10-QPeriod: Q3 FY2007

BROWN & BROWN, INC. Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 9, 2007For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported solid financial performance for the nine months ending September 30, 2007, with total revenues reaching $742.4 million, an increase of 11.9% compared to the same period in 2006. Net income grew by 17.2% to $158.0 million, resulting in diluted earnings per share of $1.12. This growth was driven by a combination of organic growth in commissions and fees, and significant contributions from acquisitions. The company's strategic focus on expanding its core businesses through acquisitions remains evident, with $148.4 million spent on business combinations during the nine-month period. Goodwill increased substantially, reflecting these strategic investments. While the company experienced a slight negative internal growth rate in core commissions and fees, this was offset by strong performance in profit-sharing contingent commissions and continued strategic acquisitions. The balance sheet shows healthy growth in shareholders' equity, largely due to retained earnings, indicating effective capital management and profitability.

Key Highlights

  • 1Total revenues increased by 11.9% to $742.4 million for the nine months ended September 30, 2007, compared to the prior year.
  • 2Net income rose by 17.2% to $158.0 million for the nine months ended September 30, 2007.
  • 3Diluted earnings per share grew to $1.12 for the nine months ended September 30, 2007, up from $0.96 in the prior year.
  • 4The company invested $148.4 million in acquisitions during the first nine months of 2007, highlighting its aggressive growth strategy.
  • 5Goodwill on the balance sheet increased significantly to $803.3 million as of September 30, 2007, reflecting recent acquisitions.
  • 6Core commissions and fees showed a slight negative internal growth rate of (1.9%) for the nine-month period, but this was mitigated by strong growth in profit-sharing contingent commissions and acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in commissions and fees, which saw contributions from both organic growth and 5.2% growth from acquisitions. Profit-sharing contingent commissions also saw a significant increase of 38.6%. Investment income also saw a substantial increase due to the sale of Rock-Tenn Company stock.

Acquisitions have been a significant growth driver, with $148.4 million invested in business combinations during the nine months. This has led to a substantial increase in goodwill, which stood at $803.3 million as of September 30, 2007. While acquisitions contribute to revenue growth, they also increase employee compensation and benefits and other operating expenses due to the addition of new employees and operations.

Management notes that a 'soft market' generally prevailed in most regions of the United States during 2007, with expected continued softening. This softer market has led to a negative internal growth rate for core commissions and fees in some segments, as premium rates moderate or decline. However, the company continues to pursue net new business growth and acquisitions to offset these market conditions.

The company is involved in governmental investigations related to profit-sharing contingent compensation and override commission agreements. While some state investigations have concluded without further action, the company cannot predict the impact or resolution of all inquiries, which could be material. The company is also involved in other legal proceedings, but management believes their ultimate determination will not have a material adverse effect on the consolidated financial position.