<PAGE 1>
Exhibit 13
Portions of Poe & Brown's 1998 Annual Report to Shareholders
Financial Highlights
Year ended December 31,
(in thousands, except per share data)(1)
Percent
1998 Increase 1997 1996 1995 1994
Commissions and fees(2) $150,443 12.9 $133,249 $123,544 $110,912 $104,830
Total revenues(3) $153,791 11.0 $138,607 $128,161 $115,631 $110,731
Total expenses $116,306 7.5 $108,147 $100,799 $ 91,847 $ 89,422
Income before taxes $ 37,485 23.1 $ 30,460 $ 27,362 $ 23,784 $ 21,309
Net income (3,4) $ 23,053 23.5 $ 18,666 $ 16,767 $ 15,285 $ 14,238
Net income per share(1) $ 1.72 22.9 $ 1.40 $ 1.26 $ 1.15 $ 1.07
Weighted average number
of shares outstanding 13,431 13,367 13,304 13,328 13,284
Dividends declared per
share $0.4100 16.0 $ 0.3533 $0.3267 $0.3200 $ 0.2800
Total assets $230,513 12.7 $204,529 $188,114 $160,141 $150,480
Long-term debt $ 17,207 175.0 $ 6,257 $ 5,401 $ 7,409 $ 8,091
Shareholders' equity(5) $ 84,208 10.4 $ 76,230 $ 67,091 $ 54,259 $ 44,327
(1) All share and per-share information has been restated to give effect
to the three-for-two common stock split, which became effective
February 27, 1998. Prior years' results have been restated to
reflect the stock acquisitions of Insurance West in 1995 and
Daniel-James in 1998.
(2) See Notes 2 and 3 to consolidated financial statements for information
regarding business purchase transactions which impact the
comparability of this information.
(3) 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 $0.1067 per share.
<PAGE 2>
(4) During 1995 and 1994, the Company reduced its general tax reserves by
$451,000 and $700,000, or $0.0333 and $0.0533 per share, respectively,
as a result of reaching a settlement with the Internal Revenue Service
on certain examination issues.
(5) Shareholders' equity as of December 31, 1998, 1997, 1996, and 1995
included net increases of $5,540,000, $6,744,000, $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."
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 $37,485,000 in 1998 compared to $30,460,000 in
1997 and $27,362,000 in 1996. Pre-tax income as a percentage of total
revenues was 24.4% in 1998, 22.0% in 1997 and 21.3% in 1996. 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
1998, 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 1999 is unpredictable.
Revenues are further impacted by the development of new and existing
proprietary
<PAGE 3>
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 1999 will continue to be influenced by these competitive
and economic conditions.
On April 14, 1998, the Company acquired Daniel-James Insurance Agency,
Inc. and Becky-Lou Realty Limited, through an exchange of shares. This
transaction 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 acquisition to include the
results of operations, financial positions and cash flows of the
acquired entities.
During 1998, the Company acquired the assets of 19 general insurance
agencies, several books of business (customer accounts) and the outstanding
shares of one general insurance agency. Each of these transactions was
accounted for as a purchase.
During 1997, the Company acquired three general insurance agencies and
several books of business which were accounted for as purchases. On
August 1, 1997, the 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 primarily received in the first quarter
of each year. In the last three years, contingent commissions have
represented between 3.7% and 4.8% 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, has resulted in increased competition
in this service sector. In response to the increased competition, the
<PAGE 4>
Company has offered value-added services that enabled it to increase 1998 fee
revenue over that recognized in 1997. For the past three years, service
fee revenues have generated an average of 9.3% 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.
In 1998, investment income included a $165,000 realized gain from the sale
of the Company's investments in AmSouth Bancorporation and United States
Filter Corporation, while in 1997, investment income included a $303,000
realized gain from the sale of the Company's investment in Fort Brooke
Bank. In 1996, such sales were minimal and realized gains and losses were
immaterial. 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, 1998, 1997 AND 1996
Commissions and Fees
Commissions and fees increased 13% in 1998, 8% in 1997 and 11% in 1996.
Excluding the effect of acquisitions, commissions and fees increased 2%
in 1998, 6% in 1997 and 4% in 1996. The 1998 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 1998, which was primarily responsible for the slower
growth rate; however, certain segments and industries had some increases
in insurable exposure units during 1998.
Investment Income
Investment income decreased to $3,308,000 in 1998 compared to $4,214,000 in
1997 and $3,371,000 in 1996. This decrease is primarily due to lower levels
of invested cash.
<PAGE 5>
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 1998, losses on the sale of customer
accounts were $115,000 compared to gains of $646,000 in 1997 and $997,000
in 1996. The loss in 1998 is due primarily to the disposition of the
Company's Charlotte, North Carolina operation.
Employee Compensation & Benefits
Employee compensation and benefits increased approximately 10% in 1998, 8%
in 1997 and 9% in 1996. Employee compensation and benefits as a percentage
of total revenue was 51% in 1998, down from 52% in 1997 and 1996. As of
December 31, 1998, the Company had 1,370 full-time equivalent employees,
compared to 1,176 at the beginning of the year. The increase in personnel
in 1998 is primarily as a result of acquisitions. The 1998 increase
in compensation and employee benefits of $7,319,000 is primarily
attributable to the addition of new employees as a result of acquisitions.
Other Operating Expenses
Other operating expenses increased 3% in 1998, 6% in 1997, and 10% in 1996.
Other operating expenses as a percentage of total revenues decreased to 20%
in 1998 from 21% in 1997 and 22% in 1996.
Interest and Amortization
Interest expense decreased $401,000, or 42%, in 1998, and $11,000, or 1%,
in 1997. Interest expense increased $35,000, or 4%, in 1996. The decrease
in 1998 is due primarily to the payment of acquisition-related notes
payable in early 1998.
Amortization expense increased $218,000, or 4%, in 1998, $429,000, or 8%, in
1997 and $635,000, or 14%, in 1996. The increase in 1998 is due to the
additional
<PAGE 6>
amortization of intangibles as a result of 1998 acquisitions.
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 38.5% in 1998, 38.7%
in 1997, and 38.7% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents of $42,174,000 at December 31, 1998
decreased by $6,394,000 from $48,568,000 at December 31, 1997. During 1998,
$36,313,000 of cash was provided from operating activities and proceeds of
$12,000,000 from long-term debt. From these amounts and existing cash
balances, $29,608,000 was used to acquire businesses, $9,233,000 was used
for purchases of the Company's stock, $7,811,000 was used to repay
long-term debt, $5,494,000 was used for payment of dividends, $4,510,000
was used for additions to fixed assets and $1,146,000 was used for
purchases of investments.
The Company's cash and cash equivalents of $48,568,000 at December 31, 1997
increased $15,395,000 from the December 31, 1996 balance of $33,173,000.
During 1997, cash of $30,698,000 was provided from operating activities,
proceeds of $597,000 from sales of fixed assets and customer accounts,
proceeds of $557,000 from the sale of investments 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 $2,824,000, additions to
fixed assets of $2,915,000, purchases of investments of $262,000,
acquisitions of businesses of $3,072,000, repurchases of common
stock of $5,860,000 and dividend payments of $4,636,000. The Company's
cash and cash equivalents of $33,173,000 at December 31, 1996
increased $2,623,000 from the December 31, 1995 balance of $30,550,000.
During 1996, cash of $28,408,000 was provided from operating activities,
proceeds of $1,321,000 from
<PAGE 7>
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 $4,512,000, additions to fixed assets of
$4,724,000, purchases of investments of $888,000, acquisitions of
businesses of $12,523,000, repurchases of common stock of $1,802,000 and
dividend payments of $4,523,000.
The Company's current ratio was 1.03 to 1.0, 1.11 to 1.0 and 1.02 to 1.0
as of December 31, 1998, 1997 and 1996, respectively. The decrease in the
current ratio in 1998 was primarily attributable to the increased acquisition
activity in 1998 and the resultant use of substantial cash.
In 1991, the Company entered into a long-term credit agreement with a
major insurance company that provided for borrowings at an interest rate
equal to the prime rate plus 1% (8.75% at December 31, 1998). At
December 31, 1998, $4,000,000 (the maximum amount available for
borrowings) was outstanding. In accordance with an August 1, 1998
amendment to the loan agreement, the amount available for borrowings
will decrease by $1,000,000 each August beginning in 2000. 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 institution that provided for borrowings of up to
$10,000,000. During 1998, the Company amended the agreement to increase
the facility to $50,000,000 and extend the maturity date to October, 2000.
On borrowings of up to $8,000,000, the outstanding balance is adjusted
daily based upon cash flows from operations. The interest rate on this
portion of the facility is equal to the prime rate less 1% (6.75% at
December 31, 1998). On borrowings under this facility in excess of
$8,000,000, the interest rate is LIBOR plus 0.45% to 1.25%, depending
on certain financial ratios that are calculated on a quarterly
basis. A commitment fee of 0.125% per annum is assessed on the unused
balance. At December 31, 1998 and 1997, $12,000,000 and $310,000,
respectively, were outstanding against this facility.
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 1999. 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.
YEAR 2000 DATA CONVERSION
Year 2000 issues relate to system failures or errors resulting from computer
programs and embedded computer chips which utilize dates with only two
digits instead of four digits to represent a year. A data field with two
digits representing a year may result in an error or failure due to the
system's inability to recognize "00" as the year 2000. The Company is
reviewing its computer systems for Year 2000 readiness and is implementing
a plan to resolve existing issues.
The Company has evaluated and identified the risks of failure of its
information, financial and communication systems which may be adversely
affected by Year 2000 issues. This internal assessment is approximately
90% complete at present and the Company expects to finish the assessment
process by the end of March 1999. To date, extensive testing of systems
has been performed. The Company may conduct further testing and/or an
external evaluation following the conclusion of its internal assessment.
To date, approximately $320,000 has been expended in systems upgrades
directly relating to year 2000 issues. Present estimates for further
expenditures to address Year 2000 issues are between $200,000 and $500,000.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in
processing information, interfacing with key vendors or with processing
orders and billing. However, the Year 2000 issue creates risk for the
Company from unforeseen problems in its own computer systems and
from third parties on which the Company relies. Accordingly, the
Company is requesting assurances from software vendors from which it
has purchased or from which it may purchase software that the software
sold to the Company will continue to correctly process date information
through the Year 2000 and beyond. In addition, the Company is querying
its independent brokers and insurance carriers as to their progress in
identifying and addressing problems that their computer systems may
experience in processing date
<PAGE 9>
information as the year 2000 approaches and thereafter. However, there
are no assurances that the Company will identify all date-handling
problems in its business systems or that the Company will be able to
successfully remedy Year 2000 compliance issues that are discovered.
To the extent that the Company is unable to resolve its Year 2000
issues prior to January 1, 2000, operating results could be adversely
affected. In addition, the Company could be adversely affected if other
entities (e.g., insurance carriers and indepenent agents
through which the Company brokers business) not affiliated with the Company
do not appropriately address their own Year 2000 compliance issues in
advance of their occurrence. There is also risk that insureds may attempt
to recover damages from the Company if their insurance policies procured
with the assistance of the Company are believed by such insureds to cover
Year 2000-related claims, but do not do so. The impact of these potential
legal disputes cannot be reasonably estimated. The Company has not
developed a contingency plan but is presently considering whether to
develop such a plan. There can be no assurance that Year 2000 issues
will not have a material adverse effect on the Company's business, results
of operations and financial condition.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, or make oral statements that constitute forward-looking
statements. These forward-looking statements may relate to such matters
as anticipated financial performance of future revenues or earnings,
business prospects, projected acquisitions or ventures, new products
or services, anticipated market performance, compliance costs, and
similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company cautions readers
that a variety of factors could cause the Company's actual results to
differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. These risks
and uncertainties, many of which are beyond the Company's control, include,
<PAGE 10>
but are not limited to: (i) competition from existing insurance
agencies and new participants and their effect on pricing of premiums;
(ii) changes in regulatory requirements that could affect the cost of
doing business; (iii) legal developments affecting the litigation
experience of the insurance industry; (iv) the volatility of the
securities markets; (v) the potential occurrence of a major natural
disaster in certain areas of the State of Florida, where the
Company's business is concentrated, and (vi) general economic
conditions. The Company does not undertake any obligation to
publicly update or revise any forward-looking statements.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
(in thousands, except per share data) 1998 1997 1996
REVENUES
Commissions and fees $150,443 $133,249 $123,544
Investment income 3,308 4,214 3,371
Other income 40 1,144 1,246
Total revenues 153,791 138,607 128,161
EXPENSES
Employee compensation and benefits 79,116 71,797 66,542
Other operating expenses 30,777 29,754 28,079
Interest 560 961 972
Amortization 5,853 5,635 5,206
Total expenses 116,306 108,147 100,799
Income before income taxes 37,485 30,460 27,362
Income taxes 14,432 11,794 10,595
Net income $ 23,053 $ 18,666 $ 16,767
Other comprehensive income,
net of tax: Unrealized holding
(loss) gain, net of tax benefit
(expense) of $770 in 1998, ($149)
in 1997 and ($1,136) in 1996
on securities (1,204) 233 1,675
COMPREHENSIVE INCOME $ 21,849 $ 18,899 $ 18,442
Basic and diluted earnings per share $ 1.72 $ 1.40 $ 1.26
Weighted average number of shares
outstanding 13,431 13,367 13,304
See notes to consolidated financial statements.
<PAGE 11>
CONSOLIDATED BALANCE SHEETS
Year ended December 31,
(in thousands, except per share data) 1998 1997
ASSETS
Cash and cash equivalents $ 42,174 $ 48,568
Short-term investments 746 1,299
Premiums, commissions and fees receivable 69,186 66,753
Other current assets 9,840 8,249
Total current assets 121,946 124,869
Fixed assets, net 13,698 12,905
Intangibles, net 79,483 50,846
Investments 10,483 11,498
Other assets 4,903 4,411
Total assets $230,513 $204,529
LIABILITIES
Premiums payable to insurance companies $ 89,405 $ 81,951
Premium deposits and credits due customers 8,379 7,035
Accounts payable and accrued expenses 16,122 17,629
Current portion of long-term debt 4,960 6,074
Total current liabilities 118,866 112,689
Long-term debt 17,207 6,257
Deferred income taxes 2,403 2,875
Other liabilities 7,829 6,478
Total liabilities 146,305 128,299
SHAREHOLDERS' EQUITY(1)
Common stock, par value $.10 per share;
authorized 70,000 shares; issued 13,498
shares at 1998 and 13,386 shares at 1997 1,350 1,339
Retained earnings 77,318 68,147
Accumulated other comprehensive income,
net of tax effect of $3,542
at 1998 and $4,312 at 1997 5,540 6,744
Total shareholders' equity 84,208 76,230
Total liabilities and shareholders' equity $230,513 $204,529
(1) Amounts shown for prior year's common stock and retained earnings have
been restated to account for a three shares for two stock split,
effected as a 50% common stock dividend.
See notes to consolidated financial statements.
<PAGE 12>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Addi- Accumulated
Common Stock tional Other
Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income Total
(in thousands, except per share data)
BALANCE, JANUARY 1, 1996 13,302 $ 1,330 $ 2,153 $ 45,940 $ 4,836 $ 54,259
Net income 16,767 16,767
Acquired and issued for
employee stock benefit
plans and stock
acquisitions (39) (3) (942) (109) (1,054)
Net increase in unrealized
appreciation of available-
for-sale securities 1,675 1,675
Cash dividends paid
($.3267 per share) (4,556) (4,556)
BALANCE,
DECEMBER 31, 1996 13,263 1,327 1,211 58,042 6,511 67,091
Net income 18,666 18,666
Acquired and issued
for employee stock
benefit plans and
stock acquisitions 123 12 (1,211) (3,925) (5,124)
Net increase in
unrealized appreciation of
available-for-sale securities 233 233
Cash dividends paid
($.3533 per share) (4,636) (4,636)
BALANCE,
DECEMBER 31, 1997 13,386 1,339 - 68,147 6,744 76,230
Net income 23,053 23,053
Acquired and issued
for employee stock
benefit plans and
stock acquisitions 112 11 - (8,388) (8,377)
Net decrease in
unrealized appreciation
of available-for-sale
securities (1,204) (1,204)
Cash dividends paid
($.4100 per share) (5,494) (5,494)
BALANCE,
DECEMBER 31, 1998 13,498 $ 1,350 $ - $ 77,318 $ 5,540 $ 84,208
<PAGE 13>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(in thousands) 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,053 $ 18,666 $ 16,767
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 3,528 3,157 2,939
Amortization 5,853 5,635 5,206
Provision for doubtful accounts - 250 17
Deferred income taxes 271 (94) 943
Net losses (gains) on sales of
investments, fixed assets and
customer accounts 406 (933) (1,194)
Premiums, commissions and fees
receivable increase (2,324) (345) (6,317)
Other assets increase (1,426) (1,294) (1,083)
Premiums payable to insurance
companies increase 6,721 1,236 8,255
Premium deposits and credits
due customers increase (decrease) 1,344 (294) 1,259
Accounts payable and accrued
expenses (decrease) increase (2,303) 4,937 2,104
Other liabilities increase (decrease) 1,190 (223) (488)
Net cash provided by operating
activities 36,313 30,698 28,408
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (4,510) (2,915) (4,724)
Payments for businesses acquired,
net of cash acquired (29,608) (3,072) (12,523)
Proceeds from sales of fixed assets
and customer accounts 220 597 1,321
Purchases of investments (1,146) (262) (888)
Proceeds from sales of investments 1,030 557 1,118
Net cash used in investing activities (34,014) (5,095) (15,696)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (7,811) (2,824) (4,512)
Proceeds from long-term debt 12,000 2,068 -
Exercise of stock options and issuances
of stock 1,845 1,044 748
Purchases of stock (9,233) (5,860) (1,802)
Cash dividends paid (5,494) (4,636) (4,523)
Net cash used in financing activities (8,693) (10,208) (10,089)
Net (decrease) increase in cash and
cash equivalents (6,394) 15,395 2,623
Cash and cash equivalents at beginning
of year 48,568 33,173 30,550
Cash and cash equivalents at end of year $42,174 $ 48,568 $ 33,173
See notes to consolidated financial statements.
<PAGE 14>
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 four divisions: the Retail Division, which
markets and sells a broad range of insurance products to commercial,
professional and individual clients; the National Programs Division,
which develops and administers property and casualty insurance and
employee benefits coverage for professional and commercial groups
nationwide; 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.
As more fully described in Note 2-Mergers, the accompanying consolidated
financial statements for all periods presented have been restated to show
the effect of the acquisition of Daniel-James Insurance Agency, Inc. during
1998.
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
<PAGE 15>
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.
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.
<PAGE 16>
Investments
The Company's marketable equity securities have been classified as
"available-for-sale" and are reported at estimated fair value, with
the accumulated other comprehensive income (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.
Accumulated other comprehensive income reported in shareholders'
equity was $5,540,000 at December 31, 1998 and $6,744,000 at
December 31, 1997, net of deferred income taxes of $3,542,000
and $4,312,000, respectively. The Company owned 559,970
shares of Rock-Tenn Company common stock at December 31, 1998 and 1997
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
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
<PAGE 17>
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 cost 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; however, no impairments have been
recorded for the years ended December 31, 1998, 1997 and 1996.
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.
Earnings Per Share
All share and per-share information in the financial statements has been
adjusted to give
<PAGE 18>
effect to the three-for-two common stock split which was
effected as a 50% common stock dividend and which became effective on
February 27, 1998.
Basic earnings per share (EPS) is computed by dividing income available
to common shareholders by the weighted-average number of common shares
outstanding for the period. Basic EPS excludes dilution and Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted to common stock.
Newly Issued Accounting Standards
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" (SFAS 130).
SFAS 130 establishes new standards for the reporting and display of
comprehensive income and its components. Comprehensive income, as
defined, includes all changes in equity (net assets) during a
period from non-owner sources. Adoption of this Statement had
no impact on the Company's consolidated financial position,
results of operations or cash flows.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
requires the Company to report summarized financial information concerning
the Company's reportable segments, as disclosed in Note 14. Adoption of
this Statement had no impact on the Company's consolidated financial
position, results of operations or cash flows.
NOTE 2 MERGERS
On April 14, 1998, the Company issued 278,765 shares of its common stock in
exchange for all of the outstanding stock of Daniel-James Insurance Agency,
Inc. ("Daniel-James"), an Ohio corporation with offices in Perrysburg, Ohio
and Indianapolis, Indiana, and for all of the outstanding membership
interests of Becky-Lou Realty Limited ("Becky-Lou"), an Ohio limited
liability company. This transaction has been accounted for as a
pooling-of-interests and, accordingly, the Company's consolidated
financial statements and related notes to the consolidated financial
statements have been restated for all periods prior to the acquisition to
<PAGE 19>
include the results of operations, financial positions and cash flows of
Daniel-James and Becky-Lou.
The following table reflects the 1997 and 1996 individual operating
results of the Company, Daniel-James and Becky-Lou.
(in thousands of dollars, Audited Unaudited
except per share data) Poe & Brown Daniel-James Becky-Lou Combined
1997
Revenues $129,190 $ 9,215 $ 202 $138,607
Net Income 19,386 (774) 54 18,666
1996
Revenues $118,680 $ 9,279 $ 202 $128,161
Net Income 16,497 168 102 16,767
1997 1996
NET INCOME PER SHARE
As previously recorded $ 1.48 $ 1.27
As combined $ 1.40 $ 1.26
NOTE 3 ACQUISITIONS
During 1998, the Company acquired the assets of 19 general insurance
agencies, several books of business (customer accounts) and the
outstanding shares of one general insurance agency at an aggregate
cost of $34,599,000, including $29,608,000 of net cash payments and
notes payable of $4,991,000. These acquisitions were accounted for as
purchases and substantially the entire cost was assigned to purchased
customer accounts, non-compete agreements and goodwill.
The results of operations for the acquired companies have been combined
with those of the Company since their respective acquisition dates. If the
acquisitions had
<PAGE 20>
occurred at the beginning of the years presented, the
Company's results of operations would be as shown in the following table.
These unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions
actually been made at the beginning of the respective periods.
Unaudited
Year ended December 31,
(in thousands, except per share data) 1998 1997 1996
Total revenues $162,543 $161,683 $151,308
Income before taxes 38,347 32,669 29,707
Net income 23,579 20,013 18,155
Earnings per share $ 1.76 $ 1.50 $ 1.36
During 1997, the Company acquired four general insurance agencies and
several books of business which were accounted for as purchases. The total
cost of these acquisitions was $5,439,000, including $3,072,000 of cash
payments and notes payable of $2,367,000. 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 which were all
accounted for as purchases. The total cost of these acquisitions was
$18,911,000, including $12,523,000 of cash payments and notes payable of
$6,388,000. The total purchase price 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 $1,536,000
were made in 1998. Contingency payments made in 1997 totaled $154,000,
and no contingency payments were made during 1996. As of December 31, 1998,
the maximum future contingency payments related to the 1998 acquisitions
totaled $3,480,000.
<PAGE 21>
NOTE 4 INVESTMENTS
Investments at December 31 consisted of the following:
1998
Carrying Value
(in thousands) Current Non-Current
Available-for-sale marketable equity securities $ 176 $ 10,483
Nonmarketable equity securities and certificates
of deposit 570 -
Total investments $ 746 $ 10,483
1997
Carrying Value
(in thousands) Current Non-Current
Available-for-sale marketable equity securities $ 62 $ 11,498
Nonmarketable equity securities and certificates
of deposit 1,237 -
Total investments $ 1,299 $ 11,498
The following summarizes available-for-sale
securities at December 31:
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
MARKETABLE EQUITY SECURITIES:
1998 $ 1,576 $ 9,093 $ 10 $ 10,659
1997 $ 504 $ 11,057 $ 1 $ 11,560
In 1998, proceeds from sales of available-for-sale securities totaled
$1,030,000, resulting in gross realized gains of $165,000. Proceeds
from sales of available-for-sale securities totaled $557,000 in 1997,
resulting in gross realized gains and losses of $349,000 and ($23,000),
<PAGE 22>
respectively. 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.
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, 1998 approximates its fair value.
NOTE 5 FIXED ASSETS
Fixed assets at December 31 consisted of the following:
(in thousands) 1998 1997
Furniture, fixtures and equipment $ 30,453 $ 27,318
Land, buildings and improvements 1,361 1,245
Leasehold improvements 1,411 1,241
$ 33,225 $ 29,804
Less accumulated depreciation 19,527 16,899
$ 13,698 $ 12,905
Depreciation expense amounted to $3,528,000 in 1998, $3,157,000 in 1997, and
$2,939,000 in 1996.
NOTE 6 INTANGIBLES
Intangibles at December 31 consisted of the following:
(in thousands) 1998 1997
Purchased customer accounts $ 74,399 $ 56,063
Non-compete agreements 19,111 12,130
Goodwill 28,577 20,345
Acquisition costs 1,552 1,143
123,639 89,681
Less accumulated amortization 44,156 38,835
$ 79,483 $ 50,846
<PAGE 23>
Amortization expense amounted to $5,853,000 in 1998, $5,635,000 in 1997, and
$5,206,000 in 1996.
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
(in thousands) 1998 1997
Long-term credit agreement $ 4,000 $ 4,000
Revolving credit facility 12,000 310
Notes payable from treasury
stock purchases 647 879
Acquisition notes payable 5,520 4,958
Other notes payable - 2,184
22,167 12,331
Less current portion 4,960 6,074
Long-term debt $ 17,207 $ 6,257
In 1991, the Company entered into a long-term credit agreement with a major
insurance company that provided for borrowings at an interest rate equal to
the prime rate plus 1% (8.75% at December 31, 1998). At December 31, 1998,
$4,000,000 (the maximum amount currently available for borrowings) was
outstanding. In accordance with an August 1, 1998 amendment to the loan
agreement, the outstanding balance will be repaid in annual installments
of $1,000,000 each August beginning in 2000. 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 institution that provided for borrowings of up to
$10,000,000. During 1998, the Company amended the agreement to increase
the facility to $50,000,000 and extend the maturity date to October, 2000.
On borrowings of up to $8,000,000, the outstanding balance is adjusted
daily based upon cash flows from operations. The interest rate on this
portion of the facility is equal to the prime rate less 1% (6.75% at
December 31, 1998). On borrowings under this facility in excess of
$8,000,000, the interest rate is LIBOR plus 0.45% to 1.25%, depending
on certain financial ratios that are calculated on a quarterly basis.
A commitment fee of 0.125% per annum is assessed on the unused balance. At
December 31, 1998 and 1997, $12,000,000 and $310,000, respectively, were
outstanding against this facility.
<PAGE 24>
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 1998, 1997 and 1996. These notes, including
future contingent payments, are payable in monthly and annual installments
through 2001, including interest ranging from 5% to 6%.
Maturities of long-term debt for succeeding years are $4,960,000 in 1999,
$13,966,000 in 2000, $1,241,000 in 2001, $1,000,000 in 2002 and $1,000,000
in 2003.
Interest expense included in the consolidated statements of income
was $560,000 in 1998, $961,000 in 1997 and $972,000 in 1996.
NOTE 8 INCOME TAXES
At December 31, 1998, the Company had a net operating loss carryforward
of $302,000 for income tax reporting purposes, portions of which expire
in the years 1999 through 2013. This carryforward was derived from an
agency acquired by the Company in 1998. For financial reporting purposes,
a valuation allowance of $38,000 has been recognized to offset the
deferred tax asset related to this carryforward.
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:
(in thousands) 1998 1997
Deferred tax liabilities:
Fixed assets $ 1,228 $ 1,416
Net unrealized appreciation of
available-for-sale securities 3,542 4,312
Installment sales 2 24
Prepaid insurance and pension 771 746
Intangible assets 208 44
<PAGE 25>
Total deferred tax liabilities 5,751 6,542
Deferred tax assets:
Deferred compensation 1,926 1,697
Accruals and reserves 1,010 1,175
Net operating loss carryforwards 179 220
Allowance for doubtful accounts - 332
Other 271 281
Valuation allowance for deferred
tax assets (38) (38)
Total deferred tax assets 3,348 3,667
Net Deferred Tax Liabilities $ 2,403 $ 2,875
Significant components of the provision (benefit) for income taxes are
as follows:
(in thousands) 1998 1997 1996
Current:
Federal $ 12,179 $ 10,332 8,570
State 1,955 1,730 1,374
Total current provision 14,134 12,062 9,944
Deferred:
Federal 267 (228) 535
State 31 (40) 116
Total deferred (benefit) provision 298 (268) 651
Total tax provision $ 14,432 $ 11,794 $ 10,595
A reconciliation of the differences between the effective tax rate and the
federal statutory tax rate is as follows:
(in thousands) 1998 1997 1996
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal income tax benefit 3.4 3.7 3.3
Interest exempt from taxation
and dividend exclusion (0.2) (0.8) (0.5)
Non-deductible amortization 0.4 0.4 0.6
Other, net (0.1) 0.4 0.3
Effective tax rate 38.5% 38.7% 38.7%
Income taxes payable were $773,000 and $612,000 at December 31, 1998 and
December 31, 1997, respectively, and are reported as a component of
accounts payable and accrued expenses.
<PAGE 26>
NOTE 9 EMPLOYEE BENEFIT PLAN
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
$2,093,000 in 1998, $1,788,000 in 1997 and $1,541,000 in 1996.
NOTE 10 STOCK-BASED COMPENSATION AND INCENTIVE PLANS
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, 1998 was
750,000. As of December 31, 1998, 387,172 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, 1998,
1997 and 1996.
Stock Performance Plan
The Company has adopted a stock performance plan, under which up to 900,000
shares of the Company's stock ("Performance Stock") may be granted 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 vested before participants take full
<PAGE 27>
title to Performance Stock. Of the grants currently outstanding, specified
portions will satisfy the first condition for vesting based on increases in
the market value of the Company's common stock from the initial price
specified by the Company. Awards satisfy the second condition for vesting
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 unvested Performance Stock that has satisfied the first vesting
condition, and participants may exercise voting privileges on such shares.
At December 31, 1998, 610,040 shares had been granted under the plan
at initial stock prices ranging from $15.17 to $34.00. As of
December 31, 1998, 368,835 shares had met the first condition for
vesting. The compensation element for Performance Stock is equal to
the fair market value of the shares at the date the first vesting
condition is satisfied and is expensed over the remaining vesting
period. Compensation expense related to this Plan totaled $732,000
in 1998 and $175,000 in 1997.
NOTE 11 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:
Year ended December 31,
(in thousands) 1998 1997 1996
Unrealized (depreciation)
appreciation of
available-for-sale securities
net of tax benefit (expense)
of $770 for 1998, ($149) for
1997 and ($1,136) for 1996 $ (1,204) $ 233 $ 1,675
Notes payable issued for purchased
customer accounts 4,991 2,367 6,388
Notes received on the sale of
fixed assets and customer
accounts 1,249 187 557
Cash paid during the year for:
Interest 854 725 910
Income taxes 14,112 11,211 10,609
<PAGE 28>
NOTE 12 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, 1998,
the aggregate future minimum lease payments under all noncancelable
lease agreements were as follows:
Year Ending December 31, (in thousands)
1999 $ 6,330
2000 $ 5,530
2001 $ 5,101
2002 $ 4,952
2003 $ 3,915
Thereafter $ 4,168
Total minimum future lease payments $ 29,996
Rental expense in 1998, 1997 and 1996 for operating leases totaled
$5,540,000, $5,307,000 and $5,376,000, 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.
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
<PAGE 29>
adverse effect on the Company's business, although no such conditions
have been encountered in the past.
For the years ended December 31, 1998, 1997 and 1996, approximately 17%,
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 other
insurance companies are available to underwrite the business, although
some additional expense and loss of market share could possibly result.
No other insurance company accounts for as much as five percent of the
Company's revenues.
NOTE 14 SEGMENT INFORMATION
The Company's business is divided into four divisions: the Retail Division,
which markets and sells a broad range of insurance products to commercial,
professional and individual clients; the National Programs Division, which
develops and administers property and casualty insurance and employee
benefits coverage solutions for both professional and commercial groups
and trade associations nationwide; 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. The Company conducts all of
its operations in the United States.
The accounting policies of the reportable segments are the same as those
described in Note 1-Summary of Significant Accounting Policies. The
Company evaluates the performance of its segments based upon revenues
and income before income taxes. Intersegment revenues are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes
corporate-related items and, as it relates to segment profit, income and
expense not allocated to reportable segments.
<PAGE 30>
(in thousands) Retail Programs Service Brokerage Other Total
Year Ended
December 31, 1998:
Total Revenues $100,348 $ 26,737 $ 14,025 $ 13,611 $ (930) $ 153,791
Interest and other
investment income 1,672 1,684 207 358 (613) 3,308
Interest expense 835 - - 12 (287) 560
Depreciation and
amortization 6,475 1,452 319 925 210 9,381
Income (loss) before
income taxes 21,311 9,515 2,496 4,888 (725) 37,485
Total assets 125,916 59,686 5,421 29,850 9,640 230,513
Capital expenditures 3,177 666 383 223 61 4,510
Year Ended
December 31, 1997:
Total Revenues $ 85,035 $ 26,821 $ 12,333 $ 13,440 $ 978 $138,607
Interest and other
investment income 1,266 1,904 183 421 440 4,214
Interest expense 111 - - 313 537 961
Depreciation and
amortization 5,594 1,203 335 783 877 8,792
Income (loss) before
income taxes 14,999 9,657 1,964 4,783 (943) 30,460
Total assets 112,311 58,505 4,178 29,470 65 204,529
Capital expenditures 1,789 563 259 283 21 2,915
Year Ended
December 31, 1996:
Total Revenues $ 77,514 $ 28,153 $ 10,206 $ 11,461 $ 827 $128,161
Interest and other
investment income 1,144 1,840 169 237 (19) 3,371
Interest expense 48 - - 264 660 972
Depreciation and
amortization 5,631 1,277 292 764 181 8,145
Income (loss) before
income taxes 13,885 8,929 1,683 3,210 (345) 27,362
Total assets 92,923 56,737 3,941 26,825 7,688 188,114
Capital expenditures 2,749 1,097 399 445 34 4,724
Revenue from insurance policies underwritten by one insurance company
represents approximately $25,772,000 of the Company's consolidated
revenues. All of the reported segments derive revenue from this insurance
company.
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
<PAGE 31>
subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Orlando, Florida
January 21, 1999