What is the primary driver of Brown & Brown's revenue growth?

Brown & Brown's revenue growth is primarily driven by a combination of net new business production, the retention of existing clients, and strategic acquisitions. In 2001, growth was particularly boosted by a high volume of acquisitions and an increase in insurance premium rates.

How is the company managing its increased debt load from acquisitions?

In 2001, the company secured a $90 million term loan to fund acquisitions. While this increased its debt, the company utilized an interest rate swap to effectively fix its interest rate on this loan, mitigating the risk of rising interest expenses. Management believes its operational cash flow and existing credit facilities are sufficient to manage its liquidity and debt obligations.

What is the impact of the current insurance market environment on Brown & Brown?

The company benefits from the current "hard market" environment characterized by increasing insurance premium rates, which began in 2000 and is expected to continue. This trend, coupled with the events of September 11, 2001, is expected to extend the period of increasing premium rates, positively impacting the company's commission and fee revenues.

How has the change in accounting for acquisitions affected the company?

The elimination of pooling-of-interests accounting for business combinations initiated after June 30, 2001, led to a surge in acquisitions in 2001 as companies accelerated sales. Future acquisitions will be accounted for under the purchase method. While the company restated prior periods for pooling-of-interests accounting, future financial statements will reflect the purchase method, which may impact reported profit margins differently.

BRO 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 15, 2002. Cited figures are marked; the original filing is the authoritative source.

Brown & Brown, Inc. (BRO) demonstrated robust growth in its 2001 fiscal year, with total revenues reaching $365.0 million^a, a significant increase driven by a higher-than-historical number of acquisitions and a favorable insurance premium rate environment.

The company's core objective of achieving at least 15%^b annual net income per share growth has been met for nine consecutive years, highlighting a consistent focus on profitability and operational efficiency. The company's diversified business model, comprising Retail, National Programs, Services, and Brokerage divisions, continues to perform well, with the Retail Division remaining the largest contributor to revenue. Acquisitions played a pivotal role in 2001, partly due to the anticipated elimination of pooling-of-interests accounting, leading to a substantial expansion in the company's operational footprint across 28 states.

While this accelerated acquisition pace increased debt levels and reduced short-term liquidity temporarily, the company's management believes its current cash flow and credit facilities are sufficient to meet its liquidity needs. The increasing insurance premium rates, expected to continue into 2002, provide a positive outlook for continued revenue growth and commission stability.

02—Key points

Key Highlights

Total revenues grew to $365.0 million in 2001, a 37.5% increase from 2000, largely driven by acquisitions and rising insurance premium rates.
The company has achieved its goal of at least 15% annual net income per share growth for nine consecutive years.
Significant acquisition activity in 2001, with 26 operations acquired, expanded the company's presence to 140 locations in 28 states.
The Retail Division remains the largest segment, accounting for 78.2% of total commission and fee revenues in 2001.
Interest expense increased substantially in 2001 due to a new $90 million term loan taken out for acquisitions.
The company entered into an interest rate swap agreement to hedge against rising interest rates on its new term loan.
Despite a decrease in cash and cash equivalents due to acquisition funding, the company anticipates sufficient liquidity for its needs through 2002.

03—Questions

Frequently Asked Questions

What is the primary driver of Brown & Brown's revenue growth?
Brown & Brown's revenue growth is primarily driven by a combination of net new business production, the retention of existing clients, and strategic acquisitions. In 2001, growth was particularly boosted by a high volume of acquisitions and an increase in insurance premium rates.
How is the company managing its increased debt load from acquisitions?
In 2001, the company secured a $90 million term loan to fund acquisitions. While this increased its debt, the company utilized an interest rate swap to effectively fix its interest rate on this loan, mitigating the risk of rising interest expenses. Management believes its operational cash flow and existing credit facilities are sufficient to manage its liquidity and debt obligations.
What is the impact of the current insurance market environment on Brown & Brown?
The company benefits from the current "hard market" environment characterized by increasing insurance premium rates, which began in 2000 and is expected to continue. This trend, coupled with the events of September 11, 2001, is expected to extend the period of increasing premium rates, positively impacting the company's commission and fee revenues.
How has the change in accounting for acquisitions affected the company?
The elimination of pooling-of-interests accounting for business combinations initiated after June 30, 2001, led to a surge in acquisitions in 2001 as companies accelerated sales. Future acquisitions will be accounted for under the purchase method. While the company restated prior periods for pooling-of-interests accounting, future financial statements will reflect the purchase method, which may impact reported profit margins differently.

04—Continue

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