FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission file number 0-15981
HILB, ROGAL AND HAMILTON COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1194795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 1220, Glen, Allen, VA 23060-1220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-6500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 1995
Common stock, no par value 14,355,305
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Consolidated Income
for the three months and six months
ended June 30, 1995 and 1994 3
Consolidated Balance Sheet,
June 30, 1995 and December
31, 1994 4
Statement of Consolidated Shareholders'
Equity for the six months ended
June 30, 1995 and 1994 5
Statement of Consolidated Cash Flows
for the six months ended June
30, 1995 and 1994 6
Notes to Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-10
Exhibits to Part I
Exhibit 11 - Computation of Earnings
Per Share 11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 11 - See Part I
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1994
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Commissions and fees $33,041,637 $33,109,886 $71,219,965 $70,803,134
Investment income 570,555 410,357 1,084,800 749,135
Other 2,961,187 1,666,144 3,723,218 2,965,937
----------- ---------- ---------- -----------
36,573,379 35,186,387 76,027,983 74,518,206
Operating expenses
Compensation and
employee benefits 20,517,070 19,792,312 41,171,559 40,742,107
Other operating
expenses 8,760,325 8,780,888 17,575,844 17,484,855
Amortization of
intangibles 1,673,520 1,627,278 3,321,578 3,308,422
Interest expense 118,454 192,568 228,691 384,204
----------- ----------- ----------- -----------
31,069,369 30,393,046 62,297,672 61,919,588
----------- ----------- ----------- -----------
INCOME BEFORE
INCOME TAXES 5,504,010 4,793,341 13,730,311 12,598,618
Income taxes 2,194,290 1,875,026 5,492,545 4,949,274
----------- ----------- ------------ -----------
NET INCOME $ 3,309,720 $ 2,918,315 $ 8,237,766 $ 7,649,344
=========== =========== ============ ============
NET INCOME PER
COMMON SHARE $0.23 $0.20 $0.56 $0.52
===== ===== ===== =====
Dividends per Common
Share $0.14 $0.12 $0.28 $0.24
===== ===== ===== =====
Weighted Average
Number of Shares
Outstanding 14,676,597 14,790,464 14,737,117 14,796,313
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
JUNE 30, DECEMBER 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,214,706 $ 12,615,132
Investments 20,145,000 23,131,550
Receivables:
Premiums, less allowance for doubtful
accounts of $1,927,000 and $2,348,000,
respectively 39,581,880 39,261,731
Other 5,081,776 6,635,856
------------ -----------
44,663,656 45,897,587
Prepaid expenses and other current assets 2,291,145 3,262,743
------------ -----------
TOTAL CURRENT ASSETS 83,314,507 84,907,012
INVESTMENTS 6,635,000 9,470,000
PROPERTY AND EQUIPMENT (NET) 12,885,434 12,426,949
INTANGIBLE ASSETS
Expiration rights 60,524,358 57,742,996
Goodwill 17,498,195 16,480,408
Noncompetition agreements 9,760,414 9,603,414
----------- -----------
87,782,967 83,826,818
Less accumulated amortization 38,342,485 35,097,409
----------- -----------
49,440,482 48,729,409
OTHER ASSETS 5,042,526 3,361,425
------------ ------------
$157,317,949 $158,894,795
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 67,074,094 $ 65,361,846
Accounts payable and accrued expenses 6,974,604 8,438,709
Premium deposits and credits due customers 7,700,155 8,847,097
Current portion of long-term debt 1,398,072 4,499,378
----------- -----------
TOTAL CURRENT LIABILITIES 83,146,925 87,147,030
LONG-TERM DEBT 2,725,640 3,173,405
OTHER LONG-TERM LIABILITIES 5,002,214 2,144,204
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 14,392,512 and 14,679,464
shares, respectively 39,214,439 43,426,295
Retained earnings 27,228,731 23,003,861
----------- -----------
66,443,170 66,430,156
----------- -----------
$157,317,949 $158,894,795
============ ============
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
Common Stock Retained Earnings
Balance at January 1, 1995 $43,426,295 $23,003,861
Issuance of 175,400 shares of Common
Stock 2,014,475
Purchase of 507,200 shares of Common
Stock (6,227,331)
Payment of dividends (4,131,993)
Transactions related to pooled companies 1,000 119,097
Net income 8,237,766
----------- -----------
Balance at June 30, 1995 $39,214,439 $27,228,731
=========== ===========
Balance at January 1, 1994 $45,376,820 $18,780,173
Issuance of 2,750 shares of Common
Stock 16,500
Purchase of 48,660 shares of Common
Stock (591,994)
Payment of dividends (3,429,634)
Transactions related to pooled companies (41,146) 79,871
Net income 7,649,344
----------- -----------
Balance at June 30, 1994 $44,760,180 $23,079,754
=========== ===========
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
(Restated)
OPERATING ACTIVITIES
Net income $ 8,237,766 $ 7,649,344
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,295,455 1,471,982
Amortization of intangible assets 3,321,578 3,308,422
Provision for losses on accounts
receivable 391,683 361,584
Gain on sale of assets (2,987,314) (2,592,873)
------------ ------------
10,259,168 10,198,459
Changes in operating assets and liabilities
net of effects from insurance agency
acquisitions:
Decrease in accounts receivable 1,533,024 6,550,011
Decrease in prepaid expenses 973,894 1,313,634
Increase (decrease) in premiums payable to
insurance companies 846,715 (3,865,817)
Increase (decrease) in premium deposits
and credits due customers (1,146,942) 1,326,840
Decrease in accounts payable and
accrued expenses (1,682,033) (250,333)
Other operating activities 287,760 438,597
------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 11,071,586 15,711,391
INVESTING ACTIVITIES
Proceeds from maturities of investments 12,333,702 5,161,505
Purchase of investments (6,512,152) (11,603,183)
Purchase of property and equipment (1,890,989) (1,057,436)
Purchase of insurance agencies, net of
cash acquired (229,249) (1,028,149)
Proceeds from sale of assets 2,957,759 3,246,172
Other investing activities 180,025 128,397
------------ -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 6,839,096 (5,152,694)
FINANCING ACTIVITIES
Proceeds from long-term debt 14,500,000 3,410
Principal payments on long-term debt (18,576,983) (2,796,441)
Proceeds from issuance of Common Stock 5,100 16,500
Repurchase of Common Stock (6,227,331) (466,994)
Dividends (4,131,993) (3,429,634)
Other financing activities 120,099 38,726
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (14,311,108) (6,634,433)
INCREASE IN CASH AND CASH
EQUIVALENTS 3,599,574 3,924,264
Cash and cash equivalents at beginning
of period 12,615,132 14,420,351
CASH AND CASH EQUIVALENTS AT END ------------ ------------
OF PERIOD $ 16,214,706 $ 18,344,615
============ ============
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
June 30, 1995
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1995, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the year ended December 31,
1994.
NOTE B--INCOME TAXES
The Company (except for pooled entities prior to acquisition) files a
consolidated federal income tax return. Deferred taxes result from temporary
differences between the reporting for income tax and financial statement
purposes primarily related to the recording of commission and fee income, bad
debt expense, depreciation expense, basis differences in intangible assets
and the recognition of net operating loss carryforwards from pooled entities.
NOTE C--ACQUISITIONS
During the first six months of 1995, the Company acquired all of the outstanding
shares of an insurance agency in exchange for 37,000 shares of Common Stock of
the Company. This transaction was accounted for as a pooling-of-interest
merger; however, prior year financial statements were not restated due to the
immaterial effect on the Company's consolidated financial statements.
During the first six months of 1995, the Company acquired certain assets and
liabilities of four insurance agencies for $3,354,000 ($817,000 in cash,
$528,000 in guaranteed future payments and 175,000 shares of Common Stock) in
purchase accounting transactions. Proforma revenues and net income are not
material to the consolidated financial statements.
NOTE D--SALE OF ASSETS
uring the six months ended June 30, 1995 and 1994, the Company sold certain
insurance accounts and other assets resulting in gains of approximately
$2,987,000 and $2,593,000, respectively, including $2,382,000 and $1,493,000
in the second quarters of 1995 and 1994, respectively. These amounts are
included in other revenues in the statement of consolidated income.
Revenues, expenses and assets of these operations were not material to the
consolidated financial statements.
NOTE E--SUBSEQUENT EVENT
On July 1, 1995, the Company acquired certain assets and liabilities of four
insurance agencies for $9,020,000 ($5,796,000 in cash, $1,429,000 in guaranteed
future payments and 142,726 shares of Common Stock) in purchase accounting
transactions.
The proforma unaudited results of operations for the six months ended June 30,
1995 and 1994, assuming the above purchase acquisitions and those disclosed in
Note C had occurred as of January 1, 1994, are as follows:
Six Months Ended June 30,
1995 1994
Revenues $81,614,000 $85,645,000
Net Income 8,016,000 7,252,000
Net Income Per Common Share $0.54 $0.48
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY (THE "COMPANY")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Results herein reflect the restatement of prior year financial information
due to pooling-of-interests mergers in 1994.
For the three months ended June 30, 1995 commissions and fees were $33.0
million, a decrease of .2% over commissions and fees of $33.1 million during the
comparable period of the prior year. Approximately $2.9 million of
commissions were derived from purchase acquisitions of new insurance agencies.
This increase was offset by decreases of approximately $2.2 million in
commissions and fees from the sale of certain accounts and offices in 1994 and
1995 and reductions in contingent and override commissions of $1.2 million.
Investment income during the second quarter increased 39.0% over the comparable
period of the prior year reflecting an increase in investment yields. Other
revenues increased by $1.3 million and include gains from the sale of certain
insurance accounts and other assets of $2.4 million and $1.5 million in 1995
and 1994, respectively. In addition, in 1995, the Company realized $.4 million
from a legal settlement.
Expenses increased by $.7 million or 2.2%. Costs associated with insurance
agencies purchased in the latter part of 1994 and the first half of 1995 were
offset by reduced costs related to the sale of agencies and accounts in 1995
and 1994.
The Company's overall tax rate of 39.9% for the three months ended June 30,
1995, compared to 39.1% for the same period of the prior year.
Net income for the three months ended June 30, 1995 was $3.3 million as compared
with $2.9 million for the comparable prior period, a 13.4% increase. Earnings
per share for the three months were $0.23, a 15.0% increase over $0.20 in the
comparable period in 1994.
For the six months ended June 30, 1995, commissions and fees were $71.2 million,
an increase of .6% over commissions and fees of $70.8 million during the
comparable period of the prior year. Approximately $5.6 million of commissions
were derived from purchase acquisitions of new insurance agencies. This
increase was, in part, offset by decreases of approximately $5.0 million in
commissions and fees from the sale of certain accounts in 1994 and 1995, and
reductions of $.5 million in contingent and override commissions.
Investment income increased by 44.8% and reflects an increase in investment
yields. Other income increased by $.8 million and include gains from the sale
of certain insurance accounts and other assets of $3.0 million and $2.6 million
in 1995 and 1994, respectively. In addition, in 1995, the Company realized
$.4 million from a legal settlement.
Expenses remained relatively level with the prior year as costs associated with
agencies purchased in the latter part of 1994 and the first half of 1995 were
offset by reduced costs related to the sale of agencies and accounts in 1995
and 1994.
The Company's overall tax rate was 40.0% for the six months ended June 30, 1995,
compared to 39.3% for the same period of the prior year.
The timing of contingent commissions, policy renewals and acquisitions may cause
revenues, expenses and net income to vary significantly from quarter to quarter.
As a result of the factors described above, operating results for the six
months ended June 30, 1995 should not be considered indicative of the results
that may be expected for the entire year ending December 31, 1995.
Liquidity and Capital Resources:
Net cash provided by operations totalled $11.1 million and $15.7 million for the
six months ended June 30, 1995 and 1994, respectively, and is primarily
dependent upon the timing of the collection of insurance premiums from clients
and payment of those premiums to the appropriate insurance underwriters.
The Company has historically generated sufficient funds internally to finance
capital expenditures for personal property and equipment. Real properties
acquired for offices of the Company are generally financed by long-term
mortgages. Cash expenditures for the acquisition of property and equipment
were $1.9 million and $1.1 million in the six months ended June 30, 1995 and
1994, respectively. The timing and extent of the purchase of investments is
dependent upon cash needs and yields on alternate investments and cash
equivalents. Cash expenditures for the purchase of insurance agencies
accounted for under the purchase method of accounting amounted to $.2 million
and $1.0 million in the six months ended June 30, 1995 and 1994, respectively.
In addition, a portion of the purchase price of such acquisitions may be paid
through Common Stock and deferred cash payments. The Company did not have
any material capital expenditure commitments as of June 30, 1995. Cash
proceeds from the sale of accounts and other assets amounted to $3.0 million
and $3.2 million in the six months ended June 30, 1995 and 1994, respectively.
Financing activities utilized cash of $14.3 million and $6.6 million in the six
months ended June 30, 1995 and 1994, respectively. The Company has repaid
its debt, including debt of pooled entities, and annually increased its
dividend rate. The Company anticipates continued reduction in its long-term
debt and the continuance of its dividend policy. The Company has a $5,000,000
bank revolving credit loan which is available for short-term financing
requirements.
The Company had a current ratio (current assets to current liabilities) of 1.00
to 1.00 as of June 30, 1995. The Company expects to use available funds to
provide funding for the cash portion of the purchase price of agencies to be
acquired under the purchase method of accounting. Shareholders' equity of
$66.4 million at June 30, 1995, is level with that at December 31, 1994
reflecting earnings and the issuance of Common Stock in acquisitions, offset by
dividends and the repurchase of 507,200 shares of Common Stock.
The Company believes that cash generated from operations, together with existing
cash and cash equivalent balances and borrowings, will provide sufficient funds
to meet the Company's short and long-term funding needs.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - 11 Computation of per share earnings
b) No reports on Form 8-K have been filed during the six months ended
June 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hilb, Rogal and Hamilton Company
(Registrant)
Date August 10, 1995 By: /s/ Robert H. Hilb
Chairman
(Principal Executive Officer)
Date August 10, 1995 By: /s/ Timothy J. Korman
Senior Vice President-Finance
(Principal Financial Officer)
Date August 10, 1995 By: /s/ Carolyn Jones
Vice President and Controller
(Chief Accounting Officer)
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
_____________________________________________________
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 14,676,597 14,790,464 14,737,117 14,796,313
Net effect of dilutive stock options
-- based on the treasury stock
method using average fair value 6,456 7,950 5,711 7,704
Average number of shares as ---------- ---------- ---------- ----------
adjusted 14,683,053 14,798,414 14,742,828 14,804,017
========== ========== ========== ==========
Net income $3,309,720 $2,918,315 $8,237,766 $7,649,344
========== ========== ========== ==========
Per share amount $.23 $.20 $.56 $.52
==== ==== ==== ====
FULLY DILUTED:
Average shares outstanding 14,676,597 14,790,464 14,737,117 14,796,313
Net effect of dilutive stock options
-- based on the treasury stock
method using the end of period
fair value, if higher than average
fair value 10,379 7,950 10,275 8,029
---------- ---------- ---------- ----------
Average number of shares as
adjusted 14,686,976 14,798,414 14,747,392 14,804,342
========== ========== ========== ==========
Net income $3,309,720 $2,918,315 $8,237,766 $7,649,344
========== ========== ========== ==========
Per share amount $.23 $.20 $.56 $.52
==== ==== ==== ====
</TABLE>
Note: The per share amounts for each period presented above do not
necessarily support amounts in the statement of consolidated income
because common stock equivalents are less than 3% dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10Q FOR HILB, ROGAL AND HAMILTON COMPANY FOR THE QUARTER ENDED JUNE 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 16,214,706
<SECURITIES> 20,145,000
<RECEIVABLES> 46,590,656
<ALLOWANCES> 1,927,000
<INVENTORY> 0
<CURRENT-ASSETS> 83,314,507
<PP&E> 32,616,167
<DEPRECIATION> 19,730,733
<TOTAL-ASSETS> 157,317,949
<CURRENT-LIABILITIES> 83,146,925
<BONDS> 2,725,640
<COMMON> 39,214,439
0
0
<OTHER-SE> 27,228,731
<TOTAL-LIABILITY-AND-EQUITY> 157,317,949
<SALES> 0
<TOTAL-REVENUES> 36,573,379
<CGS> 0
<TOTAL-COSTS> 30,950,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,454
<INCOME-PRETAX> 5,504,010
<INCOME-TAX> 2,194,290
<INCOME-CONTINUING> 3,309,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,309,720
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
