U.S.I. Holdings Corporation Reports First Quarter Results and Other Matters

Business Wire, May 3, 2005

BRIARCLIFF MANOR, N.Y. -- U.S.I. Holdings Corporation (NASDAQ:USIH):

Highlights:

For the quarter ended March 31, 2005 as compared to the same quarter in the prior year:

--Increased consolidated revenues 33.6% to $122.8 million, substantially all attributable to acquisitions

--Grew consolidated commissions and fees organically by 1.6%

--Closed the acquisitions of Summit Global Partners ("Summit") and Patterson//Smith, expected to add $77 million in annualized revenues

--Recorded $10.6 million of expenses, before taxes, related to the integration of Summit and our previously announced margin improvement plan

--Announced the resignation of USI's Chief Operating Officer, and recorded $1.6 million in expense under a separation agreement

--Increased our term loan by $90 million under the same terms and conditions of the existing credit facility

--Settled the remaining portion of our forward sale agreements by issuing 2,244,000 shares in exchange for proceeds of approximately $31.5 million

--Sold the assets of two insurance brokerage operations classified in discontinued operations

U.S.I. Holdings Corporation ("USI"), (NASDAQ:USIH) today reported financial results for the first quarter ended March 31, 2005. Certain amounts have been reclassified and presented in all periods as discontinued operations to reflect the decision announced in the fourth quarter of 2004 to sell three operations.

Revenues for the quarter increased $30.9 million, or 33.6%, to $122.8 million from $91.9 million in the comparable period in 2004. The increase reflects the impact on first quarter revenue of $29.9 million resulting from acquisitions completed in the last twelve months. On an organic basis, commissions and fees grew 1.6% for the quarter compared to the same period last year. Contingent commissions for the three months were $18.0 million, as compared to $13.5 million for the same period last year. The increase in contingent commissions is a result of acquisitions completed in the last twelve months.

Total expenses for the quarter ended March 31, 2005 increased by $37.9 million to $120.5 million, a 45.9% increase from $82.6 million in the comparable period in 2004. The increase in expense was primarily attributable to the impact of acquisitions and to $12.2 million in other expenses as further discussed below.

Expenses associated with the previously announced margin improvement plan: In the first quarter of 2005, the Company recorded an additional $2.5 million in expenses for employee severance and related benefits in connection with the margin improvement plan, expected to result in a decrease in pre tax compensation and benefits expense of approximately $1.0 million in 2005 and $2.0 million in 2006. There were no comparable expenses in the first quarter of 2004. The Company recorded expenses of $12.4 million in the fourth quarter of 2004, which is expected to generate cost savings of approximately $6.0 million, before taxes, in 2005.

Expenses associated with the restructuring of certain Summit sales professionals' and executives' employment agreements and executive severance: During the first quarter, the Company recorded expenses of $8.1 million related to the restructuring of certain Summit sales professionals' and executives' employment agreements. In exchange for cash and/or restricted stock consideration, existing employment agreements were amended to conform to USI's standard compensation structure for sales professionals and regional executives. Additionally, in the first quarter, the Company recorded severance and related benefits of $1.6 million related to the resignation of USI's Chief Operating Officer. There were no comparable expenses in the first quarter of 2004.

On December 20, 2004, USI announced that its Board of Directors had approved plans to sell three operations in its Insurance Brokerage and Specialized Benefits Services segments that had exhibited significant earnings volatility or did not fit with USI's core business strategy. In the first quarter of 2005, the Company sold the assets of two of these operations. As a result of these transactions, USI recorded a $1.3 million gain on the sale of the discontinued operations. The Company received cash proceeds of $2.1 million and notes in a principal amount of $0.4 million.

Income from continuing operations before income tax expense for the quarter decreased $7.0 million to $2.3 million from $9.3 million in the first quarter of 2004. The decrease was principally due to the $12.2 million of expenses related to integration of Summit ($8.1 million), the margin improvement plan ($2.5 million) and USI's Chief Operating Officer's resignation ($1.6 million), a combined increase in interest and amortization expense of $2.7 million and a net increase in corporate expenses of $1.2 million related to legal fees and costs related to the previously disclosed insurance industry investigations and related claims and Sarbanes-Oxley 404 compliance, partially offset by the positive impact of acquisitions. Contingent commissions contributed approximately $18.0 million to income from continuing operations before income tax expense for the quarter, a $4.5 million increase over the $13.5 million of contingent commissions recorded in the first quarter of 2004. The increase in contingent commissions is a result of acquisitions completed in the last twelve months.