Hilb Rogal & Hobbs Company (NYSE:HRH), one of the world�s
largest insurance and risk management intermediaries, today
reported financial results for the second quarter and six months
ended June 30, 2008. On June 8, 2008, HRH and Willis Group Holdings
Limited (Willis) announced a definitive agreement providing for the
merger of HRH and a wholly-owned subsidiary of Willis. Under the
terms of the agreement, if the merger is completed, all of the
outstanding shares of HRH common stock will be converted into the
right to receive cash, Willis common stock or a combination of cash
and stock. The transaction, which is expected to close in the
fourth quarter of 2008, is subject to customary closing conditions,
including HRH shareholder approval. Net income for the second
quarter 2008 reflected a non-cash $18.4 million ($0.51 per share)
intangible asset impairment charge related to HRH Reinsurance
Brokers Limited, a London-based reinsurance subsidiary, as a result
of the departure of certain key producers prior to the HRH/Willis
merger announcement who were responsible for a significant portion
of the operation�s revenue. Subsequent to the end of the second
quarter, the company entered into a revenue sharing agreement with
Willis to retain the subsidiary�s clients. This operation, which
was acquired in 2003 prior to the 2007 acquisition of Glencairn
Group Limited, represents less than 0.8% of the company�s revenues
and less than 1.4% of the company�s operating profit for the
twelve-month period ended June 30, 2008. Net income for the second
quarter decreased to $1.1 million, or $0.03 per share, compared
with $22.2 million, or $0.60 per share, for the same 2007 period.
Operating net income decreased to $1.5 million, or $0.04 per share,
compared with $22.2 million, or $0.60 per share, for the 2007
second quarter. The second quarter operating net income plus
amortization and the intangible asset impairment charge increased
on a per share basis by 5.1% from $0.79 per share to $0.83 per
share. The operating margin for the 2008 second quarter decreased
to 22.7% from 24.6% for the 2007 second quarter. For the quarter,
the continued sharp decline in property and casualty premium rates
and the aforementioned intangible asset impairment charge
significantly influenced financial results. In addition, the
operating earnings per share comparison for the quarter was
affected by the dilutive impact from the acquisition of Banc of
America Corporate Insurance Agency, LLC (BACIA) ($0.04) and
increased professional and claims fees ($0.04), the latter in part
related to a legal matter for which the company received a
settlement in July 2008 of $9.8 million. These two factors reduced
the operating profit margin by 2.5 percentage points in the
quarter. For the 2008 second quarter, total revenues were $210.6
million, compared with $200.1 million in the 2007 second quarter,
an increase of 5.3%. Core commissions and fees rose 4.4% to $195.6
million for the quarter, compared with $187.4 million for the same
period in 2007. The 2008 second quarter revenue increase reflected
acquisitions and new business, offset by the effects of continued
declines in property and casualty premium rates. Contingent
commissions increased $3.6 million to $12.0 million from the same
period in 2007. Organic growth on core commissions and fees was
(5.0)% for the 2008 second quarter. Organic growth for each of the
company�s reportable segments is included in a separate table in
this release. Organic growth is defined as the change in
commissions and fees before the effect of acquisitions and
divestitures which closed less than one year ago. For the first six
months of 2008, net income was $16.6 million, or $0.46 per share,
compared with $47.4 million, or $1.29 per share, in the same period
of 2007. Operating net income for the period was $16.8 million, or
$0.46 per share, compared with $46.1 million, or $1.25 per share, a
year ago. For the period, operating net income plus amortization
and the intangible asset impairment charge decreased on a per share
basis by 7.9% from $1.64 per share to $1.51 per share. For the six
months, the operating margin was 21.5% for 2008 compared with 25.5%
for 2007. In addition to the difficult rate environment and
intangible asset impairment charge, the year-to-date results were
adversely affected by the dilutive impact from the BACIA
acquisition ($0.09); increased professional and claims fees
($0.08), related in part to the aforementioned settlement in July
2008; the timing related to the shift from contingent to
supplemental commissions ($0.05); and increased costs related to
the employee medical program ($0.02). These four factors reduced
the operating profit margin by 3.2 percentage points in the
six-month period ended June 30, 2008. For the first six months of
2008, total revenues rose 4.8% to $417.5 million from $398.3
million a year ago. Core commissions and fees increased 8.2% to
$374.7 million from $346.5 million last year, affected primarily by
the same drivers that influenced the second quarter. Organic growth
for the 2008 period was (2.2)%. During the quarter, the company
repurchased 174,000 shares of its common stock for $5.3 million.
For the year-to-date period, an aggregate of 656,000 shares were
repurchased for $20.3 million. Martin L. (Mell) Vaughan, III,
chairman and chief executive officer, said, �Our strategies to
increase market share, continuously improve service and raise
profitability benefited from progress during the quarter in
business development, service excellence and process improvement
initiatives. Nevertheless, the persistent decline in property and
casualty rates and a softening economy left little room for
departures from plan, of which there were two notable instances in
the quarter, dilution from an acquisition and increased litigation
expenses, each also present last quarter. After the quarter, one
major contributor to litigation expense was resolved decisively in
our favor. The acquisition dilution issue will take longer to
resolve than we initially thought, but its strategic fit and
prospects remain attractive. In the meantime, the challenging
economy and volatile insurance markets create many opportunities to
build existing client relationships through superior risk
management support and service, and introduce new ideas to
prospective clients.� F. Michael Crowley, president and chief
operating officer, added, �The vast majority of HRH�s business
performed on or close to operating targets during the quarter.
Excluding the two instances noted above, the 2008 second quarter
would have been similar in many respects to the 2007 second
quarter, reflective of the current market setting, but also
indicative of market share growth. Of the two exceptions, the
dilutive acquisition involved issues, all of which have been or are
currently being addressed. The litigation expenses included a
restrictive covenant matter relating to one office mentioned last
quarter, which was concluded in July with a $9.8 million payment to
HRH. While the office remained profitable, the lost business and
legal expenses affected our results for the quarter.� About HRH
Hilb Rogal & Hobbs Company is the eighth largest insurance and
risk management intermediary in the United States, with over 140
offices throughout the United States and the world. HRH helps
clients manage their risks in property and casualty, employee
benefits, professional liability and other areas of specialized
exposure. In addition, HRH offers a full range of personal and
corporate financial products and services. HRH is focused on
understanding our clients� businesses, employees and risks, as well
as the insurance and financial markets, so that we can develop
insurance, risk management and employee benefits solutions that
best fit their needs. The company�s common stock is traded on the
New York Stock Exchange, symbol HRH. More information about HRH,
including instructions for the quarterly conference call, may be
found at www.hrh.com. Important Merger-Related Information The
proposed merger between Willis and HRH will be submitted to the HRH
shareholders for their consideration. Willis has filed with the
Securities and Exchange Commission (SEC) a Registration Statement
on Form S-4 that includes a preliminary proxy statement of HRH that
also constitutes a prospectus of Willis. HRH shareholders and other
investors are urged to read the Registration Statement and the
definitive proxy statement/prospectus regarding the proposed
transaction when it becomes available, as well as any other
relevant documents concerning the proposed transaction and the
companies that HRH or Willis files with the SEC (and any amendments
or supplements to those documents), because these will contain
important information. Investors will be able to obtain a free copy
of the definitive proxy statement/prospectus, as well as other
filings containing information about Willis and HRH, without
charge, at the SEC's website (http://www.sec.gov) once such
documents are filed with the SEC. You may also obtain these
documents, free of charge, from Willis' website (www.willis.com)
under the tab "Investor Relations" and then under the heading
"Financial Reporting" and then under the item "SEC Filings." You
may also obtain these documents, free of charge, from HRH's website
(www.hrh.com) under the heading "Investor Relations" and then under
the tab "SEC Filings." Willis, HRH and their respective directors,
executive officers and other employees may be deemed to be
participants in the solicitation of proxies from HRH shareholders
in connection with the proposed transaction. Information about
Willis' directors and executive officers is available in Willis'
proxy statement, dated March 17, 2008. Information about HRH's
directors and executive officers is available in HRH's proxy
statement, dated March 31, 2008. Additional information about the
interests of potential participants will be included in the
definitive prospectus/proxy statement when it becomes available.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus, meeting the requirements of Section 10 of the U.S.
Securities Act of 1933, as amended. Forward-Looking Statements
Forward-looking statements�made during the course of our conference
calls, in filings by the company with the SEC, in the company�s
press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized company
executive officer, may include the words or phrases �would be,�
�will allow,� �expects to,� �will continue,� �is anticipated,�
�estimate,� �project� or similar expressions and are intended to
identify �forward-looking statements� within the meaning of the
Private Securities Litigation Reform Act of 1995. While
forward-looking statements are provided to assist in the
understanding of the company�s anticipated future financial
performance, the company cautions readers not to place undue
reliance on any forward-looking statements, which speak only as of
the date made. Forward-looking statements are subject to
significant risks and uncertainties, many of which are beyond the
company�s control. Although the company believes that the
assumptions underlying its forward-looking statements are
reasonable, any of the assumptions could prove to be inaccurate.
Actual results may differ materially from those contained in or
implied by such forward-looking statements for a variety of
reasons. Risk factors and uncertainties that might cause such a
difference include, but are not limited to, the following: the
company�s commission revenues are based on premiums set by insurers
and any decreases in these premium rates could result in revenue
decreases for the company; 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�s growth has been enhanced through
acquisitions, but the company may not be able to successfully
identify and attract suitable acquisition candidates and complete
acquisitions; 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; the company�s success in the future depends, in part, on
the company�s ability to attract and retain quality producers; the
company may be subject to increasing costs arising from errors�and
omissions claims against the company; the company is subject to
governmental regulation which may impact operating results and/or
growth; the business practices and broker compensation arrangements
of the company are subject to uncertainty due to investigations by
governmental authorities and related private litigation; the
company is subject to a number of investigations and legal
proceedings, which if determined unfavorably for the company, may
adversely affect the company�s results of operations; a decline in
the company�s ability to obtain new financing and/or refinance
current borrowings may adversely affect the company; 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; 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; the
company�s operating results could be adversely affected if the
value of intangible assets is not fully realized; the company has
international operations, particularly in the United Kingdom, which
expose the company to various legal, economic and market risks
including foreign currency exchange rate fluctuations; customer
loss and business disruption as a result of the pendency of the
HRH/Willis merger, including without limitation difficulties in
maintaining relationships with employees, and merger-related
expenses, may be greater than expected; completion of the merger is
subject to the satisfaction of various conditions to closing set
forth in the definitive merger agreement between HRH and Willis,
including without limitation receipt of HRH shareholder approval,
and the merger may not be completed on the anticipated schedule or
at all; and, if the merger is completed, the success of the
HRH/Willis merger is subject to risks and uncertainties, including
without limitation the risk that Willis may not be able to achieve
the expected cost savings, synergies and other strategic benefits
from the proposed transaction or may take longer to achieve the
cost savings, synergies and benefits than expected, and the
integration of HRH with Willis' operations may not be successful or
may be materially delayed or may be more costly or difficult than
expected. The company does not undertake, and specifically
disclaims any obligation, to update any forward-looking statements
to reflect occurrences or unanticipated events or circumstances
after the date of such statements. 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, 2007 and other reports from
time to time filed with or furnished to the Securities and Exchange
Commission. � � � � HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
COMPARATIVE FINANCIAL ANALYSIS (In thousands, except per share
data) � THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2008
� 2007 � 2008 � 2007 (Unaudited) (Unaudited) REVENUES Core
commissions and fees $ 195,606 $ 187,391 $ 374,732 $ 346,460
Contingent commissions 12,033 8,456 36,196 41,575 Investment income
1,994 3,123 4,652 6,160 Other � 995 � � 1,121 � � 1,877 � � 4,089
210,628 200,091 417,457 398,284 OPERATING EXPENSES Compensation and
employee benefits 118,205 111,554 241,639 220,672 Other operating
expenses 42,290 36,837 80,995 69,859 Depreciation 2,269 2,189 4,609
4,302 Amortization of intangibles 10,038 7,095 19,879 14,509
Interest expense 6,182 5,154 13,260 10,645 Intangible asset
impairment charge 18,439 -- 18,439 -- Merger costs � 798 � � -- � �
798 � � -- � 198,221 � � 162,829 � � 379,619 � � 319,987 � INCOME
BEFORE INCOME TAXES 12,407 37,262 37,838 78,297 Income taxes �
11,284 � � 15,050 � � 21,192 � � 30,863 NET INCOME $ 1,123 � $
22,212 � $ 16,646 � $ 47,434 � Net Income Per Share: Basic $ 0.03 �
$ 0.61 � $ 0.46 � $ 1.30 Assuming Dilution $ 0.03 � $ 0.60 � $ 0.46
� $ 1.29 � Dividends Per Share $ 0.14 � $ 0.13 � $ 0.27 � $ 0.25 �
Weighted Average Shares Outstanding: Basic � 36,135 � � 36,582 � �
36,324 � � 36,398 Assuming Dilution � 36,314 � � 37,067 � � 36,535
� � 36,896 � � HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (In thousands) � � JUNE 30, DECEMBER 31,
2007 � 2008 (Unaudited) ASSETS CURRENT ASSETS Cash and cash
equivalents $ 277,781 $ 294,407 Receivables (net) 345,982 366,215
Prepaid expenses and other current assets � 41,139 � � 42,200 TOTAL
CURRENT ASSETS 664,902 702,822 � PROPERTY & EQUIPMENT (NET)
26,089 26,023 � INTANGIBLE ASSETS (NET) 1,032,331 1,052,278 � OTHER
ASSETS � 37,312 � � 36,303 $ 1,760,634 � $ 1,817,426 � LIABILITIES
AND SHAREHOLDERS� EQUITY CURRENT LIABILITIES Premiums payable to
insurance companies $ 431,877 $ 453,850 Accounts payable 31,013
32,380 Accrued expenses 38,334 54,290 Premium deposits and credits
due customers 50,062 69,284 Current portion of long-term debt �
17,888 � � 14,705 TOTAL CURRENT LIABILITIES 569,174 624,509 �
LONG-TERM DEBT 407,082 412,432 � DEFERRED INCOME TAXES 52,181
50,524 � OTHER LONG-TERM LIABILITIES 51,054 46,758 � SHAREHOLDERS�
EQUITY Common Stock (outstanding 36,435 and 36,749 shares,
respectively) 262,685 271,263 Retained earnings 416,254 409,443
Accumulated other comprehensive income � 2,204 � � 2,497 � 681,143
� � 683,203 $ 1,760,634 � $ 1,817,426 � � 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 NET
INCOME PER SHARE THREE MONTHS ASSUMING DILUTION ENDED THREE MONTHS
ENDED JUNE 30, JUNE 30, 2008 � 2007 � 2008 � 2007 (Unaudited)
(Unaudited) � � GAAP NET INCOME $ 1,123 $ 22,212 $ 0.03 $ 0.60
Excluding: Non-operating gains, net of taxes (68 ) 4 -- -- Merger
costs, net of taxes � 486 � � � -- � � � 0.01 � � � -- � OPERATING
NET INCOME 1,541 22,216 0.04 0.60 Plus: Amortization of
intangibles, before tax 10,038 7,095 0.28 0.19 Intangible asset
impairment charge, before tax � 18,439 � � � -- � � � 0.51 � � � --
� OPERATING NET INCOME PLUS AMORTIZATION OF INTANGIBLES AND
INTANGIBLE ASSET IMPAIRMENT CHARGE $ 30,018 � � $ 29,311 � � $ 0.83
� � $ 0.79 � � OPERATING PROFIT OPERATING REVENUE THREE MONTHS
ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 2008 � 2007 � 2008 �
2007 (Unaudited) (Unaudited) � GAAP NET INCOME / REVENUE $ 1,123 $
22,212 $ 210,628 $ 200,091 Excluding: Non-operating gains (111 )
(258 ) (111 ) (258 ) Amortization of intangibles 10,038 7,095 -- --
Interest expense 6,182 5,154 -- -- Intangible asset impairment
charge 18,439 -- -- -- Merger costs 798 -- -- -- Income taxes �
11,284 � � � 15,050 � � � -- � � � -- � OPERATING PROFIT / REVENUE
$ 47,753 � � $ 49,253 � � $ 210,517 � � $ 199,833 � � � � � � HILB
ROGAL & HOBBS COMPANY AND SUBSIDIARIES GAAP MEASURES
RECONCILIATION (In thousands, except per share data) � � NET INCOME
PER SHARE NET INCOME ASSUMING DILUTION SIX MONTHS ENDED SIX MONTHS
ENDED JUNE 30, JUNE 30, � 2008 � � � 2007 � � � 2008 � � � 2007 �
(Unaudited) (Unaudited) � GAAP NET INCOME $ 16,646 $ 47,434 $ 0.46
$ 1.29 Excluding: Non-operating gains, net of taxes (313 ) (1,361 )
(0.01 ) (0.04 ) Merger costs, net of taxes � 486 � � � -- � � �
0.01 � � � -- � OPERATING NET INCOME $ 16,819 46,073 0.46 1.25
Plus: Amortization of intangibles, before tax 19,879 14,509 0.54
0.39 Intangible asset impairment charge, before tax � 18,439 � � �
-- � � � 0.51 � � � -- � OPERATING NET INCOME PLUS AMORTIZATION OF
INTANGIBLES AND INTANGIBLE ASSET IMPAIRMENT CHARGE � � � $ � � �
55,137 � � � � � $ � � � 60,582 � � � � � $ � � � 1.51 � � � � � $
� � � 1.64 � � OPERATING PROFIT OPERATING REVENUE SIX MONTHS ENDED
SIX MONTHS ENDED JUNE 30, JUNE 30, � 2008 � � � 2007 � � � 2008 � �
� 2007 � (Unaudited) (Unaudited) � GAAP NET INCOME / REVENUE $
16,646 $ 47,434 $ 417,457 $ 398,284 Excluding: Non-operating gains
(513 ) (2,542 ) (513 ) (2,542 ) Amortization of intangibles 19,879
14,509 -- -- Interest expense 13,260 10,645 -- -- Intangible asset
impairment charge 18,439 -- -- -- Merger costs 798 -- -- -- Income
taxes � 21,192 � � � 30,863 � � � -- � � � -- � OPERATING PROFIT /
REVENUE $ 89,701 � � $ 100,909 � � $ 416,944 � � $ 395,742 � � �
HILB ROGAL & HOBBS COMPANY AND SUBSIDIARIES GAAP MEASURES
RECONCILIATION (In thousands, except percentages) � � � � � � �
GAAP REVENUETHREE MONTHS ENDEDJUNE 30, TOTAL CHANGE TOTAL GROWTH
NET ADJUSTMENTS(ACQUISITIONS) ORGANIC GROWTH (Unaudited) 2008 �
2007 � ($) � (%) � / DIVESTITURES � (%) � Core Commissions &
Fees: Domestic Retail $ 166,781 $ 156,068 $ 10,713 6.9 % $ (17,280
) (4.2 )% Excess & Surplus 10,087 10,136 (49 ) (0.5 ) (327 )
(3.7 ) International 14,053 15,666 (1,613 ) (10.3 ) -- (10.3 )
Other � 4,685 � � 5,521 � � (836 ) (15.1 ) � -- � (15.1 ) Total $
195,606 � $ 187,391 � $ 8,215 � � 4.4 % � $ (17,607 ) � (5.0 )% � �
� � � � GAAP REVENUESIX MONTHS ENDEDJUNE 30, TOTALCHANGE
TOTALGROWTH NET ADJUSTMENTS(ACQUISITIONS) ORGANIC GROWTH
(Unaudited) 2008 � 2007 � ($) � (%) � / DIVESTITURES � (%) � Core
Commissions & Fees: Domestic Retail $ 320,518 $ 289,952 $
30,566 10.5 % $ (34,618 ) (1.4 )% Excess & Surplus 18,487
18,054 433 2.4 (1,376 ) (5.2 ) International 25,631 27,242 (1,611 )
(5.9 ) -- (5.9 ) Other � 10,096 � 11,212 � (1,116 ) (10.0 ) � -- �
(10.0 ) Total $ 374,732 � $ 346,460 � $ 28,272 � � 8.2 % � $
(35,994 ) � (2.2 )%
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