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 September 30, 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
Incorporation or Organization) Identification Number)
220 S. Ridgewood Ave., Daytona Beach, FL 32115
(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 November 1, 1996, was 8,698,964.
POE & BROWN, INC.
Index to Form 10-Q
For The Quarter Ended September 30, 1996
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 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 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
ITEM 1: FINANCIAL STATEMENTS
POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
REVENUES
Commissions and fees $28,381 $25,134 $85,436 $ 75,937
Investment income 756 978 2,399 2,834
Other income 289 238 940 568
_______ _______ _______ _________
Total revenues 29,426 26,350 88,775 79,339
_______ _______ _______ _________
EXPENSES
Employee compensation and benefits 15,255 13,491 45,841 41,542
Other operating expenses 5,592 5,285 18,737 16,977
Interest and amortization 1,467 1,342 4,254 3,760
_______ _______ _______ ________
Total expenses 22,314 20,118 68,832 62,279
_______ _______ _______ ________
Income before income taxes 7,112 6,232 19,943 17,060
Income taxes 2,774 2,400 7,778 6,117
_______ _______ _______ ________
NET INCOME $ 4,338 $ 3,832 $12,165 $ 10,943
======== ======== ======= ========
Net income per share $ .50 $ .44 $ 1.40 $ 1.26
======== ======== ======= ========
Dividends declared per share $ .13 $ .12 $ .37 $ .36
======== ======== ======= ========
Weighted average number of
shares outstanding 8,665 8,710 8,683 8,695
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited) (Audited)
September 30, December 31,
1996 1995
ASSETS
Cash and cash equivalents $29,388 $28,350
Short-term investments 1,760 1,308
Premiums, commissions and fees
receivable, less allowance for
doubtful accounts of $100 in
1996 and 1995 49,829 56,553
Other current assets 7,501 6,336
_________ ________
Total current assets 88,478 92,547
Fixed assets, net 11,607 10,412
Intangible assets, net 50,274 36,613
Investments 10,538 8,473
Other assets 3,440 3,076
--------- ---------
Total assets $ 164,337 $ 151,121
========= =========
LIABILITIES
Premiums payable to
insurance companies $ 64,697 $ 64,588
Premium deposits and
credits due customers 4,597 6,070
Accounts payable and
accrued expenses 10,025 9,417
Current portion of long-term debt 5,303 1,768
_________ _________
Total current liabilities 84,622 81,843
Long-term debt 7,464 7,023
Deferred income taxes 2,350 1,502
Other liabilities 6,161 6,341
_________ ________
Total liabilities 100,597 96,709
_________ ________
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share: authorized 18,000 shares;
issued 8,658 shares at 1996 and
8,681 shares at 1995 866 868
Additional paid-in capital 1,672 2,614
Retained earnings 55,141 46,094
Net unrealized appreciation of
available-for-sale securities,
net of tax effect of $3,875 in
1996 and $3,027 in 1995 6,061 4,836
_________ ________
Total shareholders' equity 63,740 54,412
_________ ________
Total liabilities and
shareholders' equity $ 164,337 $151,121
========= ========
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
For the nine months ended September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $12,165 $10,943
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,666 4,916
Provision for doubtful accounts - 31
Deferred income taxes - (1,639)
Net gains on sales of investments,
fixed assets and customer accounts (898) (498)
Premiums, commissions and fees
receivable decrease 6,724 7,485
Other assets (increase) (1,262) (135)
Premiums payable to insurance
companies increase 109 79
Premium deposit and credits due
customers (decrease) (1,473) (1,998)
Accounts payable and accrued
expenses increase (decrease) 118 (974)
Other liabilities (decrease) increase (180) 788
_________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,969 18,998
_________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (3,524) (3,092)
Payments for businesses acquired,
net of cash acquired (10,969) (3,935)
Proceeds from sales of fixed assets
and customer accounts 848 520
Purchases of investments (1,053) (303)
Proceeds from sales of investments 624 413
_________ ________
NET CASH USED IN INVESTING ACTIVITIES (14,074) (6,397)
_________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (1,795) (1,995)
Proceeds from long-term debt - 500
Exercise of stock options, issuances
and purchases of stock (944) 102
Cash dividends paid (3,118) (3,106)
_________ ________
NET CASH USED IN FINANCING ACTIVITIES (5,857) (4,499)
Net increase in cash and cash equivalents 1,038 8,102
Cash and cash equivalents at beginning of
period 28,350 23,185
_________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,388 $ 31,287
========= ========
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1996
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 except for the adjustment described in Note 5)
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- and nine-month periods
ended September 30, 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 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 second quarter of 1995, the Company
acquired substantially all of the assets of S. Lloyd
Underwriters, Inc. of Ft. Lauderdale, Florida. During the third
quarter of 1995 the Company acquired substantially all of the
assets of Roehrig/Flood & Associates of St. Petersburg, Florida
and the Robert Scott Gordon Insurance Agency of Newtown Square,
Pennsylvania. During the first quarter of 1996, the Company
acquired a majority interest in Florida Intracoastal
Underwriters, Ltd. of Miami Lakes, Florida. During the second
quarter of 1996, the Company acquired substantially all of the
assets of B & R International, Inc. of Atlanta, Georgia. During
the third quarter of 1996, the Company acquired substantially all
of the assets of Anderson-Reeve & Associates of Phoenix, Arizona
and Larry Breen & Associates of Orlando, Florida. These
acquisitions have been accounted for using the purchase method of
accounting. Pro forma results of operations for the nine-month
periods ended September 30, 1995 and 1996 resulting from these
acquisitions were not materially different from the results of
operations as reported. The results of operations for these
companies 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 $5 million (the maximum
amount available for borrowings) was outstanding at September 30,
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
September 30, 1996, there were no borrowings against this line of
credit.
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 and non-compete agreements. 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 adjustment to decrease reserves in the first
quarter of 1995 with a corresponding reduction to its 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.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Income. Net income for the third quarter of 1996 was
$4,338,000, or $.50 per share, compared with net income in the
third quarter of 1995 of $3,832,000, or $.44 per share, a 14%
increase in per share earnings. Net income for the nine months
ended September 30, 1996 was $12,165,000, or $1.40 per share,
compared with 1995 same period net income of $10,943,000, or
$1.26 per share, for an 11% increase. Excluding a first quarter
1995 favorable tax reserve adjustment of $.05 per share, per
share earnings from recurring operations are up 16% in 1996.
Commissions and Fees. Commissions and fees for the third
quarter of 1996 increased $3,247,000, or 13% from 1995.
Approximately $1,013,000 of this increase represents revenues
from acquired agencies with the remainder due to new business
production. Commissions and fees for the nine months ended
September 30, 1996 were $85,436,000 compared to $75,937,000 for
the same period in 1995, a 12% increase. The 1996 increase is
due to new business production and approximately $3,098,000 of
revenues from acquired agencies.
Investment Income. Investment income for the quarter and
nine-month periods ended September 30, 1996 decreased $222,000
and $435,000, respectively, from the same periods in 1995. This
decrease is primarily due to lower levels of invested cash and
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 increased approximately $372,000 for the nine months
ended September 30, 1996 over the same period for 1995 and
approximately $51,000 for the three months ended September 30,
1996 over the same period for 1995.
Employee Compensation and Benefits. Employee compensation
and benefits increased during both the three and nine months
ended September 30, 1996. The increase for the nine-month period
ended September 30, 1996 was 10% while the increase for the
quarter ended September 30, 1996 was 13%. This increase is
primarily due to additional compensation expense as a result of
the increased commission and fee revenues and increase in the
number of employees as a result of acquisitions. Compensation
and employee benefits as a percentage of total revenues were
generally consistent between the 1996 and 1995 periods.
Other Operating Expenses. Other operating expenses for the
three months ended September 30, 1996 increased $307,000 over the
same period in 1995 but declined as a percentage of total
revenues from 20% to 19%. Other operating expenses for the nine
months ended September 30, 1996 increased $1,760,000 from 1995
and remained constant as a percentage of total revenues. This
increase is primarily attributable to costs associated with
acquisitions.
Interest and Amortization. Interest and amortization
expense increased $125,000 during the third quarter of 1996 and
$494,000 during the nine months ended September 30, 1996 over the
same periods in 1995. This increase is primarily the result of
acquisition transactions.
Income Taxes. The Company's effective tax rates for the
three months ended September 30, 1996 and 1995 were 39% and
38.5%, respectively. The Company's effective tax rate for the
nine-month period increased from 35.9% in 1995 to 39% in 1996.
The increase in the effective tax rate is primarily the result of
a $451,000 reduction in the Company's income tax reserves during
the first quarter of 1995 due to the favorable tax settlement in
March 1995 of the remaining outstanding Internal Revenue Service
examinations assessments which the Company had originally
protested. See Note 5 to the Condensed Consolidated Financial
Statements for further information.
Liquidity and Capital Resources
The Company's cash and cash equivalents of $29,388,000 at
September 30, 1996 increased by $1,038,000 from $28,350,000 at
December 31, 1995. During the nine months ended September 30,
1996, $20,969,000 of cash was provided primarily from operating
activities. Of this amount, $10,969,000 was used to acquire
businesses, $3,524,000 for additions to fixed assets, $1,795,000
for payment on long-term debt and the remainder primarily to pay
dividends on the Company's common stock. The current ratio at
September 30, 1996 was 1.05 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 $5 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 September 30, 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 September 30, 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.
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 consolidated financial position or results
of operations of the Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3a - Articles of Incorporation (incorporated
by reference to Form 10-K for the year ended
December 31, 1994)
Exhibit 3b - Amended and Restated Bylaws (incorporated by
reference to Form 10-Q for the quarter ended
June 30, 1996)
Exhibit 11 - Statement re: Computation of Per Share
Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) There were no reports filed on Form 8-K during the quarter ended
September 30, 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.
/s/ James A. Orchard
Date: November 11, 1996 _______________________________________
James A. Orchard, Vice President,
Treasurer and Chief Financial Officer
(duly authorized officer and principal
financial officer and principal
accounting officer)
Exhibit 11 - Statement Re: Computation of Per Share Earnings (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Average shares outstanding 8,645 8,664 8,658 8,654
Net effect of dilutive stock
options,based on the treasury
stock method 20 46 25 41
______ ______ _______ _______
Total shares used in
computation 8,665 8,710 8,683 8,695
====== ====== ======= =======
Net income $4,338 $3,832 $12,165 $10,943
====== ====== ======= =======
Net income per share $ .50 $ .44 $ 1.40 $ 1.26
====== ====== ======= =======
5
9-MOS
DEC-31-1996
SEP-30-1996
29,388
1,760
49,829
100
0
88,478
24,068
12,461
164,337
84,622
0
0
0
866
6,061
164,337
0
88,775
0
64,578
0
0
705
19,943
7,778
12,165
0
0
0
12,165
1.40
1.40
