Shareholder Information
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 23, 2017, there were 139,986,178
shares of our common stock outstanding, held
by approximately 1,218 shareholders of record.
Market Price of Common Stock
2016
Stock Price Range
High
Low
Cash
Dividends per
Common Share
First Quarter
$ 35.91
$ 28.41
$ 0.12
Second Quarter $ 37.49
$ 34.23
$ 0.12
Third Quarter
$ 38.11
$ 35.81
$ 0.12
Fourth Quarter
$ 45.62
$ 36.05
$ 0.14
2015
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
Additional Information
Information concerning the services of
Brown & Brown, Inc., as well as access to
current financial releases, is available
on the Internet. Brown & Brown’s address
is www.bbinsurance.com.
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 2016 filed
with the Securities and Exchange Commission,
certificates of the Chief Executive Officer
and Chief Financial Officer of the Company
certifying the quality of the Company’s public
disclosure. The Company has also submitted
to the New York Stock Exchange a certificate
from its Chief Executive Officer certifying
that he is not aware of any violation by the
Company of New York Stock Exchange
corporate governance listing standards.
A copy of the Company’s 2016 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 3, 2017
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
designed and produced by see see eye / Atlanta & San Antonio
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
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Be assured, putting your head in
the sand won’t reduce your risk.
Always in Pursuit
2016 Annual Report
Dear Fellow Shareholders:
Ten-Year Statistical Summary
Brown & Brown has long held that the only constant is change. Nowhere
was that principle more apt than the insurance marketplace in 2016.
Carriers sought premium growth, alternative capital searched for greater
investment returns, acquisition valuations were at historic highs, and a
new U.S. president pledged to repeal and replace the Affordable Care
Act. These changes and challenges in 2016 have created, and will continue
to create, numerous opportunities for Brown & Brown.
We ended 2016 with annual revenues of
approximately $1,767 million, an increase
of 6.4% from the prior year. Interestingly
enough, the $106 million increase in our
annual revenues is more than Brown &
Brown’s total annual revenues when I first
joined the Company as a producer in July
1995. Fiscal year 2016 was another good
year, reflected by the following financial
and operational highlights:
n Organic revenue growth in all four
segments
n Industry-leading operating margins
n Net income increased by 5.8% to
approximately $260 million
n Earnings per share increased by 7.1%
to $1.82
n 23rd consecutive annual dividend increase,
returning approximately $70 million to
shareholders
n Total shareholder return of 45%
n Technology improvements to support
further growth, including implementation
of a new company-wide financial system
and introduction of a standardized
agency management system for our
Retail Segment
J. Powell Brown, CPCU
President and
Chief Executive Officer
(in thousands, except per share data and other information)
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
Year Ended December 31,
Revenues
Commissions & fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Other operating expenses
(Gain) Loss on disposal operations
Amortization
Depreciation
Interest expense
Change in estimated earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,762,787
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$ 966,917
$
964,863
$ 965,983
$
914,650
1,456
2,386
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
1,766,629
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
959,667
925,217
262,872
(1,291)
86,663
21,003
39,481
9,185
856,952
251,055
(619)
87,421
20,890
39,248
3,003
811,112
235,328
47,425
82,941
20,895
28,408
9,938
705,603
195,677
—
67,932
17,485
16,440
2,533
1,343,130
1,257,950
1,236,047
1,005,670
423,499
166,008
402,559
159,241
339,749
132,853
357,609
140,497
624,371
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
519,869
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
494,665
135,851
—
51,442
12,639
14,471
(1,674)
492,038
143,389
—
49,857
13,240
14,599
—
707,394
713,123
266,098
104,346
254,754
101,460
493,097
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
449,768
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
$ 257,491
$ 243,318
$
206,896
$
217,112
$
184,045
$
163,995
$ 161,752
$ 153,294
$ 166,124
$ 190,959
Employee compensation and benefits relative to total revenues
Other operating expenses relative to total revenues
52.4%
14.9%
51.6%
15.1%
51.5%
14.9%
51.8%
14.4%
52.0%
14.5%
51.3%
14.2%
50.8%
14.0%
50.8%
14.8%
50.4%
14.1%
46.9%
13.7%
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
$
$
1.82
137,804
0.50
$
$
1.70
$
1.41
140,112
142,891
0.45
$
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
$
$
1.18
136,884
0.29
$
$
1.35
136,357
0.25
$ 5,287,343
$ 5,004,479
$ 1,018,372
$ 1,071,618
$ 4,946,560
$ 1,142,948 (2)
$ 3,648,679
$ 3,127,1941
$ 2,607,011
$ 2,400,814
$ 2,224,226
$ 2,119,580
$ 1,960,659
$
379,171
$
449,136
$
250,033
$ 250,067
$ 250,209
$ 253,616
$
227,707
$ 2,360,211
$ 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
140,104
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)
8,297
7,807
$ 219,403
$ 215,679
$
44.86
$
32.10
$
$
24.6
12%
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
5,286
5,206
5,398
$
$
191,729 (4) $
186,949
25.46
$
22.63
$
$
185,568
$ 182,549
$ 187,181
23.94
$
17.97
$
20.90
$
$
20.2
11%
20.0
11%
21.4
12%
16.6
12%
17.9
15%
5,047
196,251
23.50
17.4
21%
(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
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
“Management’s 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
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.
full-time equivalent employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of
Arrowhead, and therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for
2012 is considered to be 6,259.
Total Revenues
Net Income Per Share Diluted
IN MILLIONS OF DOLLARS
IN DOLLARS
Shareholders’ Equity
IN MILLIONS OF DOLLARS
1,200
1,363
1,576
1,661
1,767
1.26
1.48
1.41
1.70
1.82
1,807
2,007
2,114
2,150
2,360
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
We view organic revenue growth as a
strong indicator of the success of our
businesses. Overall, the Company’s
total revenue grew by 6.4% and
organic revenue grew by 3.0% in 2016,
characterized by strong perfor mance in
each of our four segments. Our Retail
Segment grew its total revenue by
5.4% and delivered another year of
improved organic revenue growth of
1.9%. Our National Programs Segment
achieved total revenue growth of 4.6%
and organic revenue growth of 4.2%,
enabling our carrier partners to extend
their capabilities. Our Wholesale Bro-
kerage Segment grew its total revenue
by 12% and had the strongest growth
of our four segments, delivering organic
revenue growth of 4.3% in spite of
down ward premium pricing pressure
in the coastal property market. Our
Services Segment grew total revenue
by 7.6% and organic revenue by 3.8%,
capping another solid year.
We aim to make investments with
a long-term focus. In addition to
hiring new teammates, expanding
our capabilities, and returning our earn-
ings to shareholders through dividends
and periodic share repurchases, we
are always seeking high-quality
acquisitions. Our acquisition strategy
is focused on companies that fit
culturally and make sense financially.
In 2016, we acquired eight agencies
with aggregate annual revenues of
approximately $56 million, which
was consistent with 2015. We are
particularly excited about our acqui-
sition of the Morstan General Agency,
which we believe will increase our
brokerage capabilities in the north-
east. Acquisition prices continue to be
at historic highs due to a number of
financial buyers seeking to build scale
in the short term. In spite of this, we
remain patient, disciplined, and poised
to deploy our capital when we believe
it is in the best long-term interest of
our shareholders.
One of the keys to Brown & Brown’s
success for the past 77 years is our
culture which is built upon accountabil-
ity, entrepreneurship, and teamwork.
Over time, we have seen our compe-
tition struggle to build and maintain
a common culture after numerous
acquisitions or material hiring. Our
decentralized sales and service model
allows our leaders to manage their
own profitability, while benefiting from
the broad capabilities of our organi-
zation. Our culture is competitive and
collaborative, with teammates sharing
the collective goal of exceeding our
customers’ expectations and driving
strong financial results.
We are very pleased with the perfor-
mance of our team during 2016. Many
teammates rose into new leadership
positions and will help drive our
Company forward. We are always in
pursuit of both our short- and long-
term goals, and we are ready to notch
more achievements in the “win” column
in 2017.
Regards,
Regards,
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J. Powell Brown, CPCU
President and
Chief Executive Officer
The reference to organic revenue growth, a non-GAAP
measure, is made to provide additional meaningful
methods of evaluating certain aspects of our operat-
ing performance from period to period on a basis that
may not be otherwise apparent on a GAAP basis. For
reconciliation and other information concerning organic
revenue growth, refer to page 23 of the Company’s 2016
Annual Report.
Our culture is the backbone
of our success
Ask what sets Brown & Brown apart, and you’ll get the same answer: the Company culture.
One of the keys to preserving and promoting our culture is that we respect and appreciate the differences in our
teammates. Each teammate brings different experiences and perspectives, which enables us to provide the best
solutions and service for our customers.
Since our beginning, we’ve known that doing the best for our customers requires constant persistence and vision.
The cheetah, which represents vision, swiftness, strength, and agility, embodies our corporate culture and has served
as a symbol of our Company since the early 1980s.
Our unique culture enables us to identify new opportunities, to adapt our services to best meet market demands,
and to satisfy the various needs of our customers. As our Company continues to grow and evolve, our commitment to
integrity, adaptability, and acting quickly in the best interests of our customers will remain constant. These attributes
will propel us to new milestones and successes.
95,570
118,680
365,029
878,004
1,013,542
1,766,629
Total
Revenues
IN M ILL IONS
OF DOL LA RS
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.
1993
1996
2001
2006
2011
2016
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In the last ten
years we have
doubled
total revenues
and diversified our
business across
all four segments
Our teammates are uniquely
Our teammates are uniquely
Our teammates are uniquely
built for success
At Brown (cid:5) Brown, we’re always refining the formula that creates a strong, motivated team. In 2016 we improved and
At Brown (cid:5) Brown, we’re always refining the formula that creates a strong, motivated team. In 2016 we improved and
At Brown (cid:5) Brown, we’re always refining the formula that creates a strong, motivated team. In 2016 we improved and
expanded our internship program. In connection with this initiative, we strengthened our relationships with select
expanded our internship program. In connection with this initiative, we strengthened our relationships with select
expanded our internship program. In connection with this initiative, we strengthened our relationships with select
colleges and universities.
Brown & Brown has always focused on a culture of recruitment and talent development. We recruit teammates from
Brown & Brown has always focused on a culture of recruitment and talent development. We recruit teammates from
Brown & Brown has always focused on a culture of recruitment and talent development. We recruit teammates from
three broad groups, all of which are vital to our success. First, we seek individuals right out of college who are looking
three broad groups, all of which are vital to our success. First, we seek individuals right out of college who are looking
three broad groups, all of which are vital to our success. First, we seek individuals right out of college who are looking
for a career path. Second, we recruit individuals who have been working for four to six years, but not necessarily in the
for a career path. Second, we recruit individuals who have been working for four to six years, but not necessarily in the
for a career path. Second, we recruit individuals who have been working for four to six years, but not necessarily in the
insurance industry. And third, we look for people who are successful, but want to take their career to the next level.
insurance industry. And third, we look for people who are successful, but want to take their career to the next level.
insurance industry. And third, we look for people who are successful, but want to take their career to the next level.
New teammates are introduced to our Company through Brown & Brown University, where we teach our culture,
New teammates are introduced to our Company through Brown & Brown University, where we teach our culture,
New teammates are introduced to our Company through Brown & Brown University, where we teach our culture,
operating model, and the fundamentals of the insurance business.
Part of our Company culture is our endless pursuit of learning and sharing knowledge. Brown & Brown University is a
Part of our Company culture is our endless pursuit of learning and sharing knowledge. Brown & Brown University is a
Part of our Company culture is our endless pursuit of learning and sharing knowledge. Brown & Brown University is a
critical part of our ongoing education program, and is a key component of our relentless pursuit of talent development.
critical part of our ongoing education program, and is a key component of our relentless pursuit of talent development.
critical part of our ongoing education program, and is a key component of our relentless pursuit of talent development.
At Brown & Brown University, students, teammates, and mentors build strong bonds and lasting relationships that are
At Brown & Brown University, students, teammates, and mentors build strong bonds and lasting relationships that are
At Brown & Brown University, students, teammates, and mentors build strong bonds and lasting relationships that are
crucial to the building blocks of a strong team. These relationships help drive our decentralized sales and service model,
crucial to the building blocks of a strong team. These relationships help drive our decentralized sales and service model,
crucial to the building blocks of a strong team. These relationships help drive our decentralized sales and service model,
support cross-company collaboration, and ultimately further our success.
980
1,075
2,921
4,733
5,557
8,297
8,297
8,297
8,297
8,297
8,297
8,297
4
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Teammate
Growth
NUMBE R OF
TEAMMATE S ACROSS
THE COM PANY
1993
1996
2001
2006
2011
2016
2016
The tail counterbalances
the cheetah’s body
weight, helping it stabilize
and react quickly.
The cheetah’s shoulder
can move freely because
it is not attached to the
collarbone.
Distinctive black stripes below
the eyes counter sun glare,
enhancing a cheetah’s ability
to focus on prey.
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The color and spots are
camouflage, which help
cheetahs hunt prey and
hide from predators.
The cheetah’s semi-retractable
claws grip the ground for
traction when running to help
increase speed.
A cheetah reaches speeds
greater than 60 miles per hour
in just over 3 seconds.
We are growing stronger
every day
In 2016, Brown (cid:5) Brown made an even greater effort to capitali(cid:89)e upon the talent and expertise that exists throughout
our Company.
Our segments enhanced ongoing collaboration to better leverage our capabilities and strengths across the Company,
which we believe will enable even more growth in the future. This powerful discovery process was just the beginning.
We now have a more robust directory of capabilities and resources to better serve our customers.
(cid:54)ith our expanded efforts around communication and collaboration among all of our offices, the old adage (cid:345)knowledge
is power” is certainly true, and it’s leading to exciting opportunities for growth.
As we head into 201(cid:22), the groundwork we laid with our efforts in 2016 will be key to achieving our goals. (cid:51)his
continuous sharing of knowledge will help our offices and teammates become even more attuned to opportunities for
adding value to our existing customers, as well as being better armed as we continuously pursue new customers and
expand our capabilities.
8,003
16,498
6
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Net
Income
IN M ILL IONS
OF DOL LA RS
1993
1996
257,491
50%
net income growth
over the last 10 years,
supported by our industry-
leading operating margins
172,350
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2006
2016
National strength,
local presence
Brown (cid:5) Brown’s decentrali(cid:89)ed sales and service structure directly contributes to our Company’s growth, profitability,
and strong culture of success.
(cid:51)he leadership of each office is responsible for recruitment and development, the pursuit of new opportunities, and
their own profit and loss.
At Brown (cid:5) Brown, our competitive culture is focused on collaboration and teamwork. (cid:54)hile each office sells and
services locally, there is a tremendous focus on sharing ideas and expertise to best serve our customers and fuel
our continuous pursuit of innovative solutions and new customers. We encourage our teammates to ask questions
and leverage the vast network of knowledge that exists within our Company. We highlight and praise cross-company
successes and working together. (cid:54)ith our structure, each individual office has the opportunity to directly control its
own success, but also make a difference in the success of the entire Company.
American Claims Management
C A R L S B A D, C A
S E R V I C E S S E G M E N T
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High-
Performing
Offices
Proctor Financial
T ROY, M I
N AT I O N A L P RO G R A M S S E G M E N T
237
locations
as we continue to expand
our geographic footprint
Apex Insurance Agency
Apex Insurance Agency
G L E N A L L E N , VA
G L E N A L L E N , VA
W H O L E S A L E B RO K E R AG E S E G M E N T
W H O L E S A L E B RO K E R AG E S E G M E N T
9
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Strategic Benefit Advisors
S O U T H B O RO U G H , M A
R E TA I L S E G M E N T
Review of
Operations
Retail
With great change comes great opportunity.
10
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The Retail Segment is the largest of
Brown & Brown’s four segments and
generated approximately 52% of the
Company’s total revenue in 2016.
In 2016, Brown & Brown’s Retail Segment
delivered overall revenue growth of 5.4%
and organic revenue growth of 1.9%. During
the year, our Retail Segment took its focus on
employee benefits to a new level. Our senior
leadership team formed an employee benefits
leadership group to augment our strategy and
determine the potential needs that will arise
due to anticipated changes to the Affordable
Care Act. We have developed strategies for our
customers to provide additional value during
this time of change.
In the simplest terms, companies are going
to have questions, and they need a trusted
advisor to turn to for answers. Selling employee
benefits is highly consultative, and our brokers
are well trained to be at the top of their game.
True to our theme, “always in pursuit,”
Brown & Brown is gearing up to proactively
prepare for changes as they occur, engage
with our customers to help them adapt to the
changes, and provide potential customers
with solutions that fit their business needs.
In 2016, Brown & Brown began a more struc-
tured effort to understand, share, and utili(cid:89)e
resources throughout the Company. This has
created real opportunity for us, and real value
for our customers. For example, it’s not unusual
for a customer in Atlanta, Georgia, to leverage
the expertise of one of our offices in New York.
Also, our office in (cid:44)inneapolis, (cid:44)innesota,
developed a specialty moving and storage
program that is sold by all of our offices.
Brown & Brown has the best of both worlds:
a decentralized sales and service model
supported with the ability to leverage our
national and collective capabilities to the
benefit of our customers.
Segment Total
Revenues
IN MILLIONS OF DOLLARS
Contribution to
Total Revenues
51.9%
Our (cid:49)etail Office (cid:43)ocations
652.1
737.3
823.7
870.3
917.4
2012
2013
2014
2015
2016
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Contribution to Income
Before Income Taxes
44.4%
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
The reference to organic revenue growth, a non-GAAP measure, is made to provide additional meaningful methods of evaluating certain aspects of our operating performance from
period to period on a basis that may be not be otherwise apparent on a GAAP basis. For reconciliation and other information concerning organic revenue growth, refer to page 23 of
the Company’s 2016 Annual Report.
Review of
Operations
National Programs
Building on our momentum.
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Brown & Brown’s National Programs
Segment generated approximately 25%
of the Company’s total revenue in 2016.
The Segment aggressively and strategi-
cally pursued its goals and delivered a
(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74) (cid:458)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)
In 2016, Brown & Brown’s National Programs
Segment delivered overall revenue growth of
4.6% and organic revenue growth of 4.2%.
Some of the efforts that propelled our success
included continuing to build strong, trusting
relationships with our carrier partners, enhanc-
ing our distribution network, and a further
melding of our team. The exchange of ideas
among teammates in the National Programs
Segment last year was at a new level, and sets
an exciting tone for the year ahead.
At Brown & Brown, we embrace technology
and change. A few years ago, the leadership
of our Proctor Financial business sensed
change in the market for lender-placed insur-
ance. In response, we proactively invested in
expanded technology so we could capital-
ize upon market opportunities. 2016 was a
tremendous success for Proctor Financial as
we onboarded numerous new customers and
grew the business significantly. (cid:51)his is an
example of the constant innovation that has
propelled Proctor Financial to its status as
one of the leading providers of lender-placed
insurance, and also demonstrates our com-
mitment to investing in our businesses for
long-term success.
Our Wright Flood business and all of the
Arrowhead personal lines programs, including
residential earthquake, personal property,
and personal automobile insurance, had
exceptional results in 2016. As with all of our
segments, our success is driven by innovation,
flexibility, strong partnerships, and the most
critical component—execution by our talented
team of professionals.
As we look to 2017, our main areas of focus
will be executing on the opportunities that
are in front of us, pursuing new cutting-edge
products and ideas for underserved markets,
and continuing to build upon our strong
brands and partnerships.
260.4
301.4
404.2
428.7
448.5
Segment Total
Revenues
IN MILLIONS OF DOLLARS
2012
2013
2014
2015
2016
Contribution to
Total Revenues
25.4%
Contribution to Income
Before Income Taxes
21.7%
13
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National Programs
n AFC Insurance
n Allied Protector Plan
n American Specialty
n Arrowhead All Risk
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 Optometric Protector Plan®
n Parcel Insurance Plan
n Proctor Financial
n Professional Protector Plan for Dentists
n Professional Risk Specialty Group
n Professional Services Plans
n Public Risk Advisors of New Jersey
n Public Risk Underwriters
n Sigma Underwriting Managers
n TitlePac®
n Wright Flood
n Wright Public Entity
n Wright Specialty
For additional information on National
Programs, please visit www.natprograms.com
The reference to organic revenue growth, a non-GAAP measure, is made to provide additional meaningful methods of evaluating certain aspects of our operating performance from
period to period on a basis that may be not be otherwise apparent on a GAAP basis. For reconciliation and other information concerning organic revenue growth, refer to page 23 of
the Company’s 2016 Annual Report.
Review of
Operations
Wholesale Brokerage
In pursuit of new talent and acquisitions.
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Brown & Brown’s Wholesale Brokerage
Segment generated approximately
14% of the Company’s total revenue in
2016, and led the Company in organic
revenue growth.
In 2016, Brown & Brown’s Wholesale Brokerage
Segment delivered overall revenue growth of
12% and organic revenue growth of 4.3%.
2016 was another good year for the Wholesale
Brokerage Segment. A key highlight was the
acquisition of the Morstan General Agency,
which positions us as one of the leading binding
authority brokers in the New York metro area.
(cid:35)uring the year, we saw several offices stretch-
ing into new areas and growing their revenue.
For example, an office in Atlanta, (cid:38)eorgia,
began operating as a binding authority broker,
which opened up new opportunities. Addition-
ally, our St. (cid:47)etersburg, Florida, office has done
an outstanding (cid:73)ob of assisting several offices
with expansion into personal lines, enabling
them to grow faster.
Recruiting is a key area of focus for the
Wholesale Brokerage Segment, and it’s a big
part of our growth strategy. Brown & Brown
University is designed to provide training and
development for new brokers. The programs
occur throughout the year, and we have
ongoing mentorship to help new brokers
grow together as a group.
In 2017 we will be increasing our focus on
ac(cid:80)uiring companies that are a good fit for our
culture and growth strategy.
168.2
193.7
211.9
217.0
243.1
Segment Total
Revenues
IN MILLIONS OF DOLLARS
2012
2013
2014
2015
2016
Contribution to
Total Revenues
13.8%
Contribution to Income
Before Income Taxes
14.8%
15
2
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1
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Wholesale Brokerage Segment
n APEX Insurance Services
n Big Sky Underwriters
n Braishfield Associates
n Combined Group Insurance Services
n Decus Insurance Brokers
n ECC Insurance Brokers
n Graham Rogers
n Halcyon Underwriters
n Hull & Company
n MacDuff Underwriters
n Mile High Markets
n Morstan General Agency
n National Risk Solutions
n Peachtree Special Risk Brokers
n Procor Solutions + Consulting
n Public Risk Underwriters of Texas
n Summit Risk Services
n Texas Security General Insurance Agency
The reference to organic revenue growth, a non-GAAP measure, is made to provide additional meaningful methods of evaluating certain aspects of our operating performance from
period to period on a basis that may be not be otherwise apparent on a GAAP basis. For reconciliation and other information concerning organic revenue growth, refer to page 23 of
the Company’s 2016 Annual Report.
Review of
Operations
Services
Innovating our next success.
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Brown & Brown’s Services Segment
generated approximately 9% of the
Company’s total revenue in 2016.
In 2016, Brown & Brown’s Services Segment
delivered overall revenue growth of 7.6%
and organic revenue growth of 3.8%. It was
a year of innovation and success for the
Services Segment.
While the Services Segment has a variety of
offerings, one unifying theme runs through
all of them: we provide solutions.
One of the solutions we provided in 2016
originally got its start in 2014, when our
AmeriSys business was hired to do medical
management for a customer’s compensation
claims. In the first year, our team helped
manage their claims and the customer
reported multi-million dollar savings. With
this success and our proven approach, the
customer subsequently asked us to provide
medical management for their legacy open
claims prior to 2002.
Throughout the year, our American Claims
Management (ACM) business experienced sub-
stantial growth throughout many of its lines
of business and the key to this success was
a focus on extraordinary service and innova-
tion. Each new customer that was onboarded
required creative and customized solutions to
ensure a smooth implementation. Our property
division realized increased claims from cata-
strophic events in Louisiana, Mississippi, and
from Hurricane Matthew. We used cutting-edge
technology to scale up quickly with additional
staff and we were able to consistently beat
industry cycle and service standards.
Lastly, we are proud to share the success of
The Advocator Group, which helps to secure
Social Security benefits for individuals who
are disabled and unable to work. In 2016, we
invested further in this segment, through our
acquisition of Social Security Advocates for
the Disabled, LLC, cementing ourselves as a
leader in the industry.
In 2017, we will continue to focus on our
customers, and persist on their behalf,
to enable them to receive the important
benefits they need.
117.5
131.5
136.6
145.4
156.4
Segment Total
Revenues
IN MILLIONS OF DOLLARS
2012
2013
2014
2015
2016
Contribution to
Total Revenues
8.9%
Contribution to Income
Before Income Taxes
5.7%
Services Segment
n The Advocator Group
n American Claims Management
n Insurance Claims Adjusters
n NuQuest
n Preferred Government Claims Services
n Protect Professionals Claims Management
n Social Security Advocates for the Disabled
n United Self Insured Services
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The reference to organic revenue growth, a non-GAAP measure, is made to provide additional meaningful methods of evaluating certain aspects of our operating performance from
period to period on a basis that may be not be otherwise apparent on a GAAP basis. For reconciliation and other information concerning organic revenue growth, refer to page 23 of
the Company’s 2016 Annual Report.
Leadership Overview
J. Powell Brown, CPCU
President & Chief
Executive Officer
R. Andrew Watts
Executive Vice President,
Chief Financial Officer (cid:5)
Treasurer
Richard A. Freebourn, Sr.,
CPCU, CIC
Executive Vice President
Robert W. Lloyd, Esq.,
CPCU, CIC
Executive Vice President,
General Counsel &
Secretary
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J. Scott Penny, CIC
Executive Vice President;
Chief Acquisitions
Officer
Julie K. Ryan
Executive Vice President;
Chief (cid:47)eople Officer
Anthony T. Strianese
Executive Vice President;
President – Wholesale
Brokerage Division
Chris L. Walker
Executive Vice President;
President – National
Programs Division
J. Neal Abernathy
Senior Vice President
John R. Berner
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 Division
Kathy H. Colangelo,
CIC, ASLI
Senior Vice President
Steven L. Denton
Senior Vice President;
Regional President –
Retail Division
John M. Esposito
Senior Vice President;
Regional President –
Retail Division
Thomas K. Huval, CIC
Senior Vice President;
Regional President –
Retail Division
Michael L. Keeby
Senior Vice President;
Regional President –
Retail Division
Richard A. Knudson, CIC
Senior Vice President;
Regional President –
Retail Division
Donald M. McGowan, Jr.
Senior Vice President;
Regional President –
Retail Division
H. Vaughn Stoll
Senior Vice President;
Director of Acquisitions
& Internal Operations
Board of Directors
Left to right:
Left to right:
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, (cid:49)ock-(cid:51)enn Company
Acquisition Committee; Compensation
Committee
Nominating/Corporate Governance
Committee
James S. Hunt
Former Executive Vice President &
Chief Financial Officer, (cid:54)alt (cid:35)isney
Parks and Resorts Worldwide
Acquisition Committee; Audit Committee,
Chair; Compensation Committee
Theodore J. Hoepner
Former Vice Chairman, SunTrust Bank
Holding Company
Audit Committee; Compensation
Committee
Chilton D. Varner, Esq.
Partner, King & Spalding LLP
Nominating/Corporate Governance
Committee
Wendell S. Reilly
Managing Partner,
Grapevine Partners, LLC
Lead Director; Nominating/Corporate
Governance Committee, Chair
J. Hyatt Brown, CPCU, CLU
Chairman, Brown & Brown, Inc.
J. Powell Brown, CPCU
(cid:47)resident (cid:5) Chief Executive Officer,
Brown & Brown, Inc.
Toni Jennings
Chairman, Jack Jennings & Sons;
Former Lieutenant Governor,
State of Florida
Audit Committee; Compensation
Committee, Chair
H. Palmer Proctor, Jr.
President/Director, Fidelity Bank
Acquisition Committee, Chair;
Compensation Committee
Hugh M. Brown
Founder and former President & Chief
Executive Officer, BA(cid:44)SI, Inc.
Acquisition Committee; Audit Committee;
Nominating/Corporate Governance
Committee
Timothy R. M. Main
Chairman of Global FInancial
Institutional Group, Barclays Plc
Acquisition Committee
19
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Community Involvement
The honor to serve our communities
(cid:54)e value the communities we serve and find every opportunity to give
back. Each year we contribute millions of dollars to non-profit organi(cid:89)ations
in our communities. Below is a sample of some of the organizations we
supported in 2016:
20
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AccessCNY
Allie’s Friends Foundation
Alzheimer’s Association
American Cancer Society
American Diabetes
Association
American Heart Association
American Red Cross
Aspire – Massachusetts
General Hospital
Autism Society of America
Barbara Bush Foundation
Better Housing Coalition
Big Brothers Big Sisters
Bighorn Golf Club Charities
Bivona Child Advocacy
Center
Boggy Creek Gang
Boys & Girls Clubs
Boy Scouts of America
Broward County Outreach
Center
Doug Flutie, Jr. Foundation
for Autism
Education Foundation of
Lake County
Elwyn Foundation
Embassy of Hope
Joliet Catholic Academy
Junior Achievement
Juvenile Diabetes Research
Foundation
Lee Memorial Health
Foundation
Embry Riddle University
LifePath Foundation
Farm & Wilderness
Foundation
Father Lopez Catholic High
School
First Call for Help of Broward
The First Tee
Lighthouse Louisiana
Make-A-Wish Foundation
Mary McLeod Bethune
Foundation
Milagros para Ninos – Boston
Children’s Hospital
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. John’s University
St. Mary’s Academy
Florida Hospital Foundation
Mount Sinai Medical Center
St. Matthews House
Florida Lions Conklin Centers
Florida Southwest State
College
Florida Southwestern
University
Florida State University
Footlocker Foundation
Muscular Dystrophy
Association
Museum of Arts and Sciences
The NASCAR Foundation
Nathan Adelson Hospice
National Black McDonald’s
Franchisee Foundation
Frances Foundation for Kids
Fighting Cancer Inc
National Multiple Sclerosis
Society
Building Futures Foundation
Friends 4 Cures
Cal State Fullerton
Philanthropic Foundation
Catskill Area Hospice and
Palliative Care
Center for Family Services
Central City Concern
Chi Chi Rodriquez Youth
Foundation
Children’s Cancer Association
Children’s Heritage
Foundation
Children’s Hospital Los
Angeles Foundation
Christel House
Cross Out Cancer
Crouse Health Foundation
Cumberland County
Guidance Center
Development at Schechter
Westchester
Gift of Life Bone Marrow
Foundation
Glens Falls Hospital
Greater New York Councils
Habitat for Humanity
Halifax Health Foundation
Holy Redeemer Health
System
Horizon House
Hospice by the Bay
Humane Society
I Have A Dream Foundation
iMentor, Inc.
International Rhett Syndrome
The Jason Ritchie Hockey
Foundation
Jesuit High School
Foundation
New Avenues for Youth
New England Center for
Children
New York Police and Fire
Widows’ and Children’s
Benefit Fund
Niagara Falls Memorial
Medical
NY Schools Insurance
Foundation
Oakland Zoo
Outreach Project Inc.
Police Benevolent
Association
Piscataway Township
Education Foundation
Portland State University
R’Club Child Care
RFK Children’s Action Corps
Rochester General Hospital
Foundation
Stockton University
Step Up For Students
Temple University
Touchmark Foundation
United Cerebral Palsy
United Way
University of Central Florida
University of Florida
University of Georgia
University of Louisiana at
Lafayette
University of Rochester
Medicine
University of South Florida
Valley Health Services
Vincent DePaul Foundation
Voices For Children
Foundation
Volunteer New York
Whirlpool Collective
Impact Fund
Washington State Council of
Firefighters Benevolent Fund
YMCA
Youth About Business
Youth Consultation Services
Foundation
2016
Financial Review
22 Management’s Discussion and Analysis of Financial
21
Condition and Results of Operations
43 Consolidated Statements of Income
44 Consolidated Balance Sheets
45 Consolidated Statements of Shareholders’ Equity
46 Consolidated Statements of Cash Flows
47 Notes to Consolidated Financial Statements
81 Reports of Independent Registered Public
Accounting Firm
83 Management’s Report on Internal Control Over
Financial Reporting
84 Performance Graph
2016 Annual Report
General
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes
to those Financial Statements included elsewhere in this Annual Report on Form 10-K. In addition, please see “Information
Regarding Non-GAAP Measures” below, regarding important information on non-GAAP financial measures contained in our
discussion and analysis.
We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization head-
quartered 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 2016, with the exception of 2009, when our revenues dropped
1.0%. Our revenues grew from $95.6 million in 1993 to $1.8 billion in 2016, reflecting a compound annual growth rate of
13.5%. In the same 23-year period, we increased net income from $8.1 million to $257.5 million in 2016, a compound
annual growth rate of 16.2%.
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,
increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance cover-
age. Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We
foster a strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long-term.
22
The term “Organic Revenue”, a non-GAAP measure, 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). 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. “Organic Revenue” is reported in this manner in order to express the current year’s core commissions and fees on
a comparable basis with the prior year’s core commissions and fees. The resulting net change reflects the aggregate changes
attributable to (i) net new and lost accounts, (ii) net changes in our customers’ exposure units, (iii) net changes in insurance
premium rates or the commission rate paid to us by our carrier partners; and (iv) the net change in fees paid to us by our
customers. Organic Revenue is reported in the Results of Operations and in the Results of Operations – Segment sections
of this Form 10-K.
We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on under-
writing 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 upon the aforementioned considerations for the prior
year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.6% 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 upon actual premiums written. For the year ended December 31, 2016,
we had earned $11.5 million of GSCs, of which $9.2 million remained accrued at December 31, 2016 as most of this will be
collected in the first quarter of 2017. For the years ended December 31, 2016, 2015, and 2014, we earned $11.5 million,
$10.0 million and $9.9 million, respectively, from GSCs.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. 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. Our services are provided over a period of time, which is typically
one year. Fee revenues, on a consolidated basis, as a percentage of our total commissions and fees, represented 31.3% in
2016, 30.6% in 2015 and 30.6% in 2014.
Additionally, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2016 increased by
$3.7 million over 2015 primarily as a result of an increase in profit-sharing contingent commissions and GSCs in the Retail
Segment, partially offset by a decrease in profit-sharing contingent commissions in the Wholesale Brokerage Segment as a
result of increased loss ratios. Other income decreased by $0.2 million primarily as a result of a reduction in the gains on
the sale of books of business when compared to 2015 and the change in where this activity is presented in the financial
statements as described in the results of operations section below.
For the years ended December 31, 2016 and 2015, our consolidated organic revenue growth rate was 3.0% and
2.6% respectively. Additionally, each of our four segments recorded positive organic revenue growth for the year ended
December 31, 2016. In the event that the gradual increases in insurable exposure units that occurred in the past few years
continues through 2017 and premium rate changes are similar with 2016, we believe we will continue to see positive
quarterly organic revenue growth rates in 2017.
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 years ended December 31, 2016 increased over 2015 by $20.9 million, primarily
as a result of acquisitions completed in the past twelve months and net new business.
23
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 the following non-GAAP measures: Organic Revenue, Organic Revenue growth, and Organic
Revenue growth after adjusting for the significant revenue recorded at our former Colonial Claims operation in the first
half of 2013 attributable to Superstorm Sandy (“2014 Total core commissions and fees-adjusted”). We view each of these
non-GAAP measures as important indicators when assessing and evaluating our performance on a consolidated basis and
for each of our segments because they allow us to determine a comparable, but non-GAAP, measurement of revenue growth
that is associated with the revenue sources that were a part of our business in both the current and prior year and that are
expected to continue in the future. These measures are not in accordance with, or an alternative to the GAAP information
provided in this Annual Report on Form 10-K. We believe that presenting these non-GAAP measures allows readers of our
financial statements to measure, analyze and compare our consolidated growth, and the growth of each of our segments,
in a meaningful and consistent manner. 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. Our industry peers may provide similar supple-
mental non-GAAP information with respect to one or more of these measures, although they may not use the same or
comparable terminology and may not make identical adjustments. This supplemental financial information should be consid-
ered in addition to, not in lieu of, our Consolidated Financial Statements.
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 under “Results of Operation – Segment Information.”
2016 Annual Report 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 2016, we acquired 479 insurance intermediary operations, excluding acquired books
of business (customer accounts). During the year ended December 31, 2016, the Company acquired the assets and assumed
certain liabilities of seven insurance intermediaries, all of the stock of one insurance intermediary and three books of business
(customer accounts). Collectively, these acquired business that had annualized revenues of approximately $56 million.
Critical Accounting Policies
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of these financial state-
ments 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 upon 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, non-cash
stock-based compensation 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.”
24
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 and invoiced to the customer, whichever is later. Commission revenues related to installment
billings are recognized on the later of the date effective or invoiced, with the exception of our Arrowhead business which
follows a policy of recognizing on the later of the date effective or processed into our systems regardless of the billing arrange-
ment. Management determines the policy cancellation reserve based upon historical cancellation experience adjusted in
accordance with known circumstances. Subsequent 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 periodi-
cally 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 acquisition 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
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. agreements are valued based upon 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 3 to 15 years. The excess of the purchase price of an acquisition over the fair value of the identifi-
able tangible and intangible assets is assigned to goodwill and is not amortized.
Acquisition purchase prices are typically based upon 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 upon the present value of the expected future payments to be made to
the sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements.
In determining fair value, the acquired business’s future performance is estimated using financial projections developed by
management for the acquired business and this estimate reflects market participant assumptions regarding revenue growth
and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance
targets specified in each purchase agreement compared to the associated financial projections. These estimates are then
discounted to 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 upon 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 upon 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.
25
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 trend; 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, 2016 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, 2016, 2015 and 2014.
Non-Cash Stock-Based Compensation
We grant non-vested stock awards, and to a lesser extent, stock options to our employees, with the related compensation
expense 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 were 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
2016 Annual Report of up to ten years from the January 2011 grant date in order for the awarded shares to become fully vested and nonforfeit-
able. As a result of the awarding of these shares, the grantees became eligible to receive payments of dividends and exercise
voting privileges after the awarding date.
During the first quarter of 2017, the performance conditions for approximately 169,000 shares of the Company’s
common stock granted under the Company’s Stock Incentive Plan were determined by the Compensation Committee to have
been satisfied relative to performance-based grants issued in 2012. These grants had a performance measurement period
that concluded on December 31, 2016. The vesting condition for these grants requires continuous employment for a period
of up to ten years from the January 2012 grant date in order for the awarded shares to become fully vested and nonforfeit-
able. 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.
Litigation and 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.
26
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. Results of Operations for the Years Ended December 31, 2016, 2015 and 2014
The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered
in conjunction with the accompanying Consolidated Financial Statements and related Notes.
Financial information relating to our Consolidated Financial Results is as follows:
(in thousands, except percentages)
REVENUES
2016
Percent
Change
2015
Percent
Change
2014
Core commissions and fees
$ 1,697,308
6.4 %
$ 1,595,218
6.4 % $ 1,499,903
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
54,000
11,479
1,456
2,386
4.4 %
14.5 %
45.0 %
(6.6)%
51,707
(10.4) %
57,706
10,026
1.8 %
1,004
34.4 %
2,554
(66.3) %
9,851
747
7,589
1,766,629
6.4 %
1,660,509
5.4 %
1,575,796
925,217
262,872
8.0 %
4.7 %
856,952
251,055
5.7 %
6.7 %
811,112
235,328
(1,291)
108.6 %
(619)
(101.3) %
86,663
21,003
39,481
9,185
(0.9) %
0.5 %
0.6 %
NMF
87,421
20,890
5.5 %
— %
39,248
38.2 %
3,003
(69.8) %
47,425
82,941
20,895
28,408
9,938
Total expenses
1,343,130
6.8 %
1,257,950
1.8 %
1,236,047
27
Income before income taxes
Income taxes
NET INCOME
Organic revenue growth rate (1)
Employee compensation and benefits
relative to total revenues
Other operating expenses relative
to total revenues
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
NMF = Not a meaningful figure
423,499
166,008
5.2 %
4.2 %
402,559
18.5 %
339,749
159,241
19.9 %
132,853
$ 257,491
5.7 %
$ 243,318
17.6 % $ 206,896
3.0 %
52.4 %
14.9 %
2.6 %
51.6 %
15.1 %
2.0 %
51.5 %
14.9 %
$
17,765
$ 5,287,343
$
18,375
$ 5,004,479
$
24,923
$ 4,946,560
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2016, increased $105.8 million to
$1,762.8 million, or 6.4% over 2015. Core commissions and fees revenue for 2016 increased $102.1 million, of which approxi-
mately $61.7 million represented core commissions and fees from agencies acquired since 2015 that had no comparable
revenues. After accounting for divested business of $6.6 million, the remaining net increase of $47.0 million represented net
new business, which reflects a growth rate of 3.0% for core organic commissions and fees. Profit-sharing contingent commissions
and GSCs for 2016 increased by $3.7 million, or 6.1%, compared to the same period in 2015. The net increase of $3.7 million was
mainly driven by an increase in profit-sharing contingent commissions and GSCs in the Retail Segment, partially offset by a
decrease in profit-sharing contingent commissions in the Wholesale Brokerage Segment as a result of increased loss ratios.
2016 Annual Report
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 the same period in 2014. Core commissions and fees revenue in 2015 increased $95.3
million, of which approximately $76.6 million represented core commissions and fees from acquisitions that had no compa-
rable revenues in 2014. 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.
Investment Income
Investment income increased to $1.5 million in 2016, compared with $1.0 million in 2015 due to additional interest income
driven by higher average invested cash balances. 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.
Other Income, Net
Other income for 2016 was $2.4 million, compared with $2.6 million in 2015 and $7.6 million in 2014. Other income
consists primarily of legal settlements and other miscellaneous income for 2016 and 2015. In 2014, 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. We recognized gains of $1.3 million, $0.6 million and
$5.3 million from sales on books of business (customer accounts) in 2016, 2015 and 2014, respectively.
28
Employee Compensation and Benefits
Employee compensation and benefits expense increased 8.0%, or $68.3 million, in 2016 over 2015. This increase included
$23.3 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of
2015. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time
periods of 2016 and 2015 increased by $45.0 million or 5.2%. This underlying employee compensation and benefits expense
increase was primarily related to (i) an increase in producer commissions correlated to increased revenue; (ii) increased staff
salaries that included severance cost; (iii) increased profit center bonuses due to increased revenue and operating profit;
(iv) the increased cost of health insurance; and (v) an increase in non-cash stock-based compensation expense due to
forfeiture credits recognized in 2015. Employee compensation and benefits expense as a percentage of total revenues was
52.4% for 2016 as compared to 51.6% for the year ended December 31, 2015.
Employee compensation and benefits expense increased, 5.7% or $45.8 million in 2015 over 2014. This increase included
$26.3 million of compensation costs related to new acquisitions that were stand-alone offices. Therefore, employee compen-
sation and benefits from those offices that existed in the same time periods of 2015 and 2014 increased by $19.5 million
or 4.3%. 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 commis-
sions 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 51.6% for 2015 as compared to 51.5% for the year ended
December 31, 2014.
Other Operating Expenses
As a percentage of total revenues, other operating expenses represented 14.9% in 2016, 15.1% in 2015, and 14.9% in
2014. Other operating expenses in 2016 increased $11.8 million, or 4.7%, over 2015, of which $9.5 million was related to
acquisitions that had no comparable costs in the same period of 2015. The other operating expenses for those offices that
existed in the same periods in both 2016 and 2015 increased by $2.3 million or 0.9%, which was primarily attributable to
increased data processing related to the information technology spend for our multi-year investment program, partially
offset by the receipt of certain premium tax refunds by our National Flood Program business.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. 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.
Gain or Loss on Disposal
The Company recognized a gain on disposal of $1.3 million and $0.6 million in 2016 and 2015 respectively, and a loss 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, 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. In 2014 the Company recognized $5.3 million in gains from sales on books of business (customer
accounts) reported as Other Income.
Amortization
Amortization expense decreased $0.8 million, or 0.9%, in 2016, and increased $4.5 million, or 5.5%, in 2015. The decrease
for 2016 is a result of certain intangibles becoming fully amortized or otherwise written off as part of disposed businesses,
partially offset with amortization of new intangibles from recently acquired businesses. The increase for 2015 is a result of
the amortization of newly acquired intangibles being greater than the decrease associated with intangibles that became
fully amortized or otherwise written off as part of disposed businesses during 2015.
Depreciation
Depreciation expense increased $0.1 million, or 0.5%, in 2016 and remained flat in 2015. These changes were due primarily
to the addition of fixed assets resulting from acquisitions completed in 2015 and 2016, net of assets which became fully
depreciated. The increase in 2015 was due primarily to the addition of fixed assets resulting from acquisitions completed
since 2014, while the stable level of expense in 2016 versus 2015 reflected capital additions approximately equal to the
value of prior capital additions that became fully depreciated.
29
Interest Expense
Interest expense increased $0.2 million, or 0.6%, in 2016, and $10.8 million, or 38.2% in 2015. The increase in 2015 was
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 2014 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 in
September 2014 at a fixed rate of interest of 4.200%. The Credit Facility term loan proceeds replaced pre-existing 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 upon 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. The increase in 2016 versus 2015 is due to the rise in the floating interest rate of our Credit Facility term
loan, partially offset by the scheduled amortized principal payments on the Credit Facility term loan which has reduced the
Company’s average debt balance.
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
2016 Annual Report 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, 2016, 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, 2016, 2015, and 2014 were as follows:
(in thousands)
Change in fair value of estimated acquisition earn-out payables
Interest expense accretion
Net change in earnings from estimated acquisition earn-out payables
2016
2015
$
$
6,338
$
13
$
2,847
2,990
9,185
$
3,003
$
2014
7,375
2,563
9,938
For the years ended December 31, 2016, 2015 and 2014, the fair value of estimated earn-out payables was re-evaluated
and increased by $6.3 million, $13.0 thousand and $7.4 million, respectively, which resulted in charges to the Consolidated
Statement of Income.
As of December 31, 2016, the estimated acquisition earn-out payables equaled $63.8 million, of which $31.8 million
was recorded as accounts payable and $32.0 million was recorded as other non-current liability. 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.
30
Income Taxes
The effective tax rate on income from operations was 39.2% in 2016, 39.6% in 2015, and 39.1% in 2014. The decrease in
the effective tax rate is driven by several permanent tax differences along with the apportionment of taxable income in the
states where we operate.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc.
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 within the preceding 12 months.
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 organic revenue 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.
The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to organic revenue
for the years ended December 31, 2016, and 2015, is as follows:
(in thousands)
Total commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Total core commissions and fees
Less acquisition revenues
Less divested business
Organic Revenue
For the Year Ended December 31,
2016
2015
$ 1,762,787
$ 1,656,951
54,000
11,479
51,707
10,026
1,697,308
1,595,218
61,713
—
—
6,669
$ 1,635,595
$ 1,588,549
The growth rates for organic revenue, a non-GAAP measure as defined in the General section of this MD&A, for the years
ended December 31, 2016, 2015 and 2014 by Segment, are as follows:
(in thousands, except percentages)
2016
2015
For the Year Ended December 31,
31
Total Net
Total Net
Change Growth %
Less
Acquisition
Organic
Organic
Revenues
Growth $ (2) Growth % (2)
Retail (1)
$ 881,090
$ 834,197
$ 46,893
5.6 %
$ 31,151 $ 15,742
1.9 %
National Programs
430,479
411,589
18,890
4.6 %
1,680
17,210
4.2 %
Wholesale Brokerage
229,657
200,835
28,822
14.4 %
Services
156,082
141,928
14,154
10.0 %
20,164
8,718
8,658
4.3 %
5,436
3.8 %
Total core commissions
and fees
$ 1,697,308
$ 1,588,549
$ 108,759
6.8 %
$ 61,713 $ 47,046
3.0 %
The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to organic revenue
for the years ended December 31, 2015 and 2014, is as follows:
(in thousands)
Total commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Total core commissions and fees
Less acquisition revenues
Less divested business
Organic Revenue
For the Year Ended December 31,
2015
2014
$ 1,656,951
$ 1,567,460
51,707
10,026
57,706
9,851
1,595,218
1,499,903
76,632
—
—
19,336
$ 1,518,586
$ 1,480,567
2016 Annual Report
Segment results for 2014 have been recast to reflect the current year segmental structure. Certain reclassifications 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.
(in thousands, except percentages)
2015
2014
For the Year Ended December 31,
Total Net
Total Net
Change Growth %
Less
Acquisition
Revenues
Organic
Growth $ (2) Growth $ (2)
Organic
Retail (1)
$ 836,123
$ 789,503
$ 46,620
5.9 %
$ 35,644
$ 10,976
1.4 %
National Programs
412,885
367,672
45,213
12.3 %
38,519
6,694
1.8 %
Wholesale Brokerage
200,835
187,257
13,578
7.3 %
2,469
11,109
5.9 %
Services
145,375
136,135
9,240
6.8 %
—
9,240
6.8 %
Total core commissions
and fees
$ 1,595,218
$ 1,480,567
$ 114,651
7.7 %
$ 76,632
$ 38,019
2.6 %
The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to organic revenue
for the years ended December 31, 2014 and 2013, is as follows:
(in thousands)
Total commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Total core commissions and fees
32
Less acquisition revenues
Less divested business
Organic Revenue
For the Year Ended December 31,
2014
2013
$ 1,567,460
$ 1,355,503
57,706
9,851
51,251
8,275
1,499,903
1,295,977
186,785
—
—
8,457
$ 1,313,118
$ 1,287,520
(in thousands, except percentages)
2014
2013
For the Year Ended December 31,
Total Net
Total Net
Change Growth %
Less
Acquisition
Organic
Organic
Revenues
Growth $ (2) Growth % (2)
Retail (1)
$ 792,794
$ 701,211
$ 91,583
13.1 %
$ 77,315
$ 14,268
2.0 %
National Programs
376,483
277,082
99,401
35.9 %
93,803
5,598
2.0 %
Wholesale Brokerage
194,144
177,725
16,419
9.2 %
68
16,351
9.2 %
Services
136,482
131,502
4,980
3.8 %
15,599
(10,619)
(8.1) %
Total core commissions
and fees
$ 1,499,903
$ 1,287,520
$ 212,383
16.5 %
$ 186,785
$ 25,598
2.0 %
Less Superstorm Sandy
$
—
$
(18,275) $ 18,275 100.0 %
$
—
$ 18,275 100.0 %
2014 Total core commissions
and fees-adjusted
$ 1,499,903
$ 1,269,245
$ 230,658
18.2 %
$ 186,785
$ 43,873
3.5 %
(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.
(2) A non-GAAP measure
There would have been a 3.5% Organic 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.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc.
Retail Segment
The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public,
professional and individual insured customers. Approximately 85.7% 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 commis-
sions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related
producer compensation, 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
2016
Percent
Change
2015
Percent
Change
2014
Core commissions and fees
$ 881,729
5.3 %
$ 837,420
5.5 % $ 793,865
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
25,207
9,787
37
646
14.3 %
18.0 %
(57.5)%
(74.1) %
22,051
8,291
2.0 %
7.3 %
87
29.9 %
2,497
NMF
21,616
7,730
67
408
917,406
5.4 %
870,346
5.7 %
823,686
486,303
146,286
(1,291)
43,447
6,191
38,216
10,253
6.3 %
6.4 %
7.0 %
(3.8) %
(5.6) %
(6.9) %
NMF
457,351
137,519
(1,207)
45,145
6,558
5.8 %
2.9 %
— %
5.1 %
1.7 %
41,036
(5.7) %
2,006
(73.1) %
432,169
133,682
—
42,935
6,449
43,502
7,458
33
Total expenses
729,405
6.0 %
688,408
3.3 %
666,195
Income before income taxes
$ 188,001
3.3 %
$ 181,938
15.5 % $ 157,491
Organic revenue growth rate (1)
Employee compensation and benefits relative
to total revenues
Other operating expenses relative
to total revenues
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
NMF = Not a meaningful figure
1.9 %
53.0 %
15.9 %
1.4 %
52.5 %
15.8 %
2.0 %
52.5 %
16.2 %
$
5,951
$ 3,854,393
$
6,797
$ 3,507,476
$
6,873
$ 3,229,484
The Retail Segment’s total revenues in 2016 increased 5.4%, or $47.1 million, over the same period in 2015, to
$917.4 million. The $44.3 million increase in core commissions and fees revenue was driven by the following: (i) approxi-
mately $31.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues
in the same period of 2015; (ii) $15.7 million related to net new business; and (iii) an offsetting decrease of $2.6 million
related to commissions and fees revenue from business divested in 2015 and 2016. Profit-sharing contingent commissions
and GSCs in 2016 increased 15.3%, or $4.7 million, over 2015, to $35.0 million. The Retail Segment’s organic revenue
2016 Annual Report
growth rate for core organic commissions and fees revenue was 1.9% for 2016 and was driven by revenue from net new
business written during the preceding twelve months along with modest increases in commercial auto rates and underlying
exposure unit values that drive insurance premiums, and partially offset by rate reductions in most lines of coverage, other
than commercial auto, with the most pronounced declines realized for insurance premium rates for properties in catastro-
phe-prone areas.
Income before income taxes for 2016 increased 3.3%, or $6.1 million, over the same period in 2015, to $188.0 million.
This growth in income before income taxes was negatively impacted by $10.3 million in expense associated with the change
in estimated acquisition earn-out payables, an increase of $8.2 million over the same period in 2015. Other factors affecting
this increase were: (i) the net increase in revenue as described above; (ii) a 6.3%, or $29.0 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 and to a lesser extent continued investment in producers and other staff to support current and
future expected organic revenue growth; and (iii) operating expenses which increased by $8.8 million or 6.4%, primarily
due to increased value-added consulting services to support our customers and increases in office rent expense, offset by
a combined decrease in amortization, depreciation and intercompany interest expense of $4.9 million.
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 recorded 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 organic
revenue 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) terminated 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 implementation of the Affordable Care Act; and (iii) reductions in property insurance premium
rates specifically in catastrophe-prone areas.
34
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 acquisi-
tions completed in the past twelve months in addition to incremental investments in revenue producing teammates; and (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.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. 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 commission-based.
Financial information relating to our National Programs Segment is as follows:
(in thousands, except percentages)
REVENUES
2016
Percent
Change
2015
Percent
Change
2014
Core commissions and fees
$ 430,479
4.3 %
$ 412,885
9.7 % $ 376,483
Profit-sharing contingent commissions
17,306
11.2 %
15,558
(25.3) %
20,822
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
23
(23.3) %
628
199.0 %
80
56.9 %
30
210
42.9 %
28.0 %
21
164
51
(99.2) %
6,749
448,516
4.6 %
428,734
6.1 %
404,239
191,199
83,822
4.6 %
(2.7) %
—
(100.0) %
27,920
7,868
(2.0) %
8.5 %
182,854
86,157
458
7.9 %
9.4 %
— %
28,479
13.3 %
7,250
(7.1)%
45,738
(17.9)%
55,705
12.2 %
169,405
78,744
—
25,129
7,805
49,663
315
35
Change in estimated acquisition earn-out payables
207
31.0 %
158
(49.8) %
Total expenses
356,754
(1.2)%
361,061
9.1 %
331,061
Income before income taxes
$
91,762
35.6 %
$
67,673
(7.5) % $
73,178
Organic revenue growth rate (1)
Employee compensation and benefits relative
to total revenues
Other operating expenses relative to total revenues
4.2 %
42.6 %
18.7 %
1.8 %
42.6 %
20.1 %
2.0 %
41.9 %
19.5 %
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
$
6,977
$ 2,711,378
$
6,001
$ 2,505,752
$
14,133
$ 2,455,749
2016 Annual Report
National Programs total revenues in 2016 increased 4.6%, or $19.8 million, over 2015, to a total $448.5 million. The
$17.6 million increase in core commissions and fees revenue was driven by the following: (i) an increase of approximately
$1.7 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in 2015;
and (ii) $17.2 million related to net new business offset by (iii) a decrease of $1.3 million related to commissions and
fees revenue recorded in 2015 from businesses since divested. Profit-sharing contingent commissions and GSCs were
$17.3 million in 2016, which was an increase of $1.7 million over 2015, which was primarily driven by the improved loss
experience of our carrier partners.
The National Programs Segment’s organic revenue growth rate for core commissions and fees revenue was 4.2% for
2016. This organic revenue growth rate was mainly due to increased flood claims revenues and the on-boarding of net new
customers by our lender-placed coverage program. Growth in these businesses was partially offset by certain programs that
have been affected by lower rates and certain carriers changing their risk appetite for new or existing programs.
Income before income taxes for 2016 increased 35.6%, or $24.1 million, from the same period in 2015, to $91.8 million. The
increase is the result of a lower intercompany interest charge of $10.0 million, the receipt of certain premium tax refunds by our
National Flood Program business, along with revenue growth of $19.8 million.
The National Programs Segment’s total revenues in 2015 increased 6.1%, or $24.5 million, over 2014, to a total of
$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 commis-
sions and fees revenue recorded in 2014 from businesses since divested. Profit-sharing contingent commissions and GSCs
were $15.6 million in 2015, a decrease of $5.3 million from the same period of 2014, which was primarily driven by the loss
experience of our carrier partners.
The National Programs Segment’s organic revenue growth rate for core commissions and fees revenue was 1.8% for
2015. This organic revenue 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 customers by
Proctor Financial. Growth in these businesses was partially offset by certain programs that have been affected by lower rates.
36
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.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. Wholesale Brokerage Segment
The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily
through independent agents and brokers, including Brown & Brown Retail Segment. 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:
Guaranteed supplemental commissions
1,669
(2.1) %
1,705
(18.8) %
11,487
(18.5) %
14,098
(7.7) %
(in thousands, except percentages)
REVENUES
Core commissions and fees
Profit-sharing contingent
commissions
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
2016
Percent
Change
2015
Percent
Change
2014
$ 229,657
14.4 %
$ 200,835
3.4 % $ 194,144
4
(97.3) %
286
37.5 %
150
208
NMF
(44.2) %
243,103
12.0 %
216,996
2.4 %
211,911
121,863
42,139
16.4 %
22.6 %
104,692
1.7 %
102,959
34,379
(5.1) %
—
(100.0) %
(385)
(100.8) %
10,801
10.9 %
9,739
(9.0) %
1,975
3,976
(7.8) %
NMF
2,142
(13.3) %
891
830
(31.1) %
(67.5) %
15,268
2,100
26
373
36,234
47,425
10,703
2,470
1,294
2,550
37
Change in estimated acquisition earn-out payables
(274)
(133.0) %
Total expenses
180,480
18.5 %
152,288
(25.2) %
203,635
Income before income taxes
$
62,623
(3.2) %
$
64,708
NMF $
8,276
Organic revenue growth rate (1)
Employee compensation and benefits relative
to total revenues
Other operating expenses relative to total
revenues
4.3 %
50.1 %
17.3 %
5.9 %
48.2 %
15.8 %
9.2 %
48.6 %
17.1 %
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
NMF = Not a meaningful figure
$
1,301
$ 1,108,829
$
3,084
$ 895,782
$
1,526
$ 857,804
The Wholesale Brokerage Segment’s total revenues for 2016 increased 12.0%, or $26.1 million, over 2015, to
$243.1 million. The $28.8 million net increase in core commissions and fees revenue was driven by the following:
(i) $8.7 million related to net new business; (ii) $20.2 million related to the core commissions and fees revenue from acquisi-
tions that had no comparable revenues in 2015; and (iii) an offsetting decrease of $0.1 million related to commissions and fees
revenue recorded in 2015 from businesses divested in the past year. Contingent commissions and GSCs for 2016 decreased
$2.6 million over 2015, to $13.2 million. This decrease was driven by an increase in loss ratios for one carrier. The Wholesale
Brokerage Segment’s organic revenue growth rate for core organic commissions and fees revenue was 4.3% for 2016, and
was driven by net new business and modest increases in exposure units, partially offset by significant contraction in insur-
ance premium rates for catastrophe-prone properties and to a lesser extent all other lines of coverage.
2016 Annual Report
Income before income taxes for 2016 decreased $2.1 million over 2015, to $62.6 million, primarily due to the following:
(i) the net increase in revenue as described above, offset by; (ii) an increase in employee compensation and benefits of $17.2
million, of which $10.8 million was related to acquisitions that had no comparable compensation and benefits in the same
period of 2015, with the remainder related to additional teammates to support increased transaction volumes; (iii) a
decrease in profit from lower contingent commissions and GSCs; (iv) a $7.8 million increase in operating expenses, of which
$3.2 million was related to acquisitions that had no comparable expenses in the same period of 2015 and (v) higher inter-
company interest charge related to acquisitions completed in the previous year.
The Wholesale Brokerage Segment’s total revenues for 2015, increased 2.4%, or $5.1 million, over 2014, to $217.0
million. 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
comparable 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 organic revenue 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.
38
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. 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
2016
Percent
Change
2015
Percent
Change
2014
Core commissions and fees
$ 156,082
7.4 %
$ 145,375
6.5 % $ 136,482
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
Loss/(gain) on disposal
Amortization
Depreciation
Interest
—
—
283
— %
— %
NMF
—
—
42
— %
— %
NMF
—
(100.0) %
(52)
(171.2) %
—
—
3
73
156,365
7.6 %
145,365
6.4 %
136,558
78,804
42,908
2.2 %
19.0 %
77,094
5.8 %
36,057
12.1 %
—
(100.0) %
515
— %
4,485
1,881
4,950
11.6 %
(5.4) %
(17.1) %
4,019
(2.8) %
1,988
(10.2) %
5,970
(22.2) %
72,879
32,168
—
4,135
2,213
7,678
(385)
39
Change in estimated acquisition earn-out payables
(1,001)
NMF
9
(102.3) %
Total expenses
132,027
5.1 %
125,652
5.9 %
118,688
Income before income taxes
$
24,338
23.5 %
$
19,713
10.3 % $
17,870
Organic revenue growth rate (1)
Employee compensation and benefits relative
to total revenues
Other operating expenses relative to total revenues
3.8 %
50.4 %
27.4 %
6.8 %
53.0 %
24.8 %
(8.1)%
53.4 %
23.6 %
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
NMF = Not a meaningful figure
$
656
$ 371,645
$
1,088
$ 285,459
$
1,210
$ 296,034
The Services Segment’s total revenues for 2016 increased 7.6%, or $11.0 million, over 2015, to $156.4 million. The
$10.7 million increase in core commissions and fees revenue was driven primarily by the following: (i) $8.7 million related to
the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2015; and
(ii) $5.4 million related to net new business; (iii) partially offset by a decrease of $3.4 million related to commissions and
fees revenue recorded in 2015 from business since divested. The Services Segment’s organic revenue growth rate for core
commissions and fees revenue was 3.8% for 2016, primarily driven by our claims.
2016 Annual Report
Income before income taxes for 2016 increased 23.5%, or $4.6 million, over 2015, to $24.3 million due to a combina-
tion of: (i) the acquisition of SSAD; (ii) our claims office that handled catastrophe claims; (iii) the continued efficient operation
of our businesses; and (iv) lower intercompany interest charges.
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 customers and growth in several of our claims processing units related to new customer relationships. The
Services Segment’s organic revenue growth rate for core commissions and fees revenue was 6.8% for 2015.
Income before income taxes for 2015 increased 10.3%, or $1.8 million, over 2014, to $19.7 million due to a combination
of: (i) organic 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.
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
intercompany interest expense charges to reporting segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks 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 facility, which provides up to
$800.0 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 facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-
term debt, for at least the next twelve months.
40
Our cash and cash equivalents of $515.6 million at December 31, 2016 reflected an increase of $72.2 million from the
$443.4 million balance at December 31, 2015. During 2016, $375.1 million of cash was generated from operating activities.
During this period, $122.6 million of cash was used for acquisitions, $28.2 million was used for acquisition earn-out pay-
ments, $17.8 million was used for additions to fixed assets, $70.3 million was used for payment of dividends, $7.7 million
was used for share repurchases, and $73.1 million was used to pay outstanding principal balances owed on long-term debt.
We hold approximately $19.9 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 $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, $36.8 million was used for acquisition earn-out pay-
ments, $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.
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, $12.1 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.
On May 1, 2014, we completed the acquisition of Wright for a total cash purchase price of $609.2 million, subject to
certain adjustments. We financed the acquisition through various modified and new credit facilities.
Our ratio of current assets to current liabilities (the “current ratio”) was 1.22 and 1.16 at December 31, 2016 and
2015, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. Contractual Cash Obligations
As of December 31, 2016, 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)
Payments Due by Period
Total
Less Than
1 Year
1-3 Years
4-5 Years After 5 Years
$ 1,081,750
$ 55,500
$ 526,250
$
—
$ 500,000
67,863
213,160
193,974
750
18,578
42,727
36,550
—
13,175
73,782
58,549
750
1,792
51,615
42,000
—
117,231
46,975
69,601
655
34,318
45,036
56,875
—
—
Total contractual cash obligations
$ 1,674,728
$ 200,330
$ 742,107
$ 96,062
$ 636,229
(1) Includes the current portion of other long-term liabilities.
(2) Includes $63.8 million of current and non-current estimated earn-out payables resulting from acquisitions consummated after
January 1, 2009.
Debt
Total debt at December 31, 2016 was $1,073.9 million, which was a decrease of $70.9 million compared to December 31,
2015. The decrease includes the repayment of $73.1 million in principal, net of the amortization of discounted debt related
to our 4.200% Notes due 2024 and debt issuance cost amortization of $1.7 million plus the addition of $0.5 million in a
short-term note payable related to the recent acquisition of Social Security Advocates for the Disabled, LLC.
As of December 31, 2016, the Company satisfied the sixth installment of scheduled quarterly principal payments on the
Credit Facility term loan. The Company has satisfied $68.8 million in total principal payments through December 31, 2016
since the inception of the note. Scheduled quarterly principal payments are expected to be made until maturity. The balance
of the Credit Facility term loan was $481.3 million as of December 31, 2016. Of the total amount, $55.0 million is classified
as current portion of long-term debt in the Condensed Consolidated Balance Sheet as the date of maturity is less than one year.
41
On March 14, 2016, the Company terminated the Wells Fargo Revolver $25.0 million facility without incurring any fees.
The facility was to mature on December 31, 2016. The Company terminated the Wells Fargo Revolver as it has flexibility with
the Credit Facility revolver capacity and current capital and credit resources available.
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 4.200% 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 was $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 that were due in 2016.
During 2015, the $25.0 million of 5.660% 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. On December 22,
2016, the Series C notes were retired at maturity and settled with cash.
2016 Annual Report
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, 2016 and December 31, 2015, 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, 2016 we had $481.3 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
42
principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars.
Based upon our foreign currency rate exposure as of December 31, 2016, an immediate 10% hypothetical changes of
foreign currency exchange rates would not have a material effect on our Consolidated Financial Statements.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsBrown & Brown, Inc. Consolidated
Statements of Income
(in thousands, except per share data)
2016
2015
2014
For the Year Ended December 31,
REVENUES
Commissions and fees
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
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
Net income per share:
Basic
Diluted
Dividends declared per share
See accompanying notes to Consolidated Financial Statements.
$ 1,762,787
$ 1,656,951
$ 1,567,460
1,456
2,386
1,004
2,554
747
7,589
1,766,629
1,660,509
1,575,796
925,217
262,872
(1,291)
86,663
21,003
39,481
9,185
856,952
251,055
(619)
87,421
20,890
39,248
3,003
811,112
235,328
47,425
82,941
20,895
28,408
9,938
1,343,130
1,257,950
1,236,047
423,499
166,008
402,559
159,241
339,749
132,853
$ 257,491
$ 243,318
$ 206,896
$
$
$
1.84
1.82
0.50
$
$
$
1.72
1.70
0.45
$
$
$
1.43
1.41
0.41
43
2016 Annual Report
Consolidated
Balance Sheets
(in thousands, except per share data)
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash and investments
Short-term investments
Premiums, commissions and fees receivable
Reinsurance recoverable
Prepaid reinsurance premiums
Deferred income taxes
Other current assets
Total current assets
Fixed assets, net
Goodwill
Amortizable intangible assets, net
Investments
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies
44
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 less unamortized discount and debt issuance costs
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 148,107 shares and outstanding 140,104 shares at 2016,
issued 146,415 shares and outstanding 138,985 shares at 2015
Additional paid-in capital
At December 31,
2016
2015
$
515,646
$ 443,420
265,637
15,048
502,482
78,083
308,661
24,609
50,571
229,753
13,734
433,885
31,968
309,643
24,635
50,351
1,760,737
1,537,389
75,807
81,753
2,675,402
2,586,683
707,454
23,048
44,895
744,680
18,092
35,882
$ 5,287,343
$ 5,004,479
$
647,564
$ 574,736
78,083
308,661
83,765
69,595
201,989
55,500
31,968
309,643
83,098
63,910
192,067
73,125
1,445,157
1,328,547
1,018,372
1,071,618
382,295
81,308
360,949
93,589
14,811
468,443
14,642
426,498
Treasury stock, at cost 8,003 and 7,430 shares at 2016 and 2015, respectively
(257,683)
(238,775)
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to Consolidated Financial Statements.
2,134,640
1,947,411
2,360,211
2,149,776
$ 5,287,343
$ 5,004,479
Brown & Brown, Inc.
Consolidated Statements of
Shareholders’ Equity
(in thousands, except per share data)
Shares
Par
Value
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Total
Common Stock
Balance at January 1, 2014
145,419
$
14,542
$ 371,960
$
— $ 1,620,639
$ 2,007,141
442
44
30,405
(75,025)
Common stock issued to directors
10
1
Cash dividends paid ($0.37 per share)
(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
Net income
Common stock issued for employee
stock benefit plans
Purchase of treasury stock
Income tax benefit from exercise
of stock benefit plans
528
53
27,992
(11,250)
(163,750)
206,896
206,896
30,449
(75,025)
3,298
320
243,318
243,318
28,045
(175,000)
3,276
500
(64,108)
(64,108)
3,298
319
3,276
498
Common stock issued to directors
16
2
Cash dividends paid
($0.41 per share)
Balance at December 31, 2015
146,415
14,642
426,498
(238,775)
1,947,411
2,149,776
45
Net income
257,491
257,491
Common stock issued for employee
stock benefit plans
1,675
167
Purchase of treasury stock
Income tax benefit from exercise
of stock benefit plans
Common stock issued to directors
17
2
Cash dividends paid
($0.50 per share)
(18,908)
22,851
11,250
7,346
498
23,018
(7,658)
7,346
500
(70,262)
(70,262)
Balance at December 31, 2016
148,107
$ 14,811
$ 468,443
$
(257,683) $ 2,134,640
$ 2,360,211
See accompanying notes to Consolidated Financial Statements.
2016 Annual Report
Consolidated Statements of
Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization
Depreciation
Non-cash stock-based compensation
Change in estimated acquisition earn-out payables
Deferred income taxes
Amortization of debt discount
Amortization and disposal of deferred financing costs
Accretion of discounts and premiums, investments
Income tax benefit from exercise of shares from the stock benefit plans
Loss/(gain) on sales of investments, fixed assets and customer accounts
Payments on acquisition earn-outs in excess of original
For the Year Ended December 31,
2016
2015
2014
$
257,491
$
243,318
$
206,896
86,663
21,003
16,052
9,185
18,163
165
1,597
39
(7,346)
596
87,421
20,890
15,513
3,003
22,696
157
—
—
(3,276)
(107)
82,941
20,895
19,363
9,938
7,369
46
—
—
(3,298)
42,465
estimated payables
(3,904)
(11,383)
(2,539)
Changes in operating assets and liabilities, net of effect from acquisitions
and divestitures:
Restricted cash and investments (increase) decrease
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 increase (decrease)
Losses and loss adjustment reserve increase (decrease)
Unearned premiums (decrease) increase
Accounts payable increase
Accrued expenses and other liabilities increase
Other liabilities (decrease)
46
(35,884)
(63,550)
(46,115)
982
(4,718)
66,084
527
46,115
(982)
30,174
8,670
(25,849)
30,016
(7,163)
(18,940)
10,943
(5,318)
542
(2,973)
18,940
(10,943)
34,206
8,204
(23,898)
(9,760)
(11,160)
12,210
(31,573)
(12,564)
8,164
2,323
(12,210)
31,573
36,949
11,718
(24,727)
Net cash provided by operating activities
375,158
411,848
385,019
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
Settlement (prepayment) of accelerated share repurchase program
Cash dividends paid
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
(17,765)
(122,622)
4,957
(25,872)
18,890
(142,412)
(24,309)
—
(73,125)
—
—
7,346
15,983
(8,495)
(18,908)
11,250
(70,262)
(160,520)
72,226
443,420
(18,375)
(136,000)
10,576
(22,766)
21,928
(24,923)
(696,486)
13,631
(17,813)
18,278
(144,637)
(707,313)
(25,415)
—
(45,625)
—
—
3,276
15,890
(2,857)
(163,750)
(11,250)
(64,108)
(293,839)
(26,628)
470,048
(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
Cash and cash equivalents at end of period
$
515,646
$
443,420
$
470,048
See accompanying notes to Consolidated Financial Statements.
Brown & Brown, Inc.
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 custom-
ers, 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, govern-
mental entities and market niches, all of which are delivered through nationwide networks of independent 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.
Recently Issued Accounting Pronouncements
In November 2016, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18,
“Statement of Cash Flows (Topic 230)”: Restricted Cash (“ASU 2016-18”), which requires that the Statement of Cash Flows
explain the changes during the period of cash and cash equivalents inclusive of amounts categorized as Restricted Cash.
As such, upon adoption, the Company’s Statement of Cash Flows will show the sources and uses of cash that explain the
movement in the balance of cash and cash equivalents, inclusive of restricted cash, over the period presented. ASU 2016-18
is effective for periods beginning after December 15, 2017.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash
Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”), which addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and
cash payments are presented and classified and applies to all entities, including both business entities and not-for-profit
entities that are required to present a statement of cash flows under Topic 230. ASU 2016-15 will take effect for public
companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early
adoption is permitted. The Company has evaluated the impact of ASU 2016-15 and has determined the impact to be
immaterial. The Company already presents cash paid on contingent consideration in business combination as prescribed
by ASU 2016-15 and does not, at this time, engage in the other activities being addressed.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU
2016-09”), which amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock
Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement
of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years and early adoption is permitted. The Company has evaluated the impact of adoption of the ASU on its
Consolidated Financial Statements. The principal impact will be that the tax benefit or expense from stock compensation
will be presented in the income tax line of the Statement of Income rather than the current presentation as a component
of equity on the Balance Sheet. Also the tax benefit or expense will be presented as activity in Cash Flow from Operating
Activity rather than the current presentation as Cash Flow from Financing Activity in the Statement of Cash Flows. The
Company will also continue to estimate forfeitures of stock grants as allowed by ASU 2016-09.
In March 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus
Net)” (“ASU 2016-08”) to clarify certain aspects of the principal-versus-agent guidance included in the new revenue stand-
ard ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). The FASB issued the ASU in response to
concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the
47
2016 Annual Report Notes
to Consolidated Financial Statements
revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an
agent in accordance with the revenue standard’s control principle. ASU 2016-08 is effective contemporaneous with ASU
2014-09 beginning January 1, 2018. The impact of ASU 2016-08 is currently being evaluated along with ASU 2014-09. At
this point in our evaluation the potential impact would be limited to the claims administering activities within our Services
Segment and therefore not material to the Company.
In February 2016, the FASB issued 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 continues to evaluate the impact of this
pronouncement with the principal impact being that the present value of the remaining lease payments be presented as a
liability on the Balance Sheet as well as an asset of similar value representing the “Right of Use” for those leased properties.
As detailed in Note 13, the undiscounted contractual cash payments remaining on leased properties is $213 million as of
December 31, 2016.
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 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. Specifically in situations where
multiple performance obligations exist within the contract, the use of estimates is required to allocate the transaction price
to each separate performance obligation. Historically 70% or more of the Company’s revenue is in the form of commissions
paid by insurance carriers. Commission are earned upon the effective date of bound coverage and no significant performance
obligation remains in those arrangements after coverage is bound. The Company is currently evaluating the approximately
30% of revenue earned in the form of fees against the requirements of this pronouncement. Fees are predominantly in our
National Programs and Services Segments, and to a lesser extent in the large accounts business within our Retail Segment. At
the conclusion of this evaluation it may be determined that fee revenue from certain agreements will be recognized in
earlier periods under the new guidance in comparison to our current accounting policies and others will be recognized in
later periods. Based upon the work completed to date, management does not expect the overall impact to be significant.
ASU 2014-09 is effective 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.
We do not anticipate a material change in our internal control framework necessitated by the adoption of ASU 2014-09.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries. All
significant intercompany account balances and transactions have been eliminated in the Consolidated Financial Statements.
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.
48
Brown & Brown, Inc.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 pre-
mium is processed into our systems and invoiced to the customer, whichever is later. Commission revenues related to
installment billings are recognized 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 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 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 premiums
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.
49
In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applica-
ble 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. The Company’s investment holdings include U.S.
Government securities, municipal bonds, 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 within 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
2016 Annual Report straight-line method over the estimated useful lives of the related assets, which range from three to 15 years. Leasehold
improvements are amortized on the straight-line method over the shorter of the useful life of the improvement or the term
of the related lease.
Goodwill and Amortizable Intangible Assets
All of our business combinations initiated after June 30, 2001 are accounted for using the acquisition method. Acquisition
purchase prices are typically based upon a multiple of average annual operating profit earned over a 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 upon 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 3 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.
50
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
upon 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. Brown & Brown completed its most recent annual
assessment as of November 30, 2016 and determined that the fair value of goodwill exceeded the carrying value of such
assets. In addition, as of December 31, 2016, 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 impair-
ments recorded for the years ended December 31, 2016, 2015 and 2014.
Income Taxes
Brown & Brown records income tax expense using the asset-and-liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of
temporary differences between the financial statement carrying values and the income tax bases of Brown & Brown’s
assets and liabilities.
Brown & Brown files a consolidated federal income tax return and has elected to file consolidated returns in certain
states. Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses
charged to income for financial reporting purposes in one period and deducted for income tax purposes in other periods.
Brown & Brown, Inc.Notes to Consolidated Financial Statements Net Income Per Share
Basic EPS is computed based upon the weighted-average number of common shares (including participating securities)
issued and outstanding during the period. Diluted EPS is computed based upon 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
2016
2015
2014
$ 257,491
$ 243,318
$ 206,896
Net income attributable to unvested awarded performance stock
(6,705)
(5,695)
(5,186)
Net income attributable to common shares
$ 250,786
$ 237,623
$ 201,710
Weighted-average number of common shares outstanding – basic
139,779
141,113
144,568
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
(3,640)
(3,303)
(3,624)
136,139
137,810
140,944
1,665
2,302
1,947
Weighted-average number of shares outstanding – diluted
137,804
140,112
142,891
Net income per share:
Basic
Diluted
$
$
1.84
1.82
$
$
1.72
1.70
$
$
1.43
1.41
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, 2016 and 2015, approximate fair value
because of the short-term maturity of these instruments. The carrying amount of Brown & Brown’s long-term debt approxi-
mates fair value at December 31, 2016 and 2015 as our fixed-rate borrowings of $598.8 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.
The estimated fair value of the $481.3 million remaining on the term loan under our Credit Facility (as defined below)
approximates the carrying value due to the variable interest rate based upon 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 adjust-
ment 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.
51
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 alterna-
tive-transition method to account for the income tax effects of payments made related to stock-based compensation.
The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the
Employee Stock Purchase Plan (the “ESPP”). Compensation for non-vested stock awards is measured at fair value on the
grant date based upon the number of shares expected to vest. Compensation cost for all awards is recognized in earnings,
net of estimated forfeitures, on a straight-line basis over the requisite service period.
2016 Annual Report
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 the Wright National Flood Insurance Company (“WNFIC”), which is
part of our National Programs Segment. However, all exposure is reinsured with the Federal Emergency Management Agency
(“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 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 recovera-
bles 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.
52
Unpaid Losses and Loss Adjustment Reserve
Unpaid losses and loss adjustment reserve include amounts determined on individual claims and other estimates based
upon the past experience of WNFIC and the policyholders for IBNR claims, less anticipated salvage and subrogation recover-
able. 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, 2016, the Company acquired the assets and assumed certain liabilities of seven
insurance intermediaries, all of the stock of one insurance intermediary and three books of business (customer accounts).
Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions com-
pleted 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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements The fair value of earn-out obligations is based upon the present value of the expected future payments to be made
to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements.
In determining fair value, the acquired business’s future performance is estimated using financial projections developed
by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or
profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets
specified in each purchase agreement compared to the associated financial projections. These payments are then discounted
to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments
will be made.
Based upon 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, 2016, several adjustments were
made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected
acquisitions of $917,497 relating to the assumption of certain liabilities. These measurement period adjustments have been
reflected as current period adjustments for the year ended December 31, 2016 in accordance with the guidance in ASU
2015-16 “Business Combinations.” The measurement period adjustments impacted goodwill, with no effect on earnings or
cash in the current period.
Cash paid for acquisitions was $124.7 million and $136.0 million in the years ended December 31, 2016 and 2015,
respectively. We completed eight acquisitions (excluding book of business purchases) during the year ended December 31,
2016. We completed thirteen acquisitions (excluding book of business purchases) in the twelve-month period ended
December 31, 2015.
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
Social Security
Advocates for
the Disabled
LLC (SSAD)
Effective
Business
Date of
Segment Acquisition
Cash
Paid
Note
Payable
Other
Payable
Recorded
Earn-Out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-Out
Payable
53
Services
February 1,
2016
$ 32,526
$
492
$
—
$
971
$ 33,989
$
3,500
Morstan
General
Agency, Inc. Wholesale
Brokerage
(Morstan)
June 1,
2016
66,050
Various
Various
26,140
Other
Total
—
—
10,200
3,091
79,341
464
400
27,004
5,000
7,785
$ 124,716
$
492
$
10,664
$ 4,462
$ 140,334
$ 16,285
2016 Annual Report
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
Total liabilities assumed
Net assets acquired
SSAD
Morstan
Other
$
2,094
$
—
$
—
$
1,042
307
22,352
13,069
72
—
2,482
300
51,454
26,481
39
—
1,555
77
19,570
11,075
117
20
Total
2,094
5,079
684
93,376
50,625
228
20
38,936
80,756
32,414
152,106
(1,717)
(3,230)
(4,947)
(1,415)
(5,410)
—
—
(8,542)
(3,230)
(1,415)
(5,410)
(11,772)
$
33,989
$
79,341
$
27,004
$ 140,334
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 $93.4 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments
in the amounts of $13.1 million, $(1.2) thousand, $57.9 million and $22.4 million, respectively. Of the total goodwill of
$93.4 million, $88.9 million is currently deductible for income tax purposes. The remaining $4.5 million relates to the
recorded earn-out payables and will not be deductible until it is earned and paid.
54
For the acquisitions completed during 2016, 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, 2016, included in the
Consolidated Statement of Income for the year ended December 31, 2016, were $34.2 million. The income before income
taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2016,
included in the Consolidated Statement of Income for the year ended December 31, 2016, was $4.3 million. If the acquisi-
tions 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,
2016
2015
$ 1,789,790
$ 1,716,592
$ 428,194
$ 414,911
$ 260,346
$ 250,783
$
$
1.86
1.84
$
$
1.78
1.75
136,139
137,804
137,810
140,112
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Acquisitions in 2015
During the year ended December 31, 2015, Brown & Brown acquired the assets and assumed certain liabilities of thirteen
insurance intermediaries and four books of business (customer accounts). The cash paid for these acquisitions was $136.0
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 “Other” within the following two tables. All of these busi-
nesses were acquired primarily to expand Brown & Brown’s core business and to attract and hire high-quality individuals.
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.
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 (Fitness)
Strategic Benefit
Advisors, Inc. (SBA)
Bentrust Financial,
Inc. (Bentrust)
MBA Insurance Agency
of Arizona, Inc. (MBA)
Smith Insurance,
Inc. (Smith)
Other
Total
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
Retail
June 1, 2015
9,455
—
2,379
11,834
3,500
55
Retail
June 1, 2015
49,600
400
13,587
63,587
26,000
Retail
December 1, 2015
10,142
391
319
10,852
2,200
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
2016 Annual Report
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.
(in thousands) Liberty Spain
Belling-
ham
Fitness
SBA Bentrust
MBA
Smith
Other
Total
$
2,486 $
324 $
— $
9 $
652 $
— $
— $
— $
169 $
3,640
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
17,066
23,573
12,877
11,846
63,587
11,034
20,853
14,004
19,289
194,129
Other current
assets
Fixed assets
Goodwill
Purchased
customer
accounts
Non-compete
agreements
Other assets
Total assets
acquired
Other current
liabilities
Deferred income
tax, net
(42)
(250)
(48)
(12)
Other liabilities
(2,043)
—
—
—
—
—
—
—
(2,085)
(250)
(48)
(12)
56
Total liabilities
assumed
Net assets
acquired
—
—
—
—
(182)
(6,280)
(504)
(4,895)
(12,213)
—
—
—
—
—
2,576
2,576
(157)
635
(1,565)
(182)
(6,280)
(661)
(1,684)
(11,202)
$ 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 intercompany 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 acquisi-
tions 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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
(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,
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
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 assumption of
certain liabilities.
57
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 (Wright)
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
—
27,452
117,452
35,000
Wholesale
Brokerage
May 1, 2014
9,870
Various
Various
12,798
—
433
1,824
3,953
11,694
17,184
5,200
9,262
$ 721,851
$ 1,904
$ 33,229
$ 756,984
$ 49,462
2016 Annual Report
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
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
—
—
20,964
8,973
25,238
289,013
10,417
513,925
4,384
260,424
166
—
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
Net assets acquired
(14,322)
(25,238)
(289,013)
(46,566)
(32,366)
(403)
—
—
—
—
(407,505)
(403)
—
—
—
—
—
—
(249)
(14,974)
—
—
—
—
(25,238)
(289,013)
(46,566)
(32,366)
(249)
(408,157)
$ 610,654
$ 117,452 $
11,694
$ 17,184
$ 756,984
58
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 intercompany 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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Weighted-average number of shares outstanding:
Basic
Diluted
For the Year Ended December 31,
2014
2013
$ 1,630,162
$ 1,520,858
$ 358,229
$ 409,522
$ 218,150
$ 248,628
$
$
1.51
1.49
$
$
1.72
1.70
140,944
142,891
141,033
142,624
As of December 31, 2016, the maximum future contingency payments related to all acquisitions totaled $117.2 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, 2016, 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, 2016, 2015 and 2014 were as follows:
59
(Unaudited)
(in thousands)
For the Year Ended December 31,
2016
2015
2014
Balance as of the beginning of the period
$
78,387
$
75,283
$
43,058
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
4,462
36,899
(28,213)
(36,798)
54,636
75,384
6,338
2,847
9,185
13
2,990
3,003
34,356
(12,069)
65,345
7,375
2,563
9,938
Balance as of December 31,
$
63,821
$
78,387
$
75,283
Of the $63.8 million estimated acquisition earn-out payables as of December 31, 2016, $31.8 million was recorded as
accounts payable and $32.0 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 $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. 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.
2016 Annual Report
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, 2015
$ 1,231,869 $ 886,095 $ 222,356 $ 120,291 $ 2,460,611
Goodwill of acquired businesses
113,767
18,009
4,605
—
136,381
Goodwill disposed of relating to sales
of businesses
—
(2,238)
—
(8,071)
(10,309)
Balance as of December 31, 2015
$ 1,345,636 $ 901,866 $ 226,961 $ 112,220 $ 2,586,683
Goodwill of acquired businesses
Goodwill of transferred businesses
13,117
571
Goodwill disposed of relating to sales of businesses
(4,657)
(1)
57,908
22,352
93,376
(571)
—
—
—
—
—
—
(4,657)
Balance as of December 31, 2016
$ 1,354,667 $ 901,294 $ 284,869 $ 134,572 $ 2,675,402
NOTE 4 Amortizable Intangible Assets
Amortizable intangible assets at December 31, 2016 and 2015 consisted of the following:
December 31, 2016
December 31, 2015
60
(in thousands)
Purchased customer
accounts
Non-compete
agreements
Gross
Carrying Accumulated
Value Amortization
Net
Carrying
Value
Weighted-
Average
Life
(in years)(1)
Gross
Carrying Accumulated
Value Amortization
Net
Carrying
Value
Weighted-
Average
Life
(in years) (1)
$ 1,447,680
$ (741,770) $ 705,910
15.0
$ 1,398,986
$ (656,799) $ 742,187
15.0
29,668
(28,124)
1,544
6.8
29,440
(26,947)
2,493
6.8
Total
$ 1,477,348 $ (769,894) $ 707,454
$ 1,428,426
$ (683,746) $ 744,680
(1) Weighted-average life calculated as of the date of acquisition.
Amortization expense for amortizable intangible assets for the years ending December 31, 2017, 2018, 2019, 2020 and
2021 is estimated to be $84.9 million, $79.6 million, $75.1 million, $67.8 million, and $64.5 million, respectively.
NOTE 5 Investments
At December 31, 2016, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
(in thousands)
U.S. Treasury securities, obligations of
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
U.S. Government agencies and Municipals
$
26,280
$
Corporate debt
Total
2,358
$
28,638
$
11
13
24
$
$
(59) $
26,232
(1)
2,370
(60) $
28,602
Brown & Brown, Inc.Notes to Consolidated Financial Statements
At December 31, 2016, the Company held $26.28 million in fixed income securities composed of U.S Treasury
securities, securities issued by U.S. Government agencies and Municipalities, and $2.4 million issued by corporations with
investment grade ratings. Of the total, $5.6 million is classified as short-term investments on the Consolidated Balance Sheet
as maturities are less than one year in duration. Additionally, the Company holds $9.5 million in short-term investments
which are related to time deposits held with various financial institutions.
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, 2016:
(in thousands)
U.S. Treasury securities, obligations
of U.S. Government agencies
and Municipals
Foreign Government
Corporate debt
Total
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$ 14,663
$
(59)
$
—
1,001
—
(1)
$ 15,664
$
(60)
$
—
—
—
—
$
$
—
—
—
—
$ 14,663
$
(59)
—
1,001
—
(1)
$ 15,664
$
(60)
The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2016, the
Company had 20 securities in an unrealized loss position. The corporate securities are highly rated securities with no
indicators of potential impairment. Based upon 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, 2016.
At December 31, 2015, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
61
(in thousands)
U.S. Treasury securities, obligations of
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
U.S. Government agencies and Municipals
$
11,876
$
Foreign government
Corporate debt
Short duration fixed income fund
Total
50
4,505
1,663
$
18,094
$
6
—
7
27
40
$
(26) $
11,856
—
(16)
—
50
4,496
1,690
$
(42) $
18,092
2016 Annual Report
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, 2015:
(in thousands)
U.S. Treasury securities, obligations
of U.S. Government agencies
and Municipals
Foreign Government
Corporate debt
Total
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
8,998
$
(26) $
50
2,731
—
(14)
$
—
—
284
—
—
(2)
$
8,998
$
50
3,015
$ 11,779
$
(40) $
284
$
(2) $ 12,063
$
(26)
—
(16)
(42)
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, 2015, the Company had
35 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 upon 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.
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2016 by contractual
maturity are set forth below:
62
(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
$
5,551
$
5,554
22,757
330
22,708
340
$
28,638
$
28,602
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2015 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
$
5,726
$
5,722
12,038
330
12,041
329
$
18,094
$
18,092
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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $6.0 million. This
along with maturing time deposits and the utilization of funds from a money market account of $9.1 million yielded total
cash proceeds from the sale of investments of $18.9 million in the period of January 1, 2016 to December 31, 2016. These
proceeds were used to purchase additional fixed maturity securities. The gains and losses realized on those sales for the
period from January 1, 2016 to December 31, 2016 were insignificant. Additionally, there was a sale of the short-duration
fixed income fund which resulted in cash proceeds of $1.7 million, as the fund was liquidated in the third quarter of 2016.
Gains on this sale were also insignificant.
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.
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, 2016, investments with a fair value of approximately $4.0 million were on deposit with state insurance
departments to satisfy regulatory requirements.
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
2016
2015
$ 177,823
$ 169,682
33,137
3,375
32,132
3,370
214,335
205,184
(138,528)
(123,431)
63
$
75,807
$
81,753
Depreciation and amortization expense for fixed assets amounted to $21.0 million in 2016, $20.9 million in 2015, and
$20.9 million in 2014.
NOTE 7 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31 consisted of the following:
(in thousands)
Accrued bonuses
Accrued compensation and benefits
Accrued rent and vendor expenses
Reserve for policy cancellations
Accrued interest
Other
Total
2016
2015
$
82,438
$
76,210
45,771
28,669
9,567
6,441
29,103
39,366
29,225
9,617
6,375
31,274
$ 201,989
$ 192,067
2016 Annual Report
NOTE 8 Long-Term Debt
Long-term debt at December 31, 2016 and 2015 consisted of the following:
(in thousands)
Current portion of long-term debt:
December 31, December 31,
2016
2015
Current portion of 5-year term loan facility expires 2019
$
55,000
$
48,125
5.660% senior notes, Series C, semi-annual interest payments, balloon due 2016
Short-term promissory note
Total current portion of long-term debt
Long-term debt:
Note agreements:
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, LIBOR plus up to 1.750%, expires May 20, 2019
5-year revolving loan facility, periodic interest payments, currently LIBOR
plus up to 1.500%, plus commitment fees up to 0.250%, expires May 20, 2019
Revolving credit loan, quarterly interest payments, LIBOR plus up to 1.400% and
availability fee up to 0.250%, expires December 31, 2016
64
Total credit agreements
Debt issuance costs (contra)
—
500
25,000
—
55,500
73,125
100,000
498,785
598,785
100,000
498,628
598,628
426,250
481,250
—
—
—
—
426,250
481,250
(6,663)
(8,260)
Total long-term debt less unamortized discount and debt issuance costs
1,018,372
1,071,618
Current portion of long-term debt
Total debt
55,500
73,125
$ 1,073,872
$ 1,144,743
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 5.660% per year. On February 1, 2008, $25.0 million in Series D Senior Notes due January 15,
2015, with a fixed interest rate of 5.370% 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 4.500% 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.
On December 22, 2016, the Series C 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, 2016, there was an outstanding debt balance issued under
the provisions of the Master Agreement of $100.0 million.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
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”). 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 (bringing the total amount
available to $75.0 million). The calculation of interest and fees for the Wells Fargo Agreement is generally based upon the
Company’s funded debt-to-EBITDA ratio. Interest is charged at a rate equal to 1.000% to 1.400% above LIBOR or 1.000%
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 0.250%, and a letter of credit margin fee of 1.000% to 1.400%. 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. The maturity date for the Wells Fargo Revolver was December 31, 2016.
However, on March 14, 2016, the Wells Fargo Revolver was terminated before its maturity date with no fees incurred. There
were no borrowings against the Wells Fargo Revolver as of December 31, 2016 or as of December 31, 2015.
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 upon the better of the Company’s net debt leverage ratio or a non-credit enhanced senior unse-
cured long-term debt rating. Based upon the Company’s net debt leverage ratio, the rates of interest charged on the term
loan are 1.000% to 1.750%, and the revolving loan is 0.850% to 1.500% above the adjusted LIBOR rate for outstanding
amounts drawn. There are fees included in the facility which include a facility fee based upon the revolving credit commit-
ments of the lenders (whether used or unused) at a rate of 0.150% to 0.250% and letter of credit fees based upon 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, 2016 and 2015, there was
an outstanding debt balance issued under the provisions of the Credit Facility in total of $481.3 million and $529.4 million
respectively, with no borrowings outstanding relative to the revolving loan. Per the terms of the agreement, scheduled
principal payments of $55.0 million are due in 2017.
On September 18, 2014, the Company issued $500.0 million of 4.200% unsecured senior notes due in 2024. The
senior notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain
covenant restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds
were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds
received from the issuance were used to repay the outstanding balance of $475.0 million on the revolving Credit Facility
and for other general corporate purposes. As of December 31, 2016 and 2015, 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, 2016 and 2015.
The 30-day Adjusted LIBOR Rate as of December 31, 2016 was 0.813%.
Interest paid in 2016, 2015 and 2014 was $37.7 million, $37.5 million, and $25.1 million, respectively.
At December 31, 2016, maturities of long-term debt were $55.5 million in 2017, $155.0 million in 2018, $371.3 million
in 2019, and $500.0 million in 2024.
65
2016 Annual Report 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
2016
2015
2014
$ 126,145
$ 118,490
$ 109,893
21,110
590
17,625
430
15,482
109
147,845
136,545
125,484
15,551
2,612
—
18,416
4,280
—
18,163
22,696
5,987
1,440
(58)
7,369
$ 166,008
$ 159,241
$ 132,853
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
66
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
2016
2015
35.0%
35.0%
3.9
0.3
0.3
(0.3)
39.2%
3.9
0.3
0.3
0.1
2014
35.0%
3.3
0.3
0.4
0.1
39.6%
39.1%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.
Significant components of Brown & Brown’s current deferred tax assets as of December 31 are as follows:
(in thousands)
Current deferred tax assets:
Deferred profit-sharing contingent commissions
Net operating loss carryforwards
Accruals and reserves
Total current deferred tax assets
2016
2015
$
10,567
$
9,767
10
10
14,032
14,858
$
24,609
$
24,635
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Significant components of Brown & Brown’s non-current deferred tax liabilities and assets as of December 31 are as follows:
(in thousands)
Non-current deferred tax liabilities:
Fixed assets
Net unrealized holding (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
2016
2015
$
6,425
$
8,585
(12)
(9)
422,478
428,891
393,251
401,827
44,912
2,384
(700)
38,966
2,518
(606)
46,596
40,878
$ 382,295
$ 360,949
Income taxes paid in 2016, 2015 and 2014 were $143.1 million, $132.9 million, and $118.3 million respectively.
At December 31, 2016, Brown & Brown had net operating loss carryforwards of $156,435 and $60.2 million for federal
and state income tax reporting purposes, respectively, portions of which expire in the years 2017 through 2036. 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 of Beecher Carlson Holdings, Inc.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Unrecognized tax benefits balance at January 1
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Settlements
2016
2015
2014
67
$
$
584
412
(41)
(205)
$
113
773
—
(302)
391
—
(21)
(257)
113
Unrecognized tax benefits balance at December 31
$
750
$
584
$
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2016 and 2015, the Company had $86,191 and $102,171 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
$750,258 as of December 31, 2016 and $583,977 as of December 31, 2015. 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.
2016 Annual Report
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to
taxation in the United Kingdom. In the United States, federal returns for fiscal years 2013 through 2016 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 2011 through 2016. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2015
and 2016.
The federal income tax returns of The Wright Insurance Group are currently under IRS audit for the short period ended
May 1, 2014. Also during 2016, the Company settled the previously disclosed State of Kansas audit for fiscal years 2012
through 2014 in the amount of $204,695. The Company and one of its subsidiaries, The Advocator Group, LLC, is currently
under examination by the State of Massachusetts for the fiscal year 2013 through 2014. There are no other federal or state
income tax audits as of December 31, 2016.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations.
As of December 31, 2016, we have not made a provision for U.S. or additional foreign withholding taxes on approximately
$2.6 million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that
is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and
under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments
in these foreign subsidiaries.
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 $19.3 million in 2016, $17.8 million in 2015,
and $15.8 million in 2014.
68
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 established
by the Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance
Stock, two vesting conditions must be met. Of the grants currently outstanding, specified portions satisfied the first condition
for vesting based upon 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 condi-
tion 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, 2016, 5,174,190 shares had been granted under the PSP. As of December 31, 2016, 1,003,275 shares
had met the first condition of vesting and had been awarded, and 4,170,915 shares had satisfied both conditions of vesting
and had been distributed to participants. Of the shares that have not vested as of December 31, 2016, the initial stock prices
ranged from $13.65 to $25.68.
Brown & Brown, Inc.Notes to Consolidated Financial Statements The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
A summary of PSP activity for the years ended December 31, 2016, 2015 and 2014 is as follows:
Weighted-Average
Grant Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
Outstanding at January 1, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2016
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
—
—
6.39
10.52
—
—
—
4,000
(506,422)
(506,422)
(92,517)
(88,517)
(4,000)
10.23
1,003,275
1,003,275
—
8,000
—
(4,000)
—
The total fair value of PSP grants that vested during each of the years ended December 31, 2016, 2015 and 2014 was
69
$18.1 million, $6.8 million and $8.4 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, restricted stock units, and/or stock appreciation rights to employees and directors contin-
gent on criteria established 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. In addition, in May 2016 our shareholders approved an amendment to the SIP to increase the
shares available for issuance by an additional 1,200,000.
The Company has granted stock grants to our employees in the form of Restricted Stock Awards and Performance Stock
Awards under the SIP. To date, a substantial majority of stock grants to employees under the SIP vest in four to ten years. The
Performance Stock Awards are subject to the achievement of certain performance criteria by grantees, which may include
growth in a defined book of business, organic growth and operating profit growth of a profit center, EBITDA growth, organic
growth of the Company and consolidated EPS growth at certain levels of the Company. The performance measurement
period ranges from three to five years. Beginning in 2016, certain Performance Stock Awards have a payout range between
0% to 200% depending on the achievement against the stated performance target. Prior to 2016, the majority of the grants
had a binary performance measurement criteria that only allowed for 0% or 100% payout.
2016 Annual Report
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.
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 out-
standing under the two-class method.
In 2015, 481,166 shares were granted under the SIP. Of the shares granted in 2015, 164,646 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 out-
standing under the two-class method.
In 2016, 972,099 shares were granted under the SIP. Of the shares granted in 2016, 182,653 shares will vest upon the
grantees’ completion of five 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.
70
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, 15,700 shares were issued in January 2015 and 16,860 shares
were issued in January 2016.
The following table sets forth information as of December 31, 2016, 2015, and 2014, with respect to the number of
time-based restricted shares granted and awarded, the number of performance-based restricted shares granted, and the
number of performance-based restricted shares awarded under our Performance Stock Plan and 2010 Stock Incentive Plan:
Year
2016
2015
2014
Time-Based Restricted Stock
Granted and Awarded
Performance-Based
Restricted Stock Granted
Performance-Based
Restricted Stock Awarded
182,653
164,646
113,088
789,446 (1)
1,435,319
316,520
309,484
—
—
(1) Of the 789,446 shares of performance-based restricted stock granted in 2016, the payout for 353,132 shares may be increased up to
200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all
restricted stock grants at a target payout of 100%.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
At December 31, 2016, 3,729,566 shares were available for future grants. This amount is calculated assuming the maxi-
mum payout for all restricted stock grants. The payout for 321,955 shares of our outstanding performance-based restricted
stock grants may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained.
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-type 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, 2016, 2015 and 2014 is as follows:
Outstanding at January 1, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2014
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2016
Weighted-Average
Grant Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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)
71
28.74
6,276,972
1,129,994
5,146,978
35.52
24.93
27.31
25.34
972,099
182,653
789,446 (1)
—
1,431,319
(1,431,319)
(166,884)
(166,884)
—
(954,131)
(175,788)
(778,343)
29.96
6,128,056
2,401,294
3,726,762
(1) Of the 789,446 shares of performance-based restricted stock granted in 2016, the payout for 353,132 shares may be increased up to
200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all
restricted stock grants at a target payout of 100%.
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 4,680,263 were available for future subscriptions as of December 31, 2016. Employees of the Company
who regularly work more than 20 hours per week are eligible to participate in the ESPP. Participants, through payroll deduc-
tions, 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 2016 was $7.61. The fair values
of an ESPP share option as of the Subscription Periods beginning in August 2015 and 2014, were $6.43 and $6.39, respectively.
2016 Annual Report
For the ESPP plan years ended July 31, 2016, 2015 and 2014, the Company issued 514,665, 539,389, and 512,521
shares of common stock, respectively. These shares were issued at an aggregate purchase price of $15.0 million, or
$29.23 per share, in 2016, $14.4 million, or $26.62 per share, in 2015, and $13.4 million, or $26.16 per share, in 2014.
For the five months ended December 31, 2016, 2015 and 2014 (portions of the 2016-2017, 2015-2016 and
2014-2015 plan years), 247,023; 231,803; and 235,794 shares of common stock (from authorized but unissued shares),
respectively, were subscribed to by ESPP participants for proceeds of approximately $7.7 million, $6.8 million and
$6.3 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 incentives to
grow Brown & Brown’s pre-tax income in excess of 15% annually. The options were granted at the most recent trading day’s
closing market price and vest over a one-to-ten-year period, with a potential acceleration of the vesting period to three-to-
six years based upon achievement of certain performance goals. All of the options expire 10 years after the grant date.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the grant date.
The risk-free interest rate is based upon the U.S. Treasury yield curve on the date of grant with a remaining term approximat-
ing the expected term of the option granted. The expected term of the options granted is derived from historical data;
grantees are divided into two groups based upon expected exercise behavior and are considered separately for valuation
purposes. The expected volatility is based upon the historical volatility of the Company’s common stock over the period of
time equivalent to the expected term of the options granted. The dividend yield is based upon the Company’s best estimate
of future dividend yield.
72
Brown & Brown, Inc.Notes to Consolidated Financial Statements A summary of stock option activity for the years ended December 31, 2016, 2015 and 2014 is as follows:
Stock Options
Outstanding at January 1, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2016
Ending vested and expected to vest at December 31, 2016
Exercisable at December 31, 2016
Exercisable at December 31, 2015
Exercisable at December 31, 2014
Shares
Under
Option
622,945
—
$
$
(106,589) $
(46,000) $
—
470,356
—
$
$
$
(151,767) $
(49,000) $
—
269,589
—
$
$
$
(64,589) $
(30,000) $
—
175,000
175,000
175,000
164,589
316,356
$
$
$
$
$
$
Weighted-
Average
Exercise
Weighted-
Average
Remaining
Contractual
Price Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
18.39
—
18.48
18.48
—
18.57
—
18.48
19.36
—
18.48
—
18.48
18.48
—
18.48
18.48
18.48
18.48
18.48
4.1
$
7,289
3.1
$
5,087
2.2
$
2,395
1.2
1.2
1.2
2.2
3.2
$
$
$
$
$
4,616
4,616
4,616
2,241
4,565
73
The following table summarizes information about stock options outstanding at December 31, 2016:
Exercise Price
$18.48
Totals
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life (years)
1.2
1.2
Weighted-
Average
Exercise
Price
$ 18.48
$ 18.48
Number
Outstanding
175,000
175,000
Weighted-
Average
Exercise
Price
Number
Exercisable
175,000
$ 18.48
175,000
$ 18.48
The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31,
2016, 2015 and 2014 was $1.0 million, $2.2 million and $1.3 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, 2016, 2015 and 2014, respectively.
There are no option shares available for future grant under the ISOP since this plan expired as of December 31, 2008.
2016 Annual Report
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
2016
2015
2014
$
11,049
$
11,111
$
14,447
3,698
1,305
—
3,430
972
—
2,425
2,354
137
$
16,052
$
15,513
$
19,363
Summary of Unrecognized Compensation Expense
As of December 31, 2016, there was approximately $92.1 million of unrecognized compensation expense related to all
non-vested stock-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 4.3 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.
74
(in thousands)
Cash paid during the period for:
Interest
Income taxes
For the Year Ended December 31,
2016
2015
2014
$
37,652
$
37,542
$
25,115
$ 143,111
$ 132,874
$ 118,290
Brown & Brown’s significant non-cash investing and financing activities are summarized as follows:
(in thousands)
Other payables issued for purchased customer accounts
Estimated acquisition earn-out payables and related charges
Notes payable issued or assumed for purchased customer accounts
Notes received on the sale of fixed assets and customer accounts
For the Year Ended December 31,
2016
10,664
4,463
492
22
$
$
$
$
2015
10,029
36,899
—
7,755
$
$
$
$
$
$
$
$
2014
1,930
33,229
—
6,340
Brown & Brown, Inc.Notes 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, 2016, the aggregate future minimum lease payments under
all non-cancelable lease agreements were as follows:
(in thousands)
2017
2018
2019
2020
2021
Thereafter
Total minimum future lease payments
$
42,727
39,505
34,277
29,393
22,222
45,036
$ 213,160
Rental expense in 2016, 2015 and 2014 for operating leases totaled $49.3 million, $46.0 million, and $49.0 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 upon 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.
75
The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2016
and 2015. 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 upon the AM Best Company
ratings of these third-party insurers, management does not believe there is a substantial risk of an insurer’s material non-
performance 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.
2016 Annual Report
NOTE 14 Quarterly Operating Results (Unaudited)
Quarterly operating results for 2016 and 2015 were as follows:
(in thousands, except per share data)
2016
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
2015
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
76
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 424,173
$ 446,518
$ 462,274
$ 433,664
$ 321,624
$ 337,441
$ 345,302
$ 338,763
$ 102,549
$ 109,077
$ 116,972
$
62,070
$
66,250
$
71,545
$
$
0.45
0.44
$
$
0.47
0.47
$
$
0.51
0.50
$
$
$
$
94,901
57,626
0.41
0.41
$ 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
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 customers;
(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.
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
$14.5 million, $13.4 million and $13.3 million of total revenues for the years ended December 31, 2016, 2015 and 2014,
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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
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 intercompany interest expense charge to the reporting segment.
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.
For the year ended December 31, 2016
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
Total revenues
$ 917,406
$ 448,516
$ 243,103 $ 156,365
Investment income
Amortization
Depreciation
Interest expense
$
$
$
$
37
43,447
6,191
38,216
Income before income taxes
$ 188,001
$
$
$
$
$
628
27,920
7,868
45,738
91,762
$
$
$
$
$
4 $
10,801 $
1,975 $
3,976 $
283
4,485
1,881
4,950
62,623 $
24,338
$
$
$
$
$
$
1,239
$ 1,766,629
504
10
3,088
$
$
$
1,456
86,663
21,003
(53,399) $
39,481
56,775
$ 423,499
Total assets
$ 3,854,393
$ 2,711,378
$ 1,108,829 $ 371,645
$ (2,758,902) $ 5,287,343
Capital expenditures
$
5,951
$
6,977
$
1,301 $
656
$
2,880
$
17,765
For the year ended December 31, 2015
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
Total revenues
$ 870,346
$ 428,734
$ 216,996 $ 145,365
Investment income
Amortization
Depreciation
Interest expense
$
$
$
$
87
45,145
6,558
41,036
Income before income taxes
$ 181,938
$
$
$
$
$
210
28,479
7,250
55,705
67,673
$
$
$
$
$
150 $
9,739 $
2,142 $
891 $
42
4,019
1,988
5,970
64,708 $
19,713
$
$
$
$
$
$
(932) $ 1,660,509
515
39
2,952
$
$
$
1,004
87,421
20,890
(64,354) $
39,248
68,527
$ 402,559
77
Total assets
$ 3,507,476
$ 2,505,752
$ 895,782 $ 285,459
$ (2,189,990) $ 5,004,479
Capital expenditures
$
6,797
$
6,001
$
3,084 $
1,088
$
1,405
$
18,375
For the year ended December 31, 2014
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
Total revenues
$ 823,686
$ 404,239
$ 211,911 $ 136,558
Investment income
Amortization
Depreciation
Interest expense
$
$
$
$
67
42,935
6,449
43,502
Income before income taxes
$ 157,491
$
$
$
$
$
164
25,129
7,805
49,663
73,178
$
$
$
$
$
26 $
10,703 $
2,470 $
1,294 $
3
4,135
2,213
7,678
8,276 $
17,870
$
$
$
$
$
$
(598) $ 1,575,796
487
39
1,958
$
$
$
747
82,941
20,895
(73,729) $
28,408
82,934
$ 339,749
Total assets
$ 3,229,484
$ 2,455,749
$ 857,804 $ 296,034
$ (1,892,511) $ 4,946,560
Capital expenditures
$
6,873
$
14,133
$
1,526 $
1,210
$
1,181
$
24,923
2016 Annual Report
NOTE 16 Reinsurance
Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, WNFIC 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
2016
2015
Written
Earned
Written
Earned
$ 591,142
$ 592,123
$ 599,828
$ 610,753
—
—
—
18
591,124
592,105
599,807
610,750
$
18
$
18
$
21
$
21
All premiums written by WNFIC under the National Flood Insurance Program are 100% ceded to FEMA, for which WNFIC
received a 30.9% expense allowance from January 1, 2016 through December 31, 2016. As of December 31, 2016 and
2015, the Company ceded $589.5 million and $598.4 million of written premiums, respectively.
Effective April 1, 2014, WNFIC is also a party to a quota share agreement whereby it cedes 100% of its gross excess
flood premiums, excluding fees, to Arch Reinsurance Company and receives a 30.5% commission. WNFIC ceded $1.6 million
and $1.4 million for the years ended December 31, 2016 and 2015. No loss data exists on this agreement.
WNFIC also ceded 100%, 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, 2016, ceded unpaid losses and loss adjustment expenses for
Homeowners, Private Passenger Auto Liability and Other Liability Occurrence was $5,262, $0 and $95, respectively. There
was no incurred but not reported balance for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence.
78
As of December 31, 2016 the Consolidated Balance Sheet contained Reinsurance recoverable of $78.1 million and Prepaid
reinsurance premiums of $308.7 million. As of December 31, 2015 the Consolidated Balance Sheet contained reinsurance
recoverable of $32.0 million and prepaid reinsurance premiums of $309.6 million. There was no net activity in the reserve for
losses and loss adjustment expense for the years ended December 31, 2016 and 2015, as WNFIC’s direct premiums written
were 100% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related
reinsurance recoverable was $78.1 million as of December 31, 2016 and $32.0 million as of December 31, 2015.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
NOTE 17 Statutory Financial Information
WNFIC maintains capital in excess of minimum statutory amount of $7.5 million as required by regulatory authorities. The
statutory capital and surplus of WNFIC was $23.5 million as of December 31, 2016 and $15.1 million as of December 31,
2015. As of December 31, 2016 and 2015, WNFIC generated statutory net income of $8.2 million and $4.1 million, respectively.
NOTE 18 Subsidiary Dividend Restrictions
Under the insurance regulations of Texas, where WNFIC is incorporated, the maximum amount of ordinary dividends that
WNFIC can pay to shareholders in a rolling twelve-month period is limited to the greater of 10% of statutory adjusted
capital and surplus as shown on WNFIC’s last annual statement on file with the superintendent of the Texas Department of
Insurance or 100% of adjusted net income. There was no dividend payout in 2016 and the maximum dividend payout that
may be made in 2017 without prior approval is $8.2 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 upon 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.
79
The investment bank delivered to the Company an additional 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 repurchase
up to $450.0 million, in the aggregate, of the Company’s outstanding common stock.
On November 11, 2015, the Company entered into a third ASR with an investment bank to purchase an aggregate $75.0 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 $63.8 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.
2016 Annual Report Between October 25, 2016 and November 4, 2016, the Company made share repurchases in the open market in total
of 209,618 shares at a total cost of $7.7 million. After completing these open market share repurchases, the Company’s
outstanding Board-approved share repurchase authorization is $367.3 million.
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.
80
Brown & Brown, Inc. Report of Independent
Registered Public Accounting Firm
(cid:51)o the Board of (cid:35)irectors and Shareholders of Brown (cid:5) Brown, Inc.
Daytona Beach, Florida
(cid:54)e have audited the accompanying consolidated balance sheets of Brown (cid:5) Brown, Inc. and subsidiaries (cid:7)the (cid:345)Company(cid:346)(cid:8)
as of December 31, 2016 and 2015, and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended (cid:35)ecember (cid:18)1, 2016. (cid:51)hese 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.
(cid:54)e conducted our audits in accordance with the standards of the (cid:47)ublic Company Accounting Oversight Board (cid:7)United
States(cid:8). (cid:51)hose standards re(cid:80)uire 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. (cid:54)e
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
(cid:5) Brown, Inc. and subsidiaries as of (cid:35)ecember (cid:18)1, 2016 and 201(cid:20), and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally
accepted in the United States of America.
(cid:54)e have also audited, in accordance with the standards of the (cid:47)ublic Company Accounting Oversight Board (cid:7)United States(cid:8),
the Company’s internal control over financial reporting as of (cid:35)ecember (cid:18)1, 2016, based on the criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organi(cid:89)ations of the (cid:51)readway
Commission and our report dated February 2(cid:19), 201(cid:22) expressed an un(cid:80)ualified opinion on the Company’s internal control
over financial reporting.
over financial reporting.
over financial reporting.
over financial reporting.
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Miami, Florida
February 2(cid:19), 201(cid:22)
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Report of Independent
Registered Public Accounting Firm
(cid:51)o the Board of (cid:35)irectors and Shareholders of Brown (cid:5) Brown, Inc.
Daytona Beach, Florida
(cid:54)e have audited the internal control over financial reporting of Brown (cid:5) Brown, Inc. and subsidiaries (cid:7)the (cid:345)Company(cid:346)(cid:8) as of
(cid:35)ecember (cid:18)1, 2016, based on criteria established in Internal Control-Integrated Framework (cid:7)201(cid:18)(cid:8) issued by the Committee
of Sponsoring Organi(cid:89)ations of the (cid:51)readway Commission. As described in (cid:44)anagement’s (cid:49)eport on Internal Control over
Financial (cid:49)eporting, management excluded from its assessment the internal control over financial reporting at Social Security
Advocates for the (cid:35)isabled, (cid:43)(cid:43)C, (cid:44)orstan (cid:38)eneral Agency, Inc., and (cid:51)he Insurance (cid:39)ouse, Inc. (cid:7)collectively the (cid:345)2016 Excluded
Ac(cid:80)uisitions(cid:346)(cid:8), which were ac(cid:80)uired during 2016 and whose financial statements constitute (cid:18).0(cid:4) of total assets, 1.(cid:20)(cid:4) of
revenues, and 0.(cid:24)(cid:4) of net income of the consolidated financial statement amounts as of and for the year ended (cid:35)ecember (cid:18)1,
2016. Accordingly, our audit did not include the internal control over financial reporting of the 2016 Excluded Ac(cid:80)uisitions. (cid:51)he
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 (cid:44)anagement’s (cid:49)eport on Internal
Control Over Financial (cid:49)eporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
(cid:54)e conducted our audit in accordance with the standards of the (cid:47)ublic Company Accounting Oversight Board (cid:7)United States(cid:8).
(cid:51)hose standards re(cid:80)uire that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating 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 company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (cid:7)1(cid:8) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company(cid:26) (cid:7)2(cid:8) 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 authori(cid:89)ations of management and directors of the company(cid:26) and (cid:7)(cid:18)(cid:8) provide
reasonable assurance regarding prevention or timely detection of unauthori(cid:89)ed ac(cid:80)uisition, use, or disposition of the com-
pany’s assets that could have a material effect on the financial statements.
82
B
r
o
w
n
&
B
r
o
w
n
,
I
n
c
.
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, pro(cid:73)ections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
are sub(cid:73)ect to the risk that the controls may become inade(cid:80)uate 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 (cid:35)ecember (cid:18)1, 2016, based on the criteria established in Internal Control-Integrated Framework (cid:7)201(cid:18)(cid:8) issued by the
Committee of Sponsoring Organi(cid:89)ations of the (cid:51)readway Commission.
(cid:54)e have also audited, in accordance with the standards of the (cid:47)ublic Company Accounting Oversight Board (cid:7)United States(cid:8),
the consolidated financial statements as of and for the year ended (cid:35)ecember (cid:18)1, 2016 of the Company and our report dated
February 2(cid:19), 201(cid:22) expressed an un(cid:80)ualified opinion on those financial statements.
February 2(cid:19), 201(cid:22) expressed an un(cid:80)ualified opinion on those financial statements.
February 2(cid:19), 201(cid:22) expressed an un(cid:80)ualified opinion on those financial statements.
February 2(cid:19), 201(cid:22) expressed an un(cid:80)ualified opinion on those financial statements.
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Certified (cid:47)ublic Accountants
Miami, Florida
February 2(cid:19), 201(cid:22)
Management’s Report
on Internal Control Over Financial Reporting
(cid:51)he management of Brown (cid:5) Brown, Inc. and its subsidiaries (cid:7)(cid:345)Brown (cid:5) Brown(cid:346)(cid:8) is responsible for establishing and
maintaining ade(cid:80)uate internal control over financial reporting, as such term is defined in Securities Exchange Act (cid:49)ule
1(cid:18)a-1(cid:20)(cid:7)f(cid:8). Under the supervision and with the participation of management, including Brown (cid:5) Brown’s principal executive
officer and principal financial officer, Brown (cid:5) Brown conducted an evaluation of the effectiveness of internal control over
financial reporting based upon the framework in Internal Control-Integrated Framework (cid:7)201(cid:18)(cid:8) issued by the Committee of
Sponsoring Organi(cid:89)ations of the (cid:51)readway Commission (cid:7)(cid:345)COSO(cid:346)(cid:8).
In conducting Brown (cid:5) Brown’s evaluation of the effectiveness of its internal control over financial reporting, Brown (cid:5) Brown
has excluded the following acquisitions completed during 2016: Social Security Advocates for the Disabled, LLC, Morstan
(cid:38)eneral Agency, Inc., and (cid:51)he Insurance (cid:39)ouse, Inc. (cid:7)collectively the (cid:345)2016 Excluded Ac(cid:80)uisitions(cid:346)(cid:8), which were ac(cid:80)uired
during 2016 and whose financial statements constitute (cid:18).0(cid:4) of total assets, 1.(cid:20)(cid:4) of revenues, and 0.(cid:24)(cid:4) of net income
of the consolidated financial statement amounts as of and for the year ended (cid:35)ecember (cid:18)1, 2016. (cid:49)efer to Note 2 to the
Consolidated Financial Statements for further discussion of these ac(cid:80)uisitions and their impact on Brown (cid:5) Brown’s
Consolidated Financial Statements.
Based upon Brown (cid:5) Brown’s evaluation under the framework in Internal Control-Integrated Framework (cid:7)201(cid:18)(cid:8) issued by
the Committee of Sponsoring Organi(cid:89)ations of the (cid:51)readway Commission , management concluded that internal control over
financial reporting was effective as of (cid:35)ecember (cid:18)1, 2016. (cid:44)anagement’s internal control over financial reporting as of
(cid:35)ecember (cid:18)1, 2016 has been audited by (cid:35)eloitte (cid:5) (cid:51)ouche (cid:43)(cid:43)(cid:47), an independent registered public accounting firm, as stated
in their report which is included herein.
Brown (cid:5) Brown, Inc
Daytona Beach, Florida
February 2(cid:19), 201(cid:22)
J. Powell Brown
Chief Executive Officer
R. Andrew Watts
Executive (cid:53)ice (cid:47)resident, Chief Financial Officer
and Treasurer
83
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Performance Graph
The following graph is a comparison of five-year cumulative total shareholder returns for our common stock as compared
with the cumulative total shareholder 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 capitali-
zations as of December 31, 2011 for the purposes of arriving at a peer group average. The total return calculations are based
upon an assumed $100 investment on December 31, 2011, with all dividends reinvested.
Brown & Brown, Inc.
NYSE Composite
Peer Group
12/11
12/12
12/13
12/14
12/15
100.00
100.00
100.00
114.03
116.03
132.13
142.25
146.27
177.92
150.99
156.21
193.88
149.35
150.15
191.20
12/16
211.06
167.91
223.36
Comparison of 5 Year Cumulative Total Return*
Among Brown & Brown, Inc., the NYSE Composite Index, and a Peer Group
84
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
12/11
12/12
12/13
12/14
12/15
12/16
Brown & Brown, Inc.
NYSE Composite
Peer Group
*$100 invested on 12/31/11 in stock or index, including reinvesting of dividends.
Fiscal year ending December 31.
Brown & Brown, Inc.
Dear Fellow Shareholders:
Ten-Year Statistical Summary
Brown & Brown has long held that the only constant is change. Nowhere
was that principle more apt than the insurance marketplace in 2016.
Carriers sought premium growth, alternative capital searched for greater
investment returns, acquisition valuations were at historic highs, and a
new U.S. president pledged to repeal and replace the Affordable Care
Act. These changes and challenges in 2016 have created, and will continue
to create, numerous opportunities for Brown & Brown.
We ended 2016 with annual revenues of
approximately $1,767 million, an increase
of 6.4% from the prior year. Interestingly
enough, the $106 million increase in our
annual revenues is more than Brown &
Brown’s total annual revenues when I first
joined the Company as a producer in July
1995. Fiscal year 2016 was another good
year, reflected by the following financial
and operational highlights:
n Organic revenue growth in all four
segments
n Industry-leading operating margins
n Net income increased by 5.8% to
approximately $260 million
n Earnings per share increased by 7.1%
to $1.82
n 23rd consecutive annual dividend increase,
returning approximately $70 million to
shareholders
n Total shareholder return of 45%
n Technology improvements to support
further growth, including implementation
of a new company-wide financial system
and introduction of a standardized
agency management system for our
Retail Segment
J. Powell Brown, CPCU
President and
Chief Executive Officer
(in thousands, except per share data and other information)
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
Year Ended December 31,
Revenues
Commissions & fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Other operating expenses
(Gain) Loss on disposal operations
Amortization
Depreciation
Interest expense
Change in estimated earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,762,787
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$ 966,917
$
964,863
$ 965,983
$
914,650
1,456
2,386
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
1,766,629
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
959,667
925,217
262,872
(1,291)
86,663
21,003
39,481
9,185
856,952
251,055
(619)
87,421
20,890
39,248
3,003
811,112
235,328
47,425
82,941
20,895
28,408
9,938
705,603
195,677
—
67,932
17,485
16,440
2,533
1,343,130
1,257,950
1,236,047
1,005,670
423,499
166,008
402,559
159,241
339,749
132,853
357,609
140,497
624,371
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
519,869
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
494,665
135,851
—
51,442
12,639
14,471
(1,674)
492,038
143,389
—
49,857
13,240
14,599
—
707,394
713,123
266,098
104,346
254,754
101,460
493,097
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
449,768
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
$ 257,491
$ 243,318
$
206,896
$
217,112
$
184,045
$
163,995
$ 161,752
$ 153,294
$ 166,124
$ 190,959
Employee compensation and benefits relative to total revenues
Other operating expenses relative to total revenues
52.4%
14.9%
51.6%
15.1%
51.5%
14.9%
51.8%
14.4%
52.0%
14.5%
51.3%
14.2%
50.8%
14.0%
50.8%
14.8%
50.4%
14.1%
46.9%
13.7%
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
$
$
1.82
137,804
0.50
$
$
1.70
$
1.41
140,112
142,891
0.45
$
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
$
$
1.18
136,884
0.29
$
$
1.35
136,357
0.25
$ 5,287,343
$ 5,004,479
$ 1,018,372
$ 1,071,618
$ 4,946,560
$ 1,142,948 (2)
$ 3,648,679
$ 3,127,1941
$ 2,607,011
$ 2,400,814
$ 2,224,226
$ 2,119,580
$ 1,960,659
$
379,171
$
449,136
$
250,033
$ 250,067
$ 250,209
$ 253,616
$
227,707
$ 2,360,211
$ 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
140,104
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)
8,297
7,807
$ 219,403
$ 215,679
$
44.86
$
32.10
$
$
24.6
12%
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
5,286
5,206
5,398
$
$
191,729 (4) $
186,949
25.46
$
22.63
$
$
185,568
$ 182,549
$ 187,181
23.94
$
17.97
$
20.90
$
$
20.2
11%
20.0
11%
21.4
12%
16.6
12%
17.9
15%
5,047
196,251
23.50
17.4
21%
(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
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
“Management’s 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
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.
full-time equivalent employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of
Arrowhead, and therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for
2012 is considered to be 6,259.
Dear Fellow Shareholders:
Ten-Year Statistical Summary
Brown & Brown has long held that the only constant is change. Nowhere
was that principle more apt than the insurance marketplace in 2016.
Carriers sought premium growth, alternative capital searched for greater
investment returns, acquisition valuations were at historic highs, and a
new U.S. president pledged to repeal and replace the Affordable Care
Act. These changes and challenges in 2016 have created, and will continue
to create, numerous opportunities for Brown & Brown.
We ended 2016 with annual revenues of
approximately $1,767 million, an increase
of 6.4% from the prior year. Interestingly
enough, the $106 million increase in our
annual revenues is more than Brown &
Brown’s total annual revenues when I first
joined the Company as a producer in July
1995. Fiscal year 2016 was another good
year, reflected by the following financial
and operational highlights:
n Organic revenue growth in all four
segments
n Industry-leading operating margins
n Net income increased by 5.8% to
approximately $260 million
n Earnings per share increased by 7.1%
to $1.82
n 23rd consecutive annual dividend increase,
returning approximately $70 million to
shareholders
n Total shareholder return of 45%
n Technology improvements to support
further growth, including implementation
of a new company-wide financial system
and introduction of a standardized
agency management system for our
Retail Segment
J. Powell Brown, CPCU
President and
Chief Executive Officer
(in thousands, except per share data and other information)
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
Year Ended December 31,
Revenues
Commissions & fees
Investment income
Other income, net
Total revenues
Expenses
Employee compensation and benefits
Other operating expenses
(Gain) Loss on disposal operations
Amortization
Depreciation
Interest expense
Change in estimated earn-out payables
Total expenses
Income before income taxes
Income taxes
Net income
$ 1,762,787
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$ 966,917
$
964,863
$ 965,983
$
914,650
1,456
2,386
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
1,766,629
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
959,667
925,217
262,872
(1,291)
86,663
21,003
39,481
9,185
856,952
251,055
(619)
87,421
20,890
39,248
3,003
811,112
235,328
47,425
82,941
20,895
28,408
9,938
705,603
195,677
—
67,932
17,485
16,440
2,533
1,343,130
1,257,950
1,236,047
1,005,670
423,499
166,008
402,559
159,241
339,749
132,853
357,609
140,497
624,371
174,389
—
63,573
15,373
16,097
1,418
895,221
304,811
120,766
519,869
144,079
—
54,755
12,392
14,132
(2,206)
743,021
270,521
106,526
494,665
135,851
—
51,442
12,639
14,471
(1,674)
492,038
143,389
—
49,857
13,240
14,599
—
707,394
713,123
266,098
104,346
254,754
101,460
493,097
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
449,768
131,371
—
40,436
12,763
13,802
—
648,140
311,527
120,568
$ 257,491
$ 243,318
$
206,896
$
217,112
$
184,045
$
163,995
$ 161,752
$ 153,294
$ 166,124
$ 190,959
Employee compensation and benefits relative to total revenues
Other operating expenses relative to total revenues
52.4%
14.9%
51.6%
15.1%
51.5%
14.9%
51.8%
14.4%
52.0%
14.5%
51.3%
14.2%
50.8%
14.0%
50.8%
14.8%
50.4%
14.1%
46.9%
13.7%
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
$
$
1.82
137,804
0.50
$
$
1.70
$
1.41
140,112
142,891
0.45
$
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
$
$
1.18
136,884
0.29
$
$
1.35
136,357
0.25
$ 5,287,343
$ 5,004,479
$ 1,018,372
$ 1,071,618
$ 4,946,560
$ 1,142,948 (2)
$ 3,648,679
$ 3,127,1941
$ 2,607,011
$ 2,400,814
$ 2,224,226
$ 2,119,580
$ 1,960,659
$
379,171
$
449,136
$
250,033
$ 250,067
$ 250,209
$ 253,616
$
227,707
$ 2,360,211
$ 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
140,104
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)
8,297
7,807
$ 219,403
$ 215,679
$
44.86
$
32.10
$
$
24.6
12%
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
5,286
5,206
5,398
$
$
191,729 (4) $
186,949
25.46
$
22.63
$
$
185,568
$ 182,549
$ 187,181
23.94
$
17.97
$
20.90
$
$
20.2
11%
20.0
11%
21.4
12%
16.6
12%
17.9
15%
5,047
196,251
23.50
17.4
21%
(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
(6) Represents net income divided by total shareholders’ equity as of the beginning of the year.
“Management’s 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
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.
full-time equivalent employees at the end of the year.
(4) Of the 881 increase in the number of full-time equivalent employees from 2011 to 2012, 523 employees related to the January 9, 2012 acquisition of
Arrowhead, and therefore, are considered to be full-time equivalent as of January 1, 2012. Thus, the average number of full-time equivalent employees for
2012 is considered to be 6,259.
Shareholder Information
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 23, 2017, there were 139,986,178
shares of our common stock outstanding, held
by approximately 1,218 shareholders of record.
Market Price of Common Stock
2016
Stock Price Range
High
Low
Cash
Dividends per
Common Share
First Quarter
$ 35.91
$ 28.41
$ 0.12
Second Quarter $ 37.49
$ 34.23
$ 0.12
Third Quarter
$ 38.11
$ 35.81
$ 0.12
Fourth Quarter
$ 45.62
$ 36.05
$ 0.14
2015
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
Additional Information
Information concerning the services of
Brown & Brown, Inc., as well as access to
current financial releases, is available
on the Internet. Brown & Brown’s address
is www.bbinsurance.com.
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 2016 filed
with the Securities and Exchange Commission,
certificates of the Chief Executive Officer
and Chief Financial Officer of the Company
certifying the quality of the Company’s public
disclosure. The Company has also submitted
to the New York Stock Exchange a certificate
from its Chief Executive Officer certifying
that he is not aware of any violation by the
Company of New York Stock Exchange
corporate governance listing standards.
A copy of the Company’s 2016 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 3, 2017
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
designed and produced by see see eye / Atlanta & San Antonio
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
B
r
o
w
n
&
B
r
o
w
n
,
I
n
c
.
|
2
0
1
6
A
n
n
u
a
l
R
e
p
o
r
t
Be assured, putting your head in
the sand won’t reduce your risk.
Always in Pursuit
2016 Annual Report
Shareholder Information
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 23, 2017, there were 139,986,178
shares of our common stock outstanding, held
by approximately 1,218 shareholders of record.
Market Price of Common Stock
2016
Stock Price Range
High
Low
Cash
Dividends per
Common Share
First Quarter
$ 35.91
$ 28.41
$ 0.12
Second Quarter $ 37.49
$ 34.23
$ 0.12
Third Quarter
$ 38.11
$ 35.81
$ 0.12
Fourth Quarter
$ 45.62
$ 36.05
$ 0.14
2015
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
Additional Information
Information concerning the services of
Brown & Brown, Inc., as well as access to
current financial releases, is available
on the Internet. Brown & Brown’s address
is www.bbinsurance.com.
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 2016 filed
with the Securities and Exchange Commission,
certificates of the Chief Executive Officer
and Chief Financial Officer of the Company
certifying the quality of the Company’s public
disclosure. The Company has also submitted
to the New York Stock Exchange a certificate
from its Chief Executive Officer certifying
that he is not aware of any violation by the
Company of New York Stock Exchange
corporate governance listing standards.
A copy of the Company’s 2016 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 3, 2017
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
designed and produced by see see eye / Atlanta & San Antonio
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
(386) 252-9601
bbinsurance.com
B
r
o
w
n
&
B
r
o
w
n
,
I
n
c
.
|
2
0
1
6
A
n
n
u
a
l
R
e
p
o
r
t
Be assured, putting your head in
the sand won’t reduce your risk.
Always in Pursuit
2016 Annual Report