10-QPeriod: Q2 FY2003

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 13, 2003For Securities:BRO

Summary

Brown & Brown, Inc. reported a strong second quarter for 2003, demonstrating robust growth in both revenue and net income. Total revenues increased by 20.1% year-over-year, driven primarily by a significant rise in commissions and fees, which were boosted by acquisitions and higher contingent commissions. Net income saw a substantial increase of 32.3% on a per-share basis, reflecting effective operational management and successful integration of acquired businesses. The company continues its active acquisition strategy, which is a key driver of its growth, as evidenced by the substantial goodwill and intangible assets on its balance sheet. Despite increased operating expenses and amortization related to these acquisitions, the company managed to improve its expense ratios as a percentage of revenue, indicating strong operating leverage.

Key Highlights

  • 1Net income for the second quarter of 2003 increased by 32.3% to $27.9 million ($0.41 per diluted share) compared to $21.4 million ($0.31 per diluted share) in Q2 2002.
  • 2Total revenues for the quarter grew by 20.1% to $137.9 million, driven by a 20.1% increase in commissions and fees, largely from acquisitions and higher contingent commissions.
  • 3For the first six months of 2003, net income rose by 37.1% to $58.5 million ($0.85 per diluted share) compared to $41.6 million ($0.62 per diluted share) in the same period of 2002.
  • 4The company completed several acquisitions during the first half of 2003, adding a significant amount to goodwill and other intangible assets, reflecting an ongoing M&A strategy.
  • 5Despite increased operating expenses and amortization due to acquisitions, Brown & Brown improved its employee compensation and benefits, and other operating expenses as a percentage of revenue.
  • 6Cash flow from operations remained strong, providing $54.6 million for the six months ended June 30, 2003, though significant cash was used for acquisitions and debt repayments.
  • 7The company continues to manage its debt effectively, with a focus on reducing outstanding balances and utilizing an interest rate swap to hedge against rising interest rates.

Frequently Asked Questions

Revenue growth was primarily driven by a 20.1% increase in commissions and fees. This surge was attributed to approximately $17.9 million from newly acquired agencies, $2.0 million from higher contingent commissions (revenue-sharing based on prior year performance), and the remainder from new business production and higher renewal commissions.

Acquisitions are a significant growth engine for Brown & Brown. The company completed several acquisitions in the first half of 2003, contributing substantially to revenue growth and increasing goodwill and intangible assets on the balance sheet. While these acquisitions increased operating expenses and amortization, the company has managed to maintain or improve its expense ratios relative to revenue, indicating successful integration and operational efficiencies.

As of June 30, 2003, Brown & Brown had $51.1 million in cash and cash equivalents. While this is a decrease from the prior year-end, cash flow from operations remained strong at $54.6 million for the first six months. The company used a significant portion of its cash for acquisitions ($66.6 million), debt payments, and dividends. Management believes existing cash, operational funds, and available credit are sufficient for normal financial needs.

The company is involved in various legal proceedings, including a significant case involving its subsidiary BBTX related to workers' compensation insurance procurement. While management believes, based on current information, insurance, and legal advice, that the ultimate outcome will not materially adversely affect the consolidated financial position, they acknowledge that unfavorable resolutions of these matters could materially affect future quarterly or annual results of operations or cash flows, especially concerning potential uncovered punitive damages and ongoing developments.