01—Abstract
Summary
Summary of the 10-K filed March 31, 1995. Cited figures are marked; the original filing is the authoritative source.
This 10-K for fiscal 1994 is from Poe & Brown, Inc. (NASDAQ: POBR), a Daytona Beach/Tampa, Florida insurance agency.
The prompt names the filer as Brown & Brown, Inc. (BRO), but the filing itself is Poe & Brown's. Brown & Brown was a closely held agency acquired by Poe & Associates in a April 1993 pooling-of-interests merger, and the combined company took the Poe & Brown name. Revenue rose 4% to $99.5 milliona, with commissions and fees up 2% to $93.8 million.
Net income more than doubled to $13.3 millionb, or $1.56 per share, from $8.0 million ($0.95) in 1993. Management says that excluding a $0.16 gain from selling part of its Rock-Tenn stake and a $0.08 benefit from a tax reserve reduction, EPS grew about 39%, driven by a roughly 4% drop in expenses and modest revenue growth. The balance sheet strengthened considerably.
Long-term debt fell from $17.3 million to $7.4 millionc after the company repaid its bank term loans and a large portion of other debt, and cash remained solid at $23.0 million. Shareholders' equity rose to $44.0 million from $27.2 million, though $5.3 million of that increase reflects an unrealized gain on available-for-sale securities under the new SFAS 115 rules. Book value per share was $5.15 at year-end 1994.
Key risks remain. Revenue depends on commission rates, which have been falling in a soft property and casualty market since 1986, and the company is heavily concentrated in Florida. About 23%d of revenue comes from one insurer, CNA, which underwrites its flagship professional-liability programs.
Pending matters include an $11.2 million Puerto Rico lawsuit and a third-party claim tied to a Lloyd's loss, both of which management says it will contest and believes insurance would cover. The IRS dispute appears largely resolved, with a reserve of $0.8 million against an assessment that was settled in March 1995 at about $0.6 million.
02—Key points
Key Highlights
- Net income rose 66% to $13.3 million ($1.56 per share) in 1994, from $8.0 million ($0.95 per share) in 1993. Excluding a $0.16 Rock-Tenn gain and a $0.08 tax reserve benefit, EPS grew about 39%.
- Commissions and fees grew only 2% to $93.8 million, with National Programs (up 18% to $26.5 million) offsetting a 5% decline in Retail Operations to $54.0 million. Commissions and fees are a percentage of premiums, which are constrained by a soft market.
- Long-term debt was cut from $17.3 million to $7.4 million after $11.9 million of debt payments, and the company ended 1994 with no borrowings on its new $10 million revolving line of credit.
- Shareholders' equity increased to $44.0 million from $27.2 million, including a $5.3 million SFAS 115 unrealized gain. Book value per share was $5.15, and the year-end stock price was $21.75.
- Dividends rose to $0.42 per share in 1994 from $0.40 in 1993, and the company has indicated it expects to continue comparable payments.
- Concentration risk is significant: the business is concentrated in Florida, and about 23% of 1994 revenue came from one insurance carrier, CNA, which underwrites the Professional Protector, Lawyer's, and Physicians Protector programs.
- The IRS dispute covering 1988-1990 has largely been resolved. The company had an $800,000 reserve against an originally asserted $6.1 million, and in March 1995 agreed to final deficiencies of about $600,000.
03—Questions
Frequently Asked Questions
Which company does this 10-K cover, given that the prompt refers to Brown & Brown?
The filer is Poe & Brown, Inc. (NASDAQ: POBR), headquartered in Daytona Beach, Florida. Brown & Brown, Inc. was a closely held agency that merged into Poe & Associates in April 1993. The combined company was renamed Poe & Brown. Brown & Brown, Inc. (BRO) is a different, later-public company, so this filing should not be attributed to it.
How much of the 1994 earnings growth was from one-time items?
Net income was $13.3 million, or $1.56 per share. That included a $1.3 million after-tax gain ($0.16 per share) from selling 150,000 shares of Rock-Tenn Company stock in its IPO, and a $0.7 million reduction in tax reserves ($0.08 per share) after an IRS settlement. Excluding these items, EPS was about $1.32, up roughly 39% from $0.95 in 1993, according to management.
What are the main risks to future revenue?
Commission rates have been declining since 1986 in a soft property and casualty market, and management cannot control insurer pricing. Florida concentration means adverse economic or regulatory conditions there could hurt results. About 23% of revenue depends on one carrier, and competition from national firms and direct writers is intense. Fee income from workers' compensation and benefits services also faces increased competition after Florida's workers' compensation reform.
What pending legal and tax matters could affect the company?
An $11.2 million Puerto Rico suit names the company and a subsidiary, alleging inadequate coverage for a laundry facility damaged by fire; the company says it will contest the claims and believes insurance would cover any loss. A third-party claim in New York relates to a $7 million jewelry theft and seeks an unspecified amount. Management believes it has meritorious defenses and does not expect a material adverse effect. On taxes, the company holds $0.8 million in reserves against the remaining IRS assessments, and in March 1995 agreed to final deficiencies of about $600,000, which the reserves are considered adequate to cover.
How strong is the balance sheet after the debt repayments?
Total debt fell to about $8.7 million at year-end 1994, from about $20.5 million a year earlier, and long-term debt was $7.4 million. Cash and equivalents were $23.0 million, and working capital was $8.0 million, with a current ratio of 1.10 to 1.0. The company also has an undrawn $10 million secured revolving credit facility. Shareholders' equity was $44.0 million, and the company's ability to cover its normal financial needs through at least the end of 1995 is stated as a management expectation.
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