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 September 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 November 3, 1995
Common stock, no par value 14,084,864
<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 nine months
ended September 30, 1995
and 1994 3
Consolidated Balance Sheet,
September 30, 1995 and December
31, 1994 4
Statement of Consolidated Shareholders'
Equity for the nine months ended
September 30, 1995 and 1994 5
Statement of Consolidated Cash Flows
for the nine months ended September
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 9-11
Exhibits to Part I
Exhibit 11 - Computation of Earnings
Per Share 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit 11 - See Part I
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1995 SEPT. 30, 1994 SEPT. 30, 1995 SEPT. 30, 1994
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Commissions and fees $ 35,775,585 $ 31,288,623 $106,995,550 $102,091,757
Investment income 434,906 466,215 1,519,707 1,215,350
Other 184,374 2,374,657 3,907,591 5,340,594
------------ ------------ ------------- ------------
36,394,865 34,129,495 112,422,848 108,647,701
Operating expenses
Compensation and
employee benefits 20,700,611 18,892,026 61,872,170 59,634,133
Other operating
expenses 9,702,191 9,125,231 27,278,034 26,610,086
Amortization of
intangibles 1,861,407 1,512,679 5,182,985 4,821,101
Interest expense 95,435 205,903 324,126 590,107
------------ ------------ ------------ ------------
32,359,644 29,735,839 94,657,315 91,655,427
INCOME BEFORE
INCOME TAXES 4,035,221 4,393,656 17,765,533 16,992,274
Income taxes 1,645,750 1,919,302 7,138,296 6,868,576
------------ ------------ ------------ ------------
NET INCOME $ 2,389,471 $ 2,474,354 $ 10,627,237 $ 10,123,698
============ ============ ============ ============
NET INCOME
PER SHARE $0.17 $0.17 $0.73 $0.68
===== ===== ===== =====
Dividends $0.14 $0.12 $0.42 $0.36
===== ===== ===== =====
Weighted Average
Number of Shares
Outstanding 14,373,977 14,790,464 14,616,701 14,794,363
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,406,721 $ 12,615,132
Investments 15,187,654 23,131,550
Receivables:
Premiums, less allowance for doubtful
accounts of $2,109,000 and $2,348,000,
respectively 45,667,489 39,261,731
Other 5,731,483 6,635,856
------------ ------------
51,398,972 45,897,587
Prepaid expenses and other current assets 3,643,660 3,262,743
------------ ------------
TOTAL CURRENT ASSETS 88,637,007 84,907,012
INVESTMENTS 4,550,000 9,470,000
PROPERTY AND EQUIPMENT (NET) 13,269,289 12,426,949
INTANGIBLE ASSETS
Expiration rights 67,302,463 57,742,996
Goodwill 24,091,516 16,480,408
Noncompetition agreements 9,987,052 9,603,414
------------ ------------
101,381,031 83,826,818
Less accumulated amortization 40,173,973 35,097,409
------------ ------------
61,207,058 48,729,409
OTHER ASSETS 5,124,817 3,361,425
------------ ------------
$172,788,171 $158,894,795
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 75,750,131 $ 65,361,846
Accounts payable and accrued expenses 6,913,266 8,438,709
Premium deposits and credits due customers 8,216,237 8,847,097
Current portion of long-term debt 1,397,750 4,499,378
------------ ------------
TOTAL CURRENT LIABILITIES 92,277,384 87,147,030
LONG-TERM DEBT 8,843,045 3,173,405
OTHER LONG-TERM LIABILITIES 7,621,649 2,144,204
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 14,173,064 and 14,679,464
shares, respectively 36,344,803 43,426,295
Retained earnings 27,638,984 23,003,861
Cumulative translation adjustment 62,306 --
------------ ------------
64,046,093 66,430,156
------------ -------------
$172,788,171 $158,894,795
============ =============
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Translation
Common Stock Retained Earnings Adjustment
<S> <C> <C>
Balance at January 1, 1995 $ 43,426,295 $23,003,861
Issuance of 318,126 shares of Common
Stock 3,815,196
Purchase of 870,320 shares of Common
Stock (10,897,688)
Payment of dividends (6,111,211)
Transactions related to pooled companies 1,000 119,097
Net income 10,627,237
Translation adjustment $62,306
------------ ----------- -------
Balance at September 30, 1995 $ 36,344,803 $27,638,984 $62,306
============ =========== =======
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 (5,169,810)
Transactions related to pooled companies (44,169) 56,340
Net income 10,123,698
------------ ----------- -------
Balance at September 30, 1994 $ 44,757,157 $23,790,401 $ --
============ =========== =======
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
NINE MONTHS ENDED
SEPT. 30, 1995 SEPT. 30, 1994
(Restated)
OPERATING ACTIVITIES
Net income $ 10,627,237 $ 10,123,698
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,996,719 2,112,272
Amortization of intangible assets 5,182,985 4,821,101
Provision for losses on accounts
receivable 675,674 667,731
Gain on sale of assets (3,029,881) (4,801,113)
------------ ------------
15,452,734 12,923,689
Changes in operating assets and liabilities
net of effects from insurance agency
acquisitions:
(Increase) decease in accounts
receivable (3,441,511) 3,746,297
(Increase) decrease in prepaid expenses (206,079) 216,900
Increase (decrease) in premiums payable
to insurance companies 5,066,086 (2,464,120)
Decrease in premium deposits
and credits due customers (630,860) (1,070,797)
Increase (decrease) in accounts payable
and accrued expenses (2,805,900) 1,926,771
Other operating activities 713,042 425,402
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 14,147,512 15,704,142
INVESTING ACTIVITIES
Proceeds from maturities of investments 20,263,298 11,804,455
Purchase of investments (7,399,402) (25,022,868)
Purchase of property and equipment (2,746,152) (1,351,486)
Purchase of insurance agencies, net of
cash acquired (4,827,594) (2,035,798)
Proceeds from sale of assets 3,000,326 7,526,663
Other investing activities 195,920 180,582
------------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 8,486,396 (8,898,452)
FINANCING ACTIVITIES
Proceeds from long-term debt 24,912,500 5,084
Principal payments on long-term debt (24,871,117) (3,422,187)
Proceeds from issuance of Common Stock 5,100 16,500
Repurchase of Common Stock (10,897,688) (466,994)
Dividends (6,111,211) (5,169,810)
Other financing activities 120,097 12,171
------------- -----------
NET CASH USED IN FINANCING ACTIVITIES (16,842,319) (9,025,236)
------------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,791,589 (2,219,546)
Cash and cash equivalents at beginning
of period 12,615,132 14,420,351
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 18,406,721 $ 12,200,805
============ ============
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
September 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 three and nine month periods ended September 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 nine months of 1995, the Company acquired all of the
outstanding shares of an insurance agency in exchange for 37,000 shares of
Common Stock. This transaction was accounted for as pooling-of-interests
merger; however, prior year financial statements were not restated due to
the immaterial effect of the Company's consolidated financial statements.
During the first nine months of 1995, the Company acquired certain assets and
liabilities of 12 insurance agencies and certain other books of business for
$13,441,000 ($7,603,000 in cash and $1,997,000 in guaranteed future payments
and 317,726 shares of Common Stock) in purchase accounting transactions. The
proforma unaudited results of operations for the nine months ended
September 30, 1995 and 1994, assuming the above purchase acquisitions had
occurred as of January 1, 1994, as follows:
Nine Months Ended September 30,
1995 1994
Revenues 119,173,000 126,579,000
Net Income 10,375,000 9,502,000
Net Income Per Common Share $0.70 $0.63
NOTE D--SALE OF ASSETS
During the nine months ended September 30, 1995 and 1994, the Company sold
certain insurance accounts and other assets resulting in gains of
approximately $3,055,000 and $4,801,000, respectively,
including $68,000 and $2,208,000 in the third 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.
<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 a pooling-of-interests mergers in 1994.
For the three months ended September 30, 1995 commissions and fees were $35.8
million, an increase of 14.3% from commissions and fees of $31.3 million during
the comparable period of the prior year. Approximately $5.5 million of
commissions were derived from purchase acquisitions of new insurance agencies.
This increase was offset in part by decreases of approximately $.6 million in
commissions and fees from the sale of certain offices and insurance accounts in
1995 and 1994.
Investment income decreased by 6.7% during the third quarter of 1995 due to a
decrease in average invested assets for the quarter due primarily to the use of
available funds for the Company's acquisition program and the repurchase of
shares of Common Stock of the Company offset by increased investment yields.
Other revenues decreased by $2.2 million and include gains from the sale of
certain offices, insurance accounts, and other assets of $.1 million and $2.2
million in 1995 and 1994, respectively.
Expenses increased by $2.6 million or 8.8%. Increases include $1.8 million in
compensation and benefits primarily related to purchase acquisitions of new
insurance agencies. Other operating expenses and amortization of intangibles
increased approximately $.6 million and $.3 million, respectively, primarily
related to the aforementioned purchase acquisitions.
The Company's overall tax rate of 40.8% for the three months ended September 30,
1995, compared to 43.7% for the same period of the prior year. The higher rate
in 1994 is primarily related to the impact of differing tax rates of pooling-
of-interests mergers.
Net income for the three months ended September 30, 1995 was $2.4 million
compared with $2.5 million for the comparable prior period, a 3.4% decrease.
Earnings per share were $.17 for both the third quarter of 1995 and the third
quarter of 1994.
For the nine months ended September 30, 1995, commissions and fees were $107.0
million, an increase of 4.8% from commissions and fees of $102.1 million during
the comparable period of the prior year. Approximately $11.2 million of
commissions were derived from purchase acquisitions of new insurance
agencies. This increase, in part, was offset by decreases of approximately $5.9
million in commissions and fees from the sale of certain offices and accounts
in 1994 and 1995 and reductions of $.8 million in contingent and override
commissions.
Investment income increased by 25.0% and reflects an increase in average
invested assets and increased investment yields. Other income decreased by $1.4
million and includes gains from the sale of certain insurance accounts and
other assets of $3.0 million and $4.8 million in 1995 and 1994, respectively.
Expenses increased by $3.0 million or 3.3%. Increases include $2.2 million in
compensation and benefits including increases of $6.5 million related to
purchase acquisitions offset by $3.5 million related to the sales of offices.
Other operating expenses increased $.7 million, related to purchase
acquisitions offset by decreases related to offices which were sold. In
addition, interest expense decreased by $.3 million associated with the
retirement of debt.
The Company's overall tax rate was 40.2% for the nine months ended September 30,
1995, compared to 40.4% 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 nine months ended September 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 $14.1 million and $15.7 million for the
nine months ended September 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 $2.7 million and $1.4 million in the nine months ended September 30, 1995
and 1994, respectively. The timing and extent of the sale 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 $4.8 million
and $2.0 million in the nine months ended September 30, 1995 and 1994,
respectively. In addition, a portion of the purchase price in such
acquisitions may be paid through Common Stock and deferred cash payments.
The Company did not have any material capital expenditure commitments as of
September 30, 1994. Cash proceeds from the sale of accounts and other assets
amounted to $3.0 million and $7.5 million in the nine months ended September
30, 1995 and 1994, respectively.
Financing activities utilized cash of $16.8 million and $9.0 million in the nine
months ended September 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 the continuance of its dividend
policy. The Company has received a commitment letter for a $20.0 million bank
revolving credit loan and anticipates finalizing the arrangement during the
fourth quarter of 1995. Proceeds from the loan will be utilized for purchase
acquisitions and the repurchase of Common Stock of the Company. In
addition, 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 .96
to 1.00 as of September 30, 1995. The Company expects to use available funds
and funds generated by the aforementioned revolving credit loan 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
$64.0 million at September 30, 1995, decreased from $66.4 million at December
31, 1994 reflecting the repurchase of approximately 870,000 shares of Common
Stock and dividends, offset by the impact of earnings and the issuance of
Common Stock in acquisitions.
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 nine months ended
September 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 November 6, 1995 By: /s/ Robert H. Hilb
Chairman
(Principal Executive Officer)
Date November 6 , 1995 By: /s/ Timothy J. Korman
Senior Vice President-Finance
(Principal Financial Officer)
Date November 6, 1995 By: /s/ Carolyn Jones
Vice President and Controller
(Chief Accounting Officer)
</TABLE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, Setpember 30,
_____________________________________________________
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 14,373,977 14,790,464 14,616,701 14,794,363
Net effect of dilutive stock
options -- based on the
treasury stock method using
average fair value 13,036 6,860 6,734 7,401
---------- ---------- ---------- ----------
Average number of shares as
adjusted 14,387,013 14,797,324 14,623,435 14,801,764
========== ========== =========== ===========
Net income $2,389,471 $2,474,354 $10,627,237 $10,123,698
========== ========== =========== ===========
Per share amount $.17 $.17 $.73 $.68
==== ==== ==== ====
FULLY DILUTED:
Average shares outstanding 14,373,977 14,790,464 14,616,701 14,794,363
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 28,078 7,576 27,674 7,876
---------- ---------- ---------- ----------
Average number of shares as
adjusted 14,402,055 14,798,040 14,644,375 14,802,239
========== ========== ========== ==========
Net income $2,389,471 $2,474,354 $10,627,237 $10,123,698
========== ========== =========== ===========
Per share amount $.17 $.17 $.73 $.68
==== ==== ==== ====
</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 SEPTEMBER 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> SEP-30-1995
<CASH> 18406721
<SECURITIES> 15187654
<RECEIVABLES> 53507972
<ALLOWANCES> 2109000
<INVENTORY> 0
<CURRENT-ASSETS> 88637007
<PP&E> 33541321
<DEPRECIATION> 20272031
<TOTAL-ASSETS> 172788171
<CURRENT-LIABILITIES> 92277384
<BONDS> 8843045
<COMMON> 36344803
0
0
<OTHER-SE> 27701290
<TOTAL-LIABILITY-AND-EQUITY> 172788171
<SALES> 0
<TOTAL-REVENUES> 36394865
<CGS> 0
<TOTAL-COSTS> 32264209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95435
<INCOME-PRETAX> 4035221
<INCOME-TAX> 1645750
<INCOME-CONTINUING> 2389471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2389471
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
