HILB ROGAL & HAMILTON CO /VA/ - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 2004

Commission file number 0-15981

HILB ROGAL & HOBBS COMPANY

(Exact name of registrant as specified in its charter)


Virginia		54-1194795
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4951 Lake Brook Drive, Suite 500 Glen Allen, Virginia		23060
(Address of principal executive offices)		(Zip Code)

(804) 747-6500

(Registrant’s telephone number, including area code)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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 May 1, 2004
Common Stock, no par value		36,051,217

HILB ROGAL & HOBBS COMPANY

INDEX


			Page
Part I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Statement of Consolidated Income for the three months ended March 31, 2004 and 2003		2

	Consolidated Balance Sheet March 31, 2004 and December 31, 2003		3

	Statement of Consolidated Shareholders’ Equity for the three months ended March 31, 2004 and 2003		4

	Statement of Consolidated Cash Flows for the three months ended March 31, 2004 and 2003		5

	Notes to Consolidated Financial Statements		6-8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-11

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11

	Item 4.	Controls and Procedures	11

Part II.	OTHER INFORMATION

	Item 6.	Exhibits and Reports on Form 8-K	12

Signatures			13

PART I—FINANCIAL INFORMATION

Item

1. FINANCIAL STATEMENTS

STATEMENT OF CONSOLIDATED INCOME

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

(UNAUDITED)


	Three Months Ended March 31,
(in thousands, except per share amounts)	2004		2003
Revenues
Commissions and fees	$	156,396	$	140,499
Investment income		555		659
Other		1,276		833

		158,227		141,991
Operating expenses
Compensation and employee benefits		83,725		75,813
Other operating expenses		25,566		23,157
Depreciation		2,255		2,288
Amortization of intangibles		2,829		2,152
Interest expense		2,529		2,793
Integration costs		991		—
Retirement benefit		—		5,195

		117,895		111,398

INCOME BEFORE INCOME TAXES		40,332		30,593
Income taxes		16,098		12,495

NET INCOME	$	24,234	$	18,098

Net Income Per Share:
Basic	$	0.68	$	0.54
Assuming Dilution	$	0.67	$	0.51

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEET

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES


	March 31, 2004			December 31, 2003
(in thousands)	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	158,149		$	126,464
Receivables:
Premiums and commissions, less allowance for doubtful accounts of $4,309 and $4,243, respectively		182,627			223,431
Other		33,565			31,820

		216,192			255,251
Prepaid expenses and other current assets		12,551			14,603

TOTAL CURRENT ASSETS		386,892			396,318
PROPERTY AND EQUIPMENT, NET		24,564			25,487
GOODWILL		568,327			565,023
OTHER INTANGIBLE ASSETS		113,273			112,414
Less accumulated amortization		66,002			63,191

		615,598			614,246
OTHER ASSETS		17,847			13,176

	$	1,044,901		$	1,049,227

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies	$	273,867		$	308,533
Accounts payable		9,584			9,089
Accrued expenses		30,588			37,434
Premium deposits and credits due customers		41,710			34,290
Current portion of long-term debt		9,035			9,321

TOTAL CURRENT LIABILITIES		364,784			398,667
LONG-TERM DEBT		172,251			174,012
DEFERRED INCOME TAXES		18,990			19,208
OTHER LONG-TERM LIABILITIES		27,242			23,073
SHAREHOLDERS’ EQUITY
Common Stock, no par value; authorized 100,000 shares; outstanding 35,865 and 35,446 shares, respectively		234,050			228,357
Retained earnings		226,108			205,184
Accumulated other comprehensive income (loss):
Unrealized loss on interest rate swaps, net of deferred tax benefit of $168 and $334, respectively		(252	)		(502	)
Other		1,728			1,228

		461,634			434,267

	$	1,044,901		$	1,049,227

See notes to consolidated financial statements.

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

(UNAUDITED)


(in thousands, except per share amounts)	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2004	$	228,357	$	205,184		$	726
Issuance of 419 shares of Common Stock		932
Income tax benefit from exercise of stock options		4,761
Payment of dividends ($.0925 per share)				(3,310	)
Net income				24,234
Derivative gain, net of tax							250
Other							500

Balance at March 31, 2004	$	234,050	$	226,108		$	1,476

Balance at January 1, 2003	$	168,558	$	143,005		$	(915	)
Issuance of 374 shares of Common Stock		11,514
Income tax benefit from exercise of stock options		461
Payment of dividends ($.0900 per share)				(3,043	)
Net income				18,098
Derivative gain, net of tax							192
Retirement benefit		906
Other							29

Balance at March 31, 2003	$	181,439	$	158,060		$	(694	)

See notes to consolidated financial statements.

STATEMENT OF CONSOLIDATED CASH FLOWS

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

(UNAUDITED)


	Three Months Ended March 31,
(in thousands)	2004			2003
OPERATING ACTIVITIES
Net income	$	24,234		$	18,098
Adjustments to reconcile net income to net cash provided by operating activities:
Integration costs		991			—
Retirement benefit		—			5,195
Depreciation		2,255			2,288
Amortization of intangibles		2,829			2,152
Provision for losses on receivables		291			270
Provision for deferred income taxes		(302	)		1,233
(Gain) loss on sale of assets		(397	)		76
Income tax benefit from exercise of stock options		4,761			461
Changes in operating assets and liabilities net of effects from integration costs, retirement benefit and insurance agency acquisitions and dispositions:
Decrease in receivables		38,769			36,284
Decrease in prepaid expenses		2,043			11,438
Decrease in premiums payable to insurance companies		(34,666	)		(33,421	)
Increase (decrease) in premium deposits and credits due customers		7,421			(889	)
Increase (decrease) in accounts payable		278			(2,028	)
Decrease in accrued expenses		(7,409	)		(18,630	)
Other operating activities		(639	)		2,752

Net Cash Provided by Operating Activities		40,459			25,279

INVESTING ACTIVITIES
Purchase of property and equipment		(1,692	)		(2,833	)
Purchase of insurance agencies, net of cash acquired		(2,493	)		(3,166	)
Proceeds from sale of assets		2,772			98
Other investing activities		288			570

Net Cash Used in Investing Activities		(1,125	)		(5,331	)

FINANCING ACTIVITIES
Proceeds from long-term debt		—			5,000
Principal payments on long-term debt		(2,787	)		(11,982	)
Debt issuance costs		(300	)		—
Proceeds from issuance of Common Stock, net of tax payments for options exercised		(1,252	)		447
Dividends		(3,310	)		(3,043	)

Net Cash Used in Financing Activities		(7,649	)		(9,578	)

Increase in Cash and Cash Equivalents		31,685			10,370
Cash and cash equivalents at beginning of period		126,464			134,692

Cash and Cash Equivalents at End of Period	$	158,149		$	145,062

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

March 31, 2004

(UNAUDITED)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hilb Rogal & Hobbs Company (the Company) have been prepared in accordance with accounting principles generally accepted in the United States 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, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.

NOTE B—ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans. The Company continues to account for its stock options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (Sta

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