The directors of U.S.I. Holdings Corporation of Briarcliff, N.Y. have approved a plan to reduce ongoing operating expenses. The plan is expected to result in cost savings of approximately $5 million, before taxes, in 2005.
The companys aid that the majority of the cost savings will be attributable to the company’s insurance brokerage segment. In conjunction with the plan, the company expects to take an efficiency initiative charge estimated at approximately $11 million, before taxes, principally in the fourth quarter of 2004. The charge will cover, in approximately equal parts, employee severance, lease termination costs and service contract terminations.
The company is lowering its 2004 full year adjusted cash earnings per share guidance from a previously communicated $1.02 — $1.07 to a revised $0.96 — $0.98, prior to the negative effect of the previously mentioned charges. The reduced projection is due to lower new business during December 2004 and the continued softening of the property and casualty market, as well as expenses incurred related to previously announced insurance industry investigations by various state attorney generals and other insurance regulators.
The company is also lowering its organic revenue growth guidance for the second half of 2004 to the low single digits from its previous 5 percent estimate.
The board also approved a plan to sell some operations in the insurance brokerage and specialized benefits services segments that it says have exhibited “significant earnings volatility or that are not considered core to the company’s long term business strategy.” U.S.I. expects a loss on disposal estimated at between $10 million and $13 million, before taxes, in the fourth quarter of 2004 to adjust the carrying value of these operations to their estimated fair value. The operations to be sold are expected to have revenues of approximately $5 million and a net loss of between $1 million and $2 million in 2004.
The directors approved an expanded stock repurchase program that will permit the company to purchase its stock up to the limits set forth within its credit facility. The company said it has the capacity under the current facility to purchase up to approximately $11 million in December 2004 and an estimated $10 million in 2005.
The company is expecting growth in adjusted cash earnings per share in 2005 of at least 15% over 2004 cash earnings per share. This estimate is based on the company’s 2005 budget, which reflects the savings from the expense reductions discussed above, the expected closing of the Summit Global Partners acquisition and an expected moderate reduction in contingent commissions in 2005.
The previously announced acquisition of Summit Global Partners is expected to close early in the first quarter of 2005. The company has requested a waiver from its lender group in connection with the transaction and a commitment for another $80 million in borrowings on its term loan at existing terms. The $80 million will be used principally to repay the seller notes related to the Summit acquisition and to pay down borrowings on the company’s revolving credit facility. Additionally, the company has available approximately $55 million in net proceeds on its equity forward sales contracts, which it expects to draw down over the balance of 2004 and the first quarter of 2005.
“Although we are disappointed with the financial results that we are now forecasting for 2004, we remain confident in our underlying core business and strategic opportunities,” said David L. Eslick, Chairman, president and chief executive officer.
“The 2004 results continue to show strong organic revenue growth in our employee benefits and worksite marketing revenue streams, offset by lower than expected new business for December, 2004 and continued erosion of property and casualty rates. We have committed to taking decisive actions to exit certain businesses and, on a selective basis, to eliminate employment costs and other operating costs to provide greater assurance around our 15% earnings growth target for 2005.”
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