Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

| --- | --- |

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and equity prices. We are exposed to market risk through our investments, revolving credit line and term loan agreements.

Our invested assets are held as cash and cash equivalents, restricted cash and investments, available-for-sale equity securities, equity securities and certificates of deposit. These investments are subject to interest rate risk and equity price risk. The fair values of our cash and cash equivalents, restricted cash and investments, and certificates of deposit at December 31, 2011 and 2010 approximated their respective carrying values due to their short-term duration and, therefore, such market risk is not considered to be material.

We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date.

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ITEM	8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

		Page No.
Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009			42
Consolidated Balance Sheets as of December 31, 2011 and 2010			43
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009			44
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009			45
Notes to Consolidated Financial Statements for the years ended December 31, 2011, 2010 and 2009			46
Note 1: Summary of Significant Accounting Policies			46
Note 2: Business Combinations			49
Note 3: Goodwill			53
Note 4: Amortizable Intangible Assets			53
Note 5: Investments			54
Note 6: Fixed Assets			54
Note 7: Accrued Expenses and Other Liabilities			54
Note 8: Long-Term Debt			55
Note 9: Income Taxes			56
Note 10: Employee Savings Plan			58
Note 11: Stock-Based Compensation			58
Note 12: Supplemental Disclosures of Cash Flow Information			61
Note 13: Commitments and Contingencies			62
Note 14: Quarterly Operating Results (Unaudited)			63
Note 15: Segment Information			63
Note 16: Subsequent Events			64
Reports of Independent Registered Public Accounting Firm			66
Management’s Report on Internal Control Over Financial Reporting			68

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BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF

INCOME

		Year Ended December 31,
(in thousands, except per share data)		2011				2010				2009
REVENUES
Commissions and fees		$	1,005,962			$	966,917			$	964,863
Investment income			1,267				1,326				1,161
Other income, net			6,313				5,249				1,853
Total revenues			1,013,542				973,492				967,877
EXPENSES
Employee compensation and benefits			508,675				487,820				484,680
Non-cash stock-based compensation			11,194				6,845				7,358
Other operating expenses			144,079				135,851				143,389
Amortization			54,755				51,442				49,857
Depreciation			12,392				12,639				13,240
Interest			14,132				14,471				14,599
Change in estimated acquisition earn-out payables			(2,206	)			(1,674	)			—
Total expenses			743,021				707,394				713,123
Income before income taxes			270,521				266,098				254,754
Income taxes			106,526				104,346				101,460
Net income		$	163,995			$	161,752			$	153,294
Net income per share:
Basic		$	1.15			$	1.14			$	1.08
Diluted		$	1.13			$	1.12			$	1.08
Weighted average number of shares outstanding:
Basic			138,582				137,924				137,173
Diluted			140,264				139,318				137,507
Dividends declared per share		$	0.3250			$	0.3125			$	0.3025

See accompanying notes to consolidated financial statements.

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BROWN & BROWN, INC.

CONSOLIDATED

BALANCE SHEETS

		At December 31,
(in thousands, except per share data)		2011				2010
ASSETS
Current Assets:
Cash and cash equivalents		$	286,305			$	272,984
Restricted cash and investments			130,535				123,594
Short-term investments			7,627				7,678
Premiums, commissions and fees receivable			240,257				214,446
Deferred income taxes			19,863				20,076
Other current assets			23,540				14,031
Total current assets			708,127				652,809
Fixed assets, net			61,360				59,713
Goodwill			1,323,469				1,194,827
Amortizable intangible assets, net			496,182				481,900
Other assets			17,873				11,565
Total assets		$	2,607,011			$	2,400,814
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies		$	327,096			$	311,346
Premium deposits and credits due customers			30,048				28,509
Accounts payable			22,384				33,693
Accrued expenses and other liabilities			100,865				94,947
Current portion of long-term debt			1,227				1,662
Total current liabilities			481,620				470,157
Long-term debt			250,033				250,067
Deferred income taxes, net			178,052				146,482
Other liabilities			53,343				27,764
Commitments and contingencies (Note 13)
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 280,000 shares; issued and outstanding 143,352 at 2011 and 142,795 at 2010			14,335				14,279
Additional paid-in capital			307,059				286,997
Retained earnings			1,322,562				1,205,061
Accumulated other comprehensive income, net of related income tax effect of $4 at 2011 and $4 at 2010			7				7
Total shareholders’ equity			1,643,963				1,506,344
Total liabilities and shareholders’ equity		$	2,607,011			$	2,400,814

See accompanying notes to consolidated financial statements.

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BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

		Common Stock								Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income				Total
(in thousands, except per share data)		Shares Outstanding				Par Value
Balance at January 1, 2009			141,544			$	14,154			$	250,167			$	977,407			$	13			$	1,241,741
Net income															153,294								153,294
Net unrealized holding gain on available-for-sale securities																			(8	)			(8	)
Comprehensive income																							153,286
Common stock issued for employee stock benefit plans			518				52				17,160												17,212
Income tax benefit from exercise of stock benefit plans											243												243
Common stock issued to directors			14				2				286												288
Cash dividends paid ($0.3025 per share)															(42,896	)							(42,896	)
Balance at December 31, 2009			142,076			$	14,208			$	267,856			$	1,087,805			$	5			$	1,369,874
Net income															161,752								161,752
Net unrealized holding loss on available-for-sale securities																			2				2
Comprehensive income																							161,754
Common stock issued for employee stock benefit plans			705				70				7,495												7,565
Income tax benefit from exercise of stock benefit plans											11,391												11,391
Common stock issued to directors			14				1				255												256
Cash dividends paid ($0.3125 per share)															(44,496	)							(44,496	)
Balance at December 31, 2010			142,795			$	14,279			$	286,997			$	1,205,061			$	7			$	1,506,344
Net income and comprehensive income															163,995								163,995
Common stock issued for employee stock benefit plans			545				55				18,859												18,914
Income tax benefit from exercise of stock benefit plans											916												916
Common stock issued to directors			12				1				287												288
Cash dividends paid ($0.3250 per share)															(46,494	)							(46,494	)
Balance at December 31, 2011			143,352			$	14,335			$	307,059			$	1,322,562			$	7			$	1,643,963

See accompanying notes to consolidated financial statements.

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BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
(in thousands)		2011				2010				2009
Cash flows from operating activities:
Net income		$	163,995			$	161,752			$	153,294
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization			54,755				51,442				49,857
Depreciation			12,392				12,639				13,240
Non-cash stock-based compensation			11,194				6,845				7,358
Change in estimated acquisition earn-out payables			(2,206	)			(1,674	)			—
Deferred income taxes			30,328				22,587				27,851
Income tax benefit from exercise of shares from the stock benefit plans			(916	)			(11,391	)			—
Net (gain) loss on sales of investments, fixed assets and customer accounts			(1,890	)			(1,474	)			374
Payments on acquisition earn-outs in excess of original estimated payables			(1,369	)			—				—
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Restricted cash and investments (increase) decrease			(6,941	)			31,663				(10,507	)
Premiums, commissions and fees receivable (increase) decrease			(20,570	)			(2,555	)			36,943
Other assets (increase) decrease			(7,322	)			14,529				8,668
Premiums payable to insurance companies increase (decrease)			9,447				436				(48,491	)
Premium deposits and credits due customers increase (decrease)			1,277				(9,673	)			(6,049	)
Accounts payable (decrease) increase			(2,807	)			28,246				(1,819	)
Accrued expenses and other liabilities increase (decrease)			3,975				(2,087	)			(488	)
Other liabilities (decrease)			(5,811	)			(5,233	)			(8,646	)
Net cash provided by operating activities			237,531				296,052				221,585
Cash flows from investing activities:
Additions to fixed assets			(13,608	)			(10,454	)			(11,310	)
Payments for businesses acquired, net of cash acquired			(166,055	)			(157,637	)			(44,682	)
Proceeds from sales of fixed assets and customer accounts			3,686				1,558				1,305
Purchases of investments			(12,698	)			(9,285	)			(11,570	)
Proceeds from sales of investments			12,950				9,327				10,828
Net cash used in investing activities			(175,725	)			(166,491	)			(55,429	)
Cash flows from financing activities:
Payments on acquisition earn-outs			(8,843	)			(2,136	)			—
Proceeds from long-term debt			100,000				—				—
Payments on long-term debt			(102,072	)			(19,425	)			(15,089	)
Borrowings on revolving credit facility			—				—				14,390
Payments on revolving credit facility			—				—				(14,390	)
Income tax benefit from exercise of shares from the stock benefit plans			916				11,391				243
Issuances of common stock for employee stock benefit plans			8,667				11,119				10,142
Repurchase stock benefit plan shares for employee to fund tax withholdings			(659	)			(10,143	)			—
Cash dividends paid			(46,494	)			(44,496	)			(42,896	)
Net cash used in financing activities			(48,485	)			(53,690	)			(47,600	)
Net increase in cash and cash equivalents			13,321				75,871				118,556
Cash and cash equivalents at beginning of year			272,984				197,113				78,557
Cash and cash equivalents at end of year		$	286,305			$	272,984			$	197,113

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

NOTE 1 Summary of Significant Accounting Policies

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 services organization that markets and sells to its customers insurance products and services, primarily in the property and casualty area. Brown & Brown’s business is divided into four reportable segments: the Retail Division, which provides a broad range of insurance products and services to commercial, public entity, professional and individual customers; the Wholesale Brokerage Division, which markets and sells excess and surplus commercial insurance and reinsurance, primarily through independent agents and brokers; the National Programs Division, which is composed of two units — Professional Programs, which provides professional liability and related package products for certain professionals delivered through nationwide networks of independent agents, and Special Programs, which markets targeted products and services designated for specific industries, trade groups, governmental entities and market niches; and the Services Division, which 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 and Social Security disability and Medicare benefits advocacy services.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries. All significant intercompany account balances and transactions have been eliminated in the Consolidated Financial Statements.

Revenue Recognition

Commission revenues are recognized as of the effective date of the insurance policy or the date on which the policy premium is billed to the customer, whichever is later. At that date, the earnings process has been completed, and Brown & Brown can reliably estimate the impact of policy cancellations for refunds and establish reserves accordingly. The reserve for policy cancellations is based upon historical cancellation experience adjusted for known circumstances. The policy cancellation reserve was $6,396,000 and $5,559,000 at December 31, 2011 and 2010, respectively, and it is periodically evaluated and adjusted as necessary. Subsequent commission adjustments are recognized upon receipt of notification from the insurance companies. Commission revenues are reported net of commissions paid to sub-brokers or co-brokers. Profit-sharing contingent commissions from insurance companies are recognized when determinable, which is when such commissions are received, or when officially notified of the amount of such commissions. Fee income is recognized as services are rendered.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“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 Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid investments with quoted market prices having maturities of three months or less when purchased.

Restricted Cash and Investments, and Premiums, Commissions and Fees Receivable

In its capacity as an insurance agent or broker, Brown & Brown typically collects premiums from insureds and, after deducting its authorized commissions, remits the net premiums to the appropriate insurance company or companies. Accordingly, as reported in the Consolidated Balance Sheets, “premiums” are receivable from insureds. Unremitted net insurance premiums are held in a fiduciary capacity until Brown & Brown disburses them. Brown & Brown invests these unremitted funds only in cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for a short term. In certain states in which Brown & Brown operates, the use and investment alternatives for these funds are regulated and restricted by various state laws and agencies. These restricted funds are reported as restricted cash and investments on the Consolidated Balance Sheets. The interest income earned on these unremitted funds is reported as investment income in the Consolidated Statements of Income.

In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applicable commissions to Brown & Brown. Accordingly, as reported in the Consolidated Balance Sheets, “commissions” are receivables from insurance companies. “Fees” are primarily receivables due from customers.

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Investments

Equity securities held by Brown & Brown have been classified as “available-for-sale” and are reported at estimated fair value, with the accumulated other comprehensive income (unrealized gains and losses), net of related income tax effect, reported as a separate component of shareholders’ equity. Realized gains and losses and declines in value below cost that are judged to be other-than-temporary on available-for-sale securities are reflected in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income in the Consolidated Statements of Income.

Equity securities and certificates of deposit having maturities of more than three months when purchased are reported at cost and are adjusted for other-than-temporary market value declines.

Fixed Assets

Fixed assets, including leasehold improvements are carried at cost, less accumulated depreciation and amortization. Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in other income. Depreciation has been determined using the straight-line method over the estimated useful lives of the related assets, which range from three to 15 years. Leasehold improvements are amortized on the straight-line method over the shorter of the useful life of the improvement or the term of the related lease.

Goodwill and Amortizable Intangible Assets

The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and amortizable intangible assets is assigned to goodwill. While goodwill is not amortizable, it is subject to at least an annual assessment, and more frequently in the presence of certain circumstances, for impairment by applying a fair value-based test. Amortizable intangible assets are amortized over their useful lives and are subject to an impairment review based on an estimate of the undiscounted future cash flows resulting from the use of the asset. The Company compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based on multiples of earnings before interest, income taxes, depreciation and amortization (“EBITDA”). Brown & Brown completed its most recent annual assessment as of November 30, 2011 and determined that the fair value of goodwill and amortizable intangible assets substantially exceed the carrying value of such assets. In addition, as of December 31, 2011, there are no accumulated impairment losses.

Amortizable intangible assets are stated at cost, less accumulated amortization, and consist of purchased customer accounts and non-compete agreements. Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from five to 15 years. Purchased customer accounts primarily consist of records and files that contain information about insurance policies and the related insured parties that are essential to policy renewals.

The carrying value of intangibles attributable to each business or asset group comprising Brown & Brown is periodically reviewed by management to determine if the facts and circumstances suggest they may be impaired. In the insurance agency and wholesale brokerage industry, it is common for agencies or customer accounts to be acquired at a price determined as a multiple of either their corresponding revenues or EBITDA. Accordingly, Brown & Brown assesses the carrying value of its intangible assets by considering the estimated future undiscounted cash flows generated by the corresponding business or asset group. Any impairment identified through this assessment may require that the carrying value of related intangible assets be adjusted; however, no impairments have been recorded for the years ended December 31, 2011, 2010 and 2009.

Income Taxes

Brown & Brown records income tax expense using the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and the income tax bases of Brown & Brown’s assets and liabilities.

Brown & Brown files a consolidated federal income tax return and has elected to file consolidated returns in certain states. Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses charged to income for financial reporting purposes in one period and deducted for income tax purposes in other periods.

Net Income Per Share

Effective in 2009, the Company adopted new Financial Accounting Standards Board (“FASB”) authoritative guidance that states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share (“EPS”) pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends or dividend

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equivalents and their respective participation rights in undistributed earnings. Performance stock shares granted to employees under the Company’s Performance Stock Plan are considered participating securities as they receive non-forfeitable dividend equivalents at the same rate as common stock.

Basic EPS is computed based on the weighted average number of common shares (including participating securities) issued and outstanding during the period. Diluted EPS is computed based on the weighted average common shares issued and outstanding plus equivalent shares assuming the exercise of stock options. The dilutive effect of stock options is computed by application of the treasury stock method. For the years ended December 31, 2010 and 2009, the impact of outstanding options to purchase 12,000 shares of common stock, in each period, was anti-dilutive; these shares were excluded from the calculation of diluted net income per share. The following is a reconciliation between basic and diluted weighted average shares outstanding for the years ended December 31:

(in thousands, except per share data)		2011				2010				2009
Net income		$	163,995			$	161,752			$	153,294
Net income attributable to unvested awarded performance stock			(5,099	)			(5,097	)			(4,937	)
Net income attributable to common shares		$	158,896			$	156,655			$	148,357
Weighted average basic number of common shares outstanding			143,029				142,412				141,738
Less unvested awarded performance stock included in weighted average basic share outstanding			(4,447	)			(4,488	)			(4,565	)
Weighted average number of common shares outstanding for basic earnings per common share			138,582				137,924				137,173
Dilutive effect of stock options			1,682				1,394				334
Weighted average number of shares outstanding			140,264				139,318				137,507
Net income per share:
Basic		$	1.15			$	1.14			$	1.08
Diluted		$	1.13			$	1.12			$	1.08

Fair Value of Financial Instruments

The carrying amounts of Brown & Brown’s financial assets and liabilities, including cash and cash equivalents, restricted cash and investments, investments, premiums, commissions and fees receivable, premiums payable to insurance companies, premium deposits and credits due customers and accounts payable, at December 31, 2011 and 2010, approximate fair value because of the short-term maturity of these instruments. The carrying amount of Brown & Brown’s long-term debt approximates fair value at December 31, 2011 and 2010 since the related coupon rate approximates the current market rate.

Stock-Based Compensation

The Company grants stock options and non-vested stock awards to its employees, officers and directors. The Company uses the modified-prospective method to account for share-based payments. Under the modified-prospective method, compensation cost is recognized for all share-based payments granted on or after January 1, 2006 and for all awards granted to employees prior to January 1, 2006 that remained unvested on that date_._ The Company uses the alternative transition method to determine the accounting of the income tax effects of payments made related to stock-based compensation.

The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the Employee Stock Purchase Plan (the “ESPP”). Compensation for non-vested stock awards is measured at fair value on the grant-date based upon the number of shares expected to vest. Compensation cost for all awards is recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Recent Accounting Pronouncements

Comprehensive Income—In June 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholder’s equity. This authoritative guidance is to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Except for presentation requirements, the Company does not expect the adoption of this guidance to have a material effect on its Financial Statements.

Goodwill Impairment—In September 2011, the FASB issued authoritative guidance which simplifies goodwill impairment testing by allowing an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. An entity is no longer required to determine the fair value of a reporting unit unless it is

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more likely than not that the fair value is less than carrying value. The guidance is effective for interim and annual periods beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material effect on its Financial Statements.

NOTE 2 Business Combinations

Acquisitions in 2011

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 and hire high-quality individuals. 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.

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.

Based on acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s 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. However, the Company does not expect any adjustments to such allocations to be material to the Company’s Consolidated Financial Statements.

These acquisitions have been accounted for as business combinations and are as follows:

(in thousands)
Name		Business Segment				2011 Date of Acquisition				Cash Paid				Note Payable				Recorded Earn-out Payable				Net Assets Acquired				Maximum Potential Earn-out Payable
Balcos Insurance, Inc.			Retail				January 1			$	8,611			$	—			$	1,595			$	10,206			$	5,766
Associated Insurance Service, Inc. et al.			Retail				January 1				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				April 30				25,060				—				—				25,060				—
Fitzharris Agency, Inc. et al.			Retail				May 1				6,159				—				888				7,047				3,832
Corporate Benefit Consultants, LLC			Retail				June 1				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				November 1				7,493				—				1,318				8,811				3,988
Industry Consulting Group, Inc.			National Programs				November 1				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
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:

(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				—				—
Total assets acquired			10,265				13,585				17,601				30,305				10,753				11,038
Other current liabilities			(59	)			(10	)			(728	)			(3,790	)			(3,706	)			—
Deferred income taxes, net			—				—				—				(1,455	)			—				—
Other liabilities			—				—				—				—				—				—
Total liabilities assumed			(59	)			(10	)			(728	)			(5,245	)			(3,706	)			—
Net assets acquired		$	10,206			$	13,575			$	16,873			$	25,060			$	7,047			$	11,038

(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
Total assets acquired			47,479				8,848				17,177				14,247				33,524				214,822
Other current liabilities			(791	)			(37	)			(1,096	)			(49	)			(867	)			(11,133	)
Deferred income taxes, net			—				—				—				—				—				(1,455	)
Other liabilities			—				—				(3,071	)			—				—				(3,071	)
Total liabilities assumed			(791	)			(37	)			(4,167	)			(49	)			(867	)			(15,659	)
Net assets acquired		$	46,688			$	8,811			$	13,010			$	14,198			$	32,657			$	199,163

The weighted average useful lives for the above acquired amortizable intangible assets are as follows: purchased customer accounts are 15.0 years, and noncompete agreements are 5.0 years.

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 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.

(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		$	1.20			$	1.25
Diluted		$	1.19			$	1.23
Weighted average number of shares outstanding:
Basic			138,582				137,924
Diluted			140,264				139,318

Acquisitions in 2010

During 2010, Brown & Brown acquired the assets and assumed certain liabilities of 33 insurance intermediaries and several books of business (customer accounts). The aggregate purchase price of these acquisitions was $186,783,000, including $158,636,000 of cash payments, the issuance of $759,000 in notes payable, the assumption of $2,298,000 of liabilities and $25,090,000 of recorded earn-out payables. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract and hire high-quality individuals. 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.

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.

Based on acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s consolidated financial statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC Topic 805-Business Combinations.

These acquisitions have been accounted for as business combinations and are as follows:

(in thousands)
Name		Business Segment				2010 Date of Acquisition				Cash Paid				Note Payable				Recorded Earn-out Payable				Net Assets Acquired				Maximum Potential Earn-out Payable
DiMartino Associates, Inc.			Retail				March 1			$	7,047			$	—			$	3,402			$	10,449			$	5,637
Stone Insurance Agencies, et al.			Retail				May 1				15,825				—				124				15,949				3,000
Crowe Paradis Holding Company, et al.			Services				September 1				75,000				—				8,665				83,665				15,000
Thomas R Jones, Inc.			Retail				October 1				14,634				—				—				14,634				—
Other			Various				Various				46,130				759				12,899				59,788				30,668
Total										$	158,636			$	759			$	25,090			$	184,485			$	54,305

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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:

(in thousands)		DiMartino				Stone				Crowe				TR Jones				Other				Total
Cash		$	—			$	—			$	1,000			$	—			$	—			$	1,000
Other current assets			137				516				118				259				1,528				2,558
Fixed assets			21				70				500				120				180				891
Goodwill			6,890				11,128				53,573				8,683				36,119				116,393
Purchased customer accounts			3,380				5,172				28,440				5,643				22,841				65,476
Non-compete agreements			21				74				33				—				332				460
Other assets			—				—				1				4				—				5
Total assets acquired			10,449				16,960				83,665				14,709				61,000				186,783
Other current liabilities			—				(1,011	)			—				(75	)			(1,212	)			(2,298	)
Total liabilities assumed			—				(1,011	)			—				(75	)			(1,212	)			(2,298	)
Net assets acquired		$	10,449			$	15,949			$	83,665			$	14,634			$	59,788			$	184,485

The weighted average useful lives for the above acquired amortizable intangible assets are as follows: purchased customer accounts are 15.0 years, and noncompete agreements are 5.0 years.

Goodwill of $116,393,000, was assigned to the Retail and Services Divisions in the amounts of $57,423,000 and $58,970,000, respectively. Of the total goodwill of $116,393,000, $91,303,000 is currently deductible for income tax purposes. The remaining $25,090,000 relates to the earn-out payables and will not be deductible until it is earned and paid.

The results of operations for the acquisitions completed during 2010 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, 2010 included in the Consolidated Statement of Income for the twelve months ended December 31, 2010 were $30,172,000 and $3,255,000, respectively. If the acquisitions had occurred as of the beginning of the comparable prior annual reporting 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.

(UNAUDITED)		For the Year Ended December 31,
(in thousands, except per share data)		2010				2009
Total revenues		$	1,015,043			$	1,035,286
Income before income taxes		$	278,635			$	274,908
Net income		$	169,373			$	165,420
Net income per share:
Basic		$	1.19			$	1.17
Diluted		$	1.18			$	1.16
Weighted average number of shares outstanding:
Basic			137,924				137,173
Diluted			139,318				137,507

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 2011 as a result of these adjustments totaled $4,190,000, all of which was allocated to goodwill. Of the $4,190,000 net additional consideration paid, $3,781,000 was paid in cash and $409,000 was issued in notes payable. The net additional consideration paid by the Company in 2010 as a result of these adjustments totaled $4,037,000, all of which was allocated to goodwill. Of the $4,037,000 net additional consideration paid, $975,000 was paid in cash and $3,062,000 was issued in notes payable.

As of December 31, 2011, the maximum future contingency payments related to all acquisitions totaled $132,516,000, of which $5,098,000 relates to acquisitions consummated prior to January 1, 2009 and $127,418,000 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 price 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, 2011, 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, net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2011, 2010, and 2009, were as follows (in thousands):

(in thousands)		2011				2010				2009
Balance as of January 1		$	29,608			$	7,354			$	—
Additions to estimated acquisition earn-out payables			30,525				25,090				7,226
Payments for estimated acquisition earn-out payables			(10,212	)			(1,162	)			—
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables			(4,043	)			(2,606	)			—
Interest expense accretion			1,837				932				128
Net change in earnings from estimated acquisition earn-out payables			(2,206	)			(1,674	)			—
Balance as of December 31		$	47,715			$	29,608			$	7,354

Of the $47,715,000 estimated acquisition earn-out payables as of December 31, 2011, $3,654,000 was recorded as accounts payable and $44,061,000 was recorded as other non-current liability. Of the $29,609,000 estimated acquisition earn-out payables as of December 31, 2010, $7,651,000 was recorded as accounts payable and $21,958,000 was recorded as other non-current liability.

NOTE 3 Goodwill

The changes in the carrying value of goodwill by operating segment for the years ended December 31, are as follows:

(in thousands)		Retail				National Programs				Wholesale Brokerage				Service				Total
Balance as of January 1, 2010		$	656,108			$	152,601			$	256,418			$	9,270			$	1,074,397
Goodwill of acquired businesses			60,518				—				942				58,970				120,430
Balance as of December 31, 2010			716,626				152,601				257,360				68,240				1,194,827
Goodwill of acquired businesses			112,610				11,853				—				8,071				132,534
Goodwill transferred			(1,771	)			—				1,771				—				—
Goodwill disposed of relating to sales of businesses			(3,892	)			—				—				—				(3,892	)
Balance as of December 31, 2011		$	823,573			$	164,454			$	259,131			$	76,311			$	1,323,469

NOTE 4 Amortizable Intangible Assets

Amortizable intangible assets at December 31 consisted of the following:

		2011																2010
(in thousands)		Gross Carrying Value				Accumulated Amortization				Net Carrying Value				Weighted Average Life (years)				Gross Carrying Value				Accumulated Amortization				Net Carrying Value				Weighted Average Life (years)
Purchased customer accounts		$	876,552			$	(381,615	)		$	494,937				14.9			$	811,143			$	(330,627	)		$	480,516				14.9
Non-compete agreements			25,291				(24,046	)			1,245				7.2				25,181				(23,797	)			1,384				7.3
Total		$	901,843			$	(405,661	)		$	496,182							$	836,324			$	(354,424	)		$	481,900

Amortization expense recorded for amortizable intangible assets for the years ended December 31, 2011, 2010 and 2009 was $54,755,000, $51,442,000 and $49,857,000, respectively.

Amortization expense for amortizable intangible assets for the years ending December 31, 2012, 2013, 2014, 2015 and 2016 is estimated to be $56,337,000, $55,437,000, $54,282,000, $52,949,000, and $48,364,000, respectively.

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NOTE 5 Investments

Investments, which have been classified as ASC 805 Level 1 securities, at December 31 consisted of the following:

		2011 Carrying Value								2010 Carrying Value
(in thousands)		Current				Non- Current				Current				Non- Current
Available-for-sale equity securities		$	36			$	—			$	36			$	—
Certificates of deposit and other securities			7,591				516				7,642				517
Total investments		$	7,627			$	516			$	7,678			$	517

The following table summarizes available-for-sale securities at December 31:

(in thousands)		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Equity securities:
2011		$	25			$	11				—			$	36
2010		$	25			$	11				—			$	36

The following table summarizes the proceeds and realized gains/(losses) on equity securities and certificates of deposit for the years ended December 31:

(in thousands)		Proceeds				Gross Realized Gains				Gross Realized Losses
2011		$	12,950			$	124			$	—
2010		$	9,327			$	6			$	—
2009		$	10,828			$	—			$	(299	)

NOTE 6 Fixed Assets

Fixed assets at December 31 consisted of the following:

(in thousands)		2011				2010
Furniture, fixtures and equipment		$	131,436			$	125,963
Leasehold improvements			17,045				16,151
Land, buildings and improvements			438				438
Total cost			148,919				142,552
Less accumulated depreciation and amortization			(87,559	)			(82,839	)
Total		$	61,360			$	59,713

Depreciation and amortization expense for fixed assets amounted to $12,392,000 in 2011, $12,639,000 in 2010, and $13,240,000 in 2009.

NOTE 7 Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at December 31 consisted of the following:

			$131,436				$131,436
(in thousands)		2011				2010
Accrued bonuses		$	47,585			$	43,896
Accrued compensation and benefits			16,818				16,040
Accrued rent and vendor expenses			11,554				10,445
Reserve for policy cancellations			6,396				5,559
Accrued interest			3,288				4,727
Other			15,224				14,280
Total		$	100,865			$	94,947

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NOTE 8 Long-Term Debt

Long-term debt at December 31 consisted of the following:

(in thousands)		2011				2010
Unsecured Senior Notes		$	250,000			$	250,000
Acquisition notes payable			1,260				1,729
Revolving credit facility			—				—
Other notes payable			—				—
Total debt			251,260				251,729
Less current portion			(1,227	)			(1,662	)
Long-term debt		$	250,033			$	250,067

In July 2004, the Company completed a private placement of $200.0 million of unsecured senior notes (the “Notes”). The $200.0 million is divided into two series: (1) Series A, which closed on September 15, 2004, for $100.0 million was due in 2011 and bore interest at 5.57% per year; and (2) Series B, which closed on July 15, 2004, for $100.0 million due in 2014 and bearing interest at 6.08% per year. Brown & Brown has used the proceeds from the Notes for general corporate purposes, including acquisitions and repayment of existing debt. On September 15, 2011, the $100.0 million of Series A Notes were redeemed on their normal maturity date. As of December 31, 2011 and 2010, there was an outstanding balance on the Notes of $100.0 million and $200.0 million, respectively.

On December 22, 2006, the Company entered into a Master Shelf and Note Purchase Agreement (the “Master Agreement”) with a national insurance company (the “Purchaser”). On September 30, 2009, the Company and the Purchaser amended the Master Agreement to extend the term of the agreement until August 20, 2012. The Purchaser also purchased Notes issued by the Company in 2004. The Master Agreement provides for a $200.0 million private uncommitted “shelf” facility for the issuance of senior unsecured notes over a three-year period, with interest rates that may be fixed or floating and with such maturity dates, not to exceed ten years, as the parties may determine. The Master Agreement includes various covenants, limitations and events of default similar to the Notes issued in 2004. The initial issuance of notes under the Master Agreement occurred on December 22, 2006, through the issuance of $25.0 million in Series C Senior Notes due December 22, 2016, with a fixed interest rate of 5.66% per year. On February 1, 2008, $25.0 million in Series D Senior Notes due January 15, 2015, with a fixed interest rate of 5.37% per year, were issued. On September 15, 2011, pursuant to a Confirmation of Acceptance dated January 21, 2011 (the “Confirmation”), in connection with the Master Agreement, $100.0 million in Series E Senior Notes due September 15, 2018, with a fixed interest rate of 4.50% per year, were issued. The Series E Senior Notes were issued for the sole purpose to retire the Series A Senior Notes. As of December 31, 2011, and December 31, 2010, there was an outstanding debt balance issued under the provisions of the Master Agreement of $150.0 million and $50.0 million, respectively.

In accordance with ASC Topic 470 – Debt, the Company classified the related principal balance of the Series A Senior Notes as long-term debt as of December 31, 2010, as the Company had both the intent and ability to refinance the obligation on a long-term basis, as evidenced by the Confirmation.

On June 12, 2008, the Company entered into an Amended and Restated Revolving Loan Agreement dated as of June 3, 2008 (the “Prior Loan Agreement”), with a national banking institution, amending and restating the existing Revolving Loan Agreement dated September 29, 2003, as amended (the “Revolving Agreement”), to increase the lending commitment to $50.0 million (subject to potential increases up to $100.0 million) and to extend the maturity date from December 20, 2011, to June 3, 2013.

The calculation of interest and fees is generally based on the Company’s quarterly ratio of funded debt to earnings before interest, taxes, depreciation, amortization, and non-cash stock-based compensation. Interest is charged at a rate equal to 0.50% to 1.00% above the London Interbank Offering Rate (“LIBOR”) or 1.00% below the base rate, each as more fully defined in the Loan Agreement. Fees include an upfront fee, an availability fee of 0.10% to 0.20%, and a letter of credit usage fee of 0.50% to 1.00%. The Loan Agreement contains various covenants, limitations, and events of default customary for similar facilities for similar borrowers. The 90-day LIBOR was 0.581% and 0.300% as of December 31, 2011, and December 31, 2010, respectively. There were no borrowings against this facility at December 31, 2011, or December 31, 2010. See Note 16—Subsequent Events for a discussion of the Company entering into certain credit agreements in January 2012.

All three of these credit agreements require Brown & Brown to maintain certain financial ratios and comply with certain other covenants. Brown & Brown was in compliance with all such covenants as of December 31, 2011 and 2010.

Acquisition notes payable represent debt incurred to former owners of certain insurance operations acquired by Brown & Brown. These notes and future contingent payments are payable in monthly, quarterly and annual installments through July 2013.

Interest paid in 2011, 2010 and 2009 was $15,571,000, $14,491,000 and $14,636,000, respectively.

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At December 31, 2011, maturities of long-term debt were $1,227,000 in 2012, $33,000 in 2013, $100,000,000 in 2014, $25,000,000 in 2015, $25,000,000 in 2016 and $100,000,000 in 2017 and beyond.

NOTE 9 Income Taxes

Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows:

(in thousands)		2011				2010				2009
Current:
Federal		$	65,461			$	70,715			$	62,547
State			10,084				10,236				10,730
Foreign			638				860				286
Total current provision			76,183				81,811				73,563
Deferred:
Federal			27,212				19,890				24,913
State			3,131				2,645				2,984
Total deferred provision			30,343				22,535				27,897
Total tax provision		$	106,526			$	104,346			$	101,460

A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31 is as follows:

			$106,526				$106,526				$106,526
		2011				2010				2009
Federal statutory tax rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal income tax benefit			3.5				3.5				4.0
Non-deductible employee stock purchase plan expense			0.3				0.3				0.4
Non-deductible meals and entertainment			0.3				0.3				0.3
Interest exempt from taxation and dividend exclusion			—				—				(0.1	)
Other, net			0.3				0.1				0.2
Effective tax rate			39.4	%			39.2	%			39.8	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.

Significant components of Brown & Brown’s current deferred tax assets as of December 31 are as follows:

(in thousands)		2011				2010
Current deferred tax assets:
Deferred profit-sharing contingent commissions		$	11,124			$	12,274
Accruals and reserves			8,739				7,802
Total current deferred tax assets		$	19,863			$	20,076

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Significant components of Brown & Brown’s non-current deferred tax liabilities and assets as of December 31 are as follows:

(in thousands)		2011				2010
Non-current deferred tax liabilities:
Fixed assets		$	11,400			$	9,263
Net unrealized holding gain of available-for-sale securities			4				4
Prepaid insurance and pension			3,123				28
Intangible assets			176,459				146,815
Total non-current deferred tax liabilities			190,986				156,110
Non-current deferred tax assets:
Deferred compensation			11,341				8,232
Accruals and reserves			—				—
Net operating loss carryforwards			2,071				1,721
Valuation allowance for deferred tax assets			(478	)			(325	)
Total non-current deferred tax assets			12,934				9,628
Net non-current deferred tax liability		$	178,052			$	146,482

Income taxes paid in 2011, 2010 and 2009 were $75,403,000, $69,828,000, and $76,373,000, respectively.

At December 31, 2011, Brown & Brown had net operating loss carryforwards of $295,000 and $40,915,000 for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2012 through 2031. The federal carryforward is derived from insurance operations acquired by Brown & Brown in 2001. The state carryforward is derived from the operating results of certain subsidiaries.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in thousands)		2011				2010				2009
Unrecognized tax benefits balance at January 1		$	656			$	635			$	611
Gross increases for tax positions of prior years			257				229				489
Gross decreases for tax positions of prior years			—				—				(274	)
Settlements			(107	)			(208	)			(182	)
Lapse of statute of limitations			—				—				(9	)
Unrecognized tax benefits balance at December 31		$	806			$	656			$	635

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011 and 2010, we had approximately $188,000 and $140,000 of accrued interest related to uncertain tax positions, respectively.

Total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $806,000 as of December 31, 2011 and $656,000 as of December 31, 2010. We do not expect our unrecognized tax benefits to change significantly over the next 12 months.

As a result of a 2006 Internal Revenue Service (“IRS”) audit, we agreed to accrue at each December 31, for tax purposes only, a known amount of profit-sharing contingent commissions represented by the actual amount of profit-sharing contingent commissions received in the first quarter of the related year, with a true-up adjustment to the actual amount received by the end of the following March 31. Since this method for tax purposes differs from the method used for book purposes, it will result in a current deferred tax asset as of December 31 each year with that balance reversing by the following March 31 when the related profit-sharing contingent commissions are recognized for financial accounting purposes.

The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to taxation in the United Kingdom. In the United States, federal returns for fiscal years 2008 through 2011 remain open and subject to examination by the Internal Revenue Service. The Company files and remits state income taxes in various states where the Company has determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the fiscal years 2007 through 2011. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2008 through 2011. The Company currently has no ongoing federal, state or foreign income tax audits.

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NOTE 10 Employee Savings Plan

The Company has an Employee Savings Plan (401(k)) under which substantially all employees with more than 30 days of service are eligible to participate. Under this plan, Brown & Brown makes matching contributions, subject to a maximum of 2.5% of each participant’s salary. Further, the Company provides for a discretionary profit-sharing contribution of 1.5% of the employee’s salary for all eligible employees. The Company’s contributions to the plan totaled $11,866,000 in 2011, $11,376,000 in 2010, and $11,750,000 in 2009.

NOTE 11 Stock-Based Compensation

Performance Stock Plan

Brown & Brown has adopted and the shareholders have approved a performance stock plan, under which up to 14,400,000 Performance Stock Plan (“PSP”) shares may be granted to key employees contingent on the employees’ future years of service with Brown & Brown and other criteria established by the Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance Stock, two vesting conditions must be met. Of the grants currently outstanding, specified portions will satisfy the first condition for vesting based on 20% incremental increases in the 20-trading-day average stock price of Brown & Brown’s common stock from the initial grant price specified by Brown & Brown. Performance Stock that has satisfied the first vesting condition is considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted EPS. Dividends are paid on awarded shares and participants may exercise voting privileges on such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years of continuous employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the July 2009 grant to Powell Brown, 20 years); (ii) attainment of age 64; or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining authorized but unissued shares, as well as any shares forfeited in the future, will be reserved for issuance under the 2010 Stock Incentive Plan (the “SIP”).

At December 31, 2011, 7,113,819 shares had been granted under the PSP at initial stock prices ranging from $1.90 to $30.55. As of December 31, 2011, 1,586,543 shares have not met the first condition for vesting, 3,345,269 shares met the first condition for vesting and had been awarded, and 2,182,007 shares satisfied both conditions for vesting and had been distributed to the participants.

The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.

A summary of PSP activity for the years ended December 31, 2011, 2010 and 2009 is as follows:

		Weighted- Average Grant Date Fair Value				Granted Shares				Awarded Shares				Shares Not Yet Awarded
Outstanding at January 1, 2009		$	7.21				7,822,076				4,629,221				3,192,855
Granted		$	11.80				389,580				—				389,580
Awarded		$	—				—				—				—
Vested		$	6.05				(73,860	)			(73,860	)			—
Forfeited		$	10.42				(379,249	)			(131,925	)			(247,324	)
Outstanding at December 31, 2009		$	7.39				7,758,547				4,423,436				3,335,111
Granted		$	9.67				384,420				—				384,420
Awarded		$	9.49				—				474,113				(474,113	)
Vested		$	2.02				(1,388,789	)			(1,388,789	)			—
Forfeited		$	7.91				(962,324	)			(117,241	)			(845,083	)
Outstanding at December 31, 2010		$	7.32				5,791,854				3,391,519				2,400,335
Granted		$	—				—				—				—
Awarded		$	9.56				—				447,154				(447,154	)
Vested		$	6.01				(106,490	)			(106,490	)			—
Forfeited		$	9.48				(753,552	)			(386,914	)			(366,638	)
Outstanding at December 31, 2011		$	8.08				4,931,812				3,345,269				1,586,543

The weighted average grant-date fair value of PSP grants for years ended December 31, 2011, 2010 and 2009 was $ 0.00, $9.67, $11.80, respectively. The total fair value of PSP grants that vested during each of the years ended December 31, 2011, 2010 and 2009 was $2,384,000, $31,965,000 and $1,412,000, respectively.

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Stock Incentive Plan

On April 28, 2010, the shareholders of Brown & Brown, Inc. approved the SIP that provides for the granting of stock options, stock and/or stock appreciation rights to employees and Board members contingent on criteria established by the Compensation Committee of the Company’s Board of Directors. The principal purpose of the SIP is to attract, incentivize and retain key employees by offering those persons an opportunity to acquire or increase a direct proprietary interest in the Company’s operations and future success. The SIP includes a sub-plan applicable to Decus Insurance Brokers Limited (“Decus”) which, together with its parent company, Decus Holdings (U.K.) Limited, are the Company’s only foreign subsidiaries. The shares of stock reserved for issuance under the SIP are any shares that are authorized to be issued under the PSP that are not already subject to grants under the PSP, and that were outstanding as of April 28, 2010, the date of suspension of the PSP, together with PSP shares and SIP shares that are forfeited after that date. As of April 28, 2010, 6,046,768 shares were available for issuance under the PSP, which were then transferred to the SIP. Stock grants under the SIP vest in six to ten years, subject to the achievement of certain performance criteria by grantees, and the achievement of consolidated EPS growth at certain levels by the Company, over a five-year measurement period ending December 31, 2015.

In 2010, a grant of 187,040 shares was made under the SIP. This grant was conditioned upon the surrender of 187,040 shares previously granted under the PSP in 2009, which were accordingly treated as forfeited PSP shares. The vesting conditions of this grant were identical to those provided for in connection with the 2009 PSP grant; thus the target stock prices and the periods associated with satisfaction of the first and second conditions of vesting were unchanged. Additionally, grants totaling 5,205 shares were made in 2010 to Decus employees under the SIP sub-plan applicable to Decus.

In 2011, shares totaling 2,375,892 were granted under the SIP. Of this total, grants totaling 24,670 shares were made to Decus employees under the SIP sub-plan applicable to Decus. As of December 31, 2011, 37,408 shares met the first condition for vesting and had been awarded. At December 31, 2011, 4,808,124 shares are available for future grants, of which 2,261,307 of these shares are reserved for grants with PSP-type vesting conditions.

The Company uses the closing stock price on the day prior to the grant date to determine the fair value of SIP grants and then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-dependent lattice model to estimate the fair value of PSP-like grants as of the grant date. SIP shares that satisfied the first vesting condition for PSP-like grants or the established performance criteria are considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted EPS. Dividends are paid on awarded shares and participants may exercise voting privileges on such shares.

A summary of SIP activity for the years ended December 31, 2011, 2010 and 2009 is as follows:

		Weighted- Average Grant Date Fair Value				Granted Shares				Awarded Shares				Shares Not Yet Awarded
Outstanding at January 1, 2010		$	—				—				—				—
Granted		$	12.62				192,245				—				192,245
Awarded		$	12.62				—				38,449				(38,449	)
Vested		$	—				—				—				—
Forfeited		$	—				—				—				—
Outstanding at December 31, 2010		$	12.62				192,245				38,449				153,796
Granted		$	23.94				2,375,892				—				2,375,892
Awarded		$	11.41				—				(1,041	)			1,041
Vested		$	—				—				—				—
Forfeited		$	23.94				(90,080	)			—				(90,080	)
Outstanding at December 31, 2011		$	23.06				2,478,057				37,408				2,440,649

Employee Stock Purchase Plan

The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 12,000,000 authorized shares and 2,297,258 available for future subscriptions. Employees of the Company who regularly work more than 20 hours per week are eligible to participate in the ESPP. Participants, through payroll deductions, may allot up to 10% of their compensation, to a maximum of $25,000, to purchase Company stock between August 1 of each year to the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the beginning or ending of the Subscription Period.

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The Company estimates the fair value of an ESPP share option as of the beginning of the Subscription Period as the sum of: (1) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (2) 85% of the value of a one-year stock option on the Company stock using the Black-Scholes option-pricing model. The estimated fair value of an ESPP share option as of the Subscription Period beginning in August 2011 was $4.27. The fair value of an ESPP share option as of the Subscription Periods beginning in August 2010 and 2009, was $4.01 and $5.78, respectively.

For the plan years ended July 31, 2011, 2010 and 2009, the Company issued 488,052, 500,334 and 579,104 shares of common stock in August 2011, 2010 and 2009, respectively. These shares were issued at an aggregate purchase price of $8,048,000 or $16.49 per share in 2011, $8,326,000 or $16.64 per share in 2010 and $9,358,000 or $16.16 per share in 2009.

For the five months ended December 31, 2011, 2010 and 2009 of the 2011-2012, 2010-2011 and 2009-2010 plan years, 230,481, 206,201, and 250,414 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by participants for proceeds of approximately $3,810,000, $3,400,000 and $3,826,000, respectively.

Incentive Stock Option Plan

On April 21, 2000, Brown & Brown adopted, and the shareholders approved, a qualified incentive stock option plan (the “ISOP”) that provides for the granting of stock options to certain key employees for up to 4,800,000 shares of common stock. On December 31, 2008, the ISOP expired. The objective of the ISOP was to provide additional performance incentives to grow Brown & Brown’s pre-tax income in excess of 15% annually. The options were granted at the most recent trading day’s closing market price and vest over a one-to-10-year period, with a potential acceleration of the vesting period to three to six years based upon achievement of certain performance goals. All of the options expire 10 years after the grant date.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the grant date. The risk-free interest rate is based upon the U.S. Treasury yield curve on the date of grant with a remaining term approximating the expected term of the option granted. The expected term of the options granted is derived from historical data; grantees are divided into two groups based upon expected exercise behavior and are considered separately for valuation purposes. The expected volatility is based upon the historical volatility of the Company’s common stock over the period of time equivalent to the expected term of the options granted. The dividend yield is based upon the Company’s best estimate of future dividend yield.

A summary of stock option activity for the years ended December 31, 2011, 2010 and 2009 is as follows:

Stock Options		Shares Under Option				Weighted- Average Exercise Price				**Weighted- Average Remaining Contractual Term **(in years)				**Aggregate Intrinsic Value **(in thousands)
Outstanding at January 1, 2009			2,475,015			$	16.68				6.9			$	22,587
Granted			—				—
Exercised			(69,659	)		$	4.84
Forfeited			(16,672	)		$	15.40
Expired			—				—
Outstanding at December 31, 2009			2,388,684			$	17.03				6.1			$	21,629
Granted			—				—
Exercised			(313,514	)		$	13.13
Forfeited			(200,000	)		$	18.48
Expired			—				—
Outstanding at December 31, 2010			1,875,170			$	17.53				5.4			$	17,147
Granted			—				—
Exercised			(52,589	)		$	18.48
Forfeited			(438,044	)		$	17.28
Expired			—				—
Outstanding at December 31, 2011			1,384,537			$	17.58				4.4			$	14,587
Ending vested and expected to vest at December 31, 2011			1,384,537			$	17.58				4.4			$	14,587
Exercisable at December 31, 2011			396,985			$	18.16				5.4			$	1,774
Exercisable at December 31, 2010			257,040			$	17.92				6.0			$	1,546
Exercisable at December 31, 2009			317,020			$	12.68				2.4			$	1,676

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The following table summarizes information about stock options outstanding at December 31, 2011:

			$000000000				$000000000				$000000000				$000000000				$000000000
Options Outstanding														Options Exercisable
Exercise Price		Number Outstanding				Weighted Average Remaining Contractual Life (years)				Weighted Average Exercise Price				Number Exercisable				Weighted Average Exercise Price
$15.78			479,592				1.2			$	15.78				58,972			$	15.78
$22.06			12,000				3.0			$	22.06				9,068			$	22.06
$18.48			892,945				6.2			$	18.48				328,945			$	18.48
Totals			1,384,537				4.4			$	17.58				396,985			$	18.16

The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31, 2011, 2010 and 2009 was $333,000, $2,344,000 and $948,000, respectively. The total intrinsic value is calculated as the difference between the exercise price of all underlying awards and the quoted market price of the Company’s stock for all in-the-money stock options at December 31, 2011, 2010 and 2009, respectively.

There are no option shares available for future grant under the ISOP since this plan expired as of December 31, 2008.

Summary of Non-Cash Stock-Based Compensation Expense

The non-cash stock-based compensation expense for the years ended December 31 is as follows:

(in thousands)		2011				2010				2009
Stock Incentive Plan		$	5,320			$	60			$	—
Performance Stock Plan			2,661				2,836				2,878
Employee Stock Purchase Plan			2,126				2,511				2,878
Incentive Stock Option Plan			1,087				1,438				1,602
Total		$	11,194			$	6,845			$	7,358

Summary of Unrecognized Compensation Expense

As of December 31, 2011, there was approximately $65.0 million of unrecognized compensation expense related to all non-vested share-based compensation arrangements granted under the Company’s stock-based compensation plans. That expense is expected to be recognized over a weighted-average period of 9.2 years.

NOTE 12 Supplemental Disclosures of Cash Flow Information

Brown & Brown’s significant non-cash investing and financing activities for the years ended December 31 are summarized as follows:

(in thousands)		2011				2010				2009
Unrealized holding gain (loss) on available-for-sale securities, net of tax effect of $0 for 2011, net of tax effect of $1 for 2010 and net of tax benefit of $5 for 2009			—				2				(8	)
Notes payable issued or assumed for purchased customer accounts		$	1,603			$	3,821			$	22,645
Estimated acquisition earn-out payables and related charges		$	30,525			$	25,090			$	7,226
Notes received on the sale of fixed assets and customer accounts		$	8,166			$	1,825			$	(958	)

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NOTE 13 Commitments and Contingencies

Operating Leases

Brown & Brown leases facilities and certain items of office equipment under non-cancelable operating lease arrangements expiring on various dates through 2022. The facility leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. Brown & Brown anticipates that most of these leases will be renewed or replaced upon expiration. At December 31, 2011, the aggregate future minimum lease payments under all non-cancelable lease agreements were as follows:

(in thousands)
2012		$	25,176
2013			21,712
2014			19,159
2015			15,790
2016			12,182
Thereafter			15,338
Total minimum future lease payments		$	109,357

Rental expense in 2011, 2010 and 2009 for operating leases totaled $34,951,000, $35,216,000, and $37,598,000, respectively.

Legal Proceedings

We generally record losses for claims in excess of the limits of insurance in earnings at the time and to the extent they are probable and estimable. In accordance with ASC Topic 450 - Contingencies, we accrue anticipated costs of settlement, damages, losses for general liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

Our accruals for legal matters that are probable and estimable were not material at December 31, 2011 and 2010, and included estimated costs of settlement, damages and defense. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could adversely impact our operating results, cash flows and overall liquidity. The Company maintains third-party insurance policies to provide certain coverage against adverse legal claims, which is done to try to mitigate our overall exposure to unanticipated claims or adverse decisions. However, as (i) one or more of the Company’s insurance carriers could take the position that portions of these claims are not covered by the Company’s insurance, (ii) to the extent that payments are made to resolve claims and lawsuits, applicable insurance policy limits are eroded and (iii) the claims and lawsuits relating to these matters are continuing to develop, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by unfavorable resolutions of these matters. Management has assessed the A. M. Best ratings of these third-party insurers and does not believe there is a substantial risk of an insurer’s material nonperformance related to any current insured claims.

On the basis of present information, availability of insurance and legal advice, in management’s opinion, we are not currently involved in any legal proceedings which, individually or in the aggregate, would have a material effect on our financial condition, operations and/or cash flows.

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NOTE 14 Quarterly Operating Results (Unaudited)

Quarterly operating results for 2011 and 2010 were as follows:

(in thousands, except per share data)		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
2011
Total revenues		$	262,228			$	246,816			$	260,401			$	244,097
Total expenses		$	185,558			$	185,348			$	187,709			$	184,406
Income before income taxes		$	76,670			$	61,468			$	72,692			$	59,691
Net income		$	46,293			$	37,035			$	44,173			$	36,494
Net income per share:
Basic		$	0.32			$	0.26			$	0.31			$	0.25
Diluted		$	0.32			$	0.26			$	0.30			$	0.25
2010
Total revenues		$	252,273			$	243,665			$	247,616			$	229,938
Total expenses		$	179,189			$	175,652			$	174,582			$	177,971
Income before income taxes		$	73,084			$	68,013			$	73,034			$	51,967
Net income		$	44,128			$	41,185			$	44,293			$	32,146
Net income per share:
Basic		$	0.31			$	0.29			$	0.31			$	0.23
Diluted		$	0.31			$	0.29			$	0.31			$	0.22

Quarterly financial information is affected by seasonal variations. The timing of profit-sharing contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly between quarters.

NOTE 15 Segment Information

Brown & Brown’s business is divided into four reportable segments: the Retail Division, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers; the National Programs Division, which is comprised of two units: Professional Programs which provides professional liability and related package products for certain professionals delivered through nationwide networks of independent agents, and Special Programs, which markets targeted products and services designed for specific industries, trade groups, public and quasi-public entities, and market niches; the Wholesale Brokerage Division, which markets and sells excess and surplus commercial and personal lines insurance, and reinsurance, primarily through independent agents and brokers; and the Services Division, which 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 and Social Security disability and Medicare benefits advocacy services. Brown & Brown conducts all of its operations within the United States of America, except for one wholesale brokerage operation based in London, England which commenced business in March 2008. This operation earned $9.1 million, $9.9 million and $6.6 million of total revenues for the years ended December 31, 2011, 2010 and 2009, respectively. Long-lived assets held outside of the United States during each of the last three years were not material.

The accounting policies of the reportable segments are the same as those described in Note 1. Brown & Brown evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment revenues are eliminated.

Summarized financial information concerning Brown & Brown’s reportable segments is shown in the following table. The “Other” column includes any income and expenses not allocated to reportable segments and corporate-related items, including the inter-company interest expense charge to the reporting segment.

		Year Ended December 31, 2011
(in thousands)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Total revenues		$	607,199			$	181,277			$	157,308			$	65,972			$	1,786			$	1,013,542
Investment income		$	102			$	—			$	34			$	128			$	1,003			$	1,267
Amortization		$	33,373			$	8,630			$	10,172			$	2,541			$	39			$	54,755
Depreciation		$	5,046			$	2,994			$	2,537			$	590			$	1,225			$	12,392
Interest expense		$	27,688			$	1,794			$	7,082			$	5,746			$	(28,178	)		$	14,132
Income before income taxes		$	137,807			$	67,588			$	29,388			$	7,729			$	28,009			$	270,521
Total assets		$	2,155,413			$	734,423			$	658,040			$	166,060			$	(1,106,925	)		$	2,607,011
Capital expenditures		$	6,102			$	2,079			$	2,547			$	689			$	2,191			$	13,608

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		Year Ended December 31, 2010
(in thousands)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Total revenues		$	575,061			$	189,165			$	158,699			$	46,447			$	4,120			$	973,492
Investment income		$	170			$	1			$	29			$	15			$	1,111			$	1,326
Amortization		$	30,725			$	9,213			$	10,201			$	1,264			$	39			$	51,442
Depreciation		$	5,349			$	3,049			$	2,695			$	352			$	1,194			$	12,639
Interest expense		$	27,037			$	3,242			$	10,770			$	2,592			$	(29,170	)		$	14,471
Income before income taxes		$	128,026			$	74,941			$	25,234			$	7,693			$	30,204			$	266,098
Total assets		$	1,914,587			$	667,123			$	631,344			$	145,321			$	(957,561	)		$	2,400,814
Capital expenditures		$	4,852			$	2,432			$	1,838			$	419			$	913			$	10,454
		Year Ended December 31, 2009
(in thousands)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Total revenues		$	583,374			$	190,593			$	158,341			$	32,743			$	2,826			$	967,877
Investment income		$	282			$	3			$	62			$	23			$	791			$	1,161
Amortization		$	29,943			$	9,175			$	10,239			$	462			$	38			$	49,857
Depreciation		$	6,060			$	2,725			$	2,894			$	333			$	1,228			$	13,240
Interest expense		$	31,596			$	5,365			$	14,289			$	668			$	(37,319	)		$	14,599
Income before income taxes		$	121,769			$	70,436			$	17,030			$	6,996			$	38,523			$	254,754
Total assets		$	1,764,249			$	627,392			$	618,704			$	47,829			$	(833,948	)		$	2,224,226
Capital expenditures		$	3,459			$	4,318			$	3,201			$	160			$	172			$	11,310

NOTE 16 Subsequent Event

On January 9, 2012, Brown & Brown acquired all of the stock of the parent company of Arrowhead General Insurance Agency, Inc. (“Arrowhead”), a national insurance program manager and one of the largest managing general agents (“MGA”) in the property and casualty insurance industry. The aggregate purchase price for Arrowhead was $580,767,000, including $397,531,000 of cash payments, the assumption of $178,904,000 of liabilities and $4,332,000 of recorded earn-out payables. Arrowhead was acquired primarily to expand Brown & Brown’s National Programs and Services businesses, and to attract and hire high-quality individuals.

The Arrowhead acquisition will be accounted for as business combination as follows:

(in thousands)

Name		2012 Date of Acquisition				Cash Paid				Note Payable				Recorded Earn-out Payable				Net Assets Acquired				Maximum Potential Earn-out Payable
Arrowhead			January 9			$	397,531			$	—			$	4,332			$	401,863			$	5,000

The following table summarizes the preliminary estimated fair values of Arrowhead’s aggregate assets and liabilities acquired:

(in thousands)		Arrowhead
Cash		$	61,221
Other current assets			68,439
Fixed assets			4,751
Goodwill			304,974
Purchased customer accounts			126,431
Non-compete agreements			100
Other assets			14,851
Total assets acquired			580,767
Other current liabilities			(126,095	)
Deferred income taxes, net			(52,809	)
Total liabilities assumed			(178,904	)
Net assets acquired		$	401,863

The weighted average useful lives for the above acquired amortizable intangible assets are as follows: purchased customer accounts are 15.0 years, and noncompete agreements are 5.0 years.

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If the Arrowhead acquisition had occurred as of January 1, 2011, 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 Arrowhead acquisition actually been made as of January 1, 2011.

(UNAUDITED)		For the Year Ended December 31, 2011
(in thousands, except per share data)
Total revenues		$	1,121,886
Income before income taxes		$	287,720
Net income		$	174,143
Net income per share:
Basic		$	1.22
Diluted		$	1.20
Weighted average number of shares outstanding:
Basic			138,582
Diluted			140,264

On January 9, 2012, in conjunction with the Arrowhead acquisition, the Company entered into: (1) an amended and restated revolving and term loan credit agreement (the “SunTrust Agreement”) with SunTrust Bank (“SunTrust”) that provided for (a) a $100.0 million term loan (the “SunTrust Term Loan”) and (b) a $50.0 million revolving line of credit (the “SunTrust Revolver”) and (2) a $50.0 million promissory note (the “JPM Note”) in favor of JPMorgan Chase Bank, N.A. (“JPMorgan”), pursuant to a letter agreement executed by JP Morgan (together with the JPM Note, the “JPM Agreement”) that provided for a $50.0 million uncommitted line of credit bridge facility (the “JPM Bridge Facility”). The SunTrust Term Loan, the SunTrust Revolver and the JPM Bridge Facility were each funded on January 9, 2012, and provided the financing for the acquisition. The SunTrust Agreement amends and restates the Prior Loan Agreement.

The maturity date for the SunTrust Term Loan and the SunTrust Revolver is December 31, 2016, at which time all outstanding principal and unpaid interest will be due. Both the SunTrust Term Loan and the SunTrust Revolver may be increased by up to $50.0 million (bringing the total available for each to $150.0 million for the SunTrust Term Loan and $100.0 million for the SunTrust Revolver, respectively). The calculation of interest and fees for the SunTrust Agreement is generally based on the Company’s funded debt-to-EBITDA ratio. Interest is charged at a rate equal to 1.00% to 1.40% above LIBOR or 1.00% below the Base Rate. Fees include an up-front fee, an availability fee of 0.175% to 0.25%, and a letter of credit margin fee of 1.00% to 1.40%. Initially, until the Company’s March 31, 2012 quarter end, the applicable margin for LIBOR advances is 1.00%, the availability fee is 0.175%, and the letter of credit margin fee is 1.00%. The obligations under the SunTrust Term Loan and SunTrust Revolver are unsecured and the SunTrust Agreement includes various covenants, limitations and events of default that are customary for similar facilities for similar borrowers and that are substantially similar to those contained in the Prior Loan Agreement.

The maturity date for the JPM Bridge Facility was February 3, 2012, at which time all outstanding principal and unpaid interest would have been due. Interest was charged at a rate equal to the CB Floating Rate. The JPM Bridge Facility was unsecured and included various agreements, limitations and events of default that are customary for similar facilities for similar borrowers.

On January 26, 2012, the Company entered into a term loan agreement (the “JPM Agreement”) with JPMorgan that provided for a $100.0 million term loan (the “JPM Term Loan”). The JPM Term Loan was fully funded on January 26, 2012, and provided the financing to fully repay (1) JPM Bridge Facility and (2) SunTrust Revolver. As a result of the January 26, 2012 financing and repayments, the JPM Bridge Facility has been terminated and the SunTrust Revolver’s amount outstanding was brought to zero prior to making subsequent advances thereunder.

The maturity date for the JPM Term Loan is December 31, 2016, at which time all outstanding principal and unpaid interest will be due. Interest is charged at a rate equal to the Alternative Base Rate or 1.00% above the Adjusted LIBOR Rate. Fees include an up-front fee. The obligations under the JPM Term Loan are unsecured and the JPM Agreement includes various covenants, limitations and events of default that are customary for similar facilities for similar borrowers.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Brown & Brown, Inc.

Daytona Beach, Florida

We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brown & Brown, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Jacksonville, Florida

February 29, 2012

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Brown & Brown, Inc.

Daytona Beach, Florida

We have audited the internal control over financial reporting of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Balcos Insurance, Inc., United Benefit Services Insurance Agency LLC et al., Fitzharris Agency, Inc. et al, Public Employee Benefits Solution, LLC, Sitzmann, Morris & Lavis Insurance Agency, Inc. et al., Snapper Shuler Kenner, Inc. et al, Industry Consulting Group, Inc. and Colonial Claims Corporation et al (collectively the “2011 Excluded Acquisitions”), which were acquired during 2011 and whose financial statements constitute 6.7% and 5.5% of net and total assets, respectively, 1.8% of revenues, and 2.7% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2011. Accordingly, our audit did not include the internal control over financial reporting of the 2011 Excluded Acquisitions. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011of the Company and our report dated February 29, 2012 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Jacksonville, Florida

February 29, 2012

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Management’s Report on Internal Control Over Financial Reporting

The management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including Brown & Brown’s principal executive officer and principal financial officer, Brown & Brown conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In conducting Brown & Brown’s evaluation of the effectiveness of its internal control over financial reporting, Brown & Brown has excluded the following acquisitions completed by Brown & Brown during 2011: Balcos Insurance, Inc., United Benefit Services Insurance Agency LLC et al., Fitzharris Agency, Inc. et al, Public Employee Benefits Solution, LLC, Sitzmann, Morris & Lavis Insurance Agency, Inc. et al., Snapper Shuler Kenner, Inc. et al, Industry Consulting Group, Inc. and Colonial Claims Corporation et al (collectively the “2011 Excluded Acquisitions”), which were acquired during 2011 and whose financial statements constitute 6.7% and 5.5% of net and total assets, respectively, 1.8% of revenues, and 2.7% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2011. Refer to Note 2 to the Consolidated Financial Statements for further discussion of these acquisitions and their impact on Brown & Brown’s Consolidated Financial Statements.

Based on Brown & Brown’s evaluation under the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission_,_ management concluded that internal control over financial reporting was effective as of December 31, 2011. Management’s internal control over financial reporting as of December 31, 2011 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Brown & Brown, Inc.

Daytona Beach, Florida

February 29, 2012

/s/ J. Hyatt Brown				/s/ Cory T. Walker
J. Hyatt Brown				Cory T. Walker
Acting Chief Executive Officer				Chief Financial Officer

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