10-QPeriod: Q2 FY2009

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 10, 2009For Securities:BRO

Summary

Brown & Brown, Inc. reported modest revenue growth for the first half of 2009, with total revenues increasing by 2.3% to $509.9 million. However, net income saw a slight decline of 3.8% to $88.7 million due to increased operating expenses, particularly amortization and other operating expenses, and a significant decrease in investment income. The company continued its acquisition strategy, completing six intermediary acquisitions and one book of business in the first six months of 2009 for a total purchase price of $41.4 million, while also experiencing negative internal growth in core commissions and fees (-3.5% year-to-date) across most divisions, attributed to the challenging insurance market conditions characterized by declining premium rates and reduced insurable exposure units. Despite the challenging market, the company maintained a strong liquidity position, with cash and cash equivalents increasing to $190.0 million. Long-term debt remained relatively stable. Management expressed confidence in its ability to meet liquidity needs and pursue future growth through acquisitions, leveraging its existing credit facilities and potential access to capital markets. Key risks include continued market softness and regulatory scrutiny regarding compensation practices.

Key Highlights

  • 1Total revenues increased by 2.3% to $509.9 million for the first six months of 2009 compared to the same period in 2008.
  • 2Net income decreased by 3.8% to $88.7 million for the first six months of 2009.
  • 3The company completed six acquisitions in the first half of 2009 for a total purchase price of $41.4 million.
  • 4Core commissions and fees experienced negative internal growth of -3.5% for the first six months of 2009, reflecting a challenging insurance market.
  • 5Cash and cash equivalents increased significantly to $190.0 million as of June 30, 2009, indicating a strong liquidity position.
  • 6Amortization expense increased by 10.6% for the first six months of 2009, primarily due to new acquisitions.
  • 7Investment income significantly decreased by 80.3% for the first six months of 2009 due to lower interest yields.

Frequently Asked Questions

Brown & Brown acknowledges the challenging market characterized by declining insurance premium rates ('soft market'), increased competition from entities like Citizens Property Insurance Corporation, and the general weakness of the economy impacting insurable exposure units. Despite these headwinds, the company continues to pursue growth through strategic acquisitions and maintaining operational efficiencies. Management believes its existing liquidity and access to capital markets will support operations through the next 12 months.

The company continues to actively acquire businesses to expand its core operations. While acquisitions contributed to overall revenue growth, they also led to an increase in amortization expenses. The company completed six acquisitions in the first half of 2009, with a total purchase price of $41.4 million. Management notes that acquisitions are a key driver of growth, but the underlying 'core commissions and fees' revenue (excluding acquisitions and other factors) showed negative internal growth, indicating underlying market pressures.

Brown & Brown is cooperating with ongoing governmental investigations in several states regarding compensation practices in the insurance industry, including profit-sharing contingent commissions and override agreements. While some state agencies have concluded their investigations, the company cannot predict the ultimate impact or resolution of these inquiries, which could be material. The company is involved in litigation to protect the confidentiality of information related to these investigations.

Investment income has significantly decreased by 80.3% for the first six months of 2009 compared to the same period in 2008. This decline is primarily attributed to substantially lower interest yields on short-term money-market investments, reflecting the broader low-interest-rate environment.