Our corporate headquarters is located at 787 Seventh Avenue, 11th Floor, New York, NY 10019, where we lease approximately 35,200 square feet of space. Our subsidiaries NFPSI and NFPISI lease approximately 54,900 square feet of space in Austin, Texas. Additionally, our firms lease properties for use as offices throughout the United States. We believe that our existing properties are adequate for the current operating requirements of our business and that additional space will be available as needed.
Under our typical acquisition structure, we acquire 100% of the equity of independent financial services products distribution businesses on terms that are relatively standard across our acquisitions. To determine our acquisition price, our management first estimates the annual operating cash flow of the business to be acquired based on current levels of revenue and expense. For this purpose, we define operating cash flow as cash revenue of the business less cash and non-cash expenses, other than amortization, depreciation and compensation to the business’s owners or individuals who subsequently become principals. We refer to this estimated annual operating cash flow as “target earnings.” Our acquisition price is a multiple (generally in a range of five to six times) of a portion of the target earnings, which we refer to as “base earnings.” Base earnings averaged 48% of target earnings for all firms owned at December 31, 2005. In determining base earnings, management focuses on the recurring revenue of the business. Recurring revenue refers to revenue from sales previously made (such as renewal commissions on insurance products, commissions and administrative fees for ongoing benefit plans and mutual fund trail commissions) and fees for assets under management.
(1) 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.
At December 31, 2005, we had cash and cash equivalents of $105.8 million, an increase of $22.7 million from the balance of $83.1 million at December 31, 2004. At December 31, 2004, we had cash and cash equivalents of $83.1 million, an increase of $11.9 million from the balance of $71.2 million at December 31, 2003. The increase in cash and cash equivalents in 2005 was largely due to cash provided by operations, cash proceeds from the exercise of stock options, including tax benefit and borrowings under our credit facility, offset by cash consideration paid for acquired firms, the increase in commissions, fees and premiums receivables and cash dividends paid on common stock. The increase in cash and cash equivalents during 2004 was largely due to cash provided by operations and cash proceeds from the exercise of stock options, offset by cash consideration paid for acquired firms and cash dividends paid on common stock. The increase in cash and cash equivalents during 2003 was due to net cash proceeds of $86.4 million provided by the sale of 4.3 million shares of common stock through our initial public offering in September 2003 and cash provided by operations, offset by $39.5 million in repayments of borrowings under our credit facility.
We assess the recoverability of our goodwill and other intangibles based on assumptions regarding estimates of future cash flows and fair value based on current and projected revenues, business prospects, market trends and other economic factors.