Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

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Index to Consolidated Financial Statements


	Page No.
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012		47
Consolidated Balance Sheets as of December 31, 2014 and 2013		48
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012		49
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012		50
Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012		51
Note 1: Summary of Significant Accounting Policies		51
Note 2: Business Combinations		55
Note 3: Goodwill		63
Note 4: Amortizable Intangible Assets		63
Note 5: Investments		63
Note 6: Fixed Assets		64
Note 7: Accrued Expenses and Other Liabilities		65
Note 8: Long-Term Debt		65
Note 9: Income Taxes		67
Note 10: Employee Savings Plan		69
Note 11: Stock-Based Compensation		69
Note 12: Supplemental Disclosures of Cash Flow Information		74
Note 13: Commitments and Contingencies		74
Note 14: Quarterly Operating Results (Unaudited)		75
Note 15: Segment Information		76
Note 16: Losses and Loss Adjustment Reserve		77
Note 17: Statutory Financial Information		77
Note 18: Subsidiary Dividend Restrictions		77
Note 19: Shareholders’ Equity		78

Report of Independent Registered Public Accounting Firm		79

BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
*(in thousands, except per share data)*	2014		2013		2012
REVENUES
Commissions and fees	$	1,567,460	$	1,355,503	$	1,189,081
Investment income		747		638		797
Other income, net		7,589		7,138		10,154

Total revenues		1,575,796		1,363,279		1,200,032

EXPENSES
Employee compensation and benefits		791,749		683,000		608,506
Non-cash stock-based compensation		19,363		22,603		15,865
Other operating expenses		235,328		195,677		174,389
Loss on disposal		47,425		—		—
Amortization		82,941		67,932		63,573
Depreciation		20,895		17,485		15,373
Interest		28,408		16,440		16,097
Change in estimated acquisition earn-out payables		9,938		2,533		1,418

Total expenses		1,236,047		1,005,670		895,221

Income before income taxes		339,749		357,609		304,811
Income taxes		132,853		140,497		120,766

Net income	$	206,896	$	217,112	$	184,045

Net income per share:
Basic	$	1.43	$	1.50	$	1.28

Diluted	$	1.41	$	1.48	$	1.26

Weighted average number of shares outstanding:
Basic		140,944		141,033		139,364

Diluted		142,891		142,624		142,010

Dividends declared per share	$	0.41	$	0.37	$	0.35

See accompanying notes to consolidated financial statements.

BROWN & BROWN, INC.

CONSOLIDATED BALANCE SHEETS


	At December 31,
*(in thousands, except per share data)*	2014			2013
ASSETS
Current Assets:
Cash and cash equivalents	$	470,048		$	202,952
Restricted cash and investments		259,769			250,009
Short-term investments		11,157			10,624
Premiums, commissions and fees receivable		424,547			395,915
Reinsurance recoverable		13,028			—
Prepaid reinsurance premiums		320,586			—
Deferred income taxes		25,431			29,276
Other current assets		45,542			39,260

Total current assets		1,570,108			928,036
Fixed assets, net		84,668			74,733
Goodwill		2,460,611			2,006,173
Amortizable intangible assets, net		784,642			618,888
Investments		19,862			16
Other assets		36,567			21,662

Total assets	$	4,956,458		$	3,649,508

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies	$	568,184		$	534,360
Losses and loss adjustment reserve		13,028			—
Unearned premiums		320,586			—
Premium deposits and credits due customers		83,313			80,959
Accounts payable		57,261			34,158
Accrued expenses and other liabilities		181,156			157,400
Current portion of long-term debt		45,625			100,000

Total current liabilities		1,269,153			906,877
Long-term debt		1,152,846			380,000
Deferred income taxes, net		341,497			291,704
Other liabilities		79,217			63,786
Commitments and contingencies (Note 13)
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 280,000 shares; issued 145,871 and outstanding 143,486 at 2014; and issued and outstanding 145,419 at 2013		14,587			14,542
Additional paid-in capital		405,982			371,960
Treasury stock, at cost 2,385 and 0 shares at 2014 and 2013, respectively		(75,025	)		—
Retained earnings		1,768,201			1,620,639

Total shareholders’ equity		2,113,745			2,007,141

Total liabilities and shareholders’ equity	$	4,956,458		$	3,649,508

See accompanying notes to consolidated financial statements.

BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


	Common Stock				Additional Paid-In Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total
*(in thousands, except per share data)*	Shares		Par Value
Balance at January 1, 2012		143,352	$	14,335	$	307,059	$	—		$	1,322,562		$	7		$	1,643,963

Net income and comprehensive income											184,045						184,045
Net unrealized holding gain on available-for-sale securities														(7	)		(7	)
Common stock issued for employee stock benefit plans		501		50		19,549											19,599
Income tax benefit from exercise of stock benefit plans						8,659											8,659
Common stock issued to directors		25		3		605											608
Cash dividends paid ($0.35 per share)											(49,534	)					(49,534	)

Balance at December 31, 2012		143,878		14,388		335,872		—			1,457,073			—			1,807,333

Net income											217,112						217,112
Common stock issued for employee stock benefit plans		1,541		154		33,730											33,884
Income tax benefit from exercise of stock benefit plans						2,358											2,358
Cash dividends paid ($0.37 per share)											(53,546	)					(53,546	)

Balance at December 31, 2013		145,419		14,542		371,960		—			1,620,639			—			2,007,141

Net income											206,896						206,896
Common stock issued for employee stock benefit plans		442		44		30,405											30,449
Purchase of treasury stock								(75,025	)								(75,025	)
Income tax benefit from exercise of stock benefit plans						3,298											3,298
Common stock issued to directors		10		1		319											320
Cash dividends paid ($0.41 per share)											(59,334	)					(59,334	)

Balance at December 31, 2014		145,871	$	14,587	$	405,982	$	(75,025	)	$	1,768,201		$	—		$	2,113,745

See accompanying notes to consolidated financial statements.

BROWN & BROWN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
*(in thousands)*	2014			2013			2012
Cash flows from operating activities:
Net income	$	206,896		$	217,112		$	184,045
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		82,941			67,932			63,573
Depreciation		20,895			17,485			15,373
Non-cash stock-based compensation		19,363			22,603			15,865
Change in estimated acquisition earn-out payables		9,938			2,533			1,418
Deferred income taxes		7,369			32,247			32,723
Amortization of debt discount		46			—			—
Income tax benefit from exercise of shares from the stock benefit plans		(3,298	)		(2,358	)		(8,659	)
Loss(gain) on sales of investments, fixed assets and customer accounts		42,465			(2,806	)		(4,105	)
Payments on acquisition earn-outs in excess of original estimated payables		(2,539	)		(2,788	)		(4,086	)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Restricted cash and investments (increase)		(9,760	)		(85,445	)		(34,029	)
Premiums, commissions and fees receivable (increase)		(11,160	)		(40,729	)		(11,312	)
Reinsurance recoverable decrease		12,210			—			—
Prepaid reinsurance premiums (increase)		(31,573	)		—			—
Other assets (increase) decrease		(12,564	)		(2,583	)		2,145
Premiums payable to insurance companies increase (decrease)		8,164			61,624			(4,651	)
Premium deposits and credits due customers increase		2,323			41,049			2,506
Losses and loss adjustment reserve (decrease)		(12,210	)		—			—
Unearned premiums increase		31,573			—			—
Accounts payable increase		36,949			5,180			36,505
Accrued expenses and other liabilities increase (decrease)		11,718			70,872			(43,059	)
Other liabilities (decrease)		(24,727	)		(12,554	)		(23,937	)

Net cash provided by operating activities		385,019			389,374			220,315

Cash flows from investing activities:
Additions to fixed assets		(24,923	)		(16,366	)		(24,028	)
Payments for businesses acquired, net of cash acquired		(696,486	)		(367,712	)		(425,054	)
Proceeds from sales of fixed assets and customer accounts		13,631			5,886			14,095
Purchases of investments		(17,813	)		(18,102	)		(11,167	)
Proceeds from sales of investments		18,278			15,662			10,654

Net cash used in investing activities		(707,313	)		(380,632	)		(435,500	)

Cash flows from financing activities:
Payments on acquisition earn-outs		(9,530	)		(15,491	)		(13,539	)
Proceeds from long-term debt		1,048,425			30,000			200,000
Payments on long-term debt		(330,000	)		(93	)		(1,227	)
Borrowings on revolving credit facilities		475,000			31,863			100,000
Payments on revolving credit facilities		(475,000	)		(31,863	)		(100,000	)
Income tax benefit from exercise of shares from the stock benefit plans		3,298			2,358			8,659
Issuances of common stock for employee stock benefit plans		14,808			12,445			13,305
Repurchase of stock benefit plan shares for employees to fund tax withholdings		(3,252	)		(1,284	)		(8,963	)
Purchase of treasury stock		(75,025	)		—			—
Cash dividends paid		(59,334	)		(53,546	)		(49,534	)

Net cash provided by (used in) financing activities		589,390			(25,611	)		148,701

Net increase (decrease) in cash and cash equivalents		267,096			(16,869	)		(66,484	)
Cash and cash equivalents at beginning of year		202,952			219,821			286,305

Cash and cash equivalents at end of year	$	470,048		$	202,952		$	219,821

See accompanying notes to consolidated financial statements.

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 Segment, which provides a broad range of insurance products and services to commercial, public entity, professional and individual customers; the National Programs Segment, acting as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, flood coverage, targeted products and services designated for specific industries, trade groups, governmental entities and market niches all of which are delivered through nationwide networks of independent agents, and markets; the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial insurance, primarily through independent agents and brokers; and the Services Segment, 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, Social Security disability and Medicare benefits advocacy services, and catastrophe claims adjusting services. In addition, as the result of our acquisition of the stock of The Wright Insurance Group, LLC (“Wright”), in May 2014, we own a flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”), that is a Wright subsidiary. This carrier’s business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) and several excess flood insurance policies which are fully reinsured.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) which changes the criteria for reporting discontinued operations and enhances disclosures in this area. Under the new guidance, the disposal of a component or group of components of an entity should be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Disposals of equity method investments, or those reported as held-for-sale, must be presented as a discontinued operation if they meet the new definition. The standard is effective prospectively for all disposals of components (or classification of components as held-for-sale) of an entity that occur within interim and annual periods beginning on or after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications of components as held-for-sale) that have not been reported in financial statements previously issued. Brown & Brown has elected to early adopt this pronouncement and has reported a loss on disposal of $47.4 as a result of the sale of Axiom Re, effective December 31, 2014, in accordance with this pronouncement.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company beginning January 1, 2017 and, at that time the Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s Consolidated Financial Statements.

In August 2014, FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” (“ASU 2014-15”), which addresses management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. The Company does not expect to early adopt this guidance and it believes the adoption of this guidance will not have a material impact on the Consolidated Financial Statements.

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 processed into our systems, whichever is later. Commission revenues related to installment billings are recognized on the later of effective or invoiced, with the exception of our Arrowhead business which follows a policy of recognizing on the later of effective or processed into our systems regardless of the billing arrangement. Management determines the policy cancellation reserve based upon historical cancellation experience adjusted in accordance with known circumstances. Subsequent commission adjustments are recognized upon our receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is when such commissions are received from insurance companies, or when we receive formal notification of the amount of such payments. Fee revenues and commissions for workers’ compensation programs are 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 (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the 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, where allowed by state law, 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.

Investments

Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at cost and are adjusted for other-than-temporary market value declines. During 2014 additional investments were included with the acquisition of Wright. These investments include U.S. Government, Municipal, domestic corporate and foreign corporate bonds as well as short-duration fixed income funds. Investments within the portfolio or funds are held as available for sale and are carried at their fair value. Any gain/loss applicable from the fair value change is recorded as other comprehensive income under the equity section of the consolidated balance sheet. Gains or losses recognized in earnings from the investments are included in investment income in the consolidated statements of income.

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

All of our business combinations initiated after June 30, 2001 are accounted for using the purchase method. 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 prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations are 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 contained 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 this estimate 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 estimates 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.

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 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 assessment at least annually, and more frequently in the presence of certain circumstances, for impairment by application of a fair value-based test. 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, amortization and change in estimated acquisition earn-out payables (“EBITDAC”), or on a discounted cash flow basis. Brown & Brown completed its most recent annual assessment as of November 30, 2014 and determined that the fair value of goodwill exceeded the carrying value of such assets. In addition, as of December 31, 2014, there are no accumulated impairment losses.

The carrying value of amortizable intangible assets attributable to each business or asset group comprising Brown & Brown is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that its carrying amount may not be recoverable. Accordingly, if there are any such changes in circumstances during the year, Brown & Brown assesses the carrying value of its amortizable 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 amortizable intangible assets be adjusted. There were no impairments recorded for the years ended December 31, 2014, 2013 and 2012.

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 the 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 equivalents and their respective participation rights in undistributed earnings. Performance stock shares granted to employees under the Company’s Performance Stock Plan and under the Company’s Stock Incentive 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 number of 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. 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)*	2014			2013			2012
Net income	$	206,896		$	217,112		$	184,045
Net income attributable to unvested awarded performance stock		(5,186	)		(5,446	)		(5,313	)

Net income attributable to common shares	$	201,710		$	211,666		$	178,732

Weighted average basic number of common shares outstanding		144,568			144,662			143,507
Less unvested awarded performance stock included in weighted average basic share outstanding		(3,624	)		(3,629	)		(4,143	)

Weighted average number of common shares outstanding for basic earnings per common share		140,944			141,033			139,364
Dilutive effect of stock options		1,947			1,591			2,646

Weighted average number of shares outstanding		142,891			142,624			142,010

Net income per share:
Basic	$	1.43		$	1.50		$	1.28

Diluted	$	1.41		$	1.48		$	1.26

Fair Value of Financial Instruments

The carrying amounts of Brown & Brown’s financial assets and liabilities, including cash and cash equivalents; restricted cash and short-term investments; investments; premiums, commissions and fees receivable; reinsurance recoverable; prepaid reinsurance premiums; premiums payable to insurance companies; losses and loss adjustment reserve; unearned premium; premium deposits and credits due customers and accounts payable, at December 31, 2014 and 2013, 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, 2014 and 2013 as our fixed-rate borrowings of $650.0 million approximate their values using market quotes of notes with the similar terms as ours, which we deem a close approximation of current market rates. Of the $650.0 million, $25.0 million is related to short-term notes which approximates its carrying value due to its proximity to maturity. The estimated fair value of the $550.0 million term loan under our J.P. Morgan Credit Facility approximates the carrying value due to the variable interest rate based on adjusted LIBOR. See note 2 to our consolidated financial statements for the fair values related to the establishment of intangible assets and the establishment and adjustment of earn-out payables. See note 5 for information on the fair value of investments and note 8 for information on the fair value of long-term debt.

Stock-Based Compensation

The Company granted stock options and grants 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 account for 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.

Financial Reporting Related to Insurance Company Operations

Reinsurance

The Company protects itself from claims related losses by reinsuring all claims related risk exposure. The only line of insurance the Company underwrites is flood insurance associated with Wright. However, all exposure is reinsured with FEMA for basic admitted policies conforming to the National Flood Insurance Program. For excess flood insurance policies, all exposure is reinsured with a reinsurance carrier with an AM Best Company rating of “A” or better. Reinsurance does not legally discharge the ceding insurer from the primary liability for the full amount due under the reinsured policies. Reinsurance premiums, commissions, expense reimbursement and related reserves related to ceded business are accounted for on a basis consistent with the accounting for the original policies issued and the terms of reinsurance contracts. Premiums earned and losses and loss adjustment expenses incurred are reported net of reinsurance amounts. Other underwriting expenses are shown net of earned ceding commission income. The liabilities for unpaid losses and loss adjustment expenses and unearned premiums are reported gross of ceded reinsurance recoverable.

Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such recoverables related to reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance recoverable even though amounts due on unpaid loss and loss adjustment expense are not recoverable from the reinsurer until such losses are paid. The Company does not believe it is exposed to any material credit risk through its reinsurance as the reinsurer is FEMA for basic admitted flood policies and a national reinsurance carrier for excess flood policies, which has an AM Best Company rating of “A” or better. Historically, no amounts due from reinsurance carriers have been written off as uncollectible.

Unpaid Losses and Loss Adjustment Reserve

Unpaid losses and loss adjustment reserve include amounts determined on individual claims and other estimates based on the past experience of WNFIC and the policyholders for IBNR claims, less anticipated salvage and subrogation recoverable. The methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated, and any adjustments resulting therefrom are reflected in operations currently.

WNFIC engages the services of outside actuarial consulting firms (the “Actuaries”) to assist on an annual basis to render an opinion on the sufficiency of the Company’s estimates for unpaid losses and related loss adjustment reserve. The Actuaries utilize both industry experience and the Company’s own experience to develop estimates of those amounts as of year-end. These estimated liabilities are subject to the impact of future changes in claim severity, frequency and other factors. In spite of the variability inherent in such estimates, management believes that the liabilities for unpaid losses and related loss adjustment reserve is adequate.

Premiums

Premiums are recognized as income over the coverage period of the related policies. Unearned premiums represent the portion of premiums written that relate to the unexpired terms of the policies in force and are determined on a daily pro rata basis. The income is recorded to the commissions and fees line of the income statement.

NOTE 2 Business Combinations

Acquisitions in 2014

During the year ended December 31, 2014, Brown & Brown acquired the assets and assumed certain liabilities of nine insurance intermediaries, all of the stock of one insurance intermediary that owns an insurance carrier and several books of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC Topic 805 — Business Combinations (“ASC 805”). All of these acquisitions were acquired primarily to expand Brown & Brown’s core business and to attract and hire high-quality individuals. 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 the 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 805. For the year ended December 31, 2014, several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $26,000 relating to the assumption of certain liabilities.

Cash paid for acquisitions were $721.9 million and $408.1 million in the year ended December 31, 2014 and 2013, respectively. We completed 10 acquisitions (excluding book of business purchases) in the year ended December 31, 2014, with the largest being Wright, which was effective May 1, 2014 and cash paid totaled $609.2 million. We completed 9 acquisitions (excluding book of business purchases) in the twelve-month period ended December 31, 2013, with the largest being Beecher Carlson Holdings, Inc. which was effective July 1, 2013 and cash paid totaled to $364.2 million.

The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and adjustment made during the measurement period for prior year acquisitions:


*(in thousands)*

Name	Business Segment		2014 Date of Acquisition		Cash Paid		Other Payable		Recorded Earn-out Payable		Net Assets Acquired		*Maximum* *Potential* *Earn-out* *Payable*
The Wright Insurance Group, LLC		National Programs		May 1	$	609,183	$	1,471	$	—	$	610,654	$	—
Pacific Resources Benefits Advisors, LLC (“PacRes”)		Retail		May 1		90,000		—		27,452		117,452		35,000
Axia Strategies, Inc (“Axia”)		Wholesale Brokerage		May 1		9,870		—		1,824		11,694		5,200
Other		Various		Various		12,798		433		3,953		17,184		9,262

Total					$	721,851	$	1,904	$	33,229	$	756,984	$	49,462

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition:


*(in thousands)*	Wright			PacRes			Axia		Other			Total
Cash	$	25,365		$	—		$	—	$	—		$	25,365
Other current assets		16,474			3,647			101		742			20,964
Fixed assets		7,172			53			24		1,724			8,973
Reinsurance recoverable		25,238			—			—		—			25,238
Prepaid reinsurance premiums		289,013			—			—		—			289,013
Goodwill		420,209			76,023			7,276		10,417			513,925
Purchased customer accounts		213,677			38,111			4,252		4,384			260,424
Non-compete agreements		966			21			41		166			1,194
Other assets		20,045			—			—		—			20,045

Total assets acquired		1,018,159			117,855			11,694		17,433			1,165,141

Other current liabilities		(14,322	)		(403	)		—		(249	)		(14,974	)
Losses and loss adjustment reserve		(25,238	)		—			—		—			(25,238	)
Unearned premiums		(289,013	)		—			—		—			(289,013	)
Deferred income taxes, net		(46,566	)		—			—		—			(46,566	)
Other liabilities		(32,366	)		—			—		—			(32,366	)

Total liabilities assumed		(407,505	)		(403	)		—		(249	)		(408,157	)

Net assets acquired	$	610,654		$	117,452		$	11,694	$	17,184		$	756,984

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15.0 years; and non-compete agreements, 3.4 years.

Goodwill of $513,925,000 was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $86,454,000, $420,037,000, $7,673,000 and ($239,000), respectively. Of the total goodwill of $513,925,000, $141,887,000 is currently deductible for income tax purposes and $338,809,000 is non-deductible. The remaining $33,229,000 relates to the recorded earn-out payables and will not be deductible until it is earned and paid.

The results of operations for the acquisitions completed during 2014 have been combined with those of the Company since the acquisition date. The total revenues and loss before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2014, included in the Consolidated Statement of Income for the year ended December 31, 2014, were $112,247,000 and $(1,307,000), respectively. If the acquisitions had occurred as of the beginning of the respective periods, 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)*	2014		2013
Total revenues	$	1,630,162	$	1,520,858
Income before income taxes	$	358,229	$	409,522
Net income	$	218,150	$	248,628
Net income per share:
Basic	$	1.51	$	1.72
Diluted	$	1.49	$	1.70
Weighted average number of shares outstanding:
Basic		140,944		141,033
Diluted		142,891		142,624

Acquisitions in 2013

During 2013, Brown & Brown acquired the assets and assumed certain liabilities of eight insurance intermediaries, all of the stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of these acquisitions was $519,794,000, including $408,072,000 of cash payments, the issuance of $552,000 in other payables, the assumption of $106,079,000 of liabilities and $5,091,000 of recorded earn-out payables. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. 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.

For 2013, several adjustments were made within the permitted measurement period that resulted in a reduction to the aggregate purchase price of the applicable acquisition of $504,000, including $18,000 of cash payments, an increase of $117,000 in other payables, the assumption of $82,000 of liabilities and the reduction of $721,000 in recorded earn-out payables.

The following table summarizes the aggregate purchase price allocation made as of the date of each acquisition for current year acquisitions and adjustment made during the measurement period for prior year acquisitions:


*(in thousands)*

Name	Business Segment		2013 Date of Acquisition		Cash Paid		Other Payable		Recorded Earn-out Payable		Net Assets Acquired		*Maximum* *Potential* *Earn-out* *Payable*
The Rollins Agency, Inc.		Retail		June 1	$	13,792	$	50	$	2,321	$	16,163	$	4,300
Beecher Carlson Holdings, Inc.		Retail; National Programs		July 1		364,256		—		—		364,256		—
ICA, Inc.		Services		December 31		19,770		—		727		20,497		5,000
Other		Various		Various		10,254		502		2,043		12,799		7,468

Total					$	408,072	$	552	$	5,091	$	413,715	$	16,768

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition:


*(in thousands)*	Rollins			Beecher			ICA		Other			Total
Cash	$	—		$	40,360		$	—	$	—		$	40,360
Other current assets		393			57,632			—		1,573			59,598
Fixed assets		30			1,786			75		24			1,915
Goodwill		12,697			265,174			12,377		5,696			295,944
Purchased customer accounts		3,878			101,565			7,917		5,623			118,983
Non-compete agreements		31			2,758			21		76			2,886
Other assets		—			—			107		1			108

Total assets acquired		17,029			469,275			20,497		12,993			519,794
Other current liabilities		(866	)		(80,090	)		—		(194	)		(81,150	)
Deferred income taxes, net		—			(22,764	)		—		—			(22,764	)
Other liabilities		—			(2,165	)		—		—			(2,165	)

Total liabilities assumed		(866	)		(105,019	)		—		(194	)		(106,079	)

Net assets acquired	$	16,163		$	364,256		$	20,497	$	12,799		$	413,715

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

Goodwill of $295,944,000 was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $257,196,000, $27,091,000, ($812,000) and $12,469,000, respectively. Of the total goodwill of $295,944,000, $41,663,000 is currently deductible for income tax purposes and $249,190,000 is non-deductible. The remaining $5,091,000 relates to the recorded earn-out payables and will not be deductible until it is earned and paid.

The results of operations for the acquisitions completed during 2013 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, 2013, included in the Consolidated Statement of Income for the year ended December 31, 2013, were $63,797,000 and $872,000, respectively. If the acquisitions had occurred as of the beginning of the 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)*	2013		2012
Total revenues	$	1,439,918	$	1,329,262
Income before income taxes	$	373,175	$	329,291
Net income	$	226,562	$	198,826
Net income per share:
Basic	$	1.57	$	1.39
Diluted	$	1.55	$	1.36
Weighted average number of shares outstanding:
Basic		141,033		139,634
Diluted		142,624		142,010

Acquisitions in 2012

During 2012, Brown & Brown acquired the assets and assumed certain liabilities of 19 insurance intermediaries, all of the stock of one insurance intermediary and a book of business (customer accounts). The aggregate purchase price of these acquisitions was $667,586,000, including $483,933,000 of cash payments, the issuance of notes payable of $59,000, the issuance of $25,439,000 in other payables, the assumption of $136,676,000 of liabilities and $21,479,000 of recorded earn-out payables. The ‘other payables’ amount includes $22,061,000 that the Company is obligated to pay all shareholders of Arrowhead on a pro rata basis for certain pre-merger corporate tax refunds and certain estimated potential future income tax credits that were created by net operating loss carryforwards originating from transaction-related tax benefit items. All of these acquisitions were acquired primarily to expand Brown & Brown’s core businesses and to attract high-quality personnel. 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.

The acquisitions made in 2012 have been accounted for as business combinations and are as follows:


*(in thousands)*

Name	Business Segment		2012 Date of Acquisition		Cash Paid		Note Payable		Other Payable		Recorded Earn-out Payable		Net Assets Acquired		*Maximum* *Potential* *Earn-out* *Payable*
Arrowhead General Insurance Agency Superholding Corporation		National Programs; Services		January 9	$	396,952	$	—	$	22,061	$	3,290	$	422,303	$	5,000
Insurcorp & GGM Investments LLC (d/b/a Maalouf Benefit Resources)		Retail		May 1		15,500		—		900		4,944		21,344		17,000
Richard W. Endlar Insurance Agency, Inc.		Retail		May 1		10,825		—		—		2,598		13,423		5,500
Texas Security General Insurance Agency, Inc.		Wholesale Brokerage		September 1		14,506		—		2,182		2,124		18,812		7,200
Behnke & Associates, Inc.		Retail		December 1		9,213		—		—		1,126		10,339		3,321
Rowlands & Barranca Agency, Inc.		Retail		December 1		8,745		—		—		2,401		11,146		4,000
Other		Various		Various		28,192		59		296		4,996		33,543		14,149

Total					$	483,933	$	59	$	25,439	$	21,479	$	530,910	$	56,170

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition:


*(in thousands)*	Arrowhead			Insurcorp			Endlar			Texas Security			Behnke		Rowlands			Other			Total
Cash	$	61,786		$	—		$	—		$	—		$	—	$	—		$	—		$	61,786
Other current assets		69,051			180			305			1,866			—		—			422			71,824
Fixed assets		4,629			25			25			45			25		30			158			4,937
Goodwill		321,128			14,745			8,044			10,845			6,430		8,363			21,085			390,640
Purchased customer accounts		99,675			6,490			5,230			6,229			3,843		3,367			13,112			137,946
Non-compete agreements		100			22			11			14			41		21			243			452
Other assets		1			—			—			—			—		—			—			1

Total assets acquired		556,370			21,462			13,615			18,999			10,339		11,781			35,020			667,586
Other current liabilities		(107,579	)		(118	)		(192	)		(187	)		—		(635	)		(1,477	)		(110,188	)
Deferred income taxes, net		(26,488	)		—			—			—			—		—			—			(26,488	)

Total liabilities assumed		(134,067	)		(118	)		(192	)		(187	)		—		(635	)		(1,477	)		(136,676	)

Net assets acquired	$	422,303		$	21,344		$	13,423		$	18,812		$	10,339	$	11,146		$	33,543		$	530,910

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

Goodwill of $390,640,000, was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $57,856,000, $289,378,000, $11,656,000 and $31,750,000, respectively. Of the total goodwill of $390,640,000, $52,730,000 is currently deductible for income tax purposes and $316,431,000 is non-deductible. The remaining $21,479,000 relates to the recorded earn-out payables and will not be deductible until it is earned and paid.

The results of operations for the acquisitions completed during 2012 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, 2012, included in the Consolidated Statement of Income for the year ended December 31, 2012, were $129,472,000 and $898,000, respectively. If the acquisitions had occurred as of the beginning of the 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)*	2012		2011
Total revenues	$	1,230,408	$	1,163,341
Income before income taxes	$	315,051	$	313,706
Net income	$	190,228	$	190,174
Net income per share:
Basic	$	1.33	$	1.33
Diluted	$	1.30	$	1.31
Weighted average number of shares outstanding:
Basic		139,364		138,582
Diluted		142,010		140,264

For acquisitions consummated prior to January 1, 2009, additional consideration paid to sellers as a result of the 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 2014 as a result of those adjustments totaled $26,000, all of which was allocated to goodwill. Of the $26,000 net additional consideration paid, $26,000 was recorded in other payables. The net additional consideration paid by the Company in 2013 as a result of these adjustments totaled $873,000, all of which was allocated to goodwill. Of the $873,000 net additional consideration paid, $873,000 was issued in other payables.

As of December 31, 2014, the maximum future contingency payments related to all acquisitions totaled $130,654,000, all of which relates to acquisitions consummated subsequent to January 1, 2009.

ASC Topic 805—Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the Consolidated Statement of Income when incurred. Potential earn-out obligations are typically based upon future earnings of the acquired entities, usually between one and three years.

As of December 31, 2014, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820. The resulting additions, payments, and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, were as follows:


	For the Year Ended December 31,
(in thousands)	2014			2013			2012
Balance as of the beginning of the period	$	43,058		$	52,987		$	47,715
Additions to estimated acquisition earn-out payables		34,356			5,816			21,479
Payments for estimated acquisition earn-out payables		(12,069	)		(18,278	)		(17,625	)

Subtotal		65,345			40,525			51,569
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables		7,375			570			(1,051	)
Interest expense accretion		2,563			1,963			2,469

Net change in earnings from estimated acquisition earn-out payables		9,938			2,533			1,418

Balance as of December 31	$	75,283		$	43,058		$	52,987

Of the $75,283,000 estimated acquisition earn-out payables as of December 31, 2014, $26,018,000 was recorded as accounts payable and $49,265,000 was recorded as an other non-current liability. Of the $43,058,000 estimated acquisition earn-out payables as of December 31, 2013, $6,312,000 was recorded as accounts payable and $36,746,000 was recorded as an other non-current liability. As of December 31, 2012, the estimated acquisition earn-out payables equaled $52,987,000, of which $10,164,000 was recorded as accounts payable and $42,823,000 was recorded as an other non-current liability.

NOTE 3 Goodwill

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


*(in thousands)*	Retail			National Programs			Wholesale Brokerage			Service			Total
Balance as of January 1, 2013	$	876,219		$	439,180		$	288,054		$	108,061		$	1,711,514
Goodwill of acquired businesses		257,196			27,964			(812	)		12,469			296,817
Goodwill disposed of relating to sales of businesses		(2,158	)		—			—			—			(2,158	)

Balance as of December 31, 2013		1,131,257			467,144			287,242			120,530			2,006,173
Goodwill of acquired businesses		86,454			420,063			7,673			(239	)		513,951
Goodwill disposed of relating to sales of businesses		(3,696	)		(9,564	)		(46,253	)		—			(59,513	)

Balance as of December 31, 2014	$	1,214,015		$	877,643		$	248,662		$	120,291		$	2,460,611

During 2014 we disposed of Axiom Re (“Axiom”) effective December 31, 2014 as part of our strategy to exit the reinsurance brokerage business. For the years ended December 31, 2014 and 2013, Axiom recorded a (loss) income before income taxes of ($587,000) and $113,000, respectively, which are included in the Wholesale Brokerage segment.

NOTE 4 Amortizable Intangible Assets

Amortizable intangible assets at December 31 consisted of the following:


	2014									2013
*(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	$	1,355,550	$	(574,285	)	$	781,265		14.9	$	1,120,719	$	(505,137	)	$	615,582		14.9
Non-compete agreements		29,139		(25,762	)		3,377		6.8		28,115		(24,809	)		3,306		7.0

Total	$	1,384,689	$	(600,047	)	$	784,642			$	1,148,834	$	(529,946	)	$	618,888

Amortization expense recorded for amortizable intangible assets for the years ended December 31, 2014, 2013 and 2012 was $82,941,000, $67,932,000 and $63,573,000, respectively.

Amortization expense for amortizable intangible assets for the years ending December 31, 2015, 2016, 2017, 2018 and 2019 is estimated to be $86,029,000, $81,547,000, $78,640,000, $73,262,000, and $68,722,000, respectively.

NOTE 5 Investments

At December 31, 2014, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipals	$	10,774	$	7	$	(1	)	$	10,780
Foreign government		50		—		—			50
Corporate debt		5,854		9		(11	)		5,852
Short duration fixed income fund		3,143		37		—			3,180

Total	$	19,821	$	53	$	(12	)	$	19,862

The following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2014.


(in thousands)	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipals	$	3,994	$	1	$	—	$	—	$	3,994	$	1
Foreign Government		50		—		—		—		50		—
Corporate debt		4,439		11		—		—		4,439		11

Total	$	8,483	$	12	$	—	$	—	$	8,483	$	12

The unrealized losses in the Company’s investments in U.S. Treasury Securities and obligations of U.S. Government Agencies and bonds from corporate issuers were caused by interest rate increases. At December 31, 2014, the Company had 38 securities in an unrealized loss position. The contractual cash flows of the U.S. Treasury Securities and obligations of the U.S. Government agencies investments are either guaranteed by the U.S. Government or an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, 2014.

The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2014 by contractual maturity are set forth below:


(in thousands)	Amortized Cost		Fair Value
Years to maturity:
Due in one year or less	$	5,628	$	5,628
Due after one year through five years		13,863		13,897
Due after five years through ten years		330		337

Total	$	19,821	$	19,862

The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalty.

Proceeds from sales of the Company’s investment in fixed maturity securities were $0.2 million including maturities from the year ended December 31, 2014. There were no gains and losses realized on those sales for the year ended December 31, 2014.

Realized gains and losses are reported on the consolidated statements of income, with the cost of securities sold determined on a specific identification basis.

NOTE 6 Fixed Assets

Fixed assets at December 31 consisted of the following:


*(in thousands)*	2014			2013
Furniture, fixtures and equipment	$	161,539		$	149,170
Leasehold improvements		30,030			21,231
Land, buildings and improvements		3,739			3,815

Total cost		195,308			174,216
Less accumulated depreciation and amortization		(110,640	)		(99,483	)

Total	$	84,668		$	74,733

Depreciation and amortization expense for fixed assets amounted to $20,895,000 in 2014, $17,485,000 in 2013, and $15,373,000 in 2012.

NOTE 7 Accrued Expenses and Other Liabilities

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


(in thousands)	2014		2013
Accrued bonuses	$	76,891	$	70,272
Accrued compensation and benefits		36,241		35,145
Accrued rent and vendor expenses		29,039		19,235
Reserve for policy cancellations		9,074		8,010
Accrued interest		6,527		3,324
Other		23,384		21,414

Total	$	181,156	$	157,400

NOTE 8 Long-Term Debt

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


(in thousands)	2014		2013
Current portion of long-term debt:
Current portion of 5-year term loan facility expires 2019	$	20,625	$	—
6.080% senior notes, Series B, semi-annual interest payments, balloon due 2014		—		100,000
5.370% senior notes, Series D, quarterly interest payments, balloon due 2015		25,000		—

Total current portion of long-term debt	$	45,625	$	100,000

Long-term debt:
Note agreements:
5.370% senior notes, Series D, quarterly interest payments, balloon due 2015	$	—	$	25,000
5.660% senior notes, Series C, semi-annual interest payments, balloon due 2016		25,000		25,000
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018		100,000		100,000
4.200% senior notes, semi-annual interest payments, balloon due 2024		498,471		—

Total notes	$	623,471	$	150,000

Credit agreements:
Periodic payments of interest, LIBOR plus 1.00%, expires December 31, 2016	$	—	$	100,000
Quarterly payments of interest, LIBOR plus 1.00%, expires December 31, 2016		—		100,000
Periodic payments of interest, LIBOR plus 1.00%, expires December 31, 2016		—		30,000
5-year term-loan facility, periodic interest and principal payments, currently LIBOR plus 1.375%, expires May 20, 2019		529,375		—
5-year revolving-loan facility, periodic interest payments, currently LIBOR plus 1.175%, plus commitment fees of 0.20%, expires May 20, 2019		—		—
Revolving credit loan, quarterly interest payments, LIBOR plus up to 1.40% and availability fee up to 0.25%, expires December 31, 2016		—		—

Total credit agreements	$	529,375	$	230,000

Total long-term debt	$	1,152,846	$	380,000
Current portion of long-term debt	$	45,625	$	100,000

Total debt	$	1,198,471	$	480,000

In July 2004, the Company completed a private placement of $200.0 million of unsecured senior notes (the “Notes”). The $200.0 million was divided into two series: (1) Series A, which closed on September 15, 2004, for $100.0 million 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 bore interest at 6.08% per year. On September 15, 2011, the $100.0 million of Series A Notes were redeemed on their normal maturity date through use of funds from the Master Agreement (defined below). As of July 15, 2014 the Series B Notes were redeemed at maturity using proceeds from the Credit Facility (defined below).

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”). 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, and pursuant to a Confirmation of Acceptance (the “Confirmation”), dated January 21, 2011, in connection with the Master Agreement, $100.0 million in Series E Senior Notes were issued and are due September 15, 2018, with a fixed interest rate of 4.50% per year. The Series E Senior Notes were issued for the sole purpose of retiring the Series A Senior Notes. As of December 31, 2014 and 2013, there was an outstanding debt balance issued under the provisions of the Master Agreement of $150.0 million. On January 15, 2015 the Series D Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest.

On January 9, 2012, 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 maturity date for the SunTrust Term Loan and the SunTrust Revolver was December 31, 2016, at which time all outstanding principal and unpaid interest would have been due. On May 20, 2014, in connection with closing the Wright acquisition and funding of the Credit Facility (as defined below), the SunTrust Term Loan was paid in full using proceeds from the Credit Facility and the SunTrust Revolver was also terminated at that time.

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) the JPM Bridge Facility and (2) the SunTrust Revolver. As a result of the January 26, 2012 financing and repayments, the JPM Bridge Facility was terminated and the SunTrust Revolver’s amount outstanding was reduced to zero. The maturity date for the JPM Term Loan was December 31, 2016, at which time all outstanding principal and unpaid interest would have been due. On May 20, 2014, in connection with closing the Wright acquisition and funding of the Credit Facility (as defined below), the JPM Term Loan was paid in full and terminated using proceeds from the Credit Facility.

On July 1, 2013, in conjunction with the acquisition of Beecher Carlson Holdings, Inc., the Company entered into: (1) a revolving loan agreement (the “Wells Fargo Agreement”) with Wells Fargo Bank, N.A. that provided for a $50.0 million revolving line of credit (the “Wells Fargo Revolver”) and (2) a term loan agreement (the “Bank of America Agreement”) with Bank of America, N.A. (“Bank of America”) that provided for a $30.0 million term loan (the “Bank of America Term Loan”).

The maturity date for the Wells Fargo Revolver is December 31, 2016, at which time all outstanding principal and unpaid interest will be due. The Wells Fargo Revolver may be increased by up to $50.0 million (bringing the total amount available to $100.0 million). The calculation of interest and fees for the Wells Fargo 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, each as more fully described in the Wells Fargo Agreement. 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%. The obligations under the Wells Fargo Revolver are unsecured and the Wells Fargo Agreement includes various covenants, limitations and events of default that are customary for similar facilities for similar borrowers. As of April 16, 2014, in connection with the signing of the Credit Facility (as defined below) an amendment to the agreement was established to reduce the total revolving loan commitment from $50.0 million to $25.0 million. There were no borrowings against the Wells Fargo Revolver as of December 31, 2014 and 2013.

The maturity date for the Bank of America Term Loan was December 31, 2016, at which time all outstanding principal and unpaid interest would have been due. The Bank of America Term Loan was funded in the amount of $30.0 million on July 1, 2013. On May 20, 2014, in connection with closing the Wright acquisition and funding of the Credit Facility, the term loan was paid in full using proceeds from the Credit Facility (as defined below).

The 30-day Adjusted LIBOR Rate as of December 31, 2014 was 0.19%.

On April 17, 2014, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. as administrative agent and certain other banks as co-syndication agents and co-documentation agents (the “Credit Agreement”). The Credit Agreement in the amount of $1,350.0 million provides for an unsecured revolving credit facility (the “Credit Facility”) in the initial amount of $800.0 million and unsecured term loans in the initial amount of $550.0 million, either or both of which may, subject to lenders’ discretion, potentially be increased by up to $500.0 million. The Credit Facility was funded on May 20, 2014 in conjunction with the closing of the Wright acquisition, with the $550.0 million term loan being funded as well as a drawdown of $375.0 million on the revolving loan facility. Use of these proceeds were to retire existing term loan debt including the JPM Term Loan Agreement, SunTrust Term Loan Agreement and Bank of America Term Loan Agreement in total of $230.0 million (as described above) and to facilitate the closing of the Wright acquisition as well as other acquisitions. The Credit Facility terminates on May 20, 2019, but either or both of the revolving credit facility and the term loans may be extended for two additional one-year periods at the Company’s request and at the discretion of the respective lenders. Interest and facility fees in respect to the Credit Facility are based on the better of the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating. Based on the Company’s net debt leverage ratio, the rates of interest charged on the term loan and revolving loan is 1.375% and 1.175% respectively in 2014 and above the adjusted LIBOR rate for outstanding amounts drawn. There are fees included in the facility which include a facility fee based on the revolving credit commitments of the lenders (whether used or unused) at a rate of 0.20% and letter of credit fees based on the amounts of outstanding secured or unsecured letters of credit. The Credit Facility includes various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers. As of December 31, 2014, there was an outstanding debt balance issued under the provisions of the Credit Facility in total of $550.0 million with no proceeds outstanding relative to the revolving loan.

On September 18, 2014 the Company issued $500.0 million of 4.200% unsecured senior notes due in 2024. The senior notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay the outstanding balance of $475.0 million on the revolving Credit Facility and for other general corporate purposes.

The Notes, the Master Agreement and the Credit Agreement all require the Company to maintain certain financial ratios and comply with certain other covenants. The Company was in compliance with all such covenants as of December 31, 2014 and December 31, 2013.

Interest paid in 2014, 2013 and 2012 was $25,115,000, $16,501,000 and $16,090,000, respectively.

At December 31, 2014, maturities of long-term debt were $45,625,000 in 2015, $73,125,000 in 2016, $55,000,000 in 2017, $155,000,000 in 2018, $371,250,000 in 2019 and $500,000,000 in 2024.

NOTE 9 Income Taxes

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


*(in thousands)*	2014			2013		2012
Current:
Federal	$	109,893		$	94,007	$	75,522
State		15,482			13,438		11,852
Foreign		109			805		669

Total current provision		125,484			108,250		88,043

Deferred:
Federal		5,987			28,469		27,348
State		1,440			3,723		5,375
Foreign		(58	)		55		—

Total deferred provision		7,369			32,247		32,723

Total tax provision	$	132,853		$	140,497	$	120,766

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:


	2014			2013			2012
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		3.3			3.5			4.3
Non-deductible employee stock purchase plan expense		0.3			0.3			0.3
Non-deductible meals and entertainment		0.4			0.3			0.3
Other, net		0.1			0.2			(0.3	)

Effective tax rate		39.1	%		39.3	%		39.6	%

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)*	2014		2013
Current deferred tax assets:
Deferred profit-sharing contingent commissions	$	10,335	$	9,713
Net operating loss carryforwards		951		8,408
Accruals and reserves		14,145		11,155

Total current deferred tax assets	$	25,431	$	29,276

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


*(in thousands)*	2014			2013
Non-current deferred tax liabilities:
Fixed assets	$	10,368		$	11,651
Net unrealized holding gain on available-for-sale securities		56			—
Intangible assets		364,938			306,009

Total non-current deferred tax liabilities		375,362			317,660

Non-current deferred tax assets:
Deferred compensation		31,580			22,598
Net operating loss carryforwards		2,796			3,843
Valuation allowance for deferred tax assets		(511	)		(485	)

Total non-current deferred tax assets		33,865			25,956

Net non-current deferred tax liability	$	341,497		$	291,704

Income taxes paid in 2014, 2013 and 2012 were $118,290,000**,** $110,191,000, and $80,622,000, respectively.

At December 31, 2014, Brown & Brown had net operating loss carryforwards of $212,000 and $78,870,000 for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2015 through 2034. The federal carryforward is derived from insurance operations acquired by Brown & Brown in 2001. The state carryforward amount is derived from the operating results of certain subsidiaries and from the 2012 and 2013 stock acquisitions of Arrowhead General Insurance Agency Superholding Corp and Beecher Carlson Holdings, Inc.

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


*(in thousands)*	2014			2013			2012
Unrecognized tax benefits balance at January 1	$	391		$	294		$	806
Gross increases for tax positions of prior years		—			232			222
Gross decreases for tax positions of prior years		(21	)		—			(409	)
Settlements		(257	)		(135	)		(325	)

Unrecognized tax benefits balance at December 31	$	113		$	391		$	294

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2014 and 2013, the Company had approximately $66,000 and $121,000 of accrued interest and penalties related to uncertain tax positions, respectively.

The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $113,000 as of December 31, 2014 and $391,000 as of December 31, 2013. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

As a result of a 2006 Internal Revenue Service (“IRS”) audit, the Company 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. 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 which will reverse 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 2011 through 2014 remain open and subject to examination by the IRS. 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 2009 through 2014. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2013 and 2014.

Subsequent to December 31, 2014, the Internal Revenue Service has notified Beecher Carlson Holdings, Inc. of a federal corporate income tax audit for the short period January 1, 2013 through June 30, 2013. The short period filing is a pre-acquisition tax filing for which Brown & Brown, Inc. is indemnified against by the sellers of Beecher Carlson Holdings, Inc. We are currently not aware of any potential adjustments for the audit period. The Company’s 2009 through 2012 State of Oregon tax returns are currently under audit. The audit has been substantially completed as of December 31, 2014 and is awaiting final settlement payment with the State of Oregon. Amounts estimated to be due to the State of Oregon as a result of the audit have been reserved by the Company. There are no other federal or state income tax audits as of December 31, 2014.

NOTE 10 Employee Savings Plan

The Company has an Employee Savings Plan (401(k)) in which substantially all employees with more than 30 days of service are eligible to participate. Under this plan, Brown & Brown makes matching contributions of up to 4.0% of each participant’s annual compensation. Prior to 2014, the Company’s matching contribution was up to 2.5% of each participant’s annual compensation with a discretionary profit-sharing contribution each year, which equaled 1.5% of each eligible employee’s compensation. The Company’s contributions to the plan totaled $15,752,000 in 2014, $14,819,000 in 2013, and $14,266,000 in 2012.

NOTE 11 Stock-Based Compensation

Performance Stock Plan

In 1996, Brown & Brown adopted and the shareholders approved a performance stock plan, under which until the suspension of the plan in 2010, up to 14,400,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent on the employees’ future years of service with Brown & Brown and other performance-based 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 price on the business day prior to date of grant. 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 (on a prorated basis corresponding to the number of years since the date of grant); 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, 2014, 5,549,882 shares had been granted under the PSP. As of December 31, 2014, 25,418 shares had not met the first condition for vesting, 1,903,213 shares had met the first condition of vesting and had been awarded, and 3,455,604 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2014, the initial stock prices ranged from $4.25 to $25.68.

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, 2014, 2013 and 2012 is as follows:


	Weighted- Average Grant Date Fair Value		Granted Shares			Awarded Shares			Shares Not Yet Awarded
Outstanding at January 1, 2012	$	8.08		4,931,812			3,345,269			1,586,543

Granted	$	—		—			—			—
Awarded	$	8.09		—			7,743			(7,743	)
Vested	$	3.29		(877,224	)		(877,224	)		—
Forfeited	$	13.06		(363,566	)		(81,283	)		(282,283	)

Outstanding at December 31, 2012	$	8.72		3,691,022			2,394,505			1,296,517

Granted	$	—		—			—			—
Awarded	$	10.25		—			122,021			(122,021	)
Vested	$	4.01		(119,364	)		(119,364	)		—
Forfeited	$	8.73		(1,200,371	)		(101,310	)		(1,099,061	)

Outstanding at December 31, 2013	$	8.62		2,371,287			2,295,852			75,435

Granted	$	—		—			—			—
Awarded	$	—		—			—			—
Vested	$	16.76		(277,009	)		(277,009	)		—
Forfeited	$	9.75		(165,647	)		(115,630	)		(50,017	)

Outstanding at December 31, 2014	$	8.71		1,928,631			1,903,213			25,418

The total fair value of PSP grants that vested during each of the years ended December 31, 2014, 2013 and 2012 was $8,362,000, $3,729,000 and $23,034,000, respectively.

Stock Incentive Plan

On April 28, 2010, the shareholders of Brown & Brown, Inc. approved the Stock Incentive Plan (“SIP”) that provides for the granting of stock options, stock and/or stock appreciation rights to employees and directors 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, is a subsidiary of Decus Holdings (U.K.) Limited. The shares of stock reserved for issuance under the SIP are any shares that are authorized for issuance under the PSP and 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 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. To date, a substantial majority of stock grants to employees under the SIP vest in four-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 three-to-five-year measurement periods.

In 2010, 187,040 shares were granted 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, 2,375,892 shares were granted under the SIP. Of this total, 24,670 shares were granted to Decus employees under the SIP sub-plan applicable to Decus.

In 2012, 814,545 shares were granted under the SIP, primarily related to the Arrowhead acquisition.

In 2013, 3,719,974 shares were granted under the SIP. Of the shares granted in 2013, 891,399 shares will vest upon the grantees’ completion of between three and seven years of service with the Company, and because grantees have the right to vote the shares and receive dividends immediately after the date of grant these shares are considered awarded and outstanding under the two-class method.

In 2014, 422,572 shares were granted under the SIP. Of the shares granted in 2014, 113,088 shares will vest upon the grantees’ completion of between three and six years of service with the Company, and because grantees have the right to vote the shares and receive dividends immediately after the date of grant these shares are considered awarded and outstanding under the two-class method. As of December 31, 2014, no shares had met the first condition for vesting.

Additionally, non-employee members of the Board of Directors received shares annually issued pursuant to the SIP as part of their annual compensation. A total of 36,919 SIP shares were issued to these directors in 2011 and 2012, of which 11,682 were issued in January 2011, 12,627 in January 2012, and 12,610 in December 2012. The shares issued in December 2012 were issued at that earlier time rather than in January 2013 pursuant to action of the Board of Directors. No additional shares were granted or issued to the non-employee members of the Board of Directors in 2013. A total of 9,870 shares were issued to these directors in January 2014.

At December 31, 2014, 2,309,929 shares were available for future grants.

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 grants with PSP-type vesting conditions 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.

A summary of SIP activity for the years ended December 31, 2014, 2013 and 2012 is as follows:


	Weighted- Average Grant Date Fair Value		Granted Shares			Awarded Shares			Shares Not Yet Awarded
Outstanding at January 1, 2012	$	23.06		2,478,057			37,408			2,440,649

Granted	$	22.59		814,545			—			814,545
Awarded	$	—		—			—			—
Vested	$	—		—			—			—
Forfeited	$	23.62		(135,291	)		—			(135,291	)

Outstanding at December 31, 2012	$	22.91		3,157,311			37,408			3,119,903

Granted	$	31.95		3,719,974			—			3,719,974
Awarded	$	30.71		—			966,215			(966,215	)
Vested	$	—		—			—			—
Forfeited	$	23.88		(271,184	)		(7,906	)		(263,278	)

Outstanding at December 31, 2013	$	27.96		6,606,101			995,717			5,610,384

Granted	$	31.02		422,572			113,088			309,484
Awarded	$	—		—			—			—
Vested	$	—		—			—			—
Forfeited	$	27.41		(369,626	)		(47,915	)		(321,711	)

Outstanding at December 31, 2014	$	28.19		6,659,047			1,060,890			5,598,157

Employee Stock Purchase Plan

The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 12,000,000 authorized shares of which 734,317 were available for future subscriptions as of December 31, 2014. 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, up to a maximum of $25,000, to purchase Company stock between August 1st of each year and the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the beginning or end of the Subscription Period.

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 2014 was $6.39. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2013 and 2012, were $8.36 and $5.84, respectively.

For the ESPP plan years ended July 31, 2014, 2013 and 2012, the Company issued 512,521, 487,672, and 562,748 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $13,408,000, or $26.16 per share, in 2014, $10,456,000, or $21.44 per share, in 2013, and $9,302,000, or $16.53 per share, in 2012.

For the five months ended December 31, 2014, 2013 and 2012 (portions of the 2014-2015, 2013-2014 and 2012-2013 plan years), 235,794, 222,526, and 246,164 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $6,277,000, $5,937,000 and $5,278,000, 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-ten-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, 2014, 2013 and 2012 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, 2012		1,384,537		$	17.58		4.4	$	14,587

Granted		—		$	—
Exercised		(645,745	)	$	16.64
Forfeited		—		$	—
Expired		—		$	—

Outstanding at December 31, 2012		738,792		$	18.39		4.9	$	8,891

Granted		—		$	—
Exercised		(115,847	)	$	17.56
Forfeited		—		$	—
Expired		—		$	—

Outstanding at December 31, 2013		622,945		$	18.55		4.1	$	7,289

Granted		—		$	—
Exercised		(106,589	)	$	18.48
Forfeited		(46,000	)	$	18.48
Expired		—		$	—

Outstanding at December 31, 2014		470,356		$	18.57		3.1	$	5,087

Ending vested and expected to vest at December 31, 2014		470,356		$	18.57		3.1	$	5,087
Exercisable at December 31, 2014		316,356		$	18.48		3.2	$	4,565
Exercisable at December 31, 2013		422,945		$	18.48		4.2	$	5,460
Exercisable at December 31, 2012		162,792		$	17.82		4.0	$	1,243

The following table summarizes information about stock options outstanding at December 31, 2014:


Options Outstanding							Options Exercisable
Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$22.06		12,000		0.0	$	22.06		—	$	22.06
$18.48		458,356		3.2	$	18.48		316,356	$	18.48

Totals		470,356		3.1	$	18.57		316,356	$	18.48

The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31, 2014, 2013 and 2012 was $1,288,000, $1,558,000 and $5,780,000, 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, 2014, 2013 and 2012, 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)*	2014		2013		2012
Stock Incentive Plan	$	14,447	$	15,934	$	9,288
Employee Stock Purchase Plan		2,425		3,538		2,856
Performance Stock Plan		2,354		2,310		2,612
Incentive Stock Option Plan		137		821		1,109

Total	$	19,363	$	22,603	$	15,865

Summary of Unrecognized Compensation Expense

As of December 31, 2014, there was approximately $115.8 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 6.1 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)*	2014		2013		2012
Other payable issued for purchased customer accounts	$	1,930	$	1,425	$	25,439
Notes payable issued or assumed for purchased customer accounts	$	—	$	—	$	59
Estimated acquisition earn-out payables and related charges	$	33,229	$	5,091	$	21,479
Notes received on the sale of fixed assets and customer accounts	$	6,340	$	1,108	$	967

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 2042. 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, 2014, the aggregate future minimum lease payments under all non-cancelable lease agreements were as follows:


*(in thousands)*
2015	$	38,458
2016		36,083
2017		29,867
2018		23,376
2019		18,247
Thereafter		36,906

Total minimum future lease payments	$	182,937

Rental expense in 2014, 2013 and 2012 for operating leases totaled $48,964,000, $42,992,000, and $39,810,000, respectively.

Legal Proceedings

The Company records losses for claims in excess of the limits of, or outside the coverage of, applicable insurance at the time and to the extent they are probable and estimable. In accordance with ASC Topic 450—Contingencies, the Company accrues anticipated costs of settlement, damages, losses for liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, the Company expenses these costs as incurred. If the best estimate of a probable loss is a range rather than a specific amount, the Company accrues the amount at the lower end of the range.

The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2014 and 2013. 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 the Company’s operating results, cash flows and overall liquidity. The Company maintains third-party insurance policies to provide coverage for certain legal claims, in an effort to mitigate its 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. Based on the AM Best Company ratings of these third-party insurers, management does not believe there is a substantial risk of an insurer’s material nonperformance related to any current insured claims.

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

NOTE 14 Quarterly Operating Results (Unaudited)

Quarterly operating results for 2014 and 2013 were as follows:


(in thousands, except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter(1)
2014
Total revenues	$	363,594	$	397,764	$	421,418	$	393,020
Total expenses	$	276,757	$	295,983	$	308,733	$	354,574
Income before income taxes	$	86,837	$	101,781	$	112,685	$	38,446
Net income	$	52,415	$	61,755	$	68,331	$	24,395
Net income per share:
Basic	$	0.36	$	0.43	$	0.47	$	0.17
Diluted	$	0.36	$	0.42	$	0.47	$	0.17
2013
Total revenues	$	335,012	$	325,792	$	359,310	$	343,165
Total expenses	$	235,521	$	239,571	$	263,855	$	266,723
Income before income taxes	$	99,491	$	86,221	$	95,455	$	76,442
Net income	$	60,131	$	52,007	$	57,749	$	47,225
Net income per share:
Basic	$	0.42	$	0.36	$	0.40	$	0.32
Diluted	$	0.41	$	0.36	$	0.39	$	0.32

(1)	Represents the Company recognizing a loss on disposal of $47.4 million as a result of the sale of Axiom effective December 31, 2014. The sale is part of the Company’s strategy to exit the reinsurance brokerage business.

Quarterly financial results are affected by seasonal variations. The timing of the Company’s receipt 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: (1) the Retail Segment, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers; (2) the National Programs Segment, which provides professional liability and related package products for certain professionals delivered through nationwide networks of independent agents and Brown & Brown retail agents, and markets targeted products and services designed for specific industries, trade groups, public and quasi-public entities, market niches and provides flood coverage; (3) the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers; and (4) the Services Segment, 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, Social Security disability and Medicare benefits advocacy services and catastrophe claims adjusting services.

Brown & Brown conducts all of its operations within the United States of America, except for one wholesale brokerage operation based in London, England, and retail operations in Bermuda and the Cayman Islands. These operations earned $13.3 million, $12.2 million and $9.7 million of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Long-lived assets held outside of the United States during each of these 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, 2014
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	809,766	$	394,789	$	234,673	$	136,559	$	9		$	1,575,796
Investment income	$	67	$	164	$	26	$	3	$	487		$	747
Amortization	$	42,270	$	24,769	$	11,729	$	4,134	$	39		$	82,941
Depreciation	$	6,410	$	7,699	$	2,616	$	2,213	$	1,957		$	20,895
Interest expense	$	42,918	$	49,663	$	1,878	$	7,678	$	(73,729	)	$	28,408
Income before income taxes	$	160,529	$	71,235	$	16,624	$	17,524	$	73,837		$	339,749
Total assets	$	3,190,737	$	2,411,839	$	940,461	$	296,034	$	(1,882,613	)	$	4,956,458
Capital expenditures	$	6,844	$	13,739	$	1,949	$	1,210	$	1,181		$	24,923

	Year Ended December 31, 2013
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	728,324	$	292,130	$	209,907	$	131,489	$	1,429		$	1,363,279
Investment income	$	82	$	19	$	22	$	1	$	514		$	638
Amortization	$	38,052	$	14,593	$	11,550	$	3,698	$	39		$	67,932
Depreciation	$	5,847	$	5,399	$	2,794	$	1,623	$	1,822		$	17,485
Interest expense	$	34,407	$	24,014	$	2,565	$	7,321	$	(51,867	)	$	16,440
Income before income taxes	$	166,316	$	58,379	$	53,822	$	24,518	$	54,574		$	357,609
Total assets	$	2,992,087	$	1,335,911	$	927,825	$	277,652	$	(1,883,967	)	$	3,649,508
Capital expenditures	$	6,847	$	4,743	$	1,931	$	1,811	$	1,034		$	16,366

	Year Ended December 31, 2012
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	644,429	$	252,943	$	183,565	$	116,736	$	2,359		$	1,200,032
Investment income	$	108	$	20	$	22	$	1	$	646		$	797
Amortization	$	34,639	$	13,936	$	11,280	$	3,680	$	38		$	63,573
Depreciation	$	5,181	$	4,600	$	2,718	$	1,278	$	1,596		$	15,373
Interest expense	$	26,641	$	25,674	$	3,974	$	8,602	$	(48,794	)	$	16,097
Income before income taxes	$	145,214	$	51,491	$	43,355	$	16,770	$	47,981		$	304,811
Total assets	$	2,420,759	$	1,183,191	$	837,364	$	238,430	$	(1,551,686	)	$	3,128,058
Capital expenditures	$	5,732	$	9,633	$	3,383	$	2,519	$	2,761		$	24,028

NOTE 16 Losses and Loss Adjustment Reserve

The Company is exposed to the risk of losses from claims in the insurance company operations of Wright. To mitigate this risk we reinsure 100% percent of the underwriting claims exposure with FEMA for basic admitted flood policies and with reinsurance carriers with an AM Best Company rating of “A” or better for all other claims exposure. Although the reinsurers are liable to the Company for amounts reinsured, the Company remains primarily liable to its policyholders for the full amount of the policies written whether or not the reinsurers meet their obligations to the Company when they become due. The effects of reinsurance on premiums written and earned are as follows:


(in thousands)	Period from May 1, 2014 to December 31, 2014
	Written			Earned
Direct premiums	$	439,828		$	408,056
Assumed premiums		(1	)		199
Ceded premiums		439,819			408,247

Net premiums	$	8		$	8

All premiums written by WNFIC under the National Flood Insurance Program are 100% ceded to FEMA, for which the Company received a 30.7% expense allowance from May 1, 2014 through September 30, 2014 and received a 30.8% expense allowance from October 1, 2014 through December 31, 2014. For the period from May 1, 2014 through December 31, 2014, the Company ceded $439.0 million of written premiums.

Effective April 1, 2014, WNFIC is also a party to a quota share agreement whereby it cedes 100% of its gross excess flood premiums which excludes fees to Arch Reinsurance Company and receives a 30.5% commission. WNFIC ceded $0.8 million for the period from May 1 through December 31, 2014. No loss data exists on this agreement.

The Company also ceded 100% of the Homeowners and Private Passenger Auto Liability to Stillwater Insurance Company formerly known as Fidelity National Insurance Company. This business is in runoff. Therefore, only loss data still exists on this business. As of December 31, 2014, ceded unpaid losses and loss adjustment expenses for Homeowners and Private Passenger Auto Liability was $8,698 and $61,634, respectively. The incurred but not reported was $102 for Homeowners and $39,424 for Private Passenger Auto Liability. The reinsurance recoverable balance as of December 31, 2014 was $333.6 million that is comprised of recoverables on unpaid losses and loss expenses of $13.0 million and prepaid reinsurance premiums of $320.6 million.

There was no net activity in the reserve for losses and loss adjustment expense during the period May 1, 2014 through December 31, 2014, as the Company’s direct premiums written were 100% ceded to three reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, as of December 31, 2014 was $13.0 million.

NOTE 17 Statutory Financial Information

WNFIC is required to maintain minimum amounts of statutory capital and surplus of $7.5 million as required by regulatory authorities. WNFIC’s statutory capital and surplus exceeded their respective minimum statutory requirements. The statutory capital and surplus of WNFIC was $10.9 million at December 31, 2014. For the period from January 1, 2014 through December 31, 2014, WNFIC generated statutory net income of $2.3 million.

After the May 19, 2014 distribution of WNFIC to WRM America Intermediate Holding Company, Inc. but prior to the consummation of the Brown and Brown purchase of Wright and its subsidiaries, WNFIC issued and paid an extraordinary dividend of $7.0 million to its parent. That dividend was issued and paid with the prior approval of the Texas Department of Insurance.

NOTE 18 Subsidiary Dividend Restrictions

Under the insurance regulations of Texas, the maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling twelve month period is limited to the greater of 10% of statutory adjusted capital and surplus as shown on WNFIC’s last annual statement on file with the superintendent or 100% of adjusted net income. As an extraordinary dividend of $7.0 million was paid on May 20, 2014, no ordinary dividend may be paid until May 21, 2015. Thereafter, the maximum dividend payout that may be made in 2015 without prior approval is $2.3 million.

NOTE 19 Shareholders’ Equity

On July 21, 2014, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of its shares of common stock. This is in addition to the $25.0 million that was authorized in the first quarter and executed in the second quarter of 2014. On September 2, 2014, the Company entered into an accelerated share repurchase agreement (“ASR”) with an investment bank to repurchase an aggregate $50.0 million of the Company’s common stock. As part of the ASR, the Company received an initial delivery of 1,293,760 shares of the Company’s common stock with a fair market value of approximately $42.5 million. The initial delivery of 1,293,760 shares reduced the outstanding shares used to determine the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share. The remaining $7.5 million of the aggregate repurchase amount was received on October 8, 2014, as 246,000 shares of the Company’s common stock were delivered to conclude the $50.0 million ASR. The total number of shares repurchased under the ASR of 1,539,760 was determined upon settlement of the final delivery and was based on the Company’s volume weighted average price per its common share over the ASR period less a discount. As of December 31, 2014, a total of 2,384,760 shares have been repurchased during the 2014 fiscal year.

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, 2014 and 2013, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. 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, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.


*/s/ DELOITTE & TOUCHE LLP*

Certified Public Accountants
Miami, Florida
February 27, 2015

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk. · Next: Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 8. Financial Statements and Supplementary Data.

Item 8. Financial Statements and Supplementary Data.

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