During the three months ended March 31, 2019, Brown & Brown acquired the assets and assumed certain liabilities of seven insurance intermediaries and all of the stock of one insurance intermediary. Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 months as permitted by Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category within the following two tables. The recorded purchase price for all acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Condensed Consolidated Statements of Income when incurred.

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

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the three months ended March 31, 2019, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $6.8 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments in the three months ended March 31, 2019 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period.

Cash paid for acquisitions was $98.3 million in the three-month period ended March 31, 2019. The Company completed eight acquisitions (excluding book of business purchases) in the three-month period ended March 31, 2019. The Company completed two acquisitions (excluding book of business purchases) in the three-month period ended March 31, 2018.

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



(in thousands)
Name	Business segment	Effective date of acquisition	Cash paid		Other payable		Recorded earn-out payable		Net assets acquired		Maximum potential earn- out payable
Smith Insurance Associates, Inc. (Smith)	Retail	February 1, 2019	$	20,129	$	—	$	2,704	$	22,833	$	4,550
Donald P. Pipino Company, LTD (Pipino)	Retail	February 1, 2019	16,420		135		9,821		26,376		12,996
Cossio Insurance Agency (Cossio)	Retail	March 1, 2019	13,990		10		1,710		15,710		2,000
Medval LLC (Medval)	Services	March 1, 2019	29,106		—		1,684		30,790		2,500
Other	Various	Various	18,654		463		2,236		21,353		5,475
Total			$	98,299	$	608	$	18,155	$	117,062	$	27,521

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



(in thousands)	Smith			Pipino			Cossio		Medval			Other			Total
Cash	$	—		$	—		$	—	$	3,218		$	—		$	3,218
Other current assets	588			194			—		1,708			(6,835		)	(4,345		)
Fixed assets	40			114			29		50			$	(121	)	$	112
Goodwill	16,031			18,146			11,336		19,008			15,911			80,432
Purchased customer accounts	6,500			11,360			4,324		7,300			6,298			35,782
Non-compete agreements	41			11			21		1			64			138
Other assets	—			—			—		14			302			316
Total assets acquired	23,200			29,825			15,710		31,299			15,619			115,653
Other current liabilities	(367		)	(3,449		)	—		(480		)	5,734			1,438
Other liabilities	—			—			—		(29		)	—			(29		)
Total liabilities assumed	(367		)	(3,449		)	—		(509		)	5,734			1,409
Net assets acquired	$	22,833		$	26,376		$	15,710	$	30,790		$	21,353		$	117,062

Goodwill of $80.4 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, Wholesale Brokerage and Services Segments in the amounts of $55.1 million, $6.1 million and $19.2 million, respectively. Of the total goodwill of $80.4 million, the amount currently deductible for income tax purposes is $62.2 million and the remaining $18.2 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.

For the acquisitions completed during 2019, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through March 31, 2019, included in the Condensed Consolidated Statement of Income for the three months ended March 31, 2019, was $4.8 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through March 31, 2019, included in the Condensed Consolidated Statement of Income for the three months ended March 31, 2019, was $1.0 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.



(UNAUDITED)	Three months ended March 31,
(in thousands, except per share data)	2019		2018
Total revenues	$	624,219	$	512,730
Income before income taxes	$	149,863	$	121,469
Net income	$	114,926	$	93,150
Net income per share:
Basic	$	0.41	$	0.34
Diluted	$	0.41	$	0.33
Weighted average number of shares outstanding:
Basic	272,679		270,172
Diluted	275,014		275,714

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



	Three months ended March 31,
(in thousands)	2019			2018
Balance as of the beginning of the period	$	89,924		$	36,175
Additions to estimated acquisition earn-out payables	18,155			4,524
Payments for estimated acquisition earn-out payables	(579		)	(2,565		)
Subtotal	107,500			38,134
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables	50			2,062
Interest expense accretion	1,160			404
Net change in earnings from estimated acquisition earn-out payables	1,210			2,466
Balance as of March 31,	$	108,710		$	40,600