EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

Press Release

 

Hilb Rogal & Hobbs Company   Contact: Carolyn Jones
4951 Lake Brook Drive, Suite 500   Phone: (804) 747-3108
Glen Allen, Virginia 23060   Fax: (804) 747-6046    

 

FOR IMMEDIATE RELEASE

 

July 27, 2005

 

HILB ROGAL & HOBBS COMPANY REPORTS

SECOND QUARTER RESULTS

 

RICHMOND, Va.— Hilb Rogal & Hobbs Company (NYSE:HRH), the world’s tenth largest insurance and risk management intermediary, reported today financial results for the second quarter and six months ended June 30, 2005.

 

For the second quarter, total revenues were $162.0 million, compared with $147.8 million a year ago, an increase of 9.7%. Commissions and fees rose 8.8% to $158.4 million, during the quarter, compared with $145.7 million last year, primarily reflecting acquisitions, offset by a continued decline in premium rates, reduced contingent and override commissions, and lower than normal retention rates primarily related to recent producer culling.

 

Net income for the quarter was $15.8 million, or $0.44 per share, compared with $20.5 million, or $0.56 per share a year ago, a decrease of 22.9%. Operating net income was $16.5 million, or $0.46 per share, compared with $20.8 million, or $0.57 per share, a year ago, a decrease of 20.6%. Operating net income benefited from higher revenues but was reduced by higher legal and claims expenses, a decline in same-store contingent and override commissions, and investment in sales and service talent. Legal and claims expenses in the second quarter were $3.4 million higher than the same period of 2004. The increase primarily related to various regulatory inquiries and the protection of restrictive covenants in employment contracts, net of insurance recoveries on contested claims.

 

For the first six months, total revenues rose 12.9% to $345.4 million from $306.0 million a year ago. Commissions and fees increased 12.1% to $338.7 million from $302.1 million last year, due to the revenue factors above. Net income for the six months was $43.5 million, or $1.20 per share, compared with $44.7 million, or $1.23 per share, in 2004, a decrease of 2.7%. Operating net income was $43.6 million, or $1.20 per share, compared with $45.4 million, or $1.25 per share, a year ago, a decrease of 4.0%. Similar to the quarter, operating net income was positively impacted by higher revenues but lowered by higher legal, compliance and claims expenses. Legal, compliance and claims expenses for the six months increased $8.3 million compared with the prior year period. These expenditures primarily related to the factors noted above for the quarter as well as compliance with Section 404 of the Sarbanes-Oxley Act.

 

Organic growth, defined as the change in commissions and fees before the effect of acquisitions and divestitures, was (2.7)% for the second quarter and (1.2)% for the six months. Higher new business production was offset by declining premium rates, the elimination of override commissions, producer culling, timing, and quarter-specific items. Excluding contingent and override commissions, organic growth was (1.1)% for the second quarter and (1.9)% for the six months.

 

(CONTINUED)

HILB ROGAL & HOBBS COMPANY REPORTS

SECOND QUARTER RESULTS – Continued

 

The operating margin for the second quarter was 22.5% compared with 27.1% for the prior year quarter. For the six months, the operating margin decreased to 26.1% in 2005 from 28.3% in 2004. The margin decline in both periods was primarily attributable to legal and regulatory expenses incurred in response to investigations of industry practices, the elimination of override commissions, quarter-specific commission adjustments, and continued net investment in sales and service talent.

 

The pace of acquisitions slowed during the first half, as it did last year in the second quarter, but HRH continues to expect acquired annualized revenues for this year to be between $30 million and $60 million.

 

Martin L. (Mell) Vaughan, III, chairman and chief executive officer, said, “Industry developments influenced our financial results this quarter and for the first half of 2005. On the revenue side, premium rates generally continued to decline at a pace that accelerated in the second quarter. If there is a silver lining to declining rates, it is the opportunity to show clients how effectively we can market their risks to insurance carriers. On the expense side, we incurred legal costs related to government investigations, inquiries into industry practices and an internal review of HRH’s business practices along with costs for the addition of experienced professionals who became available as industry events unfolded after October 2004. We view the quality and quantity of the industry talent that we attract as a validation of our strategy and confirmation of our long-term outlook.”

 

Mr. Vaughan concluded, “Our long-term strategic plan—to expand in the major account territory while continuing to grow our middle-market presence—achieved a strategic advance through the extraordinary industry talent that has joined HRH over the past nine months. Since the hiring of this talent and the receipt of revenue or other contributions are not simultaneous, we incurred expenses for actions that will be accretive to earnings mainly in future periods. Nevertheless, partly as a result of these additions, our operating model has never been more effective, our risk management and risk marketing capabilities never better, and our sales and service never more responsive to the needs of clients. Our current leadership team is as deep and experienced as any in the business. Finally, although we cannot predict the course of regulatory developments, we are hopeful that when the regulatory activity begins to recede, the industry and insureds will be strengthened by the experience.”

 

HRH will file a Current Report on Form 8-K with the Securities and Exchange Commission prior to HRH’s scheduled conference call on July 28, 2005. This Form 8-K is to provide an update regarding certain industry and legal developments.

 

Hilb Rogal & Hobbs Company is the eighth largest insurance and risk management intermediary in the U.S. and tenth largest in the world. From offices throughout the U.S. and in London, HRH assists clients in managing risks in property and casualty, employee benefits and many other areas of specialized exposure. The company is traded on the New York Stock Exchange, symbol HRH. Additional information about HRH, including instructions for the quarterly conference call, may be found at www.hrh.com.

 

(CONTINUED)

HILB ROGAL & HOBBS COMPANY REPORTS

SECOND QUARTER RESULTS – Continued

 

Forward-Looking Statements

 

The company cautions readers that the statements about the company’s future operations and business prospects are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. Risk factors and uncertainties that might cause such a difference include, but are not limited to, the following: the company’s commission revenues are highly dependent on premium rates charged by insurance underwriters, which are subject to fluctuation based on the prevailing economic conditions and competitive factors that affect insurance underwriters; the level of contingent commissions is difficult to predict and any material decrease in the company’s collection of them is likely to have an adverse impact on operating results; the company has eliminated override commissions effective for business written on or after January 1, 2005, and it is uncertain whether additional contingent commissions payable to the company will offset the loss of such revenues; the company’s growth has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to the company; the company’s failure to integrate an acquired insurance agency efficiently may have an adverse effect on the company; the general level of economic activity can have a substantial impact on revenues that is difficult to predict; a strong economic period may not necessarily result in higher revenues if the volume of insurance business brought about by favorable economic conditions is offset by premium rates that have declined in response to increased competitive conditions; if the company is unable to respond in a timely and cost-effective manner to rapid technological change in the insurance intermediary industry, there may be a resulting adverse effect on business and operating results; the business practices and broker compensation arrangements of the company and the insurance intermediary industry are subject to uncertainty due to investigations by various governmental authorities and related private litigation; and quarterly and annual variations in the company’s commissions and fees that result from the timing of policy renewals and the net effect of new and lost business production may have unexpected impacts on the company’s results of operations. For more details on factors that could affect expectations, see the company’s Annual Report on Form 10-K for the year ended December 31, 2004 and other reports from time to time filed with or furnished to the Securities and Exchange Commission.

 

(CONTINUED)

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

COMPARATIVE FINANCIAL ANALYSIS

(In thousands, except per share data)

 

     THREE MONTHS ENDED
JUNE 30,
    SIX MONTHS ENDED
JUNE 30,
     2005
    2004
    2005
    2004
     (Unaudited)    (Unaudited)

REVENUES

                            

Commissions and fees

    $ 158,432    $ 145,674    $ 338,689    $ 302,070

Investment income

      1,515      756      2,588      1,311

Other

      2,080      1,325      4,095      2,601
    
  
  
  
       162,027      147,755      345,372      305,982

OPERATING EXPENSES

                            

Compensation and employee benefits

      90,195      79,145      183,855      162,870

Other operating expenses

      32,611      26,411      65,530      51,977

Depreciation

      2,090      2,074      4,280      4,329

Amortization of intangibles

      4,717      2,852      9,414      5,681

Interest expense

      4,035      2,385      7,797      4,914

Severance charge1

      1,303      —        1,303      —  

Integration costs2

      764      636      764      1,627
    
  
  
  
       135,715      113,503      272,943      231,398
    
  
  
  

INCOME BEFORE INCOME TAXES

      26,312      34,252      72,429      74,584

Income taxes

      10,509      13,748      28,904      29,846
    
  
  
  

NET INCOME

    $ 15,803    $ 20,504    $ 43,525    $ 44,738
    
  
  
  

Net Income Per Share:

                            

Basic

    $ 0.44    $ 0.57    $ 1.22    $ 1.25
    
  
  
  

Assuming Dilution

    $ 0.44    $ 0.56    $ 1.20    $ 1.23
    
  
  
  

Dividends Per Share

    $ 0.1150    $ 0.1050    $ 0.2200    $ 0.1975
    
  
  
  

Weighted Average Shares Outstanding:

                            

Basic

      35,614      35,921      35,797      35,754
    
  
  
  

Assuming Dilution

      36,138      36,584      36,324      36,460
    
  
  
  
1 The company recorded a severance charge for the quarter ended June 30, 2005, representing an estimated severance benefit for Robert B. Lockhart, the company’s former president and chief operating officer, who resigned in May 2005.

 

2 Integration costs represent one-time costs including severance and other employee-related costs, facility and lease termination costs and branding expenses.

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In thousands)

 

     JUNE 30,
2005
    DECEMBER 31,
2004
     (Unaudited)     

ASSETS

              

CURRENT ASSETS

              

Cash and cash equivalents

    $ 224,697    $ 210,470

Receivables (net)

      258,847      240,421

Prepaid expenses and other

      17,551      24,586
    
  

TOTAL CURRENT ASSETS

      501,095      475,477

PROPERTY & EQUIPMENT (NET)

      25,487      24,024

INTANGIBLE ASSETS (NET)

      764,762      757,942

OTHER ASSETS

      24,127      20,556
    
  
     $ 1,315,471    $ 1,277,999
    
  

LIABILITIES AND SHAREHOLDERS’ EQUITY

              

CURRENT LIABILITIES

              

Premiums payable to insurance companies

    $ 346,446    $ 315,130

Accounts payable

      13,764      13,417

Accrued expenses

      32,883      46,371

Premium deposits and credits due customers

      43,590      48,287

Current portion of long-term debt

      12,284      16,248
    
  

TOTAL CURRENT LIABILITIES

      448,967      439,453

LONG-TERM DEBT

      263,082      265,384

DEFERRED INCOME TAXES

      36,251      34,113

OTHER LONG-TERM LIABILITIES

      35,585      31,893

SHAREHOLDERS’ EQUITY

              

Common Stock (outstanding 35,671 and 35,886 shares, respectively)

      223,037      233,785

Retained earnings

      307,616      271,978

Accumulated other comprehensive income

      933      1,393
    
  
       531,586      507,156
    
  
     $ 1,315,471    $ 1,277,999
    
  

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

GAAP MEASURES RECONCILIATION

(In thousands, except per share data)

 

This press release contains references to financial measures that exclude certain charges and non-recurring items. The company believes that these adjusted financial measures provide additional measures of performance that investors can use in evaluating the company’s performance. The schedule below provides a reconciliation of these financial measures to those prepared in accordance with United States generally accepted accounting principles (GAAP).

 

     NET INCOME
THREE MONTHS ENDED
JUNE 30,
     NET INCOME PER SHARE
ASSUMING DILUTION
THREE MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP NET INCOME

    $ 15,803     $ 20,504     $ 0.44     $ 0.56  

Excluding:

                                 

Non-operating gains, net of tax

      (501 )     (47 )     (0.01 )     —    

Severance charge, net of tax

      782       —         0.02       —    

Integration costs, net of tax

      459       381       0.01       0.01  
    
 
 
 

OPERATING NET INCOME

    $ 16,543     $ 20,838     $ 0.46     $ 0.57  
    
 
 
 
     OPERATING MARGIN
THREE MONTHS ENDED
JUNE 30,
     OPERATING REVENUE
THREE MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP NET INCOME / REVENUE

    $ 15,803     $ 20,504     $ 162,027     $ 147,755  

Excluding:

                                 

Non-operating gains

      (835 )     (78 )     (835 )     (78 )

Amortization of intangibles

      4,717       2,852       —         —    

Interest expense

      4,035       2,385       —         —    

Severance charge

      1,303       —         —         —    

Integration costs

      764       636       —         —    

Income taxes

      10,509       13,748       —         —    
    
 
 
 

OPERATING MARGIN / REVENUE

    $ 36,296     $ 40,047     $ 161,192     $ 147,677  
    
 
 
 

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

GAAP MEASURES RECONCILIATION

(In thousands, except per share data)

 

    

NET INCOME

SIX MONTHS ENDED
JUNE 30,

     NET INCOME PER SHARE
ASSUMING DILUTION
SIX MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP NET INCOME

    $ 43,525     $ 44,738     $ 1.20     $ 1.23  

Excluding:

                                 

Non-operating gains, net of tax

      (1,134 )     (285 )     (0.03 )     (0.01 )

Severance charge, net of tax

      782       —         0.02       —    

Integration costs, net of tax

      459       976       0.01       0.03  
    
 
 
 

OPERATING NET INCOME

    $ 43,632     $ 45,429     $ 1.20     $ 1.25  
    
 
 
 
     OPERATING MARGIN
SIX MONTHS ENDED
JUNE 30,
     OPERATING REVENUE
SIX MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP NET INCOME / REVENUE

    $ 43,525     $ 44,738     $ 345,372     $ 305,982  

Excluding:

                                 

Non-operating gains

      (1,891 )     (475 )     (1,891 )     (475 )

Amortization of intangibles

      9,414       5,681       —         —    

Interest expense

      7,797       4,914       —         —    

Severance charge

      1,303       —         —         —    

Integration costs

      764       1,627       —         —    

Income taxes

      28,904       29,846       —         —    
    
 
 
 

OPERATING MARGIN / REVENUE

    $ 89,816     $ 86,331     $ 343,481     $ 305,507  
    
 
 
 

HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES

GAAP MEASURES RECONCILIATION

(In thousands)

 

     ORGANIC GROWTH
  
     THREE MONTHS ENDED
JUNE 30,
     SIX MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP COMMISSIONS AND FEES

    $ 158,432     $ 145,674     $ 338,689     $ 302,070  

Commissions and fees from acquired agencies, net of divestitures

      (16,653 )     —         (40,173 )     —    
    
 
 
 

COMMISSIONS AND FEES, EXCLUDING THE EFFECT OF REVENUES FROM ACQUIRED/ DIVESTED AGENCIES

    $ 141,779     $ 145,674     $ 298,516     $ 302,070  
    
 
 
 
     ORGANIC GROWTH,
NET OF CONTINGENT AND OVERRIDE COMMISSIONS
  
     THREE MONTHS ENDED
JUNE 30,
     SIX MONTHS ENDED
JUNE 30,
  
     2005
     2004
     2005
     2004
  
     (Unaudited)     (Unaudited)  

GAAP COMMISSIONS AND FEES

    $ 158,432     $ 145,674     $ 338,689     $ 302,070  

Contingent and override commissions

      (7,380 )     (7,601 )     (44,677 )     (35,070 )

Commissions and fees from acquired agencies, net of divestitures

      (14,484 )     —         (32,134 )     —    
    
 
 
 

COMMISSIONS AND FEES, NET OF CONTINGENT AND OVERRIDE COMMISSIONS, EXCLUDING THE EFFECT OF REVENUES FROM ACQUIRED/DIVESTED AGENCIES

    $ 136,568     $ 138,073     $ 261,878     $ 267,000  
    
 
 
 

 

—END—