10-QPeriod: Q3 FY2003

BROWN & BROWN, INC. Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 13, 2003For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported strong financial performance for the third quarter and first nine months of 2003, demonstrating significant year-over-year growth. Net income increased by 31.0% for the quarter and 35.2% for the nine-month period on a per-share basis, driven primarily by robust growth in commissions and fees. This growth was largely fueled by strategic acquisitions completed over the past year, contributing substantial revenue. The company also benefited from higher contingent commissions. Despite increased expenses related to acquisitions, such as higher employee compensation and amortization, the company managed to improve operational efficiencies, resulting in improved expense ratios as a percentage of revenue for the nine-month period. The company's liquidity remains solid, supported by operating cash flows and a newly established revolving credit facility. While facing ongoing legal proceedings, management believes these will not materially impact the company's financial position.

Key Highlights

  • 1Net income for the nine months ended September 30, 2003, increased to $84.5 million ($1.23 per diluted share) from $61.7 million ($0.91 per diluted share) in the prior year, a 35.2% increase on a per-share basis.
  • 2Commissions and fees revenue grew significantly, with a 20.4% increase in the third quarter and a 23.5% increase for the nine-month period, largely due to contributions from recent acquisitions and new business.
  • 3The company made substantial investments in acquisitions, with over $75 million spent in the first nine months of 2003, including the purchase of nine general insurance agencies and several books of business.
  • 4Goodwill and other intangible assets increased significantly, reflecting the company's active acquisition strategy, with goodwill growing from $176.3 million to $225.7 million.
  • 5The company established a new $75 million revolving credit facility in September 2003, enhancing its financial flexibility, though no borrowings were made against it as of the reporting date.
  • 6Interest expense decreased by 21.0% for the nine-month period due to lower outstanding debt balances, indicating effective debt management.
  • 7Despite ongoing legal proceedings, management expressed confidence that the ultimate disposition will not have a material adverse effect on the company's financial position.

Frequently Asked Questions

The primary driver of revenue growth is the increase in commissions and fees, which rose by 20.4% for the third quarter and 23.5% for the first nine months of 2003. This growth is significantly attributed to revenues generated from agencies and books of business acquired since the prior year's comparable periods, alongside new business production and higher renewal commissions.

While employee compensation and benefits, other operating expenses, and amortization have increased due to acquisitions, the company is working to manage these costs. For the nine-month period, employee compensation and benefits as a percentage of revenue decreased slightly, and other operating expenses as a percentage of revenue also decreased, indicating improved operating efficiencies and the positive impact of higher contingent commissions.

The company maintains a solid financial position. Cash and cash equivalents increased slightly to $68.7 million. Operating activities provided $119 million in cash flow for the nine-month period, which was used to fund acquisitions, capital expenditures, debt payments, and dividends. The establishment of a new $75 million revolving credit facility in September 2003 further strengthens its liquidity and financial flexibility.

The company is involved in numerous legal proceedings arising in the ordinary course of business. While some claims may involve substantial damages, management has settled a significant workers' compensation insurance case in October 2003 within insurance policy limits, which did not materially affect results. Based on current information and legal advice, management believes that the ultimate resolution of all pending matters will not have a material adverse effect on the company's consolidated financial position.