UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
or
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☐ |
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)
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Florida |
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59-0864469 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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220 South Ridgewood Avenue, Daytona Beach, FL |
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32114 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (386) 252-9601
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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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 July 28, 2020 was 282,813,879.
BROWN & BROWN, INC.
INDEX
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PAGE NO. |
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Item 1. |
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5 |
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Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 |
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6 |
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7 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 |
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8 |
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9 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
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Item 3. |
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43 |
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Item 4. |
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43 |
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Item 1. |
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44 |
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Item 1A. |
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44 |
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Item 2. |
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45 |
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Item 6. |
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46 |
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47 |
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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 , 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 the COVID-19, and the direct and indirect impact of the 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”:
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• |
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; |
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• |
The inability to retain or hire qualified employees, as well as the loss of any of our executive officers or other key employees; |
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Acquisition-related risks that could negatively affect the success of our growth strategy, including the possibility that we may not be able successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets; |
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• |
A cybersecurity attack or any other interruption in information technology and/or data security and/or outsourcing relationships; |
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• |
The requirement for additional resources and time to adequately respond to dynamics resulting from rapid technological change; |
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Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations; |
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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; |
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Adverse economic conditions, natural disasters, or regulatory changes in states where we have a high concentration of our business; |
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The inability to maintain our culture or a change in management, management philosophy or our business strategy; |
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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; |
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Our failure to comply with any covenants contained in our debt agreements; |
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The possibility that covenants in our debt agreements could prevent us from engaging in certain potentially beneficial activities; |
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Changes in estimates, judgments or assumptions used in the preparation of our financial statements; |
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Improper disclosure of confidential information; |
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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; |
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The potential adverse effect of certain actual or potential claims, regulatory actions or proceedings on our businesses, results of operations, financial condition or liquidity; |
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Changes in the U.S.-based credit markets that might adversely affect our business, results of operations and financial condition; |
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The significant control certain existing shareholders have over the Company; |
3
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Risks related to our international operations, which may require more time and expense than our domestic options to achieve or maintain profitability; |
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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; |
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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; |
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Changes in current U.S. or global economic conditions; |
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Effects related to pandemics, epidemics, or outbreaks of infectious diseases; |
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Conditions that result in reduced insurer capacity; |
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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; |
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The possibility that one of the financial institutions we use fails or is taken over by the U.S. Federal Deposit Insurance Corporation (FDIC); |
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Uncertainty in our business practices and compensation arrangements due to potential changes in regulations; |
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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; |
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Intangible asset risk, including the possibility that our goodwill may become impaired in the future; |
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A decrease in demand for liability insurance as a result of tort reform litigation; |
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Changes in our credit ratings; |
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Volatility in our stock price; and |
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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
PART I — FINANCIAL INFORMATION
ITEM 1 — Financial Statements (Unaudited)
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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For the three months ended June 30, |
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For the six months ended June 30, |
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(in thousands, except per share data) |
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2020 |
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2019 |
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2020 |
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2019 |
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REVENUES |
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Commissions and fees |
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$ |
598,157 |
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$ |
572,932 |
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$ |
1,294,660 |
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$ |
1,190,395 |
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Investment income |
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333 |
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1,525 |
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1,495 |
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2,606 |
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Other income, net |
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316 |
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762 |
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1,147 |
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1,498 |
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Total revenues |
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598,806 |
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575,219 |
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1,297,302 |
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1,194,499 |
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EXPENSES |
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Employee compensation and benefits |
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346,515 |
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309,610 |
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696,139 |
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642,447 |
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Other operating expenses |
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75,568 |
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98,050 |
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182,700 |
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186,833 |
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(Gain)/loss on disposal |
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(31 |
) |
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(1,016 |
) |
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(291 |
) |
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(511 |
) |
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Amortization |
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26,741 |
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25,954 |
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53,132 |
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52,146 |
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Depreciation |
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6,168 |
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5,666 |
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12,189 |
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11,701 |
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Interest |
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13,809 |
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16,293 |
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29,100 |
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31,491 |
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Change in estimated acquisition earn-out payables |
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635 |
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(2,860 |
) |
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(10,322 |
) |
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(1,650 |
) |
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Total expenses |
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469,405 |
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451,697 |
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962,647 |
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922,457 |
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Income before income taxes |
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129,401 |
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123,522 |
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334,655 |
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272,042 |
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Income taxes |
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32,617 |
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30,929 |
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85,471 |
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65,553 |
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Net income |
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$ |
96,784 |
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$ |
92,593 |
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$ |
249,184 |
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$ |
206,489 |
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Net income per share: |
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Basic |
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$ |
0.34 |
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$ |
0.33 |
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$ |
0.88 |
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$ |
0.73 |
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Diluted |
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$ |
0.34 |
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$ |
0.33 |
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$ |
0.88 |
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$ |
0.73 |
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Dividends declared per share |
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$ |
0.085 |
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$ |
0.080 |
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$ |
0.170 |
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$ |
0.160 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
5
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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(in thousands, except per share data) |
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June 30, 2020 |
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December 31, 2019 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
623,240 |
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$ |
542,174 |
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Restricted cash and investments |
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438,964 |
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420,801 |
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Short-term investments |
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18,111 |
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12,325 |
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Premiums, commissions and fees receivable |
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1,080,896 |
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942,834 |
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Reinsurance recoverable |
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45,210 |
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58,505 |
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Prepaid reinsurance premiums |
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|
356,820 |
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366,021 |
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Other current assets |
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141,736 |
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|
152,142 |
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Total current assets |
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|
2,704,977 |
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|
|
2,494,802 |
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Fixed assets, net |
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|
174,376 |
|
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|
148,627 |
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Operating lease assets |
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|
190,322 |
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|
|
184,288 |
|
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Goodwill |
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|
4,023,298 |
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|
|
3,746,094 |
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Amortizable intangible assets, net |
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|
965,364 |
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|
|
916,768 |
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Investments |
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|
21,592 |
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27,378 |
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Other assets |
|
|
121,129 |
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|
|
104,864 |
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Total assets |
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$ |
8,201,058 |
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$ |
7,622,821 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities: |
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Premiums payable to insurance companies |
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$ |
1,205,604 |
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$ |
1,014,317 |
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Losses and loss adjustment reserve |
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|
45,210 |
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|
58,505 |
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Unearned premiums |
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356,820 |
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|
|
366,021 |
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Premium deposits and credits due customers |
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102,389 |
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113,841 |
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Accounts payable |
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195,793 |
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|
99,960 |
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Accrued expenses and other liabilities |
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289,960 |
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337,717 |
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Current portion of long-term debt |
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62,500 |
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55,000 |
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Total current liabilities |
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2,258,276 |
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2,045,361 |
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Long-term debt less unamortized discount and debt issuance costs |
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1,566,409 |
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1,500,343 |
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Operating lease liabilities |
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|
173,717 |
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|
|
167,855 |
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Deferred income taxes, net |
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|
323,558 |
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|
|
328,277 |
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Other liabilities |
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|
295,580 |
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|
|
230,706 |
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Shareholders’ Equity: |
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|
|
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|
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Common stock, par value $0.10 per share; authorized 560,000 shares; issued 299,151 shares and outstanding 283,658 shares at 2020, issued 297,106 shares and outstanding 281,655 shares at 2019 - in thousands. |
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|
29,915 |
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29,711 |
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Additional paid-in capital |
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|
749,285 |
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|
716,049 |
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Treasury stock, at cost at 15,493 shares at 2020, 15,451 shares at 2019, respectively - in thousands |
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(537,672 |
) |
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|
(536,243 |
) |
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Retained earnings |
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3,341,990 |
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|
|
3,140,762 |
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Total shareholders’ equity |
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3,583,518 |
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|
|
3,350,279 |
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Total liabilities and shareholders’ equity |
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$ |
8,201,058 |
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$ |
7,622,821 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
6
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
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Common Stock |
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(in thousands, except per share data) |
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Shares |
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Par Value |
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Additional Paid-In Capital |
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Treasury Stock |
|
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Retained Earnings |
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Total |
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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 (loss) gain on available-for- sale securities |
|
|
|
|
|
|
|
|
|
|
194 |
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|
|
|
|
|
99 |
|
|
|
293 |
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||
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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 |
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,784 |
|
|
|
96,784 |
|
|
|
Net unrealized holding (loss) gain on available-for- sale securities |
|
|
|
|
|
|
|
|
|
|
384 |
|
|
|
|
|
|
|
(69 |
) |
|
|
315 |
|
|
|
Common stock issued for employee stock benefit plans |
|
|
(73 |
) |
|
|
(7 |
) |
|
|
20,082 |
|
|
|
|
|
|
|
|
|
|
|
20,075 |
|
|
|
Common stock issued for agency acquisitions |
|
|
274 |
|
|
|
27 |
|
|
|
9,973 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
Common stock issued to directors |
|
|
16 |
|
|
|
2 |
|
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
587 |
|
|
|
Cash dividends paid ($0.085 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,084 |
) |
|
|
(24,084 |
) |
|
|
Balance at June 30, 2020 |
|
|
299,151 |
|
|
$ |
29,915 |
|
|
$ |
749,285 |
|
|
$ |
(537,672 |
) |
|
$ |
3,341,990 |
|
|
$ |
3,583,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
|
293,380 |
|
|
$ |
29,338 |
|
|
$ |
615,180 |
|
|
$ |
(477,572 |
) |
|
$ |
2,833,622 |
|
|
$ |
3,000,568 |
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,896 |
|
|
|
113,896 |
|
|
|
Net unrealized holding (loss) gain on available-for- sale securities |
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
Common stock issued for employee stock benefit plans |
|
|
2,465 |
|
|
|
246 |
|
|
|
5,963 |
|
|
|
|
|
|
|
|
|
|
|
6,209 |
|
|
|
Cash dividends paid ($0.080 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,348 |
) |
|
|
(22,348 |
) |
|
|
Balance at March 31, 2019 |
|
|
295,845 |
|
|
$ |
29,584 |
|
|
$ |
621,249 |
|
|
$ |
(477,572 |
) |
|
$ |
2,925,170 |
|
|
$ |
3,098,431 |
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,593 |
|
|
|
92,593 |
|
|
|
Net unrealized holding (loss) gain on available-for- sale securities |
|
|
|
|
|
|
|
|
|
|
205 |
|
|
|
|
|
|
|
(24 |
) |
|
|
181 |
|
|
|
Common stock issued for employee stock benefit plans |
|
|
(54 |
) |
|
|
(5 |
) |
|
|
11,084 |
|
|
|
|
|
|
|
|
|
|
|
11,079 |
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
(20,000 |
) |
|
|
|
|
|
|
— |
|
|
|
Common stock issued to directors |
|
|
28 |
|
|
|
3 |
|
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
Cash dividends paid ($0.080 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,533 |
) |
|
|
(22,533 |
) |
|
|
Balance at June 30, 2019 |
|
|
295,819 |
|
|
$ |
29,582 |
|
|
$ |
653,415 |
|
|
$ |
(497,572 |
) |
|
$ |
2,995,206 |
|
|
$ |
3,180,631 |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
7
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Six months ended June 30, |
|
|||||
|
(in thousands) |
|
2020 |
|
|
2019 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
249,184 |
|
|
$ |
206,489 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Amortization |
|
|
53,132 |
|
|
|
52,146 |
|
|
Depreciation |
|
|
12,189 |
|
|
|
11,701 |
|
|
Non-cash stock-based compensation |
|
|
30,087 |
|
|
|
24,128 |
|
|
Change in estimated acquisition earn-out payables |
|
|
(10,322 |
) |
|
|
(1,650 |
) |
|
Deferred income taxes |
|
|
(4,766 |
) |
|
|
(5,342 |
) |
|
Amortization of debt discount and disposal of deferred financing costs |
|
|
1,066 |
|
|
|
988 |
|
|
Accretion (amortization) of discounts and premiums, investment |
|
|
14 |
|
|
|
(12 |
) |
|
Net gain/(loss) on sales of investments, fixed assets and customer accounts |
|
|
86 |
|
|
|
(346 |
) |
|
Payments on acquisition earn-outs in excess of original estimated payables |
|
|
(576 |
) |
|
|
(267 |
) |
|
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
Premiums, commissions and fees receivable (increase) decrease |
|
|
(130,110 |
) |
|
|
(71,614 |
) |
|
Reinsurance recoverables (increase) decrease |
|
|
13,295 |
|
|
|
(11,939 |
) |
|
Prepaid reinsurance premiums (increase) decrease |
|
|
9,201 |
|
|
|
(5,674 |
) |
|
Other assets (increase) decrease |
|
|
(2,691 |
) |
|
|
(22,122 |
) |
|
Premiums payable to insurance companies increase (decrease) |
|
|
177,685 |
|
|
|
116,472 |
|
|
Premium deposits and credits due customers increase (decrease) |
|
|
(12,103 |
) |
|
|
(12,003 |
) |
|
Losses and loss adjustment reserve increase (decrease) |
|
|
(13,295 |
) |
|
|
12,123 |
|
|
Unearned premiums increase (decrease) |
|
|
(9,201 |
) |
|
|
5,674 |
|
|
Accounts payable increase (decrease) |
|
|
101,124 |
|
|
|
23,773 |
|
|
Accrued expenses and other liabilities increase (decrease) |
|
|
(47,742 |
) |
|
|
(32,269 |
) |
|
Other liabilities increase (decrease) |
|
|
442 |
|
|
|
15,447 |
|
|
Net cash provided by operating activities |
|
|
416,699 |
|
|
|
305,703 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Additions to fixed assets |
|
|
(35,938 |
) |
|
|
(35,174 |
) |
|
Payments for businesses acquired, net of cash acquired |
|
|
(291,424 |
) |
|
|
(146,646 |
) |
|
Proceeds from sales of fixed assets and customer accounts |
|
|
295 |
|
|
|
2,101 |
|
|
Purchases of investments |
|
|
(3,031 |
) |
|
|
(9,265 |
) |
|
Proceeds from sales of investments |
|
|
3,669 |
|
|
|
4,505 |
|
|
Net cash used in investing activities |
|
|
(326,429 |
) |
|
|
(184,479 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Payments on acquisition earn-outs |
|
|
(6,902 |
) |
|
|
(6,997 |
) |
|
Proceeds from long-term debt |
|
|
— |
|
|
|
350,000 |
|
|
Payments on long-term debt |
|
|
(27,500 |
) |
|
|
(22,500 |
) |
|
Deferred debt issuance costs |
|
|
— |
|
|
|
(3,701 |
) |
|
Borrowings on revolving credit facility |
|
|
250,000 |
|
|
|
— |
|
|
Payments on revolving credit facilities |
|
|
(150,000 |
) |
|
|
(350,000 |
) |
|
Issuances of common stock for employee stock benefit plans |
|
|
587 |
|
|
|
901 |
|
|
Repurchase shares to fund tax withholdings for non-cash stock-based compensation |
|
|
(7,811 |
) |
|
|
(6,861 |
) |
|
Purchase of treasury stock |
|
|
(1,429 |
) |
|
|
(20,000 |
) |
|
Settlement (prepayment) of accelerated share repurchase program |
|
|
— |
|
|
|
20,000 |
|
|
Cash dividends paid |
|
|
(47,986 |
) |
|
|
(44,881 |
) |
|
Net cash provided by (used in) financing activities |
|
|
8,959 |
|
|
|
(84,039 |
) |
|
Net increase in cash and cash equivalents inclusive of restricted cash |
|
|
99,229 |
|
|
|
37,185 |
|
|
Cash and cash equivalents inclusive of restricted cash at beginning of period |
|
|
962,975 |
|
|
|
777,596 |
|
|
Cash and cash equivalents inclusive of restricted cash at end of period |
|
$ |
1,062,204 |
|
|
$ |
814,781 |
|
See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 10 for the reconciliations of cash and cash equivalents inclusive of restricted cash and investments.
8
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, 2019.
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.
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 standard takes effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact this standard will have on the Company’s financial position.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which provides guidance for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-15 effective January 1, 2020. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.
9
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment test. The updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be applied prospectively. The Company adopted ASU 2017-04 effective January 1, 2020, with interim or annual goodwill impairment tests now comparing the fair value of a reporting unit with its carrying value and no longer performing Step 2 of the goodwill impairment test. No impairment charges were recorded as a result of adopting ASU 2017-04.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new guidance adds an impairment model, known as the current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable forward-looking information, which is intended to result in more timely recognition of such losses. All related guidance has been codified into, and is now known as, ASC 326 – Financial Instruments—Credit Losses. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods therein. The Company adopted ASU 2016-13 effective January 1, 2020 and has determined there is not a material impact on the Company’s Financial Statements given that historical trend analysis and assessments for forward-looking qualitative analysis are already integrated into financial assessments for the Company where possible.
NOTE 3 Revenues
The following tables present the revenues disaggregated by revenue source:
|
|
|
Three months ended June 30, 2020 |
|
|||||||||||||||||||||
|
(in thousands) |
|
Retail |
|
|
National Programs |
|
|
Wholesale Brokerage |
|
|
Services |
|
|
Other (8) |
|
|
Total |
|
||||||
|
Base commissions (1) |
|
$ |
221,674 |
|
|
$ |
107,392 |
|
|
$ |
68,300 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
397,366 |
|
|
Fees (2) |
|
|
65,583 |
|
|
|
37,453 |
|
|
|
16,856 |
|
|
|
42,930 |
|
|
|
(323 |
) |
|
|
162,499 |
|
|
Incentive commissions (3) |
|
|
14,706 |
|
|
|
111 |
|
|
|
516 |
|
|
|
— |
|
|
|
— |
|
|
|
15,333 |
|
|
Profit-sharing contingent commissions (4) |
|
|
6,926 |
|
|
|
9,269 |
|
|
|
2,458 |
|
|
|
— |
|
|
|
— |
|
|
|
18,653 |
|
|
Guaranteed supplemental commissions (5) |
|
|
3,405 |
|
|
|
306 |
|
|
|
595 |
|
|
|
— |
|
|
|
— |
|
|
|
4,306 |
|
|
Investment income (6) |
|
|
41 |
|
|
|
129 |
|
|
|
46 |
|
|
|
— |
|
|
|
117 |
|
|
|
333 |
|
|
Other income, net (7) |
|
|
227 |
|
|
|
7 |
|
|
|
82 |
|
|
|
— |
|
|
|
— |
|
|
|
316 |
|
|
Total Revenues |
|
$ |
312,562 |
|
|
$ |
154,667 |
|
|
$ |
88,853 |
|
|
$ |
42,930 |
|
|
$ |
(206 |
) |
|
$ |
598,806 |
|
|
|
|
Six months ended June 30, 2020 |
|
|||||||||||||||||||||
|
(in thousands) |
|
Retail |
|
|
National Programs |
|
|
Wholesale Brokerage |
|
|
Services |
|
|
Other (8) |
|
|
Total |
|
||||||
|
Base commissions (1) |
|
$ |
||||||||||||||||||||||