-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHksAaEolA2xv24fQ0k2IWxzPLt7D17fkYpGFmfphchpWmghU+PRuTJ1kegRTGzX N2c9dy9ohhjXj+a1Q2ne0Q== 0000814898-97-000002.txt : 19970327 0000814898-97-000002.hdr.sgml : 19970327 ACCESSION NUMBER: 0000814898-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILB ROGAL & HAMILTON CO /VA/ CENTRAL INDEX KEY: 0000814898 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 541194795 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15981 FILM NUMBER: 97563586 BUSINESS ADDRESS: STREET 1: 4235 INNSLAKE DR CITY: GLEN ALLEN STATE: VA ZIP: 23060 BUSINESS PHONE: 8047476500 MAIL ADDRESS: STREET 1: P O BOX 1220 CITY: GLEN ALLEN STATE: VA ZIP: 23060 10-K 1 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIII SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended December 31, 1996 Commission file number 0-15981 HILB, ROGAL AND HAMILTON COMPANY (Exact name of registrant as specified in its charter) Virginia 54-1194795 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4235 Innslake Drive Glen Allen, Virginia 23060 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 747-6500 Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value (Title of class) Securities registered pursuant to Section 12(g) of the Act: None 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. State the aggregate market value of the voting stock held by non-affiliates of the registrant. $165,621,688 as of March 3, 1997 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 3, 1997 Common Stock, no par value 13,321,996 Documents Incorporated by Reference Portions of the registrant's 1996 Annual Report to Shareholders are incorporated by reference into Parts I and II of this report. Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIII PART I ITEM 1. BUSINESS The Company Hilb, Rogal and Hamilton Company (the Company), through its network of wholly-owned subsidiary insurance agencies (the Agencies), places various types of insurance, including property, casualty, marine, aviation and employee benefits, with insurance underwriters on behalf of its clients. The Agencies operate 69 offices in 16 states and five Canadian provinces. The Company's client base ranges from personal to large national accounts and is primarily comprised of medium-size commercial and industrial accounts. Insurance commissions accounted for approximately 94% of the Company's total revenues in 1996. The Company also advises clients on risk management and employee benefits and provides claims administration and loss control consulting services to clients, which contributed approximately 3% of revenues in 1996. The Company has grown principally through acquisitions of independent agencies with significant local market shares in small to medium-size metropolitan areas. Since 1984, the Company has acquired 163 independent agencies. The Company's growth strategy emphasizes acquisitions of established independent agencies staffed by local professionals and centralization of certain administrative functions to allow agents to focus on business production. The Company believes that a key to its success has been a strong emphasis on local client service by experienced personnel with established community relationships. The Company generally pursues growth in markets where it believes it can achieve a significant market position. The Company expects to pursue a less aggressive merger and acquisition strategy in the future. Though acquisitions are expected to continue, they will be less frequent and more selective than in the past. This redefinition of strategy will enable the Company to focus on building a stronger, more operationally-sound organization. The Agencies act as independent agents representing a large number of insurance companies, which gives the Company access to specialized products and capacity needed by its clients. Agencies are staffed to handle the broad variety of insurance needs of their clients. Additionally, certain Agencies have developed special expertise in areas such as aviation, construction and marine insurance services, and this expertise is made available to clients throughout the Company. The Company has established direct access to certain foreign insurance markets without the need to share commissions with excess and surplus lines brokers. This direct access allows the Company to enhance its revenues from insurance products written by foreign insurers and allows it to provide a broader array of insurance products to its clients. While the Agencies have historically been largely decentralized with respect to client solicitation, account maintenance, underwriting decisions, selection of insurance carriers and areas of insurance specialization, the Company maintains centralized administrative functions, including cash management and investment, human resources and legal functions, through its corporate headquarters. Accounting records and systems are maintained at each Agency, but the Company requires each Agency to comply with standardized financial reporting and control requirements. Through its internal auditing department, Company personnel periodically visit each Agency and monitor compliance with internal accounting controls and procedures. In the latter part of 1995, the Company created regional operating units to coordinate the efforts of several local offices in a geographic area to focus on markets, account retention, client service and new business production. The five U.S. regions are the Mid-Atlantic (Pennsylvania, Maryland and Virginia); Alabama/Georgia; Florida; Texas and California. Regional management of a sizable mass of coordinated and complementary resources will enable each Agency to address a broader spectrum of client needs and respond more quickly and expertly than each could do on a stand-alone basis. Additionally, operations were streamlined by merging multiple locations in the same city into a single profit center and converting smaller locations into sales offices of a larger profit center in the same region. The Company derives income primarily from commissions on the sale of insurance products to clients paid by the insurance underwriters with whom the Agencies place their clients' insurance. The Company acts as an agent in soliciting, negotiating and effecting contracts of insurance through insurance companies and occasionally as a broker in procuring contracts of insurance on behalf of insureds. The Company derived in excess of 97% of its commission and fee revenue in 1996 from the sale of insurance products, principally property and casualty insurance. Accordingly, no breakdown by industry segments has been made. The balance is primarily derived from employee benefits and third party claims administration. Within its range of services, the Company also places surplus lines coverages (coverages not available from insurance companies licensed by the states in which the risks are located) with surplus lines insurers for various specialized risks. Insurance agents' commissions are generally a percentage of the premium paid by the client. Commission rates vary substantially within the insurance industry. Commissions depend upon a number of factors, including the type of insurance, the amount of the premium, the particular insurer, the capacity in which the Company acts and the scope of the services it renders to the client. In some cases, the Company or an Agency is compensated by a fee paid by the client directly. The Company may also receive contingent commissions which are based on the profit an insurance company makes on the overall volume of business placed with it by the Company. Contingent commissions are generally received in the first quarter of each year and, accordingly, may cause first quarter revenues and earnings to vary from other quarterly results. The Company provides a variety of professional services to assist clients in analyzing risks and in determining whether protection against risks is best obtained through the purchase of insurance or through retention of all or a portion of those risks and the adoption of risk management policies and cost-effective loss control and prevention programs. No material part of the Company's business is dependent on a single client or on a few clients, and the Company does not depend on a single industry or type of client for a substantial amount of its business. In 1996, the largest single client accounted for less than 0.5% of the Company's total revenues. Operating History and Acquisition Program The Company was formed in 1982 to acquire and continue an existing insurance agency network. At that time, the Company undertook a program of consolidating agencies, closing or selling unprofitable locations and acquiring new agencies. Since 1984, a total of 163 agencies have been acquired. One hundred thirteen of those agencies were acquired using the purchase method of accounting at a total purchase price of approximately $117.6 million. In a purchase acquisition, the purchase price of an agency is typically paid in cash and deferred cash payments. In some cases, a portion of the purchase price may also be paid in Common Stock. Since November 1, 1988, 50 agencies have been acquired under the pooling-of- interests method of accounting in exchange for a total of approximately 8.1 million shares of Common Stock of the Company. The Company believes that the public market for its Common Stock, existing since 1987, has and will continue to enhance its ability to acquire agencies. The Company has substantial experience in acquiring insurance agencies. Each acquisition candidate is subjected to a due diligence process in which the Company evaluates the quality and reputation of the business and its management, revenues and earnings, administrative and accounting records, growth potential and location. For candidates that pass this screening process, the Company uses a pricing method that emphasizes pro forma revenues, profits and tangible net worth. As a condition to completing an acquisition, the Company requires that the principals execute Company-prepared covenants not to compete and other restrictive covenants and that agents execute non-piracy agreements. Once the acquisition is consummated, the Company takes steps to introduce its procedures and protocols and to integrate the agency's systems and employees into the Company. Recent Developments During 1996, the Company acquired 15 insurance agencies. See "Note J--Acquisitions" of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders which is incorporated herein by reference for a description of these acquisitions. Subsequent to December 31, 1996, the Company acquired certain assets and liabilities of three insurance agencies. See "Note M--Subsequent Events" of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders which is incorporated herein by reference. Competition The Company participates in a very competitive industry. It is a leading independent insurance agency system serving a wide variety of clients through its network of wholly-owned subsidiaries which operate 69 insurance agencies located in 16 states and five Canadian provinces. Many of the Company's competitors are larger and have greater resources than the Company and operate on an international scale. In some of the Agencies' cities, because no major national insurance broker has established a presence, the Company competes with local agents, some of whom may be larger than the Company's local Agency. The Company's larger competitors also have extensive facilities to manage captive insurance companies or self-insurance programs for larger clients, while the Company has only a limited ability to administer self-insurance and does not currently manage any captive insurance companies. The Company is also in competition with certain insurance companies which write insurance directly for their customers, as well as self-insurance and other employer sponsored programs. Employees As of December 31, 1996, the Company had approximately 1,750 employees. No employees are currently represented by a union. The Company believes its relations with its employees are good. Regulation In every state in which the Company does business, the applicable Agency or an employee is required to be licensed or to have received regulatory approval by the state insurance department in order for the Company to conduct business. In addition to licensing requirements applicable to the Company, most jurisdictions require individuals who engage in brokerage and certain insurance service activities to be licensed personally. The Company's operations depend on the validity of and its continued good standing under the licenses and approvals pursuant to which it operates. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally such authorities are vested with general discretion as to the grant, renewal and revocation of licenses and approvals. ITEM 2. PROPERTIES Except as mentioned below, the Company leases its Agencies' offices. For information with respect to the Company's lease commitments see "Note H--Leases" of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders which is incorporated herein by reference. At December 31, 1996, the Company owned seven buildings in Richmond and Charlottesville, Virginia; Oklahoma City, Oklahoma; Daytona Beach and Fort Myers, Florida; Mobile, Alabama and Victoria, Texas (the Richmond, Virginia building being subject to a mortgage), in which the Agencies in those cities are located. See "Note D--Long-Term Debt and Override Commission Agreements" of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders which is incorporated herein by reference for information regarding mortgage notes payable and related collateral property. ITEM 3. LEGAL PROCEEDINGS The Company and its Agencies have no material pending legal proceedings other than ordinary, routine litigation incidental to the business, to which it or a subsidiary is a party. With respect to the routine litigation, upon the advice of counsel, management believes that none of these proceedings, either individually or in the aggregate, if determined adversely to the Company, would have a material effect on the financial position or results of operations of the Company or its ability to carry on its business as currently conducted. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant are as follows: Robert H. Hilb, 70, has been Chairman and Chief Executive Officer of the Company since 1991 and has been a director of the Company since 1982. Effective with the Annual Meeting of the Board of Directors of the Company to be held on May 6, 1997, Mr. Hilb will be elected Chairman of the Company. He was President of the Company from 1982 to 1995. Andrew L. Rogal, 48, has been President and Chief Operating Officer of the Company since 1995 and has been a director of the Company since 1989. Effective with the Annual Meeting of the Board of Directors of the Company to be held on May 6, 1997, Mr. Rogal will be elected Chief Executive Officer of the Company. He was Executive Vice President of the Company from 1991 to 1995 and Senior Vice President of the Company from 1990 to 1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and was President of this subsidiary from 1987 to 1993. John C. Adams, Jr., 60, has been Executive Vice President of the Company since 1991 and was a director of the Company from 1987 to 1995. He has been Chairman of Hilb, Rogal and Hamilton Company of Daytona Beach, Inc., a subsidiary of the Company, since 1990 and was Chief Executive Officer of this subsidiary from 1990 to 1992. Timothy J. Korman, 44, has been Executive Vice President, Chief Financial Officer and Treasurer of the Company since November 1995, and was Senior Vice President and Treasurer of the Company from 1989 to November 1995. He is a first cousin of Robert S. Ukrop, a director of the Company. Dianne F. Fox, 48, has been Senior Vice President-Administration and Secretary of the Company since 1989. Ronald J. Schexnaydre, 60, has been Senior Vice President of the Company since 1993 and was Vice President of the Company from 1991 to 1993. He has been Chairman of Hilb, Rogal and Hamilton Company of Louisiana, a subsidiary of the Company, since 1995 and was President of this subsidiary from 1986 to 1995. Ann B. Davis, 42, has been Vice President-Human Resources of the Company since 1993 and was Assistant Vice President-Human Resources of the Company from 1986 to 1993. Vincent P. Howley, 48, has been Vice President-Audit of the Company since 1993 and was Assistant Vice President-Audit of the Company from 1986 to 1993. Carolyn Jones, 41, has been Vice President and Controller of the Company since 1991. Walter L. Smith, 39, has been Vice President and General Counsel of the Company since 1991 and has been Assistant Secretary of the Company since 1989. Robert W. Blanton, Jr., 32, has been Assistant Vice President of the Company since 1993. He joined the Company in 1990 as Accounting Senior. Valerie C. Elwood, 35, has been Assistant Vice President of the Company since 1993. She joined the Company in 1987 and has held various positions in the accounting department. Janice G. Pouzar, 50, joined the Company as Assistant Vice President- Retirement Plans in 1993. Prior thereto, she was employed by William M. Mercer in Richmond, Virginia from 1972 to 1993. All officers serve at the discretion of the Board of Directors. Each holds office until the next annual election of officers, which is held at the meeting of the Board of Directors after the Annual Meeting of Shareholders, called to be held on May 6, 1997, or until their successors are elected. There are no family relationships nor any arrangements or understandings between any officer and any other person pursuant to which any such officer was selected, except as noted above. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information as to market price and dividends per share of Common Stock and related stockholder matters is incorporated herein by reference to the material under the headings "Shareholders" and "Market Price of Common Stock" in the Company's 1996 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Information as to selected financial data is incorporated herein by reference to the material under the heading "Selected Financial Data" in the Company's 1996 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information as to management's analysis of financial condition and results of operations is incorporated herein by reference to the material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1996 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors included on page 13 of Form 10-K and consolidated financial statements included on pages 16 through 26 of the Company's 1996 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information as to the directors of the registrant is incorporated herein by reference to the material under the heading "Proposal One Election of Directors" in the Company's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. Information as to the executive officers of the registrant is set forth following Item 4 of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information as to executive compensation is incorporated herein by reference to the material included on pages 6 through 11 in the Company's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information as to security ownership of certain beneficial owners and management is incorporated herein by reference to the material under the headings "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the Company's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information as to certain relationships and related transactions is incorporated herein by reference to the material under the heading "Certain Transactions" in the Company's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules The following consolidated financial statements of Hilb, Rogal and Hamilton Company and subsidiaries, included in the Company's 1996 Annual Report to Shareholders are incorporated herein by reference in Item 8 of this report: Consolidated Balance Sheet -- December 31, 1996 and 1995 Statement of Consolidated Income -- Years Ended December 31, 1996, 1995 and 1994 Statement of Consolidated Shareholders' Equity -- Years Ended December 31, 1996, 1995 and 1994 Statement of Consolidated Cash Flows -- Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements -- December 31, 1996 The following consolidated financial statement schedule of Hilb, Rogal and Hamilton Company and subsidiaries is included in Item 14(d): Schedule Number Description Page Number II Valuation and Qualifying Accounts 13 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits - Index Exhibit No. Document 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's Registration State- ment on Form S-3, File No. 33-56488, effective March 1, 1994, hereinafter, the Form S-3) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 10.1 $20,000,000 Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank, as Agent of the Banks (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 10.2 Amendment dated February 24, 1997 to Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank as Agent of the Bank 10.3 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 28.27 of the Form S-3) 10.4 Amendment Number Twelve to Employment Agreement of Robert H. Hilb (the Amendment Number 12 is incorp- orated by reference to Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981 and the Employment Agreement is incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 10.5 Employment Agreement of Andrew L. Rogal (the Employment Agreement is incorporated by reference to Exhibit 10.4 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 10.6 Hilb, Rogal and Hamilton Company 1989 Stock Plan, as amended 10.7 Supplemental Executive Retire- ment Plan (incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 10.8 Amendment to Hilb, Rogal and Hamilton Company Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.6 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 10.9 Hilb, Rogal and Hamilton Company Outside Directors Deferral Plan (incorp- orated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 11 Statement Regarding Computation of Per Share Earnings 13 1996 Annual Report to Shareholders 22 Subsidiaries of Hilb, Rogal and Hamilton Company 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1996. (c) Exhibits The response to this portion of Item 14 as listed in Item 14(a)(3) above is submitted as a separate section of this report. (d) Financial Statement Schedules The report of independent auditors and financial statement schedule (as indexed in Item 14(a)(2)) of this report are as follows: Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the consolidated balance sheets of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996 (incorporated by reference herein). Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 state ments. 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 consolidated 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Ernst & Young LLP Richmond, Virginia February 12, 1997 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Col. A Col. B Col. C Col. D Col. E Additions Charged Balance at Charged to Other Balance Beginning to Costs Accounts Deductions at End Description of Period and Expenses (Describe)* (Describe)** of Period Year ended December 31, 1996: Allowance for doubt- ful accounts....... $1,772,000 $1,276,000 $100,000 $703,000 $2,445,000 Year ended December 31, 1995: Allowance for doubt- ful accounts....... 2,348,000 1,500,000 121,000 2,197,000 1,772,000 Year ended December 31, 1994: Allowance for doubt- ful accounts....... 2,390,000 1,239,000 70,000 1,351,000 2,348,000
______________________ * Recoveries ** Bad debts written off SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By /s/ Robert H. Hilb Robert H. Hilb, Chairman Date March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Robert H. Hilb Chairman (principal executive March 21, 1997 Robert H. Hilb officer) and Director /s/ Andrew L. Rogal President and Chief Operating Andrew L. Rogal Officer March 21, 1997 /s/ Timothy J. Korman Executive Vice President and March 21, 1997 Timothy J. Korman Treasurer (principal financial officer) /s/ Carolyn Jones Vice President and Controller March 21, 1997 Carolyn Jones (principal accounting officer) /s/ Philip J. Faccenda Director March 21, 1997 Philip J. Faccenda /s/ Robert S. Ukrop Director March 21, 1997 Robert S. Ukrop Thomas H. O'Brien Director /s/ J.S.M. French Director March 21, 1997 J.S.M. French Norwood H. Davis, Jr. Director /s/ Theodore L. Chandler, Jr. Director March 21, 1997 Theodore L. Chandler, Jr. EX-10 2 AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT TO CREDIT AGREEMENT (the "Agreement") is made and entered into as of this 24th day of February, 1997, by and among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation (the "Borrower"), the Banks set forth on the signature page hereto (the "Banks"), and CRESTAR BANK, a Virginia banking corporation, as agent for the Banks under the Credit Agreement (in such capacity, the "Agent"). RECITALS A. The Borrower, the Agent and the Banks are parties to that certain Credit Agreement dated as of February 12, 1996 (as amended from time to time, the "Credit Agreement"), pursuant to which each Bank, severally and not jointly, agreed to make Loans from time to time until the Commitment Termination Date in an aggregate principal amount at any time outstanding not exceeding the amount of its Commitment. Capitalized terms not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. B. The Borrower has requested that the Agent and the Banks make certain amendments to the Credit Agreement and the Agent and the Banks are willing to make certain amendments to the Credit Agreement on the terms and conditions set forth herein. AGREEMENT In consideration of the Recitals and of the mutual promises and covenants contained herein, the Borrower, the Agent and the Banks agree as follows: 1. Amendments to Credit Agreement. The Borrower, the Agent and the Banks agree to the following amendments to the Credit Agreement: (a) Section 7.02 of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "SECTION 7.02. Indebtedness to Total Capitalization Ratio. The ratio of Consolidated Indebtedness to the sum of Consolidated Indebtedness plus Consolidated Net Worth shall not at any time exceed 1.00 to 2.00. For purposes of this covenant, (i) Consolidated Indebtedness shall be determined as of the date of the last day of each quarter and the date of any change in Consolidated Indebtedness, and (ii) Consolidated Net Worth shall be calculated as of the last day of each quarter." (b) The definition of "Commitment" as set forth in Exhibit A of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "'Commitment' means, with respect to each Bank, an amount of $15,000,000, as the same may be reduced from time to time pursuant to this Agreement." (c) The definition of "Commitment Termination Date" as set forth in Exhibit A of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "'Commitment Termination Date' means January 31, 2002, or such earlier date and time on which the Commitments are terminated pursuant to Article VIII." (d) The definition of "Consolidated Indebtedness" is hereby added to Exhibit A of the Credit Agreement as follows: "'Consolidated Indebtedness' means, as of any date, all Indebtedness of the Borrower and its Consolidated Subsidiaries at such time." 2. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Banks as follows: (a) Recitals. The Recitals in this Agreement are true and correct in all respects. (b) Incorporation of Representations. All representations and warranties of the Borrower in the Credit Agreement are incorporated herein in full by this reference and are true and correct as of the date hereof. (c) No Defaults. No Default or Event of Default has occurred and is continuing under the Credit Agreement. (d) Corporate Power; Authorization. The Borrower has the corporate power, and has been duly authorized by all requisite corporate action, to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by the Borrower. (e) Enforceability. This Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. (f) No Violation. The Borrower's execution, delivery and performance of this Agreement do not and will not (i) violate any law, rule, regulation or court order to which the Borrower is subject, or (ii) conflict with or result in a breach of the Borrower's Articles of Incorporation or Bylaws or any agreement or instrument to which the Borrower is party or by which it or its properties are bound. (g) Obligations Absolute. The obligation of the Borrower to repay the Loans, together with all interest accrued thereon, is absolute and unconditional, and there exists no known right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations, and, to the Borrower's knowledge, it does not currently hold and has not previously held any claims of any kind against the Banks and their respective employees, directors, agents, successors or assigns arising out of or in any way connected with this Agreement, the Credit Agreement or the Replacement Notes. 3. Conditions Precedent to Effectiveness of Agreement. This Agreement shall not be effective unless and until each of the following conditions shall have been satisfied in the Agent and the Banks' sole discretion or waived by the Agent and the Banks, for whose sole benefit such conditions exist: (a) The Borrower shall have paid all of the Agent's and the Banks' costs and expenses (including the Agent's and the Banks' reasonable attorneys fees) incurred in connection with the preparation of this Agreement. (b) The Borrower shall have delivered, or caused to be delivered, to each Bank: (i) a duplicate original of this Agreement executed on the Borrower's behalf by its duly authorized officer. (ii) a duly executed promissory note reflecting such Bank's increased Commitment and new Commitment Termination Date and substantially in the form of Exhibit B to the Credit Agreement (each, a "Replacement Note"), payable to its order and otherwise complying with the provisions of Section 1.03 of the Credit Agreement, whereupon the original notes will be returned to the Borrower marked "Cancelled by Substitution". (c) The Borrower shall have delivered, or caused to be delivered, to the Agent, (i) a certificate of the Secretary or an Assistant Secretary of the Borrower dated as of the date hereof substantially in the form attached as Appendix 1 hereto and (ii) a certificate of the Chief Financial Officer of the Borrower, substantially in the form attached as Appendix 2 hereto. 4. Effect and Construction of Agreement. Except as expressly provided herein, the Credit Agreement shall remain in full force and effect in accordance with its respective terms, and this Agreement shall not be construed to: (i) waive or impair any rights, powers or remedies of the Agent and the Banks under the Credit Agreement; or (ii) constitute an agreement by the Agent and the Banks or require the Agent and the Banks to make further amendments to the Credit Agreement. In the event of any inconsistency between the terms of this Agreement and the Credit Agreement, this Agreement shall govern. The Borrower acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. 5. Expenses. The Borrower agrees to pay all costs, fees and expenses of the Agent and the Banks (including the reasonable fees of the Agent and the Banks's counsel) incurred by the Agent and the Banks in connection with the negotiation, preparation, administration and enforcement of this Agreement. 6. Miscellaneous. (a) Further Assurance. The Borrower agrees to execute such other and further documents and instruments as the Agent may request to implement the provisions of this Agreement. (b) Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns. No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement. (c) Integration. This Agreement, together with the Credit Agreement and the Replacement Notes, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter. In entering into this Agreement, the Borrower acknowledges that it is relying on no statement, representation, warranty, covenant or agreement of any kind made by the Agent and the Banks or any employee or agent of the Agent and the Banks, except for the agreements of the Agent and the Banks set forth herein. (d) Severability. The provisions of this Agreement are intended to be severable. If any provisions of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity of enforceability of such provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction. (e) Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the Commonwealth of Virginia, without regard to the choice of law principles of such state. (f) Counterparts; Telecopied Signatures. This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. (g) Notices. Any notices with respect to this Agreement shall be given in the manner provided for in Section 10.04 of the Credit Agreement. (h) Amendment. No amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CRESTAR BANK, as Agent FIRST UNION NATIONAL BANK OF VIRGINIA By:___________________________ By:___________________________ Christopher B. Werner Douglas T. Davis Vice President Vice President CRESTAR BANK HILB, ROGAL AND HAMILTON COMPANY By:___________________________ By:___________________________ Christopher B. Werner Timothy J. Korman Vice President Executive Vice President and Treasurer EX-10 3 HILB, ROGAL AND HAMILTON COMPANY 1989 STOCK PLAN (As Amended December 17, 1996) I. PURPOSE This 1989 Stock Plan is intended to assist Hilb, Rogal and Hamilton Company (the "Company") in recruiting, retaining and motivating capable individuals as key employees and Directors by enabling those individuals who contribute significantly to the Company to participate in its future success and to associate their interests with those of the Company through equity participation or equity-based rewards. This Plan is also intended to assist affiliated corporations in recruiting, retaining and motivating capable individuals as key employees by enabling such employees who contribute significantly to the affiliated corporation and, thereby the Company, to participate in the Company's future success and to associate their interests with those of the Company through equity participation or equity- based rewards. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. II. DEFINITIONS For purposes of this Plan, the following terms shall have the following meanings: (a) Affiliate means any "subsidiary" or "parent" corporation (within the meaning of Section 422 A of the Code) of the Company. (b) Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an Option, SAR or Restricted Stock award granted to such Participant. (c) Board means the Board of Directors of the Company. (d) Code means the Internal Revenue Code of 1986, and any amendments thereto. (e) Committee means the Compensation Committee which shall be appointed from time to time by the Board but shall always consist of three individuals, all of whom shall be Directors of the Company who are not employees of the Company. (f) Common Stock means the common stock of the Company. (g) Director means a member of the Board. (h) Fair Market Value means, for any given date, the closing price per share of Common Stock as reported on the New York Stock Exchange composite tape on that day or, if the Common Stock was not traded on such day, then the next preceding day that the Common Stock was traded on such exchange, all as reported by such source as the Committee may select. (i) Initial Value means with respect to any SAR, the Fair Market Value on the date of the grant of the SAR as set forth in the applicable Agreement. (j) Option means a stock option, not otherwise specifically qualified for favorable tax treatment under a section of the Code, that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement under the terms of this Plan. (k) Participant means an employee of the Company or an Affiliate or a member of the Board of Directors of the Company, whether or not an employee of the Company, who satisfies the requirements of Section IV of the Plan and who either is selected by the Committee to receive an Option, SAR or award of Restricted Stock or receives a grant of an Option pursuant to Section VII. (l) Plan means the Hilb, Rogal and Hamilton Company 1989 Stock Plan. (m) 1986 Plan means the Hilb, Rogal and Hamilton Company 1986 Incentive Stock Option Plan. (n) Restricted Stock means shares of Common Stock awarded to a Participant under Section X of this Plan. Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of the applicable Agreement, they become freely transferable and free of substantial risk of forfeiture. (o) SAR means a stock appreciation right entitling the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value over the Initial Value of the SAR. III. ADMINISTRATION This Plan shall be administered by the Committee. Employees of the Company and its Affiliates and Directors, whether or not employees of the Company or an Affiliate, shall be eligible to participate in this Plan; provided, however, that non-employee Directors shall only receive awards of Options under Section VII below and no other awards or grants hereunder except for adjustments pursuant to Section XI. The Committee shall have authority to grant Options, Restricted Stock awards, or SARs or any combination thereof to any individual eligible to be a Participant other than a non-employee Director, upon such terms (not inconsistent with the provisions of this Plan) as it may consider appropriate. The terms upon which each Option, Restricted Stock award or SAR is granted by the Committee may include conditions (in addition to those contained in this Plan) established by the Committee upon the exercisability of all or any part of the Option or SAR (including the terms of exercise, Option price, time of vesting, transferability and forfeitability) and the price, transferability or forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR which has been granted by the Committee may be exercised or at which Restricted Stock becomes freely transferable and free of risk of forfeiture. The Committee, in its discretion, may establish guidelines supplementing this Plan regarding the selection of Participants, other than non-employee Directors, and the amounts, times and terms for grants by the Committee of Options, Restricted Stock awards and SARs. In addition, the Committee shall have complete authority to interpret all provisions of this Plan, to adopt, amend, and rescind rules and regulations pertaining to the administration of this Plan, and to make all other determinations necessary or advisable for the administration of this Plan. The Committee shall prescribe the form of Agreements, consistent with the Plan, to set forth terms and conditions for Options, SARs and Restricted Stock awards granted to individual Participants. Any decision made, or action taken, by the Committee in connection with the administration of this Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or Common Stock or stock right granted under its terms. All expenses associated with the administration of this Plan shall be borne by the Company. IV. ELIGIBILITY (1) General. Any employee of the Company, or any employee of an Affiliate, who, in the judgment of the Committee, has contributed or may be expected to contribute to the profits or growth of the Company or an Affiliate, as the case may be, may be granted one or more Options, SARs or awards of Restricted Stock by the Committee. Non-employee Directors shall receive Options only under the terms of Sections VII below. (2) Grants. The Committee will designate employees to whom Options, SARs or awards of Restricted Stock are to be granted and will specify the number of shares of Common Stock subject to each grant. An Option may be granted to an employee with a related SAR and an SAR may be granted to an employee with a related Option or each may be granted independently. All Options, SARs and awards of Restricted Stock granted under this Plan shall be evidenced by Agreements which shall be subject to applicable provisions of this Plan and, with respect to grants of Options, SARs and awards of Restricted Stock to employees, to such other terms and provisions as the Committee may adopt. V. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN Upon the proper exercise of any Option, independent SAR or award of Restricted Stock, and payment therefor, the Company may deliver to the Participant authorized but previously unissued Common Stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to both this Plan and the 1986 Plan is 625,000, inclusive of all shares issued pursuant to the 1986 Plan prior to the adoption of this Plan, (the "Maximum Issuable Shares"). The Maximum Issuable Shares shall be increased, or decreased, at the end of each fiscal year by 13.39% of the increase, or decrease, in the number of shares of Common Stock issued and outstanding between the first and last days of the fiscal year (other than increases from the issuance of Common Stock under this Plan or the 1986 Plan); provided, however, that the Maximum Issuable Shares shall not be reduced below the number that is the sum of those already issued and those that are the subject of outstanding options under the 1986 Plan or this Plan at the end of the fiscal year. This annual adjustment shall first be made as of the last day of the Company's fiscal year that begins on January 1, 1989. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other Options to be granted under this Plan or options under the 1986 Plan. Any shares of Restricted Stock that are forfeited by a Participant may be reallocated to other awards of Restricted Stock under this Plan. Upon the exercise of an SAR granted independently of an Option, the Company may deliver to the Participant authorized but previously unissued Common Stock, cash, or a combination thereof as provided in Section IX(3). If such an SAR is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to that SAR, or portion thereof, respectively, may be reallocated to other Options under this Plan or options under the 1986 Plan or SARs which may be granted independently of Options under this Plan. VI. OPTION PRICE The price per share for Common Stock which may be purchased by the exercise of any Option granted by the Committee under this Plan shall be set by the Committee. Such Option price may differ between Options and may be less than Fair Market Value at the time of grant in the discretion of the Committee. VII. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS Each Director of the Company who is not an employee of the Company at the time of the grant shall receive a grant of an Option for the purchase of 2,000 shares of Common Stock on the first business day following the 1993, 1994, 1995, 1996 and 1997 Annual Meetings of the Shareholders of the Company. Each such Option granted to a non-employee Director shall be for a purchase price equal to the Fair Market Value of the Common Stock at the time of the grant and shall be evidenced by an Agreement. Such Agreement shall contain terms and provisions consistent with the applicable provisions of this Plan. VIII. EXERCISE OF OPTIONS AND SARS (1) Maximum Option or SAR Period. Options and SARs granted to employees may be exercisable immediately or become exercisable after any term of months or years and may remain exercisable for any term of months or years as set by the Committee in its discretion at the time of granting. The date upon which any Option or SAR granted by the Committee becomes exercisable may be accelerated by the Committee in its discretion. The term of exercisability for any Option or SAR granted by the Committee may be extended by the Committee and may be made contingent upon the continued employment of the Participant by the Company or Affiliate. The terms of any Option or SAR granted by the Committee may provide that the Option or SAR is exercisable in whole or in part from time to time over such period of time as the Committee shall consider appropriate. (2) Nontransferability. Any Option or SAR granted under this Plan shall be nontransferable except, in the case of the death of the Participant, by will or by the laws of descent and distribution. In the event of any such transfer upon the death of the Participant, the Option and any related SAR must be transferred to the same person or persons, trust or estate and may not be separated. During the lifetime of the Participant to whom an Option or SAR is granted, the Option or SAR may be exercised only by the Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or subject to, any obligation, lien, or liability of such Participant. (3) Employee Status. In the event that the terms of any Option or SAR granted to an employee of the Company provide that the Option or SAR may be exercised only during the employment of the Participant or within a specified period of time after the termination of his employment, the Committee may decide in each case whether and the extent to which leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall be deemed interruptions of continuous employment. IX. METHODS OF EXERCISE (1) Exercise. Subject to the provisions of Sections VIII and XI, an Option or SAR granted by the Committee may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement and such other requirements as the Committee shall determine. An Option granted under Section VII hereof may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement. A partial exercise of an Option or SAR shall not affect the right to exercise the Option or SAR from time to time in accordance with this Plan with respect to remaining shares subject to the Option or SAR, except that the exercise of an Option shall result in the termination of any related SAR to the extent of the number of shares with respect to which the Option is exercised. (2) Payment for Option Exercises. Unless otherwise provided by the Agreement (or permitted by the Committee for non- qualified Options granted by the Committee), payment of the Option price shall be made in cash (in United States dollars) or a cash equivalent acceptable to the Committee. If the Agreement so provides, payment of all or a part of the Option price for a qualified Option may be made by the Participant surrendering shares of Common Stock to the Company. If the Agreement so provides (or the Committee so permits), payment of all or a part of the Option price for a non-qualified Option may be effected (i) by the Participant surrendering shares of Common Stock to the Company, (ii) by the Company withholding shares of Common Stock from the Participant upon exercise, or (iii) by the Participant delivering to a broker instructions to sell a sufficient number of the shares of Common Stock being acquired upon exercise of the Option to cover the Option price and any additional costs and expenses associated with the cashless exercise. If Common Stock is surrendered or withheld to pay all or part of the Option price, the shares surrendered or withheld must have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than such Option price or part thereof. (3) Settlement of SARs. At the discretion of the Committee, the amount payable as a result of the exercise of an SAR may be settled in cash, Common Stock or a combination of cash and Common Stock. No fractional share shall be delivered upon the exercise of an SAR but cash shall be paid in lieu thereof. (4) Shareholder Rights. No Participant shall, as a result of receipt of any Option or SAR, have any rights as a shareholder until the date he exercises such Option or SAR. (5) Tax Withholding With Respect to Options. In the case of the exercise of an Option, the Participant shall pay to the Company in cash the full amount of all federal and state income and employment taxes required to be withheld by the Company in respect of the taxable income of the Participant from such exercise. If the Agreement so provides (or the Committee so permits for non-qualified Options granted by the Committee), payment of all or a part of such taxes may be made by the Participant surrendering shares of Common Stock to the Company or by the Company withholding shares of Common Stock from the Participant upon exercise, provided the shares surrendered or withheld have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than the amount of such taxes or part thereof, or by the sale of shares of Common Stock upon the cashless exercise of an Option through a broker. X. RESTRICTED STOCK. (1) Award. In accordance with the provisions of Section IV, the Committee will designate employees to whom an award of Restricted Stock is to be made and will specify the number of shares of Restricted Stock to be awarded, and the purchase price per share to be paid by the Participant. (2) Vesting. The Committee, on the date of the award, may prescribe that the Participant's rights in the Restricted Stock shall be forfeitable or otherwise restricted in any manner in the discretion of the Committee for such period of time as is set forth in the Agreement. By way of example and not limitation, the restrictions may postpone transferability of the shares or may provide that the shares will be forfeited if the employment of the Participant by the Company or an Affiliate or the service of the Participant as a Director terminates before the expiration of a stated term. (3) Shareholder Rights. Prior to the forfeiture of shares in accordance with the terms of the Agreement and while the shares are Restricted Stock, a Participant will have all rights of a shareholder with respect to Restricted Stock, including the right to receive dividends and vote the shares; provided, however, that (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each award of Restricted Stock. The limitations set forth in the preceding sentence shall not apply after the shares cease to be Restricted Stock. (4) Tax Withholding With Respect to Restricted Stock. The Participant shall pay or provide for the payment to the Company in cash of the full amount of all federal and state income and employment taxes required to be withheld by the Company with respect to the inclusion in the taxable income of the Participant of any amount pursuant to an award of Restricted Stock, including an election made pursuant to Section 83(b) of the Code or the lapse of any restriction with respect thereto. XI. CHANGES IN CAPITAL STRUCTURE Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or SAR, and the price per share thereof, and the number of shares of Restricted Stock awarded, shall be adjusted proportionately for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company by reason of any stock dividend, stock split, combination, reclassification, recapitalization, or the general issuance to holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value, or any change in the number of shares of Common Stock outstanding effected without receipt of cash, property, labor or services by the Company, or any spin-off or other type of distribution of assets to shareholders. Subject to any required action by the shareholders of the Company, if the Company shall be the surviving corporation in any merger, consolidation or other reorganization of the Company, each outstanding Option or SAR shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the Option or SAR would have been entitled. A dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, shall cause each outstanding Option and SAR to terminate; provided that, immediately prior to such dissolution or liquidation, or merger or consolidation in which the Company is not the surviving corporation, each Participant shall have the right to exercise his Option or SAR, and all restrictions on Restricted Stock shall terminate and it shall become Common Stock. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all or part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. Except as expressly provided above in this Section XI, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Restricted Stock or of Common Stock subject to any Option or SAR. The grant of an Option, SAR or Restricted Stock award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. XII. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option or SAR shall be exercisable, no Common Stock or Restricted Stock shall be issued, no certificates for shares of Common Stock or Restricted Stock shall be delivered, and no payment shall be made under this Plan (i) except in compliance with all applicable federal and state laws and regulations and rules of all domestic stock exchanges on which the Company's shares may be listed and (ii) until the Company has obtained such consent or approval as the Board or the Committee may deem advisable from regulatory bodies having jurisdiction over such matters and from the shareholders. The Company and the Committee shall have the right to rely on the opinion of counsel for either of them as to such compliance. Any share certificate issued to evidence Common Stock for which an Option or SAR is exercised or to evidence Restricted Stock may bear such legends and statements as the Board or the Committee may deem advisable to assure compliance with federal and state laws and regulations. XIII. GENERAL PROVISIONS (1) Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate, as the case may be, to terminate the employment of any employee at any time with or without assigning a reason therefor. (2) Unfunded Plan. This Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under the Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. (3) Rules of Construction. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. XIV. AMENDMENTS The Board may amend or terminate this Plan from time to time; provided, however, that: (i) no amendment may become effective until the approval of the Company's shareholders is obtained if the amendment (a) increases the aggregate number of shares that may be issued hereunder or (b) changes the class of individuals eligible to become Participants and, (ii) the Board may amend Section VII hereof but only to provide for the granting of Options to non-employee Directors in a year or years after 1996 which Option grants must not cause this Plan to fail to qualify for exemption from Section 16(b) of the Securities Exchange Act of 1934 under the provisions of Rule 16b-3 or any successor rule and provided that such amendment to Section VII hereof must also be approved by a majority of the employee Directors then serving on the Board. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Option or SAR outstanding or Restricted Stock issued at the time such amendment is made unless required by law, regulation or rule of stock exchange. XV. EFFECTIVE DATE OF PLAN Options and SARs may be granted under this Plan, upon its adoption by the Board, provided that no Option or SAR will be effective unless and until this Plan is approved by the holders of a majority of the shares of the Company's outstanding voting stock present in person, or represented by proxy, and entitled to vote at a duly held meeting of the shareholders. No Option or SAR granted prior to such shareholder approval may be exercised before the requisite shareholder approval is obtained. XVI. GOVERNING LAW The Plan shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply. 0290858.03 EX-11 4 Exhibit 11 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31 __________________________________ 1996 1995 1994 PRIMARY: Average shares outstanding 13,493,255 14,470,407 14,778,304 Net effect of dilutive stock options-- based on the treasury stock method using average fair value 25,451 9,989 7,082 Net effect of guaranteed future shares to be issued in connection with an agency acquisition 7,076 Net effect of future shares to be issued in connection with an agency acquisition contingent upon performance 28,301 _________ __________ __________ Average number of shares as adjusted 13,554,083 14,480,396 14,785,386 ========== ========== ========== Net income $11,406,391 $11,828,910 $11,392,283 =========== =========== =========== Per share amount $.84 $.82 $.77 ==== ==== ==== FULLY DILUTED: Average shares outstanding 13,493,255 14,470,407 14,778,304 Net effect of dilutive stock options-- based on the treasury stock method using average fair value 25,451 27,458 7,344 Net effect of guaranteed future shares to be issued in connection with an agency acquisition 7,076 Net effect of future shares to be issued in connection with an agency acquisition contingent upon performance 56,603 ---------- ---------- ---------- Average number of shares as adjusted 13,582,385 14,497,865 14,785,648 ========== ========== ========== Net income $11,406,391 $11,828,910 $11,392,283 =========== =========== =========== Per share amount $.84 $.82 $.77 ==== ==== ====
Note: The per share amounts for each period presented above do not necessarily support amounts in the statement of consolidated income because common stock equivalents are less than 3% dilutive. EX-13 5 (front cover) HILB, ROGAL AND HAMILTON COMPANY (Photograph of magnifying glass with the caption: "A New Focus") 1996 Annual Report Contents 1 Financial Highlights 2 Letter to Shareholders 5 A New Focus 13 Financial Section 27 Directors and Officers 28 Agency Locations 29 General Information (Map of the United States and Canada showing HRH agency and branch locations) Financial Highlights HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES (in millions of dollars, except per share amounts) (Bar graphs reflecting the following financial information below) 1996 1995 1994 1993 1992 Total Revenues $ 158 $ 148 $ 141 $ 142 $ 140 Net Income 11.4 11.8 11.4 8.3 8.6 Net Income Per Common Share .85 .82 .77 .57 .65 Dividends Per Common Share .605 .57 .50 .45 .41 Our Business Hilb, Rogal and Hamilton Company serves as an intermediary between our clients-who are traditionally the mid-size, Main Street businesses of the nation-and insurance companies that underwrite clients' risks. With 69 agencies located in 16 states and five Canadian provinces, Hilb, Rogal and Hamilton Company is able to assist clients in transferring their risks in areas such as property and casualty, employee benefits and other areas of specialized risk exposure. 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. As an industry leader, the Company expands its business by developing new clients, providing additional services to current clients and maintaining a focused merger and acquisition strategy. (This section includes a photograph of Robert H. Hilb, Chairman and Chief Executive Officer) To Our Shareholders A year ago, I had the pleasure of reporting to you that our Company experienced improved performance, even in the midst of very difficult market conditions. At that time, I also told you that the Company was positioned for steady growth and was an excellent choice for long-term investment. Some things never change. Though 1996 brought little relief from the soft market conditions that have dominated our industry for more than a decade, Hilb, Rogal and Hamilton Company achieved satisfactory financial performance again in 1996. Revenues were $158.2 million-a solid 6.8% increase over 1995. Although our earnings decreased 3.6% to $11.4 million, the Company's earnings per share increased from $.82 per share in 1995 to $.85 in 1996. We believe these results are a testament to the continued success of our Company's well- established financial and operational strategies. Yet even while many things remained constant for our Company in 1996, others began changing in significant ways. As part of our ongoing commitment to enhance shareholder value, we began leveraging the Company more aggressively last year. Partly due to this strategy, we were able to continue the execution of our stock buyback program, with total purchases in excess of 800,000 shares. We reduced our number of shares outstanding from 13.7 million at December 31, 1995 to 13.3 million in 1996. This is quite an accomplishment. During the fourth quarter of 1996, our annual dividend rate was increased from $.60 per share to $.62. Our Company continues to provide the highest return in the industry. And as long as we believe our stock is undervalued, we will continue this aggressive reinvestment policy. Several acquisitions were made during 1996. A total of 15 agencies were purchased during the year, with significant acquisitions made in the United States (Moline, New Haven, Birmingham and Ontario) and in Canada (Manitoba). These acquisitions will fit well within our Company's new regional infrastructure, which is now beginning to improve the way we deliver services and products to our base of current and prospective clients. A divestiture was made in 1996 as well, when we completed the sale of our New Jersey office. This action is consistent with our strong desire to constantly review our operations in order to maximize our return on assets and our value to shareholders. I invite you to read more about the progress of our Company's new operational focus in the following pages of this report. 1996 also brought one major management change to our Company. In late November, I announced my plans for retirement. Though I will continue as Chairman of the Board, Andy Rogal, our current President and Chief Operating Officer, will assume the position of Chief Executive Officer at our annual directors' meeting in May of this year. Andy clearly has the ability, enthusiasm and experience needed to take the Company into the future. I have every confidence that this orderly transition of leadership will ensure Hilb, Rogal and Hamilton Company's continued success. Since the Company's inception in 1982, we have accomplished many great things. What started as a $15 million revenue system has grown to more than ten times that size. In just fifteen years, we have acquired or merged with over 160 agencies, making us the 9th largest agency network in the United States and the 16th largest in our business worldwide. Taking the Company public in 1987 was a major step towards financial success and our move to the New York Stock Exchange in 1992 signaled that we had finally become one of the nation's top insurance brokerages. Since that time, we have repaid the original loan required to launch our business, have taken the Company outside of the United States into the provinces of Canada and have created an operating structure that will provide greater value for our shareholders and our clients. Of course, we could have never achieved these things without the support of our Company's talented management and employees. The people of Hilb, Rogal and Hamilton Company have made our business what it is today. Their winning attitudes and commitment to excellence have enabled us to build a viable organization that is capable of creating value on all levels. That is something of which everyone in our Company can be proud. Change is good-for our industry, for our business and for our people. We have built a strong business based on sound, conservative principles. Now it is time to take the Company to the next level. By providing better service, diversifying our products and acquiring only agencies that fit within our Company's financial and operational strategies, we will be able to enhance the level of value for our shareholders, our clients and our employees. And with the continued support of investors like you, Hilb, Rogal and Hamilton Company will meet the challenges of the future with the same level of success with which we've met the challenges of the past. Sincerely, Robert H. Hilb Chairman and Chief Executive Officer (This section includes a photograph of Andrew L. Rogal, President and Chief Operating Officer.) This is an exciting time for Hilb, Rogal and Hamilton Company. In an industry besieged by adverse market conditions and fierce competitive pressures, we have experienced remarkable success. Thanks to the exemplary leadership of Bob Hilb, we have become one of the largest insurance intermediaries in the nation. His vision and dedication have been the driving forces behind our growth and financial success. Under Bob's guidance, the transition to new management has taken an orderly course. In the latter part of 1995, we began consolidating the majority of our offices into larger, regional business units to position the Company to compete successfully in our industry environment. We have completed the first stage of our operational plan and have a strong platform on which to build greater value for our shareholders, our clients and our employees. It is now time to move to the next level of our plan by integrating and rationalizing these larger operating units. The re-creation of our operating structure has generated much momentum and excitement within our Company-creating an incredible opportunity for HRH. 1997 will bring an intensified focus on our Company's operations. Our decision making will be value-driven and more strategically focused within this new operating structure. We will be guided by a real commitment to excellence and to the development of professional, highly-trained employees who can contribute to our growth and to our ability to reduce redundancies and increase efficiencies throughout the organization. By providing better and more valuable services to our clients, we will generate higher revenues and profits for all of our HRH constituencies. Our goal is to become the premier mid-market insurance and risk management intermediary in North America. I believe this is well within our reach. There is a new spirit of enthusiasm within our Company. We look forward to focusing this energy in new and profitable ways. Sincerely, Andrew L. Rogal President and Chief Operating Officer (Photogragh of a magnifying glass with the following enclosed caption: Expanded Service Capabilities, Regionalization, Commitment to Sales, Consolidating Efficiencies, Mergers & Acquisitions, Shared Resources.) (Photogragh of Bradley P. Druehl, Regional Coordinator, California Region and following captions.) California Region Offices: 11 Employees: 223 1996 Revenue Generated: $23.2 Million "Regionalization was completely new for this Company, but it made excellent business sense. We're now able to build a regional structure that can better respond to the diverse needs of our clients." - Bradley P. Druehl Regional Coordinator California Region In the past, Hilb, Rogal and Hamilton Company acted as a true agency system comprised of dozens of independent agencies. Though they functioned under the Company's name, these agencies operated in a decentralized and relatively isolated manner, which curtailed the sharing of resources needed to provide the increasingly sophisticated services and products required by the Company's base of upper mid- market clients and prospective clients. Because these individual operating units also lacked the resources and revenue base required to be institutionally meaningful to insurance companies and other trading partners, they had no advantage over competing businesses. Essentially, these small agency operations-as high quality as they were-were subject to the same relentless pressures on business and bottom line that have caused the continuing tide of consolidation in our industry. Therefore, in late 1995, HRH made a decision to consolidate the majority of these agencies into five well- defined U. S. regions: the Mid-Atlantic (which stretches from Pennsylvania to Virginia), Alabama/ Georgia, Florida, Texas and California. Each of these regions was assigned a coordinator who has been empowered to develop individual strategies that meet the regions' unique needs. The creation of this regional system marked a significant departure from HRH's previous operating structure. Soon after, each region began developing its own strategic plan, suited to the local environment and marketplace, and designed to coordinate and focus all sales and service activities. Because of the high level of flexibility afforded to the regions, they may almost be viewed as five smaller "companies" working within HRH's national structure. By developing these regional operating units, HRH has created more effective profit centers that can respond better to the needs of clients and deal better with trading partners than the individual agencies could. "For the first time, we're able to distribute special programs and develop new niche markets on a regional basis," said Brad Druehl, regional coordinator for California. "Finally, businesses and insurance carriers are seeing us for the large, national company that we've always been." (Photograph of Richard E. Simmons, III, Regional Coordinator, Alabama/Georgia Region, and following captions.) Alabama/Georgia Offices: 7 Employees: 256 1996 Revenue Generated: $21.7 Million "In the regional structure, we have been able to leverage our relationships with our insur- ance carriers. By giving a smaller number of companies a greater portion of our business, we receive significantly enhanced contracts." - Richard E. Simmons, III Regional Coordinator Alabama/Georgia Region After just a short period of operation, our regions are now beginning to reap the benefits of acting as cohesive, coordinated operating units. Perhaps the most significant advantage created by the regionalization of our offices is the increasing number of strategic relationships made possible by the consolidation of revenue. In the past, individual agencies did not have the buying power to attract enhanced contracts with insurance carriers. Yet when negotiated on a regional basis, insurance carriers are more likely to provide our Company superior contracts that often include override commissions. In this way, our Company's regions are leveraging their relationships with their insurance carriers. The Alabama/Georgia region is just one of many that is experiencing the success of regionalization on contract negotiations. "Insurance companies are looking for growth," said regional coordinator Richard Simmons. "They want brokers who can deliver larger volumes. Our region has nearly $200 million of consolidated premiums and that gets people's attention. We have found that when we approach the insurance carriers collectively, we have much more clout than we did when we were operating as individual agencies." Indeed, all of HRH's regions have begun to consolidate contracts with carriers and most have experienced a high degree of success. Yet consolidating efficiencies go much further than just contract negotiations with insurance carriers. By consolidating other services on a regional basis, many regions are making significant reductions in expenses. Some regions have gone so far as to contract with one vendor to provide office supplies and other regions are consolidating trade association memberships. "We've also reduced the level of redundancy in our region by sharing expertise and services throughout the area," said Simmons. "For instance, instead of having three offices develop their own directors and officers liability expertise, we are able to export one specialist throughout the region. That helps us to increase revenue with very minimal expense. It also saves a lot of time and energy for our producers-time they can spend servicing our clients with new products." (Photogragh of Jay C. Adams, Jr., Regional Coordinator, Florida Region and the following captions.) Florida Region Offices: 6 Employees: 176 1996 Revenue Generated: $16.6 Million "What we've done is to concentrate on providing more services such as loss control and workers' compensation claims manage- ment. Our clients have been very receptive to these value-added services." - Jay C. Adams, Jr. Regional Coordinator Florida Region It's no secret that the "good old days"-when insurance deals were made over dinner or during a round of golf-are over. Today's mid-market, Main Street businesses require much more than simple policies and an occasional outing with the insurance agent. These clients need professional risk management and other important loss control services. Throughout each of HRH's regions, an effort is being made to increase the number of services available to clients. Though our Company has traditionally been a provider of property and casualty insurance, the number of expanded services offered through our agency offices has grown rapidly. Claims management, loss control, employee benefits and other fee-for- service product lines have been developed for use in HRH's many offices. The regionalization of HRH's agency system has made it much easier for our producers to provide these value-added services. For the first time, the Company is able to deploy across a large regional revenue stream coordinated services and an expanded product mix that small, independent agencies cannot offer. Exporting talents and specialty programs throughout regions enables our producers to bring in ready-made services that they may not have been able to provide by themselves. Through regional meetings, internal communications and the distribution of resource lists, producers are given the opportunity to share ideas and concepts that will help them serve our clients better. Many regions have even hired specialists who can provide much needed support to local producers. "We added a regional claims administrator to our staff," said Jay Adams, who coordinates the Florida region. "This person has become an important advocate for our clients by helping them to better manage their workers' compensation claims costs. He is also able to review older claims for clients and prospects in order to reduce their outstanding reserves and bring these claims to closure." By deploying these additional services in the context of the regional infrastructure, HRH is able to offer its clients all the benefits of a large, national broker, while maintaining the level of personal service traditionally provided by the smaller, independent firms. "We've really just gotten started," said Adams. "We plan to provide more and better services in the near future." (Photograph of Jack P. McGrath, Regional Coordinator, Mid-Atlantic Region and following captions.) Mid-Atlantic Region Offices: 8 Employees: 335 1996 Revenue Generated: $33.9 Million "Through regional sales meetings, pooled resources and a greater focus on sales training and education, we've given our producers many more tools for success. Now they have better capabilities to increase revenue." - Jack P. McGrath Regional Coordinator Mid-Atlantic Region Along with our Company's dedication to a regional operating system comes a renewed commitment to creating a stronger, more profitable sales organization. Since market conditions have shown no signs of improvement over the last decade, HRH is beginning to focus on selling more products and services to a wide range of clients. This commitment to sales is manifesting itself in a variety of ways. Many regions have contracted with outside consultants to provide sales education and training to all producers within the region. Most of these seminars have been focused on transforming producers from commodity sellers to consultative salespeople. Through a consultative sales approach, producers can offer much more than low price commodities. Thanks to the variety of services that are now available through the regional organization, producers can more easily position themselves as full-service consultants to mid-market businesses. Because the majority of mid-market businesses do not employ full-time risk managers or insurance buyers, they can greatly benefit from a professional who is able to advise them on a wide variety of matters-from property and casualty insurance to loss control and employee benefits. "In the past, stand-alone profit centers had individual salespeople who had no other services available to them outside of their own expertise," said Mid- Atlantic regional coordinator Jack McGrath. "Now we've raised their sights, because we've given them many more services to sell." While sales training and education are helping producers throughout the nation to be much more successful, account retention programs are helping them maintain the business once it is obtained. "We want to ensure that once we win a client, we will be able to provide their business with all the services they need," said McGrath. "Retaining their business is our number one priority." Incentive programs on all levels of the regional structure are also helping the Company to encourage increased sales productivity. And as the level of regional cooperation continues to increase, the Company expects to see continued increases in sales to current and prospective clients. to current and prospective clients. (Photograph of S. Loyd Neal, Jr., Regional Coordinator, Texas Region and the following captions.) Texas Region Offices: 10 Employees: 269 1996 Revenue Generated: $23.4 Million "In Texas, we continue to need a well-defined merger and acquisition strategy in order to be a better player in the state. But it's important that we only acquire businesses that fit within our strategy." - S. Loyd Neal, Jr. Regional Coordinator Texas Region Hilb, Rogal and Hamilton Company was built through an aggressive merger and acquisition strategy. Since 1982, more than 160 independent agencies have been acquired. In the past, these transactions were an excellent way for the Company to build its revenue base in anticipation of a change in the insurance pricing cycle. Unfortunately, that change has yet to occur, and many believe that any future change will not be as significant as in the past. As part of our new focus on creating shareholder value through operations, HRH will pursue a less aggressive merger and acquisition strategy in the future. Though acquisitions will clearly continue, they will be less frequent and more selective than in the past. This redefinition of strategy will enable the Company to focus more completely on building a stronger, more operationally sound organization. When acquisitions do occur, they will do so in the context of the Company's regional strategies. The regions themselves will be given more control over merger and acquisition activity. If they feel that an acquisition is necessary to fulfill needs within the region, the Company will take action to secure the agency in question. Likewise, if an agency being considered for acquisition does not fit the operating strategies for the region, no transaction will occur. "In order to reach our goals for profitability and value-added enhancement in our region, we will need to bring certain new locations into the HRH family," said Loyd Neal, regional coordinator for Texas. "But there are other regions in the Company that really don't need acquisitions. So this strategy seems very appropriate for the Texas region." Divestiture of non-performing assets is another important component of the Company's operational plans for the future. If an agency is not profitable, or is not contributing sufficiently to enhance shareholder value, the Company will consider divesting the agency in order to invest that capital back into its operations. Through a commitment to carefully controlled acquisitions and ongoing divestiture, Hilb, Rogal and Hamilton Company will ensure improved operational value and profitability. (Photograph of Robert J. Hilb, President, Resource Group with the following captions.) Resource Group Location: Glen Allen, VA Employees: 12 "As we continue to export specialist knowl- edge, we'll see additional growth. Mutual cooperation on all levels will clearly help us achieve our operational goals." - Robert J. Hilb President Resource Group Much of the success of Hilb, Rogal and Hamilton Company's new focus on operations will be dependent upon the continued sharing of ideas and resources throughout the entire organization. One way to provide all HRH offices with the tools they need to create better value is to offer a centralized support team. To that end, HRH's Resource Group is dedicated to developing vital products and support services for use throughout the regions and in all offices. In 1996, the Resource Group's commitment to providing value resulted in a new focus on the creation of insurance products for associations, affinity groups and homogenous industries. In many ways, the development of such products is a reactive process-driven by requests from the field. "We consider our offices to be our initial clients," said Robert J. Hilb, President of the Resource Group. "Since we do not operate as a profit center, we've removed one of the barriers to success. We're here to listen to what's needed and then to provide the products necessary to gain the client's commitment." The Resource Group has developed a wide variety of products and services for HRH. Among them are a national flood program, a product for installers of security systems and an executive liability facility. "With the addition of Lars Lindeqvist, our program director, we are better equipped to help identify products within the system that might be exportable and may eventually assist other HRH offices," said Hilb. "The scope of our involvement ranges from assisting in putting the product together and then getting out of the way, to actually performing the underwriting function at the Resource Group." Important market information is also gathered by the Resource Group and distributed to everyone within the Company. In this way, the Resource Group is able to ensure that any potentially useful information makes its way into the hands of the Company's sales force. "We're building a firm that's comprised of people who share the desire to grow-and we're acting cohesively to create opportunities for our Company," said Hilb. "The potential is tremendous." "Within the Company, there is an enormous amount of enthusiasm about our new focus on operations. Our people are anxious to begin providing better value through the operating system we have created." - Andrew L. Rogal President and Chief Operating Officer Hilb, Rogal and Hamilton Company is functioning in a very difficult operating environment. All commission-based intermediaries struggle with the tremendous pressures that have been created by a highly competitive pricing environment and the vast capacity in the insurance company marketplace. The challenge, then, is for our Company to find new ways to expand our profit margins by developing an organization that can identify and capitalize on new opportunities in an ever changing industry. We believe that our Company's new focus on operations will give us this capability. Our new focus is designed to accomplish HRH's central goal of creating better value for shareholders, clients and employees, while also strengthening our position in the marketplace. Clearly, our regionalization strategy is the best way to develop the thriving entrepreneurial spirit needed to create this higher level of success throughout the Company. By acting together in well-coordinated operating units, our regions will be able to function more effectively and more efficiently. Through consolidating efficiencies, value-added services and a renewed commitment to creating a stronger sales organization, HRH will begin to realize increased revenues and greater bottom line profits-which are good for our Company, and therefore, good for our shareholders. It is important to note that this new focus does not mean that HRH will abandon the conservative strategies that made the Company such a stable financial investment. Instead, these strategies will simply be modified to fit the Company's operational focus. Mergers and acquisitions will continue, but will now be shaped and directed by the regionalization strategies. Divestitures will be pursued if they can enhance the margins and operating efficiency of our franchise. Our Company will also continue to repurchase its stock in order to generate returns that enhance shareholder value. The resources at our disposal are impressive. By tapping into the immense field of talent that exists within our Company, we will make Hilb, Rogal and Hamilton's name synonymous with value. We know that the people within our organization have the | abilities needed to create an even greater level of success for HRH. Empowered by our operational strategy, they-and your Company-will continue to perform. Selected Financial Data
Year Ended December 31 1996 1995 1994 1993 1992 (in thousands, except per share amounts) Statement of Consolidated Income Data: 1 Commissions and fees $ 153,968 $ 141,555 $ 132,914 $ 137,662 $ 137,296 Investment and other income2 4,275 6,592 7,895 3,994 3,165 ----------------------------------------------------------------------- Total revenues 158,243 148,147 140,809 141,656 140,461 Compensation and employee benefits 88,406 82,761 78,311 82,470 81,940 Other operating expenses 41,951 38,264 35,976 37,774 36,209 Amortization of intangibles 7,596 6,966 6,436 6,581 6,558 Interest expense 1,245 559 812 1,270 1,821 Pooling-of-interests expense 488 503 533 ----------------------------------------------------------------------- Total expenses 139,198 128,550 122,023 128,598 127,061 ----------------------------------------------------------------------- Income before income taxes 19,045 19,597 18,786 13,058 13,400 Income taxes 7,639 7,768 7,394 4,765 4,809 ----------------------------------------------------------------------- Net income $ 11,406 $ 11,829 $ 11,392 $ 8,293 $ 8,591 ======================================================================= Net income per Common Share $ 0.85 $ 0.82 $ 0.77 $ 0.57 $ 0.65 ======================================================================= Weighted average number of shares outstanding 13,493 14,470 14,778 14,456 13,241 Dividends paid per Common Share $ 0.605 $ 0.57 $ 0.50 $ 0.45 $ 0.41 Consolidated Balance Sheet Data: Intangible assets, net $ 80,006 $ 60,854 $ 48,729 $ 49,454 $ 47,682 Total assets 181,475 163,249 158,895 160,922 151,992 Long-term debt, less current portion 27,196 11,750 3,173 7,249 15,110 Other long-term liabilities 9,870 7,514 2,144 2,889 3,120 Total shareholders' equity 55,298 56,646 66,430 64,157 38,152
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, 1993 and 1992, the Company consummated 6 and 9 purchase acquisitions, respectively. 2. During 1996, 1995, 1994, 1993 and 1992, the Company sold certain insurance accounts and other assets resulting in gains of approximately $1,856,000, $3,337,000, $5,044,000, $1,735,000 and $1,138,000, 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 1997. Results of Operations Total revenues for 1996 were $158.2 million, an increase of $10.1 million or 6.8% over 1995. For 1995, total revenues were $148.1 million, an increase of $7.3 million or 5.2% from 1994. Commissions and fees for 1996 were $154.0 million, or 8.8% higher than 1995. Approximately $14.7 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $2.2 million from the sale of certain offices and accounts in 1996 and 1995. 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. Investment and other income decreased by $2.3 million in 1996 and $1.3 million in 1995. These amounts include gains of $1.9 million, $3.3 million and $5.0 million in 1996, 1995 and 1994, respectively, from the sale of certain offices, insurance accounts and other assets. Total operating expenses for 1996 were $139.2 million, an increase of $10.6 million or 8.3% from 1995. For 1995, total operating expenses were $128.6 million, an increase of $6.5 million or 5.3% from 1994. Compensation and employee benefits costs for 1996 were $88.4 million, an increase of $5.6 million or 6.8% from 1995. Increases included approximately $7.1 million related to purchase acquisitions offset by decreases of $1.1 million related to offices sold in 1996 and 1995. Compensation and employee benefit costs for 1995 were $82.8 million, an increase of $4.4 million or 5.7% from 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. Other operating expenses for 1996 were $42.0 million, or 9.6% higher than 1995. Increases relate primarily to purchase acquisitions. Other operating expenses for 1995 were $38.3 million, or 6.4% more than 1994. Increases relate primarily to purchase acquisitions offset in part by the sales of certain offices in 1995 and 1994. Amortization expense primarily reflects the amortization of expiration rights, an intangible asset acquired in the purchase of insurance agencies. Amortization expense increased by $630,000 or by 9.0% in 1996 and by $530,000 or 8.2% in 1995 which is attributable to purchase acquisitions consummated during 1996, 1995 and 1994 offset by decreases from amounts which became fully amortized or were sold in those years. The effective tax rates for the Company were 40.1% in 1996, 39.6% in 1995 and 39.4% in 1994. 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 totaled $16.6 million, $16.2 million and $19.7 million for the years ended December 31, 1996, 1995 and 1994, 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. Cash expenditures for the acquisition of property and equipment were $5.1 million, $4.0 million and $2.2 million in the years ended December 31, 1996, 1995 and 1994, 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 1996 and 1995, total investments decreased by $4.2 million and $17.1 million, respectively, 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 $9.7 million, $6.5 million and $9.7 million in the years ended December 31, 1996, 1995 and 1994, respectively. Cash expenditures for such insurance agency acquisitions have been funded primarily through operations, from the proceeds of the sale of Common Stock in 1993 and from long-term borrowings. 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 totaled $2.5 million, $3.5 million and $7.9 million in the years ended December 31, 1996, 1995 and 1994, respectively. The Company did not have any material capital expenditure commitments as of December 31, 1996. Financing activities utilized cash of $6.0 million, $22.1 million and $13.3 million for the years ended December 31, 1996, 1995 and 1994, respectively, as the Company made scheduled debt payments and annually increased its dividend rate. In addition, during 1996, 1995 and 1994, the Company repurchased 801,700, 1,336,820 and 172,360, respectively, shares of its Common Stock under a stock repurchase program. The Company is currently authorized to purchase an additional 423,000 shares and anticipates that it will continue to repurchase shares in 1997. The Company anticipates the continuance of its dividend policy. The Company has a bank credit agreement for borrowings of up to $30.0 million under loans due in 2002. At December 31, 1996, there were loans of $23.0 million outstanding under the agreement. The Company had a current ratio (current assets to current liabilities) of 0.86 to 1.00 as of December 31, 1996. Shareholders' equity of $55.3 million at December 31, 1996 is decreased from $56.6 million at December 31, 1995 and the debt to equity ratio of 0.49 to 1.00 at December 31, 1996, is increased from the last year-end ratio of 0.21 to 1.00 due to the aforementioned purchase of Common Stock of the Company and an increase in borrowings to $23 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. Consolidated Balance Sheet
December 31 1996 1995 ASSETS CURRENT ASSETS Cash and cash equivalents, including $11,260,000 and $10,104,000, respectively,of restricted funds $ 19,774,374 $ 17,020,706 Investments 5,088,020 11,154,673 Receivables: Premiums, less allowance for doubtful accounts of $2,445,000 and $1,772,000,respectively 41,453,677 41,707,706 Other 6,122,612 4,794,396 ------------------------------ 47,576,289 46,502,102 Prepaid expenses and other current assets 3,816,819 3,937,964 ------------------------------ TOTAL CURRENT ASSETS 76,255,502 78,615,445 INVESTMENTS 6,185,686 4,300,000 PROPERTY AND EQUIPMENT, NET 16,092,075 13,700,260 INTANGIBLE ASSETS Expiration rights 76,402,292 68,345,441 Goodwill 32,718,982 24,432,875 Noncompetition agreements 11,421,278 9,888,798 ------------------------------ 120,542,552 102,667,114 Less accumulated amortization 40,536,482 41,812,787 ------------------------------ 80,006,070 60,854,327 OTHER ASSETS 2,936,014 5,778,932 ------------------------------ $ 181,475,347 $ 163,248,964 ============================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Premiums payable to insurance companies $ 66,527,381 $ 69,481,803 Accounts payable and accrued expenses 11,401,805 8,040,022 Premium deposits and credits due customers 8,837,483 8,062,626 Current portion of long-term debt 2,345,059 1,755,238 ------------------------------ TOTAL CURRENT LIABILITIES 89,111,728 87,339,689 LONG-TERM DEBT 27,195,571 11,749,848 OTHER LONG-TERM LIABILITIES 9,869,777 7,513,537 SHAREHOLDERS' EQUITY Common Stock, no par value; authorized 50,000,000 shares; outstanding 13,320,577 and 13,706,764 shares,respectively 25,266,279 29,903,900 Retained earnings 30,031,992 26,741,990 ------------------------------ 55,298,271 56,645,890 ------------------------------ $ 181,475,347 $ 163,248,964 ==============================
See notes to consolidated financial statements. Statement of Consolidated Income
Year Ended December 31 1996 1995 1994 Revenues Commissions and fees $ 153,967,914 $ 141,555,188 $ 132,914,113 Investment and other income 4,275,186 6,591,850 7,895,501 ------------------------------------------------------- 158,243,100 148,147,038 140,809,614 Operating expenses Compensation and employee benefits 88,406,342 82,760,664 78,310,999 Other operating expenses 41,950,933 38,264,085 35,975,715 Amortization of intangibles 7,596,274 6,965,947 6,436,119 Interest expense 1,244,729 559,654 812,216 Pooling-of-interests expense - - 487,986 ------------------------------------------------------- 139,198,278 128,550,350 122,023,035 ------------------------------------------------------- INCOME BEFORE INCOME TAXES 19,044,822 19,596,688 18,786,579 Income Taxes 7,638,431 7,767,778 7,394,296 ------------------------------------------------------- NET INCOME $ 11,406,391 $ 11,828,910 $ 11,392,283 ======================================================= NET INCOME PER COMMON SHARE $ 0.85 $ 0.82 $ 0.77 ======================================================= Weighted Average Number of Shares of Common Stock 13,493,255 14,470,407 14,778,304 Outstanding =======================================================
See notes to consolidated financial statements. Statement of Consolidated Shareholders' Equity
Common Stock Retained Earnings Balance at January 1, 1994 $ 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 Issuance of 462,170 shares of Common Stock 6,251,661 Purchase of 801,700 shares of Common Stock (10,845,095) Payment of dividends ($.605 per share) (8,116,389) Other (44,187) Net income 11,406,391 ------------------------------------ Balance at December 31, 1996 $ 25,266,279 $ 30,031,992 ====================================
See notes to consolidated financial statements. Statement of Consolidated Cash Flows
Year Ended December 31 1996 1995 1994 OPERATING ACTIVITIES $ 11,406,391 $ 11,828,910 $ 11,392,283 Net income Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 7,596,274 6,965,947 6,436,119 Depreciation and amortization 3,259,452 2,790,772 2,849,831 ------------------------------------------------------- Net income plus amortization and depreciation 22,262,117 21,585,629 20,678,233 Provision for losses on receivables 1,276,258 1,500,231 1,238,500 Provision for deferred income taxes (816,246) 44,119 (148,756) Gain on sale of assets (1,856,443) ( 3,337,219) (5,047,488) Changes in operating assets and liabilities net of effects from insurance agency acquisitions and dispositions: (Increase) decrease in accounts receivable (1,405,660) 513,907 976,828 (Increase) decrease in prepaid expenses (1,649,239) (768,431) 546,613 Decrease in premiums payable to insurance companies (4,241,464) (1,156,960) (506,723) Increase (decrease) in premium deposits and credits due customers 774,857 (784,471) 743,579 Increase (decrease) in accounts payable and accrued expenses 224,046 (1,639,586) 551,458 Other operating activities 2,077,498 230,569 624,242 NET CASH PROVIDED BY OPERATING ACTIVITIES 16,645,724 16,187,788 19,656,486 INVESTING ACTIVITIES Purchase of held-to-maturity investments (7,339,705) (7,399,402) (25,488,282) Purchase of available-for-sale investments (260,000) - - Proceeds from maturities of held-to-maturity 7,866,672 24,546,279 21,238,187 investments Proceeds from sale of available-for-sale investments 3,914,000 - - Purchase of property and equipment (5,051,253) (4,007,468) (2,179,808) Purchase of insurance agencies, net of cash acquired (9,722,979) (6,540,948) (9,740,808) Proceeds from sale of assets 2,461,177 3,515,102 7,943,937 Other investing activities 222,231 216,173 114,153 ------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,909,857) 10,329,736 (8,112,621) FINANCING ACTIVITIES Proceeds from long-term debt 30,861,966 32,522,950 16,000,000 Principal payments on long-term debt (18,024,341) (29,194,326) (20,205,709) Repurchase of Common Stock (10,845,095) (17,389,044) (1,950,661) Dividends (8,116,389) (8,209,877) (7,224,935) Other financing activities 141,660 158,347 32,221 ------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (5,982,199) (22,111,950) (13,349,084) ------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,753,668 4,405,574 (1,805,219) Cash and cash equivalents at beginning of year 17,020,706 12,615,132 14,420,351 ------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,774,374 $ 17,020,706 $ 12,615,132 =======================================================
See notes to consolidated financial statements. Notes to Consolidated Financial Statements December 31, 1996 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. Investments: 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 three to 20 years for noncompetition agreements. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of this statement did not have a material impact on the Company's financial position or results of operations. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board (the FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123). The statement defines a fair value based method of accounting for employee stock options. Companies may, however, elect to adopt this new accounting rule through a pro forma disclosure option, while continuing to use the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). The Company has elected to continue to follow APB No. 25 and related interpretations in accounting for its employee stock options. In addition, the effect of applying Statement No. 123's fair value method to the Company's employee stock options does not result in net income and earnings per share that are materially different from amounts reported. Accordingly, the pro forma disclosures required by Statement No. 123 have not been included in the footnotes to the financial statements. Fair Value of Financial Instruments: The carrying amounts reported in the balance sheet for cash and cash equivalents, receivables, premiums payable to insurance companies, accounts payable and accrued expenses and long-term debt approximate those assets and liabilities' fair values. Fair values for investment securities are based on quoted market prices and are disclosed in Note B. 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:
Held-to-Maturity Investments Gross Gross December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value Obligations of U.S. government agencies $ 1,500,000 $ 3,000 $ 1,497,000 Obligations of states and political subdivisions 7,795,000 $ 75,000 1,000 7,869,000 Certificates of deposit and other 1,719,000 1,719,000 ---------------------------------------------------------------- $ 11,014,000 $ 75,000 $ 4,000 $ 11,085,000 ================================================================ Available-for-Sale Investments Gross Gross December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value Obligations of states and political subdivisions $ 260,000 $ - $ - $ 260,000 ================================================================ Held-to-Maturity Investments Gross Gross December 31, 1995 Cost Unrealized Gains Unrealized Losses Fair Value 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 Gross Gross December 31, 1995 Cost Unrealized Gains Unrealized Losses Fair Value Obligations of states and political subdivisions $ 3,914,000 $ - $ - $ 3,914,000 ===============================================================
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, 1996, by contractual maturity, are as follows. 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 $ 4,828,000 $ 4,845,000 Due after one year through five years 5,836,000 5,889,000 Due after five years through ten years 350,000 351,000 ---------------------------- $ 11,014,000 $ 11,085,000 ============================= Available-for-Sale Investments Due in one year $ 260,000 $ 260,000 ============================= Note C-Property and Equipment Property and equipment consists of the following: 1996 1995 ----------------------------------- Furniture and equipment $ 27,589,000 $ 24,454,000 Buildings and land 7,666,000 7,565,000 Leasehold improvements 1,986,000 1,641,000 ----------------------------------- 37,241,000 33,660,000 Less accumulated depreciation and amortization 21,149,000 19,960,000 ----------------------------------- $ 16,092,000 $ 13,700,000 =================================== Note D-Long-term Debt and Override Commission Agreements 1996 1995 ----------------------------------- Notes payable to banks, interest currently at 6.11% $ 23,000,000 $ 8,500,000 Installment notes payable incurred in acquisitions of insurance agencies, 4.9% to 10%, due in various installments, to 1999 3,846,000 2,637,000 Mortgage notes payable, currently 9.4%, due in installments, to 2000 2,156,000 2,180,000 Installment notes payable, 6% to 8.5%, due in various installments, to 2003 539,000 188,000 ----------------------------------- 29,541,000 13,505,000 Less current portion 2,345,000 1,755,000 ----------------------------------- $ 27,196,000 $ 11,750,000 =================================== Maturities of long-term debt for the four years ending after December 31, 1997 are $1,241,000 in 1998; $713,000 in 1999; $2,113,000 in 2000; and $48,000 in 2001. Interest paid was $1,232,000, $733,000 and $1,014,000 in 1996, 1995 and 1994, respectively. At December 31, 1996, land and buildings having a depreciated cost of $2,374,000 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 $30,000,000 under loans due in 2002, which bear interest at variable rates. At December 31, 1996, $23,000,000 was borrowed under this agreement. This credit agreement contains, among other provisions, requirements for maintaining a minimum level of shareholders' equity ($48,477,000 at December 31, 1996) and certain financial ratios. The Company had 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. 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 1996, 1995 and 1994 was approximately $2,680,000, $2,075,000 and $2,812,000, respectively. The Company has a 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: 1996 1995 ------------------------------------ Actuarial present value of: Vested benefits $ (1,923,000) $ (2,054,000) Nonvested benefits (226,000) (210,000) ------------------------------------ Accumulated benefit obligation (2,149,000) (2,264,000) Effect of anticipated future compensation levels (827,000) (710,000) ------------------------------------ Projected benefit obligation (2,976,000) (2,974,000) Plan assets at fair value - - ------------------------------------ Excess of projected benefit obligation over assets (2,976,000) (2,974,000) Unrecognized prior service costs 1,921,000 2,047,000 Unrecognized net loss 38,000 450,000 ------------------------------------ Accrued SERP expense (1,017,000) (477,000) Adjustment to recognize minimum liability (1,132,000) (1,786,000) Pension liability recognized in ------------------------------------ consolidated balance sheet $ (2,149,000) $ (2,263,000) ==================================== The expense for the SERP includes the following components: 1996 1995 1994 ----------------------------------------------------- Service cost $ 182,000 $ 159,000 $ 6,000 Interest cost 223,000 175,000 7,000 Amortization of prior 135,000 126,000 4,000 service cost ----------------------------------------------------- $ 540,000 $ 460,000 $ 17,000 ===================================================== Significant assumptions used in determining obligations and the related expense for the SERP include a weighted average discount rate of 8.0% and 7.5% in 1996 and 1995, respectively, and an assumed rate of increase in future compensation of 4% in both years. 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 amounts shown in the Company's consolidated balance sheet: 1996 1995 ------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (1,050,000) $ (1,419,000) Active plan participants - - ------------------------------------ Total (1,050,000) (1,419,000) ==================================== Plan assets at fair value - - ------------------------------------ Accumulated postretirement benefit obligation in excess of plan assets (1,050,000) (1,419,000) Unrecognized net gain (909,000) (512,000) Unrecognized transition benefit cost 1,149,000 1,264,000 ------------------------------------ Accrued postretirement benefit liability $ (810,000) $ (667,000) ==================================== Net periodic postretirement benefit cost includes the following components: 1996 1995 1994 -------------------------------------------------------- Interest cost $ 82,000 $ 104,000 $ 103,000 Amortization of transition obligation over 14 years 115,000 115,000 115,000 Amortization of prior gains (67,000) (29,000) (6,000) ------------------------------------------------------- Net periodic postretirement benefit cost $ 130,000 $ 190,000 $ 212,000 ======================================================== For measurement purposes, a 7.85% and a 9.10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1997 and 1996, 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, 1996 and 1995 by $97,000 and $130,000, respectively, and the net periodic postretirement benefit cost for 1996 by $8,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0% and 7.5% at December 31, 1996 and 1995, respectively. Note G-Income Taxes The components of income taxes shown in the statement of consolidated income are as follows: 1996 1995 1994 ------------------------------------------------------- Current Federal $ 6,481,000 $ 6,232,000 $ 6,176,000 State 1,305,000 1,268,000 1,367,000 Foreign 668,000 224,000 - -------------------------------------------------------- 8,454,000 7,724,000 7,543,000 -------------------------------------------------------- Deferred Federal (639,000) 76,000 (125,000) State (73,000) 14,000 (24,000) Foreign (104,000) (46,000) - -------------------------------------------------------- (816,000) 44,000 (149,000) -------------------------------------------------------- $ 7,638,000 $ 7,768,000 $ 7,394,000 ======================================================== The effective income tax rate varied from the statutory federal income tax rate as follows: 1996 1995 1994 -------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax exempt investment income (1.4) (2.1) (2.4) State income taxes, net of federal tax benefit 4.5 4.2 4.8 Other 2.0 2.5 2.0 -------------------------------------------------------- Effective income tax rate 40.1% 39.6% 39.4% ======================================================== Income taxes paid were $10,128,000, $8,428,000 and $7,074,000 in 1996, 1995 and 1994, respectively. Income before income taxes from Canadian operations was $1,168,000 and $317,000 in 1996 and 1995, respectively. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets on the consolidated balance sheet are as follows: 1996 1995 --------------------------------- Deferred tax liabilities: Intangible assets $ 6,483,000 $ 2,893,000 Other-net 661,000 1,600,000 ---------------------------------- Total deferred tax liabilities 7,144,000 4,493,000 ---------------------------------- Deferred tax assets: Deferred compensation 844,000 693,000 Bad debts 925,000 670,000 Other 751,000 775,000 ---------------------------------- Total deferred tax assets 2,520,000 2,138,000 ---------------------------------- Net deferred tax liabilities $ 4,624,000 $ 2,355,000 =================================== In December 1996, the Company reached a tentative agreement with the Internal Revenue Service (the IRS) to resolve all issues arising from the IRS's recently completed audit of the Company's income tax returns for the seven years ended December 31, 1994. Since the agreement relates to deductions claimed in connection with intangible assets acquired by the Company, the additional tax that will ultimately result from the agreement has been recorded as an increase to current and deferred tax liabilities of $2,626,000 and $1,500,000, respectively, and an increase in goodwill of $4,126,000 on the December 31, 1996 balance sheet. The proposed settlement will not have a significant impact on the Company's future earnings. 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 2006 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: 1997 $ 6,595,000 1998 5,282,000 1999 4,248,000 2000 2,563,000 2001 1,269,000 Thereafter 917,000 -------------- $ 20,874,000 ============== Rental expense for all operating leases amounted to $6,845,000 in 1996, $6,712,000 in 1995 and $6,549,000 in 1994. Included in rental expense for 1996, 1995 and 1994 is approximately $313,000, $435,000 and $798,000, 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 1,843,000 and 1,895,000 shares of Common Stock as of December 31, 1996 and 1995, 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 options granted have ten year terms and vest and become fully exercisable at various periods up to five years. Stock option activity under the plans was as follows: Weighted Average Shares Exercise Price Outstanding at January 1, 1994 886,400 $13.44 Granted 38,000 12.00 Exercised 2,950 6.46 Expired 51,875 13.72 ------- Outstanding at December 31, 1994 869,575 13.39 Granted 25,000 12.17 Exercised 600 12.75 Expired 87,250 13.10 ------- Outstanding at December 31, 1995 806,725 13.38 Granted 72,900 13.00 Exercised 3,600 10.40 Expired 132,700 13.21 ------- Outstanding at December 31, 1996 743,325 13.39 ======= Exercisable at December 31, 1996 542,825 13.36 ======= The options outstanding at December 31, 1996 have exercise prices that range from $6.00 to $18.20. The weighted average contractual life of these options is six years. Note J-Acquisitions During 1996, the Company acquired certain assets and liabilities of 15 insurance agencies for $16,189,000 ($7,343,000 in cash, $2,736,000 in guaranteed future payments and 451,610 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $13,565,000, noncompetition agreements of $2,820,000 and goodwill of $2,717,000. The combined purchase price may be increased by approximately $4,678,000 in 1997, $4,675,000 in 1998, $1,354,000 in 1999, $127,000 in 2000 and $37,000 in 2001 based upon commissions or net profits realized. 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 was increased by approximately $1,748,000 in 1996 and may be increased by approximately $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 $1,176,000 in 1996 and $1,203,000 in 1995 and may be increased by approximately $75,000 in 1997 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, 1996 and 1995, assuming the above 1996 and 1995 purchase acquisitions had occurred as of January 1, 1995, are as follows: 1996 1995 Revenues $166,919,000 $171,689,000 Net Income 11,499,000 11,579,000 Net Income Per Common Share 0.85 0.77 Note K-Sale of Assets During 1996, 1995 and 1994, the Company sold certain insurance accounts and other assets resulting in gains of approximately $1,856,000, $3,337,000 and $5,044,000, respectively. These amounts are included in investment and other income 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 $1,798,000 and $1,396,000 of funds held in escrow at December 31, 1996 and 1995, 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 $9,462,000 and $8,708,000 at December 31, 1996 and 1995, 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, 1996, the Company acquired certain assets and liabilities of three insurance agencies in exchange for $5,920,000 ($3,814,000 in cash, $1,806,000 in guaranteed future payments and 22,305 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, 1996 and 1995: Three Months Ended 1 March 31 June 30 Sept. 30 Dec. 31 - ----------------------------------------------------------------------------- (in thousands, except per share amounts) 1996 Total Revenues $43,076 $37,936 $38,315 $38,916 Net Income 5,162 2,674 2,241 1,329 Net Income Per Common Share 0.38 0.20 0.17 0.10 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 3,3102 2,389 1,202 Net Income Per Common Share 0.33 0.23 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 net income increased approximately $1,477,000 from the sale of certain insurance accounts and other assets. 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Richmond, Virginia February 12, 1997 Board of Directors & Officers 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 BlueCross BlueShield 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 Alabama/Georgia Region Atlanta Birmingham Fort Payne* Mobile* Gainesville St. Simons Island Savannah Arizona Phoenix Flagstaff* Mesa* Tucson* California Region Fresno Bakersfield* Dinuba* Ontario Orange County Palm Desert San Rafael Sacramento* Santa Rosa* Truckee* Vallejo* Colorado Denver Connecticut New Haven (2 locations) Clinton* Derby* Madison* Middletown* Old Saybrook* Florida Region Daytona Beach Fort Lauderdale Fort Myers Gainesville Orlando Tampa Illinois Moline Chicago* Louisiana New Orleans Mid-Atlantic Region Baltimore, Maryland Pittsburgh, Pennsylvania New York, New York* Richmond, Virginia Charlottesville* Fredericksburg* Virginia Beach* Rockville, Maryland Michigan Grand Rapids Port Huron Richmond* New York Buffalo Rochester* Syracuse* Oklahoma Oklahoma City Texas Region Amarillo Hereford* Corpus Christi Dallas Abilene* Houston McAllen Victoria Cuero* Edna* *Denotes Branch Offices CANADA Winnipeg, Manitoba Edmonton, Alberta* Montreal, Quebec* Toronto, Ontario* Vancouver, British Columbia* General Information FORM 10-K Any shareholder wishing to obtain a copy of the Company's Form 10-K for the year ended December 31, 1996 as filed with the Securities and Exchange Commission may do so without charge by writing to Dianne F. Fox, Senior Vice President and Secretary, at the corporate address. Annual Meeting The Company's Annual Meeting of Shareholders will be held on May 6, 1997 at 10:00 A.M. at Crestar Bank, 919 East Main Street, Richmond, Virginia. Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 (800) 756-3353 Shareholder Inquiries Communications regarding dividends, lost stock certificates, change of address, etc. should be directed to ChaseMellon Shareholder Services. Other inquiries should be directed to Dianne F. Fox, Senior Vice President and Secretary, at the corporate address. Outside Counsel Williams, Mullen, Christian & Dobbins Richmond, Virginia Independent Auditors Ernst & Young LLP Richmond, Virginia Corporate Headquarters 4235 Innslake Drive P. O. Box 1220 Glen Allen, Virginia 23060-1220 Tel: (804) 747-6500 Fax: (804) 747-6046 Web Site: http://www.hrh.com Shareholders The Company's Common Stock has been publicly traded since July 15, 1987. It is traded on the New York Stock Exchange under the symbol "HRH." As of December 31, 1996, there were 711 holders of record of the Company's Common Stock. Market Price of Common Stock High and low stock prices and dividends per share for the indicated quarters were: Cash Sales Price Dividends Quarter Ended High Low Declared - ---------------------------------------------------------- 1995 March 31 $ 12.13 $ 10.75 $ .14 June 30 13.13 10.50 .14 September 30 13.50 12.00 .14 December 31 14.38 13.25 .15 1996 March 31 14.00 12.63 .15 June 30 14.00 12.63 .15 September 30 13.75 11.38 .15 December 31 14.00 12.13 .155 EX-22 6 Exhibit 22 Subsidiaries of Hilb, Rogal and Hamilton Company Name of Subsidiary State/Province of Incorporation The Burton Company Connecticut Clover Insurance Agency, Inc. California S. H. Gow & Company, Inc. (three locations) Delaware Hilb, Rogal and Hamilton Company of Canada, Limited (five locations) Manitoba,Canada Hilb, Rogal and Hamilton Company of Alabama, Inc. (three locations) Alabama Hilb, Rogal and Hamilton Company of Arizona (four locations) Arizona Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia Hilb, Rogal and Hamilton Company of Baltimore Maryland Hilb, Rogal and Hamilton Insurance Services of California Central California, Inc. (three locations) HRH Insurance Services of the Coachella Valley, Inc. California Hilb, Rogal and Hamilton Company of Daytona Beach, Inc. Florida Hilb, Rogal and Hamilton Company of Denver Colorado Hilb, Rogal and Hamilton Company of the District of Columbia Delaware Hilb, Rogal and Hamilton Company of Fort Lauderdale Florida Hilb, Rogal and Hamilton Company of Fort Myers Florida Hilb, Rogal and Hamilton Company of Gainesville, Florida, Inc. Florida Hilb, Rogal and Hamilton Company of Gainesville, Georgia Georgia Hilb, Rogal and Hamilton Company of Grand Rapids Michigan Hilb, Rogal and Hamilton International, LTD. Virginia Hilb, Rogal and Hamilton Company of Louisiana Louisiana HRH of Northern California Insurance Services, Inc. California (five locations) Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma Hilb, Rogal and Hamilton Insurance Services of Orange County, Inc. California Hilb, Rogal and Hamilton Company of Orlando Florida Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. Pennsylvania (two locations) Hilb, Rogal and Hamilton Company of Port Huron Michigan (two locations) Hilb, Rogal and Hamilton Company of the Quad Cities (two locations) Illinois Hilb, Rogal and Hamilton Realty Company Delaware Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia Hilb, Rogal and Hamilton Company of St. Simons Island Georgia Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida Hilb, Rogal and Hamilton Company of Texas (ten locations) Texas Hilb, Rogal and Hamilton Company of Virginia (four locations) Virginia Insurance Management Incorporated (six locations) Connecticut Each of the above subsidiaries is 100% owned by the registrant. EX-23 7 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-4 No. 33-44271 and Form S-8 No. 33-59866) of Hilb, Rogal and Hamilton Company and in the related prospectuses of our report dated February 12, 1997, with respect to the consolidated financial statements and schedule of Hilb, Rogal and Hamilton Company included in this Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young, LLP Ernst & Young LLP Richmond, Virginia March 21, 1997 EX-27 8
5 THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF HILB, ROGAL AND HAMILTON COMPANY AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996, INCORPORATED BY REFERENCE INTO THE 1996 FORM 10K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 DEC-31-1996 19,774,374 5,088,020 50,021,289 2,445,000 0 76,255,502 37,240,860 21,148,785 181,475,347 89,111,728 27,195,571 25,266,279 0 0 30,031,992 181,475,347 0 158,243,100 0 0 137,953,549 0 1,244,729 19,044,822 7,638,431 11,406,391 0 0 0 11,406,391 .85 .85
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