10-Q/APeriod: Q1 FY2004

BROWN & BROWN, INC. Quarterly Report (Amendment) for Q1 Ended Mar 31, 2004

Filed May 11, 2004For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported a strong first quarter for 2004, with net income increasing by 20.5% to $0.53 per diluted share, up from $0.44 in the prior year. This growth was primarily driven by a substantial 13.9% increase in commissions and fees, fueled by both acquisitions and organic growth. Investment and other income also saw significant percentage increases, although on smaller absolute bases, contributing to the overall positive financial performance. The company highlighted effective cost management, with employee compensation and benefits, as a percentage of total revenue, decreasing from 47.1% to 46.1%. This improved efficiency, coupled with higher contingent commissions, contributed to a reduction in other operating expenses as a percentage of revenue as well. Despite increased amortization and depreciation expenses related to recent acquisitions, overall profitability improved, with lower interest expense due to reduced debt balances. Management expressed confidence in their liquidity position, supported by operating cash flows and available credit facilities, while also indicating potential plans to raise additional capital through debt offerings to fund future acquisition activity. The company also addressed recent industry developments concerning compensation agreements and regulatory inquiries, noting that while contingent commissions are a focus, they have not directly received a subpoena. Their existing legal and insurance arrangements are believed sufficient to mitigate material adverse effects from ongoing legal matters.

Key Highlights

  • 1Net income for Q1 2004 rose 20.5% year-over-year to $36.3 million ($0.53/share), up from $30.5 million ($0.44/share) in Q1 2003.
  • 2Commissions and fees increased by 13.9% ($20.1 million), with approximately $11.8 million attributed to acquisitions and $7.6 million from higher contingent commissions.
  • 3Employee compensation and benefits as a percentage of revenue decreased to 46.1% from 47.1% in the prior year, indicating improved operational efficiency.
  • 4The Retail Division showed strong revenue growth of 17.0% ($18.1 million) and income before taxes increased by 30.4% ($9.3 million), driven by acquisitions and contingent commissions.
  • 5Interest expense decreased by 29.4% ($0.3 million) due to lower outstanding debt balances.
  • 6The company has $18.4 million in cash and cash equivalents at March 31, 2004, with $66.8 million generated from operating activities during the quarter, but significant cash outflow for acquisitions ($95.6 million).
  • 7Management is exploring a private debt offering of up to $200 million to fund future acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by a 13.9% increase in commissions and fees. This increase was fueled by $11.8 million from newly acquired agencies and $7.6 million from higher contingent commissions. Net new business production also contributed to the overall growth.

Brown & Brown demonstrated effective cost management. Employee compensation and benefits, as a percentage of total revenue, decreased from 47.1% to 46.1%. Similarly, other operating expenses as a percentage of revenue also improved. These improvements are attributed to the assimilation of acquisitions, higher contingent commissions, and operating efficiencies.

At March 31, 2004, the company had $18.4 million in cash and cash equivalents. While operating activities generated $66.8 million, significant cash was used for acquisitions. Management believes current resources, operating cash flow, and available credit facilities are sufficient for short-term needs. They are considering a private debt offering of up to $200 million to fund future acquisitions.

The company is aware of industry-wide inquiries regarding compensation agreements between brokers and underwriters, with one of its New York subsidiaries having received requests for information. While they have contingent commission agreements, they have not received a subpoena. Management believes that the disposition of ongoing legal matters will not have a material adverse effect on the company's financial position, supported by present information, insurance coverage, and legal advice.