INCOME STATEMENT PROJECTIONS

Income Statement Support

($ in thousands, except per share data)

2000
5,357
12,239

Depreciation
Amortization of intangibles
Commissions and fees growth
% of Commissions and fees
Investment income
Other income

1999:
$219,293

Actual
2001
6,116
13,868

2002
7,771
5,320

Estimated
2003
8,935
8,019

2004
9,327
7,911

Projected
2005
2006
9,115
8,248
7,095
7,085

2007
Projection Drivers
7,109 % Total Revenue
7,082 10K Note K page F21

16.9%

26.0%

38.3%

30.0%

1.0%
0.5%

0.8%
0.6%

0.5%
0.8%

0.5%
0.9%

% of Total Revenue
Compensation and employee benefits
Other operating expenses
Depreciation

56.3%
19.3%
2.1%

55.7%
19.0%
1.9%

54.2%
17.7%
1.7%

53.7%
17.2%
1.5%

53.2%
16.7%
1.3%

52.7%
16.2%
1.1%

52.2%
15.7%
0.9%

51.7% decrease 1/2 %

15.2% decrease 1/2 %
0.7% decrease 20 basis point

Effective Tax Rate

44.3%

43.0%

40.8%

41.0%

41.0%

41.0%

41.0%

41.0% 10K Note F page F15

Capex

7,514

5,633

6,641

7,500

8,500

9,500

10,500

11,500 Estimated

27,143

34,830
7,687

41,288
6,458

46,895
5,607

50,936
4,042

55,314 1mo comp + op exp

4,378 year to year

DCF Calculations:
Working Capital Calculation
30 Days Operating Expenses
Change in Working Capital

20.0%
15.0%
10.0%
10.0%
CONSTANT IN 2003 (INTEREST RATE TRENDS)
0.6%
0.7%
0.8%
0.9% increase 10 basis point
1.0%
1.1%
1.2%
1.3% increase 10 bp asap

Step 3:
TIP: Estimate working
capital per 1 month of
operating expenses (used
for DCF analysis later)

Using historical growth rates and

margins in combination with
industry and company specific
knowledge, estimate projected
growth rates and margins
WALL ST

Providing financial training to Wall Street

TRAINING

www.wallst-training.com

Hamilton Lin, CFA

hamilton@hlcp.net

INCOME STATEMENT PROJECTIONS

Hilb, Rogal & Hamilton
Income Statement
($ in thousands, except per share data)

2000
Revenue
Commissions and fees
Investment income
Other income
Total Revenue

$ 256,366
2,626
1,283
$ 260,275
ENTER IN SUPPORT SECTION:
SUM(F41:F42)
Expenses
Compensation and employee benefits
$ 146,442
Other operating expenses
50,165
Depreciation & Amortization
17,596
Total Expenses
$ 214,203
UPDATE BASIC S/O TO
REFLECT EFFECT OF
Operating Income
$ 46,072
CONVERTED NOTES
Interest expense
(8,179)
Non-operating gains / (losses)
1,844

TREASURY METHOD:
$ 39,737
(17,610)
=I26+MAX(0,1704.901*(1(12.19/31.24)))
$ 22,127
NOTE I, PG F-17
Basic Shares Outstanding
26,224
Diluted Shares Outstanding
29,784
ADD NUMERATOR
FOR EFFECT OF
$ 0.84
Basic Earnings Per Share
Diluted Earnings Per Share CONVERTIBLE DEBT; $ 0.78
NOTE J, PG F19
EBITDA
$ 63,668
EBITDA Margin
24.5%
Pre-Tax Income
Income taxes
Net Income

Actual
2001

2002

Estimated
2003

2004

Projected
2005
2006

2007

Projection Drivers

$ 323,078
2,585
1,896
$ 327,559

$ 446,673
2,439
3,402
$ 452,514

$ 580,675
3,171
5,003
$ 588,849

$ 696,810
4,502
6,701
$ 708,012

$ 801,331
5,978
8,507
$ 815,817

$ 881,464
7,458
10,239
$ 899,161

$ 969,611 % Growth
9,173 % Comm & Fees
12,233 % Comm & Fees
$ 991,017

$ 182,397
62,095
19,984
$ 264,476

$ 245,405
80,308
13,091
$ 338,804

$ 316,397
101,559
16,954
$ 434,910

$ 376,885
118,571
17,238
$ 512,694

$ 430,192
132,546
16,210
$ 578,949

$ 469,645
141,592
15,333
$ 626,570

$ 512,668 % Total Revenue

151,101 % Total Revenue
14,191 from Support calc
$ 677,959

$ 63,083
(9,061)
2,708

$ 113,710
(10,665)
212

$ 153,939
(10,665)
-

$ 195,318
(10,665)
-

$ 236,868
(10,665)
-

$ 272,592
(10,665)
-

$ 313,058
(10,665) constant cap structure
- normalized = zero

$ 56,730
(24,381)
$ 32,349

$ 103,257
(42,082)
$ 61,175

$ 143,274
(58,742)
$ 84,532

$ 184,653
(75,708)
$ 108,945

$ 226,203
(92,743)
$ 133,460

$ 261,927
(107,390)
$ 154,537

$ 302,393
(123,981) from Support calc
$ 178,412

27,411
31,160

29,240
32,876

33,849
34,889

33,849
34,889

33,849
34,889

33,849
34,889

33,849 constant cap structure

34,889 constant cap structure

$ 1.18
$ 1.07

$ 2.09
$ 1.89

$ 2.50
$ 2.42

$ 3.22
$ 3.12

$ 3.94
$ 3.83

$ 4.57
$ 4.43

$ 5.27
$ 5.11

$ 83,067
25.4%

$ 126,801
28.0%

$ 170,893
29.0%

$ 212,556
$ 253,078
$ 287,925
$ 327,248 EBIT + D&A
30.0%
31.0%
32.0%
33.0%
CONVERTIBLES WERE CONVERTED IN NOV. 2002,
EXCLUDE FROM DILUTED EPS CALC STARTING IN 2003

Step 4:
Using projected growth rates and margins, calculate projections
WALL ST

Providing financial training to Wall Street

TRAINING

www.wallst-training.com

10

Hamilton Lin, CFA

hamilton@hlcp.net