Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

FORM 10-Q
ý

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Or
2022

or

¨

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number 001-13619

BROWN & BROWN, INC.

(Exact name of Registrant as specified in its charter)

Florida

bba10.jpg

img151514130_0.jpg 

59-0864469

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

220 South Ridgewood Avenue,

300 North Beach Street,

Daytona Beach, FL

32114

(Address of principal executive offices)

(Zip Code)

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


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 Par Value

BRO

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý ☒ No ¨

☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý ☒ No ¨

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

ý

Accelerated filer

¨

☐

Non-accelerated filer

☐

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

☐

Emerging growth company

¨

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý

☒

The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of October 30, 2017November 1, 2022 was 139,403,675.



283,222,367.

BROWN & BROWN, INC.

INDEX

PAGE
NO.

PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 20172022 and 20162021

4

5

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2022 and 2021

6

Condensed Consolidated Balance Sheets as of September 30, 20172022 and December 31, 20162021

5

7

Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2022 and 2021

8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172022 and 20162021

6

10

Notes to Condensed Consolidated Financial Statements

7

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

50

Item 4.

Controls and Procedures

39

50

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

40

52

Item 1A.

Risk Factors

40

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

52

Item 6.

Exhibits

41Exhibits

53

SIGNATURE

SIGNATURE

42

54


2

Disclosure Regarding Forward-Looking Statements

Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or similar words. We have based these statements on our current expectations about potential future events. Although we believe the expectations expressed in the forward-looking statements included in this Quarterly Report on Form 10-Q and the reports, statements, information and announcements incorporated by reference into this report are based upon reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. Many of these factors have previously been identified in filings or statements made by us or on our behalf. Important factors which could cause our actual results to differ, possibly materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

•
The future impacts of the COVID-19 pandemic ("COVID-19") and the resulting governmental and societal responses, including the direct and indirect impact of COVID-19 on the U.S. economy, the global economy and the Company’s business, liquidity, customers, insurance carriers and third parties;
•
Future prospects;
Material adverse changes in economic conditionsAn extended slowdown in the markets we serve and in the general economy;
Premium rates set by insurance companies and insurable exposure units, which have traditionally varied and are difficult to predict;
Future regulatory actions and conditions in the states in which we conduct our business;operate;
•
The occurrenceeffects of adverse economic conditions, an adverse regulatory climate,inflation;
•
The inability to retain or a disaster in California, Florida, Georgia, Illinois, Massachusetts, Michigan, New Jersey, New York, Oregon, Pennsylvania, Texas, Virginia and Washington, because a significant portionhire qualified employees, as well as the loss of business written by us is for customers located in these states;
Our ability to attract, retain and enhance qualified personnel;
Competition from others in or entering into the insurance agency, wholesale brokerage, insurance programs and related service business;
The integrationany of our operations with those of businessesexecutive officers or assets we have acquired or may acquire in the future and the failure to realize the expected benefits of such integration;other key employees;
Risks•
Acquisition-related risks that could negatively affect the success of our acquisitiongrowth strategy, including continuing consolidation amongthe possibility that we may not be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets;
•
A cybersecurity attack or any other interruption in information technology and/or data security and/or outsourcing relationships;
•
The requirement for additional resources and time to adequately respond to dynamics resulting from rapid technological change;
•
The loss of or significant change to any of our insurance intermediariescompany relationships, which could result in additional expense, loss of market share or material decrease in our profit-sharing contingent commissions, guaranteed supplemental commissions or incentive commissions;
•
Adverse economic conditions, natural disasters, or regulatory changes in states where we have a concentration of our business;
•
The inability to maintain our culture or a change in management, management philosophy or our business strategy;
•
Risks facing us in our Services segment, including our third-party claims administration operations, that are distinct from those we face in our insurance intermediary operations;
•
The limitations of our system of disclosure and internal controls and procedures in preventing errors or fraud, or in informing management of all material information in a timely manner;
•
The significant control certain existing shareholders have over the Company;
•
Risks related to our international operations, which result in additional risks and require more management time and expense than our domestic operations to achieve or maintain profitability;
•
Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations;
•
Improper disclosure of confidential information;
•
The potential adverse effect of certain actual or potential claims, regulatory actions or proceedings on our businesses, results of operations, financial condition or liquidity;
•
Uncertainty in our business practices and compensation arrangements due to potential changes in regulations;
•
Regulatory changes that could reduce our profitability or growth by increasing compliance costs, technology compliance, restricting the products or services we may sell, the markets we may enter, the methods by which we may sell our products and services, or the prices we may charge for our services and the increasing presenceform of private equity investors driving up valuations;compensation we may accept from our customers, carriers and third-parties;
•
A decrease in demand for liability insurance as a result of tort reform legislation;

3

•
Our abilityfailure to forecast liquidity needs through at leastcomply with any covenants contained in our debt agreements;
•
The possibility that covenants in our debt agreements could prevent us from engaging in certain potentially beneficial activities;
•
Changes in the endU.S.-based credit markets that might adversely affect our business, results of 2018;operations and financial condition;
Our ability•
Risks associated with the current interest rate environment, and to renew or replace expiring leases;the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income;
Outcomes of existing or future legal proceedings and governmental investigations;
•
Policy cancellations and renewal terms, which can be unpredictable;
Potential changes to tax rates that would affectDisintermediation within the value of deferred tax assets and liabilitiesinsurance industry, including increased competition from insurance companies, technology companies and the impact on income available for investment or distributable to shareholders;
The inherent uncertainty in making estimates, judgments, and assumptions in the preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”);
Our ability to effectively utilize technology to provide improved value for our customers or carrier partnersservices industry, as well as applying effective internal controlsthe shift away from traditional insurance markets;
•
Changes in current U.S. or global economic conditions;
•
Effects related to pandemics, epidemics or outbreaks of infectious diseases;
•
Conditions that result in reduced insurer capacity;
•
Quarterly and efficienciesannual variations in operations;our commissions that result from the timing of policy renewals and the net effect of new and lost business production;
•
Intangible asset risk, including the possibility that our goodwill may become impaired in the future;
•
The effects of acquisitions on our business relationships, operating results and business generally;
•
Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.filings; and
•
Other factors that the Company may not have currently identified or quantified.

Assumptions as to any of the foregoing, and all statements, are not based upon historical fact, but rather reflect our current expectations concerning future results and events. Forward-looking statements that we make or that are made by others on our behalf are based upon a knowledge of our business and the environment in which we operate, but because of the factors listed above, among others, actual results may differ from those in the forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. We cannot assure you that the results or developments anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements. All forward-looking statements which speakmade herein are made only as of their dates. We assume nothe date of this filing, the Company does not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which the forward-looking statements.


Company hereafter becomes aware.

4

PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
 2017 2016 2017 2016
REVENUES       
Commissions and fees$474,609
 $461,652
 $1,383,899
 $1,329,649
Investment income491
 230
 1,085
 1,150
Other income, net546
 392
 22,047
 2,166
Total revenues475,646
 462,274
 1,407,031
 1,332,965
EXPENSES       
Employee compensation and benefits246,062
 237,653
 736,445
 692,814
Other operating expenses72,058
 67,433
 210,289
 197,329
Loss/(gain) on disposal(1,902) (277) (1,993) (3,131)
Amortization21,435
 21,805
 64,402
 65,025
Depreciation5,489
 5,195
 17,242
 15,867
Interest9,393
 9,883
 28,949
 29,617
Change in estimated acquisition earn-out payables(1,308) 3,610
 8,309
 6,846
Total expenses351,227
 345,302
 1,063,643
 1,004,367
Income before income taxes124,419
 116,972
 343,388
 328,598
Income taxes48,506
 45,427
 131,263
 128,733
Net income$75,913
 $71,545
 $212,125
 $199,865
Net income per share:       
Basic$0.54
 $0.51
 $1.52
 $1.43
Diluted$0.53
 $0.50
 $1.49
 $1.41
Dividends declared per share$0.14
 $0.12
 $0.41
 $0.37

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Commissions and fees

 

$

925.2

 

 

$

769.7

 

 

$

2,668.2

 

 

$

2,309.6

 

Investment income

 

 

1.2

 

 

 

0.4

 

 

 

1.8

 

 

 

0.9

 

Other income, net

 

 

1.2

 

 

 

0.2

 

 

 

2.0

 

 

 

2.4

 

Total revenues

 

 

927.6

 

 

 

770.3

 

 

 

2,672.0

 

 

 

2,312.9

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

470.3

 

 

 

395.0

 

 

 

1,341.3

 

 

 

1,220.1

 

Other operating expenses

 

 

169.6

 

 

 

101.1

 

 

 

450.6

 

 

 

291.7

 

(Gain)/loss on disposal

 

 

—

 

 

 

(0.3

)

 

 

(0.9

)

 

 

(4.3

)

Amortization

 

 

43.5

 

 

 

29.5

 

 

 

108.2

 

 

 

88.6

 

Depreciation

 

 

11.3

 

 

 

9.2

 

 

 

28.3

 

 

 

25.4

 

Interest

 

 

41.5

 

 

 

16.2

 

 

 

95.8

 

 

 

48.8

 

Change in estimated acquisition earn-out payables

 

 

(26.6

)

 

 

23.1

 

 

 

(33.1

)

 

 

20.6

 

Total expenses

 

 

709.6

 

 

 

573.8

 

 

 

1,990.2

 

 

 

1,690.9

 

Income before income taxes

 

 

218.0

 

 

 

196.5

 

 

 

681.8

 

 

 

622.0

 

Income taxes

 

 

56.9

 

 

 

50.1

 

 

 

155.2

 

 

 

136.6

 

Net income

 

$

161.1

 

 

$

146.4

 

 

$

526.6

 

 

$

485.4

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

 

$

0.52

 

 

$

1.86

 

 

$

1.72

 

Diluted

 

$

0.57

 

 

$

0.52

 

 

$

1.85

 

 

$

1.71

 

Dividends declared per share

 

$

0.103

 

 

$

0.093

 

 

$

0.309

 

 

$

0.278

 

See accompanying Notes to Condensed Consolidated Financial Statements.


5

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(in thousands, except per share data)September 30,
2017		 December 31,
2016
ASSETS   
Current Assets:   
Cash and cash equivalents$546,520
 $515,646
Restricted cash and investments276,687
 265,637
Short-term investments29,156
 15,048
Premiums, commissions and fees receivable525,943
 502,482
Reinsurance recoverable2,160,286
 78,083
Prepaid reinsurance premiums332,246
 308,661
Other current assets45,545
 50,571
Total current assets3,916,383
 1,736,128
Fixed assets, net71,296
 75,807
Goodwill2,701,488
 2,675,402
Amortizable intangible assets, net656,054
 707,454
Investments14,085
 23,048
Other assets54,971
 44,895
Total assets$7,414,277
 $5,262,734
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current Liabilities:   
Premiums payable to insurance companies$653,289
 $647,564
Losses and loss adjustment reserve2,160,286
 78,083
Unearned premiums332,246
 308,661
Premium deposits and credits due customers97,917
 83,765
Accounts payable63,623
 69,595
Accrued expenses and other liabilities204,153
 201,989
Current portion of long-term debt120,000
 55,500
Total current liabilities3,631,514
 1,445,157
Long-term debt less unamortized discount and debt issuance costs860,741
 1,018,372
Deferred income taxes, net382,228
 357,686
Other liabilities56,147
 81,308
Shareholders’ Equity:   
Common stock, par value $0.10 per share; authorized 280,000 shares; issued 148,838 shares and outstanding 139,518 shares at 2017, issued 148,107 shares and outstanding 140,104 shares at 201614,884
 14,811
Additional paid-in capital493,821
 468,443
Treasury stock, at cost at 9,320 shares at 2017 and 8,003 shares at 2016, respectively
(315,072) (257,683)
Retained earnings2,290,014
 2,134,640
Total shareholders’ equity2,483,647
 2,360,211
Total liabilities and shareholders’ equity$7,414,277
 $5,262,734

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

161.1

 

 

$

146.4

 

 

$

526.6

 

 

$

485.4

 

Foreign currency translation

 

 

(172.3

)

 

 

(2.9

)

 

 

(304.5

)

 

 

(6.7

)

Unrealized (loss) gain on available-for-sale debt securities, net of tax

 

 

(0.4

)

 

 

(0.1

)

 

 

(1.6

)

 

 

0.2

 

Comprehensive (loss) income

 

$

(11.6

)

 

$

143.4

 

 

$

220.5

 

 

$

478.9

 

See accompanying Notes to Condensed Consolidated Financial Statements.



6

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in millions, except per share data)

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

579.5

 

 

$

693.2

 

Fiduciary cash

 

 

1,271.3

 

 

 

777.0

 

Short-term investments

 

 

11.2

 

 

 

12.9

 

Commission, fees and other receivables

 

 

625.3

 

 

 

522.6

 

Fiduciary receivables

 

 

723.4

 

 

 

693.7

 

Reinsurance recoverable

 

 

1,021.6

 

 

 

63.1

 

Prepaid reinsurance premiums

 

 

409.9

 

 

 

392.2

 

Other current assets

 

 

208.6

 

 

 

175.6

 

Total current assets

 

 

4,850.8

 

 

 

3,330.3

 

Fixed assets, net

 

 

239.2

 

 

 

212.0

 

Operating lease assets

 

 

214.5

 

 

 

197.0

 

Goodwill

 

 

6,522.3

 

 

 

4,736.8

 

Amortizable intangible assets, net

 

 

1,588.0

 

 

 

1,081.5

 

Investments

 

 

24.0

 

 

 

31.0

 

Other assets

 

 

219.5

 

 

 

206.8

 

Total assets

 

$

13,658.3

 

 

$

9,795.4

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Fiduciary liabilities

 

$

1,994.7

 

 

$

1,470.7

 

Losses and loss adjustment reserve

 

 

1,033.5

 

 

 

63.1

 

Unearned premiums

 

 

430.7

 

 

 

392.2

 

Accounts payable

 

 

276.3

 

 

 

242.7

 

Accrued expenses and other liabilities

 

 

435.9

 

 

 

456.2

 

Current portion of long-term debt

 

 

67.5

 

 

 

42.5

 

Total current liabilities

 

 

4,238.6

 

 

 

2,667.4

 

Long-term debt less unamortized discount and debt issuance costs

 

 

4,040.4

 

 

 

1,980.4

 

Operating lease liabilities

 

 

191.4

 

 

 

180.0

 

Deferred income taxes, net

 

 

572.3

 

 

 

386.8

 

Other liabilities

 

 

305.0

 

 

 

383.9

 

Shareholders’ Equity:

 

 

 

 

 

 

Common stock, par value $0.10 per share; authorized 560.0 shares; issued 302.9 shares and outstanding 283.3 shares at 2022, issued 301.0
shares and outstanding 282.5 shares at 2021, respectively

 

 

30.3

 

 

 

30.1

 

Additional paid-in capital

 

 

903.4

 

 

 

849.4

 

Treasury stock, at cost at 19.6 shares at 2022, 18.5 shares at 2021, respectively

 

 

(748.0

)

 

 

(673.9

)

Accumulated other comprehensive loss

 

 

(315.5

)

 

 

(9.4

)

Retained earnings

 

 

4,440.4

 

 

 

4,000.7

 

Total shareholders’ equity

 

 

4,310.6

 

 

 

4,196.9

 

Total liabilities and shareholders’ equity

 

$

13,658.3

 

 

$

9,795.4

 

See accompanying Notes to Condensed Consolidated Financial Statements.

7

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions, except per share data)

 

Shares Outstanding

 

 

Par Value

 

 

Additional
Paid-In
Capital

 

 

Treasury
Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Retained
Earnings

 

 

Total

 

Balance at December 31, 2021

 

 

282.5

 

 

$

30.1

 

 

$

849.4

 

 

$

(673.9

)

 

$

(9.4

)

 

$

4,000.7

 

 

$

4,196.9

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220.3

 

 

 

220.3

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

(0.9

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.1

)

 

 

 

 

 

(2.1

)

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

2.7

 

 

 

 

 

 

 

 

 

 

 

 

2.7

 

Stock incentive plans

 

 

1.7

 

 

 

0.2

 

 

 

17.3

 

 

 

 

 

 

 

 

 

 

 

 

17.5

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(0.7

)

 

 

(0.1

)

 

 

(45.9

)

 

 

 

 

 

 

 

 

 

 

 

(46.0

)

Purchase of treasury stock

 

 

(0.4

)

 

 

 

 

 

 

 

 

(24.1

)

 

 

 

 

 

 

 

 

(24.1

)

Cash dividends paid ($0.1025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28.9

)

 

 

(28.9

)

Balance at March 31, 2022

 

 

283.1

 

 

$

30.2

 

 

$

823.5

 

 

$

(698.0

)

 

$

(12.4

)

 

$

4,192.1

 

 

$

4,335.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145.2

 

 

 

145.2

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

 

 

 

 

 

(0.3

)

Foreign currency translation

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

(130.1

)

 

 

 

 

 

(130.2

)

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

Stock incentive plans

 

 

(0.1

)

 

 

—

 

 

 

12.1

 

 

 

 

 

 

 

 

 

 

 

 

12.1

 

Directors

 

 

—

 

 

 

—

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

0.9

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

—

 

 

 

—

 

 

 

(2.4

)

 

 

 

 

 

 

 

 

 

 

 

(2.4

)

Purchase of treasury stock

 

 

(0.8

)

 

 

 

 

 

 

 

 

(50.0

)

 

 

 

 

 

 

 

 

(50.0

)

Cash dividends paid ($0.1025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29.0

)

 

 

(29.0

)

Balance at June 30, 2022

 

 

282.2

 

 

$

30.2

 

 

$

835.7

 

 

$

(748.0

)

 

$

(142.8

)

 

$

4,308.3

 

 

$

4,283.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161.1

 

 

 

161.1

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

 

 

 

(0.4

)

Foreign currency translation

 

 

 

 

 

 

 

 

0.6

 

 

 

 

 

 

(172.3

)

 

 

 

 

 

(171.7

)

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

0.8

 

 

 

0.1

 

 

 

39.1

 

 

 

 

 

 

 

 

 

 

 

 

39.2

 

Stock incentive plans

 

 

—

 

 

 

—

 

 

 

13.6

 

 

 

 

 

 

 

 

 

 

 

 

13.6

 

Agency acquisition

 

 

0.3

 

 

 

—

 

 

 

14.7

 

 

 

 

 

 

 

 

 

 

 

 

14.7

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

—

 

 

 

—

 

 

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Cash dividends paid ($0.1025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29.0

)

 

 

(29.0

)

Balance at September 30, 2022

 

 

283.3

 

 

$

30.3

 

 

$

903.4

 

 

$

(748.0

)

 

$

(315.5

)

 

$

4,440.4

 

 

$

4,310.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

283.0

 

 

$

30.0

 

 

$

794.9

 

 

$

(591.4

)

 

$

—

 

 

$

3,520.7

 

 

$

3,754.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199.7

 

 

 

199.7

 

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

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

 

 

0.3

 

 

 

 

 

 

(0.2

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.3

)

 

 

0.2

 

 

 

(5.1

)

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

 

 

 

 

 

 

3.0

 

Stock incentive plans

 

 

1.4

 

 

 

0.1

 

 

 

15.5

 

 

 

 

 

 

 

 

 

 

 

 

15.6

 

Agency acquisition

 

 

0.1

 

 

 

—

 

 

 

4.9

 

 

 

 

 

 

 

 

 

 

 

 

4.9

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(1.0

)

 

 

(0.1

)

 

 

(44.9

)

 

 

 

 

 

 

 

 

 

 

 

(45.0

)

Purchase of treasury stock

 

 

(1.5

)

 

 

 

 

 

 

 

 

(70.0

)

 

 

 

 

 

 

 

 

(70.0

)

Cash dividends paid ($0.0925 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26.1

)

 

 

(26.1

)

Balance at March 31, 2021

 

 

282.0

 

 

$

30.0

 

 

$

772.9

 

 

$

(661.4

)

 

$

(5.0

)

 

$

3,694.5

 

 

$

3,831.0

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139.3

 

 

 

139.3

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.5

 

 

 

 

 

 

1.5

 

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

Stock incentive plans

 

 

—

 

 

 

—

 

 

 

12.0

 

 

 

 

 

 

 

 

 

 

 

 

12.0

 

Directors

 

 

—

 

 

 

—

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

0.9

 

8

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(0.1

)

 

 

—

 

 

 

(3.2

)

 

 

 

 

 

 

 

 

 

 

 

(3.2

)

Purchase of treasury stock

 

 

(0.2

)

 

 

 

 

 

 

 

 

(11.4

)

 

 

 

 

 

 

 

 

(11.4

)

Cash dividends paid ($0.0925 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26.1

)

 

 

(26.1

)

Balance at June 30, 2021

 

 

281.7

 

 

$

30.0

 

 

$

784.6

 

 

$

(672.8

)

 

$

(3.5

)

 

$

3,807.7

 

 

$

3,946.0

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146.4

 

 

 

146.4

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

(0.1

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.9

)

 

 

 

 

 

(2.9

)

Shares issued - employee stock compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

0.8

 

 

 

0.1

 

 

 

35.2

 

 

 

 

 

 

 

 

 

 

 

 

35.3

 

Stock incentive plans

 

 

—

 

 

 

—

 

 

 

11.6

 

 

 

 

 

 

 

 

 

 

 

 

11.6

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

—

 

 

 

—

 

 

 

(1.3

)

 

 

 

 

 

 

 

 

 

 

 

(1.3

)

Purchase of treasury stock

 

 

—

 

 

 

 

 

 

 

 

 

(1.1

)

 

 

 

 

 

 

 

 

(1.1

)

Cash dividends paid ($0.0925 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26.1

)

 

 

(26.1

)

Balance at September 30, 2021

 

 

282.5

 

 

$

30.1

 

 

$

830.1

 

 

$

(673.9

)

 

$

(6.5

)

 

$

3,928.0

 

 

$

4,107.8

 

See accompanying Notes to Condensed Consolidated Financial Statements.

9

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

 For the nine months 
 ended September 30,
(in thousands)2017 2016
Cash flows from operating activities:   
Net income$212,125
 $199,865
Adjustments to reconcile net income to net cash provided by operating activities:   
Amortization64,402
 65,025
Depreciation17,242
 15,867
Non-cash stock-based compensation22,362
 11,593
Change in estimated acquisition earn-out payables8,309
 6,846
Deferred income taxes23,941
 20,081
Amortization of debt discount119
 118
Amortization and disposal of deferred financing costs1,309
 1,207
Accretion of discounts and premiums, investment20
 36
Income tax benefit from exercise of shares from the stock benefit plans—
 (7,213)
Net loss/(gain) on sales of investments, fixed assets and customer accounts(1,739) (2,860)
Payments on acquisition earn-outs in excess of original estimated payables(13,800) (3,683)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:   
Premiums, commissions and fees receivable (increase)(23,350) (31,324)
Reinsurance recoverables (increase)(2,082,203) (300,036)
Prepaid reinsurance premiums (increase)(23,585) (24,324)
Other assets (increase) decrease(5,314) 1,231
Premiums payable to insurance companies increase5,585
 39,787
Premium deposits and credits due customers increase14,030
 27,914
Losses and loss adjustment reserve increase2,082,203
 300,036
Unearned premiums increase23,585
 24,324
Accounts payable increase22,113
 13,858
Accrued expenses and other liabilities increase (decrease)1,018
 (22,119)
Other liabilities (decrease)(34,802) (17,094)
Net cash provided by operating activities313,570
 319,135
Cash flows from investing activities:   
Additions to fixed assets(12,897) (13,135)
Payments for businesses acquired, net of cash acquired(26,478) (113,219)
Proceeds from sales of fixed assets and customer accounts4,085
 3,411
Purchases of investments(10,393) (24,332)
Proceeds from sales of investments5,178
 16,716
Net cash used in investing activities(40,505) (130,559)
Cash flows from financing activities:   
Payments on acquisition earn-outs(25,488) (23,872)
Payments on long-term debt(91,750) (34,375)
Deferred debt issuance costs(2,809) —
Income tax benefit from exercise of shares from the stock benefit plans—
 7,213
Issuances of common stock for employee stock benefit plans17,387
 15,959
Repurchase shares to fund tax withholdings for non-cash stock-based compensation

(6,791) (8,395)
Purchase of treasury stock(57,389) (11,250)
Settlement (prepayment) of accelerated share repurchase program(7,500) 11,250
Cash dividends paid(56,801) (51,317)
Net cash used in financing activities(231,141) (94,787)
Net increase in cash and cash equivalents inclusive of restricted cash

41,924
 93,789
Cash and cash equivalents inclusive of restricted cash at beginning of period

781,283
 673,173
Cash and cash equivalents inclusive of restricted cash at end of period

$823,207
 $766,962
FLOWS

(UNAUDITED)

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

526.6

 

 

$

485.4

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization

 

 

108.2

 

 

 

88.6

 

Depreciation

 

 

28.3

 

 

 

25.4

 

Non-cash stock-based compensation

 

 

50.3

 

 

 

46.7

 

Change in estimated acquisition earn-out payables

 

 

(33.1

)

 

 

20.6

 

Deferred income taxes

 

 

40.2

 

 

 

25.4

 

Amortization of debt discount and disposal of deferred financing costs

 

 

2.8

 

 

 

2.1

 

Amortization (accretion) of discounts and premiums, investment

 

 

0.2

 

 

 

0.1

 

Net (gain)/loss on sales/disposals of investments, fixed assets and customer accounts

 

 

—

 

 

 

(2.0

)

Payments on acquisition earn-outs in excess of original estimated payables

 

 

(24.3

)

 

 

(5.7

)

Effect of changes in foreign exchange rate changes

 

 

(0.4

)

 

 

0.5

 

Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:

 

 

 

 

 

 

Commissions, fees and other receivables (increase) decrease

 

 

(47.4

)

 

 

(75.8

)

Reinsurance recoverable (increase) decrease

 

 

(958.5

)

 

 

(177.0

)

Prepaid reinsurance premiums (increase) decrease

 

 

(17.7

)

 

 

(33.6

)

Other assets (increase) decrease

 

 

(15.1

)

 

 

(6.5

)

Losses and loss adjustment reserve increase (decrease)

 

 

970.4

 

 

 

177.0

 

Unearned premiums increase (decrease)

 

 

38.5

 

 

 

33.6

 

Accounts payable increase (decrease)

 

 

80.3

 

 

 

54.5

 

Accrued expenses and other liabilities increase (decrease)

 

 

(63.4

)

 

 

(0.8

)

Other liabilities increase (decrease)

 

 

(86.1

)

 

 

(30.7

)

Net cash provided by operating activities

 

 

599.8

 

 

 

627.8

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to fixed assets

 

 

(32.4

)

 

 

(34.6

)

Payments for businesses acquired, net of cash acquired

 

 

(1,889.7

)

 

 

(178.0

)

Proceeds from sales of fixed assets and customer accounts

 

 

2.2

 

 

 

9.3

 

Purchases of investments

 

 

—

 

 

 

(12.4

)

Proceeds from sales of investments

 

 

7.3

 

 

 

9.3

 

Net cash used in investing activities

 

 

(1,912.6

)

 

 

(206.4

)

Cash flows from financing activities:

 

 

 

 

 

 

Fiduciary receivables and liabilities, net

 

 

24.4

 

 

 

0.1

 

Deferred acquisition purchase payment

 

 

(5.1

)

 

 

—

 

Payments on acquisition earn-outs

 

 

(52.8

)

 

 

(36.1

)

Proceeds from long-term debt

 

 

2,000.0

 

 

 

—

 

Payments on long-term debt

 

 

(44.4

)

 

 

(52.5

)

Deferred debt issuance costs

 

 

(23.3

)

 

 

—

 

Borrowings on revolving credit facility

 

 

350.0

 

 

 

—

 

Payments on revolving credit facilities

 

 

(200.0

)

 

 

—

 

Issuances of common stock for employee stock benefit plans

 

 

37.4

 

 

 

33.8

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(48.7

)

 

 

(49.6

)

Purchase of treasury stock

 

 

(74.1

)

 

 

(82.6

)

Cash dividends paid

 

 

(86.9

)

 

 

(78.2

)

Net cash provided by (used in) financing activities

 

 

1,876.5

 

 

 

(265.1

)

Effect of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash

 

 

(183.1

)

 

 

(2.3

)

Net increase in cash and cash equivalents inclusive of fiduciary cash

 

 

380.6

 

 

 

154.0

 

Cash and cash equivalents inclusive of fiduciary cash at beginning of period

 

 

1,470.2

 

 

 

1,271.9

 

Cash and cash equivalents inclusive of fiduciary cash at end of period

 

$

1,850.8

 

 

$

1,425.9

 

See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 810 for reconciliationthe reconciliations of cash and cash equivalents inclusive of restrictedfiduciary cash.


BROWN & BROWN, INC.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(UNAUDITED)

NOTE 1·1 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 servicesservice 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: thesegments. The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; theinsured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. The National Programs Segment, actingwhich acts as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide networksnetwork of independent agents, including Brown & Brown retail agents; theagents. The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown Retail offices; and theretail agents. 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.

The Company primarily operates as an agent or broker not assuming underwriting risks. However, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s underwriting business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) to which premiums and underwriting exposure are ceded. The Company also operates two capitalized captive insurance facilities (the "Captives") for the purpose of facilitating additional underwriting capacity and to participate in underwriting results, one on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses, and the other through excess of loss reinsurance layers associated with placements made by one of our MGA businesses focused on personal property primarily in the southeastern United States. The quota share Captive buys reinsurance, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive has capped exposure through contractual aggregate limits on the reinsurance participations it assumes.

NOTE 2·2 Basis of Financial Reporting

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

The preparation of these financial statements in conformity with 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 Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Beginning January 1, 2022 the Company is presenting certain assets and liabilities that arise from activities in which the Company engages as an intermediary, where we collect premiums from insureds to remit to insurance companies, hold funds from insurance companies to distribute to insureds for claims on covered losses and hold refunds due to customers as fiduciary assets and fiduciary liabilities. Uncollected premiums are no longer presented in the same caption with commissions, fees and other receivables, but rather represented in a separate caption as fiduciary receivables. Likewise, payables to insurance companies and premium deposits due customers are now combined into a new caption as fiduciary liabilities. The caption “restricted cash” is now reflected as “fiduciary cash” along with non-restricted fiduciary cash balances previously reported within “cash and cash equivalents.” Fiduciary cash represents funds in the Company's possession collected from customers to be remitted to insurance companies and funds from insurance companies to be distributed to insureds for the settlement of claims or refunds. The net change in fiduciary cash is represented by the net change in fiduciary liabilities and fiduciary receivables and is presented as cash flows from financing activities in the statement of cash flows. Previously the net change in cash balances held to remit to insurance carriers or to return to customers was presented as cash flows from operating activities. All prior periods included in these financial statements have been recast to conform to this basis of presentation. The relevant balance sheet captions and how the December 31, 2021 balances as presented under the prior method relate to the current presentation are reflected in the tables below. Certain liabilities reported as premiums payable to insurance companies or within premiums deposits and credits due customers were deemed not to be fiduciary in nature and have been included within accounts payable in the current presentation. Likewise, a small component of accounts payable was deemed to be fiduciary in nature and is now included within fiduciary liabilities.

11

December 31, 2021

 

(in millions)

As reported

 

 

Change in presentation

 

 

As revised

 

Cash and cash equivalents

$

887.0

 

 

$

(193.8

)

 

$

693.2

 

Restricted cash and investments

 

583.2

 

 

 

(583.2

)

 

 

—

 

Fiduciary cash

 

—

 

 

 

777.0

 

 

 

777.0

 

Total

 

1,470.2

 

 

 

—

 

 

 

1,470.2

 

 

 

 

 

 

 

 

 

 

Premiums, commissions and fees receivables

 

1,216.3

 

 

 

(1,216.3

)

 

 

—

 

Commissions, fees and other receivables

 

—

 

 

 

522.6

 

 

 

522.6

 

Fiduciary receivables

 

—

 

 

 

693.7

 

 

 

693.7

 

Total

 

1,216.3

 

 

 

—

 

 

 

1,216.3

 

 

 

 

 

 

 

 

 

 

Premium payable to insurance companies

 

1,384.6

 

 

 

(1,384.6

)

 

 

—

 

Premium deposits and credits due customers

 

122.4

 

 

 

(122.4

)

 

 

—

 

Accounts payable

 

206.4

 

 

 

36.3

 

 

 

242.7

 

Fiduciary liabilities

 

—

 

 

 

1,470.7

 

 

 

1,470.7

 

Total

$

1,713.4

 

 

$

—

 

 

$

1,713.4

 

For the nine months ended September 30, 2021

 

(in millions)

As reported

 

 

Change in presentation

 

 

As revised

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Premiums, commissions and fees receivable (1)

$

(66.4

)

 

$

(9.4

)

 

$

(75.8

)

Premiums payable to insurance companies

 

(38.0

)

 

 

38.0

 

 

 

—

 

Premium deposits and credits due customers

 

37.4

 

 

 

(37.4

)

 

 

—

 

Accounts payable

 

45.8

 

 

 

8.7

 

 

 

54.5

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Fiduciary receivables and liabilities, net

 

—

 

 

 

0.1

 

 

 

0.1

 

Total restated changes in cash flows

$

(21.2

)

 

$

—

 

 

$

(21.2

)

(1) The caption of "Premiums, commissions and fees receivable" is now shown as "Commissions, fees and other receivables" in the Condensed Consolidated Statements of Cash Flows.

Recently Issued Accounting Pronouncements

In November 2016,March 2020, the Financial AccountingsAccounting Standards Board (“FASB”) issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We have evaluated our contracts and the available expedients provided by the new standard and can assert there is no impact to any carrying value of assets or liabilities as our floating-rate debt instruments that are indexed to LIBOR are carried at amortized cost.

Recently Adopted Accounting Standards Update (“ASU”) 2016-18, “Statement

None.

12

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:

 

 

Three months ended September 30, 2022

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other (8)

 

 

Total

 

Base commissions (1)

 

$

360.6

 

 

$

165.8

 

 

$

103.7

 

 

$

—

 

 

$

—

 

 

$

630.1

 

Fees (2)

 

 

130.6

 

 

 

56.2

 

 

 

18.4

 

 

 

41.1

 

 

 

(0.2

)

 

 

246.1

 

Other supplemental commissions (3)

 

 

25.0

 

 

 

3.7

 

 

 

0.9

 

 

 

—

 

 

 

—

 

 

 

29.6

 

Profit-sharing contingent commissions (4)

 

 

10.9

 

 

 

(6.2

)

 

 

3.1

 

 

 

—

 

 

 

—

 

 

 

7.8

 

Earned premium (5)

 

 

—

 

 

 

11.6

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11.6

 

Investment income (6)

 

 

—

 

 

 

0.3

 

 

 

0.1

 

 

 

—

 

 

 

0.8

 

 

 

1.2

 

Other income, net (7)

 

 

1.1

 

 

 

—

 

 

 

0.1

 

 

 

—

 

 

 

—

 

 

 

1.2

 

Total Revenues

 

$

528.2

 

 

$

231.4

 

 

$

126.3

 

 

$

41.1

 

 

$

0.6

 

 

$

927.6

 

 

 

Three months ended September 30, 2021

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other (8)

 

 

Total

 

Base commissions (1)

 

$

284.6

 

 

$

133.6

 

 

$

91.0

 

 

$

—

 

 

$

—

 

 

$

509.2

 

Fees (2)

 

 

109.9

 

 

 

49.9

 

 

 

17.9

 

 

 

43.7

 

 

 

(0.5

)

 

 

220.9

 

Other supplemental commissions (3)

 

 

19.9

 

 

 

0.9

 

 

 

1.2

 

 

 

—

 

 

 

—

 

 

 

22.0

 

Profit-sharing contingent commissions (4)

 

 

8.7

 

 

 

6.5

 

 

 

2.4

 

 

 

—

 

 

 

—

 

 

 

17.6

 

Earned premium (5)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Investment income (6)

 

 

0.2

 

 

 

0.1

 

 

 

—

 

 

 

—

 

 

 

0.1

 

 

 

0.4

 

Other income, net (7)

 

 

0.1

 

 

 

0.1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.2

 

Total Revenues

 

$

423.4

 

 

$

191.1

 

 

$

112.5

 

 

$

43.7

 

 

$

(0.4

)

 

$

770.3

 

 

 

Nine months ended September 30, 2022

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other (8)

 

 

Total

 

Base commissions (1)

 

$

1,055.7

 

 

$

443.2

 

 

$

277.1

 

 

$

—

 

 

$

(0.1

)

 

$

1,775.9

 

Fees (2)

 

 

369.4

 

 

 

137.6

 

 

 

52.0

 

 

 

128.8

 

 

 

(1.0

)

 

 

686.8

 

Other supplemental commissions (3)

 

 

117.3

 

 

 

7.7

 

 

 

3.9

 

 

 

—

 

 

 

—

 

 

 

128.9

 

Profit-sharing contingent commissions (4)

 

 

38.3

 

 

 

12.0

 

 

 

8.2

 

 

 

—

 

 

 

—

 

 

 

58.5

 

Earned premium (5)

 

 

—

 

 

 

18.1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

18.1

 

Investment income (6)

 

 

—

 

 

 

0.6

 

 

 

0.2

 

 

 

—

 

 

 

1.0

 

 

 

1.8

 

Other income, net (7)

 

 

1.6

 

 

 

0.1

 

 

 

0.2

 

 

 

—

 

 

 

0.1

 

 

 

2.0

 

Total Revenues

 

$

1,582.3

 

 

$

619.3

 

 

$

341.6

 

 

$

128.8

 

 

$

—

 

 

$

2,672.0

 

 

 

Nine months ended September 30, 2021

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other (8)

 

 

Total

 

Base commissions (1)

 

$

905.5

 

 

$

369.7

 

 

$

246.2

 

 

$

—

 

 

$

—

 

 

$

1,521.4

 

Fees (2)

 

 

307.3

 

 

 

125.3

 

 

 

51.6

 

 

 

135.6

 

 

 

(1.4

)

 

 

618.4

 

Other supplemental commissions (3)

 

 

100.6

 

 

 

2.8

 

 

 

3.2

 

 

 

—

 

 

 

—

 

 

 

106.6

 

Profit-sharing contingent commissions (4)

 

 

32.8

 

 

 

23.9

 

 

 

6.5

 

 

 

—

 

 

 

—

 

 

 

63.2

 

Earned premium (5)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Investment income (6)

 

 

0.3

 

 

 

0.4

 

 

 

0.1

 

 

 

—

 

 

 

0.1

 

 

 

0.9

 

Other income, net (7)

 

 

0.9

 

 

 

0.2

 

 

 

0.3

 

 

 

—

 

 

 

1.0

 

 

 

2.4

 

Total Revenues

 

$

1,347.4

 

 

$

522.3

 

 

$

307.9

 

 

$

135.6

 

 

$

(0.3

)

 

$

2,312.9

 

(1)
Base commissions generally represent a percentage of Cash Flows (Topic 230)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,”: Restricted Cash (“ASU 2016-18”), which requiresare 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 Statementinsured. 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 Cash Flows explainwhich we control.
(2)
Fee revenues relate to fees for services other than securing coverage for our customers, fees negotiated in lieu of commissions, and F&I products and services.

13

(3)
Other supplemental commissions include additional commissions over base commissions received from insurance carriers based on predetermined growth or production measures. This includes incentive commissions and guaranteed supplemental commissions.
(4)
Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.
(5)
Earned premium relates to the changes duringpremiums earned in the periodCaptives.
(6)
Investment income consists primarily of interest on cash and cash equivalents inclusiveinvestments.
(7)
Other income consists primarily of amounts categorizedlegal settlements and other miscellaneous income.
(8)
Fees within Other reflects the elimination of intercompany revenues.

Contract Assets and Liabilities

The balances of contract assets and contract liabilities arising from contracts with customers as restricted cash. ASU 2016-18 is effective for periods beginning afterof September 30, 2022 and December 15, 2017. However,31, 2021 were as follows:

(in millions)

 

September 30, 2022

 

 

December 31, 2021

 

Contract assets

 

$

431.9

 

 

$

361.8

 

Contract liabilities

 

$

89.4

 

 

$

97.9

 

Unbilled receivables (contract assets) arise when the Company electedrecognizes revenue for amounts which have not yet been billed in the Company's systems and are reflected in commissions, fees and other receivables in the Company's Condensed Consolidated Balance Sheet. The increase in contract assets over the balance as of December 31, 2021 is due to early adopt fornormal seasonality, growth in our business, and from businesses acquired in the reporting period ended March 31, 2017current year.

Deferred revenue (contract liabilities) relates to payments received in advance of performance under the full retrospective approachcontract before the transfer of a good or service to the customer. Deferred revenue is reflected within accrued expenses and other liabilities for all periods presented. Withthose to be recognized in less than 12 months and in other liabilities for those to be recognized more than 12 months from 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 changesdate presented in the balanceCompany's Condensed Consolidated Balance Sheet.

As of cashSeptember 30, 2022, deferred revenue consisted of $55.9 million as current portion to be recognized within one year and cash equivalents inclusive$33.5 million in long-term to be recognized beyond one year. As of restricted cash. Net cash provided by operating activities forDecember 31, 2021, deferred revenue consisted of $67.4 million as current portion to be recognized within one year and $30.5 million in long-term deferred revenue to be recognized beyond one year.

During the nine months ended September 30, 2016 were previously reported as $270.6 million. With the retrospective adoption,2022 and 2021, the net cash provided by operating activities for the nine months ended September 30, 2016 is now reported as $319.1 million. The Company reflects cash collected from customers that is payable to insurance companies as restricted cash if segregationamount 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 company 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 has evaluated the impact of ASU 2016-15 and has determined 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 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. Also 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 thoserecognized 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 ASU 2016-08 is currently being evaluated along with ASU 2014-09. At this point in our evaluation the potential impact would primarily be limited to the claims administering activities within our Services Segment and therefore not material to the Company.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of this pronouncement with the principal impact being that the present value of the remaining lease payments be presented as a liability on the Balance Sheet as well as an asset of similar value representing the “Right of Use” for those leased properties. As detailed in Note 13 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 $200.3 million as of September 30, 2017 as detailed in the Liquidity and Capital Resources section of this Quarterly Report on Form 10-Q.
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.
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 withinsatisfied in a contract, the useprevious period was $23.9 million and $22.0 million, consisting of estimates is required to allocate the transaction price to each separate performance obligation.
Historically, approximately 70% of the Company’s commissionsadditional variable consideration received on our incentive and fees revenue is 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.
Approximately 20% of the Company's commissions and fees revenue 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. At the conclusion of our evaluation, it may be determined that fee revenue from certain agreements will be recognized in earlier or later periods under the new guidance as compared to our current accounting. Based upon the work completed to date, the Company does not expect the overall impact of these potential changes to be significant on a full-year basis, but they may impact the timing of recognizing revenue among quarters. 
The Company is continuing to evaluate approximately 10% of the Company's commissions and fees revenues and anticipates completion of this evaluation by December 31, 2017. 

Additionally, the Company is continuing to evaluate the requirement under ASC Topic 340 - profit-sharing contingent commissions.

Other Assets and Deferred Cost ("ASC 340")

Incremental cost to capitalizeobtain - The Company defers certain costs to obtain and costs to fulfill, customer contracts and recognize these costs over the associated life of the contract as the performance obligations are fulfilled.  This evaluation includes assessing the costs that would qualify for capitalization as well as the timing to recognize these costs in future periods in accordance with ASC 340.  Presently all costs to obtain, and costs to fulfill, customer contracts are expensed by the Company as incurred.

The primary areas the Company has identified thus far that will be impacted by the adoption of the new revenue recognition standards are summarized below.
Contingent commissions - Under current accounting standards, revenue that is not fixed and determinable because a contingency exists is not recognized until the contingency is resolved.  Under Topic 606 the Company must use judgment 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 in the form of 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 core commissionsprimarily as they are recognized.  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.  As disclosed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, contingent commissions have averaged approximately 3.6% of the previous year’s total commissions and fees revenue over the last three years and have primarily been received in the first and second quarters of the year.
Cost deferrals - ASC 340 requires an entityrelate to defer the incremental costs to obtain a customer contract and recognize these costs over the anticipated life of the customer relationship, inclusive of anticipated renewals.  This requirement will primarily affect the Company as it relates to certain commission-based compensation plans in the Retail Segment, wherebyin which the Company pays an incremental amount of compensation on new business inbusiness. These incremental costs are deferred and amortized over a 15 year period. The cost to obtain balance within the first year.  As has been disclosed in Note 4 to the Financial Statements containedother assets caption in the Company's Annual Report on Form 10-KCondensed Consolidated Balance Sheet was $72.3 million and $58.2 million as of September 30, 2022 and December 31, 2021, respectively. For the nine months ended September 30, 2022, the Company deferred $17.9 million of incremental cost to obtain customer contracts. The Company recorded an expense of $3.8 million associated with the incremental cost to obtain customer contracts for the yearnine months ended December 31, 2016, the weighted average life of purchased customer accounts is 15 years.
ASC 340 also requires a companySeptember 30, 2022.

Cost to deferfulfill - The Company defers certain costs to fulfill a contractcontracts and recognizerecognizes these costs as the associated performance obligations are fulfilled. In order forThe cost to fulfill balance within the other current assets caption in the Company's Condensed Consolidated Balance Sheet as of September 30, 2022 was $89.7 million, which is inclusive of deferrals from businesses acquired in the current year of $12.1 million. The cost to fulfill balance as of December 31, 2021 was $89.3 million. For the nine months ended September 30, 2022, the Company had net expense of $11.7 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, net of current year deferrals for costs incurred that related to performance obligations yet 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 cashflows from the contract.  We are evaluating and believe the impact of ASC 340 related to contract fulfillment costs will primarily affect businesses that recognize revenue based upon on fees. Based upon the work completed to date, the Company does not expect the overall impact of the potential change to be significant on a full-year basis, but may impact the timing of recognizing expense among quarters.fulfilled.

14

Installment billing - As disclosed in Note 1 to the Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, commission revenues related to installment billings are recognized 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 in the premium invoice), with the exception of our Arrowhead businesses, which follows a policy of recognizing these revenues on the latter of the policy effective date or processed date into our systems, regardless of the billing arrangement.  We are still determining the impact of recognizing installment revenue upon delivery of the contract fulfillment obligation.
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 is evaluating the adoption method it will use, but currently expects to use the modified retrospective method.
In connection with the implementation of the above standards, we will augment our current procedures and controls, as necessary to support the new standards.

NOTE 3·4 Net Income Per Share

Basic EPSnet income per share is computed based on the weighted average number of common shares (including restricted shares)participating securities) issued and outstanding during the period. Diluted EPSnet income per share is computed based on the weighted average number of common shares issued and outstanding plus equivalent shares, assuming the exerciseissuance of stock options.all potentially issuable common shares. The dilutive effect of stock optionspotentially issuable common shares is computed by application of the treasury-stocktreasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except per share data)2017 2016 2017 2016

(in millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income$75,913
 $71,545
 $212,125
 $199,865

 

$

161.1

 

 

$

146.4

 

 

$

526.6

 

 

$

485.4

 

Net income attributable to unvested awarded performance stock(1,852) (1,873) (5,181) (5,210)

 

 

(2.9

)

 

 

(3.1

)

 

 

(10.1

)

 

 

(10.9

)

Net income attributable to common shares$74,061
 $69,672
 $206,944
 $194,655

 

$

158.2

 

 

$

143.3

 

 

$

516.5

 

 

$

474.5

 

Weighted average number of common shares outstanding – basic139,756
 140,129
 140,012
 139,642

 

 

283.0

 

 

 

282.1

 

 

 

282.7

 

 

 

282.1

 

Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic(3,410) (3,668) (3,420) (3,640)

 

 

(5.2

)

 

 

(5.9

)

 

 

(5.4

)

 

 

(6.3

)

Weighted average number of common shares outstanding for basic earnings per common share136,346
 136,461
 136,592
 136,002
Dilutive effect of stock options2,547
 1,721
 2,419
 1,582

Weighted average number of common shares outstanding for basic
net income per common share

 

 

277.8

 

 

 

276.2

 

 

 

277.3

 

 

 

275.8

 

Dilutive effect of potentially issuable common shares

 

 

0.9

 

 

 

1.3

 

 

 

1.2

 

 

 

1.3

 

Weighted average number of shares outstanding – diluted138,893
 138,182
 139,011
 137,584

 

 

278.7

 

 

 

277.5

 

 

 

278.5

 

 

 

277.1

 

Net income per share:       

 

 

 

 

 

 

 

 

 

 

 

Basic$0.54
 $0.51
 $1.52
 $1.43

 

$

0.57

 

 

$

0.52

 

 

$

1.86

 

 

$

1.72

 

Diluted$0.53
 $0.50
 $1.49
 $1.41

 

$

0.57

 

 

$

0.52

 

 

$

1.85

 

 

$

1.71

 

NOTE 4·5 Business Combinations

During the nine months ended September 30, 2017,2022, Brown & Brown acquired all of the stock of seven insurance intermediaries, assets and assumed certain liabilities of sixten insurance intermediaries.intermediaries, and four books of business (customer accounts) for a total of 21 acquisitions. Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve12 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. The recorded purchase price for all acquisitions includedincludes 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 Condensed Consolidated StatementStatements of Income when incurred.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the nine months ended September 30, 2017, several2022, adjustments were made within the permitted measurement period that resulted in an increasea decrease in the aggregate purchase price of the affected acquisitions of $1.5 million relating to the assumption of certain liabilities.$0.4 million. These measurement period adjustments have been reflected as current period adjustments in the nine months ended September 30, 20172022 in accordance with the guidance in ASU 2015-16 “Business Combinations”.Combinations.” The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period.

Cash paid for acquisitions was $26.5 million and $115.3 million in the nine-month periods ended September 30, 2017 and 2016, respectively. We completed six acquisitions (excluding book of business purchases) in the nine-month period ended September 30, 2017. We completed six acquisitions (excluding book of business purchases) in the nine-month period ended September 30, 2016.

The following table summarizes the purchase price allocations made as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. Cash paid for 21 acquisitions was $2,504.7 million during the nine months ended September 30, 2022. During the measurement 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.

15

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Business
segment

 

Effective
date of
acquisition

 

Cash
paid

 

 

Common stock issued

 

 

Other
payable

 

 

Recorded
earn-out
payable

 

 

Net assets
acquired

 

 

Maximum
potential
earn-out payable

 

Orchid Intermediate Holdings, L.P. (Orchid)

 

National Programs

 

March 31, 2022

 

$

476.2

 

 

$

—

 

 

$

—

 

 

$

10.8

 

 

$

487.0

 

 

$

20.0

 

GRP (Jersey) Holdco Limited (GRP)

 

Retail
National Programs
Wholesale

 

July 1, 2022

 

 

1,839.8

 

 

 

14.7

 

 

 

—

 

 

 

—

 

 

 

1,854.5

 

 

 

—

 

First Insurance Solutions Ltd. (First)

 

Retail

 

July 8, 2022

 

 

13.0

 

 

 

—

 

 

 

1.4

 

 

 

8.3

 

 

 

22.7

 

 

 

8.4

 

BdB Holdings Limited (BdB)

 

Wholesale

 

August 1, 2022

 

 

75.3

 

 

 

—

 

 

 

—

 

 

 

11.4

 

 

 

86.7

 

 

 

36.3

 

Smithwick & Mariners Insurance, Inc. (Smithwick)

 

Retail

 

September 1, 2022

 

 

23.2

 

 

 

—

 

 

 

1.0

 

 

 

1.6

 

 

 

25.8

 

 

 

6.5

 

VistaNational Insurance Group, Inc. (VistaNational)

 

Retail

 

September 1, 2022

 

 

26.7

 

 

 

—

 

 

 

0.8

 

 

 

1.1

 

 

 

28.6

 

 

 

3.0

 

Other

 

Various

 

Various

 

 

50.5

 

 

 

—

 

 

 

1.4

 

 

 

8.9

 

 

 

60.8

 

 

 

17.9

 

Total

 

 

 

 

 

$

2,504.7

 

 

$

14.7

 

 

$

4.6

 

 

$

42.1

 

 

$

2,566.1

 

 

$

92.1

 

(in thousands)             
Name
Business
Segment
 
Effective
Date of
Acquisition
 
Cash
Paid
 
Other
Payable
 
Recorded
Earn-Out
Payable
 
Net Assets
Acquired
 
Maximum
Potential Earn-
Out Payable
OtherVarious Various 26,478
 11,395
 1,332
 39,205
 11,605
Total    $26,478
 $11,395
 $1,332
 $39,205
 $11,605

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.

(in millions)

 

Orchid

 

 

GRP

 

 

First

 

 

BdB

 

 

Smithwick

 

 

VistaNational

 

 

Other (1)

 

 

Total

 

Cash and equivalents

 

$

3.2

 

 

$

80.3

 

 

$

2.4

 

 

$

15.8

 

 

$

—

 

 

$

—

 

 

$

0.3

 

 

$

102.0

 

Fiduciary cash

 

 

40.5

 

 

 

457.5

 

 

 

1.4

 

 

 

13.6

 

 

 

—

 

 

 

—

 

 

 

��

 

 

 

513.0

 

Fiduciary receivables

 

 

12.5

 

 

 

127.4

 

 

 

—

 

 

 

21.6

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

161.5

 

Other current assets

 

 

0.1

 

 

 

86.9

 

 

 

1.0

 

 

 

5.1

 

 

 

0.2

 

 

 

1.4

 

 

 

(9.2

)

 

 

85.5

 

Fixed assets

 

 

1.8

 

 

 

17.9

 

 

 

—

 

 

 

0.6

 

 

 

—

 

 

 

0.1

 

 

 

5.3

 

 

 

25.7

 

Goodwill

 

 

400.5

 

 

 

1,365.1

 

 

 

12.9

 

 

 

53.7

 

 

 

20.5

 

 

 

21.2

 

 

 

48.3

 

 

 

1,922.2

 

Purchased customer accounts and other

 

 

119.2

 

 

 

490.7

 

 

 

6.9

 

 

 

16.0

 

 

 

6.7

 

 

 

6.1

 

 

 

15.7

 

 

 

661.3

 

Non-compete agreements

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.3

 

 

 

0.1

 

 

 

0.1

 

 

 

0.7

 

 

 

1.2

 

Operating lease right-of-use assets

 

 

6.0

 

 

 

18.7

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

24.7

 

Other assets

 

 

1.9

 

 

 

8.8

 

 

 

—

 

 

 

3.1

 

 

 

—

 

 

 

—

 

 

 

0.2

 

 

 

14.0

 

Total assets acquired

 

 

585.7

 

 

 

2,653.3

 

 

 

24.6

 

 

 

129.8

 

 

 

27.5

 

 

 

28.9

 

 

 

61.3

 

 

 

3,511.1

 

Fiduciary liabilities

 

 

(53.0

)

 

 

(584.9

)

 

 

(1.4

)

 

 

(35.2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(674.5

)

Other current liabilities

 

 

(9.5

)

 

 

(62.3

)

 

 

(0.5

)

 

 

(2.1

)

 

 

(1.7

)

 

 

(0.3

)

 

 

(0.5

)

 

 

(76.9

)

Deferred income tax, net

 

 

(30.2

)

 

 

(122.5

)

 

 

—

 

 

 

(4.0

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(156.7

)

Operating lease liabilities

 

 

(6.0

)

 

 

(18.7

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(24.7

)

Other long-term liabilities

 

 

—

 

 

 

(10.4

)

 

 

—

 

 

 

(1.8

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(12.2

)

Total liabilities assumed

 

 

(98.7

)

 

 

(798.8

)

 

 

(1.9

)

 

 

(43.1

)

 

 

(1.7

)

 

 

(0.3

)

 

 

(0.5

)

 

 

(945.0

)

Net assets acquired

 

$

487.0

 

 

$

1,854.5

 

 

$

22.7

 

 

$

86.7

 

 

$

25.8

 

 

$

28.6

 

 

$

60.8

 

 

$

2,566.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
The other column represents current year acquisitions with total net assets acquired of less than $20.0 million and adjustments from prior year acquisitions that were made within the permitted measurement period.
(in thousands) Other Total
Other current assets 98
 98
Fixed assets 47
 47
Goodwill 27,580
 27,580
Purchased customer accounts 12,858
 12,858
Non-compete agreements 595
 595
Total assets acquired 41,178
 41,178
Other current liabilities (1,284) (1,284)
Deferred income tax, net (689) (689)
Total liabilities assumed (1,973) (1,973)
Net assets acquired $39,205
 $39,205

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 1514.3 years; and non-compete agreements, 54.2 years.

Goodwill of $27.6$1,922.2 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage and Service Segments in the amounts of $18.8$1,389.0 million, $7.3 million, $0.8$427.8 million, and $0.7$105.4 million, respectively. Of the total goodwill of $27.6$1,922.2 million, the amount currently deductible for income tax purposes is $26.3 million and$70.7 million. Of the remaining $1.3$1,851.5 million of goodwill, $1,846.5 million relates to thegoodwill that will not be deductible for income tax purposes and $5.0 million relates to recorded earn-out payables andwhich will not be deductible for income tax purposes until it is earned and paid.


16

For the acquisitions completed during 2017,2022, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through September 30, 2017,2022, included in the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2017, were $3.2 million and $3.6 million, respectively.2022, was $116.9 million. The income before income taxes including the intercompany cost of capital charge, from the acquisitions completed through September 30, 2017,2022, included in the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2017, were $0.9 million and $1.0 million, respectively.2022, was $7.5 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s estimated 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)

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Total revenues

 

$

931.1

 

 

$

879.1

 

 

$

2,873.6

 

 

$

2,641.1

 

Income before income taxes

 

$

218.9

 

 

$

193.4

 

 

$

696.0

 

 

$

613.1

 

Net income

 

$

161.8

 

 

$

144.1

 

 

$

537.5

 

 

$

478.5

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

 

$

0.51

 

 

$

1.90

 

 

$

1.69

 

Diluted

 

$

0.57

 

 

$

0.51

 

 

$

1.89

 

 

$

1.69

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

277.8

 

 

 

276.5

 

 

 

277.5

 

 

 

276.1

 

Diluted

 

 

278.7

 

 

 

277.8

 

 

 

278.7

 

 

 

277.4

 

(UNAUDITED)For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except per share data)2017 2016 2017 2016
Total revenues$476,124
 $465,014
 $1,413,278
 $1,341,511
Income before income taxes$124,582
 $117,929
 $345,608
 $331,574
Net income$76,012
 $72,130
 $213,496
 $201,675
Net income per share:       
Basic$0.54
 $0.51
 $1.52
 $1.44
Diluted$0.53
 $0.51
 $1.50
 $1.43
Weighted average number of shares outstanding:       
Basic136,346
 136,461
 136,592
 136,002
Diluted138,893
 138,182
 139,011
 137,584

As of September 30, 20172022 and 2016,2021, 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 three and nine months ended September 30, 20172022 and 2016,2021, were as follows:

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Balance as of the beginning of the period

 

$

232.9

 

 

$

242.0

 

 

$

291.0

 

 

$

258.9

 

Additions to estimated acquisition earn-out payables

 

 

25.2

 

 

 

—

 

 

 

42.1

 

 

 

25.2

 

Assumed acquisition earn-out payables

 

 

34.8

 

 

 

—

 

 

 

34.8

 

 

 

—

 

Payments for estimated acquisition earn-out payables

 

 

(10.6

)

 

 

(1.9

)

 

 

(77.1

)

 

 

(41.8

)

Subtotal

 

 

282.3

 

 

 

240.1

 

 

 

290.8

 

 

 

242.3

 

Net change in earnings from estimated acquisition earn-out payables:

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value on estimated acquisition earn-out payables

 

 

(28.5

)

 

 

21.8

 

 

 

(38.1

)

 

 

15.8

 

Interest expense accretion

 

 

1.9

 

 

 

1.3

 

 

 

5.0

 

 

 

4.8

 

Net change in earnings from estimated acquisition
   earn-out payables

 

 

(26.6

)

 

 

23.1

 

 

 

(33.1

)

 

 

20.6

 

Foreign currency translation adjustments during the year

 

 

(5.8

)

 

 

(0.3

)

 

 

(7.8

)

 

 

—

 

Balance as of September 30,

 

$

249.9

 

 

$

262.9

 

 

$

249.9

 

 

$

262.9

 

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands)2017 2016 2017 2016
Balance as of the beginning of the period$57,943
 $73,447
 $63,821
 $78,387
Additions to estimated acquisition earn-out payables1,050
 1,437
 1,332
 3,828
Payments for estimated acquisition earn-out payables(23,511) (16,988) (39,288) (27,555)
Subtotal35,482
 57,896
 25,865
 54,660
Net change in earnings from estimated acquisition earn-out payables:       
Change in fair value on estimated acquisition earn-out payables(1,784) 2,883
 6,402
 4,704
Interest expense accretion476
 727
 1,907
 2,142
Net change in earnings from estimated acquisition earn-out payables(1,308) 3,610
 8,309
 6,846
Balance as of September 30,$34,174
 $61,506
 $34,174
 $61,506

Of the $34.2$249.9 million estimated acquisition earn-out payables as of September 30, 2017, $28.72022, $100.5 million was recorded as accounts payable and $5.5$149.4 million was recorded as other non-current liabilities. As of September 30, 2017,2022, the maximum future acquisition contingency payments related to all acquisitions was $81.5$550.3 million, inclusive of the $34.2$249.9 million estimated acquisition earn-out payables as of September 30, 2017.2022. Four of the estimated acquisition earn-out payables assumed in connection with the acquisition of GRP included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of September 30, 2022 is $2.8 million. The Company deems a significant increase to this amount to be unlikely. Included within the additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts.

17


NOTE 5·6 Goodwill

Goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The Company completed its most recent annual assessment as of November 30, 2016,2021 and identified no impairment as a result of the evaluation.

The changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 20172022 are as follows:

(in thousands)Retail 
National
Programs
 
Wholesale
Brokerage
 Services Total
Balance as of January 1, 2017$1,354,667
 $901,294
 $284,869
 $134,572
 $2,675,402
Goodwill of acquired businesses18,807
 7,314
 770
 689
 27,580
Goodwill disposed of relating to sales of businesses(1,494) —
 —
 —
 (1,494)
Balance as of September 30, 2017$1,371,980
 $908,608
 $285,639
 $135,261
 $2,701,488

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Total

 

Balance as of December 31, 2021

 

$

2,987.2

 

 

$

1,089.9

 

 

$

488.4

 

 

$

171.3

 

 

$

4,736.8

 

Goodwill of acquired businesses

 

 

1,389.0

 

 

 

427.8

 

 

 

105.4

 

 

 

—

 

 

 

1,922.2

 

Goodwill disposed of relating to sales of businesses

 

 

(2.6

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2.6

)

Foreign currency translation adjustments during the year

 

 

(118.1

)

 

 

(6.9

)

 

 

(9.1

)

 

 

—

 

 

 

(134.1

)

Balance as of September 30, 2022

 

$

4,255.5

 

 

$

1,510.8

 

 

$

584.7

 

 

$

171.3

 

 

$

6,522.3

 

NOTE 6·7 Amortizable Intangible Assets

Amortizable intangible assets at September 30, 20172022 and December 31, 20162021 consisted of the following:

 

 

September 30, 2022

 

 

December 31, 2021

 

(in millions)

 

Gross
carrying
value

 

 

Accumulated
amortization

 

 

Net
carrying
value

 

 

Weighted
average
life
(years) (1)

 

 

Gross
carrying
value

 

 

Accumulated
amortization

 

 

Net
carrying
value

 

 

Weighted
average
life
(years) (1)

 

Purchased customer accounts and other

 

$

2,972.9

 

 

$

(1,342.3

)

 

$

1,630.6

 

 

 

14.7

 

 

$

2,311.6

 

 

$

(1,235.3

)

 

$

1,076.3

 

 

 

14.9

 

Non-compete agreements

 

 

38.8

 

 

 

(33.6

)

 

 

5.2

 

 

 

4.5

 

 

 

37.6

 

 

 

(32.4

)

 

 

5.2

 

 

 

4.5

 

Foreign currency translation adjustments during the year

 

 

(49.3

)

 

 

1.5

 

 

 

(47.8

)

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

Total

 

$

2,962.4

 

 

$

(1,374.4

)

 

$

1,588.0

 

 

 

 

 

$

2,349.2

 

 

$

(1,267.7

)

 

$

1,081.5

 

 

 

 

(1)
Weighted average life calculated as of the date of acquisition.
 September 30, 2017 December 31, 2016
(in thousands)
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Weighted
Average
Life
(Years)(1)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Weighted
Average
Life
(Years)(1)
Purchased customer accounts$1,458,405
 $(803,764) $654,641
 15.0 $1,447,680
 $(741,770) $705,910
 15.0
Non-compete agreements30,161
 (28,748) 1,413
 6.8 29,668
 (28,124) 1,544
 6.8
Total$1,488,566
 $(832,512) $656,054
   $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, 2017, 2018, 2019, 20202022, 2023, 2024, 2025 and 20212026 is estimated to be $85.3$150.6 million, $80.6$165.8 million, $76.1$161.6 million, $68.7$158.8 million, and $65.4$152.8 million, respectively.

18


NOTE 7·8 Long-Term Debt

Long-term debt atSeptember 30, 2017 2022andDecember 31, 2016 2021consisted of the following:

(in millions)

 

September 30, 2022

 

 

December 31, 2021

 

Current portion of long-term debt:

 

 

 

 

 

 

Current portion of 5-year term loan facility expires 2026

 

$

12.5

 

 

$

12.5

 

Current portion of 5-year term loan facility expires 2023

 

 

30.0

 

 

 

30.0

 

Current portion of 5-year term loan facility expires 2027

 

 

25.0

 

 

 

—

 

Total current portion of long-term debt

 

 

67.5

 

 

 

42.5

 

Long-term debt:

 

 

 

 

 

 

Note agreements:

 

 

 

 

 

 

4.200% senior notes, semi-annual interest payments, net of the unamortized discount,
   balloon due 2024

 

$

499.7

 

 

$

499.5

 

4.500% senior notes, semi-annual interest payments, net of the unamortized discount,
   balloon due 2029

 

 

349.6

 

 

 

349.6

 

2.375% senior notes, semi-annual interest payments, net of the unamortized discount,
   balloon due 2031

 

 

699.4

 

 

 

699.3

 

4.200% senior notes, semi-annual interest payments, net of the unamortized discount,
   balloon due 2032

 

 

598.0

 

 

 

—

 

4.950% senior notes, semi-annual interest payments, net of the unamortized discount,
   balloon due 2052

 

 

591.9

 

 

 

—

 

Total notes

 

 

2,738.6

 

 

 

1,548.4

 

Credit agreements:

 

 

 

 

 

 

5-year term loan facility, periodic interest and principal payments, LIBOR plus up to
   1.750%, expires October 27, 2026

 

 

225.0

 

 

 

234.4

 

5-year revolving loan facility, periodic interest payments, LIBOR plus up to 1.525%, plus commitment fees up to 0.225%, expires October 27, 2026

 

 

150.0

 

 

 

—

 

5-year term loan facility, periodic interest and principal payments, LIBOR plus up to
   1.750%, expires December 21, 2023

 

 

187.5

 

 

 

210.0

 

3-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.625%, expires March 31, 2025

 

 

300.0

 

 

 

—

 

5-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires March 31, 2027

 

 

462.5

 

 

 

—

 

Total credit agreements

 

 

1,325.0

 

 

 

444.4

 

Debt issuance costs (contra)

 

 

(23.2

)

 

 

(12.4

)

Total long-term debt less unamortized discount and debt issuance costs

 

 

4,040.4

 

 

 

1,980.4

 

Current portion of long-term debt

 

 

67.5

 

 

 

42.5

 

Total debt

 

$

4,107.9

 

 

$

2,022.9

 

(in thousands)September 30,
2017		 December 31, 2016
Current portion of long-term debt:   
Current portion of 5-year term loan facility expires June 28, 2022$20,000
 $55,000
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018100,000
 —
Short-term promissory note—
 500
Total current portion of long-term debt120,000
 55,500
Long-term debt:   
Note agreements:   
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018—
 100,000
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024498,904
 498,785
Total notes498,904
 598,785
Credit agreements:   
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022370,000
 426,250
5-year revolving-loan facility, periodic interest payments, LIBOR plus up to 1.500%, plus commitment fees up to 0.250%, expires June 28, 2022—
 —
Total credit agreements370,000
 426,250
Debt issuance costs (contra)(8,163) (6,663)
Total long-term debt less unamortized discount and debt issuance costs860,741
 1,018,372
Current portion of long-term debt120,000
 55,500
Total debt$980,741
 $1,073,872
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 Senior 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 Senior Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest. As of September 30, 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 Insurance Group, LLC (“Wright”) acquisition, with the $550.0 million term loan being funded as well as a drawdown of $375.0 million on the revolving loan facility. Use of these proceeds was to retire existing term loan debt and to facilitate the closing of the Wright acquisition as well as other acquisitions. The Credit Facility terminates on May 20, 2019, but either or both of the revolving Credit Facility and the term loans may be extended for two additional one-year periods at the Company’s request and at the discretion of the respective lenders. Interest and facility fees in respect to the Credit Facility are based on the better of the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating. Based on the Company’s net debt leverage ratio, the rates of interest charged on the term loan are 1.000% 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 on 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 on the amounts of outstanding secured or unsecured letters of credit. The Credit Facility includes various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers.

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 term loan principal amortization schedule was reset with payments due quarterly. 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 the modified agreement, while also carrying forward $1.6 million on the Consolidated Balance Sheet the unamortized portion of the Original Credit Agreement debt issuance costs which will amortize over the term of the Amended and Restated Credit Agreement. On September 30, 2017, a scheduled principal payment of $5.0 million was satisfied per the terms of the Amended and Restated Credit Agreement. As of September 30, 2017, there was an outstanding debt balance issued under the terms of the Amended and Restated Credit Agreement of $390.0 million with no borrowings outstanding against the revolving loan. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment of $5.0 million is due December 31, 2017.

On September 18, 2014, the Company issued $500.0$500.0 million of 4.200%4.200% unsecured senior notesSenior Notes due in 2024. The senior notesSenior 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$475.0 million on the revolvingRevolving Credit Facility and for other general corporate purposes. As of September 30, 20172022 and December 31, 2016,2021, there was an outstanding debt balance of $500.0$500.0 million exclusive of the associated discount balance.

In conjunction

On December 21, 2018, the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and certain other banks as co-syndication agents and as joint lead arrangers and joint bookrunners. The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018. Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the rates of interest charged on the term loan are 1.00% to 1.75%, above the adjusted 1-Month LIBOR rate. On December 21, 2018, the Company borrowed $300.0 million under the Term Loan Credit Agreement and used $250.0 million of the proceeds to reduce indebtedness under the Revolving Credit Facility. As of September 30, 2022, there was an outstanding debt balance issued under the Term Loan of $217.5 million. As of December 31, 2021, there was an outstanding debt balance issued under the Term Loan of $240.0 million.

19

On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the Hays Companies acquisition and for other general corporate purposes. As of September 30, 2022 and December 31, 2021, there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance.

On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company's 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $200.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of September 30, 2022 and December 31, 2021, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance.

On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. As of September 30, 2022, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $237.5 million and $150.0 million outstanding against the Revolving Credit Facility. As of December 31, 2021, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $246.9 million with no borrowings outstanding against the Revolving Credit Facility.

On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable in connection with our acquisition of Social Security AdvocatesGRP (Jersey) Holdco Limited and its businesses ("GRP") and to pay fees and expenses associated with the foregoing. As of September 30, 2022, there was a total outstanding debt balance of $1,200.0 million exclusive of the associated discount balance on both Notes.

On March 31, 2022 (the "Effective Date"), the Company entered into a Loan Agreement (the “Loan Agreement”) with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as joint bookrunners and joint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and (ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, together with the Disabled (SSAD) effective February 1, 2016,Term A-1 Loan Commitments, the company added a $0.5 million promissory note incurred as a payment“Term Loan Commitments”). The Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the sellersterm loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date until the date which is the first anniversary thereof. The Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and payable afteron the one-yeardate that is the third anniversary of the acquisition.Effective Date unless such maturity date is extended as provided under the Loan Agreement. The note had a nominal rateTerm Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of interest 0.810%. On March 10, 2017, the promissory noteEffective Date unless such maturity date is extended as

20

provided under the Loan Agreement. The Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As of September 30, 2022, there was settled, plus anyan outstanding accrued interest, using cash.

debt balance issued under the Term A-1 Loans of $300.0 million and an outstanding debt balance issued under Term A-2 Loans of $487.5 million.

The Master Agreement and theSecond Amended and Restated Credit Agreement, Term Loan Credit Agreement and Loan 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 September 30, 20172022 and December 31, 2016.

2021.

The 30-day Adjusted LIBOR Rate for the term loan of the Second Amended and Restated Credit Agreement and the Term Loan Credit Agreement as of September 30, 2017 was 1.250%2022 were each 3.125%. The 1-month Term SOFR Rate for the Term A-1 Loans is 2.945% and the 1-month Term SOFR Rate for the Term A-2 Loans is 3.134% as of September 30, 2022.

NOTE 9 Leases

Substantially all of the Company's operating lease right-of-use assets and operating lease liabilities represent real estate leases for office space used to conduct the Company's business that expire on various dates through 2041. Leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration.

The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short-term leases on the Company's right-of-use asset and lease liability would not be significant.

The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Condensed Consolidated Balance Sheet is as follows:

(in millions)

 

 

September 30, 2022

 

 

December 31, 2021

 

Assets:

 

 

 

 

 

 

 

Operating lease right-of-use assets

Operating lease assets

 

$

214.5

 

 

$

197.0

 

Total assets

 

 

 

214.5

 

 

 

197.0

 

Liabilities:

 

 

 

 

 

 

 

Current operating lease liabilities

Accrued expenses and other liabilities

 

 

46.7

 

 

 

43.4

 

Non-current operating lease liabilities

Operating lease liabilities

 

 

191.4

 

 

 

180.0

 

Total liabilities

 

 

$

238.1

 

 

$

223.4

 

As of September 30, 2022, the Company has entered into future lease agreements expected to commence later in 2022 and 2023 consisting of undiscounted lease liabilities of $6.7 million and $2.7 million, respectively.

Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Variable lease cost is lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company's portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred.

21

The components of lease cost for operating leases for the three and nine months ended September 30, 2022 and 2021 were:

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions)

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating leases:

 

 

 

 

 

 

 

 

 

 

 

Lease cost

$

14.5

 

 

$

13.0

 

 

$

40.8

 

 

$

39.6

 

Variable lease cost

 

1.0

 

 

 

1.1

 

 

 

3.2

 

 

 

3.1

 

Short-term lease cost

 

0.4

 

 

 

0.3

 

 

 

0.9

 

 

 

0.9

 

Operating lease cost

$

15.9

 

 

$

14.4

 

 

$

44.9

 

 

$

43.6

 

Sublease income

 

(0.4

)

 

 

(0.6

)

 

 

(1.2

)

 

 

(1.3

)

Total lease cost net

$

15.5

 

 

$

13.8

 

 

$

43.7

 

 

$

42.3

 

The weighted average remaining lease term and the weighted average discount rate for operating leases as of September 30, 2022 were:

Weighted average remaining lease term

6.21

Weighted average discount rate

2.84

%

Maturities of the operating lease liabilities by fiscal year at September 30, 2022 for the Company's operating leases are as follows:

(in millions)

 

Operating leases

 

2022 (Remainder)

 

$

14.9

 

2023

 

 

55.5

 

2024

 

 

48.1

 

2025

 

 

40.1

 

2026

 

 

29.7

 

Thereafter

 

 

74.3

 

Total undiscounted lease payments

 

 

262.6

 

Less: Imputed interest

 

 

24.5

 

Present value of lease payments

 

$

238.1

 

Supplemental cash flow information for operating leases for the three and nine months ended September 30, 2022 and 2021:

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions)

2022

 

 

2021

 

 

2022

 

 

2021

 

Cash paid for amounts included in measurement of liabilities

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

$

16.1

 

 

$

13.9

 

 

$

43.9

 

 

$

41.7

 

Right-of-use assets obtained in exchange for new operating liabilities

$

8.4

 

 

$

14.1

 

 

$

35.9

 

 

$

34.1

 

NOTE 8·10 Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities

Throughout 2020, the Company deferred $31.1 million in employer-only payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which was signed into law on March 27, 2020. During the first nine months of 2022, there were no additional deferrals under the CARES Act. A payment of the cumulative deferred employer payroll taxes as of December 31, 2020 was paid in December 2021 and a second payment of $15.6 million is planned for December 31, 2022, as permitted under the CARES Act.

During the second quarter of 2021, the Company received an $8.1 million reimbursement for capitalizable costs of public infrastructure improvements related to the construction of the Company’s headquarters in accordance with an economic development grant agreement between the Company and the City of Daytona Beach and Volusia County. The reimbursement has been reflected as a reduction to the additions to fixed asset line item on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, the Company had an impact of $183.1 million on foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash reported on its Condensed Consolidated Statements of Cash Flows which is primarily due to the decrease in currency exchange rates for British pounds and an additional smaller loss from the decline in currency exchange rates related to euro and Canadian dollar.

22

Cash paid during the period for interest and income taxes are summarized as follows:

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

103.3

 

 

$

59.7

 

Income taxes, net of refunds

 

$

118.2

 

 

$

103.9

 

 For the nine months 
 ended September 30,
(in thousands)2017 2016
Cash paid during the period for:   
Interest$32,504
 $33,122
Income taxes$110,853
 $104,739
Brown & Brown’s significant

Significant non-cash investing and financing activities are summarized as follows:

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

Other payables issued for agency acquisitions and purchased customer accounts

 

$

4.6

 

 

$

3.5

 

Estimated acquisition earn-out payables issued for agency acquisitions

 

$

42.1

 

 

$

25.1

 

Assumed acquisition earn-out payables

 

$

34.8

 

 

$

—

 

Contingent payable issued for agency acquisition

 

$

—

 

 

$

24.1

 

Common stock issued for agency acquisition

 

$

14.7

 

 

$

4.9

 

Notes payable assumed for agency acquisition

 

$

1.8

 

 

$

1.3

 

 For the nine months 
 ended September 30,
(in thousands)2017 2016
Other payable issued for purchased customer accounts$11,395
 $10,505
Estimated acquisition earn-out payables and related charges$1,332
 $3,828
Notes payable issued or assumed for purchased customer accounts$—
 $492

The Company's restricted cash balance is composed of funds held in separate premium trust accounts as required by state law or, in some cases, by agreement with carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of September 30, 20172022 and 2016.

 Balance as of September 30,
(in thousands)2017 2016
Table to reconcile cash and cash equivalents inclusive of restricted cash   
Cash and cash equivalents$546,520
 $488,683
Restricted cash276,687
 278,279
Total cash and cash equivalents inclusive of restricted cash at the end of the period$823,207
 $766,962
2021.

(in millions)

 

September 30,
2022

 

 

December 31,
2021

 

Table to reconcile restricted and non-restricted fiduciary cash

 

 

 

 

 

 

Restricted fiduciary cash

 

$

1,113.0

 

 

$

583.2

 

Non-restricted fiduciary cash

 

 

158.3

 

 

 

193.8

 

Total restricted and non-restricted fiduciary cash at the end of the period

 

$

1,271.3

 

 

$

777.0

 

The following is a reconciliation ofCompany's fiduciary cash and cash equivalents inclusive of restricted cashincreased as of September 30, 2022 compared to December 31, 2016 and 2015.

2021 primarily due to businesses acquired during 2022.

 

 

Balance as of September 30,

 

(in millions)

 

2022

 

 

2021

 

Table to reconcile cash, cash equivalents and fiduciary cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

579.5

 

 

$

784.6

 

Fiduciary cash

 

 

1,271.3

 

 

 

641.3

 

Total cash, cash equivalents and fiduciary cash at the end of the period

 

$

1,850.8

 

 

$

1,425.9

 

 Balance as of December 31,
(in thousands)2016 2015
Table to reconcile cash and cash equivalents inclusive of restricted cash   
Cash and cash equivalents$515,646
 $443,420
Restricted cash265,637
 229,753
Total cash and cash equivalents inclusive of restricted cash at the end of the period$781,283
 $673,173

NOTE 9·11 Legal and Regulatory Proceedings

The Company is involved in numerous pending or threatened proceedings by or against Brown & Brown, Inc. or one or more of its subsidiaries that arise in the ordinary course of business. The damages that may be claimed against the Company in these various proceedings are in some cases substantial, including in certain instances claims for punitive or extraordinary damages. Some of these claims and lawsuits have been resolved,resolved; others are in the process of being resolved and others are still in the investigation or discovery phase. The Company will continue to respond appropriately to these claims and lawsuits and to vigorously protect its interests.

During the first quarter of 2017, the

The Company was successful in settling a lawsuit it had brought against certain former employees of Brown & Brown, their employer, AssuredPartners, Inc. and certain key executives of AssuredPartners.  The settlement included a payment of $20,000,000 by AssuredPartners to Brown & Brown in exchange for releasing certain individuals from restrictive covenants in the employment contracts they had signed with the Company and provides protection for current Brown & Brown teammates from continued solicitation for employment by AssuredPartners.

The proceeds of the settlement were received in March 2017 and were recorded in the Other income line in the Statement of Income.
We continuecontinues 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 onupon the AM Best Company ratings of these third-party insurers and other factors, management does not believe there is a substantial risk of an insurer’s material non-performance related to any current insured claims.

23

On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.

NOTE 10·12 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;customers, and non-insurance risk-mitigating products through our F&I businesses, (2) the National Programs Segment, which acts as aan MGA, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents;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;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 allmost of its operations within the United States of America, except for a wholesale brokerage operationAmerica. International operations include Retail operations in England, Bermuda, the Cayman Islands, Ireland and Northern Ireland, National Programs operations in Canada and England, and Wholesale Brokerage operations based in London, England, Italy and retail operations in Bermuda and the Cayman Islands.Belgium. These operations earned $3.9$92.1 million and $3.8$17.4 million of total revenues for the three months ended September 30, 20172022 and 2016,2021, respectively. These operations earned $11.1$132.8 million and $10.3$54.0 million of total revenues for the nine months ended September 30, 20172022 and 2016,2021, respectively. Long-lived assets held outside of the United States as of September 30, 2017 and 2016 were not material.

The accounting policies of the reportable segments are the same as those described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment2021. Intersegment revenues are eliminated.

Summarized financial information concerning the Company’s reportable segments is shown in the following table.tables. The “Other” column includes any income and expenses not allocated to reportable segments, corporate-related items, including the inter-companyintercompany interest expense charge to the reporting segment, and the elimination of inter-segment activities.

 For the three months ended September 30, 2017
(in thousands)Retail 
National
Programs
 
Wholesale
Brokerage
 Services Other Total
Total revenues$234,483
 $127,718
 $71,574
 $41,491
 $380
 $475,646
Investment income$3
 $124
 $—
 $72
 $292
 $491
Amortization$10,540
 $6,913
 $2,845
 $1,137
 $—
 $21,435
Depreciation$1,262
 $1,412
 $471
 $402
 $1,942
 $5,489
Interest expense$7,216
 $8,304
 $1,515
 $876
 $(8,518) $9,393
Income before income taxes$54,950
 $32,203
 $21,219
 $7,910
 $8,137
 $124,419
Total assets$4,246,422
 $5,026,918
 $1,258,783
 $432,331
 $(3,550,177) $7,414,277
Capital expenditures$844
 $1,357
 $214
 $364
 $1,270
 $4,049
 For the three months ended September 30, 2016
(in thousands)Retail 
National
Programs
 
Wholesale
Brokerage
 Services Other Total
Total revenues$228,645
 $123,632
 $70,192
 $39,586
 $219
 $462,274
Investment income$5
 $96
 $—
 $57
 $72
 $230
Amortization$10,861
 $6,921
 $2,882
 $1,140
 $1
 $21,805
Depreciation$1,508
 $1,945
 $503
 $473
 $766
 $5,195
Interest expense$9,026
 $10,844
 $1,540
 $1,257
 $(12,784) $9,883
Income before income taxes$44,894
 $32,319
 $20,862
 $5,971
 $12,926
 $116,972
Total assets$3,652,977
 $2,933,568
 $1,053,516
 $342,360
 $(2,460,394) $5,522,027
Capital expenditures$1,443
 $2,153
 $11
 $80
 $504
 $4,191
segment.

 

 

Three months ended September 30, 2022

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total revenues

 

$

528.2

 

 

$

231.4

 

 

$

126.3

 

 

$

41.1

 

 

$

0.6

 

 

$

927.6

 

Investment income

 

$

—

 

 

$

0.3

 

 

$

0.1

 

 

$

—

 

 

$

0.8

 

 

$

1.2

 

Amortization

 

$

28.2

 

 

$

11.4

 

 

$

2.6

 

 

$

1.3

 

 

$

—

 

 

$

43.5

 

Depreciation

 

$

3.9

 

 

$

4.6

 

 

$

0.7

 

 

$

0.4

 

 

$

1.7

 

 

$

11.3

 

Interest expense

 

$

22.8

 

 

$

10.2

 

 

$

3.2

 

 

$

0.5

 

 

$

4.8

 

 

$

41.5

 

Income before income taxes

 

$

112.2

 

 

$

69.7

 

 

$

35.4

 

 

$

4.7

 

 

$

(4.0

)

 

$

218.0

 

Total assets

 

$

7,128.1

 

 

$

4,476.3

 

 

$

1,366.5

 

 

$

289.1

 

 

$

398.3

 

 

$

13,658.3

 

Capital expenditures

 

$

4.7

 

 

$

3.3

 

 

$

0.7

 

 

$

0.3

 

 

$

5.1

 

 

$

14.1

 

 

 

Three months ended September 30, 2021

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total revenues

 

$

423.4

 

 

$

191.1

 

 

$

112.5

 

 

$

43.7

 

 

$

(0.4

)

 

$

770.3

 

Investment income

 

$

0.2

 

 

$

0.1

 

 

$

—

 

 

$

—

 

 

$

0.1

 

 

$

0.4

 

Amortization

 

$

19.1

 

 

$

6.8

 

 

$

2.3

 

 

$

1.3

 

 

$

—

 

 

$

29.5

 

Depreciation

 

$

2.8

 

 

$

3.0

 

 

$

0.6

 

 

$

0.3

 

 

$

2.5

 

 

$

9.2

 

Interest expense

 

$

22.4

 

 

$

2.2

 

 

$

3.9

 

 

$

0.7

 

 

$

(13.0

)

 

$

16.2

 

Income before income taxes

 

$

71.6

 

 

$

72.4

 

 

$

29.4

 

 

$

7.1

 

 

$

16.0

 

 

$

196.5

 

Total assets

 

$

7,385.8

 

 

$

3,789.4

 

 

$

1,918.2

 

 

$

449.5

 

 

$

(3,913.7

)

 

$

9,629.2

 

Capital expenditures

 

$

2.1

 

 

$

4.7

 

 

$

0.2

 

 

$

0.9

 

 

$

1.6

 

 

$

9.5

 

24

 

 

Nine months ended September 30, 2022

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total revenues

 

$

1,582.3

 

 

$

619.3

 

 

$

341.6

 

 

$

128.8

 

 

$

—

 

 

$

2,672.0

 

Investment income

 

$

—

 

 

$

0.6

 

 

$

0.2

 

 

$

—

 

 

$

1.0

 

 

$

1.8

 

Amortization

 

$

69.8

 

 

$

27.9

 

 

$

6.7

 

 

$

3.9

 

 

$

(0.1

)

 

$

108.2

 

Depreciation

 

$

9.1

 

 

$

10.9

 

 

$

2.0

 

 

$

1.2

 

 

$

5.1

 

 

$

28.3

 

Interest expense

 

$

69.9

 

 

$

22.8

 

 

$

10.0

 

 

$

1.6

 

 

$

(8.5

)

 

$

95.8

 

Income before income taxes

 

$

378.8

 

 

$

187.9

 

 

$

94.8

 

 

$

18.0

 

 

$

2.3

 

 

$

681.8

 

Total assets

 

$

7,128.1

 

 

$

4,476.3

 

 

$

1,366.5

 

 

$

289.1

 

 

$

398.3

 

 

$

13,658.3

 

Capital expenditures

 

$

8.4

 

 

$

14.2

 

 

$

1.5

 

 

$

0.8

 

 

$

7.5

 

 

$

32.4

 

 

 

Nine months ended September 30, 2021

 

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total revenues

 

$

1,347.4

 

 

$

522.3

 

 

$

307.9

 

 

$

135.6

 

 

$

(0.3

)

 

$

2,312.9

 

Investment income

 

$

0.3

 

 

$

0.4

 

 

$

0.1

 

 

$

—

 

 

$

0.1

 

 

$

0.9

 

Amortization

 

$

56.9

 

 

$

20.6

 

 

$

7.1

 

 

$

4.0

 

 

$

—

 

 

$

88.6

 

Depreciation

 

$

8.3

 

 

$

7.5

 

 

$

2.0

 

 

$

1.1

 

 

$

6.5

 

 

$

25.4

 

Interest expense

 

$

67.6

 

 

$

9.2

 

 

$

12.2

 

 

$

2.2

 

 

$

(42.4

)

 

$

48.8

 

Income before income taxes

 

$

293.4

 

 

$

180.2

 

 

$

74.5

 

 

$

24.0

 

 

$

49.9

 

 

$

622.0

 

Total assets

 

$

7,385.8

 

 

$

3,789.4

 

 

$

1,918.2

 

 

$

449.5

 

 

$

(3,913.7

)

 

$

9,629.2

 

Capital expenditures

 

$

5.8

 

 

$

11.3

 

 

$

1.3

 

 

$

1.4

 

 

$

14.8

 

 

$

34.6

 

 For the nine months ended September 30, 2017
(in thousands)Retail 
National
Programs
 
Wholesale
Brokerage
 Services Other Total
Total revenues$712,739
 $342,576
 $208,812
 $122,397
 $20,507
 $1,407,031
Investment income$6
 $279
 $—
 $224
 $576
 $1,085
Amortization$31,704
 $20,664
 $8,621
 $3,412
 $1
 $64,402
Depreciation$3,975
 $4,975
 $1,438
 $1,191
 $5,663
 $17,242
Interest expense$23,918
 $27,257
 $4,803
 $2,783
 $(29,812) $28,949
Income before income taxes$151,783
 $68,127
 $56,569
 $22,480
 $44,429
 $343,388
Total assets$4,246,422
 $5,026,918
 $1,258,783
 $432,331
 $(3,550,177) $7,414,277
Capital expenditures$3,384
 $3,885
 $1,606
 $856
 $3,166
 $12,897

 For the nine months ended September 30, 2016
(in thousands)Retail 
National
Programs
 
Wholesale
Brokerage
 Services Other Total
Total revenues$695,393
 $333,522
 $184,893
 $117,906
 $1,251
 $1,332,965
Investment income$33
 $583
 $4
 $204
 $326
 $1,150
Amortization$32,743
 $21,011
 $7,915
 $3,345
 $11
 $65,025
Depreciation$4,761
 $5,881
 $1,487
 $1,432
 $2,306
 $15,867
Interest expense$29,415
 $34,895
 $2,472
 $3,820
 $(40,985) $29,617
Income before income taxes$144,496
 $68,367
 $51,711
 $17,929
 $46,095
 $328,598
Total assets$3,652,977
 $2,933,568
 $1,053,516
 $342,360
 $(2,460,394) $5,522,027
Capital expenditures$4,664
 $5,399
 $925
 $561
 $1,586
 $13,135

NOTE 11·13 Investments

AtSeptember 30, 2017,2022, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:

(in millions)

 

Cost

 

 

Gross
unrealized
gains

 

 

Gross
unrealized
losses

 

 

Fair value

 

U.S. Treasury securities, obligations of U.S. Government
   agencies and municipalities

 

$

22.9

 

 

$

—

 

 

$

(1.9

)

 

$

21.0

 

Corporate debt

 

 

8.2

 

 

 

—

 

 

 

(0.4

)

 

 

7.8

 

Other

 

 

0.9

 

 

 

—

 

 

 

—

 

 

 

0.9

 

Total

 

$

32.0

 

 

$

—

 

 

$

(2.3

)

 

$

29.7

 

(in thousands)Cost 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 Fair Value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities$32,724
 $1
 $(94) $32,631
Corporate debt1,407
 16
 —
 1,423
Total$34,131
 $17
 $(94) $34,054

At September 30, 2017,2022, the Company held $32.6$21.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $1.4$7.8 million issued by corporations with investment grade ratings. Of that total, $20.0$5.7 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year.one year. Additionally, the Company holds $9.2$5.5 million in short-term investments, which are related to time deposits held with various financial institutions.

For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017:2022:

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(in millions)

 

Fair value

 

 

Unrealized
losses

 

 

Fair value

 

 

Unrealized
losses

 

 

Fair value

 

 

Unrealized
losses

 

U.S. Treasury securities, obligations of U.S. Government
   agencies and municipalities

 

$

5.6

 

 

$

(0.2

)

 

$

15.4

 

 

$

(1.7

)

 

$

21.0

 

 

$

(1.9

)

Corporate debt

 

 

5.2

 

 

 

(0.1

)

 

 

2.6

 

 

 

(0.3

)

 

 

7.8

 

 

 

(0.4

)

Total

 

$

10.8

 

 

$

(0.3

)

 

$

18.0

 

 

$

(2.0

)

 

$

28.8

 

 

$

(2.3

)

 Less than 12 Months 12 Months or More Total
(in thousands)Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities$24,444
 $(60) $7,364
 $(34) $31,808
 $(94)
Corporate debt200
 —
 —
 —
 200
 —
Total$24,644
 $(60) $7,364
 $(34) $32,008
 $(94)

At September 30, 2022, the Company had 42 securities in an unrealized loss position. The unrealized losses for the period ended June 30, 2022 were caused by interest rate increases. At September 30, 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 on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at September 30, 2017.

2022.

25

At December 31, 2016,2021, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:

(in millions)

 

Cost

 

 

Gross
unrealized
gains

 

 

Gross
unrealized
losses

 

 

Fair value

 

U.S. Treasury securities, obligations of U.S. Government
   agencies and municipalities

 

$

30.2

 

 

$

0.2

 

 

$

(0.4

)

 

$

30.0

 

Corporate debt

 

 

8.3

 

 

 

0.1

 

 

 

(0.1

)

 

 

8.3

 

Total

 

$

38.5

 

 

$

0.3

 

 

$

(0.5

)

 

$

38.3

 

(in thousands)Cost 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 Fair Value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities$26,280
 $11
 $(59) $26,232
Corporate debt2,358
 13
 (1) 2,370
Total$28,638
 $24
 $(60) $28,602

At December 31, 2016,2021, the Company held $26.2$30.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $2.4$8.3 million issued by corporations with investment grade ratings. Of that total, $5.6$7.4 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year. Additionally, the Company holds $9.5one year, which also includes $5.5 million in short-term investments which arethat is 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, 2016:2021:

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(in millions)

 

Fair value

 

 

Unrealized
losses

 

 

Fair value

 

 

Unrealized
losses

 

 

Fair value

 

 

Unrealized
losses

 

U.S. Treasury securities, obligations of U.S. Government
   agencies and municipalities

 

$

16.8

 

 

$

(0.3

)

 

$

1.0

 

 

$

—

 

 

$

17.8

 

 

$

(0.3

)

Corporate debt

 

 

3.9

 

 

 

(0.1

)

 

 

—

 

 

 

—

 

 

 

3.9

 

 

 

(0.1

)

Total

 

$

20.7

 

 

$

(0.4

)

 

$

1.0

 

 

$

—

 

 

$

21.7

 

 

$

(0.4

)

 Less than 12 Months 12 Months or More Total
(in thousands)Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities$14,663
 $(59) $—
 $—
 $14,663
 $(59)
Corporate debt1,001
 (1) —
 —
 1,001
 (1)
Total$15,664
 $(60) $—
 $—
 $15,664
 $(60)

The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2016,2021, the Company had 2023 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, 2016.

2021.

The amortized cost and estimated fair value of the fixed maturity securities at September 30, 20172022 by contractual maturity are set forth below:

(in thousands)Amortized Cost Fair Value
Years to maturity:   
Due in one year or less$20,005
 $19,969
Due after one year through five years13,893
 13,843
Due after five years233
 242
Total$34,131
 $34,054

(in millions)

 

Amortized cost

 

 

Fair value

 

Years to maturity:

 

 

 

 

 

 

Due in one year or less

 

$

5.7

 

 

$

5.7

 

Due after one year through five years

 

$

25.4

 

 

$

23.1

 

Due after five years

 

$

—

 

 

$

—

 

Total

 

$

31.1

 

 

$

28.8

 

The amortized cost and estimated fair value of the fixed maturity securities at December 31, 20162021 by contractual maturity are set forth below:

(in millions)

 

Amortized cost

 

 

Fair value

 

Years to maturity:

 

 

 

 

 

 

Due in one year or less

 

$

7.3

 

 

$

7.3

 

Due after one year through five years

 

 

30.2

 

 

 

30.0

 

Due after five years

 

 

1.0

 

 

 

1.0

 

Total

 

$

38.5

 

 

$

38.3

 

(in thousands)Amortized Cost Fair Value
Years to maturity:   
Due in one year or less$5,551
 $5,554
Due after one year through five years22,757
 22,708
Due after five years330
 340
Total$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 $2.7 million. This along withand maturing time deposits yielded total cash proceedswere $7.3 million from the sale of investments of $5.2 million in the period of January 1, 20172022 to September 30, 2017.2022. These proceeds were principally used to purchase additional fixed maturity securities and time deposits. The gains andfor general corporate purposes. There were losses realized on those salesthe sale of securities for the period from January 1, 20172022 to September 30, 2017 were insignificant.

2022 of $0.1 million.

Realized gains and losses are reported on the Condensed Consolidated Statements of Income, with the cost of securities sold determined on a specific identification basis.

At September 30, 2017,2022, investments with a fair value of approximately $4.0$4.0 million were on deposit with state insurance departments to satisfy regulatory requirements.

26


NOTE 12· Reinsurance

14 Insurance Company Subsidiary Operations

Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, Wright National Flood Insurance Company (“Wright Flood”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 Company also operates two Captives for the purpose of facilitating additional underwriting capacity and to participate in a portion of the underwriting results. One Captive participates on a quota share basis for policies placed by certain of our MGA businesses that are currently focused on property insurance for earthquake and wind exposed properties with a portion of premiums ceded to reinsurance companies, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive participates through excess of loss reinsurance layers associated with one of our MGA businesses focused on placements of personal property, excluding flood, primarily in the southeastern United States with one layer of per risk excess reinsurance and three layers of catastrophe ("CAT") per occurrence reinsurance. All four layers have limited reinstatements and therefore have capped, maximum aggregate limits. The effects of reinsurance on premiums written and earned are as follows:

 Period from January 1, 2017 to
September 30, 2017
(in thousands)Written Earned
Direct premiums$462,718
 $439,134
Ceded premiums(462,710) (439,126)
Net premiums$8
 $8

 

 

Nine months ended September 30, 2022

 

(in millions)

 

Written

 

 

Earned

 

Direct premiums - WNFIC

 

$

567.9

 

 

$

563.0

 

Ceded premiums - WNFIC

 

 

(567.9

)

 

 

(563.0

)

Net premiums - WNFIC

 

 

—

 

 

 

—

 

Assumed premiums - Quota share captive and excess of loss layer captive

 

 

54.0

 

 

 

27.6

 

Ceded premiums - Quota share captive

 

 

(22.3

)

 

 

(9.5

)

Net premiums - Quota share captive and excess of loss layer captive

 

 

31.7

 

 

 

18.1

 

Net premiums - Total

 

$

31.7

 

 

$

18.1

 

All premiums written by Wright FloodWNFIC under the National Flood Insurance Program (“NFIP”) are 100%100% ceded to the Federal Emergency Management Agency, or FEMA, for which Wright FloodWNFIC received a 30.9%29.9% gross expense allowance from January 1, 20172022 through September 30, 2017.2022. For the period from January 1, 20172022 through September 30, 2017,2022, the Company ceded $461.5$565.7 million of written premiums.

Effective April 1, 2014, Wright Flood is also a partypremiums to a quota share agreement whereby it cedes 100% of its grossFEMA, with $2.2 million ceded to highly rated carriers for excess flood premiums, excluding fees, to Arch Reinsurance Company and receives a 30.5% commission. Wright Flood ceded $1.2 million forpolicies which are not within the period from January 1, 2017 through September 30, 2017. No loss data exists on this agreement.
Wright Flood 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 exists on this business. NFIP.

As of September 30, 2017, no ceded unpaid losses and loss adjustment expenses or incurred but not reported expenses for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence existed.

As of September 30, 20172022 the Condensed Consolidated Balance Sheet contained reinsurance recoverable of $2,160.3$1,014.8 million and prepaid reinsurance premiums of $332.2 million.$397.1 million which are related to the WNFIC business. There was no net activity change in the balance in the reserve for losses and loss adjustment expense net of reinsurance recoverable during the period January 1, 20172022 through September 30, 2017,2022, as Wright Flood'sWNFIC’s direct premiums written were 100%100% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense for WNFIC, excluding related reinsurance recoverable, as of September 30, 20172022 was $2,160.3$1,014.8 million.
NOTE 13· Statutory Financial Data
Wright Flood

WNFIC maintains capital in excess of the minimum statutory amount of $7.5$7.5 million as required by regulatory authorities. The unaudited statutory capital and surplus of Wright FloodWNFIC was $26.7$33.5 million at September 30, 20172022 and $23.5$33.1 million as of December 31, 2016.2021. For the period from January 1, 20172022 through September 30, 2017, Wright Flood2022, WNFIC generated statutory net income of $2.9$0.6 million. For the period from January 1, 20162021 through December 31, 2016, Wright Flood2021, WNFIC generated statutory net income of $8.2$1.6 million.

NOTE 14· Subsidiary Dividend Restrictions
Under the insurance regulations of Texas, where Wright Flood is incorporated, the The maximum amount of ordinary dividends that Wright FloodWNFIC can pay to shareholders in a rolling twelve-month12-month period is limited to the greater of 10%10% of statutory adjusted capital and surplus as shown on Wright Flood’s last annual statement on file with the superintendent of the Texas Department of Insurance or 100%100% of adjusted net income. There was no dividend payout in 20162021 and the maximum dividend payout that may be made in 20172022 without prior approval is $8.2$3.3 million.

In December 2021, the initial funding to capitalize the quota share Captive was $5.9 million. This capital in addition to current earnings of $1.8 million through September 30, 2022 is considered at risk for loss. Assumed net written and net earned premiums for the quota share Captive for the nine months ended September 30, 2022 were $31.7 million and $13.5 million, respectively. For nine months ended September 30, 2022, the ultimate loss expense inclusive of incurred but not reported ("IBNR") claims was $11.7 million, of which $11.2 million is related to the estimated insured losses with Hurricane Ian. In connection with the estimated IBNR from Hurricane Ian claims, $6.8 million was recorded as estimated reinsurance recoverable for a net expected loss of $4.4 million. As of September 30, 2022, there were no reported insured losses associated with Hurricane Ian due to the timing of its landfall in Florida on September 28, 2022 and in South Carolina on September 30, 2022. As of September 30, 2022 the Condensed Consolidated Balance Sheet contained prepaid reinsurance premiums of $12.8 million, deferred acquisitions costs of $13.5 million, reinsurance payable for $8.9 million, and the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, was $11.7 million. The first collateral release is expected in 2023 and is based on an IBNR factor times earned premium compared to the current collateral balance.

The excess of loss layer Captive was renewed in September 2022 with underlying reinsurance treaties effective from June 1 through May 31, 2023. This Captive’s maximum underwriting exposure is $5.2 million. Assumed net earned premiums for the captive for the nine months ended September 30, 2022 were $4.6 million. In September 2022, the captive recorded a CAT IBNR reserve of $7.0 million associated with estimated impacts from Hurricane Ian plus a non-CAT IBNR Reserve of $0.1 million. These reserves were partially offset by accelerated earned premiums of $2.4 million upon reaching the maximum aggregate loss for one of our reinsurance layers. The combination of earned premium of $2.2 million plus the accelerated earned premium resulted in an underwriting loss of $2.4 million for nine months ended September 30, 2022. As of September 30, 2022 the Condensed Consolidated Balance Sheet contained the reserve for losses and loss adjustment expense of $7.0 million.

27

NOTE 15·15 Shareholders’ Equity

Between May 18, 2017 and June 30, 2017, the Company made share repurchases in the open market in total of 216,615 shares at a total cost of $11.2 million. Between July 1, 2017 and July 14, 2017, the Company made share repurchases in the open market in total of 131,845 shares at a total cost of $3.7 million.
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. On October 16, 2017, the Company was notified by its investment bank that the accelerated share repurchase was completed. To complete the transaction, the investment bank delivered an additional 108,288 shares of the Company's common stock for a total of 1,076,176 shares repurchased under the ASR.

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$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.

From April, 1 2022 to June 30, 2022, the Company completed share repurchases in the open market of 777,926 shares at a total cost of $50.0 million, at an average price of $64.27 per share.

From January 1, 2022 to March 31, 2022, the Company completed share repurchases in the open market of 386,083 shares at a total cost of $24.1 million, at an average price of $62.31 per share.

After completion of this ASR transaction,completing these open market share repurchases, the Company has outstanding approval to repurchasepurchase up to $302.4approximately $249.6 million, in the aggregate, of the Company's outstanding common stock.

During the first quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on January 20, 2022 and paid on February 16, 2022 for a total of $28.9 million. During the second quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on April 25, 2022 and paid on May 18, 2022 for a total of $29.0 million. During the third quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on July 20, 2022 and paid on August 17, 2022 for a total of $29.0 million.

On October 18, 2022 the Board of Directors approved a dividend of $0.1150 per share payable on November 16, 2022 to shareholders of record on November 2, 2022.

On July 1, 2022, the Company issued 252,802 shares at a total value of $14.7 million associated with the acquisition of GRP.

28

ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Operations

The following discussion updates the MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, and the two discussions should be read together.

GENERAL

Company Overview —Third Quarterof 2017

2022

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see “Information Regarding Non-GAAP Financial 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 andor 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 also operate two capitalized captive insurance facilities (the "Captives") for the purpose of facilitating additional underwriting capacity, one on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses, and the other through excess of loss reinsurance layers associated with placements made by one of our MGA businesses focused on personal property primarily in the southeastern United States. The quota share Captive buys reinsurance, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive has capped exposure through contractual aggregate limits on the reinsurance participations it assumes.

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, a health pandemic, and the occurrence of catastrophic weather events all affect our revenues. For example, level rateshigher levels of inflation, which increase the value of insurable exposure units, or a general decline in economic activity, which could limit increases indecrease the valuesvalue of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, we have grown 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.

“Commissionswhich enables responsiveness to changing business conditions and fees” is included in our Condensed Consolidated Statements of Income. drives accountability for results.

The term “Organic Revenue”, a non-GAAP financial measure, is our “core commissions and fees” (which are our commissions and fees lessexcludes profit-sharing contingent commissions and less guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered) less (i) therendered. The net change in core commissions and fees earned for the first twelve months by newly-acquired operations and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period). “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 toto: (i) net new and lost accounts,accounts; (ii) net changes in our customers’ exposure units,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. We believe that Organic Revenue provides a meaningful representation of the Company’s operating performance. The Company has historically viewed Organic Revenue growth as an important indicator when assessingcustomers; and evaluating the performance of its four segments. Organic revenue is reported in the Results of Operations and in the Results of Operations - Segment sections of this Quarterly Report on Form 10-Q.

(v) any businesses acquired or disposed of.

We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on underwriting results, but whichin select situations may also reflect additional considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Condensed Consolidated Statements of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.6%3.0% of the previous year’s commissions and fees revenue. Profit-sharing contingent commissions are included in our commissions and fees in the Consolidated Statement of Income in the year received. For the three-month period ended September 30, 2017, profit-sharing contingent commissions were down $4.7 million as compared to the same period of the prior year, primarily realized in our Wholesale Brokerage Segment.

Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of profit-sharing contingent commissions. Since GSCs are not subject to the uncertainty of loss ratios, they are accrued throughout the year based on actual premiums written. For the twelve-month period ending December 31, 2016, we had earned $11.5 million of GSCs, of which $9.2 million remained accrued at December 31, 2016, the balance of which is typically collected over the first and second quarter. For the three-month periods ended September 30, 2017 and 2016, we earned and accrued $2.5 million and $2.9 million, respectively, from GSCs.

Combined, our profit-sharing contingent commissions and GSCs for the three months ended September 30, 2017 decreased by $5.2 million compared to the third quarter of 2016 reflecting the actual loss experience from our carrier partners.

Fee revenues primarily relate to services other than securing coverage for our customers, and are recognized as services are rendered, as wellto a lesser extent as fees negotiated in lieu of commissions. Fee revenues have historically beenare generated primarily by: (1)(i) our Services Segment,segment, which is primarily a fee-based business that provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (2)(ii) our National Programs and Wholesale Brokerage Segments,segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and to a lesser extent (3)(iii) our Retail Segmentsegment in our large-account customer base.base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues on a consolidated basis, as a percentage of our total commissions and fees, represented 31.3%27.4% in 2016, 30.6%2021 and 26.1% in 2015 and 30.6% in 2014.

2020.

For the three-month periodthree months ended September 30, 2017,2022, our total commissions and fees growth rate was 2.8%20.2%, and our consolidated organic revenueOrganic Revenue growth rate was 3.4%6.7%. In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2017 and premium rate changes are similar with 2016, we believe we will continue to see positive quarterly organic revenue growth for the remainder of 2017.

Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy as it relates to the Company’s capital is to invest available funds in high-quality, short-term money-market funds and 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.

revenues.

29

Income before income taxes for the three-month periodthree months ended September 30, 20172022 increased from the third quarter of 20162021 by $7.4$21.5 million primarily as a result of aor 10.9%, driven by net new business, acquisitions completed in the past 12 months, and the year-over-year change in estimated acquisition earn-out payables which were partially offset by increased amortization expense as a result of our recent acquisitions completedalong with increased interest expense associated with higher average debt balances from debt issued and bank financing in the past twelve monthsfirst quarter of 2022 to fund the acquisitions of GRP (Jersey) Holdco Limited and profitsits businesses ("GRP"), Orchid Underwriters Agency and CrossCover Insurance Services ("Orchid") and BdB Limited companies ("BdB") as well as increases in the floating-rate benchmark used on our adjustable rate debt. The change in income before income taxes also reflects: (i) a negative impact to our profit-sharing contingent commissions of approximately $15.0 million and; (ii) losses of approximately $11.5 million associated with our Captives, both relating to the impacts from existing customers and net new business.

the estimated insured property losses associated with Hurricane Ian.

Information Regarding Non-GAAP Measures

In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles ("GAAP"(“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of the SEC rules: organic revenueTotal Revenues - Adjusted, Organic Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted and organic revenue growth. EBITDAC Margin - Adjusted. We present these measures because we believe such information is of interest to the investment community and because we believe it provides additional meaningful methods to evaluate the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis due to the impact of certain items that have a high degree of variability and that we believe are not indicative of ongoing performance. This non-GAAP financial information should be considered in addition to, not in lieu of, the Company’s consolidated income statements and balance sheets as of the relevant date. Consistent with Regulation G, a description of such information is provided below and tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operations - Segment Information.”

We view these non-GAAP financial measuresOrganic Revenue and Organic Revenue growth as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our four segments, because they allowit allows 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.year and that are expected to continue in the future. We believe that organic revenue provides a meaningful representation of our operating performancealso view Total Revenues - Adjusted, EBITDAC, EBITDAC - Adjusted, EBITDAC Margin and view organic revenue growthEBITDAC Margin - Adjusted as an important indicatorindicators when assessing and evaluating theour performance, as they present more comparable measurements of our four segments. We alsooperating margins in a meaningful and consistent manner. As disclosed in our most recent proxy statement, we use organic revenue growthOrganic Revenue and EBITDAC Margin as key performance metrics for our short-term and long-term incentive compensation determinationsplans for executive officers and other key employees.

These measures

Beginning January 1, 2022, we include guaranteed supplemental commissions ("GSCs") as part of core commissions and fees and, therefore, GSCs are not in accordance with, or an alternative to the GAAP information provided ina component of Organic Revenue. All current and prior periods contained within this Quarterly Report on Form 10-Q. We present such10-Q have been adjusted for this treatment. GSCs are a stable source of revenue that are highly correlated to core commissions, so isolating them separately provided no meaningful incremental value in evaluating our revenue.

Beginning January 1, 2022, the following, in addition to the change in estimated acquisition earn-out payables, are excluded from certain non-GAAP supplemental financial information becausemeasures, as we believe these amounts are not indicative of the ongoing operating performance of the business and are not easily comparable from period-to-period:

•
“(Gain)/loss on disposal,” a caption on our consolidated statements of income which reflects net proceeds received as compared to net book value related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure.
•
“Acquisition/Integration Costs,” which represent the acquisition and integration costs (e.g., costs associated with regulatory filings, legal/accounting services, due diligence and the costs of integrating our information technology systems) arising out of our acquisitions of GRP, Orchid and BdB, which are not expected to occur on an ongoing basis in the future.
•
The period-over-period impact of foreign currency translation (“Foreign Currency Translation”), which is of interestcalculated by applying current-year foreign exchange rates to the investment communityvarious functional currencies in our business to our reporting currency of U.S. dollars for the same period in the prior year.

We are presenting EBITDAC - Adjusted and because we believe they provide additional meaningful methods of evaluating certain aspects ofEBITDAC Margin - Adjusted for the Company’s operating performance from period to periodcurrent and prior year periods contained within this Quarterly Report on a basis that may not be otherwise apparent on a GAAP basis. We believeForm 10-Q so these non-GAAP financial measures improvecompare both periods on the comparability of results between periods by eliminatingsame basis.

Non-GAAP Revenue Measures

•
Total Revenues - Adjusted is our total revenues, excluding the period-over-period impact of certain items that haveForeign Currency Translation.
•
Organic Revenue is our core commissions and fees less: (i) the core commissions and fees earned for the first 12 months by newly acquired operations; (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period); and (iii) the period-over-period impact of Foreign Currency Translation. The term “core commissions and fees” excludes profit-sharing contingent commissions and therefore represents the revenues earned directly from

30

specific insurance policies sold and specific fee-based services rendered. Organic Revenue can be expressed as a high degreedollar amount or a percentage rate when describing Organic Revenue growth.

Non-GAAP Earnings Measures

•
EBITDAC is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables.
•
EBITDAC Margin is defined as EBITDAC divided by total revenues.
•
EBITDAC - Adjusted is defined as EBITDAC, excluding (i) (gain)/loss on disposal, (ii) Acquisition/Integration Costs and (iii) the period-over-period impact of variability. Foreign Currency Translation.
•
EBITDAC Margin - Adjusted is defined as EBITDAC - Adjusted divided by Total Revenues - Adjusted.

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.adjustments and, therefore, comparability may be limited. This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, ourthe Company's Condensed Consolidated Financial Statements.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operation - Segment Information.”

Acquisitions

Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the third quarter of 2017,2022, we acquired 485601 insurance intermediary operations, excluding acquired books of business (customer accounts).

operations.

Critical Accounting Policies

We have had no changes to our Critical Accounting Policies.Policies as described in our most recent Form 10-K for the year ended December 31, 2021. 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 including potential earn-out obligations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2016 on file with the Securities and Exchange Commission2021 for details regarding our critical and significant accounting policies.


31

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172022 AND 2016

2021

The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes.

Financial information relating to our Condensed Consolidated Financialcondensed consolidated financial results for the three andnine months ended September 30, 2017 2022and 2016 2021is as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except percentages)2017 2016 
%
Change
 2017 2016 
%
Change
REVENUES           
Core commissions and fees$468,574
 $450,464
 4.0 % $1,330,341
 $1,274,170
 4.4 %
Profit-sharing contingent commissions3,542
 8,247
 (57.1)% 45,409
 46,586
 (2.5)%
Guaranteed supplemental commissions2,493
 2,941
 (15.2)% 8,149
 8,893
 (8.4)%
Investment income491
 230
 113.5 % 1,085
 1,150
 (5.7)%
Other income, net546
 392
 39.3 % 22,047
 2,166
 NMF
Total revenues475,646
 462,274
 2.9 % 1,407,031
 1,332,965
 5.6 %
EXPENSES           
Employee compensation and benefits246,062
 237,653
 3.5 % 736,445
 692,814
 6.3 %
Other operating expenses72,058
 67,433
 6.9 % 210,289
 197,329
 6.6 %
Loss/(gain) on disposal(1,902) (277) NMF
 (1,993) (3,131) (36.3)%
Amortization21,435
 21,805
 (1.7)% 64,402
 65,025
 (1.0)%
Depreciation5,489
 5,195
 5.7 % 17,242
 15,867
 8.7 %
Interest9,393
 9,883
 (5.0)% 28,949
 29,617
 (2.3)%
Change in estimated acquisition earn-out payables(1,308) 3,610
 (136.2)% 8,309
 6,846
 21.4 %
Total expenses351,227
 345,302
 1.7 % 1,063,643
 1,004,367
 5.9 %
Income before income taxes124,419
 116,972
 6.4 % 343,388
 328,598
 4.5 %
Income taxes48,506
 45,427
 6.8 % 131,263
 128,733
 2.0 %
NET INCOME$75,913
 $71,545
 6.3 % $212,125
 $199,865
 6.2 %
Organic revenue growth rate (1)
3.4% 4.3%   2.8% 2.8%  
Employee compensation and benefits relative to total revenues51.7% 51.4%   52.3% 52.0%  
Other operating expenses relative to total revenues15.1% 14.6%   14.9% 14.8%  
Capital expenditures$4,049
 $4,191
   $12,897
 $13,135
  
Total assets at September 30      $7,414,277
 $5,522,027
  

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core commissions and fees

 

$

917.4

 

 

$

752.1

 

 

 

22.0

%

 

$

2,609.7

 

 

$

2,246.4

 

 

 

16.2

%

Profit-sharing contingent commissions

 

 

7.8

 

 

 

17.6

 

 

 

(55.7

)%

 

 

58.5

 

 

 

63.2

 

 

 

(7.4

)%

Investment income

 

 

1.2

 

 

 

0.4

 

 

 

200.0

%

 

 

1.8

 

 

 

0.9

 

 

 

100.0

%

Other income, net

 

 

1.2

 

 

 

0.2

 

 

NMF

 

 

 

2.0

 

 

 

2.4

 

 

 

(16.7

)%

Total revenues

 

 

927.6

 

 

 

770.3

 

 

 

20.4

%

 

 

2,672.0

 

 

 

2,312.9

 

 

 

15.5

%

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

470.3

 

 

 

395.0

 

 

 

19.1

%

 

 

1,341.3

 

 

 

1,220.1

 

 

 

9.9

%

Other operating expenses

 

 

169.6

 

 

 

101.1

 

 

 

67.8

%

 

 

450.6

 

 

 

291.7

 

 

 

54.5

%

(Gain)/loss on disposal

 

 

—

 

 

 

(0.3

)

 

NMF

 

 

 

(0.9

)

 

 

(4.3

)

 

NMF

 

Amortization

 

 

43.5

 

 

 

29.5

 

 

 

47.5

%

 

 

108.2

 

 

 

88.6

 

 

 

22.1

%

Depreciation

 

 

11.3

 

 

 

9.2

 

 

 

22.8

%

 

 

28.3

 

 

 

25.4

 

 

 

11.4

%

Interest

 

 

41.5

 

 

 

16.2

 

 

 

156.2

%

 

 

95.8

 

 

 

48.8

 

 

 

96.3

%

Change in estimated acquisition
   earn-out payables

 

 

(26.6

)

 

 

23.1

 

 

NMF

 

 

 

(33.1

)

 

 

20.6

 

 

NMF

 

Total expenses

 

 

709.6

 

 

 

573.8

 

 

 

23.7

%

 

 

1,990.2

 

 

 

1,690.9

 

 

 

17.7

%

Income before income taxes

 

 

218.0

 

 

 

196.5

 

 

 

10.9

%

 

 

681.8

 

 

 

622.0

 

 

 

9.6

%

Income taxes

 

 

56.9

 

 

 

50.1

 

 

 

13.6

%

 

 

155.2

 

 

 

136.6

 

 

 

13.6

%

NET INCOME

 

$

161.1

 

 

$

146.4

 

 

 

10.0

%

 

$

526.6

 

 

$

485.4

 

 

 

8.5

%

Income Before Income Taxes
   Margin (1)

 

 

23.5

%

 

 

25.5

%

 

 

 

 

 

25.5

%

 

 

26.9

%

 

 

 

EBITDAC - Adjusted (2)

 

$

289.8

 

 

$

274.0

 

 

 

5.8

%

 

$

887.7

 

 

$

800.3

 

 

 

10.9

%

EBITDAC Margin - Adjusted (2)

 

 

31.2

%

 

 

35.6

%

 

 

 

 

 

33.2

%

 

 

34.6

%

 

 

 

Organic Revenue growth rate (2)

 

 

6.7

%

 

 

8.6

%

 

 

 

 

 

8.3

%

 

 

10.9

%

 

 

 

Employee compensation and benefits
   relative to total revenues

 

 

50.7

%

 

 

51.3

%

 

 

 

 

 

50.2

%

 

 

52.8

%

 

 

 

Other operating expenses relative
   to total revenues

 

 

18.3

%

 

 

13.1

%

 

 

 

 

 

16.9

%

 

 

12.6

%

 

 

 

Capital expenditures

 

$

14.1

 

 

$

9.5

 

 

 

48.4

%

 

$

32.4

 

 

$

34.6

 

 

 

(6.4

)%

Total assets at September 30,

 

 

 

 

 

 

 

 

 

 

$

13,658.3

 

 

$

9,629.2

 

 

 

41.8

%

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure

measure.

NMF = Not a meaningful figure

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions, and GSCs, for the three months ended September 30, 20172022 increased $13.0$155.5 million to $474.6$925.2 million, or 2.8%20.2%, over the same period in 2016.2021. Core commissions and fees revenue for the third quarter of 20172022 increased $18.1$165.3 million, composed of : (i) approximately $50.4 million of net new and renewal business, which approximately $4.3reflects an Organic Revenue growth rate of 6.7%; (ii) $118.3 million represented core commissions and fees from agencies acquired since 2016acquisitions that had no comparable revenues in the same period of 2016. After accounting for2021; (iii) an offsetting decrease from the impact of foreign currency translation of $1.2 million; and (iv) an offsetting decrease of $2.2 million related to commissions and fees revenue from business divested business of $1.3 million,in the remaining net increase of $15.1 million represented net new and renewal business, which reflects an organic revenue growth rate of 3.4%.preceding twelve months. Profit-sharing contingent commissions and GSCs for the third quarter of 20172022 decreased by $5.2$9.8 million, or 46.1%55.7%, compared to the same period in 2016. The net decrease of $5.2 million in the third quarter was mainly2021, driven by a decreasereduction of approximately $15.0 million in profit-sharing contingent commissions inour National Programs segment relating to the Wholesale Brokerage Segment as a result of loss experience for insurance carriers.


impacts from the estimated insured property losses associated with Hurricane Ian.

For the nine months ended September 30, 20172022, commissions and fees, including profit-sharing contingent commissions, and GSCs, increased $54.3$358.6 million to $1,383.9$2,668.2 million, or 4.1%15.5%, over the same period in 2016.2021. Core commissions and fees revenue for the nine months ended September 30, 20172022 increased $56.2$363.3 million, composed of: (i) approximately $184.6 million of net new and renewal business, which approximately $22.9reflects an Organic Revenue growth rate of 8.3%; (ii) $188.4 million represented core commissions and fees from acquisitions that had no comparable revenues in the same period of 2016. After accounting for2021;

32

(iii) an offsetting decrease from the impact from foreign currency translation of $3.0 million; and (iv) an offsetting decrease of $6.7 million related to commissions and fees revenue from businesses divested business of $2.2 million,in the remaining net increase of $35.5 million represented net new and renewal business, which reflects an organic revenue growth rate of 2.8%.preceding 12 months. Profit-sharing contingent commissions and GSCs for the nine months ended September 30, 20172022 decreased by $1.9$4.7 million, or 3.5%7.4%, compared to the same period in 2016. The net decrease of $1.9 million in the first nine months of 2017 was mainly2021, driven by a decreasereduction of approximately $15.0 million in profit-sharing contingent commissions in the Retail and Wholesale Brokerage Segments as a result of loss experience for insurance carriers partially offset by an increase in theour National Programs Segment.

segment relating to the impacts from the estimated insured property losses associated with Hurricane Ian.

Investment Income

Investment income for the three months ended September 30, 20172022 increased $0.3$0.8 million, or 113.5% over200.0%, from the same period in 2016. The increase was primarily driven by cash management activities to earn a higher yield on excess cash balances.

2021. Investment income for the nine months ended September 30, 2017 decreased $0.12022 increased $0.9 million, or 5.7%100.0%, overfrom the same period in 2016. This decrease was related2021. The increases were primarily driven by higher average interest rates compared to a one-time receipt of interest on premium tax refunds received in 2016.
the prior year.

Other Income net

Other income for the three months ended September 30, 2017 was $0.52022 increased $1.0 million to $1.2 million as compared with $0.4 million into the same period in 2016. Other income consists primarily of legal settlements and other miscellaneous income.

2021. Other income for the nine months ended September 30, 2017 was $22.02022 decreased by $0.4 million, or 16.7%, as compared with $2.2 million into the same period in 2016. The $19.8 million increase for the nine months ended September 30, 2017 from the2021. Other income consists primarily of non-recurring legal settlements and other miscellaneous income and therefore can fluctuate between comparable period in 2016 was a result of a legal settlement recognized in the first quarter of 2017.
periods.

Employee Compensation and Benefits

Employee compensation and benefits expense as a percentage of total revenues increased to 51.7%was 50.7% for the three months ended September 30, 2017, from 51.4%2022 as compared to 51.3% for the three months ended September 30, 2016. Employee compensation2021, and benefits for the third quarter of 2017 increased approximately 3.5%19.1%, or $8.4 million, over the same period in 2016.$75.3 million. This net increase included (i) $0.4$55.2 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2016;2021. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2022 and 2021 increased by $20.1 million, or 5.2%. This underlying employee compensation and benefits expense increase was primarily related to: (i) increased claims associated with our self-insured employee health plan; (ii) an increase in staff salaries attributable to salary inflation and higher volumesinflation; (iii) an increase in portionsproducer compensation associated with revenue growth; partially offset by (iv) the year-over-year decrease of approximately $6.1 million in the value of deferred compensation liabilities driven by changes in the market prices of our business; (iii) increased producer commissions due to higher revenue; and (iv) the additional costemployees' investment elections associated with our deferred compensation plan, with such amount substantially offset within other operating expenses as we hold assets to fund these liabilities that closely match the Retail Segment's performance incentive plan introduced in 2017.

investment elections of our employees.

Employee compensation and benefits expense as a percentage of total revenues increased to 52.3%was 50.2% for the nine months ended September 30, 2017, from 52.0%2022 as compared to 52.8% for the nine months ended September 30, 2016. Employee compensation2021, and benefits for the first nine months of 2017 increased by approximately 6.3%9.9%, or $43.6 million, over the same period in 2016.$121.2 million. This increase included (i) $10.1$80.1 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2016;2021. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2022 and 2021 increased by $41.1 million, or 3.4%. This underlying employee compensation and benefits expense increase was primarily related to: (i) increased claims associated with our self-insured employee health plan; (ii) an increase in staff salaries attributable to salary inflation and higher volumesinflation; (iii) an increase in portionsaccrued performance bonuses; (iv) an increase in producer compensation associated with revenue growth; partially offset by (v) the year-over-year decrease of approximately $39.8 million in the value of deferred compensation liabilities driven by changes in the market prices of our business; (iii) increased producer commissions due to higher revenue; (iv) increased non-cash stock based compensation due to larger forfeiture credits recorded in 2016; and (v) the additional costemployees' investment elections associated with our deferred compensation plan, which was substantially offset by other operating expenses as we hold assets to fund these liabilities that closely match the Retail Segment's performance incentive plan introduced in 2017.

investment elections of our employees.

Other Operating Expenses

As a percentage

Other operating expenses represented 18.3% of total revenues other operating expenses represented 15.1% infor the third quarter of 2017, versus 14.6% reported in2022 as compared to 13.1% for the third quarter of 2016.2021. Other operating expenses for the third quarter of 20172022 increased $4.6$68.5 million, or 6.9%67.8%, overfrom the same period of 2016,2021. The net increase included: (i) $32.7 million of which $0.1 million wasother operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2016. The remaining other operating expenses for both three-month periods ended September 30, 20172021; (ii) losses of approximately $11.5 million recorded within our Captives as a result of the estimated insured property losses associated with Hurricane Ian; (iii) increased variable costs with travel and 2016, respectively, increased by $4.5entertainment being the largest driver; (iv) acquisition and integration costs associated with the acquisitions of Orchid, GRP, and BdB, and; (v) the year-over-year decrease of approximately $6.1 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was primarily attributable to (i) increased expenses associated with our investment in information technologysubstantially offset within employee compensation and consulting; partially offset by (ii) a foreign exchange gains and (iii) the benefits from our strategic purchasing program.

as noted above.

Other operating expenses represented 14.9%16.9% of total revenues for the nine months ended September 30, 2017, versus 14.8%2022, as compared to 12.6% for the nine months ended September 30, 2016.2021. Other operating expenses for the first nine months of 20172022 increased $13.0$158.9 million, or 6.6%54.5%, overfrom the same period of 2016,2021. The net increase included: (i) $45.4 million of which $3.1 million wasother operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2016. The remaining other operating expenses for both2021; (ii) increased variable costs with travel and entertainment being the largest driver; (iii) losses of approximately $11.5 million recorded within our Captives as a result of the nine months ended September 30, 2017estimated insured property losses associated with Hurricane Ian; (iv) acquisition and 2016, respectively, increased by $9.8integration costs associated with the acquisitions of Orchid, GRP, and BdB, and; (v) the year-over-year decrease of approximately $39.8 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was primarily attributable to (i) increased expenses associated with our investment in information technology; (ii) a credit of approximately $5.3 million associated with premium tax refunds recognized in the first nine months of 2016;substantially offset within employee compensation and (iii) partially offset by foreign exchange gains and (iv) the benefits from our strategic purchasing program.


Gainas noted above.

33

(Gain)/Loss on Disposal

Gain on disposal for the third quarter of 2017 increased $1.62022 decreased $0.3 million from the third quarter of 2016.2021. Gain on disposal for the nine months ended September 30, 20172022 decreased $1.1$3.4 million from the nine months ended September 30, 2016.2021. The change in the gaingains on disposal for the three and nine months ended September 30, 2017 waswere due to activity associated with book of business sales. Although we aredo not in the business of sellingroutinely sell businesses or customer accounts, or businesses, we periodically sell an office or a book of business (one or more customer accounts) becausethat 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 for the third quarter of 2017 decreased $0.42022 increased $14.0 million, or 1.7%47.5%, overcompared to the third quarter of 2016.2021. Amortization expense for the nine months ended September 30, 2017 decreased $0.62022 increased $19.6 million, or 1.0%22.1%, overcompared to the nine months ended September 30, 2016.2021. These decreasesincreases reflect certain intangibles becoming fully amortized, partially offset withthe amortization of new intangibles from recentlybusinesses acquired businesses.

within the past 12 months, partially offset by certain intangible assets becoming fully amortized.

Depreciation

Depreciation expense for the third quarter of 20172022 increased $0.3$2.1 million, or 5.7%22.8%, compared to the third quarter of 2016.2021. Depreciation expense for the nine months ended September 30, 20172022 increased $1.4$2.9 million, or 8.7%11.4%, overcompared to the nine months ended September 30, 2016. These changes were due primarily to2021. Changes in depreciation expense reflect the addition of fixed assets resulting from acquisitions completed sincebusiness initiatives, and net additions of fixed assets resulting from businesses acquired in the first ninepast 12 months, of 2016, net ofwhich were partially offset by fixed assets whichthat became fully depreciated.

Interest Expense

Interest expense for the third quarter of 2017 decreased $0.52022 increased $25.3 million, or 5.0%156.2%, compared to the third quarter of 2016.2021. Interest expense for the nine months ended September 30, 2017 decreased $0.72022 increased $47.0 million, or 2.3%96.3%, overcompared to the first nine months ended September 30, 2016. This decrease wasof 2021. These increases were due to a lower effective interest rate for our Credit Facility term loan and the scheduled amortized principal payments on the Credit Facility term loan, which has reduced the Company'shigher average debt balance.

balances resulting from debt issuance and bank financing in the first quarter of 2022 to fund the acquisitions of Orchid, GRP, and BdB, as well as increases in the floating rate benchmark used on our adjustable-rate debt.

Change in Estimated Acquisition Earn-Out Payables

Accounting Standards Codification (“ASC”) Topic 805-Business805-Business Combinations is the authoritative guidance requiring an acquiring entityacquirer 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, theThe recorded purchase pricesprice for all acquisitions consummated after January 1, 2009 includeincludes 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 Condensed Consolidated StatementStatements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.

The net charge or credit to the Condensed Consolidated StatementStatements 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 September 30, 20172022 and 2016,2021, the fair values of the estimated acquisition earn-out payables were re-evaluated based upon projected operating results and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three and nine month periodsmonths ended September 30, 20172022 and 20162021 were as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands)2017 2016 2017 2016
Change in fair value of estimated acquisition earn-out payables$(1,784) $2,883
 $6,402
 $4,704
Interest expense accretion476
 727
 1,907
 2,142
Net change in earnings from estimated acquisition earn-out payables$(1,308) $3,610
 $8,309
 $6,846

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Change in fair value of estimated acquisition earn-out payables

 

$

(28.5

)

 

$

21.8

 

 

$

(38.1

)

 

$

15.8

 

Interest expense accretion

 

 

1.9

 

 

 

1.3

 

 

 

5.0

 

 

 

4.8

 

Net change in earnings from estimated acquisition earn-out payables

 

$

(26.6

)

 

$

23.1

 

 

$

(33.1

)

 

$

20.6

 

For the three months and nine months ended September 30, 2017 and 2016,2022, the fair value of estimated earn-out payables was re-evaluated and decreased by $1.8$28.5 million and increased by $2.9$38.1 million, respectively, which resulted in credits and charges to the Condensed Consolidated StatementStatements of Income, respectively. For the nine months ended September 30, 2017 and 2016, the fair value of estimated earn-out payables was re-evaluated and increased by $6.4 million and $4.7 million, respectively, which resulted in charges to the Condensed Consolidated Statement of Income.

As of September 30, 2017, the2022, estimated acquisition earn-out payables equaled $34.2totaled $249.9 million, of which $28.7$100.5 million was recorded as accounts payable and $5.5$149.4 million was recorded as other non-current liabilities.

34

Income Taxes

The effective tax rate on income from operations for the three months ended September 30, 20172022 and 20162021 was 39.0%26.1% and 38.8%,25.5% respectively. The effective tax rate on income from operations for the nine months ended September 30, 20172022 and 20162021 was 38.2%22.8% and 39.2%22.0%, respectively. The decrease for the nine months ended September 30, 2017 is related to the adoption in the first quarter of 2017, of FASB Accounting Standards Update 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, that 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.

35

RESULTS OF OPERATIONS — SEGMENT INFORMATION

As discussed in Note 1012 to the Condensed 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 incomerevenues in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses uponon the organic revenueOrganic Revenue growth rate of core commissions and fees revenue, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.

EBITDAC Margin.

The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the three months ended September 30, 2017, and 2016, is as follows:

 For the three months 
 ended September 30,
(in thousands)2017 2016
Commissions and fees$474,609
 $461,652
Less profit-sharing contingent commissions3,542
 8,247
Less guaranteed supplemental commissions2,493
 2,941
Core commissions and fees468,574
 450,464
Less acquisition revenues4,337
 —
Less divested business—
 1,359
Organic Revenue$464,237
 $449,105

The growth rates for organic revenue,Organic Revenue, a non-GAAP financial measure, for the three months ended September 30, 2017,2022 and 2021, including by segment, and the growth rates for Organic Revenue for the three months ended September 30, 2022, including by segment, are as follows:
2017
Retail(1)
 National Programs Wholesale Brokerage Services Total
(in thousands, except percentages)2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Commissions and Fees$234,414
 $228,468
 $127,271
 $123,523
 $71,505
 $70,132
 $41,419
 $39,529
 $474,609
 $461,652
Total Change$5,946
   $3,748
   $1,373
   $1,890
   $12,957
  
Total Growth %2.6%   3.0%   2.0%   4.8%   2.8%  
Contingent Commissions1,444
 2,229
 1,748
 2,498
 350
 3,520
 —
 —
 3,542
 8,247
GSCs2,164
 2,516
 5
 14
 324
 411
 —
 —
 2,493
 2,941
Core Commissions and Fees$230,806
 $223,723
 $125,518
 $121,011
 $70,831
 $66,201
 $41,419
 $39,529
 $468,574
 $450,464
Acquisition Revenues2,726
 —
 1,043
 —
 568
 —
 —
 —
 4,337
 —
Divested Business—
 1,306
 —
 53
 —
 —
 —
 —
 —
 1,359
Organic Revenue(2)
$228,080
 $222,417
 $124,475
 $120,958
 $70,263
 $66,201
 $41,419
 $39,529
 $464,237
 $449,105
Organic Revenue Growth(2)
$5,663
   $3,517
   $4,062
   $1,890
   $15,132
  
Organic Revenue Growth %(2)
2.5%   2.9%   6.1%   4.8%   3.4%  
(1)The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 10 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2)A non-GAAP financial measure.

2022

 

Retail (1)

 

 

National Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Total

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Commissions and fees

 

$

526.9

 

 

$

422.8

 

 

$

231.1

 

 

$

190.9

 

 

$

126.1

 

 

$

112.3

 

 

$

41.1

 

 

$

43.7

 

 

$

925.2

 

 

$

769.7

 

Total change

 

$

104.1

 

 

 

 

 

$

40.2

 

 

 

 

 

$

13.8

 

 

 

 

 

 

(2.6

)

 

 

 

 

$

155.5

 

 

 

 

Total growth %

 

 

24.6

%

 

 

 

 

 

21.1

%

 

 

 

 

 

12.3

%

 

 

 

 

 

(5.9

)%

 

 

 

 

 

20.2

%

 

 

 

Profit-sharing contingent
   commissions

 

 

(10.9

)

 

 

(8.7

)

 

 

6.2

 

 

 

(6.5

)

 

 

(3.1

)

 

 

(2.4

)

 

 

—

 

 

 

—

 

 

 

(7.8

)

 

 

(17.6

)

Core commissions and fees

 

$

516.0

 

 

$

414.1

 

 

$

237.3

 

 

$

184.4

 

 

$

123.0

 

 

$

109.9

 

 

$

41.1

 

 

$

43.7

 

 

$

917.4

 

 

$

752.1

 

Acquisitions

 

 

(82.7

)

 

 

—

 

 

 

(27.4

)

 

 

—

 

 

 

(8.2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(118.3

)

 

 

—

 

Dispositions

 

 

—

 

 

 

(0.7

)

 

 

—

 

 

 

(0.9

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(0.6

)

 

 

—

 

 

 

(2.2

)

Foreign currency translation

 

 

—

 

 

 

(1.0

)

 

 

—

 

 

 

(0.2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.2

)

Organic Revenue (2)

 

$

433.3

 

 

$

412.4

 

 

$

209.9

 

 

$

183.3

 

 

$

114.8

 

 

$

109.9

 

 

$

41.1

 

 

$

43.1

 

 

$

799.1

 

 

$

748.7

 

Organic Revenue growth (2)

 

$

20.9

 

 

 

 

 

$

26.6

 

 

 

 

 

$

4.9

 

 

 

 

 

$

(2.0

)

 

 

 

 

$

50.4

 

 

 

 

Organic Revenue growth rate (2)

 

 

5.1

%

 

 

 

 

 

14.5

%

 

 

 

 

 

4.5

%

 

 

 

 

 

(4.6

)%

 

 

 

 

 

6.7

%

 

 

 

(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the three months ended September 30, 2016, and 2015, is as follows:

 For the three months 
 ended September 30,
(in thousands)2016 2015
Commissions and fees$461,652
 $431,863
Less profit-sharing contingent commissions8,247
 12,068
Less guaranteed supplemental commissions2,941
 2,520
Core commissions and fees450,464
 417,275
Less acquisition revenues17,307
 —
Less divested business—
 2,060
Organic Revenue$433,157
 $415,215

The growth rates for organic revenue,Organic Revenue, a non-GAAP financial measure, for the three months ended September 30, 2016,2021 and 2020, including by segment, and the growth rates for Organic Revenue for the three months ended September 30, 2021, including by segment, are as follows:
2016
Retail(1)
 National Programs Wholesale Brokerage Services Total
(in thousands, except percentages)2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Commissions and Fees$228,468
 $215,630
 $123,523
 $116,919
 $70,132
 $61,332
 $39,529
 $37,982
 $461,652
 $431,863
Total Change$12,838
   $6,604
   $8,800
   $1,547
   $29,789
  
Total Growth %6.0%   5.6%   14.3%   4.1%   6.9%  
Contingent Commissions2,229
 1,810
 2,498
 3,188
 3,520
 7,070
 —
 —
 8,247
 12,068
GSCs2,516
 2,061
 14
 10
 411
 449
 —
 —
 2,941
 2,520
Core Commissions and Fees$223,723
 $211,759
 $121,011
 $113,721
 $66,201
 $53,813
 $39,529
 $37,982
 $450,464
 $417,275
Acquisition Revenues6,248
 —
 —
 —
 8,764
 —
 2,295
 —
 17,307
 —
Divested Business—
 158
 —
 585
 —
 —
 —
 1,317
 —
 2,060
Organic Revenue(2)
$217,475
 $211,601
 $121,011
 $113,136
 $57,437
 $53,813
 $37,234
 $36,665
 $433,157
 $415,215
Organic Revenue Growth(2)
$5,874
   $7,875
   $3,624
   $569
   $17,942
  
Organic Revenue Growth %(2)
2.8%   7.0%   6.7%   1.6%   4.3%  
(1)The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 10 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2)A non-GAAP financial measure.

2021

 

Retail (1)

 

 

National Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Total

 

(in millions, except percentages)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Commissions and fees

 

$

422.8

 

 

$

359.0

 

 

$

190.9

 

 

$

167.8

 

 

$

112.3

 

 

$

101.1

 

 

$

43.7

 

 

$

43.5

 

 

$

769.7

 

 

$

671.4

 

Total change

 

$

63.8

 

 

 

 

 

$

23.1

 

 

 

 

 

$

11.2

 

 

 

 

 

$

0.2

 

 

 

 

 

$

98.3

 

 

 

 

Total growth %

 

 

17.8

%

 

 

 

 

 

13.8

%

 

 

 

 

 

11.1

%

 

 

 

 

 

0.5

%

 

 

 

 

 

14.6

%

 

 

 

Profit-sharing contingent
   commissions

 

 

(8.7

)

 

 

(6.4

)

 

 

(6.5

)

 

 

(5.5

)

 

 

(2.4

)

 

 

(1.9

)

 

 

—

 

 

 

—

 

 

 

(17.6

)

 

 

(13.8

)

Core commissions and fees

 

 

414.1

 

 

 

352.6

 

 

 

184.4

 

 

 

162.3

 

 

 

109.9

 

 

 

99.2

 

 

 

43.7

 

 

 

43.5

 

 

 

752.1

 

 

 

657.6

 

Acquisition revenues

 

$

(32.7

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(5.9

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(38.6

)

 

$

—

 

Divested business

 

 

—

 

 

 

(1.0

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.0

)

Foreign currency translation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.3

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.3

 

Organic Revenue (2)

 

$

381.4

 

 

$

351.6

 

 

$

184.4

 

 

$

162.6

 

 

$

104.0

 

 

$

99.2

 

 

$

43.7

 

 

$

43.5

 

 

$

713.5

 

 

$

656.9

 

Organic Revenue growth (2)

 

$

29.8

 

 

 

 

 

$

21.8

 

 

 

 

 

$

4.8

 

 

 

 

 

$

0.2

 

 

 

 

 

$

56.6

 

 

 

 

Organic Revenue growth rate (2)

 

 

8.5

%

 

 

 

 

 

13.4

%

 

 

 

 

 

4.8

%

 

 

 

 

 

0.5

%

 

 

 

 

 

8.6

%

 

 

 

(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

36

The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the nine months ended September 30, 2017, and 2016, is as follows:

 For the nine months 
 ended September 30,
(in thousands)2017 2016
Commissions and fees$1,383,899
 $1,329,649
Less profit-sharing contingent commissions45,409
 46,586
Less guaranteed supplemental commissions8,149
 8,893
Core commissions and fees1,330,341
 1,274,170
Less acquisition revenues22,936
 —
Less divested business—
 2,246
Organic Revenue$1,307,405
 $1,271,924

The growth rates for organic revenue,Organic Revenue, a non-GAAP financial measure, for the nine months ended September 30, 2017,2022 and 2021, including by segment, and the growth rates for Organic Revenue for the nine months ended September 30, 2022, including by segment, are as follows:
2017
Retail(1)
 National Programs Wholesale Brokerage Services Total
(in thousands, except percentages)2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Commissions and Fees$711,532
 $694,402
 $341,910
 $332,872
 $208,284
 $184,673
 $122,173
 $117,702
 $1,383,899
 $1,329,649
Total Change$17,130
   $9,038
   $23,611
   $4,471
   $54,250
  
Total Growth %2.5%   2.7%   12.8%   3.8%   4.1%  
Contingent Commissions22,380
 24,365
 16,038
 12,152
 6,991
 10,069
 —
 —
 45,409
 46,586
GSCs7,109
 7,488
 8
 24
 1,032
 1,381
 —
 —
 8,149
 8,893
Core Commissions and Fees$682,043
 $662,549
 $325,864
 $320,696
 $200,261
 $173,223
 $122,173
 $117,702
 $1,330,341
 $1,274,170
Acquisition Revenues5,100
 —
 1,201
 —
 15,785
 —
 850
 —
 22,936
 —
Divested Business—
 2,147
 —
 302
 —
 —
 —
 (203) —
 2,246
Organic Revenue(2)
$676,943
 $660,402
 $324,663
 $320,394
 $184,476
 $173,223
 $121,323
 $117,905
 $1,307,405
 $1,271,924
Organic Revenue Growth(2)
$16,541
   $4,269
   $11,253
   $3,418
   $35,481
  
Organic Revenue Growth %(2)
2.5%   1.3%   6.5%   2.9%   2.8%  
(1)The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 10 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2)A non-GAAP financial measure.

2022

 

Retail (1)

 

 

National Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Total

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Commissions and fees

 

$

1,579.7

 

 

$

1,345.0

 

 

$

618.6

 

 

$

521.6

 

 

$

341.2

 

 

$

307.4

 

 

$

128.8

 

 

$

135.6

 

 

$

2,668.3

 

 

$

2,309.6

 

Total change

 

$

234.7

 

 

 

 

 

$

97.0

 

 

 

 

 

$

33.8

 

 

 

 

 

$

(6.8

)

 

 

 

 

$

358.7

 

 

 

 

Total growth %

 

 

17.4

%

 

 

 

 

 

18.6

%

 

 

 

 

 

11.0

%

 

 

 

 

 

(5.0

)%

 

 

 

 

 

15.5

%

 

 

 

Profit-sharing contingent
   commissions

 

 

(38.3

)

 

 

(32.8

)

 

 

(12.0

)

 

 

(23.9

)

 

 

(8.2

)

 

 

(6.5

)

 

 

—

 

 

 

—

 

 

 

(58.5

)

 

 

(63.2

)

Core commissions and fees

 

 

1,541.4

 

 

 

1,312.2

 

 

 

606.6

 

 

 

497.7

 

 

 

333.0

 

 

 

300.9

 

 

 

128.8

 

 

 

135.6

 

 

 

2,609.8

 

 

 

2,246.4

 

Acquisitions

 

$

(133.8

)

 

$

—

 

 

$

(45.1

)

 

$

—

 

 

$

(9.6

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(188.5

)

 

$

—

 

Dispositions

 

 

—

 

 

 

(1.9

)

 

 

—

 

 

 

(3.0

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.8

)

 

 

—

 

 

 

(6.7

)

Foreign currency translation

 

 

—

 

 

 

(2.7

)

 

 

—

 

 

 

(0.3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3.0

)

Organic Revenue (2)

 

$

1,407.6

 

 

$

1,307.6

 

 

$

561.5

 

 

$

494.4

 

 

$

323.4

 

 

$

300.9

 

 

$

128.8

 

 

$

133.8

 

 

$

2,421.3

 

 

$

2,236.7

 

Organic Revenue growth (2)

 

$

100.0

 

 

 

 

 

$

67.1

 

 

 

 

 

$

22.5

 

 

 

 

 

$

(5.0

)

 

 

 

 

$

184.6

 

 

 

 

Organic Revenue growth % (2)

 

 

7.6

%

 

 

 

 

 

13.6

%

 

 

 

 

 

7.5

%

 

 

 

 

 

(3.7

)%

 

 

 

 

 

8.3

%

 

 

 

(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the nine months ended September 30, 2016, and 2015, is as follows:

 For the nine months 
 ended September 30,
(in thousands)2016 2015
Commissions and fees$1,329,649
 $1,252,888
Less profit-sharing contingent commissions46,586
 45,596
Less guaranteed supplemental commissions8,893
 8,112
Core commissions and fees1,274,170
 1,199,180
Less acquisition revenues47,475
 —
Less divested business—
 5,854
Organic Revenue$1,226,695
 $1,193,326

The growth rates for organic revenue,Organic Revenue, a non-GAAP financial measure, for the nine months ended September 30, 2016,2021 and 2020, including by segment, and the growth rates for Organic Revenue for the nine months ended September 30, 2021, including by segment, are as follows:
2016
Retail(1)
 National Programs Wholesale Brokerage Services Total
(in thousands, except percentages)2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Commissions and Fees$694,402
 $653,992
 $332,872
 $319,377
 $184,673
 $168,374
 $117,702
 $111,145
 $1,329,649
 $1,252,888
Total Change$40,410
   $13,495
   $16,299
   $6,557
   $76,761
  
Total Growth %6.2%   4.2%   9.7%   5.9%   6.1%  
Contingent Commissions24,365
 21,653
 12,152
 10,734
 10,069
 13,209
 —
 —
 46,586
 45,596
GSCs7,488
 6,699
 24
 15
 1,381
 1,398
 —
 —
 8,893
 8,112
Core Commissions and Fees$662,549
 $625,640
 $320,696
 $308,628
 $173,223
 $153,767
 $117,702
 $111,145
 $1,274,170
 $1,199,180
Acquisition Revenues27,080
 —
 1,680
 —
 12,147
 —
 6,568
 —
 47,475
 —
Divested Business—
 1,283
 —
 1,255
 —
 —
 —
 3,316
 —
 5,854
Organic Revenue(2)
$635,469
 $624,357
 $319,016
 $307,373
 $161,076
 $153,767
 $111,134
 $107,829
 $1,226,695
 $1,193,326
Organic Revenue Growth(2)
$11,112
   $11,643
   $7,309
   $3,305
   $33,369
  
Organic Revenue Growth %(2)
1.8%   3.8%   4.8%   3.1%   2.8%  
(1)The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 10 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2)A non-GAAP financial measure.

Retail Segment

2021

 

Retail (1)

 

 

National Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Total

 

(in millions, except percentages)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Commissions and fees

 

$

1,345.0

 

 

$

1,117.3

 

 

$

521.6

 

 

$

450.5

 

 

$

307.4

 

 

$

267.4

 

 

$

135.6

 

 

$

130.9

 

 

$

2,309.6

 

 

$

1,966.1

 

Total change

 

$

227.7

 

 

 

 

 

$

71.1

 

 

 

 

 

$

40.0

 

 

 

 

 

$

4.7

 

 

 

 

 

$

343.5

 

 

 

 

Total growth %

 

 

20.4

%

 

 

 

 

 

15.8

%

 

 

 

 

 

15.0

%

 

 

 

 

 

3.6

%

 

 

 

 

 

17.5

%

 

 

 

Profit-sharing contingent
   commissions

 

 

(32.8

)

 

 

(29.4

)

 

 

(23.9

)

 

 

(20.5

)

 

 

(6.5

)

 

 

(6.5

)

 

 

—

 

 

 

—

 

 

 

(63.2

)

 

 

(56.4

)

Core commissions and fees

 

$

1,312.2

 

 

$

1,087.9

 

 

$

497.7

 

 

$

430.0

 

 

$

300.9

 

 

$

260.9

 

 

$

135.6

 

 

$

130.9

 

 

$

2,246.4

 

 

$

1,909.7

 

Acquisition revenues

 

 

(102.9

)

 

 

—

 

 

 

(8.1

)

 

 

—

 

 

 

(20.2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(131.2

)

 

 

—

 

Divested business

 

 

—

 

 

 

(3.1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3.1

)

Foreign currency translation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1.0

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1.0

 

Organic Revenue (2)

 

$

1,209.3

 

 

$

1,084.8

 

 

 

489.6

 

 

$

431.0

 

 

$

280.7

 

 

$

260.9

 

 

$

135.6

 

 

$

130.9

 

 

$

2,115.2

 

 

$

1,907.6

 

Organic Revenue growth (2)

 

$

124.5

 

 

 

 

 

$

58.6

 

 

 

 

 

$

19.8

 

 

 

 

 

$

4.7

 

 

 

 

 

$

207.6

 

 

 

 

Organic Revenue growth % (2)

 

 

11.5

%

 

 

 

 

 

13.6

%

 

 

 

 

 

7.6

%

 

 

 

 

 

3.6

%

 

 

 

 

 

10.9

%

 

 

 

(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

37

The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, and EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended September 30, 2022, including by segment, is as follows:

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale
Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total Revenues

 

$

528.2

 

 

$

231.4

 

 

$

126.3

 

 

$

41.1

 

 

$

0.6

 

 

$

927.6

 

Total Revenues - Adjusted(2)

 

 

528.2

 

 

 

231.4

 

 

 

126.3

 

 

 

41.1

 

 

 

0.6

 

 

 

927.6

 

Income before income taxes

 

 

112.2

 

 

 

69.7

 

 

 

35.4

 

 

 

4.7

 

 

 

(4.0

)

 

 

218.0

 

Income Before Income Taxes Margin(1)

 

 

21.2

%

 

 

30.1

%

 

 

28.0

%

 

 

11.4

%

 

NMF

 

 

 

23.5

%

Amortization

 

 

28.2

 

 

 

11.4

 

 

 

2.6

 

 

 

1.3

 

 

 

—

 

 

 

43.5

 

Depreciation

 

 

3.9

 

 

 

4.6

 

 

 

0.7

 

 

 

0.4

 

 

 

1.7

 

 

 

11.3

 

Interest

 

 

22.8

 

 

 

10.2

 

 

 

3.2

 

 

 

0.5

 

 

 

4.8

 

 

 

41.5

 

Change in estimated acquisition
   earn-out payables

 

 

(18.6

)

 

 

(10.8

)

 

 

2.8

 

 

 

—

 

 

 

—

 

 

 

(26.6

)

EBITDAC(2)

 

 

148.5

 

 

 

85.1

 

 

 

44.7

 

 

 

6.9

 

 

 

2.5

 

 

 

287.7

 

EBITDAC Margin(2)

 

 

28.1

%

 

 

36.8

%

 

 

35.4

%

 

 

16.8

%

 

NMF

 

 

 

31.0

%

(Gain)/loss on disposal

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Acquisition/Integration Costs

 

 

1.2

 

 

 

0.1

 

 

 

0.8

 

 

 

—

 

 

 

—

 

 

 

2.1

 

EBITDAC - Adjusted(2)

 

$

149.7

 

 

$

85.2

 

 

$

45.5

 

 

$

6.9

 

 

$

2.5

 

 

$

289.8

 

EBITDAC Margin - Adjusted(2)

 

 

28.3

%

 

 

36.8

%

 

 

36.0

%

 

 

16.8

%

 

NMF

 

 

 

31.2

%

(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended September 30, 2021, including by segment, is as follows:

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total Revenues

 

$

423.4

 

 

$

191.1

 

 

$

112.5

 

 

$

43.7

 

 

$

(0.4

)

 

$

770.3

 

Foreign Currency Translation

 

 

(1.1

)

 

 

(0.2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1.3

)

Total Revenues - Adjusted(2)

 

 

422.3

 

 

 

190.9

 

 

 

112.5

 

 

 

43.7

 

 

 

(0.4

)

 

 

769.0

 

Income before income taxes

 

 

71.6

 

 

 

72.4

 

 

 

29.4

 

 

 

7.1

 

 

 

16.0

 

 

 

196.5

 

Income Before Income Taxes Margin(1)

 

 

16.9

%

 

 

37.9

%

 

 

26.1

%

 

 

16.2

%

 

NMF

 

 

 

25.5

%

Amortization

 

 

19.1

 

 

 

6.8

 

 

 

2.3

 

 

 

1.3

 

 

 

—

 

 

 

29.5

 

Depreciation

 

 

2.8

 

 

 

3.0

 

 

 

0.6

 

 

 

0.3

 

 

 

2.5

 

 

 

9.2

 

Interest

 

 

22.4

 

 

 

2.2

 

 

 

3.9

 

 

 

0.7

 

 

 

(13.0

)

 

 

16.2

 

Change in estimated acquisition
   earn-out payables

 

 

17.3

 

 

 

—

 

 

 

5.8

 

 

 

—

 

 

 

—

 

 

 

23.1

 

EBITDAC(2)

 

 

133.2

 

 

 

84.4

 

 

 

42.0

 

 

 

9.4

 

 

 

5.5

 

 

 

274.5

 

EBITDAC Margin(2)

 

 

31.5

%

 

 

44.2

%

 

 

37.3

%

 

 

21.5

%

 

NMF

 

 

 

35.6

%

(Gain)/loss on disposal

 

 

(0.3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(0.3

)

Acquisition/Integration Costs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Foreign Currency Translation

 

 

(0.1

)

 

 

(0.1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(0.2

)

EBITDAC - Adjusted(2)

 

$

132.8

 

 

$

84.3

 

 

$

42.0

 

 

$

9.4

 

 

$

5.5

 

 

$

274.0

 

EBITDAC Margin - Adjusted(2)

 

 

31.4

%

 

 

44.2

%

 

 

37.3

%

 

 

21.5

%

 

NMF

 

 

 

35.6

%

(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the nine months ended September 30, 2022, including by segment, is as follows:

38

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total Revenues

 

$

1,582.3

 

 

$

619.3

 

 

$

341.6

 

 

$

128.8

 

 

$

—

 

 

$

2,672.0

 

Total Revenues - Adjusted(2)

 

 

1,582.3

 

 

 

619.3

 

 

 

341.6

 

 

 

128.8

 

 

 

—

 

 

 

2,672.0

 

Income before income taxes

 

 

378.8

 

 

 

187.9

 

 

 

94.8

 

 

 

18.0

 

 

 

2.3

 

 

 

681.8

 

Income Before Income Taxes Margin(1)

 

 

23.9

%

 

 

30.3

%

 

 

27.8

%

 

 

14.0

%

 

NMF

 

 

 

25.5

%

Amortization

 

 

69.8

 

 

 

27.9

 

 

 

6.7

 

 

 

3.9

 

 

 

(0.1

)

 

 

108.2

 

Depreciation

 

 

9.1

 

 

 

10.9

 

 

 

2.0

 

 

 

1.2

 

 

 

5.1

 

 

 

28.3

 

Interest

 

 

69.9

 

 

 

22.8

 

 

 

10.0

 

 

 

1.6

 

 

 

(8.5

)

 

 

95.8

 

Change in estimated acquisition
   earn-out payables

 

 

(21.8

)

 

 

(10.6

)

 

 

(0.7

)

 

 

—

 

 

 

—

 

 

 

(33.1

)

EBITDAC(2)

 

 

505.8

 

 

 

238.9

 

 

 

112.8

 

 

 

24.7

 

 

 

(1.2

)

 

 

881.0

 

EBITDAC Margin(2)

 

 

32.0

%

 

 

38.6

%

 

 

33.0

%

 

 

19.2

%

 

NMF

 

 

 

33.0

%

(Gain)/loss on disposal

 

 

(1.1

)

 

 

—

 

 

 

0.2

 

 

 

—

 

 

 

—

 

 

 

(0.9

)

Acquisition/Integration Costs

 

 

4.3

 

 

 

0.4

 

 

 

1.5

 

 

 

—

 

 

 

1.4

 

 

 

7.6

 

EBITDAC - Adjusted(2)

 

$

509.0

 

 

$

239.3

 

 

$

114.5

 

 

$

24.7

 

 

$

0.2

 

 

$

887.7

 

EBITDAC Margin - Adjusted(2)

 

 

32.2

%

 

 

38.6

%

 

 

33.5

%

 

 

19.2

%

 

NMF

 

 

 

33.2

%

(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the nine months ended September 30, 2021, including by segment, is as follows:

(in millions)

 

Retail

 

 

National
Programs

 

 

Wholesale Brokerage

 

 

Services

 

 

Other

 

 

Total

 

Total Revenues

 

$

1,347.4

 

 

$

522.3

 

 

$

307.9

 

 

$

135.6

 

 

$

(0.3

)

 

$

2,312.9

 

Foreign Currency Translation

 

 

(2.8

)

 

 

(0.3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3.1

)

Total Revenues - Adjusted(2)

 

 

1,344.6

 

 

 

522.0

 

 

 

307.9

 

 

 

135.6

 

 

 

(0.3

)

 

 

2,309.8

 

Income before income taxes

 

 

293.4

 

 

 

180.2

 

 

 

74.5

 

 

 

24.0

 

 

 

49.9

 

 

 

622.0

 

Income Before Income Taxes Margin(1)

 

 

21.8

%

 

 

34.5

%

 

 

24.2

%

 

 

17.7

%

 

NMF

 

 

 

26.9

%

Amortization

 

 

56.9

 

 

 

20.6

 

 

 

7.1

 

 

 

4.0

 

 

 

—

 

 

 

88.6

 

Depreciation

 

 

8.3

 

 

 

7.5

 

 

 

2.0

 

 

 

1.1

 

 

 

6.5

 

 

 

25.4

 

Interest

 

 

67.6

 

 

 

9.2

 

 

 

12.2

 

 

 

2.2

 

 

 

(42.4

)

 

 

48.8

 

Change in estimated acquisition
   earn-out payables

 

 

20.8

 

 

 

(8.2

)

 

 

8.0

 

 

 

—

 

 

 

—

 

 

 

20.6

 

EBITDAC(2)

 

 

447.0

 

 

 

209.3

 

 

 

103.8

 

 

 

31.3

 

 

 

14.0

 

 

 

805.4

 

EBITDAC Margin(2)

 

 

33.2

%

 

 

40.1

%

 

 

33.7

%

 

 

23.1

%

 

NMF

 

 

 

34.8

%

(Gain)/loss on disposal

 

 

(4.3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4.3

)

Acquisition/Integration Costs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Foreign Currency Translation

 

 

(0.7

)

 

 

(0.1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(0.8

)

EBITDAC - Adjusted(2)

 

$

442.0

 

 

$

209.2

 

 

$

103.8

 

 

$

31.3

 

 

$

14.0

 

 

$

800.3

 

EBITDAC Margin - Adjusted(2)

 

 

32.9

%

 

 

40.1

%

 

 

33.7

%

 

 

23.1

%

 

NMF

 

 

 

34.6

%

(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

Retail Segment

The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers.customers, and non-insurance risk-mitigating products through our F&I businesses. Approximately 88%76.4% of the Retail Segment’ssegment’s commissions and fees revenue is commission based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer 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.

39

Financial information relating to our Retail Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except percentages)2017 2016 %
Change		 2017 2016 %
Change
REVENUES           
Core commissions and fees$230,777
 $223,641
 3.2 % $682,310
 $662,963
 2.9 %
Profit-sharing contingent commissions1,444
 2,229
 (35.2)% 22,380
 24,365
 (8.1)%
Guaranteed supplemental commissions2,164
 2,516
 (14.0)% 7,109
 7,488
 (5.1)%
Investment income3
 5
 (40.0)% 6
 33
 (81.8)%
Other income, net95
 254
 (62.6)% 934
 544
 71.7 %
Total revenues234,483
 228,645
 2.6 % 712,739
 695,393
 2.5 %
EXPENSES           
Employee compensation and benefits128,228
 123,175
 4.1 % 385,291
 369,109
 4.4 %
Other operating expenses35,593
 35,953
 (1.0)% 110,645
 111,377
 (0.7)%
Loss/(gain) on disposal(1,898) (277) NMF
 (2,144) (3,131) (31.5)%
Amortization10,540
 10,861
 (3.0)% 31,704
 32,743
 (3.2)%
Depreciation1,262
 1,508
 (16.3)% 3,975
 4,761
 (16.5)%
Interest7,216
 9,026
 (20.1)% 23,918
 29,415
 (18.7)%
Change in estimated acquisition earn-out payables(1,408) 3,505
 (140.2)% 7,567
 6,623
 14.3 %
Total expenses179,533
 183,751
 (2.3)% 560,956
 550,897
 1.8 %
Income before income taxes$54,950
 $44,894
 22.4 % $151,783
 $144,496
 5.0 %
Organic revenue growth rate (1)
2.5% 2.8%   2.5% 1.8%  
Employee compensation and benefits relative to total revenues54.7% 53.9%   54.1% 53.1%  
Other operating expenses relative to total revenues15.2% 15.7%   15.5% 16.0%  
Capital expenditures$844
 $1,443
   $3,384
 $4,664
  
Total assets at September 30      $4,246,422
 $3,652,977
  

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except percentages)

 

2022

 

 

2021

 

��

% Change

 

 

2022

 

 

2021

 

 

% Change

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core commissions and fees

 

$

516.2

 

 

$

414.4

 

 

 

24.6

%

 

$

1,542.4

 

 

$

1,313.4

 

 

 

17.4

%

Profit-sharing contingent commissions

 

 

10.9

 

 

 

8.7

 

 

 

25.3

%

 

 

38.3

 

 

 

32.8

 

 

 

16.8

%

Investment income

 

 

—

 

 

 

0.2

 

 

 

—

%

 

 

—

 

 

 

0.3

 

 

 

—

%

Other income, net

 

 

1.1

 

 

 

0.1

 

 

NMF

 

 

 

1.6

 

 

 

0.9

 

 

 

77.8

%

Total revenues

 

 

528.2

 

 

 

423.4

 

 

 

24.8

%

 

 

1,582.3

 

 

 

1,347.4

 

 

 

17.4

%

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

285.6

 

 

 

225.9

 

 

 

26.4

%

 

 

821.6

 

 

 

710.9

 

 

 

15.6

%

Other operating expenses

 

 

94.1

 

 

 

64.6

 

 

 

45.7

%

 

 

256.0

 

 

 

193.8

 

 

 

32.1

%

(Gain)/loss on disposal

 

 

—

 

 

 

(0.3

)

 

NMF

 

 

 

(1.1

)

 

 

(4.3

)

 

 

(74.4

)%

Amortization

 

 

28.2

 

 

 

19.1

 

 

 

47.6

%

 

 

69.8

 

 

 

56.9

 

 

 

22.7

%

Depreciation

 

 

3.9

 

 

 

2.8

 

 

 

39.3

%

 

 

9.1

 

 

 

8.3

 

 

 

9.6

%

Interest

 

 

22.8

 

 

 

22.4

 

 

 

1.8

%

 

 

69.9

 

 

 

67.6

 

 

 

3.4

%

Change in estimated acquisition
   earn-out payables

 

 

(18.6

)

 

 

17.3

 

 

NMF

 

 

 

(21.8

)

 

 

20.8

 

 

NMF

 

Total expenses

 

 

416.0

 

 

 

351.8

 

 

 

18.2

%

 

 

1,203.5

 

 

 

1,054.0

 

 

 

14.2

%

Income before income taxes

 

$

112.2

 

 

$

71.6

 

 

 

56.7

%

 

$

378.8

 

 

$

293.4

 

 

 

29.1

%

Income Before Income Taxes
   Margin (1)

 

 

21.2

%

 

 

16.9

%

 

 

 

 

 

23.9

%

 

 

21.8

%

 

 

 

EBITDAC - Adjusted (2)

 

$

149.7

 

 

$

132.8

 

 

 

12.7

%

 

$

509.0

 

 

$

442.0

 

 

 

15.2

%

EBITDAC Margin - Adjusted (2)

 

 

28.3

%

 

 

31.4

%

 

 

 

 

 

32.2

%

 

 

32.9

%

 

 

 

Organic Revenue growth rate (2)

 

 

5.1

%

 

 

8.5

%

 

 

 

 

 

7.6

%

 

 

11.5

%

 

 

 

Employee compensation and benefits
   relative to total revenues

 

 

54.1

%

 

 

53.4

%

 

 

 

 

 

51.9

%

 

 

52.8

%

 

 

 

Other operating expenses relative
   to total revenues

 

 

17.8

%

 

 

15.3

%

 

 

 

 

 

16.2

%

 

 

14.4

%

 

 

 

Capital expenditures

 

$

4.7

 

 

$

2.1

 

 

 

123.8

%

 

$

8.4

 

 

$

5.8

 

 

 

44.8

%

Total assets at September 30,

 

 

 

 

 

 

 

 

 

 

$

7,128.1

 

 

$

7,385.8

 

 

 

(3.5

%)

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Retail Segment’s total revenue duringrevenues for the three months ended September 30, 20172022 increased 2.6%24.8%, or $5.8$104.8 million, overas compared to the same period in 2016,2021, to $234.5$528.2 million. The $7.1$101.8 million increase in core commissions and fees revenue was driven by: (i) $5.7 million related to net new and renewal business; (ii) approximately $2.7$82.7 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016;2021; (ii) an increase of $20.9 million related to net new and renewal business; (iii) an offsetting decrease from the impact of $1.3foreign currency translation of $1.0 million; and (iv) an offsetting decrease of $0.7 million related to commissions and fees revenuerecorded in 2021 from business divested in 2016 and 2017.businesses since divested. Profit-sharing contingent commissions and GSCs for the third quarter of 2017 decreased 24.0%2022 increased 25.3%, or $1.1$2.2 million, fromas compared to the same period in 2016,2021, to $3.6$10.9 million. This increase was primarily the result of recent acquisitions and to a lesser extent qualifying for certain profit-sharing contingent commissions in 2022 that we did not qualify for in the prior year. The Retail Segment’s growth rate for total commissions and fees was 2.6%increased by 24.6%, and the organic revenueOrganic Revenue growth rate was 2.5%5.1% for the third quarter of 2017.2022. The organic revenueOrganic Revenue growth rate was driven by increasednet new business and higher retentionwritten during the preceding twelve months.


12 months and growth on renewals of existing customers. Renewal business was impacted by rate increases in most lines of business with continued increases in professional liability, employee benefits, and condo property, partially offset by continued premium rate reductions in workers’ compensation. This growth was partially offset by a decline in revenue within our F&I businesses due to the slowdown in the automobile industry.

Income before income taxes for the three months ended September 30, 20172022 increased 22.4%56.7%, or $10.1$40.6 million, overas compared to the same period in 2016,2021, to $55.0$112.2 million. The primary factors affectingdriving this increase were: (i) the profit associated with the net increase in revenue as described above; (ii) a decrease to the change in estimated acquisition earn-out payables; (iii) an increase in the benefit of gains on disposals associated with book sales within certain businesses and (iv) a decrease in intercompany interest charges of $1.8 million;payables, partially offset by (v)(iii) amortization and depreciation expenses growing faster than total compensationrevenues.

EBITDAC - Adjusted for the three months ended September 30, 2022 increased 12.7%, or $16.9 million, as compared to the same period in 2021, to $149.7 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 28.3% from 31.4% in

40

the same period in 2021. The decrease in EBITDAC Margin - Adjusted was driven by: (i) increased variable operating expenses, which increased by $5.1 million or 4.1%, due primarily to salary inflation, additional teammates to support revenue growthare largely travel and meeting related; (ii) the incremental investment in the Retail Segment's performance incentive plan introduced in 2017seasonality of profit associated with recent acquisitions and (vi) an incremental investment in technology.

(iii) certain one-time costs.

The Retail Segment’s total revenue duringrevenues for the nine months ended September 30, 20172022 increased 2.5%17.4%, or $17.3$234.9 million, overas compared to the same period in 2016,2021, to $712.7$1,582.3 million. The $19.3$229.0 million increase in core commissions and fees revenue was driven by: (i) $16.3 million related to net new and renewal business; (ii) approximately $5.1$133.8 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016;2021; (ii) an increase of $101.4 million related to net new and renewal business; (iii) an offsetting decrease from the impact of $2.1foreign currency translation of $2.7 million; and (iv) an offsetting decrease of $1.9 million related to commissions and fees revenuerecorded in 2021 from business divested in 2016 and 2017.businesses since divested. Profit-sharing contingent commissions for the nine months of 2022 increased 16.8%, or $5.5 million, as compared to the same period in 2021, to $38.3 million. The Retail Segment’s total commissions and GSCsfees increased by 17.4%, and the Organic Revenue growth rate was 7.6% for the first nine months of 2017 decreased 7.4%, or $2.4 million, from the same period in 2016, to $29.5 million.2022. The Retail Segment’s growth rate for total commissions and fees was 2.5% and the organic revenue growth rate 2.5% for the first nine months of 2017. The organic revenueOrganic Revenue growth rate was driven by revenue from net new and renewal business written during the preceding twelve12 months some exposure unitand growth and modeston renewals of existing customers. Renewal business was impacted by rate increases in most lines of business with continued increases in commercial auto rates, whichP&C, employee benefits, professional and excess liability, and condo partially offset by continued premium rate reductions in workers’ compensation. This growth was partially offset by continued reductionsa decline in property insurance premium rates, particularlyrevenue within our F&I businesses due to the slowdown in catastrophe-prone areas.

automobile industry.

Income before income taxes for the nine months ended September 30, 20172022 increased 5.0%29.1%, or $7.3$85.4 million, overas compared to the same period in 2016,2021, to $151.8$378.8 million. The primary factors affectingdriving this increase werewere: (i) the profit associated with the net increase in revenue as described above; (ii) a $1.0 million increase in the benefitdrivers of gains on disposals associated with book sales within certain businessesEBITDAC described below; (iii) amortization and (iii)depreciation growing faster than total revenues; and (iv) a decrease in intercompany interest charges of $5.5 million; partially offset by (iv) total compensation, which increased by $16.2 million or 4.4%, due primarily to salary inflation and the incremental investment in the Retail Segment's performance incentive plan introduced in 2017; (v) an incremental investment in technology and (vi) a change in estimated acquisition earn-out payables thatpayables.

EBITDAC - Adjusted for the nine months ended September 30, 2022 increased $1.015.2%, or $67.0 million, as compared to $7.6the same period in 2021, to $509.0 million.


EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 32.2% from 32.9% in the same period in 2021. The decrease in EBITDAC Margin - Adjusted was primarily driven by increased variable operating expenses, which are largely travel and meeting related, and to a lesser extent certain one-time expenses and the timing of expenses based on year-to-date performance.

41

National Programs Segment

The National Programs Segment manages over 5040 programs supported by approximately 40100 well-capitalized carrier partners. In most cases, the insurance carriers that support thethese 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. This segment also operates our write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”) as well as two Captives. WNFIC’s underwriting business consists of policies written under and fully ceded to the National Flood Insurance Program (“NFIP”). The Captives provide additional underwriting capacity and participate in underwriting results, one on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses, and the other through excess of loss reinsurance layers associated with placements made by another of our MGA businesses focused on personal property primarily in the southeastern United States.

The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Arrowhead InsurancePersonal Lines Programs, Commercial Programs, Public Entity-Related Programs and Specialty Programs. Approximately 75.2% of the National Flood Program. The National Programs Segment’s commissions and fees revenue is primarily commission based.

Financial information relating to our National Programs Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except percentages)2017 2016 % Change 2017 2016 %
Change
REVENUES           
Core commissions and fees$125,518
 $121,011
 3.7 % $325,864
 $320,696
 1.6 %
Profit-sharing contingent commissions1,748
 2,498
 (30.0)% 16,038
 12,152
 32.0 %
Guaranteed supplemental commissions5
 14
 (64.3)% 8
 24
 (66.7)%
Investment income124
 96
 29.2 % 279
 583
 (52.1)%
Other income, net323
 13
 NMF
 387
 67
 NMF
Total revenues127,718
 123,632
 3.3 % 342,576
 333,522
 2.7 %
EXPENSES           
Employee compensation and benefits50,764
 47,796
 6.2 % 148,592
 141,204
 5.2 %
Other operating expenses28,058
 23,756
 18.1 % 72,147
 62,009
 16.3 %
Loss/(gain) on disposal(4) —
 — % 96
 —
 — %
Amortization6,913
 6,921
 (0.1)% 20,664
 21,011
 (1.7)%
Depreciation1,412
 1,945
 (27.4)% 4,975
 5,881
 (15.4)%
Interest8,304
 10,844
 (23.4)% 27,257
 34,895
 (21.9)%
Change in estimated acquisition earn-out payables68
 51
 33.3 % 718
 155
 NMF
Total expenses95,515
 91,313
 4.6 % 274,449
 265,155
 3.5 %
Income before income taxes$32,203
 $32,319
 (0.4)% $68,127
 $68,367
 (0.4)%
Organic revenue growth rate (1)
2.9% 7.0%   1.3% 3.8%  
Employee compensation and benefits relative to total revenues39.7% 38.7%   43.4% 42.3%  
Other operating expenses relative to total revenues22.0% 19.2%   21.1% 18.6%  
Capital expenditures$1,357
 $2,153
   $3,885
 $5,399
  
Total assets at September 30      $5,026,918
 $2,933,568
  

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core commissions and fees

 

$

237.3

 

 

$

184.4

 

 

 

28.7

%

 

$

606.6

 

 

$

497.8

 

 

 

21.9

%

Profit-sharing contingent commissions

 

 

(6.2

)

 

 

6.5

 

 

 

(195.4

)%

 

 

12.0

 

 

 

23.9

 

 

 

(49.8

)%

Investment income

 

 

0.3

 

 

 

0.1

 

 

 

200.0

%

 

 

0.6

 

 

 

0.4

 

 

 

50.0

%

Other income, net

 

 

—

 

 

 

0.1

 

 

 

—

%

 

 

0.1

 

 

 

0.2

 

 

 

—

%

Total revenues

 

 

231.4

 

 

 

191.1

 

 

 

21.1

%

 

 

619.3

 

 

 

522.3

 

 

 

18.6

%

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

82.9

 

 

 

74.1

 

 

 

11.9

%

 

 

234.8

 

 

 

218.1

 

 

 

7.7

%

Other operating expenses

 

 

63.4

 

 

 

32.6

 

 

 

94.5

%

 

 

145.6

 

 

 

94.9

 

 

 

53.4

%

(Gain)/loss on disposal

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Amortization

 

 

11.4

 

 

 

6.8

 

 

 

67.6

%

 

 

27.9

 

 

 

20.6

 

 

 

35.4

%

Depreciation

 

 

4.6

 

 

 

3.0

 

 

 

53.3

%

 

 

10.9

 

 

 

7.5

 

 

 

45.3

%

Interest

 

 

10.2

 

 

 

2.2

 

 

NMF

 

 

 

22.8

 

 

 

9.2

 

 

 

147.8

%

Change in estimated acquisition
   earn-out payables

 

 

(10.8

)

 

 

—

 

 

NMF

 

 

 

(10.6

)

 

 

(8.2

)

 

 

29.3

%

Total expenses

 

 

161.7

 

 

 

118.7

 

 

 

36.2

%

 

 

431.4

 

 

 

342.1

 

 

 

26.1

%

Income before income taxes

 

$

69.7

 

 

$

72.4

 

 

 

(3.7

)%

 

$

187.9

 

 

$

180.2

 

 

 

4.3

%

Income Before Income Taxes
   Margin (1)

 

 

30.1

%

 

 

37.9

%

 

 

 

 

 

30.3

%

 

 

34.5

%

 

 

 

EBITDAC - Adjusted (2)

 

$

85.2

 

 

$

84.3

 

 

 

1.1

%

 

$

239.3

 

 

$

209.2

 

 

 

14.4

%

EBITDAC Margin - Adjusted (2)

 

 

36.8

%

 

 

44.2

%

 

 

 

 

 

38.6

%

 

 

40.1

%

 

 

 

Organic Revenue growth rate (2)

 

 

14.5

%

 

 

13.4

%

 

 

 

 

 

13.6

%

 

 

13.6

%

 

 

 

Employee compensation and benefits
   relative to total revenues

 

 

35.8

%

 

 

38.8

%

 

 

 

 

 

37.9

%

 

 

41.8

%

 

 

 

Other operating expenses relative
   to total revenues

 

 

27.4

%

 

 

17.1

%

 

 

 

 

 

23.5

%

 

 

18.2

%

 

 

 

Capital expenditures

 

$

3.3

 

 

$

4.7

 

 

 

(29.8

%)

 

$

14.2

 

 

$

11.3

 

 

 

25.7

%

Total assets at September 30,

 

 

 

 

 

 

 

 

 

 

$

4,476.3

 

 

$

3,789.4

 

 

 

18.1

%

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The National Programs Segment’s total revenue for the three months ended September 30, 20172022 increased 3.3%21.1%, or $4.1$40.3 million, fromas compared to the same period in 2016,2021, to $127.7$231.4 million. The $4.5$52.9 million net increase in core commissions and fees revenue was driven by: (i) $3.5approximately $26.6 million related toof net new and renewal business; (ii) approximately $1.0$27.4 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016.2021; (iii) an offsetting decrease from the impact of foreign currency translation of $0.2 million; and (iv) an offsetting decrease of $0.9 million related to commissions and fees revenue from business divested in the preceding twelve months. Profit-sharing contingent

42

commissions and GSCs were $1.8 million for the third quarter of 2017, which was a decrease of $0.82022 decreased approximately $12.7 million fromor 195.4% as compared to the third quarter of 2016 reflecting the actual loss experience from our carrier partners.


2021. This decrease was driven by a reduction of approximately $15.0 million due to estimated insured property losses associated with Hurricane Ian.

The National Programs Segment’s growth rate for total commissions and fees was 3.0%increase by 28.7%, and the organic revenueOrganic Revenue growth rate was 2.9%14.5% for the three months ended September 30, 2017.2022. The organic revenueOrganic Revenue growth was driven primarily by an increase in lender-placed coverage, good new business and retention, exposure unit expansion and rate was mainly due to strong growth in our lender placed coverage, core commercial and residential earthquake programs, as well as our all-risk program that continues to build momentum. The growth from these and other programs was materially offset by continued downward rate pressureincreases for our coastal property programs and the impact related to a change in carrier risk appetite.

many programs.

Income before income taxes for the three months ended September 30, 20172022 decreased 0.4%3.7%, or $0.1$2.7 million, as compared to the same period in 2021, to $69.7 million. Income before income taxes decreased due to the drivers of EBITDAC described below along with an increase in intercompany interest expense and amortization expense related to recent acquisitions, partially offset by a decrease in estimated acquisition earn-out payables associated with a business impacted by Hurricane Ian.

EBITDAC - Adjusted for the three months ended September 30, 2022 increased 1.1%, or $0.9 million, from the same period in 2016,2021, to $32.2$85.2 million. The decrease wasEBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 36.8% from 44.2% in the same period in 2021. EBITDAC - Adjusted increased slower than revenues due to lower profit-sharing contingent commissions and estimated losses in our Captives driven by the investment in our new core commercial program that began operating in July 2017 offset by a $2.5 million decrease in the intercompany interest expense charge for acquisitions.

estimated insured property losses associated with Hurricane Ian.

The National Programs Segment'sSegment’s total revenue for the nine months ended September 30, 20172022 increased 2.7%18.6%, or $9.1$97.0 million, fromas compared to the same period in 2016,2021, to $342.6$619.3 million. The $5.2$108.8 million increase in core commissions and fees revenue was driven by: (i) $4.3approximately $67.2 million related toof net new and renewal business,business; (ii) approximately $1.2$45.0 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016,2021; (iii) an offsetting decrease from the impact of foreign currency translation of $0.3 million; and (iii) a(iv) an offsetting decrease of $0.3$3.0 million related to commissions and fees revenue from business divested in 2016 and 2017. Profit-sharing contingent commissions and GSCs were $16.0 million for the first nine months of 2017, which was an increase of $3.9 million from the same period in 2016 primarily driven by receipt of a new contingent commission we did not receive in the prior year.

preceding twelve months.

The National Programs Segment’s growth rate for total commissions and fees was 2.7%increase by 21.9%, and the organic revenueOrganic Revenue growth rate was 1.3%13.6%, for the nine months ended September 30, 2017. This organic revenue2022. The Organic Revenue growth rate was mainly due to strong growthdriven primarily by an increase in our lender placed coverage, core commercialgood new business and residential earthquake programs, as well as our all-risk program that continue to build momentum. The growth from theseretention, exposure unit expansion and other programs was substantially offset by continued downward rate pressureincreases for our coastal property programs and the impact related to carrier risk appetite at certainmany programs.

Income before income taxes for the nine months ended September 30, 2017 decreased 0.4%2022 increased 4.3%, or $0.2$7.7 million, from the same period in 2016,2021, to $68.1$187.9 million. The decrease was driven byIncome before income taxes increased due to the investment in our core commercial program, $5.8 million in prior year credits related to premium taxes and a $7.4 million increase in employee compensation and benefits.drivers of EBITDAC described below. This decrease was partially offset by a $7.6 million decreasean increase in the intercompany interest expense charge for acquisitions along with additional profitand increased amortization expense associated with recent acquisitions.

EBITDAC - Adjusted for the overall growthnine months ended September 30, 2022 increased 14.4%, or $30.1 million, as compared to the same period in revenue.


2021, to $239.3 million. EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 38.6% from 40.1% in the same period in 2021. EBITDAC - Adjusted increased slower than revenues due to lower profit-sharing contingent commissions and estimated losses in our Captives driven by estimated insured property losses associated with Hurricane Ian.

43

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,Approximately 83.3% of the Wholesale Brokerage Segment’s revenues are primarilycommissions and fees revenue is commission based.

Financial information relating to our Wholesale Brokerage Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except percentages)2017 2016 % Change 2017 2016 % Change
REVENUES           
Core commissions and fees$70,831
 $66,201
 7.0 % $200,261
 $173,223
 15.6 %
Profit-sharing contingent commissions350
 3,520
 (90.1)% 6,991
 10,069
 (30.6)%
Guaranteed supplemental commissions324
 411
 (21.2)% 1,032
 1,381
 (25.3)%
Investment income—
 —
 — % —
 4
 (100.0)%
Other income, net69
 60
 15.0 % 528
 216
 144.4 %
Total revenues71,574
 70,192
 2.0 % 208,812
 184,893
 12.9 %
EXPENSES           
Employee compensation and benefits34,678
 33,187
 4.5 % 104,098
 90,099
 15.5 %
Other operating expenses10,814
 11,175
 (3.2)% 33,259
 31,141
 6.8 %
Loss/(gain) on disposal—
 —
 — % —
 —
 — %
Amortization2,845
 2,882
 (1.3)% 8,621
 7,915
 8.9 %
Depreciation471
 503
 (6.4)% 1,438
 1,487
 (3.3)%
Interest1,515
 1,540
 (1.6)% 4,803
 2,472
 94.3 %
Change in estimated acquisition earn-out payables32
 43
 (25.6)% 24
 68
 (64.7)%
Total expenses50,355
 49,330
 2.1 % 152,243
 133,182
 14.3 %
Income before income taxes$21,219
 $20,862
 1.7 % $56,569
 $51,711
 9.4 %
Organic revenue growth rate (1)
6.1% 6.7%   6.5% 4.8%  
Employee compensation and benefits relative to total revenues48.5% 47.3%   49.9% 48.7%  
Other operating expenses relative to total revenues15.1% 15.9%   15.9% 16.8%  
Capital expenditures$214
 $11
   $1,606
 $925
  
Total assets at September 30      $1,258,783
 $1,053,516
  

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core commissions and fees

 

$

123.0

 

 

$

110.0

 

 

 

11.8

%

 

$

333.0

 

 

$

301.0

 

 

 

10.6

%

Profit-sharing contingent commissions

 

 

3.1

 

 

 

2.4

 

 

 

29.2

%

 

 

8.2

 

 

 

6.5

 

 

 

26.2

%

Investment income

 

 

0.1

 

 

 

—

 

 

 

—

%

 

 

0.2

 

 

 

0.1

 

 

 

100.0

%

Other income, net

 

 

0.1

 

 

 

0.1

 

 

 

—

%

 

 

0.2

 

 

 

0.3

 

 

 

(33.3

)%

Total revenues

 

 

126.3

 

 

 

112.5

 

 

 

12.3

%

 

 

341.6

 

 

 

307.9

 

 

 

10.9

%

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

63.0

 

 

 

55.3

 

 

 

13.9

%

 

 

177.2

 

 

 

160.0

 

 

 

10.8

%

Other operating expenses

 

 

18.6

 

 

 

15.2

 

 

 

22.4

%

 

 

51.4

 

 

 

44.1

 

 

 

16.6

%

(Gain)/loss on disposal

 

 

—

 

 

 

—

 

 

 

—

%

 

 

0.2

 

 

 

—

 

 

 

—

%

Amortization

 

 

2.6

 

 

 

2.3

 

 

 

13.0

%

 

 

6.7

 

 

 

7.1

 

 

 

(5.6

)%

Depreciation

 

 

0.7

 

 

 

0.6

 

 

 

16.7

%

 

 

2.0

 

 

 

2.0

 

 

 

—

%

Interest

 

 

3.2

 

 

 

3.9

 

 

 

(17.9

)%

 

 

10.0

 

 

 

12.2

 

 

 

(18.0

)%

Change in estimated acquisition
   earn-out payables

 

 

2.8

 

 

 

5.8

 

 

 

(51.7

)%

 

 

(0.7

)

 

 

8.0

 

 

 

(108.8

)%

Total expenses

 

 

90.9

 

 

 

83.1

 

 

 

9.4

%

 

 

246.8

 

 

 

233.4

 

 

 

5.7

%

Income before income taxes

 

$

35.4

 

 

$

29.4

 

 

 

20.4

%

 

$

94.8

 

 

$

74.5

 

 

 

27.2

%

Income Before Income Taxes
   Margin (1)

 

 

28.0

%

 

 

26.1

%

 

 

 

 

 

27.8

%

 

 

24.2

%

 

 

 

EBITDAC - Adjusted (2)

 

$

45.5

 

 

$

42.0

 

 

 

8.3

%

 

$

114.5

 

 

$

103.8

 

 

 

10.3

%

EBITDAC Margin - Adjusted (2)

 

 

36.0

%

 

 

37.3

%

 

 

 

 

 

33.5

%

 

 

33.7

%

 

 

 

Organic Revenue growth rate (2)

 

 

4.5

%

 

 

4.8

%

 

 

 

 

 

7.5

%

 

 

7.6

%

 

 

 

Employee compensation and benefits
   relative to total revenues

 

 

49.9

%

 

 

49.2

%

 

 

 

 

 

51.9

%

 

 

52.0

%

 

 

 

Other operating expenses relative to
   total revenues

 

 

14.7

%

 

 

13.5

%

 

 

 

 

 

15.0

%

 

 

14.3

%

 

 

 

Capital expenditures

 

$

0.7

 

 

$

0.2

 

 

NMF

 

 

$

1.5

 

 

$

1.3

 

 

 

15.4

%

Total assets at September 30,

 

 

 

 

 

 

 

 

 

 

$

1,366.5

 

 

$

1,918.2

 

 

 

(28.8

%)

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Wholesale Brokerage Segment’s total revenues for the three months ended September 30, 20172022 increased 2.0%12.3%, or $1.4$13.8 million, fromas compared to the same period in 2016,2021, to $71.6$126.3 million. The $4.6$13.0 million net increase in core commissions and fees revenue was driven primarily by: (i) $0.5$4.9 million related to net new and renewal business; and (ii) $8.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (ii) $4.1 million related to net new and renewal business.2021. Profit-sharing contingent commissions and GSCs for the third quarter of 2017 decreased $3.32022 increased $0.7 million compared to the third quarter of 2016, to $0.7 million as a result of decreased carrier profitability.2021. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 2.0%11.8%, and the organic revenueOrganic Revenue growth rate was 6.1%4.5% for the third quarter of 2017.2022. The organic revenueOrganic Revenue growth rate was driven by net new business, good retention as well as rate increases for open brokerage. However, the Organic Revenue growth was impacted by the performance of a business sold in the fourth quarter of 2022 and renewalcontinued headwinds in our personal lines business and modest increasescaused by reduced carrier appetite to write coverage in exposure units.

certain geographies or lines of business.

Income before income taxes for the three months ended September 30, 20172022 increased 1.7%20.4%, or $0.4$6.0 million, overas compared to the same period in 2016,2021, to $21.2 million, primarily$35.4 million. The increase was due to: (i) the net increasedrivers of EBITDAC - Adjusted described below; (ii) decrease in revenuethe change in estimated acquisition earn-out payables; and (iii) lower intercompany interest expense; partially offset by (iv) acquisition/integration costs.

44

EBITDAC - Adjusted for the three months ended September 30, 2022 increased 8.3%, or $3.5 million, as described above, offset partially by (ii) an increase in employee compensation and benefits of $1.5 million, of which $0.4 million was relatedcompared to acquisitions that had no comparable compensation and benefits in the same period in 2021, to $45.5 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 36.0% from 37.3%, as compared to the same period in 2021. EBITDAC Margin - Adjusted decreased due to: (i) the seasonality of 2016, with the remainder relatedrecent acquisitions; and (ii) increased variable operating expenses as compared to additional teammates to support increased transaction volumes.


prior year.

The Wholesale Brokerage Segment’s total revenues for the nine months ended September 30, 20172022 increased 12.9%10.9%, or $23.9$33.7 million, fromas compared to the same period in 2016,2021, to $208.8$341.6 million. The $27.0$32.0 million net increase in core commissions and fees revenue was driven primarily by: (i) $15.8$22.5 million related to thenet new and renewal business; and (ii) $9.6 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (ii) $11.2 million related to net new and renewal business.2021. Profit-sharing contingent commissions and GSCs for the first nine months of 2017 decreased $3.42022 increased approximately $1.7 million compared to the same period of 2016, to $8.0 million. This decrease in contingent commissions was driven by an increase in loss ratios with certain carriers, and offset partially by contingent commissions received from acquisitions that had no comparable contingent revenue during the same period of 2016.2021. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 12.8%10.6%, and the organic revenueOrganic Revenue growth rate was 6.5%7.5% for the first nine months of 2017, and2022. The Organic Revenue growth rate was driven by net new business, good retention as well as rate increases for most lines of coverage. However, the Organic Revenue growth was impacted by the performance of a business sold in the fourth quarter of 2022 and renewaldeclines in our personal lines business and modest increasescaused by reduced carrier appetite to write coverage in exposure units, partially offset by a continued significant contraction in insurance premium rates for catastrophe-prone properties.

certain geographies or lines of business.

Income before income taxes for the nine months ended September 30, 20172022 increased 9.4%27.2%, or $4.9$20.3 million, overas compared to the same period in 2016,2021, to $56.6 million, primarily due to:$94.8 million. (i) the net increasedrivers of EBITDAC - Adjusted described below; (ii) decrease in revenuethe change in estimated acquisition earn-out payables; and (iii) lower intercompany interest expense; partially offset by (iv) acquisition/integration costs.

EBITDAC - Adjusted for the nine months ended September 30, 2022 increased 10.3%, or $10.7 million, as described above, offset by; (ii) an increasecompared to the same period in employee compensation and benefits of $14.0 million, of which $9.5 million was related2021, to acquisitions that had no comparable compensation and benefits$114.5 million. EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 33.5% from 33.7% in the same period of 2016 with the remainder related to additional teammates to supportin 2021. EBITDAC Margin - Adjusted decreased due to: (i) higher broker compensation; (ii) increased transaction volumes; (iii) a $2.1 million increase in othervariable operating expenses, which are primarily travel and meeting related; and (iii) the seasonality of which $2.8 million was related to acquisitions that had no comparable expensesrecent acquisitions; partially offset by (iv) higher profit-sharing contingent commissions; and (v) leveraging our expense base in the same period of 2016, while existing other operating expenses decreased $0.7 million; and (iv) an increase of $2.3 million in intercompany interest expense related to acquisitions completed in the previous twelve months.


connection with revenue growth.

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.

45

Financial information relating to our Services Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:

 For the three months 
 ended September 30,		 For the nine months 
 ended September 30,
(in thousands, except percentages)2017 2016 % Change 2017 2016 % Change
REVENUES           
Core commissions and fees$41,419
 $39,529
 4.8 % $122,173
 $117,702
 3.8 %
Profit-sharing contingent commissions—
 —
 — % —
 —
 — %
Guaranteed supplemental commissions—
 —
 — % —
 —
 — %
Investment income72
 57
 26.3 % 224
 204
 9.8 %
Other income, net—
 —
 — % —
 —
 — %
Total revenues41,491
 39,586
 4.8 % 122,397
 117,906
 3.8 %
EXPENSES           
Employee compensation and benefits19,993
 20,151
 (0.8)% 59,606
 58,658
 1.6 %
Other operating expenses11,173
 10,583
 5.6 % 32,870
 32,722
 0.5 %
Loss/(gain) on disposal—
 —
 — % 55
 —
 — %
Amortization1,137
 1,140
 (0.3)% 3,412
 3,345
 2.0 %
Depreciation402
 473
 (15.0)% 1,191
 1,432
 (16.8)%
Interest876
 1,257
 (30.3)% 2,783
 3,820
 (27.1)%
Change in estimated acquisition earn-out payables—
 11
 (100.0)% —
 —
 — %
Total expenses33,581
 33,615
 (0.1)% 99,917
 99,977
 (0.1)%
Income before income taxes$7,910
 $5,971
 32.5 % $22,480
 $17,929
 25.4 %
Organic revenue growth rate (1)
4.8% 1.6%   2.9% 3.1%  
Employee compensation and benefits relative to total revenues48.2% 50.9%   48.7% 49.7%  
Other operating expenses relative to total revenues26.9% 26.7%   26.9% 27.8%  
Capital expenditures$364
 $80
   $856
 $561
  
Total assets at September 30      $432,331
 $342,360
  

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in millions, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core commissions and fees

 

$

41.1

 

 

$

43.7

 

 

 

(5.9

%)

 

$

128.8

 

 

$

135.6

 

 

 

(5.0

%)

Profit-sharing contingent commissions

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Investment income

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Other income, net

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Total revenues

 

 

41.1

 

 

 

43.7

 

 

 

(5.9

%)

 

 

128.8

 

 

 

135.6

 

 

 

(5.0

%)

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

22.5

 

 

 

22.2

 

 

 

1.4

%

 

 

67.2

 

 

 

67.0

 

 

 

0.3

%

Other operating expenses

 

 

11.7

 

 

 

12.1

 

 

 

(3.3

)%

 

 

36.9

 

 

 

37.3

 

 

 

(1.1

%)

(Gain)/loss on disposal

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Amortization

 

 

1.3

 

 

 

1.3

 

 

 

—

%

 

 

3.9

 

 

 

4.0

 

 

 

(2.5

)%

Depreciation

 

 

0.4

 

 

 

0.3

 

 

 

33.3

%

 

 

1.2

 

 

 

1.1

 

 

 

9.1

%

Interest

 

 

0.5

 

 

 

0.7

 

 

 

(28.6

)%

 

 

1.6

 

 

 

2.2

 

 

 

(27.3

)%

Change in estimated acquisition earn-out payables

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Total expenses

 

 

36.4

 

 

 

36.6

 

 

 

(0.5

)%

 

 

110.8

 

 

 

111.6

 

 

 

(0.7

)%

Income before income taxes

 

$

4.7

 

 

$

7.1

 

 

 

(33.8

%)

 

$

18.0

 

 

$

24.0

 

 

 

(25.0

)%

Income Before Income Taxes Margin (1)

 

 

11.4

%

 

 

16.2

%

 

 

 

 

 

14.0

%

 

 

17.7

%

 

 

 

EBITDAC - Adjusted (2)

 

$

6.9

 

 

$

9.4

 

 

 

(26.6

%)

 

$

24.7

 

 

$

31.3

 

 

 

(21.1

)%

EBITDAC Margin - Adjusted (2)

 

 

16.8

%

 

 

21.5

%

 

 

 

 

 

19.2

%

 

 

23.1

%

 

 

 

Organic Revenue growth rate (2)

 

 

(4.6

%)

 

 

0.5

%

 

 

 

 

 

(3.7

%)

 

 

3.6

%

 

 

 

Employee compensation and benefits relative to total
   revenues

 

 

54.7

%

 

 

50.8

%

 

 

 

 

 

52.2

%

 

 

49.4

%

 

 

 

Other operating expenses relative to total revenues

 

 

28.5

%

 

 

27.7

%

 

 

 

 

 

28.6

%

 

 

27.5

%

 

 

 

Capital expenditures

 

$

0.3

 

 

$

0.9

 

 

 

(66.7

)%

 

$

0.8

 

 

$

1.4

 

 

 

(42.9

)%

Total assets at September 30,

 

 

 

 

 

 

 

 

 

 

$

289.1

 

 

$

449.5

 

 

 

(35.7

)%

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Services Segment’s total revenues for the three months ended September 30, 2017 increased 4.8%2022 decreased 5.9%, or $1.9$2.6 million, overas compared to the same period in 2016,2021, to $41.5$41.1 million. The $1.9 million increase in core commissions and fees revenue was related to net new business. The Services Segment’s growth rate for total commissions and fees was 4.8% and the organic revenue growth rate was 4.8%Organic Revenue declined 4.6% for the third quarter of 2017. The organic revenue growth rate was primarily due to new business and increased premiums for workers’ compensation and managed-care claims.

2022 driven by a lack of weather-related claims coupled with reduced severity in the current year.

Income before income taxes for the three months ended September 30, 2017 increased 32.5%2022 decreased 33.8%, or $1.9$2.4 million, overas compared to the same period in 2016,2021, to $7.9 million$4.7 million. Income before income taxes decreased due to a combinationthe drivers of organic revenue growthEBITDAC - Adjusted described below.

EBITDAC - Adjusted for the three months ended September 30, 2022 decreased 26.6%, or $2.5 million, from higher margin businessesthe same period in 2021, to $6.9 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 16.8% from 21.5% in the same period in 2021. The decrease in EBITDAC and continued expense management.

EBITDAC Margin was driven primarily by the reduction in revenue.

The Services Segment’s total revenues for the nine months ended September 30, 2017 increased 3.8%2022 decreased 5.0%, or $4.5$6.8 million overfrom the same period in 2016,2021, to $122.4$128.8 million. The $4.5 million increase in core commissions and fees revenue was driven by: (i) $3.4 million related to net new and renewal business; (ii) approximately $0.9 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (iii) $0.2 million related to commissions and fees revenue from net transferred/divested business in 2016 and 2017. The Services Segment’s growth rate for total commissions and fees wasand Organic Revenue growth declined 3.8% and the organic revenue growth rate was 2.9% for the first nine months of 2017. This organic revenue growth rate2022. The decrease in Organic Revenue was drivencaused primarily from growthby: (i) higher COVID-19 travel restricted claims in our Social Security disability advocacy businesses, as well as new businessthe prior year; and increased premiums for workers’ compensation and managed-care claims.


(ii) a lack of weather-related claims coupled with reduced severity in the current year.

Income before income taxes for the nine months ended September 30, 2017 increased 25.4%2022 decreased $6.0 million, or 25.0%, or $4.6 million, overfrom the same period in 2016,2021, to $22.5 million$18.0 million. Income before income taxes decreased due to a combinationthe drivers of organic revenue growthEBITDAC described below.

EBITDAC - Adjusted for the nine months ended September 30, 2022 decreased 21.1%, or $6.6 million, from higher margin businessesthe same period in 2021, to $24.7 million. EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 19.2% from 23.1% in the same period in 2021. The decrease in EBITDAC and continued expense management.

EBITDAC Margin were driven primarily by the decrease in revenue.

46

Other

As discussed in Note 1012 of the Notes to Condensed Consolidated Financial Statements, the “Other” column in the Segment Information table includes any incomerevenue and expenses not allocated to reportable segments, and corporate-related items, including the inter-companyintercompany interest expense charges to reporting segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to maintain a conservative balance sheet and strong 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. If necessary, we alsoWe have availablethe ability to utilize our revolving credit facility,Revolving Credit Facility, which providesas of September 30, 2022 provided up to $800.0$650.0 million in available cash, and wecash. We believe that we have access to additional funds, if needed, through the capital markets or private placements 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 Amended and RestatedRevolving Credit Agreement (as defined below),Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next twelve12 months.

The Revolving Credit Facility contains an expansion option for up to an additional $500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the Term Loan Credit Agreement, the unsecured term loan in the initial amount of $300.0 million may be increased by up to $150.0 million, subject to the approval of participating lenders. On March 31, 2022, the Company entered into a Loan Agreement (the “Loan Agreement") which provided term loan capacity of $800.0 million. Additionally, the Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment under the existing Loan Agreement or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. Including the expansion options under all existing credit agreements, the Company has access to up to $1.7 billion of incremental borrowing capacity as of September 30, 2022.

Contractual Cash Obligations

As of September 30, 2017,2022, our contractual cash obligations were as follows:

 

 

Payments Due by Period

 

(in millions)

 

Total

 

 

Less than
1 year

 

 

1-3
years

 

 

4-5
years

 

 

After
5 years

 

Long-term debt

 

$

4,142.5

 

 

$

67.5

 

 

$

1,125.0

 

 

$

700.0

 

 

$

2,250.0

 

Other liabilities (1)

 

 

152.5

 

 

 

24.9

 

 

 

12.2

 

 

 

11.2

 

 

 

104.2

 

Operating leases (2)

 

 

272.1

 

 

 

57.4

 

 

 

94.8

 

 

 

59.9

 

 

 

60.0

 

Interest obligations

 

 

1,592.3

 

 

 

169.8

 

 

 

288.6

 

 

 

214.7

 

 

 

919.2

 

Unrecognized tax benefits

 

 

3.1

 

 

 

—

 

 

 

3.1

 

 

 

—

 

 

 

—

 

Maximum future acquisition contingency payments (3)

 

 

550.3

 

 

 

166.8

 

 

 

375.7

 

 

 

7.8

 

 

 

—

 

Total contractual cash obligations (4)

 

$

6,712.8

 

 

$

486.4

 

 

$

1,899.4

 

 

$

993.6

 

 

$

3,333.4

 

(1)
Includes the current portion of other long-term liabilities, and approximately $15.6 million of deferred employer-only payroll tax payments related to the CARES Act which is expected to be paid in December 2022.
 Payments Due by Period
(in thousands)Total 
Less Than
1 Year
 1-3 Years 4-5 Years 
After 5
Years
Long-term debt$990,000
 $120,000
 $65,000
 $305,000
 $500,000
Other liabilities(1)
47,137
 2,828
 6,732
 2,030
 35,547
Operating leases200,261
 42,352
 71,297
 47,872
 38,740
Interest obligations191,673
 35,255
 60,255
 55,038
 41,125
Unrecognized tax benefits1,293
 —
 1,293
 —
 —
Maximum future acquisition contingency payments(2)
81,505
 49,879
 31,626
 —
 —
Total contractual cash obligations$1,511,869
 $250,314
 $236,203
 $409,940
 $615,412
(2)
Includes $9.4 million of future lease commitments expected to commence later in 2022 and 2023.
(3)
Includes $249.9 million of current and non-current estimated acquisition earn-out payables. Earn-out payables for acquisitions not denominated in U.S. dollars are measured at the current foreign exchange rate. Four of the estimated acquisition earn-out payables assumed in connection with the acquisition of GRP included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of September 30, 2022 is $2.8 million. The Company deems a significant increase to this amount to be unlikely.
(1)Includes the current portion of other long-term liabilities.
(2)Includes $34.2 million of current and non-current estimated earn-out payables.
Debt
(4)
Does not include approximately $32.6 million of current liability for a dividend of $0.1150 per share approved by the Board of Directors on October 19, 2022.

47

Debt

Total debt at September 30, 20172022 was $980.7$4,107.9 million net of unamortized discount and debt issuance costs, which was a decreasean increase of $93.1$2,085.0 million compared to December 31, 2016.2021. The decrease includesincrease includes: (i) the repaymentissuance of $91.7$1,200.0 million in aggregate principal includingamount of Senior Notes on March 17, 2022, exclusive of debt issuance costs and discounts applied to the repaymentprincipal; (ii) the drawdown of $350.0 million of the $0.5revolving credit facility in conjunction with the acquisition payment for Orchid on March 31, 2022; (iii) the aggregate drawdown of $800.0 million under the Loan Agreement in a short-term note payable related toconnection with the 2016 acquisitionfunding of Social Security Advocates for the Disabled, LLC,acquisitions of GRP and BdB which occurred on various dates on or before the final draw on April 28, 2022; and (iv) net of the amortization of discounted debt related to our 4.200%various unsecured Senior Notes, due 2024 and debt issuance cost amortization of $1.4 million. The Company also$2.8 million; offset by decreases due to: (i) the scheduled principal amortization balances related to our various existing floating-rate debt term notes in total of $44.4 million; (ii) added $2.8discounted debt balances related to the issuance of $600.0 million in aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million in aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”) of $10.4 million; (iii) debt issuance costs related to the Notes and the Loan Agreement of $13.0 million; and (iv) through September 30, 2022 the Company repaying $200.0 million of debt related to the outstanding amount drawn under the revolving credit facility under the Second Amended and Restated Credit Agreement.

During the nine months ended September 30, 2022, the Company repaid $9.4 million of principal related to the Second Amended and Restated Credit Agreement (as defined below) thatterm loan through the quarterly scheduled amortized principal payments. The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $237.5 million as of September 30, 2022. The Company's next scheduled amortized principal payment is due December 31, 2022 and is equal to $3.1 million.

During the nine months ended September 30, 2022, the Company repaid $22.5 million of principal related to the Term Loan Credit Agreement through quarterly scheduled amortized principal payments. The Term Loan Credit Agreement had an outstanding balance of $217.5 million as of September 30, 2022. The Company’s next scheduled amortized principal payment is due December 31, 2022 and is equal to $7.5 million.

During the nine months ended September 30, 2022, the Company repaid $12.5 million of principal related to the Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) through quarterly scheduled amortized principal payments. The Term A-2 Loans had an outstanding balance of $487.5 million as of September 30, 2022. The Company’s next scheduled amortized principal payment is due December 31, 2022 and is equal to $6.3 million.

On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to, but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable under the GRP Acquisition Agreement and to pay fees and expenses associated with the foregoing. As of September 30, 2022, there was executed in June 2017.

a total outstanding debt balance of $1,200.0 million exclusive of the associated discount balance on both Notes.

On June 28, 2017,March 31, 2022, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”)the Loan Agreement with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as administrative agentjoint bookrunners and certain other banks as co-syndication agentsjoint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and co-documentation agents. The Amended(ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, Restated Credit Agreement amended and restatedtogether with the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”Term A-1 Loan Commitments, the “Term Loan Commitments”). The AmendedCompany may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date (the "Effective Date") until the date which is the first anniversary thereof. Once borrowed, Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and Restated Credit Agreement extendspayable on the applicabledate that is the third anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. Once borrowed, Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of the existingEffective Date unless such maturity date is extended as provided under the Loan Agreement. While outstanding, the undrawn Term Loan Commitments accrue a commitment fee of 0.15% beginning on the earlier of the initial funding of Term Loans under the Loan Agreement and the date that is 120 days from the Effective Date. Once drawn, Term A-1 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.125% or Base Rate plus 0.125% (subject to a

48

pricing grid for changes in the Company’s credit rating and/or leverage) and Term A-2 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.25% or Base Rate plus 0.25% (subject to a pricing grid for changes in the Company’s credit rating and/or leverage). The Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As of September 30, 2022 the outstanding balance on the Loan Agreement was $787.5 million.

On March 31, 2022 the Company accessed $350.0 million of available proceeds on the 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 extendingunder the applicable maturity date to June 28, 2022. The term loan principal amortization schedule was reset with payments due quarterly. 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 the modified agreement, while also carrying forward $1.6 million on the Consolidated Balance Sheet the unamortized portion of the Original Credit Agreement debt issuance costs which will amortize over the term of theSecond Amended and Restated Credit Agreement. On September 30, 2017, a scheduled principal payment of $5.0 million was satisfied perThe proceeds were used in conjunction with the termsfunding of the Amended and Restated Credit Agreement.Orchid acquisition along with funds from cash on hand. As of September 30, 2017, there2022 the outstanding loan balance was an outstanding debt balance issued under the terms of the Amended and Restated Credit Agreement of $390.0 million with no borrowings outstanding against the


revolving loan. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment of $5.0 million is due December 31, 2017.
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.”
$150.0 million.

49

ITEM 3. 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. treasuryTreasury securities, and professionally managed shortshort-term duration fixed income funds. These investments are subject to interest rate risk. The fair valuesvalue of our invested assets at September 30, 20172022 and December 31, 2016,2021 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 September 30, 2017,2022, we had $390.0$787.5 million outstanding under the Loan Agreement tied to the Secured Overnight Financing Rate (“SOFR”) and $605.0 million of borrowings outstanding under our term loan which bearscertain credit agreements tied to the overnight London Interbank Offered Rate (“LIBOR”). These aforementioned notes bear interest on a floating basis tied to the London Interbank Offered Rate (LIBOR) and are 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 Condensed Consolidated Financial Statements.

We are subject As of July 2017, the UK Financial Conduct Authority (“FCA”) has urged banks and institutions to discontinue their use of the LIBOR benchmark rate for floating-rate debt, and other financial instruments tied to the rate after 2021. However, on November 30, 2020, the ICE Benchmark Administration Limited (“IBA”), announced that it would consult in early December 2020 on its intention to cease the publication of the one-week and two-month U.S. dollar LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining U.S. dollar LIBOR settings (overnight and one, three, six and 12 months) immediately following the LIBOR publication on June 30, 2023. In connection to the released statement from the IBA, on December 4, 2020, the FCA released a similar statement in support of the continuation of the LIBOR rate beyond 2021. The Alternative Reference Rates Committee (“ARRC”) have recommended the Secured Overnight Financing Rate (“SOFR”) as the best alternative rate to LIBOR post discontinuance and has proposed a transition plan and timeline designed to encourage the adoption of SOFR from LIBOR. Post consultation on March 5, 2021, IBA confirmed its proposed dates to stop publishing the London interbank offered rate for dollars ("USD LIBOR") on a representative basis.

When the Company entered into the Second Amended and Restated Credit on October 27, 2021, it included provisions regarding transition from LIBOR to SOFR in preparation of the LIBOR cessation. On March 31, 2022, the Company entered into the Loan Agreement which bears interest tied to the annual rate for the adjusted Secured Overnight Financing Rate ("Adjusted Term SOFR"). In the coming periods, the Company will assess any other current agreements with benchmark rates tied to LIBOR with an expectation that the Company will be prepared for a termination of LIBOR benchmarks prior to June 30, 2023 when typical rate settings will no longer be available.

The majority of our international operations do not have material activity transacted in currencies other than their functional currency which would expose the Company to transactional currency rate risk. The primary exposure to operational exchange rate risk primarily in our U.K-basedU.K.-based wholesale brokerage business thatwhich has a cost base principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars.dollars, which is deemed the functional currency for this business. We are subject to translational exchange rate risk having businesses operating outside of the U.S. in the following functional currencies, Canadian dollar, British pounds and euros. Based upon our foreign currency rate exposure as of September 30, 2017,2022, an immediate 10% hypothetical change of foreign currency exchange rates

would not have a material effect on our Condensed Consolidated Financial Statements.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation (the “Evaluation”) required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of September 30, 2017.2022. Based upon the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended September 30, 2017,2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Control Over Financial Reporting

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the

50

objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.


The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are supplied in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item 4 of Part I of this Quarterly Report on Form 10-Q contains the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

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PART II

In Item 3 of Part I of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2016,2021, certain information concerning litigation claims arising in the ordinary course of business was disclosed. Such information was current as of the date of filing. During the Company’s fiscal quarter ended September 30, 2017,2022, no new legal proceedings, or material developments with respect to existing legal proceedings, occurred which require disclosure in this Quarterly Report on Form 10-Q.

ITEM 1A. Risk Factors

There were no material changes in the risk factors previously disclosed in Item 1A, “Risk Factors” included inof the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

2021.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

In connection with certain business combinations, the Company issued 252,802 shares of the Company's common stock on July 1, 2022 to the owners of the businesses acquired. The issuance was made in reliance upon the following exemptions or exclusions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"): Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act, and Regulation S promulgated under the Securities Act.

Issuer Purchases of Equity Securities

The following table provides information about our repurchase of shares of our common stock during the three months ended September 30, 2017:

2022:

 

 

Total number
of shares
purchased (1)

 

 

Average price
paid per share

 

 

Total number of
shares purchased
as part of publicly
announced plans
or programs

 

 

Maximum value
that may yet be
purchased
under the plans
or programs (2)

 

July 1, 2022 to July 31, 2022

 

 

2,533

 

 

$

59.51

 

 

 

—

 

 

$

249.6

 

August 1, 2022 to August 31, 2022

 

 

2,457

 

 

 

66.54

 

 

 

—

 

 

 

249.6

 

September 1, 2022 to September 30, 2022

 

 

719

 

 

 

58.92

 

 

 

—

 

 

 

249.6

 

Total

 

 

5,709

 

 

$

62.46

 

 

 

—

 

 

$

249.6

 

(1)
All shares reported in this column are attributable to shares withheld for taxes in connection with vesting of restricted shares awarded under our Performance Stock Plan, our 2010 Stock Incentive Plan.
 
Total Number
of Shares
Purchased(1)
 
Average Price
Paid per Share
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum Value that
May Yet be Purchased
Under the Plans or
Programs(2)
July 1, 2017 to July 31, 201793,810
 $42.96
 86,845
 $352,453,029
August 1, 2017 to August 31, 2017983,002
 43.92
 967,888
 302,453,029
September 1, 2017 to September 30, 201744,210
 46.27
 —
 302,453,029
Total1,121,022
 $43.93
 1,054,733
 $302,453,029
(2)
On July 18, 2014, the Board of Directors authorized the repurchase of up to $200.0 million of the Company's shares of common stock, and on July 20, 2015, the Board of Directors authorized the repurchase of an additional $400.0 million of the Company's shares of common stock. On May 1, 2019, the Board of Directors approved an additional repurchase authorization amount of $372.5 million to bring the total available share repurchase authorization to approximately $500.0 million. After completing these open market repurchases, the Company’s outstanding Board approved share repurchase authorization is approximately $249.6 million. Between January 1, 2014 and September 30, 2022, the Company repurchased a total of approximately 19.7 million shares for an aggregate cost of approximately $748.0 million.
(3)
Dollar values stated in millions.
(1)We purchased 1,121,022 shares during the quarter ended September 30, 2017 of which 1,054,733 shares were purchased as part of publicly announced plans as authorized by our Board of Director and 66,289 shares were acquired from our teammates in the net exercise of stock options under our equity compensation plans or to cover required tax withholdings on the vesting of shares in our equity compensation plans.
(2)On July 21, 2014, our Board of Directors approved the repurchase of up to $200.0 million of the Company’s outstanding common stock. 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. Between May 17, 2017 and July 19, 2017, the Company made share repurchases in the open market in total of 348,460 shares at a total cost of $14.9 million. On August 14, 2017, the Company entered into an accelerated share repurchase agreement with an investment bank to purchase an aggregate $50 million of the Company’s common stock. 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. On October 16, 2017, this agreement was completed by the investment bank with the delivery of 108,288 shares of the Company's common stock. After completing these share repurchases, the Company’s outstanding Board-approved share repurchase authorization is $302.4 million. As of September 30, 2017, a total of 9,319,545 shares have been repurchased since the first quarter of 2014.

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ITEM 6. Exhibits

The following exhibits are filed as a part of this Report:

  3.1

Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.1

to Form 8-K filed on March 29, 2018),Articles of Amendment to Articles of Incorporation (adopted April 24, 2003) (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 2003 (Commission file number 001-13619)),2003)and Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 1999 (Commission file number 001-13619))1999).

3.2

BylawsBy-Laws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on October 12, 2016).

31.1

  10.1*

Amendment Agreement, dated July 1, 2022, to Majority Share Purchase Agreement, dated March 7, 2022, between the Company Brown & Brown UK Holdco Limited, GRP (Jersey) Topco Limited and certain other parties named therein.

  31.1

Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant.

31.2

Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of the Registrant.

32.1

Section 1350 Certification by the Chief Executive Officer of the Registrant.

32.2

Section 1350 Certification by the Chief Financial Officer of the Registrant.

101.INS

  101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in inline XBRL, Instance Document.include: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Condensed Consolidated Financial Statements.

101.SCH

  104

Cover Page Interactive Data File (formatted in inline XBRL Taxonomy Extension Schema Document.

101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.and included in Exhibit 101).



* Filed herewith

53

SIGNATURE

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

BROWN & BROWN, INC.

/s/ R. Andrew Watts

Date: November 3, 20172022

R. Andrew Watts

Executive Vice President, Chief Financial Officer and Treasurer

(duly authorized officer, principal financial officer and principal accounting officer)



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