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
July 21, 2004
HILB ROGAL & HOBBS COMPANY REPORTS
SECOND QUARTER RESULTS
RICHMOND, Va.-- Hilb Rogal & Hobbs Company (NYSE:HRH), the world’s eighth largest insurance and risk management intermediary, reported today financial results for the second quarter and six months ended June 30, 2004.
For the second quarter, total revenues were $147.8 million, compared with $139.5 million a year ago, an increase of 5.9%. Commissions and fees rose 5.7% to $145.7 million, during the quarter, compared with $137.9 million last year, primarily reflecting acquisitions, partially offset by lower contingent and override commissions for the quarter and declining premium rates. Net income for the quarter was $20.5 million, or $0.56 per share, compared with $19.1 million, or $0.52 per share a year ago, an increase of 7.5%. Operating net income was $20.8 million, or $0.57 per share, compared with $19.1 million, or $0.52 per share a year ago, an increase of 9.1%.
For the first six months, total revenues rose 8.7% to $306.0 million from $281.5 million a year ago. Commissions and fees increased 8.5% to $302.1 million from $278.4 million last year, reflecting acquisitions, a softening rate environment, and higher contingent and override commissions for the year, which are heavily weighted in the first quarter. Net income for the six months was $44.7 million, or $1.23 per share, compared with $37.2 million, or $1.03 per share, in 2003, an increase of 20.4%. Operating net income was $45.4 million, or $1.25 per share, compared with $40.4 million, or $1.12 per share, a year ago, an increase of 12.4%.
Organic growth, defined as the change in commissions and fees before the effect of acquisitions and divestitures, was (0.2)% for the second quarter and 2.5% for the six months. In addition to volume, organic growth for a given period reflects the timing of new business and renewals and the timing and amount of contingent and override commissions as well as pricing trends and the economic environment.
The operating margin for the second quarter was 27.1% compared with 26.6% for the year ago quarter. For the six months, the operating margin increased to 28.3% in 2004 from 27.7% in 2003. Incremental margin improvement remains one of HRH’s key financial objectives.
Martin L. (Mell) Vaughan, III, chairman and chief executive officer, said, "While we knew that our second quarter results would measure against a very strong year-ago quarter, and that benefits from the recent sales model changes would not likely become apparent until the second half of 2004, the weakening of property and casualty insurance pricing and the decline in contingent and override commissions further pressured our organic growth, which, in turn, contributed to disappointing financial results."
(CONTINUED)
HILB ROGAL & HOBBS COMPANY REPORTS
SECOND QUARTER RESULTS – Continued
Robert B. Lockhart, president and chief operating officer stated, "We believe that initiatives launched earlier this year: a new sales model, a comprehensive employee benefits strategic plan, and major accounts line of business, will help to restore our growth. Our confidence in the sales process has been reinforced by both the flow of new business opportunities into our pipeline and the meaningful year to year increase in known sold new business. In addition, we have already taken actions to adjust our expenditures to softer market conditions to ensure we sustain profitability."
Vaughan concluded, "During the quarter, we consummated three acquisitions, and we reaffirm our goal for the year of making acquisitions of firms with between $30 million and $60 million in aggregate annualized revenues. However, as we adjust to the sudden shift in market pricing, our performance for the full year 2004 will vary in part with the timing of benefits realized from the sales and cost reduction initiatives. As a result, our operating net income per share for 2004 is more likely to grow at a 10% to 15% pace, which is below our stated goal. Nevertheless, for 2005 and beyond, we solidly reaffirm the 15% to 20% long-term growth goal as realistic and achievable in various market settings through a combination of organic growth, margin improvement and acquisitions."
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, 2003, 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 eighth 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 | SIX MONTHS ENDED | |||
6/30/04 | 6/30/03 | 6/30/04 | 6/30/03 | |
(Unaudited) | (Unaudited) | |||
Revenues | ||||
Commissions and fees | $145,674 | $137,868 | $302,070 | $278,367 |
Investment income | 756 | 820 | 1,311 | 1,479 |
Other | 1,325 | 846 | 2,601 | 1,679 |
147,755 | 139,534 | 305,982 | 281,525 | |
Operating expenses | ||||
Compensation and employee benefits | 79,145 | 75,846 | 162,870 | 151,659 |
Other operating expenses | 26,411 | 24,275 | 51,977 | 47,431 |
Depreciation | 2,074 | 2,292 | 4,329 | 4,580 |
Amortization of intangibles | 2,852 | 2,203 | 5,681 | 4,356 |
Interest expense | 2,385 | 2,746 | 4,914 | 5,539 |
Integration costs1 | 636 | -- | 1,627 | -- |
Retirement benefit2 | -- | -- | -- | 5,195 |
113,503 | 107,362 | 231,398 | 218,760 | |
INCOME BEFORE INCOME TAXES | 34,252 | 32,172 | 74,584 | 62,765 |
Income taxes | 13,748 | 13,107 | 29,846 | 25,602 |
NET INCOME | $ 20,504 | $ 19,065 | $ 44,738 | $ 37,163 |
Net Income Per Share | ||||
Basic | $0.57 | $0.56 | $1.25 | $1.10 |
Assuming Dilution | $0.56 | $0.52 | $1.23 | $1.03 |
Dividends Per Share | $0.1050 | $0.0925 | $0.1975 | $0.1825 |
Weighted Average Number | ||||
of Shares Outstanding: | ||||
Basic | 35,921 | 33,911 | 35,754 | 33,796 |
Assuming Dilution | 36,584 | 36,555 | 36,460 | 36,024 |
_______________________
1 Integration costs represent one-time costs including severance and other employee-related costs, facility and lease termination costs and branding 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.
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
JUNE 30, | DECEMBER 31, | |
2004 | 2003 | |
(Unaudited) | ||
ASSETS CURRENT ASSETS | ||
Cash and cash equivalents | $ 164,649 | $ 126,464 |
Receivables (net) | 238,464 | 255,251 |
Prepaid expenses and other | 14,209 | 14,603 |
TOTAL CURRENT ASSETS | 417,322 | 396,318 |
PROPERTY & EQUIPMENT (NET) | 25,898 | 25,487 |
INTANGIBLE ASSETS (NET) | 639,427 | 614,246 |
OTHER ASSETS | 16,728 | 13,176 |
$1,099,375 | $1,049,227 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
CURRENT LIABILITIES | ||
Premiums payable to insurance companies | $ 297,104 | $ 308,533 |
Accounts payable | 8,987 | 9,089 |
Accrued expenses | 29,780 | 37,434 |
Premium deposits and credits due customers | 43,443 | 34,290 |
Current portion of long-term debt | 8,992 | 9,321 |
TOTAL CURRENT LIABILITIES | 388,306 | 398,667 |
LONG-TERM DEBT | 184,676 | 174,012 |
DEFERRED INCOME TAXES | 20,946 | 19,208 |
OTHER LONG-TERM LIABILITIES | 25,741 | 23,073 |
SHAREHOLDERS’ EQUITY | ||
Common Stock (outstanding 35,911 and 35,466 | ||
shares, respectively) | 235,603 | 228,357 |
Retained earnings | 242,841 | 205,184 |
Accumulated other comprehensive income | 1,262 | 726 |
479,706 | 434,267 | |
$1,099,375 | $1,049,227 |
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. 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 | |||
6/30/04 | 6/30/03 | 6/30/04 | 6/30/03 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME | $20,504 | $19,065 | $0.56 | $0.52 |
Excluding: | ||||
Non-operating (gains) losses, | ||||
net of tax | (47) | 32 | -- | -- |
Integration costs, net of tax | 381 | -- | 0.01 | -- |
OPERATING NET INCOME | $20,838 | $19,097 | $0.57 | $0.52 |
OPERATING MARGIN | OPERATING REVENUE | |||
THREE MONTHS ENDED | THREE MONTHS ENDED | |||
6/30/04 | 6/30/03 | 6/30/04 | 6/30/03 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME / REVENUE | $20,504 | $19,065 | $147,755 | $139,534 |
Excluding: | ||||
Non-operating (gains) losses | (78) | 56 | (78) | 56 |
Amortization of intangibles | 2,852 | 2,203 | -- | -- |
Interest expense | 2,385 | 2,746 | -- | -- |
Integration costs | 636 | -- | -- | -- |
Income taxes | 13,748 | 13,107 | -- | -- |
OPERATING MARGIN / REVENUE | $40,047 | $37,177 | $147,677 | $139,590 |
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
GAAP MEASURES RECONCILIATION
(In thousands, except per share data)
NET INCOME | NET INCOME PER SHARE ASSUMING DILUTION | |||
SIX MONTHS ENDED | SIX MONTHS ENDED | |||
6/30/04 | 6/30/03 | 6/30/04 | 6/30/03 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME | $44,738 | $37,163 | $1.23 | $1.03 |
Excluding: | ||||
Non-operating (gains) losses, | ||||
net of tax | (285) | 78 | (0.01) | -- |
Integration costs, net of tax | 976 | -- | 0.03 | -- |
Retirement benefit, net of tax | -- | 3,169 | -- | 0.09 |
OPERATING NET INCOME | $45,429 | $40,410 | $1.25 | $1.12 |
OPERATING MARGIN | OPERATING REVENUE | |||
SIX MONTHS ENDED | SIX MONTHS ENDED | |||
6/30/04 | 6/30/03 | 6/30/04 | 6/30/03 | |
(Unaudited) | (Unaudited) | |||
GAAP NET INCOME / REVENUE | $44,738 | $37,163 | $305,982 | $281,525 |
Excluding: | ||||
Non-operating (gains) losses | (475) | 131 | (475) | 131 |
Amortization of intangibles | 5,681 | 4,356 | -- | -- |
Interest expense | 4,914 | 5,539 | -- | -- |
Integration costs | 1,627 | -- | -- | -- |
Retirement benefit | -- | 5,195 | -- | -- |
Income taxes | 29,846 | 25,602 | -- | -- |
OPERATING MARGIN / REVENUE | $86,331 | $77,986 | $305,507 | $281,656 |
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