ARTHUR J. GALLAGHER & CO. ROLLING MEADOWS, Ill., April 27, 2017 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended March 31, 2017. Management will host a webcast conference call to discuss these results on Friday, April 28, 2017 at 9:00 a.m. ET/8:00 a.m. CT. To listen to the call, and for printer-friendly formats of this release and the "Supplemental Quarterly Data" and "CFO Commentary," which may also be referenced during the call, please visit ajg.com/IR. These documents contain both GAAP and non-GAAP measures. Investors and other users of this information should read carefully the section entitled "Information Regarding Non-GAAP Measures" beginning on page 7.
Summary of Financial Results - First Quarter
Reconciliations of non-GAAP measures begin on page 2
(Dollars in millions, except per share data) 1st Q 2017 1st Q 2016 Change
---------- ---------- ------
Reported Adjusted Reported Adjusted Reported Adjusted
Brokerage Segment GAAP Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
----------------- ---- -------- ---- -------- ---- --------
Revenues $878.5 $877.1 $825.5 $809.1 6% 8%
Organic revenues $815.7 $794.0 2.7%
Net earnings $78.1 $65.9 19%
Net earnings margin 8.9% 8.0% +91 bpts
Adjusted EBITDAC $215.7 $189.2 14%
Adjusted EBITDAC margin 24.6% 23.4% +121 bpts
Diluted net earnings per share $0.40 $0.46 $0.35 $0.40 14% 15%
Risk Management Segment
-----------------------
Revenues $182.6 $182.6 $179.3 $179.8 2% 2%
Organic revenues $182.5 $179.6 1.6%
Net earnings $14.3 $15.0 -5%
Net earnings margin 7.8% 8.4% -54 bpts
Adjusted EBITDAC $31.2 $32.0 -3%
Adjusted EBITDAC margin 17.1% 17.8% -71 bpts
Diluted net earnings per share $0.08 $0.08 $0.08 $0.09 0% -11%
Corporate Segment
-----------------
Diluted net earnings (loss) per share $(0.17) $(0.14) $(0.17) $(0.15) 0% 7%
Total Company
-------------
Diluted net earnings per share $0.31 $0.40 $0.26 $0.34 19% 18%
"We had an excellent start to 2017. Coming off a terrific 2016, we delivered solid organic growth, outstanding revenue growth from our tuck-in M&A strategy and strong margin expansion in the first quarter," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "Our unique culture is thriving around the world, demonstrated by being selected as a World's Most Ethical Company for the sixth year in a row by the Ethisphere Institute. Our global businesses are working well together, the team is energized and we are successfully executing our strategies. We are well positioned for the remainder of 2017."
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Quarter Ended March 31 Reported GAAP to Adjusted Non-GAAP Reconciliation:
Diluted Net
Revenues Net Earnings EBITDAC Earnings Per Share
Segment 1st Q 17 1st Q 16 1st Q 17 1st Q 16 1st Q 17 1st Q 16 1st Q 17 1st Q 16
------- -------- -------- -------- -------- -------- -------- -------- --------
(in millions) (in millions) (in millions)
Brokerage, as reported $878.5 $825.5 $78.1 $65.9 $208.0 $176.8 $0.40 $0.35
Gains on book sales (1.4) (2.2) (1.0) (1.5) (1.4) (2.2) - (0.01)
Acquisition integration - - 2.0 10.0 2.9 14.2 0.01 0.06
Workforce & lease termination - - 2.7 1.1 3.9 1.6 0.02 -
Acquisition related adjustments - - 6.2 0.3 2.3 0.8 0.03 -
Levelized foreign currency translation - (14.2) - (0.6) - (2.0) - -
Brokerage, as adjusted * 877.1 809.1 88.0 75.2 215.7 189.2 0.46 0.40
----- ----- ---- ---- ----- ----- ---- ----
Risk Management, as reported 182.6 179.3 14.3 15.0 31.0 31.0 0.08 0.08
Workforce & lease termination - - 0.1 0.3 0.2 0.5 - 0.01
Levelized foreign currency translation - 0.5 - 0.3 - 0.5 - -
Risk Management, as adjusted * 182.6 179.8 14.4 15.6 31.2 32.0 0.08 0.09
---- ----
Corporate, as reported 351.6 295.6 (24.6) (23.0) (51.2) (38.4) (0.17) (0.17)
Litigation settlement - - 4.4 3.7 5.5 4.7 0.02 0.02
Home office lease termination/move - - 2.4 - 4.0 - 0.01 -
Corporate, as adjusted * 351.6 295.6 (17.8) (19.3) (41.7) (33.7) (0.14) (0.15)
----- ----- ----- ----- ----- ----- ----- -----
Total Company, as reported $1,412.7 $1,300.4 $67.8 $57.9 $187.8 $169.4 $0.31 $0.26
======== ======== ===== ===== ====== ====== ===== =====
Total Company, as adjusted * $1,411.3 $1,284.5 $84.6 $71.5 $205.2 $187.5 $0.40 $0.34
======== ======== ===== ===== ====== ====== ===== =====
Total Brokerage & Risk
Management, as reported $1,061.1 $1,004.8 $92.4 $80.9 $239.0 $207.8 $0.48 $0.43
========== ======== ===== ====== =====
Total Brokerage & Risk
Management, as adjusted * $1,059.7 $988.9 $102.4 $90.8 $246.9 $221.2 $0.54 $0.49
========== ======== ====== ====== =====
* For 2017, the pretax impact of the
Brokerage Segment adjustments
totals $14.4 million, with a
corresponding adjustment to the
provision for income taxes of $4.5
million relating to these items.
The pretax impact of the Risk
Management Segment adjustments
totals $0.2 million, with a
corresponding adjustment to the
provision for income taxes of $0.1
million relating to these items.
The pretax impact of the Corporate
Segment adjustments totals $9.5
million, with a corresponding
adjustment to the provision for
income taxes of $2.7 million
relating to these items. A
detailed reconciliation of the
2017 and 2016 provision for income
taxes is shown on page 12.
(2 of 12)
Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):
Organic Revenues (Non-GAAP) 1st Q 17 1st Q 16 Change
--------------------------
Base Commissions and Fees
-------------------------
Commissions and fees, as reported $778.5 $725.1 7.4%
Less commissions and fees from acquisitions (47.0) -
Less disposed of operations - (1.4)
Levelized foreign currency translation - (12.9)
Organic base commissions and fees $731.5 $710.8 2.9%
====== ======
Supplemental Commissions
------------------------
Supplemental commissions, as reported $34.5 $32.9 4.9%
Less supplemental commissions from acquisitions (1.2) -
Less disposed of operations - (0.1)
Levelized foreign currency translation - (1.4)
Organic supplemental commissions $33.3 $31.4 6.1%
===== =====
Contingent Commissions
----------------------
Contingent commissions, as reported $53.4 $55.2 -3.3%
Less contingent commissions from acquisitions (2.5) -
Less disposed of operations - (2.8)
Levelized foreign currency translation - (0.6)
Organic contingent commissions $50.9 $51.8 -1.7%
===== =====
Total reported commissions, fees, supplemental
$866.4 $813.2 6.5%
Less commissions and fees from acquisitions (50.7) -
Less disposed of operations - (4.3)
Levelized foreign currency translation - (14.9)
Total organic commissions, fees, supplemental
$815.7 $794.0 2.7%
====== ======
Our domestic and international operations both posted growth similar to the 2.9% growth in organic commission and fee revenues for first quarter 2017.
Acquisition Activity 1st Q 17 1st Q 16
--------------------
Number of acquisitions closed * 12 8
Estimated annualized revenues acquired (in millions) $62.5 $30.0
===== =====
* Gallagher issued 259,000
shares in connection with
tax-free exchange
acquisitions in first quarter
2017, which had been pre-
purchased in mid-2016.
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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (continued):
Compensation Expense and Ratios 1st Q 17 1st Q 16
-------------------------------
Compensation expense, as reported $525.5 $492.9
Acquisition integration (1) (1.1) (4.6)
Workforce and lease termination related charges (3.5) (1.3)
Acquisition related adjustments (2.3) (0.8)
Levelized foreign currency translation - (10.0)
Compensation expense, as adjusted $518.6 $476.2
====== ======
Reported compensation expense ratios using reported revenues on page 2 * 59.8% 59.7%
==== ====
Adjusted compensation expense ratios using adjusted revenues on page 2 * 59.1% 58.9%
==== ====
* Reported first quarter
compensation ratio was 0.1 pts
higher than the same period in
2016. Adjusted first quarter
compensation ratio was 0.2 pts
higher than the same period in
2016. Both ratios were primarily
impacted by an increase in stock
compensation costs related to the
increase in our stock price,
partially offset by savings in
employee benefits.
Operating Expense and Ratios 1st Q 17 1st Q 16
----------------------------
Operating expense, as reported $145.0 $155.8
Acquisition integration (1) (1.8) (9.6)
Workforce and lease termination related charges (0.4) (0.3)
Levelized foreign currency translation - (2.2)
Operating expense, as adjusted $142.8 $143.7
====== ======
Reported operating expense ratios using reported revenues on page 2 * 16.5% 18.9%
==== ====
Adjusted operating expense ratios using adjusted revenues on page 2 ** 16.3% 17.8%
==== ====
* Reported first quarter operating expense
ratio was 2.4 pts lower than the same
period in 2016. This ratio was
primarily impacted by lesser
integration costs such as technology
and lease termination charges, and
business insurance.
** Adjusted first quarter operating expense
ratio was 1.5 pts lower than the same
period in 2016. This ratio was
primarily impacted by savings in real
estate, business insurance and office
supplies.
Net Earnings to Adjusted EBITDAC (Non-GAAP) 1st Q 17 1st Q 16 Change
------------------------------------------
Net earnings, as reported $78.1 $65.9 18.5%
Provision for income taxes 39.6 34.1
Depreciation 14.9 14.0
Amortization 63.6 58.9
Change in estimated acquisition earnout payables 11.8 3.9
EBITDAC 208.0 176.8 17.7%
Gains from books of business sales (1.4) (2.2)
Acquisition integration (1) 2.9 14.2
Acquisition related adjustments 2.3 0.8
Workforce and lease termination related charges 3.9 1.6
Levelized foreign currency translation - (2.0)
EBITDAC, as adjusted $215.7 $189.2 14.0%
====== ======
Net earnings margin, as reported using reported revenues on page 2 8.9% 8.0% +91 bpts
=== ===
EBITDAC margin, as adjusted using adjusted revenues on page 2 24.6% 23.4% +121 bpts
==== ====
(1) Acquisition integration costs
consist mostly of IT system
conversion costs, professional
fees and compensation related to
certain of our large acquisitions
outside the scope of our usual
tuck-in strategy.
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Risk Management Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):
Organic Revenues (Non-GAAP) 1st Q 17 1st Q 16 Change
--------------------------
Fees * $180.8 $177.3 2.0%
International performance bonus fees 1.7 1.8 -5.6%
Fees as reported 182.5 179.1 1.9%
Levelized foreign currency translation - 0.5
Organic fees * $182.5 $179.6 1.6%
====== ======
* Organic fee growth was
hampered by a law change in
South Australia, which
capped the time an injured
worker can receive
benefits. A shorter claim
life also effectively
reduced our revenues in the
first quarter by $2.2
million which had an
adverse impact on our
organic growth of 1.2%. We
expect a similar impact for
remaining three quarters of
2017.
Compensation Expense and Ratios 1st Q 17 1st Q 16
-------------------------------
Compensation expense, as reported $107.8 $105.5
Workforce and lease termination related charges (0.2) (0.5)
Levelized foreign currency translation - -
Compensation expense, as adjusted $107.6 $105.0
====== ======
Reported compensation expense ratios using reported revenues on page 2 * 59.0% 58.8%
==== ====
Adjusted compensation expense ratios using adjusted revenues on page 2 * 58.9% 58.4%
==== ====
* Reported first quarter compensation
ratio was 0.2 pts higher than the
same period in 2016. Adjusted
first quarter compensation ratio
was 0.5 pts higher than the same
period in 2016. Both ratios were
primarily impacted by an increase
in base and incentive
compensation, partially offset by
savings in employee benefits.
Operating Expense and Ratios 1st Q 17 1st Q 16
----------------------------
Operating expense, as
reported $43.8 $42.8
Levelized foreign currency
translation - -
Operating expense, as
adjusted $43.8 $42.8
===== =====
Reported operating expense
ratios using reported
revenues on page 2 * 24.0% 23.9%
==== ====
Adjusted operating expense
ratios using adjusted
revenues on page 2 * 24.0% 23.8%
==== ====
* Reported first quarter
operating expense ratio was
0.1 pts higher than the same
period in 2016. Adjusted
first quarter operating
expense ratio was 0.2 pts
higher than the same period in
2016. Both ratios were
primarily impacted by an
increase in professional fees
from our vendor-related
revenues, partially offset by
savings in office supplies and
technology expenses.
Net Earnings to Adjusted EBITDAC (Non-GAAP) 1st Q 17 1st Q 16 Change
------------------------------------------ ------
Net earnings, as reported $14.3 $15.0 -4.7%
Provision for income taxes 8.6 9.0
Depreciation 7.4 6.6
Amortization 0.7 0.4
Change in estimated acquisition earnout payables - -
EBITDAC 31.0 31.0 0.0%
Workforce and lease termination related charges 0.2 0.5
Levelized foreign currency translation - 0.5
EBITDAC, as adjusted $31.2 $32.0 -2.5%
===== =====
Net earnings margin, as reported using reported revenues on page 2 7.8% 8.4% -54 bpts
=== ===
EBITDAC margin, as adjusted using adjusted revenues on page 2 17.1% 17.8% -71 bpts
==== ====
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Corporate Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):
2017 2016
Net Earnings Net Earnings
Pretax Income Attributable to Pretax Income Attributable to
Earnings Tax Controlling Earnings Tax Controlling
(Loss) Benefit Interests (Loss) Benefit Interests
1st Quarter
-----------
Interest and banking costs $(30.7) $12.3 $(18.4) $(26.3) $10.5 $(15.8)
Clean energy related (1) (40.4) 39.5 (0.9) (33.9) 31.2 (2.7)
Acquisition costs (2.7) 0.7 (2.0) (1.7) 0.3 (1.4)
Corporate (11.8) 8.5 (3.3) (8.6) 2.3 (6.3)
Litigation settlement (5.5) 1.1 (4.4) (4.7) 1.0 (3.7)
Home office lease termination/move (4.0) 1.6 (2.4) - - -
Reported 1st quarter (95.1) 63.7 (31.4) (75.2) 45.3 (29.9)
Litigation settlement 5.5 (1.1) 4.4 4.7 (1.0) 3.7
Home office lease termination/move 4.0 (1.6) 2.4 - - -
Adjusted 1st quarter $(85.6) $61.0 $(24.6) $(70.5) $44.3 $(26.2)
====== ===== ====== ====== ===== ======
(1) Pretax earnings for the first
quarter are presented net of
amounts attributable to
noncontrolling interests of $6.8
million in 2017 and $6.9 million
in 2016.
Interest and banking costs and debt - At March 31, 2017, Gallagher had $2,450.0 million of borrowings from private placements, $395.0 million of short-term borrowings under its line of credit facility and $104.4 million outstanding under a revolving loan facility that provides funding for premium finance receivables, which are fully collateralized by the underlying premiums held by insurance carriers, and as such are excluded from our debt covenant computations. Gallagher anticipates closing private placements of debt in or around August 2017 to fund the repayment of debt maturing around such time. Any such private placement notes have not been, and will not be, registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This earnings release shall not constitute an offer to sell or the solicitation of an offer to buy the notes.
Clean energy - Consists of the operating results related to our investments in 34 clean coal production plants and royalty income from clean coal licenses related to Chem-Mod LLC. Additional information regarding these results is available in the "CFO Commentary" at ajg.com/IR.
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 and other corporate level activities. In the CFO commentary document as of January 26, 2017, we provided an estimate of our first quarter 2017 after-tax loss for this line ranging between $6.0 million and $7.0 million. As shown above, we actually reported a loss of $3.3 million. The favorable variance occurred because of more income tax benefit from a new accounting standard for employee share-based compensation than we estimated in January 2017.
Litigation Settlement - 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 quarterly after-tax charges being incurred through June 30, 2017.
Home Office Lease Termination/Move - During first quarter 2017, we relocated our corporate office headquarters to a nearby suburb of Chicago. Move-related after-tax charges were $2.4 million in the first quarter of 2017. After-tax lease abandonment charges are expected to total approximately $4.0 million and $1.5 million in the second and third quarters of 2017, respectively.
Income Taxes
Gallagher allocates the provision for income taxes to its Brokerage and Risk Management segments using the local country statutory rates. Gallagher's consolidated effective tax rate for the quarters ended March 31, 2017 and 2016 was (29.6)% and (3.9)%, respectively, which was lower than the statutory rate due to the amount of IRC Section 45 tax credits earned and the impact of the income tax benefit of stock compensation in first quarter 2017.
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 first quarter 2017, Gallagher did not sell any shares of its common stock under the program.
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Webcast Conference Call
Gallagher will host a webcast conference call on Friday, April 28, 2017 at 9:00 a.m. ET/8:00 a.m. CT. To listen to this call, please go to ajg.com/IR. The call will be available for replay at such website for at least 90 days.
About Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Rolling Meadows, Illinois, has operations in 33 countries and offers client-service capabilities in more than 150 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 economic environment; (vi) anticipated acquisition integration costs; and (vii) anticipated actions to be taken in connection with maturing debt.
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 (including a
possible economic downturn or recession in the U.K. because of the
recent Brexit vote); changes in premium rates and in insurance markets
generally; changes in the insurance brokerage industry's competitive
landscape; and the uncertainties and challenges inherent in the
acquisition integration process - all of which 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, 2016 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 (adjusted EPS), 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. See further below for definitions and the reason each of these measures is useful to investors. 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. As disclosed in its most recent Proxy Statement, beginning in first quarter 2017, Gallagher makes determinations regarding certain elements of executive officer compensation, performance share awards and annual cash incentive awards, partly on the basis of measures related to adjusted EBITDAC. 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.
(7 of 12)
Adjusted Non-GAAP presentation - Gallagher believes that the adjusted non-GAAP 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. See page 12 for a reconciliation of the adjustments made to income taxes.
-- Adjusted revenues and expenses - Revenues, compensation expense and
operating expense, respectively, each adjusted to exclude the following:
-- Net gains realized from sales of books of business, which are
primarily net proceeds received related to sales of books of
business and other divestiture transactions.
-- Acquisition integration costs, which include costs related to
certain of our large acquisitions, outside the scope of our usual
tuck-in strategy, 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.
-- Workforce related charges, which primarily include severance costs
related to employee terminations and other costs associated with
redundant workforce.
-- Lease termination related charges, which primarily include costs
related to terminations of real estate leases and abandonment of
leased space.
-- Acquisition related adjustments, which include change in estimated
acquisition earnout payables adjustments, impacts of acquisition
valuation true-ups, impairment charges and acquisition related
compensation charges.
-- The impact of foreign currency translation, as applicable. 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.
-- Adjusted ratios - Adjusted compensation expense and adjusted operating
expense, respectively, each divided by adjusted revenues.
Non-GAAP Earnings Measures
-- EBITDAC and EBITDAC margin - EBITDAC is net earnings before interest,
income taxes, depreciation, amortization and the change in estimated
acquisition earnout payables and EBITDAC margin is EBITDAC divided by
total revenues. These measures for the Brokerage and Risk Management
segments provide a meaningful representation of Gallagher's operating
performance and, for the overall business, provide a meaningful way to
measure its financial performance on an ongoing basis.
-- Adjusted EBITDAC and Adjusted EBITDAC Margin - Adjusted EBITDAC is
EBITDAC adjusted to exclude net gains realized from sales of books of
business, acquisition integration costs, workforce related charges,
lease termination related charges, acquisition related adjustments and
the period-over-period impact of foreign currency translation, as
applicable and Adjusted EBITDAC margin is Adjusted EBITDAC divided by
total adjusted revenues (defined above). These measures for the
Brokerage and Risk Management segments provide a meaningful
representation of Gallagher's operating performance, and are also
presented to improve the comparability of our results between periods by
eliminating the impact of the items that have a high degree of
variability.
-- Adjusted EPS for the Brokerage and Risk Management segments - Net
earnings adjusted to exclude the after-tax impact of net gains realized
from sales of books of business, acquisition integration 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. This measure provides a
meaningful representation of Gallagher's operating performance (and as
such should not be used as a measure of Gallagher's liquidity), and is
also presented to improve the comparability of our results between
periods by eliminating the impact of the items that have a high degree
of variability.
Organic Revenues (a non-GAAP measure) - 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 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 revenue organic growth excludes the period-over-period impact of foreign currency translation. For the Risk Management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions and the fee revenues related to operations disposed of in each year presented. In addition, change in organic growth excludes 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.
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These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, 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 non-GAAP 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 pages 10 and 11), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on page 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 also be found in the "Supplemental Quarterly Data" available at ajg.com/IR.
(9 of 12)
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, 2017 Mar 31, 2016
------------ ------------
Commissions $590.5 $566.0
Fees 188.0 159.1
Supplemental commissions 34.5 32.9
Contingent commissions 53.4 55.2
Investment income and gains realized on books of business
sales 12.1 12.3
Revenues 878.5 825.5
Compensation 525.5 492.9
Operating 145.0 155.8
Depreciation 14.9 14.0
Amortization 63.6 58.9
Change in estimated acquisition earnout payables 11.8 3.9
Expenses 760.8 725.5
----- -----
Earnings before income taxes 117.7 100.0
Provision for income taxes 39.6 34.1
Net earnings 78.1 65.9
Net earnings attributable to noncontrolling interests 5.3 4.5
Net earnings attributable to controlling interests $72.8 $61.4
===== =====
EBITDAC
Net earnings $78.1 $65.9
Provision for income taxes 39.6 34.1
Depreciation 14.9 14.0
Amortization 63.6 58.9
Change in estimated acquisition earnout payables 11.8 3.9
EBITDAC $208.0 $176.8
====== ======
1st Q Ended 1st Q Ended
Risk Management Segment Mar 31, 2017 Mar 31, 2016
------------ ------------
Fees $182.5 $179.1
Investment income 0.1 0.2
Revenues 182.6 179.3
----- -----
Compensation 107.8 105.5
Operating 43.8 42.8
Depreciation 7.4 6.6
Amortization 0.7 0.4
Expenses 159.7 155.3
----- -----
Earnings before income taxes 22.9 24.0
Provision for income taxes 8.6 9.0
Net earnings 14.3 15.0
Net earnings attributable to noncontrolling interests - -
Net earnings attributable to controlling interests $14.3 $15.0
===== =====
EBITDAC
Net earnings $14.3 $15.0
Provision for income taxes 8.6 9.0
Depreciation 7.4 6.6
Amortization 0.7 0.4
EBITDAC $31.0 $31.0
===== =====
1st Q Ended 1st Q Ended
Corporate Segment Mar 31, 2017 Mar 31, 2016
------------ ------------
Revenues from consolidated clean coal facilities $340.3 $282.0
Royalty income from clean coal licenses 11.9 13.1
Loss from unconsolidated clean coal facilities (0.4) (0.3)
Other net (losses) revenues (0.2) 0.8
Revenues 351.6 295.6
Cost of revenues from consolidated clean coal facilities 366.9 304.4
Compensation 24.3 23.7
Operating 11.6 5.9
Interest 29.9 25.8
Depreciation 7.2 4.1
Expenses 439.9 363.9
----- -----
Loss before income taxes (88.3) (68.3)
Benefit for income taxes (63.7) (45.3)
Net earnings (loss) (24.6) (23.0)
Net earnings attributable to noncontrolling interests 6.8 6.9
Net earnings (loss) attributable to controlling interests $(31.4) $(29.9)
====== ======
EBITDAC
Net earnings (loss) $(24.6) $(23.0)
Benefit for income taxes (63.7) (45.3)
Interest 29.9 25.8
Depreciation 7.2 4.1
EBITDAC $(51.2) $(38.4)
====== ======
See "Information Regarding Non-GAAP Measures" on page 7 of
12.
(10 of 12)
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, 2017 Mar 31, 2016
------------ ------------
Commissions $590.5 $566.0
Fees 370.5 338.2
Supplemental commissions 34.5 32.9
Contingent commissions 53.4 55.2
Investment income and gains realized on books of business
sales 12.2 12.5
Revenues from clean coal activities 351.8 294.8
Other net (losses) revenues - Corporate (0.2) 0.8
Revenues 1,412.7 1,300.4
Compensation 657.6 622.1
Operating 200.4 204.5
Cost of revenues from clean coal activities 366.9 304.4
Interest 29.9 25.8
Depreciation 29.5 24.7
Amortization 64.3 59.3
Change in estimated acquisition earnout payables 11.8 3.9
Expenses 1,360.4 1,244.7
------- -------
Earnings before income taxes 52.3 55.7
Benefit for income taxes (15.5) (2.2)
Net earnings 67.8 57.9
Net earnings attributable to noncontrolling interests 12.1 11.4
Net earnings attributable to controlling interests $55.7 $46.5
===== =====
Diluted net earnings per share $0.31 $0.26
===== =====
Dividends declared per share $0.39 $0.38
===== =====
EBITDAC
Net earnings $67.8 $57.9
Benefit for income taxes (15.5) (2.2)
Interest 29.9 25.8
Depreciation 29.5 24.7
Amortization 64.3 59.3
Change in estimated acquisition earnout payables 11.8 3.9
EBITDAC $187.8 $169.4
====== ======
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Mar 31, 2017 Dec 31, 2016
Cash and cash equivalents $564.0 $545.5
Restricted cash 1,258.0 1,392.1
Premiums and fees receivable 2,066.8 1,844.8
Other current assets 594.4 633.7
----- -----
Total current assets 4,483.2 4,416.1
Fixed assets - net 375.5 377.6
Deferred income taxes (includes tax credit carryforwards of
$501.3 in 2017 and $477.9 in 2016) 806.7 796.5
Other noncurrent assets 536.2 504.3
Goodwill - net 3,896.9 3,767.8
Amortizable intangible assets - net 1,682.1 1,627.3
Total assets $11,780.6 $11,489.6
========= =========
Premiums payable to insurance and reinsurance companies $3,028.2 $2,996.1
Accrued compensation and other accrued liabilities 818.1 772.1
Unearned fees 75.3 69.0
Other current liabilities 63.7 70.9
Premium financing debt 104.4 125.6
Corporate related borrowings - current 695.0 578.0
Total current liabilities 4,784.7 4,611.7
Corporate related borrowings - noncurrent 2,144.7 2,144.6
Other noncurrent liabilities 1,123.9 1,077.5
Total liabilities 8,053.3 7,833.8
------- -------
Stockholders' equity:
Common stock - issued and outstanding 179.5 178.3
Capital in excess of par value 3,280.3 3,265.5
Retained earnings 901.8 916.4
Accumulated other comprehensive loss (699.1) (763.6)
Total controlling interests stockholders' equity 3,662.5 3,596.6
Noncontrolling interests 64.8 59.2
---- ----
Total stockholders' equity 3,727.3 3,655.8
------- -------
Total liabilities and stockholders' equity $11,780.6 $11,489.6
========= =========
See "Information Regarding Non-GAAP Measures" on page 7 of
12.
(11 of 12)
Arthur J. Gallagher & Co.
Other Information
(Unaudited - data is rounded where indicated)
1st Q Ended 1st Q Ended
OTHER INFORMATION Mar 31, 2017 Mar 31, 2016
------------ ------------
Basic weighted average shares outstanding (000s) 178,890 177,038
Diluted weighted average shares outstanding (000s) 180,591 177,615
Number of common shares outstanding at end of period (000s) 179,514 177,129
Workforce at end of period (includes acquisitions):
Brokerage 19,116 17,836
Risk Management 5,470 5,428
Total Company 25,284 23,924
Reconciliation of Non-GAAP Measures - Pre-tax Earnings and Diluted Net Earnings per Share (Unaudited)
(Unaudited - in millions except share and per share data)
Net Earnings Net Earnings
Earnings Provision (Loss) (Loss) Diluted Net
(Loss) (Benefit) Attributable to Attributable to Earnings
Before Income for Income Net Noncontrolling Controlling (Loss)
Taxes Taxes Earnings Interests Interests per Share
----- ----- -------- --------- --------- ---------
1st Q Ended Mar 31, 2017
------------------------
Brokerage, as reported $117.7 $39.6 $78.1 $5.3 $72.8 $0.40
Gains on book sales (1.4) (0.4) (1.0) - (1.0) -
Acquisition integration 2.9 0.9 2.0 - 2.0 0.01
Workforce & lease termination 3.9 1.2 2.7 - 2.7 0.02
Acquisition related
adjustments 9.0 2.8 6.2 - 6.2 0.03
--- --- ---
Brokerage, as adjusted $132.1 $44.1 $88.0 $5.3 $82.7 $0.46
====== ===== ===== ==== ===== =====
Risk Management, as reported $22.9 $8.6 $14.3 $ - $14.3 $0.08
Workforce & lease termination 0.2 0.1 0.1 - 0.1 -
--- --- --- --- ---
Risk Management, as adjusted $23.1 $8.7 $14.4 $ - $14.4 $0.08
===== ==== ===== =================== ===== =====
Corporate, as reported $(88.3) $(63.7) $(24.6) $6.8 $(31.4) $(0.17)
Litigation settlement 5.5 1.1 4.4 - 4.4 0.02
Home office lease termination
/move 4.0 1.6 2.4 - 2.4 0.01
--- --- --- --- --- ----
Corporate, as adjusted $(78.8) $(61.0) $(17.8) $6.8 $(24.6) $(0.14)
====== ====== ====== ==== ====== ======
1st Q Ended Mar 31, 2016
------------------------
Brokerage, as reported $100.0 $34.1 $65.9 $4.5 $61.4 $0.35
Gains on book sales (2.2) (0.7) (1.5) - (1.5) (0.01)
Acquisition integration 14.2 4.2 10.0 - 10.0 0.06
Workforce & lease termination 1.6 0.5 1.1 - 1.1 -
Acquisition related
adjustments 0.5 0.2 0.3 - 0.3 -
Levelized foreign currency
translation (0.9) (0.3) (0.6) - (0.6) -
---- ---- ---- --- ----
Brokerage, as adjusted $113.2 $38.0 $75.2 $4.5 $70.7 $0.40
====== ===== ===== ==== ===== =====
Risk Management, as reported $24.0 $9.0 $15.0 $ - $15.0 $0.08
Workforce & lease termination 0.5 0.2 0.3 - 0.3 0.01
Client run-off - - - - - -
Acquisition related
adjustments - - - - - -
Levelized foreign currency
translation 0.5 0.2 0.3 - 0.3 -
--- --- --- --- ---
Risk Management, as adjusted $25.0 $9.4 $15.6 $ - $15.6 $0.09
===== ==== ===== =================== ===== =====
Corporate, as reported $(68.3) $(45.3) $(23.0) $6.9 $(29.9) $(0.17)
Litigation settlement 4.7 1.0 3.7 - 3.7 0.02
--- --- --- --- ---
Corporate, as adjusted $(63.6) $(44.3) $(19.3) $6.9 $(26.2) $(0.15)
====== ====== ====== ==== ====== ======
See "Information Regarding Non-GAAP Measures" on page 7 of 12.
Contact:
Ray Iardella
Vice President - Investor Relations
630-285-3661 or ray_iardella@ajg.com
(12 of 12)
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/arthur-j-gallagher--co-announces-first-quarter-2017-financial-results-300447601.html
SOURCE Arthur J. Gallagher & Co.
