Business Combinations | Business Combinations During the year ended December 31, 2017 , the Company acquired the assets and assumed certain liabilities of eleven insurance intermediaries and one book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by Accounting Standards Codification Topic 805 - Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category within the following two tables. All of these businesses were acquired primarily to expand Brown & Brown’s core business and to attract and hire high-quality individuals. The recorded purchase price for all acquisitions consummated after January 1, 2009 included an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Consolidated Statement of Income when incurred. The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made. Based upon the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the year ended December 31, 2017 , several adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $1.5 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments for the year ended December 31, 2017 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments impacted goodwill, with no effect on earnings or cash in the current period. Cash paid for acquisitions was $41.5 million and $124.7 million in the years ended December 31, 2017 and 2016 , respectively. We completed eleven acquisitions (excluding book of business purchases) during the year ended December 31, 2017 . We completed eight acquisitions (excluding book of business purchases) during the year ended December 31, 2016 . The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and significant adjustments made during the measurement period for prior year acquisitions. During the 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. (in thousands) Name Business Effective Cash Other Recorded Net Assets Maximum Other Various Various $ 41,471 $ 11,708 $ 6,921 $ 60,100 $ 27,451 Total $ 41,471 $ 11,708 $ 6,921 $ 60,100 $ 27,451 The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition. (in thousands) Total Other current assets $ 601 Fixed assets 69 Goodwill 42,172 Purchased customer accounts 18,738 Non-compete agreements 721 Total assets acquired 62,301 Other current liabilities (1,512 ) Deferred income tax, net (689 ) Total liabilities assumed (2,201 ) Net assets acquired $ 60,100 The weighted-average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15.0 years ; and non-compete agreements, 5.0 years . Goodwill of $42.2 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $33.1 million , $7.2 million , $1.2 million and $0.7 million , respectively. Of the total goodwill of $42.2 million , $35.3 million is currently deductible for income tax purposes. The remaining $6.9 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. For the acquisitions completed during 2017, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2017 included in the Consolidated Statement of Income for the year ended December 31, 2017 were $7.8 million . The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2017 included in the Consolidated Statement of Income for the year ended December 31, 2017 was $2.4 million . If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods. (UNAUDITED) For the Year Ended December 31, (in thousands, except per share data) 2017 2016 Total revenues $ 1,891,701 $ 1,784,776 Income before income taxes $ 453,397 $ 429,490 Net income $ 401,908 $ 261,133 Net income per share: Basic $ 2.88 $ 1.87 Diluted $ 2.83 $ 1.85 Weighted-average number of shares outstanding: Basic 136,290 136,139 Diluted 138,793 137,804 Acquisitions in 2016 During the year ended December 31, 2016 , the Company acquired the assets and assumed certain liabilities of seven insurance intermediaries, all of the stock of one insurance intermediary and three books of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC 805. Such adjustments are presented in the “Other” category within the following two tables. For the year ended December 31, 2016 , several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $917,497 , relating to the assumption of certain liabilities. The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and significant adjustments made during the measurement period for prior year acquisitions: (in thousands) Name Business Effective Cash Note Payable Other Recorded Net Assets Maximum Social Security Advocates for the Disabled LLC (SSAD) Services February 1, 2016 $ 32,526 $ 492 $ — $ 971 $ 33,989 $ 3,500 Morstan General Agency, Inc. (Morstan) Wholesale Brokerage June 1, 2016 66,050 — 10,200 3,091 79,341 5,000 Other Various Various 26,140 — 464 400 27,004 7,785 Total $ 124,716 $ 492 $ 10,664 $ 4,462 $ 140,334 $ 16,285 The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition. (in thousands) SSAD Morstan Other Total Cash $ 2,094 $ — $ — $ 2,094 Other current assets 1,042 2,482 1,555 5,079 Fixed assets 307 300 77 684 Goodwill 22,352 51,454 19,570 93,376 Purchased customer accounts 13,069 26,481 11,075 50,625 Non-compete agreements 72 39 117 228 Other assets — — 20 20 Total assets acquired 38,936 80,756 32,414 152,106 Other current liabilities (1,717 ) (1,415 ) (5,410 ) (8,542 ) Deferred income tax, net (3,230 ) — — (3,230 ) Total liabilities assumed (4,947 ) (1,415 ) (5,410 ) (11,772 ) Net assets acquired $ 33,989 $ 79,341 $ 27,004 $ 140,334 The weighted-average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years ; and non-compete agreements, 5 years . Goodwill of $93.4 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $13.1 million , $(1.2) thousand , $57.9 million and $22.4 million , respectively. Of the total goodwill of $93.4 million , $88.9 million is currently deductible for income tax purposes. The remaining $4.5 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. For the acquisitions completed during 2016, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2016 included in the Consolidated Statement of Income for the year ended December 31, 2016 were $34.2 million . The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2016 included in the Consolidated Statement of Income for the year ended December 31, 2016 was $4.3 million . If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods. (UNAUDITED) For the Year Ended December 31, (in thousands, except per share data) 2016 2015 Total revenues $ 1,789,790 $ 1,716,592 Income before income taxes $ 428,194 $ 414,911 Net income $ 260,346 $ 250,783 Net income per share: Basic $ 1.86 $ 1.78 Diluted $ 1.84 $ 1.75 Weighted-average number of shares outstanding: Basic 136,139 137,810 Diluted 137,804 140,112 Acquisitions in 2015 During the year ended December 31, 2015 , Brown & Brown acquired the assets and assumed certain liabilities of thirteen insurance intermediaries and four books of business (customer accounts). The cash paid for these acquisitions was $ 136.0 million . Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC 805. Such adjustments are presented in “Other” within the following two tables. All of these businesses were acquired primarily to expand Brown & Brown’s core business and to attract and hire high-quality individuals. For the year ended December 31, 2015 , several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $503,442 relating to the assumption of certain liabilities. The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and significant adjustments made during the measurement period for prior year acquisitions: (in thousands) Name Business Segment Effective Date of Acquisition Cash Paid Other Payable Recorded Earn-Out Payable Net Assets Acquired Maximum Potential Earn- Out Payable Liberty Insurance Brokers, Inc. and Affiliates (Liberty) Retail February 1, 2015 $ 12,000 $ — $ 2,981 $ 14,981 $ 3,750 Spain Agency, Inc. (Spain) Retail March 1, 2015 20,706 — 2,617 23,323 9,162 Bellingham Underwriters, Inc. (Bellingham) National Programs May 1, 2015 9,007 500 3,322 12,829 4,400 Fitness Insurance, LLC (Fitness) Retail June 1, 2015 9,455 — 2,379 11,834 3,500 Strategic Benefit Advisors, Inc. (SBA) Retail June 1, 2015 49,600 400 13,587 63,587 26,000 Bentrust Financial, Inc. (Bentrust) Retail December 1, 2015 10,142 391 319 10,852 2,200 MBA Insurance Agency of Arizona, Inc. (MBA) Retail December 1, 2015 68 8,442 6,063 14,573 9,500 Smith Insurance, Inc. (Smith) Retail December 1, 2015 12,096 200 1,047 13,343 6,350 Other Various Various 12,926 95 4,584 17,605 8,212 Total $ 136,000 $ 10,028 $ 36,899 $ 182,927 $ 73,074 The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition. The data included in the “Other” column shows a negative adjustment for purchased customer accounts. This is driven mainly by the final valuation adjustment for the acquisition of Wright. (in thousands) Liberty Spain Bellingham Fitness SBA Bentrust MBA Smith Other Total Other current assets $ 2,486 $ 324 $ — $ 9 $ 652 $ — $ — $ — $ 169 $ 3,640 Fixed assets 40 50 25 17 41 36 33 73 59 374 Goodwill 10,010 15,748 9,608 8,105 39,859 8,166 13,471 10,374 21,040 136,381 Purchased customer accounts 4,506 7,430 3,223 3,715 23,000 2,789 7,338 3,526 (2,135 ) 53,392 Non-compete agreements 24 21 21 — 21 43 11 31 156 328 Other assets — — — — 14 — — — — 14 Total assets acquired 17,066 23,573 12,877 11,846 63,587 11,034 20,853 14,004 19,289 194,129 Other current liabilities (42 ) (250 ) (48 ) (12 ) — (182 ) (6,280 ) (504 ) (4,895 ) (12,213 ) Deferred income tax, net — — — — — — — — 2,576 2,576 Other liabilities (2,043 ) — — — — — — (157 ) 635 (1,565 ) Total liabilities assumed (2,085 ) (250 ) (48 ) (12 ) — (182 ) (6,280 ) (661 ) (1,684 ) (11,202 ) Net assets acquired $ 14,981 $ 23,323 $ 12,829 $ 11,834 $ 63,587 $ 10,852 $ 14,573 $ 13,343 $ 17,605 $ 182,927 The weighted-average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years ; and non-compete agreements, 5 years . Goodwill of $136.4 million was allocated to the Retail, National Programs and Wholesale Brokerage Segments in the amounts of $113.8 million, $18.0 million and $4.6 million, respectively. Of the total goodwill of $136.4 million, $91.1 million is currently deductible for income tax purposes and $8.4 million is non-deductible. The remaining $36.9 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. For the acquisitions completed during 2015, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2015 , included in the Consolidated Statement of Income for the year ended December 31, 2015 , were $28.2 million . The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2015 , included in the Consolidated Statement of Income for the year ended December 31, 2015 , was $1.5 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods. (UNAUDITED) For the Year Ended December 31, (in thousands, except per share data) 2015 Total revenues $ 1,688,297 Income before income taxes $ 411,497 Net income $ 248,720 Net income per share: Basic $ 1.76 Diluted $ 1.73 Weighted-average number of shares outstanding: Basic 137,810 Diluted 140,112 As of December 31, 2017 , the maximum future contingency payments related to all acquisitions totaled $88.4 million , all of which relates to acquisitions consummated subsequent to January 1, 2009. ASC 805 is the authoritative guidance requiring an acquirer to recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the Consolidated Statement of Income when incurred. Potential earn-out obligations are typically based upon future earnings of the acquired entities, usually between one and three years. As of December 31, 2017 , the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820- Fair Value Measurement . The resulting additions, payments and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2017 , 2016 and 2015 were as follows: For the Year Ended December 31, (in thousands) 2017 2016 2015 Balance as of the beginning of the period $ 63,821 $ 78,387 $ 75,283 Additions to estimated acquisition earn-out payables 6,920 4,462 36,899 Payments for estimated acquisition earn-out payables (43,766 ) (28,213 ) (36,798 ) Subtotal 26,975 54,636 75,384 Net change in earnings from estimated acquisition earn-out payables: Change in fair value on estimated acquisition earn-out payables 6,874 6,338 13 Interest expense accretion 2,326 2,847 2,990 Net change in earnings from estimated acquisition earn-out payables 9,200 9,185 3,003 Balance as of December 31, $ 36,175 $ 63,821 $ 78,387 Of the $36.2 million of estimated acquisition earn-out payables as of December 31, 2017 , $25.1 million was recorded as accounts payable, and $11.1 million was recorded as other non-current liabilities. Included within additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items prior to the one-year anniversary date of the acquisition and may therefore differ from previously reported amounts. Of the $63.8 million of estimated acquisition earn-out payables as of December 31, 2016 , $31.8 million was recorded as accounts payable, and $32.0 million was recorded as other non-current liabilities. Of the $78.4 million of estimated acquisition earn-out payables as of December 31, 2015 , $25.3 million was recorded as accounts payable, and $53.1 million |