on sale of businesses, net, the accelerated vesting of certain RSUs, any change in  

 estimated acquisition earn-out payables recorded in accordance with purchase accounting that have been subsequently  

 adjusted and recorded in the consolidated statements of operations and the expense related to management contract buyouts.  

(2)  Cash earnings is a non-GAAP financial measure, which the Company defines as net income excluding amortization of intangibles,  

 depreciation, the after-tax impact of the impairment of goodwill and intangible assets, the after-tax impact of non-cash interest,    

 the after-tax impact of change in estimated acquisition earn-out payables recorded in accordance with purchase accounting    

 that have been subsequently adjusted and recorded in the consolidated statements of operations, the after-tax impact of management  

 contract buyouts and the after-tax impact of certain non-recurring items.  

(3)  The sum of the per-share components of cash earnings per share - diluted may not agree to cash earnings per share -    

 diluted, due to rounding.    

CORPORATE CLIENT GROUP

CONDENSED STATEMENTS OF INCOME

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Revenue:

Commissions and fees

$ 116,559

$ 108,483

$ 412,192

$ 387,855

Operating expenses:

Commissions and fees

14,793

11,067

46,183

36,989

Compensation expense - employees

37,580

32,758

141,127

130,291

Fees to principals

22,731

26,009

73,867

80,780

Non-compensation expense

19,795

18,390

74,457

75,180

Amortization of intangibles

5,651

5,395

21,553

21,398

Depreciation

1,505

1,624

6,107

6,298

Impairment of goodwill and intangible assets

1,246

-

1,246

1,931

(Gain) loss on sale of businesses, net

(56)

229

(103)

(8,058)

Change in estimated acquisition earn-out payables

(467)

-

(414)

-

Total operating expenses

102,778

95,472

364,023

344,809

Income from operations

$   13,781

$   13,011

$   48,169

$   43,046

CORPORATE CLIENT GROUP

RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED EBITDA (1)

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Income from operations

$   13,781

$   13,011

$   48,169

$   43,046

Amortization of intangibles

5,651

5,395

21,553

21,398

Depreciation

1,505

1,624

6,107

6,298

Impairment of goodwill and intangible assets

1,246

-

1,246

1,931

(Gain) loss on sale of businesses, net

(56)

229

(103)

(8,058)

Accelerated vesting of certain RSUs

-

-

-

7,394

Change in estimated acquisition earn-out payables

(467)

-

(414)

-

Adjusted EBITDA

$   21,660

$   20,259

$   76,558

$   72,009

(1)  The reconciliation of Adjusted EBITDA per reportable segment does not include the following items, which are not allocated to any of the    

 Company’s reportable segments: income tax expense, interest income, interest expense, gain on early extinguishment of debt and other, net.    

 These items are included in the reconciliation of Adjusted EBITDA to net income on a consolidated basis.  

INDIVIDUAL CLIENT GROUP

CONDENSED STATEMENTS OF INCOME

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Revenue:

Commissions and fees

$ 106,999

$ 116,870

$ 351,436

$ 378,847

Operating expenses:

Commissions and fees

24,852

32,117

77,652

89,492

Compensation expense - employees

28,529

28,573

110,267

110,543

Fees to principals

23,471

26,299

62,044

81,178

Non-compensation expense

14,306

17,266

62,782

67,626

Amortization of intangibles

2,620

2,816

10,925

11,615

Depreciation

1,067

1,113

4,275

4,458

Impairment of goodwill and intangible assets

7,073

-

10,459

970

Gain on sale of businesses, net

(1,235)

(503)

(1,135)

(2,237)

Change in estimated acquisition earn-out payables

-

-

-

-

Total operating expenses

100,683

107,681

337,269

363,645

Income from operations

$     6,316

$     9,189

$   14,167

$   15,202

INDIVIDUAL CLIENT GROUP

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO ADJUSTED EBITDA (1)

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Income from operations

$     6,316

$     9,189

$   14,167

$   15,202

Amortization of intangibles

2,620

2,816

10,925

11,615

Depreciation

1,067

1,113

4,275

4,458

Impairment of goodwill and intangible assets

7,073

-

10,459

970

Gain on sale of businesses, net

(1,235)

(503)

(1,135)

(2,237)

Accelerated vesting of certain RSUs

-

-

-

6,001

Change in estimated acquisition earn-out payables

-

-

-

-

Adjusted EBITDA

$   15,841

$   12,615

$   38,691

$   36,009

(1)  The reconciliation of Adjusted EBITDA per reportable segment does not include the following items, which are not allocated to any of the    

 Company’s reportable segments: income tax expense, interest income, interest expense, gain on early extinguishment of debt and other, net.    

 These items are included in the reconciliation of Adjusted EBITDA to net income on a consolidated basis.  

ADVISOR SERVICES GROUP

CONDENSED STATEMENTS OF INCOME

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Revenue:

Commissions and fees

$ 65,604

$ 58,923

$ 249,764

$ 215,215

Operating expenses:

Commissions and fees

54,251

48,152

206,344

177,313

Compensation expense - employees

4,300

3,779

16,134

15,347

Non-compensation expense

4,424

3,735

16,118

13,732

Depreciation

741

358

2,171

1,367

Total operating expenses

63,716

56,024

240,767

207,759

Income from operations

$   1,888

$   2,899

$     8,997

$     7,456

ADVISOR SERVICES GROUP

RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED EBITDA (1)

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Income from operations

$   1,888

$   2,899

$     8,997

$     7,456

Depreciation

741

358

2,171

1,367

Adjusted EBITDA

$   2,629

$   3,257

$   11,168

$     8,823

(1)  The reconciliation of Adjusted EBITDA per reportable segment does not include the following items, which are not allocated to any of the    

 Company’s reportable segments: income tax expense, interest income, interest expense, gain on early extinguishment of debt and other, net.    

 These items are included in the reconciliation of Adjusted EBITDA to net income on a consolidated basis.  

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited-in thousands)

December 31,

December 31,

2011

2010

ASSETS

Current assets:

Cash and cash equivalents

$      135,239

$      128,830

Fiduciary funds - restricted related to premium trust accounts

75,503

82,647

Commissions, fees and premiums receivable, net

119,945

120,572

Due from principals and/or certain entities they own

4,308

7,981

Notes receivable, net

4,224

6,128

Deferred tax assets

10,209

13,865

Other current assets

18,706

17,442

   Total current assets

368,134

377,465

Property and equipment, net

33,937

37,359

Deferred tax assets

5,023

5,836

Intangibles, net

320,066

337,833

Goodwill, net

102,039

60,894

Notes receivable, net

23,661

30,724

Other non-current assets

41,307

42,952

   Total assets

$      894,167

$      893,063

LIABILITIES

Current liabilities:

Premiums payable to insurance carriers

$        74,145

$        83,091

Current portion of long term debt

12,500

12,500

Income taxes payable

3,045

-

Due to principals and/or certain entities they own

37,886

37,406

Accounts payable

30,584

36,213

Accrued liabilities

70,855

55,673

   Total current liabilities

229,015

224,883

Long term debt

93,750

106,250

Deferred tax liabilities

1,605

1,552

Convertible senior notes

91,887

87,581

Other non-current liabilities

71,960

64,585

   Total liabilities

488,217

484,851

STOCKHOLDERS' EQUITY

Preferred stock at par value

-

-

Common stock at par value

4,665

4,596

Additional paid-in capital

905,774

902,153

Accumulated deficit

(391,202)

(425,063)

Treasury stock

(112,278)

(73,458)

Accumulated other comprehensive loss

(1,009)

(16)

   Total stockholders' equity

405,950

408,212

   Total liabilities and stockholders' equity

$      894,167

$      893,063

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited-in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Cash flow from operating activities

Net income

$   11,245

$   15,269

$   36,932

$   42,558

Adjustments to reconcile to net cash provided by

(used in) operating activities:

Deferred taxes

2,201

1,774

2,201

2,058

Stock-based compensation

1,333

1,660

5,463

17,336

Impairment of goodwill and intangible assets

8,319

-

11,705

2,901

Amortization of intangibles

8,271

8,211

32,478

33,013

Depreciation

3,313

3,095

12,553

12,123

Accretion of senior convertible notes discount

1,109

1,260

4,306

8,287

Gain on sale of businesses, net

(1,291)

(274)

(1,238)

(10,295)

Change in estimated earn-out payables

(467)

-

(414)

-

Loss on sublease

-

-

-

1,766

Bad debt expense

49

2,331

2,398

5,028

Gain on early extinguishment of debt

-

-

-

(9,711)

Other, net

(401)

(1,967)

(1,916)

(3,460)

(Increase) decrease in operating assets:

Fiduciary funds - restricted related to premium

trust accounts

4,049

8,465

11,736

(6,716)

Commissions, fees and premiums receivable, net

(29,146)

(21,712)

713

7,032

Due from principals and/or certain entities they own

7,167

6,406

3,742

4,567

Notes receivable, net - current

(23)

1,884

1,514

3,603

Other current assets

(1,324)

4,667

(1,276)

(2,990)

Notes receivable, net - non-current

2,311

(323)

4,227

(8,068)

Other non-current assets

130

1,075

2,960

1,755

Increase (decrease) in operating liabilities:

Premiums payable to insurance carriers

(9,272)

(13,265)

(13,025)

5,150

Income taxes payable

1,327

(123)

2,879

2,351

Due to principals and/or certain entities they own

12,331

9,649

218

1,142

Accounts payable

12,427

18,112

(5,725)

14,099

Accrued liabilities

5,248

(5,456)

5,448

(3,551)

Other non-current liabilities

(2,499)

2,322

(1,702)

(546)

Total adjustments

25,162

27,791

79,245

76,874

Net cash provided by operating activities

36,407

43,060

116,177

119,432

Cash flow from investing activities:

Proceeds from disposal of businesses

2,964

(3)

3,702

5,670

Purchases of property and equipment, net

(2,491)

(3,092)

(8,859)

(12,376)

(Payments for) proceeds from acquired firms, net of cash

(150)

(356)

(48,685)

305

Payments for contingent consideration

-

(2,518)

(80)

(13,302)

Change in restricted cash

-

-

-

10,000

Net cash provided by (used in) investing activities

323

(5,969)

(53,922)

(9,703)

Cash flow from financing activities:

Repayments of short term debt

-

-

-

(40,000)

Proceeds from long term debt

-

-

-

125,000

Repayment of long term debt

(3,125)

(3,125)

(12,500)

(6,250)

Long term debt costs

-

(94)

-

(4,017)

Proceeds from issuance of senior convertible notes

-

-

-

125,000

Senior convertible notes issuance costs

-

6

-

(4,123)

Repayment of senior convertible notes

-

-

-

(219,650)

Senior convertible notes tender offer costs

-

-

-

(800)

Purchase of call options

-

-

-

(33,913)

Sale of warrants

-

-

-

21,025

Proceeds from stock-based awards, including

tax benefit

(1,157)

119

1,446

3,010

Shares cancelled to pay withholding taxes

(12)

(51)

(3,033)

(2,107)

Repurchase of Common Stock

(13,194)

-

(41,757)

-

Dividends paid

(1)

(1)

(2)

(68)

Net cash used in financing activities

(17,489)

(3,146)

(55,846)

(36,893)

Net increase in cash and cash equivalents

19,241

33,945

6,409

72,836

Cash and cash equivalents, beginning of the period

115,998

94,885

128,830

55,994

Cash and cash equivalents, end of the period

$ 135,239

$ 128,830

$ 135,239

$ 128,830

Supplemental disclosures of cash flow information

Cash paid for income taxes

$     8,874

$     1,103

$   24,686

$   27,203

Cash paid for interest

$     3,403

$     3,503

$     8,764

$     6,784

SOURCE NFP



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