USIH Usi Hldgs Corp (MM)

USI Holdings Corporation (�USI� or the �Company�), (NASDAQ:USIH): USI today reported financial results for the fourth quarter ended December 31, 2006. A printer friendly version of this release is available on our website at http://www.usi.biz. Definitive Merger Agreement On January 16, 2007, the Company announced the signing of a definitive merger agreement to be acquired by an entity controlled by private equity funds sponsored by Goldman, Sachs & Co., by way of merger for $17.00 per share in a transaction valued at approximately $1.4 billion, including approximately $365.0 million for repayment of the Company�s existing debt obligations. Further information regarding the proposed merger can be found in the Company�s definitive proxy statement which was filed with the SEC on March 1, 2007. The transaction is expected to close in the second quarter of 2007, subject to receipt of stockholder approval and the satisfaction of other closing conditions. A special meeting of stockholders to approve the merger has been scheduled for March 29, 2007. Stockholders of record on February 28, 2007 are entitled to vote at the special meeting. Other Matters During the fourth quarter, the Company implemented several strategic operating decisions principally related to the difficulties in its California retail insurance operations. Actions undertaken by the Company include the closure of one office, management changes, the elimination of certain positions and the termination of one business relationship. In the fourth quarter of 2006, these actions resulted in expenses of $7.0 million, including $1.4 million of acquisition integration costs, principally related to the Kibble & Prentice transaction, and an impairment charge of $3.2 million on the intangible assets of a California acquisition. Highlights: For the quarter ended December 31, 2006 as compared to the same quarter in 2005: Total revenues increased 9.5% to $149.4 million from $136.5 million and declined organically 2.1% Net commissions and fees increased 10.1% to $142.8 million from $129.7 million and declined organically 2.1% Income from continuing operations, before income tax expense, decreased to $1.9 million from $8.1 million Net income per share on a diluted basis decreased to $0.01 from $0.06 Operating margin decreased to 16.1% from 16.8% Excluding the impact of other identified adjustments in 2006 and 2005 and stock option expense in 2006, operating margin decreased to 17.2% from 19.0% Closed the acquisition of Kibble & Prentice in Seattle, WA, and four books of business, expected to add $38.0 million of revenues on an annual basis Received a court order granting a new trial on damages and statute of limitations issues in the Graham copyright infringement case Three Months Ended Twelve Months Ended (Dollars in Thousands, Except Per Share Data) December 31, December 31, 2006� 2005� % Change� 2006� 2005� % Change� GAAP Financial Measures: Revenues: Net commissions and fees (�NCF�) $ 142,788� $ 129,745� 10.1% $ 511,777� $ 473,022� 8.2% Contingents and overrides 3,460� 3,159� 9.5% 26,134� 25,825� 1.2% Interest income 1,384� 1,254� 10.4% 5,301� 3,858� 37.4% Other income 1,771� 2,292� (22.7)% 8,396� 5,579� 50.5% Total revenues 149,403� 136,450� 9.5% 551,608� 508,284� 8.5% � Expenses: Operating expenses 131,128� 114,813� 14.2% 457,727� 431,953� 6.0% Amortization of intangible assets 9,652� 9,311� 3.7% 34,536� 30,549� 13.1% Interest 6,711� 4,255� 57.7% 20,690� 15,036� 37.6% Early extinguishment of debt --� --� N/M� 2,093� --� N/M� Total expenses 147,491� 128,379� 14.9% 515,046� 477,538� 7.9% � Operating Results: Income from continuing operations before income tax expense $ 1,912� $ 8,071� (76.3)% $ 36,562� $ 30,746� 18.9% � Per Share Data-Diluted: Income from continuing operations $ 0.01� $ 0.09� (88.9)% $ 0.36� $ 0.32� 12.5% Net income $ 0.01� $ 0.06� (83.3)% $ 0.36� $ 0.14� 157.1% � Non-GAAP Financial Measures (1): Operating income $ 24,057� $ 22,937� 4.9% $ 101,206� $ 93,045� 8.8% Operating margin 16.1% 16.8% (4.2)% 18.3% 18.3% --% Operating margin, excluding identified adjustments 17.2% 19.0% (9.5)% 19.2% 19.3% (0.5)% Income from continuing operations plus amortization, excluding identified adjustments on a diluted per share basis � $ 0.25� $ 0.31� (19.4)% $ 1.11� $ 1.10� 0.9% NCF organic (decline)/growth (2.1)% 0.1% Total revenue organic (decline)/growth (2.1)% 0.7% (1) Refer to Non-GAAP financial measures-Purpose and Use and related reconciliations included in this release. Comparisons of revenues and operating margin for the three and twelve months ended December 31, 2006 to the same periods in 2005 are affected by adjustments in both years related to the change in estimation methodology for direct bill commissions. For the three and twelve months ended December 31, 2005, the Company recorded adjustments to revenue, net of related compensation expense adjustments, of $3.6 million and $6.1 million, respectively. For the three and twelve months ended December 31, 2006, the Company recorded similar adjustments to direct bill revenues of $1.3 million and $1.9 million. Additionally, for both the three and twelve months ended December 31, 2006, the Company recorded a $2.5 million downward adjustment to revenues and receivables in the specialized benefits services segment related to a change in the estimate of its policy cancellation rate on two large enrollment cases. The revenue increase for the quarter includes the net impact of $15.9 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF decreased $5.1 million, or 4.0% for the quarter compared to the same period last year due to the continued difficult operating environment in California and lower than expected fourth quarter enrollment performance in the specialized benefits services segment. Total NCF for the insurance brokerage segment, excluding California, grew 4.8% for the quarter on an adjusted organic basis. The revenue increase for the year includes the net impact of $39.7 million from acquisitions and divestitures completed in the last twelve months. On an organic basis, after identified adjustments, NCF decreased $4.4 million, or 0.9% for the year compared to the prior year, due primarily to the year-to-date impact of the items noted above for the fourth quarter. Total NCF for the insurance brokerage segment, excluding California, grew 3.8% for the year on an adjusted organic basis. In the fourth quarter of 2006, the Company recorded a $3.2 million impairment charge on certain intangible assets associated with one of its California acquisitions following an office closure and the resultant impairment study. In the three and twelve months ended December 31, 2006, the Company recorded $1.2 million and $2.7 million, respectively, in costs related to the proposed transaction with GS Capital Partners. Also in the fourth quarter of 2006, the Company recorded $1.4 million of integration expenses principally related to the Kibble & Prentice acquisition and $2.4 million in other costs related to the previously mentioned strategic operating decisions. For the three and twelve months ended December 31, 2005, the Company recorded $1.2 million and $8.1 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 twelve months ended December 31, 2005, the Company recorded $0.1 million and $8.6 million in expenses, respectively, before income taxes primarily associated with the Summit Global Partners acquisition. The operating margin (operating income as a percentage of total revenues) for the quarter was 16.1% on $24.1 million of operating income, compared to 16.8% on $22.9 million of operating income for the same period in 2005. The operating margin for the quarter was positively impacted by stronger performance in the insurance brokerage segment and lower corporate expenses. The operating margin for the quarter was negatively impacted by the decline in the specialized benefits services segment due to lower than expected fourth quarter enrollment performance, the adjustment to revenues in specialized benefits services related to a revision of the estimated policy cancellation rate on two large cases, the continuing challenges in the California retail insurance operations and to stock option expense of $0.6 million recorded beginning in 2006. The operating margin for the year ended December 31, 2006 was 18.3% on $101.2 million of operating income, compared to 18.3% on $93.0 million of operating income for the same period in 2005. The operating margin for the year was positively impacted by stronger performance in the insurance brokerage segment and lower corporate expenses. The operating margin for the year was negatively impacted by the aforementioned decline in the specialized benefits services segment, the continuing challenges in the California retail insurance operations and to stock option expense of $3.2 million recorded beginning in 2006. The Company will hold a conference call and audio webcast to review the results at 8:00 AM (EST) on Friday, March 2, 2007. To access the audio webcast, please visit USI's website at www.usi.biz on March 2, 2007 and follow the link. To access the conference call, dial toll-free 800-706-7749 or 617-614-3474 for international callers and use passcode 54548532, 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 25896377. About the Proposed Merger In connection with the proposed merger, USI filed a definitive proxy statement on March 1, 2007, with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE DEFINITIVE PROXY STATEMENT ON FILE WITH THE SEC BECAUSE IT CONTAINS IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of the proxy statement and other documents filed by USI Holdings Corporation at the Securities and Exchange Commission's Web site at http://www.sec.gov. The proxy statement and such other documents may also be obtained for free by directing such request to USI Holdings Corporation, telephone: 914-749-8511 or on the Company's Web site at www.usi.biz. USI and its directors, executive officers and certain other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning all of USI�s participants in the solicitation, including our directors and executive officers, is included in the definitive proxy statement relating to the proposed merger. The definitive proxy statement is available free of charge at the Securities and Exchange Commission's Web site at www.sec.gov and from USI Holdings Corporation, telephone: 914-749-8511 or on the Company's Web site at www.usi.biz. Caution Regarding Forward Looking Statements 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 proposed merger 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: risks associated with uncertainty as to whether the proposed merger will be completed; costs and potential litigation associated with the proposed merger; the failure to obtain stockholder approval for the proposed merger; 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 twelve months ended December 31, 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 66 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 December 31, Twelve Months Ended December 31, 2006� 2005� 2006� 2005� � (Amounts in Thousands, Except Per Share Data) � Revenues: Net commissions and fees $ 142,788� $ 129,745� $ 511,777� $ 473,022� Contingents and overrides 3,460� 3,159� 26,134� 25,825� Interest income 1,384� 1,254� 5,301� 3,858� Other income 1,771� 2,292� 8,396� 5,579� � Total Revenues 149,403� 136,450� 551,608� 508,284� � Expenses: Compensation and employee benefits 81,797� 77,783� 303,909� 304,190� Non-cash stock-based compensation: Restricted stock awards 959� 871� 3,527� 2,579� Stock option expense 565� -� 3,181� -� Other operating expenses 45,035� 33,672� 136,828� 115,529� Amortization of intangible assets 9,652� 9,311� 34,536� 30,549� Depreciation 2,772� 2,487� 10,282� 9,655� Interest 6,711� 4,255� 20,690� 15,036� Early extinguishment of debt -� -� 2,093� -� Total Expenses 147,491� 128,379� 515,046� 477,538� Income from continuing operations 1,912� 8,071� 36,562� 30,746� before income tax expense Income tax expense 1,129� 2,806� 15,953� 12,713� Income From Continuing Operations 783� 5,265� 20,609� 18,033� Loss from discontinued operations, net -� (1,934) -� (10,229) Net Income $ 783� $ 3,331� $ 20,609� $ 7,804� � Per Share Data - Basic and Diluted: � Basic: Income from continuing operations $ 0.01� $ 0.09� $ 0.36� $ 0.32� Loss from discontinued operations, net -� (0.03) -� (0.18) Net Income Per Common Share $ 0.01� $ 0.06� $ 0.36� $ 0.14� � Diluted: Income from continuing operations $ 0.01� $ 0.09� $ 0.36� $ 0.32� Loss from discontinued operations, net -� (0.03) -� (0.18) Net Income Per Common Share $ 0.01� $ 0.06� $ 0.36� $ 0.14� � Weighted-Average Number of Shares Outstanding: Basic 57,082� 56,693� 56,871� 55,963� Diluted 58,145� 57,594� 57,839� 56,640� USI Holdings Corporation and Subsidiaries Consolidated Balance Sheets � � � December 31, 2006 December 31, 2005 � (Amounts in Thousands, Except Per Share Data) � Assets Current assets: Cash and cash equivalents $ 36,683� $ 27,289� Fiduciary funds--restricted 114,448� 103,887� Premiums and commissions receivable, net of allowance for bad debts and cancellations of $9,743 and $7,300, respectively 284,815� 244,372� Other 21,542� 25,048� Deferred tax asset 11,694� 14,887� Current assets held for discontinued operations 3,000� 4,843� Total current assets 472,182� 420,326� � Goodwill 508,330� 405,490� � Expiration rights 400,785� 312,382� Other intangible assets 57,301� 50,800� Accumulated amortization (232,070) (197,539) Expiration rights and other intangible assets, net 226,016� 165,643� � Property and equipment, net 32,308� 28,475� Other assets 3,310� 3,840� Total Assets $ 1,242,146� $ 1,023,774� � Liabilities and Stockholders� Equity Current liabilities: Premiums payable to insurance companies $ 298,026� $ 259,286� Accrued expenses 75,621� 77,120� Current portion of long-term debt 13,346� 11,470� Other 14,039� 16,829� Total current liabilities 401,032� 364,705� � Long-term debt 367,466� 225,062� Deferred tax liability 25,782� 16,237� Other liabilities 7,239� 7,789� Other liabilities held for discontinued operations 225� -� Total Liabilities 801,744� 613,793� � Stockholders� equity: Common stock�voting�par $.01, 300,000 shares authorized; 59,226 and 58,308 shares issued, respectively 592� 583� Additional paid-in capital 676,157� 663,436� Accumulated deficit (225,464) (246,073) Less treasury stock at cost, 827 and 620 shares, respectively (10,883) (7,965) � Total Stockholders� Equity 440,402� 409,981� Total Liabilities and Stockholders� Equity $ 1,242,146� $ 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), acquisition integration efforts (expenses incurred during the integration of acquired companies) and other expenses, all of 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 Twelve Months Ended December 31, December 31, 2006� 2005� 2006� 2005� (Dollars in Thousands) � Total Revenues $ 149,403� $ 136,450� $ 551,608� $ 508,284� � Compensation and employee benefits 81,641� 76,613� 303,753� 287,807� Non-cash stock-based compensation: Restricted stock awards 959� 871� 3,527� 2,579� Stock option expense 565� -� 3,181� -� Other operating expenses 39,409� 33,542� 129,659� 115,198� Depreciation 2,772� 2,487� 10,282� 9,655� � � � � Operating Income 24,057� 22,937� 101,206� 93,045� Operating Margin 16.1% 16.8% 18.3% 18.3% � Amortization of intangible assets 9,652� 9,311� 34,536� 30,549� Interest 6,711� 4,255� 20,690� 15,036� Early extinguishment of debt -� -� 2,093� -� Margin improvement plan expenses (a) -� 1,190� -� 8,141� Acquisition integration expenses (a) 1,401� 110� 1,419� 8,573� Other expenses (a) (b) 4,381� -� 5,906� -� � � � � Income from continuing operations before income tax expense 1,912� 8,071� 36,562� 30,746� Income tax expense 1,129� 2,806� 15,953� 12,713� Income from continuing operations 783� 5,265� 20,609� 18,033� Addback: Amortization of intangible assets 9,652� 9,311� 34,536� 30,549� Income from continuing operations plus amortization of intangible assets $ 10,435� $ 14,576� $ 55,145� $ 48,582� � (a) Amounts are included in compensation and employee benefits and other operating expenses in the Consolidated Statements of Operations. (b) The Company recorded an impairment charge on the intangible assets of one of its California acquisitions of $3.2 million in the three and twelve months ended December 31. 2006. The Company recorded expenses of $1.2 million and $2.7 million in the three and twelve months ended December 31, 2006 related to the proposed acquisition of all of its common stock by GS Capital Partners. 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 $0.6 and $3.2 million related to its stock option and employee stock purchase plans for the three and twelve months ended December 31, 2006, respectively. The Company recorded an impairment charge on the intangible assets of one of its California acquisitions of $3.2 million in the three and twelve months ended December 31. 2006. The Company recorded expenses of $1.2 million and $2.7 million in the three and twelve months ended December 31, 2006 related to the proposed acquisition of all of its common stock by GS Capital Partners. The Company recorded acquisition integration expenses of $1.4 million in the three and twelve months ended December 31. 2006, primarily related to the integration of Kibble & Prentice. 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. Lastly, the Company recorded adjustments to its direct bill revenues of $1.3 million and $1.9 million for the three and twelve months ended December 31, 2006 related to a change in accounting estimate. All adjustments noted above are referred to as "Identified Adjustments." � For the Three Months Ended For the Twelve Months Ended December 31, December 31, 2006 As Reported Identified Adjustments 2006 Excluding Identified Adjustments 2006 As Reported Identified Adjustments 2006 Excluding Identified Adjustments (Dollars in Thousands) � Revenues $ 149,403� $ 1,300� $ 150,703� $ 551,608� $ 1,861� $ 553,469� � Compensation and employee benefits 81,641� -� 81,641� 303,753� -� 303,753� Non-cash stock-based compensation: Restricted stock awards 959� -� 959� 3,527� -� 3,527� Stock option expense 565� (565) -� 3,181� (3,181) -� Other operating expenses 39,409� -� 39,409� 129,659� -� 129,659� Depreciation 2,772� -� 2,772� 10,282� -� 10,282� � � � � � � Operating Income 24,057� 1,865� 25,922� 101,206� 5,042� 106,248� � Operating Margin 16.1% 17.2% 18.3% 19.2% � Amortization of intangible assets 9,652� -� 9,652� 34,536� -� 34,536� Interest 6,711� -� 6,711� 20,690� -� 20,690� Early extinguishment of debt -� -� -� 2,093� (2,093) -� Acquisition integration expenses (a) 1,401� (1,401) -� 1,419� (1,419) -� Other expenses (a) 4,381� (4,381) -� 5,906� (5,906) -� Total Expenses 147,491� (6,347) 141,144� 515,046� (12,599) 502,447� � Income from continuing operations before income tax expense 1,912� 7,647� 9,559� 36,562� 14,460� 51,022� Income tax expense 1,129� 3,443� 4,572� 15,953� 5,465� 21,418� Income from continuing operations 783� 4,204� 4,987� 20,609� 8,995� 29,604� Addback: Amortization of intangible assets 9,652� -� 9,652� 34,536� -� 34,536� Income from continuing operations plus amortization of intangible assets $ 10,435� $ 4,204� $ 14,639� $ 55,145� $ 8,995� $ 64,140� � Per Share Data - Diluted: Income From Continuing Operations $ 0.01� $ 0.07� $ 0.08� 0.36� 0.15� 0.51� Addback: Amortization of intangible assets 0.17� -� 0.17� 0.60� -� 0.60� Income from continuing operations plus amortization of intangible assets $ 0.18� $ 0.07� $ 0.25� 0.96� 0.15� 1.11� � (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 twelve months ended December 31, 2005, the Company recorded expenses of $1.2 million and $8.1 million, respectively, comprised of restructuring of sales professionals' employment agreements, employee severance and related benefits and lease termination costs. Additionally, in the three and twelve months ended December 31, 2005, the Company recorded expenses of $0.1 million and $8.6 million, primarily related to the acquisition of Summit Global Partners. In the three and twelve months ended December 31, 2005, the Company recorded an adjustment to revenues and related producer compensation payable of $3.7 million and $0.1 million and $6.7 million and $0.6 million, respectively, related to a change in accounting estimate. There were no such similar adjustments for the three and twelve months ended December 31, 2006. All adjustments noted above are referred to as "Identified Adjustments." � For the Three Months Ended For the Twelve Months Ended December 31, December 31, 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 $ 136,450� $ 3,742� $ 140,192� $ 508,284� $ 6,667� $ 514,951� � Compensation and employee benefits 76,613� 100� 76,713� 287,807� 567� 288,374� Non-cash stock-based compensation, restricted stock awards 871� -� 871� 2,579� -� 2,579� Other operating expenses 33,542� -� 33,542� 115,198� -� 115,198� Depreciation 2,487� -� 2,487� 9,655� -� 9,655� � � � � � � Operating Income � 22,937� � 3,642� � 26,579� � 93,045� � 6,100� � 99,145� � Operating Margin 16.8% 19.0% 18.3% 19.3% � Amortization of intangible assets 9,311� -� 9,311� 30,549� -� 30,549� Interest 4,255� -� 4,255� 15,036� -� 15,036� Margin improvement plan expenses (a) 1,190� (1,190) -� 8,141� (8,141) -� Acquisition Integration expenses (a) � 110� � (110) � -� � 8,573� � (8,573) � -� � Total Expenses � 128,379� � (1,200) � 127,179� � 477,538� � (16,147) � 461,391� Income from continuing operations before income tax expense 8,071� 4,942� 13,013� 30,746� 22,814� 53,560� Income tax expense � 2,806� � 1,719� � 4,525� � 12,713� � 8,963� � 21,676� Income from continuing operations 5,265� 3,223� 8,488� 18,033� 13,851� 31,884� Addback: Amortization of intangible assets � 9,311� � -� � 9,311� � 30,549� � -� � 30,549� Income from continuing operations plus amortization of intangible assets $ 14,576� $ 3,223� $ 17,799� $ 48,582� $ 13,851� $ 62,433� � Per Share Data - Diluted: Income From Continuing Operations $ 0.09� $ 0.06� $ 0.15� $ 0.32� $ 0.24� $ 0.56� Addback: Amortization of intangible assets � 0.16� � -� � 0.16� � 0.54� � -� � 0.54� Income from continuing operations plus amortization of intangible assets $ 0.25� $ 0.06� $ 0.31� $ 0.86� $ 0.24� $ 1.10� (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 � Specialized Insurance Benefits (Amounts in Thousands) Brokerage Services Corporate Total For the three months ended December 31: 2006� Revenues $ 128,836� $ 20,454� $ 113� $ 149,403� Compensation and employee benefits 71,045� 5,735� 5,017� 81,797� Other operating expenses 29,280� 11,367� 4,388� 45,035� Non-cash stock-based compensation: Restricted stock awards 754� 22� 183� 959� Stock option expense 272� 34� 259� 565� Depreciation 2,177� 275� 320� 2,772� Amortization 8,840� 812� -� 9,652� Interest expense � 322� � 96� � 6,293� � 6,711� Income(loss) from continuing operations, before income taxes � 16,146� � 2,113� � (16,347) � 1,912� Add back: Amortization 8,840� 812� -� 9,652� Interest expense 322� 96� 6,293� 6,711� Acquisition integration expense 1,401� -� -� 1,401� Other expenses � 3,234� � -� � 1,147� � 4,381� Operating income (loss) $ 29,943� $ 3,021� $ (8,907) $ 24,057� � Operating margin 23.2% 14.8% NM� 16.1% � 2005� Revenues $ 116,845� $ 19,086� $ 519� $ 136,450� Compensation and employee benefits 67,589� 5,696� 4,498� 77,783� Other operating expenses 21,753� 7,317� 4,602� 33,672� Non-cash stock-based compensation, restricted stock awards 739� 13� 119� 871� Depreciation 1,892� 232� 363� 2,487� Amortization 8,606� 705� -� 9,311� Interest expense � 280� � 86� � 3,889� � 4,255� Income(loss) from continuing operations, before income taxes � 15,986� � 5,037� � (12,952) � 8,071� Add back: Amortization 8,606� 705� -� 9,311� Interest expense 280� 86� 3,889� 4,255� Acquisition integration and margin improvement plan expenses � 1,300� � -� � -� � 1,300� Operating income (loss) $ 26,172� $ 5,828� $ (9,063) $ 22,937� � Operating margin 22.4% 30.5% NM� 16.8% USI Holdings Corporation and Subsidiaries Summary Statements of Operations by Segment � Specialized Insurance Benefits (Amounts in Thousands) Brokerage Services Corporate Total For the Twelve months ended December 31: 2006� Revenues $ 504,503� $ 46,862� $ 243� $ 551,608� Compensation and employee benefits 272,189� 19,211� 12,509� 303,909� Other operating expenses 96,444� 23,481� 16,903� 136,828� Non-cash stock-based compensation: Restricted stock awards 2,793� 72� 662� 3,527� Stock option expense 1,524� 152� 1,505� 3,181� Depreciation 7,969� 989� 1,324� 10,282� Amortization 31,368� 3,168� -� 34,536� Interest expense 934� 404� 19,352� 20,690� Early extinguishment of debt � -� � -� � 2,093� � 2,093� Income(loss) from continuing operations, before income taxes � 91,282� � (615) � (54,105) � 36,562� Add back: Amortization 31,368� 3,168� -� 34,536� Interest expense 934� 404� 19,352� 20,690� Early extinguishment of debt -� -� 2,093� 2,093� Acquisition integration expense 1,419� -� -� 1,419� Other expenses � 3,234� � -� � 2,672� � 5,906� Operating income (loss) $ 128,237� $ 2,957� $ (29,988) $ 101,206� � Operating margin 25.4% 6.3% NM� 18.3% � 2005� Revenues $ 463,501� $ 43,263� $ 1,520� $ 508,284� Compensation and employee benefits 273,244� 15,750� 15,196� 304,190� Other operating expenses 81,438� 16,667� 17,424� 115,529� Non-cash stock-based compensation, restricted stock awards 2,141� 43� 395� 2,579� Depreciation 7,584� 629� 1,442� 9,655� Amortization 27,799� 2,750� -� 30,549� Interest expense � 1,090� � 361� � 13,585� � 15,036� Income(loss) from continuing operations, before income taxes � 70,205� � 7,063� � (46,522) � 30,746� Add back: Amortization 27,799� 2,750� -� 30,549� Interest expense 1,090� 361� 13,585� 15,036� Acquisition integration and margin improvement plan expenses � 15,080� � 82� � 1,552� � 16,714� Operating income (loss) $ 114,174� $ 10,256� $ (31,385) $ 93,045� � Operating margin 24.6% 23.7% NM� 18.3% USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) � For the Three Months Ended December 31 � � � Revenues Change Adjustment for Net Acquired Businesses Organic Growth/ (Decline) Identified Adjustments Adjusted Organic Growth/ (Decline) � 2006� � 2005� Amount Percent Consolidated � (Dollars in Thousands) � Net Commissions and Fees - Property & Casualty $ 70,166� $ 62,700� $ 7,466� 11.9% $ (5,229) 3.6% $ (2,332) -0.2% Net Commissions and Fees - Benefits � 72,622� � 67,045� � 5,577� 8.3% � (10,503) -7.3% � (110) -7.5% Total Net Commissions and Fees � 142,788� � 129,745� � 13,043� 10.1% � (15,732) -2.1% � (2,442) -4.0% Contingents and Overrides 3,460� 3,159� 301� 9.5% (65) 7.5% -� 7.5% Other Income 3,155� 3,546� (391) -11.0% (58) -12.7% -� -12.7% � � � � � � � � Total Revenues $ 149,403� $ 136,450� $ 12,953� 9.5% $ (15,855) -2.1% $ (2,442) -3.9% � � Insurance Brokerage � Net Commissions and Fees - Property & Casualty $ 70,166� $ 62,700� $ 7,466� 11.9% $ (5,229) 3.6% $ (2,332) -0.2% Net Commissions and Fees - Benefits � 52,168� � 47,968� � 4,200� 8.8% � (5,460) -2.6% � 1,300� 0.1% Total Net Commissions and Fees (1) � 122,334� � 110,668� � 11,666� 10.5% � (10,689) 0.9% � (1,032) 0.0% Contingents and Overrides 3,460� 3,159� 301� 9.5% (65) 7.5% -� 7.5% Other Income 3,042� 3,018� 24� 0.8% (58) -1.1% -� -1.1% � � � � � � � � Total Revenues $ 128,836� $ 116,845� $ 11,991� 10.3% $ (10,812) 1.0% $ (1,032) 0.1% � � Specialized Benefits Services � Net Commissions and Fees - Benefits $ 20,454� $ 19,077� $ 1,377� 7.2% $ (5,043) -19.2% $ (1,410) -26.6% Contingents and Overrides -� -� -� -� -� -� -� -� Other Income 9� (9) -100.0% -� -100.0% -� -100.0% � � � � � � � � Total Revenues $ 20,454� $ 19,086� $ 1,368� 7.2% $ (5,043) -19.3% $ (1,410) -26.6% � Corporate � Other Income $ 113� $ 519� $ (406) -78.2% $ -� -78.2% $ -� -78.2% � � � � � � � � Total Revenues $ 113� $ 519� $ (406) -78.2% $ -� -78.2% $ -� -78.2% � (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: � Three months ended December 31, 2006 Insurance Brokerage, Net Commissions and Fees (a) $ 122,334� $ 110,668� $ 11,666� 10.5% $ (10,689) 0.9% $ (1,032) 0.0% California Net Commissions and Fees (b) � 14,600� � 19,017� � (4,417) -23.2% � -� -23.2% � -� -23.2% Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 107,734� $ 91,651� $ 16,083� 17.5% $ (10,689) 5.9% $ (1,032) 4.8% USI Holdings Corporation and Subsidiaries Non-GAAP Financial Measures Reconciliation of Organic Revenue Growth/(Decline) � For the Twelve Months Ended December 31 � Revenues Change � Adjustment for Net Acquired Businesses � Organic Growth/ (Decline) � Identified Adjustments � Adjusted Organic Growth/ (Decline) 2006� 2005� Amount Percent Consolidated � (Dollars in Thousands) � Net Commissions and Fees - Property & Casualty $ 273,464� $ 260,132� $ 13,332� 5.1% $ (12,633) 0.3% $ (4,816) -1.6% Net Commissions and Fees - Benefits 238,313� 212,890� 25,423� 11.9% (25,735) -0.1% 10� -0.1% Total Net Commissions and Fees 511,777� 473,022� 38,755� 8.2% (38,368) 0.1% (4,806) -0.9% Contingents and Overrides 26,134� 25,825� 309� 1.2% (1,094) -3.0% -� -3.0% Other Income 13,697� 9,437� 4,260� 45.1% (262) 42.4% -� 42.4% � � � � � � � � Total Revenues $ 551,608� $ 508,284� $ 43,324� 8.5% $ (39,724) 0.7% $ (4,806) -0.2% � � Insurance Brokerage � Net Commissions and Fees - Property & Casualty $ 273,464� $ 260,132� $ 13,332� 5.1% $ (12,633) 0.3% $ (4,816) -1.6% Net Commissions and Fees - Benefits 191,453� 169,669� 21,784� 12.8% (17,827) 2.3% 1,420� 3.2% Total Net Commissions and Fees (1) 464,917� 429,801� 35,116� 8.2% (30,460) 1.1% (3,396) 0.3% Contingents and Overrides 26,134� 25,807� 327� 1.3% (1,094) -3.0% -� -3.0% Other Income 13,452� 7,893� 5,559� 70.4% (262) 67.1% -� 67.1% � � � � � � � � Total Revenues $ 504,503� $ 463,501� $ 41,002� 8.8% $ (31,816) 2.0% $ (3,396) 1.2% � � Specialized Benefits Services � Net Commissions and Fees - Benefits $ 46,860� $ 43,221� $ 3,639� 8.4% $ (7,908) -9.9% $ (1,410) -13.1% Contingents and Overrides -� 18� (18) -� -� -� -� -� Other Income 2� 24� (22) -91.7% -� -91.7% -� -91.7% � � � � � � � � Total Revenues $ 46,862� $ 43,263� $ 3,599� 8.3% $ (7,908) -10.0% $ (1,410) -13.2% � � Corporate � Other Income $ 243� $ 1,520� $ (1,277) -84.0% $ -� -84.0% $ -� -84.0% � � � � � � � � Total Revenues $ 243� $ 1,520� $ (1,277) -84.0% $ -� -84.0% $ -� -84.0% � (1) Adjusted NCF organic growth calculation for insurance brokerage, excluding California retail brokerage operations: � Year ended December 31, 2006 Insurance Brokerage, Net Commissions and Fees (a) $ 464,917� $ 429,801� $ 35,116� 8.2% $ (30,460) 1.1% $ (3,396) 0.3% California Net Commissions and Fees (b) 66,896� 77,085� (10,189) -13.2% (1,613) -15.3% (480) -15.9% Insurance Brokerage, Net Commissions and Fees, excluding California (a) - (b) $ 398,021� $ 352,716� $ 45,305� 12.8% $ (28,847) 4.7% $ (2,916) 3.8% � � � � � � � � � �