Arthur J. Gallagher & Co. Announces Fourth Quarter And Full Year 2012 Financial Results

ITASCA, Ill., Jan. 29, 2013 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter and year ended December 31, 2012.  A printer-friendly format and supplemental quarterly data is available at www.ajg.com.  For a description of the non-GAAP measures used to report financial results in this earnings release, please see "Information Regarding Non-GAAP Measures" beginning on page 7.

"We had a strong finish to 2012 and we are well positioned for continued success in 2013," said J. Patrick Gallagher, Jr., Chairman, President and CEO.  "In the fourth quarter, our combined Brokerage and Risk Management segments posted 14% growth in adjusted total revenues, 4.6% organic growth in base commission and fee revenues, 17% growth in adjusted EBITDAC and adjusted EBITDAC margins improved by 50 basis points."

  • Our Brokerage segment had an outstanding quarter.  Adjusted total revenues were up 18%, base organic commission and fee revenues grew 5.2%, adjusted EBITDAC was up 20% and adjusted EBITDAC margins were up 40 basis points.  We also completed another 21 acquisitions with annualized revenues of $76 million, which pushed total acquired annualized revenues for all of 2012 to over $230 million.
  • Our Risk Management segment had an excellent quarter.  Excluding the New Zealand earthquake claim-settling unit, which has wrapped up operations, adjusted total revenues were up 5%, base organic fees were up 2.9%, adjusted EBITDAC was up 6%, adjusted EBITDAC margins improved by 30 basis points and we hit our targeted adjusted EBITDAC margin of 16% while making our planned client-centric investments.  
  • During the fourth quarter, we took actions to contract our global workforce by approximately 3%, or 400 middle-office and back-office positions.  These actions reflect our investments in productivity initiatives and improved technology utilization.  Pretax charges total approximately $12.3 million and we expect related future annual workforce savings of approximately $35.0 million.  Anticipated to mostly offset these future savings will be increased medical costs, reduced discount rate on our frozen pension plan, salary increases, increased performance-based compensation and increased long-term incentive compensation.
  • We made tremendous progress in rolling-out our clean-energy investments during 2012 and now have most of our plants in various stages of ramping up production.  Our clean energy investments earned nearly $33 million in 2012 and could be more than double that in 2013.  These additional earnings will be used to continue our M&A strategy in our core brokerage and risk management operations.

"As we look towards 2013, we see a rate environment that is still showing signs of firming in many lines, clients that are finding ways to grow their businesses even in these uncertain times, a strong M&A pipeline, and an operating environment where we can control our costs and improve our productivity.  Gallagher's sales and high-quality service culture is thriving and we are in an excellent position for success in 2013."

The following provides non-GAAP information that management believes is helpful when comparing 2012 revenues, EBITDAC and diluted net earnings (loss) per share with the same periods in 2011: 

(1 of 12)

Quarter Ended December 31










Diluted Net Earnings 





Revenues



EBITDAC



(Loss) Per Share

Segment


4th Q 12

4th Q 11

Chg


4th Q 12

4th Q 11

Chg


4th Q 12

4th Q 11



















(in millions)



(in millions)



















Brokerage, as adjusted


$    486.6

$  413.9

18%


$  104.2

$    86.7

20%


$    0.35

$    0.32


Gains on book sales 


2.5

1.1



2.5

1.1



0.01

0.01


Heath Lambert integration


-

-



(7.0)

(7.5)



(0.04)

(0.04)


Workforce & lease termination


-

-



(9.7)

(0.4)



(0.05)

(0.01)


Acquisition related adjustments


-

-



-

(0.6)



-

(0.01)


Levelized foreign currency translation

-

(1.6)



(0.9)

0.3



-

-


Effective income tax rate impact


-

-



-

-



(0.02)

0.01















Brokerage, as reported


489.1

413.4



89.1

79.6



0.25

0.28















Risk Management, as adjusted


143.8

137.4

5%


23.0

21.6

6%


0.09

0.09


New Zealand earthquake claims














administration


1.0

8.3



-

2.5



-

0.02


GAB Robins integration


-

-



-

(1.7)



-

(0.01)


South Australia ramp up costs


-

-



(2.1)

-



(0.01)

-


Workforce & lease termination


-

-



(2.6)

(0.4)



(0.01)

-


Effective income tax rate impact


-

-



-

-



-

0.01















Risk Management, as reported


144.8

145.7



18.3

22.0



0.07

0.11















Total Brokerage & Risk 













Management, as reported


633.9

559.1



107.4

101.6



0.32

0.39















Corporate, as reported


39.3

19.3



(12.0)

(10.1)



(0.05)

(0.04)















Total Company, as reported


$    673.2

$  578.4



$    95.4

$    91.5



$    0.27

$    0.35















Total Brokerage & Risk 













Management, as adjusted


$    630.4

$  551.3

14%


$  127.2

$  108.3

17%


$    0.44

$    0.41

Year Ended December 31










Diluted Net Earnings 





Revenues



EBITDAC



(Loss) Per Share

Segment


Year 12

Year 11

Chg


Year 12

Year 11

Chg


Year 12

Year 11



















(in millions)



(in millions)



















Brokerage, as adjusted


$ 1,823.7

$ 1,549.3

18%


$ 414.7

$ 340.5

22%


$   1.43

$   1.28


Gains on book sales 


3.9

5.5



3.9

5.5



0.02

0.03


Heath Lambert integration 


-

-



(19.3)

(16.0)



(0.10)

(0.08)


Workforce & lease termination


-

-



(14.4)

(2.6)



(0.07)

(0.01)


Acquisition related adjustments


-

-



-

(7.0)



-

0.03


Levelized foreign currency translation

-

1.7



(1.6)

0.4



(0.01)

-















Brokerage, as reported


1,827.6

1,556.5



383.3

320.8



1.27

1.25















Risk Management, as adjusted


563.1

527.0

7%


90.3

81.4

11%


0.36

0.35


New Zealand earthquake claims














administration


8.6

21.8



1.5

6.1



0.01

0.03


GAB Robins integration 


-

-



-

(13.0)



-

(0.06)


South Australia ramp up costs


-

-



(2.1)

-



(0.01)

-


Workforce & lease termination


-

-



(2.7)

(5.6)



(0.01)

(0.03)















Risk Management, as reported


571.7

548.8



87.0

68.9



0.35

0.29















Total Brokerage & Risk 













Management, as reported


2,399.3

2,105.3



470.3

389.7



1.62

1.54















Corporate, as reported


121.0

29.4



(38.2)

(32.1)



(0.03)

(0.26)















Total Company, as reported


$ 2,520.3

$ 2,134.7



$ 432.1

$ 357.6



$   1.59

$   1.28















Total Brokerage & Risk 













Management, as adjusted


$ 2,386.8

$ 2,076.3

15%


$ 505.0

$ 421.9

20%


$   1.79

$   1.63

(2 of 12)

Brokerage Segment Fourth Quarter Highlights - The following tables provide non-GAAP information that management believes is helpful when comparing certain 2012 financial information with the same periods in 2011 (in millions):

Organic Revenues (Non-GAAP)


4th Q 12


4th Q 11


Year 12


Year 11












Base Commissions and Fees









Commissions as reported


$  339.8


$  297.7


$ 1,302.5


$ 1,127.4

Fees as reported


121.8


96.4


403.2


324.1

Less commissions and fees from acquisitions 


(46.4)


-


(200.1)


-

Less disposed of operations


-


(0.9)


-


(8.1)

Levelized foreign currency translation


-


1.5


-


(1.5)












Organic base commissions and fees


$  415.2


$  394.7


$ 1,505.6


$ 1,441.9












Organic change in base commissions and fees


5.2%


4.9%


4.4%


2.8%












Supplemental Commissions









Supplemental commissions as reported


$   17.6


$   14.0


$      67.9


$      56.0

Less supplemental commissions from acquisitions


(2.4)


-


(10.7)


-

Less disposed of operations


-


(0.1)


-


(0.6)












Organic supplemental commissions


$   15.2


$   13.9


$      57.2


$      55.4












Organic change in supplemental commissions


9.4%


12.4%


3.3%


12.8%












Contingent Commissions









Contingent commissions as reported


$     5.9


$     3.5


$      42.9


$      38.1

Less contingent commissions from acquisitions


(0.5)


-


(5.2)


-












Organic contingent commissions


$     5.4


$     3.5


$      37.7


$      38.1












Organic change in contingent commissions


54.3%


3.2%


-1.1%


-6.3%

Adjusted Compensation Expense and Ratio (non-GAAP)

4th Q 12


4th Q 11


Year 12


Year 11












Reported amounts


$  316.9


$  267.3


$ 1,131.6


$    968.4












Heath Lambert integration


(6.1)


(4.7)


(13.2)


(9.2)

Earnout related compensation charge


-


(0.6)


-


(7.0)

Workforce and lease termination related charges


(9.0)


(0.3)


(13.7)


(2.5)

Levelized foreign currency translation


-


1.5


-


(0.8)












Adjusted amounts


$  301.8


$  263.2


$ 1,104.7


$    948.9












Adjusted ratios using adjusted revenues on page 2

*

62.0%


63.6%


60.6%


61.3%



Adjusted fourth quarter compensation ratio was 1.6 pts lower than the same period in 2011.  This ratio was primarily impacted by reductions in incentive compensation of 1.3 pts and 0.4 pts due to headcount control.










Adjusted Operating Expense and Ratio (non-GAAP)


4th Q 12


4th Q 11


Year 12


Year 11












Reported amounts


$   83.1


$   66.5


$   312.7


$   267.3












Heath Lambert integration


(0.9)


(2.8)


(6.1)


(6.8)

Workforce and lease termination related charges


(0.7)


(0.1)


(0.7)


(0.1)

Levelized foreign currency translation


(0.9)


0.4


(1.6)


(0.5)












Adjusted amounts


$   80.6


$   64.0


$   304.3


$   259.9












Adjusted ratios using adjusted revenues on page 2

*

16.6%


15.5%


16.7%


16.8%



Adjusted fourth quarter operating expense ratio was 1.1 pts higher than the same period in 2011.  This ratio was primarily impacted by increased travel and meeting expenses of 0.5 pts and increased office expenses of 0.3 pts.

(3 of 12)