<PAGE 1> SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter period ended June 30, 1996. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission file number 0-7201. POE & BROWN, INC. (Exact Name of Registrant as Specified in its Charter) Florida 59-0864469 ______________________________ __________________________ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 220 S. Ridgewood Ave., Daytona Beach, FL 32114 ________________________________________ ___________________________ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (904) 252-9601 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ ____ The number of shares of the registrant's common stock, $.10 par value, outstanding as of August 2, 1996, was 8,695,990. <PAGE 2> POE & BROWN, INC. <TABLE> <CAPTION> Index to Form 10-Q For The Quarter Ended June 30, 1996 <S> <C> PAGE PART I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Income for the three and six months ended June 30, 1996 and 1995 3 Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 </TABLE> <PAGE 3> ITEM 1: FINANCIAL STATEMENTS <TABLE> <CAPTION> POE & BROWN, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) <C> <C> <C> <C> For the three months For the six months ended June 30, ended June 30, 1996 1995 1996 1995 REVENUES Commissions and fees $27,305 $24,364 $57,055 $50,803 Investment income 802 992 1,643 1,856 Other income 516 290 651 330 _______ _______ _______ _______ Total revenues 28,623 25,646 59,349 52,989 _______ _______ _______ _______ EXPENSES Employee compensation and benefits 15,118 13,701 30,586 28,051 Other operating expenses 6,541 6,077 13,145 11,692 Interest and amortization 1,420 1,219 2,787 2,418 _______ _______ _______ ______ Total expenses 23,079 20,997 46,518 42,161 _______ _______ _______ _______ Income before income taxes 5,544 4,649 12,831 10,828 Income taxes 2,162 1,790 5,004 3,717 _______ _______ _______ _______ NET INCOME $ 3,382 $ 2,859 $ 7,827 $ 7,111 ======= ======= ======= ======= Net income per share $ 0.39 $ .33 $ 0.90 $ .82 ======= ======= ======= ======= Dividends declared per share $ .12 $ .12 $ .24 $ .24 ======= ======== ======= ======= Weighted average number of shares outstanding 8,677 8,716 8,696 8,696 </TABLE> See notes to condensed consolidated financial statements. <PAGE 4> <TABLE> <CAPTION> POE & BROWN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) <S> <C> <C> (Unaudited) (Audited) June 30, December 31, 1996 1995 ___________ ___________ ASSETS Cash and cash equivalents $ 30,018 $ 28,350 Short-term investments 1,721 1,308 Premiums,commissions and fees receivable, less allowance for doubtful accounts of $100 in 1996 and 1995 60,104 56,553 Other current assets 5,486 6,336 ________ ________ Total current assets 97,329 92,547 Fixed assets, net 11,181 10,412 Intangible assets, net 48,921 36,613 Investments 10,210 8,473 Other assets 3,542 3,076 ________ ________ Total assets $171,183 $151,121 ======== ======== LIABILITIES Premiums payable to insurance companies $ 72,513 $ 64,588 Premium deposits and credits due customers 5,946 6,070 Accounts payable and accrued expenses 10,447 9,417 Current portion of long-term debt 5,311 1,768 ________ ________ Total current liabilities 94,217 81,843 Long-term debt 8,663 7,023 Deferred income taxes 2,173 1,502 Other liabilities 6,544 6,341 ________ ________ Total liabilities 111,597 96,709 SHAREHOLDERS' EQUITY Common stock, par value $.10 per share: authorized 18,000 shares; issued 8,619 shares at 1996 and 8,663 shares at 1995 862 868 Additional paid-in capital 969 2,614 Retained earnings 51,846 46,094 Net unrealized appreciation of available-for-sale securities, net of tax effect of $3,699 in 1996 and $3,027 in 1995 5,909 4,836 ________ ________ Total shareholders' equity 59,586 54,412 ________ ________ Total liabilities and shareholders' equity $171,183 $151,121 ======== ======== </TABLE> See notes to condensed consolidated financial statements. <PAGE 5> <TABLE> <CAPTION> POE & BROWN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) <C> <C> For the six months ended June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,827 $ 7,111 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,748 3,266 Provision for doubtful accounts - 55 Deferred income taxes - (1,638) Net gains on sales of investments, fixed assets and customer accounts (625) (311) Premiums, commissions and fees receivable, (increase) decrease (3,551) 9,969 Other assets, decrease 599 1,239 Premiums payable to insurance companies, increase (decrease) 7,925 (3,915) Premium deposit and credits due customers, (decrease) (124) (1,370) Accounts payable and accrued expenses, increase (decrease) 1,030 (423) Other liabilities, increase 203 819 ________ _______ NET CASH PROVIDED BY OPERATING ACTIVITIES 17,032 14,802 ________ _______ CASH FLOWS FROM INVESTING ACTIVITIES Additions to fixed assets (2,415) (2,100) Payments for businesses acquired, net of cash acquired (8,879) (825) Proceeds from sales of fixed assets and customer accounts 643 362 Purchases of investments (801) (261) Proceeds from sales of investments 402 326 ________ ________ NET CASH USED IN INVESTING ACTIVITIES (11,050) (2,498) ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES Payment on long-term debt (588) (639) Proceeds from long-term debt - 260 Exercise of stock options, issuances and purchases of stock (1,651) 165 Cash dividends paid (2,075) (2,067) ________ ________ NET CASH USED IN FINANCING ACTIVITIES (4,314) (2,281) ________ ________ Net increase in cash and cash equivalents 1,668 10,023 Cash and cash equivalents at beginning of period 28,350 23,185 ________ _______ CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,018 $33,208 ======== ======= </TABLE> See notes to condensed consolidated financial statements. <PAGE 6> POE & BROWN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF FINANCIAL REPORTING The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals except for the adjustment described in Note 5) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Results of operations for the three- and six-month periods ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. NOTE 2 - NET INCOME PER SHARE Net income per share is based upon the weighted average number of shares outstanding, adjusted for the dilutive effect of stock options, which is the same on both a primary and a fully-diluted basis. NOTE 3 - MERGER AND ACQUISITIONS On March 1, 1995, the Company issued 146,300 shares of its common stock in exchange for all of the partnership interest in Insurance West, a Phoenix, Arizona general insurance agency. The merger has been accounted for as a pooling-of-interests and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to the merger to include the results of operations, financial position, and cash flows of Insurance West. The separate company operating results of Insurance West for periods prior to the merger are not material to the Company's consolidated operating results. During the first quarter of 1995, the Company acquired substantially all of the assets of King Insurance Agency, Inc. of Naples, Florida. During the second quarter of 1995, the Company acquired substantially all of the assets of S. Lloyd Underwriters, Inc. of Ft. Lauderdale, Florida. During the first quarter of 1996, the Company acquired a majority interest in Florida Intracoastal Underwriters, Ltd. of Miami Lakes, Florida. During the second quarter of 1996, the Company acquired substantially all of the assets of B & R International, Inc. of Atlanta, Georgia. These acquisitions have been accounted for using the purchase method of accounting. Pro forma results of operations for the six-month periods ended June 30, 1995 and 1996 resulting from these acquisitions were not materially different from the results of operations as reported. Their results of operations have been combined with those of the Company since their respective acquisition dates. NOTE 4 - LONG-TERM DEBT The Company continues to maintain its credit agreement with a major insurance company under which $6 million (the maximum amount available for borrowings) was outstanding at June 30, 1996, at an interest rate equal to the prime lending rate plus one percent. The available amount will decrease by $1 million each August, as described in Note 7 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. In November 1994, the Company entered into a revolving credit facility with a national banking institution which provides for available borrowings of up to $10 million. As of June 30, 1996, there were no borrowings against this line of credit. <PAGE 7> NOTE 5 - INCOME TAXES In 1992, the Internal Revenue Service (Service) completed examinations of the Company's federal income tax returns for the tax years 1988, 1989, and 1990. As a result of its examinations, the Service issued Reports of Proposed Adjustments asserting income tax deficiencies which, by including interest and state income taxes for the periods examined and the Company's estimates of similar adjustments for subsequent periods through December 31, 1993, would total $6,100,000. The disputed items related primarily to the deductibility of amortization of purchased customer accounts and non-compete agreements. 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 reached a settlement agreement with the Service with respect to certain of the disputed amortization items and the indemnity agreement payment issue. In March 1995, the Company reached a settlement agreement with the Service with respect to the remaining disputed items. Based upon this settlement and after taking into consideration the reductions in the Company's general tax reserves resulting from current and expected payments under the settlement agreement, the Company recorded a $451,000 adjustment to decrease reserves in the first quarter of 1995 with a corresponding reduction to its income tax provision. NOTE 6 - CONTINGENCIES The Company is not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of business. Management of the Company does not believe that any such claims or lawsuits will have a material effect on the Company's financial condition or results of operations. <PAGE 8> ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Income. Net income for the second quarter of 1996 was $3,382,000, or $.39 per share, compared with net income in the second quarter of 1995 of $2,859,000, or $.33 per share, an 18% increase in per share earnings. Net income for the six months ended June 30, 1996 was $7,827,000 or $.90 per share, compared with 1995 same period net income of $7,111,000, or $.82 per share, for a 10% increase. Excluding a first quarter 1995 favorable tax reserve adjustment of $.05 per share, per share earnings from recurring operations are up 17% in 1996. Commissions and Fees. Commissions and fees for the second quarter of 1996 increased $2,941,000, or 12% from 1995. Approximately $2,250,000 of this increase represents revenues from acquired agencies with the remainder due to new business production. Commissions and fees for the six month ended June 30, 1996 were $57,055,000 compared to $50,803,000 for the same period in 1995, a 12% increase. The 1996 increase is due to new business production and approximately $4,194,000 of revenues from acquired agencies. Investment Income. Investment income for the quarter and six month periods ended June 30, 1996 decreased $190,000 and $213,000, respectively, from the same periods in 1995. This decrease is primarily due to lower levels of invested cash and changes in interest rate returns. Other Income. Other income primarily includes gains and losses from the sale of customer accounts and other assets. Other income increased approximately $226,000 for the six months ended June 30, 1996 over the same period for 1995 and approximately $321,000 for the three months ended June 30, 1996 over the same period for 1995. Employee Compensation and Benefits. Employee compensation and benefits increased during both the three and six months ended June 30, 1996. The increase for the six-month period ended June 30, 1996 is 9% while the increase for the quarter ended June 30, 1996 is 10%. This increase is primarily due to additional compensation expense as a result of the increased commission and fee revenues and increase in the number of employees as a result of acquisitions. Compensation and employee benefits as a percentage of total revenues were generally consistent between the 1996 and 1995 periods. Other Operating Expenses. Other operating expenses for the three months ended June 30, 1996 increased $464,000 over the same period in 1995 but declined as a percentage of total revenues from 23.7% to 22.9%. Other operating expenses for the six months ended June 30, 1996 increased $1,453,000 from 1995 and remained constant as a percentage of total revenues. This increase is primarily attributable to cost associated with acquisitions. Interest and Amortization. Interest and amortization expense increased $201,000 during the second quarter of 1996 and $369,000 during the six months ended June 30, 1996 over the same periods in 1995. This increase is primarily the result of acquisition transactions. Income Taxes. The Company's effective tax rate for the three months ended June 30, 1996 and 1995 was 39% and 38.5%, respectively. The Company's effective tax rate for the six-month period increased from 34.3% in 1995 to 39% in 1996. The increase in the effective tax rate is primarily the result of a $450,000 reduction in the Company's income tax reserves during the first quarter of 1995 due to the favorable tax settlement in March 1995 of the remaining outstanding Internal Revenue Service examinations assessments which the Company had originally protested. See Note 5 to the Condensed Consolidated Financial Statements for further information. <PAGE 9> LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents of $30,018,000 at June 30, 1996 increased by $1,668,000 from $28,350,000 at December 31, 1995. During the six months ended June 30, 1996, $17,032,000 of cash was provided primarily from operating activities. Of this amount, $8,879,000 was used to acquire businesses, $2,415,000 for additions to fixed assets, 1,651,000 for the purchase of Company stock, and the remainder primarily to pay dividends on the Company's common stock. The current ratio at June 30, 1996 was 1.03 compared to 1.13 as of December 31, 1995. The Company has a revolving credit agreement with a major insurance company under which up to $6 million presently may be borrowed at an interest rate equal to the prime lending rate plus one percent. The amount of available credit decreases by $1 million each August through the year 2001, when it will expire. As of June 30, 1996, the maximum amount of borrowings was outstanding. In November 1994, the Company entered into a revolving credit facility with a national banking institution that provides for available borrowings of up to $10 million. As of June 30, 1996, there were no borrowings against this line of credit. The Company believes that its existing cash, cash equivalent, short-term investments portfolio, funds generated from operations, and available credit facility borrowings are sufficient to satisfy its normal financial needs. <PAGE 10> POE & BROWN, INC. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, on September 9, 1994, the Company was named as a third-party defendant in a case pending in the United States District Court, Eastern District of New York, captioned Alec Sharp, an Underwriter at Lloyds on behalf of himself and other Lloyd's Underwriters and Colin Trevor Dingley, on behalf of himself and other Lloyd's Underwriters v. Best Security Corp., d/b/a Independent Armored, et al. The third-party complaint was filed against the Company by some of the defendants in the action. The case arose from the theft of jewelry claimed to be worth approximately $7 million from an armored car owned and operated by Best Security Corp. Plaintiffs, the insurers, sought a declaratory judgment against the insured and purported additional insureds that the policy was void from inception because the insured made misrepresentations on the application. In the third-party complaint, the third-party plaintiffs alleged that the Company issued certificates of insurance naming additional insureds without authorization, and claimed the Company failed to communicate information given to the Company by the named insured to the Underwriters at Lloyds of London. In the first and second quarters of 1996, the claims of all of the third-party plaintiffs were resolved through settlement, and on June 17, 1996 the action was dismissed with prejudice. The settlement of these claims did not have a material effect on the consolidated financial position or operations of the Company. The Company is involved in various other pending or threatened proceedings by or against the Company or one or more of its subsidiaries which involve routine litigation relating to insurance risks placed by the Company and other contractual matters. The Company's management does not believe that any of such pending or threatened proceedings will have a material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on April 30, 1996. At the Annual Meeting, seven of the existing directors of the Company were re-elected to the Board. Three directors did not stand for re-election. In addition, the Company's shareholders approved a proposal to adopt the Poe & Brown, Inc. Stock Performance Plan (the "Plan"). The number of votes cast for and against the proposal to adopt the Plan were 6,771,637 and 36,120, respectively. There were 183,866 abstentions and no broker non-votes with respect to this proposal. The number of votes cast for or withheld with respect to the election of each of the directors is set forth below: <TABLE> <S> <C> <C> For Withheld J. Hyatt Brown 6,903,591 88,032 Samuel P. Bell, III 6,905,262 86,361 Bruce G. Geer 6,904,998 86,625 Jim W. Henderson 6,904,998 86,625 Kenneth E. Hill 6,905,062 86,561 Bradley Currey, Jr. 6,904,862 86,761 Theodore J. Hoepner 6,905,062 86,561 </TABLE> <PAGE 11> There were no abstentions and no broker non-votes with respect to the election of the directors. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 3a - Articles of Incorporation (incorporated by reference to Form 10-K for the year ended December 31, 1994) Exhibit 3b - Amended and Restated Bylaws Exhibit 11 - Statement re: Computation of Per Share Earnings Exhibit 27 - Financial Data Schedule (for SEC use only) (b) There were no reports filed on Form 8-K during the quarter ended June 30, 1996. <PAGE 12> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POE & BROWN, INC. Date: August 8, 1996 /s/James A. Orchard ____________________________________ James A. Orchard Chief Financial Officer (duly authorized officer, principal financial officer and principal accounting officer)