10-QPeriod: Q3 FY2002

BROWN & BROWN, INC. Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported strong third-quarter and year-to-date results for the period ending September 30, 2002. The company demonstrated significant revenue growth driven by both organic increases in commissions and fees and strategic acquisitions. Net income rose substantially year-over-year, reflecting effective cost management and the benefits of new business and acquisitions. The balance sheet shows a healthy increase in cash and cash equivalents, bolstered by a successful follow-on stock offering, while long-term debt levels have been managed. Management highlights the positive impact of integrating acquired agencies and the shift in employee compensation and benefits as a percentage of revenue, indicating operational efficiency. The adoption of SFAS No. 142 has eliminated goodwill amortization, positively impacting reported earnings. The company continues its aggressive acquisition strategy, with several acquisitions completed in the first nine months of 2002. These acquisitions, though individually not material, aggregate to significant growth. Post-quarter, the company announced a substantial acquisition of Chartered Financial Services Corporation, further expanding its market presence and revenue streams. BRO appears financially sound, with robust revenue growth, improved profitability, and a strong liquidity position, positioning it well for continued expansion and shareholder value creation.

Key Highlights

  • 1Total revenues for the nine months ended September 30, 2002, increased by 26.6% to $336.6 million, compared to $269.2 million in the prior year period, driven by commissions and fees.
  • 2Net income for the nine months ended September 30, 2002, surged to $61.7 million, a 59.6% increase from $38.7 million in the same period of 2001.
  • 3Diluted earnings per share (EPS) for the nine months increased by 49.2% to $0.91, from $0.61 in the prior year.
  • 4The company completed a follow-on stock offering in March 2002, raising $149.4 million in net proceeds, significantly bolstering its cash reserves.
  • 5Cash and cash equivalents increased substantially to $145.0 million as of September 30, 2002, from $16.0 million at December 31, 2001, reflecting strong operating cash flow and equity issuance.
  • 6Employee compensation and benefits as a percentage of total revenue decreased, indicating improved operational efficiency as acquisitions are integrated.
  • 7The company adopted SFAS No. 142, eliminating goodwill amortization, which resulted in a $4.2 million reduction in annual amortization expense and a positive impact on reported net income.

Frequently Asked Questions

Brown & Brown's revenue growth is primarily driven by increases in commissions and fees from both organic new business production and renewal commissions, as well as significant contributions from strategically acquired agencies. The company's acquisition strategy continues to be a major factor in expanding its revenue base.

The adoption of SFAS No. 142, effective January 1, 2002, requires goodwill to be tested for impairment rather than amortized. This change has eliminated goodwill amortization expense, which was approximately $4.2 million annually. Consequently, reported net income and earnings per share are higher than they would have been under previous accounting rules.

As of September 30, 2002, Brown & Brown reported strong liquidity with $145.0 million in cash and cash equivalents, a significant increase from $16.0 million at the end of 2001. This improvement was driven by $68.1 million in operating cash flow and $149.4 million raised from a follow-on stock offering. The company's current ratio improved to 1.35 from 0.78, indicating a healthier short-term financial position.

Yes, Brown & Brown has been very active in acquisitions. During the first nine months of 2002, the company completed numerous acquisitions of insurance agencies, aggregating a significant purchase price and contributing to revenue growth. Furthermore, subsequent to the quarter end, the company announced a major acquisition of Chartered Financial Services Corporation, signaling its continued commitment to strategic expansion.