Item 1. Financial Statements (Unaudited)

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Item 1. Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three months ended June 30,						Six months ended June 30,
(in millions, except per share data)	2022			2021			2022			2021
REVENUES
Commissions and fees	$	838.7		$	725.9		$	1,743.1		$	1,539.9
Investment income		0.4			0.2			0.6			0.5
Other income, net		0.6			1.2			0.8			2.2
Total revenues		839.7			727.3			1,744.5			1,542.6
EXPENSES
Employee compensation and benefits		412.1			395.6			871.0			825.1
Other operating expenses		154.0			96.3			280.8			190.6
(Gain)/loss on disposal		(0.7	)		(3.9	)		(0.9	)		(4.0	)
Amortization		33.6			29.5			64.7			59.0
Depreciation		8.9			8.8			17.1			16.3
Interest		36.0			16.3			54.3			32.6
Change in estimated acquisition earn-out payables		(3.0	)		(1.6	)		(6.4	)		(2.5	)
Total expenses		640.9			541.0			1,280.6			1,117.1
Income before income taxes		198.8			186.3			463.9			425.5
Income taxes		53.6			47.0			98.4			86.5
Net income	$	145.2		$	139.3		$	365.5		$	339.0
Net income per share:
Basic	$	0.51		$	0.49		$	1.29		$	1.20
Diluted	$	0.51		$	0.49		$	1.29		$	1.20
Dividends declared per share	$	0.103		$	0.093		$	0.205		$	0.185

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATE****MENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three months ended June 30,					Six months ended June 30,
(in millions)	2022			2021		2022			2021
Net income	$	145.2		$	139.3	$	365.5		$	339.0
Foreign currency translation		(130.1	)		1.5		(132.2	)		(3.8	)
Unrealized (loss) gain on available-for-sale debt securities, net of tax		(0.3	)		—		(1.2	)		0.3
Comprehensive income	$	14.8		$	140.8	$	232.1		$	335.5

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATE****D BALANCE SHEETS

(UNAUDITED)


(in millions, except per share data)	June 30, 2022			December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	2,383.5		$	693.2
Fiduciary cash		904.0			777.0
Short-term investments		14.9			12.9
Commission, fees and other receivables		600.8			522.6
Fiduciary receivables		784.6			693.7
Reinsurance recoverable		34.7			63.1
Prepaid reinsurance premiums		385.4			392.2
Other current assets		222.5			175.6
Total current assets		5,330.4			3,330.3
Fixed assets, net		214.6			212.0
Operating lease assets		203.3			197.0
Goodwill		5,149.0			4,736.8
Amortizable intangible assets, net		1,145.7			1,081.5
Investments		23.7			31.0
Other assets		213.2			206.8
Total assets	$	12,279.9		$	9,795.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Fiduciary liabilities	$	1,688.6		$	1,470.7
Losses and loss adjustment reserve		34.7			63.1
Unearned premiums		408.4			392.2
Accounts payable		279.3			242.7
Accrued expenses and other liabilities		421.4			456.2
Current portion of long-term debt		67.5			42.5
Total current liabilities		2,899.9			2,667.4
Long-term debt less unamortized discount and debt issuance costs		4,156.3			1,980.4
Operating lease liabilities		185.9			180.0
Deferred income taxes, net		443.1			386.8
Other liabilities		311.3			383.9
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 560.0 shares; issued 302.0 shares and outstanding 282.2 shares at 2022, issued 301.0shares and outstanding 282.5 shares at 2021, respectively		30.2			30.1
Additional paid-in capital		835.7			849.4
Treasury stock, at cost at 19.7 shares at 2022, 18.5 shares at 2021, respectively		(748.0	)		(673.9	)
Accumulated other comprehensive loss		(142.8	)		(9.4	)
Retained earnings		4,308.3			4,000.7
Total shareholders’ equity		4,283.4			4,196.9
Total liabilities and shareholders’ equity	$	12,279.9		$	9,795.4

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


	Common Stock
(in millions, except per share data)	Shares Outstanding			Par Value			Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at December 31, 2021		282.5		$	30.1		$	849.4		$	(673.9	)	$	(9.4	)	$	4,000.7		$	4,196.9
Net income																	220.3			220.3
Net unrealized holding (loss) gain on available-for-sale securities														(0.9	)					(0.9	)
Foreign currency translation														(2.1	)					(2.1	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan								2.7												2.7
Stock incentive plans		1.7			0.2			17.3												17.5
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(0.7	)		(0.1	)		(45.9	)											(46.0	)
Purchase of treasury stock		(0.4	)								(24.1	)								(24.1	)
Cash dividends paid ($0.1025 per share)																	(28.9	)		(28.9	)
Balance at March 31, 2022		283.1		$	30.2		$	823.5		$	(698.0	)	$	(12.4	)	$	4,192.1		$	4,335.4
Net income																	145.2			145.2
Net unrealized holding (loss) gain on available-for- sale securities														(0.3	)					(0.3	)
Foreign currency translation								(0.1	)					(130.1	)					(130.2	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan								1.7												1.7
Stock incentive plans		(0.1	)		—			12.1												12.1
Directors		—			—			0.9												0.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		—			—			(2.4	)											(2.4	)
Purchase of treasury stock		(0.8	)								(50.0	)								(50.0	)
Cash dividends paid ($0.1025 per share)																	(29.0	)		(29.0	)
Balance at June 30, 2022		282.2			30.2			835.7			(748.0	)		(142.8	)		4,308.3			4,283.4

Balance at December 31, 2020		283.0		$	30.0		$	794.9		$	(591.4	)	$	—		$	3,520.7		$	3,754.2
Net income																	199.7			199.7
Net unrealized holding (loss) gain on available-for-sale securities								(0.5	)					0.3						(0.2	)
Foreign currency translation														(5.3	)		0.2			(5.1	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan								3.0												3.0
Stock incentive plans		1.4			0.1			15.5												15.6
Agency acquisition		0.1			—			4.9												4.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(1.0	)		(0.1	)		(44.9	)											(45.0	)
Purchase of treasury stock		(1.5	)								(70.0	)								(70.0	)
Cash dividends paid ($0.0925 per share)																	(26.1	)		(26.1	)
Balance at March 31, 2021		282.0		$	30.0		$	772.9		$	(661.4	)	$	(5.0	)	$	3,694.5		$	3,831.0
Net income																	139.3			139.3
Foreign currency translation														1.5						1.5
Shares issued - employee stock compensation plans:
Employee stock purchase plan								2.0												2.0
Stock incentive plans		—			—			12.0												12.0
Directors		—			—			0.9												0.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(0.1	)		—			(3.2	)											(3.2	)
Purchase of treasury stock		(0.2	)								(11.4	)								(11.4	)
Cash dividends paid ($0.0925 per share)																	(26.1	)		(26.1	)
Balance at June 30, 2021		281.7		$	30.0		$	784.6		$	(672.8	)	$	(3.5	)	$	3,807.7		$	3,946.0

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six months ended June 30,
(in millions)	2022			2021
Cash flows from operating activities:
Net income	$	365.5		$	339.0
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		64.7			59.0
Depreciation		17.1			16.3
Non-cash stock-based compensation		34.0			32.7
Change in estimated acquisition earn-out payables		(6.4	)		(2.5	)
Deferred income taxes		26.6			21.9
Amortization of debt discount and disposal of deferred financing costs		1.8			1.5
Net (gain)/loss on sales/disposals of investments, fixed assets and customer accounts		(0.5	)		(2.8	)
Payments on acquisition earn-outs in excess of original estimated payables		(23.4	)		(5.7	)
Effect of changes in foreign exchange rate changes		(0.2	)		0.6
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Commissions, fees and other receivables (increase) decrease		(78.3	)		(66.7	)
Reinsurance recoverable (increase) decrease		28.4			1.1
Prepaid reinsurance premiums (increase) decrease		6.8			8.9
Other assets (increase) decrease		(52.8	)		(35.6	)
Losses and loss adjustment reserve increase (decrease)		(28.4	)		(1.1	)
Unearned premiums increase (decrease)		16.2			(8.9	)
Accounts payable increase (decrease)		101.3			71.0
Accrued expenses and other liabilities increase (decrease)		(46.9	)		(21.3	)
Other liabilities increase (decrease)		(79.3	)		(27.5	)
Net cash provided by operating activities		346.2			379.9
Cash flows from investing activities:
Additions to fixed assets		(18.3	)		(25.1	)
Payments for businesses acquired, net of cash acquired		(457.2	)		(116.6	)
Proceeds from sales of fixed assets and customer accounts		4.4			8.3
Purchases of investments		—			(9.8	)
Proceeds from sales of investments		3.6			6.9
Net cash used in investing activities		(467.5	)		(136.3	)
Cash flows from financing activities:
Fiduciary receivables and liabilities, net		89.3			86.4
Payments on acquisition earn-outs		(43.1	)		(34.2	)
Proceeds from long-term debt		2,000.0			—
Payments on long-term debt		(27.5	)		(35.0	)
Deferred debt issuance costs		(23.3	)		—
Borrowings on revolving credit facility		350.0			—
Payments on revolving credit facilities		(100.0	)		—
Issuances of common stock for employee stock benefit plans		0.9			0.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(48.4	)		(48.3	)
Purchase of treasury stock		(74.1	)		(81.4	)
Cash dividends paid		(57.9	)		(52.2	)
Net cash provided by (used in) financing activities		2,065.9			(163.8	)
Effect of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash		(127.3	)		(0.7	)
Net increase in cash and cash equivalents inclusive of fiduciary cash		1,817.3			79.1
Cash and cash equivalents inclusive of fiduciary cash at beginning of period		1,470.2			1,271.9
Cash and cash equivalents inclusive of fiduciary cash at end of period	$	3,287.5		$	1,351.0

See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 10 for the reconciliations of cash and cash equivalents inclusive of fiduciary cash.

NOTES TO CONDEN****SED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 Nature of Operations

Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and service organization that markets and sells insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable segments. The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. The National Programs Segment, which acts as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide network of independent agents, including Brown & Brown retail agents. The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents. The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.

The Company primarily operates as an agent or broker not assuming underwriting risks. However, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s underwriting business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”), excess flood and private flood policies which are fully reinsured, thereby substantially eliminating WNFIC’s exposure to underwriting risk, as these policies are backed by either FEMA or a reinsurance carrier with an AM Best Company rating of “A” or better. The Company also operates a capitalized captive insurance facility (the "Captive") for the purpose of facilitating additional underwriting capacity on a quota sharing basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses. The Captive buys reinsurance, limiting, but not eliminating the Company's exposure to underwriting losses.

NOTE 2 Basis of Financial Reporting

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) necessary for a fair presentation have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Beginning January 1, 2022 the Company is presenting certain assets and liabilities that arise from activities in which the Company engages as an intermediary, where we collect premiums from insureds to remit to insurance companies, hold funds from insurance companies to distribute to insureds for claims on covered losses and hold refunds due to customers as fiduciary assets and fiduciary liabilities. Uncollected premiums are no longer presented in the same caption with commissions, fees and other receivables, but rather represented in a separate caption as fiduciary receivables. Likewise, payables to insurance companies and premium deposits due customers are now combined into a new caption as fiduciary liabilities. The caption “restricted cash” is now reflected as “fiduciary cash” along with non-restricted fiduciary cash balances previously reported within “cash and cash equivalents.” Fiduciary cash represents funds in the Company's possession collected from customers to be remitted to insurance companies and funds from insurance companies to be distributed to insureds for the settlement of claims or refunds. The net change in fiduciary cash is represented by the net change in fiduciary liabilities and fiduciary receivables and is presented as cash flows from financing activity in the statement of cash flows. Previously the net change in cash balances held to remit to insurance carriers or to return to customers was presented as cash flows from operating activity. All prior periods included in these financial statements have been recast to conform to this basis of presentation. The relevant balance sheet captions and how the December 31, 2021 balances as presented under the prior method relate to the current presentation are reflected in the tables below. Certain liabilities reported as premiums payable to insurance companies or within premiums deposits and credits due customers were deemed not to be fiduciary in nature and have been included within accounts payable in the current presentation. Likewise, a small component of accounts payable was deemed to be fiduciary in nature and is now included within fiduciary liabilities.


December 31, 2021
(in millions)	As reported		Change in presentation			As revised
Cash and cash equivalents	$	887.0	$	(193.8	)	$	693.2
Restricted cash and investments		583.2		(583.2	)		—
Fiduciary cash		—		777.0			777.0
Total		1,470.2		—			1,470.2

Premiums, commissions and fees receivables		1,216.3		(1,216.3	)		—
Commissions, fees and other receivables		—		522.6			522.6
Fiduciary receivables		—		693.7			693.7
Total		1,216.3		—			1,216.3

Premium payable to insurance companies		1,384.6		(1,384.6	)		—
Premium deposits and credits due customers		122.4		(122.4	)		—
Accounts payable		206.4		36.3			242.7
Fiduciary liabilities		—		1,470.7			1,470.7
Total	$	1,713.4	$	—		$	1,713.4


For the six months ended June 30, 2021
(in millions)	As reported			Change in presentation			As revised
Cash flows from operating activities:
Premiums, commissions and fees receivable (1)	$	(120.9	)	$	54.2		$	(66.7	)
Premiums payable to insurance companies		141.1			(141.1	)		—
Premium deposits and credits due customers		5.3			(5.3	)		—
Accounts payable		65.2			5.8			71.0

Cash flows from financing activities:
Fiduciary receivables and liabilities, net		—			86.4			86.4
Total restated changes in cash flows	$	90.7		$	—		$	90.7

(1) The caption of "Premiums, commissions and fees receivable" is now shown as "Commissions, fees and other receivables" in the Condensed Consolidated Statements of Cash Flows.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We have evaluated our contracts and the available expedients provided by the new standard and can assert there is no impact to any carrying value of assets or liabilities as our floating-rate debt instruments that are indexed to LIBOR are carried at amortized cost.

Recently Adopted Accounting Standards

None.

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:


	Three months ended June 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage			Services		Other (8)			Total
Base commissions (1)	$	301.6	$	160.2	$	95.1		$	—	$	—		$	556.9
Fees (2)		126.2		46.9		17.4			44.0		(0.3	)		234.2
Other supplemental commissions (3)		20.0		2.8		(2.6	)		—		—			20.2
Profit-sharing contingent commissions (4)		9.4		10.3		2.4			—		—			22.1
Earned premium (5)		—		5.3		—			—		—			5.3
Investment income (6)		—		0.2		—			—		0.2			0.4
Other income, net (7)		0.4		—		0.1			—		0.1			0.6
Total Revenues	$	457.6	$	225.7	$	112.4		$	44.0	$	—		$	839.7


	Three months ended June 30, 2021
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	263.6	$	125.4	$	84.0	$	—	$	—		$	473.0
Fees (2)		110.3		41.2		17.6		44.9		(0.7	)		213.3
Other supplemental commissions (3)		18.7		0.6		0.7		—		—			20.0
Profit-sharing contingent commissions (4)		8.4		9.0		2.2		—		—			19.6
Earned premium (5)		—		—		—		—		—			—
Investment income (6)		—		0.1		—		—		0.1			0.2
Other income, net (7)		0.1		—		0.1		—		1.0			1.2
Total Revenues	$	401.1	$	176.3	$	104.6	$	44.9	$	0.4		$	727.3


	Six months ended June 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	695.1	$	277.5	$	173.4	$	—	$	—		$	1,146.0
Fees (2)		238.8		81.5		33.6		87.6		(0.6	)		440.9
Other supplemental commissions (3)		92.2		3.9		3.0		—		—			99.1
Profit-sharing contingent commissions (4)		27.4		18.3		5.0		—		—			50.7
Earned premium (5)		—		6.4		—		—		—			6.4
Investment income (6)		—		0.3		0.1		—		0.2			0.6
Other income, net (7)		0.5		—		0.2		—		0.1			0.8
Total Revenues	$	1,054.0	$	387.9	$	215.3	$	87.6	$	(0.3	)	$	1,744.5


	Six months ended June 30, 2021
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	620.9	$	236.0	$	155.3	$	—	$	—		$	1,012.2
Fees (2)		197.5		75.6		33.6		91.9		(1.0	)		397.6
Other supplemental commissions (3)		80.7		1.8		2.1		—		—			84.6
Profit-sharing contingent commissions (4)		24.1		17.3		4.1		—		—			45.5
Earned premium (5)		—		—		—		—		—			—
Investment income (6)		—		0.3		0.1		—		0.1			0.5
Other income, net (7)		0.8		0.2		0.2		—		1.0			2.2
Total Revenues	$	924.0	$	331.2	$	195.4	$	91.9	$	0.1		$	1,542.6

(1)

Base commissions generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.

(2)

Fee revenues relate to fees for services other than securing coverage for our customers, fees negotiated in lieu of commissions, and F&I products and services.

(3)

Other supplemental commissions include additional commissions over base commissions received from insurance carriers based on predetermined growth or production measures. This includes incentive commissions and guaranteed supplemental commissions.

(4)

Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.

(5)

Earned premium relates to the premiums earned in the Captive.

(6)

Investment income consists primarily of interest on cash and investments.

(7)

Other income consists primarily of legal settlements and other miscellaneous income.

(8)

Fees within other reflects the elimination of intercompany revenues.

Contract Assets and Liabilities

The balances of contract assets and contract liabilities arising from contracts with customers as of June 30, 2022 and December 31, 2021 were as follows:


(in millions)	June 30, 2022		December 31, 2021
Contract assets	$	425.1	$	361.8
Contract liabilities	$	92.8	$	97.9

Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in the Company's systems and are reflected in commissions, fees and other receivables in the Company's Condensed Consolidated Balance Sheet. The increase in contract assets over the balance as of December 31, 2021 is due to normal seasonality, growth in our business, and from businesses acquired in the current year.

Deferred revenue (contract liabilities) relates to payments received in advance of performance under the contract before the transfer of a good or service to the customer. Deferred revenue is reflected within accrued expenses and other liabilities for those to be recognized in less than 12 months and in other liabilities for those to be recognized more than 12 months from the date presented in the Company's Condensed Consolidated Balance Sheet.

As of June 30, 2022, deferred revenue consisted of $60.0 million as current portion to be recognized within one year and $32.8 million in long-term to be recognized beyond one year. As of December 31, 2021, deferred revenue consisted of $67.4 million as current portion to be recognized within one year and $30.5 million in long-term deferred revenue to be recognized beyond one year.

During the six months ended June 30, 2022 and 2021, the net amount of revenue recognized related to performance obligations satisfied in a previous period was $21.5 million and $19.6 million, consisting of additional variable consideration received on our incentive and profit-sharing contingent commissions.

Other Assets and Deferred Cost

Incremental cost to obtain - The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Retail Segment, in which the Company pays an incremental amount of compensation on new business. These incremental costs are deferred and amortized over a 15-year period. The cost to obtain balance within the other assets caption in the Company's Condensed Consolidated Balance Sheet was $67.5 million and $58.2 million as of June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, the Company deferred $11.7 million of incremental cost to obtain customer contracts. The Company recorded an expense of $2.4 million associated with the incremental cost to obtain customer contracts for the six months ended June 30, 2022.

Cost to fulfill - The Company defers certain costs to fulfill contracts and recognizes these costs as the associated performance obligations are fulfilled. The cost to fulfill balance within the other current assets caption in the Company's Condensed Consolidated Balance Sheet as of June 30, 2022 was $72.8 million, which is inclusive of deferrals from businesses acquired in the current year. The cost to fulfill balance as of December 31, 2021 was $89.3 million. For the six months ended June 30, 2022, the Company had net expense of $16.5 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, net of current year deferrals for costs incurred that related to performance obligations yet to be fulfilled.

NOTE 4 Net Income Per Share

Basic net income per share is computed based on the weighted average number of common shares (including participating securities) issued and outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares issued and outstanding plus equivalent shares, assuming the issuance of all potentially issuable common shares. The dilutive effect of potentially issuable common shares is computed by application of the treasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:


	Three months ended June 30,						Six months ended June 30,
(in millions, except per share data)	2022			2021			2022			2021
Net income	$	145.2		$	139.3		$	365.5		$	339.0
Net income attributable to unvested awarded performance stock		(2.7	)		(3.0	)		(7.1	)		(7.9	)
Net income attributable to common shares	$	142.5		$	136.3		$	358.4		$	331.1
Weighted average number of common shares outstanding – basic		282.5			281.8			282.6			282.2
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic		(5.3	)		(6.1	)		(5.5	)		(6.6	)
Weighted average number of common shares outstanding for basic net income per common share		277.2			275.7			277.1			275.6
Dilutive effect of potentially issuable common shares		1.0			1.2			1.3			1.3
Weighted average number of shares outstanding – diluted		278.2			276.9			278.4			276.9
Net income per share:
Basic	$	0.51		$	0.49		$	1.29		$	1.20
Diluted	$	0.51		$	0.49		$	1.29		$	1.20

NOTE 5 Business Combinations

During the six months ended June 30, 2022, Brown & Brown acquired all of the stock of one insurance intermediary, assets and assumed certain liabilities of six insurance intermediaries, and three books of business (customer accounts) for a total of ten acquisitions. Additionally, adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 months as permitted by Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category within the following two tables. The recorded purchase price for all acquisitions includes 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 Condensed Consolidated Statements 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 Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the six months ended June 30, 2022, adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $5.6 million. These measurement period adjustments have been reflected as current period adjustments in the six months ended June 30, 2022 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period.

The following table summarizes the purchase price allocations made as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. Cash paid for ten acquisitions was $500.9 million during the six months ended June 30, 2022. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.


(in millions)
Name	Business segment	Effective date of acquisition	Cash paid		Common stock issued		Other payable		Recorded earn-out payable		Net assets acquired		Maximum potential earn-out payable
Orchid Intermediate Holdings, L.P.	National Programs	March 31, 2022	$	476.2	$	—	$	—	$	10.8	$	487.0	$	20.0
Other	Various	Various		24.7		—		1.2		6.1		32.0		8.8
Total			$	500.9	$	—	$	1.2	$	16.9	$	519.0	$	28.8

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.


(in millions)	Orchid			Other (1)			Total
Cash and equivalents	$	3.2		$	—		$	3.2
Fiduciary cash		40.5			—			40.5
Fiduciary receivables		12.5			—			12.5
Other current assets		2.7			0.2			2.9
Fixed assets		1.8			0.1			1.9
Goodwill		399.3			22.1			421.4
Purchased customer accounts		119.2			12.3			131.5
Non-compete agreements		—			0.7			0.7
Other assets		1.7			0.2			1.9
Total assets acquired		580.9			35.6			616.5
Fiduciary liabilities		(53.0	)		—			(53.0	)
Other current liabilities		(10.7	)		(3.6	)		(14.3	)
Deferred income tax, net		(30.2	)		—			(30.2	)
Total liabilities assumed		(93.9	)		(3.6	)		(97.5	)
Net assets acquired	$	487.0		$	32.0		$	519.0

(1)

The other column represents current year acquisitions with total net assets acquired of less than $20.0 million and adjustments from prior year acquisitions that were made within the permitted measurement period.

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years; and non-compete agreements, 5 years.

Goodwill of $421.4 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage Segments in the amounts of $18.9 million, $402.3 million, and $0.2 million, respectively. Of the total goodwill of $421.4 million, the amount currently deductible for income tax purposes is $16.0 million. The remaining $405.3 million relates to goodwill that will not be deductible for income tax purposes of $399.3 million and $6.1 million from recorded earn-out payables which will not be deductible for income tax purposes until it is earned and paid.

For the acquisitions completed during 2022, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through June 30, 2022, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2022, was $19.2 million. The income before income taxes from the acquisitions completed through June 30, 2022, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2022, was a loss of $3.2 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s estimated results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.


(UNAUDITED)	Three months ended June 30,				Six months ended June 30,
(in millions, except per share data)	2022		2021		2022		2021
Total revenues	$	841.3	$	745.5	$	1,764.9	$	1,574.8
Income before income taxes	$	199.4	$	190.6	$	468.9	$	433.3
Net income	$	145.4	$	142.5	$	369.2	$	345.2
Net income per share:
Basic	$	0.51	$	0.51	$	1.31	$	1.22
Diluted	$	0.51	$	0.50	$	1.30	$	1.22
Weighted average number of shares outstanding:
Basic		277.2		275.7		277.1		275.6
Diluted		278.2		276.9		278.4		276.9

As of June 30, 2022 and 2021, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820- Fair Value Measurement. The resulting additions, payments, and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three and six months ended June 30, 2022 and 2021, were as follows:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2022			2021			2022			2021
Balance as of the beginning of the period	$	250.9		$	257.6		$	291.0		$	259.0
Additions to estimated acquisition earn-out payables		6.1			10.1			16.9			25.1
Payments for estimated acquisition earn-out payables		(19.6	)		(24.5	)		(66.5	)		(40.0	)
Subtotal		237.4			243.2			241.4			244.1
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables		(4.7	)		(3.3	)		(9.5	)		(6.0	)
Interest expense accretion		1.7			1.7			3.1			3.5
Net change in earnings from estimated acquisition earn-out payables		(3.0	)		(1.6	)		(6.4	)		(2.5	)
Foreign currency translation adjustments during the year		(1.5	)		0.4			(2.1	)		0.4
Balance as of June 30,	$	232.9		$	242.0		$	232.9		$	242.0

Of the $232.9 million estimated acquisition earn-out payables as of June 30, 2022, $91.0 million was recorded as accounts payable and $141.9 million was recorded as other non-current liabilities. As of June 30, 2022, the maximum future acquisition contingency payments related to all acquisitions was $447.2 million, inclusive of the $232.9 million estimated acquisition earn-out payables as of June 30, 2022. Included within the additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts.

Subsequent to June 30, 2022, Brown & Brown completed the acquisition of GRP (Jersey) Holdco Limited and its businesses ("GRP") on July 1, 2022. GRP is an insurance intermediary in the United Kingdom (U.K.) with locations throughout the U.K. and Ireland. The consideration paid included cash of £1,539.4 million, which was approximately $1,860.7 million, and 252,802 shares of the Company’s common stock issued in July 2022, valued at $14.8 million. Acquisition costs related to the transaction for the six months ended June 30, 2022, were $3.9 million and were recorded in other operating expenses within the Condensed Consolidated Statements of Income. The initial accounting for the business combination is currently being evaluated.

NOTE 6 Goodwill

Goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The Company completed its most recent annual assessment as of November 30, 2021 and identified no impairment as a result of the evaluation.

The changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2022 are as follows:


(in millions)	Retail			National Programs			Wholesale Brokerage		Services		Total
Balance as of December 31, 2021	$	2,987.2		$	1,089.9		$	488.4	$	171.3	$	4,736.8
Goodwill of acquired businesses		18.9			402.3			0.2		—		421.4
Goodwill disposed of relating to sales of businesses		(2.0	)		—			—		—		(2.0	)
Foreign currency translation adjustments during the year		(6.2	)		(1.0	)		—		—		(7.2	)
Balance as of June 30, 2022	$	2,997.9		$	1,491.2		$	488.6	$	171.3	$	5,149.0

NOTE 7 Amortizable Intangible Assets

Amortizable intangible assets at June 30, 2022 and December 31, 2021 consisted of the following:


	June 30, 2022									December 31, 2021
(in millions)	Gross carrying value		Accumulated amortization			Net carrying value		Weighted average life (years) (1)		Gross carrying value		Accumulated amortization			Net carrying value		Weighted average life (years) (1)
Purchased customer accounts	$	2,439.5	$	(1,298.9	)	$	1,140.6		14.7	$	2,311.6	$	(1,235.3	)	$	1,076.3		14.9
Non-compete agreements		38.3		(33.2	)		5.1		4.5		37.6		(32.4	)		5.2		4.5
Total	$	2,477.8	$	(1,332.1	)	$	1,145.7			$	2,349.2	$	(1,267.7	)	$	1,081.5

(1)

Weighted average life calculated as of the date of acquisition.

Amortization expense for amortizable intangible assets for the years ending December 31, 2022, 2023, 2024, 2025 and 2026 is estimated to be $132.6 million, $129.2 million, $125.0 million, $122.3 million, and $116.2 million, respectively.

NOTE 8 Long-Term Debt

Long-term debt at June 30, 2022 and December 31, 2021 consisted of the following:


(in millions)	June 30, 2022			December 31, 2021
Current portion of long-term debt:
Current portion of 5-year term loan facility expires 2026	$	12.5		$	12.5
Current portion of 5-year term loan facility expires 2023		30.0			30.0
Current portion of 5-year term loan facility expires 2027		25.0			—
Total current portion of long-term debt		67.5			42.5
Long-term debt:
Note agreements:
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024	$	499.6		$	499.5
4.500% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2029		349.6			349.6
2.375% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2031		699.4			699.3
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2032		597.9			—
4.950% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2052		591.9			—
Total notes		2,738.4			1,548.4
Credit agreements:
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to1.750%, expires October 27, 2026		228.1			234.4
5-year revolving-loan facility, periodic interest payments, LIBOR plus up to 1.525%, plus commitment fees up to 0.225%, expires October 27, 2026		250.0			—
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to1.750%, expires December 21, 2023		195.0			210.0
3-year term-loan facility, periodic interest and principal payments, SOFR plus up to 1.625%, expires March 31, 2025		300.0			—
5-year term-loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires March 31, 2027		468.8			—
Total credit agreements		1,441.9			444.4
Debt issuance costs (contra)		(24.0	)		(12.4	)
Total long-term debt less unamortized discount and debt issuance costs		4,156.3			1,980.4
Current portion of long-term debt		67.5			42.5
Total debt	$	4,223.8		$	2,022.9

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. As of June 30, 2022 and December 31, 2021, there was an outstanding debt balance of $500.0 million exclusive of the associated discount balance.

On December 21, 2018, the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and certain other banks as co-syndication agents and as joint lead arrangers and joint bookrunners. The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018. Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the rates of interest charged on the term loan are 1.00% to 1.75%, above the adjusted 1-Month LIBOR rate. On December 21, 2018, the Company borrowed $300.0 million under the Term Loan Credit Agreement and used $250.0 million of the proceeds to reduce indebtedness under the Revolving Credit Facility. As of June 30, 2022, there was an outstanding debt balance issued under the Term Loan of $225.0 million. As of December 31, 2021, there was an outstanding debt balance issued under the Term Loan of $240.0 million.

On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the Hays Companies acquisition and for other general corporate purposes. As of June 30, 2022 and December 31, 2021, there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance.

On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company's 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $200.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of June 30, 2022 and December 31, 2021, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance.

On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. As of June 30, 2022, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $240.6 million and $250.0 million outstanding against the Revolving Credit Facility. As of December 31, 2021, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $246.9 million with no borrowings outstanding against the Revolving Credit Facility.

On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable under the GRP Acquisition Agreement and to pay fees and expenses associated with the foregoing. As of June 30, 2022, there was a total outstanding debt balance of $1,200.0 million exclusive of the associated discount balance on both Notes.

On March 31, 2022 (the "Effective Date"), the Company entered into a Loan Agreement (the “Loan Agreement”) with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as joint bookrunners and joint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and (ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, together with the Term A-1 Loan Commitments, the “Term Loan Commitments”). The Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date until the date which is the first anniversary thereof. The Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and payable on the date that is the third anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. The Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. The Loan Agreement includes various covenants (including financial covenants), limitations and events

of default customary for similar facilities for similarly rated borrowers. As of June 30, 2022, there was an outstanding debt balance issued under the Term A-1 Loans of $300.0 million and an outstanding debt balance issued under Term A-2 Loans of $493.8 million.

The Second Amended and Restated Credit Agreement, Term Loan Credit Agreement and Loan Agreement 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 June 30, 2022 and December 31, 2021.

The 30-day Adjusted LIBOR Rate for the term loan of the Second Amended and Restated Credit Agreement and the Term Loan Credit Agreement as of June 30, 2022 were each 1.688%. The 1-month Term SOFR Rate for the Term A-1 Loans is 1.344% and the 1-month Term SOFR Rate for the Term A-2 Loans is 1.625% as of June 30, 2022.

NOTE 9 Leases

Substantially all of the Company's operating lease right-of-use assets and operating lease liabilities represent real estate leases for office space used to conduct the Company's business that expire on various dates through 2041. Leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration.

The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short-term leases on the Company's right-of-use asset and lease liability would not be significant.

The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Condensed Consolidated Balance Sheet is as follows:


(in millions)		June 30, 2022		December 31, 2021
Assets:
Operating lease right-of-use assets	Operating lease assets	$	203.3	$	197.0
Total assets			203.3		197.0
Liabilities:
Current operating lease liabilities	Accrued expenses and other liabilities		43.1		43.4
Non-current operating lease liabilities	Operating lease liabilities		185.9		180.0
Total liabilities		$	229.0	$	223.4

As of June 30, 2022, the Company has entered into future lease agreements expected to commence later in 2022 and 2023 consisting of undiscounted lease liabilities of $9.8 million and $0.8 million, respectively.

Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Variable lease cost is lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company's portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred.

The components of lease cost for operating leases for the three and six months ended June 30, 2022 and 2021 were:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2022			2021			2022			2021
Operating leases:
Lease cost	$	13.2		$	13.3		$	26.3		$	26.6
Variable lease cost		1.1			1.1			2.2			2.1
Short-term lease cost		0.2			0.4			0.5			0.5
Operating lease cost	$	14.5		$	14.8		$	29.0		$	29.2
Sublease income		(0.3	)		(0.4	)		(0.8	)		(0.7	)
Total lease cost net	$	14.2		$	14.4		$	28.2		$	28.5

The weighted average remaining lease term and the weighted average discount rate for operating leases as of June 30, 2022 were:


Weighted-average remaining lease term			6.38
Weighted-average discount rate			2.69	%

Maturities of the operating lease liabilities by fiscal year at June 30, 2022 for the Company's operating leases are as follows:


(in millions)	Operating leases
2022 (Remainder)	$	23.0
2023		49.9
2024		43.0
2025		36.0
2026		26.8
Thereafter		69.4
Total undiscounted lease payments		248.1
Less: Imputed interest		19.1
Present value of lease payments	$	229.0

Supplemental cash flow information for operating leases for the three and six months ended June 30, 2022 and 2021:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2022		2021		2022		2021
Cash paid for amounts included in measurement of liabilities
Operating cash flows from operating leases	$	13.8	$	14.0	$	27.8	$	27.8
Right-of-use assets obtained in exchange for new operating liabilities	$	13.6	$	14.7	$	27.5	$	20.0

NOTE 10 Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities

Throughout 2020, the Company deferred $31.1 million in employer-only payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which was signed into law on March 27, 2020. During the first six months of 2022, there were no additional deferrals under the CARES Act. A payment of the cumulative deferred employer payroll taxes as of December 31, 2020 was paid in December 2021 and a second payment is planned for December 31, 2022, as permitted under the CARES Act.

During the second quarter of 2021, the Company received an $8.1 million reimbursement for capitalizable costs of public infrastructure improvements related to the construction of the Company’s headquarters in accordance with an economic development grant agreement between the Company and the City of Daytona Beach and Volusia County. The reimbursement has been reflected as a reduction to the additions to fixed asset line item on the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021.

As of June 30, 2022, included in the Company's cash balance is £1,544.7 million, which had a value of $1,876.4 million, on its Condensed Consolidated Balance Sheet in anticipation to use as cash consideration to close the acquisition of GRP (Jersey) Holdco Limited and its businesses ("GRP") which occurred on July 1, 2022.

During the three months ended June 30, 2022, the Company had a loss of $130.1 million reported on its Condensed Consolidated Statements of Comprehensive Income which is primarily due to the movement in currency exchange rates for British pound sterling denominated cash balances with an additional smaller loss from the decline in currency exchange rates related to Euro denominated asset balances.

Cash paid during the period for interest and income taxes are summarized as follows:


	Six months ended June 30,
(in millions)	2022		2021
Cash paid during the period for:
Interest	$	35.8	$	30.8
Income taxes, net of refunds	$	90.5	$	74.8

Significant non-cash investing and financing activities are summarized as follows:


	Six months ended June 30,
(in millions)	2022		2021
Other payables issued for agency acquisitions and purchased customer accounts	$	1.2	$	1.9
Estimated acquisition earn-out payables and related charges	$	16.9	$	25.1
Common stock issued for agency acquisition	$	—	$	4.9
Notes payable assumed for agency acquisition	$	—	$	1.4

The Company's restricted cash balance is composed of funds held in separate premium trust accounts as required by state law or, in some cases, by agreement with carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of June 30, 2022 and 2021.


(in millions)	June 30, 2022		December 31, 2021
Table to reconcile restricted and non-restricted fiduciary cash
Restricted fiduciary cash	$	664.7	$	583.2
Non-restricted fiduciary cash		239.3		193.8
Total restricted and non-restricted fiduciary cash at the end of the period	$	904.0	$	777.0


	Balance as of June 30,
(in millions)	2022		2021
Table to reconcile cash, cash equivalents and fiduciary cash
Cash and cash equivalents	$	2,383.5	$	625.4
Fiduciary cash		904.0		725.6
Total cash, cash equivalents and fiduciary cash at the end of the period	$	3,287.5	$	1,351.0

NOTE 11 Legal and Regulatory Proceedings

The Company is involved in numerous pending or threatened proceedings by or against Brown & Brown, Inc. or one or more of its subsidiaries that arise in the ordinary course of business. The damages that may be claimed against the Company in these various proceedings are in some cases substantial, including in certain instances claims for punitive or extraordinary damages. Some of these claims and lawsuits have been resolved; others are in the process of being resolved and others are still in the investigation or discovery phase. The Company will continue to respond appropriately to these claims and lawsuits and to vigorously protect its interests.

The Company continues 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 upon the AM Best Company ratings of these third-party insurers and other factors, management does not believe there is a substantial risk of an insurer’s material non-performance 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 12 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, and non-insurance risk-mitigating products through our F&I businesses, (2) the National Programs Segment, which acts as an MGA, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents, (3) the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents, 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 claims adjusting services.

Brown & Brown conducts most of its operations within the United States of America. International operations include Retail operations in Bermuda, the Cayman Islands and Ireland, a National Programs operation in Canada, and a Wholesale Brokerage operation based in England. These operations earned $20.3 million and $19.1 million of total revenues for the three months ended June 30, 2022 and 2021, respectively. These operations earned $40.7 million and $36.6 million of total revenues for the six months ended June 30, 2022 and 2021, respectively. Tangible long-lived assets held outside of the United States as of June 30, 2022 and 2021 were not material.

The accounting policies of the reportable segments are the same as those described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Intersegment revenues are eliminated.

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


	Three months ended June 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	457.6	$	225.7	$	112.4	$	44.0	$	—		$	839.7
Investment income	$	—	$	0.2	$	—	$	—	$	0.2		$	0.4
Amortization	$	20.5	$	9.8	$	2.0	$	1.3	$	—		$	33.6
Depreciation	$	2.6	$	3.5	$	0.6	$	0.4	$	1.8		$	8.9
Interest expense	$	23.5	$	10.4	$	3.3	$	0.5	$	(1.7	)	$	36.0
Income before income taxes	$	82.5	$	76.5	$	33.8	$	6.6	$	(0.6	)	$	198.8
Total assets	$	5,036.3	$	3,554.9	$	1,149.0	$	287.9	$	2,251.8		$	12,279.9
Capital expenditures	$	2.1	$	5.3	$	0.4	$	0.3	$	0.2		$	8.3


	Three months ended June 30, 2021
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	401.1	$	176.3	$	104.6	$	44.9	$	0.4		$	727.3
Investment income	$	—	$	0.1	$	—	$	—	$	0.1		$	0.2
Amortization	$	19.0	$	6.9	$	2.4	$	1.3	$	(0.1	)	$	29.5
Depreciation	$	2.8	$	2.3	$	0.7	$	0.4	$	2.6		$	8.8
Interest expense	$	22.6	$	2.9	$	4.1	$	0.7	$	(14.0	)	$	16.3
Income before income taxes	$	70.5	$	66.7	$	26.4	$	7.7	$	15.0		$	186.3
Total assets	$	7,393.3	$	3,570.8	$	1,844.3	$	447.3	$	(3,897.8	)	$	9,357.9
Capital expenditures	$	1.4	$	3.6	$	0.6	$	0.4	$	7.7		$	13.7


	Six months ended June 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	1,054.0	$	387.9	$	215.3	$	87.6	$	(0.3	)	$	1,744.5
Investment income	$	—	$	0.3	$	0.1	$	—	$	0.2		$	0.6
Amortization	$	41.6	$	16.5	$	4.0	$	2.6	$	—		$	64.7
Depreciation	$	5.2	$	6.3	$	1.3	$	0.8	$	3.5		$	17.1
Interest expense	$	47.1	$	12.6	$	6.8	$	1.1	$	(13.3	)	$	54.3
Income before income taxes	$	266.5	$	118.1	$	59.5	$	13.2	$	6.6		$	463.9
Total assets	$	5,036.3	$	3,554.9	$	1,149.0	$	287.9	$	2,251.8		$	12,279.9
Capital expenditures	$	3.7	$	11.0	$	0.8	$	0.5	$	2.3		$	18.3


	Six months ended June 30, 2021
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	924.0	$	331.2	$	195.4	$	91.9	$	0.1		$	1,542.6
Investment income	$	—	$	0.3	$	0.1	$	—	$	0.1		$	0.5
Amortization	$	37.8	$	13.7	$	4.8	$	2.7	$	—		$	59.0
Depreciation	$	5.6	$	4.5	$	1.3	$	0.7	$	4.2		$	16.3
Interest expense	$	45.2	$	7.0	$	8.3	$	1.5	$	(29.4	)	$	32.6
Income before income taxes	$	221.6	$	107.9	$	45.1	$	16.9	$	34.0		$	425.5
Total assets	$	7,393.3	$	3,570.8	$	1,844.3	$	447.3	$	(3,897.8	)	$	9,357.9
Capital expenditures	$	3.7	$	6.6	$	1.1	$	0.5	$	13.2		$	25.1

NOTE 13 Investments

At June 30, 2022, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in millions)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	26.5	$	—	$	(1.4	)	$	25.1
Corporate debt		8.2		—		(0.3	)		7.9
Total	$	34.7	$	—	$	(1.7	)	$	33.0

At June 30, 2022, the Company held $25.1 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $7.9 million issued by corporations with investment grade ratings. Of that total, $9.3 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one year. Additionally, the Company holds $5.6 million in short-term investments, which are related to time deposits held with various financial institutions.

For securities in a loss position, 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 June 30, 2022:


	Less than 12 Months					12 Months or More					Total
(in millions)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	11.9	$	(0.6	)	$	10.1	$	(0.8	)	$	22.0	$	(1.4	)
Corporate debt		6.0		(0.1	)		1.7		(0.2	)		7.7		(0.3	)
Total	$	17.9	$	(0.7	)	$	11.8	$	(1.0	)	$	29.7	$	(1.7	)

At June 30, 2022, the Company had 34 securities in an unrealized loss position. The unrealized losses for the period ended June 30, 2022 were caused by interest rate increases. 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 June 30, 2022.

At December 31, 2021, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in millions)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	30.2	$	0.2	$	(0.4	)	$	30.0
Corporate debt		8.3		0.1		(0.1	)		8.3
Total	$	38.5	$	0.3	$	(0.5	)	$	38.3

At December 31, 2021, the Company held $30.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $8.3 million issued by corporations with investment grade ratings. Of that total, $7.4 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one year, which also includes $5.5 million that is related to time deposits held with various financial institutions.


	Less than 12 Months					12 Months or More				Total
(in millions)	Fair value		Unrealized losses			Fair value		Unrealized losses		Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	16.8	$	(0.3	)	$	1.0	$	—	$	17.8	$	(0.3	)
Corporate debt		3.9		(0.1	)		—		—		3.9		(0.1	)
Total	$	20.7	$	(0.4	)	$	1.0	$	—	$	21.7	$	(0.4	)

The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2021, the Company had 23 securities in an unrealized loss position. 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, 2021.

The amortized cost and estimated fair value of the fixed maturity securities at June 30, 2022 by contractual maturity are set forth below:


(in millions)	Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	9.4	$	9.4
Due after one year through five years	$	24.3	$	22.7
Due after five years	$	1.0	$	0.9
Total	$	34.7	$	33.0

The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2021 by contractual maturity are set forth below:


(in millions)	Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	7.3	$	7.3
Due after one year through five years		30.2		30.0
Due after five years		1.0		1.0
Total	$	38.5	$	38.3

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 the sales and maturity of the Company’s investment in fixed maturity securities and maturing time deposits were $3.6 million from the period of January 1, 2022 to June 30, 2022. These proceeds were principally used for general corporate purposes. The gains and losses realized on the sale of securities for the period from January 1, 2022 to June 30, 2022 were insignificant.

Realized gains and losses are reported on the Condensed Consolidated Statements of Income, with the cost of securities sold determined on a specific identification basis.

At June 30, 2022, investments with a fair value of approximately $4.1 million were on deposit with state insurance departments to satisfy regulatory requirements.

NOTE 14 Insurance Company Subsidiary Operations

Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, Wright National Flood Insurance Company (“WNFIC”) 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. In addition, we operate the Captive, in which we participate in a quota sharing of premiums for the purpose of adding capacity to certain property insurance programs managed in our National Programs segment. The Captive cedes premiums to reinsurers for substantially all, but not the entirety, of its quota share. The effects of reinsurance on premiums written and earned are as follows:


	Six months ended June 30, 2022
(in millions)	Written			Earned
Direct premiums - WNFIC	$	356.1		$	377.8
Ceded premiums - WNFIC		(356.1	)		(377.8	)
Net premiums - WNFIC		—			—
Assumed premiums - Captive		46.5			10.7
Ceded premiums - Captive		(19.2	)		(4.3	)
Net premiums - Captive		27.3			6.4
Net premiums - Total	$	27.3		$	6.4

All premiums written by WNFIC under the National Flood Insurance Program (“NFIP”) are 100% ceded to the Federal Emergency Management Agency, or FEMA, for which WNFIC received a 29.9% expense allowance from January 1, 2022 through June 30, 2022. For the period from January 1, 2022 through June 30, 2022, the Company ceded $354.8 million of written premiums to FEMA, with $1.3 million ceded to highly rated carriers for excess flood policies which are not within the NFIP.

As of June 30, 2022 the Condensed Consolidated Balance Sheet contained reinsurance recoverable of $34.7 million and prepaid reinsurance premiums of $385.4 million. There was no change in the net balance in the reserve for losses and loss adjustment expense during the period January 1, 2022 through June 30, 2022, as WNFIC’s direct premiums written were 100% to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, as of June 30, 2022 was $34.7 million.

WNFIC maintains capital in excess of the minimum statutory amount of $7.5 million as required by regulatory authorities. The unaudited statutory capital and surplus of WNFIC was $32.5 million at June 30, 2022 and $33.1 million as of December 31, 2021. For the period from January 1, 2022 through June 30, 2022, WNFIC generated statutory net income of $0.4 million. For the period from January 1, 2021 through December 31, 2021, WNFIC generated statutory net income of $1.6 million. The maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling 12-month period is limited to the greater of 10% of statutory adjusted capital and surplus or 100% of adjusted net income. There was no dividend payout in 2021 and the maximum dividend payout that may be made in 2022 without prior approval is $3.3 million.

Assumed net written and net earned premiums for the Captive for the six months ended June 30, 2022 were $27.3 million and $6.4 million, respectively. As of June 30, 2022, the loss reserve inclusive of incurred but not reported ("IBNR") claims was not significant. In December of 2021, the initial funding to capitalize the Captive was $5.9 million. This capital in addition to current earnings of $3.8 million is considered at risk for loss. The first collateral release will be in 2023 and is based on an IBNR factor times earned premium compared to current collateral balance.

NOTE 15 Shareholders’ Equity

Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100.0 million each (unless otherwise approved by the Board of Directors), negotiated private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

From April, 1 2022 to June 30, 2022, the Company completed share repurchases in the open market of 777,926 shares at a total cost of $50.0 million, at an average price of $64.27 per share.

From January 1, 2022 to March 31, 2022, the Company completed share repurchases in the open market of 386,083 shares at a total cost of $24.1 million, at an average price of $62.31 per share.

After completing these open market share repurchases, the Company has outstanding approval to purchase up to approximately $249.6 million, in the aggregate, of the Company's outstanding common stock.

During the first quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on January 20, 2022 and paid on February 16, 2022 for a total of $28.9 million. During the second quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on April 25, 2022 and paid on May 18, 2022 for a total of $29.0 million.

On July 20, 2022 the Board of Directors approved a dividend of $0.1025 per share payable on August 17, 2022 to shareholders of record on August 10, 2022.

Subsequent to June 30, 2022, the Company issued 252,802 shares at a total value of $14.8 million associated with the acquisition of GRP (Jersey) Holdco Limited and its businesses ("GRP").

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