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, 1998.
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 1, 1998, was 13,367,019.
POE & BROWN, INC.
Index to Form 10-Q
For The Quarter Ended March 31, 1998
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1998 and 1997 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 10
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
ended March 31,
1998 1997
REVENUES
Commissions and fees $36,022 $32,713
Investment income 775 807
Other income (168) 462
_______ _______
Total revenues 36,629 33,982
EXPENSES
Employee compensation and benefits 18,043 16,838
Other operating expenses 7,067 7,157
Interest and amortization 1,341 1,353
________ ________
Total expenses 26,451 25,348
________ ________
Income before income taxes 10,178 8,634
Income taxes 4,020 3,410
________ _______
NET INCOME $ 6,158 $ 5,224
Other comprehensive income, net of tax:
Unrealized loss on securities:
Unrealized holding (loss) arising during period,
net of tax benefit of $993 in 1998 and $636 in 1997 $ (1,553) $(1,109)
_________ ________
COMPREHENSIVE INCOME $ 4,605 $ 4,115
======== =======
Basic and diluted earnings per share $ .47 $ 0.40
======== =======
Dividends declared per share $ .10 $ .0867
======== =======
Weighted average number of shares outstanding 13,117 12,998
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Audited)
March 31, December 31,
1998 1997
ASSETS
Cash and cash equivalents $ 44,766 $ 47,726
Short-term investments 1,146 1,299
Premiums, commissions and fees
receivable 59,902 62,148
Other current assets 6,498 6,507
________ ________
Total current assets 112,312 117,680
Fixed assets, net 12,180 11,863
Intangible assets, net 56,658 49,593
Investments 8,925 11,480
Other assets 4,034 3,513
________ ________
Total assets $194,109 $194,129
======== ========
LIABILITIES
Premiums payable to insurance companies $ 83,453 $ 74,598
Premium deposits and credits due
customers 7,429 7,035
Accounts payable and accrued expenses 15,701 15,826
Current portion of long-term debt 1,818 5,339
________ ________
Total current liabilities 108,401 102,798
Long-term debt 3,787 4,093
Deferred income taxes 2,958 3,951
Other liabilities 5,212 6,145
_________ ________
Total liabilities 120,358 116,987
_________ ________
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share: authorized 18,000 shares;
issued 13,073 shares at 1998 and
13,107 at 1997 1,307 1,311
Additional paid-in capital - -
Retained earnings 67,253 69,087
Net unrealized appreciation of
available-for-sale securities, net of
tax effect of $3,319 in 1998 and
$4,312 in 1997 5,191 6,744
________ _______
Total shareholders' equity 73,751 77,142
________ _______
Total liabilities and
shareholders' equity $194,109 $194,129
======== ========
See notes to condensed consolidated financial statements.
POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
For the three months ended March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,158 $ 5,224
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,999 1,903
Net losses (gains) on sales of investments,
fixed assets and customer accounts 201 (429)
Premiums, commissions and fees receivable,
decrease 2,285 7,923
Other assets, decrease 368 538
Premiums payable to insurance companies,
increase 8,650 2,487
Premium deposits and credits due customers,
increase (decrease) 394 (290)
Accounts payable and accrued expenses,
(decrease) increase (125) 1,752
Other liabilities, (decrease) increase (933) 162
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,997 19,270
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (1,071) (713)
Payments for businesses acquired, net of
cash acquired (9,237) (1,646)
Proceeds from sales of fixed assets and
customer accounts 42 238
Purchases of investments (12) (29)
Proceeds from sales of investments 174 -
________ ________
NET CASH USED IN INVESTING ACTIVITIES (10,104) (2,150)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt (3,827) (78)
Net exercise of stock options and
repurchases of stock (6,710) (8)
Cash dividends paid (1,316) (1,125)
________ ________
NET CASH USED IN FINANCING ACTIVITIES (11,853) (1,211)
________ ________
Net (decrease) increase in cash and
cash equivalents (2,960) 15,909
Cash and cash equivalents at beginning
of period 47,726 31,786
________ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $44,766 $47,695
======= =======
See notes to condensed consolidated financial statements.
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 presntation 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, 1997.
Certain amounts at December 31, 1997 have been reclassified to be
consistent with the current period presentation.
Results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
Note 2 - Basic and Diluted Earnings Per Share
All share and per-share information in the financial statements have
been adjusted to give effect to the 3-for-2 common stock split which became
effective on February 27, 1998.
Basic earnings per share is based upon the weighted average number of
shares outstanding. Diluted earnings per share is adjusted for the
dilutive effect of stock options. Earnings per share is the same on both
a basic and a 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 denominatory of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. As of
December 31, 1997, the Company adopted SFAS No. 128. All prior-period
EPS information is required to be restated. The Company's basic and
diluted EPS for the period ended March 31, 1997 computed under
SFAS No. 128 is not different than previously computed.
Note 3 - Acquisitions
During the first quarter of 1998, the Company acquired substantially
all of the assets of Arizona General Insurance of Tucson, Arizona, Boynton
Brothers Insurance of Perth Amboy, New Jersey, Great Northern Insurance of
Phoenix, Arizona, and the Heine-Miles Insurance Agency of Phoenix, Arizona.
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 three months
ended March 31, 1998 and March 31, 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.
Additionally, during the first quarter of 1998, the Company issued
22,500 shares of its common stock for all of the outstanding stock of
Thim Insurance Agency, 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 separate company operating results of Thim Insurance Agency, 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 March 31, 1998, 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, 1997.
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, 1998, 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.
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 1998 was $6,158,000,
or $.47 per share, compared with net income in the first quarter of 1997
of $5,224,000, or $.40 per share, an 18% increase.
Commissions and Fees. Commissions and fees for the first quarter of
1998 increased $3,309,000, or 10% from the same period in 1997.
Approximately $1,742,000 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 1998
decreased $32,000 from the same period in 1997 primarily due to reductions
in available cash to invest.
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, 1998 decreased $630,000 over the same
period in 1997 primarily due to the disposition of the assets related to
the Company's Charlotte, North Carolina office which resulted in a loss
of $490,000.
Employee Compensation and Benefits. Employee compensation and benefits
increased 7% during the first quarter of 1998 over the same period in 1997.
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 1% to 49% in the first quarter of 1998 compared
with 50% incurred in the same period in 1997.
Other Operating Expenses. Other operating expenses for the first
quarter of 1998 decreased $90,000, or 1%, over the same period in 1997
primary due to a one-time charge in 1997 relating to the merger of the
Company's two offices in New Jersey and a reduction of general reserves.
Other operating expenses as a percentage of total revenue declined to 19%
in the first quarter of 1998 compared with 21% incurred in the same period
in 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents of $44,766,000 at March 31,
1998 decreased by $2,960,000 from $47,726,000 at December 31, 1997.
During the first quarter of 1998, $18,997,000 of cash was provided from
operating activities. Of this amount, $9,237,000 was used to acquire
businesses, $6,710,000 for net purchases of the Company's stock,
$3,827,000 for payments on long-term debt, $1,071,000 for additions
to fixed assets, and the remainder primarily to pay dividends on the
Company's common stock. The curent ratio at March 31, 1998 was
1.04 compared to 1.14 as of December 31, 1997.
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 March 31, 1998, the maximum
amount of borrowing 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,
1998, 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 - CHANGE IN SECURITIES AND USE OF PROCEEDS
Effective February 28, 1998, the Company acquired all of the
outstanding shares of Thim Insurance Agency, Inc. an Arizona corporation
("Thim"). In exchange for all of the outstanding common stock of the
insurance agency, the Company issued a total of 22,500 shares of the
Company's common stock to the former shareholder of Thim. 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 one person in a business combination
transaction in which the dollar value of the transaction was less
than $1 million. The Company (i) made available to the purchaser
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 purchaser 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 Basic and Diluted
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, 1998.
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 6, 1998 /s/ WILLIAM A. ZIMMER
_________________________________
Chief Financial Officer and
Treasurer
(duly authorized officer,
principal financial officer and
principal accounting officer)
5
3-MOS
DEC-31-1998
MAR-31-1998
44,766
1,146
59,902
0
0
112,312
27,915
15,735
194,109
108,401
0
0
0
1,307
72,444
194,109
0
36,629
0
26,451
0
0
110
10,178
4,020
6,158
0
0
0
6,158
.47
.47
Exhibit 11 - Statement Re: Computation of Basic and Diluted
Earnings Per Share (Unaudited)
Three Months Ended March 31,
1998 1997
BASIC EARNINGS PER SHARE
Net Income $ 6,158 $ 5,224
======== ========
Weighted average number of
shares outstanding 13,105 12,983
======== ========
Basic earnings per share $ .47 $ .40
======== ========
DILUTED EARNINGS PER SHARE
Weighted average number of
shares outstanding 13,105 12,983
Net effect of dilutive stock options,
based on the treasury stock method 12 15
_________ _________
Total diluted shares used in computation 13,117 12,998
========= ==========
Diluted earnings per share $ .47 $ .40
========= ==========
