During the six months ended June 30, 2019, Brown & Brown acquired the assets and assumed certain liabilities of eleven insurance intermediaries, all of the stock of one insurance intermediary and two books of business (customer accounts). 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 six months ended June 30, 2019, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $6.5 million relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments in the six months ended June 30, 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 $149.9 million in the six-month period ended June 30, 2019. The Company completed 12 acquisitions (excluding book of business purchases) in the six-month period ended June 30, 2019. The Company completed eight acquisitions (excluding book of business purchases) in the six-month period ended June 30, 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		100		1,684		30,890		2,500
United Development Systems, Inc. (United)	Retail	May 1, 2019	18,987		388		3,268		22,643		8,625
Twinbrook Insurance Brokerage, Inc. (Twinbrook)	Retail	June 1, 2019	26,251		400		1,565		28,216		5,073
Other	Various	Various	24,980		1,126		3,214		29,320		7,709
Total			$	149,863	$	2,159	$	23,966	$	175,988	$	43,453

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			United			Twinbrook			Other			Total
Cash	$	—		$	—		$	—	$	3,218		$	—		$	—		$	—		$	3,218
Other current assets	473			819			17		1,708			477			—			(6,658		)	(3,164		)
Fixed assets	39			112			29		50			$	20		$	85		$	(97	)	$	238
Goodwill	16,249			16,765			11,319		19,108			15,111			19,839			22,111			120,502
Purchased customer accounts	6,500			11,360			4,324		7,300			7,065			8,557			9,013			54,119
Non-compete agreements	41			11			21		1			11			12			106			203
Other assets	—			772			—		14			—			—			(732		)	54
Total assets acquired	23,302			29,839			15,710		31,399			22,684			28,493			23,743			175,170
Other current liabilities	(469		)	(3,463		)	—		(480		)	(41		)	(277		)	5,577			847
Other liabilities	—			—			—		(29		)	—			—			—			(29		)
Total liabilities assumed	(469		)	(3,463		)	—		(509		)	(41		)	(277		)	5,577			818
Net assets acquired	$	22,833		$	26,376		$	15,710	$	30,890		$	22,643		$	28,216		$	29,320		$	175,988

The other column represents current year acquisitions with total net assets acquired less than $10.0 million and adjustments from prior year acquisitions that were made within the permitted measurement period.

Goodwill of $120.5 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 $95.1 million, $6.1 million and $19.3 million, respectively. Of the total goodwill of $120.5 million, the amount currently deductible for income tax purposes is $96.5 million and the remaining $24.0 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 June 30, 2019, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2019, was $16.4 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through June 30, 2019, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2019, was $2.6 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 June 30,				Six months ended June 30,
(in thousands, except per share data)	2019		2018		2019		2018
Total revenues	$	576,706	$	486,052	$	1,204,844	$	1,002,442
Income before income taxes	$	124,019	$	104,549	$	275,188	$	227,202
Net income	$	92,965	$	76,588	$	208,876	$	170,647
Net income per share:
Basic	$	0.33	$	0.28	$	0.74	$	0.62
Diluted	$	0.33	$	0.27	$	0.74	$	0.61
Weighted average number of shares outstanding:
Basic	272,563		270,081		272,621		270,126
Diluted	274,402		275,908		274,704		275,809

As of June 30, 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 and six months ended June 30, 2019 and 2018, were as follows:



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Balance as of the beginning of the period	$	108,710		$	40,600		$	89,924		$	36,175
Additions to estimated acquisition earn-out payables	5,811			17,549			23,966			22,071
Payments for estimated acquisition earn-out payables	(6,685		)	(6,028		)	(7,264		)	(8,591		)
Subtotal	107,836			52,121			106,626			49,655
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables	(4,350		)	(189		)	(4,301		)	1,873
Interest expense accretion	1,490			608			2,651			1,012
Net change in earnings from estimated acquisition earn-out payables	(2,860		)	419			(1,650		)	2,885
Balance as of June 30,	$	104,976		$	52,540		$	104,976		$	52,540

Of the $105.0 million estimated acquisition earn-out payables as of June 30, 2019, $12.8 million was recorded as accounts payable and $92.2 million was recorded as other non-current liabilities. As of June 30, 2019, the maximum future acquisition contingency payments related to all acquisitions was $224.1 million, inclusive of the $105.0 million estimated acquisition earn-out payables as of June 30, 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.