Why was this 10-K/A filed, and does it change the reported financial results?

Amendment No. 1 was filed solely to correct typographical and alignment errors in the electronic version of Exhibit 13, the Annual Report financial statements. The errors appeared in several tables, including the Statement of Shareholders' Equity, Cash Flows, income tax notes, and the Six-Year Statistical Summary. The filing states that all other items and exhibits remain unchanged, so the reported 2000 results are not restated.

What drove the improvement in profitability in 2000?

Management attributed the gain primarily to a general increase in premium rates during 2000, which reversed the soft market trend that had persisted from 1986 through 1999. Modest new business growth and operating efficiencies also contributed. Other operating expenses grew only 2% while revenues grew 11%, lowering that expense line to 16% of revenues from 18%, which the company attributed to its Project 28 cost containment program.

How significant is the Riedman acquisition for the company's future?

Riedman is the largest transaction disclosed in the filing. It was acquired effective January 1, 2001 for an expected purchase price of about $83 million, based largely on a multiple of Riedman's 2000 revenues of roughly $53.4 million. It brings more than 60 offices in 13 states, mostly in markets where Brown & Brown previously had no presence. Management estimates it could add up to $0.06 to 2001 EPS. Pro forma data in the filing show combined 2000 revenues of about $264 million, versus $209.7 million reported.

What risks should investors consider?

Key risks include reliance on premium rate levels set by insurers, which the company does not control, and the possibility that rates could fall again. About 7% of 2000 revenues came from one insurance carrier, and a significant portion of business is concentrated in Arizona, Florida, and New York, making results sensitive to regional economic conditions and natural disasters. The Riedman financing adds a $90 million seven-year term loan, which raises leverage materially compared with the near-debt-free balance sheet at year-end 2000. Contingent commissions, which averaged about 4.6% of revenues, also depend on carrier volume and profitability.

How has the company's growth been funded, and how strong is its liquidity?

In 2000, operating cash flow of $44.1 million covered $18.2 million of acquisitions, $7.5 million of dividends, $5.5 million of stock repurchases, and $4.1 million of capital expenditures, and the company also repaid $4.1 million of debt. Cash rose to $31.3 million. Long-term debt was only $2.7 million at year-end, and an undrawn $50 million revolving credit facility was available. Management believes existing resources and operating cash flow will be sufficient through at least the end of 2001.

BRO 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed March 27, 2001. Cited figures are marked; the original filing is the authoritative source.

Brown & Brown, Inc. (NYSE: BRO) reported strong fiscal 2000 results, with total revenues up 11.3% to $209.7 million^a and net income up 23.9% to $33.2 million, or $1.16 per diluted share (up 23.4%).

Commissions and fees rose 11.5% to $204.9 million^b, though growth excluding acquisitions was a more modest 8%. Pre-tax margin improved to 25.7% from 23.4% in 1999, driven by a general firming of premium rates after years of soft market conditions, modest new business growth, and cost containment under the company's "Project 28" initiative. Other operating expenses fell to 16% of revenues from 18%.

The company's most significant forward-looking event is the January 1, 2001 acquisition of Riedman Corporation's insurance agency operations, which adds more than 60 offices in 13 states and generated roughly $53.4 million^c of revenue in 2000. The purchase price of about $83 million is funded by a $90 million seven-year term loan. Management estimates Riedman could contribute up to $0.06 to 2001 net income per share, and expects premium rate increases to continue through at least the first half of 2001.

Pooling-of-interest acquisitions completed in 2000 and early 2001 further expanded the footprint, and the balance sheet shows total assets of $276.7 million^d, shareholders' equity of $121.9 million, and cash of $31.3 million. This filing is Amendment No. 1 to the 2000 Form 10-K, filed solely to correct typographical and alignment errors in the electronic version of Exhibit 13 (the Annual Report financials).

The amendment does not change the reported financial results. Investors should weigh the company's concentration risk: about 7% of 2000 revenues came from a single insurance carrier, and a significant share of business is concentrated in Arizona, Florida, and New York, which exposes results to regional economic conditions and natural disasters.

02—Key points

Key Highlights

Total revenues grew 11.3% to $209.7 million in 2000, while net income rose 23.9% to $33.2 million and diluted EPS reached $1.16, up from $0.94 in 1999.
Pre-tax margin expanded to 25.7% from 23.4%, reflecting rising premium rates that reversed the multi-year soft market and continued operating efficiencies.
Core commissions and fees (excluding acquisitions) increased 8% in 2000, compared with 2% growth in each of 1999 and 1998, signaling improving organic growth.
The $83 million Riedman Corporation acquisition, effective January 1, 2001, adds more than 60 offices in 13 states and about $53.4 million of 2000 revenue; management estimates up to $0.06 of 2001 EPS contribution.
Balance sheet remains modest: total assets of $276.7 million, long-term debt reduced to $2.7 million at year-end, and book value per share of $4.25, though the new $90 million term loan will substantially increase leverage in 2001.
Dividends per share increased to $0.27 from $0.23, and year-end stock price rose to $35.00 from $19.16, a gain of about 83% over 2000.
Concentration risks include about 7% of 2000 revenue from one insurance carrier and significant exposure to Arizona, Florida, and New York, along with dependence on continued premium rate increases.

03—Questions

Frequently Asked Questions

Why was this 10-K/A filed, and does it change the reported financial results?
Amendment No. 1 was filed solely to correct typographical and alignment errors in the electronic version of Exhibit 13, the Annual Report financial statements. The errors appeared in several tables, including the Statement of Shareholders' Equity, Cash Flows, income tax notes, and the Six-Year Statistical Summary. The filing states that all other items and exhibits remain unchanged, so the reported 2000 results are not restated.
What drove the improvement in profitability in 2000?
Management attributed the gain primarily to a general increase in premium rates during 2000, which reversed the soft market trend that had persisted from 1986 through 1999. Modest new business growth and operating efficiencies also contributed. Other operating expenses grew only 2% while revenues grew 11%, lowering that expense line to 16% of revenues from 18%, which the company attributed to its Project 28 cost containment program.
How significant is the Riedman acquisition for the company's future?
Riedman is the largest transaction disclosed in the filing. It was acquired effective January 1, 2001 for an expected purchase price of about $83 million, based largely on a multiple of Riedman's 2000 revenues of roughly $53.4 million. It brings more than 60 offices in 13 states, mostly in markets where Brown & Brown previously had no presence. Management estimates it could add up to $0.06 to 2001 EPS. Pro forma data in the filing show combined 2000 revenues of about $264 million, versus $209.7 million reported.
What risks should investors consider?
Key risks include reliance on premium rate levels set by insurers, which the company does not control, and the possibility that rates could fall again. About 7% of 2000 revenues came from one insurance carrier, and a significant portion of business is concentrated in Arizona, Florida, and New York, making results sensitive to regional economic conditions and natural disasters. The Riedman financing adds a $90 million seven-year term loan, which raises leverage materially compared with the near-debt-free balance sheet at year-end 2000. Contingent commissions, which averaged about 4.6% of revenues, also depend on carrier volume and profitability.
How has the company's growth been funded, and how strong is its liquidity?
In 2000, operating cash flow of $44.1 million covered $18.2 million of acquisitions, $7.5 million of dividends, $5.5 million of stock repurchases, and $4.1 million of capital expenditures, and the company also repaid $4.1 million of debt. Cash rose to $31.3 million. Long-term debt was only $2.7 million at year-end, and an undrawn $50 million revolving credit facility was available. Management believes existing resources and operating cash flow will be sufficient through at least the end of 2001.

04—Continue

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