USI 4Q Net Income Down 76% On Costs, Charges

USI reported net income dropped 76 percent in the fourth quarter, hit with $11.7 million in costs and charges that distorted "profitability comparisons," the firm's chief financial officer said.

Speaking during an analyst's conference call today, Robert S. Schneider, USI's executive vice president and CFO, said the Briarcliff Manor, N.Y.-based insurance broker's net income was affected by costs in four specific areas.

The largest was $5.3 million for office closures, management changes and impairment charges related to its business in California, he said.

A direct bill receivables adjustment (estimates of premiums collected by the carrier directly) in one of its offices came to $3.8 million. Acquisition and integration costs amounted to $1.4 million, and costs associated with the purchase of USI by Goldman Sachs, announced last month, came to $1.2 million, Mr. Schneider said.

For the fourth quarter, USI Holdings Corp. reported income dropped from $3.3 million to $783,000, a decline of $2.5 million. Net income per share went from 6 cents to 1 cent. Revenues rose 9.5 percent, or $13 million, from $136 million to $149 million.

USI's year end net income was up substantially by 164 percent, or $12.8 million, going from $7.8 million to $20.6 million. Net income per share rose from 14 cents to 36 cents. Revenues rose 8.5 percent, or $43.3 million, from $508.3 million to $551.6 million.

Organic growth dropped to a negative 2 percent in the quarter. Mr. Schneider noted that outside of California, the brokerage operation's organic growth grew 4 percent for the year, representing 75 percent of the firm's consolidated commissions and fees. Organic growth in California was negatively affected by the soft market and attrition of business, he said.

David L. Eslick, chairman, president, and chief executive officer for the firm, said that while USI net income took a hit in the fourth quarter, the expense decisions were made for the long term interest of the company.

The company is continuing to improve its measurements of different operating units and take appropriate action to make improvements, he added.

He said the actions taken in California--which include the termination of a business relationship, integration of two offices, elimination of positions as well as changes in management--would bring the firm back to a leading position in the state.

On the acquisition of the firm by Goldman Sachs' private equity investment firm GS Capital Partners, Mr. Eslick said a stockholders' meeting to vote on the deal is scheduled for March 29. With their approval, the transaction is expected to close sometime in the second quarter.

GS Capital plans to purchase USI for $1.4 billion or $17 a share.