FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission file number 0-15981
HILB, ROGAL AND HAMILTON COMPANY
(Exact name of registrant as specified in its charter)
Virginia
54-1194795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 1220, Glen, Allen, VA 23060-1220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-6500
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required
to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the
latest practicable date.
Class Outstanding at May 5, 1997
Common stock, no par value 13,160,939
(This document contains 11 pages)
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Consolidated Income for
the three months ended
March 31,1997 and 1996 3
Consolidated Balance Sheet
March 31, 1997 and December
31, 1996 4
Statement of Consolidated Shareholders'
Equity for the three months ended
March 31,1997 and 1996 5
Statement of Consolidated Cash Flows
for the three months ended March
31, 1997 and 1996 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-9
Exhibits to Part I
Exhibit 11 - Computation of Earnings
Per Share 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit 11 - See Part I
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
Revenues
Commissions and fees $47,265,029 $41,929,002
Investment and other income 647,807 1,146,567
----------- -----------
47,912,836 43,075,569
Operating expenses
Compensation and employee
benefits 24,969,374 22,620,910
Other operating expenses 11,211,778 9,691,358
Amortization of intangibles 2,130,018 1,792,341
Interest expense 517,718 231,895
----------- ----------
38,828,888 34,336,504
----------- ----------
INCOME BEFORE INCOME TAXES 9,083,948 8,739,065
Income taxes 3,677,232 3,576,750
----------- ----------
NET INCOME $ 5,406,716 $ 5,162,315
=========== ===========
NET INCOME PER SHARE $0.41 $0.38
===== =====
Dividends $0.155 $0.15
====== =====
Weighted Average Number of
Shares of Common Stock Outstanding 13,313,423 13,729,596
========== ==========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,262,940 $ 19,774,374
Investments 6,332,129 5,088,020
Receivables:
Premiums, less allowance for doubtful
accounts of $2,596,000 and $2,445,000,
respectively 37,660,605 41,453,677
Other 5,542,013 6,122,612
---------- ----------
43,202,618 47,576,289
Prepaid expenses and other current assets 2,872,303 3,816,819
---------- ----------
TOTAL CURRENT ASSETS 78,669,990 76,255,502
INVESTMENTS 5,445,000 6,185,686
PROPERTY AND EQUIPMENT (NET) 16,050,295 16,092,075
INTANGIBLE ASSETS
Expiration rights 81,767,250 76,402,292
Goodwill 32,850,631 32,718,982
Noncompetition agreements 12,046,278 11,421,278
----------- -----------
126,664,159 120,542,552
Less accumulated amortization 42,660,642 40,536,482
----------- -----------
84,003,517 80,006,070
OTHER ASSETS 2,956,191 2,936,014
----------- -----------
$187,124,993 $181,475,347
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 66,011,175 $ 66,527,381
Accounts payable and accrued expenses 10,988,927 11,401,805
Premium deposits and credits due customers 11,381,358 8,837,483
Current portion of long-term debt 2,792,677 2,345,059
------------ ------------
TOTAL CURRENT LIABILITIES 91,174,137 89,111,728
LONG-TERM DEBT 29,228,526 27,195,571
OTHER LONG-TERM LIABILITIES 9,858,507 9,869,777
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 13,195,626 and 13,320,577
shares, respectively 23,484,341 25,266,279
Retained earnings 33,379,482 30,031,992
----------- ----------
56,863,823 55,298,271
----------- ----------
$187,124,993 $181,475,347
============ ============
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
Common Stock Retained Earnings
Balance at January 1, 1997 $25,266,279 $30,031,992
Issuance of 28,205 shares of
Common Stock 338,100
Purchase of 152,486 shares of
Common Stock (2,059,051)
Payment of dividends (2,059,226)
Other (60,987)
Net income 5,406,716
------------ ------------
Balance at March 31, 1997 $23,484,341 $33,379,482
============ ============
Balance at January 1, 1996 $29,903,900 $26,741,990
Issuance of 72,848 shares of
Common Stock 990,300
Purchase of 183,200 shares of
Common Stock (2,512,954)
Payment of dividends (2,044,188)
Other 15,591
Net income 5,162,315
------------ ------------
Balance at March 31, 1996 $28,396,837 $29,860,117
============ ============
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
OPERATING ACTIVITIES
Net income $ 5,406,716 $ 5,162,315
Adjustments to reconcile net income
to net cash provided by
operating activities: 882,859 747,315
Depreciation and amortization
Amortization of intangible assets 2,130,018 1,792,341
Provision for losses on
accounts receivable 221,460 274,965
Gain on sale of assets (88,825) (502,587)
------------ -----------
8,552,228 7,474,349
============ ===========
Changes in operating assets and liabilities
Net of effects from insurance agency
acquisitions:
Decrease in accounts receivable 4,285,297 3,947,181
Decrease in prepaid expenses 958,362 1,484,061
Decrease in premiums payable to
insurance companies (516,423) (2,816,060)
Increase (decrease) in premium
deposits and customer credits 2,373,162 (719,373)
Decrease in accounts payable
and accrued expenses (439,868) (502,424)
Other operating activities (203,360) 1,076,618
------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 15,009,398 9,944,352
INVESTING ACTIVITIES
Proceeds from maturities of
held-to-maturity investments 496,576 3,560,000
Purchase of investments (1,000,000) (4,027,743)
Purchase of property and equipment (501,616) (1,799,523)
Purchase of insurance agencies, net of
cash acquired (4,110,405) (2,242,683)
Proceeds from sale of assets 92,868 466,144
Other investing activities 14,924 127,703
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (5,007,653) (3,916,102)
FINANCING ACTIVITIES
Proceeds from long-term debt 1,000,000
Principal payments on long-term debt (433,002) (595,619)
Proceeds from issuance of Common Stock 38,100
Repurchase of Common Stock (2,059,051) (2,512,954)
Dividends (2,059,226) (2,044,188)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (3,513,179) (5,152,761)
INCREASE IN CASH AND CASH
EQUIVALENTS 6,488,566 875,489
Cash and cash equivalents at beginning of
period 19,774,374 17,020,706
CASH AND CASH EQUIVALENTS AT END OF ------------ -----------
PERIOD $26,262,940 $17,896,195
============ ============
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
March 31, 1997
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements of the Company have been prepared in
accordance with generally accepted accounting
principles for interim financial information and
with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes
required by generally accepted accounting
principles for complete financial statements. In
the opinion of management, all adjustments
(consisting of normal recurring accruals)
considered necessary for a fair presentation have
been included. Operating results for the three month
period ended March 31, 1997, are not necessarily
indicative of the results that may be expected
for the year ending December 31, 1997. For
further information, refer to the consolidated
financial statements and footnotes thereto
included in the Company's Form 10-K for the year
ended December 31, 1996.
NOTE B--INCOME TAXES
The Company (except for its Canadian
subsidiary) files a consolidated federal income
tax return. Deferred taxes result from temporary
differences between the reporting for income tax and
financial statement purposes primarily related to
bad debt expense, depreciation expense, basis
differences in intangible assets, deferred
compensation arrangements and the recognition of net
operating loss carryforwards from pooled entities.
NOTE C--ACQUISITIONS
During the first three months of 1997, the
Company acquired certain assets and liabilities of
three insurance agencies for $5,920,000
($3,814,000 in cash, $1,806,000 in deferred cash
payments and 22,305 shares of Common Stock)
in purchase accounting transactions. Proforma
revenues and net income are not material to the
consolidated financial statements.
NOTE D--SALE OF ASSETS
During the three months ended March 31, 1997 and
1996, the Company sold certain insurance accounts and
other assets resulting in gains of
approximately $89,000 and $503,000,
respectively. These amounts are included in other
revenues in the statement of consolidated income.
Revenues,expenses and assets of these operations were not
material to the consolidated financial statements.
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY (THE "COMPANY")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
For the three months ended March 31, 1997,
commissions and fees were $47.3 million, an
increase of 12.7% from commissions and fees of
$41.9 million during the comparable period of the
prior year. Approximately $5.3 million of core
commissions were derived from purchase
acquisitions of new insurance agencies. This
increase was in part offset by decreases of
approximately $0.4 million from the sale of certain
offices and accounts in 1996 and decreases of
$0.7 million in commissions derived from contingency
arrangements with insurance companies. Core
commissions and fees from operations owned during
both periods increased 3.3%.
Investment and other income decreased 43.5% from the
prior year. These amounts include gains from the
sale of certain insurance accounts and other
assets of $0.1 million and $0.5 million in 1997 and
1996, respectively.
Expenses increased by $4.5 million or 13.1%.
Increases include $2.3 million in compensation and
benefits primarily related to purchase acquisitions
of new insurance agencies. Other operating expenses
and amortization of intangibles increased
approximately $1.8 million and $0.3 million,
respectively, primarily due to the aforementioned
purchase acquisitions.
The Company's overall tax rate of 40.5% for the
three months ended March 31, 1997, was relatively
comparable to the rate of 40.9% for the same period
of the prior year.
The timing of contingent commissions, policy
renewals and acquisitions may cause revenues,
expenses and net income to vary significantly
from quarter to quarter.
As a result of the factors described
above, operating results for the three months ended
March 31, 1997 should not be considered indicative of
the results that may be expected for the entire year
ending December 31, 1997.
Liquidity and Capital Resources:
Net cash provided by operations totaled $15.0
million and $9.9 million for the three months
ended March 31, 1997 and 1996, 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
$0.5 million and $1.8 million for the three months ended March 31,
1997 and 1996, respectively. The timing
and extent of the purchase of investments is
dependent upon cash needs and yields on alternate
investments and cash equivalents. The purchase of
insurance agencies accounted for under the
purchase method of accounting utilized cash of $4.1
million and $2.2 million in the three months ended
March 31, 1997 and 1996, respectively. Cash
expenditures for such insurance agency
acquisitions have been primarily funded through
operations and 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 form the sale
of accounts and other assets amounted to $0.1 million
and $0.5 million in the three months ended March
31, 1997 and 1996, respectively. The
Company did not have any material capital expenditure
commitments as of March 31, 1997.
Financing activities utilized cash of $3.5
million and $5.2 million in the three months
ended March 31, 1997 and 1996, respectively, as
the Company made scheduled debt repayments and
annually increased its dividend rate. In addition,
during the three months ended
March 31, 1997 and 1996, the Company
repurchased 152,486 and 183,200, respectively,
shares of its Common Stock under a stock
repurchase program. The Company is
currently authorized to purchase an additional
270,000 shares and expects to continue to repurchase
shares during the remainder of 1997. The Company
anticipates the continuance of its dividend
policy. The Company has a bank credit agreement
for $30.0 million under loans due through 2001. At
March 31, 1997, there were loans of $24.0 million
outstanding under the agreement.
The Company had a current ratio (current assets
to current liabilities) of 0.86 to 1.00 as of March
31, 1997. Shareholders' equity of $56.9 million at
March 31, 1997, is improved from $55.3 million at
December 31, 1996, and the debt to equity ratio of
0.51 to 1.00 is increased from the ratio at December
31, 1996 of 0.49 to 1.00 due to net income
offset by the impact of the aforementioned
purchase of Common Stock of the Company.
The Company believes that cash generated from
operations, together with proceeds from borrowings, will
provide sufficient funds to meet the Company's short
and long-term funding needs.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - 11 Computation of per share earnings
b) No reports on Form 8-K have been filed during the three
months ended March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hilb, Rogal and Hamilton Company
(Registrant)
Date May 5, 1997 By: /s/ Robert H. Hilb
Chairman
(Principal Executive Officer)
Date May 5, 1997 By: /s/ Timothy J. Korman
Executive Vice President-Finance
(Principal Financial Officer)
Date May 5, 1997 By: /s/ Carolyn Jones
Vice President and Controller
(Chief Accounting Officer)
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
1997 1996
PRIMARY:
Average shares outstanding 13,313,423 13,729,596
Net effect of dilutive stock options
-- based on the treasury
stock method using average
fair value 22,585 30,940
Net effect of guaranteed future shares
to be issued in connection with
an agency acquisition 27,523
Net effect of future shares to be issued
in connection with an agency
acquisition contingent upon performance 110,092
---------- ----------
Average number of shares as adjusted 13,473,623 13,760,536
========== ==========
Net income $5,406,716 $5,162,315
========== ==========
Per share amount $.40 $.38
==== ====
FULLY DILUTED:
Average shares outstanding 13,313,423 13,729,596
Net effect of dilutive stock options
-- based on the treasury stock method
using the end of period fair value,
if higher than average fair value 37,648 41,634
Net effect of guaranteed future shares
to be issued in connection with
an agency acquisition 27,523
Net effect of future shares to be issued in
connection with an agency acquisition
contingent upon performance 220,184
---------- ----------
Average number of shares as adjusted 13,598,778 13,771,230
========== ==========
Net income $5,406,716 $5,162,315
========== ==========
Per share amount $.40 $.37
==== ====
Note: The per share amounts presented for each
period above do not necessarily support amounts in
the statement of consolidated income because common
stock equivalents are less than 3% dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
FOR HILB, ROGAL AND HAMILTON COMPANY FOR THE QUARTER ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 26,262,940
<SECURITIES> 6,332,129
<RECEIVABLES> 45,798,618
<ALLOWANCES> 2,596,000
<INVENTORY> 0
<CURRENT-ASSETS> 78,669,990
<PP&E> 38,107,628
<DEPRECIATION> 22,057,333
<TOTAL-ASSETS> 187,124,993
<CURRENT-LIABILITIES> 91,174,137
<BONDS> 29,228,526
<COMMON> 23,484,341
0
0
<OTHER-SE> 33,379,482
<TOTAL-LIABILITY-AND-EQUITY> 187,124,993
<SALES> 0
<TOTAL-REVENUES> 47,912,836
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,311,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517,718
<INCOME-PRETAX> 9,083,948
<INCOME-TAX> 3,677,232
<INCOME-CONTINUING> 5,406,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,406,716
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
