Brown & Brown - 10-Q quarterly report FY

Registrant's telephone number, including area code:  (386) 252-9601

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   __

The number of shares of the registrant's common stock, $.10 par value, outstanding as of November 6, 2001 was 31,596,704.

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income for the three

and nine months ended September 30, 2001 and 2000

3

Condensed Consolidated Balance Sheets as of September 30,

2001 and December 31, 2000

4

Condensed Consolidated Statements of Cash Flows for

the nine months ended September 30, 2001 and 2000

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

17

Item 1.

Legal Proceedings

18

Item 2.

Changes in Securities and Use of Proceeds

18

Item 6.

Exhibits and Reports on Form 8-K

20

21

ITEM 1.  FINANCIAL STATEMENTS (Unaudited)

Commissions and fees

$84,696

$59,369

$251,319

$180,372

Investment income

558

1,252

2,749

3,151

Other (loss) income

Total revenue

Employee compensation and benefits

44,659

    33,206

133,379

100,644

Other operating expenses

12,305

9,548

38,620

30,268

Depreciation

1,639

1,432

4,834

4,204

Amortization

3,920

2,328

11,375

6,695

Interest

Total expenses

Income before income taxes

21,077

14,200

62,513

42,294

Income taxes

$ 13,068

$8,830

$ 38,435

$ 26,535

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======

======

Net Income Per Share

Basic

$0.21

$0.15

$0.63

$0.44

======

=====

======

======

Diluted

$0.21

$0.15

$0.62

$0.44

======

=====

======

======

Weighted Average Number of Shares Outstanding

Basic

61,341

60,809

61,163

60,437

======

=====

======

======

Diluted

62,009

60,813

61,765

60,437

======

=====

======

======

Cash and cash equivalents

$   32,561

$   36,114

Restricted cash

41,248

28,031

Short-term investments

3,442

2,149

Premiums, commissions and fees receivable

96,661

93,580

Other current assets

Total current assets

182,647

168,211

Fixed assets, net

22,438

16,285

Intangible assets, net

231,545

104,237

Investments

7,204

6,333

Deferred income taxes

2,560

2,831

Other assets

Total assets

$453,872

$305,549

=======

=======

Premiums payable to insurance companies

$149,635

$132,647

Premium deposits and credits due customers

9,811

8,347

Accounts payable and accrued expenses

39,349

32,482

Current portion of long-term debt

Total current liabilities

216,610

176,661

Long-term debt

79,362

7,869

Other liabilities

Total liabilities

Common stock, par value $.10 per share; authorized 140,000

shares; issued 61,430 shares at 2001 and 60,928 shares at 2000

6,143

6,093

Retained earnings

140,456

104,835

Accumulated other comprehensive income

Total shareholders' equity

Total liabilities and shareholders' equity

$453,872

$305,549

=======

=======

See notes to condensed consolidated financial statements.

Net income

$38,435

$26,535

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation

4,834

4,204

Amortization

11,375

6,695

Compensation expense under performance stock plan

1,472

361

Deferred income taxes

(255)

181

Net gains on sales of investments, fixed assets and

 customer accounts

(970)

(588)

  Restricted cash, increase

(13,217)

(6,206)

  Premiums, commissions and fees receivable, increase

(3,081)

(5,386)

  Other assets, increase

(224)

(589)

  Premiums payable to insurance companies, increase

16,988

9,248

  Premium deposits and credits due customers, increase (decrease)

1,464

(377)

  Accounts payable and accrued expenses, increase

6,867

2,183

  Other liabilities, increase (decrease)

Additions to fixed assets

(8,261)

(3,991)

Payments for businesses acquired, net of cash acquired

(116,569)

(18,563)

Proceeds from sales of fixed assets and customer accounts

850

959

Purchases of investments

(3,052)

(652)

Proceeds from sales of investments

Payments on long-term debt

(28,497)

(3,922)

Proceeds from long-term debt

90,000

443

Exercise of stock options and issuances of stock

2,816

1,734

Purchase of stock

-

(381)

Equity transactions of pooled entities prior to date of acquisitions

(710)

-

Cash dividends paid

Net (decrease) increase in cash and cash equivalents

(3,553)

6,237

Cash and cash equivalents at beginning of period

$32,561

$35,463

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=====

See notes to condensed consolidated financial statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to 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, and 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, as amended by Amendment No. 1 on Form 10-K/A filed on March 27, 2001, for the year ended December 31, 2000.

The accompanying financial statements for all periods presented have been restated to give effect to the following acquisitions:  The Flagship Group, Ltd., effective November 21, 2000; WMH, Inc. and Huffman & Associates, Inc., effective December 14, 2000; Mangus Insurance & Bonding, Inc., effective December 29, 2000; Huval Insurance Agency, Inc. and its affiliated companies, effective January 13, 2001; Spencer & Associates, Inc. and SAN of East Central Florida, Inc., effective February 15, 2001; The Young Agency, Inc., effective May 4, 2001; Layne & Associates, Ltd., effective July 3, 2001; Agency of Insurance Professionals, Inc., CompVantage Insurance Agency, L.L.C., and Agency of Indian Programs Insurance, L.L.C., effective July 16, 2001; Finwall & Associates Insurance, Inc., effective July 18, 2001; The Connelly Insurance Group, Inc., effective August 1, 2001; The Benefit Group, Inc., effective August 1, 2001; and Logan Insu rance Agency, Inc., effective August 29, 2001.

The acquisitions referenced above have been accounted for under the pooling-of-interests method of accounting, and accordingly, the Company's condensed consolidated financial statements have been restated for all periods prior to the acquisitions to include the results of operations, financial positions and cash flows of those acquisitions.

Results of operations for the three- and nine-month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.

The following table sets forth the computation of basic net income per common share and dilutive net income per common and common equivalent share (in thousands, except per-share data):

Net Income

$13,068

$ 8,830

    $38,435

$26,535

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======

======

Weighted average number of common shares

outstanding

61,341

60,809

     61,163

  60,437

Dilutive effect of stock options using the treasury

stock method

         602

           -

Weighted average number of common stock and common equivalent shares outstanding

62,009

60,813

    61,765

60,437

======

======

=====

=====

Basic net income per share

$0.21

  $0.15

     $0.63

  $0.44

======

======

======

=====

Dilutive net income per common and common

equivalent share

$0.21

  $0.15

     $0.62

  $0.44

======

======

======

=====

On October 29, 2001, the Company's Board of Directors authorized a 2-for-1 split of its common stock effective November 21, 2001, effected as a 100% stock dividend, for shareholders of record at the close of business on November 7, 2001.  All share and per-share amounts in the accompanying condensed consolidated financial statements have been restated to give effect to the stock split.

During the third quarter of 2001, the Company acquired substantially all of the assets of Meadowbrook of Florida, Inc. d/b/a Meadowbrook Villari Agency, of Deerfield Beach, Florida; Abrahms Group Benefits, Inc. and Abrahms Life Services, Inc., of Newington, Connecticut; and Menk & Associates, Inc., of Wheat Ridge, Colorado.  

During the second quarter of 2001, the Company acquired substantially all of the assets of Parcel Insurance Plan, Inc., of St. Louis, Missouri and Wheeler Insurance Associates, Inc., of Tallahassee, Florida, and all of the outstanding shares of Harris Holdings, Inc., a holding company for all the outstanding shares of The Harris Agency, Inc., of Manassas, Virginia.  In addition, the Company acquired several books of business.

Effective January 1, 2001, the Company acquired the insurance agency-related operations and assets of Riedman Corporation ("Riedman"), headquartered in Rochester, New York, which consist of more than 60 offices in 13 states, principally in locations in which the Company did not formerly have an office.  The total purchase price, including liabilities assumed, was approximately $92 million and

was fully funded by a seven-year term loan with a national banking institution.  This acquisition was accounted for using the purchase method of accounting and includes a preliminary purchase price allocation of $4 million allocated to fixed assets, $2.8 million allocated to non-compete agreements and the remaining amounts allocated to purchased customer accounts, acquisition costs and goodwill.

During the first quarter of 2001, the Company also acquired substantially all of the assets of Ayers/Sierra Insurance Associates, LLP, with offices in Tampa and St. Petersburg, Florida.  In addition, the Company acquired several books of business.

During the third quarter of 2000, the Company acquired substantially all of the assets of Corporate Risk Management Services, Inc., of Tallahassee, Florida, and Cunningham Insurance Agency of Naples, Inc., of Naples, Florida.  During such period the Company also acquired all of the outstanding stock of Robertson Insurance Services, Inc., of Macungie, Pennsylvania.  In addition, the Company acquired several books of business.

During the second quarter of 2000, the Company acquired substantially all of the assets of AmeriSys, Inc., of Oviedo, Florida.  In addition, the Company acquired several books of business.

During the first quarter of 2000, the Company acquired substantially all of the assets of Risk Management Associates, Inc., of Fort Lauderdale, Florida, and Program Management Services, Inc., of Altamonte Springs, Florida.  In addition, the Company acquired several books of business.

These acquisitions have been accounted for using the purchase method of accounting.  The results of operations for the acquired companies have been combined with those of the Company since their respective acquisition dates.

During the third quarter of 2001, the Company issued shares of its common stock for all of the outstanding stock of the following companies, respectively; 241,167 shares - Layne & Associates, Ltd., of Las Vegas, Nevada; 120,134 shares - Agency of Insurance Professionals, Inc., CompVantage Insurance Agency, L.L.C., and Agency of Indian Programs Insurance, L.L.C., of Pryor, Oklahoma; 83,733 shares - Finwall & Associates Insurance, Inc., of Orlando, Florida; 257,588 shares - The Connelly Insurance Group, Inc., of Clearwater, Florida; 59,854 shares - The Benefit Group, Inc., of St. Petersburg, Florida; and 8,368 shares - Logan Insurance Agency, Inc., of Salem, Virginia.    

During the second quarter of 2001, the Company issued 571,429 shares of its common stock in exchange for all of the outstanding stock of The Young Agency, Inc., headquartered in Syracuse, New York.

_________________________________________________________________________________

During the first quarter of 2001, the Company issued 327,379 shares of its common stock in exchange for all of the outstanding stock of Huval Insurance Agency, Inc. and its affiliated companies, headquartered in Lafayette, Louisiana.  Also during the first quarter of 2001, the Company issued 95,588 shares of its common stock in exchange for all of the outstanding stock of Spencer & Associates, Inc. and SAN of East Central Florida, Inc., with offices in Melbourne and Titusville, Florida.

During the second quarter of 2000, the Company issued 543,588 shares of its common stock for all of the outstanding stock of Bowers, Schumann & Welch, a New Jersey corporation with offices in Washington, New Jersey and Bethlehem, Pennsylvania.

These acquisitions have been recorded using the pooling-of-interests method of accounting, and the Company's consolidated financial statements have been restated for all prior periods presented.

In January 2001, the Company entered into a $90 million seven-year term loan agreement with a national banking institution, bearing an interest rate based upon the 30-, 60- or 90-day London Inter-Bank Offering Rate (LIBOR) plus 0.50% to 1.00%, depending upon the Company's quarterly ratio of Funded Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  The 90-day LIBOR rate was 3.83% as of September 30, 2001.  The loan was fully funded on January 3, 2001 and a balance of $80.4 million remained outstanding as of September 30, 2001.  This loan is to be repaid in twenty-eight equal quarterly installments that began in April 2001.  The Company also has a revolving credit facility with the institution, which provides for available borrowings of up to $50 million, with a maturity date of October 2002.  There were no borrowings against this line of credit at December 31, 2000 or September 30, 2001.

The Company continues to maintain its credit facility with a major insurance company under which $2 million and $3 million was outstanding at September 30, 2001 and December 31, 2000, respectively.  These were the maximum amounts available for borrowing at each of these dates.  The facility carries an interest rate equal to prime plus 1.00% (7.00% at September 30, 2001).  In accordance with the amendment to the loan agreement dated August 1, 1998, the maximum amount available for borrowings will decrease by $1 million each year in August until the facility expires in August 2003.

The Company is not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of business.  Management of the Company does not believe that any such claims or lawsuits will have a material effect on the Company's financial condition or results of operations.

(in thousands)

Cash paid during the period for:

Interest

$  3,671

$    509

Income taxes

23,258

15,581

     The Company's significant non-cash investing and financing activities are as follows:

(in thousands)  

Unrealized holding gain (loss) on available-

for-sale securities net of tax effect of $526

in 2001 and tax benefit of $1,009 in 2000

$

$(1,577)

Debt issued or assumed for acquisition of

customer accounts

24,620

611

The components of comprehensive income and accumulated other comprehensive income are as
follows (in thousands):

Net income

$13,068

$8,830

$38,435

$26,535

Net change in unrealized holding (loss) gain on
  available-for-sale securities

Comprehensive income

$12,640

$9,295

$39,257

$24,958

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======

=======

Accumulated other comprehensive income at
  beginning of period

$3,745

$2,880

$2,495

$4,922

Net change in unrealized holding (loss)gain on
   available-for-sale securities, net of income taxes

Accumulated other comprehensive income at end
  of period

$3,317

$3,345

$3,317

$3,345

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=====

=====

=====

The Company's business is divided into four divisions:  the Retail Division, which markets and sells a broad range of insurance products to commercial, professional and individual clients; the National Programs Division, which develops and administers property and casualty insurance and employee benefits coverage solutions for professional and commercial groups and trade associations nationwide; the Service Division, which provides insurance-related services such as third-party administration and consultation for workers' compensation and employee benefit self-insurance markets; and the Brokerage Division, which markets and sells excess and surplus commercial insurance primarily through non-affiliated independent agents and brokers.  The Company conducts all of its operations in the United States.

(in thousands)

Retail

Programs

Service

Brokerage

Other

Total

Total Revenues

$204,106

$13,282

$18,508

$21,940

$(2,502)

$255,334

Investment income

3,276

931

272

478

(2,208)

2,749

Interest expense

9,316

21

202

6

(4,932)

4,613

Depreciation

3,327

548

376

207

376

4,834

Amortization

9,759

118

15

953

530

11,375

Income (loss) before income taxes

42,275

3,839

3,235

7,962

5,202

62,513

Total assets

311,203

47,635

8,190

63,763

23,081

453,872

Capital expenditures

3,235

432

340

429

3,825

8,261

Retail

Programs

Service

Brokerage

Other

Total

Total Revenues

$137,165

$16,649

$15,982

$15,394

$  (441)

$184,749

Investment income

2,204

1,045

204

539

(841)

3,151

Interest expense

1,589

16

-

-

(961)

644

Depreciation

2,674

780

369

175

206

4,204

Amortization

5,560

155

2

955

23

6,695

Income (loss) before income taxes

27,065

5,973

2,217

4,966

2,073

42,294

Total assets

204,485

57,334

5,849

49,538

(24,695)

292,511

Capital expenditures

2,184

397

885

345

180

3,991

____________________________________________________________________________________

Effective October 1, 2001, the Company acquired substantially all of the assets of the following entities: Carvajal Investments El Paso, L.P. and S.B. Insurance Services, Inc., collectively d/b/a Associated Insurance Agency, and Dima Enterprises, Inc. d/b/a Sanborn's Mexico Insurance, both of El Paso, Texas; Henry S. Lehr, Inc. and Apollo Financial Corporation, both of Bethlehem, Pennsylvania; Web-Kor Insurance Agency, Inc., of Charleston, South Carolina; and Airline Investments d/b/a Bynum, Grace & Joffrion, of Baton Rouge, Louisiana.  Effective November 1, 2001, the Company issued 122,014 shares of its common stock in exchange for all of the outstanding stock of Golden Gate Holdings, Inc., headquartered in Novato, California.  These acquisitions were accounted for using the purchase method of accounting.

In June 2001, the Statement of Financial Accounting Standards No. 141 (SFAS 141) "Business Combinations" was issued.  SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method.  The Company has historically used the pooling-of-interests method on acquisitions that met the now-superseded criteria of APB No. 16, and the purchase method of accounting on other acquisitions.  Acquisitions that met the now-superseded APB No. 16 criteria and that were formally announced prior to June 30, 2001 with executed letters of intent outlining the major terms of the acquisition plan, including the ratio of exchange of stock, will be accounted for as pooling-of-interests transactions.  The Company's future acquisitions will all be consummated using the purchase method.  The impact of the new SFAS 141 on the Company will be to increase the amount of intangible asset s recorded on the balance sheet.

Also in June 2001, the Statement of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets" was issued.  SFAS 142 addresses how intangible assets that are acquired individually or as a group of other assets should be accounted for in financial statements upon their acquisition.  This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements.  For the Company, intangible assets with a finite life, such as insurance expirations, will be treated the same as they have been historically recorded and amortized, and as such, this statement will not materially impact the Company's accounting for these assets.  However, goodwill which historically has been amortized over a 20- to 40-year time period will no longer be subject to amortization.   Instead, goodwill will be tested

at least annually for impairment by applying a fair-value-based test.  This annual impairment testing could result in more volatility in reported income, as impairment losses could occur irregularly and in varying amounts.  The impact of the non-amortization of goodwill required by this statement on the Company's future earnings is not yet determinable.  Goodwill and intangible assets acquired after June 30, 2001 are immediately subject to the provisions of SFAS 142; otherwise, the provisions of this statement will be effective January 1, 2002.

Additionally, in June 2001, Statement of Financial Accounting Standards No. 143 (SFAS 143) "Accounting for Asset Retirement Obligations" was issued.  SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs.  SFAS 143 is effective for fiscal years beginning after June 15, 2002.  The Company has not yet determined the impact of SFAS 143.

In August 2001, Statement of Financial Accounting Standards No. 144 (SFAS 144) "Accounting for the Disposal or Impairment of Long-Lived Assets" was issued.  SFAS 144 requires that a single accounting impairment model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions.  SFAS 144 is effective for fiscal years beginning after December 15, 2002.  The Company has not yet determined the impact of SFAS 144.

______________________________________________________________________________

THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN THE COMPANY'S 2000 ANNUAL REPORT ON FORM 10-K, AS AMENDED, AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.

Net Income.  Net income for the third quarter of 2001 was $13,068,000, or $0.21 per share, compared with net income in the third quarter of 2000 of $8,830,000, or $0.15 per share, a 40% increase on a per-share basis.  Net income for the nine months ended September 30, 2001 was $38,435,000, or $0.62 per share, compared with 2000 same period net income of $26,535,000, or $0.44 per share, a 41% increase on a per-share basis.

Commissions and Fees.  Commissions and fees for the third quarter of 2001 increased $25,327,000, or 43%, over the same period in 2000.  Approximately $18,825,000 of this increase represents revenues from the acquisition of Riedman and other agencies acquired using the purchase method of accounting, with the remainder due to new and renewal business production.  Commissions and fees for the nine months ended September 30, 2001 increased $70,947,000, or 39%, over the same period in 2000.  Approximately $53,255,000 of this increase represents revenues from the acquisition of Riedman and other agencies acquired using the purchase method of accounting, with the remainder due to new and renewal business production.  Core commissions and fees, excluding the effects of acquisitions and divestitures, increased 12.1% and 11.6%, respectively, over the three- and nine-month periods ended September 30, 2001, compa red with the same periods in 2000.

Employee Compensation and Benefits.  Employee compensation and benefits during the three- and nine-month periods ended September 30, 2001 increased 35% and 33%, respectively, over the same periods in 2000.  These increases primarily relate to the addition of new employees as a result of the Riedman purchase and other acquisitions consummated since the prior-year periods.  Employee compensation and benefits as a percentage of revenue decreased to 52% for both the three- and nine-month periods ended September 30, 2001 compared with approximately 55% for the same periods in 2000. These declines are attributable to the restatement of 2000 results for pooled entities.  These entities, operating as private companies in 2000, had higher compensation expense as a percentage of revenues than the Company had on a historical basis.

The Company's cash and cash equivalents of $32,561,000 at September 30, 2001 decreased by $3,553,000, from $36,114,000 at December 31, 2000.  For the nine-month period ended September 30, 2001, $64,076,000 of cash was provided from operating activities.  From the cash provided by operating activities along with existing cash balances and $90,000,000 of new long-term debt, $116,569,000 was used to acquire other agencies or books of business, $28,497,000 was used for payments on long-term debt, $8,261,000 was used for additions to fixed assets, and $6,716,000 was used for payments of dividends.  The current ratio at September 30, 2001 was 0.84, compared with 0.95 at December 31, 2000.

In January 2001, the Company entered into a $90 million seven-year term loan agreement with a national banking institution, bearing an interest rate based upon the 30-, 60- or 90-day London Inter-Bank Offering Rate (LIBOR) plus 0.50% and LIBOR plus 1.00%, depending upon the Company's quarterly ratio of Funded Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  The 90-day LIBOR rate was 3.83% as of September 30, 2001.  The loan was fully funded on January 3, 2001 and a balance of $80.4 million remained outstanding as of September 30, 2001.  This loan is to be repaid in twenty-eight equal quarterly installments that began in April 2001.  The Company also has a revolving credit facility with the institution, which facility provides for available borrowings of up to $50 million, with a maturity date of October, 2002.  There were no borrowings against this line of credit at December 31, 2000 or September 30, 2001.

(16)

The Company continues to maintain its credit facility with a major insurance company under which $2 million and $3 million was outstanding at September 30, 2001 and December 31, 2000, respectively.  These were the maximum amounts available for borrowing at each of these dates.  The facility carries an interest rate equal to prime plus 1.00% (7.00% at September 30, 2001).  In accordance with the amendment to the loan agreement dated August 1, 1998, the maximum amount available for borrowings will decrease by $1 million each year in August until the facility expires in August 2003.

The Company believes that its existing cash, cash equivalents, short-term investments portfolio, funds generated from operations, and available credit facility borrowings are sufficient to satisfy its normal financial needs.

From time to time, the Company may publish "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or make oral statements that constitute forward-looking statements.  The Company makes such forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan" and "continue" or similar words, and may relate to such matters as anticipated financial performance of future revenues or earnings, business prospects, projected acquisitions or ventures, new products or services, anticipated market performance, compliance costs, and similar matters. These statements are based on current expectations about future events.   Although the Company believes that the expectations reflected in or suggested by such forward-looking statements are reasonable, actual results may differ materially from what the Company currently expects.  Important factors which could cause the actual results to differ materially from such forward-looking statements include:

-

material adverse changes in economic conditions in the markets the Company serves;

-

downward commercial property and casualty premium pressures;

-

future regulatory actions and conditions in the states in which the Company conducts business;

-

competition from others in the insurance agency business;

-

legal developments adversely affecting the litigation experience of the insurance industry;

-

the potential occurrence of a major natural disaster that affects certain areas of the states of Arizona, Florida and/or New York, where the Company's business is concentrated;

-

the integration of the Company's operations with those of businesses or assets the Company has acquired or may acquire in the future and the failure to realize the expected benefits of such integration; and

-

other risks and uncertainties as may be detailed from time to time in the Company's public announcements and Securities and Exchange Commission filings.

All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest, foreign currency exchange rates, and equity prices.  The Company is exposed to market risk related to changes in interest rates.  The impact of interest expense on earnings, and the value of market-risk sensitive financial instruments (primarily marketable equity securities and long-term debt) are subject to change as a result of movements in market rates and prices.

The Company's investment portfolio was valued at $10,646,000 as of September 30, 2001.  This represents approximately 2.3% of total assets at that date.  The majority of the portfolio is comprised of various equity investments.  The market value changes are accounted for in Other Comprehensive Income in the equity section of the balance sheet.  Earnings on investments are not significant to the Company's results of operations; therefore, any changes in interest rates and dividends would have a minimal effect on future net income.

With respect to the Company's long-term debt, $82,357,000 was subject to variable rates of interest at September 30, 2001.  From the total amount of debt, $80,357,000 was funded from a term loan in January 2001 and bears an interest rate based upon the 30-, 60-, or 90-day LIBOR plus 0.50% to 1.00%.  It is payable in twenty-eight equal quarterly installments that began in April 2001.  The remaining $2,000,000 of variable rate debt comes from a credit agreement with a major insurance company and bears an interest rate of prime plus 1.00%.  It is payable in equal annual installments in August 2002 and 2003.  The remaining $14,820,000 of long-term debt is subject to fixed rates of interest.  This fixed rate debt matures in various increments from 2001 through 2011.  These fixed rate liabilities have been discounted at rates that approximate the Company's current borrowing rates, and as a resu lt, the fair value of these liabilities approximates their carrying value at September 30, 2001.  Based on a hypothetical 1% change in interest rates, the potential change to future net income would be approximately $824,000.  Because of favorable current market conditions, the Company does not use derivatives, such as swaps or caps, to alter the interest characteristics of debt instruments.

(18)

As more fully discussed in the Company's report on Form 10-K, as amended, for the year ended December 31, 2000, on January 19, 2000, a complaint was filed in the Superior Court of Henry County, Georgia, captioned Gresham & Associates, Inc. v. Anthony T. Strianese et al.  No material developments have occurred in this action since the filing of that Form 10-K, as amended, by the Company.

The Company is involved in various pending or threatened proceedings by or against the Company or one or more of its subsidiaries which involve routine litigation relating to insurance risks placed by the Company, and other contractual matters.  The Company's management does not believe that any such pending or threatened proceedings will have a material adverse effect on the Company's financial position or results of operations.  

On January 13, 2001, the Company issued a total of 327,379 shares of its common stock in exchange for all of the outstanding stock of Huval Insurance Agency, Inc. and its affiliated companies, headquartered in Lafayette, Louisiana.  On February 15, 2001, the Company issued a total of 95,588 shares of its common stock in exchange for all of the outstanding stock of Spencer & Associates, Inc. and SAN of East Central Florida, Inc., with offices in Melbourne and Titusville, Florida.  Also, on May 4, 2001, the Company issued 571,429 shares of its common stock in exchange for all of the outstanding stock of The Young Agency, Inc., headquartered in Syracuse, New York.  Additionally, on July 3, 2001, the Company issued 241,167 shares of its common stock in exchange for all of the outstanding stock of Layne & Associates, Ltd., headquartered in Las Vegas, Nevada.  On July 16, 2001, the Company issued a total of 120,134 shares of its common stock in exchange for all of the outstanding stock of Agency of Insurance Professionals, Inc., CompVantage Insurance Agency L.L.C., and Agency of Indian Programs Insurance, L.L.C., of Pryor, Oklahoma.  On July 18, 2001, the Company issued 83,733 shares of its common stock in exchange for all of the outstanding stock of Finwall & Associates Insurance, Inc., of Orlando, Florida.  Also, on August 1, 2001, the Company issued 257,588 and 59,854 shares of its common stock in exchange for all of the outstanding stock of The Connelly Insurance Group, Inc, of Clearwater, Florida, and The Benefit Group, Inc., of St. Petersburg, Florida, respectively.  Finally, on August 29, 2001, the Company issued 8,368 shares of its common stock in exchange for all of the outstanding stock of Logan Insurance Agency, Inc., of Salem, Virginia.  These acquisitions have been recorded using the pooling-of-interests method of accounting.  These shares of the Compan y's common stock were not registered under the Securities Act of 1933, as amended.  The Company relied in each transaction upon an exemption from registration pursuant to Rule 506 of Regulation D under the Securities Act.  This exemption was relied upon because in each transaction, the issuance of the Company's common stock met all of the terms and conditions of Rules 501 and 502 of Regulation D; shares were not issued to

more than 35 non-accredited investors; and by virtue of the selling shareholders' representations and warranties, the Company reasonably believed immediately prior to issuance that each non-accredited investor, either alone or with such investor's purchaser representative, had such knowledge and experience in financial and business matters that such investor was capable of evaluating the merits and risks of the prospective investment in the Company's common stock.

Exhibit 3a  -

Articles of Amendment to Articles of Incorporation (adopted April 18, 2001) (filed herewith), and Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 1999).

Exhibit 3b  -

Amended and Restated Bylaws (incorporated by reference to Exhibit 3b to Form 10-K for the year ended December 31, 1996).

Exhibit 4b -

Rights Agreement, dated as of July 30, 1999, between the Company and First Union National Bank, as Rights Agent (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 2, 1999).

Exhibit 10(a) -

Amended and Restated Revolving and Term Loan Agreement between the  Company and SunTrust Banks dated January 3, 2001 (incorporated by reference to Exhibit 4a to Form 10-K for the year ended December 31, 2001).

Exhibit 10(b) -

Asset Purchase Agreement, dated September 11, 2000, among the Company, Riedman Corporation and Riedman Corporation's Shareholders (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).

Exhibit 10(c) -

First Amendment to Asset Purchase Agreement, dated January 3, 2001, among the Company, Riedman Corporation and Riedman's Corporation's Shareholders (incorporated by reference to Exhibit 10(b) to Form 8-K filed on January 18, 2001).

Exhibit 10(d) -

General Assignment and Bill of Sale, dated January 1, 2001, from Riedman Insurance of Wyoming, Inc. to Brown & Brown of Wyoming, Inc. (incorporated by reference to Exhibit 10(c) to Form 8-K filed on January 18, 2001).

There were no reports filed on  Form 8-K during the quarter ended September 30, 2001.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:  November 14, 2001

(duly authorized officer, principal financial

officer and principal accounting officer)