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, 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 July 26, 1996
Common stock, no par value 13,281,469
(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 six months
ended June 30, 1996 and 1995 3
Consolidated Balance Sheet,
June 30, 1996 and December
31, 1995 4
Statement of Consolidated Shareholders'
Equity for the six months ended
June 30, 1996 and 1995 5
Statement of Consolidated Cash Flows
for the six months ended June
30, 1996 and 1995 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-9
Exhibits to Part I
Exhibit 11 - Computation of Earnings
Per Share 10
Part II. OTHER INFORMATION
Item 4.Submission of Matters to a Vote
of Security Holders 11
Item 6.Exhibits and Reports on Form 8-K 11
Exhibit 11 - See Part I 11-12
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> =
Revenues
Commissions and fees $36,839,284 $33,041,637 $78,768,286 $71,219,965
Investment and other
income 1,096,973 3,531,742 2,243,540 4,808,018
----------- ----------- ----------- -----------
37,936,257 36,573,379 81,011,826 76,027,983
Operating expenses
Compensation and
employee benefits 21,494,224 20,517,070 44,115,134 41,171,559
Other operating expenses 9,912,252 8,760,325 19,603,610 17,575,844
Amortization of
intangibles 1,874,264 1,673,520 3,666,605 3,321,578
Interest expense 229,565 118,454 461,460 228,691
----------- ----------- ----------- -----------
33,510,305 31,069,369 67,846,809 62,297,672
INCOME BEFORE
INCOME TAXES 4,425,952 5,504,010 13,165,017 13,730,311
Income taxes 1,751,746 2,194,290 5,328,496 5,492,545
----------- ----------- ----------- -----------
NET INCOME $ 2,674,206 $ 3,309,720 $ 7,836,521 $ 8,237,766
=========== =========== =========== ===========
NET INCOME PER
COMMON SHARE $0.20 $0.23 $0.58 $0.56
===== ===== ===== =====
Dividends per Common
Share $0.15 $0.14 $0.30 $0.28
===== ===== ===== =====
Weighted Average
Number of Shares
Outstanding 13,524,232 14,676,597 13,626,914 14,737,117
========== ========== ========== ========== /TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,482,227 $ 17,020,706
Investments 5,352,730 11,154,673
Receivables:
Premiums, less allowance for
doubtful accounts of
$2,294,000 and $1,772,000,
respectively 37,499,791 41,707,706
Other 5,349,554 4,794,396
------------ -------------
42,849,345 46,502,102
Prepaid expenses and other current
assets 2,996,672 3,937,964
------------ ------------
TOTAL CURRENT ASSETS 72,680,974 78,615,445
INVESTMENTS 5,770,000 4,300,000
PROPERTY AND EQUIPMENT (NET) 14,969,938 13,700,260
INTANGIBLE ASSETS
Expiration rights 66,967,416 68,345,441
Goodwill 25,451,279 24,432,875
Noncompetition agreements 10,577,788 9,888,798
------------ ------------
102,996,483 102,667,114
Less accumulated amortization 38,604,537 41,812,787
------------ ------------
64,391,946 60,854,327
OTHER ASSETS 4,469,728 5,778,932
------------ ------------
$162,282,586 $163,248,964
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance
companies $ 67,191,549 $ 69,481,803
Accounts payable and accrued
expenses 6,781,823 8,040,022
Premium deposits and credits due
customers 6,930,943 8,062,626
Current portion of long-term debt 1,411,501 1,755,238
------------ ------------
TOTAL CURRENT LIABILITIES 82,315,816 87,339,689
LONG-TERM DEBT 15,801,391 11,749,848
OTHER LONG-TERM LIABILITIES 8,289,192 7,513,537
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 13,368,868 and
13,706,764 shares, respectively 25,350,220 29,903,900
Retained earnings 30,525,967 26,741,990
------------ ------------
55,876,187 56,645,890
------------ ------------
$162,282,586 $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 145,448
shares of Common Stock 1,987,725
Purchase of 479,000
shares of Common Stock (6,544,680)
Payment of dividends (4,052,544)
Other 3,275
Net income 7,836,521
----------- -----------
Balance at June 30, 1996 $25,350,220 $30,525,967
=========== ===========
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)
Other 1,000 119,097
Net income 8,237,766
----------- -----------
Balance at June 30, 1995 $39,214,439 $27,228,731
=========== ===========
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, 1996 JUNE 30, 1995
OPERATING ACTIVITIES
Net income $ 7,836,521 $ 8,237,766
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and amortization 1,565,762 1,295,455
Amortization of intangible
assets 3,666,605 3,321,578
Provision for losses on
accounts receivable 544,465 391,683
Gain on sale of assets (1,222,201) (2,987,314)
------------ -----------
12,391,152 10,259,168
Changes in operating assets and
liabilities net of effects from
insurance agency acquisitions:
Decrease in accounts receivable 3,286,376 1,533,024
Decrease in prepaid expenses 951,640 973,894
Increase (decrease) in premiums
payable to insurance companies (2,720,185) 846,715
Decrease in premium deposits
and customer credits (1,280,803) (1,146,942)
Decrease in accounts payable
and accrued expenses (1,465,959) (1,682,033)
Other operating activities 1,387,786 287,760
NET CASH PROVIDED BY OPERATING ------------ -------------
ACTIVITIES 12,550,007 11,071,586
INVESTING ACTIVITIES
Proceeds from maturities of held-
to-maturity investments 7,456,943 12,333,702
Purchase of investments (3,125,000) (6,512,152)
Purchase of property and
equipment (2,678,251) (1,890,989)
Purchase of insurance agencies,
net of cash acquired (3,796,453) (229,249)
Proceeds from sale of assets 1,182,961 2,957,759
Other investing activities 163,839 180,025
------------ -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (795,961) 6,839,096
FINANCING ACTIVITIES
Proceeds from long-term debt 9,700,000 14,500,000
Principal payments on long-term
debt (6,402,726) (18,576,983)
Repurchase of Common Stock (6,544,680) (6,227,331)
Dividends (4,052,544) (4,131,993)
Other financing activities 7,425 125,199
------------ ------------
NET CASH USED IN FINANCING
ACTIVITIES (7,292,525) (14,311,108)
------------ -------------
INCREASE IN CASH AND CASH
EQUIVALENTS 4,461,521 3,599,574
Cash And cash equivalents at
beginning period 17,020,706 12,615,132
------------ ------------
CASH AND CASH EQUIVLENTS AT END OF
PERIOD $ 21,482,227 $ 16,214,706
============ ============
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
June 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 six month period
ended June 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 six months of 1996, the Company acquired certain
assets and liabilities of ten insurance agencies for $5,858,000
($3,466,000 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 six months ended June 30, 1996 and 1995, the Company
sold certain insurance accounts and other assets resulting in
gains of approximately $1,222,000 and $2,987,000, respectively,
including $568,000 and $2,382,000 in the second 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.
<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 June 30, 1996, commissions and fees
were $36.8 million, an increase of 11.5% from commissions and
fees of $33.0 million during the comparable period of the prior
year. Approximately $4.1 million of commissions were derived
from purchase acquisitions of new insurance agencies. This
increase was in part offset by decreases of approximately $0.6
million from the sale of certain offices and accounts in 1995 and
early 1996.
Investment and other income decreased $2.4 million or 68.9% 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 $2.4 million or 7.9%. Increases include
$1.0 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses and amortization of intangibles increased approximately
$1.2 million and $0.2 million, respectively, primarily due to the
aforementioned purchase acquisitions.
The Company's overall tax rate of 39.6% for the three months
ended June 30, 1996, was relatively comparable to the rate of
39.9% for the same period of the prior year.
For the six months ended June 30, 1996, commissions and fees were
$78.8 million, an increase of 10.6% from commissions and fees of
$71.2 million during the comparable period of the prior year.
Approximately $7.9 million of commissions were derived from
purchase acquisitions of new insurance agencies. This increase
was in part offset by decreases of approximately $1.1 million
from the sale of certain offices and accounts in 1995 and early
1996.
Investment and other income decreased $2.6 million or 53.3% 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 $5.5 million or 8.9%. Increases include
$2.9 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses and amortization of intangibles increased approximately
$2.0 million and $0.3 million, respectively, primarily due to the
aforementioned purchase acquisitions.
The Company's overall tax rate of 40.5% for the six months ended
June 30, 1996, was relatively comparable to the rate of 40.0%
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, 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 $12.6 million and $11.1
million for the six months ended June 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
$2.7 million and $1.9 million for the six months ended June 30,
1996 and 1995, respectively. The timing and extent of the
purchase and sale 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 $3.8 million and $0.2
million in the six months ended June 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 June 30, 1996. Cash proceeds from
the sale of accounts and other assets amounted to $1.2 million
and $3.0 million in the six months ended June 30, 1996 and 1995,
respectively.
Financing activities utilized cash of $7.3 million and $14.3
million in the six months ended June 30, 1996 and 1995,
respectively. The Company has consistently made scheduled debt
payments and annually increased its dividend rate. In addition,
during the six months ended June 30, 1996 and 1995, the Company
repurchased 479,000 and 507,200, respectively, shares of its
Common Stock under a stock repurchase program. The Company is
currently authorized to purchase an additional 745,000 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 June 30, 1996, there
were loans of $12.5 million outstanding under the agreement.
The Company had a current ratio (current assets to current
liabilities) of 0.88 to 1.00 as of June 30, 1996. Shareholders'
equity of $55.9 million at June 30, 1996, is decreased from $56.6
million at December 31, 1995, and the debt to equity ratio of
0.28 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.
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Shareholders (the "Meeting") of
Hilb, Rogal and Hamilton Company (the "Company") was
held on Tuesday, May 7, 1996.
c) The Shareholders voted for the election of the
following persons to serve as directors of the Company
for the terms of three (3) years expiring on the date
of the Annual Meeting in 1999. The results of the
voting in these elections are set forth below.
Votes Votes Votes Non-
For Against Withheld Votes
Theodore L. Chandler, Jr. 10,237,805 0 1,182,789 2,231,773
Norwood H. Davis, Jr. 10,234,205 0 1,186,389 2,231,773
Thomas H. O'Brien 10,238,105 0 1,182,489 2,231,773
At the Meeting, the shareholders voted for the
appointment of Ernst & Young, LLP as the independent
auditors for the Company for the fiscal year ending
December 31, 1996. The results of the voting of this
proposal are set forth below.
Votes Votes Votes Non-
For Against Abstained Votes
11,399,607 19,475 1,512 2,231,773
At the Meeting, a proposal to amend the Articles of
Incorporation for authorization of 5.0 million shares
of preferred stock did not receive the required vote of
two-thirds of all issued and outstanding shares
necessary for approval. The results of the voting of
this proposal are set forth below.
Votes Votes Votes Non-
For Against Abstained Votes
5,115,457 4,453,861 64,976 4,108,073
No other matters were voted upon at the Meeting or
during the quarter for which this report is filed.
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, 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 July 26, 1996 By: /s/ Robert H. Hilb
Chairman
(Principal Executive Officer)
Date July 26, 1996 By: /s/ Timothy J. Korman
Executive Vice President-Finance
(Principal Financial Officer)
Date July 26, 1996 By: /s/ Carolyn Jones
Vice President and Controller
(Chief Accounting Officer)
</TABLE>
11
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
PRIMARY:
Average shares outstanding 13,524,232 14,676,597 13,626,914 14,737,117
Net effect of dilutive
stock options -- based
on the treasury stock
method using average fair
value 30,782 6,456 31,051 5,711
---------- ---------- ---------- ----------
Average number of
shares as adjusted 13,555,014 14,683,053 13,657,965 14,742,828
========== ========== ========== ==========
Net income $2,674,206 $3,309,720 $7,836,521 $8,237,766
========== ========== ========== ==========
Per share amount $.20 $.23 $.57 $.56
==== ==== ==== ====
FULLY DILUTED:
Average shares outstanding 13,524,232 14,676,597 13,626,914 14,737,117
Net effect of dilutive
stock options -- based on
the treasury stock method
using the end of period
value, if higher than average
fair value 46,189 10,379 46,654 10,275
---------- ---------- ---------- ----------
Average number of
shares as adjusted 13,570,421 14,686,976 13,673,568 14,747,392
========== ========== ========== ==========
Net income $2,674,206 $3,309,720 $7,836,521 $8,237,766
=========== ========== ========== ==========
Per share amount $.20 $.23 $.57 $.56
==== ==== ==== ====
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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,482,227
<SECURITIES> 5,352,730
<RECEIVABLES> 45,143,345
<ALLOWANCES> 2,294,000
<INVENTORY> 0
<CURRENT-ASSETS> 72,680,974
<PP&E> 35,987,034
<DEPRECIATION> 21,017,096
<TOTAL-ASSETS> 162,282,586
<CURRENT-LIABILITIES> 82,315,816
<BONDS> 15,801,391
<COMMON> 25,350,220
0
0
<OTHER-SE> 30,525,967
<TOTAL-LIABILITY-AND-EQUITY> 162,282,586
<SALES> 0
<TOTAL-REVENUES> 81,011,826
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 67,385,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 461,460
<INCOME-PRETAX> 13,165,017
<INCOME-TAX> 5,328,496
<INCOME-CONTINUING> 7,836,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,836,521
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
