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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2021

or

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

For the transition period from                      to                     

Commission file number 001-13619

 

BROWN & BROWN, INC.

(Exact name of Registrant as specified in its charter)

 

 

Florida

 

 

59-0864469

(State or other jurisdiction of

incorporation or organization)

 

 

(I.R.S. Employer

Identification Number)

300 North Beach Street,

Daytona Beach, FL

 

 

32114

(Address of principal executive offices)

 

 

(Zip Code)

Registrant’s telephone number, including area code: (386252-9601

 

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.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes       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

 

Accelerated filer

Non-accelerated filer

 

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  

The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of April 26, 2021 was 281,848,221.

 

 

 

 

 


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BROWN & BROWN, INC.

INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PAGE NO.

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020

 

5

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020

 

6

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

7

 

 

Condensed Consolidated Statements of Equity for the three months ended March 31, 2021 and 2020

 

8

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

 

9

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

 

 

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

Item 1A.

 

Risk Factors

 

39

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 6.

 

Exhibits

 

41

SIGNATURE

 

42

 

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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 , including those relating to the potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s business, operations, financial performance and prospects. 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. Further, statements about the effects of COVID-19 on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of COVID-19, actions taken by governmental authorities in response to COVID-19, and the direct and indirect impact of COVID-19 on our customers, insurance carriers, third parties and us. 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 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”:

 

 

COVID-19 and the resulting governmental and societal responses, the severity and duration of COVID-19, and the resulting impact on the U.S. economy, the global economy, and the Company’s business, liquidity, customers, insurance carriers and third parties;

 

The inability to retain or hire qualified employees, as well as the loss of any of our executive officers or other key employees;

 

Acquisition-related risks that could negatively affect the success of our growth strategy, including the 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 company 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 may require more 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 form of compensation we may accept from our customers, carriers and third-parties;

3


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A decrease in demand for liability insurance as a result of tort reform litigation;

 

Our failure to comply 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 U.S.-based credit markets that might adversely affect our business, results of operations and financial condition;

 

Risks associated with the current interest rate environment, and to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income;

 

Disintermediation within the insurance industry, including increased competition from insurance companies, technology companies and the financial services industry, as well as the 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 annual variations in 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; and

 

Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.

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, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

4


Table of Contents

 

PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For the three months

ended March 31,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

REVENUES

 

 

 

 

 

 

 

 

Commissions and fees

 

$

814,037

 

 

$

696,503

 

Investment income

 

 

250

 

 

 

1,161

 

Other

 

 

989

 

 

 

831

 

Total revenues

 

 

815,276

 

 

 

698,495

 

EXPENSES

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

429,498

 

 

 

349,624

 

Other operating expenses

 

 

94,363

 

 

 

107,132

 

(Gain)/loss on disposal

 

 

(193

)

 

 

(260

)

Amortization

 

 

29,493

 

 

 

26,391

 

Depreciation

 

 

7,456

 

 

 

6,021

 

Interest

 

 

16,342

 

 

 

15,291

 

Change in estimated acquisition earn-out payables

 

 

(890

)

 

 

(10,957

)

Total expenses

 

 

576,069

 

 

 

493,242

 

Income before income taxes

 

 

239,207

 

 

 

205,253

 

Income taxes

 

 

39,463

 

 

 

52,853

 

Net income

 

$

199,744

 

 

$

152,400

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

 

$

0.54

 

Diluted

 

$

0.70

 

 

$

0.54

 

Dividends declared per share

 

$

0.093

 

 

$

0.085

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

Three months ended

March 31,

 

(in thousands)

 

2021

 

 

2020

 

Net income

 

$

199,744

 

 

$

152,400

 

Foreign currency translation

 

 

(5,253

)

 

 

 

Unrealized gain on available for sale debt securities, net of tax

 

 

263

 

 

 

 

Comprehensive income

 

$

194,754

 

 

$

152,400

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(in thousands, except per share data)

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

678,744

 

 

$

817,398

 

Restricted cash

 

 

461,980

 

 

 

454,517

 

Short-term investments

 

 

11,926

 

 

 

18,332

 

Premiums, commissions and fees receivable

 

 

1,153,071

 

 

 

1,099,248

 

Reinsurance recoverable

 

 

26,290

 

 

 

43,469

 

Prepaid reinsurance premiums

 

 

345,031

 

 

 

377,615

 

Other current assets

 

 

115,989

 

 

 

147,670

 

Total current assets

 

 

2,793,031

 

 

 

2,958,249

 

Fixed assets, net

 

 

205,766

 

 

 

201,115

 

Operating lease assets

 

 

180,946

 

 

 

186,998

 

Goodwill

 

 

4,473,042

 

 

 

4,395,918

 

Amortizable intangible assets, net

 

 

1,060,364

 

 

 

1,049,660

 

Investments

 

 

31,734

 

 

 

24,971

 

Other assets

 

 

165,910

 

 

 

149,581

 

Total assets

 

$

8,910,793

 

 

$

8,966,492

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Premiums payable to insurance companies

 

$

1,147,507

 

 

$

1,198,529

 

Losses and loss adjustment reserve

 

 

26,290

 

 

 

43,469

 

Unearned premiums

 

 

345,031

 

 

 

377,615

 

Premium deposits and credits due customers

 

 

128,413

 

 

 

102,505

 

Accounts payable

 

 

245,822

 

 

 

190,497

 

Accrued expenses and other liabilities

 

 

277,919

 

 

 

371,737

 

Current portion of long-term debt

 

 

70,000

 

 

 

70,000

 

Total current liabilities

 

 

2,240,982

 

 

 

2,354,352

 

Long-term debt less unamortized discount and debt issuance costs

 

 

2,009,100

 

 

 

2,025,906

 

Operating lease liabilities

 

 

166,997

 

 

 

172,935

 

Deferred income taxes, net

 

 

359,629

 

 

 

344,222

 

Other liabilities

 

 

303,088

 

 

 

314,854

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.10 per share; authorized 560,000 shares; issued 300,223 shares and outstanding 281,980 shares at 2021, issued 299,689 shares and outstanding 283,004 shares at 2020

 

 

30,022

 

 

 

29,969

 

Additional paid-in capital

 

 

772,866

 

 

 

794,909

 

Treasury stock, at cost at 18,243 shares at 2021, 16,685 shares at 2020, respectively

 

 

(661,358

)

 

 

(591,338

)

Accumulated other comprehensive loss

 

 

(4,990

)

 

 

 

Retained earnings

 

 

3,694,457

 

 

 

3,520,683

 

Total shareholders’ equity

 

 

3,830,997

 

 

 

3,754,223

 

Total liabilities and shareholders’ equity

 

$

8,910,793

 

 

$

8,966,492

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except per share data)

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Retained

Earnings

 

 

Total

 

Balance at December 31, 2020

 

 

299,689

 

 

$

29,969

 

 

$

794,909

 

 

$

(591,338

)

 

$

 

 

$

3,520,683

 

 

$

3,754,223

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199,744

 

 

 

199,744

 

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

   sale debt securities

 

 

 

 

 

 

 

 

 

 

(508

)

 

 

 

 

 

 

263

 

 

 

 

 

 

 

(245

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,253

)

 

 

122

 

 

 

(5,131

)

Employee stock purchase plans

 

 

 

 

 

 

 

 

 

 

3,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,032

 

Common stock issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock incentive plans

 

 

1,400

 

 

 

140

 

 

 

15,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,646

 

Agency acquisition

 

 

107

 

 

 

11

 

 

 

4,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,892

 

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

 

 

(973

)

 

 

(98

)

 

 

(44,954

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,052

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,020

)

 

 

 

 

 

 

 

 

 

 

(70,020

)

Cash dividends paid ($0.093 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,092

)

 

 

(26,092

)

Balance at March 31, 2021

 

 

300,223

 

 

$

30,022

 

 

$

772,866

 

 

$

(661,358

)

 

$

(4,990

)

 

$

3,694,457

 

 

$

3,830,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

297,106

 

 

$

29,711

 

 

$

716,049

 

 

$

(536,243

)

 

$

 

 

$

3,140,762

 

 

$

3,350,279

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

152,400

 

 

 

152,400

 

Net unrealized holding gain on available-for-

   sale debt securities

 

 

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

 

99

 

 

 

293

 

Common stock issued for employee stock benefit plans

 

 

1,828

 

 

 

182

 

 

 

2,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,200

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,429

)

 

 

 

 

 

 

 

 

 

 

(1,429

)

Cash dividends paid ($0.085 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,902

)

 

 

(23,902

)

Balance at March 31, 2020

 

 

298,934

 

 

$

29,893

 

 

$

718,261

 

 

$

(537,672

)

 

$

 

 

$

3,269,359

 

 

$

3,479,841

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

 

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  

 

 

 

Three months ended

March 31,

 

(in thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

199,744

 

 

$

152,400

 

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

 

 

 

 

 

 

 

 

Amortization

 

 

29,493

 

 

 

26,391

 

Depreciation

 

 

7,456

 

 

 

6,021

 

Non-cash stock-based compensation

 

 

18,678

 

 

 

9,047

 

Change in estimated acquisition earn-out payables

 

 

(890

)

 

 

(10,957

)

Deferred income taxes

 

 

10,569

 

 

 

(4,974

)

Amortization of debt discount and disposal of deferred financing costs

 

 

694

 

 

 

512

 

Amortization (accretion) of discounts and premiums, investment

 

 

31

 

 

 

7

 

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

 

 

(378

)

 

 

(196

)

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

 

 

(354

)

 

 

(337

)

Effect of foreign exchange rate changes

 

 

245

 

 

 

 

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

 

 

 

 

 

 

 

 

Premiums, commissions and fees receivable (increase) decrease

 

 

(22,036

)

 

 

(53,090

)

Reinsurance recoverables (increase) decrease

 

 

17,179

 

 

 

24,949

 

Prepaid reinsurance premiums (increase) decrease

 

 

32,584

 

 

 

32,215

 

Other assets (increase) decrease

 

 

25,253

 

 

 

24,623

 

Premiums payable to insurance companies increase (decrease)

 

 

(103,841

)

 

 

(53,622

)

Premium deposits and credits due customers increase (decrease)

 

 

25,908

 

 

 

13,149

 

Losses and loss adjustment reserve increase (decrease)

 

 

(17,179

)

 

 

(24,952

)

Unearned premiums increase (decrease)

 

 

(32,584

)

 

 

(32,215

)

Accounts payable increase (decrease)

 

 

68,874

 

 

 

56,981

 

Accrued expenses and other liabilities increase (decrease)

 

 

(106,994

)

 

 

(126,786

)

Other liabilities increase (decrease)

 

 

(27,344

)

 

 

(5,349

)

Net cash provided by operating activities

 

 

125,108

 

 

 

33,817

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to fixed assets

 

 

(11,425

)

 

 

(16,458

)

Payments for businesses acquired, net of cash acquired

 

 

(70,429

)

 

 

(153,291

)

Proceeds from sales of fixed assets and customer accounts

 

 

182

 

 

 

385

 

Purchases of investments

 

 

(5,098

)

 

 

(1,513

)

Proceeds from sales of investments

 

 

4,376

 

 

 

1,668

 

Net cash used in investing activities

 

 

(82,394

)

 

 

(169,209

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments on acquisition earn-outs

 

 

(15,121

)

 

 

(6,477

)

Payments on long-term debt

 

 

(17,500

)

 

 

(13,750

)

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

 

 

(45,052

)

 

 

(6,847

)

Purchase of treasury stock

 

 

(70,020

)

 

 

(1,429

)

Cash dividends paid

 

 

(26,092

)

 

 

(23,902

)

Net cash used in financing activities

 

 

(173,785

)

 

 

(52,405

)

Effect of foreign exchange rate cash changes

 

 

(120

)

 

 

 

Net decrease in cash and cash equivalents inclusive of restricted cash

 

 

(131,191

)

 

 

(187,797

)

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

 

 

1,271,915

 

 

 

962,975

 

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

 

$

1,140,724

 

 

$

775,178

 

 

See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 10 for the reconciliations of cash and cash equivalents inclusive of restricted cash.

9


Table of Contents

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 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 service organization that markets and sells insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable segments. The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. The National Programs Segment, which 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 network of independent agents, including Brown & Brown retail agents. 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 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.

NOTE 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 recurring accruals) 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, 2020.

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.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting 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 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 are currently evaluating our contracts and the available expedients provided by the new standard; however, the Company can assert there is no impact to any carrying value of assets or liabilities aside from our floating-rate debt instruments that are indexed to LIBOR and are carried at amortized cost. Any further impact of adoption will be in determining the new periodic floating interest rate indexed to our floating-rate debt instruments with no impact on the Company’s Condensed Consolidated Balance Sheet upon adoption.  

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The standard removes specific exceptions in the current rules and eliminates the need for an organization to analyze whether the following apply in a given period: (a) exception to the incremental approach for intra-period tax allocation; (b) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (c) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The standard also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (a) franchise taxes that are partially based on income; (b) transactions with a government that result in a step-up in the tax basis of goodwill; (c) separate financial statements of legal entities that are not subject to tax and (d) enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 effective January 1, 2021. The impact of adopting this standard was not material to the presentation of the Condensed Consolidated Financial Statements.

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Table of Contents

 

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:

 

 

Three months ended March 31, 2021

 

(in thousands)

 

Retail

 

 

National

Programs

 

 

Wholesale

Brokerage

 

 

Services

 

 

Other (8)

 

 

Total

 

Base commissions (1)

 

$

357,459

 

 

$

110,745

 

 

$

71,344

 

 

$

 

 

$

7

 

 

$

539,555

 

Fees (2)

 

 

87,051

 

 

 

34,329

 

 

 

16,062

 

 

 

46,971

 

 

 

(424

)

 

 

183,989

 

Incentive commissions (3)

 

 

57,347