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BROWN & BROWN, INC. Annual Report (Amendment), Year Ended Dec 31, 2002

Filing Date
Filed May 27, 2003
Period End
December 31, 2002
Security
BRO
In the record · 2016–202610-K1210-Q388-K126

BRO filed 12 annual reports (10-K), 38 quarterly reports (10-Q) and 126 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Mar ’17Mar ’17
  2. Material agreement8-K · Mar ’19Mar ’19
  3. Leadership change8-K · Dec ’21Dec ’21
  4. Leadership change8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K/A filed May 27, 2003. Cited figures are marked; the original filing is the authoritative source.

Brown & Brown, Inc. (BRO) closed fiscal 2002 with its strongest year on record, extending a long streak of growth.

Total revenues rose 24.9% to $455.7 milliona, commissions and fees rose 25.7% to $452.3 million, and net income climbed 54.2% to $83.1 million, or $1.22 per diluted share (up 43.5%). Pre-tax margin, measured as income before taxes and minority interest over total revenues, was roughly 29.5% in 2002, versus 24.8% as restated in 2001. Much of the expansion came from acquisitions (32 agencies with about $62 million in annualized revenue), a general firming of premium rates that began in early 2000, and solid net new business growth.

Core commissions and fees, which exclude acquisitions and divestitures, grew 12.1%, a useful gauge of organic momentum. The balance sheet was substantially reshaped. A March 2002 follow-on offering of 5 million shares raised $149.4 millionb, which funded $120.9 million of acquisitions and helped repay debt.

Shareholders' equity more than doubled to $391.6 millionc, total assets rose 54% to $754.3 million, and long-term debt fell to $57.6 million (total debt of about $84.9 million including current portions). Management noted that the company was in covenant compliance and expects premium rates to keep rising through at least 2003, though it flagged a specific risk: a professional medical program lost its carrier, which will cut 2003 revenue from that program to under $0.5 million from about $2.3 million. Also noted is a concentration risk, since one carrier accounted for 3.4% of 2002 revenues, down from 6.5% in 2000.

The filing also records a number of items relevant to investors. The effective tax rate fell to 36.6% from 38.5%, helped by a $1 milliond state tax credit that management does not expect to recur, and the ongoing rate is estimated at 38.0%. Stock performance plan expense rose to $3.8 million, and management intends to issue new performance stock grants in 2003 at $35.00.

Operating cash flow was $93.3 million. Investor focus should center on whether organic growth can hold near the low-teens level as premium rate increases eventually moderate, and on the cost of the acquisition-driven growth model.

02—Key points

Key Highlights

  1. Total revenues grew 24.9% to $455.7 million in 2002, while net income rose 54.2% to $83.1 million.
  2. Diluted EPS reached $1.22, up 43.5% from $0.85, and the company reports at least 15% annual EPS growth for ten consecutive years.
  3. Core commissions and fees (excluding acquisitions) grew 12.1%, reflecting firmer premium rates and net new business.
  4. A $149.4 million follow-on offering in March 2002 strengthened the balance sheet; shareholders' equity more than doubled to $391.6 million.
  5. Long-term debt fell 26.4% to $57.6 million, and the company was in covenant compliance at year-end.
  6. Operating cash flow was $93.3 million; year-end cash was $91.2 million, up from $16.0 million.
  7. The professional medical program lost its carrier, reducing expected 2003 revenue from it to under $0.5 million from about $2.3 million in 2002.

03—Questions

Frequently Asked Questions

  1. How much of Brown & Brown's 2002 growth came from acquisitions versus organic growth?

    Total commissions and fees grew 25.7%, but core commissions and fees, which exclude acquired and divested operations, grew 12.1%. The remainder came from purchase-method acquisitions, including 32 agencies with roughly $62 million in annualized revenue and the CalSurance deal closed November 1, 2002. Organic growth was therefore about half of the headline rate.

  2. Are premium rate increases expected to continue, and how dependent is the business on them?

    Management believes premium rates will keep rising through at least 2003, after a firming cycle that began in early 2000. Commission revenue is a percentage of premium, so rate changes flow directly into revenue. Management also acknowledges it cannot control or predict rate movements, so a softening market would pressure results.

  3. Did the 2002 margin improvement reflect a structural change?

    Partly. The pre-tax margin of about 29.5% compares with 24.8% as restated for 2001. Pooled acquisitions from 2001 had diluted historical margins because their owners paid large year-end bonuses before the deals. Management says 2002 is the most representative year, since it reflects full-year results not affected by pooling restatements.

  4. What are the main risks flagged in the filing?

    Key risks include loss of a major carrier (one insurer produced 3.4% of 2002 revenue, down from 6.5% in 2000), the loss of a professional medical program's carrier that cuts 2003 revenue, geographic concentration in Arizona, California, Florida and New York, and goodwill and intangible valuations, which total about $380 million and depend on management estimates. The company also has contingent acquisition payments of up to $36 million.

04—Continue

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