(front cover)
HILB, ROGAL
AND HAMILTON COMPANY
(HRH INSURANCE logo)
1995 ANNUAL REPORT
Financial HIghlights
HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES
(in thousands of dollars, except per share amounts)
(Bar graphs relecting the following financial information follow)
1995 1994 1993 1992 1991
Total Revenues $148,147 $140,809 $141,656 $140,461 $142,270
Net Income 11,829 11,392 8,293 8,591 4,736
Net Income Per
Common Share .82 .77 .57 .65 .36
Dividends Per
Common Share .57 .50 .45 .41 .37
OUR BUSINESS
Hilb, Rogal and Hamilton Company serves as an intermediary
between its clients, who are traditionally the mid-size Main Street
businesses of the nation, and insurance companies which underwrite
clients' risks. In this way, Hilb, Rogal and Hamilton Company agencies in
56 locations in North America assist clients in transferring their risks
in areas such as property and casualty, employee benefits and other areas
of specialized risk exposure. The Company's agency system, which extends
to 16 states and five Canadian provinces, is among the leaders nationally
and worldwide in its industry. Revenues are derived primarily from
commissions received from insurance companies with whom client risk is
placed. Support services related to risk transfer transactions are an
additional revenue source. The Company expands its business by developing
new clients, providing additional services to current clients and through
acquisitions.
TO OUR SHAREHOLDERS
(This section includes two photographs of Robert H. Hilb, Chairman and Chief
Executive Officer, and Andrew L. Rogal, President and Chief Operating Officer
and a map showing the agency locations.)
Management is pleased to report that 1995 Company performance improved
over the last year. We also want to bring you up to date on developments
in the evolution of the Company designed to continue steady progress in
building Company strength and value for its shareholders.
Anyone watching our industry knows that any measure of progress
has been hard earned during the first half of the 1990s. Softness and
uncertainty in pricing, with the intense competition that rages in such a
market, is continuing into a tenth year - this in an industry that
historically experienced regular price adjustments every four to five
years.
Overlaid on these insurance industry dynamics is the larger condition
affecting American business so far this decade - merging, consolidating,
downsizing. This amounts to a broad shrinkage of many businesses,
whether from being melded into another or trimmed to the bone in order to
compete.
Many of these affected businesses lie within our principal client
profile of mid-size, Main Street enterprises. In the best of times,
keeping business you have against strong competitors, making it
profitable, while doing the development work to expand services and to
perfect service delivery, is a fair test of talent and commitment. In
our business today, these challenges have never been more formidable.
Yet HRH grows.
Your Company has basic strength for steady growth, residing in the
people and their commitment to enduring value, to the goal of being a
great Company. In 1995, management took the next steps to support HRH
people with increasingly efficient operating systems and management
structure, with new corporate resources to accelerate bringing to market
an expanding range of services and, through 14 acquisitions, more
business in areas of high growth potential.
We consider it a solid achievement that the people of Hilb, Rogal and
Hamilton Company in 1995 reached new levels of revenues and earnings.
They produced, they controlled costs and they adapted to evolutionary
refinements with solid effort and performance.
FINANCIAL ACCOMPLISHMENTS
These are highlights of what was achieved: total 1995 revenues of
$148.1 million were up 5.2 percent over the prior year; earnings per
share, at $.82, were 6.5 percent above 1994; and Company directors, as
is their policy, once again raised the shareholder dividend - it stood
at an annual level of $.60 per share for the first quarter of 1996.
Total dividends paid in 1995 were $.57. The dividend growth pattern is
an indicator of shareholder value increasing year-to-year.
We have kept you informed through the year of our program of
purchasing Company stock. More than 1.6 million shares have been
repurchased since our initial authorization in November 1990 and the
program is continuing. We are currently authorized to buy back up to 2.9
million total HRH shares, less those shares previously purchased, as
long as we believe we are being undervalued. We regard our Company as an
excellent investment. More than once, we have heard HRH characterized as
rock-solid financially, the result of careful, conservative financial
management and performance improvements year-to-year. We urge you to
examine details of our balance sheet, cash flow and other indicators to
see why we invest in our own Company.
We also advised you early in the year that we had completed the
divestiture, according to plan, of agencies which were not meeting
performance goals. Following this, we quickened the pace of our
acquisition
efforts over that of the previous two years. Fourteen acquisitions were
successfully completed in 1995, all but two merged into existing offices
where the opportunity seemed excellent.
HRH ENTERS CANADA
One notable exception to the pattern of expanding existing growth
agencies through acquisitions was our purchase of Hayhurst Elias Dudek,
Inc., effective July 1, 1995. It was a favorable acquisition for a
number of reasons. First, the agency principal, Art Elias, continues to
run the business. Under his direction, the agency has had success in
developing specialized approaches to serving selected types of clients.
In addition, although based in Winnipeg, the agency operates across
Canada, with other offices in Vancouver, Calgary, Edmonton, Toronto and
Montreal. And, unlike our U.S. market, the Canadian market is not
suffering the same degree of softness and uncertainty in pricing which
drives our domestic competition. We believe that our new Canadian team
will make important contributions to the Company.
Our expanded North American agency network of 56 offices took its
next step in the maturing process in 1995, with the beginning of our
regionalization of operations. Creation of regional operating units to
coordinate the efforts of several local offices in a geographic area will
further improve cost control. Support to agencies from corporate
resources and other agency offices in the network also will now be more
rapid and efficient.
Regional management of a sizeable mass of coordinated and
complementary resources - from offices within the region, from corporate
and from other regions - will enable each office to address a broader
spectrum of client needs and respond more quickly and expertly than each
could do on a stand-alone basis.
REGIONS FORMALIZED IN '95
Five U.S. regions were formalized in the latter months of 1995. The
acquired Canadian agency offices currently form a sixth region, with its
six locations operating virtually coast to coast north of the border.
The five U.S. regions are: Mid-Atlantic, stretching from New Jersey
south through Virginia and across Pennsylvania; Georgia/Alabama; Florida;
Texas and California. Several HRH offices remain unaligned within a
region. Some will likely become part of a regional unit as this year
proceeds. Measured by its revenues at year-end 1995, the Mid-Atlantic
region is larger than the Company was when it became a public company.
All of the current regions have good markets and strong positions,
but the nature of the business and insurance placement opportunities can
be quite different from one region to another. For this reason, and
because the insurance carriers themselves operate differently depending
on exposure characteristics in different parts of the country, HRH
regional management will have flexibility in the types of business they
pursue with their offices. Each region is expected to achieve steady
growth and increasing profitability from current and new classes of
service offered through its local offices during the remaining years of
this decade.
HRH network operations management at both the regional and
local office levels now have an added value available as the result of the
creation in 1995 of a new corporate-based Resource Group. Working hand
in hand with agencies, the Resource Group is focused on leveraging current
services offered through local offices by opening markets to HRH offices
across the entire network. In addition, this group will develop new
services that will provide additional revenue sources to help fuel
internal growth in the years ahead.
The Resource Group already is working with HRH producers in
several U.S. regions and has national service programs, including a
coordinated flood insurance program, employment practices protection and a
new program for bicycle dealers which grew out of a product originating
in a single office. Experience in the early months of support to offices
from the Resource Group shows clear evidence of enhanced revenue from the
coordinated support and development effort.
There was a senior management change late in 1995, when Timothy
J. Korman, who has been with the Company and its predecessor since
1978, was named executive vice president and chief financial officer of
Hilb, Rogal and Hamilton Company. Tim continues in his role as Company
treasurer. He was vice president and treasurer from our formative
stages in 1982 through 1989, when he was named a senior vice president of
the Company. In addition to his financial role, Tim also directs Company
automation programs.
Increased activity in acquisitions strengthened and broadened the
business base for several of our locations already well positioned in
growth markets. Two acquired agencies were merged into our northern
California operations. In the Texas region, agency operations in Houston
and Amarillo were enlarged through acquisitions and their own internal
growth. Additional capability and business accrued to the growing
Baltimore agency from two acquisitions at mid-year. Acquired agencies
were merged into HRH offices also in Denver, Virginia Beach, Phoenix,
Tampa and Birmingham. Since January 1 of this year, we have merged
agency acquisitions into our offices in Birmingham, New Haven and
Pittsburgh.
ACQUISITIONS PICK UP THEIR PACE
These merged agencies, plus the entry into Canada form another
solid year in our ongoing merger and acquisition program. Over the years,
the Company has integrated with a high rate of success 147 acquisitions or
mergers in its steady, orderly growth from a newborn in 1982 to a
prominent position today as the 10th largest agency network in North
America and 15th in size in our business worldwide.
We are now embarked on the next stage in the evolution of our
Company. Today, the drive to progressively improve the efficiency,
response time and performance of our operational structure through more
sophisticated methods and regional management direction shares the
strategic platform with our tradition of merger and acquisition
initiatives.
Company management, a careful balance of experience, practical
vision and energy, expects to continue moving HRH up in our industry in
size, accomplishment and value. The goal is realistic, cycles or no
cycles...consistent improvements in operating performance year-after-year,
top line and bottom line through the latter 1990s and into the next
century.
We have been referred to within our industry as the consolidator in
our business, the unique organization capable of drawing together separate
agency strengths and business into a system that serves clients well and
brings significant opportunities to carriers of a size and type that they
find appealing. This role of the consolidator is essential during this
soft industry period especially, and it is one we are increasingly
well-suited to fill. We are making careful, measured responses to what
is happening within our industry as our insurance carriers undergo
significant change and as our client organizations seek better ways to
manage and reduce their risk. The evolving HRH agency servicing system
is tailored to fit our clients today, and is developing new solutions to
meet growing client requirements to assure the fit in future years.
IMPROVING CLIENT SERVICES
Regionalization will aid in managing the dynamic process of
delivering services, transporting more and more proven products and
services quickly across our network to clients. Our Resource Group is an
ally in developing a wider range of services, and new services, to help
clients do more than simply transfer risk - services that improve loss
control and claims administration.
Over the first half of the 1990s, the Company solidified its
reputation for its expertise in consolidating top caliber agencies into a
national insurance agency system. In the remaining years of this decade,
the Company expects to be as highly regarded for its operational
excellence and expanding service programs. We expect to be among the top
performing insurance agency systems. We will do it as we have done in
the past, with care, steered by practical vision and sound management.
Hilb, Rogal and Hamilton Company is taking measured steps as we
pursue the goal of being a great company. This means having great
expectations and making them come to pass through orderly gains in a
disciplined organization with the tools to succeed. With your continued
support we made significant progress in 1995 and expect more of the same
this year and in years to come.
/s/Robert H. Hilb
Robert H. Hilb
Chairman and Chief Executive Officer
/s/Andrew L. Rogal
Andrew L. Rogal
President and Chief Operating Officer
(Page 7 of the annual report is a pictorial reflection of the regions of the
Company, including the Golden Gate Bridge (California region), cowboys roping
a horse (Texas region), the Lincoln Memorial (Midatlantic region), a arial
view of Miami Beach (Florida region), magnolia blossoms (Georgia/Alabama region)
and Niagara Falls (Canadian region).
CONSOLIDATED BALANCE SHEET
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
December 31
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including
$10,104,000 and $9,594,000, respectively,
of restricted funds $ 17,020,706 $ 12,615,132
Investments 11,154,673 23,131,550
Receivables:
Premiums, less allowance for doubtful
accounts of $1,772,000 and $2,348,000,
respectively 41,707,706 39,261,731
Other 4,794,396 6,635,856
------------ ------------
46,502,102 45,897,587
Prepaid expenses and other current assets 3,937,964 3,262,743
------------ ------------
TOTAL CURRENT ASSETS 78,615,445 84,907,012
INVESTMENTS 4,300,000 9,470,000
PROPERTY AND EQUIPMENT, NET 13,700,260 12,426,949
INTANGIBLE ASSETS
Expiration rights 68,345,441 57,742,996
Goodwill 24,432,875 16,480,408
Noncompetition agreements 9,888,798 9,603,414
------------ -------------
102,667,114 83,826,818
Less accumulated amortization 41,812,787 35,097,409
------------ ------------
60,854,327 48,729,409
OTHER ASSETS 5,778,932 3,361,425
------------ ------------
$163,248,964 $158,894,795
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 69,481,803 $ 65,361,846
Accounts payable and accrued expenses 8,040,022 8,438,709
Premium deposits and credits due customers 8,062,626 8,847,097
Current portion of long-term debt 1,755,238 4,499,378
------------ ------------
TOTAL CURRENT LIABILITIES 87,339,689 87,147,030
LONG-TERM DEBT 11,749,848 3,173,405
OTHER LONG-TERM LIABILITIES 7,513,537 2,144,204
SHAREHOLDERS' EQUITY
Common Stock, no par value;
authorized 50,000,000 shares;
outstanding 13,706,764 and
14,679,464 shares, respectively 29,903,900 43,426,295
Retained earnings 26,741,990 23,003,861
------------ ------------
56,645,890 66,430,156
------------ ------------
$163,248,964 $158,894,795
============ ============
See notes to consolidated financial statements.
STATEMENT OF CONSOLIDATED INCOME
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31
1995 1994 1993
Revenues
Commissions and fees $141,555,188 $132,914,113 $137,662,048
Investment income 2,077,462 1,899,803 1,558,982
Other 4,514,388 5,995,698 2,435,150
------------ ------------ ------------
148,147,038 140,809,614 141,656,180
Operating expenses
Compensation and employee
benefits 82,760,664 78,310,999 82,469,714
Other operating expenses 38,264,085 35,975,715 37,773,552
Amortization of intangibles 6,965,947 6,436,119 6,581,550
Interest expense 559,654 812,216 1,270,268
Pooling-of-interests expense - 487,986 503,207
------------ ------------ ------------
128,550,350 122,023,035 128,598,291
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 19,596,688 18,786,579 13,057,889
Income Taxes 7,767,778 7,394,296 4,764,496
------------ ------------ ------------
NET INCOME $ 11,828,910 $ 11,392,283 $ 8,293,393
============ ============ ============
NET INCOME PER COMMON SHARE $0.82 $0.77 $0.57
===== ===== =====
Weighted Average Number of Shares
of Common Stock Outstanding 14,470,407 14,778,304 14,456,055
========== ========== ==========
See notes to consolidated financial statements.
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Unearned
Common Retained Compensation
Stock Earnings ESOP
Balance at January 1, 1993 $22,358,063 $16,876,641 $(1,082,700)
Issuance of 1,642,494 shares of Common
Stock................................. 24,006,654
Purchase of 61,300 shares of Common
Stock................................. (822,266)
Payment of dividends ($.45 per share)... (6,310,225)
Repayment of notes receivable on stock
purchases of a pooled entity, secured
by underlying Common Stock............ 69,322
Transactions related to pooled companies (234,953) (79,636)
Net income.............................. 8,293,393
Repayment of liability by ESOP.......... 1,082,700
----------- ----------- ----------
Balance at December 31, 1993 45,376,820 18,780,173 -
Issuance of 15,450 shares of Common
Stock................................. 169,050
Purchase of 172,360 shares of Common
Stock................................. (2,076,406)
Payment of dividends ($.50 per share)... (7,224,935)
Transactions related to pooled companies (43,169) 56,340
Net income.............................. 11,392,283
----------- ----------- -----------
Balance at December 31, 1994 43,426,295 23,003,861 -
Issuance of 318,326 shares of Common
Stock................................. 3,817,746
Purchase of 1,336,820 shares of Common
Stock................................. (17,389,044)
Payment of dividends ($.57 per share)... (8,209,877)
Other 48,903 119,096
Net income.............................. 11,828,910
----------- ----------- -----------
Balance at December 31, 1995 $29,903,900 $26,741,990 $ -
=========== =========== ===========
See notes to consolidated financial statements.
STATEMENT OF CONSOLIDATED CASH FLOWS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31
1995 1994 1993
OPERATING ACTIVITIES
Net income $ 11,828,910 $ 11,392,283 $ 8,293,393
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,790,772 2,849,831 3,107,872
Amortization of intangible assets 6,965,947 6,436,119 6,581,550
Provision for losses on receivables 1,500,231 1,238,500 1,335,085
Provision for deferred income taxes 44,119 (148,756) (505,731)
Gain on sale of assets (3,337,219) (5,047,488) (1,768,901)
------------ ------------ ------------
19,792,760 16,720,489 17,043,268
Changes in operating assets and liabilities
net of effects from insurance agency
acquisitions and dispositions:
Decrease in accounts receivable 513,907 976,828 2,103,592
(Increase) decrease in prepaid expenses (768,431) 546,613 326,951
Decrease in premiums payable to
insurance companies (1,156,960) (506,723) (6,930,184)
Increase (decrease) in premium deposits
and credits due customers (784,471) 743,579 (2,082,030)
Increase (decrease) in accounts payable
and accrued expenses (1,639,586) 551,458 (83,615)
Other operating activities 230,569 624,242 559,323
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,187,788 19,656,486 10,937,305
INVESTING ACTIVITIES
Purchase of held-to-maturity investments (7,399,402) (25,488,282) (39,093,059)
Proceeds from maturities of held-to-maturity
investments 24,546,279 21,238,187 24,315,989
Purchase of property and equipment (4,007,468) (2,179,808) (3,093,744)
Purchase of insurance agencies, net of
cash acquired (6,540,948) (9,740,808) (5,396,028)
Proceeds from sale of assets 3,515,102 7,943,937 1,173,036
Other investing activities 216,173 114,153 749,118
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 10,329,736 (8,112,621) (21,344,688)
FINANCING ACTIVITIES
Proceeds from long-term debt 32,522,950 16,000,000 4,279,024
Principal payments on long-term debt (29,194,326) (20,205,709) (12,840,356)
Proceeds from issuance of Common Stock 7,650 19,050 22,391,654
Repurchase of Common Stock (17,389,044) (1,950,661) (822,266)
Dividends (8,209,877) (7,224,935) (6,310,225)
Other financing activities 150,697 13,171 (255,267)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,111,950) (13,349,084) 6,442,564
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,405,574 (1,805,219) (3,964,819)
Cash and cash equivalents at beginning of year 12,615,132 14,420,351 18,385,170
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,020,706 $ 12,615,132 $ 14,420,351
============ ============ ============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Hilb, Rogal and Hamilton Company (the Company), a Virginia
corporation, operates as a network of insurance agencies with offices
located in 16 states and five Canadian provinces. Its principal activity
is the performance of retail insurance services which involves placing
property and casualty and life and health insurance with insurers on
behalf of commercial clients in a variety of industries and individual
clients.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying financial statements
include the accounts of the Company and its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenues: Commission income as well as the related premiums
receivable from customers and premiums payable to insurance companies are
recorded as of the effective date of insurance coverage or the billing
date, whichever is later. Premium adjustments, including policy
cancellations, are recorded as they occur. Contingent commissions and
commissions on premiums billed and collected directly by insurance
companies are recorded as revenue when received. Fees for services
rendered and override commissions are recorded as earned. These
policies are in accordance with predominant industry practice.
Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less at the date of
acquisition to be cash equivalents. The carrying amounts reported on the
balance sheet approximate the fair values.
Investments: In May 1993, the Financial Accounting Standards Board
(the FASB) issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company adopted the provisions of the new standard for investments held as
of or acquired after January 1, 1994. The adoption of this statement
did not have a material impact on the Company's financial position or
results of operations.
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation at
each balance sheet date. Debt securities are classified as held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are stated at
amortized cost, which is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included
in investment income. Interest and dividends are included in investment
income. Realized gains and losses, and declines in value judged to be
other than temporary are included in investment income.
Marketable debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are
carried at fair value. Amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged
to be other than temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities
classified as available-for-sale are included in investment income.
Property and Equipment: Property and equipment are stated on the
basis of cost. Depreciation is computed by the straight-line method over
estimated useful lives (30 to 33 years for buildings, 3 to 7 years for
equipment). Leasehold improvements are generally amortized using a
straight-line method over the term of the related lease.
Intangible Assets: Intangible assets arising from acquisitions
accounted for as purchases principally represent expiration rights, the
excess of costs over the fair value of net assets acquired and
noncompetition agreements. The cost of such assets is being amortized
principally on a straight-line basis over periods ranging up to 15 years
for expiration rights, 15 to 40 years for the excess of cost over the
fair value of net assets acquired and the terms of the related
contracts for noncompetition agreements, generally 3 to 20 years.
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," effective for fiscal years
beginning after December 15, 1995. Adoption of this statement is not
expected to have a material impact on the Company's financial position
or results of operations.
Income Taxes: The Company (except for pooled entities prior to
acquisition and 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.
Net Income Per Common Share: Net income per Common Share is based
on the weighted average number of shares of Common Stock outstanding
during each year.
NOTE B--INVESTMENTS
The following is a summary of held-to-maturity and available-for-sale
investments included in current and long-term assets on the consolidated
balance sheet:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
Held-to-Maturity Investments
December 31, 1995
Obligations of U.S.
government agencies $ 107,000 $ 1,000 $ 108,000
Obligations of states and
political subdivisions 10,570,000 97,000 $2,000 10,665,000
Certificates of deposit 864,000 864,000
----------- -------- ------ -----------
$11,541,000 $ 98,000 $2,000 $11,637,000
=========== ======== ====== ===========
Available-for-Sale Investments
December 31, 1995
Obligations of states and
political subdivisions $ 3,914,000 $ - $ - $ 3,914,000
=========== ======== ====== ===========
Held-to-Maturity Investments
December 31, 1994
Obligations of U.S.
government agencies $ 500,000 $ 41,000 $ 459,000
Obligations of states and
political subdivisions 31,149,000 $187,000 218,000 31,118,000
Certificates of deposit 953,000 953,000
----------- -------- -------- -----------
$32,602,000 $187,000 $259,000 $32,530,000
=========== ======== ======== ===========
During December 1995, the Company reclassified certain investments
aggregating $3,914,000 from held-to-maturity to available-for-sale,
pursuant to the FASB's one time "holiday" allowing such reclassification
without calling into question the Company's intent to hold other debt
securities to maturity in the future.
The amortized cost and fair value of held-to-maturity and available-
for-sale investments at December 31, 1995, by contractual maturity, are
shown below. Actual maturities may differ from contractual maturities
because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
Cost Fair Value
Held-to-Maturity Investments
Due in one year $ 7,241,000 $ 7,263,000
Due after one year through five years 2,950,000 2,981,000
Due after five years through ten years 1,350,000 1,393,000
----------- -----------
$11,541,000 $11,637,000
=========== ===========
Available-for-Sale Investments
Due in one year $ 3,914,000 $ 3,914,000
=========== ===========
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1995 1994
Furniture and equipment $24,454,000 $22,462,000
Buildings and land 7,565,000 7,421,000
Leasehold improvements 1,641,000 1,449,000
----------- -----------
33,660,000 31,332,000
Less accumulated depreciation
and amortization 19,960,000 18,905,000
----------- -----------
$13,700,000 $12,427,000
=========== ===========
NOTE D--LONG-TERM DEBT AND OVERRIDE COMMISSION AGREEMENTS
1995 1994
Notes payable to banks, interest currently
at 6.14% $ 8,500,000
Notes payable to insurance companies including
interest at 10% per annum, to February 1995 $ 2,288,000
Installment notes payable incurred in
acquisitions of insurance agencies,
3.6% to 12%, due in various
installments, to 1999 2,637,000 2,227,000
Mortgage notes payable, currently 9.4%, due
in installments, to 2000 2,180,000 2,867,000
Installment notes payable, 8% to 9.75%, due in
various installments, to 1999 188,000 290,000
----------- -----------
13,505,000 7,672,000
Less current portion 1,755,000 4,499,000
----------- ----------
$11,750,000 $ 3,173,000
=========== ===========
Maturities of long-term debt for the four years ending after
December 31, 1996 are $1,045,000 in 1997; $96,000 in 1998; $44,000 in
1999; and $ 2,065,000 in 2000.
Interest paid was $733,000, $1,014,000 and $1,524,000 in 1995, 1994
and 1993, respectively.
At December 31, 1995, land and buildings having a depreciated cost of
$2,452,000 were pledged as collateral for the mortgage notes payable.
The Company entered into a credit agreement with two banks that
allows for borrowings of up to $20,000,000 under loans due through 2001,
which bear interest at variable rates. At December 31, 1995, $8,500,000
was borrowed under this agreement. This credit agreement contains, among
other provisions, requirements for maintaining a minimum level of
shareholders' equity ($42,500,000 at December 31, 1995) and certain
financial ratios.
The Company had entered into Override Commission Agreements with its
insurance company lenders which provided additional commission income
through 1994, up to a maximum of $2,517,000 if specified levels of
premiums were placed with the respective lenders or their affiliated
insurance companies. Additional commission income earned under these
agreements amounted to $1,225,000 in 1994 and $1,033,000 in 1993.
NOTE E--RETIREMENT PLANS
The Hilb, Rogal and Hamilton Company Profit Sharing Savings Plan
(the Profit Sharing Plan) covers substantially all employees of the
Company and its subsidiaries. The Profit Sharing Plan, which may be
amended or terminated by the Company at any time, provides that the
Company shall contribute to a trust fund such amounts as the Board of
Directors shall determine subject to certain earnings restrictions as
defined in the Profit Sharing Plan.
Prior to merger with the Company, certain of the merged companies
had a separate profit sharing, ESOP or benefit plan. These plans were
terminated or frozen at the time of merger with the Company.
The total expense under these plans for 1995, 1994 and 1993 was
approximately $2,075,000, $2,812,000 and $2,208,000, respectively.
Effective December 16, 1994, the Company adopted the Supplemental
Executive Retirement Plan (the SERP), which is a defined benefit plan
under which the Company will pay supplemental pension benefits to key
executives in addition to amounts received under the Profit Sharing Plan.
Such benefits will be paid from Company assets. The following table sets
forth the SERP's funded status and amounts recognized in the Company's
consolidated balance sheet:
1995 1994
Actuarial present value of:
Vested benefits $(2,054,000) $(1,527,000)
Nonvested benefits (210,000) (192,000)
----------- -----------
Accumulated benefit obligation (2,264,000) (1,719,000)
Effect of anticipated future compensation
levels (710,000) (470,000)
----------- -----------
Projected benefit obligation (2,974,000) (2,189,000)
Plan assets at fair value - -
----------- -----------
Excess of projected benefit obligation
over assets (2,974,000) (2,189,000)
Unrecognized prior service costs 2,047,000 2,172,000
Unrecognized net loss 450,000 -
----------- -----------
Accrued SERP expense (477,000) (17,000)
Adjustment to recognize minimum liability (1,786,000) (1,702,000)
----------- -----------
Pension liability recognized in consolidated
balance sheet $(2,263,000) $(1,719,000)
=========== ===========
The expense for the SERP includes the following components:
1995 1994
Service cost $159,000 $ 6,000
Interest cost 175,000 7,000
Amortization of prior service cost 126,000 4,000
-------- -------
Net periodic postretirement benefit cost $460,000 $17,000
======== =======
Significant assumptions used in determining obligations and the
related expense for the SERP include a weighted-average discount rate of
7.5% and 8.0% at December 31, 1995 and 1994, respectively, and an assumed
rate of increase in future compensation of 4% at both dates.
NOTE F--OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors postretirement benefit plans that provide
medical and life insurance benefits to retirees. Employees who retire
after age 55 with 10 years of service are eligible to participate. The
plans are contributory for substantially all participants, with retiree
contributions adjusted annually and the health care plan contains other
cost sharing features such as deductibles and coinsurance. The
accounting for the health care plan anticipates future cost sharing
changes to the written plan that are consistent with the Company's
expressed intent to increase retiree contributions annually in
accordance with increases in health care costs. The Company's policy is
to fund the cost of these benefits when actual claims are incurred.
The following table sets forth the plans' combined funded status
reconciled with the amount shown in the Company's consolidated balance
sheet:
1995 1994
Accumulated postretirement benefit obligation:
Retirees $(1,419,000) $(1,391,000)
Active plan participants -- --
----------- -----------
Total (1,419,000) (1,391,000)
Plan assets at fair value -- --
----------- -----------
Accumulated postretirement benefit obligation in
excess of plan assets (1,419,000) (1,391,000)
Unrecognized net (gain) loss (512,000) (424,000)
Unrecognized transition benefit cost 1,264,000 1,379,000
----------- -----------
Accrued postretirement benefit liability $ (667,000) $ (436,000)
=========== ===========
Net periodic postretirement benefit cost includes the following
components:
1995 1994 1993
Interest cost $104,000 $103,000 $125,000
Amortization of transition
obligation over 14 years 115,000 115,000 115,000
Amortization of prior gains (29,000) (6,000)
-------- -------- --------
Net periodic postretirement
benefit cost $190,000 $212,000 $240,000
======== ======== ========
For measurement purposes, a 9.1% and a 10.2% annual rate of
increase in the per capita cost of covered health care benefits was
assumed for 1996 and 1995, respectively; the rate was assumed to decrease
gradually to 6.15% in 2021 and remain at that level thereafter. The
health care cost trend rate assumption has an effect on the amounts.
For example, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated
postretirement benefit obligation for the medical plan as of December 31,
1995 and 1994 by $130,000 and the net periodic postretirement benefit
cost for 1995 by $10,000.
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and 8.0% at
December 31, 1995 and 1994, respectively.
NOTE G--INCOME TAXES
The components of income taxes shown in the statement of consolidated
income are as follows:
1995 1994 1993
Current
Federal $6,232,000 $6,176,000 $4,348,000
State 1,268,000 1,367,000 922,000
Foreign 224,000 -- --
---------- ---------- ----------
7,724,000 7,543,000 5,270,000
Deferred
Federal 76,000 (125,000) (428,000)
State 14,000 (24,000) (78,000)
Foreign (46,000) -- --
--------- ---------- ----------
44,000 (149,000) (506,000)
--------- ---------- ----------
$7,768,000 $7,394,000 $4,764,000
========== ========== ==========
Included in prepaid expenses and other current assets and other
long-term liabilities on the consolidated balance sheet are deferred
income taxes of $1,180,000 and $3,535,000, respectively, at December 31,
1995 and $1,529,000 and $623,000, respectively, at December 31, 1994.
The effective income tax rate varied from the statutory federal
income tax rate as follows:
1995 1994 1993
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax exempt investment income (2.1) (2.4) (2.2)
State income taxes, net of federal
tax benefit 4.2 4.8 4.4
Other 2.5 2.0 (0.7)
----- ----- -----
Effective income tax rate 39.6% 39.4% 36.5%
===== ===== =====
Income taxes paid were $8,428,000, $7,074,000 and $5,478,000 in
1995, 1994 and 1993, respectively.
The Internal Revenue Service has examined the Company's federal
income tax return for the years ended December 31, 1988 through 1992, and
adjustments are being contested. In the opinion of management, the
outcome of such action is not expected to materially affect the
financial position or results of operations of the Company.
NOTE H--LEASES
The Company and its subsidiaries have noncancellable lease contracts
for office space, equipment and automobiles which expire at various dates
through the year 2002 and generally include escalation clauses for
increases in lessors' operating expenses and increased real estate taxes.
Future minimum rental payments required under such operating leases
are summarized as follows:
1996 $ 5,663,000
1997 5,126,000
1998 3,740,000
1999 2,381,000
2000 1,642,000
Thereafter 1,190,000
-----------
$19,742,000
===========
Rental expense for all operating leases amounted to $6,712,000 in
1995, $6,549,000 in 1994 and $7,270,000 in 1993. Included in rental
expense for 1995, 1994 and 1993 is approximately $435,000, $798,000 and
$1,351,000, respectively, which was paid to employees or related parties.
NOTE I--SHAREHOLDERS' EQUITY
The Company has adopted and the shareholders have approved the 1986
Incentive Stock Option Plan and the Hilb, Rogal and Hamilton Company 1989
Stock Plan, which provide for the granting of options to purchase up to an
aggregate of approximately 1,895,000 and 2,026,000 shares of Common Stock
as of December 31, 1995 and 1994, respectively. The number of shares
available for grant may increase or decrease with the respective changes
in the number of shares of Common Stock outstanding. Stock option
activity under the plans was as follows:
Shares Option Price
Outstanding at January 1,1993 339,875 $ 6.00 - $18.20
Granted 593,000 12.13 - 15.75
Exercised 14,875 6.00 - 12.75
Expired 31,600 10.73 - 14.75
-------
Outstanding at December 31, 1993 886,400 6.00 - 18.20
Granted 38,000 11.88 - 12.13
Exercised 2,950 6.00 - 12.75
Expired 51,875 10.73 - 18.20
-------
Outstanding at December 31, 1994 869,575 6.00 - 18.20
Granted 25,000 11.75 - 12.50
Exercised 600 12.75
Expired 87,250 10.00 - 14.00
-------
Outstanding at December 31, 1995 806,725 $ 6.00 - $18.20
=======
These options expire at various dates through August 2005 (411,875
shares exercisable at December 31, 1995).
NOTE J--ACQUISITIONS
During 1995, the Company acquired certain assets and liabilities of
14 insurance agencies for $13,097,000 ($7,303,000 in cash, $1,974,000 in
guaranteed future payments and 317,726 shares of Common Stock) in
purchase accounting transactions. Assets acquired include expiration
rights of $9,616,000, noncompetition agreements of $385,000 and goodwill
of $7,278,000. The combined purchase price may be increased by
approximately $2,354,000 in 1996, $2,354,000 in 1997, $690,000 in 1998
and $358,000 in 1999 based upon commissions or net profits realized.
During 1994, the Company acquired all of the outstanding shares of
three insurance agencies in exchange for 543,930 shares of Common Stock
of the Company. The transactions were accounted for as pooling-of-
interests mergers.
During 1994, the Company acquired certain assets and liabilities of
four insurance agencies for $8,766,000 ($8,340,000 in cash, $276,000 in
guaranteed future payments and 12,500 shares of Common Stock) in purchase
accounting transactions. Assets acquired include expiration rights of
$7,350,000 and noncompetition agreements of $966,000. The combined
purchase price was increased by approximately $1,203,000 in 1995 and may
be increased by approximately $1,289,000 in 1996 and $75,000 in 1997 based
upon commissions or net profits realized.
During 1993, the Company acquired all of the outstanding shares of
two insurance agencies in exchange for 784,000 shares of Common Stock of
the Company. The transactions were accounted for as pooling-of-interests
mergers.
During 1993, the Company acquired certain assets and liabilities of
six insurance agencies for $6,407,000 ($3,568,000 in cash, $1,224,000 in
guaranteed future payments and 120,793 shares of Common Stock) in
purchase accounting transactions. Assets acquired include expiration
rights of $4,773,000 and noncompetition agreements of $1,210,000. The
combined purchase price was increased by approximately $665,000 in 1995
and $1,008,000 in 1994 and may be increased by $1,185,000 in 1996 based
upon commissions or net profits realized.
The above purchase acquisitions have been included in the Company's
consolidated financial statements from their respective acquisition dates.
The pro forma unaudited results of operations for the years ended
December 31, 1995 and 1994, assuming the above 1995 and 1994 purchase
acquisitions had occurred as of January 1, 1994, are as follows:
1995 1994
Revenues $155,376,000 $163,322,000
Net Income 11,612,000 11,114,000
Net Income Per Common Share $0.80 $0.74
NOTE K--SALE OF ASSETS
During 1995, 1994 and 1993, the Company sold certain insurance
accounts and other assets resulting in gains of approximately $3,337,000,
$5,044,000 and $1,735,000, 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.
NOTE L--COMMITMENTS AND CONTINGENCIES
Included in cash and cash equivalents and premium deposits and
credits due customers are approximately $1,396,000 and $927,000 of funds
held in escrow at December 31, 1995 and 1994, respectively. In addition,
premiums collected from insureds but not yet remitted to insurance
carriers are restricted as to use by laws in certain states in which the
Company operates. The amount of cash and cash equivalents so restricted
was approximately $8,708,000 and $8,667,000 at December 31, 1995 and
1994, respectively.
There are in the normal course of business various outstanding
commitments and contingent liabilities. Management does not anticipate
material losses as a result of such matters.
The Company is generally involved in routine insurance policy
related litigation. Several suits have been brought against the Company
involving settlement of various insurance matters where customers are
seeking both punitive and compensatory damages. Management, upon the
advice of counsel, is of the opinion that such suits are substantially
without merit, that valid defenses exist, and that such litigation will
not have a material effect on the consolidated financial statements.
NOTE M--SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company acquired certain assets
and liabilities of three insurance agencies in exchange for $1,811,000
($1,276,000 in cash and 40,000 shares of Common Stock). The transactions,
which are not material to the consolidated financial statements, will be
accounted for as purchase transactions.
NOTE N--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations
for the years ended December 31, 1995 and 1994:
Three Months Ended(1)
March 31 June 30 Sept. 30 Dec. 31
(in thousands, except per share amounts)
1995
Total Revenues $39,455 $36,573 $36,395 $35,724
Net Income 4,928 3,310(2) 2389 1,202
Net Income Per Common Share(3) 0.33 0.23 0.17 0.09
1994
Total Revenues $39,332 $35,186 $34,130 $32,162
Net Income 4,731(2) 2,918(2) 2,474(2) 1,269(4)
Net Income Per Common Share(3) 0.32 0.20 0.17 0.09
(1) Quarterly financial information is affected by seasonal variations.
The timing of contingent commissions, policy renewals and
acquisitions may cause revenues, expenses and net income to vary
significantly from quarter to quarter.
(2) Second quarter 1995 and first, second and third quarter 1994 net
income increased approximately $1,477,000, $677,000, $892,000 and
$1,343,000, respectively, from the sale of certain insurance accounts
and other assets.
(3) Income per share calculations for each of the quarters is based on
the weighted average number of shares outstanding for each period
and the sum of the quarters may not necessarily be equal to the full
year net income per share amount.
(4) Fourth quarter 1994 net income increased approximately $550,000 due
to reductions made to amounts expensed during the first nine months
of the year under the discretionary compensation programs.
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Hilb, Rogal and Hamilton Company
We have audited the accompanying consolidated balance sheet of Hilb,
Rogal and Hamilton Company and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1995
and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Richmond, Virginia
February 14, 1996
Selected Financial Data
HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES
Year Ended December 31
1995 1994 1993 1992 1991
(in thousands, except per share amounts)
(Unaudited)
Statement of Consolidated Income Data:(1)
Commissions and fees $141,555 $132,914 $137,662 $137,296 $136,927
Investment income and other(2) 6,592 7,895 3,994 3,165 5,343
-------- -------- -------- -------- --------
Total revenues 148,147 140,809 141,656 140,461 142,270
Compensation and employee benefits 82,761 78,311 82,470 81,940 86,510
Other operating expenses 38,264 35,976 37,774 36,209 37,453
Amortization of intangibles 6,966 6,436 6,581 6,558 6,573
Interest expense 559 812 1,270 1,821 2,576
Pooling-of-interests expense - 488 503 533 1,082
-------- -------- -------- -------- --------
Total expenses 128,550 122,023 128,598 127,061 134,194
-------- -------- -------- -------- --------
Income before income taxes 19,597 18,786 13,058 13,400 8,076
Income taxes 7,768 7,394 4,765 4,809 3,340
-------- -------- -------- -------- --------
Net Income $ 11,829 $ 11,392 $ 8,293 $ 8,591 $ 4,736
======== ======== ======== ======== ========
Net income per Common Share $ .82 $ .77 $ .57 $ .65 $ .36
======== ======== ======== ======== ========
Weighted average number of shares outstanding 14,470 14,778 14,456 13,241 13,313
Dividends paid per Common Share $ .57 $ .50 $ .45 $ .41 $ .37
Consolidated Balance Sheet Data:
Intangible assets, net $ 60,854 $ 48,729 $ 49,454 $ 47,682 $ 46,196
Total assets 163,249 158,895 160,922 151,992 153,566
Long-term debt, less current portion 11,750 3,173 7,249 15,110 19,218
Other long-term liabilities 7,514 2,144 2,889 3,120 2,796
Total shareholders' equity 56,646 66,430 64,157 38,152 34,163
(1) See Note J of Notes to Consolidated Financial Statements for information
regarding business purchase transactions which impact the comparability of
this information. In addition, during the years ended December 31, 1992 and
1991, the Company consummated 9 and 16 purchase acquisitions, respectively.
(2) During 1995, 1994, 1993, 1992 and 1991, the Company sold certain insurance
accounts and other assets resulting in gains of approximately $3,337,000,
$5,044,000, $1,735,000, $1,138,000 and $1,759,000, respectively.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The income of an insurance agency business such as the Company is
principally derived from commissions earned, which are generally
percentages of premiums placed with insurance underwriters. Premium
pricing within the insurance underwriting industry has been cyclical and
has displayed a high degree of volatility based on prevailing economic
and competitive conditions. Decreases in premium rates result directly
in revenue decreases to the Company. Since 1987, the property and
casualty insurance industry has been in a "soft market," during which the
underwriting capacity of insurance companies expanded, stimulating an
increase in competition and a decrease in premium rates and related
commissions and fees. The effect of the softness in rates on the
Company's revenues has been somewhat offset by the Company's acquisitions
and new business programs. Management cannot predict the timing or extent
of premium pricing changes due to market conditions or their effects
on the Company's operations in the future, but believes that the
"soft market" conditions will continue into 1996.
RESULTS OF OPERATIONS
Total revenues for 1995 were $148.1 million, an increase of $7.3
million or 5.2% over 1994. For 1994, total revenues were $140.8 million,
a decrease of $0.8 million or 0.6% from 1993. Commissions and fees for
1995 were $141.6 million, or 6.5% higher than 1994. Approximately $14.9
million of commissions and fees were derived from purchase acquisitions
of new insurance agencies. These increases were offset by decreases of
$6.4 million from the sale of certain offices and accounts in 1995 and
1994 and reductions in override commissions of $1.2 million.
Commissions and fees for 1994 were $132.9 million, or 3.4% lower
than 1993. Approximately $6.3 million of commissions and fees were
derived from purchase acquisitions of new insurance agencies. These
increases were offset by decreases of $8.4 million from the sale
of certain offices and insurance accounts in 1994 and 1993 and the
impact of the soft market conditions, which have resulted in
decreasing premium rates and increased competition.
Investment income increased by $0.2 million in 1995 and $0.3 million
in 1994 due to increases in interest rates, offset in 1995 by a decrease
in average invested assets due primarily to the use of available
funds for the Company's acquisition program and repurchase of shares of
Common Stock of the Company.
Other revenues decreased by $1.5 million in 1995 and increased by
$3.6 million in 1994. These amounts include gains of $3.3 million, $5.0
million and $1.7 million in 1995, 1994 and 1993, respectively,
from the sale of certain offices, insurance accounts and other
assets.
Total operating expenses for 1995 were $128.6 million, an increase
of $6.5 million or 5.3% from 1994. For 1994, total operating expenses
were $122.0 million, a decrease of $6.6 million or 5.1% from 1993.
Compensation and employee benefits costs for 1995 were $82.8 million,
an increase of $4.4 million or 5.7% over 1994. Increases include
approximately $8.4 million related to purchase acquisitions offset
by decreases of $3.9 million related to offices sold in 1995 and
1994. Compensation and employee benefits costs for 1994 were $78.3
million, a decrease of $4.2 million or 5.0% from 1993. Decreases
include approximately $5.4 million related to offices sold in 1994
and 1993 offset by the impact of purchase acquisitions.
Other operating expenses for 1995 were $38.3 million, or 6.4% higher
than 1994. Increases relate primarily to purchase acquisitions
offset in part by the sales of certain offices in 1995 and 1994.
Other operating expenses for 1994 were $36.0 million, or 4.8% less
than 1993. Decreases include approximately $2.4 million related
to offices sold in 1994 and 1993 offset by the impact of purchase
acquisitions.
Amortization expense primarily reflects the amortization of
expiration rights, an intangible asset acquired in the purchase of
insurance agencies. Amortization expense increased by $530,000 or 8.2% in
1995 and decreased by $145,000 or 2.2% in 1994 which is
attributable to purchase acquisitions consummated during 1995,
1994 and 1993 offset by decreases from amounts which became fully
amortized or were sold in those years.
The Company consummated three business combinations during 1994 and
two during 1993, which were accounted for under the pooling-of-interests
method of accounting. One-time costs incurred with each transaction,
principally legal, accounting and consulting fees, along with insurance
for errors and omissions coverage, are expensed when incurred. These
costs approximated $0.5 million in each of 1994 and 1993.
The effective tax rates for the Company were 39.6% in 1995, 39.4% in
1994 and 36.5% in 1993. An analysis of the effective income tax
rates is presented in "Note G-Income Taxes" of Notes to
Consolidated Financial Statements.
Over the last three years, inflationary pressure has been
relatively modest and did not have a significant effect on the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totalled $16.2 million, $19.7
million and $10.9 million for the years ended December 31, 1995, 1994 and
1993, 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. Real
properties acquired for offices of the Company are generally financed by
long-term mortgages. Cash expenditures for the acquisition of property
and equipment were $4.0 million, $2.2 million and $3.1 million in the
years ended December 31, 1995, 1994 and 1993, respectively. The timing
and extent of the purchase of investments is dependent upon cash needs
and yields on alternate investments and cash equivalents. In addition,
during 1995, total investments decreased by $17.1 million as the Company
utilized these funds for the repurchase of Common Stock of the
Company. Cash expenditures for the purchase of insurance agencies
accounted for under the purchase method of accounting amounted to
$6.5 million, $9.7 million and $5.4 million in the years ended
December 31, 1995, 1994 and 1993, respectively. Cash expenditures
for such insurance agency acquisitions have been funded primarily
through operations and from the proceeds of the sale of 1,504,000
shares of Common Stock offered through a Form S-3 Registration
Statement effective in March 1993. 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
certain offices, insurance accounts and other assets totalled $3.5
million, $7.9 million and $1.2 million in the years ended December
31, 1995, 1994 and 1993, respectively. The Company did not have
any material capital expenditure commitments as of December 31,
1995.
Financing activities utilized cash of $22.1 million and $13.3
million for the years ended December 31, 1995 and 1994, respectively, and
provided cash of $6.4 million for the year ended December 31, 1993
as the Company generated $22.2 million from the aforementioned
stock offering in 1993, repaid its debt, including debt of pooled
entities and annually increased its dividend rate. In addition,
during 1995, 1994 and 1993, the Company repurchased 1,336,820,
172,360 and 61,300, respectively, shares of its Common Stock under
a stock repurchase program. The Company is currently authorized
to purchase an additional 1,225,000 shares and anticipates that
it will continue to repurchase shares in 1996. The Company
anticipates the continuance of its dividend policy. The Company
has a bank credit agreement for borrowings of up to $20.0 million
under loans due through 2001. At December 31, 1995, there were
loans of $8.5 million outstanding under the agreement.
The Company had a current ratio (current assets to current
liabilities) of 0.90 to 1.00 as of December 31, 1995. Shareholders'
equity of $56.6 million at December 31, 1995 is decreased from $66.4
million at December 31, 1994 and the debt to equity ratio of 0.21 to 1.00
at December 31, 1995, is increased from the last year-end ratio
of 0.05 to 1.00 due to the aforementioned purchase of Common Stock
of the Company and borrowings of $8.5 million under the bank
agreement used for insurance agency acquisitions and the
repurchase of Common Stock.
The Company believes that cash generated from operations, together
with the proceeds from borrowings, will provide sufficient funds to meet
the Company's short and long-term funding needs.
Market Price of Common Stock
The Company's Common Stock has been publicly traded since July 15,
1987. Prior to June 19, 1992, the Common Stock was traded on the
NASDAQ National Market System under the symbol "HRHC." Since that
date, it has been traded on the New York Stock Exchange under the
symbol "HRH." As of December 31, 1995, there were 763 holders of
record of the Company's Common Stock. The transfer agent and
registrar for the Common Stock is Chemical Mellon Shareholder
Services, L.L.C., Ridgefield Park, New Jersey. High and low stock
prices and dividends per share for the indicated quarters were:
Cash
Sales Price Dividends
Quarter Ended High Low Declared
March 31, 1994 $12.88 $11.13 $.12
June 30, 1994 13.38 11.25 .12
September 30, 1994 12.63 11.50 .12
December 31, 1994 12.63 11.00 .14
March 31, 1995 12.13 10.75 .14
June 30, 1995 13.13 10.50 .14
September 30, 1995 13.50 12.00 .14
December 31, 1995 14.38 13.25 .15
Board of Directors
Robert H. Hilb (1) (4)
Chairman and Chief Executive Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Andrew L. Rogal (1)
President and Chief Operating Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Theodore L. Chandler, Jr. (1) (2) (3)
Attorney
Williams, Mullen, Christian & Dobbins
Richmond, Virginia
J.S.M. French (2) (3) (4)
President
Dunn Investment Company
Birmingham, Alabama
Thomas H. O'Brien (2) (3) (4)
Chairman and Chief Executive Officer
PNC Bank Corp.
Pittsburgh, Pennsylvania
Robert S. Ukrop (1) (4)
President and Chief Operating Officer
Ukrop's Super Markets, Inc.
Richmond, Virginia
Philip J. Faccenda (2)
Vice President and General Counsel, Emeritus
University of Notre Dame
Notre Dame, Indiana
Norwood H. Davis, Jr. (3)
Chairman of the Board and
Chief Executive Officer
Trigon Blue Cross Blue Shield
Richmond, Virginia
(1) Executive Committee Member
(2) Compensation Committee Member
(3) Audit Committee Member
(4) Nominating Committee Member
Officers
Robert H. Hilb
Chairman and
Chief Executive Officer
Andrew L. Rogal
President and
Chief Operating Officer
Timothy J. Korman
Executive Vice President, Chief
Financial Officer and Treasurer
John C. Adams, Jr.
Executive Vice President
Dianne F. Fox
Senior Vice President -
Administration and Secretary
Ronald J. Schexnaydre
Senior Vice President
Carolyn Jones
Vice President and Controller
Walter L. Smith
Vice President, General
Counsel and Assistant Secretary
Vincent P. Howley
Vice President - Audit
Ann B. Davis
Vice President - Human
Resources
Janice G. Pouzar
Assistant Vice President -
Retirement Plans
Robert W. Blanton, Jr.
Assistant Vice President
Valerie C. Elwood
Assistant Vice President
Agency Locations
UNITED STATES
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Alabama
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Birmingham
Mobile
Arizona
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Flagstaff
Mesa
Phoenix
Tucson
California
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Bakersfield
Dinuba
Fresno
Orange County
Palm Desert
Sacramento
San Rafael
Santa Rosa
Truckee
Vallejo
Colorado
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Denver
Connecticut
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New Haven
Florida
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Daytona Beach
Fort Lauderdale
Fort Myers
Gainesville
Orlando
Tampa
Georgia
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Atlanta
Gainesville
St. Simons Island
Savannah
Louisiana
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New Orleans
Maryland
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Baltimore
Rockville
Michigan
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Grand Rapids
Port Huron
New Jersey
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Voorhees
Nevada
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Incline Village
Oklahoma
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Oklahoma City
Pennsylvania
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Pittsburgh
Texas
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Abilene
Amarillo
Corpus Christi
Dallas (2 locations)
Houston
McAllen
Victoria (2 locations)
Virginia
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Charlottesville
Fredericksburg
Richmond
Virginia Beach
Canada
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Alberta
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Calgary
Edmonton
British Columbia
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Vancouver
Manitoba
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Winnipeg
Quebec
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Montreal
Ontario
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Toronto
10-K Available
Shareholders are entitled to receive, without charge and upon written
request, a copy of the Company's Form 10-K Annual Report for the year
ended December 31, 1995, which has been filed with the Securities and
Exchange Commission.
Address requests to Dianne F. Fox, Senior Vice President and
Secretary, Corporate Headquarters.
Annual Meeting
The Company's Annual Meeting of Shareholders will be held on May 7,
1996 at 10 A.M. at Crestar Bank, 919 East Main Street, Richmond,
Virginia.
Transfer Agent and Registrar
Chemical Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
Corporate Headquarters
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
Tel: (804) 747-6500
Fax: (804) 747-6046