Business Combinations | 12 Months Ended |
Dec. 31, 2013 |
Business Combinations [Abstract] | ' |
Business Combinations | ' |
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NOTE 2 Business Combinations |
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Acquisitions in 2013 |
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During 2013, Brown & Brown acquired the assets and assumed certain liabilities of ten insurance intermediaries, all of the stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of these acquisitions was $519,794,000, including $408,072,000 of cash payments, the issuance of $552,000 in other payables, the assumption of $106,079,000 of liabilities and $5,091,000 of recorded earn-out payables. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. Acquisition purchase prices are typically based on a multiple of average annual operating profit earned over a one—to three-year period within a minimum and maximum price range. The recorded purchase 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. |
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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. |
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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 Accounting Standards Codification (“ASC”) Topic 805—Business Combinations. |
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For 2013, several adjustments were made within the permitted measurement period that resulted in a reduction to the aggregate purchase price of the applicable acquisition of $504,000, including $18,000 of cash payments, an increase of $117,000 in other payables, the assumption of $82,000 of liabilities and the reduction of $721,000 in recorded earn-out payables. |
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The following table summarizes the aggregate purchase price allocation made as of the date of each acquisition for current year acquisitions and adjustment made during the measurement period for prior year acquisitions: |
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(in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Business | | 2013 | | Cash | | | Other | | | Recorded | | | Net Assets | | | Maximum | | | | | | | | | |
Segment | Date of | Paid | Payable | Earn-out | Acquired | Potential | | | | | | | | |
| Acquisition | | | Payable | | Earn-out | | | | | | | | |
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The Rollins Agency, Inc. | | Retail | | 1-Jun | | $ | 13,792 | | | $ | 50 | | | $ | 2,321 | | | $ | 16,163 | | | $ | 4,300 | | | | | | | | | |
Beecher Carlson Holdings, Inc. | | Retail; National Programs | | 1-Jul | | | 364,256 | | | | — | | | | — | | | | 364,256 | | | | — | | | | | | | | | |
ICA, Inc. | | Services | | December 31 | | | 19,770 | | | | — | | | | 727 | | | | 20,497 | | | | 5,000 | | | | | | | | | |
Other | | Various | | Various | | | 10,254 | | | | 502 | | | | 2,043 | | | | 12,799 | | | | 7,468 | | | | | | | | | |
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Total | | | | | | $ | 408,072 | | | $ | 552 | | | $ | 5,091 | | | $ | 413,715 | | | $ | 16,768 | | | | | | | | | |
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The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition: |
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(in thousands) | | Rollins | | | Beecher | | | ICA | | | Other | | | Total | | | | | | | | | | | | | |
Cash | | $ | — | | | $ | 40,360 | | | $ | — | | | $ | — | | | $ | 40,360 | | | | | | | | | | | | | |
Other current assets | | | 393 | | | | 57,632 | | | | — | | | | 1,573 | | | | 59,598 | | | | | | | | | | | | | |
Fixed assets | | | 30 | | | | 1,786 | | | | 75 | | | | 24 | | | | 1,915 | | | | | | | | | | | | | |
Goodwill | | | 12,697 | | | | 265,174 | | | | 12,377 | | | | 5,696 | | | | 295,944 | | | | | | | | | | | | | |
Purchased customer accounts | | | 3,878 | | | | 101,565 | | | | 7,917 | | | | 5,623 | | | | 118,983 | | | | | | | | | | | | | |
Non-compete agreements | | | 31 | | | | 2,758 | | | | 21 | | | | 76 | | | | 2,886 | | | | | | | | | | | | | |
Other assets | | | — | | | | — | | | | 107 | | | | 1 | | | | 108 | | | | | | | | | | | | | |
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Total assets acquired | | | 17,029 | | | | 469,275 | | | | 20,497 | | | | 12,993 | | | | 519,794 | | | | | | | | | | | | | |
Other current liabilities | | | (866 | ) | | | (80,090 | ) | | | — | | | | (194 | ) | | | (81,150 | ) | | | | | | | | | | | | |
Deferred income taxes, net | | | — | | | | (22,764 | ) | | | — | | | | — | | | | (22,764 | ) | | | | | | | | | | | | |
Other liabilities | | | — | | | | (2,165 | ) | | | — | | | | — | | | | (2,165 | ) | | | | | | | | | | | | |
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Total liabilities assumed | | | (866 | ) | | | (105,019 | ) | | | — | | | | (194 | ) | | | (106,079 | ) | | | | | | | | | | | | |
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Net assets acquired | | $ | 16,163 | | | $ | 364,256 | | | $ | 20,497 | | | $ | 12,799 | | | $ | 413,715 | | | | | | | | | | | | | |
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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. |
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Goodwill of $295,944,000 was allocated to the Retail, National Programs, Wholesale Brokerage and Services Divisions in the amounts of $257,196,000, $27,091,000, ($812,000) and $12,469,000, respectively. Of the total goodwill of $295,944,000, $41,663,000 is currently deductible for income tax purposes and $249,190,000 is non-deductible. The remaining $5,091,000 relates to the recorded earn-out payables and will not be deductible until it is earned and paid. |
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The results of operations for the acquisitions completed during 2013 have been combined with those of the Company since their respective acquisition dates. The total revenues and income before income taxes from the acquisitions completed through December 31, 2013, included in the Condensed Consolidated Statement of Income for the twelve months ended December 31, 2013, were $63,797,000 and $872,000, respectively. If the acquisitions had occurred as of the beginning of the period, 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. |
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(UNAUDITED) | | For the Year Ended | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share data) | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 1,439,918 | | | $ | 1,329,262 | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | $ | 373,175 | | | $ | 329,291 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 226,562 | | | $ | 198,826 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.57 | | | $ | 1.39 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | $ | 1.55 | | | $ | 1.36 | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 141,033 | | | | 139,634 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | 142,624 | | | | 142,010 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Acquisitions in 2012 |
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During 2012, Brown & Brown acquired the assets and assumed certain liabilities of 19 insurance intermediaries, all of the stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of these acquisitions was $667,586,000, including $483,933,000 of cash payments, the issuance of notes payable of $59,000, the issuance of $25,439,000 in other payables, the assumption of $136,676,000 of liabilities and $21,479,000 of recorded earn-out payables. The ‘other payables’ amount includes $22,061,000 that the Company is obligated to pay all shareholders of Arrowhead on a pro rata basis for certain pre-merger corporate tax refunds and certain estimated potential future income tax credits that were created by net operating loss carryforwards originating from transaction-related tax benefit items. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. Acquisition purchase prices are typically based on a multiple of average annual operating profit earned over a one—to three-year period within a minimum and maximum price range. The recorded purchase 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. |
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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. |
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The acquisitions made in 2012 have been accounted for as business combinations and are as follows: |
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(in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Business | | 2012 | | Cash | | | Note | | | Other | | | Recorded | | | Net Assets | | | Maximum | | | | | |
Segment | Date of | Paid | Payable | Payable | Earn-out | Acquired | Potential | | | | |
| Acquisition | | | | Payable | | Earn-out | | | | |
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Arrowhead General Insurance Agency Superholding Corporation | | National Programs; Services | | January 9 | | $ | 396,952 | | | $ | — | | | $ | 22,061 | | | $ | 3,290 | | | $ | 422,303 | | | $ | 5,000 | | | | | |
Insurcorp & GGM Investments LLC (d/b/a Maalouf Benefit Resources) | | Retail | | May 1 | | | 15,500 | | | | — | | | | 900 | | | | 4,944 | | | | 21,344 | | | | 17,000 | | | | | |
Richard W. Endlar Insurance Agency, Inc. | | Retail | | 1-May | | | 10,825 | | | | — | | | | — | | | | 2,598 | | | | 13,423 | | | | 5,500 | | | | | |
Texas Security General Insurance Agency, Inc. | | Wholesale Brokerage | | September 1 | | | 14,506 | | | | — | | | | 2,182 | | | | 2,124 | | | | 18,812 | | | | 7,200 | | | | | |
Behnke & Associates, Inc. | | Retail | | 1-Dec | | | 9,213 | | | | — | | | | — | | | | 1,126 | | | | 10,339 | | | | 3,321 | | | | | |
Rowlands & Barranca Agency, Inc. | | Retail | | 1-Dec | | | 8,745 | | | | — | | | | — | | | | 2,401 | | | | 11,146 | | | | 4,000 | | | | | |
Other | | Various | | Various | | | 28,192 | | | | 59 | | | | 296 | | | | 4,996 | | | | 33,543 | | | | 14,149 | | | | | |
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Total | | | | | | $ | 483,933 | | | $ | 59 | | | $ | 25,439 | | | $ | 21,479 | | | $ | 530,910 | | | $ | 56,170 | | | | | |
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The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition: |
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(in thousands) | | Arrowhead | | | Insurcorp | | | Endlar | | | Texas Security | | | Behnke | | | Rowlands | | | Other | | | Total | |
Cash | | $ | 61,786 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 61,786 | |
Other current assets | | | 69,051 | | | | 180 | | | | 305 | | | | 1,866 | | | | — | | | | — | | | | 422 | | | | 71,824 | |
Fixed assets | | | 4,629 | | | | 25 | | | | 25 | | | | 45 | | | | 25 | | | | 30 | | | | 158 | | | | 4,937 | |
Goodwill | | | 321,128 | | | | 14,745 | | | | 8,044 | | | | 10,845 | | | | 6,430 | | | | 8,363 | | | | 21,085 | | | | 390,640 | |
Purchased customer accounts | | | 99,675 | | | | 6,490 | | | | 5,230 | | | | 6,229 | | | | 3,843 | | | | 3,367 | | | | 13,112 | | | | 137,946 | |
Non-compete agreements | | | 100 | | | | 22 | | | | 11 | | | | 14 | | | | 41 | | | | 21 | | | | 243 | | | | 452 | |
Other assets | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
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Total assets acquired | | | 556,370 | | | | 21,462 | | | | 13,615 | | | | 18,999 | | | | 10,339 | | | | 11,781 | | | | 35,020 | | | | 667,586 | |
Other current liabilities | | | (107,579 | ) | | | (118 | ) | | | (192 | ) | | | (187 | ) | | | — | | | | (635 | ) | | | (1,477 | ) | | | (110,188 | ) |
Deferred income taxes, net | | | (26,488 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (26,488 | ) |
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Total liabilities assumed | | | (134,067 | ) | | | (118 | ) | | | (192 | ) | | | (187 | ) | | | — | | | | (635 | ) | | | (1,477 | ) | | | (136,676 | ) |
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Net assets acquired | | $ | 422,303 | | | $ | 21,344 | | | $ | 13,423 | | | $ | 18,812 | | | $ | 10,339 | | | $ | 11,146 | | | $ | 33,543 | | | $ | 530,910 | |
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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. |
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Goodwill of $390,640,000, was allocated to the Retail, National Programs, Wholesale Brokerage and Services Divisions in the amounts of $57,856,000, $289,378,000, $11,656,000 and $31,750,000, respectively. Of the total goodwill of $390,640,000, $52,730,000 is currently deductible for income tax purposes and $316,431,000 is non-deductible. The remaining $21,479,000 relates to the recorded earn-out payables and will not be deductible until it is earned and paid. |
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The results of operations for the acquisitions completed during 2012 have been combined with those of the Company since their respective acquisition dates. The total revenues and income before income taxes from the acquisitions completed through December 31, 2012, included in the Condensed Consolidated Statement of Income for the twelve months ended December 31, 2012, were $129,472,000 and $898,000, respectively. If the acquisitions had occurred as of the beginning of the period, 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. |
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(UNAUDITED) | | For the Year Ended | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share data) | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 1,230,408 | | | $ | 1,163,341 | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | $ | 315,051 | | | $ | 313,706 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 190,228 | | | $ | 190,174 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.33 | | | $ | 1.33 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | $ | 1.3 | | | $ | 1.31 | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 139,364 | | | | 138,582 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | 142,010 | | | | 140,264 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Acquisitions in 2011 |
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During 2011, Brown & Brown acquired the assets and assumed certain liabilities of 37 insurance intermediaries, all of the stock of one insurance intermediary and several books of business (customer accounts). The aggregate purchase price of these acquisitions was $214,822,000, including $167,444,000 of cash payments, the issuance of $1,194,000 in notes payable, the assumption of $15,659,000 of liabilities and $30,525,000 of recorded earn-out payables. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. Acquisition purchase prices are typically based on a multiple of average annual operating profit earned over a one-to three-year period within a minimum and maximum price range. The recorded purchase 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. |
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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. |
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The acquisitions made in 2011 have been accounted for as business combinations and are as follows: |
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(in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Business | | 2011 | | Cash | | | Note | | | Recorded | | | Net Assets | | | Maximum | | | | | | | | | |
Segment | Date of | Paid | Payable | Earn-out | Acquired | Potential | | | | | | | | |
| Acquisition | | | Payable | | Earn-out | | | | | | | | |
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Balcos Insurance, Inc. | | Retail | | 1-Jan | | $ | 8,611 | | | $ | — | | | $ | 1,595 | | | $ | 10,206 | | | $ | 5,766 | | | | | | | | | |
Associated Insurance Service, Inc. et al. | | Retail | | 1-Jan | | | 12,000 | | | | — | | | | 1,575 | | | | 13,575 | | | | 6,000 | | | | | | | | | |
United Benefit Services Insurance Agency LLC et al. | | Retail | | February 1 | | | 14,283 | | | | — | | | | 2,590 | | | | 16,873 | | | | 8,442 | | | | | | | | | |
First Horizon Insurance Group, Inc. et al. | | Retail | | 30-Apr | | | 25,060 | | | | — | | | | — | | | | 25,060 | | | | — | | | | | | | | | |
Fitzharris Agency, Inc. et al. | | Retail | | 1-May | | | 6,159 | | | | — | | | | 888 | | | | 7,047 | | | | 3,832 | | | | | | | | | |
Corporate Benefit Consultants, LLC | | Retail | | 1-Jun | | | 9,000 | | | | — | | | | 2,038 | | | | 11,038 | | | | 4,520 | | | | | | | | | |
Sitzmann, Morris & Lavis Insurance Agency, Inc. et al. | | Retail | | November 1 | | | 40,460 | | | | — | | | | 6,228 | | | | 46,688 | | | | 19,000 | | | | | | | | | |
Snapper Shuler Kenner, Inc. et al. | | Retail | | 1-Nov | | | 7,493 | | | | — | | | | 1,318 | | | | 8,811 | | | | 3,988 | | | | | | | | | |
Industry Consulting Group, Inc. | | National Programs | | 1-Nov | | | 9,133 | | | | — | | | | 3,877 | | | | 13,010 | | | | 5,794 | | | | | | | | | |
Colonial Claims Corporation et al. | | Services | | December 23 | | | 9,950 | | | | — | | | | 4,248 | | | | 14,198 | | | | 8,000 | | | | | | | | | |
Other | | Various | | Various | | | 25,295 | | | | 1,194 | | | | 6,168 | | | | 32,657 | | | | 12,865 | | | | | | | | | |
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Total | | | | | | $ | 167,444 | | | $ | 1,194 | | | $ | 30,525 | | | $ | 199,163 | | | $ | 78,207 | | | | | | | | | |
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The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition: |
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(in thousands) | | Balcos | | | AIS | | | United | | | FHI | | | FA | | | CBC | | | | | | | | | |
Cash | | $ | — | | | $ | — | | | $ | — | | | $ | 5,170 | | | $ | — | | | $ | — | | | | | | | | | |
Other current assets | | | 187 | | | | 252 | | | | 438 | | | | 1,640 | | | | 77 | | | | 227 | | | | | | | | | |
Fixed assets | | | 20 | | | | 100 | | | | 20 | | | | 134 | | | | 60 | | | | 6 | | | | | | | | | |
Goodwill | | | 6,486 | | | | 9,055 | | | | 10,049 | | | | 15,254 | | | | 7,244 | | | | 6,738 | | | | | | | | | |
Purchased customer accounts | | | 3,530 | | | | 4,086 | | | | 7,045 | | | | 8,088 | | | | 3,351 | | | | 4,046 | | | | | | | | | |
Non-compete agreements | | | 42 | | | | 92 | | | | 45 | | | | 10 | | | | 21 | | | | 21 | | | | | | | | | |
Other assets | | | — | | | | — | | | | 4 | | | | 9 | | | | — | | | | — | | | | | | | | | |
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Total assets acquired | | | 10,265 | | | | 13,585 | | | | 17,601 | | | | 30,305 | | | | 10,753 | | | | 11,038 | | | | | | | | | |
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Other current liabilities | | | (59 | ) | | | (10 | ) | | | (728 | ) | | | (3,790 | ) | | | (3,706 | ) | | | — | | | | | | | | | |
Deferred income taxes, net | | | — | | | | — | | | | — | | | | (1,455 | ) | | | — | | | | — | | | | | | | | | |
Other liabilities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | |
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Total liabilities assumed | | | (59 | ) | | | (10 | ) | | | (728 | ) | | | (5,245 | ) | | | (3,706 | ) | | | — | | | | | | | | | |
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Net assets acquired | | $ | 10,206 | | | $ | 13,575 | | | $ | 16,873 | | | $ | 25,060 | | | $ | 7,047 | | | $ | 11,038 | | | | | | | | | |
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(in thousands) | | SML | | | SSK | | | ICG | | | CC | | | Other | | | Total | | | | | | | | | |
Cash | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,170 | | | | | | | | | |
Other current assets | | | 1,372 | | | | 247 | | | | 336 | | | | — | | | | 1,059 | | | | 5,835 | | | | | | | | | |
Fixed assets | | | 465 | | | | 45 | | | | 100 | | | | 60 | | | | 65 | | | | 1,075 | | | | | | | | | |
Goodwill | | | 31,601 | | | | 5,818 | | | | 9,564 | | | | 8,070 | | | | 18,465 | | | | 128,344 | | | | | | | | | |
Purchased customer accounts | | | 13,995 | | | | 2,726 | | | | 7,161 | | | | 6,094 | | | | 13,746 | | | | 73,868 | | | | | | | | | |
Non-compete agreements | | | 42 | | | | 12 | | | | 11 | | | | 23 | | | | 187 | | | | 506 | | | | | | | | | |
Other assets | | | 4 | | | | — | | | | 5 | | | | — | | | | 2 | | | | 24 | | | | | | | | | |
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Total assets acquired | | | 47,479 | | | | 8,848 | | | | 17,177 | | | | 14,247 | | | | 33,524 | | | | 214,822 | | | | | | | | | |
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Other current liabilities | | | (791 | ) | | | (37 | ) | | | (1,096 | ) | | | (49 | ) | | | (867 | ) | | | (11,133 | ) | | | | | | | | |
Deferred income taxes, net | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,455 | ) | | | | | | | | |
Other liabilities | | | — | | | | — | | | | (3,071 | ) | | | — | | | | — | | | | (3,071 | ) | | | | | | | | |
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Total liabilities assumed | | | (791 | ) | | | (37 | ) | | | (4,167 | ) | | | (49 | ) | | | (867 | ) | | | (15,659 | ) | | | | | | | | |
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Net assets acquired | | $ | 46,688 | | | $ | 8,811 | | | $ | 13,010 | | | $ | 14,198 | | | $ | 32,657 | | | $ | 199,163 | | | | | | | | | |
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The weighted average useful lives for the above acquired amortizable intangible assets are as follows: purchased customer accounts, 15.0 years; noncompete agreements, 5.0 years. |
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Goodwill of $128,344,000, was assigned to the Retail, National Programs and Services Divisions in the amounts of $108,420,000, $11,853,000 and $8,071,000, respectively. Of the total goodwill of $128,344,000, $84,105,000 is currently deductible for income tax purposes and $13,714,000 is non-deductible. The remaining $30,525,000 relates to the recorded acquisition earn-out payables and will not be deductible until it is earned and paid. |
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The results of operations for the acquisitions completed during 2011 have been combined with those of the Company since their respective acquisition dates. The total revenues and income before income taxes from the acquisitions completed through December 31, 2011 included in the Condensed Consolidated Statement of Income for the twelve months ended December 31, 2011 were $40,291,000 and $7,223,000, respectively. If the acquisitions had occurred as of the beginning of the comparable prior annual reporting period, 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. |
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(UNAUDITED) | | For the Year Ended | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share data) | | 2011 | | | 2010 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 1,058,142 | | | $ | 1,059,857 | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | $ | 283,404 | | | $ | 291,944 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 171,805 | | | $ | 177,464 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.2 | | | $ | 1.25 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | $ | 1.19 | | | $ | 1.23 | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 138,582 | | | | 137,924 | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | 140,264 | | | | 139,318 | | | | | | | | | | | | | | | | | | | | | | | | | |
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For acquisitions consummated prior to January 1, 2009, additional consideration paid to sellers as a result of purchase price earn-out provisions are recorded as adjustments to intangible assets when the contingencies are settled. The net additional consideration paid by the Company in 2013 as a result of these adjustments totaled $873,000, all of which was allocated to goodwill. Of the $873,000 net additional consideration paid, $873,000 was issued in other payables. The net additional consideration paid by the Company in 2012 as a result of these adjustments totaled $2,907,000, all of which was allocated to goodwill. Of the $2,907,000 net additional consideration paid, $2,907,000 was paid in cash. |
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As of December 31, 2013, the maximum future contingency payments related to all acquisitions totaled $130,584,000, all of which relates to acquisitions consummated subsequent to January 1, 2009. |
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ASC Topic 805—Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the consolidated statement of income when incurred. Potential earn-out obligations are typically based upon future earnings of the acquired entities, usually between one and three years. |
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As of December 31, 2013, 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). 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, were as follows: |
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| | For the Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
Balance as of the beginning of the period | | $ | 52,987 | | | $ | 47,715 | | | $ | 29,608 | | | | | | | | | | | | | | | | | | | | | |
Additions to estimated acquisition earn-out payables | | | 5,816 | | | | 21,479 | | | | 30,525 | | | | | | | | | | | | | | | | | | | | | |
Payments for estimated acquisition earn-out payables | | | (18,278 | ) | | | (17,625 | ) | | | (10,212 | ) | | | | | | | | | | | | | | | | | | | | |
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Subtotal | | | 40,525 | | | | 51,569 | | | | 49,921 | | | | | | | | | | | | | | | | | | | | | |
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Net change in earnings from estimated acquisition earn-out payables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Change in fair value on estimated acquisition earn-out payables | | | 570 | | | | (1,051 | ) | | | (4,043 | ) | | | | | | | | | | | | | | | | | | | | |
Interest expense accretion | | | 1,963 | | | | 2,469 | | | | 1,837 | | | | | | | | | | | | | | | | | | | | | |
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Net change in earnings from estimated acquisition earn-out payables | | | 2,533 | | | | 1,418 | | | | (2,206 | ) | | | | | | | | | | | | | | | | | | | | |
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Balance as of December 31 | | $ | 43,058 | | | $ | 52,987 | | | $ | 47,715 | | | | | | | | | | | | | | | | | | | | | |
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Of the $43,058,000 estimated acquisition earn-out payables as of December 31, 2013, $6,312,000 was recorded as accounts payable and $36,746,000 was recorded as other non-current liabilities. Of the $52,987,000 in estimated acquisition earn-out payables as of December 31, 2012, $10,164,000 was recorded as accounts payable and $42,823,000 was recorded as other non-current liabilities. |