UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2019
or
☐ | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from
Commission File Number: 1-09761
ARTHUR J. GALLAGHER & CO.
(Exact name of registrant as specified in its charter)
Delaware | 36-2151613 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
2850 W. Golf Road, Rolling Meadows
(Address of principal executive offices) (Zip code)
(630) 773-3800
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered | ||
Common Stock, par value | AJG | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule
The number of outstanding shares of the registrant’s common stock, $1.00 par value, as of June 30, 20192020 was approximately 186,070,000.
Information Concerning Forward-Looking Statements
This report contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events. Such statements use words such as “anticipate,” “believe,” “estimate,” “expect,” “contemplate,” “forecast,” “project,” “intend,” “plan,” “potential,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “see,” “should,” “will” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. For example, we may use forward-looking statements when addressing topics such as: market and industry conditions, including competitive and pricing trends; acquisition strategy;strategy including the expected size of our acquisition program; the expected impact of acquisitions and dispositions; the development and performance of our services and products; changes in the composition or level of our revenues or earnings; our cost structure and the size and outcome of cost-saving or restructuring initiatives; future capital expenditures; future debt levels and anticipated actions to be taken in connection with maturing debt; future debt to earnings ratios; the outcome of contingencies; dividend policy; pension obligations; cash flow and liquidity; capital structure and financial losses; future actions by regulators; the outcome of existing regulatory actions, investigations, reviews or litigation; the impact of changes in accounting rules, including the new lease accounting standards;rules; financial markets; interest rates; foreign exchange rates; matters relating to our operations; income taxes, including the impact of tax reform;taxes; expectations regarding our investments, including our clean energy investments; and integrating recent acquisitions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors.
Potential factors that could impact results include:
• | The current or a future economic downturn or unstable economic conditions, whatever the cause, including the effects of the coronavirus pandemic (which we refer to as COVID-19), or other factors like Brexit, worsening international relations, tariffs, trade wars or climate change and other long-term social, environmental and global health 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 the impact of current economic uncertainty on our ability to source, review and price acquisitions, 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, and the risk of our CEO or another senior executive contracting COVID-19; |
• | 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; |
- 2 -
• | A disaster or other significant disruption to business continuity; |
• | Damage to our reputation; |
• | 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; |
• | 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; |
• | 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 (which we refer to as the 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. |
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risk factors referred to above.above, and are currently, or in the future could be, amplified by the COVID-19 pandemic. Our future performance and actual results may differ materially from those expressed in forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of the applicable document. Many of the factors that will determine these results are beyond our ability to control or predict. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date that they are made, and we do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect new information, future or unexpected events or otherwise, except as required by applicable law or regulation.
A detailed discussion of the factors that could cause actual results to differ materially from our published expectations is contained under the heading “Risk Factors” in our filings with the Securities and Exchange Commission, including our Annual Report on Form
- 3 -
Arthur J. Gallagher & Co.
Index
Page No. | ||||||||||
Part I. | ||||||||||
Item 1. | ||||||||||
5 | ||||||||||
6 | ||||||||||
7 | ||||||||||
8 | ||||||||||
9-10 | ||||||||||
11-35 | ||||||||||
Item 2. | 36-65 | |||||||||
Item 3. | 65-66 | |||||||||
Item 4. | 66 | |||||||||
Part II. | ||||||||||
Item 1. | 67 | |||||||||
Item 1A. | 67 | |||||||||
Item 2. | 67-68 | |||||||||
Item 6. | 69 | |||||||||
70 |
- 4 -
Part I - Financial Information
Item 1. | Financial Statements (Unaudited) |
Arthur J. Gallagher & Co.
Consolidated Statement of Earnings
(Unaudited - in millions, except per share data)
| Three-month period ended |
|
| Six-month period ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Commissions | $ | 827.5 |
|
| $ | 777.7 |
|
| $ | 1,844.7 |
|
| $ | 1,718.1 |
|
Fees |
| 459.7 |
|
|
| 464.7 |
|
|
| 967.0 |
|
|
| 929.4 |
|
Supplemental revenues |
| 50.3 |
|
|
| 46.9 |
|
|
| 109.3 |
|
|
| 103.6 |
|
Contingent revenues |
| 37.4 |
|
|
| 29.5 |
|
|
| 82.5 |
|
|
| 77.5 |
|
Investment income |
| 16.0 |
|
|
| 19.6 |
|
|
| 34.6 |
|
|
| 37.9 |
|
Net gains on divestitures |
| 1.0 |
|
|
| 1.9 |
|
|
| 1.2 |
|
|
| 59.0 |
|
Revenues from clean coal activities |
| 159.5 |
|
|
| 284.4 |
|
|
| 341.3 |
|
|
| 656.7 |
|
Other net revenues |
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.1 |
|
Revenues before reimbursements |
| 1,551.6 |
|
|
| 1,624.8 |
|
|
| 3,380.8 |
|
|
| 3,582.3 |
|
Reimbursements |
| 32.4 |
|
|
| 33.0 |
|
|
| 70.1 |
|
|
| 66.1 |
|
Total revenues |
| 1,584.0 |
|
|
| 1,657.8 |
|
|
| 3,450.9 |
|
|
| 3,648.4 |
|
Compensation |
| 815.6 |
|
|
| 806.3 |
|
|
| 1,711.8 |
|
|
| 1,643.4 |
|
Operating |
| 214.8 |
|
|
| 257.7 |
|
|
| 472.5 |
|
|
| 520.2 |
|
Reimbursements |
| 32.4 |
|
|
| 33.0 |
|
|
| 70.1 |
|
|
| 66.1 |
|
Cost of revenues from clean coal activities |
| 161.2 |
|
|
| 292.0 |
|
|
| 346.6 |
|
|
| 674.5 |
|
Interest |
| 50.0 |
|
|
| 44.9 |
|
|
| 100.5 |
|
|
| 85.1 |
|
Depreciation |
| 34.4 |
|
|
| 35.3 |
|
|
| 71.2 |
|
|
| 69.3 |
|
Amortization |
| 88.2 |
|
|
| 79.7 |
|
|
| 223.8 |
|
|
| 156.2 |
|
Change in estimated acquisition earnout payables |
| 15.7 |
|
|
| 3.4 |
|
|
| (73.3 | ) |
|
| 6.3 |
|
Total expenses |
| 1,412.3 |
|
|
| 1,552.3 |
|
|
| 2,923.2 |
|
|
| 3,221.1 |
|
Earnings before income taxes |
| 171.7 |
|
|
| 105.5 |
|
|
| 527.7 |
|
|
| 427.3 |
|
Provision (benefit) for income taxes |
| 9.9 |
|
|
| (15.9 | ) |
|
| 10.5 |
|
|
| (45.8 | ) |
Net earnings |
| 161.8 |
|
|
| 121.4 |
|
|
| 517.2 |
|
|
| 473.1 |
|
Net earnings attributable to noncontrolling interests |
| 8.1 |
|
|
| 11.3 |
|
|
| 17.2 |
|
|
| 28.9 |
|
Net earnings attributable to controlling interests | $ | 153.7 |
|
| $ | 110.1 |
|
| $ | 500.0 |
|
| $ | 444.2 |
|
Basic net earnings per share | $ | 0.81 |
|
| $ | 0.59 |
|
| $ | 2.64 |
|
| $ | 2.40 |
|
Diluted net earnings per share |
| 0.79 |
|
|
| 0.58 |
|
|
| 2.58 |
|
|
| 2.35 |
|
Dividends declared per common share |
| 0.45 |
|
|
| 0.43 |
|
|
| 0.90 |
|
|
| 0.86 |
|
Three-month period endedJune 30, | Six-month period endedJune 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Commissions | $ | 777.7 | $ | 688.0 | $ | 1,718.1 | $ | 1,527.4 | ||||||||
Fees | 464.7 | 422.2 | 929.4 | 870.3 | ||||||||||||
Supplemental revenues | 46.9 | 48.1 | 103.6 | 100.1 | ||||||||||||
Contingent revenues | 29.5 | 21.8 | 77.5 | 56.7 | ||||||||||||
Investment income | 19.6 | 15.8 | 37.9 | 29.2 | ||||||||||||
Net gains on divestitures | 1.9 | 6.1 | 59.0 | 9.0 | ||||||||||||
Revenues from clean coal activities | 284.4 | 422.4 | 656.7 | 834.6 | ||||||||||||
Other net gains | 0.1 | 0.6 | 0.1 | 0.6 | ||||||||||||
Revenues before reimbursements | 1,624.8 | 1,625.0 | 3,582.3 | 3,427.9 | ||||||||||||
Reimbursements | 33.0 | 35.4 | 66.1 | 70.2 | ||||||||||||
Total revenues | 1,657.8 | 1,660.4 | 3,648.4 | 3,498.1 | ||||||||||||
Compensation | 806.3 | 724.7 | 1,643.4 | 1,500.5 | ||||||||||||
Operating | 257.7 | 222.8 | 520.2 | 438.9 | ||||||||||||
Reimbursements | 33.0 | 35.4 | 66.1 | 70.2 | ||||||||||||
Cost of revenues from clean coal activities | 292.0 | 441.8 | 674.5 | 873.0 | ||||||||||||
Interest | 44.9 | 33.9 | 85.1 | 65.2 | ||||||||||||
Depreciation | 35.3 | 30.8 | 69.3 | 61.4 | ||||||||||||
Amortization | 79.7 | 73.4 | 156.2 | 141.6 | ||||||||||||
Change in estimated acquisition earnout payables | 3.4 | (6.0 | ) | 6.3 | 1.4 | |||||||||||
Total expenses | 1,552.3 | 1,556.8 | 3,221.1 | 3,152.2 | ||||||||||||
Earnings before income taxes | 105.5 | 103.6 | 427.3 | 345.9 | ||||||||||||
Benefit for income taxes | (15.9 | ) | (20.1 | ) | (45.8 | ) | (63.8 | ) | ||||||||
Net earnings | 121.4 | 123.7 | 473.1 | 409.7 | ||||||||||||
Net earnings attributable to noncontrolling interests | 11.3 | 8.8 | 28.9 | 21.1 | ||||||||||||
Net earnings attributable to controlling interests | $ | 110.1 | $ | 114.9 | $ | 444.2 | $ | 388.6 | ||||||||
Basic net earnings per share | $ | 0.59 | $ | 0.63 | $ | 2.40 | $ | 2.14 | ||||||||
Diluted net earnings per share | 0.58 | 0.62 | 2.35 | 2.10 | ||||||||||||
Dividends declared per common share | 0.43 | 0.41 | 0.86 | 0.82 |
See notes to consolidated financial statements.
- 5 -
Arthur J. Gallagher & Co.
Consolidated Statement of Comprehensive Earnings
(Unaudited - in millions)
| Three-month period ended |
|
| Six-month period ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net earnings | $ | 161.8 |
|
| $ | 121.4 |
|
| $ | 517.2 |
|
| $ | 473.1 |
|
Change in pension liability, net of taxes |
| — |
|
|
| 0.8 |
|
|
| 1.2 |
|
|
| 2.4 |
|
Foreign currency translation, net of taxes |
| 250.7 |
|
|
| (60.7 | ) |
|
| (130.6 | ) |
|
| 13.8 |
|
Change in fair value of derivative investments, net of taxes |
| (1.8 | ) |
|
| (21.1 | ) |
|
| (93.2 | ) |
|
| (32.9 | ) |
Comprehensive earnings |
| 410.7 |
|
|
| 40.4 |
|
|
| 294.6 |
|
|
| 456.4 |
|
Comprehensive earnings attributable to noncontrolling interests |
| 7.3 |
|
|
| 11.1 |
|
|
| 17.6 |
|
|
| 29.3 |
|
Comprehensive earnings attributable to controlling interests | $ | 403.4 |
|
| $ | 29.3 |
|
| $ | 277.0 |
|
| $ | 427.1 |
|
Three-month period endedJune 30, | Six-month period endedJune 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings | $ | 121.4 | $ | 123.7 | $ | 473.1 | $ | 409.7 | ||||||||
Change in pension liability, net of taxes | 0.8 | (5.5 | ) | 2.4 | 1.5 | |||||||||||
Foreign currency translation, net of taxes in 2019 | (60.7 | ) | (150.7 | ) | 13.8 | (88.4 | ) | |||||||||
Change in fair value of derivative investments, net of taxes | (21.1 | ) | 4.3 | (32.9 | ) | (2.5 | ) | |||||||||
Comprehensive earnings (loss) | 40.4 | (28.2 | ) | 456.4 | 320.3 | |||||||||||
Comprehensive earnings attributable to noncontrolling interests | 11.1 | 3.3 | 29.3 | 17.8 | ||||||||||||
Comprehensive earnings (loss) attributable to controlling interests | $ | 29.3 | $ | (31.5 | ) | $ | 427.1 | $ | 302.5 | |||||||
See notes to consolidated financial statements.
- 6 -
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions)
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 349.7 |
|
| $ | 604.8 |
|
Restricted cash |
|
| 2,653.0 |
|
|
| 2,019.1 |
|
Premiums and fees receivable |
|
| 6,873.5 |
|
|
| 5,419.2 |
|
Other current assets |
|
| 884.2 |
|
|
| 1,074.4 |
|
Total current assets |
|
| 10,760.4 |
|
|
| 9,117.5 |
|
Fixed assets - net |
|
| 461.4 |
|
|
| 467.4 |
|
Deferred income taxes |
|
| 1,012.1 |
|
|
| 945.6 |
|
Other noncurrent assets |
|
| 727.7 |
|
|
| 773.6 |
|
Right-of-use assets |
|
| 362.2 |
|
|
| 393.5 |
|
Goodwill |
|
| 5,756.4 |
|
|
| 5,618.5 |
|
Amortizable intangible assets - net |
|
| 2,226.0 |
|
|
| 2,318.7 |
|
Total assets |
| $ | 21,306.2 |
|
| $ | 19,634.8 |
|
Premiums payable to underwriting enterprises |
| $ | 7,950.5 |
|
| $ | 6,348.5 |
|
Accrued compensation and other current liabilities |
|
| 1,131.6 |
|
|
| 1,347.8 |
|
Deferred revenue - current |
|
| 453.3 |
|
|
| 434.1 |
|
Premium financing debt |
|
| 103.6 |
|
|
| 170.6 |
|
Corporate related borrowings - current |
|
| 225.0 |
|
|
| 620.0 |
|
Total current liabilities |
|
| 9,864.0 |
|
|
| 8,921.0 |
|
Corporate related borrowings - noncurrent |
|
| 4,315.4 |
|
|
| 3,816.1 |
|
Deferred revenue - noncurrent |
|
| 66.3 |
|
|
| 69.7 |
|
Lease liabilities - noncurrent |
|
| 307.9 |
|
|
| 340.9 |
|
Other noncurrent liabilities |
|
| 1,218.1 |
|
|
| 1,271.6 |
|
Total liabilities |
|
| 15,771.7 |
|
|
| 14,419.3 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock - issued and outstanding 191.5 shares in 2020 and 188.1 shares in 2019 |
|
| 191.5 |
|
|
| 188.1 |
|
Capital in excess of par value |
|
| 4,051.0 |
|
|
| 3,825.7 |
|
Retained earnings |
|
| 2,228.3 |
|
|
| 1,901.3 |
|
Accumulated other comprehensive loss |
|
| (982.2 | ) |
|
| (759.6 | ) |
Stockholders' equity attributable to controlling interests |
|
| 5,488.6 |
|
|
| 5,155.5 |
|
Stockholders' equity attributable to noncontrolling interests |
|
| 45.9 |
|
|
| 60.0 |
|
Total stockholders' equity |
|
| 5,534.5 |
|
|
| 5,215.5 |
|
Total liabilities and stockholders' equity |
| $ | 21,306.2 |
|
| $ | 19,634.8 |
|
June 30, 2019 | December 31, 2018 | |||||||
Cash and cash equivalents | $ | 512.3 | $ | 607.2 | ||||
Restricted cash | 2,034.3 | 1,629.6 | ||||||
Premiums and fees receivable | 6,007.6 | 4,857.5 | ||||||
Other current assets | 993.2 | 1,024.4 | ||||||
Total current assets | 9,547.4 | 8,118.7 | ||||||
Fixed assets - net | 458.0 | 436.9 | ||||||
Deferred income taxes | 905.7 | 806.2 | ||||||
Other noncurrent assets | 670.1 | 573.6 | ||||||
Right-of-use assets | 368.4 | — | ||||||
Goodwill | 5,241.9 | 4,625.6 | ||||||
Amortizable intangible assets - net | 2,008.8 | 1,773.0 | ||||||
Total assets | $ | 19,200.3 | $ | 16,334.0 | ||||
Premiums payable to underwriting enterprises | $ | 6,873.8 | $ | 5,740.2 | ||||
Accrued compensation and other current liabilities | 1,067.4 | 1,055.1 | ||||||
Deferred revenue - current | 429.0 | 379.3 | ||||||
Premium financing debt | 137.3 | 154.0 | ||||||
Corporate related borrowings - current | 425.0 | 365.0 | ||||||
Total current liabilities | 8,932.5 | 7,693.6 | ||||||
Corporate related borrowings - noncurrent | 3,815.6 | 3,091.4 | ||||||
Deferred revenue - noncurrent | 75.3 | 78.4 | ||||||
Lease liabilities - noncurrent | 327.4 | — | ||||||
Other noncurrent liabilities | 1,101.7 | 900.9 | ||||||
Total liabilities | 14,252.5 | 11,764.3 | ||||||
Stockholders’ equity: | ||||||||
Common stock - issued and outstanding 186.1 shares in 2019 and 184.0 shares in 2018 | 186.1 | 184.0 | ||||||
Capital in excess of par value | 3,656.5 | 3,541.9 | ||||||
Retained earnings | 1,839.3 | 1,558.6 | ||||||
Accumulated other comprehensive loss | (802.5 | ) | (785.6 | ) | ||||
Stockholders’ equity attributable to controlling interests | 4,879.4 | 4,498.9 | ||||||
Stockholders’ equity attributable to noncontrolling interests | 68.4 | 70.8 | ||||||
Total stockholders’ equity | 4,947.8 | 4,569.7 | ||||||
Total liabilities and stockholders’ equity | $ | 19,200.3 | $ | 16,334.0 | ||||
See notes to consolidated financial statements.
- 7 -
Arthur J. Gallagher & Co.
Consolidated Statement of Cash Flows
(Unaudited - in millions)
|
| Six-month period ended |
| |||||
|
| June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
| $ | 517.2 |
|
| $ | 473.1 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Net gain on investments and other |
|
| (1.2 | ) |
|
| (58.7 | ) |
Depreciation and amortization |
|
| 295.0 |
|
|
| 225.5 |
|
Change in estimated acquisition earnout payables |
|
| (73.3 | ) |
|
| 6.3 |
|
Amortization of deferred compensation and restricted stock |
|
| 30.8 |
|
|
| 22.7 |
|
Stock-based and other noncash compensation expense |
|
| 6.7 |
|
|
| 7.1 |
|
Payments on acquisition earnouts in excess of original estimates |
|
| (14.3 | ) |
|
| (9.8 | ) |
Effect of changes in foreign exchange rates |
|
| (6.5 | ) |
|
| 4.1 |
|
Net change in premiums and fees receivable |
|
| (1,569.1 | ) |
|
| (1,109.0 | ) |
Net change in deferred revenue |
|
| 18.4 |
|
|
| 27.0 |
|
Net change in premiums payable to underwriting enterprises |
|
| 1,723.6 |
|
|
| 1,079.2 |
|
Net change in other current assets |
|
| 103.1 |
|
|
| 50.4 |
|
Net change in accrued compensation and other current liabilities |
|
| (206.4 | ) |
|
| (167.8 | ) |
Net change in income taxes payable |
|
| 34.3 |
|
|
| 5.6 |
|
Net change in deferred income taxes |
|
| (79.3 | ) |
|
| (93.6 | ) |
Net change in other noncurrent assets and liabilities |
|
| 23.2 |
|
|
| (42.5 | ) |
Net cash provided by operating activities |
|
| 802.2 |
|
|
| 419.6 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (58.8 | ) |
|
| (75.3 | ) |
Cash paid for acquisitions, net of cash and restricted cash acquired |
|
| (82.9 | ) |
|
| (733.9 | ) |
Net proceeds from sales of operations/books of business |
|
| 2.5 |
|
|
| 77.1 |
|
Net funding of investment transactions |
|
| (0.6 | ) |
|
| (0.7 | ) |
Net cash used by investing activities |
|
| (139.8 | ) |
|
| (732.8 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments on acquisition earnouts |
|
| (30.7 | ) |
|
| (14.0 | ) |
Proceeds from issuance of common stock |
|
| 58.2 |
|
|
| 65.1 |
|
Payments to noncontrolling interests |
|
| (81.4 | ) |
|
| (30.6 | ) |
Dividends paid |
|
| (173.5 | ) |
|
| (159.7 | ) |
Net borrowings on premium financing debt facility |
|
| (62.7 | ) |
|
| (15.4 | ) |
Borrowings on line of credit facility |
|
| 2,550.0 |
|
|
| 2,000.0 |
|
Repayments on line of credit facility |
|
| (2,970.0 | ) |
|
| (1,940.0 | ) |
Net borrowings of corporate related long-term debt |
|
| 524.8 |
|
|
| 725.0 |
|
Debt acquisition costs |
|
| (1.3 | ) |
|
| (3.9 | ) |
Settlements on terminated interest rate swaps |
|
| (65.9 | ) |
|
| (6.4 | ) |
Net cash (used) provided by financing activities |
|
| (252.5 | ) |
|
| 620.1 |
|
Effect of changes in foreign exchange rates on cash and cash equivalents and restricted cash |
|
| (31.1 | ) |
|
| 2.9 |
|
Net increase in cash, cash equivalents and restricted cash |
|
| 378.8 |
|
|
| 309.8 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 2,623.9 |
|
|
| 2,236.8 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 3,002.7 |
|
| $ | 2,546.6 |
|
Six-month period endedJune 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 473.1 | $ | 409.7 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Net gain on investments and other | (58.7 | ) | (7.6 | ) | ||||
Depreciation and amortization | 225.5 | 203.0 | ||||||
Change in estimated acquisition earnout payables | 6.3 | 1.4 | ||||||
Amortization of deferred compensation and restricted stock | 22.7 | 21.9 | ||||||
Stock-based and other noncash compensation expense | 7.1 | 6.4 | ||||||
Payments on acquisition earnouts in excess of original estimates | (9.8 | ) | (20.0 | ) | ||||
Effect of changes in foreign exchange rates | 4.1 | (1.4 | ) | |||||
Net change in premiums and fees receivable | (1,109.0 | ) | (1,097.3 | ) | ||||
Net change in deferred revenue | 27.0 | 32.4 | ||||||
Net change in premiums payable to underwriting enterprises | 1,079.2 | 1,106.9 | ||||||
Net change in other current assets | 50.4 | 1.0 | ||||||
Net change in accrued compensation and other current liabilities | (167.8 | ) | (135.7 | ) | ||||
Net change in income taxes payable | 5.6 | 4.7 | ||||||
Net change in deferred income taxes | (93.6 | ) | (146.4 | ) | ||||
Net change in other noncurrent assets and liabilities | (42.5 | ) | (65.7 | ) | ||||
Net cash provided by operating activities | 419.6 | 313.3 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (75.3 | ) | (62.7 | ) | ||||
Cash paid for acquisitions, net of cash and restricted cash acquired | (733.9 | ) | (395.4 | ) | ||||
Net proceeds from sales of operations/books of business | 77.1 | 12.1 | ||||||
Net funding of investment transactions | (0.7 | ) | 0.3 | |||||
Net cash used by investing activities | (732.8 | ) | (445.7 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments on acquisition earnouts | (14.0 | ) | (25.1 | ) | ||||
Proceeds from issuance of common stock | 65.1 | 47.7 | ||||||
Repurchases of common stock | — | (11.3 | ) | |||||
Payments to noncontrolling interests | (30.6 | ) | (22.2 | ) | ||||
Dividends paid | (159.7 | ) | (150.9 | ) | ||||
Net borrowings on premium financing debt facility | (15.4 | ) | (34.5 | ) | ||||
Borrowings on line of credit facility | 2,000.0 | 1,805.0 | ||||||
Repayments on line of credit facility | (1,940.0 | ) | (1,860.0 | ) | ||||
Net borrowings of corporate related long-term debt | 725.0 | 450.0 | ||||||
Debt acquisition costs | (3.9 | ) | — | |||||
Settlements on terminated interest rate swaps | (6.4 | ) | 2.9 | |||||
Net cash provided by financing activities | 620.1 | 201.6 | ||||||
Effect of changes in foreign exchange rates on cash and cash equivalents and restricted cash | 2.9 | (29.5 | ) | |||||
Net increase in cash, cash equivalents and restricted cash | 309.8 | 39.7 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 2,236.8 | 2,305.0 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 2,546.6 | $ | 2,344.7 | ||||
See notes to consolidated financial statements.
- 8 -
Arthur J. Gallagher & Co.
Consolidated Statement of Stockholders’ Equity
(Unaudited - in millions)millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Capital in |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Stock |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Noncontrolling |
|
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Interests |
|
| Total |
| |||||||
Balance at December 31, 2019 |
|
| 188.1 |
|
| $ | 188.1 |
|
| $ | 3,825.7 |
|
| $ | 1,901.3 |
|
| $ | (759.6 | ) |
| $ | 60.0 |
|
| $ | 5,215.5 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 346.3 |
|
|
| — |
|
|
| 9.1 |
|
|
| 355.4 |
|
Net purchase of subsidiary shares from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10.8 | ) |
|
| (10.8 | ) |
Dividends paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18.9 | ) |
|
| (18.9 | ) |
Net change in pension asset/ liability, net of taxes of $0.3 million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
|
| — |
|
|
| 1.2 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (381.3 | ) |
|
| 1.2 |
|
|
| (380.1 | ) |
Change in fair value of derivative instruments, net of taxes of $(28.9) million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (91.4 | ) |
|
| — |
|
|
| (91.4 | ) |
Compensation expense related to stock option plan grants |
|
| — |
|
|
| — |
|
|
| 3.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.4 |
|
Common stock issued in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three purchase transactions |
|
| 0.7 |
|
|
| 0.7 |
|
|
| 72.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73.1 |
|
Stock option plans |
|
| 0.4 |
|
|
| 0.4 |
|
|
| 17.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17.9 |
|
Employee stock purchase plan |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 5.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.0 |
|
Deferred compensation and restricted stock |
|
| 0.3 |
|
|
| 0.3 |
|
|
| (15.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15.0 | ) |
Cash dividends declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (86.2 | ) |
|
| — |
|
|
| — |
|
|
| (86.2 | ) |
Balance at March 31, 2020 |
|
| 189.6 |
|
|
| 189.6 |
|
|
| 3,909.6 |
|
|
| 2,161.4 |
|
|
| (1,231.1 | ) |
|
| 40.6 |
|
|
| 5,070.1 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 153.7 |
|
|
| — |
|
|
| 8.1 |
|
|
| 161.8 |
|
Net purchase of subsidiary shares from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.3 |
|
|
| 4.3 |
|
Dividends paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| �� |
|
|
| — |
|
|
| — |
|
|
| (6.3 | ) |
|
| (6.3 | ) |
Foreign currency translation, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 250.7 |
|
|
| (0.8 | ) |
|
| 249.9 |
|
Change in fair value of derivative instruments, net of taxes of $0.0 million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| (1.8 | ) |
Compensation expense related to stock option plan grants |
|
| — |
|
|
| — |
|
|
| 3.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.3 |
|
Common stock issued in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six purchase transactions |
|
| 1.2 |
|
|
| 1.2 |
|
|
| 109.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 110.9 |
|
Stock option plans |
|
| 0.5 |
|
|
| 0.5 |
|
|
| 21.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21.9 |
|
Employee stock purchase plan |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 12.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12.4 |
|
Deferred compensation and restricted stock |
|
| 0.1 |
|
|
| 0.1 |
|
|
| (5.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5.2 | ) |
Cash dividends declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (86.8 | ) |
|
| — |
|
|
| — |
|
|
| (86.8 | ) |
Balance at June 30, 2020 |
|
| 191.5 |
|
| $ | 191.5 |
|
| $ | 4,051.0 |
|
| $ | 2,228.3 |
|
| $ | (982.2 | ) |
| $ | 45.9 |
|
| $ | 5,534.5 |
|
Accumulated | |||||||||||||||||||||||||||||
Capital in | Other | ||||||||||||||||||||||||||||
Common Stock | Excess of | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Earnings (Loss) | Interests | Total | |||||||||||||||||||||||
Balance at December 31, 2018 | 184.0 | $ | 184.0 | $ | 3,541.9 | $ | 1,558.6 | $ | (785.6 | ) | $ | 70.8 | $ | 4,569.7 | |||||||||||||||
Cumulative effects of adoptions of lease and hedging accounting standards | — | — | — | (2.2 | ) | (0.2 | ) | — | (2.4 | ) | |||||||||||||||||||
Net earnings | — | — | — | 334.1 | — | 17.6 | 351.7 | ||||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests | — | — | (0.2 | ) | — | — | (0.1 | ) | (0.3 | ) | |||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | (11.0 | ) | (11.0 | ) | ||||||||||||||||||||
Net change in pension asset/liability, net of taxes of $0.4 million | — | — | — | — | 1.6 | — | 1.6 | ||||||||||||||||||||||
Foreign currency translation, net of taxes of $2.5 million | — | — | — | — | 74.5 | 0.6 | 75.1 | ||||||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of $(4.4) million | — | — | — | — | (11.8 | ) | — | (11.8 | ) | ||||||||||||||||||||
Compensation expense related to stock option plan grants | — | — | 3.6 | — | — | — | 3.6 | ||||||||||||||||||||||
Common stock issued in: | |||||||||||||||||||||||||||||
Two purchase transactions | 0.5 | 0.5 | 36.5 | — | — | — | 37.0 | ||||||||||||||||||||||
Stock option plans | 0.7 | 0.7 | 27.4 | — | — | — | 28.1 | ||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.1 | 4.6 | — | — | — | 4.7 | ||||||||||||||||||||||
Deferred compensation and restricted stock | — | — | (7.5 | ) | — | — | — | (7.5 | ) | ||||||||||||||||||||
Cash dividends declared on common stock | — | — | — | (80.3 | ) | — | — | (80.3 | ) | ||||||||||||||||||||
Balance at March 31, 2019 | 185.3 | 185.3 | 3,606.3 | 1,810.2 | (721.5 | ) | 77.9 | 4,958.2 | |||||||||||||||||||||
Net earnings | — | — | — | 110.1 | — | 11.3 | 121.4 | ||||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests | — | — | — | — | — | (7.3 | ) | (7.3 | ) | ||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | (13.3 | ) | (13.3 | ) | ||||||||||||||||||||
Net change in pension asset/liability, net of taxes of $0.2 million | — | — | — | — | 0.8 | — | 0.8 | ||||||||||||||||||||||
Foreign currency translation, net of taxes of $0.4 million | — | — | — | — | (60.7 | ) | (0.2 | ) | (60.9 | ) | |||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of $(7.1) million | — | — | — | — | (21.1 | ) | — | (21.1 | ) | ||||||||||||||||||||
Compensation expense related to stock option plan grants | — | — | 3.5 | — | — | — | 3.5 | ||||||||||||||||||||||
Common stock issued in: | |||||||||||||||||||||||||||||
Five purchase transactions | 0.1 | 0.1 | 10.9 | — | — | — | 11.0 | ||||||||||||||||||||||
Stock option plans | 0.5 | 0.5 | 21.3 | — | — | — | 21.8 | ||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.1 | 10.4 | — | — | — | 10.5 | ||||||||||||||||||||||
Deferred compensation and restricted stock | 0.1 | 0.1 | 4.1 | — | — | — | 4.2 | ||||||||||||||||||||||
Cash dividends declared on common stock | — | — | — | (81.0 | ) | — | — | (81.0 | ) | ||||||||||||||||||||
Balance at June 30, 2019 | 186.1 | $ | 186.1 | $ | 3,656.5 | $ | 1,839.3 | $ | (802.5 | ) | $ | 68.4 | $ | 4,947.8 | |||||||||||||||
See notes to consolidated financial statements.
- 9 -
Arthur J. Gallagher & Co.
Consolidated Statement of Stockholders’ Equity (continued)
(Unaudited - in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Capital in |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Stock |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Noncontrolling |
|
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Interests |
|
| Total |
| |||||||
Balance at December 31, 2018 |
|
| 184.0 |
|
| $ | 184.0 |
|
| $ | 3,541.9 |
|
| $ | 1,558.6 |
|
| $ | (785.6 | ) |
| $ | 70.8 |
|
| $ | 4,569.7 |
|
Cumulative effects of adoptions of leaseand hedging accounting standards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.2 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| (2.4 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 334.1 |
|
|
| — |
|
|
| 17.6 |
|
|
| 351.7 |
|
Net purchase of subsidiary shares from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| (0.1 | ) |
|
| (0.3 | ) |
Dividends paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11.0 | ) |
|
| (11.0 | ) |
Net change in pension asset/ liability, net of taxes of $0.4 million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 74.5 |
|
|
| 0.6 |
|
|
| 75.1 |
|
Change in fair value of derivative instruments, net of taxes of $(4.4) million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11.8 | ) |
|
| — |
|
|
| (11.8 | ) |
Compensation expense related to stock option plan grants |
|
| — |
|
|
| — |
|
|
| 3.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.6 |
|
Common stock issued in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two purchase transactions |
|
| 0.5 |
|
|
| 0.5 |
|
|
| 36.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37.0 |
|
Stock option plans |
|
| 0.7 |
|
|
| 0.7 |
|
|
| 27.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28.1 |
|
Employee stock purchase plan |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 4.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.7 |
|
Deferred compensation and restricted stock |
|
| — |
|
|
| — |
|
|
| (7.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7.5 | ) |
Cash dividends declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80.3 | ) |
|
| — |
|
|
| — |
|
|
| (80.3 | ) |
Balance at March 31, 2019 |
|
| 185.3 |
|
|
| 185.3 |
|
|
| 3,606.3 |
|
|
| 1,810.2 |
|
|
| (721.5 | ) |
|
| 77.9 |
|
|
| 4,958.2 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 110.1 |
|
|
| — |
|
|
| 11.3 |
|
|
| 121.4 |
|
Net purchase of subsidiary shares from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7.3 | ) |
|
| (7.3 | ) |
Dividends paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
|
| (13.3 | ) |
Net change in pension asset/ liability, net of taxes of $0.2 million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.8 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60.7 | ) |
|
| (0.2 | ) |
|
| (60.9 | ) |
Change in fair value of derivative instruments, net of taxes of $(7.1) million |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21.1 | ) |
|
| — |
|
|
| (21.1 | ) |
Compensation expense related to stock option plan grants |
|
| — |
|
|
| — |
|
|
| 3.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.5 |
|
Common stock issued in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five purchase transactions |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 10.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11.0 |
|
Stock option plans |
|
| 0.5 |
|
|
| 0.5 |
|
|
| 21.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21.8 |
|
Employee stock purchase plan |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 10.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10.5 |
|
Deferred compensation and restricted stock |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 4.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.2 |
|
Cash dividends declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81.0 | ) |
|
| — |
|
|
| — |
|
|
| (81.0 | ) |
Balance at June 30, 2019 |
|
| 186.1 |
|
| $ | 186.1 |
|
| $ | 3,656.5 |
|
| $ | 1,839.3 |
|
| $ | (802.5 | ) |
| $ | 68.4 |
|
| $ | 4,947.8 |
|
Accumulated | |||||||||||||||||||||||||||||
Capital in | Other | ||||||||||||||||||||||||||||
Common Stock | Excess of | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Earnings (Loss) | Interests | Total | |||||||||||||||||||||||
Balance at December 31, 2017, as previously reported | 181.0 | $ | 181.0 | $ | 3,388.2 | $ | 1,095.9 | $ | (559.9 | ) | $ | 59.7 | $ | 4,164.9 | |||||||||||||||
Adoption of Topic 606 | — | — | — | 125.9 | 4.5 | 4.4 | 134.8 | ||||||||||||||||||||||
Balance at December 31, 2017, as restated | 181.0 | 181.0 | 3,388.2 | 1,221.8 | (555.4 | ) | 64.1 | 4,299.7 | |||||||||||||||||||||
Reclassification of the income tax effects within accumulated other comprehensive loss related to the Tax Act | — | — | — | 6.6 | (6.6 | ) | — | — | |||||||||||||||||||||
Net earnings | — | — | — | 273.7 | — | 12.3 | 286.0 | ||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | (8.7 | ) | (8.7 | ) | ||||||||||||||||||||
Net change in pension asset/liability, net of taxes of ($0.6) million | — | — | — | — | 0.9 | — | 0.9 | ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | 56.2 | 2.2 | 58.4 | ||||||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of ($1.2) million | — | — | — | — | 5.4 | — | 5.4 | ||||||||||||||||||||||
Compensation expense related to stock option plan grants | — | — | 4.8 | — | — | — | 4.8 | ||||||||||||||||||||||
Common stock issued in: | |||||||||||||||||||||||||||||
Three purchase transactions | 0.1 | 0.1 | 6.4 | — | — | — | 6.5 | ||||||||||||||||||||||
Stock option plans | 0.8 | 0.8 | 27.4 | — | — | — | 28.2 | ||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.1 | 4.0 | — | — | — | 4.1 | ||||||||||||||||||||||
Deferred compensation and restricted stock | 0.2 | 0.2 | (14.3 | ) | — | — | — | (14.1 | ) | ||||||||||||||||||||
Common stock repurchases | (0.1 | ) | (0.1 | ) | (11.2 | ) | — | — | — | (11.3 | ) | ||||||||||||||||||
Cash dividends declared on common stock | — | — | — | (75.4 | ) | — | — | (75.4 | ) | ||||||||||||||||||||
Balance at March 31, 2018 | 182.1 | 182.1 | 3,405.3 | 1,426.7 | (499.5 | ) | 69.9 | 4,584.5 | |||||||||||||||||||||
Net earnings | — | — | — | 114.9 | — | 8.8 | 123.7 | ||||||||||||||||||||||
Net purchase of subsidiary shares from noncontrolling interests | — | — | (1.6 | ) | — | — | 4.5 | 2.9 | |||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | (8.2 | ) | (8.2 | ) | ||||||||||||||||||||
Net change in pension asset/liability, net of taxes of $3.7 million | — | — | — | — | 0.6 | — | 0.6 | ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | (144.6 | ) | (5.5 | ) | (150.1 | ) | |||||||||||||||||||
Change in fair value of derivative instruments, net of taxes of ($0.2) million | — | — | — | — | (7.9 | ) | — | (7.9 | ) | ||||||||||||||||||||
Compensation expense related to stock option plan grants | — | — | 1.6 | — | — | — | 1.6 | ||||||||||||||||||||||
Common stock issued in: | |||||||||||||||||||||||||||||
Three purchase transactions | 0.2 | 0.2 | 14.0 | — | — | — | 14.2 | ||||||||||||||||||||||
Stock option plans | 0.2 | 0.2 | 6.2 | — | — | — | 6.4 | ||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.1 | 8.9 | — | — | — | 9.0 | ||||||||||||||||||||||
Deferred compensation and restricted stock | — | — | 12.0 | — | — | — | 12.0 | ||||||||||||||||||||||
Common stock repurchases | — | — | — | — | — | — | — | ||||||||||||||||||||||
Cash dividends declared on common stock | — | — | — | (75.6 | ) | — | — | (75.6 | ) | ||||||||||||||||||||
Balance at June 30, 2018 | 182.6 | $ | 182.6 | $ | 3,446.4 | $ | 1,466.0 | $ | (651.4 | ) | $ | 69.5 | $ | 4,513.1 | |||||||||||||||
See notes to consolidated financial statements.
- 10 -
Notes to June 30, 20192020 Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Terms Used in Notes to Consolidated Financial Statements
ASC - Accounting Standards Codification.
ASU
FASB
GAAP
IRC
IRS
Underwriting enterprises
Nature of Operations and Basis of Presentation
Arthur J. Gallagher & Co. and its subsidiaries, collectively referred to herein as we, our, us or the company, provide insurance brokerage, consulting and third party claims settlement and administration services to both domestic and international entities through threeentities. We have 3 reportable operating segments.segments: brokerage, risk management and corporate. Our brokers, agents and administrators act as intermediaries between underwriting enterprises and our clients.
Our brokerage segment operations provide brokerage and consulting services to companies and entities of all types, including commercial,
We do not assume underwriting risk on a net basis, other than with respect to de minimis amounts necessary to provide minimum or regulatory capital to organize captives, pools, specialized underwriters or risk-retention groups. Rather, capital necessary for events of loss coveragescovering losses is provided by underwriting enterprises.
Investment income and other revenues are primarily generated from our premium financing operations, our invested cash and restricted cash we hold on behalf of our clients, as well as clean energy investments. In addition, our share of the net earnings related to partially owned entities that are accounted for using the equity method is included in investment income.
We are headquartered in Rolling Meadows, Illinois, have operations in 3549 countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent insurance brokers and consultants.
- 11 -
We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to such rules and regulations. The unaudited consolidated financial statements included herein are, in the opinion of management, prepared on a basis consistent with our audited consolidated financial statements for the year ended December 31, 2018,2019, except as disclosed in Note 2, and include all normal recurring adjustments necessary for a fair presentation of the information set forth. The quarterly results of operations are not necessarily indicative of the results of operations to be reported for subsequent quarters or the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form2018.2019. In the preparation of our unaudited consolidated financial statements as of June 30, 2019,2020, management evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued, for potential recognition or disclosure therein.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements. We periodically evaluate our estimates and assumptions, including those relating to the valuation of goodwill and other intangible assets,
2. Effect |
Credit Impairment
In June 2016, the FASB issued ASU No.
Disclosure Framework
In August 2018, the FASB issued ASU No.
In August 2018, the FASB also issued ASU No.
We doadopted both of the standards effective January 1, 2020. The adoption did not expect adoption of either standard will have a materialany impact on our consolidated financial statements.
Intangibles - Goodwill and Other
In January 2017, the FASB issued ASU No.
- 12 -
loss not exceeding the total amount of goodwill allocated to that reporting unit. The new guidance iswas effective beginning January 1, 2020, with early adoption permitted, and will be applied on a prospective basis. The2020. We adopted this new guidance currently has noeffective January 1, 2020. The adoption did not have any impact on our consolidated financial statements; however, we will evaluate the impact of this updated guidance on future annual or interim goodwill impairment tests performed.
Internal-use
In August 2018, the FASB issued ASU No.
3. Business Combinations
During the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
| Maximum |
| ||
|
| Common |
|
| Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded |
|
| Recorded |
|
| Potential |
| |||||
Name and Effective |
| Shares |
|
| Share |
|
|
|
|
|
| Accrued |
|
| Escrow |
|
| Earnout |
|
| Purchase |
|
| Earnout |
| |||||||
Date of Acquisition |
| Issued |
|
| Value |
|
| Cash Paid |
|
| Liability |
|
| Deposited |
|
| Payable |
|
| Price |
|
| Payable |
| ||||||||
|
| (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capsicum Reinsurance Brokers LLP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020 (CRB) |
|
| 584 |
|
| $ | 62.9 |
|
| $ | 64.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 119.0 |
|
| $ | 246.4 |
|
| $ | 209.1 |
|
Hanover Excess & Surplus, Inc and Hanover 'Finance, Inc (HES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020 |
|
| — |
|
|
| — |
|
|
| 30.1 |
|
|
| — |
|
|
| 3.0 |
|
|
| 0.2 |
|
|
| 33.3 |
|
|
| 9.3 |
|
CRES Insurance Services, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2020 (CRES) |
|
| 288 |
|
|
| 28.5 |
|
|
| 1.5 |
|
|
| — |
|
|
| 1.0 |
|
|
| 5.3 |
|
|
| 36.3 |
|
|
| 7.3 |
|
Nine other acquisitions completed in 2020 |
|
| 89 |
|
|
| 6.7 |
|
|
| 51.9 |
|
|
| 1.8 |
|
|
| 5.0 |
|
|
| 18.4 |
|
|
| 83.8 |
|
|
| 35.4 |
|
|
|
| 961 |
|
| $ | 98.1 |
|
| $ | 148.0 |
|
| $ | 1.8 |
|
| $ | 9.0 |
|
| $ | 142.9 |
|
| $ | 399.8 |
|
| $ | 261.1 |
|
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) January 1, 2019 | 452 | $ | 35.9 | $ | 31.2 | $ | — | $ | 4.5 | $ | 20.9 | $ | 92.5 | $ | 35.0 | |||||||||||||||||
Jones Brown Inc. (JBI) January 1, 2019 | — | — | 65.9 | — | 8.7 | — | 74.6 | — | ||||||||||||||||||||||||
Stackhouse Poland Group Limited (SPG) April 5, 2019 | — | — | 326.8 | — | 4.8 | — | 331.6 | — | ||||||||||||||||||||||||
RPA Insurance Services LLC (RPA) May 1, 2019 | — | — | 44.0 | — | 3.9 | 16.9 | 64.8 | 22.0 | ||||||||||||||||||||||||
JLT Aerospace (JLT) June 1, 2019 | — | — | 162.8 | — | — | 63.6 | 226.4 | 75.1 | ||||||||||||||||||||||||
19 other acquisitions completed in 2019 | 71 | 5.3 | 118.9 | 0.2 | 8.4 | 30.8 | 163.6 | 79.7 | ||||||||||||||||||||||||
523 | $ | 41.2 | $ | 749.6 | $ | 0.2 | $ | 30.3 | $ | 132.2 | $ | 953.5 | $ | 211.8 | ||||||||||||||||||
Common shares issued in connection with acquisitions are valued at closing market prices as of the effective date of the applicable acquisition or on the days when the shares are issued, if purchase consideration is deferred. We record escrow deposits that are returned to us as a result of adjustments to net assets acquired as reductions of goodwill when the escrows are settled. The maximum potential earnout payables disclosed in the foregoing table represent the maximum amount of additional consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition. The amounts recorded as earnout payables, which are primarily based upon the estimated future operating results of the acquired entities over a
The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. In determining fair value, we estimated the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability. Revenue growth rates generally ranged from 3.0%2.5% to 20.0%13.8% for our 20192020 acquisitions. We estimated future payments using the earnout formula and performance targets specified in each purchase agreement and thesethe financial projections.projections just described. We then discounted these payments to present value using a risk-adjusted rate that takes into consideration market-based rates of return that reflect the ability of the acquired entity to achieve the targets. The discount rates generally ranged from 7.5% to 8.2%were 9.0% for all of our 20192020 acquisitions.
- 13 -
Changes in financial projections, market participant assumptions for revenue growth and/or profitability, or the risk-adjusted discount rate, would result in a change in the fair value of recorded earnout obligations.
During the three-month periods ended June
The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in the
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Other |
|
|
|
|
| |
|
| CRB |
|
| HES |
|
| CRES |
|
| Acquisitions |
|
| Total |
| |||||
Cash |
| $ | — |
|
| $ | 0.3 |
|
| $ | 1.5 |
|
| $ | 2.4 |
|
| $ | 4.2 |
|
Other current assets |
|
| — |
|
|
| 4.0 |
|
|
| 15.2 |
|
|
| 21.7 |
|
|
| 40.9 |
|
Fixed assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
| 0.4 |
|
Noncurrent assets |
|
| 7.6 |
|
|
| 0.8 |
|
|
| — |
|
|
| 2.0 |
|
|
| 10.4 |
|
Goodwill |
|
| 119.0 |
|
|
| 13.1 |
|
|
| 24.6 |
|
|
| 33.8 |
|
|
| 190.5 |
|
Expiration lists |
|
| 103.3 |
|
|
| 19.5 |
|
|
| 9.3 |
|
|
| 46.3 |
|
|
| 178.4 |
|
Non-compete agreements |
|
| 3.3 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.4 |
|
|
| 4.6 |
|
Trade names |
|
| 13.2 |
|
|
| — |
|
|
| 1.0 |
|
|
| — |
|
|
| 14.2 |
|
Total assets acquired |
|
| 246.4 |
|
|
| 38.2 |
|
|
| 52.0 |
|
|
| 107.0 |
|
|
| 443.6 |
|
Current liabilities |
|
| — |
|
|
| 4.4 |
|
|
| 15.7 |
|
|
| 19.6 |
|
|
| 39.7 |
|
Noncurrent liabilities |
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| 3.6 |
|
|
| 4.1 |
|
Total liabilities assumed |
|
| — |
|
|
| 4.9 |
|
|
| 15.7 |
|
|
| 23.2 |
|
|
| 43.8 |
|
Total net assets acquired |
| $ | 246.4 |
|
| $ | 33.3 |
|
| $ | 36.3 |
|
| $ | 83.8 |
|
| $ | 399.8 |
|
IHC | JBI | SPG | RPA | JLT | 19 Other Acquisitions | Total | ||||||||||||||||||||||
Cash | $ | — | $ | 2.7 | $ | 13.6 | $ | — | $ | — | $ | 2.0 | $ | 18.3 | ||||||||||||||
Other current assets | 3.8 | 22.2 | 35.9 | 10.6 | 6.3 | 16.4 | 95.2 | |||||||||||||||||||||
Fixed assets | 0.3 | 1.1 | 3.1 | 0.2 | — | 0.5 | 5.2 | |||||||||||||||||||||
Noncurrent assets | 0.5 | 2.9 | 9.9 | 0.7 | 2.9 | 4.5 | 21.4 | |||||||||||||||||||||
Goodwill | 41.8 | 51.2 | 302.6 | 34.5 | 106.2 | 68.0 | 604.3 | |||||||||||||||||||||
Expiration lists | 50.6 | 22.7 | 56.8 | 32.6 | 118.8 | 93.1 | 374.6 | |||||||||||||||||||||
Non-compete agreements | 1.1 | 0.8 | 11.4 | 0.1 | 2.4 | 0.7 | 16.5 | |||||||||||||||||||||
Trade names | — | — | — | — | 2.3 | — | 2.3 | |||||||||||||||||||||
Total assets acquired | 98.1 | 103.6 | 433.3 | 78.7 | 238.9 | 185.2 | 1,137.8 | |||||||||||||||||||||
Current liabilities | 5.1 | 20.4 | 78.5 | 13.2 | 12.5 | 14.1 | 143.8 | |||||||||||||||||||||
Noncurrent liabilities | 0.5 | 8.6 | 23.2 | 0.7 | — | 7.5 | 40.5 | |||||||||||||||||||||
Total liabilities assumed | 5.6 | 29.0 | 101.7 | 13.9 | 12.5 | 21.6 | 184.3 | |||||||||||||||||||||
Total net assets acquired | $ | 92.5 | $ | 74.6 | $ | 331.6 | $ | 64.8 | $ | 226.4 | $ | 163.6 | $ | 953.5 | ||||||||||||||
Among other things, these acquisitions allow us to expand into desirable geographic locations, further extend our presence in the retail and wholesale insurance and reinsurance brokerage services markets and increase the volume of general services currently provided. The excess of the purchase price over the estimated fair value of the tangible net assets acquired at the acquisition date was allocated to goodwill, expiration lists,
Provisional estimates of fair value are established at the time of each acquisition and are subsequently reviewed within the first year of operations subsequent to the acquisition date to determine the necessity for adjustments. The fair value of the tangible assets and liabilities for each applicable acquisition at the acquisition date approximated their carrying values. The fair value of expiration lists was established using the excess earnings method, which is an income approach based on estimated financial projections developed by management for each acquired entity using market participant assumptions. Revenue growth and attrition rates generally ranged from 2.5%1.5% to 3.0%3.2% and 5.0% to 6.5%15.7%, respectively, for our 2018 and 2019 acquisitions for which valuations were performed in 2019.2020. We estimate the fair value as the present value of the benefits anticipated from ownership of the subject customerexpiration list in excess of returns required on the investment in contributory assets necessary to realize those benefits. The rate used to discount the net benefits was based on a risk-adjusted rate that takes into consideration market-based rates of return and reflects the risk of the asset relative to the acquired business. These discount rates generally ranged from 12.0%9.0% to 12.5% for our 2018 and 2019 acquisitions for which valuations were performed in 2019.2020. The fair value of
Expiration lists,
- 14 -
assets because the pattern of their economic benefits cannot be reasonably determined with any certainty. We review all of our intangible assets for impairment periodically (at least annually) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing intangible assets, if the fair value were less than the carrying amount of the respective (or underlying) asset, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of amortization expense.
Of the $374.6$178.4 million of expiration lists, $16.5$4.6 million of
Our consolidated financial statements for the
| Three-month period ended |
|
| Six-month period ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Total revenues | $ | 1,586.3 |
|
| $ | 1,669.4 |
|
| $ | 3,458.4 |
|
| $ | 3,670.6 |
|
Net earnings attributable to controlling interests |
| 153.9 |
|
|
| 111.3 |
|
|
| 500.4 |
|
|
| 451.0 |
|
Basic net earnings per share |
| 0.81 |
|
|
| 0.60 |
|
|
| 2.63 |
|
|
| 2.42 |
|
Diluted net earnings per share |
| 0.79 |
|
|
| 0.58 |
|
|
| 2.58 |
|
|
| 2.37 |
|
Three-month period endedJune 30, | Six-month period endedJune 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Total revenues | $ | 1,672.1 | $ | 1,717.3 | $ | 3,696.3 | $ | 3,602.5 | ||||||||
Net earnings attributable to controlling interests | 109.1 | 117.0 | 435.8 | 386.4 | ||||||||||||
Basic net earnings per share | 0.59 | 0.64 | 2.35 | 2.12 | ||||||||||||
Diluted net earnings per share | 0.57 | 0.63 | 2.30 | 2.08 |
The unaudited pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had these acquisitions occurred at January 1, 2018,2019, nor are they necessarily indicative of future operating results. Annualized revenues of entities acquired during the
4. Contracts with Customers
Contract Assets and Liabilities/Contract Balances
Information about unbilled receivables, contract assets and contract liabilities from contracts with customers is as follows (in millions):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Unbilled receivables |
| $ | 736.7 |
|
| $ | 556.4 |
|
Deferred contract costs |
|
| 70.1 |
|
|
| 98.3 |
|
Deferred revenue |
|
| 519.6 |
|
|
| 503.8 |
|
June 30, 2019 | December 31, 2018 | |||||||
Unbilled receivables | $ | 703.9 | $ | 496.2 | ||||
Deferred contract costs | 64.9 | 91.6 | ||||||
Deferred revenue | 504.3 | 457.7 |
The unbilled receivables,
- 15 -
Significant changes in the deferred revenue balances, which include foreign currency translation adjustments, during the period are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Total |
| |||
Deferred revenue at December 31, 2019 |
| $ | 337.2 |
|
| $ | 166.6 |
|
| $ | 503.8 |
|
Incremental deferred revenue |
|
| 230.4 |
|
|
| 77.4 |
|
|
| 307.8 |
|
Revenue recognized during the six-month period ended June 30, 2020 included in deferred revenue at December 31, 2019 |
|
| (214.2 | ) |
|
| (75.6 | ) |
|
| (289.8 | ) |
Impact of change in foreign exchange rates |
|
| (6.2 | ) |
|
| — |
|
|
| (6.2 | ) |
Deferred revenue recognized from business acquisitions |
|
| 4.0 |
|
|
| — |
|
|
| 4.0 |
|
Deferred revenue at June 30, 2020 |
| $ | 351.2 |
|
| $ | 168.4 |
|
| $ | 519.6 |
|
Brokerage | Risk Management | Total | ||||||||||
Deferred revenue at December 31, 2018 | $ | 284.7 | $ | 173.0 | $ | 457.7 | ||||||
Incremental deferred revenue | 234.3 | 77.1 | 311.4 | |||||||||
Revenue recognized during the six-month period ended June 30, 2019 included in deferred revenue at December 31, 2018 | (205.3 | ) | (79.4 | ) | (284.7 | ) | ||||||
Deferred revenue recognized from business acquisitions | 19.9 | — | 19.9 | |||||||||
Deferred revenue at June 30, 2019 | $ | 333.6 | $ | 170.7 | $ | 504.3 | ||||||
Revenue recognized during the six-month period ended June 30, 2020 in the table above included revenue from 2019 acquisitions that would not be reflected in prior periods.
Remaining Performance Obligations
Remaining performance obligations represent the portion of the contract price for which work has not been performed. As of June 30, 2019,2020, the aggregate amount of the contract price allocated to remaining performance obligations was $504.3$519.6 million. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period is as follows (in millions):
|
| Brokerage |
|
| Risk Management |
|
| Total |
| |||
2020 (remaining six months) |
| $ | 263.4 |
|
| $ | 78.7 |
|
| $ | 342.1 |
|
2021 |
|
| 79.1 |
|
|
| 41.2 |
|
|
| 120.3 |
|
2022 |
|
| 6.7 |
|
|
| 23.1 |
|
|
| 29.8 |
|
2023 |
|
| 1.0 |
|
|
| 10.5 |
|
|
| 11.5 |
|
2024 |
|
| 0.5 |
|
|
| 5.1 |
|
|
| 5.6 |
|
Thereafter |
|
| 0.5 |
|
|
| 9.8 |
|
|
| 10.3 |
|
Total |
| $ | 351.2 |
|
| $ | 168.4 |
|
| $ | 519.6 |
|
Brokerage | Risk Management | Total | ||||||||||
2019 (remaining six months) | $ | 240.4 | $ | 68.9 | $ | 309.3 | ||||||
2020 | 64.4 | 44.6 | 109.0 | |||||||||
2021 | 21.9 | 20.9 | 42.8 | |||||||||
2022 | 5.7 | 11.9 | 17.6 | |||||||||
2023 | 0.6 | 6.9 | 7.5 | |||||||||
Thereafter | 0.6 | 17.5 | 18.1 | |||||||||
Total | $ | 333.6 | $ | 170.7 | $ | 504.3 | ||||||
Deferred Contract Costs
We capitalize costs incurred to fulfill contracts as “deferreddeferred contract costs”costs which are included in other current assets in our consolidated balance sheet. Deferred contract costs were $64.9$70.1 million and $91.6$98.3 million as of June 30, 20192020 and December 31, 2018,2019, respectively. Capitalized fulfillment costs are amortized on the contract effective date. The amount of amortization of the deferred contract costs was $191.9$208.1 million and $168.5$191.9 million for the
We have applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less for our brokerage segment. These costs are included in compensation and operating expenses in our consolidated statement of earnings.
5. Other Financial Data
Other Current Assets
Major classes of other current assets consist of the following (in millions):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Premium finance advances and loans |
| $ | 342.6 |
|
| $ | 388.1 |
|
Accrued supplemental, direct bill and other receivables |
|
| 289.1 |
|
|
| 369.1 |
|
Refined coal production related receivables |
|
| 88.3 |
|
|
| 103.4 |
|
Deferred contract costs |
|
| 70.1 |
|
|
| 98.3 |
|
Prepaid expenses |
|
| 94.1 |
|
|
| 115.5 |
|
Total other current assets |
| $ | 884.2 |
|
| $ | 1,074.4 |
|
June 30, 2019 | December 31, 2018 | |||||||
Premium finance advances and loans | $ | 340.9 | $ | 316.2 | ||||
Accrued supplemental, direct bill and other receivables | 368.5 | 348.2 | ||||||
Refined coal production related receivables | 117.4 | 160.2 | ||||||
Deferred contract costs | 64.9 | 91.6 | ||||||
Prepaid expenses | 101.5 | 108.2 | ||||||
Total other current assets | $ | 993.2 | $ | 1,024.4 | ||||
- 16 -
The premium finance advances and loans represent short-term loans which we make to many of our brokerage related clients and other
6. Intangible Assets
The carrying amount of goodwill at June 30, 20192020 and December 31, 20182019 allocated by domestic and foreign operations is as follows (in millions):
|
| Brokerage |
|
| Risk Management |
|
| Corporate |
|
| Total |
| ||||
At June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 3,250.9 |
|
| $ | 33.1 |
|
| $ | — |
|
| $ | 3,284.0 |
|
United Kingdom |
|
| 1,237.1 |
|
|
| 13.5 |
|
|
| — |
|
|
| 1,250.6 |
|
Canada |
|
| 439.2 |
|
|
| — |
|
|
| — |
|
|
| 439.2 |
|
Australia |
|
| 417.1 |
|
|
| 10.5 |
|
|
| — |
|
|
| 427.6 |
|
New Zealand |
|
| 201.8 |
|
|
| 9.8 |
|
|
| — |
|
|
| 211.6 |
|
Other foreign |
|
| 140.6 |
|
|
| — |
|
|
| 2.8 |
|
|
| 143.4 |
|
Total goodwill |
| $ | 5,686.7 |
|
| $ | 66.9 |
|
| $ | 2.8 |
|
| $ | 5,756.4 |
|
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 3,163.8 |
|
| $ | 33.1 |
|
| $ | — |
|
| $ | 3,196.9 |
|
United Kingdom |
|
| 1,177.8 |
|
|
| 12.9 |
|
|
| — |
|
|
| 1,190.7 |
|
Canada |
|
| 454.4 |
|
|
| — |
|
|
| — |
|
|
| 454.4 |
|
Australia |
|
| 416.5 |
|
|
| 10.5 |
|
|
| — |
|
|
| 427.0 |
|
New Zealand |
|
| 208.0 |
|
|
| 10.1 |
|
|
| — |
|
|
| 218.1 |
|
Other foreign |
|
| 128.4 |
|
|
| — |
|
|
| 3.0 |
|
|
| 131.4 |
|
Total goodwill |
| $ | 5,548.9 |
|
| $ | 66.6 |
|
| $ | 3.0 |
|
| $ | 5,618.5 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
At June 30, 2019 | ||||||||||||||||
United States | $ | 2,861.9 | $ | 29.6 | $ | — | $ | 2,891.5 | ||||||||
United Kingdom | 1,144.6 | 8.8 | — | 1,153.4 | ||||||||||||
Canada | 446.5 | — | — | 446.5 | ||||||||||||
Australia | 415.7 | 0.3 | — | 416.0 | ||||||||||||
New Zealand | 207.9 | 10.1 | — | 218.0 | ||||||||||||
Other foreign | 113.4 | — | 3.1 | 116.5 | ||||||||||||
Total goodwill | $ | 5,190.0 | $ | 48.8 | $ | 3.1 | $ | 5,241.9 | ||||||||
At December 31, 2018 | ||||||||||||||||
United States | $ | 2,715.3 | $ | 29.6 | $ | — | $ | 2,744.9 | ||||||||
United Kingdom | 753.7 | 9.2 | — | 762.9 | ||||||||||||
Canada | 378.6 | — | — | 378.6 | ||||||||||||
Australia | 406.3 | 0.3 | — | 406.6 | ||||||||||||
New Zealand | 209.6 | 10.2 | — | 219.8 | ||||||||||||
Other foreign | 110.1 | — | 2.7 | 112.8 | ||||||||||||
Total goodwill | $ | 4,573.6 | $ | 49.3 | $ | 2.7 | $ | 4,625.6 | ||||||||
The changes in the carrying amount of goodwill for the
|
| Brokerage |
|
| Risk Management |
|
| Corporate |
|
| Total |
| ||||
Balance as of December 31, 2019 |
| $ | 5,548.9 |
|
| $ | 66.6 |
|
| $ | 3.0 |
|
| $ | 5,618.5 |
|
Goodwill acquired during the period |
|
| 190.5 |
|
|
| — |
|
|
| — |
|
|
| 190.5 |
|
Goodwill adjustments due to appraisals and other acquisition adjustments |
|
| 27.9 |
|
|
| 1.3 |
|
|
| — |
|
|
| 29.2 |
|
Foreign currency translation adjustments during the period |
|
| (80.6 | ) |
|
| (1.0 | ) |
|
| (0.2 | ) |
|
| (81.8 | ) |
Balance as of June 30, 2020 |
| $ | 5,686.7 |
|
| $ | 66.9 |
|
| $ | 2.8 |
|
| $ | 5,756.4 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Balance as of December 31, 2018 | $ | 4,573.6 | $ | 49.3 | $ | 2.7 | $ | 4,625.6 | ||||||||
Goodwill acquired during the period | 603.9 | — | 0.4 | 604.3 | ||||||||||||
Goodwill adjustments due to appraisals and other acquisition adjustments | 17.3 | (0.3 | ) | — | 17.0 | |||||||||||
Goodwill written-off related to sales of business | (7.2 | ) | — | — | (7.2 | ) | ||||||||||
Foreign currency translation adjustments during the period | 2.4 | (0.2 | ) | — | 2.2 | |||||||||||
Balance as of June 30, 2019 | $ | 5,190.0 | $ | 48.8 | $ | 3.1 | $ | 5,241.9 | ||||||||
- 17 -
Major classes of amortizable intangible assets at June 30, 20192020 and December 31, 20182019 consist of the following (in millions):
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Expiration lists |
| $ | 4,342.8 |
|
| $ | 4,246.0 |
|
Accumulated amortization - expiration lists |
|
| (2,203.2 | ) |
|
| (2,004.3 | ) |
|
|
| 2,139.6 |
|
|
| 2,241.7 |
|
Non-compete agreements |
|
| 67.0 |
|
|
| 68.4 |
|
Accumulated amortization - non-compete agreements |
|
| (54.0 | ) |
|
| (52.5 | ) |
|
|
| 13.0 |
|
|
| 15.9 |
|
Trade names |
|
| 107.2 |
|
|
| 91.8 |
|
Accumulated amortization - trade names |
|
| (33.8 | ) |
|
| (30.7 | ) |
|
|
| 73.4 |
|
|
| 61.1 |
|
Net amortizable assets |
| $ | 2,226.0 |
|
| $ | 2,318.7 |
|
June 30, 2019 | December 31, 2018 | |||||||
Expiration lists | $ | 3,749.6 | $ | 3,379.4 | ||||
Accumulated amortization - expiration lists | (1,824.6 | ) | (1,676.8 | ) | ||||
1,925.0 | 1,702.6 | |||||||
Non-compete agreements | 74.6 | 58.0 | ||||||
Accumulated amortization - non-compete agreements | (51.5 | ) | (48.5 | ) | ||||
23.1 | 9.5 | |||||||
Trade names | 88.4 | 86.0 | ||||||
Accumulated amortization - trade names | (27.7 | ) | (25.1 | ) | ||||
60.7 | 60.9 | |||||||
Net amortizable assets | $ | 2,008.8 | $ | 1,773.0 | ||||
Estimated aggregate amortization expense for each of the next five years and thereafter is as follows:
2020 (remaining six months) |
| $ | 178.7 |
|
2021 |
|
| 337.8 |
|
2022 |
|
| 312.3 |
|
2023 |
|
| 287.6 |
|
2024 |
|
| 252.9 |
|
Thereafter |
|
| 856.7 |
|
Total |
| $ | 2,226.0 |
|
2019 (remaining six months) | $ | 162.3 | ||||||
2020 | 311.8 | |||||||
2021 | 287.5 | |||||||
2022 | 258.3 | |||||||
2023 | 232.9 | |||||||
Thereafter | 756.0 | |||||||
Total | $ | 2,008.8 | ||||||
- 1918 -
7. Credit and Other Debt Agreements
The following is a summary of our corporate and other debt (in millions):
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Note Purchase Agreements: |
|
|
|
|
|
|
|
|
Semi-annual payments of interest, fixed rate of 3.48%, balloon due June 24, 2020 |
| $ | — |
|
| $ | 50.0 |
|
Semi-annual payments of interest, fixed rate of 3.99%, balloon due July 10, 2020 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 5.18%, balloon due February 10, 2021 |
|
| 75.0 |
|
|
| 75.0 |
|
Semi-annual payments of interest, fixed rate of 3.69%, balloon due June 14, 2022 |
|
| 200.0 |
|
|
| 200.0 |
|
Semi-annual payments of interest, fixed rate of 5.49%, balloon due February 10, 2023 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 4.13%, balloon due June 24, 2023 |
|
| 200.0 |
|
|
| 200.0 |
|
Quarterly payments of interest, floating rate of 90 day LIBOR plus 1.65%, balloon due August 2, 2023 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 4.72%, balloon due February 13, 2024 |
|
| 100.0 |
|
|
| 100.0 |
|
Semi-annual payments of interest, fixed rate of 4.58%, balloon due February 27, 2024 |
|
| 325.0 |
|
|
| 325.0 |
|
Quarterly payments of interest, floating rate of 90 day LIBOR plus 1.40%, balloon due June 13, 2024 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 4.31%, balloon due June 24, 2025 |
|
| 200.0 |
|
|
| 200.0 |
|
Semi-annual payments of interest, fixed rate of 4.85%, balloon due February 13, 2026 |
|
| 140.0 |
|
|
| 140.0 |
|
Semi-annual payments of interest, fixed rate of 4.73%, balloon due February 27, 2026 |
|
| 175.0 |
|
|
| 175.0 |
|
Semi-annual payments of interest, fixed rate of 4.40%, balloon due June 2, 2026 |
|
| 175.0 |
|
|
| 175.0 |
|
Semi-annual payments of interest, fixed rate of 4.36%, balloon due June 24, 2026 |
|
| 150.0 |
|
|
| 150.0 |
|
Semi-annual payments of interest, fixed rate of 3.75%, balloon due January 30, 2027 |
|
| 30.0 |
|
|
| — |
|
Semi-annual payments of interest, fixed rate of 4.09%, balloon due June 27, 2027 |
|
| 125.0 |
|
|
| 125.0 |
|
Semi-annual payments of interest, fixed rate of 4.09%, balloon due August 2, 2027 |
|
| 125.0 |
|
|
| 125.0 |
|
Semi-annual payments of interest, fixed rate of 4.14%, balloon due August 4, 2027 |
|
| 98.0 |
|
|
| 98.0 |
|
Semi-annual payments of interest, fixed rate of 3.46%, balloon due December 1, 2027 |
|
| 100.0 |
|
|
| 100.0 |
|
Semi-annual payments of interest, fixed rate of 4.55%, balloon due June 2, 2028 |
|
| 75.0 |
|
|
| 75.0 |
|
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 13, 2028 |
|
| 125.0 |
|
|
| 125.0 |
|
Semi-annual payments of interest, fixed rate of 5.04%, balloon due February 13, 2029 |
|
| 100.0 |
|
|
| 100.0 |
|
Semi-annual payments of interest, fixed rate of 4.98%, balloon due February 27, 2029 |
|
| 100.0 |
|
|
| 100.0 |
|
Semi-annual payments of interest, fixed rate of 4.19%, balloon due June 27, 2029 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 4.19%, balloon due August 2, 2029 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 3.48%, balloon due December 2, 2029 |
|
| 50.0 |
|
|
| 50.0 |
|
Semi-annual payments of interest, fixed rate of 3.99%, balloon due January 30, 2030 |
|
| 341.0 |
|
|
| — |
|
Semi-annual payments of interest, fixed rate of 4.44%, balloon due June 13, 2030 |
|
| 125.0 |
|
|
| 125.0 |
|
Semi-annual payments of interest, fixed rate of 5.14%, balloon due March 13, 2031 |
|
| 180.0 |
|
|
| 180.0 |
|
Semi-annual payments of interest, fixed rate of 4.70%, balloon due June 2, 2031 |
|
| 25.0 |
|
|
| 25.0 |
|
Semi-annual payments of interest, fixed rate of 4.09%, balloon due January 30, 2032 |
|
| 69.0 |
|
|
| — |
|
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 27, 2032 |
|
| 75.0 |
|
|
| 75.0 |
|
Semi-annual payments of interest, fixed rate of 4.34%, balloon due August 2, 2032 |
|
| 75.0 |
|
|
| 75.0 |
|
Semi-annual payments of interest, fixed rate of 4.59%, balloon due June 13, 2033 |
|
| 125.0 |
|
|
| 125.0 |
|
Semi-annual payments of interest, fixed rate of 5.29%, balloon due March 13, 2034 |
|
| 40.0 |
|
|
| 40.0 |
|
Semi-annual payments of interest, fixed rate of 4.48%, balloon due June 12, 2034 |
|
| 175.0 |
|
|
| 175.0 |
|
Semi-annual payments of interest, fixed rate of 4.24%, balloon due January 30, 2035 |
|
| 79.0 |
|
|
| — |
|
Semi-annual payments of interest, fixed rate of 4.69%, balloon due June 13, 2038 |
|
| 75.0 |
|
|
| 75.0 |
|
Semi-annual payments of interest, fixed rate of 5.45%, balloon due March 13, 2039 |
|
| 40.0 |
|
|
| 40.0 |
|
Semi-annual payments of interest, fixed rate of 4.49%, balloon due January 30, 2040 |
|
| 56.0 |
|
|
| — |
|
Total Note Purchase Agreements |
|
| 4,448.0 |
|
|
| 3,923.0 |
|
Credit Agreement: |
|
|
|
|
|
|
|
|
Periodic payments of interest and principal, prime or LIBOR plus up to 1.45%, expires June 7, 2024 |
|
| 100.0 |
|
|
| 520.0 |
|
Premium Financing Debt Facility - expires July 18, 2021: |
|
|
|
|
|
|
|
|
Facility B |
|
|
|
|
|
|
|
|
AUD denominated tranche, interbank rates plus 1.100% |
|
| 93.1 |
|
|
| 142.1 |
|
NZD denominated tranche, interbank rates plus 1.150% |
|
| — |
|
|
| — |
|
Facility C and D |
|
|
|
|
|
|
|
|
AUD denominated tranche, interbank rates plus 0.575% |
|
| 6.1 |
|
|
| 18.8 |
|
NZD denominated tranche, interbank rates plus 0.600% |
|
| 4.4 |
|
|
| 9.7 |
|
Total Premium Financing Debt Facility |
|
| 103.6 |
|
|
| 170.6 |
|
Total corporate and other debt |
|
| 4,651.6 |
|
|
| 4,613.6 |
|
Less unamortized debt acquisition costs on Note Purchase Agreements |
|
| (7.6 | ) |
|
| (6.9 | ) |
Net corporate and other debt |
| $ | 4,644.0 |
|
| $ | 4,606.7 |
|
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Note Purchase Agreements: | ||||||||
Semi-annual payments of interest, fixed rate of 3.20%, balloon due June 24, 2019 | $ | — | $ | 50.0 | ||||
Semi-annual payments of interest, fixed rate of 5.85%, balloon due November 30, 2019 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 3.48%, balloon due June 24, 2020 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 3.99%, balloon due July 10, 2020 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.18%, balloon due February 10, 2021 | 75.0 | 75.0 | ||||||
Semi-annual payments of interest, fixed rate of 3.69%, balloon due June 14, 2022 | 200.0 | 200.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.49%, balloon due February 10, 2023 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.13%, balloon due June 24, 2023 | 200.0 | 200.0 | ||||||
Quarterly payments of interest, floating rate of 90 day LIBOR plus 1.65%, balloon due August 2, 2023 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.72%, balloon due February 13, 2024 | 100.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.58%, balloon due February 27, 2024 | 325.0 | 325.0 | ||||||
Quarterly payments of interest, floating rate of 90 day LIBOR plus 1.40%, balloon due June 13, 2024 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.31%, balloon due June 24, 2025 | 200.0 | 200.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.85%, balloon due February 13, 2026 | 140.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.73%, balloon due February 27, 2026 | 175.0 | 175.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.40%, balloon due June 2, 2026 | 175.0 | 175.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.36%, balloon due June 24, 2026 | 150.0 | 150.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.09%, balloon due June 27, 2027 | 125.0 | 125.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.09%, balloon due August 2, 2027 | 125.0 | 125.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.14%, balloon due August 4, 2027 | 98.0 | 98.0 | ||||||
Semi-annual payments of interest, fixed rate of 3.46%, balloon due December 1, 2027 | 100.0 | 100.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.55%, balloon due June 2, 2028 | 75.0 | 75.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 13, 2028 | 125.0 | 125.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.04%, balloon due February 13, 2029 | 100.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.98%, balloon due February 27, 2029 | 100.0 | 100.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.19%, balloon due June 27, 2029 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.19%, balloon due August 2, 2029 | 50.0 | 50.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.44%, balloon due June 13, 2030 | 125.0 | 125.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.14%, balloon due March 13, 2031 | 180.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.70%, balloon due June 2, 2031 | 25.0 | 25.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.34%, balloon due June 27, 2032 | 75.0 | 75.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.34%, balloon due August 2, 2032 | 75.0 | 75.0 | ||||||
Semi-annual payments of interest, fixed rate of 4.59%, balloon due June 13, 2033 | 125.0 | 125.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.29%, balloon due March 13, 2034 | 40.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.48%, balloon due June 12, 2034 | 175.0 | — | ||||||
Semi-annual payments of interest, fixed rate of 4.69%, balloon due June 13, 2038 | 75.0 | 75.0 | ||||||
Semi-annual payments of interest, fixed rate of 5.45%, balloon due March 13, 2039 | 40.0 | — | ||||||
Total Note Purchase Agreements | 3,923.0 | 3,198.0 | ||||||
Credit Agreement: | ||||||||
Periodic payments of interest and principal, prime or LIBOR plus up to 1.45%, expires June 7, 2024 | 325.0 | 265.0 | ||||||
Premium Financing Debt Facility - expires May 18, 2020: | ||||||||
Periodic payments of interest and principal, Interbank rates plus 1.05% for Facility B; plus 0.55% for Facilities C and D | ||||||||
Facility B | ||||||||
AUD denominated tranche | 111.7 | 133.9 | ||||||
NZD denominated tranche | — | 10.1 | ||||||
Facility C and D | ||||||||
AUD denominated tranche | 15.6 | — | ||||||
NZD denominated tranche | 10.0 | 10.0 | ||||||
Total Premium Financing Debt Facility | 137.3 | 154.0 | ||||||
Total corporate and other debt | 4,385.3 | 3,617.0 | ||||||
Less unamortized debt acquisition costs on Note Purchase Agreements | (7.4 | ) | (6.6 | ) | ||||
Net corporate and other debt | $ | 4,377.9 | $ | 3,610.4 | ||||
- 2019 -
8.Earnings Per Share
The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share data):
| Three-month period ended |
|
| Six-month period ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net earnings attributable to controlling interests | $ | 153.7 |
|
| $ | 110.1 |
|
| $ | 500.0 |
|
| $ | 444.2 |
|
Weighted average number of common shares outstanding |
| 190.5 |
|
|
| 185.8 |
|
|
| 189.6 |
|
|
| 185.1 |
|
Dilutive effect of stock options using the treasury stock method |
| 3.6 |
|
|
| 4.0 |
|
|
| 4.0 |
|
|
| 4.0 |
|
Weighted average number of common and common equivalent shares outstanding |
| 194.1 |
|
|
| 189.8 |
|
|
| 193.6 |
|
|
| 189.1 |
|
Basic net earnings per share | $ | 0.81 |
|
| $ | 0.59 |
|
| $ | 2.64 |
|
| $ | 2.40 |
|
Diluted net earnings per share | $ | 0.79 |
|
| $ | 0.58 |
|
| $ | 2.58 |
|
| $ | 2.35 |
|
Three-month period endedJune 30, | Six-month period endedJune 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings attributable to controlling interests | $ | 110.1 | $ | 114.9 | $ | 444.2 | $ | 388.6 | ||||||||
Weighted average number of common shares outstanding | 185.8 | 182.4 | 185.1 | 181.9 | ||||||||||||
Dilutive effect of stock options using the treasury stock method | 4.0 | 3.1 | 4.0 | 3.3 | ||||||||||||
Weighted average number of common and common equivalent shares outstanding | 189.8 | 185.5 | 189.1 | 185.2 | ||||||||||||
Basic net earnings per share | $ | 0.59 | $ | 0.63 | $ | 2.40 | $ | 2.14 | ||||||||
Diluted net earnings per share | $ | 0.58 | $ | 0.62 | $ | 2.35 | $ | 2.10 | ||||||||
Anti-dilutive stock-based awards of 1.31.6 million and 1.71.3 million shares were outstanding at June 30, 20192020 and 2018,2019, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the
9. Stock Option Plans
On May 16, 2017, our stockholders approved the Arthur J. Gallagher & Co. 2017 Long-Term Incentive Plan (which we refer to as the LTIP), which replaced our previous stockholder-approved Arthur J. Gallagher & Co. 2014 Long-Term Incentive Plan (which we refer to as the 2014 LTIP). The LTIP term began May 16, 2017 and terminates on the date of the annual meeting of stockholders in 2027, unless terminated earlier by our board of directors. All of our officers, employees and
Shares of our common stock available for issuance under the LTIP include authorized and unissued shares of common stock or authorized and issued shares of common stock reacquired and held as treasury shares or otherwise, or a combination thereof. The number of available shares will be reduced by the aggregate number of shares that become subject to outstanding awards granted under the LTIP. To the extent that shares subject to an outstanding award granted under either the LTIP or prior equity plans are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of such award in cash, then such shares will again be available for grant under the LTIP.
The maximum number of shares available under the LTIP for restricted stock, restricted stock unit awards and performance unit awards settled with stock (i.e., all awards other than stock options and stock appreciation rights) is 2.82.2 million at June 30, 2019.
The LTIP provides for the grant of stock options, which may be either
Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock, through a
- 20 -
On March 12, 2020, the compensation committee granted 1,590,740 options under the LTIP to our officers and key employees that become exercisable at the rate of 34%, 33% and 33% on the anniversary date of the grant in 2023, 2024 and 2025, respectively. On March 14, 2019, the compensation committee granted 1,283,300 options under the LTIP to our officers and key employees that become exercisable at the rate of 34%, 33% and 33% on the anniversary date of the grant in 2022, 2023 and 2024, respectively. On March 15, 2018, the compensation committee granted 1,261,000The 2020 and 2019 options under the LTIP to our officers and key employees that become exercisable at the rate of 34%, 33% and 33% on the anniversary date of the grant in 2021, 2022 and 2023, respectively. The 2019 and 2018 options expire
During the three-month periods ended June 30, 20192020 and 2018,2019, we recognized $3.6 $3.3million and $1.6$3.5 million, respectively, of compensation expense related to our stock option grants. During the
For purposes of expense recognition, the estimated fair values of the stock option grants are amortized to expense over the options’ vesting period. We estimated the fair value of stock options at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
|
| 2020 |
|
| 2019 |
| ||
Expected dividend yield |
| $ | 1.80 |
|
| $ | 1.72 |
|
Expected risk-free interest rate |
|
| 0.7 | % |
|
| 2.5 | % |
Volatility |
|
| 17.3 | % |
|
| 15.6 | % |
Expected life (in years) |
|
| 5.4 |
|
|
| 5.5 |
|
2019 | 2018 | |||||||
Expected dividend yield | 1.7 | % | 2.3 | % | ||||
Expected risk-free interest rate | 2.5 | % | 2.7 | % | ||||
Volatility | 15.6 | % | 15.1 | % | ||||
Expected life (in years) | 5.5 | 5.5 |
Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. The weighted average fair value per option for all options granted during the
The following is a summary of our stock option activity and related information for 20192020 (in millions, except exercise price and year data):
|
| Six-month period ended June 30, 2020 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| |
|
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| ||
|
| Shares |
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||
|
| Under |
|
| Exercise |
|
| Term |
|
| Intrinsic |
| ||||
|
| Option |
|
| Price |
|
| (in years) |
|
| Value |
| ||||
Beginning balance |
|
| 7.9 |
|
| $ | 56.40 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 1.6 |
|
|
| 86.17 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (0.9 | ) |
|
| 44.95 |
|
|
|
|
|
|
|
|
|
Forfeited or canceled |
|
| (0.1 | ) |
|
| 63.26 |
|
|
|
|
|
|
|
|
|
Ending balance |
|
| 8.5 |
|
| $ | 63.12 |
|
|
| 4.08 |
|
| $ | 291.1 |
|
Exercisable at end of period |
|
| 2.9 |
|
| $ | 46.99 |
|
|
| 2.12 |
|
| $ | 144.0 |
|
Ending unvested and expected to vest |
|
| 5.3 |
|
| $ | 70.67 |
|
|
| 5.01 |
|
| $ | 140.8 |
|
Six-month period ended June 30, 2019 | ||||||||||||||||
Shares Under Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||
Beginning balance | 8.8 | $ | 50.16 | |||||||||||||
Granted | 1.3 | 79.59 | ||||||||||||||
Exercised | (1.3 | ) | 42.34 | |||||||||||||
Forfeited or canceled | (0.1 | ) | 55.66 | |||||||||||||
Ending balance | 8.7 | $ | 55.55 | 4.09 | $ | 279.0 | ||||||||||
Exercisable at end of period | 2.7 | $ | 44.81 | 2.22 | $ | 113.7 | ||||||||||
Ending unvested and expected to vest | 5.8 | $ | 59.67 | 4.85 | $ | 160.7 | ||||||||||
Options with respect to 13.1 11.3million shares (less any shares of restricted stock issued under the LTIP - see Note
The total intrinsic value of options exercised during the six-month
- 21 -
Other information regarding stock options outstanding and exercisable at June 30, 20192020 is summarized as follows (in millions, except exercise price and year data):
|
|
|
|
|
|
|
|
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Remaining |
|
| Weighted |
|
|
|
|
|
| Weighted |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contractual |
|
| Average |
|
|
|
|
|
| Average |
| |||
|
|
|
|
|
|
|
|
|
| Number |
|
| Term |
|
| Exercise |
|
| Number |
|
| Exercise |
| |||||
Range of Exercise Prices |
|
| Outstanding |
|
| (in years) |
|
| Price |
|
| Exercisable |
|
| Price |
| ||||||||||||
$ | 43.71 |
|
| — |
| $ | 43.71 |
|
|
| 1.6 |
|
|
| 2.71 |
|
| $ | 43.71 |
|
|
| 1.0 |
|
| $ | 43.71 |
|
| 46.17 |
|
| — |
|
| 46.87 |
|
|
| 1.5 |
|
|
| 1.33 |
|
|
| 46.43 |
|
|
| 1.5 |
|
|
| 46.43 |
|
| 49.55 |
|
| — |
|
| 56.86 |
|
|
| 1.4 |
|
|
| 3.71 |
|
|
| 56.83 |
|
|
| 0.4 |
|
|
| 56.85 |
|
| 70.74 |
|
|
|
|
| 70.74 |
|
|
| 1.2 |
|
|
| 4.71 |
|
|
| 70.74 |
|
|
| — |
|
|
| 70.74 |
|
| 79.59 |
|
| — |
|
| 79.59 |
|
|
| 1.2 |
|
|
| 5.71 |
|
|
| 79.59 |
|
|
| — |
|
|
| — |
|
| 86.17 |
|
| — |
|
| 86.17 |
|
|
| 1.6 |
|
|
| 6.70 |
|
|
| 86.17 |
|
|
| — |
|
|
| — |
|
$ | 43.71 |
|
| — |
| $ | 86.17 |
|
|
| 8.5 |
|
|
| 4.08 |
|
| $ | 63.12 |
|
|
| 2.9 |
|
| $ | 46.99 |
|
Options Outstanding | Options Exercisable | ||||||||||||||||||||||||||||||
Weighted | |||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||
Remaining | Weighted | Weighted | |||||||||||||||||||||||||||||
Contractual | Average | Average | |||||||||||||||||||||||||||||
Number | Term | Exercise | Number | Exercise | |||||||||||||||||||||||||||
Range of Exercise Prices | Outstanding | (in years) | Price | Exercisable | Price | ||||||||||||||||||||||||||
$ | 39.17 | — | $ | 39.17 | 0.4 | 0.70 | $ | 39.17 | 0.5 | $ | 39.17 | ||||||||||||||||||||
43.71 | — | 43.71 | 2.0 | 3.72 | 43.71 | 0.5 | 43.71 | ||||||||||||||||||||||||
46.17 | — | 46.87 | 2.3 | 2.27 | 46.47 | 1.7 | 46.56 | ||||||||||||||||||||||||
47.92 | 63.60 | 1.5 | 4.71 | 56.83 | — | — | |||||||||||||||||||||||||
70.74 | — | 70.74 | 1.2 | 5.71 | 70.74 | — | — | ||||||||||||||||||||||||
79.59 | — | 79.59 | 1.3 | 6.71 | 79.59 | — | — | ||||||||||||||||||||||||
$ | 39.17 | — | $ | 79.59 | 8.7 | 4.09 | $ | 55.55 | 2.7 | $ | 44.81 | ||||||||||||||||||||
10. Deferred Compensation
We have a Deferred Equity Participation Plan (which we refer to as the DEPP), which is a
Our common stock that is issued to or purchased by the rabbi trust as a contribution under the DEPP is valued at historical cost, which equals its fair market value at the date of grant or date of purchase. When common stock is issued, we record an unearned deferred compensation obligation as a reduction of capital in excess of par value in the accompanying consolidated balance sheet, which is amortized to compensation expense ratably over the vesting period of the participants. Future changes in the fair market value of our common stock owed to the participants do not have any impact on the amounts recorded in our consolidated financial statements.
In the first quarters of
In the first quarters of 20192020 and 2018,2019, the compensation committee approved $2.6$1.8 million and $0.9$2.6 million, respectively, of awards under the
- 22 -
At June 30, 20192020 and December 31, 2018,2019, we recorded $73.0$70.7 million (related to 2.9 million shares) and $57.6$64.5 million (related to 2.72.9 million shares), respectively, of unearned deferred compensation as a reduction of capital in excess of par value in the accompanying consolidated balance sheet. The total intrinsic value of our unvested equity basedequity-based awards under the plan at June 30, 20192020 and December 31, 20182019 was $254.9$283.8 million and $199.8$276.3 million, respectively. During the
We have a Deferred Cash Participation Plan (which we refer to as the DCPP), which is a
11. Restricted Stock, Performance Share and Cash Awards
Restricted Stock Awards
As discussed in Note 9 to these unaudited consolidated financial statements, on May 16, 2017, our stockholders approved the LTIP, which replaced our previous stockholder-approved 2014 LTIP. The LTIP provides for the grant of a stock award either as restricted stock or as restricted stock units to officers, employees and
The agreements awarding restricted stock units under the LTIP will specify whether such awards may be settled in shares of our common stock, cash or a combination of shares and cash and whether the holder will be entitled to receive dividend equivalents, on a current or deferred basis, with respect to such award. Prior to the settlement of a restricted stock unit, the holder of a restricted stock unit will have no rights as a stockholder of the company. The maximum number of shares available under the LTIP for restricted stock, restricted stock units and performance unit awards settled with stock (i.e., all awards other than stock options and stock appreciation rights) is 4.0 million. At June 30, 2019, 2.82020, 2.2 million shares were available for grant under the LTIP for such awards.
In the first quarters of 20192020 and 2018,2019, we granted 399,900405,900 and 420,200399,900 restricted stock units, respectively, to employees under the LTIP, with an aggregate fair value of $31.8$34.9 million and $28.7$31.8 million, respectively, at the date of grant. These 20192020 and 20182019 awards of restricted stock units vest as follows: 405,900 units granted in the first quarter of 2020 and 399,900 units granted in the first quarter of 2019, and 420,200 units granted in the first quarter of 2018, vest in full based on continued employment through March 14, 202412, 2025 and March 15, 2023,14, 2024, respectively. For our executive officers age 55 or older, restricted stock units are not subject to forfeiture upon such officers’ departure from the company after two years from the date of grant.
We account for restricted stock awards at historical cost, which equals its fair market value at the date of grant, which is amortized to compensation expense ratably over the vesting period of the participants. FutureFuture changes in the fair value of our common stock that is owed to the participants do not have any impact on the amounts recorded in our consolidated financial statements. During the three-month periods ended June 30, 20192020 and 2018,2019, we recognized $8.4$9.5 million and $8.2$8.4 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2019.2020. During the
- 23 -
Performance Share Awards
On March 12, 2020 and March 14, 2019, and March 15, 2018, pursuant to the LTIP, the compensation committee approved 73,60082,500 and 78,200,73,600, respectively, of provisional performance unitshare awards, with an aggregate fair value of $5.8$7.1 million and $5.3$5.8 million, respectively, for future grants to our officers and key employees. Each performance unitshare award was equivalent to the value of one share of our common stock on the date such provisional award was approved. The 2019 and 2018 awards are subject to a three-yearAt the end of the performance period, that begins on January 1, 2019 and 2018, respectively, and vest on the three-year anniversaryeligible participants will receive a number of the date of grant (March 14, 2022 and March 15, 2021). For the 2019 and 2018 awards, at the discretion of the compensation committee and determinedearned shares based on our performance, the eligible officer will be granted a percentage of the provisional performance unit award based on a performance measure growth in adjusted EBITDAC per share. Granted unitsshare (as defined in our 2020 Proxy Statement). Earned shares for the 20192020 and 20182019 provisional awards will fully vest based on continuous employment through March 14, 202212, 2023 and March 15, 2021,14, 2022, respectively, and will be settled in unrestricted shares of our common stock on a one-for-one basis as soon as practicable thereafter. The 2020 and 2019 awards are subject to a three-year performance period that began on January 1, 2020 and 2019, respectively, and vest on the three-year anniversary of the date of grant (March 12, 2023 and March 14, 2022). For certain of our executive officers age 55 or older, awards are no longer subject to forfeiture upon such officers’ departure from the company after two years from the date of grant. No awards were made duringDuring the second quarter of 2019 or 2018. During the
Cash Awards
On March 14, 2019,12, 2020, pursuant to our Performance Unit Program (which we refer to as the Program), the compensation committee approved provisional cash awards of $16.5$18.4 million in the aggregate for future grants to our officers and key employees that are denominated in units (206,800(213,000 units in the aggregate), each of which was equivalent to the value of one share of our common stock on the date the provisional award was approved. The Program consists of a
On March 14, 2019, pursuant to the Program, the compensation committee approved provisional cash awards of $16.5 million in the aggregate for future grants to our officers and key employees that are denominated in units (206,800 units in the aggregate), each of which was equivalent to the value of one share of our common stock on the date the provisional award was approved. Terms of the 2019 provisional awards were similar to the terms of the 2020 provisional awards. Based on our performance for 2019, we granted 200,000 units under the Program in the first quarter of 2020 that will fully vest on January 1, 2022. During the three-month period ended June 30, 2020, we recognized $1.9 million to compensation expense related to these awards. During the six-month period ended June 30, 2020, we recognized $4.1 million to compensation expense related to these awards. We did 0t recognize any compensation expense during the six-month period ended June 30, 2019 related to the 2019 provisional award under the Program.
On March 15, 2018, pursuant to our Performance Unitthe Program, (which we refer to as the Program), the compensation committee approved provisional cash awards of $15.0 million in the aggregate for future grants to our officers and key employees that are denominated in units (219,000 units in the aggregate), each of which was equivalent to the value of one share of our common stock on the date the provisional award was approved. Terms of the 2018 provisional awards were similar to the terms of the 2019 provisional awards. Based on our performance, for 2018, we granted 190,000 units under the Program in the first quarter of 2019 that will fully vest on January 1, 2021. During the three-month periodperiods ended June 30, 2020 and 2019, we recognized $0.9 million and $2.2 million to compensation expense related to these awards.2018 awards, respectively. During the
On March 16, 2017, pursuant to the Program, the compensation committee approved provisional cash awards of $14.3 million in the aggregate for future grant to our officers and key employees that are denominated in units (255,000 units in the aggregate), each of which was equivalent to the value of one share of our common stock on the date the provisional awards were approved. Terms of the 2017 provisional awards were similar to the terms of the 2018 provisional awards. Based on our performance for 2017, we granted 242,000 units under the Program in the first quarter of 2018 that will fully vestvested on January 1, 2020. During the three-month periodsperiod ended June 30, 2019, and 2018, we recognized $2.6 million and $1.9 million to compensation expense related to these 2017 awards. During the
- 24 -
During the six-month period ended June 30, 2020, cash awards related to the Program, the compensation committee approved2017 provisional cash awardsaward with an aggregate fair value of $17.4$18.9 million in the aggregate for future grant to our officers and key employees that are denominated in units (397,000(221,600 units in the aggregate), each of which was equivalent were vested and distributed to the value of one share of our common stock on the date the provisional awards were approved. Terms of the 2016 provisional awards were similar to the terms of the 2017 provisional awards. Based on our performance for 2016, we granted 383,000 unitsemployees under the Program in the first quarter of 2017 that fully vested on January 1, 2019.Program. During the three-month period ended June 30, 2018, we recognized $2.4 million to compensation expense related to these 2016 awards. During the
12. Investments
The following is a summary of our investments included in other noncurrent assets in the consolidated balance sheet and the related funding commitments (in millions):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||
|
|
|
|
|
| Funding |
|
|
|
|
| |
|
| Assets |
|
| Commitments |
|
| Assets |
| |||
Chem-Mod LLC |
| $ | 4.0 |
|
| $ | — |
|
| $ | 4.0 |
|
Chem-Mod International LLC |
|
| 2.0 |
|
|
| — |
|
|
| 2.0 |
|
Clean-coal investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Controlling interest in limited liability companies that own fourteen 2009 Era Clean Coal Plants |
|
| — |
|
|
| — |
|
|
| — |
|
Non-controlling interest in a limited liability company that owns one 2011 Era Clean Coal Plant |
|
| 0.2 |
|
|
| — |
|
|
| 0.3 |
|
Controlling interest in limited liability companies that own twenty 2011 Era Clean Coal Plants |
|
| 19.8 |
|
|
| 2.1 |
|
|
| 29.2 |
|
Other investments |
|
| 4.4 |
|
|
| — |
|
|
| 4.5 |
|
Total investments |
| $ | 30.4 |
|
| $ | 2.1 |
|
| $ | 40.0 |
|
June 30, 2019 | December 31, 2018 | |||||||
Chem-Mod LLC | $ | 4.0 | $ | 4.0 | ||||
Chem-Mod International LLC | 2.0 | 2.0 | ||||||
Clean-coal investments: | ||||||||
Controlling interest in six limited liability companies that own fourteen 2009 Era Clean Coal Plants | 2.5 | 5.1 | ||||||
Non-controlling interest in one limited liability company that owns one 2011 Era Clean Coal Plant | 0.3 | 0.4 | ||||||
Controlling interest in seventeen limited liability companies that own nineteen 2011 Era Clean Coal Plants | 36.0 | 43.0 | ||||||
Other investments | 4.4 | 5.0 | ||||||
Total investments | $ | 49.2 | $ | 59.5 | ||||
13. Derivatives and agent locations, automobiles and office equipment. Many of our leases include both lease (fixed rent payments) and
Lease Components | Statement of Earnings Classification | Three-month periodended June 30, 2019 | Six-month periodended June 30, 2019 | |||||||
Operating lease expense | Operating expense | $ | 29.4 | $ | 58.9 | |||||
Variable lease expense | Operating expense | 4.5 | 9.0 | |||||||
Sublease income | Investment income | (0.3 | ) | (0.6 | ) | |||||
Net lease expense | $ | 33.6 | $ | 67.3 |
Supplemental Cash Flow Information Related to Leases (in millions) | Six-month periodended June 30, 2019 | |||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 57.6 | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | 25.2 |
Lease Components | Balance Sheet Classification | June 30, 2019 | ||||
Lease right-of-use assets | Right-of-use assets | $ | 368.4 | |||
Other current lease liabilities | Accrued compensation and other current liabilities | $ | 75.4 | |||
Lease liabilities | Lease liabilities - noncurrent | 327.4 | ||||
Total lease liabilities | $ | 402.8 | ||||
Weighted-average remaining lease term, years | 5.4 years | |||||
Weighted-average discount rate | 3.9 | % |
2019 (remaining six months) | $ | 48.5 | ||
2020 | 100.3 | |||
2021 | 85.2 | |||
2022 | 66.4 | |||
2023 | 51.3 | |||
Thereafter | 100.0 | |||
Total lease payments | 451.7 | |||
Less interest | (48.9 | ) | ||
Total | $ | 402.8 |
We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures. We generally do not enter into derivative transactions for trading or speculative purposes.
Foreign Exchange Risk Management
We are exposed to foreign exchange risk when we earn revenues, pay expenses, or enter into monetary intercompany transfers denominated in a currency that differs from our functional currency, or other transactions that are denominated in a currency other than our functional currency. We use foreign exchange derivatives, typically forward contracts and options, to reduce our overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than three years.
Interest Rate Risk Management
We enter into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the effects of interest rate fluctuations on the forecasted interest rates for up to three years into the future.
We have not received or pledged any collateral related to derivative arrangements at June 30, 2019.
- 25 -
The notional and fair values of derivatives designated as hedging instruments are as follows at June 30, 20192020 and December 31, 20182019 (in millions):
|
|
|
|
|
| Derivative Assets |
|
|
|
|
| Derivative Liabilities |
|
|
|
|
|
| Notional |
|
| Balance Sheet |
| Fair |
|
| Balance Sheet |
| Fair |
| |||
Instrument |
| Amount |
|
| Classification |
| Value |
|
| Classification |
| Value |
| |||
At June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | 550.0 |
|
| Other current assets |
| $ | — |
|
| Accrued compensation and other current liabilities |
| $ | 31.5 |
|
|
|
|
|
|
| Other noncurrent assets |
|
| — |
|
| Other noncurrent liabilities |
|
| 50.0 |
|
Foreign exchange contracts (1) |
|
| 62.2 |
|
| Other current assets |
|
| 1.1 |
|
| Accrued compensation and other current liabilities |
|
| 4.8 |
|
|
| 0 |
|
| Other noncurrent assets |
|
| 2.4 |
|
| Other noncurrent liabilities |
|
| 5.3 |
| |
Total |
| $ | 612.2 |
|
|
|
| $ | 3.5 |
|
|
|
| $ | 91.6 |
|
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | 800.0 |
|
| Other current assets |
| $ | 2.8 |
|
| Accrued compensation and other current liabilities |
| $ | 25.0 |
|
|
|
|
|
|
| Other noncurrent assets |
|
| 5.4 |
|
| Other noncurrent liabilities |
|
| 23.0 |
|
Foreign exchange contracts (1) |
|
| 31.7 |
|
| Other current assets |
|
| 4.5 |
|
| Accrued compensation and other current liabilities |
|
| 1.8 |
|
|
|
|
|
|
| Other noncurrent assets |
|
| 8.5 |
|
| Other noncurrent liabilities |
|
| 2.6 |
|
Total |
| $ | 831.7 |
|
|
|
| $ | 21.2 |
|
|
|
| $ | 52.4 |
|
Derivative Assets | Derivative Liabilities | |||||||||||||||
Instrument | Notional Amount | Balance Sheet Classification | Fair Value | Balance Sheet Classification | Fair Value | |||||||||||
At June 30, 2019 | ||||||||||||||||
Interest rate contracts | $ | 600.0 | Other current assets | $ | — | Accrued compensation and other current liabilities | $ | 20.3 | ||||||||
Other noncurrent liabilities | 28.9 | |||||||||||||||
Foreign exchange contracts (1) | 33.5 | Other current assets | 0.9 | Accrued compensation and other current liabilities | 3.3 | |||||||||||
Other noncurrent assets | 2.5 | Other noncurrent liabilities | 4.0 | |||||||||||||
Total | $ | 633.5 | $ | 3.4 | $ | 56.5 | ||||||||||
At December 31, 2018 | ||||||||||||||||
Interest rate contracts | $ | 850.0 | Other current assets | $ | 3.0 | Accrued compensation and other current liabilities | $ | 13.0 | ||||||||
Foreign exchange contracts (1) | 51.4 | Other current assets | 0.9 | Accrued compensation and other current liabilities | 4.9 | |||||||||||
Other noncurrent assets | 5.7 | Other noncurrent liabilities | 7.9 | |||||||||||||
Total | $ | 901.4 | $ | 9.6 | $ | 25.8 | ||||||||||
(1) | Included within foreign exchange contracts at June 30, |
- 2826 -
The effect of cash flow hedge accounting on accumulated other comprehensive earnings (loss)loss for the three-month and
|
|
|
|
|
|
|
|
|
| Amount of |
|
|
| |
|
|
|
|
|
| Amount of |
|
| Gain (Loss) |
|
|
| ||
|
|
|
|
|
| Gain (Loss) |
|
| Recognized |
|
|
| ||
|
| Amount of |
|
| Reclassified |
|
| in Earnings |
|
|
| |||
|
| Gain (Loss) |
|
| from |
|
| Related to |
|
|
| |||
|
| Recognized in |
|
| Accumulated |
|
| Amount |
|
|
| |||
|
| Accumulated |
|
| Other |
|
| Excluded |
|
|
| |||
|
| Other |
|
| Comprehensive |
|
| from |
|
|
| |||
|
| Comprehensive |
|
| Loss into |
|
| Effectiveness |
|
| Statement of Earnings | |||
Instrument |
| Loss (1) |
|
| Earnings |
|
| Testing |
|
| Classification | |||
Three-month period ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | 6.1 |
|
| $ | (0.3 | ) |
| $ | — |
|
| Interest expense |
Foreign exchange contracts |
|
| 2.0 |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
| Commission revenue |
|
|
|
|
|
|
| (0.5 | ) |
|
| 0.4 |
|
| Compensation expense |
|
|
|
|
|
|
| (0.4 | ) |
|
| 0.2 |
|
| Operating expense |
Total |
| $ | 8.1 |
|
| $ | (1.3 | ) |
| $ | 0.5 |
|
|
|
Three-month period ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (25.8 | ) |
| $ | (0.3 | ) |
| $ | — |
|
| Interest expense |
Foreign exchange contracts |
|
| (3.6 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
| Commission revenue |
|
|
|
|
|
|
| (0.4 | ) |
|
| 0.3 |
|
| Compensation expense |
|
|
|
|
|
|
| (0.4 | ) |
|
| 0.3 |
|
| Operating expense |
Total |
| $ | (29.4 | ) |
| $ | (1.2 | ) |
| $ | 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (108.1 | ) |
| $ | (0.6 | ) |
| $ | — |
|
| Interest expense |
Foreign exchange contracts |
|
| (17.3 | ) |
|
| (0.5 | ) |
|
| (0.3 | ) |
| Commission revenue |
|
|
|
|
|
|
| (0.8 | ) |
|
| 0.6 |
|
| Compensation expense |
|
|
|
|
|
|
| (0.6 | ) |
|
| 0.4 |
|
| Operating expense |
Total |
| $ | (125.4 | ) |
| $ | (2.5 | ) |
| $ | 0.7 |
|
|
|
Six-month period ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (46.7 | ) |
| $ | (0.6 | ) |
| $ | — |
|
| Interest expense |
Foreign exchange contracts |
|
| 0.1 |
|
| �� | (0.2 | ) |
|
| (0.4 | ) |
| Commission revenue |
|
|
|
|
|
|
| (0.6 | ) |
|
| 0.7 |
|
| Compensation expense |
|
|
|
|
|
|
| (0.5 | ) |
|
| 0.5 |
|
| Operating expense |
Total |
| $ | (46.6 | ) |
| $ | (1.9 | ) |
| $ | 0.8 |
|
|
|
Instrument | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Earnings (1) | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Earnings into Earnings | Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing | Statement of Earnings Classification | ||||||||||
Three-month period ended June 30, 2019 | ||||||||||||||
Interest rate contracts | $ | (25.8 | ) | $ | (0.3 | ) | $ | — | Interest expense | |||||
Foreign exchange contracts | (3.6 | ) | (0.1 | ) | (0.2 | ) | Commission revenue | |||||||
(0.4 | ) | 0.3 | Compensation expense | |||||||||||
(0.4 | ) | 0.3 | Operating expense | |||||||||||
Total | $ | (29.4 | ) | $ | (1.2 | ) | $ | 0.4 | ||||||
Three-month period ended June 30, 2018 | ||||||||||||||
Interest rate contracts | $ | 1.7 | $ | 0.3 | Interest expense | |||||||||
Foreign exchange contracts | (10.4 | ) | 0.4 | Commission revenue | ||||||||||
0.4 | Compensation expense | |||||||||||||
0.2 | Operating expense | |||||||||||||
Total | $ | (8.7 | ) | $ | 1.3 | |||||||||
Six-month period ended June 30, 2019 | ||||||||||||||
Interest rate contracts | $ | (46.7 | ) | $ | (0.6 | ) | $ | — | Interest expense | |||||
Foreign exchange contracts | 0.1 | (0.2 | ) | (0.4 | ) | Commission revenue | ||||||||
(0.6 | ) | 0.7 | Compensation expense | |||||||||||
(0.5 | ) | 0.5 | Operating expense | |||||||||||
Total | $ | (46.6 | ) | $ | (1.9 | ) | $ | 0.8 | ||||||
Six-month period ended June 30, 2018 | ||||||||||||||
Interest rate contracts | $ | 5.9 | $ | 0.5 | Interest expense | |||||||||
Foreign exchange contracts | (6.1 | ) | 1.1 | Commission revenue | ||||||||||
0.9 | Compensation expense | |||||||||||||
0.6 | Operating expense | |||||||||||||
Total | $ | (0.2 | ) | $ | 3.1 | |||||||||
(1) | For the three-month and six-month periods ended June 30, |
We estimate that approximately $3.1$11.3 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.
- 2927 -
14.Commitments, Contingencies and Off-Balance Sheet Arrangements
In connection with our investing and operating activities, we have entered into certain contractual obligations and commitments. Our future minimum cash payments, including interest, associated with our contractual obligations pursuant to the note purchase agreements, Credit Agreement, Premium Financing Debt Facility and purchase commitments at June 30, 20192020 were as follows (in millions):
|
| Payments Due by Period |
| |||||||||||||||||||||||||
Contractual Obligations |
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| |||||||
Note purchase agreements |
| $ | 50.0 |
|
| $ | 75.0 |
|
| $ | 200.0 |
|
| $ | 300.0 |
|
| $ | 475.0 |
|
| $ | 3,348.0 |
|
| $ | 4,448.0 |
|
Credit Agreement |
|
| 100.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100.0 |
|
Premium Financing Debt Facility |
|
| 103.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103.6 |
|
Interest on debt |
|
| 97.7 |
|
|
| 190.8 |
|
|
| 185.1 |
|
|
| 175.8 |
|
|
| 158.0 |
|
|
| 745.3 |
|
|
| 1,552.7 |
|
Total debt obligations |
|
| 351.3 |
|
|
| 265.8 |
|
|
| 385.1 |
|
|
| 475.8 |
|
|
| 633.0 |
|
|
| 4,093.3 |
|
|
| 6,204.3 |
|
Operating lease obligations |
|
| 57.4 |
|
|
| 105.8 |
|
|
| 83.1 |
|
|
| 65.3 |
|
|
| 46.3 |
|
|
| 88.1 |
|
|
| 446.0 |
|
Less sublease arrangements |
|
| (0.3 | ) |
|
| (0.5 | ) |
|
| (0.3 | ) |
|
| (0.2 | ) |
|
| (0.2 | ) |
|
| (0.7 | ) |
|
| (2.2 | ) |
Outstanding purchase obligations |
|
| 37.7 |
|
|
| 42.8 |
|
|
| 27.7 |
|
|
| 13.6 |
|
|
| 8.7 |
|
|
| 31.0 |
|
|
| 161.5 |
|
Total contractual obligations |
| $ | 446.1 |
|
| $ | 413.9 |
|
| $ | 495.6 |
|
| $ | 554.5 |
|
| $ | 687.8 |
|
| $ | 4,211.7 |
|
| $ | 6,809.6 |
|
Payments Due by Period | ||||||||||||||||||||||||||||
Contractual Obligations | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||
Note purchase agreements | $ | 50.0 | $ | 100.0 | $ | 75.0 | $ | 200.0 | $ | 300.0 | $ | 3,198.0 | $ | 3,923.0 | ||||||||||||||
Credit Agreement | 325.0 | — | — | — | — | — | 325.0 | |||||||||||||||||||||
Premium Financing Debt Facility | 137.3 | — | — | — | — | — | 137.3 | |||||||||||||||||||||
Interest on debt | 87.5 | 171.0 | 165.8 | 160.1 | 150.6 | 698.9 | 1,433.9 | |||||||||||||||||||||
Total debt obligations | 599.8 | 271.0 | 240.8 | 360.1 | 450.6 | 3,896.9 | 5,819.2 | |||||||||||||||||||||
Operating lease obligations | 48.5 | 100.3 | 85.2 | 66.4 | 51.3 | 100.0 | 451.7 | |||||||||||||||||||||
Less sublease arrangements | (1.0 | ) | (0.8 | ) | (0.8 | ) | (0.3 | ) | (0.2 | ) | (0.9 | ) | (4.0 | ) | ||||||||||||||
Outstanding purchase obligations | 34.7 | 41.7 | 34.1 | 16.8 | 8.0 | 23.1 | 158.4 | |||||||||||||||||||||
Total contractual obligations | $ | 682.0 | $ | 412.2 | $ | 359.3 | $ | 443.0 | $ | 509.7 | $ | 4,019.1 | $ | 6,425.3 | ||||||||||||||
The amounts presented in the table above may not necessarily reflect our actual future cash funding requirements, because the actual timing of the future payments made may vary from the stated contractual obligation.
Note Purchase Agreements, Credit Agreement and Premium Financing Debt Facility -
Operating Lease Obligations -
We generally operate in leased premises at our other locations. Certain of these leases have options permitting renewals for additional periods. In addition to minimum fixed rentals, a number of leases contain annual escalation clauses which are generally related to increases in an inflation index.
We have leased certain office space to several
Outstanding Purchase Obligations -
Off-Balance Sheet Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Amount of Commitment Expiration by Period |
|
| Amounts |
| ||||||||||||||||||||||
Off-Balance Sheet Commitments |
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Committed |
| |||||||
Letters of credit |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 18.3 |
|
| $ | 18.3 |
|
Financial guarantees |
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 1.2 |
|
Funding commitments |
|
| 2.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
Total commitments |
| $ | 2.2 |
|
| $ | 0.2 |
|
| $ | 0.2 |
|
| $ | 0.2 |
|
| $ | 0.2 |
|
| $ | 18.6 |
|
| $ | 21.6 |
|
Total | |||||||||||||||||||||||||||||
Amount of Commitment Expiration by Period | Amounts | ||||||||||||||||||||||||||||
Off-Balance Sheet Commitments | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Committed | ||||||||||||||||||||||
Letters of credit | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 18.3 | $ | 18.3 | |||||||||||||||
Financial guarantees | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.6 | 1.5 | ||||||||||||||||||||||
Total commitments | $ | 0.1 | $ | 0.2 | $ | 0.2 | $ | 0.2 | $ | 0.2 | $ | 18.9 | $ | 19.8 | |||||||||||||||
- 28 -
Since commitments may expire unused, the amounts presented in the table above do not necessarily reflect our actual future cash funding requirements.See theOff-Balance
Since January 1, 2002, we have acquired
Off-Balance Sheet Debt
At June 30, 2019,2020, we had posted
Litigation, Regulatory and Taxation Matters -
On July 17, 2019, Midwest Energy Emissions Corp. and MES Inc. (which we refer to together as Midwest Energy) filed a patent infringement lawsuit in the United States District Court for the District of Delaware against over fifty parties including Arthur J. Gallagher & Co., certain of our subsidiaries,us, Chem‑Mod LLC and Chem-Mod LLC.numerous other related and unrelated parties. The complaint alleges that the named defendants infringe two patents held exclusively by Midwest Energy and seeks unspecified damages and injunctive relief. On July 15, 2020, the district court dismissed Midwest Energy’s complaint without prejudice. On the same day Midwest Energy filed an amended complaint. We continue to dispute the allegations contained in the complaint and intend to defendare defending this matter vigorously. We believe the probability of a material loss is remote.
As previously disclosed, our results in one or more reporting periods and limit the ability of the clean energy operations in which we are invested to generate additional tax credits.
In May 2020 we learned that the Department of Justice is conducting a criminal investigation related to IRC 831(b) micro-captive underwriting enterprises. We have been advised that we are not made specific allegationscurrently a target of the investigation. In June 2020 our subsidiary Artex Risk Solutions, Inc. (which we refer to as Artex) received a grand jury subpoena requesting documents relating to our operations orits micro‑captive advisory business. We are in the pre-acquisition activitiesprocess of Tribeca, an adverse determination could subject us to penalties and negatively affect our defense of the class action lawsuit described below. We may also experience lost earnings dueresponding to the negative effect of an extended IRS investigation. In the period from 2016 to 2018, our micro-captive operations contributed less than $
We are fully cooperating with both the IRS has not made any allegation against us or completed allinvestigation and the Department of its audits of our clients, weJustice investigation. We are not able to reasonably estimate the amount of any potential loss in connection with this investigation.
- 29 -
On December 7, 2018, a class action lawsuit was filed against us, our subsidiary Artex Risk Solutions, Inc. (which we refer to as Artex) and other defendants, including Tribeca, in the United States District Court for the District of Arizona. An amended complaint was filed on March 29, 2019. The named plaintiffs are micro-captive clients of Artex or Tribecamicro-captives and their related entities and owners who had IRSIRC Section 831(b) tax benefits disallowed by the IRS. The complaint attempts to state various causes of action and alleges that the defendants defrauded the plaintiffs by marketing and managing micro-captives with the knowledge that the captives did not constitutebona fideinsurance and thus would not qualify for tax benefits. The named plaintiffs are seeking to certify a class of all persons who were assessed back taxes, penalties or interest by the IRS as a result of their ownership of or involvement in an IRSIRC Section 831(b) micro-captive formed or managed by Artex or Tribeca during the time period January 1, 2005 to the present. The complaint does not specify the amount of damages sought by the named plaintiffs or the putative class. The defendants have filed motionsOn August 5, 2019, the trial court granted the defendants’ motion to dismiss, arguing that the case should be put intocompel arbitration and thatdismissed the amended complaint failsclass action lawsuit. Plaintiffs appealed this ruling to state a claim.the United States Court of Appeals for the Ninth Circuit, which held an oral argument on the appeal on July 7, 2020. We will vigorouslycontinue to defend against the lawsuit. lawsuit vigorously. Litigation is inherently uncertain, however, and it is not possible for us to predict the ultimate outcome of this matter and the financial impact to us.
Contingent Liabilities -
Tax-advantaged Investments No Longer Held -
Due to the contingent nature of this exposure and our related assessment of its likelihood, no reserve has been recorded in our June 30, 20192020 consolidated balance sheet related to this exposure.
15.Supplemental Disclosures of Cash Flow Information
|
| Six-month period ended June 30, |
| |||||
Supplemental disclosures of cash flow information (in millions): |
| 2020 |
|
| 2019 |
| ||
Interest paid |
| $ | 91.7 |
|
| $ | 74.6 |
|
Income taxes paid, net |
|
| 20.0 |
|
|
| 31.2 |
|
Six-month period ended June 30, | ||||||||
Supplemental disclosures of cash flow information (in millions): | 2019 | 2018 | ||||||
Interest paid | $ | 74.6 | $ | 65.9 | ||||
Income taxes paid, net | 31.2 | 40.5 |
The following is a reconciliation of our June 30end of period cash, cash equivalents and restricted cash balances as presented in the consolidated statement of cash flows for the six-month periods ended June 30, 20192020 and 20182019 (in millions):
|
| June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash and cash equivalents |
| $ | 349.7 |
|
| $ | 512.3 |
|
Restricted cash |
|
| 2,653.0 |
|
|
| 2,034.3 |
|
Total cash, cash equivalents and restricted cash |
| $ | 3,002.7 |
|
| $ | 2,546.6 |
|
June 30, | ||||||||
2019 | 2018 | |||||||
Cash and cash equivalents | $ | 512.3 | $ | 652.2 | ||||
Restricted cash | 2,034.3 | 1,692.5 | ||||||
Total cash, cash equivalents and restricted cash | $ | 2,546.6 | $ | 2,344.7 | ||||
We have a qualified contributory savings and thrift (401(k)) plan covering the majority of our domestic employees. For eligible employees who have met the plan’s age and service requirements to receive matching contributions, we match 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Employees must be employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and can be funded in cash or company
- 30 -
stock. We expensed (net of plan forfeitures) $30.3 million and $29.3 million related to the plan in the six-month periods ended June 30, 2020 and 2019, respectively. Our Board of Directors has authorized use of common stock to fund our 2020 employer matching contributions to the 401(k) plan, which we plan to do in February 2021.
16.Accumulated Other Comprehensive Loss
The after-tax components of our accumulated other comprehensive earnings (loss)loss attributable to controlling interests consist of the following:
|
|
|
|
|
| Foreign |
|
| Fair Value of |
|
| Accumulated |
| |||
|
| Pension |
|
| Currency |
|
| Derivative |
|
| Comprehensive |
| ||||
|
| Liability |
|
| Translation |
|
| Investments |
|
| Loss |
| ||||
Balance as of December 31, 2019 |
| $ | (56.5 | ) |
| $ | (674.8 | ) |
| $ | (28.3 | ) |
| $ | (759.6 | ) |
Net change in period |
|
| 1.2 |
|
|
| (130.6 | ) |
|
| (93.2 | ) |
|
| (222.6 | ) |
Balance as of June 30, 2020 |
| $ | (55.3 | ) |
| $ | (805.4 | ) |
| $ | (121.5 | ) |
| $ | (982.2 | ) |
Pension Liability | Foreign Currency Translation | Fair Value of Derivative Investments | Accumulated Comprehensive Earnings (Loss) | |||||||||||||
Balance as of December 31, 2018 | $ | (61.2 | ) | $ | (719.0 | ) | $ | (5.4 | ) | $ | (785.6 | ) | ||||
Cumulative effect of adoption of new accounting standards | — | — | (0.2 | ) | (0.2 | ) | ||||||||||
Net change in period | 2.4 | 13.8 | (32.9 | ) | (16.7 | ) | ||||||||||
Balance as of June 30, 2019 | $ | (58.8 | ) | $ | (705.2 | ) | $ | (38.5 | ) | $ | (802.5 | ) | ||||
The foreign currency translation durin
During the
17.Segment Information
We have
The brokerage segment is primarily comprised of our retail and wholesale insurance brokerage operations. The brokerage segment generates revenues through commissions paid by underwriting enterprises and through fees charged to our clients. Our brokers, agents and administrators act as intermediaries between underwriting enterprises and our clients and we do not assume net underwriting risks.
The risk management segment provides contract claim settlement and administration services for enterprises and public entities that choose to self-insure some or all of their property/casualty coverages and for underwriting enterprises that choose to outsource some or all of their property/casualty claims departments. These operations also provide claims management, loss control consulting and insurance property appraisal services. Revenues are principally generated on a negotiated per-claim or per-service fee basis. Our risk management segment also provides risk management consulting services that are recognized as the services are delivered.
The corporate segment managesour clean energy and other investments. In addition, the corporate segment reports the financial information related to our debt and other corporate costs, external acquisition-related expenses and the impact of foreign currency translation.
Allocations of investment income and certain expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information.
- 31 -
Financial information relating to our segments for the three-month and
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Brokerage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 1,201.1 |
|
| $ | 1,131.2 |
|
| $ | 2,636.7 |
|
| $ | 2,513.1 |
|
Earnings before income taxes | $ | 247.8 |
|
| $ | 182.3 |
|
| $ | 658.6 |
|
| $ | 594.7 |
|
Identifiable assets at June 30, 2020 and 2019 |
|
|
|
|
|
|
|
| $ | 18,405.6 |
|
| $ | 16,464.3 |
|
Risk Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 223.2 |
|
| $ | 242.1 |
|
| $ | 472.7 |
|
| $ | 478.5 |
|
Earnings before income taxes | $ | 13.2 |
|
| $ | 21.0 |
|
| $ | 38.8 |
|
| $ | 43.0 |
|
Identifiable assets at June 30, 2020 and 2019 |
|
|
|
|
|
|
|
| $ | 929.1 |
|
| $ | 847.9 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 159.7 |
|
| $ | 284.5 |
|
| $ | 341.5 |
|
| $ | 656.8 |
|
Loss before income taxes | $ | (89.3 | ) |
| $ | (97.8 | ) |
| $ | (169.7 | ) |
| $ | (210.4 | ) |
Identifiable assets at June 30, 2020 and 2019 |
|
|
|
|
|
|
|
| $ | 1,971.5 |
|
| $ | 1,888.1 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 1,584.0 |
|
| $ | 1,657.8 |
|
| $ | 3,450.9 |
|
| $ | 3,648.4 |
|
Earnings before income taxes | $ | 171.7 |
|
| $ | 105.5 |
|
| $ | 527.7 |
|
| $ | 427.3 |
|
Identifiable assets at June 30, 2020 and 2019 |
|
|
|
|
|
|
|
| $ | 21,306.2 |
|
| $ | 19,200.3 |
|
Three-month periodended June 30, | Six-month periodended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Brokerage | ||||||||||||||||
Total revenues | $ | 1,131.2 | $ | 1,000.1 | $ | 2,513.1 | $ | 2,195.7 | ||||||||
Earnings before income taxes | $ | 182.3 | $ | 170.6 | $ | 594.7 | $ | 489.5 | ||||||||
Identifiable assets at June 30, 2019 and 2018 | $ | 16,464.3 | $ | 13,779.0 | ||||||||||||
Risk Management | ||||||||||||||||
Total revenues | $ | 242.1 | $ | 237.3 | $ | 478.5 | $ | 467.2 | ||||||||
Earnings before income taxes | $ | 21.0 | $ | 24.0 | $ | 43.0 | $ | 45.6 | ||||||||
Identifiable assets at June 30, 2019 and 2018 | $ | 847.9 | $ | 739.5 | ||||||||||||
Corporate | ||||||||||||||||
Total revenues | $ | 284.5 | $ | 423.0 | $ | 656.8 | $ | 835.2 | ||||||||
Loss before income taxes | $ | (97.8 | ) | $ | (91.0 | ) | $ | (210.4 | ) | $ | (189.2 | ) | ||||
�� | ||||||||||||||||
Identifiable assets at June 30, 2019 and 2018 | $ | 1,888.1 | $ | 1,712.0 | ||||||||||||
Disaggregation of Revenue
We disaggregate our revenue from contracts with clients by type and geographic location for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Revenues by type and segment for the three-month period ended June 30, 20192020 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
| $ | 827.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 827.5 |
|
Fees |
|
| 269.1 |
|
|
| 190.6 |
|
|
| — |
|
|
| 459.7 |
|
Supplemental revenues |
|
| 50.3 |
|
|
| — |
|
|
| — |
|
|
| 50.3 |
|
Contingent revenues |
|
| 37.4 |
|
|
| — |
|
|
| — |
|
|
| 37.4 |
|
Investment income |
|
| 15.8 |
|
|
| 0.2 |
|
|
| — |
|
|
| 16.0 |
|
Net gains on divestitures |
|
| 1.0 |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
Revenues from clean coal activities |
|
| — |
|
|
| — |
|
|
| 159.5 |
|
|
| 159.5 |
|
Other net losses |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| 0.2 |
|
Revenues before reimbursements |
|
| 1,201.1 |
|
|
| 190.8 |
|
|
| 159.7 |
|
|
| 1,551.6 |
|
Reimbursements |
|
| — |
|
|
| 32.4 |
|
|
| — |
|
|
| 32.4 |
|
Total revenues |
| $ | 1,201.1 |
|
| $ | 223.2 |
|
| $ | 159.7 |
|
| $ | 1,584.0 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 777.7 | $ | — | $ | — | $ | 777.7 | ||||||||
Fees | 256.1 | 208.6 | — | 464.7 | ||||||||||||
Supplemental revenues | 46.9 | — | — | 46.9 | ||||||||||||
Contingent revenues | 29.5 | — | — | 29.5 | ||||||||||||
Investment income | 19.1 | 0.5 | — | 19.6 | ||||||||||||
Net gains on divestitures | 1.9 | — | — | 1.9 | ||||||||||||
Revenues from clean coal activities | — | — | 284.4 | 284.4 | ||||||||||||
Other net gains | — | — | 0.1 | 0.1 | ||||||||||||
Revenues before reimbursements | 1,131.2 | 209.1 | 284.5 | 1,624.8 | ||||||||||||
Reimbursements | — | 33.0 | — | 33.0 | ||||||||||||
Total revenues | $ | 1,131.2 | $ | 242.1 | $ | 284.5 | $ | 1,657.8 | ||||||||
- 32 -
Revenues by type and segment for the six-month period ended June 30, 2020 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
| $ | 1,844.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,844.7 |
|
Fees |
|
| 564.9 |
|
|
| 402.1 |
|
|
| — |
|
|
| 967.0 |
|
Supplemental revenues |
|
| 109.3 |
|
|
| — |
|
|
| — |
|
|
| 109.3 |
|
Contingent revenues |
|
| 82.5 |
|
|
| — |
|
|
| — |
|
|
| 82.5 |
|
Investment income |
|
| 34.1 |
|
|
| 0.5 |
|
|
| — |
|
|
| 34.6 |
|
Net gains on divestitures |
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Revenues from clean coal activities |
|
| — |
|
|
| — |
|
|
| 341.3 |
|
|
| 341.3 |
|
Other net losses |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| 0.2 |
|
Revenues before reimbursements |
|
| 2,636.7 |
|
|
| 402.6 |
|
|
| 341.5 |
|
|
| 3,380.8 |
|
Reimbursements |
|
| — |
|
|
| 70.1 |
|
|
| — |
|
|
| 70.1 |
|
Total revenues |
| $ | 2,636.7 |
|
| $ | 472.7 |
|
| $ | 341.5 |
|
| $ | 3,450.9 |
|
Revenues by geographical location and segment for the three-month period ended June 30, 2020 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 740.8 |
|
| $ | 185.6 |
|
| $ | 159.7 |
|
| $ | 1,086.1 |
|
United Kingdom |
|
| 260.9 |
|
|
| 8.2 |
|
|
| — |
|
|
| 269.1 |
|
Australia |
|
| 56.9 |
|
|
| 24.7 |
|
|
| — |
|
|
| 81.6 |
|
Canada |
|
| 58.2 |
|
|
| 1.5 |
|
|
| — |
|
|
| 59.7 |
|
New Zealand |
|
| 38.0 |
|
|
| 3.2 |
|
|
| — |
|
|
| 41.2 |
|
Other foreign |
|
| 46.3 |
|
|
| — |
|
|
| — |
|
|
| 46.3 |
|
Total revenues |
| $ | 1,201.1 |
|
| $ | 223.2 |
|
| $ | 159.7 |
|
| $ | 1,584.0 |
|
Revenues by geographical location and segment for the six-month period ended June 30, 2020 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 1,746.7 |
|
| $ | 398.3 |
|
| $ | 341.5 |
|
| $ | 2,486.5 |
|
United Kingdom |
|
| 515.4 |
|
|
| 19.6 |
|
|
| — |
|
|
| 535.0 |
|
Australia |
|
| 100.0 |
|
|
| 46.3 |
|
|
| — |
|
|
| 146.3 |
|
Canada |
|
| 114.4 |
|
|
| 2.5 |
|
|
| — |
|
|
| 116.9 |
|
New Zealand |
|
| 66.0 |
|
|
| 6.0 |
|
|
| — |
|
|
| 72.0 |
|
Other foreign |
|
| 94.2 |
|
|
| — |
|
|
| — |
|
|
| 94.2 |
|
Total revenues |
| $ | 2,636.7 |
|
| $ | 472.7 |
|
| $ | 341.5 |
|
| $ | 3,450.9 |
|
- 33 -
Revenues by type and segment for the three-month ended June 30, 2019 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
| $ | 777.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 777.7 |
|
Fees |
|
| 256.1 |
|
|
| 208.6 |
|
|
| — |
|
|
| 464.7 |
|
Supplemental revenues |
|
| 46.9 |
|
|
| — |
|
|
| — |
|
|
| 46.9 |
|
Contingent revenues |
|
| 29.5 |
|
|
| — |
|
|
| — |
|
|
| 29.5 |
|
Investment income |
|
| 19.1 |
|
|
| 0.5 |
|
|
| — |
|
|
| 19.6 |
|
Net gains on divestitures |
|
| 1.9 |
|
|
| — |
|
|
| — |
|
|
| 1.9 |
|
Revenues from clean coal activities |
|
| — |
|
|
| — |
|
|
| 284.4 |
|
|
| 284.4 |
|
Other net losses |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Revenues before reimbursements |
|
| 1,131.2 |
|
|
| 209.1 |
|
|
| 284.5 |
|
|
| 1,624.8 |
|
Reimbursements |
|
| — |
|
|
| 33.0 |
|
|
| — |
|
|
| 33.0 |
|
Total revenues |
| $ | 1,131.2 |
|
| $ | 242.1 |
|
| $ | 284.5 |
|
| $ | 1,657.8 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 1,718.1 | $ | — | $ | — | $ | 1,718.1 | ||||||||
Fees | 517.9 | 411.5 | — | 929.4 | ||||||||||||
Supplemental revenues | 103.6 | — | — | 103.6 | ||||||||||||
Contingent revenues | 77.5 | — | — | 77.5 | ||||||||||||
Investment income | 37.0 | 0.9 | — | 37.9 | ||||||||||||
Net gains on divestitures | 59.0 | — | — | 59.0 | ||||||||||||
Revenues from clean coal activities | — | — | 656.7 | 656.7 | ||||||||||||
Other net gains | — | — | 0.1 | 0.1 | ||||||||||||
Revenues before reimbursements | 2,513.1 | 412.4 | 656.8 | 3,582.3 | ||||||||||||
Reimbursements | — | 66.1 | — | 66.1 | ||||||||||||
Total revenues | $ | 2,513.1 | $ | 478.5 | $ | 656.8 | $ | 3,648.4 | ||||||||
Revenues by type and segment for the six-month ended June 30, 2019 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
| $ | 1,718.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,718.1 |
|
Fees |
|
| 517.9 |
|
|
| 411.5 |
|
|
| — |
|
|
| 929.4 |
|
Supplemental revenues |
|
| 103.6 |
|
|
| — |
|
|
| — |
|
|
| 103.6 |
|
Contingent revenues |
|
| 77.5 |
|
|
| — |
|
|
| — |
|
|
| 77.5 |
|
Investment income |
|
| 37.0 |
|
|
| 0.9 |
|
|
| — |
|
|
| 37.9 |
|
Net gains on divestitures |
|
| 59.0 |
|
|
| — |
|
|
| — |
|
|
| 59.0 |
|
Revenues from clean coal activities |
|
| — |
|
|
| — |
|
|
| 656.7 |
|
|
| 656.7 |
|
Other net losses |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Revenues before reimbursements |
|
| 2,513.1 |
|
|
| 412.4 |
|
|
| 656.8 |
|
|
| 3,582.3 |
|
Reimbursements |
|
| — |
|
|
| 66.1 |
|
|
| — |
|
|
| 66.1 |
|
Total revenues |
| $ | 2,513.1 |
|
| $ | 478.5 |
|
| $ | 656.8 |
|
| $ | 3,648.4 |
|
Revenues by geographical location and segment for the three-month period ended June 30, 2019 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 685.3 |
|
| $ | 206.9 |
|
| $ | 284.5 |
|
| $ | 1,176.7 |
|
United Kingdom |
|
| 248.7 |
|
|
| 10.0 |
|
|
| — |
|
|
| 258.7 |
|
Australia |
|
| 58.8 |
|
|
| 20.0 |
|
|
| — |
|
|
| 78.8 |
|
Canada |
|
| 58.4 |
|
|
| 1.1 |
|
|
| — |
|
|
| 59.5 |
|
New Zealand |
|
| 41.2 |
|
|
| 4.1 |
|
|
| — |
|
|
| 45.3 |
|
Other foreign |
|
| 38.8 |
|
|
| — |
|
|
| — |
|
|
| 38.8 |
|
Total revenues |
| $ | 1,131.2 |
|
| $ | 242.1 |
|
| $ | 284.5 |
|
| $ | 1,657.8 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
United States | $ | 685.3 | $ | 206.9 | $ | 284.5 | $ | 1,176.7 | ||||||||
United Kingdom | 248.7 | 10.0 | — | 258.7 | ||||||||||||
Australia | 58.8 | 20.0 | — | 78.8 | ||||||||||||
Canada | 58.4 | 1.1 | — | 59.5 | ||||||||||||
New Zealand | 41.2 | 4.1 | — | 45.3 | ||||||||||||
Other foreign | 38.8 | — | — | 38.8 | ||||||||||||
Total revenues | $ | 1,131.2 | $ | 242.1 | $ | 284.5 | $ | 1,657.8 | ||||||||
- 3534 -
Revenues by geographical location and segment for the six-month period ended June 30, 2019 are as follows (in millions):
|
|
|
|
|
| Risk |
|
|
|
|
|
|
|
|
| |
|
| Brokerage |
|
| Management |
|
| Corporate |
|
| Total |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 1,691.8 |
|
| $ | 405.4 |
|
| $ | 656.8 |
|
| $ | 2,754.0 |
|
United Kingdom |
|
| 452.4 |
|
|
| 20.2 |
|
|
| — |
|
|
| 472.6 |
|
Australia |
|
| 104.8 |
|
|
| 42.5 |
|
|
| — |
|
|
| 147.3 |
|
Canada |
|
| 115.6 |
|
|
| 2.3 |
|
|
| — |
|
|
| 117.9 |
|
New Zealand |
|
| 71.5 |
|
|
| 8.1 |
|
|
| — |
|
|
| 79.6 |
|
Other foreign |
|
| 77.0 |
|
|
| — |
|
|
| — |
|
|
| 77.0 |
|
Total revenues |
| $ | 2,513.1 |
|
| $ | 478.5 |
|
| $ | 656.8 |
|
| $ | 3,648.4 |
|
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
United States | $ | 1,691.8 | $ | 405.4 | $ | 656.8 | $ | 2,754.0 | ||||||||
United Kingdom | 452.4 | 20.2 | — | 472.6 | ||||||||||||
Australia | 104.8 | 42.5 | — | 147.3 | ||||||||||||
Canada | 115.6 | 2.3 | — | 117.9 | ||||||||||||
New Zealand | 71.5 | 8.1 | — | 79.6 | ||||||||||||
Other foreign | 77.0 | — | — | 77.0 | ||||||||||||
Total revenues | $ | 2,513.1 | $ | 478.5 | $ | 656.8 | $ | 3,648.4 | ||||||||
- 35 -
Item 2.Management’s Discussion and segment for the three-month period ended June 30, 2018 are as follows (in millions):
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 688.0 | $ | — | $ | — | $ | 688.0 | ||||||||
Fees | 220.4 | 201.8 | — | 422.2 | ||||||||||||
Supplemental revenues | 48.1 | — | — | 48.1 | ||||||||||||
Contingent revenues | 21.8 | — | — | 21.8 | ||||||||||||
Investment income | 15.7 | 0.1 | — | 15.8 | ||||||||||||
Net gains on divestitures | 6.1 | — | — | 6.1 | ||||||||||||
Revenues from clean coal activities | — | — | 422.4 | 422.4 | ||||||||||||
Other net revenues | — | — | 0.6 | 0.6 | ||||||||||||
Revenues before reimbursements | 1,000.1 | 201.9 | 423.0 | 1,625.0 | ||||||||||||
Reimbursements | — | 35.4 | — | 35.4 | ||||||||||||
Total revenues | $ | 1,000.1 | $ | 237.3 | $ | 423.0 | $ | 1,660.4 | ||||||||
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 1,527.4 | $ | — | $ | — | $ | 1,527.4 | ||||||||
Fees | 473.6 | 396.7 | — | 870.3 | ||||||||||||
Supplemental revenues | 100.1 | — | — | 100.1 | ||||||||||||
Contingent revenues | 56.7 | — | — | 56.7 | ||||||||||||
Investment income | 28.9 | 0.3 | — | 29.2 | ||||||||||||
Net gains on divestitures | 9.0 | — | — | 9.0 | ||||||||||||
Revenues from clean coal activities | — | — | 834.6 | 834.6 | ||||||||||||
Other net revenues | — | — | 0.6 | 0.6 | ||||||||||||
Revenues before reimbursements | 2,195.7 | 397.0 | 835.2 | 3,427.9 | ||||||||||||
Reimbursements | — | 70.2 | — | 70.2 | ||||||||||||
Total revenues | $ | 2,195.7 | $ | 467.2 | $ | 835.2 | $ | 3,498.1 | ||||||||
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
United States | $ | 615.5 | $ | 197.3 | $ | 423.0 | $ | 1,235.8 | ||||||||
United Kingdom | 204.4 | 8.8 | — | 213.2 | ||||||||||||
Australia | 53.9 | 25.7 | — | 79.6 | ||||||||||||
Canada | 47.8 | 1.2 | — | 49.0 | ||||||||||||
New Zealand | 39.4 | 4.3 | — | 43.7 | ||||||||||||
Other foreign | 39.1 | — | — | 39.1 | ||||||||||||
Total revenues | $ | 1,000.1 | $ | 237.3 | $ | 423.0 | $ | 1,660.4 | ||||||||
Brokerage | Risk Management | Corporate | Total | |||||||||||||
Revenues: | ||||||||||||||||
United States | $ | 1,468.3 | $ | 390.1 | $ | 835.2 | $ | 2,693.6 | ||||||||
United Kingdom | 395.4 | 17.7 | — | 413.1 | ||||||||||||
Australia | 97.5 | 49.4 | — | 146.9 | ||||||||||||
Canada | 90.6 | 2.2 | — | 92.8 | ||||||||||||
New Zealand | 69.5 | 7.8 | — | 77.3 | ||||||||||||
Other foreign | 74.4 | — | — | 74.4 | ||||||||||||
Total revenues | $ | 2,195.7 | $ | 467.2 | $ | 835.2 | $ | 3,498.1 | ||||||||
The discussion and analysis that follows relates to our financial condition and results of operations for the three-month and
Information Regarding
In the discussion and analysis of our results of operations that follows, in addition to reporting financial results in accordance with GAAP, we provide information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, adjusted EBITDAC margin (before acquisitions), diluted net earnings per share, as adjusted (adjusted EPS) for the brokerage and risk management segments, ,adjusted revenues, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue measures for each operating segment.revenue. These measures are not in accordance with, or an alternative to, the GAAP information provided in this quarterly report on Form
Adjusted Non-GAAP presentation
• | Adjusted measures - We define these measures as revenues (for the brokerage segment), revenues before reimbursements (for the risk management segment), net earnings, compensation expense and operating expense, respectively, each adjusted to exclude the following, as applicable: |
• | 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 change in estimated acquisition earnout payables adjustments, impairment charges and acquisition related compensation charges. Prior to first quarter 2019, this adjustment also reflected impacts of acquisition valuation true-ups. |
• | 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. |
• | Effective income tax rate impact, which represents the impact related to prior quarters in 2019 for the decrease in the effective income tax rate used to compute the provision for income taxes in fourth quarter 2019. |
• | Adjusted ratios- Adjusted compensation expense and adjusted operating expense, respectively, each divided by adjusted revenues. |
- 3836 -
Non-GAAP
We believe that the presentation of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin and adjusted EPS for the brokerage and risk management segment, each as defined below, provides a meaningful representation of our operating performance. Adjusted EPS is a performance measure and should not be used as a measure of our liquidity. We also consider EBITDAC and EBITDAC margin as ways to measure financial performance on an ongoing basis. In addition, adjusted EBITDAC, adjusted EBITDAC marginand adjusted EPS for the brokerage and risk management segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.
• | EBITDACand EBITDAC Margin- EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (for the brokerage segment) and revenues before reimbursements (for the risk management segment). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance for the overall business and provide a meaningful way to measure its financial performance on an ongoing basis. |
• | Adjusted EBITDAC and Adjusted EBITDAC Margin - Adjusted EBITDAC is EBITDAC adjusted to exclude net gains on divestitures, acquisition integration costs, workforce related charges, lease termination related charges, acquisition related adjustments, and the period-over-period impact of foreign currency translation, as applicable, and Adjusted EBITDAC margin is Adjusted EBITDAC divided by total adjusted revenues (defined above).These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance and, are also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability. |
• | Adjusted EPS and Adjusted Net Earnings - Adjusted net earnings have been adjusted to exclude the 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 and effective income tax rate impact, as applicable. 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. |
Organic Revenues (a non-GAAP measure)
These revenue items are excluded from organic revenues in order to determine a comparable, but
Reconciliation of Non-GAAP Information Presented to GAAP Measures
- 37 -
Other Information
In the discussion that follows regarding our results of operations, we also provide the following ratios with respect to our operating results: pretax profit margin, compensation expense ratio and operating expense ratio. Pretax profit margin represents pretax earnings divided by total revenues. The compensation expense ratio is compensation expense divided by total revenues. The operating expense ratio is operating expense divided by total revenues.
Overview and Second Quarter 20192020 Highlights
We are engaged in providing insurance brokerage and consulting services, and third-party property/casualty claims settlement and administration services to entities in the U.S. and abroad. In the
We typically cite the Council of Insurance Agents and Brokers (which we refer to as CIAB) insurance pricing quarterly survey at this time as an indicator of the current insurance rate environment, but theenvironment. The first quarter 2020 survey indicated that commercial property/casualty rates increased by 9.3% on average. The second quarter 20192020 survey had not been published as of the filing date of this report. We anticipate that the trends noted in the first quarter 2019 survey will likely be similar to what will be reported for second quarter 2019. The first quarter 2019 CIAB survey indicated that commercial property/casualty rates increased by 3.5%, on average, across all lines. The CIAB represents the leading domestic and international insurance brokers, who write approximately 85% of the commercial property/casualty premiums in the U.S.
We believe increases in property/casualty rates will continue for the remainder of 2020; however, loss trends could deteriorate over the next year, leading to a more difficult rate and conditions environment in certain lines. The economies of the U.S. and other countries around the world have rapidly contracted as a result of COVID-19. The decreased level of economic activity is leading to, and is likely to continue to lead to, a decline in exposure units and rising unemployment. However, we expect modest increases in retail property/casualty rates and exposures greater than the increases observed during 2018. Within our employee benefits and consulting brokerage operations, we believe that employment growth, a tightening labor market and the complexity surrounding the healthcare regulatory environment bode well for the continued demand of our services. In addition, our history of strong new business generation, solid retentions and enhanced value-added services for our carrier partners should all result in further organic growth opportunitieshelp offset, to a degree, softer economic conditions around the world. Internationally, in the U.K. and Canada retail property/casualty markets, pricing is similar to the U.S., and we are experiencing an improving market in London Specialty, Australia and New Zealand. Overall, we believe that in a stable to modestly positive rate environment with growingdeclining exposure units, our professionals can demonstrate ourtheir expertise and high-quality, value-added capabilities by strengthening our clients’ insurance portfolio.portfolios and delivering insurance and risk management solutions within our clients’ budget. Based on our experience, there is adequate capacity in the insurance market, most insurance carriers appear to be making rational pricing decisions. In linesdecisions and accounts where rate increases or decreases are warranted, the underwriters are pricing accordingly. As carriers reach their profitability targets in certain lines, rates may start to flatten in those lines. In summary, in this environment, clients can broadly still obtain coverage, businesses continuecoverage. Please also refer to stay in standard-line marketsthe section entitled “COVID-19 Impact” below see pages 43 and there is adequate capacity in the insurance market.
- 4038 -
Summary of Financial Results - Three-Month Periods Ended June 30, 20192020 and 2018
See the reconciliations of
(Dollars in millions, except per share data) |
| 2nd Quarter 2020 |
|
| 2nd Quarter 2019 |
|
| Change |
| |||||||||||||||
|
| Reported |
|
| Adjusted |
|
| Reported |
|
| Adjusted |
|
| Reported |
|
| Adjusted |
| ||||||
|
| GAAP |
|
| Non-GAAP |
|
| GAAP |
|
| Non-GAAP |
|
| GAAP |
|
| Non-GAAP |
| ||||||
Brokerage Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 1,201.1 |
|
| $ | 1,200.1 |
|
| $ | 1,131.2 |
|
| $ | 1,113.8 |
|
|
| 6 | % |
|
| 8 | % |
Organic revenues |
|
|
|
|
| $ | 1,112.3 |
|
|
|
|
|
| $ | 1,089.1 |
|
|
|
|
|
|
| 2.1 | % |
Net earnings |
| $ | 190.2 |
|
|
|
|
|
| $ | 138.0 |
|
|
|
|
|
|
| 38 | % |
|
|
|
|
Net earnings margin |
|
| 15.8 | % |
|
|
|
|
|
| 12.2 | % |
|
|
|
|
| + 364 bpts |
|
|
|
|
| |
Adjusted EBITDAC |
|
|
|
|
| $ | 391.3 |
|
|
|
|
|
| $ | 292.4 |
|
|
|
|
|
|
| 34 | % |
Adjusted EBITDAC margin |
|
|
|
|
|
| 32.6 | % |
|
|
|
|
|
| 26.3 | % |
|
|
|
|
| + 636 bpts |
| |
Diluted net earnings per share |
| $ | 0.97 |
|
| $ | 1.09 |
|
| $ | 0.70 |
|
| $ | 0.75 |
|
|
| 39 | % |
|
| 45 | % |
Risk Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before reimbursements |
| $ | 190.8 |
|
| $ | 190.8 |
|
| $ | 209.1 |
|
| $ | 207.3 |
|
|
| (9 | )% |
|
| (8 | )% |
Organic revenues |
|
|
|
|
| $ | 187.0 |
|
|
|
|
|
| $ | 206.8 |
|
|
|
|
|
|
| (9.6 | )% |
Net earnings |
| $ | 9.9 |
|
|
|
|
|
| $ | 15.5 |
|
|
|
|
|
|
| (36 | )% |
|
|
|
|
Net earnings margin (before reimbursements) |
|
| 5.2 | % |
|
|
|
|
|
| 7.4 | % |
|
|
|
|
| - 222 bpts |
|
|
|
|
| |
Adjusted EBITDAC |
|
|
|
|
| $ | 33.5 |
|
|
|
|
|
| $ | 36.2 |
|
|
|
|
|
|
| (7 | )% |
Adjusted EBITDAC margin (before reimbursements) |
|
|
|
|
|
| 17.6 | % |
|
|
|
|
|
| 17.5 | % |
|
|
|
|
| + 10 bpts |
| |
Diluted net earnings per share |
| $ | 0.05 |
|
| $ | 0.08 |
|
| $ | 0.08 |
|
| $ | 0.09 |
|
|
| (38 | )% |
|
| (11 | )% |
Corporate Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share |
| $ | (0.23 | ) |
| $ | (0.23 | ) |
| $ | (0.20 | ) |
| $ | (0.21 | ) |
|
|
|
|
|
|
|
|
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
| $ | 0.79 |
|
| $ | 0.94 |
|
| $ | 0.58 |
|
| $ | 0.63 |
|
|
| 36 | % |
|
| 49 | % |
Total Brokerage and Risk Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
| $ | 1.02 |
|
| $ | 1.17 |
|
| $ | 0.78 |
|
| $ | 0.84 |
|
|
| 31 | % |
|
| 39 | % |
(Dollars in millions, except per share data) | 2nd Quarter 2019 | 2nd Quarter 2018 | Change | |||||||||||||||||||||
Reported | Adjusted | Reported | Adjusted | Reported | Adjusted | |||||||||||||||||||
GAAP | Non-GAAP | GAAP | Non-GAAP | GAAP | Non-GAAP | |||||||||||||||||||
Brokerage Segment | ||||||||||||||||||||||||
Revenues | $ | $ | 1,129.3 | $ | $ | 978.0 | 13 | % | 15 | % | ||||||||||||||
Organic revenues | $ | 1,013.2 | $ | 957.5 | 5.8 | % | ||||||||||||||||||
Net earnings | $ | 138.0 | $ | 127.5 | 8 | % | ||||||||||||||||||
Net earnings margin | 12.2 | % | 12.8 | % | -55 bpts | |||||||||||||||||||
Adjusted EBITDAC | $ | 298.0 | $ | 253.4 | 18 | % | ||||||||||||||||||
Adjusted EBITDAC margin | 26.4 | % | 25.9 | % | +48 bpts | |||||||||||||||||||
Diluted net earnings per share | $ | 0.70 | $ | 0.76 | $ | 0.68 | $ | 0.67 | 3 | % | 13 | % | ||||||||||||
Risk Management Segment | ||||||||||||||||||||||||
Revenues before reimbursements | $ | 209.1 | $ | 209.1 | $ | 201.9 | $ | 199.2 | 4 | % | 5 | % | ||||||||||||
Organic revenues | $ | 205.1 | $ | 199.1 | 3.0 | % | ||||||||||||||||||
Net earnings | $ | 15.5 | $ | 17.6 | -12 | % | ||||||||||||||||||
Net earnings margin (before reimbursements) | 7.4 | % | 8.7 | % | -131 bpts | |||||||||||||||||||
Adjusted EBITDAC | $ | 36.6 | $ | 35.1 | 4 | % | ||||||||||||||||||
Adjusted EBITDAC margin (before reimbursements) | 17.5 | % | 17.6 | % | -12 bpt | |||||||||||||||||||
Diluted net earnings per share | $ | 0.08 | $ | 0.09 | $ | 0.09 | $ | 0.10 | -11 | % | -10 | % | ||||||||||||
Corporate Segment | ||||||||||||||||||||||||
Diluted net earnings per share | $ | (0.20 | ) | $ | (0.20 | ) | $ | (0.15 | ) | $ | (0.15 | ) | ||||||||||||
Total Company | ||||||||||||||||||||||||
Diluted net earnings per share | $ | 0.58 | $ | 0.65 | $ | 0.62 | $ | 0.62 | -6 | % | 5 | % | ||||||||||||
Total Brokerage and Risk Management Segment | ||||||||||||||||||||||||
Diluted net earnings per share | $ | 0.78 | $ | 0.85 | $ | 0.77 | $ | 0.77 | 1 | % | 10 | % |
Summary of Financial Results -
See the reconciliations of
(Dollars in millions, except per share data) |
| Six Months 2020 |
|
| Six Months 2019 |
|
| Change |
| |||||||||||||||
|
| Reported |
|
| Adjusted |
|
| Reported |
|
| Adjusted |
|
| Reported |
|
| Adjusted |
| ||||||
|
| GAAP |
|
| Non-GAAP |
|
| GAAP |
|
| Non-GAAP |
|
| GAAP |
|
| Non-GAAP |
| ||||||
Brokerage Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 2,636.7 |
|
| $ | 2,635.5 |
|
| $ | 2,513.1 |
|
| $ | 2,424.5 |
|
|
| 5 | % |
|
| 9 | % |
Organic revenues |
|
|
|
|
| $ | 2,434.1 |
|
|
|
|
|
| $ | 2,370.9 |
|
|
|
|
|
|
| 2.7 | % |
Net earnings |
| $ | 501.6 |
|
|
|
|
|
| $ | 447.5 |
|
|
|
|
|
|
| 12 | % |
|
|
|
|
Net earnings margin |
|
| 19.0 | % |
|
|
|
|
|
| 17.8 | % |
|
|
|
|
| + 121 bpts |
|
|
|
|
| |
Adjusted EBITDAC |
|
|
|
|
| $ | 886.8 |
|
|
|
|
|
| $ | 760.8 |
|
|
|
|
|
|
| 17 | % |
Adjusted EBITDAC margin |
|
|
|
|
|
| 33.7 | % |
|
|
|
|
|
| 31.4 | % |
|
|
|
|
| + 227 bpts |
| |
Diluted net earnings per share |
| $ | 2.58 |
|
| $ | 2.75 |
|
| $ | 2.29 |
|
| $ | 2.19 |
|
|
| 13 | % |
|
| 26 | % |
Risk Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before reimbursements |
| $ | 402.6 |
|
| $ | 402.6 |
|
| $ | 412.4 |
|
| $ | 408.0 |
|
|
| (2 | )% |
|
| (1 | )% |
Organic revenues |
|
|
|
|
| $ | 395.6 |
|
|
|
|
|
| $ | 407.1 |
|
|
|
|
|
|
| (2.8 | )% |
Net earnings |
| $ | 29.0 |
|
|
|
|
|
| $ | 31.7 |
|
|
|
|
|
|
| (9 | )% |
|
|
|
|
Net earnings margin (before reimbursements) |
|
| 7.2 | % |
|
|
|
|
|
| 7.7 | % |
|
|
|
|
| - 49 bpts |
|
|
|
|
| |
Adjusted EBITDAC |
|
|
|
|
| $ | 68.8 |
|
|
|
|
|
| $ | 70.5 |
|
|
|
|
|
|
| (2 | )% |
Adjusted EBITDAC margin (before reimbursements) |
|
|
|
|
|
| 17.1 | % |
|
|
|
|
|
| 17.3 | % |
|
|
|
|
| - 19 bpts |
| |
Diluted net earnings per share |
| $ | 0.15 |
|
| $ | 0.17 |
|
| $ | 0.17 |
|
| $ | 0.18 |
|
|
| (12 | )% |
|
| (6 | )% |
Corporate Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share |
| $ | (0.15 | ) |
| $ | (0.15 | ) |
| $ | (0.11 | ) |
| $ | (0.12 | ) |
|
|
|
|
|
|
|
|
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
| $ | 2.58 |
|
| $ | 2.77 |
|
| $ | 2.35 |
|
| $ | 2.25 |
|
|
| 10 | % |
|
| 23 | % |
Total Brokerage and Risk Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
| $ | 2.73 |
|
| $ | 2.92 |
|
| $ | 2.46 |
|
| $ | 2.37 |
|
|
| 11 | % |
|
| 23 | % |
(Dollars in millions, except per share data) | Six Months 2019 | Six Months 2018 | Change | |||||||||||||||||||||
Reported | Adjusted | Reported | Adjusted | Reported | Adjusted | |||||||||||||||||||
GAAP | Non-GAAP | GAAP | Non-GAAP | GAAP | Non-GAAP | |||||||||||||||||||
Brokerage Segment | ||||||||||||||||||||||||
Revenues | $ | $ | 2,454.1 | $ | $ | 2,149.7 | 14 | % | 14 | % | ||||||||||||||
Organic revenues | $ | 2,230.5 | $ | 2,109.3 | 5.8 | % | ||||||||||||||||||
Net earnings | $ | 447.5 | $ | 366.7 | 22 | % | ||||||||||||||||||
Net earnings margin | 17.8 | % | 16.7 | % | +111 bpts | |||||||||||||||||||
Adjusted EBITDAC | $ | 769.9 | $ | 663.6 | 16 | % | ||||||||||||||||||
Adjusted EBITDAC margin | 31.4 | % | 30.9 | % | +50 bpts | |||||||||||||||||||
Diluted net earnings per share | $ | 2.29 | $ | 2.20 | $ | 1.94 | $ | 1.96 | 18 | % | 12 | % | ||||||||||||
Risk Management Segment | ||||||||||||||||||||||||
Revenues before reimbursements | $ | 412.4 | $ | 412.4 | $ | 397.0 | $ | 391.1 | 4 | % | 5 | % | ||||||||||||
Organic revenues | $ | 404.6 | $ | 390.8 | 3.5 | % | ||||||||||||||||||
Net earnings | $ | 31.7 | $ | 33.5 | -5 | % | ||||||||||||||||||
Net earnings margin (before reimbursements) | 7.7 | % | 8.4 | % | -75 bpts | |||||||||||||||||||
Adjusted EBITDAC | $ | 71.1 | $ | 66.5 | 7 | % | ||||||||||||||||||
Adjusted EBITDAC margin (before reimbursements) | 17.2 | % | 17.0 | % | +24 bpt | |||||||||||||||||||
Diluted net earnings per share | $ | 0.17 | $ | 0.18 | $ | 0.18 | $ | 0.18 | -6 | % | - | % | ||||||||||||
Corporate Segment | ||||||||||||||||||||||||
Diluted net earnings per share | $ | (0.11 | ) | $ | (0.11 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||||||||||
Total Company | ||||||||||||||||||||||||
Diluted net earnings per share | $ | 2.35 | $ | 2.27 | $ | 2.10 | $ | 2.12 | 12 | % | 7 | % | ||||||||||||
Total Brokerage and Risk Management Segment | ||||||||||||||||||||||||
Diluted net earnings per share | $ | 2.46 | $ | 2.38 | $ | 2.12 | $ | 2.14 | 16 | % | 11 | % |
- 4139 -
In our corporate segment, netand $14.4 millionas adjusted, in thethree-month20192020 and 2018,2019, respectively. In our corporate segment, netand $66.9 millionas adjusted, in thesix-month20192020 and 2018,2019, respectively. We anticipate our clean energy investments to generate between $95.0$60.0 million and $110.0$70.0 million in adjusted net earnings in 2019.2020. See “COVID-19 Impact” on pages 43 and 44. We expect to use the additional cash flow generated by these earnings to continue our mergers and acquisition strategy in our core brokerage and risk management operations.
The following provides information that management believes is helpful when comparing revenues before reimbursements, net earnings, EBITDAC and diluted net earnings per share for the three-month periodand six-month periods ended June 30, 20192020 with the same periodperiods in 2018.2019. In addition, these tables provide reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share. Reconciliations of EBITDAC for the brokerage and risk management segments are provided on pages 4746 and 53,52, respectively, of this filing.
For the
|
|
|
| |||||||||||||||||||||||||||||||||
|
| Revenues Before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted Net |
| ||||||||||||||
|
| Reimbursements |
|
| Net Earnings |
|
| EBITDAC |
|
| Earnings Per Share |
| ||||||||||||||||||||||||
Segment |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Chg |
| |||||||||
|
| (in millions) |
|
| (in millions) |
|
| (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Brokerage, as reported |
| $ | 1,201.1 |
|
| $ | 1,131.2 |
|
| $ | 190.2 |
|
| $ | 138.0 |
|
| $ | 366.5 |
|
| $ | 280.9 |
|
| $ | 0.97 |
|
| $ | 0.70 |
|
|
| 39 | % |
Net gains on divestitures |
|
| (1.0 | ) |
|
| (1.9 | ) |
|
| (0.8 | ) |
|
| (1.4 | ) |
|
| (1.0 | ) |
|
| (1.9 | ) |
|
| — |
|
|
| (0.01 | ) |
|
|
|
|
Acquisition integration |
|
|
|
|
|
| — |
|
|
| 5.1 |
|
|
| 2.5 |
|
|
| 6.7 |
|
|
| 3.4 |
|
|
| 0.02 |
|
|
| 0.01 |
|
|
|
|
|
Workforce and lease termination |
|
| — |
|
|
| — |
|
|
| 11.5 |
|
|
| 7.2 |
|
|
| 15.0 |
|
|
| 9.5 |
|
|
| 0.06 |
|
|
| 0.04 |
|
|
|
|
|
Acquisition related adjustments |
|
| — |
|
|
| — |
|
|
| 8.3 |
|
|
| 3.0 |
|
|
| 4.1 |
|
|
| 6.1 |
|
|
| 0.04 |
|
|
| 0.02 |
|
|
|
|
|
Levelized foreign currency translation |
|
| — |
|
|
| (15.5 | ) |
|
| — |
|
|
| (3.2 | ) |
|
| — |
|
|
| (5.6 | ) |
|
| — |
|
|
| (0.02 | ) |
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.01 |
|
|
|
|
|
Brokerage, as adjusted * |
|
| 1,200.1 |
|
|
| 1,113.8 |
|
|
| 214.3 |
|
|
| 146.7 |
|
|
| 391.3 |
|
|
| 292.4 |
|
|
| 1.09 |
|
|
| 0.75 |
|
|
| 45 | % |
Risk Management, as reported |
|
| 190.8 |
|
|
| 209.1 |
|
|
| 9.9 |
|
|
| 15.5 |
|
|
| 28.5 |
|
|
| 33.8 |
|
|
| 0.05 |
|
|
| 0.08 |
|
|
| (38 | )% |
Workforce and lease termination |
|
| — |
|
|
| — |
|
|
| 3.7 |
|
|
| 2.1 |
|
|
| 5.0 |
|
|
| 2.8 |
|
|
| 0.02 |
|
|
| 0.01 |
|
|
|
|
|
Acquisition related adjustments |
|
| — |
|
|
| — |
|
|
| 1.1 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| 0.01 |
|
|
| — |
|
|
|
|
|
Levelized foreign currency translation |
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Risk Management, as adjusted * |
|
| 190.8 |
|
|
| 207.3 |
|
|
| 14.7 |
|
|
| 17.4 |
|
|
| 33.5 |
|
|
| 36.2 |
|
|
| 0.08 |
|
|
| 0.09 |
|
|
| (11 | )% |
Corporate, as reported |
|
| 159.7 |
|
|
| 284.5 |
|
|
| (38.3 | ) |
|
| (32.1 | ) |
|
| (35.0 | ) |
|
| (45.9 | ) |
|
| (0.23 | ) |
|
| (0.20 | ) |
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
|
|
|
|
Corporate, as adjusted * |
|
| 159.7 |
|
|
| 284.5 |
|
|
| (38.3 | ) |
|
| (33.1 | ) |
|
| (35.0 | ) |
|
| (45.9 | ) |
|
| (0.23 | ) |
|
| (0.21 | ) |
|
|
|
|
Total Company, as reported |
| $ | 1,551.6 |
|
| $ | 1,624.8 |
|
| $ | 161.8 |
|
| $ | 121.4 |
|
| $ | 360.0 |
|
| $ | 268.8 |
|
| $ | 0.79 |
|
| $ | 0.58 |
|
|
| 36 | % |
Total Company, as adjusted * |
| $ | 1,550.6 |
|
| $ | 1,605.6 |
|
| $ | 190.7 |
|
| $ | 131.0 |
|
| $ | 389.8 |
|
| $ | 282.7 |
|
| $ | 0.94 |
|
| $ | 0.63 |
|
|
| 49 | % |
Total Brokerage & Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management, as reported |
| $ | 1,391.9 |
|
| $ | 1,340.3 |
|
| $ | 200.1 |
|
| $ | 153.5 |
|
| $ | 395.0 |
|
| $ | 314.7 |
|
| $ | 1.02 |
|
| $ | 0.78 |
|
|
| 31 | % |
Total Brokerage & Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management, as adjusted * |
| $ | 1,390.9 |
|
| $ | 1,321.1 |
|
| $ | 229.0 |
|
| $ | 164.1 |
|
| $ | 424.8 |
|
| $ | 328.6 |
|
| $ | 1.17 |
|
| $ | 0.84 |
|
|
| 39 | % |
Revenues Before | Diluted Net | ||||||||||||||||||||||||||||||||||||
Reimbursements | Net Earnings | EBITDAC | Earnings Per Share | ||||||||||||||||||||||||||||||||||
Segment | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | Chg | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Brokerage, as reported | $ | 1,131.2 | $ | 1,000.1 | $ | 138.0 | $ | 127.5 | $ | 280.9 | $ | 251.1 | $ | 0.70 | $ | 0.68 | 3 | % | |||||||||||||||||||
Net gains on divestitures | (1.9 | ) | (6.1 | ) | (1.4 | ) | (4.7 | ) | (1.9 | ) | (6.1 | ) | (0.01 | ) | (0.02 | ) | |||||||||||||||||||||
Acquisition integration | — | — | 2.5 | — | 3.4 | — | 0.01 | — | |||||||||||||||||||||||||||||
Workforce & lease termination | — | — | 7.2 | 2.7 | 9.5 | 3.5 | 0.04 | 0.01 | |||||||||||||||||||||||||||||
Acquisition related adjustments | — | — | 3.0 | 0.4 | 6.1 | 5.8 | 0.02 | — | |||||||||||||||||||||||||||||
Levelized foreign currency translation | — | (16.0 | ) | — | 0.6 | — | (0.9 | ) | — | — | |||||||||||||||||||||||||||
Brokerage, as adjusted * | 1,129.3 | 978.0 | 149.3 | 126.5 | 298.0 | 253.4 | 0.76 | 0.67 | 13 | % | |||||||||||||||||||||||||||
Risk Management, as reported | 209.1 | 201.9 | 15.5 | 17.6 | 33.8 | 34.7 | 0.08 | 0.09 | -11 | % | |||||||||||||||||||||||||||
Workforce & lease termination | — | — | 2.1 | 0.8 | 2.8 | 1.1 | 0.01 | 0.01 | |||||||||||||||||||||||||||||
Acquisition related adjustments | — | — | (0.2 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||
Levelized foreign currency translation | — | (2.7 | ) | — | (0.4 | ) | — | (0.7 | ) | — | — | ||||||||||||||||||||||||||
Risk Management, as adjusted * | 209.1 | 199.2 | 17.4 | 18.0 | 36.6 | 35.1 | 0.09 | 0.10 | -10 | % | |||||||||||||||||||||||||||
Corporate, as reported | 284.5 | 423.0 | (32.1 | ) | (21.4 | ) | (45.9 | ) | (50.1 | ) | (0.20 | ) | (0.15 | ) | |||||||||||||||||||||||
Total Company, as reported | $ | 1,624.8 | $ | 1,625.0 | $ | 121.4 | $ | 123.7 | $ | 268.8 | $ | 235.7 | $ | 0.58 | $ | 0.62 | -6 | % | |||||||||||||||||||
Total Company, as adjusted * | $ | 1,622.9 | $ | 1,600.2 | $ | 134.6 | $ | 123.1 | $ | 288.7 | $ | 238.4 | $ | 0.65 | $ | 0.62 | 5 | % | |||||||||||||||||||
Total Brokerage & Risk | |||||||||||||||||||||||||||||||||||||
Management, as reported | $ | 1,340.3 | $ | 1,202.0 | $ | 153.5 | $ | 145.1 | $ | 314.7 | $ | 285.8 | $ | 0.78 | $ | 0.77 | 1 | % | |||||||||||||||||||
Total Brokerage & Risk | |||||||||||||||||||||||||||||||||||||
Management, as adjusted * | $ | 1,338.4 | $ | 1,177.2 | $ | 166.7 | $ | 144.5 | $ | 334.6 | $ | 288.5 | $ | 0.85 | $ | 0.77 | 10 | % | |||||||||||||||||||
* | For the three-month period ended June 30, 2020, the pretax impact of the brokerage segment adjustments totals $31.5 million, with a corresponding adjustment to the provision for income taxes of $7.4 million relating to these items. For the three-month period ended June 30, 2020, the pretax impact of the risk management segment adjustments totals $6.5 million, with a corresponding adjustment to the provision for income taxes of $1.7 million relating to these items. A detailed reconciliation of the 2020 provision for income taxes is shown on page 42. |
* | For the three-month period ended June 30, 2019, the pretax impact of the brokerage segment adjustments totals |
- 40 -
For the three-monthSix-Month Periods Ended June 30 Reported GAAP to Adjusted Non-GAAP Reconciliation:
|
|
|
| |||||||||||||||||||||||||||||||||
|
| Revenues Before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted Net |
| ||||||||||||||
|
| Reimbursements |
|
| Net Earnings |
|
| EBITDAC |
|
| Earnings Per Share |
| ||||||||||||||||||||||||
Segment |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Chg |
| |||||||||
|
| (in millions) |
|
| (in millions) |
|
| (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Brokerage, as reported |
| $ | 2,636.7 |
|
| $ | 2,513.1 |
|
| $ | 501.6 |
|
| $ | 447.5 |
|
| $ | 844.4 |
|
| $ | 787.6 |
|
|
| 2.58 |
|
| $ | 2.29 |
|
|
| 13 | % |
Net gains on divestitures |
|
| (1.2 | ) |
|
| (59.0 | ) |
|
| (1.0 | ) |
|
| (34.5 | ) |
|
| (1.2 | ) |
|
| (46.0 | ) |
|
| — |
|
|
| (0.18 | ) |
|
|
|
|
Acquisition integration |
|
| — |
|
|
| — |
|
|
| 10.2 |
|
|
| 2.8 |
|
|
| 13.4 |
|
|
| 3.8 |
|
|
| 0.05 |
|
|
| 0.01 |
|
|
|
|
|
Workforce and lease termination |
|
| — |
|
|
| — |
|
|
| 16.5 |
|
|
| 11.9 |
|
|
| 21.5 |
|
|
| 15.8 |
|
|
| 0.09 |
|
|
| 0.06 |
|
|
|
|
|
Acquisition related adjustments |
|
| — |
|
|
| — |
|
|
| 6.2 |
|
|
| 2.9 |
|
|
| 8.7 |
|
|
| 8.7 |
|
|
| 0.03 |
|
|
| 0.02 |
|
|
|
|
|
Levelized foreign currency translation |
|
| — |
|
|
| (29.6 | ) |
|
| — |
|
|
| (4.7 | ) |
|
| — |
|
|
| (9.1 | ) |
|
| — |
|
|
| (0.03 | ) |
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.02 |
|
|
|
|
|
Brokerage, as adjusted * |
|
| 2,635.5 |
|
|
| 2,424.5 |
|
|
| 533.5 |
|
|
| 428.8 |
|
|
| 886.8 |
|
|
| 760.8 |
|
|
| 2.75 |
|
|
| 2.19 |
|
|
| 26 | % |
Risk Management, as reported |
|
| 402.6 |
|
|
| 412.4 |
|
|
| 29.0 |
|
|
| 31.7 |
|
|
| 63.5 |
|
|
| 67.9 |
|
|
| 0.15 |
|
|
| 0.17 |
|
|
| (12 | )% |
Workforce and lease termination |
|
| — |
|
|
| — |
|
|
| 3.9 |
|
|
| 2.4 |
|
|
| 5.3 |
|
|
| 3.2 |
|
|
| 0.02 |
|
|
| 0.01 |
|
|
|
|
|
Acquisition related adjustments |
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Levelized foreign currency translation |
|
| — |
|
|
| (4.4 | ) |
|
| — |
|
|
| (0.3 | ) |
|
| — |
|
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Risk Management, as adjusted * |
|
| 402.6 |
|
|
| 408.0 |
|
|
| 33.8 |
|
|
| 34.0 |
|
|
| 68.8 |
|
|
| 70.5 |
|
|
| 0.17 |
|
|
| 0.18 |
|
|
| (6 | )% |
Corporate, as reported |
|
| 341.5 |
|
|
| 656.8 |
|
|
| (13.4 | ) |
|
| (6.1 | ) |
|
| (58.0 | ) |
|
| (111.3 | ) |
|
| (0.15 | ) |
|
| (0.11 | ) |
|
|
|
|
Effective income tax rate impact |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
|
|
|
|
Corporate, as adjusted * |
|
| 341.5 |
|
|
| 656.8 |
|
|
| (13.4 | ) |
|
| (8.1 | ) |
|
| (58.0 | ) |
|
| (111.3 | ) |
|
| (0.15 | ) |
|
| (0.12 | ) |
|
|
|
|
Total Company, as reported |
| $ | 3,380.8 |
|
| $ | 3,582.3 |
|
| $ | 517.2 |
|
| $ | 473.1 |
|
| $ | 849.9 |
|
| $ | 744.2 |
|
| $ | 2.58 |
|
| $ | 2.35 |
|
|
| 10 | % |
Total Company, as adjusted * |
| $ | 3,379.6 |
|
| $ | 3,489.3 |
|
| $ | 553.9 |
|
| $ | 454.7 |
|
| $ | 897.6 |
|
| $ | 720.0 |
|
| $ | 2.77 |
|
| $ | 2.25 |
|
|
| 23 | % |
Total Brokerage & Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management, as reported |
| $ | 3,039.3 |
|
| $ | 2,925.5 |
|
| $ | 530.6 |
|
| $ | 479.2 |
|
| $ | 907.9 |
|
| $ | 855.5 |
|
| $ | 2.73 |
|
| $ | 2.46 |
|
|
| 11 | % |
Total Brokerage & Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management, as adjusted * |
| $ | 3,038.1 |
|
| $ | 2,832.5 |
|
| $ | 567.3 |
|
| $ | 462.8 |
|
| $ | 955.6 |
|
| $ | 831.3 |
|
| $ | 2.92 |
|
| $ | 2.37 |
|
|
| 23 | % |
* | For the six-month period ended June 30, 2020, the pretax impact of the brokerage segment adjustments totals $41.7 million, with a corresponding adjustment to the provision for income taxes of $9.8 million relating to these items. For the six-month period ended June 30, 2020, the pretax impact of the risk management segment adjustments totals $6.5 million, with a corresponding adjustment to the provision for income taxes of $1.7 million relating to these items. A detailed reconciliation of the 2020 provision for income taxes is shown on page 43. |
For the six-month period ended June 30, 2018,2019, the pretax impact of the brokerage segment adjustments totals $(1.3)$28.7 million, with a corresponding adjustment to the benefitprovision for income taxes of $(0.3)$10.0 million relating to these items. The pretax impact of the risk management segment adjustments totals $0.6$2.5 million, with a corresponding adjustment to the provision for income taxes of $0.2 million relating to these items.
Revenues Before | Diluted Net | ||||||||||||||||||||||||||||||||||||
Reimbursements | Net Earnings | EBITDAC | Earnings Per Share | ||||||||||||||||||||||||||||||||||
Segment | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | Chg | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Brokerage, as reported | $ | 2,513.1 | $ | 2,195.7 | $ | 447.5 | $ | 366.7 | $ | 787.6 | $ | 658.9 | $ | 2.29 | $ | 1.94 | 18 | % | |||||||||||||||||||
Net gains on divestitures | (59.0 | ) | (9.0 | ) | (34.5 | ) | (6.9 | ) | (46.0 | ) | (9.0 | ) | (0.18 | ) | (0.04 | ) | |||||||||||||||||||||
Acquisition integration | — | — | 2.8 | — | 3.8 | — | 0.01 | — | |||||||||||||||||||||||||||||
Workforce & lease termination | — | — | 11.9 | 8.4 | 15.8 | 11.1 | 0.06 | 0.05 | |||||||||||||||||||||||||||||
Acquisition related adjustments | — | — | 2.9 | 4.3 | 8.7 | 8.5 | 0.02 | 0.02 | |||||||||||||||||||||||||||||
Levelized foreign currency translation | — | (37.0 | ) | — | (1.6 | ) | — | (5.9 | ) | — | (0.01 | ) | |||||||||||||||||||||||||
Brokerage, as adjusted * | 2,454.1 | 2,149.7 | 430.6 | 370.9 | 769.9 | 663.6 | 2.20 | 1.96 | 12 | % | |||||||||||||||||||||||||||
Risk Management, as reported | 412.4 | 397.0 | 31.7 | 33.5 | 67.9 | 66.6 | 0.17 | 0.18 | 6 | % | |||||||||||||||||||||||||||
Workforce & lease termination | — | — | 2.4 | 1.0 | 3.2 | 1.3 | 0.01 | 0.01 | |||||||||||||||||||||||||||||
Acquisition related adjustments | — | — | (0.2 | ) | (0.1 | ) | — | — | — | — | |||||||||||||||||||||||||||
Levelized foreign currency translation | — | (5.9 | ) | — | (0.9 | ) | — | (1.4 | ) | — | (0.01 | ) | |||||||||||||||||||||||||
Risk Management, as adjusted * | 412.4 | 391.1 | 33.9 | 33.5 | 71.1 | 66.5 | 0.18 | 0.18 | - | % | |||||||||||||||||||||||||||
Corporate, as reported | 656.8 | 835.2 | (6.1 | ) | 9.5 | (111.3 | ) | (110.0 | ) | (0.11 | ) | (0.02 | ) | ||||||||||||||||||||||||
Total Company, as reported | $ | 3,582.3 | $ | 3,427.9 | $ | 473.1 | $ | 409.7 | $ | 744.2 | $ | 615.5 | $ | 2.35 | $ | 2.10 | 12 | % | |||||||||||||||||||
Total Company, as adjusted * | $ | 3,523.3 | $ | 3,376.0 | $ | 458.4 | $ | 413.9 | $ | 729.7 | $ | 620.1 | $ | 2.27 | $ | 2.12 | 7 | % | |||||||||||||||||||
Total Brokerage & Risk | |||||||||||||||||||||||||||||||||||||
Management, as reported | $ | 2,925.5 | $ | 2,592.7 | $ | 479.2 | $ | 400.2 | $ | 855.5 | $ | 725.5 | $ | 2.46 | $ | 2.12 | 16 | % | |||||||||||||||||||
Total Brokerage & Risk | |||||||||||||||||||||||||||||||||||||
Management, as adjusted * | $ | 2,866.5 | $ | 2,540.8 | $ | 464.5 | $ | 404.4 | $ | 841.0 | $ | 730.1 | $ | 2.38 | $ | 2.14 | 11 | % | |||||||||||||||||||
- 4341 -
Reconciliation of
(In millions except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings |
|
| Provision |
|
|
|
|
|
| Net Earnings |
|
| Net Earnings |
|
|
|
|
| ||||
|
| Before |
|
| (Benefit) |
|
|
|
|
|
| Attributable to |
|
| Attributable to |
|
| Diluted Net |
| |||||
|
| Income |
|
| for Income |
|
| Net |
|
| Noncontrolling |
|
| Controlling |
|
| Earnings |
| ||||||
|
| Taxes |
|
| Taxes |
|
| Earnings |
|
| Interests |
|
| Interests |
|
| per Share |
| ||||||
Quarter Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage, as reported |
| $ | 247.8 |
|
| $ | 57.6 |
|
| $ | 190.2 |
|
| $ | 1.5 |
|
| $ | 188.7 |
|
| $ | 0.97 |
|
Net gains on divestitures |
|
| (1.0 | ) |
|
| (0.2 | ) |
|
| (0.8 | ) |
|
| — |
|
|
| (0.8 | ) |
|
| — |
|
Acquisition integration |
|
| 6.7 |
|
|
| 1.6 |
|
|
| 5.1 |
|
|
| — |
|
|
| 5.1 |
|
|
| 0.02 |
|
Workforce and lease termination |
|
| 15.0 |
|
|
| 3.5 |
|
|
| 11.5 |
|
|
| — |
|
|
| 11.5 |
|
|
| 0.06 |
|
Acquisition related adjustments |
|
| 10.8 |
|
|
| 2.5 |
|
|
| 8.3 |
|
|
| — |
|
|
| 8.3 |
|
|
| 0.04 |
|
Brokerage, as adjusted |
| $ | 279.3 |
|
| $ | 65.0 |
|
| $ | 214.3 |
|
| $ | 1.5 |
|
| $ | 212.8 |
|
| $ | 1.09 |
|
Risk Management, as reported |
| $ | 13.2 |
|
| $ | 3.3 |
|
| $ | 9.9 |
|
| $ | — |
|
| $ | 9.9 |
|
| $ | 0.05 |
|
Workforce and lease termination |
|
| 5.0 |
|
|
| 1.3 |
|
|
| 3.7 |
|
|
| — |
|
|
| 3.7 |
|
|
| 0.02 |
|
Acquisition related adjustments |
|
| 1.5 |
|
|
| 0.4 |
|
|
| 1.1 |
|
|
| — |
|
|
| 1.1 |
|
|
| 0.01 |
|
Risk Management, as adjusted |
| $ | 19.7 |
|
| $ | 5.0 |
|
| $ | 14.7 |
|
| $ | — |
|
| $ | 14.7 |
|
| $ | 0.08 |
|
Quarter Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage, as reported |
| $ | 182.3 |
|
| $ | 44.3 |
|
| $ | 138.0 |
|
| $ | 5.1 |
|
| $ | 132.9 |
|
| $ | 0.70 |
|
Net gains on divestitures |
|
| (1.9 | ) |
|
| (0.5 | ) |
|
| (1.4 | ) |
|
| — |
|
|
| (1.4 | ) |
|
| (0.01 | ) |
Acquisition integration |
|
| 3.4 |
|
|
| 0.9 |
|
|
| 2.5 |
|
|
| — |
|
|
| 2.5 |
|
|
| 0.01 |
|
Workforce and lease termination |
|
| 9.5 |
|
|
| 2.3 |
|
|
| 7.2 |
|
|
| — |
|
|
| 7.2 |
|
|
| 0.04 |
|
Acquisition related adjustments |
|
| 4.0 |
|
|
| 1.0 |
|
|
| 3.0 |
|
|
| — |
|
|
| 3.0 |
|
|
| 0.02 |
|
Effective income tax rate impact |
|
| — |
|
|
| (0.6 | ) |
|
| 0.6 |
|
|
| — |
|
|
| 0.6 |
|
|
| 0.01 |
|
Levelized foreign currency translation |
|
| (4.2 | ) |
|
| (1.0 | ) |
|
| (3.2 | ) |
|
| — |
|
|
| (3.2 | ) |
|
| (0.02 | ) |
Brokerage, as adjusted |
| $ | 193.1 |
|
| $ | 46.4 |
|
| $ | 146.7 |
|
| $ | 5.1 |
|
| $ | 141.6 |
|
| $ | 0.75 |
|
Risk Management, as reported |
| $ | 21.0 |
|
| $ | 5.5 |
|
| $ | 15.5 |
|
| $ | — |
|
| $ | 15.5 |
|
| $ | 0.08 |
|
Workforce and lease termination |
|
| 2.8 |
|
|
| 0.7 |
|
|
| 2.1 |
|
|
| — |
|
|
| 2.1 |
|
|
| 0.01 |
|
Acquisition related adjustments |
|
| (0.3 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
Effective income tax rate impact |
|
| — |
|
|
| (0.2 | ) |
|
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
Levelized foreign currency translation |
|
| (0.3 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
Risk Management, as adjusted |
| $ | 23.2 |
|
| $ | 5.8 |
|
| $ | 17.4 |
|
| $ | — |
|
| $ | 17.4 |
|
| $ | 0.09 |
|
Corporate, as reported |
| $ | (97.8 | ) |
| $ | (65.7 | ) |
| $ | (32.1 | ) |
| $ | 6.2 |
|
| $ | (38.3 | ) |
| $ | (0.20 | ) |
Effective income tax rate impact |
|
| — |
|
|
| 1.0 |
|
|
| (1.0 | ) |
|
| — |
|
|
| (1.0 | ) |
|
| (0.01 | ) |
Corporate, as adjusted |
| $ | (97.8 | ) |
| $ | (64.7 | ) |
| $ | (33.1 | ) |
| $ | 6.2 |
|
| $ | (39.3 | ) |
| $ | (0.21 | ) |
(In millions except share and per share data) | ||||||||||||||||||||||||
Earnings Before Income Taxes | Provision for Income Taxes | Net Earnings | Net Earnings Attributable to Noncontrolling Interests | Net Earnings Attributable to Controlling Interests | Diluted Net Earnings per Share | |||||||||||||||||||
Quarter Ended June 30, 2019 | ||||||||||||||||||||||||
Brokerage, as reported | $ | 182.3 | $ | 44.3 | $ | 138.0 | $ | 5.1 | $ | 132.9 | $ | 0.70 | ||||||||||||
Net gains on divestitures | (1.9 | ) | (0.5 | ) | (1.4 | ) | — | (1.4 | ) | (0.01 | ) | |||||||||||||
Acquisition integration | 3.4 | 0.9 | 2.5 | — | 2.5 | 0.01 | ||||||||||||||||||
Workforce & lease termination | 9.5 | 2.3 | 7.2 | — | 7.2 | 0.04 | ||||||||||||||||||
Acquisition related adjustments | 4.0 | 1.0 | 3.0 | — | 3.0 | 0.02 | ||||||||||||||||||
Brokerage, as adjusted | $ | 197.3 | $ | 48.0 | $ | 149.3 | $ | 5.1 | $ | 144.2 | $ | 0.76 | ||||||||||||
Risk Management, as reported | $ | 21.0 | $ | 5.5 | $ | 15.5 | $ | — | $ | 15.5 | $ | 0.08 | ||||||||||||
Workforce & lease termination | 2.8 | 0.7 | 2.1 | — | 2.1 | 0.01 | ||||||||||||||||||
Acquisition related adjustments | (0.3 | ) | (0.1 | ) | (0.2 | ) | — | (0.2 | ) | — | ||||||||||||||
Risk Management, as adjusted | $ | 23.5 | $ | 6.1 | $ | 17.4 | $ | — | $ | 17.4 | $ | 0.09 | ||||||||||||
Quarter Ended June 30, 2018 | ||||||||||||||||||||||||
Brokerage, as reported | $ | 170.6 | $ | 43.1 | $ | 127.5 | $ | 2.1 | $ | 125.4 | $ | 0.68 | ||||||||||||
Net gains on divestitures | (6.1 | ) | (1.4 | ) | (4.7 | ) | — | (4.7 | ) | (0.02 | ) | |||||||||||||
Workforce & lease termination | 3.5 | 0.8 | 2.7 | — | 2.7 | 0.01 | ||||||||||||||||||
Acquisition related adjustments | 0.5 | 0.1 | 0.4 | — | 0.4 | — | ||||||||||||||||||
Levelized foreign currency translation | 0.8 | 0.2 | 0.6 | — | 0.6 | — | ||||||||||||||||||
Brokerage, as adjusted | $ | 169.3 | $ | 42.8 | $ | 126.5 | $ | 2.1 | $ | 124.4 | $ | 0.67 | ||||||||||||
Risk Management, as reported | $ | 24.0 | $ | 6.4 | $ | 17.6 | $ | — | $ | 17.6 | $ | 0.09 | ||||||||||||
Workforce & lease termination | 1.1 | 0.3 | 0.8 | — | 0.8 | 0.01 | ||||||||||||||||||
Levelized foreign currency translation | (0.5 | ) | (0.1 | ) | (0.4 | ) | — | (0.4 | ) | — | ||||||||||||||
Risk Management, as adjusted | $ | 24.6 | $ | 6.6 | $ | 18.0 | $ | — | $ | 18.0 | $ | 0.10 | ||||||||||||
- 4442 -
Reconciliation of Non-GAAP Measures - Pre-tax Earnings and Diluted Net Earnings per Share
(In millions except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings |
|
| Provision |
|
|
|
|
|
| Net Earnings |
|
| Net Earnings |
|
|
|
|
| ||||
|
| Before |
|
| (Benefit) |
|
|
|
|
|
| Attributable to |
|
| Attributable to |
|
| Diluted Net |
| |||||
|
| Income |
|
| for Income |
|
| Net |
|
| Noncontrolling |
|
| Controlling |
|
| Earnings |
| ||||||
|
| Taxes |
|
| Taxes |
|
| Earnings |
|
| Interests |
|
| Interests |
|
| per Share |
| ||||||
Six-Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage, as reported |
| $ | 658.6 |
|
| $ | 157.0 |
|
| $ | 501.6 |
|
| $ | 2.2 |
|
| $ | 499.4 |
|
| $ | 2.58 |
|
Net gains on divestitures |
|
| (1.2 | ) |
|
| (0.2 | ) |
|
| (1.0 | ) |
|
| — |
|
|
| (1.0 | ) |
|
| — |
|
Acquisition integration |
|
| 13.4 |
|
|
| 3.2 |
|
|
| 10.2 |
|
|
| — |
|
|
| 10.2 |
|
|
| 0.05 |
|
Workforce and lease termination |
|
| 21.5 |
|
|
| 5.0 |
|
|
| 16.5 |
|
|
| — |
|
|
| 16.5 |
|
|
| 0.09 |
|
Acquisition related adjustments |
|
| 8.0 |
|
|
| 1.8 |
|
|
| 6.2 |
|
|
| — |
|
|
| 6.2 |
|
|
| 0.03 |
|
Brokerage, as adjusted |
| $ | 700.3 |
|
| $ | 166.8 |
|
| $ | 533.5 |
|
| $ | 2.2 |
|
| $ | 531.3 |
|
| $ | 2.75 |
|
Risk Management, as reported |
| $ | 38.8 |
|
| $ | 9.8 |
|
| $ | 29.0 |
|
| $ | — |
|
| $ | 29.0 |
|
| $ | 0.15 |
|
Workforce and lease termination |
|
| 5.3 |
|
|
| 1.4 |
|
|
| 3.9 |
|
|
| — |
|
|
| 3.9 |
|
|
| 0.02 |
|
Acquisition related adjustments |
|
| 1.2 |
|
|
| 0.3 |
|
|
| 0.9 |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
Risk Management, as adjusted |
| $ | 45.3 |
|
| $ | 11.5 |
|
| $ | 33.8 |
|
| $ | — |
|
| $ | 33.8 |
|
| $ | 0.17 |
|
Six-Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage, as reported |
| $ | 594.7 |
|
| $ | 147.2 |
|
| $ | 447.5 |
|
| $ | 14.9 |
|
| $ | 432.6 |
|
| $ | 2.29 |
|
Net gains on divestitures |
|
| (46.0 | ) |
|
| (11.5 | ) |
|
| (34.5 | ) |
|
| — |
|
|
| (34.5 | ) |
|
| (0.18 | ) |
Acquisition integration |
|
| 3.8 |
|
|
| 1.0 |
|
|
| 2.8 |
|
|
| — |
|
|
| 2.8 |
|
|
| 0.01 |
|
Workforce and lease termination |
|
| 15.8 |
|
|
| 3.9 |
|
|
| 11.9 |
|
|
| — |
|
|
| 11.9 |
|
|
| 0.06 |
|
Acquisition related adjustments |
|
| 3.9 |
|
|
| 1.0 |
|
|
| 2.9 |
|
|
| — |
|
|
| 2.9 |
|
|
| 0.02 |
|
Effective income tax rate impact |
|
| — |
|
|
| (2.9 | ) |
|
| 2.9 |
|
|
| — |
|
|
| 2.9 |
|
|
| 0.02 |
|
Levelized foreign currency translation |
|
| (6.2 | ) |
|
| (1.5 | ) |
|
| (4.7 | ) |
|
| — |
|
|
| (4.7 | ) |
|
| (0.03 | ) |
Brokerage, as adjusted |
| $ | 566.0 |
|
| $ | 137.2 |
|
| $ | 428.8 |
|
| $ | 14.9 |
|
| $ | 413.9 |
|
| $ | 2.19 |
|
Risk Management, as reported |
| $ | 43.0 |
|
| $ | 11.3 |
|
| $ | 31.7 |
|
| $ | — |
|
| $ | 31.7 |
|
| $ | 0.17 |
|
Workforce and lease termination |
|
| 3.2 |
|
|
| 0.8 |
|
|
| 2.4 |
|
|
| — |
|
|
| 2.4 |
|
|
| 0.01 |
|
Acquisition related adjustments |
|
| (0.3 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
Effective income tax rate impact |
|
| — |
|
|
| (0.4 | ) |
|
| 0.4 |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
Levelized foreign currency translation |
|
| (0.4 | ) |
|
| (0.1 | ) |
|
| (0.3 | ) |
|
| — |
|
|
| (0.3 | ) |
|
| — |
|
Risk Management, as adjusted |
| $ | 45.5 |
|
| $ | 11.5 |
|
| $ | 34.0 |
|
| $ | — |
|
| $ | 34.0 |
|
| $ | 0.18 |
|
Corporate, as reported |
| $ | (210.4 | ) |
| $ | (204.3 | ) |
| $ | (6.1 | ) |
| $ | 14.0 |
|
| $ | (20.1 | ) |
| $ | (0.11 | ) |
Effective income tax rate impact |
|
| — |
|
|
| 2.0 |
|
|
| (2.0 | ) |
|
| — |
|
|
| (2.0 | ) |
|
| (0.01 | ) |
Corporate, as adjusted |
| $ | (210.4 | ) |
| $ | (202.3 | ) |
| $ | (8.1 | ) |
| $ | 14.0 |
|
| $ | (22.1 | ) |
| $ | (0.12 | ) |
(In millions except share and per share data) | ||||||||||||||||||||||||
Earnings Before Income Taxes | Provision for Income Taxes | Net Earnings | Net Earnings Attributable to Noncontrolling Interests | Net Earnings Attributable to Controlling Interests | Diluted Net Earnings per Share | |||||||||||||||||||
Six-Months Ended June 30, 2019 | ||||||||||||||||||||||||
Brokerage, as reported | $ | 594.7 | $ | 147.2 | $ | 447.5 | $ | 14.9 | $ | 432.6 | $ | 2.29 | ||||||||||||
Net gains on divestitures | (46.0 | ) | (11.5 | ) | (34.5 | ) | — | (34.5 | ) | (0.18 | ) | |||||||||||||
Acquisition integration | 3.8 | 1.0 | 2.8 | — | 2.8 | 0.01 | ||||||||||||||||||
Workforce & lease termination | 15.8 | 3.9 | 11.9 | — | 11.9 | 0.06 | ||||||||||||||||||
Acquisition related adjustments | 3.9 | 1.0 | 2.9 | — | 2.9 | 0.02 | ||||||||||||||||||
Brokerage, as adjusted | $ | 572.2 | $ | 141.6 | $ | 430.6 | $ | 14.9 | $ | 415.7 | $ | 2.20 | ||||||||||||
Risk Management, as reported | $ | 43.0 | $ | 11.3 | $ | 31.7 | $ | — | $ | 31.7 | $ | 0.17 | ||||||||||||
Workforce & lease termination | 3.2 | 0.8 | 2.4 | — | 2.4 | 0.01 | ||||||||||||||||||
Acquisition related adjustments | (0.3 | ) | (0.1 | ) | (0.2 | ) | — | (0.2 | ) | — | ||||||||||||||
Risk Management, as adjusted | $ | 45.9 | $ | 12.0 | $ | 33.9 | $ | — | $ | 33.9 | $ | 0.18 | ||||||||||||
Six-Months Ended June 30, 2018 | ||||||||||||||||||||||||
Brokerage, as reported | $ | 489.5 | $ | 122.8 | $ | 366.7 | $ | 7.1 | $ | 359.6 | $ | 1.94 | ||||||||||||
Net gains on divestitures | (9.0 | ) | (2.1 | ) | (6.9 | ) | — | (6.9 | ) | (0.04 | ) | |||||||||||||
Workforce & lease termination | 11.1 | 2.7 | 8.4 | — | 8.4 | 0.05 | ||||||||||||||||||
Acquisition related adjustments | 5.6 | 1.3 | 4.3 | — | 4.3 | 0.02 | ||||||||||||||||||
Levelized foreign currency translation | (2.1 | ) | (0.5 | ) | (1.6 | ) | — | (1.6 | ) | (0.01 | ) | |||||||||||||
Brokerage, as adjusted | $ | 495.1 | $ | 124.2 | $ | 370.9 | $ | 7.1 | $ | 363.8 | $ | 1.96 | ||||||||||||
Risk Management, as reported | $ | 45.6 | $ | 12.1 | $ | 33.5 | $ | — | $ | 33.5 | $ | 0.18 | ||||||||||||
Workforce & lease termination | 1.3 | 0.3 | 1.0 | — | 1.0 | 0.01 | ||||||||||||||||||
Acquisition related adjustments | (0.1 | ) | — | (0.1 | ) | — | (0.1 | ) | — | |||||||||||||||
Levelized foreign currency translation | (1.2 | ) | (0.3 | ) | (0.9 | ) | — | (0.9 | ) | (0.01 | ) | |||||||||||||
Risk Management, as adjusted | $ | 45.6 | $ | 12.1 | $ | 33.5 | $ | — | $ | 33.5 | $ | 0.18 | ||||||||||||
COVID-19 Impact
In our property/casualty brokerage operations, during the second quarter 2020, our (a) new business generation remained at pre-pandemic levels, (b) retention and non-recurring business were both lower than pre-pandemic levels, (c) renewal customer exposure units (i.e., insured values, payrolls, employees, miles driven, etc.) showed some decline; however, premium rates across most geographies and lines of coverage have continued to increase, effectively mitigating the decline, and (d) net positive mid-term policy modifications were also lower.
In June and thus far in July, renewal customer exposure units showed improvements compared to lows seen in April and May as our customers restarted and reopened their businesses, full policy cancellations have remained similar to pre-pandemic levels, and we continue to see property/casualty premium rates move higher overall which may partially, or fully, offset future declines in exposure units, if any.
In our employee benefits brokerage operations, during the second quarter 2020, and thus far in July, we saw a decrease in new consulting and special project work and a decrease in covered lives on renewal business, but not to the same level as increases in unemployment claims. We believe the decline in covered lives could persist over the next few quarters, and deteriorate further, if the economy is slow to recover.
In our risk management operations, we began seeing a meaningful decline in new claims arising during the last two weeks of March, which persisted into April. In each of May, June and July we did see an improved level of claims; however, new claims arising are
- 43 -
still well below pre-pandemic levels. A slower recovery in the number of workers employed could cause fewer claims arising in future quarters.
Our clean energy investments saw lower electricity consumption in the U.S. due to reduced economic activity, milder temperatures and falling natural gas prices. These conditions, which began in mid-to-late March, continued through June 30. Thus far in July, production has increased due to warmer weather in our operating locations; however, we expect a reduced level of production for the remainder of 2020.
We activated our business continuity plan in mid-March. Over 90% of our staff is still working remotely and approximately 20% of our nearly 1,000 locations are open; but most of which are only partially open. We believe our service levels are unchanged from pre-pandemic levels. We have not had any office-wide outbreaks of COVID-19, and fewer than 100 confirmed cases amongst our 33,000 employees - all of which we believe contracted the virus outside of our office locations.
Given the deterioration in economic conditions, we are actively managing costs by limiting discretionary spending such as travel, entertainment and advertising expenses, adjusting our real estate footprint, reducing capital expenditures, limiting use of outside labor and consultants, increasing utilization of our centers of excellence, and implementing a support-layer hiring and wage freeze. In addition, we have adjusted portions of our workforce where volumes have declined significantly and normal attrition is not sufficient; which, to date has impacted less than 3%, and may impact an additional 1%, in 2020, of our global workforce.
The impact of these actions in the second quarter of 2020 was substantial; with estimated savings of approximately $74 million pretax compared to second quarter 2019, as adjusted for pro forma full-quarter costs related to acquisitions closed after March 31, 2019. Offsetting these savings were severance and lease termination costs of approximately $14 million pretax related to these actions. We believe savings in the third and fourth quarters compared to the same quarters in 2019, could total between $60 million and $70 million pretax per quarter after adjusting for pro forma full-quarter costs related to acquisitions. Offsetting possible future savings would be additional severance and lease termination costs, which we estimate could total approximately $5 million to $10 million pretax per quarter related to these actions. Future net savings may be lower if the economy recovers faster than our forecasts or our costs to implement changes exceed our estimates.
We have not seen any meaningful decline of cash receipts from our clients to date and we have approximately $1.3 billion of available liquidity. A prolonged economic downturn may cause a deterioration of future cash collections but we believe our cost savings, reduced non-client facing capital expenditures and working capital improvements could mitigate a potential decline in our cash flows over the near‑term.
For a discussion of risk and uncertainties relating to COVID‑19 for our business, results of operations and financial condition, see Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the three-months March 31, 2020.
Results of Operations
Brokerage
The brokerage segment accounted for 69%76% of our revenues during the
(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. |
- 4544 -
The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions. Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage or employee head countheadcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide our services. In addition, under certain circumstances, both retail brokerage and wholesale brokerage services receive supplemental and contingent revenues. Supplemental revenue is revenue paid by an underwriting enterprise that is above the base commission paid, is determined by the underwriting enterprise and is established annually in advance of the contractual period based on historical performance criteria. Contingent revenue is revenue paid by an underwriting enterprise based on the overall profit and/or volume of the business placed with that underwriting enterprise during a particular calendar year and is determined after the contractual period.
Litigation, Regulatory and Taxation Matters
IRS investigation -
Class
- 4645 -
Financial information relating to our brokerage segment results for the three-month and20192020 as compared to the same periodperiods in 2018,2019, is as follows (in millions, except per share, percentages and workforce data):
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||||||||||
Statement of Earnings | 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Commissions | $ | 827.5 |
|
| $ | 777.7 |
|
| $ | 49.8 |
|
| $ | 1,844.7 |
|
| $ | 1,718.1 |
|
| $ | 126.6 |
|
Fees |
| 269.1 |
|
|
| 256.1 |
|
|
| 13.0 |
|
|
| 564.9 |
|
|
| 517.9 |
|
|
| 47.0 |
|
Supplemental revenues |
| 50.3 |
|
|
| 46.9 |
|
|
| 3.4 |
|
|
| 109.3 |
|
|
| 103.6 |
|
|
| 5.7 |
|
Contingent revenues |
| 37.4 |
|
|
| 29.5 |
|
|
| 7.9 |
|
|
| 82.5 |
|
|
| 77.5 |
|
|
| 5.0 |
|
Investment income |
| 15.8 |
|
|
| 19.1 |
|
|
| (3.3 | ) |
|
| 34.1 |
|
|
| 37.0 |
|
|
| (2.9 | ) |
Net gains on divestitures |
| 1.0 |
|
|
| 1.9 |
|
|
| (0.9 | ) |
|
| 1.2 |
|
|
| 59.0 |
|
|
| (57.8 | ) |
Total revenues |
| 1,201.1 |
|
|
| 1,131.2 |
|
|
| 69.9 |
|
|
| 2,636.7 |
|
|
| 2,513.1 |
|
|
| 123.6 |
|
Compensation |
| 672.4 |
|
|
| 659.3 |
|
|
| 13.1 |
|
|
| 1,425.2 |
|
|
| 1,336.5 |
|
|
| 88.7 |
|
Operating |
| 162.2 |
|
|
| 191.0 |
|
|
| (28.8 | ) |
|
| 367.1 |
|
|
| 389.0 |
|
|
| (21.9 | ) |
Depreciation |
| 17.8 |
|
|
| 16.4 |
|
|
| 1.4 |
|
|
| 35.4 |
|
|
| 32.6 |
|
|
| 2.8 |
|
Amortization |
| 86.6 |
|
|
| 78.7 |
|
|
| 7.9 |
|
|
| 220.8 |
|
|
| 154.2 |
|
|
| 66.6 |
|
Change in estimated acquisition earnout payables |
| 14.3 |
|
|
| 3.5 |
|
|
| 10.8 |
|
|
| (70.4 | ) |
|
| 6.1 |
|
|
| (76.5 | ) |
Total expenses |
| 953.3 |
|
|
| 948.9 |
|
|
| 4.4 |
|
|
| 1,978.1 |
|
|
| 1,918.4 |
|
|
| 59.7 |
|
Earnings before income taxes |
| 247.8 |
|
|
| 182.3 |
|
|
| 65.5 |
|
|
| 658.6 |
|
|
| 594.7 |
|
|
| 63.9 |
|
Provision for income taxes |
| 57.6 |
|
|
| 44.3 |
|
|
| 13.3 |
|
|
| 157.0 |
|
|
| 147.2 |
|
|
| 9.8 |
|
Net earnings |
| 190.2 |
|
|
| 138.0 |
|
|
| 52.2 |
|
|
| 501.6 |
|
|
| 447.5 |
|
|
| 54.1 |
|
Net earnings attributable to noncontrolling interests |
| 1.5 |
|
|
| 5.1 |
|
|
| (3.6 | ) |
|
| 2.2 |
|
|
| 14.9 |
|
|
| (12.7 | ) |
Net earnings attributable to controlling interests | $ | 188.7 |
|
| $ | 132.9 |
|
| $ | 55.8 |
|
| $ | 499.4 |
|
| $ | 432.6 |
|
| $ | 66.8 |
|
Diluted net earnings per share | $ | 0.97 |
|
| $ | 0.70 |
|
| $ | 0.27 |
|
| $ | 2.58 |
|
| $ | 2.29 |
|
| $ | 0.29 |
|
Other Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in diluted net earnings per share |
| 39 | % |
|
| 3 | % |
|
|
|
|
|
| 13 | % |
|
| 18 | % |
|
|
|
|
Growth in revenues |
| 6 | % |
|
| 13 | % |
|
|
|
|
|
| 5 | % |
|
| 14 | % |
|
|
|
|
Organic change in commissions and fees |
| 1 | % |
|
| 6 | % |
|
|
|
|
|
| 3 | % |
|
| 5 | % |
|
|
|
|
Compensation expense ratio |
| 56 | % |
|
| 58 | % |
|
|
|
|
|
| 54 | % |
|
| 53 | % |
|
|
|
|
Operating expense ratio |
| 14 | % |
|
| 17 | % |
|
|
|
|
|
| 14 | % |
|
| 15 | % |
|
|
|
|
Effective income tax rate |
| 23 | % |
|
| 24 | % |
|
|
|
|
|
| 24 | % |
|
| 25 | % |
|
|
|
|
Workforce at end of period (includes acquisitions) |
|
|
|
|
|
|
|
|
|
|
|
|
| 25,051 |
|
|
| 23,940 |
|
|
|
|
|
Identifiable assets at June 30 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 18,405.6 |
|
| $ | 16,464.3 |
|
|
|
|
|
EBITDAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 190.2 |
|
| $ | 138.0 |
|
| $ | 52.2 |
|
| $ | 501.6 |
|
| $ | 447.5 |
|
| $ | 54.1 |
|
Provision for income taxes |
| 57.6 |
|
|
| 44.3 |
|
|
| 13.3 |
|
|
| 157.0 |
|
|
| 147.2 |
|
|
| 9.8 |
|
Depreciation |
| 17.8 |
|
|
| 16.4 |
|
|
| 1.4 |
|
|
| 35.4 |
|
|
| 32.6 |
|
|
| 2.8 |
|
Amortization |
| 86.6 |
|
|
| 78.7 |
|
|
| 7.9 |
|
|
| 220.8 |
|
|
| 154.2 |
|
|
| 66.6 |
|
Change in estimated acquisition earnout payables |
| 14.3 |
|
|
| 3.5 |
|
|
| 10.8 |
|
|
| (70.4 | ) |
|
| 6.1 |
|
|
| (76.5 | ) |
EBITDAC | $ | 366.5 |
|
| $ | 280.9 |
|
| $ | 85.6 |
|
| $ | 844.4 |
|
| $ | 787.6 |
|
| $ | 56.8 |
|
Three-month period | Six-month period | |||||||||||||||||||||||
ended June 30, | ended June 30, | |||||||||||||||||||||||
Statement of Earnings | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Commissions | $ | 777.7 | $ | 688.0 | $ | 89.7 | $ | 1,718.1 | $ | 1,527.4 | $ | 190.7 | ||||||||||||
Fees | 256.1 | 220.4 | 35.7 | 517.9 | 473.6 | 44.3 | ||||||||||||||||||
Supplemental revenues | 46.9 | 48.1 | (1.2 | ) | 103.6 | 100.1 | 3.5 | |||||||||||||||||
Contingent revenues | 29.5 | 21.8 | 7.7 | 77.5 | 56.7 | 20.8 | ||||||||||||||||||
Investment income | 19.1 | 15.7 | 3.4 | 37.0 | 28.9 | 8.1 | ||||||||||||||||||
Net gains on divestitures | 1.9 | 6.1 | (4.2 | ) | 59.0 | 9.0 | 50.0 | |||||||||||||||||
Total revenues | 1,131.2 | 1,000.1 | 131.1 | 2,513.1 | 2,195.7 | 317.4 | ||||||||||||||||||
Compensation | 659.3 | 584.3 | 75.0 | 1,336.5 | 1,209.7 | 126.8 | ||||||||||||||||||
Operating | 191.0 | 164.7 | 26.3 | 389.0 | 327.1 | 61.9 | ||||||||||||||||||
Depreciation | 16.4 | 14.3 | 2.1 | 32.6 | 29.1 | 3.5 | ||||||||||||||||||
Amortization | 78.7 | 72.5 | 6.2 | 154.2 | 139.4 | 14.8 | ||||||||||||||||||
Change in estimated acquisition earnout payables | 3.5 | (6.3 | ) | 9.8 | 6.1 | 0.9 | 5.2 | |||||||||||||||||
Total expenses | 948.9 | 829.5 | 119.4 | 1,918.4 | 1,706.2 | 212.2 | ||||||||||||||||||
Earnings before income taxes | 182.3 | 170.6 | 11.7 | 594.7 | 489.5 | 105.2 | ||||||||||||||||||
Provision for income taxes | 44.3 | 43.1 | 1.2 | 147.2 | 122.8 | 24.4 | ||||||||||||||||||
Net earnings | 138.0 | 127.5 | 10.5 | 447.5 | 366.7 | 80.8 | ||||||||||||||||||
Net earnings attributable to noncontrolling interests | 5.1 | 2.1 | 3.0 | 14.9 | 7.1 | 7.8 | ||||||||||||||||||
Net earnings attributable to controlling interests | $ | 132.9 | $ | 125.4 | $ | 7.5 | $ | 432.6 | $ | 359.6 | $ | 73.0 | ||||||||||||
Diluted net earnings per share | $ | 0.70 | $ | 0.68 | $ | 0.02 | $ | 2.29 | $ | 1.94 | $ | 0.35 | ||||||||||||
Other Information | ||||||||||||||||||||||||
Change in diluted net earnings per share | 3 | % | 55 | % | 18 | % | 39 | % | ||||||||||||||||
Growth in revenues | 13 | % | 12 | % | 14 | % | 11 | % | ||||||||||||||||
Organic change in commissions and fees | 6 | % | 5 | % | 5 | % | 5 | % | ||||||||||||||||
Compensation expense ratio | 58 | % | 58 | % | 53 | % | 55 | % | ||||||||||||||||
Operating expense ratio | 17 | % | 16 | % | 15 | % | 15 | % | ||||||||||||||||
Effective income tax rate | 24 | % | 25 | % | 25 | % | 25 | % | ||||||||||||||||
Workforce at end of period (includes acquisitions) | 23,940 | 21,944 | ||||||||||||||||||||||
Identifiable assets at June 30 | $ | 16,464.3 | $ | 13,779.0 | ||||||||||||||||||||
EBITDAC | ||||||||||||||||||||||||
Net earnings | $ | 138.0 | $ | 127.5 | $ | 10.5 | $ | 447.5 | $ | 366.7 | $ | 80.8 | ||||||||||||
Provision for income taxes | 44.3 | 43.1 | 1.2 | 147.2 | 122.8 | 24.4 | ||||||||||||||||||
Depreciation | 16.4 | 14.3 | 2.1 | 32.6 | 29.1 | 3.5 | ||||||||||||||||||
Amortization | 78.7 | 72.5 | 6.2 | 154.2 | 139.4 | 14.8 | ||||||||||||||||||
Change in estimated acquisition earnout payables | 3.5 | (6.3 | ) | 9.8 | 6.1 | 0.9 | 5.2 | |||||||||||||||||
EBITDAC | $ | 280.9 | $ | 251.1 | $ | 29.8 | $ | 787.6 | $ | 658.9 | $ | 128.7 | ||||||||||||
- 4746 -
The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month and20192020 to the same periods in 20182019 (in millions):
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||||||||||
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Net earnings, as reported | $ | 190.2 |
|
| $ | 138.0 |
|
|
| 37.8 | % |
| $ | 501.6 |
|
| $ | 447.5 |
|
|
| 12.1 | % |
Provision for income taxes |
| 57.6 |
|
|
| 44.3 |
|
|
|
|
|
|
| 157.0 |
|
|
| 147.2 |
|
|
|
|
|
Depreciation |
| 17.8 |
|
|
| 16.4 |
|
|
|
|
|
|
| 35.4 |
|
|
| 32.6 |
|
|
|
|
|
Amortization |
| 86.6 |
|
|
| 78.7 |
|
|
|
|
|
|
| 220.8 |
|
|
| 154.2 |
|
|
|
|
|
Change in estimated acquisition earnout payables |
| 14.3 |
|
|
| 3.5 |
|
|
|
|
|
|
| (70.4 | ) |
|
| 6.1 |
|
|
|
|
|
EBITDAC |
| 366.5 |
|
|
| 280.9 |
|
|
| 30.5 | % |
|
| 844.4 |
|
|
| 787.6 |
|
|
| 7.2 | % |
Net gains on divestitures |
| (1.0 | ) |
|
| (1.9 | ) |
|
|
|
|
|
| (1.2 | ) |
|
| (46.0 | ) |
|
|
|
|
Acquisition integration |
| 6.7 |
|
|
| 3.4 |
|
|
|
|
|
|
| 13.4 |
|
|
| 3.8 |
|
|
|
|
|
Acquisition related adjustments |
| 4.1 |
|
|
| 6.1 |
|
|
|
|
|
|
| 8.7 |
|
|
| 8.7 |
|
|
|
|
|
Workforce and lease termination related charges |
| 15.0 |
|
|
| 9.5 |
|
|
|
|
|
|
| 21.5 |
|
|
| 15.8 |
|
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (5.6 | ) |
|
|
|
|
|
| — |
|
|
| (9.1 | ) |
|
|
|
|
EBITDAC, as adjusted | $ | 391.3 |
|
| $ | 292.4 |
|
|
| 33.8 | % |
| $ | 886.8 |
|
| $ | 760.8 |
|
|
| 16.6 | % |
Net earnings margin, as reported |
| 15.8 | % |
|
| 12.2 | % |
| + 364 bpts |
|
|
| 19.0 | % |
|
| 17.8 | % |
| + 121 bpts |
| ||
EBITDAC margin, as adjusted |
| 32.6 | % |
|
| 26.3 | % |
| + 636 bpts |
|
|
| 33.7 | % |
|
| 31.4 | % |
| + 227 bpts |
| ||
Reported revenues | $ | 1,201.1 |
|
| $ | 1,131.2 |
|
|
|
|
|
| $ | 2,636.7 |
|
| $ | 2,513.1 |
|
|
|
|
|
Adjusted revenues - see page 39 | $ | 1,200.1 |
|
| $ | 1,113.8 |
|
|
|
|
|
| $ | 2,635.5 |
|
| $ | 2,424.5 |
|
|
|
|
|
Three-month period | Six-month period | |||||||||||||||||||||||
ended June 30, | ended June 30, | |||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
Net earnings, as reported | $ | 138.0 | $ | 127.5 | 8.2 | % | $ | 447.5 | $ | 366.7 | 22.0 | % | ||||||||||||
Provision for income taxes | 44.3 | 43.1 | 147.2 | 122.8 | ||||||||||||||||||||
Depreciation | 16.4 | 14.3 | 32.6 | 29.1 | ||||||||||||||||||||
Amortization | 78.7 | 72.5 | 154.2 | 139.4 | ||||||||||||||||||||
Change in estimated acquisition earnout payables | 3.5 | (6.3 | ) | 6.1 | 0.9 | |||||||||||||||||||
EBITDAC | 280.9 | 251.1 | 11.9 | % | 787.6 | 658.9 | 19.5 | % | ||||||||||||||||
Net gains on divestitures | (1.9 | ) | (6.1 | ) | (46.0 | ) | (9.0 | ) | ||||||||||||||||
Acquisition integration | 3.4 | — | 3.8 | — | ||||||||||||||||||||
Acquisition related adjustments | 6.1 | 5.8 | 8.7 | 8.5 | ||||||||||||||||||||
Workforce and lease termination related charges | 9.5 | 3.5 | 15.8 | 11.1 | ||||||||||||||||||||
Levelized foreign currency translation | — | (0.9 | ) | — | (5.9 | ) | ||||||||||||||||||
EBITDAC, as adjusted | $ | 298.0 | $ | 253.4 | 17.6 | % | $ | 769.9 | $ | 663.6 | 16.0 | % | ||||||||||||
Net earnings margin, as reported | 12.2 | % | 12.8 | % | - 55 bpts | 17.8 | % | 16.7 | % | + 111 bpts | ||||||||||||||
EBITDAC margin, as adjusted | 26.4 | % | 25.9 | % | +48 bpts | 31.4 | % | 30.9 | % | + 50 bpts | ||||||||||||||
Reported revenues | $ | 1,131.2 | $ | 1,000.1 | $ | 2,513.1 | $ | 2,195.7 | ||||||||||||||||
Adjusted revenues - see pages 42 and 43 | $ | 1,129.3 | $ | 978.0 | $ | 2,454.1 | $ | 2,149.7 | ||||||||||||||||
Commissions and fees
The aggregate increase in base commissions and fees for the
In our property/casualty brokerage operations, during the three-month period ended June 30, 2020, relative to same period in 2019, our (a) new business generation remained at pre-pandemic levels, (b) retention and non-recurring business were both lower than pre-pandemic levels, (c) renewal customer exposure units (i.e., insured values, payrolls, employees, miles driven, etc.) showed some decline; however, premium rates across most geographies and lines of coverage have continued to increase, effectively mitigating the decline, and (d) net positive mid-term policy modifications were also lower. In June 2020 and thus far in July, renewal customer exposure units rebounded off of showed improvement compared to lows seen in April and May as our customers restarted and reopened their businesses, full policy cancellations have remained similar to pre-pandemic levels, and we continue to see property/casualty premium rates move higher overall which may partially, or fully, offset future declines in exposure units, if any. In our employee benefits brokerage operations, during the three-month period ended June 30, 2020 relative to same period in 2019, and 2018, respectively.
- 4847 -
Items excluded from organic revenue computations yet impacting revenue comparisons for the three-month and
| Three-Month Period Ended June 30, |
|
| Six-Month Period Ended June 30, |
| ||||||||||||||||||
Organic Revenues (Non-GAAP) | 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Base Commissions and Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission and fees, as reported | $ | 1,096.6 |
|
| $ | 1,033.8 |
|
|
| 6.1 | % |
| $ | 2,409.6 |
|
| $ | 2,236.0 |
|
|
| 7.8 | % |
Less commission and fee revenues from acquisitions |
| (70.9 | ) |
|
| — |
|
|
|
|
|
|
| (161.7 | ) |
|
| — |
|
|
|
|
|
Less divested operations and program repricing |
| — |
|
|
| (6.3 | ) |
|
|
|
|
|
| — |
|
|
| (18.3 | ) |
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (14.0 | ) |
|
|
|
|
|
| — |
|
|
| (26.2 | ) |
|
|
|
|
Organic base commission and fees | $ | 1,025.7 |
|
| $ | 1,013.5 |
|
|
| 1.2 | % |
| $ | 2,247.9 |
|
| $ | 2,191.5 |
|
|
| 2.6 | % |
Supplemental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental revenues, as reported | $ | 50.3 |
|
| $ | 46.9 |
|
|
| 7.2 | % |
| $ | 109.3 |
|
| $ | 103.6 |
|
|
| 5.5 | % |
Less supplemental revenues from acquisitions |
| (0.5 | ) |
|
| — |
|
|
|
|
|
|
| (3.0 | ) |
|
| — |
|
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (0.6 | ) |
|
|
|
|
|
| — |
|
|
| (1.2 | ) |
|
|
|
|
Organic supplemental revenues | $ | 49.8 |
|
| $ | 46.3 |
|
|
| 7.6 | % |
| $ | 106.3 |
|
| $ | 102.4 |
|
|
| 3.8 | % |
Contingent revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent revenues, as reported | $ | 37.4 |
|
| $ | 29.5 |
|
|
| 26.8 | % |
| $ | 82.5 |
|
| $ | 77.5 |
|
|
| 6.5 | % |
Less contingent revenues from acquisitions |
| (0.6 | ) |
|
| — |
|
|
|
|
|
|
| (2.6 | ) |
|
| — |
|
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (0.2 | ) |
|
|
|
|
|
| — |
|
|
| (0.5 | ) |
|
|
|
|
Organic contingent revenues | $ | 36.8 |
|
| $ | 29.3 |
|
|
| 25.6 | % |
| $ | 79.9 |
|
| $ | 77.0 |
|
|
| 3.8 | % |
Total reported commissions, fees, supplemental revenues and contingent revenues | $ | 1,184.3 |
|
| $ | 1,110.2 |
|
|
| 6.7 | % |
| $ | 2,601.4 |
|
| $ | 2,417.1 |
|
|
| 7.6 | % |
Less commissions, fees, supplemental revenues and contingent revenues from acquisitions |
| (72.0 | ) |
|
| — |
|
|
|
|
|
|
| (167.3 | ) |
|
| — |
|
|
|
|
|
Less divested operations and program repricing |
| — |
|
|
| (6.3 | ) |
|
|
|
|
|
| — |
|
|
| (18.3 | ) |
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (14.8 | ) |
|
|
|
|
|
| — |
|
|
| (27.9 | ) |
|
|
|
|
Total organic commissions, fees, supplemental revenues and contingent revenues | $ | 1,112.3 |
|
| $ | 1,089.1 |
|
|
| 2.1 | % |
| $ | 2,434.1 |
|
| $ | 2,370.9 |
|
|
| 2.7 | % |
Three-Month Period Ended June 30, 2019 | Six-Month PeriodEnded June 30, 2019 | |||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
Organic Revenues (Non-GAAP) | ||||||||||||||||||||||||
Base Commissions and Fees | ||||||||||||||||||||||||
Commission and fees, as reported | $ | 1,033.8 | $ | 908.4 | 13.8 | % | $ | 2,236.0 | $ | 2,001.0 | 11.7 | % | ||||||||||||
Less commission and fee revenues from acquisitions | (90.8 | ) | — | (175.5 | ) | — | ||||||||||||||||||
Less divested operations | — | (5.7 | ) | — | (13.5 | ) | ||||||||||||||||||
Levelized foreign currency translation | — | (14.3 | ) | — | (33.0 | ) | ||||||||||||||||||
Organic base commission and fees | $ | 943.0 | $ | 888.4 | 6.2 | % | $ | 2,060.5 | $ | 1,954.5 | 5.4 | % | ||||||||||||
Supplemental revenues | ||||||||||||||||||||||||
Supplemental revenues, as reported | $ | 46.9 | $ | 48.1 | -2.5 | % | $ | 103.6 | $ | 100.1 | 3.5 | % | ||||||||||||
Less supplemental revenues from acquisitions | (1.9 | ) | — | (2.3 | ) | — | ||||||||||||||||||
Levelized foreign currency translation | — | (0.7 | ) | — | (1.8 | ) | ||||||||||||||||||
Organic supplemental revenues | $ | 45.0 | $ | 47.4 | -5.1 | % | $ | 101.3 | $ | 98.3 | 3.1 | % | ||||||||||||
Contingent revenues | ||||||||||||||||||||||||
Contingent revenues, as reported | $ | 29.5 | $ | 21.8 | 35.3 | % | $ | 77.5 | $ | 56.7 | 36.7 | % | ||||||||||||
Less contingent revenues from acquisitions | (4.3 | ) | — | (8.8 | ) | — | ||||||||||||||||||
Levelized foreign currency translation | — | (0.1 | ) | — | (0.2 | ) | ||||||||||||||||||
Organic contingent revenues | $ | 25.2 | $ | 21.7 | 16.1 | % | $ | 68.7 | $ | 56.5 | 21.6 | % | ||||||||||||
Total reported commissions, fees, supplemental revenues and contingent revenues | $ | 1,110.2 | $ | 978.3 | 13.5 | % | $ | 2,417.1 | $ | 2,157.8 | 12.0 | % | ||||||||||||
Less commission and fee revenues from acquisitions | (97.0 | ) | — | (186.6 | ) | — | ||||||||||||||||||
Less divested operations | — | (5.7 | ) | — | (13.5 | ) | ||||||||||||||||||
Levelized foreign currency translation | — | (15.1 | ) | — | (35.0 | ) | ||||||||||||||||||
Total organic commissions, fees, supplemental revenues and contingent revenues | $ | 1,013.2 | $ | 957.5 | 5.8 | % | $ | 2,230.5 | $ | 2,109.3 | 5.8 | % | ||||||||||||
The following is a summary of brokerage segment acquisition activity for 20192020 and 2018:2019:
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Number of acquisitions closed |
| 4 |
|
|
| 13 |
|
|
| 12 |
|
|
| 24 |
|
Estimated annualized revenues acquired (in millions) | $ | 13.9 |
|
| $ | 194.5 |
|
| $ | 138.1 |
|
| $ | 265.7 |
|
Three-month periodended June 30, | Six-month periodended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Number of acquisitions closed | 13 | 12 | 24 | 18 | ||||||||||||
Estimated annualized revenues acquired (in millions) | $ | 194.5 | $ | 145.2 | $ | 265.7 | $ | 171.9 | ||||||||
We issued 132,000370,000 shares and 213,00071,000 shares of our common stock at the request of sellers and/or in connection with
- 4948 -
Supplemental and contingent revenues -
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
|
|
|
|
| ||||
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
|
| YTD |
| |||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported supplemental revenues |
| $ | 59.0 |
|
| $ | 50.3 |
|
|
|
|
|
|
|
|
|
| $ | 109.3 |
|
Reported contingent revenues |
|
| 45.1 |
|
|
| 37.4 |
|
|
|
|
|
|
|
|
|
|
| 82.5 |
|
Reported supplemental and contingent revenues |
| $ | 104.1 |
|
| $ | 87.7 |
|
|
|
|
|
|
|
|
|
| $ | 191.8 |
|
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 |
|
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | YTD | ||||||||||||||||
2019 | ||||||||||||||||||||
Reported supplemental revenues | $ | 56.7 | $ | 46.9 | $ | 103.6 | ||||||||||||||
Reported contingent revenues | 48.0 | 29.5 | 77.5 | |||||||||||||||||
Reported supplemental and contingent revenues | $ | 104.7 | $ | 76.4 | $ | 181.1 | ||||||||||||||
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 | ||||||||||
Investment income and net gains on divestitures
Compensation expense
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Compensation expense, as reported | $ | 672.4 |
|
| $ | 659.3 |
|
| $ | 1,425.2 |
|
| $ | 1,336.5 |
|
Acquisition integration |
| (3.8 | ) |
|
| (2.1 | ) |
|
| (7.6 | ) |
|
| (2.1 | ) |
Workforce and lease termination related charges |
| (13.3 | ) |
|
| (8.5 | ) |
|
| (18.9 | ) |
|
| (10.7 | ) |
Acquisition related adjustments |
| (4.1 | ) |
|
| (6.1 | ) |
|
| (8.7 | ) |
|
| (8.7 | ) |
Levelized foreign currency translation |
| — |
|
|
| (8.4 | ) |
|
| — |
|
|
| (16.2 | ) |
Compensation expense, as adjusted | $ | 651.2 |
|
| $ | 634.2 |
|
| $ | 1,390.0 |
|
| $ | 1,298.8 |
|
Reported compensation expense ratios |
| 56.0 | % |
|
| 58.3 | % |
|
| 54.1 | % |
|
| 53.2 | % |
Adjusted compensation expense ratios |
| 54.3 | % |
|
| 56.9 | % |
|
| 52.7 | % |
|
| 53.6 | % |
Reported revenues | $ | 1,201.1 |
|
| $ | 1,131.2 |
|
| $ | 2,636.7 |
|
| $ | 2,513.1 |
|
Adjusted revenues - see page 39 | $ | 1,200.1 |
|
| $ | 1,113.8 |
|
| $ | 2,635.5 |
|
| $ | 2,424.5 |
|
Three-month period ended June 30, | Six-month periodended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Compensation expense, as reported | $ | 659.3 | $ | 584.3 | $ | 1,336.5 | $ | 1,209.7 | ||||||||
Acquisition integration | (2.1 | ) | — | (2.1 | ) | — | ||||||||||
Workforce related charges | (8.5 | ) | (2.9 | ) | (10.7 | ) | (6.8 | ) | ||||||||
Acquisition related adjustments | (6.1 | ) | (5.8 | ) | (8.7 | ) | (8.5 | ) | ||||||||
Levelized foreign currency translation | — | (12.0 | ) | — | (24.5 | ) | ||||||||||
Compensation expense, as adjusted | $ | 642.6 | $ | 563.6 | $ | 1,315.0 | $ | 1,169.9 | ||||||||
Reported compensation expense ratios | 58.3 | % | 58.4 | % | 53.2 | % | 55.1 | % | ||||||||
Adjusted compensation expense ratios | 56.9 | % | 57.6 | % | 53.6 | % | 54.4 | % | ||||||||
Reported revenues | $ | 1,131.2 | $ | 1,000.1 | $ | 2,513.1 | $ | 2,195.7 | ||||||||
Adjusted revenues - see pages 42 and 43 | $ | 1,129.3 | $ | 978.0 | $ | 2,454.1 | $ | 2,149.7 | ||||||||
The increase in compensation expense for the
The increase in compensation expense for the
- $1.649 -
temporary-staffing expense - $0.1 million. The increase in employee headcount primarily relates to employees associated with the acquisitions completed in the twelve-month period ended June 30, 2019.
Operating expense -
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating expense, as reported | $ | 162.2 |
|
| $ | 191.0 |
|
| $ | 367.1 |
|
| $ | 389.0 |
|
Acquisition integration |
| (2.9 | ) |
|
| (1.3 | ) |
|
| (5.8 | ) |
|
| (1.7 | ) |
Workforce and lease termination related charges |
| (1.7 | ) |
|
| (1.0 | ) |
|
| (2.6 | ) |
|
| (5.1 | ) |
Costs related to divestitures |
| — |
|
|
| — |
|
|
| — |
|
|
| (13.0 | ) |
Levelized foreign currency translation |
| — |
|
|
| (1.5 | ) |
|
| — |
|
|
| (4.3 | ) |
Operating expense, as adjusted | $ | 157.6 |
|
| $ | 187.2 |
|
| $ | 358.7 |
|
| $ | 364.9 |
|
Reported operating expense ratios |
| 13.5 | % |
|
| 16.9 | % |
|
| 13.9 | % |
|
| 15.5 | % |
Adjusted operating expense ratios |
| 13.1 | % |
|
| 16.8 | % |
|
| 13.6 | % |
|
| 15.1 | % |
Reported revenues | $ | 1,201.1 |
|
| $ | 1,131.2 |
|
| $ | 2,636.7 |
|
| $ | 2,513.1 |
|
Adjusted revenues - see page 39 | $ | 1,200.1 |
|
| $ | 1,113.8 |
|
| $ | 2,635.5 |
|
| $ | 2,424.5 |
|
Three-month period ended June 30, | Six-month periodended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating expense, as reported | $ | 191.0 | $ | 164.7 | $ | 389.0 | $ | 327.1 | ||||||||
Acquisition integration | (1.3 | ) | — | (1.7 | ) | — | ||||||||||
Workforce and lease termination related charges | (1.0 | ) | (0.6 | ) | (5.1 | ) | (4.3 | ) | ||||||||
Costs related to divestitures | — | — | (13.0 | ) | — | |||||||||||
Levelized foreign currency translation | — | (3.1 | ) | — | (6.6 | ) | ||||||||||
Operating expense, as adjusted | $ | 188.7 | $ | 161.0 | $ | 369.2 | $ | 316.2 | ||||||||
Reported operating expense ratios | 16.9 | % | 16.5 | % | 15.5 | % | 14.9 | % | ||||||||
Adjusted operating expense ratios | 16.7 | % | 16.5 | % | 15.0 | % | 14.7 | % | ||||||||
Reported revenues | $ | 1,131.2 | $ | 1,000.1 | $ | 2,513.1 | $ | 2,195.7 | ||||||||
Adjusted revenues - see pages 42 and 43 | $ | 1,129.3 | $ | 978.0 | $ | 2,454.1 | $ | 2,149.7 | ||||||||
The increasedecrease in operating expense for the three-month period ended June 30, 20192020 compared to the same period in 2018,2019, was primarily due to increasesdecreases in marketingmeeting and client entertainment expense - $7.2$23.8 million, employee related expense - $9.7 million, outside consulting fees - $6.0$4.4 million, technology expensesoffice supplies - $5.0$4.2 million, real estate expensesother expense - $3.7 million, business insurance - $2.6 million, meeting and client entertainment expense- $1.6$3.5 million, professional and banking fees - $1.9 million, marketing expense - $0.8 million, outside services expense - $0.6 million, lease termination chargestechnology expenses - $0.4 million and employee relatedpremium finance interest expense - $0.3 million, partially offset by decreasesan unfavorable foreign currency translation - $0.8 million and increases in business insurance - $12.3 million, licenses and fees $3.1 million, acquisition integration - $1.6 million, outside services expense - $0.7 million, lease termination charges - $0.7 million, real estate expenses - $0.5 million and bad debt expense $1.4 million and licenses and fees - $0.6$0.4 million. Also impacting operating expense in the
The increasedecrease in operating expense for the
Depreciation- 51 -
Amortization
- 50 -
consideration of the potentialimpacts that COVID-19 has on our reporting units, we did perform a qualitative impairmentreview oncarrying value of our goodwill for all of our reporting units as of June 30, 2020 and no indicators of impairment were noted.
Expiration lists,
Change in estimated acquisition earnout payables
The amounts initially recorded as earnout payables for our 2016 to 20192020 acquisitions were measured at fair value as of the acquisition date and are primarily based upon the estimated future operating results of the acquired entities over a
Provision for income taxes
Net earnings (loss) attributable to noncontrolling interests
Risk Management
The risk management segment accounted for 13%14% of our revenue during the
- 51 -
Financial information relating to our risk management segment results for the three-month and20192020 as compared to the same periods in 2018,2019, is as follows (in millions, except per share, percentages and workforce data):
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||||||||||
Statement of Earnings | 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Fees | $ | 190.6 |
|
| $ | 208.6 |
|
| $ | (18.0 | ) |
| $ | 402.1 |
|
| $ | 411.5 |
|
| $ | (9.4 | ) |
Investment income |
| 0.2 |
|
|
| 0.5 |
|
|
| (0.3 | ) |
|
| 0.5 |
|
|
| 0.9 |
|
|
| (0.4 | ) |
Revenues before reimbursements |
| 190.8 |
|
|
| 209.1 |
|
|
| (18.3 | ) |
|
| 402.6 |
|
|
| 412.4 |
|
|
| (9.8 | ) |
Reimbursements |
| 32.4 |
|
|
| 33.0 |
|
|
| (0.6 | ) |
|
| 70.1 |
|
|
| 66.1 |
|
|
| 4.0 |
|
Total revenues |
| 223.2 |
|
|
| 242.1 |
|
|
| (18.9 | ) |
|
| 472.7 |
|
|
| 478.5 |
|
|
| (5.8 | ) |
Compensation |
| 126.1 |
|
|
| 128.8 |
|
|
| (2.7 | ) |
|
| 257.0 |
|
|
| 253.6 |
|
|
| 3.4 |
|
Operating |
| 36.2 |
|
|
| 46.5 |
|
|
| (10.3 | ) |
|
| 82.1 |
|
|
| 90.9 |
|
|
| (8.8 | ) |
Reimbursements |
| 32.4 |
|
|
| 33.0 |
|
|
| (0.6 | ) |
|
| 70.1 |
|
|
| 66.1 |
|
|
| 4.0 |
|
Depreciation |
| 12.3 |
|
|
| 11.9 |
|
|
| 0.4 |
|
|
| 24.6 |
|
|
| 22.7 |
|
|
| 1.9 |
|
Amortization |
| 1.6 |
|
|
| 1.0 |
|
|
| 0.6 |
|
|
| 3.0 |
|
|
| 2.0 |
|
|
| 1.0 |
|
Change in estimated acquisition earnout payables |
| 1.4 |
|
|
| (0.1 | ) |
|
| 1.5 |
|
|
| (2.9 | ) |
|
| 0.2 |
|
|
| (3.1 | ) |
Total expenses |
| 210.0 |
|
|
| 221.1 |
|
|
| (11.1 | ) |
|
| 433.9 |
|
|
| 435.5 |
|
|
| (1.6 | ) |
Earnings before income taxes |
| 13.2 |
|
|
| 21.0 |
|
|
| (7.8 | ) |
|
| 38.8 |
|
|
| 43.0 |
|
|
| (4.2 | ) |
Provision for income taxes |
| 3.3 |
|
|
| 5.5 |
|
|
| (2.2 | ) |
|
| 9.8 |
|
|
| 11.3 |
|
|
| (1.5 | ) |
Net earnings |
| 9.9 |
|
|
| 15.5 |
|
|
| (5.6 | ) |
|
| 29.0 |
|
|
| 31.7 |
|
|
| (2.7 | ) |
Net earnings attributable to noncontrolling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net earnings attributable to controlling interests | $ | 9.9 |
|
| $ | 15.5 |
|
| $ | (5.6 | ) |
| $ | 29.0 |
|
| $ | 31.7 |
|
| $ | (2.7 | ) |
Diluted net earnings per share | $ | 0.05 |
|
| $ | 0.08 |
|
| $ | (0.03 | ) |
| $ | 0.15 |
|
| $ | 0.17 |
|
| $ | (0.02 | ) |
Other information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in diluted net earnings per share |
| -38 | % |
|
| -11 | % |
|
|
|
|
|
| -12 | % |
|
| -6 | % |
|
|
|
|
Growth in revenues (before reimbursements) |
| -9 | % |
|
| 4 | % |
|
|
|
|
|
| -2 | % |
|
| 4 | % |
|
|
|
|
Organic change in fees (before reimbursements) |
| -10 | % |
|
| 3 | % |
|
|
|
|
|
| -3 | % |
|
| 4 | % |
|
|
|
|
Compensation expense ratio (before reimbursements) |
| 66 | % |
|
| 62 | % |
|
|
|
|
|
| 64 | % |
|
| 61 | % |
|
|
|
|
Operating expense ratio (before reimbursements) |
| 19 | % |
|
| 22 | % |
|
|
|
|
|
| 20 | % |
|
| 22 | % |
|
|
|
|
Effective income tax rate |
| 25 | % |
|
| 26 | % |
|
|
|
|
|
| 25 | % |
|
| 26 | % |
|
|
|
|
Workforce at end of period (includes acquisitions) |
|
|
|
|
|
|
|
|
|
|
|
|
| 6,438 |
|
|
| 6,454 |
|
|
|
|
|
Identifiable assets at June 30 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 929.1 |
|
| $ | 847.9 |
|
|
|
|
|
EBITDAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 9.9 |
|
| $ | 15.5 |
|
| $ | (5.6 | ) |
| $ | 29.0 |
|
| $ | 31.7 |
|
| $ | (2.7 | ) |
Provision for income taxes |
| 3.3 |
|
|
| 5.5 |
|
|
| (2.2 | ) |
|
| 9.8 |
|
|
| 11.3 |
|
|
| (1.5 | ) |
Depreciation |
| 12.3 |
|
|
| 11.9 |
|
|
| 0.4 |
|
|
| 24.6 |
|
|
| 22.7 |
|
|
| 1.9 |
|
Amortization |
| 1.6 |
|
|
| 1.0 |
|
|
| 0.6 |
|
|
| 3.0 |
|
|
| 2.0 |
|
|
| 1.0 |
|
Change in estimated acquisition earnout payables |
| 1.4 |
|
|
| (0.1 | ) |
|
| 1.5 |
|
|
| (2.9 | ) |
|
| 0.2 |
|
|
| (3.1 | ) |
EBITDAC | $ | 28.5 |
|
| $ | 33.8 |
|
| $ | (5.3 | ) |
| $ | 63.5 |
|
| $ | 67.9 |
|
| $ | (4.4 | ) |
Three-month period ended June 30, | Six-month periodended June 30, | |||||||||||||||||||||||
Statement of Earnings | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Fees | $ | 208.6 | $ | 201.8 | $ | 6.8 | $ | 411.5 | $ | 396.7 | $ | 14.8 | ||||||||||||
Investment income | 0.5 | 0.1 | 0.4 | 0.9 | 0.3 | 0.6 | ||||||||||||||||||
Revenues before reimbursements | 209.1 | 201.9 | 7.2 | 412.4 | 397.0 | 15.4 | ||||||||||||||||||
Reimbursements | 33.0 | 35.4 | (2.4 | ) | 66.1 | 70.2 | (4.1 | ) | ||||||||||||||||
Total revenues | 242.1 | 237.3 | 4.8 | 478.5 | 467.2 | 11.3 | ||||||||||||||||||
Compensation | 128.8 | 121.3 | 7.5 | 253.6 | 240.3 | 13.3 | ||||||||||||||||||
Operating | 46.5 | 45.9 | 0.6 | 90.9 | 90.1 | 0.8 | ||||||||||||||||||
Reimbursements | 33.0 | 35.4 | (2.4 | ) | 66.1 | 70.2 | (4.1 | ) | ||||||||||||||||
Depreciation | 11.9 | 9.5 | 2.4 | 22.7 | 18.3 | 4.4 | ||||||||||||||||||
Amortization | 1.0 | 0.9 | 0.1 | 2.0 | 2.2 | (0.2 | ) | |||||||||||||||||
Change in estimated acquisition earnout payables | (0.1 | ) | 0.3 | (0.4 | ) | 0.2 | 0.5 | (0.3 | ) | |||||||||||||||
Total expenses | 221.1 | 213.3 | 7.8 | 435.5 | 421.6 | 13.9 | ||||||||||||||||||
Earnings before income taxes | 21.0 | 24.0 | (3.0 | ) | 43.0 | 45.6 | (2.6 | ) | ||||||||||||||||
Provision for income taxes | 5.5 | 6.4 | (0.9 | ) | 11.3 | 12.1 | (0.8 | ) | ||||||||||||||||
Net earnings | 15.5 | 17.6 | (2.1 | ) | 31.7 | 33.5 | (1.8 | ) | ||||||||||||||||
Net earnings attributable to noncontrolling interests | — | — | — | — | — | — | ||||||||||||||||||
Net earnings attributable to controlling interests | $ | 15.5 | $ | 17.6 | $ | (2.1 | ) | $ | 31.7 | $ | 33.5 | $ | (1.8 | ) | ||||||||||
Diluted net earnings per share | $ | 0.08 | $ | 0.09 | $ | (0.01 | ) | $ | 0.17 | $ | 0.18 | $ | (0.01 | ) | ||||||||||
Other information | ||||||||||||||||||||||||
Change in diluted net earnings per share | (11 | %) | 29 | % | (6 | %) | 20 | % | ||||||||||||||||
Growth in revenues (before reimbursements) | 4 | % | 11 | % | 4 | % | 11 | % | ||||||||||||||||
Organic change in fees (before reimbursements) | 3 | % | 10 | % | 4 | % | 9 | % | ||||||||||||||||
Compensation expense ratio (before reimbursements) | 62 | % | 60 | % | 61 | % | 61 | % | ||||||||||||||||
Operating expense ratio (before reimbursements) | 22 | % | 23 | % | 22 | % | 23 | % | ||||||||||||||||
Effective income tax rate | 26 | % | 27 | % | 26 | % | 27 | % | ||||||||||||||||
Workforce at end of period (includes acquisitions) | 6,454 | 6,061 | ||||||||||||||||||||||
Identifiable assets at June 30 | $ | 847.9 | $ | 739.5 | ||||||||||||||||||||
EBITDAC | ||||||||||||||||||||||||
Net earnings | $ | 15.5 | $ | 17.6 | $ | (2.1 | ) | $ | 31.7 | $ | 33.5 | $ | (1.8 | ) | ||||||||||
Provision for income taxes | 5.5 | 6.4 | (0.9 | ) | 11.3 | 12.1 | (0.8 | ) | ||||||||||||||||
Depreciation | 11.9 | 9.5 | 2.4 | 22.7 | 18.3 | 4.4 | ||||||||||||||||||
Amortization | 1.0 | 0.9 | 0.1 | 2.0 | 2.2 | (0.2 | ) | |||||||||||||||||
Change in estimated acquisition earnout payables | (0.1 | ) | 0.3 | (0.4 | ) | 0.2 | 0.5 | (0.3 | ) | |||||||||||||||
EBITDAC | $ | 33.8 | $ | 34.7 | $ | (0.9 | ) | $ | 67.9 | $ | 66.6 | $ | 1.3 | |||||||||||
- 5352 -
The following provides20192020 to the same periods in 20182019 (in millions):
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||||||||||
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Net earnings, as reported | $ | 9.9 |
|
| $ | 15.5 |
|
|
| (36.1 | )% |
| $ | 29.0 |
|
| $ | 31.7 |
|
|
| (8.5 | )% |
Provision for income taxes |
| 3.3 |
|
|
| 5.5 |
|
|
|
|
|
|
| 9.8 |
|
|
| 11.3 |
|
|
|
|
|
Depreciation |
| 12.3 |
|
|
| 11.9 |
|
|
|
|
|
|
| 24.6 |
|
|
| 22.7 |
|
|
|
|
|
Amortization |
| 1.6 |
|
|
| 1.0 |
|
|
|
|
|
|
| 3.0 |
|
|
| 2.0 |
|
|
|
|
|
Change in estimated acquisition earnout payables |
| 1.4 |
|
|
| (0.1 | ) |
|
|
|
|
|
| (2.9 | ) |
|
| 0.2 |
|
|
|
|
|
Total EBITDAC |
| 28.5 |
|
|
| 33.8 |
|
|
| (15.7 | )% |
|
| 63.5 |
|
|
| 67.9 |
|
|
| (6.5 | )% |
Workforce and lease termination related charges |
| 5.0 |
|
|
| 2.8 |
|
|
|
|
|
|
| 5.3 |
|
|
| 3.2 |
|
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (0.4 | ) |
|
|
|
|
|
| — |
|
|
| (0.6 | ) |
|
|
|
|
EBITDAC, as adjusted | $ | 33.5 |
|
| $ | 36.2 |
|
|
| (7.5 | )% |
| $ | 68.8 |
|
| $ | 70.5 |
|
|
| (2.4 | )% |
Net earnings margin (before reimbursements), as reported |
| 5.2 | % |
|
| 7.4 | % |
| - 222 bpts |
|
|
| 7.2 | % |
|
| 7.7 | % |
| - 49 bpts |
| ||
EBITDAC margin (before reimbursements), as adjusted |
| 17.6 | % |
|
| 17.5 | % |
| + 10 bpts |
|
|
| 17.1 | % |
|
| 17.3 | % |
| - 19 bpts |
| ||
Reported revenues (before reimbursements) | $ | 190.8 |
|
| $ | 209.1 |
|
|
|
|
|
| $ | 402.6 |
|
| $ | 412.4 |
|
|
|
|
|
Adjusted revenues (before reimbursements) - see page 39 | $ | 190.8 |
|
| $ | 207.3 |
|
|
|
|
|
| $ | 402.6 |
|
| $ | 408.0 |
|
|
|
|
|
Three-month period ended June 30, | Six-month periodended June 30, | |||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
Net earnings, as reported | $ | 15.5 | $ | 17.6 | -11.9 | % | $ | 31.7 | $ | 33.5 | -5.4 | % | ||||||||||||
Provision for income taxes | 5.5 | 6.4 | 11.3 | 12.1 | ||||||||||||||||||||
Depreciation | 11.9 | 9.5 | 22.7 | 18.3 | ||||||||||||||||||||
Amortization | 1.0 | 0.9 | 2.0 | 2.2 | ||||||||||||||||||||
Change in estimated acquisition earnout payables | (0.1 | ) | 0.3 | 0.2 | 0.5 | |||||||||||||||||||
Total EBITDAC | 33.8 | 34.7 | -2.6 | % | 67.9 | 66.6 | 2.0 | % | ||||||||||||||||
Workforce and lease termination related charges | 2.8 | 1.1 | 3.2 | 1.3 | ||||||||||||||||||||
Levelized foreign currency translation | — | (0.7 | ) | — | (1.4 | ) | ||||||||||||||||||
EBITDAC, as adjusted | $ | 36.6 | $ | 35.1 | 4.3 | % | $ | 71.1 | $ | 66.5 | 6.9 | % | ||||||||||||
Net earnings margin (before reimbursements), as reported | 7.4 | % | 8.7 | % | -131 bpts | 7.7 | % | 8.4 | % | -75 bpts | ||||||||||||||
EBITDAC margin (before reimbursements), as adjusted | 17.5 | % | 17.6 | % | -12 bpts | 17.2 | % | 17.0 | % | +24 bpts | ||||||||||||||
Reported revenues (before reimbursements) | $ | 209.1 | $ | 201.9 | $ | 412.4 | $ | 397.0 | ||||||||||||||||
Adjusted revenues (before reimbursements) - see pages 42 and 43 | $ | 209.1 | $ | 199.2 | $ | 412.4 | $ | 391.1 | ||||||||||||||||
Fees -
Items excluded from organic fee computations yet impacting revenue comparisons for the
| Three-Month Period Ended June 30, 2020 |
|
| Six-Month Period Ended June 30, 2020 |
| ||||||||||||||||||
Organic Revenues (Non-GAAP) | 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Fees | $ | 189.5 |
|
| $ | 208.2 |
|
|
| -9.0 | % |
| $ | 399.7 |
|
| $ | 409.8 |
|
|
| -2.5 | % |
International performance bonus fees |
| 1.1 |
|
|
| 0.4 |
|
|
|
|
|
|
| 2.4 |
|
|
| 1.7 |
|
|
|
|
|
Fees as reported |
| 190.6 |
|
|
| 208.6 |
|
|
| -8.6 | % |
|
| 402.1 |
|
|
| 411.5 |
|
|
| -2.3 | % |
Less fees from acquisitions |
| (3.6 | ) |
|
| — |
|
|
|
|
|
|
| (6.5 | ) |
|
| — |
|
|
|
|
|
Levelized foreign currency translation |
| — |
|
|
| (1.8 | ) |
|
|
|
|
|
| — |
|
|
| (4.4 | ) |
|
|
|
|
Organic fees | $ | 187.0 |
|
| $ | 206.8 |
|
|
| -9.6 | % |
| $ | 395.6 |
|
| $ | 407.1 |
|
|
| -2.8 | % |
Three-Month Period Ended June 30, 2019 | Six-Month PeriodEnded June 30, 2019 | |||||||||||||||||||||||
Organic Revenues (Non-GAAP) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Fees | $ | 208.2 | $ | 198.5 | 4.9 | % | $ | 409.8 | $ | 391.8 | 4.6 | % | ||||||||||||
International performance bonus fees | 0.4 | 3.3 | 1.7 | 4.9 | ||||||||||||||||||||
Fees as reported | 208.6 | 201.8 | 3.4 | % | 411.5 | 396.7 | 3.7 | % | ||||||||||||||||
Less fees from acquisitions | (3.5 | ) | — | (6.9 | ) | — | ||||||||||||||||||
Levelized foreign currency translation | — | (2.7 | ) | — | (5.9 | ) | ||||||||||||||||||
Organic fees | $ | 205.1 | $ | 199.1 | 3.0 | % | $ | 404.6 | $ | 390.8 | 3.5 | % | ||||||||||||
Reimbursements
Investment income
- 53 -
Compensation expense
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Compensation expense, as reported | $ | 126.1 |
|
| $ | 128.8 |
|
| $ | 257.0 |
|
| $ | 253.6 |
|
Workforce and lease termination related charges |
| (4.9 | ) |
|
| (2.8 | ) |
|
| (5.2 | ) |
|
| (3.2 | ) |
Levelized foreign currency translation |
| — |
|
|
| (1.1 | ) |
|
| — |
|
|
| (2.9 | ) |
Compensation expense, as adjusted | $ | 121.2 |
|
| $ | 124.9 |
|
| $ | 251.8 |
|
| $ | 247.5 |
|
Reported compensation expense ratios (before reimbursements) |
| 66.1 | % |
|
| 61.6 | % |
|
| 63.8 | % |
|
| 61.5 | % |
Adjusted compensation expense ratios (before reimbursements) |
| 63.5 | % |
|
| 60.3 | % |
|
| 62.5 | % |
|
| 60.7 | % |
Reported revenues (before reimbursements) | $ | 190.8 |
|
| $ | 209.1 |
|
| $ | 402.6 |
|
| $ | 412.4 |
|
Adjusted revenues (before reimbursements) - see page 39 | $ | 190.8 |
|
| $ | 207.3 |
|
| $ | 402.6 |
|
| $ | 408.0 |
|
Three-month periodended June 30, | Six-month periodended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Compensation expense, as reported | $ | 128.8 | $ | 121.3 | $ | 253.6 | $ | 240.3 | ||||||||
Workforce related charges | (2.8 | ) | (0.8 | ) | (3.2 | ) | (0.9 | ) | ||||||||
Levelized foreign currency translation | — | (1.5 | ) | — | (3.4 | ) | ||||||||||
Compensation expense, as adjusted | $ | 126.0 | $ | 119.0 | $ | 250.4 | $ | 236.0 | ||||||||
Reported compensation expense ratios (before reimbursements) | 61.6 | % | 60.1 | % | 61.5 | % | 60.5 | % | ||||||||
Adjusted compensation expense ratios (before reimbursements) | 60.3 | % | 59.7 | % | 60.7 | % | 60.3 | % | ||||||||
Reported revenues (before reimbursements) | $ | 209.1 | $ | 201.9 | $ | 412.4 | $ | 397.0 | ||||||||
Adjusted revenues (before reimbursements) - see pages 42 and 43 | $ | 209.1 | $ | 199.2 | $ | 412.4 | $ | 391.1 | ||||||||
The increasedecrease in compensation expense for the three-month period ended June 30, 20192020 compared to the same period in 2018,2019, was primarily due to increaseddecreased headcount and increasesdecreases in salaries and incentive compensation ($4.7- $2.6 million in the aggregate),aggregate, employee benefits expense - $2.1 million and temporary-staffing expense - $1.4 million, partially offset by an unfavorable foreign currency translation - $1.1 million and increases in severance related costs - $2.0$2.1 million and stock compensation expense - $1.2 million, employee benefits expense - $1.2 million and deferred compensation - $0.4 million, partially offset by a favorable foreign currency translation - $1.6 million and a decrease in temporary-staffing expense - $0.4$0.2 million. Contributing to the increasedecrease in employee headcount areis terminated and/or furloughed employees, partially offset by headcount associated with the acquisitions completed in the twelve-month period ended June 30, 2019.
The increase in compensation expense for the
Operating expense
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating expense, as reported | $ | 36.2 |
|
| $ | 46.5 |
|
| $ | 82.1 |
|
| $ | 90.9 |
|
Workforce and lease termination related charges |
| (0.1 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| — |
|
Levelized foreign currency translation |
| — |
|
|
| (0.3 | ) |
|
| — |
|
|
| (0.9 | ) |
Operating expense, as adjusted | $ | 36.1 |
|
| $ | 46.2 |
|
| $ | 82.0 |
|
| $ | 90.0 |
|
Reported operating expense ratios (before reimbursements) |
| 19.0 | % |
|
| 22.2 | % |
|
| 20.4 | % |
|
| 22.0 | % |
Adjusted operating expense ratios (before reimbursements) |
| 18.9 | % |
|
| 22.3 | % |
|
| 20.4 | % |
|
| 22.1 | % |
Reported revenues (before reimbursements) | $ | 190.8 |
|
| $ | 209.1 |
|
| $ | 402.6 |
|
| $ | 412.4 |
|
Adjusted revenues (before reimbursements) - see page 39 | $ | 190.8 |
|
| $ | 207.3 |
|
| $ | 402.6 |
|
| $ | 408.0 |
|
Three-month period | Six-month period | |||||||||||||||
ended June 30, | ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating expense, as reported | $ | 46.5 | $ | 45.9 | $ | 90.9 | $ | 90.1 | ||||||||
Workforce and lease termination related charges | — | (0.3 | ) | — | (0.4 | ) | ||||||||||
Levelized foreign currency translation | — | (0.5 | ) | — | (1.1 | ) | ||||||||||
Operating expense, as adjusted | $ | 46.5 | $ | 45.1 | $ | 90.9 | $ | 88.6 | ||||||||
Reported operating expense ratios (before reimbursements) | 22.2 | % | 22.7 | % | 22.0 | % | 22.7 | % | ||||||||
Adjusted operating expense ratios (before reimbursements) | 22.2 | % | 22.6 | % | 22.0 | % | 22.7 | % | ||||||||
Reported revenues (before reimbursements) | $ | 209.1 | $ | 201.9 | $ | 412.4 | $ | 397.0 | ||||||||
Adjusted revenues (before reimbursements) - see pages 42 and 43 | $ | 209.1 | $ | 199.2 | $ | 412.4 | $ | 391.1 | ||||||||
The increasedecrease in operating expense for the three-month period ended June 30, 20192020 compared to the same period in 2018,2019, was primarily due to increasesdecreases in meeting and client entertainment expenses - $3.7 million, outside consulting fees - $1.8$3.0 million, technology expenses - $1.4 million, and meeting and client entertainmentemployee related expense - $0.3$0.8 million, partially offset by decreases in professional and banking fees - $0.9 million, office supplies - $0.8 million, employee expense - $0.4$0.7 million, business insurance $0.3 million, lease termination charges - $0.3$0.5 million and bad debt expenseoffice supplies $0.4 million, partially offset by an increase in technology expenses - $0.3$1.1 million.
- 54 -
The increasedecrease in operating expense for the20192020 compared to the same period in 2018,2019, was primarily due to increasesdecreases in outside consulting fees - $3.7 million, technology expenses - $2.0$1.9 million, meeting and client entertainment expenses - $5.1 million, employee related expense - $0.9 million, marketing expensebusiness insurance - $0.5 million, licensesprofessional and banking fees - $0.5 million, real estate expense - $0.3$0.4 million and employee expenseoffice supplies - $0.3 million, partially offset by decreasesan increase in professional and banking feestechnology expenses - $2.4 million, business insurance - $1.6$1.9 million, bad debt expense - $1.1$0.7 million office supplies - $1.0 million,and other expense - $0.6 million and lease termination charges- $0.4$0.3 million.
Depreciation
Amortization
Change in estimated acquisition earnout payables
Provision for income taxes
Corporate
The corporate segment reports the financial information related to our clean energy and other investments, our debt, certain corporate and acquisition-related activities and the impact of foreign currency translation. For a detailed discussion of the nature of these investments, see Note 12 to our consolidated financial statements included herein for a summary of our investments as of June 30, 20192020 and in Note 14 to our most recent Annual Report on Form
- 55 -
Financial information relating to our corporate segment results for the three-month and20192020 as compared to the same periods in 20182019 is as follows (in millions, except per share and percentages):
| Three-month period ended June 30, |
|
| Six-month period ended June 30, |
| ||||||||||||||||||
Statement of Earnings | 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Revenues from consolidated clean coal production plants | $ | 146.7 |
|
| $ | 270.0 |
|
| $ | (123.3 | ) |
| $ | 314.6 |
|
| $ | 626.4 |
|
| $ | (311.8 | ) |
Royalty income from clean coal licenses |
| 13.0 |
|
|
| 15.3 |
|
|
| (2.3 | ) |
|
| 26.9 |
|
|
| 31.9 |
|
|
| (5.0 | ) |
Loss from unconsolidated clean coal production plants |
| (0.2 | ) |
|
| (0.9 | ) |
|
| 0.7 |
|
|
| (0.2 | ) |
|
| (1.6 | ) |
|
| 1.4 |
|
Other net gains |
| 0.2 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Total revenues |
| 159.7 |
|
|
| 284.5 |
|
|
| (124.8 | ) |
|
| 341.5 |
|
|
| 656.8 |
|
|
| (315.3 | ) |
Cost of revenues from consolidated clean coal production plants |
| 161.2 |
|
|
| 292.0 |
|
|
| (130.8 | ) |
|
| 346.6 |
|
|
| 674.5 |
|
|
| (327.9 | ) |
Compensation |
| 17.1 |
|
|
| 18.2 |
|
|
| (1.1 | ) |
|
| 29.6 |
|
|
| 53.3 |
|
|
| (23.7 | ) |
Operating |
| 16.4 |
|
|
| 20.2 |
|
|
| (3.8 | ) |
|
| 23.3 |
|
|
| 40.3 |
|
|
| (17.0 | ) |
Interest |
| 50.0 |
|
|
| 44.9 |
|
|
| 5.1 |
|
|
| 100.5 |
|
|
| 85.1 |
|
|
| 15.4 |
|
Depreciation |
| 4.3 |
|
|
| 7.0 |
|
|
| (2.7 | ) |
|
| 11.2 |
|
|
| 14.0 |
|
|
| (2.8 | ) |
Total expenses |
| 249.0 |
|
|
| 382.3 |
|
|
| (133.3 | ) |
|
| 511.2 |
|
|
| 867.2 |
|
|
| (356.0 | ) |
Loss before income taxes |
| (89.3 | ) |
|
| (97.8 | ) |
|
| 8.5 |
|
|
| (169.7 | ) |
|
| (210.4 | ) |
|
| 40.7 |
|
Benefit for income taxes |
| (51.0 | ) |
|
| (65.7 | ) |
|
| 14.7 |
|
|
| (156.3 | ) |
|
| (204.3 | ) |
|
| 48.0 |
|
Net loss |
| (38.3 | ) |
|
| (32.1 | ) |
|
| (6.2 | ) |
|
| (13.4 | ) |
|
| (6.1 | ) |
|
| (7.3 | ) |
Net earnings attributable to noncontrolling interests |
| 6.6 |
|
|
| 6.2 |
|
|
| 0.4 |
|
|
| 15.0 |
|
|
| 14.0 |
|
|
| 1.0 |
|
Net loss attributable to controlling interests | $ | (44.9 | ) |
| $ | (38.3 | ) |
| $ | (6.6 | ) |
| $ | (28.4 | ) |
| $ | (20.1 | ) |
| $ | (8.3 | ) |
Diluted net loss per share | $ | (0.23 | ) |
| $ | (0.20 | ) |
| $ | (0.03 | ) |
| $ | (0.15 | ) |
| $ | (0.11 | ) |
| $ | (0.04 | ) |
Identifiable assets at June 30 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,971.5 |
|
| $ | 1,888.1 |
|
|
|
|
|
EBITDAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (38.3 | ) |
| $ | (32.1 | ) |
| $ | (6.2 | ) |
| $ | (13.4 | ) |
| $ | (6.1 | ) |
| $ | (7.3 | ) |
Benefit for income taxes |
| (51.0 | ) |
|
| (65.7 | ) |
|
| 14.7 |
|
|
| (156.3 | ) |
|
| (204.3 | ) |
|
| 48.0 |
|
Interest |
| 50.0 |
|
|
| 44.9 |
|
|
| 5.1 |
|
|
| 100.5 |
|
|
| 85.1 |
|
|
| 15.4 |
|
Depreciation |
| 4.3 |
|
|
| 7.0 |
|
|
| (2.7 | ) |
|
| 11.2 |
|
|
| 14.0 |
|
|
| (2.8 | ) |
EBITDAC | $ | (35.0 | ) |
| $ | (45.9 | ) |
| $ | 10.9 |
|
| $ | (58.0 | ) |
| $ | (111.3 | ) |
| $ | 53.3 |
|
Three-month period | Six-month period | |||||||||||||||||||||||
ended June 30, | ended June 30, | |||||||||||||||||||||||
Statement of Earnings | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Revenues from consolidated clean coal production plants | $ | 270.0 | $ | 411.8 | $ | (141.8 | ) | $ | 626.4 | $ | 812.3 | $ | (185.9 | ) | ||||||||||
Royalty income from clean coal licenses | 15.3 | 11.3 | 4.0 | 31.9 | 23.5 | 8.4 | ||||||||||||||||||
Loss from unconsolidated clean coal production plants | (0.9 | ) | (0.7 | ) | (0.2 | ) | (1.6 | ) | (1.2 | ) | (0.4 | ) | ||||||||||||
Other net gains | 0.1 | 0.6 | (0.5 | ) | 0.1 | 0.6 | (0.5 | ) | ||||||||||||||||
Total revenues | 284.5 | 423.0 | (138.5 | ) | 656.8 | 835.2 | (178.4 | ) | ||||||||||||||||
Cost of revenues from consolidated clean coal production plants | 292.0 | 441.8 | (149.8 | ) | 674.5 | 873.0 | (198.5 | ) | ||||||||||||||||
Compensation | 18.2 | 19.1 | (0.9 | ) | 53.3 | 50.5 | 2.8 | |||||||||||||||||
Operating | 20.2 | 12.2 | 8.0 | 40.3 | 21.7 | 18.6 | ||||||||||||||||||
Interest | 44.9 | 33.9 | 11.0 | 85.1 | 65.2 | 19.9 | ||||||||||||||||||
Depreciation | 7.0 | 7.0 | — | 14.0 | 14.0 | — | ||||||||||||||||||
Total expenses | 382.3 | 514.0 | (131.7 | ) | 867.2 | 1,024.4 | (157.2 | ) | ||||||||||||||||
Loss before income taxes | (97.8 | ) | (91.0 | ) | (6.8 | ) | (210.4 | ) | (189.2 | ) | (21.2 | ) | ||||||||||||
Benefit for income taxes | (65.7 | ) | (69.6 | ) | 3.9 | (204.3 | ) | (198.7 | ) | (5.6 | ) | |||||||||||||
Net earnings (loss) | (32.1 | ) | (21.4 | ) | (10.7 | ) | (6.1 | ) | 9.5 | (15.6 | ) | |||||||||||||
Net earnings attributable to noncontrolling interests | 6.2 | 6.7 | (0.5 | ) | 14.0 | 14.0 | — | |||||||||||||||||
Net earnings (loss) attributable to controlling interests | $ | (38.3 | ) | $ | (28.1 | ) | $ | (10.2 | ) | $ | (20.1 | ) | $ | (4.5 | ) | $ | (15.6 | ) | ||||||
Diluted net earnings (loss) per share | $ | (0.20 | ) | $ | (0.15 | ) | $ | (0.05 | ) | $ | (0.11 | ) | $ | (0.02 | ) | $ | (0.09 | ) | ||||||
Identifiable assets at June 30 | $ | 1,888.1 | $ | 1,712.0 | ||||||||||||||||||||
EBITDAC | ||||||||||||||||||||||||
Net earnings (loss) | $ | (32.1 | ) | $ | (21.4 | ) | $ | (10.7 | ) | $ | (6.1 | ) | $ | 9.5 | $ | (15.6 | ) | |||||||
Benefit for income taxes | (65.7 | ) | (69.6 | ) | 3.9 | (204.3 | ) | (198.7 | ) | (5.6 | ) | |||||||||||||
Interest | 44.9 | 33.9 | 11.0 | 85.1 | 65.2 | 19.9 | ||||||||||||||||||
Depreciation | 7.0 | 7.0 | — | 14.0 | 14.0 | — | ||||||||||||||||||
EBITDAC | $ | (45.9 | ) | $ | (50.1 | ) | $ | 4.2 | $ | (111.3 | ) | $ | (110.0 | ) | $ | (1.3 | ) | |||||||
Revenues- 58 -
• | 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. |
• | The decrease in revenue from consolidated clean coal production plants for the three-month and six-month periods ended June 30, 2020, compared to the same periods in 2019, was due primarily to decreased production of refined coal. |
• | Royalty income from clean coal licenses represents revenues related to Chem-Mod LLC. As of June 30, 2020, we hold a 46.5% controlling interest in Chem-Mod LLC. As Chem-Mod LLC’s manager, we are required to consolidate its operations. |
• | The decrease in royalty income in the three-month and six-month periods ended June 30, 2020, compared to the same periods in 2019, was due to decreased production of refined coal by Chem-Mod LLC’s licensees. |
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 the refined coal generates pretax operating losses.
The low level of losses in the three-month and
Cost of revenues
- 56 -
consolidated revenues discussed above. The decrease in thethree-month2019,2020, compared to the same periodperiods in 2018,2019, was primarily due to decreased production.
Compensation expense
Operating expense -
Operating expense in the six-month period ended June 30, 2020 includes banking and related fees of $2.8 million, external professional fees and other due diligence costs related to acquisitions of $3.9 million, other corporate and clean energy related expenses, including legal fees, and costs related to corporate data and branding initiatives, of $23.9 million, and a net unrealized foreign exchange remeasurement gain of $7.3 million.
Operating expense in the three-month period ended June 30, 2019 includes banking and related fees of $1.3 million, external professional fees and other due diligence costs related to acquisitions of $4.5 million, other corporate and clean energy related expenses, of $10.5 million, including legal fees, $2.4 million of expenses forand costs related to corporate related data and branding initiatives, of $12.9 million, and a net realized loss related to foreign exchange hedge contracts of $3.2 million and unrealized foreign exchange remeasurement gain of $1.7 million.
Operating expense in the
Interest expense
Change in interest expense related to: | Three-month period ended June 30, 2020 |
|
| Six-month period ended June 30, 2020 |
| ||
Interest on borrowings from our Credit Agreement | $ | (1.4 | ) |
| $ | (1.2 | ) |
Interest on the maturity of the Series C notes |
| (0.8 | ) |
|
| (1.5 | ) |
Interest on the maturity of the Series K and L notes |
| (0.4 | ) |
|
| (0.8 | ) |
Interest on the $398.0 million notes funded on August 2 and 4, 2017 |
| (0.2 | ) |
|
| (0.3 | ) |
Interest on the $500.0 million notes funded on June 13, 2018 |
| (0.2 | ) |
|
| (0.3 | ) |
Interest on the $340.0 million notes funded on February 13, 2019 |
| — |
|
|
| 2.0 |
|
Interest on the $260.0 million notes funded on March 13, 2019 |
| — |
|
|
| 2.7 |
|
Interest on the $175.0 million notes funded on June 12, 2019 |
| 1.5 |
|
|
| 3.5 |
|
Interest on the $50.0 million notes funded on December 2, 2019 |
| 0.4 |
|
|
| 0.8 |
|
Interest on the $575.0 million notes funded on January 30, 2020 |
| 5.9 |
|
|
| 9.9 |
|
Amortization of hedge gains/losses |
| 0.3 |
|
|
| 0.6 |
|
Net change in interest expense | $ | 5.1 |
|
| $ | 15.4 |
|
- 57 -
Depreciation- Depreciation expense in the three-month and six-month periods ended June 30, 2020 decreased compared to the same period in 2018, was due to the following:
Change in interest expense related to: | Three-month period ended June 30, 2019 | Six-month period ended June 30, 2019 | ||||||
Interest on borrowings from our Credit Agreement | $ | (0.1 | ) | $ | 1.1 | |||
Interest on the maturity of the Series C notes | (0.7 | ) | (1.4 | ) | ||||
Interest on the maturity of the Series K notes | (0.3 | ) | (0.6 | ) | ||||
Interest on the $500.0 million notes funded on June 13, 2018 | 4.2 | 9.9 | ||||||
Interest on the $340.0 million notes funded on February 13, 2019 | 4.1 | 6.4 | ||||||
Interest on the $260.0 million notes funded on March 13, 2019 | 3.4 | 4.1 | ||||||
Interest on the $175.0 million notes funded on June 12, 2019 | 0.4 | 0.4 | ||||||
Net change in interest expense | $ | 11.0 | $ | 19.9 | ||||
Benefit for income taxes
Net earnings attributable to noncontrolling interests:
The following provides
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Net Earnings |
|
|
|
|
|
|
|
|
|
| Net Earnings |
| ||
|
|
|
|
|
| Income |
|
| (Loss) |
|
|
|
|
|
| Income |
|
| (Loss) |
| ||||
|
|
|
|
|
| Tax |
|
| Attributable to |
|
|
|
|
|
| Tax |
|
| Attributable to |
| ||||
|
| Pretax |
|
| (Provision) |
|
| Controlling |
|
| Pretax |
|
| (Provision) |
|
| Controlling |
| ||||||
Three-Month Periods Ended June 30, |
| Loss |
|
| Benefit |
|
| Interests |
|
| Loss |
|
| Benefit |
|
| Interests |
| ||||||
Interest and banking costs |
| $ | (51.5 | ) |
| $ | 12.9 |
|
| $ | (38.6 | ) |
| $ | (46.0 | ) |
| $ | 12.0 |
|
| $ | (34.0 | ) |
Clean energy related (1) |
|
| (22.9 | ) |
|
| 27.9 |
|
|
| 5.0 |
|
|
| (36.6 | ) |
|
| 44.8 |
|
|
| 8.2 |
|
Acquisition costs |
|
| (1.4 | ) |
|
| 0.2 |
|
|
| (1.2 | ) |
|
| (7.8 | ) |
|
| 1.3 |
|
|
| (6.5 | ) |
Corporate (2) (3) |
|
| (20.1 | ) |
|
| 10.0 |
|
|
| (10.1 | ) |
|
| (13.6 | ) |
|
| 7.6 |
|
|
| (6.0 | ) |
Reported three-month period |
|
| (95.9 | ) |
|
| 51.0 |
|
|
| (44.9 | ) |
|
| (104.0 | ) |
|
| 65.7 |
|
|
| (38.3 | ) |
Effective income tax rate impact (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.0 | ) |
|
| (1.0 | ) |
Interest and banking costs |
|
| (51.5 | ) |
|
| 12.9 |
|
|
| (38.6 | ) |
|
| (46.0 | ) |
|
| 12.0 |
|
|
| (34.0 | ) |
Clean energy related (1) |
|
| (22.9 | ) |
|
| 27.9 |
|
|
| 5.0 |
|
|
| (36.6 | ) |
|
| 44.8 |
|
|
| 8.2 |
|
Acquisition costs |
|
| (1.4 | ) |
|
| 0.2 |
|
|
| (1.2 | ) |
|
| (7.8 | ) |
|
| 1.3 |
|
|
| (6.5 | ) |
Corporate (2) (3) |
|
| (20.1 | ) |
|
| 10.0 |
|
|
| (10.1 | ) |
|
| (13.6 | ) |
|
| 6.6 |
|
|
| (7.0 | ) |
Adjusted three-month period |
| $ | (95.9 | ) |
| $ | 51.0 |
|
| $ | (44.9 | ) |
| $ | (104.0 | ) |
| $ | 64.7 |
|
| $ | (39.3 | ) |
Three-Month Periods June 30, | 2019 | 2018 | ||||||||||||||||||||||
Pretax Loss | Income Tax (Provision) Benefit | Net Earnings (Loss) Attributable to Controlling Interests | Pretax Loss | Income Tax (Provision) Benefit | Net Earnings (Loss) Attributable to Controlling Interests | |||||||||||||||||||
Interest and banking costs | $ | (46.0 | ) | $ | 12.0 | $ | (34.0 | ) | $ | (34.4 | ) | $ | 8.9 | $ | (25.5 | ) | ||||||||
Clean energy related (1) | (36.6 | ) | 44.8 | 8.2 | (44.8 | ) | 59.2 | 14.4 | ||||||||||||||||
Acquisition costs | (7.8 | ) | 1.3 | (6.5 | ) | (3.0 | ) | 0.4 | (2.6 | ) | ||||||||||||||
Corporate (including impact of U.S. tax reform) | (13.7 | ) | 7.7 | (6.0 | ) | (15.5 | ) | 1.1 | (14.4 | ) | ||||||||||||||
Adjusted second quarter | $ | (104.1 | ) | $ | 65.8 | $ | (38.3 | ) | $ | (97.7 | ) | $ | 69.6 | $ | (28.1 | ) | ||||||||
- 58 -
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Net Earnings |
|
|
|
|
|
|
|
|
|
| Net Earnings |
| ||
|
|
|
|
|
| Income |
|
| (Loss) |
|
|
|
|
|
| Income |
|
| (Loss) |
| ||||
|
|
|
|
|
| Tax |
|
| Attributable to |
|
|
|
|
|
| Tax |
|
| Attributable to |
| ||||
|
| Pretax |
|
| (Provision) |
|
| Controlling |
|
| Pretax |
|
| (Provision) |
|
| Controlling |
| ||||||
Six-Month Periods Ended June 30, |
| Loss |
|
| Benefit |
|
| Interests |
|
| Loss |
|
| Benefit |
|
| Interests |
| ||||||
Interest and banking costs |
| $ | (103.3 | ) |
| $ | 25.9 |
|
| $ | (77.4 | ) |
| $ | (87.1 | ) |
| $ | 22.7 |
|
| $ | (64.4 | ) |
Clean energy related (1) |
|
| (46.8 | ) |
|
| 104.3 |
|
|
| 57.5 |
|
|
| (90.1 | ) |
|
| 159.8 |
|
|
| 69.7 |
|
Acquisition costs |
|
| (4.1 | ) |
|
| 0.4 |
|
|
| (3.7 | ) |
|
| (11.7 | ) |
|
| 1.9 |
|
|
| (9.8 | ) |
Corporate (2) (3) |
|
| (30.5 | ) |
|
| 25.7 |
|
|
| (4.8 | ) |
|
| (35.5 | ) |
|
| 19.9 |
|
|
| (15.6 | ) |
Reported six-month period |
|
| (184.7 | ) |
|
| 156.3 |
|
|
| (28.4 | ) |
|
| (224.4 | ) |
|
| 204.3 |
|
|
| (20.1 | ) |
Effective income tax rate impact (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.0 | ) |
|
| (2.0 | ) |
Interest and banking costs |
|
| (103.3 | ) |
|
| 25.9 |
|
|
| (77.4 | ) |
|
| (87.1 | ) |
|
| 22.7 |
|
|
| (64.4 | ) |
Clean energy related (1) |
|
| (46.8 | ) |
|
| 104.3 |
|
|
| 57.5 |
|
|
| (90.1 | ) |
|
| 159.8 |
|
|
| 69.7 |
|
Acquisition costs |
|
| (4.1 | ) |
|
| 0.4 |
|
|
| (3.7 | ) |
|
| (11.7 | ) |
|
| 1.9 |
|
|
| (9.8 | ) |
Corporate (2) (3) |
|
| (30.5 | ) |
|
| 25.7 |
|
|
| (4.8 | ) |
|
| (35.5 | ) |
|
| 17.9 |
|
|
| (17.6 | ) |
Adjusted six-month period |
| $ | (184.7 | ) |
| $ | 156.3 |
|
| $ | (28.4 | ) |
| $ | (224.4 | ) |
| $ | 202.3 |
|
| $ | (22.1 | ) |
Six-Month Periods Ended June 30, | 2019 | 2018 | ||||||||||||||||||||||
Pretax Loss | Income Tax (Provision) Benefit | Net Earnings (Loss) Attributable to Controlling Interests | Pretax Loss | Income Tax (Provision) Benefit | Net Earnings (Loss) Attributable to Controlling Interests | |||||||||||||||||||
Interest and banking costs | $ | (87.1 | ) | $ | 22.7 | $ | (64.4 | ) | $ | (66.9 | ) | $ | 17.4 | $ | (49.5 | ) | ||||||||
Clean energy related (1) | (90.1 | ) | 159.8 | 69.7 | (101.7 | ) | 168.6 | 66.9 | ||||||||||||||||
Acquisition costs | (11.7 | ) | 1.9 | (9.8 | ) | (5.0 | ) | 0.7 | (4.3 | ) | ||||||||||||||
Corporate (including impact of U.S. tax reform) | (35.6 | ) | 20.0 | (15.6 | ) | (29.6 | ) | 12.0 | (17.6 | ) | ||||||||||||||
Adjusted second quarter | $ | (224.5 | ) | $ | 204.4 | $ | (20.1 | ) | $ | (203.2 | ) | $ | 198.7 | $ | (4.5 | ) | ||||||||
(1) | Pretax loss for the second quarter six-month periods are presented net of amounts attributable to noncontrolling interests of |
(2) | Corporate includes the impact on Q1 2019 for the decrease in the annual effective income tax rate used to compute the provision for income taxes for full year 2019 that occurred in Q4 2019. |
(3) | Corporate pretax loss includes a net unrealized foreign exchange remeasurement loss of $5.1 million in Q2 2020 and a gain of $1.7 million in Q2 2019. Corporate pretax loss includes a net unrealized foreign exchange remeasurement gain of $7.3 million in the six months 2020 and a loss of $0.4 million in in the six months 2019. |
Interest and banking costs -
Clean energy related
Acquisition costs -
Corporate -
Clean energy investments -
- 6159 -
The following table provides a summary of our clean coal plant investments as of June 30, 20192020 (in millions):
|
| Our Portion of Estimated |
| |||||
|
| Low Range |
|
| High Range |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
| Adjusted |
|
| Adjusted |
| ||
|
| After-tax |
|
| After-tax |
| ||
|
| Earnings |
|
| Earnings |
| ||
Investments that own 2009 Era Plants |
|
|
|
|
|
|
|
|
12 2009 Under long-term production contracts during 2019 and prior periods |
| $ | 18.0 |
|
| $ | 13.4 |
|
Investments that own 2011 Era Plants |
|
|
|
|
|
|
|
|
17 2011 Under long-term production contracts |
|
| 70.5 |
|
|
| 59.9 |
|
4 2011 Restarted under long-term contracts Q4 2019 and Q3 2020 |
|
| 6.7 |
|
|
| 1.5 |
|
Chem-Mod royalty income, net of noncontrolling interests |
| 23.4 |
|
|
| 22.9 |
|
Our Tax-Effected Book Value At June 30, 2019 | Our Portion of Estimated | ||||||||||||||||
Low Range 2019 After-tax Earnings | High Range 2019 After-tax Earnings | ||||||||||||||||
Investments that own 2009 Era Plants | |||||||||||||||||
12 | Under long-term production contracts | $ | 1.9 | $ | 13.0 | $ | 15.0 | ||||||||||
2 | Not currently active in negotiations for long-term production contracts | — | Not Estimable | Not Estimable | |||||||||||||
Investments that own 2011 Era Plants | |||||||||||||||||
19 | Under long-term production contracts | 26.8 | 58.0 | 67.0 | |||||||||||||
1 | In early stages of negotiations for long-term production contract | 0.1 | Not Estimable | Not Estimable | |||||||||||||
Chem-Mod royalty income, net of noncontrolling interests | 3.0 | 24.0 | 28.0 |
The estimated earnings information in the table reflects management’s current best estimate of the 20192020 low and high ranges of
Our investment in
Financial Condition and Liquidity
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. The insurance brokerage industry is not capital intensive. Historically, our capital requirements have primarily included dividend payments on our common stock, repurchases of our common stock, funding of our investments, acquisitions of brokerage and risk management operations and capital expenditures.
In light of the economic uncertainty caused by COVID-19, we are preserving liquidity by reducing capital expenditures for the remainder of the year and making working capital process changes such as moving more cash into the U.S. from our international operations, pursuing collections on receivables from our customers and partners and renegotiating longer payment terms on vendor payables. We have also slowed down our acquisition program. We believe we have sufficient liquidity on hand to continue business operations during this volatile period. If we experience a significant reduction in revenue, we have additional alternatives to maintain liquidity, including issuing common stock to fund future acquisitions.
Cash Flows From Operating Activities
Historically, we have depended on our ability to generate positive cash flows from operations to meet a substantial portion of our cash requirements. We believe that our cash flows from operations and borrowings under our Credit Agreement (defined below) will provide us with adequate resources to meet our liquidity needs in the foreseeable future. To fund acquisitions made during 20182019 and for the
Cash provided by operating activities was $419.6$802.2 million and $313.3$419.6 million for the
- 60 -
adjustment of $4.1 million that will reverse in the year that the payroll taxes are paid. We also deferred $18.0 million of estimated federal income tax payments from second quarter 2020 to third quarter 2020.
Cash provided by operating activities for the
|
| Six-month period ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net change in premiums and fees receivable |
| $ | (1,569.1 | ) |
| $ | (1,109.0 | ) |
Net change in premiums payable to underwriting enterprises |
|
| 1,723.6 |
|
|
| 1,079.2 |
|
Net cash provided (used) by the above |
| $ | 154.5 |
|
| $ | (29.8 | ) |
Six-month period endedJune 30, | ||||||||
2019 | 2018 | |||||||
Net change in premiums and fees receivable | $ | (1,109.0 | ) | $ | (1,097.3 | ) | ||
Net change in premiums payable to underwriting enterprises | 1,079.2 | 1,106.9 | ||||||
Net cash (used) provided by the above | $ | (29.8 | ) | $ | 9.6 | |||
Our cash flows from operating activities are primarily derived from our earnings from operations, as adjusted for our
When assessing our overall liquidity, we believe that the focus should be on net earnings as reported in our consolidated statement of earnings, adjusted for
Our policy for funding our defined benefit pension plan is to contribute amounts at least sufficient to meet the minimum funding requirements under the IRC. The Employee Retirement Security Act of 1974, as amended (which we refer to as ERISA), could impose a minimum funding requirement for our plan. We are not required to make any minimum contributions to the plan for the 20192020 plan year, nor were we required to make any minimum contributions to the plan for the 20182019 plan year. Funding requirements are based on the plan being frozen and the aggregate amount of our historical funding. The plan’s actuaries determine contribution rates based on our funding practices and requirements. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. In addition, amounts funded in the future, to the extent not due under regulatory requirements, may be affected by alternative uses of our cash flows, including dividends, acquisitions and common stock repurchases. We did not make any discretionary contributions to the plan during the
Cash Flows From Investing Activities
Capital Expenditures -
- 61 -
Acquisitions -
We have significantly reduced our acquisition activity because of the economic uncertainty brought on by COVID-19, and if liquidity concerns arise, we may be more likely to issue common stock to fund acquisitions.
Dispositions
Clean Energy Investments
Cash Flows From Financing Activities
On June 7, 2019, we entered into an amendment and restatement to our multicurrency credit agreement dated April 8, 2016 (which we refer to as the Credit Agreement) with a group of fifteen financial institutions. The amendment and restatement, among other things, extended the expiration date of the Credit Agreement from April 8, 2021 to June 7, 2024 and increased the revolving credit commitment from $800.0 million to $1,200.0 million, of which $75.0 million may be used for issuances of standby or commercial letters of credit and up to $75.0 million may be used for the making of swing loans (as defined in the Credit Agreement). We may from time to time request, subject to certain conditions, an increase in the revolving credit commitment under the Credit Agreement up to a maximum aggregate revolving credit commitment of $1,700.0 million. At June 30, 2019, $325.02020, $100.0 million of borrowings were outstanding under the Credit Agreement. Due to the outstanding loans and letters of credit, $858.1$1,082.6 million remained available for potential borrowings under the Credit Agreement at June 30, 2019.
We use the Credit Agreement to post letters of credit and to borrow funds to supplement our operating cash flows from time to time. In the
- 62 -
On August 15, 2019, we entered into an amendment to our revolving loan facility (which we refer to as the Premium Financing Debt Facility), that provides funding for the three Australian (AU) and New Zealand (NZ) premium finance subsidiaries. The amendment, among other things, extended the expiration date of the Premium Financing Debt Facility from May 18, 2020 to July 18, 2021, increased the Interbank fee rates and increased the total commitment for the AU$ denominated tranche from AU$185.0 million to AU$245.0 million. The Premium Financing Debt Facility is comprised of: (i) Facility B, which is separated into AU$160.0205.0 million and NZ$25.0 million tranches, (ii) Facility C, an AU$25.040.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency overdraft tranche. There was a three month increase in the AU$160.0 million tranche to AU$190.0 million, which expired on January 31, 2019. The Premium Financing Debt Facility expires May 18, 2020. At June 30, 2019, $137.32020, AU$135.0 million and NZ$0.0 million of borrowings were outstanding under Facility B, AU$8.9 million of borrowings outstanding under Facility C and NZ$6.8 million of borrowings were outstanding under Facility D, which in aggregate amount to US$103.6 million of borrowings outstanding under the Premium Financing Debt Facility.
On June 13, 2018,January 30, 2020, we closed and funded offerings of $500.0 million aggregate principal amount of private placement senior unsecured notes (both fixed and floating rate), which was used in part to fund the $50.0 million June 24, 2018 Series K notes maturity. The weighted average maturity of the $450.0 million of senior fixed rate notes is 13.6 years and their weighted average interest rate is 4.42% after giving effect to net hedging gains. The interest rate on the $50.0 million of floating rate notes would be 3.68% using three-month LIBOR on July 23, 2019. In 2017 and 2018, we entered into
The notes consist of the following tranches:
• | $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 |
We used the proceeds ofplan to use these offerings to repay certain existing indebtedness and fund acquisitions.
At June 30, 2019,2020, we had $3,923.0$4,448.0 million of
Consistent with past practice, as of June 30, 2019,2020, we had entered into
The note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility contain various financial covenants that require us to maintain specified financial ratios. We were in compliance with these covenants at June 30, 2019.
Dividends
In the
Shelf Registration Statement -
- 63 -
from time to time in connection with the future acquisitions of other businesses, assets or securities. At June 30, 2019, 8.62020, 5.4 million shares remained available for issuance under this registration statement.
Common Stock Repurchases
Common Stock Issuances
We have a qualified contributory savings and thrift (401(k)) plan covering the majority of our domestic employees. For eligible employees who have met the plan’s age and service requirements to receive matching contributions, we match 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Employees must be employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and can be funded in cash or company stock. We expensed (net of plan forfeitures) $30.3 million and $29.3 million related to the plan in the six-month periods ended June 30, 2020 and 2019, respectively. Our Board of Directors has authorized the use of common stock to fund our 2020 employer matching contributions to the 401(k) plan, which we plan to do in February 2021.
Outlook -
Contractual Obligations and Commitments
In connection with our investing and operating activities, we have entered into certain contractual obligations and commitments. See Note 1514 to the June 30, 20192020 unaudited consolidated financial statements for a discussion of these obligations and commitments. In addition, see Note 1617 to the consolidated financial statements included in our Annual Report on Form
Off-Balance
See Note 1514 to the June 30, 20192020 unaudited consolidated financial statements for a discussion of our
Critical Accounting Policies
There have been no changes in our critical accounting policies, which include revenue recognition, income taxes and intangible assets/earnout obligations, as discussed in our Annual Report on Form
Business Combinations and Dispositions
See Note 3 to the unaudited consolidated financial statements for a discussion of our business combinations during the
- 64 -
net earnings per share related to the divestiture of a travel insurance brokerage and four other smaller brokerage operations. We did not have any material dispositions during the2018.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to various market risks in our day to day operations. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest and foreign currency exchange rates and equity prices. The following analyses present the hypothetical loss in fair value of the financial instruments held by us at June 30, 20192020 that are sensitive to changes in interest rates. The range of changes in interest rates used in the analyses reflects our view of changes that are reasonably possible over a
Our invested assets are primarily held as cash and cash equivalents, which are subject to various market risk exposures such as interest rate risk. The fair value of our portfolio of cash and cash equivalents at June 30, 20192020 approximated its carrying value due to its short-term duration. We estimated market risk as the potential decrease in fair value resulting from a hypothetical
At June 30, 2019,2020, we had $3,923.0$4,448.0 million of borrowings outstanding under our various note purchase agreements. The aggregate estimated fair value of these borrowings at June 30, 20192020 was $4,201.2$4,914.4 million due to their
We estimated market risk as the potential impact on the value of the debt recorded in our consolidated balance sheet resulting frombased on a hypothetical
At June 30, 2019,2020, we had $325.0$100.0 million of borrowings outstanding under our Credit Agreement. The fair value of these borrowings approximate their carrying value due to their short-term duration and variable interest rates associated with these debt obligations. Market risk is estimated as the potential increase in fair value resulting from a hypothetical
At June 30, 2019,2020, we had $137.3$103.6 million of borrowings outstanding under our Premium Financing Debt Facility. The fair value of these borrowings approximate their carrying value due to their short-term duration and variable interest rates associated with these debt obligations. Market risk is estimated as the potential increase in fair value resulting from a hypothetical
- 65 -
We are subject to foreign currency exchange rate risk primarily from one of our larger U.K. based brokerage subsidiaries that incurs expenses denominated primarily in British pounds while receiving a substantial portion of its revenues in U.S. dollars. Please see Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding potential foreign exchange rate risks arising from Brexit. In addition, we are subject to foreign currency exchange rate risk from our Australian, Canadian, Indian, Jamaican, New Zealand, Norwegian, Singaporean and various Caribbean and SouthLatin American operations because we transact business in their local denominated currencies. Foreign currency gains (losses) related to this market risk are recorded in earnings before income taxes as transactions occur. Assuming a hypothetical adverse change of 10% in the average foreign currency exchange rate for the20192020 (a weakening of the U.S. dollar), earnings before income taxes would have increased by approximately $8.9$16.7 million. Assuming a hypothetical favorable change of 10% in the average foreign currency exchange rate for the20192020 (a strengthening of the U.S. dollar), earnings before income taxes would have decreased by approximately $8.4$15.4 million. We are also subject to foreign currency exchange rate risk associated with the translation of local currencies of our foreign subsidiaries into U.S. dollars. We manage the balance sheets of our foreign subsidiaries, where practical, such that foreign liabilities are matched with equal foreign assets, maintaining a “balanced book” which minimizes the effects of currency fluctuations. However, our consolidated financial position is exposed to foreign currency exchange risk related to intra-entity loans between our U.S. based subsidiaries and our
Historically, we have not entered into derivatives or other similar financial instruments for trading or speculative purposes. However, with respect to managing foreign currency exchange rate risk in India, Norway and the U.K., we have periodically purchased financial instruments when market opportunities arose to minimize our exposure to this risk. During the
Item 4. | Controls and Procedures |
We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule
During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errorerrors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within theour Company have been detected.
- 66 -
Part II - Other Information
Item 1. | Legal Proceedings |
Please see the information set forth in Note 1514 to our unaudited consolidated financial statements, included herein, under “Litigation, Regulatory and Taxation Matters.”
Item 1A. Risk Factors
The risk factors described under the heading “Risk Factors” in our Annual Report on Form
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
The following table shows the purchases of our common stock made by or on behalf of us or any “affiliated purchaser” (as such term is defined in Rule
|
|
|
|
|
|
|
|
|
| Total Number of |
|
| Maximum Number |
| ||
|
| Total |
|
|
|
|
|
| Shares Purchased |
|
| of Shares that May |
| |||
|
| Number of |
|
| Average |
|
| as Part of Publicly |
|
| Yet be Purchased |
| ||||
|
| Shares |
|
| Price Paid |
|
| Announced Plans |
|
| Under the Plans |
| ||||
Period |
| Purchased (1) |
|
| per Share (2) |
|
| or Programs (3) |
|
| or Programs (3) |
| ||||
April 1 through April 30, 2020 |
|
| 3,588 |
|
| $ | 80.24 |
|
|
| — |
|
|
| 7,287,019 |
|
May 1 through May 31, 2020 |
|
| 1,203 |
|
|
| 85.08 |
|
|
| — |
|
|
| 7,287,019 |
|
June 1 through June 30, 2020 |
|
| 22,234 |
|
|
| 97.74 |
|
|
| — |
|
|
| 7,287,019 |
|
Total |
|
| 27,025 |
|
| $ | 94.85 |
|
|
| — |
|
|
|
|
|
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) | ||||||||||||
April 1 through April 30, 2019 | 5,359 | $ | 82.32 | — | 7,287,019 | |||||||||||
May 1 through May 31, 2019 | 3,109 | 83.94 | — | 7,287,019 | ||||||||||||
June 1 through June 30, 2019 | 105,802 | 87.26 | — | 7,287,019 | ||||||||||||
Total | 114,270 | $ | 86.94 | — |
(1) | Amounts in this column include shares of our common stock purchased by the trustees of trusts established under our Deferred Equity Participation Plan, including sub-plans 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. Undersub-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 10 to the June 30, 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 rabbi 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 second quarter of non-qualified deferred compensation plan that allows certain highly compensated employees to defer compensation, including company match amounts, on abefore-tax basis or |
- 67 -
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. |
- 68 -
Item 6. | Exhibits |
Filed with this Form 10‑Q
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 Quarterly Report on Form 10-Q for the quarter ended June 30, | |||||
- 7169 -
Signature
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Arthur J. Gallagher & Co. | ||||||
Date: July | By: | /s/ Douglas K. Howell | ||||
Douglas K. Howell | ||||||
Vice President and Chief Financial Officer | ||||||
(principal financial officer and duly authorized officer) |
- 7270 -