UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
For
the quarterly period ended September 30,
2006
|
|
|
or
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
For
the transition period from _____________ to
________________
|
Commission
file number 001-13619
BROWN
& BROWN, INC.
(Exact
name of Registrant as specified in its charter)
|
Florida
|
 ® |
59-0864469
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification Number)
|
|
|
220
South Ridgewood Avenue, Daytona Beach, FL
|
32114
(Zip
Code)
|
|
|
(Address
of principal executive offices)
|
Registrant’s
telephone number, including area code: (386) 252-9601
Registrant’s
Website: www.bbinsurance.com
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
The
number of shares of the Registrant’s common stock, $.10 par value, outstanding
as of October 30, 2006 was 139,966,544.
BROWN
& BROWN, INC.
|
PAGE
NO.
|
|
|
|
30
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1 - FINANCIAL STATEMENTS (UNAUDITED)
BROWN
&
BROWN,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
(in
thousands, except per share data)
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
REVENUES
|
|||||||||||||
|
Commissions
and fees
|
$
|
208,558
|
$
|
188,444
|
$
|
653,900
|
$
|
581,497
|
|||||
|
Investment
income
|
3,218
|
1,786
|
8,383
|
4,275
|
|||||||||
|
Other
income, net
|
189
|
415
|
1,071
|
3,178
|
|||||||||
|
Total
revenues
|
211,965
|
190,645
|
663,354
|
588,950
|
|||||||||
|
|
|||||||||||||
|
EXPENSES
|
|||||||||||||
|
Employee
compensation and benefits
|
100,821
|
94,009
|
304,731
|
278,493
|
|||||||||
|
Non-cash
stock-based compensation
|
837
|
681
|
4,601
|
2,360
|
|||||||||
|
Other
operating expenses
|
29,502
|
25,638
|
90,605
|
78,760
|
|||||||||
|
Amortization
|
9,089
|
8,452
|
27,067
|
24,344
|
|||||||||
|
Depreciation
|
2,922
|
2,538
|
8,302
|
7,432
|
|||||||||
|
Interest
|
3,229
|
3,638
|
10,080
|
10,891
|
|||||||||
|
Total
expenses
|
146,400
|
134,956
|
445,386
|
402,280
|
|||||||||
|
|
|||||||||||||
|
Income
before income taxes
|
65,565
|
55,689
|
217,968
|
186,670
|
|||||||||
|
|
|||||||||||||
|
Income
taxes
|
25,295
|
20,906
|
83,241
|
71,836
|
|||||||||
|
|
|||||||||||||
|
Net
income
|
$
|
40,270
|
$
|
34,783
|
$
|
134,727
|
$
|
114,834
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.29
|
$
|
0.25
|
$
|
0.97
|
$
|
0.83
|
|||||
|
Diluted
|
$
|
0.29
|
$
|
0.25
|
$
|
0.96
|
$
|
0.82
|
|||||
|
|
|||||||||||||
|
Weighted
average number of shares outstanding:
|
|||||||||||||
|
Basic
|
139,668
|
138,484
|
139,522
|
138,374
|
|||||||||
|
Diluted
|
141,027
|
139,638
|
140,949
|
139,504
|
|||||||||
|
|
|||||||||||||
|
Dividends
declared per share
|
$
|
0.05
|
$
|
0.04
|
$
|
0.15
|
$
|
0.12
|
|||||
See
accompanying notes to condensed consolidated financial
statements.
3
BROWN
& BROWN, INC.
CONDENSED
CONSOLIDATED
BALANCE
SHEETS
(UNAUDITED)
|
(in
thousands, except per share data)
|
September
30,
2006
|
December
31,
2005
|
|||||
|
ASSETS
|
|
||||||
|
Current
Assets:
|
|
||||||
|
Cash
and cash equivalents
|
$
|
62,655
|
$
|
100,580
|
|||
|
Restricted
cash and investments
|
278,043
|
229,872
|
|||||
|
Short-term
investments
|
2,757
|
2,748
|
|||||
|
Premiums,
commissions and fees receivable
|
268,195
|
257,930
|
|||||
|
Other
current assets
|
36,610
|
28,637
|
|||||
|
Total
current assets
|
648,260
|
619,767
|
|||||
|
Fixed
asset, net
|
44,630
|
39,398
|
|||||
|
Goodwill
|
677,799
|
549,040
|
|||||
|
Amortizable
intangible assets, net
|
407,849
|
377,907
|
|||||
|
Investments
|
11,748
|
8,421
|
|||||
|
Other
assets
|
12,882
|
14,127
|
|||||
|
Total
assets
|
$
|
1,803,168
|
$
|
1,608,660
|
|||
|
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Premiums
payable to insurance companies
|
$
|
449,819
|
$
|
397,466
|
|||
|
Premium
deposits and credits due customers
|
42,708
|
34,027
|
|||||
|
Accounts
payable
|
19,675
|
21,161
|
|||||
|
Accrued
expenses
|
68,691
|
74,534
|
|||||
|
Current
portion of long-term debt
|
64,418
|
55,630
|
|||||
|
Total
current liabilities
|
645,311
|
582,818
|
|||||
|
Long-term
debt
|
204,901
|
214,179
|
|||||
|
Deferred
income taxes, net
|
44,466
|
35,489
|
|||||
|
Other
liabilities
|
12,568
|
11,830
|
|||||
|
Shareholders’
Equity:
|
|||||||
|
Common
stock, par value $0.10 per share; authorized 280,000 shares; issued
and
outstanding 139,967 at 2006 and 139,383 at 2005
|
13,997
|
13,938
|
|||||
|
Additional
paid-in capital
|
208,926
|
193,313
|
|||||
|
Retained
earnings
|
666,431
|
552,647
|
|||||
|
Accumulated
other comprehensive income, net of related income tax effect of $3,860
at
2006 and $2,606 at 2005
|
6,568
|
4,446
|
|||||
|
Total
shareholders’ equity
|
895,922
|
764,344
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
1,803,168
|
$
|
1,608,660
|
|||
See
accompanying notes to condensed consolidated financial
statements.
4
BROWN
& BROWN, INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF
CASH
FLOWS
(UNAUDITED)
|
(in
thousands)
|
For
the nine months
ended
September 30,
|
||||||
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
income
|
$
|
134,727
|
$
|
114,834
|
|||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
|
Amortization
|
27,067
|
24,344
|
|||||
|
Depreciation
|
8,302
|
7,432
|
|||||
|
Non-cash
stock-based compensation
|
4,601
|
2,360
|
|||||
|
Deferred
income taxes
|
7,723
|
4,339
|
|||||
|
Net
gain on sales of investments, fixed assets and customer
accounts
|
(159
|
)
|
(2,831
|
)
|
|||
|
Changes
in operating assets and liabilities, net of effect from acquisitions
and
divestitures:
|
|||||||
|
Restricted
cash and investments (increase)
|
(48,171
|
)
|
(87,780
|
)
|
|||
|
Premiums,
commissions and fees receivable (increase)
|
(9,793
|
)
|
(62,721
|
)
|
|||
|
Other
assets (increase) decrease
|
(4,628
|
)
|
5,654
|
||||
|
Premiums
payable to insurance companies increase
|
42,088
|
129,523
|
|||||
|
Premium
deposits and credits due customers increase
|
8,681
|
3,810
|
|||||
|
Accounts
payable (decrease) increase
|
(1,525
|
)
|
2,935
|
||||
|
Accrued
expenses (decrease)
|
(7,104
|
)
|
(747
|
)
|
|||
|
Other
liabilities increase (decrease)
|
418
|
(777
|
)
|
||||
|
Net
cash provided by operating activities
|
162,227
|
140,375
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
Additions
to fixed assets
|
(12,322
|
)
|
(9,791
|
)
|
|||
|
Payments
for businesses acquired, net of cash acquired
|
(142,194
|
)
|
(225,164
|
)
|
|||
|
Proceeds
from sales of fixed assets and customer accounts
|
922
|
2,041
|
|||||
|
Purchases
of investments
|
(78
|
)
|
(192
|
)
|
|||
|
Proceeds
from sales of investments
|
118
|
747
|
|||||
|
Net
cash used in investing activities
|
(153,554
|
)
|
(232,359
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Payments
on long-term debt
|
(76,726
|
)
|
(12,358
|
)
|
|||
|
Borrowings
on revolving credit facility
|
40,000
|
50,000
|
|||||
|
Payments
on revolving credit facility
|
—
|
(50,000
|
)
|
||||
|
Issuances
of common stock for employee stock benefit plans
|
11,071
|
9,583
|
|||||
|
Cash
dividends paid
|
(20,943
|
)
|
(16,617
|
)
|
|||
|
Net
cash used in financing activities
|
(46,598
|
)
|
(19,392
|
)
|
|||
|
Net
decrease in cash and cash equivalents
|
(37,925
|
)
|
(111,376
|
)
|
|||
|
Cash
and cash equivalents at beginning of period
|
100,580
|
188,106
|
|||||
|
Cash
and cash equivalents at end of period
|
$
|
62,655
|
$
|
76,730
|
|||
See
accompanying notes to condensed consolidated financial
statements.
5
BROWN
& BROWN, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE
1 • Nature of Operations
Brown
& Brown, Inc., a Florida corporation, and its subsidiaries (collectively,
Brown & Brown or the “Company”) is a diversified insurance agency,
brokerage, and services organization that markets and sells to its customers
insurance products and services, primarily in the property and casualty area.
Brown & Brown’s business is divided into four reportable segments: the
Retail Division, which provides a broad range of insurance products and services
to commercial, public entity, professional and individual customers; the
National Programs Division, which is comprised of two units - Professional
Programs, which provides professional liability and related package products
for
certain professionals delivered through nationwide networks of independent
agents, and Special Programs, which markets targeted products and services
designated for specific industries, trade groups, governmental entities and
market niches; the Brokerage Division, which markets and sells excess and
surplus commercial and personal lines insurance, and reinsurance, primarily
through independent agents and brokers; and the Services Division, which
provides insurance-related services, including third-party administration,
consulting for the workers’ compensation and managed healthcare services, and
Medicare set-aside services and programs.
NOTE
2 • Basis of Financial Reporting
The
accompanying unaudited, condensed, consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“United States”) for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
These
unaudited, condensed, consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto set forth in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005.
Results
of operations for the three and nine months ended September 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006.
NOTE
3 • Net Income Per Share
Basic
net
income per share is computed by dividing net income available to shareholders
by
the weighted average number of shares outstanding for the period. Basic net
income per share excludes dilution. Diluted net income per share reflects the
potential dilution that could occur if stock options or other contracts to
issue
common stock were exercised or converted to common stock.
The
following table sets forth the computation of basic net income per share and
diluted net income per share:
|
(in
thousands, except per share data)
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
|||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
Net
income
|
$
|
40,270
|
$
|
34,783
|
$
|
134,727
|
$
|
114,834
|
|||||
|
|
|||||||||||||
|
Weighted
average number of common shares outstanding
|
139,668
|
138,484
|
139,522
|
138,374
|
|||||||||
|
|
|||||||||||||
|
Dilutive
effect of stock options using the treasury stock method
|
1,359
|
1,154
|
1,427
|
1,130
|
|||||||||
|
|
|||||||||||||
|
Weighted
average number of shares outstanding
|
141,027
|
139,638
|
140,949
|
139,504
|
|||||||||
|
|
|||||||||||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.29
|
$
|
0.25
|
$
|
0.97
|
$
|
0.83
|
|||||
|
Diluted
|
$
|
0.29
|
$
|
0.25
|
$
|
0.96
|
$
|
0.82
|
|||||
6
All
share
and per share amounts in the consolidated financial statements have been
restated to give effect to the two-for-one common stock split effected by Brown
& Brown on November 28, 2005. The stock split was effected as a stock
dividend.
NOTE
4 • New Accounting Pronouncements
Accounting
for Uncertainty in Income Taxes
- In
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes
-
An
Interpretation of FASB Statement No. 109 (“FIN
48”), which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
companies to determine whether it is “more likely than not” that a tax position
will be sustained upon examination by the appropriate taxing authorities before
any part of the benefit can be recorded in the financial statements. It also
provides guidance on the recognition, measurement and classification of income
tax uncertainties, along with any related interest and penalties. FIN 48 will
also require significant additional disclosures. FIN 48 will be effective for
the Company on January 1, 2007, with the cumulative effect, if any, of the
change in accounting principle recorded as an adjustment to beginning retained
earnings. The Company is currently evaluating the potential impact FIN 48 will
have on its financial position and results of operations.
Fair
Value Measurements
- In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair
Value Measurements
(“SFAS
157”). SFAS 157 establishes a framework for the measurement of assets and
liabilities that use fair value and expands disclosures about fair value
measurements. SFAS 157 will apply whenever another accounting principle
generally accepted in the United States of America (“GAAP”) standard requires
(or permits) assets or liabilities to be measured at fair value but does not
expand the use of fair value to any new circumstances. SFAS 157 is effective
for
financial statements issued for fiscal years beginning after November 15, 2007.
The Company is currently evaluating the potential impact this standard may
have
on its financial position and results of operations.
Stock-Based
Compensation
- The
Company grants stock options and non-vested stock awards (previously referred
to
as “restricted stock”) to its employees, officers and directors. Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R,
Share-Based
Payment
(“SFAS
123R”), for its stock-based compensation plans. Among other things, SFAS 123R
requires that compensation expense for all share-based awards be recognized
in
the financial statements based upon the grant-date fair value of those awards.
Prior
to
January 1, 2006, the Company accounted for stock-based compensation using the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting
for Stock Issued to Employees
(“APB
No. 25”), and related interpretations, and disclosure requirements established
by SFAS No. 123, Accounting
for Stock-Based Compensation
(“SFAS
123”), as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transitions and Disclosures
(“SFAS
148”).
Under
APB
No. 25, no compensation expense was recognized for either stock options issued
under the Company’s stock compensation plans or for stock purchased under the
Company’s 1990 Employee Stock Purchase Plan (“ESPP”). The pro forma effects on
net income and earnings per share for stock options and ESPP awards were instead
disclosed in a footnote to the financial statements. Compensation expense was
previously recognized for awards of non-vested stock, based upon the market
value of the common stock on the date of award, on a straight-line basis over
the requisite service period with the effect of forfeitures recognized as they
occurred.
The
following table represents the pro forma information for the three and nine
months ended September 30, 2005 (as previously disclosed) under the Company’s
stock compensation plans had compensation cost for the stock options and common
stock purchased under the ESPP been determined based on the fair value at the
grant-date consistent with the method prescribed by SFAS No. 123R:
|
(in
thousands, except per share data)
|
Periods
Ended
September
30, 2005
|
||||||||
|
Three
Months
|
Nine
Months
|
||||||||
|
Net
income
|
As
reported
|
$
|
34,783
|
$
|
114,834
|
||||
|
Add:
Total stock-based compensation included in net income, net of tax
effect
|
As
reported
|
426
|
1,454
|
|
|||||
|
Less:
Total stock-based employee compensation expense determined under
fair
value method for all awards, net of tax effect
|
Pro
forma
|
(840
|
)
|
(2,678
|
)
|
||||
|
Net
income
|
Pro
forma
|
$
|
34,369
|
$
|
113,610
|
||||
|
Basic
earnings per share:
|
As
reported
|
$
|
0.25
|
$
|
0.83
|
||||
|
Pro
forma
|
$
|
0.25
|
$
|
0.82
|
|||||
|
Diluted
earnings per share:
|
As
reported
|
$
|
0.25
|
$
|
0.83
|
||||
|
Pro
forma
|
$
|
0.25
|
$
|
0.82
|
|||||
7
The
Company has adopted SFAS 123R using the modified-prospective transition method.
Under this transition method, compensation cost recognized in the three and
nine
months ended September 30, 2006 includes:
| · |
compensation
cost for all share-based awards (expected to vest) granted prior
to, but
not yet vested as of January 1, 2006, based upon grant-date fair
value
estimated in accordance with the original provisions of SFAS 123;
and
|
| · |
compensation
cost for all share-based awards (expected to vest) granted during
the
three and nine months ended September 30, 2006 based upon grant-date
fair value estimated in accordance with the provisions of SFAS
123R.
|
Results
for prior periods have not been restated.
Upon
adoption of SFAS 123R, the Company continued to use the Black-Scholes valuation
model for valuing all stock options and shares granted under the ESPP.
Compensation for non-vested stock awards is measured at fair value on the
grant-date based upon the number of shares expected to vest. Compensation cost
for all awards will be recognized in earnings, net of estimated forfeitures,
on
a straight-line basis over the requisite service period. The cumulative effect
of changing from recognizing compensation expense for non-vested stock awards
as
forfeitures occurred to recognizing compensation expense for non-vested awards
net of estimated forfeitures was not material.
The
adoption of SFAS 123R had the following effect on the Company for the three
and
nine months ended September 30, 2006:
|
(in
thousands, except per share data)
|
Three
Month
Period
|
Nine
Month
Period
|
|||||
|
Non-cash
stock-based compensation
|
$
|
(609
|
)
|
$
|
263
|
||
|
Reduction
(increase) in:
|
|||||||
|
Provision
for income taxes
|
$
|
(235
|
)
|
$
|
100
|
||
|
Net
income
|
$
|
(374
|
)
|
$
|
163
|
||
|
Basic
earnings per share
|
$
|
—
|
$
|
—
|
|||
|
Diluted
earnings per share
|
$
|
—
|
$
|
—
|
|||
|
Increase
(decrease) in deferred tax assets
|
$
|
(235
|
)
|
$
|
100
|
||
In
addition, prior to the adoption of SFAS 123R, the Company presented tax benefits
resulting from the exercise of stock options as operating cash flows in the
statement of cash flows. SFAS 123R requires that tax benefits associated with
share-based payments be classified under financing activities in the statement
of cash flows. Since no stock option shares were exercised that gave rise to
excess tax deductions during the three or nine months ended September 30, 2006,
there is no effect of the adoption of SFAS 123R on the cash flow statement
for
the three or nine months ended September 30, 2006.
See
Note
5 for additional information regarding the Company’s stock-based compensation
plans and the assumptions used to calculate the fair value of stock-based
awards.
8
NOTE
5 • Employee
Stock-Based Compensation
Stock
Option Awards
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of stock options on the grant-date under SFAS 123R, which is the same valuation
technique previously used for pro forma disclosures under SFAS 123. The Company
did not grant any options during the three or nine months ended September 30,
2006, but did grant 12,000 shares during the nine months ended September 30,
2005. The Company used the following weighted average assumptions for all
options granted during the nine months ended September 30, 2005:
|
|
||||
|
Risk-free
interest rate
|
4.5
|
%
|
||
|
Expected
life (in years)
|
6
|
|||
|
Expected
volatility
|
35
|
%
|
||
|
Dividend
yield
|
0.86
|
%
|
||
The
risk-free interest rate is based upon the US Treasury yield curve on the date
of
grant with a remaining term approximating the expected term of the option
granted. The expected term of the options granted is derived from historical
data; employees are divided into two groups based upon expected exercise
behavior and are considered separately for valuation purposes. The expected
volatility is based upon the historical volatility of the Company’s common stock
over the period of time equivalent to the expected term of the options granted.
The dividend yield is based upon the Company’s best estimate of future dividend
yield.
A
summary
of stock option activity for the nine-month period ended September 30, 2006
is
as follows:
|
Stock
Options
|
Shares
Under
option
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|
|||||
|
Outstanding
at January 1, 2006
|
2,016,988
|
$
|
10.83
|
||||||||||
|
Granted
|
—
|
$
|
—
|
||||||||||
|
Exercised
|
(35,017
|
)
|
$
|
7.35
|
|||||||||
|
Forfeited
|
—
|
$
|
—
|
||||||||||
|
Expired
|
—
|
$
|
—
|
||||||||||
|
Outstanding
at September 30, 2006
|
1,981,971
|
$
|
10.89
|
5.1
|
38,991
|
||||||||
|
Exercisable
at September 30, 2006
|
1,273,263
|
$
|
8.10
|
4.4
|
28,591
|
||||||||
The
weighted average grant-date fair value of stock options granted during the
nine-months ended September 30, 2005 was $8.51. The total intrinsic value of
options exercised, determined as of the date of exercise, during the nine months
ended September 30, 2006 and 2005 was $818,000 and $850,000, respectively.
Aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted market price of the Company’s
stock for in-the-money stock options at September 30, 2006.
Non-Vested
Stock Awards (“Performance Stock Plan” or “PSP”)
The
Company uses a path-depended lattice model to estimate the fair value of PSP
grants on the grant-date under SFAS 123R. A summary of PSP activity for the
nine
months ended September 30, 2006 is as follows:
|
Stock
Options
|
|
Weighted-
Average
Grant
Date
Fair
Value
|
|
Granted
Shares
|
|
Awarded
Shares
|
|
Shares
Not
Yet
Awarded
|
|
||||
|
Outstanding
at January 1, 2006
|
$
|
5.21
|
5,851,682
|
5,125,304
|
726,378
|
||||||||
|
Granted
|
$
|
18.48
|
260,380
|
—
|
260,380
|
||||||||
|
Awarded
|
$
|
11.97
|
—
|
292,867
|
(292,867
|
)
|
|||||||
|
Vested
|
$
|
4.11
|
(12,150
|
)
|
(12,150
|
)
|
—
|
||||||
|
Forfeited
|
$
|
5.75
|
(361,400
|
)
|
(324,176
|
)
|
(37,224
|
)
|
|||||
|
Outstanding
at September 30, 2006
|
$
|
5.92
|
5,738,512
|
5,081,845
|
656,667
|
||||||||
9
The
weighted average grant-date fair value of PSP grants for the nine months ended
September 30, 2006 and 2005 was $18.48 and $14.33, respectively. The total
fair
value of PSP grants that vested during each of the nine months ended September
30, 2006 and 2005 was $351,000 and $-0-, respectively.
Employee
Stock Purchase Plan (“ESPP”)
The
Company has a shareholder approved ESPP. Employees of the Company who regularly
work more than 20 hours per week are eligible to participate in the plan.
Participants, through payroll deductions, may subscribe to purchase Company
stock up to 10% of their compensation, to a maximum of $25,000, during each
annual subscription period (August 1st
to the
following July 31st)
at a
cost of 85% of the lower of the stock price as of the beginning or ending of
the
stock subscription period. For the plan year ending July 31, 2006 and 2005,
the
Company issued 571,601 and 521,946 shares of common stock in August 2006 and
2005, respectively. These shares were issued at an aggregate purchase price
of
$10,557,000 or $18.47 per share in 2006, and of $9,207,000 or $17.64 per share
in 2005. For the two months ended September 30, 2006 and 2005 of the 2006-2007
and 2005-2006 plan years, 84,228 and 108,491 shares of common stock (from
authorized but unissued shares), respectively, were subscribed to by employees
participating in the Company’s ESPP for proceeds of approximately $2,123,000 and
$2,004,000, respectively.
Summary
of Unrecognized Compensation Expense
As
of
September 30, 2006, there was approximately $20.9 million of unrecognized
compensation expense related to all non-vested share-based compensation
arrangements granted under the Company’s stock compensation plans. That expense
is expected to be recognized over a weighted-average period of 10.1
years.
NOTE
6 • Business Combinations
Acquisitions
in 2006
For
the
nine months ended September 30, 2006, Brown & Brown acquired the assets and
assumed certain liabilities of 30 entities. The aggregate purchase price of
these acquisitions was $153,584,000, including $139,100,000 of net cash
payments, the issuance of $3,582,000 in notes payable and the assumption of
$10,902,000 of liabilities. Substantially all of these acquisitions were
acquired primarily to expand Brown & Brown’s core businesses and to attract
and obtain high-quality individuals. Acquisition purchase prices are based
primarily on a multiple of average annual operating profits earned over a one-
to three-year period within a minimum and maximum price range. The initial
asset
allocation of an acquisition is based on the minimum purchase price, and any
subsequent earn-out payment is allocated to goodwill.
All
of
these acquisitions have been accounted for as business combinations and are
as
follows:
(in
thousands)
|
Name
|
|
Business
Segment
|
|
2006
Date
of
Acquisition
|
|
Net
Cash
Paid
|
|
Notes
Payable
|
|
Recorded
Purchase
Price
|
|
|||||
|
Axiom
Intermediaries, LLC
|
Brokerage
|
January
1
|
$
|
60,333
|
$
|
—
|
$
|
60,333
|
||||||||
|
Delaware
Valley Underwriting Agency, Inc., et
al
(DVUA)
|
Brokerage/National
Programs
|
September
30
|
48,000
|
—
|
48,000
|
|||||||||||
|
Other
|
Various
|
Various
|
30,767
|
3,582
|
34,349
|
|||||||||||
|
Total
|
$
|
139,100
|
$
|
3,582
|
$
|
142,682
|
||||||||||
10
The
following table summarizes the estimated fair values of the aggregate assets
and
liabilities acquired as of the date of each acquisition:
|
(in
thousands)
|
Axiom
|
|
DVUA
|
|
Other
|
|
Total
|
|
|||||
|
Fiduciary
cash
|
$
|
9,598
|
$
|
—
|
$
|
—
|
$
|
9,598
|
|||||
|
Other
current assets
|
445
|
—
|
100
|
545
|
|||||||||
|
Fixed
assets
|
435
|
648
|
406
|
1,489
|
|||||||||
|
Purchased
customer accounts
|
14,022
|
25,549
|
18,047
|
57,618
|
|||||||||
|
Noncompete
agreements
|
31
|
52
|
443
|
526
|
|||||||||
|
Goodwill
|
45,860
|
21,751
|
16,197
|
83,808
|
|||||||||
|
Total
assets acquired
|
70,391
|
48,000
|
35,193
|
153,584
|
|||||||||
|
Other
current liabilities
|
(10,058
|
)
|
—
|
(652
|
)
|
(10,710
|
)
|
||||||
|
Other
liabilities
|
—
|
—
|
(192
|
)
|
(192
|
)
|
|||||||
|
Total
liabilities assumed
|
(10,058
|
)
|
—
|
(844
|
)
|
(10,902
|
)
|
||||||
|
Net
assets acquired
|
$
|
60,333
|
$
|
48,000
|
$
|
34,349
|
$
|
142,682
|
|||||
The
results of operations for the acquisitions completed during 2006 have been
combined with those of the Company since their respective acquisitions dates.
If
the acquisitions had occurred as of January 1, 2005, the Company’s results of
operations would be as shown in the following table:
|
(UNAUDITED)
|
For
the three months
ended
September 30,
|
|
For
the nine months
ended
September 30,
|
|
|||||||||
|
(in
thousands, except per share data)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|||||
|
Total
revenues
|
$
|
217,612
|
$
|
203,758
|
$
|
686,865
|
$
|
630,900
|
|||||
|
Income
before income taxes
|
67,619
|
60,134
|
226,317
|
200,875
|
|||||||||
|
Net
income
|
41,532
|
37,559
|
139,887
|
123,573
|
|||||||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.30
|
$
|
0.27
|
$
|
1.00
|
$
|
0.89
|
|||||
|
Diluted
|
$
|
0.29
|
$
|
0.27
|
$
|
0.99
|
$
|
0.89
|
|||||
|
Weighted
average number of shares outstanding:
|
|||||||||||||
|
Basic
|
139,668
|
138,484
|
139,522
|
138,374
|
|||||||||
|
Diluted
|
141,027
|
139,638
|
140,949
|
139,504
|
|||||||||
These
pro
forma results are not necessarily indicative of the actual results of operations
that would have occurred had the acquisitions actually been made at the
beginning of the respective periods.
Additional
consideration paid to sellers as a result of purchase price “earn-out”
provisions are recorded as adjustments to intangible assets when the
contingencies are settled. The net additional consideration paid by the Company
in 2006 as a result of these adjustments totaled $46,305,000, of which
$46,340,000 was allocated to goodwill. Of the $46,305,000 net additional
consideration paid, $12,692,000 was paid in cash, $32,656,000 was issued in
notes payable and $957,000 was assumed as net liabilities. As of September
30,
2006, the maximum future contingency payments related to acquisitions totaled
$170,377,000.
NOTE
7 • Goodwill
Goodwill
is subject to at least an annual assessment for impairment by applying a fair
value-based test. Brown & Brown completed its most recent annual assessment
as of November 30, 2005 and identified no impairment as a result of the
evaluation.
The
changes in goodwill for the nine months ended September 30, 2006 are as follows:
|
(in
thousands)
|
|
Retail
|
|
National
Programs
|
|
Brokerage
|
|
Services
|
|
Total
|
|
|||||
|
Balance
as of January 1, 2006
|
$
|
292,212
|
$
|
119,022
|
$
|
137,750
|
$
|
56
|
$
|
549,040
|
||||||
|
Goodwill
of acquired businesses
|
35,493
|
21,032
|
70,905
|
2,718
|
130,148
|
|||||||||||
|
Goodwill
disposed of relating to sales of businesses
|
(1,389
|
)
|
—
|
—
|
—
|
(1,389
|
)
|
|||||||||
|
Balance
as of September 30, 2006
|
$
|
326,316
|
$
|
140,054
|
$
|
208,655
|
$
|
2,774
|
$
|
677,799
|
||||||
11
NOTE
8 • Amortizable Intangible Assets
Amortizable
intangible assets at September 30, 2006 and December 31, 2005 consisted of
the
following:
|
September
30, 2006
|
December
31, 2005
|
||||||||||||||||||||||
|
(in
thousands)
|
Gross
Carrying Value
|
Accumulated
Amortization
|
Net
Carrying Value
|
Weighted
Average Life (years)
|
Gross
Carrying Value
|
Accumulated
Amortization
|
Net
Carrying Value
|
Weighted
Average Life (years)
|
|||||||||||||||
|
Purchased
customer accounts
|
$
|
546,575
|
$
|
(142,958
|
)
|
$
|
403,617
|
14.9
|
$
|
498,580
|
$
|
(126,161
|
)
|
$
|
372,419
|
14.9
|
|||||||
|
Noncompete
agreements
|
25,420
|
(21,188
|
)
|
4,232
|
7.7
|
|
34,154
|
(28,666
|
)
|
5,488
|
7.0
|
||||||||||||
|
Total
|
$
|
571,995
|
$
|
(164,146
|
)
|
$
|
407,849
|
$
|
532,734
|
$
|
(154,827
|
)
|
$
|
377,907
|
|||||||||
Amortization
expense for other amortizable intangible assets for the years ending December
31, 2006, 2007, 2008, 2009 and 2010 is estimated to be $36,542,000, $37,640,000,
$36,747,000, $36,278,000, and $35,621,000, respectively.
NOTE
9 • Long-Term Debt
Long-term
debt at September 30, 2006 and December 31, 2005 consisted of the following:
|
(in
thousands)
|
2006
|
2005
|
|||||
|
Unsecured
Senior Notes
|
$
|
200,000
|
$
|
200,000
|
|||
|
Acquisition
notes payable
|
13,071
|
43,889
|
|||||
|
Term
loan agreements
|
16,072
|
25,714
|
|||||
|
Revolving
credit facility
|
40,000
|
—
|
|||||
|
Other
notes payable
|
176
|
206
|
|||||
|
Total
debt
|
269,319
|
269,809
|
|||||
|
Less
current portion
|
(64,418
|
)
|
(55,630
|
)
|
|||
|
Long-term
debt
|
$
|
204,901
|
$
|
214,179
|
In
July
2004, Brown & Brown completed a private placement of $200.0 million of
unsecured senior notes (the “Notes”). The $200.0 million Notes are divided into
two series: Series A, for $100.0 million due in 2011 and bearing interest at
5.57% per year; and Series B, for $100.0 million due in 2014 and bearing
interest at 6.08% per year. The closing on the Series B Notes occurred on July
15, 2004. The closing on the Series A Notes occurred on September 15, 2004.
Brown & Brown has used the proceeds from the Notes for general corporate
purposes, including acquisitions and repayment of existing debt. As of September
30, 2006 and December 31, 2005 there was an outstanding balance of $200.0
million on the Notes.
In
September 2003, Brown & Brown established an unsecured revolving credit
facility with a national banking institution that provided for available
borrowings of up to $75.0 million, with a maturity date of October 2008, bearing
an interest rate based upon the 30-, 60- or 90-day London InterBank Offered
Rate
(“LIBOR”) plus 0.625% to 1.625%, depending upon the Company’s quarterly ratio of
funded debt to earnings before interest, taxes, depreciation, amortization
and
non-cash stock-based compensation. A commitment fee of 0.175% to 0.375% per
annum is assessed on the unused balance. The 90-day LIBOR was 5.37% and 4.53%
as
of September 30, 2006 and December 31, 2005, respectively. There was $40.0
million borrowed against this facility at September 30, 2006.
In
January 2001, Brown & Brown entered into a $90.0 million unsecured
seven-year term loan agreement with a national banking institution, bearing
an
interest rate based upon the 30-, 60- or 90-day LIBOR plus 0.50% to 1.00%,
depending upon Brown & Brown’s quarterly ratio of funded debt to earnings
before interest, taxes, depreciation, amortization and non-cash stock grant
compensation. The 90-day LIBOR was 5.37% and 4.53% as of September 30, 2006
and
December 31, 2005, respectively. The loan was fully funded on January 3, 2001
and as of September 30, 2006 had an outstanding balance of $16,072,000. This
loan is to be repaid in equal quarterly installments of $3,200,000 through
December 2007.
All
three
of these credit agreements require Brown & Brown to maintain certain
financial ratios and comply with certain other covenants. Brown & Brown was
in compliance with all such covenants as of September 30, 2006 and December
31,
2005.
12
To
hedge
the risk of increasing interest rates from January 2, 2002 through the remaining
six years of its seven-year $90 million term loan, Brown & Brown entered
into an interest rate exchange (“swap”) agreement that effectively converted the
floating rate LIBOR-based interest payments to fixed interest rate payments
at
4.53%. This agreement did not affect the required 0.50% to 1.00% credit risk
spread portion of the term loan. In accordance with SFAS No. 133, as amended,
the fair value of the interest rate swap of approximately $52,000, net of
related income taxes of approximately $31,000, was recorded in other assets
as
of September 30, 2006, and $36,000, net of related income taxes of approximately
$22,000, was recorded in other asset as of December 31, 2005; with the related
change in fair value reflected as other comprehensive income. Brown & Brown
has designated and assessed the derivative as a highly effective cash flow
hedge.
Acquisition
notes payable represent debt incurred to former owners of certain insurance
operations acquired by Brown & Brown. These notes and future contingent
payments are payable in monthly, quarterly and annual installments through
April
2011, including interest in the range from 0% to 8.05%.
NOTE
10 • Supplemental Disclosures of Cash Flow Information
|
For
the nine months
ended
September 30,
|
|||||||
|
(in
thousands)
|
2006
|
2005
|
|||||
|
Cash
paid during the period for:
|
|||||||
|
Interest
|
$
|
13,821
|
$
|
13,309
|
|||
|
Income
taxes
|
$
|
78,469
|
$
|
62,207
|
|||
Brown
& Brown’s significant non-cash investing and financing activities are
summarized as follows:
|
For
the nine months
ended
September 30,
|
|||||||
|
(in
thousands)
|
2006
|
2005
|
|||||
|
Unrealized
holding gain (loss) on available-for-sale securities, net of tax
effect of
$1,245 for 2006; net of tax benefit of $(119) for 2005
|
$
|
2,106
|
$
|
(121
|
)
|
||
|
Net
gain on cash-flow hedging derivative, net of tax effect of $9 for
2006,
net of tax effect of $254 for 2005
|
$
|
16
|
$
|
435
|
|||
|
Notes
payable issued or assumed for purchased customer accounts
|
$
|
36,238
|
$
|
36,697
|
|||
|
Notes
received on the sale of fixed assets and customer accounts
|
$
|
2,135
|
$
|
2,130
|
|||
NOTE
11 • Comprehensive Income
The
components of comprehensive income, net of related income tax effects, are
as
follows:
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
||||||||||||
|
(in
thousands)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
|
Net
income
|
$
|
40,270
|
$
|
34,783
|
$
|
134,727
|
$
|
114,834
|
|||||
|
Net
unrealized holding gain (loss) on available-for-sale
securities
|
1,330
|
879
|
2,106
|
(121
|
)
|
||||||||
|
Net
(loss) gain on cash-flow hedging derivative
|
(58
|
)
|
149
|
16
|
435
|
||||||||
|
Comprehensive
income
|
$
|
41,542
|
$
|
35,811
|
$
|
136,849
|
$
|
115,148
|
|||||
NOTE
12 • Legal and Regulatory Proceedings
Antitrust
Actions and Related Matters
As
previously disclosed, Brown & Brown, Inc. is one of more than ten insurance
intermediaries named together with a number of insurance companies as defendants
in putative class action lawsuits purporting to be brought on behalf of
policyholders. Brown & Brown, Inc. initially became a defendant in certain
of those actions in October and December of 2004. In February 2005, the Judicial
Panel on Multi-District Litigation consolidated these
13
cases,
together with other putative class action lawsuits in which Brown & Brown,
Inc. was not named as a party, to a single jurisdiction, the United States
District Court, District of New Jersey, for pre-trial purposes. One of the
consolidated actions, In
Re: Employee-Benefits Insurance Antitrust Litigation,
concerns employee benefits insurance and the other, styled In
Re: Insurance Brokerage Antitrust Litigation,
involves other lines of insurance. These two consolidated actions are
collectively referred to in this report as the “Antitrust Actions.” The
complaints refer to an action, since settled, that was filed against Marsh
&
McLennan Companies, Inc. (“Marsh & McLennan”), the largest insurance broker
in the world, by the New York State Attorney General in October 2004, and allege
various improprieties and unlawful acts by the various defendants in the pricing
and placement of insurance, including alleged manipulation of the insurance
market by, among other things: alleged “bid rigging” and “steering” clients to
particular insurers based on considerations other than the clients’ interests;
alleged entry into unlawful tying arrangements pursuant to which the placement
of primary insurance contracts was conditioned upon commitments to place
reinsurance through a particular broker; and alleged failure to disclose
contingent commission and other allegedly improper compensation and fee
arrangements. The plaintiffs in the Antitrust Actions assert a number of causes
of action, including violations of the federal antitrust laws, multiple state
antitrust and unfair and deceptive practices statutes, and the federal
anti-racketeering (RICO) statute, as well as breach of fiduciary duty,
misrepresentation, conspiracy, aiding and abetting, and unjust enrichment,
and
seek injunctive and declaratory relief as well as unspecified damages, including
treble and punitive damages, and attorneys’ fees and costs. Brown & Brown,
Inc. disputes the allegations and is vigorously defending itself in the
Antitrust Actions.
Related
Regulatory Proceedings
Since
the
New York State Attorney General filed the lawsuit referenced above against
Marsh
& McLennan in October 2004, governmental agencies in a number of states have
looked or are looking into issues related to compensation practices in the
insurance industry, and the Company continues to actively receive and respond
to
written and oral requests for information and/or subpoenas seeking information
related to this topic. To date, requests for information and/or subpoenas have
been received from governmental agencies such as attorneys general or
departments of insurance in the following states: Arkansas (Department of
Insurance), Arizona (Department of Insurance), California (Department of
Insurance), Connecticut (Office of Attorney General), Florida (Office of
Attorney General, Department of Financial Services, and Office of Insurance
Regulation), Illinois (Office of Attorney General), Nevada (Department of
Business & Industry, Division of Insurance), New Hampshire (Department of
Insurance), New Jersey (Department of Banking and Insurance), New York (Office
of Attorney General), North Carolina (Department of Insurance and Department
of
Justice), Oklahoma (Department of Insurance), Pennsylvania (Department of
Insurance), South Carolina (Department of Insurance), Texas (Department of
Insurance), Vermont (Department of Banking, Insurance, Securities &
Healthcare Administration), Virginia (State Corporation Commission, Bureau
of
Insurance, Agent Regulation & Administration Division), Washington (Office
of Insurance Commissioner) and West Virginia (Office of Attorney General).
Agencies in Arizona, Virginia and Washington have concluded their respective
investigations of subsidiaries of Brown & Brown, Inc. based in those states
with no further action as to these entities.
As
previously disclosed in our public filings, offices of the Company are party
to
contingent commission agreements with certain insurance companies, including
agreements providing for potential payment of revenue-sharing commissions by
insurance companies based primarily on the overall profitability of the
aggregate business written with that insurance company, and/or additional
factors such as retention ratios and overall volume of business that an office
or offices place with the insurance company. Additionally, to a lesser extent,
some offices of the Company are party to override commission agreements with
certain insurance companies, and these agreements provide for commission rates
in excess of standard commission rates to be applied to specific lines of
business, such as group health business, based primarily on the overall volume
of such business that the office or offices in question place with the insurance
company. The Company has not chosen to discontinue receiving contingent
commissions or override commissions.
As
previously disclosed, a committee comprised of independent members of the Board
of Directors of Brown & Brown, Inc. (the “Special Review Committee”)
determined that maintenance of a derivative suit was not in the best interests
of the Company, following an investigation in response to a December 2004 demand
letter from counsel purporting to represent a current shareholder of Brown
&
Brown, Inc. (the “Demand Letter”). The Demand Letter sought the commencement of
a derivative suit by Brown & Brown, Inc. against the Board of Directors and
current and former officers and directors of Brown & Brown, Inc. for alleged
breaches of fiduciary duty related to the Company’s participation in contingent
commission agreements. The Special Review Committee’s conclusions were
communicated to the purported shareholder’s counsel and there has been limited
communication since then. There can be no assurance that the purported
shareholder will not further pursue his allegations or that any pursuit of
any
such allegations would not have a material adverse effect on the
Company.
14
In
response to the foregoing events, the Company also, on its own volition, engaged
outside counsel to conduct a limited internal inquiry into certain
sales and marketing practices of the Company, with special emphasis on the
effects of contingent commission agreements on the placement of insurance
products by the Company for its clients. The internal inquiry resulted in
several recommendations being made in January 2006 regarding disclosure of
compensation, premium finance charges, interface between the Company’s retail
and wholesale units, fee-based compensation and direct incentives from insurance
companies. The Company has been evaluating these recommendations and has adopted
or is in the process of adopting these recommendations. As a result of that
inquiry, and in the process of preparing responses to some of the governmental
agency inquiries referenced above, management of the Company became aware
of a limited number of specific, unrelated instances of questionable
conduct. These matters have been addressed and resolved, or are in the process
of being addressed and resolved, on a case-by-case basis, and thus far the
amounts involved in resolving such matters have not been, either individually
or
in the aggregate, material. However, there can be no assurance that the ultimate
cost and ramifications of resolving these matters will not have a material
adverse effect on the Company.
Some
of
the other insurance intermediaries and insurance companies that have been
subject to governmental investigations and/or lawsuits arising out of these
matters have chosen to settle some such matters. Such settlements have involved
the payment of substantial sums, as well as agreements to change business
practices including, in some cases, agreements to no longer pay or accept
contingent commissions. Marsh & McLennan, Aon Corporation, Arthur J.
Gallagher & Co., Hilb, Rogal & Hobbs Company (“HRH”), and Willis Group
Holdings Ltd. have each entered into agreements with governmental agencies,
which collectively involve payments by these intermediaries to agencies and
to
certain of their clients totaling nearly $1 billion. With the exception of
the
settlement entered into by HRH, which included an agreement that HRH would
discontinue acceptance of certain types of contingency compensation, these
agreements provided that these insurance intermediaries would discontinue
acceptance of any contingency compensation.
The
Company cannot currently predict the impact or resolution of the Antitrust
Actions, the shareholder demand or the various governmental inquiries or
lawsuits and thus cannot reasonably estimate a range of possible loss, which
could be material, or whether the resolution of these matters may harm the
Company’s business and/or lead to a decrease in or elimination of contingent
commissions and override commissions, which could have a material adverse impact
on the Company’s consolidated financial condition.
Other
The
Company is involved in numerous pending or threatened proceedings by or against
Brown & Brown, Inc. or one or more of its subsidiaries that arise in the
ordinary course of business. The damages that may be claimed against the Company
in these various proceedings are substantial, including in many instances claims
for punitive or extraordinary damages. Some of these claims and lawsuits have
been resolved, others are in the process of being resolved, and others are
still
in the investigation or discovery phase. The Company will continue to respond
appropriately to these claims and lawsuits, and to vigorously protect its
interests.
Among
the
above-referenced claims, and as previously described in the Company’s public
filings, there are several threatened and pending legal claims and lawsuits
against Brown & Brown, Inc. and Brown & Brown Insurance Services of
Texas, Inc. (BBTX), a subsidiary of Brown & Brown, Inc., arising out of
BBTX’s involvement with the procurement and placement of workers’ compensation
insurance coverage for entities including several professional employer
organizations. One such action, styled Great
American Insurance Company, et al. v. The Contractor’s Advantage, Inc., et
al.,
Cause
No. 2002-33960, pending in the 189th Judicial District Court in Harris County,
Texas, asserts numerous causes of action, including fraud, civil conspiracy,
federal Lanham Act and RICO violations, breach of fiduciary duty, breach of
contract, negligence and violations of the Texas Insurance Code against BBTX,
Brown & Brown, Inc. and other defendants, and seeks recovery of punitive or
extraordinary damages (such as treble damages) and attorneys’ fees. Although the
ultimate outcome of the matters referenced in this section titled “Other” cannot
be ascertained and liabilities in indeterminate amounts may be imposed on Brown
& Brown, Inc. or its subsidiaries, on the basis of present information,
availability of insurance and legal advice received, it is the opinion of
management that the disposition or ultimate determination of such claims will
not have a material adverse effect on the Company’s consolidated financial
position. However, as (i) one or more of the Company’s insurance carriers could
take the position that portions of these claims are not covered by the Company’s
insurance, (ii) to the extent that payments are made to resolve claims and
lawsuits, applicable insurance policy limits are eroded, and (iii) the claims
and lawsuits relating to these matters are continuing to develop, it is possible
that future results of operations or cash flows for any particular quarterly
or
annual period could be materially affected by unfavorable resolutions of these
matters.
15
NOTE
13 • Segment Information
Brown
& Brown’s business is divided into four reportable segments: the Retail
Division, which provides a broad range of insurance products and services to
commercial, governmental, professional and individual customers; the National
Programs Division, which is comprised of two units - Professional Programs,
which provides professional liability and related package products for certain
professionals delivered through nationwide networks of independent agents,
and
Special Programs, which markets targeted products and services designated for
specific industries, trade groups, governmental entities, and market niches;
the
Brokerage Division, which markets and sells excess and surplus commercial and
personal lines insurance, and reinsurance, primarily through independent agents
and brokers; and the Services Division, which provides insurance-related
services, including third-party administration, consulting for the workers’
compensation and employee benefit self-insurance markets, and managed healthcare
services. Brown & Brown conducts all of its operations within the United
States of America.
Summarized
financial information concerning Brown & Brown’s reportable segments for the
nine months ended September 30, 2006 and 2005 is shown in the following table.
The “Other” column includes any income and expenses not allocated to reportable
segments and corporate-related items, including the inter-company interest
expense charge to the reporting segment.
|
For
the nine months ended September 30, 2006
|
|||||||||||||||||||
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Services
|
Other
|
Total
|
|||||||||||||
|
Total
revenues
|
$
|
395,812
|
$
|
113,149
|
$
|
125,110
|
$
|
23,893
|
$
|
5,390
|
$
|
663,354
|
|||||||
|
Investment
income
|
71
|
320
|
3,310
|
35
|
4,647
|
8,383
|
|||||||||||||
|
Amortization
|
14,507
|
6,458
|
5,848
|
220
|
34
|
27,067
|
|||||||||||||
|
Depreciation
|
4,251
|
1,697
|
1,464
|
383
|
507
|
8,302
|
|||||||||||||
|
Interest
expense
|
14,372
|
7,768
|
13,568
|
275
|
(25,903
|
)
|
10,080
|
||||||||||||
|
Income before income
taxes
|
114,845
|
35,383
|
24,351
|
6,030
|
37,359
|
217,968
|
|||||||||||||
|
Total
assets
|
1,082,425
|
564,337
|
617,665
|
31,578
|
(492,837
|
)
|
1,803,168
|
||||||||||||
|
Capital
expenditures
|
4,832
|
2,976
|
1,506
|
472
|
2,536
|
12,322
|
|||||||||||||
|
For
the nine months ended September 30, 2005
|
|||||||||||||||||||
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Services
|
Other
|
Total
|
|||||||||||||
|
Total
revenues
|
$
|
374,118
|
$
|
96,660
|
$
|
92,682
|
$
|
20,605
|
$
|
4,885
|
$
|
588,950
|
|||||||
|
Investment
income
|
61
|
273
|
974
|
—
|
2,967
|
4,275
|
|||||||||||||
|
Amortization
|
14,361
|
5,998
|
3,908
|
33
|
44
|
24,344
|
|||||||||||||
|
Depreciation
|
4,247
|
1,479
|
861
|
325
|
520
|
7,432
|
|||||||||||||
|
Interest
expense
|
15,632
|
7,818
|
8,918
|
3
|
(21,480
|
)
|
10,891
|
||||||||||||
|
Income
before income taxes
|
101,623
|
26,049
|
21,608
|
5,395
|
31,995
|
186,670
|
|||||||||||||
|
Total
assets
|
922,379
|
424,517
|
462,311
|
15,935
|
(299,403
|
)
|
1,525,739
|
||||||||||||
|
Capital
expenditures
|
4,829
|
2,619
|
1,410
|
290
|
643
|
9,791
|
|||||||||||||
16
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THE
FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN THE COMPANY’S 2005 ANNUAL
REPORT ON FORM 10-K, AND THE TWO DISCUSSIONS SHOULD BE READ
TOGETHER.
GENERAL
We
are a
general insurance and brokerage agency that commenced business in 1939 and
are
headquartered in Daytona Beach and Tampa, Florida. We market and sell to our
customers insurance products and services, primarily in the property, casualty
and the employee benefits markets. As an agent and broker, we do not assume
underwriting risks. Instead, we provide our customers with quality insurance
contracts, as well as other targeted, customized risk management products and
services.
Our
commissions and fees revenue are comprised of commissions paid by insurance
companies and fees paid directly by customers. Commission revenues generally
represent a percentage of the premium paid by the insured and are materially
affected by fluctuations in both premium rate levels charged by insurance
companies and the insureds’ underlying “insurable exposure units,” which are
units that insurance companies use to measure or express insurance exposed
to
risk (such as property values, sales and payroll levels) so as to determine
what
premium to charge the insured. These premium rates are established by insurance
companies based upon many factors, including reinsurance rates, none of which
we
control. Beginning in 1986 and continuing through 1999, commission revenues
were
adversely influenced by a consistent decline in premium rates resulting from
intense competition among property and casualty insurance companies for market
share. Among other factors, this condition of a prevailing decline in premium
rates, commonly referred to as a “soft market,” generally resulted in flat to
reduced commissions on renewal business. The effect of this softness in rates
on
our commission revenues was somewhat offset by our acquisitions and net new
business production. As a result of increasing “loss ratios” (the comparison of
incurred losses plus adjustment expenses against earned premiums) of insurance
companies through 1999, there was a general increase in premium rates beginning
in the first quarter of 2000 and continuing into 2003. During 2003, the
increases in premium rates began to moderate, and in certain lines of insurance,
premium rates decreased. In 2004, as general premium rates continued to
moderate, the insurance industry experienced the worst hurricane season since
1992 when Hurricane Andrew hit south Florida. The insured losses from the 2004
hurricane season were absorbed relatively easily by the insurance industry
and
the general insurance premium rates continued to soften during 2005. During
the
third quarter of 2005, the insurance industry experienced the worst hurricane
season ever recorded. Primarily as a result of these hurricanes, including
Hurricanes Katrina, Rita and Wilma, the total insured losses are estimated
to be
in excess of $50 billion. As a result of the 2005 insured losses, there is
upward pressure on the insurance premium rates on coastal property, primarily
in
the southeastern part of the United States. In other parts of the country,
premium rates continue to be generally “soft”.
We
also
earn “contingent commissions,” which are profit-sharing commissions based
primarily on underwriting results, but may also reflect considerations for
volume, growth and/or retention. These commissions are primarily received in
the
first and second quarters of each year, based on underwriting results and other
aforementioned considerations for the prior year(s), and, over the last three
years, have averaged approximately 6.0% of the previous year’s total commissions
and fees revenue. Contingent commissions are included in our total commissions
and fees in the Consolidated Statements of Income in the year received. The
term
“core commissions and fees” excludes contingent commissions and therefore
represents the revenues earned directly from specific insurance policies sold,
and specific fee-based services rendered.
Fee
revenues are generated primarily by our Services Division, which provides
insurance-related services, including third-party administration and consulting
for the self-funded workers’ compensation markets and Medicare set-aside
services and programs.
Investment
income consists primarily of interest earnings on premiums and advance premiums
collected and held in a fiduciary capacity before being remitted to insurance
companies. Our policy is to invest available funds in high-quality, short-term
fixed income investment securities. Investment income also includes gains and
losses realized from the sale of investments.
17
Critical
Accounting Policies
Our
Consolidated Financial Statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses. We continually evaluate our estimates, which are based on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. These estimates form the basis for our judgments about
the carrying values of our assets and liabilities, which values are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
The
more
critical accounting and reporting policies include our accounting for revenue
recognition, business acquisitions and purchase price allocations, intangible
assets impairments, reserves for litigation and derivative interests. In
particular, the accounting for these areas requires significant judgments to
be
made by management. Different assumptions in the application of these policies
could result in material changes in our consolidated financial position or
consolidated results of operations. Refer to Note 1 in the “Notes to
Consolidated Financial Statements” in our 2005 Annual Report on Form 10-K on
file with the Securities and Exchange Commission for details regarding all
of
our critical and significant accounting policies.
Effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123R,
Share-Based Payment (“SFAS 123R”),
for its
stock-based compensation plans. Results for prior periods have not been
restated.
Prior
to
January 1, 2006, the Company accounted for stock-based compensation using the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting
for Stock Issued to Employees
(“APB
No. 25”), and related interpretations, and disclosure requirements established
by SFAS No. 123, Accounting
for Stock-Based Compensation
(“SFAS
123”), as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transitions and Disclosures
(“SFAS
148”).
All
share
and per share information has been restated to give effect to a two-for-one
common stock split that became effective November 28, 2005. That split was
effected as a stock dividend.
RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
2005
The
following discussion and analysis regarding results of operations, and liquidity
and capital resources should be considered in conjunction with the accompanying
Condensed Consolidated Financial Statements and related Notes.
18
Financial
information relating to our Condensed Consolidated Financial Results for the
three and nine months ended September 30, 2006 and 2005 is as follows (in
thousands, except percentages):
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
||||||||||||||||||
|
2006
|
2005
|
%
Change
|
2006
|
2005
|
%
Change
|
||||||||||||||
|
REVENUES
|
|||||||||||||||||||
|
Commissions
and fees
|
$
|
206,466
|
$
|
185,881
|
11.1
|
%
|
$
|
613,737
|
$
|
547,088
|
12.2
|
%
|
|||||||
|
Contingent
commissions
|
2,092
|
2,563
|
(18.4
|
)%
|
40,163
|
34,409
|
16.7
|
%
|
|||||||||||
|
Investment
income
|
3,218
|
1,786
|
80.2
|
%
|
8,383
|
4,275
|
96.1
|
%
|
|||||||||||
|
Other
income, net
|
189
|
415
|
(54.5
|
)%
|
1,071
|
3,178
|
(66.3
|
)%
|
|||||||||||
|
Total
revenues
|
211,965
|
190,645
|
11.2
|
%
|
663,354
|
588,950
|
12.6
|
%
|
|||||||||||
|
EXPENSES
|
|||||||||||||||||||
|
Employee
compensation and benefits
|
100,821
|
94,009
|
7.2
|
%
|
304,731
|
278,493
|
9.4
|
%
|
|||||||||||
|
Non-cash
stock-based compensation
|
837
|
681
|
22.9
|
%
|
4,601
|
2,360
|
95.0
|
%
|
|||||||||||
|
Other
operating expenses
|
29,502
|
25,638
|
15.1
|
%
|
90,605
|
78,760
|
15.0
|
%
|
|||||||||||
|
Amortization
|
9,089
|
8,452
|
7.5
|
%
|
27,067
|
24,344
|
11.2
|
%
|
|||||||||||
|
Depreciation
|
2,922
|
2,538
|
15.1
|
%
|
8,302
|
7,432
|
11.7
|
%
|
|||||||||||
|
Interest
|
3,229
|
3,638
|
(11.2
|
)%
|
10,080
|
10,891
|
(7.4
|
)%
|
|||||||||||
|
Total
expenses
|
146,400
|
134,956
|
8.5
|
%
|
445,386
|
402,280
|
10.7
|
%
|
|||||||||||
|
Income
before income taxes
|
65,656
|
55,689
|
17.7
|
%
|
217,968
|
186,670
|
16.8
|
%
|
|||||||||||
|
Income
taxes
|
25,295
|
20,906
|
21.0
|
%
|
83,241
|
71,836
|
15.9
|
%
|
|||||||||||
|
NET
INCOME
|
$
|
40,270
|
$
|
34,783
|
15.8
|
%
|
$
|
134,727
|
$
|
114,834
|
17.3
|
%
|
|||||||
|
Net
internal growth rate - core commissions and fees
|
5.2
|
%
|
1.3
|
%
|
4.5
|
%
|
2.3
|
%
|
|||||||||||
|
Employee
compensation and benefits ratio
|
47.6
|
%
|
49.3
|
%
|
45.9
|
%
|
47.3
|
%
|
|||||||||||
|
Other
operating expenses ratio
|
13.9
|
%
|
13.4
|
%
|
13.7
|
%
|
13.4
|
%
|
|||||||||||
|
Capital
expenditures
|
$
|
3,226
|
$
|
2,581
|
$
|
12,322
|
$
|
9,791
|
|||||||||||
|
Total
assets at September 30, 2006 and 2005
|
$
|
1,803,168
|
$
|
1,525,739
|
Net
Income
Net
income for the third quarter of 2006 was $40.3 million, or $0.29 per diluted
share, compared with net income in the third quarter of 2005 of $34.8 million,
or $0.25 per diluted share, a 16.0% increase on a per-share basis. Net income
for the nine months ended September 30, 2006 was $134.7 million or $0.96 per
diluted share, compared with net income for the comparable period in 2005 of
$114.8 million, or $0.82 per diluted share, a 17.1 % increase on a per-share
basis.
Commissions
and Fees
Commissions
and fees, including contingent commissions, for the third quarter of 2006
increased $20.1 million, or 10.7%, over the same period in 2005. Contingent
commissions for the third quarter of 2006 decreased $0.5 million over the third
quarter of 2005, to $2.1 million. Core commissions and fees are our commissions
and fees, less (i) contingent commissions and (ii) divested business
(commissions and fees generated from offices, books of business or niches sold
or terminated). Core commissions and fees revenue for the third quarter of
2006
increased $21.2 million, of which approximately $11.5 million represents core
commissions and fees from agencies acquired since the third quarter of 2005.
After divested business of $0.6 million, the remaining $9.7 million represents
net new business production, which reflects a 5.2% internal growth rate for
core
commissions and fees. Commissions and fees for the nine months ended September
30, 2006 increased $72.4 million, or 12.5%, over the same period in 2005. For
the nine months ended September 30, 2006, contingent commissions increased
$5.8
million over the comparable period in 2005. Core commissions and fees revenue
for the first nine months of 2006 increased $68.2 million, of which
approximately $43.6 million of the total increase represents core commissions
and fees from agencies acquired since the comparable period in 2005. After
divested business of $1.6 million, the remaining $24.6 million represents net
new business production, which reflects a 4.5% internal growth rate for core
commissions and fees.
Investment
Income
Investment
income for the three months ended September 30, 2006 increased $1.4 million,
or
80.2%, over the same period in 2005. Investment income for the nine months
ended
September 30, 2006 increased $4.1 million, or 96.1%, over the same period in
2005. These increases in investment income were primarily due to higher
investment yield rates.
Other
Income, net
Other
income for the three months ended September 30, 2006 decreased $0.2 million,
or
54.5%, over the same period in 2005. Other income for the nine months ended
September 30, 2006 decreased $2.1 million, or 66.3%, over the same period in
2005. Other income consists primarily of gains and losses from the sale and
disposition of assets. The majority of the gain for the nine months ended
September 30, 2005 was the result of the completion of the one year earn-out
from the sale of our medical services operation in Louisiana in June
2004.
19
Employee
Compensation and Benefits
Employee
compensation and benefits for the third quarter of 2006 increased $6.8 million,
or 7.2%, over the same period in 2005. Employee compensation and benefits for
the nine months ended September 30, 2006 increased $26.2 million, or 9.4%,
over
the same period in 2005. These increases are primarily related to the addition
of new employees from acquisitions completed since October 1, 2005 and increased
compensation that resulted from higher commissions and fees revenue. Employee
compensation and benefits as a percentage of total revenue decreased to 47.6%
for the third quarter of 2006, from 49.3% for the third quarter of 2005. For
the
nine months ended September 30, 2006, employee compensation and benefits as
a
percentage of total revenue decreased to 45.9%, from 47.3% for the same period
in 2005. These improved ratios for the three and nine month periods were the
result of the continued assimilation of the acquisitions completed in 2005
and
2006 into our standard compensation program.
Non-Cash
Stock-Based Compensation
Non-cash
stock-based compensation for the three and nine months ended September 30,
2006
increased approximately $0.2 million, or 22.9%, and $2.2 million, or 95.0%,
respectively. As more fully described in Notes 4 and 5 of the Condensed
Consolidated Financial Statements, the increase was due to the implementation
of
SFAS No. 123R. The majority of the increased cost primarily relates to the
expensing of the 15% discount granted to participants under our 1990
Employee Stock Purchase Plan.
Other
Operating Expenses
Other
operating expenses for the third quarter of 2006 increased $3.9 million, or
15.1%, over the same period in 2005. For the nine months ended September 30,
2006, other operating expenses increased $11.8 million, or 15.0%, over the
same
period in 2005. These increases are primarily the result of acquisitions
completed since the fourth quarter of 2005 that had no comparable results in
the
same period of 2005. Other operating expenses as a percentage of revenues for
the third quarter of 2006 increased to 13.9%, compared with 13.4% for the same
period in 2005. For the nine months ended September 30, 2006, other operating
expenses as a percentage of revenues increased to 13.7%, compared with 13.4%
for
the same period in 2005. The slight increase during the nine months ended
September 30, 2006 was due to a general increase in travel and entertainment
expenses in 2006, and the fact that in 2005 there was a $1.0 million reversal
for an accrual for the revoked Florida Communications Tax.
Amortization
Amortization
expense for the third quarter of 2006 increased $0.6 million, or 7.5%, over
the
third quarter of 2005. For the nine months ended September 30, 2006,
amortization expense increased $2.7 million, or 11.2%, over the same period
in
2005. These increases are primarily due to acquisitions completed since October
1, 2005.
Depreciation
Depreciation
expense for the third quarter of 2006 increased $0.4 million, or 15.1%, over
the
third quarter of 2005. For the nine months ended September 30, 2006,
depreciation expense increased $0.9 million, or 11.7%, over the same period
in
2005. These increases are due to capital expenditures and fixed assets purchased
in acquisitions completed since October 1, 2005.
Interest
Expense
Interest
expense for the third quarter of 2006 decreased $0.4 million, or 11.2%, over
the
same period in 2005. For the nine months ended September 30, 2006, interest
expense decreased $0.8 million, or 7.4%, over the same period in 2005.
RESULTS
OF OPERATIONS - SEGMENT INFORMATION
As
discussed in Note 13 of the Notes to Condensed Consolidated Financial
Statements, we operate in four reportable segments: the Retail, National
Programs, Brokerage and Services Divisions. On a divisional basis, increases
in
amortization, depreciation and interest expenses are the result of new
acquisitions within that division in a particular year. Likewise, other income
in each division primarily reflects net gains on sales of customer accounts
and
fixed assets. In evaluating the operational efficiency of a division, management
places greater emphasis on the net internal growth rate of core commissions
and
fees revenue, the gradual improvement of the ratio of employee compensation
and
benefits to total revenues, and the gradual improvement of the ratio of other
operating expenses to total revenues.
20
Our
core
commissions and fees internal growth rates for the three months ended September
30, 2006 by divisional units are as follows (in thousands, except
percentages):
|
|
|||||||||||||||||||
|
For
the three months
ended
September 30,
|
Total
Net
Change
|
Total
Net
Growth%
|
Less
Acquisition
Revenues
|
Internal
Net
Growth%
|
|||||||||||||||
|
2006
|
2005
|
||||||||||||||||||
|
Florida
Retail
|
$
|
44,083
|
$
|
38,146
|
$
|
5,937
|
15.6
|
%
|
$
|
109
|
15.3
|
%
|
|||||||
|
National
Retail
|
52,874
|
48,555
|
4,319
|
8.9
|
%
|
3,896
|
0.9
|
%
|
|||||||||||
|
Western
Retail
|
26,896
|
26,848
|
48
|
0.2
|
%
|
1,269
|
(4.5
|
)%
|
|||||||||||
|
Total
Retail(1)
|
123,853
|
113,549
|
10,304
|
9.1
|
%
|
5,274
|
4.4
|
%
|
|||||||||||
|
Professional
Programs
|
10,806
|
10,820
|
(14
|
)
|
(0.1
|
)%
|
—
|
(0.1
|
)%
|
||||||||||
|
Special
Programs
|
26,626
|
22,080
|
4,546
|
20.6
|
%
|
2,376
|
9.8
|
%
|
|||||||||||
|
Total
National Programs
|
37,432
|
32,900
|
4,532
|
13.8
|
%
|
2,376
|
6.6
|
%
|
|||||||||||
|
Brokerage
|
36,017
|
31,990
|
4,027
|
12.6
|
%
|
2,238
|
5.6
|
%
|
|||||||||||
|
Services
|
9,164
|
6,821
|
2,343
|
34.3
|
%
|
1,608
|
10.8
|
%
|
|||||||||||
|
Total
Core Commissions and Fees
|
$
|
206,466
|
$
|
185,260
|
$
|
21,206
|
11.4
|
%
|
$
|
11,496
|
5.2
|
%
|
|||||||
| (1) |
The
Retail segment includes commissions and fees reported in the “Other”
column of the Segment Information in Note 13 which includes corporate
and
consolidation items.
|
The
reconciliation of the above internal growth schedule to the total Commissions
and Fees included in the Condensed Consolidated Statements of Income for the
three months ended September 30, 2006 and 2005 is as follows (in thousands,
except percentages):
|
For
the three months
ended
September 30,
|
|||||||
|
2006
|
2005
|
||||||
|
Total
core commissions and fees
|
$
|
206,466
|
$
|
185,260
|
|||
|
Contingent
commissions
|
2,092
|
2,563
|
|||||
|
Divested
business
|
—
|
621
|
|||||
|
Total
commission & fees
|
$
|
208,558
|
$
|
188,444
|
|||
Our
core
commissions and fees internal growth rates for the nine months ended September
30, 2006 by divisional units are as follows (in thousands,
except percentages):
|
For
the nine months
ended
September 30,
|
Total
Net
Change
|
Total
Net
Growth%
|
Less
Acquisition
Revenues
|
Internal
Net
Growth%
|
|||||||||||||||
|
2006
|
2005
|
||||||||||||||||||
|
Florida
Retail
|
$
|
130,372
|
$
|
116,195
|
$
|
14,177
|
12.2
|
%
|
$
|
490
|
11.8
|
%
|
|||||||
|
National
Retail
|
157,156
|
149,115
|
8,041
|
5.4
|
%
|
9,995
|
(1.3
|
)%
|
|||||||||||
|
Western
Retail
|
78,347
|
77,478
|
869
|
1.1
|
%
|
4.134
|
(4.2
|
)%
|
|||||||||||
|
Total
Retail(1)
|
365,875
|
342,788
|
23,087
|
6.7
|
%
|
14,619
|
2.5
|
%
|
|||||||||||
|
Professional
Programs
|
30,268
|
31,433
|
(1,165
|
)
|
(3.7
|
)%
|
—
|
(3.7
|
)%
|
||||||||||
|
Special
Programs
|
79,839
|
64,199
|
15,640
|
24.4
|
%
|
6,605
|
14.1
|
%
|
|||||||||||
|
Total
National Programs
|
110,107
|
95,632
|
14,475
|
15.1
|
%
|
6,605
|
8.2
|
%
|
|||||||||||
|
Brokerage
|
113,896
|
87,433
|
26,463
|
30.3
|
%
|
19,406
|
8.1
|
%
|
|||||||||||
|
Services
|
23,859
|
19,653
|
4,206
|
21.4
|
%
|
2,956
|
6.4
|
%
|
|||||||||||
|
Total
Core Commissions and Fees
|
$
|
613,737
|
$
|
545,506
|
$
|
68,231
|
12.5
|
%
|
$
|
43,586
|
4.5
|
%
|
|||||||
| (1) |
The
Retail segment includes commissions and fees reported in the “Other”
column of the Segment Information in Note 13 which includes corporate
and
consolidation items.
|
The
reconciliation of the above internal growth schedule to the total Commissions
and Fees included in the Condensed Consolidated Statements of Income for the
nine months ended September 30, 2006 and 2005 is as follows (in thousands,
except percentages):
|
For
the nine months
ended
September 30,
|
|||||||
|
2006
|
2005
|
||||||
|
Total
core commissions and fees
|
$
|
613,737
|
$
|
545,506
|
|||
|
Contingent
commissions
|
40,163
|
34,409
|
|||||
|
Divested
business
|
—
|
1,582
|
|||||
|
Total
commission & fees
|
$
|
653,900
|
$
|
581,497
|
|||
21
Retail
The
Retail Division provides a broad range of insurance products and services to
commercial, public entity, professional and individual customers. Financial
information relating to our Retail Division is as follows (in thousands, except
percentages):
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
||||||||||||||||||
|
2006
|
2005
|
%
Change
|
2006
|
2005
|
%
Change
|
||||||||||||||
|
REVENUES
|
|||||||||||||||||||
|
Commissions
and fees
|
$
|
123,934
|
|||||||||||||||||