Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

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 in Daytona 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 2015, with the exception of 2009, when our revenues dropped 1.0%. Our revenues grew from $95.6 million in 1993 to $1.7 billion in 2015, reflecting a compound annual growth rate of 13.9%. In the same 22-year period, we increased net income from $8.1 million to $243.3 million in 2015, a compound annual growth rate of 16.7%.

The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, and changes in general economic and competitive conditions 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, the increasing costs of litigation settlements and awards have caused 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 “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. The term “core organic commissions and fees” is our core commissions and fees less (i) the core commissions and fees earned for the first twelve 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). “Core organic commissions and fees”, a non-GAAP measure, are 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 clients’ exposure units, and (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners.

We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions are primarily received in the first and second quarters of each year, based on the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 4.0% of the previous year’s total commissions and fees revenue. Profit-sharing contingent commissions are included in our total commissions and fees in the Consolidated Statement of Income in the year received.

Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of profit-sharing contingent commissions. Since GSCs are not subject to the uncertainty of loss ratios, they are accrued throughout the year based on actual premiums written. For the twelve-month period ending December 31, 2015, we had earned $10.0 million of GSCs, of which $7.6 million remained accrued at December 31, 2015 as most of this will be collected in the first quarter of 2016. For the twelve-month periods ended December 31, 2015, 2014, and 2013, we earned $10.0 million, $9.9 million and $8.3 million, respectively, from GSCs.

Fee revenues relate to fees negotiated in lieu of commissions, which are recognized as services are rendered. 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. These services are provided over a period of time, typically one year. Fee revenues, on a consolidated basis, as a percentage of our total commissions and fees, represented 30.6% in 2015, 30.6% in 2014 and 26.6% in 2013.

Additionally, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2015 decreased by $5.8 million over 2014 primarily as a result of increased loss ratios in our National Programs and Wholesale Brokerage Segment. Other income decreased by $5.0 million primarily as a result of a reduction in the gains on the sale of books of business when compared to 2014 and the change in where this activity is presented in the financial statements as described in the results of operations section below.

For the years ended December 31, 2015 and 2014, our consolidated internal revenue growth rate was 2.6% and 2.0% respectively. Additionally, each of our four segments recorded positive internal revenue growth for the year ended December 31, 2015. In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2016 and premium rate changes are similar with 2015, we believe we will continue to see positive quarterly internal revenue growth rates in 2016.

Historically, investment income has consisted primarily of interest earnings 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 ended December 31, 2015 increased over 2014 by $62.8 million, primarily as a result of acquisitions completed in the past twelve months and net new business, partially offset by the incremental interest expense associated with our inaugural public debt offering completed in 2014 along with incremental investments in revenue producing teammates.

Information Regarding Non-GAAP Measures

In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with GAAP, we provide information regarding core commissions and fees, core organic commissions and fees, and our internal growth rate, which is the growth rate of our core organic commissions and fees, and adjusted calculations of core commissions and fees, core organic commissions and fees and our internal growth rate after adjusting for the significant revenue recorded at our Colonial Claims operation in the first half of 2013 attributable to Superstorm Sandy. These measures are not in accordance with, or an alternative to (including any adjusted internal growth rate) the GAAP information provided in this Annual Report on Form 10-K. 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. We present such non-GAAP supplemental financial information, as we believe such information provides 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. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.

Acquisitions

Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the fourth quarter of 2015, we acquired 472 insurance intermediary operations, excluding acquired books of business (customer accounts).

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with U.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 on historical experience and on assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the carrying values of our assets and liabilities, of which values are not readily apparent from other sources. Actual results may differ from these estimates.

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 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. Refer to Note 1 in the “Notes to Consolidated Financial Statements”.

Revenue Recognition

Commission revenues are recognized as of the effective date of the insurance policy or the date on which the policy premium is processed into our systems, whichever is later. Commission revenues related to installment billings are recognized on the later of the date effective or invoiced, with the exception of our Arrowhead business which follows a policy of recognizing on the later of the date effective or processed into our systems regardless of the billing arrangement. Management determines the policy cancellation reserve based upon historical cancellation experience adjusted in accordance with known circumstances. Subsequent commission adjustments are recognized upon our receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or periodically when we receive formal notification of the amount of such payments. Fee revenues, and commissions for employee benefits coverages and workers’ compensation programs, are recognized as services are rendered.

Business Combinations and Purchase Price Allocations

We have acquired significant intangible assets through business acquisitions. These assets 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.

All of our business combinations initiated after June 30, 2001 have been accounted for using the purchase 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. 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 on 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 5 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 on a multiple of average annual operating profit earned over a one-to three-year period within a minimum and maximum price range. The recorded purchase prices for all acquisitions consummated after January 1, 2009 include 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 are recorded in the Consolidated Statement of Income when incurred.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions 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 on the basis of 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 on 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 on 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 trends; 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 of November 30, 2015 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 ended December 31, 2015, 2014 and 2013.

Non-Cash Stock-Based Compensation

We grant stock options and non-vested stock awards to our employees, and the related compensation expense is required to be recognized in the financial statements over the associated service period based upon the grant-date fair value of those awards.

During the first quarter of 2016, the performance conditions for approximately 1.4 million shares of the Company’s common stock granted under the Company’s Stock Incentive Plan are expected to be determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2011. These grants had a performance measurement period that concluded on December 31, 2015. The vesting condition for these grants requires continuous employment for a period of up to ten years from the January 2011 grant date in order for the awarded shares to become fully vested and nonforfeitable. The shares are expected to be awarded during the first quarter of 2016, pursuant to review and certification of the performance measurements against the stated grant targets by the Compensation Committee in accordance with the Stock Incentive Plan. 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 EPS.

Litigation 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 Balance Sheets. 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.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

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.

Financial information relating to our Consolidated Financial Results is as follows:

(in thousands, except percentages)2015% Change2014% Change2013
REVENUES
Core commissions and fees$1,595,2186.4%$1,499,90315.7%$1,295,977
Profit-sharing contingent commissions51,707(10.4)%57,70612.6%51,251
Guaranteed supplemental commissions10,0261.8%9,85119.0%8,275
Investment income1,00434.4%74717.1%638
Other income, net2,554(66.3)%7,5896.3%7,138
Total revenues1,660,5095.4%1,575,79615.6%1,363,279
EXPENSES
Employee compensation and benefits841,4396.3%791,74915.9%683,000
Non-cash stock-based compensation15,513(19.9)%19,363(14.3)%22,603
Other operating expenses251,0556.7%235,32820.3%195,677
Loss/(gain) on disposal(619)(101.3)%47,425—%—
Amortization87,4215.5%82,94122.1%67,932
Depreciation20,890—%20,89519.5%17,485
Interest39,24838.2%28,40872.8%16,440
Change in estimated acquisition earn-out payables3,003(69.8)%9,938NMF2,533
Total expenses1,257,9501.8%1,236,04722.9%1,005,670
Income before income taxes402,55918.5%339,749(5.0)%357,609
Income taxes159,24119.9%132,853(5.4)%140,497
NET INCOME$243,31817.6%$206,896(4.7)%$217,112
Net internal growth rate – core organic commissions and fees2.6%2.0%6.7%
Employee compensation and benefits ratio50.7%50.2%50.1%
Other operating expenses ratio15.1%14.9%14.4%
Capital expenditures$18,375$24,923$16,366
Total assets at December 31$5,012,739$4,956,458$3,649,508

NMF = Not a meaningful figure

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions and GSCs for 2015, increased $89.5 million to $1,657.0 million, or 5.7% over 2014. Core commissions and fees revenue for 2015 increased $95.3 million, of which approximately $76.6 million represented core commissions and fees from agencies acquired since 2014 that had no comparable revenues. After accounting for divested business of $19.3 million, the remaining net increase of $38.0 million represented net new business, which reflects a growth rate of 2.6% for core organic commissions and fees. Profit-sharing contingent commissions and GSCs for 2015 decreased by $5.8 million, or 8.6%, compared to the same period in 2014. The net decrease of $5.8 million was mainly driven by a decrease in profit-sharing contingent commissions in the National Programs Segment as a result of increased loss ratios.

Commissions and fees, including profit-sharing contingent commissions and GSCs for 2014, increased $212.0 million to $1,567.5 million, or 15.6% over the same period in 2013. Core commissions and fees revenue in 2014 increased $203.9 million, of which approximately $186.8 million represented core commissions and fees from acquisitions that had no comparable revenues in 2013. After accounting for divested business of $8.5 million, the remaining net increase of $25.6 million represented net new business, which reflects an internal growth rate of 2.0% for core organic commissions and fees. Profit-sharing contingent commissions and GSCs for 2014 increased by $8.0 million, or

13.5%, compared to the same period in 2013. The net increase was due primarily to $4.9 million, $1.3 million, and $1.8 million increases in profit-sharing contingent commissions and GSCs in our Retail, National Programs and Wholesale Brokerage Segments, respectively.

Investment Income

Investment income increased to $1.0 million in 2015, compared with $0.7 million in 2014 due to additional interest income driven by cash management activities to earn a higher yield. Investment income increased to $0.7 million in 2014, compared with $0.6 million in 2013 mainly due to higher average daily invested balances in 2014 than in 2013.

Other Income, Net

Other income for 2015 reflected income of $2.6 million, compared with $7.6 million in 2014 and $7.1 million in 2013. Other income in 2015 consisted primarily of legal settlements and also gains and loss on the sale and disposition of fixed assets. In 2014 and 2013, other income included legal settlements and gains and loss on the sale and disposition of fixed assets as well as gains and losses from the sale on books of business (customer accounts). Prior to the adoption of ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) in the fourth quarter of 2014, net gains and losses on the sale of businesses or customer accounts were reflected in other income. Any such gains or losses are now reflected on a net basis in the expense section since the adoption of ASU 2014-08. The $5.0 million change in 2015 other income from the comparable period in 2014 was primarily due to prior year book of business sales and to a lesser extent, the change to the presentation of this activity in the financial statements. We recognized gains of $0.6 million, $5.3 million and $3.1 million from sales on books of business (customer accounts) in 2015, 2014 and 2013, respectively.

Employee Compensation and Benefits

Employee compensation and benefits expense increased 6.3%, or $49.7 million, in 2015 over 2014. This increase included $25.8 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2014. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2015 and 2014 increased by $23.9 million or 3.2%. This underlying employee compensation and benefits expense increase was primarily related to (i) an increase in producer and staff salaries as we made targeted investments in our business; (ii) increased profit center bonuses and commissions due to increased revenue and operating profit; and (iii) the increased cost of health insurance. Employee compensation and benefits expense as a percentage of total revenues was 50.7% for 2015 as compared to 50.2% for the year ended December 31, 2014.

Employee compensation and benefits expense increased, approximately 15.9% or $108.7 million in 2014 over 2013. However, that net increase included $81.0 million of compensation costs related to new acquisitions that were stand-alone offices. Therefore, employee compensation and benefits from those offices that existed in the same time periods of 2014 and 2013 increased by $27.7 million. The employee compensation and benefit increases from these offices were primarily related to increases in staff and management salaries of $13.8 million, new salaried producers of $4.8 million, profit center and other related bonuses of $6.7 million, compensation to our commissioned producers of $0.9 million and health insurance costs of $4.8 million. These increases were partially offset by net reductions in temporary employees, employer 401(k) plan matching contributions and accrued vacation expense. Employee compensation and benefits expense as a percentage of total revenues was 50.2% as compared to 50.1% for the year ended December 31, 2013. This slight increase was driven by continued investment in new teammates.

Non-Cash Stock-Based Compensation

The Company has an employee stock purchase plan, grants non-vested stock awards, and to a lesser extent grants stock options under other equity-based plans to its employees. Compensation expense for all share-based awards is recognized in the financial statements based upon the grant-date fair value of those awards. For 2015, 2014 and 2013, the non-cash stock-based compensation expense incorporated the costs related to each of the Company’s four stock-based plans as explained in Note 11 of the Notes to the Consolidated Financial Statements.

Non-cash stock-based compensation expense decreased $3.9 million, or 19.9% in 2015 over 2014. The decrease was the result of: (i) older grants attaining the vesting requirements and therefore being fully expensed in prior periods; (ii) some forfeitures driven by certain grants not achieving all vesting requirements; and (iii) underlying participation levels; all of which were partially offset by the additional expense attributable to the new grants issued in 2015.

Non-cash stock-based compensation expense decreased $3.2 million, or 14.3% in 2014 over 2013, primarily as a result of forfeitures due to the non-achievement of certain performance criteria, partially offset by an increase associated with new, non-vested stock awards granted on July 1, 2013 under our Stock Incentive Plan (“SIP”).

Other Operating Expenses

As a percentage of total revenues, other operating expenses represented 15.1% in 2015, 14.9% in 2014, and 14.4% in 2013. Other operating expenses in 2015 increased $15.7 million, or 6.7%, over 2014, of which $12.6 million was related to acquisitions that had no comparable costs in the same period of 2014. The other operating expenses for those offices that existed in the same periods in both 2015 and 2014, increased by $3.1 million or 1.3%, which was primarily attributable to increased sales meetings, legal and consulting expenses, partially offset by decreases in expenses associated with office rent, telecommunications and bank fees.

Other operating expenses in 2014 increased $39.7 million, or 20.3%, over 2013, of which $39.0 million was related to acquisitions. Therefore, other operating expenses attributable to offices that existed in the same periods in both 2014 and 2013 (including the new acquisitions that “folded in” to those offices) increased by $0.7 million. The $0.7 million net increase includes increases of $2.0 million related to increased data processing and software licensing expense, $1.2 million related to increased inspection and consulting fees, $0.8 million related to office rent, and $0.9 million related to increased employee sales meeting costs, offset by decreases of $3.0 million for legal claims and litigation expenses, $1.0 million for insurance expenses, and $0.2 million in other various expense decreases.

Gain or Loss on Disposal

The Company recognized a gain on disposal of $0.6 million in 2015 and a loss on disposal of $47.4 million in 2014. The pretax loss for 2014 is the result of the disposal of the Axiom Re business as part of the Company’s strategy to exit the reinsurance brokerage business. Prior to the adoption of ASU 2014-08 in the fourth quarter of 2014 as noted above, net gains and losses on the sale of businesses or customer accounts were reflected in other income. 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. We recognized gains of $0.6 million, $5.3 million and $3.1 million from sales on books of business (customer accounts) in 2015, 2014 and 2013, respectively.

Amortization

Amortization expense increased $4.5 million, or 5.5%, in 2015, and increased $15.0 million, or 22.1%, in 2014. The increases were due primarily to the amortization of additional intangible assets as the result of acquisitions completed in those years.

Depreciation

Depreciation expense remained flat in 2015, and increased $3.4 million, or 19.5%, in 2014. The increase in 2014 was due primarily to the addition of fixed assets resulting from acquisitions completed since 2013, while the stable level of expense in 2015 versus 2014 reflected capital additions approximately equal to the value of prior additions that became fully depreciated.

Interest Expense

Interest expense increased $10.8 million, or 38.2%, in 2015, and $12.0 million, or 72.8% in 2014. These increases were primarily due to the increased debt borrowings and an increase in our effective rate of interest for the years ended 2015 and 2014. The increased debt borrowings from the prior year include: the Credit Facility term loan entered into in May 2014 in the initial amount of $550.0 million at LIBOR plus 137.5 basis points, and the $500.0 million Senior Notes due 2024 issued during September 2014 at a fixed rate of interest of 4.2%. The Credit Facility term loan proceeds replaced pre-existing debt of $230.0 million with similar rates of interest. The proceeds from the Senior Notes due 2024 were used to settle the Credit Facility revolver debt of $375.0 million, which had a lower, but variable rate of interest based on an adjusted LIBOR. This transitioned the debt to a favorable long-term fixed rate of interest and extended the date of maturity of those funds. These changes were the result of an evolution and maturation of our previous debt structure and provide increased debt capacity and flexibility.

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. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include 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.

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 of December 31, 2015, 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 ended December 31, 2015, 2014, and 2013 were as follows:

(in thousands)201520142013
Change in fair value of estimated acquisition earn-out payables$2,990$7,375$570
Interest expense accretion132,5631,963
Net change in earnings from estimated acquisition earn-out payables$3,003$9,938$2,533

For the years ended December 31, 2015, 2014 and 2013, the fair value of estimated earn-out payables was re-evaluated and increased by $3.0 million, $7.4 million and $0.6 million, respectively, which resulted in charges to the Consolidated Statement of Income.

As of December 31, 2015, the estimated acquisition earn-out payables equaled $78.4 million, of which $25.3 million was recorded as accounts payable and $53.1 million was recorded as other non-current liability. As of December 31, 2014, the estimated acquisition earn-out payables equaled $75.3 million, of which $26.0 million was recorded as accounts payable and $49.3 million was recorded as other non-current liability.

Income Taxes

The effective tax rate on income from operations was 39.6% in 2015, 39.1% in 2014, and 39.3% in 2013. The increased effective tax rate was largely the result of more income in states with a higher average effective state income tax rate, which was primarily New York State.

RESULTS OF OPERATIONS — SEGMENT INFORMATION

As discussed in Note 15 of the Notes to Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage, and Services. On a segmented basis, increases in amortization, depreciation and interest expenses generally result from completed acquisitions within a given segment in a particular year. 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 emphasizes the net internal growth rate of core commissions and fees revenue, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.

Segment results for prior periods have been recast to reflect the current year segmental structure. Certain reclassifications have been made to the prior-year amounts reported in this Annual Report on Form 10-K in order to conform to the current year presentation.

The internal growth rates for our core organic commissions and fees for the years ended December 31, 2015, 2014 and 2013 by Segment, are as follows:

2015For the Year Ended December 31,Total Net ChangeTotal Net Growth %Less Acquisition RevenuesInternal Net Growth $Internal Net Growth %
(in thousands, except percentages)20152014
Retail(1)$836,123$789,503$46,6205.9%$35,644$10,9761.4%
National Programs412,885367,67245,21312.3%38,5196,6941.8%
Wholesale Brokerage200,835187,25713,5787.3%2,46911,1095.9%
Services145,375136,1359,2406.8%—9,2406.8%
Total core commissions and fees$1,595,218$1,480,567$114,6517.7%$76,632$38,0192.6%

The reconciliation of the above internal growth schedule to the total commissions and fees included in the Consolidated Statement of Income for the years ended December 31, 2015, and 2014, is as follows:

For the Year Ended December 31,
(in thousands)20152014
Total core commissions and fees$1,595,218$1,480,567
Profit-sharing contingent commissions51,70757,706
Guaranteed supplemental commissions10,0269,851
Divested business—19,336
Total commissions and fees$1,656,951$1,567,460
2014For the Year Ended December 31,Total Net ChangeTotal Net Growth %Less Acquisition RevenuesInternal Net Growth $Internal Net Growth %
(in thousands, except percentages)20142013
Retail(1)$792,794$701,211$91,58313.1%$77,315$14,2682.0%
National Programs376,483277,08299,40135.9%93,8035,5982.0%
Wholesale Brokerage194,144177,72516,4199.2%6816,3519.2%
Services136,482131,5024,9803.8%15,599(10,619)(8.1)%
Total core commissions and fees$1,499,903$1,287,520$212,38316.5%$186,785$25,5982.0%
Less Superstorm Sandy$—$(18,275)$18,275100.0%$—$18,275100.0%
Total core commissions and fees less Superstorm Sandy$1,499,903$1,269,245$230,65818.2%$186,785$43,8733.5%

There would be a 3.5% Internal Net Growth rate when excluding the $18.3 million of revenues recorded at our Colonial Claims operation in the first half of 2013 related to Superstorm Sandy.

The reconciliation of the above internal growth schedule to the total commissions and fees included in the Consolidated Statement of Income for the years ended December 31, 2014 and 2013, is as follows:

For the Year Ended December 31,
(in thousands)20142013
Total core commissions and fees$1,499,903$1,287,520
Profit-sharing contingent commissions57,70651,251
Guaranteed supplemental commissions9,8518,275
Divested business—8,457
Total commissions and fees$1,567,460$1,355,503
2013For the Year Ended December 31,Total Net ChangeTotal Net Growth %Less Acquisition RevenuesInternal Net Growth $Internal Net Growth %
(in thousands, except percentages)20132012
Retail(1)$706,525$619,057$87,46814.1%$79,455$8,0131.3%
National Programs280,695240,55040,14516.7%7,09933,04613.7%
Wholesale Brokerage177,725152,96124,76416.2%4,33220,43213.4%
Services131,032116,24714,78512.7%65714,12812.2%
Total core commissions and fees$1,295,977$1,128,815$167,16214.8%$91,543$75,6196.7%

The reconciliation of the above internal growth schedule to the total commissions and fees included in the Consolidated Statement of Income for the years ended December 31, 2013 and 2012, is as follows:

For the Year Ended December 31,
(in thousands)20132012
Total core commissions and fees$1,295,977$1,128,815
Profit-sharing contingent commissions51,25143,683
Guaranteed supplemental commissions8,2759,146
Divested business—7,437
Total commissions and fees$1,355,503$1,189,081
(1)The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 15 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

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. Approximately 87.0% of the Retail Segment’s commissions and fees revenue is commission-based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments in the organization.

Financial information relating to our Retail Segment is as follows:

(in thousands, except percentages)2015% Change2014% Change2013
REVENUES
Core commissions and fees$837,4205.5%$793,86512.2%$707,721
Profit-sharing contingent commissions22,0512.0%21,61623.2%17,544
Guaranteed supplemental commissions8,2917.3%7,73012.9%6,849
Investment income8729.9%67(18.3)%82
Other income, net2,497NMF408(92.1)%5,153
Total revenues870,3465.7%823,68611.7%737,349
EXPENSES
Employee compensation and benefits445,2427.1%415,87613.0%368,164
Non-cash stock-based compensation12,109(25.7)%16,29358.5%10,281
Other operating expenses137,5192.9%133,68211.9%119,489
Loss/(gain) on disposal(1,207)—%——%—
Amortization45,1455.1%42,93511.5%38,523
Depreciation6,5581.7%6,4499.8%5,874
Interest41,036(5.7)%43,50225.5%34,658
Change in estimated acquisition earn-out payables2,006(73.1)%7,458NMF(1,427)
Total expenses688,4083.3%666,19515.7%575,562
Income before income taxes$181,93815.5%$157,491(2.7)%$161,787
Net internal growth rate – core organic commissions and fees1.4%2.0%1.3%
Employee compensation and benefits ratio51.2%50.5%49.9%
Other operating expenses ratio15.8%16.2%16.2%
Capital expenditures$6,797$6,873$6,886
Total assets at December 31$3,507,476$3,229,484$3,012,688

NMF = Not a meaningful figure

The Retail Segment’s total revenues in 2015 increased 5.7%, or $46.7 million, over the same period in 2014, to $870.3 million. The $43.6 million increase in core commissions and fees revenue was driven by the following: (i) approximately $35.6 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2014; (ii) $11.0 million related to net new business; and (iii) an offsetting decrease of $3.0 million related to commissions and fees revenue from business divested in 2014 and 2015. Profit-sharing contingent commissions and GSCs in 2015 increased 3.4%, or $1.0 million, over 2014, to $30.3 million. The Retail Segment’s internal growth rate for core organic commissions and fees revenue was 1.4% for 2015 and was driven by revenue from net new business written during the preceding twelve months along with modest increases in commercial auto rates, and partially offset by: (i) terminated association health plans in the State of Washington; (ii) continued pressure on the small employee benefits business as some accounts adopt alternative plan designs and move to a per employee/per month payment model due to the implementation of the Affordable Care Act; and (iii) reductions in property insurance premium rates specifically in catastrophe-prone areas.

Income before income taxes for 2015, increased 15.5%, or $24.4 million, over the same period in 2014, to $181.9 million. The primary factors affecting this increase were: (i) the net increase in revenue as described above; (ii) a 7.1%, or $29.4 million increase in employee compensation and benefits due primarily to the year on year impact of new teammates related to acquisitions completed in the past twelve months in addition to incremental investments in revenue producing teammates; (iii) operating expenses which increased by $3.8 million or 2.9%, due to increased travel and value added consulting services; offset by (iv) a reduction in the change in estimated acquisition earn-out payables of $5.5 million, or 73.1% to $2.0 million; and (v) a $4.2 million, or 25.7% reduction in non-cash stock-based compensation to $12.1 million due to the forfeiture of certain grants where performance conditions were not fully achieved.

The Retail Segment’s total revenues in 2014, increased 11.7%, or $86.3 million, over the same period in 2013, to $823.7 million. Profit-sharing contingent commissions and GSCs in 2014 increased 20.3%, or $5.0 million, over 2013, to $29.3 million, primarily due to improved loss ratios resulting in increased profitability for insurance companies in 2013. The $86.1 million increase in core commissions and fees revenue was driven by the following: (i) approximately $77.3 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2013; (ii) $14.3 million related to net new business; and (iii) an offsetting decrease of $5.5 million related to commissions and fees revenue recorded from business divested in the last year. The Retail Segment’s internal growth rate for core organic commissions and fees revenue was 2.0% for 2014, and was driven by net new customers, increasing insurable exposure units in certain areas of the United States, and was partially offset by continued pressure on property and casualty rates, especially in coastal areas.

Income before income taxes for 2014, decreased 2.7%, or $4.3 million, over the same period in 2013, to $157.5 million. This decrease was primarily due to a higher interest charge of $8.8 million corresponding to capital utilized for acquisitions in 2014 and $8.9 million related to the year-on-year changes in the estimated earn-out payable. The underlying increase was driven by net new business, acquired business and increased profit-sharing contingent commissions and GSCs. Non-cash stock-based compensation increased $6.0 million, or 58.5%, for 2014 over the same period in 2013, as the cost of grants to employees for the purpose of driving performance were realized.

National Programs Segment

The National Programs Segment manages over 50 programs with approximately 40 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, Arrowhead Insurance 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 is as follows:

(in thousands, except percentages)2015% Change2014% Change2013
REVENUES
Core commissions and fees$412,8859.7%$376,48334.1%$280,695
Profit-sharing contingent commissions15,558(25.3)%20,8226.3%19,590
Guaranteed supplemental commissions3042.9%21NMF(23)
Investment income21028.0%164NMF19
Other income, net51(99.2)%6,749NMF1,091
Total revenues428,7346.1%404,23934.1%301,372
EXPENSES
Employee compensation and benefits178,1856.1%168,01822.9%136,748
Non-cash stock-based compensation4,669NMF1,387(72.6)%5,060
Other operating expenses86,1579.4%78,74444.0%54,690
Loss/(gain) on disposal458—%——%—
Amortization28,47913.3%25,12968.1%14,953
Depreciation7,250(7.1)%7,80542.1%5,492
Interest55,70512.2%49,663106.8%24,014
Change in estimated acquisition earn-out payables158(49.8)%315(139.0)%(808)
Total expenses361,0619.1%331,06137.9%240,149
Income before income taxes$67,673(7.5)%$73,17819.5%$61,223
Net internal growth rate – core organic commissions and fees1.8%2.0%13.7%
Employee compensation and benefits ratio41.6%41.6%45.4%
Other operating expenses ratio20.1%19.5%18.1%
Capital expenditures$6,001$14,133$4,810
Total assets at December 31$2,505,752$2,455,749$1,377,404

NMF = Not a meaningful figure

National Programs total revenues in 2015, increased 6.1%, or $24.5 million, over 2014, to a total $428.7 million. The $36.4 million increase in core commissions and fees revenue was driven by the following: (i) an increase of approximately $38.5 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in 2014; (ii) $6.7 million related to net new business offset by (iii) a decrease of $8.8 million related to commissions and fees revenue recorded in 2014 from businesses since divested. Profit-sharing contingent commissions and GSCs were $15.6 million in 2015 which was a decrease of $5.3 million over 2014, which was primarily driven by the loss experience of our carrier partners.

The National Programs Segment’s internal growth rate for core commissions and fees revenue was 1.8% for 2015. This internal growth rate was mainly due to the Arrowhead Personal Property program, which continued to produce more written premium, the Arrowhead Automotive Aftermarket program which received a commission rate increase from their carrier partner, growth in our Wright Specialty education program and the on-boarding of new clients by Proctor Financial. Growth in these businesses was partially offset by certain programs that have been affected by lower rates.

Income before income taxes for 2015, decreased 7.5%, or $5.5 million, from the same period in 2014, to $67.7 million. The decrease is the result of the $6.0 million gain on the sale of Industry Consulting Group (“ICG”), along with the $3.7 million SIP grant forfeiture benefit

associated with Arrowhead, which were both credits recorded in 2014. After adjusting for these one-time items in 2014, underlying Income before income taxes increased and was driven by the net revenue growth noted above and expense management initiatives as we grow and scale our programs.

The National Programs Segment’s total revenues in 2014, increased 34.1%, or $102.9 million, over 2013, to a total of $404.2 million. The $95.8 million increase in core commissions and fees revenue was driven by the following: (i) approximately $93.8 million related to the core commissions and fees revenue from the Wright and Beecher Carlson acquisitions that had no comparable revenues in 2013; (ii) $5.6 million related to net new business; and (iii) an offsetting decrease of $3.6 million in books of business that were disposed or transferred to other segments. Profit-sharing contingent commissions and GSCs were $20.8 million in 2014 which was an increase of $1.3 million from the same period of 2013. This increase was due primarily to a $0.5 million increase in profit-sharing contingent commissions received by Florida Intracoastal Underwriters, Limited Company, and a $0.8 million increase in profit-sharing contingent commissions received by Proctor Financial, Inc. Other income increased by approximately $5.7 million primarily due to the gain recognized on the sale of Industry Consulting Group, Inc. (“ICG”) of $6.0 million.

Income before income taxes for 2014, increased 19.5%, or $12.0 million, from the same period in 2013, to $73.2 million. The increase in income before taxes was due to net new business growth noted above, revenues and operating profits derived from Wright, the gain on the sale of ICG, and a non-cash stock-based compensation decrease of $3.7 million primarily related to partial SIP grant forfeitures associated with Arrowhead. The $12.0 million increase was partially offset by an increase in the inter-company interest expense charge related to Wright.

Wholesale Brokerage Segment

The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers. 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 is as follows:

(in thousands, except percentages)2015% Change2014% Change2013
REVENUES
Core commissions and fees$200,8353.4%$194,1449.2%$177,725
Profit-sharing contingent commissions14,098(7.7)%15,2688.2%14,117
Guaranteed supplemental commissions1,705(18.8)%2,10044.9%1,449
Investment income150NMF2618.2%22
Other income, net208(44.2)%373(6.0)%397
Total revenues216,9962.4%211,9119.4%193,710
EXPENSES
Employee compensation and benefits101,5901.7%99,9189.3%91,449
Non-cash stock-based compensation3,1022.0%3,04132.5%2,295
Other operating expenses34,379(5.1)%36,2344.2%34,770
Loss/(gain) on disposal(385)NMF47,425—%—
Amortization9,739(9.0)%10,703(0.1)%10,719
Depreciation2,142(13.3)%2,470(7.6)%2,674
Interest891(31.1)%1,294(44.1)%2,316
Change in estimated acquisition earn-out payables830(67.5)%2,55028.4%1,986
Total expenses152,288(25.2)%203,63539.3%146,209
Income before income taxes$64,708NMF$8,276(82.6)%$47,501
Net internal growth rate – core organic commissions and fees5.9%9.2%13.4%
Employee compensation and benefits ratio46.8%47.2%47.2%
Other operating expenses ratio15.8%17.1%17.9%
Capital expenditures$3,084$1,526$1,825
Total assets at December 31$895,782$857,804$865,731

NMF = Not a meaningful figure

The Wholesale Brokerage Segment’s total revenues for 2015, increased 2.4%, or $5.1 million, over 2014, to $217.0 million. The $6.7 million net increase in core commissions and fees revenue was driven by the following: (i) $11.1 million related to net new business; (ii) $2.5 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in 2014; and (iii) an offsetting decrease of $6.9 million related to commissions and fees revenue recorded in 2014 from businesses divested in the past year. Contingent commissions and GSCs for 2015 decreased $1.6 million over 2014, to $15.8 million. This decrease was driven by an increase in loss ratios. The Wholesale Brokerage Segment’s internal growth rate for core organic commissions and fees revenue was 5.9% for 2015, and was driven by net new business and modest increases in exposure units, partially offset by significant contraction in insurance premium rates for catastrophe-prone properties.

Income before income taxes for 2015 increased $56.4 million over 2014, to $64.7 million, primarily due to the following: (i) the $47.4 million net pretax loss on disposal of the Axiom Re business in 2014; (ii) the net increase in revenue as described above and (iii) the impact of the Axiom Re business divested in 2014 that reported lower margins than the Wholesale Brokerage Segment’s average.

The Wholesale Brokerage Segment’s total revenues for 2014, increased 9.4%, or $18.2 million, over 2013, to $211.9 million. Profit-sharing contingent commissions and GSCs for 2014 increased $1.8 million over 2013, to $17.4 million. The $16.4 million net increase in core commissions and fees revenue was driven by the following: (i) $16.4 million related to net new business; (ii) $0.1 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in 2013; and (iii) an offsetting decrease of $0.1 million related to commissions and fees revenue recorded in 2013 from businesses divested in the past year. As such, the Wholesale Brokerage Segment’s internal growth rate for core organic commissions and fees revenue was 9.2% for 2014.

Income before income taxes for 2014, decreased 82.6%, or $39.2 million, over 2013, to $8.3 million. This decrease included a $47.4 million net loss on the disposal of the Axiom Re business. Effective December 31, 2014, the Company sold certain assets of the Axiom Re business as part of the strategic plan to exit the reinsurance brokerage market. Axiom Re had annual revenues of approximately $6.9 million in 2014. The underlying performance of this segment was driven by new business growth and to a lesser extent an increase in profit-sharing contingent commissions.

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 is as follows:

(in thousands, except percentages)2015% Change2014% Change2013
REVENUES
Core commissions and fees$145,3756.5%$136,4824.2%$131,032
Profit-sharing contingent commissions——%——%—
Guaranteed supplemental commissions——%——%—
Investment income42NMF3200.0%1
Other income, net(52)NMF73(84.0)%456
Total revenues145,3656.4%136,5583.9%131,489
EXPENSES
Employee compensation and benefits76,2495.1%72,58318.6%61,193
Non-cash stock-based compensation845185.5%296(71.2)%1,027
Other operating expenses36,05712.1%32,16814.7%28,053
Loss/(gain) on disposal515—%——%—
Amortization4,019(2.8)%4,13511.8%3,698
Depreciation1,988(10.2)%2,21336.4%1,623
Interest5,970(22.2)%7,6784.9%7,322
Change in estimated acquisition earn-out payables9(102.3)%(385)(113.8)%2,782
Total expenses125,6525.9%118,68812.3%105,698
Income before income taxes$19,71310.3%$17,870(30.7)%$25,791
Net internal growth rate – core organic commissions and fees6.8%(8.1)%12.2%
Employee compensation and benefits ratio52.5%53.2%46.5%
Other operating expenses ratio24.8%23.6%21.3%
Capital expenditures$1,088$1,210$1,811
Total assets at December 31$285,459$296,034$277,652

NMF = Not a meaningful figure

The Services Segment’s total revenues for 2015 increased 6.4%, or $8.8 million, over 2014, to $145.4 million. The $8.9 million increase in core commissions and fees revenue primarily resulted from growth in our advocacy businesses driven by new clients and growth in several of our claims processing units related to new client relationships. The Services Segment’s internal growth rate for core commissions and fees revenue was 6.8% for 2015.

Income before income taxes for 2015 increased 10.3%, or $1.8 million, over 2014, to $19.7 million due to a combination of: (i) internal revenue growth noted above; (ii) the continued efficient operation of our businesses; and (iii) a decrease in the intercompany interest expense charge. The impact from the sale of the Colonial Claims business on 2015 revenues and income before income taxes was immaterial.

The Services Segment’s total revenues for 2014 increased 3.9%, or $5.1 million, over 2013, to $136.6 million. The $5.5 million increase in core commissions and fees revenue consisted of the following: (i) an increase of approximately $15.6 million related to the core commissions and fees revenue from the acquisition of ICA, that had no comparable revenues in the same period of 2013; (ii) net new business of $7.7 million; (iii) offset by a reduction of $18.3 million due to the significant flood claims processed in 2013 resulting from Superstorm Sandy in 2012 with no comparable storm in 2013 and (iv) $0.4 million of net sold books of business. As such, the Services Segment’s internal growth rate for core commissions and fees revenue was (8.1)% for 2014 and excluding the impact of Superstorm Sandy internal growth would have been 6.8% in 2014.

Income before income taxes for 2014 decreased 30.7%, or $7.9 million, over the same period in 2013, to $17.9 million due to the reduction in Superstorm Sandy related revenues and corresponding operating profit partially offset by the increase associated with net new and acquired business.

Other

As discussed in Note 15 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 inter-company interest expense charges to reporting segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company strives 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 access the use of our revolving credit facilities, which provide up to $825.0 million in available cash, and we believe that we have access to additional funds, if needed, through the capital markets 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 credit facilities, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next twelve months.

Our cash and cash equivalents of $443.4 million at December 31, 2015 reflected a decrease of $26.6 million from the $470.0 million balance at December 31, 2014. During 2015, $411.8 million of cash was generated from operating activities. During this period, $136.0 million of cash was used for acquisitions, $25.4 million was used for acquisition earn-out payments, $18.4 million was used for additions to fixed assets, $64.1 million was used for payment of dividends, $175.0 million was used as part of accelerated share repurchase programs, and $45.6 million was used to pay outstanding principal balances owed on long-term debt.

We hold approximately $17.2 million in cash outside of the U.S. for which we have no plans to repatriate in the near future.

Our cash and cash equivalents of $470.0 million at December 31, 2014 reflected an increase of $267.1 million from the $203.0 million balance at December 31, 2013. During 2014, $385.0 million of cash was generated from operating activities. During this period, $696.5 million of cash was used for acquisitions, $9.5 million was used for acquisition earn-out payments, $24.9 million was used for additions to fixed assets, $59.3 million was used for payment of dividends, and $718.0 million was provided from proceeds received on net new long-term debt.

On May 1, 2014, we completed the acquisition of Wright for a total cash purchase price of $609.2 million, subject to certain adjustments. We financed the acquisition through various modified and new credit facilities.

Our cash and cash equivalents of $203.0 million at December 31, 2013 reflected a decrease of $16.9 million from the $219.8 million balance at December 31, 2012. During 2013, $389.4 million of cash was generated from operating activities. During this period, $367.7 million of cash was used for acquisitions, $15.5 million was used for acquisition earn-out payments, $16.4 million was used for additions to fixed assets, $53.5 million was used for payment of dividends, and $30.0 million was provided from proceeds received on new long-term debt.

On July 1, 2013, we completed the acquisition of Beecher Carlson for a total cash purchase price of $364.2 million, subject to certain adjustments. We financed the acquisition through various modified and new credit facilities.

Our ratio of current assets to current liabilities (the “current ratio”) was 1.16 and 1.24 at December 31, 2015 and 2014, respectively.

Contractual Cash Obligations

As of December 31, 2015, our contractual cash obligations were as follows:

Payments Due by Period
(in thousands)TotalLess Than 1 Year1-3 Years4-5 YearsAfter 5 Years
Long-term debt$1,154,375$73,125$210,000$371,250$500,000
Other liabilities(1)60,51620,06515,7941,09823,559
Operating leases195,27240,90068,72147,24538,406
Interest obligations227,33237,18267,34344,93277,875
Unrecognized tax benefits584—584——
Maximum future acquisition contingency payments(2)137,36534,46785,81517,083—
Total contractual cash obligations$1,775,444$205,739$448,257$481,608$639,840
(1)Includes the current portion of other long-term liabilities.
(2)Includes $78.4 million of current and non-current estimated earn-out payables resulting from acquisitions consummated after January 1, 2009.

Debt

Total debt at December 31, 2015 was $1,153.0 million, which was a decrease of $45.5 million compared to December 31, 2014. This decrease was primarily due to the repayments of $45.6 million in principal payments, and the amortization of discounted debt related to our 4.20% Notes due 2024, of $0.1 million.

On January 15, 2015, the Company retired the Series D senior notes of $25.0 million that matured and were issued under the original private placement note agreement from December 2006.

As of December 31, 2015, the Company satisfied the third installment of scheduled quarterly principal payments on the Credit Facility term loan. Each installment equaled $6.9 million. The Company has satisfied $20.6 million in total principal payments through December 31, 2015. Scheduled quarterly principal payments are expected to be made until maturity. The balance of the Credit Facility term loan is $529.4 million as of December 31, 2015. Of the total amount, $48.1 million is classified as short-term debt and current portion of long-term debt in the Consolidated Balance Sheet as the date of maturity is less than one year representing the quarterly debt payments due in 2016.

During 2015, the $25.0 million of 5.66% Notes due December 2016 were classified as short-term debt and current portion of long-term debt in the Consolidated Balance Sheet as the date of maturity is less than one year.

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.”

Previous: Item 6. Selected Financial Data. · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk.