BBInsurance-2017-Annual-Report

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The net charge or credit to the Consolidated Statement of Income for the period is the combination of the net change in
the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the
estimated acquisition earn-out payables.
As of December 31, 2017, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured
at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 82 – Fair Value Measurement. The
resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years
ended December 31, 2017, 2016 and 2015 were as follows:
(in thousands) 2017 2016 2015
Change in fair value of estimated acquisition earn-out payables $ 6,874 $ 6,338 $ 13
Interest expense accretion 2,326 2,847 2,990
Net change in earnings from estimated acquisition earn-out payables $ 9,200 $ 9,185 $ 3,003
For the years ended December 31, 2017, 2016 and 2015, the fair value of estimated earn-out payables was re-evaluated
and increased by $6.9 million, $6.3 million and $13.0 thousand, respectively, which resulted in charges to the Consolidated
Statement of Income.
As of December 31, 2017, the estimated acquisition earn-out payables equaled $36.2 million, of which $25.1 million was
recorded as accounts payable and $11.1 million was recorded as other non-current liability. As of December 31, 2016, the
estimated acquisition earn-out payables equaled $63.8 million, of which $31.8 million was recorded as accounts payable and
$32.0 million was recorded as other non-current liability.
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Brown & Brown, Inc.
Income Taxes
The effective tax rate on income from operations was 11.1% in 2017, 39.2% in 2016, and 39.6% in 2015. The decrease in
the effective tax rate for 2017 was primarily driven by the revaluation of deferred tax liabilities as described in Part II, Note 9
“Income Taxes,” in addition to adoption of FASB Accounting Standards Update 2016-09, “Improvements to Employee Share
Based Payment Accounting” (“ASU 2016-09”) in the first quarter of 2017. ASU 2016-09, which requires upon vesting of
stock-based compensation any tax implications be treated as a discrete credit to the income tax expense in the quarter of
vesting, amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation.
The decrease in the effective tax rate for 2016 is driven by several permanent tax differences along with the apportionment of
taxable income in the states where we operate.