NATIONAL FINANCIAL PARTNERS CORP - FORM 8-K - EX-99.1

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8-K - FORM 8-K - NATIONAL FINANCIAL PARTNERS CORP	d548981d8k.htm
EX-99.3 - EX-99.3 - NATIONAL FINANCIAL PARTNERS CORP	d548981dex993.htm
EX-99.2 - EX-99.2 - NATIONAL FINANCIAL PARTNERS CORP	d548981dex992.htm

Exhibit 99.1

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth summary historical and unaudited pro forma condensed consolidated financial and other data of our business at the dates and for the periods indicated. The summary historical condensed consolidated statements of income and condensed consolidated cash flows data for the years ended December 31, 2010, 2011 and 2012 and the summary historical condensed consolidated statements of financial condition as of December 31, 2011 and 2012 has been derived from our historical audited financial statements. The summary historical condensed consolidated statement of financial condition as of December 31, 2010 has been derived from our historical audited financial statements. The summary historical condensed consolidated statements of income and condensed consolidated cash flows data for the three months ended March 31, 2012 and 2013 and the summary historical condensed consolidated statements of financial condition at March 31, 2012 and 2013 have been derived from our historical unaudited condensed consolidated financial statements. We have derived the consolidated statements of income, statements of cash flow data and other financial data for the last twelve months ended March 31, 2013 by adding the summary financial data for the year ended December 31, 2012 and the summary financial data for the three months ended March 31, 2013 and subtracting the summary financial data for the three months ended March 31, 2012. Historical results are not necessarily indicative of the results to be expected for future periods and operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The summary unaudited pro forma condensed consolidated statement of income information for the twelve months ended March 31, 2013 gives effect to the Transactions as if they had occurred on January 1, 2012. The summary unaudited pro forma condensed consolidated statement of financial condition as of March 31, 2013 gives effect to the Transactions as if they had occurred on March 31, 2013. The summary unaudited pro forma condensed consolidated financial data reflects adjustments required under U.S. GAAP for business combinations that are based upon preliminary estimates of fair value and certain assumptions that we believe are reasonable. Revisions to the preliminary estimates of fair value may have a significant impact on the pro forma amounts of total assets, total liabilities and shareholders’ equity, revenue and various operating expenses, including depreciation and amortization, interest expense and income taxes. The summary unaudited pro forma condensed consolidated financial data is for informational purposes only and does not purport to represent what our results of operation or financial condition actually would be if the Transactions had occurred at any date, nor does such data purport to project the results of operation and financial condition for any future period or date, as the case may be. Where we present pro forma financial information for the closing of the Transactions, we have assumed that all $125.0 million of the outstanding convertible senior notes are converted at a conversion rate of 81.055 shares per $1,000 of principal amount of convertible senior notes, which assumes the acquisition will close on June 30, 2013. The settlement of the convertible senior notes will occur after the closing of the acquisition. Convertible senior notes that are not surrendered for conversion or repurchase will remain outstanding.

-1-

The historical results presented below are not necessarily indicative of the results to be expected for any future period.


(Dollars in thousands)	Years Ended December 31,									Three Months Ended			Three Months Ended			Twelve Months Ended			Pro forma Twelve Months Ended
	2010			2011			2012			March 31, 2012			March 31, 2013			March 31, 2013			March 31, 2013

Revenue:
Statement of Operations Data:
Revenue:
Commissions and fees:	$	981,917		$	1,013,392		$	1,061,738		$	254,131		$	263,471		$	1,071,078		$	1,082,838

Operating expenses:
Commissions and fees		303,794			330,179			322,330			82,150			81,014			321,194			321,310
Compensation expense—employees		256,181			267,528			293,531			70,948			79,532			302,115			306,696
Fees to principals		161,958			135,911			137,988			29,207			28,000			136,781			136,804
Non-compensation expense		156,538			153,357			162,229			39,702			42,124			164,651			166,842
Amortization of intangibles		33,013			32,478			33,519			8,275			8,401			33,645			55,685
Depreciation		12,123			12,553			12,339			3,146			2,982			12,175			12,175
Impairment of goodwill and intangible assets		2,901			11,705			33,015			3,228			2,571			32,358			32,358
Gain on sale of businesses, net		(10,295	)		(1,238	)		(4,763	)		(351	)		89			(4,323	)		(4,323	)
Change in estimated acquisition earn-out payables		—			(414	)		9,485			4,466			908			5,927			5,927
Management contract buyout		—			—			17,336			3,355			6,733			20,714			20,714

Total operating expenses		916,213			942,059			1,017,009			244,126			252,354			1,025,237			1,054,188

Income (loss) from operations		65,704			71,333			44,729			10,005			11,117			45,841			28,650

Non-operating income and expenses
Interest income		3,854			3,333			2,253			629			604			2,228			2,228
Interest expense		(18,533	)		(15,733	)		(16,572	)		(4,121	)		(4,206	)		(16,657	)		(68,856	)
Gain on early extinguishment of debt		9,711			—			—			—			—			—			(13,283	)
Other, net		8,303			6,386			4,985			880			1,614			5,719			5,719

Non-operating income and expenses, net		3,335			(6,014	)		(9,334	)		(2,612	)		(1,988	)		(8,710	)		(74,192	)

Income (loss) before income taxes		69,039			65,319			35,395			7,393			9,129			37,131			(45,542	)
Income tax expense (benefit)		26,481			28,387			5,457			1,775			4,915			8,597			(22,819	)

Net income (loss)	$	42,558		$	36,932		$	29,938		$	5,618		$	4,214		$	28,534		$	(22,723	)
Net income (non-controlling interest)		—			—			—			—			(63	)		(63	)		(266	)

Net income (controlling interest)	$	42,558		$	36,932		$	29,938		$	5,618		$	4,151		$	28,471		$	(22,989	)

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Statements of Financial Condition (at end of period):
Cash and cash equivalents	$	128,830		$	135,239		$	88,500		$	85,598		$	92,090		$	92,090		$	50,189
Commissions, fees, and premiums receivable, net		120,572			119,945			137,310			102,482			116,335			116,335			116,335
Total current assets		377,465			368,134			351,033			306,419			338,944			338,944			316,644
Total assets		893,063			894,167			899,859			855,678			889,335			889,335			1,661,195
Total current liabilities		224,883			229,015			215,519			177,676			183,339			183,339			190,500
Total liabilities		484,851			488,217			487,836			455,040			470,335			470,335			1,455,919
Total equity		408,212			405,950			412,023			400,638			416,746			416,746			203,022

Statement of Cash Flow Data:
Net cash provided from (used in)
Operating Activities	$	119,432		$	116,177		$	53,076		$	(14,585	)	$	21,174		$	88,835
Investing Activities		(9,703	)		(53,922	)		(83,802	)		(34,526	)		(10,259	)		(59,535	)
Financing Activities		(36,893	)		(55,846	)		(15,941	)		(530	)		(7,300	)		(22,711	)
Effect of exchange rate changes on cash and cash equivalents		—			—			(72	)		—			(25	)		(97	)

Other Financial Data:
Transaction Adjusted EBITDA(1)	$	146,985		$	144,187		$	160,335		$	35,965		$	38,215		$	162,585		$	166,953
Pro Forma Transaction Adjusted EBITDA(1)																			$	170,251
Pro forma total debt(2)																			$	1,053,125
Pro forma interest expense(3)																			$	68,856
Pro forma net debt(4)																			$	1,025,540
Ratio of pro forma total debt to Pro Forma Transaction Adjusted EBITDA																				6.2x
Ratio of Pro Forma Transaction Adjusted EBITDA to pro forma interest expense																				2.5x

(1)

We report our financial results in accordance with U.S. GAAP, however, management believes that the evaluation of our ongoing operating results may be enhanced by a presentation of Adjusted EBITDA, Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA which are non-GAAP financial measures. We have historically presented Adjusted EBITDA in the periodic reports and registration statements we file with the SEC. As set forth below, Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA differ in many respects from Adjusted EBITDA. Adjusted EBITDA is defined as net income excluding interest income; interest expense; income tax expense; depreciation; amortization of intangibles; other, net; gain on early extinguishment of debt; the expense related to management contract buyouts; 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 income; (gain) loss on sale of businesses, net; impairment of goodwill and intangible assets; the accelerated vesting of, or reversal of previously-recognized expenses related to, certain Restricted Stock Units (“RSUs”); and minority interest (income) loss. We use Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA to further enhance an investor’s evaluation of our ongoing operating performance. Transaction Adjusted EBITDA is defined as Adjusted EBITDA excluding stock-based compensation; non-cash bad debt expense; certain reserves incurred in 2011 and 2012 in connection with a legal settlement; public company cost savings; interest income on certain cash; and other items. Pro Forma Transaction Adjusted EBITDA is defined as Transaction Adjusted EBITDA adjusted to include “run rate” adjustments for acquisitions and management contract buyouts completed after March 31, 2013 assuming such acquisitions and management contract buyouts occurred at the beginning of the period presented, as well as the effect of acquisitions, dispositions and management contract buyouts completed during the twelve months ended March 31, 2013.

We have included Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA because we believe it provides investors with additional information to measure our performance and evaluate our ability to service our debt. Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA are not presentations made in accordance with GAAP, and our computations of Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA should not be considered to be an alternative to net income, as a measure of operating performance or cash flow or as a measure of liquidity. Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

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A reconciliation of Adjusted EBITDA, Transaction Adjusted EBITDA and Pro Forma Transaction Adjusted EBITDA to net income for the periods presented is set forth below:


(Dollars in thousands)	Years Ended December 31,									Three Months Ended			Three Months Ended			Twelve Months Ended			Pro forma Twelve Months Ended
	2010			2011			2012			March 31, 2012			March 31, 2013			March 31, 2013			March 31, 2013
Net income (loss) (GAAP)	$	42,558		$	36,932		$	29,938		$	5,618		$	4,214		$	28,534		$	(22,723	)
Income tax on expense (benefit)		26,481			28,387			5,457			1,775			4,915			8,597			(22,819	)
Interest income		(3,854	)		(3,333	)		(2,253	)		(629	)		(604	)		(2,228	)		(2,228	)
Interest expense		18,533			15,733			16,572			4,121			4,206			16,657			68,856
Gain on early extinguishment of debt		(9,711	)		—			—			—			—			—			13,283
Other, net		(8,303	)		(6,386	)		(4,985	)		(880	)		(1,614	)		(5,719	)		(5,719	)
Amortization of intangibles		33,013			32,478			33,519			8,275			8,401			33,645			55,685
Depreciation		12,123			12,553			12,339			3,146			2,982			12,175			12,175
Impairment of goodwill and intangible assets		2,901			11,705			33,015			3,228			2,571			32,358			32,358
Gain (loss) on sale of businesses, net		(10,295	)		(1,238	)		(4,763	)		(351	)		89			(4,323	)		(4,323	)
Accelerated vesting/(reversal) of certain RSUs		13,395			—			(4,673	)		—			—			(4,673	)		(4,673	)
Change in estimated acquisition earn-out payables		—			(414	)		9,485			4,466			908			5,927			5,927
Management contract buyout		—			—			17,336			3,355			6,733			20,714			20,714
Minority interest (income) loss		—			—			—			—			(93	)		(93	)		(574	)

Adjusted EBITDA		116,841			126,417			140,987			32,124			32,708			141,571			145,939
Other, net addback (a)		6,522			5,816			4,205			911			1,614			4,908			4,908
Stock-based compensation		11,337			5,462			5,381			1,364			1,408			5,425			5,425
Legal settlements (b)		—			2,500			2,750			500			—			2,250			2,250
Bad debt expense (non-cash) (c)		4,902			1,405			1,351			70			101			1,382			1,382
Interest income on cash (d)		344			264			232			51			41			222			222
Public company cost saves (e)		6,869			7,027			7,200			1,800			1,800			7,200			7,200
Other (f)		170			(4,704	)		(1,771	)		(855	)		543			(373	)		(373	)

Transaction Adjusted EBITDA	$	146,985		$	144,187		$	160,335		$	35,965		$	38,215		$	162,585		$	166,953


Completed Dispositions (g)																				(2,828	)
Completed Management Contract Buyouts (g)																				2,440
Run Rate Acquisitions (h)																				1,924
Run Rate Management Contract Buyouts (h)																				1,762

Pro Forma Transaction Adjusted EBITDA																			$	170,251


		(a)		Relates substantially to office space that the Company no longer occupies and has subleased; the rent associated with the Company’s lease is recognized in non-compensation expense while the sublease income is recognized as income in other, net.
		(b)		Relates to reserves made in connection with one legal settlement.
		(c)		In connection with dispositions, the Company may receive promissory notes as a form of compensation; this adjustment relates to reserves taken on these promissory notes, as well as reserves taken in connection with over-advanced management fees.
		(d)		Relates to interest income earned on funds held in a fiduciary capacity.
		(e)		Relates to compensation expense savings from certain departing employees with public company related responsibilities, the voluntary resignation of the Company’s former CEO, as well as non-compensation expense savings related to certain public company costs, such as Board of Director fees, shareholder communications and insurance.
		(f)		Relates to the amortization of prepaid management fee expense offset by the amortization of deferred reduction in management fee liability.
		(g)		Represents the aggregate Transaction Adjusted EBITDA of the management contract buyouts and dispositions that were completed during the twelve months ended March 31, 2013 and have been presented to give effect thereto as if such transactions had occurred at the beginning of the period presented. The financial results for such management contract buyouts and dispositions are derived from the books and records of the Company, which have not been reviewed or audited by any outside accountants. Therefore, you should not place undue reliance on such financial information.
		(h)		Represents the aggregate Transaction Adjusted EBITDA of the acquisitions and management contract buyouts that were completed after March 31, 2013 and have been presented to give effect thereto as if such transactions had occurred at the beginning of the period presented. The financial results for such acquisitions and management contract buyouts are derived from the books and records of the Company, which have not been reviewed or audited by any outside accountants. Therefore, you should not place undue reliance on such financial information.


		(2)		Upon consummation of the Transactions, pro forma total debt is expected to be comprised of the term loan and the notes.
		(3)		Pro forma interest expense is based on assumed interest rates on the term loan and the notes, the amortization of debt costs related to the Transactions as well as the write-off of debt costs on the existing credit facility and senior convertible notes, and is calculated using historical financial data as adjusted to give effect to the Transactions, as if they occurred on January 1, 2012 (the first day of the fiscal year ended December 31, 2012) or April 1, 2012 (the first day of the twelve months ended March 31, 2013), as applicable.
		(4)		Net debt is defined as total debt less cash and cash equivalents. The Company paid approximately $22.6 million in cash on April 1, 2013 relating to these acquisitions and management contract buyouts.

Other Financial Data by Business Segment:



CCG Adjusted EBITDA and Transaction Adjusted EBITDA Reconciliation
Income (loss) from operations	$	43,046		$	48,169		$	32,035		$	6,648		$	7,380		$	32,767
Amortization of intangibles		21,398			21,553			24,195			5,909			6,230			24,516
Depreciation		6,298			6,107			5,618			1,427			1,420			5,611
Impairment of goodwill and intangible assets		1,931			1,246			7,754			2,680			2,571			7,645
(Gain) loss on sale of businesses, net		(8,058	)		(103	)		46			46			—			—
Accelerated vesting/(reversal) of certain RSUs		7,394			—			(2,484	)		—			—			(2,484	)
Change in estimated acquisition earn-out payables		—			(414	)		9,305			4,466			708			5,547
Management contract buyout		—			—			17,336			3,355			6,733			20,714
Minority interest (income) loss		—			—			—			—			(54	)		(54	)

Adjusted EBITDA		72,009			76,558			93,805			24,531			24,988			94,262
Other, net addback		3,470			3,094			2,237			485			859			2,611
Stock-based compensation		6,031			2,906			2,863			726			749			2,886
Legal settlements		—			1,330			1,463			266			—			1,197
Bad debt expense (non—cash)		2,608			747			719			38			54			735
Interest income on cash		183			140			124			27			21			118
Public company cost saves		3,654			3,738			3,830			958			958			3,830
Other		90			(2,503	)		(942	)		(455	)		289			(198	)

Transaction Adjusted EBITDA	$	88,045		$	86,010		$	104,099		$	26,576		$	27,918		$	105,441

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ICG Adjusted EBITDA and Transaction Adjusted EBITDA Reconciliation
Income (loss) from operations	$	15,202		$	14,167		$	3,457		$	1,182		$	774		$	3,049
Amortization of intangibles		11,615			10,925			8,892			2,366			1,955			8,481
Depreciation		4,458			4,275			4,014			1,012			964			3,966
Impairment of goodwill and intangible assets		970			10,459			25,261			548			—			24,713
(Gain) loss on sale of businesses, net		(2,237	)		(1,135	)		(4,809	)		(397	)		89			(4,323	)
Accelerated vesting/(reversal) of certain RSUs		6,001			—			(2,098	)		—			—			(2,098	)
Change in estimated acquisition earn-out payables		—			—			—			—			—			—
Management contract buyout		—			—			—			—			—			—
Minority interest (income) loss		—			—			—			—			(39	)		(39	)

Adjusted EBITDA		36,009			38,691			34,717			4,711			3,743			33,749
Other, net addback		2,928			2,611			1,888			409			725			2,204
Stock-based compensation		5,090			2,452			2,416			612			632			2,436
Legal settlements		—			1,123			1,235			225			—			1,010
Bad debt expense (non—cash)		2,201			631			607			30			45			621
Interest income on cash		154			119			104			23			19			100
Public company cost saves		3,084			3,155			3,233			808			808			3,233
Other		76			(2,112	)		(795	)		(384	)		244			(167	)

Transaction Adjusted EBITDA	$	49,542		$	46,670		$	43,404		$	6,434		$	6,216		$	43,186


ASG Adjusted EBITDA and Transaction Adjusted EBITDA Reconciliation
Income (loss) from operations	$	7,456		$	8,997		$	9,237		$	2,175		$	2,963		$	10,025
Amortization of intangibles		—			—			432			—			216			648
Depreciation		1,367			2,171			2,707			707			598			2,598
Impairment of goodwill and intangible assets		—			—			—			—			—			—
(Gain) loss on sale of businesses, net		—			—			—			—			—			—
Accelerated vesting/(reversal) of certain RSUs		—			—			(91	)		—			—			(91	)
Change in estimated acquisition earn-out payables		—			—			180			—			200			380
Management contract buyout		—			—			—			—			—			—

Adjusted EBITDA		8,823			11,168			12,465			2,882			3,977			13,560
Other, net addback		124			111			80			17			30			93
Stock-based compensation		216			104			102			26			27			103
Legal settlements		—			47			52			9			—			43
Bad debt expense (non—cash)		93			27			26			2			2			26
Interest income on cash		7			5			4			1			1			4
Public company cost saves		131			134			137			34			34			137
Other		4			(89	)		(34	)		(16	)		10			(8	)

Transaction Adjusted EBITDA	$	9,398		$	11,507		$	12,832		$	2,955		$	4,081		$	13,958

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