ARTHUR J. GALLAGHER & CO. ITASCA, Ill., Oct. 27, 2015 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended September 30, 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 information regarding their most comparable GAAP measures, please see "Information Regarding Non-GAAP Measures" beginning on page 8.
"We had another excellent quarter," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "In the third quarter, our combined Brokerage and Risk Management segments posted 9% growth in adjusted revenues, of which 4.1% was total organic growth, adjusted EBITDAC increased 11% and our adjusted EBITDAC margin improved 30 basis points. Total company adjusted net earnings per share grew 15%."
-- Our Brokerage segment had a solid quarter. Adjusted revenues increased
10%, of which 3.0% was total organic growth, adjusted EBITDAC increased
10% and we improved our adjusted EBITDAC margin 10 basis points. During
the third quarter, we completed 5 acquisitions with annualized revenues
of $61 million bringing our year-to-date totals to 27 acquisitions with
estimated annualized revenues totaling $177 million.
-- Our Risk Management segment had an outstanding quarter. Total organic
revenues increased 9.3%, adjusted EBITDAC increased 15%, we improved our
adjusted EBITDAC margin 90 basis points and we exceeded our 16.5% margin
target.
-- Our clean energy investments had another quarter of consistent
production and demand for our remaining plants is robust. Accordingly,
we anticipate annualized net after-tax earnings from our clean-energy
investments could increase by approximately 15% per annum in 2016 and
2017.
"Domestically, we see the rate environment flat within professional lines, casualty and auto, and we see modest weakening within property, workers comp and certain specialty lines such as marine and aviation. Interestingly, we are seeing smaller accounts holding firm, with some weakening in larger accounts. We are seeing similar conditions as we start the January 1, 2016 renewal season. Internationally, we are seeing a similar market in U.K. Retail and in Canada, but substantially more softening in London Specialty, Australia and New Zealand. Overall, we believe a modestly-down rate environment can be partially mitigated through exposure unit growth in certain lines and by our professionals demonstrating our expertise and high quality value added capabilities by strengthening our clients' insurance portfolio in these times."
The following table provides information that management believes is helpful when comparing third quarter 2015 revenues, EBITDAC and diluted net earnings per share with the same period 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. A reconciliation of EBITDAC is provided on page 10.
Quarter Ended September 30 Diluted Net
Revenues EBITDAC Earnings Per Share
Segment 3rd Q 15 3rd Q 14 Chg 3rd Q 15 3rd Q 14 Chg 3rd Q 15 3rd Q 14
------- -------- -------- --- -------- -------- --- -------- --------
(in millions) (in millions)
Brokerage, as adjusted $832.9 $759.9 10% $227.6 $206.3 10% $0.57 $0.57
Gains on book
sales 2.6 0.9 2.6 0.9 0.01 -
Acquisition
integration - - (23.3) (18.1) (0.10) (0.08)
Workforce &
lease
termination - - (3.4) (2.3) (0.02) (0.01)
Acquisition
related
adjustments - - (0.2) - (0.02) (0.01)
Levelized foreign
currency
translation - 34.4 - 7.4 - 0.02
Brokerage, as reported 835.5 795.2 203.3 194.2 0.44 0.49
----- ----- ----- ----- ---- ----
Risk Management, as adjusted 180.2 165.6 9% 31.7 27.6 15% 0.09 0.08
Workforce &
lease
termination - - (1.4) (0.2) (0.01) -
Client
bankruptcy (1.0) - (1.0) - - -
Claim
portfolio
transfer ramp
up - - - (2.0) - (0.01)
Levelized foreign
currency
translation - 7.3 - 1.7 - 0.01
Risk Management, as reported 179.2 172.9 29.3 27.1 0.08 0.08
---- ----
Total Brokerage & Risk
Management, as
reported $1,014.7 $968.1 $232.6 $221.3 0.52 0.57
======== ======
Corporate, as adjusted 0.11 0.02
Non-cash gains on changes in
ownership levels - (0.01)
Litigation
settlement
net gain 0.12 -
----
Corporate, as reported 0.23 0.01
---- ----
Total Company, as reported $0.75 $0.58
===== =====
Total Brokerage & Risk
Management, as
adjusted $1,013.1 $925.5 9% $259.3 $233.9 11% $0.66 $0.65
======== ====== =====
Total Company, as adjusted $0.77 $0.67
===== =====
(1 of 12)
The following table provides information that management believes is helpful when comparing the nine-month period 2015 revenues, EBITDAC and diluted net earnings per share with the same period in 2014.
Nine Months Ended September 30 Diluted Net
Revenues EBITDAC Earnings Per Share
Segment 9 Mths 15 9 Mths 14 Chg 9 Mths 15 9 Mths 14 Chg 9 Mths 15 9 Mths 14
------- --------- --------- --- --------- --------- --- --------- ---------
(in millions) (in millions)
Brokerage, as adjusted $2,465.2 $2,024.4 22% $655.9 $520.5 26% $1.65 $1.52
Gains on book
sales 7.0 2.6 7.0 2.6 0.03 0.01
Acquisition
integration - - (66.5) (40.6) (0.28) (0.19)
Workforce &
lease
termination - - (17.9) (6.0) (0.08) (0.03)
Acquisition
related
adjustments - - (2.7) (1.1) (0.08) (0.03)
Levelized foreign
currency
translation - 70.5 - 16.3 - 0.04
------------------ --- ---
Brokerage, as reported 2,472.2 2,097.5 575.8 491.7 1.24 1.32
------- ------- ----- ----- ---- ----
Risk Management, as adjusted 546.8 492.6 11% 94.9 80.1 18% 0.28 0.26
Workforce &
lease
termination - - (1.9) (0.8) (0.01) -
Client
bankruptcy (1.0) - (1.0) - - -
Claim
portfolio
transfer ramp
up - - - (4.7) - (0.02)
Levelized foreign
currency
translation - 17.3 - 4.0 - 0.02
Risk Management, as reported 545.8 509.9 92.0 78.6 0.27 0.26
---- ----
Total Brokerage & Risk
Management, as
reported $3,018.0 $2,607.4 $667.8 $570.3 1.51 1.58
======== ======
Corporate, as adjusted 0.07 (0.01)
Non-cash gains on changes in
ownership levels - 0.10
Litigation
settlement
net gain 0.13 -
----
Corporate, as reported 0.20 0.09
---- ----
Total Company, as reported $1.71 $1.67
===== =====
Total Brokerage & Risk
Management, as
adjusted $3,012.0 $2,517.0 20% $750.8 $600.6 25% $1.93 $1.78
======== ====== =====
Total Company, as adjusted $2.00 $1.77
===== =====
(2 of 12)
Brokerage Segment Third 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) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
----------------
Base Commissions and
Fees
Commissions as
reported $594.6 $572.5 $1,748.6 $1,523.5
Fees as reported 181.7 165.0 505.8 403.2
Less commissions and
fees from
acquisitions (60.2) - (330.1) -
Less large account
wins - (6.8) - (6.8)
Less disposed of
operations - (2.0) - (8.0)
Levelized foreign
currency translation - (29.4) - (62.4)
Organic base
commissions and fees $716.1 $699.3 $1,924.3 $1,849.5
====== ====== ======== ========
Organic change in
base commissions and
fees 2.4% 4.0%
=== ===
Supplemental
Commissions
Supplemental
commissions as
reported $29.2 $24.2 $90.9 $77.5
Less supplemental
commissions from
acquisitions (0.7) - (8.9) -
Levelized foreign
currency translation - (0.9) - (2.8)
Organic supplemental
commissions $28.5 $23.3 $82.0 $74.7
===== ===== ===== =====
Organic change in
supplemental
commissions 22.3% 9.8%
==== ===
Contingent
Commissions
Contingent
commissions as
reported $14.5 $14.4 $81.8 $68.4
Less contingent
commissions from
acquisitions (0.7) - (11.2) -
Levelized foreign
currency translation - (0.4) - (1.0)
Organic contingent
commissions $13.8 $14.0 $70.6 $67.4
===== ===== ===== =====
Organic change in
contingent
commissions -1.4% 4.8%
==== ===
Total organic change 3.0% 4.3%
=== ===
The following is a summary of Brokerage segment acquisition activity for 2015 and 2014:
3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
Shares issued for
acquisitions and
earnouts
(excluding
secondary
offering in the
nine months
2014) 1,824,000 1,941,000 7,145,000 4,083,000
Number of
acquisitions
closed 5 19 27 45
Estimated
annualized
revenues
acquired (in
millions) $61.0 $178.7 $176.9 $693.6
===== ====== ====== ======
Rollover revenues
recognized in
period from 2014
and Q1 and Q2
2015
acquisitions (in
millions) $53.8 $362.5
Portion of Q3
2015
acquisitions
revenues
recognized in
period (in
millions) 7.9 7.9
--- ---
Total $61.7 $370.4
===== ======
(3 of 12)
Brokerage Segment Third Quarter Highlights (continued)
Adjusted Compensation
Expense and Ratio
(non-GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
---------------------
Reported amounts $473.9 $456.2 $1,430.2 $1,229.4
Acquisition
integration (7.1) (13.4) (29.8) (29.2)
Workforce and lease
termination related
charges (2.4) (2.2) (15.5) (5.4)
Acquisition related
adjustments (0.2) - (2.7) (1.1)
Levelized foreign
currency translation - (20.0) - (40.5)
Adjusted amounts $464.2 $420.6 $1,382.2 $1,153.2
====== ====== ======== ========
Adjusted ratios using
adjusted revenues on
pages 1 and 2 * 55.7% 55.4% 56.1% 57.0%
==== ==== ==== ====
* Adjusted third quarter compensation
ratio was 0.3 pts higher compared
to the same period in 2014. All
items were essentially consistent
with the prior year.
Adjusted
Operating
Expense and
Ratio (non-
GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
------------
Reported
amounts $158.3 $144.8 $466.2 $376.4
Acquisition
integration (16.2) (4.7) (36.7) (11.4)
Workforce and
lease
termination
related
charges (1.0) (0.1) (2.4) (0.6)
Levelized
foreign
currency
translation - (7.0) - (13.7)
Adjusted
amounts $141.1 $133.0 $427.1 $350.7
====== ====== ====== ======
Adjusted ratios
using adjusted
revenues on
pages 1 and 2 * 16.9% 17.5% 17.3% 17.3%
==== ==== ==== ====
* Adjusted third quarter
operating expense ratio was
0.6 pts lower than the same
period in 2014. This ratio
was primarily impacted by
savings in consulting fees
of 0.4 pts.
Adjusted EBITDAC
(non-GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
----------------
Total EBITDAC -
see page 10 for
computation $203.3 $194.2 $575.8 $491.7
Gains from books
of business
sales (2.6) (0.9) (7.0) (2.6)
Acquisition
integration * 23.3 18.1 66.5 40.6
Acquisition
related
adjustments 0.2 - 2.7 1.1
Workforce and
lease
termination
related charges 3.4 2.3 17.9 6.0
Levelized foreign
currency
translation - (7.4) - (16.3)
Adjusted EBITDAC $227.6 $206.3 $655.9 $520.5
====== ====== ====== ======
Adjusted EBITDAC
change 10.3% 46.8% 26.0% 42.7%
==== ==== ==== ====
Adjusted EBITDAC
margin 27.3% 27.2% 26.6% 25.7%
==== ==== ==== ====
* Acquisition integration costs
consist mostly of IT system
conversion costs, professional
fees, branding and compensation
related to the larger 2013 and 2014
acquisitions.
(4 of 12)
Risk Management Segment Third 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) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
----------------
Fees $175.7 $167.0 $532.0 $494.8
International
performance bonus
fees 3.3 5.7 13.4 14.3
Fees as reported 179.0 172.7 545.4 509.1
Less fees from
acquisitions (1.9) - (2.1) -
Less New South
Wales contract
run-off (3.2) (6.3) (14.1) (15.8)
Levelized foreign
currency
translation - (7.3) - (17.2)
Organic fees $173.9 $159.1 $529.2 $476.1
====== ====== ====== ======
Organic change in
fees 9.3% 9.9% 11.2% 9.0%
=== === ==== ===
During the nine-month period ended September 30, 2015, we completed 2 acquisitions in the Risk Management segment with annualized revenues of $7.6 million.
Adjusted Compensation
Expense and Ratio
(non-GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
---------------------
Reported amounts $105.4 $103.4 $321.5 $310.4
Claim portfolio
transfer ramp up
costs - (0.8) - (2.4)
Workforce and lease
termination related
charges (1.2) (0.2) (1.7) (0.8)
Levelized foreign
currency translation - (4.3) - (10.4)
Adjusted amounts $104.2 $98.1 $319.8 $296.8
====== ===== ====== ======
Adjusted ratios using
adjusted revenues on
pages 1 and 2 * 57.8% 59.2% 58.5% 60.3%
==== ==== ==== ====
* Adjusted third quarter compensation
ratio was 1.4 pts lower than the
same period in 2014 mostly related
to savings in incentive
compensation and headcount
controls.
Adjusted
Operating
Expense and
Ratio (non-
GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
------------
Reported
amounts $44.5 $42.4 $132.3 $120.9
Claim portfolio
transfer and
ramp up costs - (1.2) - (2.3)
Workforce and
lease
termination
related
charges (0.2) - (0.2) -
Levelized
foreign
currency
translation - (1.3) - (2.9)
Adjusted
amounts $44.3 $39.9 $132.1 $115.7
===== ===== ====== ======
Adjusted ratios
using adjusted
revenues on
pages 1 and 2 * 24.6% 24.1% 24.2% 23.5%
==== ==== ==== ====
* Adjusted third quarter
operating expense ratio was
0.5 pts higher than the
same period in 2014. This
ratio was primarily
impacted by higher
consulting fees of 1.4 pts,
partially offset by savings
in business insurance of
0.7 pts.
Adjusted EBITDAC
(non-GAAP) 3rd Q 15 3rd Q 14 9 Mths 15 9 Mths 14
----------------
Total EBITDAC -
see page 10 for
computation $29.3 $27.1 $92.0 $78.6
Workforce and
lease
termination
related charges 1.4 0.2 1.9 0.8
Claim portfolio
transfer and
ramp up - 2.0 - 4.7
Client bankruptcy 1.0 - 1.0 -
Levelized foreign
currency
translation - (1.7) - (4.0)
Adjusted EBITDAC $31.7 $27.6 $94.9 $80.1
===== ===== ===== =====
Adjusted EBITDAC
change 14.9% 19.1% 18.5% 11.2%
==== ==== ==== ====
Adjusted EBITDAC
margin 17.6% 16.7% 17.4% 16.3%
==== ==== ==== ====
(5 of 12)
Corporate Segment Third 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
Pretax Income Net Pretax Income Net
Earnings Tax Earnings Earnings Tax Earnings
(Loss) Benefit (Loss) (Loss) Benefit (Loss)
3rd Quarter
-----------
Interest and banking
costs $(26.2) $10.5 $(15.7) $(26.5) $10.6 $(15.9)
Clean energy related
(1) (40.2) 81.2 41.0 (4) (21.8) 50.2 28.4
Acquisition costs (0.2) 0.1 (0.1) (4.2) 0.2 (4.0)
Corporate (3.9) (1.4) (5.3) (4.2) (0.3) (4.5)
Adjusted 3rd quarter $(70.5) $90.4 19.9 $(56.7) $60.7 4.0
====== ===== ====== =====
Impact from re-consolidation accounting gains (2) - (2.5)
Litigation settlement net gain (3) 22.3 -
---- ---
Reported 3rd quarter $42.2 $1.5
===== ====
Nine Months
-----------
Interest and banking
costs $(79.1) $31.6 $(47.5) $(64.8) $25.9 $(38.9)
Clean energy related
(1) (88.8) 169.3 80.5 (4) (58.9) 126.6 67.7
Acquisition costs (3.4) 0.5 (2.9) (16.2) 1.1 (15.1)
Corporate (21.4) 4.6 (16.8) (12.5) (1.9) (14.4)
Adjusted nine months $(192.7) $206.0 13.3 $(152.4) $151.7 (0.7)
======= ====== ======= ======
Impact from re-consolidation accounting gains (2) - 14.1
Litigation settlement net gain (3) 22.3 -
---- ---
Reported nine months $35.6 $13.4
===== =====
(1) Pretax earnings for the third quarter are presented net of amounts
attributable to noncontrolling interests of $9.4 million in 2015 and
$7.3 million in 2014. Pretax earnings for the nine month periods
ended September 30 are presented net of amounts attributable to
noncontrolling interests of $23.1 million in 2015 and $20.6 million
in 2014.
(2) Excludes non-cash gain from re-consolidation accounting gains
related to clean-energy investments recorded in the first quarter
of 2014 and related tax credit recognition.
(3) During the third quarter of 2015, Gallagher settled litigation
against certain former U.K. executives and their advisors for a
pretax gain of $31.0 million ($22.3 million net of costs and taxes).
Incremental expenses that arose in connection with this matter will
result in after-tax charges of approximately $4.5 million per
quarter through June 30, 2017, which will also be presented in the
Corporate segment.
(4) In our quarterly investor supplement posted at www.ajg.com/
financialreports, management provides estimates (E) of future
earnings related to its clean energy related investments. Below is
a table showing what we estimated on July 28, 2015 and what we are
now reporting (R) for the third quarter 2015 as adjusted and
estimated for the fourth quarter 2015. The table shows that our
estimates for the last half of 2015 in total did not change
significantly. However, there was timing between quarters because
more taxable income was recognized in the third quarter than
anticipated on July 28, 2015, mostly due to the litigation
settlement gain discussed above.
As Provided on July Currently Estimated
28, 2015 as of October 27,
2015
-------------------- --------------------
(in
millions) Low High Low High
--- ---- --- ----
3rd
Quarter $26.0 E $30.0 E $41.0 R $41.0 R
4th
Quarter 33.0 E 38.0 E 22.0 E 24.0 E
Last
half
of
2015 $59.0 $68.0 $63.0 $65.0
===== ===== ===== =====
Debt, interest and banking - At September 30, 2015, Gallagher had $2,125.0 million of borrowings from private placements and $153.0 million of short-term borrowings under its line of credit facility. On May 18, 2015 we entered into a two year 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 $155.0 million, of which $114.6 million was outstanding at September 30, 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. This facility replaced a previous facility which was originally entered into on June 16, 2014.
(6 of 12)
Corporate Segment Third Quarter Highlights (continued)
At-the-market equity program - Gallagher has an at-the-market equity program under which up to $15.6 million of its common stock remaining in the program may be sold through Morgan Stanley & Co. LLC as sales agent. During third quarter 2014, Gallagher did not sell any shares of its common stock under the program.
Clean energy investments - The following provides certain information related to Gallagher's investments in limited liability companies that own 34 clean coal production plants, which produce refined coal using proprietary technologies owned by Chem-Mod. We believe that the production and sale of refined coal at these plants qualifies to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty 2011 Era Plants. The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated.
Gallagher's Portion of Estimated
--------------------------------
Additional
Gallagher's Required Ultimate
Tax-Effected Tax-Effected Annual
Book Value At Capital After-tax
($ in millions) September 30, 2015 Investment Earnings (1)
Investments that own 2009 Era Plants
------------------------------------
10 Under long-term
production
contracts $7.7 $ - $20.0
2 Under long-term production
contracts estimated to
resume production in
4th quarter 2015 0.6 0.6 15.0
2 In late stages of
negotiations for long-
term production
contracts 0.6 4.2 15.0
Investments that own 2011 Era Plants
------------------------------------
16 Under long-term
production
contracts 32.9 - 75.0
1 Under long-term production
contracts estimated to
resume production in
1st quarter 2016 0.9 3.4 10.0
3 In very early discussions
with several host
utilities 1.0 Not Estimable Not Estimable
(1) Reflects management's current best
estimate of the ultimate future
potential annual after-tax earnings
based on production estimates from
the host utilities. It is unlikely
Gallagher will fully achieve these
earnings in 2016 as the clean-coal
production plants are forecasted to
resume production at various dates
throughout 2016. Further, 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. Achieving these
estimates in 2017 may be possible
assuming successful progress in
2016.
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 to $5.0 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 September 30, 2015 and 2014 was (33.3)% and (6.2)%, respectively. Gallagher's tax rate for the quarters ended September 30, 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. Total revenues related to this operation were $4.9 million and $4.6 million in third quarter 2015 and 2014, respectively, $14.7 million and $13.5 million in the nine month periods ended September 30, 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 Gallagher's previously reported consolidated net earnings. See the quarterly results in the financial supplement for the reclassification of all quarters provided.
(7 of 12)
Webcast Conference Call
Gallagher will host a webcast conference call on Wednesday, October 28, 2015 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 31 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, such
as 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 of
which 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 of which
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 with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. 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, provide 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.
(8 of 12)
-- 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, client bankruptcy impact, 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, client bankruptcy impact, 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, client
bankruptcy impact, 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.
-- 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, the impact
of prior year large account wins 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 run-off of the New South Wales Workers'
Compensation Scheme 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 10), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on pages 1 and 2), for organic revenue measures (on pages 3 and 5, respectively, for the Brokerage and Risk Management segments), for adjusted compensation and operating expenses and adjusted EBITDAC margin (on pages 4 and 5, 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.
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Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC - 3rd Qtr 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, 2015 Sept 30, 2014 Sept 30, 2015 Sept 30, 2014
------------- ------------- ------------- -------------
Commissions $594.6 $572.5 $1,748.6 $1,523.5
Fees 181.7 165.0 505.8 403.2
Supplemental commissions 29.2 24.2 90.9 77.5
Contingent commissions 14.5 14.4 81.8 68.4
Investment income and gains realized on books of business
sales 15.5 19.1 45.1 24.9
Revenues 835.5 795.2 2,472.2 2,097.5
Compensation 473.9 456.2 1,430.2 1,229.4
Operating 158.3 144.8 466.2 376.4
Depreciation 13.8 12.4 39.2 31.8
Amortization 57.3 53.5 170.1 132.9
Change in estimated acquisition earnout payables 9.7 4.5 26.4 16.7
Expenses 713.0 671.4 2,132.1 1,787.2
Earnings before income taxes 122.5 123.8 340.1 310.3
Provision for income taxes 47.0 44.6 123.7 110.1
Net earnings 75.5 79.2 216.4 200.2
Net earnings (loss) attributable to noncontrolling interests (1.8) 0.4 3.3 0.3
Net earnings attributable to controlling interests $77.3 $78.8 $213.1 $199.9
===== ===== ====== ======
EBITDAC
Net earnings $75.5 $79.2 $216.4 $200.2
Provision for income taxes 47.0 44.6 123.7 110.1
Depreciation 13.8 12.4 39.2 31.8
Amortization 57.3 53.5 170.1 132.9
Change in estimated acquisition earnout payables 9.7 4.5 26.4 16.7
EBITDAC $203.3 $194.2 $575.8 $491.7
====== ====== ====== ======
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Risk Management Segment Sept 30, 2015 Sept 30, 2014 Sept 30, 2015 Sept 30, 2014
------------- ------------- ------------- -------------
Fees $179.0 $172.7 $545.4 $509.1
Investment income 0.2 0.2 0.4 0.8
Revenues 179.2 172.9 545.8 509.9
Compensation 105.4 103.4 321.5 310.4
Operating 44.5 42.4 132.3 120.9
Depreciation 6.1 5.3 17.6 15.4
Amortization 0.8 0.8 2.2 2.4
Change in estimated acquisition earnout payables - - (0.5) (0.1)
Expenses 156.8 151.9 473.1 449.0
Earnings before income taxes 22.4 21.0 72.7 60.9
Provision for income taxes 8.6 7.7 26.9 22.3
Net earnings 13.8 13.3 45.8 38.6
Net earnings attributable to noncontrolling interests - - - -
Net earnings attributable to controlling interests $13.8 $13.3 $45.8 $38.6
===== ===== ===== =====
EBITDAC
Net earnings $13.8 $13.3 $45.8 $38.6
Provision for income taxes 8.6 7.7 26.9 22.3
Depreciation 6.1 5.3 17.6 15.4
Amortization 0.8 0.8 2.2 2.4
Change in estimated acquisition earnout payables - - (0.5) (0.1)
EBITDAC $29.3 $27.1 $92.0 $78.6
===== ===== ===== =====
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
Corporate Segment Sept 30, 2015 Sept 30, 2014 Sept 30, 2015 Sept 30, 2014
------------- ------------- ------------- -------------
Revenues from consolidated clean coal facilities $392.6 $304.8 $965.8 $709.3
Royalty income from clean coal licenses 15.9 16.7 44.2 44.1
Loss from unconsolidated clean coal facilities (0.4) (0.3) (1.0) (3.0)
Other net revenues 32.0 (2.5) 30.5 23.3
Revenues 440.1 318.7 1,039.5 773.7
Cost of revenues from consolidated clean coal facilities 418.9 326.2 1,035.0 767.7
Compensation 25.6 5.0 43.5 21.1
Operating 5.3 10.1 20.2 28.0
Interest 25.6 25.9 77.2 63.3
Depreciation 3.9 0.9 11.3 2.8
Expenses 479.3 368.1 1,187.2 882.9
Loss before income taxes (39.2) (49.4) (147.7) (109.2)
Benefit for income taxes (90.8) (58.2) (206.4) (143.2)
Net earnings 51.6 8.8 58.7 34.0
Net earnings attributable to noncontrolling interests 9.4 7.3 23.1 20.6
Net earnings attributable to controlling interests $42.2 $1.5 $35.6 $13.4
===== ==== ===== =====
EBITDAC
Net earnings $51.6 $8.8 $58.7 $34.0
Benefit for income taxes (90.8) (58.2) (206.4) (143.2)
Interest 25.6 25.9 77.2 63.3
Depreciation 3.9 0.9 11.3 2.8
EBITDAC $(9.7) $(22.6) $(59.2) $(43.1)
===== ====== ====== ======
See "Information Regarding Non-
GAAP Measures" on page 8 of 12
and other information to third
quarter 2015 earnings release
on page 12 of 12.
(10 of 12)
Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC - 3rd Qtr 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, 2015 Sept 30, 2014 Sept 30, 2015 Sept 30, 2014
------------- ------------- ------------- -------------
Commissions $594.6 $572.5 $1,748.6 $1,523.5
Fees 360.7 337.7 1,051.2 912.3
Supplemental commissions 29.2 24.2 90.9 77.5
Contingent commissions 14.5 14.4 81.8 68.4
Investment income and gains realized
on books of business sales 15.7 19.3 45.5 25.7
Revenues from clean coal activities 408.1 321.2 1,009.0 750.4
Other net revenues - Corporate 32.0 (2.5) 30.5 23.3
Revenues 1,454.8 1,286.8 4,057.5 3,381.1
Compensation 604.9 564.6 1,795.2 1,560.9
Operating 208.1 197.3 618.7 525.3
Cost of revenues from clean coal
activities 418.9 326.2 1,035.0 767.7
Interest 25.6 25.9 77.2 63.3
Depreciation 23.8 18.6 68.1 50.0
Amortization 58.1 54.3 172.3 135.3
Change in estimated acquisition
earnout payables 9.7 4.5 25.9 16.6
Expenses 1,349.1 1,191.4 3,792.4 3,119.1
Earnings before income taxes 105.7 95.4 265.1 262.0
Benefit for income taxes (35.2) (5.9) (55.8) (10.8)
Net earnings 140.9 101.3 320.9 272.8
Net earnings attributable to
noncontrolling interests 7.6 7.7 26.4 20.9
Net earnings attributable to
controlling interests $133.3 $93.6 $294.5 $251.9
====== ===== ====== ======
Diluted net earnings per share $0.75 $0.58 $1.71 $1.67
===== ===== ===== =====
Dividends declared per share $0.37 $0.36 $1.11 $1.08
===== ===== ===== =====
EBITDAC
Net earnings $140.9 $101.3 $320.9 $272.8
Benefit for income taxes (35.2) (5.9) (55.8) (10.8)
Interest 25.6 25.9 77.2 63.3
Depreciation 23.8 18.6 68.1 50.0
Amortization 58.1 54.3 172.3 135.3
Change in estimated acquisition
earnout payables 9.7 4.5 25.9 16.6
EBITDAC $222.9 $198.7 $608.6 $527.2
====== ====== ====== ======
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Sept 30, 2015 Dec 31, 2014
Cash and cash equivalents $369.7 $314.4
Restricted cash 1,349.6 1,367.6
Premiums and fees receivable 1,600.8 1,462.5
Other current assets 700.0 666.7
----- -----
Total current assets 4,020.1 3,811.2
Fixed assets - net 200.7 195.4
Deferred income taxes 487.8 392.6
Other noncurrent assets 480.4 385.2
Goodwill - net 3,579.6 3,449.6
Amortizable intangible assets - net 1,741.8 1,776.0
Total assets $10,510.4 $10,010.0
Premiums payable to insurance and
reinsurance companies $2,707.1 $2,623.3
Accrued compensation and other accrued
liabilities 648.3 623.7
Unearned fees 51.7 66.1
Other current liabilities 54.5 61.7
Premium financing borrowings 114.6 127.9
Corporate related borrowings - current 153.0 140.0
Total current liabilities 3,729.2 3,642.7
Corporate related borrowings -
noncurrent 2,125.0 2,125.0
Other noncurrent liabilities 948.3 937.2
Total liabilities 6,802.5 6,704.9
Stockholders' equity:
Common stock - issued and outstanding 176.7 164.6
Capital in excess of par value 3,193.6 2,649.4
Retained earnings 778.4 676.0
Accumulated other comprehensive loss (496.3) (260.6)
Total controlling interests
stockholders' equity 3,652.4 3,229.4
Noncontrolling interests 55.5 75.7
---- ----
Total stockholders' equity 3,707.9 3,305.1
Total liabilities and
stockholders' equity $10,510.4 $10,010.0
See "Information Regarding Non-
GAAP Measures" on page 8 of 12
and other information to third
quarter 2015 earnings release
on page 12 of 12.
(11 of 12)
Arthur J. Gallagher & Co.
Other Information
(Unaudited - data is rounded where indicated)
3rd Q Ended 3rd Q Ended 9 Mths Ended 9 Mths Ended
OTHER INFORMATION Sept 30, 2015 Sept 30, 2014 Sept 30, 2015 Sept 30, 2014
------------- ------------- ------------- -------------
Basic weighted average shares outstanding
(000s) 175,956 160,231 170,715 149,571
Diluted weighted average shares outstanding
(000s) 176,808 161,503 171,772 151,006
Common shares issued for acquisitions and
earnouts (excluding secondary offering in 9
Mths Ended Sept 30, 2014) (000s) 1,824 1,941 7,145 4,083
Number of acquisitions closed 5 19 29 45
Estimated annualized revenues acquired (in
millions) $61.0 $178.7 $184.5 $693.6
Number of common shares outstanding at end
of period (000s) 176,695 161,374
Workforce at end of period (includes
acquisitions):
Brokerage 15,802 14,677
Risk Management 5,184 4,921
Total Company 21,419 19,980
Contact: Marsha Akin
Director - Investor Relations
630-285-3501 or marsha_akin@ajg.com
(12 of 12)
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SOURCE Arthur J. Gallagher & Co.
