NEW YORK, Feb. 9 /PRNewswire-FirstCall/ — National Financial Partners Corp. , a leading independent distributor of benefits, insurance and investment advisory services, today reported financial results for the fourth quarter ended December 31, 2009.

    Financial                                                                    Highlights(1)     4Q 2009  4Q 2008 % Change  4Q 2009  3Q 2009   % Change   ————-       ——-  ——- ——–  ——-  ——-   ——–   (Dollars in millions,     except per share data)                                                                                 Revenue             $277.2   $299.3      -7.4%  $277.2   $229.9      20.6%   Gross Margin %        17.4%    19.2%              17.4%    19.1%             Net income (loss)      1.9    (12.4)       NM      1.9     10.5     -81.9%   Net income (loss) per                                                         diluted share        0.04    (0.31)       NM     0.04     0.24     -83.3%   Cash earnings         26.2     28.4      -7.7%    26.2     26.4      -0.8%   Cash earnings per                                                             diluted share       $0.61    $0.70     -12.9%   $0.61     0.61       0.0%   Cash flow from                                                                operations(2)       $40.8    $32.1      27.1%   $40.8    $50.4     -19.0%   Organic revenue                                                               growth/decline       -5.8%   -17.1%              -5.8%   -16.3%             Organic gross margin                                                          growth/decline      -19.1%   -18.0%             -19.1%   -18.4%                                                                                                                                                                       Financial Highlights(1)                     FY 2009   FY 2008  % Change    ———————–                     ——-   ——-  ——–    (Dollars in millions,     except per share data)                                                                                                            Revenue                                      $948.3  $1,150.4     -17.6%   Gross Margin %                                 17.9%     18.1%             Net income (loss)                            (493.4)      8.5        NM    Net income (loss) per diluted share          (12.02)     0.21        NM    Cash earnings                                  97.1     100.5      -3.4%   Cash earnings per diluted share               $2.32     $2.46      -5.7%   Cash flow from operations(2)                 $123.8     $70.8      74.9%   Organic revenue growth/decline                -15.9%     -8.7%             Organic gross margin growth/decline           -20.5%    -16.0%                                                                                          ———————–                                                     (1) This summary includes financial measures not calculated based on        generally accepted accounting principles.       (2) FY 2008 cash flow from operations is adjusted for the inclusion of       $14.4 million for the purchase of an increased economic ownership        percentage of an existing firm. The purchase increased NFP’s base        acquired from an economic perspective but was included in operating       cash flow for accounting purposes.           Excluding this $14.4 million, FY 2008 cash flow from operations was       $56.5 million.       NM indicates amount not meaningful.    

Commenting on today’s announcement, Jessica Bibliowicz, chairman, president and chief executive officer, said, “Starting in 2008 and early in 2009, we took key strategic actions focused on controlling our expenses and establishing a more rigorous expense discipline throughout the organization. We then turned our focus to reorganizing the Company along two core client-facing groups and introducing new incentive plans. Results in 2009 were positively impacted by these actions and include increased operating cash flow, significant debt reduction, the sale of non-core firms and improving sales performance.”

Fourth Quarter Results

NFP reported fourth quarter 2009 net income of $1.9 million, or net income of $0.04 per diluted share, compared with a net loss of $12.4 million, or a net loss of $0.31 per diluted share, in the fourth quarter of 2008. Fourth quarter 2009 cash earnings was $26.2 million, or $0.61 per diluted share, compared with $28.4 million, or $0.70 per diluted share, in the fourth quarter of 2008. For the full year 2009, cash earnings was $97.1 million, or $2.32 per diluted share, compared with cash earnings of $100.5, or $2.46 per diluted share in 2008. Cash earnings is a non-GAAP measure, which the Company defines as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets and the after-tax impact of non-cash interest expense. A full reconciliation of net income to cash earnings is provided in the attached tables.

As part of the Company’s expense reduction actions, during the fourth quarter of 2009, NFP subleased one floor of its corporate headquarters. Excluding the one-time largely non-cash charge related to this sublease, fourth quarter 2009 cash earnings was $31.7 million, or $0.74 per diluted share, compared with $28.4 million, or $0.70 per diluted share, in the fourth quarter of 2008. This improvement was primarily the result of lower expenses.

For the fourth quarter of 2009, excluding the charge related to the sublease, cash earnings increased $5.3 million, or 20%, and cash earnings per diluted share increased $0.13, or 21%, compared with the third quarter of 2009.

Cash flow from operations for the fourth quarter of 2009 was $40.8 million compared with $32.1 million in the fourth quarter of 2008, an increase of 27.1%. Cash flow from operations for the year was $123.8 million compared with $70.8 million, as adjusted, in 2008, an increase of 74.9%. Operating cash flow completely funded the Company’s debt reduction. As of year end, the outstanding balance on the credit facility was $40.0 million, down from $148.0 million at the beginning of the year.

Revenue decreased $22.1 million, or 7.4%, to $277.2 million in the fourth quarter of 2009 from the prior year period. Components of the decrease included: an organic revenue decline of $13.2 million, or 5.8%, to $215.6 million; a decline of $0.7 million, or 1.1%, to $66.9 million from the Company’s Austin, Texas-based facility, which includes NFP Insurance Services, Inc., a licensed insurance agency and marketing organization, and NFP Securities, Inc., a registered broker-dealer; and a decrease of $8.9 million from dispositions. Revenue improved $47.3 million, or 21.0%, in the fourth quarter of 2009 compared with the third quarter of 2009.

Gross margin before management fees was $107.1 million in the fourth quarter of 2009, a decrease of $2.4 million, or 2.2%, from the prior year period. Gross margin, which includes management fees as a component of cost of services, was $48.2 million in the fourth quarter of 2009, a decrease of $9.3 million, or 16.2%, from the prior year period. Gross margin improved by $4.3 million, or 9.8%, in the fourth quarter of 2009 compared with the third quarter of 2009.

Compared with the corresponding prior year period, organic gross margin declined 19.1% in the fourth quarter of 2009 and 20.5% for the full year. The decline for the quarter was the result of a decline in revenue and an increase in management fees primarily due to the accrual for the new incentive plan, partially offset by lower commissions and fees expense and operating expenses for firms included in the organic calculation. The full year decline was driven by decreases in revenue, partially offset by decreases in commissions and fees expense, operating expenses and management fees.

As a percentage of revenue, gross margin was 17.4% in the fourth quarter of 2009, compared with 19.2% in the prior year period and 19.1% in the third quarter of 2009. The year over year gross margin percentage decline was due to a higher management fee percentage, offset by lower commissions and fees expense and lower operating expenses as a percentage of revenue. The sequential decrease was the result of a higher management fee percentage, due mainly to the new principal incentive plans, partially offset by decreased operating expenses as a percentage of revenue.

In absolute terms, operating expenses declined 8.0% in the fourth quarter of 2009 compared with the prior year period, primarily due to expense reduction initiatives and dispositions.

Management fees as a percentage of gross margin before management fees was 55.0% in the fourth quarter of 2009 versus 47.5% a year ago. The management fee percentage increased due to the accruals for the new principal incentive plans that were implemented in the fourth quarter of 2009. The fourth quarter 2009 accrual reflected, among other things, improving life insurance sales. Management fees as a percentage of gross margin before management fees has increased throughout the year as the operating performance of NFP’s firms has improved.

General and administrative expense (G&A) increased $6.0 million, or 39.4%, to $21.3 million in the fourth quarter of 2009 compared with the prior year period. G&A included $9.0 million in expense related to the sublease of one floor of NFP’s corporate headquarters in the fourth quarter of 2009.

The sublease is expected to increase the Company’s pre-tax cash flow by approximately $1.1 million, pre-tax net income by approximately $3.8 million and pre-tax cash earnings by approximately $2.7 million in 2010 and increase pre-tax cash flow by $1.3 million, pre-tax net income by $4.0 million and pre-tax cash earnings by $2.9 million annually from 2011 to 2014.

In the fourth quarter of 2009, impairment of goodwill and intangible assets was $6.2 million. Over half of the impairment was related to firms where a disposition is in process or was completed subsequent to the fourth quarter of 2009. The Company generally evaluates the value of its intangible assets on a quarterly basis.

The Company sold eight subsidiaries and certain assets of seven additional subsidiaries and recognized a $0.2 million gain in the fourth quarter of 2009.

Amortization and depreciation was $17.7 million, up $4.1 million from the prior year period due mainly to the acceleration of amortization of the leasehold improvements associated with the sublease of one floor of the Company’s headquarters.

The effective tax rate was 13.1% for the year ended 2009, significantly lower than the typical combined federal and state tax rates. The tax rate during the year was impacted by tax benefits from impairments, dispositions and corporate reorganizations, as well as the tax-free nature of the $5.5 million key man life insurance proceeds received in the second quarter.

Organic calculations generally encompass firms that were owned by NFP for at least four full quarters at the beginning of the fourth quarter of 2009. More detailed definitions can be found in the Company’s quarterly financial supplement, which is available on the Company’s Web site at http://www.nfp.com/.

Earnings Conference Call & Presentation

The Company will conduct its fourth quarter 2009 earnings conference call and audio webcast on February 10, 2010, from 8:00 to 9:00 a.m. (ET). The conference call will be available live via telephone and the Internet. To access the call, dial (617) 786-2964 (when prompted, callers should provide the access code “NFP”). The conference call and webcast will be accompanied by a presentation. The presentation will be available for electronic download on the Company’s Web site approximately one hour before the conference call and webcast is scheduled to begin. The presentation may also be viewed automatically upon connecting to the webcast. To listen to the conference call over the Internet, visit http://www.nfp.com/ir. The conference call will be available for replay via telephone and Internet for a period of 90 days. To listen to a replay of the conference call via telephone, dial (888) 286-8010. The access code for the replay is 52489852. To access the replay of the conference call over the Internet, visit the above-mentioned Web site.

Reconciliation of Non-GAAP Measures

The Company analyzes its performance using historical and forward-looking non-GAAP measures called cash earnings and cash earnings per diluted share, gross margin before management fees and percentages or calculations using these measures. The Company believes these non-GAAP 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 and the after-tax impact of non-cash interest expense. A full reconciliation of net income to cash earnings is provided in the attached tables. 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. Gross margin before management fees should not be viewed as a substitute for gross margin. A full reconciliation of these non-GAAP measures to their GAAP counterparts is provided in the Company’s quarterly financial supplement for the period ended December 31, 2009, which is available on the Investor Relations section of the Company’s Web site at http://www.nfp.com/.

About National Financial Partners Corp.

NFP is a leading independent financial services distribution company. NFP offers high net worth individuals and companies throughout the United States and in Canada comprehensive solutions across corporate and executive benefits, life insurance and wealth transfer, and investment advisory products and services. NFP and its subsidiaries, including NFP Securities, Inc., provide clients with access to objective advice and a choice of insurance and financial products and services. For more information please visit http://www.nfp.com/.

Forward-Looking Statements

This release contains certain statements relating to future results, 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, credit facilities, market and industry conditions, premium and commission rates, interest rates, contingencies, the direction or outcome of regulatory investigations and litigation, income taxes and NFP’s operations or strategy. These forward-looking statements are based on management’s current views with respect to future results, and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include: (1) NFP’s ability, through its operating structure, to respond quickly to regulatory, operational or financial situations impacting its firms; (2) the ability of the Company’s firms to perform successfully following acquisition, including through cross-selling initiatives, and the Company’s ability to manage its business effectively and profitably through the principals of its firms; (3) any losses that NFP may take with respect to firm dispositions, restructures or otherwise; (4) a recessionary economic environment, resulting in fewer sales of financial products or services; (5) the occurrence of events or circumstances that could be indicators of impairment to goodwill and intangible assets which require the Company to test for impairment, and the impact of any impairments that the Company may take; (6) the impact of the adoption, modification or change in interpretation of certain accounting treatments or policies and changes in underlying assumptions relating to such treatments or policies (including with respect to impairments), which may lead to adverse financial statement results; (7) NFP’s success in acquiring and retaining high-quality independent financial services firms; (8) the financial impact of NFP’s new incentive plans; (9) changes that adversely affect NFP’s ability to manage its indebtedness or capital structure, including changes in interest rates, credit market conditions and general economic factors; (10) securities and capital markets behavior, including fluctuations in the price of NFP’s common stock, recent uncertainty in the U.S. financial markets, or the dilutive impact of any capital-raising efforts to finance operations or business strategy; (11) the continued availability of borrowings and letters of credit under NFP’s credit facility; (12) adverse results, market uncertainty in the financial services industry, or other consequences from litigation, arbitration, regulatory investigations or compliance initiatives, including those related to business practices, compensation agreements with insurance companies, policy rescissions or chargebacks, regulatory investigations or activities within the life settlements industry; (13) adverse developments in the markets in which the Company operates, resulting in fewer sales of financial products and services, including those related to compensation agreements with insurance companies and activities within the life settlements industry; (14) the impact of legislation or regulations in jurisdictions in which NFP’s subsidiaries operate, including the possible adoption of comprehensive and exclusive federal regulation over all interstate insurers and the uncertain impact of proposals for legislation regulating the financial services industry; (15) uncertainty regarding the impact of proposed healthcare legislation or reform on NFP’s subsidiaries that operate in the benefits market; (16) changes in laws, including the elimination or modification of the federal estate tax, changes in the tax treatment of life insurance products, or changes in regulations affecting the value or use of benefits programs, which may adversely affect the demand for or profitability of the Company’s services; (17) developments in the availability, pricing, design or underwriting of insurance products, revisions in mortality tables by life expectancy underwriters or changes in the Company’s relationships with insurance companies; (18) changes in premiums and commission rates or the rates of other fees paid to the Company’s firms, including life settlements and registered investment advisory fees; (19) 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; (20) the occurrence of adverse economic conditions or an adverse regulatory climate in New York, Florida or California; (21) the loss of services of key members of senior management; and (22) the Company’s ability to effect smooth succession planning at its firms.

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, 2008, filed with the SEC on February 13, 2009 (the “2008 10-K”), and its Current Report on Form 8-K, filed with the SEC on August 21, 2009 solely to update the Company’s 2008 10-K for the adoption of recent guidance relating to the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).

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.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                             (Unaudited-in thousands, except per share data)                                                                                                                            Three Months Ended        Year Ended                                           December 31,          December 31,                                         ————–       —————-                                       2009      2008       2009        2008                                      —-      —-       —-        —-    Revenue:                                                                      Commissions and fees         $277,181  $299,252   $948,285  $1,150,387                                                                                Cost of services:                                                             Commissions and fees           76,013    87,381    263,947     362,868      Operating expenses (1)         94,088   102,387    368,641     408,968      Management fees                58,865    51,956    146,181     170,683                                     ——    ——    ——-     ——-    Total cost of services          228,966   241,724    778,769     942,519                                                                                                                 ——    ——    ——-     ——-    Gross margin                     48,215    57,528    169,516     207,868                                     ——    ——    ——-     ——-                                                                                Corporate and other expenses:                                                 General and administrative     21,319    15,289     59,217      64,189      Amortization of intangibles     8,806     9,871     36,551      39,194      Impairment of goodwill and                                                   intangible assets              6,231    31,031    618,465      41,257      Depreciation                    8,857     3,665     19,242      13,371      (Gain) loss on sale of                                                       subsidiaries                    (244)        2     (2,096)     (7,663)                                      —-       —     ——      ——    Total corporate and                                                          other expenses                  44,969    59,858    731,379     150,348                                                                                                                  —–    ——   ——–      ——    Income (loss) from operations     3,246    (2,330)  (561,863)     57,520                                                                                  Net interest and other (2)     (3,549)   (3,855)    (5,907)    (15,711)                                    ——    ——     ——     ——-    Income (loss) before                                                         income taxes                      (303)   (6,185)  (567,770)     41,809                                                                                  Income tax expense                                                           (benefit) (2)                 (2,154)    6,258    (74,384)     33,338                                                                                                                 ——  ——–  ———      ——    Net income (loss) (2)            $1,851  $(12,443) $(493,386)     $8,471                                     ======  ========  =========      ======                                                                                Earnings (loss) per share (2):                                                Basic                           $0.04    $(0.31)   $(12.02)      $0.21                                      =====    ======    =======       =====      Diluted                         $0.04    $(0.31)   $(12.02)      $0.21                                      =====    ======    =======       =====                                                                                Weighted average shares                                                      outstanding:                                                                 Basic                          41,654    39,720     41,054      39,543                                     ======    ======     ======      ======      Diluted                        43,109    39,720     41,054      40,933                                     ======    ======     ======      ======                                                                                (1)  Excludes amortization and depreciation shown separately in Corporate        and other expenses.       (2)  Prior periods presented have been retrospectively adjusted for the        adoption of recent guidance related to the accounting for convertible        debt on January 1, 2009.                              CALCULATION OF GROSS MARGIN                                             (Unaudited-in thousands)                                                                                                                         Three Months Ended       Year Ended                                      December 31,         December 31,                                     ————–      —————-                                   2009      2008      2009        2008                                 —-      —-      —-        —-                                                                          Revenue                   $277,181  $299,252  $948,285  $1,150,387    Cost of services:                                                       Commissions and fees      76,013    87,381   263,947     362,868      Operating expenses (1)    94,088   102,387   368,641     408,968                                ——   ——-   ——-     ——-    Gross margin before                                                    management fees           107,080   109,484   315,697     378,551    Management fees             58,865    51,956   146,181     170,683                                ——    ——   ——-     ——-    Gross margin               $48,215   $57,528  $169,516    $207,868                               =======   =======  ========    ========    Gross margin as a                                                      percentage of revenue        17.4%     19.2%     17.9%       18.1%   Gross margin before     management fees as a                               percentage of revenue        38.6%     36.6%     33.3%       32.9%   Management fees, as a     percentage of gross                              margin before management                                              fees                         55.0%     47.5%     46.3%       45.1%                                                                                   RECONCILIATION OF NET INCOME TO CASH EARNINGS                        (Unaudited-in thousands, except per share data)                                                                                                             Three Months Ended      Year Ended                                     December 31,         December 31,                                   ————–       ————–                                  2009      2008       2009      2008                                 —-      —-       —-      —-    GAAP net income                                                       (loss) (2)                 $1,851  $(12,443) $(493,386)   $8,471      Amortization of                                                       intangibles               8,806     9,871     36,551    39,194      Depreciation               8,857     3,665     19,242    13,371      Impairment of goodwill       and intangible assets     6,231    31,031    618,465    41,257      Tax benefit of impairment       of goodwill and                                                      intangible assets        (1,133)   (5,474)   (90,608)   (8,137)     Non-cash interest,                                                    net of tax (2)            1,559     1,732      6,814     6,364                                 —–     —–      —–     —–    Cash earnings (3)          $26,171   $28,382    $97,078  $100,520                                                                         GAAP net income (loss)    per share – diluted (2)     $0.04    $(0.31)   $(12.02)    $0.21      Amortization of                                                       intangibles                0.20      0.24       0.87      0.96      Depreciation                0.21      0.09       0.46      0.33      Impairment of goodwill       and intangible assets      0.14      0.76      14.78      1.01      Tax benefit of impairment       of goodwill and                                                      intangible assets         (0.03)    (0.13)     (2.16)    (0.20)     Non-cash interest,                                                    net of tax (2)             0.04      0.04       0.16      0.16      Impact of diluted shares       on cash earnings not                                                 reflected in GAAP net                                               loss per share –                                                   diluted (4)                   –      0.01       0.23         –                                   —      —-       —-       —    Cash earnings per                                                     share -diluted (5)          $0.61     $0.70      $2.32     $2.46                                                                         (1) Excludes amortization and depreciation shown separately in        Corporate and other expenses.       (2) Prior periods presented have been retrospectively adjusted for        the adoption of recent guidance related to the accounting for        convertible debt on January 1, 2009.       (3) Cash earnings is a non-GAAP measure, which the Company defines as        net income excluding amortization of intangibles, depreciation, the       after-tax impact of the impairment of goodwill and intangible assets       and the after-tax impact of non-cash interest expense.       (4) For periods where the Company generated a GAAP net loss, weighted       average common shares outstanding – diluted was used to calculate        cash earnings per share – diluted only. 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 antidilutive effects of other items caused by a GAAP net loss       position.       (5) 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.                       CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                      (Unaudited-in thousands)                                                                                                                                                December 31,  December 31,                                                    2009          2008                                                     —-          —-    ASSETS                                                                   Current assets:                                                            Cash and cash equivalents                     $55,994       $48,621      Cash, cash equivalents and securities                                     purchased under resale agreements in       premium trust accounts                        75,931        75,109      Commissions, fees and premiums                                            receivable, net                              129,833       140,758      Due from principals and/or certain                                        entities they own                             14,075        16,329      Notes receivable, net                           9,731         6,496      Deferred tax assets                            14,779         9,435      Other current assets                           14,435        19,284                                                     ——        ——          Total current assets                      314,778       316,032    Property and equipment, net                      37,291        51,683    Deferred tax assets (1)                         106,495        24,889    Intangibles, net                                379,513       462,123    Goodwill, net                                    63,887       635,693    Notes receivable, net                            28,714        23,683    Other non-current assets (1)                     39,744        28,018                                                     ——        ——          Total assets (1)                         $970,422    $1,542,121                                                   ========    ==========                                                                             LIABILITIES                                                              Current liabilities:                                                       Premiums payable to insurance carriers        $77,941       $73,159      Borrowings                                     40,000       148,000      Income taxes payable (1)                        6,325            11      Deferred tax liabilities                          496             –      Due to principals and/or certain                                          entities they own                             34,106        38,791      Accounts payable                               24,337        28,513      Accrued liabilities                            73,105        54,380                                                     ——        ——          Total current liabilities (1)             256,310       342,854    Deferred tax liabilities (1)                    105,055       119,400    Convertible senior notes (1)                    204,548       193,475    Other non-current liabilities                    64,472        62,874                                                     ——        ——          Total liabilities (1)                     630,385       718,603                                                    ——-       ——-                                                                             STOCKHOLDERS’ EQUITY                                                     Preferred stock at par value                          –             –    Common stock at par value                         4,414         4,388    Additional paid-in capital (1)                  876,563       881,458    Retained (deficit) earnings (1)                (438,109)       97,178    Treasury stock                                 (102,930)     (159,456)   Accumulated other comprehensive income               99           (50)                                                       —           —          Total stockholders’ equity (1)            340,037       823,518                                                    ——-       ——-          Total liabilities and                                                     stockholders’ equity (1)                $970,422    $1,542,121                                                   ========    ==========                                                                             (1) Prior periods presented have been retrospectively adjusted for the       adoption of recent guidance related to the accounting for        convertible debt on January 1, 2009.                          CONSOLIDATED STATEMENTS OF CASH FLOWS                                          (Unaudited-in thousands)                                                                                                                                                                                            Three Months Ended      Year Ended                                        December 31,          December 31,                                     ————–       ————–                                     2009      2008       2009      2008                                    —-      —-       —-      —-    Cash flow from operating     activities                                                     Net income (loss) (1)        $1,851  $(12,443) $(493,386)   $8,471                                                                            Adjustments to reconcile                                                 to net cash provided by                                                 operating activities:                                                    Deferred taxes (1)          (14,514)   (3,453)  (101,514)   (3,430)     Stock-based compensation      3,083     2,591     10,526    12,623      Impairment of goodwill and                                               intangible assets            6,231    31,031    618,465    41,257      Amortization of intangibles   8,806     9,871     36,551    39,194      Depreciation                  8,857     3,665     19,242    13,371      Accretion of senior                                                      convertible notes                                                       discount (1)                 2,781     2,610     11,073    10,388      (Gain) loss on sale of                                                   subsidiaries                  (244)        2     (2,096)   (7,663)     Other, net                        –       (26)         –       (26)                                                                           (Increase) decrease in                                                   operating assets:                                                        Cash, cash equivalents                                                   and securities purchased       under resale agreements       in premium trust accounts      (93)    6,833       (822)   11,570      Commissions, fees and                                                    premiums receivable, net   (28,522)  (30,490)    10,398    13,962      Due from principals and/or                                               certain entities they own    7,906    15,857      4,516    (1,889)     Notes receivable, net –                                                  current                     (2,570)      (37)    (3,275)     (926)     Other current assets (1)      3,837     1,339      3,441    (2,007)     Notes receivable, net –                                                  non-current                  5,826    (3,495)     3,617   (11,171)     Other non-current assets (1)    479     1,823     (1,353)  (12,005)                                                                           Increase (decrease) in                                                   operating liabilities:                                                   Premiums payable to                                                      insurance carriers          (4,642)   (8,560)     4,782   (11,477)     Income taxes payable (1)      6,325      (124)     6,314    (1,888)     Due to principals and/or                                                 certain entities they own   10,129        72    (11,943)  (33,142)     Accounts payable              3,119     7,116     (4,006)   (5,309)     Accrued liabilities (1)      19,672     4,564     11,197   (17,718)     Other non-current                                                        liabilities (1)              2,509     3,368      2,093    14,266                                    —–     —–      —–    ——    Total adjustments              38,975    44,557    617,206    47,980                                   ——    ——    ——-    ——    Net cash provided by                                                     operating activities          40,826    32,114    123,820    56,451                                                                            Cash flow from                                                           investing activities:                                                    Proceeds from disposal of                                                subsidiaries                 5,109        92     16,106    22,615      Purchases of property and                                                equipment, net              (2,177)   (2,919)    (7,120)  (33,241)     Payments for acquired                                                    firms, net of cash, and                                                 contingent consideration    (1,448)  (12,587)    (3,054)  (76,369)     Restricted cash             (10,000)        –    (10,000)        –                                  ——-       —    ——-       —    Net cash (used in)                                                       provided by investing                                                   activities                    (8,516)  (15,414)    (4,068)  (86,995)                                                                           Cash flow from                                                           financing activities:                                                    Repayments of borrowings    (35,000)  (45,000)  (108,000) (177,000)     Proceeds from borrowings          –    20,000          –   199,000      Proceeds from stock-based                                                awards, including                                                       tax benefit                 (1,236)   (1,999)    (3,955)    1,482      Shares cancelled to pay                                                  withholding taxes             (164)     (135)      (374)     (815)     Payments for treasury                                                    stock repurchase                 –         –          –   (24,612)     Dividends paid                    –    (8,389)       (50)  (33,072)                                     —    ——        —   ——-    Net cash (used in)                                                       provided by financing                                                   activities                   (36,400)  (35,523)  (112,379)  (35,017)                                 ——-   ——-   ——–   ——-    Net (decrease) increase                                                  in cash and cash                                                        equivalents                   (4,090)  (18,823)     7,373   (65,561)   Cash and cash equivalents,                                               beginning of period           60,084    67,444     48,621   114,182                                   ——    ——     ——   ——-    Cash and cash equivalents,     end of the period            $55,994   $48,621    $55,994   $48,621                                  =======   =======    =======   =======                                                                            Supplemental disclosures                                                 of cash flow information                                                 Cash paid for income taxes   $5,719    $7,502    $23,729   $37,470      Cash paid for interest         $854    $2,188     $6,625    $9,756                                                                            (1) Prior periods presented have been retrospectively adjusted for        the adoption of recent guidance related to the accounting for        convertible debt on January 1, 2009.  

National Financial Partners Corp.

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