NATIONAL FINANCIAL PARTNERS CORP - FORM 8-K - EX-99.2 - QUARTERLY FINANCIAL SUPPLEMENT FOR THE PERIOD ENDED DECEMBER 31, 2011

Attached files

file	filename
8-K - CURRENT REPORT - NATIONAL FINANCIAL PARTNERS CORP	form8k.htm
EX-99.1 - PRESS RELEASE, DATED FEBRUARY 7, 2012, OF NATIONAL FINANCIAL PARTNERS CORP. - NATIONAL FINANCIAL PARTNERS CORP	ex991.htm

Exhibit 99.2

Quarterly Financial Supplement

For the Period Ended December 31, 2011

(NYSE: NFP)

Investor Relations Contact:

Abbe F. Goldstein, CFA

(212) 301-4011

ir@nfp.com

This Quarterly Financial Supplement (“QFS”) includes 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 statement 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 statement 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 this QFS, which is available on the Investor Relations section of the Company’s Web site at www.nfp.com.

This QFS 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.

CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS - CONSOLIDATED

(Unaudited - in thousands)

	For the Three Months Ended						For the Year-to-Date Period Ended
	December 31,			December 31,			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
Total compensation expense		116,611			117,418			403,439			418,139

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

Cash Earnings Reconciliation
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	$	27,697		$	27,362		$	90,842		$	96,802

Adjusted EBITDA Reconciliation
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	$	40,130		$	36,131		$	126,417		$	116,841
Adjusted EBITDA as a % of revenue		13.9	%		12.7	%		12.5	%		11.9	%

Compensation Ratios

Total compensation expense ratio		40.3	%		41.3	%		39.8	%		42.6	%
(Total compensation expense/Revenue)

CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR - CORPORATE CLIENT GROUP

(Unaudited - in thousands)

	For the Three Months Ended						For the Year-to-Date Period Ended
	December 31,			December 31,			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
Total compensation expense		60,311			58,767			214,994			211,071

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

Adjusted EBITDA Reconciliation
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
Adjusted EBITDA as a % of revenue		18.6	%		18.7	%		18.6	%		18.6	%

Compensation Ratios

Total compensation expense ratio		51.7	%		54.2	%		52.2	%		54.4	%
(Total compensation expense/Revenue)

CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR - INDIVIDUAL CLIENT GROUP

(Unaudited - in thousands)

	For the Three Months Ended						For the Year-to-Date Period Ended
	December 31,			December 31,			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
Total compensation expense		52,000			54,872			172,311			191,721

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

Adjusted EBITDA Reconciliation
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
Adjusted EBITDA as a % of revenue		14.8	%		10.8	%		11.0	%		9.5	%

Compensation Ratios

Total compensation expense ratio		48.6	%		47.0	%		49.0	%		50.6	%
(Total compensation expense/Revenue)

CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR - ADVISOR SERVICES GROUP

(Unaudited - in thousands)

	For the Three Months Ended						For the Year-to-Date Period Ended
	December 31,			December 31,			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
Fees to principals		—			—			—			—
Total compensation expense		4,300			3,779			16,134			15,347

Non-compensation expense		4,424			3,735			16,118			13,732
Amortization of intangibles		—			—			—			—
Depreciation		741			358			2,171			1,367
Impairment of goodwill and intangible assets		—			—			—			—
Gain on sale of businesses, net		—			—			—			—
Change in estimated acquisition earn-out payables		—			—			—			—
Total operating expenses		63,716			56,024			240,767			207,759
Income from operations	$	1,888		$	2,899		$	8,997		$	7,456

Adjusted EBITDA Reconciliation
Income from operations	$	1,888		$	2,899		$	8,997		$	7,456
Amortization of intangibles		—			—			—			—
Depreciation		741			358			2,171			1,367
Impairment of goodwill and intangible assets		—			—			—			—
Gain on sale of businesses, net		—			—			—			—
Accelerated vesting of certain RSUs		—			—			—			—
Change in estimated acquisition earn-out payables		—			—			—			—
Adjusted EBITDA	$	2,629		$	3,257		$	11,168		$	8,823
Adjusted EBITDA as a % of revenue		4.0	%		5.5	%		4.5	%		4.1	%

Ratios

Commission expense ratio		82.7	%		81.7	%		82.6	%		82.4	%
(Operating expenses:Commissions and fees/Revenue)

Total compensation expense ratio		6.6	%		6.4	%		6.5	%		7.1	%
(Total compensation expense/Revenue)

CONDENSED STATEMENTS OF OPERATIONS, ADJUSTED EBITDA AND ORGANIC REVENUE GROWTH

(Unaudited - dollars in thousands)

	For the Three Months Ended										For the Twelve Months Ended
	December 31,					December 31,					December 31,					December 31,
	2011					2010					2011					2010
Revenue
Corporate Client Group	$	116,559		40.3	%	$	108,483		38.2	%	$	412,192		40.7	%	$	387,855		39.5	%
Individual Client Group		106,999		37.0	%		116,870		41.1	%		351,436		34.7	%		378,847		38.6	%
Advisor Services Group		65,604		22.7	%		58,923		20.7	%		249,764		24.6	%		215,215		21.9	%
Consolidated	$	289,162		100.0	%	$	284,276		100.0	%	$	1,013,392		100.0	%	$	981,917		100.0	%

Adjusted EBITDA (1)
Corporate Client Group	$	21,660		53.9	%	$	20,259		56.1	%	$	76,558		60.6	%	$	72,009		61.6	%
Individual Client Group		15,841		39.5	%		12,615		34.9	%		38,691		30.6	%		36,009		30.8	%
Advisor Services Group		2,629		6.6	%		3,257		9.0	%		11,168		8.8	%		8,823		7.6	%
Consolidated	$	40,130		100.0	%	$	36,131		100.0	%	$	126,417		100.0	%	$	116,841		100.0	%

Adjusted EBITDA Margin
Corporate Client Group		18.6	%				18.7	%				18.6	%				18.6	%
Individual Client Group		14.8	%				10.8	%				11.0	%				9.5	%
Advisor Services Group		4.0	%				5.5	%				4.5	%				4.1	%
Consolidated		13.9	%				12.7	%				12.5	%				11.9	%

	For the Three Months Ended						For the Twelve Months Ended
	December 31,			December 31,			December 31,			December 31,
	2011			2010			2011			2010
Organic revenue
Corporate Client Group		1.4	%		4.6	%		3.6	%		5.8	%
Individual Client Group		-8.7	%		0.0	%		-6.9	%		1.8	%
Advisor Services Group		11.3	%		32.9	%		16.1	%		17.7	%
Consolidated		-0.6	%		8.6	%		2.3	%		6.9	%

(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.

CORPORATE OVERVIEW

(Unaudited - dollars in thousands, except per share data)

	At or for the Three Months Ended						For the Year-to-Date Period Ended
	December 31,			December 31,			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		(731	)		—			(699	)		—
Cash earnings	$	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, net of tax		(0.02	)		—			(0.02	)		—
Impact of diluted shares on cash earnings not reflected in GAAP net loss per share - diluted (1)		—			—			—			—
Cash earnings per share - diluted (2)	$	0.65		$	0.60		$	2.07		$	2.19



Shares outstanding, beginning of period		41,704			43,574			43,502			41,363
Common shares issued for acquisitions during period		—			—			—			—
Common shares issued for contingent consideration and escrow during period		—			—			—			648
Common shares issued for stock-based awards during period		120			74			739			1,821
Common shares repurchased during period		(1,075	)		(172	)		(3,514	)		(445	)
Common shares issued under ongoing incentive program		—			—			—			—
Other		—			26			22			115
Shares outstanding, end of period		40,749			43,502			40,749			43,502

Weighted average common shares outstanding		41,289			43,654			42,867			42,634
Dilutive effect of contingent consideration and ongoing incentive payments		140			16			140			16
Dilutive effect of stock-based awards		897			1,386			826			1,484
Dilutive effect of escrow, stock subscriptions and other		7			3			7			2
Dilutive effect of senior convertible notes		67			215			23			—
Weighted average common shares outstanding - diluted (1)		42,400			45,274			43,863			44,136

Debt to total capitalization		32.8	%		33.6	%		32.8	%		33.6	%

(1)

To calculate GAAP net loss per share, weighted average common shares outstanding - diluted is the same as weighted average common shares outstanding - basic due to the anti-dilutive effects of other items caused by a GAAP net loss position. However, in periods which the Company reports positive cash earnings with a GAAP net loss, the Company uses weighted average common shares outstanding – diluted to calculate cash earnings per share – diluted only.

(2)	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.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (BALANCE SHEET)

(Unaudited - in thousands)

	At
	December 31,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	135,239		$	128,830

Fiduciary funds - restricted relating 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
Short term debt		—			—
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 income		(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)

	At or for the Three Months Ended						At or for the Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2011			2010			2011			2010
Cash flow from operating activities:
Net income (loss)	$	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
Loss (gain) on sale of businesses, net		(1,291	)		(274	)		(1,238	)		(10,295	)
Change in estimated acquisition 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 relating 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	)
Proceeds from (payments for) acquired firms, net of cash		(150	)		(356	)		(48,685	)		305
Proceeds from (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 (decrease) in cash and cash equivalents		19,241			33,945			6,409			72,836
Cash and cash equivalents, beginning of 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

DEFINED TERMS

Accelerated vesting of certain RSUs:	Portion of fees to principals attributed to accelerated vesting of approximately 1.5 million RSUs granted to certain principals. The accelerated vesting occurred on September 17, 2010.

Adjusted EBITDA:	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.

Cash earnings:	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 share - diluted:	Represents cash earnings divided by weighted average diluted shares outstanding.

Commission expense ratio:	Derived by dividing commissions and fee expense by revenue.

Common shares issued for acquisitions:	Represents the portion of consideration paid in the form of shares of NFP common stock for acquisitions closed during the period presented.

Common shares issued for contingent consideration and escrow:	Represents the portion held in escrow or contingent consideration paid in the form of shares of NFP common stock during the period presented.

Common shares issued for stock-based awards:	Represents the number of shares of NFP common stock issued under NFP's various stock incentive plans during the period presented.

Common shares issued under ongoing incentive program:	Represents the number of shares of NFP common stock issued under NFP's ongoing incentive program.

Common shares repurchased:	Represents shares of NFP common stock repurchased during the period, whether in an open market transaction or privately from a firm principal or other stockholder.

Compensation expense – employees:	Represents the expense incurred for payments made related to compensating producing and non-producing staff. Previously referred to as “compensation expense.”

Debt to total capitalization:	Calculated as debt outstanding at the end of the period divided by the sum of debt outstanding and total stockholders' equity at the end of the same period.

Fees to principals:	Represents the expense incurred for payments made or amounts owed to NFP principals and/or certain entities they own based on the financial performance of the businesses they manage. Previously referred to as “total management fees.”

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.

Sub-acquisitions:	A transaction in which an existing NFP-owned business acquires a new entity or book of business.

Total compensation expense:	The sum of compensation expense—employees and fees to principals.

Total compensation expense ratio:	Derived by dividing the sum of compensation expense—employees and fees to principals by revenue.

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