SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
For the fiscal year ended December 31, 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 South Ridgewood Avenue, Daytona Beach, FL 32114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 252-9601
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
________________________________
Indicate by check mark whether the Registrant (1) has filed all reports re
quired 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the last reported price at which
the stock was sold on March 6, 1998, was $332,162,522.
The number of shares of the Registrant's common stock, $.10 par value, out
standing as of March 6, 1998, was 13,221,016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Shareholders are
incorporated by reference into Parts I and II of this Report. With the
exception of those portions which are incorporated by reference, the
Registrant's Annual Report to Shareholders is not deemed filed as part of
this Report.
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.
<PAGE 1>
POE & BROWN, INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
PART I
ITEM 1. BUSINESS
General
Poe & Brown, Inc. (the "Company") is a general insurance
agency headquartered in Daytona Beach and Tampa, Florida that
resulted from an April 28, 1993 business combination involving
Poe & Associates, Inc. ("Poe") and Brown & Brown, Inc. ("Brown").
Poe was incorporated in 1958 and Brown commenced business in
1939. Industry segment information is not presented because the
Company realizes substantially all of its revenues from the
general insurance agency business.
The Company is a diversified insurance brokerage and agency
that markets and sells primarily property and casualty insurance
products and services to its clients. Because the Company does
not engage in underwriting activities, it does not assume
underwriting risks. Instead, it acts in an agency capacity to
provide its customers with targeted, customized risk management
products.
The Company is compensated for its services by commissions
paid by insurance companies and fees for administration and
benefit consulting services. The commission is usually a
percentage of the premium paid by an insured. Commission rates
generally depend upon the type of insurance, the particular
insurance company, and the nature of the services provided by the
Company. In some cases, a commission is shared with other agents
or brokers who have acted jointly with the Company in a
transaction. The Company may also receive from an insurance
company a contingent commission that is generally based on the
profitability and volume of business placed with it by the
Company over a given period of time. Fees are principally
generated by the Company's Service Division, which offers
administration and benefit consulting services primarily in the
workers' compensation and employee benefit markets. The amount
of the Company's income from commissions and fees is a function
of, among other factors, continued new business production,
retention of existing customers, acquisitions, and fluctuations
in insurance premium rates and insurable exposure units.
Premium pricing within the property and casualty insurance
underwriting industry has been cyclical and has displayed a high
degree of volatility based on prevailing economic and competitive
conditions. Since the mid-1980s, the property and casualty insurance
industry has been in a "soft market" during which the underwriting
capacity of insurance companies expanded, stimulating an increase in
competition and a decrease in premium rates and related commissions and fees.
<PAGE 2>
Significant reductions in premium rates occurred during the years 1987
through 1989 and continue, although to a lesser degree, through the
present. The effect of this softness in rates on the Company's revenues
has been somewhat offset by the Company's acquisitions and new
business production. The Company cannot predict the timing or
extent of premium pricing changes as a result of market
fluctuations or their effect on the Company's operations in the
future.
The Company's activities are conducted in 18 locations
throughout Florida, three locations in Arizona and in seven
additional locations in California, Connecticut, Georgia, New
Jersey, Nevada, Pennsylvania, and Texas. Because the Company's
business is concentrated in Florida, the occurrence of adverse
economic conditions or an adverse regulatory climate in Florida
could have a materially adverse effect on its business, although
the Company has not encountered such conditions in the past.
The Company's business is divided into five divisions: (i)
the Retail Division; (ii) the Professional Programs Division;
(iii) the Commercial Programs Division; (iv) the Service
Division; and (v) the Brokerage Division. The Retail Division is
composed of Company employees in 24 offices who market and sell a
broad range of insurance products to insureds. The two Program
Divisions work with underwriters to develop proprietary insurance
programs for specific niche markets. These programs are marketed
and sold primarily through approximately 350 independent agencies
and more than 2,000 independent agents across the United States.
The Company receives an override on the commissions generated by
these independent agencies. The Service Division provides
insurance-related services such as third-party administration and
consultation for workers' compensation and employee benefit
markets. The Brokerage Division markets and sells excess and
surplus commercial insurance, as well as certain niche programs,
primarily through independent agents.
The following table sets forth a summary of (i) the
commission and fee revenues realized from each of the Company's
operating divisions for each of the three years in the period
ended December 31, 1997 (in thousands of dollars), and (ii) the
percentage of the Company's total commission and fee revenues
represented by each division for each of such periods:
<TABLE>
<CAPTION>
1995 % 1996 % 1997 %
_______ _____ _______ _____ _______ ______
<S> <C> <C> <C> <C> <C> <C>
Retail Division $ 59,552 58.4% $ 66,798 58.4% $ 74,394 59.8%
Professional Programs
Division 21,463 21.0 20,377 17.8 20,477 16.5
Commercial Programs
Division 6,079 6.0 5,355 4.7 4,368 3.5
Service Division 10,751 10.5 11,887 10.4 12,150 9.8
Brokerage Division 4,153 4.1 9,961 8.7 12,976 10.4
________ _____ ________ _____ ________ ____
Total $101,998 100% $114,378 100% $124,365 100%
======== ===== ======== ===== ======== ====
</TABLE>
Retail Division
The Company's Retail Division operates through 24 locations
in eight states. These locations employ approximately 623
persons. The Company's retail insurance agency business
<PAGE 3>
consists primarily of selling and marketing property and casualty
insurance coverages to commercial, professional and, to a limited
extent, individual customers. The categories of insurance
principally sold by the Company are: Casualty - insurance
relating to legal liabilities, workers' compensation, commercial
and private passenger automobile coverages, and fidelity and
surety insurance; and Property - insurance against physical
damage to property and resultant interruption of business or
extra expense caused by fire, windstorm or other perils. The
Company also sells and services all forms of group and individual
life, accident, health, hospitalization, medical and dental
insurance programs. Each category of insurance is serviced by
insurance specialists employed by the Company.
No material part of the Company's retail business depends
upon a single customer or a few customers. During 1997, the
Company's Retail Division received approximately $578,000 of fees
and commissions from Rock-Tenn Company, the Company's largest
single Retail Division customer. Such amount represented less
than 1% of the Retail Division's total commission and fee
revenues for 1997.
In connection with the selling and marketing of insurance
coverages, the Company provides a broad range of related services
to its customers, such as risk management surveys and analysis,
consultation in connection with placing insurance coverages, and
claims processing. The Company believes these services are
important factors in securing and retaining customers.
Professional and Commercial Programs Divisions
In 1996, the Company's National Programs Division was
divided into two distinct market-responsive groups as a result of
changes in market conditions. The two divisions created as a
result of this separation are the Professional Programs Division
and the Commercial Programs Division. These divisions tailor
insurance products to the needs of a particular professional or
trade group, negotiate policy forms, coverages and commission
rates with an insurance company and, in certain cases, secure the
formal or informal endorsement of the product by a professional
association or trade group. Programs are marketed and sold
primarily through a national network of independent agencies that
solicit customers though advertisements in association
publications, direct mailings and personal contact. The Company
also markets a variety of these products through certain of its
retail offices. Under agency agreements with the insurance
companies that underwrite these programs, the Company usually has
authority to bind coverages, subject to established guidelines,
to bill and collect premiums and, in some cases, to process
claims.
The Company is committed to ongoing market research and
development of new proprietary programs. The Company employs a
variety of methods, including interviews with members of various
professional and trade groups to which the Company does not
presently offer insurance products, to assess the coverage needs
of such professional associations and trade groups. If the
initial market research is positive, the Company studies the
existing and potential competition and locates potential carriers
for the program. A proposal is then submitted to and negotiated
with a selected carrier and, in many instances, a professional or
trade association from which endorsement of the program is
sought. New programs are introduced through written
<PAGE 4>
communications, personal visits with agents, placements of
advertising in trade publications and, where appropriate,
participation in trade shows and conventions. Several new
programs are currently being reviewed or implemented by the
Company. There can be no assurance, however, as to whether the
Company will be successful in developing or implementing any such
new programs, or what the market reception will be.
Professional Programs. The professional groups serviced by
the Professional Programs Division include dentists, lawyers,
physicians, optometrists and opticians, chiropractors, architects
and engineers. Set forth below is a brief description of the
programs offered to these major professional groups.
- Dentists: The largest program marketed by the
Professional Programs Division is a package insurance policy
known as the Professional Protector Plan, which provides
comprehensive coverage for dentists, including practice
protection and professional liability. This program, initiated
in 1969, is endorsed by 36 state or local dental societies, and
is offered in 49 states, the District of Columbia, the Virgin
Islands and Puerto Rico. This program presently insures
approximately 36,300 dentists, which the Company believes
represents approximately 27% of the eligible practicing dentists
within the Company's marketing territories.
- Lawyers: The Company began marketing lawyers'
professional liability insurance in 1973, and the national
Lawyer's Protector Plan was introduced in 1983. The program
presently insures approximately 37,500 attorneys and is offered
in 46 states, the District of Columbia, Puerto Rico and the
Virgin Islands.
- Physicians: The Company markets professional liability
insurance for physicians, surgeons, and other health care
providers through a program known as the Physicians Protector
Plan. The program, initiated in 1980, is currently offered in
eight states and Puerto Rico and insures approximately 2,000
physicians.
- Optometrists and Opticians: The Optometric Protector
Plan was created in 1973 to provide optometrists and opticians
with a package of practice and professional liability coverage.
This program insures approximately 7,500 optometrists and
opticians in all 50 states, the District of Columbia and Puerto
Rico.
- Chiropractors: The Chiropractic Protector PlanSM (the
"CPP") was introduced in 1996 to provide professional liability
and comprehensive general liability coverage for chiropractors.
This program is currently being offered in Connecticut, Florida,
Illinois and Pennsylvania, with the expectation that it will soon
be offered in ten additional states.
- Architects and Engineers: The Architects & Engineers
Protector PlanSM was introduced in 1997 to provide professional
liability and comprehensive general liability coverage for
architects and engineers. This program is currently available to
"full service" architects in six states and to landscape
architects in all 50 states.
<PAGE 5>
The professional programs described above (other than the
Physicians and Architects & Engineers Programs) are underwritten
predominantly through CNA Insurance Companies ("CNA"). The
Company and CNA are parties to Program Agency Agreements with
respect to each of the programs described above except for the
CPP, with respect to which an agreement is currently being
finalized. Among other things, these agreements grant the
Company the exclusive right to solicit and receive applications
for program policies directly and from other licensed agents and
to bind and issue such policies and endorsements thereto. In
fulfilling its obligations under the agreements, the Company must
comply with the administrative and underwriting guidelines
established by CNA. The Company must use its best efforts to
promote the programs and solicit and sell program policies. The
Company is compensated through commissions on premiums, which
vary according to insurance product (e.g., workers' compensation,
commercial umbrella, package coverage, monoline professional and
general liability) and the Company's role in the transaction. The
commission to which the Company is entitled may change upon 90
days written notice from CNA. The Program Agency Agreements are
generally cancellable by either party for any reason on advance
written notice of six months or one year. An agreement may also
be terminated upon breach, by the non-breaching party, subject to
certain opportunities to cure the breach.
Commercial Programs. The Commercial Programs Division
serves a number of targeted commercial industries and trade
groups, with an emphasis on the automotive, manufacturing and
wholesale-distribution industries. Among its programs are the
following:
- - Towing Operators Protector Plan.r Introduced in 1992, this
program provides specialized insurance products to towing and
recovery industry operators in all 50 states.
- - Automobile Dealers Protector Plan.r This program insures
independent automobile dealers and is currently offered in 48
states. It originated in Florida over 25 years ago through a
program still endorsed by the Florida Independent Auto Dealers
Association.
- - Manufacturers Protector Plan.SM Introduced in 1997, this
program provides specialized coverages for manufacturers, with an
emphasis on selected niche markets.
- - Wholesalers & Distributors Preferred Program.SM Introduced
in 1997, this program provides stabilized property and casualty
protection for businesses principally engaged in the wholesale-
distribution industry. This program replaced the Company's prior
wholesaler-distributor program, which was terminated in 1997 when
the Company severed its relationship with the National
Association of Wholesaler-Distributors.
- - Railroad Protector Plan.SM Also introduced in 1997, this
program is designed for contractors, manufacturers and other
entities that service the needs of the railroad industry.
- - Agricultural Protector Plan.SM Introduced in early 1998,
this program offers growers of annually harvested crops a broad-
based program of specialized coverages.
<PAGE 6>
- - Automobile Transporters Protector Plan.SM Introduced in
1996, this program is designed for automobile transporters
engaged in the transport of vehicles for automobile auctions,
automobile leasing concerns, and automobile and truck
dealerships. It is currently offered in all 50 states.
- - Recycler's Comprehensive Protector Plan.SM This program is
in the last stages of development and implementation, and the
Company intends to introduce the program by mid-1998. The
program is expected to provide specialized property, liability,
workers' compensation and pollution coverages for the recycling
industry.
Service Division
The Service Division consists of two separate components:
(i) insurance and related services as a third-party administrator
("TPA") and consultant for employee health and welfare benefit
plans, and (ii) insurance and related services providing
comprehensive risk management and third-party administration to
self-funded workers' compensation plans.
In connection with its employee benefit plan administrative
services, the Service Division provides TPA services and
consulting related to benefit plan design and costing,
arrangement for the placement of stop-loss insurance and other
employee benefit coverages, and settlement of claims. The
Service Division provides utilization management services such as
pre-admission review, concurrent/retrospective review, pre-
treatment review of certain non-hospital treatment plans, and
medical and psychiatric case management. In addition to the
administration of self-funded health care plans, the Service
Division offers administration of flexible benefit plans,
including plan design, employee communication, enrollment and
reporting. The Service Division's workers' compensation TPA
services include risk management services such as loss control,
claim administration, access to major reinsurance markets, cost
containment consulting, and services for secondary disability and
subrogation recoveries.
The Service Division provides workers' compensation TPA
services for approximately 2,500 employers representing more than
$3 billion of employee payroll. The Company's largest workers'
compensation contract represents approximately 69% of the
Company's workers' compensation TPA revenues, or approximately 4%
of the Company's total commission and fee revenues.
Brokerage Division
The Brokerage Division markets excess and surplus lines and
specialty niche insurance products to the Company's Retail
Division, as well as to other retail agencies throughout Florida
and the southeastern United States. The Brokerage Division
represents various U.S. and U.K. surplus lines companies and is
also a Lloyd's of London correspondent. In addition to surplus
lines carriers, the Brokerage Division represents admitted
carriers for smaller agencies that do not have access to large
insurance carrier representation. Excess and surplus products
include commercial automobile, garage, restaurant, builder's risk
and inland marine lines. Difficult-to-insure general
<PAGE 7>
liability and products liability coverages are a specialty, as is excess
workers' compensation. Retail agency business is solicited
through mailings and direct contact with retail agency
representatives. The Company has a 75% ownership interest in
Florida Intracoastal Underwriters, Limited Company ("FIU") of
Miami Lakes, Florida. FIU is a managing general agency that
specializes in providing insurance coverages for coastal and
inland high-value condominiums and apartments. FIU has developed
a unique reinsurance facility to support the underwriting
activities associated with these risks.
Employees
At December 31, 1997, the Company had 1,082 full-time
equivalent employees. The Company has contracts with its sales
employees that include provisions restricting their right to
solicit the Company's customers after termination of employment
with the Company. The enforceability of such contracts varies
from state to state depending upon state statutes, judicial
decisions and factual circumstances. The majority of these
contracts are terminable by either party; however, the agreements
not to solicit the Company's customers generally continue for a
period of two or three years after employment termination.
None of the Company's employees is represented by a labor
union, and the Company considers its relations with its employees
to be satisfactory.
Competition
The insurance agency business is highly competitive, and
numerous firms actively compete with the Company for customers
and insurance carriers. Although the Company is the largest
insurance agency headquartered in Florida, a number of firms with
substantially greater resources and market presence compete with
the Company in Florida and elsewhere. This situation is
particularly pronounced outside Florida. Competition in the
insurance business is largely based on innovation, quality of
service and price.
A number of insurance companies are engaged in the direct
sale of insurance, primarily to individuals, and do not pay
commissions to agents and brokers. To date, such direct writing
has had relatively little effect on the Company's operations,
primarily because the Company's Retail Division is commercially
oriented.
Regulation, Licensing and Agency Contracts
The Company or its designated employees must be licensed to
act as agents by state regulatory authorities in the states in
which the Company conducts business. Regulations and licensing
laws vary in individual states and are often complex.
The applicable licensing laws and regulations in all states
are subject to amendment or reinterpretation by state regulatory
authorities, and such authorities are vested in most cases with
relatively broad discretion as to the granting, revocation,
suspension and renewal of licenses. The
<PAGE 8>
possibility exists that the Company could be excluded or temporarily
suspended from carrying on some or all of its activities in, or otherwise
subjected to penalties by, a particular state.
ITEM 2. PROPERTIES
The Company's executive offices are located at 220 South
Ridgewood Avenue, Daytona Beach, Florida 32114 and 401 East
Jackson Street, Suite 1700, Tampa, Florida 33602. The Company
also maintains offices in the following cities: Phoenix, Arizona,
Prescott Arizona, Tucson, Arizona; San Francisco, California;
Glastonbury, Connecticut; Brooksville, Florida; Ft. Lauderdale,
Florida; Ft. Myers, Florida; Jacksonville, Florida; Kissimmee,
Florida; Leesburg, Florida; Maitland, Florida; Melbourne,
Florida; Miami Lakes, Florida; Naples, Florida; Orlando, Florida;
St. Petersburg, Florida; Sarasota, Florida; West Palm Beach,
Florida; Winter Haven, Florida; Atlanta, Georgia; Clark, New
Jersey; Las Vegas, Nevada; Philadelphia, Pennsylvania; and
Houston, Texas.
The Company occupies office premises under noncancellable
operating leases expiring at various dates. These leases
generally contain renewal options and escalation clauses based on
increases in the lessors' operating expenses and other charges.
The Company expects that most leases will be renewed or replaced
upon expiration. See Note 8 of the "Notes to Consolidated
Financial Statements" in the Company's 1997 Annual Report to
Shareholders for additional information on the Company's lease
commitments.
ITEM 3. LEGAL PROCEEDINGS
On February 21, 1995, an Amended Complaint was filed in an
action pending in the Superior Court of Puerto Rico, Bayamon
division, and captioned Cadillac Uniform & Linen Supply Company,
et al. v. General Accident Insurance Company, Puerto Rico,
Limited, et al. The case was originally filed on November 23,
1994, and named General Accident Insurance Company, Puerto Rico
Limited, and Benj. Acosta, Inc. as defendants. The Amended
Complaint added several defendants, including the Company and Poe
& Brown of California, Inc. ("P&B/Cal."), a subsidiary of the
Company, as parties to the case. The Plaintiffs allege that
P&B/Cal. failed to procure sufficient coverage for a commercial
laundry facility that was rendered inoperable for a period of
time as the result of a fire, and further allege that the Company
is vicariously liable for the actions of P&B/Cal. The Amended
Complaint seeks damages of $11.2 million against P&B/Cal., the
Company, the P&B/Cal. employee who handled the account and LBI
Corp., a/k/a Levinson Bros., Inc. The Company and P&B/Cal.
believe that P&B/Cal. has meritorious defenses to each of the
claims asserted against it, and that the Company likewise has
meritorious defenses to allegations premised upon theories of
vicarious liability. Both the Company and P&B/Cal. are
contesting this action vigorously, and a hearing before a Special
Master appointed by the court, whose findings will be reviewed
and confirmed or rejected by the court, is currently scheduled
for June 1998. In the event that damages are awarded against
P&B/Cal. or the Company, P&B/Cal. and the Company believe that
insurance would be available to cover such loss.
The Company is involved in various other pending or
threatened proceedings by or against the Company or one or more
of its subsidiaries that involve routine litigation relating to insurance
<PAGE 9>
risks placed by the Company and other contractual matters.
Management of the Company does not believe that any of
such pending or threatened proceedings (including the proceeding
described above) will have a materially adverse effect on the
consolidated financial position or future operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the Company's fourth quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock
Exchange under the symbol "PBR." The number of shareholders of
record as of March 6, 1998 was 816, and the closing price per
share on that date was $38.00.
The table below sets forth information for each quarter in
the last two fiscal years concerning (i) the high and low sales
prices for the Company's common stock, and (ii) cash dividends
declared per share. The stock prices below do not reflect the
three-for-two stock split effected by the Company on February 27,
1998.
<TABLE>
<CAPTION>
Stock Price Range Cash
Dividends
High - Low Per Share
<S> <C> <C> <C>
1997
First quarter $27.25 $25.50 $0.13
Second quarter 37.00 25.50 0.13
Third quarter 41.25 35.75 0.13
Fourth quarter 47.00 40.00 0.14
1996
First quarter $25.50 $24.00 $0.12
Second quarter 24.75 22.75 0.12
Third quarter 25.38 23.50 0.12
Fourth quarter 27.50 24.00 0.13
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Information under the caption "Financial Highlights" on page
3 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
<PAGE 10>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on
pages 18-21 of the Company's 1997 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Poe & Brown, Inc.
and its subsidiaries, together with the report thereon of Arthur
Andersen LLP appearing on pages 22-40 of the Company's 1997
Annual Report to Shareholders, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the captions "Management" and
"Section 16(a) Beneficial Ownership Reporting Compliance" on
pages 4-6 of the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive
Compensation" on pages 6-8 of the Company's Proxy Statement for
its 1998 Annual Meeting of Shareholders is incorporated herein by
reference; provided, however, that the report of the Compensation
Committee on executive compensation, which begins on page 8
thereof, shall not be deemed to be incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information contained under the caption "Security Ownership
of Management and Certain Beneficial Owners" on pages 2-3 of the
Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders is incorporated herein by reference.
<PAGE 11>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Executive
Compensation _ Compensation Committee Interlocks and Insider
Participation" on page 8 of the Company's Proxy Statement for its
1998 Annual Meeting of Shareholders is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this
report:
1. Consolidated Financial Statements of Poe & Brown,
Inc. (incorporated herein by reference from pages 22-
40 of the Company's 1997 Annual Report to
Shareholders) consisting of:
(a) Consolidated Statements of Income for each
of the three years in the period ended December
31, 1997.
(b) Consolidated Balance Sheets as of December
31, 1997 and 1996.
(c) Consolidated Statements of Shareholders'
Equity for each of the three years in the period
ended December 31, 1997.
(d) Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1997.
(e) Notes to Consolidated Financial
Statements.
(f) Report of Independent Certified Public
Accountants.
2. Consolidated Financial Statement Schedules. The
Consolidated Financial Statement Schedules are omitted
because they are not applicable, not material, or not
required, or because the required information is included
in the Consolidated Financial Statements or the Notes thereto.
3. EXHIBITS
3a Articles of Incorporation of the
Registrant, as last amended on April 28, 1993
(incorporated by reference to Exhibit 3a to Form
10-K for the year ended December 31, 1994).
<PAGE 12>
3b Amended and Restated Bylaws of the
Registrant effective July 30, 1996 (incorporated
by reference to Exhibit 3b to Form 10-K for the
year ended December 31, 1996).
4 Revolving Loan Agreement dated November 9,
1994, by and among the Registrant and SunTrust
Bank, Central Florida, N.A., f/k/a SunBank,
National Association (incorporated by reference
to Exhibit 4 to Form 10-K for the year ended
December 31, 1994).
10a(1) Lease of the Registrant for office
space at 220 South Ridgewood Avenue, Daytona
Beach, Florida dated August 15, 1987
(incorporated by reference to Exhibit 10a(3) to
Form 10-K for the year ended December 31, 1993).
10a(2) Lease Agreement for office space at
SunTrust Financial Centre, Tampa, Florida, dated
February 1995, between Southeast Financial Center
Associates, as landlord, and the Registrant, as
tenant (incorporated by reference to Exhibit
10a(4) to Form 10-K for the year ended
December 31, 1994).
10b Registrant's 1989 Stock Option Plan
(incorporated by reference to Exhibit 10f to Form
10-K for the year ended December 31, 1989).
10c Loan Agreement between Continental
Casualty Company and the Registrant dated August
23, 1991 (incorporated by reference to Exhibit
10d to Form 10-K for the year ended December 31,
1991).
10d Indemnity Agreement dated January 1, 1979,
among the Registrant, Whiting National
Management, Inc., and Pennsylvania Manufacturers'
Association Insurance Company (incorporated by
reference to Exhibit 10g to Registration
Statement No. 33-58090 on Form S-4).
10e Agency Agreement dated January 1, 1979
among the Registrant, Whiting National
Management, Inc., and Pennsylvania Manufacturers'
Association Insurance Company (incorporated by
reference to Exhibit 10h to Registration
Statement No. 33-58090 on Form S-4).
10f Deferred Compensation Agreement, dated May
1, 1983, as amended April 27, 1993, between Brown
& Brown, Inc. and Kenneth E. Hill (incorporated
by reference to Exhibit 10i to Form 10-K for the
year ended December 31, 1993).
10g Employment Agreement, dated April 28, 1993
between the Registrant and J. Hyatt Brown
(incorporated by reference to Exhibit 10k to Form
10-K for the year ended December 31, 1993).
<PAGE 13>
10h Portions of Employment Agreement, dated
April 28, 1993 between the Registrant and Kenneth
E. Hill (incorporated by reference to Exhibit 10l
to Form 10-K for the year ended December 31,
1993).
10i Portions of Employment Agreement, dated
April 28, 1993 between the Registrant and Jim W.
Henderson (incorporated by reference to Exhibit
10m to Form 10-K for the year ended December 31,
1993).
10j Registrant's Stock Performance Plan
(incorporated by reference to Exhibit 4 to
Registration Statement No. 333-14925 on Form S-8).
11 Statement Re: Computation of Per Share
Earnings.
13 Portions of Registrant's 1997 Annual Report
to Shareholders (not deemed "filed" under the
Securities Exchange Act of 1934, except for those
portions specifically incorporated by reference
herein).
22 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
24a Powers of Attorney pursuant to which this
Form 10-K has been signed on behalf of certain
directors and officers of the Registrant.
24b Resolutions of the Registrant's Board of
Directors, certified by the Secretary.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
<PAGE 14>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant
By: *
______________________________
J. Hyatt Brown
Chief Executive Officer
Date: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
_________ _______ _____
<S> <C> <C>
* Chairman of the Board, President March 24, 1998
____________________ and Chief Executive Officer
J. Hyatt Brown (Principal Executive Officer)
* Director March 24, 1998
____________________
Samuel P. Bell, III
* Director March 24, 1998
____________________
Bradley Currey, Jr.
* Director March 24, 1998
_____________________
Jim W. Henderson
* Director March 24, 1998
_____________________
Kenneth E. Hill
* Director March 24, 1998
_____________________
David H. Hughes
* Director March 24, 1998
_____________________
Theodore J. Hoepner
* Director March 24, 1998
_____________________
Jan E. Smith
* Vice President, Treasurer and March 24, 1998
_____________________ Chief Financial Officer (Principal
Wiliam A. Zimmer Financial and Accounting Officer)
</TABLE>
*By: /s/ LAUREL L. GRAMMIG
________________________
Laurel L. Grammig
Attorney-in-Fact
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
_____________________________________________
1997 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C>
Average shares outstanding 8,722 8,658 8,660
Net effect of dilutive stock
options, based on the treasury
stock method
3 25 39
_______ _______ _______
Total shares used in
computation 8,725 8,683 8,699
======= ======= =======
Net income $19,387 $16,498 $14,799
======= ======= =======
Net income per share $ 2.22 $ 1.90 $ 1.70
======== ======= =======
</TABLE>
EXHIBIT 13
Portions of 1997 Annual Report to Shareholders
<PAGE 3>
Financial Highlights
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands, except per
share data) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commissions and fees(1) $124,365 $114,378 $101,998 $ 95,852 $ 94,420
Total revenues(2) $129,191 $118,680 $106,365 $101,580 $ 97,821
Total expenses $ 97,553 $ 91,634 $ 83,036 $ 80,994 $ 84,774
Income before taxes $ 31,638 $ 27,046 $ 23,329 $ 20,586 $ 13,047
Net income(2,3) $ 19,387 $ 16,498 $ 14,799 $ 13,519 $ 8,118
Net income per share $ 2.22 $ 1.90 $ 1.70 $ 1.56 $ 0.95
Weighted average number
of shares outstanding 8,725 8,683 8,699 8,670 8,571
Dividends declared per share $ 0.53 $ 0.49 $ 0.48 $ 0.42 $ 0.40
Total assets $194,129 $179,743 $151,121 $140,980 $134,924
Long-term debt $ 4,093 $ 5,300 $ 7,023 $ 7,430 $ 17,637
Shareholders' equity(4) $ 77,142 $ 67,286 $ 54,412 $ 44,106 $ 27,246
</TABLE>
(1) See Notes 2 and 3 to consolidated financial statements for
information regarding business purchase transactions which impact
the comparability of this information.
(2) During 1994, the Company sold 150,000 shares of its investment in
the common stock of Rock-Tenn Company for $2,314,000, resulting in
a net after-tax gain of $1,342,000, or $0.16 per share.
(3) During 1995 and 1994, the Company reduced its general tax
reserves by $451,000 and $700,000, or $0.05 and $0.08 per share,
respectively, as a result of reaching a settlement with the Internal
Revenue Service on certain examination issues. See Note 9 to consolidated
financial statements.
(4) Shareholders' equity as of December 31, 1997, 1996, and 1995, included
net increases of $6,744,000, $6,511,000 and $4,836,000,
respectively, as a result of the CompanyOs application of SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
<PAGE 18>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
In April of 1993, Poe & Associates, Inc., headquartered in Tampa,
Florida, merged with Brown & Brown, Inc., headquartered
in Daytona Beach, Florida, forming Poe & Brown, Inc. (the "Company").
Since that merger, the Company's operating results
have steadily improved. The Company achieved pre-tax income from
operations of $31,638,000 in 1997 compared to $27,046,000 in 1996 and
$23,329,000 in 1995. Pre-tax income as a percentage of
total revenues was 24.5% in 1997, 22.8% in 1996 and 21.9% in
1995. This upward trend is primarily the result of the Company's
achievement of revenue growth and operating efficiency
improvements.
The Company's revenues are comprised principally of
commissions paid by insurance companies, fees paid directly by
clients and investment income. Commission revenues generally
represent a percentage of the premium paid by the insured and are
materially affected by fluctuations in both premium rate levels
charged by insurance underwriters and the volume of premiums
written by such underwriters. These premium rates are established
by insurance companies based upon many factors, none of which is
controlled by the Company. Beginning in 1986 and continuing
through 1997, revenues have been adversely influenced by a
consistent decline in premium rates resulting from intense
competition among property and casualty insurers for expanding
market share. Among other factors, this condition of prevailing
decline in premium rates, commonly referred to as a "soft
market," has generally resulted in flat to reduced commissions on
renewal business. The possibility of rate increases in 1998 is
unpredictable.
Revenues are further impacted by the development of new and
existing proprietary programs, fluctuations in insurable exposure
units and the volume of business from new and existing clients,
and changes in general economic and competitive conditions. For
example, stagnant rates of inflation in recent years have
generally limited the increases in insurable exposure units such
as property values, sales and payroll levels. Conversely,
the increasing trend in litigation settlements and awards has
caused some clients to seek higher levels of insurance coverage.
Still, the Company's revenues continue to grow through quality
acquisitions, intense initiatives for new business and
development of new products, markets and services.
The Company anticipates that results of operations for 1998 will
continue to be influenced by these competitive and
economic conditions.
During 1996, the Company acquired three general insurance
agencies, an insurance brokerage firm and several books of
business (customer accounts) which were accounted for as
purchases. During 1997, the Company acquired three general
insurance agencies and several books of business
(customer accounts) which were accounted for as purchases. On
August 1, 1997, the
<PAGE 19>
Company acquired all of the outstanding stock
of Shanahan, McGrath & Bradley, Inc. This transaction was
accounted for as a pooling-of-interests; however, the financial
statements for all prior periods were not restated due to the
immaterial nature of the transaction.
Contingent commissions may be paid to the Company by insurance
carriers based upon the volume and profitability of the business placed with
such carriers by the Company and are generally received in the first
quarter of each year. In the last three years, contingent commissions have
represented 3.2% to 4.7% of total revenues.
Fee revenues are generated principally by the Service
Division of the Company, which offers administration and benefit
consulting services primarily in the workers' compensation and
employee benefit self-insurance markets. Florida's legislative
reform of workers' compensation insurance, as well as certain
market factors, have resulted in increased competition in this
service sector. In response to the increased competition, the
Company has offered value-added services that enabled it to
increase 1997 fee revenue over that recognized in 1996. For the
past three years, service fee revenues have ranged from 9.8% to
10.6% of total commissions and fees.
Investment income consists primarily of interest earnings on
premiums and advance premiums collected and not immediately
remitted to insurance carriers, with such funds being held in a
fiduciary capacity. Investment income also includes gains and
losses realized from the sale of investments, although in 1996
and 1995, such sales were minimal and realized gains and losses
were immaterial. In 1997, investment income included a $303,000
realized gain from the sale of the CompanyOs investment in Fort
Brooke Bank. The Company's policy is to invest its available
funds in high-quality, short-term fixed income investment
securities.
The following discussion and analysis regarding results of
operations and liquidity and capital resources should be
considered in conjunction with the accompanying consolidated
financial statements and related notes.
Results of operations for
the years ended December 31, 1997, 1996 and 1995
Commissions and Fees
Commissions and fees increased 9% in 1997, 12% in 1996 and 6% in
1995. Excluding the effect of acquisitions, commissions and fees
increased 6% in 1997, 4% in 1996 and 3% in 1995. The 1997 results
reflect an increase in commissions for all of the Company's
operating divisions, mainly through new business growth. In
general, property and casualty insurance premium prices declined
in 1997; however, certain segments and industries had some
increases in insurable exposure units during 1997.
Investment Income
Investment income increased to $4,085,000 in 1997 compared to
$3,230,000 in 1996 and $3,733,000 in 1995. This increase is
primarily due to higher levels of invested cash and increases in
interest rate returns. Additionally, the 1997 results included a
$303,000 gain from the sale of the Company's investment in Fort
Brooke Bank.
Other Income
Other income consists primarily of gains and losses from the sale
and disposition of assets. During 1997, gains on the sale of
customer accounts were $646,000 compared to $997,000 in 1996 and
$590,000 in 1995.
<PAGE 20>
Employee Compensation & Benefits
Employee compensation and benefits increased approximately 8% in
1997, 10% in 1996 and 5% in 1995. Without acquisitions, employee
compensation and benefits increased 6% in 1997, 5% in 1996 and 1%
in 1995. Employee compensation and
benefits as a percentage of total revenue was 50% in 1997, down
from 51% in 1996 and 52% in 1995. As of December 31, 1997, the
Company had 1,082 full-time equivalent employees compared to
1,075 at the beginning of the year. The increase in personnel in
1997 is related to acquisitions. The 1997 increase in
compensation and employee benefits of $4,670,000 is primarily
attributable to the additional commission expense as a result of
the increased commission revenue.
Other Operating Expenses
Other operating expenses increased 4% in 1997, 11% in 1996, and
remained constant in 1995. Without acquisitions, operating expenses
increased 1% in 1997 and 6% in 1996, and decreased 3% in 1995. Other
operating expenses as a percentage of total revenues decreased to 21% in
1997 from 22% in 1996 and 1995.
Interest and Amortization
Interest and amortization increased $262,000, or 5%, in 1997 and
$703,000, or 14%, in 1996 and decreased $580,000, or 10%, in
1995. The increase in 1997 is due primarily to the write-off of
the remaining intangible assets related to a terminated agreement
totaling $670,000.
Income Taxes
The effective tax rate on income from operations was 38.7% in
1997, 39.0% in 1996 and 36.6% in 1995. The lower effective tax
rate in 1995 is primarily due to the effect
of recording a $451,000 reduction to the general tax reserves as
a result of reaching a settlement with the Internal Revenue Service
("Service") on the Service's outstanding examination issues (see below
for detailed discussion of this adjustment).
In 1992, the Service completed examinations of the Company's
federal income tax returns for tax years 1988, 1989 and 1990 and
issued Reports of Proposed Adjustments asserting income tax
deficiencies. 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.
In 1994 and 1995, the Company reached agreements with the
Service on all disputed items. These agreements resulted
in payments that reduced the reserve by approximately $349,000.
After considering these reductions, the Company recorded a
$451,000 reduction in the general tax reserve which was recorded
as a reduction to the 1995 income tax provision.
Liquidity and Capital Resources
The Company's cash and cash equivalents
of $47,726,000 at December 31, 1997, increased $15,940,000 from
the December 31, 1996 balance of $31,786,000. During 1997, cash
of $33,027,000 was provided from operating activities, proceeds of $452,000
<PAGE 21>
from sales of fixed assets and customer accounts,
proceeds from the sale of investments of $557,000 and proceeds of
$1,044,000 from the exercise of stock options and issuances of
common stock. Cash was used during 1997 primarily for payments on
long-term debt and notes payable of $2,611,000, additions
to fixed assets of $2,713,000, purchases of investments of
$253,000, acquisitions of businesses of $3,067,000, repurchase of
common stock of $5,860,000 and dividend payments of $4,636,000.
The Company's cash and cash equivalents of $31,786,000 at
December 31, 1996 increased $3,436,000 from the December 31, 1995
balance of $28,350,000. During 1996, cash of $28,621,000 was
provided from operating activities, proceeds of $984,000 from
sales of fixed assets and customer accounts, proceeds of
$1,118,000 from sales of investments, and proceeds of $748,000
from the exercise of stock options and issuances of common stock.
Cash was used during 1996 primarily for payments on long-term
debt of $4,223,000, additions to fixed assets of $4,630,000, purchases
of investments of $881,000, acquisitions of businesses of $12,254,000,
repurchase of common stock of $1,802,000 and dividend payments of $4,245,000.
The Company's cash and cash equivalents of $28,350,000 at
December 31, 1995 increased $5,165,000 from the December 31, 1994
balance of $23,185,000. During 1995, primary sources of cash were
$21,208,000 from operating activities, $1,469,000 from sales of
fixed assets and customer accounts, and $106,000 from the
exercise of stock options and issuances of common stock. Cash was
used during 1995 primarily for payments on long-term debt of
$2,132,000, additions to fixed assets of $5,321,000,
purchases of investments of $1,208,000, acquisitions of
businesses of $6,005,000 and dividend payments of $4,149,000.
The Company's current ratio was 1.14 to 1.0, 1.06 to 1.0 and
1.13 to 1.0 as of December 31, 1997, 1996 and 1995, respectively.
The increase in the ratio at December 31, 1997 was primarily the
result of increased cash.
In 1994, the Company entered into a revolving credit
facility with a national banking association that provides for
borrowings of up to $10,000,000. On borrowings under this
facility of less than $1,000,000, the interest rate is the higher
of the prime rate or the federal funds rate plus 0.50%. On
borrowings under this facility equal to or in excess of
$1,000,000, the interest rate is LIBOR plus 0.50% to 1.25%,
depending on certain financial ratios. A commitment fee is
assessed in the amount of 0.25% per annum on the unused balance.
The facility expires in November 1998. No borrowings were
outstanding against this line of credit as of December 31, 1997
and 1996. Borrowings would be secured by substantially all the
assets of the Company, subject to existing
or permitted liens.
The Company has a credit agreement with a major insurance
company under which $4,000,000 (the maximum amount available for
borrowings) was borrowed at December 31, 1997 at an interest rate
equal to the prime rate plus 1%. The amount available under this facility
decreases by $1,000,000 each August through the year 2001, when it will
expire.
The Company believes that its existing cash, cash
equivalents, short-term investment portfolio, funds generated
from operations and the availability of the bank line of credit
will be sufficient to satisfy its normal financial needs through
at least the end of 1998. Additionally, the Company believes that
funds generated from future operations will be sufficient to
satisfy its normal financial needs, including the required annual
principal payments of its long-term debt and any potential future
tax liability.
<PAGE 22>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands, except per
share data) 1997 1996 1995
<S> <C> <C> <C>
Revenues
Commissions and fees $124,365 $114,378 $101,998
Investment income 4,085 3,230 3,733
Other income 741 1,072 634
Total revenues 129,191 118,680 106,365
EXPENSES
Employee compensation and benefits 65,067 60,397 55,073
Other operating expenses 26,509 25,522 22,951
Interest and amortization 5,977 5,715 5,012
Total expenses 97,553 91,634 83,036
Income before income taxes 31,638 27,046 23,329
Income taxes 12,251 10,548 8,530
Net income $ 19,387 $ 16,498 $ 14,799
Basic and diluted earnings per share $ 2.22 $ 1.90 $ 1.70
Weighted average number of shares
outstanding 8,725 8,683 8,699
</TABLE>
See notes to consolidated financial statements.
<PAGE 23>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
(in thousands, except per share data) 1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 47,726 $ 31,786
Short-term investments 1,299 1,087
Premiums, commissions and fees receivable 62,148 62,940
Other current assets 6,507 7,307
Total current assets 117,680 103,120
Fixed assets, net 11,863 12,085
Intangibles, net 49,593 50,167
Investments 11,480 11,288
Other assets 3,513 3,083
Total assets $194,129 $179,743
LIABILITIES
Premiums payable to insurance companies $ 74,598 $ 73,570
Premium deposits and credits due customers 7,035 7,329
Accounts payable and accrued expenses 15,826 11,130
Current portion of long-term debt 5,339 5,365
Total current liabilities 102,798 97,394
Long-term debt 4,093 5,300
Deferred income taxes 3,951 3,603
Other liabilities 6,145 6,160
Total liabilities 116,987 112,457
SHAREHOLDERS' EQUITY
Common stock, par value $0.10 per share;
authorized 18,000 shares; issued 8,738
shares at 1997 and 8,656 shares at 1996 874 866
Additional paid-in capital - 1,671
Retained earnings 69,524 58,238
Net unrealized appreciation of
available-for-sale securities, net of tax
effect of $4,312 at 1997 and $4,163 at 1996 6,744 6,511
Total shareholders' equity 77,142 67,286
Total liabilities and shareholders' equity $194,129 $179,743
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(in thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock Additional Net Unrealized
Paid-in Retained Appreciation
Shares Amount Capital Earnings (Depreciation) Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 8,635 $864 $2,241 $35,660 $5,341 $44,106
Net income 14,799 14,799
Acquired and
issued for stock
option plans and
employee stock
purchase plans 47 4 318 (216) 106
Tax benefit from
sale of option
shares by
employees 55 55
Net decrease in
unrealized
appreciation of
available-for-
sale securities (505) (505)
Cash dividends
paid ($0.48 per
share) (4,149) (4,149)
BALANCE,
DECEMBER 31,
1995 8,682 868 2,614 46,094 4,836 54,412
Net income 16,498 16,498
Acquired and
issued for
stock option
plans and
employee
stock
purchase
plans (26) (2) (943) (109) (1,054)
Net increase
in unrealized
appreciation
of available-
for-sale securities 1,675 1,675
Cash dividends
paid ($0.49 per
share) (4,245) (4,245)
BALANCE,
DECEMBER 31,
1996 8,656 866 1,671 58,238 6,511 67,286
Net income 19,387 19,387
Acquired and
issued for
stock option
plans and
employee
stock
purchase
plans 57 6 (1,693) (3,129) (4,816)
Shares
issued in
acquisition 25 2 22 (336) (312)
Net increase
in unrealized
appreciation
of available-
for-sale securities 233 233
Cash dividends paid
($0.53 per share) (4,636) (4,636)
BALANCE,
DECEMBER 31,
1997 8,738 $874 $ - $69,524 $6,744 $ 77,142
</TABLE>
See notes to consolidated financial statements.
<PAGE 25>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,387 $ 16,498 $ 14,799
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,051 7,471 6,487
Provision for doubtful accounts - (100) 31
Deferred income taxes 199 966 (2,191)
Net gains on sales of investments,
fixed assets and customer accounts (962) (1,001) (537)
Premiums, commissions and fees
receivable decrease (increase) 823 (6,287) 200
Other assets decrease (increase) 570 (699) 235
Premiums payable to insurance companies
increase 607 8,982 1,393
Premium deposits and credits due
customers (decrease) increase (294) 1,259 (900)
Accounts payable and accrued expenses
increase 4,696 1,713 1,115
Other liabilities (decrease) increase (50) (181) 576
Net cash provided by operating activities 33,027 28,621 21,208
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (2,713) (4,630) (5,321)
Payments for businesses acquired, net of
cash acquired (3,067) (12,254) (6,005)
Proceeds from sales of fixed assets and
customer accounts 452 984 1,469
Purchases of investments (253) (881) (1,208)
Proceeds from sales of investments 557 1,118 642
Net cash used in investing activities (5,024) (15,663) (10,423)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (2,611) (4,223) (2,132)
Proceeds from long-term debt - - 500
Exercise of stock options and issuances
of stock 1,044 748 106
Purchases of stock (5,860) (1,802) -
Tax benefit from sale of option shares
by employees - - 55
Cash dividends paid (4,636) (4,245) (4,149)
Net cash used in financing activities (12,063) (9,522) (5,620)
Net increase in cash and cash equivalents 15,940 3,436 5,165
Cash and cash equivalents at beginning of
year 31,786 28,350 23,185
Cash and cash equivalents at end of year $47,726 $31,786 $28,350
</TABLE>
See notes to consolidated financial statements.
<PAGE 26>
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Nature of Operations
Poe & Brown, Inc. (the "Company") is a diversified insurance
brokerage and agency that markets and sells primarily property
and casualty insurance products and services to its clients. The
Company's business is divided into five divisions: the Retail
Division, which markets and sells a broad range of insurance
products to commercial, professional and individual clients; the
Professional Programs Division, which develops and administers
property and casualty insurance solutions for professionals
nationwide; the Commercial Programs Division, which serves
individual large accounts of commercial groups and trade
associations, providing primarily property and casualty and
employee benefits coverage; the Service Division, which provides
insurance-related services such as third-party administration and
consultation for workers' compensation and employee
benefit self-insurance markets; and the Brokerage Division, which
markets and sells excess and surplus commercial insurance
primarily through non-affiliated independent agents and brokers.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Poe & Brown, Inc. and its subsidiaries. All
significant intercompany account balances and transactions have
been eliminated in consolidation.
Revenue Recognition
Commissions relating to the brokerage and agency activity whereby
the Company has primary responsibility for the collection of
premiums from insureds are generally recognized as of the latter
of the effective date of the insurance policy or
the date billed to the customer. Commissions to be received
directly from insurance companies are generally recognized when
the amounts are determined. Subsequent commission adjustments,
such as policy endorsements, are recognized upon notification
from the insurance companies. Commission revenues are reported
net of sub-broker commissions. Contingent commissions from
insurance companies are recognized when received. Fee income is
recognized as services are rendered.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE 27>
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits
with financial institutions and highly liquid investments
having maturities of three months or less when purchased.
Premiums received from insureds but not yet remitted to insurance
carriers are held in cash and cash equivalents in a fiduciary
capacity.
Premiums, Commissions and Fees Receivable
In its capacity as an insurance broker or agent, the Company
typically collects premiums from insureds and, after deducting
its authorized commission, remits the premiums to the appropriate
insurance companies. In other circumstances, the
insurance companies collect the premiums directly from the
insureds and remit the applicable commissions to the Company.
Accordingly, as reported in the Consolidated Balance Sheets,
"premiums" are receivable from insureds and "commissions" are
receivable from insurance companies. "Fees" are receivable from
customers pertaining to the Company's Service Division.
Investments
The Company's marketable equity securities have been classified
as "available-for-sale" and are reported at estimated fair value,
with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific
identification method. Interest and dividends on securities
classified as available-for-sale are included in investment
income.
Nonmarketable equity securities and certificates of deposit
having maturities of more than three months when purchased are
reported at cost, adjusted for other-than-temporary market value
declines.
Net unrealized gains reported in shareholders' equity were
$6,744,000 at December 31, 1997, $6,511,000 at December 31, 1996
and $4,836,000 at December 31, 1995, net of deferred income taxes
of $4,312,000, $4,163,000 and $3,027,000,
respectively. The Company owned 559,970 shares of Rock-Tenn
Company common stock at December 31, 1997 and 1996 which have
been classified as non-current, available-for-sale securities.
The Company has no current plans to sell these shares.
Fixed Assets
Fixed assets are stated at cost. Expenditures for improvements
are capitalized, and expenditures for maintenance and repairs are
charged to operations as incurred. Upon sale or retirement, the
cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss, if any,
is reflected in income. Depreciation has been provided using
principally the straight-line method over the estimated useful
lives of the related assets, which range from three to 10 years.
Leasehold improvements are amortized on the straight-line method
over the term of the related leases.
Intangibles
Intangible assets are stated at cost less accumulated
amortization and principally represent purchased customer
accounts, non-compete agreements, purchased contract agreements, and the
excess of costs over the fair value of identifiable net assets
acquired (goodwill). Purchased customer accounts, non-compete
agreements and purchased contract agreements are being amortized
on a straight-line basis over the related estimated lives and
contract periods, which range from five to 15 years. The excess
of costs over the fair value of identifiable net assets acquired
is being amortized on a straight-line basis over 15 to
40 years. Purchased customer accounts are records and files
obtained from acquired businesses that contain information on
insurance policies and the related insured parties that is
essential to policy renewals.
<PAGE 28>
The carrying value of intangibles, corresponding with each
agency division comprising the Company, is periodically reviewed
by management to determine if the facts and circumstances suggest
that they may be impaired. In the insurance brokerage and agency
industry, it is common for agencies or customer accounts to be
acquired at a price determined as a multiple of the corresponding
revenues. Accordingly, the Company assesses the carrying value of
its intangibles by comparison to a reasonable multiple applied to
corresponding revenues, as well as considering the operating cash
flow generated by the corresponding agency division. Any
impairment identified through this assessment may require that
the carrying value of related intangibles be adjusted.
Income Taxes
The Company files a consolidated federal income tax return.
Deferred income taxes are provided for in the consolidated
financial statements and relate principally to expenses charged
to income for financial reporting purposes in one period
and deducted for income tax purposes in other periods, unrealized
appreciation of available-for-sale securities, and basis
differences of intangible assets.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." The new standard simplifies the computation
of earnings per share (EPS) and increases comparability
to international standards. Under SFAS No. 128, primary EPS is
replaced by "Basic" EPS, which excludes dilution and
is computed by dividing income available to common shareholders
by the weighted-average number of common shares
outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
Effective January 1, 1997, the Company adopted SFAS No. 128.
All prior-period EPS information is required to be restated. The
Company's basic and fully diluted EPS for the years ended
December 31, 1997, 1996 and 1995 computed under SFAS No. 128 are
not different than previously computed.
Note 2 Mergers
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 the acquisition have been combined with those of the
Company. 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.
Effective 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
<PAGE 29>
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 positions and cash flows of Insurance West. The
individual company operating results of Insurance West prior to
the date of the merger are not material to the CompanyOs
consolidated operating results.
Note 3 Acquisitions
During 1997, the Company acquired three general insurance
agencies and several books of business (customer accounts), which
were accounted for as purchases. The total cost of these
acquisitions was $4,945,000, including $3,067,000 of cash
payments and notes payable of $1,878,000. The total purchase
price was assigned to purchased customer accounts and
other intangible assets.
During 1996, the Company acquired three general insurance
agencies, one insurance brokerage firm and several
books of business (customer accounts), which were all accounted
for as purchases. The total cost of these acquisitions was
$18,328,000, including $12,254,000 of cash payments and notes
payable of $6,074,000. The total purchase price was
assigned to purchased customer accounts, goodwill and other
intangible assets.
During 1995, the Company acquired four general insurance
agencies, an insurance brokerage firm and several books of
business (customer accounts), which were all accounted for as
purchases. The total cost of these acquisitions was $7,250,000,
including $5,715,000 of cash payments and notes payable of
$1,535,000. The excess of the total purchase price over the fair
value of net tangible assets acquired of approximately $7,225,000
was assigned to purchased customer accounts, goodwill and other
intangible assets.
Additional or return consideration resulting from
acquisition contingency provisions is recorded as an adjustment
to intangibles when the contingency occurs. Contingency payments
totaling $154,000 were made in 1997. There were no
contingency payments made during 1996 or 1995. As of December 31,
1997, the maximum future contingency payments related to the 1997
and 1996 acquisitions totaled $1,728,000.
The results of operations of the acquired companies have
been included in the consolidated financial statements from their
respective acquisition dates. Pro forma results of operations of
the Company for the years ended December 31, 1997, 1996, and
1995, including 1997, 1996 and 1995 acquisitions as though they
occurred on January 1, 1997, 1996 and 1995, respectively, were
not materially different from the results of operations as
reported.
Note 4 Investments
<TABLE>
<CAPTION>
Investments at December 31 consisted of the following: 1997
Carrying Value
(in thousands) Current Non-current
<S> <C> <C>
Available-for-sale marketable equity securities $ 62 $ 11,480
Nonmarketable equity securities and certificates
of deposit 1,237 -
Total investments $ 1,299 $ 11,480
</TABLE>
<PAGE 30>
<TABLE>
<CAPTION>
Investments at December 31 consisted of the following: 1996
Carrying Value
(in thousands) Current Non-current
<S> <C> <C>
Available-for-sale marketable equity securities $ 78 $ 11,059
Nonmarketable equity securities and certificates of
deposit 1,009 229
Total investments $1,087 $ 11,288
</TABLE>
The following summarizes available-for-sale securities at
December 31:
<TABLE>
<CAPTION>
Gross Gross
(in thousands) Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Marketable Equity Securities:
1997 $ 486 $ 11,057 $ 1 $ 11,542
1996 $ 516 $ 10,637 $ 16 $ 11,137
</TABLE>
In 1997, proceeds from sales of available-for-sale securities
totaled $557,000, resulting in gross realized gains and losses
of $349,000 and ($23,000), respectively. Proceeds from sales of
available-for-sale securities totaled $1,118,000 in 1996,
resulting in gross realized gains and losses of $91,300 and
($71,700), respectively. In 1995, proceeds from sales of
available-for-sale securities totaled $329,000, resulting in gross realized
gains and losses of $42,000 and ($41,000), respectively.
Cash, cash equivalents, investments, premiums and
commissions receivable, premiums payable to insurance companies,
premium deposits and credits due customers, accounts payable and
accrued expenses, and current and long-term debt
are considered financial instruments. The carrying amount for
each of these items at December 31, 1997 approximates its
fair value.
Note 5 Fixed Assets
Fixed assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Furniture, fixtures, and equipment $ 25,708 $ 23,766
Land, buildings, and improvements 262 262
Leasehold improvements 1,009 926
$ 26,979 $ 24,954
Less accumulated depreciation and
amortization 15,116 12,869
$ 11,863 $ 12,085
</TABLE>
Depreciation and amortization expense amounted to $2,924,000
in 1997, $2,697,000 in 1996, and $2,352,000 in 1995.
<PAGE 31>
Note 6 Intangibles
Intangibles at December 31 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Purchased customer accounts $ 54,414 $ 49,985
Non-compete agreements 11,772 11,722
Goodwill 20,189 20,189
Purchased contract agreements 1,143 1,102
87,518 82,998
Less accumulated amortization 37,925 32,831
$ 49,593 $ 50,167
</TABLE>
Amortization expense amounted to $5,127,000 in 1997,
$4,774,000 in 1996, and $4,135,000 in 1995.
Note 7 Long-Term Debt
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Long-term credit agreement $ 4,000 $ 5,000
Notes payable from treasury stock
purchases 879 1,162
Acquisition notes payable 4,452 4,351
Other notes payable 101 152
9,432 10,665
Less current portion 5,339 5,365
Long-term debt $ 4,093 $ 5,300
</TABLE>
In 1991, the Company entered into a long-term credit
agreement with a major insurance company that provided
$10,000,000 at an interest rate equal to the prime rate plus 1%
(9.5% at December 31, 1997). The amount of available credit
decreases by $1,000,000 each August through the year 2001, when
it will expire. This credit agreement requires the Company to
maintain certain financial ratios and comply with certain other
covenants.
In 1994, the Company entered into a revolving credit
facility with a national banking association that provides for
borrowings of up to $10,000,000. On borrowings under this
facility of less than $1,000,000, the interest rate is the higher
of the prime rate or the federal funds rate plus 0.50%. On
borrowings under this facility equal to or in excess of
$1,000,000,
<PAGE 32>
the interest rate is LIBOR plus 0.50% to 1.25%, depending on
certain financial ratios. A commitment fee is assessed in the
amount of 0.25% per annum on the unused balance. The facility
expires in November 1998. No borrowings were outstanding against
this line of credit as of December 31, 1997 and 1996. Borrowings
would be secured by substantially all the assets of the Company,
subject to existing or permitted liens.
Treasury stock notes payable are due to various individuals
for the redemption of Brown & Brown, Inc. stock. These notes bear
no interest and have maturities ranging from calendar years
ending 1999 to 2001. These notes have been discounted at
effective yields ranging from 7.9% to 8.75% for presentation in
the consolidated financial statements.
Acquisition notes payable represent debt incurred to former
owners of certain agencies acquired in 1997, 1996 and 1995. These
notes, including future contingent payments, are payable in
monthly and annual installments through 1999, including interest
ranging from 5% to 6%.
Maturities of long-term debt for succeeding years are
$5,339,000 in 1998, $1,566,000 in 1999, $1,388,000 in 2000 and
$1,139,000 in 2001.
Interest expense included in the consolidated statements of
income was $850,000 in 1997, $941,000 in 1996 and $877,000 in
1995.
Note 8 Commitments and Contingencies
The Company leases facilities and certain items of office
equipment under noncancelable operating lease arrangements
expiring on various dates through 2005. The facility leases
generally contain renewal options and escalation clauses based
on increases in the lessors' operating expenses and other
charges. The Company anticipates that most of these leases will
be renewed or replaced upon expiration. At December 31, 1997, the
aggregate future minimum lease payments under all
noncancelable lease agreements were as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31, (in thousands)
1998 $ 4,255
1999 $ 4,191
2000 $ 3,701
2001 $ 3,117
2002 $ 2,852
Thereafter $ 4,821
Total minimum future lease payments $ 22,937
</TABLE>
Rental expense in 1997, 1996 and 1995 for operating leases
totaled $5,130,000, $5,108,000 and $4,785,000, respectively.
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.
<PAGE 33>
Note 9 Income Taxes
At December 31, 1997, the Company had net operating loss
carryforwards of $409,000 for income tax reporting purposes that
expire in the years 1998 through 2002. These carryforwards were
derived from agency acquisitions by the Company beginning in
1985. For financial reporting purposes, a valuation allowance of
$38,000 has been recognized to offset the deferred tax assets
related to these carryforwards.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the
corresponding amounts used for income tax reporting purposes.
Significant components of the Company's deferred tax liabilities
and assets as of December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $ 1,350 $ 975
Net unrealized appreciation of
available-for-sale securities 4,312 4,163
Installment sales 24 108
Prepaid insurance and pension 746 833
Intangible assets 251 368
Total deferred tax liabilities 6,683 6,447
Deferred tax assets:
Deferred compensation 1,568 1,386
Accruals and reserves 773 965
Net operating loss carryforwards 159 261
Other 270 270
Valuation allowance for deferred
tax assets (38) (38)
Total deferred tax assets 2,732 2,844
Net Deferred Tax Liabilities $ 3,951 $ 3,603
</TABLE>
<PAGE 34>
Significant components of the provision (benefit) for income
taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $10,332 $ 8,281 $ 9,374
State 1,720 1,301 1,347
Total current provision 12,052 9,582 10,721
Deferred:
Federal 179 809 (2,037)
State 20 157 (154)
Total deferred (benefit) provision 199 966 (2,191)
Total tax provision $12,251 $10,548 $ 8,530
</TABLE>
A reconciliation of the differences between the effective
tax rate and the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.5 3.3 3.5
Interest exempt from taxation and
dividend exclusion (0.8) (0.5) (0.4)
Non-deductible goodwill amortization 0.4 0.6 0.7
Internal Revenue Service examination -- -- (1.9)
Other, net 0.6 0.6 (0.3)
Effective tax rate 38.7% 39.0% 36.6%
</TABLE>
Income taxes payable were $178,000 at December 31, 1997, and
income taxes receivable were $645,000 at December 31, 1996, and
are reported as a component of accounts payable and accrued
expenses and other current receivables, respectively.
In 1992, the Internal Revenue Service ("Service") completed
examinations of the Company's federal income tax returns for tax
years 1988, 1989 and 1990 and issued Reports of Proposed
Adjustments asserting income tax deficiencies. The disputed
issues 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 timing at which
the Company's payments made pursuant to certain indemnity
agreements would be deductible for tax reporting purposes.
<PAGE 35>
In 1994 and 1995, the Company reached a settlement with the
Service on all disputed items. The agreement resulted
in the payment of approximately $349,000, which reduced the
recorded reserve. As such, with all disputed items settled, the
Company recorded a $451,000 reduction in the general tax reserve,
which is recorded as a reduction to the 1995 current income tax
provision.
Note 10 Employee Benefit Plans
The Company maintains a defined benefit pension plan covering
substantially all previous Poe & Associates, Inc. employees with
one or more years of service. The benefits are based on years of
service and compensation during the period of employment. Annual
contributions are made in conformance with minimum funding
requirements and maximum deductible limitations. During 1994, the
defined benefit pension plan was converted to a cash balance
plan. The impact of this change on the plan costs and plan
liabilities was not material. On April 1, 1995, the defined
benefit pension plan was amended to freeze the accrual of further
benefits. The impact of this amendment on the defined benefit
pension plan's liabilities was not material.
The plan's funded status and amounts recognized in the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $2,475 in 1997 and $2,524 in 1996 $ (2,475) $ (2,524)
Projected benefit obligations for service rendered
to date $ (2,475) $ (2,524)
Plan assets at fair value, principally consisting
of a group annuity contract 2,605 2,667
Excess of plan assets over projected benefit
obligations 130 143
Unrecognized net excess of plan assets under
previously accrued but unfunded pension costs,
to be amortized 494 572
Net prepaid pension costs $ 624 $ 715
</TABLE>
The following assumptions were used in determining the
actuarial present value of the benefit obligations and pension
costs for the years ended December 31, 1997, 1996 and 1995:
discount rate of 7.5%; long-term rate for compensation increase
of 3.5%; and long-term rate of return on plan assets of 6.5% for
1997 and 8.0% for 1995 and 1996.
<PAGE 36>
Pension costs included in the CompanyOs consolidated
statements of income are comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Service cost $ 40 $ 36 $ 63
Interest cost 192 177 215
Actual return on assets (173) (83) (318)
Net amortization and deferral 31 (97) 166
Net pension cost $ 90 $ 33 $ 126
</TABLE>
The Company has an Employee Savings Plan (401(k)) under
which substantially all employees with more than 30 days of
service are eligible to participate. Under this plan, the Company
makes matching contributions, subject to a maximum of 2.5% of
each participant's salary. Further, the Company provides for a
discretionary profit sharing contribution for all eligible
employees. The Company's contributions to the plan totaled
$1,753,000 in 1997, $1,510,000 in 1996 and $1,334,000 in 1995.
Note 11 Stock-Based Compensation and Incentive Plans
Stock Option Plans
The Company has adopted stock option plans which provide for the
granting of options to purchase shares of the Company's stock to
key employees who contribute materially to the success and
profitability of the Company. The Company accounts for these
plans under Accounting Principles Board Opinion No. 25 (OAPB
25O), under which no compensation expense has been recognized. In
October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (OSFAS 123O), which is effective
for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of
APB 25, but requires pro-forma disclosure of net income and
earnings per share for the effects on compensation expense had
the accounting guidance of SFAS 123 been adopted. The pro-forma
disclosures are required only for options granted subsequent to
December 31, 1994. The Company granted no options in 1995, 1996
or 1997.
<PAGE 37>
Under its stock option plans, the Company may grant future
options for up to 285,745 shares of the Company's stock to
employees and directors. Options previously granted under the
plans equaled the market price of the stock at the date of grant
and vest over a five-year period. The following schedule
summarizes the stock option transactions from 1995 through 1997
pertaining to these plans:
<TABLE>
<CAPTION>
Number of Option Shares Per Share Option Price
<S> <C> <C>
Outstanding, January 1, 1995 86,380 $ 7.60
Exercised (60,399) 7.60
Canceled (10,601) 7.60
Outstanding, December 31, 1995 15,380 7.60
Exercised (9,323) 7.60
Outstanding, December 31, 1996 6,057 7.60
Exercised (5,729) 7.60
Outstanding, December 31, 1997 328 $ 7.60
</TABLE>
All of the 328 options outstanding at December 31, 1997 have
a remaining contractual life of 1 year and are fully-vested and
exercisable.
Employee Stock Purchase Plan
The Company has adopted an employee stock purchase plan ("the
Stock Purchase Plan"), which allows for substantially all
employees to subscribe to purchase shares of the Company's stock
at 85% of the lesser of the market value of such shares at the
beginning or end of each annual subscription period. The total
number of shares available for issuance under the Stock Purchase
Plan as of December 31, 1997, was 250,000. As of December 31,
1997, 43,007 shares remained authorized and reserved for future
issuance under this Plan.
The Company accounts for the Stock Purchase Plan under APB
25, under which no compensation expense has been recognized. Had
compensation expense for the Stock Purchase Plan been determined
consistent with SFAS 123, it would have had an immaterial effect
on the Company's net income and earnings per share for the years
ended December 31, 1997, 1996 and 1995.
<PAGE 38>
Stock Performance Plan
Effective January 1, 1996, the Company adopted a stock
performance plan, under which up to 400,000 shares of the
Company's stock ("Performance Stock") may be awarded to key
employees contingent on the employees' years of service with the
Company and other criteria established by the Company's
Compensation Committee. Shares must be granted, awarded and
vested before participants take full title to Performance Stock.
Of the grants currently outstanding, specified portions will be
awarded based on increases in the market value of the Company's
common stock from the initial price specified by the Company.
Awards vest on the earlier of: (i) 15 years of continuous
employment with the Company from the date shares are granted to
the participant; (ii) attainment of age 64; (iii) death or
disability of the participant. Dividends are paid on awarded and
unvested Performance Stock and participants may exercise voting
privileges on such shares. At December 31, 1997, 248,520 shares
had been granted under the plan at initial stock prices ranging
from $22.75 to $27.50. As of December 31, 1997, 1,200 shares had
been awarded. The compensation element for Performance Stock is
equal to the fair market value of the shares at the date of award
and is expensed over the vesting period. Compensation expense
related to this Plan totaled $175,000 in 1997.
Note 12 Supplemental Disclosures of Cash Flow Information
The Company's significant non-cash investing and financing
activities and cash payments for interest and income taxes are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Unrealized appreciation (depreciation)
of available-for-sale securities
net of tax effect of $149 for 1997,
$1,136 for 1996 and $(317) for 1995 $ 233 $ 1,675 $ (505)
Notes payable issued for purchased
customer accounts 1,878 6,074 1,535
Notes received on the sale of fixed
assets and customer accounts 187 280 -
Cash paid during the year for:
Interest 603 891 896
Income taxes 11,193 10,609 9,107
</TABLE>
Note 13 Business Concentrations
Substantially all of the Company's premiums receivable from
customers and premiums payable to insurance companies arise from
policies sold on behalf of insurance companies. The Company, as
broker and agent, typically collects premiums, retains its
commission, and remits the balance to the insurance companies. A
significant portion of business written by the Company is for
customers located in Florida. Accordingly, the occurrence of
adverse economic conditions or an adverse regulatory climate in
Florida could have a material adverse effect on the CompanyOs
business, although no such conditions have been encountered in
the past.
For the years ended December 31, 1997 and 1996,
approximately 20% and 22%, respectively, of the Company's
revenues were from insurance policies underwritten by one
insurance company. Should this carrier seek to terminate its
arrangement with the Company, the Company believes alternative
insurance companies are available to underwrite the business,
although some additional expense and loss of market share would
at least initially result. No other insurance company accounts
for as much as five percent of the CompanyOs revenues.
Note 14 Reinsurance Indemnity
Whiting National Insurance Company ("Whiting"), the Company's
former risk-bearing subsidiary, ceased underwriting operations in
early 1985, and in 1988 entered into liquidation under the
supervision of the New York State Insurance Department
("Department"). Since then, the handling of Whiting's affairs has
been the responsibility of the Department.
In 1979, the Company agreed to indemnify a ceding insurer
should Whiting fail to perform under a reinsurance contract. As a
result, the Company is directly responsible for the management
and adjudication of claims outstanding under that indemnification
contract. The Company has historically estimated that certain
recoveries related to the indemnity were available to it from the
Whiting liquidation. While none of the underlying facts or
applicable law as to the Company's rights or creditor priority
had changed, the liquidation activities proceeded more slowly
than anticipated, making realization of those recoveries
uncertain. As a result, in 1992 those estimated recoveries were
written off and reserves associated with the underlying indemnity
obligation were bolstered because of adverse loss developments.
Reserves are periodically revised based on developments to date,
the Company's estimates of the outcome of this matter, and the
Company's experience in contesting and settling this matter. As
the scope of the liability or recovery becomes better defined,
there will be changes in the estimates of future costs or
recoveries. Management of the Company does not believe that any
such changes will have a material effect on the Company's
financial condition or results of operations.
<PAGE 40>
Report of Independent Certified
Public Accountants
To the Board of Directors of Poe & Brown, Inc.
We have audited the accompanying consolidated balance sheets of
Poe & Brown, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Poe & Brown, Inc. and subsidiaries as of December 31, 1997 and
1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida
January 19, 1998
EXHIBIT 22
POE & BROWN, INC.
SUBSIDIARIES
Florida Corporations:
Arch-Holmes Insurance, Inc.
Brown & Brown, Inc. - d/b/a Poe & Brown Benefits, Poe & Brown
Financial Advisers,
United Self Insured Services, Poe & Brown Insurance
Madoline Corporation
Poe 1991, Inc.
Underwriters Services, Inc.
W.F. Poe Associates, Inc.
Foreign Corporations:
A.G. General Agency, Inc. (TX)
P & O of Texas, Inc. (TX)
P&B PHYSICIANplans, Inc. (CT)
Poe & Associates of Illinois, Inc. (IL) - d/b/a Insurance
Administration Center
Poe & Brown of Arizona, Inc. (AZ) - d/b/a Poe & Brown of
Prescott, Poe & Brown of Tucson
Poe & Brown of California, Inc. (CA)
Poe & Brown of Colorado, Inc. (CO)
Poe & Brown of Connecticut, Inc. (CT)
Poe & Brown of Georgia, Inc. (GA)
Poe & Brown Insurance Benefits, Inc. (TX)
Poe & Brown Metro, Inc. (NJ)
Poe & Brown of North Carolina, Inc. (NC)
Poe & Brown of Pennsylvania, Inc. (PA)
Poe & Brown of Texas, Inc. (TX)
Shanahan, McGrath & Bradley, Inc. (AZ)
Thim Insurance Agency, Inc. (AZ)
Indirect Subsidiaries:
America Underwriting Management, Inc. (FL)
DSD Insurance Agency, Inc. (AZ)
Ernest Smith Insurance Agency, Inc. (FL)
Farr Insurance, Inc. (FL)
Florida Intracoastal Underwriters, Limited Co. (FL) (limited
company)
Halcyon Underwriters, Inc. (FL)
The Homeowner Association Risk Purchasing Group, Inc. (AZ)
Hotel-Motel Insurance Group, Inc. (FL)
Jordan, Roberts & Company (FL)
MacDuff America, Inc. (FL)
MacDuff Pinellas Underwriters, Inc. (FL)
MacDuff Underwriters, Inc. (FL) - d/b/a Roehrig & MacDuff
Nevada Apartment Insurance (NV)
Poe & Brown of Nevada, Inc. (NV)
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Poe & Brown, Inc.
As independent certified public accountants, we hereby
consent to the incorporation of our report dated January 19,
1998, included or incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statements (File
Nos. 33-1900, 33-76, 2-61019, 33-41204, 33-41825 and 333-14925).
ARTHUR ANDERSEN LLP
Orlando, Florida
March 24, 1998
Exhibit 24a
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ BRADLEY CURREY, JR.
_____________________________
Bradley Currey, Jr.
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ J. HYATT BROWN
____________________________
J. Hyatt Brown
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ DAVID H. HUGHES
_____________________________
David H. Hughes
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ JAN E. SMITH
________________________________
Jan E. Smith
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ KENNETH E. HILL
_______________________________
Kenneth E. Hill
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ JIM W. HENDERSON
_______________________________
Jim W. Henderson
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ THEODORE J. HOEPNER
_______________________________
Theodore J. Hoepner
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and William A. Zimmer, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ SAMUEL P. BELL, III
________________________________
Samuel P. Bell, III
Dated: January 16, 1998
POWER OF ATTORNEY
The undersigned constitutes and appoints Laurel L. Grammig
and James L. Olivier, or either of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign the 1997 Annual Report on Form 10-K
for Poe & Brown, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and
purposes as he might or could in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
/S/ WILLIAM A. ZIMMER
_________________________________
William A. Zimmer
Dated: January 16, 1998
EXHIBIT 24b
CERTIFIED RESOLUTIONS OF THE BOARD OF DIRECTORS
The undersigned, Laurel L. Grammig, hereby certifies that
she is the duly elected, qualified and acting Secretary of Poe &
Brown, Inc., a Florida corporation (the "Company"), and that the
following resolutions were adopted by the Board of Directors of
the Company at a special meeting held on February 20, 1998.
RESOLVED, that the draft of the Company's 1997
Annual Report on Form 10-K submitted to the Directors
prior to this meeting is hereby approved in form and
substance, subject to any revisions, additions,
deletions or insertions deemed necessary or appropriate
by Laurel L. Grammig, the Company's Vice President,
Secretary and General Counsel, and that the Chief
Executive Officer and the Chief Financial Officer are
hereby authorized to sign the Form 10-K on behalf of
the Company, either personally or through a power of
attorney, and to cause the Form 10-K to be filed with
the Securities and Exchange Commission in accordance
with the rules promulgated by the Commission;
FURTHER RESOLVED, that the appropriate officers of
the Company are hereby authorized and directed to take
all actions they deem necessary or appropriate,
including the payment of any necessary filing fees, to
carry out the intent of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned Secretary of the Company
has executed this Certificate this 24th day of March, 1998.
/S/ LAUREL L. GRAMMIG
______________________________
Laurel L. Grammig
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 47,726
<SECURITIES> 1,299
<RECEIVABLES> 62,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,680
<PP&E> 26,979
<DEPRECIATION> 15,116
<TOTAL-ASSETS> 194,129
<CURRENT-LIABILITIES> 102,798
<BONDS> 0
0
0
<COMMON> 874
<OTHER-SE> 76,268
<TOTAL-LIABILITY-AND-EQUITY> 194,129
<SALES> 124,365
<TOTAL-REVENUES> 129,191
<CGS> 0
<TOTAL-COSTS> 91,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 849
<INCOME-PRETAX> 31,638
<INCOME-TAX> 12,251
<INCOME-CONTINUING> 19,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,387
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
