The Company leases its corporate office in Glen Allen, Virginia. The Company’s subsidiaries also conduct their business operations from leased office space in various jurisdictions where located. Information on the Company’s lease commitments is incorporated by reference to the material contained in “Note G-Leases” of Notes to Consolidated Financial Statements included in Item 8 of this report. The Company believes that its properties are in good condition and are suitable and adequate for its purposes.
Net income for the year ended December 31, 2007 decreased 10.2% from $87.0 million, or $2.39 per share for 2006, to $78.1 million, or $2.11 per share. Net income for 2007 and 2006 included various transactions:
Compensation and employee benefits for 2007 were $455.1 million compared to $397.3 million in 2006, an increase of $57.8 million, or 14.5%. The year-over-year increase includes approximately $61.4 million related to 2007 and 2006 purchase acquisitions, partially offset by decreases of $7.1 million related to agencies and accounts sold. Compensation costs for 2007 included $4.8 million related to expensing the fair value of stock options.
In connection with the April 2006 entry into and the September 2007 amending of the Credit Agreement, the Company deferred $1.5 million and $1.0 million, respectively, of debt issuance costs which will be amortized as additional interest expense over the term of the credit facility. In connection with entering into the Note Purchase Agreement and issuing $100.0 million of related notes, the Company deferred $0.2 million of debt issuance costs which will be amortized as additional interest over the term of the notes.
Contingent commissions are recorded as revenue when received. Contingent commissions are commissions paid by insurance underwriters and are based on the estimated profit, growth and/or overall volume of business placed with the underwriter. The data necessary for the calculation of contingent commissions cannot be reasonably obtained prior to receipt of the commission which, in many cases, is the Company’s first notification of amounts earned.
The Company sponsors the HRH Retirement Savings Plan (the Retirement Savings Plan) which covers substantially all employees of the Company and its subsidiaries. The Retirement Savings Plan, which may be amended or terminated by the Company at any time, provides that the Company shall contribute a matching contribution of up to
The Company and its subsidiaries operate in multiple jurisdictions including the U.S. Federal, various states, and other foreign countries. The Company’s U.S. Federal tax returns are subject to audit for calendar years 2004, 2005 and 2006. The Company’s state tax returns are subject to audit for calendar years subsequent to 2002. The Company’s United Kingdom tax returns are subject to audit for calendar years 2005 and 2006.
National Override Agreements, as defined in the Agreement, mean corporate-wide compensation agreements negotiated by the Company with those certain insurance companies on behalf of all of the Company’s offices to receive commissions in lieu of standard contingent compensation arrangements with each office of the Company.
On August 31, 2007, the District Court of New Jersey dismissed all federal antitrust claims in the Second Amended Commercial Complaint. On September 28, 2007, the District Court of New Jersey dismissed all federal RICO claims in the Second Amended Commercial Complaint with prejudice. The District Court of New Jersey further declined to exercise jurisdiction over state law claims in the Second Amended Commercial Complaint, dismissed those state law claims without prejudice and dismissed Civil No. 04-5184 in its entirety. The District Court of New Jersey also dismissed as moot all other motions pending in Civil No. 04-5184 as of September 28, 2007.