<PAGE 1>
EXHIBIT 13
PORTIONS OF 1996 ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights
Year ended December 31,
(in thousands, except per
share data) 1996 1995 1994 1993 1992
Commissions and fees(1) $114,378 $101,998 $ 95,852 $ 94,420 $ 88,276
Total revenues(2) $118,680 $106,365 $101,580 $ 97,821 $ 91,508
Total expenses $ 91,634 $ 83,036 $ 80,994 $ 84,774 $ 83,190
Net income before taxes and loss
from discontinued operations $ 27,046 $ 23,329 $ 20,586 $ 13,047 $ 8,318
Net income from
continuing operations $ 16,498 $ 14,799 $ 13,519 $ 8,118 $ 4,138
Net income(2, 3) $ 16,498 $ 14,799 $ 13,519 $ 8,118 $ 2,558
Net income per share
from continuing
operations(2, 3) $ 1.90 $ 1.70 $ 1.56 $ 0.95 $ 0.48
Net income per share $ 1.90 $ 1.70 $ 1.56 $ 0.95 $ 0.30
Weighted average number
of shares outstanding 8,683 8,699 8,670 8,571 8,569
Dividends declared per share $ 0.49 $ 0.48 $ 0.42 $ 0.40 $ 0.40
Total assets $179,743 $151,121 $140,980 $134,924 $129,143
Long-term debt $ 5,300 $ 7,023 $ 7,430 $17,637 $ 18,870
Shareholders' equity(4) $ 67,286 $ 54,412 $ 44,106 $27,246 $ 21,232
(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 $.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, 1996 and 1995
included net increases of $6,511,000 and $4,836,000,
respectively, as a result of the Company's application of
SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities."
<PAGE 2>
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 $27,046,000 in 1996 compared to $23,329,000 in 1995
and $20,586,000 in 1994. Pre-tax income as a percentage of total
revenues was 22.8% in 1996, 21.9% in 1995 and 20.3% in 1994. 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 1996, 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 1997 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. Effective
March 1, 1995, the Company acquired Insurance West by merger.
This merger was accounted for as a pooling-of-interests and,
accordingly, the Company's consolidated financial statements have
been restated for all prior periods. Also during 1995, the
Company acquired four general insurance agencies, an insurance
brokerage firm and several books of business (customer accounts)
which were accounted for as purchases. 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.
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 each of
the last three years, contingent commissions have represented
less than 3.5% of total revenues.
Fee revenues are substantially generated by the Service
Division of the Company, which offers administration and benefit
consulting services primarily in the workers' compensation and employee
<PAGE 3>
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 1996 fee revenues over that recognized in 1995. For the
past three years, service fee revenues have ranged from 9.1% to
11.1% 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 1994, investment income included a $2,185,000
realized gain from the sale of a portion of the Company's
investment in Rock-Tenn Company ("Rock-Tenn"). The Company's
policy is to invest its available funds in high-quality, short-
term fixed income investment securities.
The Company anticipates that results of operations for 1997
will continue to be influenced by these competitive and economic
conditions.
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, 1996, 1995
and 1994
Commissions and Fees
Commissions and fees increased 12% in 1996, 6% in 1995 and
2% in 1994. Excluding the effects of acquisitions, commissions
and fees increased 4% in 1996 and 3% in 1995. Acquisition
activity in 1994 did not have a material impact on commissions
and fees. The 1996 results reflect an increase in commissions for
all but one of the Company's operating divisions, mainly through
new business growth. In general, property and casualty insurance
premium prices remained flat in 1996; however, there were some
increases in premium rates for coastal properties as a result of
recent hurricanes in Florida. In addition, certain segments and
industries had some increases in insurable exposure units during
1996.
Investment Income
Investment income decreased to $3,230,000 in 1996 compared
to $3,733,000 in 1995 and $5,126,000 in 1994. This decrease is
primarily due to lower levels of invested cash and reductions in
interest rate returns. The 1994 results included a $2,185,000
gain from the sale of approximately 23% of the Company's
investment in the common stock of Rock-Tenn. This sale was in
conjunction with an initial public offering by Rock-Tenn of its
common stock. The Company continues to own 559,970 shares of
common stock of Rock-Tenn and has no current plans to sell these
shares. Excluding this gain, investment income in 1995 increased
by $792,000, or 27%. The increase in investment income after
excluding the Rock-Tenn gain is due to increased available funds
and the implementation of a consolidated cash management program
which resulted in improved earnings on cash and cash equivalents.
<PAGE 4>
Other Income
Other income consists primarily of gains and losses from the
sale and disposition of assets. During 1996, gains on the sale of
customer accounts were $997,000 compared to $590,000 in 1995 and
$411,000 in 1994.
Employee Compensation & Benefits
Employee compensation and benefits increased approximately
10% in 1996, 5% in 1995 and remained constant in 1994. Without
acquisitions, employee compensation and benefits increased 5% in
1996, 1% in 1995 and remained constant in 1994. Employee
compensation and benefits as a percentage of total revenue was
51% in 1996 down from 52% in 1995 and 1994. As of December 31,
1996, the Company had 1,075 full-time equivalent employees
compared to 1,035 at the beginning of the year. The increase in
personnel in 1996 is primarily related to acquisitions. The 1996
increase in compensation and employee benefits of $5,324,000 is
primarily attributable to the addition of personnel through
acquisitions and additional commission expense as a result of the
increased commission revenue.
Other Operating Expenses
Other operating expenses increased 11% in 1996, remained
constant in 1995 and decreased 12% in 1994. Without acquisitions,
operating expenses increased 6% in 1996 and decreased 3% in 1995.
Other operating expenses as a percentage of total revenues
remained constant in 1996 and 1995 at 22%, down from 23% in 1994.
Interest and Amortization
Interest and amortization increased $703,000, or 14%, in
1996 and decreased $580,000, or 10%, in 1995 and $553,000, or 9%,
in 1994. The increase in 1996 is due primarily to increased
amortization of purchased intangible assets as a result of
acquisition activity.
Income Taxes
The effective tax rate on income from operations was 39.0%
in 1996, 36.6% in 1995, and 34.3% in 1994. The lower effective
tax rate in 1995 and 1994 is primarily due to the effect of
recording a $451,000 and a $700,000 reduction, respectively, 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. As
a result of these examinations, the Service issued Reports of
Proposed Adjustments asserting income tax deficiencies which, by
including interest and state income taxes for the periods
examined and the Company's estimates of similar adjustments for
subsequent periods through December 31, 1993, would total
$6,100,000. The disputed items related primarily to the
deductibility of amortization of purchased customer accounts of
approximately $5,107,000 and non-compete agreements of
approximately $993,000. In addition, the Service's report
included a dispute regarding the time at which the Company's
payments made pursuant to certain indemnity agreements would be
deductible for tax reporting purposes.
<PAGE 5>
During 1994 and 1995, the Company reached settlement
agreements with the Service with respect to all of the disputed
items. In 1994, a partial settlement was reached. Payments made
under this partial settlement resulted in a $400,000 reduction to
the previously established tax reserves. During 1994, after
considering this reduction, the Company reduced the remaining
general tax reserves by $700,000. This decrease was recorded as a
reduction to the 1994 income tax provision.
In March of 1995, the Company reached an agreement with the
Service on all remaining items. This agreement 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 $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 and proceeds of
$1,118,000 from the sale of investments. Cash was used during
1996 primarily for payments on long-term debt and notes payable
of $4,222,000, additions to fixed assets of $4,630,000, purchases
of investments of $881,000, acquisitions of business of
$12,254,000, repurchase of common stock of $1,055,000 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 cash and cash equivalents of $23,185,000 at
December 31, 1994 decreased $3,947,000 from the December 31, 1993
balance of $27,132,000. During 1994, primary sources of cash were
$10,396,000 from operating activities, $2,346,000 from sales of
investments and $1,687,000 from the exercise of stock options and
issuances of common stock. Cash was used during 1994 primarily
for payments on long-term debt of $12,004,000 and dividend
payments of $3,542,000.
The Company's current ratio was 1.06 to 1.0, 1.13 to 1.0 and
1.10 to 1.0 as of December 31, 1996, 1995 and 1994, respectively.
The decrease in the ratio at December 31, 1996 was primarily the
result of increased current long-term debt due to acquisitions.
In November 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 .50%. On
borrowings under this facility equal to or in excess of
$1,000,000, the interest rate is LIBOR plus .50% to 1.25%,
depending on certain financial ratios. A commitment fee is
assessed in the amount of .25% per annum on the unused balance.
The facility expires in November 1998. No borrowings were outstanding
<PAGE 6>
against this line of credit as of December 31, 1996.
Borrowings would be secured by substantially all of the assets of
the Company, subject to existing or permitted liens.
The Company has a credit agreement with a major insurance
company under which $5,000,000 (the maximum amount available for
borrowings) was borrowed at December 31, 1996 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 1997. 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.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year ended December 31,
1996 1995 1994
REVENUES
Commissions and fees $114,378 $101,998 $ 95,852
Investment income 3,230 3,733 5,126
Other income 1,072 634 602
Total revenues 118,680 106,365 101,580
EXPENSES
Employee compensation
and benefits 60,397 55,073 52,554
Other operating expenses 25,522 22,951 22,848
Interest and amortization 5,715 5,012 5,592
Total expenses 91,634 83,036 80,994
Income before income taxes 27,046 23,329 20,586
Income taxes 10,548 8,530 7,067
Net income $ 16,498 $ 14,799 $ 13,519
Net income per share $ 1.90 $ 1.70 $ 1.56
Weighted average number
of shares outstanding 8,683 8,699 8,670
See notes to consolidated financial statements.
<PAGE 7>
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
1996 1995
ASSETS
Cash and cash equivalents $ 31,786 $ 28,350
Short-term investments 1,087 1,308
Premiums, commissions and fees
receivable, less allowance for doubtful
accounts of $100 at 1995 62,940 56,553
Other current assets 7,307 6,336
Total current assets 103,120 92,547
Fixed assets, net 12,085 10,412
Intangibles, net 50,167 36,613
Investments 11,288 8,473
Other assets 3,083 3,076
Total assets $179,743 $151,121
LIABILITIES
Premiums payable to insurance companies $ 73,570 $ 64,588
Premium deposits and credits due customers 7,329 6,070
Accounts payable and accrued expenses 11,130 9,417
Current portion of long-term debt 5,365 1,768
Total current liabilities 97,394 81,843
Long-term debt 5,300 7,023
Deferred income taxes 3,603 1,502
Other liabilities 6,160 6,341
Total liabilities 112,457 96,709
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share;
authorized 18,000 shares; issued 8,656 shares
at 1996 and 8,682 shares at 1995
866 868
Additional paid-in capital 1,671 2,614
Retained earnings 58,238 46,094
Net unrealized appreciation of
available-for-sale securities,
net of tax effect of $4,163 at 1996
and $3,027 at 1995 6,511 4,836
Total shareholders' equity 67,286 54,412
Total liabilities and shareholders' equity $179,743 $151,121
See notes to consolidated financial statements.
<PAGE 8>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
Common Stock Additional Net Unrealized Treasury Stock
Paid-in Retained Appreciation
Shares Amount Capital Earnings (Depreciation) Shares Amount Total
Balance, January 1, 1994 8,550 $ 855 $1,314 $ 25,883 __ 45 ($806) $27,246
Net income 13,519 13,519
Issued for stock option plans
and employee stock purchase
plans 85 9 872 (45) 806 1,687
Tax benefit from sale of option
shares by employees 55 55
Cumulative effect of change
in accounting principle
(see Note 1) 23 23
Net increase in unrealized
appreciation of available-
for-sale securities 5,318 5,318
Partnership distributions
for Insurance West (200) (200)
Cash dividends paid
($.42 per share) (3,542) (3,542)
Balance, December 31, 1994 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 the sale
of option shares by employees 55 55
Net decrease in unrealized
appreciation of available-
for-sale securities (505) (505)
Cash dividends paid
($.48 per share) (4,149) (4,149)
Balance, December 31, 1995 8,682 868 2,614 46,094 4,836 -- -- 54,412
Net income 16,498 16,498
Acquired and issued for stock
option plans and employee
stock purchase plans (26) (2) (943) (109) (1,054)
<PAGE 9>
Net increase in unrealized
appreciation of available-
for-sale securities 1,675 1,675
Cash dividends paid
($.49 per share) (4,245) (4,245)
Balance, December 31, 1996 8,656 $866 $ 1,671 $58,238 $6,511 -- $-- 67,286
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands) Year ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,498 $ 14,799 $ 13,519
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 7,471 6,487 6,398
Provision for doubtful accounts (100) 31 19
Deferred income taxes 966 (2,191) (1,173)
Net gains on sales of investments,
fixed assets and customer accounts (1,001) (537) (2,231)
Premiums, commissions and fees
receivable (increase) decrease (6,287) 200 (2,374)
Other assets (increase) decrease (699) 235 (2,439)
Premiums payable to insurance
companies increase (decrease) 8,982 1,393 (3,951)
Premium deposits and credits due
customers increase (decrease) 1,259 (900) 1,919
Accounts payable and accrued
expenses increase (decrease) 1,713 1,115 (683)
Other liabilities (decrease) increase (181) 576 1,392
Net cash provided by operating activities 28,621 21,208 10,396
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (4,630) (5,321) (2,400)
Payments for businesses acquired,
net of cash acquired (12,254) (6,005) (1,382)
Proceeds from sales of fixed
assets and customer accounts 984 1,469 1,337
Purchases of investments (881) (1,208) (187)
Proceeds from sales of investments 1,118 642 2,346
Other investing activities, net - - (53)
Net cash used in investing activities (15,663) (10,423) (339)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (4,223) (2,132) (12,004)
<PAGE 10>
Proceeds from long-term debt - 500 -
Exercise of stock options,
issuances of stock and
treasury stock sales (1,054) 106 1,687
Tax benefit from sale of
option shares by employees - 55 55
Partnership distributions - - (200)
Cash dividends paid (4,245) (4,149) (3,542)
Net cash used in financing activities (9,522) (5,620) (14,004)
Net increase (decrease) in cash
and cash equivalents 3,436 5,165 (3,947)
Cash and cash equivalents
at beginning of year 28,350 23,185 27,132
Cash and cash equivalents at
end of year $31,786 $28,350 $23,185
See notes to consolidated financial statements.
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 coverages; 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 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
<PAGE 11>
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.
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
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under these
rules, 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.
Application of SFAS No. 115 resulted in net unrealized gains
reported in shareholders' equity of $6,511,000 at December 31,
1996, $4,836,000 at December 31, 1995 and $5,341,000 at December
31, 1994, net of deferred income taxes of $4,163,000, $3,027,000
and $3,344,000, respectively. The adoption of this Statement
resulted in an increase of $23,000 to shareholders' equity as of
January 1, 1994, net of $15,000 in deferred taxes.
<PAGE 12>
As of January 1, 1994, the Company owned 659,064 shares of
common stock of Rock-Tenn Company ("Rock-Tenn") with an aggregate
cost of $565,000. As of that date, the common stock of Rock-Tenn
was not publicly traded and, therefore, had no readily
determinable market value. However, on March 3, 1994, the common
stock of Rock-Tenn was registered with the Securities and
Exchange Commission and began trading on the NASDAQ over-the-
counter securities market at the initial public offering price of
$16.50 per share. As part of the initial public offering of Rock-
Tenn's common stock, the Company sold 150,000 shares of its
investment in this stock and reported a net after-tax gain of
$1,342,000 in the first quarter of 1994. During 1996, the Company
received a Rock-Tenn stock dividend of 50,906 shares. The 559,970
and 509,064 shares of Rock-Tenn common stock held by the Company
as of December 31, 1996 and 1995, respectively, 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 ten 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 three 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.
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
<PAGE 13>
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
Net income per share is based on the weighted average number
of shares outstanding, adjusted for the dilutive effect of stock
options, which is the same on both a primary and fully-diluted
basis.
Note 2 - Mergers
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 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 Company's consolidated operating results.
Note 3 - Acquisitions
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.
During 1994, the Company acquired the assets of three
insurance agencies for an aggregate cost of $656,000.
Substantially all of this cost was assigned to purchased customer
accounts, non-compete agreements and goodwill.
Additional or return consideration resulting from
acquisition contingency provisions is recorded as an adjustment
to intangibles when the contingency occurs. There were no
contingency payments made during 1996 or 1995. As of December
31,1996, the maximum future contingency payments related to the
1996 and 1995 acquisitions totaled $2,150,000. 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, 1996, 1995 and 1994, including
1996, 1995 and 1994 acquisitions as though they occurred on
January 1, 1996, 1995 and 1994, respectively, were not materially
different from the results of operations as reported.
<PAGE 14>
Note 4 - Investments
Investments at December 31 consisted of the following:
1996
(in thousands) Carrying value
Current Non-current
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
1995
(in thousands) Carrying value
Current Non-current
Available-for-sale marketable
equity securities $ 287 $8,272
Nonmarketable equity securities
and certificates of deposit 1,021 201
Total investments $1,308 $8,473
The following summarizes available-for-sale securities at
December 31:
Gross Gross
(in thousands) Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
Marketable Equity Securities:
1996 $516 $10,637 $16 $11,137
1995 $732 $ 7,855 $28 $ 8,559
In 1996, proceeds from sales of available-for-sale
securities totaled $1,118,000, resulting in gross realized gains
and losses of $91,300 and $71,700, respectively. Proceeds from
sales of available-for-sale securities totaled $329,000 in 1995,
resulting in gross realized gains and losses of $42,000 and
$41,000, respectively. In 1994, proceeds from sales of available-
for-sale securities totaled $2,314,000, from which $2,185,000 of
gross gains were realized.
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, 1996 approximates its fair value.
Note 5 - Fixed Assets
Fixed assets at December 31 consisted of the following:
(in thousands) 1996 1995
Furniture, fixtures and equipment $23,766 $20,153
Land, buildings and improvements 262 672
<PAGE 15>
Leasehold improvements 926 644
$24,954 $21,469
Less accumulated depreciation
and amortization 12,869 11,057
$12,085 $10,412
Depreciation and amortization expense amounted to $2,697,000
in 1996, $2,352,000 in 1995 and $2,132,000 in 1994.
Note 6 - Intangibles
Intangibles at December 31 consisted of the following:
(in thousands) 1996 1995
Purchased customer accounts $ 49,985 $ 32,244
Non-compete agreements 11,722 10,996
Goodwill 20,189 20,358
Purchased contract agreements 1,102 1,102
82,998 64,700
Less accumulated amortization 32,831 28,087
$ 50,167 $ 36,613
Amortization expense amounted to $4,774,000 in 1996,
$4,135,000 in 1995 and $4,266,000 in 1994.
Note 7 - Long-Term Debt
Long-term debt at December 31 consisted of the following:
(in thousands) 1996 1995
Long-term credit agreement $ 5,000 $ 6,000
Notes payable from treasury stock purchases 1,162 1,422
Acquisition notes payable 4,351 1,350
Other notes payable 152 19
10,665 8,791
Less current portion 5,365 1,768
Long-term debt $ 5,300 $7,023
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%
(9.25% at December 31, 1996). 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.
<PAGE 16>
In November 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 .50%. On
borrowings under this facility equal to or in excess of
$1,000,000, the interest rate is LIBOR plus .50% to 1.25%,
depending on certain financial ratios. A commitment fee is
assessed in the amount of .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, 1996
and 1995. Borrowings would be secured by substantially all of 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 1997 to 2001. These notes have been discounted at
effective yields ranging from 8.5% to 9.2% for presentation in
the consolidated financial statements.
Acquisition notes payable represents debt incurred to former
owners of certain agencies acquired in 1996 and 1995. These
notes, including future contingent payments, are payable in
monthly and annual installments through 1998, including interest
ranging from 4% to 6%.
Maturities of long-term debt for succeeding years are
$5,365,000 in 1997, $1,598,000 in 1998, $1,307,000 in 1999,
$1,256,000 in 2000 and $1,139,000 in 2001.
Interest expense included in the consolidated statements of
income was $941,000 in 1996, $877,000 in 1995 and $1,326,000 in
1994.
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 lessorsO operating expenses and other charges.
The Company anticipates that most of these leases will be renewed
or replaced upon expiration. At December 31, 1996, the aggregate
future minimum lease payments under all noncancelable lease
agreements are as follows:
Year Ending December 31, (in thousands)
1997 $ 4,164
1998 $ 3,905
1999 $ 3,515
2000 $ 3,120
2001 $ 2,566
Thereafter $ 6,313
Total minimum future lease payments $ 23,583
Rental expense in 1996, 1995 and 1994 for operating leases
totaled $5,108,000, $4,785,000 and $4,269,000, 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
<PAGE 17>
claims or lawsuits will have a material effect on the
Company's financial condition or results of operations.
Note 9 - Income Taxes
At December 31, 1996, the Company had net operating loss
carryforwards of $669,000 for income tax reporting purposes that
expire in the years 1997 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 CompanyOs deferred tax liabilities
and assets as of December 31, are as follows:
(in thousands) 1996 1995
Deferred tax liabilities:
Fixed assets $ 975 $ 577
Net unrealized appreciation of
available-for-sale securities 4,163 3,027
Installment sales 108 204
Prepaid insurance and pension 833 769
Intangible assets 368 32
Total deferred tax liabilities 6,447 4,609
Deferred tax assets:
Deferred compensation 1,386 1,269
Accruals and reserves 965 1,376
Net operating loss carryforwards 261 327
Other 270 173
Valuation allowance for deferred tax assets (38) (38)
Total deferred tax assets 2,844 3,107
Net Deferred Tax Liabilities $ 3,603 $ 1,502
Significant components of the provision (benefit) for income
taxes are as follows:
(in thousands) 1996 1995 1994
Current:
Federal $ 8,281 $ 9,374 $ 7,237
State 1,301 1,347 1,003
Total current provision 9,582 10,721 8,240
Deferred:
Federal 809 (2,037) (1,076)
State 157 (154) (97)
Total deferred (benefit) provision 966 (2,191) (1,173)
Total tax provision $10,548 $ 8,530 $7,067
<PAGE 18>
A reconciliation of the differences between the effective
tax rate and the federal statutory tax rate is as follows:
1996 1995 1994
Federal statutory tax rate 35.0 % 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.3 3.5 2.8
Interest exempt from taxation
and dividend exclusion (0.5) (0.4) (0.3)
Non-deductible goodwill amortization 0.6 0.7 0.7
Internal Revenue Service examination - (1.9) (3.4)
Other, net 0.6 (0.3) (0.5)
Effective tax rate 39.0% 36.6% 34.3%
Income taxes receivable were $645,000 at December 31, 1996
and income taxes payable were $425,000 at December 31, 1995 and
are reported as a component of accounts receivable and accounts
payable and accrued expenses, 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. As a result of its examination, the
Service issued Reports of Proposed Adjustments asserting income
tax deficiencies which, by including interest and state income
taxes for the periods examined and the Company's estimates of
similar tax adjustments for subsequent periods through December
31, 1993, would total $6,100,000. 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.
During 1994, the Company reached a settlement with the
Service with respect to certain of the disputed amortization
items and the indemnity agreement payment issue. This settlement
reduced the total remaining asserted income tax deficiencies to
approximately $2,800,000. Based on this settlement and review of
the remaining unsettled items, the Company reduced its general
income tax reserves to $800,000, which was sufficient to cover
its ultimate liability resulting from the settlement of the
remaining items. Accordingly, after taking into consideration a
$400,000 reduction of the reserve resulting from payments under
the partial settlement agreement, during 1994 the Company
recorded a $700,000 adjustment to decrease the originally
established reserves of $1,900,000. This decrease has been
recorded as a reduction to the 1994 current income tax provision.
In March of 1995, the Company reached a settlement with the
Service on all remaining items. The settlement 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.
<PAGE 19>
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 planOs liabilities was not material.
The plan's funded status and amounts recognized in the
Company's consolidated balance sheets are as follows:
(in thousands) December 31,
1996 1995
Actuarial present value of benefit obligations:
Accumulated benefit obligations,
including vested benefits of $2,524 in
1996 and $2,322 in 1995 $(2,524) $ (2,326)
Projected benefit obligations for
service rendered to date $(2,524) $ (2,326)
Plan assets at fair value, principally
consisting of a group annuity contract 2,667 2,237
Excess (deficit) of plan assets over
(under) projected benefit obligations 143 (89)
Unrecognized net excess of plan assets
under previously accrued but unfunded
pension costs, to be amortized 572 255
Net prepaid pension costs $ 715 $ 166
The following assumptions were used in determining the
actuarial present value of the benefit obligations and pension
costs for the years ended December 31, 1996, 1995 and 1994:
discount rate of 7.5%; long-term rate for compensation increase
of 3.5%; and long-term rate of return on plan assets of 8.0%.
Pension costs included in the Company's consolidated
statements of income are comprised of the following:
(in thousands) Year Ended December 31,
1996 1995 1994
Service cost $ 36 $ 63 $ 91
Interest cost 177 215 304
Actual return on assets (83) (318) 113
Net amortization and deferral (97) 166 (407)
Net pension cost $ 33 $ 126 $ 101
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 participantOs salary. Further, the Company provides for a
discretionary profit sharing contribution for all eligible
employees. The Company's contributions to the plan totaled
$1,510,000 in 1996, $1,334,000 in 1995 and $1,208,000 in 1994.
<PAGE 20>
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 ("APB
25"), 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" ("SFAS 123"), 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 or
1996.
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 5-year period. The following schedule summarizes
the stock option transactions from 1994 through 1996 pertaining
to these plans:
Number of Option Shares Per Share Option Price Range
Outstanding, January 1, 1994 160,242 $ 6.00 -14.75
Exercised (65,173) 6.00 -14.75
Canceled (8,689) 7.60 - 14.75
Outstanding, December 31, 1994 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
All of the 6,057 options outstanding at December 31, 1996
have a remaining contractual life of 2 years 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. During 1995,
the shareholders approved the authorization of 150,000 additional
shares of stock for Company employees under the Stock Purchase
Plan, bringing the total number of shares available for
<PAGE 21>
issuance to 250,000. As of December 31, 1996, 82,585 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, 1996 and 1995.
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; or (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, 1996, 238,300 shares
have been granted under the plan at initial stock prices ranging
from $22.75 to $24.875. As of December 31, 1996, no stock
performance criteria have been met, and accordingly, no shares
have 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.
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:
(in thousands) Years Ended December 31,
1996 1995 1994
Unrealized appreciation (depreciation)
of available-for-sale securities net
of tax effect of $1,136 for 1996,
($317) for 1995 and $3,344 for 1994 $1,675 $ (505) $5,341
Notes payable issued for purchased
customer accounts 6,074 1,535 -
Notes received on the sale of fixed
assets and customer accounts 280 - 266
Cash paid during the year for:
Interest 891 896 1,462
Income taxes 10,609 9,107 9,597
Note 13 - Business Concentrations
Substantially all of the CompanyOs 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.
<PAGE 22>
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 Company's
business, although no such conditions have been encountered in
the past.
For the years ended December 31, 1996 and 1995,
approximately 22% and 24%, 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 Company's revenues.
Note 14 - Reinsurance Indemnity
Whiting National Insurance Company ("Whiting"), the Company's
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 23>
REPORTS 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, 1996 and
1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended.
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, 1996 and
1995, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Orlando, Florida
January 24, 1997
<PAGE 24>
To the Board of Directors of Poe & Brown, Inc.
We have audited the accompanying consolidated statements of
income, shareholders' equity and cash flows of Poe & Brown, Inc.
and subsidiaries for the year ended December 31, 1994. 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 audit.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
results of operations and cash flows of Poe & Brown, Inc. and
subsidiaries for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, in 1994 the Company changed its method of accounting
for certain investments in debt and equity securities.
/s/ Ernst & Young LLP
Tampa, Florida
January 28, 1995, except for Note 2,
as to which the date is March 1, 1995