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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨
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
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12894377&doc=11
 
59-0864469
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification Number)
220 South Ridgewood Avenue,
Daytona Beach, FL
 
 
32114
(Address of principal executive offices)
 
 
(Zip Code)
Registrant’s telephone number, including area code: (386) 252-9601

  
 
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ 
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.10 Par Value
BRO
New York Stock Exchange
The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of May 7, 2019 was 282,042,437.
 



Table of Contents

BROWN & BROWN, INC.
INDEX
 
 
 
 
 
 
PAGE
NO.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 

2

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Disclosure Regarding Forward-Looking Statements
Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or similar words. We have based these statements on our current expectations about potential future events. Although we believe the expectations expressed in the forward-looking statements included in this Quarterly Report on Form 10-Q and the reports, statements, information and announcements incorporated by reference into this report are based upon reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. Many of these factors have previously been identified in filings or statements made by us or on our behalf. Important factors which could cause our actual results to differ materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:
 
Future prospects;
Premium rates set by insurance companies and insurable exposure units, which have traditionally varied and are difficult to predict;
Material adverse changes in economic conditions in the markets we serve and in the general economy;
Future regulatory actions and conditions in the states in which we conduct our business;
The occurrence of adverse economic conditions, an adverse regulatory climate, or a disaster in Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia, Washington and Wisconsin, because a significant portion of business written by us is for customers located in these states;
Our ability to attract, retain and enhance qualified personnel and to maintain our corporate culture;
Competition from others in or entering into the insurance agency, wholesale brokerage, insurance programs and related service business;
Disintermediation within the insurance industry, including increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets;
The integration of our operations with those of businesses or assets we have acquired, including our November 2018 acquisition of The Hays Group, Inc. and certain of its affiliates (collectively, “Hays Companies”), or may acquire in the future and the failure to realize the expected benefits of such integration;
Risks that could negatively affect our acquisition strategy, including continuing consolidation among insurance intermediaries and the increasing presence of private equity investors driving up valuations;
Our ability to forecast liquidity needs through at least the end of 2019;
Our ability to renew or replace expiring leases;
Outcomes of existing or future legal proceedings and governmental investigations;
Policy cancellations and renewal terms, which can be unpredictable;
Potential changes to the tax rate that would affect the value of deferred tax assets and liabilities and the impact on income available for investment or distribution to shareholders;
The inherent uncertainty in making estimates, judgments, and assumptions in the preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”);
Our ability to effectively utilize technology to provide improved value for our customers or carrier partners as well as applying effective internal controls and efficiencies in operations; and
Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.

3

Table of Contents

Assumptions as to any of the foregoing and all statements are not based upon historical fact, but rather reflect our current expectations concerning future results and events. Forward-looking statements that we make or that are made by others on our behalf are based upon a knowledge of our business and the environment in which we operate, but because of the factors listed above, among others, actual results may differ from those in the forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. We cannot assure you that the results or developments anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

4

Table of Contents

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 March 31,
 
2019
 
2018
REVENUES
 
 
 
Commissions and fees
$
617,463

 
$
500,338

Investment income
1,081

 
601

Other income, net
736

 
522

Total revenues
619,280

 
501,461

EXPENSES
 
 
 
Employee compensation and benefits
332,837

 
270,899

Other operating expenses
88,783

 
76,313

(Gain)/loss on disposal
505

 
(2,420
)
Amortization
26,192

 
20,539

Depreciation
6,035

 
5,552

Interest
15,198

 
9,671

Change in estimated acquisition earn-out payables
1,210

 
2,466

Total expenses
470,760

 
383,020

Income before income taxes
148,520

 
118,441

Income taxes
34,624

 
27,613

Net income
$
113,896

 
$
90,828

Net income per share:
 
 
 
Basic
$
0.41

 
$
0.33

Diluted
$
0.40

 
$
0.32

Dividends declared per share
$
0.080

 
$
0.075

See accompanying Notes to Condensed Consolidated Financial Statements.

5

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BROWN & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
(in thousands, except per share data)
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
322,477

 
$
438,961

Restricted cash and investments
302,410

 
338,635

Short-term investments
10,518

 
12,868

Premiums, commissions and fees receivable
847,132

 
844,815

Reinsurance recoverable
51,356

 
65,396

Prepaid reinsurance premiums
314,363

 
337,920

Other current assets
146,492

 
128,716

Total current assets
1,994,748

 
2,167,311

Fixed assets, net
117,364

 
100,395

Operating lease assets
174,580

 

Goodwill
3,513,218

 
3,432,786

Amortizable intangible assets, net
907,638

 
898,807

Investments
17,528

 
17,394

Other assets
81,213

 
71,975

Total assets
$
6,806,289

 
$
6,688,668

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Premiums payable to insurance companies
$
801,475

 
$
857,559

Losses and loss adjustment reserve
51,356

 
65,212

Unearned premiums
314,363

 
337,920

Premium deposits and credits due customers
94,426

 
105,640

Accounts payable
136,467

 
87,345

Accrued expenses and other liabilities
193,986

 
279,310

Current portion of long-term debt
55,000

 
50,000

Total current liabilities
1,647,073

 
1,782,986

Long-term debt less unamortized discount and debt issuance costs
1,439,998

 
1,456,990

Operating lease liabilities
159,823

 

Deferred income taxes, net
300,857

 
315,732

Other liabilities
160,107

 
132,392

Shareholders’ Equity:
 
 
 
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 295,845 shares and outstanding 282,048 shares at 2019, issued 293,380 shares and outstanding 279,583 shares at 2018 - in thousands.
29,584

 
29,338

Additional paid-in capital
621,249

 
615,180

Treasury stock, at cost at 13,797 shares at 2019 and 2018, respectively - in thousands
(477,572
)
 
(477,572
)
Retained earnings
2,925,170

 
2,833,622

Total shareholders’ equity
3,098,431

 
3,000,568

Total liabilities and shareholders’ equity
$
6,806,289

 
$
6,688,668

See accompanying Notes to Condensed Consolidated Financial Statements.


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BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
Common Stock
 
 
 
 
 
 
 
 
(in thousands, except per share data)
Shares
 
Par Value
 
Additional Paid-In Capital
 
Treasury Stock
 
Retained Earnings
 
Total
Balance at December 31, 2018
293,380
 
$
29,338

 
$
615,180

 
$
(477,572
)
 
$
2,833,622

 
$
3,000,568

Net income
 
 
 

 
 

 
 
 
113,896

 
113,896

Net unrealized holding (loss) gain on available-for-sale securities
 
 
 
 
106

 
 
 
 
 
106

Common stock issued for employee stock benefit plans
2,465
 
246

 
5,963

 
 

 
 

 
6,209

Cash dividends paid ($0.080 per share)
 
 
 

 
 

 
 
 
(22,348
)
 
(22,348
)
Balance at March 31, 2019
295,845
 
29,584

 
621,249

 
(477,572
)
 
2,925,170

 
3,098,431

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
286,895
 
28,689

 
483,733

 
(386,322
)
 
2,456,599

 
2,582,699

Adoption of Topic 606 at January 1, 2018
 
 
 
 
 
 
 
 
117,515

 
117,515

Beginning balance after adoption of Topic 606
286,895
 
28,689

 
483,733

 
(386,322
)
 
2,574,114

 
2,700,214

Net income
 
 
 

 
 

 
 
 
90,828

 
90,828

Net unrealized holding (loss) gain on available-for-sale securities
 
 
 
 
(77
)
 
 
 
(55
)
 
(132
)
Common stock issued for employee stock benefit plans
53
 
6

 
(327
)
 
 

 
 

 
(321
)
Purchase of treasury stock
 
 
 

 
11,250

 
(11,250
)
 
 
 

Common stock issued to directors
13
 
1

 
699

 
 

 
 

 
700

Cash dividends paid ($0.075 per share)
 
 
 

 
 

 
 
 
(20,696
)
 
(20,696
)
Balance at March 31, 2018
286,961
 
$
28,696

 
$
495,278

 
$
(397,572
)
 
$
2,644,191

 
$
2,770,593

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 
 
Three months ended 
 March 31,
(in thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
113,896

 
$
90,828

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization
26,192

 
20,539

Depreciation
6,035

 
5,552

Non-cash stock-based compensation
12,994

 
7,295

Change in estimated acquisition earn-out payables
1,210

 
2,466

Deferred income taxes
(14,875
)
 
(12,093
)
Amortization of debt discount and disposal of deferred financing costs
456

 
407

Accretion of discounts and premiums, investment
(7
)
 
3

Net gain/(loss) on sales of investments, fixed assets and customer accounts
799

 
(2,388
)
Payments on acquisition earn-outs in excess of original estimated payables

 
(715
)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
 
 
 
Premiums, commissions and fees receivable (increase) decrease
(6,484
)
 
7,667

Reinsurance recoverables (increase) decrease
14,040

 
329,771

Prepaid reinsurance premiums (increase) decrease
23,557

 
28,845

Other assets (increase) decrease
(29,521
)
 
806

Premiums payable to insurance companies increase (decrease)
(61,229
)
 
(2,691
)
Premium deposits and credits due customers increase (decrease)
(11,362
)
 
5,910

Losses and loss adjustment reserve increase (decrease)
(13,856
)
 
(329,874
)
Unearned premiums increase (decrease)
(23,557
)
 
(28,845
)
Accounts payable increase (decrease)
56,436

 
52,896

Accrued expenses and other liabilities increase (decrease)
(97,689
)
 
(94,514
)
Other liabilities increase (decrease)
8,321

 
(2,384
)
Net cash provided by operating activities
5,356

 
79,481

Cash flows from investing activities:
 
 
 
Additions to fixed assets
(23,186
)
 
(9,751
)
Payments for businesses acquired, net of cash acquired
(95,081
)
 
(33,576
)
Proceeds from sales of fixed assets and customer accounts
32

 
142

Purchases of investments
(31
)
 
(6,142
)
Proceeds from sales of investments
2,392

 
6,531

Net cash used in investing activities
(115,874
)
 
(42,796
)
Cash flows from financing activities:
 
 
 
Payments on acquisition earn-outs
(579
)
 
(1,761
)
Proceeds from long-term debt
350,000

 

Payments on long-term debt
(8,750
)
 
(5,000
)
Deferred debt issuance costs
(3,698
)
 

Payments on revolving credit facilities
(350,000
)
 

Issuances of common stock for employee stock benefit plans
16

 
720

Repurchase shares to fund tax withholdings for non-cash stock-based compensation
(6,832
)
 
(7,659
)
Purchase of treasury stock

 
(11,250
)
Settlement (prepayment) of accelerated share repurchase program

 
11,250

Cash dividends paid
(22,348
)
 
(20,696
)
Net cash provided by (used in) financing activities
(42,191
)
 
(34,396
)
Net increase (decrease) in cash and cash equivalents inclusive of restricted cash
(152,709
)
 
2,289

Cash and cash equivalents inclusive of restricted cash at beginning of period
777,596

 
824,088

Cash and cash equivalents inclusive of restricted cash at end of period
$
624,887

 
$
826,377

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

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NOTES TO CONDENSED 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, and to professional and individual customers. 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.
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, 2018.
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.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which provides guidance for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of this pronouncement.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment test. The updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be applied prospectively. The Company is currently evaluating the impact of this guidance on future interim or annual goodwill impairment tests performed.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“Topic 842”), which provides guidance for accounting for leases. Under Topic 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. Effective as of January 1, 2019, the Company adopted Topic 842, and all related amendments, which established Accounting Standards Codification (“ASC”) Topic 842. The Company adopted these standards by the recognition of right-of-use assets and related lease liabilities on the balance sheet. As permitted by Topic 842, the Company elected the transition practical expedient to adopt as of January 1, 2019, the date of initial application under the modified retrospective approach for leases existing at that date, with an adjustment to retained earnings. As a result, the Consolidated Balance Sheet at December 31, 2018 was not restated and continues to be reported under ASC Topic 840 (“Topic 840”) which did not require the recognition of operating lease liabilities on the balance sheet, and thus is not comparative. For the three months ended March 31, 2019, all of the Company's leases are classified as operating leases, which are primarily real estate leases for office space. The expense recognition for operating leases under Topic

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842 is substantially consistent with Topic 840, where operating lease charges are recorded entirely in operating expenses. As a result, there is no significant difference in the Company's results of operations presented in the Company's Condensed Consolidated Statements of Income for each period presented.
The adoption of Topic 842 had a significant impact on the Company's balance sheet with the recognition of the operating lease right-of-use asset and the liability for operating leases. Upon adoption, leases that were classified as operating leases under Topic 840 were classified as operating leases under Topic 842. For the adoption of Topic 842, the Company recorded an adjustment of $202.9 million to operating lease right-of-use asset and the related lease liability, with no impact to retained earnings. The lease liability is the present value of the remaining minimum lease payments, determined under Topic 840, discounted using the Company's incremental borrowing rate at the effective date of January 1, 2019. As permitted under Topic 842, the Company elected practical expedient that permit the Company to not reassess whether a contract is or contains a lease, the classification of the Company's existing operating leases, and initial direct costs for any existing leases. The Company did not elect the practical expedient to use hindsight in determining the lease term (when considering lessee options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of the Company's right-of-use assets. The application of the practical expedient did not have a significant impact on the measurement of the operating lease liability.
The impact of the adoption of Topic 842 on the balance sheet at January 1, 2019 was (in thousands):
(in thousands)
Balance at December 31, 2018
 
Adjustments due to Topic 842
 
Balance at January 1, 2019
Balance Sheet
 
 
 
 
 
Assets:
 
 
 
 
 
Other current assets
128,716

 
(3,004
)
 
125,712

Operating lease assets

 
178,304

 
178,304

Total Assets
6,688,668

 
175,300

 
6,863,968

Liabilities:
 
 
 
 
 
Accrued expenses and other liabilities
279,310

 
13,836

 
293,146

Operating lease liabilities

 
161,464

 
161,464

Total Liabilities
3,688,100

 
175,300

 
3,863,400


For contracts entered into on or after the January 1, 2019, at the inception of a contract the Company assesses whether the contract is, or 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. Leases entered into prior to January 1, 2019 are accounted for under Topic 840 and were not reassessed. For real estate leases that contain both lease and non-lease components, the Company elected to account the lease components together with non-lease components (e.g., common-area maintenance).
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, or the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. All of the Company's real estate leases for office space do not meet the definition of a finance lease. The Company's policy is to own, rather than lease, equipment.
For leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the 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 lease payments under the lease. For the Company's operating leases, the lease payments are discounted using an incremental borrowing rate, which approximates the rate of interest that would be paid on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Some of the Company's real estate leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and based on the minimum amount stated in the lease. Lease components are included in the measurement of the initial lease liability. 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

10

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recorded as a period expense when incurred. Lease modifications result in remeasurement of the right-of-use assets and the lease liability.
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.
The Company 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.
NOTE 3· Revenues
The following tables present the revenues disaggregated by revenue source:
 
Three months ended March 31, 2019
(in thousands)
Retail
 
National Programs
 
Wholesale
Brokerage
 
Services
 
Other
 
Total
Base commissions(1)
$
287,200

 
$
77,178

 
$
54,173

 
$

 
$
(12
)
 
$
418,539

Fees(2)
43,877

 
30,246

 
12,510

 
49,444

 
(288
)
 
135,789

Incentive commissions(3)
42,775

 
919

 
373

 

 
111

 
44,178

Profit-sharing contingent commissions(4)
11,547

 
860

 
2,915

 

 

 
15,322

Guaranteed supplemental commissions(5)
3,240

 
4

 
391

 

 

 
3,635

Investment income(6)

 
316

 
40

 
48

 
677

 
1,081

Other income, net(7)
592

 
37

 
107

 

 

 
736

    Total Revenues
$
389,231

 
$
109,560

 
$
70,509

 
$
49,492

 
$
488

 
$
619,280

(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 the Company controls.
(2)
Fee revenues relate to fees for services other than securing coverage for the Company's customers and fees negotiated in lieu of commissions.
(3)
Incentive commissions include additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties.
(4)
Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.
(5)
Guaranteed supplemental commissions represent guaranteed fixed-base agreements in lieu of profit-sharing contingent commissions.
(6)
Investment income consists primarily of interest on cash and investments.
(7)
Other income consists primarily of legal settlements and other miscellaneous income.
Contract Assets and Liabilities
The balances of contract assets and contract liabilities arising from contracts with customers as of March 31, 2019 and December 31, 2018 were as follows:
(in thousands)
March 31, 2019
 
December 31, 2018
Contract assets
$
311,137

 
$
265,994

Contract liabilities
$
57,283

 
$
53,496

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 premiums, commissions and fee receivable in the Company's Condensed Consolidated Balance Sheet. 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 twelve months from the date presented in the Company's Condensed Consolidated Balance Sheet.

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As of March 31, 2019, deferred revenue consisted of $39.6 million as current portion to be recognized within one year and $17.7 million in long term to be recognized beyond one year. As of December 31, 2018, deferred revenue consisted of $37.0 million as current portion to be recognized within one year and $16.5 million in long-term deferred revenue to be recognized beyond one year.
During the three months ended March 31, 2019, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was not significant.
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 $16.3 million and $13.2 million as of March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019, the Company deferred $3.4 million of incremental cost to obtain customer contracts. The Company expensed $0.3 million of the incremental cost to obtain customer contracts for the three months ended March 31, 2019.
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 was $62.4 million and $69.8 million as of March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019, the Company had net expense of $7.4 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 exercise of stock options. The dilutive effect of stock options is computed by application of the treasury-stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:
 
For the three months 
 ended March 31,
(in thousands, except per share data)
2019
 
2018
Net income
$
113,896

 
$
90,828

Net income attributable to unvested awarded performance stock
(3,201
)
 
(1,902
)
Net income attributable to common shares
$
110,695

 
$
88,926

Weighted average number of common shares outstanding – basic
280,564

 
275,952

Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic
(7,885
)
 
(5,780
)
Weighted average number of common shares outstanding for basic net income per common share
272,679

 
270,172

Dilutive effect of stock options
2,335

 
5,542

Weighted average number of shares outstanding – diluted
275,014

 
275,714

Net income per share:
 
 
 
Basic
$
0.41

 
$
0.33

Diluted
$
0.40

 
$
0.32


NOTE 5· Business Combinations
During the three months ended March 31, 2019, Brown & Brown acquired the assets and assumed certain liabilities of seven insurance intermediaries and all of the stock of one insurance intermediary. Additionally, miscellaneous 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.

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Table of Contents

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 three months ended March 31, 2019, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $6.8 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments in the three months ended March 31, 2019 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.
Cash paid for acquisitions was $98.3 million in the three-month period ended March 31, 2019. The Company completed eight acquisitions (excluding book of business purchases) in the three-month period ended March 31, 2019. The Company completed two acquisitions (excluding book of business purchases) in the three-month period ended March 31, 2018.
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. 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 thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Name
Business
segment
 
Effective
date of
acquisition
 
Cash
paid
 
Other
payable
 
Recorded
earn-out
payable
 
Net assets
acquired
 
Maximum
potential earn-
out payable
Smith Insurance Associates, Inc. (Smith)
Retail
 
February 1, 2019
 
$
20,129

 
$

 
$
2,704

 
$
22,833

 
$
4,550

Donald P. Pipino Company, LTD (Pipino)
Retail
 
February 1, 2019
 
16,420

 
135

 
9,821

 
26,376

 
12,996

Cossio Insurance Agency (Cossio)
Retail
 
March 1, 2019
 
13,990

 
10

 
1,710

 
15,710

 
2,000

Medval LLC (Medval)
Services
 
March 1, 2019
 
29,106

 

 
1,684

 
30,790

 
2,500

Other
Various
 
Various
 
18,654

 
463

 
2,236

 
21,353

 
5,475

Total
 
 
 
 
$
98,299

 
$
608

 
$
18,155

 
$
117,062

 
$
27,521


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 thousands)
 
Smith
 
Pipino
 
Cossio
 
Medval
 
Other
 
Total
Cash
 
$

 
$

 
$

 
$
3,218

 
$

 
$
3,218

Other current assets
 
588

 
194

 

 
1,708

 
(6,835
)
 
(4,345
)
Fixed assets
 
40

 
114

 
29

 
50

 
$
(121
)
 
$
112

Goodwill
 
16,031

 
18,146

 
11,336

 
19,008

 
15,911

 
80,432

Purchased customer accounts
 
6,500

 
11,360

 
4,324

 
7,300

 
6,298

 
35,782

Non-compete agreements
 
41

 
11

 
21

 
1

 
64

 
138

Other assets
 

 

 

 
14

 
302

 
316

Total assets acquired
 
23,200

 
29,825

 
15,710

 
31,299

 
15,619

 
115,653

Other current liabilities
 
(367
)
 
(3,449
)
 

 
(480
)
 
5,734

 
1,438

Other liabilities
 

 

 

 
(29
)
 

 
(29
)
Total liabilities assumed
 
(367
)
 
(3,449
)
 

 
(509
)
 
5,734

 
1,409

Net assets acquired
 
$
22,833

 
$
26,376

 
$
15,710

 
$
30,790

 
$
21,353

 
$
117,062



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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 $80.4 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, Wholesale Brokerage and Services Segments in the amounts of $55.1 million, $6.1 million and $19.2 million, respectively. Of the total goodwill of $80.4 million, the amount currently deductible for income tax purposes is $62.2 million and the remaining $18.2 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2019, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through March 31, 2019, included in the Condensed Consolidated Statement of Income for the three months ended March 31, 2019, was $4.8 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through March 31, 2019, included in the Condensed Consolidated Statement of Income for the three months ended March 31, 2019, was $1.0 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.
(UNAUDITED)
Three months ended 
 March 31,
(in thousands, except per share data)
2019
 
2018
Total revenues
$
624,219

 
$
512,730

Income before income taxes
$
149,863

 
$
121,469

Net income
$
114,926

 
$
93,150

Net income per share:
 
 
 
Basic
$
0.41

 
$
0.34

Diluted
$
0.41

 
$
0.33

Weighted average number of shares outstanding:
 
 
 
Basic
272,679

 
270,172

Diluted
275,014

 
275,714


As of March 31, 2019 and 2018, 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 months ended March 31, 2019 and 2018, were as follows:
 
Three months ended 
 March 31,
(in thousands)
2019
 
2018
Balance as of the beginning of the period
$
89,924

 
$
36,175

Additions to estimated acquisition earn-out payables
18,155

 
4,524

Payments for estimated acquisition earn-out payables
(579
)
 
(2,565
)
Subtotal
107,500

 
38,134

Net change in earnings from estimated acquisition earn-out payables:
 
 
 
Change in fair value on estimated acquisition earn-out payables
50

 
2,062

Interest expense accretion
1,160

 
404

Net change in earnings from estimated acquisition earn-out payables
1,210

 
2,466

Balance as of March 31,
$
108,710

 
$
40,600


Of the $108.7 million estimated acquisition earn-out payables as of March 31, 2019, $25.2 million was recorded as accounts payable and $83.5 million was recorded as other non-current liabilities. As of March 31, 2019, the maximum future acquisition contingency payments related to all acquisitions was $218.2 million, inclusive of the $108.7 million estimated acquisition earn-out payables as of March 31, 2019. 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.
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, 2018, and identified no impairment as a result of the evaluation.

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The changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2019 are as follows:
(in thousands)
Retail
 
National
Programs
 
Wholesale
Brokerage
 
Services
 
Total
Balance as of December 31, 2018
$
2,063,150

 
$
926,206

 
$
291,622

 
$
151,808

 
$
3,432,786

Goodwill of acquired businesses
55,117

 

 
6,063

 
19,252

 
80,432

Balance as of March 31, 2019
$
2,118,267

 
$
926,206

 
$
297,685

 
$
171,060

 
$
3,513,218


NOTE 7· Amortizable Intangible Assets
Amortizable intangible assets at March 31, 2019 and December 31, 2018 consisted of the following:
 
March 31, 2019
 
December 31, 2018
(in thousands)
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
$
1,838,732

 
$
(934,756
)
 
$
903,976

 
14.9
 
$
1,804,404

 
$
(909,415
)
 
$
894,989

 
14.9
Non-compete agreements
33,607

 
(29,945
)
 
3,662

 
4.5
 
33,469

 
(29,651
)
 
3,818

 
4.5
Total
$
1,872,339

 
$
(964,701
)
 
$
907,638

 
 
 
$
1,837,873

 
$
(939,066
)
 
$
898,807

 
 
(1)
Weighted average life calculated as of the date of acquisition.
Amortization expense for amortizable intangible assets for the years ending December 31, 2019, 2020, 2021, 2022 and 2023 is estimated to be $102.5 million, $95.4 million, $91.8 million, $87.3 million, and $80.3 million, respectively.
NOTE 8· Long-Term Debt
Long-term debt at March 31, 2019 and December 31, 2018 consisted of the following: 
(in thousands)
March 31,
2019
 
December 31, 2018
Current portion of long-term debt:
 
 
 
Current portion of 5-year term loan facility expires 2022
$
40,000

 
$
35,000

Current portion of 5-year term loan facility expires 2023
15,000

 
15,000

Total current portion of long-term debt
55,000

 
50,000

Long-term debt:
 
 
 
Note agreements:
 
 
 
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024
$
499,140

 
$
499,101

4.500% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2029
349,443

 

Total notes
848,583

 
499,101

Credit agreements:
 
 
 
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022
320,000

 
330,000

5-year revolving-loan facility, periodic interest payments, LIBOR plus up to 1.500%, plus commitment fees up to 0.250%, expires June 28, 2022

 
350,000

5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires December 21, 2023
281,250

 
285,000

Total credit agreements
601,250

 
965,000

Debt issuance costs (contra)
(9,835
)
 
(7,111
)
Total long-term debt less unamortized discount and debt issuance costs
1,439,998

 
1,456,990

Current portion of long-term debt
55,000

 
50,000

Total debt
$
1,494,998

 
$
1,506,990



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On June 28, 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent and certain other banks as co-syndication agents and co-documentation agents. The Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”). The Amended and Restated Credit Agreement extends the applicable maturity date of the existing revolving credit facility (the “Revolving Credit Facility”) of $800.0 million to June 28, 2022 and re-evidences unsecured term loans at $400.0 million while also extending the applicable maturity date to June 28, 2022. The quarterly term loan principal amortization schedule was reset. At the time of the execution of the Amended and Restated Credit Agreement, $67.5 million of principal from the original unsecured term loans was repaid using operating cash balances, and the Company added an additional $2.8 million in debt issuance costs related to the Revolving Credit Facility to the Condensed Consolidated Balance Sheet. The Company also expensed to the Condensed Consolidated Statements of Income $0.2 million of debt issuance costs related to the Original Credit Agreement due to certain lenders exiting prior to execution of the Amended and Restated Credit Agreement. The Company also carried forward $1.6 million on the Condensed Consolidated Balance Sheet the remaining unamortized portion of the Original Credit Agreement debt issuance costs, which will be amortized over the term of the Amended and Restated Credit Agreement. On March 31, 2019, the Company made a scheduled principal payment of $5.0 million per the terms of the Amended and Restated Credit Agreement. As of March 31, 2019, there was an outstanding debt balance issued under the term loan of the Amended and Restated Credit Agreement of $360.0 million with no borrowings outstanding against the Revolving Credit Facility. As of December 31, 2018, there was an outstanding debt balance issued under the term loan of the Amended and Restated Credit Agreement of $365.0 million with $350.0 million in borrowings outstanding against the Revolving Credit Facility. The Company had borrowed approximately $600.0 million under its Revolving Credit Facility on November 15, 2018 in connection with the closing of the acquisition of certain assets and assumption of certain liabilities of the Hays Companies. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment of $10.0 million was due March 31, 2019.
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 March 31, 2019 and December 31, 2018, 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 Company’s Amended and Restated Credit Agreement, dated June 28, 2017, with the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, and certain other banks as co-syndication agents and co-documentation agents (the “Revolving Credit Facility”). As of March 31, 2019, there was an outstanding debt balance issued under the Term Loan of $296.3 million. As of December 31, 2018, there was an outstanding debt balance issued under the Term Loan of $300.0 million. Per the terms of the Term Loan Credit Agreement, a scheduled principal payment of $3.8 million is due June 30, 2019.
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 financing related to the Hays Companies acquisition and for other general corporate purposes. As of March 31, 2019, there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance.
The Amended and Restated Credit Agreement and Term Loan Credit 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 March 31, 2019 and December 31, 2018.
The 30-day Adjusted LIBOR Rate as of March 31, 2019 was 2.500%.
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.

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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 thousands):
(in thousands)
 
March 31, 2019
Balance Sheet
 
 
Assets:
 
 
Operating lease right-of-use assets
Operating lease assets
$
174,580

Total Assets
 
174,580

Liabilities:
 
 
Current operating lease liabilities
Accrued expenses and other liabilities
39,015

Non-current operating lease liabilities
Operating lease liabilities
159,823

Total Liabilities
 
$
198,838

The components of lease cost for operating leases for the three months ended March 31, 2019 were (in thousands):
Operating leases:
 
  Lease cost
$
12,088

  Variable lease cost
713

    Operating lease expense
$
12,801

The weighted average remaining lease term and the weighted average discount rate for operating leases as of March 31, 2019 were:
Weighted-average remaining lease term
5.73

Weighted-average discount rate
3.81

Maturities of the operating lease liabilities by fiscal year at March 31, 2019 for the Company's operating leases are as follows (in thousands):
 
Operating Leases
2019 (Remainder)
$
33,577

2020
44,573

2021
36,998

2022
29,940

2023
23,184

Thereafter
55,084

Total undiscounted lease payments
223,356

Less: Imputed interest
24,518

Present value of lease payments
$
198,838

At December 31, 2018, the aggregate future minimum lease payments under all non-cancelable lease agreements were as follows:
 
December 31, 2018
2019
$
48,292

2020
43,517

2021
34,836

2022
27,035

2023
19,981

Thereafter
36,349

Total minimum future lease payments
$
210,010


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Supplemental cash flow information for operating leases (in thousands):
Cash paid for amounts included in measurement of liabilities
 
    Operating cash flows from operating leases
$
12,311

Right-of-use assets obtained in exchange for new operating liabilities
$
2,439


NOTE 10· Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities
Brown & Brown's cash paid during the period for interest and income taxes are summarized as follows: 
 
Three months ended 
 March 31,
(in thousands)
2019
 
2018
Cash paid during the period for:
 
 
 
Interest
$
20,127

 
$
14,472

Income taxes
$
3,120

 
$
3,179

Brown & Brown’s significant non-cash investing and financing activities are summarized as follows:
 
Three months ended 
 March 31,
(in thousands)
2019
 
2018
Other payable issued for purchased customer accounts
$
608

 
$
1,690

Estimated acquisition earn-out payables and related charges
$
18,155

 
$
4,524


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 March 31, 2019 and 2018.
 
Balance as of March 31,
(in thousands)
2019
 
2018
Table to reconcile cash and cash equivalents inclusive of restricted cash
 
 
 
Cash and cash equivalents
$
322,477

 
$
558,248

Restricted cash
302,410

 
268,129

Total cash and cash equivalents inclusive of restricted cash at the end of the period
$
624,887

 
$
826,377

The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of December 31, 2018 and 2017.
 
Balance as of December 31,
(in thousands)
2018
 
2017
Table to reconcile cash and cash equivalents inclusive of restricted cash
 
 
 
Cash and cash equivalents
$
438,961

 
$
573,383

Restricted cash
338,635

 
250,705

Total cash and cash equivalents inclusive of restricted cash at the end of the period
$
777,596

 
$
824,088

In the preparation of the Statement of Cash Flows in this Quarterly Report on Form 10-Q, beginning balance sheet balances for 2018 were adjusted to reflect the modified retrospective adoption of Accounting Standards Update No.2014-09, “Revenue from Contracts with Customers” and Accounting Standards Codification Topic 340 - Other Assets and Deferred Cost, thereby reflecting in the Statement of Cash Flows the change in operating assets and liabilities for the period, excluding the initial impact of adoption of these new accounting standards.
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.

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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, 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, (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 all of its operations within the United States of America, except for a wholesale brokerage operation based in London, England, retail operations in Bermuda and the Cayman Islands, and a national programs operation in Canada. These operations earned $3.4 million and $3.3 million of total revenues for the three months ended March 31, 2019 and 2018, respectively. Long-lived assets held outside of the United States as of March 31, 2019 and 2018 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, 2018. The Company evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment 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.