2 During 1998, 1997, 1996, 1995 and 1994, the Company sold certain insurance accounts and other assets resulting in gains of approximately $2,638,000, $2,475,000, $1,856,000, $3,337,000 and $5,044,000, respectively.
Commissions and fees for 1998 were $175.9 million, or 4.3% higher than 1997. Approximately $6.5 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.4 million from the sale of certain offices and accounts in 1998 and 1997. Excluding the effects of acquisitions and dispositions, commissions and fees increased 5.0%.
Commissions and fees for 1997 were $168.6 million, or 9.5% higher than 1996. Approximately $18.3 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.1 million from the sale of certain offices and accounts in 1997 and 1996. Excluding the effects of acquisitions and dispositions, commissions and fees increased 3.1%.
certain offices in 1998 and 1997 and consulting fees totaling $1.0 million in 1997 related to the Company's strategic plan.
Other operating expenses for 1997 were $45.5 million, or 8.4% higher than 1996. Increases relate primarily to purchase acquisitions and to the aforementioned consulting fees in 1997 offset in part by the sale of certain offices in 1997 and 1996.
Over the last three years, inflationary pressure has been relatively modest and did not have a significant effect on the Company's operations.
The Company had a current ratio (current assets to current liabilities) of 0.88 to 1.00 as of December 31, 1998. Shareholders' equity of $45.7 million at December 31, 1998, decreased from $51.3 million at December 31, 1997, and the debt to equity ratio of 0.96 to 1.00 at December 31, 1998 increased from the last year-end ratio of 0.63 to 1.00 due to the aforementioned purchase of Common Stock of the Company and an increase in borrowings to $40.0 million under the bank agreement used for insurance agency acquisitions and the repurchase of Common Stock.
The Company has certain investments and utilizes derivative financial instruments which are subject to market risk; however, the Company believes that exposure to market risk associated with these instruments is not material.
The Company's technological operations rely primarily on personal computers ("PC's") and off-the-shelf software applications. As such, management is monitoring a program to evaluate external software relationships and ready its computer systems for the year 2000. As part of this process, the Company has assessed its year 2000 readiness by (1) performing an inventory of its PC's and applications software; (2) seeking compliance statements from its agency management system and other third party software vendors; and (3) testing PC hardware. As a result of this assessment, the Company is upgrading or replacing portions of its existing software and hardware that were not year 2000 compliant. Generally, these modifications and replacements were contemplated with normal system enhancements and improvements. The Company has substantially completed the required software replacements during 1998 and expects hardware replacements to be completed during 1999. The Company is also assessing any systems that may contain embedded chips or microcontrollers, such as elevators, office equipment, telephones or security systems. This assessment should be completed by mid 1999 with replacements or upgrades and limited testing to occur during the remainder of 1999.
When used in this annual report, in Form 10-K or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized Company executive officer, the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
While forward-looking statements are provided to assist in the understanding of the Company's anticipated future financial performance, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by such forward-looking statements for a variety of reasons. Risk factors and uncertainties that might cause such a difference include, but are not limited to the following: the Company's commission revenues are highly dependent on premium rates charged by insurers, which are subject to fluctuation; the continuation of the "soft market" during which the underwriting capacity of insurance companies has
expanded causing increased competition and decreased premium rates and related commissions and fees; continued low interest rates will reduce income earned on invested funds; the insurance intermediary business is extremely competitive with a number of competitors being substantially larger than the Company; the alternative insurance market continues to grow; the Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business production; the general level of economic activity can have a substantial impact on the Company's renewal business; uncertainties associated with the Company's year 2000 remediation program and contingency plans; and the year 2000 readiness of third parties. The Company's continued growth has also been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to the Company.
The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.