Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
• | An economic downturn or unstable economic conditions whatever the cause, including pandemics like the coronavirus, Brexit, tariffs, trade wars or climate change and other long-term environmental risks; |
• | Volatility or declines in premiums or other adverse trends in the insurance industry; |
• | Competitive pressures, including as a result of innovation, in each of our businesses; |
• | Risks that could negatively affect the success of our acquisition strategy, including continuing consolidation in our industry and growing interest in acquiring insurance brokers on the part of private equity firms and newly public insurance brokers, which could make it more difficult to identify targets and could make them more expensive, the risk that we may not receive timely regulatory approval of desired transactions, execution risks, integration risks, the risk of post-acquisition deterioration leading to intangible asset impairment charges, and the risk we could incur or assume unanticipated liabilities such as cybersecurity issues or those relating to violations of anti-corruption and sanctions laws; |
• | Failure to successfully and cost-effectively integrate recently acquired businesses and their operations or fully realize synergies from such acquisitions in the expected time frame; |
• | Cyber attacks or other cybersecurity incidents; improper disclosure of confidential, personal or proprietary data; and changes to laws and regulations governing cybersecurity and data privacy; |
• | Risks arising from changes in U.S. or foreign tax laws, including our ability to effectively account for the U.S. Tax Cuts and Jobs Act (which we refer to as the Tax Act) and related regulations; |
• | Uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; |
• | Our failure to attract and retain experienced and qualified talent, including our senior management team; |
• | Risks arising from our substantial international operations, including the risks posed by political and economic uncertainty in certain countries (such as the risks posed by Brexit), risks related to maintaining regulatory and legal compliance across multiple jurisdictions (such as those relating to violations of anti-corruption, sanctions and privacy laws), and risks arising from the complexity of managing businesses across different time zones, languages, geographies, cultures and legal regimes that conflict with one another at times; |
• | Risks particular to our risk management segment, including any slowing of the trend toward outsourcing claims administration, and of the concentration of large amounts of revenue with certain clients; |
• | The higher level of variability inherent in contingent and supplemental revenues versus standard commission revenues, particularly in light of the changed revenue recognition accounting standard; |
• | Sustained increases in the cost of employee benefits; |
• | Our failure to apply technology effectively in driving value for our clients through technology-based solutions, or failure to gain internal efficiencies and effective internal controls through the application of technology and related tools; |
• | A disaster or other significant disruption to business continuity; |
• | Damage to our reputation; |
• | Our failure to comply with regulatory requirements, including those related to governance and control requirements in particular jurisdictions, international sanctions, or a change in regulations or enforcement policies that adversely affects our operations (for example, relating to insurance broker compensation methods or the failure of state and local governments to follow through on agreed-upon income tax credits or other tax related incentives, relating to our corporate headquarters); |
• | Violations or alleged violations of the U.S. Foreign Corrupt Practices Act (which we refer to as FCPA), the U.K. Bribery Act 2010 or other anti-corruption laws and the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (which we refer to as FATCA); |
• | The outcome of any existing or future investigation, review, regulatory action or litigation; |
• | Unfavorable determinations related to contingencies and legal proceedings; |
• | Significant changes in foreign exchange rates; |
• | Changes to our financial presentation from new accounting estimates and assumptions (including as a result of the changed lease and revenue recognition standards or the Tax Act); |
• | Changes in healthcare-related laws and regulations with the potential to negatively impact our employee benefits consulting business, including “Medicare-for-all” and other proposed laws expanding the role of public programs in healthcare; |
• | Risks related to our clean energy investments, including intellectual property claims, utilities switching from coal to natural gas or renewable energy sources, environmental and product liability claims, environmental compliance costs and the risk of disallowance by the Internal Revenue Service (IRS) of previously claimed tax credits; |
• | The risk that our outstanding debt adversely affects our financial flexibility and restrictions and limitations in the agreements and instruments governing our debt; |
• | The risk we may not be able to receive dividends or other distributions from subsidiaries; |
• | The risk of share ownership dilution when we issue common stock as consideration for acquisitions and for other reasons; and |
• | Volatility of the price of our common stock. |
Page No. |
||||||
Part I . |
||||||
Item 1. |
Business |
4-9 |
||||
Item 1A. |
Risk Factors |
10-22 |
||||
Item 1B. |
Unresolved Staff Comments |
22 |
||||
Item 2. |
Properties |
23 |
||||
Item 3. |
Legal Proceedings |
23 |
||||
Item 4. |
Mine Safety Disclosures |
23 |
||||
Information About Our Executive Officers |
23 |
|||||
Part II. |
||||||
Item 5. |
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
23-24 |
||||
Item 6. |
Selected Financial Data |
25 |
||||
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26-56 |
||||
Item 7A. |
Quantitative and Qualitative Disclosure about Market Risk |
56-57 |
||||
Item 8. |
Financial Statements and Supplementary Data |
58-112 |
||||
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
113 |
||||
Item 9A. |
Controls and Procedures |
113 |
||||
Item 9B. |
Other Information |
113 |
||||
Part III. |
||||||
Item 10. |
Directors, Executive Officers and Corporate Governance |
113 |
||||
Item 11. |
Executive Compensation |
113 |
||||
Item 12. |
Security Ownership of Certain Beneficial Owners and Management |
113 |
||||
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
113 |
||||
Item 14. |
Principal Accountant Fees and Services |
114 |
||||
Part IV. |
||||||
Item 15. |
Exhibits and Financial Statement Schedules |
114-116 |
||||
Item 16. |
Form 10-K Summary |
116 |
||||
Signatures |
117 |
|||||
Schedule II - Valuation and Qualifying Accounts |
118 |
(i) | Identifying, negotiating and placing all forms of insurance or reinsurance coverages, as well as providing risk-shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health, welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated agents and brokers, consultants and management advisors. |
(ii) | Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing, selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf. |
(iii) | Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits, compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance exchange, human resource technology, communications and benefit administration. |
(iv) | Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges, small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies, actuarial studies, data analytics and other administrative services. |
Aviation |
Disability |
General Liability |
Products Liability | |||
Casualty |
Earthquake |
Health & Welfare |
Professional Liability | |||
Claims Advocacy |
Errors & Omissions |
Healthcare Analytics |
Property | |||
Commercial Auto |
Exchange Solutions |
Human Resources |
Retirement | |||
Compensation |
Executive Benefits |
Institutional Investment |
Surety Bond | |||
Cyber Liability |
Fiduciary Services |
Loss Control |
Voluntary Benefits | |||
Dental |
Fine Arts |
Marine |
Wind | |||
Directors & Officers Liability |
Fire |
Medical |
Workers’ Compensation |
Affinity |
Equity Advisors |
Law Firms |
Real Estate/Hospitality | |||
Automotive |
Financial Institutions |
Life Sciences |
Religious | |||
Aviation |
Food/Agribusiness |
Marine |
Restaurant | |||
Construction |
Global Risks |
Not-for-Profit |
Technology | |||
Energy |
Healthcare |
Personal |
Trade Credit/Political Risk | |||
Entertainment |
Higher Education |
Private Client |
Transportation | |||
Environmental |
K12 Education |
Public Entity |
• | Mergers and acquisitions; |
• | Our niche/practice groups and middle-market accounts; |
• | Cross-selling other brokerage products to existing clients; and |
• | Developing and managing alternative market mechanisms such as captives, rent-a-captives and deductible plans/self-insurance. |
• | Program business and the outsourcing of portions of underwriting enterprise claims departments; |
• | Increased levels of business with Fortune 1000 companies; |
• | Larger middle-market companies and captives; and |
• | Mergers and acquisitions. |
• | A corporate culture that matches our sales-oriented and ethics-based culture; |
• | A profitable, growing business whose ability to compete would be enhanced by gaining access to our greater resources; and |
• | Clearly defined financial criteria. |
• | Increased capital-raising by underwriting enterprises, which could result in new risk-taking capital in the industry, which in turn may lead to lower insurance premiums and commissions; |
• | Underwriting enterprises selling insurance directly to insureds without the involvement of a broker or other intermediary; |
• | Changes in our business compensation model as a result of regulatory developments; |
• | Federal and state governments establishing programs to provide health insurance or, in certain cases, property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with, or completely replace, insurance products currently offered by underwriting enterprises; |
• | Continued consolidation in the financial services industry, leading to larger financial services institutions offering a wider variety of services including insurance brokerage and risk management services; and |
• | Increased competition from new market participants such as banks, accounting firms, consulting firms and Internet or other technology firms offering risk management or insurance brokerage services, or new distribution channels for insurance such as payroll firms and professional employer organizations. |
• | Maintaining awareness of and complying with a wide variety of labor practices and foreign laws, including those relating to export and import duties, environmental policies and privacy issues, as well as laws and regulations applicable to U.S. business operations abroad. These and other international regulatory risks are described below under “Regulatory, Legal and Accounting Risks;” |
• | The potential costs, difficulties and risks associated with local regulations across the globe, including the risk of personal liability for directors and officers and “piercing the corporate veil” risks under the corporate law regimes of certain countries; |
• | Difficulties in staffing and managing foreign operations. For example, we are building our Latin American operations (which contributed $37.4 million in revenue from 18 locations in 2019) through acquisitions of local family-owned insurance brokerage firms. If we lose a local leader, recruiting a replacement locally or finding an internal candidate qualified to transfer to such location could be difficult; |
• | Less flexible employee relationships, which in certain circumstances has limited our ability to prohibit employees from competing with us after they are no longer employed with us or recovering damages, and made it more difficult and expensive to terminate their employment; |
• | Some of our foreign subsidiaries receive revenues or incur obligations in currencies that differ from their functional currencies. We must also translate the financial results of our foreign subsidiaries into U.S. dollars. Although we have used foreign currency hedging strategies in the past and currently have some in place, such risks cannot be eliminated entirely, and significant changes in exchange rates may adversely affect our results of operations; |
• | Conflicting regulations in the countries in which we do business; |
• | Political and economic instability (including risks relating to undeveloped or evolving legal systems, unstable governments, acts of terrorism and outbreaks of war); |
• | Coordinating our communications and logistics across geographic distances, multiple time zones and in different languages, including during times of crisis management; |
• | Adverse trade policies, and adverse changes to any of the policies of the U.S. or any of the foreign jurisdictions in which we operate; |
• | The transition away from LIBOR to the Secured Overnight Financing Rate as a benchmark reference for short-term interest rates; |
• | Unfavorable audits and exposure to additional liabilities relating to various non-income taxes (such as payroll, sales, use, value-added, net worth, property and goods and services taxes) in foreign jurisdictions. In addition, our future effective tax rates could be unfavorably affected by changes in tax rates, discriminatory or confiscatory taxation, changes in the valuation of our deferred tax assets or liabilities, changes in tax laws or their interpretation and the financial results of our international subsidiaries. The Organization for Economic Cooperation and Development issued reports and recommendations as part of its Base Erosion and Profit Shifting project (which we refer to as BEPS), and in response many countries in which we do business are expected to adopt rules which may change various aspects of the existing framework under which our tax obligations are determined. For example, in response to BEPS, the U.K., Australia and New Zealand adopted rules that affect the deductibility of interest paid on intercompany debt, and other jurisdictions where we operate may do so as well in the near future; |
• | Legal or political constraints on our ability to maintain or increase prices; |
• | Cash balances held in foreign banks and institutions where governments have not specifically enacted formal guarantee programs; |
• | Pandemics such as coronavirus; |
• | Lost business or other financial harm due to governmental actions affecting the flow of goods, services and currency, including protectionist policies that discriminate in favor of local competitors; and |
• | Governmental restrictions on the transfer of funds to us from our operations outside the U.S. |
• | The favorable trend among both underwriting enterprises and self-insured entities toward outsourcing various types of claims administration and risk management services will reverse or slow, causing our revenues or revenue growth to decline; |
• | Concentration of large amounts of revenue with certain clients results in greater exposure to the potential negative effects of lost business due to changes in management at such clients or changes in state government policies, in the case of our government-entity clients, or for other reasons; |
• | Contracting terms will become less favorable or the margins on our services will decrease due to increased competition, regulatory constraints or other developments; |
• | We will not be able to satisfy regulatory requirements related to third party administrators or regulatory developments (including those relating to security and data privacy) will impose additional burdens, costs or business restrictions that make our business less profitable; |
• | Volatility in our case volumes, which are dependent upon a number of factors and difficult to forecast accurately, could impact our revenues; |
• | Economic weakness or a slow-down in economic activity could lead to a reduction in the number of claims we process; |
• | If we do not control our labor and technology costs, we may be unable to remain competitive in the marketplace and profitably fulfill our existing contracts (other than those that provide cost-plus or other margin protection); |
• | We may be unable to develop further efficiencies in our claims-handling business and may be unable to obtain or retain certain clients if we fail to make adequate improvements in technology or operations; and |
• | Underwriting enterprises or certain large self-insured entities may create in-house servicing capabilities that compete with our third party administration and other administration, servicing and risk management products. |
• | Environmental, political and regulatory concerns. Chem-Mod ™ Solution. Within the past year there has been some negative publicity around our IRC Section 45 investments and clean coal generally, and certain members of Congress have raised questions about the methodologies clean coal refiners use to validate emission reductions under IRC Section 45. Negative publicity of this kind could exacerbate the risk referred to above or call into question the validity of existing tax credits. Additionally, several states have enacted mandates that electric power generating companies purchase a minimum amount of power from renewable energy sources such as wind, hydroelectric, solar, nuclear and geothermal. There have also been proposals to establish a similar national standard, although none have been enacted to date. If utilities burned less coal as a result of any such regulation, our ability to generate additional tax credits would be reduced. |
• | Demand for commercial refined coal plants. |
• | Market demand for coal. |
• | Intellectual property and litigation risks. Chem-Mod ™ Solution to the same extent as U.S. laws, leaving us vulnerable to companies outside the U.S. who may attempt to copy such intellectual property. In addition, other companies may make claims of intellectual property infringement with respect to The Chem-Mod ™ Solution. Such intellectual property claims, with or without merit, could require that Chem-Mod (or us and our investment and operational partners) obtain a license to use the intellectual property, which might not be obtainable on favorable terms, if at all. On July 17, 2019, Midwest Energy Emissions Corp. and MES Inc. (together, Midwest Energy) filed a patent infringement lawsuit in the United States District Court for the District of Delaware against us, Chem-Mod LLC and numerous other related and unrelated parties (some of whom are seeking indemnification from Chem-Mod LLC). The complaint alleges that the named defendants infringe two patents held exclusively by Midwest Energy and seeks unspecified damages and injunctive relief. We dispute the allegations contained in the complaint and intend to defend this matter vigorously. Litigation is inherently uncertain and, accordingly it is not possible for us to predict the ultimate outcome of these matters. While we believe the probability of a material loss is remote, if plaintiffs prevail on the infringement suit, or defendants cannot obtain necessary licenses on reasonable terms, that may limit the use of The Chem-Mod ™ Solution by certain licensees. |
• | IRS audits. co-investors from claiming tax credits. The partnership defended its position in tax court and prevailed in August 2019. The IRS is appealing this ruling. Litigation is inherently uncertain and accordingly it is not possible for us to predict the ultimate outcome of this proceeding or other IRS audits, and their potential impact on us. |
• | Operational risks. Chem-Mod’s multi-pollutant reduction technologies (The Chem-Mod TM Solution) require chemicals that may not be readily available in the marketplace at reasonable costs. Utilities that use the technologies could be idled for various reasons, including operational or environmental problems at the plants or in the boilers, disruptions in the supply or transportation of coal, revocation of their Chem-Mod technologies environmental permits, labor strikes, force majeure events such as hurricanes, or terrorist attacks, any of which could halt or impede the operations. Long-term operations using Chem-Mod’s multi-pollutant reduction technologies could also lead to unforeseen technical or other problems not evident in the short- or medium-term. A serious injury or death of a worker connected with the production of refined coal using Chem-Mod’s technologies could expose the operations to material liabilities, jeopardizing our |
investment, and could lead to reputational harm. We could also be exposed to risk due to our lack of control over the operations if future developments, for example a regulatory change affecting public and private companies differently, causes our interests and those of our co-investors to diverge. Finally, our vendors responsible for operation and management could fail to run the operations in compliance with IRC Section 45. If any of these developments occur, our investment returns may be negatively impacted. |
• | Incompatible coal. |
• | Strategic alternatives risk. |
• | General economic and political conditions such as recessions, economic downturns and acts of war or terrorism; |
• | Quarterly variations in our operating results; |
• | Seasonality of our business cycle; |
• | Changes in the market’s expectations about our operating results; |
• | Our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
• | Changes in financial estimates and recommendations by securities analysts concerning us or the insurance brokerage or financial services industries in general; |
• | Operating and stock price performance of other companies that investors deem comparable to us; |
• | News reports relating to trends in our markets, including any expectations regarding an upcoming “hard” or “soft” market; |
• | Cyber attacks and other cybersecurity incidents; |
• | Changes in laws and regulations affecting our business; |
• | Material announcements by us or our competitors; |
• | The impact or perceived impact of developments relating to our investments, including the possible perception by securities analysts or investors that such investments divert management attention from our core operations; |
• | Market volatility; |
• | A negative market reaction to announced acquisitions; |
• | Competitive pressures in any of our segments; |
• | General conditions in the insurance brokerage and insurance industries; |
• | Legal proceedings or regulatory investigations; |
• | Regulatory requirements, including international sanctions and the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 or other anti-corruption laws; |
• | Quarter-to-quarter volatility in the earnings impact of IRC Section 45 tax credits from our clean energy investments, due to the application of accounting standards applicable to the recognition of tax credits; and |
• | Sales of substantial amounts of common shares by our directors, executive officers or significant stockholders or the perception that such sales could occur. |
Name |
Age |
Position and Year First Elected | ||||
J. Patrick Gallagher, Jr. |
67 |
Chairman since 2006, President since 1990, Chief Executive Officer since 1995 | ||||
Walter D. Bay |
57 |
Corporate Vice President, General Counsel, Secretary since 2007 | ||||
Richard C. Cary |
57 |
Controller since 1997, Chief Accounting Officer since 2001 | ||||
Joel D. Cavaness |
58 |
Corporate Vice President since 2000, President of our Wholesale Brokerage Operation since 1997 | ||||
Thomas J. Gallagher |
61 |
Corporate Vice President since 2001, Chairman of our International Brokerage Operation 2010 - 2016, President of our Global Property/Casualty Brokerage Operation beginning in 2017 | ||||
Douglas K. Howell |
58 |
Corporate Vice President, Chief Financial Officer since 2003 | ||||
Scott R. Hudson |
58 |
Corporate Vice President and President of our Risk Management Operation since 2010 | ||||
Christopher E. Mead |
52 |
Corporate Vice President, Chief Marketing Officer since 2017; Managing Director – Marketing Division, CME Group, 2005 - 2017 | ||||
Susan E. Pietrucha |
53 |
Corporate Vice President, Chief Human Resource Officer since 2007 | ||||
William F. Ziebell |
57 |
Corporate Vice President since 2011, regional leader in our Employee Benefit and Consulting Brokerage Operations 2004 - 2016, President beginning in 2017 |
Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share (2) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (3) |
||||||||||||
October 1 through October 31, 2019 |
6,928 |
$ | 88.12 |
— |
7,287,019 |
|||||||||||
November 1 through November 30, 2019 |
1,172 |
91.57 |
— |
7,287,019 |
||||||||||||
December 1 through December 31, 2019 |
16,329 |
95.73 |
— |
7,287,019 |
||||||||||||
Total |
24,429 |
$ | 93.37 |
— |
||||||||||||
(1) | Amounts in this column include shares of our common stock purchased by the trustees of trusts established under our Deferred Equity Participation Plan (which we refer to as the DEPP), our Deferred Cash Participation Plan (which we refer to as the DCPP) and our Supplemental Savings and Thrift Plan (which we refer to as the Supplemental Plan), respectively. These plans are considered to be unfunded for purposes of federal tax law since the assets of these trusts are available to our creditors in the event of our financial insolvency. The DEPP is an unfunded, non-qualified deferred compensation plan that generally provides for distributions to certain of our key executives when they reach age 62 or upon or after their actual retirement. Under sub-plans of the DEPP for certain production staff, the plan generally provides for vesting and/or distributions no sooner than five years from the date of awards, although certain awards vest and/or distribute after the earlier of fifteen years or the participant reaching age 65. See Note 11 to our 2019 consolidated financial statements in this report for more information regarding the DEPP. The DCPP is an unfunded, non-qualified deferred compensation plan for certain key employees, other than executive officers, that generally provides for vesting and/or distributions no sooner than five years from the date of awards. Under the terms of the DEPP and the DCPP, we may contribute cash to the trust and instruct the trustee to acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions. In the fourth quarter of 2019, we instructed the trustee for the DEPP and the DCPP to reinvest dividends on shares of our common stock held by these trusts and to purchase our common stock using cash that we contributed to the DCPP related to 2019 awards under the DCPP. The Supplemental Plan is an unfunded, non-qualified deferred compensation plan that allows certain highly compensated employees to defer compensation, including company match amounts, on a before-tax basis or after-tax basis. Under the terms of the Supplemental Plan, all amounts credited to an employee’s account may be deemed invested, at the employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock. When an employee elects to have some or all of the amounts credited to the employee’s account under the Supplemental Plan deemed to be invested in the fund representing our common stock, the trustee of the trust for the Supplemental Plan purchases shares of our common stock in a number sufficient to ensure that the trust holds a number of shares of our common stock with a value equal to all equivalent to the amounts deemed invested in the fund representing our common stock. We want to ensure that at the time when an employee becomes entitled to a distribution under the terms of the Supplemental Plan, any amounts deemed to be invested in the fund representing our common stock are distributed in the form of shares of our common stock held by the trust. We established the trusts for the DEPP, the DCPP and the Supplemental Plan to assist us in discharging our deferred compensation obligations under these plans. All assets of these trusts, including any shares of our common stock purchased by the trustees, remain, at all times, assets of the Company, subject to the claims of our creditors in the event of our financial insolvency. The terms of the DEPP, the DCPP and the Supplemental Plan do not provide for a specified limit on the number of shares of common stock that may be purchased by the respective trustees of the trusts. |
(2) | The average price paid per share is calculated on a settlement basis and does not include commissions. |
(3) | We have a common stock repurchase plan that the board of directors adopted on May 10, 1988 and has periodically amended since that date to authorize additional shares for repurchase (the last amendment was on January 24, 2008 and approved the repurchase of 10,000,000 shares). The repurchase plan has no expiration date and we are under no commitment or obligation to repurchase any particular amount of our common stock under the plan. At our discretion, we may suspend the repurchase plan at any time. |
Year Ended December 31, |
||||||||||||||||||||
2019 |
2018 |
2017 |
2016 |
2015* |
||||||||||||||||
(In millions, except per share and employee data) |
||||||||||||||||||||
Consolidated Statement of Earnings Data: |
||||||||||||||||||||
Commissions |
$ | 3,320.6 |
$ | 2,920.7 |
$ | 2,641.0 |
$ | 2,409.9 |
$ | 2,338.7 |
||||||||||
Fees |
1,911.1 |
1,756.3 |
1,591.9 |
1,491.7 |
1,432.3 |
|||||||||||||||
Supplemental revenues |
210.5 |
189.9 |
158.0 |
139.9 |
125.5 |
|||||||||||||||
Contingent revenues |
135.6 |
98.0 |
99.5 |
97.9 |
93.7 |
|||||||||||||||
Investment income and other |
1,478.6 |
1,827.5 |
1,622.6 |
1,409.0 |
1,402.2 |
|||||||||||||||
Revenue before reimbursements |
7,056.4 |
6,792.4 |
6,113.0 |
5,548.4 |
5,392.4 |
|||||||||||||||
Reimbursements |
138.6 |
141.6 |
136.0 |
132.1 |
— |
|||||||||||||||
Total revenues |
7,195.0 |
6,934.0 |
6,249.0 |
5,680.5 |
5,392.4 |
|||||||||||||||
Total expenses |
6,568.9 |
6,454.6 |
5,889.2 |
5,346.9 |
5,098.9 |
|||||||||||||||
Earnings before income taxes |
626.1 |
479.4 |
359.8 |
333.6 |
293.5 |
|||||||||||||||
Benefit for income taxes |
(89.7 |
) | (196.5 |
) | (157.1 |
) | (96.7 |
) | (95.6 |
) | ||||||||||
Net earnings |
715.8 |
675.9 |
516.9 |
430.3 |
389.1 |
|||||||||||||||
Net earnings attributable to noncontrolling interests |
47.0 |
42.4 |
35.6 |
33.5 |
32.3 |
|||||||||||||||
Net earnings attributable to controlling interests |
$ | 668.8 |
$ | 633.5 |
$ | 481.3 |
$ | 396.8 |
$ | 356.8 |
||||||||||
Per Share Data: |
||||||||||||||||||||
Diluted net earnings per share (1) |
3.52 |
3.40 |
2.64 |
2.22 |
2.06 |
|||||||||||||||
Dividends declared per common share (2) |
1.72 |
1.64 |
1.56 |
1.52 |
1.48 |
|||||||||||||||
Share Data: |
||||||||||||||||||||
Shares outstanding at year end |
188.1 |
184.0 |
181.0 |
178.3 |
176.9 |
|||||||||||||||
Weighted average number of common shares outstanding |
186.0 |
182.7 |
180.1 |
177.6 |
172.2 |
|||||||||||||||
Weighted average number of common and common equivalent shares outstanding |
190.1 |
186.2 |
182.1 |
178.4 |
173.2 |
|||||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||||||||||
Total assets |
$ | 19,634.8 |
$ | 16,334.0 |
$ | 14,909.7 |
$ | 13,528.2 |
$ | 10,910.5 |
||||||||||
Long-term debt less current portion |
3,823.0 |
3,098.0 |
2,698.0 |
2,150.0 |
2,075.0 |
|||||||||||||||
Total stockholders’ equity |
5,215.5 |
4,569.7 |
4,299.7 |
3,775.5 |
3,688.2 |
|||||||||||||||
Return on beginning stockholders’ equity (3) |
15 |
% | 15 |
% | 13 |
% | 11 |
% | 11 |
% | ||||||||||
Employee Data: |
||||||||||||||||||||
Number of employees - at year end |
33,247 |
30,362 |
26,783 |
24,790 |
23,857 |
(1) | Based on the weighted average number of common and common equivalent shares outstanding during the year. |
(2) | Based on the total dividends declared on a share of common stock outstanding during the entire year. |
(3) | Represents net earnings divided by total stockholders’ equity, as of the beginning of the year. |
* | As of January 1, 2018, we adopted ASC 606, Revenues from Contracts with Customers related to Topic 606 using the full retrospective method to restate 2017 and 2016. The cumulative effect of the adoption was recognized as an increase to retained earnings of $125.3 million on January 1, 2016. As permitted under the guidelines issued by the SEC related to the adoption of Topic 606, we did not restate the 2015 information in the table above. |
Year 2019 |
Year 2018 |
Change |
||||||||||||||||||||||
Reported |
Adjusted |
Reported |
Adjusted |
Reported |
Adjusted |
|||||||||||||||||||
GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
|||||||||||||||||||
(In millions, except per share data) |
||||||||||||||||||||||||
Brokerage Segment |
||||||||||||||||||||||||
Revenues |
$ | 4,901.5 |
$ | 4,826.2 |
$ | 4,246.9 |
$ | 4,185.9 |
15 |
% | 15 |
% | ||||||||||||
Organic revenues |
$ | 4,326.2 |
$ | 4,088.3 |
5.8 |
% | ||||||||||||||||||
Net earnings |
$ | 717.3 |
$ | 573.2 |
25 |
% | ||||||||||||||||||
Net earnings margin |
14.6 |
% | 13.5 |
% | +113 bpts |
|||||||||||||||||||
Adjusted EBITDAC |
$ | 1,378.8 |
$ | 1,164.5 |
18 |
% | ||||||||||||||||||
Adjusted EBITDAC margin |
28.6 |
% | 27.8 |
% | +75 bpts |
|||||||||||||||||||
Diluted net earnings per share |
$ | 3.68 |
$ | 3.73 |
$ | 3.02 |
$ | 3.23 |
22 |
% | 15 |
% | ||||||||||||
Risk Management Segment |
||||||||||||||||||||||||
Revenues before reimbursements |
$ | 838.5 |
$ | 838.5 |
$ | 798.3 |
$ | 789.2 |
5 |
% | 6 |
% | ||||||||||||
Organic revenues |
$ | 823.3 |
$ | 788.7 |
4.4 |
% | ||||||||||||||||||
Net earnings |
$ | 66.2 |
$ | 70.4 |
-6 |
% | ||||||||||||||||||
Net earnings margin (before reimbursements) |
7.9 |
% | 8.8 |
% | -92 bpts |
|||||||||||||||||||
Adjusted EBITDAC |
$ | 145.8 |
$ | 136.4 |
7 |
% | ||||||||||||||||||
Adjusted EBITDAC margin (before reimbursements) |
17.4 |
% | 17.3 |
% | +11 bpts |
|||||||||||||||||||
Diluted net earnings per share |
$ | 0.35 |
$ | 0.37 |
$ | 0.38 |
$ | 0.36 |
-8 |
% | 3 |
% | ||||||||||||
Corporate Segment |
||||||||||||||||||||||||
Diluted net loss per share |
$ | (0.51 |
) | $ | (0.45 |
) | $ | — |
$ | (0.16 |
) | |||||||||||||
Total Company |
||||||||||||||||||||||||
Diluted net earnings per share |
$ | 3.52 |
$ | 3.65 |
$ | 3.40 |
$ | 3.43 |
4 |
% | 6 |
% | ||||||||||||
Total Brokerage and Risk Management Segment |
||||||||||||||||||||||||
Diluted net earnings per share |
$ | 4.03 |
$ | 4.10 |
$ | 3.40 |
$ | 3.59 |
19 |
% | 14 |
% |
Year Ended December 31 Reported GAAP to Adjusted Non-GAAP Reconciliation: |
||||||||||||||||||||||||||||||||||||
Revenues Before Reimbursements |
Net Earnings (Loss) |
EBITDAC |
Diluted Net Earnings (Loss) Per Share |
|||||||||||||||||||||||||||||||||
Segment |
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
Chg |
|||||||||||||||||||||||||||
(In millions, except per share data) |
||||||||||||||||||||||||||||||||||||
Brokerage, as reported |
$ | 4,901.5 |
$ | 4,246.9 |
$ | 717.3 |
$ | 573.2 |
$ | 1,359.1 |
$ | 1,126.3 |
$ | 3.68 |
$ | 3.02 |
22 |
% | ||||||||||||||||||
Net gains on divestitures |
(75.3 |
) | (10.2 |
) | (47.5 |
) | (7.9 |
) | (62.3 |
) | (10.2 |
) | (0.25 |
) | (0.04 |
) | ||||||||||||||||||||
Acquisition integration |
— |
— |
16.1 |
2.6 |
20.4 |
3.4 |
0.08 |
0.01 |
||||||||||||||||||||||||||||
Workforce and lease termination |
— |
— |
35.1 |
29.1 |
44.8 |
38.7 |
0.19 |
0.16 |
||||||||||||||||||||||||||||
Acquisition related adjustments |
— |
— |
5.8 |
16.3 |
16.8 |
14.2 |
0.03 |
0.09 |
||||||||||||||||||||||||||||
Levelized foreign currency translation |
— |
(50.8 |
) | — |
(2.0 |
) | — |
(7.9 |
) | — |
(0.01 |
) | ||||||||||||||||||||||||
Brokerage, as adjusted * |
4,826.2 |
4,185.9 |
726.8 |
611.3 |
1,378.8 |
1,164.5 |
3.73 |
3.23 |
15 |
% | ||||||||||||||||||||||||||
Risk Management, as reported |
838.5 |
798.3 |
66.2 |
70.4 |
137.9 |
134.0 |
0.35 |
0.38 |
-8 |
% | ||||||||||||||||||||||||||
Workforce and lease termination |
— |
— |
5.2 |
3.5 |
7.9 |
4.7 |
0.03 |
0.01 |
||||||||||||||||||||||||||||
Acquisition related adjustments |
— |
— |
(1.0 |
) | (4.3 |
) | — |
— |
(0.01 |
) | (0.02 |
) | ||||||||||||||||||||||||
Levelized foreign currency translation |
— |
(9.1 |
) | — |
(1.4 |
) | — |
(2.3 |
) | — |
(0.01 |
) | ||||||||||||||||||||||||
Risk Management, as adjusted * |
838.5 |
789.2 |
70.4 |
68.2 |
145.8 |
136.4 |
0.37 |
0.36 |
3 |
% | ||||||||||||||||||||||||||
Corporate, as reported |
1,316.4 |
1,747.2 |
(67.7 |
) | 32.3 |
(201.4 |
) | (213.9 |
) | (0.51 |
) | — |
||||||||||||||||||||||||
Workforce |
— |
— |
2.3 |
— |
3.0 |
— |
0.01 |
— |
||||||||||||||||||||||||||||
Clean energy related |
3.0 |
— |
11.7 |
— |
14.9 |
— |
0.05 |
— |
||||||||||||||||||||||||||||
Corporate legal entity restructuring |
— |
— |
— |
(22.0 |
) | — |
— |
— |
(0.12 |
) | ||||||||||||||||||||||||||
Impact of U.S. tax reform |
— |
— |
— |
(8.9 |
) | — |
— |
— |
(0.04 |
) | ||||||||||||||||||||||||||
Corporate, as adjusted * |
1,319.4 |
1,747.2 |
(53.7 |
) | 1.4 |
(183.5 |
) | (213.9 |
) | (0.45 |
) | (0.16 |
) | |||||||||||||||||||||||
Total Company, as reported |
$ | 7,056.4 |
$ | 6,792.4 |
$ | 715.8 |
$ | 675.9 |
$ | 1,295.6 |
$ | 1,046.4 |
$ | 3.52 |
$ | 3.40 |
4 |
% | ||||||||||||||||||
Total Company, as adjusted * |
$ | 6,984.1 |
$ | 6,722.3 |
$ | 743.4 |
$ | 680.9 |
$ | 1,341.1 |
$ | 1,087.0 |
$ | 3.65 |
$ | 3.43 |
6 |
% | ||||||||||||||||||
Total Brokerage and Risk |
||||||||||||||||||||||||||||||||||||
Management, as reported |
$ | 5,740.0 |
$ | 5,045.2 |
$ | 783.5 |
$ | 643.6 |
$ | 1,497.0 |
$ | 1,260.3 |
$ | 4.03 |
$ | 3.40 |
19 |
% | ||||||||||||||||||
Total Brokerage and Risk |
||||||||||||||||||||||||||||||||||||
Management, as adjusted * |
$ | 5,664.7 |
$ | 4,975.1 |
$ | 797.1 |
$ | 679.5 |
$ | 1,524.6 |
$ | 1,300.9 |
$ | 4.10 |
$ | 3.59 |
14 |
% | ||||||||||||||||||
* | For 2019, the pretax impact of the brokerage segment adjustments totals $10.4 million, with a corresponding adjustment to the provision for income taxes of $0.9 million relating to these items. The pretax impact of the risk management segment adjustments totals $5.5 million, with a corresponding adjustment to the provision for income taxes of $1.3 million relating to these items. The pretax impact of the corporate segment adjustments totals $17.9 million, with an adjustment to the benefit for income taxes of $3.9 million. For the Corporate segment, the clean energy related adjustments are described on pages 47 to 48. |
Earnings (Loss) Before Income Taxes |
Provision (Benefit) for Income Taxes |
Net Earnings (Loss) |
Net Earnings (Loss) Attributable to Noncontrolling Interests |
Net Earnings (Loss) Attributable to Controlling Interests |
Diluted Net Earnings (Loss) per Share |
|||||||||||||||||||
Year Ended Dec 31, 2019 |
||||||||||||||||||||||||
Brokerage, as reported |
$ |
946.5 |
$ |
229.2 |
$ |
717.3 |
$ |
17.2 |
$ |
700.1 |
$ |
3.68 |
||||||||||||
Net gains on divestitures |
(62.3 |
) | (14.8 |
) | (47.5 |
) | — |
(47.5 |
) | (0.25 |
) | |||||||||||||
Acquisition integration |
20.4 |
4.3 |
16.1 |
— |
16.1 |
0.08 |
||||||||||||||||||
Workforce and lease termination |
44.8 |
9.7 |
35.1 |
— |
35.1 |
0.19 |
||||||||||||||||||
Acquisition related adjustments |
7.5 |
1.7 |
5.8 |
— |
5.8 |
0.03 |
||||||||||||||||||
Brokerage, as adjusted |
$ | 956.9 |
$ | 230.1 |
$ | 726.8 |
$ | 17.2 |
$ | 709.6 |
$ | 3.73 |
||||||||||||
Risk Management, as reported |
$ |
88.4 |
$ |
22.2 |
$ |
66.2 |
$ |
— |
$ |
66.2 |
$ |
0.35 |
||||||||||||
Workforce and lease termination |
7.9 |
2.7 |
5.2 |
— |
5.2 |
0.03 |
||||||||||||||||||
Acquisition related adjustments |
(2.4 |
) | (1.4 |
) | (1.0 |
) | — |
(1.0 |
) | (0.01 |
) | |||||||||||||
Risk Management, as adjusted |
$ | 93.9 |
$ | 23.5 |
$ | 70.4 |
$ | — |
$ | 70.4 |
$ | 0.37 |
||||||||||||
Corporate, as reported |
$ |
(408.8 |
) |
$ |
(341.1 |
) |
$ |
(67.7 |
) |
$ |
29.8 |
$ |
(97.5 |
) |
$ |
(0.51 |
) | |||||||
Workforce |
3.0 |
0.7 |
2.3 |
— |
2.3 |
0.01 |
||||||||||||||||||
Clean energy related |
14.9 |
3.2 |
11.7 |
2.5 |
9.2 |
0.05 |
||||||||||||||||||
Corporate, as adjusted |
$ | (390.9 |
) | $ | (337.2 |
) | $ | (53.7 |
) | $ | 32.3 |
$ | (86.0 |
) | $ | (0.45 |
) | |||||||
Year Ended Dec 31, 2018 |
||||||||||||||||||||||||
Brokerage, as reported |
$ |
764.2 |
$ |
191.0 |
$ |
573.2 |
$ |
10.7 |
$ |
562.5 |
$ |
3.02 |
||||||||||||
Net gains on divestitures |
(10.2 |
) | (2.3 |
) | (7.9 |
) | — |
(7.9 |
) | (0.04 |
) | |||||||||||||
Acquisition integration |
3.4 |
0.8 |
2.6 |
— |
2.6 |
0.01 |
||||||||||||||||||
Workforce and lease termination |
38.7 |
9.6 |
29.1 |
— |
29.1 |
0.16 |
||||||||||||||||||
Acquisition related adjustments |
21.6 |
5.3 |
16.3 |
— |
16.3 |
0.09 |
||||||||||||||||||
Levelized foreign currency translation |
(2.5 |
) | (0.5 |
) | (2.0 |
) | — |
(2.0 |
) | (0.01 |
) | |||||||||||||
Brokerage, as adjusted |
$ | 815.2 |
$ | 203.9 |
$ | 611.3 |
$ | 10.7 |
$ | 600.6 |
$ | 3.23 |
||||||||||||
Risk Management, as reported |
$ |
95.7 |
$ |
25.3 |
$ |
70.4 |
$ |
— |
$ |
70.4 |
$ |
0.38 |
||||||||||||
Workforce and lease termination |
4.7 |
1.2 |
3.5 |
— |
3.5 |
0.01 |
||||||||||||||||||
Acquisition related adjustments |
(6.0 |
) | (1.7 |
) | (4.3 |
) | — |
(4.3 |
) | (0.02 |
) | |||||||||||||
Levelized foreign currency translation |
(1.9 |
) | (0.5 |
) | (1.4 |
) | — |
(1.4 |
) | (0.01 |
) | |||||||||||||
Risk Management, as adjusted |
$ | 92.5 |
$ | 24.3 |
$ | 68.2 |
$ | — |
$ | 68.2 |
$ | 0.36 |
||||||||||||
Corporate, as reported |
$ |
(380.5 |
) |
$ |
(412.8 |
) |
$ |
32.3 |
$ |
31.7 |
$ |
0.6 |
$ |
— |
||||||||||
Corporate legal entity restructuring |
— |
22.0 |
(22.0 |
) | — |
(22.0 |
) | (0.12 |
) | |||||||||||||||
Impact of U.S. tax reform |
— |
8.9 |
(8.9 |
) | — |
(8.9 |
) | (0.04 |
) | |||||||||||||||
Corporate, as adjusted |
$ | (380.5 |
) | $ | (381.9 |
) | $ | 1.4 |
$ | 31.7 |
$ | (30.3 |
) | $ | (0.16 |
) | ||||||||
• | Adjusted measures |
• | Net gains on divestitures, which are primarily net proceeds received related to sales of books of business and other divestiture transactions, such as the disposal of a business unit through sale or closure. |
• | Costs related to divestitures, which include legal and other costs related to certain operations that are being exited by us. |
• | 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 (either accrued or paid) 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 changes 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 period in the prior year. |
• | Adjusted ratios |
• | EBITDAC and EBITDAC Margin |
• | Adjusted EBITDAC and Adjusted EBITDAC Margin |
• | Adjusted EPS and Adjusted Net Earnings after-tax impact of net gains on divestitures, acquisition integration costs, workforce related charges, lease termination related charges and acquisition related adjustments and the period-over-period impact of foreign currency translation, as applicable, (and for the Corporate segment, the clean energy related adjustments described on pages 47 to 48). Adjusted EPS is Adjusted Net Earnings divided by diluted weighted average shares outstanding. This measure provides a meaningful representation of our operating performance (and as such should not be used as a measure of our liquidity), and for the overall business 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. |
(i) | Identifying, negotiating and placing all forms of insurance or reinsurance coverage, as well as providing risk-shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health, welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated agents and brokers, consultants and management advisors. |
(ii) | Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing, selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf. |
(iii) | Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits, compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance exchange, human resource technology, communications and benefits administration. |
(iv) | Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges, small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies, actuarial studies, data analytics and other administrative services. |
Statement of Earnings |
2019 |
2018 |
Change |
2018 |
2017 |
Change |
||||||||||||||||||
Commissions |
$ | 3,320.6 |
$ | 2,920.7 |
$ | 399.9 |
$ | 2,920.7 |
$ | 2,641.0 |
$ | 279.7 |
||||||||||||
Fees |
1,074.2 |
958.5 |
115.7 |
958.5 |
855.1 |
103.4 |
||||||||||||||||||
Supplemental revenues |
210.5 |
189.9 |
20.6 |
189.9 |
158.0 |
31.9 |
||||||||||||||||||
Contingent revenues |
135.6 |
98.0 |
37.6 |
98.0 |
99.5 |
(1.5 |
) | |||||||||||||||||
Investment income |
85.3 |
69.6 |
15.7 |
69.6 |
58.1 |
11.5 |
||||||||||||||||||
Net gains on divestitures |
75.3 |
10.2 |
65.1 |
10.2 |
3.4 |
6.8 |
||||||||||||||||||
Total revenues |
4,901.5 |
4,246.9 |
654.6 |
4,246.9 |
3,815.1 |
431.8 |
||||||||||||||||||
Compensation |
2,745.9 |
2,447.1 |
298.8 |
2,447.1 |
2,212.3 |
234.8 |
||||||||||||||||||
Operating |
796.5 |
673.5 |
123.0 |
673.5 |
614.0 |
59.5 |
||||||||||||||||||
Depreciation |
66.6 |
60.9 |
5.7 |
60.9 |
61.8 |
(0.9 |
) | |||||||||||||||||
Amortization |
329.1 |
286.9 |
42.2 |
286.9 |
261.8 |
25.1 |
||||||||||||||||||
Change in estimated acquisition earnout payables |
16.9 |
14.3 |
2.6 |
14.3 |
29.3 |
(15.0 |
) | |||||||||||||||||
Total expenses |
3,955.0 |
3,482.7 |
472.3 |
3,482.7 |
3,179.2 |
303.5 |
||||||||||||||||||
Earnings before income taxes |
946.5 |
764.2 |
182.3 |
764.2 |
635.9 |
128.3 |
||||||||||||||||||
Provision for income taxes |
229.2 |
191.0 |
38.2 |
191.0 |
221.2 |
(30.2 |
) | |||||||||||||||||
Net earnings |
717.3 |
573.2 |
144.1 |
573.2 |
414.7 |
158.5 |
||||||||||||||||||
Net earnings attributable to noncontrolling interests |
17.2 |
10.7 |
6.5 |
10.7 |
7.6 |
3.1 |
||||||||||||||||||
Net earnings attributable to controlling interests |
$ | 700.1 |
$ | 562.5 |
$ | 137.6 |
$ | 562.5 |
$ | 407.1 |
$ | 155.4 |
||||||||||||
Diluted net earnings per share |
$ | 3.68 |
$ | 3.02 |
$ | 0.66 |
$ | 3.02 |
$ | 2.23 |
$ | 0.79 |
||||||||||||
Other Information |
||||||||||||||||||||||||
Change in diluted net earnings per share |
22 |
% | 35 |
% | 35 |
% | ||||||||||||||||||
Growth in revenues |
15 |
% | 11 |
% | 11 |
% | ||||||||||||||||||
Organic change in commissions and fees |
6 |
% | 5 |
% | 5 |
% | ||||||||||||||||||
Compensation expense ratio |
56 |
% | 58 |
% | 58 |
% | 58 |
% | ||||||||||||||||
Operating expense ratio |
16 |
% | 16 |
% | 16 |
% | 16 |
% | ||||||||||||||||
Effective income tax rate |
24 |
% | 25 |
% | 25 |
% | 35 |
% | ||||||||||||||||
Workforce at end of period (includes acquisitions) |
25,211 |
22,934 |
22,934 |
20,049 |
||||||||||||||||||||
Identifiable assets at December 31 |
$ | 16,741.9 |
$ | 13,785.1 |
$ | 13,785.1 |
$ | 12,404.3 |
2019 |
2018 |
Change |
2018 |
2017 |
Change |
|||||||||||||||||||
Net earnings, as reported |
$ | 717.3 |
$ | 573.2 |
25.1 |
% | $ | 573.2 |
$ | 414.7 |
38.2 |
% | ||||||||||||
Provision for income taxes |
229.2 |
191.0 |
191.0 |
221.2 |
||||||||||||||||||||
Depreciation |
66.6 |
60.9 |
60.9 |
61.8 |
||||||||||||||||||||
Amortization |
329.1 |
286.9 |
286.9 |
261.8 |
||||||||||||||||||||
Change in estimated acquisition earnout payables |
16.9 |
14.3 |
14.3 |
29.3 |
||||||||||||||||||||
EBITDAC |
1,359.1 |
1,126.3 |
20.7 |
% | 1,126.3 |
988.8 |
13.8 |
% | ||||||||||||||||
Net gains on divestitures |
(62.3 |
) | (10.2 |
) | (10.2 |
) | (3.4 |
) | ||||||||||||||||
Acquisition integration |
20.4 |
3.4 |
3.4 |
14.8 |
||||||||||||||||||||
Acquisition related adjustments |
16.8 |
14.2 |
14.2 |
9.1 |
||||||||||||||||||||
Workforce and lease termination related charges |
44.8 |
38.7 |
38.7 |
30.1 |
||||||||||||||||||||
Levelized foreign currency translation |
— |
(7.9 |
) | — |
3.6 |
|||||||||||||||||||
EBITDAC, as adjusted |
$ | 1,378.8 |
$ | 1,164.5 |
18.4 |
% | $ | 1,172.4 |
$ | 1,043.0 |
12.4 |
% | ||||||||||||
Net earnings margin, as reported |
14.6 |
% | 13.5 |
% | +113 bpts |
13.5 |
% | 10.9 |
% | +263 bpts |
||||||||||||||
EBITDAC margin, as adjusted |
28.6 |
% | 27.8 |
% | +75 bpts |
27.7 |
% | 27.4 |
% | +40 bpts |
||||||||||||||
Reported revenues |
$ | 4,901.5 |
$ | 4,246.9 |
$ | 4,246.9 |
$ | 3,815.1 |
||||||||||||||||
Adjusted revenues - see page 28 |
$ | 4,826.2 |
$ | 4,185.9 |
$ | 4,236.7 |
$ | 3,811.7 |
||||||||||||||||
2019 Organic Revenues |
2018 Organic Revenues |
|||||||||||||||||||||||
2019 |
2018 |
Change |
2018 |
2017 |
Change |
|||||||||||||||||||
Base Commissions and Fees |
||||||||||||||||||||||||
Commission and fees, as reported |
$ | 4,394.8 |
$ | 3,879.2 |
13.3 |
% | $ | 3,879.2 |
$ | 3,496.1 |
11.0 |
% | ||||||||||||
Less commission and fee revenues from acquisitions |
(382.8 |
) | — |
(200.4 |
) | — |
||||||||||||||||||
Less divested operations |
— |
(31.0 |
) | — |
(18.2 |
) | ||||||||||||||||||
Levelized foreign currency translation |
— |
(45.1 |
) | — |
13.3 |
|||||||||||||||||||
Organic base commission and fees |
$ | 4,012.0 |
$ | 3,803.1 |
5.5 |
% | $ | 3,678.8 |
$ | 3,491.2 |
5.4 |
% | ||||||||||||
Supplemental revenues |
||||||||||||||||||||||||
Supplemental revenues, as reported |
$ | 210.5 |
$ | 189.9 |
10.9 |
% | $ | 189.9 |
$ | 158.0 |
20.2 |
% | ||||||||||||
Less supplemental revenues from acquisitions |
(13.5 |
) | — |
(1.5 |
) | — |
||||||||||||||||||
Levelized foreign currency translation |
— |
(2.4 |
) | — |
0.8 |
|||||||||||||||||||
Organic supplemental revenues |
$ | 197.0 |
$ | 187.5 |
5.1 |
% | $ | 188.4 |
$ | 158.8 |
18.6 |
% | ||||||||||||
Contingent revenues |
||||||||||||||||||||||||
Contingent revenues, as reported |
$ | 135.6 |
$ | 98.0 |
38.4 |
% | $ | 98.0 |
$ | 99.5 |
-1.5 |
% | ||||||||||||
Less contingent revenues from acquisitions |
(18.4 |
) | — |
(5.0 |
) | — |
||||||||||||||||||
Less divested operations |
— |
— |
— |
(0.6 |
) | |||||||||||||||||||
Levelized foreign currency translation |
— |
(0.3 |
) | — |
0.1 |
|||||||||||||||||||
Organic contingent revenues |
$ | 117.2 |
$ | 97.7 |
20.0 |
% | $ | 93.0 |
$ | 99.0 |
-6.1 |
% | ||||||||||||
Total reported commissions, fees, supplemental revenues and contingent revenues |
$ | 4,740.9 |
$ | 4,167.1 |
13.8 |
% | $ | 4,167.1 |
$ | 3,753.6 |
11.0 |
% | ||||||||||||
Less commission and fee revenues from acquisitions |
(414.7 |
) | — |
(206.9 |
) | — |
||||||||||||||||||
Less divested operations |
— |
(31.0 |
) | — |
(18.8 |
) | ||||||||||||||||||
Levelized foreign currency translation |
— |
(47.8 |
) | — |
14.2 |
|||||||||||||||||||
Total organic commissions, fees supplemental revenues and contingent revenues |
$ | 4,326.2 |
$ | 4,088.3 |
5.8 |
% | $ | 3,960.2 |
$ | 3,749.0 |
5.6 |
% | ||||||||||||
Acquisition Activity |
2019 |
2018 |
2017 |
|||||||||
Number of acquisitions closed |
46 |
44 |
36 |
|||||||||
Estimated annualized revenues acquired (in millions) |
$ | 452.3 |
$ | 317.9 |
$ | 159.0 |
||||||
Q1 |
Q2 |
Q3 |
Q4 |
Full Year |
||||||||||||||||
2019 |
||||||||||||||||||||
Reported supplemental revenues |
$ | 56.7 |
$ | 46.9 |
$ | 49.8 |
$ | 57.1 |
$ | 210.5 |
||||||||||
Reported contingent revenues |
48.0 |
29.5 |
30.4 |
27.7 |
135.6 |
|||||||||||||||
Reported supplemental and contingent revenues |
$ | 104.7 |
$ | 76.4 |
$ | 80.2 |
$ | 84.8 |
$ | 346.1 |
||||||||||
2018 |
||||||||||||||||||||
Reported supplemental revenues |
$ | 52.0 |
$ | 48.1 |
$ | 43.9 |
$ | 45.9 |
$ | 189.9 |
||||||||||
Reported contingent revenues |
34.9 |
21.8 |
25.7 |
15.6 |
98.0 |
|||||||||||||||
Reported supplemental and contingent revenues |
$ | 86.9 |
$ | 69.9 |
$ | 69.6 |
$ | 61.5 |
$ | 287.9 |
||||||||||
2017 |
||||||||||||||||||||
Reported supplemental revenues |
$ | 47.3 |
$ | 35.8 |
$ | 36.9 |
$ | 38.0 |
$ | 158.0 |
||||||||||
Reported contingent revenues |
35.0 |
21.3 |
21.8 |
21.4 |
99.5 |
|||||||||||||||
Reported supplemental and contingent revenues |
$ | 82.3 |
$ | 57.1 |
$ | 58.7 |
$ | 59.4 |
$ | 257.5 |
||||||||||
2019 |
2018 |
2018 |
2017 |
|||||||||||||
Compensation expense, as reported |
$ | 2,745.9 |
$ | 2,447.1 |
$ | 2,447.1 |
$ | 2,212.3 |
||||||||
Acquisition integration |
(12.4 |
) | (2.5 |
) | (2.5 |
) | (7.6 |
) | ||||||||
Workforce related charges |
(35.2 |
) | (32.3 |
) | (32.3 |
) | (21.4 |
) | ||||||||
Acquisition related adjustments |
(16.8 |
) | (14.2 |
) | (14.2 |
) | (9.1 |
) | ||||||||
Levelized foreign currency translation |
- |
(34.0 |
) | - |
8.7 |
|||||||||||
Compensation expense, as adjusted |
$ | 2,681.5 |
$ | 2,364.1 |
$ | 2,398.1 |
$ | 2,182.9 |
||||||||
Reported compensation expense ratios |
56.0 |
% | 57.6 |
% | 57.6 |
% | 58.0 |
% | ||||||||
Adjusted compensation expense ratios |
55.6 |
% | 56.5 |
% | 56.6 |
% | 57.1 |
% | ||||||||
Reported revenues |
$ | 4,901.5 |
$ | 4,246.9 |
$ | 4,246.9 |
$ | 3,815.1 |
||||||||
Adjusted revenues - see page 28 |
$ | 4,826.2 |
$ | 4,185.9 |
$ | 4,236.7 |
$ | 3,824.7 |
||||||||
2019 |
2018 |
2018 |
2017 |
|||||||||||||
Operating expense, as reported |
$ | 796.5 |
$ | 673.5 |
$ | 673.5 |
$ | 614.0 |
||||||||
Acquisition integration |
(8.0 |
) | (0.9 |
) | (0.9 |
) | (7.2 |
) | ||||||||
Workforce and lease termination related charges |
(9.6 |
) | (6.4 |
) | (6.4 |
) | (8.7 |
) | ||||||||
Costs related to divestures |
(13.0 |
) | — |
— |
— |
|||||||||||
Levelized foreign currency translation |
— |
(8.9 |
) | — |
0.7 |
|||||||||||
Operating expense, as adjusted |
$ | 765.9 |
$ | 657.3 |
$ | 666.2 |
$ | 598.8 |
||||||||
Reported operating expense ratios |
16.3 |
% | 15.9 |
% | 15.9 |
% | 16.1 |
% | ||||||||
Adjusted operating expense ratios |
15.9 |
% | 15.7 |
% | 15.7 |
% | 15.7 |
% | ||||||||
Reported revenues |
$ | 4,901.5 |
$ | 4,246.9 |
$ | 4,246.9 |
$ | 3,815.1 |
||||||||
Adjusted revenues - see page 28 |
$ | 4,826.2 |
$ | 4,185.9 |
$ | 4,236.7 |
$ | 3,824.7 |
||||||||
Statement of Earnings |
2019 |
2018 |
Change |
2018 |
2017 |
Change |
||||||||||||||||||
Fees |
$ | 836.9 |
$ | 797.8 |
$ | 39.1 |
$ | 797.8 |
$ | 736.8 |
$ | 61.0 |
||||||||||||
Investment income |
1.6 |
0.5 |
1.1 |
0.5 |
0.6 |
(0.1 |
) | |||||||||||||||||
Revenues before reimbursements |
838.5 |
798.3 |
40.2 |
798.3 |
737.4 |
60.9 |
||||||||||||||||||
Reimbursements |
138.6 |
141.6 |
(3.0 |
) | 141.6 |
136.0 |
5.6 |
|||||||||||||||||
Total revenues |
977.1 |
939.9 |
37.2 |
939.9 |
873.4 |
66.5 |
||||||||||||||||||
Compensation |
515.7 |
489.7 |
26.0 |
489.7 |
446.9 |
42.8 |
||||||||||||||||||
Operating |
184.9 |
174.6 |
10.3 |
174.6 |
164.8 |
9.8 |
||||||||||||||||||
Reimbursements |
138.6 |
141.6 |
141.6 |
136.0 |
||||||||||||||||||||
Depreciation |
46.2 |
38.7 |
7.5 |
38.7 |
31.1 |
7.6 |
||||||||||||||||||
Amortization |
4.9 |
4.3 |
0.6 |
4.3 |
2.9 |
1.4 |
||||||||||||||||||
Change in estimated acquisition earnout payables |
(1.6 |
) | (4.7 |
) | 3.1 |
(4.7 |
) | 1.6 |
(6.3 |
) | ||||||||||||||
Total expenses |
888.7 |
844.2 |
44.5 |
844.2 |
783.3 |
60.9 |
||||||||||||||||||
Earnings before income taxes |
88.4 |
95.7 |
(7.3 |
) | 95.7 |
90.1 |
5.6 |
|||||||||||||||||
Provision for income taxes |
22.2 |
25.3 |
(3.1 |
) | 25.3 |
34.4 |
(9.1 |
) | ||||||||||||||||
Net earnings |
66.2 |
70.4 |
(4.2 |
) | 70.4 |
55.7 |
14.7 |
|||||||||||||||||
Net earnings attributable to noncontrolling interests |
— |
— |
— |
— |
— |
— |
||||||||||||||||||
Net earnings attributable to controlling interests |
$ | 66.2 |
$ | 70.4 |
$ | (4.2 |
) | $ | 70.4 |
$ | 55.7 |
$ | 14.7 |
|||||||||||
Diluted earnings per share |
$ | 0.35 |
$ | 0.38 |
$ | (0.03 |
) | $ | 0.38 |
$ | 0.31 |
$ | 0.07 |
|||||||||||
Other information |
||||||||||||||||||||||||
Change in diluted earnings per share |
(8 |
%) | 23 |
% | 23 |
% | ||||||||||||||||||
Growth in revenues (before reimbursements) |
5 |
% | 8 |
% | 8 |
% | ||||||||||||||||||
Organic change in fees (before reimbursements) |
4 |
% | 7 |
% | 7 |
% | ||||||||||||||||||
Compensation expense ratio (before reimbursements) |
62 |
% | 61 |
% | 61 |
% | 61 |
% | ||||||||||||||||
Operating expense ratio (before reimbursements) |
22 |
% | 22 |
% | 22 |
% | 22 |
% | ||||||||||||||||
Effective income tax rate |
25 |
% | 26 |
% | 26 |
% | 38 |
% | ||||||||||||||||
Workforce at end of period (includes acquisitions) |
6,753 |
6,269 |
6,269 |
5,872 |
||||||||||||||||||||
Identifiable assets at December 31 |
$ | 898.1 |
$ | 748.1 |
$ | 748.1 |
$ | 738.6 |
2019 |
2018 |
Change |
2018 |
2017 |
Change |
|||||||||||||||||||
Net earnings, as reported |
$ | 66.2 |
$ | 70.4 |
-6.0 |
% | $ | 70.4 |
$ | 55.7 |
26.4 |
% | ||||||||||||
Provision for income taxes |
22.2 |
25.3 |
25.3 |
34.4 |
||||||||||||||||||||
Depreciation |
46.2 |
38.7 |
38.7 |
31.1 |
||||||||||||||||||||
Amortization |
4.9 |
4.3 |
4.3 |
2.9 |
||||||||||||||||||||
Change in estimated acquisition earnout payables |
(1.6 |
) | (4.7 |
) | (4.7 |
) | 1.6 |
|||||||||||||||||
Total EBITDAC |
137.9 |
134.0 |
2.9 |
% | 134.0 |
125.7 |
6.6 |
% | ||||||||||||||||
Workforce and lease termination related charges |
7.9 |
4.7 |
4.7 |
0.9 |
||||||||||||||||||||
Levelized foreign currency translation |
— |
(2.3 |
) | — |
(0.5 |
) | ||||||||||||||||||
EBITDAC, as adjusted |
$ | 145.8 |
$ | 136.4 |
6.9 |
% | $ | 138.7 |
$ | 126.1 |
9.9 |
% | ||||||||||||
Net earnings margin, before reimbursements, as reported |
7.9 |
% | 8.8 |
% | -92 bpts |
8.8 |
% | 7.6 |
% | +127 bpts |
||||||||||||||
EBITDAC margin, before reimbursements, as adjusted |
17.4 |
% | 17.3 |
% | +11 bpts |
17.4 |
% | 17.2 |
% | +21 bpts |
||||||||||||||
Reported revenues before reimbursements |
$ | 838.5 |
$ | 798.3 |
$ | 798.3 |
$ | 737.4 |
||||||||||||||||
Adjusted revenues - before reimbursements - see page 28 |
$ | 838.5 |
$ | 789.2 |
$ | 798.3 |
$ | 734.7 |
||||||||||||||||
2019 Organic Revenue |
2018 Organic Revenue |
|||||||||||||||||||||||
2019 |
2018 |
Change |
2018 |
2017 |
Change |
|||||||||||||||||||
Fees |
$ | 833.7 |
$ | 789.3 |
5.6 |
% | $ | 789.3 |
$ | 732.2 |
7.8 |
% | ||||||||||||
International performance bonus fees |
3.2 |
8.5 |
8.5 |
4.6 |
||||||||||||||||||||
Fees as reported |
836.9 |
797.8 |
4.9 |
% | 797.8 |
736.8 |
8.3 |
% | ||||||||||||||||
Less fees from acquisitions |
(13.6 |
) | — |
(11.5 |
) | — |
||||||||||||||||||
Levelized foreign currency translation |
— |
(9.1 |
) | — |
(2.6 |
) | ||||||||||||||||||
Organic fees |
$ | 823.3 |
$ | 788.7 |
4.4 |
% | $ | 786.3 |
$ | 734.2 |
7.1 |
% | ||||||||||||
2019 |
2018 |
2018 |
2017 |
|||||||||||||
Compensation expense, as reported |
$ | 515.7 |
$ | 489.7 |
$ | 489.7 |
$ | 446.9 |
||||||||
Workforce and lease termination related charges |
(5.9 |
) | (4.3 |
) | (4.3 |
) | (0.9 |
) | ||||||||
Levelized foreign currency translation |
— |
(5.2 |
) | — |
(1.7 |
) | ||||||||||
Compensation expense, as adjusted |
$ | 509.8 |
$ | 480.2 |
$ | 485.4 |
$ | 444.3 |
||||||||
Reported compensation expense ratios (before reimbursements) |
61.5 |
% | 61.3 |
% | 61.3 |
% | 60.6 |
% | ||||||||
Adjusted compensation expense ratios (before reimbursements) |
60.8 |
% | 60.9 |
% | 60.8 |
% | 60.5 |
% | ||||||||
Reported revenues (before reimbursements) |
$ | 838.5 |
$ | 798.3 |
$ | 798.3 |
$ | 737.4 |
||||||||
Adjusted revenues (before reimbursements) - see page 28 |
$ | 838.5 |
$ | 789.2 |
$ | 798.3 |
$ | 734.7 |
||||||||
2019 |
2018 |
2018 |
2017 |
|||||||||||||
Operating expense, as reported |
$ | 184.9 |
$ | 174.6 |
$ | 174.6 |
$ | 164.8 |
||||||||
Workforce and lease termination related charges |
(2.0 |
) | (0.4 |
) | (0.4 |
) | — |
|||||||||
Levelized foreign currency translation |
— |
(1.6 |
) | — |
(0.5 |
) | ||||||||||
Operating expense, as adjusted |
$ | 182.9 |
$ | 172.6 |
$ | 174.2 |
$ | 164.3 |
||||||||
Reported compensation expense ratios (before reimbursements) |
22.1 |
% | 21.9 |
% | 21.9 |
% | 22.4 |
% | ||||||||
Adjusted compensation expense ratios (before reimbursements) |
21.8 |
% | 21.9 |
% | 21.8 |
% | 22.4 |
% | ||||||||
Reported revenues (before reimbursements) |
$ | 838.5 |
$ | 798.3 |
$ | 798.3 |
$ | 737.4 |
||||||||
Adjusted revenues - (before reimbursements) see page 28 |
$ | 838.5 |
$ | 789.2 |
$ | 798.3 |
$ | 734.7 |
||||||||
Statement of Earnings |
2019 |
2018 |
Change |
2018 |
2017 |
Change |
||||||||||||||||||
Revenues from consolidated clean coal production plants |
$ | 1,255.1 |
$ | 1,694.6 |
$ | (439.5 |
) | $ | 1,694.6 |
$ | 1,515.6 |
$ | 179.0 |
|||||||||||
Royalty income from clean coal licenses |
66.7 |
54.1 |
12.6 |
54.1 |
46.4 |
7.7 |
||||||||||||||||||
Loss from unconsolidated clean coal production plants |
(2.5 |
) | (2.4 |
) | (0.1 |
) | (2.4 |
) | (1.5 |
) | (0.9 |
) | ||||||||||||
Other net (losses) gains |
(2.9 |
) | 0.9 |
(3.8 |
) | 0.9 |
— |
0.9 |
||||||||||||||||
Total revenues |
1,316.4 |
1,747.2 |
(430.8 |
) | 1,747.2 |
1,560.5 |
186.7 |
|||||||||||||||||
Cost of revenues from consolidated clean coal production plants |
1,352.8 |
1,816.0 |
(463.2 |
) | 1,816.0 |
1,635.9 |
180.1 |
|||||||||||||||||
Compensation |
77.9 |
89.5 |
(11.6 |
) | 89.5 |
88.2 |
1.3 |
|||||||||||||||||
Operating |
87.1 |
55.6 |
31.5 |
55.6 |
50.3 |
5.3 |
||||||||||||||||||
Interest |
179.8 |
138.4 |
41.4 |
138.4 |
124.1 |
14.3 |
||||||||||||||||||
Depreciation |
27.6 |
28.2 |
(0.6 |
) | 28.2 |
28.2 |
— |
|||||||||||||||||
Total expenses |
1,725.2 |
2,127.7 |
(402.5 |
) | 2,127.7 |
1,926.7 |
201.0 |
|||||||||||||||||
Loss before income taxes |
(408.8 |
) | (380.5 |
) | (28.3 |
) | (380.5 |
) | (366.2 |
) | (14.3 |
) | ||||||||||||
Benefit for income taxes |
(341.1 |
) | (412.8 |
) | 71.7 |
(412.8 |
) | (412.7 |
) | (0.1 |
) | |||||||||||||
Net earnings (loss) |
(67.7 |
) | 32.3 |
(100.0 |
) | 32.3 |
46.5 |
(14.2 |
) | |||||||||||||||
Net earnings attributable to noncontrolling interests |
29.8 |
31.7 |
(1.9 |
) | 31.7 |
28.0 |
3.7 |
|||||||||||||||||
Net earnings (loss) attributable to controlling interests |
$ | (97.5 |
) | $ | 0.6 |
$ | (98.1 |
) | $ | 0.6 |
$ | 18.5 |
$ | (17.9 |
) | |||||||||
Diluted net earnings (loss) per share |
$ | (0.51 |
) | $ | — |
$ | (0.51 |
) | $ | — |
$ | 0.10 |
$ | (0.10 |
) | |||||||||
Identifiable assets at December 31 |
$ | 1,994.8 |
$ | 1,800.8 |
$ | 1,800.8 |
$ | 1,766.8 |
||||||||||||||||
EBITDAC |
||||||||||||||||||||||||
Net earnings (loss) |
$ | (67.7 |
) | $ | 32.3 |
$ | (100.0 |
) | $ | 32.3 |
$ | 46.5 |
$ | (14.2 |
) | |||||||||
Benefit for income taxes |
(341.1 |
) | (412.8 |
) | 71.7 |
(412.8 |
) | (412.7 |
) | (0.1 |
) | |||||||||||||
Interest |
179.8 |
138.4 |
41.4 |
138.4 |
124.1 |
14.3 |
||||||||||||||||||
Depreciation |
27.6 |
28.2 |
(0.6 |
) | 28.2 |
28.2 |
— |
|||||||||||||||||
EBITDAC |
$ | (201.4 |
) | $ | (213.9 |
) | $ | 12.5 |
$ | (213.9 |
) | $ | (213.9 |
) | $ | — |
||||||||
• | Revenues from consolidated clean coal production plants represents revenues from the consolidated IRC Section 45 facilities in which we have a majority ownership position and maintain control over the operations at the related facilities. |
• | Royalty income from clean coal licenses represents revenues related to Chem-Mod LLC. We hold a 46.5% controlling interest in Chem-Mod LLC. As Chem-Mod LLC’s manager, we are required to consolidate its operations. |
• | Loss from unconsolidated clean coal production plants represents our equity portion of the pretax operating results from the unconsolidated IRC Section 45 facilities. The production of refined coal generates pretax operating losses. |
• | Other net (losses) gains include the following: |
Change in interest expense related to: |
2019 / 2018 |
2018 / 2017 |
||||||
Interest on borrowings from our Credit Agreement |
$ | 5.5 |
$ | (0.1 |
) | |||
Interest on the maturity of the Series B notes |
— |
(11.2 |
) | |||||
Interest on the maturity of the Series C notes |
(2.9 |
) | (0.3 |
) | ||||
Interest on the maturity of the Series K and L notes |
(1.5 |
) | (0.7 |
) | ||||
Interest on the $250.0 million notes funded on June 27, 2017 |
— |
5.1 |
||||||
Interest on the $398.0 million notes funded on August 2 and 4, 2017 |
0.1 |
9.9 |
||||||
Interest on the $500.0 million notes funded on June 13, 2018 |
10.1 |
12.2 |
||||||
Interest on the $340.0 million notes funded on February 13, 2019 |
14.6 |
— |
||||||
Interest on the $260.0 million notes funded on March 13, 2019 |
10.8 |
— |
||||||
Interest on the $175.0 million notes funded on June 12, 2019 |
4.5 |
— |
||||||
Amortization of hedge gains |
0.2 |
(0.6 |
) | |||||
Net change in interest expense |
$ | 41.4 |
$ | 14.3 |
||||
2019 |
2018 |
2017 |
||||||||||||||||||||||||||||||||||
Components of Corporate Segment |
Pretax Loss |
Income Tax Benefit |
Net Earnings (Loss) |
Pretax Loss |
Income Tax Benefit |
Net Earnings (Loss) |
Pretax Loss |
Income Tax Benefit |
Net Earnings (Loss) |
|||||||||||||||||||||||||||
As Reported |
||||||||||||||||||||||||||||||||||||
Interest and banking costs |
$ | (184.0 |
) | $ | 47.4 |
$ | (136.6 |
) | $ | (141.9 |
) | $ | 36.9 |
$ | (105.0 |
) | $ | (126.8 |
) | $ | 50.8 |
$ | (76.0 |
) | ||||||||||||
Clean energy related (1) |
(151.9 |
) | 240.4 |
88.5 |
(188.1 |
) | 306.7 |
118.6 |
(161.3 |
) | 294.0 |
132.7 |
||||||||||||||||||||||||
Acquisition costs |
(21.2 |
) | 3.2 |
(18.0 |
) | (13.9 |
) | 1.5 |
(12.4 |
) | (11.2 |
) | 2.9 |
(8.3 |
) | |||||||||||||||||||||
Corporate (2) |
(81.5 |
) | 50.1 |
(31.4 |
) | (68.3 |
) | 67.7 |
(0.6 |
) | (70.6 |
) | 57.4 |
(13.2 |
) | |||||||||||||||||||||
Litigation settlement |
— |
— |
— |
— |
— |
— |
(11.1 |
) | 2.3 |
(8.8 |
) | |||||||||||||||||||||||||
Home office lease termination/move |
— |
— |
— |
— |
— |
— |
(13.2 |
) | 5.3 |
(7.9 |
) | |||||||||||||||||||||||||
Reported full year Adjustments |
(438.6 |
) | 341.1 |
(97.5 |
) | (412.2 |
) | 412.8 |
0.6 |
(394.2 |
) | 412.7 |
18.5 |
|||||||||||||||||||||||
Workforce |
3.0 |
(0.7 |
) | 2.3 |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||||||
Clean energy related (3) |
12.4 |
(3.2 |
) | 9.2 |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||||||
Impact of U.S. tax reform |
— |
— |
— |
— |
(8.9 |
) | (8.9 |
) | 2.5 |
(4.0 |
) | (1.5 |
) | |||||||||||||||||||||||
Corporate legal entity restructuring |
— |
— |
— |
— |
(22.0 |
) | (22.0 |
) | — |
— |
— |
|||||||||||||||||||||||||
Litigation settlement |
— |
— |
— |
— |
— |
— |
11.1 |
(2.3 |
) | 8.8 |
||||||||||||||||||||||||||
Home office lease termination/move |
— |
— |
— |
— |
— |
— |
13.2 |
(5.3) |
7.9 |
|||||||||||||||||||||||||||
As Adjusted |
||||||||||||||||||||||||||||||||||||
Interest and banking costs |
(184.0 |
) | 47.4 |
(136.6 |
) | (141.9 |
) | 36.9 |
(105.0 |
) | (126.8 |
) | 50.8 |
(76.0 |
) | |||||||||||||||||||||
Clean energy related (1) |
(139.5 |
) | 237.2 |
97.7 |
(188.1 |
) | 306.7 |
118.6 |
(161.3 |
) | 294.0 |
132.7 |
||||||||||||||||||||||||
Acquisition costs |
(21.2 |
) | 3.2 |
(18.0 |
) | (13.9 |
) | 1.5 |
(12.4 |
) | (11.2 |
) | 2.9 |
(8.3 |
) | |||||||||||||||||||||
Corporate (2) |
(78.5 |
) | 49.4 |
(29.1 |
) | (68.3 |
) | 36.8 |
(31.5 |
) | (68.1 |
) | 53.4 |
(14.7 |
) | |||||||||||||||||||||
Litigation settlement |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
Home office lease termination/move |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
Adjusted full year |
$ | (423.2 |
) | $ | 337.2 |
$ | (86.0 |
) | $ | (412.2 |
) | $ | 381.9 |
$ | (30.3 |
) | $ | (367.4 |
) | $ | 401.1 |
$ | 33.7 |
|||||||||||||
(1) | Pretax earnings (loss) are presented net of amounts attributable to noncontrolling interests of $29.8 million in 2019, $31.7 million in 2018 and $28.0 million in 2017. |
(2) | Corporate includes the impact of tax reform and corporate legal entity restructuring. |
(3) | Clean Energy Related Adjustments – During third quarter of 2019, we and/or our 46.5% owned affiliate, Chem-Mod LLC, incurred costs related to (a) settling certain patent infringement litigation, (b) prevailing in a tax court matter, (c) defending a new patent matter, and (d) moving three 2011 Era plants into different locations that could generate more after-tax earnings in 2020 than in 2019. |
Our Portion of Estimated |
||||||||||||||
Our Book Value At December 31, 2019 |
Low Range 2020 After-tax Earnings |
High Range 2020 After-tax Earnings |
||||||||||||
Investments that own 2009 Era Plants |
||||||||||||||
14 2009 Plants are idle as IRC Section 45 qualification expired as of December 31, 2019 |
$ | — |
$ | — |
$ | — |
||||||||
Investments that own 2011 Era Plants |
||||||||||||||
20 2011 Plants are under long-term production contracts |
29.5 |
60.0 |
75.0 |
|||||||||||
Chem-Mod royalty income, net of noncontrolling interests |
4.0 |
20.0 |
25.0 |
Calendar Year |
IRS Reference Price per Ton |
IRS Beginning Phase Out Price |
IRS 100% Phase Out Price |
Conclusion |
||||||||||||
2010 |
$ | 54.74 |
$ | 77.78 |
$ | 86.53 |
No phase out |
|||||||||
2011 |
55.66 |
78.41 |
87.16 |
No phase out |
||||||||||||
2012 |
58.49 |
80.25 |
89.00 |
No phase out |
||||||||||||
2013 |
58.23 |
81.69 |
90.44 |
No phase out |
||||||||||||
2014 |
56.88 |
81.82 |
90.57 |
No phase out |
||||||||||||
2015 |
57.64 |
83.17 |
91.92 |
No phase out |
||||||||||||
2016 |
53.74 |
84.38 |
93.13 |
No phase out |
||||||||||||
2017 |
51.09 |
85.64 |
94.39 |
No phase out |
||||||||||||
2018 |
49.69 |
87.16 |
95.91 |
No phase out |
||||||||||||
2019 |
49.23 |
88.92 |
97.67 |
No phase out |
||||||||||||
2020 |
(1 |
) | (1 |
) | (1 |
) | (1) |
(1) | The IRS will not release the factors for 2020 until April or May 2020. Based on our analysis of the factors used in the IRS’ phase out calculations, it is our belief that there will be no phase out in 2020. |
2019 |
2018 |
2017 |
||||||||||
Net change in premiums and fees receivable |
$ | (434.7 |
) | $ | (783.1 |
) | $ | (47.7 |
) | |||
Net change in premiums payable to underwriting enterprises |
461.6 |
819.7 |
166.9 |
|||||||||
Net cash provided by the above |
$ | 26.9 |
$ | 36.6 |
$ | 119.2 |
||||||
• | $100.0 million of 4.72% senior notes due in 2024; |
• | $140.0 million of 4.85% senior notes due in 2026; |
• | $100.0 million of 5.04% senior notes due in 2029; |
• | $180.0 million of 5.14% senior notes due in 2031; |
• | $40.0 million of 5.29% senior notes due in 2034; and |
• | $40.0 million of 5.45% senior notes due in 2039 |
• | $30.0 million of 3.75% senior notes due in 2027; |
• | $341.0 million of 3.99% senior notes due in 2030; |
• | $69.0 million of 4.09% senior notes due in 2032; |
• | $79.0 million of 4.24% senior notes due in 2035; and |
• | $56.0 million of 4.49% senior notes due in 2040 |
Payments Due by Period |
||||||||||||||||||||||||||||
Contractual Obligations |
2020 |
2021 |
2022 |
2023 |
2024 |
Thereafter |
Total |
|||||||||||||||||||||
Note purchase agreements |
$ | 100.0 |
$ | 75.0 |
$ | 200.0 |
$ | 300.0 |
$ | 475.0 |
$ | 2,773.0 |
$ | 3,923.0 |
||||||||||||||
Credit Agreement |
520.0 |
— |
— |
— |
— |
— |
520.0 |
|||||||||||||||||||||
Premium Financing Debt Facility |
170.6 |
— |
— |
— |
— |
— |
170.6 |
|||||||||||||||||||||
Interest on debt |
173.6 |
167.5 |
161.8 |
152.5 |
134.7 |
574.7 |
1,364.8 |
|||||||||||||||||||||
Total debt obligations |
964.2 |
242.5 |
361.8 |
452.5 |
609.7 |
3,347.7 |
5,978.4 |
|||||||||||||||||||||
Operating lease obligations |
105.6 |
100.4 |
80.3 |
63.8 |
45.1 |
84.1 |
479.3 |
|||||||||||||||||||||
Less sublease arrangements |
(0.6 |
) | (0.6 |
) | (0.3 |
) | (0.3 |
) | (0.2 |
) | (0.7 |
) | (2.7 |
) | ||||||||||||||
Outstanding purchase obligations |
49.9 |
38.2 |
23.2 |
9.0 |
5.7 |
17.4 |
143.4 |
|||||||||||||||||||||
Total contractual obligations |
$ | 1,119.1 |
$ | 380.5 |
$ | 465.0 |
$ | 525.0 |
$ | 660.3 |
$ | 3,448.5 |
$ | 6,598.4 |
||||||||||||||
Total |
||||||||||||||||||||||||||||
Amount of Commitment Expiration by Period |
Amounts |
|||||||||||||||||||||||||||
Off-Balance Sheet Commitments |
2020 |
2021 |
2022 |
2023 |
2024 |
Thereafter |
Committed |
|||||||||||||||||||||
Letters of credit |
$ | — |
$ | — |
$ | — |
$ | — |
$ | — |
$ | 17.1 |
$ | 17.1 |
||||||||||||||
Financial guarantees |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.4 |
1.4 |
|||||||||||||||||||||
Total commitments |
$ | 0.2 |
$ | 0.2 |
$ | 0.2 |
$ | 0.2 |
$ | 0.2 |
$ | 17.5 |
$ | 18.5 |
||||||||||||||
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Commissions |
$ | |
$ | |
$ | |
||||||
Fees |
|
|
|
|||||||||
Supplemental revenues |
|
|
|
|||||||||
Contingent revenues |
|
|
|
|||||||||
Investment income |
|
|
|
|||||||||
Net gains on divestitures |
|
|
|
|||||||||
Revenues from clean coal activities |
|
|
|
|||||||||
Other net (losses) revenue |
( |
) | |
— |
||||||||
Revenues before reimbursements |
|
|
|
|||||||||
Reimbursements |
|
|
|
|||||||||
Total revenues |
|
|
|
|||||||||
Compensation |
|
|
|
|||||||||
Operating |
|
|
|
|||||||||
Reimbursements |
|
|
|
|||||||||
Cost of revenues from clean coal activities |
|
|
|
|||||||||
Interest |
|
|
|
|||||||||
Depreciation |
|
|
|
|||||||||
Amortization |
|
|
|
|||||||||
Change in estimated acquisition earnout payables |
|
|
|
|||||||||
Total expenses |
|
|
|
|||||||||
Earnings before income taxes |
|
|
|
|||||||||
Benefit for income taxes |
( |
) | ( |
) | ( |
) | ||||||
Net earnings |
|
|
|
|||||||||
Net earnings attributable to noncontrolling interests |
|
|
|
|||||||||
Net earnings attributable to controlling interests |
$ | |
$ | |
$ | |
||||||
Basic net earnings per share |
$ | |
$ | |
$ | |
||||||
Diluted net earnings per share |
|
|
|
|||||||||
Dividends declared per common share |
|
|
|
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net earnings |
$ | |
$ | |
$ | |
||||||
Change in pension liability, net of taxes |
|
( |
) | |
||||||||
Foreign currency translation, net of taxes in 2019 |
|
( |
) | |
||||||||
Change in fair value of derivative instruments, net of taxes |
( |
) | ( |
) | |
|||||||
Comprehensive earnings |
|
|
|
|||||||||
Comprehensive earnings attributable to noncontrolling interests |
|
|
|
|||||||||
Comprehensive earnings attributable to controlling interests |
$ | |
$ | |
$ | |
||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Cash and cash equivalents |
$ | |
$ | |
||||
Restricted cash |
|
|
||||||
Premiums and fees receivable |
|
|
||||||
Other current assets |
|
|
||||||
Total current assets |
|
|
||||||
Fixed assets - net |
|
|
||||||
Deferred income taxes |
|
|
||||||
Other noncurrent assets |
|
|
||||||
Right-of-use assets |
|
— |
||||||
Goodwill - net |
|
|
||||||
Amortizable intangible assets - net |
|
|
||||||
Total assets |
$ | |
$ | |
||||
Premiums payable to underwriting enterprises |
$ | |
$ | |
||||
Accrued compensation and other accrued liabilities |
|
|
||||||
Deferred revenue - current |
|
|
||||||
Premium financing borrowings |
|
|
||||||
Corporate related borrowings - current |
|
|
||||||
Total current liabilities |
|
|
||||||
Corporate related borrowings - noncurrent |
|
|
||||||
Deferred revenue - noncurrent |
|
|
||||||
Lease liabilities - noncurrent |
|
— |
||||||
Other noncurrent liabilities |
|
|
||||||
Total liabilities |
|
|
||||||
Stockholders’ equity: |
||||||||
Common stock - authorized and |
|
|
||||||
Capital in excess of par value |
|
|
||||||
Retained earnings |
|
|
||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Stockholders’ equity attributable to controlling interests |
|
|
||||||
Stockholders’ equity attributable to noncontrolling interests |
|
|
||||||
Total stockholders’ equity |
|
|
||||||
Total liabilities and stockholders’ equity |
$ | |
$ | |
||||
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net earnings |
$ | |
$ | |
$ | |
||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||||||
Net gain on investments and other |
( |
) | ( |
) | ( |
) | ||||||
Depreciation and amortization |
|
|
|
|||||||||
Change in estimated acquisition earnout payables |
|
|
|
|||||||||
Amortization of deferred compensation and restricted stock |
|
|
|
|||||||||
Stock-based and other noncash compensation expense |
|
|
|
|||||||||
Payments on acquisition earnouts in excess of original estimates |
( |
) | ( |
) | ( |
) | ||||||
Effect of changes in foreign exchange rate |
|
( |
) | |
||||||||
Net change in premium and fees receivable |
( |
) | ( |
) | ( |
) | ||||||
Net change in deferred revenue |
|
|
|
|||||||||
Net change in premiums payable to underwriting enterprises |
|
|
|
|||||||||
Net change in other current assets |
( |
) | ( |
) | ( |
) | ||||||
Net change in accrued compensation and other accrued liabilities |
|
|
|
|||||||||
Net change in income taxes payable |
|
( |
) | |
||||||||
Net change in deferred income taxes |
( |
) | ( |
) | ( |
) | ||||||
Net change in other noncurrent assets and liabilities |
( |
) | ( |
) | ( |
) | ||||||
Net cash provided by operating activities |
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Cash paid for acquisitions, net of cash and restricted cash acquired |
( |
) | ( |
) | ( |
) | ||||||
Net proceeds from sales of operations/books of business |
|
|
|
|||||||||
Net funding of investment transactions |
( |
) | ( |
) | ( |
) | ||||||
Net cash used by investing activities |
( |
) | ( |
) | ( |
) | ||||||
Cash flows from financing activities: |
||||||||||||
Payments on acquisition earnouts |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from issuance of common stock |
|
|
|
|||||||||
Repurchases of common stock |
— |
( |
) | ( |
) | |||||||
Payments to noncontrolling interests |
( |
) | ( |
) | ( |
) | ||||||
Dividends paid |
( |
) | ( |
) | ( |
) | ||||||
Net borrowings on premium financing debt facility |
|
|
|
|||||||||
Borrowings on line of credit facility |
|
|
|
|||||||||
Repayments on line of credit facility |
( |
) | ( |
) | ( |
) | ||||||
Net borrowings of corporate related long-term debt |
|
|
|
|||||||||
Debt acquisition costs |
( |
) | ( |
) | — |
|||||||
Settlements on terminated interest rate swaps |
( |
) | |
|
||||||||
Net cash provided (used) by financing activities |
|
|
( |
) | ||||||||
Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash |
|
( |
) | |
||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
( |
) | |
||||||||
Cash, cash equivalents and restricted cash at beginning of year |
|
|
|
|||||||||
Cash, cash equivalents and restricted cash at end of year |
$ | |
$ | |
$ | |
||||||
Common Stock |
Capital in Excess of |
Retained |
Accumulated Other Comprehensive |
Noncontrolling |
||||||||||||||||||||||||
Shares |
Amount |
Par Value |
Earnings |
Earnings (Loss) |
Interests |
Total |
||||||||||||||||||||||
Balance at December 31, 2016 |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) | $ |
|
$ |
|
||||||||||||||
Net earnings |
— |
— |
— |
|
— |
|
|
|||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests |
— |
— |
— |
— |
— |
( |
) | ( |
) | |||||||||||||||||||
Dividends paid to noncontrolling interests |
— |
— |
— |
— |
— |
( |
) | ( |
) | |||||||||||||||||||
Net change in pension asset/liability, net of taxes of $ |
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Foreign currency translation |
— |
— |
— |
— |
|
|
|
|||||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of $ |
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Compensation expense related to stock option plan grants |
— |
— |
|
— |
— |
— |
|
|||||||||||||||||||||
Common stock issued in: |
||||||||||||||||||||||||||||
Twelve purchase transactions |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Stock option plans |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Employee stock purchase plan |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Deferred compensation and restricted stock |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Common stock repurchases |
( |
) | ( |
) | ( |
) | — |
— |
— |
( |
) | |||||||||||||||||
Cash dividends declared on common stock |
— |
— |
— |
( |
) | — |
— |
( |
) | |||||||||||||||||||
Balance at December 31, 2017 |
|
|
|
|
( |
) | |
|
||||||||||||||||||||
Reclassification of the income tax effects within accumulated other comprehensive loss related to the Tax Act |
— |
— |
— |
|
( |
) | — |
— |
||||||||||||||||||||
Net earnings |
— |
— |
— |
|
— |
|
|
|||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests |
— |
— |
( |
) | — |
— |
|
( |
) | |||||||||||||||||||
Dividends paid to noncontrolling interests |
— |
— |
— |
— |
— |
( |
) | ( |
) | |||||||||||||||||||
Net change in pension asset/liability, net of taxes of $ |
— |
— |
— |
— |
( |
) | — |
( |
) | |||||||||||||||||||
Foreign currency translation |
— |
— |
— |
— |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of ($ |
— |
— |
— |
— |
( |
) | — |
( |
) | |||||||||||||||||||
Compensation expense related to stock option plan grants |
— |
— |
|
— |
— |
— |
|
|||||||||||||||||||||
Common stock issued in: |
||||||||||||||||||||||||||||
Ten purchase transactions |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Stock option plans |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Employee stock purchase plan |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Deferred compensation and restricted stock |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Common stock repurchases |
( |
) | ( |
) | ( |
) | — |
— |
— |
( |
) | |||||||||||||||||
Cash dividends declared on common stock |
— |
— |
— |
( |
) | — |
— |
( |
) | |||||||||||||||||||
Balance at December 31, 2018 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
$ | |
||||||||||||||
Common Stock |
Capital in Excess of |
Retained |
Accumulated Other Comprehensive |
Noncontrolling |
||||||||||||||||||||||||
Shares |
Amount |
Par Value |
Earnings |
Earnings (Loss) |
Interests |
Total |
||||||||||||||||||||||
Balance at December 31, 2018 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
$ | |
||||||||||||||
Cumulative effects of adoption of lease and hedging accounting standards |
— |
— |
— |
( |
) | ( |
) | — |
( |
) | ||||||||||||||||||
Net earnings |
— |
— |
— |
|
— |
|
|
|||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests |
— |
— |
— |
— |
— |
( |
) | ( |
) | |||||||||||||||||||
Dividends paid to noncontrolling interests |
— |
— |
— |
— |
— |
( |
) | ( |
) | |||||||||||||||||||
Net change in pension asset/liability, net of taxes of $ |
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Foreign currency translation |
— |
— |
— |
— |
|
|
|
|||||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of ($ |
— |
— |
— |
— |
( |
) | — |
( |
) | |||||||||||||||||||
Compensation expense related to stock option plan grants |
— |
— |
|
— |
— |
— |
|
|||||||||||||||||||||
Common stock issued in: |
||||||||||||||||||||||||||||
Twenty-one purchase transactions |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Stock option plans |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Employee stock purchase plan |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Deferred compensation and restricted stock |
|
|
|
— |
— |
— |
|
|||||||||||||||||||||
Cash dividends declared on common stock |
— |
— |
— |
( |
) | — |
— |
( |
) | |||||||||||||||||||
Balance at December 31, 2019 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
$ | |
||||||||||||||
(i) | Identifying, negotiating and placing all forms of insurance or reinsurance coverage, as well as providing risk-shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health, welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated agents and brokers, consultants and management advisors. |
(ii) | Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing, selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf. |
(iii) | Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits, compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance exchange, human resource technology, communications and benefits administration. |
(iv) | Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges, small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies, actuarial studies, data analytics and other administrative services. |
(i) | Costs to obtain - we incur costs to obtain a contract with a client. Those costs would not have been incurred if the contract had not been obtained. Almost all of our costs to obtain are incurred prior to, or on, the effective date of the contract and consist primarily of incentive compensation we pay to our production employees. Our costs to obtain are expensed as incurred as described in Note 4 to these consolidated financial statements. |
(ii) | Costs to fulfill - we incur costs to fulfill a contract (or anticipated contract) with a client. Those costs are incurred prior to the effective date of the contract and relate to fulfilling our primary placement obligations to our clients. Our costs to fulfill prior to the effective date are capitalized and amortized on the effective date. These fulfillment activities include collecting underwriting information from our client, assessing their insurance needs and negotiating their placement with one or more underwriting enterprises. The majority of costs that we incur relate to compensation and benefits of our client service employees. Costs incurred during preplacement activities are expected to be recovered in the future. If the capitalized costs are no longer deemed to be recoverable, then they would be expensed. |
(iii) | Other costs that are not costs to obtain or fulfill are expensed as incurred. Examples include other operating costs such as rent, utilities, management costs, overhead costs, legal and other professional fees, technology costs, insurance related costs, communication and advertising, and travel and entertainment. Depreciation, amortization and change in estimated acquisition earnout payable are expensed as incurred. |
Useful Life | ||
Office equipment |
||
Furniture and fixtures |
||
Computer equipment |
||
Building |
||
Software |
||
Refined fuel plants |
||
Leasehold improvements |
• | Level 1 - Valuations are based on unadjusted quoted prices in active markets for identical financial instruments; |
• | Level 2 - Valuations are based on quoted market prices, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument; and |
• | Level 3 - Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management’s own assumptions about the assumptions a market participant would use in pricing the financial instrument. |
Name and Effective Date of Acquisition |
Common Shares Issued |
Common Share Value |
Cash Paid |
Accrued Liability |
Escrow Deposited |
Recorded Earnout Payable |
Total Recorded Purchase Price |
Maximum Potential Earnout Payable |
||||||||||||||||||||||||
(000s) |
||||||||||||||||||||||||||||||||
Inversion Holding Company, LLC (IHC) |
|
$ | |
$ | |
$ | — |
$ | |
$ | |
$ | |
$ | |
|||||||||||||||||
Jones Brown Inc. (JBI) |
— |
— |
|
— |
|
— |
|
— |
||||||||||||||||||||||||
Stackhouse Poland Group Limited (SPG) |
— |
— |
|
— |
|
— |
|
— |
||||||||||||||||||||||||
RPA Insurance Services LLC (RPA) |
— |
— |
|
— |
|
|
|
|
||||||||||||||||||||||||
JLT Aerospace (JLT) |
— |
— |
|
— |
— |
|
|
|
||||||||||||||||||||||||
RGA Group (RGA) |
— |
— |
|
|
|
|
|
|
||||||||||||||||||||||||
LSG Insurance Partners, Inc. (LSG) |
|
|
|
— |
|
|
|
|
||||||||||||||||||||||||
The EHE Group, LLC dba BonusDrive (EHE) |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Horseshoe Insurance Services Holdings, Ltd. (HIS) |
— |
— |
|
|
|
|
|
|
||||||||||||||||||||||||
40 other acquisitions completed in 2019 |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||||||
40 Other |
||||||||||||||||||||||||||||||||||||||||||||
IHC |
JBI |
SPG |
RPA |
JLT |
RGA |
LSG |
EHE |
HIS |
Acquisitions |
Total |
||||||||||||||||||||||||||||||||||
Cash |
$ | — |
$ | |
$ | |
$ | — |
$ | — |
$ | |
$ | — |
$ | |
$ | |
$ | |
$ | |
||||||||||||||||||||||
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Fixed assets |
|
|
|
|
— |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Noncurrent assets |
|
|
|
|
|
|
— |
|
|
|
|
|||||||||||||||||||||||||||||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Expiration lists |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Trade names |
— |
|
|
— |
|
— |
— |
— |
|
|
|
|||||||||||||||||||||||||||||||||
Total assets acquired |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Noncurrent liabilities |
|
|
|
|
— |
|
— |
|
— |
|
|
|||||||||||||||||||||||||||||||||
Total liabilities assumed |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Total net assets acquired |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||||||||||
Year Ended December 31, |
||||||||
2019 |
2018 |
|||||||
Total revenues |
$ | $ | ||||||
Net earnings attributable to controlling interests |
||||||||
Basic earnings per share |
||||||||
Diluted earnings per share |
4. |
Contracts with Customers |
December 31, 2019 |
December 31, 2018 |
|||||||
Unbilled receivables |
$ |
$ |
||||||
Deferred contract costs |
||||||||
Deferred revenue |
Brokerage |
Risk Management |
Total |
||||||||||
Deferred revenue at December 31, 2017 |
$ |
$ |
$ |
|||||||||
Incremental deferred revenue |
||||||||||||
Revenue recognized during the year ended December 31, 2018 included in deferred revenue at December 31, 2017 |
( |
) |
( |
) |
( |
) | ||||||
Deferred revenue recognized from business acquisitions |
— |
|||||||||||
Deferred revenue at December 31, 2018 |
||||||||||||
Incremental deferred revenue |
||||||||||||
Revenue recognized during the year ended December 31, 2019 included in deferred revenue at December 31, 2018 |
( |
) |
( |
) |
( |
) | ||||||
Deferred revenue recognized from business acquisitions |
— |
|||||||||||
Deferred revenue at December 31, 2019 |
$ |
$ |
$ |
|||||||||
Brokerage |
Risk Management |
Total |
||||||||||
2020 |
$ |
$ |
$ |
|||||||||
2021 |
||||||||||||
2022 |
||||||||||||
2023 |
||||||||||||
2024 |
||||||||||||
Thereafter |
||||||||||||
Total |
$ |
$ |
$ |
|||||||||
5. |
Other Current Assets |
December 31, |
||||||||
2019 |
2018 |
|||||||
Premium finance advances and loans |
$ | $ | ||||||
Accrued supplemental, direct bill and other receivables |
||||||||
Refined coal production related receivables |
||||||||
Deferred contract costs |
||||||||
Prepaid expenses |
||||||||
Total other current assets |
$ | $ | ||||||
6. |
Fixed Assets |
December 31, |
||||||||
2019 |
2018 |
|||||||
Office equipment |
$ | $ | ||||||
Furniture and fixtures |
||||||||
Leasehold improvements |
||||||||
Computer equipment |
||||||||
Land and buildings - corporate headquarters |
||||||||
Software |
||||||||
Other |
||||||||
Work in process |
||||||||
Accumulated depreciation |
( |
) | ( |
) | ||||
Net fixed assets |
$ | $ | ||||||
7. |
Intangible Assets |
Risk |
||||||||||||||||
Brokerage |
Management |
Corporate |
Total |
|||||||||||||
At December 31, 2019 |
||||||||||||||||
United States |
$ | $ | $ | — |
$ | |||||||||||
United Kingdom |
— |
|||||||||||||||
Canada |
— |
— |
||||||||||||||
Australia |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
|||||||||||||||
Total goodwill - net |
$ | $ | $ | $ | ||||||||||||
At December 31, 2018 |
||||||||||||||||
United States |
$ | $ | $ | — |
$ | |||||||||||
United Kingdom |
— |
|||||||||||||||
Canada |
— |
— |
||||||||||||||
Australia |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
|||||||||||||||
Total goodwill - net |
$ | $ | $ | $ | ||||||||||||
Risk |
||||||||||||||||
Brokerage |
Management |
Corporate |
Total |
|||||||||||||
Balance as of December 31, 2017 |
$ | $ | $ | $ | ||||||||||||
Goodwill acquired during the year |
— |
|||||||||||||||
Goodwill adjustments related to appraisals and other acquisition adjustments |
( |
) | — |
( |
) | |||||||||||
Foreign currency translation adjustments during the year |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Balance as of December 31, 2018 |
||||||||||||||||
Goodwill acquired during the year |
||||||||||||||||
Goodwill adjustments related to appraisals and other acquisition adjustments |
( |
) | — |
— |
||||||||||||
Goodwill written-off related to sales of business |
( |
) | — |
— |
( |
) | ||||||||||
Foreign currency translation adjustments during the year |
( |
) | ||||||||||||||
Balance as of December 31, 2019 |
$ | $ | $ | $ | ||||||||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Expiration lists |
$ | $ | ||||||
Accumulated amortization - expiration lists |
( |
) | ( |
) | ||||
Non-compete agreements |
||||||||
Accumulated amortization - non-compete agreements |
( |
) | ( |
) | ||||
Trade names |
||||||||
Accumulated amortization - trade names |
( |
) | ( |
) | ||||
Net amortizable assets |
$ | $ | ||||||
2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total |
$ | |||
8. |
Credit and Other Debt Agreements |
December 31, |
||||||||
2019 |
2018 |
|||||||
Note Purchase Agreements: |
||||||||
Semi-annual payments of interest, fixed rate of ball due o June 24 , 2019 |
$ | — |
$ | |||||
Semi-annual payments of interest, fixed rate of Nove , mber 30 |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Quarterly payments of interest, floating rate of August 2, |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Quarterly payments of interest, floating rate of June 13, |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Semi-annual payments of interest, fixed rate of |
||||||||
Semi-annual payments of interest, fixed rate of |
— |
|||||||
Total Note Purchase Agreements |
||||||||
Credit Agreement: |
||||||||
Periodic payments of interest and principal, prime or LIBOR plus up to |
||||||||
Premium Financing Debt Facility - expires July 18, |
||||||||
Facility B |
||||||||
AUD denominated tranche, interbank rates plus |
||||||||
NZD denominated tranche, interbank rates plus |
— |
|||||||
Facility C and D |
||||||||
AUD denominated tranche, interbank rates plus |
— |
|||||||
NZD denominated tranche, interbank rates plus |
||||||||
Total Premium Financing Debt Facility |
||||||||
Total corporate and other debt |
||||||||
Less unamortized debt acquisition costs on Note Purchase Agreements |
( |
) | ( |
) | ||||
Net corporate and other debt |
$ | $ | ||||||
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
• | $ |
9. |
Earnings per Share |
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net earnings attributable to controlling interests |
$ | |
$ | |
$ | |
||||||
Weighted average number of common shares outstanding |
|
|
|
|||||||||
Dilutive effect of stock options using the treasury stock method |
|
|
|
|||||||||
Weighted average number of common and common equivalent shares outstanding |
|
|
|
|||||||||
Basic net earnings per share |
$ | |
$ | |
$ | |
||||||
Diluted net earnings per share |
$ | |
$ | |
$ | |
||||||
10. |
Stock Option Plans |
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Expected dividend yield |
|
% | |
% | |
% | ||||||
Expected risk-free interest rate |
|
% | |
% | |
% | ||||||
Volatility |
|
% | |
% | |
% | ||||||
Expected life (in years) |
|
|
|
Shares Under Option |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
|||||||||||||
Year Ended December 31, 2019 |
||||||||||||||||
Beginning balance |
|
$ | |
|||||||||||||
Granted |
|
|
||||||||||||||
Exercised |
( |
) | |
|||||||||||||
Forfeited or canceled |
( |
) | |
|||||||||||||
Ending balance |
|
$ | |
|
$ | |
||||||||||
Exercisable at end of year |
|
$ | |
|
$ | |
||||||||||
Ending unvested and expected to vest |
|
$ | |
|
$ | |
||||||||||
Year Ended December 31, 2018 |
||||||||||||||||
Beginning balance |
|
$ | |
|||||||||||||
Granted |
|
|
||||||||||||||
Exercised |
( |
) | |
|||||||||||||
Forfeited or canceled |
( |
) | |
|||||||||||||
Ending balance |
|
$ | |
|
$ | |
||||||||||
Exercisable at end of year |
|
$ | |
|
$ | |
||||||||||
Ending unvested and expected to vest |
|
$ | |
|
$ | |
Options Outstanding |
Options Exercisable |
|||||||||||||||||||||
Range of Exercise Prices |
Number Outstanding |
Weighted Average Remaining Contractual Term (in years) |
Weighted Average Exercise Price |
Number Exercisable |
Weighted Average Exercise Price |
|||||||||||||||||
$ - $ |
|
|
$ | |
|
$ | |
|||||||||||||||
- |
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
— |
— |
|||||||||||||||||
|
|
|
|
— |
— |
|||||||||||||||||
- |
|
|
|
— |
— |
|||||||||||||||||
$ |
|
|
$ | |
|
$ | |
|||||||||||||||
Restricted Stock Units Granted |
||||||||||||
Vesting Period |
2019 |
2018 |
2017 |
|||||||||
Total shares granted |
||||||||||||
Year Ended December 31, |
||||||||
2019 |
2018 |
|||||||
Change in pension benefit obligation: |
||||||||
Benefit obligation at beginning of year |
$ | $ | ||||||
Service cost |
||||||||
Interest cost |
||||||||
Net actuarial loss (gain) |
( |
) | ||||||
Benefits paid |
( |
) | ( |
) | ||||
Benefit obligation at end of year |
$ | $ | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at beginning of year |
$ | $ | ||||||
Actual return on plan assets |
( |
) | ||||||
Contributions by the company |
— |
|||||||
Benefits paid |
( |
) | ( |
) | ||||
Fair value of plan assets at end of year |
$ | $ | ||||||
Funded status of the plan (underfunded) |
$ | ( |
) | $ | ( |
) | ||
Amounts recognized in the consolidated balance sheet consist of: |
||||||||
Noncurrent liabilities - accrued benefit liability |
$ | ( |
) | $ | ( |
) | ||
Accumulated other comprehensive loss - net actuarial loss |
||||||||
Net amount included in retained earnings |
$ | $ | ||||||
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net periodic pension cost: |
||||||||||||
Service cost |
$ | $ | $ | |||||||||
Interest cost on benefit obligation |
||||||||||||
Expected return on plan assets |
( |
) | ( |
) | ( |
) | ||||||
Amortization of net loss |
||||||||||||
Net periodic benefit cost |
( |
) | ||||||||||
Other changes in plan assets and obligations recognized in other comprehensive earnings: |
||||||||||||
Net loss incurred |
||||||||||||
Amortization of net loss |
( |
) | ( |
) | ( |
) | ||||||
Total recognized in other comprehensive loss |
( |
) | ( |
) | ||||||||
Total recognized in net periodic pension cost and other comprehensive loss |
$ | ( |
) | $ | $ | ( |
) | |||||
Estimated amortization for the following year: |
||||||||||||
Amortization of net loss |
$ | $ | $ | |||||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Discount rate |
% | % | ||||||
Weighted average expected long-term rate of return on plan assets |
% | % |
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Discount rate |
% | % | % | |||||||||
Weighted average expected long-term rate of return on plan assets |
% | % | % |
2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Years 2025 to 2029 |
December 31, |
||||||||
Asset Category |
2019 |
2018 |
||||||
Equity securities |
% | % | ||||||
Debt securities |
% | % | ||||||
Real estate |
% | % | ||||||
Total |
% | % | ||||||
December 31, |
||||||||
Fair Value Hierarchy |
2019 |
2018 |
||||||
Level 1 |
$ | — |
$ | — |
||||
Level 2 |
||||||||
Level 3 |
||||||||
Total fair value |
$ | $ | ||||||
Year Ended December 31, |
||||||||
2019 |
2018 |
|||||||
Fair value at January 1 |
$ | $ | ||||||
Settlements |
— |
( |
) | |||||
Unrealized gain (loss) |
( |
) | ||||||
Fair value at December 31 |
$ | $ | ||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Chem-Mod LLC |
$ | $ | ||||||
Chem-Mod International LLC |
||||||||
Clean-coal investments: |
||||||||
Controlling interest in |
— |
|||||||
Non-controlling interest in |
||||||||
Controlling interest in |
||||||||
Other investments |
||||||||
Total investments |
$ | $ | ||||||
• | We have investments in limited liability companies that own |
• | As of December 31, 2019: |
• |
• | We have a noncontrolling interest in and therefore do not consolidate it. At December 31, 2019, total assets and total liabilities of this VIE were $ |
• | We and our co-investors each fund our portion of the on-going operations of the limited liability companies in proportion to our investment ownership percentages. Other than our portion of the on-going operational funding, there are no additional amounts that we are committed to related to funding these investments. |
Lease Components |
Statement of Earnings Classification |
Year ended December 31, 2019 |
|||||
Operating lease expense |
Operating expense |
$ | |||||
Variable lease expense |
Operating expense |
||||||
Sublease income |
Investment income |
( |
) | ||||
Net lease expense |
$ | ||||||
Supplemental Cash Flow Information Related to Leases (in millions) |
Year ended December 31, 2019 |
|||
Cash paid for amounts included in the measurement of lease liabilities: |
||||
Operating cash flows from operating leases |
$ | |||
Right-of-use assets obtained in exchange for new operating lease liabilities |
Lease Components |
Balance Sheet Classification |
December 31, 2019 |
||||
Lease right-of-use assets |
Right-of-use assets |
$ | ||||
Other current lease liabilities |
Accrued compensation and other current liabilities |
$ | ||||
Lease liabilities |
Lease liabilities - noncurrent |
|||||
Total lease liabilities |
$ | |||||
Weighted-average remaining lease term, years |
||||||
Weighted-average discount rate |
% |
2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total lease payments |
||||
Less interest |
( |
) | ||
Total |
$ | |||
Derivative Assets |
Derivative Liabilities |
|||||||||||||||
Instrument |
Notional Amount |
Balance Sheet Classification |
Fair Value |
Balance Sheet Classification |
Fair Value |
|||||||||||
At December 31, 2019 |
||||||||||||||||
Interest rate contracts |
$ | |
Other current assets |
$ | |
Accrued compensation and |
$ |
|
||||||||
Other noncurrent assets |
|
other current liabilities |
||||||||||||||
Other noncurrent liabilities |
|
|||||||||||||||
Foreign exchange contracts (1) |
|
Other current assets |
|
Accrued compensation and |
|
|||||||||||
other current liabilities |
||||||||||||||||
Other noncurrent assets |
|
Other noncurrent liabilities |
|
|||||||||||||
Total |
$ | |
$ |
|
$ | |
||||||||||
At December 31, 2018 |
||||||||||||||||
Interest rate contracts |
$ | |
Other current assets |
$ | |
Accrued compensation and |
$ | |
||||||||
other current liabilities |
||||||||||||||||
Foreign exchange contracts (1) |
|
Other current assets |
|
Accrued compensation and |
|
|||||||||||
other current liabilities |
||||||||||||||||
Other noncurrent assets |
|
Other noncurrent liabilities |
|
|||||||||||||
Total |
$ | |
$ | |
$ | |
||||||||||
(1) | Included within foreign exchange contracts at December 31, 2019 were $ |
Instrument |
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (1) |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings |
Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing |
Statement of Earnings Classification | ||||||||||
Year ended December 31, 2019 |
||||||||||||||
Interest rate contracts |
$ | ( |
) | $ | ( |
) | $ | — |
Interest expense | |||||
Foreign exchange contracts |
|
( |
) | ( |
) | Commission revenue | ||||||||
( |
) | |
Compensation expense | |||||||||||
( |
) | |
Operating expense | |||||||||||
Total |
$ | ( |
) | $ | ( |
) | $ | |
||||||
Year ended December 31, 2018 |
||||||||||||||
Interest rate contracts |
$ | ( |
) | $ | |
$ | — |
Interest expense | ||||||
Foreign exchange contracts |
( |
) | |
— |
Commission revenue | |||||||||
|
— |
Compensation expense | ||||||||||||
|
— |
Operating expense | ||||||||||||
Total |
$ | ( |
) | $ | |
$ | — |
|||||||
(1) | During 2019, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss were a loss of $ |
17. |
Commitments, Contingencies and Off-Balance Sheet Arrangements |
Payments Due by Period |
||||||||||||||||||||||||||||
Contractual Obligations |
2020 |
2021 |
2022 |
2023 |
2024 |
Thereafter |
Total |
|||||||||||||||||||||
Note purchase agreements |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||
Credit Agreement |
|
— |
— |
— |
— |
— |
|
|||||||||||||||||||||
Premium Financing Debt Facility |
|
— |
— |
— |
— |
— |
|
|||||||||||||||||||||
Interest on debt |
|
|
|
|
|
|
|
|||||||||||||||||||||
Total debt obligations |
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating lease obligations |
|
|
|
|
|
|
|
|||||||||||||||||||||
Less sublease arrangements |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
Outstanding purchase obligations |
|
|
|
|
|
|
|
|||||||||||||||||||||
Total contractual obligations |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||
Total |
||||||||||||||||||||||||||||
Amount of Commitment Expiration by Period |
Amounts |
|||||||||||||||||||||||||||
Off-Balance Sheet Commitments |
2020 |
2021 |
2022 |
2023 |
2024 |
Thereafter |
Committed |
|||||||||||||||||||||
Letters of credit |
$ | — |
$ | — |
$ | — |
$ | — |
$ | — |
$ | $ | ||||||||||||||||
Financial guarantees |
||||||||||||||||||||||||||||
Total commitments |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Compensation |
Maximum |
Liability |
||||||||||||||
Description, Purpose and Trigger |
Collateral |
to Us |
Exposure |
Recorded |
||||||||||||
Credit support under letters of credit (LOC) for deductibles due by us on our own insurance coverages - expires after 2023 Trigger - We do not reimburse the insurance companies for deductibles the insurance companies advance on our behalf |
$ | $ | ||||||||||||||
Credit enhancement under letters of credit for our captive insurance operations to meet minimum statutory capital requirements - expires after 2023 Trigger - Dissolution or catastrophic financial results of the operation |
— |
|||||||||||||||
Collateral related to claims funds held in a fiduciary capacity by a recent acquisition - expires 2020 Trigger - Claim payments are not made |
— |
|||||||||||||||
Credit support under letters of credit in lieu of a security deposit for an acquisition’s lease - expires 2023 Trigger - Lease payments do not get made |
— |
|||||||||||||||
Financial guarantees of loans to 6 Canadian-based employees - expires when loan balances are reduced to zero through May 2029 - Principal and interest payments are paid quarterly Trigger - Default on loan payments |
— |
|||||||||||||||
$ | $ | |||||||||||||||
(1) | The guarantees are collateralized by shares in minority holdings of our Canadian operating companies. |
18. |
Insurance Operations |
2019 |
2018 |
2017 |
||||||||||||||||||||||
Written |
Earned |
Written |
Earned |
Written |
Earned |
|||||||||||||||||||
Direct |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||
Assumed |
|
|
|
|
|
|
||||||||||||||||||
Ceded |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||
19. |
Income Taxes |
Year Ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Earnings before income taxes: |
||||||||||||
United States |
$ | |
$ | |
$ | |
||||||
Foreign, principally Australia, Canada, New Zealand and the U.K. |
|
|
|
|||||||||
Total earnings before income taxes |
$ | |
$ | |
$ | |
||||||
Provision (benefit) for income taxes: |
||||||||||||
Federal: |
||||||||||||
Current |
$ | |
$ | — |
$ | |
||||||
Deferred |
( |
) | ( |
) | ( |
) | ||||||
( |
) | ( |
) | ( |
) | |||||||
State and local: |
||||||||||||
Current |
|
|
|
|||||||||
Deferred |
( |
) | ( |
) | ( |
) | ||||||
|
( |
) | |
|||||||||
Foreign: |
||||||||||||
Current |
|
|
|
|||||||||
Deferred |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
||||||||||
Total benefit for income taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Year Ended December 31, |
||||||||||||||||||||||||
2019 |
2018 |
2017 |
||||||||||||||||||||||
Amount |
% of Pretax Earnings |
Amount |
% of Pretax Earnings |
Amount |
% of Pretax Earnings |
|||||||||||||||||||
Federal statutory rate |
$ | $ | $ | |||||||||||||||||||||
State income taxes - net of |
||||||||||||||||||||||||
Federal benefit |
||||||||||||||||||||||||
Differences related to non U.S. operations |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Alternative energy and other tax credits |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Other permanent differences |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
U.S. repatriation tax |
— |
— |
( |
) | ( |
) | ||||||||||||||||||
Stock-based compensation |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Changes in unrecognized tax benefits |
( |
) | — |
( |
) | ( |
) | |||||||||||||||||
Change in valuation allowance |
( |
) | ( |
) | ||||||||||||||||||||
Change in tax rates |
( |
) | ( |
) | — |
— |
( |
) | ( |
) | ||||||||||||||
Other |
( |
) | — |
— |
( |
) | ( |
) | ||||||||||||||||
Benefit for income taxes |
$ | ( |
) | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | ( |
) | |||||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Gross unrecognized tax benefits at January 1 |
$ | $ | ||||||
Increases in tax positions for current year |
||||||||
Settlements |
( |
) | — |
|||||
Lapse in statute of limitations |
( |
) | ( |
) | ||||
Increases in tax positions for prior years |
||||||||
Decreases in tax positions for prior years |
( |
) | ( |
) | ||||
Gross unrecognized tax benefits at December 31 |
$ | $ | ||||||
December 31, |
||||||||
2019 |
2018 |
|||||||
Deferred tax assets: |
||||||||
Alternative minimum tax and other credit carryforwards |
$ | $ | ||||||
Accrued and unfunded compensation and employee benefits |
||||||||
Amortizable intangible assets |
||||||||
Compensation expense related to stock options |
||||||||
Accrued liabilities |
||||||||
Accrued pension liability |
||||||||
Investments |
||||||||
Net operating loss carryforwards |
||||||||
Capital loss carryforwards |
||||||||
Lease liabilities |
||||||||
Hedging instruments |
||||||||
Other |
||||||||
Total deferred tax assets |
||||||||
Valuation allowance for deferred tax assets |
( |
) | ( |
) | ||||
Deferred tax assets |
||||||||
Deferred tax liabilities: |
||||||||
Nondeductible amortizable intangible assets |
||||||||
Investment-related partnerships |
||||||||
Depreciable fixed assets |
||||||||
Right-of-use assets |
— |
|||||||
Revenue recognition |
||||||||
Other prepaid items |
||||||||
Total deferred tax liabilities |
||||||||
Net deferred tax assets |
$ | $ | ||||||
20. |
Supplemental Disclosures of Cash Flow Information |
Year ended December 31, |
||||||||||||
Supplemental disclosures of cash flow information (in millions): |
2019 |
2018 |
2017 |
|||||||||
Interest paid |
$ | $ | $ | |||||||||
Income taxes paid, net |
December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Cash and cash equivalents |
$ | $ | $ | |||||||||
Restricted cash |
||||||||||||
Total cash, cash equivalents and restricted cash |
$ | $ | $ | |||||||||
21. |
Accumulated Other Comprehensive Earnings |
Pension Liability |
Foreign Currency Translation |
Fair Value of Derivative Instruments |
Accumulated Comprehensive Earnings (Loss) |
|||||||||||||
Balance as of January 1, 2017 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Adoption of Topic 606 |
— |
( |
) | — |
( |
) | ||||||||||
Net change in period |
||||||||||||||||
Balance as of December 31, 2017 |
( |
) | ( |
) | ( |
) | ||||||||||
Reclassification to retained earnings of income tax effects related to the Tax Act |
( |
) | — |
( |
) | |||||||||||
Net change in period |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Balance as of December 31, 2018 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Cumulative effect of adoption of new accounting standards |
— |
— |
( |
) | ( |
) | ||||||||||
Net change in period |
( |
) | ||||||||||||||
Balance as of December 31, 2019 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
22. |
Quarterly Operating Results (unaudited) |
1st |
2nd |
3rd |
4th |
|||||||||||||
2019 |
||||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
Total expenses |
||||||||||||||||
Earnings before income taxes |
$ | $ | $ | $ | ||||||||||||
Net earnings attributable to controlling interests |
$ | $ | $ | $ | ||||||||||||
Basic net earnings per share |
$ | $ | $ | $ | ||||||||||||
Diluted net earnings per share |
$ | $ | $ | $ | ||||||||||||
2018 |
||||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
Total expenses |
||||||||||||||||
Earnings before income taxes |
$ | $ | $ | $ | ||||||||||||
Net earnings attributable to controlling interests |
$ | $ | $ | $ | ||||||||||||
Basic net earnings per share |
$ | $ | $ | $ | ||||||||||||
Diluted net earnings per share |
$ | $ | $ | $ | ||||||||||||
23. |
Segment Information |
Year Ended December 31, 2019 |
Brokerage |
Risk Management |
Corporate |
Total |
||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | |
$ | — |
$ | — |
$ | |
||||||||
Fees |
|
|
— |
|
||||||||||||
Supplemental revenues |
|
— |
— |
|
||||||||||||
Contingent revenues |
|
— |
— |
|
||||||||||||
Investment income |
|
|
— |
|
||||||||||||
Net gains on divestitures |
|
— |
— |
|
||||||||||||
Revenue from clean coal activities |
— |
— |
|
|
||||||||||||
Other net losses |
— |
— |
( |
) | ( |
) | ||||||||||
Revenues before reimbursements |
|
|
|
|
||||||||||||
Reimbursements |
— |
|
— |
|
||||||||||||
Total revenues |
|
|
|
|
||||||||||||
Compensation |
|
|
|
|
||||||||||||
Operating |
|
|
|
|
||||||||||||
Reimbursements |
— |
|
— |
|
||||||||||||
Cost of revenues from clean coal activities |
— |
— |
|
|
||||||||||||
Interest |
— |
— |
|
|
||||||||||||
Depreciation |
|
|
|
|
||||||||||||
Amortization |
|
|
— |
|
||||||||||||
Change in estimated acquisition earnout payables |
|
( |
) | — |
|
|||||||||||
Total expenses |
|
|
|
|
||||||||||||
Earnings (loss) before income taxes |
|
|
( |
) | |
|||||||||||
Provision (benefit) for income taxes |
|
|
( |
) | ( |
) | ||||||||||
Net earnings (loss) |
|
|
( |
) | |
|||||||||||
Net earnings attributable to noncontrolling interests |
|
— |
|
|
||||||||||||
Net earnings (loss) attributable to controlling interests |
$ | |
$ | |
$ | ( |
) | $ | |
|||||||
Net foreign exchange loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Revenues: |
||||||||||||||||
United States |
$ | |
$ | |
$ | |
$ | |
||||||||
United Kingdom |
|
|
— |
|
||||||||||||
Australia |
|
|
— |
|
||||||||||||
Canada |
|
|
— |
|
||||||||||||
New Zealand |
|
|
— |
|
||||||||||||
Other foreign |
|
— |
— |
|
||||||||||||
Total revenues |
$ | |
$ | |
$ | |
$ | |
||||||||
At December 31, 2019 |
||||||||||||||||
Identifiable assets: |
||||||||||||||||
United States |
$ | |
$ | |
$ | |
$ | |
||||||||
United Kingdom |
|
|
— |
|
||||||||||||
Australia |
|
|
— |
|
||||||||||||
Canada |
|
|
— |
|
||||||||||||
New Zealand |
|
|
— |
|
||||||||||||
Other foreign |
|
— |
— |
|
||||||||||||
Total identifiable assets |
$ | |
$ | |
$ | |
$ | |
||||||||
Goodwill - net |
$ | |
$ | |
$ | |
$ | |
||||||||
Amortizable intangible assets - net |
|
|
— |
|
Year Ended December 31, 2018 |
Brokerage |
Risk Management |
Corporate |
Total |
||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | $ | — |
$ | — |
$ | ||||||||||
Fees |
— |
|||||||||||||||
Supplemental revenues |
— |
— |
||||||||||||||
Contingent revenues |
— |
— |
||||||||||||||
Investment income |
— |
|||||||||||||||
Net gains on divestitures |
— |
— |
||||||||||||||
Revenue from clean coal activities |
— |
— |
||||||||||||||
Other net revenues |
— |
— |
||||||||||||||
Revenues before reimbursements |
||||||||||||||||
Reimbursements |
— |
— |
||||||||||||||
Total revenues |
||||||||||||||||
Compensation |
||||||||||||||||
Operating |
||||||||||||||||
Reimbursements |
— |
— |
||||||||||||||
Cost of revenues from clean coal activities |
— |
— |
||||||||||||||
Interest |
— |
— |
||||||||||||||
Depreciation |
||||||||||||||||
Amortization |
— |
|||||||||||||||
Change in estimated acquisition earnout payables |
( |
) | — |
|||||||||||||
Total expenses |
||||||||||||||||
Earnings (loss) before income taxes |
( |
) | ||||||||||||||
Provision (benefit) for income taxes |
( |
) | ( |
) | ||||||||||||
Net earnings |
||||||||||||||||
Net earnings attributable to noncontrolling interests |
— |
|||||||||||||||
Net earnings attributable to controlling interests |
$ | $ | $ | $ | ||||||||||||
Net foreign exchange gain |
$ | — |
$ | — |
$ | $ | ||||||||||
Revenues: |
||||||||||||||||
United States |
$ | $ | $ | $ | ||||||||||||
United Kingdom |
— |
|||||||||||||||
Australia |
— |
|||||||||||||||
Canada |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
— |
||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
At December 31, 2018 |
||||||||||||||||
Identifiable assets: |
||||||||||||||||
United States |
$ | $ | $ | $ | ||||||||||||
United Kingdom |
— |
|||||||||||||||
Australia |
— |
|||||||||||||||
Canada |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
— |
||||||||||||||
Total identifiable assets |
$ | $ | $ | $ | ||||||||||||
Goodwill - net |
$ | $ | $ | $ | ||||||||||||
Amortizable intangible assets - net |
— |
Year Ended December 31, 2017 |
Brokerage |
Risk Management |
Corporate |
Total |
||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | $ | — |
$ | — |
$ | ||||||||||
Fees |
— |
|||||||||||||||
Supplemental revenues |
— |
— |
||||||||||||||
Contingent revenues |
— |
— |
||||||||||||||
Investment income |
— |
|||||||||||||||
Net gains on divestitures |
— |
— |
||||||||||||||
Revenue from clean coal activities |
— |
— |
||||||||||||||
Revenues before reimbursements |
||||||||||||||||
Reimbursements |
— |
— |
||||||||||||||
Total revenues |
||||||||||||||||
Compensation |
||||||||||||||||
Operating |
||||||||||||||||
Reimbursements |
— |
— |
||||||||||||||
Cost of revenues from clean coal activities |
— |
— |
||||||||||||||
Interest |
— |
— |
||||||||||||||
Depreciation |
||||||||||||||||
Amortization |
— |
|||||||||||||||
Change in estimated acquisition earnout payables |
— |
|||||||||||||||
Total expenses |
||||||||||||||||
Earnings (loss) before income taxes |
( |
) | ||||||||||||||
Provision (benefit) for income taxes |
( |
) | ( |
) | ||||||||||||
Net earnings |
||||||||||||||||
Net earnings attributable to noncontrolling interests |
— |
|||||||||||||||
Net earnings attributable to controlling interests |
$ | $ | $ | $ | ||||||||||||
Net foreign exchange loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Revenues: |
||||||||||||||||
United States |
$ | $ | $ | $ | ||||||||||||
United Kingdom |
— |
|||||||||||||||
Australia |
— |
|||||||||||||||
Canada |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
— |
||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
At December 31, 2017 |
||||||||||||||||
Identifiable assets: |
||||||||||||||||
United States |
$ | $ | $ | $ | ||||||||||||
United Kingdom |
— |
|||||||||||||||
Australia |
— |
|||||||||||||||
Canada |
— |
|||||||||||||||
New Zealand |
— |
|||||||||||||||
Other foreign |
— |
— |
||||||||||||||
Total identifiable assets |
$ | $ | $ | $ | ||||||||||||
Goodwill - net |
$ | $ | $ | $ | ||||||||||||
Amortizable intangible assets - net |
— |
Business acquisitions – Accounting for acquisitions | ||
Description of the Matter |
As described in Note 3 to the financial statements, Gallagher completed 49 acquisitions during 2019 for total net consideration of $1,791.8 million. From these, those considered significant acquisitions from an audit perspective were (1) the acquisition of all outstanding equity of Jardine Lloyd Thompson Group plc’s global aerospace operations (JLT) for net consideration of $230.7 million and (2) the acquisition of all outstanding equity of Stackhouse Poland Group Limited (SPG) for net consideration of $331.6 million. These acquisitions have been accounted for using the acquisition method for recording business combinations. The excess of the purchase price over the estimated fair value of the tangible net assets acquired at the acquisitions date was allocated to goodwill, acquired customer lists, non-compete agreements and trade names. Gallagher established these allocations using a third-party valuation firm.Auditing the accounting for these acquisitions involved a high degree of subjectivity in evaluating management’s estimates. Specifically, the identification and measurement of intangible assets and earnout obligations, as well as the sensitivity of the respective fair values to the underlying significant assumptions. Gallagher, with the assistance of a third-party valuation firm, used the discounted cash flow method to measure the fair value of these intangible assets and earnout obligations. The significant assumptions used to estimate the fair value of the intangible assets and earnout obligations included discount rates, estimated useful lives, revenue growth rates, attrition rates, projected profit margins and the expected rate of return. These assumptions are forward-looking and could be affected by future economic and market conditions. |
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over Gallagher’s accounting for the acquisitions noted above. For example, we tested controls over the recognition and measurement of assets acquired and consideration paid and payable, and management’s review of significant assumptions used in the determination of the fair value of intangible assets and earnout obligations. To test the estimated fair value of the acquisitions noted above, our audit procedures were performed with the assistance of our valuation specialists and included, among other things, an evaluation of (1) the identification of intangible assets, such as acquired customer lists, trade names and noncompetition agreements against the terms of the purchase agreements, (2) the fair value measurement of earnout obligations, specifically the terms of the arrangements and the conditions that must be met for the arrangements to become payable, as noted in the agreements; and (3) the significant assumptions, including discount rates, estimated useful lives, revenue growth rates, attrition rates, projected profit margins and the expected rate of return, used in valuing these intangibles. Specifically, when evaluating the noted assumptions, we compared the assumptions to the historical results of the acquired company, past performance of similar acquisitions, Gallagher’s history related to similar acquisitions, and current market conditions. | |
Brokerage and risk management revenue recognition | ||
Description of the Matter |
As described in Note 1 to the financial statements, Gallagher accounts for its brokerage and risk management revenue transactions by deferring a portion of the revenue to reflect delivery of services over the contract period. Total deferred revenue as of December 31, 2019 was $337.1 million and $166.6 million, for the brokerage and risk management segments, respectively, which represents the remaining performance obligations under contracts Gallagher has with its customers. Auditing the accounting for revenue recognition involved subjectivity and complexity in evaluating management’s estimates, specifically, the impact of significant assumptions, including revenue deferral rates and patterns, on the timing of revenue recognition for Gallagher’s brokerage and risk management revenue. These revenue deferral rates and patterns are used to estimate future service obligations and contain significant subjectivity and variability. | |
How We Addressed the Matter in Our Audit |
We obtained an understanding of Gallagher’s key revenue recognition processes and tested the design and operating effectiveness of revenue recognition controls, including controls over management’s review of the significant revenue deferral assumptions. We also tested controls over the completeness and accuracy of the inputs used in the determination of the estimated deferred revenue, including reconciliation controls. Our audit procedures over brokerage and risk management revenue included, among other things, an evaluation of Gallagher’s identification of performance obligations against contractual terms, and the significant assumptions used by management in estimating deferred revenue and recognition patterns, including time studies and actuarial projections. Our procedures also included testing the accuracy and completeness of the underlying data used by management in determining such assumptions by comparing a sample of transactions to source documentation and recalculating the application of deferral rates for a sample of product lines and divisions. With the assistance of actuarial specialists, we compared Gallagher’s selection of actuarial methods for risk management revenue to prior periods and those used in the industry. |
/s/ Ernst & Young LLP |
Ernst & Young LLP |
/s/ J. Patrick Gallagher, Jr. |
/s/ Douglas K. Howell | |||
J. Patrick Gallagher, Jr. Chairman, President and Chief Executive Officer |
Douglas K. Howell Chief Financial Officer |
/s/ Ernst & Young LLP |
Ernst & Young LLP |
1. | Consolidated Financial Statements: |
(a) | Consolidated Statement of Earnings for each of the three years in the period ended December 31, 2019. |
(b) | Consolidated Balance Sheet as of December 31, 2019 and 2018. |
(c) | Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2019. |
(d) | Consolidated Statement of Stockholders’ Equity for each of the three years in the period ended December 31, 2019. |
(e) | Notes to Consolidated Financial Statements. |
(f) | Report of Independent Registered Public Accounting Firm on Financial Statements. |
(g) | Management’s Report on Internal Control Over Financial Reporting. |
(h) | Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting. |
2. | Consolidated Financial Statement Schedules required to be filed by Item 8 of this Form: |
(a) | Schedule II - Valuation and Qualifying Accounts. |
3. | Exhibits: |
3.1 |
||||
3.2 |
||||
4.1 |
||||
*10.11 |
||||
*10.12 |
||||
*10.14.1 |
||||
*10.14.2 |
*10.15 |
||||
*10.16 |
||||
*10.16.1 |
||||
*10.17 |
||||
*10.17.1 |
||||
*10.18 |
||||
10.38 |
||||
10.40 |
||||
*10.42.1 |
||||
*10.42.2 |
||||
*10.42.3 |
||||
*10.42.4 |
||||
*10.42.5 |
||||
*10.43 |
||||
*10.43.1 |
||||
*10.43.2 |
||||
*10.44 |
||||
*10.45 |
*10.47 |
||||
*10.48 |
||||
21.1 |
||||
23.1 |
||||
24.1 |
||||
31.1 |
||||
31.2 |
||||
32.1 |
||||
32.2 |
||||
101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. | |||
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||
104 |
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (included as Exhibit 101). |
* | Such exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 601 of Regulation S-K. |
Arthur J. Gallagher & Co. | ||
By |
/s/ J. Patrick Gallagher, Jr. | |
J. Patrick Gallagher, Jr. | ||
Chairman, President and Chief Executive Officer |
Name |
Title | |
/ s / J. Patrick Gallagher, Jr. J. Patrick Gallagher, Jr. |
Chairman, President and Director (Principal Executive Officer) | |
/ s / Douglas K. HowellDouglas K. Howell |
Vice President and Chief Financial Officer (Principal Financial Officer) | |
/ s / Richard C. Cary Richard C. Cary |
Controller (Principal Accounting Officer) | |
* Sherry S. Barrat Sherry S. Barrat |
Director | |
* William L. Bax William L. Bax |
Director | |
* D. John Coldman D. John Coldman |
Director | |
* Frank E. English, Jr. Frank E. English, Jr. |
Director | |
* David S. Johnson David S. Johnson |
Director | |
* Kay W. Mc Curdy Kay W. Mc Curdy |
Director | |
* Ralph J. Nicoletti Ralph J. Nicoletti |
Director | |
* Norman L. Rosenthal Norman L. Rosenthal |
Director |
*By: |
/ s / Walter D. Bay | |
Walter D. Bay, Attorney-in-Fact |
|
Balance at Beginning of Year |
|
|
Amounts Recorded in Earnings |
|
|
Adjustments |
|
|
Balance at End of Year |
| |||||
(In millions) |
||||||||||||||||
Year ended December 31, 2019 |
||||||||||||||||
Allowance for doubtful accounts |
$ | |
$ | |
$ | ( ) |
(1) | $ | |
|||||||
Allowance for estimated policy cancellations |
|
|
— |
(2) | |
|||||||||||
Valuation allowance for deferred tax assets |
|
|
— |
|
||||||||||||
Accumulated amortization of expiration lists, noncompete agreements and trade names |
|
|
|
(3) | |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2018 |
||||||||||||||||
Allowance for doubtful accounts |
$ | |
$ | |
$ | ( ) |
(1) | $ | |
|||||||
Allowance for estimated policy cancellations |
|
( |
) | |
(2) | |
||||||||||
Valuation allowance for deferred tax assets |
|
( |
) | — |
|
|||||||||||
Accumulated amortization of expiration lists, noncompete agreements and trade names |
|
|
( ) |
(3) | |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017 |
||||||||||||||||
Allowance for doubtful accounts |
$ | |
$ | |
$ | ( ) |
(1) | $ | |
|||||||
Allowance for estimated policy cancellations |
|
|
( ) |
(2) | |
|||||||||||
Valuation allowance for deferred tax assets |
|
|
— |
|
||||||||||||
Accumulated amortization of expiration lists, noncompete agreements and trade names |
|
|
|
(3) | |
(1) | Net activity of bad debt write offs and recoveries and acquired businesses. |
(2) | Additions to allowance related to acquired businesses. |
(3) | Elimination of fully amortized expiration lists, non-compete agreements and trade names, intangible asset/amortization reclassifications and disposal of acquired businesses. |