ARTHUR J. GALLAGHER & CO. ITASCA, Ill., April 24, 2015 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended March 31, 2015. A printer-friendly format and supplemental quarterly data are available at www.ajg.com. For a description of the non-GAAP measures used to report financial results in this earnings release and their most comparable GAAP measures, please see "Information Regarding Non-GAAP Measures" beginning on page 7.
"We are off to an excellent start in 2015," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "Our revenue momentum continues. In the first quarter, our combined Brokerage and Risk Management segments posted 30% growth in adjusted revenues, of which 6.0% was total organic growth. Our adjusted EBITDAC increased 46% and adjusted net earnings per share grew 18%. We also improved our adjusted EBITDAC margin 208 basis points compared to the first quarter of 2014."
-- Our Brokerage segment had a terrific quarter. Adjusted revenues
increased 36%, of which 4.5% was total organic growth, adjusted EBITDAC
increased 52% and we improved our adjusted EBITDAC margin 214 basis
points. During the first quarter, we completed 11 acquisitions with
annualized revenues of nearly $34 million.
-- Our Risk Management segment had an outstanding quarter. Total organic
revenues increased 10.9%, we improved our adjusted EBITDAC margin 124
basis points and we exceeded our 16.5% margin target.
-- Our clean energy investments had an excellent quarter.
"We remain comfortable with the current rate environment and believe it is rational. We are seeing insurance carriers continuing to focus on profitable underwriting, quoting appropriate prices on a line-by-line basis, which allows us to demonstrate our expertise and high-quality value-added service. In addition, we are seeing our clients slowly expand their businesses and payrolls. Our global team is energized and well positioned for 2015."
The following table provides information that management believes is helpful when comparing 2015 revenues, EBITDAC and diluted net earnings per share with the same periods in 2014. In addition, this table provides reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share, and the reconciliation for EBITDAC is provided on page 9.
Quarter Ended March 31 Diluted Net
Revenues EBITDAC Earnings Per Share
Segment 1st Q 15 1st Q 14 Chg 1st Q 15 1st Q 14 Chg 1st Q 15 1st Q 14 Chg
------- -------- -------- --- -------- -------- --- -------- -------- ---
(in millions) (in millions)
Brokerage, as adjusted $750.2 $552.6 36% $166.9 $109.6 52% $0.36 $0.29
Gains on book sales 0.9 1.0 0.9 1.0 - -
Acquisition integration - - (20.8) (6.5) (0.08) (0.03)
Workforce & lease termination - - (8.5) (2.0) (0.03) (0.01)
Acquisition related adjustments - - - (1.1) (0.03) (0.01)
Levelized foreign currency
translation - 10.8 - 0.6 - -
--------------------------- --- --- ---
Brokerage, as reported 751.1 564.4 138.5 101.6 0.22 0.24
----- ----- ----- ----- ---- ----
Risk Management, as adjusted 177.2 160.0 11% 29.8 24.9 20% 0.09 0.09
Workforce & lease termination - - (0.2) (0.4) - -
Claim portfolio transfer ramp up - - - (1.2) - (0.01)
Levelized foreign currency
translation - 4.2 - 1.2 - 0.01
Risk Management, as reported 177.2 164.2 29.6 24.5 0.09 0.09
---- ----
Total Brokerage & Risk
Management, as reported $928.3 $728.6 $168.1 $126.1 0.31 0.33
======================= ====== ======
Corporate, as adjusted (0.18) (0.12)
Non-cash gains on changes in
ownership levels - 0.15
---
Corporate, as reported (0.18) 0.03
----- ----
Total Company, as reported $0.13 $0.36
===== =====
Total Brokerage & Risk
Management, as adjusted $927.4 $712.6 30% $196.7 $134.5 46% $0.45 $0.38 18%
======================= ====== ====== =====
(1 of 11)
Brokerage Segment First Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2015 financial information with the same period in 2014 (in millions).
Organic Revenues (non-GAAP) 1st Q 15 1st Q 14
--------------------------
Base Commissions and Fees
Commissions as reported $519.7 $411.5
Fees as reported 146.1 93.4
Less commissions and fees from
acquisitions (143.6) -
Less non-owned portion of
consolidated entities * (8.4) -
Less disposed of operations - (3.5)
Levelized foreign currency
translation - (9.6)
Organic base commissions and fees $513.8 $491.8
====== ======
Organic change in base commissions
and fees 4.5%
===
Supplemental Commissions
Supplemental commissions as reported $26.9 $25.4
Less supplemental commissions from
acquisitions (5.1) -
Levelized foreign currency
translation - (0.9)
Organic supplemental commissions $21.8 $24.5
===== =====
Organic change in supplemental
commissions -11.0%
=====
Contingent Commissions
Contingent commissions as reported $44.5 $32.2
Less contingent commissions from
acquisitions (6.8) -
Levelized foreign currency
translation - (0.1)
Organic contingent commissions $37.7 $32.1
===== =====
Organic change in contingent
commissions 17.5%
====
Total organic change 4.5%
===
* Gallagher controls, but owns less
than 50% of, certain entities
and must consolidate 100% of
their results. Accordingly, we
have excluded the non-owned
portion of those entities'
revenues from the organic
revenue computation.
The following is a summary of Brokerage segment acquisition activity for 2015 and 2014:
1st Q 15 1st Q 14
Shares issued for acquisitions
and earnouts 1,280,000 738,000
Number of acquisitions closed 11 9
Annualized revenues acquired (in
millions) $33.6 $17.8
===== =====
Rollover revenues recognized in
period from 2014 acquisitions
(in millions) $162.4
Portion of Q1 2015 acquisitions
revenues recognized in period
(in millions) 5.6
---
Total * $168.0
======
* Consists of $143.6 million
recognized in commissions and
fees, $11.9 million in
supplemental and contingent
commissions and $12.5 million in
investment income and gains
related to premium funding
operations acquired.
(2 of 11)
Brokerage Segment First Quarter Highlights (continued)
Adjusted Compensation Expense and
Ratio (non-GAAP) 1st Q 15 1st Q 14
---------------------------------
Reported amounts $460.3 $352.6
Acquisition integration (11.6) (3.6)
Workforce and lease termination
related charges (8.5) (1.5)
Acquisition related adjustments - (1.1)
Levelized foreign currency
translation - (7.7)
Adjusted amounts $440.2 $338.7
====== ======
Adjusted ratios using adjusted
revenues on page 1 * 58.7% 61.3%
==== ====
* Adjusted first quarter compensation
ratio was 2.6 pts lower than the
same period in 2014. This ratio was
primarily impacted by lower overall
compensation ratios of the combined
larger recent acquisitions of 1.1
pts and salary and benefits savings
of 1.1 pts related to headcount
controls.
Adjusted Operating Expense and
Ratio (non-GAAP) 1st Q 15 1st Q 14
------------------------------
Reported amounts $152.3 $110.2
Acquisition integration (9.2) (2.9)
Workforce and lease
termination related charges - (0.5)
Levelized foreign currency
translation - (2.5)
Adjusted amounts $143.1 $104.3
====== ======
Adjusted ratios using adjusted
revenues on page 1 * 19.1% 18.9%
==== ====
* Adjusted first quarter
operating expense ratio was
0.2 pts higher than the
same period in 2014. All
items were essentially
consistent with the prior
year.
Adjusted EBITDAC (non-GAAP) 1st Q 15 1st Q 14
--------------------------
Total EBITDAC -see page 9 for
computation $138.5 $101.6
Gains from books of business
sales (0.9) (1.0)
Acquisition integration ** 20.8 6.5
Acquisition related adjustments - 1.1
Workforce and lease termination
related charges 8.5 2.0
Levelized foreign currency
translation - (0.6)
Adjusted EBITDAC $166.9 $109.6
====== ======
Adjusted EBITDAC change 52.3% 34.4%
==== ====
Adjusted EBITDAC margin * 22.3% 19.8%
==== ====
* Adjusted first quarter EBITDAC
margin was 2.5 pts higher than the
same period in 2014 (2.1 pts higher
excluding the noncontrolled portion
of consolidated entities). Of this
2.1 pts improvement, 1.0 pts was
attributed to higher overall
EBITDAC margins of the combined
larger recent acquisitions, 0.9 pts
from Gallagher's remaining
businesses and 0.2 pts related to
Gallagher's portion of partially
owned consolidated entities. The
contribution to EBITDAC of the
partially owned consolidated
entities is seasonally the largest
by far in the first quarter.
** Acquisition integration costs
consist mostly of IT system
conversion costs, professional
fees, branding and compensation
related to the larger recent
acquisitions.
(3 of 11)
Risk Management Segment First Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2015 financial information with the same period in 2014 (in millions):
Organic Revenues (non-GAAP) 1st Q 15 1st Q 14
--------------------------
Fees $173.8 $159.7
International performance bonus
fees 3.3 4.1
Fees as reported 177.1 163.8
Levelized foreign currency
translation - (4.1)
Organic fees $177.1 $159.7
====== ======
Organic change in fees * 10.9% 5.7%
==== ===
* Includes approximately $5.0 million of fee revenues in
both first quarter 2015 and 2014 related to the
previously announced run-off of a contract with the
New South Wales Workers Compensation Scheme in
Australia.
Adjusted Compensation Expense and
Ratio (non-GAAP) 1st Q 15 1st Q 14
---------------------------------
Reported amounts $106.9 $103.4
Claim portfolio transfer ramp up
costs - (0.8)
Workforce and lease termination
related charges (0.2) (0.4)
Levelized foreign currency
translation - (2.5)
Adjusted amounts $106.7 $99.7
====== =====
Adjusted ratios using adjusted
revenues on page 1 * 60.2% 62.3%
==== ====
* Adjusted first quarter compensation
ratio was 2.1 pts lower than the
same period in 2014. This ratio was
primarily impacted by reductions in
salary and incentive compensation
of 1.1 pts, savings in employee
benefits of 0.4 pts and savings in
temporary help of 0.4 pts, all
related to headcount controls.
Adjusted Operating Expense
and Ratio (non-GAAP) 1st Q 15 1st Q 14
--------------------------
Reported amounts $40.7 $36.3
Claim portfolio transfer and
ramp up costs - (0.4)
Levelized foreign currency
translation - (0.5)
Adjusted amounts $40.7 $35.4
===== =====
Adjusted ratios using
adjusted revenues on page 1 * 23.0% 22.1%
==== ====
* Adjusted first quarter operating
expense ratio was 0.9 pts
higher than the same period in
2014. This ratio was primarily
impacted by higher professional
fees of 0.7 pts.
Adjusted EBITDAC (non-GAAP) 1st Q 15 1st Q 14
--------------------------
Total EBITDAC -see page 9 for
computation $29.6 $24.5
Workforce and lease termination
related charges 0.2 0.4
Claim portfolio transfer and
ramp up - 1.2
Levelized foreign currency
translation - (1.2)
Adjusted EBITDAC $29.8 $24.9
===== =====
Adjusted EBITDAC change 19.7% 6.5%
==== ===
Adjusted EBITDAC margin 16.8% 15.6%
==== ====
(4 of 11)
Corporate Segment First Quarter Highlights - The following table provides information that management believes is helpful when comparing 2015 operating results for the Corporate Segment with the same periods in 2014 (in millions):
2015
2014 - Adjusted (1)
Pretax Income Net Pretax Income Net
Earnings Tax Earnings Earnings Tax Earnings
(Loss) Benefit (Loss) (Loss) Benefit (Loss)
1st Quarter
-----------
Interest and banking
costs $(26.3) $10.5 $(15.8) $(16.6) $6.6 $(10.0)
Clean energy related
(2) (23.3) 17.8 (5.5) (21.2) 21.0 (0.2)
Acquisition costs (1.7) 0.2 (1.5) (2.9) 0.4 (2.5)
Corporate (9.0) 2.1 (6.9) (5.0) 1.2 (3.8)
Total 1st quarter $(60.3) $30.6 $(29.7) $(45.7) $29.2 $(16.5)
====== ===== ====== ====== ===== ======
Diluted net earnings (loss) per share, as adjusted $(0.18) $(0.12)
Non-cash gains on changes in ownership levels - 0.15 (1)
----
Diluted net earnings (loss) per share, as reported $(0.18) $0.03
====== =====
(1) Excludes non-cash tax gain from re-
consolidation accounting gains
related to clean-energy
investments recorded in the first
quarter of 2014 and related tax
credit recognition.
(2) Pretax earnings are presented net of
amounts attributable to
noncontrolling interests of $6.6
million in 2015 and $8.8 million in
2014.
Debt, interest and banking - At March 31, 2015, Gallagher had $2,125.0 million of borrowings from private placements and $115.0 million of short-term borrowings under its line of credit facility. On June 16, 2014 we entered into a revolving loan facility that provides funding for the three acquired Australian and New Zealand premium finance subsidiaries. This facility comprises four tranches which total approximately $175.0 million, of which $95.8 million was outstanding at March 31, 2015. These premium funding related borrowings are fully collateralized by the underlying premium finance related receivables and as such are excluded from our debt covenant computations.
At-the-market equity program - Gallagher has an at-the-market equity program under which up to $166.3 million of its common stock remaining in the program may be sold through Morgan Stanley & Co. LLC as sales agent. During first quarter 2015, Gallagher did not sell shares of its common stock under the program.
Clean energy investments - The following provides certain information related to Gallagher's investments in limited liability companies that own 34 clean coal production plants, which produce refined coal using proprietary technologies owned by Chem-Mod. We believe that the production and sale of refined coal at these plants qualifies to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty 2011 Era Plants. The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated.
Gallagher's Portion of Estimated
--------------------------------
Additional
Gallagher's Required Ultimate
Tax-Effected Tax-Effected Annual
Book Value At Capital After-tax
($ in millions) March 31, 2015 Investment Earnings *
Investments that own 2009 Era
Plants
-----------------------------
10 Under long-term production
contracts $8.6 $ - $20.0
4 In negotiations for long-term
production contracts 1.3 Not Estimable Not Estimable
Investments that own 2011 Era
Plants
-----------------------------
16 Under long-term production
contracts 31.8 3.3 75.0
4 In negotiations for long-term
production contracts 1.3 Not Estimable Not Estimable
* Reflects management's current best
estimate of the ultimate future
potential annual after-tax earnings
based on production estimates from
the host utilities. However, host
utilities do not consistently
utilize the refined fuel plants at
ultimate production levels due to
seasonal electricity demand, as well
as for many other operational,
regulatory and environmental
compliance reasons.
(5 of 11)
Corporate Segment First Quarter Highlights (continued)
Gallagher's investment in Chem-Mod generates royalty income from clean energy plants owned by those limited liability companies in which it invests as well as refined coal production plants owned by other unrelated parties. Based on current production estimates provided by licensees, Chem-Mod could generate for Gallagher an average of approximately $4.0 million of net after?tax earnings per quarter.
All estimates set forth above regarding the potential future earnings impact of our clean energy investments are subject to significant risks. Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for a more detailed discussion of these and other factors that could impact the information above.
Acquisition costs - Consists mostly of external professional fees and other due diligence costs related to acquisitions.
Corporate - Consists of overhead allocations mostly related to corporate staff compensation.
Income Taxes
Gallagher allocates the provision for income taxes to its Brokerage and Risk Management segments using the local country statutory rates. Gallagher historically has reported, and anticipates reporting for the foreseeable future, an effective tax rate of approximately 34% to 36% in both its Brokerage and Risk Management segments. Gallagher's consolidated effective tax rate for the quarters ended March 31, 2015 and 2014 was (4.9)% and (5.7)%, respectively. Gallagher's tax rate for the quarters ended March 31, 2015 and 2014 was lower than the statutory rate due to the amount of IRC Section 45 tax credits earned.
Segment Reclassification
In first quarter 2015, Gallagher transferred management of a claims handling operation from the Brokerage segment to the Risk Management segment. Totals revenues related to this operation were $4.9 million and $4.2 million in first quarter 2015 and 2014, respectively. Gallagher made the applicable segment reclassifications to the prior-period amounts to conform to the current-period presentation. The changes in the segment structure affect only the manner in which the results for the reportable segments were previously reported. These reclassifications did not impact the Gallagher's previously reported consolidated net earnings. See the quarterly results in the financial supplement for the reclassification of all quarters provided.
Webcast Conference Call
Gallagher will host a webcast conference call on Friday, April 24, 2015 at 8:00 a.m. ET/7:00 a.m. CT. To listen to this call, please go to www.ajg.com. The call will be available for replay at such website for not less than 90 days.
About Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 30 countries and offers client-service capabilities in more than 140 countries around the world through a network of correspondent brokers and consultants.
Cautionary Information
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words "anticipates," "believes," "contemplates," "see," "should," "could," "will," "estimates," "expects," "intends," "plans" and variations thereof and similar expressions, are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding (i) the amount of, and potential uses for, investment returns generated by Gallagher's clean energy investments; (ii) our corporate income tax rate; (iii) anticipated future results or performance of any segment or the Company as a whole; (iv) the premium rate environment; and (v) the economic environment.
Gallagher's actual results may differ materially from those contemplated by the forward-looking statements. Readers are therefore cautioned against relying on any of the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following:
-- Risks and uncertainties related to Gallagher's clean energy investments
including uncertainties related to political and regulatory risks,
including potential actions by Congress or challenges by the IRS
eliminating or reducing the availability of tax credits under IRC
Section 45 retroactively and/or going forward; the ability to maintain
and find co-investors; the potential for divergent business objectives
by co-investors and other stakeholders; plant operational risks,
including supply-chain risks; utilities' future use of, or demand for,
coal; the market price of coal; the costs of moving a clean coal plant;
intellectual property litigation risks; and environmental risks - all
could impact (i) and (ii) above; and
(6 of 11)
-- Changes in worldwide and national economic conditions, changes in
premium rates and in insurance markets generally and changes in the
insurance brokerage industry's competitive landscape - all could impact
(iii) - (v) above.
Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for a more detailed discussion of these and other factors that could impact its forward-looking statements. Any forward-looking statement made by Gallagher in this press release speaks only as of the date on which it is made. Except as required by applicable law, Gallagher does not undertake to update the information included herein or the corresponding earnings release posted on Gallagher's website.
Information Regarding Non-GAAP Measures
In addition to reporting financial results in accordance with GAAP, this press release provides information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments, adjusted revenues, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue measures for each operating segment. These measures are not in accordance with, or an alternative to, the GAAP information provided in this press release. Gallagher's management believes that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to Gallagher's results of operations and financial condition. Gallagher's industry peers may provide similar supplemental non-GAAP information related to organic revenues and EBITDAC, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information provided by Gallagher should be used in addition to, but not as a substitute for, the GAAP information provided. Certain reclassifications have been made to the prior year amounts reported in this press release in order to conform them to the current year presentation.
Adjusted presentation - Gallagher believes that the adjusted presentations of the current and prior year information, presented in this earnings release, provides stockholders and other interested persons with useful information regarding certain financial metrics of Gallagher that may assist such persons in analyzing Gallagher's operating results as they develop a future earnings outlook for Gallagher. The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period.
-- Adjusted revenues and expenses - Gallagher defines these measures as
revenues, compensation expense and operating expense, respectively, each
adjusted to exclude net gains realized from sales of books of business,
acquisition integration costs, claim portfolio transfer ramp up
fees/costs, workforce related charges, lease termination related
charges, acquisition related adjustments and the impact of foreign
currency translation, as applicable. Integration costs include costs
related to transactions not expected to occur on an ongoing basis in the
future once we fully assimilate the applicable acquisition. These costs
are typically associated with redundant workforce, extra lease space,
duplicate services and external costs incurred to assimilate the
acquisition with our IT related systems.
-- Adjusted ratios - Adjusted compensation expense ratio and adjusted
operating expense ratio are defined as adjusted compensation expense and
adjusted operating expense, respectively, each divided by adjusted
revenues.
Earnings Measures - Gallagher believes that each of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin and diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments, as defined below, provides a meaningful representation of its operating performance. Gallagher considers EBITDAC and EBITDAC margin as a way to measure financial performance on an ongoing basis. Adjusted EBITDAC, adjusted EBITDAC margin and diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.
-- EBITDAC - Gallagher defines this measure as net earnings before
interest, income taxes, depreciation, amortization and the change in
estimated acquisition earnout payables.
-- EBITDAC margin - Gallagher defines this measure as EBITDAC divided by
total revenues.
-- Adjusted EBITDAC - Gallagher defines this measure as EBITDAC adjusted to
exclude net gains realized from sales of books of business, acquisition
integration costs, workforce related charges, lease termination related
charges, claim portfolio transfer ramp up fees/costs, acquisition
related adjustments and the period-over-period impact of foreign
currency translation, as applicable.
-- Adjusted EBITDAC margin - Gallagher defines this measure as adjusted
EBITDAC divided by total adjusted revenues (defined above).
-- Diluted net earnings per share (as adjusted) for the Brokerage and Risk
Management segments - Gallagher defines this measure as net earnings
adjusted to exclude the after-tax impact of net gains realized from
sales of books of business, acquisition integration costs, claim
portfolio transfer ramp up fees/costs, the impact of foreign currency
translation, workforce related charges, lease termination related
charges and acquisition related adjustments divided by diluted weighted
average shares outstanding.
(7 of 11)
-- Organic Revenues - For the Brokerage segment, organic change in base
commission and fee revenues excludes the first twelve months of net
commission and fee revenues generated from acquisitions accounted for as
purchases and the net commission and fee revenues related to operations
disposed of in each year presented. These commissions and fees are
excluded from organic revenues in order to help interested persons
analyze the revenue growth associated with the operations that were a
part of Gallagher in both the current and prior year. In addition,
change in base commission and fee organic growth excludes the impact of
supplemental commission and contingent commission revenues and the
period-over-period impact of foreign currency translation. The amounts
excluded with respect to foreign currency translation are calculated by
applying current year foreign exchange rates to the same periods in the
prior year. In addition, for entities where we consolidate their
operations into our results, but own less than 60%, we only include our
proportional share of the revenues in the organic computation. For the
Risk Management segment, organic change in fee revenues excludes the
first twelve months of fee revenues generated from acquisitions
accounted for as purchases and the fee revenues related to operations
disposed of in each year presented. In addition, change in organic
growth excludes the impact of the period-over-period impact of foreign
currency translation to improve the comparability of our results between
periods by eliminating the impact of the items that have a high degree
of variability or are due to the limited-time nature of these revenue
sources.
These revenue items are excluded from organic revenues in order to determine a comparable measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond. Gallagher has historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of its Brokerage and Risk Management segments. Gallagher also believes that using this measure allows readers of our financial statements to measure, analyze and compare the growth from its Brokerage and Risk Management segments in a meaningful and consistent manner.
Reconciliation of Non-GAAP Information Presented to GAAP Measures - This press release includes tabular reconciliations to the most comparable GAAP measures, as follows: for EBITDAC (on page 9), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on page 1), for organic revenue measures (on pages 2 and 4, respectively, for the Brokerage and Risk Management segments), for adjusted compensation and operating expenses and adjusted EBITDAC margin (on pages 3 and 4, respectively, for the Brokerage and Risk Management segments). Reported compensation and operating expense ratios can be found in the supplemental quarterly data available at www.ajg.com.
(8 of 11)
Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC - 1st Qtr Ended March 31,
(Unaudited - in millions except per share, percentage and workforce data)
1st Q Ended 1st Q Ended
Brokerage Segment Mar 31, 2015 Mar 31, 2014
------------ ------------
Commissions $519.7 $411.5
Fees 146.1 93.4
Supplemental commissions 26.9 25.4
Contingent commissions 44.5 32.2
Investment income and
gains realized on books
of business sales (1) 13.9 1.9
Revenues 751.1 564.4
Compensation 460.3 352.6
Operating 152.3 110.2
Depreciation 12.9 8.9
Amortization 54.0 37.3
Change in estimated
acquisition earnout
payables 10.6 5.1
Expenses 690.1 514.1
-----
Earnings before income
taxes 61.0 50.3
Provision for income
taxes (2) 20.4 17.8
Net earnings 40.6 32.5
Net earnings (loss)
attributable to
noncontrolling
interests 3.9 (0.3)
Net earnings
attributable to
controlling interests $36.7 $32.8
===== =====
EBITDAC
Net earnings $40.6 $32.5
Provision for income
taxes 20.4 17.8
Depreciation 12.9 8.9
Amortization 54.0 37.3
Change in estimated
acquisition earnout
payables 10.6 5.1
EBITDAC $138.5 $101.6
====== ======
1st Q Ended 1st Q Ended
Risk Management Segment Mar 31, 2015 Mar 31, 2014
------------ ------------
Fees $177.1 $163.8
Investment income 0.1 0.4
Revenues 177.2 164.2
-----
Compensation 106.9 103.4
Operating 40.7 36.3
Depreciation 5.3 5.0
Amortization 0.7 0.8
Change in estimated
acquisition earnout
payables - -
Expenses 153.6 145.5
-----
Earnings before income
taxes 23.6 18.7
Provision for income
taxes 8.7 6.8
Net earnings 14.9 11.9
Net earnings
attributable to
noncontrolling
interests - -
Net earnings
attributable to
controlling interests $14.9 $11.9
===== =====
EBITDAC
Net earnings $14.9 $11.9
Provision for income
taxes 8.7 6.8
Depreciation 5.3 5.0
Amortization 0.7 0.8
EBITDAC $29.6 $24.5
===== =====
1st Q Ended 1st Q Ended
Corporate Segment Mar 31, 2015 Mar 31, 2014
------------ ------------
Revenues from
consolidated clean coal
facilities $289.5 $154.3
Royalty income from
clean coal licenses 14.7 14.6
Loss from unconsolidated
clean coal facilities (0.3) (2.5)
Other net revenues (0.9) 20.0
Revenues 303.0 186.4
Cost of revenues from
consolidated clean coal
facilities 309.3 171.0
Compensation 8.0 10.3
Operating 10.5 2.3
Interest 25.6 16.2
Depreciation 3.3 0.9
Expenses 356.7 200.7
-----
Loss before income taxes (53.7) (14.3)
Benefit for income taxes (30.6) (27.7)
Net earnings (loss) (23.1) 13.4
Net earnings
attributable to
noncontrolling
interests 6.6 8.8
Net earnings (loss)
attributable to
controlling interests $(29.7) $4.6
====== ====
EBITDAC
Net earnings (loss) $(23.1) $13.4
Benefit for income taxes (30.6) (27.7)
Interest 25.6 16.2
Depreciation 3.3 0.9
EBITDAC $(24.8) $2.8
====== ====
See "Information Regarding Non-
GAAP Measures" on page 7 of 11
and notes to first quarter 2015
earnings release on page 11 of
11.
(9 of 11)
Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC - 1st Qtr Ended March 31,
(Unaudited - in millions except share and per share data)
1st Q Ended 1st Q Ended
Total Company Mar 31, 2015 Mar 31, 2014
------------ ------------
Commissions $519.7 $411.5
Fees 323.2 257.2
Supplemental commissions 26.9 25.4
Contingent commissions 44.5 32.2
Investment income and gains
realized on books of
business sales 14.0 2.3
Revenues from clean coal
activities 303.9 166.4
Other net revenues -
Corporate (0.9) 20.0
Revenues 1,231.3 915.0
Compensation 575.2 466.3
Operating 203.5 148.8
Cost of revenues from clean
coal activities 309.3 171.0
Interest 25.6 16.2
Depreciation 21.5 14.8
Amortization 54.7 38.1
Change in estimated
acquisition earnout
payables 10.6 5.1
Expenses 1,200.4 860.3
-------
Earnings before income taxes 30.9 54.7
Benefit for income taxes (1.5) (3.1)
Net earnings 32.4 57.8
Net earnings attributable to
noncontrolling interests 10.5 8.5
Net earnings attributable to
controlling interests $21.9 $49.3
===== =====
Diluted net earnings per
share $0.13 $0.36
===== =====
Dividends declared per share $0.37 $0.36
===== =====
EBITDAC
Net earnings $32.4 $57.8
Benefit for income taxes (1.5) (3.1)
Interest 25.6 16.2
Depreciation 21.5 14.8
Amortization 54.7 38.1
Change in estimated
acquisition earnout
payables 10.6 5.1
EBITDAC $143.3 $128.9
====== ======
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Mar 31, 2015 Dec 31, 2014
Cash and cash equivalents $276.8 $314.4
Restricted cash 1,186.6 1,367.6
Premiums and fees receivable 1,543.6 1,462.5
Other current assets 587.8 666.7
----- -----
Total current assets 3,594.8 3,811.2
Fixed assets - net 190.6 195.4
Deferred income taxes 395.4 392.6
Other noncurrent assets 408.5 385.2
Goodwill - net 3,418.0 3,449.6
Amortizable intangible
assets -net 1,723.6 1,776.0
Total assets $9,730.9 $10,010.0
============
Premiums payable to
insurance and reinsurance
companies $2,447.0 $2,623.3
Accrued compensation and
other accrued liabilities 654.1 623.7
Unearned fees 76.3 66.1
Other current liabilities 50.5 61.7
Premium financing borrowings 95.8 127.9
Corporate related borrowings
-current 115.0 140.0
Total current liabilities 3,438.7 3,642.7
Corporate related borrowings
-noncurrent 2,125.0 2,125.0
Other noncurrent liabilities 947.6 937.2
Total liabilities 6,511.3 6,704.9
-------
Stockholders' equity:
Common stock -issued and
outstanding 166.7 164.6
Capital in excess of par
value 2,722.7 2,649.4
Retained earnings 636.0 676.0
Accumulated other
comprehensive loss (380.2) (260.6)
Total controlling interests
stockholders' equity 3,145.2 3,229.4
Noncontrolling interests 74.4 75.7
---- ----
Total stockholders' equity 3,219.6 3,305.1
-------
Total liabilities and
stockholders' equity $9,730.9 $10,010.0
======================
See "Information Regarding Non-
GAAP Measures" on page 7 of 11
and notes to first quarter 2015
earnings release on page 11 of
11.
(10 of 11)
Arthur J. Gallagher & Co.
Other Information and Notes
(Unaudited - data is rounded where indicated)
1st Q Ended 1st Q Ended
OTHER INFORMATION Mar 31, 2015 Mar 31, 2014
------------ ------------
Basic weighted average shares outstanding (000s) 165,574 134,230
Diluted weighted average shares outstanding (000s) 166,777 135,840
Common shares issued for acquisitions and earnouts (000s) 1,280 738
Number of acquisitions closed 11 9
Annualized revenues acquired (in millions) $33.6 $17.8
Number of common shares outstanding at end of period (000s) 166,657 135,083
Workforce at end of period (includes acquisitions):
Brokerage 15,118 11,060
Risk Management 5,046 4,944
Total Company 20,567 16,340
Notes to First Quarter 2015 Earnings Release
(1) The reported investment income and gains realized on books of business sales for 2015 include premium financing income primarily
generated by the Crombie/OAMPS operations which were acquired on June 16, 2014. Operating results of the Crombie/OAMPS premium
financing business recognized by Gallagher in 2014 and 2015 are as follows (in millions):
2nd Q 2014 3rd Q 2014 4th Q 2014 Full Year 2014 1st Q 2015
---------- ---------- ---------- -------------- ----------
Premium financing interest and fee income (included in
investment income line)
$2.1 $13.0 $11.6 $26.7 $9.5
Revenues 2.1 13.0 11.6 26.7 9.5
Compensation and commissions (included in compensation
expense line)
0.9 4.7 4.3 9.9 3.5
Operating costs and premium financing interest (included
in operating expense line)
0.8 5.3 4.7 10.8 3.8
Expenses 1.7 10.0 9.0 20.7 7.3
EBITDAC $0.4 $3.0 $2.6 $6.0 $2.2
(2) The Brokerage segment 1st quarter reported income tax rate of 33.4% computed from reported amounts on page 9 of 11 appears to be
lower than the 1st quarter 2014 rate of 35.4%. This apparent difference only results because of how we account for non-owned
portions of consolidated entities that are organized as limited partnerships and limited liability companies which generate pass-
through taxable income (i.e. are not subject to taxes at the entity level). We consolidate the full revenues and expenses of
these entities, yet pursuant to ASC 740, Accounting for Income Taxes, we only include in our "Provision for income taxes" line
our ownership portion of these entities' income tax expense. Then, we present on the line "Net earnings attributable to
noncontrolling interests" the deduction for the non-owned portion of these entities using an untaxed amount. Conversely, if
these entities were corporations, our income tax provision line would reflect the full income tax amount for all of the earnings
we consolidate, and then the deduction for the non-owned portion would be at an after-tax amount. While this accounting does
not have any impact on our EBITDAC, our bottom-line net earnings, nor our net earnings per share (reported or adjusted), it does
produce a perception of a lower income tax rate. The table below makes a reclassification for this accounting and provides an
"as if" computation of our Brokerage segment's income tax rate which we believe is more comparable to the 1st quarter 2014 income
tax rate.
1st Q Ended
1st Q Ended Mar 31, 2015 Mar 31, 2014
------------------------
Reported Reclass "As If" Reported
-------- ------- ------- --------
(in millions)
Earnings before income taxes $61.0 $61.0 $50.3
Provision for income taxes 20.4 $1.2 21.6 17.8
Net earnings 40.6 39.4 32.5
Net earnings attributable to noncontrolling
interests 3.9 (1.2) 2.7 (0.3)
Net earnings attributable to controlling
interests $36.7 $36.7 $32.8
Reported effective tax rate on earnings
attributable to controlling interests 33.4% 35.4%
"As if" effective tax rate on earnings
attributable to controlling interests 35.4%
(11 of 11)
Contact: Marsha Akin
Director - Investor Relations
630-285-3501 or marsha_akin@ajg.com
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/arthur-j-gallagher--co-announces-first-quarter-2015-financial-results-300071701.html
SOURCE Arthur J. Gallagher & Co.
