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, 1996 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 October 31, 1996
Common stock, no par value 13,503,377
(This document contains 12 pages)
<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, 1996 and 1995 3
Consolidated Balance Sheet,
September 30, 1996 and December
31, 1995 4
Statement of Consolidated Shareholders'
Equity for the nine months ended
September 30, 1996 and 1995 5
Statement of Consolidated Cash Flows
for the nine months ended September
30, 1996 and 1995 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 12
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1996 SEPT. 30, 1995
<S> <C> <C> <C> <C>
Revenues
Commissions and fees $37,725,220 $35,775,585 $116,493,506 $106,995,550
Investment and
other income 590,206 619,280 2,833,746 5,427,298
----------- ----------- ------------ ------------
38,315,426 36,394,865 119,327,252 112,422,848
Operating expenses
Compensation and
employee benefits 21,756,235 20,700,611 65,871,369 61,872,170
Other operating expenses 10,710,825 9,702,191 30,314,437 27,278,034
Amortization of
intangibles 1,891,994 1,861,407 5,558,598 5,182,985
Interest expense 300,905 95,435 762,364 324,126
----------- ----------- ------------ -----------
34,659,959 32,359,644 102,506,768 94,657,315
INCOME BEFORE ----------- ----------- ------------ -----------
INCOME TAXES 3,655,467 4,035,221 16,820,484 17,765,533
Income taxes 1,414,999 1,645,750 6,743,495 7,138,296
----------- ----------- ------------ -----------
NET INCOME $ 2,240,468 $ 2,389,471 $ 10,076,989 $ 10,627,237
=========== =========== ============ ============
NET INCOME PER
COMMON SHARE $0.17 $0.17 $0.75 $0.73
===== ===== ===== =====
Dividends per Common
Share $0.15 $0.14 $0.45 $0.42
===== ===== ===== =====
Weighted Average
Number of Shares
Outstanding 13,284,736 14,373,977 13,512,855 14,616,701
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,131,935 $ 17,020,706
Investments 6,094,597 11,154,673
Receivables:
Premiums, less allowance for
doubtful accounts of
$2,250,000 and $1,772,000,
respectively 39,239,429 41,707,706
Other 4,624,248 4,794,396
------------ ------------
43,863,677 46,502,102
Prepaid expenses and other current
assets 5,609,157 3,937,964
------------ ------------
TOTAL CURRENT ASSETS 76,699,366 78,615,445
INVESTMENTS 5,895,000 4,300,000
PROPERTY AND EQUIPMENT (NET) 15,060,143 13,700,260
INTANGIBLE ASSETS
Expiration rights 67,838,344 68,345,441
Goodwill 25,872,182 24,432,875
Noncompetition agreements 10,722,226 9,888,798
------------ ------------
104,432,752 102,667,114
Less accumulated amortization 40,343,254 41,812,787
------------ ------------
64,089,498 60,854,327
OTHER ASSETS 4,400,306 5,778,932
------------ ------------
$166,144,313 $163,248,964
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance
companies $ 68,872,563 $ 69,481,803
Accounts payable and accrued
expenses 7,815,502 8,040,022
Premium deposits and credits due
customers 7,671,258 8,062,626
Current portion of long-term debt 1,295,430 1,755,238
------------ ------------
TOTAL CURRENT LIABILITIES 85,654,753 87,339,689
LONG-TERM DEBT 17,619,960 11,749,848
OTHER LONG-TERM LIABILITIES 8,109,018 7,513,537
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 13,243,553 and
13,706,764 shares, respectively 23,981,692 29,903,900
Retained earnings 30,778,890 26,741,990
------------ ------------
54,760,582 56,645,890
------------ ------------
$166,144,313 $163,248,964
============ ============
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, 1996 $ 29,903,900 $26,741,990
Issuance of 145,558
shares of Common Stock 1,987,725
Purchase of 580,900
shares of Common Stock (7,932,056)
Payment of dividends (6,040,089)
Other 22,123
Net income 10,076,989
------------ -----------
Balance at September 30, 1996 $ 23,981,692 $30,778,890
============ ===========
Balance at January 1, 1995 $ 43,426,295 $23,003,861
Issuance of 318,126 share of
Common Stock 3,815,196
Purchase of 870,320
shares of Common Stock (10,897,688)
Payment of dividends (6,111,211)
Other 63,306 119,097
Net income 10,627,237
------------ -----------
Balance at September 30, 1995 $ 36,407,109 $27,638,984
============ ===========
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, 1996 SEPT. 30, 1995
OPERATING ACTIVITIES
Net income $ 10,076,989 $ 10,627,237
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and amortization 2,396,073 1,996,719
Amortization of intangible
assets 5,558,598 5,182,985
Provision for losses on
accounts receivable 657,872 675,674
Gain on sale o f assets (1,313,731) (3,029,881)
------------ ------------
17,375,801 15,452,734
Changes in operating assets
and liabilities
net of effects from
insurance agency
acquisitions:
(Increase) decrease in
accounts receivable 2,158,638 (3,441,511)
Increase in prepaid expenses (1,660,845) (206,079)
Increase (decrease) in
premiums payable to
insurance companies (1,039,171) 5,066,086
Decrease in premium deposits
and customer credits (391,368) (630,860)
Decrease in accounts payable
and accrued expenses (581,400) (2,805,900)
Other operating activities 1,303,587 713,042
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 17,165,242 14,147,512
INVESTING ACTIVITIES
Proceeds from maturities of held-
to-maturity investments 9,726,943 20,263,298
Purchase of investments (6,261,867) (7,399,402)
Purchase of property and
equipment (3,592,783) (2,746,152)
Purchase of insurance agencies,
net of cash acquired (5,400,998) (4,827,594)
Proceeds from sale of assets 1,245,195 3,000,326
Other investing activities 192,235 195,920
____________ ___________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,091,275) 8,486,396
FINANCING ACTIVITIES
Proceeds from long-term debt 17,200,000 24,912,500
Principal payments on long-term
debt (12,200,228) (24,871,117)
Proceeds from issuance of Common
Stock 5,100
Repurchase of Common Stock (7,932,056) (10,897,688)
Dividends (6,040,088) (6,111,211)
Other financing activities 9,634 120,097
NET CASH USED IN FINANCING ------------ ------------
ACTIVITIES (8,962,738) (16,842,319)
------------ ------------
INCREASE IN CASH AND CASH
EQUIVALENTS 4,111,229 5,791,589
Cash and cash equivalents at
beginning of period 17,020,706 12,615,132
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 21,131,935 $ 18,406,721
============ ============
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
September 30, 1996
(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 nine month period
ended September 30, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1996. 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, 1995.
NOTE B--INCOME TAXES
The Company (except for pooled entities prior to acquisition and
its Canadian subsidiary) 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 bad debt expense, depreciation expense,
basis differences in intangible assets, deferred compensation
arrangements and the recognition of net operating loss
carryforwards from pooled entities.
NOTE C--ACQUISITIONS
During the first nine months of 1996, the Company acquired
certain assets and liabilities of 11 insurance agencies for
$6,138,000 ($3,748,000 in cash, $411,000 in guaranteed future
payments and 144,848 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
During the nine months ended September 30, 1996 and 1995, the
Company sold certain insurance accounts and other assets
resulting in gains of approximately $1,314,000 and $3,030,000,
respectively, including $92,000 and $68,000 in the third quarters
of 1996 and 1995, 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
Effective October 1, 1996, the Company acquired certain assets
and liabilities of three insurance agencies for $9,563,000
($3,109,000 in cash, $2,326,000 in guaranteed future payments and
306,761 shares of Common Stock) in purchase accounting
transactions. Proforma revenues and net income are 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:
For the three months ended September 30, 1996, commissions and
fees were $37.7 million, an increase of 5.4% from commissions and
fees of $35.8 million during the comparable period of the prior
year. Approximately $2.1 million of commissions were derived
from purchase acquisitions of new insurance agencies. This
increase was in part offset by decreases of approximately $0.3
million from the sale of certain offices and accounts in late
1995 and 1996.
Investment and other income was $0.6 million for the three months
ended September 30, 1996 which was comparable to the
corresponding period of the prior year.
Expenses increased by $2.3 million or 7.1%. Increases include
$1.1 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses increased approximately $1.0 million due in part to the
aforementioned purchase acquisitions.
Interest expense increased by $0.2 million due to increased
borrowings related to the stock repurchase and agency acquisition
programs.
The Company's overall tax rate of 38.7% for the three months
ended September 30, 1996, was relatively comparable to the rate
of 40.8% for the same period of the prior year.
For the nine months ended September 30, 1996, commissions and
fees were $116.5 million, an increase of 8.9% from commissions
and fees of $107.0 million during the comparable period of the
prior year. Approximately $10.0 million of commissions were
derived from purchase acquisitions of new insurance agencies.
This increase was in part offset by decreases of approximately
$1.4 million from the sale of certain offices and accounts in
1995 and early 1996.
Investment and other income decreased $2.6 million or 47.8% from
the prior year primarily due to the gain on the sale of
substantially all of the operating assets of the Green Bay,
Wisconsin office during May 1995 which resulted in a gain of
approximately $2.1 million.
Expenses increased by $7.8 million or 8.3%. Increases include
$4.8 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses and amortization of intangibles increased approximately
$3.0 million and $0.4 million, respectively, primarily due to the
aforementioned purchase acquisitions. Interest expense increased
by $0.4 million due to increased borrowings related to the stock
repurchase and agency acquisition programs.
The Company's overall tax rate of 40.1% for the nine months ended
September 30, 1996, was relatively comparable to the rate of
40.2% 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, 1996 should not be considered indicative of
the results that may be expected for the entire year ending
December 31, 1996.
Liquidity and Capital Resources:
Net cash provided by operations totaled $17.2 million and $14.1
million for the nine months ended September 30, 1996 and 1995,
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
$3.6 million and $2.7 million for the nine months ended September
30, 1996 and 1995, respectively. The timing and extent of the
purchase of investments is dependent upon cash needs and yields
on alternate investments and cash equivalents. The purchase of
insurance agencies accounted for under the purchase method of
accounting utilized cash of $5.4 million and $4.8 million in the
nine months ended September 30, 1996 and 1995, 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, 1996. Cash proceeds from the sale of
accounts and other assets amounted to $1.2 million and $3.0
million in the nine months ended September 30, 1996 and 1995,
respectively.
Financing activities utilized cash of $9.0 million and $16.8
million in the nine months ended September 30, 1996 and 1995,
respectively. The Company has consistently made scheduled debt
payments and annually increased its dividend rate. In addition,
during the nine months ended September 30, 1996 and 1995, the
Company repurchased 580,900 and 870,320, respectively, shares of
its Common Stock under a stock repurchase program. The Company
is currently authorized to purchase an additional 644,000 shares
and expects to continue to repurchase shares during the remainder
of 1996. The Company anticipates the continuance of its dividend
policy. The Company has a bank credit agreement for $20.0
million under loans due through 2001. At September 30, 1996,
there were loans of $15.0 million outstanding under the
agreement.
The Company had a current ratio (current assets to current
liabilities) of 0.90 to 1.00 as of September 30, 1996.
Shareholders' equity of $54.8 million at September 30, 1996, is
decreased from $56.6 million at December 31, 1995, and the debt
to equity ratio of 0.32 to 1.00 is increased from the ratio at
December 31, 1995 of 0.21 to 1.00 due to the stock buyback
program and increased borrowings under the aforementioned bank
credit agreement.
The Company believes that cash generated from operations,
together with proceeds from borrowings, will provide sufficient
funds to meet the Company's short and long-term funding needs.
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, 1996.
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 October 31, 1996 By: /s/ Robert H. Hilb
Chairman
(Principal Executive Officer)
Date October 31, 1996 By: /s/ Timothy J. Korman
Executive Vice President-Finance
(Principal Financial Officer)
Date October 31, 1996 By: /s/ Carolyn Jones
Vice President and Controller
(Chief Accounting Officer)
11
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
PRIMARY:
Average shares outstanding 13,284,736 14,373,977 13,512,855 14,616,701
Net effect of dilutive
stock options -- based on
the treasury stock method
using average fair value 19,336 13,036 26,245 6,734
---------- ---------- ---------- ----------
Average number of
shares as adjusted 13,304,072 14,387,013 13,539,100 14,623,435
========== ========== =========== ===========
Net income $2,240,468 $2,389,471 $10,076,989 $10,627,237
========== ========== =========== ===========
Per share amount $.17 $.17 $.74 $.73
==== ==== ==== ====
FULLY DILUTED:
Average shares
outstanding 13,284,736 14,373,977 13,512,855 14,616,701
Net effect of dilutive
stock options -- based on
the treasury stock method
using the end of period
value, if higher than
average fair value 22,328 28,078 26,245 27,674
---------- ---------- ---------- ----------
Average number of shares
as adjusted 13,307,064 14,402,055 13,539,100 14,644,375
========== ========== =========== ===========
Net income $2,240,468 $2,389,471 $10,076,989 $10,627,237
========== ========== =========== ===========
Per share amount $.17 $.17 $.74 $.73
==== ==== ==== ====
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, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,131,935
<SECURITIES> 6,094,597
<RECEIVABLES> 46,113,677
<ALLOWANCES> 2,250,000
<INVENTORY> 0
<CURRENT-ASSETS> 76,699,366
<PP&E> 36,891,631
<DEPRECIATION> 21,831,488
<TOTAL-ASSETS> 166,144,313
<CURRENT-LIABILITIES> 85,654,753
<BONDS> 17,619,960
<COMMON> 23,981,692
0
0
<OTHER-SE> 30,778,890
<TOTAL-LIABILITY-AND-EQUITY> 166,144,313
<SALES> 0
<TOTAL-REVENUES> 119,327,252
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 101,744,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 762,364
<INCOME-PRETAX> 16,820,484
<INCOME-TAX> 6,743,495
<INCOME-CONTINUING> 10,076,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,076,989
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
