FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number 0-7201.
POE & BROWN, INC.
__________________________________
(Exact name of Registrant as specified in its charter)
Florida 59-0864469
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
220 S. Ridgewood Ave., Daytona Beach, FL 32114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904)252-9601
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,
and (2) has been subject to such filing requirements for the past
ninety (90) days. Yes X No
____ _____
The number of shares of the Registrant's common stock, $.10 par
value, outstanding as of May 6, 1996, was 8,682,359.
2
POE & BROWN, INC.
Index to Form 10-Q
For The Quarter Ended March 31, 1996
Page
PART I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Condensed Consolidated Financial Statements(Unaudited)
Condensed Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
3
ITEM 1: FINANCIAL STATEMENTS
POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
For the three months
ended March 31,1996
1996 1995
REVENUES
Commissions and fees $ 29,750 $26,439
Investment income 841 864
Other income 135 40
__________ _________
Total revenues 30,726 27,343
EXPENSES
Employee compensation and benefits 15,468 13,901
Other operating expenses 6,604 6,064
Interest and amortization 1,367 1,199
_________ _________
Total expenses 23,439 21,164
Income before income taxes 7,287 6,179
Income taxes 2,842 1,927
_________ _________
NET INCOME $ 4,445 $ 4,252
========= =========
Net income per share $ .51 $ .49
========= =========
Dividends declared per share $ .12 $ .12
========= =========
Weighted average number of shares outstanding 8,714 8,692
See notes to condensed consolidated financial statements.
4
POE & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited) (Audited)
March 31, December 31,
1996 1995
ASSETS
Cash and cash equivalents $ 37,377 $ 28,350
Short-term investments 1,414 1,308
Premiums, commissions and fees receivable,
less allowance for doubtful accounts of
$100 in 1996 and 1995 54,339 56,553
Other current assets 6,706 6,336
________ _________
Total current assets 99,836 92,547
Fixed assets, net 10,949 10,412
Intangible assets, net 44,647 36,613
Investments 9,000 8,473
Other assets 3,558 3,076
________ _________
Total assets $167,990 $151,121
======== =========
LIABILITIES
Premiums payable to insurance companies $ 70,919 $ 64,588
Premium deposits and credits due customers 6,754 6,070
Accounts payable and accrued expenses 10,747 9,417
Current portion of long-term debt 4,190 1,768
________ ________
Total current liabilities 92,610 81,843
Long-term debt 9,067 7,023
Deferred income taxes 1,703 1,502
Other liabilities 6,462 6,341
________ ________
Total liabilities 109,842 96,709
SHAREHOLDERS' EQUITY
Common stock,par value $.10 per share:
authorized 18,000 shares;issued 8,682 shares
at 1996 and 1995 868 868
Additional paid-in capital 2,625 2,614
Retained earnings 49,498 46,094
Net unrealized appreciation of available-
for-sale securities, net of tax effect of
$3,229 in 1996 and $3,027 in 1995 5,157 4,836
________ ________
Total shareholders'equity 58,148 54,412
________ ________
Total liabilities and shareholders'equity $167,990 $151,121
See notes to condensed consolidated financial statements.
5
POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
For the three months ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,445 $4,252
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,841 1,610
Provision for doubtful accounts ___ 15
Deferred income taxes ___ (1,420)
Net gains on sales of investments, fixed assets
and customer accounts (123) ___
Premiums,commissions and fees receivable,
decrease 2,214 1,503
Other assets, (increase) decrease (1,012) 2,112
Premiums payable to insurance companies,
increase 6,331 1,043
Premium deposit and credits due customers,
increase(decrease) 684 (1,291)
Accounts payable and accrued expenses,increase 1,330 1,177
Other liabilities,increase (decrease) 121 (298)
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,831 8,703
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (1,092) (895)
Payments for businesses acquired, net of
cash acquired (4,657) (1,377)
Proceeds from sales of fixed assets and
customer accounts 131 ___
Purchases of investments (297) (69)
Proceeds from sales of investments 194 274
_________ ________
NET CASH USED IN INVESTING ACTIVITIES (5,721) (2,067)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt (52) (710)
Proceeds from long-term debt ___ 1,141
Exercise of stock options and issuances of stock 11 107
Cash dividends paid (1,042) (1,018)
________ ________
NET CASH USED IN FINANCING ACTIVITIES (1,083) (480)
Net increase in cash and cash equivalents 9,027 6,156
Cash and cash equivalents at beginning of period 28,350 23,185
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $37,377 $29,341
======== ========
See notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
Note 1 - Basis of Financial Reporting
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals)considered necessary for a fair presentation
have been included. For further information, refer to the
consolidated financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Results of operations for the three-month period ended March 31,
1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
Note 2 - Net Income Per Share
Net income per share is based upon the weighted average
number of shares outstanding, adjusted for the dilutive effect of
stock options, which is the same on both a primary and a fully-
diluted basis.
Note 3 - Merger and Acquisitions
On March 1, 1995, the Company issued 146,300 shares of its
common stock in exchange for all of the partnership interest in
Insurance West, a Phoenix, Arizona general insurance agency. The
merger has been accounted for as a pooling-of-interests and,
accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the merger to include the
results of operations, financial position, and cash flows of
Insurance West. The separate company operating results of
Insurance West for periods prior to the merger are not material
to the Company's consolidated operating results.
During the first quarter of 1995, the Company acquired
substantially all of the assets of King Insurance Agency, Inc. of
Naples, Florida. During the first quarter of 1996, the Company
acquired a majority interest in Florida Intracoastal
Underwriters, Ltd., of Miami Lakes, Florida. These acquisitions
have been accounted for using the purchase method of accounting.
Pro forma results of operations for the three-month periods ended
March 1995 and 1996 resulting from these acquisitions were not
materially different from the results of operations as reported.
Their results of operations have been combined with those of the
Company since their respective acquisition dates.
Note 4 - Long-Term Debt
The Company continues to maintain its credit agreement with
a major insurance company under which $6 million (the maximum
amount available for borrowings) was outstanding at March 31,
1996, at an interest rate equal to the prime lending rate plus
one percent. The available amount will decrease by $1 million
each August, as described in Note 7 to the consolidated financial
statements contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
In November 1994, the Company entered into a revolving credit
facility with a national banking institution which provides for
available borrowings of up to $10 million. As of March 31,1996,
there were no borrowings against this line of credit.
7
Note 5 - Income Taxes
In 1992, the Internal Revenue Service(Service)completed
examinations of the Company's federal income tax returns for the
tax years 1988, 1989, and 1990. As a result of its examinations,
the Service issued Reports of Proposed Adjustments asserting
income tax deficiencies which, by including interest and state
income taxes for the periods examined and the Company's estimates
of similar adjustments for subsequent periods through December 31,
1993, would total $6,100,000. The disputed items related
primarily to the deductibility of amortization of purchased
customer accounts of approximately $5,107,000 and non-compete
agreements of approximately $993,000. In addition, the Service's
report included a dispute regarding the time at which the
Company's payments made pursuant to certain indemnity agreements
would be deductible for tax reporting purposes. During 1994, the
Company reached a settlement agreement with the Service with
respect to certain of the disputed amortization items and the
indemnity agreement payment issue. In March 1995, the Company
reached a settlement agreement with the Service with respect to
the remaining disputed items. Based upon this settlement and
after taking into consideration the reductions in the Company's
general tax reserves resulting from current and expected payments
under the settlement agreement, the Company recorded a $451,000
reduction in the general tax reserve in the first quarter of 1995
with a corresponding reduction to its current income tax
provision.
Note 6 - Contingencies
The Company is not a party to any legal proceedings other than
various claims and lawsuits arising in the normal course of
business. Management of the Company does not believe that any
such claims or lawsuits will have a material effect on the
Company's financial condition or results of operations.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Income. Net income for the first quarter of 1996 was
$4,445,000, or $.51 per share, compared with net income in the
first quarter of 1995 of $4,252,000, or $.49 per share. The 1995
earnings per share includes a favorable tax reserve adjustment of
$.05 per share resulting from the reduction in general tax
reserves stemming from the March 1995 settlement of the Company's
remaining IRS examination issues. Excluding this non-recurring
item, the first quarter earnings per share increased from $.44 to
$.51, a 16% increase.
Commissions and Fees. Commissions and fees for the first
quarter of 1996 increased $3,311,000, or 13% from the same period
in 1995. Approximately $1,944,000 of this increase represents
revenues from acquired agencies with the remainder due to new
business production.
Investment Income. Investment income for the first quarter
of 1996 decreased $23,000 from the same period in 1995 primarily
due to changes in interest rate returns.
Other Income. Other income primarily includes gains and
losses from the sale of customer accounts and other assets.
Other income for the three-month period ended March 31, 1996
increased $95,000 over the same period in 1995.
Employee Compensation and Benefits. Employee compensation
and benefits increased 11% during the first quarter of 1996 over
the same period in 1995. This increase primarily relates to a
net increase in commissions and fees and merit pay increases.
Employee compensation and benefits as a percentage of total
revenue decreased from 51% in the first quarter of 1995 to 50% in
the first quarter of 1996.
Other Operating Expenses. Other operating expenses for the
first quarter of 1996 increased $540,000, or 9%, over the same
period in 1995 primary due to increases in occupancy costs.
Other operating expenses as a percentage of total revenue
decreased from 22% in the first quarter of 1995 to 21% in the
first quarter of 1996.
Interest and Amortization. Interest and amortization
expense increased $168,000 during the first quarter of 1996
primarily as a result of increased expenses due to acquisitions.
Income Taxes. The Company's effective tax rate increased
from 31% in the first quarter of 1995 to 39% in the first quarter
of 1996. The increase in the effective income tax rate is
primarily the result of a $451,000 reduction in the Company's
income tax reserves during the first quarter of 1996 due to the
favorable settlement in March 1995 of the remaining outstanding
Internal Revenue Service examination assessments which the
Company had originally protested. See Note 5 to the condensed
consolidated financial statements for further information.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents of $37,377,000 at
March 31, 1996 increased by $9,027,000 from $28,350,000 at
December 31,1995. During the first quarter of 1996, $15,831,000
of cash was provided primarily from operating activities. Of
this amount, $4,657,000 was used to acquire businesses,
$1,092,000 for additions to fixed assets, and the remainder
primarily to pay dividends on the Company's common stock. The
current ratio at March 31, 1996 was 1.08 compared to 1.13 as of
December 31, 1995.
The Company has a revolving credit agreement with a major
insurance company under which up to $6 million presently may be
borrowed at an interest rate equal to the prime lending rate plus
one percent. The amount of available credit decreases by $1
million each August through the year 2001, when it will expire.
As of March 31, 1996, the maximum amount of borrowings was
outstanding. In November 1994, the Company entered into a
revolving credit facility with a national banking institution
that provides for available borrowings of up to $10 million. As
of March 31, 1996, there were no borrowings against this line of
credit. The Company believes that its existing cash, cash
equivalents, short-term investments portfolio, funds generated
from operations, and available credit facility borrowings are
sufficient to satisfy its normal financial needs.
10
POE & BROWN, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is involved in various pending or threatened
proceedings by or against the Company or one or more of its
subsidiaries which involve routine litigation relating to
insurance risks placed by the Company and other contractual
matters. The Company's management does not believe that any of
such pending or threatened proceedings will have a material
adverse effect on the Company's financial position or results of
operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 3a - Articles of Incorporation(incorporated
by reference to Exhibit 3a to Form 10-K
for the year ended December 31, 1994)
Exhibit 3b - Amended and Restated Bylaws(incorporated
by reference to Exhibit 3b to
Registration Statement No. 33-58090 on
Form S-4)
Exhibit 11 - Statement re: Computation of
Earnings Per Share
Exhibit 27 - Financial Data Schedule (for
SEC use only)
(b) There were no reports filed on Form 8-K during the
quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
POE & BROWN, INC.
Date: May 10,1996 /s/ James A. Orchard
________________________
James A. Orchard
Chief Financial
Officer (duly authorized officer,
principal financial officer
and principal accounting officer)
5
1,000
3-MOS
DEC-31-1996
MAR-31-1996
37,377
1,414
54,339
100
0
99,836
22,524
11,575
167,990
92,610
0
0
0
868
5,157
167,990
0
30,726
0
22,072
0
0
243
7,287
2,842
4,445
0
0
0
4,445
.51
.51
Exhibit 11 - Statement Re: Computation of Earnings Per Share
(Unaudited)
Three Months Ended March 31,
1996 1995
Average shares outstanding 8,682 8,645
Net effect of dilutive stock options, based
on the treasury stock method 32 47
_______ _______
Total shares used in computation 8,714 8,692
Net income $4,445 4,252
======= =======
Net income per share $ .51 $ .49
======= =======
