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, 1998 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 April 24, 1998
- --------------------------------------------------------------------------
Common stock, no par value 12,695,876
(This document contains 11 pages)
1
<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 31,1998 and 1997 3
Consolidated Balance Sheet
March 31, 1998 and December 31,
1997 4
Statement of Consolidated Shareholders'
Equity for the three months ended
March 31,1998 and 1997 5
Statement of Consolidated Cash Flows
for the three months ended March 31,
1998 and 1997 6
Notes to Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------------------------
Revenues
Commissions and fees $47,977,728 $47,265,029
Investment income 375,805 378,402
Other income 344,380 269,405
----------- -----------
48,697,913 47,912,836
Operating expenses
Compensation and employee
benefits 24,796,899 24,969,374
Other operating expenses 11,330,643 11,211,778
Amortization of intangibles 1,937,231 2,130,018
Interest expense 563,749 517,718
----------- -----------
38,628,522 38,828,888
----------- -----------
INCOME BEFORE INCOME TAXES 10,069,391 9,083,948
Income taxes 4,123,848 3,677,232
----------- -----------
NET INCOME $ 5,945,543 $ 5,406,716
=========== ===========
NET INCOME PER COMMON SHARE:
Basic $0.47 $0.41
===== =====
Diluted $0.46 $0.40
===== =====
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,456,197 $ 22,314,860
Investments 3,131,919 3,892,533
Receivables:
Premiums, less allowance for doubtful
accounts of $2,329,000 and $2,299,000,
respectively 36,824,623 41,292,489
Other 5,969,732 5,720,513
------------ ------------
42,794,355 47,013,002
Prepaid expenses and other current assets 3,078,514 3,612,523
------------ ------------
TOTAL CURRENT ASSETS 76,460,985 76,832,918
INVESTMENTS 4,431,000 5,030,000
PROPERTY AND EQUIPMENT (NET) 11,298,330 11,762,080
INTANGIBLE ASSETS
Expiration rights 77,244,358 75,193,075
Goodwill 34,065,712 33,411,145
Noncompetition agreements 12,043,688 11,636,847
------------ ------------
123,353,758 120,241,067
Less accumulated amortization 40,015,130 38,071,304
------------ ------------
83,338,628 82,169,763
OTHER ASSETS 5,886,702 5,811,797
------------ ------------
$181,415,645 $181,606,558
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 63,878,708 $ 67,520,370
Accounts payable and accrued expenses 11,248,164 10,925,646
Premium deposits and credits due customers 8,874,222 7,752,502
Current portion of long-term debt 2,147,236 2,074,788
------------ ------------
TOTAL CURRENT LIABILITIES 86,148,330 88,273,306
LONG-TERM DEBT 31,605,547 32,457,882
OTHER LONG-TERM LIABILITIES 9,995,395 9,536,771
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 12,732,623 and 12,813,023
shares, respectively 14,894,917 16,540,461
Retained earnings 38,771,456 34,798,138
------------ ------------
53,666,373 51,338,599
------------ ------------
$181,415,645 $181,606,558
============ ============
See notes to consolidated financial statements.
4
<PAGE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
COMMON RETAINED
STOCK EARNINGS
----------- ------------
Balance at January 1, 1998 $16,540,461 $34,798,138
Issuance of 51,600 shares of
Common Stock 717,313
Purchase of 132,000 shares of
Common Stock (2,412,590)
Payment of dividends
($.155 per share) (1,972,225)
Other 49,733
Net income 5,945,543
------------ ------------
Balance at March 31, 1998 $14,894,917 $38,771,456
============ ============
Balance at January 1, 1997 $25,266,279 $30,031,992
Issuance of 28,205 shares of
Common Stock 338,100
Purchase of 152,486 shares of
Common Stock (2,059,051)
Payment of dividends
($.155 per share) (2,059,226)
Other (60,987)
Net income 5,406,716
------------ -----------
Balance at March 31, 1997 $23,484,341 $33,379,482
============ ============
See notes to consolidated financial statements.
5
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31,1997
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,945,543 $ 5,406,716
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 851,373 882,859
Amortization of intangible assets 1,937,231 2,130,018
----------- -----------
Net income plus amortization and depreciation 8,734,147 8,419,593
Provisions for losses on accounts receivable 118,845 221,460
Gain on sale of assets (148,505) (88,825)
Changes in operating assets and liabilities
net of effects from insurance agency
acquisitions:
Decrease in accounts receivable 4,102,365 4,285,297
Decrease in prepaid expenses 722,911 958,362
Decrease in premiums payable to
insurance companies (3,641,662) (516,423)
Increase in premium deposits and
customer credits 1,121,720 2,373,162
Increase (decrease) in accounts payable
and accrued expenses 322,429 (439,868)
Other operating activities 18,551 (203,360)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 11,350,801 15,009,398
INVESTING ACTIVITIES
Proceeds from maturities of held-to-maturity
investments 1,441,413 496,576
Purchase of investments (81,799) (1,000,000)
Purchase of property and equipment (760,048) (501,616)
Purchase of insurance agencies, net of
cash acquired (2,891,212) (4,110,405)
Proceeds from sale of assets 499,361 92,868
Other investing activities 30,210 14,924
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,762,075) (5,007,653)
FINANCING ACTIVITIES
Proceeds from long-term debt -- 1,000,000
Principal payments on long-term debt (779,887) (433,002)
Proceeds from issuance of Common Stock 717,313 38,100
Repurchase of Common Stock (2,412,590) (2,059,051)
Dividends (1,972,225) (2,059,226)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (4,447,389) (3,513,179)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 5,141,337 6,488,566
Cash and cash equivalents at beginning of
Period 22,314,860 19,774,374
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $27,456,197 $26,262,940
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
March 31, 1998
(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, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998. 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, 1997.
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 1998, the Company acquired
certain assets and liabilities of one insurance agency for
$700,000 in a purchase accounting transaction. Proforma revenues
and net income are not material to the consolidated financial
statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
March 31, 1998
(UNAUDITED)
NOTE D-NET INCOME PER SHARE
The following table sets forth the computation of basic and
diluted net income per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,1998 March 31, 1997
---------------------------------
<S> <C> <C>
Numerator for basic and dilutive net income
per share - net income $ 5,945,543 $ 5,406,716
============ ============
Denominator
Weighted average shares 12,769,257 13,313,423
Effect of guaranteed future shares to be
issued in connection with an agency
acquisition 10,101 27,523
------------ ------------
Denominator for basic net income per share 12,779,358 13,340,946
Dilutive potential common shares ---
employee stock options 206,740 22,585
------------ ------------
Denominator for diluted net income per
share --- adjusted weighted average
shares and assumed conversions 12,986,098 13,363,531
============ ============
Net Income per Common Share:
Basic $0.47 $0.41
===== =====
Diluted $0.46 $0.40
===== =====
</TABLE>
8
<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, 1998, commissions and fees
were $48.0 million, an increase of 1.5% from commissions and fees
of $47.3 million during the comparable period of the prior year.
Approximately $1.1 million of commissions were derived from
purchase acquisitions of new insurance agencies. This increase
was in part offset by decreases of approximately $2.3 million
from the sale of certain offices and accounts in 1997.
Commissions and fees from operations owned during both periods
increased 4.8%. Investment and other income was comparable to
the same period of the prior year.
Expenses decreased by $0.2 million or 0.5%. Decreases relate to
the impact of certain offices sold in 1997 and consulting fees in
1997 related to the Company's Strategic Plan, offset in part by
the impact of acquisitions.
The Company's overall tax rate of 41% for the three months ended
March 31, 1998, was relatively comparable to the rate of 40.5%
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, 1998 should not be considered indicative of the
results that may be expected for the entire year ending December
31, 1998.
Liquidity and Capital Resources:
Net cash provided by operations totaled $11.4 million and $15.0
million for the three months ended March 31, 1998 and 1997,
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 $0.8 million and $0.5 million for the three
months ended March 31, 1998 and 1997, respectively. The timing
and
9
<PAGE>
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 $2.9 million and
$4.1 million in the three months ended March 31, 1998 and 1997,
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 from the sale of accounts
and other assets amounted to $0.5 million and $0.1 million in the
three months ended March 31, 1998 and 1997, respectively. The
Company did not have any material capital expenditure commitments
as of March 31, 1998.
Financing activities utilized cash of $4.4 million and $3.5
million in the three months ended March 31, 1998 and 1997,
respectively, as the Company made scheduled debt repayments and
paid its dividend. In addition, during the three months ended
March 31, 1998 and 1997, the Company repurchased 132,000 and
152,486, respectively, shares of its Common Stock under a stock
repurchase program. The Company is currently authorized to
purchase an additional 591,000 shares and expects to continue to
repurchase shares during the remainder of 1998. 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, 1998, there were loans of $30.0
million outstanding under the agreement.
The Company had a current ratio (current assets to current
liabilities) of 0.89 to 1.00 as of March 31, 1998. Shareholders'
equity of $53.7 million at March 31, 1998, is improved from $51.3
million at December 31, 1997, and the debt to equity ratio of
0.59 to 1.00 is decreased from the ratio at December 31, 1997 of
0.63 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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No reports on Form 8-K have been filed during the three
months ended March 31, 1998.
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 April, 29, 1998 By: /s/ Andrew L. Rogal
President and Chief Executive
Officer
(Principal Executive Officer)
Date April, 29, 1998 By: /s/ Carolyn Jones
Senior Vice President-Finance
(Principal Financial Officer)
Date April, 29, 1998 By: /s/ Robert W. Blanton, Jr.
Assistant Vice President and
Controller
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR HILB, ROGAL AND HAMILTON COMPANY FOR THE QUARTER ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 27,456,197
<SECURITIES> 3,131,919
<RECEIVABLES> 45,123,355
<ALLOWANCES> 2,239,000
<INVENTORY> 0
<CURRENT-ASSETS> 76,460,985
<PP&E> 33,706,692
<DEPRECIATION> 22,408,362
<TOTAL-ASSETS> 181,415,645
<CURRENT-LIABILITIES> 86,148,330
<BONDS> 31,605,547
<COMMON> 14,894,917
0
0
<OTHER-SE> 38,771,456
<TOTAL-LIABILITY-AND-EQUITY> 181,415,645
<SALES> 0
<TOTAL-REVENUES> 48,697,913
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,064,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563,749
<INCOME-PRETAX> 10,069,391
<INCOME-TAX> 4,123,848
<INCOME-CONTINUING> 5,945,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,945,543
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
