2017 Annual Report
Performing
with
Purpose
1 Performing with Purpose
8 Review of Operations
16 Letter to Shareholders
18 Leadership Overview
19 Board of Directors
20 Brown & Brown At-A-Glance
In 2017, Brown & Brown was highly focused on performing with purpose. We invested
heavily in strategic improvements across all areas of the Company, including teammate
recruitment and development, collaboration, culture, technology, business capabilities, and
community engagement. Those investments have enabled us to do a better job of helping
our customers, as well as our teammates, during times of devastating loss. As part of our
mission, Brown & Brown is dedicated to preparing our home communities and customers for
tomorrow’s risks, today. While no one could have anticipated the unprecedented number
of catastrophic events that occurred in 2017, we are extremely proud of how our teammates
rose to the occasion to support our customers in their time of need.
Our customers are our purpose.
They inspire us to perform.
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The legacy of the
yellow notepad
Collaboration has been central to our culture from the beginning, and it was
taken to the next level in the 1980s when Hyatt Brown met with teammates
monthly at each office location, taking notes on his signature yellow notepad.
As we grow, we strive to keep that grassroots interaction that has served our
organization so well. Today, we embrace the power of technology platforms
to effectively share knowledge and allow for real-time communication. We
also host frequent teammate conferences to encourage collaboration on best
practices in multiple areas including sales, internal operations, and customer
service. At our core, we are in the people recruiting and enhancing business.
We know that our teammates are our greatest asset, and empowering them
through knowledge sharing and development is vital to our continued success.
78
years
of grassroots
teammate
interaction
Our teammates are our
most important asset
The growth and professional development of our teammates is equally as important
as the growth of our bottom line. A percentage of our Company profits is invested
in hiring future leaders. We strive to attract people who are competitive, driven,
and disciplined, and we engulf them in our culture to best position them for success.
Our approach goes far beyond the technical aspects of the industry, equipping
our teammates with the knowledge and resources to give them a competitive
edge. While our competitors are primarily focused on the transaction, we teach
our team to prioritize customer focus. That means learning to ask the right ques-
tions, really listening to the answers, and understanding the unique needs of each
customer. Our continuous training is comprehensive, but it all comes down to one
core principle: When the customer comes first, everything else takes care of itself.
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100%
of teammates are
trained through
Brown & Brown
University
2017 Annual Report
Focused on future growth
and success
The entrepreneurial spirit is deeply embedded in our culture, empowering
teammates to do what it takes to provide best-in-class solutions and service.
In 2017 we became the program administrator for QBE North America’s
small commercial insurance portfolio, consisting of property and casualty
business accounts under $100,000 in premium. This opportunity resulted
from our successful twenty-plus-year relationship with QBE and gives us
new middle-market capabilities and additional opportunities for growth. We
also leveraged our excellent carrier partner relationships to encourage them
to support our new de novo program, resulting in the creation of Arrowhead
Risk Managers. Due to the ever-changing landscape of cybersecurity, we grew
our presence in the cyber liability space. We will remain focused on identifying
growth opportunities as new segments of our industry continue to emerge.
4.4%
total organic
revenue growth(1)
in 2017
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(1) Organic revenue growth rate is a non-GAAP financial measure and is referenced to provide an additional meaningful method of evaluating our operating performance from period to period on
a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and to a reconciliation to the most closely comparable GAAP measure, refer to
page 23 of this Annual Report.
A culture built on discipline
and customer focus
Principled customer focus is at the core of Brown & Brown’s culture. We
deliver a competitive edge by anticipating and responding to the changing
needs of our customers with speed and agility. Our strength comes from
our years of experience and our deep relationships with carrier partners.
Brown & Brown is a meritocracy, meaning we don’t rest on our laurels, and we
are focused on recruiting and developing teammates who are driven to work
tirelessly until success is achieved. The cheetah—strong, swift, and agile—
represents who we are as an organization. That description can be applied
to each of our teammates as individuals and to the Company as a whole. We
have a clearly defined growth strategy, and we are disciplined in identifying
the right opportunities—we are a forever company.
8,491
disciplined
and dedicated
teammates
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Empowering our teammates
with world-class tools
Investments in technology were a tremendous focus in 2017. We initiated four
major programs all focused on helping our teammates to better sell and service
insurance. The programs included a systems refresh, process standardization,
enhanced collaboration, and business intelligence, enabling our teammates to
drive even better results. While Brown & Brown is known for our decentralized
sales and service model, and the customer focus that comes with it, these
initiatives allow our offices to concentrate on what they do best—sales and
service. This makes the entire Company more productive and efficient, improves
communication, and enhances our ability to provide outstanding customer
service. We also implemented platforms that enable us to more quickly identify
opportunities for the Company to acquire new customers. We are committed to
using technology’s power to better serve our teammates and our customers.
100
offices upgrading
to new single
agency
management
system
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Dedicated to the people and
communities we serve
For nearly 80 years, our Brown & Brown teammates have been dedicated to
the people and communities we serve. With more than 8,400 teammates in
approximately 240 locations, we regularly volunteer and support the many
local communities in which we live, work, and play. Brown & Brown actively
supports and serves many organizations nationwide, including the American
Red Cross, United Way, Make-A-Wish, Habitat for Humanity, American Heart
Association, American Cancer Society, Easter Seals, Boys & Girls Club, and the
SPCA. Many of our teammates also participate in local fundraisers, including
food and clothing drives, charity walks and runs, and disaster relief efforts.
We are proud of our teammates’ dedication to our communities and their
commitment to serve those in need.
Supporting
more than
900
organizations
in our local
communities
2017 Annual Report
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Maintaining focus during times of change
For the Tacoma location of Brown & Brown of Washington, Inc., 2017 was a year of both change
and growth. After moving office locations and being named a Retail Office of the Year in 2016,
the bar for future success was set high. They were selected to be the first of 100 offices in our
Retail Segment to transition to a single, standardized agency management system, acting as
the baseline to help define the future rollout strategy. Keeping customer satisfaction top of
mind, the team faced this challenge head-on to ensure a seamless transition. Most importantly,
they had another high-performing year with all three of their business lines growing revenues
more than 15% in total over a two-year period. The cohesive nature of their team is the
lifeblood of their business. They firmly believe that their commitment to finding ways to have
fun while conquering every challenge is the key to their growth and success.
Pictured here are teammates from the Tacoma location of Brown & Brown of Washington, Inc.
Review of Operations
Retail
The Retail Segment experienced a year of expansion in 2017,
delivering organic revenue growth(1) of 2.9%.
The year presented many opportunities for growth. We built on areas of special-
ization by collaborating across the business, making investments in teammates
and embracing new technology, while maintaining industry-leading margins.
We continue to embrace technology across the entire Retail platform to have
better real-time visibility into rapid changes in the marketplace. We continued
on a multi-year journey to transition to a single, standardized agency manage-
ment system. In addition, we continued to invest in technology that will allow
us to pull real-time data to provide better solutions for our customers.
The Retail Segment focused heavily on recruitment, learning, and develop-
ment in 2017. We are in the people business. Identifying strong candidates,
engulfing them in our culture, training them through Brown & Brown
University’s expanding curriculum, and developing them into future leaders
strengthens the entire organization.
In addition, we implemented a new performance incentive plan that pays incre-
mental commissions for higher growth. The first year delivered solid results.
Our teammates share best practices and resources, and exercise collaborative
prospecting and cross-selling across the Retail Segment and the organization
as a whole. We commonly refer to our collaboration as The Power of WE,
and it was extremely apparent when our teammates banded together to
assist offices that were impacted by significant storm activity. Teammates in
California answered phone calls and reported claims for our Florida offices,
and teammates from New Jersey assisted our office in Houston, Texas.
In 2018, we will continue our focus on recruiting, retaining, and developing
the best talent; leveraging our national resources; seeking access to additional
underwriting capital; exploring efficiencies in technology; and acquiring
companies that fit culturally and strategically, and make sense financially.
Segment Total Revenues
DOLLARS IN MILLIONS
Contribution to
Total Revenues
Contribution to
Total EBITDAC(1)
9
2
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1
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3
7.
3
7
.
7
3
2
8
.
3
0
7
8
.
4
7
1
9
.
9
7
3
9
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
50.1%
46.8%
(1) Organic revenue growth rate and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from
period to period on a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and EBITDAC and to reconciliations to the most closely
comparable GAAP measures, refer to pages 23 and 83-84 of this Annual Report, respectively.
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Embracing innovation and technology
Our Proctor Financial business had the foresight to invest in technology, infrastructure,
and IT security with the goal to strengthen customer partnerships and enhance the
borrower experience. Their IT security and governance team protects data and systems
to preserve confidentiality, integrity, and accessibility. They also created a compliant
tracking tool to prevent borrower harm, respond nimbly to the evolving servicing
regulations, and allow for transparent vendor management. These investments along
with our investments in teammates and operations have positioned Proctor to be a
leading provider of lender-placed insurance solutions.
Pictured here are teammates from the Troy, Michigan location of Proctor Financial
Review of Operations
National
Programs
The National Programs Segment required dedication and seamless
execution in 2017, delivering organic revenue growth(1) of 6.1%.
The rapid succession of natural disasters that occurred in 2017 was unlike
anything we have ever experienced and resulted in one of the worst years
for insured losses. Our claims teams worked tirelessly around the clock to
assist customers who suffered losses due to floods. Our teammates were
compassionate, understanding, helpful, and available to our customers
during their time of need. As individuals and as a Company, we were driven
to provide excellent service and execute under extreme circumstances.
The onboarding of our new core commercial program gives us additional
capabilities in terms of classes of covered business and geographic coverage
for both small and mid-sized commercial customers. Core commercial has
already had a positive impact on revenue, and we expect it to continue to be
a platform for additional growth.
We made a significant investment in technology to ensure we were at
the front of the pack when products emerge that will benefit our industry
and our customers. Our National Programs Segment is heavily involved
with insurance technology innovators, referred to collectively as InsurTech,
and we are excited about the possibilities and opportunities.
We dedicated a great deal of time to exploring and refining who we are as a
Segment to successfully articulate the breadth and depth of our capabilities.
What became clear from this process was that our teammates and technology
are pioneering the most innovative risk solutions to profoundly simplify the
insurance experience.
In 2018 and beyond, we are focused on continuing our quest to remain the
most successful program administrator in the industry. We will diligently
strive to attract and retain top talent; to attract and maintain strong carrier and
distribution partnerships; to lead, embrace, and adopt technology; and to be
specialty-niche oriented.
Segment Total Revenues
DOLLARS IN MILLIONS
Contribution to
Total Revenues
Contribution to
Total EBITDAC(1)
11
2
0
1
7
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4
1
0
3
.
2
4
0
4
.
7
8
2
4
.
5
8
4
4
.
8
9
7
4
3
1
0
2
4
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0
2
5
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0
2
6
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0
2
7
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2
25.5%
29.7%
(1) Organic revenue growth rate and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from
period to period on a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and EBITDAC and to reconciliations to the most closely
comparable GAAP measures, refer to pages 23 and 83-84 of this Annual Report, respectively.
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Leveraging technology and teamwork
to hit big goals
Our National Risk Solutions (NRS) business is based on technology, service, and sales, allowing
it to operate as more than just an underwriting agency. Keeping in step with evolving
technology, NRS recently implemented a new digital platform that enables teammates to
populate real-time information more efficiently. This new tool boosted productivity by
allowing account executives to focus on underwriting, cultivating relationships with agents,
and selling products. Innovation like this creates a competitive edge for our business, and
NRS is now collaborating with other offices to support the adoption of this technology.
The entire team continuously rallies around lofty sales goals, and their strategic focus on
pairing technology with teamwork consistently positions them for long-term success.
Pictured here are teammates from the St. Petersburg, Florida location of National Risk Solutions
Review of Operations
Wholesale
Brokerage
In 2017, the Wholesale Brokerage Segment led the Company,
delivering organic revenue growth(1) of 6.6%.
The year presented some exciting opportunities for internal growth. We
invested both time and resources in identifying ways to further automate
many of our processes, driving efficiency and accuracy. We elevated a
long-standing teammate to lead the charge on technology in the binding
authority area. We are working to develop new products by leveraging
the alternative capital area. Once available, these new and differentiated
products will be offered exclusively through Brown & Brown’s Wholesale
Brokerage and National Programs Segments.
In the insurance business, change brings opportunity. As the legalization
and regulation of cannabis shapes an emerging market, our offices are
working together to create a suite of products that will provide insurance
for the entire cannabis industry.
While we intended for 2017 to be a year of incremental growth from
acquisitions, Wholesale Brokerage found that closing opportunities
aligned with our strategy was more challenging than we had anticipated.
We are confident in our plan for growth, and we will continue our search
for the right acquisition prospects.
Looking ahead to 2018, we are anticipating that insurance rates will
remain relatively flat, aside from potential changes within the catastrophic
property area. This will present some opportunities for the business. We
have an excellent team, and we are confident in our ability to provide a
competitive edge and the agility to capture the opportunities ahead of us.
Segment Total Revenues
DOLLARS IN MILLIONS
Contribution to
Total Revenues
Contribution to
Total EBITDAC(1)
13
2
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1
7
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7
3
9
1
.
9
1
1
2
.
0
7
1
2
.
1
3
4
2
.
7
1
7
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
14.4%
14.7%
(1) Organic revenue growth rate and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from
period to period on a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and EBITDAC and to reconciliations to the most closely
comparable GAAP measures, refer to pages 23 and 83-84 of this Annual Report, respectively.
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As a team, we are indestructible
In 2017, three catastrophic hurricanes hit the U.S. and its territories, causing unimaginable
damage. When Hurricane Irma hit Florida, we were not exempt from the devastation that
occurred—our Tampa office was forced to close due to widespread power outages, and
the homes of multiple teammates were damaged. In spite of these obstacles, we never
lost sight of our main focus: helping our customers in their time of need. Teammates
worked around the clock to return calls, process claims, and issue checks. With a significant
increase in the volume of customer calls, it was all hands on deck, with our auto, general
liability, and workers’ compensation teams stepping in to support our property teams.
During a time of unprecedented loss, our customers gave us rave reviews. That is a true
testament to the character of our teammates and our cultural focus on The Power of WE.
Pictured here are teammates from the Tampa, Florida location of American Claims Management
Review of Operations
Services
In the face of extraordinary challenges in 2017, the Services Segment
was responsible for delivering organic revenue growth(1) of 5.1%.
Our team collaborated beautifully to respond to the urgent needs of our
customers resulting from unprecedented activity that included hurricanes,
earthquakes, fires, and floods. Collectively, teammates handled more than
25,000 claims in a five-week period. Our teams outperformed peers by
providing outstanding and timely customer service with superior results.
In addition, our teammate retention was nearly 100% during a time when
adjusters were being heavily recruited by our competitors.
The Services Segment focused on continuing to position itself as the leader
of choice in 2017. We expanded our claim monitoring service capabilities
from the prior acquisition of Social Security Advocates for the Disabled
(SSAD). From a book of acquired cases, we also uncovered two new
opportunities that can now be applied across both The Advocator Group
and SSAD businesses. We believe these new opportunities will provide us
the ability to further supplement current revenue, and will generate
an ongoing revenue stream.
We will continue to invest in technology in 2018 and beyond. Our American
Claims Management office has now added dedicated resources to evaluate
and implement innovative insurance technology solutions that will improve
customer service, promote data-driven decision making for better results,
and leverage artificial intelligence to improve efficiency.
For 2018, our goals include identifying and developing new leaders;
training claims adjustment and case management teams; quickly recognizing
and responding to potential business interrupters; and increasing
collaboration and cross-selling in order to provide more diverse product
offerings to our customers.
Segment Total Revenues
DOLLARS IN MILLIONS
Contribution to
Total Revenues
Contribution to
Total EBITDAC(1)
15
2
0
1
7
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5
1
3
1
.
6
6
3
1
.
4
5
4
1
.
4
6
5
1
.
4
5
6
1
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8.8%
6.6%
(1) Organic revenue growth rate and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from
period to period on a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and EBITDAC and to reconciliations to the most closely
comparable GAAP measures, refer to pages 23 and 83-84 of this Annual Report, respectively.
Dear fellow
shareholders
Brown & Brown had a great year
in 2017—all four of our segments
grew organically, and our teammates
delivered for our customers. New
capital continued to pour into the
broker consolidation space, as well
as the risk-bearing space, and with
technology in the forefront, the hottest
word in our industry was “InsurTech.”
Unfortunately, it was also one of the
worst natural disaster years on record
with over $130 billion in insured
losses from hurricanes, floods, and
fires. It was, indeed, a remarkably
dynamic and interesting year.
In 2017, we executed our strategy of
steady growth and industry-leading
profitability, growing our organic
revenue by 4.4% and continuing to
deliver strong operating margins and
earnings per share. Our teammates
provided customized insurance
solutions for our customers, and we
continued to upgrade technology
platforms across the Company. These
investments were primarily focused on
improving our customer experience,
helping our teammates be more
efficient in their jobs, and upgrading
our internal financial systems. One of
our most notable technology upgrades
is the ongoing transition of our entire
Retail Segment to a single agency
management system.
In 2017, our National Programs Segment
delivered organic revenue growth of
6.1%. The team worked around the
clock to serve our affected customers
in the floods of Hurricanes Harvey
and Irma and became the program
administrator for a core commercial
program with one of our carrier partners.
Our Wholesale Brokerage Segment had
another tremendous year with organic
revenue growth of 6.6% — the sixth
year in a row of robust organic revenue
growth for that team. Our Services
Segment delivered organic revenue
growth of 5.1% and improved its
operating margins. I am especially proud
of the continued improvement in our
Retail Segment, which delivered organic
revenue growth of 2.9%, up from 1.9%
in 2016 and 1.4% in 2015, respectively.
Leaders across all of our business
segments delivered for our teammates,
who in turn delivered for our customers.
Analysts repeatedly ask us what we do
with the money we make. The response
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J. Powell Brown, CPCU
President &
Chief Executive Officer
is simple. We invest in current and
future teammates, acquire companies
that fit culturally, and promote
shareholder returns. We acquired
agencies with aggregate annual
revenues of approximately $17.5
million in 2017. While we considered
a number of other acquisition
opportunities, we maintained a
disciplined focus on firms that fit
culturally and made sense financially.
Many of the firms we evaluated
did not ultimately meet both of
our requirements. Over the past
three years, private equity groups
have changed the landscape of the
acquisition model in our industry.
Most of these groups are typically
short term in nature with a focus on
“the flip,” not the development of
a cohesive, long-term culture. We
continue to talk with firms that are
attracted to our culture and understand
that we play for the “long game.”
As you read this letter, tech-savvy
entrepreneurs around the globe are
working to simplify highly repetitive
job functions across the insurance
industry. Insurance start-ups, called
“InsurTechs,” represent a rapidly
growing area of our industry. We are
constantly searching the landscape
for ideas that could improve our
customers’ experience and simplify
our teammates’ jobs. Innovation and
investment in technology is a crucial
part of our strategy moving forward.
In March 2011, when our annual
revenue was approximately $973
million, our team set a goal to exceed
$2 billion in annual revenue. As we
rapidly approach that goal, we will set
another lofty goal for the years ahead.
We are a “forever” company, and we
invest for the long term. Our goal is
to increase the value of our shares
over time, which is good for you, our
shareholders, and our teammates.
We are proud to have increased our
dividend for the 24th year in a row,
and remarkably, our teammates own
approximately 30% of our Company.
As you know by now, we have
“teammates” at Brown & Brown, not
employees. At the end of 2017 we
had 8,491 teammates. I am extremely
proud of the hard work and dedication
shown by our teammates. Without
their tireless efforts, we could not have
delivered the customer experience
that made our results possible. Each
of us try to make contributions to
the communities in which we work
and live, whether in time or money
or both. We don’t get caught up in
titles, hierarchy, or process — we focus
on bringing the best solutions to
our customers every time we have
the opportunity. If we don’t do that,
we get replaced. When we put the
customer first, we know with great
confidence that it will all work out for
Brown & Brown in the long run.
Thanks to all of you— teammates,
customers, carrier partners, and
shareholders alike. We appreciate
everything that you do for our team.
Cheers,
J. Powell Brown, CPCU
President &
Chief Executive Officer
Total Revenues
IN MILLIONS OF DOLLARS
EBITDAC Margin
Dividends Per Share
3
6
3
1
,
6
7
5
1
,
1
6
6
1
,
7
6
7
1
,
1
8
8
1
,
%
9
3
3
.
%
6
0
3
.
%
3
3
3
.
%
8
2
3
.
%
2
2
3
.
IN DOLLARS
7
3
0
.
1
4
0
.
5
4
0
.
0
5
0
.
6
5
0
.
17
2
0
1
7
A
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R
e
p
o
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t
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
This letter includes selected references to organic revenue growth rate and EBITDAC Margin, non-GAAP financial measures, which are included to provide additional meaningful methods of
evaluating our operating performance from period to period on a basis that may not be otherwise on a GAAP basis. For other information concerning organic revenue growth rate and EBITDAC
Margin and to reconciliations to the most closely comparable GAAP measures, refer to pages 23 and 83-84 of this Annual Report, respectively.
Leadership Overview
Top row:
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J. Powell Brown, CPCU
President & Chief Executive
Officer
R. Andrew Watts
Executive Vice President, Chief
Financial Officer & Treasurer
Richard A. Freebourn, Sr.,
CPCU, CIC
Senior Vice President –
Internal Operations
Robert W. Lloyd, Esq.,
CPCU, CIC
Executive Vice President,
General Counsel & Secretary
Bottom row:
J. Scott Penny, CIC
Executive Vice President
& Chief Acquisitions Officer
Julie K. Ryan
Executive Vice President
& Chief People 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
John M. Esposito
Senior Vice President
& Regional President –
Retail Division
Joseph S. Failla
Senior Vice President
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
B. Carl Owen
Senior Vice President
& Chief Information Officer
Paul F. Rogers
Senior Vice President
& Regional President –
Retail Division
H. Vaughn Stoll
Senior Vice President
& Director of Acquisitions
& Internal Operations
Board of Directors
Left to right:
Samuel P. Bell, III, Esq.
Former Of Counsel
Buchanan Ingersoll & Rooney PC
Acquisition Committee; Compensation
Committee
James S. Hunt
Former Executive Vice President &
Chief Financial Officer, Walt Disney
Parks and Resorts Worldwide
Acquisition Committee; Audit Committee,
Chair; Compensation Committee
Theodore J. Hoepner
Former Vice Chairman, SunTrust
Bank Holding Company
Audit Committee; Compensation
Committee
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Bradley Currey, Jr.
Former Chairman & Chief Executive
Officer, Rock-Tenn Company
Nominating/Corporate Governance
Committee
Chilton D. Varner, Esq.
Senior Counsel, 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
President & 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 & Chief Executive Officer/
Director, Fidelity Bank
Acquisition Committee, Chair;
Compensation Committee
Hugh M. Brown
Founder and former President & Chief
Executive Officer, BAMSI, Inc.
Acquisition Committee; Audit Committee;
Nominating/Corporate Governance
Committee
Timothy R. M. Main
Chairman of Global Financial
Institutional Group, Barclays Plc
Acquisition Committee
Brown & Brown At-A-Glance
Retail
From large multinational organizations to small
businesses and personal insurance, Brown & Brown’s
Retail Segment develops comprehensive insurance
solutions to fit the needs of our customers. Our
customers’ exposures are unique and deserve equally
unique options that provide appropriate coverage to
reduce risk. Utilizing our unparalleled expertise and
market strength, we are focused on protecting what
our customers value most.
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Kentucky
Louisiana
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nevada
New Hampshire
New Jersey
New Mexico
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Vermont
Virginia
Washington
Wisconsin
Outside the U.S.:
Bermuda
Cayman Islands
20
National Programs
Teams within Brown & Brown’s National Programs Segment
specialize in the development and management of insurance
program business, often designed for niche, underserved
markets. We offer program management expertise for insurance
carrier partners across numerous lines of business. By remaining
vigilant of emerging insurance exposures and needs, we are
leaders in the design of cutting-edge products and programs.
AFC Insurance
Allied Protector Plan
American Specialty
Arrowhead General
Insurance Agency
Lawyer’s Protector
Plan®
Optometric
Protector Plan®
Parcel Insurance
Plan
Automotive
Aftermarket
Bellingham
Underwriters
CalSurance
Associates
Clear Risk Solutions
CPA Protector Plan®
Physicians Protector
Plan
Proctor Financial
Professional
Protector Plan for
Dentists
Professional Risk
Specialty Group
Florida Intracoastal
Underwriters
Professional
Services Plans
Irving Weber
Associates
Protect One for
Professionals
Public Risk
Underwriters of
Florida
Public Risk
Underwriters of
Illinois
Public Risk
Underwriters of
Indiana
Public Risk
Underwriters of
New Jersey
Sigma Underwriting
Managers
TitlePac®
Wright Flood
Wright Public Entity
Wright Specialty
For additional information on National Programs, please visit
www.natprograms.com.
Wholesale Brokerage
Specialists in placing unique and complex accounts,
brokers in Brown & Brown’s Wholesale Brokerage
Segment are insurance product and program specialists
with access to an extensive network of insurance
companies offering excess and surplus lines coverages.
We offer a distinct value proposition to retail partners:
exceptional coverage expertise across a wide range of
property and casualty lines of business and access to
well-established insurance company relationships often
unavailable to retail agencies on a direct basis.
Services
Partnering with insurance companies and self-insured
entities, Brown & Brown’s Services Segment provides
third-party claims administration and ancillary services
such as surveillance and special investigation services.
Our expertise across diverse lines of business includes
workers’ compensation, professional liability, auto,
general liability, flood, and Social Security disability
insurance advocacy. Our seasoned team prides itself on
being nimble and ready to tailor solutions to meet each
customer’s unique needs.
APEX Insurance Services
MacDuff Underwriters
The Advocator Group
Big Sky Underwriters
Morstan General Agency
Braishfield Associates
National Risk Solutions
Combined Group
Insurance Services
Peachtree Special Risk
Brokers
Decus Insurance Brokers
ECC Insurance Brokers
Procor Solutions +
Consulting
Graham Rogers
Halcyon Underwriters
Hull & Company
Public Risk Underwriters
of Texas
Texas Security General
Insurance Agency
American Claims
Management
Insurance Claims
Adjusters
NuQuest
Preferred Government
Claims Services
Protect Professionals
Claims Management
Social Security Advocates
for the Disabled
United Self Insured Services
Brown & Brown, Inc.
2017
Financial Review
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22 Management’s Discussion and Analysis of Financial
Condition and Results of Operations
45 Consolidated Statements of Income
46 Consolidated Balance Sheets
47 Consolidated Statements of Shareholders’ Equity
48 Consolidated Statements of Cash Flows
49 Notes To Consolidated Financial Statements
83 GAAP Reconciliation — Income Before Income Taxes
to EBITDAC and Income Before Income Taxes Margin
to EBITDAC Margin
85 Reports of Independent Registered Public
Accounting Firm
87 Management’s Report on Internal Control Over
Financial Reporting
88 Performance Graph
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. 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 headquartered
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 2017, with the exception of 2009, when our revenues dropped
1.0%. Our revenues grew from $95.6 million in 1993 to $1.9 billion in 2017, reflecting a compound annual growth rate of
13.2%. In the same 24-year period, we increased net income from $8.1 million to $399.6 million in 2017, a compound annual
growth rate of 17.6%.
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 coverage.
Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a
strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long term.
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 gener-
ated 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 rep-
resents 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 – Segment Information” of this Annual Report.
We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on underwrit-
ing 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 3.2% of the previous year’s
total commissions and fees. 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, 2017,
we had earned $10.4 million of GSCs, of which $8.5 million remained accrued at December 31, 2017 as most of this will be
collected in the first quarter of 2018. For the years ended December 31, 2017, 2016, and 2015, we earned $10.4 million,
$11.5 million and $10.0 million, respectively, from GSCs.
22
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations 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’ compensa-
tion 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 as a percentage of our total commissions and fees represented 31.5% in 2017, 31.3% in 2016 and 30.6% in 2015.
Additionally, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2017 decreased by
$2.9 million over 2016 primarily as a result of a decrease in profit-sharing contingent commissions and GSCs in the Retail and
Wholesale Brokerage Segments as a result of increased loss ratios and lower premium rates, partially offset by an increase in
profit-sharing contingent commissions and GSCs in the National Programs Segment. Other income increased by $20.1 million
primarily as a result of a legal settlement recognized in the first quarter of 2017.
For the years ended December 31, 2017 and 2016, our commissions and fees growth rate was 5.4% and 6.4%, respec-
tively, and our consolidated organic revenue growth rate was 4.4% and 3.0%, respectively. Additionally, each of our four
segments recorded positive organic revenue growth for the year ended December 31, 2017. In the event that the gradual
increases in insurable exposure units that occurred in the past few years continues through 2018 and premium rate changes
are similar with 2017, we believe we will continue to see positive quarterly organic revenue growth rates in 2018.
Historically, investment income has consisted primarily of interest earnings on premiums and advance premiums collected
and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in
high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the
sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.
Income before income taxes for the year ended December 31, 2017 increased over 2016 by $26.2 million, primarily as a
result of a legal settlement recorded in the first quarter of 2017 and net new business and acquisitions completed in the past
twelve months.
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 rate. 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. We believe that presenting these non-GAAP measures
allows readers of our financial statements to measure, analyze and compare our consolidated growth, the growth of each of our
segments, and certain aspects of our operating performance from period to period in a meaningful and consistent manner that
may not be otherwise apparent on a GAAP basis. Our industry peers may provide similar supplemental 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 considered 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 under “Results of Operation – Segment Information.”
2017 Annual Report Acquisitions
Part of our business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the
fourth quarter of 2017, we acquired 490 insurance intermediary operations, excluding acquired books of business (customer
accounts). During the year ended December 31, 2017, the Company acquired the assets and assumed certain liabilities of
eleven insurance intermediaries and one book of business (customer accounts). Collectively, these acquired businesses had
annualized revenues of approximately $17.5 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 “Summary of Significant
Accounting Policies” in the “Notes to Consolidated Financial Statements” for a discussion of the impacts for adopting
Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”.
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. Please see Note 1 in the
“Notes to Consolidated Financial Statements” for changes to our revenue recognition policies that are effective January 1, 2018
as prescribed by new accounting pronouncements.
Business Combinations and Purchase Price Allocations
We have acquired significant intangible assets through acquisitions of businesses. These assets generally 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
24
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations information about insurance policies, customers and other matters essential to policy renewals. However, they primarily
represent the present value of the underlying cash flows expected to be received over the estimated future renewal periods of
the insurance policies comprising those purchased customer accounts. The valuation of purchased customer accounts involves
significant estimates and assumptions concerning matters such as cancellation frequency, expenses and discount rates. Any
change in these assumptions could affect the carrying value of purchased customer accounts. Non-compete agreements are
valued based 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 three to fifteen years. The excess of the purchase price of an acquisition over the fair value of the identifiable
tangible and intangible assets is assigned to goodwill and is not amortized.
Acquisition purchase prices are typically based upon a multiple of average annual operating profit or core revenue earned
over a one- to three-year period within a minimum and maximum price range. The recorded purchase prices for all acquisitions
consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out
provisions. Subsequent changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income
when changes to the expected performance of the associated business are realized.
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 intangi-
ble 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, deprecia-
tion, 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 recover-
able. 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, 2017 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, 2017, 2016 and 2015.
2017 Annual Report 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 of up
to ten years from the January 2011 grant date in order for the awarded shares to become fully vested and nonforfeitable. 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 nonforfeitable. 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.
26
During the first quarter of 2018, the performance conditions for 130,172 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 2013. These grants had a performance measurement period that concluded on
December 31, 2017. The vesting condition for these grants requires continuous employment for a period of up to ten years
from the January 2013 grant date in order for the awarded shares to become fully vested and nonforfeitable. 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 Financial Statements. 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 settle-
ment strategy in dealing with these matters may significantly affect the required reserves and affect our net income.
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for The Years ended December 31, 2017, 2016 and 2015
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
2017
Percent
Change
2016
Percent
Change
2015
Core commissions and fees
$ 1,794,714
5.7 %
$ 1,697,308
6.4 %
$ 1,595,218
Profit-sharing contingent commissions
Guaranteed supplemental commissions
52,186
10,370
(3.4) %
(9.7) %
54,000
11,479
4.4 %
14.5 %
51,707
10,026
Commissions and fees
1,857,270
5.4 %
1,762,787
6.4 %
1,656,951
Investment income
Other income, net
Total revenues
EXPENSES
1,626
22,451
11.7 %
NMF
1,456
2,386
45.0 %
(6.6) %
1,004
2,554
1,881,347
6.5 %
1,766,629
6.4 %
1,660,509
Employee compensation and benefits
Other operating expenses
(Gain)/loss on disposal
994,652
283,470
7.5 %
7.8 %
925,217
262,872
8.0 %
4.7 %
(2,157)
67.1 %
(1,291)
108.6 %
Amortization
Depreciation
Interest
Change in estimated acquisition
earn-out payables
Total expenses
85,446
22,698
38,316
(1.4) %
8.1 %
(3.0) %
86,663
21,003
39,481
9,200
0.2 %
9,185
1,431,625
6.6 %
1,343,130
Income before income taxes
449,722
6.2 %
423,499
856,952
251,055
(619)
87,421
20,890
39,248
3,003
1,257,950
402,559
159,241
27
(0.9) %
0.5 %
0.6 %
NMF
6.8 %
5.2 %
4.2 %
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
50,092
(69.8) %
166,008
$ 399,630
55.2 %
$ 257,491
5.7 %
$ 243,318
4.4 %
52.9 %
15.1 %
3.0 %
52.4 %
14.9 %
2.6 %
51.6 %
15.1 %
$
24,192
$ 5,747,550
$
17,765
$ 5,262,734
$
18,375
$ 4,979,844
2017 Annual Report
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2017, increased $94.5 million to
$1,857.3 million, or 5.4% over 2016. Core commissions and fees for 2017 increased $97.4 million, of which approximately
$27.7 million represented core commissions and fees from agencies acquired since 2016 that had no comparable revenues.
After accounting for divested business of $4.9 million, the remaining net increase of $74.6 million represented net new
business, which reflects an organic revenue growth rate of 4.4% for core commissions and fees. Profit-sharing contingent
commissions and GSCs for 2017 decreased by $2.9 million, or 4.5%, compared to the same period in 2016. The net decrease
of $2.9 million was mainly driven by a decrease in profit-sharing contingent commissions and GSCs in the Retail and Wholesale
Brokerage Segments, as a result of increased loss ratios and lower premium rates, which was partially offset by an increase in
profit-sharing contingent commissions and GSCs in the National Programs Segment.
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 in 2016 increased $102.1 million, of which approximately
$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 an organic revenue growth rate of 3.0% for core 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, which
was partially offset by a decrease in profit-sharing contingent commissions in the Wholesale Brokerage Segment as a result of
increased loss ratios.
Investment Income
Investment income increased to $1.6 million in 2017, compared with $1.5 million in 2016, and increased to $1.5 million in
2016, compared with $1.0 million in 2015. The increases in both years are due to additional interest income driven by higher
average invested cash balances accompanied by higher effective earned rates of interest.
Other Income, Net
Other income for 2017 was $22.5 million, compared with $2.4 million in 2016 and $2.6 million in 2015. Other income consists
primarily of legal settlements and other miscellaneous income. In 2017, $20.0 million of other income was recognized as a
result of a legal settlement in the first quarter of 2017.
Employee Compensation and Benefits
Employee compensation and benefits expense increased 7.5%, or $69.4 million, in 2017 over 2016. This increase included
$11.1 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of
2016. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time
periods of 2017 and 2016 increased by $58.3 million or 6.4%. This underlying employee compensation and benefits expense
increase was primarily related to (i) higher bonuses due to increased revenue and operating profit as well as the additional cost
associated with the Retail Segment’s performance incentive plan introduced in 2017, (ii) an increase in producer commissions
driven by new and renewed business, (iii) an increase in non-cash stock-based compensation expense due to forfeiture credits
recognized in 2016, and (iv) increased staff salaries attributable to salary inflation and higher volumes in portions of our
business. Employee compensation and benefits expense as a percentage of total revenues was 52.9% for 2017 as compared
to 52.4% for the year ended December 31, 2016.
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) higher producer commissions driven by new and renewed business,
(ii) increased staff salaries that included some severance cost, (iii) increased bonuses due to higher revenue and operating
28
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations profit, (iv) 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.
Other Operating Expenses
Other operating expenses in 2017 increased 7.8%, or $20.6 million, over 2016, of which $3.3 million was related to acquisi-
tions that had no comparable costs in the same period of 2016. The other operating expenses for those offices that existed
in the same periods in both 2017 and 2016 increased by $17.3 million or 6.6%, which was primarily attributable to (i) higher
data processing costs related to our multi-year technology investment program, (ii) the receipt of certain premium tax refunds
by our National Flood Program business in 2016, and (iii) professional fees at our National Programs Division. Other operating
expenses as a percentage of total revenues was 15.1% in 2017, 14.9% in 2016 and 15.1% in 2015.
As a percentage of total revenues, other operating expenses represented 14.9% in 2016 and 15.1% in 2015. 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 higher data processing
costs related to our multi-year technology investment program, partially offset by the receipt of certain premium tax refunds by
our National Flood Program business.
Gain or Loss on Disposal
The Company recognized gains on disposal of $2.2 million, $1.3 million and $0.6 million in 2017, 2016 and 2015, respectively.
The change in the gain on disposal was due to activity associated with book of business sales. 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.
Amortization
Amortization expense decreased $1.2 million, or 1.4%, in 2017, and decreased $0.8 million, or 0.9%, in 2016. These decreases
are as a result of certain intangibles becoming fully amortized or otherwise written off as part of disposed businesses, both of
which were partially offset with amortization of new intangibles from recently acquired businesses.
29
Depreciation
Depreciation expense increased $1.7 million, or 8.1%, in 2017 and remained flat in 2016 as compared to 2015. The increase
in 2017 is due primarily to the addition of fixed assets resulting from capital projects related to our multi-year technology
investment program and other business initiatives in 2017, 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.
Interest Expense
Interest expense decreased $1.2 million, or 3.0%, in 2017, and increased $0.2 million, or 0.6% in 2016. The decrease in
2017 was due primarily to having less total debt outstanding. The increase in 2016 was primarily due to an increase in floating
interest rates related to the outstanding debt balance on the Credit Facility term loan.
Change in Estimated Acquisition Earn-Out Payables
Accounting Standards Codification (“ASC”) Topic 805 – Business Combinations is the authoritative guidance requiring an
acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited
exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration
arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price
consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an
estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these
earn-out obligations are required to be recorded in the Consolidated Statement of Income when incurred or reasonably
estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations
or entities, usually for periods ranging from one to three years.
2017 Annual Report 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, 2017, 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 82 – 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, 2017, 2016 and 2015 were as follows:
(in thousands)
2017
2016
Change in fair value of estimated acquisition earn-out payables
$
6,874
$
6,338
$
Interest expense accretion
2,326
2,847
2015
13
2,990
Net change in earnings from estimated acquisition earn-out payables
$
9,200
$
9,185
$
3,003
For the years ended December 31, 2017, 2016 and 2015, the fair value of estimated earn-out payables was re-evaluated
and increased by $6.9 million, $6.3 million and $13.0 thousand, respectively, which resulted in charges to the Consolidated
Statement of Income.
As of December 31, 2017, the estimated acquisition earn-out payables equaled $36.2 million, of which $25.1 million was
recorded as accounts payable and $11.1 million was recorded as other non-current liability. 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.
30
Income Taxes
The effective tax rate on income from operations was 11.1% in 2017, 39.2% in 2016, and 39.6% in 2015. The decrease in
the effective tax rate for 2017 was primarily driven by the revaluation of deferred tax liabilities as described in Part II, Note 9
“Income Taxes,” in addition to adoption of FASB Accounting Standards Update 2016-09, “Improvements to Employee Share
Based Payment Accounting” (“ASU 2016-09”) in the first quarter of 2017. ASU 2016-09, which requires upon vesting of
stock-based compensation any tax implications be treated as a discrete credit to the income tax expense in the quarter of
vesting, amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation.
The decrease in the effective tax rate for 2016 is driven by several permanent tax differences along with the apportionment of
taxable income in the states where we operate.
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, changes in amortization, depreciation and
interest expenses generally result from activity associated with acquisitions. Likewise, other income in each segment reflects
net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency and
leverage of a segment, management focuses on the organic revenue growth rate of core commissions and fees, 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, 2017 and 2016 is as follows:
(in thousands)
Commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Core commissions and fees
Less acquisition revenues
Less divested businesses
Organic Revenue
For the Year Ended December 31,
2017
2016
$ 1,857,270
$ 1,762,787
52,186
10,370
54,000
11,479
1,794,714
1,697,308
27,739
—
—
4,912
$ 1,766,975
$ 1,692,396
The organic revenue growth rates for the year ended December 31, 2017, by Segment, are as follows:
(in thousands,
except percentages)
Commissions
and fees
Retail (1)
National Programs
Wholesale Brokerage
Services
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
31
$ 942,039 $ 916,084
$ 479,017 $ 447,808
$ 271,141 $ 242,813
$ 165,073 $ 156,082
$ 1,857,270 $ 1,762,787
Total change
$ 25,955
Total growth %
2.8%
$ 31,209
7.0%
$ 28,328
11.7%
$ 8,991
5.8%
$
94,483
5.4%
Contingent
commissions
23,377
25,207
20,123
17,306
8,686
11,487
GSCs
9,108
9,787
31
23
1,231
1,669
—
—
—
—
52,186
10,370
54,000
11,479
Core commissions
and fees
Acquisition
revenues
$ 909,554 $ 881,090
$ 458,863 $ 430,479
$ 261,224 $ 229,657
$ 165,073 $ 156,082
$ 1,794,714 $ 1,697,308
Divested business
—
4,838
—
8,151
—
2,296
—
277
16,442
—
—
—
850
—
—
(203)
27,739
—
—
4,912
Organic
Revenue (2)
Organic revenue
growth (2)
Organic revenue
growth % (2)
$ 901,403 $ 876,252
$ 456,567 $ 430,202
$ 244,782 $ 229,657
$ 164,223 $ 156,285
$ 1,766,975 $ 1,692,396
$ 25,151
$ 26,365
$ 15,125
$ 7,938
$
74,579
2.9%
6.1%
6.6%
5.1%
4.4%
(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 Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
2017 Annual Report
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)
Commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Core commissions and fees
Less acquisition revenues
Less divested businesses
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 organic revenue growth rates for the year ended December 31, 2016, by Segment, are as follows:
(in thousands,
except percentages)
Commissions
and fees
Retail (1)
National Programs
Wholesale Brokerage
Services
Total
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
$ 916,084 $ 866,465
$ 447,808 $ 428,473
$ 242,813 $ 216,638
$ 156,082 $ 145,375
$ 1,762,787 $ 1,656,951
Total change
$ 49,619
Total growth %
5.7%
$ 19,335
4.5%
$ 26,175
12.1%
$ 10,707
7.4%
$ 105,836
6.4%
Contingent
commissions
32
GSCs
Core commissions
and fees
25,207
22,051
17,306
15,558
11,487
14,098
9,787
8,291
23
30
1,669
1,705
—
—
—
—
54,000
11,479
51,707
10,026
$ 881,090 $ 836,123
$ 430,479 $ 412,885
$ 229,657 $ 200,835
$ 156,082 $ 145,375
$ 1,697,308 $ 1,595,218
Acquisition revenues
31,151
—
1,680
—
20,164
Divested business
—
1,926
—
1,296
—
—
—
8,718
—
61,713
—
—
3,447
—
6,669
Organic Revenue (2)
$ 849,939 $ 834,197
$ 428,799 $ 411,589
$ 209,493 $ 200,835
$ 147,364 $ 141,928
$ 1,635,595 $ 1,588,549
Organic revenue
growth (2)
Organic revenue
growth % (2)
$ 15,742
$ 17,210
$
8,658
$ 5,436
$
47,046
1.9%
4.2%
4.3%
3.8%
3.0%
(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 Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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)
Commissions and fees
Less profit-sharing contingent commissions
Less guaranteed supplemental commissions
Core commissions and fees
Less acquisition revenues
Less divested businesses
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
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 in order to conform to the current year presentation.
The organic revenue growth rates for the year ended December 31, 2015, by Segment, are as follows:
(in thousands,
except percentages)
Commissions
and fees
Retail (1)
National Programs
Wholesale Brokerage
Services
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
$ 866,465 $ 822,140
$ 428,473 $ 397,326
$ 216,638 $ 211,512
$ 145,375 $ 136,482
$ 1,656,951 $ 1,567,460
Total change
$ 44,325
Total growth %
5.4%
$ 31,147
7.8%
$
5,126
2.4%
$ 8,893
6.5%
$
89,491
5.7%
Contingent
commissions
22,051
21,616
15,558
20,822
14,098
15,268
GSCs
8,291
7,730
30
21
1,705
2,100
—
—
—
—
51,707
57,706
10,026
9,851
33
Core commissions
and fees
$ 836,123 $ 792,794
$ 412,885 $ 376,483
$ 200,835 $ 194,144
$ 145,375 $ 136,482
$ 1,595,218 $ 1,499,903
Acquisition revenues
35,644
—
38,519
—
2,469
—
Divested business
—
3,291
—
8,811
—
6,887
—
—
—
347
76,632
—
—
19,336
Organic Revenue (2)
$ 800,479 $ 789,503
$ 374,366 $ 367,672
$ 198,366 $ 187,257
$ 145,375 $ 136,135
$ 1,518,586 $ 1,480,567
Organic revenue
growth (2)
Organic revenue
growth % (2)
$ 10,976
$
6,694
$ 11,109
$ 9,240
$
38,019
1.4%
1.8%
5.9%
6.8%
2.6%
(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 Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
2017 Annual Report
Retail Segment
The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public, profes-
sional and individual insured customers. Approximately 87.3% of the Retail Segment’s commissions and fees is commission
based. Because a significant portion of our operating expenses are not correlated to changes in commissions on insurance
premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation, will
result in a similar fluctuation in our income before income taxes, unless we make incremental investments or modifications to
the costs in the organization.
Financial information relating to our Retail Segment is as follows:
(in thousands, except percentages)
REVENUES
2017
Percent
Change
2016
Percent
Change
2015
Core commissions and fees
$ 909,762
3.2 %
$ 881,729
5.3 %
$ 837,420
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Commissions and fees
Investment income
Other income, net
Total revenues
EXPENSES
34
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
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
23,377
9,108
942,247
8
1,205
(7.3) %
(6.9) %
2.8 %
(78.4) %
86.5 %
25,207
9,787
916,723
37
646
14.3 %
18.0 %
5.6 %
(57.5) %
(74.1) %
22,051
8,291
867,762
87
2,497
943,460
2.8 %
917,406
5.4 %
870,346
515,477
147,084
(2,311)
42,164
5,210
31,133
8,087
6.0 %
0.5 %
79.0 %
(3.0) %
(15.8) %
(18.5) %
(21.1) %
486,303
146,286
(1,291)
43,447
6,191
38,216
10,253
746,844
$ 196,616
2.4 %
729,405
4.6 %
$ 188,001
6.3 %
6.4 %
7.0 %
(3.8) %
(5.6) %
(6.9) %
NMF
6.0 %
3.3 %
457,351
137,519
(1,207)
45,145
6,558
41,036
2,006
688,408
$ 181,938
2.9 %
54.6 %
15.6 %
1.9 %
53.0 %
15.9 %
1.4 %
52.5 %
15.8 %
$
4,494
$ 4,255,515
$
5,951
$ 3,854,393
$
6,797
$ 3,507,476
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Retail Segment’s total revenues in 2017 increased 2.8%, or $26.1 million, over the same period in 2016, to
$943.5 million. The $28.0 million increase in core commissions and fees was driven by the following: (i) $24.6 million related
to net new business, (ii) approximately $8.2 million related to the core commissions and fees from acquisitions that had no
comparable revenues in the same period of 2016, and (iii) an offsetting decrease of $4.8 million related to commissions and
fees from businesses divested in 2016 and 2017. Profit-sharing contingent commissions and GSCs in 2017 decreased 7.2%,
or $2.5 million, over 2016, to $32.5 million. The Retail Segment’s growth rate for total commissions and fees was 2.8% and
the organic revenue growth rate was 2.9% for 2017. The organic growth rate was driven by increased new business and higher
retention during the preceding twelve months, along with continued increases in commercial auto and employee benefits rates
and underlying exposure unit values that drive insurance premiums.
Income before income taxes for 2017 increased 4.6%, or $8.6 million, over the same period in 2016, to $196.6 million.
The primary factors affecting this increase were: (i) the net increase in revenue as described above, (ii) offset by a 6.0%, or
$29.2 million, increase in employee compensation and benefits, due primarily to the year-on-year impact of salary inflation,
additional teammates to support revenue growth and the incremental investment in our performance incentive plan, (iii)
operating expenses which increased by $0.8 million, or 0.5%, primarily due to our multi-year technology investment program
and increased value-added consulting services to support our customers; offset by (iv) a reduction in the change in estimated
acquisition earn-out payables of $2.2 million, or 21.1%, to $8.1 million, and (v) a combined decrease in amortization, deprecia-
tion and intercompany interest expense of $9.3 million.
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 was driven by the following: (i) approximately
$31.2 million related to core commissions and fees 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 recorded 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 growth rate for total commissions and fees was 5.6%,
and the organic revenue growth rate was 1.9% for 2016, which were 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 catastrophe-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 compensa-
tion 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.
35
2017 Annual Report National Programs Segment
The National Programs Segment manages over 51 programs supported by 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, Personal Lines 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
2017
Percent
Change
2016
Percent
Change
2015
Core commissions and fees
$ 458,863
6.6 %
$ 430,479
4.3 %
$ 412,885
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Commissions and fees
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
36
Other operating expenses
(Gain)/loss on disposal
Amortization
Depreciation
Interest
Change in estimated acquisition earn-out payables
Total expenses
20,123
31
479,017
384
412
479,813
201,816
97,988
99
27,277
6,325
35,561
786
369,852
16.3 %
34.8 %
7.0 %
(38.9) %
NMF
7.0 %
5.6 %
16.9 %
— %
(2.3) %
(19.6) %
(22.3) %
NMF
3.7 %
17,306
23
11.2 %
(23.3) %
15,558
30
447,808
4.5 %
428,473
628
80
199.0 %
56.9 %
210
51
448,516
4.6 %
428,734
191,199
83,822
4.6 %
(2.7) %
—
(100.0) %
27,920
7,868
45,738
207
(2.0) %
8.5 %
(17.9) %
31.0 %
182,854
86,157
458
28,479
7,250
55,705
158
356,754
(1.2) %
361,061
Income before income taxes
$ 109,961
19.8 %
$
91,762
35.6 %
$ 67,673
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
6.1 %
42.1 %
20.4 %
4.2 %
42.6 %
18.7 %
1.8 %
42.6 %
20.1 %
$
5,936
$ 3,267,486
$
6,977
$ 2,711,378
$
6,001
$ 2,503,537
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The National Programs Segment’s total revenues in 2017 increased 7.0%, or $31.3 million, over 2016, to a total
$479.8 million. The $28.4 million increase in core commissions and fees was driven by the following: (i) $26.4 million related
to net new business, (ii) an increase of approximately $2.3 million related to core commissions and fees from acquisitions that
had no comparable revenues in 2016, offset by (iii) a decrease of $0.3 million related to commissions and fees recorded in
2016 from businesses since divested. Profit-sharing contingent commissions and GSCs were $20.2 million in 2017, which was
an increase of $2.8 million over 2016, which was primarily driven by the improved loss experience of our carrier partners.
The National Programs Segment’s growth rate for total commissions and fees was 7.0% and the organic revenue growth
rate was 6.1% for 2017. This organic revenue growth rate was mainly due to increased flood claims revenues and our new core
commercial program with QBE. Growth in these businesses was partially offset by certain programs that have been affected by
certain carriers changing their risk appetite for new or existing programs or lower premium rates for certain lines of business.
Income before income taxes for 2017 increased 19.8%, or $18.2 million, from the same period in 2016, to $110.0 million.
The increase is the result of a lower intercompany interest charge of $10.2 million, along with leveraging revenue growth of
$31.3 million.
The National Programs Segment’s total revenues in 2016 increased 4.6%, or $19.8 million, over 2015, to a total of
$448.5 million. The $17.6 million increase in core commissions and fees was driven by the following: (i) $17.2 million related
to net new business, (ii) an increase of approximately $1.7 million related to core commissions and fees from acquisitions that
had no comparable revenues in 2015; offset by (iii) a decrease of $1.3 million related to commissions and fees 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 growth rate for total commissions and fees was 4.5% and the organic revenue
growth rate 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.
37
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.
2017 Annual Report 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 agents. Like the Retail and National Programs
Segments, the Wholesale Brokerage Segment’s revenues are primarily commission based.
Financial information relating to our Wholesale Brokerage Segment is as follows:
(in thousands, except percentages)
REVENUES
2017
Percent
Change
2016
Percent
Change
2015
Core commissions and fees
$ 261,224
13.7 %
$ 229,657
14.4 %
$ 200,835
Profit-sharing contingent commissions
Guaranteed supplemental commissions
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
38
Change in estimated acquisition earn-out payables
8,686
1,231
271,141
—
596
(24.4) %
(26.2) %
11.7 %
(100.0) %
108.4 %
11,487
1,669
242,813
4
286
(18.5) %
(2.1) %
12.1 %
(97.3) %
37.5 %
14,098
1,705
216,638
150
208
271,737
11.8 %
243,103
12.0 %
216,996
138,297
44,665
—
11,456
1,885
6,263
327
13.5 %
6.0 %
— %
6.1 %
(4.6) %
57.5 %
NMF
121,863
42,139
16.4 %
22.6 %
104,692
34,379
—
(100.0) %
10,801
1,975
3,976
10.9 %
(7.8) %
NMF
(274)
(133.0) %
(385)
9,739
2,142
891
830
Total expenses
202,893
12.4 %
180,480
18.5 %
152,288
Income before income taxes
$
68,844
9.9 %
$
62,623
(3.2) %
$ 64,708
Organic revenue growth rate (1)
Employee compensation and benefits
relative to total revenues
Other operating expenses relative to total revenues
6.6 %
50.9 %
16.4 %
4.3 %
50.1 %
17.3 %
5.9 %
48.2 %
15.8 %
Capital expenditures
Total assets at December 31
(1) A non-GAAP measure
NMF = Not a meaningful figure
$
1,836
$ 1,260,239
$
1,301
$ 1,108,829
$
3,084
$ 895,782
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Wholesale Brokerage Segment’s total revenues for 2017 increased 11.8%, or $28.6 million, over 2016, to $271.7
million. The $31.6 million net increase in core commissions and fees was driven by the following: (i) $16.5 million related to
the core commissions and fees from acquisitions that had no comparable revenues in 2016, and (ii) $15.1 million related to
net new business. Profit-sharing contingent commissions and GSCs for 2017 decreased $3.2 million over 2016, to $9.9
million. This decrease was driven by higher loss ratios experienced for several carriers, and partially offset by profit-sharing
contingent commissions received from acquisitions that had no comparable profit-sharing contingent commissions in 2016.
The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 11.7%, and the organic revenue growth
rate was 6.6% for 2017, which were driven by net new business and modest increases in exposure units that were partially
offset by significant contraction in insurance premium rates for catastrophe-prone properties during the first half of the year,
which moderated in the latter part of the year.
Income before income taxes for 2017 increased 9.9%, or $6.2 million, over 2016, to $68.8 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 $16.4 million, of which $10.4 million was related to acquisitions that had no comparable compensation and benefits in
the same period of 2016, with the remainder related to additional teammates to support increased transaction volumes and
compensation increases for existing teammates, (iii) a decrease in profit from lower profit-sharing contingent commissions
and GSCs, (iv) a net $2.5 million increase in operating expenses, of which $3.1 million was related to acquisitions that had no
comparable expenses in the same period of 2016 and (v) higher intercompany interest charges related to acquisitions com-
pleted in the previous year.
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 was driven by the following: (i) $20.2 million related to the core
commissions and fees from acquisitions that had no comparable revenues in 2016, (ii) $8.7 million related to net new business;
and (iii) an offsetting decrease of $0.1 million related to commissions and fees recorded in 2015 from businesses divested in
the past year. Profit-sharing 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 growth rate for total
commissions and fees was 12.1%, and the organic revenue growth rate was 4.3% for 2016, which were driven by net new
business and modest increases in exposure units, partially offset by significant contraction in insurance premium rates for
catastrophe-prone properties and to a lesser extent all other lines of coverage.
39
Income before income taxes for 2016 decreased 3.2%, or $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 profit-sharing 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
intercompany interest charge related to acquisitions completed in the previous year.
2017 Annual Report 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 significantly
affected by fluctuations in general insurance premiums.
Financial information relating to our Services Segment is as follows:
(in thousands, except percentages)
REVENUES
2017
Percent
Change
2016
Percent
Change
2015
Core commissions and fees
$ 165,073
5.8 %
$ 156,082
7.4 %
$ 145,375
Profit-sharing contingent commissions
Guaranteed supplemental commissions
Commissions and fees
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
Other operating expenses
40
(Gain)/loss on disposal
Amortization
Depreciation
Interest
—
—
165,073
299
—
165,372
80,944
44,205
55
4,548
1,600
3,522
— %
— %
5.8 %
5.7 %
— %
5.8 %
2.7 %
3.0 %
— %
1.4 %
(14.9) %
(28.8) %
—
—
156,082
283
—
— %
— %
7.4 %
NMF
(100.0) %
—
—
145,375
42
(52)
156,365
7.6 %
145,365
78,804
42,908
2.2 %
19.0 %
—
(100.0) %
4,485
1,881
4,950
11.6 %
(5.4) %
(17.1) %
NMF
77,094
36,057
515
4,019
1,988
5,970
9
Change in estimated acquisition earn-out payables
—
(100.0) %
(1,001)
Total expenses
134,874
2.2 %
132,027
5.1 %
125,652
Income before income taxes
$
30,498
25.3 %
$
24,338
23.5 %
$ 19,713
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
5.1 %
48.9 %
26.7 %
3.8 %
50.4 %
27.4 %
6.8 %
53.0 %
24.8 %
$
1,033
$ 399,240
$
656
$ 371,645
$
1,088
$ 285,459
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Services Segment’s total revenues for 2017 increased 5.8%, or $9.0 million, over 2016, to $165.4 million. The
$9.0 million increase in core commissions and fees was driven primarily by the following: (i) $7.9 million related to net new
business, (ii) $0.9 million related to the core commissions and fees from acquisitions that had no comparable revenues in the
same period of 2016, and (iii) an increase of $0.2 million related to commissions and fees recorded in 2016 from business
since divested. The Services Segment’s growth rate for total commissions and fees was 5.8%, and the organic revenue growth
rate was 5.1% for 2017, primarily driven by our claims offices that handle catastrophe claims.
Income before income taxes for 2017 increased 25.3%, or $6.2 million, over 2016, to $30.5 million due to a combination
of: (i) new business realized across most of our businesses, (ii) our claims offices 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 2016 increased 7.6%, or $11.0 million, over 2015, to $156.4 million. The
$10.7 million increase in core commissions and fees was driven primarily by the following: (i) $8.7 million related to the core
commissions and fees from acquisitions that had no comparable revenues in the same period of 2015, (ii) $5.4 million related
to net new business, and (iii) partially offset by a decrease of $3.4 million related to commissions and fees recorded in 2015
from business since divested. The Services Segment’s growth rate for total commissions and fees was 7.4% and the organic
revenue growth rate was 3.8% for 2016, primarily driven by our claims.
Income before income taxes for 2016 increased 23.5%, or $4.6 million, over 2015, to $24.3 million due to a combination
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.
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 utilize 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.
Our cash and cash equivalents of $573.4 million at December 31, 2017 reflected an increase of $57.8 million from the
$515.6 million balance at December 31, 2016. During 2017, $442.0 million of cash was generated from operating activities,
representing an increase of 7.5%. During this period, $41.5 million of cash was used for acquisitions, $43.8 million was used
for acquisition earn-out payments, $24.2 million was used to purchase additional fixed assets, $77.7 million was used for
payment of dividends, $139.9 million was used for share repurchases, and $96.8 million was used to pay outstanding principal
balances owed on long-term debt.
We hold approximately $19.4 million in cash outside of the U.S. for which we currently have no plans to repatriate in the
near future. With the passage of the Tax Cuts and Jobs Act of 2017, we will reevaluate the most advantageous opportunities to
deploy this capital on an after-tax basis.
41
2017 Annual Report 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, $411.0 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 payments,
$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.
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, $381.8 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 payments,
$18.4 million was used for additions to fixed assets, $64.1 million was used for payment of dividends, $175.0 million was used
as part of accelerated share repurchase programs, and $45.6 million was used to pay outstanding principal balances owed on
long-term debt.
Our ratio of current assets to current liabilities (the “current ratio”) was 1.13 and 1.20 at December 31, 2017 and 2016,
respectively.
Contractual Cash Obligations
As of December 31, 2017, our contractual cash obligations were as follows:
(in thousands)
Long-term debt
Other liabilities (1)
Operating leases
Interest obligations
42
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
$ 985,000
$ 120,000
$
70,000
$ 295,000
$ 500,000
51,266
210,559
188,285
1,694
3,973
43,080
35,450
—
8,305
73,272
62,455
1,694
88,382
42,233
46,149
2,430
49,711
54,505
—
—
36,558
44,496
35,875
—
—
Total contractual cash obligations
$ 1,525,186
$ 244,736
$ 261,875
$ 401,646
$ 616,929
(1) Includes the current portion of other long-term liabilities.
(2) Includes $36.2 million of current and non-current estimated earn-out payables resulting from acquisitions consummated after
January 1, 2009.
Debt
Total debt at December 31, 2017 was $976.1 million net of unamortized discount and debt issuance costs, which was a
decrease of $97.7 million compared to December 31, 2016. The decrease reflects the repayment of $96.8 million in principal,
related to our credit agreements, repayment of the $0.5 million in a short-term note payable related to the 2016 acquisition of
Social Security Advocates for the Disabled, LLC (“SSAD”), net of the amortization of discounted debt related to our Senior Notes
due 2024, with a fixed interest rate of 4.200% per year and debt issuance cost amortization of $1.9 million. The Company also
added $2.8 million in debt issuance costs related to the Amended and Restated Credit Agreement (as defined below) that was
executed in June 2017.
During 2017, the $100.0 million of Series E Senior Notes were issued and are due September 15, 2018, with a fixed
interest rate of 4.500% per year were reclassified as current portion of long-term debt in the Consolidated Balance Sheet,
as the date of maturity is less than one year.
On June 28, 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated
Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent and certain other banks
as co-syndication agents and co-documentation agents. The Amended and Restated Credit Agreement amended and restated
the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”). The Amended and Restated
Brown & Brown, Inc.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Credit Agreement extends the applicable maturity date of the existing revolving credit facility (the “Facility”) of $800.0 million
to June 28, 2022 and re-evidences the unsecured term loans in the amount of $400.0 million while also extending the
applicable maturity date to June 28, 2022. In connection with the Amended and Restated Credit Agreement, the quarterly term
loan principal amortization schedule was reset. At the time of the execution of the Amended and Restated Credit Agreement,
$67.5 million of principal from the original unsecured term loans was repaid using operating cash balances, and the Company
added an additional $2.8 million in debt issuance costs related to the Facility to the Consolidated Balance Sheet. The Company
also expensed to the Consolidated Statements of Income $0.2 million of debt issuance costs related to the Original Credit
Agreement due to certain lenders exiting prior to execution of the Amended and Restated Credit Agreement. The Company
also carried forward $1.6 million on the Consolidated Balance Sheet, the remaining unamortized portion of the Original Credit
Agreement debt issuance costs, which will be amortized over the term of the Amended and Restated Credit Agreement. On
December 31, 2017, the Company made a scheduled principal payment of $5.0 million per the terms of the Amended and
Restated Credit Agreement. As of December 31, 2017, there was an outstanding debt balance issued under the term loan of the
Amended and Restated Credit Agreement of $385.0 million with no borrowings outstanding against the Facility. Per the terms
of the Amended and Restated Credit Agreement, a scheduled principal payment of $5.0 million is due March 31, 2018.
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 SSAD.
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.
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.
43
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 corporations,
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.”
2017 Annual Report Management’s Discussion and Analysis
of Financial Condition and Results of Operations
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, 2017 and December 31, 2016, 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, 2017, we had $385.0 million of borrowings outstanding under our Amended and Restated Credit
Agreement, which bears interest on a floating basis tied to the London Interbank Offered Rate (LIBOR) and is 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 princi-
pally 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, 2017, an immediate 10% hypothetical change of foreign currency
exchange rates would not have a material effect on our Consolidated Financial Statements.
44
Brown & Brown, Inc. Consolidated
Statements of Income
(in thousands, except per share data)
REVENUES
Commissions and fees
Investment income
Other income, net
Total revenues
EXPENSES
Employee compensation and benefits
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.
For the Year Ended December 31,
2017
2016
2015
$ 1,857,270
1,626
22,451
$ 1,762,787
1,456
2,386
$ 1,656,951
1,004
2,554
1,881,347
1,766,629
1,660,509
994,652
283,470
(2,157)
85,446
22,698
38,316
9,200
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
1,431,625
1,343,130
1,257,950
449,722
50,092
423,499
166,008
402,559
159,241
$
399,630
$
257,491
$
243,318
$
$
$
2.86
2.81
0.56
$
$
$
1.84
1.82
0.50
$
$
$
1.72
1.70
0.45
45
2017 Annual ReportConsolidatedBalance Sheets
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
Other current assets
Total current assets
Fixed assets, net
Goodwill
Amortizable intangible assets, net
Investments
Other assets
Total assets
46
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies
Losses and loss adjustment reserve
Unearned premiums
Premium deposits and credits due customers
Accounts payable
Accrued expenses and other liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt less unamortized discount and debt issuance costs
Deferred income taxes, net
Other liabilities
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 280,000 shares;
issued 148,824 shares and outstanding 138,105 shares at 2017,
issued 148,107 shares and outstanding 140,104 shares at 2016
Additional paid-in capital
Treasury stock, at cost 10,719 and 8,003 shares at 2017 and 2016,
respectively
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to Consolidated Financial Statements.
For the Year Ended December 31,
2017
2016
$
573,383
250,705
24,965
546,402
477,820
321,017
47,864
2,242,156
77,086
2,716,079
641,005
13,949
57,275
$
515,646
265,637
15,048
502,482
78,083
308,661
50,571
1,736,128
75,807
2,675,402
707,454
23,048
44,895
$ 5,747,550
$ 5,262,734
$
685,163
476,721
321,017
91,648
64,177
228,748
120,000
1,987,474
856,141
256,185
65,051
$
647,564
78,083
308,661
83,765
69,595
201,989
55,500
1,445,157
1,018,372
357,686
81,308
14,882
497,540
14,811
468,443
(386,322)
2,456,599
(257,683)
2,134,640
2,582,699
2,360,211
$ 5,747,550
$ 5,262,734
Brown & Brown, Inc.
Consolidated
Statements of Shareholders’ Equity
(in thousands, except per share data)
Shares
Par Value
Common Stock
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Total
Balance at January 1, 2015
145,871
$
14,587
$ 405,982
$
(75,025)
$ 1,768,201
$ 2,113,745
Balance at December 31, 2015
146,415
14,642
426,498
(238,775)
1,947,411
2,149,776
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)
3,276
498
Common stock issued to directors
16
2
Cash dividends paid
($0.41 per share)
Net income
Common stock issued for
employee stock benefit plans
1,675
167
(18,908)
22,851
11,250
7,346
17
2
498
Purchase of treasury stock
Income tax benefit from
exercise of stock benefit
plans
Common stock issued to
directors
Cash dividends paid
($0.50 per share)
243,318
243,318
28,045
(175,000)
3,276
500
(64,108)
(64,108)
257,491
257,491
23,018
(7,658)
7,346
500
47
(70,262)
(70,262)
Balance at December 31, 2016
148,107
14,811
468,443
(257,683)
2,134,640
2,360,211
Net income
Net unrealized holding (loss)
gain on available-for-sale
securities
Common stock issued for
employee stock benefit plans
Purchase of treasury stock
Common stock issued to
directors
Cash dividends paid
($0.56 per share)
399,630
399,630
(47)
41
(6)
706
70
39,895
(11,250)
(128,639)
11
1
499
39,965
(139,889)
500
(77,712)
(77,712)
Balance at December 31, 2017
148,824
$
14,882
$ 497,540
$ (386,322)
$ 2,456,599
$ 2,582,699
See accompanying notes to Consolidated Financial Statements.
2017 Annual Report
For the Year Ended December 31,
2017
2016
2015
$
399,630
$
257,491
$
243,318
Consolidated
Statement of Cash Flows
48
(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
estimated payables
Changes in operating assets and liabilities, net of effect
from acquisitions and divestitures:
Premiums, commissions and fees receivable (increase)
Reinsurance recoverables (increase)
Prepaid reinsurance premiums (increase) decrease
Other assets (increase)
Premiums payable to insurance companies decrease
Premium deposits and credits due customers increase (decrease)
Losses and loss adjustment reserve increase
Unearned premiums increase (decrease)
Accounts payable increase
Accrued expenses and other liabilities increase
Other liabilities (decrease)
Net cash provided by operating activities
Cash flows from investing activities:
Additions to fixed assets
Payments for businesses acquired, net of cash acquired
Proceeds from sales of fixed assets and customer accounts
Purchases of investments
Proceeds from sales of investments
Net cash used in investing activities
Cash flows from financing activities:
Payments on acquisition earn-outs
Payments on long-term debt
Deferred debt issuance costs
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 by financing activities
Net increase (decrease) in cash and cash equivalents inclusive of
restricted cash
Cash and cash equivalents inclusive of restricted cash at beginning of period
85,446
22,698
30,631
9,200
(102,183)
158
1,682
22
—
(1,841)
(14,501)
(43,306)
(399,737)
(12,356)
(9,747)
37,380
7,750
398,638
12,356
26,798
25,509
(32,252)
441,975
(24,192)
(41,471)
4,094
(10,665)
9,644
(62,590)
(29,265)
(96,750)
(2,821)
—
17,422
(7,565)
(128,639)
(11,250)
(77,712)
(336,580)
42,805
781,283
86,663
21,003
16,052
9,185
18,163
165
1,597
39
(7,346)
596
(3,904)
(63,550)
(46,115)
982
(4,718)
66,084
527
46,115
(982)
30,174
8,670
(25,849)
87,421
20,890
15,513
3,003
22,696
157
—
—
(3,276)
(107)
(11,383)
(7,163)
(18,940)
10,943
(5,318)
542
(2,973)
18,940
(10,943)
34,206
8,204
(23,898)
411,042
381,832
(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)
108,110
673,173
781,283
(18,375)
(136,000)
10,576
(22,766)
21,928
(144,637)
(25,415)
(45,625)
—
3,276
15,890
(2,857)
(163,750)
(11,250)
(64,108)
(293,839)
(56,644)
729,817
673,173
$
Cash and cash equivalents inclusive of restricted cash at end of period
$
824,088
$
See accompanying notes to Consolidated Financial Statements. Refer to Note 12 for reconciliation of cash and cash equivalents inclusive of
restricted cash.
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 customers
insurance products and services, primarily in the property, casualty and employee benefits areas. 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 and quasi-public entities, 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 indus-
tries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of
independent agents, including 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. ASU
2016-18 is effective for periods beginning after December 15, 2017. However, the Company elected to early adopt for the
reporting period beginning January 1, 2017 under the full retrospective approach for all periods presented. With the adoption
of ASU 2016-18, the change in restricted cash is no longer reflected as a change in operating assets and liabilities, and the
Statement of Cash Flows details the changes in the balance of cash and cash equivalents inclusive of restricted cash. Net cash
provided by operating activities for the years ended December 31, 2015 and 2016 were previously reported as $411.8 million
and $375.2 million, respectively. With the retrospective adoption, the net cash provided by operating activities for the years
ended December 31, 2015 and 2016 is now reported as $381.8 million and $411.0 million, respectively. The Company reflects
cash collected from customers that is payable to insurance companies as restricted cash if segregation of this cash is required
by the state of domicile for the office conducting this transaction or if required by contract with the relevant insurance com-
pany providing coverage. Cash collected from customers that is payable to insurance companies is reported in cash and cash
equivalents if no such restriction is required.
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 is adopting this change effective January 1, 2018 and has evaluated the impact of ASU 2016-15 determining that
there is no impact on the Company’s Statement of Cash Flows. 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
49
2017 Annual Report years and early adoption is permitted. The Company adopted the guidance on January 1, 2017, as required. Prior periods have
not been adjusted, as the guidance was adopted prospectively. The principal impact is that the tax benefit or expense from
stock compensation is now presented in the income tax line of the Statement of Income, whereas the prior treatment was to
present this amount as a component of equity on the Balance Sheet. In addition, the tax benefit or expense is now presented
as activity in Cash Flow from Operating Activity, rather than the prior presentation as Cash Flow from Financing Activity in the
Statement of Cash Flows. The Company also continues 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 standard
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 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 adopting ASU 2016-08 is 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 of the 2016 10-K, the undiscounted contractual cash payments remaining on leased properties was
$213.2 million as of December 31, 2016 and is $210.4 million as of December 31, 2017 as detailed in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Note 13
“Commitments and Contingencies.”
50
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 adopted the guidance on January 1, 2017, as required. As a result, the Company retrospectively applied the guidance
to the 2016 balance sheet by reclassifying $24.6 million from deferred income taxes (asset) to deferred income taxes, net
(liability) on the Condensed Consolidated Balance Sheet. This reclassification occurred prior to the passage of the Tax Cuts and
Jobs Act of 2017, which had a material impact on the value of deferred tax items. See Note 9 “Income Taxes” for more information.
In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), which
provides guidance for revenue recognition. Topic 606 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. It supersedes the revenue recognition
requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that
a company should 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 a contract, the use of estimates is required to allocate the transaction price to
each separate performance obligation.
Historically, approximately 70% of the Company’s commissions and fees are in the form of commissions paid by insurance
carriers. These commissions are earned upon the effective date of bound coverage, as no significant performance obligation
remains after coverage is bound. The following areas are impacted by the adoption of Topic 606:
Brown & Brown, Inc.Notes to Consolidated Financial Statements Installment billing Prior to the adoption of Topic 606, commission revenues related to installment billings were recog-
nized on the latter of the policy effective date (as indicated in the policy) or the date that the premium was billed to the client
(as indicated on the premium invoice), with the exception of our Arrowhead businesses, which follow a policy of recognizing
these revenues on the latter of the policy effective date or processed date into our systems, regardless of the billing arrange-
ment. As a result of the adoption of Topic 606, revenue associated with the issuance of policies will be recognized upon the
effective date of the associated policy, which means that commission revenues billed on an installment basis will be now
recognized earlier than they had been previously resulting in revenue will accrued based upon the completion of the perfor-
mance obligation and thus creating a current asset for the unbilled revenue until such time as an invoice is generated, typically
not to exceed twelve months. The Company does not expect the overall impact of these changes to be significant on a full-year
basis, but the timing of recognizing revenue will be impacted among quarters when compared to prior years.
Contingent commissions Prior to the adoption of Topic 606, revenue that was not fixed and determinable because a
contingency exists was not recognized until the contingency was resolved. Under Topic 606, the Company must use its judg-
ment to estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable.
Contingent commissions represent a form of variable consideration associated with the same performance obligation, which is
the placement of coverage, for which we earn core commissions. In connection with the new standard, contingent commissions
will be estimated with an appropriate constraint applied and accrued relative to the recognition of the corresponding core
commissions. The resulting effect on the timing of recognition of contingent commissions will more closely follow a similar
pattern as our core commissions with true-ups recognized when payments are received or as additional information that affects
the estimate becomes available. Contingent commissions have averaged approximately 3.6% of the previous year’s total
commissions and fees over the last three years and have primarily been received in the first and second quarters of the year.
Approximately 30% of the Company’s commissions and fees is in the form of fees, which are predominantly in our
National Programs and Services Segments, and to a lesser extent in the large accounts business within our Retail Segment,
where we receive fees in lieu of a commission. In accordance with Topic 606, fee revenue from certain agreements will be
recognized in earlier periods and others in later periods as compared to our current accounting treatment. The Company does
not expect the overall impact of these changes to be significant on a full-year basis, but the timing of recognizing revenue will
be impacted among quarters when compared to prior years.
51
Additionally, the Company has evaluated ASC Topic 340 – Other Assets and Deferred Cost (“ASC 340”) which requires
companies to defer certain incremental costs to obtain customer contracts, and certain costs to fulfill customer contracts.
Incremental cost to obtain The adoption of ASC 340 will result in the Company deferring certain cost to obtain customer
contracts primarily as they relate to commission based compensation plans in the Retail Segment, in which the Company pays
an incremental amount of compensation on new business in the first year of the contract. These incremental costs will be
deferred and amortized over a 15-year period, which is consistent with the analysis performed on acquired customer accounts
and referenced in Note 4 to the Company’s financial statements.
Cost to fulfill The adoption of ASC 340 will result in the Company deferring certain costs to fulfill a contract and recognize
these costs as the associated performance obligations are fulfilled. In order for contract fulfillment costs to be deferred under
ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that
the Company will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net
cash flows from the contract. The Company does not expect the overall impact of these changes to be significant on a full-year
basis, but the timing of recognizing these expenses will be impacted among quarters to better align with the associated revenue.
Topic 606 is effective for the Company beginning January 1, 2018. Entities are permitted to adopt the guidance under
one of the following methods: the “full retrospective” method, which applies the guidance to each period presented (prior
years restated), or the “modified retrospective” method, in which the guidance is only applied to the year of adoption, with
the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings. The Company has
elected to follow the modified retrospective method applied to contracts that are not completed as of the date of adoption.
The estimated cumulative impact of adopting the standard on January 1, 2018 is an increase in stockholders’ equity of
between $70.0 million and $110.0 million.
2017 Annual Report In connection with the implementation of this standard, we expect to modify, and in some instances institute additional
accounting procedures, processes and internal controls. Given the relative expected impacts of this standard to our revenue
streams, we do not expect that these modifications and additions will materially change our internal controls over financial
reporting.
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, where appropriate, to reflect the current year segmental structure.
Certain reclassifications have been made to the prior year amounts reported in this Annual Report in order to conform to the
current year presentation.
Revenue Recognition
Commission revenues are recognized as of the effective date of the insurance policy or the date on which the policy premium
is processed into our systems 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 were 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.
52
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
the 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 unremit-
ted funds only in cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for a short
term. In certain states in which Brown & Brown operates, the use and investment alternatives for these funds are regulated and
restricted by various state laws and agencies. These restricted funds are reported as restricted cash and investments on the
Consolidated Balance Sheets. The interest income earned on these unremitted funds, where allowed by state law, is reported as
investment income in the Consolidated Statement of Income.
In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applicable
commissions to Brown & Brown. Accordingly, as reported in the Consolidated Balance Sheets, “commissions” are receivables
from insurance companies. “Fees” are primarily receivables due from customers.
Brown & Brown, Inc.Notes to Consolidated Financial Statements Investments
Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at cost
and are adjusted for other-than-temporary market value declines. 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 applica-
ble 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
straight-line method over the estimated useful lives of the related assets, which range from 3 to 15 years. Leasehold improve-
ments 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 period of 3 years 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.
53
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.
The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and amortizable intangi-
ble assets is assigned to goodwill. While goodwill is not amortizable, it is subject to assessment at least annually, and more
frequently in the presence of certain circumstances, for impairment by application of a fair value-based test. The Company
compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of good-
will. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the
fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based 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,
2017 and determined that the fair value of goodwill significantly exceeded the carrying value of such assets. In addition, as of
December 31, 2017, there are no accumulated impairment losses.
2017 Annual Report The carrying value of amortizable intangible assets attributable to each business or asset group comprising Brown & Brown
is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that
its carrying amount may not be recoverable. Accordingly, if there are any such changes in circumstances during the year, Brown
& Brown assesses the carrying value of its amortizable intangible assets by considering the estimated future undiscounted cash
flows generated by the corresponding business or asset group. Any impairment identified through this assessment may require
that the carrying value of related amortizable intangible assets be adjusted. There were no impairments recorded for the years
ended December 31, 2017, 2016 and 2015.
Income Taxes
Brown & Brown records income tax expense using the asset-and-liability method of accounting for deferred income taxes.
Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement carrying values and the income tax bases of Brown & Brown’s assets and liabilities.
Brown & Brown files a consolidated federal income tax return and has elected to file consolidated returns in certain states.
Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses charged to
income for financial reporting purposes in one period and deducted for income tax purposes in other periods.
Net Income Per Share
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 weight-
ed-average shares outstanding for the years ended December 31:
(in thousands, except per share data)
54
Net income
2017
2016
2015
$ 399,630
$ 257,491
$ 243,318
Net income attributable to unvested awarded performance stock
(9,746)
(6,705)
(5,695)
Net income attributable to common shares
$ 389,884
$ 250,786
$ 237,623
Weighted-average number of common shares outstanding – basic
139,697
139,779
141,113
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
(3,407)
(3,640)
(3,303)
136,290
136,139
137,810
2,503
1,665
2,302
Weighted-average number of shares outstanding – diluted
138,793
137,804
140,112
Net income per share:
Basic
Diluted
$
$
2.86
2.81
$
$
1.84
1.82
$
$
1.72
1.70
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
The carrying amounts of Brown & Brown’s financial assets and liabilities, including cash and cash equivalents; restricted cash
and short-term investments; investments; premiums, commissions and fees receivable; reinsurance recoverable; prepaid
reinsurance premiums; premiums payable to insurance companies; losses and loss adjustment reserve; unearned premium;
premium deposits and credits due customers and accounts payable, at December 31, 2017 and 2016, approximate fair value
because of the short-term maturity of these instruments. The carrying amount of Brown & Brown’s long-term debt approximates
fair value at December 31, 2017 and 2016 as our fixed-rate borrowings of $598.9 million approximate their values using
market quotes of notes with the similar terms as ours, which we deem a close approximation of current market rates. Of the
$598.9 million, $100.0 million is related to short-term notes which approximates the carrying value due to the proximity to
maturity. The estimated fair value of the $385.0 million remaining on the term loan under our Amended and Restated 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 adjustment of earn-out payables. See Note 5 for information on the fair value of investments and Note 8
for information on the fair value of long-term debt.
Stock-Based Compensation
The Company has granted stock options and grants non-vested stock awards to its employees and officers and fully vested
stock awards to directors. The Company uses the modified-prospective method to account for share-based payments. Under
the modified-prospective method, compensation cost is recognized for all share-based payments granted on or after January 1,
2006 and for all awards granted to employees prior to January 1, 2006 that remained unvested on that date. The Company uses
the alternative-transition method to account for the income tax effects of payments made related to stock-based compensation.
The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the
Employee Stock Purchase Plan (the “ESPP”). Compensation for non-vested stock awards is measured at fair value on the grant
date based upon the number of shares expected to vest. Compensation cost for all awards is recognized in earnings, net of
estimated forfeitures, on a straight-line basis over the requisite service period.
55
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 consis-
tent with the accounting for the original policies issued and the terms of reinsurance contracts. Premiums earned and losses
and loss adjustment expenses incurred are reported net of reinsurance amounts. Other underwriting expenses are shown net
of earned ceding commission income. The liabilities for unpaid losses and loss adjustment expenses and unearned premiums
are reported gross of ceded reinsurance recoverable.
Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such recoverables
related to reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance recover-
able 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.
2017 Annual Report 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 recoverable. The
methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated, and any
adjustments resulting therefrom are reflected in operations currently.
WNFIC engages the services of outside actuarial consulting firms (the “Actuaries”) to assist on an annual basis to render
an opinion on the sufficiency of the Company’s estimates for unpaid losses and related loss adjustment reserve. The Actuaries
utilize both industry experience and the Company’s own experience to develop estimates of those amounts as of year-end.
These estimated liabilities are subject to the impact of future changes in claim severity, frequency and other factors. In spite
of the variability inherent in such estimates, management believes that the liabilities for unpaid losses and related loss
adjustment reserve are 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, 2017, the Company acquired the assets and assumed certain liabilities of eleven insur-
ance intermediaries and one book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to
the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by Accounting
Standards Codification Topic 805 – Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category
within the following two tables. All of these businesses were acquired primarily to expand Brown & Brown’s core business and
to attract and hire high-quality individuals. The recorded purchase price for all acquisitions consummated after January 1, 2009
included an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in
the fair value of earn-out obligations will be recorded in the Consolidated Statement of Income when incurred.
56
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, 2017, several adjustments were made within
the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of
$1.5 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as
current period adjustments for the year ended December 31, 2017 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 $41.5 million and $124.7 million in the years ended December 31, 2017 and 2016,
respectively. We completed eleven acquisitions (excluding book of business purchases) during the year ended December 31,
2017. We completed eight acquisitions (excluding book of business purchases) during the year ended December 31, 2016.
Brown & Brown, Inc.Notes to Consolidated Financial Statements The following table summarizes the purchase price allocation made as of the date of each acquisition for current year
acquisitions and significant adjustments made during the measurement period for prior year acquisitions. During the measure-
ment periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that
existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that
date. These adjustments are made in the period in which the amounts are determined and the current period income effect of
such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.
(in thousands)
Name
Other
Total
Business
Segment
Effective
Date of
Acquisition
Cash
Paid
Other
Payable
Recorded
Earn-Out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-Out
Payable
Various
Various
$
41,471
$
11,708
$ 41,471
$ 11,708
$
$
6,921
$
60,100
$
27,451
6,921
$ 60,100
$ 27,451
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of
each acquisition.
(in thousands)
Other current assets
Fixed assets
Goodwill
Purchased customer accounts
Non-compete agreements
Total assets acquired
Other current liabilities
Deferred income tax, net
Total liabilities assumed
Net assets acquired
$
Total
601
69
42,172
18,738
721
62,301
(1,512)
(689)
(2,201)
$ 60,100
57
The weighted-average useful lives for the acquired amortizable intangible assets are as follows: purchased customer
accounts, 15.0 years; and non-compete agreements, 5.0 years.
Goodwill of $42.2 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in
the amounts of $33.1 million, $7.2 million, $1.2 million and $0.7 million, respectively. Of the total goodwill of $42.2 million,
$35.3 million is currently deductible for income tax purposes. The remaining $6.9 million relates to the recorded earn-out
payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2017, 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, 2017 included in the
Consolidated Statement of Income for the year ended December 31, 2017 were $7.8 million. The income before income taxes,
including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2017 included in
the Consolidated Statement of Income for the year ended December 31, 2017 was $2.4 million. 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.
2017 Annual Report
(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,
2017
2016
$ 1,891,701
$ 1,784,776
$ 453,397
$ 429,490
$ 401,908
$ 261,133
$
$
2.88
2.83
$
$
1.87
1.85
136,290
138,793
136,139
137,804
Acquisitions in 2016
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 completed within the
last twelve months as permitted by ASC 805. Such adjustments are presented in the “Other” category within the following two
tables.
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.
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year
58
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
February 1,
Services
2016 $ 32,526 $
492 $
— $
971 $ 33,989 $
3,500
Morstan
General Agency, Wholesale
Brokerage
Inc. (Morstan)
June 1,
2016
Other
Total
Various
Various
66,050
26,140
—
—
10,200
464
3,091
400
79,341
27,004
5,000
7,785
$ 124,716 $
492 $ 10,664 $
4,462 $ 140,334 $ 16,285
Brown & Brown, Inc.Notes to Consolidated Financial Statements
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of
each acquisition.
(in thousands)
Cash
Other current assets
Fixed assets
Goodwill
Purchased customer accounts
Non-compete agreements
Other assets
Total assets acquired
Other current liabilities
Deferred income tax, net
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.
59
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 acquisitions had
occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following
table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have
occurred had the acquisitions actually been made at the beginning of the respective periods.
(UNAUDITED)
(in thousands, except per share data)
Total revenues
Income before income taxes
Net income
Net income per share:
Basic
Diluted
Weighted-average number of shares outstanding:
Basic
Diluted
For the Year Ended December 31,
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
2017 Annual Report
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 ASC 805. Such adjustments are presented in “Other” 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.
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
Effective
Business
Segment
Liberty Insurance Brokers, Inc.
and Affiliates (Liberty)
Spain Agency, Inc.
(Spain)
Retail
Retail
Bellingham Underwriters,
Inc. (Bellingham)
National
Programs
60
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
Retail
Retail
Retail
Retail
Retail
Various
Date of
Acquisition
February 1,
2015
March 1,
2015
May 1,
2015
June 1,
2015
June 1,
2015
December 1,
2015
December 1,
2015
December 1,
2015
Cash
Paid
Other
Payable
Recorded
Earn-Out
Payable
Net
Assets
Acquired
Maximum
Potential
Earn-Out
Payable
$ 12,000
$
—
$ 2,981 $ 14,981
$
3,750
20,706
—
2,617
23,323
9,162
9,007
500
3,322
12,829
4,400
9,455
—
2,379
11,834
3,500
49,600
400
13,587
63,587
26,000
10,142
391
319
10,852
2,200
68
8,442
6,063
14,573
9,500
12,096
Various
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
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Purchased
customer
accounts
Non-compete
agreements
Other assets
Total assets
acquired
Other current
liabilities
Deferred
income tax,
net
Total liabilities
assumed
Net assets
acquired
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
Other current
assets
Fixed assets
$ 2,486 $
324 $
— $
9 $
652 $
— $
— $
— $
169 $ 3,640
40
50
25
17
41
36
33
73
59
374
Goodwill
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
(42)
(250)
(48)
(12)
—
(182)
(6,280)
(504)
(4,895)
(12,213)
Other liabilities
(2,043)
—
—
—
—
—
—
—
(2,085)
(250)
(48)
(12)
—
—
—
—
—
—
—
—
2,576
2,576
(157)
635
(1,565)
61
(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 acquisitions had
2017 Annual Report
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,
2015
$ 1,688,297
$ 411,497
$ 248,720
$
$
1.76
1.73
137,810
140,112
As of December 31, 2017, the maximum future contingency payments related to all acquisitions totaled $88.4 million, all
of which relates to acquisitions consummated subsequent to January 1, 2009.
ASC 805 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.
62
As of December 31, 2017, 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, 2017, 2016 and 2015 were as follows:
(in thousands)
For the Year Ended December 31,
2017
2016
2015
Balance as of the beginning of the period
$ 63,821
$
78,387
$
75,283
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
6,920
(43,766)
26,975
6,874
2,326
9,200
4,462
(28,213)
54,636
6,338
2,847
9,185
36,899
(36,798)
75,384
13
2,990
3,003
Balance as of December 31,
$ 36,175
$ 63,821
$ 78,387
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Of the $36.2 million of estimated acquisition earn-out payables as of December 31, 2017, $25.1 million was recorded
as accounts payable, and $11.1 million was recorded as other non-current liabilities. Included within additions to estimated
acquisition earn-out payables are any adjustments to opening balance sheet items prior to the one-year anniversary date of the
acquisition and may therefore differ from previously reported amounts. Of the $63.8 million of 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. Of the $78.4 million of 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 another non-current liability.
Note 3 Goodwill
The changes in the carrying value of goodwill by reportable segment for the years ended December 31 are as follows:
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Services
Total
Balance as of January 1, 2016
$ 1,345,636
$ 901,866
$ 226,961
$ 112,220
$ 2,586,683
Goodwill of acquired businesses
Goodwill of transferred businesses
Goodwill disposed of relating to
sales of businesses
13,117
571
(1)
(571)
(4,657)
—
57,908
22,352
93,376
—
—
—
—
—
(4,657)
Balance as of December 31, 2016
$ 1,354,667
$ 901,294
$ 284,869
$ 134,572
$ 2,675,402
Goodwill of acquired businesses
33,076
7,178
1,229
689
42,172
Goodwill disposed of relating to
sales of businesses
(1,495)
—
—
—
(1,495)
Balance as of December 31, 2017
$ 1,386,248
$ 908,472
$ 286,098
$ 135,261
$ 2,716,079
Note 4 Amortizable Intangible Assets
Amortizable intangible assets at December 31, 2017 and 2016 consisted of the following:
December 31, 2017
December 31, 2016
63
(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)
$ 1,464,274 $
(824,584) $ 639,690
15.0
$ 1,447,680 $
(741,770) $ 705,910
15.0
30,287
(28,972)
1,315
6.8
29,668
(28,124)
1,544
6.8
Total
$ 1,494,561 $ (853,556) $ 641,005
$ 1,477,348 $ (769,894) $ 707,454
(1) Weighted-average life calculated as of the date of acquisition.
Amortization expense for amortizable intangible assets for the years ending December 31, 2018, 2019, 2020, 2021 and
2022 is estimated to be $81.0 million, $76.5 million, $69.1 million, $65.9 million and $61.4 million, respectively.
2017 Annual Report
Note 5 Investments
At December 31, 2017, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
(in thousands)
U.S. Treasury securities, obligations of
U.S. Government agencies and Municipalities
Corporate debt
Total
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
$ 29,970
$
1,072
$ 31,042
$
—
12
12
$
$
(206)
$
29,764
—
1,084
(206)
$ 30,848
At December 31, 2017, the Company held $30.0 million in fixed income securities composed of U.S Treasury securities,
securities issued by U.S. Government agencies and Municipalities, and $1.1 million issued by corporations with investment-grade
ratings. Of the total, $16.9 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 $8.1 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, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss position as of
December 31, 2017:
(in thousands)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
64
U.S. Treasury securities,
obligations of U.S.
Government agencies
and Municipalities
Corporate debt
Total
$
17,919
400
$
18,319
$
$
(157)
$
11,845
—
—
(157)
$
11,845
$
$
(49)
$
29,764
—
400
(49)
$
30,164
$
$
(206)
—
(206)
The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2017, the Company
had 27 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, 2017.
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
U.S. Government agencies and Municipalities
Corporate debt
Total
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
$ 26,280
$
2,358
$ 28,638
$
11
13
24
$
$
(59)
$
26,232
(1)
2,370
(60)
$ 28,602
Brown & Brown, Inc.Notes to Consolidated Financial Statements
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, 2016:
(in thousands)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
U.S. Treasury securities,
obligations of U.S.
Government agencies
and Municipalities
Corporate debt
Total
$
14,663
1,001
$
15,664
$
$
(59)
$
(1)
(60)
$
—
—
—
$
$
—
—
—
$
14,663
1,001
$
15,664
$
$
(59)
(1)
(60)
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, 2016, the Company
had 20 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, 2016.
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2017 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
65
$
16,934
$
16,899
13,876
232
13,708
241
$ 31,042
$ 30,848
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2016 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
$
5,551
$
5,554
22,757
330
22,708
340
$ 28,638
$ 28,602
The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers have
the right to call or prepay obligations with or without penalty.
Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $5.8 million. This
along with maturing time deposits yielded total cash proceeds from the sale of investments of $9.6 million in the period of
January 1, 2017 to December 31, 2017. These proceeds were used to purchase additional fixed maturity securities. The gains
and losses realized on those sales for the period from January 1, 2017 to December 31, 2017 were insignificant.
2017 Annual Report
Proceeds from the sales and maturity of the Company’s investment in fixed-maturity securities were $6.0 million for the
year ended December 31, 2016. 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.
Realized gains and losses are reported on the Consolidated Statement of Income, with the cost of securities sold deter-
mined on a specific identification basis.
At December 31, 2017, investments with a fair value of approximately $4.1 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
66
2017
2016
$ 190,784
$ 177,823
35,481
7,643
33,137
3,375
233,908
214,335
(156,822)
(138,528)
$
77,086
$ 75,807
Depreciation and amortization expense for fixed assets amounted to $22.7 million in 2017, $21.0 million in 2016 and
$20.9 million in 2015.
Note 7 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31 consisted of the following:
(in thousands)
Accrued incentive compensation
Accrued compensation and benefits
Accrued rent and vendor expenses
Deferred revenue
Reserve for policy cancellations
Accrued interest
Other
Total
2017
2016
$ 106,923
$
82,438
40,540
30,616
21,921
11,048
6,749
10,951
45,771
28,669
17,377
9,567
6,441
11,726
$ 228,748
$ 201,989
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Note 8 Long-Term Debt
Long-term debt at December 31, 2017 and 2016 consisted of the following:
(in thousands)
Current portion of long-term debt:
Current portion of 5-year term loan facility expires 2019
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018
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 June 28, 2022
5-year revolving loan facility, periodic interest payments, currently LIBOR plus up
to 1.500%, plus commitment fees up to 0.250%, expires June 28, 2022
Total credit agreements
Debt issuance costs (contra)
Total long-term debt less unamortized discount and debt issuance costs
Current portion of long-term debt
Total debt
December 31, December 31,
2016
2017
$
20,000
$
55,000
100,000
—
—
500
120,000
55,500
—
498,943
498,943
100,000
498,785
598,785
365,000
426,250
—
—
365,000
426,250
(7,802)
(6,663)
856,141
1,018,372
120,000
55,500
$ 976,141
$ 1,073,872
67
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, 2017, there was an outstanding debt balance issued under the provisions of
the Master Agreement of $100.0 million.
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
2017 Annual Report
68
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 unsecured 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 commitments 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.
On June 28, 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated
Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent and certain other banks
as co-syndication agents and co-documentation agents. The Amended and Restated Credit Agreement amended and restated
the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”). The Amended and Restated
Credit Agreement extends the applicable maturity date of the existing revolving credit facility (the “Facility”) of $800.0 million
to June 28, 2022 and re-evidences unsecured term loans at $400.0 million, while also extending the applicable maturity
date to June 28, 2022. The quarterly term loan principal amortization schedule was reset. At the time of the execution of the
Amended and Restated Credit Agreement, $67.5 million of principal from the original unsecured term loans was repaid using
operating cash balances, and the Company added an additional $2.8 million in debt issuance costs related to the Facility to
the Consolidated Balance Sheet. The Company also expensed to the Consolidated Statements of Income $0.2 million of debt
issuance costs related to the Original Credit Agreement due to certain lenders exiting prior to execution of the Amended and
Restated Credit Agreement. The Company also carried forward $1.6 million on the Consolidated Balance Sheet the remaining
unamortized portion of the Original Credit Agreement debt issuance costs, which will be amortized over the term of the
Amended and Restated Credit Agreement. On December 31, 2017, the Company made a scheduled principal payment of
$5.0 million per the terms of the Amended and Restated Credit Agreement. As of December 31, 2017, there was an outstanding
debt balance issued under the term loan of the Amended and Restated Credit Agreement of $385.0 million with no borrowings
outstanding against the Facility. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment
of $5.0 million is due March 31, 2018.
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, 2017 and 2016, there was an outstanding debt balance of $500.0 million exclusive of
the associated discount balance.
In conjunction with the acquisition of Social Security Advocates for the Disabled LLC (“SSAD”) effective February 1, 2016,
the Company agreed to a $0.5 million promissory note incurred as a payment to the sellers and payable after the one-year
anniversary of the acquisition. The note had a nominal rate of interest, 0.81%. On March 10, 2017, the promissory note was
settled, plus any outstanding accrued interest, using cash.
The Master Agreement and the Amended and Restated Credit Agreement 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,
2017 and 2016.
The 30-day Adjusted LIBOR Rate as of December 31, 2017 was 1.625%.
Interest paid in 2017, 2016 and 2015 was $36.2 million, $37.7 million, and $37.5 million, respectively.
At December 31, 2017, maturities of long-term debt were $120.0 million in 2018, $30.0 million in 2019, $40.0 million in
2020, $40.0 million in 2021, $255.0 million in 2022 and $500.0 million in 2024.
Brown & Brown, Inc.Notes to Consolidated Financial Statements Note 9 Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). The Tax Reform
Act makes broad and complex changes to the U.S. tax code that affected our income tax rate in 2017. The Tax Reform Act
reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% and requires companies to pay a one-time transition
tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years. The Tax Reform Act also
establishes new tax laws that became effective January 1, 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment; however, shortly after
the enactment of the Tax Reform Act, the SEC staff issued SAB 118, which allows a company to record a provisional amount
when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its account-
ing for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the
information necessary to finalize its accounting, but cannot extend beyond one year.
We have made a reasonable estimate of the impact of the Tax Reform Act and recorded a one-time credit in our 2017
income tax expense of $120.9 million, which reflects an estimated reduction in our deferred income tax liabilities of
$124.2 million as a result of the maximum federal rate decreasing to 21.0% from 35.0%, which was partially offset by an
estimated increase in income tax payable in the amount of $3.3 million as a result of the transition tax on cash and cash
equivalent balances related to untaxed accumulated earnings associated with our international operations. We are continuing
to gather additional information related to estimates surrounding the re-measurement of our deferred tax liabilities and the
transition tax on unrepatriated earnings.
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
Tax Reform Act deferred tax revaluation
Total deferred provision
Total tax provision
2017
2016
2015
$ 129,954
$ 126,145
$ 118,490
69
21,392
929
21,110
590
17,625
430
152,275
147,845
136,545
18,999
2,984
—
(124,166)
(102,183)
15,551
2,612
—
—
18,416
4,280
—
—
18,163
22,696
$ 50,092
$ 166,008
$ 159,241
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended
December 31 is as follows:
Federal statutory tax rate
State income taxes, net of federal income tax benefit
Non-deductible employee stock purchase plan expense
Non-deductible meals and entertainment
Tax Reform Act deferred tax revaluation and transition tax impact
Other, net
Effective tax rate
2017
2016
2015
35.0 %
35.0 %
35.0 %
3.8
0.3
0.3
(26.9)
(1.4)
3.9
0.3
0.3
—
(0.3)
3.9
0.3
0.3
—
0.1
11.1 %
39.2 %
39.6 %
2017 Annual Report
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 net deferred tax liabilities as of December 31 are as follows:
(in thousands)
Non-current deferred tax liabilities:
Intangible assets
Fixed assets
Net unrealized holding (loss)/gain on available-for-sale securities
Total non-current deferred tax liabilities
Non-current deferred tax assets:
Deferred compensation
Accruals and reserves
Deferred profit-sharing contingent commissions
Net operating loss carryforwards
Valuation allowance for deferred tax assets
Total non-current deferred tax assets
Net non-current deferred tax liability
2017
2016
$ 306,351
$ 422,478
2,723
(6)
6,425
(12)
309,068
428,891
36,701
7,534
7,107
2,434
(893)
52,883
44,912
14,032
10,567
2,394
(700)
71,205
$ 256,185
$ 357,686
Income taxes paid in 2017, 2016 and 2015 were $152.0 million, $143.1 million and $132.9 million, respectively.
At December 31, 2017, Brown & Brown had net operating loss carryforwards of $0.1 million and $52.2 million for federal
70
and state income tax reporting purposes, respectively, portions of which expire in the years 2018 through 2037. 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
2017
$
750
$
1,070
—
(126)
$
2016
584
412
(41)
(205)
Unrecognized tax benefits balance at December 31
$
1,694
$
750
$
2015
113
773
—
(302)
584
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31,
2017, 2016 and 2015 the Company had $228,608, $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
$1.7 million as of December 31, 2017, $750,258 as of December 31, 2016 and $583,977 as of December 31, 2015. The
Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
As a result of a 2006 Internal Revenue Service (“IRS”) audit, the Company agreed to accrue at each December 31, for tax
purposes only, a known amount of profit-sharing contingent commissions represented by the actual amount of profit-sharing
contingent commissions received in the first quarter of the related year, with a true-up adjustment to the actual amount
received by the end of the following March. Since this method for tax purposes differs from the method used for book pur-
poses, 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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to
taxation in the United Kingdom. In the United States, federal returns for fiscal years 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 2017. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2016 and 2017.
During 2017, the Company settled the previously disclosed IRS income tax audit of The Wright Insurance Group for the
short period ended May 1, 2014. Pursuant to the agreement in which the Company acquired The Wright Insurance Group, the
Company was fully indemnified for all audit-related assessments. 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, 2017.
As a result of the Tax Reform Act, the Company has recorded a transition tax of $3.2 million. As of December 31, 2017, the
Company has estimated $20.9 million of cash and cash equivalent balances related to accumulated earnings associated with
our international operations. We are continuing to gather additional information related to estimates surrounding the transition
tax on unrepatriated earnings. In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in
those operations.
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 an additional discretionary profit-sharing contribution each year, which equaled 1.5% of each eligible
employee’s compensation. The Company’s contributions to the plan totaled $19.6 million in 2017, $19.3 million in 2016 and
$17.8 million in 2015.
Note 11 Stock-Based Compensation
Performance Stock Plan
In 1996, Brown & Brown adopted and the shareholders approved a performance stock plan, under which until the suspension
of the plan in 2010, up to 14,400,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent
on the employees’ future years of service with Brown & Brown and other performance-based criteria established by the
Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance Stock, two
vesting conditions must be met. Of the grants currently outstanding, specified portions 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 condition is considered
“awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the
calculation of basic and diluted EPS. Dividends are paid on awarded shares and participants may exercise voting privileges on
such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years of continuous
employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the July 2009 grant to
Powell Brown, 20 years), (ii) attainment of age 64 (on a prorated basis corresponding to the number of years since the date of
grant), or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining authorized, but unissued shares,
as well as any shares forfeited in the future, will be reserved for issuance under the 2010 Stock Incentive Plan (the “SIP”).
At December 31, 2017, 5,156,954 shares had been granted under the PSP. As of December 31, 2017, 847,238 shares had
met the first condition of vesting and had been awarded, and 4,309,716 shares had satisfied both conditions of vesting and
had been distributed to participants. Of the shares that have not vested as of December 31, 2017, the initial stock prices
ranged from $15.58 to $25.68.
The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
71
2017 Annual Report A summary of PSP activity for the years ended December 31, 2017, 2016 and 2015 is as follows:
Outstanding at January 1, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2016
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2017
Weighted-Average
Grant Date Fair
Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8.71
1,928,631
1,903,213
25,418
—
—
5.55
9.78
9.03
—
—
6.39
10.52
—
—
—
—
(208,889)
(208,889)
—
—
—
(117,528)
(100,110)
(17,418)
1,602,214
1,594,214
—
—
—
4,000
(506,422)
(506,422)
8,000
—
(4,000)
—
(92,517)
(88,517)
(4,000)
10.23
1,003,275
1,003,275
—
—
9.61
10.47
10.32
—
—
—
—
(138,801)
(138,801)
(17,236)
(17,236)
847,238
847,238
—
—
—
—
—
—
72
The total fair value of PSP grants that vested during each of the years ended December 31, 2017, 2016 and 2015 was $6.3
million, $18.1 million and $6.8 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 contingent
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 and May 2017 our shareholders approved an amendment to the SIP to increase the shares
available for issuance by an additional 1,200,000 and 1,300,000, respectively.
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.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
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 15,700 shares were issued in January 2015, 16,860 shares were issued in January 2016 and
11,350 shares were issued in January 2017.
The following table sets forth information as of December 31, 2017, 2016 and 2015, 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
2017
2016
2015
Time-Based Restricted Stock
Granted and Awarded
Performance-Based
Restricted Stock Granted
Performance-Based
Restricted Stock Awarded
120,667
182,653
164,646
575,789 (1)
789,446 (2)
316,520
163,404
1,435,319
—
(1) Of the 575,789 shares of performance-based restricted stock granted in 2017, the payout for 320,826 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%.
(2) 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%.
At December 31, 2017, 4,197,920 shares were available for future grants. This amount is calculated assuming the maxi-
mum payout for all restricted stock grants.
The Company uses the closing stock price on the day prior to the grant date to determine the fair value of SIP grants and
then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-depen-
dent 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.
73
2017 Annual Report
A summary of SIP activity for the years ended December 31, 2017, 2016 and 2015 is as follows:
Outstanding at January 1, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2015
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2016
Granted
Awarded
Vested
Forfeited
Outstanding at December 31, 2017
Weighted-Average
Grant Date
Fair Value
Granted
Shares
Awarded
Shares
Shares
Not Yet
Awarded
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
28.19
6,659,047
1,060,890
5,598,157
31.74
481,166
164,646
316,520
—
—
—
—
—
—
—
—
26.32
(863,241)
(95,542)
(767,699)
28.74
6,276,972
1,129,994
5,146,978
35.52
972,099
182,653
789,446 (1)
24.93
27.31
25.34
—
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
41.65
696,456
120,667
575,789 (2)
31.44
25.22
29.77
31.16
—
163,404
(163,404)
(242,457)
(242,457)
—
(171,060)
(38,106)
(132,954)
6,410,995
2,404,802
4,006,193
74
(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%.
(2) Of the 575,789 shares of performance-based restricted stock granted in 2016, the payout for 320,826 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 4,151,251 were available for future subscriptions as of December 31, 2017. Employees of the Company who regularly
work 20 hours or more per week are eligible to participate in the ESPP. Participants, through payroll deductions, may allot up to
10% of their compensation towards the purchase of a maximum of $25,000 worth of 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 2017 was $8.64. The fair values
of an ESPP share option as of the Subscription Periods beginning in August 2016 and 2015 were $7.61 and $6.43, respectively.
For the ESPP plan years ended July 31, 2017, 2016 and 2015, the Company issued 529,012, 514,665 and 539,389 shares
of common stock, respectively. These shares were issued at an aggregate purchase price of $16.4 million, or $31.03 per share,
in 2017, $15.0 million, or $29.23 per share, in 2016, and $14.4 million, or $26.62 per share, in 2015.
For the five months ended December 31, 2017, 2016 and 2015 (portions of the 2017-2018, 2016-2017 and 2015-2016
plan years), 217,514, 247,023 and 231,803 shares of common stock (from authorized but unissued shares), respectively, were
subscribed to by ESPP participants for proceeds of approximately $8.2 million, $7.7 million and $6.8 million, respectively.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
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 period of 1-to-10 years , with a potential acceleration of the vesting period to 3-to-6 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 approximating
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.
A summary of stock option activity for the years ended December 31, 2017, 2016 and 2015 is as follows:
Stock Options
Outstanding at January 1, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2017
Ending vested and expected to vest at December 31, 2017
Exercisable at December 31, 2017
Exercisable at December 31, 2016
Exercisable at December 31, 2015
Shares
Under
Option
470,356
—
(151,767)
(49,000)
—
269,589
—
(64,589)
(30,000)
—
175,000
—
(175,000)
—
—
—
—
—
175,000
164,589
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
18.57
—
18.48
19.36
—
18.48
—
18.48
18.48
—
18.48
—
18.48
—
—
—
—
—
18.48
18.48
3.1
$
5,087
2.2
$
2,395
75
1.2
$
4,616
N/A
N/A
N/A
1.2
2.2
$
$
$
$
$
—
—
—
4,616
2,241
The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31,
2017, 2016 and 2015 was $4.7 million, $1.0 million and $2.2 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, 2017, 2016 and 2015, respectively.
There are no option shares available for future grant under the ISOP since this plan expired as of December 31, 2008.
2017 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
2017
2016
2015
$ 24,899
$
11,049
$
11,111
4,025
1,707
—
3,698
1,305
—
3,430
972
—
$ 30,631
$ 16,052
$ 15,513
Summary of Unamortized Compensation Expense
As of December 31, 2017, there was approximately $87.9 million of unamortized 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 3.62 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. 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.
(in thousands)
76
Cash paid during the period for:
Interest
Income taxes
For the Year Ended December 31,
2017
2016
2015
$ 36,172
$
37,652
$
37,542
$ 152,024
$ 143,111
$ 132,874
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,
2017
$ 11,708
$
$
$
6,921
—
—
2016
10,664
4,463
492
22
$
$
$
$
2015
10,029
36,899
—
7,755
$
$
$
$
The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of December 31, 2017, 2016
and 2015.
(in thousands)
Table to reconcile cash and cash equivalents inclusive of restricted cash
Cash and cash equivalents
Restricted cash
Total cash and cash equivalents inclusive of restricted cash at
the end of the period
Balance as of December 31,
2017
2016
2015
$ 573,383
$ 515,646
250,705
265,637
443,420
229,753
$ 824,088
$ 781,283
673,173
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, 2017, the aggregate future minimum lease payments under all
non-cancelable lease agreements were as follows:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Total minimum future lease payments
$
42,970
39,005
34,236
27,715
21,996
44,496
$ 210,418
Rental expense in 2017, 2016 and 2015 for operating leases totaled $51.0 million, $49.3 million and $46.0 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.
77
The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2017
and 2016. 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.
2017 Annual Report
Note 14 Quarterly Operating Results (Unaudited)
Quarterly operating results for 2017 and 2016 were as follows:
(in thousands, except per share data)
2017
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
2016
Total revenues
Total expenses
Income before income taxes
Net income
Net income per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 465,080
$ 466,305
$ 475,646
$ 474,316
$ 354,113
$ 358,303
$ 351,227
$ 367,982
$ 110,967
$ 108,002
$ 124,419
$ 106,334
$ 70,110
$ 66,102
$
75,913
$ 187,505
$
$
0.50
0.49
$
$
0.47
0.46
$
$
0.54
0.53
$
$
1.35
1.32 (1)
$ 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
(1) Includes $0.85 impact associated with recording impact of Tax Reform Act.
78
Quarterly financial results are affected by seasonal variations. The timing of the Company’s receipt of profit-sharing
contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly
between quarters.
Note 15 Segment Information
Brown & Brown’s business is divided into four reportable segments: (1) the Retail Segment, which provides a broad range of
insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers,
(2) the National Programs Segment, which 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 desig-
nated 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
$15.9 million, $14.5 million and $13.4 million of total revenues for the years ended December 31, 2017, 2016 and 2015,
respectively. Long-lived assets held outside of the United States during each of these three years were not material.
Additionally, we have licenses to operate as a broker in various Canadian provinces.
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.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
For the year ended December 31, 2017
(in thousands)
Retail
National
Programs
Wholesale
Brokerage
Services
Other
Total
Total revenues
$ 943,460
$ 479,813
$ 271,737
$ 165,372
Investment income
Amortization
Depreciation
Interest expense
$
$
$
$
8
42,164
5,210
31,133
$
$
$
$
384
27,277
6,325
35,561
Income before income taxes $ 196,616
$ 109,961
$
$
$
$
$
—
11,456
1,885
6,263
68,844
$
$
$
$
$
299
4,548
1,600
3,522
30,498
$
$
$
$
$
$
20,965
$ 1,881,347
935
1
7,678
(38,163)
$
$
$
$
1,626
85,446
22,698
38,316
43,803
$ 449,722
Total assets
$ 4,255,515
$ 3,267,486
$ 1,260,239
$ 399,240
$ (3,434,930)
$ 5,747,550
Capital expenditures
$
4,494
$
5,936
$
1,836
$
1,033
$
10,893
$
24,192
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
62,623
$
$
$
$
$
283
4,485
1,881
4,950
24,338
$
$
$
$
$
$
1,239
$ 1,766,629
504
10
3,088
(53,399)
$
$
$
$
1,456
86,663
21,003
39,481
56,775
$ 423,499
Total assets (1)
$ 3,854,393
$ 2,711,378
$ 1,108,829
$ 371,645
$ (2,783,511)
$ 5,262,734
Capital expenditures
$
5,951
$
6,977
$
1,301
$
656
$
2,880
$
17,765
79
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
64,708
$
$
$
$
$
42
4,019
1,988
5,970
19,713
$
$
$
$
$
$
(932)
$ 1,660,509
515
39
2,952
(64,354)
$
$
$
$
1,004
87,421
20,890
39,248
68,527
$ 402,559
Total assets (1)
$ 3,507,476
$ 2,503,537
$ 895,782
$ 285,459
$ (2,212,410)
$ 4,979,844
Capital expenditures
$
6,797
$
6,001
$
3,084
$
1,088
$
1,405
$
18,375
(1) Total assets have been restated to reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) – Balance Sheet Classification of
Deferred Taxes” (“ASU 2015-17”).
2017 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
2017
2016
Written
Earned
Written
Earned
$ 604,623
$ 592,267
$ 591,142
$ 592,123
—
—
—
—
604,610
592,254
591,124
592,105
$
13
$
13
$
18
$
18
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, 2017 through December 31, 2017. As of December 31, 2017 and 2016,
the Company ceded $602.9 million and $589.5 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 $1.7 million and
$1.6 million for the years ended December 31, 2017 and 2016. As of December 31, 2017, WNFIC had $1.1 million in paid excess
flood losses, $16,606 in loss adjustment expenses, case reserves of $838,307 and incurred but not reported of $1.5 million.
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, 2017, no ceded unpaid losses and loss adjustment expenses or incurred but
not reported balance for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence.
80
As of December 31, 2017, the Consolidated Balance Sheet contained Reinsurance recoverable of $477.8 million and
Prepaid reinsurance premiums of $321.0 million. As of December 31, 2016, the Consolidated Balance Sheet contained reinsur-
ance recoverable of $78.1 million and prepaid reinsurance premiums of $308.7 million. There was $1.1 million net activity in
the reserve for losses and loss adjustment expense for the year ended December 31, 2017, and no net activity in the reserve
for losses and loss adjustment expense for the year ended December 31, 2016, 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 reinsur-
ance recoverables, was $477.8 million as of December 31, 2017 and $78.1 million as of December 31, 2016.
Brown & Brown, Inc.Notes to Consolidated Financial Statements
Note 17 Statutory Financial Information
WNFIC maintains capital in excess of the minimum statutory amount of $7.5 million as required by regulatory authorities. The
statutory capital and surplus of WNFIC was $28.7 million as of December 31, 2017 and $23.5 million as of December 31, 2016.
As of December 31, 2017 and 2016, WNFIC generated statutory net income of $4.8 million and $8.2 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 2017 and the maximum dividend payout that may be made
in 2018 without prior approval is $4.8 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, and 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. 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.
Between May 18, 2017 and July 14, 2017, the Company made share repurchases in the open market in total of 348,460
shares at a total cost of $14.9 million.
81
On August 14, 2017, 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. As part of the ASR, the Company received an
initial delivery of 967,888 shares of the Company’s common stock with a fair market value of approximately $42.5 million.
Upon maturity of the program, the Company received 108,288 shares, relieving the remaining balance of $7.5 million at
settlement on October 16, 2017 for a total delivery of 1,076,176 shares of the Company’s common stock.
On November 14, 2017, the Company entered into an ASR with an investment bank to purchase an aggregate $75.0 million
of the Company’s common stock. As part of the ASR, the Company received an initial delivery of 1,290,486 shares of the
Company’s common stock with a fair market value of approximately $63.8 million. Upon maturity of the program, the Company
received 168,227 shares, relieving the remaining balance of $11.2 million at settlement on February 9, 2018 for a total delivery
of 1,458,713 shares of the Company’s common stock.
During 2014, the Company repurchased 2,384,760 shares at an average price per share of $31.46 for a total cost of
$75.0 million under the original share repurchase authorization from the Board of Directors on July 18, 2014. During 2015,
the Company repurchased 5,408,819 shares at an average price per share of $32.35 for a total cost of $175.0 million under
the current share repurchase authorization, while exhausting the previous authorization of $200.0 million from the Board of
Directors in 2014. During 2016, the Company repurchased 209,618 shares at an average price per share of $36.53 for a total
cost of $7.7 million under the current share repurchase authorization. At December 31, 2017, the remaining amount authorized
by our Board of Directors for share repurchases was $238.7 million. Under the authorized repurchase programs, the Company
has repurchased a total of approximately 10.7 million shares for an aggregate cost of approximately $386.3 million between
2014 and 2017.
2017 Annual Report Notes
to Consolidated Financial Statements
Note 20 Subsequent Event
On February 26, 2018, the Company’s Board of Directors authorized a 2-for-1 stock split of the Company’s common stock. The
stock split will be effectuated by distributing one additional share to each shareholder of record on March 14, 2018 for every
share of common stock then owned.
The Company expects the additional shares issued in connection with the split to be distributed on March 28, 2018. As a
result of the stock split, the number of outstanding shares of common stock will increase from approximately 138 million to
approximately 276 million.
82
Brown & Brown, Inc. GAAP Reconciliation
Income Before Income Taxes to EBITDAC(1) and Income Before Income Taxes Margin(2) to EBITDAC Margin(3)
(in thousands, except per share data)
2017
2016
2015
2014
2013
2012
Retail
Total revenues
$ 943,460
$ 917,406
$ 870,346
$ 823,686
$ 737,349
$ 652,064
Income before income taxes
196,616
188,001
181,938
157,491
161,787
141,918
Amortization
Depreciation
Interest
Change in estimated acquisition
42,164
5,210
31,133
43,447
6,191
38,216
45,145
6,558
41,036
42,935
6,449
43,502
38,523
5,874
34,658
35,117
5,209
27,021
earn-out payables
8,087
10,253
2,006
7,458
(1,427)
1,988
EBITDAC
$ 283,210
$ 286,108
$ 276,683
$ 257,835
$ 239,415
$ 211,253
National Programs
Total revenues
$ 479,813
$ 448,516
$ 428,734
$ 404,239
$ 301,372
$ 260,368
Income before income taxes
109,961
Amortization
Depreciation
Interest
Change in estimated acquisition
27,277
6,325
35,561
91,762
27,920
7,868
45,738
67,673
28,479
7,250
55,705
73,178
25,129
7,805
49,663
61,223
14,953
5,492
24,014
53,986
14,296
4,671
25,697
earn-out payables
786
207
158
315
(808)
(1,075)
EBITDAC
$ 179,910
$ 173,495
$ 159,265
$ 156,090
$ 104,874
$
97,575
Wholesale Brokerage
Total revenues
$ 271,737
$ 243,103
$ 216,996
$ 211,911
$ 193,710
$ 168,239
83
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition
68,844
11,456
1,885
6,263
62,623
10,801
1,975
3,976
64,708
9,739
2,142
891
8,276
10,703
2,470
1,294
47,501
10,719
2,674
2,316
37,834
10,441
2,619
3,594
earn-out payables
327
(274)
830
2,550
1,986
110
EBITDAC
Services
$ 88,775
$
79,101
$
78,310
$
25,293
$
65,196
$
54,598
Total revenues
$ 165,372
$ 156,365
$ 145,365
$ 136,558
$ 131,489
$ 117,486
Income before income taxes
30,498
24,338
19,713
17,870
25,791
17,233
Amortization
Depreciation
Interest
Change in estimated acquisition
earn-out payables
4,548
1,600
3,522
4,485
1,881
4,950
4,019
1,988
5,970
4,135
2,213
7,678
3,698
1,623
7,322
3,680
1,278
8,602
—
(1,001)
9
(385)
2,782
395
EBITDAC
$ 40,168
$
34,653
$
31,699
$
31,511
$
41,216
$
31,188
(1) “ EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in
estimated acquisition earn-out payables.
(2) “Income before income taxes margin” is defined as income before income taxes divided by total revenues.
(3) “EBITDAC margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues.
2017 Annual Report
GAAP Reconciliation
Income Before Income Taxes to EBITDAC(1) and Income Before Income Taxes Margin(2) to EBITDAC Margin(3)
(in thousands, except per share data)
2017
2016
2015
2014
2013
2012
Corporate
Total revenues
Income before income taxes
Amortization
Depreciation
Interest
Change in estimated acquisition
earn-out payables
EBITDAC
Total
$ 20,965
$
1,239
$
(932)
$
(598)
$
(641)
$
1,875
43,803
1
7,678
56,775
10
3,088
68,527
39
2,952
82,934
39
1,958
61,307
39
1,822
53,840
39
1,596
(38,163)
(53,399)
(64,354)
(73,729)
(51,870)
(48,817)
—
—
—
—
—
—
$ 13,319
$
6,474
$
7,164
$
11,202
$
11,298
$
6,658
Total revenues
$ 1,881,347
$ 1,766,629
$ 1,660,509
$ 1,575,796
$ 1,363,279
$ 1,200,032
Income before income taxes
449,722
423,499
402,559
339,749
357,609
304,811
Income before income taxes
margin
Amortization
Depreciation
Interest
Change in estimated acquisition
23.9 %
24.0 %
24.2 %
21.6 %
26.2 %
25.4 %
85,446
22,698
38,316
86,663
21,003
39,481
87,421
20,890
39,248
82,941
20,895
28,408
67,932
17,485
16,440
63,573
15,373
16,097
earn-out payables
9,200
9,185
3,003
9,938
2,533
1,418
EBITDAC
$ 605,382
$ 579,831
$ 553,121
$ 481,931
$ 461,999
$ 401,272
84
EBITDAC Margin
32.2 %
32.8 %
33.3 %
30.6 %
33.9 %
33.4 %
(1) “ EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in
estimated acquisition earn-out payables.
(2) “Income before income taxes margin” is defined as income before income taxes divided by total revenues.
(3) “EBITDAC margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues.
Brown & Brown, Inc.
Report
of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the “Company”)
as of December 31, 2017 and 2016, the related consolidated statements of income, shareholders’ equity, and cash flows, for
each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2018, expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
85
Certified Public Accountants
Tampa, Florida
February 28, 2018
We have served as the Company’s auditor since 2002.
2017 Annual Report
Report
of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brown & Brown, Inc. and subsidiaries (the “Company”) as
of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our
report dated February 28, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating 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.
86
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Certified Public Accountants
Tampa, Florida
February 28, 2018
Brown & Brown, Inc. Management’s Report
on Internal Control Over Financial Reporting
The management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”) is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under
the supervision and with the participation of management, including Brown & Brown’s principal executive officer and principal
financial officer, Brown & Brown conducted an evaluation of the effectiveness of internal control over financial reporting based
upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”).
Based upon Brown & Brown’s evaluation under the framework in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that internal control over
financial reporting was effective as of December 31, 2017. Management’s internal control over financial reporting as of
December 31, 2017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated
in their report which is included herein.
Brown & Brown, Inc.
Daytona Beach, Florida
February 28, 2018
J. Powell Brown
Chief Executive Officer
R. Andrew Watts
Executive Vice President, Chief Financial Officer
and Treasurer
87
2017 Annual Report
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 capitaliza-
tions as of December 31, 2012 for the purposes of arriving at a peer group average. The total return calculations are based
upon an assumed $100 investment on December 31, 2012, with all dividends reinvested.
Brown & Brown, Inc.
NYSE Composite
Peer Group
12/12
100.00
100.00
100.00
12/13
124.74
126.06
142.91
12/14
132.41
134.62
157.73
12/15
130.98
129.40
156.96
12/16
185.09
144.72
185.44
12/17
214.61
171.65
228.52
Comparison of 5 Year Cumulative Total Return*
Among Brown & Brown, Inc., the NYSE Composite Index, and a Peer Group
88
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
12/12
12/13
12/14
12/15
12/16
12/17
Brown & Brown, Inc.
NYSE Composite
Peer Group
*$100 invested on 12/31/12 in stock or index, including reinvesting of dividends.
Fiscal year ending December 31.
Brown & Brown, Inc.
Shareholder Information
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 fiscal year 2017, filed with the Securities and
Exchange Commission, certificates of the Chief Executive
Officer of the Company certifying the Company’s public
disclosure is accurate and complete and that they have
established and maintained adequate internal controls.
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 2017 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 2, 2018
9:00 a.m. (EDT)
The Shores Resort
2637 South Atlantic Avenue
Daytona Beach, Florida 32118
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave.
Brooklyn, New York 11219
(800) 937-5449
email: info@amstock.com
www.amstock.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
333 SE 2nd Avenue
Suite 3600
Miami, Florida 33131
Stock Listing
The New York Stock Exchange Symbol: BRO
On February 23, 2018, there were 137,800,585 shares
of our common stock outstanding, held by approximately
1,245 shareholders of record.
Market Price of Common Stock
2017
Stock Price Range
High
Low
Cash
Dividends per
Common Share
First Quarter
$ 45.77
$ 41.68
$ 0.14
Second Quarter
$ 44.57
$ 41.10
$ 0.14
Third Quarter
$ 48.97
$ 42.30
$ 0.14
Fourth Quarter
$ 52.42
$ 48.07
$ 0.15
2016
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
Additional Information
Information concerning the services of Brown & Brown, Inc.,
as well as access to current financial releases, is
available on the Internet. Brown & Brown’s address is
www.bbinsurance.com.
designed and produced by see see eye / Atlanta & San Antonio
Ten-Year Statistical Summary
(in thousands, except per share data and other information)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
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
$ 1,857,270
$ 1,762,787
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$
966,917
$
964,863
$
965,983
1,626
22,451
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
1,881,347
1,766,629
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
994,652
283,470
(2,157)
85,446
22,698
38,316
9,200
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
1,431,625
1,343,130
1,257,950
1,236,047
1,005,670
449,722
50,092
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)
707,394
266,098
104,346
492,038
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
$ 399,630
$
257,491
$
243,318
$
206,896
$
217,112
$
184,045
$
163,995
$
161,752
$
153,294
$
166,124
Compensation and benefits as % of total revenue
Operating expenses as % of total revenue
52.9%
15.1%
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%
493,097
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
50.4%
14.1%
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
Shareholders’ equity
Total shares outstanding
Other Information
$
$
2.81
138,793
0.56
$
$
1.82
$
1.70
137,804
140,112
142,891
142,624
142,010
140,264
139,318
137,507
136,884
0.50
$
0.45
1.41
0.41
$
$
1.48
0.37
$
$
1.26
0.35
$
$
1.13
0.33
$
$
1.12
0.31
$
$
1.08
0.30
$
$
1.18
0.29
$ 5,747,550
$ 5,262,734
$ 4,979,844
$ 4,931,027
$ 3,620,232
$ 3,103,650
$ 2,587,148
$ 2,380,738
$ 2,212,435
$ 2,105,409
$ 856,141
$ 1,018,372
$ 1,071,618
$ 1,142,948(1) $
379,171
$
449,136
$
250,033
$
250,067
$
250,209
$
253,616
$ 2,582,699
$ 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
138,105
140,104
138,985
143,486
145,419
143,878
143,352
142,795
142,076
141,544
Number of full-time equivalent employees at year-end
Total revenues per average number of employees (2)
Stock price at year-end
Stock price earnings multiple at year-end (4)
Return on beginning shareholders’ equity (5)
8,491
$ 224,137
$
51.46
$
$
18.3
17%
8,297
219,403
44.86
24.6
12%
$
$
7,807
215,686
32.10
18.9
12%
7,591
216,114
32.91
23.3
10%
$
$
6,992
203,020
31.39
21.1
12%
6,438
5,557
191,729(3) $
186,949
25.46
$
22.63
$
$
$
$
20.2
11%
20.0
11%
5,286
185,568
23.94
21.4
12%
$
$
5,206
182,549
17.97
16.6
12%
$
$
5,398
187,181
20.90
17.9
15%
$
$
$
$
(1) Represents the incremental new debt associated with the acquisition of Wright and evolution of our capital structure. Please refer to Part I, Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 “Long-Term Debt” for more details.
(2) Represents total revenues divided by the average of the number of full-time equivalent employees at the beginning of the year and the number of
full-time equivalent employees at the end of the year.
(3) 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.
(in thousands, except per share data and other information)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
Year Ended December 31,
$ 1,857,270
$ 1,762,787
$ 1,656,951
$ 1,567,460
$ 1,355,503
$ 1,189,081
$ 1,005,962
$
966,917
$
964,863
$
965,983
1,626
22,451
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
1,881,347
1,766,629
1,660,509
1,575,796
1,363,279
1,200,032
1,013,542
973,492
967,877
977,554
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
1,431,625
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)
707,394
266,098
104,346
492,038
143,389
—
49,857
13,240
14,599
—
713,123
254,754
101,460
493,097
137,352
—
46,631
13,286
14,690
—
705,056
272,498
106,374
$ 399,630
$
257,491
$
243,318
$
206,896
$
217,112
$
184,045
$
163,995
$
161,752
$
153,294
$
166,124
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%
994,652
283,470
(2,157)
85,446
22,698
38,316
9,200
449,722
50,092
52.9%
15.1%
Weighted average number of shares outstanding—diluted
138,793
137,804
140,112
$
$
2.81
0.56
$
$
1.82
$
1.70
0.50
$
0.45
$
$
1.41
142,891
0.41
$
$
1.48
142,624
0.37
$
$
1.26
142,010
0.35
$
$
1.13
140,264
0.33
$
$
1.12
139,318
0.31
$
$
1.08
137,507
0.30
$
$
1.18
136,884
0.29
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
Total expenses
Income before income taxes
Income taxes
Net income
Change in estimated acquisition earn-out payables
Compensation and benefits as % of total revenue
Operating expenses as % of total revenue
Earnings per Share Information
Net income per share—diluted
Dividends paid per share
Year-End Financial Position
Total assets
Long-term debt
Shareholders’ equity
Total shares outstanding
Other Information
$ 5,747,550
$ 5,262,734
$ 4,979,844
$ 856,141
$ 1,018,372
$ 1,071,618
$ 2,582,699
$ 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
138,105
140,104
138,985
143,486
145,419
143,878
143,352
142,795
142,076
141,544
Number of full-time equivalent employees at year-end
8,491
Total revenues per average number of employees (2)
Stock price at year-end
Stock price earnings multiple at year-end (4)
Return on beginning shareholders’ equity (5)
$ 224,137
$
51.46
$
$
18.3
17%
8,297
219,403
44.86
24.6
12%
$
$
7,807
215,686
32.10
18.9
12%
$
$
7,591
216,114
32.91
23.3
10%
$
$
6,992
203,020
31.39
21.1
12%
6,438
5,557
191,729(3) $
186,949
25.46
$
22.63
$
$
$
$
20.2
11%
20.0
11%
5,286
185,568
23.94
21.4
12%
$
$
5,206
182,549
17.97
16.6
12%
$
$
5,398
187,181
20.90
17.9
15%
(4) Stock price at year-end divided by net income per share-diluted.
(5) Represents net income divided by total shareholders’ equity as of the beginning of the year.
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.
379,171
$
449,136
$
250,033
$
250,067
$
250,209
$
253,616
$ 3,103,650
$ 2,587,148
$ 2,380,738
$ 2,212,435
$ 2,105,409
$ 4,931,027
$ 1,142,948(1) $
$ 3,620,232
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