1
EXHIBIT 13
SELECTED FINANCIAL DATA
(in thousands of dollars and shares, except per share data) Year Ended December 31,
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------------------------------
Commissions and fees (1) $ 93,826 $ 92,350 $ 86,127 $ 79,859 $ 77,494
Total revenues (2) $ 99,507 $ 95,570 $ 89,310 $ 82,999 $ 79,698
Total expenses $ 79,155 $ 82,638 $ 80,989 $ 72,196 $ 69,946
Income before taxes and loss from
discontinued operations $ 20,352 $ 12,932 $ 8,321 $ 10,803 $ 9,752
Income from continuing operations $ 13,285 $ 8,003 $ 4,141 $ 6,681 $ 6,085
Net income (2,3) $ 13,285 $ 8,003 $ 2,561 $ 5,876 $ 5,895
Income per share from
continuing operations $ 1.56 $ .95 $ .49 $ .81 $ .73
Net income per share (2,3) $ 1.56 $ .95 $ .30 $ .71 $ .71
Weighted average number of
shares outstanding 8,524 8,425 8,423 8,243 8,285
Dividends paid per share $ .42 $ .40 $ .40 $ .32 $ .32
Total assets $ 139,335 $ 133,329 $ 127,591 $ 114,818 $ 119,413
Long-term debt $ 7,430 $ 17,316 $ 18,423 $ 18,687 $ 14,594
Shareholders' equity (4) $ 44,044 $ 27,218 $ 21,319 $ 22,291 $ 18,057
(1) See Note 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 1994 the Company reduced its general tax reserves by $700,000,
or $.08 per share, as a result of reaching a settlement agreement with
the Internal Revenue Service on certain outstanding examination issues.
See Note 9 to consolidated financial statements.
(4) Shareholders' equity as of December 31, 1994 increased $5,341,000 as a
result of the Company's adoption of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." See Note 1 to consolidated
financial statements.
[GRAPH See Appendix] [GRAPH See Appendix] [GRAPH See Appendix]
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POE & BROWN AT A GLANCE
Poe & Brown, Inc. is National Programs
The National Programs Division works with insurers to develop proprietary
ranked as the 12th largest insurance programs for targeted market segments, promotes those programs
through a variety of channels and distributes them through independent agent
networks.
insurance agency in the
PROGRAMS AND SUBSIDIARIES
nation and the 19th - Automobile Dealers Protector Plan
- Health Care Insurers, Inc.
largest world-wide by
- Insurance Administration Center
- Jordan, Roberts & Co.
BUSINESS INSURANCE
- Lawyer's Protector Plan(R)
- Optometric Protector Plan(R)
- Physicians Protector Plan(R)
[GRAPH]
- Professional Protector Plan(R)
The above graph shows - Professional Services Program
revenues by division.
- Towing Operators Protector Plan(R)
- Underwriters Services, Inc.
- OFFICE LOCATIONS
Colorado Springs, CO Orlando, FL
Glastonbury, CT Tampa, FL
- AGENCIES AND BROKERS
National Programs distribution system is actually several networks, comprised
of 273 independent insurance agencies and over 2,000 brokers operating in all
50 states, plus the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. Each network is specially structured to serve a specific niche
professional or industry group.
[GRAPHIC described above]
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Retail Operations
The Retail Operations Division provides commercial property and casualty
insurance for medium and large accounts, as well as for small commercial and
individual clients. Products range from personal insurance programs to
the complexities of large commercial clients.
PROGRAMS AND SERVICES
- Property and casualty insurance for commercial and industrial
operations of all types
- Personal insurance
- Workers' compensation
- Inland and wet marine
- Employee benefit plans
- Bonds
OFFICE LOCATIONS
Phoenix, AZ Naples, FL
San Francisco, CA Orlando, FL
Brooksville, FL Sarasota, FL
Daytona Beach, FL Tampa, FL
Fort Lauderdale, FL West Palm Beach, FL
Fort Myers, FL Winter Haven, FL
Jacksonville, FL Atlanta, GA
Kissimmee, FL Clark, NJ
Leesburg, FL Somerset, NJ
Melbourne, FL Charlotte, NC
Miami, FL Houston, TX
Brokerage Operations
The Brokerage Operations respond to the specialized needs of independent
agents and brokers through two operating subsidiaries.
HALCYON UNDERWRITERS, INC.
- Provides wholesale insurance to more than 100 retail insurance
agencies in Florida, 50 in Georgia and 50 in Alabama.
- Provides commercial coverage for restaurants, contractors, wholesalers
and manufacturers.
- Specializes in umbrella policies and inland marine coverage.
- Provides casualty insurance for situations normally considered
high hazard risks.
MACDUFF UNDERWRITERS, INC.
- Acts as an intermediary, broker and wholesaler for standard
carriers and excess and surplus line carriers. It specializes
in placing difficult product liability, general liability and
property coverages.
- Also acts as a managing general agent for programs that insure
service stations, automobiles, trucking companies, property and
general liability risks.
OFFICE LOCATIONS
Daytona Beach, FL Orlando, FL
Service Operations
The Service Operations respond to the needs of companies who conduct their own
self-insurance programs.
UNITED SELF-INSURED SERVICES
- Administers workers' compensation coverage for some 2,000 self-insured
employers with a combined payroll of $1.7 billion.
- Handles claims, loss control services, rehabilitation, safety
inspections, cost containment and related services.
POE & BROWN BENEFITS
- Provides employee benefits consultation and third-party administration
of self-insured employee benefit plans.
- Services include benefit plan design and analysis, self-insured
cost analysis, rate setting, claims analysis and utilization.
Third-party administration includes claims adjudication, benefit
analysis and administration using advanced software.
- Clients include hospitals, nursing homes, municipalities,
manufacturers, hotels and motels, auto dealerships, retailers,
professional service firms and purchasing coalitions.
OFFICE LOCATIONS
Daytona Beach, FL Orlando, FL
Poe & Brown's Retail, Brokerage and Service Operations serve a vast array of
clients through sales offices located in seven states.
[MAP described above]
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
General
The Company's revenues are principally comprised 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 premium rate levels
charged by insurance underwriters and available insurance capacity. Revenues
are also affected by acquisitions, development of new and existing association
programs, and fluctuations in insured values and in the volume of business from
new and existing clients. Contingent commissions are paid to the Company by
insurance carriers based upon the volume and profitability of the business
placed with such carriers by the Company.
Fee revenues are substantially generated by the Service Operations
Division whereby the Company 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 reforms, have resulted in increased
competition for this service sector. In response to the increased competition,
the Company has offered value-added services which enabled it to maintain 1994
fee revenues at a level consistent with that recognized in 1993. For each of
the years 1994 and 1993, fee revenues represented 10% of total revenues, and 8%
of total revenues in 1992.
Investment income consists principally of gains and losses from sales
of investments, as well as interest earnings on premiums and customer deposits
collected and not yet remitted to insurance carriers, which deposits are held
in a fiduciary capacity. The increase in interest rates during 1994 resulted in
an increase in investment income on fiduciary funds of 42% over that of 1993.
Insurance premiums are established by insurance companies based upon
many factors, none of which are controlled by the Company. Beginning in 1986
and continuing throughout 1994, revenues have been adversely influenced by a
consistent decline in premium rates resulting from intense competition among
property and casualty insurers for overall expanding market capacity. Among
other factors, this condition of prevailing decline in premium rates, commonly
referred to as a "soft market," results directly in reduction of commission
revenues.
In conjunction with these industry and market forces, general economic
conditions have been stagnant in recent years, thereby limiting increases in
insurable exposure units such as property values, sales and payroll levels.
Still, the Company's revenues have continued to grow through intense
initiatives for new business and development of new products, markets and
services. Coupled with this revenue growth, expenses were curtained in 1994
primarily as a result of operational efficiencies realized from the 1993 merger
of Poe & Associates and Brown & Brown, as well as significant repayments of debt
which have reduced interest expense.
The Company anticipates that results of operations for 1995 will
continue to be influenced by these competitive and economical 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.
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Results of Operations for the Years Ended December 31, 1994, 1993 and 1992
Net Income Summary: The Company's net income was $13,285,000 in 1994,
$8,003,000 in 1993, and $2,561,000 in 1992. The Company's net income per share
was $1.56, $0.95, and $0.30 in 1994, 1993 and 1992, respectively. Net income
per share was affected by discontinued operation charges of $0.19 in 1992. The
1994 net income includes a net after-tax gain of approximately $1,342,000, or
$.16 per share, from the Company's sale of a portion of its investment in
Rock-Tenn Company. The 1994 net income was also positively impacted by $.08 per
share as a result of a favorable settlement of a portion of the Company's
pending IRS examination and the related reduction in general tax reserves (see
discussion of "Income Taxes" below). Excluding these non-recurring items, net
income in 1994 increased $.37 per share or 39% over 1993, primarily as a result
of an increase in commissions and fees of approximately 2% and a decrease in
expenses of approximately 4%.
Commissions and Fees: Commissions and fees increased 2% in 1994, 7% in 1993
and 8% in 1992. Excluding the effects of acquisitions, commissions and fees
would have increased 4% in 1993 compared to a decrease of 2% in 1992.
Acquisition activity in 1994 did not have a material impact on commissions and
fees. The 1994 results reflect an increase in commissions and fees for each of
the Company's operating divisions, most of which resulted from new business
growth. Although in general, property and casualty insurance premium prices
during 1994 remained competitive, there were some increases in premium rates
for coastal properties as a result of recent Florida storms, such as Hurricane
Andrew, and some increases in insurable exposure units that occurred toward the
end of 1994. Both of these factors also contributed to the increase in the 1994
Retail Division revenues.
Investment Income: Investment income increased $3,061,000 in 1994 to
$5,092,000 compared to a decrease of $395,000 in 1993 to $2,031,000. The 1994
increase is primarily due to a $2,185,000 gain from the sale of approximately
23% of the Company's investment in the common stock of Rock-Tenn Company. This
sale was in conjunction with an initial public offering by Rock-Tenn Company of
its common stock. The Company continues to own 509,064 shares of common stock
of Rock-Tenn Company and has no current plans to sell these shares.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under these new rules, debt securities that the Company has
both the positive intent and ability to hold to maturity would be classified as
"held-to-maturity" securities and would be reported at amortized cost.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as "available-for-sale." Available-for-sale
securities are reported at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity. Application of
these new rules resulted in a net increase of $5,341,000 in shareholders'
equity as of December 31, 1994.
Other Income: Other income consists primarily of gains and losses from the
sale and disposition of assets. During 1994, gains on the sale of customer
accounts aggregated $411,000. During 1993, certain customer accounts were sold
for an aggregate net gain of $864,000 of which $818,000 related to the sale of
two of the Company's smallest operations in Tallahassee, Florida and Westlake
Village, California. In 1992, customer accounts were sold for $715,000.
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Employee Compensation and Benefits: Employee compensation and benefits
remained constant in 1994 compared to an increase of less than 3% in 1993.
Without acquisitions, employee compensation and benefits expense remained
constant in 1994 and would have decreased less than 1% in 1993. As of December
31, 1994, the Company had 971 full-time equivalent employees compared to 980 at
the beginning of the year. The impact of the reduction in personnel during 1994
was offset by increases in compensation due to merit raises and
production-related increases. The 1993 merger of Poe & Associates, Inc. and
Brown & Brown, Inc. also resulted in a reduction of personnel throughout 1993.
This reduction was offset primarily by increases in vacation benefits,
operational bonuses, and certain deferred compensation arrangements.
Other Operating Expenses: Other operating expenses decreased 12% in 1994
compared to an increase of approximately 3% in 1993. Without acquisitions,
operating expenses would have still decreased 12% in 1994 and would have
increased less than 1% in 1993. The 1994 decrease is primarily attributable to
approximately $2,500,000 of costs incurred in 1993 representing non-recurring
merger and combination costs related to the Poe & Associates merger with Brown
& Brown and subsequent improvements in operational efficiencies that resulted
in decreases to most other operating expenses. Excluding the $2,500,000 of
merger-related costs, most of the 1993 other operating expenses were reduced
from their 1992 levels.
Interest and Amortization: Interest and amortization decreased $514,000 and
$412,000 or 9% and 6% in 1994 and 1993, respectively, due primarily to a
reduction in outstanding debt in 1994 and 1993 and the refinancing of certain
debt in 1993 at lower interest rates.
Income Taxes: The effective rate on income from operations was 34.7% in 1994,
38.1% in 1993 and 50.2% in 1992. The lower effective tax rate in 1994 is
primarily due to the effect of recording a $700,000 reduction to the general
tax reserves as a result of reaching a settlement agreement with the Internal
Revenue Service ("Service") on certain of the Service's outstanding examination
issues (see below for detailed discussion of this adjustment). The higher
effective rate in 1992 was primarily due to non-deductible amortization of
certain intangible assets, establishment of additional general tax reserves
related to the Service examinations, and a taxable gain differential on a
building sale relating to an acquisition in 1990.
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. During 1994, the Company was able to reach a settlement agreement
with the Service with respect to certain of the disputed amortization items and
the indemnity agreement payment issue. This settlement has reduced the total
remaining asserted income tax deficiencies to approximately $2,800,000. The
Company disagrees with the position of the Service on the remaining issues and
will
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continue to pursue its remedies through available administrative and
judicial processes. However, based upon the most recent communication with the
Service, management believes that the remaining issues are likely to be settled
by the end of 1995. Based on the 1994 partial settlement and review of the
remaining unsettled items, the Company believes that its general tax reserves
of $800,000 are sufficient to cover the settlement of the remaining items. As
such, after considering a $400,000 reduction to previously established tax
reserves for payments under the settlement agreement, the Company recorded a
$700,000 reduction in general tax reserves during 1994. This decrease has been
recorded as a reduction to the current income tax provision. If the Service
were to prevail on the remaining amortization issues, future operating results
would be adversely affected by the difference between the total estimated
remaining assessment of $2,800,000 and the recorded general tax reserves of
$800,000 as of December 31, 1994.
Discontinued Operations: In 1992, the Company recorded a significant charge of
$1,580,000, or $0.19 per share, relating to discontinued operations. This
charge was associated with the Company's risk-bearing operation which was
discontinued in 1988. The charge resulted primarily from a re-evaluation of the
Company's expected recoveries associated with its indemnity of a reinsurance
agreement and, to a lesser extent, from a strengthening of reserves for that
indemnity.
The Company had historically estimated that certain recoveries related
to the indemnity were available to it from the insolvency of Whiting National
Insurance Company, placed in liquidation in 1988. While none of the underlying
facts or operations of law had changed, the activity associated with the
liquidation of Whiting had proceeded more slowly than anticipated making
realization of those recoveries uncertain. The elimination of those recoveries
accounts for approximately three-fourths of the discontinued operations charge.
In addition, the Company bolstered reserves associated with the underlying
indemnity obligations, further increasing the charge. These reserves are
expected to be settled over many years and do not require any immediate
significant cash outlays.
Management currently anticipates that the existing reserves will be
sufficient to provide for its responsibility under the indemnity agreement.
Accordingly, management believes that the Company's future operating results
and financial position will not be materially affected by this indemnity.
Liquidity and Capital Resources
The Company's cash and cash equivalents of $22,995,000 at December 31, 1994
decreased $3,350,000 from the December 31, 1993 balance of $26,345,000. During
1994, cash of $10,654,000 was provided from operating activities, proceeds of
$2,346,000 from sales of investments, and proceeds from the exercise of stock
options and issuances of common stock of $1,687,000. Cash was used during 1994
primarily for payments on long-term debt and notes payable of $11,873,000 and
payment of dividends of $3,542,000.
The Company's cash and cash equivalents of $26,345,000 at December 31,
1993 increased $7,941,000 from the December 31, 1992 balance of $18,404,000.
During 1993, cash was primarily provided from operating activities of
$20,188,000, proceeds from the sale of fixed assets and customer accounts of
$427,000 and proceeds from bank borrowings of $3,833,000. Cash was used during
1993 primarily for payments on finalizing acquisition contingency agreements
and the purchases of fixed assets totaling $3,925,000, repayment of long-term
debt and notes payable of $10,964,000 and payment of dividends of $2,971,000.
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The Company's cash and cash equivalents of $18,404,000 at December 31,
1992 increased $820,000 from 1991. During 1992, cash was primarily provided
from operating activities of $9,254,000, proceeds from borrowings of $1,550,000
and proceeds from the sales of investments, fixed assets and customer accounts
totaling $5,290,000. Cash was used in 1992 primarily for acquisitions of
businesses totaling $5,858,000, capital expenditures of $2,164,000, purchases
of investments of $731,000, repayment of debt of $5,321,000 and payment of
dividends of $2,028,000.
The Company's working capital ratio was 1.10 to 1.0, 1.03 to 1.0 and
.96 to 1.0, as of December 31, 1994, 1993, and 1992, respectively. The increase
in the ratio at December 31, 1994 was primarily the result of lower premiums
payable to insurance companies, lower accounts payable and accrued expenses and
less outstanding current portion of long-term debt at year end. The increase in
the ratio at December 31, 1993 as compared to December 31, 1992 was primarily
the result of higher net cash flows from operations. Premiums payable to
insurance companies generally exceed the amount of premiums receivable from
customers because of the Company's billing and collection practices and its
agreed payment period terms with insurance companies.
In 1993, the Company entered into a long-term credit facility with a
national banking institution that consisted of two secured term loans
aggregating $7,500,000 that carried interest at the LIBOR rate plus 2% (5.25%
at December 31, 1993). These bank term loans were used to replace approximately
$3,750,000 of 8.5% notes held by an insurance company, and to fund acquisition
contingency payments finalized in 1993. As of December 31, 1993, all
acquisition contingency agreements had been finalized. This debt was fully
retired during 1994.
The Company has had available an unsecured line of credit with a
national banking institution totaling $3,500,000 since 1991, but that line of
credit was reduced to $2,000,000 in conjunction with the new credit facility
referred to above. At December 31, 1993, there were no borrowings against this
line of credit, and at December 31, 1992, $1,550,000 was borrowed. During 1994,
in connection with the repayment of the long-term credit facility referred to
above, the $2,000,000 line of credit was terminated. In November 1994, the
Company entered into a new secured line of credit with a different national
banking institution which provides the Company with available borrowings of
$10,000,000. During 1994 and as of December 31, 1994, there were no borrowings
against this line of credit.
The Company entered into a long-term credit agreement in 1991 with a
major insurance company, pursuant to which up to $10,000,000 could be borrowed
at an interest rate equal to the prime lending rate plus 1% (9.5 % at December
31, 1994). The amount of the available credit decreases by $1,000,000 each
August through the year 2001 when it will expire. As of December 31, 1994, the
maximum amount available under the agreement was outstanding.
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 1995. 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.
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CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars and shares, except per share data) Year Ended December 31,
1994 1993 1992
----------------------------------------------------------------------------------------------------
Revenues
Commissions and fees $93,826 $92,350 $86,127
Investment income 5,092 2,031 2,426
Other income 589 1,189 757
Total revenues 99,507 95,570 89,310
----------------------------------------------------------------------------------------------------
Expenses
Employee compensation and benefits 51,229 51,203 49,954
Other operating expenses 22,418 25,413 24,601
Interest and amortization 5,508 6,022 6,434
Total expenses 79,155 82,638 80,989
----------------------------------------------------------------------------------------------------
Income before income taxes and loss from
discontinued operations 20,352 12,932 8,321
Income taxes 7,067 4,929 4,180
----------------------------------------------------------------------------------------------------
Income from continuing operations 13,285 8,003 4,141
Loss from discontinued operations,
net of tax benefit of $976 - - 1,580
----------------------------------------------------------------------------------------------------
Net Income $13,285 $ 8,003 $ 2,561
====================================================================================================
Income (loss) per Share
Continuing operations $ 1.56 $ .95 $ .49
Discontinued operations - - (.19)
----------------------------------------------------------------------------------------------------
Net income $ 1.56 $ .95 $ .30
====================================================================================================
Weighted average number of shares outstanding 8,524 8,425 8,423
See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data) December 31,
1994 1993
Assets
Cash and cash equivalents $ 22,995 $ 26,345
Short-term investments 787 667
Premiums and commissions receivable, less allowance for doubtful
accounts of $69 in 1994 and $435 in 1993 56,085 54,054
Other current assets 6,420 4,720
-----------------------------------------------------------------------------------------------------
Total current assets 86,287 85,786
Fixed assets, net 8,286 8,001
Intangibles, net 32,620 35,493
Investments 9,274 695
Other assets 2,868 3,354
-----------------------------------------------------------------------------------------------------
Total assets $139,335 $133,329
=====================================================================================================
Liabilities
Premiums payable to insurance companies $ 61,873 $ 65,903
Premium deposits and credits due customers 6,970 5,051
Accounts payable and accrued expenses 8,230 8,913
Current portion of long-term debt 1,245 3,232
-----------------------------------------------------------------------------------------------------
Total current liabilities 78,318 83,099
Long-term debt 7,430 17,316
Deferred income taxes 3,778 1,323
Other liabilities 5,765 4,373
-----------------------------------------------------------------------------------------------------
Total liabilities 95,291 106,111
=====================================================================================================
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Shareholders' Equity
Common stock, par value $.10; authorized 18,000,000 shares; issued
8,551,756 shares in 1994; 8,403,779 shares in 1993 855 840
Additional paid-in capital 2,070 1,149
Retained earnings 35,778 26,035
Net unrealized appreciation of available-for-sale securities,
net of tax effect of $3,344 5,341 -
Treasury stock, at cost: 0 shares in 1994; 44,833 shares in 1993 - (806)
Total shareholders' equity 44,044 27,218
-----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $139,335 $133,329
=====================================================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of dollars and shares, except per share data) ADDITIONAL NET
COMMON STOCK PAID-IN RETAINED UNREALIZED TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS APPRECIATION SHARES AMOUNT TOTAL
Balance, January 1, 1992 8,511 $851 $ 972 $22,571 $ - 242 $(2,104) $22,290
Net income 2,561 2,561
Issued for stock option plans and
employee stock purchase plans (12) (81) 621 609
Purchase and retirement of
Brown stock (118) (12) (1,177) (1,189)
Adjustment to conform fiscal year
ends of Brown and Arch-Holmes
(See Note 2) (924) (924)
Cash dividends paid ($.40 per share) (2,028) (2,028)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 8,393 839 960 21,003 - 161 (1,483) 21,319
Net income 8,003 8,003
Issued for stock option plans and
employee stock purchase plans 11 1 13 (116) 677 691
Tax benefit from sale of option
shares by employees 176 176
Cash dividends paid ($.40 per share) (2,971) (2,971)
------------------------------------------------------------------------------------------------------------------------------------
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Balance, December 31, 1993 8,404 840 1,149 26,035 - 45 (806) 27,218
Net income 13,285 13,285
Issued for stock option plans and
employee stock purchase plans 148 15 866 (45) 806 1,687
Tax benefit from sale of option
shares by employees 55 55
Cumulative effect of change in
accounting principle (see Note 1) 23 23
Net increase in unrealized appreciation
of available-for-sale securities 5,318 5,318
Cash dividends paid ($.42 per share) (3,542) (3,542)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,552 $855 $ 2,070 $35,778 $5,341 - $ - $44,044
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars) Year Ended December 31,
1994 1993 1992
---------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $13,285 $ 8,003 $ 2,561
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,304 6,882 6,919
Provision for doubtful accounts 19 562 749
Deferred income taxes (1,173) 499 516
Net gains on sales of investments, fixed assets
and customer accounts (2,231) (864) (809)
Loss from discontinued operations - - 1,580
Adjustment due to change in pooled entities' year end - - (1,694)
Premiums and commissions receivable (increase) decrease (1,929) 1,834 (12,610)
Other assets (increase) decrease (2,151) 583 390
Premiums payable to insurance companies (decrease) increase (4,098) 4,762 10,970
Premium deposits and credits due customers increase (decrease) 1,919 (471) 985
Accounts payable and accrued expenses decrease (683) (2,814) (623)
Other liabilities increase 1,392 1,212 320
Net cash provided by operating activities 10,654 20,188 9,254
---------------------------------------------------------------------------------------------------------
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Cash Flows From Investing Activities
Additions to fixed assets (2,392) (1,805) (2,164)
Payments for businesses acquired, net of cash acquired (1,382) (2,120) (5,858)
Proceeds from sales of fixed assets and customer accounts 1,337 427 1,187
Purchases of investments (187) (93) (731)
Proceeds from sales of investments 2,346 709 4,103
Other investing activities, net (53) (130) 314
Net cash used in investing activities (331) (3,012) (3,149)
---------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Payments on long-term debt and notes payable (11,873) (10,964) (5,321)
Proceeds from long-term debt and notes payable - 3,833 1,550
Exercise of stock options, issuances of stock and treasury stock sales
1,687 691 609
Tax benefit from sale of option shares by employees 55 176 -
Purchase and retirement of treasury stock - - (95)
Cash dividends paid (3,542) (2,971) (2,028)
Net cash used in financing activities (13,673) (9,235) (5,285)
---------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,350) 7,941 820
Cash and cash equivalents at beginning of year 26,345 18,404 17,584
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 22,995 $ 26,345 $18,404
=========================================================================================================
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include the
accounts of Poe & Brown, Inc. and its subsidiaries (the Company). All
significant intercompany account balances and transactions have been eliminated
in consolidation.
Revenue Recognition Commisions 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 later of the effective date of
the policy or the date billed. Commissions to be received directly from
insurance companies are generally recognized when ascertained. Subsequent
commission adjustments, such as policy cancellations, 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 when services are rendered.
Cash and Cash Equivalents Cash and cash equivalents principally consist of
demand deposits with financial institutions, money market accounts, and
certificates of deposit having maturities of less than three months when
purchased.
Premiums and Commissions Receivable In its capacity as an insurance broker or
agent, the Company typically collects premiums from insureds and, after
deducting its authorized commissions, 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.
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 new rules, debt
securities that the Company has both the positive intent and ability to hold to
maturity would be classified as "held-to-maturity" securities and would be
reported at amortized cost, adjusted for amortization of premiums and accretion
of discounts to maturity. Such amortization, as well as interest earnings on
these securities, would be included in investment income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as "available-for-sale." Available-for-sale
securities are reported at estimated fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of shareholders' equity.
The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion is included in investment income. 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.
The adoption of SFAS No. 115 resulted in an increase of $23,000 (net of
$15,000 in deferred taxes) to shareholders' equity as of January 1, 1994.
Application of this new Statement resulted in an increase of $5,341,000 in
shareholders' equity, net of $3,344,000 in deferred income taxes, as of
December 31, 1994.
30
15
As of January 1, 1994, the Company owned 659,064 shares of common stock
of Rock-Tenn Company with an aggregate cost of $565,000. As of that date, the
common stock of Rock-Tenn Company 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 the Rock-Tenn Company'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. The remaining 509,064 shares
of Rock-Tenn Company common stock held by the Company have been classified as
non-current available-for-sale securities as of December 31, 1994. 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 14 years. The excess of costs over
the fair value of identifiable net assets acquired is being amortized on a
straight-line basis over 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 books
of business (customer accounts) to be acquired at a price determined as a
multiple of the corresponding revenues. Accordingly, the Company assesses the
carrying value of its intangibles by comparison to a reasonable multiple
applied to corresponding revenues, as well as considering the operating cash
flow generated by the corresponding agency division. Any impairment identified
through this assessment may require that the carrying value of related
intangibles be adjusted.
Income Taxes The Company files a consolidated federal income tax return.
Deferred income taxes are provided for in the consolidated financial statements
and relate principally to expenses charged to income for financial reporting
purposes in one period and deducted for income tax purposes in other periods,
unrealized appreciation of available-for-sale securities, and basis differences
of intangible assets.
Net Income Per Share 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.
Reclassifications Certain amounts in the 1993 and 1992 consolidated financial
statements have been reclassified to conform with the 1994 consolidated
financial statements.
31
16
Note 2 - Mergers
On April 28, 1993, Poe & Associates, Inc. (Poe) issued 3,013,975 shares of its
common stock in exchange for all of the outstanding common stock of Brown &
Brown, Inc. (Brown), a closely-held general insurance agency headquartered in
Daytona Beach, Florida. Subsequent to that merger, Poe's name was changed to
Poe & Brown, Inc.
On November 11, 1993, the Company issued 124,736 shares of its common
stock in exchange for all of the outstanding common stock of Arch-Holmes
Insurance, Inc. (Arch-Holmes), a closely-held general insurance agency
headquartered in Hollywood, Florida.
Both transactions were accounted for as pooling-of-interests and
accordingly, the Company's consolidated financial statements have been restated
for all periods prior to the mergers to include the results of operations,
financial positions, and cash flows of Brown and Arch-Holmes. To conform to
Poe's year end, the fiscal year ends for Brown and Arch-Holmes were changed to
December 31 effective on each of the respective merger dates. Accordingly, the
three-month period ended March 31, 1992 for Brown and Arch-Holmes, which
consisted of aggregate revenues of $10,580,000 and aggregate net income of
$924,000, has been included in both the Company's 1992 and 1991 operating
results. Accordingly, an adjustment has been made in 1992 to retained earnings
for the duplication of this net income.
The following table reflects the 1992 individual company operating
results of Poe, Brown, and Arch-Holmes. Amounts pertaining to Brown and
Arch-Holmes for 1993 reflect their respective operating results up to their
dates of merger.
(in thousands of dollars,except per share data) POE BROWN ARCH-HOLMES COMBINED
---------------------------------------------------------------------------------------------------------------------
1993
Revenues $80,817 $13,488 $1,265 $95,570
Net income (loss) 6,897 1,145 (39) 8,003
---------------------------------------------------------------------------------------------------------------------
1992
Revenues $52,393 $35,452 $1,465 $89,310
Income from continuing operations 2,865 1,208 68 4,141
Loss from discontinued operations (1,580) - - (1,580)
Net income 1,285 1,208 68 2,561
---------------------------------------------------------------------------------------------------------------------
1992
Net Income Per Share
As previously reported $ 0.25
Combined $ 0.30
Note 3 - Acquisitions
During 1994 the Company acquired the assets of three insurance agencies for an
aggregate cost of $656,000. The Company had no acquisitions during 1993
accounted for as purchases. In 1992 the Company acquired outstanding shares of
one insurance agency and the assets of five other insurance agencies at an
aggregate cost of $11,784,000. The 1994 and 1992 acquisitions were accounted
for as purchases, and substantially the entire cost was assigned to purchased
customer accounts, non-compete agreements, and goodwill.
Additional or return consideration resulting from acquisition
contingency provisions are recorded as adjustments to intangibles when they
occur. Certain contingency payments relating to these acquisitions were
finalized in 1993 and 1992, resulting in a net
32
17
increase (decrease) to the original combined purchase price of $5,893,000 and
($315,000), respectively. 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, 1994, 1993 and 1992, including 1994 acquisitions as
though they occurred on January 1, 1994 and the 1992 acquisitions as though they
occurred on January 1, 1992, were not materially different from the results of
operations as reported.
Note 4 - Investments
Investments at December 31, 1994 consists of the following:
(in thousands of dollars) CARRYING VALUE
CURRENT NON-CURRENT
------------------------------------------------------------------------------------------------
Available-for-sale marketable equity securities $317 $9,163
Nonmarketable equity securities and certificates of deposit 470 111
------------------------------------------------------------------------------------------------
Total investments $787 $9,274
================================================================================================
The following summarizes available-for-sale securities at December 31, 1994:
(in thousands of dollars) GROSS GROSS ESTIMATED
COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
-------------------------------------------------------------------------------------------------------------
Marketable equity securities $795 $8,739 $54 $9,480
Investments at December 31, 1993 consisted of marketable equity
securities reported at aggregate cost which approximates market value, other
investments reported at cost, and certificates of deposit having maturities of
more than three months when purchased.
In 1994, the Company's proceeds from sales of available-for-sale
securities totaled $2,314,000, from which $2,185,000 of gross gains were
realized. During 1993, the Company had no sales of marketable equity
securities. In 1992, the Company realized net gains on sales of marketable
equity securities in the amount of $329,000.
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Note 5 - Fixed Assets
Fixed assets at December 31 are summarized as follows:
(in thousands of dollars) 1994 1993
------------------------------------------------------------------------------------------------
Furniture, fixtures, and equipment $16,849 $21,138
Land, buildings, and improvements 1,349 1,453
Leasehold improvements 1,564 1,629
-----------------------------------------------------------------------------------------------
19,762 24,220
Less accumulated depreciation and amortization 11,476 16,219
-----------------------------------------------------------------------------------------------
$ 8,286 $ 8,001
===============================================================================================
The gross cost and accumulated depreciation balances at December 31,
1994 have declined from December 31, 1993 due to the Company's elimination of
all fully depreciated assets no longer utilized in operations.
Depreciation and amortization expense amounted to $2,107,000 in 1994,
$2,594,000 in 1993, and $2,523,000 in 1992.
Note 6 - Intangibles
Intangibles at December 31 are comprised of the following:
(in thousands of dollars) 1994 1993
-----------------------------------------------------------------------------------------------
Purchased customer accounts $26,045 $26,164
Non-compete agreements 9,706 9,739
Goodwill 19,431 19,190
Purchased contract agreements 789 789
55,971 55,882
Less accumulated amortization 23,351 20,389
-----------------------------------------------------------------------------------------------
$32,620 $35,493
===============================================================================================
Amortization expense amounted to $4,197,000 in 1994, $4,288,000 in
1993, and $4,396,000 in 1992.
34
19
Note 7 - Long-Term Debt
Long-term debt at December 31 consists of the following:
(in thousands of dollars) 1994 1993
-----------------------------------------------------------------------------------------------
Long-term credit agreement $7,000 $8,000
Bank term loans - 7,500
Notes payable:
Variable rate acquisition note payable - 1,692
Notes from treasury stock purchases 1,662 1,883
Other acquisition notes payable - 1,452
Other notes payable 13 21
-----------------------------------------------------------------------------------------------
8,675 20,548
Less current portion 1,245 3,232
-----------------------------------------------------------------------------------------------
Long-term debt $7,430 $17,316
===============================================================================================
In 1991, the Company entered into a long-term credit agreement
with a major insurance company that provided $10 million at an interest rate
equal to the prime lending rate plus 1% (9.5% at December 31, 1994). The amount
of available credit decreases by $1 million each August through the year 2001
when it will expire.
In 1993, the Company entered into a long-term credit facility with a
national banking institution that consisted of two secured term loans
aggregating $7,500,000 and a $2,000,000 unsecured short-term line of credit.
Interest on the term loans was payable on a monthly basis at the LIBOR rate
plus 2%. These term loans were repaid in November 1994. There were no
borrowings against the unsecured line of credit during 1994 and, during 1994
this line of credit agreement was terminated by the Company.
In November 1994, the Company entered into a revolving credit
facility with a national banking institution which provides for available
borrowings of up to $10 million. Amounts outstanding are secured by all assets
of the Company, subject to existing or permitted liens. Interest on this
facility is at the option of the Company based upon the LIBOR prime or the
Federal Funds rate. A commitment is assessed in the amount of 1/4% per annum on
the unused balance. During 1994 and as of December 31, 1994, there were no
borrowings against this line of credit.
The variable rate acquisition note payable was repaid in May
1994 including interest through that period.
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 fiscal years ending 1997 to 2001. These notes have
been discounted at effective yields ranging from 8.5% to 9.2% for consolidated
financial statement presentation purposes.
Other acquisition notes payable, including interest ranging
from 8% to 9%, were repaid in 1994.
Maturities of long-term debt for succeeding years are
$1,245,000 in 1995, $1,266,000 in 1996, $1,284,000 in 1997, $1,233,000 in 1998,
$1,252,000 in 1999, and $2,395,000 thereafter.
Interest expense included in the consolidated statements of
income was $1,311,000 is 1994, $1,734,000 in 1993 and $2,038,000 in 1992.
35
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Note 8 - Commitments and Contingencies
The Company and its subsidiaries lease office facilities and certain items of
office equipment under noncancelable operating lease arrangements expiring on
various dates through 2005. These occupancy 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, 1994, the
aggregate future minimum lease payments under all noncancelable lease
agreements are as follows:
Year Ending December 31, (in thousands of dollars)
-----------------------------------------------------------------------------------------------
1995 $ 3,317
1996 2,675
1997 2,659
1998 2,474
1999 2,542
Thereafter 10,334
-----------------------------------------------------------------------------------------------
Total future minimum lease payments $24,001
===============================================================================================
Rental expense in 1994, 1993, and 1992 for operating leases
totaled $4,136,000, $4,442,000 and $4,728,000, respectively. The 1993 rental
expense amount includes $676,000 of direct costs related to the termination of
a certain lease.
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 9 - Income Taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes." As permitted under these new rules, the prior years' consolidated
financial statements have not been restated for the effects of this Statement.
The cumulative effect of adopting Statement No. 109 as of January 1, 1993 was
to increase net income by $119,000.
At December 31, 1994, the Company had net operating loss
carryforwards of $850,000 for income tax reporting purposes that expire in the
years 1996 through 2002. These carryforwards were derived from agency
acquisitions by the Company beginning in 1985. For financial reporting
purposes, a valuation allowance of $38,000 has been recognized to offset the
deferred tax assets related to these carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the corresponding amounts used for income tax
reporting purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31 are as follows:
36
21
(in thousands of dollars) 1994 1993
-----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets $ 444 $ 512
Net unrealized appreciation of available-for-sale securities 3,344 -
Installment sales 296 405
Prepaid insurance and pension 666 350
Intangible assets 628 281
General tax reserves 800 1,900
Other 239 312
Total deferred tax liabilities 6,417 3,760
-----------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation 1,062 889
Accruals and reserves 1,250 1,221
Net operating loss carryforwards 327 316
Other 38 49
-----------------------------------------------------------------------------------------------
Total deferred tax assets 2,677 2,475
Valuation allowance for deferred tax assets 38 38
Net deferred tax assets 2,639 2,437
-----------------------------------------------------------------------------------------------
Net deferred tax liabilities $3,778 $1,323
===============================================================================================
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
(in thousands of dollars) 1994 1993 1992
LIABILITY METHOD DEFERRED METHOD
------------------------------------------------------------------------------------------
Current:
Federal $ 7,237 $3,728 $3,087
State 1,003 702 577
------------------------------------------------------------------------------------------
Total current provision 8,240 4,430 3,664
==========================================================================================
Deferred:
Federal (1,076) 419 454
State (97) 80 62
Total deferred provision (benefit) (1,173) 499 516
Total tax provision $ 7,067 $4,929 $4,180
------------------------------------------------------------------------------------------
The components of the provision for deferred income taxes for the
year ended December 31, 1992 as determined under the deferred method are as
follows:
(in thousands of dollars)
------------------------------------------------------------------------------------------
Amortization $ 225
Accrued commissions (342)
Other items, net 633
------------------------------------------------------------------------------------------
$ 516
==========================================================================================
37
22
A reconciliation of the differences between the effective tax rate and
the federal statutory tax rate on income from continuing operations is as
follows:
1994 1993 1992
LIABILITY METHOD DEFERRED METHOD
-----------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 34.2% 34.0%
State income taxes, net of federal income tax benefit 2.8 3.6 4.3
Interest exempt from taxation and dividend exclusion (0.3) (0.3) (0.8)
Non-deductible goodwill amortization .7 1.2 1.8
Internal Revenue Service examination (3.4) - 10.9
Other, net (.1) (0.6) -
-----------------------------------------------------------------------------------------------------
Effective tax rate 34.7% 38.1% 50.2%
=====================================================================================================
Income taxes receivable as of December 31, 1994 were $894,000 and are
reported as a component of other current assets. Income taxes payable as of
December 31, 1993 were $652,000 and were reported as a component of accounts
payable and accrued expenses.
In 1992, the Internal Revenue Service (Service) completed examinations
of the Company's federal income tax returns for the tax years 1988, 1989, and
1990. As a result of their examinations, the Service issued Reports of Proposed
Adjustments asserting income tax deficiencies which, by including interest and
state income taxes for the periods examined and the Company's estimates of
similar adjustments for subsequent periods through December 31, 1993, would
total $6,100,000. The disputed items related primarily to the deductibility of
amortization of purchased customer accounts of approximately $5,107,000 and
non-compete agreements of approximately $993,000. In addition, the Service's
report included a dispute regarding the time at which the Company's payments
made pursuant to certain indemnity agreements would be deductible for tax
reporting purposes. During 1994, the Company was able to reach a settlement
agreement with the Service with respect to certain of the disputed amortization
items and the indemnity agreement payment issue. This settlement has 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 believes that its general income tax reserves of $800,000
are 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 current income tax provision. If the Service
were to prevail on the remaining amortization issues, future operating results
would be adversely affected by the difference between the total estimated
remaining assessment of $2,800,000 at December 31, 1994 and the recorded income
tax reserve of $800,000 at December 31, 1994. In addition to the potential
assessment of $2,800,000 at December 31, 1994, future operating results would
also be adversely affected by the disallowance of future income tax deductions
relating to these issues.
38
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Note 10 - Employee Benefits 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.
The plan's funded status and amounts recognized in the Company's
consolidated balance sheets are as follows:
(in thousands of dollars) December 31,
1994 1993
---------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $3,642
in 1994 and $3,559 in 1993 $(3,793) $(3,773)
===============================================================================================================
Projected benefit obligations for service rendered to date $(3,808) $(3,943)
Plan assets at fair value, principally consisting of a group annuity contract 3,787 3,757
---------------------------------------------------------------------------------------------------------------
Excess of projected benefit obligations over plan assets (21) (186)
Unrecognized net excess of plan assets under previously accrued but
unfunded pension costs, to be amortized 583 425
Net prepaid pension costs $ 562 $ 239
---------------------------------------------------------------------------------------------------------------
The following assumptions were used in determining the actuarial present value
of the benefit obligations and pension costs:
Year Ended December 31,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------
Discount rate 7.5% 7.5% 8.75%
Long-term rate for compensation increase 3.5% 3.5% 5.0%
Long-term rate of return on plan assets 8.0% 8.0% 8.5%
Pension costs included in the Company's consolidated statements of income are
comprised of the following:
(in thousands of dollars) Year Ended December 31,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------
Service cost $ 91 $ 221 $ 204
Interest cost 304 232 191
Actual return on assets 113 (284) (230)
Net amortization and deferral (407) (39) (89)
---------------------------------------------------------------------------------------------------------------
Net pension cost $ 101 $ 130 $ 76
===============================================================================================================
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.
The Company has an Employee Stock Purchase program under which
all eligible employees may subscribe to its common shares at 85% of the lesser
of the market value of such shares at the beginning or the end of the
subscription period. Payment is made through payroll deductions, not to exceed
10% of base pay, over a 12-month period and shares are issued at the end of the
39
24
purchase period. At December 31, 1994, a total of 2,502 shares of common stock
were authorized and reserved for future issuance relating to this program.
The Company has a Deferred Savings and Profit Sharing Plan
(401(k)) covering substantially all employees with one year of service. Under
this plan, the Company makes matching contributions equal to the participants'
contributions, subject to a maximum of 2.5% of the participant's salary, and
also provides for a discretionary profit sharing contribution for all eligible
employees. The Company's contributions to the plan totaled $1,208,000 in 1994,
$1,085,000 in 1993 and $857,000 in 1992.
Note 11 - Stock Option Plans
The Company has adopted stock option plans which provide for the granting to
key employees options to purchase shares of its common stock. The following
schedule summarizes the transactions from 1992 through 1994 pertaining to these
plans:
NUMBER PER SHARE
OF SHARES OPTION PRICE
------------------------------------------------------------------------------------------------
Outstanding, January 1, 1992 392,554 $ 3.40 - $ 9.67
Granted 10,000 14.75
Exercised (71,874) 3.40 - 9.40
Canceled (31,040) 6.00 - 7.60
------------------------------------------------------------------------------------------------
Outstanding, December 31, 1992 299,640 6.00 - 14.75
Granted - -
Exercised (129,462) 6.00 - 9.45
Canceled (9,936) 7.60
------------------------------------------------------------------------------------------------
Outstanding, December 31, 1993 160,242 6.00 - 14.75
Granted - -
Exercised (65,173) 6.00 - 14.75
Canceled (8,689) 7.60 - 14.75
Outstanding, December 31, 1994 86,380 7.60
================================================================================================
All options outstanding as of December 31, 1994 are exercisable. At December
31, 1994, a total of 285,745 shares of common stock were reserved for future
issuance relating to these plans.
40
25
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 of dollars) Year Ended December 31,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of available-for-sale securities
net of tax effect of $3,344 $5,341 $ - $ -
Notes payable issued for purchased customer accounts - 3,862 3,206
Notes received on the sale of fixed assets and customer accounts 266 1,532 649
Notes payable issued on purchases and retirement of stock - - 1,094
Cash paid during the year for:
Interest 1,447 1,913 1,886
Income taxes 9,597 3,978 4,298
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 agent, typically collects premiums,
retains its commission and remits the balance to the insurance companies. A
significant portion of business written by the Company is for customers located
in Florida. Accordingly, the occurrence of adverse economic conditions or an
adverse regulatory climate in Florida could have a material adverse effect on
the Company's business, although no such conditions have been encountered in
the past.
For the years ended December 31, 1994 and 1993, approximately 23% and
25%, respectively, of the Company's revenues are 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
expenses 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 by 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 had historically estimated that certain
recoveries related to the indemnity were available to it from the Whiting
liquidation. While none of the underlying facts or operations of 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. These adjustments have been reported as
discontinued operations in the 1992 consolidated statement of income.
41
26
Note 15 - Quarterly Financial Information (Unaudited)
The Company's 1993 and 1992 quarterly operating results have not been reviewed
by the Company's independent certified public accountants.
(in thousands of dollars, except per share data) NET INCOME (LOSS) CASH STOCK PRICE RANGE
DIVIDENDS
(1) REVENUE AMOUNT PER SHARE PER SHARE HIGH - LOW
-------------------------------------------------------------------------------------------------------------------
1994
First quarter (2) $27,948 $ 4,529 $ 0.54 $0.10 $19.50 - $17.63
Second quarter 22,849 1,988 0.23 0.10 20.50 - 18.25
Third quarter (3) 24,568 3,530 0.41 0.10 22.75 - 19.75
Fourth quarter 24,142 3,238 0.38 0.12 21.75 - 19.50
-------------------------------------------------------------------------------------------------------------------
$99,507 $13,285 $ 1.56 $0.42
===================================================================================================================
-------------------------------------------------------------------------------------------------------------------
1993
First quarter $24,116 $ 2,195 $ 0.26 $0.10 $19.00 - $16.00
Second quarter (4) 22,810 714 0.08 0.10 21.25 - 17.25
Third quarter 24,771 2,498 0.30 0.10 20.00 - 18.25
Fourth quarter 23,873 2,596 0.31 0.10 20.25 - 16.87
-------------------------------------------------------------------------------------------------------------------
$95,570 $ 8,003 $ 0.95 $0.40
===================================================================================================================
-------------------------------------------------------------------------------------------------------------------
1992
First quarter $23,294 $ 2,103 $ 0.25 $0.10 $15.75 - $11.50
Second quarter 20,032 746 0.09 0.10 16.00 - 13.50
Third quarter 22,382 1,258 0.15 0.10 14.00 - 11.25
Fourth quarter (5) 23,602 (1,546) (0.19) 0.10 17.00 - 12.75
-------------------------------------------------------------------------------------------------------------------
$89,310 $ 2,561 $ 0.30 $0.40
===================================================================================================================
(1) Quarterly financial information is affected by seasonal variations. The
timing of contingent commissions, policy renewals and acquisitions may
cause revenues, expenses and net income to vary significantly between
quarters.
(2) First quarter 1994 net income increased $1,342,000, or $0.16 per share,
from the sale of a portion of the Company's investment in Rock-Tenn
Company (see Note 1).
(3) Third quarter 1994 net income increased $700,000, or $0.08 per share,
due to the reduction in general tax reserves (See Note 9).
(4) Second quarter 1993 net income increased $818,000 from the sale of
certain insurance accounts and other assets, and decreased $1,151,000
due to merger-related combination costs.
(5) Fourth quarter 1992 includes loss from discontinued operations of
$1,580,000 or $0.30 per share. Fourth quarter net income (loss) also
includes expenses of $2,147,000, or $0.26 per share, from charges
associated with certain costs and uncollectible receivables arising from
purchased acquisitions, costs related to the merger with Brown &
Brown, and additions to income tax reserves.
42
27
Report of Independent Certified Public Accountants
To the Board of Directors of Poe & Brown, Inc., Daytona Beach, Florida
We have audited the accompanying consolidated balance sheets of Poe &
Brown, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period 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 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 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 consolidated financial position of Poe &
Brown, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period 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.
Tampa, Florida
January 28, 1995
43
28
Management's Report on Financial Statements and Internal Controls
To the Shareholders of Poe & Brown, Inc.
The management of Poe & Brown, Inc. has the responsibility for
preparing the accompanying consolidated financial statements and for their
integrity and objectivity. The statements, which include amounts that are
based on management's best estimates and judgments, based upon current
conditions and circumstances, have been prepared in conformity with generally
accepted accounting principles and are free of material misstatement.
Management also prepared the additional information contained in the annual
report and is responsible for its accuracy and consistency with the
consolidated financial statements.
Management of Poe & Brown, Inc. has developed and maintains a system of
internal control over the preparation of its published annual and interim
financial statements which is designed to provide reasonable assurance that the
Company's assets are safeguarded and protected from improper use. The system
is constantly monitored, revised and improved to meet changing business
conditions, company growth, and recommendations made by the independent
auditors.
Management has assessed the Company's system of internal control over
the preparation of its published annual and interim financial statements.
Based on this assessment, it is management's opinion that its system of
internal control as of December 31, 1994 is effective in providing reasonable
assurance that its published annual and interim financial statements are free
of material misstatement.
The Audit Committee of the Company's Board of Directors is composed of
the non-employee directors and the Chief Executive Officer and is responsible
for approving the selection of the independent certified public accounting
firm. The Audit Committee meets periodically with the Company's internal
auditors and the independent auditors, as well as with management, to review
accounting, auditing, internal controls and financial reporting matters. The
internal auditors and the independent auditors have private and confidential
access to the Audit Committee.
J. Hyatt Brown Timothy L. Young
Chairman, President Vice President, Treasurer
Chief Executive Officer & Chief Financial Officer
44
29
SIX-YEAR STATISTICAL SUMMARY (UNAUDITED)
(in thousands, except per share data and Other Information) Year Ended December 31,
1994 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------------
Revenues
Commissions & fees $ 93,826 $ 92,350 $ 86,127 $ 79,859 $ 77,494 $ 68,061
Investment income 5,092 2,031 2,426 2,865 1,932 2,327
Other income 589 1,189 757 275 272 927
Total Revenues 99,507 95,570 89,310 82,999 79,698 71,315
--------------------------------------------------------------------------------------------------------------------
Expenses
Compensation and benefits 51,229 51,203 49,954 44,377 42,639 36,570
Other operating expenses 22,418 25,413 24,601 21,284 21,495 22,461
Amortization expense 4,197 4,288 4,396 4,680 4,251 3,391
Interest expense 1,311 1,734 2,038 1,855 1,561 940
Total expenses 79,155 82,638 80,989 72,196 69,946 63,362
--------------------------------------------------------------------------------------------------------------------
Income before income taxes and loss
from discontinued operations 20,352 12,932 8,321 10,803 9,752 7,953
Income Taxes 7,067 4,929 4,180 4,122 3,667 2,792
--------------------------------------------------------------------------------------------------------------------
Income from continuing operations 13,285 8,003 4,141 6,681 6,085 5,161
Loss from discontinued operations - - 1,580 805 190 263
Net Income $ 13,285 $ 8,003 $ 2,561 $ 5,876 $ 5,895 $ 4,898
--------------------------------------------------------------------------------------------------------------------
Earnings per Share Information
Income from continuing operations $ 1.56 $ 0.95 $ 0.49 $ 0.81 $ 0.73 $ 0.63
Loss from discontinued operations - - 0.19 0.10 0.02 0.03
--------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.56 $ 0.95 $ 0.30 $ 0.71 $ 0.71 $ 0.60
====================================================================================================================
Weighted average number of shares
outstanding 8,524 8,425 8,423 8,243 8,285 8,232
Dividends paid per share (1) $ 0.42 $ 0.40 $ 0.40 $ 0.32 $ 0.32 $ 0.32
Year-end Financial Position
Working capital (deficiency) $ 7,969 $ 2,687 $ (3,528) $ 1,107 $ (5,602) $ (8,662)
Intangible assets, net $ 32,620 $ 35,493 $ 34,913 $ 29,916 $ 28,858 $ 24,062
Total assets $139,335 $ 33,329 $127,591 $114,818 $119,413 $ 93,859
Long-term debt $ 7,430 $ 17,316 $ 18,423 $ 18,687 $ 14,594 $ 9,149
Shareholders' equity $ 44,044 $ 27,218 $ 21,319 $ 22,291 $ 18,057 $ 13,412
Total shares outstanding
(excluding treasury shares) 8,552 8,359 8,232 8,511 8,039 7,913
Other Information
Number of full-time
equivalent employees 971 980 1079 1041 1062 912
Revenue by employee $102,478 $ 97,520 $ 82,771 $ 79,730 $ 75,045 $ 78,196
Book value per share $ 5.15 $ 3.26 $ 2.59 $ 2.62 $ 2.25 $ 1.69
Stock price at year end,
(average of bid & ask) $ 21,750 $ 17,875 $ 16,750 $ 12,000 $ 8,000 $ 12,750
Stock price earnings multiple 13,94 18,82 55,83 16,90 11.26 21.25
Return on average shareholder's equity 37% 33% 12% 29% 37% 42%
(1) It is anticipated that the Company will continue to pay comparable
annual dividends on its common stock.
45
30
SHAREHOLDER INFORMATION
Corporate Offices
220 South Ridgewood Avenue 702 North Franklin Street
Daytona Beach, Florida 32114 Tampa, Florida 33602
(904) 252-9601 (813) 222-4100
The following graph is a comparison of five Outside Counsel
years of total returns for the Company as
compared with the NASDAQ Market (US) Index, Cobb Cole & Bell Holland & Knight
and a group of peer insurance broker and 150 Magnolia Avenue 400 North Ashley Street
agency companies (Alexander & Alexander Daytona Beach, Florida 32115 Tampa, Florida 33602
Services Inc., Arthur Gallagher & Co.,
Hilb, Rogal and Hamilton Company, and Corporate Information and Shareholder Services
Marsh & McLennan Companies Inc.). The
returns of each company have been weighed In addition to this report, Poe & Brown, Inc.'s annual report to the
according to their respective stock market Securities and Exchange Commission (Form 10-K) may be obtained without
capitalizations as of January 1, 1994 for charge by writing to the Secretary, Poe & Brown, Inc., P.O. Box 1384,
purposes of arriving at a peer group Tampa, Florida 33601. A reasonable charge will be made for copies of the
average. The total calculations are based exhibits to the Form 10-K.
upon an assumed $100 investment on
December 31, 1989, with dividend reinvestment. Annual Meeting
The Annual Meeting of Shareholders of Poe & Brown Inc. will be held on
April 19, 1995 at 9:00 a.m. in the Regency II Ballroom, Hyatt Regency
[GRAPH described above] Tampa, Two Tampa City Center, Tampa, Florida 33602.
Transfer Agent and Registrar
First Union Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288
Independent Certified Public Accountants
[GRAPH]
Ernst & Young, LLP
The above graph shows the closing stock prices Tampa, Florida 33602
for the years ending December 31, 1991, 1992,
1993 and 1994. Stock Listing
National Market System of NASDAQ
Symbol POBR
Approximate number of shareholders of record: 975 as of February 17, 1995.
31
Appendix A
Narrative Description of Graphs Appearing at Page 1 of the 1994 Annual Report
to Shareholders:
Graph 1) Historical Revenue Growth, in millions:
Total Revenue (approximate) by year:
1989 - 71.3
1990 - 79.7
1991 - 82.9
1992 - 89.3
1993 - 95.6
1994 - 99.5
Graph 2) Net Income, in millions:
Net Income (approximate) per year:
1989 - 4.9
1990 - 5.9
1991 - 5.9
1992 - 2.6
1993 - 8.0
1994 - 13.3
Graph 3) Earnings Per Share, in dollars:
Earnings per share (approximate) by year:
1989 - .60
1990 - .71
1991 - .71
1992 - .30
1993 - .95
1994 - 1.56