We lease our principal corporate office in Briarcliff Manor, New York, and our operating unit offices in various states. These properties are suitable for our use. Information regarding lease commitments is set forth in Note 11, “Lease Commitments” to our Consolidated Financial Statements included in Part II, Item 8 of this report. The disclosure set forth in Note 11, “Lease Commitments” is incorporated herein by reference.
(b) In the fourth quarter of 2004, we announced that our Board of Directors had approved a margin improvement plan in order to reduce ongoing operating expenses. As a result of this plan, we recorded expense of $12.4 million in the fourth quarter of 2004. The expense related to employee severance and related benefits for 28 employees of $3.4 million, facilities closures of $3.4 million, the modification of 34 sales professionals’ agreements of $2.9 million and service contract termination fees of $2.7 million. In 2005, we recorded an additional $8.1 million in expense primarily for employee severance and related benefits in connection with the margin improvement plan.
(c) In December 2004, our Board of Directors approved plans to sell, or otherwise dispose of, three operations in our Insurance Brokerage and Specialized Benefits Services segments that exhibited significant earnings volatility or that did not fit with our core business strategy. In the first quarter of 2005, we classified as discontinued operations two operations newly acquired in the SGP acquisition that were determined not to
(e) At December 31, 2002, we had approximately 2.2 million shares of common stock outstanding on which the owners had put rights. These shares, and the related put obligation, were reclassified to equity and liabilities, respectively, upon the adoption of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” in 2003. For a description of put rights relating to our common stock and preferred stock and our common stock warrants please read Note 7, “Redeemable Securities” to our Consolidated Financial Statements included in Part II, Item 8 of this report. At December 31, 2005, we estimated that there were 0.3 million shares of our common stock outstanding with these put rights.
We are a distributor of property and casualty (“P&C”) and employee benefits insurance and financial products and related consulting and administrative services primarily to small and mid-sized business clients and individuals. In our role as an insurance intermediary, we may act as an agent on behalf of the insurance companies we represent, or as a broker, working without any particular insurance company affiliation.
fees paid directly by clients and other third-parties for either P&C or employee benefit-related services; and
Commissions on P&C, health, group life and group disability insurance are typically calculated as a percentage, ranging from approximately 3% to 20%, of the annual premium. These commissions generally recur at the same rate as long as the insurance is in force. Commissions earned from the placement of individual and corporate-owned life and individual disability insurance are calculated as a percentage of corresponding premiums over the duration or term of the underlying policies. Traditionally, most of the commission revenue on these life and individual products, as well as on other traditional voluntary benefit products, is recognized in the first year the insurance is placed, with the commissions paid in renewal years being relatively insignificant.
We have two operating segments-Insurance Brokerage and Specialized Benefits Services-and a third administrative segment-Corporate. See discussion under “Results of Operations” below. In 2004 and 2005, we announced our intentions to sell or otherwise dispose of seven operations that did not fit our core business strategy. Most of these operations were in locations where we did not believe we could grow, and were, therefore, geographically undesirable. We also sold our executive benefits operations which were subject to legislative risks beyond our control and highly unpredictable revenue and earnings streams. As of December 31, 2005, all of these operations had been sold. We may in the future decide to sell other operations as our business strategy evolves or as we acquire companies with undesirable lines of business or locations. Please read Note 17, “Discontinued Operations” to our Consolidated Financial Statements included in Part II, Item 8 of this report.
Since October, 2004, the insurance industry has been under a significant level of scrutiny by various regulatory bodies, including state Attorneys General and the departments of insurance for various states, with
Following the allegations of bid rigging and price fixing in the lawsuit filed by the Office of the Attorney General of the State of New York against Marsh and McLennan Companies, Inc., we retained outside counsel, Akin Gump Strauss Hauer & Feld, LLP (“Akin Gump”), to render legal advice in connection with an internal review of our operations. Since that time, Akin Gump has assisted us in responding to the subpoenas and inquiries described above. In connection with this internal review, Akin Gump has interviewed more than 90 of our employees, including corporate management, and is continuing its review of documents. We are continuing to review our business and have made a number of improvements to our internal controls and compliance framework and expect that our review will not only address the areas that the regulators are examining, but will also help us evaluate where we can make additional operational or business practice changes or improvements.
Since October 2004, the industry’s long-standing contingent commission compensation arrangements have been a focal point of scrutiny by various regulators and, in fact, some of the largest brokers within the industry have abandoned the practice of receiving such contingent commissions. In 2005, we received substantially all of our contingent commissions under the arrangements in place for 2004. Additionally, our carriers with whom we have historically had contingent arrangements, have entered into 2005 contingent commission agreements in a form and structure generally consistent with our prior agreements. Market or other external forces may ultimately cause contingent commission arrangements to cease or be substantively restructured; however, management does expect to receive contingent commissions in 2006 for arrangements established in 2005. Revenues from contingent and override commissions were $25.8 million, $19.0 million and $17.7 million for the years 2005, 2004 and 2003, respectively. Contingent and override commissions’ contribution to income from continuing operations before income taxes for the years ended December 31, 2005 and 2004 was approximately equivalent to the revenues from contingent and override commissions for each period.
numerous laws including the Racketeer Influenced and Corrupt Organizations (“RICO”) and federal restraint of trade statutes, state restraint of trade, unfair and deceptive practices statutes and state breach of fiduciary duty and unjust enrichment laws. The amended complaint seeks class certification, treble damages for the alleged injury suffered by the putative plaintiff class and other damages. We are also a defendant in “copycat” or tag-along lawsuits in the United States District Court for the Northern District of Illinois: Lewis v. Marsh & McLennan Companies, Inc., et al., 04 C 7847 and Preuss v. Marsh & McLennan Companies, Inc., et al., 04 C 7853, and during April 2005, we were served in another copycat class action lawsuit, captioned Palm Tree Computers Systems, Inc. et ano v. Ace, USA et al., and filed in the Circuit Court for the Eighteenth Judicial Circuit in and for Seminole County, Florida, Civil Division, Class Representation, No. 05-CA-373-16-W, with the result that this action has been removed to the United States District Court for the Middle District of Florida, Orlando Division, Case No. 6:05-CV-422-2ZKRS. A similar copycat class action complaint captioned Bensley Construction, Inc. v. Marsh & McLennan Companies, Inc. et al., No. ESCV2005-0277 (Essex Superior Court, Massachusetts) was served upon us in May 2005. This action has been removed to the United States District Court for the District of Massachusetts. Like the Opticare complaint, these complaints contain no particularized allegations of wrongdoing on our part. In February 2005, the Judicial Panel on Multidistrict Litigation transferred the actions then pending to the United States District Court for the District of New Jersey for coordinated or consolidated pretrial proceedings. The Judicial Panel on Multidistrict Litigation has transferred the Palm Tree and Bensley lawsuits to the same court for the same purposes.
Insurance premium pricing within the commercial P&C insurance industry has historically been cyclical, based on the underwriting capacity of the insurance industry and economic conditions. We use the terms “soft market” and “hard market” to describe the business cycles experienced by the industry. A soft market is an insurance market characterized by a period of declining premium rates, which negatively affect commissions earned by insurance brokers. A hard market is an insurance market characterized by a period of rising premium rates which, absent other changes, positively affects commissions earned by insurance brokers. Additionally, the insurance industry was affected by the events of September 11, 2001, resulting in the one of the largest insurance losses in America’s history, which accelerated increases in premium rates for particular lines of commercial P&C insurance. In response to rising premiums, some of our customers increased their deductibles and/or reduced their insurance coverage in order to reduce the impact of the premium increases. These trends prompted by the hard market negatively impacted our revenues. The hard market, for many lines of insurance, began to slow in the second half of 2002. In the second half of 2003, premiums in most P&C lines of insurance began to flatten or decrease, with some, such as property, declining by as much as 20%. In 2004 and 2005, the soft market persisted in most lines of business, negatively affecting brokers’ revenue. Some clients use the savings on insurance premiums to purchase more coverage, somewhat offsetting the negative impact in our commissions due to falling premiums. In 2005, the competitive pricing dynamic was consistent throughout all account sizes and most geographic regions, with the workers compensation market in California a notable exception where we have seen premiums decline by as much as 50%. If the soft market persists, our P&C insurance brokerage revenues may continue to be negatively impacted.
In 2004, the economy continued to improve with positive growth in employment, which, in the second half of 2004 and throughout 2005, drove growth in our employee benefits revenues. We believe that many employers, however, are still struggling with medical inflation, which may result in continued benefit reductions and cost-shifting to employees, which may serve to reduce insurance premiums or cause participants to opt out of their employers’ plan. This unfavorable dynamic for the benefits brokerage business has led to greater opportunity, however, in our workplace marketing business, which is aided by the trend to defined contribution health-care where employees direct their benefit dollars to purchase voluntary benefits a la carte.
Organic Revenue growth (decline), which excludes the current period’s total revenues attributable to acquisitions and the prior period’s total revenues from divested businesses during the twelve months following an acquisition or divestiture; and
We strongly urge investors or potential investors in our stock to review the calculation of Organic Revenue growth (decline) and the related reconciliation to GAAP financial measures in “Results of Operations” below.
Our business strategy is to grow our cash earnings per share each year. We have a three-pronged strategy to accomplish this goal: (1) organic growth in revenues, (2) operating margin improvement and (3) disciplined and accretive acquisitions.
consistent and aggressive sales management, including recruitment and development of new sales professionals;
maintaining a balanced mix of P&C and employee benefits revenues to mitigate the impact of fluctuations in market cycles.
In addition to organic revenue growth, we monitor and manage to a number of different operating statistics related to revenue growth, including, but not limited to, sales opportunities by sales professional, cross-selling within our 400 largest accounts, client retention rates and revenue mix by operating company. These metrics are tracked and reported monthly and form the basis of our agenda, among other items, for our monthly operations meetings with each of our business unit executive management teams.
In the fourth quarter of 2004, we announced that our Board of Directors had approved a margin improvement plan in order to reduce ongoing operating expenses. As a result of this action, in 2004, we recorded expense of $12.4 million comprised of employee severance and related benefits for 28 employees of $3.4 million, facilities closures of $3.4 million, the modification of 34 sales professionals’ agreements of $2.9 million and service contract termination fees of $2.7 million. In 2005, we recorded additional margin improvement plan expense of $8.1 million comprised of employee severance and related benefits of $6.1 million and the modification of 58 sales professionals’ agreements of $2.0 million. In the future we may incur similar costs as we grow and refine our operating structure.
On February 1, 2005, we acquired Patterson//Smith Associates (“PSA”), an insurance brokerage operation. The aggregate preliminary purchase price of approximately $20.9 million, consisting of cash of $16.9 million, shares of our common stock valued at $2.0 million and debt issued of $2.0 million, was allocated primarily to goodwill and other intangible assets. This acquisition is included in the Insurance Brokerage segment.
On February 3, 2005, we acquired Summit Global Partners (“SGP”), an insurance brokerage operation. The aggregate preliminary purchase price of approximately $119.9 million, consisting of cash of $65.2 million, shares of our common stock valued at $26.5 million and assumed liabilities of $28.2 million, was allocated primarily to goodwill and other intangible assets. In connection with the SGP acquisition, we recorded $8.1 million in expense in the first quarter of 2005 related to the restructuring of certain SGP sales professionals’ and executives’ employment agreements. This consideration was not included in purchase price for accounting purposes, but was deducted from the agreed upon purchase consideration. This acquisition is included in the Insurance Brokerage segment.
On October 3, 2005, we acquired Dascit/White Winston, Inc. (“DWW”), a small-group benefit general agent. The aggregate preliminary purchase price of $9.1 million, consisting of cash of $8.4 million and notes payable of $0.7 million, was allocated primarily to goodwill and intangible assets. This acquisition is included in the Insurance Brokerage segment.
the timing of certain core benefits and enrollment sales with significant first year commissions; and
specific identification of questionable items. We periodically review the adequacy of the allowances and make adjustments as necessary. Future additions to the allowances may be necessary based on changes in the trend of write-offs or cancellations which could increase due to changes in economic conditions and/or our clients’ financial condition and which may have a negative impact on our financial position or results of operations. The allowance for estimated policy cancellations on insurance brokerage business is established through a charge to revenue and the allowance for bad debts and policy cancellations and was $1.5 million and $0.9 million at December 31, 2005 and 2004, respectively, due to growth in our revenues and receivables. Future additions to the allowances may be necessary based on changes in the trend of write-offs or cancellations which could increase due to changes in economic conditions and/or our clients’ financial condition.
We assess the recoverability of our goodwill and other long-lived assets at least once a year or as required based on triggering events. A triggering event is a change in business circumstances that indicates that the carrying value of the assets may not be recoverable. The carrying value of goodwill is evaluated at the segment level using an analysis to determine the fair value of the segment using both market valuation data, such as recent transaction multiples of revenue or operating income, and present value techniques. Reviews for triggering events and impairment of other long-lived assets are performed at the operating company level, one level below the segments, which is our determination of the lowest level of meaningful cash flows. Reviews for triggering events require the use of management’s judgment. Upon identification of a triggering event, we perform further analysis using cash flow projections or other market valuation data to determine if the carrying value of an asset is impaired. Both methods require substantial judgment. If, as a result of an impairment review, we find that the carrying value of an asset is in excess of the fair value, we would be required to take a charge against current earnings.
We follow a consistent methodology based on an estimate of discounted future cash flows derived from acquired clients’ lists and attrition rates to estimate the fair value of the expiration rights and other intangible assets at the date of acquisition. For acquisitions in excess of $5.0 million in purchase price, we obtain an independent appraisal of the fair value of intangible assets acquired. Expiration rights are amortized on a straight-line basis over their estimated lives based on historical attrition. Non-compete agreements and restrictive
Determining the consolidated provision for income tax expense, deferred tax assets and liabilities and any related valuation allowance involves judgment. GAAP requires deferred tax assets and liabilities (“DTAs” and “DTLs,” respectively) to be recognized for the estimated future tax effects attributed to temporary differences and carry-forwards based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. Temporary differences are differences between the tax basis of an asset or liability and its reported amount in the financial statements. For example, we have a DTA because the tax bases of our accrued liabilities are smaller than their book bases. Similarly, we have a DTL because the book basis of our goodwill exceeds its tax basis. Carry-forwards primarily include items such as net operating losses (“NOLs”), which can be carried forward subject to certain limitations. A summary of the significant DTAs and DTLs relating to our temporary differences and carry-forwards is included in Note 10, “Income Taxes” to our Consolidated Financial Statements included in Part II, Item 8 of this report.
At December 31, 2005, our current DTAs total $14.9 million, and our non-current DTLs total $16.2 million. We are required to reduce DTAs (but not DTLs) by a valuation allowance to the extent that, based on the weight of available evidence, it is “more likely than not” (i.e., a likelihood of more than 50%) that any DTAs will not be realized. Recognition of a valuation allowance would decrease reported earnings on a dollar-for-dollar basis in the year in which any such recognition was to occur. The determination of whether a valuation allowance is appropriate requires the exercise of management’s judgment. In making this judgment, management is required to weigh the positive and negative evidence as to the likelihood that the DTAs will be realized.
Prior to the fourth quarter of 2003, we carried a valuation allowance for our net DTA based on our history of net losses and the resulting uncertainty as to whether we would generate enough taxable income in the future to utilize our DTA. In the fourth quarter of 2003, based on five consecutive quarters of profitability, our improved financial condition following our IPO, restructuring our credit facility and on forecasted future results, management determined that it was more likely than not that our DTA would be realized in future periods, with the exception of DTA related to state NOL and tax credit carry-forwards; therefore, we reversed the valuation allowance resulting in a deferred income tax benefit of $8.1 million in 2003. In the event of adverse developments in our projections of taxable income, or if our estimates and assumptions were to change, management might be required to reach a different conclusion about the realization of our DTA and re-establish a valuation allowance through a charge to earnings.
Revenues. Of the $105.1 million in revenue growth, $103.1 million was due to acquisitions, net of disposed businesses and $2.0 million was due to organic growth (including contingents, interest and other income). Organic revenue growth in 2005 was negatively affected by the soft rate environment for many P&C insurance products, the adjustment for direct bill and lost business.
Other Operating Expenses. For 2005, the increase was primarily due to the effect of acquisitions. Additionally, for 2005, we experienced a net increase of $2.4 million in costs related to legal fees and costs related to various insurance industry investigations offset by a decrease of $3.0 million in costs related to the implementation of Sarbanes-Oxley Section 404 procedures and corporate move expenses. As a percentage of revenues, other operating expenses were 22.7% for 2005, compared to 23.1% for 2004.
Income From Continuing Operations Comparisons of 2005 to 2004 are affected by the expense and revenue variances noted above and a lower effective tax rate in 2005.
Total expenses. The increase in expense was due to the items noted above and, primarily, to margin improvement plan expense of $12.4 million, an increase in amortization expense of $2.2 million due to the impact of recent acquisitions, offset by a decrease in interest expense of $1.2 million due to reduced interest rates resulting from an amendment to the credit facility.
individual and group health, life and disability insurance, which we refer to as employee benefits insurance;
In 2005 and 2004, revenues were positively impacted by approximately $90.9 million and $47.7 million, respectively, due to acquisitions. Organic revenue (decline) growth in 2005 and 2004 was (1.2)% and 2.1%,
The increase in total expenses in 2005, compared to 2004, is primarily attributable to acquisitions and a net increase in expenses related to our margin improvement plan and integration efforts of $6.0 million. The increase in total expenses in 2004, compared to 2003, is primarily attributable to acquisitions and an increase in expenses related to our margin improvement plan of $9.0 million. As a percentage of revenues, total expenses were 84.9%, 83.2% and 80.7% in 2005, 2004 and 2003, respectively. The increase in total expenses as a percentage of revenues in 2005, compared to 2004, was primarily due to the net increase in expenses related to our margin improvement plan and integration efforts. The increase in total expenses as a percentage of revenues in 2004, compared to 2003, was primarily due to the increase in margin improvement plan expenses.
The increase in revenues in 2005 is attributable to acquisitions and organic revenue growth of $12.2 million and $5.4 million, respectively. The increase in revenues in 2004 was due to organic revenue growth, somewhat offset by a $1.4 million adjustment to direct bill revenues. Organic revenue growth was 20.7% and 11.3% in 2005 and 2004, respectively. Specialized Benefits Services net commissions and fees represented 9.1%, 6.8% and 5.2% of our total consolidated net commissions and fees in 2005, 2004 and 2003, respectively.
Income (loss) from continuing operations before income taxes in the Specialized Benefit Services segment was $7.1 million, $3.6 million and $(0.3) million for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in 2005 and 2004 was primarily due to the reasons noted above.
As an acquirer, we are continuously working to integrate acquired businesses. Common activities include combining offices and eliminating redundant positions. Many of these activities happen over time following the close of an acquisition and the related expense is recorded in compensation and other operating expenses as a part of our continuing operations and as a deduction in determining GAAP net income. For purposes of evaluating performance of our operating companies, these expenses are excluded from the calculation of operating income.
In the fourth quarter of 2004, we announced that our Board of Directors had approved a margin improvement plan in order to reduce ongoing operating expenses. As a result of this action, we recorded expense of $12.4 million for employee severance and related benefits for 28 employees of $3.4 million, facilities closures of $3.4 million, the modification of 34 sales professionals’ agreements of $2.9 million and service contract termination fees of $2.7 million. In 2005, we recorded an additional expense of $8.1 million for employee severance and related benefits of $6.1 million and the modification of 58 sales professionals’ agreements of $2.0 million.
Other expenses represent significant infrequent and non-recurring expenses included in GAAP net income and operating income, but noteworthy because of their size and nature. We recorded $0.2 and $0.3 million in 2005 and 2004, respectively, for severance costs related to the move of the corporate offices from San Francisco to New York.
We believe that our projected cash flows generated from operations, cash and cash equivalents on hand of $27.3 million and our availability under our revolving credit facility of $28.8 million as of December 31, 2005, should be sufficient to fund our estimated $11.5 million in debt principal repayments, our working capital needs, acquisitions and budgeted $14.7 million in capital expenditures through at least December 31, 2006. Our liquidity thereafter will depend on our financial results, results of operations, acquisition activity and future available sources of additional equity or debt financing. Our future operating performance and ability to service our debt will be subject to economic conditions and to financial, business and other factors, many of which are beyond our control. Please read our “Risk Factors” in Part I, Item 1A of this report.
$61.1 million, $44.4 million and $37.8 million for the years ended December 31, 2005, 2004 and 2003, respectively, and is principally dependent upon our results of operations and the timing of collection of premiums receivable and payments of premiums payable. Cash provided by operating activities in 2005 was negatively affected by the pay-down of liabilities existing at December 31, 2004 related to our margin improvement plan and by further payments under the plan announced in 2005. Cash provided by operating activities was negatively impacted in 2003 by the pay-down of approximately $13.8 million in liabilities existing at December 31, 2002 in our Corporate segment related to pre-IPO obligations. Net cash (used in) provided by discontinued operating activities was $(5.6) million, $(0.4) million and $0.4 million for the years ended December 31, 2005, 2004 and 2003, respectively.
Working capital increased by $22.9 million to $55.6 million at December 31, 2005, compared to $32.7 million at December 31, 2004, principally due to the generation of cash from operating and financing activities, net of cash used in investing activities, primarily acquisitions.
Net cash provided by continuing financing activities totaled $106.5 million, $11.1 million and $12.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. In 2005 we increased our existing term loan resulting in gross proceeds of $90.0 million. We also raised $36.2 million from the sale of our common stock as a result of the settlement of the remaining portion of our forward sale agreements where we issued 2,244,000 shares of our common stock, along with stock options and employee stock purchase plan transactions. In addition, we made payments of $22.5 million for debt and repaid the $5.0 million outstanding at December 31, 2004 on our revolving credit facility. During 2004 we drew down a net of $5.0 million on our revolving credit facility ($29.0 million drawn and $24.0 million repaid). We also raised $29.7 million from the issuance of our common stock as a result of a forward sale agreement, by issuing 1,781,000 shares of our common stock, along with stock options and employee stock purchase plan transactions. In 2003, we refinanced our credit facility resulting in gross proceeds from the issuance of debt of $125.0 million and costs paid of $3.8 million. With the proceeds, we paid down our previously existing revolver and term loan of $70.9 million and $27.3 million, respectively, and other acquisition-related debt of $5.0 million. During 2005 and 2004, we repurchased common stock on the open market at a cost of $4.0 million and $3.9 million, respectively. We repurchased no common stock in 2003. Net cash used in discontinued financing activities was $2.1 million, $0.8 million and $2.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.
Income from continuing operations was $18.0 million, $16.1 million and $33.8 million for the years ended December 31, 2005, 2004 and 2003, respectively. Based on 55,963,311, 48,242,035 and 45,541,484 weighted-average basic shares outstanding, income per share from continuing operations on a basic basis was $0.32, $0.33 and $0.74 for 2005, 2004 and 2003, respectively. Based on 56,639,930, 49,126,642 and 46,028,456 weighted-average diluted shares outstanding for the periods, income per share from continuing operations on a diluted basis was $0.32, $0.33 and $0.73 for 2005, 2004 and 2003, respectively.
At December 31, 2005 and 2004, we had state net operating loss and tax credit carry-forwards of approximately $67.0 million and $14.0 million, respectively. Such loss and credit carry-forwards will expire from 2006 to 2025. We have provided a valuation allowance due to the uncertainty of the realization of the deferred tax assets related to the state net operating loss and tax credit carry-forwards.
At December 31, 2003, we had $23.8 million of net operating loss carry-forwards for federal tax purposes that we utilized fully by the third quarter of 2004, becoming a full taxpayer for both federal and state income taxes.
At December 31, 2005, we had federal net operating loss carry-forwards of $37.5 million, comprised of acquired net operating loss carry-forward of $21.0 million and $16.5 million related to a 2005 federal income tax loss.
In April 2004, we completed a follow-on public offering under the universal shelf registration statement of 11,229,578 shares of our common stock at a public offering price of $14.72 per common share. Of those shares, 4,025,000 shares were sold by us via forward sale agreements and 7,204,578 shares were sold by various selling shareholders. On December 29, 2004, we settled a portion of our forward sale agreement by issuing 1,781,000 shares of our common stock in exchange for proceeds of $25.0 million. We used $20.0 million of the proceeds to repay borrowings under our revolving credit facility. On January 30, 2005, we settled the remaining portion of our forward sale agreement by issuing 2,244,000 shares in exchange for proceeds of approximately $31.5 million.
We consummated our acquisition of SGP on February 3, 2005. Pursuant to the terms of the registration rights provisions of the Merger Agreement, we have on file with the SEC an effective registration statement to permit the public offering and resale under the Securities Act of 1933, on a continuous basis, shares of our common stock held by the beneficiaries of the merger.
On May 10, 2004, we announced that our Board of Directors authorized a limited stock repurchase plan. Using only proceeds, and any related tax benefit amounts from the exercise of stock options and warrants, we may, at our discretion, repurchase shares on the open market or in private transactions in order to help offset dilution from our equity compensation plans and previously issued warrants to purchase our common stock. The amount and timing of repurchases will be based upon the number of shares of our common stock which may be
In August 2003, we completed a $155.0 million senior secured credit facility with several lending institutions. The credit facility is structured as follows: a $30.0 million revolving credit facility maturing on August 11, 2007, and a $125.0 million term loan payable in quarterly installments which commenced on October 31, 2003. The last quarterly installment is due on August 11, 2008, the maturity date of the term loan. The proceeds from borrowings under the credit facility were drawn to (i) repay all amounts under the previously existing credit facility, (ii) repay a portion of certain notes issued for acquisitions, (iii) pay fees and expenses in connection with the credit facility including a prepayment penalty in connection with the prepayment of the previously existing credit facility and (iv) for general corporate purposes. As a result of repaying the previously existing credit facility, we recorded an expense of $4.0 million as early extinguishment of debt to reflect the prepayment penalty and the write-off of remaining deferred financing costs in the third quarter of 2003.
On March 26, 2004, we executed a first amendment to the credit agreement, providing for a 0.5% reduction to the applicable term loan interest rate effective April 1, 2004, and paid an amendment fee to Banc of America Securities LLC and J.P. Morgan Securities Inc., the joint lead arrangers. As amended, borrowings under the term loan bear interest, at our option, at either a base rate plus 1.5% per annum or the Eurodollar rate plus 2.5% per annum. The base rate and the Eurodollar rate are effectively the Prime Rate and the London Interbank Offering Rate for the applicable period, respectively.
The credit agreement has various limitations on acquisitions, including, but not limited to, aggregate cash payments for acquisitions each year, the aggregate amount of total consideration for acquisitions each year and the amount of indebtedness assumed on a given acquisition. In order to proceed with our acquisition strategy, we requested and received a waiver that specifically excludes two significant acquisitions from our credit facility limitations on aggregate cash payments, aggregate total consideration and assumed indebtedness. No other covenants were waived or amended.
On January 11, 2005, we received approval from our lending institutions for a second amendment to our credit facility, which allowed for a $90.0 million increase to our existing term loan and a waiver of certain covenant limitations to allow for the acquisition of SGP and an amendment of certain other covenants in our credit agreement.
The table below summarizes our contractual obligations as of December 31, 2005:
At December 31, 2005 our other debt of $25.0 million consisted primarily of notes payable issued in conjunction with acquisitions. Some of these notes payable may be subject to reduction based on future performance of the respective acquired company to which each of these issuances related. At December 31, 2005, our capital lease obligations of $3.5 million related to purchases of furniture and equipment. In the past, we have used external financing to fund a portion of such purchases and plan on continuing to do so in the future.
At December 31, 2005, we had future interest obligations under fixed rate notes, primarily acquisition related, of $1.9 million.