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 June 30, 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 July 30, 2004
Common Stock, no par value		35,815,486

HILB ROGAL & HOBBS COMPANY

INDEX


			Page
Part I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Statement of Consolidated Income for the three months and six months ended June 30, 2004 and 2003		2

	Consolidated Balance Sheet June 30, 2004 and December 31, 2003		3

	Statement of Consolidated Shareholders’ Equity for the six months ended June 30, 2004 and 2003		4

	Statement of Consolidated Cash Flows for the six months ended June 30, 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	9-12

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12

	Item 4.	Controls and Procedures	12

Part II.	OTHER INFORMATION

	Item 2.	Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities	13

	Item 4.	Submission of Matters to a Vote of Security Holders	14

	Item 6.	Exhibits and Reports on Form 8-K	15

Signatures			16

PART I – FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

STATEMENT OF CONSOLIDATED INCOME

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

(UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2004		2003		2004		2003
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 costs		636		-		1,627		-
Retirement benefit		-		-		-		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

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEET

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES


(in thousands)	June 30, 2004		December 31, 2003
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including $58,855 and $58,233, respectively, of restricted funds	$	164,649	$	126,464
Receivables:
Premiums and commissions, less allowance for doubtful accounts of $4,546 and $4,243, respectively		204,040		223,431
Other		34,424		31,820

		238,464		255,251
Prepaid expenses and other current assets		14,209		14,603

TOTAL CURRENT ASSETS		417,322		396,318

PROPERTY AND EQUIPMENT, NET		25,898		25,487

GOODWILL		588,155		565,023
OTHER INTANGIBLE ASSETS		120,114		112,414
Less accumulated amortization		68,842		63,191

		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, no par value; authorized 100,000 shares; outstanding 35,911 and 35,446 shares, respectively		235,603		228,357
Retained earnings		242,841		205,184
Accumulated other comprehensive income (loss):
Unrealized loss on interest rate swaps, net of deferred tax benefit of $0 and $334, respectively		-		(502	)
Other		1,262		1,228

		479,706		434,267

	$	1,099,375	$	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 698 shares of Common Stock		9,765
Repurchase of 233 shares of Common Stock		(8,331	)
Income tax benefit from exercise of stock options		5,812
Payment of dividends ($0.1975 per share)					(7,081	)
Net income					44,738
Derivative gain, net of tax								502
Other								34


Balance at June 30, 2004	$	235,603		$	242,841		$	1,262


Balance at January 1, 2003	$	168,558		$	143,005		$	(915	)
Issuance of 548 shares of Common Stock		10,108
Income tax benefit from exercise of stock options		3,661
Payment of dividends ($0.1825 per share)					(6,191	)
Net income					37,163
Derivative gain, net of tax								421
Retirement benefit		906
Other								375


Balance at June 30, 2003	$	183,233		$	173,977		$	(119	)

See notes to consolidated financial statements.

STATEMENT OF CONSOLIDATED CASH FLOWS

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

(UNAUDITED)


	Six Months Ended June 30,
(in thousands)	2004			2003
OPERATING ACTIVITIES
Net income	$	44,738		$	37,163
Adjustments to reconcile net income to net cash provided by operating activities:
Integration costs		1,627			-
Retirement benefit		-			5,195
Depreciation		4,329			4,580
Amortization of intangibles		5,681			4,356
Provision for losses on receivables		543			555
Provision for deferred income taxes		950			2,536
(Gain) loss on sale of assets		(475	)		131
Income tax benefit from exercise of stock options		5,812			3,661
Changes in operating assets and liabilities net of effects from integration costs, retirement benefit and insurance agency acquisitions and dispositions:
Decrease (increase) in receivables		18,773			(24,924	)
Decrease in prepaid expenses		947			7,585
Increase (decrease) in premiums payable to insurance companies		(15,926	)		37,651
Increase in premium deposits and credits due customers		9,154			509
Increase (decrease) in accounts payable		(664	)		297
Decrease in accrued expenses		(8,913	)		(15,759	)
Other operating activities		(730	)		4,022

Net Cash Provided by Operating Activities		65,846			67,558

INVESTING ACTIVITIES
Purchase of property and equipment		(5,053	)		(5,079	)
Purchase of insurance agencies, net of cash acquired		(12,935	)		(8,248	)
Proceeds from sale of assets		3,335			135
Other investing activities		(912	)		74

Net Cash Used in Investing Activities		(15,565	)		(13,118	)

FINANCING ACTIVITIES
Proceeds from long-ter

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