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 ~~September 30, 2018~~March 31, 2019



¨	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				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 ~~November 2, 2018~~May 7, 2019 was ~~279,210,227.~~282,042,437.

BROWN & BROWN, INC.

INDEX




		PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	5
	Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	6
	Condensed Consolidated Statements of Equity for the three months ended March 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	78
	Notes to Condensed Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4439
Item 4.	Controls and Procedures	4439

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4540
Item 1A.	Risk Factors	4540
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4540
Item 6.	Exhibits	4741

SIGNATURE		4842

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;

~~Material adverse changes in economic conditions in the markets we serve and in the general economy;~~

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 ~~Washington,~~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 ~~distributable~~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.

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.

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 September 30,						For the nine months ended September 30,						For the three months ended March 31,
	2018			2017			2018			2017			2019		2018
REVENUES
Commissions and fees	$	529,813		$	474,609		$	1,502,219		$	1,383,899		$	617,463	$	500,338
Investment income	719			491			2,051			1,085			1,081		601
Other income, net	318			546			1,228			22,047			736		522
Total revenues	530,850			475,646			1,505,498			1,407,031			619,280		501,461
EXPENSES
Employee compensation and benefits	268,045			246,062			790,902			736,445			332,837		270,899
Other operating expenses	83,697			72,058			243,704			210,289			88,783		76,313
(Gain)/loss on disposal	1,106			(1,902		)	(1,544		)	(1,993		)	505		(2,420		)
Amortization	21,637			21,435			62,961			64,402			26,192		20,539
Depreciation	5,259			5,489			16,410			17,242			6,035		5,552
Interest	8,963			9,393			28,686			28,949			15,198		9,671
Change in estimated acquisition earn-out payables	(357		)	(1,308		)	2,528			8,309			1,210		2,466
Total expenses	388,350			351,227			1,143,647			1,063,643			470,760		383,020
Income before income taxes	142,500			124,419			361,851			343,388			148,520		118,441
Income taxes	36,447			48,506			91,048			131,263			34,624		27,613
Net income	$	106,053		$	75,913		$	270,803		$	212,125		$	113,896	$	90,828
Net income per share:
Basic	$	0.38		$	0.27		$	0.98		$	0.76		$	0.41	$	0.33
Diluted	$	0.38		$	0.27		$	0.96		$	0.74		$	0.40	$	0.32
Dividends declared per share	$	0.075		$	0.068		$	0.225		$	0.203		$	0.080	$	0.075

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except per share data)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	422,971		$	573,383		$	322,477		$	438,961
Restricted cash and investments	301,716			250,705			302,410			338,635
Short-term investments	12,843			24,965			10,518			12,868
Premiums, commissions and fees receivable	736,378			546,402			847,132			844,815
Reinsurance recoverable	98,516			477,820			51,356			65,396
Prepaid reinsurance premiums	344,955			321,017			314,363			337,920
Other current assets	95,799			47,864			146,492			128,716
Total current assets	2,013,178			2,242,156			1,994,748			2,167,311
Fixed assets, net	89,772			77,086			117,364			100,395
Operating lease assets							174,580			—
Goodwill	2,929,634			2,716,079			3,513,218			3,432,786
Amortizable intangible assets, net	680,226			641,005			907,638			898,807
Investments	17,152			13,949			17,528			17,394
Other assets	72,844			57,275			81,213			71,975
Total assets	$	5,802,806		$	5,747,550		$	6,806,289		$	6,688,668
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies	$	732,550		$	685,163		$	801,475		$	857,559
Losses and loss adjustment reserve	98,475			476,721			51,356			65,212
Unearned premiums	344,955			321,017			314,363			337,920
Premium deposits and credits due customers	107,788			91,648			94,426			105,640
Accounts payable	84,228			64,177			136,467			87,345
Accrued expenses and other liabilities	234,731			228,748			193,986			279,310
Current portion of long-term debt	30,000			120,000			55,000			50,000
Total current liabilities	1,632,727			1,987,474			1,647,073			1,782,986
Long-term debt less unamortized discount and debt issuance costs	832,361			856,141			1,439,998			1,456,990
Operating lease liabilities							159,823			—
Deferred income taxes, net	284,330			256,185			300,857			315,732
Other liabilities	113,980			65,051			160,107			132,392
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 290,109 shares and outstanding 279,222 shares at 2018, issued 286,929 shares and outstanding 276,210 shares at 2017 - in thousands. 2017 share amounts restated for the 2-for-1 stock split effective March 28, 2018	29,011			28,692
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	525,465			483,730			621,249			615,180
Treasury stock, at cost at 10,887 shares at 2018 and 10,719 shares at 2017, respectively - in thousands.	(397,572		)	(386,322		)
Treasury stock, at cost at 13,797 shares at 2019 and 2018, respectively - in thousands							(477,572		)	(477,572		)
Retained earnings	2,782,504			2,456,599			2,925,170			2,833,622
Total shareholders’ equity	2,939,408			2,582,699			3,098,431			3,000,568
Total liabilities and shareholders’ equity	$	5,802,806		$	5,747,550		$	6,806,289		$	6,688,668

See accompanying Notes to Condensed Consolidated Financial Statements.

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.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine months ended September 30,						Three months ended March 31,
(in thousands)	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	270,803		$	212,125		$	113,896		$	90,828
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization	62,961			64,402			26,192			20,539
Depreciation	16,410			17,242			6,035			5,552
Non-cash stock-based compensation	23,522			22,362			12,994			7,295
Change in estimated acquisition earn-out payables	2,528			8,309			1,210			2,466
Deferred income taxes	(16,416		)	23,941			(14,875		)	(12,093		)
Amortization of debt discount	118			119
Amortization and disposal of deferred financing costs	1,102			1,309
Amortization of debt discount and disposal of deferred financing costs							456			407
Accretion of discounts and premiums, investment	(4		)	20			(7		)	3
Net gain on sales of investments, fixed assets and customer accounts	(1,259		)	(1,739		)
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	(11,775		)	(13,800		)	—			(715		)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Premiums, commissions and fees receivable (increase)	(24,560		)	(23,350		)
Reinsurance recoverables decrease/(increase)	379,304			(2,082,203		)
Prepaid reinsurance premiums (increase)	(23,938		)	(23,585		)
Other assets (increase)	(9,052		)	(5,314		)
Premiums payable to insurance companies increase	19,179			5,585
Premium deposits and credits due customers increase	16,089			14,030
Losses and loss adjustment reserve (decrease)/increase	(378,246		)	2,082,203
Unearned premiums increase	23,938			23,585
Accounts payable increase	27,817			22,113
Accrued expenses and other liabilities (decrease)/increase	(21,465		)	1,018
Other liabilities (decrease)	(1,539		)	(34,802		)
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	355,517			313,570			5,356			79,481
Cash flows from investing activities:
Additions to fixed assets	(28,859		)	(12,897		)	(23,186		)	(9,751		)
Payments for businesses acquired, net of cash acquired	(254,836		)	(26,478		)	(95,081		)	(33,576		)
Proceeds from sales of fixed assets and customer accounts	3,338			4,085			32			142
Purchases of investments	(8,897		)	(10,393		)	(31		)	(6,142		)
Proceeds from sales of investments	17,551			5,178			2,392			6,531
Net cash used in investing activities	(271,703		)	(40,505		)	(115,874		)	(42,796		)
Cash flows from financing activities:
Payments on acquisition earn-outs	(13,337		)	(25,488		)	(579		)	(1,761		)
Proceeds from long-term debt							350,000			—
Payments on long-term debt	(115,000		)	(91,750		)	(8,750		)	(5,000		)
Deferred debt issuance costs	—			(2,809		)	(3,698		)	—
Payments on revolving credit facilities							(350,000		)	—
Issuances of common stock for employee stock benefit plans	19,406			17,387			16			720
Repurchase shares to fund tax withholdings for non-cash stock-based compensation	(11,928		)	(6,791		)	(6,832		)	(7,659		)
Purchase of treasury stock	(11,250		)	(57,389		)	—			(11,250		)
Settlement (prepayment) of accelerated share repurchase program	11,250			(7,500		)	—			11,250
Cash dividends paid	(62,356		)	(56,801		)	(22,348		)	(20,696		)
Net cash used in financing activities	(183,215		)	(231,141		)
Net (decrease)/increase in cash and cash equivalents inclusive of restricted cash	(99,401		)	41,924
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	824,088			781,283			777,596			824,088
Cash and cash equivalents inclusive of restricted cash at end of period	$	724,687		$	823,207		$	624,887		$	826,377

See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 910 for the reconciliations of cash and cash equivalents inclusive of restricted ~~cash.~~cash and investments.

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 ~~services~~service organization that markets and sells ~~to its customers,~~ insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable ~~segments: the~~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~~customers. The National Programs Segment, ~~acting~~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 ~~networks~~network of independent agents, including Brown & Brown retail ~~agents; the~~agents. The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, ~~including~~as well as Brown & Brown ~~Retail offices; and the~~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, ~~2017.~~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 February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets with initial maturities greater than one year. In July 2018, the FASB also issued ASU 2018-10 and ASU 2018-11 related to Topic 842. ASU 2018-10 narrows certain aspects of the guidance issued in the amendments within ASU 2016-02. ASU 2018-11 provides entities with an additional transition method to adopt ASU 2016-02. Under this new transition method, an entity initially applies ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2016-02, along with ASU 2018-10 and ASU 2018-11, will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of this pronouncement with the principal impact expected to be that the present value of the remaining lease payments will be presented as a liability on the balance sheet as well as an asset of similar value representing the “Right of Use” for those leased properties. The Company plans to adopt Topic 842 under the transition method provided by ASU 2018-11. The undiscounted contractual cash payments remaining on leased properties were $210.4 million as of December 31, 2017 as indicated in Note 13 of the Company's Form 10-K and $209.8 million as of September 30, 2018 as detailed in the Liquidity and Capital Resources section of this Quarterly Report on Form 10-Q.

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.

~~Recently Adopted Accounting Standards~~

In ~~August 2016,~~January 2017, the FASB issued ASU ~~2016-15, “Statement of Cash Flows~~No. 2017-04, “Intangibles-Goodwill and Other (Topic ~~230)~~350): ~~Classification of Certain Cash Receipts and Cash Payments (a consensus~~Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the ~~Emerging Issues Task Force)" (“ASU 2016-15”),~~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 ~~addresses eight specific cash flow issues~~the carrying value exceeds the reporting unit’s fair value with the ~~objective~~loss not exceeding the total amount of ~~reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies~~goodwill allocated to ~~all entities, required to present a statement of cash flows under Topic 230.~~that reporting unit. ASU ~~2016-15 became effective~~2017-04 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017 with early adoption permitted.~~2019 and will be applied prospectively. The Company ~~adopted~~is currently evaluating the impact of this guidance on future interim or annual goodwill impairment tests performed.

ASU 2016-15 effective January 1, 2018 and has determined there is no impact on the Company’s Statement of Cash Flows. The Company already presented cash paid on contingent consideration in business combination as prescribed by ASU 2016-15 and does not, at this time, engage in the other activities being addressed in this ASU.Recently Adopted Accounting Standards

In ~~March~~February 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” (“ASU 2016-08”) to clarify certain aspects of the principal-versus-agent guidance included in the new revenue standard ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. The Company adopted ASU 2016-08 effective contemporaneously with ASU 2014-09 beginning January 1, 2018. The impact of ASU 2016-08 was limited to the claims administering activities of one of our businesses within our Services Segment and therefore was not material to the net income of the Company.

~~In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers~~2016-02, “Leases (Topic ~~606)~~842)” (“Topic ~~606”~~842”), which provides guidance for ~~revenue recognition.~~accounting for leases. Under Topic 606 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. It supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects842, all leases are required to be ~~entitled in exchange for those goods~~recorded on the balance sheet and are classified as either operating leases or ~~services.~~finance leases. Effective as of January 1, ~~2018,~~2019, the Company adopted ~~ASU 2014–09,~~Topic 842, and all related amendments, which established Accounting Standards Codification ~~("ASC"~~(“ASC”) Topic ~~606.~~842. The Company adopted these standards by ~~recognizing~~ the ~~cumulative effect~~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 ~~an adjustment to opening retained earnings at~~of January 1, ~~2018,~~2019, the date of initial application under the modified retrospective ~~method~~approach for ~~contracts not completed as of~~leases existing at that date, with an adjustment to retained earnings. As a result, the ~~day of adoption. The cumulative impact of adopting Topic 606 on January 1,~~Consolidated Balance Sheet at December 31, 2018 was ~~an increase in retained earnings within stockholders’ equity of $117.5 million. Under the modified retrospective method, the Company is~~ not ~~required to restate comparative financial information prior to the adoption of these standards~~restated and ~~therefore, such information presented for the three and nine months ended September 30, 2017~~ 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 ~~previous accounting policies.~~leases are classified as operating leases, which are primarily real estate leases for office space. The expense recognition for operating leases under Topic

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 ~~following areas are impacted by~~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 ~~606:~~

~~Historically, approximately 70%~~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 ~~Company’s commissions and fees are in~~remaining minimum lease payments, determined under Topic 840, discounted using the ~~form of commissions paid by insurance carriers. These commissions are earned~~Company's incremental borrowing rate at ~~a point in time upon~~ the effective date of ~~bound insurance coverage, as no significant performance obligation remains after coverage is bound. If there are other services within the contract,~~January 1, 2019. As permitted under Topic 842, the Company ~~estimates~~elected practical expedient that permit the stand-alone selling price for each separate performance obligation, and the corresponding apportioned revenue is recognized over a period of time as the performance obligations are fulfilled. In situations where multiple performance obligations exist withinCompany to not reassess whether a contract is or contains a lease, the ~~use of estimates is required to allocate the transaction price on a relative stand-alone selling price basis to each separate performance obligation.~~

Commission revenues - Prior to the adoption of Topic 606, commission revenues, including those billed on an installment basis, were recognized on the latter of the policy effective date or the date that the premium was billed to the client, with the exceptionclassification of the Company's ~~Arrowhead businesses, which followed~~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 ~~policy of recognizing these revenues~~significant impact on the ~~latter~~measurement of the ~~policy effective date or processed date in our systems. As a result~~operating lease liability.

The impact of the adoption of Topic ~~606, certain revenues associated with~~842 on the ~~issuance~~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 ~~policies are now recognized upon~~a contract the ~~effective date~~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 ~~associated policy. These commission revenues, including those billed on an installment basis, are now recognized earlier than they had been previously. Revenue is now accrued based upon~~asset throughout the ~~completion~~period, and (3) whether the Company has the right to direct the use of the ~~performance obligation, thereby creating~~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 ~~current~~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 ~~unbilled revenue, until such time as~~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 ~~invoice is generated,~~incremental borrowing rate, which ~~typically does not exceed twelve months. The Company does not expect~~approximates the ~~overall impact~~rate of ~~these changes to~~interest that would be ~~significant~~paid on a ~~full-year basis, but~~secured borrowing in an amount equal to the ~~timing~~lease payments for the underlying asset under similar terms.

Lease payments included in the measurement of ~~recognizing revenue~~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 ~~impact our fiscal quarters when compared to prior years. For~~be exercised, and payments for early termination options unless it is reasonably certain the ~~nine months ended September 30, 2018, the adoption~~lease will not be terminated early. Some of ~~Topic 606 increased base and incentive commissions revenue, as defined in Note 3, by $26.6 million compared to what would have been recognized under~~ the Company's ~~previous accounting policies. Incentive commissions include additional commissions over base commissions received from insurance carriers~~real estate leases contain variable lease payments, including payments based on ~~predetermined production levels mutually agreed upon by both parties.~~

~~Profit-sharing contingent commissions - Prior to~~an index or rate. Variable lease payments based on an index or rate are initially measured using the ~~adoption of Topic 606, revenue that was not fixed~~index or rate in effect at lease commencement and ~~determinable because a contingency existed was not recognized until~~based on the ~~contingency was resolved. Under Topic 606, the Company must estimate the~~minimum amount ~~of consideration that will be received~~stated in the ~~coming year such that a significant reversal of revenue is not probable. Profit-sharing contingent commissions represent a form of variable consideration associated with~~lease. Lease components are included in the placement of coverage, for which we earn commissions and fees. In connection with Topic 606, profit-sharing contingent commissions are estimated with a constraint applied and accrued relative to the recognitionmeasurement of the ~~corresponding core commissions. The resulting effect~~initial lease liability. Additional payments based on the ~~timing of recognizing profit-sharing contingent commissions will now more closely follow~~change in an index or rate, or payments based on a similar pattern as our commissions and fees with any true-ups recognized when payments are received or as additional information that affects the estimate becomes available. For the nine months ended September 30, 2018, the adoption of Topic 606 reduced profit-sharing contingent commissions revenue by $6.9 million compared to what would have been recognized under our previous accounting policies.

~~Fee revenues - Approximately 30% of the Company’s commissions and fees are in the form of fees, which are predominantly~~change in the Company's National Programs and Services Segments, and to a lesser extent in the large accounts business within the Company's Retail Segment, where the Company receives fees in lieu of a commission. In accordance with Topic 606, fee revenue from certain agreements are recognized in earlier periods and others in later periods as compared to our previous accounting treatment depending on when the services within the contract are satisfied and when we have transferred controlportion of the ~~related services to~~operating expenses, including real estate taxes and insurance, are

recorded as a period expense when incurred. Lease modifications result in remeasurement of the ~~customer. The Company does not expect~~right-of-use assets and the ~~overall impact~~lease liability.

Lease expense for operating leases consists of ~~these changes to be significant~~the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a ~~full-year~~straight-line basis ~~but~~over the timing of recognizing fees revenue will impact our fiscal quarters when compared to prior years. For the nine months ended September 30, 2018, the adoption of Topic 606 increased fees revenue by $5.0 million compared to what would have been recognized under our previous accounting policies.

Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.

~~Incremental cost to obtain - The adoption of ASC 340 resulted~~lease term. Included in the Company deferring 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 costslease expense are deferred and amortized over a 15-year period, which is consistent with the analysis performed on acquired customer accounts and referenced in Note 7 to the Company’s condensed consolidated financial statements. For the nine months ended September 30, 2018, the Company deferred $10.3 million of incremental cost to obtain customer contracts. The Company expensed $0.3 million of the incremental cost to obtain customer contracts for the nine months ended September 30, 2018.

Cost to fulfill - The adoption of ASC 340 resulted in the Company deferring certain costs to fulfill contracts and to recognize these costs as the associated performance obligations are fulfilled. In order for contract fulfillment costs to be deferred under ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that the Company will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net cash flows from the contract. The Company does not expect the overall impact of these changes to be significant on a full-year basis, but the timing of recognizing these expenses will impact quarterly results compared to prior years as such recognition better aligns with the associated revenue. With the modified retrospective adoption of Topic 606, the Company deferred $52.7 million in contract fulfillment costs on its opening balance sheet on January 1, 2018 based upon the estimated average time spent on policy renewals. For the nine months ended September 30, 2018, the Company had net expense of $3.6 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfiedany variable lease payments incurred in the period ~~net of current year deferrals for costs incurred~~ that ~~related to performance obligations yet to be fulfilled.~~

~~In connection with~~were not included in the implementation of this standard, we modified, and in some instances instituted, additional accounting procedures, processes and internal controls. While the relative impacts of this standard to our revenue streams is significant, we do not view these modifications and additions as a material change in our internal controls over financial reporting.initial lease liability.

The ~~cumulative~~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 changes made to our unaudited condensed consolidated balance sheet as of January 1, 2018 for the adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”Company's right-of-use asset and ~~Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost (the “New Revenue Standard”):~~

(in thousands) Balance at December 31, 2017 Adjustments due to the New Revenue Standard Balance at January 1, 2018
Balance Sheet
Assets:
Premiums, commissions and fees receivable $ 546,402
$ 153,058
$ 699,460
Other current assets 47,864
52,680
100,544

Liabilities:
Premiums payable to insurance companies 685,163
12,107
697,270
Accounts payable 64,177
8,747
72,924
Accrued expenses and other liabilities 228,748
22,794
251,542
Deferred income taxes, net 256,185
44,575
300,760

Shareholders' Equity:
Retained earnings 2,456,599
117,515
2,574,114

The $52.7 million adjustment to other current assets reflects the deferral of certain cost to fulfill contracts. The $12.1 million adjustment to premiums payable to insurance companies reflects the estimated amount payable to outside brokers on unbilled premiums, commissions and fees receivable.

~~The following table illustrates the impact of adopting the New Revenue Standard has had on our reported results in the unaudited condensed consolidated statement of income.~~

Nine months ended September 30, 2018
(in thousands) As reported Impact of adopting the New Revenue Standard Balances without the New Revenue Standard
Statement of Income
Revenues:
Commissions and fees $ 1,502,219
$ 24,700
$ 1,477,519

Expenses:
Employee compensation and benefits 790,902
(3,396 ) 794,298
Other operating expenses 243,704
6,996
236,708
Income taxes 91,048
5,309
85,739

Net income $ 270,803
$ 15,791
$ 255,012

lease liability would not be significant.

NOTE 3· Revenues

The following tables present the revenues disaggregated by revenue source:

Three months ended September 30, 2018
(in thousands) Retail National Programs
Wholesale
Brokerage
Services Other Total
Base commissions⁽¹⁾
$ 207,703
$ 92,106
$ 62,216
$ —
$ (11 ) $ 362,014
Fees⁽²⁾
33,915
43,168
13,887
48,054
(360 ) 138,664
Incentive commissions⁽³⁾
11,408
287
44
—
16
11,755
Profit-sharing contingent commissions⁽⁴⁾
5,280
7,786
1,261
—
—
14,327
Guaranteed supplemental commissions⁽⁵⁾
2,573
22
458
—
—
3,053
Investment income⁽⁶⁾
1
138
44
51
485
719
Other income, net⁽⁷⁾
207
12
99
—
—
318
Total Revenues $ 261,087
$ 143,519
$ 78,009
$ 48,105
$ 130
$ 530,850


	Nine months ended September 30, 2018													Three months ended March 31, 2019
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total		Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Base commissions⁽¹⁾	$	609,252	$	249,491	$	174,888	$	—	$	(42	)	$	1,033,589	$	287,200	$	77,178	$	54,173	$	—	$	(12	)	$	418,539
Fees⁽²⁾	94,282		106,839		37,799		137,878		(880		)	375,918		43,877		30,246		12,510		49,444		(288		)	135,789
Incentive commissions⁽³⁾	43,356		295		515		—		28			44,194		42,775		919		373		—		111			44,178
Profit-sharing contingent commissions⁽⁴⁾	17,879		17,290		4,824		—		—			39,993		11,547		860		2,915		—		—			15,322
Guaranteed supplemental commissions⁽⁵⁾	7,277		75		1,173		—		—			8,525		3,240		4		391		—		—			3,635
Investment income⁽⁶⁾	2		384		125		160		1,380			2,051		—		316		40		48		677			1,081
Other income, net⁽⁷⁾	758		60		401		—		9			1,228		592		37		107		—		—			736
Total Revenues	$	772,806	$	374,434	$	219,725	$	138,038	$	495		$	1,505,498	$	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.

companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.


(2)	Fee revenues relate to fees for services other than securing coverage for ~~our~~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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows:


(in thousands)	September 30, 2018		December 31, 2017⁽¹⁾		March 31, 2019		December 31, 2018
Contract assets	$	249,294	$	210,323	$	311,137	$	265,994
Contract liabilities	$	63,611	$	51,236	$	57,283	$	53,496


~~(1)~~	~~The balances as of December 31, 2017 have been revised to reflect the impact of adopting the New Revenue Standard.~~

Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in ~~our systems.~~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.

As of ~~September 30, 2018,~~March 31, 2019, deferred revenue consisted of ~~$53.9~~$39.6 million as current portion to be recognized within one year and ~~$9.7~~$17.7 million in long term to be recognized beyond one year. As of December 31, ~~2017,~~2018, deferred revenue consisted of ~~$44.5~~$37.0 million as current portion to be recognized within one year and ~~$6.7~~$16.5 million in long-term deferred revenue to be recognized beyond one year.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was ~~approximately $8.1 million.~~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 September 30,						For the nine months ended September 30,						For the three months ended March 31,
(in thousands, except per share data)	2018			2017			2018			2017			2019			2018
Net income	$	106,053		$	75,913		$	270,803		$	212,125		$	113,896		$	90,828
Net income attributable to unvested awarded performance stock	(2,716		)	(1,852		)	(6,185		)	(5,181		)	(3,201		)	(1,902		)
Net income attributable to common shares	$	103,337		$	74,061		$	264,618		$	206,944		$	110,695		$	88,926
Weighted average number of common shares outstanding – basic	278,132			279,512			276,744			280,024			280,564			275,952
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic	(7,124		)	(6,820		)	(6,321		)	(6,840		)	(7,885		)	(5,780		)
Weighted average number of common shares outstanding for basic net income per common share	271,008			272,692			270,423			273,184			272,679			270,172
Dilutive effect of stock options	4,274			5,094			5,191			4,838			2,335			5,542
Weighted average number of shares outstanding – diluted	275,282			277,786			275,614			278,022			275,014			275,714
Net income per share:
Basic	$	0.38		$	0.27		$	0.98		$	0.76		$	0.41		$	0.33
Diluted	$	0.38		$	0.27		$	0.96		$	0.74		$	0.40		$	0.32

NOTE 5· Business Combinations

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, Brown & Brown acquired the assets and assumed certain liabilities of ~~fifteen~~seven insurance intermediaries and all of the stock of ~~three~~one insurance ~~intermediaries and one book of business (customer accounts).~~intermediary. Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last ~~twelve~~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 ~~Statement~~Statements of Income when incurred.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, adjustments were made within the permitted measurement period that resulted in ~~an increase~~a decrease in the aggregate purchase price of the affected acquisitions of ~~$21.4 thousand~~$6.8 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments in the ~~nine~~three months ended ~~September 30, 2018~~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 ~~$265.9~~$98.3 million in the ~~nine-month~~three-month period ended ~~September 30, 2018. We~~March 31, 2019. The Company completed ~~eighteen~~eight acquisitions (excluding book of business purchases) in the ~~nine-month~~three-month period ended ~~September 30, 2018. We~~March 31, 2019. The Company completed ~~six~~two acquisitions (excluding book of business purchases) in the ~~nine-month~~three-month period ended ~~September 30, 2017.~~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
Opus Advisory Group, LLC (Opus) Retail February 1, 2018 $ 20,400
$ 200
$ 2,384
$ 22,984
$ 3,600
Kerxton Insurance Agency, Inc. (Kerxton) Retail March 1, 2018 13,177
1,490
2,080
16,747
2,920
Automotive Development Group, LLC (ADG) Retail May 1, 2018 29,471
559
17,545
47,575
20,000
Servco Pacific, Inc. (Servco) Retail June 1, 2018 76,551
—
916
77,467
7,000
Tower Hill Prime Insurance Company (Tower Hill) National Programs July 1, 2018 20,300
—
2,628
22,928
7,700
Health Special Risk, Inc. (HSR) National Programs July 1, 2018 20,132
—
1,991
22,123
9,000
Professional Disability Associates, LLC (PDA) Services July 1, 2018 15,025
—
9,818
24,843
17,975
Finance & Insurance Resources, Inc. (F&I) Retail September 1, 2018 44,940
410
9,121
54,471
19,500
Other Various Various 25,894
680
5,234
31,808
10,200
Total $ 265,890
$ 3,339
$ 51,717
$ 320,946
$ 97,895



(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)	Opus		Kerxton			ADG		Servco			Tower Hill		HSR			PDA			F&I		Other			Total			Smith			Pipino			Cossio		Medval			Other			Total
Cash	$	—	$	—		$	—	$	8,189		$	—	$	3,114		$	—		$	—	$	—		$	11,303		$	—		$	—		$	—	$	3,218		$	—		$	3,218
Other current assets	—		—			1,500		8,075			—		818			1,762			999		253			13,407			588			194			—		1,708			(6,835		)	(4,345		)
Fixed assets	11		10			67		178			$	—	$	124		$	309		$	34	$	99		$	832		40			114			29		50			$	(121	)	$	112
Goodwill	17,944		13,417			36,236		53,901			—		18,737			17,273			36,806		20,245			214,559			16,031			18,146			11,336		19,008			15,911			80,432
Purchased customer accounts	5,008		4,712			9,751		16,902			22,928		5,516			7,700			16,611		12,653			101,781			6,500			11,360			4,324		7,300			6,298			35,782
Non-compete agreements	21		22			21		1			—		65			82			21		273			506			41			11			21		1			64			138
Other assets	—		—			—		1,528			—		21			(787		)	—		—			762			—			—			—		14			302			316
Total assets acquired	22,984		18,161			47,575		88,774			22,928		28,395			26,339			54,471		33,523			343,150			23,200			29,825			15,710		31,299			15,619			115,653
Other current liabilities	—		(1,414		)	—		(11,307		)	—		(5,930		)	(1,273		)	—		(1,715		)	(21,639		)	(367		)	(3,449		)	—		(480		)	5,734			1,438
Other liabilities	—		—			—		—			—		(342		)	(223		)	—		—			(565		)	—			—			—		(29		)	—			(29		)
Total liabilities assumed	—		(1,414		)	—		(11,307		)	—		(6,272		)	(1,496		)	—		(1,715		)	(22,204		)	(367		)	(3,449		)	—		(509		)	5,734			1,409
Net assets acquired	$	22,984	$	16,747		$	47,575	$	77,467		$	22,928	$	22,123		$	24,843		$	54,471	$	31,808		$	320,946		$	22,833		$	26,376		$	15,710	$	30,790		$	21,353		$	117,062

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 ~~$214.6~~$80.4 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, ~~National Programs,~~ Wholesale Brokerage and Services Segments in the amounts of ~~$173.0~~$55.1 million, ~~$18.7 million, $5.5~~$6.1 million and ~~$17.3~~$19.2 million, respectively. Of the total goodwill of ~~$214.6~~$80.4 million, the amount currently deductible for income tax purposes is ~~$162.9~~$62.2 million and the remaining ~~$51.7~~$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 ~~2018,~~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 ~~September 30, 2018,~~March 31, 2019, included in the Condensed Consolidated Statement of Income for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, was ~~$29.2~~$4.8 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through ~~September 30, 2018,~~March 31, 2019, included in the Condensed Consolidated Statement of Income for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, was ~~$1.8~~$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 September 30,				Nine months ended September 30,				Three months ended March 31,
(in thousands, except per share data)	2018		2017		2018		2017		2019		2018
Total revenues	$	533,038	$	499,846	$	1,547,556	$	1,477,640	$	624,219	$	512,730
Income before income taxes	$	143,402	$	130,171	$	372,204	$	360,034	$	149,863	$	121,469
Net income	$	106,742	$	79,422	$	278,551	$	222,407	$	114,926	$	93,150
Net income per share:
Basic	$	0.38	$	0.28	$	1.01	$	0.79	$	0.41	$	0.34
Diluted	$	0.38	$	0.28	$	0.99	$	0.78	$	0.41	$	0.33
Weighted average number of shares outstanding:
Basic	271,008		272,692		270,423		273,184		272,679		270,172
Diluted	275,282		277,786		275,614		278,022		275,014		275,714

As of ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting additions, payments, and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ were as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(in thousands)	2018			2017			2018			2017			2019			2018
Balance as of the beginning of the period	$	52,540		$	57,943		$	36,175		$	63,821		$	89,924		$	36,175
Additions to estimated acquisition earn-out payables	29,646			1,050			51,717			1,332			18,155			4,524
Payments for estimated acquisition earn-out payables	(16,521		)	(23,511		)	(25,112		)	(39,288		)	(579		)	(2,565		)
Subtotal	65,665			35,482			62,780			25,865			107,500			38,134
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables	(928		)	(1,784		)	945			6,402			50			2,062
Interest expense accretion	571			476			1,583			1,907			1,160			404
Net change in earnings from estimated acquisition earn-out payables	(357		)	(1,308		)	2,528			8,309			1,210			2,466
Balance as of September 30,	$	65,308		$	34,174		$	65,308		$	34,174
Balance as of March 31,													$	108,710		$	40,600

Of the ~~$65.3~~$108.7 million estimated acquisition earn-out payables as of ~~September 30, 2018, $14.1~~March 31, 2019, $25.2 million was recorded as accounts payable and ~~$51.2~~$83.5 million was recorded as other non-current liabilities. As of ~~September 30, 2018,~~March 31, 2019, the maximum future acquisition contingency payments related to all acquisitions was ~~$151.6~~$218.2 million, inclusive of the ~~$65.3~~$108.7 million estimated acquisition earn-out payables as of ~~September 30, 2018.~~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, ~~2017,~~2018, and identified no impairment as a result of the evaluation.

The changes in the carrying value of goodwill by reportable segment for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 are as follows:

(in thousands) Retail
National
Programs

Wholesale
Brokerage
Services Total
Balance as of January 1, 2018 $ 1,386,248
$ 908,472
$ 286,098
$ 135,261
$ 2,716,079
Goodwill of acquired businesses 173,025
18,737
5,524
17,273
214,559
Goodwill disposed of relating to sales of businesses —
(1,004 ) —
—
(1,004 )
Balance as of September 30, 2018 $ 1,559,273
$ 926,205
$ 291,622
$ 152,534
$ 2,929,634



(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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 consisted of the following:


	September 30, 2018								December 31, 2017								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⁾	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	$	1,565,186	$	(886,229	)	$	678,957	15.0	$	1,464,274	$	(824,584	)	$	639,690	15.0	$	1,838,732	$	(934,756	)	$	903,976	14.9	$	1,804,404	$	(909,415	)	$	894,989	14.9
Non-compete agreements	30,753		(29,484		)	1,269		6.7	30,287		(28,972		)	1,315		6.8	33,607		(29,945		)	3,662		4.5	33,469		(29,651		)	3,818		4.5
Total	$	1,595,939	$	(915,713	)	$	680,226		$	1,494,561	$	(853,556	)	$	641,005		$	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, ~~2018,~~ 2019, 2020, 2021, 2022 and ~~2022~~2023 is estimated to be ~~$84.7~~$102.5 million, ~~$83.4~~$95.4 million, ~~$76.0~~$91.8 million, ~~$72.7~~$87.3 million, and ~~$68.3~~$80.3 million, respectively.

NOTE 8· Long-Term Debt

Long-term debt at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 consisted of the following:


(in thousands)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Current portion of long-term debt:
Current portion of 5-year term loan facility expires June 28, 2022	$	30,000		$	20,000
4.500% senior notes, Series E, quarterly interest payments, balloon due September 2018	—			100,000
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	30,000			120,000			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	499,062			498,943			$	499,140		$	499,101
4.500% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2029							349,443			—
Total notes	499,062			498,943			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	340,000			365,000			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	340,000			365,000			601,250			965,000
Debt issuance costs (contra)	(6,701		)	(7,802		)	(9,835		)	(7,111		)
Total long-term debt less unamortized discount and debt issuance costs	832,361			856,141			1,439,998			1,456,990
Current portion of long-term debt	30,000			120,000			55,000			50,000
Total debt	$	862,361		$	976,141		$	1,494,998		$	1,506,990

On December 22, 2006, the Company entered into a Master Shelf and Note Purchase Agreement (the “Master Agreement”) with a national insurance company. The initial issuance of notes under the Master Agreement occurred on December 22, 2006, through the issuance of $25.0 million in Series C Senior Notes due December 22, 2016, with a fixed interest rate of 5.660% per year. On February 1, 2008, $25.0 million in Series D Senior Notes due January 15, 2015, with a fixed interest rate of 5.370% per year, were issued. On September 15, 2011, and pursuant to a Confirmation of Acceptance, dated January 21, 2011, in connection with the Master Agreement, $100.0 million in Series E Senior Notes were issued with a maturity date of September 15, 2018, with a fixed interest rate of 4.500% per year. The Series E Senior Notes were issued for the sole purpose of retiring existing Senior Notes. On January 15, 2015 the Series D Senior Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest. On December 22, 2016, the Series C Senior Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest. On May 10, 2018, the principal balance of $100.0 million from the Series E Senior Notes was paid in full, along with accrued interest of $0.7 million and a prepayment premium of $0.7 million. As of September 30, 2018, there was no outstanding debt balance issued under the provisions of the Master Agreement.

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 ~~“Facility”~~“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 with payments due quarterly.~~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 ~~modified agreement, while~~Amended and Restated Credit Agreement. The Company also ~~carrying~~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 ~~amortize~~be amortized over the term of the Amended and Restated Credit Agreement. ~~Either or both of~~On March 31, 2019, the revolving credit facility and the term loans may be extended for two additional one-year periods at the Company’s request and at the discretion of the respective lenders. Interest and facility fees in respect to the Credit Facility are based upon the better of the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating. Based upon the Company’s net debt leverage ratio, the rates of interest charged on the term loan are 1.000% to 1.750%, and the revolving loan is 0.850% to 1.500% above the adjusted LIBOR rate for outstanding amounts drawn. There are fees included in the facility which include a facility fee based upon the revolving credit commitments of the lenders (whether used or unused) at a rate of 0.150% to 0.250% and letter of credit fees based upon the amounts of outstanding secured or unsecured letters of credit. The Amended and

~~Restated Credit Agreement includes various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers. On June 30, 2018,~~Company made a scheduled principal payment of $5.0 million ~~was satisfied per the terms of the Amended and Restated Credit Agreement. On September 30, 2018, a scheduled principal payment of $5.0 million was satisfied~~ per the terms of the Amended and Restated Credit Agreement. As of ~~September 30,~~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 ~~terms~~term loan of the Amended and Restated Credit Agreement of ~~$370.0~~$365.0 million with no$350.0 million in borrowings outstanding against the ~~revolving loan.~~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 ~~$5.0~~$10.0 million iswas due ~~December~~March 31, ~~2018.~~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~~Revolving Credit Facility and for other general corporate purposes. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~Master~~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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

The 30-day Adjusted LIBOR Rate as of ~~September 30, 2018~~March 31, 2019 was ~~2.125%~~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.

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

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:


	Nine months ended September 30,				Three months ended March 31,
(in thousands)	2018		2017		2019		2018
Cash paid during the period for:
Interest	$	32,896	$	32,504	$	20,127	$	14,472
Income taxes	$	21,380	$	110,853	$	3,120	$	3,179

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


	Nine months ended September 30,				Three months ended March 31,
(in thousands)	2018		2017		2019		2018
Other payable issued for purchased customer accounts	$	3,339	$	11,395	$	608	$	1,690
Estimated acquisition earn-out payables and related charges	$	51,717	$	1,332	$	18,155	$	4,524

~~Our~~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 ~~our~~ carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.


	Balance as of September 30,				Balance as of March 31,
(in thousands)	2018		2017		2019		2018
Table to reconcile cash and cash equivalents inclusive of restricted cash
Cash and cash equivalents	$	422,971	$	546,520	$	322,477	$	558,248
Restricted cash	301,716		276,687		302,410		268,129
Total cash and cash equivalents inclusive of restricted cash at the end of the period	$	724,687	$	823,207	$	624,887	$	826,377

The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of December 31, ~~2017~~2018 and ~~2016.~~2017.


	Balance as of December 31,				Balance as of December 31,
(in thousands)	2017		2016		2018		2017
Table to reconcile cash and cash equivalents inclusive of restricted cash
Cash and cash equivalents	$	573,383	$	515,646	$	438,961	$	573,383
Restricted cash	250,705		265,637		338,635		250,705
Total cash and cash equivalents inclusive of restricted cash at the end of the period	$	824,088	$	781,283	$	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. ~~Refer to Note 2 in the "Recently Adopted Accounting Standards" for the initial impact of adoption of these new accounting standards.~~

NOTE ~~10·~~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.

During the first quarter of 2017, the Company was successful in settling a lawsuit it had brought against certain former employees of Brown & Brown, their employer, AssuredPartners, Inc. ("AssuredPartners") and certain key executives of AssuredPartners. The settlement included a payment of $20.0 million by AssuredPartners to Brown & Brown in exchange for releasing certain individuals from restrictive covenants in the employment contracts they had signed with the Company and provides protection for current Brown & Brown teammates from continued solicitation for employment by AssuredPartners.

The ~~proceeds of the settlement were received in March 2017 and were recorded in the other income line in the Condensed Consolidated Statement of Income.~~

~~We continue~~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 ~~11·~~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 aan 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 ~~operations~~operation in Canada. These operations earned ~~$3.7~~$3.4 million and ~~$3.9~~$3.3 million of total revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. These operations earned $11.3 million and $11.1 million of total revenues for the nine months ended September 30, 2018 and 2017,~~ respectively. Long-lived assets held outside of the United States as of ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ 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, ~~2017.~~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.

Three months ended September 30, 2018
(in thousands) Retail
National
Programs

Wholesale
Brokerage
Services Other Total
Total revenues $ 261,087
$ 143,519
$ 78,009
$ 48,105
$ 130
$ 530,850
Investment income $ 1
$ 138
$ 44
$ 51
$ 485
$ 719
Amortization $ 10,754
$ 6,736
$ 2,878
$ 1,269
$ —
$ 21,637
Depreciation $ 1,236
$ 1,346
$ 385
$ 393
$ 1,899
$ 5,259
Interest expense $ 7,468
$ 6,147
$ 1,233
$ 846
$ (6,731 ) $ 8,963
Income before income taxes $ 61,224
$ 46,707
$ 23,614
$ 6,988
$ 3,967
$ 142,500
Total assets $ 4,651,080
$ 2,933,465
$ 1,272,795
$ 448,027
$ (3,502,561 ) $ 5,802,806
Capital expenditures $ 1,467
$ 2,420
$ 895
$ 366
$ 4,321
$ 9,469

Three months ended September 30, 2017
(in thousands) Retail
National
Programs

Wholesale
Brokerage
Services Other Total
Total revenues $ 234,483
$ 127,718
$ 71,574
$ 41,491
$ 380
$ 475,646
Investment income $ 3
$ 124
$ —
$ 72
$ 292
$ 491
Amortization $ 10,540
$ 6,913
$ 2,845
$ 1,137
$ —
$ 21,435
Depreciation $ 1,262
$ 1,412
$ 471
$ 402
$ 1,942
$ 5,489
Interest expense $ 7,216
$ 8,304
$ 1,515
$ 876
$ (8,518 ) $ 9,393
Income before income taxes $ 54,950
$ 32,203
$ 21,219
$ 7,910
$ 8,137
$ 124,419
Total assets $ 4,246,422
$ 5,026,918
$ 1,258,783
$ 432,331
$ (3,550,177 ) $ 7,414,277
Capital expenditures $ 844
$ 1,357
$ 214
$ 364
$ 1,270
$ 4,049

Nine months ended September 30, 2018
(in thousands) Retail
National
Programs

Wholesale
Brokerage
Services Other Total
Total revenues $ 772,806
$ 374,434
$ 219,725
$ 138,038
$ 495
$ 1,505,498
Investment income $ 2
$ 384
$ 125
$ 160
$ 1,380
$ 2,051
Amortization $ 31,498
$ 19,383
$ 8,537
$ 3,543
$ —
$ 62,961
Depreciation $ 3,746
$ 4,087
$ 1,238
$ 1,183
$ 6,156
$ 16,410
Interest expense $ 21,377
$ 20,019
$ 4,039
$ 2,023
$ (18,772 ) $ 28,686
Income before income taxes $ 175,984
$ 91,809
$ 55,544
$ 23,889
$ 14,625
$ 361,851
Total assets $ 4,651,080
$ 2,933,465
$ 1,272,795
$ 448,027
$ (3,502,561 ) $ 5,802,806
Capital expenditures $ 5,828
$ 7,313
$ 1,762
$ 798
$ 13,158
$ 28,859


	Nine months ended September 30, 2017													Three months ended March 31, 2019
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total		Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	712,739	$	342,576	$	208,812	$	122,397	$	20,507		$	1,407,031	$	389,231	$	109,560	$	70,509	$	49,492	$	488		$	619,280
Investment income	$	6	$	279	$	—	$	224	$	576		$	1,085	$	—	$	316	$	40	$	48	$	677		$	1,081
Amortization	$	31,704	$	20,664	$	8,621	$	3,412	$	1		$	64,402	$	15,444	$	6,596	$	2,849	$	1,303	$	—		$	26,192
Depreciation	$	3,975	$	4,975	$	1,438	$	1,191	$	5,663		$	17,242	$	1,624	$	1,590	$	404	$	284	$	2,133		$	6,035
Interest expense	$	23,918	$	27,257	$	4,803	$	2,783	$	(29,812	)	$	28,949	$	21,153	$	5,354	$	1,327	$	872	$	(13,508	)	$	15,198
Income before income taxes	$	151,783	$	68,127	$	56,569	$	22,480	$	44,429		$	343,388	$	93,841	$	19,316	$	15,569	$	9,177	$	10,617		$	148,520
Total assets	$	4,246,422	$	5,026,918	$	1,258,783	$	432,331	$	(3,550,177	)	$	7,414,277	$	5,773,290	$	2,852,824	$	1,292,406	$	480,108	$	(3,592,339	)	$	6,806,289
Capital expenditures	$	3,384	$	3,885	$	1,606	$	856	$	3,166		$	12,897	$	3,136	$	4,568	$	1,189	$	109	$	14,184		$	23,186



	Three months ended March 31, 2018
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	278,402	$	112,475	$	66,148	$	44,066	$	370		$	501,461
Investment income	$	1	$	114	$	—	$	73	$	413		$	601
Amortization	$	10,242	$	6,323	$	2,837	$	1,137	$	—		$	20,539
Depreciation	$	1,237	$	1,387	$	427	$	411	$	2,090		$	5,552
Interest expense	$	6,797	$	7,496	$	1,435	$	594	$	(6,651	)	$	9,671
Income before income taxes	$	70,399	$	20,778	$	11,383	$	8,816	$	7,065		$	118,441
Total assets	$	4,687,456	$	3,009,147	$	1,323,046	$	432,920	$	(3,837,486	)	$	5,615,083
Capital expenditures	$	2,407	$	2,678	$	420	$	285	$	3,961		$	9,751

NOTE ~~12·~~13· Investments

At ~~September 30, 2018,~~March 31, 2019, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities	$	21,722	$	3	$	(462	)	$	21,263	$	20,241	$	51	$	(134	)	$	20,158
Corporate debt	622		—		(2		)	620		233		6		—			239
Total	$	22,344	$	3	$	(464	)	$	21,883	$	20,474	$	57	$	(134	)	$	20,397

At ~~September 30, 2018,~~March 31, 2019, the Company held ~~$21.3~~$20.2 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and ~~$0.6~~$0.2 million issued by corporations with investment grade ratings. Of that total, ~~$4.7~~$2.9 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year, which also includes ~~$8.1~~$7.6 million that is related to time deposits held with various financial institutions.

For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of ~~September 30, 2018:~~March 31, 2019:


	Less than 12 Months					12 Months or More					Total					Less than 12 Months				12 Months or More					Total
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses		Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities	$	8,237	$	(104	)	$	12,727	$	(358	)	$	20,964	$	(462	)	$	—	$	—	$	11,456	$	(134	)	$	11,456	$	(134	)
Corporate debt	620		(2		)	—		—			620		(2		)
Total	$	8,857	$	(106	)	$	12,727	$	(358	)	$	21,584	$	(464	)	$	—	$	—	$	11,456	$	(134	)	$	11,456	$	(134	)

The unrealized losses were caused by interest rate increases. At ~~September 30, 2018,~~March 31, 2019, the Company had 239 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at ~~September 30, 2018.~~March 31, 2019.

At December 31, ~~2017,~~2018, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities	$	29,970	$	—	$	(206	)	$	29,764	$	21,729	$	7	$	(222	)	$	21,514
Corporate debt	1,072		12		—			1,084		623		—		—			623
Total	$	31,042	$	12	$	(206	)	$	30,848	$	22,352	$	7	$	(222	)	$	22,137

At December 31, ~~2017,~~2018, the Company held ~~$29.8~~$21.5 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and ~~$1.1~~$0.6 million issued by corporations with investment grade ratings. Of that total, ~~$16.9~~$4.8 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year, which also includes $8.1 million that is related to time deposits held with various financial institutions.


	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
(in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities	$	17,919	$	(157	)	$	11,845	$	(49	)	$	29,764	$	(206	)	$	5,866	$	(6	)	$	12,634	$	(216	)	$	18,500	$	(222	)
Corporate debt	400		—			—		—			400		—			457		—			100		—			557		—
Total	$	18,319	$	(157	)	$	11,845	$	(49	)	$	30,164	$	(206	)	$	6,323	$	(6	)	$	12,734	$	(216	)	$	19,057	$	(222	)

The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, ~~2017,~~2018, the Company had 2720 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, ~~2017.~~2018.

The amortized cost and estimated fair value of the fixed maturity securities at ~~September 30, 2018~~March 31, 2019 by contractual maturity are set forth below:


(in thousands)	Amortized cost		Fair value		Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	4,771	$	4,732	$	2,880	$	2,868
Due after one year through five years	17,341		16,920		17,594		17,529
Due after five years	232		231		—		—
Total	$	22,344	$	21,883	$	20,474	$	20,397

The amortized cost and estimated fair value of the fixed maturity securities at December 31, ~~2017~~2018 by contractual maturity are set forth below:


(in thousands)	Amortized cost		Fair value		Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	16,934	$	16,899	$	4,768	$	4,743
Due after one year through five years	13,876		13,708		17,584		17,394
Due after five years	232		241		—		—
Total	$	31,042	$	30,848	$	22,352	$	22,137

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

Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were ~~$17.0~~$1.9 million. This along with maturing time deposits yielded total cash proceeds from the sale of investments of ~~$17.6~~$2.4 million in the period of January 1, ~~2018~~2019 to ~~September 30, 2018~~March 31, 2019. These proceeds were used to purchase additional fixed maturity securities and time deposits. The gains and losses realized on those sales for the period from January 1, 2018 to ~~September 30, 2018~~March 31, 2019 were insignificant.

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

At ~~September 30, 2018,~~March 31, 2019, investments with a fair value of approximately ~~$4.0~~$4.1 million were on deposit with state insurance departments to satisfy regulatory requirements.

NOTE ~~13·~~14· Reinsurance

Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, Wright National Flood Insurance Company (“Wright Flood”) remains primarily liable to its policyholders for the full amount of the policies written whether or not the reinsurers meet their obligations to the Company when they become due. The effects of reinsurance on premiums written and earned are as follows:


	Period from January 1, 2018 to September 30, 2018						Period from January 1, 2019 to March 31, 2019
(in thousands)	Written			Earned			Written			Earned
Direct premiums	$	469,078		$	445,140		$	133,319		$	156,876
Ceded premiums	(469,065		)	(445,127		)	(133,317		)	(156,874		)
Net premiums	$	13		$	13		$	2		$	2

All premiums written by Wright Flood under the National Flood Insurance Program are 100% ceded to the Federal Emergency Management Agency, or FEMA, for which Wright Flood received a ~~30.9%~~30.0% expense allowance from January 1, ~~2018~~2019 through ~~September 30, 2018.~~March 31, 2019. For the period from January 1, ~~2018~~2019 through ~~September 30, 2018,~~March 31, 2019, the Company ceded ~~$467.7~~$132.9 million of written premiums.

Effective April 1, 2014, Wright Flood is also a party to a quota share agreement whereby it cedes 100% of its gross excess flood premiums, excluding fees, to Arch Reinsurance Company and receives a 30.5% commission. Wright Flood ceded ~~$1.4~~$0.4 million for the period from January 1, ~~2018~~2019 through ~~September 30, 2018.~~March 31, 2019. As of ~~September 30, 2018, Wright Flood had $2.1 million in paid excess flood losses, $92,519 in~~March 31, 2019, no loss ~~adjustment expenses, case reserves of $161,758 and $1,500 in allocated loss adjustment expense ("ALAE") case reserves and incurred but not reported of $485,000.~~data exists on this agreement.

Wright Flood also ceded 100% of the homeowners, private passenger auto liability, and other liability occurrence to Stillwater Insurance Company, formerly known as Fidelity National Insurance Company. This business is in runoff. Therefore, only loss data exists on this business. As of ~~September 30, 2018,~~March 31, 2019, no ceded unpaid losses and loss adjustment expenses or incurred but not reported expenses for homeowners, private passenger auto liability and other liability occurrence existed.

As of ~~September 30, 2018~~March 31, 2019 the Condensed Consolidated Balance Sheet contained reinsurance recoverable of ~~$98.5~~$51.4 million and prepaid reinsurance premiums of ~~$345.0 million and recoverable on paid losses of $40.9 thousand.~~$314.4 million. There was no net activity in the reserve for losses and loss adjustment expense during the period January 1, ~~2018~~2019 through ~~September 30, 2018,~~March 31, 2019, as Wright Flood’s direct premiums written were 100% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, as of ~~September 30, 2018~~March 31, 2019 was ~~$98.5~~$51.4 million.

NOTE ~~14·~~15· Statutory Financial Data

Wright Flood maintains capital in excess of the minimum statutory amount of $7.5 million as required by regulatory authorities. The unaudited statutory capital and surplus of Wright Flood was ~~$22.8~~$20.0 million at ~~September 30, 2018~~March 31, 2019 and ~~$28.7~~$19.4 million as of December 31, ~~2017.~~2018. For the period from January 1, 2019 through March 31, 2019, Wright Flood generated statutory net income of $0.2 million. For the period from January 1, 2018 through ~~September 30,~~December 31, 2018, Wright Flood generated statutory net income of ~~$4.3 million. For the period from January 1, 2017 through December 31, 2017, Wright Flood generated statutory net income of $4.8~~$4.5 million.

NOTE ~~15·~~16· Subsidiary Dividend Restrictions

Under the insurance regulations of Texas, where Wright Flood is incorporated, the maximum amount of ordinary dividends that Wright Flood can pay to shareholders in a rolling twelve-month period is limited to the greater of 10% of statutory adjusted capital and surplus as shown on Wright Flood’s last annual statement on file with the superintendent of the Texas Department of Insurance or 100% of adjusted net income. There was no dividend payout in ~~2017~~2018 and the maximum dividend payout that may be made in ~~2018~~2019 without prior approval is ~~$4.8~~$4.5 million.

NOTE ~~16·~~17· Shareholders’ Equity

On ~~November 14, 2017,~~December 12, 2018, the Company entered into an accelerated share repurchase agreement ~~(“ASR”~~("ASR") with an investment bank to purchase an aggregate ~~$75.0~~$100.0 million of the Company’s common stock. As part of the ASR, the Company received an initial share delivery of ~~1,290,486~~2,910,150 shares of the Company’s common stock with a fair market value of ~~approximately $63.8~~$80.0 million. AtUpon maturity of the program, ~~on February 9, 2018,~~ the Company ~~received an additional 168,227 shares, relating to~~will receive the remaining balance of ~~the ASR of $11.2 million. The Company received a total of 1,458,713 shares of Company’s common stock under this ASR.~~$20.0 million at settlement.

Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100.0 million each (unless otherwise approved by the Board of Directors), negotiated private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. ~~After completion~~At March 31, 2019, the remaining amount authorized by the Company's Board of Directors for shares repurchases was $147.5 million.

On May 1, 2019, the Company's Board of Directors authorized the purchasing of up to an additional $372.5 million of the ~~latest ASR transaction,~~Company's outstanding common stock. With this authorization, the Company ~~has~~will now have outstanding approval to ~~repurchase~~purchase up to ~~$227.5~~approximately $500.0 million, in the aggregate, of the ~~Company’s~~Company's outstanding common ~~stock. See Part II, Item 2 "Unregistered Sale~~stock, after giving effect to the final settlement of ~~Equity Securities and Use of Proceeds" for details.~~

On March 28, 2018, we effected a 2-for-1 stock split (the “Stock Split”). As a result of the Stock Split, every share of common stock outstanding as of close of business on March 14, 2018 received an additional share of common stock, increasing the number of outstanding shares of common stock from approximately 138 million shares to approximately 276 million shares. The number of authorized shares of our common stock increased from 280 million shares to 560 million shares. No fractional shares were issued in connection with the Stock Split. Par value of the Company’s common stock was unchanged as a result of the Stock Split remaining at $0.10 per share. The number of shares of common stock reserved or subject to outstanding grants, the exercise or purchase prices applicable to such outstanding grants and subscriptions, and certain grant limitations under our 1990 Employee Stock Purchase Plan, Performance Stock Plan and 2010 Stock Incentive Plan were adjusted as a result of the Stock Split, as required under the terms of those plans. Treasury shares were not adjusted for the Stock Split. All other shares and per share data included within this Quarterly ReportASR entered into on ~~Form 10-Q, including our Condensed Consolidated Financial Statements and related footnotes, have been adjusted to account for the effect of the Stock Split.~~December 12, 2018.

~~NOTE 17· Income Taxes~~

The Tax Cuts and Jobs Act of 2017 (“2017 Tax Reform Act”) made significant changes to the Internal Revenue Code, including, but not limited to, the reduction in the U.S. federal corporate income tax rate from 35.0% to 21.0% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a participation exemption regime, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company estimated its provision for income taxes in accordance with the 2017 Tax Reform Act and guidance available upon enactment and as a result recorded $120.9 million as a one-time credit in the fourth quarter of 2017, the period in which the legislation was signed into law. The 2017 estimate includes a provisional benefit of $124.2 million related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future which was partially offset by a provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings of $3.3 million based on cumulative foreign earnings of $20.9 million. During the third quarter of 2018, the Company posted a $1.6 million credit to taxes related to the previously calculated amount of $3.3 million for the one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company has not recorded any additional adjustments to this provisional amount as of September 30, 2018.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Reform Act. In accordance with SAB 118, the Company has determined that the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at September 30, 2018 and December 31, 2017. As noted above, the Company posted a $1.6 million credit to income taxes related to the previously calculated amount of $3.3 million for the one-time transition tax on the mandatory deemed repatriation of foreign earnings. Additional work is necessary for a more detailed analysis of the Company’s deferred tax assets and liabilities as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of identification, but no later than one year from the enactment date.

The 2017 Tax Reform Act instituted a number of new provisions effective January 1, 2018, including the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”) and Base Erosion and Anti-Abuse Tax (“BEAT”). The Company prepared reasonable estimates of the impact of each of these provisions of the 2017 Tax Reform Act on its effective tax rate for quarter ended September 30, 2018 and determined that the resulting impact was not material. The Company will continue to refine its provisional estimates related to the GILTI, FDII and BEAT rules as additional information is made available.

~~NOTE 18· Subsequent Event~~

On October 22, 2018, the Company entered into an asset purchase agreement (the "Agreement") with The Hays Group, Inc., a Minnesota corporation (“THG”); The Hays Group Of Wisconsin LLC, a Minnesota limited liability company (“THGW”); The Hays Benefits Group, LLC, a Minnesota limited liability company; PlanIT, LLC, a Minnesota limited liability company (“PlanIT”); The Hays Benefits Group of Wisconsin, LLC, a Minnesota limited liability company (“THBGW”), and The Hays Group of Illinois, LLC, a Minnesota limited liability company (“THGI”); and Claims Management of Missouri, LLC, a Missouri limited liability company (dba MMMA Claims Management) (“MMMA,” and together with THG, THGW, THBG and PlanIT, each a “Seller” and collectively, the “Sellers”), and THG, as the Sellers’ Representative (the “Sellers’ Representative”).

The Agreement contemplates that the Company will purchase certain assets and assume certain liabilities, of the Sellers. The Company will pay a purchase price of $705.0 million, consisting of $605.0 million in cash and number of shares of common stock, par value $0.10, of the Company equal to $100.0 million (as valued at the average closing price on the New York Stock Exchange over the 30-day period prior to the closing of the Acquisition). In addition, the Company may pay additional consideration to the Sellers in the form of earn-out payments in the aggregate amount of up to $25.0 million in cash over three years, which is subject to certain conditions and the successful achievement of average annual EBITDA compound annual growth rate targets for the acquired business during 2019, 2020 and 2021. The Hays Group, Inc. was founded in 1994 providing employee benefits, property & casualty, and personal lines insurance and has grown to be the 22nd largest U.S. broker as measured by ~~Business Insurance~~ magazine. With headquarters in Minneapolis, The Hays Group, Inc. operates across twenty-one states, increasing our presence in the mid-west. This transaction will initially be funded through utilization of the revolving line of credit within our credit facility, details of which can be found in Note 8 to these financial statements.

ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion updates the MD&A contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, and the two discussions should be read together.

GENERAL

Company Overview — ~~Third~~First Quarter of ~~2018~~2019

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see “Information Regarding Non-GAAP Financial Measures” below regarding important information on non-GAAP financial measures contained in our discussion and analysis.

We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.

The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, and the occurrence of catastrophic weather events all affect our revenues. For example, level rates of inflation or a general decline in economic activity could limit increases in the values of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long-term.

The term “Organic Revenue,” a non-GAAP measure, is our core commissions and fees less (i) the core commissions and fees earned for the first ~~twelve~~12 months by newly-acquired operations and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period), and for the Organic Revenue growth in 2018 only (iii) the impact of the adoption of Accounting Standards Update ~~No. 2014-09,~~No.2014-09, “Revenue from Contracts with Customers (Topic 606)” and Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost (the “New Revenue Standard”). so as to be on a comparable basis with 2017. The term “core commissions and fees” excludes profit-sharing contingent commissions and guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. “Organic Revenue” is reported in this manner in order to express the current year’s core commissions and fees on a comparable basis with the prior year’s core commissions and fees. The resulting net change reflects the aggregate changes attributable toto: (i) net new and lost accounts, (ii) net changes in our customers’ exposure units, (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners, and (iv) the net change in fees paid to us by our customers. Organic Revenue is reported in “Results of Operations” and in “Results of Operations - Segment Information” of this Quarterly Report on Form 10-Q.

We also earn “profit-sharing contingent commissions,” which are commissions based primarily on underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions which are included in our commissions and fees in the Condensed Consolidated ~~Statement~~Statements of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each year, based upon the aforementioned considerations for the prior year(s). Prior to ~~2018,~~the adoption of the New Revenue Standard, these commissions were recorded to income when received. Over the last three years, profit-sharing contingent commissions have averaged approximately ~~3.2%~~3.1% of ~~the previous year’s~~ commissions and fees revenue. For the three-month period ended ~~September 30, 2018,~~March 31, 2019, profit-sharing contingent commissions were up ~~$10.8~~$3.6 million as compared to the same period of the prior ~~year. This was~~year driven ~~primarily~~ by activity associated with acquisitions completed over the ~~adoption of~~last 12 months and instances where final cash settlements were slightly higher than the New Revenue Standard that requires profit-sharing contingent commissions to be estimated and recognized upon the effective dates of the underlying policies, rather than when received per our previous treatment.amounts accrued in 2018.

Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of profit-sharing contingent commissions. GSCs are accrued throughout the year based on actual premiums written. For the twelve-month period ending December 31, ~~2017,~~2018, we had earned ~~$10.4~~$10.0 million of GSCs, of which ~~$8.5~~$8.9 million remained accrued at December 31, ~~2017,~~2018, the balance of which is typically collected over the first and second quarters. For the three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we earned and accrued ~~$3.1~~$3.6 million and ~~$2.5~~$3.0 million, respectively, from GSCs.

Combined, our profit-sharing contingent commissions and GSCs for the three months ended ~~September 30, 2018~~March 31, 2019 increased by ~~$11.3~~$4.3 million compared to the ~~third~~first quarter of ~~2017, driven primarily by the adoption of the New Revenue Standard.~~2019.

Fee revenues primarily relate to services other than securing coverage for our customers, as well as fees negotiated in lieu of commissions, and are recognized as performance obligations are satisfied. Fee revenues have historically been generated primarily by: (1) our 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; (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and to a lesser extent (3) our Retail Segment in our large-account customer base. Fee revenues, on a consolidated basis, as a percentage of our total commissions and fees, represented 26.3% in 2018, 31.5% in 2017 and 31.3% in ~~2016 and 30.6% in 2015.~~2016.

For the three-month period ended ~~September 30, 2018,~~March 31, 2019, our total commissions and fees growth rate was ~~11.6%~~23.4%, ~~reflecting the impact of adopting the New Revenue Standard along with increased revenue associated with newly acquired businesses,~~ and our consolidated Organic Revenue growth rate ~~of 1.4%~~was 2.0%. In the event that the gradual increases in insurable exposure units that have occurred in the past few years continue through ~~2018~~2019 and premium rate changes are similar to ~~2017,~~2018, we believe we will see positive Organic Revenue growth for the full year of ~~2018.~~2019.

Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.

Income before income taxes for the three-month period ended ~~September 30, 2018~~March 31, 2019 increased from the ~~third~~first quarter of ~~2017~~2018 by ~~$18.1~~$30.1 million, primarily as a result of ~~increased revenues~~net new business and ~~profit reported for~~acquisitions completed in the ~~third quarter of 2018 as compared~~past 12 months in addition to ~~2017 due to the adoption of the New Revenue Standard,~~leveraging expenses, partially offset by ~~higher employee compensation and benefits expenses and increased other operating expenses.~~additional interest expense associated with the acquisition of Hays Companies.

Information Regarding Non-GAAP Measures

In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of SEC rules: Organic Revenue, Organic Revenue growth, EBITDAC and EBITDAC Margin. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our segments because they allow us to determine a more comparable, but non-GAAP, measurement of revenue growth and operating performance that is associated with the revenue sources that were a part of our business in both the current and prior year. We believe that Organic Revenue provides a meaningful representation of our operating performance and view Organic Revenue growth as an important indicator when assessing and evaluating the performance of our four segments. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. We also use Organic Revenue growth and EBITDAC Margin for incentive compensation determinations for executive officers and other key employees. We view EBITDAC and EBITDAC Margin as important indicators of operating performance, because they allow us to determine more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner by removing the significant non-cash items of depreciation, amortization and the change in estimated acquisition earn-out payables, and also interest expense and taxes, which are reflective of investment and financing activities, not operating performance.

These measures are not in accordance with, or an alternative to the GAAP information provided in this Quarterly Report on Form 10-Q. We present such non-GAAP supplemental financial information because we believe such information is of interest to the investment community and because we believe they provide additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. We believe these non-GAAP financial measures improve the comparability of results between periods by eliminating the impact of certain items that have a high degree of variability. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. This supplemental financial information should be considered in addition to, not in lieu of, our Condensed Consolidated Financial Statements.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operation - Segment Information.”

Acquisitions

Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the ~~third~~first quarter of ~~2018,~~2019, we acquired ~~510~~521 insurance intermediary operations, excluding acquired books of business (customer accounts).

On October 22, 2018, the Company entered into an asset purchase agreement (the “Agreement”) with The Hays Group, Inc., a Minnesota corporation (“THG”); The Hays Group Of Wisconsin LLC, a Minnesota limited liability company (“THGW”); The Hays Benefits Group, LLC, a Minnesota limited liability company; PlanIT, LLC, a Minnesota limited liability company (“PlanIT”); The Hays Benefits Group of Wisconsin, LLC, a Minnesota limited liability company (“THBGW”), and The Hays Group of Illinois, LLC, a Minnesota limited liability company (“THGI”); and Claims Management of Missouri, LLC, a Missouri limited liability company (dba MMMA Claims Management) (“MMMA,” and together with THG, THGW, THBG and PlanIT, each a “Seller” and collectively, the “Sellers”), and THG, as the Sellers’ Representative (the “Sellers’ Representative”).

the Company equal to $100.0 million (as valued at the average closing price on the New York Stock Exchange over the 30-day period prior to the closing of the Acquisition). In addition, the Company may pay additional consideration to the Sellers in the form of earn-out payments in the aggregate amount of up to $25.0 million in cash over three years, which is subject to certain conditions and the successful achievement of average annual EBITDA compound annual growth rate targets for the acquired business during 2019, 2020 and 2021. The Hays Group, Inc. was founded in 1994 providing employee benefits, property & casualty, and personal lines insurance and has grown to be the 22nd largest U.S. broker as measured by ~~Business Insurance~~ magazine. With headquarters in Minneapolis, The Hays Group, Inc. operates across twenty-one states, increasing our presence in the mid-west. This transaction will initially be funded through utilization of the revolving line of credit within our credit facility, details of which can be found in Note 8 to these financial statements.

Critical Accounting Policies

We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K ~~dated~~for the year ended December 31, 2017, except for certain changes due to the adoption of the New Revenue Standard. Refer to Note 2 in the "Recently Adopted Accounting Standards" for additional information related to the adoption of the New Revenue Standard.2018. We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 on file with the Securities and Exchange Commission for details regarding our critical and significant accounting policies.

RESULTS OF OPERATIONS FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2019 AND 2018 ~~AND 2017~~

The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes.

Financial information relating to our ~~Condensed Consolidated Financial~~condensed consolidated financial results for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
(in thousands, except percentages)	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
REVENUES
Core commissions and fees	$	512,433		$	468,574		9.4	%	$	1,453,701		$	1,330,341		9.3	%	$	598,506		$	485,674		23.2	%
Profit-sharing contingent commissions	14,327			3,542			NMF		39,993			45,409			(11.9	)%	15,322			11,684			31.1	%
Guaranteed supplemental commissions	3,053			2,493			22.5	%	8,525			8,149			4.6	%	3,635			2,980			22.0	%
Investment income	719			491			46.4	%	2,051			1,085			89.0	%	1,081			601			79.9	%
Other income, net	318			546			(41.8	)%	1,228			22,047			(94.4	)%	736			522			41.0	%
Total revenues	530,850			475,646			11.6	%	1,505,498			1,407,031			7.0	%	619,280			501,461			23.5	%
EXPENSES
Employee compensation and benefits	268,045			246,062			8.9	%	790,902			736,445			7.4	%	332,837			270,899			22.9	%
Other operating expenses	83,697			72,058			16.2	%	243,704			210,289			15.9	%	88,783			76,313			16.3	%
Loss/(gain) on disposal	1,106			(1,902		)	NMF		(1,544		)	(1,993		)	(22.5	)%
(Gain)/loss on disposal																	505			(2,420		)	NMF
Amortization	21,637			21,435			0.9	%	62,961			64,402			(2.2	)%	26,192			20,539			27.5	%
Depreciation	5,259			5,489			(4.2	)%	16,410			17,242			(4.8	)%	6,035			5,552			8.7	%
Interest	8,963			9,393			(4.6	)%	28,686			28,949			(0.9	)%	15,198			9,671			57.2	%
Change in estimated acquisition earn-out payables	(357		)	(1,308		)	(72.7	)%	2,528			8,309			(69.6	)%	1,210			2,466			(50.9	)%
Total expenses	388,350			351,227			10.6	%	1,143,647			1,063,643			7.5	%	470,760			383,020			22.9	%
Income before income taxes	142,500			124,419			14.5	%	361,851			343,388			5.4	%	148,520			118,441			25.4	%
Income taxes	36,447			48,506			(24.9	)%	91,048			131,263			(30.6	)%	34,624			27,613			25.4	%
NET INCOME	$	106,053		$	75,913		39.7	%	$	270,803		$	212,125		27.7	%	$	113,896		$	90,828		25.4	%
Income Before Income Taxes Margin ⁽¹⁾	26.8		%	26.2		%			24.0		%	24.4		%			24.0		%	23.6		%
EBITDAC⁽¹⁾	$	178,002		$	159,428		11.7	%	$	472,436		$	462,290		2.2	%	$	197,155		$	156,669		25.8	%
EBITDAC Margin ⁽¹⁾	33.5		%	33.5		%			31.4		%	32.9		%			31.8		%	31.2		%
Organic Revenue growth rate ⁽¹⁾	1.4		%	3.4		%			4.0		%	2.8		%			2.0		%	5.7		%
Employee compensation and benefits relative to total revenues	50.5		%	51.7		%			52.5		%	52.3		%			53.7		%	54.0		%
Other operating expenses relative to total revenues	15.8		%	15.1		%			16.2		%	14.9		%			14.3		%	15.2		%
Capital expenditures	$	9,469		$	4,049		133.9	%	$	28,859		$	12,897		123.8	%	$	23,186		$	9,751		137.8	%
Total assets at September 30									$	5,802,806		$	7,414,277		(21.7	)%
Total assets at March 31																	$	6,806,289		$	5,615,083		21.2	%

(1) A non-GAAP financial measure

NMF = Not a meaningful figure

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions and GSCs, for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~$55.2~~$117.1 million to ~~$529.8~~$617.5 million, or ~~11.6%~~23.4%, over the same period in ~~2017.~~2018. Core commissions and fees revenue for the ~~third~~first quarter of ~~2018~~2019 increased ~~$43.9~~$112.8 million, of which ~~$23.0~~$103.8 million represented core commissions and fees from acquisitions that had no comparable revenues in the same period of ~~2017;~~2018; approximately ~~$14.4 million related to the impact of the adoption of the New Revenue Standard; approximately $6.7~~$9.5 million represented net new and renewal business, offset by ~~$0.2~~$0.5 million related to commissions and fees revenue from businesses divested in ~~2017~~2018 and ~~2018,~~2019, which reflects an Organic Revenue growth rate of ~~1.4%~~2.0%. Profit-sharing contingent commissions and GSCs for the ~~third~~first quarter of ~~2018~~2019 increased by ~~$11.3~~$4.3 million, or ~~188.0%~~29.3%, compared to the same period in ~~2017.~~2018. The net increase of ~~$11.3~~

million in the third quarter was driven primarily by the change in the timing of recording profit-sharing contingent commissions as compared to 2017, as a result of the adoption of the New Revenue Standard.

For the nine months ended September 30, 2018 commissions and fees, including profit-sharing contingent commissions and GSCs, increased $118.3 million to $1,502.2 million, or 8.5% over the same period in 2017. Core commissions and fees revenue for the nine months ended September 30, 2018 increased by $123.4 million, of which $53.5 million represented net new and renewal business; approximately $39.5 million represented core commissions and fees from acquisitions that had no comparable revenues in the same period of 2017; approximately $31.6 million related to the impact of the adoption of the New Revenue Standard, offset by $1.2 million related to commissions and fees revenue from business divested in 2017 and 2018, which reflects an Organic Revenue growth rate of 4.0%. Profit-sharing contingent commissions and GSCs for the nine months ended September 30, 2018 decreased by $5.0 million, or 9.4%, compared to the same period in 2017. The net decrease of $5.0$4.3 million in the first ~~nine months~~quarter of ~~2018~~2019 was driven ~~primarily~~ by activity associated with acquisitions completed over the ~~change~~last 12 months and instances where final cash settlements were slightly higher than the amounts accrued in ~~the timing of recording profit-sharing contingent commissions as compared to 2017, as a result of the adoption of the New Revenue Standard.~~2018.

Investment Income

Investment income for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~$0.2~~$0.5 million, or ~~46.4%~~79.9%, over the same period in ~~2017. Investment income for the nine months ended September 30, 2018 increased $1.0 million, or 89.0% over the same period in 2017.The~~2018. The increase was primarily driven by higher interest rates and cash management activities to earn a higher yield on excess cash balances.

Other Income, net

Other income for the three months ended ~~September 30, 2018~~March 31, 2019 was ~~$0.3~~$0.7 million, compared with $0.5 million in the same period in ~~2017.~~2018. Other income consists primarily of legal settlements and other miscellaneous income.

Other income for the nine months ended September 30, 2018 was $1.2 million, compared with $22.0 million in the same period in 2017. The $20.8 million decrease for the nine months ended September 30, 2018 versus the comparable period in 2017 was primarily a result of the legal settlement with AssuredPartners recognized in the first quarter of 2017.

Employee Compensation and Benefits

Employee compensation and benefits expense as a percentage of total revenues decreased to ~~50.5%~~53.7% for the three months ended ~~September 30, 2018,~~March 31, 2019, from ~~51.7%~~54.0% for the three months ended ~~September 30, 2017.~~March 31, 2018. Employee compensation and benefits for the ~~third~~first quarter of ~~2018~~2019 increased approximately ~~8.9%~~22.9%, or ~~$22.0~~$61.9 million, over the same period in ~~2017.~~2018. This net increase ~~included~~included: (i) ~~$8.9~~$50.7 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of ~~2017;~~2018; (ii) an increase in staff salaries attributable to salary inflation and higher volumes in portions of our business; (iii) an increase in non-cash stock-based compensation expense due to the better-than-expected Company performance related to our equity compensation plan and teammate retention; (iv) increased producer commissions due to higher revenue; ~~partially~~and (v) the increase in the value of corporate-owned life insurance policies associated with our deferred compensation plan, which was substantially offset by ~~(v) a decrease of approximately $1.3 million as a result of the adoption of the New Revenue Standard.~~other operating expenses.

~~Employee compensation and benefits expense as~~Other Operating Expenses

As a percentage of total revenues, ~~increased to 52.5% for~~other operating expenses represented 14.3% in the ~~nine months ended September 30, 2018, from 52.3% for~~first quarter of 2019, versus 15.2% reported in the ~~nine months ended September 30, 2017. Employee compensation and benefits~~first quarter of 2018. Other operating expenses for the first ~~nine months~~quarter of ~~2018~~2019 increased ~~approximately 7.4%,~~$12.5 million, or ~~$54.5 million,~~16.3%, over the same period ~~in 2017. This~~of 2018. The net increase ~~included~~included: (i) ~~$11.2~~$16.3 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of ~~2017;~~2018; (ii) an increase in staff salaries attributable to salary inflation and higher volumes in portions of our business; (iii) increased producer commissions due to higher revenue; partially offset by (iv) a decrease of approximately $3.4 million as a result of the adoption of the New Revenue Standard.

~~Other Operating Expenses~~

As a percentage of total revenues, other operating expenses represented 15.8% in the third quarter of 2018, versus 15.1% reported in the third quarter of 2017. Other operating expenses for the third quarter of 2018 increased $11.6 million, or 16.2%, over the same period of 2017. The net increase included (i) increased expenses associated with information technology items related to data processing and value-added consulting services; ~~(ii) approximately $2.3 million as a result of the adoption of the New Revenue Standard;~~ partially offset by (iii) the ~~benefits from our strategic purchasing program.~~

~~Other operating expenses represented 16.2%~~increase in the value of total revenues for the nine months ended September 30, 2018, versus 14.9% for the nine months ended September 30, 2017. Other operating expenses for the first nine months of 2018 increased $33.4 million, or 15.9%, over the same period of 2017. The net increase included (i) additional expensescorporate-owned life insurance policies associated with our ~~investment in information technology and higher value-added consulting services; (ii) approximately $7.0 million as a result of the adoption of the New Revenue Standard; partially~~deferred compensation plan, which was substantially offset by ~~(iii) the benefits from our strategic purchasing program.~~

employee compensation and benefits.

(Gain)/Loss on Disposal

Loss on disposal for the ~~third~~first quarter of ~~2018~~2019 increased ~~$3.0~~$2.9 million from the ~~third~~first quarter of ~~2017~~2018 when we had a gain of ~~$1.9 million. Gain on disposal for the nine months ended September 30, 2018 decreased $0.4~~$2.4 million ~~from the nine months ended September 30, 2017.~~due to an earn-out related to a business we sold in 2015. Changes to the ~~loss/gain~~(gain)/loss on disposal are due to activity associated with book of business sales. Although we are not in the business of selling customer accounts or businesses, we periodically sell an office or a book of business (one or more customer accounts) because we believe doing so is in the Company’s best interest.

Amortization

Amortization expense for the ~~third~~first quarter of ~~2018~~2019 increased ~~$0.2~~$5.7 million, or ~~0.9%~~27.5%, from the ~~third~~first quarter of ~~2017. Amortization expense for~~2018. This increase reflects the nine months ended September 30, 2018 decreased $1.4 million, or 2.2%, from the nine months ended September 30, 2017. This decrease reflects certain intangible assets becoming fully amortized, partially offset by amortization of new intangibles from recently acquired ~~businesses.~~businesses, partially offset by certain intangible assets becoming fully amortized.

Depreciation

Depreciation expense for the ~~third~~first quarter of ~~2018 decreased $0.2~~2019 increased $0.5 million, or ~~4.2%~~8.7%, compared to the ~~third~~first quarter of ~~2017. Depreciation expense for~~2018. This increase is due primarily to the nine months ended September 30, 2018 decreased $0.8 million, or 4.8%, over the nine months ended September 30, 2017. These decreases were primarily due to fixed assets which became fully depreciated, net of additionsaddition of fixed assets resulting from ~~acquisitions completed since the first nine months of 2017.~~capital projects related to our multi-year technology investment

program and other business initiatives.

Interest Expense

Interest expense for the ~~third~~first quarter of ~~2018 decreased $0.4~~2019 increased $5.5 million, or ~~4.6%~~57.2%, compared to the ~~third~~first quarter of ~~2017. Interest expense for the nine months ended September 30, 2018 decreased $0.3 million, or 0.9%, from the nine months ended September 30, 2017. These decreases were~~2018. This increase is primarily due to the ~~prepayment premium~~incremental debt issued as a result of the Hays Companies acquisition as well as rise in interest rates associated with ~~the early retirement of the $100.0 million Series E Senior Notes and higher~~our outstanding floating ~~interest rates related to the Amended and Restated Credit Agreement term loan, offset by a lower average~~rate debt ~~principal balance in the second and third quarters of 2018 as compared to the second and third quarters of 2017.~~balances.

Change in Estimated Acquisition Earn-Out Payables

Accounting Standards Codification (“ASC”) Topic 805-Business Combinations is the authoritative guidance requiring an acquiring entity to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Condensed Consolidated ~~Statement~~Statements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.

The net charge or credit to the Condensed Consolidated ~~Statement~~Statements of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables.

As of ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the fair values of the estimated acquisition earn-out payables were re-evaluated based upon projected operating results and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the ~~three and nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:


	Three months ended September 30,						Nine months ended September 30,				Three months ended March 31,
(in thousands)	2018			2017			2018		2017		2019		2018
Change in fair value of estimated acquisition earn-out payables	$	(928	)	$	(1,784	)	$	945	$	6,402	$	50	$	2,062
Interest expense accretion	571			476			1,583		1,907		1,160		404
Net change in earnings from estimated acquisition earn-out payables	$	(357	)	$	(1,308	)	$	2,528	$	8,309	$	1,210	$	2,466

For the three months ended ~~September 30,~~March 31, 2019 and 2018, and 2017, the fair value of estimated earn-out payables was re-evaluated and decreased by $0.9 million and by $1.8 million, respectively, which resulted in credits to the Condensed Consolidated Statement of Income. For the nine months ended September 30, 2018 and 2017, the fair value of estimated earn-out payables was re-evaluated and increased by ~~$0.9 million~~$50.0 thousand and ~~$6.4~~by $2.1 million, respectively, which resulted in charges to the Condensed Consolidated ~~Statement~~Statements of Income.

As of ~~September 30, 2018,~~March 31, 2019, estimated acquisition earn-out payables totaled ~~$65.3~~$108.7 million, of which ~~$14.1~~$25.2 million was recorded as accounts payable and ~~$51.2~~$83.5 million was recorded as other non-current liabilities.

Income Taxes

The effective tax rate on income from operations for the three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ was 25.6% and 39.0%, respectively. The effective tax rate on income from operations for the nine months ended September 30, 2018 and 2017 was 25.2% and 38.2%, respectively. These decreases were primarily related to the lower federal statutory tax rate resulting from the Tax Cuts and Jobs Act of 2017.23.3%.

RESULTS OF OPERATIONS — SEGMENT INFORMATION

As discussed in Note 1112 to the Condensed Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage, and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other income in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses upon the Organic Revenue growth rate of core commissions and fees revenue, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.

The reconciliation of commissions and fees, included in the Condensed Consolidated ~~Statement~~Statements of Income, to Organic Revenue for the three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,						Three months ended March 31,
(in thousands)	2018			2017			2019			2018
Commissions and fees	$	529,813		$	474,609		$	617,463		$	500,338
Profit-sharing contingent commissions	(14,327		)	(3,542		)	(15,322		)	(11,684		)
Guaranteed supplemental commissions	(3,053		)	(2,493		)	(3,635		)	(2,980		)
Core commissions and fees	512,433			468,574			598,506			485,674
New Revenue Standard impact on core commissions and fees	(14,385		)	—
Acquisition revenues	(22,968		)	—
Divested business	—			(225		)
Acquisitions							(103,817		)	—
Dispositions							—			(472		)
Organic Revenue	$	475,080		$	468,349		$	494,689		$	485,202

The growth rates for Organic Revenue, a non-GAAP financial measure, for the three months ended ~~September 30, 2018,~~March 31, 2019, by segment, are as follows:


2018	Retail⁽¹⁾						National Programs						Wholesale Brokerage						Services					Total
2019																														Retail⁽¹⁾						National Programs						Wholesale Brokerage						Services					Total
(in thousands, except percentages)	2018			2017			2018			2017			2018			2017			2018			2017		2018			2017			2019			2018			2019			2018			2019			2018			2019			2018		2019			2018
Commissions and fees	$	260,524		$	234,414		$	143,369		$	127,271		$	77,866		$	71,505		$	48,054		$	41,419	$	529,813		$	474,609		$	388,450		$	278,095		$	109,207		$	112,332		$	70,362		$	65,918		$	49,444		$	43,993	$	617,463		$	500,338
Total change	$	26,110					$	16,098					$	6,361					$	6,635				$	55,204					$	110,355					$	(3,125	)				$	4,444					$	5,451				$	117,125
Total growth %	11.3		%				12.6		%				8.9		%				16.0		%			11.6		%				39.7		%				(2.8		)%				6.7		%				12.4		%			23.4		%
Profit-sharing contingent commissions	(5,280		)	(1,444		)	(7,786		)	(1,748		)	(1,261		)	(350		)	—			—		(14,327		)	(3,542		)	(11,547		)	(6,130		)	(860		)	(3,982		)	(2,915		)	(1,572		)	—			—		(15,322		)	(11,684		)
GSCs	(2,573		)	(2,164		)	(22		)	(5		)	(458		)	(324		)	—			—		(3,053		)	(2,493		)	(3,240		)	(2,522		)	(4		)	(15		)	(391		)	(443		)	—			—		(3,635		)	(2,980		)
Core commissions and fees	$	252,671		$	230,806		$	135,561		$	125,518		$	76,147		$	70,831		$	48,054		$	41,419	$	512,433		$	468,574		$	373,663		$	269,443		$	108,343		$	108,335		$	67,056		$	63,903		$	49,444		$	43,993	$	598,506		$	485,674
New Revenue Standard	(1,990		)	—			(11,609		)	—			805			—			(1,591		)	—		(14,385		)	—
Acquisition revenues	(15,534		)	—			(2,579		)	—			(699		)	—			(4,156		)	—		(22,968		)	—
Divested business	—			(243		)	—			18			—			—			—			—		—			(225		)
Acquisitions																														(94,582		)	—			(2,589		)	—			(1,399		)	—			(5,247		)	—		(103,817		)	—
Dispositions																														—			(34		)	—			(112		)	—			(326		)	—			—		—			(472		)
Organic Revenue⁽²⁾	$	235,147		$	230,563		$	121,373		$	125,536		$	76,253		$	70,831		$	42,307		$	41,419	$	475,080		$	468,349		$	279,081		$	269,409		$	105,754		$	108,223		$	65,657		$	63,577		$	44,197		$	43,993	$	494,689		$	485,202
Organic Revenue growth⁽²⁾	$	4,584					$	(4,163	)				$	5,422					$	888				$	6,731					$	9,672					$	(2,469	)				$	2,080					$	204				$	9,487
Organic Revenue growth %⁽²⁾	2.0		%				(3.3		)%				7.7		%				2.1		%			1.4		%				3.6		%				(2.3		)%				3.3		%				0.5		%			2.0		%


(1)	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 1112 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.


(2)	A non-GAAP financial measure.


	Three months ended September 30,						Three months ended March 31,
(in thousands)	2017			2016			2018			2017
Commissions and fees	$	474,609		$	461,652		$	500,338		$	444,566
Profit-sharing contingent commissions	(3,542		)	(8,247		)	(11,684		)	(30,012		)
Guaranteed supplemental commissions	(2,493		)	(2,941		)	(2,980		)	(2,678		)
Core commissions and fees	468,574			450,464			485,674			411,876
Acquisition revenues	(4,337		)	—
Divested business	—			(1,359		)
New Revenue Standard impact on core commissions and fees							(45,592		)	—
Acquisitions							(5,380		)	—
Dispositions							—			(430		)
Organic Revenue	$	464,237		$	449,105		$	434,702		$	411,446

The growth rates for Organic Revenue, a non-GAAP financial measure, for the three months ended ~~September 30, 2017,~~March 31, 2018, by segment, are as follows:


2017	Retail⁽¹⁾						National Programs						Wholesale Brokerage						Services					Total
2018																														Retail⁽¹⁾						National Programs						Wholesale Brokerage						Services					Total
(in thousands, except percentages)	2017			2016			2017			2016			2017			2016			2017			2016		2017			2016			2018			2017			2018			2017			2018			2017			2018			2017		2018			2017
Commissions and fees	$	234,414		$	228,468		$	127,271		$	123,523		$	71,505		$	70,132		$	41,419		$	39,529	$	474,609		$	461,652		$	278,095		$	239,055		$	112,332		$	101,080		$	65,918		$	65,185		$	43,993		$	39,246	$	500,338		$	444,566
Total change	$	5,946					$	3,748					$	1,373					$	1,890				$	12,957					$	39,040					$	11,252					$	733					$	4,747				$	55,772
Total growth %	2.6		%				3.0		%				2.0		%				4.8		%			2.8		%				16.3		%				11.1		%				1.1		%				12.1		%			12.5		%
Profit-sharing contingent commissions	(1,444		)	(2,229		)	(1,748		)	(2,498		)	(350		)	(3,520		)	—			—		(3,542		)	(8,247		)	(6,130		)	(19,517		)	(3,982		)	(5,714		)	(1,572		)	(4,781		)	—			—		(11,684		)	(30,012		)
GSCs	(2,164		)	(2,516		)	(5		)	(14		)	(324		)	(411		)	—			—		(2,493		)	(2,941		)	(2,522		)	(2,268		)	(15		)	(3		)	(443		)	(407		)	—			—		(2,980		)	(2,678		)
Core commissions and fees	$	230,806		$	223,723		$	125,518		$	121,011		$	70,831		$	66,201		$	41,419		$	39,529	$	468,574		$	450,464		$	269,443		$	217,270		$	108,335		$	95,363		$	63,903		$	59,997		$	43,993		$	39,246	$	485,674		$	411,876
New Revenue Standard																														(43,889		)	—			(106		)	—			(118		)	—			(1,479		)	—		(45,592		)	—
Acquisition revenues	(2,726		)	—			(1,043		)	—			(568		)	—			—			—		(4,337		)	—			(4,333		)	—			(926		)	—			(121		)	—			—			—		(5,380		)	—
Divested business	—			(1,306		)	—			(53		)	—			—			—			—		—			(1,359		)	—			(431		)	—			1			—			—			—			—		—			(430		)
Organic Revenue⁽²⁾	$	228,080		$	222,417		$	124,475		$	120,958		$	70,263		$	66,201		$	41,419		$	39,529	$	464,237		$	449,105		$	221,221		$	216,839		$	107,303		$	95,364		$	63,664		$	59,997		$	42,514		$	39,246	$	434,702		$	411,446
Organic Revenue growth⁽²⁾	$	5,663					$	3,517					$	4,062					$	1,890				$	15,132					$	4,382					$	11,939					$	3,667					$	3,268				$	23,256
Organic Revenue growth %⁽²⁾	2.5		%				2.9		%				6.1		%				4.8		%			3.4		%				2.0		%				12.5		%				6.1		%				8.3		%			5.7		%


(1)	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note ~~11 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.~~


~~(2)~~	~~A non-GAAP financial measure.~~

~~The reconciliation of commissions and fees, included in the Condensed Consolidated Statement of Income, to Organic Revenue for the nine months ended September 30, 2018 and 2017 is as follows:~~

Nine months ended September 30,
(in thousands) 2018 2017
Commissions and fees $ 1,502,219
$ 1,383,899
Profit-sharing contingent commissions (39,993 ) (45,409 )
Guaranteed supplemental commissions (8,525 ) (8,149 )
Core commissions and fees 1,453,701
1,330,341
New Revenue Standard impact on core commissions and fees (31,604 ) —
Acquisition revenues (39,520 ) —
Divested business —
(1,195 )
Organic Revenue $ 1,382,577
$ 1,329,146

~~The growth rates for Organic Revenue, a non-GAAP financial measure, for the nine months ended September 30, 2018, by segment, are as follows:~~

2018
Retail⁽¹⁾
National Programs Wholesale Brokerage Services Total
(in thousands, except percentages) 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Commissions and fees $ 771,152
$ 711,532
$ 373,990
$ 341,910
$ 219,199
$ 208,284
$ 137,878
$ 122,173
$ 1,502,219
$ 1,383,899
Total change $ 59,620
$ 32,080
$ 10,915
$ 15,705
$ 118,320

Total growth % 8.4 % 9.4 % 5.2 % 12.9 % 8.5 %
Profit-sharing contingent commissions (17,879 ) (22,380 ) (17,290 ) (16,038 ) (4,824 ) (6,991 ) —
—
(39,993 ) (45,409 )
GSCs (7,277 ) (7,109 ) (75 ) (8 ) (1,173 ) (1,032 ) —
—
(8,525 ) (8,149 )
Core commissions and fees $ 745,996
$ 682,043
$ 356,625
$ 325,864
$ 213,202
$ 200,261
$ 137,878
$ 122,173
$ 1,453,701
$ 1,330,341
New Revenue Standard (16,369 ) (11,735 ) 927
(4,427 ) (31,604 )
Acquisition revenues (29,783 ) —
(4,493 ) —
(1,087 ) —
(4,157 ) —
(39,520 ) —
Divested business —
(1,215 ) —
20
—
—
—
—
—
(1,195 )
Organic Revenue⁽²⁾
$ 699,844
$ 680,828
$ 340,397
$ 325,884
$ 213,042
$ 200,261
$ 129,294
$ 122,173
$ 1,382,577
$ 1,329,146
Organic Revenue growth⁽²⁾
$ 19,016
$ 14,513
$ 12,781
$ 7,121
$ 53,431

Organic Revenue growth %⁽²⁾
2.8 % 4.5 % 6.4 % 5.8 % 4.0 %


~~(1)~~	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 11 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.


~~(2)~~	~~A non-GAAP financial measure.~~

~~The reconciliation of commissions and fees, included in the Condensed Consolidated Statement of Income, to Organic Revenue for the nine months ended September 30, 2017 and 2016 is as follows:~~

Nine months ended September 30,
(in thousands) 2017 2016
Commissions and fees $ 1,383,899
$ 1,329,649
Profit-sharing contingent commissions (45,409 ) (46,586 )
Guaranteed supplemental commissions (8,149 ) (8,893 )
Core commissions and fees 1,330,341
1,274,170
Acquisition revenues (22,936 ) —
Divested business —
(2,246 )
Organic Revenue $ 1,307,405
$ 1,271,924

~~The growth rates for Organic Revenue, a non-GAAP financial measure, for the nine months ended September 30, 2017, by segment, are as follows:~~

2017
Retail⁽¹⁾
National Programs Wholesale Brokerage Services Total
(in thousands, except percentages) 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Commissions and fees $ 711,532
$ 694,402
$ 341,910
$ 332,872
$ 208,284
$ 184,673
$ 122,173
$ 117,702
$ 1,383,899
$ 1,329,649
Total change $ 17,130
$ 9,038
$ 23,611
$ 4,471
$ 54,250

Total growth % 2.5 % 2.7 % 12.8 % 3.8 % 4.1 %
Profit-sharing contingent commissions (22,380 ) (24,365 ) (16,038 ) (12,152 ) (6,991 ) (10,069 ) —
—
(45,409 ) (46,586 )
GSCs (7,109 ) (7,488 ) (8 ) (24 ) (1,032 ) (1,381 ) —
—
(8,149 ) (8,893 )
Core commissions and fees $ 682,043
$ 662,549
$ 325,864
$ 320,696
$ 200,261
$ 173,223
$ 122,173
$ 117,702
$ 1,330,341
$ 1,274,170
Acquisition revenues (5,100 ) —
(1,201 ) —
(15,785 ) —
(850 ) —
(22,936 ) —
Divested business —
(2,147 ) —
(302 ) —
—
—
203
—
(2,246 )
Organic Revenue⁽²⁾
$ 676,943
$ 660,402
$ 324,663
$ 320,394
$ 184,476
$ 173,223
$ 121,323
$ 117,905
$ 1,307,405
$ 1,271,924
Organic Revenue growth⁽²⁾
$ 16,541
$ 4,269
$ 11,253
$ 3,418
$ 35,481

Organic Revenue growth %⁽²⁾
2.5 % 1.3 % 6.5 % 2.9 % 2.8 %


~~(1)~~	~~The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 11~~12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.


(2)	A non-GAAP financial measure.

The reconciliation of income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the three months ended ~~September 30, 2018,~~March 31, 2019, is as follows:


(in thousands)	Retail			National Programs			Wholesale Brokerage			Services			Other			Total			Retail			National Programs			Wholesale Brokerage			Services			Other			Total
Income before income taxes	$	61,224		$	46,707		$	23,614		$	6,988		$	3,967		$	142,500		$	93,841		$	19,316		$	15,569		$	9,177		$	10,617		$	148,520
Income Before Income Taxes Margin	23.4		%	32.5		%	30.3		%	14.5		%	NMF			26.8		%	24.1		%	17.6		%	22.1		%	18.5		%	NMF			24.0		%

Amortization	10,754			6,736			2,878			1,269			—			21,637			15,444			6,596			2,849			1,303			—			26,192
Depreciation	1,236			1,346			385			393			1,899			5,259			1,624			1,590			404			284			2,133			6,035
Interest	7,468			6,147			1,233			846			(6,731		)	8,963			21,153			5,354			1,327			872			(13,508		)	15,198
Change in estimated acquisition earn-out payables	(1,068		)	594			18			99			—			(357		)	1,028			42			41			99			—			1,210
EBITDAC	$	79,614		$	61,530		$	28,128		$	9,595		$	(865	)	$	178,002		$	133,090		$	32,898		$	20,190		$	11,735		$	(758	)	$	197,155
EBITDAC Margin	30.5		%	42.9		%	36.1		%	19.9		%	NMF			33.5		%	34.2		%	30.0		%	28.6		%	23.7		%	NMF			31.8		%

NMF = Not a meaningful figure


(in thousands)	Retail			National Programs			Wholesale Brokerage			Services			Other			Total			Retail			National Programs			Wholesale Brokerage			Services			Other			Total
Income before income taxes	$	54,950		$	32,203		$	21,219		$	7,910		$	8,137		$	124,419		$	70,399		$	20,778		$	11,383		$	8,816		$	7,065		$	118,441
Income Before Income Taxes Margin	23.4		%	25.2		%	29.6		%	19.1		%	NMF			26.2		%	25.3		%	18.5		%	17.2		%	20.0		%	NMF			23.6		%

Amortization	10,540			6,913			2,845			1,137			—			21,435			10,242			6,323			2,837			1,137			—			20,539
Depreciation	1,262			1,412			471			402			1,942			5,489			1,237			1,387			427			411			2,090			5,552
Interest	7,216			8,304			1,515			876			(8,518		)	9,393			6,797			7,496			1,435			594			(6,651		)	9,671
Change in estimated acquisition earn-out payables	(1,408		)	68			32			—			—			(1,308		)	835			68			1,563			—			—			2,466
EBITDAC	$	72,560		$	48,900		$	26,082		$	10,325		$	1,561		$	159,428		$	89,510		$	36,052		$	17,645		$	10,958		$	2,504		$	156,669
EBITDAC Margin	30.9		%	38.3		%	36.4		%	24.9		%	NMF			33.5		%	32.2		%	32.1		%	26.7		%	24.9		%	NMF			31.2		%

NMF = Not a meaningful figure

The reconciliation of income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the nine months ended September 30, 2018, is as follows:

(in thousands) Retail National Programs Wholesale Brokerage Services Other Total
Income before income taxes $ 175,984
$ 91,809
$ 55,544
$ 23,889
$ 14,625
$ 361,851
Income Before Income Taxes Margin 22.8 % 24.5 % 25.3 % 17.3 % NMF
24.0 %

Amortization 31,498
19,383
8,537
3,543
—
62,961
Depreciation 3,746
4,087
1,238
1,183
6,156
16,410
Interest 21,377
20,019
4,039
2,023
(18,772 ) 28,686
Change in estimated acquisition earn-out payables 552
843
1,034
99
—
2,528
EBITDAC $ 233,157
$ 136,141
$ 70,392
$ 30,737
$ 2,009
$ 472,436
EBITDAC Margin 30.2 % 36.4 % 32.0 % 22.3 % NMF
31.4 %

~~NMF = Not a meaningful figure~~

The reconciliation of income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the nine months ended September 30, 2017, is as follows:

(in thousands) Retail National Programs Wholesale Brokerage Services Other Total
Income before income taxes $ 151,783
$ 68,127
$ 56,569
$ 22,480
$ 44,429
$ 343,388
Income Before Income Taxes Margin 21.3 % 19.9 % 27.1 % 18.4 % NMF
24.4 %

Amortization 31,704
20,664
8,621
3,412
1
64,402
Depreciation 3,975
4,975
1,438
1,191
5,663
17,242
Interest 23,918
27,257
4,803
2,783
(29,812 ) 28,949
Change in estimated acquisition earn-out payables 7,567
718
24
—
—
8,309
EBITDAC $ 218,947
$ 121,741
$ 71,455
$ 29,866
$ 20,281
$ 462,290
EBITDAC Margin 30.7 % 35.5 % 34.2 % 24.4 % 98.9 % 32.9 %

Retail Segment

The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers. Approximately ~~88%~~89% of the Retail Segment’s commissions and fees revenue is commission based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation and cost to fulfill expense deferrals and releases as required by the New Revenue Standard, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments or modifications to the costs in the organization.

Financial information relating to our Retail Segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
(in thousands, except percentages)	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
REVENUES
Core commissions and fees	$	253,026		$	230,777		9.6	%	$	746,890		$	682,310		9.5	%	$	373,852		$	269,544		38.7	%
Profit-sharing contingent commissions	5,280			1,444			NMF		17,879			22,380			(20.1	)%	11,547			6,130			88.4	%
Guaranteed supplemental commissions	2,573			2,164			18.9	%	7,277			7,109			2.4	%	3,240			2,522			28.5	%
Investment income	1			3			(66.7	)%	2			6			(66.7	)%	—			1			(100.0	)%
Other income, net	207			95			117.9	%	758			934			(18.8	)%	592			205			188.8	%
Total revenues	261,087			234,483			11.3	%	772,806			712,739			8.4	%	389,231			278,402			39.8	%
EXPENSES
Employee compensation and benefits	140,118			128,228			9.3	%	416,427			385,291			8.1	%	199,699			149,444			33.6	%
Other operating expenses	41,356			35,593			16.2	%	123,410			110,645			11.5	%	55,937			39,395			42.0	%
Loss/(gain) on disposal	(1		)	(1,898		)	(99.9	)%	(188		)	(2,144		)	(91.2	)%
(Gain)/loss on disposal																	505			53			NMF
Amortization	10,754			10,540			2.0	%	31,498			31,704			(0.6	)%	15,444			10,242			50.8	%
Depreciation	1,236			1,262			(2.1	)%	3,746			3,975			(5.8	)%	1,624			1,237			31.3	%
Interest	7,468			7,216			3.5	%	21,377			23,918			(10.6	)%	21,153			6,797			NMF
Change in estimated acquisition earn-out payables	(1,068		)	(1,408		)	(24.1	)%	552			7,567			(92.7	)%	1,028			835			23.1	%
Total expenses	199,863			179,533			11.3	%	596,822			560,956			6.4	%	295,390			208,003			42.0	%
Income before income taxes	$	61,224		$	54,950		11.4	%	$	175,984		$	151,783		15.9	%	$	93,841		$	70,399		33.3	%
Income Before Income Taxes Margin ⁽¹⁾	23.4		%	23.4		%			22.8		%	21.3		%			24.1		%	25.3		%
EBITDAC ⁽¹⁾	$	79,614		$	72,560		9.7	%	$	233,157		$	218,947		6.5	%	$	133,090		$	89,510		48.7	%
EBITDAC Margin ⁽¹⁾	30.5		%	30.9		%			30.2		%	30.7		%			34.2		%	32.2		%
Organic Revenue growth rate ⁽¹⁾	2.0		%	2.5		%			2.8		%	2.5		%			3.6		%	2.0		%
Employee compensation and benefits relative to total revenues	53.7		%	54.7		%			53.9		%	54.1		%			51.3		%	53.7		%
Other operating expenses relative to total revenues	15.8		%	15.2		%			16.0		%	15.5		%			14.4		%	14.2		%
Capital expenditures	$	1,467		$	844				$	5,828		$	3,384		72.2	%	$	3,136		$	2,407		30.3	%
Total assets at September 30									$	4,651,080		$	4,246,422		9.5	%
Total assets at March 31																	$	5,773,290		$	4,687,456		23.2	%

(1) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Retail Segment’s total revenues during the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~11.3%~~39.8%, or ~~$26.6~~$110.8 million, from the same period in ~~2017,~~2018, to ~~$261.1~~$389.2 million. The ~~$22.2~~$104.3 million increase in core commissions and fees revenue was driven by: (i) approximately ~~$15.5~~$94.6 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of ~~2017;~~2018; and (ii) an increase of ~~$4.9~~$9.7 million related to net new and renewal business; (iii) $2.0 million related to the impact of adopting the New Revenue Standard; and (iv) an offsetting decrease of $0.2 million related to commissions and fees revenue from businesses divested in 2017 and 2018.business. Profit-sharing contingent commissions and GSCs for the ~~third~~first quarter of ~~2018~~2019 increased ~~117.7%~~70.9%, or ~~$4.2~~$6.1 million, from the same period in ~~2017,~~2018, to $7.9 million. Effective January 1, 2018, as a result of adopting the New Revenue Standard, profit-sharing contingent commissions are accrued throughout the year based on actual premiums written. Previously, profit-sharing contingent commissions were recorded throughout the year as cash was received, with a large portion of the annual profit-sharing contingent commissions being received early in the year. The

$4.2 million increase in profit-sharing contingent commissions and GSCs in the third quarter of 2018 compared to the same period in 2017 was primarily a result of the New Revenue Standard increasing profit-sharing contingent commissions and GSCs by approximately $3.5$14.8 million. The Retail Segment’s total commissions and fees increased by ~~11.3%~~39.7%, and the Organic Revenue growth rate was ~~2.0%~~3.6% for the ~~third~~first quarter of ~~2018.~~2019. The Organic Revenue growth rate was driven by revenue from net new business written during the preceding ~~twelve~~12 months ~~which~~and growth on renewals of existing customers. New business was impacted by ~~some exposure unit growth and~~ modest increases in commercial auto rates and employee benefits, partially offset by continued premium rate reductions in workers compensation. Organic Revenue growth was driven by most lines of ~~business with improved performance across employee benefits.~~business.

Income before income taxes for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~11.4%~~33.3%, or ~~$6.3~~$23.4 million, from the same period in ~~2017,~~2018, to ~~$61.2~~$93.8 million. The primary factors affecting this increase were: (i) the ~~effect of~~profit associated with the ~~adoption of the New Revenue Standard and total~~net increase in revenue ~~growth,~~as described above, partially offset by (ii) an increase in intercompany interest charges and amortization (iii) increased intercompany allocations for technology and the investment to upgrade our Retail Segment's agency management systems, (iv) increased non-cash stock-based compensation, due to the better-than-expected Company performance related to our equity compensation plan and (v) slightly lower Organic Revenue growth for the quarter.associated with new acquisitions.

EBITDAC for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~9.7%~~48.7%, or ~~$7.1~~$43.6 million, from the same period in ~~2017,~~2018, to ~~$79.6~~$133.1 million. EBITDAC Margin for the three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased to ~~30.5%~~34.2% from ~~30.9%~~32.2% in the same period in ~~2017.~~2018. The ~~decrease~~increase in EBITDAC Margin was primarily driven byby: (i) increased intercompany allocations for technology as well as our investment to upgrade our agency management systems, (ii) a gain on an office sale in prior year, (iii) increased non-cash stock-based compensation, due to the better-than-expected Company performance related to our equity compensation plan and partially offset by (iv) the net increase in revenue of ~~$26.6 million.~~

The Retail Segment’s total revenues during the nine months ended September 30, 2018 increased 8.4%, or $60.1 million, over the same period in 2017, to $772.8 million. The $64.6 million increase in core commissions and fees revenue was driven by: (i) approximately $29.8 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2017;$110.8 million; (ii) $19.6 million related to net new and renewal business; (iii) $16.4 million related to the impact of adopting the New Revenue Standard; and (iv) an offsetting decrease of $1.2 million related to commissions and fees revenue from businesses divested in 2017 and 2018. Profit-sharing contingent commissions and GSCs for the first nine months of 2018 decreased 14.7%, or $4.3 million, from the same period in 2017, to $25.2 million. The $4.3 million reduction inhigher profit-sharing contingent commissions and ~~GSCs in~~supplemental commissions; (iii) acquisition performance; and (iv) leveraging the first nine months of 2018 compared to the same period in 2017 was primarily a result of the effect of the New Revenue Standard reducing profit-sharing contingent commissions and GSCs by approximately $5.5 million. The Retail Segment’s ~~growth rate for total commissions~~cost base and ~~fees was 8.4%, and the Organic Revenue growth rate was 2.8% for the first nine months of 2018. Organic Revenue growth was realized across most lines of business and was driven by revenue~~realizing some benefits from net new business written during the preceding twelve months, which was impacted by some exposure unit growth and modest increases in commercial auto rates and employee benefits, partially offset by continued premium rate reductions in workers compensation.

Income before income taxes for the nine months ended September 30, 2018 increased 15.9%, or $24.2 million, over the same period in 2017, to $176.0 million. The primary factors affecting this increase were: (i) the net increase in revenue as described above; (ii) a decrease in the change in estimated acquisition earn-out payables of $7.0 million, and (iii) a reduction in intercompany interest charges of $2.5 million; partially offset by (iv) higher employee compensation and benefits costs driven by incremental costs related to revenue growth, increased non-cash stock-based compensation due to the better-than-expected Company performance related to our equity compensation plan, (v) other operating expenses driven by increased intercompany allocations for technology and the investment to upgrade our Retail Segment's agency management systems.

EBITDAC for the nine months ended September 30, 2018 increased 6.5%, or $14.2 million, from the same period in 2017, to $233.2 million. EBITDAC Margin for the nine months ended September 30, 2018 decreased to 30.2% from 30.7% in the same period in 2017. EBITDAC Margin was impacted by the net increase in revenue as described above, which had higher than average margins associated with the New Revenue Standard. Excluding the impact of the New Revenue Standard, EBITDAC Margin decreased by 200 basis points, driven by the factors impacting employee compensation and benefits as well as other operating expenses described above.previous investments.

National Programs Segment

The National Programs Segment manages over 5040 programs supported by approximately 40100 well-capitalized carrier partners. In most cases, the insurance carriers that support the programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and the National Flood Program. The National Programs Segment’s revenue is primarily commission based.

Financial information relating to our National Programs Segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
(in thousands, except percentages)	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
REVENUES
Core commissions and fees	$	135,561		$	125,518		8.0	%	$	356,625		$	325,864		9.4	%	$	108,343		$	108,335		—	%
Profit-sharing contingent commissions	7,786			1,748			NMF		17,290			16,038			7.8	%	860			3,982			(78.4	)%
Guaranteed supplemental commissions	22			5			NMF		75			8			NMF		4			15			(73.3	)%
Investment income	138			124			11.3	%	384			279			37.6	%	316			114			177.2	%
Other income, net	12			323			(96.3	)%	60			387			(84.5	)%	37			29			27.6	%
Total revenues	143,519			127,718			12.4	%	374,434			342,576			9.3	%	109,560			112,475			(2.6	)%
EXPENSES
Employee compensation and benefits	54,034			50,764			6.4	%	161,681			148,592			8.8	%	52,744			53,535			(1.5	)%
Other operating expenses	26,848			28,058			(4.3	)%	75,505			72,147			4.7	%	23,918			22,888			4.5	%
Loss/(gain) on disposal	1,107			(4		)	NMF		1,107			96			NMF
(Gain)/loss on disposal																	—			—			—	%
Amortization	6,736			6,913			(2.6	)%	19,383			20,664			(6.2	)%	6,596			6,323			4.3	%
Depreciation	1,346			1,412			(4.7	)%	4,087			4,975			(17.8	)%	1,590			1,387			14.6	%
Interest	6,147			8,304			(26.0	)%	20,019			27,257			(26.6	)%	5,354			7,496			(28.6	)%
Change in estimated acquisition earn-out payables	594			68			NMF		843			718			17.4	%	42			68			(38.2	)%
Total expenses	96,812			95,515			1.4	%	282,625			274,449			3.0	%	90,244			91,697			(1.6	)%
Income before income taxes	$	46,707		$	32,203		45.0	%	$	91,809		$	68,127		34.8	%	$	19,316		$	20,778		(7.0	)%
Income Before Income Taxes Margin ⁽¹⁾	32.5		%	25.2		%			24.5		%	19.9		%			17.6		%	18.5		%
EBITDAC ⁽¹⁾	61,530			48,900			25.8	%	$	136,141		$	121,741		11.8	%	32,898			36,052			(8.7	)%
EBITDAC Margin ⁽¹⁾	42.9		%	38.3		%			36.4		%	35.5		%			30.0		%	32.1		%
Organic Revenue growth rate ⁽¹⁾	(3.3		)%	2.9		%			4.5		%	1.3		%			(2.3		)%	12.5		%
Employee compensation and benefits relative to total revenues	37.6		%	39.7		%			43.2		%	43.4		%			48.1		%	47.6		%
Other operating expenses relative to total revenues	18.7		%	22.0		%			20.2		%	21.1		%			21.8		%	20.3		%
Capital expenditures	$	2,420		$	1,357				$	7,313		$	3,885		88.2	%	$	4,568		$	2,678		70.6	%
Total assets at September 30									$	2,933,465		$	5,026,918		(41.6	)%
Total assets at March 31																	$	2,852,824		$	3,009,147		(5.2	)%

(1) A non-GAAP financial measure.

NMF = Not a meaningful figure

The National Programs Segment’s revenue for the three months ended ~~September 30, 2018 increased 12.4%~~March 31, 2019 decreased 2.6%, or ~~$15.8~~$2.9 million, from the same period in ~~2017,~~2018, to ~~$143.5~~$109.6 million. ~~The $10.0 million net increase in core~~Core commissions and fees revenue was flat and was driven by: (i) ~~$11.6 million related to the impact of adopting the New Revenue Standard; (ii)~~ approximately $2.6 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of ~~2017; and (iii)~~2018; (ii) an offsetting decrease of ~~$4.2~~$2.5 million related to net new and renewal ~~business.~~business, primarily driven by lower claims processing activity associated with our flood business versus the prior year; and (iii) $0.1 million decrease related to commissions and fees recorded in 2018 from businesses since divested. Profit-sharing contingent commissions and GSCs were ~~$7.8~~$0.9 million for the ~~third~~first quarter of 2019, which was a decrease of $3.1 million from the first quarter of 2018, ~~which was an increase of $6.1 million from the third quarter of 2017, of which $5.7 million is associated with adoption of the New Revenue Standard.~~primarily driven by lower weather-related claims activity.

The National Programs Segment’s ~~growth rate for~~ total commissions and fees ~~was 12.6%~~declined 2.8%, and ~~the~~ Organic Revenue ~~growth rate was (3.3)%~~declined 2.3%, for the three months ended ~~September 30, 2018.~~March 31, 2019. The Organic Revenue decline was primarily due to lower flood claims ~~volumes/values this year~~processing revenues as compared to ~~last year,~~ the ~~change in risk appetite by certain~~first quarter of ~~our carrier partners for a certain of our programs, and~~2018, as well as a decline in our lender placement business due to the ~~performance of~~continued improving economy and some bank consolidations that are impacting our ~~lender-placed business that is generally counter cyclical.~~customers.

Income before income taxes for the three months ended ~~September 30, 2018 increased 45.0%~~March 31, 2019 decreased 7.0%, or ~~$14.5~~$1.5 million, from the same period in ~~2017,~~2018, to ~~$46.7~~$19.3 million. The ~~growth rate~~decrease was ~~higher than the growth rate for revenues~~ due to ~~(i) higher~~lower profit-sharing contingent ~~commissions~~commission of $3.1 million due to lower weather-related claims activity and the lower profit associated with ~~the impact of the adoption of the New Revenue Standard; (ii) an increase in commissions and fees of $8.0 million associated~~declining revenues, with a ~~non-recurring adjustment related to the New Revenue Standard; and (iii)~~partial offset by lower intercompany interest ~~$2.2 million; partially offset by higher employee compensation and benefits along with a loss associated with the sale~~charges of ~~a business.~~$2.1 million.

EBITDAC for the three months ended ~~September 30, 2018 increased 25.8%~~March 31, 2019 decreased 8.7%, or ~~$12.6~~$3.2 million, from the same period in ~~2017,~~2018, to ~~$61.5~~$32.9 million. EBITDAC Margin for the three months ended ~~September 30, 2018 increased~~March 31, 2019 decreased to ~~42.9%~~30.0% from ~~38.3%~~32.1% in the same period in ~~2017.~~2018. The ~~increase~~decrease in EBITDAC Margin was related to ~~higher~~lower profit-sharing contingent commissions ~~associated with the impact~~ of ~~the adoption of the New Revenue Standard along with the increase in revenue of $8.0~~$3.1 million ~~associated with a non-recurring adjustment related to the New Revenue Standard.~~

The National Programs Segment’s revenue for the nine months ended September 30, 2018 increased 9.3%, or $31.9 million, from the same period in 2017, to $374.4 million. The $30.8 million net increase in core commissions and fees revenue was driven by: (i) $14.6 million related to net new and renewal business; (ii) $11.7 million related to the impact of adopting the New Revenue Standard; and (ii) approximately $4.5 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2017. Profit-sharing contingent commissions and GSCs were $17.4 million for the first nine months of 2018, which was an increase of $1.3 million from the same period in 2017, primarily due to ~~the adoption of the New Revenue Standard.~~

The National Programs Segment’s growth rate for total commissions and fees was 9.4%, and the Organic Revenue growth rate was 4.5% for the nine months ended September 30, 2018. The Organic Revenue growth rate was due to continued growth in our new core commercial program, as well as our commercial and residential earthquake programs.

Income before income taxes for the nine months ended September 30, 2018 increased 34.8%, or $23.7 million, from the same period in 2017, to $91.8 million. The growth rate for income before income taxes was higher than the growth rate for revenues due to (i) higher profit-sharing contingent commissions associated with the impact of the adoption of the New Revenue Standard; (ii) an increase in revenue of $8.0 million associated with a non-recurring adjustment related to the New Revenue Standard recorded in the third quarter; and (iii) lower ~~intercompany interest $7.2 million; partially offset by higher employee compensation and benefits along with a loss associated with the sale of a business.~~

EBITDAC for the nine months ended September 30, 2018 increased 11.8%, or $14.4 million, from the same period in 2017, to $136.1 million. EBITDAC Margin for the nine months ended September 30, 2018 increased to 36.4% from 35.5% in the same period in 2017. The increase in EBITDAC Margin was related to higher (i) profit-sharing contingent commissions associated with the impact of the adoption of the New Revenue Standard; (ii) an increase in revenue of $8 million associated with a non-recurring adjustment related to the New Revenue Standard; (iii) partially offset by the investment in our new core commercial program.weather-related claims activity.

Wholesale Brokerage Segment

The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Like the Retail and National Programs Segments, the Wholesale Brokerage Segment’s revenues are primarily ~~commission-based.~~commission based.

Financial information relating to our Wholesale Brokerage Segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
(in thousands, except percentages)	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
REVENUES
Core commissions and fees	$	76,147		$	70,831		7.5	%	$	213,202		$	200,261		6.5	%	$	67,056		$	63,903		4.9	%
Profit-sharing contingent commissions	1,261			350			NMF		4,824			6,991			(31.0	)%	2,915			1,572			85.4	%
Guaranteed supplemental commissions	458			324			41.4	%	1,173			1,032			13.7	%	391			443			(11.7	)%
Investment income	44			—			—	%	125			—			—	%	40			—			—	%
Other income, net	99			69			43.5	%	401			528			(24.1	)%	107			230			(53.5	)%
Total revenues	78,009			71,574			9.0	%	219,725			208,812			5.2	%	70,509			66,148			6.6	%
EXPENSES
Employee compensation and benefits	37,027			34,678			6.8	%	111,985			104,098			7.6	%	37,510			36,618			2.4	%
Other operating expenses	12,854			10,814			18.9	%	37,348			33,259			12.3	%	12,809			11,885			7.8	%
Loss/(gain) on disposal	—			—			—	%	—			—			—	%
(Gain)/loss on disposal																	—			—			—	%
Amortization	2,878			2,845			1.2	%	8,537			8,621			(1.0	)%	2,849			2,837			0.4	%
Depreciation	385			471			(18.3	)%	1,238			1,438			(13.9	)%	404			427			(5.4	)%
Interest	1,233			1,515			(18.6	)%	4,039			4,803			(15.9	)%	1,327			1,435			(7.5	)%
Change in estimated acquisition earn-out payables	18			32			(43.8	)%	1,034			24			NMF		41			1,563			(97.4	)%
Total expenses	54,395			50,355			8.0	%	164,181			152,243			7.8	%	54,940			54,765			0.3	%
Income before income taxes	$	23,614		$	21,219		11.3	%	$	55,544		$	56,569		(1.8	)%	$	15,569		$	11,383		36.8	%
Income Before Income Taxes Margin ⁽¹⁾	30.3		%	29.6		%			25.3		%	27.1		%			22.1		%	17.2		%
EBITDAC ⁽¹⁾	28,128			26,082			7.8	%	$	70,392		$	71,455		(1.5	)%	20,190			17,645			14.4	%
EBITDAC Margin ⁽¹⁾	36.1		%	36.4		%			32.0		%	34.2		%			28.6		%	26.7		%
Organic Revenue growth rate ⁽¹⁾	7.7		%	6.1		%			6.4		%	6.5		%			3.3		%	6.1		%
Employee compensation and benefits relative to total revenues	47.5		%	48.5		%			51.0		%	49.9		%			53.2		%	55.4		%
Other operating expenses relative to total revenues	16.5		%	15.1		%			17.0		%	15.9		%			18.2		%	18.0		%
Capital expenditures	$	895		$	214				$	1,762		$	1,606		9.7	%	$	1,189		$	420		183.1	%
Total assets at September 30									$	1,272,795		$	1,258,783		1.1	%
Total assets at March 31																	$	1,292,406		$	1,323,046		(2.3	)%

(1) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Wholesale Brokerage Segment’s total revenues for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~9.0%~~6.6%, or ~~$6.4~~$4.4 million, from the same period in ~~2017,~~2018, to ~~$78.0~~$70.5 million. The ~~$5.3~~$3.2 million net increase in core commissions and fees revenue was driven primarily by: (i) ~~$5.4~~$2.1 million related to net new and renewal business; (ii) ~~$0.7~~$1.4 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of ~~2017;~~2018; and (iii) an offsetting ~~$0.8~~$0.3 million decrease related to ~~the impact of adopting the New Revenue Standard.~~commissions and fees recorded in 2018 from businesses since divested. Profit-sharing contingent commissions and GSCs for the ~~third~~first quarter of ~~2018~~2019 increased approximately ~~$1.0~~$1.3 million compared to the ~~third~~first quarter of ~~2017. Approximately $0.9 million of this increase was driven by adopting the New Revenue Standard.~~2018. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was ~~8.9%~~6.7%, and the Organic Revenue growth rate was ~~7.7%~~3.3% for the ~~third~~first quarter of ~~2018.~~2019. The Organic Revenue growth rate was driven by net new business, some rate increases for ~~renewals on~~ coastal ~~properties that suffered a loss associated with the 2017 weather events, some rate increases in the~~property accounts and casualty business, ~~and~~with modest increases in exposure ~~units.~~units, all partially offset by the timing of renewals on certain accounts that renewed in the first quarter of the prior year which are expected to renew in the second and third quarters of the current year.

Income before income taxes for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~11.3%~~36.8%, or ~~$2.4~~$4.2 million from the same period in ~~2017,~~2018, to ~~$23.6~~$15.6 million. The ~~growth rate~~increase was ~~faster than revenues~~ due ~~to:~~to (i) the profit from increased core commissions and fees of $5.3 million; (ii) an increase in profit-sharing contingent commissions of ~~$0.9~~$1.3 million; ~~and~~ (iii) a decrease in ~~the intercompany interest allocation~~estimated acquisition earnouts of ~~$0.3~~$1.5 million; partially offset by (iv) an increase in employee compensation and benefits of ~~$2.3~~$0.9 million due to ~~salary inflation,~~ increased producer compensation ~~due~~driven by to increased core commissions and fees ~~revenue, increases in non-cash stock-based compensation, and compensation related to acquisitions that had no comparable expense in 2017;~~revenue; and (v) an increase of ~~$2.0~~$1.0 million in other operating expenses attributable to ~~increased investments in~~higher expenses associated with technology, professional fees, ~~rent,~~ and ~~exchange rate expense.~~rent.

EBITDAC for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~7.8%~~14.4%, or ~~$2.0~~$2.5 million from the same period in ~~2017,~~2018, to ~~$28.1~~$20.2 million. EBITDAC Margin for the three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased to ~~36.1%~~28.6% from ~~36.4%~~26.7% in the same period in ~~2017.~~2018. The ~~decrease~~increase in EBITDAC Margin was primarily driven by: (i) higher employee compensation and benefits costs, (ii) technology investments, and (iii) an increase in non-cash stock-based compensation; partially offset by; (iv) the adoption of the New Revenue Standard which contributed approximately 40 basis points to the EBITDAC Margin compared to the same period in 2017.

~~The Wholesale Brokerage Segment’s total revenues for the nine months ended September 30, 2018~~ increased ~~5.2%, or $10.9 million, from the same period in 2017, to $219.7 million. The $12.9 million net increase in~~ core commissions and fees ~~revenue was driven primarily by: (i) $12.7 million related to net new~~of $5.3 million; (ii) and ~~renewal business; (ii) $1.1 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2017; and (iii)~~ an offsetting $0.9 million related to the impact of adopting the New Revenue Standard. Profit-sharing contingent commissions and GSCs for the first nine months of 2018 decreased $2.0 million compared to the same period of 2017, to $6.0 million as a result of the adoption of the New Revenue Standard. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 5.2%, and the Organic Revenue growth rate was 6.4% for the first nine months of 2018. The Organic Revenue growth rate was driven by net new business, some rate increases for renewals on properties in catastrophe prone locations, some modest rate increases in the casualty sector, and modest increases in exposure units.

~~Income before income taxes for the nine months ended September 30, 2018 decreased 1.8%, or $1.0 million, from the same period in 2017, to $55.5 million. This was due to: (i) the net decrease~~increase in profit-sharing contingent commissions ~~as described above; (ii)~~of $1.3 million; partially offset by (iii) an increase in employee compensation and benefits of ~~$7.9~~$0.9 million ~~which includes an increase in staff salaries attributable~~due to ~~salary inflation,~~ increased producer compensation due to higher revenue, and higher non-cash based stock compensation due to the better-than-expected Company performance related to our equity compensation plan; (iii) a $1.0 million increase related to the change in estimated acquisition earn-out payables; (iv) a $4.1 million increase in operating expenses driven by ~~information technology investments and exchange rate expense; partially offset by (v) the increase of $13.0 million of~~increased core commissions and ~~fees.~~

~~EBITDAC for the nine months ended September 30, 2018 decreased 1.5%, or $1.1~~fees revenue; and (iv) an increase of $1.0 million ~~from the same period~~ in ~~2017,~~other operating expenses attributable to $70.4 million. EBITDAC Margin for the nine months ended September 30, 2018 decreased to 32.0% from 34.2% in the same period in 2017. The decrease in EBITDAC Margin was primarily driven by the net decrease in profit-sharing contingent commissions as a result of the adopting the New Revenue Standard. Other items affecting the year-over-year change in EBITDAC Margin include increased non-cash stock-based compensation costshigher expenses associated with technology, professional fees, and ~~higher intercompany information technology allocations, which more than offset margin expansion from leveraging of Organic Revenue growth.~~rent.

Services Segment

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. The Services Segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.

Unlike the other segments, nearly all of the Services Segment’s revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.

Financial information relating to our Services Segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
(in thousands, except percentages)	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change
REVENUES
Core commissions and fees	$	48,054		$	41,419		16.0	%	$	137,878		$	122,173		12.9	%	$	49,444		$	43,993		12.4	%
Profit-sharing contingent commissions	—			—			—	%	—			—			—	%	—			—			—	%
Guaranteed supplemental commissions	—			—			—	%	—			—			—	%	—			—			—	%
Investment income	51			72			(29.2	)%	160			224			(28.6	)%	48			73			(34.2	)%
Other income, net	—			—			—	%	—			—			—	%	—			—			—	%
Total revenues	48,105			41,491			15.9	%	138,038			122,397			12.8	%	49,492			44,066			12.3	%
EXPENSES
Employee compensation and benefits	22,597			19,993			13.0	%	63,950			59,606			7.3	%	22,427			20,519			9.3	%
Other operating expenses	15,913			11,173			42.4	%	45,814			32,870			39.4	%	15,330			15,062			1.8	%
Loss/(gain) on disposal	—			—			—	%	(2,463		)	55			NMF
(Gain)/loss on disposal																	—			(2,473		)	(100.0	)%
Amortization	1,269			1,137			11.6	%	3,543			3,412			3.8	%	1,303			1,137			14.6	%
Depreciation	393			402			(2.2	)%	1,183			1,191			(0.7	)%	284			411			(30.9	)%
Interest	846			876			(3.4	)%	2,023			2,783			(27.3	)%	872			594			46.8	%
Change in estimated acquisition earn-out payables	99			—			—	%	99			—			—	%	99			—			—	%
Total expenses	41,117			33,581			22.4	%	114,149			99,917			14.2	%	40,315			35,250			14.4	%
Income before income taxes	$	6,988		$	7,910		(11.7	)%	$	23,889		$	22,480		6.3	%	$	9,177		$	8,816		4.1	%
Income Before Income Taxes Margin ⁽¹⁾	14.5		%	19.1		%			17.3		%	18.4		%			18.5		%	20.0		%
EBITDAC ⁽¹⁾	9,595			10,325			(7.1	)%	$	30,737		$	29,866		2.9	%	11,735			10,958			7.1	%
EBITDAC Margin ⁽¹⁾	19.9		%	24.9		%			22.3		%	24.4		%			23.7		%	24.9		%
Organic Revenue growth rate ⁽¹⁾	2.1		%	4.8		%			5.8		%	2.9		%			0.5		%	8.3		%
Employee compensation and benefits relative to total revenues	47.0		%	48.2		%			46.3		%	48.7		%			45.3		%	46.6		%
Other operating expenses relative to total revenues	33.1		%	26.9		%			33.2		%	26.9		%			31.0		%	34.2		%
Capital expenditures	$	366		$	364				$	798		$	856		(6.8	)%	$	109		$	285		(61.8	)%
Total assets at September 30									$	448,027		$	432,331		3.6	%
Total assets at March 31																	$	480,108		$	432,920		10.9	%

(1) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Services Segment’s total revenues for the three months ended ~~September 30, 2018~~March 31, 2019 increased ~~15.9%~~12.3%, or ~~$6.6~~$5.4 million, over the same period in ~~2017,~~2018, to ~~$48.1~~$49.5 million. The ~~$6.6~~$5.5 million net increase in core commissions and fees revenue was driven primarily by: (i) ~~$4.2~~$5.3 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2017; and (ii) ~~$1.6 million related to the impact of adopting the New Revenue Standard; and (iii) $0.8~~$0.2 million related to net new and renewal business. The Services Segment’s growth rate for total commissions and fees was ~~16.0%~~12.4%, and the Organic Revenue growth rate was ~~2.1%~~0.5% for the ~~third~~first quarter of ~~2018.~~2019. The Organic Revenue growth rate was ~~primarily~~impacted by lower claims in our Social Security advocacy business due to ~~new~~the prior year completion of advocacy work on a book of business ~~and expansion of the current customer base, with a partial offset for lower revenues associated with weather related events~~substantially offsetting Organic Revenue growth in ~~2018.~~other businesses.

Income before income taxes for the three months ended ~~September 30, 2018 decreased 11.7%~~March 31, 2019 increased 4.1%, or ~~$0.9~~$0.4 million, from the same period in ~~2017,~~2018, to ~~$7.0~~$9.2 million ~~due to~~as a ~~combination~~result of ~~$0.6 million related to~~ the ~~impact~~growth in total revenue and the leveraging of ~~adopting the New Revenue Standard, and to~~our expense base, partially offset by a ~~lesser extent new client~~gain on ~~boarding costs, an acquisition during the quarter and lower weather-related claims activity as compared to~~disposal recorded in the prior ~~year.~~year and higher intercompany interest charges associated with acquisitions.

EBITDAC for the three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased 7.1%, or ~~$0.7~~$0.8 million, from the same period in ~~2017,~~2018, to ~~$9.6~~$11.7 million. EBITDAC Margin for the three months ended ~~September 30, 2018~~March 31, 2019 decreased to ~~19.9%~~23.7% from 24.9% in the same period in ~~2017.~~2018. The decrease in EBITDAC Margin was ~~primarily~~entirely driven by the impact of the New Revenue Standard along with higher non-cash stock-based compensation, due to the better-than-expected Company performance related to our equity compensation plan, the acquisition of a ~~business with an EBITDAC Margin lower than the segmental average and intercompany allocation of technology costs.~~

The Services Segment’s total revenues for the nine months ended September 30, 2018 increased 12.8%, or $15.6 million, over the same period in 2017, to $138.0 million. The $15.7 million net increase in core commissions and fees revenue was driven primarily by: (i) $7.1 million related to net new and renewal business; (ii) $4.4 million related to the impact of the adopting the New Revenue Standard; and (iii) $4.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenuesgain on disposal recorded in the same period of 2017. The Services Segment’s growth rate for total commissions and fees was 12.9%, and the Organic Revenue growth rate was 5.8% for the first nine months of 2018. The increased Organic Revenue growth rate was primarily due to higher new business and expansion of the current customer base, with a partial offset for lower revenues associated with weather-related events in 2018.

Income before income taxes for the nine months ended September 30, 2018 increased 6.3%, or $1.4 million, over the same period in 2017, to $23.9 million due to a combination of the impact of adopting the New Revenue Standard, leveraging our Organic Revenue growth and lower intercompany interest charges.

EBITDAC for the nine months ended September 30, 2018 increased 2.9%, or $0.9 million, over the same period in 2017, to $30.7 million. EBITDAC Margin for the nine months ended September 30, 2018 decreased to 22.3% from 24.4% in the same period in 2017. The decrease in EBITDAC Margin was due to the impact of the New Revenue Standard along with higher non-cash stock-based compensation, due to the better-than-expected Company performance related to our equity compensation plan and intercompany allocation of technology costs offset by the gain on disposal.prior year.

Other

As discussed in Note 1112 of the Notes to Condensed Consolidated Financial Statements, the “Other” column in the Segment Information table includes any income and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to maintain a conservative balance sheet and liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. ~~If necessary, we also~~We have ~~available~~the ability to utilize our revolving credit facility (the “Facility”), which provides up to $800.0 million in available ~~cash. We~~cash, and we believe that we have access to additional funds, if needed, through the capital markets ~~in order~~ to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the ~~Amended and Restated~~Revolving Credit ~~Agreement,~~Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next ~~twelve~~12 months.

On October 22, 2018 the Company announced that it entered into an agreement to acquire the assets of The Hays Group, Inc. and certain of affiliates (the “Acquisition”). The transaction is expected to close in November 2018, subject to certain closing conditions. Pursuant to the terms of the agreement, the Company will pay an initial purchase price of $705.0 million consisting of $605.0 million in cash to be paid at closing of the acquisition along with shares of common stock equal to $100.0 million (as valued at the average closing price on the New York Stock Exchange over the 30-day period prior to the closing of the Acquisition). In addition, the terms include earn-out payments in the aggregate amount of up to $25.0 million in cash over three years, which are subject to certain conditions and the successful achievement of average annual EBITDA compound annual growth rate targets for the acquired business during 2019, 2020 and 2021. The Company intends to utilize the aforementioned revolving credit facility to fund the cash amount due at closing.

Contractual Cash Obligations

As of ~~September 30, 2018,~~March 31, 2019, our contractual cash obligations were as follows:


	Payments Due by Period										Payments Due by Period
(in thousands)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years		Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt	$	870,000	$	30,000	$	80,000	$	260,000	$	500,000	$	1,506,250	$	55,000	$	128,750	$	472,500	$	850,000
Other liabilities⁽¹⁾	57,187		4,227		4,703		2,651		45,606		62,206		3,383		5,615		3,621		49,587
Operating leases	209,792		42,899		72,004		46,324		48,565		223,356		33,577		111,511		40,241		38,027
Interest obligations	166,346		33,666		63,792		48,763		20,125		358,165		62,407		118,098		89,941		87,719
Unrecognized tax benefits	1,119		—		1,119		—		—		1,839		—		1,839		—		—
Maximum future acquisition contingency payments⁽²⁾	151,634		36,913		96,889		17,832		—		218,228		46,431		154,896		9,620		7,281
Total contractual cash obligations	$	1,456,078	$	147,705	$	318,507	$	375,570	$	614,296	$	2,370,044	$	200,798	$	520,709	$	615,923	$	1,032,614


(1)	Includes the current portion of other long-term liabilities.


(2)	Includes ~~$65.3~~$108.7 million of current and non-current estimated earn-out payables.

Debt

Total debt at ~~September 30, 2018~~March 31, 2019 was ~~$862.4~~$1,495.0 million net of unamortized discount and debt issuance costs, which was a decrease of ~~$113.8~~$12.0 million compared to December 31, ~~2017.~~2018. The decrease includes the ~~payment~~repayment of the principal balance of ~~$100.0~~$8.8 million for scheduled principal amortization balances related to our various existing floating rate debt term notes, as well as an additional contra liability for discount to par and aggregate debt issuance costs in total of $3.6 million related to the ~~Series E~~issuance of the Company's 4.500% Senior Notes ~~which was paid in full, the repayment~~due 2029 as of ~~$15.0 million in principal,~~March 31, 2019, net of the amortization of discounted debt related to our ~~4.200%~~various unsecured Senior Notes, ~~due in 2024,~~ and debt issuance cost amortization of ~~$1.1~~$0.4 million.

On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions which are customary for credit-rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with 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.

Off-Balance Sheet Arrangements

Neither we nor our subsidiaries have ever incurred off-balance sheet obligations through the use of, or investment in, off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts.

For further discussion of our cash management and risk management policies, see “Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and equity prices. We are exposed to market risk through our investments, revolving credit line, term loan agreements and international operations.

Our invested assets are held primarily as cash and cash equivalents, restricted cash, available-for-sale marketable debt securities, non-marketable debt securities, certificates of deposit, U.S. treasury securities, and professionally managed short duration fixed income funds. These investments are subject to interest rate risk. The fair values of our invested assets at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material.

We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date.

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$370.0~~$656.3 million of borrowings outstanding under our various term ~~loan,~~loans, which ~~bears~~bear interest on a floating basis tied to the London Interbank Offered Rate (“LIBOR”) and therefore can result in changes to our associated interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our Condensed Consolidated Financial Statements.

We are subject to exchange rate risk primarily in our U.K.-based wholesale brokerage business that has a cost base principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars. Based upon our foreign currency rate exposure as of ~~September 30, 2018,~~March 31, 2019, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Condensed Consolidated Financial Statements.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation (the “Evaluation”) required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of ~~September 30, 2018.~~March 31, 2019. Based upon the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Controls

Additional controls have been implemented to address new processes enacted in connection with adopting ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and ASC Topic 340 - Other Assets and Deferred Cost. Other than these new controls, thereThere has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended ~~September 30, 2018,~~March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Control Over Financial Reporting

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are supplied in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item 4 of Part I of this Quarterly Report on Form 10-Q contains the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II

ITEM 1. Legal Proceedings

In Item 3 of Part I of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2017,~~2018, certain information concerning litigation claims arising in the ordinary course of business was disclosed. Such information was current as of the date of filing. During the Company’s fiscal quarter ended ~~September 30, 2018,~~March 31, 2019, no new legal proceedings, or material developments with respect to existing legal proceedings, occurred which require disclosure in this Quarterly Report on Form 10-Q.

ITEM 1A. Risk Factors

There were no material changes in the risk factors previously disclosed in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our repurchase of shares of our common stock during the three months ended ~~September 30, 2018:~~March 31, 2019:

Total number
of shares
purchased⁽¹⁾

Average price
paid per share

Total number
of shares
purchased as
part of
publicly
announced
plans or
programs

Maximum value that
may yet be purchased
under the plans or
programs⁽²⁾
July 1, 2018 to July 31, 2018 1,415
$ 28.34
—
$ 227,453,029
August 1, 2018 to August 31, 2018 136,105
29.20
—
227,453,029
September 1, 2018 to September 30, 2018 9,254
30.48
—
227,453,029
Total 146,774
$ 29.27
—
$ 227,453,029



	Total number of shares purchased⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum value that may yet be purchased under the plans or programs⁽²⁾
January 1, 2019 to January 31, 2019	200,832	$	27.73	—	$	147,453,029
February 1, 2019 to February 28, 2019	23,836	29.30		—	147,453,029
March 1, 2019 to March 31, 2019	18,483	28.88		—	147,453,029
Total	243,151	$	27.97	—	$	147,453,029


(1)	We purchased ~~146,774~~243,151 shares during the quarter ended ~~September 30, 2018~~March 31, 2019, which were acquired from our employees to cover required tax withholdings on the vesting of shares in our equity compensation plans.

(2)

On July 21, 2014, our Board of Directors approved the repurchase of up to $200.0 million of the Company’s outstanding common stock. On July 20, 2015, the ~~Company’s~~ Board of Directors authorized the repurchase of up to an additional $400.0 million of the Company's outstanding common stock. As of ~~September 30, 2018,~~March 31, 2019, the Company’s outstanding Board-approved share repurchase authorization ~~is $227.5~~was approximately $147.5 million. AOn May 1, 2019, the Board of Directors approved an additional repurchase authorization amount of $372.5 million to bring the total available share repurchase authorization to approximately $500.0 million. Between the first quarter of 2014 and March 31, 2019, the Company repurchased a total of ~~10,886,546~~approximately 13.8 million shares ~~had been acquired prior to the Stock Split on March 28, 2018; treasury shares did not participate in the Stock Split.~~for an aggregate cost of approximately $477.5 million.

ITEM 6. Exhibits

The following exhibits are filed as a part of this Report:




3.1		Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on March 29, 2018), Articles of Amendment to Articles of Incorporation (adopted April 24, 2003) (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 2003) and Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 1999).

3.2		Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on October 12, 2016).

4.1		Second Supplemental Indenture, dated as of March 11, 2019, between Brown & Brown, Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to Form 8-K filed March 12, 2019).

4.2		Form of Brown & Brown, Inc.'s 4.500% Notes due 2029 (incorporated by reference to Exhibit 4.3 to Form 8-K filed March 12, 2019).

10.1		Underwriting Agreement, dated as of March 4, 2019, among Brown & Brown, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to Form 8-K filed March 8, 2019).

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant.

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of the Registrant.

32.1		Section 1350 Certification by the Chief Executive Officer of the Registrant.

32.2		Section 1350 Certification by the Chief Financial Officer of the Registrant.

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




				BROWN & BROWN, INC.


				/s/ R. Andrew Watts
Date: ~~November 5, 2018~~May 9, 2019				R. Andrew Watts
				Executive Vice President, Chief Financial Officer and Treasurer
				(duly authorized officer, principal financial officer and principal accounting officer)

4842



(in thousands)	Balance at December 31, 2017		Adjustments due to the New Revenue Standard		Balance at January 1, 2018
Balance Sheet
Assets:
Premiums, commissions and fees receivable	$	546,402	$	153,058	$	699,460
Other current assets	47,864		52,680		100,544

Liabilities:
Premiums payable to insurance companies	685,163		12,107		697,270
Accounts payable	64,177		8,747		72,924
Accrued expenses and other liabilities	228,748		22,794		251,542
Deferred income taxes, net	256,185		44,575		300,760

Shareholders' Equity:
Retained earnings	2,456,599		117,515		2,574,114



	Nine months ended September 30, 2018
(in thousands)	As reported		Impact of adopting the New Revenue Standard			Balances without the New Revenue Standard
Statement of Income
Revenues:
Commissions and fees	$	1,502,219	$	24,700		$	1,477,519

Expenses:
Employee compensation and benefits	790,902		(3,396		)	794,298
Other operating expenses	243,704		6,996			236,708
Income taxes	91,048		5,309			85,739

Net income	$	270,803	$	15,791		$	255,012



	Three months ended September 30, 2018
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Base commissions⁽¹⁾	$	207,703	$	92,106	$	62,216	$	—	$	(11	)	$	362,014
Fees⁽²⁾	33,915		43,168		13,887		48,054		(360		)	138,664
Incentive commissions⁽³⁾	11,408		287		44		—		16			11,755
Profit-sharing contingent commissions⁽⁴⁾	5,280		7,786		1,261		—		—			14,327
Guaranteed supplemental commissions⁽⁵⁾	2,573		22		458		—		—			3,053
Investment income⁽⁶⁾	1		138		44		51		485			719
Other income, net⁽⁷⁾	207		12		99		—		—			318
Total Revenues	$	261,087	$	143,519	$	78,009	$	48,105	$	130		$	530,850



	Three months ended September 30, 2017
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	234,483	$	127,718	$	71,574	$	41,491	$	380		$	475,646
Investment income	$	3	$	124	$	—	$	72	$	292		$	491
Amortization	$	10,540	$	6,913	$	2,845	$	1,137	$	—		$	21,435
Depreciation	$	1,262	$	1,412	$	471	$	402	$	1,942		$	5,489
Interest expense	$	7,216	$	8,304	$	1,515	$	876	$	(8,518	)	$	9,393
Income before income taxes	$	54,950	$	32,203	$	21,219	$	7,910	$	8,137		$	124,419
Total assets	$	4,246,422	$	5,026,918	$	1,258,783	$	432,331	$	(3,550,177	)	$	7,414,277
Capital expenditures	$	844	$	1,357	$	214	$	364	$	1,270		$	4,049



	Nine months ended September 30,
(in thousands)	2018			2017
Commissions and fees	$	1,502,219		$	1,383,899
Profit-sharing contingent commissions	(39,993		)	(45,409		)
Guaranteed supplemental commissions	(8,525		)	(8,149		)
Core commissions and fees	1,453,701			1,330,341
New Revenue Standard impact on core commissions and fees	(31,604		)	—
Acquisition revenues	(39,520		)	—
Divested business	—			(1,195		)
Organic Revenue	$	1,382,577		$	1,329,146