Brown & Brown Insurance 2016 Annual Report

(Unaudited) For the Year Ended December 31,
(in thousands, except per share data) 2014 2013
Total revenues $ 1,630,162 $ 1,520,858
Income before income taxes $ 358,229 $ 409,522
Net income $ 218,150 $ 248,628
Net income per share:
Basic $ 1.51 $ 1.72
Diluted $ 1.49 $ 1.70
Weighted-average number of shares outstanding:
Basic 140,944 141,033
Diluted 142,891 142,624
As of December 31, 2016, the maximum future contingency payments related to all acquisitions totaled $117.2 million,
all of which relates to acquisitions consummated subsequent to January 1, 2009.
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.
As of December 31, 2016, the fair values of the estimated acquisition earn-out payables were re-evaluated and
measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820 — Fair Value
Measurement. The resulting additions, payments, and net changes, as well as the interest expense accretion on the
estimated acquisition earn-out payables, for the years ended December 31, 2016, 2015 and 2014 were as follows:
(Unaudited) For the Year Ended December 31,
(in thousands) 2016 2015 2014
Balance as of the beginning of the period $ 78,387 $ 75,283 $ 43,058
Additions to estimated acquisition earn-out payables 4,462 36,899 34,356
Payments for estimated acquisition earn-out payables (28,213) (36,798) (12,069)
Subtotal 54,636 75,384 65,345
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables 6,338 13 7,375
Interest expense accretion 2,847 2,990 2,563
Net change in earnings from estimated acquisition earn-out payables 9,185 3,003 9,938
Balance as of December 31, $ 63,821 $ 78,387 $ 75,283
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2016 Annual Report
Of the $63.8 million estimated acquisition earn-out payables as of December 31, 2016, $31.8 million was recorded as
accounts payable and $32.0 million was recorded as other non-current liabilities. Included within additions to estimated
acquisition earn-out payables are any adjustments to opening balance sheet items prior to the one-year anniversary date
and may therefore differ from previously reported amounts. Of the $78.4 million estimated acquisition earn-out payables
as of December 31, 2015, $25.3 million was recorded as accounts payable and $53.1 million was recorded as other noncurrent
liabilities. Of the $75.3 million estimated acquisition earn-out payables as of December 31, 2014, $26.0 million
was recorded as accounts payable and $49.3 million was recorded as an other non-current liability.