Edgar Filing: BROWN & BROWN, INC.

Document

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 June 30, 2018



¨	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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	¨ (Do not check if a smaller reporting company)	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

The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of August 6, 2018 was 279,274,182.

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BROWN & BROWN, INC.

INDEX




		PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017	5
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	6
	Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2018 and 2017	7
	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45

SIGNATURE		46

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Disclosure Regarding Forward-Looking Statements

Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or similar words. We have based these statements on our current expectations about potential future events. Although we believe the expectations expressed in the forward-looking statements included in this Quarterly Report on Form 10-Q and the reports, statements, information and announcements incorporated by reference into this report are based upon reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. Many of these factors have previously been identified in filings or statements made by us or on our behalf. Important factors which could cause our actual results to differ materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:


•	Future prospects;


•	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;


•	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 (such as the recent hurricanes in Florida and Texas and fires in California) in Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Michigan, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia and Washington, 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 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 2018;


•	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 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.

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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.

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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 June 30,					For the six months ended June 30,
	2018			2017		2018			2017
REVENUES
Commissions and fees	$	472,068		$	464,724	$	972,406		$	909,290
Investment income	731			351		1,332			594
Other income, net	388			1,230		910			21,501
Total revenues	473,187			466,305		974,648			931,385
EXPENSES
Employee compensation and benefits	251,958			244,517		522,857			490,383
Other operating expenses	83,694			71,312		160,007			138,231
(Gain)/loss on disposal	(230		)	9		(2,650		)	(91		)
Amortization	20,785			21,347		41,324			42,967
Depreciation	5,599			5,655		11,151			11,753
Interest	10,052			9,874		19,723			19,556
Change in estimated acquisition earn-out payables	419			5,589		2,885			9,617
Total expenses	372,277			358,303		755,297			712,416
Income before income taxes	100,910			108,002		219,351			218,969
Income taxes	26,988			41,900		54,601			82,757
Net income	$	73,922		$	66,102	$	164,750		$	136,212
Net income per share:
Basic	$	0.27		$	0.24	$	0.60		$	0.49
Diluted	$	0.26		$	0.23	$	0.58		$	0.48
Dividends declared per share	$	0.075		$	0.068	$	0.150		$	0.135

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(in thousands, except per share data)	June 30, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	477,928		$	573,383
Restricted cash and investments	309,231			250,705
Short-term investments	11,161			24,965
Premiums, commissions and fees receivable	736,341			546,402
Reinsurance recoverable	89,116			477,820
Prepaid reinsurance premiums	310,707			321,017
Other current assets	106,724			47,864
Total current assets	2,041,208			2,242,156
Fixed assets, net	85,213			77,086
Goodwill	2,845,854			2,716,079
Amortizable intangible assets, net	640,554			641,005
Investments	20,092			13,949
Other assets	68,636			57,275
Total assets	$	5,701,557		$	5,747,550
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies	$	815,504		$	685,163
Losses and loss adjustment reserve	88,149			476,721
Unearned premiums	310,707			321,017
Premium deposits and credits due customers	101,184			91,648
Accounts payable	98,265			64,177
Accrued expenses and other liabilities	217,898			228,748
Current portion of long-term debt	25,000			120,000
Total current liabilities	1,656,707			1,987,474
Long-term debt less unamortized discount and debt issuance costs	841,959			856,141
Deferred income taxes, net	284,309			256,185
Other liabilities	87,100			65,051
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 287,085 shares and outstanding 276,198 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	28,708			28,692
Additional paid-in capital	502,950			483,730
Treasury stock, at cost at 10,887 shares at 2018 and 10,719 shares at 2017, respectively - in thousands.	(397,572		)	(386,322		)
Retained earnings	2,697,396			2,456,599
Total shareholders’ equity	2,831,482			2,582,699
Total liabilities and shareholders’ equity	$	5,701,557		$	5,747,550

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six months ended June 30,
(in thousands)	2018			2017
Cash flows from operating activities:
Net income	$	164,750		$	136,212
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization	41,324			42,967
Depreciation	11,151			11,753
Non-cash stock-based compensation	15,027			15,326
Change in estimated acquisition earn-out payables	2,885			9,617
Deferred income taxes	(16,437		)	14,793
Amortization of debt discount	79			79
Amortization and disposal of deferred financing costs	740			943
Accretion of discounts and premiums, investment	1			13
Net gain on sales of investments, fixed assets and customer accounts	(2,432		)	136
Payments on acquisition earn-outs in excess of original estimated payables	(3,408		)	(7,109		)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Premiums, commissions and fees receivable (increase)/decrease	(29,471		)	2,918
Reinsurance recoverables decrease	388,704			55,604
Prepaid reinsurance premiums decrease	10,310			10,925
Other assets (increase)	(15,731		)	(9,326		)
Premiums payable to insurance companies increase	106,839			59,219
Premium deposits and credits due customers increase	8,360			8,500
Losses and loss adjustment reserve (decrease)	(388,572		)	(55,604		)
Unearned premiums (decrease)	(10,310		)	(10,925		)
Accounts payable increase	31,343			38,510
Accrued expenses and other liabilities (decrease)	(34,837		)	(26,021		)
Other liabilities (decrease)	(2,909		)	(28,449		)
Net cash provided by operating activities	277,406			270,081
Cash flows from investing activities:
Additions to fixed assets	(19,390		)	(8,848		)
Payments for businesses acquired, net of cash acquired	(141,803		)	(11,526		)
Proceeds from sales of fixed assets and customer accounts	2,906			669
Purchases of investments	(8,863		)	(5,916		)
Proceeds from sales of investments	16,346			2,911
Net cash used in investing activities	(150,804		)	(22,710		)
Cash flows from financing activities:
Payments on acquisition earn-outs	(5,183		)	(8,668		)
Payments on long-term debt	(110,001		)	(86,750		)
Deferred debt issuance costs	—			(2,753		)
Issuances of common stock for employee stock benefit plans	720			500
Repurchase shares to fund tax withholdings for non-cash stock-based compensation	(7,656		)	(5,054		)
Purchase of treasury stock	(11,250		)	(11,159		)
Settlement (prepayment) of accelerated share repurchase program	11,250			—
Cash dividends paid	(41,411		)	(37,840		)
Net cash used in financing activities	(163,531		)	(151,724		)
Net (decrease)/increase in cash and cash equivalents inclusive of restricted cash	(36,929		)	95,647
Cash and cash equivalents inclusive of restricted cash at beginning of period	824,088			781,283
Cash and cash equivalents inclusive of restricted cash at end of period	$	787,159		$	876,930

See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 9 for the reconciliations of cash and cash equivalents inclusive of restricted cash.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1· Nature of Operations

Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and services 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 Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; the National Programs Segment, acting 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 nationwide networks of independent agents, including Brown & Brown retail agents; the Wholesale Brokerage Segment markets and sells excess and surplus commercial insurance, primarily through independent agents and brokers, including Brown & Brown Retail offices; and 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.

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. ASU 2016-02 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 being that the present value of the remaining lease payments 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 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 $191.8 million as of June 30, 2018 as detailed in the Liquidity and Capital Resources section of this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Standards

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies to all entities, required to present a statement of cash flows under Topic 230. ASU 2016-15 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. The Company adopted 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.

In March 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.

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In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), which provides guidance for revenue recognition. 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 expects to be entitled in exchange for those goods or services. Effective as of January 1, 2018, the Company adopted ASU 2014–09, and all related amendments, which established Accounting Standards Codification ("ASC") Topic 606. The Company adopted these standards by recognizing the cumulative effect as an adjustment to opening retained earnings at January 1, 2018, under the modified retrospective method for contracts not completed as of the day of adoption. The cumulative impact of adopting Topic 606 on January 1, 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 and, therefore, such information presented for the three and six months ended June 30, 2017 continues to be reported under the Company's previous accounting policies.

The following areas are impacted by the adoption of Topic 606:

Historically, approximately 70% of the Company’s commissions and fees are in the form of commissions paid by insurance carriers. These commissions are earned 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, the Company estimates 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 within a contract, 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 exception of the Company's Arrowhead businesses, which followed a policy of recognizing these revenues on the latter of the policy effective date or processed date in our systems. As a result of the adoption of Topic 606, certain revenues associated with the issuance of policies are now recognized upon the effective date 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 the completion of the performance obligation, thereby creating a current asset for the unbilled revenue, until such time as an invoice is generated, which typically does not exceed twelve months. The Company does not expect the overall impact of these changes to be significant on a full-year basis, but the timing of recognizing revenue will impact our fiscal quarters when compared to prior years. For the six months ended June 30, 2018, the adoption of Topic 606 increased base and incentive commissions revenue, as defined in Note 3, by $14.8 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 based on predetermined production levels mutually agreed upon by both parties.

Profit-sharing contingent commissions - Prior to the adoption of Topic 606, revenue that was not fixed and determinable because a contingency existed was not recognized until the contingency was resolved. Under Topic 606, the Company must estimate the amount of consideration that will be received 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 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 recognition of the corresponding core commissions. The resulting effect on the timing of recognizing profit-sharing contingent commissions will now more closely follow 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 six months ended June 30, 2018, the adoption of Topic 606 reduced profit-sharing contingent commissions revenue by $17.0 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 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 control of the related services to the customer. The Company does not expect the overall impact of these changes to be significant on a full-year basis, but the timing of recognizing fees revenue will impact our fiscal quarters when compared to prior years. For the six months ended June 30, 2018, the adoption of Topic 606 increased fees revenue by $2.4 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.

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Incremental cost to obtain - The adoption of ASC 340 resulted 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 costs 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 six months ended June 30, 2018, the Company deferred $6.6 million of incremental cost to obtain customer contracts. The Company expensed $0.1 million of the incremental cost to obtain customer contracts for the six months ended June 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 six months ended June 30, 2018, the Company had net expense of $3.9 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.

In connection with 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.

The cumulative effect of 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)” 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.

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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.



	Six months ended June 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	972,406	224		972,182

Expenses:
Employee compensation and benefits	522,857	(2,119	)	524,976
Other operating expenses	160,007	4,684		155,323
Income taxes	54,601	(583	)	55,184

Net income	164,750	(1,758	)	166,508

NOTE 3· Revenues

The following tables present the revenues disaggregated by revenue source:



	Three months ended June 30, 2018
(in thousands)	Retail		National Programs			Wholesale Brokerage		Services		Other			Total
Base commissions⁽¹⁾	$	193,242	$	80,281		$	60,215	$	—	$	(155	)	$	333,583
Fees⁽²⁾	22,689		32,479			12,675		45,831		(286		)	113,388
Incentive commissions⁽³⁾	8,389		(31		)	262		—		3			8,623
Profit-sharing contingent commissions⁽⁴⁾	6,469		5,521			1,991		—		—			13,981
Guaranteed supplemental commissions⁽⁵⁾	2,182		39			272		—		—			2,493
Investment income⁽⁶⁾	—		132			81		36		482			731
Other income, net⁽⁷⁾	346		19			72		—		(49		)	388
Total Revenues	$	233,317	$	118,440		$	75,568	$	45,867	$	(5	)	$	473,187



	Six months ended June 30, 2018
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Base commissions⁽¹⁾	$	401,548	$	157,383	$	112,676	$	—	$	(29	)	$	671,578
Fees⁽²⁾	60,367		63,672		23,910		89,824		(522		)	237,251
Incentive commissions⁽³⁾	31,949		9		469		—		12			32,439
Profit-sharing contingent commissions⁽⁴⁾	12,599		9,503		3,563		—		—			25,665
Guaranteed supplemental commissions⁽⁵⁾	4,704		54		715		—		—			5,473
Investment income⁽⁶⁾	1		246		81		109		895			1,332
Other income, net⁽⁷⁾	551		48		302		—		9			910
Total Revenues	$	511,719	$	230,915	$	141,716	$	89,933	$	365		$	974,648

(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 we control.

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



(in thousands)	June 30, 2018		December 31, 2017⁽¹⁾
Contract assets	$	213,477	$	210,323
Contract liabilities	$	59,361	$	51,236


(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. 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.

As of June 30, 2018, deferred revenue consisted of $50.5 million as current portion to be recognized within one year and $8.9 million in long term to be recognized beyond one year. As of December 31, 2017, deferred revenue consisted of $44.5 million as current portion to be recognized within one year and $6.7 million in long term to be recognized beyond one year.

During the six months ended June 30, 2018, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was insignificant.

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 June 30,						For the six months ended June 30,
(in thousands, except per share data)	2018			2017			2018			2017
Net income	$	73,922		$	66,102		$	164,750		$	136,212
Net income attributable to unvested awarded performance stock	(1,618		)	(1,642		)	(3,529		)	(3,329		)
Net income attributable to common shares	$	72,304		$	64,460		$	161,221		$	132,883
Weighted average number of common shares outstanding – basic	276,123			280,346			276,038			280,286
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic	(6,042		)	(6,962		)	(5,912		)	(6,850		)
Weighted average number of common shares outstanding for basic net income per common share	270,081			273,384			270,126			273,436
Dilutive effect of stock options	5,827			4,818			5,683			4,692
Weighted average number of shares outstanding – diluted	275,908			278,202			275,809			278,128
Net income per share:
Basic	$	0.27		$	0.24		$	0.60		$	0.49
Diluted	$	0.26		$	0.23		$	0.58		$	0.48

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NOTE 5· Business Combinations

During the six months ended June 30, 2018, 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 twelve 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 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, 2018, adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $21.4 thousand 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, 2018 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 $150.0 million in the six-month period ended June 30, 2018. We completed eight acquisitions (excluding book of business purchases) in the six-month period ended June 30, 2018. We completed three acquisitions (excluding book of business purchases) in the six-month period ended June 30, 2017.

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	$	2,422	$	23,022	$	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)	National Programs	May 1, 2018	29,471		559		14,630		44,660		20,000
Servco Pacific, Inc. (Servco)	Retail	June 1, 2018	76,551		—		916		77,467		7,000
Other	Various	Various	$	10,393	$	137	$	2,023	$	12,553	$	4,528
Total			$	149,992	$	2,386	$	22,071	$	174,449	$	38,048

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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			Other			Total
Cash	$	—	$	—		$	—	$	8,189		$	—		$	8,189
Other current assets	—		—			—		7,743			—			7,743
Fixed assets	12		10			67		178			$	23		$	290
Goodwill	17,938		13,417			35,436		53,967			9,017			129,775
Purchased customer accounts	5,051		4,712			9,136		16,902			4,912			40,713
Non-compete agreements	21		22			21		1			105			170
Other assets	—		—			—		1,528			—			1,528
Total assets acquired	23,022		18,161			44,660		88,508			14,057			188,408
Other current liabilities	—		(1,414		)	—		(11,041		)	(1,504		)	(13,959		)
Total liabilities assumed	—		(1,414		)	—		(11,041		)	(1,504		)	(13,959		)
Net assets acquired	23,022		$	16,747		44,660		77,467			$	12,553		$	174,449

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 $129.8 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail and Wholesale Brokerage Segments in the amounts of $124.2 million and $5.6 million, respectively. Of the total goodwill of $129.8 million, the amount currently deductible for income tax purposes is $107.7 million and the remaining $22.1 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, 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, 2018, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2018, was $7.9 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through June 30, 2018, included in the Condensed Consolidated Statement of Income for the six months ended June 30, 2018, 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 June 30,				Six months ended June 30,
(in thousands, except per share data)	2018		2017		2018		2017
Total revenues	$	478,414	$	479,225	$	991,188	$	956,510
Income before income taxes	$	102,056	$	111,018	$	223,189	$	224,855
Net income	$	74,761	$	67,948	$	167,633	$	139,874
Net income per share:
Basic	$	0.27	$	0.25	$	0.61	$	0.50
Diluted	$	0.27	$	0.24	$	0.60	$	0.49
Weighted average number of shares outstanding:
Basic	270,081		273,384		270,126		273,436
Diluted	275,908		278,202		275,809		278,128

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As of June 30, 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 six months ended June 30, 2018 and 2017, were as follows:



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2018			2017			2018			2017
Balance as of the beginning of the period	$	40,600		$	57,408		$	36,175		$	63,821
Additions to estimated acquisition earn-out payables	17,549			493			22,071			282
Payments for estimated acquisition earn-out payables	(6,028		)	(5,547		)	(8,591		)	(15,777		)
Subtotal	52,121			52,354			49,655			48,326
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables	(189		)	4,851			1,873			8,186
Interest expense accretion	608			738			1,012			1,431
Net change in earnings from estimated acquisition earn-out payables	419			5,589			2,885			9,617
Balance as of June 30,	$	52,540		$	57,943		$	52,540		$	57,943

Of the $52.5 million estimated acquisition earn-out payables as of June 30, 2018, $24.0 million was recorded as accounts payable and $28.5 million was recorded as other non-current liabilities. As of June 30, 2018, the maximum future acquisition contingency payments related to all acquisitions was $106.1 million, inclusive of the $52.5 million estimated acquisition earn-out payables as of June 30, 2018. 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, and identified no impairment as a result of the evaluation.

The changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2018 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	124,230		—		5,545		—		129,775
Balance as of June 30, 2018	$	1,510,478	$	908,472	$	291,643	$	135,261	$	2,845,854

NOTE 7· Amortizable Intangible Assets

Amortizable intangible assets at June 30, 2018 and December 31, 2017 consisted of the following:



	June 30, 2018								December 31, 2017
(in thousands)	Gross carrying value		Accumulated amortization			Net carrying value		Weighted average life (years)⁽¹⁾	Gross carrying value		Accumulated amortization			Net carrying value		Weighted average life (years)⁽¹⁾
Purchased customer accounts	$	1,504,859	$	(865,347	)	$	639,512	15.0	$	1,464,274	$	(824,584	)	$	639,690	15.0
Non-compete agreements	30,457		(29,415		)	1,042		6.8	30,287		(28,972		)	1,315		6.8
Total	$	1,535,316	$	(894,762	)	$	640,554		$	1,494,561	$	(853,556	)	$	641,005


(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 and 2022 is estimated to be $82.9 million, $79.2 million, $71.9 million, $68.6 million, and $64.2 million, respectively.

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NOTE 8· Long-Term Debt

Long-term debt at June 30, 2018 and December 31, 2017 consisted of the following:



(in thousands)	June 30, 2018			December 31, 2017
Current portion of long-term debt:
Current portion of 5-year term loan facility expires June 28, 2022	$	25,000		$	20,000
4.500% senior notes, Series E, quarterly interest payments, balloon due September 2018	—			100,000
Total current portion of long-term debt	25,000			120,000
Long-term debt:
Note agreements:
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024	499,022			498,943
Total notes	499,022			498,943
Credit agreements:
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022	350,000			365,000
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	—			—
Total credit agreements	350,000			365,000
Debt issuance costs (contra)	(7,063		)	(7,802		)
Total long-term debt less unamortized discount and debt issuance costs	841,959			856,141
Current portion of long-term debt	25,000			120,000
Total debt	$	866,959		$	976,141

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 June 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”) 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 term loan principal amortization schedule was reset with payments due quarterly. 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 Facility to the Consolidated Balance Sheet. The Company also expensed to the Consolidated Statements of Income $0.2 million of debt issuance costs related to the Original Credit Agreement due to certain lenders exiting prior to the modified agreement, while also carrying forward $1.6 million on the Consolidated Balance Sheet the unamortized portion of the Original Credit Agreement debt issuance costs which will amortize over the term of the Amended and Restated Credit Agreement. Either or both of 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

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Restated Credit Agreement includes various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers. On June 30, 2018, a scheduled principal payment of $5.0 million was satisfied per the terms of the Amended and Restated Credit Agreement. As of June 30, 2018, there was an outstanding debt balance issued under the terms of the Amended and Restated Credit Agreement of $375.0 million with no borrowings outstanding against the revolving loan. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment of $5.0 million is due September 30, 2018.

On September 18, 2014, the Company issued $500.0 million of 4.200% unsecured Senior Notes due in 2024. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay the outstanding balance of $475.0 million on the revolving Credit Facility and for other general corporate purposes. As of June 30, 2018 and December 31, 2017, there was an outstanding debt balance of $500.0 million exclusive of the associated discount balance.

The Master Agreement and the Amended and Restated 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 June 30, 2018 and December 31, 2017.

The 30-day Adjusted LIBOR Rate as of June 30, 2018 was 2.125%.

NOTE 9· 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:



	Six months ended June 30,
(in thousands)	2018		2017
Cash paid during the period for:
Interest	$	19,112	$	18,556
Income taxes	$	65,521	$	77,343

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



	Six months ended June 30,
(in thousands)	2018		2017
Other payable issued for purchased customer accounts	$	2,386	$	11,069
Estimated acquisition earn-out payables and related charges	$	22,071	$	282

Our 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 June 30, 2018 and 2017.



	Balance as of June 30,
(in thousands)	2018		2017
Table to reconcile cash and cash equivalents inclusive of restricted cash
Cash and cash equivalents	$	477,928	$	600,296
Restricted cash	309,231		276,634
Total cash and cash equivalents inclusive of restricted cash at the end of the period	$	787,159	$	876,930

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



	Balance as of December 31,
(in thousands)	2017		2016
Table to reconcile cash and cash equivalents inclusive of restricted cash
Cash and cash equivalents	$	573,383	$	515,646
Restricted cash	250,705		265,637
Total cash and cash equivalents inclusive of restricted cash at the end of the period	$	824,088	$	781,283

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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· Legal and Regulatory Proceedings