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IIIIII
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 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.)
4235 Innslake Drive
Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(804) 747-6500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$165,621,688 as of March 3, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 3, 1997
Common Stock, no par value 13,321,996
Documents Incorporated by Reference
Portions of the registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Parts I and II of this report.
Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.
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IIIII
PART I
ITEM 1. BUSINESS
The Company
Hilb, Rogal and Hamilton Company (the Company), through its network of
wholly-owned subsidiary insurance agencies (the Agencies), places various
types of insurance, including property, casualty, marine, aviation and
employee benefits, with insurance underwriters on behalf of its clients.
The Agencies operate 69 offices in 16 states and five Canadian provinces.
The Company's client base ranges from personal to large national accounts
and is primarily comprised of medium-size commercial and industrial
accounts. Insurance commissions accounted for approximately 94% of the
Company's total revenues in 1996. The Company also advises clients on risk
management and employee benefits and provides claims administration and
loss control consulting services to clients, which contributed
approximately 3% of revenues in 1996.
The Company has grown principally through acquisitions of independent
agencies with significant local market shares in small to medium-size
metropolitan areas. Since 1984, the Company has acquired 163 independent
agencies. The Company's growth strategy emphasizes acquisitions of
established independent agencies staffed by local professionals and
centralization of certain administrative functions to allow agents to focus
on business production. The Company believes that a key to its success has
been a strong emphasis on local client service by experienced personnel
with established community relationships. The Company generally pursues
growth in markets where it believes it can achieve a significant market
position. The Company expects to pursue a less aggressive merger and
acquisition strategy in the future. Though acquisitions are expected to
continue, they will be less frequent and more selective than in the past.
This redefinition of strategy will enable the Company to focus on building
a stronger, more operationally-sound organization.
The Agencies act as independent agents representing a large number of
insurance companies, which gives the Company access to specialized products
and capacity needed by its clients. Agencies are staffed to handle the
broad variety of insurance needs of their clients. Additionally, certain
Agencies have developed special expertise in areas such as aviation,
construction and marine insurance services, and this expertise is made
available to clients throughout the Company.
The Company has established direct access to certain foreign insurance
markets without the need to share commissions with excess and surplus lines
brokers. This direct access allows the Company to enhance its revenues
from insurance products written by foreign insurers and allows it to
provide a broader array of insurance products to its clients.
While the Agencies have historically been largely decentralized with
respect to client solicitation, account maintenance, underwriting
decisions, selection of insurance carriers and areas of insurance
specialization, the Company maintains centralized administrative functions,
including cash management and investment, human resources and legal
functions, through its corporate headquarters. Accounting records and
systems are maintained at each Agency, but the Company requires each Agency
to comply with standardized financial reporting and control requirements.
Through its internal auditing department, Company personnel periodically
visit each Agency and monitor compliance with internal accounting controls
and procedures.
In the latter part of 1995, the Company created regional operating
units to coordinate the efforts of several local offices in a geographic
area to focus on markets, account retention, client service and new
business production. The five U.S. regions are the Mid-Atlantic
(Pennsylvania, Maryland and Virginia); Alabama/Georgia; Florida; Texas and
California. Regional management of a sizable mass of coordinated
and complementary resources will enable each Agency to address a
broader spectrum of client needs and respond more quickly and expertly than
each could do on a stand-alone basis. Additionally, operations were
streamlined by merging multiple locations in the same city into a single
profit center and converting smaller locations into sales offices of a
larger profit center in the same region.
The Company derives income primarily from commissions on the sale of
insurance products to clients paid by the insurance underwriters with whom
the Agencies place their clients' insurance. The Company acts as an agent
in soliciting, negotiating and effecting contracts of insurance through
insurance companies and occasionally as a broker in procuring contracts of
insurance on behalf of insureds. The Company derived in excess of 97% of
its commission and fee revenue in 1996 from the sale of insurance products,
principally property and casualty insurance. Accordingly, no breakdown by
industry segments has been made. The balance is primarily derived from
employee benefits and third party claims administration. Within its range
of services, the Company also places surplus lines coverages (coverages not
available from insurance companies licensed by the states in which the
risks are located) with surplus lines insurers for various specialized
risks.
Insurance agents' commissions are generally a percentage of the
premium paid by the client. Commission rates vary substantially within the
insurance industry. Commissions depend upon a number of factors, including
the type of insurance, the amount of the premium, the particular insurer,
the capacity in which the Company acts and the scope of the services it
renders to the client. In some cases, the Company or an Agency is
compensated by a fee paid by the client directly. The Company may also
receive contingent commissions which are based on the profit an insurance
company makes on the overall volume of business placed with it by the
Company. Contingent commissions are generally received in the first
quarter of each year and, accordingly, may cause first quarter revenues and
earnings to vary from other quarterly results.
The Company provides a variety of professional services to assist
clients in analyzing risks and in determining whether protection against
risks is best obtained through the purchase of insurance or through
retention of all or a portion of those risks and the adoption of risk
management policies and cost-effective loss control and prevention
programs.
No material part of the Company's business is dependent on a single
client or on a few clients, and the Company does not depend on a single
industry or type of client for a substantial amount of its business. In
1996, the largest single client accounted for less than 0.5% of the
Company's total revenues.
Operating History and Acquisition Program
The Company was formed in 1982 to acquire and continue an existing
insurance agency network. At that time, the Company undertook a program of
consolidating agencies, closing or selling unprofitable locations and
acquiring new agencies. Since 1984, a total of 163 agencies have been
acquired. One hundred thirteen of those agencies were acquired using the
purchase method of accounting at a total purchase price of approximately
$117.6 million. In a purchase acquisition, the purchase price of an agency
is typically paid in cash and deferred cash payments. In some cases, a
portion of the purchase price may also be paid in Common Stock. Since
November 1, 1988, 50 agencies have been acquired under the pooling-of-
interests method of accounting in exchange for a total of approximately 8.1
million shares of Common Stock of the Company. The Company believes that
the public market for its Common Stock, existing since 1987, has and will
continue to enhance its ability to acquire agencies.
The Company has substantial experience in acquiring insurance
agencies. Each acquisition candidate is subjected to a due diligence
process in which the Company evaluates the quality and reputation of the
business and its management, revenues and earnings, administrative and
accounting records, growth potential and location. For candidates that
pass this screening process, the Company uses a pricing method that
emphasizes pro forma revenues, profits and tangible net worth. As a
condition to completing an acquisition, the Company requires that the
principals execute Company-prepared covenants not to compete and other
restrictive covenants and that agents execute non-piracy agreements. Once
the acquisition is consummated, the Company takes steps to introduce its
procedures and protocols and to integrate the agency's systems and
employees into the Company.
Recent Developments
During 1996, the Company acquired 15 insurance agencies. See "Note
J--Acquisitions" of the Notes to Consolidated Financial Statements in the
Company's 1996 Annual Report to Shareholders which is incorporated herein
by reference for a description of these acquisitions.
Subsequent to December 31, 1996, the Company acquired certain assets
and liabilities of three insurance agencies. See "Note M--Subsequent
Events" of the Notes to Consolidated Financial Statements in the Company's
1996 Annual Report to Shareholders which is incorporated herein by
reference.
Competition
The Company participates in a very competitive industry. It is a
leading independent insurance agency system serving a wide variety of
clients through its network of wholly-owned subsidiaries which operate 69
insurance agencies located in 16 states and five Canadian provinces. Many
of the Company's competitors are larger and have greater resources than the
Company and operate on an international scale.
In some of the Agencies' cities, because no major national insurance
broker has established a presence, the Company competes with local agents,
some of whom may be larger than the Company's local Agency.
The Company's larger competitors also have extensive facilities to
manage captive insurance companies or self-insurance programs for larger
clients, while the Company has only a limited ability to administer
self-insurance and does not currently manage any captive insurance
companies.
The Company is also in competition with certain insurance companies
which write insurance directly for their customers, as well as
self-insurance and other employer sponsored programs.
Employees
As of December 31, 1996, the Company had approximately 1,750
employees. No employees are currently represented by a union. The Company
believes its relations with its employees are good.
Regulation
In every state in which the Company does business, the applicable
Agency or an employee is required to be licensed or to have received
regulatory approval by the state insurance department in order for the
Company to conduct business. In addition to licensing requirements
applicable to the Company, most jurisdictions require individuals who
engage in brokerage and certain insurance service activities to be licensed
personally.
The Company's operations depend on the validity of and its continued
good standing under the licenses and approvals pursuant to which it
operates. Licensing laws and regulations vary from jurisdiction to
jurisdiction. In all jurisdictions, the applicable licensing laws and
regulations are subject to amendment or interpretation by regulatory
authorities, and generally such authorities are vested with general
discretion as to the grant, renewal and revocation of licenses and
approvals.
ITEM 2. PROPERTIES
Except as mentioned below, the Company leases its Agencies' offices.
For information with respect to the Company's lease commitments see "Note
H--Leases" of the Notes to Consolidated Financial Statements in the
Company's 1996 Annual Report to Shareholders which is incorporated herein
by reference.
At December 31, 1996, the Company owned seven buildings in Richmond
and Charlottesville, Virginia; Oklahoma City, Oklahoma; Daytona Beach and
Fort Myers, Florida; Mobile, Alabama and Victoria, Texas (the Richmond,
Virginia building being subject to a mortgage), in which the Agencies in
those cities are located. See "Note D--Long-Term Debt and Override
Commission Agreements" of the Notes to Consolidated Financial Statements in
the Company's 1996 Annual Report to Shareholders which is incorporated
herein by reference for information regarding mortgage notes payable and
related collateral property.
ITEM 3. LEGAL PROCEEDINGS
The Company and its Agencies have no material pending legal
proceedings other than ordinary, routine litigation incidental to the
business, to which it or a subsidiary is a party. With respect to the
routine litigation, upon the advice of counsel, management believes that
none of these proceedings, either individually or in the aggregate, if
determined adversely to the Company, would have a material effect on the
financial position or results of operations of the Company or its ability
to carry on its business as currently conducted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Robert H. Hilb, 70, has been Chairman and Chief Executive Officer of
the Company since 1991 and has been a director of the Company since 1982.
Effective with the Annual Meeting of the Board of Directors of the Company
to be held on May 6, 1997, Mr. Hilb will be elected Chairman of the
Company. He was President of the Company from 1982 to 1995.
Andrew L. Rogal, 48, has been President and Chief Operating Officer of
the Company since 1995 and has been a director of the Company since 1989.
Effective with the Annual Meeting of the Board of Directors of the Company
to be held on May 6, 1997, Mr. Rogal will be elected Chief Executive
Officer of the Company. He was Executive Vice President of the Company
from 1991 to 1995 and Senior Vice President of the Company from 1990 to
1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton Company
of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and was
President of this subsidiary from 1987 to 1993.
John C. Adams, Jr., 60, has been Executive Vice President of the
Company since 1991 and was a director of the Company from 1987 to 1995. He
has been Chairman of Hilb, Rogal and Hamilton Company of Daytona Beach,
Inc., a subsidiary of the Company, since 1990 and was Chief Executive
Officer of this subsidiary from 1990 to 1992.
Timothy J. Korman, 44, has been Executive Vice President, Chief
Financial Officer and Treasurer of the Company since November 1995, and was
Senior Vice President and Treasurer of the Company from 1989 to November
1995. He is a first cousin of Robert S. Ukrop, a director of the Company.
Dianne F. Fox, 48, has been Senior Vice President-Administration and
Secretary of the Company since 1989.
Ronald J. Schexnaydre, 60, has been Senior Vice President of the
Company since 1993 and was Vice President of the Company from 1991 to
1993. He has been Chairman of Hilb, Rogal and Hamilton Company of
Louisiana, a subsidiary of the Company, since 1995 and was President of
this subsidiary from 1986 to 1995.
Ann B. Davis, 42, has been Vice President-Human Resources of the
Company since 1993 and was Assistant Vice President-Human Resources of the
Company from 1986 to 1993.
Vincent P. Howley, 48, has been Vice President-Audit of the Company
since 1993 and was Assistant Vice President-Audit of the Company from 1986
to 1993.
Carolyn Jones, 41, has been Vice President and Controller of the
Company since 1991.
Walter L. Smith, 39, has been Vice President and General Counsel of
the Company since 1991 and has been Assistant Secretary of the Company
since 1989.
Robert W. Blanton, Jr., 32, has been Assistant Vice President of the
Company since 1993. He joined the Company in 1990 as Accounting Senior.
Valerie C. Elwood, 35, has been Assistant Vice President of the
Company since 1993. She joined the Company in 1987 and has held various
positions in the accounting department.
Janice G. Pouzar, 50, joined the Company as Assistant Vice President-
Retirement Plans in 1993. Prior thereto, she was employed by William M.
Mercer in Richmond, Virginia from 1972 to 1993.
All officers serve at the discretion of the Board of Directors. Each
holds office until the next annual election of officers, which is held at
the meeting of the Board of Directors after the Annual Meeting of
Shareholders, called to be held on May 6, 1997, or until their successors
are elected. There are no family relationships nor any arrangements or
understandings between any officer and any other person pursuant to which
any such officer was selected, except as noted above.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Information as to market price and dividends per share of Common Stock
and related stockholder matters is incorporated herein by reference to the
material under the headings "Shareholders" and "Market Price of Common
Stock" in the Company's 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Information as to selected financial data is incorporated herein by
reference to the material under the heading "Selected Financial Data" in
the Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information as to management's analysis of financial condition and
results of operations is incorporated herein by reference to the material
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1996 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors included on page 13 of Form 10-K
and consolidated financial statements included on pages 16 through 26 of
the Company's 1996 Annual Report to Shareholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the directors of the registrant is incorporated
herein by reference to the material under the heading "Proposal One
Election of Directors" in the Company's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders. Information as to the executive
officers of the registrant is set forth following Item 4 of Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information as to executive compensation is incorporated herein by
reference to the material included on pages 6 through 11 in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information as to security ownership of certain beneficial owners and
management is incorporated herein by reference to the material under the
headings "Security Ownership of Management" and "Security Ownership of
Certain Beneficial Owners" in the Company's definitive Proxy Statement for
the 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to certain relationships and related transactions is
incorporated herein by reference to the material under the heading "Certain
Transactions" in the Company's definitive Proxy Statement for the 1997
Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Hilb, Rogal and
Hamilton Company and subsidiaries, included in the Company's 1996 Annual
Report to Shareholders are incorporated herein by reference in Item 8 of
this report:
Consolidated Balance Sheet -- December 31, 1996 and 1995
Statement of Consolidated Income -- Years Ended December 31, 1996, 1995 and
1994
Statement of Consolidated Shareholders' Equity -- Years Ended December 31,
1996, 1995 and 1994
Statement of Consolidated Cash Flows -- Years Ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements -- December 31, 1996
The following consolidated financial statement schedule of Hilb, Rogal
and Hamilton Company and subsidiaries is included in Item 14(d):
Schedule
Number Description Page
Number
II Valuation and Qualifying Accounts 13
All other schedules for which provision is
made in the applicable accounting regulation
of the Securities and Exchange Commission are
not required under the related instructions
or are inapplicable and therefore have been
omitted.
(3) Exhibits - Index
Exhibit No. Document
3.1 Articles of Incorporation
(incorporated by reference
to Exhibit 4.1 to the
Company's Registration State-
ment on Form S-3, File No.
33-56488, effective March 1,
1994, hereinafter, the Form
S-3)
3.2 Amended and Restated Bylaws
(incorporated by reference to
Exhibit 3.2 to the Company's
Form 10-K for the year ended
December 31, 1995, File No.
0-15981)
10.1 $20,000,000 Credit Agreement
dated February 12, 1996 among
Hilb, Rogal and Hamilton Company,
Certain Banks and Crestar Bank,
as Agent of the Banks (incorporated
by reference to Exhibit 10.1 to the
Company's Form 10-K for the year
ended December 31, 1995, File
No. 0-15981)
10.2 Amendment dated February 24, 1997
to Credit Agreement dated February
12, 1996 among Hilb, Rogal and
Hamilton Company, Certain Banks
and Crestar Bank as Agent of the
Bank
10.3 Incentive Stock Option Plan, as
amended (incorporated by reference
to Exhibit 28.27 of the Form S-3)
10.4 Amendment Number Twelve to
Employment Agreement of Robert H. Hilb
(the Amendment Number 12 is incorp-
orated by reference to Exhibit 10.3 to
the Company's Form 10-K for the year
ended December 31, 1995, File No.
0-15981 and the Employment Agreement
is incorporated by reference to
Exhibit 10.7 to the Company's Form
10-K for the year ended December 31,
1994, File No. 0-15981)
10.5 Employment Agreement of Andrew L. Rogal
(the Employment Agreement is incorporated
by reference to Exhibit 10.4 to the Company's
Form 10-K for the year ended December 31,
1995, File No. 0-15981)
10.6 Hilb, Rogal and Hamilton
Company
1989 Stock Plan, as amended
10.7 Supplemental Executive Retire-
ment Plan (incorporated by reference
to Exhibit 10.9 to the Company's Form 10-K
for the year ended December 31, 1994, File
No. 0-15981)
10.8 Amendment to Hilb, Rogal and Hamilton
Company Supplemental Executive Retirement
Plan (incorporated by reference to
Exhibit 10.6 to the Company's Form
10-K for the year ended December 31,
1995, File No. 0-15981)
10.9 Hilb, Rogal and Hamilton Company
Outside Directors Deferral Plan (incorp-
orated by reference to Exhibit 10.10
to the Company's Form 10-K for the
year ended December 31, 1994, File
No. 0-15981)
11 Statement Regarding Computation
of Per Share Earnings
13 1996 Annual Report to Shareholders
22 Subsidiaries of Hilb, Rogal and
Hamilton Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) Exhibits
The response to this portion of Item 14 as listed in Item 14(a)(3)
above is submitted as a separate section of this report.
(d) Financial Statement Schedules
The report of independent auditors and financial statement schedule
(as indexed in Item 14(a)(2)) of this report are as follows:
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Hilb, Rogal and Hamilton Company
We have audited the consolidated balance sheets of Hilb, Rogal and Hamilton
Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996 (incorporated
by reference herein). Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state
ments. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Hilb, Rogal and Hamilton Company and subsidiaries at December
31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Richmond, Virginia
February 12, 1997
HILB, ROGAL AND HAMILTON COMPANY
AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
Additions Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions at End
Description of Period and Expenses (Describe)* (Describe)** of Period
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996:
Allowance for doubt-
ful accounts....... $1,772,000 $1,276,000 $100,000 $703,000 $2,445,000
Year ended
December 31, 1995:
Allowance for doubt-
ful accounts....... 2,348,000 1,500,000 121,000 2,197,000 1,772,000
Year ended
December 31, 1994:
Allowance for doubt-
ful accounts....... 2,390,000 1,239,000 70,000 1,351,000 2,348,000
</TABLE>
______________________
* Recoveries
** Bad debts written off
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HILB, ROGAL AND HAMILTON COMPANY
By /s/ Robert H. Hilb
Robert H. Hilb, Chairman
Date March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert H. Hilb Chairman (principal executive March 21, 1997
Robert H. Hilb officer) and Director
/s/ Andrew L. Rogal President and Chief Operating
Andrew L. Rogal Officer March 21, 1997
/s/ Timothy J. Korman Executive Vice President and March 21, 1997
Timothy J. Korman Treasurer (principal financial
officer)
/s/ Carolyn Jones Vice President and Controller March 21, 1997
Carolyn Jones (principal accounting officer)
/s/ Philip J. Faccenda Director March 21, 1997
Philip J. Faccenda
/s/ Robert S. Ukrop Director March 21, 1997
Robert S. Ukrop
Thomas H. O'Brien Director
/s/ J.S.M. French Director March 21, 1997
J.S.M. French
Norwood H. Davis, Jr. Director
/s/ Theodore L. Chandler, Jr. Director March 21, 1997
Theodore L. Chandler, Jr.
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (the "Agreement") is made
and entered into as of this 24th day of February, 1997, by and
among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation
(the "Borrower"), the Banks set forth on the signature page
hereto (the "Banks"), and CRESTAR BANK, a Virginia banking
corporation, as agent for the Banks under the Credit Agreement
(in such capacity, the "Agent").
RECITALS
A. The Borrower, the Agent and the Banks are parties to
that certain Credit Agreement dated as of February 12, 1996 (as
amended from time to time, the "Credit Agreement"), pursuant to
which each Bank, severally and not jointly, agreed to make Loans
from time to time until the Commitment Termination Date in an
aggregate principal amount at any time outstanding not exceeding
the amount of its Commitment. Capitalized terms not otherwise
defined herein shall have the meanings given such terms in the
Credit Agreement.
B. The Borrower has requested that the Agent and the Banks
make certain amendments to the Credit Agreement and the Agent and
the Banks are willing to make certain amendments to the Credit
Agreement on the terms and conditions set forth herein.
AGREEMENT
In consideration of the Recitals and of the mutual promises
and covenants contained herein, the Borrower, the Agent and the
Banks agree as follows:
1. Amendments to Credit Agreement. The Borrower, the
Agent and the Banks agree to the following amendments to the
Credit Agreement:
(a) Section 7.02 of the Credit Agreement is amended by
deleting the existing provision and substituting the following in
lieu thereof:
"SECTION 7.02. Indebtedness to Total
Capitalization Ratio. The ratio of Consolidated
Indebtedness to the sum of Consolidated
Indebtedness plus Consolidated Net Worth shall not
at any time exceed 1.00 to 2.00. For purposes of
this covenant, (i) Consolidated Indebtedness shall
be determined as of the date of the last day of
each quarter and the date of any change in
Consolidated Indebtedness, and (ii) Consolidated
Net Worth shall be calculated as of the last day
of each quarter."
(b) The definition of "Commitment" as set forth in
Exhibit A of the Credit Agreement is amended by deleting the
existing provision and substituting the following in lieu
thereof:
"'Commitment' means, with respect to
each Bank, an amount of $15,000,000, as the same
may be reduced from time to time pursuant to this
Agreement."
(c) The definition of "Commitment Termination Date" as
set forth in Exhibit A of the Credit Agreement is amended by
deleting the existing provision and substituting the following in
lieu thereof:
"'Commitment Termination Date' means
January 31, 2002, or such earlier date and time on
which the Commitments are terminated pursuant to
Article VIII."
(d) The definition of "Consolidated Indebtedness" is
hereby added to Exhibit A of the Credit Agreement as follows:
"'Consolidated Indebtedness' means, as
of any date, all Indebtedness of the Borrower and
its Consolidated Subsidiaries at such time."
2. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Banks as follows:
(a) Recitals. The Recitals in this Agreement are true
and correct in all respects.
(b) Incorporation of Representations. All
representations and warranties of the Borrower in the Credit
Agreement are incorporated herein in full by this reference and
are true and correct as of the date hereof.
(c) No Defaults. No Default or Event of Default has
occurred and is continuing under the Credit Agreement.
(d) Corporate Power; Authorization. The Borrower has
the corporate power, and has been duly authorized by all
requisite corporate action, to execute and deliver this Agreement
and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by the Borrower.
(e) Enforceability. This Agreement is the legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms.
(f) No Violation. The Borrower's execution, delivery
and performance of this Agreement do not and will not (i) violate
any law, rule, regulation or court order to which the Borrower is
subject, or (ii) conflict with or result in a breach of the
Borrower's Articles of Incorporation or Bylaws or any agreement
or instrument to which the Borrower is party or by which it or
its properties are bound.
(g) Obligations Absolute. The obligation of the
Borrower to repay the Loans, together with all interest accrued
thereon, is absolute and unconditional, and there exists no known
right of set off or recoupment, counterclaim or defense of any
nature whatsoever to payment of the Obligations, and, to the
Borrower's knowledge, it does not currently hold and has not
previously held any claims of any kind against the Banks and
their respective employees, directors, agents, successors or
assigns arising out of or in any way connected with this
Agreement, the Credit Agreement or the Replacement Notes.
3. Conditions Precedent to Effectiveness of Agreement.
This Agreement shall not be effective unless and until each of
the following conditions shall have been satisfied in the Agent
and the Banks' sole discretion or waived by the Agent and the
Banks, for whose sole benefit such conditions exist:
(a) The Borrower shall have paid all of the Agent's
and the Banks' costs and expenses (including the Agent's and the
Banks' reasonable attorneys fees) incurred in connection with the
preparation of this Agreement.
(b) The Borrower shall have delivered, or caused to be
delivered, to each Bank:
(i) a duplicate original of this Agreement
executed on the Borrower's behalf by its duly authorized officer.
(ii) a duly executed promissory note reflecting
such Bank's increased Commitment and new Commitment Termination
Date and substantially in the form of Exhibit B to the Credit
Agreement (each, a "Replacement Note"), payable to its order and
otherwise complying with the provisions of Section 1.03 of the
Credit Agreement, whereupon the original notes will be returned
to the Borrower marked "Cancelled by Substitution".
(c) The Borrower shall have delivered, or caused to be
delivered, to the Agent, (i) a certificate of the Secretary or an
Assistant Secretary of the Borrower dated as of the date hereof
substantially in the form attached as Appendix 1 hereto and (ii)
a certificate of the Chief Financial Officer of the Borrower,
substantially in the form attached as Appendix 2 hereto.
4. Effect and Construction of Agreement. Except as
expressly provided herein, the Credit Agreement shall remain in
full force and effect in accordance with its respective terms,
and this Agreement shall not be construed to:
(i) waive or impair any rights, powers or remedies of
the Agent and the Banks under the Credit Agreement; or
(ii) constitute an agreement by the Agent and the Banks
or require the Agent and the Banks to make further
amendments to the Credit Agreement.
In the event of any inconsistency between the terms of this
Agreement and the Credit Agreement, this Agreement shall govern.
The Borrower acknowledges that it has consulted with counsel and
with such other experts and advisors as it has deemed necessary
in connection with the negotiation, execution and delivery of
this Agreement. This Agreement shall be construed without regard
to any presumption or rule requiring that it be construed against
the party causing this Agreement or any part hereof to be
drafted.
5. Expenses. The Borrower agrees to pay all costs, fees
and expenses of the Agent and the Banks (including the reasonable
fees of the Agent and the Banks's counsel) incurred by the Agent
and the Banks in connection with the negotiation, preparation,
administration and enforcement of this Agreement.
6. Miscellaneous.
(a) Further Assurance. The Borrower agrees to execute
such other and further documents and instruments as the Agent may
request to implement the provisions of this Agreement.
(b) Benefit of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by
the parties hereto, their respective successors and assigns. No
other person or entity shall be entitled to claim any right or
benefit hereunder, including, without limitation, the status of a
third-party beneficiary of this Agreement.
(c) Integration. This Agreement, together with the
Credit Agreement and the Replacement Notes, constitutes the
entire agreement and understanding among the parties relating to
the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings relating to such
subject matter. In entering into this Agreement, the Borrower
acknowledges that it is relying on no statement, representation,
warranty, covenant or agreement of any kind made by the Agent and
the Banks or any employee or agent of the Agent and the Banks,
except for the agreements of the Agent and the Banks set forth
herein.
(d) Severability. The provisions of this Agreement
are intended to be severable. If any provisions of this
Agreement shall be held invalid or unenforceable in whole or in
part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
enforceability without in any manner affecting the validity of
enforceability of such provision in any other jurisdiction or the
remaining provisions of this Agreement in any jurisdiction.
(e) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal substantive laws
of the Commonwealth of Virginia, without regard to the choice of
law principles of such state.
(f) Counterparts; Telecopied Signatures. This
Agreement may be executed in any number of counterparts and by
different parties to this Agreement on separate counterparts,
each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto.
(g) Notices. Any notices with respect to this
Agreement shall be given in the manner provided for in Section
10.04 of the Credit Agreement.
(h) Amendment. No amendment, modification,
rescission, waiver or release of any provision of this Agreement
shall be effective unless the same shall be in writing and signed
by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CRESTAR BANK, as Agent FIRST UNION NATIONAL BANK OF
VIRGINIA
By:___________________________ By:___________________________
Christopher B. Werner Douglas T. Davis
Vice President Vice President
CRESTAR BANK HILB, ROGAL AND HAMILTON
COMPANY
By:___________________________ By:___________________________
Christopher B. Werner Timothy J. Korman
Vice President Executive Vice President
and Treasurer
HILB, ROGAL AND HAMILTON COMPANY
1989 STOCK PLAN
(As Amended December 17, 1996)
I. PURPOSE
This 1989 Stock Plan is intended to assist Hilb, Rogal and
Hamilton Company (the "Company") in recruiting, retaining and
motivating capable individuals as key employees and Directors by
enabling those individuals who contribute significantly to the
Company to participate in its future success and to associate
their interests with those of the Company through equity
participation or equity-based rewards. This Plan is also
intended to assist affiliated corporations in recruiting,
retaining and motivating capable individuals as key employees by
enabling such employees who contribute significantly to the
affiliated corporation and, thereby the Company, to participate
in the Company's future success and to associate their interests
with those of the Company through equity participation or equity-
based rewards. The proceeds received by the Company from the
sale of Common Stock pursuant to this Plan shall be used for
general corporate purposes.
II. DEFINITIONS
For purposes of this Plan, the following terms shall have
the following meanings:
(a) Affiliate means any "subsidiary" or "parent"
corporation (within the meaning of Section 422 A of the Code) of
the Company.
(b) Agreement means a written agreement (including any
amendment or supplement thereto) between the Company and a
Participant specifying the terms and conditions of an Option, SAR
or Restricted Stock award granted to such Participant.
(c) Board means the Board of Directors of the Company.
(d) Code means the Internal Revenue Code of 1986, and any
amendments thereto.
(e) Committee means the Compensation Committee which shall
be appointed from time to time by the Board but shall always
consist of three individuals, all of whom shall be Directors of
the Company who are not employees of the Company.
(f) Common Stock means the common stock of the Company.
(g) Director means a member of the Board.
(h) Fair Market Value means, for any given date, the
closing price per share of Common Stock as reported on the New
York Stock Exchange composite tape on that day or, if the Common
Stock was not traded on such day, then the next preceding day
that the Common Stock was traded on such exchange, all as
reported by such source as the Committee may select.
(i) Initial Value means with respect to any SAR, the Fair
Market Value on the date of the grant of the SAR as set forth in
the applicable Agreement.
(j) Option means a stock option, not otherwise specifically
qualified for favorable tax treatment under a section of the
Code, that entitles the holder to purchase from the Company a
stated number of shares of Common Stock at the price set forth in
an Agreement under the terms of this Plan.
(k) Participant means an employee of the Company or an
Affiliate or a member of the Board of Directors of the Company,
whether or not an employee of the Company, who satisfies the
requirements of Section IV of the Plan and who either is selected
by the Committee to receive an Option, SAR or award of Restricted
Stock or receives a grant of an Option pursuant to Section VII.
(l) Plan means the Hilb, Rogal and Hamilton Company 1989
Stock Plan.
(m) 1986 Plan means the Hilb, Rogal and Hamilton Company
1986 Incentive Stock Option Plan.
(n) Restricted Stock means shares of Common Stock awarded
to a Participant under Section X of this Plan. Shares of Common
Stock shall cease to be Restricted Stock when, in accordance with
the terms of the applicable Agreement, they become freely
transferable and free of substantial risk of forfeiture.
(o) SAR means a stock appreciation right entitling the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the excess of the Fair
Market Value over the Initial Value of the SAR.
III. ADMINISTRATION
This Plan shall be administered by the Committee. Employees
of the Company and its Affiliates and Directors, whether or not
employees of the Company or an Affiliate, shall be eligible to
participate in this Plan; provided, however, that non-employee
Directors shall only receive awards of Options under Section VII
below and no other awards or grants hereunder except for
adjustments pursuant to Section XI. The Committee shall have
authority to grant Options, Restricted Stock awards, or SARs or
any combination thereof to any individual eligible to be a
Participant other than a non-employee Director, upon such terms
(not inconsistent with the provisions of this Plan) as it may
consider appropriate. The terms upon which each Option,
Restricted Stock award or SAR is granted by the Committee may
include conditions (in addition to those contained in this Plan)
established by the Committee upon the exercisability of all or
any part of the Option or SAR (including the terms of exercise,
Option price, time of vesting, transferability and
forfeitability) and the price, transferability or forfeitability
of Restricted Stock. Notwithstanding any such conditions, the
Committee may, in its discretion, accelerate the time at which
any Option or SAR which has been granted by the Committee may be
exercised or at which Restricted Stock becomes freely
transferable and free of risk of forfeiture. The Committee, in
its discretion, may establish guidelines supplementing this Plan
regarding the selection of Participants, other than non-employee
Directors, and the amounts, times and terms for grants by the
Committee of Options, Restricted Stock awards and SARs. In
addition, the Committee shall have complete authority to
interpret all provisions of this Plan, to adopt, amend, and
rescind rules and regulations pertaining to the administration of
this Plan, and to make all other determinations necessary or
advisable for the administration of this Plan. The Committee
shall prescribe the form of Agreements, consistent with the Plan,
to set forth terms and conditions for Options, SARs and
Restricted Stock awards granted to individual Participants. Any
decision made, or action taken, by the Committee in connection
with the administration of this Plan shall be final and
conclusive. No member of the Committee shall be liable for any
act done in good faith with respect to this Plan or any Agreement
or Common Stock or stock right granted under its terms. All
expenses associated with the administration of this Plan shall be
borne by the Company.
IV. ELIGIBILITY
(1) General. Any employee of the Company, or any employee
of an Affiliate, who, in the judgment of the Committee, has
contributed or may be expected to contribute to the profits or
growth of the Company or an Affiliate, as the case may be, may be
granted one or more Options, SARs or awards of Restricted Stock
by the Committee. Non-employee Directors shall receive Options
only under the terms of Sections VII below.
(2) Grants. The Committee will designate employees to whom
Options, SARs or awards of Restricted Stock are to be granted and
will specify the number of shares of Common Stock subject to each
grant. An Option may be granted to an employee with a related
SAR and an SAR may be granted to an employee with a related
Option or each may be granted independently. All Options, SARs
and awards of Restricted Stock granted under this Plan shall be
evidenced by Agreements which shall be subject to applicable
provisions of this Plan and, with respect to grants of Options,
SARs and awards of Restricted Stock to employees, to such other
terms and provisions as the Committee may adopt.
V. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
Upon the proper exercise of any Option, independent SAR or
award of Restricted Stock, and payment therefor, the Company may
deliver to the Participant authorized but previously unissued
Common Stock. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to both this Plan and the 1986
Plan is 625,000, inclusive of all shares issued pursuant to the
1986 Plan prior to the adoption of this Plan, (the "Maximum
Issuable Shares"). The Maximum Issuable Shares shall be
increased, or decreased, at the end of each fiscal year by 13.39%
of the increase, or decrease, in the number of shares of Common
Stock issued and outstanding between the first and last days of
the fiscal year (other than increases from the issuance of Common
Stock under this Plan or the 1986 Plan); provided, however, that
the Maximum Issuable Shares shall not be reduced below the number
that is the sum of those already issued and those that are the
subject of outstanding options under the 1986 Plan or this Plan
at the end of the fiscal year. This annual adjustment shall
first be made as of the last day of the Company's fiscal year
that begins on January 1, 1989.
If an Option is terminated, in whole or in part, for any
reason other than its exercise, the number of shares of Common
Stock allocated to the Option or portion thereof may be
reallocated to other Options to be granted under this Plan or
options under the 1986 Plan. Any shares of Restricted Stock that
are forfeited by a Participant may be reallocated to other awards
of Restricted Stock under this Plan. Upon the exercise of an SAR
granted independently of an Option, the Company may deliver to
the Participant authorized but previously unissued Common Stock,
cash, or a combination thereof as provided in Section IX(3). If
such an SAR is terminated, in whole or in part, for any reason
other than its exercise, the number of shares of Common Stock
allocated to that SAR, or portion thereof, respectively, may be
reallocated to other Options under this Plan or options under the
1986 Plan or SARs which may be granted independently of Options
under this Plan.
VI. OPTION PRICE
The price per share for Common Stock which may be purchased
by the exercise of any Option granted by the Committee under this
Plan shall be set by the Committee. Such Option price may differ
between Options and may be less than Fair Market Value at the
time of grant in the discretion of the Committee.
VII. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
Each Director of the Company who is not an employee of the
Company at the time of the grant shall receive a grant of an
Option for the purchase of 2,000 shares of Common Stock on the
first business day following the 1993, 1994, 1995, 1996 and 1997
Annual Meetings of the Shareholders of the Company. Each such
Option granted to a non-employee Director shall be for a purchase
price equal to the Fair Market Value of the Common Stock at the
time of the grant and shall be evidenced by an Agreement. Such
Agreement shall contain terms and provisions consistent with the
applicable provisions of this Plan.
VIII. EXERCISE OF OPTIONS AND SARS
(1) Maximum Option or SAR Period. Options and SARs granted
to employees may be exercisable immediately or become exercisable
after any term of months or years and may remain exercisable for
any term of months or years as set by the Committee in its
discretion at the time of granting. The date upon which any
Option or SAR granted by the Committee becomes exercisable may be
accelerated by the Committee in its discretion. The term of
exercisability for any Option or SAR granted by the Committee may
be extended by the Committee and may be made contingent upon the
continued employment of the Participant by the Company or
Affiliate. The terms of any Option or SAR granted by the
Committee may provide that the Option or SAR is exercisable in
whole or in part from time to time over such period of time as
the Committee shall consider appropriate.
(2) Nontransferability. Any Option or SAR granted under
this Plan shall be nontransferable except, in the case of the
death of the Participant, by will or by the laws of descent and
distribution. In the event of any such transfer upon the death
of the Participant, the Option and any related SAR must be
transferred to the same person or persons, trust or estate and
may not be separated. During the lifetime of the Participant to
whom an Option or SAR is granted, the Option or SAR may be
exercised only by the Participant. No right or interest of a
Participant in any Option or SAR shall be liable for, or subject
to, any obligation, lien, or liability of such Participant.
(3) Employee Status. In the event that the terms of any
Option or SAR granted to an employee of the Company provide that
the Option or SAR may be exercised only during the employment of
the Participant or within a specified period of time after the
termination of his employment, the Committee may decide in each
case whether and the extent to which leaves of absence for
governmental or military service, illness, temporary disability,
or other reasons shall be deemed interruptions of continuous
employment.
IX. METHODS OF EXERCISE
(1) Exercise. Subject to the provisions of Sections VIII
and XI, an Option or SAR granted by the Committee may be
exercised in whole at any time or in part from time to time at
such times and in compliance with the applicable Agreement and
such other requirements as the Committee shall determine. An
Option granted under Section VII hereof may be exercised in whole
at any time or in part from time to time at such times and in
compliance with the applicable Agreement. A partial exercise of
an Option or SAR shall not affect the right to exercise the
Option or SAR from time to time in accordance with this Plan with
respect to remaining shares subject to the Option or SAR, except
that the exercise of an Option shall result in the termination of
any related SAR to the extent of the number of shares with
respect to which the Option is exercised.
(2) Payment for Option Exercises. Unless otherwise
provided by the Agreement (or permitted by the Committee for non-
qualified Options granted by the Committee), payment of the
Option price shall be made in cash (in United States dollars) or
a cash equivalent acceptable to the Committee. If the Agreement
so provides, payment of all or a part of the Option price for a
qualified Option may be made by the Participant surrendering
shares of Common Stock to the Company. If the Agreement so
provides (or the Committee so permits), payment of all or a part
of the Option price for a non-qualified Option may be effected
(i) by the Participant surrendering shares of Common Stock to the
Company, (ii) by the Company withholding shares of Common Stock
from the Participant upon exercise, or (iii) by the Participant
delivering to a broker instructions to sell a sufficient number
of the shares of Common Stock being acquired upon exercise of the
Option to cover the Option price and any additional costs and
expenses associated with the cashless exercise. If Common Stock
is surrendered or withheld to pay all or part of the Option
price, the shares surrendered or withheld must have a Fair Market
Value (determined as of the date of exercise of the Option) that
is not less than such Option price or part thereof.
(3) Settlement of SARs. At the discretion of the
Committee, the amount payable as a result of the exercise of an
SAR may be settled in cash, Common Stock or a combination of cash
and Common Stock. No fractional share shall be delivered upon
the exercise of an SAR but cash shall be paid in lieu thereof.
(4) Shareholder Rights. No Participant shall, as a result
of receipt of any Option or SAR, have any rights as a shareholder
until the date he exercises such Option or SAR.
(5) Tax Withholding With Respect to Options. In the case
of the exercise of an Option, the Participant shall pay to the
Company in cash the full amount of all federal and state income
and employment taxes required to be withheld by the Company in
respect of the taxable income of the Participant from such
exercise. If the Agreement so provides (or the Committee so
permits for non-qualified Options granted by the Committee),
payment of all or a part of such taxes may be made by the
Participant surrendering shares of Common Stock to the Company or
by the Company withholding shares of Common Stock from the
Participant upon exercise, provided the shares surrendered or
withheld have a Fair Market Value (determined as of the date of
exercise of the Option) that is not less than the amount of such
taxes or part thereof, or by the sale of shares of Common Stock
upon the cashless exercise of an Option through a broker.
X. RESTRICTED STOCK.
(1) Award. In accordance with the provisions of Section
IV, the Committee will designate employees to whom an award of
Restricted Stock is to be made and will specify the number of
shares of Restricted Stock to be awarded, and the purchase price
per share to be paid by the Participant.
(2) Vesting. The Committee, on the date of the award, may
prescribe that the Participant's rights in the Restricted Stock
shall be forfeitable or otherwise restricted in any manner in the
discretion of the Committee for such period of time as is set
forth in the Agreement. By way of example and not limitation,
the restrictions may postpone transferability of the shares or
may provide that the shares will be forfeited if the employment
of the Participant by the Company or an Affiliate or the service
of the Participant as a Director terminates before the expiration
of a stated term.
(3) Shareholder Rights. Prior to the forfeiture of shares
in accordance with the terms of the Agreement and while the
shares are Restricted Stock, a Participant will have all rights
of a shareholder with respect to Restricted Stock, including the
right to receive dividends and vote the shares; provided,
however, that (i) a Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of Restricted Stock,
(ii) the Company shall retain custody of the certificates
evidencing shares of Restricted Stock, and (iii) the Participant
will deliver to the Company a stock power, endorsed in blank,
with respect to each award of Restricted Stock. The limitations
set forth in the preceding sentence shall not apply after the
shares cease to be Restricted Stock.
(4) Tax Withholding With Respect to Restricted Stock. The
Participant shall pay or provide for the payment to the Company
in cash of the full amount of all federal and state income and
employment taxes required to be withheld by the Company with
respect to the inclusion in the taxable income of the Participant
of any amount pursuant to an award of Restricted Stock, including
an election made pursuant to Section 83(b) of the Code or the
lapse of any restriction with respect thereto.
XI. CHANGES IN CAPITAL STRUCTURE
Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each
outstanding Option or SAR, and the price per share thereof, and
the number of shares of Restricted Stock awarded, shall be
adjusted proportionately for any increase or decrease in the
number of issued and outstanding shares of Common Stock of the
Company by reason of any stock dividend, stock split,
combination, reclassification, recapitalization, or the general
issuance to holders of Common Stock of rights to purchase Common
Stock at substantially below its then fair market value, or any
change in the number of shares of Common Stock outstanding
effected without receipt of cash, property, labor or services by
the Company, or any spin-off or other type of distribution of
assets to shareholders.
Subject to any required action by the shareholders of the
Company, if the Company shall be the surviving corporation in any
merger, consolidation or other reorganization of the Company,
each outstanding Option or SAR shall pertain to and apply to the
securities to which a holder of the number of shares of Common
Stock subject to the Option or SAR would have been entitled. A
dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving
corporation, shall cause each outstanding Option and SAR to
terminate; provided that, immediately prior to such dissolution
or liquidation, or merger or consolidation in which the Company
is not the surviving corporation, each Participant shall have the
right to exercise his Option or SAR, and all restrictions on
Restricted Stock shall terminate and it shall become Common
Stock.
In the event of a change in the Common Stock of the Company
as presently constituted, which is limited to a change of all or
part of its authorized shares without par value into the same
number of shares with a par value, or any subsequent change into
the same number of shares with a different par value, the shares
resulting from any such change shall be deemed to be the Common
Stock within the meaning of the Plan.
Except as expressly provided above in this Section XI, a
Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation. Any issue by the Company
of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or
price of shares of Restricted Stock or of Common Stock subject to
any Option or SAR.
The grant of an Option, SAR or Restricted Stock award
pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure
or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
XII. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock or
Restricted Stock shall be issued, no certificates for shares of
Common Stock or Restricted Stock shall be delivered, and no
payment shall be made under this Plan (i) except in compliance
with all applicable federal and state laws and regulations and
rules of all domestic stock exchanges on which the Company's
shares may be listed and (ii) until the Company has obtained such
consent or approval as the Board or the Committee may deem
advisable from regulatory bodies having jurisdiction over such
matters and from the shareholders. The Company and the Committee
shall have the right to rely on the opinion of counsel for either
of them as to such compliance. Any share certificate issued to
evidence Common Stock for which an Option or SAR is exercised or
to evidence Restricted Stock may bear such legends and statements
as the Board or the Committee may deem advisable to assure
compliance with federal and state laws and regulations.
XIII. GENERAL PROVISIONS
(1) Effect on Employment. Neither the adoption of this
Plan, its operation, nor any documents describing or referring to
this Plan (or any part thereof) shall confer upon any employee
any right to continue in the employ of the Company or an
Affiliate or in any way affect any right and power of the Company
or an Affiliate, as the case may be, to terminate the employment
of any employee at any time with or without assigning a reason
therefor.
(2) Unfunded Plan. This Plan, insofar as it provides for
grants, shall be unfunded, and the Company shall not be required
to segregate any assets that may at any time be represented by
grants under the Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created
pursuant to this Plan. No such obligation of the Company shall
be deemed to be secured by any pledge of, or other encumbrance
on, any property of the Company.
(3) Rules of Construction. Headings are given to the
articles and sections of this Plan solely as a convenience to
facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
XIV. AMENDMENTS
The Board may amend or terminate this Plan from time to
time; provided, however, that: (i) no amendment may become
effective until the approval of the Company's shareholders is
obtained if the amendment (a) increases the aggregate number of
shares that may be issued hereunder or (b) changes the class of
individuals eligible to become Participants and, (ii) the Board
may amend Section VII hereof but only to provide for the granting
of Options to non-employee Directors in a year or years after
1996 which Option grants must not cause this Plan to fail to
qualify for exemption from Section 16(b) of the Securities
Exchange Act of 1934 under the provisions of Rule 16b-3 or any
successor rule and provided that such amendment to Section VII
hereof must also be approved by a majority of the employee
Directors then serving on the Board. No amendment shall, without
a Participant's consent, adversely affect any rights of such
Participant under any Option or SAR outstanding or Restricted
Stock issued at the time such amendment is made unless required
by law, regulation or rule of stock exchange.
XV. EFFECTIVE DATE OF PLAN
Options and SARs may be granted under this Plan, upon its
adoption by the Board, provided that no Option or SAR will be
effective unless and until this Plan is approved by the holders
of a majority of the shares of the Company's outstanding voting
stock present in person, or represented by proxy, and entitled to
vote at a duly held meeting of the shareholders. No Option or
SAR granted prior to such shareholder approval may be exercised
before the requisite shareholder approval is obtained.
XVI. GOVERNING LAW
The Plan shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia, except
to the extent that federal law shall be deemed to apply.
0290858.03
Exhibit 11
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31
__________________________________
1996 1995 1994
<S> <C> <C> <C>
PRIMARY:
Average shares outstanding 13,493,255 14,470,407 14,778,304
Net effect of dilutive stock options-- based
on the treasury stock method using average
fair value 25,451 9,989 7,082
Net effect of guaranteed future shares to be
issued in connection with an agency
acquisition 7,076
Net effect of future shares to be
issued in connection with an agency
acquisition contingent upon performance 28,301
_________ __________ __________
Average number of shares as adjusted 13,554,083 14,480,396 14,785,386
========== ========== ==========
Net income $11,406,391 $11,828,910 $11,392,283
=========== =========== ===========
Per share amount $.84 $.82 $.77
==== ==== ====
FULLY DILUTED:
Average shares outstanding
13,493,255 14,470,407 14,778,304
Net effect of dilutive stock options-- based
on the treasury stock method using average
fair value 25,451 27,458 7,344
Net effect of guaranteed future shares to be
issued in connection with an agency
acquisition 7,076
Net effect of future shares to be
issued in connection with an agency
acquisition contingent upon performance 56,603
---------- ---------- ----------
Average number of shares as adjusted 13,582,385 14,497,865 14,785,648
========== ========== ==========
Net income $11,406,391 $11,828,910 $11,392,283
=========== =========== ===========
Per share amount $.84 $.82 $.77
==== ==== ====
</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.
(front cover)
HILB, ROGAL AND HAMILTON COMPANY
(Photograph of magnifying glass with the caption: "A New Focus")
1996
Annual Report
<PAGE>
Contents
1 Financial Highlights
2 Letter to Shareholders
5 A New Focus
13 Financial Section
27 Directors and Officers
28 Agency Locations
29 General Information
(Map of the United States and Canada showing HRH agency and
branch locations)
<PAGE>
Financial Highlights
HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES
(in millions of dollars, except per share amounts)
(Bar graphs reflecting the following financial information below)
1996 1995 1994 1993 1992
Total Revenues $ 158 $ 148 $ 141 $ 142 $ 140
Net Income 11.4 11.8 11.4 8.3 8.6
Net Income Per
Common Share .85 .82 .77 .57 .65
Dividends Per
Common Share .605 .57 .50 .45 .41
Our Business
Hilb, Rogal and Hamilton Company serves as an intermediary
between our clients-who are traditionally the mid-size, Main
Street businesses of the nation-and insurance companies that
underwrite clients' risks. With
69 agencies located in 16 states and five Canadian
provinces, Hilb, Rogal and Hamilton Company is able to
assist clients in transferring their risks in areas such as
property and casualty, employee benefits and other areas of
specialized risk exposure. Revenues are derived primarily
from commissions received from insurance companies with whom
client risk is placed. Support services related to risk
transfer transactions are an additional revenue source. As
an industry leader, the Company expands its business by
developing new clients, providing additional services to
current clients and maintaining a focused merger and
acquisition strategy.
<PAGE>
(This section includes a photograph of Robert H. Hilb, Chairman and
Chief Executive Officer)
To Our Shareholders
A year ago, I had the pleasure of reporting to you that our
Company experienced improved performance, even in the midst
of very difficult market conditions. At that time, I also
told you that the Company was positioned for steady growth
and was an excellent choice for long-term investment.
Some things never change.
Though 1996 brought little relief from the soft market
conditions that have dominated our industry for more than a
decade, Hilb, Rogal and Hamilton Company achieved
satisfactory financial performance again in 1996. Revenues
were $158.2 million-a solid 6.8% increase over 1995.
Although our earnings decreased 3.6% to $11.4 million, the
Company's earnings per share increased from $.82 per share
in 1995 to $.85 in 1996. We believe these results are a
testament to the continued success of our Company's well-
established financial and operational strategies.
Yet even while many things remained constant for our
Company in 1996, others began changing in significant ways.
As part of our ongoing commitment to enhance shareholder
value, we began leveraging the Company more aggressively
last year. Partly due to this strategy, we were able to
continue the execution of our stock buyback program, with
total purchases in excess of 800,000 shares. We reduced our
number of shares outstanding from 13.7 million at December
31, 1995 to 13.3 million in 1996. This is quite an
accomplishment. During the fourth quarter of 1996, our
annual dividend rate was increased from $.60 per share to
$.62. Our Company continues to provide the highest return in
the industry. And as long as we believe our stock is
undervalued, we will continue this aggressive reinvestment
policy.
Several acquisitions were made during 1996. A total of
15 agencies were purchased during the year, with significant
acquisitions made in the United States (Moline, New Haven,
Birmingham and Ontario) and in Canada (Manitoba). These
acquisitions will fit well within our Company's new regional
infrastructure, which is now beginning to improve the way we
deliver services and products to our base of current and
prospective clients. A divestiture was made in 1996 as well,
when we completed the sale of our New Jersey office. This
action is consistent with our strong desire to constantly
review our operations in order to maximize our return on
assets and our value to shareholders. I invite you to read
more about the progress of our Company's new operational
focus in the following pages of this report.
1996 also brought one major management change to our
Company. In late November, I announced my plans for
retirement. Though I will continue as Chairman of the Board,
Andy Rogal, our current President and Chief Operating
Officer, will assume the position of Chief Executive Officer
at our annual directors' meeting in May of this year. Andy
clearly has the ability, enthusiasm and experience needed to take the
Company into the future. I have every confidence that this
orderly transition of leadership will ensure Hilb, Rogal and
Hamilton Company's continued success.
Since the Company's inception in 1982, we have
accomplished many great things. What started as a $15
million revenue system has grown to more than ten times that
size. In just fifteen years, we have acquired or merged with
over 160 agencies, making us the 9th largest agency network in the United
States and the 16th largest in our business worldwide.
Taking the Company public in 1987 was a major step towards
financial success and our move to the New York Stock Exchange in 1992
signaled that we had finally become one of the nation's top
insurance brokerages. Since that time, we have repaid the
original loan required to launch our business, have taken
the Company outside of the United States into the provinces
of Canada and have created an operating structure that will
provide greater value for our shareholders and our clients.
Of course, we could have never achieved these things
without the support of our Company's talented management and
employees. The people of Hilb, Rogal and Hamilton Company
have made our business what it is today. Their winning
attitudes and commitment to excellence have enabled us to
build a viable organization that is capable of creating
value on all levels. That is something of which everyone
in our Company can be proud.
Change is good-for our industry, for our business and
for our people. We have built a strong business based on
sound, conservative principles. Now it is time to take the
Company to the next level.
By providing better service, diversifying our products
and acquiring only agencies that fit within our Company's
financial and operational strategies, we will be able to
enhance the level of value for our shareholders, our clients
and our employees. And with the continued support of
investors like you, Hilb, Rogal and Hamilton Company will
meet the challenges of the future with the same level of
success with which we've met the challenges of the past.
Sincerely,
Robert H. Hilb
Chairman and Chief Executive Officer
<PAGE>
(This section includes a photograph of Andrew L. Rogal, President
and Chief Operating Officer.)
This is an exciting time for Hilb, Rogal and Hamilton
Company. In an industry besieged by adverse market
conditions and fierce competitive pressures, we
have experienced remarkable success. Thanks to the exemplary
leadership of Bob Hilb, we have become one of the largest
insurance intermediaries in the nation. His vision and
dedication have been the driving forces behind our growth
and financial success. Under Bob's guidance, the transition
to new management has taken an orderly course.
In the latter part of 1995, we began consolidating the
majority of our offices into larger, regional business units
to position the Company to compete successfully in our industry
environment. We have completed the first stage of our
operational plan and have a strong platform on which to
build greater value for our shareholders, our clients and
our employees. It is now time to move to the next level of
our plan by integrating and rationalizing these larger
operating units. The re-creation of
our operating structure has generated much momentum and
excitement within our Company-creating an incredible
opportunity for HRH.
1997 will bring an intensified focus on our Company's
operations. Our decision making will be value-driven and
more strategically focused within this new operating
structure. We will be guided by a real commitment to excellence and to
the development of professional, highly-trained employees
who can contribute to our growth and to our ability to
reduce redundancies and increase efficiencies throughout the
organization. By providing better and more valuable services
to our clients, we will generate higher revenues and profits
for all of our HRH constituencies.
Our goal is to become the premier mid-market insurance
and risk management intermediary in North America. I believe
this is well within our reach. There is a new spirit of
enthusiasm within our Company. We look forward to focusing
this energy in new and profitable ways.
Sincerely,
Andrew L. Rogal
President and Chief Operating Officer
<PAGE>
(Photogragh of a magnifying glass with the following enclosed caption:
Expanded Service Capabilities, Regionalization, Commitment to Sales,
Consolidating Efficiencies, Mergers & Acquisitions, Shared Resources.)
<PAGE>
(Photogragh of Bradley P. Druehl, Regional Coordinator, California Region
and following captions.)
California Region
Offices: 11
Employees: 223
1996 Revenue Generated: $23.2 Million
"Regionalization was completely new for this Company, but
it made excellent business sense. We're now able to build
a regional structure that can better respond to the
diverse needs of our clients."
- Bradley P. Druehl
Regional Coordinator
California Region
In the past, Hilb, Rogal and Hamilton Company acted as a
true agency system comprised of dozens of independent
agencies. Though they functioned under the Company's name,
these agencies operated in a decentralized and relatively
isolated manner, which curtailed the sharing of resources
needed to provide the increasingly sophisticated services
and products required by the Company's base of upper mid-
market clients and prospective clients.
Because these individual operating units also lacked
the resources and revenue base required to be
institutionally meaningful to insurance companies and other
trading partners, they had no advantage over competing
businesses. Essentially, these small agency operations-as
high quality as they were-were subject to the same
relentless pressures on business and
bottom line that have caused the continuing tide of
consolidation in our industry.
Therefore, in late 1995, HRH made a decision to
consolidate the majority of these agencies into five well-
defined U. S. regions: the Mid-Atlantic (which stretches
from Pennsylvania to Virginia), Alabama/ Georgia, Florida,
Texas and California. Each of these regions was assigned a
coordinator who has been empowered to develop individual
strategies that meet the regions' unique needs.
The creation of this regional system marked a
significant departure from HRH's previous operating
structure. Soon after, each region began developing its own
strategic plan, suited to the local environment and
marketplace, and designed to coordinate and focus all sales
and service activities. Because of the high level of
flexibility afforded to the regions, they may almost be
viewed as five smaller "companies" working within HRH's
national structure.
By developing these regional operating units, HRH has
created more effective profit centers that can respond
better to the needs of clients and deal better with trading
partners than the individual agencies could. "For the first
time, we're able to distribute special programs and develop
new niche markets on a regional basis," said Brad Druehl, regional coordinator
for California. "Finally, businesses and insurance carriers
are seeing us for the large, national company that we've
always been."
<PAGE>
(Photograph of Richard E. Simmons, III, Regional Coordinator,
Alabama/Georgia Region, and following captions.)
Alabama/Georgia
Offices: 7
Employees: 256
1996 Revenue Generated: $21.7 Million
"In the regional structure, we have been able
to leverage our relationships with our insur-
ance carriers. By giving a smaller number of companies a
greater portion of our business, we receive significantly
enhanced contracts."
- Richard E. Simmons, III
Regional Coordinator
Alabama/Georgia Region
After just a short period of operation, our regions are now
beginning to reap the benefits of acting as cohesive,
coordinated operating units. Perhaps the most significant
advantage created by the regionalization of our offices is
the increasing number of strategic relationships made
possible by the consolidation of revenue.
In the past, individual agencies did not have the
buying power to attract enhanced contracts with insurance
carriers. Yet when negotiated on a regional basis, insurance
carriers are more likely to provide our Company superior
contracts that often include override commissions. In this
way, our Company's regions are leveraging their
relationships with their insurance carriers.
The Alabama/Georgia region is just one of many that is
experiencing the success of regionalization on contract
negotiations. "Insurance companies are looking for growth,"
said regional coordinator Richard Simmons. "They want
brokers who can deliver larger volumes. Our region has
nearly $200 million of consolidated premiums and that gets
people's attention. We have found that when we approach the
insurance carriers collectively, we have much more clout
than we did when we were operating as individual agencies."
Indeed, all of HRH's regions have begun to
consolidate contracts with carriers and most have
experienced a high degree of success.
Yet consolidating efficiencies go much further than
just contract negotiations with insurance carriers. By
consolidating other services on a regional basis, many
regions are making significant reductions in expenses. Some
regions have gone so far as to contract with one vendor to
provide office supplies and other regions are consolidating
trade association memberships.
"We've also reduced the level of redundancy
in our region by sharing expertise and services throughout
the area," said Simmons. "For instance, instead of having
three offices develop their own directors and officers
liability expertise, we are able to export one specialist
throughout the region. That helps us to increase revenue
with very minimal expense. It also saves a lot of time and
energy for our producers-time they can spend servicing our clients with
new products."
<PAGE>
(Photogragh of Jay C. Adams, Jr., Regional Coordinator, Florida
Region and the following captions.)
Florida Region
Offices: 6
Employees: 176
1996 Revenue Generated: $16.6 Million
"What we've done is to concentrate on
providing more services such as loss control and
workers' compensation claims manage-
ment. Our clients have been very receptive to these
value-added services."
- Jay C. Adams, Jr.
Regional Coordinator
Florida Region
It's no secret that the "good old days"-when insurance deals
were made over dinner or during a round of golf-are over.
Today's mid-market, Main Street businesses require much more
than simple
policies and an occasional outing with the insurance agent.
These clients need professional risk management and other
important loss control services.
Throughout each of HRH's regions, an effort is being
made to increase the number of services available to
clients. Though our Company has traditionally been a
provider of property and casualty insurance, the number of
expanded services offered through our agency offices has
grown rapidly. Claims management, loss control, employee
benefits and other fee-for-
service product lines have been developed for use
in HRH's many offices.
The regionalization of HRH's agency system has made it
much easier for our producers to provide these value-added
services. For the first time, the Company is able to deploy
across a large regional
revenue stream coordinated services and an expanded product
mix that small, independent agencies cannot offer. Exporting
talents and specialty programs throughout regions enables
our producers to bring
in ready-made services that they may not have been able to
provide by themselves. Through regional meetings, internal
communications and the distribution of resource lists,
producers are given the opportunity to share ideas and
concepts that will help them serve our clients better.
Many regions have even hired specialists who
can provide much needed support to local producers.
"We added a regional claims administrator to our staff,"
said Jay Adams, who coordinates the Florida region. "This
person has become an important advocate for our clients by
helping them to better manage their workers' compensation
claims costs. He is also able to review older claims for
clients and prospects in order to reduce their outstanding
reserves and bring these claims to closure."
By deploying these additional services in the
context of the regional infrastructure, HRH is able to offer
its clients all the benefits of a large, national broker,
while maintaining the level of personal
service traditionally provided by the smaller, independent
firms. "We've really just gotten started,"
said Adams. "We plan to provide more and better
services in the near future."
<PAGE>
(Photograph of Jack P. McGrath, Regional Coordinator, Mid-Atlantic
Region and following captions.)
Mid-Atlantic Region
Offices: 8
Employees: 335
1996 Revenue Generated: $33.9 Million
"Through regional sales meetings, pooled resources and a
greater focus on sales training and education, we've given
our producers many more tools for success. Now they have
better capabilities to increase revenue."
- Jack P. McGrath
Regional Coordinator
Mid-Atlantic Region
Along with our Company's dedication to a regional operating
system comes a renewed commitment to creating a stronger,
more profitable sales organization. Since market conditions
have shown no signs of improvement over the last decade, HRH
is beginning to focus on selling more products and services
to a wide range of clients.
This commitment to sales is manifesting itself in
a variety of ways. Many regions have contracted with outside
consultants to provide sales education and training to all
producers within the region. Most of these seminars have
been focused on transforming producers from commodity
sellers to consultative salespeople. Through a consultative
sales approach, producers can offer much more than low price
commodities. Thanks to the variety of services that are now
available through the regional organization, producers can
more easily position themselves as
full-service consultants to mid-market businesses.
Because the majority of mid-market businesses do not
employ full-time risk managers or insurance buyers, they can
greatly benefit from a professional who is able to advise
them on a wide variety of
matters-from property and casualty insurance to loss control
and employee benefits. "In the past, stand-alone profit
centers had individual salespeople who had no other services
available to them outside of their own expertise," said Mid-
Atlantic regional coordinator Jack McGrath. "Now we've
raised their sights, because we've given them many more
services to sell."
While sales training and education are helping
producers throughout the nation to be much more successful,
account retention programs are helping them maintain the
business once it is obtained. "We want to ensure that once
we win a client, we will be able to provide their business
with all the services they need," said McGrath. "Retaining
their business
is our number one priority."
Incentive programs on all levels of the regional
structure are also helping the Company to encourage
increased sales productivity. And as the level of regional
cooperation continues to increase, the Company expects to
see continued increases in
sales to current and prospective clients.
to current and prospective clients.
<PAGE>
(Photograph of S. Loyd Neal, Jr., Regional Coordinator, Texas
Region and the following captions.)
Texas Region
Offices: 10
Employees: 269
1996 Revenue Generated: $23.4 Million
"In Texas, we continue to need a well-defined
merger and acquisition strategy in order to
be a better player in the state. But it's
important that we only acquire businesses
that fit within our strategy."
- S. Loyd Neal, Jr.
Regional Coordinator
Texas Region
Hilb, Rogal and Hamilton Company was built through an
aggressive merger and acquisition strategy. Since 1982, more
than 160 independent agencies have been acquired.
In the past, these transactions
were an excellent way for the Company to build its revenue
base in anticipation of a change in the insurance pricing
cycle. Unfortunately, that change has yet to occur, and many
believe that any future change will not be as significant as
in the past.
As part of our new focus on creating shareholder value
through operations, HRH will pursue a less aggressive merger
and acquisition strategy in the future. Though acquisitions
will clearly continue, they will be less frequent and more
selective than in the past. This redefinition of strategy
will enable the Company to focus more completely on building
a stronger, more operationally sound organization.
When acquisitions do occur, they will do so in the
context of the Company's regional strategies. The regions
themselves will be given more control over merger and
acquisition activity. If they feel that an acquisition is
necessary to fulfill needs within the region, the Company
will take action to secure the agency in question. Likewise,
if an agency being considered for acquisition does not fit the operating
strategies for the region, no transaction will occur.
"In order to reach our goals for profitability and
value-added enhancement in our region, we will need to bring
certain new locations into the HRH family," said Loyd Neal,
regional coordinator for Texas. "But there are other regions
in the Company that really don't need acquisitions. So this
strategy seems very appropriate for the Texas region."
Divestiture of non-performing assets is another
important component of the Company's operational plans for
the future. If an agency is not profitable,
or is not contributing sufficiently to enhance shareholder
value, the Company will consider divesting
the agency in order to invest that capital back into
its operations. Through a commitment to carefully controlled
acquisitions and ongoing divestiture, Hilb, Rogal and
Hamilton Company will ensure improved operational value and
profitability.
<PAGE>
(Photograph of Robert J. Hilb, President, Resource Group with the
following captions.)
Resource Group
Location: Glen Allen, VA
Employees: 12
"As we continue to export specialist knowl-
edge, we'll see additional growth. Mutual
cooperation on all levels will clearly
help us achieve our operational goals."
- Robert J. Hilb
President
Resource Group
Much of the success of Hilb, Rogal and Hamilton Company's
new focus on operations will be dependent upon the continued
sharing of ideas and resources throughout the entire organization.
One way to provide all HRH offices with the tools they need
to create better value is to offer a centralized support
team.
To that end, HRH's Resource Group is dedicated to
developing vital products and support services for use
throughout the regions and in all offices. In 1996, the
Resource Group's commitment to providing value resulted in a
new focus on the creation of insurance products for
associations, affinity groups and homogenous industries. In
many ways, the development of such products is a reactive
process-driven by requests from the field. "We consider our
offices to be our initial clients," said Robert J. Hilb,
President of the Resource Group. "Since we do not operate as
a profit center, we've removed one of the barriers to
success. We're here to listen to what's needed and then to
provide the products necessary to gain the client's
commitment."
The Resource Group has developed a wide variety of
products and services for HRH. Among them are a national
flood program, a product for installers of security systems
and an executive liability facility. "With the addition of
Lars Lindeqvist, our program director, we are better
equipped to help identify products within the system that
might be exportable and may eventually assist other HRH
offices," said Hilb. "The scope of our involvement ranges
from assisting in putting the product together and then
getting out of the way, to actually performing the
underwriting function at the Resource Group."
Important market information is also gathered
by the Resource Group and distributed to everyone within the
Company. In this way, the Resource Group is able to ensure
that any potentially useful information makes its way into
the hands of the Company's sales force. "We're building a
firm that's comprised
of people who share the desire to grow-and we're acting
cohesively to create opportunities for our Company," said
Hilb. "The potential is tremendous."
<PAGE>
"Within the Company, there is an enormous amount
of enthusiasm about our new focus on operations.
Our people are anxious to begin providing better
value through the operating system we have created."
- Andrew L. Rogal
President and Chief Operating Officer
Hilb, Rogal and Hamilton Company is functioning in a very
difficult operating environment. All commission-based
intermediaries struggle with the tremendous pressures that
have been created by a highly competitive pricing
environment and the vast capacity in the insurance company
marketplace. The challenge, then, is for our Company to find new ways to
expand our profit margins by developing an organization that
can identify and capitalize on new opportunities in an ever
changing industry.
We believe that our Company's new focus on operations
will give us this capability. Our new focus is designed to
accomplish HRH's central goal of
creating better value for shareholders, clients and
employees, while also strengthening our position in the
marketplace.
Clearly, our regionalization strategy is the best way
to develop the thriving entrepreneurial spirit needed to
create this higher level of success throughout the Company.
By acting together in well-coordinated operating units, our
regions will be able to function more effectively and more
efficiently. Through
consolidating efficiencies, value-added services and
a renewed commitment to creating a stronger sales
organization, HRH will begin to realize increased
revenues and greater bottom line profits-which are good for
our Company, and therefore, good for our shareholders.
It is important to note that this new focus does not
mean that HRH will abandon the conservative strategies that
made the Company such a stable financial investment.
Instead, these strategies will simply be modified to fit the
Company's operational focus. Mergers and acquisitions will
continue, but will now be shaped and directed by the
regionalization strategies. Divestitures will be pursued if
they can enhance the margins and operating efficiency of our
franchise. Our Company will also continue to repurchase its
stock in order to generate returns that enhance shareholder
value.
The resources at our disposal are impressive.
By tapping into the immense field of talent that exists
within our Company, we will make Hilb, Rogal and Hamilton's
name synonymous with value. We know that the people within
our organization have the |
abilities needed to create an even greater level of success
for HRH. Empowered by our operational strategy, they-and
your Company-will continue
to perform.
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Consolidated Income Data: 1
Commissions and fees $ 153,968 $ 141,555 $ 132,914 $ 137,662 $ 137,296
Investment and other income2 4,275 6,592 7,895 3,994 3,165
-----------------------------------------------------------------------
Total revenues 158,243 148,147 140,809 141,656 140,461
Compensation and employee benefits 88,406 82,761 78,311 82,470 81,940
Other operating expenses 41,951 38,264 35,976 37,774 36,209
Amortization of intangibles 7,596 6,966 6,436 6,581 6,558
Interest expense 1,245 559 812 1,270 1,821
Pooling-of-interests expense 488 503 533
-----------------------------------------------------------------------
Total expenses 139,198 128,550 122,023 128,598 127,061
-----------------------------------------------------------------------
Income before income taxes 19,045 19,597 18,786 13,058 13,400
Income taxes 7,639 7,768 7,394 4,765 4,809
-----------------------------------------------------------------------
Net income $ 11,406 $ 11,829 $ 11,392 $ 8,293 $ 8,591
=======================================================================
Net income per Common Share $ 0.85 $ 0.82 $ 0.77 $ 0.57 $ 0.65
=======================================================================
Weighted average number of shares outstanding 13,493 14,470 14,778 14,456 13,241
Dividends paid per Common Share $ 0.605 $ 0.57 $ 0.50 $ 0.45 $ 0.41
Consolidated Balance Sheet Data:
Intangible assets, net $ 80,006 $ 60,854 $ 48,729 $ 49,454 $ 47,682
Total assets 181,475 163,249 158,895 160,922 151,992
Long-term debt, less current portion 27,196 11,750 3,173 7,249 15,110
Other long-term liabilities 9,870 7,514 2,144 2,889 3,120
Total shareholders' equity 55,298 56,646 66,430 64,157 38,152
</TABLE>
1. See Note J of Notes to Consolidated Financial
Statements for information regarding business purchase
transactions which impact the comparability of this
information. In addition, during the years ended December
31, 1993 and 1992, the Company consummated 6 and 9 purchase
acquisitions, respectively.
2. During 1996, 1995, 1994, 1993 and 1992, the Company
sold certain insurance accounts and other assets resulting
in gains of approximately $1,856,000, $3,337,000,
$5,044,000, $1,735,000 and $1,138,000, respectively.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The income of an insurance agency business such as the
Company is principally derived from commissions earned,
which are generally percentages of premiums placed with insurance
underwriters. Premium pricing within the insurance
underwriting industry has been cyclical and has displayed a
high degree of volatility based on prevailing economic and
competitive conditions. Decreases in premium rates result
directly in revenue decreases to the Company. Since 1987,
the property and casualty insurance industry has been in a
"soft market," during which the underwriting capacity of
insurance companies expanded, stimulating an increase in
competition and a decrease in premium rates and related
commissions and fees. The effect of the softness in rates on
the Company's revenues has been somewhat offset
by the Company's acquisitions and new business programs.
Management cannot predict the timing or extent of premium
pricing changes due to market conditions or their effects on
the Company's operations in the future, but believes that
the "soft market" conditions will continue into 1997.
Results of Operations
Total revenues for 1996 were $158.2 million, an
increase of $10.1 million or 6.8% over 1995. For 1995, total revenues
were $148.1 million, an increase of $7.3 million or 5.2%
from 1994.
Commissions and fees for 1996 were $154.0 million, or
8.8% higher than 1995. Approximately $14.7 million of
commissions and fees were derived from purchase acquisitions
of new insurance agencies. These increases were offset by
decreases of $2.2 million from the sale of certain offices
and accounts in 1996 and 1995.
Commissions and fees for 1995 were $141.6 million, or
6.5% higher than 1994. Approximately $14.9 million of
commissions and fees were derived from purchase acquisitions
of new insurance agencies. These increases were offset by
decreases of $6.4 million from the sale of certain offices
and accounts in 1995 and 1994 and reductions in override
commissions of $1.2 million.
Investment and other income decreased by $2.3 million
in 1996 and $1.3 million in 1995. These amounts include
gains of $1.9 million, $3.3 million and $5.0 million in
1996, 1995 and 1994, respectively, from the sale of certain
offices, insurance accounts and other assets.
Total operating expenses for 1996 were $139.2 million,
an increase of $10.6 million or 8.3% from 1995. For 1995,
total operating expenses were $128.6 million, an increase of
$6.5 million or 5.3% from 1994.
Compensation and employee benefits costs for 1996 were
$88.4 million, an increase of $5.6 million or 6.8% from
1995. Increases included approximately $7.1 million related
to purchase acquisitions offset by decreases of $1.1 million
related to offices sold in 1996 and 1995. Compensation and
employee benefit costs for 1995 were $82.8 million, an
increase of $4.4 million or 5.7% from 1994. Increases
include approximately $8.4 million related to purchase
acquisitions offset by decreases of $3.9 million related to
offices sold in 1995 and 1994.
Other operating expenses for 1996 were $42.0 million,
or 9.6% higher than 1995. Increases relate primarily to
purchase acquisitions. Other operating expenses for 1995
were $38.3 million, or 6.4% more than 1994. Increases relate primarily
to purchase acquisitions offset in part by the sales of certain
offices in 1995 and 1994.
Amortization expense primarily reflects the
amortization of expiration rights, an intangible asset
acquired in the purchase of insurance agencies. Amortization
expense increased by $630,000 or by 9.0% in 1996 and by
$530,000 or 8.2% in 1995 which is attributable to purchase
acquisitions consummated during 1996, 1995 and 1994 offset
by decreases from amounts which became fully amortized or
were sold in those years.
The effective tax rates for the Company were 40.1% in
1996, 39.6% in 1995 and 39.4% in 1994. An analysis of the
effective income tax rates is presented in "Note G-Income
Taxes" of Notes to Consolidated Financial Statements.
Over the last three years, inflationary pressure has
been relatively modest and did not have a significant effect on
the Company's operations.
Liquidity and Capital Resources
Net cash provided by operations totaled $16.6 million,
$16.2 million and $19.7 million for the years ended December 31,
1996, 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. Cash expenditures for the
acquisition of property and equipment were $5.1 million,
$4.0 million and $2.2 million
in the years ended December 31, 1996, 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.
In addition, during 1996 and 1995,
total investments decreased by $4.2 million and $17.1
million, respectively, as the Company utilized these funds
for the repurchase of Common Stock of the Company.
Cash expenditures for the purchase of insurance agencies
accounted for under the purchase method of accounting amounted
to $9.7 million, $6.5 million and $9.7 million in the years
ended December 31, 1996, 1995 and 1994, respectively. Cash expenditures for
such insurance agency acquisitions have been funded
primarily through operations, from the proceeds of the sale
of Common Stock in 1993 and from long-term borrowings. In
addition, a portion of the purchase price in such
acquisitions may be paid through Common Stock and deferred
cash payments. Cash proceeds from the sale of certain
offices, insurance accounts and other assets totaled $2.5
million, $3.5 million and $7.9 million in the years ended December 31,
1996, 1995 and 1994, respectively. The Company did not have
any material capital expenditure commitments as of December
31, 1996.
Financing activities utilized cash of $6.0 million,
$22.1 million and $13.3 million for the years ended December
31, 1996, 1995 and 1994, respectively, as the Company made
scheduled debt payments and annually increased its dividend rate. In
addition, during 1996, 1995 and 1994, the Company
repurchased 801,700, 1,336,820 and 172,360, respectively,
shares of its Common Stock under a stock repurchase program.
The Company is currently authorized to purchase an
additional 423,000 shares and
anticipates that it will continue to repurchase shares in
1997. The Company anticipates the continuance of its
dividend policy. The Company has a bank credit agreement for
borrowings of up to $30.0 million under loans due in 2002.
At December 31, 1996, there were loans of $23.0 million
outstanding under the agreement.
The Company had a current ratio (current assets to
current liabilities) of 0.86 to 1.00 as of December 31,
1996. Shareholders' equity of $55.3 million at December 31,
1996 is decreased from $56.6 million at December 31, 1995
and the debt to equity ratio of 0.49 to 1.00 at December 31,
1996, is increased from the last year-end ratio of 0.21 to
1.00 due to the aforementioned purchase of Common Stock of
the Company and an increase in borrowings to $23 million
under the bank agreement used for insurance agency
acquisitions and the repurchase of Common Stock.
The Company believes that cash generated from
operations, together with the proceeds from borrowings, will
provide sufficient funds to meet the Company's short and
long-term funding needs.
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including $11,260,000 and
$10,104,000, respectively,of restricted funds $ 19,774,374 $ 17,020,706
Investments 5,088,020 11,154,673
Receivables:
Premiums, less allowance for doubtful accounts of
$2,445,000 and $1,772,000,respectively 41,453,677 41,707,706
Other 6,122,612 4,794,396
------------------------------
47,576,289 46,502,102
Prepaid expenses and other current assets 3,816,819 3,937,964
------------------------------
TOTAL CURRENT ASSETS 76,255,502 78,615,445
INVESTMENTS 6,185,686 4,300,000
PROPERTY AND EQUIPMENT, NET 16,092,075 13,700,260
INTANGIBLE ASSETS
Expiration rights 76,402,292 68,345,441
Goodwill 32,718,982 24,432,875
Noncompetition agreements 11,421,278 9,888,798
------------------------------
120,542,552 102,667,114
Less accumulated amortization 40,536,482 41,812,787
------------------------------
80,006,070 60,854,327
OTHER ASSETS 2,936,014 5,778,932
------------------------------
$ 181,475,347 $ 163,248,964
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 66,527,381 $ 69,481,803
Accounts payable and accrued expenses 11,401,805 8,040,022
Premium deposits and credits due customers 8,837,483 8,062,626
Current portion of long-term debt 2,345,059 1,755,238
------------------------------
TOTAL CURRENT LIABILITIES 89,111,728 87,339,689
LONG-TERM DEBT 27,195,571 11,749,848
OTHER LONG-TERM LIABILITIES 9,869,777 7,513,537
SHAREHOLDERS' EQUITY
Common Stock, no par value; authorized 50,000,000 shares;
outstanding 13,320,577 and 13,706,764
shares,respectively 25,266,279 29,903,900
Retained earnings 30,031,992 26,741,990
------------------------------
55,298,271 56,645,890
------------------------------
$ 181,475,347 $ 163,248,964
==============================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Income
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Revenues
Commissions and fees $ 153,967,914 $ 141,555,188 $ 132,914,113
Investment and other income 4,275,186 6,591,850 7,895,501
-------------------------------------------------------
158,243,100 148,147,038 140,809,614
Operating expenses
Compensation and employee benefits 88,406,342 82,760,664 78,310,999
Other operating expenses 41,950,933 38,264,085 35,975,715
Amortization of intangibles 7,596,274 6,965,947 6,436,119
Interest expense 1,244,729 559,654 812,216
Pooling-of-interests expense - - 487,986
-------------------------------------------------------
139,198,278 128,550,350 122,023,035
-------------------------------------------------------
INCOME BEFORE INCOME TAXES 19,044,822 19,596,688 18,786,579
Income Taxes 7,638,431 7,767,778 7,394,296
-------------------------------------------------------
NET INCOME $ 11,406,391 $ 11,828,910 $ 11,392,283
=======================================================
NET INCOME PER COMMON SHARE $ 0.85 $ 0.82 $ 0.77
=======================================================
Weighted Average Number of Shares of Common Stock 13,493,255 14,470,407 14,778,304
Outstanding =======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained Earnings
<S> <C> <C>
Balance at January 1, 1994 $ 45,376,820 $ 18,780,173
Issuance of 15,450 shares of Common Stock 169,050
Purchase of 172,360 shares of Common Stock (2,076,406)
Payment of dividends ($.50 per share) (7,224,935)
Transactions related to pooled companies (43,169) 56,340
Net income 11,392,283
------------------------------------
Balance at December 31, 1994 43,426,295 23,003,861
Issuance of 318,326 shares of Common Stock 3,817,746
Purchase of 1,336,820 shares of Common Stock (17,389,044)
Payment of dividends ($.57 per share) (8,209,877)
Other 48,903 119,096
Net income 11,828,910
------------------------------------
Balance at December 31, 1995 29,903,900 26,741,990
Issuance of 462,170 shares of Common Stock 6,251,661
Purchase of 801,700 shares of Common Stock (10,845,095)
Payment of dividends ($.605 per share) (8,116,389)
Other (44,187)
Net income 11,406,391
------------------------------------
Balance at December 31, 1996 $ 25,266,279 $ 30,031,992
====================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES $ 11,406,391 $ 11,828,910 $ 11,392,283
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 7,596,274 6,965,947 6,436,119
Depreciation and amortization 3,259,452 2,790,772 2,849,831
-------------------------------------------------------
Net income plus amortization and depreciation 22,262,117 21,585,629 20,678,233
Provision for losses on receivables 1,276,258 1,500,231 1,238,500
Provision for deferred income taxes (816,246) 44,119 (148,756)
Gain on sale of assets (1,856,443) ( 3,337,219) (5,047,488)
Changes in operating assets and liabilities net of
effects from insurance agency acquisitions
and dispositions:
(Increase) decrease in accounts receivable (1,405,660) 513,907 976,828
(Increase) decrease in prepaid expenses (1,649,239) (768,431) 546,613
Decrease in premiums payable to
insurance companies (4,241,464) (1,156,960) (506,723)
Increase (decrease) in premium deposits
and credits due customers 774,857 (784,471) 743,579
Increase (decrease) in accounts payable
and accrued expenses 224,046 (1,639,586) 551,458
Other operating activities 2,077,498 230,569 624,242
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,645,724 16,187,788 19,656,486
INVESTING ACTIVITIES
Purchase of held-to-maturity investments (7,339,705) (7,399,402) (25,488,282)
Purchase of available-for-sale investments (260,000) - -
Proceeds from maturities of held-to-maturity 7,866,672 24,546,279 21,238,187
investments
Proceeds from sale of available-for-sale investments 3,914,000 - -
Purchase of property and equipment (5,051,253) (4,007,468) (2,179,808)
Purchase of insurance agencies, net of cash acquired (9,722,979) (6,540,948) (9,740,808)
Proceeds from sale of assets 2,461,177 3,515,102 7,943,937
Other investing activities 222,231 216,173 114,153
-------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,909,857) 10,329,736 (8,112,621)
FINANCING ACTIVITIES
Proceeds from long-term debt 30,861,966 32,522,950 16,000,000
Principal payments on long-term debt (18,024,341) (29,194,326) (20,205,709)
Repurchase of Common Stock (10,845,095) (17,389,044) (1,950,661)
Dividends (8,116,389) (8,209,877) (7,224,935)
Other financing activities 141,660 158,347 32,221
-------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (5,982,199) (22,111,950) (13,349,084)
-------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,753,668 4,405,574 (1,805,219)
Cash and cash equivalents at beginning of year 17,020,706 12,615,132 14,420,351
-------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,774,374 $ 17,020,706 $ 12,615,132
=======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1996
Hilb, Rogal and Hamilton Company (the Company), a
Virginia corporation, operates as a network of insurance
agencies with offices located in 16 states and five Canadian
provinces. Its principal activity is the performance of
retail insurance services which involves placing property
and casualty and life and health insurance with insurers on
behalf of commercial clients in a variety of industries and
individual clients.
Note A-Significant Accounting Policies
Principles of Consolidation: The accompanying
financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and
transactions have been
eliminated in consolidation.
Use of Estimates: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenues: Commission income as well as the related
premiums receivable from customers and premiums payable to
insurance companies are recorded as of the effective date of
insurance coverage or the billing date, whichever is later. Premium
adjustments, including policy cancellations, are recorded as
they occur. Contingent commissions and commissions on
premiums billed and collected directly by insurance
companies are recorded as revenue when received. Fees for
services rendered and override commissions
are recorded as earned. These policies are in accordance
with predominant industry practice.
Cash Equivalents: The Company considers all highly
liquid investments with a maturity of three months or less
at the date of acquisition to be cash equivalents.
Investments: Management determines the appropriate
classification of debt securities at the time of purchase
and reevaluates such designation at each balance sheet date.
Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are
stated at amortized cost, which is adjusted for
amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment
income. Interest and dividends are included in investment
income. Realized gains and losses, and declines in value
judged to be other than temporary are included in investment income.
Marketable debt securities not classified as held-to-
maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value. Amortized cost of debt securities
in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and
declines in value judged to be other than temporary on
available-for-sale securities are included
in investment income. The cost of securities sold is based
on the specific identification method. Interest and
dividends on securities classified as available-for-sale are
included in investment income.
Property and Equipment: Property and equipment are
stated on the basis of cost. Depreciation is computed by the
straight-line method over estimated useful lives (30 to 33
years for buildings, 3 to 7 years for equipment). Leasehold
improvements are generally amortized using a straight-line
method over the term of the related lease.
Intangible Assets: Intangible assets arising from
acquisitions accounted for as purchases principally
represent expiration rights, the excess of costs over the
fair value of net assets acquired and noncompetition agreements.
The cost of such assets is being amortized principally on a straight-line
basis over periods ranging up to 15 years for expiration rights,
15 to 40 years for the excess of cost over the fair value of net
assets acquired and three to 20 years for noncompetition agreements.
Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Adoption of this
statement did not have a material impact on the Company's
financial position or results of operations.
Accounting for Stock-Based Compensation: In October
1995, the Financial Accounting Standards Board (the FASB)
issued Statement No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123). The statement defines a
fair value based method of accounting for employee stock
options. Companies may, however, elect to adopt this new
accounting rule through a pro forma disclosure option, while
continuing to use the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No.
25).
The Company has elected to continue to follow APB No.
25 and related interpretations in accounting for its
employee stock options. In addition, the effect of applying
Statement No. 123's fair value method to the Company's
employee stock options does not result in net income and
earnings per share that are materially different from
amounts reported. Accordingly, the pro forma disclosures
required by Statement No. 123 have not been included in the
footnotes to the financial statements.
Fair Value of Financial Instruments: The carrying
amounts reported in the balance sheet for cash and cash equivalents,
receivables, premiums payable to insurance companies,
accounts payable and accrued expenses and long-term debt
approximate those assets and liabilities' fair values. Fair
values for investment securities are based on quoted market
prices and are disclosed in 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.
Net Income Per Common Share: Net income per Common
Share is based on the weighted average number of shares of
Common Stock outstanding during each year.
<PAGE>
Note B-Investments
The following is a summary of held-to-maturity and
available- for-sale investments included in current and long-term
assets on the consolidated balance sheet:
<TABLE>
<CAPTION>
Held-to-Maturity Investments
Gross Gross
December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies $ 1,500,000 $ 3,000 $ 1,497,000
Obligations of states and political subdivisions 7,795,000 $ 75,000 1,000 7,869,000
Certificates of deposit and other 1,719,000 1,719,000
----------------------------------------------------------------
$ 11,014,000 $ 75,000 $ 4,000 $ 11,085,000
================================================================
Available-for-Sale Investments
Gross Gross
December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value
Obligations of states and political subdivisions $ 260,000 $ - $ - $ 260,000
================================================================
Held-to-Maturity Investments
Gross Gross
December 31, 1995 Cost Unrealized Gains Unrealized Losses Fair Value
Obligations of U.S. government agencies $ 107,000 $ 1,000 $ 108,000
Obligations of states and political subdivisions 10,570,000 97,000 $ 2,000 10,665,000
Certificates of deposit 864,000 864,000
---------------------------------------------------------------
$ 11,541,000 $ 98,000 $ 2,000 $ 11,637,000
===============================================================
Available-for-Sale Investments
Gross Gross
December 31, 1995 Cost Unrealized Gains Unrealized Losses Fair Value
Obligations of states and political subdivisions $ 3,914,000 $ - $ - $ 3,914,000
===============================================================
</TABLE>
During December 1995, the Company reclassified certain
investments aggregating $3,914,000 from held-to-maturity to
available-for-sale, pursuant to the FASB's one time
"holiday" allowing such reclassification without calling
into question the Company's intent
to hold other debt securities to maturity in the future.
The amortized cost and fair value of held-to-maturity
and available-for-sale investments at December 31, 1996, by
contractual maturity, are as follows. Actual maturities may
differ from contractual maturities because the issuers of
the securities may have the right to prepay obligations
without prepayment penalties.
Cost Fair Value
Held-to-Maturity Investments
Due in one year $ 4,828,000 $ 4,845,000
Due after one year through
five years 5,836,000 5,889,000
Due after five years through
ten years 350,000 351,000
----------------------------
$ 11,014,000 $ 11,085,000
=============================
Available-for-Sale Investments
Due in one year $ 260,000 $ 260,000
=============================
Note C-Property and Equipment
Property and equipment consists of the following:
1996 1995
-----------------------------------
Furniture and equipment $ 27,589,000 $ 24,454,000
Buildings and land 7,666,000 7,565,000
Leasehold improvements 1,986,000 1,641,000
-----------------------------------
37,241,000 33,660,000
Less accumulated depreciation
and amortization 21,149,000 19,960,000
-----------------------------------
$ 16,092,000 $ 13,700,000
===================================
<PAGE>
Note D-Long-term Debt and Override Commission Agreements
1996 1995
-----------------------------------
Notes payable to banks, interest
currently at 6.11% $ 23,000,000 $ 8,500,000
Installment notes payable incurred
in acquisitions of insurance
agencies, 4.9% to 10%, due in
various installments, to 1999 3,846,000 2,637,000
Mortgage notes payable, currently
9.4%, due in installments, to 2000 2,156,000 2,180,000
Installment notes payable, 6%
to 8.5%, due in various
installments, to 2003 539,000 188,000
-----------------------------------
29,541,000 13,505,000
Less current portion 2,345,000 1,755,000
-----------------------------------
$ 27,196,000 $ 11,750,000
===================================
Maturities of long-term debt for the four years ending
after December 31, 1997 are $1,241,000 in 1998; $713,000 in
1999; $2,113,000 in 2000; and $48,000 in 2001.
Interest paid was $1,232,000, $733,000 and $1,014,000
in 1996, 1995 and 1994, respectively.
At December 31, 1996, land and buildings having a
depreciated cost of $2,374,000 were pledged as collateral
for the mortgage notes payable.
The Company entered into a credit agreement with two
banks that allows for borrowings of up to $30,000,000 under
loans due in 2002, which bear interest at variable rates. At
December 31, 1996, $23,000,000 was borrowed under this
agreement. This credit agreement contains, among other provisions,
requirements for maintaining a minimum level of shareholders' equity
($48,477,000 at December 31, 1996) and certain financial ratios.
The Company had override commission agreements with its
insurance company lenders which provided additional
commission income through 1994, up to a maximum of
$2,517,000 if specified levels of premiums were placed with the
respective lenders or their affiliated insurance companies. Additional
commission income earned under these agreements amounted to
$1,225,000 in 1994.
Note E-Retirement Plans
The Hilb, Rogal and Hamilton Company Profit Sharing
Savings Plan (the Profit Sharing Plan) covers substantially
all employees of the Company and its subsidiaries. The
Profit Sharing Plan, which may be amended or terminated by
the Company at any time,
provides that the Company shall contribute to a trust fund
such amounts as the Board of Directors shall determine
subject to certain earnings restrictions as defined in the
Profit Sharing Plan.
Prior to merger with the Company, certain of the merged
companies had a separate profit sharing, ESOP or benefit
plan. These plans were terminated or frozen at the time of
merger with the Company.
The total expense under these plans for 1996, 1995 and
1994 was approximately $2,680,000, $2,075,000 and
$2,812,000, respectively.
The Company has a Supplemental Executive Retirement
Plan (the SERP), which is a defined benefit plan under which
the Company will pay supplemental pension benefits to key
executives in addition to amounts received under the Profit
Sharing Plan. Such benefits will be paid from Company
assets.
The following table sets forth the SERP's funded status
and amounts recognized in the Company's consolidated balance
sheet:
1996 1995
------------------------------------
Actuarial present value of:
Vested benefits $ (1,923,000) $ (2,054,000)
Nonvested benefits (226,000) (210,000)
------------------------------------
Accumulated benefit obligation (2,149,000) (2,264,000)
Effect of anticipated future
compensation levels (827,000) (710,000)
------------------------------------
Projected benefit obligation (2,976,000) (2,974,000)
Plan assets at fair value - -
------------------------------------
Excess of projected benefit
obligation over assets (2,976,000) (2,974,000)
Unrecognized prior service costs 1,921,000 2,047,000
Unrecognized net loss 38,000 450,000
------------------------------------
Accrued SERP expense (1,017,000) (477,000)
Adjustment to recognize
minimum liability (1,132,000) (1,786,000)
Pension liability recognized in ------------------------------------
consolidated balance sheet $ (2,149,000) $ (2,263,000)
====================================
<PAGE>
The expense for the SERP includes the following
components:
1996 1995 1994
-----------------------------------------------------
Service cost $ 182,000 $ 159,000 $ 6,000
Interest cost 223,000 175,000 7,000
Amortization of prior 135,000 126,000 4,000
service cost -----------------------------------------------------
$ 540,000 $ 460,000 $ 17,000
=====================================================
Significant assumptions used in determining obligations
and the related expense for the SERP include a weighted
average discount rate of 8.0% and 7.5% in 1996 and 1995,
respectively, and an assumed rate of increase in future
compensation of 4% in both years.
Note F-Other Postretirement Benefit Plans
The Company sponsors postretirement benefit plans that
provide medical and life insurance benefits to retirees.
Employees who retire after age 55 with 10 years of service
are eligible to participate. The plans are contributory for
substantially all participants, with retiree contributions
adjusted annually and the health care plan contains other
cost sharing features such as deductibles and coinsurance.
The accounting for the health care plan anticipates future
cost sharing changes to the written plan that are consistent
with the Company's expressed intent to increase retiree
contributions annually in accordance with increases in
health care costs. The Company's policy is to fund the cost
of these benefits when actual claims are incurred.
The following table sets forth the plans' combined
funded status reconciled with the amounts shown in the Company's
consolidated balance sheet:
1996 1995
-------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (1,050,000) $ (1,419,000)
Active plan participants - -
------------------------------------
Total (1,050,000) (1,419,000)
====================================
Plan assets at fair value - -
------------------------------------
Accumulated postretirement
benefit obligation in excess
of plan assets (1,050,000) (1,419,000)
Unrecognized net gain (909,000) (512,000)
Unrecognized transition benefit
cost 1,149,000 1,264,000
------------------------------------
Accrued postretirement
benefit liability $ (810,000) $ (667,000)
====================================
Net periodic postretirement benefit cost includes the
following components:
1996 1995 1994
--------------------------------------------------------
Interest cost $ 82,000 $ 104,000 $ 103,000
Amortization of transition
obligation over 14 years 115,000 115,000 115,000
Amortization of prior gains (67,000) (29,000) (6,000)
-------------------------------------------------------
Net periodic postretirement
benefit cost $ 130,000 $ 190,000 $ 212,000
========================================================
For measurement purposes, a 7.85% and a 9.10% annual
rate of increase in the per capita cost of covered health
care benefits was assumed for 1997 and 1996, respectively;
the rate was assumed to decrease gradually to 6.15% in 2021
and remain at that level thereafter. The health care cost
trend rate assumption has an effect on the amounts. For
example, increasing the assumed health care cost trend rates
by one percentage point in each year would increase the
accumulated postretirement benefit obligation for the
medical plan as of December 31, 1996 and 1995 by $97,000 and
$130,000, respectively, and the net periodic postretirement
benefit cost for 1996 by $8,000.
The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 8.0%
and 7.5% at December 31, 1996 and 1995, respectively.
<PAGE>
Note G-Income Taxes
The components of income taxes shown in the statement
of consolidated income are as follows:
1996 1995 1994
-------------------------------------------------------
Current
Federal $ 6,481,000 $ 6,232,000 $ 6,176,000
State 1,305,000 1,268,000 1,367,000
Foreign 668,000 224,000 -
--------------------------------------------------------
8,454,000 7,724,000 7,543,000
--------------------------------------------------------
Deferred
Federal (639,000) 76,000 (125,000)
State (73,000) 14,000 (24,000)
Foreign (104,000) (46,000) -
--------------------------------------------------------
(816,000) 44,000 (149,000)
--------------------------------------------------------
$ 7,638,000 $ 7,768,000 $ 7,394,000
========================================================
The effective income tax rate varied from the statutory
federal income tax rate as follows:
1996 1995 1994
--------------------------------------------------------
Statutory federal
income tax rate 35.0% 35.0% 35.0%
Tax exempt investment income (1.4) (2.1) (2.4)
State income taxes, net
of federal tax benefit 4.5 4.2 4.8
Other 2.0 2.5 2.0
--------------------------------------------------------
Effective income tax rate 40.1% 39.6% 39.4%
========================================================
Income taxes paid were $10,128,000, $8,428,000 and
$7,074,000 in 1996, 1995 and 1994, respectively.
Income before income taxes from Canadian operations was
$1,168,000 and $317,000 in 1996 and 1995, respectively.
Deferred income taxes reflect the tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets on the
consolidated balance sheet are as follows:
1996 1995
---------------------------------
Deferred tax liabilities:
Intangible assets $ 6,483,000 $ 2,893,000
Other-net 661,000 1,600,000
----------------------------------
Total deferred tax liabilities 7,144,000 4,493,000
----------------------------------
Deferred tax assets:
Deferred compensation 844,000 693,000
Bad debts 925,000 670,000
Other 751,000 775,000
----------------------------------
Total deferred tax assets 2,520,000 2,138,000
----------------------------------
Net deferred tax liabilities $ 4,624,000 $ 2,355,000
===================================
In December 1996, the Company reached a tentative
agreement with the Internal Revenue Service (the IRS) to
resolve all issues arising from the IRS's recently completed audit of the
Company's income tax returns for the seven years ended
December 31, 1994. Since the agreement relates to deductions
claimed in connection with intangible assets acquired by the
Company, the additional tax that will ultimately result from
the agreement has been recorded as an increase to current
and deferred tax liabilities of $2,626,000 and $1,500,000,
respectively, and an increase in goodwill of $4,126,000 on
the December 31, 1996 balance sheet. The proposed settlement
will not have a significant impact on the Company's future
earnings.
Note H-Leases
The Company and its subsidiaries have noncancellable
lease contracts for office space, equipment and automobiles
which expire at various dates through the year 2006 and
generally include escalation clauses for increases in
lessors' operating expenses and increased real estate taxes.
Future minimum rental payments required under such
operating leases are summarized as follows:
1997 $ 6,595,000
1998 5,282,000
1999 4,248,000
2000 2,563,000
2001 1,269,000
Thereafter 917,000
--------------
$ 20,874,000
==============
Rental expense for all operating leases amounted to
$6,845,000 in 1996, $6,712,000 in 1995 and $6,549,000 in
1994. Included in rental expense for 1996, 1995 and 1994 is
approximately $313,000, $435,000 and $798,000, respectively,
which was paid to employees or related parties.
<PAGE>
Note I-Shareholders' Equity
The Company has adopted and the shareholders have
approved the 1986 Incentive Stock Option Plan and the Hilb,
Rogal and Hamilton Company 1989 Stock Plan, which provide
for the granting of options to purchase up to an aggregate
of approximately 1,843,000 and 1,895,000 shares of Common
Stock as of December 31, 1996 and 1995, respectively. The
number of shares available for grant may increase or
decrease with the respective changes in the number of shares
of Common Stock outstanding. Stock options granted have ten
year terms and vest and become fully exercisable at various
periods up to five years. Stock option activity under the
plans was as follows:
Weighted Average
Shares Exercise Price
Outstanding at January 1, 1994 886,400 $13.44
Granted 38,000 12.00
Exercised 2,950 6.46
Expired 51,875 13.72
-------
Outstanding at December 31, 1994 869,575 13.39
Granted 25,000 12.17
Exercised 600 12.75
Expired 87,250 13.10
-------
Outstanding at December 31, 1995 806,725 13.38
Granted 72,900 13.00
Exercised 3,600 10.40
Expired 132,700 13.21
-------
Outstanding at December 31, 1996 743,325 13.39
=======
Exercisable at December 31, 1996 542,825 13.36
=======
The options outstanding at December 31, 1996 have
exercise prices that range from $6.00 to $18.20. The
weighted average
contractual life of these options is six years.
Note J-Acquisitions
During 1996, the Company acquired certain assets and
liabilities of 15 insurance agencies for $16,189,000
($7,343,000 in cash, $2,736,000 in guaranteed future
payments and 451,610 shares of Common Stock) in purchase
accounting transactions. Assets acquired include expiration
rights of $13,565,000, noncompetition agreements of
$2,820,000 and goodwill of $2,717,000. The combined purchase
price may be increased by approximately $4,678,000 in 1997,
$4,675,000 in 1998, $1,354,000 in 1999, $127,000 in 2000 and
$37,000 in 2001 based upon commissions or net profits
realized.
During 1995, the Company acquired certain assets and
liabilities of 14 insurance agencies for $13,097,000
($7,303,000 in cash, $1,974,000 in guaranteed future
payments and 317,726 shares of Common Stock) in purchase
accounting transactions. Assets acquired include expiration
rights of $9,616,000, noncompetition agreements of $385,000
and goodwill of $7,278,000. The combined purchase price was
increased by approximately $1,748,000 in 1996 and may be
increased by approximately $2,354,000 in 1997, $690,000 in
1998 and $358,000 in 1999 based upon commissions or net
profits realized.
During 1994, the Company acquired all of the
outstanding shares of three insurance agencies in exchange
for 543,930 shares of Common Stock of the Company. The
transactions were accounted for as pooling-of-interests
mergers.
During 1994, the Company acquired certain assets and
liabilities of four insurance agencies for $8,766,000
($8,340,000 in cash, $276,000 in guaranteed future payments
and 12,500 shares of Common Stock) in purchase accounting
transactions. Assets acquired include expiration rights of
$7,350,000 and noncompetition agreements of $966,000. The
combined purchase price was increased by approximately
$1,176,000 in 1996 and $1,203,000 in 1995 and may be
increased by approximately $75,000 in 1997 based upon
commissions or net profits realized.
The above purchase acquisitions have been included in
the Company's consolidated financial statements from their
respective acquisition dates.
The pro forma unaudited results of operations for the
years ended December 31, 1996 and 1995, assuming the above
1996 and 1995 purchase acquisitions had occurred as of
January 1, 1995, are as follows:
1996 1995
Revenues $166,919,000 $171,689,000
Net Income 11,499,000 11,579,000
Net Income Per Common Share 0.85 0.77
Note K-Sale of Assets
During 1996, 1995 and 1994, the Company sold certain
insurance accounts and other assets resulting in gains of
approximately $1,856,000, $3,337,000 and $5,044,000,
respectively. These amounts are included in investment and
other income in the statement of consolidated income.
Revenues, expenses and assets of these operations were not
material to the consolidated financial statements.
<PAGE>
Note L-Commitments and Contingencies
Included in cash and cash equivalents and premium
deposits and credits due customers are approximately
$1,798,000 and $1,396,000 of funds held in escrow at
December 31, 1996 and 1995, respectively. In addition,
premiums collected from insureds but not yet remitted to
insurance carriers are restricted as to use by laws in
certain states in which the Company operates. The amount of
cash and cash equivalents so restricted was approximately
$9,462,000 and $8,708,000 at December 31, 1996 and 1995,
respectively.
There are in the normal course of business various
outstanding commitments and contingent liabilities.
Management does not
anticipate material losses as a result of such matters.
The Company is generally involved in routine insurance
policy related litigation. Several suits have been brought
against the Company involving settlement of various
insurance matters where customers are seeking both punitive
and compensatory damages. Management, upon the advice of
counsel, is of the opinion that such suits are substantially
without merit, that valid defenses exist and that such
litigation will not have a material effect on the
consolidated financial statements.
Note M-Subsequent Events
Subsequent to December 31, 1996, the Company acquired
certain assets and liabilities of three insurance agencies
in exchange for $5,920,000 ($3,814,000 in cash, $1,806,000
in guaranteed future payments and 22,305 shares of Common
Stock). The transactions, which are not material to the
consolidated financial statements,
will be accounted for as purchase transactions.
Note N- Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of
operations for the years ended December 31, 1996 and 1995:
Three Months Ended 1
March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
(in thousands, except per share amounts)
1996
Total Revenues $43,076 $37,936 $38,315 $38,916
Net Income 5,162 2,674 2,241 1,329
Net Income Per
Common Share 0.38 0.20 0.17 0.10
Three Months Ended 1
March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
(in thousands, except per share amounts)
1995
Total Revenues $39,455 $36,573 $36,395 $35,724
Net Income 4,928 3,3102 2,389 1,202
Net Income Per
Common Share 0.33 0.23 0.17 0.09
1 Quarterly financial information is affected by seasonal
variations. The timing of contingent commissions, policy
renewals and acquisitions may cause revenues, expenses and
net income to vary significantly from quarter to quarter.
2 Second quarter 1995 net income increased approximately
$1,477,000 from the sale of certain insurance accounts and
other assets.
Report of Ernst & Young LLP,Independent Auditors
Shareholders and Board of Directors
Hilb, Rogal and Hamilton Company
We have audited the accompanying consolidated balance
sheet of Hilb, Rogal and Hamilton Company and subsidiaries
as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Hilb, Rogal and Hamilton
Company and subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
Richmond, Virginia
February 12, 1997
Board of Directors & Officers
Board of Directors
Robert H. Hilb (1) (4)
Chairman and Chief Executive Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Andrew L. Rogal (1)
President and Chief Operating Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Theodore L. Chandler, Jr. (1)(2)(3)
Attorney
Williams, Mullen, Christian & Dobbins
Richmond, Virginia
J.S.M. French (2)(3)(4)
President
Dunn Investment Company
Birmingham, Alabama
Thomas H. O'Brien (2)(3)(4)
Chairman and Chief Executive Officer
PNC Bank Corp.
Pittsburgh, Pennsylvania
Robert S. Ukrop (1)(4)
President and Chief Operating Officer
Ukrop's Super Markets, Inc.
Richmond, Virginia
Philip J. Faccenda (2)
Vice President and General Counsel, Emeritus
University of Notre Dame
Notre Dame, Indiana
Norwood H. Davis, Jr. (3)
Chairman of the Board and Chief Executive Officer
Trigon BlueCross BlueShield
Richmond, Virginia
(1) Executive Committee Member
(2) Compensation Committee Member
(3) Audit Committee Member
(4) Nominating Committee Member
Officers
Robert H. Hilb
Chairman and Chief Executive Officer
Andrew L. Rogal
President and Chief Operating Officer
Timothy J. Korman
Executive Vice President, Chief Financial Officer and
Treasurer
John C. Adams, Jr.
Executive Vice President
Dianne F. Fox
Senior Vice President - Administration and Secretary
Ronald J. Schexnaydre
Senior Vice President
Carolyn Jones
Vice President and Controller
Walter L. Smith
Vice President, General Counsel and Assistant Secretary
Vincent P. Howley
Vice President - Audit
Ann B. Davis
Vice President - Human Resources
Janice G. Pouzar
Assistant Vice President - Retirement Plans
Robert W. Blanton, Jr.
Assistant Vice President
Valerie C. Elwood
Assistant Vice President
Agency Locations
UNITED STATES
Alabama/Georgia Region
Atlanta
Birmingham
Fort Payne*
Mobile*
Gainesville
St. Simons Island
Savannah
Arizona
Phoenix
Flagstaff*
Mesa*
Tucson*
California Region
Fresno
Bakersfield*
Dinuba*
Ontario
Orange County
Palm Desert
San Rafael
Sacramento*
Santa Rosa*
Truckee*
Vallejo*
Colorado
Denver
Connecticut
New Haven (2 locations)
Clinton*
Derby*
Madison*
Middletown*
Old Saybrook*
Florida Region
Daytona Beach
Fort Lauderdale
Fort Myers
Gainesville
Orlando
Tampa
Illinois
Moline
Chicago*
Louisiana
New Orleans
Mid-Atlantic Region
Baltimore, Maryland
Pittsburgh, Pennsylvania
New York, New York*
Richmond, Virginia
Charlottesville*
Fredericksburg*
Virginia Beach*
Rockville, Maryland
Michigan
Grand Rapids
Port Huron
Richmond*
New York
Buffalo
Rochester*
Syracuse*
Oklahoma
Oklahoma City
Texas Region
Amarillo
Hereford*
Corpus Christi
Dallas
Abilene*
Houston
McAllen
Victoria
Cuero*
Edna*
*Denotes Branch Offices
CANADA
Winnipeg, Manitoba
Edmonton, Alberta*
Montreal, Quebec*
Toronto, Ontario*
Vancouver, British Columbia*
General Information
FORM 10-K
Any shareholder wishing to obtain a copy of the Company's
Form 10-K for the year ended December 31, 1996 as filed with
the Securities and Exchange Commission may do so without
charge by writing to Dianne F. Fox, Senior Vice President
and Secretary, at the corporate address.
Annual Meeting
The Company's Annual Meeting of Shareholders will
be held on May 6, 1997 at 10:00 A.M. at Crestar Bank,
919 East Main Street, Richmond, Virginia.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 756-3353
Shareholder Inquiries
Communications regarding dividends, lost stock certificates,
change of address, etc. should be directed to ChaseMellon
Shareholder Services. Other inquiries should be directed
to Dianne F. Fox, Senior Vice President and Secretary, at
the corporate address.
Outside Counsel
Williams, Mullen, Christian & Dobbins
Richmond, Virginia
Independent Auditors
Ernst & Young LLP
Richmond, Virginia
Corporate Headquarters
4235 Innslake Drive
P. O. Box 1220
Glen Allen, Virginia 23060-1220
Tel: (804) 747-6500
Fax: (804) 747-6046
Web Site: http://www.hrh.com
Shareholders
The Company's Common Stock has been publicly traded since
July 15, 1987. It is traded on the New York Stock Exchange
under the symbol "HRH." As of December 31,
1996, there were 711 holders of record of the Company's
Common Stock.
Market Price of Common Stock
High and low stock prices and dividends per share for the
indicated quarters were:
Cash
Sales Price Dividends
Quarter Ended High Low Declared
- ----------------------------------------------------------
1995
March 31 $ 12.13 $ 10.75 $ .14
June 30 13.13 10.50 .14
September 30 13.50 12.00 .14
December 31 14.38 13.25 .15
1996
March 31 14.00 12.63 .15
June 30 14.00 12.63 .15
September 30 13.75 11.38 .15
December 31 14.00 12.13 .155
Exhibit 22
Subsidiaries of Hilb, Rogal and Hamilton Company
Name of Subsidiary
State/Province of Incorporation
The Burton Company Connecticut
Clover Insurance Agency, Inc. California
S. H. Gow & Company, Inc. (three locations) Delaware
Hilb, Rogal and Hamilton Company of Canada, Limited
(five locations) Manitoba,Canada
Hilb, Rogal and Hamilton Company of Alabama, Inc.
(three locations) Alabama
Hilb, Rogal and Hamilton Company of Arizona
(four locations) Arizona
Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia
Hilb, Rogal and Hamilton Company of Baltimore Maryland
Hilb, Rogal and Hamilton Insurance Services of California
Central California, Inc. (three locations)
HRH Insurance Services of the Coachella Valley, Inc. California
Hilb, Rogal and Hamilton Company of Daytona Beach, Inc. Florida
Hilb, Rogal and Hamilton Company of Denver Colorado
Hilb, Rogal and Hamilton Company of the District
of Columbia Delaware
Hilb, Rogal and Hamilton Company of Fort Lauderdale Florida
Hilb, Rogal and Hamilton Company of Fort Myers Florida
Hilb, Rogal and Hamilton Company of
Gainesville, Florida, Inc. Florida
Hilb, Rogal and Hamilton Company of Gainesville, Georgia Georgia
Hilb, Rogal and Hamilton Company of Grand Rapids Michigan
Hilb, Rogal and Hamilton International, LTD. Virginia
Hilb, Rogal and Hamilton Company of Louisiana Louisiana
HRH of Northern California Insurance Services, Inc. California
(five locations)
Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma
Hilb, Rogal and Hamilton Insurance Services of
Orange County, Inc. California
Hilb, Rogal and Hamilton Company of Orlando Florida
Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. Pennsylvania
(two locations)
Hilb, Rogal and Hamilton Company of Port Huron Michigan
(two locations)
Hilb, Rogal and Hamilton Company of the Quad Cities
(two locations) Illinois
Hilb, Rogal and Hamilton Realty Company Delaware
Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia
Hilb, Rogal and Hamilton Company of St. Simons Island Georgia
Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia
Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida
Hilb, Rogal and Hamilton Company of Texas (ten locations) Texas
Hilb, Rogal and Hamilton Company of Virginia
(four locations) Virginia
Insurance Management Incorporated (six locations) Connecticut
Each of the above subsidiaries is 100% owned by the
registrant.
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-4 No. 33-44271 and Form S-8 No. 33-59866) of Hilb, Rogal and Hamilton
Company and in the related prospectuses of our report dated February 12, 1997,
with respect to the consolidated financial statements and schedule of Hilb,
Rogal and Hamilton Company included in this Annual Report (Form 10-K) for the
year ended December 31, 1996.
/s/ Ernst & Young, LLP
Ernst & Young LLP
Richmond, Virginia
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF HILB, ROGAL AND HAMILTON COMPANY AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996, INCORPORATED BY REFERENCE INTO THE 1996 FORM 10K, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,774,374
<SECURITIES> 5,088,020
<RECEIVABLES> 50,021,289
<ALLOWANCES> 2,445,000
<INVENTORY> 0
<CURRENT-ASSETS> 76,255,502
<PP&E> 37,240,860
<DEPRECIATION> 21,148,785
<TOTAL-ASSETS> 181,475,347
<CURRENT-LIABILITIES> 89,111,728
<BONDS> 27,195,571
<COMMON> 25,266,279
0
0
<OTHER-SE> 30,031,992
<TOTAL-LIABILITY-AND-EQUITY> 181,475,347
<SALES> 0
<TOTAL-REVENUES> 158,243,100
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 137,953,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,244,729
<INCOME-PRETAX> 19,044,822
<INCOME-TAX> 7,638,431
<INCOME-CONTINUING> 11,406,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,406,391
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
