Business Context and Reporting Period
Company: Brown & Brown, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Business Overview: A general insurance agency headquartered in Daytona Beach and Tampa, Florida, operating since 1939. The company markets and sells property, casualty, and employee benefits insurance products as an agent and broker, assuming no underwriting risk. Revenue is derived primarily from commissions paid by insurance companies and fees for services.
Operations: As of December 31, 2003, the company operated 136 locations across 29 states with 3,517 employees. Business is divided into four segments: Retail Division, National Programs Division, Services Division, and Brokerage Division.
Key Financial Metrics
Revenue: Total commission and fee revenues for 2003 were $545.3 million (specifically $545,287,000).
Segment Revenue Breakdown (2003):
- Retail Division: $396.2 million (72.6% of total)
- National Programs Division: $87.6 million (16.1% of total)
- Brokerage Division: $32.7 million (6.0% of total)
- Services Division: $28.8 million (5.3% of total)
Profit, Cash Flow, Margins, Debt, and Liquidity: The provided text does not provide clear values for net income, operating profit, cash flow from operations, profit margins, total debt, or liquidity ratios. These specific financial statement figures are incorporated by reference from the Annual Report to Shareholders and are not present in the text of this 10-K filing.
Material Changes vs. Prior Period
Revenue Growth: Total commission and fee revenues increased from $452.3 million in 2002 to $545.3 million in 2003, representing a significant year-over-year increase.
Acquisitions: The company acquired 23 insurance agency operations in 2003 with aggregate estimated annual revenues of $42.6 million. Additionally, the company acquired the remaining 25% ownership of Florida Intracoastal Underwriters, effective January 1, 2003.
Market Conditions: While premium rates increased from 2000 through 2003, the company noted that rate increases began to moderate in 2003 and expected this moderation to continue into 2004.
Segment Shifts: The Retail Division's share of total revenue decreased slightly from 75.7% in 2002 to 72.6% in 2003, while the National Programs Division increased its share from 12.8% to 16.1%.
Guidance, Outlook, Risks, and Contingencies
Outlook: Management expects the moderation of premium rate increases to continue through 2004.
Risks:
- Market Cyclicality: The property and casualty insurance industry is cyclical; a "soft market" could decrease premium rates and commissions.
- Competition: High competition from firms with greater resources, direct writers, and internet-based placement.
- Regulatory: Complex state licensing laws and potential for suspension or revocation of licenses.
- Integration: Risks associated with integrating acquired businesses and realizing expected benefits.
Market Risk: The company has exposure to interest rate risk and equity price risk. A significant portion of marketable equity securities (86% as of Dec 31, 2003) is invested in Rock-Tenn Company stock. The company utilizes an interest rate swap agreement to hedge a portion of its term loan.
Investor Verification Checklist
- Financial Statements: Verify net income, earnings per share, and cash flow figures in the full Annual Report to Shareholders, as they are not detailed in this text.
- Acquisition Integration: Assess the performance of the 23 agencies acquired in 2003 and the full ownership of Florida Intracoastal Underwriters.
- Concentration Risk: Review the dependency on the two largest workers' compensation contracts in the Services Division, which represented 65.7% of that division's TPA revenues.
- Investment Portfolio: Evaluate the impact of the Rock-Tenn Company investment (valued at $9.7 million) on the company's equity portfolio volatility.
- Rate Environment: Monitor the insurance market for a potential shift to a "soft market" which could compress commission rates.