Exhibit 99.2

 

Quarterly Financial Supplement

For the Period Ended September 30, 2012

(NYSE: NFP)

Investor Relations Contact:

Abbe F. Goldstein, CFA

(212) 301-4011

ir@nfp.com

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TABLE OF CONTENTS

 

		PAGE
Condensed Statements of Operations and Other Financial Metrics for Quarterly Periods - Consolidated			3
Corporate Overview			4
Condensed Statements of Operations and Other Financial Metrics for Quarterly Periods - Corporate Client Group			5
Condensed Statements of Operations and Other Financial Metrics for Quarterly Periods - Individual Client Group			6
Condensed Statements of Operations and Other Financial Metrics for Quarterly Periods - Advisor Services Group			7
Condensed Statements of Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Organic Revenue Growth for Quarterly Periods			8
Condensed Statements of Operations and Other Financial Metrics for Year-to-Date Periods - Consolidated			9
Condensed Statements of Operations and Other Financial Metrics for Year-to-Date Periods - Corporate Client Group			10
Condensed Statements of Operations and Other Financial Metrics for Year-to-Date Periods - Individual Client Group			11
Condensed Statements of Operations and Other Financial Metrics for Year-to-Date Periods - Advisor Services Group			12
Condensed Statements of Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Organic Revenue Growth for Year-to-Date Periods			13
Historical Condensed Consolidated Statements of Operations and Other Financial Metrics			14
Historical Condensed Statements of Operations and Other Financial Metrics - Corporate Client Group			15
Historical Condensed Statements of Operations and Other Financial Metrics - Individual Client Group			16
Historical Condensed Statements of Operations and Other Financial Metrics - Advisor Services Group			17
Consolidated Statements of Financial Condition (Balance Sheet)			18
Consolidated Statements of Cash Flows for Quarterly and Year-to-Date Periods			19
Defined Terms			21

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 statements of operations; the after-tax impact of management contract buyouts and the after-tax impact of certain non-recurring items. Cash earnings per diluted share is calculated by dividing cash earnings by the number of weighted average diluted shares outstanding for the period indicated. Cash earnings and cash earnings per diluted share should not be viewed as substitutes for net income and net income per diluted share, respectively. Adjusted EBITDA is defined as net income excluding income tax expense; interest income; interest expense; gain on early extinguishment of debt; other, net; amortization of intangibles; depreciation; impairment of goodwill and intangible assets; (gain) loss on sale of businesses, net; the accelerated vesting of certain RSUs; any change in estimated acquisition earn-out payables recorded in accordance with purchase accounting that have been subsequently adjusted and recorded in the consolidated statements of operations and the expense related to management contract buyouts. Adjusted EBITDA should not be viewed as a substitute for net income. A reconciliation of these non-GAAP financial measures to their GAAP counterparts is provided in 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 implement its business initiatives, including increasing recurring revenue and executing management contract buyouts; (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 or charges that NFP may take with respect to dispositions, restructures, the collectability of amounts owed to it, impairments 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 and their managers and key producers and the ability of the Company to retain its broker-dealers’ financial advisors and recruit new financial advisors; (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 legal or 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, 2011, filed with the SEC on February 13, 2012.

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.

 

2

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CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS - CONSOLIDATED

(Unaudited – in thousands)

 

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	252,036			$	255,436			$	254,131			$	289,162			$	251,531			$	239,435			$	233,264			$	284,276
Operating expenses:
Commissions and fees			76,169				78,973				82,150				93,896				80,297				76,888				79,098				91,336
Compensation expense - employees			72,667				73,101				70,948				70,409				66,601				63,629				66,889				65,110
Fees to principals			30,055				30,646				29,207				46,202				33,201				31,889				24,619				52,308
Total compensation expense			102,722				103,747				100,155				116,611				99,802				95,518				91,508				117,418
Non-compensation expense			40,715				39,745				39,702				38,525				39,252				36,955				38,625				39,391
Amortization of intangibles			8,480				8,214				8,275				8,271				8,348				7,897				7,962				8,211
Depreciation			2,973				3,113				3,146				3,313				3,126				3,037				3,077				3,095
Impairment of goodwill and intangible assets			18,407				9,559				3,228				8,319				2,466				920				—				—
(Gain) loss on sale of businesses, net			(439	)			(4,047	)			(351	)			(1,291	)			40				13				—				(274	)
Change in estimated acquisition earn-out payables			1,085				2,437				4,466				(467	)			53				—				—				—
Management contract buyout			—				4,182				3,355				—				—				—				—				—
Total operating expenses			250,112				245,923				244,126				267,177				233,384				221,228				220,270				259,177
Income (loss) from operations			1,924				9,513				10,005				21,985				18,147				18,207				12,994				25,099
Non-operating income and expenses
Interest income			617				640				629				733				700				926				974				1,209
Interest expense			(4,173	)			(4,146	)			(4,121	)			(3,982	)			(4,006	)			(3,974	)			(3,771	)			(4,084	)
Gain on early extinguishment of debt			—				—				—				—				—				—				—				—
Other, net			1,229				1,072				880				568				1,303				1,328				3,187				2,787
Non-operating income and expenses, net			(2,327	)			(2,434	)			(2,612	)			(2,681	)			(2,003	)			(1,720	)			390				(88	)
(Loss) income before income taxes			(403	)			7,079				7,393				19,304				16,144				16,487				13,384				25,011
Income tax (benefit) expense			(454	)			2,213				1,775				8,059				6,823				6,997				6,508				9,742
Net income (loss)		$	51			$	4,866			$	5,618			$	11,245			$	9,321			$	9,490			$	6,876			$	15,269
Cash Earnings Reconciliation
GAAP net income (loss)		$	51			$	4,866			$	5,618			$	11,245			$	9,321			$	9,490			$	6,876			$	15,269
Amortization of intangibles			8,480				8,214				8,275				8,271				8,348				7,897				7,962				8,211
Depreciation			2,973				3,113				3,146				3,313				3,126				3,037				3,077				3,095
Impairment of goodwill and intangible assets			18,407				9,559				3,228				8,319				2,466				920				—				—
Tax benefit of impairment of goodwill and intangible assets			(5,296	)			(3,632	)			(1,227	)			(3,390	)			(975	)			(364	)			—				(15	)
Non-cash interest, net of tax			755				724				717				670				664				637				631				802
Accelerated vesting of certain RSUs, net of tax			—				—				—				—				—				—				—				—
Gain on early extinguishment of debt, net of tax			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables, net of tax			708				1,692				2,544				(731	)			32				—				—				—
Management contract buyout, net of tax			—				2,593				2,080				—				—				—				—				—
Cash earnings		$	26,078			$	27,129			$	24,381			$	27,697			$	22,982			$	21,617			$	18,546			$	27,362
Adjusted EBITDA Reconciliation
GAAP net income (loss)		$	51			$	4,866			$	5,618			$	11,245			$	9,321			$	9,490			$	6,876			$	15,269
Income tax (benefit) expense			(454	)			2,213				1,775				8,059				6,823				6,997				6,508				9,742
Interest income			(617	)			(640	)			(629	)			(733	)			(700	)			(926	)			(974	)			(1,209	)
Interest expense			4,173				4,146				4,121				3,982				4,006				3,974				3,771				4,084
Gain on early extinguishment of debt			—				—				—				—				—				—				—				—
Other, net			(1,229	)			(1,072	)			(880	)			(568	)			(1,303	)			(1,328	)			(3,187	)			(2,787	)
Income (loss) from operations			1,924				9,513				10,005				21,985				18,147				18,207				12,994				25,099
Amortization of intangibles			8,480				8,214				8,275				8,271				8,348				7,897				7,962				8,211
Depreciation			2,973				3,113				3,146				3,313				3,126				3,037				3,077				3,095
Impairment of goodwill and intangible assets			18,407				9,559				3,228				8,319				2,466				920				—				—
(Gain) loss on sale of businesses, net			(439	)			(4,047	)			(351	)			(1,291	)			40				13				—				(274	)
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			1,085				2,437				4,466				(467	)			53				—				—				—
Management contract buyout			—				4,182				3,355				—				—				—				—				—
Adjusted EBITDA		$	32,430			$	32,971			$	32,124			$	40,130			$	32,180			$	30,074			$	24,033			$	36,131
Adjusted EBITDA as a % of revenue			12.9	%			12.9	%			12.6	%			13.9	%			12.8	%			12.6	%			10.3	%			12.7	%
Compensation Ratios
Total compensation expense ratio     (Total compensation expense/Revenue)			40.8	%			40.6	%			39.4	%			40.3	%			39.7	%			39.9	%			39.2	%			41.3	%

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	237,478			$	234,890			$	225,273			$	277,181			$	229,925			$	224,198			$	216,981
Operating expenses:
Commissions and fees			70,731				73,421				68,306				76,013				63,059				62,474				62,401
Compensation expense - employees			62,081				63,722				65,268				68,879				64,649				66,164				68,643
Fees to principals			53,466				32,534				23,650				58,865				34,855				29,954				22,507
Total compensation expense			115,547				96,256				88,918				127,744				99,504				96,118				91,150
Non-compensation expense			37,784				38,914				40,449				46,528				36,507				37,307				39,181
Amortization of intangibles			8,258				8,206				8,338				8,806				8,975				9,176				9,594
Depreciation			3,017				3,005				3,006				8,857				3,361				3,485				3,539
Impairment of goodwill and intangible assets			—				—				2,901				6,231				2,002				2,895				607,337
(Gain) loss on sale of businesses, net			(100	)			(7,690	)			(2,231	)			(244	)			(1,190	)			(1,279	)			617
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			235,237				212,112				209,687				273,935				212,218				210,176				813,819
Income (loss) from operations			2,241				22,778				15,586				3,246				17,707				14,022				(596,838	)
Non-operating income and expenses
Interest income			869				888				888				828				703				822				724
Interest expense			(4,990	)			(4,880	)			(4,579	)			(4,849	)			(5,001	)			(5,386	)			(5,331	)
Gain on early extinguishment of debt			9,711				—				—				—				—				—				—
Other, net			2,845				2,013				658				472				3,387				6,608				1,116
Non-operating income and expenses, net			8,435				(1,979	)			(3,033	)			(3,549	)			(911	)			2,044				(3,491	)
(Loss) income before income taxes			10,676				20,799				12,553				(303	)			16,796				16,066				(600,329	)
Income tax (benefit) expense			2,446				8,730				5,563				(2,154	)			6,256				6,044				(84,530	)
Net income (loss)		$	8,230			$	12,069			$	6,990			$	1,851			$	10,540			$	10,022			$	(515,799	)
Cash Earnings Reconciliation
GAAP net income (loss)		$	8,230			$	12,069			$	6,990			$	1,851			$	10,540			$	10,022			$	(515,799	)
Amortization of intangibles			8,258				8,206				8,338				8,806				8,975				9,176				9,594
Depreciation			3,017				3,005				3,006				8,857				3,361				3,485				3,539
Impairment of goodwill and intangible assets			—				—				2,901				6,231				2,002				2,895				607,337
Tax benefit of impairment of goodwill and intangible assets			(102	)			88				(1,118	)			(1,133	)			(427	)			(902	)			(88,146	)
Non-cash interest, net of tax			588				1,838				1,866				1,559				1,966				1,732				1,557
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			—				—				—				—				—				—				—
Management contract buyout, net of tax			—				—				—				—				—				—				—
Cash earnings		$	22,251			$	25,206			$	21,983			$	26,171			$	26,417			$	26,408			$	18,082
Adjusted EBITDA Reconciliation
GAAP net income (loss)		$	8,230			$	12,069			$	6,990			$	1,851			$	10,540			$	10,022			$	(515,799	)
Income tax (benefit) expense			2,446				8,730				5,563				(2,154	)			6,256				6,044				(84,530	)
Interest income			(869	)			(888	)			(888	)			(828	)			(703	)			(822	)			(724	)
Interest expense			4,990				4,880				4,579				4,849				5,001				5,386				5,331
Gain on early extinguishment of debt			(9,711	)			—				—				—				—				—				—
Other, net			(2,845	)			(2,013	)			(658	)			(472	)			(3,387	)			(6,608	)			(1,116	)
Income (loss) from operations			2,241				22,778				15,586				3,246				17,707				14,022				(596,838	)
Amortization of intangibles			8,258				8,206				8,338				8,806				8,975				9,176				9,594
Depreciation			3,017				3,005				3,006				8,857				3,361				3,485				3,539
Impairment of goodwill and intangible assets			—				—				2,901				6,231				2,002				2,895				607,337
(Gain) loss on sale of businesses, net			(100	)			(7,690	)			(2,231	)			(244	)			(1,190	)			(1,279	)			617
Accelerated vesting of certain RSUs			13,395				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	26,811			$	26,299			$	27,600			$	26,896			$	30,855			$	28,299			$	24,249
Adjusted EBITDA as a % of revenue			11.3	%			11.2	%			12.3	%			9.7	%			13.4	%			12.6	%			11.2	%
Compensation Ratios
Total compensation expense ratio     (Total compensation expense/Revenue)			48.7	%			41.0	%			39.5	%			46.1	%			43.3	%			42.9	%			42.0	%

 

3

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CORPORATE OVERVIEW

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

 

		At or for the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,				September 30,
		2012				2012				2012				2011				2011				2011				2011				2010				2010
GAAP net income (loss)		$	51			$	4,866			$	5,618			$	11,245			$	9,321			$	9,490			$	6,876			$	15,269			$	8,230
Amortization of intangibles			8,480				8,214				8,275				8,271				8,348				7,897				7,962				8,211				8,258
Depreciation			2,973				3,113				3,146				3,313				3,126				3,037				3,077				3,095				3,017
Impairment of goodwill and intangible assets			18,407				9,559				3,228				8,319				2,466				920				—				—				—
Tax benefit of impairment of goodwill and intangible assets			(5,296	)			(3,632	)			(1,227	)			(3,390	)			(975	)			(364	)			—				(15	)			(102	)
Non-cash interest, net of tax			755				724				717				670				664				637				631				802				588
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			708				1,692				2,544				(731	)			32				—				—				—				—
Management contract buyout, net of tax			—				2,593				2,080				—				—				—				—				—				—
Cash earnings		$	26,078			$	27,129			$	24,381			$	27,697			$	22,982			$	21,617			$	18,546			$	27,362			$	22,251
GAAP net income (loss) per share - diluted		$	0.00			$	0.12			$	0.13			$	0.27			$	0.21			$	0.21			$	0.15			$	0.34			$	0.19
Amortization of intangibles			0.20				0.20				0.19				0.20				0.19				0.17				0.18				0.18				0.19
Depreciation			0.07				0.08				0.07				0.08				0.07				0.07				0.07				0.07				0.07
Impairment of goodwill and intangible assets			0.44				0.23				0.08				0.20				0.06				0.02				—				—				—
Tax benefit of impairment of goodwill and intangible assets			(0.13	)			(0.09	)			(0.03	)			(0.08	)			(0.02	)			(0.01	)			-				-				-
Non-cash interest, net of tax			0.02				0.02				0.02				0.02				0.02				0.01				0.01				0.02				0.01
Accelerated vesting of certain RSUs, net of tax			—				—				—				—				—				—				—				—				0.18
Gain on early extinguishment of debt, net of tax			—				—				—				—				—				—				—				—				(0.13	)
Change in estimated acquisition earn-out payables, net of tax			0.02				0.04				0.06				(0.02	)			—				—				—				—				—
Management contract buyout, net of tax			—				0.06				0.05				—				—				—				—				—				—
Impact of diluted shares on cash earnings not reflected in GAAP net loss per share - diluted (1)			—				—				—				—				—				—				—				—				—
Cash earnings per share - diluted (2)		$	0.62			$	0.66			$	0.57			$	0.65			$	0.53			$	0.48			$	0.41			$	0.60			$	0.50
Shares outstanding, beginning of period			40,142				40,585				40,749				41,704				43,357				43,976				43,502				43,574				42,619
Common shares issued for acquisitions during period			—				—				—				—				—				—				—				—				—
Common shares issued for contingent consideration and escrow during period			—				—				—				—				—				—				—				—				113
Common shares issued for stock-based awards during period			40				27				389				120				50				92				477				74				906
Common shares repurchased during period			(269	)			(470	)			(553	)			(1,075	)			(1,703	)			(733	)			(3	)			(172	)			(89	)
Common shares issued under ongoing incentive program			—				—				—				—				—				—				—				—				—
Other			—				—				—				—				—				22				—				26				25
Shares outstanding, end of period			39,913				40,142				40,585				40,749				41,704				43,357				43,976				43,502				43,574
Weighted average common shares outstanding			40,043				40,466				40,518				41,289				42,480				43,925				43,769				43,654				42,823
Dilutive effect of contingent consideration and ongoing incentive payments			—				—				—				140				—				—				16				16				16
Dilutive effect of stock-based awards			320				234				561				897				991				954				1,002				1,386				1,470
Dilutive effect of escrow, stock subscriptions and other			5				4				5				7				5				6				3				3				7
Dilutive effect of senior convertible notes			1,364				596				1,515				67				—				396				520				215				—
Weighted average common shares outstanding - diluted (1)			41,732				41,300				42,599				42,400				43,476				45,281				45,310				45,274				44,316
Debt to total capitalization			34.2	%			34.3	%			34.5	%			32.8	%			32.9	%			32.6	%			33.0	%			33.6	%			34.7	%

 

		At or for the Three Months Ended																								For the Years Ended
		June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,				December 31,				December 31,				December 31,
		2010				2010				2009				2009				2009				2009				2011				2010				2009				2008
GAAP net income (loss)		$	12,069			$	6,990			$	1,851			$	10,540			$	10,022			$	(515,799	)		$	36,932			$	42,558			$	(493,386	)		$	8,471
Amortization of intangibles			8,206				8,338				8,806				8,975				9,176				9,594				32,478				33,013				36,551				39,194
Depreciation			3,005				3,006				8,857				3,361				3,485				3,539				12,553				12,123				19,242				13,371
Impairment of goodwill and intangible assets			—				2,901				6,231				2,002				2,895				607,337				11,705				2,901				618,465				41,257
Tax benefit of impairment of goodwill and intangible assets			88				(1,118	)			(1,133	)			(427	)			(902	)			(88,146	)			(4,729	)			(1,147	)			(90,608	)			(8,137	)
Non-cash interest, net of tax			1,838				1,866				1,559				1,966				1,732				1,557				2,602				5,094				6,814				6,364
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			—				—				—				—				—				—				(699	)			—				—				—
Management contract buyout, net of tax			—				—				—				—				—				—				—				—				—				—
Cash earnings		$	25,206			$	21,983			$	26,171			$	26,417			$	26,408			$	18,082			$	90,842			$	96,802			$	97,078			$	100,520
GAAP net income (loss) per share - diluted		$	0.27			$	0.16			$	0.04			$	0.24			$	0.23			$	(12.59	)		$	0.84			$	0.96			$	(12.02	)		$	0.21
Amortization of intangibles			0.19				0.19				0.20				0.21				0.21				0.23				0.74				0.75				0.87				0.96
Depreciation			0.07				0.07				0.21				0.08				0.08				0.09				0.29				0.27				0.46				0.33
Impairment of goodwill and intangible assets			—				0.07				0.14				0.05				0.07				14.73				0.27				0.07				14.78				1.01
Tax benefit of impairment of goodwill and intangible assets			-				(0.03	)			(0.03	)			(0.01	)			(0.02	)			(2.14	)			(0.11	)			(0.03	)			(2.16	)			(0.20	)
Non-cash interest, net of tax			0.04				0.04				0.04				0.05				0.04				0.04				0.06				0.12				0.16				0.16
Accelerated vesting of certain RSUs, net of tax			—				—				—				—				—				—				—				0.19				—				—
Gain on early extinguishment of debt, net of tax			—				—				—				—				—				—				—				(0.13	)			—				—
Change in estimated acquisition earn-out payables, net of tax			—				—				—				—				—				—				(0.02	)			—				—				—
Management contract buyout, net of tax			—				—				—				—				—				—				—				—				—				—
Impact of diluted shares on cash earnings not reflected in GAAP net loss per share - diluted (1)			—				—				—				—				—				0.08				—				—				0.23				—
Cash earnings per share - diluted (2)		$	0.57			$	0.50			$	0.61			$	0.61			$	0.62			$	0.44			$	2.07			$	2.19			$	2.32			$	2.46
Shares outstanding, beginning of period			41,926				41,363				41,201				41,104				40,026				39,753				43,502				41,363				39,753				38,935
Common shares issued for acquisitions during period			—				—				—				—				—				—				—				—				—				669
Common shares issued for contingent consideration and escrow during period			535				—				106				—				978				—				—				648				1,084				89
Common shares issued for stock-based awards during period			214				627				42				12				31				181				739				1,821				266				451
Common shares repurchased during period			(89	)			(95	)			(23	)			(21	)			(42	)			-				(3,514	)			(445	)			(91	)			(1,040	)
Common shares issued under ongoing incentive program			—				—				—				—				—				—				—				—				—				290
Other			33				31				37				106				111				92				22				115				351				359
Shares outstanding, end of period			42,619				41,926				41,363				41,201				41,104				40,026				40,749				43,502				41,363				39,753
Weighted average common shares outstanding			42,499				41,599				41,363				41,211				41,139				39,945				42,867				42,634				40,908				39,542
Dilutive effect of contingent consideration and ongoing incentive payments			128				648				593				393				390				1,009				140				16				593				176
Dilutive effect of stock-based awards			1,717				1,443				1,147				1,503				1,246				275				826				1,484				343				1,122
Dilutive effect of escrow, stock subscriptions and other			9				12				6				7				58				9				7				2				(2	)			93
Dilutive effect of senior convertible notes			—				—				—				—				—				—				23				—				—				—
Weighted average common shares outstanding - diluted (1)			44,353				43,702				43,109				43,114				42,833				41,238				43,863				44,136				41,842				40,933
Debt to total capitalization			43.4	%			41.0	%			41.8	%			45.2	%			49.4	%			52.8	%			32.8	%			33.6	%			41.8	%			29.3	%

 

(1)

For 2009, 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.

 

4

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

(Unaudited - in thousands)

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011				June 30, 2011				March 31, 2011				December 31, 2010
Revenue:
Commissions and fees		$	115,138			$	112,578			$	112,089			$	116,559			$	105,768			$	94,315			$	95,550			$	108,483
Operating expenses:
Commissions and fees			13,681				13,603				13,334				14,793				11,728				8,667				10,995				11,067
Compensation expense - employees			41,076				40,956				38,733				37,580				36,007				33,625				33,915				32,758
Fees to principals			16,601				16,170				16,026				22,731				19,276				17,347				14,513				26,009
Total compensation expense			57,677				57,126				54,759				60,311				55,283				50,972				48,428				58,767
Non-compensation expense			21,569				19,798				19,465				19,795				18,564				17,962				18,136				18,390
Amortization of intangibles			6,097				5,878				5,909				5,651				5,622				5,129				5,151				5,395
Depreciation			1,324				1,408				1,427				1,505				1,363				1,615				1,624				1,624
Impairment of goodwill and intangible assets			(1	)			3,254				2,680				1,246				—				—				—				—
Loss (gain) on sale of businesses, net			—				—				46				(56	)			—				(47	)			—				229
Change in estimated acquisition earn-out payables			1,035				2,437				4,466				(467	)			53				—				—				—
Management contract buyout			—				4,182				3,355				—				—				—				—				—
Total operating expenses			101,382				107,686				105,441				102,778				92,613				84,298				84,334				95,472
Income (loss) from operations		$	13,756			$	4,892			$	6,648			$	13,781			$	13,155			$	10,017			$	11,216			$	13,011
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	13,756			$	4,892			$	6,648			$	13,781			$	13,155			$	10,017			$	11,216			$	13,011
Amortization of intangibles			6,097				5,878				5,909				5,651				5,622				5,129				5,151				5,395
Depreciation			1,324				1,408				1,427				1,505				1,363				1,615				1,624				1,624
Impairment of goodwill and intangible assets			(1	)			3,254				2,680				1,246				—				—				—				—
Loss (gain) on sale of businesses, net			—				—				46				(56	)			—				(47	)			—				229
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			1,035				2,437				4,466				(467	)			53				—				—				—
Management contract buyout			—				4,182				3,355				—				—				—				—				—
Adjusted EBITDA		$	22,211			$	22,051			$	24,531			$	21,660			$	20,193			$	16,714			$	17,991			$	20,259
Adjusted EBITDA as a % of revenue			19.3	%			19.6	%			21.9	%			18.6	%			19.1	%			17.7	%			18.8	%			18.7	%
Compensation Ratios
Total compensation expense ratio (Total compensation expense/Revenue)			50.1	%			50.7	%			48.9	%			51.7	%			52.3	%			54.0	%			50.7	%			54.2	%

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30, 2010				June 30, 2010				March 31, 2010				December 31, 2009				September 30, 2009				June 30, 2009				March 31, 2009
Revenue:
Commissions and fees		$	94,609			$	89,516			$	95,247			$	106,971			$	90,665			$	89,832			$	92,512
Operating expenses:
Commissions and fees			9,660				8,299				7,963				8,588				8,825				8,142				8,842
Compensation expense - employees			32,141				32,296				33,096				34,402				31,821				32,288				33,954
Fees to principals			24,600				15,045				15,126				24,392				17,524				16,019				12,572
Total compensation expense			56,741				47,341				48,222				58,794				49,345				48,307				46,526
Non-compensation expense			18,362				18,832				19,596				21,804				17,234				18,416				18,369
Amortization of intangibles			5,402				5,253				5,348				5,615				5,678				5,760				5,906
Depreciation			1,599				1,516				1,559				4,126				1,657				1,688				1,806
Impairment of goodwill and intangible assets			—				—				1,931				—				—				110				354,298
Loss (gain) on sale of businesses, net			(125	)			(6,841	)			(1,321	)			(123	)			(206	)			(244	)			580
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			91,639				74,400				83,298				98,804				82,533				82,179				436,327
Income (loss) from operations		$	2,970			$	15,116			$	11,949			$	8,167			$	8,132			$	7,653			$	(343,815	)
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	2,970			$	15,116			$	11,949			$	8,167			$	8,132			$	7,653			$	(343,815	)
Amortization of intangibles			5,402				5,253				5,348				5,615				5,678				5,760				5,906
Depreciation			1,599				1,516				1,559				4,126				1,657				1,688				1,806
Impairment of goodwill and intangible assets			—				—				1,931				—				—				110				354,298
Loss (gain) on sale of businesses, net			(125	)			(6,841	)			(1,321	)			(123	)			(206	)			(244	)			580
Accelerated vesting of certain RSUs			7,394				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	17,240			$	15,044			$	19,466			$	17,785			$	15,261			$	14,967			$	18,775
Adjusted EBITDA as a % of revenue			18.2	%			16.8	%			20.4	%			16.6	%			16.8	%			16.7	%			20.3	%
Compensation Ratios
Total compensation expense ratio (Total compensation expense/Revenue)			60.0	%			52.9	%			50.6	%			55.0	%			54.4	%			53.8	%			50.3	%

 

5

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

(Unaudited - in thousands)

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	78,165			$	80,867			$	80,593			$	106,999			$	84,781			$	81,903			$	77,753			$	116,870
Operating expenses:
Commissions and fees			15,912				15,384				18,577				24,852				18,523				15,887				18,390				32,117
Compensation expense - employees			27,240				27,958				28,113				28,529				26,634				26,144				28,960				28,573
Fees to principals			13,454				14,476				13,181				23,471				13,925				14,542				10,106				26,299
Total compensation expense			40,694				42,434				41,294				52,000				40,559				40,686				39,066				54,872
Non-compensation expense			14,117				15,111				16,011				14,306				16,446				15,014				17,016				17,266
Amortization of intangibles			2,167				2,336				2,366				2,620				2,726				2,768				2,811				2,816
Depreciation			988				1,007				1,012				1,067				927				1,126				1,155				1,113
Impairment of goodwill and intangible assets			18,408				6,305				548				7,073				2,466				920				—				—
(Gain) loss on sale of businesses, net			(439	)			(4,047	)			(397	)			(1,235	)			40				60				—				(503	)
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Total operating expenses			91,847				78,530				79,411				100,683				81,687				76,461				78,438				107,681
(Loss) income from operations		$	(13,682	)		$	2,337			$	1,182			$	6,316			$	3,094			$	5,442			$	(685	)		$	9,189
Adjusted EBITDA Reconciliation
(Loss) income from operations		$	(13,682	)		$	2,337			$	1,182			$	6,316			$	3,094			$	5,442			$	(685	)		$	9,189
Amortization of intangibles			2,167				2,336				2,366				2,620				2,726				2,768				2,811				2,816
Depreciation			988				1,007				1,012				1,067				927				1,126				1,155				1,113
Impairment of goodwill and intangible assets			18,408				6,305				548				7,073				2,466				920				—				—
(Gain) loss on sale of businesses, net			(439	)			(4,047	)			(397	)			(1,235	)			40				60				—				(503	)
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Adjusted EBITDA		$	7,442			$	7,938			$	4,711			$	15,841			$	9,253			$	10,316			$	3,281			$	12,615
Adjusted EBITDA as a % of revenue			9.5	%			9.8	%			5.8	%			14.8	%			10.9	%			12.6	%			4.2	%			10.8	%
Compensation Ratios
Total compensation expense ratio (Total compensation expense/Revenue)			52.1	%			52.5	%			51.2	%			48.6	%			47.8	%			49.7	%			50.2	%			47.0	%

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	91,906			$	91,377			$	78,694			$	122,383			$	97,428			$	92,432			$	85,071
Operating expenses:
Commissions and fees			18,757				20,246				18,372				26,609				18,851				19,436				19,439
Compensation expense - employees			25,914				27,814				28,242				30,825				28,994				29,673				30,337
Fees to principals			28,866				17,489				8,524				34,473				17,331				13,935				9,935
Total compensation expense			54,780				45,303				36,766				65,298				46,325				43,608				40,272
Non-compensation expense			16,048				16,857				17,455				22,656				17,928				17,540				19,045
Amortization of intangibles			2,856				2,953				2,990				3,191				3,297				3,416				3,688
Depreciation			1,065				1,155				1,125				4,413				1,441				1,561				1,470
Impairment of goodwill and intangible assets			—				—				970				6,231				2,002				2,785				253,039
(Gain) loss on sale of businesses, net			25				(849	)			(910	)			(121	)			(984	)			(1,035	)			37
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			93,531				85,665				76,768				128,277				88,860				87,311				336,990
(Loss) income from operations		$	(1,625	)		$	5,712			$	1,926			$	(5,894	)		$	8,568			$	5,121			$	(251,919	)
Adjusted EBITDA Reconciliation
(Loss) income from operations		$	(1,625	)		$	5,712			$	1,926			$	(5,894	)		$	8,568			$	5,121			$	(251,919	)
Amortization of intangibles			2,856				2,953				2,990				3,191				3,297				3,416				3,688
Depreciation			1,065				1,155				1,125				4,413				1,441				1,561				1,470
Impairment of goodwill and intangible assets			—				—				970				6,231				2,002				2,785				253,039
(Gain) loss on sale of businesses, net			25				(849	)			(910	)			(121	)			(984	)			(1,035	)			37
Accelerated vesting of certain RSUs			6,001				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	8,322			$	8,971			$	6,101			$	7,820			$	14,324			$	11,848			$	6,315
Adjusted EBITDA as a % of revenue			9.1	%			9.8	%			7.8	%			6.4	%			14.7	%			12.8	%			7.4	%
Compensation Ratios
Total compensation expense ratio (Total compensation expense/Revenue)			59.6	%			49.6	%			46.7	%			53.4	%			47.5	%			47.2	%			47.3	%

 

6

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

(Unaudited - in thousands)

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	58,733			$	61,991			$	61,449			$	65,604			$	60,982			$	63,217			$	59,961			$	58,923
Operating expenses:
Commissions and fees			46,576				49,986				50,239				54,251				50,046				52,334				49,713				48,152
Compensation expense - employees			4,351				4,187				4,102				4,300				3,960				3,860				4,014				3,779
Fees to principals			—				—				—				—				—				—				—				—
Total compensation expense			4,351				4,187				4,102				4,300				3,960				3,860				4,014				3,779
Non-compensation expense			5,029				4,836				4,226				4,424				4,242				3,979				3,473				3,735
Amortization of intangibles			216				—				—				—				—				—				—				—
Depreciation			661				698				707				741				836				296				298				358
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			50				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Total operating expenses			56,883				59,707				59,274				63,716				59,084				60,469				57,498				56,024
Income (loss) from operations		$	1,850			$	2,284			$	2,175			$	1,888			$	1,898			$	2,748			$	2,463			$	2,899
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	1,850			$	2,284			$	2,175			$	1,888			$	1,898			$	2,748			$	2,463			$	2,899
Amortization of intangibles			216				—				—				—				—				—				—				—
Depreciation			661				698				707				741				836				296				298				358
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—				—
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			50				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Adjusted EBITDA		$	2,777			$	2,982			$	2,882			$	2,629			$	2,734			$	3,044			$	2,761			$	3,257
Adjusted EBITDA as a % of revenue			4.7	%			4.8	%			4.7	%			4.0	%			4.5	%			4.8	%			4.6	%			5.5	%
Ratios
Commission expense ratio			79.3	%			80.6	%			81.8	%			82.7	%			82.1	%			82.8	%			82.9	%			81.7	%
(Operating expenses: Commissions and fees/Revenue)
Total compensation expense ratio			7.4	%			6.8	%			6.7	%			6.6	%			6.5	%			6.1	%			6.7	%			6.4	%
(Total compensation expense/Revenue)

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	50,963			$	53,997			$	51,332			$	47,827			$	41,832			$	41,934			$	39,398
Operating expenses:
Commissions and fees			42,314				44,876				41,971				40,816				35,383				34,896				34,120
Compensation expense - employees			4,026				3,612				3,930				3,652				3,834				4,203				4,352
Fees to principals			—				—				—				—				—				—				—
Total compensation expense			4,026				3,612				3,930				3,652				3,834				4,203				4,352
Non-compensation expense			3,374				3,225				3,398				2,068				1,345				1,351				1,767
Amortization of intangibles			—				—				—				—				—				—				—
Depreciation			353				334				322				318				263				236				263
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			50,067				52,047				49,621				46,854				40,825				40,686				40,502
Income (loss) from operations		$	896			$	1,950			$	1,711			$	973			$	1,007			$	1,248			$	(1,104	)
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	896			$	1,950			$	1,711			$	973			$	1,007			$	1,248			$	(1,104	)
Amortization of intangibles			—				—				—				—				—				—				—
Depreciation			353				334				322				318				263				236				263
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	1,249			$	2,284			$	2,033			$	1,291			$	1,270			$	1,484			$	(841	)
Adjusted EBITDA as a % of revenue			2.5	%			4.2	%			4.0	%			2.7	%			3.0	%			3.5	%			-2.1	%
Ratios
Commission expense ratio			83.0	%			83.1	%			81.8	%			85.3	%			84.6	%			83.2	%			86.6	%
(Operating expenses: Commissions and fees/Revenue)
Total compensation expense ratio			7.9	%			6.7	%			7.7	%			7.6	%			9.2	%			10.0	%			11.0	%
(Total compensation expense/Revenue)

 

7

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CONDENSED STATEMENTS OF REVENUE, ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN AND ORGANIC REVENUE GROWTH

(Unaudited - dollars in thousands)

 

		For the Three Months Ended
		September 30, 2012								June 30, 2012								March 31, 2012								December 31, 2011								September 30, 2011								June 30, 2011								March 31, 2011								December 31, 2010
Revenue
Corporate Client Group		$	115,138				45.7	%		$	112,578				44.1	%		$	112,089				44.1	%		$	116,559				40.3	%		$	105,768				42.0	%		$	94,315				39.4	%		$	95,550				41.0	%		$	108,483
Individual Client Group			78,165				30.9	%			80,867				31.6	%			80,593				31.7	%			106,999				37.0	%			84,781				33.7	%			81,903				34.2	%			77,753				33.3	%			116,870
Advisor Services Group			58,733				23.3	%			61,991				24.3	%			61,449				24.2	%			65,604				22.7	%			60,982				24.3	%			63,217				26.4	%			59,961				25.7	%			58,923
Consolidated		$	252,036				100.0	%		$	255,436				100.0	%		$	254,131				100.0	%		$	289,162				100.0	%		$	251,531				100.0	%		$	239,435				100.0	%		$	233,264				100.0	%		$	284,276
Adjusted EBITDA (1)
Corporate Client Group		$	22,211				68.5	%		$	22,051				66.9	%		$	24,531				76.3	%		$	21,660				53.9	%		$	20,193				62.7	%		$	16,714				55.6	%		$	17,991				74.9	%		$	20,259
Individual Client Group			7,442				22.9	%			7,938				24.1	%			4,711				14.7	%			15,841				39.5	%			9,253				28.8	%			10,316				34.3	%			3,281				13.7	%			12,615
Advisor Services Group			2,777				8.6	%			2,982				9.0	%			2,882				9.0	%			2,629				6.6	%			2,734				8.5	%			3,044				10.1	%			2,761				11.4	%			3,257
Consolidated		$	32,430				100.0	%		$	32,971				100.0	%		$	32,124				100.0	%		$	40,130				100.0	%		$	32,180				100.0	%		$	30,074				100.0	%		$	24,033				100.0	%		$	36,131
Adjusted EBITDA Margin
Corporate Client Group			19.3	%							19.6	%							21.9	%							18.6	%							19.1	%							17.7	%							18.8	%							18.7	%
Individual Client Group			9.5	%							9.8	%							5.8	%							14.8	%							10.9	%							12.6	%							4.2	%							10.8	%
Advisor Services Group			4.7	%							4.8	%							4.7	%							4.0	%							4.5	%							4.8	%							4.6	%							5.5	%
Consolidated			12.9	%							12.9	%							12.6	%							13.9	%							12.8	%							12.6	%							10.3	%							12.7	%

 

		For the Three Months Ended
						September 30, 2010								June 30, 2010								March 31, 2010								December 31, 2009								September 30, 2009								June 30, 2009								March 31, 2009
Revenue
Corporate Client Group			38.2	%		$	94,609				39.8	%		$	89,516				38.1	%		$	95,247				42.3	%		$	106,971				38.5	%		$	90,665				39.4	%		$	89,832				40.1	%		$	92,512				42.6	%
Individual Client Group			41.1	%			91,906				38.7	%			91,377				38.9	%			78,694				34.9	%			122,383				44.2	%			97,428				42.4	%			92,432				41.2	%			85,071				39.2	%
Advisor Services Group			20.7	%			50,963				21.5	%			53,997				23.0	%			51,332				22.8	%			47,827				17.3	%			41,832				18.2	%			41,934				18.7	%			39,398				18.2	%
Consolidated			100.0	%		$	237,478				100.0	%		$	234,890				100.0	%		$	225,273				100.0	%		$	277,181				100.0	%		$	229,925				100.0	%		$	224,198				100.0	%		$	216,981				100.0	%
Adjusted EBITDA (1)
Corporate Client Group			56.1	%		$	17,240				64.3	%		$	15,044				57.2	%		$	19,466				70.5	%		$	17,785				66.1	%		$	15,261				49.5	%		$	14,967				52.9	%		$	18,775				77.5	%
Individual Client Group			34.9	%			8,322				31.0	%			8,971				34.1	%			6,101				22.1	%			7,820				29.1	%			14,324				46.4	%			11,848				41.9	%			6,315				26.0	%
Advisor Services Group			9.0	%			1,249				4.7	%			2,284				8.7	%			2,033				7.4	%			1,291				4.8	%			1,270				4.1	%			1,484				5.2	%			(841	)			-3.5	%
Consolidated			100.0	%		$	26,811				100.0	%		$	26,299				100.0	%		$	27,600				100.0	%		$	26,896				100.0	%		$	30,855				100.0	%		$	28,299				100.0	%		$	24,249				100.0	%
Adjusted EBITDA Margin
Corporate Client Group							18.2	%							16.8	%							20.4	%							16.6	%							16.8	%							16.7	%							20.3	%
Individual Client Group							9.1	%							9.8	%							7.8	%							6.4	%							14.7	%							12.8	%							7.4	%
Advisor Services Group							2.5	%							4.2	%							4.0	%							2.7	%							3.0	%							3.5	%							-2.1	%
Consolidated							11.3	%							11.2	%							12.3	%							9.7	%							13.4	%							12.6	%							11.2	%

 

		For the Three Months Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011				June 30, 2011				March 31, 2011				December 31, 2010				September 30, 2010				June 30, 2010				March 31, 2010
Organic revenue
Corporate Client Group			3.3	%			7.2	%			8.4	%			1.4	%			5.3	%			5.6	%			2.4	%			4.6	%			9.6	%			3.7	%			5.7	%
Individual Client Group			-5.5	%			1.5	%			5.3	%			-8.7	%			-7.8	%			-10.3	%			0.6	%			0.0	%			0.8	%			5.5	%			1.6	%
Advisor Services Group			-3.7	%			-1.9	%			2.5	%			11.3	%			19.7	%			17.1	%			16.8	%			32.9	%			11.4	%			16.0	%			8.5	%
Consolidated			-1.3	%			4.1	%			5.9	%			-0.6	%			3.3	%			2.0	%			5.1	%			8.6	%			6.5	%			7.3	%			4.9	%

 

(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.

 

8

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CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS - CONSOLIDATED

FOR YEAR-TO-DATE PERIODS

(Unaudited - in thousands)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	761,603			$	509,567			$	254,131			$	1,013,392			$	724,230			$	472,699			$	233,264			$	981,917
Operating expenses:
Commissions and fees			237,292				161,123				82,150				330,179				236,283				155,985				79,098				303,794
Compensation expense - employees			216,716				144,049				70,948				267,528				197,119				130,518				66,889				256,181
Fees to principals			89,908				59,853				29,207				135,911				89,709				56,508				24,619				161,958
Total compensation expense			306,624				203,902				100,155				403,439				286,828				187,026				91,508				418,139
Non-compensation expense			120,162				79,447				39,702				153,357				114,832				75,580				38,625				156,538
Amortization of intangibles			24,969				16,489				8,275				32,478				24,207				15,859				7,962				33,013
Depreciation			9,232				6,259				3,146				12,553				9,240				6,114				3,077				12,123
Impairment of goodwill and intangible assets			31,194				12,787				3,228				11,705				3,386				920				—				2,901
(Gain) loss on sale of businesses, net			(4,837	)			(4,398	)			(351	)			(1,238	)			53				13				—				(10,295	)
Change in estimated acquisition earn-out payables			7,988				6,903				4,466				(414	)			53				—				—				—
Management contract buyout			7,537				7,537				3,355				—				—				—				—				—
Total operating expenses			740,161				490,049				244,126				942,059				674,882				441,497				220,270				916,213
Income (loss) from operations			21,442				19,518				10,005				71,333				49,348				31,202				12,994				65,704
Non-operating income and expenses
Interest income			1,886				1,269				629				3,333				2,600				1,900				974				3,854
Interest expense			(12,440	)			(8,267	)			(4,121	)			(15,733	)			(11,751	)			(7,745	)			(3,771	)			(18,533	)
Gain on early extinguishment of debt			—				—				—				—				—				—				—				9,711
Other, net			3,181				1,952				880				6,386				5,818				4,516				3,187				8,303
Non-operating income and expenses, net			(7,373	)			(5,046	)			(2,612	)			(6,014	)			(3,333	)			(1,329	)			390				3,335
Income (loss) before income taxes			14,069				14,472				7,393				65,319				46,015				29,873				13,384				69,039
Income tax expense (benefit)			3,534				3,988				1,775				28,387				20,328				13,505				6,508				26,481
Net income (loss)		$	10,535			$	10,484			$	5,618			$	36,932			$	25,687			$	16,368			$	6,876			$	42,558
Cash Earnings Reconciliation
GAAP net income (loss)		$	10,535			$	10,484			$	5,618			$	36,932			$	25,687			$	16,368			$	6,876			$	42,558
Amortization of intangibles			24,969				16,489				8,275				32,478				24,207				15,859				7,962				33,013
Depreciation			9,232				6,259				3,146				12,553				9,240				6,114				3,077				12,123
Impairment of goodwill and intangible assets			31,194				12,787				3,228				11,705				3,386				920				—				2,901
Tax benefit of impairment of goodwill and intangible assets			(10,155	)			(4,859	)			(1,227	)			(4,729	)			(1,339	)			(364	)			—				(1,147	)
Non-cash interest, net of tax			2,196				1,441				717				2,602				1,932				1,268				631				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			4,944				4,236				2,544				(699	)			32				—				—				—
Management contract buyout, net of tax			4,673				4,673				2,080				—				—				—				—				—
Cash earnings		$	77,588			$	51,510			$	24,381			$	90,842			$	63,145			$	40,165			$	18,546			$	96,802
Adjusted EBITDA Reconciliation
GAAP net income (loss)		$	10,535			$	10,484			$	5,618			$	36,932			$	25,687			$	16,368			$	6,876			$	42,558
Income tax expense (benefit)			3,534				3,988				1,775				28,387				20,328				13,505				6,508				26,481
Interest income			(1,886	)			(1,269	)			(629	)			(3,333	)			(2,600	)			(1,900	)			(974	)			(3,854	)
Interest expense			12,440				8,267				4,121				15,733				11,751				7,745				3,771				18,533
Gain on early extinguishment of debt			—				—				—				—				—				—				—				(9,711	)
Other, net			(3,181	)			(1,952	)			(880	)			(6,386	)			(5,818	)			(4,516	)			(3,187	)			(8,303	)
Income (loss) from operations			21,442				19,518				10,005				71,333				49,348				31,202				12,994				65,704
Amortization of intangibles			24,969				16,489				8,275				32,478				24,207				15,859				7,962				33,013
Depreciation			9,232				6,259				3,146				12,553				9,240				6,114				3,077				12,123
Impairment of goodwill and intangible assets			31,194				12,787				3,228				11,705				3,386				920				—				2,901
(Gain) loss on sale of businesses, net			(4,837	)			(4,398	)			(351	)			(1,238	)			53				13				—				(10,295	)
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				13,395
Change in estimated acquisition earn-out payables			7,988				6,903				4,466				(414	)			53				—				—				—
Management contract buyout			7,537				7,537				3,355				—				—				—				—				—
Adjusted EBITDA		$	97,525			$	65,095			$	32,124			$	126,417			$	86,287			$	54,108			$	24,033			$	116,841
Adjusted EBITDA as a % of revenue			12.8	%			12.8	%			12.6	%			12.5	%			11.9	%			11.4	%			10.3	%			11.9	%
Compensation Ratios
Total compensation expense ratio			40.3	%			40.0	%			39.4	%			39.8	%			39.6	%			39.6	%			39.2	%			42.6	%
(Total compensation expense/Revenue)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	697,641			$	460,163			$	225,273			$	948,285			$	671,104			$	441,179			$	216,981
Operating expenses:
Commissions and fees			212,458				141,727				68,306				263,947				187,934				124,875				62,401
Compensation expense - employees			191,071				128,990				65,268				268,335				199,456				134,807				68,643
Fees to principals			109,650				56,184				23,650				146,181				87,316				52,461				22,507
Total compensation expense			300,721				185,174				88,918				414,516				286,772				187,268				91,150
Non-compensation expense			117,147				79,363				40,449				159,523				112,995				76,488				39,181
Amortization of intangibles			24,802				16,544				8,338				36,551				27,745				18,770				9,594
Depreciation			9,028				6,011				3,006				19,242				10,385				7,024				3,539
Impairment of goodwill and intangible assets			2,901				2,901				2,901				618,465				612,234				610,232				607,337
(Gain) loss on sale of businesses, net			(10,021	)			(9,921	)			(2,231	)			(2,096	)			(1,852	)			(662	)			617
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			657,036				421,799				209,687				1,510,148				1,236,213				1,023,995				813,819
Income (loss) from operations			40,605				38,364				15,586				(561,863	)			(565,109	)			(582,816	)			(596,838	)
Non-operating income and expenses
Interest income			2,645				1,776				888				3,077				2,249				1,546				724
Interest expense			(14,449	)			(9,459	)			(4,579	)			(20,567	)			(15,718	)			(10,717	)			(5,331	)
Gain on early extinguishment of debt			9,711				—				—				—				—				—				—
Other, net			5,516				2,671				658				11,583				11,111				7,724				1,116
Non-operating income and expenses, net			3,423				(5,012	)			(3,033	)			(5,907	)			(2,358	)			(1,447	)			(3,491	)
Income (loss) before income taxes			44,028				33,352				12,553				(567,770	)			(567,467	)			(584,263	)			(600,329	)
Income tax expense (benefit)			16,739				14,293				5,563				(74,384	)			(72,230	)			(78,486	)			(84,530	)
Net income (loss)		$	27,289			$	19,059			$	6,990			$	(493,386	)		$	(495,237	)		$	(505,777	)		$	(515,799	)
Cash Earnings Reconciliation
GAAP net income (loss)		$	27,289			$	19,059			$	6,990			$	(493,386	)		$	(495,237	)		$	(505,777	)		$	(515,799	)
Amortization of intangibles			24,802				16,544				8,338				36,551				27,745				18,770				9,594
Depreciation			9,028				6,011				3,006				19,242				10,385				7,024				3,539
Impairment of goodwill and intangible assets			2,901				2,901				2,901				618,465				612,234				610,232				607,337
Tax benefit of impairment of goodwill and intangible assets			(1,132	)			(1,030	)			(1,118	)			(90,608	)			(89,475	)			(89,048	)			(88,146	)
Non-cash interest, net of tax			4,292				3,704				1,866				6,814				5,255				3,289				1,557
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			—				—				—				—				—				—				—
Management contract buyout, net of tax			—				—				—				—				—				—				—
Cash earnings		$	69,440			$	47,189			$	21,983			$	97,078			$	70,907			$	44,490			$	18,082
Adjusted EBITDA Reconciliation
GAAP net income (loss)		$	27,289			$	19,059			$	6,990			$	(493,386	)		$	(495,237	)		$	(505,777	)		$	(515,799	)
Income tax expense (benefit)			16,739				14,293				5,563				(74,384	)			(72,230	)			(78,486	)			(84,530	)
Interest income			(2,645	)			(1,776	)			(888	)			(3,077	)			(2,249	)			(1,546	)			(724	)
Interest expense			14,449				9,459				4,579				20,567				15,718				10,717				5,331
Gain on early extinguishment of debt			(9,711	)			—				—				—				—				—				—
Other, net			(5,516	)			(2,671	)			(658	)			(11,583	)			(11,111	)			(7,724	)			(1,116	)
Income (loss) from operations			40,605				38,364				15,586				(561,863	)			(565,109	)			(582,816	)			(596,838	)
Amortization of intangibles			24,802				16,544				8,338				36,551				27,745				18,770				9,594
Depreciation			9,028				6,011				3,006				19,242				10,385				7,024				3,539
Impairment of goodwill and intangible assets			2,901				2,901				2,901				618,465				612,234				610,232				607,337
(Gain) loss on sale of businesses, net			(10,021	)			(9,921	)			(2,231	)			(2,096	)			(1,852	)			(662	)			617
Accelerated vesting of certain RSUs			13,395				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	80,710			$	53,899			$	27,600			$	110,299			$	83,403			$	52,548			$	24,249
Adjusted EBITDA as a % of revenue			11.6	%			11.7	%			12.3	%			11.6	%			12.4	%			11.9	%			11.2	%
Compensation Ratios
Total compensation expense ratio			43.1	%			40.2	%			39.5	%			43.7	%			42.7	%			42.4	%			42.0	%
(Total compensation expense/Revenue)

 

9

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CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR YEAR-TO-DATE PERIODS - CORPORATE CLIENT GROUP

(Unaudited - in thousands)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	339,805			$	224,667			$	112,089			$	412,192			$	295,632			$	189,865			$	95,550			$	387,855
Operating expenses:
Commissions and fees			40,618				26,937				13,334				46,183				31,390				19,661				10,995				36,989
Compensation expense - employees			120,765				79,689				38,733				141,127				103,547				67,540				33,915				130,291
Fees to principals			48,797				32,196				16,026				73,867				51,136				31,860				14,513				80,780
Total compensation expense			169,562				111,885				54,759				214,994				154,683				99,400				48,428				211,071
Non-compensation expense			60,832				39,263				19,465				74,457				54,662				36,098				18,136				75,180
Amortization of intangibles			17,884				11,787				5,909				21,553				15,901				10,280				5,151				21,398
Depreciation			4,159				2,835				1,427				6,107				4,602				3,238				1,624				6,298
Impairment of goodwill and intangible assets			5,933				5,934				2,680				1,246				—				—				—				1,931
Loss (gain) on sale of businesses, net			46				46				46				(103	)			(47	)			(47	)			—				(8,058	)
Change in estimated acquisition earn-out payables			7,938				6,903				4,466				(414	)			53				—				—				—
Management contract buyout			7,537				7,537				3,355				—				—				—				—				—
Total operating expenses			314,509				213,127				105,441				364,023				261,244				168,630				84,334				344,809
Income (loss) from operations		$	25,296			$	11,540			$	6,648			$	48,169			$	34,388			$	21,235			$	11,216			$	43,046
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	25,296			$	11,540			$	6,648			$	48,169			$	34,388			$	21,235			$	11,216			$	43,046
Amortization of intangibles			17,884				11,787				5,909				21,553				15,901				10,280				5,151				21,398
Depreciation			4,159				2,835				1,427				6,107				4,602				3,238				1,624				6,298
Impairment of goodwill and intangible assets			5,933				5,934				2,680				1,246				—				—				—				1,931
Loss (gain) on sale of businesses, net			46				46				46				(103	)			(47	)			(47	)			—				(8,058	)
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				7,394
Change in estimated acquisition earn-out payables			7,938				6,903				4,466				(414	)			53				—				—				—
Management contract buyout			7,537				7,537				3,355				—				—				—				—				—
Adjusted EBITDA		$	68,793			$	46,582			$	24,531			$	76,558			$	54,897			$	34,706			$	17,991			$	72,009
Adjusted EBITDA as a % of revenue			20.2	%			20.7	%			21.9	%			18.6	%			18.6	%			18.3	%			18.8	%			18.6	%
Compensation Ratios
Total compensation expense ratio			49.9	%			49.8	%			48.9	%			52.2	%			52.3	%			52.4	%			50.7	%			54.4	%
(Total compensation expense/Revenue)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	279,372			$	184,763			$	95,247			$	379,980			$	273,009			$	182,344			$	92,512
Operating expenses:
Commissions and fees			25,922				16,262				7,963				34,397				25,809				16,984				8,842
Compensation expense - employees			97,533				65,392				33,096				132,465				98,063				66,242				33,954
Fees to principals			54,771				30,171				15,126				70,507				46,115				28,591				12,572
Total compensation expense			152,304				95,563				48,222				202,972				144,178				94,833				46,526
Non-compensation expense			56,790				38,428				19,596				75,823				54,019				36,785				18,369
Amortization of intangibles			16,003				10,601				5,348				22,959				17,344				11,666				5,906
Depreciation			4,674				3,075				1,559				9,277				5,151				3,494				1,806
Impairment of goodwill and intangible assets			1,931				1,931				1,931				354,408				354,408				354,408				354,298
Loss (gain) on sale of businesses, net			(8,287	)			(8,162	)			(1,321	)			7				130				336				580
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			249,337				157,698				83,298				699,843				601,039				518,506				436,327
Income (loss) from operations		$	30,035			$	27,065			$	11,949			$	(319,863	)		$	(328,030	)		$	(336,162	)		$	(343,815	)
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	30,035			$	27,065			$	11,949			$	(319,863	)		$	(328,030	)		$	(336,162	)		$	(343,815	)
Amortization of intangibles			16,003				10,601				5,348				22,959				17,344				11,666				5,906
Depreciation			4,674				3,075				1,559				9,277				5,151				3,494				1,806
Impairment of goodwill and intangible assets			1,931				1,931				1,931				354,408				354,408				354,408				354,298
Loss (gain) on sale of businesses, net			(8,287	)			(8,162	)			(1,321	)			7				130				336				580
Accelerated vesting of certain RSUs			7,394				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	51,750			$	34,510			$	19,466			$	66,788			$	49,003			$	33,742			$	18,775
Adjusted EBITDA as a % of revenue			18.5	%			18.7	%			20.4	%			17.6	%			17.9	%			18.5	%			20.3	%
Compensation Ratios
Total compensation expense ratio			54.5	%			51.7	%			50.6	%			53.4	%			52.8	%			52.0	%			50.3	%
(Total compensation expense/Revenue)

 

10

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CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR YEAR-TO-DATE PERIODS - INDIVIDUAL CLIENT GROUP

(Unaudited - in thousands)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	239,625			$	161,460			$	80,593			$	351,436			$	244,438			$	159,656			$	77,753			$	378,847
Operating expenses:
Commissions and fees			49,873				33,961				18,577				77,652				52,800				34,277				18,390				89,492
Compensation expense - employees			83,311				56,071				28,113				110,267				81,738				55,104				28,960				110,543
Fees to principals			41,111				27,657				13,181				62,044				38,573				24,648				10,106				81,178
Total compensation expense			124,422				83,728				41,294				172,311				120,311				79,752				39,066				191,721
Non-compensation expense			45,239				31,122				16,011				62,782				48,476				32,030				17,016				67,626
Amortization of intangibles			6,869				4,702				2,366				10,925				8,306				5,579				2,811				11,615
Depreciation			3,007				2,019				1,012				4,275				3,209				2,282				1,155				4,458
Impairment of goodwill and intangible assets			25,261				6,853				548				10,459				3,386				920				—				970
(Gain) loss on sale of businesses, net			(4,883	)			(4,444	)			(397	)			(1,135	)			100				60				—				(2,237	)
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Total operating expenses			249,788				157,941				79,411				337,269				236,588				154,900				78,438				363,645
(Loss) income from operations		$	(10,163	)		$	3,519			$	1,182			$	14,167			$	7,850			$	4,756			$	(685	)		$	15,202
Adjusted EBITDA Reconciliation
(Loss) income from operations		$	(10,163	)		$	3,519			$	1,182			$	14,167			$	7,850			$	4,756			$	(685	)		$	15,202
Amortization of intangibles			6,869				4,702				2,366				10,925				8,306				5,579				2,811				11,615
Depreciation			3,007				2,019				1,012				4,275				3,209				2,282				1,155				4,458
Impairment of goodwill and intangible assets			25,261				6,853				548				10,459				3,386				920				—				970
(Gain) loss on sale of businesses, net			(4,883	)			(4,444	)			(397	)			(1,135	)			100				60				—				(2,237	)
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—				6,001
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Adjusted EBITDA		$	20,091			$	12,649			$	4,711			$	38,691			$	22,851			$	13,597			$	3,281			$	36,009
Adjusted EBITDA as a % of revenue			8.4	%			7.8	%			5.8	%			11.0	%			9.3	%			8.5	%			4.2	%			9.5	%
Compensation Ratios
Total compensation expense ratio			51.9	%			51.9	%			51.2	%			49.0	%			49.2	%			50.0	%			50.2	%			50.6	%
(Total compensation expense/Revenue)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	261,977			$	170,071			$	78,694			$	397,314			$	274,931			$	177,503			$	85,071
Operating expenses:
Commissions and fees			57,375				38,618				18,372				84,335				57,726				38,875				19,439
Compensation expense - employees			81,970				56,056				28,242				119,829				89,004				60,010				30,337
Fees to principals			54,879				26,013				8,524				75,674				41,201				23,870				9,935
Total compensation expense			136,849				82,069				36,766				195,503				130,205				83,880				40,272
Non-compensation expense			50,360				34,312				17,455				77,169				54,513				36,585				19,045
Amortization of intangibles			8,799				5,943				2,990				13,592				10,401				7,104				3,688
Depreciation			3,345				2,280				1,125				8,885				4,472				3,031				1,470
Impairment of goodwill and intangible assets			970				970				970				264,057				257,826				255,824				253,039
(Gain) loss on sale of businesses, net			(1,734	)			(1,759	)			(910	)			(2,103	)			(1,982	)			(998	)			37
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			255,964				162,433				76,768				641,438				513,161				424,301				336,990
(Loss) income from operations		$	6,013			$	7,638			$	1,926			$	(244,124	)		$	(238,230	)		$	(246,798	)		$	(251,919	)
Adjusted EBITDA Reconciliation
(Loss) income from operations		$	6,013			$	7,638			$	1,926			$	(244,124	)		$	(238,230	)		$	(246,798	)		$	(251,919	)
Amortization of intangibles			8,799				5,943				2,990				13,592				10,401				7,104				3,688
Depreciation			3,345				2,280				1,125				8,885				4,472				3,031				1,470
Impairment of goodwill and intangible assets			970				970				970				264,057				257,826				255,824				253,039
(Gain) loss on sale of businesses, net			(1,734	)			(1,759	)			(910	)			(2,103	)			(1,982	)			(998	)			37
Accelerated vesting of certain RSUs			6,001				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	23,394			$	15,072			$	6,101			$	40,307			$	32,487			$	18,163			$	6,315
Adjusted EBITDA as a % of revenue			8.9	%			8.9	%			7.8	%			10.1	%			11.8	%			10.2	%			7.4	%
Compensation Ratios
Total compensation expense ratio			52.2	%			48.3	%			46.7	%			49.2	%			47.4	%			47.3	%			47.3	%
(Total compensation expense/Revenue)

 

11

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CONDENSED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS FOR YEAR-TO-DATE PERIODS - ADVISOR SERVICES GROUP

(Unaudited - in thousands)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Revenue:
Commissions and fees		$	182,173			$	123,440			$	61,449			$	249,764			$	184,160			$	123,178			$	59,961			$	215,215
Operating expenses:
Commissions and fees			146,801				100,225				50,239				206,344				152,093				102,047				49,713				177,313
Compensation expense - employees			12,640				8,289				4,102				16,134				11,834				7,874				4,014				15,347
Fees to principals			—				—				—				—				—				—				—				—
Total compensation expense			12,640				8,289				4,102				16,134				11,834				7,874				4,014				15,347
Non-compensation expense			14,091				9,062				4,226				16,118				11,694				7,452				3,473				13,732
Amortization of intangibles			216				—				—				—				—				—				—				—
Depreciation			2,066				1,405				707				2,171				1,429				594				298				1,367
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			50				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Total operating expenses			175,864				118,981				59,274				240,767				177,050				117,967				57,498				207,759
Income (loss) from operations		$	6,309			$	4,459			$	2,175			$	8,997			$	7,110			$	5,211			$	2,463			$	7,456
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	6,309			$	4,459			$	2,175			$	8,997			$	7,110			$	5,211			$	2,463			$	7,456
Amortization of intangibles			216				—				—				—				—				—				—				—
Depreciation			2,066				1,405				707				2,171				1,429				594				298				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			50				—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—				—
Adjusted EBITDA		$	8,641			$	5,864			$	2,882			$	11,168			$	8,539			$	5,805			$	2,761			$	8,823
Adjusted EBITDA as a % of revenue			4.7	%			4.8	%			4.7	%			4.5	%			4.6	%			4.7	%			4.6	%			4.1	%
Ratios
Commission expense ratio			80.6	%			81.2	%			81.8	%			82.6	%			82.6	%			82.8	%			82.9	%			82.4	%
(Operating expenses: Commissions and fees/Revenue)
Total compensation expense ratio			6.9	%			6.7	%			6.7	%			6.5	%			6.4	%			6.4	%			6.7	%			7.1	%
(Total compensation expense/Revenue)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Revenue:
Commissions and fees		$	156,292			$	105,329			$	51,332			$	170,991			$	123,164			$	81,332			$	39,398
Operating expenses:
Commissions and fees			129,161				86,847				41,971				145,215				104,399				69,016				34,120
Compensation expense - employees			11,568				7,542				3,930				16,041				12,389				8,555				4,352
Fees to principals			—				—				—				—				—				—				—
Total compensation expense			11,568				7,542				3,930				16,041				12,389				8,555				4,352
Non-compensation expense			9,997				6,623				3,398				6,531				4,463				3,118				1,767
Amortization of intangibles			—				—				—				—				—				—				—
Depreciation			1,009				656				322				1,080				762				499				263
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Total operating expenses			151,735				101,668				49,621				168,867				122,013				81,188				40,502
Income (loss) from operations		$	4,557			$	3,661			$	1,711			$	2,124			$	1,151			$	144			$	(1,104	)
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	4,557			$	3,661			$	1,711			$	2,124			$	1,151			$	144			$	(1,104	)
Amortization of intangibles			—				—				—				—				—				—				—
Depreciation			1,009				656				322				1,080				762				499				263
Impairment of goodwill and intangible assets			—				—				—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—				—				—
Accelerated vesting of certain RSUs			—				—				—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Management contract buyout			—				—				—				—				—				—				—
Adjusted EBITDA		$	5,566			$	4,317			$	2,033			$	3,204			$	1,913			$	643			$	(841	)
Adjusted EBITDA as a % of revenue			3.6	%			4.1	%			4.0	%			1.9	%			1.6	%			0.8	%			-2.1	%
Ratios
Commission expense ratio			82.6	%			82.5	%			81.8	%			84.9	%			84.8	%			84.9	%			86.6	%
(Operating expenses: Commissions and fees/Revenue)
Total compensation expense ratio			7.4	%			7.2	%			7.7	%			9.4	%			10.1	%			10.5	%			11.0	%
(Total compensation expense/Revenue)

 

 

12

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CONDENSED STATEMENTS OF REVENUE, ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN AND ORGANIC REVENUE GROWTH

(Unaudited - dollars in thousands)

 

		For the Year-to-Date Period Ended
		September 30,								June 30,								March 31,								December 31,								September 30,								June 30,								March 31,								December 31,
		2012								2012								2012								2011								2011								2011								2011								2010
Revenue
Corporate Client Group		$	339,805				44.6	%		$	224,667				44.1	%		$	112,089				44.1	%		$	412,192				40.7	%		$	295,632				40.8	%		$	189,865				40.2	%		$	95,550				41.0	%		$	387,855
Individual Client Group			239,625				31.5	%			161,460				31.7	%			80,593				31.7	%			351,436				34.7	%			244,438				33.8	%			159,656				33.8	%			77,753				33.3	%			378,847
Advisor Services Group			182,173				23.9	%			123,440				24.2	%			61,449				24.2	%			249,764				24.6	%			184,160				25.4	%			123,178				26.0	%			59,961				25.7	%			215,215
Consolidated		$	761,603				100.0	%		$	509,567				100.0	%		$	254,131				100.0	%		$	1,013,392				100.0	%		$	724,230				100.0	%		$	472,699				100.0	%		$	233,264				100.0	%		$	981,917
Adjusted EBITDA (1)
Corporate Client Group		$	68,793				70.5	%		$	46,582				71.6	%		$	24,531				76.3	%		$	76,558				60.6	%		$	54,897				63.6	%		$	34,706				64.2	%		$	17,991				74.9	%		$	72,009
Individual Client Group			20,091				20.6	%			12,649				19.4	%			4,711				14.7	%			38,691				30.6	%			22,851				26.5	%			13,597				25.1	%			3,281				13.7	%			36,009
Advisor Services Group			8,641				8.9	%			5,864				9.0	%			2,882				9.0	%			11,168				8.8	%			8,539				9.9	%			5,805				10.7	%			2,761				11.4	%			8,823
Consolidated		$	97,525				100.0	%		$	65,095				100.0	%		$	32,124				100.0	%		$	126,417				100.0	%		$	86,287				100.0	%		$	54,108				100.0	%		$	24,033				100.0	%		$	116,841
Adjusted EBITDA Margin
Corporate Client Group			20.2	%							20.7	%							21.9	%							18.6	%							18.6	%							18.3	%							18.8	%							18.6	%
Individual Client Group			8.4	%							7.8	%							5.8	%							11.0	%							9.3	%							8.5	%							4.2	%							9.5	%
Advisor Services Group			4.7	%							4.8	%							4.7	%							4.5	%							4.6	%							4.7	%							4.6	%							4.1	%
Consolidated			12.8	%							12.8	%							12.6	%							12.5	%							11.9	%							11.4	%							10.3	%							11.9	%

 

		For the Year-to-Date Period Ended
						September 30,								June 30,								March 31,								December 31,								September 30,								June 30,								March 31,
						2010								2010								2010								2009								2009								2009								2009
Revenue
Corporate Client Group			39.5	%		$	279,372				40.0	%		$	184,763				40.1	%		$	95,247				42.3	%		$	379,980				40.1	%		$	273,009				40.6	%		$	182,344				41.4	%		$	92,512				42.6	%
Individual Client Group			38.6	%			261,977				37.6	%			170,071				37.0	%			78,694				34.9	%			397,314				41.9	%			274,931				41.0	%			177,503				40.2	%			85,071				39.2	%
Advisor Services Group			21.9	%			156,292				22.4	%			105,329				22.9	%			51,332				22.8	%			170,991				18.0	%			123,164				18.4	%			81,332				18.4	%			39,398				18.2	%
Consolidated			100.0	%		$	697,641				100.0	%		$	460,163				100.0	%		$	225,273				100.0	%		$	948,285				100.0	%		$	671,104				100.0	%		$	441,179				100.0	%		$	216,981				100.0	%
Adjusted EBITDA (1)
Corporate Client Group			61.6	%		$	51,750				64.1	%		$	34,510				64.0	%		$	19,466				70.5	%		$	66,788				60.6	%		$	49,003				58.7	%		$	33,742				64.2	%		$	18,775				77.5	%
Individual Client Group			30.8	%			23,394				29.0	%			15,072				28.0	%			6,101				22.1	%			40,307				36.5	%			32,487				39.0	%			18,163				34.6	%			6,315				26.0	%
Advisor Services Group			7.6	%			5,566				6.9	%			4,317				8.0	%			2,033				7.4	%			3,204				2.9	%			1,913				2.3	%			643				1.2	%			(841	)			-3.5	%
Consolidated			100.0	%		$	80,710				100.0	%		$	53,899				100.0	%		$	27,600				100.0	%		$	110,299				100.0	%		$	83,403				100.0	%		$	52,548				100.0	%		$	24,249				100.0	%
Adjusted EBITDA Margin
Corporate Client Group							18.5	%							18.7	%							20.4	%							17.6	%							17.9	%							18.5	%							20.3	%
Individual Client Group							8.9	%							8.9	%							7.8	%							10.1	%							11.8	%							10.2	%							7.4	%
Advisor Services Group							3.6	%							4.1	%							4.0	%							1.9	%							1.6	%							0.8	%							-2.1	%
Consolidated							11.6	%							11.7	%							12.3	%							11.6	%							12.4	%							11.9	%							11.2	%

 

		For the Year-to-Date Period Ended
		September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				September 30, 2011				June 30, 2011				March 31, 2011				December 31, 2010				September 30, 2010				June 30, 2010				March 31, 2010
Organic revenue
Corporate Client Group			6.2	%			7.9	%			8.4	%			3.6	%			3.4	%			4.0	%			2.4	%			5.8	%			6.3	%			4.7	%			5.7	%
Individual Client Group			0.3	%			3.3	%			5.3	%			-6.9	%			-5.9	%			-5.3	%			0.6	%			1.8	%			2.6	%			3.6	%			1.6	%
Advisor Services Group			-1.1	%			0.2	%			2.5	%			16.1	%			16.9	%			16.9	%			16.8	%			17.7	%			12.0	%			12.3	%			8.5	%
Consolidated			3.5	%			5.3	%			5.9	%			2.3	%			3.0	%			3.5	%			5.1	%			6.9	%			6.2	%			6.1	%			4.9	%

 

13

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HISTORICAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL METRICS

(Unaudited - in thousands)

 

ANNUAL
		December 31, 2011				December 31, 2010				December 31, 2009				December 31, 2008				December 31, 2007
Revenue:
Commissions and fees		$	1,013,392			$	981,917			$	948,285			$	1,150,387			$	1,194,293
Operating expenses:
Commissions and fees			330,179				303,794				263,947				362,868				386,460
Compensation expense - employees			267,528				256,181				268,335				291,753				261,717
Fees to principals			135,911				161,958				146,181				170,683				211,825
Total compensation expense			403,439				418,139				414,516				462,436				473,542
Non-compensation expense			153,357				156,538				159,523				181,404				168,387
Amortization of intangibles			32,478				33,013				36,551				39,194				34,303
Depreciation			12,553				12,123				19,242				13,371				11,010
Impairment of goodwill and intangible assets			11,705				2,901				618,465				41,257				7,877
(Gain) loss on sale of businesses, net			(1,238	)			(10,295	)			(2,096	)			(7,663	)			11,182
Change in estimated acquisition earn-out payables			(414	)			—				—				—				—
Management contract buyout			—				—				—				—				—
Total operating expenses			942,059				916,213				1,510,148				1,092,867				1,092,761
Income (loss) from operations			71,333				65,704				(561,863	)			57,520				101,532
Non-operating income and expenses
Interest income			3,333				3,854				3,077				4,854				7,920
Interest expense			(15,733	)			(18,533	)			(20,567	)			(21,764	)			(18,620	)
Gain on early extinguishment of debt			—				9,711				—				—				—
Other, net			6,386				8,303				11,583				1,199				1,125
Non-operating income and expenses, net			(6,014	)			3,335				(5,907	)			(15,711	)			(9,575	)
Income (loss) before income taxes			65,319				69,039				(567,770	)			41,809				91,957
Income tax expense (benefit)			28,387				26,481				(74,384	)			33,338				43,204
Net income (loss)		$	36,932			$	42,558			$	(493,386	)		$	8,471			$	48,753
Cash Earnings Reconciliation
GAAP net income (loss)		$	36,932			$	42,558			$	(493,386	)		$	8,471			$	48,753
Amortization of intangibles			32,478				33,013				36,551				39,194				34,303
Depreciation			12,553				12,123				19,242				13,371				11,010
Impairment of goodwill and intangible assets			11,705				2,901				618,465				41,257				7,877
Tax benefit of impairment of goodwill and intangible assets			(4,729	)			(1,147	)			(90,608	)			(8,137	)			(1,899	)
Non-cash interest, net of tax			2,602				5,094				6,814				6,364				5,481
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			(699	)			—				—				—				—
Management agreement buyout, net of tax			—				—				—				—				7,681
Cash earnings		$	90,842			$	96,802			$	97,078			$	100,520			$	113,206
Adjusted EBITDA Reconciliation
GAAP net income (loss)		$	36,932			$	42,558			$	(493,386	)		$	8,471			$	48,753
Income tax expense (benefit)			28,387				26,481				(74,384	)			33,338				43,204
Interest income			(3,333	)			(3,854	)			(3,077	)			(4,854	)			(7,920	)
Interest expense			15,733				18,533				20,567				21,764				18,620
Gain on early extinguishment of debt			—				(9,711	)			—				—				—
Other, net			(6,386	)			(8,303	)			(11,583	)			(1,199	)			(1,125	)
Income (loss) from operations			71,333				65,704				(561,863	)			57,520				101,532
Amortization of intangibles			32,478				33,013				36,551				39,194				34,303
Depreciation			12,553				12,123				19,242				13,371				11,010
Impairment of goodwill and intangible assets			11,705				2,901				618,465				41,257				7,877
(Gain) loss on sale of businesses, net			(1,238	)			(10,295	)			(2,096	)			(7,663	)			11,182
Accelerated vesting of certain RSUs			—				13,395				—				—				—
Change in estimated acquisition earn-out payables			(414	)			—				—				—				—
Management contract buyout			—				—				—				—				—
Adjusted EBITDA		$	126,417			$	116,841			$	110,299			$	143,679			$	165,904
Adjusted EBITDA as a % of revenue			12.5	%			11.9	%			11.6	%			12.5	%			13.9	%
Compensation Ratios
Total compensation expense ratio			39.8	%			42.6	%			43.7	%			40.2	%			39.7	%
(Total compensation expense/Revenue)

 

14

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

(Unaudited - in thousands)

 

ANNUAL
		December 31,				December 31,				December 31,				December 31,				December 31,
		2011				2010				2009				2008				2007
Revenue:
Commissions and fees		$	412,192			$	387,855			$	379,980			$	404,973			$	360,760
Operating expenses:
Commissions and fees			46,183				36,989				34,397				44,964				53,842
Compensation expense - employees			141,127				130,291				132,465				134,176				111,001
Fees to principals			73,867				80,780				70,507				67,930				66,172
Total compensation expense			214,994				211,071				202,972				202,106				177,173
Non-compensation expense			74,457				75,180				75,823				77,065				59,581
Amortization of intangibles			21,553				21,398				22,959				23,428				18,486
Depreciation			6,107				6,298				9,277				5,613				4,107
Impairment of goodwill and intangible assets			1,246				1,931				354,408				6,735				—
(Gain) loss on sale of businesses, net			(103	)			(8,058	)			7				(7,236	)			12,645
Change in estimated acquisition earn-out payables			(414	)			—				—				—				—
Management contract buyout			—				—				—				—				—
Total operating expenses			364,023				344,809				699,843				352,675				325,834
Income (loss) from operations		$	48,169			$	43,046			$	(319,863	)		$	52,298			$	34,926
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	48,169			$	43,046			$	(319,863	)		$	52,298			$	34,926
Amortization of intangibles			21,553				21,398				22,959				23,428				18,486
Depreciation			6,107				6,298				9,277				5,613				4,107
Impairment of goodwill and intangible assets			1,246				1,931				354,408				6,735				—
(Gain) loss on sale of businesses, net			(103	)			(8,058	)			7				(7,236	)			12,645
Accelerated vesting of certain RSUs			—				7,394				—				—				—
Change in estimated acquisition earn-out payables			(414	)			—				—				—				—
Management contract buyout			—				—				—				—				—
Adjusted EBITDA		$	76,558			$	72,009			$	66,788			$	80,838			$	70,164
Adjusted EBITDA as a % of revenue			18.6	%			18.6	%			17.6	%			20.0	%			19.4	%
Compensation Ratios
Total compensation expense ratio			52.2	%			54.4	%			53.4	%			49.9	%			49.1	%
(Total compensation expense/Revenue)

 

15

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

(Unaudited - in thousands)

 

ANNUAL
		December 31,				December 31,				December 31,				December 31,				December 31,
		2011				2010				2009				2008				2007
Revenue:
Commissions and fees		$	351,436			$	378,847			$	397,314			$	538,295			$	639,690
Operating expenses:
Commissions and fees			77,652				89,492				84,335				141,384				169,985
Compensation expense - employees			110,267				110,543				119,829				134,933				128,722
Fees to principals			62,044				81,178				75,674				102,753				145,653
Total compensation expense			172,311				191,721				195,503				237,686				274,375
Non-compensation expense			62,782				67,626				77,169				93,784				97,227
Amortization of intangibles			10,925				11,615				13,592				15,766				15,817
Depreciation			4,275				4,458				8,885				6,883				6,120
Impairment of goodwill and intangible assets			10,459				970				264,057				34,522				7,877
Gain on sale of businesses, net			(1,135	)			(2,237	)			(2,103	)			(427	)			(1,463	)
Change in estimated acquisition earn-out payables			—				—				—				—				—
Management contract buyout			—				—				—				—				—
Total operating expenses			337,269				363,645				641,438				529,598				569,938
Income (loss) from operations		$	14,167			$	15,202			$	(244,124	)		$	8,697			$	69,752
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	14,167			$	15,202			$	(244,124	)		$	8,697			$	69,752
Amortization of intangibles			10,925				11,615				13,592				15,766				15,817
Depreciation			4,275				4,458				8,885				6,883				6,120
Impairment of goodwill and intangible assets			10,459				970				264,057				34,522				7,877
Gain on sale of businesses, net			(1,135	)			(2,237	)			(2,103	)			(427	)			(1,463	)
Accelerated vesting of certain RSUs			—				6,001				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—
Management contract buyout			—				—				—				—				—
Adjusted EBITDA		$	38,691			$	36,009			$	40,307			$	65,441			$	98,103
Adjusted EBITDA as a % of revenue			11.0	%			9.5	%			10.1	%			12.2	%			15.3	%
Compensation Ratios
Total compensation expense ratio			49.0	%			50.6	%			49.2	%			44.2	%			42.9	%
(Total compensation expense/Revenue)

 

16

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

(Unaudited - in thousands)

 

ANNUAL		December 31,				December 31,				December 31,				December 31,				December 31,
		2011				2010				2009				2008				2007
Revenue:
Commissions and fees		$	249,764			$	215,215			$	170,991			$	207,119			$	193,843
Operating expenses:
Commissions and fees			206,344				177,313				145,215				176,520				162,633
Compensation expense - employees			16,134				15,347				16,041				22,644				21,994
Fees to principals			—				—				—				—				—
Total compensation expense			16,134				15,347				16,041				22,644				21,994
Non-compensation expense			16,118				13,732				6,531				10,555				11,579
Amortization of intangibles			—				—				—				—				—
Depreciation			2,171				1,367				1,080				875				783
Impairment of goodwill and intangible assets			—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—
Management contract buyout			—				—				—				—				—
Total operating expenses			240,767				207,759				168,867				210,594				196,989
Income (loss) from operations		$	8,997			$	7,456			$	2,124			$	(3,475	)		$	(3,146	)
Adjusted EBITDA Reconciliation
Income (loss) from operations		$	8,997			$	7,456			$	2,124			$	(3,475	)		$	(3,146	)
Amortization of intangibles			—				—				—				—				—
Depreciation			2,171				1,367				1,080				875				783
Impairment of goodwill and intangible assets			—				—				—				—				—
Gain on sale of businesses, net			—				—				—				—				—
Accelerated vesting of certain RSUs			—				—				—				—				—
Change in estimated acquisition earn-out payables			—				—				—				—				—
Management contract buyout			—				—				—				—				—
Adjusted EBITDA		$	11,168			$	8,823			$	3,204			$	(2,600	)		$	(2,363	)
Adjusted EBITDA as a % of revenue			4.5	%			4.1	%			1.9	%			-1.3	%			-1.2	%
Ratios
Commission expense ratio			82.6	%			82.4	%			84.9	%			85.2	%			83.9	%
(Operating expenses:Commissions and fees/Revenue)
Total compensation expense ratio			6.5	%			7.1	%			9.4	%			10.9	%			11.3	%
(Total compensation expense/Revenue)

 

17

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (BALANCE SHEET)

(Unaudited - in thousands)

 

		At
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	80,646			$	89,556			$	85,598			$	135,239			$	115,998			$	138,621			$	112,711			$	128,830
Fiduciary funds - restricted related to premium trust accounts			75,762				90,179				73,969				75,503				79,552				72,486				76,311				82,647
Commissions, fees and premiums receivable, net			116,256				110,331				102,482				119,945				91,283				90,084				91,964				120,572
Due from principals and/or certain entities they own			9,380				9,683				6,407				4,308				11,442				7,910				6,137				7,981
Notes receivable, net			3,921				4,228				4,729				4,224				4,454				5,006				5,510				6,128
Deferred tax assets			10,209				10,209				10,209				10,209				13,865				13,865				13,865				13,865
Other current assets			39,193				32,088				23,025				18,706				17,491				29,438				26,624				17,442
Total current assets			335,367				346,274				306,419				368,134				334,085				357,410				333,122				377,465
Property and equipment, net			30,611				31,122				32,142				33,937				34,778				35,866				36,364				37,359
Deferred tax assets			4,055				4,693				4,691				5,023				3,520				5,184				4,946				5,836
Intangibles, net			310,708				318,730				325,747				320,066				337,746				324,463				333,215				337,833
Goodwill, net			138,043				132,277				119,452				102,039				96,587				62,589				62,833				60,894
Notes receivable, net			23,399				22,381				24,262				23,661				26,021				29,096				30,477				30,724
Other non-current assets			29,110				29,653				42,965				41,307				41,465				43,130				42,324				42,952
Total assets		$	871,293			$	885,130			$	855,678			$	894,167			$	874,202			$	857,738			$	843,281			$	893,063
LIABILITIES
Current liabilities:
Premiums payable to insurance carriers		$	85,280			$	90,544			$	72,952			$	74,145			$	83,417			$	74,188			$	74,998			$	83,091
Short term debt			—				—				—				—				—				—				—				—
Current portion of long term debt			12,500				12,500				12,500				12,500				12,500				12,500				12,500				12,500
Income taxes payable			—				—				—				3,045				1,537				—				—				—
Due to principals and/or certain entities they own			21,632				15,918				12,843				37,886				25,606				18,005				11,173				37,406
Accounts payable			20,819				23,774				24,325				30,584				18,425				21,108				18,159				36,213
Accrued liabilities			65,583				66,445				55,056				70,855				60,119				55,609				50,355				55,673
Total current liabilities			205,814				209,181				177,676				229,015				201,604				181,410				167,185				224,883
Long term debt			99,375				102,500				105,625				93,750				96,875				100,000				103,125				106,250
Deferred tax liabilities			1,679				1,631				1,631				1,605				1,552				1,552				1,552				1,552
Convertible senior notes			95,428				94,211				93,044				91,887				90,778				89,679				88,625				87,581
Other non-current liabilities			70,523				76,779				77,064				71,960				75,189				67,361				67,338				64,585
Total liabilities			472,819				484,302				455,040				488,217				465,998				440,002				427,825				484,851
STOCKHOLDERS’ EQUITY
Preferred stock at par value			—				—				—				—				—				—				—				—
Common stock at par value			4,704				4,703				4,702				4,665				4,656				4,653				4,644				4,596
Additional paid-in capital			905,178				904,003				902,659				905,774				905,800				904,400				902,547				902,153
Accumulated deficit			(383,028	)			(382,264	)			(386,393	)			(391,202	)			(401,562	)			(410,048	)			(418,767	)			(425,063	)
Treasury stock			(127,523	)			(124,644	)			(119,448	)			(112,278	)			(99,632	)			(80,787	)			(72,985	)			(73,458	)
Accumulated other comprehensive (loss) income			(857	)			(970	)			(882	)			(1,009	)			(1,058	)			(482	)			17				(16	)
Total stockholders’ equity			398,474				400,828				400,638				405,950				408,204				417,736				415,456				408,212
Total liabilities and stockholders’ equity		$	871,293			$	885,130			$	855,678			$	894,167			$	874,202			$	857,738			$	843,281			$	893,063

 

		At
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
ASSETS
Current assets:
Cash and cash equivalents		$	94,885			$	157,769			$	50,961			$	55,994			$	60,084			$	49,822			$	42,319
Fiduciary funds - restricted related to premium trust accounts			91,112				86,117				74,221				75,931				75,838				79,258				71,321
Commissions, fees and premiums receivable, net			98,058				95,835				100,255				129,833				100,930				104,049				107,506
Due from principals and/or certain entities they own			15,900				15,503				14,125				14,075				21,787				21,334				15,022
Notes receivable, net			8,012				7,459				7,412				9,731				7,161				7,860				7,747
Deferred tax assets			15,086				11,389				13,964				14,283				3,421				5,500				5,391
Other current assets			22,123				19,905				15,412				14,435				18,368				18,897				18,008
Total current assets			345,176				393,977				276,350				314,282				287,589				286,720				267,314
Property and equipment, net			37,362				36,362				37,182				37,291				44,341				46,107				49,498
Deferred tax assets			557				—				5,690				5,820				1,394				2,241				2,197
Intangibles, net			345,865				354,086				365,576				379,513				399,265				410,789				427,090
Goodwill, net			70,835				66,344				66,122				63,887				57,018				57,914				52,532
Notes receivable, net			32,070				33,158				30,261				28,714				32,410				32,191				33,507
Other non-current assets			42,829				52,276				40,768				39,744				29,793				30,078				28,804
Total assets		$	874,694			$	936,203			$	821,949			$	869,251			$	851,810			$	866,040			$	860,942
LIABILITIES
Current liabilities:
Premiums payable to insurance carriers		$	96,356			$	89,147			$	75,614			$	77,941			$	82,583			$	81,126			$	72,122
Short term debt			—				—				35,000				40,000				75,000				115,000				148,000
Current portion of long term debt			12,500				—				—				—				—				—				—
Income taxes payable			—				—				525				6,325				—				—				1,231
Due to principals and/or certain entities they own			27,767				18,232				10,463				34,106				22,779				17,000				9,863
Accounts payable			17,530				16,737				17,488				24,337				21,381				18,369				23,893
Accrued liabilities			63,729				54,318				54,208				73,105				47,531				47,127				36,636
Total current liabilities			217,882				178,434				193,298				255,814				249,274				278,622				291,745
Long term debt			109,375				—				—				—				—				—				—
Deferred tax liabilities			4,207				5,963				4,282				4,380				2,996				4,816				4,721
Convertible senior notes			86,575				295,368				207,455				204,548				201,767				198,984				196,200
Other non-current liabilities			64,089				70,702				67,966				64,472				62,037				61,427				60,832
Total liabilities			482,128				550,467				473,001				529,214				516,074				543,849				553,498
STOCKHOLDERS’ EQUITY
Preferred stock at par value			—				—				—				—				—				—				—
Common stock at par value			4,589				4,498				4,477				4,414				4,410				4,409				4,406
Additional paid-in capital			900,284				901,207				879,300				876,563				874,839				872,031				879,331
Accumulated deficit			(439,351	)			(442,354	)			(432,397	)			(438,109	)			(434,316	)			(440,230	)			(418,672	)
Treasury stock			(72,360	)			(77,687	)			(102,572	)			(102,930	)			(109,373	)			(114,117	)			(157,530	)
Accumulated other comprehensive (loss) income			(596	)			72				140				99				176				98				(91	)
Total stockholders’ equity			392,566				385,736				348,948				340,037				335,736				322,191				307,444
Total liabilities and stockholders’ equity		$	874,694			$	936,203			$	821,949			$	869,251			$	851,810			$	866,040			$	860,942

 

18

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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR QUARTERLY PERIODS

(Unaudited - in thousands)

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Cash flow from operating activities:
Net income (loss)		$	51			$	4,866			$	5,618			$	11,245			$	9,321			$	9,490			$	6,876			$	15,269
Adjustments to reconcile to net cash provided by (used in) operating activities:
Deferred taxes			—				—				—				2,201				—				—				—				1,774
Stock-based compensation			1,379				1,369				1,364				1,333				1,369				1,348				1,413				1,660
Impairment of goodwill and intangible assets			18,407				9,559				3,228				8,319				2,466				920				—				—
Amortization of intangibles			8,480				8,214				8,275				8,271				8,348				7,897				7,962				8,211
Depreciation			2,973				3,113				3,146				3,313				3,126				3,037				3,077				3,095
Accretion of senior convertible notes discount			1,217				1,167				1,157				1,109				1,099				1,054				1,044				1,260
(Gain) loss on sale of businesses, net			(439	)			(4,047	)			(351	)			(1,291	)			40				13				—				(274	)
Change in estimated acquisition earn-out payables			1,085				2,437				4,466				(467	)			53				—				—				—
Payments on acquisition earn-outs in excess of original estimated payables			(685	)			(145	)			—				—				—				—				—				—
Loss on sublease			—				—				—				—				—				—				—				—
Bad debt expense			961				237				—				49				1,871				(89	)			567				2,331
Gain on early extinguishment of debt			—				—				—				—				—				—				—				—
Other, net			—				—				—				(401	)			(574	)			(463	)			(478	)			(1,967	)
Decrease (increase) in operating assets:
Fiduciary funds - restricted related to premium trust accounts			14,417				(16,210	)			1,827				4,049				(2,474	)			3,825				6,336				8,465
Commissions, fees and premiums receivable, net			(5,666	)			(6,625	)			18,847				(29,146	)			(576	)			1,827				28,608				(21,712	)
Due from principals and/or certain entities they own			161				(3,295	)			(2,126	)			7,167				(3,496	)			(1,773	)			1,844				6,406
Notes receivable, net - current			203				484				(707	)			(23	)			415				504				618				1,884
Other current assets			(7,097	)			(9,109	)			(4,293	)			(1,324	)			12,044				(2,814	)			(9,182	)			4,667
Notes receivable, net - non-current			(216	)			1,581				(366	)			2,311				1,013				1,447				(544	)			(323	)
Other non-current assets			541				1,469				(1,392	)			130				3,008				(806	)			628				1,075
Increase (decrease) in operating liabilities:
Premiums payable to insurance carriers			(5,264	)			17,592				(1,454	)			(9,272	)			5,150				(810	)			(8,093	)			(13,265	)
Income taxes payable			68				(33	)			(3,045	)			1,327				1,537				—				15				(123	)
Due to principals and/or certain entities they own			5,706				3,055				(25,206	)			12,331				7,346				6,834				(26,293	)			9,649
Accounts payable			(2,956	)			(1,446	)			(7,851	)			12,427				(3,047	)			2,949				(18,054	)			18,112
Accrued liabilities			1,164				5,968				(13,170	)			5,248				(70	)			5,775				(5,505	)			(5,456	)
Other non-current liabilities			(891	)			(682	)			(2,552	)			(2,499	)			(2,130	)			(295	)			3,222				2,322
Total adjustments			33,548				14,653				(20,203	)			25,162				36,518				30,380				(12,815	)			27,791
Net cash provided by (used in) operating activities			33,599				19,519				(14,585	)			36,407				45,839				39,870				(5,939	)			43,060
Cash flow from investing activities:
Proceeds from disposal of businesses			1,300				5,850				352				2,964				700				38				-				(3	)
Purchases of property and equipment, net			(2,529	)			(2,073	)			(1,279	)			(2,491	)			(1,747	)			(2,539	)			(2,082	)			(3,092	)
(Payments for) proceeds from acquired firms, net of cash			(25,173	)			(9,770	)			(27,079	)			(150	)			(44,473	)			(65	)			(3,997	)			(356	)
Payments for contingent consideration			(221	)			(193	)			(6,520	)			—				(80	)			—				—				(2,518	)
Change in restricted cash			—				—				—				—				—				—				—				—
Net cash (used in) provided by investing activities			(26,623	)			(6,186	)			(34,526	)			323				(45,600	)			(2,566	)			(6,079	)			(5,969	)
Cash flow from financing activities:
Repayments of short term debt			—				—				—				—				—				—				—				—
Payments on acquisition earn-outs			(8,709	)			(89	)			—				—				—				—				—				—
Borrowings on revolving credit facility			—				—				20,000				—				—				—				—				—
Payments on revolving credit facility			—				—				(5,000	)			—				—				—				—				—
Repayment of long term debt			(3,125	)			(3,125	)			(3,125	)			(3,125	)			(3,125	)			(3,125	)			(3,125	)			(3,125	)
Long term debt costs			—				—				—				—				—				—				—				(94	)
Proceeds from issuance of senior convertible notes			—				—				—				—				—				—				—				—
Senior convertible notes issuance costs			—				—				—				—				—				—				—				6
Repayment of senior convertible notes			—				—				—				—				—				—				—				—
Senior convertible notes tender offer costs			—				—				—				—				—				—				—				—
Purchase of call options			—				—				—				—				—				—				—				—
Sale of warrants			—				—				—				—				—				—				—				—
(Payments for) proceeds from stock-based awards, including tax benefit			(59	)			(12	)			(804	)			(1,157	)			87				583				1,933				119
Shares cancelled to pay withholding taxes			(143	)			(12	)			(3,638	)			(12	)			(63	)			(49	)			(2,909	)			(51	)
Repurchase of common stock			(3,858	)			(6,082	)			(7,963	)			(13,194	)			(19,760	)			(8,803	)			—				—
Dividends paid			—				—				—				(1	)			(1	)			—				—				(1	)
Net cash (used in) provided by financing activities			(15,894	)			(9,320	)			(530	)			(17,489	)			(22,862	)			(11,394	)			(4,101	)			(3,146	)
Effect of exchange rate changes on cash and cash equivalents			8				(55	)			—				—				—				—				—				—
Net (decrease) increase in cash and cash equivalents			(8,910	)			3,958				(49,641	)			19,241				(22,623	)			25,910				(16,119	)			33,945
Cash and cash equivalents, beginning of period			89,556				85,598				135,239				115,998				138,621				112,711				128,830				94,885
Cash and cash equivalents, end of the period		$	80,646			$	89,556			$	85,598			$	135,239			$	115,998			$	138,621			$	112,711			$	128,830
Supplemental disclosures of cash flow information
Cash paid for income taxes		$	10,603			$	6,745			$	8,819			$	8,874			$	4,462			$	3,997			$	7,353			$	1,103
Cash paid for interest		$	1,619			$	3,984			$	1,034			$	3,403			$	906			$	3,479			$	976			$	3,503

 

FOR QUARTERLY PERIODS		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Cash flow from operating activities:
Net income (loss)		$	8,230			$	12,069			$	6,990			$	1,851			$	10,540			$	10,022			$	(515,799	)
Adjustments to reconcile to net cash provided by (used in) operating activities:
Deferred taxes			(5,072	)			5,005				351				(14,514	)			1,106				(58	)			(88,048	)
Stock-based compensation			9,998				2,727				2,951				3,083				2,456				2,499				2,488
Impairment of goodwill and intangible assets			—				—				2,901				6,231				2,002				2,895				607,337
Amortization of intangibles			8,258				8,206				8,338				8,806				8,975				9,176				9,594
Depreciation			3,017				3,005				3,006				8,857				3,361				3,485				3,539
Accretion of senior convertible notes discount			992				3,128				2,907				2,781				2,783				2,784				2,725
(Gain) loss on sale of businesses, net			(100	)			(7,690	)			(2,231	)			(244	)			(1,190	)			(1,279	)			617
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Payments on acquisition earn-outs in excess of original estimated payables			—				—				—				—				—				—				—
Loss on sublease			—				—				1,766				8,201				—				—				—
Bad debt expense			1,858				815				24				1,854				718				(76	)			126
Gain on early extinguishment of debt			(9,711	)			—				—				—				—				—				—
Other, net			(545	)			(546	)			(402	)			—				—				—				—
Decrease (increase) in operating assets:
Fiduciary funds - restricted related to premium trust accounts			(4,995	)			(11,896	)			1,710				(93	)			3,420				(7,937	)			3,788
Commissions, fees and premiums receivable, net			(2,156	)			1,268				29,632				(28,538	)			3,847				3,436				31,637
Due from principals and/or certain entities they own			(397	)			(1,382	)			(60	)			7,906				1,615				(6,312	)			1,307
Notes receivable, net - current			(553	)			(47	)			2,319				(2,570	)			659				(113	)			(1,251	)
Other current assets			(1,998	)			(4,656	)			(1,003	)			3,837				(816	)			(869	)			1,289
Notes receivable, net - non-current			(1,149	)			(4,049	)			(2,547	)			3,988				1,060				3,044				(7,081	)
Other non-current assets			621				1,083				(1,024	)			479				(700	)			(777	)			(355	)
Increase (decrease) in operating liabilities:
Premiums payable to insurance carriers			7,209				13,533				(2,327	)			(4,642	)			1,457				9,004				(1,037	)
Income taxes payable			8,799				(525	)			(5,800	)			6,325				—				(1,231	)			1,220
Due to principals and/or certain entities they own			8,903				6,971				(24,381	)			10,129				26				7,118				(29,216	)
Accounts payable			549				1,722				(6,284	)			3,119				3,038				(5,524	)			(4,639	)
Accrued liabilities			8,129				7,888				(14,112	)			19,672				1,081				6,751				(16,307	)
Other non-current liabilities			(5,671	)			624				2,179				(5,692	)			4,983				(1,899	)			(3,500	)
Total adjustments			25,986				25,184				(2,087	)			38,975				39,881				24,117				514,233
Net cash provided by (used in) operating activities			34,216				37,253				4,903				40,826				50,421				34,139				(1,566	)
Cash flow from investing activities:
Proceeds from disposal of businesses			166				476				5,031				5,109				1,935				6,962				2,100
Purchases of property and equipment, net			(4,017	)			(2,334	)			(2,933	)			(2,177	)			(1,801	)			(1,538	)			(1,604	)
(Payments for) proceeds from acquired firms, net of cash			(562	)			1,223				—				—				114				1,398				(279	)
Payments for contingent consideration			(80	)			(3,900	)			(6,804	)			(1,448	)			(741	)			(120	)			(1,978	)
Change in restricted cash			10,000				—				—				(10,000	)			—				—				—
Net cash (used in) provided by investing activities			5,507				(4,535	)			(4,706	)			(8,516	)			(493	)			6,702				(1,761	)
Cash flow from financing activities:
Repayments of short term debt			—				(35,000	)			(5,000	)			(35,000	)			(40,000	)			(33,000	)			—
Payments on acquisition earn-outs			—				—				—				—				—				—				—
Borrowings on revolving credit facility			125,000				—				—				—				—				—				—
Payments on revolving credit facility			—				—				—				—				—				—				—
Repayment of long term debt			(3,125	)			—				—				—				—				—				—
Long term debt costs			(3,923	)			—				—				—				—				—				—
Proceeds from issuance of senior convertible notes			—				125,000				—				—				—				—				—
Senior convertible notes issuance costs			(16	)			(4,113	)			—				—				—				—				—
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				—				—				—				—				—
(Payments for) proceeds from stock-based awards, including tax benefit			57				1,140				1,694				(1,236	)			385				(327	)			(2,777	)
Shares cancelled to pay withholding taxes			(150	)			(48	)			(1,858	)			(164	)			(51	)			(12	)			(147	)
Repurchase of common stock			—				—				—				—				—				—				—
Dividends paid			—				(1	)			(66	)			—				—				1				(51	)
Net cash (used in) provided by financing activities			(102,607	)			74,090				(5,230	)			(36,400	)			(39,666	)			(33,338	)			(2,975	)
Effect of exchange rate changes on cash and cash equivalents			—				—				—				—				—				—				—
Net (decrease) increase in cash and cash equivalents			(62,884	)			106,808				(5,033	)			(4,090	)			10,262				7,503				(6,302	)
Cash and cash equivalents, beginning of period			157,769				50,961				55,994				60,084				49,822				42,319				—
Cash and cash equivalents, end of the period		$	94,885			$	157,769			$	50,961			$	55,994			$	60,084			$	49,822			$	(6,302	)
Supplemental disclosures of cash flow information
Cash paid for income taxes		$	5,397			$	9,267			$	11,436			$	5,719			$	4,332			$	10,306			$	3,372
Cash paid for interest		$	1,580			$	317			$	1,384			$	854			$	1,975			$	1,411			$	2,385

 

19

---

 

CONSOLIDATED STATEMENTS OF CASH FLOWS-YEAR-TO-DATE

(Unaudited - in thousands)

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,
		2012				2012				2012				2011				2011				2011				2011				2010
Cash flow from operating activities:
Net income (loss)		$	10,535			$	10,484			$	5,618			$	36,932			$	25,687			$	16,368			$	6,876			$	42,558
Adjustments to reconcile to net cash provided by (used in) operating activities:
Deferred taxes			—				—				—				2,201				—				—				—				2,058
Stock-based compensation			4,112				2,733				1,364				5,463				4,130				2,761				1,413				17,336
Impairment of goodwill and intangible assets			31,194				12,787				3,228				11,705				3,386				920				—				2,901
Amortization of intangibles			24,969				16,489				8,275				32,478				24,207				15,859				7,962				33,013
Depreciation			9,232				6,259				3,146				12,553				9,240				6,114				3,077				12,123
Accretion of senior convertible notes discount			3,541				2,324				1,157				4,306				3,197				2,098				1,044				8,287
(Gain) loss on sale of businesses, net			(4,837	)			(4,398	)			(351	)			(1,238	)			53				13				—				(10,295	)
Change in estimated acquisition earn-out payables			7,988				6,903				4,466				(414	)			53				—				—				—
Payments on acquisition earn-outs in excess of original estimated payables			(830	)			(145	)
Loss on sublease			—				—				—				—				—				—				—				1,766
Bad debt expense			1,198				237				—				2,398				2,349				478				567				5,028
Gain on early extinguishment of debt			—				—				—				—				—				—				—				(9,711	)
Other, net			—				—				—				(1,916	)			(1,515	)			(943	)			(478	)			(3,460	)
(Increase) decrease in operating assets:
Fiduciary funds - restricted related to premium trust accounts			34				(14,383	)			1,827				11,736				7,687				10,161				6,336				(6,716	)
Commissions, fees and premiums receivable, net			6,556				12,222				18,847				713				29,859				30,435				28,608				7,032
Due from principals and/or certain entities they own			(5,260	)			(5,421	)			(2,126	)			3,742				(3,425	)			71				1,844				4,567
Notes receivable, net - current			(20	)			(223	)			(707	)			1,514				1,537				1,122				618				3,603
Other current assets			(20,499	)			(13,402	)			(4,293	)			(1,276	)			48				(11,996	)			(9,182	)			(2,990	)
Notes receivable, net - non-current			999				1,215				(366	)			4,227				1,916				903				(544	)			(8,068	)
Other non-current assets			618				77				(1,392	)			2,960				2,830				(178	)			628				1,755
Increase (decrease) in operating liabilities:
Premiums payable to insurance carriers			10,874				16,138				(1,454	)			(13,025	)			(3,753	)			(8,903	)			(8,093	)			5,150
Income taxes payable			(3,010	)			(3,078	)			(3,045	)			2,879				1,552				15				15				2,351
Due to principals and/or certain entities they own			(16,445	)			(22,151	)			(25,206	)			218				(12,113	)			(19,459	)			(26,293	)			1,142
Accounts payable			(12,253	)			(9,297	)			(7,851	)			(5,725	)			(18,152	)			(15,105	)			(18,054	)			14,099
Accrued liabilities			(6,038	)			(7,202	)			(13,170	)			5,448				200				270				(5,505	)			(3,551	)
Other non-current liabilities			(4,125	)			(3,234	)			(2,552	)			(1,702	)			797				2,927				3,222				(546	)
Total adjustments			27,998				(5,550	)			(20,203	)			79,245				54,083				17,563				(12,815	)			76,874
Net cash provided by (used in) operating activities			38,533				4,934				(14,585	)			116,177				79,770				33,931				(5,939	)			119,432
Cash flow from investing activities:
Proceeds from disposal of businesses			7,502				6,202				352				3,702				738				38				—				5,670
Purchases of property and equipment, net			(5,881	)			(3,352	)			(1,279	)			(8,859	)			(6,368	)			(4,621	)			(2,082	)			(12,376	)
(Payments for) proceeds from acquired firms, net of cash			(62,022	)			(36,849	)			(27,079	)			(48,685	)			(48,535	)			(4,062	)			(3,997	)			305
Payments for contingent consideration			(6,934	)			(6,713	)			(6,520	)			(80	)			(80	)			—				—				(13,302	)
Change in restricted cash			—				—				—				—				—				—				—				10,000
Net cash (used in) provided by investing activities			(67,335	)			(40,712	)			(34,526	)			(53,922	)			(54,245	)			(8,645	)			(6,079	)			(9,703	)
Cash flow from financing activities:
Repayments of short term debt			—				—				—				—				—				—				—				(40,000	)
Payments on acquisition earn-outs			(8,798	)			(89	)			—				—				—				—				—				—
Borrowings on revolving credit facility			20,000				20,000				20,000				—				—				—				—				125,000
Payments on revolving credit facility			(5,000	)			(5,000	)			(5,000	)			—				—				—				—				—
Repayment of long term debt			(9,375	)			(6,250	)			(3,125	)			(12,500	)			(9,375	)			(6,250	)			(3,125	)			(6,250	)
Long term debt costs			—				—				—				—				—				—				—				(4,017	)
Proceeds from issuance of senior convertible notes			—				—				—				—				—				—				—				125,000
Senior convertible notes issuance costs			—				—				—				—				—				—				—				(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
(Payments for) proceeds from stock-based awards, including tax benefit			(875	)			(816	)			(804	)			1,446				2,603				2,516				1,933				3,010
Shares cancelled to pay withholding taxes			(3,793	)			(3,650	)			(3,638	)			(3,033	)			(3,021	)			(2,958	)			(2,909	)			(2,107	)
Repurchase of common stock			(17,903	)			(14,045	)			(7,963	)			(41,757	)			(28,563	)			(8,803	)			—				—
Dividends paid			—				—				—				(2	)			(1	)			—				—				(68	)
Net cash (used in) provided by financing activities			(25,744	)			(9,850	)			(530	)			(55,846	)			(38,357	)			(15,495	)			(4,101	)			(36,893	)
Effect of exchange rate changes on cash and cash equivalents			(47	)			(55	)			—				—				—				—				—				—
Net (decrease) increase in cash and cash equivalents			(54,593	)			(45,683	)			(49,641	)			6,409				(12,832	)			9,791				(16,119	)			72,836
Cash and cash equivalents, beginning of period			135,239				135,239				135,239				128,830				128,830				128,830				128,830				55,994
Cash and cash equivalents, end of the period		$	80,646			$	89,556			$	85,598			$	135,239			$	115,998			$	138,621			$	112,711			$	128,830
Supplemental disclosures of cash flow information
Cash paid for income taxes		$	26,167			$	15,564			$	8,819			$	24,686			$	15,812			$	11,350			$	7,353			$	27,203
Cash paid for interest		$	6,637			$	5,018			$	1,034			$	8,764			$	5,361			$	4,455			$	976			$	6,784

 

YEAR TO DATE		For the Year-to-Date Period Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				June 30,				March 31,
		2010				2010				2010				2009				2009				2009				2009
Cash flow from operating activities:
Net income (loss)		$	27,289			$	19,059			$	6,990			$	(493,386	)		$	(495,237	)		$	(505,777	)		$	(515,799	)
Adjustments to reconcile to net cash provided by (used in) operating activities:
Deferred taxes			284				5,356				351				(101,514	)			(87,000	)			(88,106	)			(88,048	)
Stock-based compensation			15,676				5,678				2,951				10,526				7,443				4,987				2,488
Impairment of goodwill and intangible assets			2,901				2,901				2,901				618,465				612,234				610,232				607,337
Amortization of intangibles			24,802				16,544				8,338				36,551				27,745				18,770				9,594
Depreciation			9,028				6,011				3,006				19,242				10,385				7,024				3,539
Accretion of senior convertible notes discount			7,027				6,035				2,907				11,073				8,292				5,509				2,725
(Gain) loss on sale of businesses, net			(10,021	)			(9,921	)			(2,231	)			(2,096	)			(1,852	)			(662	)			617
Change in estimated acquisition earn-out payables			—				—				—				—				—				—				—
Payments on acquisition earn-outs in excess of original estimated payables
Loss on sublease			1,766				1,766				1,766				8,201				—				—				—
Bad debt expense			2,697				839				24				2,622				768				50				126
Gain on early extinguishment of debt			(9,711	)			—				—				—				—				—				—
Other, net			(1,493	)			(948	)			(402	)			—				—				—				—
(Increase) decrease in operating assets:
Fiduciary funds - restricted related to premium trust accounts			(15,181	)			(10,186	)			1,710				(822	)			(729	)			(4,149	)			3,788
Commissions, fees and premiums receivable, net			28,744				30,900				29,632				10,382				38,920				35,073				31,637
Due from principals and/or certain entities they own			(1,839	)			(1,442	)			(60	)			4,516				(3,390	)			(5,005	)			1,307
Notes receivable, net - current			1,719				2,272				2,319				(3,275	)			(705	)			(1,364	)			(1,251	)
Other current assets			(7,657	)			(5,659	)			(1,003	)			3,441				(396	)			420				1,289
Notes receivable, net - non-current			(7,745	)			(6,596	)			(2,547	)			1,011				(2,977	)			(4,037	)			(7,081	)
Other non-current assets			680				59				(1,024	)			(1,353	)			(1,832	)			(1,132	)			(355	)
Increase (decrease) in operating liabilities:
Premiums payable to insurance carriers			18,415				11,206				(2,327	)			4,782				9,424				7,967				(1,037	)
Income taxes payable			2,474				(6,325	)			(5,800	)			6,314				(11	)			(11	)			1,220
Due to principals and/or certain entities they own			(8,507	)			(17,410	)			(24,381	)			(11,943	)			(22,072	)			(22,098	)			(29,216	)
Accounts payable			(4,013	)			(4,562	)			(6,284	)			(4,006	)			(7,125	)			(10,163	)			(4,639	)
Accrued liabilities			1,905				(6,224	)			(14,112	)			11,197				(8,475	)			(9,556	)			(16,307	)
Other non-current liabilities			(2,868	)			2,803				2,179				(6,108	)			(416	)			(5,399	)			(3,500	)
Total adjustments			49,083				23,097				(2,087	)			617,206				578,231				538,350				514,233
Net cash provided by (used in) operating activities			76,372				42,156				4,903				123,820				82,994				32,573				(1,566	)
Cash flow from investing activities:
Proceeds from disposal of businesses			5,673				5,507				5,031				16,106				10,997				9,062				2,100
Purchases of property and equipment, net			(9,284	)			(5,267	)			(2,933	)			(7,120	)			(4,943	)			(3,142	)			(1,604	)
(Payments for) proceeds from acquired firms, net of cash			661				1,223				—				1,233				1,233				1,119				(279	)
Payments for contingent consideration			(10,784	)			(10,704	)			(6,804	)			(4,287	)			(2,839	)			(2,098	)			(1,978	)
Change in restricted cash			10,000				—				—				(10,000	)			—				—				—
Net cash (used in) provided by investing activities			(3,734	)			(9,241	)			(4,706	)			(4,068	)			4,448				4,941				(1,761	)
Cash flow from financing activities:
Repayments of short term debt			(40,000	)			(40,000	)			(5,000	)			(108,000	)			(73,000	)			(33,000	)			—
Payments on acquisition earn-outs			—				—				—				—				—				—				—
Borrowings on revolving credit facility			125,000				—				—				—				—				—				—
Payments on revolving credit facility			—				—				—				—				—				—				—
Repayment of long term debt			(3,125	)			—				—				—				—				—				—
Long term debt costs			(3,923	)			—				—				—				—				—				—
Proceeds from issuance of senior convertible notes			125,000				125,000				—				—				—				—				—
Senior convertible notes issuance costs			(4,129	)			(4,113	)			—				—				—				—				—
Repayment of senior convertible notes			(219,650	)			—				—				—				—				—				—
Senior convertible notes tender offer costs			(800	)			—				—				—				—				—				—
Purchase of call options			(33,913	)			(33,913	)			—				—				—				—				—
Sale of warrants			21,025				21,025				—				—				—				—				—
(Payments for) proceeds from stock-based awards, including tax benefit			2,891				2,834				1,694				(3,955	)			(2,719	)			(3,104	)			(2,777	)
Shares cancelled to pay withholding taxes			(2,056	)			(1,906	)			(1,858	)			(374	)			(210	)			(159	)			(147	)
Repurchase of common stock			—				—				—				—				—				—				—
Dividends paid			(67	)			(67	)			(66	)			(50	)			(50	)			(50	)			(51	)
Net cash (used in) provided by financing activities			(33,747	)			68,860				(5,230	)			(112,379	)			(75,979	)			(36,313	)			(2,975	)
Effect of exchange rate changes on cash and cash equivalents			—				—				—				—				—				—				—
Net (decrease) increase in cash and cash equivalents			38,891				101,775				(5,033	)			7,373				11,463				1,201				(6,302	)
Cash and cash equivalents, beginning of period			55,994				55,994				55,994				48,621				48,621				48,621				48,621
Cash and cash equivalents, end of the period		$	94,885			$	157,769			$	50,961			$	55,994			$	60,084			$	49,822			$	42,319
Supplemental disclosures of cash flow information
Cash paid for income taxes		$	26,100			$	20,703			$	11,436			$	23,729			$	18,010			$	13,678			$	3,372
Cash paid for interest		$	3,281			$	1,701			$	1,384			$	6,625			$	5,771			$	3,796			$	2,385

 

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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. Prior to January 1, 2012 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. Prior to January 1, 2012 referred to as “total management fees.”

 

Management contract buyout:

Represents a transaction in which NFP purchases the entity owned by the principals and party to the management contract or purchases a principal’s economic interest in the management contract, in either scenario acquiring a greater economic interest in a business than originally structured. The acquisition of this greater economic interest will be treated for accounting purposes as the settlement of an executory contract in a business combination between parties with a preexisting relationship and expensed as part of corporate and other expenses.

 

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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