Item 1. Financial Statements (Unaudited)

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Item 1. Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three months ended September 30,						Nine months ended September 30,
(in millions, except per share data)	2023			2022			2023			2022
REVENUES
Commissions and fees	$	1,049.3		$	925.2		$	3,193.2		$	2,668.2
Investment income		16.6			1.2			33.8			1.8
Other income, net		1.8			1.2			3.9			2.0
Total revenues		1,067.7			927.6			3,230.9			2,672.0
EXPENSES
Employee compensation and benefits		531.6			470.3			1,632.9			1,341.3
Other operating expenses		167.7			169.6			490.2			450.6
(Gain)/loss on disposal		(2.8	)		—			(8.9	)		(0.9	)
Amortization		41.1			43.5			123.7			108.2
Depreciation		10.4			11.3			30.5			28.3
Interest		47.5			41.5			142.1			95.8
Change in estimated acquisition earn-out payables		29.9			(26.6	)		29.4			(33.1	)
Total expenses		825.4			709.6			2,439.9			1,990.2
Income before income taxes		242.3			218.0			791.0			681.8
Income taxes		66.4			56.9			189.2			155.2
Net income	$	175.9		$	161.1		$	601.8		$	526.6
Net income per share:
Basic	$	0.62		$	0.57		$	2.12		$	1.86
Diluted	$	0.62		$	0.57		$	2.11		$	1.85
Dividends declared per share	$	0.115		$	0.103		$	0.345		$	0.309

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATE****MENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)


	Three months ended September 30,						Nine months ended September 30,
(in millions)	2023			2022			2023		2022
Net income	$	175.9		$	161.1		$	601.8	$	526.6
Foreign currency translation		(77.2	)		(172.3	)		20.6		(304.5	)
Unrealized gain/(loss) on available-for-sale debt securities, net of tax		0.1			(0.4	)		0.2		(1.6	)
Comprehensive (loss) income	$	98.8		$	(11.6	)	$	622.6	$	220.5

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATE****D BALANCE SHEETS

(UNAUDITED)


(in millions, except per share data)	September 30, 2023			December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	755.7		$	650.0
Fiduciary cash		1,515.2			1,383.2
Short-term investments		13.2			12.0
Commission, fees and other receivables		732.6			642.9
Fiduciary receivables		862.5			881.4
Reinsurance recoverable		220.1			831.0
Prepaid reinsurance premiums		502.7			393.2
Other current assets		243.2			202.3
Total current assets		4,845.2			4,996.0
Fixed assets, net		250.2			239.9
Operating lease assets		198.0			214.9
Goodwill		6,845.6			6,674.2
Amortizable intangible assets, net		1,531.7			1,595.2
Investments		24.3			22.4
Other assets		288.0			230.9
Total assets	$	13,983.0		$	13,973.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Fiduciary liabilities	$	2,377.7		$	2,264.6
Losses and loss adjustment reserve		231.7			841.1
Unearned premiums		530.9			412.3
Accounts payable		380.2			286.5
Accrued expenses and other liabilities		507.5			541.5
Current portion of long-term debt		562.5			250.6
Total current liabilities		4,590.5			4,596.6
Long-term debt less unamortized discount and debt issuance costs		3,144.6			3,691.5
Operating lease liabilities		178.9			195.9
Deferred income taxes, net		568.4			584.0
Other liabilities		301.9			298.9
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 560.0 shares; issued 304.0 shares and outstanding 284.3 shares at 2023, issued 302.9shares and outstanding 283.2 shares at 2022, respectively		30.4			30.3
Additional paid-in capital		987.1			919.7
Treasury stock, at cost 19.7 shares at 2023, 19.7 shares at 2022, respectively.		(748.1	)		(748.0	)
Accumulated other comprehensive loss		(127.6	)		(148.4	)
Retained earnings		5,056.9			4,553.0
Total shareholders’ equity		5,198.7			4,606.6
Total liabilities and shareholders’ equity	$	13,983.0		$	13,973.5

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


	Common Stock
(in millions, except per share data)	Shares Outstanding			Par Value			Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at December 31, 2022		283.2		$	30.3		$	919.7		$	(748.0	)	$	(148.4	)	$	4,553.0		$	4,606.6
Net income																	235.5			235.5
Net unrealized holding (loss) gain on available-for-sale securities														0.3						0.3
Foreign currency translation														47.1						47.1
Shares issued - employee stock compensation plans:
Employee stock purchase plan								3.4												3.4
Stock incentive plans		1.0			0.1			20.9												21.0
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(0.6	)		(0.1	)		(36.1	)											(36.2	)
Purchase of treasury stock		—			—						(0.1	)								(0.1	)
Cash dividends paid ($0.1150 per share)																	(32.6	)		(32.6	)
Balance at March 31, 2023		283.6		$	30.3		$	907.9		$	(748.1	)	$	(101.0	)	$	4,755.9		$	4,845.0
Net income																	190.4			190.4
Net unrealized holding (loss) gain on available-for- sale securities														(0.2	)					(0.2	)
Foreign currency translation								(0.2	)					50.7						50.5
Shares issued - employee stock compensation plans:
Employee stock purchase plan								2.4												2.4
Stock incentive plans		—			—			18.7												18.7
Directors		—			—			1.1												1.1
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		—			—			(2.8	)											(2.8	)
Cash dividends paid ($0.1150 per share)																	(32.6	)		(32.6	)
Balance at June 30, 2023		283.6		$	30.3		$	927.1		$	(748.1	)	$	(50.5	)	$	4,913.7		$	5,072.5
Net income																	175.9			175.9
Net unrealized holding (loss) gain on available-for-sale securities														0.1						0.1
Foreign currency translation								—						(77.2	)					(77.2	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan		0.7			0.1			42.9												43.0
Stock incentive plans		—			—			17.9												17.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		—			—			(0.8	)											(0.8	)
Cash dividends paid ($0.1150 per share)																	(32.7	)		(32.7	)
Balance at September 30, 2023		284.3		$	30.4		$	987.1		$	(748.1	)	$	(127.6	)	$	5,056.9		$	5,198.7

Balance at December 31, 2021		282.5		$	30.1		$	849.4		$	(673.9	)	$	(9.4	)	$	4,000.7		$	4,196.9
Net income																	220.3			220.3
Net unrealized holding (loss) gain on available-for-sale securities														(0.9	)					(0.9	)
Foreign currency translation														(2.1	)					(2.1	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan								2.7												2.7
Stock incentive plans		1.7			0.2			17.3												17.5
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(0.7	)		(0.1	)		(45.9	)											(46.0	)
Purchase of treasury stock		(0.4	)		—						(24.1	)								(24.1	)
Cash dividends paid ($0.1025 per share)																	(28.9	)		(28.9	)
Balance at March 31, 2022		283.1		$	30.2		$	823.5		$	(698.0	)	$	(12.4	)	$	4,192.1		$	4,335.4
Net income																	145.2			145.2
Net unrealized holding (loss) gain on available-for-sale securities														(0.3	)					(0.3	)
Foreign currency translation								(0.1	)					(130.1	)					(130.2	)
Shares issued - employee stock compensation plans:
Employee stock purchase plan								1.7												1.7
Stock incentive plans		(0.1	)		—			12.1												12.1
Directors		—			—			0.9												0.9
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		—			—			(2.4	)											(2.4	)
Purchase of treasury stock		(0.8	)		—						(50.0	)								(50.0	)
Cash dividends paid ($0.1025 per share)																	(29.0	)		(29.0	)
Balance at June 30, 2022		282.2		$	30.2		$	835.7		$	(748.0	)	$	(142.8	)	$	4,308.3		$	4,283.4
Net income																	161.1			161.1
Net unrealized holding (loss) gain on available-for-sale securities														(0.4	)					(0.4	)
Foreign currency translation								0.6						(172.3	)					(171.7	)
Shares issued - employee stock compensation plans:


Employee stock purchase plan	0.8		0.1		39.1												39.2
Stock incentive plans	—		—		13.6												13.6
Agency acquisition	0.3		—		14.7												14.7
Repurchase shares to fund tax withholdings for non-cash stock-based compensation	—		—		(0.3	)											(0.3	)
Purchase of treasury stock	—		—														—
Cash dividends paid ($0.1025 per share)														(29.0	)		(29.0	)
Balance at September 30, 2022	283.3	$	30.3	$	903.4		$	(748.0	)	$	(315.5	)	$	4,440.4		$	4,310.6

See accompanying Notes to Condensed Consolidated Financial Statements.

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine months ended September 30,
(in millions)	2023			2022
Cash flows from operating activities:
Net income	$	601.8		$	526.6
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		123.7			108.2
Depreciation		30.5			28.3
Non-cash stock-based compensation		67.0			50.3
Change in estimated acquisition earn-out payables		29.4			(33.1	)
Deferred income taxes		(1.4	)		40.2
Amortization of debt discount and disposal of deferred financing costs		3.1			2.8
Amortization (accretion) of discounts and premiums, investment		0.1			0.2
Net (gain)/loss on sales/disposals of investments, fixed assets and customer accounts		(11.2	)		—
Payments on acquisition earn-outs in excess of original estimated payables		(17.7	)		(24.3	)
Effect of changes in foreign exchange rate changes		0.1			(0.4	)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Commissions, fees and other receivables (increase) decrease		(82.8	)		(47.4	)
Reinsurance recoverable (increase) decrease		610.9			(958.5	)
Prepaid reinsurance premiums (increase) decrease		(109.5	)		(17.7	)
Other assets (increase) decrease		(87.1	)		(15.1	)
Losses and loss adjustment reserve increase (decrease)		(609.4	)		970.4
Unearned premiums increase (decrease)		118.5			38.5
Accounts payable increase (decrease)		163.0			80.3
Accrued expenses and other liabilities increase (decrease)		(40.6	)		(63.4	)
Other liabilities increase (decrease)		(84.3	)		(86.1	)
Net cash provided by operating activities		704.1			599.8
Cash flows from investing activities:
Additions to fixed assets		(38.4	)		(32.4	)
Payments for businesses acquired, net of cash acquired		(163.3	)		(1,889.7	)
Proceeds from sales of fixed assets and customer accounts		8.6			2.2
Purchases of investments		(6.2	)		—
Proceeds from sales of investments		6.0			7.3
Net cash used in investing activities		(193.3	)		(1,912.6	)
Cash flows from financing activities:
Fiduciary receivables and liabilities, net		117.0			24.4
Deferred acquisition purchase payment		—			(5.1	)
Payments on acquisition earn-outs		(56.8	)		(52.8	)
Proceeds from long-term debt		—			2,000.0
Payments on long-term debt		(238.1	)		(44.4	)
Deferred debt issuance costs		—			(23.3	)
Borrowings on revolving credit facility		170.0			350.0
Payments on revolving credit facilities		(170.0	)		(200.0	)
Issuances of common stock for employee stock benefit plans		40.6			37.4
Repurchase shares to fund tax withholdings for non-cash stock-based compensation		(39.8	)		(48.7	)
Purchase of treasury stock		(0.1	)		(74.1	)
Cash dividends paid		(97.9	)		(86.9	)
Net cash (used in)/provided by financing activities		(275.1	)		1,876.5
Effect of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash		2.0			(183.1	)
Net increase in cash and cash equivalents inclusive of fiduciary cash		237.7			380.6
Cash and cash equivalents inclusive of fiduciary cash at beginning of period		2,033.2			1,470.2
Cash and cash equivalents inclusive of fiduciary cash at end of period	$	2,270.9		$	1,850.8

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

NOTES TO CONDEN****SED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 Nature of Operations

Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and service organization that markets and sells insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable segments. The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile and recreational vehicle dealer services (“F&I”) businesses. The National Programs segment, which acts as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide network of independent agents, including Brown & Brown retail agents. The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents. The Services segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.

The Company primarily operates as an agent or broker not assuming underwriting risks. However, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s underwriting business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”). In addition, WNFIC writes excess flood policies that are fully reinsured by a private carrier. The Company also participates in two capitalized captive insurance facilities (the "Captives") for the purpose of facilitating additional underwriting capacity, generating incremental revenues and participating in underwriting results.

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, 2022.

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

None.

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate expected to be discontinued due to reference rate reform. These amendments, along with the amendments within ASU 2022-06 "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" that extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848, are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. The Company adopted ASU 2020-04 on February 10, 2023 in connection with enacting the transition provision in our Second Amended and Restated Credit Agreement dated October 27, 2021. Under the allowable expedients, a modification of a debt contract that is only a replacement of the reference rate is accounted for as a non-substantial modification. Adoption of this guidance had no impact on the Company's financial statements.

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:


	Three months ended September 30, 2023
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	411.2	$	188.2	$	121.5	$	—	$	0.1		$	721.0
Fees (2)		133.8		60.8		21.1		42.4		(0.3	)		257.8
Other supplemental commissions (3)		29.2		1.0		0.9		—		—			31.1
Profit-sharing contingent commissions (4)		9.7		12.1		5.5		—		—			27.3
Earned premium (5)		—		12.1		—		—		—			12.1
Investment income (6)		0.5		3.8		0.6		—		11.7			16.6
Other income, net (7)		1.6		0.2		—		—		—			1.8
Total Revenues	$	586.0	$	278.2	$	149.6	$	42.4	$	11.5		$	1,067.7


	Three months ended September 30, 2022
(in millions)	Retail		National Programs			Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	360.6	$	165.8		$	103.7	$	—	$	—		$	630.1
Fees (2)		130.6		56.2			18.4		41.1		(0.2	)		246.1
Other supplemental commissions (3)		25.0		3.7			0.9		—		—			29.6
Profit-sharing contingent commissions (4)		10.9		(6.2	)		3.1		—		—			7.8
Earned premium (5)		—		11.6			—		—		—			11.6
Investment income (6)		—		0.3			0.1		—		0.8			1.2
Other income, net (7)		1.1		—			0.1		—		—			1.2
Total Revenues	$	528.2	$	231.4		$	126.3	$	41.1	$	0.6		$	927.6


	Nine months ended September 30, 2023
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	1,297.3	$	543.6	$	335.7	$	—	$	0.1		$	2,176.7
Fees (2)		393.8		166.4		59.1		129.9		(1.4	)		747.8
Other supplemental commissions (3)		138.9		5.1		3.3		—		—			147.3
Profit-sharing contingent commissions (4)		40.1		35.0		12.6		—		—			87.7
Earned premium (5)		—		33.7		—		—		—			33.7
Investment income (6)		1.0		7.0		1.2		—		24.6			33.8
Other income, net (7)		3.1		0.4		0.1		—		0.3			3.9
Total Revenues	$	1,874.2	$	791.2	$	412.0	$	129.9	$	23.6		$	3,230.9


	Nine months ended September 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other (8)			Total
Base commissions (1)	$	1,055.7	$	443.2	$	277.1	$	—	$	(0.1	)	$	1,775.9
Fees (2)		369.4		137.6		52.0		128.8		(1.0	)		686.8
Other supplemental commissions (3)		117.3		7.7		3.9		—		—			128.9
Profit-sharing contingent commissions (4)		38.3		12.0		8.2		—		—			58.5
Earned premium (5)		—		18.1		—		—		—			18.1
Investment income (6)		—		0.6		0.2		—		1.0			1.8
Other income, net (7)		1.6		0.1		0.2		—		0.1			2.0
Total Revenues	$	1,582.3	$	619.3	$	341.6	$	128.8	$	—		$	2,672.0

(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.

(2)

Fee revenues relate to fees for services other than securing coverage for our customers, fees negotiated in lieu of commissions, and F&I products and services.

(3)

Other supplemental commissions include additional commissions over base commissions received from insurance carriers based on predetermined growth or production measures. This includes incentive commissions and guaranteed supplemental commissions.

(4)

Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.

(5)

Earned premium relates to the premiums earned in the Captives.

(6)

Investment income consists primarily of interest on cash and investments.

(7)

Other income consists primarily of other miscellaneous income.

(8)

Fees within Other reflects the elimination of intercompany revenues.

The following table presents the revenues disaggregated by geographic area where our services are being performed:


	Three months ended September 30,				Nine months ended September 30,
(in millions, except per share data)	2023		2022		2023		2022
U.S.	$	941.7	$	835.5	$	2,857.4	$	2,539.2
U.K.		105.6		75.9		308.6		84.3
Ireland		8.7		7.6		31.0		24.2
Canada		9.7		5.7		25.4		17.8
Other		2.0		2.9		8.5		6.5
Total Revenues	$	1,067.7	$	927.6	$	3,230.9	$	2,672.0

Contract Assets and Liabilities

The balances of contract assets and contract liabilities arising from contracts with customers as of September 30, 2023 and December 31, 2022 were as follows:


(in millions)	September 30, 2023		December 31, 2022
Contract assets	$	468.0	$	431.2
Contract liabilities	$	107.9	$	113.3

Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in the Company's systems and are reflected in commissions, fees and other receivables in the Company's Condensed Consolidated Balance Sheet. The increase in contract assets over the balance as of December 31, 2022 is due to normal seasonality, growth in our business, and from businesses acquired in the current year.

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 12 months from the date presented in the Company's Condensed Consolidated Balance Sheet.

As of September 30, 2023, deferred revenue consisted of $67.2 million as the current portion to be recognized within one year and $40.7 million in long-term to be recognized beyond one year. As of December 31, 2022, deferred revenue consisted of $79.9 million as the current portion to be recognized within one year and $33.4 million in long-term deferred revenue to be recognized beyond one year.

During the nine months ended September 30, 2023 and 2022, the net amount of revenue recognized related to performance obligations satisfied in a previous period was $26.0 million and $23.9 million, consisting of additional variable consideration received on our incentive and profit-sharing contingent commissions.

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 $91.4 million and $76.0 million as of September 30, 2023 and December 31, 2022, respectively. For the nine months ended September 30, 2023, the Company deferred $20.3 million of incremental cost to obtain customer contracts. The Company recorded an expense of $4.9 million associated with the incremental cost to obtain customer contracts for the nine months ended September 30, 2023.

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 as of September 30, 2023 was $107.4 million. The cost to fulfill balance as of December 31, 2022 was $108.7 million. For the nine months ended September 30, 2023, the Company had net expense of $5.8 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 issuance of all potentially issuable common shares. The dilutive effect of potentially issuable common shares is computed by application of the treasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:


	Three months ended September 30,						Nine months ended September 30,
(in millions, except per share data)	2023			2022			2023			2022
Net income	$	175.9		$	161.1		$	601.8		$	526.6
Net income attributable to unvested awarded performance stock		(2.6	)		(2.9	)		(9.4	)		(10.1	)
Net income attributable to common shares	$	173.3		$	158.2		$	592.4		$	516.5
Weighted average number of common shares outstanding – basic		284.1			283.0			283.7			282.7
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic		(4.2	)		(5.2	)		(4.4	)		(5.4	)
Weighted average number of common shares outstanding for basic net income per common share		279.9			277.8			279.3			277.3
Dilutive effect of potentially issuable common shares		1.4			0.9			1.1			1.2
Weighted average number of shares outstanding – diluted		281.3			278.7			280.4			278.5
Net income per share:
Basic	$	0.62		$	0.57		$	2.12		$	1.86
Diluted	$	0.62		$	0.57		$	2.11		$	1.85

NOTE 5 Business Combinations

During the nine months ended September 30, 2023, Brown & Brown acquired all of the stock of 12 insurance intermediaries, purchased assets and assumed certain liabilities of five insurance intermediaries, and purchased four books of business (customer accounts) for a total of 21 acquisitions. Additionally, 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 in the following table. 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 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 months ended September 30, 2023, adjustments were made within the permitted measurement period that included an increase to deferred tax liability of $17.3 million, an increase to purchased customer accounts of $10.9 million, an decrease to other current assets of $3.3 million for a net decrease in goodwill of $9.7 million. These measurement period adjustments have been reflected as current period adjustments in the nine months ended September 30, 2023 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments had no effect on earnings or cash in the current period.

Cash paid for the 21 acquisitions was $176.8 million during the nine months ended September 30, 2023. 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 adjustments to the 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.

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired through the nine months ended September 30, 2023 as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.


	Nine months ended September 30, 2023
(in millions)	Other (1)			Total
Cash paid	$	176.8		$	176.8
Common stock Issued		—			—
Other payable		4.9			4.9
Recorded earn-out payable		51.3			51.3
Total consideration		233.0			233.0
Maximum potential earn-out payable		98.9			98.9
Allocation of purchase price:
Cash and equivalents		4.5			4.5
Fiduciary cash		9.1			9.1
Fiduciary receivables		19.3			19.3
Other current assets		14.9			14.9
Fixed assets		0.1			0.1
Goodwill		154.2			154.2
Purchased customer accounts and other		55.3			55.3
Non-compete agreements		0.3			0.3
Operating lease right-of-use assets		—			—
Deferred income tax, net (2)		13.6			13.6
Other assets		0.1			0.1
Total assets acquired		271.4			271.4
Fiduciary liabilities		(28.3	)		(28.3	)
Other current liabilities		(6.5	)		(6.5	)
Deferred income tax, net (2)
Operating lease liabilities		—			—
Other long-term liabilities		(3.6	)		(3.6	)
Total liabilities assumed		(38.4	)		(38.4	)
Net assets acquired	$	233.0		$	233.0

(1)

The other column represents a summarization of current year acquisitions with total consideration of less than $50.0 million per acquisition and adjustments from prior year acquisitions that were made within the permitted measurement period.

(2)

The Company has revised the provisional amounts in the measurement period for items for which the accounting was incomplete. Additional time was needed to obtain the information necessary, present at the date of the acquisition, to recognize all the items exchanged related to the acquisitions of Orchid Underwriters Agency, CrossCover Insurance Services and GRP (Jersey) Holdco Limited and its businesses ("GRP").

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 14.8 years; and non-compete agreements, 4.4 years.

Goodwill of $154.2 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage segments in the amounts of $154.0 million, ($21.1) million, and $21.2 million, respectively. Of the total goodwill, $107.0 million relates to goodwill that will not be deductible for income tax purposes from acquisitions where we acquired the stock of the company, $35.0 million relates to goodwill that is currently deductible for income tax purposes, and the remaining $12.2 million relates to recorded earn-out payables which will not be deductible for income tax purposes until it is earned and paid.

For the acquisitions completed during 2023, 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, 2023, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2023, was $17.6 million. The income before income taxes from the acquisitions completed through September 30, 2023, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2023, was $5.3 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s estimated 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,
(in millions, except per share data)	2023		2022		2023		2022
Total revenues	$	1,068.5	$	941.0	$	3,248.5	$	2,713.4
Income before income taxes	$	242.6	$	221.5	$	796.3	$	693.0
Net income	$	176.1	$	163.7	$	605.9	$	535.2
Net income per share:
Basic	$	0.62	$	0.58	$	2.14	$	1.89
Diluted	$	0.62	$	0.58	$	2.13	$	1.89
Weighted average number of shares outstanding:
Basic		279.9		277.8		279.3		277.3
Diluted		281.3		278.7		280.4		278.5

As of September 30, 2023 and 2022, 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, 2023 and 2022, were as follows:


	Three months ended September 30,						Nine months ended September 30,
(in millions)	2023			2022			2023			2022
Balance as of the beginning of the period	$	231.5		$	232.9		$	251.7		$	291.0
Additions to estimated acquisition earn-out payables		11.1			25.2			51.3			42.1
Assumed acquisition earn-out payables		—			34.8			—			34.8
Payments for estimated acquisition earn-out payables		(11.0	)		(10.6	)		(74.5	)		(77.1	)
Subtotal		231.6			282.3			228.5			290.8
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables		27.8			(28.5	)		23.5			(38.1	)
Interest expense accretion		2.1			1.9			5.9			5.0
Net change in earnings from estimated acquisition earn-out payables		29.9			(26.6	)		29.4			(33.1	)
Foreign currency translation adjustments during the year		(3.3	)		(5.8	)		0.3			(7.8	)
Balance as of September 30,	$	258.2		$	249.9		$	258.2		$	249.9

Of the $258.2 million estimated acquisition earn-out payables as of September 30, 2023, $168.7 million was recorded as accounts payable and $89.5 million was recorded as other non-current liabilities. As of September 30, 2023, the maximum future acquisition contingency payments related to all acquisitions was $550.5 million, inclusive of the $258.2 million estimated acquisition earn-out payables. There were three acquisition earn-out payables assumed in connection with the acquisition of GRP that included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of September 30, 2023 is $2.9 million. The Company deems a significant increase to this amount to be unlikely. 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.

Subsequent to September 30, 2023, the Company completed the acquisition of Kentro Capital Limited distributing approximately $404.8 million of cash and issuing 261,614 shares valued at $18.4 million for an initial preliminary amount of $423.2 million of consideration paid. The Company is currently working on the allocation of the purchase price to the assets and liabilities acquired.

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, 2022 and identified no impairment as a result of the evaluation.

The changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2023 are as follows:


(in millions)	Retail		National Programs			Wholesale Brokerage			Services		Total
Balance as of December 31, 2022	$	4,309.0	$	1,602.4		$	591.5		$	171.3	$	6,674.2
Goodwill adjustment during measurement period (1)		15.5		(23.5	)		(1.7	)		—		(9.7	)
Goodwill of acquired businesses		138.6		2.4			22.9			—		163.9
Goodwill disposed of relating to sales of businesses		—		(2.7	)		—			—		(2.7	)
Foreign currency translation and other adjustments during the year		18.5		(0.1	)		1.5			—		19.9
Balance as of September 30, 2023	$	4,481.6	$	1,578.5		$	614.2		$	171.3	$	6,845.6

(1)

Provisional estimates of fair value are established at the time of each acquisition and are subsequently reviewed and finalized within the first year of operations subsequent to the acquisition date to determine the necessity for adjustments. As of September 30, 2023, we made adjustments to the amounts initially recorded for purchased customer accounts and goodwill. See also Note 5.

NOTE 7 Amortizable Intangible Assets

Amortizable intangible assets at September 30, 2023 and December 31, 2022 consisted of the following:


	September 30, 2023									December 31, 2022
(in millions)	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 and other	$	3,010.4	$	(1,486.0	)	$	1,524.4		14.8	$	2,957.7		$	(1,363.7	)	$	1,594.0			14.8
Non-compete agreements		40.3		(35.4	)		4.9		4.4		39.3			(34.0	)		5.3			4.4
Foreign currency translation adjustments during the year		2.3		0.1			2.4				(4.5	)		0.4			(4.1	)
Total	$	3,053.0	$	(1,521.3	)	$	1,531.7			$	2,992.5		$	(1,397.3	)	$	1,595.2

(1)

Weighted average life calculated as of the date of acquisition.

Amortization expense for amortizable intangible assets for the years ending December 31, 2023, 2024, 2025, 2026 and 2027 is estimated to be $165.3 million, $161.7 million, $158.2 million, $152.2 million, and $139.1 million, respectively.

NOTE 8 Long-Term Debt

Long-term debt at September 30, 2023 and December 31, 2022 consisted of the following:


(in millions)	September 30, 2023			December 31, 2022
Current portion of long-term debt:
Current portion of 5-year term loan facility expires 2026	$	25.0		$	15.6
Current portion of 5-year term loan facility expires 2023		—			210.0
Current portion of 5-year term loan facility expires 2027		37.5			25.0
Current portion of 4.200% senior notes, semi-annual interest payments, balloon due 2024		500.0			—
Total current portion of long-term debt		562.5			250.6
Long-term debt:
Note agreements:
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024	$	—		$	499.7
4.500% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2029		349.7			349.7
2.375% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2031		699.5			699.4
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2032		598.1			598.0
4.950% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2052		592.2			592.0
Total notes		2,239.5			2,738.8
Credit agreements:
5-year term loan facility, periodic interest and principal payments, SOFR plus up to1.750%, expires October 27, 2026		200.0			218.8
5-year revolving loan facility, periodic interest payments, SOFR plus up to 1.525%, plus commitment fees up to 0.225%, expires October 27, 2026		—			—
3-year term loan facility, periodic interest payments, SOFR plus up to 1.625%, expires March 31, 2025		300.0			300.0
5-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires March 31, 2027		425.0			456.2
Total credit agreements		925.0			975.0
Debt issuance costs (contra)		(19.9	)		(22.3	)
Total long-term debt less unamortized discount and debt issuance costs		3,144.6			3,691.5
Current portion of long-term debt		562.5			250.6
Total debt	$	3,707.1		$	3,942.1

Note agreements: On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its Revolving Credit Facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable in connection with our acquisition of GRP and to pay fees and expenses associated with the foregoing. As of September 30, 2023 and December 31, 2022, there was a total outstanding debt balance of $1,200.0 million exclusive of the associated discount balance on both Notes.

The Company also maintains other notes from other issuances aggregating to a total outstanding debt balance of $1,550.0 million exclusive of the associated discount balance as of September 30, 2023 and December 31, 2022.

Credit agreements: On May 31, 2023, the Company repaid the outstanding balance of $202.5 million on the term loan (the “Term Loan”) associated with the Term Loan Credit Agreement (the “Term Loan Credit Agreement”) which was entered into on December 21, 2018 with cash of $32.5 million and $170.0 million with proceeds from the Revolving Credit Facility. The Term Loan was terminated early due to

the agreement's benchmark reference rate to the London Interbank Offered Rate (“LIBOR”) which was due to cease on June 30, 2023. Since the timing of repayment, additional payments have occurred on the Revolving Credit Facility to repay the remaining balance as of September 30, 2023.

On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the Revolving Credit Facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. On February 10, 2023, the Company entered into Amendment No.1 ("Amendment") of the Second Amended and Restated Credit Agreement which provided that the overnight LIBOR should be replaced with a successor rate. The amendment also included additional terms and conditions for the Secured Overnight Financing Rate (“SOFR”) loans and Risk-free Reference Rate ("RFR") loans.

On March 31, 2022 (the "Effective Date"), the Company entered into a Loan Agreement (the “Loan Agreement”) with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as joint bookrunners and joint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and (ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, together with the Term A-1 Loan Commitments, the “Term Loan Commitments”). The Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date until the date which is the first anniversary thereof. The Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and payable on the date that is the third anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. The Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. The Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As of September 30, 2023 and December 31, 2022, there was an outstanding debt balance issued under the Term A-1 Loans of $300.0 million. As of September 30, 2023 there was an outstanding loan balance on the Term A-2 Loans of $462.5 million and as of December 31, 2022 the outstanding balance on the Term A-2 Loans was $481.3 million.

The Company also maintains other credit agreements that include term loans and a Revolving Credit Facility, all having similar terms and covenants. The outstanding balances on the other term loans as of September 30, 2023 was $225.0 million and on December 31, 2022, the outstanding balance on these term loans was $444.4 million. As of September 30, 2023 there was no outstanding balance on the Revolving Credit Facility and December 31, 2022 there was no outstanding balance on the Revolving Credit Facility.

The Second Amended and Restated Credit Agreement and Loan 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, 2023 and December 31, 2022.

The 1-month Term SOFR Rate for the term loan of the Second Amended and Restated Credit Agreement is 5.416%, the 1-month Term SOFR Rate for the Term A-1 Loans is 5.420% and the 1-month Term SOFR Rate for the Term A-2 Loans is 5.416% as of September 30, 2023. These SOFR rates are inclusive of a 0.100% credit-spread adjustment per the terms of the relevant agreements.

Subsequent to September 30, 2023, the Company exercised a draw down on the Revolving Credit Facility for $250.0 million in connection with the acquisition of Kentro Capital Limited.

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 that expire on various dates through 2041. Leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration, although not necessarily for the same amount of space.

The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (i) whether the contract involves the use of a distinct identified asset; (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period; and (iii) whether the Company has the right to direct the use of the asset.

The right-of-use asset is initially measured at cost, which is primarily composed of the initial 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 minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short-term leases on the Company's right-of-use asset and lease liability would not be significant.

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 millions)		September 30, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets	Operating lease assets	$	198.0	$	214.9
Total assets			198.0		214.9
Liabilities:
Current operating lease liabilities	Accrued expenses and other liabilities		45.4		45.0
Non-current operating lease liabilities	Operating lease liabilities		178.9		195.9
Total liabilities		$	224.3	$	240.9

As of September 30, 2023, the Company has entered into future lease agreements expected to commence later in 2023 consisting of undiscounted lease liabilities of $9.9 million.

Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Variable lease cost is lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company's portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred.

The components of lease cost for operating leases for the three and nine months ended September 30, 2023 and 2022 were:


	Three months ended September 30,						Nine months ended September 30,
(in millions)	2023			2022			2023			2022
Operating leases:
Lease cost	$	14.1		$	14.5		$	42.7		$	40.8
Variable lease cost		1.2			1.0			3.4			3.2
Short-term lease cost		0.1			0.4			0.3			0.9
Operating lease cost	$	15.4		$	15.9		$	46.4		$	44.9
Sublease income		(0.2	)		(0.4	)		(1.0	)		(1.2	)
Total lease cost net	$	15.2		$	15.5		$	45.4		$	43.7

The weighted average remaining lease term and the weighted average discount rate for operating leases as of September 30, 2023 were:


Weighted average remaining lease term in years			6.00
Weighted average discount rate			3.30	%

Maturities of the operating lease liabilities by fiscal year at September 30, 2023 for the Company's operating leases are as follows:


(in millions)	Operating leases
2023 (Remainder)	$	10.3
2024		54.4
2025		47.4
2026		36.4
2027		29.5
Thereafter		69.6
Total undiscounted lease payments		247.6
Less: imputed interest		23.3
Present value of lease payments	$	224.3

Supplemental cash flow information for operating leases for the three and nine months ended September 30, 2023 and 2022:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Cash paid for amounts included in measurement of liabilities
Operating cash flows from operating leases	$	15.0	$	16.1	$	44.8	$	43.9
Right-of-use assets obtained in exchange for new operating liabilities	$	5.7	$	8.4	$	15.5	$	35.9

NOTE 10 Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities

During the nine months ended September 30, 2023, the Company had an impact of $2.0 million from foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash reported on its Condensed Consolidated Statements of Cash Flows which is primarily due to the change in currency exchange rates primarily for British pounds and, to a lesser extent, Canadian dollars.

As of September 30, 2023, the Company has accrued for and deferred $45.9 million related to third quarter federal income tax payments due to Hurricane Idalia tax relief, which was announced by the Internal Revenue Service on August 30, 2023. The deadline to pay the deferred tax payments is February 15, 2024. It is expected that our fourth quarter federal income tax payment will also be deferred and accrued on the Condensed Consolidated Balance Sheet. On March 15, 2023, the Company paid $31.2 million of accrued federal income tax payments due in the fourth quarter of 2022 related to a similar tax relief announced by the Internal Revenue Service associated with Hurricane Ian which was announced on September 29, 2022.

Cash paid during the period for interest and income taxes are summarized as follows:


	Nine months ended September 30,
(in millions)	2023		2022
Cash paid during the period for:
Interest	$	166.6	$	103.3
Income taxes, net of refunds	$	183.3	$	118.2

Significant non-cash investing and financing activities are summarized as follows:


	Nine months ended September 30,
(in millions)	2023		2022
Other payables issued for agency acquisitions and purchased customer accounts	$	4.9	$	4.6
Estimated acquisition earn-out payables issued for agency acquisitions	$	51.3	$	42.1
Assumed acquisition earn-out payables	$	—	$	34.8
Common stock issued for agency acquisition	$	—	$	14.7
Notes payable assumed for agency acquisition	$	—	$	1.8

The Company's restricted cash balance is composed of funds held in separate premium trust accounts as required by state law or, in some cases, by agreement with carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of September 30, 2023 and 2022.


(in millions)	September 30, 2023		December 31, 2022
Table to reconcile restricted and non-restricted fiduciary cash
Restricted fiduciary cash	$	1,325.9	$	1,231.9
Non-restricted fiduciary cash		189.3		151.3
Total restricted and non-restricted fiduciary cash at the end of the period	$	1,515.2	$	1,383.2

The Company's fiduciary cash increased as of September 30, 2023 compared to December 31, 2022 primarily due to businesses acquired during 2023 and 2022.


	Balance as of September 30,
(in millions)	2023		2022
Table to reconcile cash, cash equivalents and fiduciary cash
Cash and cash equivalents	$	755.7	$	579.5
Fiduciary cash		1,515.2		1,271.3
Total cash, cash equivalents and fiduciary cash at the end of the period	$	2,270.9	$	1,850.8

NOTE 11 Legal and Regulatory Proceedings

The Company is involved in numerous pending or threatened proceedings by or against Brown & Brown, Inc. or one or more of its subsidiaries that arise in the ordinary course of business. The damages that may be claimed against the Company in these various proceedings are in some cases substantial, including in certain instances claims for punitive or extraordinary damages. Some of these claims and lawsuits have been resolved; others are in the process of being resolved and others are still in the investigation or discovery phase. The Company will continue to respond appropriately to these claims and lawsuits and to vigorously protect its interests.

The Company continues to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could adversely impact the Company’s operating results, cash flows and overall liquidity. The Company maintains third-party insurance policies to provide coverage for certain legal claims, in an effort to mitigate its overall exposure to unanticipated claims or adverse decisions. However, as (i) one or more of the Company’s insurance carriers could take the position that portions of these claims are not covered by the Company’s insurance, (ii) to the extent that payments are made to resolve claims and lawsuits, applicable insurance policy limits are eroded and (iii) the claims and lawsuits relating to these matters are continuing to develop, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by unfavorable resolutions of these matters. Based upon the AM Best Company ratings of these third-party insurers and other factors, management does not believe there is a substantial risk of an insurer’s material non-performance related to any current insured claims.

On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.

NOTE 12 Segment Information

Brown & Brown’s business is divided into four reportable segments: (i) 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, and non-insurance risk-mitigating products through our F&I businesses; (ii) the National Programs segment, which primarily acts as an MGA, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents; (iii) 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 (iv) 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 most of its operations within the United States of America. International operations include Retail operations in England, Bermuda, the Cayman Islands, The Republic of Ireland and Northern Ireland, National Programs operations in Canada and England, and Wholesale Brokerage operations based in England, Italy and Belgium. These operations earned $126.0 million and $92.1 million

of total revenues for the three months ended September 30, 2023 and 2022, respectively. These operations earned $373.5 million and $132.8 million of total revenues for the nine months ended September 30, 2023 and 2022, respectively.

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, 2022. Intersegment 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, 2023
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	586.0	$	278.2	$	149.6	$	42.4	$	11.5		$	1,067.7
Investment income	$	0.5	$	3.8	$	0.6	$	—	$	11.7		$	16.6
Amortization	$	27.0	$	10.1	$	2.7	$	1.3	$	—		$	41.1
Depreciation	$	4.9	$	2.9	$	0.7	$	0.3	$	1.6		$	10.4
Interest expense	$	21.3	$	8.6	$	3.1	$	0.3	$	14.2		$	47.5
Income before income taxes	$	110.8	$	111.7	$	23.8	$	4.8	$	(8.8	)	$	242.3
Total assets	$	7,762.1	$	3,942.8	$	1,489.6	$	279.8	$	508.7		$	13,983.0
Capital expenditures	$	8.9	$	3.3	$	0.7	$	0.2	$	0.7		$	13.8


	Three months ended September 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	528.2	$	231.4	$	126.3	$	41.1	$	0.6		$	927.6
Investment income	$	—	$	0.3	$	0.1	$	—	$	0.8		$	1.2
Amortization	$	28.2	$	11.4	$	2.6	$	1.3	$	—		$	43.5
Depreciation	$	3.9	$	4.6	$	0.7	$	0.4	$	1.7		$	11.3
Interest expense	$	22.8	$	10.2	$	3.2	$	0.5	$	4.8		$	41.5
Income before income taxes	$	112.2	$	69.7	$	35.4	$	4.7	$	(4.0	)	$	218.0
Total assets	$	7,128.1	$	4,476.3	$	1,366.5	$	289.1	$	398.3		$	13,658.3
Capital expenditures	$	4.7	$	3.3	$	0.7	$	0.3	$	5.1		$	14.1


	Nine months ended September 30, 2023
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	1,874.2	$	791.2	$	412.0	$	129.9	$	23.6		$	3,230.9
Investment income	$	1.0	$	7.0	$	1.2	$	—	$	24.6		$	33.8
Amortization	$	81.6	$	30.2	$	8.0	$	3.9	$	—		$	123.7
Depreciation	$	13.8	$	8.8	$	2.1	$	1.2	$	4.6		$	30.5
Interest expense	$	64.9	$	27.3	$	8.6	$	1.0	$	40.3		$	142.1
Income before income taxes	$	426.2	$	303.8	$	92.4	$	15.8	$	(47.2	)	$	791.0
Total assets	$	7,762.1	$	3,942.8	$	1,489.6	$	279.8	$	508.7		$	13,983.0
Capital expenditures	$	22.7	$	10.8	$	2.1	$	0.9	$	1.9		$	38.4


	Nine months ended September 30, 2022
(in millions)	Retail		National Programs		Wholesale Brokerage		Services		Other			Total
Total revenues	$	1,582.3	$	619.3	$	341.6	$	128.8	$	—		$	2,672.0
Investment income	$	—	$	0.6	$	0.2	$	—	$	1.0		$	1.8
Amortization	$	69.8	$	27.9	$	6.7	$	3.9	$	(0.1	)	$	108.2
Depreciation	$	9.1	$	10.9	$	2.0	$	1.2	$	5.1		$	28.3
Interest expense	$	69.9	$	22.8	$	10.0	$	1.6	$	(8.5	)	$	95.8
Income before income taxes	$	378.8	$	187.9	$	94.8	$	18.0	$	2.3		$	681.8
Total assets	$	7,128.1	$	4,476.3	$	1,366.5	$	289.1	$	398.3		$	13,658.3
Capital expenditures	$	8.4	$	14.2	$	1.5	$	0.8	$	7.5		$	32.4

NOTE 13 Investments

At September 30, 2023, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in millions)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	26.1	$	—	$	(1.6	)	$	24.5
Corporate debt		5.1		—		(0.3	)		4.8
Total	$	31.2	$	—	$	(1.9	)	$	29.3

At September 30, 2023, the Company held $24.5 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $4.8 million issued by corporations with investment grade ratings. Of that total, $7.5 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one year. Additionally, the Company holds $5.7 million in short-term investments, which are related to time deposits held with various financial institutions. The Company also maintains a $2.5 million equity investment in a non-consolidated subsidiary accounted for on the cost basis and held as a long-term investment on the Condensed Consolidated Balance Sheet.

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, 2023:


	Less than 12 Months					12 Months or More					Total
(in millions)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	5.9	$	(0.1	)	$	18.1	$	(1.5	)	$	24.0	$	(1.6	)
Corporate debt		—		—			4.8		(0.3	)		4.8		(0.3	)
Total	$	5.9	$	(0.1	)	$	22.9	$	(1.8	)	$	28.8	$	(1.9	)

At September 30, 2023, the Company had 35 securities in an unrealized loss position. The unrealized losses for the period ended September 30, 2023 were caused by interest rate increases. 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, 2023.

At December 31, 2022, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:


(in millions)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	22.8	$	—	$	(1.8	)	$	21.0
Corporate debt		8.2		—		(0.4	)		7.8
Total	$	31.0	$	—	$	(2.2	)	$	28.8

At December 31, 2022, the Company held $21.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $7.8 million issued by corporations with investment grade ratings. Of that total, $6.4 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one year, which also includes $5.6 million that is related to time deposits held with various financial institutions.


	Less than 12 Months					12 Months or More					Total
(in millions)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and municipalities	$	4.7	$	(0.1	)	$	16.3	$	(1.7	)	$	21.0	$	(1.8	)
Corporate debt		4.2		(0.1	)		3.6		(0.3	)		7.8		(0.4	)
Total	$	8.9	$	(0.2	)	$	19.9	$	(2.0	)	$	28.8	$	(2.2	)

The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2022, the Company had 33 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, 2022.

The amortized cost and estimated fair value of the fixed maturity securities at September 30, 2023 by contractual maturity are set forth below:


(in millions)	Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	7.6	$	7.4
Due after one year through five years	$	23.5	$	21.8
Due after five years	$	—	$	—
Total	$	31.1	$	29.2

The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2022 by contractual maturity are set forth below:


(in millions)	Amortized cost		Fair value
Years to maturity:
Due in one year or less	$	6.5	$	6.4
Due after one year through five years		24.5		22.4
Due after five years		—		—
Total	$	31.0	$	28.8

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 and maturing time deposits were $6.1 million from the period of January 1, 2023 to September 30, 2023. These proceeds were generally used to purchase an additional $6.2 million of fixed income securities and time deposits. Their gains or losses realized on the sale of securities for the period from January 1, 2023 to September 30, 2023 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, 2023, investments with a fair value of approximately $4.2 million were on deposit with state insurance departments to satisfy regulatory requirements.

NOTE 14 Insurance Company Subsidiary Operations

The National Flood Insurance Program (“NFIP”) is a program administered by the Federal Emergency Management Agency (“FEMA”) whereby the Company sells and services NFIP flood insurance policies on behalf of FEMA and receives fees for its services. Congressional authorization for the NFIP is periodically evaluated and may be subject to potential government shutdowns. The Company sells excess flood policies which are 100% ceded to a highly rated reinsurance carrier. The Company also operates two Captives for the purpose of facilitating additional underwriting capacity and to participate in a portion of the underwriting results. One Captive participates on a quota share basis for policies placed by certain of our MGA businesses that are currently focused on property insurance for earthquake and wind exposed properties with a portion of premiums ceded to reinsurance companies, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive participates through excess of loss reinsurance layers associated with one of our MGA businesses focused on placements of personal property, excluding flood, primarily in the southeastern United States with one layer of per risk excess reinsurance and three layers of catastrophe ("CAT") per occurrence reinsurance. All four layers have limited reinstatements and therefore have capped, maximum aggregate limits. The effects of reinsurance on premiums written and earned are as follows:


	Nine months ended September 30, 2023
(in millions)	Written			Earned
Direct premiums - WNFIC	$	681.8		$	588.2
Ceded premiums - WNFIC		(681.8	)		(588.2	)
Net premiums - WNFIC		—			—
Assumed premiums - Quota share captive and excess of loss layer captive		86.2			63.3
Ceded premiums - Quota share captive		(46.3	)		(29.6	)
Net premiums - Quota share captive and excess of loss layer captive		39.9			33.7
Net premiums - Total	$	39.9		$	33.7

All premiums written by the Company under the National Flood Insurance Program (“NFIP”) are 100% ceded to the Federal Emergency Management Agency, or FEMA, for which WNFIC received a 29.7% gross expense allowance from January 1, 2023 through September 30, 2023. For the period from January 1, 2023 through September 30, 2023, the Company ceded $679.3 million of written premiums to FEMA, with $2.5 million ceded to highly rated carriers for excess flood policies which are not within the NFIP.

As of September 30, 2023 the Condensed Consolidated Balance Sheet contained reinsurance recoverable of $217.5 million and prepaid reinsurance premiums of $475.4 million which are related to the WNFIC business. For flood policies, there was no change in the balance in the reserve for losses and loss adjustment expense net of reinsurance recoverable during the period January 1, 2023 through September 30, 2023, as the Company's direct premiums written were 100% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense for the Company, excluding related reinsurance recoverable, as of September 30, 2023 was $217.5 million.

WNFIC 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 WNFIC was $39.0 million at September 30, 2023 and $31.8 million as of December 31, 2022. For the period from January 1, 2023 through September 30, 2023, WNFIC generated statutory net income of $8.1 million. For the period from January 1, 2022 through December 31, 2022, WNFIC generated statutory net income of $1.3 million. The maximum amount of ordinary dividends that WNFIC can pay to the shareholders in a rolling 12-month period is limited to the greater of 10% of statutory adjusted capital and surplus or 100% of adjusted net income. On April 28, 2023, WNFIC paid an ordinary dividend of $3.1 million. The dividend was declared and approved by the WNFIC Board of Directors by consent on March 17, 2023. There was no dividend payout in 2022. The maximum dividend payout that may be made in 2023 without prior approval is $3.2 million.

In December 2021, the initial funding to capitalize the quota share Captive was $5.9 million. This capital in addition to current earnings of $16.1 million through September 30, 2023, is considered at risk for loss. Assumed net written and net earned premiums for the quota share Captive for the nine months ended September 30, 2023, were $37.4 million and $31.2 million, respectively. For nine months ended September 30, 2023 the ultimate loss expense inclusive of incurred but not reported ("IBNR") claims was $9.8 million, of which $7.6 million is related to the estimated insured losses with Hurricane Ian. In connection with the estimated IBNR from Hurricane Ian claims, $2.6 million was recorded as estimated reinsurance recoverable for a net expected loss of $4.8 million. As of September 30, 2023, reported insured losses associated with Hurricane Ian were $1.9 million. As of September 30, 2023 the Condensed Consolidated Balance Sheet contained prepaid reinsurance premiums of $27.4 million related to the Captive of deferred acquisitions costs of $29.7 million, reinsurance payable for $9.0 million, and the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, was $8.2 million. The first collateral release is expected in 2024 and is based on an IBNR factor times earned premium compared to the current collateral balance.

The excess of loss layer Captive was renewed in June 2023 with underlying reinsurance treaties effective from June 1 through May 31, 2024. This Captive’s maximum underwriting exposure is $3.0 million. Assumed net earned premiums for the Captive for the nine months ended September 30, 2023, were $2.5 million. As of September 30, 2023 the Condensed Consolidated Balance Sheet contained the reserve for losses and loss adjustment expense of $6.0 million of which $5.4 million is related to Hurricane Ian.

NOTE 15 Shareholders’ Equity

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.

From January 1, 2023 to March 31, 2023, the Company completed share repurchases in the open market of 2,100 shares at a total cost of $0.1 million, at an average price of $53.84 per share. No shares were repurchased in the open market for the period of April 1, 2023 to September 30, 2023.

After completing these open market share repurchases, the Company has outstanding approval to purchase up to approximately $249.5 million, in the aggregate, of the Company's outstanding common stock.

During the first quarter, the Company paid a dividend of $0.1150 per share, which was approved by the Board of Directors on January 18, 2023 and paid on February 15, 2023 for a total of $32.6 million. During the second quarter, the Company paid a dividend of $0.1150 per share, which was approved by the Board of Directors on April 24, 2023 and paid on May 17, 2023 for a total of $32.6 million. During the third quarter, the Company paid a dividend of $0.1150 per share, which was approved by the Board of Directors on July 19, 2023 and paid on August 16, 2023 for a total of $32.7 million.

On October 18, 2023 the Board of Directors approved a dividend of $0.1300 per share payable on November 15, 2023 to shareholders of record on November 1, 2023.

Subsequent to September 30, 2023, the Company issued 261,614 shares at a total value of $18.4 million in connection with the acquisition of Kentro Capital Limited.

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