ITASCA, Ill., Feb. 3, 2015 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter and year ended December 31, 2014.  A printer-friendly format and supplemental quarterly data are available at www.ajg.com.  For a description of the non-GAAP measures used to report financial results in this earnings release and their most comparable GAAP measures, please see "Information Regarding Non-GAAP Measures" beginning on page 8. 

"We had an excellent quarter to finish an outstanding year, and we are well positioned for 2015," said J. Patrick Gallagher, Jr., Chairman, President and CEO.  "In the fourth quarter, our combined Brokerage and Risk Management segments posted 31% growth in adjusted revenues, of which 5.6% was total organic growth.  Our adjusted EBITDAC increased 45% and adjusted net earnings per share grew 21%.  We also improved our adjusted EBITDAC margins 218 basis points compared to the fourth quarter of 2013.  For the year, our combined Brokerage and Risk Management segments posted 30% growth in adjusted revenues, of which 5.5% was total organic growth, adjusted EBITDAC increased 39%, adjusted net earnings per share grew 21% and we improved our adjusted EBITDAC margins 163 basis points."

• Our Brokerage segment had a terrific quarter.  Adjusted revenues increased 36%, of which 3.8% was total organic growth, adjusted EBITDAC increased 47%, and we improved our adjusted EBITDAC margin 186 basis points.  For the year, adjusted total revenues increased 30%, of which 4.3% was organic, adjusted EBITDAC increased 39% and we improved our adjusted EBITDAC margin 148 basis points.  Additionally, our acquisition program finished strong and our integration efforts are on track.  During the fourth quarter, we completed another 15 acquisitions with annualized revenues of nearly $68 million.  For the full year, we completed 60 acquisitions with annualized revenues of $761 million.  Excluding the three large acquisitions, we added 57 firms with an average of approximately $4 million of revenues demonstrating that our bolt-on M&A strategy is flourishing.
• Our Risk Management segment had an outstanding quarter.  Adjusted total organic revenues increased 12.6% and we improved our adjusted EBITDAC margin 225 basis points.  For the year, adjusted total revenues increased 10% and we surpassed our 16% margin target by approximately 50 basis points.
• Our clean energy investments had an excellent quarter and full year - up 44% compared to the fourth quarter of 2013 and up 56% for the full year.
• We are comfortable with the current rate environment and we continue to see indications that our customers are anticipating growth in 2015 and beyond - this is a healthy environment for brokers.

"Finally, our culture is alive and thriving around the globe.  In 2014, we added thousands of associates to the Gallagher family of professionals.  They bring similar cultures and share our dedication to providing the highest quality customer service.  Together, our teams are energized by our growth and excited about the vast array of resources, capabilities and risk management solutions we offer in the marketplace."

The following tables on pages 2 and 3 provide information that management believes is helpful when comparing 2014 revenues, EBITDAC and diluted net earnings per share with the same periods in 2013.  In addition, these tables provide reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share, and the reconciliation for EBITDAC is provided on page 10.

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Brokerage Segment Fourth Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2014 financial information with the same periods in 2013 (in millions):

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Brokerage Segment Fourth Quarter Highlights (continued)

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Brokerage Segment Fourth Quarter Highlights (continued)

The following is a summary of Brokerage segment acquisition activity for 2014 and 2013:

Risk Management Segment Fourth Quarter Highlights - The following tables provide information that management believes is helpful when comparing certain 2014 financial information with the same periods in 2013 (in millions):

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Risk Management Segment Fourth Quarter Highlights (continued)

Corporate Segment Fourth Quarter Highlights - The following table provides information that management believes is helpful when comparing 2014 operating results for the Corporate Segment with the same periods in 2013 (in millions):

Debt, interest and banking - At December 31, 2014, Gallagher had $2,125.0 million of borrowings from private placements and $140.0 million of short-term borrowings under its line of credit facility. On June 16, 2014 we entered into a revolving loan facility that provides funding for the three acquired Australian and New Zealand premium finance subsidiaries.  This facility comprises four tranches which total approximately $180.0 million, of which $127.9 million was outstanding at December 31, 2014.  These premium funding related borrowings are fully collateralized by the underlying premium finance related receivables and as such is excluded from our debt covenant computations.

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Corporate Segment Fourth Quarter Highlights (continued)

At-the-market equity program - Gallagher has an at-the-market equity program under which up to $166.3 million of its common stock remaining in the program may be sold through Morgan Stanley & Co. LLC as sales agent.  During fourth quarter 2014, Gallagher sold 609,886 shares of its common stock under this program at a weighted average price of $48.11 per share, resulting in net proceeds to Gallagher, after sales commissions, of approximately $29.0 million.

Clean energy investments - The following provides certain information related to Gallagher's investments in limited liability companies that own 34 clean coal production plants, which produce refined coal using proprietary technologies owned by Chem-Mod.  We believe that the production and sale of refined coal at these plants qualifies to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty 2011 Era Plants.  The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated.

Gallagher's investment in Chem-Mod generates royalty income from clean energy plants owned by those limited liability companies in which it invests as well as refined coal production plants owned by other unrelated parties.  Based on current production estimates provided by licensees, Chem-Mod could generate for Gallagher an average of approximately $4.0 million of net after‑tax earnings per quarter.

All estimates set forth above regarding the potential future earnings impact of our clean energy investments are subject to significant risks.  Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our prospectus supplement filed on April 11, 2014, for a more detailed discussion of these and other factors that could impact the information above.

Acquisition costs - Consists mostly of external professional fees and other due diligence costs related to acquisitions.

Corporate - Consists of overhead allocations mostly related to corporate staff compensation.  Gallagher incurred a $12.5 million after tax non-cash settlement charge in the fourth quarter of 2014 related to a retirement plan de-risking strategy that is more fully discussed in Note 3 on page 16 of the supplemental quarterly data that is available at www.ajg.com.

Income Taxes

Gallagher allocates the provision for income taxes to its Brokerage and Risk Management segments using the local country statutory rates.  Gallagher historically has reported, and anticipates reporting for the foreseeable future, an effective tax rate of approximately 35% to 37% in both its Brokerage and Risk Management segments.  Gallagher's consolidated effective tax rate for the quarter ended December 31, 2014 and 2013 was (95.8)% and (21.7)%, respectively.  Gallagher's tax rate for the quarter ended December 31, 2014 was lower than the statutory rate and was lower than 2013 due to the amount of IRC Section 45 tax credits earned in 2014 compared to 2013.

Foreign Currency

During the fourth quarter of 2014 the US Dollar strengthened significantly verses other global currencies.  The impact of the exchange rate differences between comparative periods in 2013 have been reflected in the tables throughout this earnings release.  Had the US Dollar remained at levels seen in the third quarter of 2014, Gallagher would have reported an additional $0.01 of net earnings per share in the fourth quarter of 2014 and for full year 2014 in the Brokerage segment.  The foreign currency impact to the Risk Management segment was insignificant.

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Webcast Conference Call

Gallagher will host a webcast conference call on Wednesday, February 4, 2015 at 9:00 a.m. ET/8:00 a.m. CT.  To listen to this call, please go to www.ajg.com.  The call will be available for replay at such website for not less than 90 days. 

About Arthur J. Gallagher & Co.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 30 countries and offers client-service capabilities in more than 140 countries around the world through a network of correspondent brokers and consultants.

Cautionary Information

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  When used in this press release, the words "anticipates," "believes," "contemplates," "see," "should," "could," "will," "estimates," "expects," "intends," "plans" and variations thereof and similar expressions, are intended to identify forward-looking statements.  Examples of forward-looking statements include, but are not limited to, statements regarding (i) the amount of, and potential uses for, investment returns generated by Gallagher's clean energy investments; (ii) our corporate income tax rate; (iii) anticipated future results or performance of any segment or the Company as a whole; (iv) the premium rate environment; (v) the future margin impact of recent acquisitions; (vi) future debt to earnings ratios of the company; and (vii) the economic environment.

Gallagher's actual results may differ materially from those contemplated by the forward-looking statements.  Readers are therefore cautioned against relying on any of the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following:

• Risks and uncertainties related to Gallagher's clean energy investments including uncertainties related to political and regulatory risks, including potential actions by Congress or challenges by the IRS eliminating or reducing the availability of tax credits under IRC Section 45 retroactively and/or going forward; the ability to maintain and find co-investors; the potential for divergent business objectives by co-investors and other stakeholders; plant operational risks, including supply-chain risks; utilities' future use of, or demand for, coal; the market price of coal; the costs of moving a clean coal plant; intellectual property litigation risks; and environmental risks - all could impact (i) and (ii) above; and
• Changes in worldwide and national economic conditions, changes in premium rates and in insurance markets generally and changes in the insurance brokerage industry's competitive landscape - all could impact (iii) - (vii) above.

Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its prospectus supplement filed on April 11, 2014, for a more detailed discussion of these and other factors that could impact its forward-looking statements.  Any forward-looking statement made by Gallagher in this press release speaks only as of the date on which it is made.  Except as required by applicable law, Gallagher does not undertake to update the information included herein or the corresponding earnings release posted on Gallagher's website.

Information Regarding Non-GAAP Measures

In addition to reporting financial results in accordance with GAAP, this press release provides information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments, adjusted revenues, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue measures for each operating segment.  These measures are not in accordance with, or an alternative to, the GAAP information provided in this press release.  Gallagher's management believes that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to Gallagher's results of operations and financial condition.  Gallagher's industry peers may provide similar supplemental non-GAAP information related to organic revenues and EBITDAC, although they may not use the same or comparable terminology and may not make identical adjustments.  The non-GAAP information provided by Gallagher should be used in addition to, but not as a substitute for, the GAAP information provided.  Certain reclassifications have been made to the prior year amounts reported in this press release in order to conform them to the current year presentation.

Adjusted presentation - Gallagher believes that the adjusted presentations of the current and prior year information, presented in this earnings release, provides stockholders and other interested persons with useful information regarding certain financial metrics of Gallagher that may assist such persons in analyzing Gallagher's operating results as they develop a future earnings outlook for Gallagher.  The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period.

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• Adjusted revenues and expenses - Gallagher defines these measures as revenues, compensation expense and operating expense, respectively, each adjusted to exclude net gains realized from sales of books of business, acquisition integration costs, claim portfolio transfer and South Australia ramp up fees/costs, New South Wales client run-off costs, workforce related charges, lease termination related charges, acquisition related adjustments and the impact of foreign currency translation, as applicable.  Integration costs include costs related to transactions not expected to occur on an ongoing basis in the future once we fully assimilate the applicable acquisition.  These costs are typically associated with redundant workforce, extra lease space, duplicate services and external costs incurred to assimilate the acquisition with our IT related systems.
• Adjusted ratios - Adjusted compensation expense ratio and adjusted operating expense ratio are defined as adjusted compensation expense and adjusted operating expense, respectively, each divided by adjusted revenues.

Earnings Measures - Gallagher believes that each of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin and diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments, as defined below, provides a meaningful representation of its operating performance.  Gallagher considers EBITDAC and EBITDAC margin as a way to measure financial performance on an ongoing basis.  Adjusted EBITDAC, adjusted EBITDAC margin and diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

• EBITDAC - Gallagher defines this measure as net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables.
• EBITDAC margin - Gallagher defines this measure as EBITDAC divided by total revenues.
• Adjusted EBITDAC - Gallagher defines this measure as EBITDAC adjusted to exclude net gains realized from sales of books of business, acquisition integration costs, workforce related charges, lease termination related charges, claim portfolio transfer and South Australia ramp up fees/costs, New South Wales client run-off costs, acquisition related adjustments and the period-over-period impact of foreign currency translation, as applicable.
• Adjusted EBITDAC margin - Gallagher defines this measure as adjusted EBITDAC divided by total adjusted revenues (defined above).
• Diluted net earnings per share (as adjusted) for the Brokerage and Risk Management segments - Gallagher defines this measure as net earnings adjusted to exclude the after-tax impact of net gains realized from sales of books of business, acquisition integration costs, claim portfolio transfer and South Australia ramp up fees/costs, New South Wales client run-off costs, the impact of foreign currency translation, workforce related charges, lease termination related charges, acquisition related adjustments and effective income tax rate impact divided by diluted weighted average shares outstanding.  The effective income tax rate impact represents the difference in income tax expense for tax amounts derived using the actual effective tax rate compared to tax amounts derived using a normalized effective tax rate.

Organic Revenues - For the Brokerage segment, organic change in base commission and fee revenues excludes the first twelve months of net commission and fee revenues generated from acquisitions accounted for as purchases and the net commission and fee revenues related to operations disposed of in each year presented.  These commissions and fees are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of Gallagher in both the current and prior year.  In addition, change in base commission and fee organic growth excludes the impact of supplemental commission and contingent commission revenues and the period-over-period impact of foreign currency translation.  The amounts excluded with respect to foreign currency translation are calculated by applying current year foreign exchange rates to the same periods in the prior year.  For the Risk Management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions accounted for as purchases and the fee revenues related to operations disposed of in each year presented.  In addition, change in organic growth excludes the impact of South Australia ramp-up fees and the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability or are due to the limited-time nature of these revenue sources.