10-QPeriod: Q2 FY2004

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2004

Filed August 9, 2004For Securities:BRO

Summary

Brown & Brown, Inc. reported solid financial performance for the second quarter and first half of 2004. Total revenues increased by 14.6% in the quarter and 14.5% for the six-month period, driven primarily by a 14.2% increase in commissions and fees during the quarter. Net income also saw substantial growth, up 15.1% for the quarter and 17.2% for the six months, reflecting effective operational management and strategic acquisitions. The company's aggressive acquisition strategy continues to be a significant growth driver, with numerous acquisitions completed throughout 2004, expanding its market reach and product offerings, particularly in lender-placed insurance and specialty products. While acquisitions contribute significantly to revenue growth, they also increase expenses such as employee compensation, amortization, and integration costs. The company ended the period with a healthy balance sheet, though cash levels decreased due to significant investment in acquisitions.

Key Highlights

  • 1Total revenues increased by 14.6% to $157.9 million for the three months ended June 30, 2004, and by 14.5% to $323.5 million for the six months ended June 30, 2004.
  • 2Net income rose by 15.1% to $32.2 million for the three months ended June 30, 2004, and by 17.2% to $68.5 million for the six months ended June 30, 2004.
  • 3Diluted earnings per share increased to $0.46 for the quarter and $0.99 for the six-month period, up from $0.41 and $0.85 respectively in the prior year.
  • 4The company completed several strategic acquisitions during the period, including Proctor Financial Insurance, Doyle Consulting Group, Waldor Agency, and Statfeld Vantage Insurance Group, significantly expanding its offerings and market presence.
  • 5Total assets grew to $994.1 million as of June 30, 2004, up from $865.9 million as of December 31, 2003, largely driven by an increase in goodwill and amortizable intangible assets due to acquisitions.
  • 6Operating cash flow remained strong, providing $92.4 million for the six months ended June 30, 2004, though cash and cash equivalents decreased by $20.5 million due to substantial investments in acquisitions.
  • 7The company has secured $200 million in unsecured senior notes through a private placement to fund general corporate purposes, including future acquisitions and debt repayment.

Frequently Asked Questions

The primary driver of revenue growth is commissions and fees, which increased by 14.2% for the three months ended June 30, 2004, and 14.1% for the six months ended June 30, 2004. This growth is significantly fueled by strategic acquisitions, which contribute 'core commissions and fees' from newly acquired agencies, alongside net new business production.

Acquisitions are a major focus, leading to a substantial increase in goodwill and amortizable intangible assets on the balance sheet. For instance, goodwill increased by approximately $63 million in the first six months of 2004. These acquisitions also drive cash outflows, as evidenced by $143.6 million used in investing activities for payments for businesses acquired during the first half of 2004, leading to a decrease in cash and cash equivalents.

Management anticipates that the current 'soft market' for insurance rates, characterized by moderation or even reductions in premium rates, will continue through the remainder of 2004 and into 2005. This is due to improved loss ratios experienced by underwriting companies, leading to increased competition.

While the company is involved in routine legal proceedings, management believes the ultimate outcome will not have a material adverse effect. However, the filing notes ongoing inquiries from the New York State Insurance Department regarding 'placement service agreements' and contingent commissions, and states that any decrease in these commissions could negatively impact results. The company has not received a subpoena from the New York Attorney General's office.