USIH Usi Hldgs Corp (MM)

USI Holdings Corporation (�USI� or the �Company�), (NASDAQ:USIH) today reported financial results for the third quarter ended September 30, 2006. A printer friendly version of this release is available on our website at http://www.usi.biz. Highlights: For the quarter ended September 30, 2006 as compared to the same quarter in 2005: Announced an indication of interest from a private equity firm to acquire all of the Company�s outstanding common stock and recorded related expenses of $1.5 million Total revenues increased 3.5% to $131.7 million from $127.3 million Net commissions and fees (excluding contingent commissions) increased 2.7% to $126.3 million from $123.0 million Income from continuing operations, before income tax expense decreased by 13.3% to $8.5 million from $9.8 million Net income per share on a diluted basis increased to $0.08 from $0.03 Operating margin decreased to 17.3% from 18.8% Excluding the impact of stock option expense in 2006 and other identified adjustments in 2005, operating margin decreased to 18.0% from 19.0% Acquired four insurance agencies and three books of business, expected to add $26.9 million of annualized revenues Three Months Ended September 30, Nine Months Ended September 30, (Dollars in Thousands, Except Per Share Data) � 2006� � 2005� % Change� � 2006� � 2005� % Change� GAAP Financial Measures: Revenues: Net commissions and fees (�NCF�) $ 126,301� $ 122,955� 2.7% $ 368,989� $ 343,277� 7.5% Contingents and overrides 567� 1,738� (67.4)% 22,674� 22,666� 0.0% Interest income 1,212� 1,062� 14.1% 3,917� 2,604� 50.4% Other income � 3,615� � 1,512� 139.1% � 6,625� � 3,287� 101.6% Total revenues � 131,695� � 127,267� 3.5% � 402,205� � 371,834� 8.2% � Expenses: Operating expenses 108,891� 106,237� 2.5% 326,599� 317,140� 3.0% Amortization of intangible assets 9,156� 7,230� 26.6% 24,884� 21,238� 17.2% Interest 5,161� 4,012� 28.6% 13,979� 10,781� 29.7% Early extinguishment of debt � --� � --� N/M� � 2,093� � --� N/M� Total expenses � 123,208� � 117,479� 4.9% � 367,555� � 349,159� 5.3% � Operating Results: Income from continuing operations before income tax expense $ 8,487� $ 9,788� (13.3)% $ 34,650� $ 22,675� 52.8% � Per Share Data-Diluted: Income from continuing operations $ 0.08� $ 0.09� (11.1)% $ 0.34� $ 0.23� 47.8% Net income $ 0.08� $ 0.03� 166.7% $ 0.34� $ 0.08� 325.0% � Non-GAAP Financial Measures (1): Operating income 22,804� 23,982� (4.9)% 75,624� 70,108� 7.9% Operating margin 17.3% 18.8% (8.0)% 18.8% 18.9% (0.5)% Operating margin, excluding identified adjustments 18.0% 19.0% (5.3)% 19.5% 19.4% 0.5% Income from continuing operations plus amortization, excluding identified adjustments on a diluted per share basis � $ 0.25� $ 0.26� (3.8)% $ 0.82� $ 0.79� 3.8% NCF organic (decline)/growth (2.5)% 0.1% Total revenue organic (decline)/growth (1.6)% 1.0% (1) Refer to Non-GAAP financial measures-Purpose and Use and related reconciliations included in this release. On October 24, 2006, the Company announced that in response to an indication of interest received from a private equity firm in acquiring all of the outstanding common stock of the Company, the Board of Directors of the Company formed a Special Committee consisting of outside directors to review the proposal and consider all of the Company's options. Lazard Fr�res & Co. LLC and Dewey Ballantine LLP have been engaged by the Special Committee to assist in its review. No assurance can be given that any transaction will be entered into or consummated. The revenue increase for the quarter includes the impact of $5.7 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF (which excludes contingent commissions) decreased $3.1 million, or 2.5% for the quarter compared to the same period last year due to the continued difficult operating environment in California and timing of enrollments in the specialized benefits services segment. Total NCF for the insurance brokerage segment, excluding California, grew 2.1% for the quarter on an adjusted organic basis. The revenue increase for the first nine months includes the impact of $23.7 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF (which excludes contingent commissions) increased $0.3 million, or 0.1% for the nine months compared to the same period last year due primarily to the year-to-date impact of the items noted above for the third quarter. Total NCF for the insurance brokerage segment, excluding California, grew 3.1% for the nine months on an adjusted organic basis. In 2005, the Company concluded its previously announced margin improvement plan. For the three and nine months ended September 30, 2005, the Company recorded $2.9 million and $7.0 million in expenses, before income taxes, for employee severance and related benefits, facilities closures, contract terminations and the amendment of sales professionals� compensation agreements. Also, for the three and nine months ended September 30, 2005, the Company recorded $0.0 million and $8.5 million in expenses, respectively, before income taxes primarily associated with the SGP acquisition. There were no such similar significant expenses in the three and nine months ended September 30, 2006. The operating margin (operating income as a percentage of total revenues) for the quarter was 17.3% on $22.8 million of operating income, compared to 18.8% on $24.0 million of operating income for the same period in 2005. The operating margin for the quarter was negatively impacted by several items, including: a net $1.3 million write-down of accounts receivable balances, a $1.2 million decrease in contingent commissions, a $1.1 million decline in the specialized benefits services segment, stock option expense of $0.9 million recorded beginning in 2006 and $1.5 million of expenses related to the Company�s consideration of the previously announced indication of interest from a private equity firm to acquire all of the Company�s outstanding common stock. Operating margin for the quarter was positively impacted by $2.0 million related to a settlement with a former employee over an employment contract dispute. The decrease in operating margin in the specialized benefits services segment was due to the timing of some enrollments and to continuing investments in personnel and systems to support our expansion strategy into middle and emerging markets. The operating margin for the nine months ended September 30, 2006 was 18.8% on $75.6 million of operating income, compared to 18.9% on $70.1 million of operating income for the same period in 2005. The operating margin for the nine months was negatively impacted by several items, including: the items noted above in the quarter, a $4.5 million decline in the specialized benefits services segment and stock option expense of $2.6 million. Operating margin was positively impacted by the improvement in the insurance brokerage segment and to acquisitions. David L. Eslick, Chairman, President and Chief Executive Officer noted, �Outside of California, the majority of our retail brokerage operations are performing at or near our operating targets. We are particularly pleased with our acquisition success, having recently closed on the Kibble & Prentice transaction, creating one of the largest middle market brokers in the Pacific Northwest. With $37 million in annual revenues and a 34-year proven track record of client service and organic revenue growth, the Kibble & Prentice team is a great addition to USI.� The Company will hold a conference call and audio webcast to review the results at 8:30 AM (EST) on Friday, November 10, 2006. To access the audio webcast, please visit USI's website at www.usi.biz on November 10, 2006 and follow the link. To access the conference call, dial toll-free 800-299-8538 or 617-786-2902 for international callers and use passcode 11615884, five minutes before the teleconference. A replay of the conference call will be available on the Investor Relations section of the USI website (www.usi.biz) or by dialing 888-286-8010 and using access code 94065641. This press release contains certain statements relating to future results which are forward-looking statements within the meaning of that term as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not historical facts, but instead represent USI�s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of USI�s control. USI can make no assurances regarding the likelihood of the acquisition transaction described above, and it is possible that USI�s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Further information concerning USI and its business, including factors that potentially could materially affect USI�s financial results, are contained in USI�s filings with the Securities and Exchange Commission. Some factors include: USI�s ability to grow revenues organically and expand its margins; successful consummation and integration of acquisitions; the insurance brokerage business is subject to a great deal of uncertainty due to the investigations into its business practices by various governmental authorities and related private litigation; resolution of regulatory matters and other claims, lawsuits and related proceedings; the passage of new legislation and/or disclosure arrangements with insurance companies affecting our business; determinations of effectiveness of internal controls over financial reporting and disclosure controls and procedures; USI�s ability to attract and retain key sales and management professionals; USI�s level of indebtedness and debt service requirements; downward commercial property and casualty premium pressures; the competitive environment; future expenses for integration and margin improvement efforts; and general economic conditions around the country. USI�s ability to grow has been largely attributable to acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to USI. All forward-looking statements included in this press release are made only as of the date of this press release, and USI does not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which USI hereafter becomes aware. This press release includes supplemental financial information which contains references to non-GAAP financial measures as defined in Regulation G of SEC rules. Consistent with Regulation G, a reconciliation of this financial information to generally accepted accounting principles in the United States (�GAAP�) information follows. USI presents such non-GAAP supplemental financial information because it believes that such information is of interest to the investment community owing to the fact that it provides additional meaningful methods of evaluating certain aspects of USI�s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed in addition to, not in lieu of, USI�s consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005. About USI Holdings Corporation Founded in 1994, USI is a leading distributor of insurance and financial products and services to businesses throughout the United States. USI is headquartered in Briarcliff Manor, NY, and operates out of 68 offices in 18 states. Additional information about USI, including instructions for the quarterly conference call, may be found at www.usi.biz. USI Holdings Corporation and Subsidiaries Consolidated Statements of Operations � � Three Months Ended September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� � (Amounts in Thousands, Except Per Share Data) � Revenues: Net commissions and fees $ 126,301� $ 122,955� $ 368,989� $ 343,277� Contingents and overrides 567� 1,738� 22,674� 22,666� Interest income 1,212� 1,062� 3,917� 2,604� Other income � 3,615� � 1,512� � 6,625� � 3,287� � Total Revenues 131,695� 127,267� 402,205� 371,834� � Expenses: Compensation and employee benefits 73,188� 75,110� 222,112� 226,407� Non-cash stock-based compensation: Restricted stock awards 1,041� 839� 2,568� 1,708� Stock option expense 905� -� 2,616� -� Other operating expenses 31,222� 27,821� 91,793� 81,857� Amortization of intangible assets 9,156� 7,230� 24,884� 21,238� Depreciation 2,535� 2,467� 7,510� 7,168� Interest 5,161� 4,012� 13,979� 10,781� Early extinguishment of debt � -� � -� � 2,093� � -� Total Expenses � 123,208� � 117,479� � 367,555� � 349,159� Income from continuing operations 8,487� 9,788� 34,650� 22,675� before income tax expense Income tax expense � 3,647� � 4,298� � 14,824� � 9,907� Income From Continuing Operations 4,840� 5,490� 19,826� 12,768� Loss from discontinued operations, net � -� � (3,603) � -� � (8,295) Net Income $ 4,840� $ 1,887� $ 19,826� $ 4,473� � Per Share Data - Basic and Diluted: � Basic: Income from continuing operations $ 0.09� $ 0.10� $ 0.35� $ 0.23� Loss from discontinued operations, net � -� � (0.07) � -� � (0.15) Net Income Per Common Share $ 0.09� $ 0.03� $ 0.35� $ 0.08� � Diluted: Income from continuing operations $ 0.08� $ 0.09� $ 0.34� $ 0.23� Loss from discontinued operations, net � -� � (0.06) � -� � (0.15) Net Income Per Common Share $ 0.08� $ 0.03� $ 0.34� $ 0.08� � Weighted-Average Number of Shares Outstanding: Basic 56,786� 56,681� 56,791� 55,712� Diluted 57,619� 57,409� 57,767� 56,303� USI Holdings Corporation and Subsidiaries Consolidated Balance Sheets � � � September 30, 2006 � December 31, 2005 � (Amounts in Thousands, Except Per Share Data) � Assets Current assets: Cash and cash equivalents $ 20,509� $ 27,289� Fiduciary funds--restricted 79,252� 103,887� Premiums and commissions receivable, net of allowance for bad debts and cancellations of $9,016 and $7,300, respectively 257,126� 244,372� Other 22,402� 25,048� Deferred tax asset 11,815� 14,887� Current assets held for discontinued operations � 3,004� � 4,843� Total current assets 394,108� 420,326� � Goodwill 446,697� 405,490� � Expiration rights 370,857� 312,382� Other intangible assets 54,329� 50,800� Accumulated amortization � (222,418) � (197,539) Expiration rights and other intangible assets, net 202,768� 165,643� � Property and equipment, net 29,533� 28,475� Other assets � 3,457� � 3,840� Total Assets $ 1,076,563� $ 1,023,774� � Liabilities and Stockholders� Equity Current liabilities: Premiums payable to insurance companies $ 242,742� $ 259,286� Accrued expenses 71,660� 77,120� Current portion of long-term debt 12,838� 11,470� Other � 13,126� � 16,829� Total current liabilities 340,366� 364,705� � Long-term debt 280,365� 225,062� Deferred tax liability 13,889� 16,237� Other liabilities 6,022� 7,789� Other liabilities held for discontinued operations � 426� � -� Total Liabilities 641,068� 613,793� � Stockholders� equity: Common stock�voting�par $.01, 300,000 shares authorized; 59,041 and 58,308 shares issued, respectively 590� 583� Additional paid-in capital 672,035� 663,436� Accumulated deficit (226,247) (246,073) Less treasury stock at cost, 827 and 620 shares, respectively � (10,883) � (7,965) Total Stockholders� Equity � 435,495� � 409,981� Total Liabilities and Stockholders� Equity $ 1,076,563� $ 1,023,774� USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures � Purpose and Use � � USI defines Operating Income as revenues, less compensation and employee benefits, non-cash stock-based compensation, other operating expenses and depreciation. Compensation and employee benefits and other operating expenses are adjusted to exclude expenses related to USI�s margin improvement plan (announced in the fourth quarter of 2004 and concluded in the fourth quarter of 2005 to reduce ongoing operating expenses) and acquisition integration efforts (expenses incurred during the integration of acquired companies), which USI�s management does not consider indicative of the Company�s run-rate, or normal operating expenses. USI presents Operating Income because management believes that it is a relevant and useful indicator of operating profitability. �Management believes that Operating Income is relevant owing to USI�s leveraged approach to its capital structure and resulting significant amount of interest expense and to USI�s acquisition strategy which creates significant amortization and other expenses not directly associated with the core operations of the Company and which are specifically aimed at eliminating redundant real estate, positions and other costs. � Additionally, management believes that investors in its stock use Operating Income to compare USI�s ability to generate operating profits with its peers and for valuation purposes. Operating Margin (Operating Income as a percentage of total revenues) is presented because management believes that it is a relevant and useful indicator of operating efficiency. USI uses Operating Income and Operating Margin in budgeting and evaluating operating company performance. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. � USI presents Income from continuing operations plus amortization of intangible assets on an absolute and diluted per share basis because management believes that it is a relevant and useful indicator of its ability to generate working capital. Management believes that income from continuing operations plus amortization of intangible assets is relevant owing to the significant amount of amortization of intangible assets resulting from accounting for all acquisitions using the purchase method of accounting. Additionally, management believes that investors in its stock use income from continuing operations plus amortization of intangible assets to compare USI with its peers and for valuation purposes. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. � USI presents Income from continuing operations plus amortization of intangible assets and operating income and operating margin, excluding the impact of the identified adjustments, because management believes that it is useful in understanding operating profitability compared to other periods presented. Additionally, management believes that investors in its stock use income from continuing operations plus amortization of intangible assets and operating income and operating margin, excluding the impact of the identified adjustments on an absolute and diluted per share basis, to compare USI with its peers, for valuation purposes and as an indicator of operating performance. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. � USI presents organic revenue growth (decline) because management believes that it is useful in understanding organic revenue growth/decline compared to prior periods presented. Organic revenue growth (decline) is calculated by excluding the current period�s total revenues attributable to acquisitions and the prior period�s total revenues from divested businesses during the twelve months following acquisition or divestiture. Additionally, management believes that investors in its stock use organic revenue growth (decline) to compare USI with its peers and to measure growth in revenues attributable to the Company�s ability to execute on its sales and client retention strategies. This financial measure should not be considered as an alternative to other financial measures determined in accordance with GAAP. USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures � Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets � For the Three Months Ended For the Nine Months Ended September 30, September 30, 2006� 2005� 2006� 2005� (Dollars in Thousands) � Total Revenues $ 131,695� $ 127,267� $ 402,205� $ 371,834� � Compensation and employee benefits 73,188� 72,211� 222,112� 211,340� Non-cash stock-based compensation: Restricted stock awards 1,041� 839� 2,568� 1,708� Stock option expense 905� -� 2,616� -� Other operating expenses 31,222� 27,768� 91,775� 81,510� Depreciation 2,535� 2,467� 7,510� 7,168� � � � � Operating Income 22,804� 23,982� 75,624� 70,108� Operating Margin 17.3% 18.8% 18.8% 18.9% � Amortization of intangible assets 9,156� 7,230� 24,884� 21,238� Interest 5,161� 4,012� 13,979� 10,781� Early extinguishment of debt -� -� 2,093� -� Margin improvement plan expenses (a) -� 2,921� -� 6,951� Acquisition integration expenses (a) -� 31� 18� 8,463� � � � � Income from continuing operations before income tax expense 8,487� 9,788� 34,650� 22,675� Income tax expense � 3,647� � 4,298� � 14,824� � 9,907� Income from continuing operations 4,840� 5,490� 19,826� 12,768� Addback: Amortization of intangible assets � 9,156� � 7,230� � 24,884� � 21,238� Income from continuing operations plus amortization of intangible assets $ 13,996� $ 12,720� $ 44,710� $ 34,006� � (a) Amounts are included in compensation and employee benefits and other operating expenses in the Consolidated Statements of Operations. � USI Holdings Corporation Non-GAAP Financial Measures Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets, Excluding Identified Adjustments � Identified Adjustments: Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R). Accordingly, the Company recorded expenses of $0.9 and $2.6 million related to its stock option and employee stock purchase plans for the three and nine months ended September 30, 2006, respectively. Additionally, in the first quarter of 2006, the Company recorded $2.1 million of expense for an early extinguishment of debt related to its new credit facility. There were no such similar expenses in 2005. All adjustments noted above are referred to as "Identified Adjustments." � For the Three Months Ended For the Nine Months Ended September 30, September 30, 2006 As Reported Identified Adjustments 2006 Excluding Identified Adjustments 2006 As Reported Identified Adjustments 2006 Excluding Identified Adjustments (Dollars in Thousands) � Revenues $ 131,695� $ -� $ 131,695� $ 402,205� $ -� $ 402,205� � Compensation and employee benefits 73,188� -� 73,188� 222,112� -� 222,112� Non-cash stock-based compensation: Restricted stock awards 1,041� -� 1,041� 2,568� -� 2,568� Stock option expense 905� (905) -� 2,616� (2,616) -� Other operating expenses 31,222� -� 31,222� 91,775� -� 91,775� Depreciation 2,535� -� 2,535� 7,510� -� 7,510� � � � � � � Operating Income 22,804� 905� 23,709� 75,624� 2,616� 78,240� � Operating Margin 17.3% 18.0% 18.8% 19.5% � Amortization of intangible assets 9,156� -� 9,156� 24,884� -� 24,884� Interest 5,161� -� 5,161� 13,979� -� 13,979� Early extinguishment of debt -� -� -� 2,093� (2,093) -� Acquisition integration expenses (a) � -� � -� � -� � 18� � (18) � -� Total Expenses � 123,208� � (905) � 122,303� � 367,555� � (4,727) � 362,828� � Income from continuing operations before income tax expense 8,487� 905� 9,392� 34,650� 4,727� 39,377� Income tax expense � 3,647� � 389� � 4,036� � 14,824� � 2,022� � 16,846� Income from continuing operations 4,840� 516� 5,356� 19,826� 2,705� 22,531� Addback: Amortization of intangible assets � 9,156� � -� � 9,156� � 24,884� � -� � 24,884� Income from continuing operations plus amortization of intangible assets $ 13,996� $ 516� $ 14,512� $ 44,710� $ 2,705� $ 47,415� � Per Share Data - Diluted: Income From Continuing Operations $ 0.08� $ 0.01� $ 0.09� 0.34� 0.05� 0.39� Addback: Amortization of intangible assets � 0.16� � -� � 0.16� � 0.43� � -� � 0.43� Income from continuing operations plus amortization of intangible assets $ 0.24� $ 0.01� $ 0.25� � 0.77� � 0.05� � 0.82� � (a) Amounts are included in other operating expenses in the Consolidated Statements of Operations. � USI Holdings Corporation Non-GAAP Financial Measures Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets, Excluding Identified Adjustments � Identified Adjustments: In December 2004, USI announced that it had approved a plan to take steps to reduce ongoing operating expenses. As a result of these actions, for the three and nine months ended September 30, 2005, the Company recorded expenses of $2.9 million and $4.0 million, respectively, comprised of restructuring of sales professionals' employment agreements, employee severance and related benefits and lease termination costs. Additionally, in the three and nine months ended September 30, 2005, the Company recorded expenses of $0.0 million and $8.5 million, primarily related to the acquisition of Summit Global Partners. In the three and nine months ended September 30, 2005, the Company recorded an adjustment to revenues and related producer compensation payable of $0.8 million and $0.4 million and $2.9 million and $0.5 million, respectively, related to a change in accounting estimate. There were no such similar adjustments for the three and nine months ended September 30, 2006. All adjustments noted above are referred to as "Identified Adjustments." � For the Three Months Ended For the Nine Months Ended September 30, September 30, 2005 As Reported Identified Adjustments 2005 Excluding Identified Adjustments 2005 As Reported Identified Adjustments 2005 Excluding Identified Adjustments (Dollars in Thousands, Except per Share Amounts) (Dollars in Thousands, Except per Share Amounts) � Total revenues $ 127,267� $ 756� $ 128,023� $ 371,834� $ 2,925� $ 374,759� � Compensation and employee benefits 72,211� 359� 72,570� 211,340� 467� 211,807� Non-cash stock-based compensation, restricted stock awards 839� -� 839� 1,708� -� 1,708� Other operating expenses 27,768� -� 27,768� 81,510� -� 81,510� Depreciation 2,467� -� 2,467� 7,168� -� 7,168� � � � � � � Operating Income � 23,982� � 397� � 24,379� � 70,108� � 2,458� � 72,566� � Operating Margin 18.8% 19.0% 18.9% 19.4% � Amortization of intangible assets 7,230� -� 7,230� 21,238� -� 21,238� Interest 4,012� -� 4,012� 10,781� -� 10,781� Margin improvement plan expenses (a) 2,921� (2,921) -� 6,951� (6,951) -� Acquisition Integration expenses (a) � 31� � (31) � -� � 8,463� � (8,463) � -� � Total Expenses � 117,479� � (2,593) � 114,886� � 349,159� � (14,947) � 334,212� Income from continuing operations before income tax expense 9,788� 3,349� 13,137� 22,675� 17,872� 40,547� Income tax expense � 4,298� � 1,259� � 5,557� � 9,907� � 7,244� � 17,151� Income from continuing operations 5,490� 2,090� 7,580� 12,768� 10,628� 23,396� Addback: Amortization of intangible assets � 7,230� � -� � 7,230� � 21,238� � -� � 21,238� Income from continuing operations plus amortization of intangible assets $ 12,720� $ 2,090� $ 14,810� $ 34,006� $ 10,628� $ 44,634� � Per Share Data - Diluted: Income From Continuing Operations $ 0.09� $ 0.04� $ 0.13� $ 0.23� $ 0.19� $ 0.42� Addback: Amortization of intangible assets � 0.13� � -� � 0.13� � 0.37� � -� � 0.37� Income from continuing operations plus amortization of intangible assets $ 0.22� $ 0.04� $ 0.26� $ 0.60� $ 0.19� $ 0.79� � � (a) Amounts are included in compensation and employee benefits and other operating expenses in the Consolidated Statements of Operations. USI Holdings Corporation and Subsidiaries Summary Statements of Operations by Segment Insurance Specialized Benefits (Amounts in Thousands) Brokerage Services Corporate Total For the three months ended September 30: 2006� Revenues $ 120,244� $ 11,443� $ 8� $ 131,695� Compensation and employee benefits 65,838� 4,992� 2,358� 73,188� Other operating expenses 22,047� 4,452� 4,723� 31,222� Non-cash stock-based compensation: Restricted stock awards 832� 22� 187� 1,041� Stock option expense 449� 39� 417� 905� Depreciation 1,930� 242� 363� 2,535� Amortization 8,328� 828� -� 9,156� Interest expense � 236� � 102� � 4,823� � 5,161� Income(loss) from continuing operations, before income taxes � 20,584� � 766� � (12,863) � 8,487� Add back: Amortization 8,328� 828� -� 9,156� Interest expense � 236� � 102� � 4,823� � 5,161� Operating income (loss) $ 29,148� $ 1,696� $ (8,040) $ 22,804� � Operating margin 24.2% 14.8% NM� 17.3% � 2005� Revenues $ 116,016� $ 10,844� $ 407� $ 127,267� Compensation and employee benefits 68,448� 3,658� 3,004� 75,110� Other operating expenses 19,539� 4,242� 4,040� 27,821� Non-cash stock-based compensation, restricted stock awards 713� 13� 113� 839� Depreciation 1,951� 150� 366� 2,467� Amortization 6,548� 682� -� 7,230� Interest expense � 255� � 86� � 3,671� � 4,012� Income(loss) from continuing operations, before income taxes � 18,562� � 2,013� � (10,787) � 9,788� Add back: Amortization 6,548� 682� -� 7,230� Interest expense 255� 86� 3,671� 4,012� Acquisition integration and margin improvement plan expenses � 2,952� � -� � -� � 2,952� Operating income (loss) $ 28,317� $ 2,781� $ (7,116) $ 23,982� � Operating margin 24.4% 25.6% NM� 18.8% USI Holdings Corporation and Subsidiaries Summary Statements of Operations by Segment � Specialized Insurance Benefits (Amounts in Thousands) Brokerage Services Corporate Total For the Nine months ended September 30: 2006� Revenues $ 375,666� $ 26,408� $ 131� $ 402,205� Compensation and employee benefits 201,144� 13,476� 7,492� 222,112� Other operating expenses 67,164� 12,114� 12,515� 91,793� Non-cash stock-based compensation: Restricted stock awards 2,039� 50� 479� 2,568� Stock option expense 1,252� 118� 1,246� 2,616� Depreciation 5,792� 714� 1,004� 7,510� Amortization 22,528� 2,356� -� 24,884� Interest expense 613� 308� 13,058� 13,979� Early extinguishment of debt � -� � -� � 2,093� � 2,093� Income(loss) from continuing operations, before income taxes � 75,134� � (2,728) � (37,756) � 34,650� Add back: Amortization 22,528� 2,356� -� 24,884� Interest expense 613� 308� 13,058� 13,979� Early extinguishment of debt -� -� 2,093� 2,093� Acquisition integration expense � 18� � -� � -� � 18� Operating income (loss) $ 98,293� $ (64) $ (22,605) $ 75,624� � Operating margin 26.2% -0.2% NM� 18.8% � 2005� Revenues $ 346,655� $ 24,178� $ 1,001� $ 371,834� Compensation and employee benefits 205,654� 10,055� 10,698� 226,407� Other operating expenses 59,686� 9,349� 12,822� 81,857� Non-cash stock-based compensation, restricted stock awards 1,402� 30� 276� 1,708� Depreciation 5,692� 397� 1,079� 7,168� Amortization 19,194� 2,044� -� 21,238� Interest expense � 810� � 275� � 9,696� � 10,781� Income(loss) from continuing operations, before income taxes � 54,217� � 2,028� � (33,570) � 22,675� Add back: Amortization 19,194� 2,044� -� 21,238� Interest expense 810� 275� 9,696� 10,781� Acquisition integration and margin improvement plan expenses � 13,780� � 82� � 1,552� � 15,414� Operating income (loss) $ 88,001� $ 4,429� $ (22,322) $ 70,108� � Operating margin 25.4% 18.3% NM� 18.9% USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) For the Three Months Ended September 30 Revenues Change Adjustment for Net Acquired Businesses Organic Growth/ (Decline) Identified Adjustments Adjusted Organic Growth/ Decline 2006� 2005� Amount Percent (Dollars in Thousands) Consolidated � Net Commissions and Fees - Property & Casualty $ 69,700� $ 69,808� $ (108) -0.2% $ (1,848) -2.8% $ (581) -3.6% Net Commissions and Fees - Benefits � 56,601� � 53,147� � 3,454� 6.5% � (3,812) -0.7% � (174) -1.0% Total Net Commissions and Fees � 126,301� � 122,955� � 3,346� 2.7% � (5,660) -1.9% � (755) -2.5% Contingents and Overrides 567� 1,738� (1,171) -67.4% (12) -68.1% -� -68.1% Other Income 4,827� 2,574� 2,253� 87.5% (38) 86.1% -� 86.1% � � � � � � � � Total Revenues $ 131,695� $ 127,267� $ 4,428� 3.5% $ (5,710) -1.0% $ (755) -1.6% � � Insurance Brokerage � Net Commissions and Fees - Property & Casualty $ 69,700� $ 69,808� $ (108) -0.2% $ (1,848) -2.8% $ (581) -3.6% Net Commissions and Fees - Benefits � 45,158� � 42,311� � 2,847� 6.7% � (2,451) 0.9% � (174) 0.5% Total Net Commissions and Fees (1) � 114,858� � 112,119� � 2,739� 2.4% � (4,299) -1.4% � (755) -2.1% Contingents and Overrides 567� 1,738� (1,171) -67.4% (12) -68.1% -� -68.1% Other Income 4,819� 2,159� 2,660� 123.2% (38) 121.4% -� 121.4% � � � � � � � � Total Revenues $ 120,244� $ 116,016� $ 4,228� 3.6% $ (4,349) -0.1% $ (755) -0.8% � � Specialized Benefits Services � Net Commissions and Fees - Benefits $ 11,443� $ 10,836� $ 607� 5.6% $ (1,361) -7.0% $ -� -7.0% Contingents and Overrides -� -� -� -� -� -� -� -� Other Income 8� (8) -100.0% -� -100.0% -� -100.0% � � � � � � � � Total Revenues $ 11,443� $ 10,844� $ 599� 5.5% $ (1,361) -7.0% $ -� -7.0% � � Corporate � Other Income $ 8� $ 407� $ (399) -98.0% $ -� -98.0% $ -� -98.0% � � � � � � � � Total Revenues $ 8� $ 407� $ (399) -98.0% $ -� -98.0% $ -� -98.0% � (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: � Three months ended September 30, 2006 Insurance Brokerage, Net Commissions and Fees (a) $ 114,858� $ 112,119� $ 2,739� 2.4% $ (4,299) -1.4% $ (755) -2.1% California Net Commissions and Fees (b) � 16,314� � 20,008� � (3,694) -18.5% � (121) -19.1% � (421) -21.2% Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 98,544� $ 92,111� $ 6,433� 7.0% $ (4,178) 2.4% $ (334) 2.1% USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) � � For the Nine Months Ended September 30 Adjusted Organic Growth/ Decline Revenues Change Adjustment for Net Acquired Businesses Organic Growth/ (Decline) Identified Adjustments � 2006� � 2005� Amount Percent Consolidated (Dollars in Thousands) � Net Commissions and Fees - Property & Casualty $ 203,298� $ 197,432� $ 5,866� 3.0% $ (7,366) -0.8% $ (2,482) -2.0% Net Commissions and Fees - Benefits � 165,691� � 145,845� � 19,846� 13.6% � (15,158) 3.2% � (441) 2.9% Total Net Commissions and Fees � 368,989� � 343,277� � 25,712� 7.5% � (22,524) 0.9% � (2,923) 0.1% Contingents and Overrides 22,674� 22,666� 8� 0.0% (1,001) -4.4% -� -4.4% Other Income 10,542� 5,891� 4,651� 79.0% (204) 75.5% -� 75.5% � � � � � � � � � � Total Revenues $ 402,205� � $ 371,834� $ 30,371� � 8.2% $ (23,729) 1.8% $ (2,923) 1.0% � � Insurance Brokerage � Net Commissions and Fees - Property & Casualty $ 203,298� $ 197,432� $ 5,866� 3.0% $ (7,366) -0.8% $ (2,482) -2.0% Net Commissions and Fees - Benefits � 139,284� � 121,701� � 17,583� 14.4% � (12,293) 4.3% � (441) 4.0% Total Net Commissions and Fees (1) � 342,582� � 319,133� � 23,449� 7.3% � (19,659) 1.2% � (2,923) 0.3% Contingents and Overrides 22,674� 22,647� 27� 0.1% (1,001) -4.3% -� -4.3% Other Income 10,410� 4,875� 5,535� 113.5% (204) 109.4% -� 109.4% � � � � � � � � � � Total Revenues $ 375,666� � $ 346,655� $ 29,011� � 8.4% $ (20,864) 2.4% $ (2,923) 1.5% � � Specialized Benefits Services � Net Commissions and Fees - Benefits $ 26,407� $ 24,144� $ 2,263� 9.4% $ (2,865) -2.5% $ -� -2.5% Contingents and Overrides -� 19� (19) -� -� -� -� -� Other Income 1� 15� (14) -93.3% -� -93.3% -� -93.3% � � � � � � � � � � Total Revenues $ 26,408� � $ 24,178� $ 2,230� � 9.2% $ (2,865) -2.6% $ -� -2.6% � � Corporate � Other Income $ 131� $ 1,001� $ (870) -86.9% $ -� -86.9% $ -� -86.9% � � � � � � � � � � Total Revenues $ 131� � $ 1,001� $ (870) � -86.9% $ -� -86.9% $ -� -86.9% � (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: � Nine months ended September 30, 2006 Insurance Brokerage, Net Commissions and Fees (a) $ 342,582� $ 319,133� $ 23,449� 7.3% $ (19,659) 1.2% $ (2,923) 0.3% California Net Commissions and Fees (b) � 52,299� � 58,068� � (5,769) -9.9% � (1,098) -11.8% � (480) -12.7% Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 290,283� $ 261,065� $ 29,218� 11.2% $ (18,561) 4.1% $ (2,443) 3.1% USI Holdings Corporation ("USI" or the "Company"), (NASDAQ:USIH) today reported financial results for the third quarter ended September 30, 2006. A printer friendly version of this release is available on our website at http://www.usi.biz. Highlights: For the quarter ended September 30, 2006 as compared to the same quarter in 2005: -- Announced an indication of interest from a private equity firm to acquire all of the Company's outstanding common stock and recorded related expenses of $1.5 million -- Total revenues increased 3.5% to $131.7 million from $127.3 million -- Net commissions and fees (excluding contingent commissions) increased 2.7% to $126.3 million from $123.0 million -- Income from continuing operations, before income tax expense decreased by 13.3% to $8.5 million from $9.8 million -- Net income per share on a diluted basis increased to $0.08 from $0.03 -- Operating margin decreased to 17.3% from 18.8% -- Excluding the impact of stock option expense in 2006 and other identified adjustments in 2005, operating margin decreased to 18.0% from 19.0% -- Acquired four insurance agencies and three books of business, expected to add $26.9 million of annualized revenues -0- *T (Dollars in Thousands, Except Per Share Three Months Ended Data) September 30, ----------------------------- 2006 2005 % Change --------- --------- --------- GAAP Financial Measures: Revenues: Net commissions and fees ("NCF") $126,301 $122,955 2.7% Contingents and overrides 567 1,738 (67.4)% Interest income 1,212 1,062 14.1% Other income 3,615 1,512 139.1% --------- --------- Total revenues 131,695 127,267 3.5% --------- --------- Expenses: Operating expenses 108,891 106,237 2.5% Amortization of intangible assets 9,156 7,230 26.6% Interest 5,161 4,012 28.6% Early extinguishment of debt -- -- N/M --------- --------- Total expenses 123,208 117,479 4.9% --------- --------- Operating Results: Income from continuing operations before income tax expense $ 8,487 $ 9,788 (13.3)% Per Share Data-Diluted: Income from continuing operations $ 0.08 $ 0.09 (11.1)% Net income $ 0.08 $ 0.03 166.7% Non-GAAP Financial Measures (1): Operating income 22,804 23,982 (4.9)% Operating margin 17.3% 18.8% (8.0)% Operating margin, excluding identified adjustments 18.0% 19.0% (5.3)% Income from continuing operations plus amortization, excluding identified adjustments on a diluted per share basis $ 0.25 $ 0.26 (3.8)% NCF organic (decline)/growth (2.5)% Total revenue organic (decline)/growth (1.6)% (Dollars in Thousands, Except Per Share Nine Months Ended Data) September 30, ----------------------------- 2006 2005 % Change --------- --------- --------- GAAP Financial Measures: Revenues: Net commissions and fees ("NCF") $368,989 $343,277 7.5% Contingents and overrides 22,674 22,666 0.0% Interest income 3,917 2,604 50.4% Other income 6,625 3,287 101.6% --------- --------- Total revenues 402,205 371,834 8.2% --------- --------- Expenses: Operating expenses 326,599 317,140 3.0% Amortization of intangible assets 24,884 21,238 17.2% Interest 13,979 10,781 29.7% Early extinguishment of debt 2,093 -- N/M --------- --------- Total expenses 367,555 349,159 5.3% --------- --------- Operating Results: Income from continuing operations before income tax expense $ 34,650 $ 22,675 52.8% Per Share Data-Diluted: Income from continuing operations $ 0.34 $ 0.23 47.8% Net income $ 0.34 $ 0.08 325.0% Non-GAAP Financial Measures (1): Operating income 75,624 70,108 7.9% Operating margin 18.8% 18.9% (0.5)% Operating margin, excluding identified adjustments 19.5% 19.4% 0.5% Income from continuing operations plus amortization, excluding identified adjustments on a diluted per share basis $ 0.82 $ 0.79 3.8% NCF organic (decline)/growth 0.1% Total revenue organic (decline)/growth 1.0% *T (1) Refer to Non-GAAP financial measures-Purpose and Use and related reconciliations included in this release. On October 24, 2006, the Company announced that in response to an indication of interest received from a private equity firm in acquiring all of the outstanding common stock of the Company, the Board of Directors of the Company formed a Special Committee consisting of outside directors to review the proposal and consider all of the Company's options. Lazard Freres & Co. LLC and Dewey Ballantine LLP have been engaged by the Special Committee to assist in its review. No assurance can be given that any transaction will be entered into or consummated. The revenue increase for the quarter includes the impact of $5.7 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF (which excludes contingent commissions) decreased $3.1 million, or 2.5% for the quarter compared to the same period last year due to the continued difficult operating environment in California and timing of enrollments in the specialized benefits services segment. Total NCF for the insurance brokerage segment, excluding California, grew 2.1% for the quarter on an adjusted organic basis. The revenue increase for the first nine months includes the impact of $23.7 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF (which excludes contingent commissions) increased $0.3 million, or 0.1% for the nine months compared to the same period last year due primarily to the year-to-date impact of the items noted above for the third quarter. Total NCF for the insurance brokerage segment, excluding California, grew 3.1% for the nine months on an adjusted organic basis. In 2005, the Company concluded its previously announced margin improvement plan. For the three and nine months ended September 30, 2005, the Company recorded $2.9 million and $7.0 million in expenses, before income taxes, for employee severance and related benefits, facilities closures, contract terminations and the amendment of sales professionals' compensation agreements. Also, for the three and nine months ended September 30, 2005, the Company recorded $0.0 million and $8.5 million in expenses, respectively, before income taxes primarily associated with the SGP acquisition. There were no such similar significant expenses in the three and nine months ended September 30, 2006. The operating margin (operating income as a percentage of total revenues) for the quarter was 17.3% on $22.8 million of operating income, compared to 18.8% on $24.0 million of operating income for the same period in 2005. The operating margin for the quarter was negatively impacted by several items, including: a net $1.3 million write-down of accounts receivable balances, a $1.2 million decrease in contingent commissions, a $1.1 million decline in the specialized benefits services segment, stock option expense of $0.9 million recorded beginning in 2006 and $1.5 million of expenses related to the Company's consideration of the previously announced indication of interest from a private equity firm to acquire all of the Company's outstanding common stock. Operating margin for the quarter was positively impacted by $2.0 million related to a settlement with a former employee over an employment contract dispute. The decrease in operating margin in the specialized benefits services segment was due to the timing of some enrollments and to continuing investments in personnel and systems to support our expansion strategy into middle and emerging markets. The operating margin for the nine months ended September 30, 2006 was 18.8% on $75.6 million of operating income, compared to 18.9% on $70.1 million of operating income for the same period in 2005. The operating margin for the nine months was negatively impacted by several items, including: the items noted above in the quarter, a $4.5 million decline in the specialized benefits services segment and stock option expense of $2.6 million. Operating margin was positively impacted by the improvement in the insurance brokerage segment and to acquisitions. David L. Eslick, Chairman, President and Chief Executive Officer noted, "Outside of California, the majority of our retail brokerage operations are performing at or near our operating targets. We are particularly pleased with our acquisition success, having recently closed on the Kibble & Prentice transaction, creating one of the largest middle market brokers in the Pacific Northwest. With $37 million in annual revenues and a 34-year proven track record of client service and organic revenue growth, the Kibble & Prentice team is a great addition to USI." The Company will hold a conference call and audio webcast to review the results at 8:30 AM (EST) on Friday, November 10, 2006. To access the audio webcast, please visit USI's website at www.usi.biz on November 10, 2006 and follow the link. To access the conference call, dial toll-free 800-299-8538 or 617-786-2902 for international callers and use passcode 11615884, five minutes before the teleconference. A replay of the conference call will be available on the Investor Relations section of the USI website (www.usi.biz) or by dialing 888-286-8010 and using access code 94065641. This press release contains certain statements relating to future results which are forward-looking statements within the meaning of that term as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not historical facts, but instead represent USI's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of USI's control. USI can make no assurances regarding the likelihood of the acquisition transaction described above, and it is possible that USI's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Further information concerning USI and its business, including factors that potentially could materially affect USI's financial results, are contained in USI's filings with the Securities and Exchange Commission. Some factors include: USI's ability to grow revenues organically and expand its margins; successful consummation and integration of acquisitions; the insurance brokerage business is subject to a great deal of uncertainty due to the investigations into its business practices by various governmental authorities and related private litigation; resolution of regulatory matters and other claims, lawsuits and related proceedings; the passage of new legislation and/or disclosure arrangements with insurance companies affecting our business; determinations of effectiveness of internal controls over financial reporting and disclosure controls and procedures; USI's ability to attract and retain key sales and management professionals; USI's level of indebtedness and debt service requirements; downward commercial property and casualty premium pressures; the competitive environment; future expenses for integration and margin improvement efforts; and general economic conditions around the country. USI's ability to grow has been largely attributable to acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to USI. All forward-looking statements included in this press release are made only as of the date of this press release, and USI does not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which USI hereafter becomes aware. This press release includes supplemental financial information which contains references to non-GAAP financial measures as defined in Regulation G of SEC rules. Consistent with Regulation G, a reconciliation of this financial information to generally accepted accounting principles in the United States ("GAAP") information follows. USI presents such non-GAAP supplemental financial information because it believes that such information is of interest to the investment community owing to the fact that it provides additional meaningful methods of evaluating certain aspects of USI's operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed in addition to, not in lieu of, USI's consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005. About USI Holdings Corporation Founded in 1994, USI is a leading distributor of insurance and financial products and services to businesses throughout the United States. USI is headquartered in Briarcliff Manor, NY, and operates out of 68 offices in 18 states. Additional information about USI, including instructions for the quarterly conference call, may be found at www.usi.biz. -0- *T USI Holdings Corporation and Subsidiaries Consolidated Statements of Operations Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- (Amounts in Thousands, Except Per Share Data) Revenues: Net commissions and fees $ 126,301 $ 122,955 $ 368,989 $ 343,277 Contingents and overrides 567 1,738 22,674 22,666 Interest income 1,212 1,062 3,917 2,604 Other income 3,615 1,512 6,625 3,287 ---------- ---------- ---------- ---------- Total Revenues 131,695 127,267 402,205 371,834 Expenses: Compensation and employee benefits 73,188 75,110 222,112 226,407 Non-cash stock-based compensation: Restricted stock awards 1,041 839 2,568 1,708 Stock option expense 905 - 2,616 - Other operating expenses 31,222 27,821 91,793 81,857 Amortization of intangible assets 9,156 7,230 24,884 21,238 Depreciation 2,535 2,467 7,510 7,168 Interest 5,161 4,012 13,979 10,781 Early extinguishment of debt - - 2,093 - ---------- ---------- ---------- ---------- Total Expenses 123,208 117,479 367,555 349,159 ---------- ---------- ---------- ---------- Income from continuing operations 8,487 9,788 34,650 22,675 before income tax expense Income tax expense 3,647 4,298 14,824 9,907 ---------- ---------- ---------- ---------- Income From Continuing Operations 4,840 5,490 19,826 12,768 Loss from discontinued operations, net - (3,603) - (8,295) ---------- ---------- ---------- ---------- Net Income $ 4,840 $ 1,887 $ 19,826 $ 4,473 ========== ========== ========== ========== Per Share Data - Basic and Diluted: Basic: Income from continuing operations $ 0.09 $ 0.10 $ 0.35 $ 0.23 Loss from discontinued operations, net - (0.07) - (0.15) ---------- ---------- ---------- ---------- Net Income Per Common Share $ 0.09 $ 0.03 $ 0.35 $ 0.08 ========== ========== ========== ========== Diluted: Income from continuing operations $ 0.08 $ 0.09 $ 0.34 $ 0.23 Loss from discontinued operations, net - (0.06) - (0.15) ---------- ---------- ---------- ---------- Net Income Per Common Share $ 0.08 $ 0.03 $ 0.34 $ 0.08 ========== ========== ========== ========== Weighted-Average Number of Shares Outstanding: Basic 56,786 56,681 56,791 55,712 Diluted 57,619 57,409 57,767 56,303 *T -0- *T USI Holdings Corporation and Subsidiaries Consolidated Balance Sheets September 30, December 31, 2006 2005 ------------------------------ (Amounts in Thousands, Except Per Share Data) Assets Current assets: Cash and cash equivalents $ 20,509 $ 27,289 Fiduciary funds--restricted 79,252 103,887 Premiums and commissions receivable, net of allowance for bad debts and cancellations of $9,016 and $7,300, respectively 257,126 244,372 Other 22,402 25,048 Deferred tax asset 11,815 14,887 Current assets held for discontinued operations 3,004 4,843 ------------- ------------- Total current assets 394,108 420,326 Goodwill 446,697 405,490 Expiration rights 370,857 312,382 Other intangible assets 54,329 50,800 Accumulated amortization (222,418) (197,539) ------------- ------------- Expiration rights and other intangible assets, net 202,768 165,643 Property and equipment, net 29,533 28,475 Other assets 3,457 3,840 ------------- ------------- Total Assets $ 1,076,563 $ 1,023,774 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Premiums payable to insurance companies $ 242,742 $ 259,286 Accrued expenses 71,660 77,120 Current portion of long-term debt 12,838 11,470 Other 13,126 16,829 ------------- ------------- Total current liabilities 340,366 364,705 Long-term debt 280,365 225,062 Deferred tax liability 13,889 16,237 Other liabilities 6,022 7,789 Other liabilities held for discontinued operations 426 - ------------- ------------- Total Liabilities 641,068 613,793 Stockholders' equity: Common stock--voting--par $.01, 300,000 shares authorized; 59,041 and 58,308 shares issued, respectively 590 583 Additional paid-in capital 672,035 663,436 Accumulated deficit (226,247) (246,073) Less treasury stock at cost, 827 and 620 shares, respectively (10,883) (7,965) ------------- ------------- Total Stockholders' Equity 435,495 409,981 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,076,563 $ 1,023,774 ============= ============= *T -0- *T USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures - Purpose and Use USI defines Operating Income as revenues, less compensation and employee benefits, non-cash stock-based compensation, other operating expenses and depreciation. Compensation and employee benefits and other operating expenses are adjusted to exclude expenses related to USI's margin improvement plan (announced in the fourth quarter of 2004 and concluded in the fourth quarter of 2005 to reduce ongoing operating expenses) and acquisition integration efforts (expenses incurred during the integration of acquired companies), which USI's management does not consider indicative of the Company's run-rate, or normal operating expenses. USI presents Operating Income because management believes that it is a relevant and useful indicator of operating profitability. Management believes that Operating Income is relevant owing to USI's leveraged approach to its capital structure and resulting significant amount of interest expense and to USI's acquisition strategy which creates significant amortization and other expenses not directly associated with the core operations of the Company and which are specifically aimed at eliminating redundant real estate, positions and other costs. Additionally, management believes that investors in its stock use Operating Income to compare USI's ability to generate operating profits with its peers and for valuation purposes. Operating Margin (Operating Income as a percentage of total revenues) is presented because management believes that it is a relevant and useful indicator of operating efficiency. USI uses Operating Income and Operating Margin in budgeting and evaluating operating company performance. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. USI presents Income from continuing operations plus amortization of intangible assets on an absolute and diluted per share basis because management believes that it is a relevant and useful indicator of its ability to generate working capital. Management believes that income from continuing operations plus amortization of intangible assets is relevant owing to the significant amount of amortization of intangible assets resulting from accounting for all acquisitions using the purchase method of accounting. Additionally, management believes that investors in its stock use income from continuing operations plus amortization of intangible assets to compare USI with its peers and for valuation purposes. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. USI presents Income from continuing operations plus amortization of intangible assets and operating income and operating margin, excluding the impact of the identified adjustments, because management believes that it is useful in understanding operating profitability compared to other periods presented. Additionally, management believes that investors in its stock use income from continuing operations plus amortization of intangible assets and operating income and operating margin, excluding the impact of the identified adjustments on an absolute and diluted per share basis, to compare USI with its peers, for valuation purposes and as an indicator of operating performance. These financial measures should not be considered as an alternative to other financial measures determined in accordance with GAAP. USI presents organic revenue growth (decline) because management believes that it is useful in understanding organic revenue growth/decline compared to prior periods presented. Organic revenue growth (decline) is calculated by excluding the current period's total revenues attributable to acquisitions and the prior period's total revenues from divested businesses during the twelve months following acquisition or divestiture. Additionally, management believes that investors in its stock use organic revenue growth (decline) to compare USI with its peers and to measure growth in revenues attributable to the Company's ability to execute on its sales and client retention strategies. This financial measure should not be considered as an alternative to other financial measures determined in accordance with GAAP. *T -0- *T USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets For the Three Months Ended For the Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2006 2005 2006 2005 ----------- ----------- ------------ ----------- (Dollars in Thousands) Total Revenues $ 131,695 $ 127,267 $ 402,205 $ 371,834 Compensation and employee benefits 73,188 72,211 222,112 211,340 Non-cash stock- based compensation: Restricted stock awards 1,041 839 2,568 1,708 Stock option expense 905 - 2,616 - Other operating expenses 31,222 27,768 91,775 81,510 Depreciation 2,535 2,467 7,510 7,168 ----------- ----------- ------------ ----------- Operating Income 22,804 23,982 75,624 70,108 Operating Margin 17.3% 18.8% 18.8% 18.9% Amortization of intangible assets 9,156 7,230 24,884 21,238 Interest 5,161 4,012 13,979 10,781 Early extinguishment of debt - - 2,093 - Margin improvement plan expenses (a) - 2,921 - 6,951 Acquisition integration expenses (a) - 31 18 8,463 ----------- ----------- ------------ ----------- Income from continuing operations before income tax expense 8,487 9,788 34,650 22,675 Income tax expense 3,647 4,298 14,824 9,907 ----------- ----------- ------------ ----------- Income from continuing operations 4,840 5,490 19,826 12,768 Addback: Amortization of intangible assets 9,156 7,230 24,884 21,238 ----------- ----------- ------------ ----------- Income from continuing operations plus amortization of intangible assets$ 13,996 $ 12,720 $ 44,710 $ 34,006 =========== =========== ============ =========== (a) Amounts are included in compensation and employee benefits and other operating expenses in the Consolidated Statements of Operations. *T -0- *T USI Holdings Corporation Non-GAAP Financial Measures Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets, Excluding Identified Adjustments Identified Adjustments: Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R). Accordingly, the Company recorded expenses of $0.9 and $2.6 million related to its stock option and employee stock purchase plans for the three and nine months ended September 30, 2006, respectively. Additionally, in the first quarter of 2006, the Company recorded $2.1 million of expense for an early extinguishment of debt related to its new credit facility. There were no such similar expenses in 2005. All adjustments noted above are referred to as "Identified Adjustments." For the Three Months Ended September 30, -------------------------------------- 2006 Excluding 2006 As Identified Identified Reported Adjustments Adjustments ------------ ------------ ------------ (Dollars in Thousands) Revenues $ 131,695 $ - $ 131,695 Compensation and employee benefits 73,188 - 73,188 Non-cash stock-based compensation: Restricted stock awards 1,041 - 1,041 Stock option expense 905 (905) - Other operating expenses 31,222 - 31,222 Depreciation 2,535 - 2,535 ----------- ----------- ------------ Operating Income 22,804 905 23,709 Operating Margin 17.3% 18.0% Amortization of intangible assets 9,156 - 9,156 Interest 5,161 - 5,161 Early extinguishment of debt - - - Acquisition integration expenses (a) - - - ----------- ----------- ------------ Total Expenses 123,208 (905) 122,303 ----------- ----------- ------------ Income from continuing operations before income tax expense 8,487 905 9,392 Income tax expense 3,647 389 4,036 ----------- ----------- ------------ Income from continuing operations 4,840 516 5,356 Addback: Amortization of intangible assets 9,156 - 9,156 ----------- ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 13,996 $ 516 $ 14,512 =========== =========== ============ Per Share Data - Diluted: Income From Continuing Operations $ 0.08 $ 0.01 $ 0.09 Addback: Amortization of intangible assets 0.16 - 0.16 ----------- ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 0.24 $ 0.01 $ 0.25 =========== =========== ============ For the Nine Months Ended September 30, ------------------------------------- 2006 Excluding 2006 As Identified Identified Reported Adjustments Adjustments ----------- ------------ ------------ (Dollars in Thousands) Revenues $ 402,205 $ - $ 402,205 Compensation and employee benefits 222,112 - 222,112 Non-cash stock-based compensation: Restricted stock awards 2,568 - 2,568 Stock option expense 2,616 (2,616) - Other operating expenses 91,775 - 91,775 Depreciation 7,510 - 7,510 ---------- ----------- ------------ Operating Income 75,624 2,616 78,240 Operating Margin 18.8% 19.5% Amortization of intangible assets 24,884 - 24,884 Interest 13,979 - 13,979 Early extinguishment of debt 2,093 (2,093) - Acquisition integration expenses (a) 18 (18) - ---------- ----------- ------------ Total Expenses 367,555 (4,727) 362,828 ---------- ----------- ------------ Income from continuing operations before income tax expense 34,650 4,727 39,377 Income tax expense 14,824 2,022 16,846 ---------- ----------- ------------ Income from continuing operations 19,826 2,705 22,531 Addback: Amortization of intangible assets 24,884 - 24,884 ---------- ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 44,710 $ 2,705 $ 47,415 ========== =========== ============ Per Share Data - Diluted: Income From Continuing Operations 0.34 0.05 0.39 Addback: Amortization of intangible assets 0.43 - 0.43 ---------- ----------- ------------ Income from continuing operations plus amortization of intangible assets 0.77 0.05 0.82 ========== =========== ============ (a) Amounts are included in other operating expenses in the Consolidated Statements of Operations. *T -0- *T USI Holdings Corporation Non-GAAP Financial Measures Reconciliation of Operating Income, Operating Margin and Income from Continuing Operations plus Amortization of Intangible Assets, Excluding Identified Adjustments Identified Adjustments: In December 2004, USI announced that it had approved a plan to take steps to reduce ongoing operating expenses. As a result of these actions, for the three and nine months ended September 30, 2005, the Company recorded expenses of $2.9 million and $4.0 million, respectively, comprised of restructuring of sales professionals' employment agreements, employee severance and related benefits and lease termination costs. Additionally, in the three and nine months ended September 30, 2005, the Company recorded expenses of $0.0 million and $8.5 million, primarily related to the acquisition of Summit Global Partners. In the three and nine months ended September 30, 2005, the Company recorded an adjustment to revenues and related producer compensation payable of $0.8 million and $0.4 million and $2.9 million and $0.5 million, respectively, related to a change in accounting estimate. There were no such similar adjustments for the three and nine months ended September 30, 2006. All adjustments noted above are referred to as "Identified Adjustments." For the Three Months Ended September 30, --------------------------------------- 2005 Excluding 2005 As Identified Identified Reported Adjustments Adjustments ------------- ------------ ------------ (Dollars in Thousands, Except per Share Amounts) Total revenues $ 127,267 $ 756 $ 128,023 Compensation and employee benefits 72,211 359 72,570 Non-cash stock-based compensation, restricted stock awards 839 - 839 Other operating expenses 27,768 - 27,768 Depreciation 2,467 - 2,467 ------------ ----------- ------------ Operating Income 23,982 397 24,379 ------------ ----------- ------------ Operating Margin 18.8% 19.0% Amortization of intangible assets 7,230 - 7,230 Interest 4,012 - 4,012 Margin improvement plan expenses (a) 2,921 (2,921) - Acquisition Integration expenses (a) 31 (31) - ------------ ----------- ------------ Total Expenses 117,479 (2,593) 114,886 ------------ ----------- ------------ Income from continuing operations before income tax expense 9,788 3,349 13,137 Income tax expense 4,298 1,259 5,557 ------------ ----------- ------------ Income from continuing operations 5,490 2,090 7,580 Addback: Amortization of intangible assets 7,230 - 7,230 ------------ ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 12,720 $ 2,090 $ 14,810 ============ =========== ============ Per Share Data - Diluted: Income From Continuing Operations $ 0.09 $ 0.04 $ 0.13 Addback: Amortization of intangible assets 0.13 - 0.13 ------------ ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 0.22 $ 0.04 $ 0.26 ============ =========== ============ For the Nine Months Ended September 30, -------------------------------------- 2005 Excluding 2005 As Identified Identified Reported Adjustments Adjustments ------------ ------------ ------------ (Dollars in Thousands, Except per Share Amounts) Total revenues $ 371,834 $ 2,925 $ 374,759 Compensation and employee benefits 211,340 467 211,807 Non-cash stock-based compensation, restricted stock awards 1,708 - 1,708 Other operating expenses 81,510 - 81,510 Depreciation 7,168 - 7,168 ----------- ----------- ------------ Operating Income 70,108 2,458 72,566 ----------- ----------- ------------ Operating Margin 18.9% 19.4% Amortization of intangible assets 21,238 - 21,238 Interest 10,781 - 10,781 Margin improvement plan expenses (a) 6,951 (6,951) - Acquisition Integration expenses (a) 8,463 (8,463) - ----------- ----------- ------------ Total Expenses 349,159 (14,947) 334,212 ----------- ----------- ------------ Income from continuing operations before income tax expense 22,675 17,872 40,547 Income tax expense 9,907 7,244 17,151 ----------- ----------- ------------ Income from continuing operations 12,768 10,628 23,396 Addback: Amortization of intangible assets 21,238 - 21,238 ----------- ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 34,006 $ 10,628 $ 44,634 =========== =========== ============ Per Share Data - Diluted: Income From Continuing Operations $ 0.23 $ 0.19 $ 0.42 Addback: Amortization of intangible assets 0.37 - 0.37 ----------- ----------- ------------ Income from continuing operations plus amortization of intangible assets $ 0.60 $ 0.19 $ 0.79 =========== =========== ============ (a) Amounts are included in compensation and employee benefits and other operating expenses in the Consolidated Statements of Operations. *T -0- *T USI Holdings Corporation and Subsidiaries Summary Statements of Operations by Segment Specialized Insurance Benefits (Amounts in Thousands) Brokerage Services Corporate Total ---------- ----------- --------- ---------- For the three months ended September 30: 2006 -------------------------- Revenues $ 120,244 $ 11,443 $ 8 $ 131,695 ---------- ----------- --------- ---------- Compensation and employee benefits 65,838 4,992 2,358 73,188 Other operating expenses 22,047 4,452 4,723 31,222 Non-cash stock-based compensation: Restricted stock awards 832 22 187 1,041 Stock option expense 449 39 417 905 Depreciation 1,930 242 363 2,535 Amortization 8,328 828 - 9,156 Interest expense 236 102 4,823 5,161 ---------- ----------- --------- ---------- Income(loss) from continuing operations, before income taxes 20,584 766 (12,863) 8,487 ---------- ----------- --------- ---------- Add back: Amortization 8,328 828 - 9,156 Interest expense 236 102 4,823 5,161 ---------- ----------- --------- ---------- Operating income (loss) $ 29,148 $ 1,696 $ (8,040) $ 22,804 ---------- ----------- --------- ---------- Operating margin 24.2% 14.8% NM 17.3% 2005 -------------------------- Revenues $ 116,016 $ 10,844 $ 407 $ 127,267 ---------- ----------- --------- ---------- Compensation and employee benefits 68,448 3,658 3,004 75,110 Other operating expenses 19,539 4,242 4,040 27,821 Non-cash stock-based compensation, restricted stock awards 713 13 113 839 Depreciation 1,951 150 366 2,467 Amortization 6,548 682 - 7,230 Interest expense 255 86 3,671 4,012 ---------- ----------- --------- ---------- Income(loss) from continuing operations, before income taxes 18,562 2,013 (10,787) 9,788 ---------- ----------- --------- ---------- Add back: Amortization 6,548 682 - 7,230 Interest expense 255 86 3,671 4,012 Acquisition integration and margin improvement plan expenses 2,952 - - 2,952 ---------- ----------- --------- ---------- Operating income (loss) $ 28,317 $ 2,781 $ (7,116) $ 23,982 ---------- ----------- --------- ---------- Operating margin 24.4% 25.6% NM 18.8% *T -0- *T USI Holdings Corporation and Subsidiaries Summary Statements of Operations by Segment Specialized Insurance Benefits (Amounts in Thousands) Brokerage Services Corporate Total ---------- ----------- --------- ---------- For the Nine months ended September 30: 2006 -------------------------- Revenues $ 375,666 $ 26,408 $ 131 $ 402,205 ---------- ----------- --------- ---------- Compensation and employee benefits 201,144 13,476 7,492 222,112 Other operating expenses 67,164 12,114 12,515 91,793 Non-cash stock-based compensation: Restricted stock awards 2,039 50 479 2,568 Stock option expense 1,252 118 1,246 2,616 Depreciation 5,792 714 1,004 7,510 Amortization 22,528 2,356 - 24,884 Interest expense 613 308 13,058 13,979 Early extinguishment of debt - - 2,093 2,093 ---------- ----------- --------- ---------- Income(loss) from continuing operations, before income taxes 75,134 (2,728) (37,756) 34,650 ---------- ----------- --------- ---------- Add back: Amortization 22,528 2,356 - 24,884 Interest expense 613 308 13,058 13,979 Early extinguishment of debt - - 2,093 2,093 Acquisition integration expense 18 - - 18 ---------- ----------- --------- ---------- Operating income (loss) $ 98,293 $ (64) $(22,605) $ 75,624 ---------- ----------- --------- ---------- Operating margin 26.2% -0.2% NM 18.8% 2005 -------------------------- Revenues $ 346,655 $ 24,178 $ 1,001 $ 371,834 ---------- ----------- --------- ---------- Compensation and employee benefits 205,654 10,055 10,698 226,407 Other operating expenses 59,686 9,349 12,822 81,857 Non-cash stock-based compensation, restricted stock awards 1,402 30 276 1,708 Depreciation 5,692 397 1,079 7,168 Amortization 19,194 2,044 - 21,238 Interest expense 810 275 9,696 10,781 ---------- ----------- --------- ---------- Income(loss) from continuing operations, before income taxes 54,217 2,028 (33,570) 22,675 ---------- ----------- --------- ---------- Add back: Amortization 19,194 2,044 - 21,238 Interest expense 810 275 9,696 10,781 Acquisition integration and margin improvement plan expenses 13,780 82 1,552 15,414 ---------- ----------- --------- ---------- Operating income (loss) $ 88,001 $ 4,429 $(22,322) $ 70,108 ---------- ----------- --------- ---------- Operating margin 25.4% 18.3% NM 18.9% *T -0- *T USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) For the Three Months Ended September 30 ---------------------------------------------------------------------- Revenues Change ------------------------------------------ 2006 2005 Amount Percent ----------- ---------------------------- (Dollars in Thousands) Consolidated ------------------------ Net Commissions and Fees - Property & Casualty $ 69,700 $ 69,808 $ (108) -0.2% Net Commissions and Fees - Benefits 56,601 53,147 3,454 6.5% ---------------------------------- Total Net Commissions and Fees 126,301 122,955 3,346 2.7% ---------------------------------- Contingents and Overrides 567 1,738 (1,171) -67.4% Other Income 4,827 2,574 2,253 87.5% ------------------------------------------ Total Revenues $ 131,695 $ 127,267 $ 4,428 3.5% ========================================== Insurance Brokerage ------------------------ Net Commissions and Fees - Property & Casualty $ 69,700 $ 69,808 $ (108) -0.2% Net Commissions and Fees - Benefits 45,158 42,311 2,847 6.7% ---------------------------------- Total Net Commissions and Fees (1) 114,858 112,119 2,739 2.4% ---------------------------------- Contingents and Overrides 567 1,738 (1,171) -67.4% Other Income 4,819 2,159 2,660 123.2% ------------------------------------------ Total Revenues $ 120,244 $ 116,016 $ 4,228 3.6% ========================================== Specialized Benefits Services ------------------------ Net Commissions and Fees - Benefits $ 11,443 $ 10,836 $ 607 5.6% Contingents and Overrides - - - - Other Income 8 (8) -100.0% ------------------------------------------ Total Revenues $ 11,443 $ 10,844 $ 599 5.5% ========================================== Corporate ------------------------ Other Income $ 8 $ 407 $ (399) -98.0% ------------------------------------------ Total Revenues $ 8 $ 407 $ (399) -98.0% ========================================== (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: Three months ended September 30, 2006 ------------------------ Insurance Brokerage, Net Commissions and Fees (a) $ 114,858 $ 112,119 $ 2,739 2.4% California Net Commissions and Fees (b) 16,314 20,008 (3,694) -18.5% ---------------------------------- Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 98,544 $ 92,111 $ 6,433 7.0% ================================== Adjustment for Organic Adjusted Organic Net Acquired Growth/ Identified Growth/ Businesses (Decline) Adjustments Decline --------------------------------------------------- Consolidated ------------------ Net Commissions and Fees - Property & Casualty $(1,848) -2.8% $(581) -3.6% Net Commissions and Fees - Benefits (3,812) -0.7% (174) -1.0% -------------- ------------ Total Net Commissions and Fees (5,660) -1.9% (755) -2.5% -------------- ------------ Contingents and Overrides (12) -68.1% - -68.1% Other Income (38) 86.1% - 86.1% --------------------------------------------------- Total Revenues $(5,710) -1.0% $(755) -1.6% =================================================== Insurance Brokerage ------------------ Net Commissions and Fees - Property & Casualty $(1,848) -2.8% $(581) -3.6% Net Commissions and Fees - Benefits (2,451) 0.9% (174) 0.5% -------------- ------------ Total Net Commissions and Fees (1) (4,299) -1.4% (755) -2.1% -------------- ------------ Contingents and Overrides (12) -68.1% - -68.1% Other Income (38) 121.4% - 121.4% --------------------------------------------------- Total Revenues $(4,349) -0.1% $(755) -0.8% =================================================== Specialized Benefits Services ------------------ Net Commissions and Fees - Benefits $(1,361) -7.0% $ - -7.0% Contingents and Overrides - - - - Other Income - -100.0% - -100.0% --------------------------------------------------- Total Revenues $(1,361) -7.0% $ - -7.0% =================================================== Corporate ------------------ Other Income $ - -98.0% $ - -98.0% --------------------------------------------------- Total Revenues $ - -98.0% $ - -98.0% =================================================== (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: Three months ended September 30, 2006 ------------------ Insurance Brokerage, Net Commissions and Fees (a) $(4,299) -1.4% $(755) -2.1% California Net Commissions and Fees (b) (121) -19.1% (421) -21.2% -------------- ------------ Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $(4,178) 2.4% $(334) 2.1% ============== ============ *T -0- *T USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) For the Nine Months Ended September 30 ---------------------------------------------- Revenues Change --------------------- ----------------------- 2006 2005 Amount Percent ---------- ---------- ----------- ---------- Consolidated (Dollars in Thousands) ------------------------ Net Commissions and Fees - Property & Casualty $ 203,298 $ 197,432 $ 5,866 3.0% Net Commissions and Fees - Benefits 165,691 145,845 19,846 13.6% ---------- ---------- ----------- Total Net Commissions and Fees 368,989 343,277 25,712 7.5% ---------- ---------- ----------- Contingents and Overrides 22,674 22,666 8 0.0% Other Income 10,542 5,891 4,651 79.0% --------------------- ----------------------- Total Revenues $ 402,205 $ 371,834 $ 30,371 8.2% ===================== ======================= Insurance Brokerage ------------------------ Net Commissions and Fees - Property & Casualty $ 203,298 $ 197,432 $ 5,866 3.0% Net Commissions and Fees - Benefits 139,284 121,701 17,583 14.4% ---------- ---------- ----------- Total Net Commissions and Fees (1) 342,582 319,133 23,449 7.3% ---------- ---------- ----------- Contingents and Overrides 22,674 22,647 27 0.1% Other Income 10,410 4,875 5,535 113.5% --------------------- ----------------------- Total Revenues $ 375,666 $ 346,655 $ 29,011 8.4% ===================== ======================= Specialized Benefits Services ------------------------ Net Commissions and Fees - Benefits $ 26,407 $ 24,144 $ 2,263 9.4% Contingents and Overrides - 19 (19) - Other Income 1 15 (14) -93.3% --------------------- ----------------------- Total Revenues $ 26,408 $ 24,178 $ 2,230 9.2% ===================== ======================= Corporate ------------------------ Other Income $ 131 $ 1,001 $ (870) -86.9% --------------------- ----------------------- Total Revenues $ 131 $ 1,001 $ (870) -86.9% ===================== ======================= (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: Nine months ended September 30, 2006 ------------------------ Insurance Brokerage, Net Commissions and Fees (a) $ 342,582 $ 319,133 $ 23,449 7.3% California Net Commissions and Fees (b) 52,299 58,068 (5,769) -9.9% ---------- ---------- ----------- Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 290,283 $ 261,065 $ 29,218 11.2% ========== ========== =========== Adjusted Adjustment for Organic Organic Net Acquired Growth/ Identified Growth/ Businesses (Decline) Adjustments Decline -------------- --------- ------------ ---------- Consolidated -------------------- Net Commissions and Fees - Property & Casualty $ (7,366) -0.8% $ (2,482) -2.0% Net Commissions and Fees - Benefits (15,158) 3.2% (441) 2.9% -------------- ------------ Total Net Commissions and Fees (22,524) 0.9% (2,923) 0.1% -------------- ------------ Contingents and Overrides (1,001) -4.4% - -4.4% Other Income (204) 75.5% - 75.5% -------------- --------- ------------ ---------- Total Revenues $ (23,729) 1.8% $ (2,923) 1.0% ============== ========= ============ ========== Insurance Brokerage -------------------- Net Commissions and Fees - Property & Casualty $ (7,366) -0.8% $ (2,482) -2.0% Net Commissions and Fees - Benefits (12,293) 4.3% (441) 4.0% -------------- ------------ Total Net Commissions and Fees (1) (19,659) 1.2% (2,923) 0.3% -------------- ------------ Contingents and Overrides (1,001) -4.3% - -4.3% Other Income (204) 109.4% - 109.4% -------------- --------- ------------ ---------- Total Revenues $ (20,864) 2.4% $ (2,923) 1.5% ============== ========= ============ ========== Specialized Benefits Services -------------------- Net Commissions and Fees - Benefits $ (2,865) -2.5% $ - -2.5% Contingents and Overrides - - - - Other Income - -93.3% - -93.3% -------------- --------- ------------ ---------- Total Revenues $ (2,865) -2.6% $ - -2.6% ============== ========= ============ ========== Corporate -------------------- Other Income $ - -86.9% $ - -86.9% -------------- --------- ------------ ---------- Total Revenues $ - -86.9% $ - -86.9% ============== ========= ============ ========== (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: Nine months ended September 30, 2006 -------------------- Insurance Brokerage, Net Commissions and Fees (a) $ (19,659) 1.2% $ (2,923) 0.3% California Net Commissions and Fees (b) (1,098) -11.8% (480) -12.7% -------------- ------------ Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ (18,561) 4.1% $ (2,443) 3.1% ============== ============ *T