Ready for tomorrow’s risks, today.
2015 Annual Report
Every endeavor
comes with its own set of risks.
Brown & Brown, Inc.
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2015 Annual Report
Are you prepared for what tomorrow might bring?
Brown & Brown, Inc.
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2015 Annual Report
Our creative solutions prepare you for the expected ... and the unexpected.
Brown & Brown, Inc.
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2015 Annual Report
We all know that things go wrong
sometimes. Helping anticipate
and plan for risk is our expertise.
Two of the most important attributes a business must have to
succeed in challenging conditions are adaptability and focus. In
2015 especially, Brown & Brown demonstrated both.
Our decentralized sales and service structure facilitates the agility
to adapt to changes in the market. We have a unique ability to
not only react to—but anticipate—nuances on both the local and
national levels. At the same time our focus never waivers. Every
teammate is guided by one principle: Do what’s best for each and
every customer. This singular intention has been central to our
success for more than 75 years.
Brown & Brown, Inc.
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2015 Annual Report
L E T T E R T O S H A R E H O L D E R S
To our shareholders:
2015 was another year of growth and investment
for Brown & Brown, even with a slowly improving
economy and continued rate pressure, most notice-
ably in coastal property. We grew our business to
$1.66 billion in revenue, which is an increase of
5.4% and 2.6% organically over 2014. Our earnings
per share were $1.70, which represents a 2.5%
increase. Our growth would not be possible with-
out the continued progress and development of
each team member in our group of just more than
7,800 teammates. Through all the hard work
of those teammates, we generated just over
$400 million of cash flow, which was redeployed
into our Company and back to our shareholders.
Last year, we allocated our capital through a mix
of hiring new teammates, acquisitions and returns
to shareholders through dividends and share
repurchases. We constantly review this strategy
with an eye towards the long term and how we
can deliver shareholder returns.
Last year, we made investments in people, acquired
$56 million of annualized revenue, bought back
$175 million of our stock and paid dividends of
$64 million. Our dividend increase last year rep-
resents our 22nd consecutive year of dividend
J. Powell Brown, CPCU
President and
Chief Executive Officer
increases. As we approach our $2 billion intermedi-
ate goal, analytics are essential to forecasting and
achieving long-term results. It is essential that we
tap the deep pool of information that is dispersed
in our 241 locations and use this information to the
benefit of our customers. Thus, we will be making
incremental investments in technology over the
next two to three years with a total estimated cost
of $30-$40 million. This is part of our evolution to
the next level and beyond. This will give us the ability
to leverage our revenues and gain additional insight
into our business.
We are an organization that grows organically and
through acquisitions. When it comes to the acqui-
sition process, cultural fit is the most important
dynamic, and then the acquisition must make sense
financially. If there is not a cultural fit, we do not move
forward. In 2012, 2013 and 2014, we purchased
about $150 million annualized revenues. In 2015, we
acquired companies with $56 million of annualized
revenue. Our goal is to acquire firms of all sizes in
each of our four segments that fit culturally and make
sense financially. 2015 was a year in which we looked
at a number of acquisitions that fit culturally, but the
economics did not make sense. We are comfortable
that this approach will enhance shareholder value
for the long run.
For the past 12 to 18 months, we have been dis-
cussing rate pressure, especially in coastal property
areas and the middle market. This is positive for our
customers, but puts pressure on several of our pro-
grams’ businesses and certain segments of our retail
and wholesale businesses. As you may know, it has
been 11 years since the last hurricane struck Florida.
So long as the sun keeps shining and fair winds keep
blowing, property rates in coastal areas will continue
to be under pressure.
One of the changes we experienced in 2015 was the
retirement of Linda Downs. Linda was one of our
most valued leaders and closest friends. When she
started with Brown & Brown 35 years ago, we were
$2 million in revenue. Linda has been instrumental
in the Company’s growth and success, and she helped
shape who we are today. The recognition we bestow annually
to leaders who are integral to the development of rising team-
mates will be named the Linda S. Downs Mentor of the Year
Award from now moving forward.
Brown & Brown’s culture statement is very straightforward—
“We are a lean, decentralized, highly competitive, profit
oriented sales and service organization comprised of people
of the highest integrity and quality, bound together by clearly
defined goals and prideful relationships.” This is what drives
us each and every day as a team to perform at a higher level
and links us with our strategic plan. We strive to:
n Exceed customer expectations every time
n Increase long-term shareholder value
n Recruit, develop and reward our teammates
n Grow our business organically and make quality
acquisitions that fit culturally
n Cultivate and enhance relationships with our
carrier partners
Thank you for your support of Brown & Brown. Our greatest
assets are our teammates, our reputation and our capital. We
make investments with this in mind for the long term. We are
now approaching our $2 billion intermediate goal that we
will attain through profitable organic growth and acquired
revenue. There is no timeframe, but when we get there, we
will set a new intermediate “stretch” goal. In closing, we are a
“three yards and a cloud of dust” company that believes the
only constant is change. All of us here at Brown & Brown are
excited about 2016 and beyond.
Regards,
J. Powell Brown, CPCU
President and
Chief Executive Officer
Total Revenues
dollars in millions
1,363
1,200
1,014
1,661
1,576
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Net Income Per Share Diluted
in dollars
1.70
1.48
1.41
1.26
1.12
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Shareholders’ Equity
dollars in millions
2,114
2,150
2,007
1,807
1,644
This letter includes selected references to certain non-GAAP financial measures that
are made to provide 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. For reconciliation and other information concerning these non-GAAP
financial measures refer to page 88 of the Company’s 2015 Annual Report.
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Brown & Brown, Inc.
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2015 Annual Report
R E T A I L
Expertise and education support
growth of The Joint Corp.’s business.
When Brown & Brown first wrote
coverage for The Joint Corp., a busi-
ness specializing in chiropractic care,
it was a startup with 12 locations.
Now it’s a publicly traded company
with 335 locations nationwide with
ever-increasing business and risk
complexity. As a result of Brown &
Brown’s expertise and educational
approach, and ability to manage
The Joint’s national expansion and
breadth, The Joint named the Com-
pany as the required Property and
Casualty insurance provider for all
franchises. Brown & Brown accom-
plished this by holding monthly
seminars for new franchise owners
to explain why it’s so important to
manage risk and why it is imper-
ative to buy proper coverage.
This approach empowered the
franchisees to feel informed and
knowledgeable about how to man-
age their risks and how what they’re
buying will respond in the event of
a claim. Brown & Brown originally
provided only the Property and
Casualty lines of insurance for both
the corporate-owned and franchise
locations of The Joint. As a result of
delivering value-added solutions,
Brown & Brown began providing
their employee benefits, as well. It is
through Brown & Brown’s flexibility,
expertise, depth and attention to
customer service that the Company
is able to tailor solutions for The
Joint and our many other customers.
Brown & Brown, Inc.
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2015 Annual Report
John Richards
Chief Executive Officer
The Joint Corp.
Scottsdale, Arizona
Wayne Hubbard, CIC
Senior Vice President
Property and Casualty
Brown & Brown Insurance
of Arizona, Inc.
Phoenix, Arizona
Chris P. Scherzer
Senior Vice President
Employee Benefits Team Leader
Brown & Brown Insurance
of Arizona, Inc.
Phoenix, Arizona
John Esposito, CIC
Executive Vice President
Brown & Brown Insurance
of Arizona, Inc.
Phoenix, Arizona
R E V I E W O F O P E R A T I O N S
The Retail Segment
Success under all conditions.
The Retail Segment is the largest of Brown &
Brown’s four segments and generated approxi-
mately 52% of the Company’s total revenues
in 2015.
In September, the Retail Segment was realigned
into several regionalized segments. We believe
this realignment will enable the Retail Segment
to better focus on the specific needs of each
particular region and serve our local customers
by being able to adapt to changing market
conditions even more quickly.
One of the most striking testaments to the
strength of our unique culture at Brown & Brown
is our ability to succeed in both in good times as
well as when circumstances are less than ideal.
In 2015, the Retail Segment grew in spite of
rate reductions and a slowly improving middle
market economy.
The success of the Retail Segment is solely the
result of the efforts of our teammates. While
no one enjoys challenging times, they do show
what people are made of, and our teammates
perform well under pressure by collaborating
and innovating.
In the Retail Segment, we continued to deliver
great solutions for our customers by leveraging
the capabilities of our carrier and wholesale
brokerage partners that drove new business to
a record high in 2015. Again, this is attributable
to the culture of cooperation and self-discipline
at Brown & Brown. Our offices did a tremendous
job of sharing information and working together
to find or create the best solutions for our
customers. We believe we are well positioned
for 2016.
Looking to 2016, the Retail Segment will con-
tinue to focus not just on hiring the best people,
but also on the training and development of our
teammates. Additional priorities include enrich-
ing our partnerships with carriers and continuing
to develop innovative new products that reduce
risk for our customers.
Segment Total Revenues
dollars in millions
870.3
823.7
737.3
652.1
614.1
Segment Adjusted Operating
Profit(1)
dollars in millions
257.8
239.4
211.3
197.5
271.2
Segment Adjusted Operating
Profit Margin(1)
as a percentage
32.2
32.4
32.5
31.3
31.2
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Our Retail 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 Kansas
n Kentucky
n Louisiana
n Massachusetts
n Michigan
n Minnesota
n Mississippi
n Missouri
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
Brown & Brown, Inc.
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2015 Annual Report
Contribution to
Total Revenues
52.4%
Contribution to
Total Adjusted
Operating Profit (1)
50.0%
(1) Please see non-GAAP reconciliation on page 88.
N A T I O N A L P R O G R A M S
Responding to challenges with
innovation and determination.
The National Programs Segment has
always been diversified and innova-
tive, and in spite of the challenges
the entire industry faced in 2015,
the National Programs Segment
continued to innovate and expand
our program offerings that delivered
growth in 2015 and will have a pos-
itive impact in 2016 and beyond. To
exemplify this innovation, our Arrow-
head business in San Diego realized
there was an opportunity for our cus-
tomers to better manage their coastal
property risks. This was specifically
in response to a need for broader
earthquake coverage in California,
hurricane coverage in coastal areas,
and coverage for tornadoes in the
Midwest. By finding niche markets,
following the need and offering
innovative solutions, we’ve helped
thousands of people manage their
risks and provided growth oppor-
tunities for our carrier partners. In
addition, last year our teammates
saw an opportunity to work with
our carrier partners and expand
coverage for certain commercial
customers. In addition to providing
coverage for earthquake damage,
with our new “all-risk” insurance
program, we now have additional
capacity to insure customers for a
combination of wind damage, fire
damage and more. This new “all-
risk” program further broadens our
capabilities and creates additional
solutions for our customers.
Crystal Million
Vice President – Underwriting and
Operations, Personal Property Division
Arrowhead General Insurance
Agency, Inc.
Carlsbad, California
Mark Corey
President, Personal Property Division
Arrowhead General Insurance
Agency, Inc.
Carlsbad, California
Lauri Thum
Vice President – Marketing,
Personal Property Division
Arrowhead General Insurance
Agency, Inc.
Carlsbad, California
Brown & Brown, Inc.
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2015 Annual Report
R E V I E W O F O P E R A T I O N S
Segment Total Revenues
dollars in millions
The National Programs Segment
Viewing challenges through a lens of finding opportunities.
Brown & Brown’s National Programs Segment
generated approximately 26% of the Company’s
total revenue in 2015.
The goal of the National Programs Segment is
to be the most efficient and innovative program
manager in the specialty insurance market, while
providing our teammates, carrier partners and
distribution partners with opportunities for
growth and enrichment. The importance of
Brown & Brown’s unique culture was never more
evident than in 2015. Through collaboration,
the National Programs Segment was able to grow
in spite of a competitive and dynamic market.
The challenging market conditions in 2015
sharpened the focus of the National Programs
Segment and served as a launching pad for
some truly exciting achievements, including the
creation of our new “all-risk” insurance program.
The new incubation team we created in 2015
is a team designed to collaborate and vet new
ideas, products and programs. Again, without
the culture of cooperation that exemplifies
Brown & Brown, an effort such as this wouldn’t
be possible. At Brown & Brown we work
together to create innovative, viable solutions
for our carrier and distribution partners.
The focus has always been, and will continue
to be, on our partners and how we can create
solutions for our customers.
The diversification and specialization of Brown
& Brown’s National Programs Segment is
aimed at allowing it to achieve good results in
the industry. For example, while competition in
commercial property insurance was fierce last
year, our personal lines grew strongly, bolstered
by close relationships with our partners and the
introduction of new products. This balanced
portfolio of businesses enabled the National
Programs Segment to grow in 2015 in spite of
rate pressures and economic challenges.
Innovation was not only focused on revenue
growth, but the National Programs Segment
worked tirelessly to further increase the scale of
our technology platform and enable continued
increasing profitable growth by taking advantage
of our leadership position in the marketplace. As
a result, the National Programs Segment oper-
ates more efficiently than ever and will continue
to seek opportunities to capitalize on our scale
and standardization. This is critical because while
no one can anticipate the direction market con-
ditions will go, we believe the National Programs
Segment is well prepared to face any challenge.
In 2016, the the National Programs Segment’s
top priority is to achieve a solid rate of organic
growth, capitalize on our new initiatives, and
add more talented, hard-working insurance
professionals to our team that will enable us to
achieve our goals.
Segment Adjusted Operating
Profit(1)
dollars in millions
159.3
Segment Adjusted Operating
Profit Margin(1)
as a percentage
43.7
37.5
34.8
37.7
37.1
428.7
404.2
152.4
301.4
260.4
169.7
104.9
97.6
74.1
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National Programs
n AFC Insurance
n Allied Protector Plan
n American Specialty
n Arrowhead General Insurance Agency
n Bellingham Underwriters
n CalSurance Associates
n Clear Risk Solutions
n CPA Protector Plan®
n Downey Public Risk Underwriters
n Florida Intracoastal Underwriters
n Ideal Insurance Agency
n Irving Weber Associates
n Lawyer’s Protector Plan®
n OnPoint Underwriting
n Optometric Protector Plan®
n Parcel Insurance Plan
n Proctor Financial
n Professional Protector Plan
for Dentists
n Public Risk Underwriters
n Sigma Underwriting Managers
n Texas Monarch Management
Corporation
n TitlePac®
n Wright Flood
n Wright Public Entity
n Wright Specialty
n Professional Risk Specialty Group
n Professional Services Plans
n Public Risk Advisors of New Jersey
For additional information on
National Programs please visit
www.natprograms.com
Contribution to
Total Revenues
25.9%
Contribution to
Total Adjusted
Operating Profit(1)
28.8%
(1) Please see non-GAAP reconciliation on page 88.
Brown & Brown, Inc.
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2015 Annual Report
W H O L E S A L E B R O K E R A G E
New opportunities where there
once were none.
One especially exciting accom-
plishment for Brown & Brown’s
Wholesale Brokerage Segment in
2015 was a new opportunity in
professional practice coverage for
a large law firm. One of our retail
agents approached us about this
prospect and indicated they didn’t
have access to carriers that focus
on this type of coverage. We quickly
selected one of our top teammates
to work on designing a solution for
both the agent and the customer.
We analyzed the expiring policy,
risk profile, and the customer’s risk
retention appetite, then worked
with our vast group of carrier
partners to secure coverage that
would manage the risks and provide
the customer with a cost-effective
solution. It was only through our
innovation and deep carrier rela-
tions that we were able to win the
business. Through this creativity, it
has opened up other potential leads
for more large law firms.
Debbie Elliot
Professional Liability Broker
Hull & Company, Inc.
Denver, Colorado
Brown & Brown, Inc.
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2015 Annual Report
R E V I E W O F O P E R A T I O N S
The Wholesale Brokerage Segment
The loyalty of our teammates is a testament to our culture.
The Wholesale Brokerage Segment of Brown
& Brown generated approximately 13% of the
Company’s revenue in 2015.
In spite of enormous rate pressure on coastal
properties, the entire team rallied in 2015 and
made it possible for the Wholesale Brokerage
Segment to deliver 5.9% organic growth.
The Wholesale Brokerage Segment, like other
areas of the Company, is a highly diverse
business, which we believe enables us to be
successful even when we face challenges on
a number of fronts.
In 2015, our property brokerage business was
challenged by declining property rates, but
our team looked for opportunities and worked
tremendously hard to make progress in other
areas. Because of our expertise and strong
carrier relationships, the Wholesale Brokerage
Segment created new opportunities in the area
of professional practice liability coverage. It’s this
type of collaboration and tireless determination
that exemplifies both the Wholesale Brokerage
Segment and the entire Company.
A huge testament to the importance of the
culture at Brown & Brown is the loyalty and
determination of our teammates. When times
are tough, our team doesn’t give up. They keep
pushing forward to find new opportunities
and solve risk management challenges for our
customers every day.
That leads to our top priority in 2016: hiring,
training and mentoring even more new team-
mates. It’s important to remember that the effort
doesn’t stop with hiring. Brown & Brown has an
excellent training program and is also fortunate
we have numerous teammates throughout the
Company who make it a point to seek out and
mentor new talent. Many of our seasoned
brokers have newer brokers with them every day
in order to help develop their skills and become
highly successful. It is this type of one-on-one
attention and education that makes a real differ-
ence in developing tomorrow’s leaders.
Another top priority for 2016 is expanding our
capabilities geographically and serving some of
the markets that we do not fully support today.
This effort will be led by a number of our top lead-
ers, and we are excited about our potential for
growth as we expand our geographic footprint.
Regardless of what 2016 brings, we believe the
Wholesale Brokerage Segment will continue
to innovate, endure and thrive. Thanks to the
loyalty, creativity and determination of our
teammates and our willingness to present
our customers with effective solutions,
we believe we are positioned for continued
growth and success.
Segment Total Revenues
dollars in millions
217.0
211.9
193.7
168.2
161.9
Segment Adjusted Operating
Profit(1)
dollars in millions
78.3
72.7
65.2
51.9
54.6
Segment Adjusted Operating
Profit Margin(1)
as a percentage
34.3
36.1
32.1
32.5
33.7
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Wholesale Brokerage Segment
n APEX Insurance Services
n Halcyon Underwriters
n Summit Risk Services
n Big Sky Underwriters
n Braishfield Associates
n Hull & Company
n MacDuff Underwriters
n Combined Group Insurance
n Mile High Markets
Services
n Decus Insurance Brokers
n ECC Insurance Brokers
n Graham Rogers
n National Risk Solutions
n Peachtree Special Risk Brokers
n Procor Solutions + Consulting
n Public Risk Underwriters of Texas
n Texas Security General Insurance
Agency
Contribution to
Total Revenues
13.1%
Contribution to
Total Adjusted
Operating Profit(1)
14.2%
(1) Please see non-GAAP reconciliation on page 88.
Brown & Brown, Inc.
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2015 Annual Report
S E R V I C E S
Results come from perseverance
and cooperation.
The Services Segment is particularly
proud of the difference it made for
Columbus Consolidated Govern-
ment in Georgia. Brown & Brown
first approached Columbus several
years ago, and reconnected with the
new risk manager in late 2012 to
discuss their Columbus Consolidated
Government Contract for Workers’
Compensation and Medical Care
Organization TPA services. Colum-
bus had been in a risk pool for several
years and was looking for a more
customized solution. Our teammates
listened to the issues presented by
the risk manager and then began the
process to create a better alternative.
Brown & Brown’s USIS business
assembled a team of subject matter
experts from across Brown & Brown,
including USIS, AmeriSys and Apex as
well as external partners in order to
provide a new solution using a Med-
ical Care Organization model as the
key differentiator for managing risks
and costs. With the risk manager’s
leadership, the council decided that
the USIS/AmeriSys option was the
best choice for Columbus. It was only
through our capabilities and inno-
vation that we were able to create
a new and creative solution for this
customer that has saved Columbus
over half a million dollars annually.
Ron Warble
Executive Vice President
USIS/AmeriSys
Orlando, Florida
Michael White
Director of Brokerage
Apex Insurance Services
Norcross, Georgia
Brown & Brown, Inc.
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2015 Annual Report
Segment Total Revenues
dollars in millions
131.5
136.6
145.4
117.5
Segment Adjusted Operating
Profit(1)
dollars in millions
41.2
31.2
30.7
31.7
Segment Adjusted Operating
Profit Margin(1)
as a percentage
30.4
31.3
26.5
22.5
21.8
65.8
20.0
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Services Segment
n The Advocator Group
n American Claims Management
n Insurance Claims Adjusters
n NuQuest
n Preferred Government
Claims Services
n Protocols
n United Self Insured
Services
R E V I E W O F O P E R A T I O N S
The Services Segment
Planting seeds and nurturing them to growth.
In 2015, the Services Segment of Brown &
Brown was responsible for generating approx-
imately 9% of the Company’s revenue and
delivering 7% organic growth.
The Services Segment generates its revenues
differently than the Company’s other segments.
Much of its revenue is derived from fees paid for
services, so the Segment generally doesn’t feel
the direct impact of rate pressures to the same
degree as our other segments. In the Services
Segment, our customers are municipalities,
self-insured companies and insurance carriers,
with the latter impacted mostly by premium rates.
The Services Segment had an exciting year. For
this Segment, 2015 was a year of planting seeds
and generating new ideas. It’s been tremen-
dously exciting to see which of those seeds
germinated and grew. In spite of challenges pre-
sented by the economy, we were able to write
new business and develop new solutions. Many
of our offices rose to the challenges presented
and had a really good year.
Our success in Columbus County, Georgia, is
just one example of what can be accomplished by
working together, being resourceful and focus-
ing on customers’ success. It can’t be stressed
enough that at Brown & Brown, the culture is
everything. Our Company is infused with a “get
it done” attitude that drives success and allows
us to overcome almost any obstacle. Further, our
decentralized sales and service model enables our
offices to respond and make decisions on a local
level and is a critical component of our success.
Looking ahead to 2016, the adjective “exciting”
continues to be an appropriate descriptor for the
Services Segment.
To be successful in 2016, first the Services
Segment will continue making changes and
implementing strategies quickly and nimbly as
conditions evolve.
Given the ingenuity, perseverance and resource-
fulness the Services Segment demonstrated in
2015, there’s every reason to believe we can
achieve this in 2016.
Success breeds success. With our unique culture,
Brown & Brown attracts and retains individuals
who are driven by results and are focused on
delivering solutions for our customers. Regardless
of what the market does, the Services Segment
will maintain its unwavering focus on providing
excellent service and solutions for our customers.
Brown & Brown, Inc.
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2015 Annual Report
Contribution to
Total Revenues
8.8%
Contribution to
Total Adjusted
Operating Profit(1)
5.7%
(1) Please see non-GAAP reconciliation on page 88.
L E A D E R S H I P O V E R V I E W
B O A R D O F D I R E C T O R S
J. Powell Brown, CPCU
President & Chief Executive
Officer
R. Andrew Watts
Executive Vice President,
Treasurer & Chief Financial
Officer
Richard A. Freebourn, Sr.,
CPCU, CIC
Executive Vice President –
Internal Operations & People
Officer
Robert W. Lloyd, Esq., CIC
Executive Vice President,
Secretary & General
Counsel
Charles H. Lydecker,
CPCU, CIC, AIM
Executive Vice President;
Regional President –
Retail Segment
J. Scott Penny, CIC
Chief Acquisitions Officer
Anthony T. Strianese
President – Wholesale
Brokerage Segment
Chris L. Walker
President – National
Programs Segment
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;
Regional President –
Retail Segment
Left to right:
Samuel P. Bell, III, Esq.
Of Counsel to the law firm of Buchanan
Ingersoll & Rooney PC
Bradley Currey, Jr.
Former Chairman & Chief Executive
Officer, Rock-Tenn Company
Toni Jennings
Chairman, Jack Jennings & Sons; Former
Lieutenant Governor, State of Florida
Acquisition Committee; Compensation
Committee
Nominating/Corporate Governance
Committee
Audit Committee; Compensation
Committee, Chair
James S. Hunt
Former Executive Vice President and
Chief Financial Officer, Walt Disney
Parks and Resorts Worldwide
Acquisition Committee; Audit
Committee, Chair; Compensation
Committee
Theodore J. Hoepner
Former Vice Chairman, SunTrust Bank
Holding Company
Chilton D. Varner, Esq.
Partner, King & Spalding LLP
H. Palmer Proctor, Jr.
President/Director, Fidelity Bank
Nominating/Corporate Governance
Committee
Acquisition Committee, Chair;
Compensation Committee
Wendell S. Reilly
Managing Partner,
Grapevine Partners, LLC
Lead Director; Nominating/Corporate
Governance Committee, Chair
Hugh M. Brown
Founder and former President & Chief
Executive Officer, BAMSI, Inc.
Acquisition Committee; Audit
Committee; Nominating/Corporate
Governance Committee
Timothy R. M. Main
Managing Director, Evercore Group LLC
Acquisition Committee
Kathy H. Colangelo
CIC, ASLI
Senior Vice President
Steve Denton
Senior Vice President;
Regional President –
Retail Segment
Anthony M. Grippa
Senior Vice President;
Regional President –
Retail Segment
Thomas K. Huval, CIC
Senior Vice President;
Regional President –
Retail Segment
Audit Committee; Compensation
Committee
J. Hyatt Brown, CPCU, CLU
Chairman, Brown & Brown, Inc.
J. Powell Brown, CPCU
President & Chief Executive Officer,
Brown & Brown, Inc.
Richard A. Knudson, CIC
Senior Vice President;
Regional President –
Retail Segment
Brown & Brown, Inc.
26
27
2015 Annual Report
C O M M U N I T Y I N V O LV E M E N T
The honor to serve our communities
We value the communities we serve and find every opportunity to give back. Each year we
contribute millions of dollars to non-profit organizations in our communities. Below is a
sample of some of the organizations we supported in 2015:
AccessCNY
Achieve
Allie’s Friends
American Cancer Society
American Diabetes
Association
American Heart Association
American Lebanese Syrian
Associated Charities
American Red Cross
Aspire – Massachusetts
General Hospital
Barbara Bush Foundation –
Annual Celebration
of Reading
Basis Schools
Better Housing Coalition
Bighorn Golf Club Charities
Bivona Child Advocacy
Center
BJ’s Wholesale Club
Charitable Foundation
The Bottom Line
Boys & Girls Club
Boy Scouts of America
Broward County Outreach
Center
Cal State Fullerton
Philanthropic Foundation
Camp Boggy Creek
Catskill Area Hospice and
Palliative Care
Central City Concern
Center for Family Services
Children’s Cancer
Association
Christel House
Crouse Health Foundation
Cumberland County
Guidance Center
Development at Schechter
Westchester
Doug Flutie, Jr. Foundation
for Autism
Education Foundation of
Lake County
Elwyn Foundation
Embassy of Hope
Embry Riddle
Father Lopez Catholic
High School
FCCA
First Call For Help of
Broward – 2-1-1 Broward
The First Tee
Florida Hospital Foundation
Florida Lions Conklin
Centers
Florida Southwest State
College
Florida Southwestern
University
Footlocker Foundation
Florida State University
Gamma Iota Sigma
Glens Falls Hospital
Greater New York Councils
Halifax Health Foundation
Holy Redeemer Health
System
Hospice by the Bay
Horizon House
Humane Society
I Have A Dream Foundation
International Rhett
Syndrome
The Jason Ritchie Hockey
Foundation
Jesuit High School
Foundation
Joliet Catholic Academy
Junior Achievement
Juvenile Diabetes Research
Foundation
Larc’s Acadian Village
Lee Memorial Health
Foundation
Lifepath Foundation
Lighthouse Louisiana
Make-A-Wish
Mary McLeod Bethune
MEHTA
Milagros para Ninos
Miss Tampa Crown
Scholarship
Mount Sinai Medical Center
Museum of Arts and
Sciences
The NASCAR Foundation
Nathan Adelson Hospice
National Black McDonald’s
Franchisee Foundation
National Multiple Sclerosis
Society
New York Police and Fire
Widows’ and Children’s
Benefit Fund
Niagara Falls Memorial
Medical
NY Schools Insurance
Foundation
Oakland Zoo
PBA
Piscataway Township
Education Foundation
Pooch & Poodle Rescue
Portland State University
R’Club Child Care
RFK Children’s Action
Corps
Rochester General Hospital
Foundation
Rome Memorial Hospital
Foundation
Ronald McDonald House
Rotary Club
Saint Francis Hospice and
Cancer Research
Schweiger Memorial
Scholarship Fund
Southeastern Guide Dog
Association
Special Olympics
St. Mary’s Academy
St. Matthews House
Step Up For Students
Temple University
University of Central Florida
University of Florida
University of Georgia
Union for Reform Judaism
United Way
UR Medicine
Valley Health Services
Vincent DePaul Foundation
Voices For Children
Foundation
Volunteer New York
Walker Home and School
WeSNIP
Whirlpool Collective Impact
WSCFF Benevolent Fund
YCS Foundation
YMCA
Youth About Business
2015
Financial Review
30 Management’s Discussion and Analysis of Financial
Condition and Results of Operations
51 Consolidated Statements of Income
52 Consolidated Balance Sheets
53 Consolidated Statements of Shareholders’ Equity
54 Consolidated Statements of Cash Flows
55 Notes To Consolidated Financial Statements
88 GAAP Reconciliation—Income Before Income Taxes
to Operating Profit and Adjusted Operating Profit
89 Reports of Independent Registered Public
Accounting Firm
91 Management’s Report on Internal Control Over
Financial Reporting
92 Performance Graph
Brown & Brown, Inc.
28
29
2015 Annual Report
General
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes
to those Financial Statements and “Information Regarding Non-GAPP Measures” with regard to important information on
non-GAAP financial measures, all contained in our discussion and analysis included elsewhere in this Annual Report.
We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquar-
tered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions 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 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 loss
experience, risk profile, and reinsurance rates paid by such insurance companies, none of which we control.
We have increased revenues every year from 1993 to 2015, with the exception of 2009, when our revenues dropped
1.0%. Our revenues grew from $95.6 million in 1993 to $1.7 billion in 2015, reflecting a compound annual growth rate of
13.9%. In the same 22-year period, we increased net income from $8.1 million to $243.3 million in 2015, a compound
annual growth rate of 16.7%.
The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium
rate levels, 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 increasing 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 acquisi-
tions. We foster a strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long
term.
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. 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”, a non-GAAP measure, 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 clients’ exposure
units, and (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners.
We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on
underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions
are primarily received in the first and second quarters of each year, based on the aforementioned considerations for the
prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 4.0% 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 Statement of Income in the year received.
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. For the twelve-month period ending
December 31, 2015, we had earned $10.0 million of GSCs, of which $7.6 million remained accrued at December 31, 2015
as most of this will be collected in the first quarter of 2016. For the twelve-month periods ended December 31, 2015, 2014,
and 2013, we earned $10.0 million, $9.9 million and $8.3 million, respectively, from GSCs.
Fee revenues relate to fees negotiated in lieu of commissions, 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 disability and
Medicare benefits advocacy services, and claims adjusting services, (2) our National Programs and Wholesale Brokerage
Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies, and to a lesser
extent (3) our Retail Segment in our large-account customer base. These services are provided over a period of time,
typically one year. Fee revenues, on a consolidated basis, as a percentage of our total commissions and fees, represented
30.6% in 2015, 30.6% in 2014 and 26.6% in 2013.
Additionally, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2015 decreased
by $5.8 million over 2014 primarily as a result of increased loss ratios in our National Programs and Wholesale Brokerage
Segment. Other income decreased by $5.0 million primarily as a result of a reduction in the gains on the sale of books of
business when compared to 2014 and the change in where this activity is presented in the financial statements as described
in the results of operations section as described later in this document.
For the years ended December 31, 2015 and 2014, our consolidated internal revenue growth rate was 2.6% and
2.0% respectively. Additionally, each of our four segments recorded positive internal revenue growth for the year ended
December 31, 2015. In the event that the gradual increases in insurable exposure units that occurred in the past few years
continues through 2016 and premium rate changes are similar with 2015, we believe we will continue to see positive
quarterly internal revenue growth rates in 2016.
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. Investment income also includes gains and losses
realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.
Income before income taxes for the year ended December 31, 2015 increased over 2014 by $62.8 million, primarily
as a result of acquisitions completed in the past twelve months and net new business, partially offset by the incremental
interest expense associated with our inaugural public debt offering completed in 2014 along with incremental investments
in revenue producing teammates.
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with GAAP,
we provide information 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, and adjusted calculations of core commissions and
fees, core organic commissions and fees and our internal growth rate after adjusting for the significant revenue recorded at
our Colonial Claims operation in the first half of 2013 attributable to Superstorm Sandy. These measures are not in accor-
dance 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 information are contained in this Annual Report on 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 supple-
mental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.
Acquisitions
Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From
1993 through the fourth quarter of 2015, we acquired 472 insurance intermediary operations, excluding acquired books of
business (customer accounts).
30
31
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, of which values are not readily apparent from other sources. Actual results may differ
from these estimates.
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 use of judgment 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 recog-
nized 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 arrangement.
Management determines the policy cancellation reserve based upon historical cancellation experience adjusted in accor-
dance 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 generally when such commissions are received from insurance companies,
or periodically when we receive formal notification of the amount of such payments. Fee revenues, and commissions for
employee benefits coverages and 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 estimated useful lives and the allocation of purchase price to intangible assets requires
significant judgment and affects the amount of future amortization and possible impairment 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 agree-
ments. 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 assumptions concerning matters such as cancellation frequency, expenses and discount
rates. Any change in these assumptions could affect the carrying value of purchased customer accounts. Non-compete
agreements are valued based on their duration and any unique features of the particular 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 5 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 consum-
mated 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 businesses 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 a 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 and our amortizable intangibles and other long-lived assets
annually and whenever events or changes in circumstances indicate that the carrying value of such assets may not be
recoverable. Any of the following factors, if present, may trigger an impairment review: (i) a significant underperformance
relative to historical or projected future operating results; (ii) a significant negative industry or economic trends; and (iii) a
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
impairment charge. We completed our most recent evaluation of impairment for goodwill as of November 30, 2015 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, 2015, 2014 and 2013.
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 over the associated service period based upon the grant-date fair value of
those awards.
During the first quarter of 2016, the performance conditions for approximately 1.4 million shares of the Company’s
common stock granted under the Company’s Stock Incentive Plan are expected to be determined by the Compensation
Committee to have been satisfied relative to performance-based grants issued in 2011. These grants had a performance
measurement period that concluded on December 31, 2015. The vesting condition for these grants requires continuous
employment for a period of up to ten years from the January 2011 grant date in order for the awarded shares to become
fully vested and non-forfeitable. The shares are expected to be awarded during the first quarter of 2016, pursuant to review
and certification of the performance measurements against the stated grant targets by the Compensation Committee in
accordance with the Stock Incentive Plan. As a result of the awarding of these shares, the grantees will be eligible to receive
payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as
issued and outstanding common stock shares and included in the calculation of basic and diluted EPS.
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33
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Litigation Claims
We are subject to numerous litigation claims that arise in the ordinary course of business. If it is probable that 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 accompanying Consolidated Balance Sheets. Professional fees
related to these claims are included in other operating expenses in the accompanying Consolidated Statement of Income
as incurred. Management, with the assistance of in-house and outside 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.
Results of Operations for the Years Ended December 31, 2015, 2014 and 2013
The following discussion and analysis regarding results of operations and liquidity and capital resources should be consid-
ered 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
2015
Percent
Change
2014
Percent
Change
2013
Core commissions and fees
$ 1,595,218
6.4 %
$ 1,499,903
15.7 %
$ 1,295,977
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
EXPENSES
51,707
10,026
1,004
2,554
(10.4) %
1.8 %
34.4 %
(66.3) %
57,706
12.6 %
51,251
9,851
19.0 %
747
17.1 %
7,589
6.3 %
8,275
638
7,138
1,660,509
5.4 %
1,575,796
15.6 %
1,363,279
Employee compensation and benefits
841,439
6.3 %
791,749
15.9 %
Non-cash stock-based compensation
15,513
(19.9)%
19,363
(14.3) %
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
251,055
6.7 %
235,328
20.3 %
(619)
(101.3)%
47,425
— %
87,421
20,890
39,248
5.5 %
— %
38.2 %
82,941
22.1 %
20,895
19.5 %
28,408
72.8 %
Change in estimated acquisition earn-out payables
3,003
(69.8) %
9,938 NMF(1)
683,000
22,603
195,677
—
67,932
17,485
16,440
2,533
Total expenses
1,257,950
1.8 %
1,236,047
22.9 %
1,005,670
Income before income taxes
402,559
18.5 %
339,749
(5.0) %
357,609
Income taxes
NET INCOME
159,241
19.9 %
132,853
(5.4) %
140,497
$ 243,318
17.6 %
$
206,896
(4.7) %
$
217,112
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
2.6 %
50.7 %
15.1 %
2.0 %
50.2 %
14.9 %
6.7 %
50.1 %
14.4 %
$
18,375
$ 5,012,739
$
24,923
$ 4,956,458
$
16,366
$ 3,649,508
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2015, increased $89.5 million
to $1,657.0 million, or 5.7% over 2014. Core commissions and fees revenue for 2015 increased $95.3 million, of which
approximately $76.6 million represented core commissions and fees from agencies acquired since 2014 that had no
comparable revenues. After accounting for divested business of $19.3 million, the remaining net increase of $38.0 million
represented net new business, which reflects a growth rate of 2.6% for core organic commissions and fees. Profit-sharing
contingent commissions and GSCs for 2015 decreased by $5.8 million, or 8.6%, compared to the same period in 2014. The
net decrease of $5.8 million was mainly driven by a decrease in profit-sharing contingent commissions in the National
Programs Segment as a result of increased loss ratios.
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2014, increased $212.0 million to
$1,567.5 million, or 15.6% over the same period in 2013. 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 accounting for divested business of $8.5 million, the remaining net increase of $25.6 million
represented net new business, which reflects an internal growth rate of 2.0% for core organic commissions and fees. Profit-
sharing contingent commissions and GSCs for 2014 increased by $8.0 million, or 13.5%, compared to the same period in
2013. The net increase was due primarily to $4.9 million, $1.3 million, and $1.8 million increases in profit-sharing contingent
commissions and GSCs in our Retail, National Programs and Wholesale Brokerage Segments, respectively.
Investment Income
Investment income increased to $1.0 million in 2015, compared with $0.7 million in 2014 due to additional interest income
driven by cash management activities to earn a higher yield. Investment income increased to $0.7 million in 2014, compared
with $0.6 million in 2013 mainly due to higher average daily invested balances in 2014 than in 2013.
Other Income, Net
Other income for 2015 reflected income of $2.6 million, compared with $7.6 million in 2014 and $7.1 million in 2013. Other
income in 2015 consisted primarily of legal settlements and also gains and loss on the sale and disposition of fixed assets.
In 2014 and 2013, other income included legal settlements and gains and loss on the sale and disposition of fixed assets as
well as gains and losses from the sale on books of business (customer accounts). Prior to the adoption of ASU No. 2014-08,
“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) in the
fourth quarter of 2014, net gains and losses on the sale of businesses or customer accounts were reflected in other income.
Any such gains or losses are now reflected on a net basis in the expense section since the adoption of ASU 2014-08. The
$5.0 million change in 2015 other income from the comparable period in 2014 was primarily due to prior year book of
business sales and to a lesser extent, the change to the presentation of this activity in the financial statements. We recog-
nized gains of $0.6 million, $5.3 million and $3.1 million from sales on books of business (customer accounts) in 2015, 2014
and 2013, respectively.
Employee Compensation and Benefits
Employee compensation and benefits expense increased 6.3%, or $49.7 million, in 2015 over 2014. This increase included
$25.8 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of
2014. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time
periods of 2015 and 2014 increased by $23.9 million or 3.2%. This underlying employee compensation and benefits expense
increase was primarily related to (i) an increase in producer and staff salaries as we made targeted investments in our
business; (ii) increased profit center bonuses and commissions due to increased revenue and operating profit; and (iii) the
increased cost of health insurance. Employee compensation and benefits expense as a percentage of total revenues was
50.7% for 2015 as compared to 50.2% for the year ended December 31, 2014.
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35
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Employee compensation and benefits expense increased, approximately 15.9% or $108.7 million in 2014 over 2013.
However, that net increase included $81.0 million of 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 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, profit center
and other related bonuses of $6.7 million, compensation to our commissioned producers of $0.9 million and health insur-
ance costs of $4.8 million. These increases were partially offset by net reductions in temporary employees, employer 401(k)
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 year ended December 31, 2013. This slight increase was driven
by continued investment in new teammates.
Non-Cash Stock-Based Compensation
The Company has an employee stock purchase plan, grants non-vested stock awards, and to a lesser extent grants stock
options under other equity-based plans to its employees. Compensation expense for all share-based awards is recognized
in the financial statements based upon the grant-date fair value of those awards. For 2015, 2014 and 2013, the non-cash
stock-based compensation expense incorporated the costs related to each of the Company’s four stock-based plans as
explained in Note 11 of the Notes to the Consolidated Financial Statements.
Non-cash stock-based compensation expense decreased $3.9 million, or 19.9% in 2015 over 2014. The decrease was
the result of: (i) older grants attaining the vesting requirements and therefore being fully expensed in prior periods; (ii) some
forfeitures driven by certain grants not achieving all vesting requirements; and (iii) underlying participation levels; all of
which were partially offset by the additional expense attributable to the new grants issued in 2015.
Non-cash stock-based compensation expense decreased $3.2 million, or 14.3% in 2014 over 2013, primarily as a result
of forfeitures due to the non-achievement of certain performance criteria, partially offset by an increase associated with
new, non-vested stock awards granted on July 1, 2013 under our Stock Incentive Plan (“SIP”).
Other Operating Expenses
As a percentage of total revenues, other operating expenses represented 15.1% in 2015, 14.9% in 2014, and 14.4% in
2013. Other operating expenses in 2015 increased $15.7 million, or 6.7%, over 2014, of which $12.6 million was related to
acquisitions that had no comparable costs in the same period of 2014. The other operating expenses for those offices that
existed in the same periods in both 2015 and 2014, increased by $3.1 million or 1.3%, which was primarily attributable to
increased sales meetings, legal and consulting expenses, partially offset by decreases in expenses associated with office
rent, telecommunications and bank fees.
Other operating expenses in 2014 increased $39.7 million, or 20.3%, 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. The $0.7 million net
increase includes increases of $2.0 million related to increased data processing and software licensing expense, $1.2 million
related to increased inspection and consulting fees, $0.8 million related to office rent, and $0.9 million related to increased
employee sales meeting costs, 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 expense decreases.
Gain or Loss on Disposal
The Company recognized a gain on disposal of $0.6 million in 2015 and a loss on disposal of $47.4 million in 2014. The
pretax loss for 2014 is the result of the disposal of the Axiom Re business as part of the Company’s strategy to exit the
reinsurance brokerage business. Prior to the adoption of ASU 2014-08 in the fourth quarter of 2014 as previously men-
tioned, net gains and losses on the sale of businesses or customer accounts were reflected in other income. Although we are
not in the business of selling customer accounts, we periodically sell an office or a book of business (one or more customer
accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so
is in the Company’s best interest. We recognized gains of $0.6 million, $5.3 million and $3.1 million from sales on books of
business (customer accounts) in 2015, 2014 and 2013, respectively.
Amortization
Amortization expense increased $4.5 million, or 5.5%, in 2015, and increased $15.0 million, or 22.1%, in 2014. The increases
were due primarily to the amortization of additional intangible assets as the result of acquisitions completed in those years.
Depreciation
Depreciation expense remained flat in 2015, and increased $3.4 million, or 19.5%, in 2014. The increase in 2014 was due
primarily to the addition of fixed assets resulting from acquisitions completed since 2013, while the stable level of expense
in 2015 versus 2014 reflected capital additions approximately equal to the value of prior additions that became fully
depreciated.
Interest Expense
Interest expense increased $10.8 million, or 38.2%, in 2015, and $12.0 million, or 72.8% in 2014. These increases were
primarily due to the increased debt borrowings and an increase in our effective rate of interest for the years ended 2015
and 2014. The increased debt borrowings from the prior year include: the Credit Facility term loan entered into in May
2014 in the initial amount of $550.0 million at LIBOR plus 137.5 basis points, and the $500.0 million Senior Notes due 2024
issued during September 2014 at a fixed rate of interest of 4.2%. The Credit Facility term loan proceeds replaced pre-exist-
ing debt of $230.0 million with similar rates of interest. The proceeds from the Senior Notes due 2024 were used to settle
the Credit Facility revolver debt of $375.0 million, which had a lower, but variable rate of interest based on an adjusted
LIBOR. This transitioned the debt to a favorable long-term fixed rate of interest and extended the date of maturity of those
funds. These changes were the result of an evolution and maturation of our previous debt structure and provide increased
debt capacity and flexibility.
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 value 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 price 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 operations
or 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, 2015, the fair values of the estimated acquisition earn-out payables were re-evaluated and meas-
ured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820 — Fair Value Measurement.
The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the
years ended December 31, 2015, 2014, and 2013 were as follows:
(in thousands)
2015
2014
2013
Change in fair value of estimated acquisition earn-out payables
$ 2,990
$ 7,375
$
570
Interest expense accretion
13
2,563
1,963
Net change in earnings from estimated acquisition
earn-out payables
$ 3,003
$ 9,938
$ 2,533
36
37
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the years ended December 31, 2015, 2014 and 2013, the fair value of estimated earn-out payables was re-evalu-
ated and increased by $3.0 million, $7.4 million and $0.6 million, respectively, which resulted in charges to the Consolidated
Statement of Income.
As of December 31, 2015, the estimated acquisition earn-out payables equaled $78.4 million, of which $25.3 million
was recorded as accounts payable and $53.1 million was recorded as other non-current liability. As of December 31, 2014,
the estimated acquisition earn-out payables equaled $75.3 million, of which $26.0 million was recorded as accounts
payable and $49.3 million was recorded as other non-current liability.
Income Taxes
The effective tax rate on income from operations was 39.6% in 2015, 39.1% in 2014, and 39.3% in 2013. The increased
effective tax rate was largely the result of more income in states with a higher average effective state income tax rate,
which was primarily New York State.
Results of 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 segmented basis, increases in amortization, depreciation and
interest expenses generally result from completed acquisitions within a given segment in a particular year. Likewise, other
income in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating
the operational efficiency of a segment, management emphasizes the net internal growth rate of core commissions and fees
revenue, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses
to total revenues.
Segment results for prior periods have been recast to reflect the current year segmental structure. Certain reclassifica-
tions have been made to the prior-year amounts reported in this Annual Report on Form 10-K in order to conform to the
current year presentation.
The internal growth rates for our core organic commissions and fees for the years ended December 31, 2015, 2014 and
2013 by Segment, are as follows:
(in thousands, except percentages)
2015
2014
For the Year Ended December 31,
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
Retail(1)
$ 836,123
$ 789,503
$
46,620
5.9 %
$
35,644
$
10,976
National Programs
Wholesale Brokerage
Services
Total core commissions
412,885
200,835
145,375
367,672
187,257
136,135
45,213
13,578
9,240
12.3 %
7.3 %
6.8 %
38,519
2,469
—
6,694
11,109
9,240
1.4 %
1.8 %
5.9 %
6.8 %
and fees
$ 1,595,218
$ 1,480,567
$ 114,651
7.7 %
$
76,632
$
38,019
2.6 %
The reconciliation of the above internal growth schedule to the total commissions and fees included in the
Consolidated Statement of Income for the years ended December 31, 2015, and 2014, 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,
2015
2014
$ 1,595,218
$ 1,480,567
51,707
10,026
—
57,706
9,851
19,336
$ 1,656,951
$ 1,567,460
(in thousands, except percentages)
2014
2013
For the Year Ended December 31,
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
Retail (1)
$ 792,794
$ 701,211
$
91,583
13.1 %
$
77,315
$
14,268
National Programs
Wholesale Brokerage
Services
Total core commissions
376,483
194,144
136,482
277,082
177,725
131,502
99,401
16,419
4,980
35.9 %
9.2 %
3.8 %
93,803
68
5,598
16,351
15,599
(10,619)
(8.1) %
2.0 %
2.0 %
9.2 %
and fees
$ 1,499,903
$ 1,287,520
$ 212,383
16.5 %
$ 186,785
Less Superstorm Sandy
$
—
$
(18,275) $
18,275
100.0 %
$
—
$
$
25,598
2.0 %
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 of revenues recorded at our Colonial
Claims operation in the first half of 2013 related to Superstorm Sandy.
The reconciliation of the above internal growth schedule to the total commissions and fees included in the Consolidated
Statement 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
38
39
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except percentages)
2013
2012
For the Year Ended December 31,
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Internal
Net
Internal
Net
Growth $ Growth %
Retail(1)
$ 706,525
$ 619,057
$
87,468
14.1 %
$
79,455
$
8,013
National Programs
Wholesale Brokerage
Services
Total core commissions
280,695
177,725
131,032
240,550
152,961
116,247
40,145
24,764
14,785
16.7 %
16.2 %
12.7 %
7,099
4,332
657
33,046
20,432
14,128
1.3 %
13.7 %
13.4 %
12.2 %
and fees
$ 1,295,977
$ 1,128,815
$ 167,162
14.8 %
$
91,543
$
75,619
6.7 %
The reconciliation of the above internal growth schedule to the total commissions and fees included in the Consolidated
Statement 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
(1) The Retail Segment includes 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.
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 87.0% of the Retail Segment’s commissions and fees revenue
is commission-based. Because most of our other operating expenses are not correlated to changes in commissions on
insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compen-
sation, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments in the
organization.
Financial information relating to our Retail Segment is as follows:
(in thousands, except percentages)
Revenues
2015
Percent
Change
2014
Percent
Change
2013
Core commissions and fees
$ 837,420
5.5 %
$
793,865
12.2 %
$
707,721
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
22,051
8,291
2.0 %
7.3 %
21,616
23.2 %
7,730
12.9 %
87
29.9 %
67
(18.3) %
2,497
NMF(1)
408
(92.1)%
17,544
6,849
82
5,153
870,346
5.7 %
823,686
11.7 %
737,349
Employee compensation and benefits
445,242
7.1 %
415,876
13.0 %
Non-cash stock-based compensation
12,109
(25.7) %
16,293
58.5 %
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
137,519
(1,207)
45,145
6,558
41,036
2.9 %
— %
5.1 %
1.7 %
(5.7) %
133,682
11.9 %
—
— %
42,935
11.5 %
6,449
9.8 %
43,502
25.5 %
368,164
10,281
119,489
—
38,523
5,874
34,658
Change in estimated acquisition earn-out payables
2,006
(73.1)%
7,458
NMF(1)
(1,427)
Total expenses
688,408
3.3 %
666,195
15.7 %
575,562
Income before income taxes
$ 181,938
15.5 %
$
157,491
(2.7)% $
161,787
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
1.4 %
51.2 %
15.8 %
2.0 %
50.5 %
16.2 %
1.3 %
49.9 %
16.2 %
$
6,797
$ 3,507,476
$
6,873
$ 3,229,484
$
6,886
$ 3,012,688
40
41
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Retail Segment’s total revenues in 2015 increased 5.7%, or $46.7 million, over the same period in 2014, to
$870.3 million. The $43.6 million increase in core commissions and fees revenue was driven by the following: (i) approxi-
mately $35.6 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues
in the same period of 2014; (ii) $11.0 million related to net new business; and (iii) an offsetting decrease of $3.0 million
related to commissions and fees revenue from business divested in 2014 and 2015. Profit-sharing contingent commissions
and GSCs in 2015 increased 3.4%, or $1.0 million, over 2014, to $30.3 million. The Retail Segment’s internal growth rate for
core organic commissions and fees revenue was 1.4% for 2015 and was driven by revenue from net new business written
during the preceding twelve months along with modest increases in commercial auto rates, and partially offset by: (i) termi-
nated association health plans in the State of Washington; (ii) continued pressure on the small employee benefits business
as some accounts adopt alternative plan designs and move to a per employee/per month payment model due to the imple-
mentation of the Affordable Care Act; and (iii) reductions in property insurance premium rates specifically in
catastrophe-prone areas.
Income before income taxes for 2015, increased 15.5%, or $24.4 million, over the same period in 2014, to $181.9 million.
The primary factors affecting this increase were: (i) the net increase in revenue as described above; (ii) a 7.1%, or $29.4 million
increase in employee compensation and benefits due primarily to the year-on-year impact of new teammates related to
acquisitions completed in the past twelve months in addition to incremental investments in revenue producing teammates;
(iii) operating expenses which increased by $3.8 million or 2.9%, due to increased travel and value added consulting
services; offset by (iv) a reduction in the change in estimated acquisition earn-out payables of $5.5 million, or 73.1% to
$2.0 million; and (v) a $4.2 million, or 25.7% reduction in non-cash stock-based compensation to $12.1 million due to the
forfeiture of certain grants where performance conditions were not fully achieved.
The Retail Segment’s total revenues in 2014, increased 11.7%, or $86.3 million, over the same period in 2013, to
$823.7 million. Profit-sharing contingent commissions and GSCs in 2014 increased 20.3%, or $5.0 million, over 2013, to
$29.3 million, primarily due to improved loss ratios resulting in increased profitability for insurance companies in 2013. The
$86.1 million increase in core commissions and fees revenue was driven by the following: (i) approximately $77.3 million
related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period
of 2013; (ii) $14.3 million related to net new business; and (iii) an offsetting decrease of $5.5 million related to commissions
and fees revenue recorded from business divested in the last year. 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 2.7%, or $4.3 million, over the same period in 2013, to $157.5 million.
This decrease was primarily due to a higher interest charge of $8.8 million corresponding to capital utilized for acquisitions
in 2014 and $8.9 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 $6.0 million, or 58.5%, for 2014 over the same period in 2013, as the cost of
grants to employees for the purpose of driving performance were realized.
National Programs Segment
The National Programs Segment manages over 50 programs with approximately 40 well-capitalized carrier partners. In
most cases, the insurance 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 a nationwide network
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: Professional Programs, Arrowhead Insurance Programs, Commercial Programs, Public
Entity-Related Programs and the National Flood Program. The National Programs Segment’s revenue is primarily commis-
sion-based.
Financial information relating to our National Programs Segment is as follows:
(in thousands, except percentages)
Revenues
2015
Percent
Change
2014
Percent
Change
2013
Core commissions and fees
$ 412,885
9.7 %
$
376,483
34.1 %
$
280,695
Profit-sharing contingent commissions
15,558
(25.3) %
20,822
6.3 %
19,590
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
30
210
51
42.9 %
28.0 %
(99.2) %
21
164
NMF(1)
NMF(1)
(23)
19
6,749
NMF(1)
1,091
428,734
6.1 %
404,239
34.1 %
301,372
178,185
4,669
86,157
458
28,479
7,250
55,705
6.1 %
NMF(1)
9.4 %
— %
13.3 %
(7.1) %
12.2 %
168,018
22.9 %
136,748
1,387
(72.6) %
78,744
44.0 %
—
— %
25,129
68.1 %
7,805
42.1 %
49,663
106.8 %
5,060
54,690
—
14,953
5,492
24,014
Change in estimated acquisition earn-out payables
158
(49.8) %
315
(139.0)%
(808)
Total expenses
361,061
9.1 %
331,061
37.9 %
240,149
Income before income taxes
$
67,673
(7.5) %
$
73,178
19.5 %
$
61,223
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
1.8 %
41.6 %
20.1 %
2.0 %
41.6 %
19.5 %
13.7 %
45.4 %
18.1 %
$
6,001
$ 2,505,752
$
14,133
$ 2,455,749
$
4,810
$ 1,377,404
42
43
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
National Programs total revenues in 2015, increased 6.1%, or $24.5 million, over 2014, to a total $428.7 million. The
$36.4 million increase in core commissions and fees revenue was driven by the following: (i) an increase of approximately
$38.5 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in 2014;
(ii) $6.7 million related to net new business offset by (iii) a decrease of $8.8 million related to commissions and fees revenue
recorded in 2014 from businesses since divested. Profit-sharing contingent commissions and GSCs were $15.6 million in
2015 which was a decrease of $5.3 million over 2014, which was primarily driven by the loss experience of our carrier
partners.
The National Programs Segment’s internal growth rate for core commissions and fees revenue was 1.8% for 2015.
This internal growth rate was mainly due to the Arrowhead Personal Property program, which continued to produce more
written premium, the Arrowhead Automotive Aftermarket program which received a commission rate increase from their
carrier partner, growth in our Wright Specialty education program and the on-boarding of new clients by Proctor Financial.
Growth in these businesses was partially offset by certain programs that have been affected by lower rates.
Income before income taxes for 2015, decreased 7.5%, or $5.5 million, from the same period in 2014, to $67.7 million.
The decrease is the result of the $6.0 million gain on the sale of Industry Consulting Group (“ICG”), along with the $3.7 million
SIP grant forfeiture benefit associated with Arrowhead, which were both credits recorded in 2014. After adjusting for these
one-time items in 2014, underlying income before income taxes increased and was driven by the net revenue growth noted
above and expense management initiatives as we grow and scale our programs.
The National Programs Segment’s total revenues in 2014, increased 34.1%, or $102.9 million, over 2013, to a total
of $404.2 million. The $95.8 million increase in core commissions and fees revenue was driven by the following: (i) approxi-
mately $93.8 million related to the core commissions and fees revenue from the Wright and Beecher Carlson acquisitions
that had no comparable revenues in 2013; (ii) $5.6 million related to net new business; and (iii) an offsetting decrease of
$3.6 million in books of business that were disposed or transferred to other segments. Profit-sharing contingent commis-
sions and GSCs were $20.8 million in 2014 which was an increase of $1.3 million from the same period of 2013. This increase
was due primarily to a $0.5 million increase in profit-sharing contingent commissions received by Florida Intracoastal
Underwriters, Limited Company, and a $0.8 million increase in profit-sharing contingent commissions received by Proctor
Financial, Inc. 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 19.5%, or $12.0 million, from the same period in 2013, to $73.2 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 $3.7 million
primarily related to partial SIP grant forfeitures associated with Arrowhead. The $12.0 million increase was partially offset
by an increase in the inter-company interest expense charge related to Wright.
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
2015
Percent
Change
2014
Percent
Change
2013
Core commissions and fees
$ 200,835
3.4 %
$
194,144
9.2 %
$
177,725
Profit-sharing contingent commissions
14,098
(7.7) %
15,268
8.2 %
Guaranteed supplemental commissions
1,705
(18.8) %
2,100
44.9 %
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
150
208
NMF(1)
(44.2) %
26
18.2 %
373
(6.0) %
216,996
2.4 %
211,911
9.4 %
193,710
101,590
3,102
34,379
1.7 %
2.0 %
(5.1) %
(385)
NMF(1)
9,739
2,142
891
830
(9.0) %
(13.3) %
(31.1) %
(67.5) %
99,918
9.3 %
3,041
32.5 %
36,234
47,425
10,703
2,470
4.2 %
— %
(0.1) %
(7.6) %
1,294
(44.1) %
2,550
28.4 %
91,449
2,295
34,770
—
10,719
2,674
2,316
1,986
14,117
1,449
22
397
Total expenses
152,288
(25.2) %
203,635
39.3 %
146,209
Income before income taxes
$
64,708
NMF(1) $
8,276
(82.6) %
$
47,501
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
5.9 %
46.8 %
15.8 %
9.2 %
47.2 %
17.1 %
13.4 %
47.2 %
17.9 %
$
3,084
$ 895,782
$
$
1,526
857,804
$
$
1,825
865,731
44
45
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Wholesale Brokerage Segment’s total revenues for 2015, increased 2.4%, or $5.1 million, over 2014, to $217.0 mil-
lion. The $6.7 million net increase in core commissions and fees revenue was driven by the following: (i) $11.1 million related to
net new business; (ii) $2.5 million related to the core commissions and fees revenue from acquisitions that had no compara-
ble revenues in 2014; and (iii) an offsetting decrease of $6.9 million related to commissions and fees revenue recorded in
2014 from businesses divested in the past year. Contingent commissions and GSCs for 2015 decreased $1.6 million over
2014, to $15.8 million. This decrease was driven by an increase in loss ratios. The Wholesale Brokerage Segment’s internal
growth rate for core organic commissions and fees revenue was 5.9% for 2015, and was driven by net new business and
modest increases in exposure units, partially offset by significant contraction in insurance premium rates for catastrophe-
prone properties.
Income before income taxes for 2015 increased $56.4 million over 2014, to $64.7 million, primarily due to the follow-
ing: (i) the $47.4 million net pretax loss on disposal of the Axiom Re business in 2014; (ii) the net increase in revenue as
described above and (iii) the impact of the Axiom Re business divested in 2014 that reported lower margins than the
Wholesale Brokerage Segment’s average.
The Wholesale Brokerage Segment’s total revenues for 2014, increased 9.4%, or $18.2 million, over 2013, to $211.9 mil-
lion. Profit-sharing contingent commissions and GSCs for 2014 increased $1.8 million over 2013, to $17.4 million. The
$16.4 million net increase in core commissions and fees revenue was driven by the following: (i) $16.4 million related to net
new business; (ii) $0.1 million related to the core commissions and fees revenue from acquisitions that had no comparable
revenues in 2013; and (iii) an offsetting decrease of $0.1 million related to commissions and fees revenue recorded in 2013
from businesses divested in the past year. As such, the Wholesale Brokerage Segment’s internal growth rate for core
organic commissions and fees revenue was 9.2% for 2014.
Income before income taxes for 2014, decreased 82.6%, or $39.2 million, over 2013, to $8.3 million. This decrease
included a $47.4 million net 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.
Services Segment
The Services Segment 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. The Services
Segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy
services, and claims adjusting services.
Unlike the other segments, nearly all of the Services Segment’s revenue is generated from fees, which are not signifi-
cantly affected by fluctuations in general insurance premiums.
Financial information relating to our Services Segment is as follows:
(in thousands, except percentages)
Revenues
2015
Percent
Change
2014
Percent
Change
2013
Core commissions and fees
$ 145,375
6.5 %
$
136,482
4.2 %
$
131,032
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
Expenses
—
—
42
(52)
— %
— %
NMF(1)
NMF(1)
—
—
3
— %
— %
200.0 %
—
—
1
73
(84.0) %
456
145,365
6.4 %
136,558
3.9 %
131,489
Employee compensation and benefits
76,249
5.1 %
72,583
18.6 %
Non-cash stock-based compensation
845
185.5 %
296
(71.2) %
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
36,057
12.1 %
32,168
14.7 %
515
4,019
1,988
5,970
— %
(2.8) %
(10.2) %
(22.2) %
—
— %
4,135
11.8 %
2,213
36.4 %
7,678
4.9 %
Change in estimated acquisition earn-out payables
9
(102.3) %
(385) (113.8) %
61,193
1,027
28,053
—
3,698
1,623
7,322
2,782
Total expenses
125,652
5.9 %
118,688
12.3 %
105,698
Income before income taxes
$
19,713
10.3 %
$
17,870
(30.7) %
$
25,791
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
6.8 %
52.5 %
24.8 %
(8.1)%
53.2 %
23.6 %
12.2 %
46.5 %
21.3 %
$
1,088
$ 285,459
$
$
1,210
296,034
$
$
1,811
277,652
The Services Segment’s total revenues for 2015 increased 6.4%, or $8.8 million, over 2014, to $145.4 million. The
$8.9 million increase in core commissions and fees revenue primarily resulted from growth in our advocacy businesses
driven by new clients and growth in several of our claims processing units related to new client relationships. The Services
Segment’s internal growth rate for core commissions and fees revenue was 6.8% for 2015.
46
47
Brown & Brown, Inc.2015 Annual ReportMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
Income before income taxes for 2015 increased 10.3%, or $1.8 million, over 2014, to $19.7 million due to a combina-
On May 1, 2014, we completed the acquisition of Wright for a total cash purchase price of $609.2 million, subject to
tion of: (i) internal revenue growth noted above; (ii) the continued efficient operation of our businesses; and (iii) a decrease
in the intercompany interest expense charge. The impact from the sale of the Colonial Claims business on 2015 revenues
and income before income taxes was immaterial.
The Services Segment’s total revenues for 2014 increased 3.9%, or $5.1 million, over 2013, to $136.6 million. The
$5.5 million 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, that had no comparable
revenues in the same period of 2013; (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 commis-
sions and fees revenue was (8.1)% for 2014 and excluding the impact of Superstorm Sandy internal growth would have
been 6.8% in 2014.
Income before income taxes for 2014 decreased 30.7%, or $7.9 million, over the same period in 2013, to $17.9 million
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.
Other
As discussed in Note 15 of the Notes to Consolidated Financial Statements, the “Other” column in the Segment Information
table includes any income and expenses not allocated to reportable segments, and corporate-related items, including the
inter-company interest expense charges to reporting segments.
Liquidity and Capital Resources
The Company strives to maintain a conservative balance sheet and liquidity profile. Our capital requirements to operate as
an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that
has been generated from operations. We have the ability to access the use of our revolving credit facilities, which provide
up to $825.0 million in available cash, and we believe that we have access to additional funds, if needed, through the capital
markets to obtain further debt financing under the current market conditions. The Company believes that its existing cash,
cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available
under the credit facilities, will be sufficient to satisfy our normal liquidity needs, including principal payments on our
long-term debt, for at least the next twelve months.
Our cash and cash equivalents of $443.4 million at December 31, 2015 reflected a decrease of $26.6 million from the
$470.0 million balance at December 31, 2014. During 2015, $411.8 million of cash was generated from operating activities.
During this period, $136.0 million of cash was used for acquisitions, $25.4 million was used for acquisition earn-out payments,
$18.4 million was used for additions to fixed assets, $64.1 million was used for payment of dividends, $175.0 million was
used as part of accelerated share repurchase programs, and $45.6 million was used to pay outstanding principal balances
owed on long-term debt.
We hold approximately $17.2 million in cash outside of the U.S. for which we have no plans to repatriate in the near future.
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 net new long-term debt.
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
activities. 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 ratio of current assets to current liabilities (the “current ratio”) was 1.16 and 1.24 at December 31, 2015 and 2014,
respectively.
Contractual Cash Obligations
As of December 31, 2015, our contractual cash obligations were as follows:
(in thousands)
Long-term debt
Other liabilities (1)
Operating leases
Interest obligations
Unrecognized tax benefits
Maximum future acquisition
contingency payments(2)
Total contractual cash
obligations
Payments Due by Period
Total
Less Than
1 Year
1-3 Years
4-5 Years
After 5 Years
$ 1,154,375
$
73,125
$ 210,000
$ 371,250
$ 500,000
60,516
195,272
227,332
584
20,065
40,900
37,182
—
15,794
68,721
67,343
584
1,098
47,245
44,932
—
137,365
34,467
85,815
17,083
23,559
38,406
77,875
—
—
$ 1,775,444
$ 205,739
$ 448,257
$ 481,608
$ 639,840
(1) Includes the current portion of other long-term liabilities.
(2) Includes $78.4 million of current and non-current estimated earn-out payables resulting from acquisitions consummated after
January 1, 2009.
Debt
Total debt at December 31, 2015 was $1,153.0 million, which was a decrease of $45.5 million compared to December 31,
2014. This decrease was primarily due to the repayments of $45.6 million in principal payments, and the amortization of
discounted debt related to our 4.20% Notes due 2024, of $0.1 million.
On January 15, 2015, the Company retired the Series D senior notes of $25.0 million that matured and were issued
under the original private placement note agreement from December 2006.
As of December 31, 2015, the Company satisfied the third installment of scheduled quarterly principal payments
on the Credit Facility term loan. Each installment equaled $6.9 million. The Company has satisfied $20.6 million in total
principal payments through December 31, 2015. Scheduled quarterly principal payments are expected to be made until
maturity. The balance of the Credit Facility term loan is $529.4 million as of December 31, 2015. Of the total amount,
$48.1 million is classified as short-term debt and current portion of long-term debt in the Consolidated Balance Sheet as
the date of maturity is less than one year representing the quarterly debt payments due in 2016.
During 2015, the $25.0 million of 5.66% Notes due December 2016 were classified as short-term debt and current
portion of long-term debt in the Consolidated Balance Sheet as the date of maturity is less than one year.
48
49
Brown & Brown, Inc.2015 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Off-Balance Sheet Arrangements
Neither we nor our subsidiaries have ever incurred off-balance sheet obligations through the use of, or investment in,
off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corpora-
tions, partnerships or limited liability companies or trusts.
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, foreign
exchange rates and equity prices. We are exposed to market risk through our investments, revolving credit line, term loan
agreements and international operations.
Our invested assets are held primarily as cash and cash equivalents, restricted cash, available-for-sale marketable
debt securities, non-marketable debt securities, certificates of deposit, U.S. treasury securities, and professionally managed
short duration fixed income funds. These investments are subject to interest rate risk. The fair values of our invested assets
at December 31, 2015 and December 31, 2014, 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. In addition, we generally dispose of any significant equity
securities received in conjunction with an acquisition shortly after the acquisition date.
As of December 31, 2015 we had $529.4 million of borrowings outstanding under our term loan which bears interest
on a floating basis tied to the London Interbank Offered Rate (LIBOR) and therefore subject to changes in the associated
interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on
our Consolidated Financial Statements.
We are subject to exchange rate risk primarily in our U.K based wholesale brokerage business that has a cost base
principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars.
Based on our foreign currency rate exposure as of December 31, 2015, an immediate 10% hypothetical changes of foreign
currency exchange rates would not have a material effect on our Consolidated Financial Statements.
(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/(gain) 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
Dividends declared per share
See accompanying notes to Consolidated Financial Statements.
Year Ended December 31,
2015
2014
2013
$ 1,656,951
1,004
2,554
$ 1,567,460
747
7,589
$ 1,355,503
638
7,138
1,660,509
1,575,796
1,363,279
841,439
15,513
251,055
(619)
87,421
20,890
39,248
3,003
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
1,257,950
1,236,047
1,005,670
402,559
159,241
339,749
132,853
357,609
140,497
$
243,318
$
206,896
$
217,112
$
$
$
1.72
1.70
0.45
$
$
$
1.43
1.41
0.41
$
$
$
1.50
1.48
0.37
50
51
Brown & Brown, Inc.2015 Annual Report
C O N S O L I D A T E D B A L A N C E S H E E T S
C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y
(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 146,415 shares and outstanding 138,985 shares at 2015,
issued 145,871 shares and outstanding 143,486 shares at 2014
Additional paid-in capital
Treasury stock, at cost 7,430 and 2,385 shares at 2015 and 2014, respectively
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to Consolidated Financial Statements.
December 31,
De cember 31,
2015
2014
$
443,420
229,753
13,734
433,885
31,968
309,643
24,635
50,351
1,537,389
81,753
2,586,683
744,680
18,092
44,142
$
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
$ 5,012,739
$ 4,956,458
$
574,736
31,968
309,643
83,098
63,910
192,067
73,125
1,328,547
1,079,878
360,949
93,589
$
568,184
13,028
320,586
83,313
57,261
181,156
45,625
1,269,153
1,152,846
341,497
79,217
14,642
426,498
(238,775)
1,947,411
14,587
405,982
(75,025)
1,768,201
2,149,776
2,113,745
$ 5,012,739
$ 4,956,458
Common Stock
(in thousands, except per share data)
Shares
Par
Value
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Total
Balance at January 1, 2013
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)
1,541
154
33,730
2,358
217,112
217,112
33,884
2,358
(53,546)
(53,546)
Balance at 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)
442
44
30,405
(75,025)
3,298
10
1
319
206,896
206,896
30,449
(75,025)
3,298
320
(59,334)
(59,334)
Balance at December 31, 2014 145,871
14,587
405,982
(75,025)
1,768,201
2,113,745
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
($0.45 per share)
528
53
27,992
(11,250)
(163,750)
3,276
16
2
498
243,318
243,318
28,045
(175,000)
3,276
500
(64,108)
(64,108)
Balance at December 31, 2015 146,415
$
14,642
$ 426,498
$ (238,775) $ 1,947,411
$ 2,149,776
See accompanying notes to Consolidated Financial Statements.
52
53
Brown & Brown, Inc.2015 Annual Report
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(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
(Gain)/loss 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 decrease (increase)
Premiums, commissions and fees receivable (increase)
Reinsurance recoverables (increase) decrease
Prepaid reinsurance premiums decrease (increase)
Other assets (increase)
Premiums payable to insurance companies decrease
Premium deposits and credits due customers (decrease) increase
Losses and loss adjustment reserve increase (decrease)
Unearned premiums (decrease) increase
Accounts payable increase
Accrued expenses and other liabilities increase
Other liabilities (decrease)
Year Ended December 31,
2015
2014
2013
$
243,318
$
206,896
$
217,112
87,421
20,890
15,513
3,003
22,696
157
(3,276)
(107)
(11,383)
30,016
(7,163)
(18,940)
10,943
(5,318)
542
(2,973)
18,940
(10,943)
34,206
8,204
(23,898)
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)
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)
Net cash provided by operating activities
411,848
385,019
389,374
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
Prepayment of accelerated share repurchase program
Cash dividends paid
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
(18,375)
(136,000)
10,576
(22,766)
21,928
(144,637)
(25,415)
—
(45,625)
—
—
3,276
15,890
(2,857)
(163,750)
(11,250)
(64,108)
(293,839)
(26,628)
470,048
(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
202,952
(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)
219,821
Cash and cash equivalents at end of period
$
443,420
$
470,048
$
202,952
See accompanying 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
diversified 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 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, a range of
insurance products for individuals, flood coverage, and targeted products and services designated for specific industries,
trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of indepen-
dent agents, and Brown & Brown retail agents; the Wholesale Brokerage Segment markets and sells excess and surplus
commercial insurance, primarily through independent agents and brokers, as well as Brown & Brown Retail offices; and
the Services Segment 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 claims adjusting services. In
addition, as the result of our acquisition of The Wright Insurance Group, LLC (“Wright”) in May 2014, we own a flood
insurance carrier, Wright National Flood Insurance Company (“Wright Flood”), that is a Wright subsidiary. Wright Flood’s
business consists of policies written pursuant to the National Flood Insurance Program, the program administered by the
Federal Emergency Management Agency (“FEMA”), and several excess flood insurance policies, all of which are fully reinsured.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. Under ASU 2016-02,
the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets.
ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018. The Company is currently evaluating its leases against the requirements of this pronouncement.
In November 2015, FASB issued ASU No. 2015-17, “Income Taxes (Topic 740)—Balance Sheet Classification of
Deferred Taxes” (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by requiring deferred tax
assets and liabilities be classified as a single non-current item on the balance sheet. ASU 2015-17 is effective for fiscal years
beginning after December 15, 2016 with early adoption permitted as of the beginning of any interim or annual reporting
period. The Company plans to adopt ASU 2015-17 in the first quarter of 2017. This is not expected to have a material
impact on our Consolidated Financial Statements other than reclassifying current deferred tax assets and liabilities to
non-current in the balance sheet.
In September 2015, FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting
for Measurement-Period Adjustments” (“ASU 2015-16”), which requires that an acquirer recognize adjustments to provi-
sional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts
are determined. ASU 2015-16 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning
after December 15, 2015. The Company has determined that the impact of the adoption of this guidance on the
Consolidated Financial Statements would not be material.
In August 2015, FASB issued ASU No. 2015-15, “Interest-Imputation of Interest (Subtopic 835-30): Presentation
and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. This standard is in
addition to ASU No. 2015-03 and adds SEC paragraphs pursuant to an SEC Staff Announcement that the SEC staff would
not object to an entity deferring and presenting debt issuance costs associated with a line-of-credit arrangement as an asset
and subsequently amortizing the costs ratably over the term of the arrangement. The Company plans to adopt ASU 2015-03
in the first quarter of 2016. As the Company’s debt issuance costs are not material, implementation of this update is not
expected to have a material impact on the Company’s Consolidated Financial Statements.
54
55
Brown & Brown, Inc.2015 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
In April 2015, FASB issued ASU No. 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which issues guidance
on determining whether a cloud computing arrangement contains a software license that should be accounted for as
internal-use software. If a cloud computing arrangement does not contain a software license, it should be accounted for
as a service contract. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods
within those fiscal years, with early adoption permitted. The Company has to this point not been a party to any material
cloud computing arrangements and as such has determined the impact of the adoption of this guidance on the Consolidated
Financial Statements to be immaterial.
In April 2015, FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”),
which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate
assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retro-
spective basis. The Company plans to adopt ASU 2015-03 in the first quarter of 2016. As the Company’s debt issuance costs
are not material, implementation of this update is not expected to have a material impact on the Company’s Consolidated
Financial Statements.
In August 2014, FASB issued ASU No. 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 permitted. The Company does not expect to early adopt this guidance, and it believes the adoption of this guid-
ance will not have an impact on the Consolidated Financial Statements.
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 non-financial 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 the current 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 effec-
tive for the Company beginning January 1, 2018, after FASB voted to delay the effective date by one year. At that time, the
Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. The
Company is currently evaluating its revenue streams against the requirements of this pronouncement.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries.
All significant inter-company account balances and transactions have been eliminated in the Consolidated Financial
Statements.
Segment results for prior periods have been recast to reflect the current year segmental structure. Certain reclassifica-
tions have been made to the prior-year amounts reported in this Annual Report on Form 10-K in order to conform to the
current year presentation.
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 recog-
nized on the latter of effective or invoiced date, with the exception of our Arrowhead business which follows a policy of
recognizing on the latter of effective or processed date into our systems regardless of the billing arrangement. Management
determines the policy cancellation reserve based upon historical cancellation experience adjusted for any known circum-
stances. 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 determin-
able, which is generally 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 the 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 our capacity as an insurance agent or broker, the Company typically collects premiums from insureds and, after deducting
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 premi-
ums are held in a fiduciary capacity until Brown & Brown disburses them. Where allowed by law, 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 Statement 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.
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. As part of the acquisition of Wright in 2014,
we acquired additional investments, which 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, net of tax, as other
comprehensive income under the equity section of the Consolidated Balance Sheet. Realized gains and losses are reported
on the Consolidated Statement of Income, with the cost of securities sold determined on a specific identification basis.
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.
56
57
Brown & Brown, Inc.2015 Annual Report 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’ 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
customer 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
intangible 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 impair-
ment of goodwill. 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 multiples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisi-
tion earn-out payables (“EBITDAC”), or on a discounted cash flow basis. Brown & Brown completed its most recent annual
assessment as of November 30, 2015 and determined that the fair value of goodwill exceeded the carrying value of such
assets. In addition, as of December 31, 2015, there are no accumulated impairment losses.
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
impairments recorded for the years ended December 31, 2015, 2014 and 2013.
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 tempo-
rary 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
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
2015
2014
2013
$ 243,318
$ 206,896
$ 217,112
Net income attributable to unvested awarded performance stock
(5,695)
(5,186)
(5,446)
Net income attributable to common shares
$ 237,623
$ 201,710
$ 211,666
Weighted average number of common shares outstanding—basic
141,113
144,568
144,662
Less unvested awarded performance stock included in weighted
average number of common shares outstanding—basic
Weighted average number of common shares outstanding for
basic earnings per common share
Dilutive effect of stock options
(3,303)
(3,624)
(3,629)
137,810
140,944
141,033
2,302
1,947
1,591
Weighted average number of shares outstanding—diluted
140,112
142,891
142,624
Net income per share:
Basic
Diluted
$
$
1.72
1.70
$
$
1.43
1.41
$
$
1.50
1.48
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, 2015 and 2014, approxi-
mate fair value because of the short-term maturity of these instruments. The carrying amount of Brown & Brown’s
long-term debt approximates fair value at December 31, 2015 and 2014 as our fixed-rate borrowings of $623.6 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 $623.6 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 $529.4 million remaining on the 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-transi-
tion 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.
58
59
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reinsurance
The Company protects itself from claims related losses by reinsuring all claims risk exposure. The only line of insurance 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.
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
During the year ended December 31, 2015, the Company acquired the assets and assumed certain liabilities of thirteen
insurance intermediaries and four 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 Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments
are presented in the “Other” category within the following two tables. All of these businesses 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 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 pay-
ments 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
permitted measurement period, as defined in ASC 805. For the year ended December 31, 2015, several adjustments were
made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected
acquisitions of $503,442 relating to the assumption of certain liabilities.
Cash paid for acquisitions was $136.0 million and $721.9 million in the twelve-month periods ended December 31,
2015 and 2014, respectively. We completed thirteen acquisitions (excluding book of business purchases) in the twelve-
month period ended December 31, 2015. We completed ten acquisitions (excluding book of business purchases) in the
twelve-month period ended December 31, 2014.
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year
acquisitions and significant adjustments made during the measurement period for prior year acquisitions:
(in thousands)
Name
Liberty Insurance
Brokers, Inc. and
Affiliates (Liberty)
Spain Agency, Inc.
(Spain)
Bellingham
Underwriters, Inc.
(Bellingham)
Fitness Insurance, LLC
Business
Segment
Effective
Date of
Acquisition
Cash
Paid
Other
Payable
Recorded
Earn-Out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-Out
Payable
Retail
February 1, 2015
$ 12,000
$
—
$
2,981
$ 14,981 $ 3,750
Retail
March 1, 2015
20,706
—
2,617
23,323
9,162
National
Programs
May 1, 2015
9,007
500
3,322
12,829
4,400
(Fitness)
Retail
June 1, 2015
9,455
—
2,379
11,834
3,500
Strategic Benefit
Advisors, Inc. (SBA)
Bentrust Financial, Inc.
Retail
June 1, 2015
49,600
400
13,587
63,587
26,000
(Bentrust)
Retail
December 1, 2015
10,142
391
319
10,852
2,200
MBA Insurance Agency
of Arizona, Inc. (MBA)
Smith Insurance, Inc.
(Smith)
Other
Total
Retail
December 1, 2015
68
8,442
6,063
14,573
9,500
Retail
December 1, 2015
Various
Various
12,096
12,926
200
95
1,047
4,584
13,343
17,605
6,350
8,212
$ 136,000
$ 10,028
$ 36,899
$ 182,927 $ 73,074
60
61
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date
of each acquisition. The data included in the ‘Other’ column shows a negative adjustment for purchased customer accounts.
This is driven mainly by the final valuation adjustment for the acquisition of Wright.
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.
(in thousands)
Liberty
Belling-
ham
Spain
Fitness
SBA Bentrust
MBA
Smith
Other
Total
Other current assets
$ 2,486 $
324 $
— $
9 $
652 $
— $
— $
— $
169 $
3,640
Fixed assets
Goodwill
Purchased customer
accounts
Non-compete
agreements
Other assets
40
50
25
17
41
36
33
73
59
374
10,010
15,748
9,608
8,105
39,859
8,166
13,471
10,374
21,040
136,381
4,506
7,430
3,223
3,715
23,000
2,789
7,338
3,526
(2,135)
53,392
24
—
21
—
21
—
—
—
21
14
43
—
11
—
31
—
156
—
328
14
(UNAUDITED)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Total assets acquired
17,066
23,573
12,877
11,846
63,587
11,034
20,853
14,004
19,289
194,129
Weighted average number of shares outstanding:
Other current liabilities
Deferred income tax, net
Other liabilities
Total liabilities
assumed
(42)
—
(2,043)
(250)
(48)
(12)
—
—
—
—
—
—
(2,085)
(250)
(48)
(12)
—
—
—
—
(182)
(6,280)
(504)
(4,895)
(12,213)
—
—
—
—
—
(157)
2,576
635
2,576
(1,565)
(182)
(6,280)
(661)
(1,684)
(11,202)
Net assets acquired
$ 14,981 $ 23,323 $ 12,829 $ 11,834 $ 63,587 $ 10,852 $ 14,573 $ 13,343 $ 17,605 $ 182,927
The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer
accounts, 15 years; and non-compete agreements, 5 years.
Goodwill of $136.4 million was allocated to the Retail, National Programs and Wholesale Brokerage Segments in the
amounts of $113.8 million, $18.0 million and $4.6 million, respectively. Of the total goodwill of $136.4 million, $91.1 million
is currently deductible for income tax purposes and $8.4 million is non-deductible. The remaining $36.9 million relates to
the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2015, the results of operations since the acquisition dates have been combined
with those of the Company. The total revenues from the acquisitions completed through December 31, 2015, included
in the Consolidated Statement of Income for the year ended December 31, 2015, were $28.2 million. The income before
income taxes, including the inter-company cost of capital charge, from the acquisitions completed through December 31,
2015, included in the Consolidated Statement of Income for the year ended December 31, 2015, was $1.5 million. If the
For the Year Ended December 31,
2015
2014
$ 1,688,297
$ 1,630,992
$ 411,497
$ 356,426
$ 248,720
$ 217,053
$
$
1.76
1.73
$
$
1.50
1.48
137,810
140,112
140,944
142,891
Basic
Diluted
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 five books of
business (customer accounts). The cash paid for these acquisitions was $721.9 million. Additionally, miscellaneous adjust-
ments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months
as permitted by Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are
presented in the “Other” category within the following two tables. All of these acquisitions were acquired primarily to
expand Brown & Brown’s core business and to attract and hire high-quality individuals.
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 $25,941 relating to the assump-
tion of certain liabilities.
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year
acquisitions and significant adjustment made during the measurement period for prior year acquisitions:
(in thousands)
Name
Business
Segment
Effective
Date of
Acquisition
Cash
Paid
Other
Payable
Recorded
Earn-Out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-Out
Payable
The Wright Insurance
Group, LLC
National
Programs
May 1, 2014
$ 609,183
$
1,471
$
—
$ 610,654 $
—
Pacific Resources
Benefits Advisors,
LLC (“PacRes”)
Axia Strategies, Inc
(“Axia”)
Other
Total
Retail
May 1, 2014
90,000
Wholesale
Brokerage
May 1, 2014
Various
Various
9,870
12,798
—
—
433
27,452
117,452
35,000
1,824
3,953
11,694
17,184
5,200
9,262
$ 721,851
$
1,904
$ 33,229
$ 756,984 $ 49,462
62
63
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date
(UNAUDITED)
of each acquisition.
(in thousands)
Cash
Other current assets
Fixed assets
Reinsurance recoverable
Prepaid reinsurance premiums
Goodwill
Purchased customer accounts
Non-compete agreements
Other assets
Wright
PacRes
Axia
Other
Total
$
25,365
$
—
$
—
$
—
$
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
—
101
24
—
—
7,276
4,252
41
—
742
1,724
—
—
10,417
4,384
166
—
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 tax, 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 years; and non-compete agreements, 3.4 years.
Goodwill of $513.9 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services
Segments in the amounts of $86.4 million, $420.0 million, $7.7 million and $(0.2) million, respectively. Of the total goodwill
of $513.9 million, $141.9 million is currently deductible for income tax purposes and $338.8 million is non-deductible. The
remaining $33.2 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2014, the results of operations since the acquisition dates have been combined
with those of the Company. The total revenues and income before income taxes, including the inter-company cost of capital,
from the acquisitions completed through December 31, 2014, included in the Consolidated Statement of Income for the
year ended December 31, 2014, were $112.2 million and $(1.3) million, 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.
(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 the year ended December 31, 2013, Brown & Brown acquired the assets and assumed certain liabilities of eight
insurance intermediaries, all of the stock of one insurance intermediary and one book of business (customer accounts). The
cash paid for these acquisitions was $408.1 million. Additionally, miscellaneous adjustments were recorded to the purchase
price allocation of certain prior acquisitions completed within the last twelve months as permitted by Accounting Standards
Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category
within the following two tables. All of these acquisitions were acquired primarily to expand Brown & Brown’s core business
and to attract and hire high-quality individuals.
For the year ended December 31, 2013, several adjustments were made within the permitted measurement period
that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $504,300 relating to the assump-
tion of certain liabilities.
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
Effective
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, 2013
$ 13,792
$
50
$
2,321
$ 16,163 $ 4,300
Beecher Carlson
Holdings, Inc.
ICA, Inc.
Other
Total
Retail;
National
Programs
Services
July 1, 2013
364,256
December 31,
2013
Various
Various
19,770
10,254
—
—
502
—
364,256
—
727
2,043
20,497
12,799
5,000
7,468
$ 408,072
$
552
$
5,091
$ 413,715 $ 16,768
64
65
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 tax, net
Other liabilities
Rollins
Beecher
$
—
$
40,360
$
393
30
12,697
3,878
31
—
57,632
1,786
265,174
101,565
2,758
—
ICA
—
—
75
12,377
7,917
21
107
Other
Total
$
—
$
40,360
1,573
24
5,696
5,623
76
1
59,598
1,915
295,944
118,983
2,886
108
17,029
469,275
20,497
12,993
519,794
(866)
—
—
(80,090)
(22,764)
(2,165)
—
—
—
—
(194)
—
—
(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 years; and non-compete agreements, 5 years.
Goodwill of $295.9 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services
Segments in the amounts of $257.2 million, $27.1 million, $(0.8) million and $12.4 million, respectively. Of the total goodwill
of $295.9 million, $41.6 million is currently deductible for income tax purposes and $249.2 million is non-deductible. The
remaining $5.1 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2013, the results of operations since the acquisition dates have been combined
with those of the Company. The total revenues and income before income taxes, including the inter-company cost of capital,
from the acquisitions completed through December 31, 2013, included in the Consolidated Statement of Income for the
year ended December 31, 2013, were $63.8 million and $0.9 million, 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,
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
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 additional consideration paid by the Company in 2015 as a result of those adjustments totaled $0. The net addi-
tional consideration paid by the Company in 2014 as a result of these 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.
As of December 31, 2015, the maximum future contingency payments related to all acquisitions totaled $137.4 million,
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 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 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.
As of December 31, 2015, 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. 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, 2015, 2014 and 2013 were as follows:
(in thousands)
For the Year Ended December 31,
2015
2014
2013
Balance as of the beginning of the period
$
75,283
$
43,058
$
52,987
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
36,899
34,356
5,816
(36,798)
(12,069)
(18,278)
75,384
65,345
40,525
2,990
13
3,003
7,375
2,563
9,938
570
1,963
2,533
Balance as of December 31,
$
78,387
$
75,283
$
43,058
Of the $78.4 million estimated acquisition earn-out payables as of December 31, 2015, $25.3 million was recorded as
accounts payable and $53.1 million was recorded as other non-current liabilities. Included within additions to estimated
acquisition earn-out payables are any adjustments to opening balance sheet items prior to the one-year anniversary date
and may therefore differ from previously reported amounts. Of the $75.3 million estimated acquisition earn-out payables
as of December 31, 2014, $26.0 million was recorded as accounts payable and $49.3 million was recorded as an other
non-current liability. Of the $43.1 million estimated acquisition earn-out payables as of December 31, 2013, $6.3 million
was recorded as accounts payable and $36.8 million was recorded as an other non-current liability.
66
67
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Services
Total
Balance as of January 1, 2014
$ 1,141,485
$ 475,596
$ 268,562
$ 120,530
$ 2,006,173
Goodwill of acquired businesses
94,080
420,063
47
(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
$ 1,231,869
$ 886,095
$ 222,356
$ 120,291
$ 2,460,611
Goodwill of acquired businesses
113,767
18,009
4,605
—
136,381
For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggre-
gated by investment category and length of time that individual securities have been in a continuous unrealized loss
position as of December 31, 2015:
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thousands)
U.S. Treasury securities,
obligations of U.S.
Government agencies
and Municipals
Foreign Government
Corporate debt
$
8,998
$
50
2,731
26
—
14
40
$
$
—
—
284
284
$
$
—
—
2
2
$
8,998
$
50
3,015
$
12,063
$
26
—
16
42
Goodwill disposed of relating to
sales of businesses
—
(2,238)
—
(8,071)
(10,309)
Total
$
11,779
$
Balance as of December 31, 2015
$ 1,345,636
$ 901,866
$ 226,961
$ 112,220
$ 2,586,683
NOTE 4 Amortizable Intangible Assets
Amortizable intangible assets at December 31, 2015 and 2014 consisted of the following:
December 31, 2015
December 31, 2014
(in thousands)
Gross
Carrying
Value
Accumulated
Amortization
Weighted-
Net Average
Life
(years)(1)
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Weighted-
Net Average
Life
(years)(1)
Carrying
Value
Purchased customer
accounts
$ 1,398,986 $ (656,799) $ 742,187
15.0
$ 1,355,550
$ (574,285) $ 781,265
14.9
Non-compete
agreements
29,440
(26,947)
2,493
6.8
29,139
(25,762)
3,377
6.8
Total
$ 1,428,426 $ (683,746) $ 744,680
$ 1,384,689
$ (600,047) $ 784,642
(1) Weighted average life calculated as of the date of acquisition.
Amortization expense for amortizable intangible assets for the years ending December 31, 2016, 2017, 2018, 2019
and 2020 is estimated to be $84.5 million, $81.6 million, $76.3 million, $71.8 million, and $64.5 million, respectively.
NOTE 5 Investments
At December 31, 2015, 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
Fair Value
$
11,876
$
50
4,505
1,663
$
18,094
$
6
—
7
27
40
$
(26) $
11,856
—
(16)
—
50
4,496
1,690
$
(42) $
18,092
The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2015, the Company
had 35 securities in an unrealized loss position. 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, 2015.
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
Fair Value
$
10,774
$
50
5,854
3,143
$
19,821
$
7
—
9
37
53
$
(1) $
10,780
—
(11)
—
50
5,852
3,180
$
(12) $
19,862
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:
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thousands)
U.S. Treasury securities,
obligations of U.S.
Government agencies
and Municipals
Foreign Government
Corporate debt
$
3,994
$
50
4,439
1
—
11
12
$
$
—
—
—
—
$
$
—
—
—
—
$
3,994
$
50
4,439
$
8,483
$
1
—
11
12
Total
$
8,483
$
68
69
Brown & Brown, Inc.2015 Annual ReportNOTES 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 matu-
rity, 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, 2015 by contractual
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
2015
2014
$ 169,682
$ 161,539
32,132
3,370
30,030
3,739
205,184
195,308
(123,431)
(110,640)
$
81,753
$
84,668
Amortized Cost
Fair Value
$
5,726
$
5,722
12,038
330
12,041
329
$
18,094
$
18,092
Depreciation and amortization expense for fixed assets amounted to $20.9 million in 2015, $20.9 million in 2014, and
$17.5 million in 2013.
NOTE 7 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31 consisted of the following:
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
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 $5.6 million including maturities
for the year ended December 31, 2015. The gains and losses realized on those sales for the year ended December 31, 2015
were insignificant.
Proceeds from sales of the Company’s investment in fixed maturity securities were $0.2 million including maturities
for the year ended December 31, 2014. There were no gains and losses realized on those sales for the year ended to
December 31, 2014.
Realized gains and losses are reported on the Consolidated Statement of Income, with the cost of securities sold
determined on a specific identification basis.
At December 31, 2015, investments with a fair value of approximately $4.0 million were on deposit with state insur-
ance departments to satisfy regulatory requirements.
(in thousands)
Accrued bonuses
Accrued compensation and benefits
Accrued rent and vendor expenses
Reserve for policy cancellations
Accrued interest
Other
Total
2015
2014
$
76,210
$
76,891
39,366
29,225
9,617
6,375
31,274
36,241
29,039
9,074
6,527
23,384
$ 192,067
$ 181,156
70
71
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 Long-Term Debt
Long-term debt at December 31, 2015 and 2014 consisted of the following:
(in thousands)
Current portion of long-term debt:
December 31,
December 31,
2015
2014
Current portion of 5-year term loan facility expires 2019
$
48,125
$
20,625
5.370% senior notes, Series D, quarterly interest payments, balloon due 2015
5.660% senior notes, Series C, semi-annual interest payments, balloon due 2016
Total current portion of long-term debt
—
25,000
25,000
73,125
—
45,625
Long-term debt:
Note agreements:
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:
5-year term-loan facility, periodic interest and principal payments,
currently LIBOR plus up to 1.75%, expires May 20, 2019
5-year revolving-loan facility, periodic interest payments, currently LIBOR
plus up to 1.50%, plus commitment fees up to 0.25%, 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
498,628
598,628
25,000
100,000
498,471
623,471
481,250
529,375
—
—
—
—
481,250
529,375
1,079,878
1,152,846
73,125
45,625
$ 1,153,003
$ 1,198,471
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 existing senior notes. 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. As of December 31, 2015, there was an outstanding debt balance issued under the provisions of the Master
Agreement of $125.0 million.
On July 1, 2013, in conjunction with the acquisition of Beecher Carlson Holdings, Inc., the Company entered into 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”). The maturity date for the Wells Fargo Revolver is December 31, 2016,
at which time all outstanding principal and unpaid interest will be due. On 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. The Wells Fargo Revolver may be increased by up to $50.0 million (bring-
ing the total amount available to $75.0 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. There were no borrowings against the Wells Fargo
Revolver as of December 31, 2015 and 2014.
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 was to retire existing term loan
debt 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 are 1.00% to 1.75%, and the revolving loan is 0.85% to 1.50% 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 commit-
ments of the lenders (whether used or unused) at a rate of 0.15% to 0.25% 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, 2015 and 2014, there was an
outstanding debt balance issued under the provisions of the Credit Facility in total of $529.4 million and $550.0 million
respectively, with no borrowings outstanding relative to the revolving loan. Per the terms of the agreement, scheduled
principal payments of $48.1 million are due in 2016.
On September 18, 2014, the Company issued $500.0 million of 4.20% 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. As of December 31, 2015 and 2014, there was an outstanding debt balance of
$500.0 million exclusive of the associated discount balance.
The Master Agreement, Wells Fargo 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, 2015 and 2014.
The 30-day Adjusted LIBOR Rate as of December 31, 2015 was 0.44%.
Interest paid in 2015, 2014 and 2013 was $37.5 million, $25.1 million, and $16.5 million, respectively.
At December 31, 2015, maturities of long-term debt were $73.1 million in 2016, $55.0 million in 2017, $155.0 million
in 2018, $371.3 million in 2019 and $500.0 million in 2024.
72
73
Brown & Brown, Inc.2015 Annual ReportNOTES 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
2015
2014
2013
$ 118,490
$ 109,893
$
94,007
17,625
430
15,482
109
13,438
805
136,545
125,484
108,250
18,416
4,280
—
22,696
5,987
1,440
(58)
7,369
28,469
3,723
55
32,247
$ 159,241
$ 132,853
$ 140,497
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
2015
2014
2013
35.0%
35.0%
35.0%
3.9
0.3
0.3
0.1
3.3
0.3
0.4
0.1
3.5
0.3
0.3
0.2
39.6%
39.1%
39.3%
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 (loss)/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
2015
2014
$
8,585
$
10,368
(9)
393,251
401,827
56
364,938
375,362
38,966
2,518
(606)
40,878
31,580
2,796
(511)
33,865
$ 360,949
$ 341,497
Income taxes paid in 2015, 2014 and 2013 were $132.9 million, $118.3 million, and $110.2 million respectively.
At December 31, 2015, Brown & Brown had net operating loss carryforwards of $184,218 and $61,217,003 for federal
and state income tax reporting purposes, respectively, portions of which expire in the years 2016 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 2013 stock acquisition 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
2015
2014
$
113
773
—
(302)
$
391
$
—
(21)
(257)
2013
294
232
—
(135)
391
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
Settlements
liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.
Unrecognized tax benefits balance at December 31
$
584
$
113
$
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
2015
2014
$
9,767
$
10,335
10
14,858
951
14,145
$
24,635
$
25,431
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2015 and 2014, the Company had $102,171 and $65,772 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
$583,977 as of December 31, 2015 and $113,032 as of December 31, 2014. The Company does not expect its unrecog-
nized 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.
74
75
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to
A summary of PSP activity for the years ended December 31, 2015, 2014 and 2013 is as follows:
taxation in the United Kingdom. In the United States, federal returns for fiscal years 2012 through 2015 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 2010 through 2015. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years
2014 and 2015.
The federal income tax returns of The Wright Insurance Group are currently under IRS audit for the year ended
December 31, 2013 and the short period ended May 1, 2014. Also during 2015, the previously disclosed 2013 IRS audit of
Beecher Carlson Holding, Inc. was closed with no adjustments. The Company’s 2009 through 2012 State of Oregon tax
returns were under audit in 2014. The audit was settled in early 2015 with the State of Oregon for an insignificant amount.
The Company is currently under audit in the State of Kansas for fiscal years 2012 through 2014. There are no other federal
or state income tax audits as of December 31, 2015.
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 $17.8 million in 2015, $15.8 million in 2014, and $14.8 mil-
lion in 2013.
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 suspen-
sion 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 estab-
lished 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, 2015, 5,266,707 shares had been granted under the PSP. As of December 31, 2015, 8,000 shares had
not met the first condition for vesting, 1,594,214 shares had met the first condition of vesting and had been awarded, and
3,664,493 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have
not vested as of December 31, 2015, the initial stock prices ranged from $8.75 to $25.68.
The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
Outstanding at January 1, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
Weighted-Average
Grant Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8.72
3,691,022
2,394,505
1,296,517
—
10.25
4.01
—
—
—
—
122,021
(122,021)
(119,364)
(119,364)
—
8.73
(1,200,371)
(101,310)
(1,099,061)
8.62
2,371,287
2,295,852
75,435
—
—
16.76
9.75
—
—
—
—
(277,009)
(277,009)
—
—
—
(165,647)
(115,630)
(50,017)
8.71
1,928,631
1,903,213
25,418
—
—
5.55
9.78
—
—
—
—
(208,889)
(208,889)
—
—
—
(117,528)
(100,110)
(17,418)
9.03
1,602,214
1,594,214
8,000
The total fair value of PSP grants that vested during each of the years ended December 31, 2015, 2014 and 2013 was
$6.8 million, $8.4 million and $3.7 million, 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.
In 2012, 814,545 shares were granted under the SIP, primarily related to the Arrowhead acquisition.
76
77
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In 2015, 481,166 shares were granted under the SIP. Of the shares granted in 2015, 158,958 shares will vest upon the
grantees’ completion of between five 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. As of December 31, 2015, 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 and 15,700 shares were issued in January 2015.
At December 31, 2015, 2,793,832 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-
dependent 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, 2015, 2014 and 2013 is as follows:
Weighted-Average
Grant Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
Outstanding at January 1, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2013
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
22.91
3,157,311
37,408
3,119,903
31.95
3,719,974
—
3,719,974
30.71
—
—
—
966,215
(966,215)
—
—
23.88
(271,184)
(7,906)
(263,278)
27.96
6,606,101
995,717
5,610,384
31.02
422,572
113,088
309,484
—
—
—
—
—
—
—
—
27.41
(369,626)
(47,915)
(321,711)
28.19
6,659,047
1,060,890
5,598,157
31.74
481,166
164,646
316,520
—
—
—
—
—
—
—
—
26.32
(863,241)
(95,542)
(767,699)
28.74
6,276,972
1,129,994
5,146,978
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
78
Employee Stock Purchase Plan
The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 17,000,000 authorized
shares of which 5,194,928 were available for future subscriptions as of December 31, 2015. 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 2015 was $6.43.
The fair values of an ESPP share option as of the Subscription Periods beginning in August 2014 and 2013, were $6.39 and
$8.36, respectively.
For the ESPP plan years ended July 31, 2015, 2014 and 2013, the Company issued 539,389, 512,521, and 487,672
shares of common stock, respectively. These shares were issued at an aggregate purchase price of $14.4 million, or
$26.62 per share, in 2015, $13.4 million, or $26.16 per share, in 2014, and $10.5 million, or $21.44 per share, in 2013.
For the five months ended December 31, 2015, 2014 and 2013 (portions of the 2015-2016, 2014-2015 and 2013-
2014 plan years), 231,803; 235,794; and 222,526 shares of common stock (from authorized but unissued shares),
respectively, were subscribed to by ESPP participants for proceeds of approximately $6.8 million, $6.3 million and
$5.9 million, 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 incen-
tives 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 approxi-
mating 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.
79
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock option activity for the years ended December 31, 2015, 2014 and 2013 is as follows:
Stock Options
Outstanding at January 1, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
Ending vested and expected to vest at December 31, 2015
Exercisable at December 31, 2015
Exercisable at December 31, 2014
Exercisable at December 31, 2013
Shares
Under
Option
738,792
—
(115,847)
—
—
622,945
—
(106,589)
(46,000)
—
470,356
—
(151,767)
(49,000)
—
269,589
269,589
164,589
316,356
422,945
Weighted-
Average
Exercise
Weighted-
Average
Remaining
Contractual
Price Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
18.39
—
17.56
—
—
18.55
—
18.48
18.48
—
18.57
—
18.48
19.36
—
18.48
18.48
18.48
18.48
18.48
4.9
$
8,891
4.1
$
7,289
3.1
$
5,087
2.2
2.2
2.2
3.2
4.2
$
$
$
$
$
2,395
2,395
2,241
4,565
5,460
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
2015
2014
2013
$
11,111
$
14,447
$
15,934
3,430
972
—
2,425
2,354
137
3,538
2,310
821
$
15,513
$
19,363
$
22,603
Summary of Unrecognized Compensation Expense
As of December 31, 2015, there was approximately $115.0 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 5.1 years.
NOTE 12 Supplemental Disclosures of Cash Flow Information and Non-Cash Financing
and Investing Activities
Our Restricted Cash balance is comprised of funds held in separate premium trust accounts as required by state law or, in
some cases, per agreement with our carrier partners. In the second quarter of 2015, certain balances that had previously
been reported as held in restricted premium trust accounts were reclassified as non-restricted as they were not restricted
by state law or by contractual agreement with a carrier. The resulting impact of this change was a reduction in the balance
reported on our Consolidated Balance Sheet as Restricted Cash and Investments and a corresponding increase in the
balance reported as Cash and Cash Equivalents of approximately $33.0 million as of December 31, 2015 as compared to the
corresponding account balances as of December 31, 2014 of $32.2 million which was reflected as Restricted Cash. While
these referenced funds are not restricted, they do represent premium payments from customers to be paid to insurance
carriers and this change in classification should not be viewed as a source of operating cash.
The following table summarizes information about stock options outstanding at December 31, 2015:
(in thousands)
Options Outstanding
Options Exercisable
Cash paid during the period for:
Exercise Price
$18.48
Totals
Weighted-
Average
Remaining
Contractual
Life (years)
2.2
2.2
Number
Outstanding
269,589
269,589
Weighted-
Average
Exercise
Price
$
$
18.48
18.48
Number
Exercisable
164,589
164,589
Weighted-
Average
Exercise
Price
$
$
18.48
18.48
Interest
Income taxes
(in thousands)
The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31,
Other payables issued for purchased customer accounts
2015, 2014 and 2013 was $2.2 million, $1.3 million and $1.6 million, respectively. The total intrinsic value is calculated as
the difference 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, 2015, 2014 and 2013, respectively.
There are no option shares available for future grant under the ISOP since this plan expired as of December 31, 2008.
Estimated acquisition earn-out payables and related charges
Notes received on the sale of fixed assets and customer accounts
80
81
Brown & Brown’s significant non-cash investing and financing activities are summarized as follows:
For the Year Ended December 31,
2015
2014
2013
$
37,542
$
25,115
$
16,501
$ 132,874
$ 118,290
$ 110,190
For the Year Ended December 31,
2015
10,029
36,899
7,755
$
$
$
2014
1,930
33,229
6,340
$
$
$
$
$
$
2013
1,425
5,091
1,108
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2015, the aggregate future minimum lease payments under
all non-cancel able lease agreements were as follows:
(in thousands)
2016
2017
2018
2019
2020
Thereafter
Total minimum future lease payments
$
40,900
37,109
31,612
25,962
21,283
38,406
$ 195,272
Rental expense in 2015, 2014 and 2013 for operating leases totaled $46.0 million, $49.0 million, and $43.0 million,
respectively.
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, 2015
and 2014. 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 2015 and 2014 were as follows:
(in thousands, except per share data)
2015
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
2014
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 404,298
$ 419,447
$ 432,167
$ 404,597
$ 310,520
$ 318,533
$ 319,337
$ 309,560
$
$
$
$
93,778
$ 100,914
$ 112,830
56,951
$
61,005
$
67,427
0.40
0.39
$
$
0.43
0.43
$
$
0.48
0.47
$
$
$
$
95,037
57,935
0.41
0.41
$ 363,594
$ 397,764
$ 421,418
$ 393,020
$ 276,757
$ 295,983
$ 308,733
$ 354,574(1)
$
$
$
$
86,837
$ 101,781
$ 112,685
52,415
$
61,755
$
68,331
0.36
0.36
$
$
0.43
0.42
$
$
0.47
0.47
$
$
$
$
38,446(1)
24,395(1)
0.17
0.17
(1) The Company recognized a pre-tax loss on disposal of $47.4 million as a result of the sale of Axiom effective December 31, 2014.
The sale was part of the Company’s strategy to exit the reinsurance brokerage business.
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 signifi-
cantly 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 custom-
ers; (2) the National Programs Segment, which acts as a MGA, provides professional liability and related package products
for certain professionals, a range of insurance products for individuals, flood coverage, and 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 Brown & Brown retail agents; (3) the Wholesale Brokerage Segment,
which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents
and brokers, as well as Brown & Brown retail agents; 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 claims adjusting services.
82
83
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brown & Brown conducts all of its operations within the United States of America, except for a wholesale brokerage
operation based in London, England, and retail operations in Bermuda and the Cayman Islands. These operations earned
$13.4 million, $13.3 million and $12.2 million of total revenues for the years ended December 31, 2015, 2014 and 2013,
respectively. 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. The Company
evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment revenues
are eliminated.
Summarized financial information concerning the Company’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.
(in thousands)
Total revenues
Investment income
Amortization
Depreciation
Interest expense
For the year ended December 31, 2013
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
$ 737,349
$ 301,372
$ 193,710
$ 131,489
$
$
$
$
82
38,523
5,874
34,658
$
$
$
$
$
19
14,953
5,492
24,014
61,223
$
$
$
$
$
22
10,719
2,674
2,316
47,501
$
$
$
$
$
1
3,698
1,623
7,322
25,791
$
$
$
$
$
$
(641)
$ 1,363,279
514
39
1,822
(51,870)
$
$
$
$
638
67,932
17,485
16,440
61,307
$ 357,609
Income before income taxes
$ 161,787
Total assets
$ 3,012,688
$ 1,377,404
$ 865,731
$ 277,652
$ (1,883,967)
$ 3,649,508
Segment results for prior periods have been recast to reflect the current year segmental structure. Certain reclassifica-
Capital expenditures
$
6,886
$
4,810
$
1,825
$
1,811
$
1,034
$
16,366
tions have been made to the prior-year amounts reported in this Annual Report on Form 10-K in order to conform to the
current year presentation.
For the year ended December 31, 2015
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
$ 870,346
$ 428,734
$ 216,996
$ 145,365
$
$
$
$
87
45,145
6,558
41,036
$
$
$
$
$
210
28,479
7,250
55,705
67,673
$
$
$
$
$
150
9,739
2,142
891
64,708
$
$
$
$
$
42
4,019
1,988
5,970
19,713
$
$
$
$
$
$
(932)
$ 1,660,509
515
39
2,952
(64,354)
$
$
$
$
1,004
87,421
20,890
39,248
68,527
$ 402,559
Income before income taxes
$ 181,938
Total assets
$ 3,507,476
$ 2,505,752
$ 895,782
$ 285,459
$ (2,181,730)
$ 5,012,739
Capital expenditures
$
6,797
$
6,001
$
3,084
$
1,088
$
1,405
$
18,375
For the year ended December 31, 2014
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
$ 823,686
$ 404,239
$ 211,911
$ 136,558
$
$
$
$
67
42,935
6,449
43,502
$
$
$
$
$
164
25,129
7,805
49,663
73,178
$
$
$
$
$
26
10,703
2,470
1,294
8,276
$
$
$
$
$
3
4,135
2,213
7,678
17,870
$
$
$
$
$
$
(598)
$ 1,575,796
487
39
1,958
(73,729)
$
$
$
$
747
82,941
20,895
28,408
82,934
$ 339,749
Income before income taxes
$ 157,491
Total assets
$ 3,229,484
$ 2,455,749
$ 857,804
$ 296,034
$ (1,882,613)
$ 4,956,458
Capital expenditures
$
6,873
$
14,133
$
1,526
$
1,210
$
1,181
$
24,923
(in thousands)
Total revenues
Investment income
Amortization
Depreciation
Interest expense
(in thousands)
Total revenues
Investment income
Amortization
Depreciation
Interest expense
NOTE 16 Losses and Loss Adjustment Reserve
Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, Wright Flood 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 at December 31, are
as follows:
(in thousands)
Direct premiums
Assumed premiums
Ceded premiums
Net premiums
2015
2014
Written
Earned
Written
Earned
$ 599,828
$ 610,753
$ 439,828
$ 408,056
—
18
(1)
199
599,807
610,750
439,819
408,246
$
21
$
21
$
8
$
8
All premiums written by Wright Flood under the National Flood Insurance Program are 100% ceded to FEMA, for
which Wright Flood received a 30.8% expense allowance from January 1, 2015 through September 30, 2015 and 30.9%
from October 1, 2015 through December 31, 2015. As of December 31, 2015 and 2014, the Company ceded $598.4 million
and $439.1 million of written premiums, respectively.
Effective April 1, 2014, Wright Flood 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. Wright Flood
ceded $1.4 million and $0.8 million for the years ended December 31, 2015 and 2014. No loss data exists on this agreement.
Wright Flood also ceded 100%, to Arch Reinsurance Company, of the Homeowners, Private Passenger Auto Liability,
and Other Liability Occurrence 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, 2015, ceded unpaid losses
and loss adjustment expenses for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence was
$8,698, $16,132 and $4,179, respectively. The incurred but not reported balance was $10,335 for Homeowners, $14,383
for Private Passenger Auto Liability and $8,456 for Other Liability Occurrence.
84
85
Brown & Brown, Inc.2015 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 11, 2015, the Company entered into a third ASR with an investment bank to purchase an aggregate
$75 million of the Company’s common stock. The Company received an initial delivery of 1,985,981 shares of the Company’s
common stock with a fair market value of approximately $63.75 million. On January 6, 2016 this agreement was completed
by the investment bank with the delivery of 363,209 shares of the Company’s common stock. After completion of this
third ASR, the Company has approval to repurchase up to $375.0 million, in the aggregate, of the Company’s outstanding
common stock.
Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the
Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative
uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out
through open market purchases, block trades, accelerated share repurchase plans of up to $100.0 million each (unless
otherwise approved by the Board of Directors), negotiated private transactions or pursuant to any trading plan that may
be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The reinsurance recoverable balance as of December 31, 2015 was $341.6 million and was comprised of recoverables
on unpaid losses and loss expenses of $32.0 million and prepaid reinsurance premiums of $309.6 million. 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 for the years ended December 31, 2015 and 2014, as Wright Flood’s direct premi-
ums written were 100% ceded to three reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding
related reinsurance recoverable was $32.0 million as of December 31, 2015 and $13.0 million as of December 31, 2014.
NOTE 17 Statutory Financial Information
Wright Flood maintains minimum amounts of statutory capital and surplus of $7.5 million as required by regulatory
authorities. Wright Flood’s statutory capital and surplus exceeded their respective minimum statutory requirements.
The statutory capital and surplus of Wright Flood was $15.1 million as of December 31, 2015 and $10.9 million as of
December 31, 2014. As of December 31, 2015 and 2014, Wright Flood generated statutory net income of $4.1 million
and $2.3 million, respectively.
NOTE 18 Subsidiary Dividend Restrictions
Under the insurance regulations of Texas, the maximum amount of ordinary dividends that Wright Flood can pay to share-
holders in a rolling twelve month period is limited to the greater of 10% of statutory adjusted capital and surplus as shown
on Wright Flood’s last annual statement on file with the superintendent of the Texas Department of Insurance or 100% of
adjusted net income. As an extraordinary dividend of $7.0 million was paid on May 20, 2014, no ordinary dividend could
be paid until May 21, 2015. There was no dividend payout in 2015 and the maximum dividend payout that may be made in
2016 without prior approval is $4.1 million.
NOTE 19 Shareholders’ Equity
On July 18, 2014, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of its shares of
common stock. This was 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 investment bank to purchase an aggregate $50.0 million of the Company’s common stock. The total number of
shares purchased 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.
On March 5, 2015, the Company entered into an ASR with an investment bank to purchase an aggregate $100.0 million
of the Company’s common stock. As part of the ASR, the Company received an initial delivery of 2,667,992 shares of the
Company’s common stock with a fair market value of approximately $85.0 million. On August 6, 2015, the Company was
notified by its investment bank that the March 5, 2015 ASR agreement between the Company and the investment bank had
been completed in accordance with the terms of the agreement. The investment bank delivered to the Company an addi-
tional 391,637 shares of the Company’s common stock for a total of 3,059,629 shares repurchased under the agreement.
The delivery of the remaining 391,637 shares occurred on August 11, 2015. At the conclusion of this contract the Company
had authorization for $50.0 million of share repurchases under the original Board authorization.
On July 20, 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $400.0 million
of the Company’s outstanding common stock. With this authorization, the Company had total available approval to repur-
chase up to $450 million, in the aggregate, of the Company’s outstanding common stock.
86
87
2015 Annual ReportBrown & Brown, Inc. G A A P R E C O N C I L I A T I O N
R E P O R T
O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
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, 2015 and 2014, and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility
of the 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, 2015 and 2014, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2015, 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, 2015, based on the criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2016 expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Certified Public Accountants
Miami, Florida
February 25, 2016
GAAP Reconciliation—Income Before Income Taxes to Operating Profit and Adjusted Operating Profit
(in thousands, except per share data)
2015
2014
2013
2012
2011
Retail
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
$ 870,346
181,938
45,145
6,558
41,036
2,006
$ 276,683
31.8 %
(5,524)
$ 823,686
157,491
42,935
6,449
43,502
7,458
$ 257,835
$ 737,349
161,787
38,523
5,874
34,658
(1,427)
$ 652,064
141,918
35,117
5,209
27,021
1,988
$ 614,093
135,856
33,806
5,064
28,197
(5,415)
$ 239,415
$ 211,253
$ 197,508
31.3 %
—
32.5 %
—
32.4 %
—
32.2 %
—
Adjusted Operating Profit
Adjusted Operating Profit Margin
$ 271,159
$ 257,835
$ 239,415
$ 211,253
$ 197,508
31.2 %
31.3 %
32.5 %
32.4 %
32.2 %
National Programs
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
$ 428,734
67,673
28,479
7,250
55,705
158
$ 159,265
$ 404,239
73,178
25,129
7,805
49,663
315
$ 156,090
$ 301,372
61,223
14,953
5,492
24,014
(808)
$ 260,368
53,986
14,296
4,671
25,697
(1,075)
$ 169,666
61,980
8,130
2,983
1,548
(508)
$ 104,874
$
97,575
$
74,133
37.1 %
—
38.6 %
(3,700)
34.8 %
—
37.5 %
—
43.7%
—
Adjusted Operating Profit
Adjusted Operating Profit Margin
$ 159,265
$ 152,390
$ 104,874
$ 97,575
$ 74,133
37.1 %
37.7 %
34.8 %
37.5 %
43.7 %
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
$ 216,996
64,708
9,739
2,142
891
830
$ 78,310
$ 211,911
8,276
10,703
2,470
1,294
2,550
$ 25,293
$ 193,710
47,501
10,719
2,674
2,316
1,986
$ 168,239
37,834
10,441
2,619
3,594
110
$ 65,196
$ 54,598
$ 161,948
31,666
10,239
2,529
6,819
691
$ 51,944
36.1 %
—
11.9 %
47,425
33.7 %
—
32.5 %
—
32.1 %
—
$ 78,310
$ 72,718
$
65,196
$
54,598
$
51,944
36.1 %
34.3 %
33.7 %
32.5 %
32.1 %
$ 145,365
19,713
4,019
1,988
5,970
9
$ 31,699
$ 136,558
17,870
4,135
2,213
7,678
(385)
$ 31,511
$ 131,489
25,791
3,698
1,623
7,322
2,782
$ 117,486
17,233
3,680
1,278
8,602
395
$
65,822
8,099
2,541
591
5,746
3,026
$
41,216
$
31,188
$
20,003
21.8 %
—
23.1 %
(821)
31.3 %
—
26.5 %
—
30.4 %
—
Adjusted Operating Profit
Adjusted Operating Profit Margin
$ 31,699
$ 30,690
$ 41,216
$
31,188
$
20,003
21.8 %
22.5 %
31.3 %
26.5 %
30.4 %
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
Change in estimated acquisition earn-out payables
Earnings per share—adjusted
2015 (1)
1.70
—
(0.03)
0.01
1.67
$
$
2014
1.41
0.21
(0.03)
0.04
1.63
$
$
$ Change
% Change
$
$
0.29
(0.21)
—
(0.03)
0.04
20.6 %
2.5 %
(1) Column does not add, due to the cumulative effect of rounding on individual items
88
89
2015 Annual ReportBrown & Brown, Inc.
R E P O R T
O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
M A N A G E M E N T ’ S R E P O R T
O N I N T E R N A L C O N T R O L O V E R F I N A N C I A L R E P O R T I N G
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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) 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 Spain Agency, Inc, Strategic Benefit Advisors, LLC, Bellingham Underwriters, Inc., MBA Insurance Agency of Arizona, Inc.
and Smith Insurance, Inc. (collectively the “2015 Excluded Acquisitions”), which were acquired during 2015 and whose
financial statements constitute 2.91% of total assets, 1.03% of revenues, and (0.03%) of net income of the consolidated
financial statement amounts as of and for the year ended December 31, 2015. Accordingly, our audit did not include the
internal control over financial reporting of the 2015 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 under-
standing of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness 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 com-
pany’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 proce-
dures 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 reasonable 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, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) 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, 2015 of the Company and our
report dated February 25, 2016 expressed an unqualified opinion on those financial statements.
Certified Public Accountants
Miami, Florida
February 25, 2016
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 (2013) 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 2015: Spain Agency, Inc, Strategic Benefit
Advisors, LLC, Bellingham Underwriters, Inc., MBA Insurance Agency of Arizona, Inc. and Smith Insurance, Inc. (collectively
the “2015 Excluded Acquisitions”), which were acquired during 2015 and whose financial statements constitute 2.91% of
total assets, 1.03% of revenues, and (0.03%) of net income of the Consolidated Financial Statement amounts as of and for
the year ended December 31, 2015. 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 (2013) 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, 2015. Management’s internal control over financial reporting as
of December 31, 2015 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 25, 2016
J. Powell Brown
Chief Executive Officer
R. Andrew Watts
Executive Vice President, Chief Financial
Officer and Treasurer
90
91
Brown & Brown, Inc.2015 Annual Report
P E R F O R M A N C E G R A P H
S H A R E H O L D E R I N F O R M A T I O N
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 Towers Watson Public
Limited Company). The returns of each company have been weighted according to such companies’ respective stock market
capitalizations as of December 31, 2010 for the purposes of arriving at a peer group average. The total return calculations
are based upon an assumed $100 investment on December 31, 2010, with all dividends reinvested.
Brown & Brown, Inc.
NYSE Composite
Peer Group
12/10
100.00
100.00
100.00
12/11
95.89
96.52
114.10
12/12
109.34
112.00
122.00
12/13
136.39
141.19
174.63
12/14
144.78
150.78
193.51
12/15
143.21
144.91
191.50
Comparison of 5 Year Cumulative Total Return*
Among Brown & Brown, Inc., the NYSE Composite Index, and a Peer Group
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
12/10
12/11
12/12
12/13
12/14
12/15
Brown & Brown, Inc.
NYSE Composite
Peer Group
*$100 invested on 12/31/10 in stock or index, including reinvesting of dividends.
Fiscal year ending December 31.
Corporate Offices
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
Outside Counsel
Holland & Knight LLP
200 South Orange Avenue
Suite 2600
Orlando, Florida 32801
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 2015 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 pub-
lic 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 2015 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 4, 2016
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 22, 2016, there were 138,616,818
shares of our common stock outstanding, held by
approximately 1,119 shareholders of record.
Market Price of Common Stock
2015
Stock Price Range
High
Low
Cash
Dividends per
Common Share
First Quarter
$ 33.34
$ 30.47
$ 0.11
Second Quarter $ 33.81
$ 31.50
$ 0.11
Third Quarter
$ 34.59
$ 29.67
$ 0.11
Fourth Quarter
$ 33.09
$ 30.39
$ 0.12
2014
First Quarter
$ 32.88
$ 27.77
$ 0.10
Second Quarter
$ 31.29
$ 28.27
$ 0.10
Third Quarter
$ 33.46
$ 30.02
$ 0.10
Fourth Quarter
$ 33.40
$ 30.96
$ 0.11
Additional Information
Information concerning the services of
Brown & Brown, Inc., as well as access to
current financial releases, is available at
www.bbinsurance.com.
92
designed and produced by see see eye / Atlanta & San Antonio
Brown & Brown, Inc.
T E N - Y E A R S T A T I S T I C A L S U M M A R Y
(in thousands, except per share data and other information)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Year Ended December 31,
Revenues
Commissions & fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Non-cash stock-based compensation
Other operating expenses
(Gain) Loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$
966,917
$
964,863
$
965,983
$
914,650
$
864,663
1,004
2,554
747
7,589
638
7,138
797
10,154
1,267
6,313
1,326
5,249
1,161
1,853
6,079
5,492
30,494 (1)
14,523
11,479
1,862
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
959,667
878,004
841,439
15,513
251,055
(619)
87,421
20,890
39,248
3,003
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
1,257,950
1,236,047
1,005,670
402,559
159,241
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
484,680
7,358
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
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
$
243,318
$
206,896
$
217,112
$
184,045
$
163,995
$
161,752
$
153,294
$
166,124
$
190,959
$
172,350
Employee compensation and benefits as % of total revenue
Other operating expenses as % of total revenue
50.7%
15.1%
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%
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
Other Information
$
$
1.70
140,112
0.45
$
$
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
$ 5,012,739
$ 4,956,458
$ 3,649,508
$ 3,128,058
$ 2,607,011
$ 2,400,814
$ 2,224,226
$ 2,119,580
$ 1,960,659
$ 1,807,952
$ 1,079,878
$ 1,152,846 (2) $
380,000
$
450,000
$
250,033
$
250,067
$
250,209
$
253,616
$
227,707
$ 2,149,776
$ 2,113,745
$ 2,007,141
$ 1,807,333
$ 1,643,963
$ 1,506,344
$ 1,369,874
$ 1,241,741
$ 1,097,458
138,985
143,486
145,419
143,878
143,352
142,795
142,076
141,544
140,673
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)
$
$
7,807
215,679
32.10
18.9
12%
$
$
7,591
216,114
32.91
23.3
10%
$
$
6,992
203,020
31.39
21.2
12%
6,438
5,557
$
$
191,729 (4) $
186,949
25.46
$
22.63
$
$
20.2
11%
20.0
11%
5,286
185,568
23.94
21.4
12%
$
$
5,206
182,549
17.97
16.6
12%
$
$
5,398
187,181
20.90
17.9
15%
$
$
5,047
196,251
23.50
17.4
21%
$
$
$
$
226,252
929,345
140,016
4,733
189,368
28.21
23.1
23%
(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
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.
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.
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
We rise to any challenge.