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, 1997.
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, 1997, was 8,837,644.
POE & BROWN, INC.
Index to Form 10-Q
For The Quarter Ended September 30, 1997
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, 1997 and 1996 3
Condensed Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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,
1997 1996 1997 1996
REVENUES
Commissions and fees $30,920 $28,381 $94,440 $85,436
Investment income 933 756 3,087 2,399
Other income 213 289 747 940
_______ _______ _______ _______
Total revenues 32,066 29,426 98,274 88,775
_______ _______ _______ _______
EXPENSES
Employee compensation and
benefits 16,175 15,255 49,505 45,841
Other operating expenses 6,406 5,592 20,605 18,737
Interest and amortization 1,254 1,467 4,718 4,254
_______ _______ _______ _______
Total expenses 23,835 22,314 74,828 68,832
_______ _______ _______ _______
Income before income taxes 8,231 7,112 23,446 19,943
Income taxes 3,128 2,774 9,138 7,778
_______ _______ _______ _______
NET INCOME $ 5,103 $ 4,338 $14,308 $12,165
======= ======= ======= =======
Net income per share $ .58 $ .50 $ 1.64 $ 1.40
======= ======= ======= =======
Dividends declared per share $ .14 $ .13 $ .40 $ .37
======= ======= ======= =======
Weighted average number of
shares outstanding 8,779 8,665 8,704 8,683
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Audited)
September 30, December 31,
1997 1996
____ ____
ASSETS
Cash and cash equivalents $ 45,451 $ 31,786
Short-term investments 1,302 1,087
Premiums, commissions and fees
receivable 52,740 62,940
Other current assets 7,665 7,307
________ ________
Total current assets 107,158 103,120
Fixed assets, net 11,954 12,085
Intangible assets, net 49,271 50,167
Investments 11,164 11,288
Other assets 3,684 3,083
________ ________
Total assets $183,231 $179,743
======== ========
LIABILITIES
Premiums payable to insurance
companies $ 67,760 $ 73,570
Premium deposits and credits
due customers 5,264 7,329
Accounts payable and accrued
expenses 13,799 11,130
Current portion of long-term debt 5,472 5,365
________ ________
Total current liabilities 92,295 97,394
Long-term debt 3,990 5,300
Deferred income taxes 3,630 3,603
Other liabilities 6,009 6,160
________ ________
Total liabilities 105,924 112,457
________ ________
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share: authorized 18,000 shares;
issued 8,791 shares at 1997 and
8,656 shares at 1996 879 866
Additional paid-in capital 1,062 1,671
Retained earnings 68,812 58,238
Net unrealized appreciation of
available-for-sale securities,
net of tax effect of $4,190 in
1997 and $4,163 in 1996 6,554 6,511
________ ________
Total shareholders' equity 77,307 67,286
________ ________
Total liabilities and
shareholders' equity $183,231 $179,743
======== ========
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,
______________________________________
1997 1996
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $14,308 $12,165
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 6,299 5,666
Net gains on sales of investments,
fixed assets and customer accounts (990) (898)
Premiums, commissions and fees
receivable, decrease 10,231 6,724
Other assets (increase) (718) (1,262)
Premiums payable to insurance
companies (decrease) increase (6,231) 109
Premium deposit and credits due
customers (decrease) (2,065) (1,473)
Accounts payable and accrued
expenses, increase 2,669 118
Other liabilities (decrease) (186) (180)
_______ _______
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,317 20,969
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (2,079) (3,524)
Payments for businesses acquired,
net of cash acquired (1,837) (10,969)
Proceeds from sales of fixed assets
and customer accounts 435 848
Purchases of investments (252) (1,053)
Proceeds from sales of investments 557 624
_______ _______
NET CASH USED IN INVESTING ACTIVITIES (3,176) (14,074)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (2,458) (1,795)
Exercise of stock options and issuances
of stock 1,044 858
Purchases of stock (1,664) (1,802)
Cash dividends paid (3,398) (3,118)
_______ _______
NET CASH USED IN FINANCING ACTIVITIES (6,476) (5,857)
_______ _______
Net increase in cash and cash
equivalents 13,665 1,038
Cash and cash equivalents at beginning
of period 31,786 28,350
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $45,451 $29,388
======= =======
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1997
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, 1996.
Results of operations for the three- and nine-month periods
ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1997.
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.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share," (SFAS 128). SFAS 128 establishes new
standards for computing and presenting earnings per share (EPS).
Specifically, SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier
application is not permitted. EPS for the Company for the
periods ended September 30, 1997 and September 30, 1996 computed
under SFAS 128 would not be different than that previously
computed.
NOTE 3 - ACQUISITIONS
During the first quarter of 1996, the Company acquired a
majority interest in Florida Intracoastal Underwriters, LLC, 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 first
quarter of 1997, the Company acquired substantially all of the
assets of Dade Underwriters Insurance Agency of Aventura, Florida
and Willits Insurance Agency of Ft. Lauderdale, 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, 1996 and 1997 resulting from these
acquisitions were not materially different from the results of
operations as reported. The results of operations for the
acquired companies have been combined with those of the Company
since their respective acquisition dates.
On August 1, 1997, the Company issued 25,471 shares of its
common stock for all of the outstanding stock of Shanahan,
McGrath & Bradley, Inc., an Arizona corporation. This
acquisition has been accounted for as a pooling-of-interests;
however, due to the immaterial nature of the transaction, the
Company's consolidated financial statements have not been
restated for all periods prior to the transaction. The results
of operations of the acquired company from the period January 1,
1997, through the date of acquisition, have been combined with
those of the Company for the third quarter. The separate company
operating results of Shanahan, McGrath & Bradley, Inc. for
periods prior to the acquisition are not material to the
Company's consolidated operating results.
NOTE 4 - LONG-TERM DEBT
The Company continues to maintain its credit agreement with
a major insurance company under which $4 million (the maximum
amount available for borrowings) was outstanding at September 30,
1997, 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, 1996.
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, 1997, there were no borrowings against this line of
credit.
NOTE 5 - 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.
NOTE 6 - NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) and No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131).
SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. SFAS 130 is effective for financial
statements for periods beginning after December 15, 1997.
SFAS 131 requires that a public business enterprise report
financial and descriptive information about its reportable
operating segments. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997.
Since SFAS 130 and SFAS 131 are not effective for the 1997
financial statements, their effect on the Company have not been
considered at this time.
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 1997 was
$5,103,000, or $.58 per share, compared with net income in the
third quarter of 1996 of $4,338,000, or $.50 per share, a 16%
increase in per share earnings. Net income for the nine months
ended September 30, 1997 was $14,308,000, or $1.64 per share,
compared with 1996 same period net income of $12,165,000, or
$1.40 per share, for an 18% increase.
Commissions and Fees. Commissions and fees for the third
quarter of 1997 increased $2,539,000, or 9% from 1996.
Approximately $1,038,000 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, 1997 were $94,440,000 compared to $85,436,000 for
the same period in 1996, an 11% increase. The 1997 increase is
due to new business production and approximately $3,041,000 of
revenues from acquired agencies.
Investment Income. Investment income for the quarter and
nine-month periods ended September 30, 1997 increased $177,000
and $688,000, respectively, from the same periods in 1996. These
increases are primarily due to higher 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 decreased approximately $193,000 for the nine months
ended September 30, 1997 from the same period for 1996 and
approximately $76,000 for the three months ended September 30,
1997 from the same period for 1996.
Employee Compensation and Benefits. Employee compensation
and benefits increased during both the three and nine months
ended September 30, 1997. The increase for the quarter ended
September 30, 1997 was 6%, while the increase for the nine-month
period ended September 30, 1997 was 8%. The increase primarily
relates to additional compensation expense as a result of
increased commission and fee revenues and merit pay increases.
Employee compensation and benefits as a percentage of total
revenue decreased to 50% in the third quarter of 1997 and for the
nine months ended September 30, 1997 compared to 52% in the same
periods last year.
Other Operating Expenses. Other operating expenses for the
third quarter of 1997 increased $814,000, or 15%, over the same
period in 1996, and increased as a percentage of total revenues
from 19% to 20%. Other operating expenses increased $1,868,000
for the nine months ended September 30, 1997 versus the prior
year, but as a percentage of total revenue remained constant at
21% for the nine months ended September 30, 1997 and September
30, 1996. The increase is primarily attributable to costs
associated with acquisitions.
Interest and Amortization. Interest and amortization
decreased $213,000, or 15% for the third quarter of 1997 over the
same period in 1996 primarily due to the expiration of certain
intangible amortization and reduction of debt. Interest and
amortization for the nine months ended September 30, 1997
increased $464,000, or 11%, over the same period in 1996. This
increase for the nine-month period is due primarily to the write-
off of the remaining intangible assets related to a terminated
agreement.
Income Taxes. The Company's effective tax rates for the
three months ended September 30, 1997 and 1996 were 38% and 39%,
respectively. The Company's effective tax rate for the nine
months ended September 30, 1997 and September 30, 1996 remained
constant at 39%. The decrease in the effective tax rate for the
third quarter ended September 30, 1997 is primarily due to the
increase in tax-exempt interest.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents of $45,451,000 at
September 30, 1997 increased by $13,665,000 from $31,786,000 at
December 31, 1996. During the nine months ended September 30,
1997, $23,317,000 of cash was provided primarily from operating
activities. Of this amount, $1,912,000 was used to acquire
businesses, $2,079,000 for additions to fixed assets, $2,458,000
to repay long-term debt and the remainder primarily to pay
dividends on the Company's common stock. The current ratio at
September 30, 1997 was 1.16 compared to 1.06 as of December 31,
1996.
The Company has a revolving credit agreement with a major
insurance company under which up to $4 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, 1997, 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, 1997, 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not Applicable.
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 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective August 1, 1997, the Company acquired all the
outstanding shares of Shanahan, McGrath & Bradley, Inc., an
Arizona corporation ("SMB"). In exchange for all of the
outstanding common stock of the insurance agency, the Company
issued a total of 25,471 shares of the Company's common stock to
the former shareholders of SMB. The Company's shares were
offered and sold privately, and no underwriter was involved in
the transaction.
The Company issued the shares without registration under the
Securities Act of 1933 (the "Act"). The Company relied upon the
exemptions set forth in Section 4(2) of the Act and Rule 505 of
Regulation D, promulgated thereunder. The shares were offered
privately by the issuer to four persons in a business combination
transaction in which the dollar value of the transaction was less
than $5 million. The Company (i) made available to the
purchasers the information required by Rule 502(b) of Regulation
D, (ii) did not offer the shares by means of any advertisement,
general solicitation or other means proscribed by Rule 502(c) of
Regulation D, (iii) informed the purchasers of the limitations on
resale of the shares and placed an appropriate restrictive legend
on the share certificates, and (iv) filed a notice on Form D with
the Securities and Exchange Commission within 15 days after the
sale.
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 Form 10-K for the
year ended December 31, 1996)
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 September 30, 1997.
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: November 11, 1997 /s/ WILLIAM A. ZIMMER
________________________________
William A. Zimmer
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,
1997 1996 1997 1996
Average shares outstanding 8,778 8,645 8,702 8,658
Net effect of dilutive stock options,
based on the treasury stock method 1 20 2 25
_______ ______ _______ ______
Total shares used in computation 8,779 8,665 8,704 8,683
======= ====== ======= ======
Net income $5,103 $4,338 $14,308 $12,165
====== ====== ======= =======
Net income per share $ .58 $ .50 $ 1.64 $ 1.40
====== ====== ======= =======
5
1000
9-MOS
DEC-31-1997
SEP-30-1997
45,451
1,302
52,740
0
0
107,158
26,486
14,532
183,231
92,295
0
0
0
879
6,554
183,231
0
32,066
0
23,835
0
0
1,254
8,231
3,128
5,103
0
0
0
5,103
.58
.58
