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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 quarter period ended March 31, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-7201.
POE & BROWN, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-0864469
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(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
220 S. RIDGEWOOD AVE., DAYTONA BEACH, FL 32114
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(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 10, 1995, was 8,666,000.
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POE & BROWN, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PAGE
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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, 1995 and 1994 3
Condensed Consolidated Balance Sheets as of March 31,
1995 and December 31, 1994 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1994 5
Notes to Condensed 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
</TABLE>
2
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POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1995 1994
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<S> <C> <C>
REVENUES
Commissions and fees ................................. $26,439 $25,568
Investment income .................................... 864 2,756
Other income ......................................... 40 205
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Total revenues .................................... 27,343 28,529
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EXPENSES
Employee compensation and benefits ................... 13,901 13,437
Other operating expenses ............................. 6,064 6,179
Interest and amortization ............................ 1,199 1,416
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Total expenses .................................... 21,164 21,032
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Income before income taxes ........................... 6,179 7,497
Income taxes ......................................... 1,927 2,872
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NET INCOME ............................................. $ 4,252 $ 4,625
======= =======
Net Income per common and common equivalent share ...... $ 0.49 $ 0.54
Weighted average number of shares outstanding .......... 8,692 8,604
</TABLE>
3
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POE & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
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<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................................ $ 29,341 $ 23,185
Short-term investments ............................................................... 685 787
Premiums receivable from customers, less allowance for
doubtful accounts of $80 in 1995 and $69 in 1994 .................................... 55,266 56,784
Other current assets ................................................................. 4,337 6,778
-------- --------
Total current assets ................................................................. 89,629 87,534
Property and equipment ............................................................... 8,656 8,330
Intangibles .......................................................................... 33,310 32,973
Other assets ......................................................................... 11,832 12,142
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Total assets ......................................................................... $143,427 $140,979
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LIABILITIES
Premiums payable ..................................................................... $ 64,238 $ 63,195
Premium deposits and credits due customers ........................................... 5,679 6,970
Other accounts payable and accrued expenses .......................................... 9,479 8,302
Current portion of long-term debt .................................................... 1,232 1,245
-------- --------
Total current liabilities ............................................................ 80,628 79,712
Long-term debt ....................................................................... 8,063 7,619
Deferred income taxes ................................................................ 2,250 3,778
Other liabilities .................................................................... 5,467 5,765
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Total liabilities .................................................................... 96,408 96,874
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Commitments and Contingent Liabilities
SHAREHOLDERS' EQUITY Common stock, $.10 par value:
Authorized 18,000 shares; issued 8,662 shares
in 1995 and 8,698 in 1994 ........................................................... 866 870
Additional paid-in capital ........................................................... 1,883 1,772
Retained earnings .................................................................... 39,356 36,122
Net unrealized gains on available-for-sale securities ................................ 4,914 5,341
-------- --------
Total shareholders' equity ........................................................... 47,019 44,105
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Total liabilities and shareholders' equity ........................................... $143,427 $140,979
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</TABLE>
See notes to condensed financial statements.
4
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POE & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
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1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 4,252 $ 4,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................................................. 1,610 1,654
Provision for doubtful accounts ................................................ 15 8
Deferred income taxes .......................................................... (1,420) 0
Net gains on sales of investments, fixed assets
and customer accounts, ........................................................ -- (2,367)
Premiums and commissions receivable, decrease (increase) ....................... 1,503 (1,055)
Other assets decrease .......................................................... 2,112 31
Premiums payable to insurance companies, increase (decrease) ................... 1,043 (1,260)
Premium deposit and credits due customers (decrease) increase .................. (1,291) 1,506
Accounts payable and accrued expenses, increase ................................ 1,177 922
Other liabilities (decrease) increase .......................................... (298) 560
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NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 8,703 4,624
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets ...................................................... (895) (863)
Payments for businesses acquired, net of cash acquired ......................... (1,377) --
Proceeds from sales of fixed assets and customer accounts ...................... -- 184
Purchases of investments ....................................................... (107) --
Proceeds from sales of investments ............................................. 316 2,315
Other investing activities, net ................................................ -- 308
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NET CASH (USED IN) PROVIDING INVESTING ACTIVITIES .............................. (2,067) 1,944
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long term debt and notes payable .................................... (710) (6,316)
Proceeds from long term debt and notes payable ................................. 1,141 3,300
Exercise of stock options, issuance of stock ................................... 107 334
Cash dividends paid ............................................................ (1,018) (836)
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NET CASH (USED IN) FINANCING ACTIVITIES ........................................ (480) (3,518)
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Net increase in cash and cash equivalents ...................................... 6,156 3,050
Cash and cash equivalents at beginning of period ............................... 23,185 27,132
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 29,341 $ 30,182
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</TABLE>
See notes to condensed consolidated financial statements.
5
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POE & BROWN, INC.
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, 1994.
Results of operations for the three month period ended March 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1995.
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
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 company. 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.
NOTE 4 - LONG-TERM DEBT
The Company continues to maintain its credit agreement with a major
insurance company under which up to $7 million presently may be borrowed 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, 1994. As of March 31, 1995, $7
million was outstanding under the agreement.
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, 1995, there were no borrowings against this line
of credit.
6
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POE & BROWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 September 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
a $250,000 reduction in the Company's general tax reserves resulting from
current and expected payments under the settlement agreement, the Company
recorded a $450,000 adjustment to decrease reserves in the first quarter of
1995 with a corresponding reduction to current income tax provision.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effective March 1, 1995, the Company issued 146,300 shares of its common
stock to the former partners of Insurance West. The merger has been accounted
for as a pooling-of-interests and accordingly, the Company's consolidated
operating results for the three months ended March 31, 1994 have been restated
to include the results of operations of Insurance West.
RESULTS OF OPERATIONS
Net Income. Net income for the first quarter of 1995 was $4,252,000 or
$.49 per share, compared with net income in the first quarter of 1994 of
$4,625,000, or $.54 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. The 1994 earnings per share include a $.16
per share gain from the sale of approximately 23% of the Company's investment
in common stock of the Rock-Tenn Company.
Commissions and Fees. Commissions and fees for the first quarter of 1995
increased $871,000, or 3% from 1994. The increase is primarily attributable to
an increase in contingent commissions of $618,000 or 25% over the first quarter
of 1994.
Investment Income. Investment income for the three-month period in 1995
decreased $1,892,000 primarily due to the sale of approximately 23% of the
Company's investment in the common stock of Rock-Tenn Company, which resulted
in a $2,185,000 gain.
Other Income. Other income primarily includes the sale of customer
accounts. Other income for the three month period ended March 31, 1995
decreased from the same period in 1994 due to less sales of customer accounts.
Employee Compensation and Benefits. Compensation and employee benefits
increased 3% during the first quarter of 1995. This increase primarily relates
to the net increase in commissions and fees and merit pay increases.
Other Operating Expenses. Other operating expenses for the first quarter
of 1995 decreased $115,000 or 2% under the same period in 1994. Even though
these expenses remained relatively flat, there were decreases in advertising
costs.
Interest and Amortization. Interest and amortization expense decreased
$217,000 during the first quarter of 1995 primarily as a result of lower
average borrowings as compared to the same period in 1994. .
Income Taxes. The Company's effective tax rate decreased from 38.3% in
1994 to 31.2% in 1995. The decrease in the effective income tax rate is
primarily the result of a $450,000 reduction in the Company's income tax
reserves during the first quarter 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. The Company's
effective tax rate for the remainder of 1995 is expected to approximate 38%.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by $6,156,000 from
December 31, 1994 to $29,341,000 at March 31, 1995. During the first quarter of
1995, cash was provided primarily from operating activities of $8,703,000. Cash
was used primarily to acquire businesses for $1,377,000 and pay dividends on
the Company's common stock. The current ratio improved to 1.11 as of March 31,
1995 from 1.10 as of December 31, 1994.
The Company has a revolving credit agreement with a major insurance
company under which up to $7 million presently may be borrowed at an interest
rate equal to the prime lending rate plus one percent, which will decrease by
$1 million each August through the year 2001 when it will expire. As of March
31, 1995, the maximum amount of borrowings were outstanding. In November 1994,
the Company entered into a resolving credit facility with a national banking
institution which provides for available borrowings of up to $10 million. As of
March 31, 1995, there were no borrowings against this line of credit. The
Company believes that its existing cash, cash equivalents, short-term
investments funds generated from operations and available credit facility
borrowings are sufficient to satisfy its normal financial needs.
9
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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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 19, 1995, the Company held its Annual Meeting of Shareholders to
elect directors. At this meeting, Samuel P. Bell, III, J. Hyatt Brown, Bruce G.
Geer, Jim W. Henderson, Theodore J. Hoepner, Kenneth E. Hill, Charles W. Poe,
William F. Poe Jr., and William F. Poe Sr., were re-elected as directors of the
Company. Also, the proposal to allocate 150,000 additional shares of common
stock to the Company's 1990 Employee Stock Purchase Plan was approved.
ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 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 March
31, 1995.
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 14, 1995 Timothy L. Young
----------------
TIMOTHY L. YOUNG
CHIEF FINANCIAL OFFICER
(duly authorized officer and principal
financial officer and principal accounting
officer)
10
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EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1995 1994
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<S> <C> <C>
Average shares outstanding 8,645 8,510
Net effect of dilutive stock options, based
on the treasury stock method 47 94
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Total shares used in computation 8,692 8,604
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Net income $ 4,252 $ 4,625
======= =======
Net income per share $ .49 $ .54
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POE & BROWN, INC. FOR THE THREE MONTHS ENDED MARCH 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 29,341
<SECURITIES> 8,113
<RECEIVABLES> 55,346
<ALLOWANCES> 80
<INVENTORY> 0
<CURRENT-ASSETS> 89,629
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 80,628
<BONDS> 0
<COMMON> 866
0
0
<OTHER-SE> 46,153
<TOTAL-LIABILITY-AND-EQUITY> 143,427
<SALES> 26,439
<TOTAL-REVENUES> 27,343
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,199
<INCOME-PRETAX> 6,179
<INCOME-TAX> 1,927
<INCOME-CONTINUING> 4,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,252
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
