1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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 office) (Zip Code)
Registrant's telephone number, including area code (804) 747-6500
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
Common stock, no par value 12,803,549
(This document contains 13 pages)
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Consolidated Income
for the three months and nine months
ended September 30,1997 and 1996 3
Consolidated Balance Sheet,
September 30, 1997 and December
31, 1996 4
Statement of Consolidated Shareholders'
Equity for the nine months ended
September 30, 1997 and 1996 5
Statement of Consolidated Cash Flows
for the nine months ended September
30, 1997 and 1996 6
Notes to Consolidated Financial
Statements 7-8
Item 2.Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-11
Exhibits to Part I
Exhibit 11 - Computation of Earnings
Per Share 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit 11 - See Part I 13
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Commissions $40,800,479 $37,725,220 $129,752,606 $116,493,506
and fees
Investment and
other income 1,049,030 590,206 4,332,858 2,833,746
----------- ---------- ------------ ------------
41,849,509 38,315,426 134,085,464 119,327,252
Operating expenses
Compensation and
employee benefits 23,696,665 21,756,235 72,564,190 65,871,369
Other operating 11,212,453 10,710,825 34,133,162 30,314,437
expenses
Amortization of
intangibles 1,992,481 1,891,994 6,218,190 5,558,598
Interest expense 486,627 300,905 1,518,797 762,364
---------- ---------- ----------- -----------
37,388,226 34,659,959 114,434,339 102,506,768
---------- ---------- ----------- -----------
INCOME BEFORE
INCOME TAXES 4,461,283 3,655,467 19,651,125 16,820,484
Income taxes 1,894,996 1,414,999 8,141,050 6,743,495
---------- ---------- ----------- -----------
NET INCOME $2,566,287 $2,240,468 $11,510,075 $10,076,989
========== ========== =========== ===========
NET INCOME PER
COMMON SHARE $0.20 $0.17 $0.88 $0.75
========== ========== =========== ===========
Dividends per
Common Share $0.155 $0.15 $0.465 $0.45
========== ========== =========== ===========
Weighted Average
Number of Shares
Outstanding 12,964,842 13,284,736 13,148,200 13,512,855
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS ------------- ------------
CURRENT ASSETS
Cash and cash equivalents $28,583,905 $19,774,374
Investments 4,266,543 5,088,020
Receivables:
Premiums, less allowance for
doubtful accounts of
$2,640,000 and $2,445,000,
respectively 40,045,691 41,453,677
Other 6,938,784 6,122,612
------------ ------------
46,984,475 47,576,289
Prepaid expenses and other current
assets 3,488,885 3,816,819
------------ ------------
TOTAL CURRENT ASSETS 83,323,808 76,255,502
INVESTMENTS 5,045,000 6,185,686
PROPERTY AND EQUIPMENT (NET) 12,579,245 16,092,075
INTANGIBLE ASSETS
Expiration rights 78,479,708 76,402,292
Goodwill 31,693,182 32,718,982
Noncompetition agreements 11,831,853 11,421,278
------------ ------------
122,004,743 120,542,552
Less accumulated amortization 42,915,072 40,536,482
------------ ------------
79,089,671 80,006,070
OTHER ASSETS 5,344,783 2,936,014
------------ ------------
$185,382,507 $181,475,347
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance $ 68,565,875 $ 66,527,381
companies
Accounts payable and accrued
expenses 12,554,526 11,401,805
Premium deposits and credits due
customers 9,831,842 8,837,483
Current portion of long-term debt 1,921,695 2,345,059
----------- ------------
TOTAL CURRENT LIABILITIES 92,873,938 89,111,728
LONG-TERM DEBT 28,756,813 27,195,571
OTHER LONG-TERM LIABILITIES 10,489,289 9,869,777
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized
50,000,000 shares; outstanding
12,860,139 and 13,320,577 shares,
respectively 17,756,515 25,266,279
Retained earnings 35,505,952 30,031,992
------------ -----------
53,262,467 55,298,271
------------ -----------
$185,382,507 $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 108,396 shares
of Common Stock 1,440,066
Purchase of 568,164
shares of Common Stock (8,892,550) (6,036,115)
Payment of dividends
Other (57,280)
Net income 11,510,075
----------- -----------
Balance at September 30, 1997 $17,756,515 $35,505,952
============ ===========
Balance at January 1, 1996 $29,903,900 $26,741,990
Issuance of 145,558 shares
of Common Stock 1,987,725
Purchase of 580,900 shares
of Common Stock (7,932,056)
Payment of dividends (6,040,089)
Other 22,123
Net income 10,076,989
----------- -----------
Balance at September 30,1996 $23,981,692 $30,778,890
=========== ===========
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996
OPERATING ACTIVITIES
Net income $11,510,075 $10,076,989
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 2,711,765 2,396,073
Amortization of intangible assets 6,218,190 5,558,598
----------- -----------
Net income plus amortization
and depreciation 20,440,030 18,031,660
Provision for losses on
accounts receivable 578,624 657,872
Gain on sale of assets (2,379,824) (1,313,731)
Changes in operating assets
and liabilities net of effects
from insurance agency acquisitions:
(Increase) decrease in
accounts receivable (60,371) 2,158,638
Increase (decrease) in
prepaid expenses 332,614 (1,660,845)
Increase (decrease) in
premiums payable to
insurance companies 2,780,618 (1,039,171)
Increase (decrease) in
premium deposits and credits 882,145 (391,368)
Increase (decrease) in
accounts payable and
accrued expenses 701,111 (581,400)
Other operating activities 1,603,381 1,303,587
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 24,878,328 17,165,242
INVESTING ACTIVITIES
Proceeds from maturities of held-
to-maturity investments 4,376,174 9,726,943
Purchase of investments (2,414,012) (6,261,867)
Purchase of property and
equipment (1,589,070) (3,592,783)
Purchase of insurance agencies,
net of cash acquired (7,274,617) (5,400,998)
Proceeds from sale of assets 5,778,635 1,245,195
Other investing activities 114,169 192,235
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (1,008,721) (4,091,275)
FINANCING ACTIVITIES
Proceeds from long-term debt 3,004,220 17,200,000
Principal payments on long-term
debt (3,775,697) (12,200,228)
Repurchase of Common Stock (8,892,550) (7,932,056)
Dividends (6,036,115) (6,040,089)
Other financing activities 640,066 9,635
----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (15,060,076) (8,962,738)
----------- -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 8,809,531 4,111,229
Cash and cash equivalents at
beginning of period 19,774,374 17,020,706
CASH AND CASH EQUIVLENTS AT END OF
PERIOD $28,583,905 $21,131,935
=========== ===========
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
September 30, 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 nine month period
ended September 30, 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-ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued FASB
Statement No. 128 "Earnings per Share" which establishes new
guidelines for the calculation of and disclosures regarding
earnings per share. The Company will adopt the provisions of
Statement No. 128 during the fourth quarter of 1997 and at that
time will be required to present basic and diluted earnings per
share and to restate all prior periods. The calculation of basic
earnings per share is expected to be comparable to net income per
common share which is currently presented by the Company in
accordance with Opinion No. 15 of the Accounting Principles
Board.
NOTE C--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 D--ACQUISITIONS
During the first nine months of 1997, the Company acquired
certain assets and liabilities of five insurance agencies for
$6,557,000 ($3,951,000 in cash, $1,806,000 in guaranteed future
payments and 53,333 shares of Common Stock) in purchase
accounting transactions. Proforma revenues and net income are
not material to the consolidated financial statements.
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
September 30, 1997
(UNAUDITED)
NOTE E--SALE OF ASSETS
During the nine months ended September 30, 1997 and 1996, the
Company sold certain insurance accounts and other assets
resulting in gains of approximately $2,380,000 and $1,314,000,
respectively, including $301,000 and $92,000 in the third
quarters of 1997 and 1996, respectively. These amounts are
included in other revenues in the statement of consolidated
income. Revenues, expenses and assets of these operations were
not material to the consolidated financial statements.
NOTE F--SUBSEQUENT EVENT
Effective October 1, 1997, the Company acquired certain assets
and liabilities of two insurance agencies for $2,565,000
($1,978,000 in cash and $587,000 in guaranteed future payments)
in purchase accounting transactions. Proforma revenues and net
income are not material to the consolidated financial statements.
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY (THE "COMPANY")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
For the three months ended September 30, 1997, commissions and
fees were $40.8 million, an increase of 8.2% from commissions and
fees of $37.7 million during the comparable period of the prior
year. Approximately $5.0 million of commissions were derived
from purchase acquisitions of new insurance agencies. This
increase was in part offset by decreases of approximately $2.6
million from the sale of certain offices and accounts in late
1996 and 1997. Core commissions and fees from continuing
operations increased 3.0%.
Investment and other income was $1.0 million for the three months
ended September 30, 1997 an increase of $0.5 million including a
$0.2 million increase in nonrecurring gains from the sale of
assets.
Expenses increased by $2.7 million or 7.9%. Increases include
$1.9 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses and amortization of intangibles increased approximately
$0.5 million and $0.1 million due primarily to the aforementioned
purchase acquisitions. Interest expense increased by $0.2
million due to increased borrowings related to the stock
repurchase and agency acquisition programs.
The Company's overall tax rate for the three months ended
September 30, 1997 was 42.5% versus 38.7% for the same period of
the prior year. This increase is primarily due to a modest
increase in the anticipated corporate effective tax rate due to
higher earnings.
For the nine months ended September 30, 1997, commissions and
fees were $130.0 million, an increase of 11.4% from commissions
and fees of $116.5 million during the comparable period of the
prior year. Approximately $15.1 million of commissions were
derived from purchase acquisitions of new insurance agencies.
This increase was in part offset by decreases of approximately
$4.1 million from the sale of certain offices and accounts in
1996 and early 1997. Core commissions and fees from continuing
operations increased 3.2%.
Investment and other income increased $1.5 million or 52.9% from
the prior year primarily due to a $1.1 million increase in
nonrecurring gains from the sale of assets.
Expenses increased by $11.9 million or 11.6%. Increases include
$6.7 million in compensation and benefits primarily related to
purchase acquisitions of new insurance agencies. Other operating
expenses and amortization of intangibles increased approximately
$3.8 million and $0.7 million, respectively, primarily due to the
aforementioned purchase acquisitions and consulting fees totaling
$1.0 million associated with the Company's strategic plan.
Interest expense increased by $0.8 million due to increased
borrowings related to the stock repurchase and agency acquisition
programs.
<PAGE>
The Company's overall tax rate of 41.4% for the nine months ended
September 30, 1997, was relatively comparable to the rate of
40.1% for the same period of the prior year and reflects a modest
increase in the anticipated corporate effective tax rate due to
higher earnings.
The timing of contingent commissions, policy renewals and
acquisitions may cause revenues, expenses and net income to vary
significantly from quarter to quarter. As a result of the
factors described above, operating results for the nine months
ended September 30, 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 $24.9 million and $17.2
million for the nine months ended September 30, 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 $1.6 million and $3.6 million for the nine
months ended September 30, 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 $7.3
million and $5.4 million in the nine months ended September 30,
1997 and 1996, respectively. Cash expenditures for such agency
acquisitions have been funded primarily through operations 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
accounts and other assets amounted to $5.8 million and $1.2
million in the nine months ended September 30, 1997 and 1996,
respectively. The Company did not have any material capital
expenditure commitments as of September 30, 1997.
Financing activities utilized cash of $15.1 million and $9.0
million in the nine months ended September 30, 1997 and 1996,
respectively. The Company has consistently made scheduled debt
payments and annually increased its dividend rate. In addition,
during the nine months ended September 30, 1997 and 1996, the
Company repurchased 568,164 and 580,900, respectively, shares of
its Common Stock under a stock repurchase program. The Company
is currently authorized to purchase an additional 855,000 shares
and expects to continue to repurchase shares during the remainder
of 1997. The Company does not anticipate any change in the
current dividend rate in the foreseeable future. The Company has
a bank credit agreement for $30.0 million under loans due in
2002. At September 30, 1997, there were loans of $26.0 million
outstanding under the agreement.
The Company had a current ratio (current assets to current
liabilities) of 0.90 to 1.00 as of September 30, 1997.
Shareholders' equity of $53.3 million at September 30, 1997, is
decreased from $55.3 million at December 31, 1996, and the debt
to equity ratio of 0.54 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 and an increase in borrowings under the bank credit
agreement used for insurance agency acquisitions and the
repurchase of Common Stock.
<PAGE>
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 nine
months ended September 30, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Hilb, Rogal and Hamilton Company
(Registrant)
Date November 6, 1997 By: /s/ Andrew L. Rogal
President and Chief Executive Officer
(Principal Executive Officer)
Date November 6, 1997 By: /s/ Carolyn Jones
Senior Vice President-Finance
(Principal Financial Officer)
Date November 6, 1997 By: /s/ Robert W. Blanton, Jr.
Assistant Vice President and
Controller
(Chief Accounting Officer)
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Quarter Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY:
Average shares
outstanding 12,964,842 13,284,736 13,148,200 13,512,855
Net effect of dilutive
stock options -- based
on the treasury stock
method using average
fair value 156,391 19,336 75,448 26,245
Net effect of
guaranteed future
shares to be issued
in connection with
an agency acquisition 130,647 130,647
----------- ---------- --------- ----------
Average number of
shares as adjusted 13,251,880 13,304,072 13,354,295 13,539,100
=========== ========== =========== ===========
Net income $2,566,287 $2,240,468 $11,510,075 $10,076,989
=========== ========== =========== ===========
Per share amount $.19 $.17 $.86 $.74
==== ==== ==== ====
FULLY DILUTED:
Average shares
outstanding 12,964,842 13,284,736 13,148,200 13,512,855
Net effect of dilutive
stock options --
based on the treasury
stock method
using the end of
period value, if
higher than average
fair value 242,558 22,328 211,314 26,245
Net effect of
guaranteed future shares
to be issued in
connection with an
agency acquisition 130,647 130,647
----------- ---------- --------- ----------
Average number of
shares as adjusted 13,338,047 13,307,064 13,490,161 13,539,100
=========== ========== ========== ==========
Net income $2,566,287 $2,240,468 $11,510,075 $10,076,989
=========== ========== =========== ===========
Per share amount $.19 $.17 $.85 $.74
==== ==== ==== ====
Note: The per share amounts for each period presented above
do not necessarily support amounts in the statement of
consolidated income because common stock equivalents are
less than 3% dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
FOR HILB, ROGAL AND HAMILTON COMPANY FOR THE QUARTER ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,583,905
<SECURITIES> 4,266,543
<RECEIVABLES> 49,624,475
<ALLOWANCES> 2,640,000
<INVENTORY> 0
<CURRENT-ASSETS> 83,323,808
<PP&E> 34,204,383
<DEPRECIATION> 21,625,138
<TOTAL-ASSETS> 185,382,507
<CURRENT-LIABILITIES> 92,873,938
<BONDS> 28,756,813
<COMMON> 17,756,515
0
0
<OTHER-SE> 35,505,952
<TOTAL-LIABILITY-AND-EQUITY> 185,382,507
<SALES> 0
<TOTAL-REVENUES> 134,085,464
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112,915,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,518,797
<INCOME-PRETAX> 19,651,125
<INCOME-TAX> 8,141,050
<INCOME-CONTINUING> 11,510,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,510,075
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
