ARTHUR J. GALLAGHER & CO. ITASCA, Ill., Oct. 28, 2014 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter and nine-month period ended September 30, 2014. A printer-friendly format and supplemental quarterly data is available at www.ajg.com. For a description of the non-GAAP measures used to report financial results in this earnings release, please see "Information Regarding Non-GAAP Measures" beginning on page 7.
"We had an excellent quarter on all measures," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "Our combined Brokerage and Risk Management segments posted 38% growth in adjusted revenues, of which 7.1% was total organic growth. Our adjusted EBITDAC was up 43% and adjusted net earnings per share grew 15%. We also improved our adjusted EBITDAC margins 80 basis points compared to the third quarter of 2013."
-- Our Brokerage segment posted adjusted revenue growth of 45%, of which
5.8% was total organic. Our adjusted EBITDAC was up 46%, and we
improved our adjusted EBITDAC margin 24 basis points compared to the
third quarter of 2013 overcoming approximately 70 basis points of margin
compression from seasonality inherent in our recent larger merger
operations as discussed in our second quarter conference call.
-- Our Risk Management segment posted organic revenue growth of 11.7%. We
improved our adjusted EBITDAC margin 96 basis points compared to the
third quarter of 2013, and we substantially surpassed our 16% margin
target by approximately 80 basis points.
-- Net earnings from our clean energy investments were up 144% compared to
the third quarter of 2013.
"The integration of our larger mergers continues as planned and on schedule and we are continuing our proven strategy of smaller tuck-in mergers. Large or small, our teams are melding quickly and our combined capabilities are creating game-changing sales opportunities around the world. In the rating environment, we continue to see evidence that insurance pricing is rational and we are not seeing evidence of the carriers having any appetite for large rate swings seen in the past. We believe this is a healthy and sustainable environment for our customers, the brokers and the carriers."
The following provides information that management believes is helpful when comparing 2014 revenues, EBITDAC and diluted net earnings per share with the same periods in 2013:
Quarter Ended September 30 Diluted Net
Revenues EBITDAC Earnings Per Share
Segment 3rd Q 14 3rd Q 13 Chg 3rd Q 14 3rd Q 13 Chg 3rd Q 14 3rd Q 13 Chg
------- -------- -------- --- -------- -------- --- -------- -------- ---
(in millions) (in millions)
Brokerage, as adjusted $798.9 $550.8 45% $214.3 $146.4 46% $0.59 $0.50
Gains on book sales 0.9 - 0.9 - - -
Acquisition integration - - (18.1) (9.3) (0.08) (0.04)
Workforce & lease termination - - (2.3) (0.9) (0.01) (0.01)
Acquisition related adjustments - - - - (0.01) 0.02
Levelized foreign currency
translation - (4.5) - (0.8) - -
--- --- ---
Brokerage, as reported 799.8 546.3 194.8 135.4 0.49 0.47
----- ----- ----- ----- ---- ----
Risk Management, as adjusted 168.3 150.1 12% 28.3 23.8 19% 0.09 0.09
Workforce & lease termination - - (0.2) (0.2) - -
Claim portfolio transfer ramp up - - (2.0) - (0.01) -
Levelized foreign currency
translation - (0.4) - - - -
Risk Management, as reported 168.3 149.7 26.1 23.6 0.08 0.09
----- ----- ---- ---- ---- ----
Total Brokerage & Risk
Management, as reported 968.1 696.0 220.9 159.0 0.57 0.56
Corporate, as reported 318.7 139.8 (29.9) (15.7) 0.01 0.01
----- ----- ----- ----- ---- ----
Total Company, as reported $1,286.8 $835.8 $191.0 $143.3 $0.58 $0.57
======== ====== ====== ====== ===== =====
Total Brokerage & Risk
Management, as adjusted $967.2 $700.9 38% $242.6 $170.2 43% $0.68 $0.59 15%
====== ====== =====
(1 of 11)
Nine Months Ended September 30 Diluted Net
Revenues EBITDAC Earnings Per Share
Segment 9 Mths 14 9 Mths 13 Chg 9 Mths 14 9 Mths 13 Chg 9 Mths 14 9 Mths 13 Chg
------- --------- --------- --- --------- --------- --- --------- --------- ---
(in millions) (in millions)
Brokerage, as adjusted $2,108.4 $1,563.4 35% $538.3 $378.1 42% $1.57 $1.24
Gains on book
sales 2.6 3.3 2.6 3.3 0.01 0.01
Acquisition
integration - - (40.6) (17.3) (0.19) (0.08)
Workforce & lease
termination - - (6.2) (1.2) (0.03) -
Acquisition
related
adjustments - - (1.1) - (0.03) 0.02
Levelized foreign
currency
translation - (15.1) - (0.5) - -
------------------ --- ---
Brokerage, as reported 2,111.0 1,551.6 493.0 362.4 1.33 1.19
------- ------- ----- ----- ---- ----
Risk Management, as adjusted 496.4 454.9 9% 82.3 73.7 12% 0.27 0.28
Workforce & lease
termination - - (0.6) (0.2) - -
Claim
portfolio
transfer and
South
Australia ramp up - 1.4 (4.7) 1.3 (0.02) 0.01
Levelized foreign
currency
translation - 3.2 - 0.8 - -
Risk Management, as reported 496.4 459.5 77.0 75.6 0.25 0.29
----- ----- ---- ---- ---- ----
Total Brokerage & Risk
Management, as
reported 2,607.4 2,011.1 570.0 438.0 1.58 1.48
Corporate, as reported 773.7 278.3 (63.7) (46.8) 0.09 0.13
----- ----- ----- ----- ---- ----
Total Company, as reported $3,381.1 $2,289.4 $506.3 $391.2 $1.67 $1.61
======== ======== ====== ====== ===== =====
Total Brokerage & Risk
Management, as
adjusted $2,604.8 $2,018.3 29% $620.6 $451.8 37% $1.84 $1.52 21%
=========== ======== ====== =====
Brokerage Segment Third Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2014 financial information with the same periods in 2013 (in millions):
Organic Revenues (non-
GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
----------------------
Base Commissions and
Fees
Commissions as reported $572.5 $399.1 $1,523.5 $1,126.8
Fees as reported 169.6 120.5 416.7 320.5
Less commissions and
fees from acquisitions (194.6) - (430.5) -
Less disposed of
operations - (1.6) - (6.2)
Levelized foreign
currency translation - 4.1 - 13.5
Organic base commissions
and fees $547.5 $522.1 $1,509.7 $1,454.6
====== ====== ======== ========
Organic change in base
commissions and fees * 4.9% 3.8%
=== ===
Supplemental Commissions
Supplemental commissions
as reported $24.2 $17.8 $77.5 $53.4
Less supplemental
commissions from
acquisitions (5.4) - (20.6) -
Organic supplemental
commissions $18.8 $17.8 $56.9 $53.4
===== ===== ===== =====
Organic change in
supplemental
commissions 5.6% 6.6%
=== ===
Contingent Commissions
Contingent commissions
as reported $14.4 $6.5 $68.4 $43.5
Less contingent
commissions from
acquisitions (2.7) - (13.5) -
Organic contingent
commissions $11.7 $6.5 $54.9 $43.5
===== ==== ===== =====
Organic change in
contingent commissions 80.0% 26.2%
==== ====
Organic change in base
commissions and fees,
supplemental
commissions and
contingent commissions
5.8% 4.5%
=== ===
* Third quarter 2014 base commission
and fee organic growth was
favorably impacted by net larger
account sales activity which is
not consistent with historical
patterns and may not repeat in
the future. Base commission and
fee organic growth would have
been approximately 4% if net
larger account sales activity was
more consistent with historical
patterns.
(2 of 11)
Brokerage Segment Third Quarter Highlights (continued)
Adjusted Compensation
Expense and Ratio (non-
GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
------------------------
Reported amounts $459.2 $318.6 $1,239.1 $920.3
Acquisition integration (13.4) (2.9) (29.2) (6.4)
Workforce and lease
termination related
charges (2.2) (0.8) (5.6) (1.1)
Acquisition related
adjustments - - (1.1) -
Levelized foreign
currency translation - 3.5 - 11.4
Adjusted amounts $443.6 $318.4 $1,203.2 $924.2
====== ====== ======== ======
Adjusted ratios using
adjusted revenues on
pages 1 and 2 * 55.5% 57.8% 57.1% 59.1%
==== ==== ==== ====
* Adjusted third quarter compensation
ratio was 2.3 pts lower than the same
period in 2013. This ratio was
primarily impacted by lower overall
compensation levels of the combined
four larger recent acquisitions of
Giles, Oval, Crombie/OAMPS and
Noraxis of 0.8 pts, salary decreases
of 0.8 pts, reduction in incentive
compensation of 0.4 pts and employee
benefits savings of 0.3 pts.
Adjusted
Operating
Expense and
Ratio (non-
GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
------------
Reported
amounts $145.8 $92.3 $378.9 $268.9
Acquisition
integration (4.7) (6.4) (11.4) (10.9)
Workforce and
lease
termination
related
charges (0.1) (0.1) (0.6) (0.1)
Levelized
foreign
currency
translation - 0.2 - 3.2
Adjusted
amounts $141.0 $86.0 $366.9 $261.1
====== ===== ====== ======
Adjusted ratios
using adjusted
revenues on
pages 1 and 2 * 17.7% 15.6% 17.4% 16.7%
==== ==== ==== ====
* Adjusted third quarter operating
expense ratio was 2.1 pts higher than
the same period in 2013. This ratio
was primarily impacted by higher
overall operating expense levels of
the combined four larger recent
acquisitions of Giles, Oval, Crombie/
OAMPS and Noraxis of 1.5 pts,
increases in meeting expenses of 0.2
pts, increases in professional fees of
0.2 pts and an increase in business
insurance of 0.2 pts.
Adjusted EBITDAC
(non-GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
----------------
Total EBITDAC -
see page 9 for
computation $194.8 $135.4 $493.0 $362.4
Gains from books
of business
sales (0.9) - (2.6) (3.3)
Acquisition
integration ** 18.1 9.3 40.6 17.3
Acquisition
related
adjustments - - 1.1 -
Workforce and
lease
termination
related charges 2.3 0.9 6.2 1.2
Levelized
foreign
currency
translation - 0.8 - 0.5
Adjusted EBITDAC $214.3 $146.4 $538.3 $378.1
====== ====== ====== ======
Adjusted EBITDAC
change 46.4% 19.6% 42.4% 21.6%
==== ==== ==== ====
Adjusted EBITDAC
margin * 26.8% 26.6% 25.5% 24.2%
==== ==== ==== ====
* Adjusted third quarter EBITDAC margin
was 0.2 pts higher than the same
period in 2013. This ratio was
primarily impacted by seasonally lower
overall EBITDAC margins of the
combined four larger recent
acquisitions of Giles, Oval, Crombie/
OAMPS and Noraxis that reduced overall
margin by 0.7 pts and higher overall
EBITDAC margins of Gallagher's other
businesses of 0.9 pts.
** Acquisition integration costs were
primarily related to the on-boarding
of over 4,700 employees related to the
Bollinger, Giles, Oval, Crombie/OAMPS
and Noraxis acquisitions,
communication system conversion costs
and related performance compensation.
Integration costs in third quarter
2013 relate to the Heath Lambert and
Bollinger acquisitions only.
The following is a summary of Brokerage segment acquisition activity for 2014 and 2013:
3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
Shares issued for
acquisitions &
earnouts (excluding
secondary offering) 1,941,000 3,400,000 4,083,000 3,438,000
Number of acquisitions
closed 19 8 45 17
Annualized revenues
acquired (in millions) $178.7 $135.5 $693.6 $176.4
(3 of 11)
Risk Management Segment Third Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2014 financial information with the same periods in 2013 (in millions):
Organic Revenues
(non-GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
----------------
Fees $162.4 $146.0 $481.3 $441.4
International
performance bonus
fees 5.7 3.5 14.3 16.7
Fees as reported 168.1 149.5 495.6 458.1
Less fees from
acquisitions (0.6) - (3.7) -
Less South
Australia ramp up
fees - - - (1.4)
Less New Zealand
earthquake claims
administration - - - (0.1)
Levelized foreign
currency
translation - 0.4 - (3.0)
Organic fees $167.5 $149.9 $491.9 $453.6
====== ====== ====== ======
Organic change in
fees 11.7% 8.5% 8.4% 9.9%
==== === === ===
Adjusted Compensation
Expense and Ratio (non-
GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
------------------------
Reported
amounts $100.4 $90.6 $300.7 $273.5
Claim portfolio
transfer ramp
up costs (0.8) - (2.4) -
Workforce and
lease
termination
related
charges (0.2) (0.2) (0.6) (0.2)
Levelized
foreign
currency
translation - 0.3 - (2.0)
Adjusted
amounts $99.4 $90.7 $297.7 $271.3
===== ===== ====== ======
Adjusted ratios
using adjusted
revenues on
pages 1 and 2 * 59.1% 60.4% 60.0% 59.6%
==== ==== ==== ====
* Adjusted third quarter
compensation ratio was 1.3 pts
lower than the same period in
2013. This ratio was primarily
impacted by salary decreases of
2.1 pts and savings in employee
benefits of 0.7 pts, partially
offset by an increase in
incentive compensation of 1.5
pts.
Adjusted
Operating
Expense and
Ratio (non-
GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
------------
Reported
amounts $41.8 $35.5 $118.7 $110.4
Claim portfolio
transfer and
South
Australia ramp
up costs (1.2) - (2.3) (0.1)
Levelized
foreign
currency
translation - 0.1 - (0.4)
Adjusted
amounts $40.6 $35.6 $116.4 $109.9
===== ===== ====== ======
Adjusted ratios
using adjusted
revenues on
pages 1 and 2 * 24.1% 23.7% 23.5% 24.2%
==== ==== ==== ====
* Adjusted third quarter
operating expense ratio was
0.4 pts higher than the same
period in 2013 due to higher
professional fees.
Adjusted EBITDAC
(non-GAAP) 3rd Q 14 3rd Q 13 9 Mths 14 9 Mths 13
----------------
Total EBITDAC -
see page 9 for
computation $26.1 $23.6 $77.0 $75.6
Workforce and
lease
termination
related charges 0.2 0.2 0.6 0.2
Claim portfolio
transfer and
South Australia
ramp up 2.0 - 4.7 (1.3)
Levelized
foreign
currency
translation - - - (0.8)
Adjusted EBITDAC $28.3 $23.8 $82.3 $73.7
===== ===== ===== =====
Adjusted EBITDAC
change 18.9% 5.3% 11.7% 10.7%
==== === ==== ====
Adjusted EBITDAC
margin 16.8% 15.9% 16.6% 16.2%
==== ==== ==== ====
(4 of 11)
Corporate Segment Third Quarter Highlights - The following table provides information that management believes is helpful when comparing 2014 operating results for the Corporate Segment with the same periods in 2013 (in millions):
2014 2013
Pretax Income Net Pretax Income Net
Earnings Tax Earnings Earnings Tax Earnings
(Loss) Benefit (Loss) (Loss) Benefit (Loss)
3rd Quarter
-----------
Interest and
banking costs $(26.5) $10.6 $(15.9) $(13.8) $5.5 $(8.3)
Clean energy
investments (21.8) 47.7 25.9 (16.2) 26.8 10.6
Acquisition
costs (4.2) 0.2 (4.0) 3.5 (1.7) 1.8
Corporate (4.2) (0.3) (4.5) (3.2) 1.4 (1.8)
$(56.7) $58.2 $1.5 $(29.7) $32.0 $2.3
====== ===== ==== ====== ===== ====
Nine Months
-----------
Interest and
banking costs $(64.8) $25.9 $(38.9) $(38.5) $15.4 $(23.1)
Clean energy
investments (36.3) 118.1 81.8 (33.8) 81.7 47.9
Acquisition
costs (16.2) 1.1 (15.1) 0.6 (1.3) (0.7)
Corporate (12.5) (1.9) (14.4) (13.2) 5.9 (7.3)
$(129.8) $143.2 $13.4 $(84.9) $101.7 $16.8
======= ====== ===== ====== ====== =====
Debt, interest and banking - At September 30, 2014, Gallagher had $2,125.0 million of borrowings from private placements and $147.0 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 $195.0 million, of which $149.2 million was outstanding at September 30, 2014.
At-the-market equity program - Gallagher has an at-the-market equity program under which it may sell up to $196.0 million of its common stock through Morgan Stanley & Co. LLC as sales agent. During third quarter 2014, Gallagher did not sell shares of its common stock under the program.
Clean energy investments - The following provides certain information related to Gallagher's investments in limited liability companies that own 34 clean coal production plants, which produce refined coal using proprietary technologies owned by Chem-Mod. We believe that the production and sale of refined coal at these plants qualifies to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty 2011 Era Plants. The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated.
Gallagher's Portion of
Estimated
-----------------------
Additional
Gallagher's Required Ultimate
Tax-Effected Tax-Effected Annual
Book Value At Capital After-tax
($ in millions) September 30, 2014 Investment Earnings *
Investments that own 2009
Era Plants
-------------------------
12 Under long-term production
contracts $13.2 $ - $35.0
2 In negotiations for long-term
production contracts 0.7 Not Estimable Not Estimable
Investments that own 2011
Era Plants
-------------------------
15 Under long-term production
contracts 33.1 - 60.0
5 In negotiations for long-term
production contracts 1.8 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 Third 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, 2013 and our prospectus supplement filed on April 11, 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. Gallagher expects to incur a non-cash settlement charge in the fourth quarter of 2014 related to a pension plan de-risking strategy that is more fully discussed in Note 3 on page 15 of the supplemental quarterly data that is available at www.ajg.com.
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 35% to 37% in both its Brokerage and Risk Management segments. Gallagher's consolidated effective tax rate for the quarter ended September 30, 2014 and 2013 was (6.7)% and 12.7%, respectively. Gallagher's tax rate for the quarter ended September 30, 2014 was lower than the statutory rate and was lower than 2013 due to the amount of IRC Section 45 tax credits earned in 2014 compared to 2013.
Webcast Conference Call
Gallagher will host a webcast conference call on Wednesday, October 29, 2014 at 9:00 a.m. ET/8:00 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; (v) the future margin impact of recent acquisitions; (vi) future debt to earnings ratios of the company; and (vii) 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 risks; and environmental risks - all could impact
(i) and (ii) above; and
-- 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) - (vii) 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, 2013 and its prospectus supplement filed on April 11, 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.
(6 of 11)
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 and South
Australia 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 and South Australia 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 and South Australia ramp up fees/costs, the impact of
foreign currency translation, workforce related charges, lease
termination related charges, acquisition related adjustments and
effective income tax rate impact divided by diluted weighted average
shares outstanding. The effective income tax rate impact represents the
difference in income tax expense for tax amounts derived using the
actual effective tax rate compared to tax amounts derived using a
normalized effective tax rate.
(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. 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 South Australia ramp-up fees and 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 pages 1 and 2), 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 - 3rd Qtr and 9 Months Ended September 30,
(Unaudited - in millions except per share, percentage and workforce data)
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Brokerage Segment Sept 30, 2014 Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
------------- ------------- ------------- -------------
Commissions $572.5 $399.1 $1,523.5 $1,126.8
Fees 169.6 120.5 416.7 320.5
Supplemental
commissions 24.2 17.8 77.5 53.4
Contingent commissions 14.4 6.5 68.4 43.5
Investment income and
gains realized on
books of business
sales 19.1 2.4 24.9 7.4
Revenues 799.8 546.3 2,111.0 1,551.6
Compensation 459.2 318.6 1,239.1 920.3
Operating 145.8 92.3 378.9 268.9
Depreciation 12.5 8.3 32.1 22.1
Amortization 53.6 30.1 133.2 88.2
Change in estimated
acquisition earnout
payables 4.5 (0.3) 16.6 1.6
Expenses 675.6 449.0 1,799.9 1,301.1
-----
Earnings before income
taxes 124.2 97.3 311.1 250.5
Provision for income
taxes 44.9 36.1 110.7 96.2
Net earnings $79.3 $61.2 $200.4 $154.3
===== ===== ====== ======
EBITDAC
Net earnings $79.3 $61.2 $200.4 $154.3
Provision for income
taxes 44.9 36.1 110.7 96.2
Depreciation 12.5 8.3 32.1 22.1
Amortization 53.6 30.1 133.2 88.2
Change in estimated
acquisition earnout
payables 4.5 (0.3) 16.6 1.6
EBITDAC $194.8 $135.4 $493.0 $362.4
====== ====== ====== ======
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Risk Management
Segment Sept 30, 2014 Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
------------- ------------- ------------- -------------
Fees $168.1 $149.5 $495.6 $458.1
Investment income 0.2 0.2 0.8 1.4
Revenues 168.3 149.7 496.4 459.5
-----
Compensation 100.4 90.6 300.7 273.5
Operating 41.8 35.5 118.7 110.4
Depreciation 5.2 5.1 15.1 14.2
Amortization 0.7 0.7 2.1 1.9
Change in estimated
acquisition earnout
payables - (0.1) - (0.1)
Expenses 148.1 131.8 436.6 399.9
-----
Earnings before income
taxes 20.2 17.9 59.8 59.6
Provision for income
taxes 7.4 6.8 21.7 22.1
Net earnings $12.8 $11.1 $38.1 $37.5
===== ===== ===== =====
EBITDAC
Net earnings $12.8 $11.1 $38.1 $37.5
Provision for income
taxes 7.4 6.8 21.7 22.1
Depreciation 5.2 5.1 15.1 14.2
Amortization 0.7 0.7 2.1 1.9
Change in estimated
acquisition earnout
payables - (0.1) - (0.1)
EBITDAC $26.1 $23.6 $77.0 $75.6
===== ===== ===== =====
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Corporate Segment Sept 30, 2014 Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
------------- ------------- ------------- -------------
Revenues from
consolidated clean
coal facilities $304.8 $129.7 $709.3 $245.2
Royalty income from
clean coal licenses 16.7 6.3 44.1 23.2
Loss from
unconsolidated clean
coal facilities (0.3) (1.1) (3.0) (4.3)
Other net revenues (2.5) 4.9 23.3 14.2
Revenues 318.7 139.8 773.7 278.3
Cost of revenues from
consolidated clean
coal facilities 326.2 146.9 767.7 281.6
Compensation 5.0 3.3 21.1 18.1
Operating 17.4 5.3 48.6 25.4
Interest 25.9 13.1 63.3 36.2
Depreciation 0.9 0.9 2.8 1.9
Expenses 375.4 169.5 903.5 363.2
-----
Loss before income
taxes (56.7) (29.7) (129.8) (84.9)
Benefit for income
taxes (58.2) (32.0) (143.2) (101.7)
Net earnings $1.5 $2.3 $13.4 $16.8
==== ==== ===== =====
EBITDAC
Net earnings $1.5 $2.3 $13.4 $16.8
Benefit for income
taxes (58.2) (32.0) (143.2) (101.7)
Interest 25.9 13.1 63.3 36.2
Depreciation 0.9 0.9 2.8 1.9
EBITDAC $(29.9) $(15.7) $(63.7) $(46.8)
====== ====== ====== ======
See "Information Regarding
Non-GAAP Measures" on page 7
of 11.
(9 of 11)
Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC - 3rd Qtr and 9 Months Ended September 30,
(Unaudited - in millions except share and per share data)
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Total Company Sept 30, 2014 Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
------------- ------------- ------------- -------------
Commissions $572.5 $399.1 $1,523.5 $1,126.8
Fees 337.7 270.0 912.3 778.6
Supplemental
commissions 24.2 17.8 77.5 53.4
Contingent
commissions 14.4 6.5 68.4 43.5
Investment income and
gains realized on
books of business
sales 19.3 2.6 25.7 8.8
Revenues from clean
coal activities 321.2 134.9 750.4 264.1
Other net revenues -
Corporate (2.5) 4.9 23.3 14.2
Revenues 1,286.8 835.8 3,381.1 2,289.4
Compensation 564.6 412.5 1,560.9 1,211.9
Operating 205.0 133.1 546.2 404.7
Cost of revenues from
clean coal
activities 326.2 146.9 767.7 281.6
Interest 25.9 13.1 63.3 36.2
Depreciation 18.6 14.3 50.0 38.2
Amortization 54.3 30.8 135.3 90.1
Change in estimated
acquisition earnout
payables 4.5 (0.4) 16.6 1.5
Expenses 1,199.1 750.3 3,140.0 2,064.2
-------
Earnings before
income taxes 87.7 85.5 241.1 225.2
Provision (benefit)
for income taxes (5.9) 10.9 (10.8) 16.6
Net earnings $93.6 $74.6 $251.9 $208.6
===== ===== ====== ======
Diluted net earnings
per share $0.58 $0.57 $1.67 $1.61
===== ===== ===== =====
Dividends declared
per share $0.36 $0.35 $1.08 $1.05
===== ===== ===== =====
EBITDAC
Net earnings $93.6 $74.6 $251.9 $208.6
Provision (benefit)
for income taxes (5.9) 10.9 (10.8) 16.6
Interest 25.9 13.1 63.3 36.2
Depreciation 18.6 14.3 50.0 38.2
Amortization 54.3 30.8 135.3 90.1
Change in estimated
acquisition earnout
payables 4.5 (0.4) 16.6 1.5
EBITDAC $191.0 $143.3 $506.3 $391.2
====== ====== ====== ======
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Sept 30, 2014 Dec 31, 2013
Cash and cash equivalents $290.5 $298.1
Restricted cash 1,342.1 1,027.4
Premiums and fees
receivable 1,669.0 1,288.8
Other current assets 670.8 261.3
----- -----
Total current assets 3,972.4 2,875.6
Fixed assets - net 196.6 160.4
Deferred income taxes 352.7 279.8
Other noncurrent assets 399.0 320.7
Goodwill - net 3,296.2 2,145.2
Amortizable intangible
assets -net 1,771.1 1,078.8
Total assets $9,988.0 $6,860.5
============
Premiums payable to
insurance and reinsurance
companies $2,755.4 $2,154.7
Accrued compensation and
other accrued liabilities 560.9 370.6
Unearned fees 98.7 84.5
Other current liabilities 58.6 44.5
Premium financing debt 149.2 -
Corporate related
borrowings -current 147.0 630.5
Total current liabilities 3,769.8 3,284.8
Corporate related
borrowings -noncurrent 2,125.0 825.0
Other noncurrent
liabilities 837.2 665.2
Total liabilities 6,732.0 4,775.0
-------
Stockholders' equity:
Common stock -issued and
outstanding 161.4 133.6
Capital in excess of par
value 2,494.6 1,358.1
Retained earnings 683.7 596.4
Accumulated other
comprehensive loss (83.7) (2.6)
Total stockholders' equity 3,256.0 2,085.5
-------
Total liabilities and
stockholders' equity $9,988.0 $6,860.5
======================
See "Information Regarding
Non-GAAP Measures" on page 7
of 11.
(10 of 11)
Arthur J. Gallagher & Co.
Other Information and Notes
(Unaudited - data is rounded where indicated)
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
OTHER INFORMATION Sept 30, 2014 Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
------------- ------------- ------------- -------------
Basic weighted average
shares outstanding
(000s) 160,231 129,816 149,571 127,747
Diluted weighted average
shares outstanding
(000s) 161,503 131,322 151,006 129,278
Common shares issued for
acquisitions & earnouts
(excluding secondary
offering) (000s) 1,941 3,400 4,083 3,438
Number of acquisitions
closed 19 8 45 17
Annualized revenues
acquired (in millions) $178.7 $135.5 $693.6 $176.4
Number of common shares outstanding at end of period (000s) 161,374 131,538
Workforce at end of period (includes acquisitions):
Brokerage 14,750 9,890
Risk Management 4,848 4,672
Total Company 19,980 14,903
Contact: Marsha Akin
Director - Investor Relations
630-285-3501 or marsha_akin@ajg.com
(11 of 11)
SOURCE Arthur J. Gallagher & Co.
