10-QPeriod: Q3 FY2008

BROWN & BROWN, INC. Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 10, 2008For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported its third quarter and nine-month results for the period ending September 29, 2008. The company demonstrated resilience in its core insurance brokerage operations, with total revenues showing a modest increase year-over-year for both periods, driven by strategic acquisitions. However, net income saw a decline compared to the prior year, largely influenced by a decrease in investment income and other income, as well as increased operating expenses related to recent acquisitions. Despite a challenging economic environment and a "soft" insurance market impacting organic growth (indicated by negative internal growth rates in some segments), Brown & Brown continued its aggressive acquisition strategy, integrating 28 new entities in the first nine months of 2008. This acquisition-driven growth strategy is a key focus for the company, though it has led to higher employee compensation and benefits, amortization, and other operating expenses. The company maintains a strong liquidity position and adequate credit facilities to support its ongoing growth initiatives.

Key Highlights

  • 1Total revenues increased by 4.1% for the quarter and 0.4% for the nine months, driven by a combination of core commissions, fees, and acquisitions.
  • 2Net income decreased by 12.2% for the quarter and 16.0% for the nine months, primarily due to lower investment income and increased operating expenses.
  • 3Organic growth in core commissions and fees was negative across several segments (-5.1% for the quarter, -5.8% for the nine months), reflecting a challenging insurance market and economic conditions.
  • 4The company actively pursued its growth strategy through acquisitions, completing 28 new acquisitions in the first nine months of 2008, significantly increasing goodwill on the balance sheet.
  • 5Employee compensation and benefits, along with amortization and other operating expenses, increased due to the integration of newly acquired businesses.
  • 6Investment income and other income experienced significant year-over-year declines, largely due to the absence of a large gain from the sale of Rock-Tenn stock in the prior year and reduced investment balances.
  • 7The company maintained a strong liquidity position with $0.0 million in cash and cash equivalents but significant restricted cash and investments, and adequate credit facilities.

Frequently Asked Questions

The challenging economic environment and a "soft" insurance market led to a decline in organic growth, evidenced by negative internal growth rates in core commissions and fees for several segments. While total revenues saw a slight increase due to acquisitions, net income declined year-over-year, influenced by reduced investment income, higher operating expenses from acquisitions, and a general economic slowdown impacting insurable exposure units.

Brown & Brown's primary growth strategy continues to be driven by acquisitions. The company acquired 28 new entities in the first nine months of 2008. This strategy has led to a significant increase in goodwill on the balance sheet and has also resulted in higher employee compensation, amortization, and other operating expenses as these new businesses are integrated.

The decrease in investment income for the nine months ended September 30, 2008, was primarily due to the significant gain recognized in the prior year from the sale of the company's investment in Rock-Tenn Company. Additionally, reduced investment balances resulting from acquisition activity and lower investment yields also contributed to the decline.

Brown & Brown reported $0.0 million in cash and cash equivalents at the end of the period, but maintained significant restricted cash and investments. The company stated that its existing cash, operating cash flows, and available credit facilities (Master Agreement and Loan Agreement) are expected to be sufficient to meet its liquidity needs for at least the next 12 months. The company also indicated a capacity to raise additional capital through debt markets if needed for further acquisitions.