Edgar Filing: BROWN & BROWN INC

t63429_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2008

	or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _____________ to ________________

Commission file number 001-13619

BROWN & BROWN, INC.

(Exact name of Registrant as specified in its charter)

Florida

(State or other jurisdiction of

incorporation or organization)

220 South Ridgewood Avenue,

Daytona Beach, FL

(Address of principal executive offices)

59-0864469

(I.R.S. Employer Identification Number)

32114

(Zip Code)

Registrant's telephone number, including area code: (386) 252-9601

Registrant's Website: www.bbinsurance.com

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the Registrant's common stock, $.10 par value, outstanding as of August 5, 2008 was 140,708,698.

BROWN & BROWN, INC.

INDEX

			PAGE NO.

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited):
		Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007	3
		Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	35
	Item 1A.	Risk Factors	36
	Item 4.	Submission of Matters to a Vote of Security Holders	36
	Item 6.	Exhibits	36

SIGNATURE			37

PART I -FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS (UNAUDITED)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)	For the three months ended June 30,				For the six months ended June 30,
	2008		2007		2008		2007

REVENUES
Commissions and fees	$	238,835	$	230,476	$	492,363	$	476,035
Investment income		1,909		12,990		3,908		24,569
Other income, net		976		3,178		2,164		4,553
Total revenues		241,720		246,644		498,435		505,157

EXPENSES
Employee compensation and benefits		120,514		112,636		241,701		223,446
Non-cash stock-based compensation		1,800		1,334		3,744		2,836
Other operating expenses		34,384		31,558		65,588		63,481
Amortization		11,392		9,965		22,508		19,467
Depreciation		3,292		3,239		6,538		6,279
Interest		3,744		3,416		7,178		7,050
Total expenses		175,126		162,148		347,257		322,559

Income before income taxes		66,594		84,496		151,178		182,598

Income taxes		26,196		32,484		59,020		70,859

Net income	$	40,398	$	52,012	$	92,158	$	111,739

Net income per share:
Basic	$	0.29	$	0.37	$	0.65	$	0.80
Diluted	$	0.29	$	0.37	$	0.65	$	0.79

Weighted average number of shares outstanding:
Basic		140,723		140,384		140,713		140,303
Diluted		141,265		141,120		141,330		141,170

Dividends declared per share	$	0.07	$	0.06	$	0.14	$	0.12

See accompanying notes to condensed consolidated financial statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED

BALANCE SHEETS

(UNAUDITED)

(in thousands, except per share data)	June 30, 2008		December 31, 2007

ASSETS
Current Assets:
Cash and cash equivalents	$	-	$	38,234
Restricted cash and investments		215,630		254,404
Short-term investments		6,625		2,892
Premiums, commissions and fees receivable		264,166		240,680
Deferred income taxes		-		17,208
Other current assets		42,880		33,964
Total current assets		529,301		587,382

Fixed assets, net		64,223		62,327
Goodwill		978,796		846,433
Amortizable intangible assets, net		484,311		443,224
Other assets		16,202		21,293

Total assets	$	2,072,833	$	1,960,659

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums payable to insurance companies	$	421,173	$	394,034
Premium deposits and credits due customers		32,243		41,211
Accounts payable		24,121		18,760
Accrued expenses		73,697		90,599
Current portion of long-term debt		7,070		11,519
Total current liabilities		558,304		556,123

Long-term debt		253,649		227,707

Deferred income taxes, net		74,459		65,736

Other liabilities		12,228		13,635

Shareholders' Equity:
Common stock, par value $0.10 per share;
authorized 280,000 shares; issued and
outstanding 140,708 at 2008 and 140,673 at 2007		14,071		14,067
Additional paid-in capital		236,163		231,888
Retained earnings		923,951		851,490
Accumulated other comprehensive income, net of related income tax
effect of $5 at 2008 and $8 at 2007		8		13

Total shareholders' equity		1,174,193		1,097,458

Total liabilities and shareholders' equity	$	2,072,833	$	1,960,659

See accompanying notes to condensed consolidated financial statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CASH FLOWS

(UNAUDITED)

	For the six months ended June 30,
(in thousands)	2008			2007

Cash flows from operating activities:
Net income	$	92,158		$	111,739
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		22,508			19,467
Depreciation		6,538			6,279
Non-cash stock-based compensation		3,744			2,836
Deferred income taxes		25,934			5,318
Net (gain) on sales of investments, fixed
assets and customer accounts		(759	)		(22,452	)
Changes in operating assets and liabilities, net of effect
from acquisitions and divestitures:
Restricted cash and investments decrease		38,774			1,678
Premiums, commissions and fees receivable (increase) decrease		(21,098	)		11,191
Other assets (increase) decrease		(3,708	)		1,809
Premiums payable to insurance companies increase (decrease)		26,209			(13,259	)
Premium deposits and credits due customers (decrease)		(9,004	)		(1,905	)
Accounts payable increase		136			11,143
Accrued expenses (decrease)		(17,678	)		(19,098	)
Other liabilities (decrease) increase		(1,386	)		534
Net cash provided by operating activities		162,368			115,280

Cash flows from investing activities:
Additions to fixed assets		(8,194	)		(20,000	)
Payments for businesses acquired, net of cash acquired		(187,042	)		(111,820	)
Proceeds from sales of fixed assets and customer accounts		2,703			3,295
Purchases of investments		(3,950	)		(118	)
Proceeds from sales of investments		810			19,482
Net cash used in investing activities		(195,673	)		(109,161	)

Cash flows from financing activities:
Proceeds from long-term debt		25,000			-
Payments on long-term debt		(10,767	)		(14,873	)
Borrowings on revolving credit facility		-			12,240
Payments on revolving credit facility		-			(12,240	)
Income tax benefit from issuance of common stock		-			4,421
Issuances of common stock for employee stock benefit plans		535			610
Cash dividends paid		(19,697	)		(16,825	)
Net cash (used in) financing activities		(4,929	)		(26,667	)
Net (decrease) in cash and cash equivalents		(38,234	)		(20,548	)
Cash and cash equivalents at beginning of period		38,234			88,490
Cash and cash equivalents at end of period	$	-		$	67,942

See accompanying notes to condensed consolidated financial statements.

BROWN & BROWN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 · Nature of Operations

Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “we”, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, programs, and services organization that markets and sells to its customers insurance products and services, primarily in the property and casualty, and employee benefits arenas. Brown & Brown's business is divided into four reportable segments: the Retail Division, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; the Wholesale Brokerage Division, which markets and sells excess and surplus commercial and personal lines insurance and reinsurance, primarily through independent agents and brokers; the National Programs Division, which is comprised of two units - Professional Programs, which provides professional liability and related package products for certain professionals delivered through nationwide networks of independent agents, and Special Programs, which markets targeted products and services designed for specific industries, trade groups, public and quasi-public entities and market niches; and the Services Division, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare set-aside services.

NOTE 2 · Basis of Financial Reporting

The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered 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, 2007.

Results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

NOTE 3 · Cash and Cash Equivalents, and Restricted Cash and Investments

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 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 disbursed by Brown & Brown. 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, and reports such amounts as restricted cash on the Consolidated Balance Sheets. In certain states where Brown & Brown operates, the use and investment alternatives for these funds are prescribed by law. As of June 30, 2008 and December 31, 2007, the amount of funds in state-mandated “premium trust accounts” was $114.7 million and $132.3 million, respectively. All cash and investments that will ultimately be used to pay premiums to insurance companies are recorded as restricted cash and investments.

NOTE 4 · Net Income Per Share

Basic net income per share is computed by dividing net income available to shareholders by the weighted average number of shares outstanding for the period. Basic net income per share excludes dilution. Diluted net income per share reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted to common stock.

The following table sets forth the computation of basic net income per share and diluted net income per share:

	For the three months ended June 30,				For the six months ended June 30,
(in thousands, except per share data)	2008		2007		2008		2007


Net income	$	40,398	$	52,012	$	92,158	$	111,739

Weighted average number of common shares
Outstanding		140,723		140,384		140,713		140,303

Dilutive effect of stock options using the
treasury stock method		542		736		617		867

Weighted average number of shares
Outstanding		141,265		141,120		141,330		141,170

Net income per share:
Basic	$	0.29	$	0.37	$	0.65	$	0.80
Diluted	$	0.29	$	0.37	$	0.65	$	0.79

NOTE 5 · New Accounting Pronouncements

Fair Value Measurements — In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 establishes a framework for the measurement of assets and liabilities that uses fair value and expands disclosures about fair value measurements. SFAS 157 will apply whenever another GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. The adoption of SFAS 157 did not have any impact on the amounts reported on the Company’s condensed consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company elected not to report any financial assets or liabilities at fair value under SFAS 159 in its first-or second-quarter 2008 condensed consolidated financial statements.

Business Combinations — In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141R”). SFAS 141R requires that upon initially obtaining control, an acquirer will recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities, with only limited exceptions, even if the acquirer has not acquired 100% of its target. Additionally, contingent consideration arrangements will be fair-valued at the acquisition date and included on that basis in the purchase price consideration. Transaction costs will be expensed as incurred. SFAS 141R also modifies the recognition for preacquisition contingencies, such as environmental or legal issues, restructuring plans and acquired research and development value in purchase accounting. SFAS 141R amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination, either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. SFAS 141R is effective for fiscal years beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted. The Company expects to adopt SFAS 141R on January 1, 2009 and is currently assessing the impact that the adoption could have on the Company’s financial statements.

Noncontrolling Interests in Consolidated Financial Statements — In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”), an amendment of Accounting Research Bulletin (“ARB”) No. 51 (“ARB 51”). SFAS 160 clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for, and reporting of, transactions between the reporting entity and holders of such noncontrolling interests. Under SFAS 160, noncontrolling interests are considered equity and should be reported as an element of consolidated equity. Net income will encompass the total income of all consolidated subsidiaries and there will be separate disclosure on the face of the income statement of the attribution of that income between the controlling and noncontrolling interests; increases and decreases in the noncontrolling ownership interest amount will be accounted for as equity transactions. SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008, and earlier application is prohibited. SFAS 160 is required to be adopted prospectively, except for reclassifying noncontrolling interests to equity, separate from the parent’s shareholders’ equity, in the consolidated statement of financial position and the recasting of consolidated net income (loss) to include net income (loss) attributable to both controlling and noncontrolling interests, both of which are required to be adopted retrospectively. Because all of the Company’s subsidiaries are 100% owned, we do not expect the adoption of SFAS 160 to have a significant impact on our financial statements.

NOTE 6 · Business Combinations

Acquisitions in 2008

For the six months ended June 30, 2008, Brown & Brown acquired the assets and assumed certain liabilities of 20 insurance intermediaries, the stock of one insurance intermediary and several books of business (customer accounts). The aggregate purchase price of these acquisitions was $194,400,000, including $182,698,000 of net cash payments, the issuance of $4,713,000 in notes payable and the assumption of $6,989,000 of liabilities. All of these acquisitions were acquired primarily to expand Brown & Brown's core businesses and to attract and hire high-quality individuals. Acquisition purchase prices are typically based on a multiple of average annual operating profits earned over a one- to three-year period within a minimum and maximum price range. The initial asset allocation of an acquisition is based on the minimum purchase price, and any subsequent earn-out payment is allocated to goodwill. Acquisitions are initially recorded at preliminary fair values. Subsequently, the Company completes the final fair value allocations and any adjustments to assets or liabilities acquired are recorded in the current period.

All of these acquisitions have been accounted for as business combinations and are as follows:

(in thousands) Name	Business Segment	2008 Date of Acquisition	Net Cash Paid		Notes Payable		Recorded Purchase Price
LDP Consulting Group, Inc.	Retail	January 24		39,226		-		39,226
Powers & Effler Insurance Brokers	Retail	April 1		25,029		-		25,029
HBA Insurance Group, Inc.	Retail	June 1		48,297		2,000		50,297
Other	Various	Various		70,146		2,713		72,859
Total			$	182,698	$	4,713	$	187,411

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

(in thousands)	LDP			Powers			HBA			Other			Total
Fiduciary cash	$	173		$	-		$	-		$	-		$	173
Other current assets		1,121			75			-			1,201			2,397
Fixed assets		19			353			652			451			1,475
Goodwill		29,108			17,220			35,149			44,034			125,511
Purchased customer accounts		13,958			7,545			14,390			28,421			64,314
Noncompete agreements		55			11			141			301			508
Other Assets		11			-			-			11			22
Total assets acquired		44,445			25,204			50,332			74,419			194,400
Other current liabilities		(5,219	)		(175	)		(35	)		(1,560	)		(6,989	)
Total liabilities assumed		(5,219	)		(175	)		(35	)		(1,560	)		(6,989	)
Net assets acquired	$	39,226		$	25,029		$	50,297		$	72,859		$	187,411

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

Goodwill of $125,511,000, all of which is expected to be deductible for income tax purposes, was assigned to the Retail, Wholesale Brokerage, National Programs and Services Divisions in the amounts of $121,568,000, $3,623,000, $320,000 and nil, respectively.

The results of operations for the acquisitions completed during 2008 have been combined with those of the Company since their respective acquisition dates. If the acquisitions had occurred as of the beginning of each 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.

	For the three months				For the six months
(UNAUDITED)	ended June 30,				ended June 30,
(in thousands, except per share data)	2008		2007		2008		2007

Total revenues	$	247,078	$	265,896	$	518,419	$	544,217

Income before income taxes		68,337		90,937		157,777		195,672

Net income		41,456		55,977		96,181		119,739

Net income per share:
Basic	$	0.29	$	0.40	$	0.68	$	0.85
Diluted	$	0.29	$	0.40	$	0.68	$	0.85

Weighted average number of shares outstanding:
Basic		140,723		140,384		140,713		140,303
Diluted		141,265		141,120		141,330		141,170

Additional consideration paid to sellers as a result of purchase price “earn-out” provisions are recorded as adjustments to intangible assets when the contingencies are settled. The net additional consideration paid by the Company in 2008 as a result of these adjustments totaled $7,157,000, of which $7,106,000 was allocated to goodwill, $30,000 to noncompete agreements and $21,000 of net liabilities were forgiven. Of the $7,157,000 net additional consideration paid, $4,517,000 was paid in cash and $2,640,000 was issued in notes payable. As of June 30, 2008, the maximum future contingency payments related to acquisitions totaled $222,684,000.

Acquisitions in 2007

For the six months ended June 30, 2007, Brown & Brown acquired the assets and assumed certain liabilities of nine insurance intermediaries, the stock of three insurance intermediaries and several books of business (customer accounts). The aggregate purchase price of these acquisitions was $122,056,000, including $110,630,000 of net cash payments, the issuance of $4,078,000 in notes payable and the assumption of $7,348,000 of liabilities. All of these acquisitions were acquired primarily to expand Brown & Brown's core businesses and to attract and hire high-quality individuals. Acquisition purchase prices are typically based on a multiple of average annual operating profits earned over a one- to three-year period within a minimum and maximum price range. The initial asset allocation of an acquisition is based on the minimum purchase price, and any subsequent earn-out payment is allocated to goodwill. Acquisitions are initially recorded at preliminary fair values. Subsequently, the Company completes the final fair value allocations and any adjustments to assets or liabilities acquired are recorded in the current period.

All of these acquisitions have been accounted for as business combinations and are as follows:

(in thousands) Name	Business Segment	2007 Date of Acquisition	Net Cash Paid		Notes Payable		Recorded Purchase Price
ALCOS, Inc.	Retail	March 1	$	30,897	$	3,563	$	34,460
Grinspec, Inc.	Retail	April 1		31,930		-		31,930
Sobel Affiliates, Inc.	Retail	April 1		33,038		-		33,038
Other	Various	Various		14,765		515		15,280
Total			$	110,630	$	4,078	$	114,708

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

(in thousands)	Alcos			Grinspec			Sobel			Other			Total
Fiduciary cash	$	627		$	-		$	-		$	716		$	1,343
Other current assets		1,224			669			286			574			2,753
Fixed assets		720			-			50			110			880
Purchased customer accounts		7,820			9,153			10,850			5,304			33,127
Noncompete agreements		130			-			31			133			294
Goodwill		29,080			22,571			21,923			9,960			83,534
Other Assets		115			-			-			10			125
Total assets acquired		39,716			32,393			33,140			16,807			122,056
Other current liabilities		(2,098	)		(463	)		(102	)		(778	)		(3,441	)
Deferred income taxes		(3,083	)		-			-			(749	)		(3,832	)
Non-current other liabilities		(75	)		-			-			-			(75	)
Total liabilities assumed		(5,256	)		(463	)		(102	)		(1,527	)		(7,348	)
Net assets acquired	$	34,460		$	31,930		$	33,038		$	15,280		$	114,708

The weighted average useful lives for the above acquired amortizable intangible assets are as follows: purchased customer accounts, 15.0 years; and noncompete agreements, 4.7 years.

Goodwill of $83,534,000, of which $51,491,000 is expected to be deductible for income tax purposes, was assigned to the Retail, National Programs, Wholesale Brokerage and Services Divisions in the amounts of $82,472,000, $374,000, $241,000 and $447,000, respectively.

The results of operations for the acquisitions completed during 2007 have been combined with those of the Company since their respective acquisition dates. If the acquisitions had occurred as of the beginning of each period, the Company's results of operations would be as shown in the following table These unaudited proforma 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.

	For the three months				For the six months
(UNAUDITED)	ended June 30,				ended June 30,
(in thousands, except per share data)	2007		2006		2007		2006

Total revenues	$	246,729	$	233,067	$	515,183	$	477,169

Income before income taxes		84,523		74,630		185,809		160,117

Net income		52,029		46,724		113,704		99,238

Net income per share:
Basic	$	0.37	$	0.33	$	0.81	$	0.71
Diluted	$	0.37	$	0.33	$	0.81	$	0.70

Weighted average number of shares outstanding:
Basic		140,384		139,511		140,303		139,447
Diluted		141,120		141,006		141,170		140,915

Additional consideration paid to sellers as a result of purchase price “earn-out” provisions are recorded as adjustments to intangible assets when the contingencies are settled. The net additional consideration paid by the Company in 2007 as a result of these adjustments totaled $11,590,000, of which $11,542,000 was allocated to goodwill and $48,000 to noncompete agreements. Of the $11,590,000 net additional consideration paid, $2,533,000 was paid in cash, $9,020,000 was issued in notes payable and $37,000 was assumed as net liabilities. As of June 30, 2007, the maximum future contingency payments related to acquisitions totaled $200,571,000.

NOTE 7 · Goodwill

Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Brown & Brown completed its most recent annual assessment as of November 30, 2007 and identified no impairment as a result of the evaluation.

The changes in goodwill for the six months ended June 30, 2008 are as follows:

				Wholesale			National
(in thousands)	Retail			Brokerage			Programs		Services		Total
Balance as of January 1, 2008	$	453,485		$	242,730		$	146,948	$	3,270	$	846,433
Goodwill of acquired businesses		122,674			3,623			320		6,000		132,617
Goodwill disposed of relating to sales of businesses		(201	)		(53	)		-		-		(254	)
Balance as of June 30, 2008	$	575,958		$	246,300		$	147,268	$	9,270	$	978,796

NOTE 8 · Amortizable Intangible Assets

Amortizable intangible assets at June 30, 2008 and December 31, 2007 consisted of the following:

	June 30, 2008								December 31, 2007
								Weighted								Weighted
	Gross					Net		Average	Gross					Net		Average
	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life
(in thousands)	Value		Amortization			Value		(years)	Value		Amortization			Value		(years)
Purchased customer accounts	$	690,965	$	(209,145	)	$	481,820	14.9	$	628,123	$	(187,543	)	$	440,580	14.9
Noncompete agreements		26,385		(23,894	)		2,491	7.6		25,858		(23,214	)		2,644	7.7
Total	$	717,350	$	(233,039	)	$	484,311		$	653,981	$	(210,757	)	$	443,224

Amortization expense for other amortizable intangible assets for the years ending December 31, 2008, 2009, 2010, 2011 and 2012 is estimated to be $45,865,000, $46,364,000, $45,674,000, $44,248,000, and $43,632,000, respectively.

NOTE 9 · Investments

Investments consisted of the following:

	June 30, 2008				December 31, 2007
	Carrying Value				Carrying Value
(in thousands)	Current		Non- Current		Current		Non- Current
Available-for-sale marketable equity securities	$	38	$	-	$	46	$	-
Non-marketable equity securities and certificates of deposit		6,587		287		2,846		355
Total investments	$	6,625	$	287	$	2,892	$	355

The following table summarizes available-for-sale securities:

(in thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Marketable equity securities:
June 30, 2008	$	25	$	13	$	-	$	38
December 31, 2007	$	25	$	21	$	-	$	46

The following table summarizes the proceeds and realized gains/(losses) on non-marketable equity securities and certificates of deposit for the three and six months ended June 30, 2008 and 2007:

(in thousands)	Proceeds		Gross Realized Gains		Gross Realized Losses
For the three months ended:
June 30, 2008	$	657	$	464	$	(9	)
June 30, 2007	$	10,392	$	9,919	$	-

For the six months ended:
June 30, 2008	$	707	$	542	$	(9	)
June 30, 2007	$	19,482	$	18,759	$	(500	)

As of December 31, 2006, our largest security investment was 559,970 common stock shares of Rock-Tenn Company, a New York Stock Exchange-listed company, which we had owned for more than 25 years. Our investment in Rock-Tenn Company accounted for 81% of the total value of our available-for-sale marketable equity securities, non-marketable equity securities and certificates of deposit as of December 31, 2006. Rock-Tenn Company's closing stock price at December 31, 2006 was $27.11. In late January 2007, the Board of Directors authorized the sale of half of our investment in Rock-Tenn Company, and subsequently authorized the sale of the balance of the shares. We realized a gain in excess of our original cost basis of $8,840,000 in the first quarter of 2007 and $9,824,000 in the second quarter of 2007 as the results of these sales. As of June 30, 2007, we no longer owned any shares of Rock-Tenn Company.

NOTE 10 · Long-Term Debt

Long-term debt at June 30, 2008 and December 31, 2007 consisted of the following:

(in thousands)	2008			2007
Unsecured senior notes	$	250,000		$	225,000
Acquisition notes payable		10,564			14,025
Revolving credit facility		-			-
Term loan agreements		-			-
Other notes payable		155			201
Total debt		260,719			239,226
Less current portion		(7,070	)		(11,519	)
Long-term debt	$	253,649		$	227,707

In July 2004, the Company completed a private placement of $200.0 million of unsecured senior notes (the “Notes”). The $200.0 million is divided into two series: Series A, for $100.0 million due in 2011 and bearing interest at 5.57% per year; and Series B, for $100.0 million due in 2014 and bearing interest at 6.08% per year. The closing on the Series B Notes occurred on July 15, 2004. The closing on the Series A Notes occurred on September 15, 2004. Brown & Brown has used the proceeds from the Notes for general corporate purposes, including acquisitions and repayment of existing debt. As of June 30, 2008 and December 31, 2007 there was an outstanding balance of $200.0 million on the Notes.

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 Purchaser also purchased Notes issued by the Company in 2004. The Master Agreement provides for a $200.0 million private uncommitted “shelf” facility for the issuance of senior unsecured notes over a three-year period, with interest rates that may be fixed or floating and with such maturity dates, not to exceed ten years, as the parties may determine. The Master Agreement includes various covenants, limitations and events of default similar to the Notes issued in 2004. The initial issuance of notes under the Master Facility 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 annum. 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 annum were issued. As of June 30, 2008 there was an outstanding balance of $50.0 million under the Master Agreement.

On June 12, 2008, the Company entered into an Amended and Restated Revolving Loan Agreement (the “Loan Agreement”) with a national banking institution that was dated as of June 3, 2008, amending and restating the existing Revolving Loan Agreement dated September 29, 2003, as amended (the “Revolving Agreement”), in order to increase the lending commitment to $50.0 million (subject to potential increases up to $100.0 million) and extend the maturity date from December 20, 2011 to June 3, 2013. The Revolving Agreement initially provided for a revolving credit facility in the maximum principal amount of $75.0 million which, after a series of amendments, was reduced to $20.0 million and provided covenant exceptions for the notes issued or to be issued under the Master Agreement, and relaxed or deleted certain other covenants. The calculation of interest and fees is generally based on the Company's quarterly ratio of funded debt to earnings before interest, taxes, depreciation, amortization, and non-cash stock-based compensation. Interest is charged at a rate equal to 0.50% to 1.00% above the London Interbank Offering Rate (“LIBOR”) or 1.00% below the base rate, each as more fully defined in the Loan Agreement. Fees include an upfront fee, an availability fee of 0.10% to 0.20%, and a letter of credit usage fee of 0.50% to 1.00%. The Loan Agreement contains various covenants, limitations, and events of default customary for similar facilities for similar borrowers. The 90-day LIBOR was 2.78% and 4.70% as of June 30, 2008 and December 31, 2007, respectively. There were no borrowings against this facility at June 30, 2008 or December 31, 2007.

In January 2001, Brown & Brown entered into a $90.0 million unsecured seven-year term loan agreement with a national banking institution, bearing an interest rate based upon the 30-, 60- or 90-day LIBOR plus 0.50% to 1.00%, depending upon Brown & Brown's quarterly ratio of funded debt to earnings before interest, taxes, depreciation, amortization and non-cash stock-based compensation. The loan was fully funded on January 3, 2001 and was to be repaid in equal quarterly installments of $3,200,000 through December 2007. As of December 31, 2007 the outstanding balance had been paid in full.

All four of these credit agreements require Brown & Brown to maintain certain financial ratios and comply with certain other covenants. Brown & Brown was in compliance with all such covenants as of June 30, 2008 and December 31, 2007.

To hedge the risk of increasing interest rates from January 2, 2002 through the remaining six years of its seven-year $90.0 million term loan, Brown & Brown entered into an interest rate exchange (or “swap”) agreement that effectively converted the floating rate LIBOR-based interest payments to fixed interest rate payments at 4.53%. This agreement did not affect the required 0.50% to 1.00% credit risk spread portion of the term loan. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, the fair value of the interest rate swap of approximately $37,000, net of related income taxes of approximately $22,000, was recorded in other assets as of December 31, 2006 with the related change in fair value reflected as other comprehensive income. Brown & Brown has designated and assessed the derivative as a highly effective cash flow hedge. As of December 31, 2007, the interest rate swap agreement expired in conjunction with the final principal payment on the term loan.

Acquisition notes payable represent debt owed to former owners of certain insurance operations acquired by Brown & Brown. These notes and future contingent payments are payable in monthly, quarterly and annual installments through April 2011, including interest ranging from 0.00% to 8.00%.

NOTE 11 · Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities

(in thousands)	For the six months ended June 30,
	2008		2007
Cash paid during the period for:
Interest	$	6,915	$	7,100
Income taxes	$	44,431	$	53,400

Brown & Brown's significant non-cash investing and financing activities are summarized as follows:

	For the six months ended June 30,
(in thousands)	2008			2007

Unrealized holding loss on available-for-sale securities, net of tax effect of $1 for 2008; net of tax benefit of $5,300 for 2007	$	(5	)	$	(9,044	)
Net loss on cash-flow hedging derivative, net of tax benefit of $0 for 2008, net of tax benefit of $15 for 2007	$	-		$	(26	)
Notes payable issued or assumed for purchased customer accounts	$	7,353		$	13,098
Notes received on the sale of fixed assets and customer accounts	$	162		$	1,389

NOTE 12 · Comprehensive Income

The components of comprehensive income, net of related income tax effects, are as follows:

	For the three months						For the six months
	ended June 30,						ended June 30,
(in thousands)	2008			2007			2008			2007

Net income	$	40,398		$	52,012		$	92,158		$	111,739
Net unrealized holding loss on available-for-sale securities		(6	)		(5,845	)		(5	)		(9,044	)
Net loss on cash-flow hedging derivative		-			(10	)		-			(26	)
Comprehensive income	$	40,392		$	46,157		$	92,153		$	102,669

NOTE 13 · Legal and Regulatory Proceedings

Governmental Investigations

As previously disclosed in our public filings, offices of the Company are party to profit-sharing contingent compensation agreements with certain insurance companies, including agreements providing for potential payment of revenue-sharing commissions by insurance companies based primarily on the overall profitability of the aggregate business written with that insurance company, and/or additional factors such as retention ratios and overall volume of business that an office or offices place with the insurance company. Additionally, to a lesser extent, some offices of the Company are party to override commission agreements with certain insurance companies. These agreements provide for commission rates in excess of standard commission rates to be applied to specific lines of business, such as group health business, based primarily on the overall volume of such business that such office or offices place with the insurance company. The Company has not chosen to discontinue receiving profit-sharing contingent compensation or override commissions.

As previously reported, governmental agencies in a number of states have looked or are looking into issues related to compensation practices in the insurance industry, and the Company continues to respond to written and oral requests for information and/or subpoenas seeking information related to this topic. To date, requests for information and/or subpoenas have been received from governmental agencies such as attorneys general and departments of insurance. Agencies in Arizona, Virginia and Washington have concluded their respective investigations of subsidiaries of Brown & Brown, Inc. based in those states with no further action as to these entities.

The Company cannot currently predict the impact or resolution of the various governmental inquiries and thus cannot reasonably estimate a range of possible loss, which could be material, or whether the resolution of these matters may harm the Company's business and/or lead to a decrease in or elimination of profit-sharing contingent compensation and override commissions, which could have a material adverse impact on the Company's consolidated financial condition.

Other

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 substantial, including in many 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.

Among the above-referenced claims, and as previously described in the Company's public filings, over the past several years, there have been a number of threatened and pending legal claims and lawsuits against Brown & Brown, Inc. and Brown & Brown Insurance Services of Texas, Inc. (BBTX), a subsidiary of Brown & Brown, Inc., arising out of BBTX's involvement with the procurement and placement of workers' compensation insurance coverage for entities including several professional employer organizations. One such action, styled Great American Insurance Company, et al. v. The Contractor’s Advantage, Inc., et al., Cause No. 2002-33960, which was previously described in the Company’s filings, was recently tried in the 189th Judicial District Court in Harris County, Texas. The jury returned its verdict on June 3, 2008, at which time it awarded actual damages against Company defendants in excess of $2,000,000 and found the plaintiff to be 50% proportionately responsible for its own damages, BBTX and its former employees to be, collectively, 10% proportionately responsible and other defendants to be 40% proportionately responsible. The jury further found BBTX liable for certain trademark violations and Texas Insurance Code violations, and also awarded $250,000 in punitive damages against BBTX. Brown & Brown, Inc. had previously been dismissed from the lawsuit by directed verdict and therefore no damages were assessed against Brown & Brown, Inc. At the time of this filing, a final judgment had not been entered but is expected to be entered on or about September 4, 2008. The ultimate amount of the judgment against BBTX will be affected by several factors including certain settlement credits and the resolution of various other legal and factual issues to be decided by the court.

Although the ultimate outcome of the matters referenced in this section titled “Other” cannot be ascertained and liabilities in indeterminate amounts may be imposed on Brown & Brown, Inc. or its subsidiaries, on the basis of present information, availability of insurance and legal advice received, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse effect on the Company's consolidated financial position. 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.

For a more complete discussion of the foregoing matters, please see Item 3 of Part I of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for our fiscal year ended December 31, 2007 and Note 13 to the Consolidated Financial Statements contained in Item 8 of Part II thereof.

NOTE 14 · Segment Information

Brown & Brown's business is divided into four reportable segments: the Retail Division, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; the Wholesale Brokerage Division, which markets and sells excess and surplus commercial and personal lines insurance, and reinsurance, primarily through independent agents and brokers; the National Programs Division, which is comprised of two units - Professional Programs, which provides professional liability and related package products for certain professionals delivered through nationwide networks of independent agents, and Special Programs, which markets targeted products and services designed for specific industries, trade groups, public and quasi-public entities, and market niches; and the Services Division, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare set-aside services. Brown & Brown conducts all of its operations within the United States of America except for one start-up wholesale brokerage operation based in London, England that commenced business in March 2008 and which has earned less than $1 million of revenues as of the date of this filing.

Summarized financial information concerning Brown & Brown's reportable segments for the three and six months ended June 30, 2008 and 2007 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.

	For the six months ended June 30, 2008
			Wholesale		National
(in thousands)	Retail		Brokerage		Programs		Services			Other			Total
Total revenues	$	304,456	$	92,682	$	82,901	$	15,911		$	2,485		$	498,435
Investment income		749		824		186		(1	)		2,150			3,908
Amortization		12,675		5,033		4,550		231			19			22,508
Depreciation		2,959		1,444		1,322		220			593			6,538
Interest		13,579		9,313		4,056		366			(20,136	)		7,178
Income before income taxes		82,652		14,270		26,887		3,573			23,796			151,178
Total assets		1,582,866		683,470		564,174		43,022			(800,699	)		2,072,833
Capital expenditures		2,157		3,262		1,368		126			1,281			8,194