220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
I f yo u ’ re n o t i n t h e l e a d ,
yo u ’ re i n o u r w a ke .
B
R
O
W
N
&
B
R
O
W
N
,
I
N
C
.
2
0
1
4
A
N
N
U
A
L
R
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P
O
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Shareholder Information
Corporate Offices
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
Outside Counsel
Holland & Knight LLP
100 North Tampa Street
Suite 4100
Tampa, Florida 33602
Corporate Information and Shareholder Services
The Company has included, as Exhibits 31.1 and 31.2,
and 32.1 and 32.2 to its Annual Report on Form 10-K for
the fiscal year 2014 filed with the Securities and Exchange
Commission, certificates of the Chief Executive Officer
and Chief Financial Officer of the Company certifying the
quality of the Company’s public disclosure. The Company
has also submitted to the New York Stock Exchange a
certificate from its Chief Executive Officer certifying that
he is not aware of any violation by the Company of New
York Stock Exchange corporate governance listing standards.
A copy of the Company’s 2014 Annual Report on Form 10-K
will be furnished without charge to any shareholder
who directs a request in writing to:
Corporate Secretary
Brown & Brown, Inc.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
A reasonable charge will be made for copies of the
exhibits to the Form 10-K.
Annual Meeting
The Annual Meeting of Shareholders of
Brown & Brown, Inc. will be held:
May 6, 2015
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave.
Brooklyn, New York 11219
(800) 937-5449
email: info@amstock.com
www.amstock.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
333 SE 2nd Avenue
Suite 3600
Miami, Florida 33131
Stock Listing
The New York Stock Exchange Symbol: BRO
On February 19, 2015, there were 143,520,097 shares of
our common stock outstanding, held by approximately
1,178 shareholders of record.
Market Price of Common Stock
Stock Price Range
2014
High
First Quarter
$ 32.88
Second Quarter
$ 31.29
Third Quarter
$ 33.46
Fourth Quarter
$ 33.40
2013
Low
$ 27.77
$ 28.27
$ 30.02
$ 30.96
Cash
Dividends per
Common Share
$ 0.10
$ 0.10
$ 0.10
$ 0.11
First Quarter
$ 32.08
$ 25.31
$ 0.09
Second Quarter
$ 33.24
$ 30.00
$ 0.09
Third Quarter
$ 35.13
$ 30.55
$ 0.09
Fourth Quarter
$ 33.69
$ 27.76
$ 0.10
Additional Information
Information concerning the services of Brown & Brown, Inc., as
well as access to current financial releases, is available on the
Internet. Brown & Brown’s address is www.bbinsurance.com.
designed and produced by see see eye / Atlanta & San Antonio
I n t h e s w i n g
Re p o r t
2014 A n n u a l
44251_Cover.indd 1
3/24/15 9:34 AM
2 Letter to Shareholders 4 Succeeding in Various Conditions 6 The Right People Working Together 8 Providing Balance 10 The Right Equipment 12 Leadership at Every Level 14 Strategy to Succeed 16 Division Overviews 24 Community Involvement 25 Leadership Overview 26 Board of Directors
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
I f yo u ’ re n o t i n t h e l e a d ,
yo u ’ re i n o u r w a ke .
B
R
O
W
N
&
B
R
O
W
N
,
I
N
C
.
2
0
1
4
A
N
N
U
A
L
R
E
P
O
R
T
Shareholder Information
Corporate Offices
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
Outside Counsel
Holland & Knight LLP
100 North Tampa Street
Suite 4100
Tampa, Florida 33602
Corporate Information and Shareholder Services
The Company has included, as Exhibits 31.1 and 31.2,
and 32.1 and 32.2 to its Annual Report on Form 10-K for
the fiscal year 2014 filed with the Securities and Exchange
Commission, certificates of the Chief Executive Officer
and Chief Financial Officer of the Company certifying the
quality of the Company’s public disclosure. The Company
has also submitted to the New York Stock Exchange a
certificate from its Chief Executive Officer certifying that
he is not aware of any violation by the Company of New
York Stock Exchange corporate governance listing standards.
A copy of the Company’s 2014 Annual Report on Form 10-K
will be furnished without charge to any shareholder
who directs a request in writing to:
Corporate Secretary
Brown & Brown, Inc.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
A reasonable charge will be made for copies of the
exhibits to the Form 10-K.
Annual Meeting
The Annual Meeting of Shareholders of
Brown & Brown, Inc. will be held:
May 6, 2015
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave.
Brooklyn, New York 11219
(800) 937-5449
email: info@amstock.com
www.amstock.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
333 SE 2nd Avenue
Suite 3600
Miami, Florida 33131
Stock Listing
The New York Stock Exchange Symbol: BRO
On February 19, 2015, there were 143,520,097 shares of
our common stock outstanding, held by approximately
1,178 shareholders of record.
Market Price of Common Stock
Stock Price Range
2014
High
First Quarter
$ 32.88
Second Quarter
$ 31.29
Third Quarter
$ 33.46
Fourth Quarter
$ 33.40
2013
Low
$ 27.77
$ 28.27
$ 30.02
$ 30.96
Cash
Dividends per
Common Share
$ 0.10
$ 0.10
$ 0.10
$ 0.11
First Quarter
$ 32.08
$ 25.31
$ 0.09
Second Quarter
$ 33.24
$ 30.00
$ 0.09
Third Quarter
$ 35.13
$ 30.55
$ 0.09
Fourth Quarter
$ 33.69
$ 27.76
$ 0.10
Additional Information
Information concerning the services of Brown & Brown, Inc., as
well as access to current financial releases, is available on the
Internet. Brown & Brown’s address is www.bbinsurance.com.
designed and produced by see see eye / Atlanta & San Antonio
I n t h e s w i n g
Re p o r t
2014 A n n u a l
44251_Cover.indd 1
3/24/15 9:34 AM
2 Letter to Shareholders 4 Succeeding in Various Conditions 6 The Right People Working Together 8 Providing Balance 10 The Right Equipment 12 Leadership at Every Level 14 Strategy to Succeed 16 Division Overviews 24 Community Involvement 25 Leadership Overview 26 Board of Directors
Brown & Brown is an independent insurance intermediary that through
its licensed subsidiaries provides a variety of insurance products and
services to corporate, public entity, institutional, trade, professional,
association and individual customers. Our corporate culture is built on
vision, speed, agility and strength that allows us to thrive in the very
competitive insurance environment. This unique culture has enabled us
to quickly chase down new opportunities, adapt our products and services
to best meet market demands, and serve our many and varied customers.
The Company is ranked as the sixth largest such organization in the United
States and seventh in the world by Business Insurance magazine.
Total Revenues
dollars in millions
Net Income Per Share Diluted
in dollars
Shareholders’ Equity
dollars in millions
1,576
1,363
1,200
1,014
973
1.48
1.41
2,114
2,007
1.26
1.12
1.13
1,807
1,644
1,506
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
Ten-Year Financial Summary
(in thousands, except per share data and other information)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Year Ended December 31,
Revenues
Commissions and fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,567,460
747
7,589
$ 1,355,503
638
7,138
$ 1,189,081
797
10,154
$ 1,005,962
1,267
6,313
$ 966,917
1,326
5,249
$
1,575,796
1,363,279
1,200,032
1,013,542
973,492
791,749
19,363
235,328
47,425
82,941
20,895
28,408
9,938
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
1,236,047
1,005,670
339,749
132,853
357,609
140,497
608,506
15,865
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
508,675
11,194
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
487,820
6,845
135,851
—
51,442
12,639
14,471
(1,674)
707,394
266,098
104,346
964,863
1,161
1,853
967,877
484,680
7,358
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
$ 965,983
6,079
5,492
977,554
$ 914,650
30,494 (1)
14,523
959,667
$ 864,663
11,479
1,862
$ 775,543
6,578
3,686
878,004
785,807
485,783
7,314
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
444,101
5,667
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
404,891
5,416
126,492
—
36,498
11,309
13,357
—
597,963
280,041
107,691
374,943
3,337
105,622
—
33,245
10,061
14,469
—
541,677
244,130
93,579
$ 206,896
$ 217,112
$ 184,045
$ 163,995
$ 161,752
$
153,294
$ 166,124
$ 190,959
$ 172,350
$ 150,551
Employee compensation and benefits as % of total revenue
Other operating expenses as % of total revenue
50.2%
14.9%
50.1%
14.4%
50.7%
14.5%
50.2%
14.2%
50.1%
14.0%
50.1%
14.8%
49.7%
14.1%
46.3%
13.7%
46.1%
14.4%
47.7%
13.4%
Earnings per Share Information
Net income per share – diluted
Weighted-average number of shares outstanding – diluted
Dividends paid per share
Year-End Financial Position
Total assets
Long-term debt
Total shareholders’ equity
Total shares outstanding
$
$
1.41
142,891
0.41
$
$
1.48
142,624
0.37
$
$
1.26
142,010
0.35
$
$
1.13
140,264
0.33
$
$
1.12
139,318
0.31
$
$
1.08
137,507
0.30
$
$
1.17
136,884
0.29
$
$
1.35
136,357
0.25
$
$
1.22
135,886
0.21
$
$
1.08
135,033
0.17
$ 4,956,458
$ 1,152,846 (2)
$ 2,113,745
143,486
$ 3,649,508
$ 380,000
$ 2,007,141
145,419
$ 3,128,058
$ 450,000
$ 1,807,333
143,878
$ 2,607,011
$ 250,033
$ 1,643,963
143,352
$ 2,400,814
$ 250,067
$ 1,506,344
142,795
$ 2,224,226
$
250,209
$ 1,369,874
142,076
$ 2,119,580
$ 253,616
$ 1,241,741
141,544
Other Information
Number of full-time equivalent employees at year-end
Total revenues per average number of employees (3)
Stock price at year-end
Stock price earnings multiple at year-end (5)
Return on beginning shareholders’ equity (6)
7,591
$ 216,114
32.91
$
23.3
6,992
$ 203,020
31.39
$
21.2
10%
12%
$
$
$
6,438
191,729 (4)
25.46
20.2
11%
5,557
$ 186,949
22.63
$
20.0
$
5,286
$ 185,568
23.94
$
21.4
$
5,206
182,549
17.97
16.6
$
$
$
5,398
$ 187,181
20.90
$
17.9
$
11%
12%
12%
15%
21%
23%
24%
$ 1,960,659
$ 227,707
$ 1,097,458
140,673
5,047
$ 196,251
23.50
$
17.4
$
$ 1,807,952
$ 226,252
$ 929,345
140,016
4,733
$ 189,368
28.21
$
23.1
$
$ 1,608,660
$ 214,179
$ 764,344
139,383
4,540
$ 184,896
30.54
$
28.3
$
44251_Cover.indd 2
3/24/15 9:34 AM
(1) Includes an $18,664 gain on the sale of our investment in Rock-Tenn Company.
(5) Stock price at year-end divided by net income per share-diluted.
(2) Represents the incremental new debt associated with the acquisition of Wright and evolution of our capital structure. Please refer to Part I, Item 7 “Management’s
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 “Long-Term Debt” for more details.
(3) Represents total revenues divided by the average of the number of full-time equivalent employees at the beginning of the year and the number of full-time equivalent
employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of Arrowhead, and
therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for 2012 is considered to be 6,259.
All share and per-share information has been adjusted to give effect to the 2-for-1 common stock split which became effective November 29, 2005.
Weighted average number of shares outstanding-diluted has been adjusted to give effect for the two-class method of calculating earnings per share as
described in Note 1 to the Consolidated Financial Statements.
Brown & Brown is an independent insurance intermediary that through
its licensed subsidiaries provides a variety of insurance products and
services to corporate, public entity, institutional, trade, professional,
association and individual customers. Our corporate culture is built on
vision, speed, agility and strength that allows us to thrive in the very
competitive insurance environment. This unique culture has enabled us
to quickly chase down new opportunities, adapt our products and services
to best meet market demands, and serve our many and varied customers.
The Company is ranked as the sixth largest such organization in the United
States and seventh in the world by Business Insurance magazine.
Total Revenues
dollars in millions
Net Income Per Share Diluted
in dollars
Shareholders’ Equity
dollars in millions
1,576
1,363
1,200
1,014
973
1.48
1.41
2,114
2,007
1.26
1.12
1.13
1,807
1,644
1,506
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
Ten-Year Financial Summary
(in thousands, except per share data and other information)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Year Ended December 31,
Revenues
Commissions and fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,567,460
747
7,589
$ 1,355,503
638
7,138
$ 1,189,081
797
10,154
$ 1,005,962
1,267
6,313
$ 966,917
1,326
5,249
$
1,575,796
1,363,279
1,200,032
1,013,542
973,492
791,749
19,363
235,328
47,425
82,941
20,895
28,408
9,938
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
1,236,047
1,005,670
339,749
132,853
357,609
140,497
608,506
15,865
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
508,675
11,194
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
487,820
6,845
135,851
—
51,442
12,639
14,471
(1,674)
707,394
266,098
104,346
964,863
1,161
1,853
967,877
484,680
7,358
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
$ 965,983
6,079
5,492
977,554
$ 914,650
30,494 (1)
14,523
959,667
$ 864,663
11,479
1,862
$ 775,543
6,578
3,686
878,004
785,807
485,783
7,314
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
444,101
5,667
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
404,891
5,416
126,492
—
36,498
11,309
13,357
—
597,963
280,041
107,691
374,943
3,337
105,622
—
33,245
10,061
14,469
—
541,677
244,130
93,579
$ 206,896
$ 217,112
$ 184,045
$ 163,995
$ 161,752
$
153,294
$ 166,124
$ 190,959
$ 172,350
$ 150,551
Employee compensation and benefits as % of total revenue
Other operating expenses as % of total revenue
50.2%
14.9%
50.1%
14.4%
50.7%
14.5%
50.2%
14.2%
50.1%
14.0%
50.1%
14.8%
49.7%
14.1%
46.3%
13.7%
46.1%
14.4%
47.7%
13.4%
Earnings per Share Information
Net income per share – diluted
Weighted-average number of shares outstanding – diluted
Dividends paid per share
Year-End Financial Position
Total assets
Long-term debt
Total shareholders’ equity
Total shares outstanding
$
$
1.41
142,891
0.41
$
$
1.48
142,624
0.37
$
$
1.26
142,010
0.35
$
$
1.13
140,264
0.33
$
$
1.12
139,318
0.31
$
$
1.08
137,507
0.30
$
$
1.17
136,884
0.29
$
$
1.35
136,357
0.25
$
$
1.22
135,886
0.21
$
$
1.08
135,033
0.17
$ 4,956,458
$ 1,152,846 (2)
$ 2,113,745
143,486
$ 3,649,508
$ 380,000
$ 2,007,141
145,419
$ 3,128,058
$ 450,000
$ 1,807,333
143,878
$ 2,607,011
$ 250,033
$ 1,643,963
143,352
$ 2,400,814
$ 250,067
$ 1,506,344
142,795
$ 2,224,226
$
250,209
$ 1,369,874
142,076
$ 2,119,580
$ 253,616
$ 1,241,741
141,544
Other Information
Number of full-time equivalent employees at year-end
Total revenues per average number of employees (3)
Stock price at year-end
Stock price earnings multiple at year-end (5)
Return on beginning shareholders’ equity (6)
7,591
$ 216,114
32.91
$
23.3
6,992
$ 203,020
31.39
$
21.2
10%
12%
$
$
$
6,438
191,729 (4)
25.46
20.2
11%
5,557
$ 186,949
22.63
$
20.0
$
5,286
$ 185,568
23.94
$
21.4
$
5,206
182,549
17.97
16.6
$
$
$
5,398
$ 187,181
20.90
$
17.9
$
11%
12%
12%
15%
21%
23%
24%
$ 1,960,659
$ 227,707
$ 1,097,458
140,673
5,047
$ 196,251
23.50
$
17.4
$
$ 1,807,952
$ 226,252
$ 929,345
140,016
4,733
$ 189,368
28.21
$
23.1
$
$ 1,608,660
$ 214,179
$ 764,344
139,383
4,540
$ 184,896
30.54
$
28.3
$
44251_Cover.indd 2
3/24/15 9:34 AM
(1) Includes an $18,664 gain on the sale of our investment in Rock-Tenn Company.
(5) Stock price at year-end divided by net income per share-diluted.
(2) Represents the incremental new debt associated with the acquisition of Wright and evolution of our capital structure. Please refer to Part I, Item 7 “Management’s
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 “Long-Term Debt” for more details.
(3) Represents total revenues divided by the average of the number of full-time equivalent employees at the beginning of the year and the number of full-time equivalent
employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of Arrowhead, and
therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for 2012 is considered to be 6,259.
All share and per-share information has been adjusted to give effect to the 2-for-1 common stock split which became effective November 29, 2005.
Weighted average number of shares outstanding-diluted has been adjusted to give effect for the two-class method of calculating earnings per share as
described in Note 1 to the Consolidated Financial Statements.
In the “swing” means we
focus, not on what makes
us different, but on what
makes us the same.
At Brown & Brown, what makes us the same is a fierce passion for exceeding our
customers’ expectations – every time. Every division of our Company and every
teammate contribute their unique talents and skills to this unifying mission. As
you read this annual report, it will quickly become clear that everything we do is
driven by this simple yet powerful precept. This ties in perfectly with our rowing
theme this year, inspired by the book The Boys in the Boat(1). In it, Daniel James
Brown discusses how the most important quality a rower must have is the ability
to disregard one’s own ambitions and to pull, not just for oneself, but for one’s
fellow teammates.
(1) Brown, Daniel James. Boys in the Boat. New York: Penguin Random House, 2013. Print.
2014 Annual Report
1
44251_Narr.indd 1
3/24/15 10:04 AM
To our shareholders:
Within Brown & Brown, as in rowing, every
individual’s contribution is crucial to the success
of the team. Our bond is a common desire to be
the best and do what is best for our customers.
During the year, we made moves that improved our
performance in 2014 and positioned us well for 2015
and beyond. I am honored to share with you both
our achievements to our stern and our vision across
the bow.
2014 was a good year for our Company, with adjusted
earnings per share of $1.63, a 14.0% increase over the
previous year. Total revenue for the year was $1.576 billion,
up 15.6% from 2013. Adjusted organic growth for the year
was 3.5%. We grew from 6,992 teammates in the prior year
to 7,591 teammates in 2014, with 191 offices in 235 locations.
This year was marked by several important strategic deci-
sions. We hired a new Chief Financial Officer, Andy Watts,
who has been instrumental in helping us refine and achieve
our goals. The Company’s capital structure evolved with the
creation of our new credit facility and our public debt debut
when we issued $500 million of 10-year bonds – another
significant first for our Company. 2014 saw our first large
stock repurchase initiative of $75 million. Each of these
decisions was carefully considered and thoughtfully designed
to position Brown & Brown for another 75 years of contin-
ued success.
While our annual report highlights our financial achieve-
ments, make no mistake – Brown & Brown is all about
people. Training for each teammate in every role begins
immediately, with focus on ensuring we have the best
people at all times. While our brokers, producers and
marketers may be the most visible, each and every team-
mate plays a critical role in our success. Just as in the world
of rowing, winning teams in business leverage the unique
strengths of each team member for the benefit of the group
as a whole. Our culture promotes collaboration and appreci-
ation of each teammate’s strengths, all contributing to the
benefit of our customers.
In rowing, the biggest and quickest rowers don’t always win
the race. The true strength of a team comes from working in
perfect synchronicity which delivers unparalleled momentum
toward a common goal – providing the best solutions and
best service for our customers. In rowing terms, this is
called being in the “swing.” Our swing is to grow organi-
cally and profitably and close acquisitions that fit culturally.
This is made possible by our 7,591 teammates. Their commit-
ment to our customers drives our success year after year.
Our teammates also share a commitment to the communities
we’re fortunate to serve. Many volunteer their time to local
organizations and charities. Some raise funds or make dona-
tions. We also help provide solutions for a number of
non-profit organizations countrywide and I’m proud that we
support our local communities.
2 Brown & Brown, Inc.
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“ Drawing on the experience and wisdom we’ve gained
in our first 75 years, Brown & Brown is charting its
course for the next 75 years and beyond.”
Drawing on the experience and wisdom we’ve gained in
our first 75 years, Brown & Brown is charting its course for
the next 75 years and beyond. We will continue to adapt
to and anticipate changes in the industry. The core values
that have set our pace thus far will continue to serve our
Company, our shareholders and our customers in the future.
As we close in on our next goal of reaching $2 billion
in annual revenue, we remain committed to our core
objectives:
n Exceed customers’ expectations each and every time
n Increase long-term shareholder value
n Grow our business organically and make quality
acquisitions that fit culturally
n Cultivate and enhance excellent relationships with
our strategic carrier partners
n Hire great people and enable, develop and reward
our teammates
Keeping true to these objectives will enable us to reach
our goal and will position us well for future success.
In conclusion, while there are external forces that may
affect our industry or Company, we control our focus and
discipline. These principles have served us well and will
continue to do so as we move forward.
Thank you to everyone who helped make 2014 a good
year. I am proud to work with such talented professionals
in serving our customers, and I’m excited to see what
2015 holds.
Regards,
J. Powell Brown, CPCU
President and
Chief Executive Officer
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2014 Annual Report 3
Facing challenges
together
In rowing, crews train and
compete under clear, sunny
skies – and in driving rain and
challenging winds. Regardless
of external conditions, the
focus on the goal and commit-
ment to the team remains. To
succeed in business, we must
be prepared for both good
and bad economic conditions.
We can’t control the external
circumstances, but we keep
our minds in the boat and our
eyes on the goal.
4 Brown & Brown, Inc.
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To succeed, you
must adapt to all
types of conditions.
Brown & Brown is there for our customers during both smooth rowing and rough
waters. As markets change, we help our customers with solutions that adapt to their
risk management and changing business needs and expectations.
At Brown & Brown, we foster a team approach to serving
our customers, working with them through various industry
conditions, and as their businesses grow and change.
We provide solutions not only for our customers, but for
entire industries. When we discovered that affordable
insurance was not available for a certain industry segment,
we created an entirely new product that met regulatory
requirements and provided nursing homes with innovative
insurance coverage.
The federal Affordable Care Act (“ACA”) has created choppy
waters for many employers, with its web of regulations,
reporting requirements and potential pitfalls. We have
teammates dedicated solely to employee benefits issues
and have been able to educate our customers as to what
steps they need to take to comply with the ACA. In certain
cases, smaller companies lack the resources to access
proprietary exchanges, or the ability to fully understand
certain issues – we provide this type of holistic service to
our customers.
Whether waters are as smooth as glass or roiled with turb–
ulent waves, we never take our eye off our customers,
their changing needs and the solutions we need to have
in our boat.
2014 Annual Report 5
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It’s a simple concept:
everyone pulls...
together.
The way Brown & Brown recruits, hires and trains its teammates differentiates
us from our competitors.
The reason Brown & Brown has such broad and deep
insurance expertise in so many industries and classes of risk
is primarily due to the people we recruit and how we train,
so they are continually at the top of their game.
We are constantly seeking great teammates, which means
we are always hiring and receiving referrals. When we find a
candidate that possesses the critical skills required to be a
success in the insurance industry, and most importantly on
the Brown & Brown team, we have them join immediately.
Training begins day one with our proprietary Brown & Brown
University. This program is unique in the industry, and
provides extensive technical and specialized training for all
insurance, sales and service professionals.
Our teammates are empowered to make decisions and
quickly present solutions to our customers – a differentiator
for Brown & Brown. When an issue or opportunity arises,
our customers often need a quick resolution. Our culture of
individual and team accountability encourages our team-
mates to do, and be, their best at all times.
A great team in business is similar to a great rowing crew.
A crew must have total confidence that no one person will
get the full weight of the pull. We strive to hire teammates
who will inspire this kind of confidence and excellence. The
power of “we” gives our Company a competitive edge our
competitors can’t match.
6 Brown & Brown, Inc.
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Many strengths
with one goal
To create a winning crew, it’s
important to choose team-
mates with different strengths
and temperaments: some
analytical and deliberate, some
decisive and spontaneous, and
still others who excel under
pressure – all of these must
mesh. At Brown & Brown, we
hire the best people for each
role in our crew to achieve peak
performance that leads
to success.
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2014 Annual Report 7
Balance, harmony and
working together
Success is not the result of a single
individual’s efforts. In rowing and
in business, success comes from tal-
ented people working as one toward
a common goal. Team members must
perform at their best and be able to
depend on each other to do so if the
race is to be won.
8 Brown & Brown, Inc.
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The depth and breadth of
our insurance knowledge
is second to none.
Great crew teams are a balanced blend of physical abilities and diverse personalities that
provide equilibrium. At Brown & Brown, it’s the diversified structure and balanced business
approach that are key to the Company’s longevity and continued growth.
As an organization, we operate four segments/divisions:
Retail, National Programs, Wholesale Brokerage and
Services. Our annual revenue is delivered through these
divisions, bringing balance to our business and diversification
across our customer base.
We work in almost every industry, so our revenue is not
concentrated in any one line of coverage or geographic
location. This is possible because the Company has approxi-
mately 7,600 teammates distributed across a variety of
specialized areas in which they are technically proficient. We
write coverage in industries from professional services to
manufacturing, hospitality to high tech, and construction to
transportation. We insure personal property from recre-
ational vehicles to homes, mobile equipment to fine art, and
pontoon boats to luxury yachts. We write coverage for
builders risk, flood damage and public entities. We also
provide services including claims processing, Medicare
Set-aside and Social Security disability benefit advocacy.
Balance is also achieved by leveraging the capabilities across
our Company to best serve our customers and accentuating
our operations. By having businesses that are counter-cyclical
to broad economic conditions, we create a business with
economic resiliency.
In rowing, balance, harmony and working together create
the swing that makes the work feel effortless. The strengths
of each of our four divisions create balance and the ability to
power the success of our Company.
2014 Annual Report 9
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Businesses will not
succeed without the
right equipment.
Our relationships with our carriers are built on a foundation of mutual trust and
confidence. We have gained the trust of our carrier partners because of our longevity
in the industry, quality of the business we sell and the breadth of our distribution. We
cultivate and nurture deep relationships with our diverse portfolio of carrier partners.
The relationships we have with our insurance carriers are
key to our continued long-term success. We choose our
carrier partners carefully, seeking those that meet strict
criteria for financial stability, diverse risk appetite and
specializations.
In many cases, our carrier partners give us underwriting
authority or claims adjudication responsibility, which are
enormous demonstrations of trust. In return, we provide
our key carrier partners with the ability to reduce their
expense ratios, increase efficiencies, improve distribution,
and industry leading modeling tools and processing – all
with the objective of helping them improve their returns.
The ultimate goal is to create solutions that benefit our
customers. The depth and breadth of our relationships
with our carriers allow us to bring the right solution to
the right customer at the right time – sometimes bringing
multiple carriers to the table to cooperate on a unique
and complex coverage need.
Without the right equipment, even the most well-trained
team will struggle to win the race. Brown & Brown is
fortunate to work with strong and committed carriers
that propel us forward into an exciting future.
10 Brown & Brown, Inc.
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The best equipment
is critical
A successful crew cannot succeed
without the right tools. A team with
inadequate training, a substandard
boat and lack of direction will surely
fail. At Brown & Brown we are
guided by our core principles as we
provide solutions and services that
exceed our customers’ expectations.
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2014 Annual Report
11
Self-discipline as culture
Coaching a winning team requires the ability
to model and inspire the self-discipline
needed to consistently achieve peak
performance. Brown & Brown’s culture of
leadership throughout the Company opens
doors and encourages each teammate to be
his or her best at all times. This creates
tremendous opportunities for all of us to
learn from each other.
12 Brown & Brown, Inc.
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The drive that propels
great companies to even
greater heights.
Great leaders are focused on delivering for their teams and sharing successes. A crucial
component of leadership is the ability to mentor, coach and advocate. When a leader
sees that a teammate’s stroke is off, the leader works with the teammate to get him or
her into the swing.
At Brown & Brown, leadership is not reserved for a select
few. Everyone, in every position, is encouraged and expected
to demonstrate leadership every day. Leaders are the
steady voice at the stern of the boat, remaining calm and
cool regardless of conditions.
This sounds very serious – and it is. However, great leaders
must also have a sense of humor, humility and common
sense – especially about themselves. The waters won’t
always be calm, and it’s critical to be able to face every
challenge with both focus and the ability to laugh.
Finally, the glue that holds these characteristics together
is passion. It’s impossible to be a great leader or to achieve
success, if you’re not passionate about what you do.
While the sales teams may be the rowers in the boat and
in the spotlight, they can’t perform without their team-
mates in Marketing, Underwriting, Service, Finance, Legal,
Team Resources and Information Technology, who make
sure the boat gets in the water and is ready to go at a high
rate of speed each day.
Brown & Brown is fortunate to have a culture of strong
leadership. Our passion and consistency will perpetuate
this culture – and our success – for years to come.
2014 Annual Report 13
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Our winning strategy
will guide us to
continued growth.
Our strategic plan is the engine that powers Brown & Brown as we strive to be
the best diversified insurance broker serving the middle market.
Our strategic business plan has four pillars upon which it
rests. The first is that we are in the people recruiting and
enhancing business. We work tirelessly to have the best
insurance professionals in the industry, giving them the
tools and training to excel each day.
The second is that we are in the selling and servicing of
insurance business. Every day we strive to provide our
customers with excellence in both service and innovative
insurance solutions that are delivered by us – their key
business partner.
Third, we operate as a “make no big mistakes” business. We
stick to the core insurance business that made us an industry
leader, without complicating our ventures into risky or
unfamiliar waters. Under our disciplined approach, we may
take risks, but they are controlled to avoid material variations.
Lastly, we are in the money-making business. This means we
make acquisitions and run our businesses in a profitable
manner with a steadfast goal of increasing value for our
shareholders.
In rowing, strategy hinges upon the discipline required to
achieve the ultimate from mind, heart and body. Our strategy
has served us well for the first 75 years and we expect it will
for the next 75 years and beyond.
14 Brown & Brown, Inc.
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A unified strategy
to win
Central to rowing principles
is that when everyone rows
together the swing becomes
the ninth rower. To achieve
swing, every teammate must
row in synch with each
individual, working together
to achieve a common goal.
A sound strategy is critical in
creating this type of unity,
providing the blueprint
necessary to build lasting
success.
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2014 Annual Report 15
Divisional Review of Operations
Retail
The Retail Division is the largest of Brown & Brown’s four
divisions and generated approximately 51% of the Compa-
ny’s total revenues in 2014. With a laser focus on risks
and protecting our customers, this division includes
almost 3,700 insurance professionals, operates in 100
locations, writes business in all 50 states, and has a
physical presence in 34 states within the United States,
the Cayman Islands and Bermuda.
Our broad and deep insurance expertise across both
industry and geography gives us a distinct competitive
advantage. Brown & Brown is uniquely qualified to address
the insurance needs of middle market businesses, as well
as those of individuals – we are solutions providers.
Some of the types of insurance coverage we offer include,
but are not limited to, multi-peril packages for both
property and casualty, employee benefits, workers’
compensation, professional liability, medical malpractice,
builders’ risk, cyber security, as well as personal insurance
needs such as homes, umbrella policies, antique vehicles,
fine art and wine collections.
We are a specialty distribution channel with risk of
insured loss being borne by our broad and diverse
network of hundreds of insurance companies. We are
proud of the strong, long-term relationships we have built
with our carriers partners, which enable us to garner
focused attention on the needs of our customers.
A significant differentiator of Brown & Brown is that our
customers hear from us throughout the term of their
policy and not just at renewal time. Being key business
partners for each of our customers year round, means we
are constantly anticipating potential areas of risk and
communicating emerging industry issues. As an example,
Brown & Brown is doing significant work to assist our
customers to proactively manage the complex issues
associated with the creation, implementation, and
ongoing compliance of the Affordable Care Act (“ACA”).
To meet the rigorous requirements imposed upon our
customers by the ACA, we continue to hire and train
the industry’s best healthcare experts. With the
Supreme Court set to hear several related cases, the
ACA will continue to be an area of focus into the
foreseeable future.
The success record of Brown & Brown’s Retail Division is
attributable to its major asset: our people. Recruitment,
hiring and the continuous training of our teammates
creates unmatched expertise, enabling us to address
virtually any type of risk our customers may encounter.
At Brown & Brown, we provide insurance solutions
extremely well and have every intention of maximizing
our performance and helping our customers reach new
heights each and every year.
Contribution to
Total Revenues
51.4%
16 Brown & Brown, Inc.
Contribution to Total
Adjusted Operating
Profit
49.4%
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Division Total Revenues
dollars in millions
Division Operating Profit(1)
dollars in millions
Division Operating Profit Margin(1)
as a percentage
809.8
728.3
259.3
32.9
32.7
33.2
33.3
32.0
242.8
644.4
607.2
575.1
213.6
198.5
189.4
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
(1) Please see non-GAAP reconciliation on page 86.
Retail Division Office Locations
n Arizona
n Arkansas
n California
n Colorado
n Connecticut
n Delaware
n Florida
n Georgia
n Hawaii
n Illinois
n Indiana
n Kentucky
n Louisiana
n Massachusetts
n Michigan
n Minnesota
n Mississippi
n Nevada
n New Hampshire
n New Jersey
n New Mexico
n New York
n Ohio
n Oklahoma
n Oregon
n Pennsylvania
n Rhode Island
n South Carolina
n Tennessee
n Texas
n Vermont
n Virginia
n Washington
n Wisconsin
OUTSIDE THE U.S.
n Bermuda
n Cayman Islands
2014 Annual Report 17
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Divisional Review of Operations
National Programs
In 2014, the National Programs Division of Brown & Brown
delivered approximately 25% of the Company’s revenue.
In virtually all of our programs, our insurance carrier
partners have delegated underwriting, policy issuance,
billing, and, in many instances, claims-handling authority
to our programs’ operations. These programs are generally
distributed through nationwide networks of independent
agents and Brown & Brown retail offices, and offer targeted
products and services designed for specific industries, trade
groups, professionals, public entities and market niches.
The National Programs Division can be broadly split into
two groups: professional programs, and property and
casualty programs. These groups encompass a wide
variety of innovative and unique programs that can be
further broken down into five main categories.
• Commercial lines programs offer packages designed
specifically for broad based categories of customers, and
includes coverage for programs like workers’ compensa-
tion, contractor’s equipment, professional sports
activities and manufactured housing. Some of our
leading programs in this category are American Specialty
Insurance & Risk Services, Arrowhead Workers Compen-
sation and OnPoint Underwriters.
• Personal lines programs include residential, auto, and
earthquake coverage. Leading programs for personal
lines include Arrowhead Personal Property and Arrow-
head Residential Earthquake.
• Specialty lines include programs such as flood coverage,
difference in conditions (“DIC”) commercial earthquake,
habitation properties, food chains, and lender-placed
coverage to insure against specific risks. Our specialty
lines programs include brands such as Wright Flood,
Sigma Underwriting, Florida Intracoastal Underwriters,
Arrowhead Special Risk Division and Proctor Financial.
• Professional liability programs include protection for
architects, engineers, dentists, realtors, attorneys and
physicians. These programs include brands such as
CalSurance® and Professional Protector Plans®.
• Public entity lines are programs where Brown & Brown
manages the full range of services related to self-insured
risk pools for municipalities and public entities. Programs
in this category include Canfield & Associates, Wright
Public Entity, Downey Public Risk Underwriters, and
Public Risk Underwriters.
Our Company has been creating programs for more than
40 years. Our experience and scale make it possible for
us to continue to grow and expand. We are one of the
largest operators in the U.S. programs sector, placing
more than $2.6 billion in premium from approximately
50 programs and more than 100 products. We have a
very broad base of insurance carriers that have partnered
with us for many years.
Our National Programs Division works in niche areas
where we make a difference and deliver coverage into the
market for our carrier partners. Our national presence
gives us tremendous reach and depth. Our teammates are
talented professionals who bring extensive experience
and value to every program. Finally, we have a vast, strong
distribution system of approximately 10,000 retailers that
makes it possible to uniquely distribute a program
offering, whether it’s done through our Retail and
Wholesale Brokerage Divisions, an association or a group
of distributors.
Contribution to
Total Revenues
25.1%
18 Brown & Brown, Inc.
Contribution to Total
Adjusted Operating
Profit
28.6%
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Division Total Revenues
dollars in millions
Division Adjusted Operating Profit(1)
dollars in millions
Division Adjusted Operating
Profit Margin(1)
as a percentage
394.8
150.0
47.9
292.1
252.9
176.1
164.4
101.6
94.6
84.4
72.0
43.8
38.0
37.4
34.8
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
(1) Please see non-GAAP reconciliation on page 86.
National Programs
n AFC Insurance
n Allied Protector Plan®
n American Specialty
n Arrowhead General Insurance
Agency
n Downey Public Risk Underwriters
n Canfield
n Florida Intracoastal Underwriters
n OnPoint Underwriting
n Optometric Protector Plan®
n Parcel Insurance Plan
n Public Risk Advisors of New Jersey
n CalSurance Associates
n CITA Insurance Services
n CPA Protector Plan®
n Professional Protector Plan
for Dentists
n Ideal Insurance Agency
n Irving Weber Associates
n Lawyer’s Protector Plan®
n Texas Monarch Management
Corporation
n Proctor Financial
n Professional Service Plan
n Professional Risk Specialty Group
n Public Risk Underwriters
n TitlePac®
n Wright Flood
n Wright Public Entity
n Wright Specialty
For additional information on National Programs please visit: www.natprograms.com
2014 Annual Report 19
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Divisional Review of Operations
Wholesale Brokerage
In 2014, the Wholesale Division was responsible for
approximately 15% of the Company’s revenue, placing
$2.1 billion in premium for the year. This division is in
the solutions business and we excel at what we do. We
operate in two practices; brokerage and binding authority.
We are one of the top ten largest wholesalers in the
world, with almost 330 insurance brokers and more than
1,000 teammates doing business in all of the United
States and the United Kingdom. We do business through
the Brown & Brown network and with more than 12,000
independent retailers.
The best way to think about the Wholesale Division is as
an extension of a retail agent’s marketing or placement
capabilities. Working with us gives smaller agents the
ability to access insurance carriers and pursue business
they would not otherwise be able to write.
We’re able to be creative and excel at what we do because
we have specifically aligned our brokers by industry and
line of coverage. If you’re engaging with one of our
property brokers, they deal solely with property and know
the business and geographical issues very well. Many of
our competitors use a generalist model that attempts to
sell everything, which is not an effective way to serve our
customers’ best interests.
Working with our Wholesale Division gives retailers the
advantage of our broad and deep carrier relationships. In
most cases, we’ve done a great deal more business with
the carrier than the retail agent. Rather than approaching
a carrier as a smaller business, working through our
Wholesale Division puts the strength, capabilities, and
size of our Company behind the retailer to provide the
best solution for the customer. No matter the risk, we
are able to find a market to provide coverage.
Finally, we’re flexible in how we work with retail agents.
We can either walk them through the process of assisting
their customer or accompany them on customer visits.
That level of service is unique in the industry.
Opportunities are presented to the Wholesale Division
in a way that is quite different than the usual avenues.
Generally speaking, when a retailer comes to us, there’s
an issue that cannot be addressed by the standard
insurance carriers. For example, they may be working on
a renewal and aren’t content with the coverage and/or
price structure. This is when they turn to us for a solution,
which enables us to provide our capabilities to help solve
the problem. With our expertise, we know exactly what
the issue is and how to work with the retailer and our
carriers to provide the best coverage at the right price
for the customer.
Contribution to
Total Revenues
14.9%
20 Brown & Brown, Inc.
Contribution to Total
Adjusted Operating
Profit
15.8%
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Division Total Revenues
dollars in millions
Division Adjusted Operating Profit(1)
dollars in millions
234.7
209.9
83.1
73.1
183.6
171.8
174.1
61.5
58.3
54.7
Division Adjusted Operating
Profit Margin(1)
as a percentage
34.8
35.4
33.5
33.5
31.9
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
(1) Please see non-GAAP reconciliation on page 86.
Wholesale Brokerage Division
n APEX Insurance Services
n Big Sky Underwriters
n Braishfield Associates
n Combined Group Insurance
Services
n Decus Insurance Brokers
n ECC Insurance Brokers
n Evergreen Re
n Graham Rogers
n Halcyon Underwriters
n Hull & Company
n MacDuff Underwriters
n Mile High Markets
n National Risk Solutions
n Peachtree Special Risk Brokers
n Procor Solutions & Consulting
n Public Risk Underwriters GA
n Public Risk Underwriters TX
n Sigma Underwriting Managers
n Summit Risk Services
n Texas Security General Insurance
Agency
2014 Annual Report 21
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Divisional Review of Operations
Services
In 2014, the Services Division of Brown & Brown was
responsible for delivering approximately 9% of the
Company’s revenue. Since its inception in 1982, the one
unifying thread running through this division is our
commitment to providing outstanding service for every
customer we serve – no matter if that customer is an
individual, a company or an insurance carrier.
Having a common operating philosophy which is under-
pinned by service is key, as our businesses provide
specialized offerings to multiple markets. These include
offerings such as claims processing for floods, property,
auto, Social Security advocacy and Medicare Set-aside. As
a result of building deep and lasting relationships with our
customers, we have a very high retention rate. That’s
something we’re extremely proud of and a differentiator
in the industry. To deliver great service, we hire, train and
retain the best teammates in the industry.
Some of our businesses include:
American Claims Management, Inc. (ACM) | A national
third-party administrator which provides comprehensive
insurance claims handling and related services primarily
for commercial and personal lines claims.
USIS® and PGCS® | Full-service third-party claims admin-
istrators with capabilities of handling various types of
claims, including workers’ compensation, auto, profes-
sional and general liability. USIS also offers medical
management and managed care services.
ICA | A national service provider delivering comprehen-
sive claims management solutions including catastrophe
response, daily response and staff augmentation for both
personal and commercial lines of insurance.
Colonial Claims | The national leader in yearly volume of
National Flood Insurance Program claims adjusted for the
past 20 years.
The Advocator GroupSM | A company specializing in
Social Security disability advocacy and Medicare enroll-
ment decision support services.
NuQuest/Bridge Pointe® and Protocols® | Recognized
leaders in Medicare Secondary Payer Compliance.
Multidisciplinary consulting firms specializing in medical
settlement planning for parties involved in complex
workers’ compensation and personal injury cases.
In addition to the best people in the industry, our
strengths include a broad network and national presence.
We do business in all of the United States and manage
thousands of claims annually. We are also able to build a
strong bond with our insurance carrier partners as we
offer them efficient claims management through our
scale and technology platforms.
While the Services Division works in areas ranging from
auto claims to Social Security disability advocacy, our
success is directly attributable to our commitment and
our love of providing outstanding service to our customers.
Contribution to
Total Revenues
8.7%
22 Brown & Brown, Inc.
Contribution to Total
Adjusted Operating
Profit
5.8%
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3/24/15 10:05 AM
Division Total Revenues
dollars in millions
Division Adjusted Operating Profit(1)
dollars in millions
136.6
131.5
116.7
39.9
Division Adjusted Operating
Profit Margin(1)
as a percentage
29.8
30.4
26.2
26.3
30.7
30.3
22.2
66.0
46.4
19.6
12.2
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
(1) Please see non-GAAP reconciliation on page 86.
Services Division
n American Claims Management
n USIS
n PGCS
n ICA
n Colonial Claims
n The Advocator Group
n NuQuest/Bridge Pointe
n Protocols
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2014 Annual Report 23
The privilege to be
of service.
Giving back to the communities that give so much to us is an important part of
the culture at Brown & Brown.
Brown & Brown has a strong culture of giving back to
the communities we are honored to serve. Our offices
and teammates support charitable organizations and
their communities in a way that is most meaningful to
them and to the particular cause for which they have
dedicated themselves.
While we work with many non-profit organizations to
help them further their missions, we also support these
organizations by assisting them with their insurance
needs. This takes many shapes and forms, from employee
benefits and property and casualty, to directors and
officers insurance for members of their board of directors.
Our teammates do everything from volunteering with
their local Boy/Girl Scout troops to volunteering at local
hospitals – we support hundreds of charitable organiza-
tions. Some of our teammates donate money, others
organize and participate in fundraising drives for various
charities and community causes, and others donate their
time or talents. Each year, we as a collective team donate
thousands of hours in support of the charities that mean
the most to each of us.
Our structure of independent, local offices puts Brown
& Brown in an excellent position to stay in touch with
the changing needs of the communities in which we
live and serve. It is our belief that giving back to our
communities is an honor and a privilege, and we don’t
take it for granted.
24 Brown & Brown, Inc.
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Leadership Overview
J. Powell Brown, CPCU
President & Chief Executive
Officer
R. Andrew Watts
Executive Vice President, Treasurer
& Chief Financial Officer
Linda S. Downs, CPCU, AIA
Executive Vice President
Richard A. Freebourn, Sr.,
CPCU, CIC
Executive Vice President – Internal
Operations & People Officer
Robert W. Lloyd, Esq., CIC
Executive Vice President,
Corporate Secretary &
General Counsel
Charles H. Lydecker,
CPCU, CIC, AIM
President – Retail Division
J. Scott Penny, CIC
Chief Acquisitions Officer
Anthony T. Strianese
President – Wholesale
Brokerage Division
Chris L. Walker
President – National
Programs Division
J. Neal Abernathy
Senior Vice President
Sam R. Boone, Jr.
Senior Vice President
Steve M. Boyd
Senior Vice President
P. Barrett Brown
Senior Vice President
Kathy H. Colangelo
CIC, ASLI
Senior Vice President
Steve L. Denton
Senior Vice President
Nicholas J. Dereszynski,
CEBS, CIC
Senior Vice President
Anthony M. Grippa
Senior Vice President
Thomas K. Huval, CIC
Senior Vice President
Richard A. Knudson, CIC
Senior Vice President
44251_Narr.indd 25
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2014 Annual Report 25
Board of Directors
Left to right:
Samuel P. Bell, III, Esq.
Of Counsel to the law firm of Buchanan
Ingersoll & Rooney PC
Acquisition Committee; Compensation
Committee, Chairman
Bradley Currey, Jr.
Former Chairman & Chief Executive
Officer, Rock-Tenn Company
Acquisition Committee; Nominating/
Corporate Governance Committee
James S. Hunt
Former Executive Vice President and
Chief Financial Officer, Walt Disney Parks
and Resorts Worldwide
Audit Committee; Compensation
Committee
Theodore J. Hoepner
Former Vice Chairman, SunTrust Bank
Holding Company
Acquisition Committee; Audit Committee,
Chairman; Compensation Committee
Chilton D. Varner
Partner, King & Spalding LLP
Lead Director; Compensation Committee;
Nominating/Corporate Governance
Committee, Chairman
Wendell S. Reilly
Managing Partner,
Grapevine Partners, LLC
Acquisition Committee, Chairman;
Nominating/Corporate Governance
Committee
J. Hyatt Brown, CPCU, CLU
Chairman, Brown & Brown, Inc.
J. Powell Brown, CPCU
President & Chief Executive Officer,
Brown & Brown, Inc.
Toni Jennings
Chairman, Jack Jennings & Sons; Former
Lieutenant Governor, State of Florida
Compensation Committee; Nominating/
Corporate Governance Committee
H. Palmer Proctor, Jr.
President/Director, Fidelity Bank
Acquisition Committee; Audit Committee
Hugh M. Brown
Founder and former President & Chief
Executive Officer, BAMSI, Inc.
Audit Committee; Nominating/Corporate
Governance Committee
Timothy R. M. Main
Managing Director, Evercore Group LLC
Acquisition Committee
26 Brown & Brown, Inc.
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2014
Financial
Review
28 Management’s Discussion and Analysis of Financial
Condition and Results of Operations
52 Consolidated Statements of Income
53 Consolidated Balance Sheets
54 Consolidated Statements of Shareholders’ Equity
55 Consolidated Statements of Cash Flows
56 Notes To Consolidated Financial Statements
87 Reports of Independent Registered Public
Accounting Firm
89 Management’s Report on Internal Control Over
Financial Reporting
90 Performance Graph
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2014 Annual Report 27
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
General
The following discussion should be read in conjunction
with our Consolidated Financial Statements and the related
Notes to those Consolidated Financial Statements included
elsewhere in this Annual Report.
We are a diversified insurance agency, wholesale
brokerage, insurance programs and services organization
headquartered in Daytona Beach, Florida. As an insurance
intermediary, our principal sources of revenue are commis-
sions paid by insurance companies and, to a lesser extent,
fees paid directly by customers. Commission revenues
generally represent a percentage of the premium paid by
an 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,
or sales and payroll levels) to determine what premium to
charge the insured. Insurance companies establish these
premium rates based upon many factors, including reinsur-
ance rates paid by such insurance companies, none of which
we control.
The volume of business from new and existing custom-
ers, fluctuations in insurable exposure units and changes in
general economic and competitive conditions all affect our
revenues. For example, level rates of inflation or a general
decline in economic activity could limit increases in the
values of insurable exposure units. Conversely, the increas-
ing costs of litigation settlements and awards have caused
some customers to seek higher levels of insurance coverage.
Historically, our revenues have typically grown as a result of
our focus on net new business growth and acquisitions.
We foster a strong, decentralized sales culture with a
goal of consistent, sustained growth over the long term.
We increased revenues every year from 1993 to 2014,
with the exception of 2009, when our revenues dropped
1.0%. Our revenues grew from $95.6 million in 1993 to
$1.6 billion in 2014, reflecting a compound annual growth
rate of 14.2%. In the same 21 year period, we increased net
income from $8.1 million to $206.9 million in 2014, a com-
pound annual growth rate of 16.7%.
The years 2007 through 2011 posed significant chal-
lenges for us and for our industry in the form of a prevailing
decline in insurance premium rates, commonly referred to
as a “soft market” and increased significant governmental
involvement in the Florida insurance marketplace which
resulted in a substantial loss of revenues for us. Additionally,
beginning in the second half of 2008 and throughout 2011,
there was a general decline in insurable exposure units as
the consequence of the general weakening of the economy
in the United States. As a result, from the first quarter of
2007 through the fourth quarter of 2011 we experienced
negative internal revenue growth each quarter. The contin-
ued declining exposure units during 2010 and 2011 had a
greater negative impact on our commissions and fees
revenues than declining insurance premium rates.
Beginning in the first quarter of 2012, many insurance
premium rates began to slightly increase. Additionally, in
the second quarter of 2012, the general declines in insurable
exposure units started to flatten and these exposures units
subsequently began to gradually increase during the year.
As a result, we recorded positive internal revenue growth for
each quarter of 2012 for each of our four segments with two
exceptions; the first quarter for the Retail Segment and the
third quarter for the National Programs Segment, in which
declines of only 0.7% and 3.3%, respectively, were experienced.
This growth trend has continued into 2014 with our
consolidated internal revenue growth rate of 2.0%.
Additionally, each of our four segments recorded positive
internal revenue growth for each quarter in 2014 except
for the Services Segment in the first quarter. The decline in
the core organic commissions and fees revenues in the first
quarter of 2014 for the Services Segment was the result of
the significant revenue recorded at our Colonial Claims oper-
ation in the first quarter of 2013 attributable to Superstorm
Sandy, for which no comparable revenues occurred in the
first quarter of 2014. In the first quarter of 2013, Colonial
Claims earned claims fees of $16.2 million as a direct
result of the continued significant claims activity from
Superstorm Sandy.
We also earn “profit-sharing contingent commissions,”
which are profit-sharing commissions based primarily on
underwriting results, but which may also reflect considera-
tions for volume, growth and/or retention. These commissions
28 Brown & Brown, Inc.
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
are primarily received in the first and second quarters of
each year, based on the aforementioned considerations for
the prior year(s). Over the last three years, profit-sharing
contingent commissions have averaged approximately 4.3%
of the previous year’s total commissions and fees revenue.
Profit-sharing 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 profit-sharing contingent commissions
and guaranteed supplemental commissions, and therefore
represents the revenues earned directly from specific
insurance policies sold, and specific fee-based services
rendered. In contrast, the term “core organic commissions
and fees” is our core commissions and fees less (i) the core
commissions and fees earned for the first twelve months by
newly-acquired operations and (ii) divested business (core
commissions and fees generated from offices, books of
business or niches sold or terminated during the comparable
period). “Core organic commissions and fees” are reported
in this manner in order to express the current year’s core
commissions and fees on a comparable basis with the prior
year’s core commissions and fees. The resulting net change
reflects the aggregate changes attributable to (i) net new
and lost accounts, (ii) net changes in our customers’ exposure
units, and (iii) net changes in insurance premium rates.
Certain insurance companies offer guaranteed fixed-
base agreements, referred to as “Guaranteed Supplemental
Commissions” (“GSCs”) in lieu of profit-sharing contingent
commissions. Since GSCs are not subject to the uncertainty
of loss ratios, they are accrued throughout the year based
on actual premiums written. As of December 31, 2014, we
had $7.6 million of GSC revenue accrued and had earned
$9.9 million of GSCs during 2014, most of which will be
collected in the first quarter of 2015. For the twelve-month
periods ended December 31, 2014, 2013 and 2012, we earned
GSCs of $9.9 million, $8.3 million and $9.1 million, respectively.
Fee revenues relate to fees negotiated in lieu of commis-
sions, which are recognized as services are rendered. Fee
revenues have historically been generated primarily by:
(1) our Services Segment, which provides insurance-related
services, including third-party claims administration and
comprehensive medical utilization management services in
both the workers’ compensation and all-lines liability arenas,
as well as Medicare Set-aside services, Social Security disabil-
ity and Medicare benefits advocacy services, and catastrophe
claims adjusting services, and (2) our National Programs and
Wholesale Brokerage Segments, which earn fees primarily
for the issuance of insurance policies on behalf of insurance
companies. These services are provided over a period of
time, typically one year. However, in conjunction with our
July 1, 2013 acquisition of Beecher Carlson, which has a
primary focus on large retail customers that generally pay
us fees directly, the fee revenues in our Retail Segment for
2014 have increased by $44.8 million to $117.8 million. Also,
with the acquisition of Wright, which primarily receives
income in the form of fees, fee revenue in our National
Programs Segment increased $81.9 million to $152.8 million.
Fee revenues, on a consolidated basis, as a percentage of
our total commissions and fees, represented 30.6% in 2014,
26.6% in 2013 and 21.7% in 2012.
Historically, investment income has consisted 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. As a result of the bank liquidity and
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2014 Annual Report 29
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
solvency issues in the United States in the last quarter of
2008, we moved substantial amounts of our cash into
non-interest bearing checking accounts so that they would
be fully insured by the Federal Deposit Insurance Corporation
(“FDIC”) or into money-market investment funds (a portion
of which is FDIC insured) of SunTrust and Wells Fargo, two
large national banks. Effective January 1, 2013, the FDIC
ceased providing insurance guarantees on non-interest
bearing checking accounts and since that time we have
invested in both interest bearing and non-interest bearing
checking accounts. Investment income also includes gains
and losses realized from the sale of investments. Other
income primarily reflects net gains on sales of customer
accounts and fixed assets, but will also include sub-rental
income, legal settlements and other miscellaneous income.
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations
that follows, in addition to reporting financial results in
accordance with GAAP, as noted above, we provide informa-
tion regarding core commissions and fees, core organic
commissions and fees, and our internal growth rate, which
is the growth rate of our core organic commissions and fees.
These measures are not in accordance with, or an alternative
to (including any adjusted internal growth rate), the GAAP
information provided in this annual report on Form 10-K.
Tabular reconciliations of this supplemental non-GAAP
financial information to our most comparable GAAP infor-
mation is contained in this Form 10-K. We present such
non-GAAP supplemental financial information, as we believe
such information provides additional meaningful methods
of evaluating certain aspects of our operating performance
from period to period on a basis that may not be otherwise
apparent on a GAAP basis. This supplemental financial
information should be considered in addition to, not in
lieu of, our condensed consolidated financial statements.
Current Year Company Overview
2014 was a strong year for revenue growth and continued
the positive trends that began in 2012. After the five-year
period extending from 2007 to 2011, in which we experienced
negative internal growth in our core organic commissions and
fees revenue which we believe was a direct result of the
general weakness of the economy, we achieved a positive
internal revenue growth of 6.7% in 2013, and 2.0% in 2014.
The net growth in core organic commissions and fees in
2014 of $25.6 million is significantly less than the comparable
growth in 2013 of $75.6 million, similar to the core organic
commissions and fees in 2012 of $24.9 million and significantly
better than the net lost revenues of $21.5 million in 2011.
However, it should be noted that of the $75.6 million growth
in the 2013 core organic commissions and fees, $38.1 million
was generated by two new programs at our Arrowhead
operation, the automobile aftermarket program and the
non-standard auto program, and from our Colonial Claims
operation as a result of the significant claims activity attribut-
able to Superstorm Sandy. The growth in the core organic
commissions and fees revenue for 2014 is principally attribut-
able to new business and increasing insurance exposure units
as a result of a gradually improving U.S. economy.
Income before income taxes in 2014 decreased over
2013 by 5.0%, or $17.9 million, to $339.7 million. However, that
net decrease includes a $47.4 million pretax loss on disposal
of certain assets of Axiom Re, LP (“Axiom Re”). This office
sale was effective December 31, 2014 and represents part
of our strategic plan to exit the reinsurance brokerage business.
The loss associated with this sale resulted in a $0.21 reduc-
tion to earnings per share. Income before income taxes
related to new acquisitions was $37.5 million, and therefore,
income before income taxes from offices that existed in the
same time periods of 2014 and 2013 (including the new
acquisitions that “folded in” to those offices) decreased by
$55.4 million. The net decrease of $55.4 million related
primarily to net new business off-set by the $47.4 million loss
on the sale of Axiom Re, along with the decrease in revenue
associated with claims from Superstorm Sandy received in
30 Brown & Brown, Inc.
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
2013 with no comparable revenues in 2014, $27.7 million of
higher compensation and benefits costs, increased interest
costs of $12.0 million relating to additional debt used to fund
acquisition activity in 2014, and $7.5 million from the change
in estimated earn-out payables.
Acquisitions
Approximately 37,500 independent insurance agencies
are estimated to be operating currently in the United
States. Part of our continuing business strategy is to attract
high-quality insurance intermediaries to join our opera-
tions. From 1993 through 2014, we acquired 459 insurance
intermediary operations, excluding acquired books of
business (customer accounts).
We continue to acquire insurance operations that we
believe are strategic in growing our business segments. In
each of the last two years, we completed ten acquisitions in
2014 with estimated revenues of $159.5 million, and nine acqui-
sitions in 2013 with estimated revenues of $142.8 million.
A summary of our acquisitions over the last three years
is as follows:
Number of Acquisitions
(in millions, except for
number of acquisitions)
Asset
Stock
Estimated
Annual
Revenues
Net Cash
Paid
Notes
Issued
Other
Payable
Recorded
Earn-out
Payable
Net
Assets
Acquired
2014
2013
2012
9
8
19
1
1
1
$ 159.5
$ 721.9
$ 142.8
$ 408.1
$ 149.6
$ 483.9
$
$
$
—
—
0.1
$
$
$
1.9
0.5
25.4
$
$
$
33.2
$ 757.0
5.1
$ 413.7
21.5
$ 530.9
On May 1, 2014, we completed the acquisition of
Wright which was previously announced January 15, 2014.
Wright has estimated annualized revenues of $120.0 million.
The total cash paid for Wright was $609.2 million. Wright’s
operations include a national flood insurance program,
government-sponsored insurance programs and proprietary
national and regional programs.
On July 1, 2013, we completed the acquisition of Beecher
Carlson, an insurance and risk management broker with
operations that include retail brokerage, program manage-
ment and captive management. The aggregate purchase
price for Beecher Carlson was $469.3 million, including
$364.3 million of cash payments and the assumption of
$105.0 million of liabilities. Beecher Carlson was acquired
primarily to expand Brown & Brown’s Retail and National
Programs businesses, and to attract and hire high-quality
individuals.
On January 9, 2012, we completed the acquisition of
Arrowhead General Insurance Agency Superholding
Corporation (“Arrowhead”) pursuant to a merger agreement
dated December 15, 2011 (the “Merger Agreement”). Under
the Merger Agreement, the total cash purchase price of
$395.0 million was subject to adjustments for options to
purchase shares of Arrowhead’s common stock, working
capital, sharing of net operating tax losses, Arrowhead’s
preferred stock units, transaction expenses, and closing
debt. In addition, within 60 days following the third anniver-
sary of the acquisition’s closing date, we will pay to certain
persons who were Arrowhead equity holders as of the closing
date additional earn-out payments equal, collectively, to
$5.0 million, subject to certain adjustments based on the
“cumulative EBITDA” of Arrowhead and all of its subsidiaries,
as calculated pursuant to the Merger Agreement, during the
final year of the three-year period following the acquisition’s
closing date.
Arrowhead is a national insurance program manager
and one of the largest managing general agents (“MGAs”)
in the property and casualty insurance industry.
Critical Accounting Policies
Our Consolidated Financial Statements are prepared
in accordance with U.S. 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 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.
2014 Annual Report 31
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
We believe that of our significant accounting and
reporting policies, the more critical policies include our
accounting for revenue recognition, business combinations
and purchase price allocations, intangible asset impairments
and reserves for litigation. 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”.
Revenue Recognition
Commission revenues are recognized as of the effective
date of the insurance policy or the date on which the policy
premium is processed into our systems, whichever is later.
Commission revenues related to installment billings are
recognized on the later of the date effective or invoiced,
with the exception of our Arrowhead business which follows
a policy of recognizing on the later of the date effective or
processed into our systems regardless of the billing arrange-
ment. Management determines the policy cancellation reserve
based upon historical cancellation experience adjusted in
accordance with known circumstances. Subsequent commis-
sion adjustments are recognized upon our receipt of
notification from insurance companies concerning matters
necessitating such adjustments. Profit-sharing contingent
commissions are recognized when determinable, which
is when such commissions are received from insurance
companies, or when we receive formal notification of the
amount of such payments. Fee revenues, and commissions
for workers’ compensation programs, are recognized as
services are rendered.
Business Combinations and Purchase Price Allocations
We have acquired significant intangible assets through
business acquisitions. These assets consist of purchased
customer accounts, non-compete agreements, and the
excess of purchase prices over the fair value of identifiable
net assets acquired (goodwill). The determination of esti-
mated useful lives and the allocation of purchase price to
intangible assets requires significant judgment and affects
the amount of future amortization and possible impair-
ment charges.
All of our business combinations initiated after June 30,
2001 have been accounted for using the purchase method. In
connection with these acquisitions, we record the estimated
value of the net tangible assets purchased and the value of
the identifiable intangible assets purchased, which typically
consist of purchased customer accounts and non-compete
agreements. Purchased customer accounts include the
physical records and files obtained from acquired businesses
that contain information about insurance policies, customers
and other matters essential to policy renewals. However,
they primarily represent the present value of the underlying
cash flows expected to be received over the estimated future
renewal periods of the insurance policies comprising those
purchased customer accounts. The valuation of purchased
customer accounts involves significant estimates and assump-
tions concerning matters such as cancellation frequency,
expenses and discount rates. Any change in these assump-
tions could affect the carrying value of purchased customer
accounts. Non-compete agreements are valued based on their
duration and any unique features of particular agreements.
Purchased customer accounts and non-compete agreements
are amortized on a straight-line basis over the related esti-
mated lives and contract periods, which range from five to 15
years. The excess of the purchase price of an acquisition over
the fair value of the identifiable tangible and intangible assets
is assigned to goodwill and is not amortized.
Acquisition purchase prices are typically based on a
multiple of average annual operating profit earned over a
one- to three-year period within a minimum and maximum
price range. The recorded purchase prices for all acquisitions
consummated after January 1, 2009 include an estimation
of the fair value of liabilities associated with any potential
earn-out provisions. Subsequent changes in the fair value
of earn-out obligations are recorded in the consolidated
statement of income when incurred.
The fair value of earn-out obligations is based on the
present value of the expected future payments to be made
to the sellers of the acquired businesses in accordance with
the provisions contained in the respective purchase agree-
ments. In determining fair value, the acquired business’
future performance is estimated using financial projections
developed by management for the acquired business’ and
this estimate reflects market participant assumptions
regarding revenue growth and/or profitability. The expected
future payments are estimated on the basis of the earn-out
32 Brown & Brown, Inc.
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
formula and performance targets specified in each purchase
agreement compared to the associated financial projections.
These estimates are then discounted to present value using a
risk-adjusted rate that takes into consideration the likelihood
that the forecasted earn-out payments will be made.
Intangible Assets Impairment
Goodwill is subject to at least an annual assessment for
impairment measured by a fair value-based test. Amortizable
intangible assets are amortized over their useful lives and
are subject to an impairment review based on an estimate
of the undiscounted future cash flows resulting from the use
of the assets. To determine if there is potential impairment
of goodwill, we compare the fair value of each reporting unit
with its carrying value. If the fair value of the reporting unit
is less than its carrying value, an impairment loss would be
recorded to the extent that the fair value of the goodwill
within the reporting unit is less than its carrying value. Fair
value is estimated based on multiples of earnings before
interest, income taxes, depreciation, amortization and
change in estimated acquisition earn-out payables
(“EBITDAC”), or on a discounted cash flow basis.
Management assesses the recoverability of our goodwill
on an annual basis, and assesses the recoverability of our
amortizable intangibles and other long-lived assets when-
ever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. The
following factors, if present, may trigger an impairment
review: (i) significant underperformance relative to historical
or projected future operating results; (ii) significant negative
industry or economic trends; (iii) significant decline in our
stock price for a sustained period; and (iv) significant decline
in our market capitalization. If the recoverability of these
assets is unlikely because of the existence of one or more
of the above-referenced factors, an impairment analysis is
performed. Management must make assumptions regarding
estimated future cash flows and other factors to determine
the fair value of these assets. If these estimates or related
assumptions change in the future, we may be required to
revise the assessment and, if appropriate, record an impair-
ment charge. We completed our most recent evaluation of
impairment for goodwill as of November 30, 2014 and
determined that the fair value of goodwill exceeded the
carrying value of such assets. Additionally, there have been
no impairments recorded for amortizable intangible assets
for the years ended December 31, 2014, 2013 and 2012.
Non-Cash Stock-Based Compensation
We grant stock options and non-vested stock awards to
our employees, and the related compensation expense is
required to be recognized in the financial statements based
upon the grant-date fair value of those awards.
Litigation Claims
We are subject to numerous litigation claims that arise in
the ordinary course of business. If it is probable that an
asset has been impaired or a liability has been incurred at
the date of the financial statements and the amount of the
loss is estimable, an accrual for the costs to resolve these
claims is recorded in accrued expenses in the accompany-
ing Consolidated Balance Sheets. Professional fees related
to these claims are included in other operating expenses
in the accompanying Consolidated Statements of Income.
Management, with the assistance of in-house and outside
2014 Annual Report 33
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
counsel, determines whether it is probable that a liability
has been incurred and estimates the amount of loss based
upon analysis of individual issues. New developments
or changes in settlement strategy in dealing with these
matters may significantly affect the required reserves
and affect our net income.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”)
2014-08 “Reporting Discontinued Operations and Disclosures
of Disposals of Components of an Entity” (“ASU 2014-08”)
which changes the criteria for reporting discontinued
operations and enhances disclosures in this area. Under
the new guidance, the disposal of a component or group
of components of an entity should be reported as a discon-
tinued operation if the disposal represents a strategic shift
that has (or will have) a major effect on an entity’s opera-
tions and financial results. Disposals of equity method
investments, or those reported as held-for-sale, must be
presented as a discontinued operation if they meet the
new definition. The standard is effective prospectively for
all disposals of components (or classification of components
as held-for-sale) of an entity that occur within interim and
annual periods beginning on or after December 15, 2014.
Early adoption is permitted, but only for disposals (or
classifications of components as held-for-sale) that have
not been reported in financial statements previously issued.
Brown & Brown has elected to early adopt this pronounce-
ment and has reported the disposal of the Axiom Re business
in accordance with this pronouncement.
In May 2014, FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers” (“ASU 2014-09”), which
provides guidance for revenue recognition. ASU 2014-09
affects any entity that either enters into contracts with
customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets and super-
sedes the revenue recognition requirements in Topic 605,
“Revenue Recognition,” and most industry-specific guidance.
The standard’s core principle is that a company will recog-
nize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration
to which a company expects to be entitled in exchange for
those goods or services. In doing so, companies will need to
use more judgment and make more estimates than under
today’s guidance. These may include identifying performance
obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating
the transaction price to each separate performance obligation.
ASU 2014-09 is effective for the Company beginning January 1,
2017 and, at that time the Company may adopt the new
standard under the full retrospective approach or the modi-
fied retrospective approach. Early adoption is not permitted.
The Company is currently evaluating the method and impact
the adoption of ASU 2014-09 will have on the Company’s
Consolidated Financial Statements.
In August 2014, FASB issued ASU 2014-15, “Disclosure
of Uncertainties About an Entity’s Ability to Continue as a
Going Concern,” (“ASU 2014-15”), which addresses manage-
ment’s responsibility in evaluating whether there is substantial
doubt about a company’s ability to continue as a going concern
and to provide related footnote disclosures. ASU 2014-15 is
effective for fiscal years beginning after December 15, 2016
and for interim periods within those fiscal years, with early
adoption permitted. The Company does not expect to early
adopt this guidance and it believes the adoption of this
guidance will not have a material impact on the Consolidated
Financial Statements.
With the Wright acquisition we now have insurance
company operations for which we have adopted accounting
policies that were consistent with the accounting policies in
place at Wright prior to their acquisition by Brown & Brown.
These are detailed in Note 1 to the Financial Statements
under “Summary of Significant Accounting Policies”.
34 Brown & Brown, Inc.
44251_Fin.indd 34
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations for the Years Ended December 31, 2014, 2013 and 2012
The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered
in conjunction with the accompanying Consolidated Financial Statements and related Notes.
Financial information relating to our Consolidated Financial Results is as follows:
(in thousands, except percentages)
Revenues
2014
Percent
Change
2013
Percent
Change
2012
Core commissions and fees
$ 1,499,903
15.7 %
$ 1,295,977
14.1 %
$ 1,136,252
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
57,706
9,851
747
7,589
12.6 %
19.0 %
17.1 %
6.3 %
51,251
8,275
17.3 %
(9.5)%
638
(19.9)%
7,138
(29.7)%
43,683
9,146
797
10,154
1,575,796
15.6 %
1,363,279
13.6 %
1,200,032
791,749
15.9 %
19,363
(14.3) %
235,328
20.3 %
47,425
82,941
20,895
28,408
— %
22.1 %
19.5 %
72.8 %
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
12.2 %
42.5 %
12.2 %
— %
6.9 %
13.7 %
2.1 %
78.6 %
12.3 %
608,506
15,865
174,389
—
63,573
15,373
16,097
1,418
895,221
Change in estimated acquisition earn-out payables
9,938
NMF (1)
Total expenses
1,236,047
22.9 %
1,005,670
Income before income taxes
$ 339,749
(5.0)%
$ 357,609
17.3 %
$ 304,811
Net internal growth rate —
core commissions and fees
Employee compensation and benefits ratio
Other operating expenses ratio
Capital expenditures
Total assets at December 31
(1) NMF = Not a meaningful figure
2.0 %
50.2 %
14.9 %
$
24,923
$ 4,956,458
6.7 %
50.1 %
14.4 %
$
16,366
$ 3,649,508
2.6 %
50.7 %
14.5 %
$
24,028
$ 3,128,058
44251_Fin.indd 35
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2014 Annual Report 35
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Other Income, Net
Other income for 2014 reflected income of $7.6 million,
compared with $7.1 million in 2013 and $10.2 million in 2012.
We recognized gains of $5.3 million, $3.1 million and $4.3 mil-
lion from sales on books of business (customer accounts)
in 2014, 2013 and 2012, respectively. Although we are not
in the business of selling books of business, we periodically
will sell an office or a book of business because it does not
produce reasonable margins or demonstrate a potential for
growth, or for other reasons related to the particular assets
in question. Other income also included $1.6 million and
$3.6 million in 2013 and 2012, respectively, paid to us in
connection with settlements of litigation against former
employees for violations of restrictive covenants contained
in their employment agreements with us. For 2014, other
income from legal settlement was negligible. Additionally,
we recognized non-recurring gains, rental income and sales
of software services of $0.9 million, $2.4 million and $2.3 mil-
lion in 2014, 2013 and 2012, respectively.
Employee Compensation and Benefits
Employee compensation and benefits expense increased,
approximately 15.9% or $108.7 million in 2014. However, that
net increase included $81.0 million of new compensation
costs related to new acquisitions that were stand-alone
offices. Therefore, employee compensation and benefits
from those offices that existed in the same time periods of
2014 and 2013 (including the new acquisitions that “folded
in” to those offices) increased by $27.7 million. The employee
compensation and benefit increases from these offices
were primarily related to increases in staff and management
salaries of $13.8 million, new salaried producers of $4.8 million,
Commissions and Fees
Commissions and fees, including profit-sharing contingent
commissions and GSCs, increased $212.0 million, or 15.6%
in 2014. Profit-sharing contingent commissions and GSCs
increased $8.0 million or 13.5% in 2014 to $67.6 million,
due primarily to $4.9 million, $1.4 million, and $1.7 million
increases in profit-sharing contingent commissions and
GSCs in our Retail, National Programs and Wholesale
Brokerage Segments, respectively. Core commissions and
fees revenue in 2014 increased $203.9 million, of which
approximately $186.8 million represented core commissions
and fees from acquisitions that had no comparable revenues
in 2013. After taking into account divested business of
$8.5 million, the remaining net increase of $25.6 million,
representing net new business, reflects a 2.0% internal
growth rate for core organic commissions and fees.
Commissions and fees, including profit-sharing contin-
gent commissions and GSCs, increased $166.4 million, or
14.0% in 2013. Profit-sharing contingent commissions and
GSCs increased $6.7 million or 12.7% in 2013 to $59.5 million,
due primarily to $4.7 million, $0.6 million, and $1.3 million
increases in profit-sharing contingent commissions and GSCs
in our Retail, National Programs and Wholesale Brokerage
Divisions, respectively. Core commissions and fees revenue
in 2013 increased $159.7 million, of which approximately
$91.5 million represented core commissions and fees from
acquisitions that had no comparable revenues in 2012. After
taking into account divested business of $7.4 million, the
remaining net increase of $75.6 million, representing net
new business, reflects a 6.7% internal growth rate for core
organic commissions and fees.
Investment Income
Investment income increased to $0.7 million in 2014, com-
pared with $0.6 million in 2013 mainly due to higher average
daily invested balances in 2014 than in 2013. Investment
income of $0.6 million in 2013 was down $0.2 million as com-
pared to 2012, mainly due to lower average daily invested
balances in 2013 than in 2012.
36 Brown & Brown, Inc.
44251_Fin.indd 36
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
profit center and other related bonuses of $6.7 million, compen-
sation to our commissioned producers of $0.9 million and
health insurance costs of $4.8 million. These increases were
partially offset by net reductions in temporary employees,
employer 401K plan matching contributions and accrued
vacation expense. Employee compensation and benefits
expense as a percentage of total revenues was 50.2% as
compared to 50.1% for the twelve months ended December 31,
2013. This slight increase is driven by continued investment
in new teammates.
Employee compensation and benefits expense increased,
approximately 12.2% or $74.5 million in 2013. However, that
net increase included $37.6 million of new compensation
costs related to new acquisitions that were stand-alone
offices. Therefore, employee compensation and benefits
from those offices that existed in the same time periods of
2013 and 2012 (including the new acquisitions that “folded
in” to those offices) increased by $36.9 million. The employee
compensation and benefit increases from these offices were
primarily related to increases in staff and management
salaries of $16.6 million, new salaried producers of $4.7 million,
profit center and other related bonuses of $3.4 million,
compensation to our commissioned producers of $5.7 million,
health insurance costs of $1.8 million, payroll-related taxes
of $3.7 million, and other net expenses of $1.0 million.
Non-Cash Stock-Based Compensation
We have an employee stock purchase plan, and grant stock
options and non-vested stock awards to our employees.
Compensation expense for all share-based awards is recog-
nized in the financial statements based upon the grant-date
fair value of those awards. For 2014, 2013 and 2012, the
non-cash stock-based compensation expense incorporates
the costs related to each of our four stock-based plans as
explained in Note 11 of the Notes to the Consolidated
Financial Statements.
Non-cash stock-based compensation decreased 14.3%,
or $3.2 million in 2014 over 2013, primarily as a result of
forfeitures due to the non-achievement of certain perfor-
mance criteria, partially offset by an increase associated
with new, non-vested stock awards granted on July 1, 2013
under our Stock Incentive Plan (“SIP”).
Non-cash stock-based compensation increased 42.5%,
or $6.7 million in 2013 over 2012, primarily as a result of
new non-vested stock awards granted on July 1, 2013 under
our SIP. Most of these SIP grants will typically vest in four
to seven years, subject to the achievement of certain
performance criteria by grantees, and the achievement of
consolidated earnings per share growth at certain levels
by us, over three- to five-year measurement periods. Some
SIP grants will vest after five years of service.
Other Operating Expenses
As a percentage of total revenues, other operating expenses
represented 14.9% in 2014, 14.4% in 2013, and 14.5% in 2012.
Other operating expenses in 2014 increased $39.7 million
over 2013, of which $39.0 million was related to acquisitions.
Therefore, other operating expenses attributable to offices
that existed in the same periods in both 2014 and 2013
(including the new acquisitions that “folded in” to those
offices) increased by $0.7 million. Of the $0.7 million increase,
$2.0 million related to increased data processing and software
licensing expense, $1.2 million related to increased inspec-
tion and consulting fees, $0.8 million related to office rent,
and $0.9 million related to increased employee sales meeting
costs. These increased costs were partially offset by decreases
of $3.0 million for legal claims and litigation expenses, $1.0 million
for insurance expenses, and $0.2 million in other various net
cost decreases.
Other operating expenses in 2013 increased $21.3 million
over 2012, of which $12.5 million was related to acquisitions
that joined as stand-alone offices. Therefore, other operating
expenses attributable to offices that existed in the same
periods in both 2013 and 2012 (including the new acquisitions
that “folded in” to those offices) increased by $8.8 million.
Of the $8.8 million increase, $2.0 million related to increased
data processing and software licensing expense, $2.0 mil -
lion related to increased inspection and consulting fees,
$1.6 million related to increased accounting and advisory fees,
$0.9 million related to increased employee sales meeting costs,
and $2.9 million related to other various, net cost increases.
These increased costs were partially offset by a decrease of
$0.6 million for legal claims and litigation expenses.
44251_Fin.indd 37
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2014 Annual Report 37
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Loss on Disposal
During 2014 the Company recognized a pretax loss on dis-
posal of $47.4 million as a result of the sale of Axiom Re
(Axiom) effective December 31, 2014. The sale is part of
the Company’s strategy to exit the reinsurance brokerage
business. For the years ended December 31, 2014 and 2013,
Axiom recorded a (loss) income before income taxes of
($587,000) and $113,000, respectively, which are included
in the Wholesale Brokerage segment. The transaction was
recorded in accordance to ASU 2014-08. The Company’s
prior non-significant disposals are recorded in 0ther
income, net in the consolidated statements of income.
Amortization
Amortization expense increased $15.0 million, or 22.1%, in
2014, and $4.4 million, or 6.9%, in 2013. The increases in 2014
and 2013 were due to the amortization of additional intangible
assets as a result of acquisitions completed in those years.
Depreciation
Depreciation increased 19.5% to $20.9 million in 2014 and
13.7% to $17.5 million in 2013. The increases in 2014 and 2013
were due primarily to the addition of fixed assets as a result
of recent acquisitions.
Interest Expense
Interest expense increased $12.0 million, or 72.8%, in 2014,
and $0.3 million, or 2.1%, in 2013. The 2014 increase is primar-
ily due to the increased debt borrowings from the JPMorgan
Credit Facility term loan of $550.0 million at adjusted LIBOR
rates (as mentioned in Note 8), which helped fund the Wright
acquisition, and the $500.0 million Senior Notes due 2024
at an interest rate of 4.200% which were issued during
September 2014. The 2013 increases were due primarily
to the additional debt borrowed in connection with our
acquisition of Beecher Carlson.
Change in estimated acquisition earn-out payables
Accounting Standards Codification (“ASC”) Topic 805 —
Business Combinations is the authoritative guidance requiring
an acquirer to recognize 100% of the fair values of acquired
assets, including goodwill, and assumed liabilities (with only
limited exceptions) upon initially obtaining control of an
acquired entity. Additionally, the fair value of contingent
consideration arrangements (such as earn-out purchase
arrangements) at the acquisition date must be included in
the purchase price consideration. As a result, the recorded
purchase prices for all acquisitions consummated after
January 1, 2009 include an estimation of the fair value of
liabilities associated with any potential earn-out provisions.
Subsequent changes in these earn-out obligations are
required to be recorded in the Consolidated Statement of
Income when incurred or reasonably estimated. Estimations
of potential earn-out obligations are typically based upon
future earnings of the acquired entities, usually for periods
ranging from one to three years.
The net charge or credit to the Consolidated Statement
of Income for the period is the combination of the net change
in the estimated acquisition earn-out payables balance, and
the interest expense imputed on the outstanding balance of
the estimated acquisition earn-out payables.
As of December 31, 2014, the fair values of the estimated
acquisition earn-out payables were re-evaluated and measured
at fair value on a recurring basis using unobservable inputs
(Level 3) as defined in ASC 820 — Fair Value Measurement
(“ASC 820”). The resulting net changes, as well as the interest
expense accretion on the estimated acquisition earn-out
payables, for the years ended December 31, 2014, 2013, and
2012 were as follows:
(in thousands)
Change in fair value on estimated acquisition earn-out payables
Interest expense accretion
Net change in earnings from estimated acquisition earn-out payables
2014
7,375
2,563
9,938
2013
570
1,963
2,533
$
$
$
$
2012
$
(1,051)
2,469
1,418
$
38 Brown & Brown, Inc.
44251_Fin.indd 38
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The fair values of the estimated earn-out payables
were increased in 2014 and 2013 since certain acquisitions
performed at higher levels than estimated in our original
projections. Conversely, the fair values of the estimated
earn-out payables were reduced in 2012 since certain
acquisitions did not perform at the level estimated based
on our original projections. An acquisition is considered to
be performing well if its operating profit exceeds the level
needed to reach the minimum purchase price. However,
a reduction in the estimated acquisition earn-out payable
can occur even though the acquisition is performing well,
if it is not performing at the level contemplated by our
original estimate.
As of December 31, 2014, the estimated acquisition
earn-out payables equaled $75,283,000, of which $26,018,000
was recorded as accounts payable and $49,265,000 was
recorded as an other non-current liability. As of December 31,
2013, the estimated acquisition earn-out payables equaled
$43,058,000, of which $6,312,000 was recorded as accounts
payable and $36,746,000 was recorded as an other non-
current liability. As of December 31, 2012, the estimated
acquisition earn-out payables equaled $52,987,000, of
which $10,164,000 was recorded as accounts payable and
$42,823,000 was recorded as an other non-current liability.
Income Taxes
The effective tax rate on income from operations was 39.1%
in 2014, 39.3% in 2013, and 39.6% in 2012. The lower effective
annual tax rates are primarily the result of lower average effective
state income tax rates, driven by revenue apportionment.
Results 0f Operations — Segment Information
As discussed in Note 15 of the Notes to Consolidated
Financial Statements, we operate four reportable segments:
Retail, National Programs, Wholesale Brokerage, and
Services. On a segmental basis, increases in amortization,
depreciation and interest expenses result from completed
acquisitions within a given segment in a particular year.
Likewise, other income in each segment primarily reflects
net gains on sales of customer accounts and fixed assets. As
such, in evaluating the operational efficiency of a segment,
management emphasizes the net internal growth rate of
core commissions and fees revenue, the gradual improve-
ment of the ratio of total employee compensation and
benefits to total revenues, and the gradual improvement of
the ratio of other operating expenses to total revenues.
The term “core commissions and fees” excludes profit-
sharing contingent commissions and GSCs, and therefore
represents the revenues earned directly from specific
insurance policies sold, and specific fee-based services
rendered. In contrast, the term “core organic commissions
and fees” is our core commissions and fees less (i) the core
commissions and fees earned for the first twelve months by
newly-acquired operations and (ii) divested business (core
commissions and fees generated from offices, books of
business or niches sold or terminated during the comparable
period). Core organic commissions and fees attempts to
express the current year’s core commissions and fees on a
comparable basis with the prior year’s core commissions and
fees. The resulting net change reflects the aggregate changes
attributable to (i) net new and lost accounts, (ii) net changes
in our customers’ exposure units, and (iii) net changes in insur–
ance premium rates. The net changes in each of these three
components can be determined for each of our customers.
2014 Annual Report 39
44251_Fin.indd 39
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The internal growth rates for our core organic commissions and fees for the three years ended December 31, 2014, 2013
and 2012, by Segment, are as follows:
20142014
For the Year Ended December 31,
(in thousands, except percentages)
2014
2013
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
Retail (1)
National Programs
Wholesale Brokerage
Services
Total core commissions
and fees
$ 779,480
$ 692,231
$ 87,249
12.6 %
$
73,351
$ 13,898
367,214
216,727
136,482
268,160
195,626
131,503
99,054
36.9 %
21,101
10.8 %
4,979
3.8 %
93,803
4,032
15,599
5,251
17,069
2.0 %
2.0 %
8.7 %
(10,620)
(8.1) %
$ 1,499,903
$ 1,287,520
$ 212,383
16.5 %
$ 186,785
$ 25,598
2.0 %
Less Superstorm Sandy
—
(18,275)
18,275
100.0 %
—
18,275
100.0 %
Total core commissions
and fees less
Superstorm Sandy
$ 1,499,903
$ 1,269,245
$ 230,658
18.2 %
$ 186,785
$ 43,873
3.5 %
There would be a 3.5% Internal Net Growth rate when excluding the $18.3 million related to Superstorm Sandy within the
Colonial Claims business for the first half of 2013.
The reconciliation of the above internal growth schedule to the total Commissions and Fees included in the Consolidated
Statements of Income for the years ended December 31, 2014 and 2013 is as follows:
(in thousands)
Total core commissions and fees
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Divested business
Total commissions and fees
For the Year Ended December 31,
2014
2013
$ 1,499,903
$ 1,287,520
57,706
9,851
—
51,251
8,275
8,457
$ 1,567,460
$ 1,355,503
20142014
For the Year Ended December 31,
(in thousands, except percentages)
2013
2012
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
Retail (1)
National Programs
Wholesale Brokerage
Services
Total core commissions
and fees
$ 699,571
$ 611,156
$ 88,415
14.5 %
$
79,455
$
8,960
1.5 %
271,772
193,601
131,033
233,261
168,151
116,247
38,511
16.5 %
25,450
15.1 %
14,786
12.7 %
7,099
4,332
657
31,412
13.5 %
21,118
12.6 %
14,129
12.2 %
$ 1,295,977
$ 1,128,815
$ 167,162
14.8 %
$
91,543
$ 75,619
6.7 %
40 Brown & Brown, Inc.
44251_Fin.indd 40
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The reconciliation of the above internal growth schedule to the total Commissions and Fees included in the Consolidated
Statements of Income for the years ended December 31, 2013 and 2012 is as follows:
(in thousands)
Total core commissions and fees
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Divested business
Total commissions and fees
For the Year Ended December 31,
2013
2012
$ 1,295,977
$ 1,128,815
51,251
8,275
—
43,683
9,146
7,437
$ 1,355,503
$ 1,189,081
2012
For the Year Ended December 31,
(in thousands)
Retail (1)
National Programs
Wholesale Brokerage
Services
Total core commissions
and fees
2012
2011
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
$ 618,562
$ 571,129
$ 47,433
8.3 %
$
38,734
$
8,699
233,261
168,182
116,247
148,841
155,151
64,875
84,420
56.7 %
13,031
8.4 %
51,372
79.2 %
83,281
3,598
45,783
1,139
9,433
5,589
1.5 %
0.8 %
6.1 %
8.6 %
$ 1,136,252
$ 939,996
$ 196,256
20.9 %
$ 171,396
$ 24,860
2.6 %
The reconciliation of the above internal growth schedule to the total Commissions and Fees included in the Consolidated
Statements of Income for the years ended December 31, 2012 and 2011 is as follows:
(in thousands)
Total core commissions and fees
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Divested business
Total commissions and fees
For the Year Ended December 31,
2012
2011
$ 1,136,252
$ 939,996
43,683
9,146
—
43,198
12,079
10,689
$ 1,189,081
$ 1,005,962
(1) The Retail Segment figures include commissions and fees reported in the “Other” column of the Segment Information in Note 15 of the Notes to the
Consolidated Financial Statements, which includes corporate and consolidation items.
44251_Fin.indd 41
3/24/15 7:45 AM
2014 Annual Report 41
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Retail Segment
The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public,
professional and individual insured customers. Approximately 85.5% of the Retail Segment’s commissions and fees revenue
is commission-based. Because most of our other operating expenses do not change as premiums fluctuate, we believe that
most of any fluctuation in the commissions, net of related compensation, which we receive will be reflected in our pre-tax
income, subject to incremental investments in new producers or other investments to help grow the business.
Financial information relating to Brown & Brown’s Retail Segment is as follows:
(in thousands, except percentages)
Revenues
2014
Percent
Change
2013
Percent
Change
2012
Core commissions and fees
$ 780,534
11.4 %
$ 700,767
13.0 %
$ 619,975
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
21,616
7,730
23.2 %
12.9 %
17,543
6,849
36.6 %
(0.6) %
67
(18.3) %
82
(24.1) %
(181)
NMF (1)
3,083
(33.2) %
12,843
6,890
108
4,613
809,766
11.2 %
728,324
13.0 %
644,429
408,686
11,732
130,074
—
42,270
6,410
42,918
7,147
649,237
12.5 %
29.6 %
14.9 %
— %
11.1 %
9.6 %
24.7 %
NMF (1)
15.5 %
363,332
9,055
113,159
—
38,052
5,847
34,407
11.3 %
59.4 %
14.8 %
— %
9.9 %
12.9 %
29.2 %
(1,844)
NMF (1)
326,574
5,680
98,532
—
34,639
5,181
26,641
1,968
562,008
12.6 %
499,215
Income before income taxes
$ 160,529
(3.5) %
$ 166,316
14.5 %
$ 145,214
Net internal growth rate — core organic
commissions and fees
Employee compensation and benefits ratio
Other operating expenses ratio
Capital expenditures
Total assets at December 31
(1) NMF = Not a meaningful figure
2.0 %
50.5 %
16.1 %
$
6,844
$ 3,190,737
1.5 %
49.9 %
15.5 %
$
6,847
$ 2,992,087
1.5 %
50.7 %
15.3 %
$
5,732
$ 2,420,759
42 Brown & Brown, Inc.
44251_Fin.indd 42
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
revenues in 2012; (ii) a decrease of $7.5 million related
to commissions and fees revenue recorded in 2012 from
business divested during 2013; and (iii) the remaining net
increase of $9.0 million primarily related to net new busi-
ness. The Retail Segment’s internal growth rate for core
organic commissions and fees revenue was 1.5% for 2013,
and was driven by slightly increasing insurable exposure
units in most areas of the United States, and slight increases
in general insurance premium rates.
Income before income taxes for 2013 increased 14.5%, or
$21.1 million, over the same period in 2012, to $166.3 million.
This increase was primarily due to net new business, the
increase in profit-sharing contingent commissions, and
continued improved efficiencies relating to compensation
and employee benefits and certain other operating expenses,
but which was partially off-set by a $1.5 million reduction
in other income primarily due to gains on the sale of books
of businesses in 2012. These increases were also enhanced
by changes in estimated acquisition earn-out payables of
$3.8 million, but partially offset by a net increase in the inter-
company interest expense allocation of $7.8 million. The
continued improved efficiencies relating to compensation
and employee benefits, and certain other operating expenses
resulted mainly from such costs increasing at a lower rate
than our growth in net new business. However, a portion of
the improved ratio of employee compensation and benefits
to total revenues was the result of the $6.8 million of bonus
compensation related to a special one-time bonus in 2012
which was not repeated in 2013.
The Retail Segment’s total revenues in 2014 increased
11.2%, or $81.4 million, over the same period in 2013, to
$809.8 million. Profit-sharing contingent commissions and
GSCs in 2014 increased $5.0 million, or 20.3%, over 2013, to
$29.3 million, primarily due to improved loss ratios resulting
in increased profitability for insurance companies in 2013.
The $79.8 million net increase in core commissions and fees
revenue resulted from the following factors: (i) an increase
of approximately $73.4 million related to core commissions
and fees revenue from acquisitions that had no comparable
revenues in 2013; (ii) a decrease of $7.5 million related to
commissions and fees revenue from business divested
during 2013 and 2014; and (iii) the remaining net increase
of $13.9 million primarily related to net new business. The
Retail Segment’s internal growth rate for core organic
commissions and fees revenue was 2.0% for 2014, and was
driven by net new customers, increasing insurable exposure
units in certain areas of the United States, and was partially
offset by continued pressure on property and casualty rates,
especially in coastal areas.
Income before income taxes for 2014 decreased 3.5%, or
$5.8 million, over the same period in 2013, to $160.5 million.
This decrease was primarily due to a higher interest charge
of $8.5 million corresponding to capital utilized for acquisi-
tions in 2014 and $9.0 million related to the year-on-year
changes in the estimated earn-out payable. The underlying
increase was driven by net new business, acquired business
and increased profit-sharing contingent commissions and
GSCs. Non-cash stock-based compensation increased
$2.7 million, or 29.6%, for 2014 over the same period in 2013,
as the cost of grants to employees for the purpose of driving
performance were realized.
The Retail Segment’s total revenues in 2013 increased
13.0%, or $83.9 million, over the same period in 2012, to
$728.3 million. Profit-sharing contingent commissions and
GSCs in 2013 increased $4.7 million, or 23.6%, over 2012, to
$24.4 million, primarily due to improved loss ratios resulting
in increased profitability for insurance companies in 2012.
The $80.8 million net increase in core commissions and fees
revenue resulted from the following factors: (i) an increase of
approximately $79.5 million related to core commissions and
fees revenue from acquisitions that had no comparable
44251_Fin.indd 43
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2014 Annual Report 43
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
National Programs Segment
The Wright Insurance Group acquisition was completed effective May 1, 2014. With the Wright acquisition completed, the
National Programs Segment manages over 50 programs with 40 well-capitalized carrier partners. In most cases, the insur-
ance carriers that support the programs have delegated underwriting and, in many instances, claims-handling authority to
our programs operations. These programs are generally distributed through nationwide networks of independent agents
and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups,
professions, public entities and market niches. The National Programs Segment operations can be grouped into five broad
categories: Commercial Programs, Professional Programs, Arrowhead Insurance Group Programs, Public Entity-Related
Programs, and the National Flood Program. Like the Retail and Wholesale Brokerage Segments, the National Programs
Segment’s revenue is primarily commission-based.
Financial information relating to our National Programs Segment is as follows:
(in thousands, except percentages)
Revenues
2014
Percent
Change
2013
Percent
Change
2012
Core commissions and fees
$ 367,214
35.1 %
$ 271,772
16.5 %
$ 233,261
Profit-sharing contingent commissions
20,623
7.0 %
19,265
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
21
164
NMF (1)
NMF (1)
6,767
NMF (1)
NNMF (1)
(23)
19
1,097
394,789
35.1 %
292,130
163,522
23.0 %
132,948
754
(83.6) %
76,833
45.0 %
—
24,769
7,699
— %
69.7 %
42.6 %
49,663
NMF (1)
4,604
53,001
—
14,593
5,399
24,014
4.7 %
NMF (1)
(5.0) %
10.4 %
15.5 %
20.5 %
24.2 %
19.8 %
— %
4.7 %
17.4 %
(6.5) %
Change in estimated acquisition earn-out payables
314
NMF (1)
(808)
(24.8) %
18,392
276
20
994
252,943
110,362
3,707
44,248
—
13,936
4,600
25,674
(1,075)
Total expenses
323,554
38.4 %
233,751
16.0 %
201,452
Income before income taxes
$
71,235
22.0 %
$
58,379
13.4 %
$
51,491
Net internal growth rate — core
organic commissions and fees
Employee compensation and benefits ratio
Other operating expenses ratio
Capital expenditures
Total assets at December 31
(1) NMF = Not a meaningful figure
2.0 %
41.4 %
19.5 %
$
13,739
$ 2,411,839
13.5 %
45.5 %
18.1 %
$
4,473
$ 1,335,911
0.8 %
43.6 %
17.5 %
$
9,633
$ 1,183,191
44 Brown & Brown, Inc.
44251_Fin.indd 44
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The National Programs Segment’s total revenues
in 2014 increased $102.7 million to $394.8 million, a 35.1%
increase over 2013. Core commission and fees increased by
$95.4 million due to the following factors: (i) an increase of
approximately $93.8 million related to core commissions and
fees revenue from the Wright and Beecher Carlson acquisi-
tions that had no comparable revenues in 2013; (ii) a decrease
of approximately $3.6 million in books of business that were
disposed or transferred to other segments; and (iii) the
remaining increase of $5.2 million is primarily related to net
new business. Profit-sharing contingent commissions and
GSCs in 2014 increased $1.4 million over 2013, due primarily to
a $0.5 million increase in profit-sharing contingent commissions
received by Florida Intracoastal Underwriters, Limited
Company (“FIU”), and a $0.8 million increase in profit-shar-
ing contingent commissions received by Proctor Financial,
Inc. (“Proctor”). Other income increased by approximately
$5.7 million primarily due to the gain recognized on the sale
of Industry Consulting Group, Inc. (“ICG”) of $6.0 million.
Income before income taxes for 2014 increased 22.0%
or $12.9 million over the same period in 2013, to $71.2 million.
The increase in income before taxes was due to net new
business growth noted above, revenues and operating profits
derived from Wright, the gain on the sale of ICG, and a
non-cash stock-based compensation decrease of $3.8 million
primarily related to partial SIP grant forfeitures associated to
Arrowhead. The $12.9 million increase was partially offset by
an increase in the intercompany interest expense charge
related to Wright.
The National Programs Segment’s total revenues in
2013 increased $39.2 million to $292.1 million, a 15.5% increase
over 2012. Profit-sharing contingent commissions and GSCs
in 2013 increased $0.6 million over 2012, due primarily to a
$3.7 million increase in profit-sharing contingent commis-
sions received by FIU, which was partially offset by a
decrease of $3.5 million at Proctor. The $38.5 million net
increase in core commissions and fees resulted from the
following factors: (i) an increase of approximately $7.1 million
related to the core commissions and fees revenue from
acquisitions that had no comparable revenues in 2012; and
(ii) the remaining net increase of $31.4 million primarily
related to net new business. Therefore, the National
Programs Segment’s internal growth rate for core organic
commissions and fees revenue was 13.5% for 2013. Of the
$31.4 million of net new business, $27.7 million related to a
net increase in commissions and fees revenue from our
Arrowhead operations.
Income before income taxes for 2013 increased 13.4%
or $6.9 million, over the same period in 2012, to $58.4 million.
This net increase was primarily due to the new automobile
aftermarket and the non-standard auto programs at our
Arrowhead subsidiary. Even though these programs increased
the total operating profit dollars for the Segment, the increase
in the ratios of employee compensation and benefits, and
other operating expenses as a percentage of total revenues
over the prior year. This was due to the fact that these
programs operated at a higher cost factor than the average
program operated in 2012.
44251_Fin.indd 45
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2014 Annual Report 45
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Wholesale Brokerage Segment
The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily
through independent agents and brokers. Like the Retail and National Programs Segments, the Wholesale Brokerage
Segment’s revenues are primarily commission-based.
Financial information relating to our Wholesale Brokerage Segment is as follows:
(in thousands, except percentages)
Revenues
2014
Percent
Change
2013
Percent
Change
2012
Core commissions and fees
$ 216,727
11.9 %
$ 193,601
15.1 %
$ 168,182
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
15,467
2,100
26
353
234,673
109,951
2,775
38,813
47,425
11,729
2,616
1,878
2,862
218,049
7.1 %
44.9 %
18.2 %
(9.9) %
11.8 %
12.0 %
36.1 %
6.1 %
— %
1.5 %
(6.4) %
(26.8) %
19.1 %
39.7 %
14,443
16.0 %
1,449
(33.9) %
22
392
— %
(45.6) %
12,448
2,192
22
721
209,907
14.4 %
183,565
98,144
2,039
36,589
—
11,550
2,794
2,565
2,404
12.4 %
53.5 %
9.3 %
— %
2.4 %
2.8 %
(35.5) %
NMF (1)
87,293
1,328
33,486
—
11,280
2,718
3,974
131
156,085
11.3 %
140,210
Income before income taxes
$
16,624
(69.1) %
$
53,822
24.1 %
$
43,355
Net internal growth rate — core organic
commissions and fees
Employee compensation and benefits ratio
Other operating expenses ratio
Capital expenditures
Total assets at December 31
(1) NMF = Not a meaningful figure
8.7 %
46.9 %
16.5 %
$
1,949
$ 940,461
12.6 %
46.8 %
17.4 %
$
1,931
$ 927,825
6.1 %
47.6 %
18.2 %
$
3,383
$ 837,364
46 Brown & Brown, Inc.
44251_Fin.indd 46
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The Wholesale Brokerage Segment’s total revenues for
2014 increased 11.8%, or $24.8 million, over the same period
in 2013, to $234.7 million. Profit-sharing contingent commis-
sions and GSCs for 2014 increased $1.7 million over the same
period of 2013. The $23.1 million net increase in core commis-
sions and fees revenue resulted from the following factors:
(i) an increase of approximately $4.0 million related to the
core commissions and fees revenue from acquisitions that
had no comparable revenues in the same period of 2013;
(ii) an increase of $2.0 million related to net sold and trans-
ferred books of business; and (iii) the remaining net increase
of $17.1 million primarily related to net new business. As such,
the Wholesale Brokerage Segment’s internal growth rate
for core organic commissions and fees revenue was 8.7%
for 2014.
Income before income taxes for 2014 decreased 69.1%,
or $37.2 million over the same period in 2013. This decrease
includes a $47.4 million net pretax loss on the disposal of
the Axiom Re business. Effective December 31, 2014, the
Company sold certain assets of the Axiom Re business as
part of the strategic plan to exit the reinsurance brokerage
market. Axiom Re had annual revenues of approximately
$6.9 million in 2014. The underlying performance of this
segment was driven by new business growth and to a lesser
extent an increase in profit sharing contingent commissions.
The Wholesale Brokerage Segment’s total revenues for
2013 increased 14.4%, or $26.3 million, over the same period
in 2012, to $209.9 million. Profit-sharing contingent commis-
sions and GSCs for 2013 increased $1.3 million over the same
period of 2012. The $25.4 million net increase in core com-
missions and fees revenue resulted from the following
factors: (i) an increase of approximately $4.3 million related
to the core commissions and fees revenue from acquisitions
that had no comparable revenues in the same period of 2012;
and (ii) the remaining net increase of $21.1 million primarily
related to net new business and continued increases in
premium rates on many lines of insurance, but primarily on
coastal property. As such, the Wholesale Brokerage Segment’s
internal growth rate for core organic commissions and fees
revenue was 12.6% for 2013.
Income before income taxes for 2013 increased 24.1%,
or $10.5 million over the same period in 2012 to $53.8 million,
primarily due to net new business, an increase in profit-
sharing contingent commissions, and a net reduction in the
inter-company interest expense allocation of $1.4 million, but
then partially offset by a $2.3 million expense in the form of
a change in estimated acquisition earn-out payables.
44251_Fin.indd 47
3/24/15 7:45 AM
2014 Annual Report 47
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Services Segment
The Services Segment provides insurance-related services, including third-party claims administration (“TPA”) and compre-
hensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well
as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and catastrophe claims
adjusting services.
Unlike our other segments, nearly all of the Services Segment’s 2014 commissions and fees revenue was generated from
fees, which are not significantly affected by fluctuations in general insurance premiums.
Financial information relating to our Services Segment is as follows:
(in thousands, except percentages)
Revenues
2014
Percent
Change
2013
Percent
Change
2012
Core commissions and fees
$ 136,482
4.2 %
$ 131,033
12.7 %
$ 116,247
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation
and benefits
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
—
—
3
74
— %
— %
NMF (1)
(83.7) %
—
—
1
— %
— %
— %
455
(6.8) %
—
—
1
488
136,559
3.9 %
131,489
12.6 %
116,736
73,590
17.0 %
62,908
6.2 %
31,877
14.3 %
27,885
—
4,134
2,213
7,678
— %
11.8 %
36.4 %
4.9 %
—
3,698
1,623
7,321
2,781
6.5 %
— %
0.5 %
27.0 %
(14.9) %
NMF (1)
59,235
597
26,180
—
3,680
1,278
8,602
394
Non-cash stock-based compensation
(72)
NMF (1)
755
26.5 %
Change in estimated acquisition earn-out payables
(385)
NMF (1)
Total expenses
119,035
11.3 %
106,971
7.0 %
99,966
Income before income taxes
$
17,524
(28.5) %
$
24,518
46.2 %
$
16,770
Net internal growth rate — core organic
commissions and fees
Employee compensation and benefits ratio
Other operating expenses ratio
Capital expenditures
Total assets at December 31
(1) NMF = Not a meaningful figure
(8.1)%
53.9 %
23.3 %
$
1,210
$ 296,034
12.2 %
47.8 %
21.2 %
$
1,811
$ 277,652
8.6 %
50.7 %
22.4 %
$
2,519
$ 238,430
48 Brown & Brown, Inc.
44251_Fin.indd 48
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Other
As discussed in Note 15 of the Notes to Consolidated
Financial Statements, the “Other” column in the Segment
Information table includes all income and expenses not
allocated to reportable segments, as well as corporate-
related items, including the inter-company interest expense
charges to reporting segments.
The Services Segment’s total revenues for 2014
increased 3.9%, or $5.1 million, over 2013, to $136.6 million.
The $5.4 million net increase in core commissions and
fees revenue consisted of the following: (i) an increase of
approximately $15.6 million related to the core commissions
and fees revenue from the acquisition of ICA, Inc. business,
that had no comparable revenues in the same period of 2013;
and (ii) net new business of $7.7 million, (iii) offset by a
reduction of $18.3 million due to the significant flood claims
processed in 2013 resulting from Superstorm Sandy in 2012
with no comparable storm in 2013; and (iv) $0.4 million of
net sold books of business. As such, the Services Segment’s
internal growth rate for core organic commissions and fees
revenue was (8.1%) for 2014 and excluding the impact of
Superstorm Sandy internal growth would be 6.8% in 2014.
Income before income taxes in 2014 decreased 28.5%,
or $7.0 million, over 2013, to $17.5 million, primarily due to
the reduction in Superstorm Sandy related revenues and
corresponding operating profit partially offset by the
increase associated with net new and acquired business.
The Services Segment’s total revenues for 2013
increased 12.6%, or $14.8 million, over 2012, to $131.5 million.
Of the $14.8 million net increase in core commissions and
fees revenue: (i) an increase of approximately $0.7 million
related to the core commissions and fees revenue from the
TPA business acquired as part of the Arrowhead acquisition,
that had no comparable revenues in the same period of 2012;
and (ii) net new business of $14.1 million, of which $13.0 million
was due to our Colonial Claims operation and the impact
of the significant flood claims resulting from the 2012
Superstorm Sandy. As such, the Services Segment’s internal
growth rate for core organic commissions and fees revenue
was 12.2% for 2013.
Income before income taxes in 2013 increased 46.2%,
or $7.7 million, over 2012, to $24.5 million, primarily due
to net new business from our Colonial Claims operation.
Additionally, this net increase was enhanced by a $1.3 million
reduction in inter-company interest expense, but partially
offset by a $2.4 million expense from changes in estimated
earn-out payables.
44251_Fin.indd 49
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2014 Annual Report 49
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Our cash and cash equivalents of $470.0 million at
December 31, 2014 reflected an increase of $267.1 million
from the $203.0 million balance at December 31, 2013. During
2014, $385.0 million of cash was generated from operating
activities. During this period, $696.5 million of cash was
used for acquisitions, $9.5 million was used for acquisition
earn-out payments, $24.9 million was used for additions to
fixed assets, $59.3 million was used for payment of dividends,
and $718.0 million was provided from proceeds received on
new net long-term debt.
We hold approximately $12.4 million in cash outside
of the U.S. for which we have no plans to repatriate in the
near future.
On May 1, 2014, we completed the acquisition of Wright
for a total cash purchase price of $609.2 million, subject to
certain adjustments. We financed the acquisition through
various modified and new credit facilities.
Our cash and cash equivalents of $203.0 million at
December 31, 2013 reflected a decrease of $16.9 million from
the $219.8 million balance at December 31, 2012. During 2013,
$389.4 million of cash was generated from operating activi-
ties. During this period, $367.7 million of cash was used for
acquisitions, $15.5 million was used for acquisition earn-out
payments, $16.4 million was used for additions to fixed
assets, $53.5 million was used for payment of dividends, and
$30.0 million was provided from proceeds received on new
long-term debt.
On July 1, 2013, we completed the acquisition of Beecher
Carlson for a total cash purchase price of $364.2 million,
subject to certain adjustments. We financed the acquisition
through various modified and new credit facilities.
Our cash and cash equivalents of $219.8 million at
December 31, 2012 reflected a decrease of $66.5 million
from the $286.3 million balance at December 31, 2011. During
2012, $220.3 million of cash was generated from operating
activities. During this period, $425.1 million of cash was
used for acquisitions, $13.5 million was used for acquisition
earn-out payments, $24.0 million was used for additions to
fixed assets, $49.5 million was used for payment of dividends,
and $200.0 million was provided from proceeds received
on new long-term debt.
On January 9, 2012, we completed the acquisition of
Arrowhead for a total cash purchase price of $397.0 million,
subject to certain adjustments and potential earn-out
payments of up to $5.0 million in the aggregate following
the third anniversary of the acquisition’s closing date. We
financed the acquisition through various modified and new
credit facilities.
Our ratio of current assets to current liabilities (the
“current ratio”) was 1.24 and 1.02 at December 31, 2014 and
2013, respectively.
Contractual Cash Obligations
As of December 31, 2014, our contractual cash obliga-
tions were as follows:
(in thousands)
Long-term debt
Other liabilities
Operating leases
Interest obligations
Unrecognized tax benefits
Maximum future acquisition
contingency payments
Total
Less Than
1 Year
1-3 Years
4-5 Years
After 5 Years
$ 1,200,000
$
45,625
$
128,125
$ 526,250
$ 500,000
50,423
182,937
263,221
113
20,471
38,458
37,286
—
13,520
65,949
70,994
113
2,047
41,623
56,066
—
130,653
57,390
70,801
2,462
14,385
36,907
98,875
—
—
Total contractual cash obligations
$ 1,827,347
$ 199,230
$
349,502
$ 628,448
$ 650,167
Debt
On April 17, 2014, the Company entered into a credit agree-
ment with JPMorgan Chase Bank, N.A. as administrative
agent and certain other banks as co-syndication agents and
co-documentation agents (the “Credit Agreement”). The
Credit Agreement in the amount of $1,350.0 million provides
for an unsecured revolving credit facility (the “Credit Facility”)
in the initial amount of $800.0 million and unsecured term
loans in the initial amount of $550.0 million, either or both of
which may, subject to lenders’ discretion, potentially be
50 Brown & Brown, Inc.
44251_Fin.indd 50
3/24/15 7:45 AM
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
increased by up to $500.0 million. The Credit Facility was
funded on May 20, 2014 in conjunction with the closing of
the Wright acquisition, with the $550.0 million term loan
being funded as well as a drawdown of $375.0 million on
the revolving loan facility. Use of these proceeds were to
retire existing term loan debt including the JPM Term Loan
Agreement, SunTrust Term Loan Agreement and Bank of
America Term Loan Agreement in total of $230.0 million (as
described above) and to facilitate the closing of the Wright
acquisition as well as other acquisitions. The Credit Facility
terminates on May 20, 2019, but either or both of the revolv-
ing credit facility and the term loans may be extended for two
additional one-year periods at the Company’s request and at
the discretion of the respective lenders. Interest and facility
fees in respect to the Credit Facility are based on the better
of the Company’s net debt leverage ratio or a non-credit
enhanced senior unsecured long-term debt rating. Based on
the Company’s net debt leverage ratio, the rates of interest
charged on the term loan and revolving loan is 1.375% and
1.175% respectively in 2014 and above the adjusted LIBOR
rate for outstanding amounts drawn. There are fees included
in the facility which include a facility fee based on the
revolving credit commitments of the lenders (whether used
or unused) at a rate of 0.20% and letter of credit fees based
on the amounts of outstanding secured or unsecured letters
of credit. The Credit Facility includes various covenants,
limitations and events of default customary for similar
facilities for similarly rated borrowers. As of December 31,
2014, there was an outstanding debt balance issued under
the provisions of the Credit Facility in total of $550.0 million
with no proceeds outstanding relative to the revolving loan.
In connection with the funding of the Credit Facility
on May 20, 2014, the Company retired the JPM term loan of
$100.0 million, the SunTrust term loan of $100.0 million and
the Bank of America, N.A., $30.0 million term loan, for a total
of $230.0 million. The SunTrust revolver was also terminated.
On July 15, 2014, the Company retired the senior notes
Series B of $100.0 million which were assigned under the
original private placement note agreement from July 2004.
Proceeds were drawn from the revolving loan of the
Credit Facility to facilitate the payoff of the notes. The
$100.0 million proceeds drawn from the revolving Credit
Facility used to retire the Series B notes was paid in full in
connection with the issuance of the 4.200% senior notes
due 2024 on September 18, 2014.
On September 18, 2014, the Company issued $500.0 million
of 4.200% unsecured senior notes due in 2024. The senior
notes were assigned investment grade ratings of BBB-/Baa3
with a stable outlook. The notes are subject to certain cove-
nant restrictions and regulations which are customary for
credit rated obligations. At the time of funding, the proceeds
were offered at a discount of the original note amount which
also excluded an underwriting fee discount. The net pro-
ceeds received from the issuance were used to repay the
outstanding balance of $475.0 million on the revolving
Credit Facility and other general corporate purposes.
Neither we nor our subsidiaries have ever incurred
off-balance sheet obligations through the use of, or invest-
ment in, off-balance sheet derivative financial instruments
or structured finance or special purpose entities organized
as corporations, partnerships or limited liability companies
or trusts.
We believe that our existing cash, cash equivalents,
short-term investment portfolio and funds generated
from operations, together with our available funding under
our various debt facilities, will be sufficient to satisfy our
liquidity needs through at least the end of 2015 including
the required principal payments on our long-term debt.
For further discussion of our cash management and
risk management policies, see “Quantitative and Qualitative
Disclosures About Market Risk.”
Quantitative and Qualitative Disclosures
About Market Risk
Market risk is the potential loss arising from adverse
changes in market rates and prices, such as interest rates
and equity prices. We are exposed to market risk through our
investments, revolving credit line and term loan agreements.
Our invested assets are held as cash and cash equiva-
lents, restricted cash and investments, available-for-sale
equity securities, equity securities and certificates of deposit.
These investments are subject to interest rate risk and equity
price risk. The fair values of our cash and cash equivalents,
restricted cash and investments, and certificates of deposit
at December 31, 2014 and 2013 approximated their respective
carrying values due to their short-term duration and,
therefore, such market risk is not considered to be material.
We do not actively invest or trade in equity securities.
2014 Annual Report 51
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Consolidated
Statements of Income
(in thousands, except per share data)
Revenues
Commissions and fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
Dividends declared per share
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2014
2013
2012
$ 1,567,460
$ 1,355,503
$ 1,189,081
747
7,589
638
7,138
797
10,154
1,575,796
1,363,279
1,200,032
791,749
19,363
235,328
47,425
82,941
20,895
28,408
9,938
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
1,236,047
1,005,670
339,749
132,853
357,609
140,497
608,506
15,865
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
$
206,896
$
217,112
$
184,045
$
$
1.43
1.41
$
$
1.50
1.48
$
$
1.28
1.26
140,944
142,891
141,033
142,624
139,364
142,010
$
0.41
$
0.37
$
0.35
52 Brown & Brown, Inc.
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Consolidated
Balance Sheets
(in thousands, except per share data)
Assets
Current Assets:
Cash and cash equivalents
Restricted cash and investments
Short-term investments
Premiums, commissions and fees receivable
Reinsurance recoverable
Prepaid reinsurance premiums
Deferred income taxes
Other current assets
Total current assets
Fixed assets, net
Goodwill
Amortizable intangible assets, net
Investments
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Premiums payable to insurance companies
Losses and loss adjustment reserve
Unearned premiums
Premium deposits and credits due customers
Accounts payable
Accrued expenses and other liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred income taxes, net
Other liabilities
Commitments and contingencies (Note 13)
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 280,000 shares; issued 145,871
and outstanding 143,486 at 2014; and issued and outstanding 145,419 at 2013
Additional paid-in capital
Treasury stock, at cost 2,385 and 0 shares at 2014 and 2013, respectively
Retained earnings
Total shareholders’ equity
At December 31,
2014
2013
$
470,048
259,769
11,157
424,547
13,028
320,586
25,431
45,542
1,570,108
84,668
2,460,611
784,642
19,862
36,567
$
202,952
250,009
10,624
395,915
—
—
29,276
39,260
928,036
74,733
2,006,173
618,888
16
21,662
$ 4,956,458
$ 3,649,508
$
568,184
13,028
320,586
83,313
57,261
181,156
45,625
1,269,153
1,152,846
341,497
79,217
$
534,360
—
—
80,959
34,158
157,400
100,000
906,877
380,000
291,704
63,786
14,587
405,982
(75,025)
14,542
371,960
—
1,768,201
1,620,639
2,113,745
2,007,141
Total liabilities and shareholders’ equity
$ 4,956,458
$ 3,649,508
See accompanying notes to consolidated financial statements.
2014 Annual Report 53
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Consolidated Statements of
Shareholders’ Equity
(in thousands,
except per share data)
Common Stock
Shares
Par
Value
Additional
Paid-In
Capital
Treasury
Stock
Accumulated
Other
Retained Comprehensive
Income
Earnings
Total
Balance at January 1, 2012
143,352
$ 14,335
$ 307,059
$
—
$ 1,322,562
$
7
$ 1,643,963
Net income and comprehensive
income
Net unrealized holding gain on
available-for-sale securities
Common stock issued for
employee stock benefit plans
Income tax benefit from
exercise of stock benefit plans
Common stock issued
to directors
Cash dividends paid
($0.35 per share)
Balance at
501
50
19,549
8,659
25
3
605
184,045
184,045
(7)
(7)
19,599
8,659
608
(49,534)
(49,534)
December 31, 2012
143,878
14,388
335,872
—
1,457,073
—
1,807,333
Net income
Common stock issued for
employee stock benefit plans
Income tax benefit from
exercise of stock benefit plans
Cash dividends paid
($0.37 per share)
Balance at
1,541
154
33,730
2,358
217,112
217,112
33,884
2,358
(53,546)
(53,546)
December 31, 2013
145,419
14,542
371,960
—
1,620,639
—
2,007,141
Net income
Common stock issued for
employee stock benefit plans
Purchase of treasury stock
Income tax benefit from
exercise of stock benefit plans
Common stock issued
to directors
Cash dividends paid
($0.41 per share)
Balance at
206,896
206,896
442
44
30,405
(75,025)
3,298
10
1
319
30,449
(75,025)
3,298
320
(59,334)
(59,334)
December 31, 2014
145,871
$ 14,587
$ 405,982
$ (75,025)
$ 1,768,201
$
— $ 2,113,745
See accompanying notes to consolidated financial statements.
54 Brown & Brown, Inc.
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Consolidated Statements of
Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization
Depreciation
Non-cash stock-based compensation
Change in estimated acquisition earn-out payables
Deferred income taxes
Amortization of debt discount
Income tax benefit from exercise of shares from the stock benefit plans
Loss (gain) on sales of investments, fixed assets and customer accounts
Payments on acquisition earn-outs in excess of original estimated payables
Changes in operating assets and liabilities, net of effect from acquisitions
and divestitures:
Restricted cash and investments (increase)
Premiums, commissions and fees receivable (increase)
Reinsurance recoverable decrease
Prepaid reinsurance premiums (increase)
Other assets (increase) decrease
Premiums payable to insurance companies increase (decrease)
Premium deposits and credits due customers increase
Losses and loss adjustment reserve (decrease)
Unearned premiums increase
Accounts payable increase
Accrued expenses and other liabilities increase (decrease)
Other liabilities (decrease)
Net cash provided by operating activities
Cash flows from investing activities:
Additions to fixed assets
Payments for businesses acquired, net of cash acquired
Proceeds from sales of fixed assets and customer accounts
Purchases of investments
Proceeds from sales of investments
Net cash used in investing activities
Cash flows from financing activities:
Payments on acquisition earn-outs
Proceeds from long-term debt
Payments on long-term debt
Borrowings on revolving credit facilities
Payments on revolving credit facilities
Income tax benefit from exercise of shares from the stock benefit plans
Issuances of common stock for employee stock benefit plans
Repurchase of stock benefit plan shares for employees to fund tax withholdings
Purchase of treasury stock
Cash dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2014
2013
2012
$
206,896
$
217,112
$
184,045
82,941
20,895
19,363
9,938
7,369
46
(3,298)
42,465
(2,539)
(9,760)
(11,160)
12,210
(31,573)
(12,564)
8,164
2,323
(12,210)
31,573
36,949
11,718
(24,727)
385,019
(24,923)
(696,486)
13,631
(17,813)
18,278
(707,313)
(9,530)
1,048,425
(330,000)
475,000
(475,000)
3,298
14,808
(3,252)
(75,025)
(59,334)
589,390
267,096
67,932
17,485
22,603
2,533
32,247
—
(2,358)
(2,806)
(2,788)
(85,445)
(40,729)
—
—
(2,583)
61,624
41,049
—
—
5,180
70,872
(12,554)
389,374
(16,366)
(367,712)
5,886
(18,102)
15,662
(380,632)
(15,491)
30,000
(93)
31,863
(31,863)
2,358
12,445
(1,284)
—
(53,546)
(25,611)
(16,869)
202,952
470,048
$
219,821
202,952
$
$
63,573
15,373
15,865
1,418
32,723
—
(8,659)
(4,105)
(4,086)
(34,029)
(11,312)
—
—
2,145
(4,651)
2,506
—
—
36,505
(43,059)
(23,937)
220,315
(24,028)
(425,054)
14,095
(11,167)
10,654
(435,500)
(13,539)
200,000
(1,227)
100,000
(100,000)
8,659
13,305
(8,963)
—
(49,534)
148,701
(66,484)
286,305
219,821
2014 Annual Report 55
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Notes
to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Policies
Nature of Operations
Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversi-
fied insurance agency, wholesale brokerage, insurance programs 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 Segment, which provides a broad range of insurance products and services to
commercial, public entity, professional and individual customers; the National Programs Segment, acting as a managing
general agent (“MGA”), provides professional liability and related package products for certain professionals, flood coverage,
targeted products and services designated for specific industries, trade groups, governmental entities and market niches all
of which are delivered through nationwide networks of independent agents, and markets; the Wholesale Brokerage Segment,
which markets and sells excess and surplus commercial insurance, primarily through independent agents and brokers; and
the Services Segment, which provides insurance-related services, including third-party claims administration and compre-
hensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well
as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and catastrophe claims
adjusting services. In addition, as the result of our acquisition of the stock of The Wright Insurance Group, LLC (“Wright”),
in May 2014, we own a flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”), that is a Wright
subsidiary. This carrier’s business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the
program administered by the Federal Emergency Management Agency (“FEMA”) and several excess flood insurance policies
which are fully reinsured.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08
“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) which
changes the criteria for reporting discontinued operations and enhances disclosures in this area. Under the new guidance,
the disposal of a component or group of components of an entity should be reported as a discontinued operation if the
disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.
Disposals of equity method investments, or those reported as held-for-sale, must be presented as a discontinued operation
if they meet the new definition. The standard is effective prospectively for all disposals of components (or classification of
components as held-for-sale) of an entity that occur within interim and annual periods beginning on or after December 15,
2014. Early adoption is permitted, but only for disposals (or classifications of components as held-for-sale) that have not been
reported in financial statements previously issued. Brown & Brown has elected to early adopt this pronouncement and has
reported a loss on disposal of $47.4 as a result of the sale of Axiom Re, effective December 31, 2014, in accordance with this
pronouncement.
In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides
guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition
requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that
a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies
will need to use more judgment and make more estimates than under today’s guidance. These may include identifying
performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price
and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company
beginning January 1, 2017 and, at that time the Company may adopt the new standard under the full retrospective approach
or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method
and impact the adoption of ASU 2014-09 will have on the Company’s Consolidated Financial Statements.
56 Brown & Brown, Inc.
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Notes
to Consolidated Financial Statements
In August 2014, FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going
Concern,” (“ASU 2014-15”), which addresses management’s responsibility in evaluating whether there is substantial doubt
about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective
for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permit-
ted. The Company does not expect to early adopt this guidance and it believes the adoption of this guidance will not have a
material impact on the Consolidated Financial Statements.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries. All
significant intercompany account balances and transactions have been eliminated in the Consolidated Financial Statements.
Revenue Recognition
Commission revenues are recognized as of the effective date of the insurance policy or the date on which the policy premium
is processed into our systems, whichever is later. Commission revenues related to installment billings are recognized on the
later of effective or invoiced, with the exception of our Arrowhead business which follows a policy of recognizing on the later
of effective or processed into our systems regardless of the billing arrangement. Management determines the policy cancel-
lation reserve based upon historical cancellation experience adjusted in accordance with known circumstances. Subsequent
commission adjustments are recognized upon our receipt of notification from insurance companies concerning matters
necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is when
such commissions are received from insurance companies, or when we receive formal notification of the amount of such
payments. Fee revenues and commissions for workers’ compensation programs are recognized as services are rendered.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Consolidated
Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid investments
with quoted market prices having maturities of three months or less when purchased.
Restricted Cash and Investments, and Premiums, Commissions and Fees Receivable
In its capacity as an insurance agent or broker, Brown & Brown typically collects premiums from insureds and, after deduct-
ing its authorized commissions, remits the net premiums to the appropriate insurance company or companies. Accordingly,
as reported in the Consolidated Balance Sheets, “premiums” are receivable from insureds. Unremitted net insurance premiums
are held in a fiduciary capacity until Brown & Brown disburses them. Brown & Brown invests these unremitted funds only in
cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for a short term. In certain
states in which Brown & Brown operates, the use and investment alternatives for these funds are regulated and restricted by
various state laws and agencies. These restricted funds are reported as restricted cash and investments on the Consolidated
Balance Sheets. The interest income earned on these unremitted funds, where allowed by state law, is reported as investment
income in the Consolidated Statements of Income.
In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applicable
commissions to Brown & Brown. Accordingly, as reported in the Consolidated Balance Sheets, “commissions” are receivables
from insurance companies. “Fees” are primarily receivables due from customers.
44251_Fin.indd 57
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2014 Annual Report 57
Notes
to Consolidated Financial Statements
Investments
Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at
cost and are adjusted for other-than-temporary market value declines. During 2014 additional investments were included
with the acquisition of Wright. These investments include U.S. Government, Municipal, domestic corporate and foreign
corporate bonds as well as short-duration fixed income funds. Investments within the portfolio or funds are held as available
for sale and are carried at their fair value. Any gain/loss applicable from the fair value change is recorded as other compre-
hensive income under the equity section of the consolidated balance sheet. Gains or losses recognized in earnings from the
investments are included in investment income in the consolidated statements of income.
Fixed Assets
Fixed assets, including leasehold improvements, are carried at cost, less accumulated depreciation and amortization.
Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations
as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization are removed from
the accounts and the resulting gain or loss, if any, is reflected in other income. Depreciation has been determined using the
straight-line method over the estimated useful lives of the related assets, which range from three to 15 years. Leasehold
improvements are amortized on the straight-line method over the shorter of the useful life of the improvement or the term
of the related lease.
Goodwill and Amortizable Intangible Assets
All of our business combinations initiated after June 30, 2001 are accounted for using the purchase method. Acquisition
purchase prices are typically based on a multiple of average annual operating profit earned over a one- to three-year period
within a minimum and maximum price range. The recorded purchase prices for all acquisitions consummated after January 1,
2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent
changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income when incurred.
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the
sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements. In
determining fair value, the acquired business’s future performance is estimated using financial projections developed by
management for the acquired business and this estimate reflects market participant assumptions regarding revenue growth
and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance
targets specified in each purchase agreement compared to the associated financial projections. These estimates are then
discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted
earn-out payments will be made.
Amortizable intangible assets are stated at cost, less accumulated amortization, and consist of purchased customer
accounts and non-compete agreements. Purchased customer accounts and non-compete agreements are amortized on a
straight-line basis over the related estimated lives and contract periods, which range from five to 15 years. Purchased cus-
tomer accounts primarily consist of records and files that contain information about insurance policies and the related
insured parties that are essential to policy renewals.
The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and amortizable intangi-
ble assets is assigned to goodwill. While goodwill is not amortizable, it is subject to assessment at least annually, and more
frequently in the presence of certain circumstances, for impairment by application of a fair value-based test. The Company
compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of good-
will. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that
the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based on multi-
ples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out
payables (“EBITDAC”), or on a discounted cash flow basis. Brown & Brown completed its most recent annual assessment as
of November 30, 2014 and determined that the fair value of goodwill exceeded the carrying value of such assets. In addition,
as of December 31, 2014, there are no accumulated impairment losses.
58 Brown & Brown, Inc.
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Notes
to Consolidated Financial Statements
The carrying value of amortizable intangible assets attributable to each business or asset group comprising Brown &
Brown is periodically reviewed by management to determine if there are events or changes in circumstances that would
indicate that its carrying amount may not be recoverable. Accordingly, if there are any such changes in circumstances during
the year, Brown & Brown assesses the carrying value of its amortizable intangible assets by considering the estimated future
undiscounted cash flows generated by the corresponding business or asset group. Any impairment identified through this
assessment may require that the carrying value of related amortizable intangible assets be adjusted. There were no impair-
ments recorded for the years ended December 31, 2014, 2013 and 2012.
Income Taxes
Brown & Brown records income tax expense using the asset-and-liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial statement carrying values and the income tax bases of Brown & Brown’s
assets and liabilities.
Brown & Brown files a consolidated federal income tax return and has elected to file consolidated returns in certain
states. Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses
charged to income for financial reporting purposes in one period and deducted for income tax purposes in other periods.
Net Income Per Share
Effective in 2009, the Company adopted the FASB authoritative guidance that states that unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore,
are included in computing earnings per share (“EPS”) pursuant to the two-class method. The two-class method determines
EPS for each class of common stock and participating securities according to dividends or dividend equivalents and their
respective participation rights in undistributed earnings. Performance stock shares granted to employees under the Company’s
Performance Stock Plan and under the Company’s Stock Incentive Plan are considered participating securities as they receive
non-forfeitable dividend equivalents at the same rate as common stock.
Basic EPS is computed based on the weighted average number of common shares (including participating securities)
issued and outstanding during the period. Diluted EPS is computed based on the weighted average number of common
shares issued and outstanding plus equivalent shares, assuming the exercise of stock options. The dilutive effect of stock
options is computed by application of the treasury-stock method. The following is a reconciliation between basic and diluted
weighted average shares outstanding for the years ended December 31:
(in thousands, except per share data)
Net income
2014
2013
2012
$
206,896
$ 217,112
$ 184,045
Net income attributable to unvested awarded performance stock
(5,186)
(5,446)
(5,313)
Net income attributable to common shares
$
201,710
$ 211,666
$ 178,732
Weighted average basic number of common shares outstanding
144,568
144,662
143,507
Less unvested awarded performance stock included in weighted
average basic share outstanding
Weighted average number of common shares outstanding
for basic earnings per common share
Dilutive effect of stock options
Weighted average number of shares outstanding
Net income per share:
Basic
Diluted
(3,624)
(3,629)
(4,143)
140,944
1,947
142,891
141,033
1,591
142,624
139,364
2,646
142,010
$
$
1.43
1.41
$
$
1.50
1.48
$
$
1.28
1.26
44251_Fin.indd 59
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2014 Annual Report 59
Notes
to Consolidated Financial Statements
Fair Value of Financial Instruments
The carrying amounts of Brown & Brown’s financial assets and liabilities, including cash and cash equivalents; restricted
cash and short-term investments; investments; premiums, commissions and fees receivable; reinsurance recoverable; prepaid
reinsurance premiums; premiums payable to insurance companies; losses and loss adjustment reserve; unearned premium;
premium deposits and credits due customers and accounts payable, at December 31, 2014 and 2013, approximate fair value
because of the short-term maturity of these instruments. The carrying amount of Brown & Brown’s long-term debt approxi-
mates fair value at December 31, 2014 and 2013 as our fixed-rate borrowings of $650.0 million approximate their values using
market quotes of notes with the similar terms as ours, which we deem a close approximation of current market rates. Of
the $650.0 million, $25.0 million is related to short-term notes which approximates its carrying value due to its proximity
to maturity. The estimated fair value of the $550.0 million term loan under our J.P. Morgan Credit Facility approximates the
carrying value due to the variable interest rate based on adjusted LIBOR. See note 2 to our consolidated financial statements
for the fair values related to the establishment of intangible assets and the establishment and adjustment of earn-out payables.
See note 5 for information on the fair value of investments and note 8 for information on the fair value of long-term debt.
Stock-Based Compensation
The Company granted stock options and grants non-vested stock awards to its employees, officers and directors. The Company
uses the modified-prospective method to account for share-based payments. Under the modified-prospective method,
compensation cost is recognized for all share-based payments granted on or after January 1, 2006 and for all awards granted
to employees prior to January 1, 2006 that remained unvested on that date. The Company uses the alternative-transition
method to account for the income tax effects of payments made related to stock-based compensation.
The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the
Employee Stock Purchase Plan (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 is recognized in earnings, net of
estimated forfeitures, on a straight-line basis over the requisite service period.
Financial Reporting Related to Insurance Company Operations
Reinsurance
The Company protects itself from claims related losses by reinsuring all claims related risk exposure. The only line of insur-
ance the Company underwrites is flood insurance associated with Wright. However, all exposure is reinsured with FEMA for
basic admitted policies conforming to the National Flood Insurance Program. For excess flood insurance policies, all exposure
is reinsured with a reinsurance carrier with an AM Best Company rating of “A” or better. Reinsurance does not legally discharge
the ceding insurer from the primary liability for the full amount due under the reinsured policies. Reinsurance premiums,
commissions, expense reimbursement and related reserves related to ceded business are accounted for on a basis consistent
with the accounting for the original policies issued and the terms of reinsurance contracts. Premiums earned and losses and
loss adjustment expenses incurred are reported net of reinsurance amounts. Other underwriting expenses are shown net of
earned ceding commission income. The liabilities for unpaid losses and loss adjustment expenses and unearned premiums
are reported gross of ceded reinsurance recoverable.
Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such recoverables
related to reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance
recoverable even though amounts due on unpaid loss and loss adjustment expense are not recoverable from the reinsurer
until such losses are paid. The Company does not believe it is exposed to any material credit risk through its reinsurance as
the reinsurer is FEMA for basic admitted flood policies and a national reinsurance carrier for excess flood policies, which has
an AM Best Company rating of “A” or better. Historically, no amounts due from reinsurance carriers have been written off
as uncollectible.
60 Brown & Brown, Inc.
44251_Fin.indd 60
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Unpaid Losses and Loss Adjustment Reserve
Unpaid losses and loss adjustment reserve include amounts determined on individual claims and other estimates based on
the past experience of WNFIC and the policyholders for IBNR claims, less anticipated salvage and subrogation recoverable.
The methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated, and
any adjustments resulting therefrom are reflected in operations currently.
WNFIC engages the services of outside actuarial consulting firms (the “Actuaries”) to assist on an annual basis to render
an opinion on the sufficiency of the Company’s estimates for unpaid losses and related loss adjustment reserve. The Actuaries
utilize both industry experience and the Company’s own experience to develop estimates of those amounts as of year-end.
These estimated liabilities are subject to the impact of future changes in claim severity, frequency and other factors. In spite
of the variability inherent in such estimates, management believes that the liabilities for unpaid losses and related loss
adjustment reserve is adequate.
Premiums
Premiums are recognized as income over the coverage period of the related policies. Unearned premiums represent the
portion of premiums written that relate to the unexpired terms of the policies in force and are determined on a daily pro
rata basis. The income is recorded to the commissions and fees line of the income statement.
NOTE 2 Business Combinations
Acquisitions in 2014
During the year ended December 31, 2014, Brown & Brown acquired the assets and assumed certain liabilities of nine insurance
intermediaries, all of the stock of one insurance intermediary that owns an insurance carrier and several books of business
(customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior
acquisitions completed within the last twelve months as permitted by ASC Topic 805 — Business Combinations (“ASC 805”). All
of these acquisitions were acquired primarily to expand Brown & Brown’s core business and to attract and hire high-quality
individuals. The recorded purchase price for all acquisitions consummated after January 1, 2009 included an estimation of the
fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out
obligations will be recorded in the Consolidated Statement of Income when incurred.
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sell-
ers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining
fair value, the acquired business’s future performance is estimated using financial projections developed by management for
the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected
future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase
agreement compared to the associated financial projections. These payments are then discounted to present value using a
risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the
Company’s Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permit-
ted measurement period, as defined in ASC 805. For the year ended December 31, 2014, several adjustments were made
within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected
acquisitions of $26,000 relating to the assumption of certain liabilities.
Cash paid for acquisitions were $721.9 million and $408.1 million in the year ended December 31, 2014 and 2013, respec-
tively. We completed 10 acquisitions (excluding book of business purchases) in the year ended December 31, 2014, with the
largest being Wright, which was effective May 1, 2014 and cash paid totaled $609.2 million. We completed 9 acquisitions
(excluding book of business purchases) in the twelve-month period ended December 31, 2013, with the largest being Beecher
Carlson Holdings, Inc. which was effective July 1, 2013 and cash paid totaled to $364.2 million.
44251_Fin.indd 61
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2014 Annual Report 61
Notes
to Consolidated Financial Statements
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year
acquisitions and adjustment made during the measurement period for prior year acquisitions:
(in thousands)
Name
The Wright Insurance
Group, LLC
Pacific Resources
Benefits Advisors,
LLC (“PacRes”)
Axia Strategies, Inc.
Business
Segment
2014
Date of
Acquisition
Cash
Paid
Other
Payable
Recorded
Earn-out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-out
Payable
National Programs
May 1
$ 609,183
$
1,471
$
—
$ 610,654
$
—
Retail
May 1
90,000
—
27,452
117,452
35,000
(“Axia”)
Wholesale Brokerage
Other
Total
Various
May 1
Various
9,870
12,798
—
433
1,824
3,953
11,694
17,184
5,200
9,262
$ 721,851
$
1,904
$ 33,229
$ 756,984
$ 49,462
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of
each acquisition:
(in thousands)
(in thousands)
Cash
Other current assets
Fixed assets
Reinsurance recoverable
Prepaid reinsurance premiums
Goodwill
Purchased customer accounts
Non-compete agreements
Other assets
Wright
PacRes
$
25,365
$
—
$
16,474
7,172
25,238
289,013
420,209
213,677
966
20,045
3,647
53
—
—
76,023
38,111
21
—
Axia
—
101
24
—
—
7,276
4,252
41
—
$
Other
—
742
1,724
—
—
10,417
4,384
166
—
Total
$
25,365
20,964
8,973
25,238
289,013
513,925
260,424
1,194
20,045
Total assets acquired
1,018,159
117,855
11,694
17,433
1,165,141
Other current liabilities
Losses and loss adjustment reserve
Unearned premiums
Deferred income taxes, net
Other liabilities
Total liabilities assumed
(14,322)
(25,238)
(289,013)
(46,566)
(32,366)
(407,505)
(403)
—
—
—
—
(403)
—
—
—
—
—
—
(249)
—
—
—
—
(14,974)
(25,238)
(289,013)
(46,566)
(32,366)
(249)
(408,157)
Net assets acquired
$ 610,654
$ 117,452
$
11,694
$
17,184
$ 756,984
The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer
accounts, 15.0 years; and non-compete agreements, 3.4 years.
Goodwill of $513,925,000 was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in
the amounts of $86,454,000, $420,037,000, $7,673,000 and ($239,000), respectively. Of the total goodwill of $513,925,000,
$141,887,000 is currently deductible for income tax purposes and $338,809,000 is non-deductible. The remaining $33,229,000
relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
62 Brown & Brown, Inc.
44251_Fin.indd 62
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
The results of operations for the acquisitions completed during 2014 have been combined with those of the Company
since the acquisition date. The total revenues and loss before income taxes, including the intercompany cost of capital
charge, from the acquisitions completed through December 31, 2014, included in the Consolidated Statement of Income for
the year ended December 31, 2014, were $112,247,000 and ($1,307,000), respectively. If the acquisitions had occurred as of the
beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These
unaudited 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.
(UNAUDITED)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
For the Year Ended December 31,
2014
2013
$ 1,630,162
$ 1,520,858
$ 358,229
$ 409,522
$ 218,150
$ 248,628
$
$
1.51
1.49
$
$
1.72
1.70
140,944
142,891
141,033
142,624
Acquisitions in 2013
During 2013, Brown & Brown acquired the assets and assumed certain liabilities of eight insurance intermediaries, all
of the stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of
these acquisitions was $519,794,000, including $408,072,000 of cash payments, the issuance of $552,000 in other payables,
the assumption of $106,079,000 of liabilities and $5,091,000 of recorded earn-out payables. All of these acquisitions were
acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. Acquisition purchase
prices are typically based on a multiple of average annual operating profit earned over a one-to three-year period within a
minimum and maximum price range. The recorded purchase price for all acquisitions consummated after January 1, 2009
included an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes
in the fair value of earn-out obligations will be recorded in the Consolidated Statement of Income when incurred.
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the
sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In
determining fair value, the acquired business’s future performance is estimated using financial projections developed by
management for the acquired business and reflects market participant assumptions regarding revenue growth and/or
profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets spec-
ified in each purchase agreement compared to the associated financial projections. These payments are then discounted to
present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments
will be made.
Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the
Company’s Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permit-
ted measurement period, as defined in ASC 805.
44251_Fin.indd 63
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2014 Annual Report 63
Notes
to Consolidated Financial Statements
For 2013, several adjustments were made within the permitted measurement period that resulted in a reduction to
the aggregate purchase price of the applicable acquisition of $504,000, including $18,000 of cash payments, an increase of
$117,000 in other payables, the assumption of $82,000 of liabilities and the reduction of $721,000 in recorded earn-out payables.
The following table summarizes the aggregate purchase price allocation made as of the date of each acquisition for
current year acquisitions and adjustment made during the measurement period for prior year acquisitions:
(in thousands)
Name
Business
Segment
2013
Date of
Acquisition
Cash
Paid
Other
Payable
Recorded
Earn-out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-out
Payable
The Rollins Agency, Inc.
Retail
June 1
$ 13,792
$
Beecher Carlson Holdings, Inc.
ICA, Inc.
Other
Total
Retail;
National
Programs
July 1
364,256
Services
December 31
Various
Various
19,770
10,254
$ 408,072
$
50
—
—
502
552
$
2,321
$ 16,163
$ 4,300
—
364,256
—
727
2,043
20,497
12,799
5,000
7,468
$
5,091
$ 413,715
$ 16,768
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of
each acquisition:
(in thousands)
Cash
Other current assets
Fixed assets
Goodwill
Purchased customer accounts
Non-compete agreements
Other assets
Total assets acquired
Other current liabilities
Deferred income taxes, net
Other liabilities
Rollins
Beecher
ICA
Other
Total
$
—
$
40,360
$
393
30
12,697
3,878
31
—
17,029
(866)
—
—
57,632
1,786
265,174
101,565
2,758
—
469,275
(80,090)
(22,764)
(2,165)
—
—
75
12,377
7,917
21
107
20,497
—
—
—
—
$
—
$
40,360
1,573
24
5,696
5,623
76
1
12,993
(194)
—
—
59,598
1,915
295,944
118,983
2,886
108
519,794
(81,150)
(22,764)
(2,165)
(194)
(106,079)
Total liabilities assumed
(866)
(105,019)
Net assets acquired
$
16,163
$ 364,256
$
20,497
$
12,799
$ 413,715
The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer
accounts, 15.0 years; and non-compete agreements, 5.0 years.
Goodwill of $295,944,000 was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments
in the amounts of $257,196,000, $27,091,000, ($812,000) and $12,469,000, respectively. Of the total goodwill of $295,944,000,
$41,663,000 is currently deductible for income tax purposes and $249,190,000 is non-deductible. The remaining $5,091,000
relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
64 Brown & Brown, Inc.
44251_Fin.indd 64
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
The results of operations for the acquisitions completed during 2013 have been combined with those of the Company
since their respective acquisition dates. The total revenues and income before income taxes from the acquisitions completed
through December 31, 2013, included in the Consolidated Statement of Income for the year ended December 31, 2013, were
$63,797,000 and $872,000, respectively. If the acquisitions had occurred as of the beginning of the period, the Company’s
results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indica-
tive of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of
the respective periods.
(UNAUDITED)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
For the Year Ended December 31,
2013
2012
$ 1,439,918
$ 1,329,262
$ 373,175
$ 329,291
$ 226,562
$ 198,826
$
$
1.57
1.55
$
$
1.39
1.36
141,033
142,624
139,634
142,010
Acquisitions in 2012
During 2012, Brown & Brown acquired the assets and assumed certain liabilities of 19 insurance intermediaries, all of the
stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of these
acquisitions was $667,586,000, including $483,933,000 of cash payments, the issuance of notes payable of $59,000, the
issuance of $25,439,000 in other payables, the assumption of $136,676,000 of liabilities and $21,479,000 of recorded earn-out
payables. The ‘other payables’ amount includes $22,061,000 that the Company is obligated to pay all shareholders of Arrowhead
on a pro rata basis for certain pre-merger corporate tax refunds and certain estimated potential future income tax credits
that were created by net operating loss carryforwards originating from transaction-related tax benefit items. All of these
acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel.
Acquisition purchase prices are typically based on a multiple of average annual operating profit earned over a one- to
three-year period within a minimum and maximum price range. The recorded purchase price for all acquisitions consum-
mated after January 1, 2009 included an estimation of the fair value of liabilities associated with any potential earn-out
provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Consolidated Statement
of Income when incurred.
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to
the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements.
In determining fair value, the acquired business’s future performance is estimated using financial projections developed
by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or
profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets
specified in each purchase agreement compared to the associated financial projections. These payments are then discounted
to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments
will be made.
44251_Fin.indd 65
3/24/15 7:45 AM
2014 Annual Report 65
Notes
to Consolidated Financial Statements
The acquisitions made in 2012 have been accounted for as business combinations and are as follows:
Business
Segment
2012
Date of
Acquisition
Cash
Paid
Note
Payable
Other
Payable
Recorded
Earn-out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-out
Payable
National
Programs;
Services
January 9
$ 396,952
$ —
$ 22,061
$
3,290
$ 422,303
$ 5,000
(in thousands)
Name
Arrowhead General
Insurance Agency
Superholding
Corporation
Insurcorp & GGM
Investments LLC
(d/b/a Maalouf
Benefit Resources)
Richard W. Endlar
Retail
May 1
15,500
Insurance Agency, Inc.
Retail
May 1
10,825
Texas Security General
Insurance Agency, Inc.
Wholesale
Brokerage
September 1
14,506
Behnke & Associates,
Inc.
Rowlands & Barranca
Agency, Inc.
Other
Total
Retail
December 1
9,213
Retail
December 1
Various
Various
8,745
28,192
$ 483,933
$
—
—
—
—
—
59
59
900
4,944
21,344
17,000
—
2,598
13,423
5,500
2,182
2,124
18,812
7,200
—
1,126
10,339
3,321
—
296
2,401
4,996
11,146
4,000
33,543
14,149
$ 25,439
$ 21,479
$ 530,910
$ 56,170
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of
each acquisition:
(in thousands)
Arrowhead
Insurcorp
Endlar
Texas
Security
Behnke
Rowlands
Other
Total
Cash
$ 61,786
$
— $
—
$
— $
— $
— $
—
$ 61,786
Other current assets
Fixed assets
Goodwill
Purchased customer
accounts
Non-compete agreements
Other assets
Total assets
acquired
69,051
4,629
180
25
305
25
1,866
45
—
25
—
30
422
158
71,824
4,937
321,128
14,745
8,044
10,845
6,430
8,363
21,085
390,640
99,675
6,490
5,230
6,229
3,843
3,367
13,112
137,946
100
1
22
—
11
—
14
—
41
—
21
—
243
—
452
1
556,370
21,462
13,615
18,999
10,339
11,781
35,020
667,586
Other current liabilities
(107,579)
Deferred income taxes, net
(26,488)
(118)
—
(192)
—
(187)
—
Total liabilities
assumed
(134,067)
(118)
(192)
(187)
—
—
—
(635)
(1,477)
(110,188)
—
—
(26,488)
(635)
(1,477)
(136,676)
Net assets acquired
$ 422,303
$ 21,344
$ 13,423
$ 18,812
$ 10,339
$ 11,146
$ 33,543
$ 530,910
66 Brown & Brown, Inc.
44251_Fin.indd 66
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer
accounts, 15.0 years; and non-compete agreements, 5.0 years.
Goodwill of $390,640,000, was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments
in the amounts of $57,856,000, $289,378,000, $11,656,000 and $31,750,000, respectively. Of the total goodwill of $390,640,000,
$52,730,000 is currently deductible for income tax purposes and $316,431,000 is non-deductible. The remaining $21,479,000
relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
The results of operations for the acquisitions completed during 2012 have been combined with those of the Company
since their respective acquisition dates. The total revenues and income before income taxes from the acquisitions completed
through December 31, 2012, included in the Consolidated Statement of Income for the year ended December 31, 2012, were
$129,472,000 and $898,000, respectively. If the acquisitions had occurred as of the beginning of the period, the Company’s
results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indica-
tive of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of
the respective periods.
(UNAUDITED) (UNAUDITED)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
For the Year Ended December 31,
2012
2011
$ 1,230,408
$ 1,163,341
$ 315,051
$ 313,706
$ 190,228
$ 190,174
$
$
1.33
1.30
$
$
1.33
1.31
139,364
142,010
138,582
140,264
For acquisitions consummated prior to January 1, 2009, additional consideration paid to sellers as a result of the purchase
price earn-out provisions are recorded as adjustments to intangible assets when the contingencies are settled. The net addi-
tional consideration paid by the Company in 2014 as a result of those adjustments totaled $26,000, all of which was allocated to
goodwill. Of the $26,000 net additional consideration paid, $26,000 was recorded in other payables. The net additional consider-
ation paid by the Company in 2013 as a result of these adjustments totaled $873,000, all of which was allocated to goodwill. Of
the $873,000 net additional consideration paid, $873,000 was issued in other payables.
As of December 31, 2014, the maximum future contingency payments related to all acquisitions totaled $130,654,000, all
of which relates to acquisitions consummated subsequent to January 1, 2009.
ASC Topic 805 — Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair
values of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining
control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out pur-
chase arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded
purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities
associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the
Consolidated Statement of Income when incurred. Potential earn-out obligations are typically based upon future earnings of
the acquired entities, usually between one and three years.
44251_Fin.indd 67
3/24/15 7:45 AM
2014 Annual Report 67
Notes
to Consolidated Financial Statements
As of December 31, 2014, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured
at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820. The resulting additions, payments,
and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years
ended December 31, were as follows:
(in thousands)
For the Year Ended December 31,
2014
2013
2012
Balance as of the beginning of the period
$
43,058
$
52,987
$
47,715
Additions to estimated acquisition earn-out payables
Payments for estimated acquisition earn-out payables
Subtotal
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables
Interest expense accretion
Net change in earnings from estimated acquisition earn-out payables
34,356
(12,069)
65,345
7,375
2,563
9,938
5,816
(18,278)
40,525
570
1,963
2,533
21,479
(17,625)
51,569
(1,051)
2,469
1,418
Balance as of December 31
$
75,283
$
43,058
$
52,987
Of the $75,283,000 estimated acquisition earn-out payables as of December 31, 2014, $26,018,000 was recorded as
accounts payable and $49,265,000 was recorded as an other non-current liability. Of the $43,058,000 estimated acquisition
earn-out payables as of December 31, 2013, $6,312,000 was recorded as accounts payable and $36,746,000 was recorded as
an other non-current liability. As of December 31, 2012, the estimated acquisition earn-out payables equaled $52,987,000,
of which $10,164,000 was recorded as accounts payable and $42,823,000 was recorded as an other non-current liability.
NOTE 3 Goodwill
The changes in the carrying value of goodwill by reportable segment for the years ended December 31, are as follows:
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Service
Total
Balance as of January 1, 2013
$ 876,219
$ 439,180
$
288,054
$ 108,061
$ 1,711,514
Goodwill of acquired businesses
257,196
27,964
(812)
12,469
296,817
Goodwill disposed of relating to
sales of businesses
(2,158)
Balance as of December 31, 2013
1,131,257
Goodwill of acquired businesses
86,454
—
467,144
420,063
—
287,242
7,673
—
(2,158)
120,530
2,006,173
(239)
513,951
Goodwill disposed of relating to
sales of businesses
(3,696)
(9,564)
(46,253)
—
(59,513)
Balance as of December 31, 2014
$ 1,214,015
$ 877,643
$
248,662
$ 120,291
$ 2,460,611
During 2014 we disposed of Axiom Re (“Axiom”) effective December 31, 2014 as part of our strategy to exit the reinsur-
ance brokerage business. For the years ended December 31, 2014 and 2013, Axiom recorded (loss)/income before income
taxes of ($587,000) and $113,000, respectively, which is included in the Wholesale Brokerage segment.
68 Brown & Brown, Inc.
44251_Fin.indd 68
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Notes
to Consolidated Financial Statements
NOTE 4 Amortizable Intangible Assets
Amortizable intangible assets at December 31 consisted of the following:
2014
2013
Gross
Carrying Accumulated
Value Amortization
Net
Carrying
Value
Weighted-
Average
Life
(in years)
Gross
Carrying Accumulated
Value Amortization
Net
Carrying
Value
Weighted-
Average
Life
(in years)
$ 1,355,550
$ (574,285)
$ 781,265
14.9
$ 1,120,719
$ (505,137) $ 615,582
14.9
29,139
(25,762)
3,377
6.8
28,115
(24,809)
3,306
7.0
(in thousands)
Purchased customer
accounts
Non-compete
agreements
Total
$ 1,384,689
$ (600,047)
$ 784,642
$ 1,148,834
$ (529,946) $ 618,888
Amortization expense recorded for amortizable intangible assets for the years ended December 31, 2014, 2013 and 2012
was $82,941,000, $67,932,000 and $63,573,000, respectively.
Amortization expense for amortizable intangible assets for the years ending December 31, 2015, 2016, 2017, 2018 and 2019
is estimated to be $86,029,000, $81,547,000, $78,640,000, $73,262,000, and $68,722,000, respectively.
NOTE 5 Investments
At December 31, 2014, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
(in thousands)
U.S. Treasury securities, obligations of U.S.
Government agencies and Municipals
Foreign government
Corporate debt
Short duration fixed income fund
Total
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
$ 10,774
$
50
5,854
3,143
$ 19,821
$
7
—
9
37
53
$
(1)
—
(11)
—
$
(12)
$ 19,862
Fair
Value
$ 10,780
50
5,852
3,180
The following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2014.
(in thousands)
U.S. Treasury securities, obligations
of U.S. Government agencies
and Municipals
Foreign Government
Corporate debt
$ 3,994
$
50
4,439
Total
$ 8,483
$
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
1
—
11
12
$
$
—
—
—
—
$
$
—
—
—
—
$ 3,994
$
50
4,439
$ 8,483
$
1
—
11
12
2014 Annual Report 69
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Notes
to Consolidated Financial Statements
The unrealized losses in the Company’s investments in U.S. Treasury Securities and obligations of U.S. Government
Agencies and bonds from corporate issuers were caused by interest rate increases. At December 31, 2014, the Company had
38 securities in an unrealized loss position. The contractual cash flows of the U.S. Treasury Securities and obligations of the
U.S. Government agencies investments are either guaranteed by the U.S. Government or an agency of the U.S. Government.
Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s
investment. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the
ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds
were not considered to be other-than-temporarily impaired at December 31, 2014.
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2014 by contractual maturity
are set forth below:
(in thousands)
Years to maturity:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Total
Amortized Cost
Fair Value
$
5,628
$
5,628
13,863
330
13,897
337
$
19,821
$
19,862
The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers
have the right to call or prepay obligations with or without penalty.
Proceeds from sales of the Company’s investment in fixed maturity securities were $0.2 million including maturities from
the year ended December 31, 2014. There were no gains and losses realized on those sales for the year ended December 31, 2014.
Realized gains and losses are reported on the consolidated statements of income, with the cost of securities sold
determined on a specific identification basis.
NOTE 6 Fixed Assets
Fixed assets at December 31 consisted of the following:
(in thousands)
Furniture, fixtures and equipment
Leasehold improvements
Land, buildings and improvements
Total cost
Less accumulated depreciation and amortization
Total
2014
2013
$ 161,539
$ 149,170
30,030
3,739
195,308
(110,640)
21,231
3,815
174,216
(99,483)
$
84,668
$
74,733
Depreciation and amortization expense for fixed assets amounted to $20,895,000 in 2014, $17,485,000 in 2013, and
$15,373,000 in 2012.
70 Brown & Brown, Inc.
44251_Fin.indd 70
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Notes
to Consolidated Financial Statements
NOTE 7 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31 consisted of the following:
(in thousands)
Accrued bonuses
Accrued compensation and benefits
Accrued rent and vendor expenses
Reserve for policy cancellations
Accrued interest
Other
Total
NOTE 8 Long-Term Debt
Long-term debt at December 31 consisted of the following:
(in thousands)
Current portion of long-term debt:
Current portion of 5-year term loan facility expires 2019
6.080% senior notes, Series B, semi-annual interest payments, balloon due 2014
5.370% senior notes, Series D, quarterly interest payments, balloon due 2015
Total current portion of long-term debt
Long-term debt:
Note agreements:
2014
2013
$
76,891
$
70,272
36,241
29,039
9,074
6,527
23,384
35,145
19,235
8,010
3,324
21,414
$ 181,156
$ 157,400
2014
2013
$
20,625
$
—
—
25,000
100,000
—
$
45,625
$ 100,000
5.370% senior notes, Series D, quarterly interest payments, balloon due 2015
$
—
$
25,000
5.660% senior notes, Series C, semi-annual interest payments, balloon due 2016
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018
4.200% senior notes, semi-annual interest payments, balloon due 2024
Total notes
Credit agreements:
25,000
100,000
498,471
25,000
100,000
—
$ 623,471
$ 150,000
Periodic payments of interest, LIBOR plus 1.00%, expires December 31, 2016
$
Quarterly payments of interest, LIBOR plus 1.00%, expires December 31, 2016
Periodic payments of interest, LIBOR plus 1.00%, expires December 31, 2016
5-year term-loan facility, periodic interest and principal payments,
currently LIBOR plus 1.375%, expires May 20, 2019
5-year revolving-loan facility, periodic interest payments, currently LIBOR plus
1.175%, plus commitment fees of 0.20%, expires May 20, 2019
Revolving credit loan, quarterly interest payments, LIBOR plus up to 1.40% and
availability fee up to 0.25%, expires December 31, 2016
Total credit agreements
Total long-term debt
Current portion of long-term debt
Total debt
—
—
—
$ 100,000
100,000
30,000
529,375
—
—
—
—
—
$ 529,375
$ 230,000
$ 1,152,846
$ 380,000
$
45,625
$ 100,000
$ 1,198,471
$ 480,000
2014 Annual Report 71
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3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
In July 2004, the Company completed a private placement of $200.0 million of unsecured senior notes (the “Notes”). The
$200.0 million was divided into two series: (1) Series A, which closed on September 15, 2004, for $100.0 million due in 2011 and
bore interest at 5.57% per year; and (2) Series B, which closed on July 15, 2004, for $100.0 million due in 2014 and bore interest
at 6.08% per year. On September 15, 2011, the $100.0 million of Series A Notes were redeemed on their normal maturity date
through use of funds from the Master Agreement (defined below). As of July 15, 2014 the Series B Notes were redeemed at
maturity using proceeds from the Credit Facility (defined below).
On December 22, 2006, the Company entered into a Master Shelf and Note Purchase Agreement (the “Master
Agreement”) with a national insurance company (the “Purchaser”). The initial issuance of notes under the Master Agreement
occurred on December 22, 2006, through the issuance of $25.0 million in Series C Senior Notes due December 22, 2016, with
a fixed interest rate of 5.66% per year. On February 1, 2008, $25.0 million in Series D Senior Notes due January 15, 2015, with a
fixed interest rate of 5.37% per year, were issued. On September 15, 2011, and pursuant to a Confirmation of Acceptance (the
“Confirmation”), dated January 21, 2011, in connection with the Master Agreement, $100.0 million in Series E Senior Notes
were issued and are due September 15, 2018, with a fixed interest rate of 4.50% per year. The Series E Senior Notes were
issued for the sole purpose of retiring the Series A Senior Notes. As of December 31, 2014 and 2013, there was an outstanding
debt balance issued under the provisions of the Master Agreement of $150.0 million. On January 15, 2015 the Series D Notes
were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest.
On January 9, 2012, the Company entered into: (1) an amended and restated revolving and term loan credit agreement
(the “SunTrust Agreement”) with SunTrust Bank (“SunTrust”) that provided for (a) a $100.0 million term loan (the “SunTrust
Term Loan”) and (b) a $50.0 million revolving line of credit (the “SunTrust Revolver”) and (2) a $50.0 million promissory note.
The maturity date for the SunTrust Term Loan and the SunTrust Revolver was December 31, 2016, at which time all outstand-
ing principal and unpaid interest would have been due. On May 20, 2014, in connection with closing the Wright acquisition
and funding of the Credit Facility (as defined below), the SunTrust Term Loan was paid in full using proceeds from the Credit
Facility and the SunTrust Revolver was also terminated at that time.
On January 26, 2012, the Company entered into a term loan agreement (the “JPM Agreement”) with JPMorgan that
provided for a $100.0 million term loan (the “JPM Term Loan”). The JPM Term Loan was fully funded on January 26, 2012, and
provided the financing to fully repay (1) the JPM Bridge Facility and (2) the SunTrust Revolver. As a result of the January 26,
2012 financing and repayments, the JPM Bridge Facility was terminated and the SunTrust Revolver’s amount outstanding was
reduced to zero. The maturity date for the JPM Term Loan was December 31, 2016, at which time all outstanding principal and
unpaid interest would have been due. On May 20, 2014, in connection with closing the Wright acquisition and funding of the
Credit Facility (as defined below), the JPM Term Loan was paid in full and terminated using proceeds from the Credit Facility.
On July 1, 2013, in conjunction with the acquisition of Beecher Carlson Holdings, Inc., the Company entered into:
(1) a revolving loan agreement (the “Wells Fargo Agreement”) with Wells Fargo Bank, N.A. that provided for a $50.0 million
revolving line of credit (the “Wells Fargo Revolver”) and (2) a term loan agreement (the “Bank of America Agreement”) with
Bank of America, N.A. (“Bank of America”) that provided for a $30.0 million term loan (the “Bank of America Term Loan”).
The maturity date for the Wells Fargo Revolver is December 31, 2016, at which time all outstanding principal and unpaid
interest will be due. The Wells Fargo Revolver may be increased by up to $50.0 million (bringing the total amount available
to $100.0 million). The calculation of interest and fees for the Wells Fargo Agreement is generally based on the Company’s
funded debt-to-EBITDA ratio. Interest is charged at a rate equal to 1.00% to 1.40% above LIBOR or 1.00% below the Base
Rate, each as more fully described in the Wells Fargo Agreement. Fees include an up-front fee, an availability fee of 0.175%
to 0.25%, and a letter of credit margin fee of 1.00% to 1.40%. The obligations under the Wells Fargo Revolver are unsecured
and the Wells Fargo Agreement includes various covenants, limitations and events of default that are customary for similar
facilities for similar borrowers. As of April 16, 2014, in connection with the signing of the Credit Facility (as defined below)
an amendment to the agreement was established to reduce the total revolving loan commitment from $50.0 million to
$25.0 million. There were no borrowings against the Wells Fargo Revolver as of December 31, 2014 and 2013.
72 Brown & Brown, Inc.
44251_Fin.indd 72
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
The maturity date for the Bank of America Term Loan was December 31, 2016, at which time all outstanding principal and
unpaid interest would have been due. The Bank of America Term Loan was funded in the amount of $30.0 million on July 1,
2013. On May 20, 2014, in connection with closing the Wright acquisition and funding of the Credit Facility, the term loan was
paid in full using proceeds from the Credit Facility (as defined below).
The 30-day Adjusted LIBOR Rate as of December 31, 2014 was 0.19%.
On April 17, 2014, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. as administrative
agent and certain other banks as co-syndication agents and co-documentation agents (the “Credit Agreement”). The Credit
Agreement in the amount of $1,350.0 million provides for an unsecured revolving credit facility (the “Credit Facility”) in the
initial amount of $800.0 million and unsecured term loans in the initial amount of $550.0 million, either or both of which may,
subject to lenders’ discretion, potentially be increased by up to $500.0 million. The Credit Facility was funded on May 20, 2014 in
conjunction with the closing of the Wright acquisition, with the $550.0 million term loan being funded as well as a drawdown
of $375.0 million on the revolving loan facility. Use of these proceeds were to retire existing term loan debt including the JPM
Term Loan Agreement, SunTrust Term Loan Agreement and Bank of America Term Loan Agreement in total of $230.0 mil-
lion (as described above) and to facilitate the closing of the Wright acquisition as well as other acquisitions. The Credit
Facility terminates on May 20, 2019, but either or both of the revolving credit facility and the term loans may be extended
for two additional one-year periods at the Company’s request and at the discretion of the respective lenders. Interest and
facility fees in respect to the Credit Facility are based on the better of the Company’s net debt leverage ratio or a non-credit
enhanced senior unsecured long-term debt rating. Based on the Company’s net debt leverage ratio, the rates of interest
charged on the term loan and revolving loan is 1.375% and 1.175% respectively in 2014 and above the adjusted LIBOR rate for
outstanding amounts drawn. There are fees included in the facility which include a facility fee based on the revolving credit
commitments of the lenders (whether used or unused) at a rate of 0.20% and letter of credit fees based on the amounts of
outstanding secured or unsecured letters of credit. The Credit Facility includes various covenants, limitations and events of
default customary for similar facilities for similarly rated borrowers. As of December 31, 2014, there was an outstanding debt
balance issued under the provisions of the Credit Facility in total of $550.0 million with no proceeds outstanding relative to
the revolving loan.
On September 18, 2014 the Company issued $500.0 million of 4.200% unsecured senior notes due in 2024. The senior
notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant
restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds were
offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received
from the issuance were used to repay the outstanding balance of $475.0 million on the revolving Credit Facility and for other
general corporate purposes.
The Notes, the Master Agreement and the Credit Agreement all require the Company to maintain certain financial ratios
and comply with certain other covenants. The Company was in compliance with all such covenants as of December 31, 2014
and December 31, 2013.
Interest paid in 2014, 2013 and 2012 was $25,115,000, $16,501,000 and $16,090,000, respectively.
At December 31, 2014, maturities of long-term debt were $45,625,000 in 2015, $73,125,000 in 2016, $55,000,000 in 2017,
$155,000,000 in 2018, $371,250,000 in 2019 and $500,000,000 in 2024.
44251_Fin.indd 73
3/24/15 7:45 AM
2014 Annual Report 73
Notes
to Consolidated Financial Statements
NOTE 9 Income Taxes
Significant components of the provision for income taxes for the years ended December 31 are as follows:
(in thousands)
Current:
Federal
State
Foreign
Total current provision
Deferred:
Federal
State
Foreign
Total deferred provision
Total tax provision
2014
2013
2012
$
109,893
$
94,007
$
75,522
15,482
109
125,484
5,987
1,440
(58)
7,369
13,438
805
108,250
28,469
3,723
55
32,247
11,852
669
88,043
27,348
5,375
—
32,723
$
132,853
$ 140,497
$ 120,766
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended
December 31 is as follows:
Federal statutory tax rate
State income taxes, net of federal income tax benefit
Non-deductible employee stock purchase plan expense
Non-deductible meals and entertainment
Other, net
Effective tax rate
2014
35.0 %
3.3
0.3
0.4
0.1
2013
35.0 %
3.5
0.3
0.3
0.2
39.1 %
39.3 %
2012
35.0 %
4.3
0.3
0.3
(0.3)
39.6 %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.
Significant components of Brown & Brown’s current deferred tax assets as of December 31 are as follows:
(in thousands)
Current deferred tax assets:
Deferred profit-sharing contingent commissions
Net operating loss carryforwards
Accruals and reserves
Total current deferred tax assets
2014
2013
$
10,335
$
951
14,145
9,713
8,408
11,155
$
25,431
$
29,276
74 Brown & Brown, Inc.
44251_Fin.indd 74
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Significant components of Brown & Brown’s non-current deferred tax liabilities and assets as of December 31 are as follows:
(in thousands)
Non-current deferred tax liabilities:
Fixed assets
Net unrealized holding gain on available-for-sale securities
Intangible assets
Total non-current deferred tax liabilities
Non-current deferred tax assets:
Deferred compensation
Net operating loss carryforwards
Valuation allowance for deferred tax assets
Total non-current deferred tax assets
Net non-current deferred tax liability
2014
2013
$
10,368
$
11,651
56
364,938
375,362
31,580
2,796
(511)
33,865
—
306,009
317,660
22,598
3,843
(485)
25,956
$ 341,497
$ 291,704
Income taxes paid in 2014, 2013 and 2012 were $118,290,000, $110,191,000, and $80,622,000, respectively.
At December 31, 2014, Brown & Brown had net operating loss carryforwards of $212,000 and $78,870,000 for federal
and state income tax reporting purposes, respectively, portions of which expire in the years 2015 through 2034. The federal
carryforward is derived from insurance operations acquired by Brown & Brown in 2001. The state carryforward amount is
derived from the operating results of certain subsidiaries and from the 2012 and 2013 stock acquisitions of Arrowhead
General Insurance Agency Superholding Corp and Beecher Carlson Holdings, Inc.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Unrecognized tax benefits balance at January 1
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Settlements
Unrecognized tax benefits balance at December 31
2014
391
—
(21)
(257)
113
$
$
2013
294
232
—
(135)
391
$
$
2012
806
222
(409)
(325)
294
$
$
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2014 and 2013, the Company had approximately $66,000 and $121,000 of accrued interest and penalties
related to uncertain tax positions, respectively.
The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was
$113,000 as of December 31, 2014 and $391,000 as of December 31, 2013. The Company does not expect its unrecognized tax
benefits to change significantly over the next 12 months.
As a result of a 2006 Internal Revenue Service (“IRS”) audit, the Company agreed to accrue at each December 31, for tax
purposes only, a known amount of profit-sharing contingent commissions represented by the actual amount of profit-sharing
contingent commissions received in the first quarter of the related year, with a true-up adjustment to the actual amount
received by the end of the following March. Since this method for tax purposes differs from the method used for book purposes,
it will result in a current deferred tax asset as of December 31 each year which will reverse by the following March 31 when
the related profit-sharing contingent commissions are recognized for financial accounting purposes.
44251_Fin.indd 75
3/24/15 7:45 AM
2014 Annual Report 75
Notes
to Consolidated Financial Statements
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to
taxation in the United Kingdom. In the United States, federal returns for fiscal years 2011 through 2014 remain open and
subject to examination by the IRS. The Company files and remits state income taxes in various states where the Company has
determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the
fiscal years 2009 through 2014. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2013
and 2014.
Subsequent to December 31, 2014, the Internal Revenue Service has notified Beecher Carlson Holdings, Inc. of a federal
corporate income tax audit for the short period January 1, 2013 through June 30, 2013. The short period filing is a pre-acquisition
tax filing for which Brown & Brown, Inc. is indemnified by the sellers of Beecher Carlson Holdings, Inc. We are currently
not aware of any potential adjustments for the audit period.
The Company’s 2009 through 2012 State of Oregon tax returns are currently under audit. The audit has been substan-
tially completed as of December 31, 2014 and is awaiting final settlement payment with the State of Oregon. Amounts
estimated to be due to the State of Oregon as a result of the audit have been reserved by the Company. There are no other
federal or state income tax audits as of December 31, 2014.
NOTE 10 Employee Savings Plan
The Company has an Employee Savings Plan (401(k)) in which substantially all employees with more than 30 days of service
are eligible to participate. Under this plan, Brown & Brown makes matching contributions of up to 4.0% of each participant’s
annual compensation. Prior to 2014, the Company’s matching contribution was up to 2.5% of each participant’s annual
compensation with a discretionary profit-sharing contribution each year, which equaled 1.5% of each eligible employee’s
compensation. The Company’s contributions to the plan totaled $15,752,000 in 2014, $14,819,000 in 2013, and $14,266,000
in 2012.
NOTE 11 Stock-Based Compensation
Performance Stock Plan
In 1996, Brown & Brown adopted and the shareholders approved a performance stock plan, under which until the suspension
of the plan in 2010, up to 14,400,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent
on the employees’ future years of service with Brown & Brown and other performance-based criteria established by the
Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance Stock,
two vesting conditions must be met. Of the grants currently outstanding, specified portions will satisfy the first condition for
vesting based on 20% incremental increases in the 20-trading-day average stock price of Brown & Brown’s common stock
from the price on the business day prior to date of grant. Performance Stock that has satisfied the first vesting condition is
considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included
in the calculation of basic and diluted EPS. Dividends are paid on awarded shares and participants may exercise voting
privileges on such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years
of continuous employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the
July 2009 grant to Powell Brown, 20 years); (ii) attainment of age 64 (on a prorated basis corresponding to the number of
years since the date of grant); or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining
authorized, but unissued shares, as well as any shares forfeited in the future, will be reserved for issuance under the 2010
Stock Incentive Plan (the “SIP”).
At December 31, 2014, 5,549,882 shares had been granted under the PSP. As of December 31, 2014, 25,418 shares had
not met the first condition for vesting, 1,903,213 shares had met the first condition of vesting and had been awarded, and
3,455,604 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have
not vested as of December 31, 2014, the initial stock prices ranged from $4.25 to $25.68.
The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
76 Brown & Brown, Inc.
44251_Fin.indd 76
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
A summary of PSP activity for the years ended December 31, 2014, 2013 and 2012 is as follows:
Outstanding at January 1, 2012
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2012
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
Weighted-
Average
Grant
Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8.08
4,931,812
3,345,269
1,586,543
—
8.09
3.29
13.06
8.72
—
10.25
4.01
8.73
8.62
—
—
16.76
9.75
8.71
—
—
(877,224)
(363,566)
—
7,743
(877,224)
(81,283)
—
(7,743)
—
(282,283)
3,691,022
2,394,505
1,296,517
—
—
(119,364)
—
122,021
(119,364)
—
(122,021)
—
(1,200,371)
(101,310)
(1,099,061)
2,371,287
2,295,852
75,435
—
—
—
—
(277,009)
(165,647)
(277,009)
(115,630)
1,928,631
1,903,213
—
—
—
(50,017)
25,418
The total fair value of PSP grants that vested during each of the years ended December 31, 2014, 2013 and 2012 was
$8,362,000, $3,729,000 and $23,034,000, respectively.
Stock Incentive Plan
On April 28, 2010, the shareholders of Brown & Brown, Inc. approved the Stock Incentive Plan (“SIP”) that provides for the
granting of stock options, stock and/or stock appreciation rights to employees and directors contingent on criteria estab-
lished by the Compensation Committee of the Company’s Board of Directors. The principal purpose of the SIP is to attract,
incentivize and retain key employees by offering those persons an opportunity to acquire or increase a direct proprietary
interest in the Company’s operations and future success. The SIP includes a sub-plan applicable to Decus Insurance Brokers
Limited (“Decus”) which, is a subsidiary of Decus Holdings (U.K.) Limited. The shares of stock reserved for issuance under the
SIP are any shares that are authorized for issuance under the PSP and not already subject to grants under the PSP, and that
were outstanding as of April 28, 2010, the date of suspension of the PSP, together with PSP shares and SIP shares forfeited
after that date. As of April 28, 2010, 6,046,768 shares were available for issuance under the PSP, which were then transferred
to the SIP. To date, a substantial majority of stock grants to employees under the SIP vest in four-to-ten years, subject to the
achievement of certain performance criteria by grantees, and the achievement of consolidated EPS growth at certain levels
by the Company, over three-to-five-year measurement periods.
In 2010, 187,040 shares were granted under the SIP. This grant was conditioned upon the surrender of 187,040 shares
previously granted under the PSP in 2009, which were accordingly treated as forfeited PSP shares. The vesting conditions
of this grant were identical to those provided for in connection with the 2009 PSP grant; thus the target stock prices and
the periods associated with satisfaction of the first and second conditions of vesting were unchanged. Additionally, grants
totaling 5,205 shares were made in 2010 to Decus employees under the SIP sub-plan applicable to Decus.
In 2011, 2,375,892 shares were granted under the SIP. Of this total, 24,670 shares were granted to Decus employees under
the SIP sub-plan applicable to Decus.
2014 Annual Report 77
44251_Fin.indd 77
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
In 2012, 814,545 shares were granted under the SIP, primarily related to the Arrowhead acquisition.
In 2013, 3,719,974 shares were granted under the SIP. Of the shares granted in 2013, 891,399 shares will vest upon the
grantees’ completion of between three and seven years of service with the Company, and because grantees have the right
to vote the shares and receive dividends immediately after the date of grant these shares are considered awarded and
outstanding under the two-class method.
In 2014, 422,572 shares were granted under the SIP. Of the shares granted in 2014, 113,088 shares will vest upon the
grantees’ completion of between three and six years of service with the Company, and because grantees have the right to vote
the shares and receive dividends immediately after the date of grant these shares are considered awarded and outstanding
under the two-class method. As of December 31, 2014, no shares had met the first condition for vesting.
Additionally, non-employee members of the Board of Directors received shares annually issued pursuant to the SIP as
part of their annual compensation. A total of 36,919 SIP shares were issued to these directors in 2011 and 2012, of which 11,682
were issued in January 2011, 12,627 in January 2012, and 12,610 in December 2012. The shares issued in December 2012 were
issued at that earlier time rather than in January 2013 pursuant to action of the Board of Directors. No additional shares were
granted or issued to the non-employee members of the Board of Directors in 2013. A total of 9,870 shares were issued to
these directors in January 2014.
At December 31, 2014, 2,309,929 shares were available for future grants.
The Company uses the closing stock price on the day prior to the grant date to determine the fair value of SIP grants and
then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-depend-
ent lattice model to estimate the fair value of grants with PSP-type vesting conditions as of the grant date. SIP shares that
satisfied the first vesting condition for PSP-like grants or the established performance criteria are considered awarded shares.
Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and
diluted EPS.
A summary of SIP activity for the years ended December 31, 2014, 2013 and 2012 is as follows:
Outstanding at January 1, 2012
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2012
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
78 Brown & Brown, Inc.
Weighted-
Average
Grant
Date Fair
Value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
23.06
22.59
—
—
23.62
22.91
31.95
30.71
—
23.88
27.96
31.02
—
—
27.41
28.19
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
2,478,057
37,408
2,440,649
814,545
—
—
(135,291)
3,157,311
3,719,974
—
—
—
—
—
—
814,545
—
—
(135,291)
37,408
3,119,903
—
3,719,974
966,215
(966,215)
—
—
(271,184)
(7,906)
(263,278)
6,606,101
995,717
5,610,384
422,572
113,088
309,484
—
—
—
—
—
—
(369,626)
(47,915)
(321,711)
6,659,047
1,060,890
5,598,157
44251_Fin.indd 78
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Employee Stock Purchase Plan
The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 12,000,000 authorized
shares of which 734,317 were available for future subscriptions as of December 31, 2014. Employees of the Company who
regularly work more than 20 hours per week are eligible to participate in the ESPP. Participants, through payroll deductions,
may allot up to 10% of their compensation, up to a maximum of $25,000, to purchase Company stock between August 1st
of each year and the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the
beginning or end of the Subscription Period.
The Company estimates the fair value of an ESPP share option as of the beginning of the Subscription Period as the sum
of: (1) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period,
and (2) 85% of the value of a one-year stock option on the Company stock using the Black-Scholes option-pricing model. The
estimated fair value of an ESPP share option as of the Subscription Period beginning in August 2014 was $6.39. The fair values
of an ESPP share option as of the Subscription Periods beginning in August 2013 and 2012, were $8.36 and $5.84, respectively.
For the ESPP plan years ended July 31, 2014, 2013 and 2012, the Company issued 512,521, 487,672, and 562,748 shares of
common stock, respectively. These shares were issued at an aggregate purchase price of $13,408,000, or $26.16 per share,
in 2014, $10,456,000, or $21.44 per share, in 2013, and $9,302,000, or $16.53 per share, in 2012.
For the five months ended December 31, 2014, 2013 and 2012 (portions of the 2014-2015, 2013-2014 and 2012-2013 plan
years), 235,794, 222,526, and 246,164 shares of common stock (from authorized but unissued shares), respectively, were
subscribed to by ESPP participants for proceeds of approximately $6,277,000, $5,937,000 and $5,278,000, respectively.
Incentive Stock Option Plan
On April 21, 2000, Brown & Brown adopted, and the shareholders approved, a qualified incentive stock option plan
(the “ISOP”) that provides for the granting of stock options to certain key employees for up to 4,800,000 shares of common
stock. On December 31, 2008, the ISOP expired. The objective of the ISOP was to provide additional performance incentives
to grow Brown & Brown’s pre-tax income in excess of 15% annually. The options were granted at the most recent trading
day’s closing market price and vest over a one-to-ten-year period, with a potential acceleration of the vesting period to three-
to-six years based upon achievement of certain performance goals. All of the options expire 10 years after the grant date.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the grant date.
The risk-free interest rate is based upon the U.S. Treasury yield curve on the date of grant with a remaining term approximat-
ing the expected term of the option granted. The expected term of the options granted is derived from historical data;
grantees 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.
44251_Fin.indd 79
3/24/15 7:45 AM
2014 Annual Report 79
Notes
to Consolidated Financial Statements
A summary of stock option activity for the years ended December 31, 2014, 2013 and 2012 is as follows:
Stock Options
Outstanding at January 1, 2012
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2012
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2014
Ending vested and expected to vest at December 31, 2014
Exercisable at December 31, 2014
Exercisable at December 31, 2013
Exercisable at December 31, 2012
Shares
Under
Option
1,384,537
—
(645,745)
—
—
738,792
—
(115,847)
—
—
622,945
—
(106,589)
(46,000)
—
470,356
470,356
316,356
422,945
162,792
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractural
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
17.58
—
16.64
—
—
18.39
—
17.56
—
—
18.55
—
18.48
18.48
—
18.57
18.57
18.48
18.48
17.82
4.4
$
14,587
4.9
$
8,891
4.1
$
7,289
3.1
3.1
3.2
4.2
4.0
$
$
$
$
$
5,087
5,087
4,565
5,460
1,243
The following table summarizes information about stock options outstanding at December 31, 2014:
Exercise Price
$ 22.06
$ 18.48
Totals
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractural
Life (in years)
0.0
3.2
3.1
Weighted-
Average
Exercise
Price
$
$
$
22.06
18.48
18.57
Number
Outstanding
12,000
458,356
470,356
Number
Exercisable
—
316,356
316,356
Weighted-
Average
Exercise
Price
$
$
$
22.06
18.48
18.48
The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31,
2014, 2013 and 2012 was $1,288,000, $1,558,000 and $5,780,000, respectively. The total intrinsic value is calculated as the differ-
ence between the exercise price of all underlying awards and the quoted market price of the Company’s stock for all in-the-money
stock options at December 31, 2014, 2013 and 2012, respectively.
There are no option shares available for future grant under the ISOP since this plan expired as of December 31, 2008.
80 Brown & Brown, Inc.
44251_Fin.indd 80
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Summary of Non-Cash Stock-Based Compensation Expense
The non-cash stock-based compensation expense for the years ended December 31 is as follows:
(in thousands)
Stock Incentive Plan
Employee Stock Purchase Plan
Performance Stock Plan
Incentive Stock Option Plan
Total
2014
2013
$
14,447
$
15,934
$
2,425
2,354
137
3,538
2,310
821
2012
9,288
2,856
2,612
1,109
$
19,363
$
22,603
$
15,865
Summary of Unrecognized Compensation Expense
As of December 31, 2014, there was approximately $115.8 million of unrecognized compensation expense related to all
non-vested share-based compensation arrangements granted under the Company’s stock-based compensation plans. That
expense is expected to be recognized over a weighted-average period of 6.1 years.
NOTE 12 Supplemental Disclosures of Cash Flow Information
Brown & Brown’s significant non-cash investing and financing activities for the years ended December 31 are summarized
as follows:
(in thousands)
Other payable issued for purchased customer accounts
Notes payable issued or assumed for purchased customer accounts
Estimated acquisition earn-out payables and related charges
Notes received on the sale of fixed assets and customer accounts
2014
1,930
—
33,229
6,340
$
$
$
$
2013
1,425
—
5,091
1,108
$
$
$
$
2012
25,439
59
21,479
967
$
$
$
$
NOTE 13 Commitments and Contingencies
Operating Leases
Brown & Brown leases facilities and certain items of office equipment under non-cancelable operating lease arrangements
expiring on various dates through 2042. The facility leases generally contain renewal options and escalation clauses based
upon increases in the lessors’ operating expenses and other charges. Brown & Brown anticipates that most of these leases
will be renewed or replaced upon expiration. At December 31, 2014, the aggregate future minimum lease payments under all
non-cancelable lease agreements were as follows:
(in thousands)
2015
2016
2017
2018
2019
Thereafter
Total minimum future lease payments
$
38,458
36,083
29,867
23,376
18,247
36,906
$ 182,937
Rental expense in 2014, 2013 and 2012 for operating leases totaled $48,964,000, $42,992,000, and $39,810,000, respectively.
2014 Annual Report 81
44251_Fin.indd 81
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Legal Proceedings
The Company records losses for claims in excess of the limits of, or outside the coverage of, applicable insurance at the time
and to the extent they are probable and estimable. In accordance with ASC Topic 450 — Contingencies, the Company accrues
anticipated costs of settlement, damages, losses for liability claims and, under certain conditions, costs of defense, based on
historical experience or to the extent specific losses are probable and estimable. Otherwise, the Company expenses these
costs as incurred. If the best estimate of a probable loss is a range rather than a specific amount, the Company accrues the
amount at the lower end of the range.
The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2014 and
2013. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be
paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which
could adversely impact the Company’s operating results, cash flows and overall liquidity. The Company maintains third-party
insurance policies to provide coverage for certain legal claims, in an effort to mitigate its overall exposure to unanticipated
claims or adverse decisions. 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. Based on the AM Best Company ratings of
these third-party insurers, management does not believe there is a substantial risk of an insurer’s material nonperformance
related to any current insured claims.
On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the
Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material
adverse effect on its financial condition, operations and/or cash flows.
NOTE 14 Quarterly Operating Results (Unaudited)
Quarterly operating results for 2014 and 2013 were as follows:
(in thousands, except per share data)
2014
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
2013
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
$ 363,594
$ 276,757
$
$
$
$
86,837
52,415
0.36
0.36
$ 335,012
$ 235,521
$
$
$
$
99,491
60,131
0.42
0.41
$
$
$
$
$
$
$
$
$
$
$
$
397,764
295,983
101,781
61,755
$ 421,418
$ 393,020
$ 308,733
$ 354,574
$ 112,685
$
68,331
$
$
$
$
38,446
24,395
0.17
0.17
0.43
0.42
$
$
0.47
0.47
325,792
239,571
86,221
52,007
0.36
0.36
$ 359,310
$ 343,165
$ 263,855
$ 266,723
$
$
$
$
95,455
57,749
0.40
0.39
$
$
$
$
76,442
47,225
0.32
0.32
(1) Represents the Company recognizing a pretax loss on disposal of $47.4 million as a result of the sale of Axiom effective December 31, 2014. The sale is part of
the Company’s strategy to exit the reinsurance brokerage business.
82 Brown & Brown, Inc.
44251_Fin.indd 82
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Quarterly financial results are affected by seasonal variations. The timing of the Company’s receipt of profit-sharing
contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly
between quarters.
NOTE 15 Segment Information
Brown & Brown’s business is divided into four reportable segments: (1) the Retail Segment, which provides a broad range
of insurance products and services to commercial, public and quasi-public entities, and to professional and individual
customers; (2) the National Programs Segment, which provides professional liability and related package products for certain
professionals delivered through nationwide networks of independent agents and Brown & Brown retail agents, and markets
targeted products and services designed for specific industries, trade groups, public and quasi-public entities, market niches
and provides flood coverage; (3) the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial
and personal lines insurance, primarily through independent agents and brokers; and (4) the Services Segment, which
provides insurance-related services, including third-party claims administration and comprehensive medical utilization
management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services,
Social Security disability and Medicare benefits advocacy services and catastrophe claims adjusting services.
Brown & Brown conducts all of its operations within the United States of America, except for one wholesale brokerage
operation based in London, England, and retail operations in Bermuda and the Cayman Islands. These operations earned
$13.3 million, $12.2 million and $9.7 million of total revenues for the years ended December 31, 2014, 2013 and 2012, respec-
tively. Long-lived assets held outside of the United States during each of these three years were not material.
The accounting policies of the reportable segments are the same as those described in Note 1. Brown & Brown evaluates the
performance of its segments based upon revenues and income before income taxes. Inter-segment revenues are eliminated.
Summarized financial information concerning Brown & Brown’s reportable segments 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 Year Ended December 31, 2014
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Total revenues
$ 809,766
$ 394,789
$ 234,673
Investment income
Amortization
Depreciation
Interest expense
Income before
income taxes
$
$
$
$
67
42,270
6,410
42,918
$
$
$
$
164
24,769
7,699
49,663
$
$
$
$
26
11,729
2,616
1,878
$ 160,529
$
71,235
$
16,624
Total assets
$ 3,190,737
$ 2,411,839
$ 940,461
Capital expenditures
$
6,844
$
13,739
$
1,949
Services
136,559
3
4,134
2,213
7,678
Other
Total
$
$
$
$
$
9
487
39
1,957
(73,729)
$ 1,575,796
$
$
$
$
747
82,941
20,895
28,408
17,524
$
73,837
$ 339,749
296,034
$ (1,882,613)
$ 4,956,458
1,210
$
1,181
$
24,923
$
$
$
$
$
$
$
$
44251_Fin.indd 83
3/24/15 7:45 AM
2014 Annual Report 83
Notes
to Consolidated Financial Statements
For the Year Ended December 31, 2013
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Total revenues
$ 728,324
$ 292,130
$ 209,907
Investment income
Amortization
Depreciation
Interest expense
Income before
income taxes
$
$
$
$
82
38,052
5,847
34,407
$
$
$
$
19
14,593
5,399
24,014
$
$
$
$
22
11,550
2,794
2,565
$ 166,316
$
58,379
$
53,822
Total assets
$ 2,992,087
$ 1,335,911
$ 927,825
Capital expenditures
$
6,847
$
4,743
$
1,931
Services
131,489
1
3,698
1,623
7,321
Other
Total
1,429
$ 1,363,279
514
39
1,822
(51,867)
$
$
$
$
638
67,932
17,485
16,440
$
$
$
$
$
24,518
$
54,574
$ 357,609
277,652
$ (1,883,967)
$ 3,649,508
1,811
$
1,034
$
16,366
$
$
$
$
$
$
$
$
For the Year Ended December 31, 2012
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Total revenues
$ 644,429
$ 252,943
$ 183,565
Investment income
Amortization
Depreciation
Interest expense
Income before
income taxes
$
$
$
$
108
34,639
5,181
26,641
$
$
$
$
20
13,936
4,600
25,674
$
$
$
$
22
11,280
2,718
3,974
$ 145,214
$
51,491
$
43,355
Total assets
$ 2,420,759
$ 1,183,191
$ 837,364
Capital expenditures
$
5,732
$
9,633
$
3,383
Services
116,736
1
3,680
1,278
8,602
Other
Total
2,359
$ 1,200,032
646
38
1,596
(48,794)
$
$
$
$
797
63,573
15,373
16,097
$
$
$
$
$
16,770
$
47,981
$ 304,811
238,430
$ (1,551,686)
$ 3,128,058
2,519
$
2,761
$
24,028
$
$
$
$
$
$
$
$
NOTE 16 Losses and Loss Adjustment Reserve
The Company is exposed to the risk of losses from claims in the insurance company operations of Wright. To mitigate this risk
we reinsure 100% percent of the underwriting claims exposure with FEMA for basic admitted flood policies and with reinsur-
ance carriers with an AM Best Company rating of “A” or better for all other claims exposure. Although the reinsurers are liable
to the Company for amounts reinsured, the Company remains primarily liable to its policyholders for the full amount of the
policies written whether or not the reinsurers meet their obligations to the Company when they become due. The effects of
reinsurance on premiums written and earned are as follows:
(in thousands)
Direct premiums
Assumed premiums
Ceded premiums
Net premiums
Period from May 1, 2014 to
December 31, 2014
Written
Earned
$ 439,828
$ 408,056
(1)
439,819
199
408,247
$
8
$
8
All premiums written by WNFIC under the National Flood Insurance Program are 100% ceded to FEMA, for which the
Company received a 30.7% expense allowance from May 1, 2014 through September 30, 2014 and received a 30.8% expense
allowance from October 1, 2014 through December 31, 2014. For the period from May 1, 2014 through December 31, 2014, the
Company ceded $439.0 million of written premiums.
84 Brown & Brown, Inc.
44251_Fin.indd 84
3/24/15 7:45 AM
Notes
to Consolidated Financial Statements
Effective April 1, 2014, WNFIC is also a party to a quota share agreement whereby it cedes 100% of its gross excess flood
premiums which excludes fees to Arch Reinsurance Company and receives a 30.5% commission. WNFIC ceded $0.8 million
for the period from May 1 through December 31, 2014. No loss data exists on this agreement.
The Company also ceded 100% of the Homeowners and Private Passenger Auto Liability to Stillwater Insurance Company
formerly known as Fidelity National Insurance Company. This business is in runoff. Therefore, only loss data still exists on this
business. As of December 31, 2014, ceded unpaid losses and loss adjustment expenses for Homeowners and Private Passenger
Auto Liability was $8,698 and $61,634, respectively. The incurred but not reported was $102 for Homeowners and $39,424 for Private
Passenger Auto Liability. The reinsurance recoverable balance as of December 31, 2014 was $333.6 million that is comprised of
recoverables on unpaid losses and loss expenses of $13.0 million and prepaid reinsurance premiums of $320.6 million.
There was no net activity in the reserve for losses and loss adjustment expense during the period May 1, 2014 through
December 31, 2014, as the Company’s direct premiums written were 100% ceded to three reinsurers. The balance of the
reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, as of December 31, 2014 was
$13.0 million.
NOTE 17 Statutory Financial Information
WNFIC is required to maintain minimum amounts of statutory capital and surplus of $7.5 million as required by regulatory
authorities. WNFIC’s statutory capital and surplus exceeded their respective minimum statutory requirements. The statutory
capital and surplus of WNFIC was $10.9 million at December 31, 2014. For the period from January 1, 2014 through December 31,
2014, WNFIC generated statutory net income of $2.3 million.
After the May 19, 2014 distribution of WNFIC to WRM America Intermediate Holding Company, Inc. but prior to the
consummation of the Brown and Brown purchase of Wright and its subsidiaries, WNFIC issued and paid an extraordinary
dividend of $7.0 million to its parent. That dividend was issued and paid with the prior approval of the Texas Department
of Insurance.
NOTE 18 Subsidiary Dividend Restrictions
Under the insurance regulations of Texas, the maximum amount of ordinary dividends that WNFIC can pay to shareholders
in a rolling twelve month period is limited to the greater of 10% of statutory adjusted capital and surplus as shown on
WNFIC’s last annual statement on file with the superintendent or 100% of adjusted net income. As an extraordinary dividend
of $7.0 million was paid on May 20, 2014, no ordinary dividend may be paid until May 21, 2015. Thereafter, the maximum
dividend payout that may be made in 2015 without prior approval is $2.3 million.
NOTE 19 Shareholders’ Equity
On July 21, 2014, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of its shares of common
stock. This is in addition to the $25.0 million that was authorized in the first quarter and executed in the second quarter of
2014. On September 2, 2014, the Company entered into an accelerated share repurchase agreement (“ASR”) with an invest-
ment bank to repurchase an aggregate $50.0 million of the Company’s common stock. As part of the ASR, the Company
received an initial delivery of 1,293,760 shares of the Company’s common stock with a fair market value of approximately
$42.5 million. The initial delivery of 1,293,760 shares reduced the outstanding shares used to determine the Company’s
weighted average shares outstanding for purposes of calculating basic and diluted earnings per share. The remaining
$7.5 million of the aggregate repurchase amount was received on October 8, 2014, as 246,000 shares of the Company’s
common stock were delivered to conclude the $50.0 million ASR. The total number of shares repurchased under the ASR of
1,539,760 was determined upon settlement of the final delivery and was based on the Company’s volume weighted average
price per its common share over the ASR period less a discount. As of December 31, 2014, a total of 2,384,760 shares have
been repurchased during the 2014 fiscal year.
2014 Annual Report 85
44251_Fin.indd 85
3/24/15 7:45 AM
GAAP Reconciliation – Income Before Income Taxes to Operating Profit and Adjusted Operating Profit
(in thousands, except per share data)
2014
2013
2012
2011
2010
Retail
Total revenues
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Operating Profit
Operating Profit Margin
National Programs
Total revenues
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
$ 809,766
160,529
42,270
6,410
42,918
7,147
$ 728,324
166,316
38,052
5,847
34,407
(1,844)
$ 644,429
145,214
34,639
5,181
26,641
1,968
$ 607,199
137,807
33,373
5,046
27,688
(5,415)
$ 575,061
128,026
30,725
5,349
27,037
(1,731)
$ 259,274
$ 242,778
$ 213,643
$ 198,499
$ 189,406
32.0%
33.3%
33.2%
32.7%
32.9%
$ 394,789
71,235
24,769
7,699
49,663
314
$ 292,130
58,379
14,593
5,399
24,014
(808)
$ 252,943
51,491
13,936
4,600
25,674
(1,075)
$ 164,427
60,465
7,770
2,937
1,381
(508)
$ 176,051
70,264
8,427
3,004
2,670
21
Operating Profit
Operating Profit Margin
Less Non-cash stock-based compensation adjustment
$ 153,680
$ 101,577
$
94,626
$
72,045
$ 84,386
38.9%
(3,700)
34.8%
—
37.4%
—
43.8%
—
47.9%
—
Adjusted Operating Profit
Adjusted Operating Profit Margin
Wholesale
Total revenues
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Operating Profit
Operating Profit Margin
Less loss on disposal
Adjusted Operating Profit
Adjusted Operating Profit Margin
Services
Total revenues
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Operating Profit
Operating Profit Margin
Less Non-cash stock-based compensation adjustment
Adjusted Operating Profit
Adjusted Operating Profit Margin
$ 149,980
$ 101,577
$
94,626
$
72,045
$ 84,386
38.0%
34.8%
37.4%
43.8%
47.9%
$ 234,673
16,624
11,729
2,616
1,878
2,862
$ 209,907
53,822
11,550
2,794
2,565
2,404
$ 183,565
43,355
11,280
2,718
3,974
131
$ 174,158
36,511
11,032
2,594
7,495
691
$ 171,813
29,911
10,987
2,740
11,342
(246)
$
35,709
$
73,135
$ 61,458
$ 58,323
$ 54,734
15.2%
47,425
34.8%
—
33.5%
—
33.5%
—
31.9%
—
$
83,134
$
73,135
$ 61,458
$ 58,323
$ 54,734
35.4%
34.8%
33.5%
33.5%
31.9%
$ 136,559
17,524
4,134
2,213
7,678
(385)
$ 131,489
24,518
3,698
1,623
7,321
2,781
$ 116,736
16,770
3,680
1,278
8,602
394
$ 65,972
7,729
2,541
590
5,746
3,026
$ 46,447
7,693
1,264
352
2,592
282
$
31,164
$
39,941
$
30,724
$ 19,632
$ 12,183
22.8%
(821)
30.4%
—
26.3%
—
29.8%
—
26.2%
—
$
30,343
$
39,941
$ 30,724
$ 19,632
$ 12,183
22.2%
30.4%
26.3%
29.8%
26.2%
GAAP Earnings Per Share Reconciliation to Earnings Per Share – Adjusted
GAAP earnings per share – as reported
Loss on disposal
Non-cash stock based compensation adjustment
Colonial Claims (Superstorm Sandy effect)
Change in estimated acquisition earn-out payables
$
2014
1.41
0.21
(0.03)
—
0.04
$
2013
1.48
—
—
(0.06)
0.01
$ Change
% Change
(4.7%)
$
(0.07)
0.21
(0.03)
0.06
0.03
Earnings per share – adjusted
$
1.63 (1)
$
1.43
$
0.20
14.0%
(1)
(1) Value referenced in Letter to Shareholders on page 2.
86 Brown & Brown, Inc.
44251_Fin.indd 86
3/24/15 7:45 AM
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Brown & Brown, Inc.
Daytona Beach, Florida
We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the “Company”)
as of December 31, 2014 and 2013, and the related consolidated statements of income, shareholders’ equity, and cash flows
for Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Brown & Brown, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established
in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Certified Public Accountants
Miami, Florida
February 27, 2015
44251_Fin.indd 87
3/24/15 7:45 AM
2014 Annual Report 87
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Brown & Brown, Inc.
Daytona Beach, Florida
We have audited the internal control over financial reporting of Brown & Brown, Inc. and subsidiaries (the “Company”) as
of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial
Reporting, management excluded from its assessment the internal control over financial reporting at The Wright Insurance Group,
LLC and Pacific Resources Benefits Advisors, LLC (collectively the “2014 Excluded Acquisitions”), which were acquired during 2014
and whose financial statements constitute 23.5% of total assets, 6.8% of revenues, and (1.8%) of net income of the consolidated
financial statement amounts as of and for the year ended December 31, 2014. Accordingly, our audit did not include the internal
control over financial reporting of the 2014 Excluded Acquisitions. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effec-
tiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of
directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reason-
able assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated February 27,
2015 expressed an unqualified opinion on those financial statements.
Certified Public Accountants
Miami, Florida
February 27, 2015
88 Brown & Brown, Inc.
44251_Fin.indd 88
3/24/15 7:45 AM
Report
of Independent Registered Public Accounting Firm
Management’s Report
on Internal Control Over Financial Reporting
The management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”) is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule
13a-15(f). Under the supervision and with the participation of management, including Brown & Brown’s principal executive
officer and principal financial officer, Brown & Brown conducted an evaluation of the effectiveness of internal control over
financial reporting based on the framework in Internal Control — Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).
In conducting Brown & Brown’s evaluation of the effectiveness of its internal control over financial reporting,
Brown & Brown has excluded the following acquisitions completed during 2014: Pacific Resources Benefits Advisors, LLC,
and The Wright Insurance Group, LLC (collectively the “2014 Excluded Acquisitions”), which were acquired during 2014
and whose financial statements constitute 23.5% of total assets, 6.8% of revenues, and (1.8%) of net income of the consoli-
dated financial statement amounts as of and for the year ended December 31, 2014. Refer to Note 2 to the Consolidated
Financial Statements for further discussion of these acquisitions and their impact on Brown & Brown’s Consolidated
Financial Statements.
Based on Brown & Brown’s evaluation under the framework in Internal Control — Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that internal control
over financial reporting was effective as of December 31, 2014. Management’s internal control over financial reporting as of
December 31, 2014 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated
in their report which is included herein.
Brown & Brown, Inc.
Daytona Beach, Florida
February 27, 2015
J. Powell Brown
Chief Executive Officer
R. Andrew Watts
Executive Vice President,
Chief Financial Officer and Treasurer
44251_Fin.indd 89
3/24/15 7:45 AM
2014 Annual Report 89
Performance
Graph
The following graph is a comparison of five-year cumulative total stockholder returns for our common stock as compared
with the cumulative total stockholder return for the NYSE Composite Index, and a group of peer insurance broker and agency
companies (Aon plc, Arthur J. Gallagher & Co, Marsh & McLennan Companies, and Willis Group Holdings plc). The returns of
each company have been weighted according to such companies’ respective stock market capitalizations as of December 31,
2009 for the purposes of arriving at a peer group average. The total return calculations are based upon an assumed $100
investment on December 31, 2009, with all dividends reinvested.
Comparison of 5 Year Cumulative Total Return
Among Brown & Brown, Inc., the NYSE Composite Index, and a Peer Group
$275
$250
$225
$200
$175
$150
$125
$100
$75
$50
$0
12/09
12/10
12/11
12/12
12/13
12/14
Brown & Brown, Inc.
NYSE Composite
Peer Group
Company/Index/Market
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
Brown & Brown, Inc.
NYSE Composite
Peer Group
100.00
100.00
100.00
135.33
113.76
127.85
129.79
109.70
143.75
148.04
127.54
159.43
184.72
161.21
232.33
196.27
172.27
265.77
Year Ending
We caution that the stock price performance shown in the graph should not be considered indicative of potential future
stock price performance.
90 Brown & Brown, Inc.
44251_Fin.indd 90
3/24/15 7:45 AM
Brown & Brown is an independent insurance intermediary that through
its licensed subsidiaries provides a variety of insurance products and
services to corporate, public entity, institutional, trade, professional,
association and individual customers. Our corporate culture is built on
vision, speed, agility and strength that allows us to thrive in the very
competitive insurance environment. This unique culture has enabled us
to quickly chase down new opportunities, adapt our products and services
to best meet market demands, and serve our many and varied customers.
The Company is ranked as the sixth largest such organization in the United
States and seventh in the world by Business Insurance magazine.
Total Revenues
dollars in millions
Net Income Per Share Diluted
in dollars
Shareholders’ Equity
dollars in millions
1,576
1,363
1,200
1,014
973
1.48
1.41
2,114
2,007
1.26
1.12
1.13
1,807
1,644
1,506
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
Ten-Year Financial Summary
(in thousands, except per share data and other information)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Year Ended December 31,
Revenues
Commissions and fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,567,460
747
7,589
$ 1,355,503
638
7,138
$ 1,189,081
797
10,154
$ 1,005,962
1,267
6,313
$ 966,917
1,326
5,249
$
1,575,796
1,363,279
1,200,032
1,013,542
973,492
791,749
19,363
235,328
47,425
82,941
20,895
28,408
9,938
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
1,236,047
1,005,670
339,749
132,853
357,609
140,497
608,506
15,865
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
508,675
11,194
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
487,820
6,845
135,851
—
51,442
12,639
14,471
(1,674)
707,394
266,098
104,346
964,863
1,161
1,853
967,877
484,680
7,358
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
$ 965,983
6,079
5,492
977,554
$ 914,650
30,494 (1)
14,523
959,667
$ 864,663
11,479
1,862
$ 775,543
6,578
3,686
878,004
785,807
485,783
7,314
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
444,101
5,667
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
404,891
5,416
126,492
—
36,498
11,309
13,357
—
597,963
280,041
107,691
374,943
3,337
105,622
—
33,245
10,061
14,469
—
541,677
244,130
93,579
$ 206,896
$ 217,112
$ 184,045
$ 163,995
$ 161,752
$
153,294
$ 166,124
$ 190,959
$ 172,350
$ 150,551
Employee compensation and benefits as % of total revenue
Other operating expenses as % of total revenue
50.2%
14.9%
50.1%
14.4%
50.7%
14.5%
50.2%
14.2%
50.1%
14.0%
50.1%
14.8%
49.7%
14.1%
46.3%
13.7%
46.1%
14.4%
47.7%
13.4%
Earnings per Share Information
Net income per share – diluted
Weighted-average number of shares outstanding – diluted
Dividends paid per share
Year-End Financial Position
Total assets
Long-term debt
Total shareholders’ equity
Total shares outstanding
$
$
1.41
142,891
0.41
$
$
1.48
142,624
0.37
$
$
1.26
142,010
0.35
$
$
1.13
140,264
0.33
$
$
1.12
139,318
0.31
$
$
1.08
137,507
0.30
$
$
1.17
136,884
0.29
$
$
1.35
136,357
0.25
$
$
1.22
135,886
0.21
$
$
1.08
135,033
0.17
$ 4,956,458
$ 1,152,846 (2)
$ 2,113,745
143,486
$ 3,649,508
$ 380,000
$ 2,007,141
145,419
$ 3,128,058
$ 450,000
$ 1,807,333
143,878
$ 2,607,011
$ 250,033
$ 1,643,963
143,352
$ 2,400,814
$ 250,067
$ 1,506,344
142,795
$ 2,224,226
$
250,209
$ 1,369,874
142,076
$ 2,119,580
$ 253,616
$ 1,241,741
141,544
Other Information
Number of full-time equivalent employees at year-end
Total revenues per average number of employees (3)
Stock price at year-end
Stock price earnings multiple at year-end (5)
Return on beginning shareholders’ equity (6)
7,591
$ 216,114
32.91
$
23.3
6,992
$ 203,020
31.39
$
21.2
10%
12%
$
$
$
6,438
191,729 (4)
25.46
20.2
11%
5,557
$ 186,949
22.63
$
20.0
$
5,286
$ 185,568
23.94
$
21.4
$
5,206
182,549
17.97
16.6
$
$
$
5,398
$ 187,181
20.90
$
17.9
$
11%
12%
12%
15%
21%
23%
24%
$ 1,960,659
$ 227,707
$ 1,097,458
140,673
5,047
$ 196,251
23.50
$
17.4
$
$ 1,807,952
$ 226,252
$ 929,345
140,016
4,733
$ 189,368
28.21
$
23.1
$
$ 1,608,660
$ 214,179
$ 764,344
139,383
4,540
$ 184,896
30.54
$
28.3
$
44251_Cover.indd 2
3/24/15 9:34 AM
(1) Includes an $18,664 gain on the sale of our investment in Rock-Tenn Company.
(5) Stock price at year-end divided by net income per share-diluted.
(2) Represents the incremental new debt associated with the acquisition of Wright and evolution of our capital structure. Please refer to Part I, Item 7 “Management’s
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 “Long-Term Debt” for more details.
(3) Represents total revenues divided by the average of the number of full-time equivalent employees at the beginning of the year and the number of full-time equivalent
employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of Arrowhead, and
therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for 2012 is considered to be 6,259.
All share and per-share information has been adjusted to give effect to the 2-for-1 common stock split which became effective November 29, 2005.
Weighted average number of shares outstanding-diluted has been adjusted to give effect for the two-class method of calculating earnings per share as
described in Note 1 to the Consolidated Financial Statements.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
I f yo u ’ re n o t i n t h e l e a d ,
yo u ’ re i n o u r w a ke .
B
R
O
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Shareholder Information
Corporate Offices
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
Outside Counsel
Holland & Knight LLP
100 North Tampa Street
Suite 4100
Tampa, Florida 33602
Corporate Information and Shareholder Services
The Company has included, as Exhibits 31.1 and 31.2,
and 32.1 and 32.2 to its Annual Report on Form 10-K for
the fiscal year 2014 filed with the Securities and Exchange
Commission, certificates of the Chief Executive Officer
and Chief Financial Officer of the Company certifying the
quality of the Company’s public disclosure. The Company
has also submitted to the New York Stock Exchange a
certificate from its Chief Executive Officer certifying that
he is not aware of any violation by the Company of New
York Stock Exchange corporate governance listing standards.
A copy of the Company’s 2014 Annual Report on Form 10-K
will be furnished without charge to any shareholder
who directs a request in writing to:
Corporate Secretary
Brown & Brown, Inc.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
A reasonable charge will be made for copies of the
exhibits to the Form 10-K.
Annual Meeting
The Annual Meeting of Shareholders of
Brown & Brown, Inc. will be held:
May 6, 2015
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave.
Brooklyn, New York 11219
(800) 937-5449
email: info@amstock.com
www.amstock.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
333 SE 2nd Avenue
Suite 3600
Miami, Florida 33131
Stock Listing
The New York Stock Exchange Symbol: BRO
On February 19, 2015, there were 143,520,097 shares of
our common stock outstanding, held by approximately
1,178 shareholders of record.
Market Price of Common Stock
Stock Price Range
2014
High
First Quarter
$ 32.88
Second Quarter
$ 31.29
Third Quarter
$ 33.46
Fourth Quarter
$ 33.40
2013
Low
$ 27.77
$ 28.27
$ 30.02
$ 30.96
Cash
Dividends per
Common Share
$ 0.10
$ 0.10
$ 0.10
$ 0.11
First Quarter
$ 32.08
$ 25.31
$ 0.09
Second Quarter
$ 33.24
$ 30.00
$ 0.09
Third Quarter
$ 35.13
$ 30.55
$ 0.09
Fourth Quarter
$ 33.69
$ 27.76
$ 0.10
Additional Information
Information concerning the services of Brown & Brown, Inc., as
well as access to current financial releases, is available on the
Internet. Brown & Brown’s address is www.bbinsurance.com.
designed and produced by see see eye / Atlanta & San Antonio
I n t h e s w i n g
Re p o r t
2014 A n n u a l
44251_Cover.indd 1
3/24/15 9:34 AM
2 Letter to Shareholders 4 Succeeding in Various Conditions 6 The Right People Working Together 8 Providing Balance 10 The Right Equipment 12 Leadership at Every Level 14 Strategy to Succeed 16 Division Overviews 24 Community Involvement 25 Leadership Overview 26 Board of Directors
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
I f yo u ’ re n o t i n t h e l e a d ,
yo u ’ re i n o u r w a ke .
B
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Shareholder Information
Corporate Offices
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
Outside Counsel
Holland & Knight LLP
100 North Tampa Street
Suite 4100
Tampa, Florida 33602
Corporate Information and Shareholder Services
The Company has included, as Exhibits 31.1 and 31.2,
and 32.1 and 32.2 to its Annual Report on Form 10-K for
the fiscal year 2014 filed with the Securities and Exchange
Commission, certificates of the Chief Executive Officer
and Chief Financial Officer of the Company certifying the
quality of the Company’s public disclosure. The Company
has also submitted to the New York Stock Exchange a
certificate from its Chief Executive Officer certifying that
he is not aware of any violation by the Company of New
York Stock Exchange corporate governance listing standards.
A copy of the Company’s 2014 Annual Report on Form 10-K
will be furnished without charge to any shareholder
who directs a request in writing to:
Corporate Secretary
Brown & Brown, Inc.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
A reasonable charge will be made for copies of the
exhibits to the Form 10-K.
Annual Meeting
The Annual Meeting of Shareholders of
Brown & Brown, Inc. will be held:
May 6, 2015
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave.
Brooklyn, New York 11219
(800) 937-5449
email: info@amstock.com
www.amstock.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
333 SE 2nd Avenue
Suite 3600
Miami, Florida 33131
Stock Listing
The New York Stock Exchange Symbol: BRO
On February 19, 2015, there were 143,520,097 shares of
our common stock outstanding, held by approximately
1,178 shareholders of record.
Market Price of Common Stock
Stock Price Range
2014
High
First Quarter
$ 32.88
Second Quarter
$ 31.29
Third Quarter
$ 33.46
Fourth Quarter
$ 33.40
2013
Low
$ 27.77
$ 28.27
$ 30.02
$ 30.96
Cash
Dividends per
Common Share
$ 0.10
$ 0.10
$ 0.10
$ 0.11
First Quarter
$ 32.08
$ 25.31
$ 0.09
Second Quarter
$ 33.24
$ 30.00
$ 0.09
Third Quarter
$ 35.13
$ 30.55
$ 0.09
Fourth Quarter
$ 33.69
$ 27.76
$ 0.10
Additional Information
Information concerning the services of Brown & Brown, Inc., as
well as access to current financial releases, is available on the
Internet. Brown & Brown’s address is www.bbinsurance.com.
designed and produced by see see eye / Atlanta & San Antonio
I n t h e s w i n g
Re p o r t
2014 A n n u a l
44251_Cover.indd 1
3/24/15 9:34 AM
2 Letter to Shareholders 4 Succeeding in Various Conditions 6 The Right People Working Together 8 Providing Balance 10 The Right Equipment 12 Leadership at Every Level 14 Strategy to Succeed 16 Division Overviews 24 Community Involvement 25 Leadership Overview 26 Board of Directors