General
Impact of COVID-19
The coronavirus pandemic ("COVID-19") and the resulting economic disruption are impacting and will likely continue to impact business activity across many industries worldwide.
COVID-19 remains dynamic, with uncertainty around its duration and broader impact. We are monitoring and assessing the situation and will continue to adapt our business practices over the coming quarters to serve our customers and protect our employees. The pandemic has reduced, and is expected to continue to negatively impact, the volume of business from new customers and insurable exposure units for existing customers.
Company Overview
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Annual Report on Form 10-K. In addition, please see "Information Regarding Non-GAAP Measures" below, regarding important information on non-GAAP financial measures contained in our discussion and analysis. We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered inDaytona Beach, Florida . As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds' underlying "insurable exposure units," which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control. We have increased revenues every year from 1993 to 2020, with the exception of 2009, when our revenues declined 1.0%. Our revenues grew from$95.6 million in 1993 to$2.6 billion in 2020, reflecting a compound annual growth rate of 13.0%. In the same 27-year period, we increased net income from$8.1 million to$480.5 million in 2020, a compound annual growth rate of 16.3%. The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, a health pandemic, and the occurrence of catastrophic weather events all affect our revenues. For example, level rates of inflation or a general decline in economic activity could limit increases in the values of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long-term. The term "Organic Revenue," a non-GAAP measure, is our core commissions and fees less: (i) the core commissions and fees earned for the first 12 months by newly-acquired operations; and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period). The term "core commissions and fees" excludes profit-sharing contingent commissions and guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. "Organic Revenue" is reported in this manner in order to express the current year's core commissions and fees on a comparable basis with the prior year's core commissions and fees. The resulting net change reflects the aggregate changes attributable to: (i) net new and lost accounts; (ii) net changes in our customers' exposure units; (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners; and (iv) the net change in fees paid to us by our customers. Organic Revenue is reported in "Results of Operations" and in "Results of Operations - Segment Information" of this Annual Report on Form 10-K. We also earn "profit-sharing contingent commissions," which are commissions based primarily on underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Consolidated Statement of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of commissions and fees revenue. Certain insurance companies offer guaranteed fixed-base agreements, referred to as "Guaranteed Supplemental Commissions" ("GSCs") in lieu of profit-sharing contingent commissions. GSCs are accrued throughout the year based upon actual premiums written. For the year endedDecember 31, 2020 , we had earned$16.2 million of GSCs, of which$11.9 million remained accrued atDecember 31, 2020 and most of this will be collected over the first and second quarters of 2021. For the years endedDecember 31, 2020 and 2019, we earned$16.2 million and$23.1 million , respectively, from GSCs. Combined, our profit-sharing contingent commissions and GSCs for the year endedDecember 31, 2020 increased by$4.9 million over 2019. The net increase of$4.9 million was mainly driven by: (i) cash received for profit-sharing contingent commissions in the first and second quarters of 2020 being somewhat higher than the amount accrued as ofDecember 31, 2019 for the estimate of contingents earned in 2019; (ii) growth associated with acquisitions completed over the last twelve months; and (iii) partially offset by a GSC of approximately$9 million recorded in the second quarter of 2019 for the National Programs Segment that will not recur in the future as the associated multi-year contract has ended. 25
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Fee revenues primarily relate to services other than securing coverage for our customers, as well as fees negotiated in lieu of commissions, and are recognized as performance obligations are satisfied. Fee revenues have historically been generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas, as well as Medicare Set-aside services,Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and to a lesser extent (3) our Retail Segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services ("F&I") businesses where we primarily earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues as a percentage of our total commissions and fees, represented 26.1% in 2020 and 27.1% in 2019.
For the years ended
Historically, investment income has consisted primarily of interest earnings on operating cash, and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income. Income before income taxes for the year endedDecember 31, 2020 increased over 2019 by$98.2 million , primarily as a result of net new business, acquisitions we completed since 2019, and management of our expense base.
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles ("GAAP"), we provide references to the following non-GAAP financial measures as defined in Regulation G ofSEC rules: Organic Revenue, Organic Revenue growth, EBITDAC and EBITDAC Margin. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our segments because they allow us to determine a more comparable, but non-GAAP, measurement of revenue growth and operating performance that is associated with the revenue sources that were a part of our business in both the current and prior year. We believe that Organic Revenue provides a meaningful representation of our operating performance and view Organic Revenue growth as an important indicator when assessing and evaluating the performance of our four segments. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. We also use Organic Revenue growth and EBITDAC Margin for incentive compensation determinations for executive officers and other key employees. We view EBITDAC and EBITDAC Margin as important indicators of operating performance, because they allow us to determine more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner by removing the significant non-cash items of depreciation, amortization and the change in estimated acquisition earn-out payables, and also interest expense and taxes, which are reflective of investment and financing activities, not operating performance. These measures are not in accordance with, or an alternative to the GAAP information provided in this Annual Report on Form 10-K. We present such non-GAAP supplemental financial information because we believe such information is of interest to the investment community and because we believe they provide additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. We believe these non-GAAP financial measures improve the comparability of results between periods by eliminating the impact of certain items that have a high degree of variability. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements. Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Annual Report on Form 10-K under "Results of Operation - Segment Information."
Acquisitions
Part of our business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations. From 1993 through the fourth quarter of 2020, we acquired 561 insurance intermediary operations.
Critical Accounting Policies
Our Consolidated Financial Statements are prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate our estimates, which are based upon historical experience and on assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the recognition of revenues, expenses, carrying values of our assets and liabilities, of which values are not readily apparent from other sources. Actual results may differ from these estimates. 26
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We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations.
Revenue Recognition
The majority of our revenue is commissions derived from our performance as agents and brokers, acting on behalf of insurance carriers to sell products to customers that are seeking to transfer risk, and conversely, acting on behalf of those customers in negotiating with insurance carriers seeking to acquire risk in exchange for premiums. In the majority of these arrangements, our performance obligation is complete upon the effective date of the bound policy, as such, that is when the associated revenue is recognized. In some arrangements, where we are compensated through commissions, we also perform other services for our customer beyond the binding of coverage. In those arrangements we apportion the commission between the binding of coverage and other services based on their relative fair value and recognize the associated revenue as those performance obligations are satisfied. Where the Company's performance obligations have been completed, but the final amount of compensation is unknown due to variable factors, we estimate the amount of such compensation. We refine those estimates upon our receipt of additional information or final settlement, whichever occurs first. To a lesser extent, the Company earns revenues in the form of fees. Like commissions, fees paid to us in lieu of commission, are recognized upon the effective date of the bound policy. When we are paid a fee for service, however, the associated revenue is recognized over a period of time that coincides with when the customer simultaneously receives and consumes the benefit of our work, which characterizes most of our claims processing arrangements and various services performed in our property and casualty, and employee benefits practices. Other fees are typically recognized upon the completion of the delivery of the agreed-upon services to the customer.
Management determines a policy cancellation reserve based upon historical cancellation experience adjusted in accordance with known circumstances.
Please see Note 2 "Revenues" in the "Notes to Consolidated Financial Statements" for additional information regarding the nature and timing of our revenues.
Business Combinations and Purchase Price Allocations
We have acquired significant intangible assets through acquisitions of businesses. These assets generally consist of purchased customer accounts, non-compete agreements, and the excess of purchase prices over the fair value of identifiable net assets acquired (goodwill). The determination of estimated useful lives and the allocation of purchase price to intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Our business combinations are accounted for using the acquisition method. In connection with these acquisitions, we record the estimated value of the net tangible assets purchased and the value of the identifiable intangible assets purchased, which typically consist of purchased customer accounts and non-compete agreements. Purchased customer accounts include the physical records and files obtained from acquired businesses that contain information about insurance policies, customers and other matters essential to policy renewals of delivery of services. However, they primarily represent the present value of the underlying cash flows expected to be received over the estimated future renewal periods of the insurance policies comprising those purchased customer accounts. The valuation of purchased customer accounts involves significant estimates and assumptions concerning matters such as cancellation frequency, expenses and discount rates. Any change in these assumptions could affect the carrying value of purchased customer accounts. Non-compete agreements are valued based upon their duration and any unique features of the particular agreements. Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from 3 to 15 years. The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and intangible assets is assigned to goodwill and is not amortized. Acquisition purchase prices are typically based upon a multiple of average EBITDA, annual operating profit and/or core revenue earned over a one to three-year period within a minimum and maximum price range. The recorded purchase prices for all acquisitions include an estimation of the fair value of liabilities associated with any potential earn-out provisions, where an earn-out is part of the negotiated transaction. Subsequent changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income when changes to the expected performance of the associated business are realized. 27
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The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions contained 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 this estimate reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated based on the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These estimates are then discounted to a present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Intangible Assets Impairment
Goodwill is subject to at least an annual assessment for impairment measured by a fair-value-based test. Amortizable intangible assets are amortized over their useful lives and are subject to an impairment review based upon an estimate of the undiscounted future cash flows resulting from the use of the assets. To determine if there is potential impairment of goodwill, we compare the fair value of each reporting unit with its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based upon multiples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables ("EBITDAC"), or on a discounted cash flow basis. Management assesses the recoverability of our goodwill and our amortizable intangibles and other long-lived assets annually and whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Any of the following factors, if present, may trigger an impairment review: (i) a significant underperformance relative to historical or projected future operating results, (ii) a significant negative industry or economic trend, and (iii) a significant decline in our market capitalization. If the recoverability of these assets is unlikely because of the existence of one or more of the above-referenced factors, an impairment analysis is performed. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of these assets. If these estimates or related assumptions change in the future, we may be required to revise the assessment and, if appropriate, record an impairment charge. We completed our most recent evaluation of impairment for goodwill as ofNovember 30, 2020 and determined that the fair value of goodwill exceeded the carrying value of such assets. Additionally, there have been no impairments recorded for amortizable intangible assets for the years endedDecember 31, 2020 and 2019.
Non-Cash Stock-Based Compensation
We grant non-vested stock awards to our employees, with the related compensation expense recognized in the financial statements over the associated service period based upon the grant-date fair value of those awards. During the performance measurement period, we review the probable outcome of the performance conditions associated with our performance awards and align the expense accruals with the expected performance outcome.
During the first quarter of 2020, the performance conditions for 1,880,512 shares of the Company's common stock granted under the Company's 2010 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2015 and 2017. These grants had a performance measurement period that concluded onDecember 31, 2019 . The vesting condition for these grants requires continuous employment for a period of up to seven years from the 2015 grant date and five years from the 2017 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share. During the first quarter of 2021, the performance conditions for approximately 1.2 million shares of the Company's common stock granted under the Company's 2010 SIP and approximately 22,000 shares of the Company's common stock granted under the Company's 2019 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2018 and 2020. These grants had a performance measurement period that concluded onDecember 31, 2020 . The vesting condition for these grants requires continuous employment for a period of up to five years from the 2018 grant date and four years from the 2020 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share.
Litigation and Claims
We are subject to numerous litigation claims that arise in the ordinary course of business. If it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss is estimable, an accrual for the costs to resolve these claims is recorded in accrued expenses in the accompanying Consolidated Financial Statements. Professional fees related to these claims are included in other operating expenses in the accompanying Consolidated Statement of Income as incurred. Management, with the assistance of in-house and outside counsel, determines whether it is probable that a liability has been incurred and estimates the amount of loss based upon analysis of individual issues. New developments or changes in settlement strategy in dealing with these matters may significantly affect the required reserves and affect our net income. 28
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RESULTS OF OPERATIONS FOR THE YEARS ENDED
The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Consolidated Financial Statements and related Notes. For a comparison of our results of operations and liquidity and capital resources for the years endedDecember 31, 2019 and 2018, please see Part II, Item 7 of our Annual Report on Form 10-K filed with theSEC onFebruary 24, 2020 .
Financial information relating to our Consolidated Financial Results is as follows:
% (in thousands, except percentages) 2020 Change
2019
REVENUES
Core commissions and fees$ 2,518,980 9.4 %$ 2,302,506 Profit-sharing contingent commissions 70,934 19.9 % 59,166 Guaranteed supplemental commissions 16,194 (29.8 )% 23,065 Total commissions and fees 2,606,108 9.3 % 2,384,737 Investment income 2,811 (51.4 )% 5,780 Other income, net 4,456 169.4 % 1,654 Total revenues 2,613,375 9.2 % 2,392,171 EXPENSES Employee compensation and benefits 1,436,377 9.8 % 1,308,165 Other operating expenses 365,973 (2.9 )% 377,089 (Gain)/loss on disposal (2,388 ) (76.2 )% (10,021 ) Amortization 108,523 3.1 % 105,298 Depreciation 26,276 12.2 % 23,417 Interest 58,973 (7.4 )% 63,660 Change in estimated acquisition earn-out payables (4,458 ) NMF (1,366 ) Total expenses 1,989,276 6.6 % 1,866,242 Income before income taxes 624,099 18.7 % 525,929 Income taxes 143,616 12.7 % 127,415 NET INCOME$ 480,483 20.6 %$ 398,514 Income Before Income Taxes Margin (1) 23.9 % 22.0 % EBITDAC (2)$ 813,413 13.5 %$ 716,938 EBITDAC Margin (2) 31.1 % 30.0 % Organic Revenue growth rate (2) 3.8 % 3.6 % Employee compensation and benefits relative to total revenues 55.0 % 54.7 % Other operating expenses relative to total revenues 14.0 % 15.8 % Capital expenditures$ 70,700 (3.3 )%$ 73,108 Total assets at December 31$ 8,966,492 17.6 %$ 7,622,821 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues (2) A non-GAAP measure NMF = Not a meaningful figure Commissions and Fees Commissions and fees, including profit-sharing contingent commissions and GSCs for 2020, increased$221.4 million to$2,606.1 million , or 9.3% over 2019. Core commissions and fees in 2020 increased$216.5 million , composed of (i)$141.1 million from acquisitions that had no comparable revenues in the same period of 2019; (ii) an offsetting decrease of$12.1 million related to commissions and fees revenue from business divested in the preceding twelve months; and (iii) approximately$87.5 million of net new and renewal business, which reflects an Organic Revenue growth rate of 3.8%. Profit-sharing contingent commissions and GSCs for 2020 increased by$4.9 million , or 6.0%, compared to the same period in 2019. The net increase of$4.9 million was mainly driven by: (i) cash received for profit-sharing contingent commissions in the first and second quarters of 2020 being somewhat higher than the amount accrued as ofDecember 31, 2019 for the estimate of contingents earned in 2019; (ii) growth associated with acquisitions completed over the last twelve months; and (iii) partially offset by a GSC of approximately$9 million recorded in the second quarter of 2019 for the National Programs Segment that will not recur in the future as the associated multi-year contract ended in 2019. 29
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Table of Contents Investment Income Investment income decreased to$2.8 million in 2020, compared with$5.8 million in 2019. The decrease was primarily due to lower interest rates as compared to the prior year. Other Income, Net
Other income for 2020 was
Employee Compensation and Benefits
Employee compensation and benefits expense increased 9.8%, or$128.2 million , in 2020 compared to 2019. This increase included$48.0 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2019. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2020 and 2019 increased by$80.2 million or 6.2%. This underlying employee compensation and benefits expense increase was primarily related to (i) an increase in staff salaries attributable to salary inflation; (ii) an increase in non-cash stock-based compensation expense; (iii) increased producer compensation due to higher revenue; and (iv) higher accrued performance bonuses. Employee compensation and benefits expense as a percentage of total revenues was 55.0% for 2020 as compared to 54.7% for the year endedDecember 31, 2019 .
Other Operating Expenses
Other operating expenses represented 14.0% of total revenues for 2020 as compared to 15.8% for the year endedDecember 31, 2019 . Other operating expenses for 2020 decreased$11.1 million , or 2.9%, from the same period of 2019. The net decrease included: (i) lower variable operating expenses, including such items as travel & entertainment, meetings and professional fees, resulting from responses to COVID-19; partially offset by (ii)$22.6 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2019; and (iii) the write-off recorded in 2020 of certain receivables in one of our programs where it was determined the collectability was in doubt. Gain or Loss on Disposal The Company recognized gains on disposal of$2.4 million in 2020 and$10.0 million in 2019. The change in the gain on disposal was due to activity associated with book of business sales. Although we are not in the business of selling customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company's best interest. Amortization Amortization expense for 2020 increased$3.2 million to$108.5 million , or 3.1% over 2019. The increase reflects the amortization of new intangible assets from recently acquired businesses, partially offset by certain intangible assets becoming fully amortized.
Depreciation
Depreciation expense for 2020 increased$2.9 million to$26.3 million , or 12.2% over 2019. Changes in depreciation expense reflect the addition of fixed assets resulting from capital projects related to our multi-year technology investment program and other business initiatives, net additions of fixed assets resulting from businesses acquired in the past 12 months, partially offset by fixed assets which became fully depreciated.
Interest Expense
Interest expense for 2020 decreased$4.7 million to$59.0 million , or 7.4%, from 2019. The decrease is due to the decrease in interest rates associated with our floating rate debt balances, partially offset by higher average debt balances from increased borrowings in 2020.
Change in Estimated Acquisition Earn-Out Payables
Accounting Standards Codification ("ASC") Topic 805-Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. The recorded purchase price for acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Consolidated Statement of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years. 30
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The net charge or credit to the Consolidated Statement of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables. As ofDecember 31, 2020 , 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 net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years endedDecember 31, 2020 and 2019 were as follows: (in thousands) 2020 2019 Change in fair value of estimated acquisition earn-out payables$ (11,814 ) $ (7,298 ) Interest expense accretion 7,356
5,932
Net change in earnings from estimated acquisition earn-out payables$ (4,458 ) $ (1,366 ) For the years endedDecember 31, 2020 and 2019, the fair value of estimated earn-out payables was re-evaluated and decreased by$11.8 million for 2020 and decreased by$7.3 million for 2019, which resulted in a credit, net of interest expense accretion, to the Consolidated Statement of Income for 2020 and 2019. As ofDecember 31, 2020 , the estimated acquisition earn-out payables equaled$258.9 million , of which$79.2 million was recorded as accounts payable and$179.7 million was recorded as other non-current liabilities. As ofDecember 31, 2019 , the estimated acquisition earn-out payables equaled$161.5 million , of which$17.9 million was recorded as accounts payable and$143.6 million was recorded as other non-current liabilities.
Income Taxes
The effective tax rate on income from operations was 23.0% in 2020 and 24.2% in 2019. The reduction in the effective tax rate in 2020 as compared to 2019 was primarily driven the tax benefit associated with additional vesting of stock awards in 2020 as compared to 2019.
RESULTS OF OPERATIONS - SEGMENT INFORMATION
As discussed in Note 17 "Segment Information" of the Notes to Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other income in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate of core commissions and fees, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues. The reconciliation of total commissions and fees included in the Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, including by Segment, and the growth rates for Organic Revenue for the year endedDecember 31, 2020 are as follows: 2020 Retail(1) National Programs Wholesale Brokerage Services Total (in thousands, except percentages) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Commissions and fees$ 1,470,093 $ 1,364,755 $ 609,842 $ 516,915 $ 352,161 $ 309,426 $ 174,012 $ 193,641 $ 2,606,108 $ 2,384,737 Total change$ 105,338 $ 92,927 $ 42,735 $ (19,629 ) $ 221,371 Total growth % 7.7 % 18.0 % 13.8 % (10.1 )% 9.3 % Profit-sharing contingent commissions (35,785 ) (34,150 ) (27,278 ) (17,517 ) (7,871 ) (7,499 ) - - (70,934 ) (59,166 ) GSCs (15,128 ) (11,056 ) 238 (10,566 ) (1,304 ) (1,443 ) - - (16,194 ) (23,065 ) Core commissions and fees$ 1,419,180 $ 1,319,549 $ 582,802 $ 488,832 $ 342,986 $ 300,484 $ 174,012 $ 193,641 $ 2,518,980 $ 2,302,506 Acquisitions (79,580 ) - (34,173 ) - (25,861 ) - (1,484 ) - (141,098 ) - Dispositions - (11,772 ) - (377 ) - - - - - (12,149 ) Organic Revenue(2)$ 1,339,600 $ 1,307,777 $ 548,629 $ 488,455 $ 317,125 $ 300,484 $ 172,528 $ 193,641 $ 2,377,882 $ 2,290,357 Organic Revenue growth(2)$ 31,823 $ 60,174 $ 16,641 $ (21,113 ) $ 87,525 Organic Revenue growth %(2) 2.4 % 12.3 % 5.5 % (10.9 )% 3.8 %
(1) The Retail Segment includes commissions and fees reported in the "Other"
column of the Segment Information in Note 17 of the Notes to the Consolidated
Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
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The reconciliation of total commissions and fees included in the Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, including by Segment, and the growth rates for Organic Revenue for the year endedDecember 31, 2019 , by Segment, are as follows: 2019 Retail(1) National Programs Wholesale Brokerage Services Total (in thousands, except percentages) 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Commissions and fees$ 1,364,755 $ 1,040,574 $ 516,915 $ 493,878 $ 309,426 $ 286,364 $ 193,641 $ 189,041 $ 2,384,737 $ 2,009,857 Total change$ 324,181 $ 23,037 $ 23,062 $ 4,600 $ 374,880 Total growth % 31.2 % 4.7 % 8.1 % 2.4 % 18.7 % Profit-sharing contingent commissions (34,150 ) (24,517 ) (17,517 ) (23,896 ) (7,499 ) (7,462 ) - - (59,166 ) (55,875 ) GSCs (11,056 ) (8,535 ) (10,566 ) (76 ) (1,443 ) (1,350 ) - - (23,065 ) (9,961 ) Core commissions and fees$ 1,319,549 $ 1,007,522 $ 488,832 $ 469,906 $ 300,484 $ 277,552 $ 193,641 $ 189,041 $ 2,302,506 $ 1,944,021 Acquisitions (272,383 ) - (5,721 ) - (3,628 ) - (16,541 ) - (298,273 ) - Dispositions - (7,743 ) - (790 ) - (1,268 ) - - - (9,801 ) Organic Revenue(2)$ 1,047,166 $ 999,779 $ 483,111 $ 469,116 $ 296,856 $ 276,284 $ 177,100 $ 189,041 $ 2,004,233 $ 1,934,220 Organic Revenue growth(2)$ 47,387 $ 13,995 $ 20,572 $ (11,941 ) $ 70,013 Organic Revenue growth %(2) 4.7 % 3.0 % 7.4 % (6.3 )% 3.6 %
(1) The Retail Segment includes commissions and fees reported in the "Other"
column of the Segment Information in Note 17 of the Notes to the Consolidated
Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year endedDecember 31, 2020 , is as follows: National Wholesale (in thousands) Retail Programs Brokerage Services Other Total Income before income taxes$ 262,245 $ 182,892 $ 93,593 $ 27,994 $ 57,375 $ 624,099 Income Before Income Taxes Margin 17.8 % 30.0 % 26.5 %
16.1 % NMF 23.9 %
Amortization 67,315 27,166 8,481 5,561 - 108,523 Depreciation 9,071 8,658 1,948 1,424 5,175 26,276 Interest 85,968 20,597 10,281 4,142 (62,015 ) 58,973 Change in estimated acquisition earn-out payables 8,689 (10,484 ) 422 (3,085 ) - (4,458 ) EBITDAC$ 433,288 $ 228,829 $ 114,725 $ 36,036 $ 535 $ 813,413 EBITDAC Margin 29.4 % 37.5 % 32.5 % 20.7 % NMF 31.1 % NMF = Not a meaningful figure The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year endedDecember 31, 2019 , is as follows: National Wholesale (in thousands) Retail Programs Brokerage Services Other Total Income before income taxes$ 222,875 $ 143,737 $ 82,739 $ 40,337 $ 36,241 $ 525,929 Income Before Income Taxes Margin 16.3 % 27.7 % 26.7 %
20.8 % NMF 22.0 %
Amortization 63,146 25,482 11,191 5,479 - 105,298 Depreciation 7,390 6,791 1,674 1,229 6,333 23,417 Interest 87,295 16,690 4,756 4,404 (49,485 ) 63,660 Change in estimated acquisition earn-out payables 8,004 (751 ) (4 ) (8,615 ) - (1,366 ) EBITDAC$ 388,710 $ 191,949 $ 100,356 $ 42,834 $ (6,911 ) $ 716,938 EBITDAC Margin 28.4 % 37.0 % 32.4 % 22.1 % NMF 30.0 % NMF = Not a meaningful figure 32
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Table of Contents Retail Segment The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services ("F&I") businesses. Approximately 80.8% of the Retail Segment's commissions and fees revenue is commission based.
Financial information relating to our Retail Segment for the twelve months ended
(in thousands, except percentages) 2020 % Change
2019
REVENUES
Core commissions and fees$ 1,420,439 7.5 %$ 1,320,810 Profit-sharing contingent commissions 35,785 4.8 % 34,150 Guaranteed supplemental commissions 15,128 36.8 % 11,056 Total commissions and fees 1,471,352 7.7 % 1,366,016 Investment income 163 9.4 % 149 Other income, net 1,251 14.1 % 1,096 Total revenues 1,472,766 7.7 % 1,367,261 EXPENSES Employee compensation and benefits 820,368 7.9 % 760,208 Other operating expenses 221,496 (3.0 )% 228,256 (Gain)/loss on disposal (2,386 ) (75.9 )% (9,913 ) Amortization 67,315 6.6 % 63,146 Depreciation 9,071 22.7 % 7,390 Interest 85,968 (1.5 )% 87,295 Change in estimated acquisition earn-out payables 8,689 8.6 % 8,004 Total expenses 1,210,521 5.8 % 1,144,386 Income before income taxes$ 262,245 17.7 %$ 222,875 Income Before Income Taxes Margin (1) 17.8 % 16.3 % EBITDAC (2) 433,288 11.5 % 388,710 EBITDAC Margin (2) 29.4 % 28.4 % Organic Revenue growth rate (2) 2.4 % 4.7 % Employee compensation and benefits relative to total revenues 55.7 % 55.6 % Other operating expenses relative to total revenues 15.0 % 16.7 % Capital expenditures$ 13,175 5.4 %$ 12,497 Total assets at December 31$ 7,093,627 10.6 %$ 6,413,459 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues (2) A non-GAAP measure NMF = Not a meaningful figure The Retail Segment's total revenues in 2020 increased 7.7%, or$105.5 million , over the same period in 2019, to$1,472.8 million . The$99.6 million increase in core commissions and fees was driven by the following: (i) approximately$79.6 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2019; (ii)$31.8 million related to net new and renewal business; offset by (iii) a decrease of$11.8 million related to commissions and fees from businesses or books of business divested in 2019 and 2020. Profit-sharing contingent commissions and GSCs in 2020 increased 12.6%, or$5.7 million , over 2019, to$50.9 million primarily from acquisitions completed in 2019 and 2020. The Retail Segment's growth rate for total commissions and fees was 7.7% and the Organic Revenue growth rate was 2.4% for 2020. The Organic Revenue growth rate was driven by new business, higher customer retention and increasing premium rates across most lines of business over the preceding 12 months. Income before income taxes for 2020 increased 17.7%, or$39.4 million , over the same period in 2019, to$262.2 million . The primary factors driving this increase were: (i) the net increase in revenue as described above, (ii) other operating expenses which decreased by$6.8 million , or 3.0%, due primarily to COVID-19 related expense savings, partially offset by the impact of our multi-year technology investment program and increased professional services to support our customers and acquisitions over the past 12 months; (iii) offset by a 7.9%, or$60.2 million , increase in employee compensation and benefits, due primarily to the year-on-year impact of acquisitions, salary inflation and additional teammates to support revenue growth and incremental non-cash stock compensation costs, (iv) a decrease in the gain on disposal associated with the sale of certain books of business compared to prior year; and (v) a combined increase in amortization, depreciation and intercompany interest expense of$4.5 million resulting from our acquisition activity in 2020 and 2019. 33
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EBITDAC for 2020 increased 11.5%, or$44.6 million , from the same period in 2019, to$433.3 million . EBITDAC Margin for 2020 increased to 29.4% from 28.4% in the same period in 2019. EBITDAC Margin was impacted by (i) the net increase in revenue and COVID-19 related expense savings, as described above, (ii) higher profit-sharing contingent commissions and guaranteed supplemental commissions; partially offset by, (iii) increased non-stock cash compensation costs and intercompany IT charges.
National Programs Segment
The National Programs Segment manages over 40 programs supported by approximately 100 well-capitalized carrier partners. In most cases, the insurance carriers that support the programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and the National Flood Program. The National Programs Segment's revenue is primarily commission based.
Financial information relating to our National Programs Segment for the twelve
months ended
(in thousands, except percentages) 2020 % Change
2019
REVENUES
Core commissions and fees$ 582,802 19.2 %$ 488,832 Profit-sharing contingent commissions 27,278 55.7 % 17,517 Guaranteed supplemental commissions (238 ) (102.3 )% 10,566 Total commissions and fees 609,842 18.0 % 516,915 Investment income 756 -45.9 % 1,397 Other income, net 42 (41.7 )% 72 Total revenues 610,640 17.8 % 518,384 EXPENSES Employee compensation and benefits 260,141 17.5 % 221,425 Other operating expenses 121,670 15.7 % 105,118 (Gain)/loss on disposal - (100.0 )% (108 ) Amortization 27,166 6.6 % 25,482 Depreciation 8,658 27.5 % 6,791 Interest 20,597 23.4 % 16,690 Change in estimated acquisition earn-out payables (10,484 ) NMF (751 ) Total expenses 427,748 14.2 % 374,647 Income before income taxes$ 182,892 27.2 %$ 143,737 Income Before Income Taxes Margin (1) 30.0 % 27.7 % EBITDAC (2) 228,829 19.2 % 191,949 EBITDAC Margin (2) 37.5 % 37.0 % Organic Revenue growth rate (2) 12.3 % 3.0 % Employee compensation and benefits relative to total revenues 42.6 % 42.7 % Other operating expenses relative to total revenues 19.9 % 20.3 % Capital expenditures$ 7,208 (30.5 )%$ 10,365 Total assets at December 31$ 3,510,983 12.9 %$ 3,110,368 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues (2) A non-GAAP measure NMF = Not a meaningful figure The National Programs Segment's total revenues in 2020 increased 17.8%, or$92.3 million , over 2019, to a total$610.6 million . The$94.0 million increase in core commissions and fees was driven by the following: (i)$60.2 million related to net new and renewal business; (ii) an increase of approximately$34.2 million related to core commissions and fees from acquisitions that had no comparable revenues in 2019; offset by (iii) a decrease of$0.4 million related to commissions and fees recorded in 2019 from businesses since divested. Profit-sharing contingent commissions and GSCs were$27.0 million in 2020, which was a decrease of$1.0 million from 2019, as a result of a non-recurring GSC received from one of our partners in the second quarter of 2019. 34
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The National Programs Segment's growth rate for total commissions and fees was 18.0% and the Organic Revenue growth rate was 12.3% for 2020. The total commissions and fees growth was mainly due to new acquisitions, strong growth in our earthquake programs, lender placement program, personal property program and wind programs. The Organic Revenue growth rate increase was driven by net new business, growth in renewals and higher premium rates in a number of our programs compared to the prior year. Income before income taxes for 2020 increased 27.2%, or$39.2 million , from the same period in 2019, to$182.9 million . The increase was the result of strong total revenue growth and a decrease in estimated acquisition earn-out payables of$9.7 million .
EBITDAC for 2020 increased 19.2%, or
Wholesale Brokerage Segment The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Like the Retail and National Programs Segments, the Wholesale Brokerage Segment's revenues are primarily commission based.
Financial information relating to our Wholesale Brokerage Segment for the twelve
months ended
(in thousands, except percentages) 2020 % Change
2019
REVENUES
Core commissions and fees$ 342,986 14.1 %$ 300,484 Profit-sharing contingent commissions 7,871 5.0 % 7,499 Guaranteed supplemental commissions 1,304 -9.6 % 1,443 Total commissions and fees 352,161 13.8 % 309,426 Investment income 184 3.4 % 178 Other income, net 452 (6.4 )% 483 Total revenues 352,797 13.8 % 310,087 EXPENSES Employee compensation and benefits 184,429 16.8 % 157,924 Other operating expenses 53,643 3.5 % 51,807 (Gain)/loss on disposal - - - Amortization 8,481 (24.2 )% 11,191 Depreciation 1,948 16.4 % 1,674 Interest 10,281 116.2 % 4,756 Change in estimated acquisition earn-out payables 422 NMF (4 ) Total expenses 259,204 14.0 % 227,348 Income before income taxes$ 93,593 13.1 %$ 82,739 Income Before Income Taxes Margin (1) 26.5 % 26.7 % EBITDAC (2) 114,725 14.3 % 100,356 EBITDAC Margin (2) 32.5 % 32.4 % Organic Revenue growth rate (2) 5.5 % 7.4 % Employee compensation and benefits relative to total revenues 52.3 % 50.9 % Other operating expenses relative to total revenues 15.2 % 16.7 % Capital expenditures$ 3,324 -46.1 %$ 6,171 Total assets at December 31$ 1,791,717 28.9 %$ 1,390,250 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues (2) A non-GAAP measure NMF = Not a meaningful figure The Wholesale Brokerage Segment's total revenues for 2020 increased 13.8%, or$42.7 million , over 2019, to$352.8 million . The$42.5 million increase in core commissions and fees was driven by the following: (i)$25.9 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2019 and (ii)$16.6 million related to net new and renewal business. Profit-sharing contingent commissions and GSCs for 2020 increased$0.2 million over 2019, to$9.2 million . The Wholesale Brokerage Segment's growth rate for total commissions and fees was 13.8%, and the Organic Revenue growth rate was 5.5% for 2020. The Organic Revenue growth rate was driven by net new business, as well as increased rates seen across most lines of business, which was partially offset by shrinking capacity in the catastrophe exposed personal lines market. 35
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Income before income taxes for 2020 increased 13.1%, or$10.9 million , over 2019, to$93.6 million , primarily due to the following: (i) the net increase in total revenues as described above, and (ii) a decrease in amortization expense; offset by (iii) an increase in intercompany interest expense, (iv) an increase in employee compensation and benefits of$26.5 million , related to additional teammates from acquisitions completed in the past 12 months and growth to support increased transaction volumes, compensation increases for existing teammates, and additional non-cash stock-based compensation expense, and (v) a net$1.3 million increase in other operating expenses, primarily acquisition related. EBITDAC for 2020 increased 14.3%, or$14.4 million , from the same period in 2019, to$114.7 million . EBITDAC Margin for 2020 increased to 32.5% from 32.4% in the same period in 2019. The increase in EBITDAC Margin was primarily driven by leveraging revenue growth as described above and lower variable costs in response to COVID-19, which were partially offset by increased employee compensation and non-cash stock-based compensation costs.
Services Segment
The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas. The Services Segment also provides Medicare Set-aside account services,Social Security disability and Medicare benefits advocacy services, and claims adjusting services.
Unlike the other segments, nearly all of the Services Segment's revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.
Financial information relating to our Services Segment for the twelve months
ended
(in thousands, except percentages) 2020 % Change
2019
REVENUES
Core commissions and fees$ 174,012 (10.1 )%$ 193,641 Profit-sharing contingent commissions - - - Guaranteed supplemental commissions - - - Total commissions and fees 174,012 (10.1 )% 193,641 Investment income - (100.0 )% 139 Other income, net - (100.0 )% 1 Total revenues 174,012 (10.2 )% 193,781 EXPENSES Employee compensation and benefits 88,787 (3.0 )% 91,514 Other operating expenses 49,191 (17.2 )% 59,433 (Gain)/loss on disposal (2 ) - - Amortization 5,561 1.5 % 5,479 Depreciation 1,424 15.9 % 1,229 Interest 4,142 (5.9 )% 4,404 Change in estimated acquisition earn-out payables (3,085 ) (64.2 )% (8,615 ) Total expenses 146,018 (4.8 )% 153,444 Income before income taxes$ 27,994 (30.6 )%$ 40,337 Income Before Income Taxes Margin (1) 16.1 % 20.8 % EBITDAC (2) 36,036 (15.9 )% 42,834 EBITDAC Margin (2) 20.7 % 22.1 % Organic Revenue growth rate (2) (10.9 )% (6.3 )% Employee compensation and benefits relative to total revenues 51.0 % 47.2 % Other operating expenses relative to total revenues 28.3 % 30.7 % Capital expenditures$ 1,424 77.1 %$ 804 Total assets at December 31$ 480,440 (0.2 )%$ 481,336 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues (2) A non-GAAP measure NMF = Not a meaningful figure 36
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The Services Segment's total revenues for 2020 decreased 10.2%, or$19.8 million , from 2019, to$174.0 million . The$19.6 million decrease in core commissions and fees was driven primarily by a decrease of$21.1 million related to net new and renewal business that was driven by lower claims volume in ourSocial Security advocacy businesses; (i) the effect a prior year terminated customer contract in one of our claims processing businesses; and (ii) lower weather-driven claims; partially offset by (iii)$1.5 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2019. Total commissions and fees decreased 10.1%, and Organic Revenue decreased 10.9% in 2020, both as compared to 2019.
Income before income taxes for 2020 decreased 30.6%, or
EBITDAC for 2020 decreased 15.9%, or$6.8 million , from the same period in 2019, to$36.0 million . EBITDAC Margin for 2020 decreased to 20.7% from 22.1% in the same period in 2019. The decrease in EBITDAC Margin was due to: (i) lower revenue as described above; offset by (ii) a decline in other operating expenses driven by management of our costs in response to COVID-19.
Other
As discussed in Note 17 of the Notes to Consolidated Financial Statements, the "Other" column in the Segment Information table includes any income and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to maintain a conservative balance sheet and liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. We have the ability to utilize our revolving credit facility, which as ofDecember 31, 2020 provided access to up to$800.0 million in available cash. We believe that we have access to additional funds, if needed, through the capital markets or private placements to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the revolving credit facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months. The revolving credit facility contains an expansion for up to an additional$500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the term loan credit agreement, the unsecured term loan in the initial amount of$300.0 million may be increased by up to$150.0 million , subject to the approval of participating lenders. Including the expansion options under all existing credit agreements, the Company has access to up to$1.5 billion of incremental borrowing capacity as ofDecember 31, 2020 . Our cash and cash equivalents of$817.4 million atDecember 31, 2020 reflected an increase of$275.2 million from the$542.2 million balance atDecember 31, 2019 . During 2020,$721.6 million of cash was generated from operating activities, representing an increase of 6.4%. During this period,$694.8 million of cash was used for new acquisitions,$29.5 million was used for acquisition earn-out payments,$70.7 million was used to purchase additional fixed assets,$100.6 million was used for payment of dividends,$55.1 million was used for share repurchases and$55.0 million was used to pay outstanding principal balances owed on long-term debt.
We hold approximately
Our cash and cash equivalents of$542.2 million atDecember 31, 2019 reflected an increase of$103.2 million from the$439.0 million balance atDecember 31, 2018 . During 2019,$678.2 million of cash was generated from operating activities, representing an increase of 19.5%. During this period,$353.0 million of cash was used for new acquisitions,$9.9 million was used for acquisition earn-out payments,$73.1 million was used to purchase additional fixed assets,$91.3 million was used for payment of dividends,$38.7 million was used for share repurchases and$50.0 million was used to pay outstanding principal balances owed on long-term debt.
Our ratio of current assets to current liabilities (the "current ratio") was
1.26 and 1.22 for
37
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Table of Contents Contractual Cash Obligations
As of
Payments Due by Period Less Than After 5 (in thousands) Total 1 Year(4) 1-3 Years(4) 4-5 Years Years Long-term debt$ 2,110,000 $ 70,000 $ 490,000 $ 500,000 $ 1,050,000 Other liabilities(1) 110,109 4,456 14,575 7,204 83,874 Operating leases(2) 244,289 50,443 87,255 55,589 51,002 Interest obligations 394,710 62,571 115,394 79,625 137,120 Unrecognized tax benefits 1,267 - 1,267 - - Maximum future acquisition contingency payments(3) 544,723 139,465 405,258 - -
Total contractual cash obligations
(1) Includes the current portion of other long-term liabilities.
(2) Includes
2021.
(3) Includes
payables.
contingency as a result of the Amendment dated as of
affiliates, to the Asset Purchase Agreement, dated as of
(4) Does not include approximately
payroll tax payments related to the CARES Act which are expected to be
paid in equal installments in each of
Debt
Total debt atDecember 31, 2020 was$2,095.9 million net of unamortized discount and debt issuance costs, which was an increase of$540.6 million compared toDecember 31, 2019 . The increase includes: (i) incremental borrowings of$700.0 million related to the Company's 2.375% Senior Notes due 2031 issued onSeptember 24, 2020 ; (ii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of$2.3 million ; offset by (iii) the repayment of the principal balance of$55.0 million for scheduled principal amortization balances related to our various existing floating rate debt term notes; (iv) the net repayment of$100.0 million under the revolving credit facility; and (v) an additional$6.7 million including debt issuance costs and the portion of discount applied to the proceeds issued under the incremental borrowings related to the Company's 2.375% Senior Notes due 2031 issued onSeptember 24, 2020 . OnSeptember 24, 2020 , the Company completed the issuance of$700.0 million aggregate principal amount of the Company's 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount, which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of$200.0 million on the revolving credit facility, to pay a portion of the purchase price in connection with the acquisitions ofLP Insurance Services, LLP andCKP Insurance, LLC and for other general corporate purposes. As ofDecember 31, 2020 , there was an outstanding debt balance of$700.0 million exclusive of the associated discount balance. During the twelve months endedDecember 31, 2020 , the Company has repaid$40.0 million of principal related to the amended and restated credit agreement term loan through quarterly scheduled amortized principal payments each equaling$10.0 million onMarch 31, 2020 ,June 30, 2020 ,September 30, 2020 andDecember 31, 2020 . The amended and restated credit agreement term loan had an outstanding balance of$290.0 million as ofDecember 31, 2020 . The Company's next scheduled amortized principal payment is dueMarch 31, 2021 and is equal to$10.0 million . During the twelve months endedDecember 31, 2020 , the Company has repaid$15.0 million of principal related to the term loan credit agreement through quarterly scheduled amortized principal payments each equaling$3.8 million onMarch 31, 2020 ,June 30, 2020 ,September 30, 2020 andDecember 31, 2020 . The term loan credit agreement had an outstanding balance of$270.0 million as ofDecember 31, 2020 . The Company's next scheduled amortized principal payment is dueMarch 31, 2021 and is equal to$7.5 million . OnApril 30, 2020 , the Company borrowed$250.0 million under the revolving credit facility. The proceeds were used in conjunction with the payment of the purchase price for the previously announced acquisition ofLP Insurance Services LLC and for additional liquidity to further strengthen the Company's financial position and balance sheet in the event cash receipts from customers or carrier partners are delayed due to the COVID-19 pandemic. OnJune 30, 2020 , the Company repaid$150.0 million on the revolving credit facility. OnSeptember 24, 2020 , the Company repaid the total outstanding borrowings under the revolving credit facility of$200.0 million using the proceeds received from the borrowings under the Company's 2.375% Senior Notes due 2031. 38
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Total debt atDecember 31, 2019 was$1,555.3 million net of unamortized discount and debt issuance costs, which was an increase of$48.4 million compared toDecember 31, 2018 . The increase includes (i) a drawdown on the revolving credit facility of$100.0 million onAugust 9, 2019 in connection with the acquisition ofCKP Insurance, LLC and various other acquisitions closed in the third quarter of 2019, (ii) the repayment of principal of$50.0 million for scheduled principal amortization balances related to our various existing floating rate debt term notes, (iii) amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of$2.1 million , offset by (iv) additional discount to par and aggregate debt issuance costs of$3.7 million related to the issuance of the Company's 4.500% Senior Notes due 2029 as ofDecember 31, 2019 . OnMarch 11, 2019 , the Company completed the issuance of$350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions which are customary for credit-rated obligations. At the time of funding, the proceeds were offered at a discount to the notional amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of$350.0 million on the revolving credit facility, utilized in connection with financing related to our acquisition of Hays, and for other general corporate purposes. As ofDecember 31, 2019 , there was an outstanding debt balance of$350.0 million exclusive of the associated discount balance.
Off-Balance Sheet Arrangements
Neither we nor our subsidiaries have ever incurred off-balance sheet obligations through the use of, or investment in, off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts.
For further discussion of our cash management and risk management policies, see "Quantitative and Qualitative Disclosures About Market Risk."
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