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Income Taxes
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 9 Income Taxes

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

 

(in thousands)

   2013      2012      2011  

Current:

        

Federal

   $ 94,007       $ 75,522       $ 65,461   

State

     13,438         11,852         10,084   

Foreign

     805         669         638   
  

 

 

    

 

 

    

 

 

 

Total current provision

     108,250         88,043         76,183   
  

 

 

    

 

 

    

 

 

 

Deferred:

        

Federal

     28,469         27,348         27,212   

State

     3,723         5,375         3,131   

Foreign

     55         —           —     
  

 

 

    

 

 

    

 

 

 

Total deferred provision

     32,247         32,723         30,343   
  

 

 

    

 

 

    

 

 

 

Total tax provision

   $ 140,497       $ 120,766       $ 106,526   
  

 

 

    

 

 

    

 

 

 

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

 

     2013     2012     2011  

Federal statutory tax rate

     35.0     35.0     35.0

State income taxes, net of federal income tax benefit

     3.5        4.3        3.5   

Non-deductible employee stock purchase plan expense

     0.3        0.3        0.3   

Non-deductible meals and entertainment

     0.3        0.3        0.3   

Other, net

     0.2        (0.3     0.3   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     39.3     39.6     39.4
  

 

 

   

 

 

   

 

 

 

 

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

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

 

(in thousands)

   2013      2012  

Current deferred tax assets:

     

Deferred profit-sharing contingent commissions

   $ 9,713       $ 9,490   

Net operating loss carryforwards

     8,408         5,786   

Accruals and reserves

     11,155         9,132   
  

 

 

    

 

 

 

Total current deferred tax assets

   $ 29,276       $ 24,408   
  

 

 

    

 

 

 

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

 

(in thousands)

   2013     2012  

Non-current deferred tax liabilities:

    

Fixed assets

   $ 11,651      $ 12,427   

Intangible assets

     306,009        245,020   
  

 

 

   

 

 

 

Total non-current deferred tax liabilities

     317,660        257,447   
  

 

 

   

 

 

 

Non-current deferred tax assets:

    

Deferred compensation

     22,598        13,576   

Net operating loss carryforwards

     3,843        6,658   

Valuation allowance for deferred tax assets

     (485     (417
  

 

 

   

 

 

 

Total non-current deferred tax assets

     25,956        19,817   
  

 

 

   

 

 

 

Net non-current deferred tax liability

   $ 291,704      $ 237,630   
  

 

 

   

 

 

 

Income taxes paid in 2013, 2012 and 2011 were $110,191,000, $80,622,000, and $75,403,000, respectively.

At December 31, 2013, Brown & Brown had net operating loss carryforwards of $22,135,000 and $94,561,000 for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2014 through 2033. The federal carryforward is derived from insurance operations acquired by Brown & Brown in 2001 and 2013. The majority of the federal net operating loss carryforward resulted from the 2013 stock acquisition of Beecher Carlson Holdings, Inc. The state carryforward amount is derived from the operating results of certain subsidiaries and from the 2012 and 2013 stock acquisitions of Arrowhead General Insurance Agency Superholding Corp and Beecher Carlson Holdings, Inc.

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

 

(in thousands)

   2013     2012     2011  

Unrecognized tax benefits balance at January 1

   $ 294      $ 806      $ 656   

Gross increases for tax positions of prior years

     232        222        257   

Gross decreases for tax positions of prior years

     —          (409     —    

Settlements

     (135     (325     (107
  

 

 

   

 

 

   

 

 

 

Unrecognized tax benefits balance at December 31

   $ 391      $ 294      $ 806   
  

 

 

   

 

 

   

 

 

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2013 and 2012, the Company had approximately $121,000 and $79,000 of accrued interest and penalties related to uncertain tax positions, respectively.

The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $391,000 as of December 31, 2013 and $294,000 as of December 31, 2012. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

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

 

The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to taxation in the United Kingdom. In the United States, federal returns for fiscal years 2011 through 2013 remain open and subject to examination by the Internal Revenue Service. The Company files and remits state income taxes in various states where the Company has determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the fiscal years 2008 through 2013. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2012 and 2013.

The Company’s wholly owned subsidiary, Arrowhead General Insurance Agency Superholding Corp, is currently undergoing an Internal Revenue Service review of its federal corporate income tax filings for the tax years ended December 31, 2010, December 31, 2011 and the short period ended January 9, 2012. The Company’s 2008 through 2011 State of Colorado tax returns are currently under audit. In addition the Company has been notified by the State of Oregon regarding audits of all Oregon state tax returns for the period 2009 through 2012. Additionally, the Company has been notified by the State of Michigan regarding a review and audit of state tax returns for the period 2009 through 2011.