Exhibit 99.1
Press Release
Hilb Rogal & Hobbs Company
Contact: Carolyn Jones
4951 Lake Brook Drive, Suite 500
Phone:
(804) 747-3108
Glen Allen, Virginia 23060
Fax:
(804) 747-6046
FOR IMMEDIATE RELEASE
October 20, 2003
HILB ROGAL & HOBBS COMPANY REPORTS
THIRD QUARTER RESULTS
RICHMOND, VA -- Hilb Rogal & Hobbs Company (NYSE:HRH), the world’s 10th largest insurance and risk management intermediary, reported financial results today for the third quarter and nine months ended September 30, 2003. The results are consistent with the preliminary outlook, which the company stated in an October 9, 2003 press release.
For the third quarter, total revenues were $139.4 million, compared with $128.5 million a year ago, an increase of 8.5%. Commissions and fees rose 8.1% to $137.1 million during the quarter, compared with $126.8 million during the same period last year, primarily reflecting acquisitions, reduced organic growth and moderating premium rate increases. Net income for the quarter was $18.4 million, compared with $17.2 million a year ago, an increase of 6.6%, or $0.50 per share compared with $0.53 per share. Dilutive weighted average shares outstanding for the quarter increased 10.1% from a year ago, reflecting acquisition-related share issuances--primarily for Hobbs Group, LLC (Hobbs)--and a public offering. Operating net income in 2003 was $19.9 million, or $0.55 per share, compared with $17.2 million, or $0.53 per share, a year ago, an increase of 15.9%.
For the first nine months, total revenues rose 29.9% to $420.9 million from $324.1 million a year ago. Commissions and fees increased 29.8% to $415.5 million from $320.2 million last year, reflecting the trends identified above for the quarter, in addition to the acquisition of Hobbs and higher contingent and override commissions, which are heavily weighted in the first quarter. Net income for the nine months was $55.5 million, or $1.53 per share, compared with $48.9 million, or $1.53 per share, in 2002, an increase of 13.6%. Operating net income for the nine months was $60.3 million, or $1.67 per share, compared with $45.0 million, or $1.41 per share, a year ago, an increase of 34.1%. The per share amount for the nine months is based on an 11.1% higher dilutive share count than the prior year for the reasons noted above for the quarter.
Organic growth, defined as the change in commissions and fees before the effect of acquisitions and divestitures, was 3.4% for the third quarter and 6.5% for the nine months. As announced previously, the company now believes organic growth for the full year 2003 will be in the 5% to 7% range. The operating margin for 2003 was 27.7% for both the quarter and the nine months, compared with 27.0% and 26.7%, respectively, for the corresponding year-ago periods. Continued incremental margin improvement remains one of HRH's key financial objectives.
Martin L. (Mell) Vaughan, III, chairman and chief executive officer said, “We were surprised and disappointed by the third quarter results. Industry trends, including lower than expected premium increases, particularly in complex property insurance, program redesigns induced by client economic pressures, and legislative uncertainties in executive benefits, weighed on results. In addition, an unexpected productivity lull at Hobbs occurred after the earn-out. Of course, for any given quarter, revenues will vary based on the timing of net new business, policy renewals and billings.”
(CONTINUED)
HILB ROGAL & HOBBS COMPANY REPORTS
THIRD QUARTER RESULTS – Continued
Vaughan continued, “HRH's strategic priorities are focused on accelerating growth regardless of industry conditions. We are melding the strengths of our combined organizations and establishing an integrated sales and sales management model, which will increasingly contribute to our performance. We believe that the changes will lead, over time, to superior client service, sustained organic growth, and, together with a strong and disciplined acquisition program, delivering targeted earnings growth. Enthusiasm for the new structure and sales model is strong throughout the company--particularly at Hobbs, which has been a source of strength and leadership for HRH.”
Robert B. Lockhart, who was named HRH's president and chief operating officer in August, and appointed to HRH's Board of Directors in September, will play a central role in executing HRH's growth strategies. Lockhart stated, "The refined sales process, a cornerstone of Hobbs’ growth, strongly focusing on teams, tracking and accountability, was successfully implemented in the Northeast region and is now being introduced throughout the rest of the company. We are excited about the future growth benefits of this proven sales process."
Vaughan concluded, "The integration plan is really about leveraging our network of people, products and expertise to serve our clients as a premier insurance services provider. The key tenets of the integration were developed collaboratively, approved and endorsed by the leadership, and are currently being announced and launched. While the organization has a new name and identity, we continue our commitment to our long-term goal of sustaining 15% to 20% growth in annual operating earnings per share."
The company cautions readers that the statements contained herein regarding the company’s future operations and business prospects are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. For more details on factors that could affect expectations, see the company’s Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.
Hilb Rogal & Hobbs Company is the nation’s seventh largest insurance and risk management intermediary. With offices located throughout the United States, HRH assists clients in managing their risks in areas such as property and casualty, employee benefits and many other areas of specialized exposure. The company is traded on the New York Stock Exchange, symbol HRH, and is ranked as the 10th largest insurance and risk management intermediary in the world. Additional information about HRH, including instructions for the quarterly conference call, may be found at www.hrh.com.
(CONTINUED)
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
COMPARATIVE FINANCIAL ANALYSIS
(In thousands, except per share data)
THREE MONTHS ENDED | NINE MONTHS ENDED | |||
9/30/03 | 9/30/02 | 9/30/03 | 9/30/02 | |
(Unaudited) | (Unaudited) | |||
Revenues | ||||
Commissions and fees | $137,133 | $126,834 | $415,500 | $320,222 |
Investment income | 775 | 633 | 2,253 | 1,606 |
Other | 1,466 | 1,023 | 3,146 | 2,233 |
139,374 | 128,490 | 420,899 | 324,061 | |
Operating expenses | ||||
Compensation and employee benefits | 73,856 | 69,795 | 225,515 | 175,849 |
Other operating expenses | 24,051 | 21,922 | 71,482 | 56,478 |
Depreciation expense | 2,322 | 1,998 | 6,902 | 5,438 |
Amortization of intangibles | 2,353 | 1,920 | 6,708 | 3,004 |
Interest expense | 2,556 | 3,786 | 8,095 | 7,489 |
Integration costs1 | 3,174 | - | 3,174 | - |
Retirement benefit2 | - | - | 5,195 | - |
108,312 | 99,421 | 327,071 | 248,258 | |
INCOME BEFORE INCOME TAXES AND | ||||
CUMULATIVE EFFECT OF ACCOUNTING | ||||
CHANGE | 31,062 | 29,069 | 93,828 | 75,803 |
Income taxes | 12,677 | 11,820 | 38,280 | 30,868 |
Income before cumulative effect of accounting change | 18,385 | 17,249 | 55,548 |
44,935 |
Cumulative effect of accounting change, net of tax3 | - | - | - | 3,944 |
NET INCOME | $ 18,385 | $ 17,249 | $ 55,548 | $ 48,879 |
Net Income Per Share - Basic: | ||||
Income before cumulative effect of accounting change | $0.52 | $0.59 | $1.62 | $1.58 |
Cumulative effect of accounting change, net of tax3 | - | - | - | 0.13 |
Net income | $0.52 | $0.59 | $1.62 | $1.71 |
| ||||
Net Income Per Share – Assuming Dilution: | ||||
Income before cumulative effect of accounting change | $0.50 | $0.53 | $1.53 |
$1.41 |
Cumulative effect of accounting change, net of tax3 | - | - | - | 0.12 |
Net income | $0.50 | $0.53 | $1.53 | $1.53 |
Dividends Per Share | $0.0925 | $0.0900 | $0.2750 | $0.2675 |
Weighted Average Number | ||||
of Shares Outstanding: | ||||
Basic | 35,031 | 29,124 | 34,208 | 28,522 |
Assuming Dilution | 36,529 | 33,170 | 36,192 | 32,569 |
_________________________
| 1 | Integration costs represent one-time costs including severance, other employee-related costs and branding-related expenses. |
| 2 | The company recorded a one-time retirement benefit charge for the quarter ended March 31, 2003, representing a contractual retirement benefit for Andrew L. Rogal, the company’s former chairman and chief executive officer. |
| 3 | Effective January 1, 2002, the company changed its revenue recognition policy for commissions on premiums billed by insurance carriers on middle-market property and casualty business from when received to the later of effective date of insurance coverage or billing date. |
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
SEPTEMBER 30, 2003 | DECEMBER 31, 20021 | |
(Unaudited) | ||
ASSETS CURRENT ASSETS | ||
Cash and cash equivalents | $137,994 | $134,692 |
Receivables (net) | 212,966 | 201,364 |
Prepaid expenses and other | 15,105 | 21,509 |
TOTAL CURRENT ASSETS | 366,065 | 357,565 |
PROPERTY & EQUIPMENT (NET) | 22,647 | 20,386 |
INTANGIBLE ASSETS (NET) | 584,703 | 441,973 |
OTHER ASSETS | 13,960 | 13,100 |
$987,375 | $833,024 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
CURRENT LIABILITIES | ||
Premiums payable to insurance companies | $271,550 | $235,057 |
Accounts payable | 13,134 | 10,115 |
Accrued expenses | 32,032 | 39,142 |
Premium deposits and credits due customers | 40,488 | 33,998 |
Current portion of long-term debt | 8,768 | 5,733 |
TOTAL CURRENT LIABILITIES | 365,972 | 324,045 |
LONG-TERM DEBT | 161,635 | 177,151 |
OTHER LONG-TERM LIABILITIES | 34,524 | 21,180 |
SHAREHOLDERS’ EQUITY | ||
Common Stock (outstanding 35,721 and 33,484 | ||
shares, respectively) | 236,074 | 168,558 |
Retained earnings | 189,041 | 143,005 |
Accumulated other comprehensive income (loss) | 129 | (915) |
425,244 | 310,648 | |
$987,375 | $833,024 | |
___________________
| 1 | Reclassified to conform to current year presentation. |
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
GAAP MEASURES RECONCILIATION
(In thousands, except per share data)
This press release contains references to financial measures that exclude certain charges and non-recurring items. The company believes that these adjusted financial measures provide additional measures of performance that investors can use in evaluating the company’s performance between reporting periods. The schedule below provides a reconciliation of these financial measures to those prepared in accordance with accounting principles generally accepted in the United States (GAAP).
NET INCOME | NET INCOME PER SHARE ASSUMING DILUTION | |||
THREE MONTHS ENDED | THREE MONTHS ENDED | |||
9/30/03 | 9/30/02 | 9/30/03 | 9/30/02 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME | $18,385 | $17,249 | $0.50 | $0.53 |
Excluding: | ||||
Non-operating gains, net of tax | (391) | (56) | (0.01) | -- |
Integration costs, net of tax | 1,936 | -- | 0.06 | -- |
OPERATING NET INCOME | $19,930 | $17,193 | $0.55 | $0.53 |
OPERATING MARGIN | OPERATING REVENUE | |||
THREE MONTHS ENDED | THREE MONTHS ENDED | |||
9/30/03 | 9/30/02 | 9/30/03 | 9/30/02 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME / | $18,385 | $17,249 | $139,374 | $128,490 |
Excluding: | ||||
Non-operating gains | (662) | (94) | (662) | (94) |
Amortization of intangibles | 2,353 | 1,920 | -- | -- |
Interest expense | 2,556 | 3,786 | -- | -- |
Integration costs | 3,174 | -- | -- | -- |
Income taxes | 12,677 | 11,820 | -- | -- |
OPERATING MARGIN / REVENUE | $38,483 | $34,681 | $138,712 | $128,396 |
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
GAAP MEASURES RECONCILIATION
(In thousands, except per share data)
NET INCOME | NET INCOME PER SHARE ASSUMING DILUTION | |||
NINE MONTHS ENDED | NINE MONTHS ENDED | |||
9/30/03 | 9/30/02 | 9/30/03 | 9/30/02 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME | $55,548 | $48,879 | $1.53 | $1.53 |
Excluding: | ||||
Non-operating (gains) losses, net of tax | (313) | 68 | (0.01) | -- |
Integration costs, net of tax | 1,936 | -- | 0.06 | -- |
Retirement benefit, net of tax | 3,169 | -- | 0.09 | -- |
Cumulative effect of accounting change, net of tax | -- | (3,944) | -- | (0.12) |
OPERATING NET INCOME | $60,340 | $45,003 | $1.67 | $1.41 |
OPERATING MARGIN | OPERATING REVENUE | |||
NINE MONTHS ENDED | NINE MONTHS ENDED | |||
9/30/03 | 9/30/02 | 9/30/03 | 9/30/02 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME / | $55,548 | $48,879 | $420,899 | $324,061 |
Excluding: | ||||
Non-operating (gains) losses | (531) | 115 | (531) | 115 |
Amortization of intangibles | 6,708 | 3,004 | -- | -- |
Interest expense | 8,095 | 7,489 | -- | -- |
Integration costs | 3,174 | -- | -- | -- |
Retirement benefit | 5,195 | -- | -- | -- |
Income taxes | 38,280 | 30,868 | -- | -- |
Cumulative effect of accounting change, net of tax | -- | (3,944) | -- | -- |
OPERATING MARGIN / REVENUE | $116,469 | $86,411 | $420,368 | $324,176 |
---END---
