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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(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, 2020          

or

 

☐

Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                           to                           

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 Golf Road, Rolling Meadows, Illinois 60008

(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 symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $1.00 per share

 

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

☒

 

Accelerated filer

 

☐

 

 

 

 

 

 

 

Non-accelerated filer

 

☐

 

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 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the registrant’s common stock, $1.00 par value, as of June 30, 2020 was approximately 191,469,000.

 

 

 

 

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 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; financial markets; interest rates; foreign exchange rates; matters relating to our operations; income 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, 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 10-K for the fiscal year ended December 31, 2019, as well as Item 1A “Risk Factors” of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and any other reports we file with the SEC in the future.

 

 

 

- 3 -

 

Arthur J. Gallagher & Co.

Index

 

 

 

 

Page No.

Part I.

Financial Information

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

 

 

 

 

Consolidated Statement of Earnings for the Three-month and Six-month Periods Ended June 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Earnings for the Three-month and Six-month Periods Ended June 30, 2020 and 2019

 

6

 

 

 

 

 

 

 

Consolidated Balance Sheet at June 30, 2020 and December 31, 2019

 

7

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows for the Six-month Periods Ended June 30, 2020 and 2019

 

8

 

 

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the Three-month and Six-month Periods Ended June 30, 2020 and 2019

 

9-10

 

 

 

 

 

 

 

Notes to June 30, 2020 Consolidated Financial Statements

 

11-35

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36-65

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

65-66

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

66

 

 

 

 

 

Part II.

Other Information

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

67

 

 

 

 

 

 

Item 1A.

Risk Factors.

 

67

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

67-68

 

 

 

 

 

 

Item 6.

Exhibits

 

69

 

 

 

 

 

 

Signature

 

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

 

 

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

 

 

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

 

 

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

 

 

See notes to consolidated financial statements.

- 8 -

 

Arthur J. Gallagher & Co.

Consolidated Statement of Stockholders’ Equity

(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, 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

 

 

See notes to consolidated financial statements.

- 9 -

 

Arthur J. Gallagher & Co.

Consolidated Statement of Stockholders’ Equity

(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

 

 

See notes to consolidated financial statements.

- 10 -

 

Notes to June 30, 2020 Consolidated Financial Statements (Unaudited)

1.  Summary of Significant Accounting Policies

Terms Used in Notes to Consolidated Financial Statements

ASC - Accounting Standards Codification.

ASU - Accounting Standards Update.

FASB - The Financial Accounting Standards Board.

GAAP - U.S. generally accepted accounting principles.  

IRC - Internal Revenue Code.

IRS - Internal Revenue Service.

Underwriting enterprises - Insurance companies, reinsurance companies and various other forms of risk-taking entities, including intermediaries of 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. We have three reportable 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, not-for-profit, public entities, and, to a lesser extent, individuals, in the areas of insurance placement, risk of loss management, and management of employer sponsored benefit programs.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not-for-profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.  The corporate segment reports the financial information related to our debt and other corporate costs, clean energy investments, external acquisition-related expenses and the impact of foreign currency translation.  Clean energy investments consist of our investments in limited liability companies that own 35 commercial clean coal production facilities producing refined coal using Chem-Mod LLC’s proprietary technologies.  We believe these operations produce refined coal that qualifies for tax credits under IRC Section 45.  

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 for covering 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 49 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, 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 Form 10-K for the year ended December 31, 2019.  In the preparation of our unaudited consolidated financial statements as of June 30, 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, right-of-use assets, investments (including our IRC Section 45 investments), income taxes, revenue recognition, deferred costs, stock-based compensation, claims handling obligations, retirement plans, litigation and contingencies.  We base our estimates on historical experience and various assumptions that we believe to be reasonable based on specific circumstances.  Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

2.  Effect of New Accounting Pronouncements    

Credit Impairment

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.  Under the new guidance an entity is required to measure all credit losses on certain financial instruments, including trade receivables and various off-balance sheet credit exposures, using an expected credit loss model.  This model incorporates past experience, current conditions and reasonable and supportable forecasts affecting collectability of these instruments.  An entity will apply the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.  The guidance was effective January 1, 2020.  We adopted this new guidance effective January 1, 2020 and applied the guidance to measure credit losses on our financial instruments, which included premiums and fees receivable, premium finance advances and reinsurance recoverables. The adoption did not have a material impact on our consolidated financial statements.

Disclosure Framework

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):  Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.  This new guidance modifies various disclosure requirements for fair value measurements, including in certain part those related to Level 3 fair value measurements.  The new guidance was effective January 1, 2020.  Certain portions of the guidance needed to be adopted prospectively while other portions were required to be adopted retrospectively for all periods presented.  

In August 2018, the FASB also issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20):  Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.  This new guidance modifies various disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  The new guidance was effective January 1, 2020, with early adoption permitted.  Retrospective adoption is required.  

We adopted both of the standards effective January 1, 2020. The adoption did not have any impact on our consolidated financial statements.

Intangibles - Goodwill and Other

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  The new guidance eliminates Step 2 of the goodwill impairment test.  Instead, the updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the

- 12 -

 

loss not exceeding the total amount of goodwill allocated to that reporting unit.  The new guidance was effective beginning January 1, 2020.  We adopted this new guidance effective January 1, 2020. The adoption did not have any impact on our consolidated financial statements.

Internal-use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):  Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.  This new accounting guidance requires deferral of certain implementation costs associated with a cloud computing arrangement, or hosting arrangement, thereby aligning deferral of such costs with implementation costs associated with developing internal-use software.  Accounting for the service component of a hosting arrangement remains unchanged.  An entity will defer these implementation costs over the term of the hosting arrangement, including optional renewal periods that are reasonably certain of exercise.  Amounts expensed would be presented through operating expense, rather than depreciation or amortization.  The new guidance was effective January 1, 2020.  An entity may adopt the guidance either prospectively for all cloud computing arrangement implementation costs incurred on or after the effective date, or retrospectively, including comparative periods.  We adopted this new guidance effective January 1, 2020 on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.

3.  Business Combinations

During the six-month period ended June 30, 2020, we acquired substantially all of the net assets of the following firms in exchange for our common stock and/or cash.  These acquisitions have been accounted for using the acquisition method for recording business combinations (in millions, except share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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 two- to three-year period subsequent to the acquisition date, are measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration in the foregoing table.  We will record subsequent changes in these estimated earnout obligations, including the accretion of discount, in our consolidated statement of earnings when incurred.

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 2.5% to 13.8% for our 2020 acquisitions.  We estimated future payments using the earnout formula and performance targets specified in each purchase agreement and the financial 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 were 9.0% for all of our 2020 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 30, 2020 and 2019, we recognized $7.7 million and $5.8 million, respectively, of expense in our consolidated statement of earnings related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.  During the six-month periods ended June 30, 2020 and 2019, we recognized $18.4 million and $11.4 million, respectively, of expense in our consolidated statement of earnings related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. In addition, during the three-month periods ended June 30, 2020 and 2019, we recognized $8.0 million of expense and $2.4 million of income, respectively, related to net adjustments in the estimated fair value of the liability for earnout obligations in connection with revised projections of future performance for 44 and 46 acquisitions, respectively. In addition, during the six-month periods ended June 30, 2020 and 2019, we recognized $91.6 million and $5.1 million of income, respectively, related to net adjustments in the estimated fair value of the liability for earnout obligations in connection with revised projections of future performance for 102 and 68 acquisitions, respectively. The aggregate amount of maximum earnout obligations related to acquisitions was $1,060.7 million as of June 30, 2020, of which $474.0 million was recorded in the consolidated balance sheet as of June 30, 2020, based on the estimated fair value of the expected future payments to be made.  

The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in the six‑month period ended June 30, 2020 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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, non-compete agreements and trade names in the amounts of $190.5 million, $178.4 million, $4.6 million and $14.2 million, respectively, within the brokerage and risk management segment.

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 1.5% to 3.2% and 5.0% to 15.7%, respectively, for our 2019 acquisitions for which valuations were performed in 2020.  We estimate the fair value as the present value of the benefits anticipated from ownership of the subject expiration 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 9.0% to 12.5% for our 2019 acquisitions for which valuations were performed in 2020.  The fair value of non-compete agreements was established using the profit differential method, which is an income approach based on estimated financial projections developed by management for the acquired company using market participant assumptions and various non-compete scenarios.

Expiration lists, non-compete agreements and trade names related to our acquisitions are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names), while goodwill is not subject to amortization.  We use the straight-line method to amortize these intangible

- 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.  Based on the results of impairment reviews during the three month and six-month periods ended June 30, 2020, we wrote off $0.2  million and $46.0 million, respectively, of amortizable assets related to the brokerage and risk management segments.  No such impairments were noted in the three-month and six-month periods ended June 30, 2019.

Of the $178.4 million of expiration lists, $4.6 million of non-compete agreements and $14.2 million of trade names related to our acquisitions made during the six-month period ended June 30, 2020, $3.4 million, $0.1 million and  zero, respectively, is not expected to be deductible for income tax purposes.  Accordingly, we recorded a deferred tax liability of $1.0 million, and a corresponding amount of goodwill, in the six-month period ended June 30, 2020, related to the nondeductible amortizable intangible assets.  

Our consolidated financial statements for the six-month period ended June 30, 2020 include the operations of the entities acquired in the six-month period ended June 30, 2020 from their respective acquisition dates.  The following is a summary of the unaudited pro forma historical results, as if these entities had been acquired at January 1, 2019 (in millions, except per share data):

 

 

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

 

 

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, 2019, nor are they necessarily indicative of future operating results.  Annualized revenues of entities acquired during the six-month period ended June 30, 2020 totaled approximately $138.1 million.  For the six‑month period ended June 30, 2020, total revenues and net earnings recorded in our unaudited consolidated statement of earnings related to our acquisitions made during the six-month period ended June 30, 2020 in the aggregate, were $16.6 million and $2.9 million, respectively.

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

 

 

The unbilled receivables, which are included in premiums and fees receivable in our consolidated balance sheet, primarily relate to our rights to consideration for work completed but not billed at the reporting date.  These are transferred to the receivables when the client is billed.  The deferred contract costs represent the costs we incur to fulfill a new or renewal contract with our clients prior to the effective date of the contract.  These costs are expensed on the contract effective date.  The deferred revenue represents the remaining performance obligations under our contracts.

- 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

 

 

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, 2020, the aggregate amount of the contract price allocated to remaining performance obligations was $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

 

 

Deferred Contract Costs

We capitalize costs incurred to fulfill contracts as deferred contract costs which are included in other current assets in our consolidated balance sheet.  Deferred contract costs were $70.1 million and $98.3 million as of June 30, 2020 and December 31, 2019, respectively.  Capitalized fulfillment costs are amortized on the contract effective date.  The amount of amortization of the deferred contract costs was $208.1 million and $191.9 million for the six-month periods ended June 30, 2020 and 2019, respectively.

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

 

 

- 16 -

 

The premium finance advances and loans represent short-term loans which we make to many of our brokerage related clients and other non‑brokerage clients to finance their premiums paid to underwriting enterprises.  These premium finance advances and loans are primarily generated by three Australian and New Zealand premium finance subsidiaries.  Financing receivables are carried at amortized cost.  Given that these receivables carry a fairly rapid delinquency period of only seven days post payment date, and that contractually the majority of the underlying insurance policies will be cancelled within one month of the payment due date in normal course, there historically has been a minimal risk of not receiving payment, and therefore we do not maintain any significant allowance for losses against this balance.  

6.  Intangible Assets

The carrying amount of goodwill at June 30, 2020 and December 31, 2019 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

 

 

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2020 are as follows (in millions):

 

 

 

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

 

 

- 17 -

 

Major classes of amortizable intangible assets at June 30, 2020 and December 31, 2019 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

 

 

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

 

 

- 18 -

 

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

 

 

- 19 -

 

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

 

 

Anti-dilutive stock-based awards of 1.6 million and 1.3 million shares were outstanding at June 30, 2020 and 2019, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the three‑month periods then ended. Anti-dilutive stock-based awards of 1.0 million and 0.8 million shares were outstanding at June 30, 2020 and 2019, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the six‑month periods then ended.  These stock-based awards were excluded from the computation because the exercise prices on these stock-based awards were greater than the average market price of our common shares during the respective period, and therefore, would be anti-dilutive to earnings per share under the treasury stock method.

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 non-employee directors are eligible to receive awards under the LTIP.  The compensation committee of our board of directors determines the annual number of shares delivered under the LTIP.  The LTIP provides for non-qualified and incentive stock options, stock appreciation rights, restricted stock and restricted stock units, any or all of which may be made contingent upon the achievement of performance criteria.  

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 2.2 million at June 30, 2020.  

The LTIP provides for the grant of stock options, which may be either tax-qualified incentive stock options or non-qualified options and stock appreciation rights.  The compensation committee determines the period for the exercise of a non-qualified stock option, tax-qualified incentive stock option or stock appreciation right, provided that no option can be exercised later than seven years after its date of grant.  The exercise price of a non-qualified stock option or tax-qualified incentive stock option and the base price of a stock appreciation right cannot be less than 100% of the fair market value of a share of our common stock on the date of grant, provided that the base price of a stock appreciation right granted in tandem with an option will be the exercise price of the related option.  

Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock, through a net-exercise arrangement, or through a broker-assisted cashless exercise arrangement.  The compensation committee determines all of the terms relating to the exercise, cancellation or other disposition of an option or stock appreciation right upon a termination of employment, whether by reason of disability, retirement, death or any other reason. Stock option and stock appreciation right awards under the LTIP are non-transferable.

- 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.  The 2020 and 2019 options expire seven years from the date of grant, or earlier in the event of certain terminations of employment.  For our executive officers age 55 or older, stock options are not subject to forfeiture upon such officers’ departure from the company after two years from the date of grant.

During the three-month periods ended June 30, 2020 and 2019, we recognized $3.3 million and $3.5 million, respectively, of compensation expense related to our stock option grants. During the six-month periods ended June 30, 2020 and 2019, we recognized $6.7 million and $7.1 million, respectively, of compensation expense related to our stock option grants.

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

 

 

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 six-month periods ended June 30, 2020 and 2019, as determined on the grant date using the Black-Scholes option pricing model, was $9.99 and $10.71, respectively.

The following is a summary of our stock option activity and related information for 2020 (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

 

 

Options with respect to 11.3 million shares (less any shares of restricted stock issued under the LTIP - see Note 11 to these unaudited consolidated financial statements) were available for grant under the LTIP at June 30, 2020.

The total intrinsic value of options exercised during the six-month periods ended June 30, 2020 and 2019 was $47.1 million and $48.3 million, respectively.  As of June 30, 2020, we had approximately $36.0 million of total unrecognized compensation expense related to nonvested options.  We expect to recognize that cost over a weighted average period of approximately four years.

- 21 -

 

Other information regarding stock options outstanding and exercisable at June 30, 2020 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

 

 

10.  Deferred Compensation

We have a Deferred Equity Participation Plan (which we refer to as the DEPP), which is a non-qualified plan that generally provides for distributions to certain of our key executives when they reach age 62 (or the one-year anniversary of the date of the grant for participants over the age of 61 as of the grant date) or upon or after their actual retirement.  Under the provisions of the DEPP, we typically contribute cash in an amount approved by the compensation committee to a rabbi trust on behalf of the executives participating in the DEPP, and instruct the trustee to acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions based on participant elections.  Distributions under the DEPP may not normally be made until the participant reaches age 62 (or the one-year anniversary of the date of the grant for participants over the age of 61 as of the grant date) and are subject to forfeiture in the event of voluntary termination of employment prior to then.  DEPP awards are generally made annually in the first quarter.  In addition, we annually make awards under sub-plans of the DEPP for certain production staff, which generally provide 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.  All contributions to the plan (including sub-plans) deemed to be invested in shares of our common stock are distributed in the form of our common stock and all other distributions are paid in cash.

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 2020 and 2019, the compensation committee approved $14.1 million and $10.1 million, respectively, of awards in the aggregate to certain key executives under the DEPP that were contributed to the rabbi trust in the first quarters of 2020 and 2019, respectively.  We contributed cash to the rabbi trust and instructed the trustee to acquire a specified number of shares of our common stock on the open market to fund these 2020 and 2019 awards.  During the three-month periods ended June 30, 2020 and 2019, we charged $3.7 million and $2.6 million, respectively, to compensation expense related to these awards.  During the six-month periods ended June 30, 2020 and 2019, we charged $6.0 million and $4.6 million, respectively, to compensation expense related to these awards.

In the first quarters of 2020 and 2019, the compensation committee approved $1.8 million and $2.6 million, respectively, of awards under the sub-plans referred to above, which were contributed to the rabbi trust in the first quarters of 2020 and 2019, respectively.  During the three-month periods ended June 30, 2020 and 2019, we charged $0.7 million and $0.7 million, respectively, to compensation expense related to these awards. During the six-month periods ended June 30, 2020 and 2019, we charged $1.4 million and $1.2 million, respectively, to compensation expense related to these awards.  There were no distributions from the sub-plans during the six-month periods ended June 30, 2020 and 2019.

- 22 -

 

At June 30, 2020 and December 31, 2019, we recorded $70.7 million (related to 2.9 million shares) and $64.5 million (related to 2.9 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-based awards under the plan at June 30, 2020 and December 31, 2019 was $283.8 million and $276.3 million, respectively.  During the six-month period ended June 30, 2020, cash and equity awards with an aggregate fair value of $9.8 million was vested and distributed to executives under the DEPP. During the six-month period ended June 30, 2019, cash and equity awards with an aggregate fair value of $1.3 million was vested and distributed to executives under the DEPP.  

We have a Deferred Cash Participation Plan (which we refer to as the DCPP), which is a 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 provisions of the DCPP, we typically contribute cash in an amount approved by the compensation committee to the rabbi trust on behalf of the executives participating in the DCPP, and instruct the trustee to acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions based on participant elections.  In the first quarters of 2020 and 2019, the compensation committee approved $3.0 million and $2.4 million, respectively, of awards in the aggregate to certain key executives under the DCPP that were contributed to the rabbi trust in the second quarters of 2020 and 2019, respectively.  During the three‑month periods ended June 30, 2020 and 2019, we charged $1.7 million and $1.2 million, respectively, to compensation expense related to these awards. During the six‑month periods ended June 30, 2020 and 2019, we charged $3.4 million and $2.3 million, respectively, to compensation expense related to these awards. There were $7.3 million of distributions from the DCPP during the six-month period ended June 30, 2020.  There were $2.5 million of distributions from the DCPP during the six-month period ended June 30, 2019.

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 non-employee directors.  In either case, the compensation committee may determine that the award will be subject to the attainment of performance measures over an established performance period.  Stock awards and the related dividend equivalents are non-transferable and subject to forfeiture if the holder does not remain continuously employed with us during the applicable restriction period or, in the case of a performance-based award, if applicable performance measures are not attained. The compensation committee will determine all of the terms relating to the satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a restricted stock award upon a termination of employment, whether by reason of disability, retirement, death or any other reason.  

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, 2020, 2.2 million shares were available for grant under the LTIP for such awards.

In the first quarters of 2020 and 2019, we granted 405,900 and 399,900 restricted stock units, respectively, to employees under the LTIP, with an aggregate fair value of $34.9 million and $31.8 million, respectively, at the date of grant.  These 2020 and 2019 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, vest in full based on continued employment through March 12, 2025 and March 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.  Future 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, 2020 and 2019, we recognized $9.5 million and $8.4 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020. During the six-month periods ended June 30, 2020 and 2019, we recognized $20.1 million and $14.8 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020.  The total intrinsic value of unvested restricted stock units at June 30, 2020 and 2019 was $228.5 million and $199.7 million, respectively.  During the six-month period ended June 30, 2020, equity awards (including accrued dividends) with an aggregate value of $30.6 million, were vested and distributed to employees under this plan.  During the six-month period ended June 30, 2019 equity awards with an aggregate fair value of $2.0 million, were vested and distributed to employees under this plan

- 23 -

 

Performance Share Awards

On March 12, 2020 and March 14, 2019, pursuant to the LTIP, the compensation committee approved 82,500 and 73,600, respectively, of provisional performance share awards, with an aggregate fair value of $7.1 million and $5.8 million, respectively, for future grants to our officers and key employees. Each performance share award was equivalent to the value of one share of our common stock on the date such provisional award was approved. At the end of the performance period, eligible participants will receive a number of earned shares based on the growth in adjusted EBITDAC per share (as defined in our 2020 Proxy Statement). Earned shares for the 2020 and 2019 provisional awards will fully vest based on continuous employment through March 12, 2023 and March 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.  During the six-month periods ended June 30, 2020 and 2019, equity awards (including accrued dividends) with an aggregate fair value of $12.5 million and $5.7 million, were vested and distributed to employees under this plan.

Cash Awards

On March 12, 2020, pursuant to our Performance Unit Program (which we refer to as the Program), the compensation committee approved provisional cash awards of $18.4 million in the aggregate for future grants to our officers and key employees that are denominated in units (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 one-year performance period based on our financial performance and a three-year vesting period measured from January 1 of the year of grant.  At the discretion of the compensation committee and determined based on our performance, the eligible officer or key employee will be granted a percentage of the provisional cash award units that equates to the EBITAC growth achieved (as defined in the Program).  At the end of the performance period, eligible participants will be granted a number of units based on achievement of the performance goal and subject to approval by the compensation committee.  Granted units for the 2020 provisional award will fully vest based on continuous employment through January 1, 2023.  The ultimate award value will be equal to the trailing twelve-month price of our common stock on December 31, 2022, multiplied by the number of units subject to the award, but limited to between 0.5 and 1.5 times the original value of the units determined as of the grant date.  The fair value of the awarded units will be paid out in cash as soon as practicable in 2023.  If an eligible employee leaves us prior to the vesting date, the entire award will be forfeited.  We did not recognize any compensation expense during the six-month period ended June 30, 2020 related to the 2020 provisional award under the Program.  

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 not 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 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 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, 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 periods ended June 30, 2020 and 2019, we recognized $0.9 million and $2.2 million to compensation expense related to these 2018 awards, respectively. During the six-month periods ended June 30, 2020 and 2019, we recognized $3.5 million and $4.1 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020.  

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 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 fully vested on January 1, 2020.  During the three-month period ended June 30, 2019, we recognized $2.6 million to compensation expense related to these 2017 awards.  During the six-month period ended June 30, 2019, we recognized $5.0 million to compensation expense related to these 2017 awards.  

- 24 -

 

During the six-month period ended June 30, 2020, cash awards related to the 2017 provisional award with an aggregate fair value of $18.9 million (221,600 units in the aggregate) were vested and distributed to employees under the Program.  During the six-month period ended June 30, 2019, cash awards related to the 2016 provisional award with an aggregate fair value of $22.4 million (341,000 units in the aggregate) were vested and distributed to employees under the Program.  

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

 

 

13.  Derivatives and Hedging Activity

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, 2020.

- 25 -

 

The notional and fair values of derivatives designated as hedging instruments are as follows at June 30, 2020 and December 31, 2019 (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

 

 

(1)

Included within foreign exchange contracts at June 30, 2020 were $253.7 million of call options offset with $253.7 million of put options, and $11.7 million of buy forwards offset with $73.9 million of sell forwards.  Included within foreign exchange contracts at December 31, 2019 were $342.0 million of call options offset with $342.0 million of put options, and $12.1 million of buy forwards offset with $43.8 million of sell forwards.

- 26 -

 

The effect of cash flow hedge accounting on accumulated other comprehensive loss for the three-month and six-month periods ended June 30, 2020 and 2019 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(1)

For the three-month and six-month periods ended June 30, 2020, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.1 million and $0.4 million, respectively.  

We estimate that approximately $11.3 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.  During the three months ended June 30, 2020, we settled approximately $66.0  million of interest rate contracts hedges with a notional value of $350.0 million that will be amortized into interest expense in future periods.

 

 


- 27 -

 

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, 2020 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

 

 

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 - See Note 7 to these unaudited consolidated financial statements for a summary of the amounts outstanding under the note purchase agreements, the Credit Agreement and Premium Financing Debt Facility.

Operating Lease Obligations - Our corporate segment’s executive offices and certain subsidiary and branch facilities of our brokerage and risk management segments are located in a building we own at 2850 Golf Road, Rolling Meadows, Illinois, where we have approximately 360,000 square feet of space and will accommodate approximately 2,000 employees at peak pre-pandemic capacity.

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 non-affiliated tenants under operating sublease arrangements.  In the normal course of business, we expect that certain of these leases will not be renewed or replaced.  We adjust charges for real estate taxes and common area maintenance annually based on actual expenses, and we recognize the related revenues in the year in which the expenses are incurred.  These amounts are not included in the minimum future rentals to be received in the contractual obligations table above.

Outstanding Purchase Obligations - The amount disclosed in the contractual obligations table above represents the aggregate amount of unrecorded purchase obligations that we had outstanding at June 30, 2020. These obligations represent agreements to purchase goods or services that were executed in the normal course of business.

Off-Balance Sheet Commitments - Our total unrecorded commitments associated with outstanding letters of credit, and financial guarantees as of June 30, 2020 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

- 28 -

 

Since commitments may expire unused, the amounts presented in the table above do not necessarily reflect our actual future cash funding requirements.  See the Off‑Balance Sheet Debt section below for a discussion of our letters of credit.  All of the letters of credit represent multiple year commitments that have annual, automatic renewing provisions and are classified by the latest commitment date.  

Since January 1, 2002, we have acquired 568 companies, all of which were accounted for using the acquisition method for recording business combinations.  Substantially all of the purchase agreements related to these acquisitions contain provisions for potential earnout obligations.  For all of our acquisitions made in the period from 2016 to 2020 that contain potential earnout obligations, such obligations are measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration for the respective acquisition.  The amounts recorded as earnout payables are primarily based upon estimated future potential operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date.  The aggregate amount of the maximum earnout obligations related to these acquisitions was $1,060.7 million, of which $474.0 million was recorded in our consolidated balance sheet as of June 30, 2020 based on the estimated fair value of the expected future payments to be made.  

Off-Balance Sheet Debt - Our unconsolidated investment portfolio includes investments in enterprises where our ownership interest is between 1% and 50%, in which management has determined that our level of influence and economic interest is not sufficient to require consolidation.  As a result, these investments are accounted for under the equity method.  None of these unconsolidated investments had any outstanding debt at June 30, 2020 or December 31, 2019, that was recourse to us.

At June 30, 2020, we had posted two letters of credit totaling $9.4 million, in the aggregate, related to our self‑insurance deductibles, for which we had a recorded liability of $17.1 million.  We have an equity investment in a rent-a-captive facility, which we use as a placement facility for certain of our insurance brokerage operations.  At June 30, 2020, we had posted seven letters of credit totaling $7.5 million to allow certain of our captive operations to meet minimum statutory surplus requirements plus additional collateral related to premium and claim funds held in a fiduciary capacity, one letter of credit totaling $0.9 million for collateral related to claim funds held in a fiduciary capacity by a recent acquisition, and one letter of credit totaling $0.5 million as a security deposit for a 2015 acquisition’s lease.  These letters of credit have never been drawn upon.

Litigation, Regulatory and Taxation Matters - We are a defendant in various legal actions incidental to the nature of our business including but not limited to matters related to employment practices, alleged breaches of non‑compete or other restrictive covenants, theft of trade secrets, breaches of fiduciary duties and related causes of action.  We are also periodically the subject of inquiries, investigations and reviews by regulatory and taxing authorities into various matters related to our business, including our operational, compliance and finance functions.  Neither the outcomes of these matters nor their effect upon our business, financial condition or results of operations can be determined at this time.

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 us, Chem‑Mod LLC and 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 are defending this matter vigorously.  Litigation is inherently uncertain and it is not possible for us to predict the ultimate outcome of this matter and the financial impact to us.  We believe the probability of a material loss is remote.

As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under investigation by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in connection with these operations.  Additionally, the IRS has initiated audits for the 2012 tax year, and subsequent years, or over 100 of the micro-captive underwriting enterprises organized and/or managed by us.

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 currently 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 its micro‑captive advisory business. We are in the process of responding to the subpoena.

We are fully cooperating with both the IRS investigation and the Department of Justice investigation.   We are not able to reasonably estimate the amount of any potential loss in connection with these investigations.

 

- 29 -

 

On December 7, 2018, a class action lawsuit was filed against us, Artex and other defendants, in the United States District Court for the District of Arizona. The named plaintiffs are micro-captives and related entities and owners who had IRC Section 831(b) tax benefits disallowed by the IRS. 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 IRC Section 831(b) micro-captive 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. On August 5, 2019, the trial court granted the defendants’ motion to compel arbitration and dismissed the class action lawsuit.  Plaintiffs appealed this ruling to the United States Court of Appeals for the Ninth Circuit, which held an oral argument on the appeal on July 7, 2020.  We will continue to defend against the 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, nor are we able to reasonably estimate the amount of any potential loss in connection with this lawsuit.

Contingent Liabilities - We purchase insurance to provide protection from errors and omissions (which we refer to as E&O) claims that may arise during the ordinary course of business.  We currently retain the first $10.0 million of every E&O claim.  Our E&O insurance provides aggregate coverage for E&O losses up to $350.0 million in excess of our retained amounts.  We have historically maintained self-insurance reserves for the portion of our E&O exposure that is not insured.  We periodically determine a range of possible reserve levels using actuarial techniques that rely heavily on projecting historical claim data into the future.  Our E&O reserve in the June 30, 2020 consolidated balance sheet is above the lower end of the most recently determined actuarial range by $3.0 million and below the upper end of the actuarial range by $5.8 million.  In addition to this E&O reserve, in the three-month period ended June 30, 2020, we established provisions for potential unusual pandemic related claim defense and other costs.  We can make no assurances that the historical claim data used to project the current reserve levels will be indicative of future claim activity.  Thus, the E&O reserve level and corresponding actuarial range could change in the future as more information becomes known, which could materially impact the amounts reported and disclosed herein.

Tax-advantaged Investments No Longer Held - Between 1996 and 2007, we developed and then sold portions of our ownership in various energy related investments, many of which qualified for tax credits under IRC Section 29.  We recorded tax benefits in connection with our ownership in these investments.  At June 30, 2020, we had exposure on $108.0 million of previously earned tax credits.  Under the Tax Act, a portion of these previously earned tax credits were refunded in 2019 for tax year 2018, according to a specific formula.  Under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was passed on March 27, 2020, we have accelerated the refund of all remaining credits on April 17, 2020.  The remaining credits were refunded in second quarter of 2020.  In 2004, 2007 and 2009, the IRS examined several of these investments and all examinations were closed without any changes being proposed by the IRS.  However, any future adverse tax audits, administrative rulings or judicial decisions could disallow previously claimed tax credits.  

Due to the contingent nature of this exposure and our related assessment of its likelihood, no reserve has been recorded in our June 30, 2020 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

 

 

The following is a reconciliation of our end 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, 2020 and 2019 (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

 

 

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 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

)

 

The foreign currency translation during the six-month period ended June 30, 2020 primarily relates to the net impact of changes in the value of the local currencies relative to the U.S. dollar for our operations in Australia, Canada, the Caribbean, India, New Zealand and the U.K.  

During the six-month periods ended June 30, 2020 and 2019, $3.1 million and $3.6 million, respectively, of expense related to the pension liability was reclassified from accumulated other comprehensive loss to compensation expense in the statement of earnings.  During the six-month periods ended June 30, 2020 and 2019, $2.5 million and $1.9 million of income, respectively, related to the fair value of derivative investments, was reclassified from accumulated other comprehensive loss to the statement of earnings.  During the six‑month periods ended June 30, 2020 and 2019, no amounts related to foreign currency translation were reclassified from accumulated other comprehensive loss to the statement of earnings.  

17.  Segment Information

We have three reportable segments: brokerage, risk management and corporate.  

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 manages our 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.  We allocate the provision for income taxes to the brokerage and risk management segments using the local country statutory rates.  Reported operating results by segment would change if different methods were applied.

- 31 -

 

Financial information relating to our segments for the three-month and six-month periods ended June 30, 2020 and 2019 is as follows (in millions):

 

 

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

 

 

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, 2020 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

 

 

 

- 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

 

 

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

 

 

- 34 -

 

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

 

 

- 35 -

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis that follows relates to our financial condition and results of operations for the three-month and six-month periods ended June 30, 2020. Readers should review this information in conjunction with the June 30, 2020 unaudited consolidated financial statements and notes included in Item 1 of Part I of this quarterly report on Form 10‑Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our annual report on Form 10-K for the year ending December 31, 2019.

Information Regarding Non-GAAP Measures and Other

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, diluted net earnings per share, as adjusted (adjusted EPS), adjusted revenues, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue. These measures are not in accordance with, or an alternative to, the GAAP information provided in this quarterly report on Form 10‑Q. We believe that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to our results of operations and financial condition because they provide investors with measures that our chief operating decision maker uses when reviewing the company’s performance, and for the other reasons described below. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information we provide should be used in addition to, but not as a substitute for, the GAAP information provided. We make determinations regarding certain elements of executive officer incentive compensation, performance share awards and annual cash incentive awards, partly on the basis of measures related to adjusted EBITDAC.  

Adjusted Non-GAAP presentation - We believe that the adjusted non-GAAP presentation of the current and prior period information presented on the following pages provides stockholders and other interested persons with useful information regarding certain financial metrics that may assist such persons in analyzing our operating results as they develop a future earnings outlook for us.  The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period.

 

•

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. 

- 36 -

 

Non-GAAP Earnings Measures

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 margin and 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.

 

•

EBITDAC and EBITDAC Margin - EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (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) - For the brokerage segment, organic change in base commission and fee revenues, supplemental revenues and contingent revenues excludes the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented.  These revenues are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of our business in both the current and prior period.  In addition, organic change in base commission and fee revenues, supplemental revenues and contingent revenues exclude the period‑over‑period impact of foreign currency translation.  For the risk management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions and the fee revenues related to operations disposed of in each year presented.  In addition, change in organic growth excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability or are due to the limited-time nature of these revenue sources.

These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond.  We have historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of our brokerage and risk management segments.  We also believe that using this non‑GAAP measure allows readers of our financial statements to measure, analyze and compare the growth from our brokerage and risk management segments in a meaningful and consistent manner.

Reconciliation of Non-GAAP Information Presented to GAAP Measures - This quarterly report on Form 10‑Q includes tabular reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted compensation expense and adjusted operating expense, EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, adjusted EBITDAC (before acquisitions), diluted net earnings per share (as adjusted) and organic revenue measures.

- 37 -

 

Other Information - Allocations of investment income and certain expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information.  We allocate the provision for income taxes to the brokerage and risk management segments using local statutory rates.  As a result, the provision for income taxes for the corporate segment reflects the entire benefit to us of the IRC Section 45 credits produced, because that is the segment which generated the credits.  The law that provides for IRC Section 45 credits expired in December 2019 for our fourteen 2009 Era Plants and will expire in December 2021 for our twenty-one 2011 Era Plants.  We anticipate reporting an effective tax rate of approximately 23.0% to 25.0% in the brokerage segment and 24.0% to 26.0% in the risk management segment for the foreseeable future.  Reported operating results by segment would change if different allocation methods were applied.  When the law governing IRC Section 45 credits expires, reported GAAP revenues and net earnings will decrease, yet our net cash flow will increase as a result of not having to pay expenses to operate the clean coal facilities and also from an increase in the use of credits against our U.S. federal income tax obligations.

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 2020 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 six-month period ended June 30, 2020, we generated approximately 69% of our revenues for the combined brokerage and risk management segments domestically and 31% internationally, primarily in Australia, Bermuda, Canada, the Caribbean, New Zealand and the U.K.  We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 76%, 14% and 10%, respectively, to revenues during the six‑month period ended June 30, 2020.  Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations.  Investment income is generated from invested cash and fiduciary funds, clean energy and other investments, and interest income from premium financing.

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.  The first quarter 2020 survey indicated that commercial property/casualty rates increased by 9.3% on average.  The second quarter 2020 survey had not been published as of the filing date of this report.  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 that our history of strong new business generation, solid retentions and enhanced value-added services for our carrier partners should help offset, to a degree, softer economic conditions around the world.  Overall, we believe that in a positive rate environment with declining exposure units, our professionals can demonstrate their expertise and high-quality, value-added capabilities by strengthening our clients’ insurance 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 and clients can broadly still obtain coverage.  Please also refer to the section entitled “COVID-19 Impact” below see pages 43 and 44.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 38 -

 

Summary of Financial Results - Three-Month Periods Ended June 30, 2020 and 2019

See the reconciliations of non-GAAP measures on page 40.

 

(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

%

 

Summary of Financial Results - Six-Month Periods Ended June 30, 2020 and 2019

See the reconciliations of non-GAAP measures on page 41.

 

(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

%

- 39 -

 

In our corporate segment, net after-tax earnings from our clean energy investments were $5.0 million and $8.2 million, as adjusted, in the three‑month periods ended June 30, 2020 and 2019, respectively.  In our corporate segment, net after-tax earnings from our clean energy investments were $57.5 million and $69.7 million, as adjusted, in the six‑month periods ended June 30, 2020 and 2019, respectively.  We anticipate our clean energy investments to generate between $60.0 million and $70.0 million in adjusted net earnings in 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 and six-month periods ended June 30, 2020 with the same periods in 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 46 and 52, respectively, of this filing.

For the Three-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

 

$

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

%

 

*

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 $10.8 million, with a corresponding adjustment to the provision for income taxes of $2.1 million relating to these items.  The pretax impact of the risk management segment adjustments totals $2.2 million, with a corresponding adjustment to the provision for income taxes of $0.3 million relating to these items.  A detailed reconciliation of the 2019 provision for income taxes is shown on page 42.


- 40 -

 

For the Six-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, 2019, the pretax impact of the brokerage segment adjustments totals $28.7 million, with a corresponding adjustment to the provision for income taxes of $10.0 million relating to these items.  The pretax impact of the risk management segment adjustments totals $2.5 million, with a corresponding adjustment to the provision for income taxes of $0.2 million relating to these items.  A detailed reconciliation of the 2019 provision for income taxes is shown on page 43.  

 

- 41 -

 

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

 

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

)

 

 


- 42 -

 

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

)

 

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 76% of our revenues during the six-month period ended June 30, 2020. Our brokerage segment is primarily comprised of retail and wholesale brokerage operations.  Our brokerage segment generates revenues by:

 

(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.  

- 44 -

 

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 headcount 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 and DOJ investigations – As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under investigation by the IRS since 2013.  Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in connection with these operations.  Additionally, the IRS has initiated audits for the 2012 tax year, and subsequent tax years, of over 100 of the micro-captive underwriting enterprises organized and/or managed by us. 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 currently 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 its micro-captive advisory business. We are in the process of responding to the subpoena.  We are fully cooperating with both the IRS investigation and the Department of Justice investigation. We are not able to reasonably estimate the amount of any potential loss in connection with these investigations.

Class action lawsuit - On December 7, 2018, a class action lawsuit was filed against us, Artex and other defendants, in the United States District Court for the District of Arizona.  The named plaintiffs are micro-captives and their related entities and owners who had IRC Section 831(b) tax benefits disallowed by the IRS. 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 IRS Section 831(b) micro‑captive 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. On August 5, 2019, the trial court granted the defendants’ motion to compel arbitration and dismissed the class action lawsuit.  Plaintiffs appealed this ruling to the United States Court of Appeals for the Ninth Circuit, which held an oral argument on the appeal on July 7, 2020.  We will continue to defend against the 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, nor are we able to reasonably estimate the amount of any potential loss in connection with this lawsuit.

- 45 -

 

Financial information relating to our brokerage segment results for the three-month and six-month periods ended June 30, 2020 as compared to the same periods in 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

 

 

- 46 -

 

The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month and six-month periods ended June 30, 2020 to the same periods in 2019 (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

 

 

 

 

 

 

Commissions and fees - The aggregate increase in base commissions and fees for the three-month period ended June 30, 2020, compared to the same period in 2019, was due to revenues associated with acquisitions that were made in the twelve-month period ended June 30, 2020 ($70.9 million), and to the organic change in base commissions and fee revenues.  The organic change in base commissions and fee revenues was 1.2% and 6.2% for the three-month periods ended June 30, 2020 and 2019, respectively.

The aggregate increase in base commissions and fees for the six-month period ended June 30, 2020, compared to the same period in 2019, was due to revenues associated with acquisitions that were made in the twelve-month period ended June 30, 2020 ($161.7 million), and to the organic change in base commissions and fee revenues.  The organic change in base commissions and fee revenues was 2.6% and 5.4% for the six-month periods ended June 30, 2020 and 2019, respectively.

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 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.

 

 

- 47 -

 

Items excluded from organic revenue computations yet impacting revenue comparisons for the three-month and six-month periods ended June 30, 2020 and 2019 include the following (in millions):

 

 

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

%

 

 

The following is a summary of brokerage segment acquisition activity for 2020 and 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

 

 

We issued 370,000 shares and 71,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions in the second quarter of 2020 and 2019, respectively. We issued 974,000 shares and 523,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions in the six-month period ended 2020 and 2019, respectively.

- 48 -

 

Supplemental and contingent revenues - Reported supplemental and contingent revenues recognized in 2020, 2019 and 2018 by quarter are as follows (in millions):

 

 

 

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

 

 

Investment income and net gains on divestitures - This primarily represents (1) interest income earned on cash, cash equivalents and restricted funds and interest income from premium financing and (2) net gains related to divestitures and sales of books of business, which were $1.0 million and $1.9 million for the three-month periods ended June 30, 2020 and 2019, respectively, and $1.2 million and $59.0 million for the six-month periods ended June 30, 2020 and 2019, respectively. During the six-month period ended June 30, 2019, we recognized a one-time, net gain of $0.17 of diluted net earnings per share related to the divestiture of a travel insurance brokerage and four other smaller brokerage operations.  Investment income in the three-month and six-month periods ended June 30, 2020 decreased compared to the same periods in 2019, primarily due to decreases in interest income from our U.S. operations due to decreases in interest income earned on client held funds.  

Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three-month and six-month periods ended June 30, 2020 with the same periods in 2019 (in millions):

 

 

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

 

 

The increase in compensation expense for the three‑month period ended June 30, 2020, compared to the same period in 2019, was primarily due to increased headcount, salary increases and increases in incentive compensation linked to operating results - $15.6 million in the aggregate, increases in severance related costs - $4.8 million, acquisition integration - $1.7 million, stock compensation expense - $0.2 million and deferred compensation - $0.1 million, offset by decreases in employee benefits - $5.7 million, acquisition related $2.0 million and temporary-staffing expense - $1.6 million. The increase in employee headcount primarily relates to employees associated with the acquisitions completed in the twelve-month period ended June 30, 2020.

The increase in compensation expense for the six‑month period ended June 30, 2020, compared to the same period in 2019, was primarily due to increased headcount, salary increases and increases in incentive compensation linked to operating results - $62.8 million in the aggregate, increases in employee benefits - $7.5 million, severance related costs - $8.2 million, acquisition integration - $5.5 million, stock compensation expense - $3.1 million and deferred compensation - $1.7 million, offset by a decrease in

- 49 -

 

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, 2020.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three-month and six-month periods ended June 30, 2020 with the same periods in 2019 (in millions):

 

 

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

 

 

The decrease in operating expense for the three-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to decreases in meeting and client entertainment expense - $23.8 million, employee related expense - $9.7 million, outside consulting fees - $4.4 million, office supplies - $4.2 million, other expense - $3.5 million, professional and banking fees - $1.9 million, marketing expense - $0.8 million, technology expenses - $0.4 million and premium finance interest expense - $0.3 million, partially offset by an 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 - $0.4 million. Also impacting operating expense in the three‑month period ended June 30, 2020, were expenses associated with the acquisitions completed in the twelve‑month period ended June 30, 2020.  

The decrease in operating expense for the six-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to decreases in meeting and client entertainment expense - $25.8 million, costs related to divestitures $13.0 million, employee related expense - $8.9 million, office supplies - $4.5 million, other expense - $3.8 million, outside consulting fees - $3.5 million, lease termination charges - $2.5 million, premium finance interest expense - $0.6 million, marketing expense - $0.2 million, partially offset by an unfavorable foreign currency translation - $0.3 million and increases in business insurance - $14.6 million, bad debt expense - $7.2 million, real estate expenses - $5.6 million, licenses and fees $5.5 million, acquisition integration - $4.1 million, technology expenses - $1.4 million, outside services expense - $1.4 million and professional and banking fees - $1.1 million.  Also impacting operating expense in the six‑month period ended June 30, 2020, were expenses associated with the acquisitions completed in the twelve‑month period ended June 30, 2020.  

Depreciation - Depreciation expense increased in the three-month and six-month periods ended June 30, 2020 compared to the same periods in 2019 by $1.4 million and $2.8 million, respectively.  The increase in depreciation expense in 2020 compared to 2019 was due primarily to the purchases of furniture, equipment and leasehold improvements related to office expansions and moves, and expenditures related to upgrading computer systems.  Also contributing to the increase in depreciation expense was the depreciation expenses associated with acquisitions completed in the twelve‑month period ended June 30, 2020.

 

Amortization - The increase in amortization expense in the three‑month and six-month periods ended June 30, 2020 compared to the same periods in 2019 was primarily due to write-off of amortizable intangible assets and amortization expense of intangible assets associated with acquisitions completed in the twelve-month period ended June 30, 2020.  Based on the results of impairment reviews during the six-month period ended June 30, 2020, we wrote off $45.8 million of amortizable assets.  No such impairments were noted in the six-month period ended June 30, 2019.  We review all of our intangible assets for impairment periodically (at least annually for goodwill) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  We perform such impairment reviews at the division (i.e., reporting unit) level with respect to goodwill and at the business unit level for amortizable intangible assets.  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.  In

- 50 -

 

consideration of the potential impacts that COVID-19 has on our reporting units, we did perform a qualitative impairment review on carrying value of our goodwill for all of our reporting units as of June 30, 2020 and no indicators of impairment were noted.

Expiration lists, non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names).  

Change in estimated acquisition earnout payables - The change in the expense from the change in estimated acquisition earnout payables in the three‑month period ended June 30, 2020, compared to the same period in 2019, was primarily due to adjustments made to the estimated fair value of earnout obligations related to revised projections of future performance.  During the three-month periods ended June 30, 2020 and 2019, we recognized $7.6 million and $5.6 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions made in the period from 2016 to 2020. During the six-month periods ended June 30, 2020 and 2019, we recognized $18.2 million and $10.9 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions made in the period from 2016 to 2020.  In addition, during the three‑month periods ended June 30, 2020 and 2019, we recognized $6.7 million of expense and $2.1 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for 41 and 45 acquisitions, respectively. In addition, during the six‑month periods ended June 30, 2020 and 2019, we recognized $88.5 million and $4.8 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for 98 and 67 acquisitions, respectively.     

The amounts initially recorded as earnout payables for our 2016 to 2020 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 two- to three-year period subsequent to the acquisition date.  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.  In determining fair value, we estimate 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.  We estimate future earnout payments using the earnout formula and performance targets specified in each purchase agreement and these financial projections.  Subsequent changes in the underlying financial projections or assumptions will cause the estimated earnout obligations to change and such adjustments are recorded in our consolidated statement of earnings when incurred.  Increases in the earnout payable obligations will result in the recognition of expense and decreases in the earnout payable obligations will result in the recognition of income.

Provision for income taxes - The brokerage segment’s effective income tax rates for the three-month periods ended June 30, 2020 and 2019, were 23.2% and 24.3%, respectively. The brokerage segment’s effective income tax rates for the six-month periods ended June 30, 2020 and 2019, were 23.8% and 24.8%, respectively. We anticipate reporting an effective tax rate of approximately 23.0% to 25.0% in our brokerage segment for the foreseeable future.  

Net earnings (loss) attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended June 30, 2020 and 2019, include noncontrolling interest earnings of $1.5 million and $5.1 million, respectively, and $2.2 million and $14.9 million for the six-month periods ended June 30, 2020 and 2019, respectively, of which for 2019 primarily related to our investment in Capsicum Reinsurance Brokers LLP (which we refer to as Capsicum Re).  Prior to December 31, 2019, we were partners in this venture with Grahame Chilton, the former CEO of our International Brokerage Division (who stepped down from the role effective July 1, 2018).  We were the controlling partner, participating in 33% of Capsicum Re’s net operating results and Mr. Chilton owned approximately 50% of Capsicum Re. In January 2020, we increased our ownership interest in Capsicum Re from 33% to 100%. Founded in December 2013 through a strategic partnership with Gallagher, Capsicum Re has since grown to become the world’s fifth largest reinsurance broker with offices in the U.K., U.S., Bermuda and South America.

Risk Management

The risk management segment accounted for 14% of our revenue during the six-month period ended June 30, 2020.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not for profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.  Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim or per-service basis, (ii) on a cost-plus basis, or (iii) as performance-based fees.  We also provide risk management consulting services that are recognized as the services are delivered.

- 51 -

 

Financial information relating to our risk management segment results for the three-month and six-month periods ended June 30, 2020 as compared to the same periods in 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

)

 

- 52 -

 

The following provides non-GAAP information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month and six-month periods ended June 30, 2020 to the same periods in 2019 (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

 

 

 

 

 

 

Fees - The decrease in fees for the three-month and six-month periods ended June 30, 2020 compared to the same periods in 2019 was due primarily to the impact of COVID-19.  In our risk management operations, we began seeing a meaningful decline in new claims arising during the last two weeks of March 2020, which persisted into April.  In each of May, June and July 2020, we did see an improved level of claims; however, new claims arising are still well below pre-pandemic levels.  A slower recovery in the number of workers employed could cause fewer claims arising in future quarters.  Organic change in fee revenues for the three-month period ended June 30, 2020 was -9.6% compared to 3.0% for the same period in 2019.  Organic change in fee revenues for the six-month period ended June 30, 2020 was -2.8% compared to 3.5% for the same period in 2019.

Items excluded from organic fee computations yet impacting revenue comparisons for the three‑month and six-month periods ended June 30, 2020 include the following (in millions):

 

 

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

%

 

Reimbursements - Reimbursements represent amounts received from clients reimbursing us for certain third-party costs associated with providing our claims management services.  In certain service partner relationships, we are considered a principal because we direct the third party, control the specified service and combine the services provided into an integrated solution.  Given this principal relationship, we are required to recognize revenue on a gross basis and service partner vendor fees in the operating expense line in our consolidated statement of earnings.  

Investment income - Investment income primarily represents interest income earned on our cash and cash equivalents.  Investment income in the three‑month and six-month periods ended June 30, 2020 decreased compared to the same periods in 2019 primarily due to decreases in interest income from our U.S. operations.  

- 53 -

 

Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three-month and six-month periods ended June 30, 2020 with the same periods in 2019 (in millions):

 

 

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

 

 

The decrease in compensation expense for the three-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to decreased headcount and decreases in salaries and incentive compensation - $2.6 million in the 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 - $2.1 million and stock compensation expense - $0.2 million. Contributing to the decrease in employee headcount is terminated and/or furloughed employees, partially offset by headcount associated with the acquisitions completed in the twelve-month period ended June 30, 2020.

The increase in compensation expense for the six-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to a unfavorable foreign currency translation - $2.9 million and increased headcount and increases in salaries and incentive compensation - $0.5 million in the aggregate, severance related costs - $2.0 million, stock compensation expense - $0.9 million and deferred compensation - $0.3 million, partially offset by decreases in temporary-staffing expense - $2.7 million and employee benefits expense - $0.5 million.  Contributing to the decrease in employee headcount is terminated and/or furloughed employees, partially offset by headcount associated with the acquisitions completed in the twelve-month period ended June 30, 2020.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three-month and six-month periods ended June 30, 2020 with the same periods in 2019 (in millions):

 

 

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

 

 

The decrease in operating expense for the three-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to decreases in meeting and client entertainment expenses - $3.7 million, outside consulting fees - $3.0 million, employee related expense - $0.8 million, professional and banking fees - $0.7 million, business insurance $0.5 million and office supplies $0.4 million, partially offset by an increase in technology expenses - $1.1 million.

- 54 -

 

The decrease in operating expense for the six-month period ended June 30, 2020 compared to the same period in 2019, was primarily due to decreases in outside consulting fees - $1.9 million, meeting and client entertainment expenses - $5.1 million, employee related expense - $0.9 million, business insurance - $0.5 million, professional and banking fees - $0.5 million, real estate expense - $0.4 million and office supplies - $0.3 million, partially offset by an increase in technology expenses - $1.9 million, bad debt expense - $0.7 million and other expense - $0.3 million.

Depreciation - Depreciation expense increased in the three‑month and six-month periods ended June 30, 2020 compared to the same periods in 2019 by $0.4 million and $1.9 million, respectively.  These increases reflect the impact of purchases of furniture, equipment and leasehold improvements related to office expansions and relocations, and expenditures related to upgrading computer systems.

Amortization - The increase in amortization expense in the three‑month and six-month periods ended June 30, 2020 compared to the same periods in 2019 was primarily due to amortization expense of intangible assets associated with acquisitions completed in the twelve-month period ended June 30, 2020.  Based on the results of impairment reviews during the six-month period ended June 30, 2020, we wrote off $0.2 million of amortizable assets

Change in estimated acquisition earnout payables - The change in expense from the change in estimated acquisition earnout payables in the three‑month period ended June 30, 2020 compared to the same period in 2019, was primarily due to acquisition activity in 2019.  During the three-month periods ended June 30, 2020 and 2019, we recognized $0.1 million and $0.2 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.  During the six-month periods ended June 30, 2020 and 2019, we recognized $0.3 million and $0.5 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.  In addition, during the three-month periods ended June 30, 2020 and 2019, we recognized $1.3 million of expense and $0.3 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for three and one acquisitions, respectively. In addition, during the six-month periods ended June 30, 2020 and 2019, we recognized $3.1 million and $0.3 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for four and one acquisitions, respectively.

Provision for income taxes - The risk management segment’s effective income tax rates for the three-month periods ended June 30, 2020 and 2019 were 25.0% and 26.2%, respectively. The risk management segment’s effective income tax rates for the six-month periods ended June 30, 2020 and 2019 were 25.3% and 26.3%, respectively. We anticipate reporting an effective tax rate on adjusted results of approximately 24.0% to 26.0% in our risk management segment for the foreseeable future.

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, 2020 and in Note 14 to our most recent Annual Report on Form 10‑K as of December 31, 2019.  For a detailed discussion of the nature of our debt, see Note 7 to our consolidated financial statements included herein as of June 30, 2020 and in Note 8 to our most recent Annual Report on Form 10‑K as of December 31, 2019.

- 55 -

 

Financial information relating to our corporate segment results for the three-month and six-month periods ended June 30, 2020 as compared to the same periods in 2019 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

 

 

Revenues - Revenues in the corporate segment consist of the following:

 

•

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 six-month periods ended June 30, 2020 and 2019 is due to the vast majority of our operations being consolidated.  

Cost of revenues - Cost of revenues from consolidated clean coal production plants consists of the cost of coal, labor, equipment maintenance, chemicals, supplies, management fees and depreciation incurred by the clean coal production plants to generate the

- 56 -

 

consolidated revenues discussed above.  The decrease in the three‑month and six-month periods ended June 30 2020, compared to the same periods in 2019, was primarily due to decreased production of refined coal.

Compensation expense - Compensation expense in the three-month periods ended June 30, 2020 and 2019 was $17.1 million and $18.2 million, respectively. The decrease in compensation expense for the three-month period ended June 30, 2020 compared to the same period in 2019 was due primarily to headcount controls, benefit expense savings and the clean energy results for the quarter.  Compensation expense in the six-month periods ended June 30, 2020 and 2019 was $29.6 million and $53.3 million, respectively.  The decrease in compensation expense for the six‑month period ended June 30, 2020 compared to the same period in 2019 was due primarily to headcount controls, benefit expense savings and a decrease in incentive compensation due to the clean energy results in 2020.

Operating expense - Operating expense in the three-month period ended June 30, 2020 includes banking and related fees of $1.5 million, external professional fees and other due diligence costs related to acquisitions of $1.3 million, other corporate and clean energy related expenses, including legal fees, and costs related to corporate data and branding initiatives, of $8.5 million, and a net unrealized foreign exchange remeasurement loss of $5.1 million.

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, including legal fees, and costs related to corporate 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 six-month period ended June 30, 2019 includes banking and related fees of $2.3 million, external professional fees and other due diligence costs related to acquisitions of $8.1 million, other corporate and clean energy related expenses, including legal fees, and costs related to corporate data and branding initiatives, of $26.3 million, and a net realized loss related to foreign exchange hedge contracts of $3.2 million and unrealized foreign exchange remeasurement loss of $0.4 million.

Interest expense - The increase in interest expense for the three-month and six-month periods ended June 30, 2020, compared to the same periods in 2019, was due to the following:

 

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 2019.

Benefit for income taxes - We allocate the provision for income taxes to the brokerage and risk management segments using local statutory rates.  As a result, the provision for income taxes for the corporate segment reflects the entire benefit to us of the IRC Section 45 credits generated, because that is the segment which produced the credits. The law that provides for IRC Section 45 credits expired in December 2019 for our fourteen 2009 Era Plants and will expire in December 2021 for our twenty-one 2011 Era Plants.  Our consolidated effective tax rate for the three-month period ended June 30, 2020 was 5.8% compared to (15.1)% for the same period in 2019. Our consolidated effective tax rate for the six-month period ended June 30, 2020 was 2.0% compared to (10.7)% for the same period in 2019.  The tax rates for June 30, 2020 and 2019 were lower than the statutory rate primarily due to the amount of IRC Section 45 tax credits recognized during the period.  There were $92.7 million and $136.3 million of Section 45 tax credits recognized in the six‑month periods ended June 30, 2020 and 2019, respectively.  There were $58.9 million and $96.1 million of tax credits produced in the six‑month periods ended June 30, 2020 and 2019, respectively.  

Net earnings attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended June 30, 2020 and 2019 include non-controlling interest earnings of $6.7 million and $7.5 million, respectively related to our investment in Chem-Mod LLC.  The amounts reported in this line for the six-month periods ended June 30, 2020 and 2019 include noncontrolling interest earnings of $14.0 million and $16.7 million, respectively related to our investment in Chem-Mod LLC.  As of June 30, 2020 and 2019, we hold a 46.5% controlling interest in Chem-Mod LLC.  Also included in net earnings attributable to noncontrolling interests are offsetting amounts related to non-Gallagher owned interests in several clean energy investments.  

The following provides non-GAAP information that we believe is helpful when comparing our operating results for the three‑month and six-month periods ended June 30, 2020 and 2019 for the corporate segment (in millions):

 

 

 

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

)

 

 

- 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

)

 

 

(1)

Pretax loss for the second quarter is presented net of amounts attributable to noncontrolling interests of $6.6 million in 2020 and $6.2 million in 2019. Pretax loss for the six-month periods are presented net of amounts attributable to noncontrolling interests of $15.0 million in 2020 and $14.0 million in 2019.

(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 - Interest and banking costs includes expenses related to our debt.  

Clean energy related - Includes the operating results related to our investments in clean coal production plants and Chem-Mod LLC.  

Acquisition costs - Consists of professional fees, due diligence and other costs incurred related to our acquisitions.

Corporate - Consists of overhead allocations mostly related to corporate staff compensation and other corporate level activities, cross-selling and motivational meetings for our production staff and field management, expenses related to our new corporate headquarters and the impact of foreign currency translation.  The income tax benefit of stock based awards that vested or were settled in the six-month periods ended June 30, 2020 and 2019 was $14.3 million and $10.6 million, respectively, and is included in the table above in the Corporate line.  

Clean energy investments - We have investments in limited liability companies that own 29 clean coal production plants developed by us and five clean coal production plants we purchased from a third party on September 1, 2013 and one that we purchased from a third party on May 28, 2020.  The ability to generate tax credits on 14 of the 35 plants we own expired as of December 31, 2019.  The 21 remaining plants produce refined coal using propriety technologies owned by Chem-Mod LLC.  We believe that the production and sale of refined coal at these plants are qualified to receive refined coal tax credits under IRC Section 45.  The 14 2009 Era Plants received tax credits through 2019 and the 21 2011 Era Plants can receive tax credits through 2021.

- 59 -

 

The following table provides a summary of our clean coal plant investments as of June 30, 2020 (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

 

 

The estimated earnings information in the table reflects management’s current best estimate of the 2020 low and high ranges of after-tax earnings based on early production estimates from the host utilities, other operating assumptions, including current U.S. federal income tax laws. However, coal-fired power plants may not ultimately produce refined fuel at estimated levels due to seasonal electricity demand, production costs, natural gas prices, weather conditions, as well as many other operational, regulatory and environmental compliance reasons.  Future changes in EPA regulations or U.S. federal income tax laws might materially impact these estimates.  Please refer to our filings with the SEC, including Item 1A, “Risk Factors,” on pages 19, 20 and 21 of our Annual Report on Form 10‑K for the fiscal year ended December 31, 2019, for a more detailed discussion of these and other factors that could impact the information above.

Our investment in Chem-Mod LLC generates royalty income from refined coal production plants owned by those limited liability companies in which we invest as well as refined coal production plants owned by other unrelated parties. Future changes in EPA regulations or U.S. federal income tax laws might materially impact the earnings estimates.

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 2019 and for the six-month period ended June 30, 2020, we relied on a combination of net cash flows from operations, proceeds from borrowings under our Credit Agreement, proceeds from issuances of senior unsecured notes and issuances of our common stock.

Cash provided by operating activities was $802.2 million and $419.6 million for the six-month periods ended June 30, 2020 and 2019, respectively.  The increase in cash provided by operating activities during the six‑month period ended June 30, 2020 compared to the same period in 2019 was primarily due to timing differences between periods in the collection of other current receivables and payments on current liabilities.  During the three-month period ended June 30, 2020, we managed our working capital in terms of receivables and payables as a cautionary step to protect liquidity during this volatile period.  In addition, during the three-month period ended June 30, 2020, the company filed a refund claim under a CARES Act provision that accelerates the ability of companies to recover Alternative Minimum Tax (which we refer to as AMT) credits and we received a $28.5 million refund related to our AMT credit carryovers, which was the remaining amount owed to us.  Under the CARES Act we also elected to defer the payment of $16.3 million of employer payroll tax obligations incurred in the three-month period ended June 30, 2020 into 2021 and 2022.  This also defers our income tax deduction related to these employer payroll taxes, which results in an unfavorable temporary income tax

- 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 was favorably impacted by timing differences in the receipts and disbursements of client fiduciary related balances in 2020 compared to 2019.  The following table summarizes two lines from our consolidated statement of cash flows and provides information that management believes is helpful when comparing changes in client fiduciary related balances for the six‑month period ended June 30, 2020 with the same period in 2019 (in millions):

 

 

 

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

)

 

Our cash flows from operating activities are primarily derived from our earnings from operations, as adjusted for our non‑cash expenses, which include depreciation, amortization, change in estimated acquisition earnout payables, deferred compensation, restricted stock and stock‑based and other non-cash compensation expenses.  Cash provided by operating activities can be unfavorably impacted if the amount of IRC Section 45 tax credits generated (which is the amount we recognize for financial reporting purposes) is greater than the amount of tax credits utilized to reduce our tax cash obligations.  Excess tax credits produced during the period result in an increase to our deferred tax assets, which is a net use of cash related to operating activities.  Please see “Clean Energy Investments” below for more information on their potential future impact on cash provided by operating activities.

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 non‑cash items (i.e., EBITDAC), and cash provided by operating activities in our consolidated statement of cash flows.  Consolidated EBITDAC was $849.9 million and $744.2 million for the six-month periods ended June 30, 2020 and 2019, respectively.  Net earnings attributable to controlling interests were $500.0 million and $444.2 million for the six-month periods ended June 30, 2020 and 2019, respectively.  We believe that EBITDAC items are indicators of trends in liquidity.  From a balance sheet perspective, we believe the focus should not be on premiums and fees receivable, premiums payable or restricted cash for trends in liquidity.  Net cash flows provided by operations will vary substantially from quarter to quarter and year to year because of the variability in the timing of premiums and fees receivable and premiums payable.  We believe that in order to consider these items in assessing our trends in liquidity, they should be looked at in a combined manner, because changes in these balances are interrelated and are based on the timing of premium payments, both to and from us.  In addition, funds legally restricted as to our use relating to premiums and clients’ claim funds held by us in a fiduciary capacity are presented in our consolidated balance sheet as “Restricted cash” and have not been included in determining our overall liquidity.  

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 2020 plan year, nor were we required to make any minimum contributions to the plan for the 2019 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 six-month periods ended June 30, 2020 and 2019. We are not considering making any discretionary contributions to the plan in 2020, but may be required to make significantly larger minimum contributions to the plan in future periods.

Cash Flows From Investing Activities

Capital Expenditures - Capital expenditures were $58.8 million and $75.3 million for the six-month periods ended June 30, 2020 and 2019, respectively.  In 2020, we expect total expenditures for capital improvements to be approximately $80.0 million, part of which is related to expenditures on office moves and expansions and updating computer systems and equipment.  

- 61 -

 

Acquisitions - Cash paid for acquisitions, net of cash and restricted cash acquired, were $82.9 million and $733.9 million in the six‑month periods ended June 30, 2020 and 2019, respectively.  In addition, during the six-month period ended June 30, 2020, we issued 1.9 million shares ($182.1 million) of our common stock as payment for a portion of the total consideration paid for 2020 acquisitions and earnout payments made in 2020.  During the six‑month period ended June 30, 2019, we issued 0.6 million shares ($47.4 million) of our common stock as payment for consideration paid for 2019 acquisitions and earnout payments made in 2019.  We completed 12 acquisitions and 24 acquisitions in the six‑month periods ended June 30, 2020 and 2019, respectively.  Annualized revenues of businesses acquired in the six‑month periods ended June 30, 2020 and 2019 totaled approximately $138.1 million and $265.7 million, respectively.  During the three-month period ended June 30, 2020, the company made the decision to fund the majority of the consideration paid for acquisitions and earnout payments made in the quarter using company stock to preserve cash.  For the remainder of 2020, we expect to use cash from operations, our Credit Agreement, new debt and our common stock, or a combination thereof to fund all of the acquisitions we complete.

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 - During the six-month periods ended June 30, 2020 and 2019, we sold several books of business and recognized net gains of $1.2 million and $59.0 million, respectively. We received net cash proceeds of $2.5 million and $77.1 million related to the 2020 and 2019 transactions, respectively.  During the six-month period ended June 30, 2019, we recognized a one-time, net gain of $0.17 of diluted net earnings per share related to the divestiture of a travel insurance brokerage and four other smaller brokerage operations.  

Clean Energy Investments - During the period from 2009 through 2020, we have made significant investments in clean energy operations capable of producing refined coal that we believe qualifies for tax credits under IRC Section 45.  Our current estimate of the 2020 annual adjusted net after-tax earnings, including IRC Section 45 tax credits, which will be produced from all of our clean energy investments in 2020, is $60.0 million to $70.0 million.  The IRC Section 45 tax credits generate positive cash flow by reducing the amount of federal income taxes we pay, which is offset by the operating expenses of the plants, by capital expenditures related to the redeployment, and in some cases the relocation of refined coal plants.  We anticipate positive net cash flow related to IRC Section 45 activity in 2020.  However, there are several variables that can impact net cash flow from clean energy investments in any given year. Therefore, accurately predicting positive or negative cash flow in particular future periods is not possible at this time.  Nonetheless, if current ownership interests remain the same, if capital expenditures related to redeployment and relocation of refined coal plants remain as currently anticipated, and if we continue to generate sufficient taxable income to use the tax credits produced by our IRC Section 45 investments, we anticipate that these investments will continue to generate positive net cash flows through at least 2025.  While we cannot precisely forecast the cash flow impact in any particular period, we anticipate that the net cash flow impact of these investments will be positive overall.  Please see “Clean energy investments” on pages 59 and 60 for a more detailed description of these investments and their risks and uncertainties.  Please see “Other Information” on page 38 for the cash flow impact of the expiration of laws governing tax credits.

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, 2020, $100.0 million of borrowings were outstanding under the Credit Agreement.  Due to the outstanding loans and letters of credit, $1,082.6 million remained available for potential borrowings under the Credit Agreement at June 30, 2020.  

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 six-month period ended June 30, 2020, we borrowed $2,550.0 million and repaid $2,970.0 million under our Credit Agreement.  In the six-month period ended June 30, 2019, we borrowed $2,000.0 million and repaid $1,940.0 million under our Credit Agreement.  Principal uses of the 2020 and 2019 borrowings under the Credit Agreement were to fund acquisitions, earnout payments related to acquisitions and general corporate purposes.  

- 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$205.0 million and NZ$25.0 million tranches, (ii) Facility C, an AU$40.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency overdraft tranche. At June 30, 2020, 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 January 30, 2020, we closed and funded an offering of $575.0 million aggregate principal amount of fixed rate private placement unsecured senior notes. The weighted average maturity of these notes is 11.7 years and the weighted average interest rate is 4.23% per annum after giving effect to underwriting costs and the net hedge loss. In 2017 and 2018, we entered into pre-issuance interest rate hedging transactions related to this private placements.  We realized a net cash loss of approximately $8.9 million on the hedging transactions that will be recognized on a pro rata basis as an increase to our reported interest expense over a ten year period.

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 plan to use these offerings to repay certain existing indebtedness and for general corporate purposes, including to fund acquisitions.

At June 30, 2020, we had $4,448.0 million of corporate‑related borrowings outstanding under separate note purchase agreements entered into during the period from 2009 to 2020, and our credit facility, and a cash and cash equivalent balance of $349.7 million.  See Note 7 to our June 30, 2020 unaudited consolidated financial statements for a discussion of the terms of the note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility.  

Consistent with past practice, as of June 30, 2020, we had entered into pre-issuance hedging transactions of $350.0 million for 2020, $350.0 million for 2021 and $200.0 million for 2022.  During the three months ended June 30, 2020, we settled approximately $66.0 million of interest rate contracts hedges with a notional value of $350.0 million that will be amortized into interest expense in future periods.

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, 2020.  

Dividends - Our board of directors determines our dividend policy.  Our board of directors determines dividends on our common stock on a quarterly basis after considering our available cash from earnings, our anticipated cash needs and current conditions in the economy and financial markets.  

In the six-month period ended June 30, 2020, we declared $173.0 million in cash dividends on our common stock, or $0.90 per common share, a 5% increase over the six-month period ended June 30, 2019.  On July 29, 2020, we announced a quarterly dividend for third quarter 2020 of $0.45 per common share. This dividend level in 2020 will result in annualized net cash used by financing activities in 2020 of approximately $343.6 million (based on the number of outstanding shares as of June 30, 2020) or an anticipated increase in cash used of approximately $22.5 million compared to 2019.  We make no assurances regarding the amount of any future dividend payments.

Shelf Registration Statement - On November 15, 2019, we filed a shelf registration statement on Form S-3 with the SEC, registering the offer and sale from time to time, of an indeterminate amount of our common stock.  The availability of the potential liquidity under this shelf registration statement depends on investor demand, market conditions and other factors.  We make no assurances regarding when, or if, we will issue any shares under this registration statement.  On November 15, 2016, we also filed a shelf registration statement on Form S-4 with the SEC, registering 10.0 million shares of our common stock that we may offer and issue

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from time to time in connection with the future acquisitions of other businesses, assets or securities. At June 30, 2020, 5.4 million shares remained available for issuance under this registration statement.

Common Stock Repurchases - We have in place a common stock repurchase plan, last amended by our board of directors in 2008, for up to 10.0 million shares (7.3 shares remain available).  During the six-month periods ended June 30, 2020 and 2019, we did not repurchase shares of our common stock.  The plan authorizes the repurchase of our common stock at such times and prices as we may deem advantageous, in transactions on the open market or in privately negotiated transactions.  We are under no commitment or obligation to repurchase any particular number of shares, and the plan may be suspended at any time at our discretion.  Funding for share repurchases may come from a variety of sources, including cash from operations, short-term or long-term borrowings under our Credit Agreement or other sources.  See “Issuer Purchases of Equity Securities” below for more information regarding shares repurchased during the quarter.

Common Stock Issuances - Another source of liquidity to us is the issuance of our common stock pursuant to our stock option and employee stock purchase plans.  Proceeds from the issuance of common stock under these plans for the three-month periods ended June 30, 2020 and 2019, were $58.2 million and $65.1 million, respectively.  On May 16, 2017, our stockholders approved the 2017 Long-Term Incentive Plan (which we refer to as the LTIP), which replaced our previous stockholder-approved 2014 Long-Term Incentive Plan.  All of our officers, employees and non-employee directors are eligible to receive awards under the LTIP.  Awards which may be granted under the LTIP include non-qualified and incentive stock options, stock appreciation rights, restricted stock units and performance units, any or all of which may be made contingent upon the achievement of performance criteria.  Stock options with respect to 11.3 million shares (less any shares of restricted stock issued under the LTIP - 2.2 million shares of our common stock were available for this purpose as of June 30, 2020) were available for grant under the LTIP at June 30, 2020.  Our employee stock purchase plan allows our employees to purchase our common stock at 95% of its fair market value.  Proceeds from the issuance of our common stock related to these plans have contributed favorably to net cash provided by financing activities in the six-month periods ended June 30, 2020 and 2019, and we believe this favorable trend will continue in the foreseeable future.  

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 - We believe that we have sufficient capital and access to additional capital to meet our short- and long-term cash flow needs.

Contractual Obligations and Commitments

In connection with our investing and operating activities, we have entered into certain contractual obligations and commitments.  See Note 14 to the June 30, 2020 unaudited consolidated financial statements for a discussion of these obligations and commitments.  In addition, see Note 17 to the consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2019 for additional discussion of these obligations and commitments.

Off-Balance Sheet Arrangements

See Note 14 to the June 30, 2020 unaudited consolidated financial statements for a discussion of our off‑balance sheet arrangements.  In addition, see Notes 8, 14 and 17 to the consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2019 for additional discussion of these off-balance sheet arrangements.

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 10-K for the year ended December 31, 2019.

Business Combinations and Dispositions

See Note 3 to the unaudited consolidated financial statements for a discussion of our business combinations during the six-month period ended June 30, 2020.  During the six-month period ended June 30, 2019, we recognized a one-time, net gain of $0.17 of diluted

- 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 the six-month period ended June 30, 2020.

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, 2020 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 one‑year period.  This discussion of market risks related to our consolidated balance sheet includes estimates of future economic environments caused by changes in market risks.  The effect of actual changes in these market risk factors may differ materially from our estimates.  In the ordinary course of business, we also face risks that are either nonfinancial or unquantifiable, including credit risk and legal risk.  These risks are not included in the following analyses.

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, 2020 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 one‑percentage point increase in interest rates for the instruments contained in the cash and cash equivalents investment portfolio.  The resulting fair values were not materially different from their carrying values at June 30, 2020.

At June 30, 2020, we had $4,448.0 million of borrowings outstanding under our various note purchase agreements.  The aggregate estimated fair value of these borrowings at June 30, 2020 was $4,914.4 million due to their long‑term duration and fixed interest rates associated with these debt obligations.  No active or observable market exists for our private placement long-term debt.  Therefore, the estimated fair value of this debt is based on the income valuation approach, which is a valuation technique that converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount.  The fair value measurement is determined on the basis of the value indicated by current market expectations about those future amounts. Because our debt issuances generate a measurable income stream for each lender, the income approach was deemed to be an appropriate methodology for valuing the private placement long-term debt. The methodology used calculated the original deal spread at the time of each debt issuance, which was equal to the difference between the yield of each issuance (the coupon rate) and the equivalent benchmark treasury yield at that time.  The market spread as of the valuation date was calculated, which is equal to the difference between an index for investment grade insurers and the equivalent benchmark treasury yield today.  An implied premium or discount to the par value of each debt issuance based on the difference between the origination deal spread and market as of the valuation date was then calculated.  The index we relied on to represent investment graded insurers was the Bloomberg Valuation Services (BVAL) U.S. Insurers BBB index. This index is comprised primarily of insurance brokerage firms and was representative of the industry in which we operate. For the purpose of our analysis, the average BBB rate was assumed to be the appropriate borrowing rate for us.  

We estimated market risk as the potential impact on the value of the debt recorded in our consolidated balance sheet based on a hypothetical one‑percentage point decrease in our weighted average borrowing rate at June 30, 2020 and the resulting fair values would have been $793.8 million higher than their carrying value (or $5,241.8 million).  We estimated market risk as the potential impact on the value of the debt recorded in our consolidated balance sheet resulting from a hypothetical one‑percentage point increase in our weighted average borrowing rate at June 30, 2020 and the resulting fair values would have been $167.3 million higher than their carrying value (or $4,615.3 million).

At June 30, 2020, we had $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 one‑percentage point decrease in our weighted average short-term borrowing rate at June 30, 2020, and the resulting fair value is not materially different from their carrying value.

At June 30, 2020, we had $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 one‑percentage point decrease in our weighted average short-term borrowing rate at June 30, 2020, and the resulting fair value is not materially different from their carrying value.

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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 Latin 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 the six-month period ended June 30, 2020 (a weakening of the U.S. dollar), earnings before income taxes would have increased by approximately $16.7 million.  Assuming a hypothetical favorable change of 10% in the average foreign currency exchange rate for the six-month period ended June 30, 2020 (a strengthening of the U.S. dollar), earnings before income taxes would have decreased by approximately $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 non-U.S. based subsidiaries that are denominated in the respective local foreign currency.  A transaction that is in a foreign currency is first remeasured at the entity’s functional (local) currency, where applicable, (which is an adjustment to consolidated earnings) and then translated to the reporting (U.S. dollar) currency (which is an adjustment to consolidated stockholders’ equity) for consolidated reporting purposes.  If the transaction is already denominated in the foreign entity’s functional currency, only the translation to U.S. dollar reporting is necessary.  The remeasurement process required by U.S. GAAP for such foreign currency loan transactions will give rise to a consolidated unrealized foreign exchange gain or loss, which could be material, that is recorded in accumulated other comprehensive loss.

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 to minimize our exposure to this risk.  During the three-month periods ended June 30, 2020 and 2019, we had several monthly put/call options in place with an external financial institution that are designed to hedge a significant portion of our future U.K. currency revenues through various future payment dates.  In addition, during the six‑month periods ended June 30, 2020 and 2019, we had several monthly put/call options in place with an external financial institution that were designed to hedge a significant portion of our Indian currency disbursements through various future payment dates.  Although these hedging strategies were designed to protect us against significant U.K. and Indian currency exchange rate movements, we are still exposed to some foreign currency exchange rate risk for the portion of the payments and currency exchange rate that are unhedged.  All of these hedges are accounted for in accordance with ASC Topic 815, “Derivatives and Hedging”, and periodically are tested for effectiveness in accordance with such guidance. In the scenario where such hedge does not pass the effectiveness test, the hedge will be re-measured at the stated point and the appropriate loss, if applicable, would be recognized. In the six-month period ended June 30, 2020 there has been no such effect on our financial presentation.  The impact of these hedging strategies was not material to our unaudited consolidated financial statements for the six-month periods ended June 30, 2020 and 2019.  See Note 13 to our unaudited consolidated financial statements for the changes in fair value of these derivative instruments reflected in comprehensive earnings at June 30, 2020.

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 13a-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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 errors 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 our Company have been detected.

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Part II - Other Information

Item 1.

Please see the information set forth in Note 14 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 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (which we incorporate by reference in this report) should be considered alongside the information contained in this report.

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 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Gallagher for each fiscal month in the three-month period ended June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

—

 

 

 

 

 

 

(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 (which we refer to as the DEPP), our Deferred Cash Participation Plan (which we refer to as the DCPP) and our Supplemental Savings and Thrift Plan (which we refer to as the Supplemental Plan), respectively. These plans are considered to be unfunded for purposes of federal tax law since the assets of these trusts are available to our creditors in the event of our financial insolvency. The DEPP is an unfunded, non-qualified deferred compensation plan that generally provides for distributions to certain of our key executives when they reach age 62 or upon or after their actual retirement.  Under sub-plans of the DEPP for certain production staff, the plan generally provides for vesting and/or distributions no sooner than five years from the date of awards, although certain awards vest and/or distribute after the earlier of fifteen years or the participant reaching age 65.  See Note 10 to the June 30, 2020 unaudited consolidated financial statements in this report for more information regarding the DEPP.  The DCPP is an unfunded, non-qualified deferred compensation plan for certain key employees, other than executive officers, that generally provides for vesting and/or distributions no sooner than five years from the date of awards.  Under the terms of the DEPP and the DCPP, we may contribute cash to the 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 2020, we instructed the trustee for the DEPP and the DCPP to reinvest dividends on shares of our common stock held by these trusts and to purchase our common stock using cash that we contributed to the DCPP related to 2020 awards under the DCPP.  The Supplemental Plan is an unfunded, non-qualified deferred compensation plan that allows certain highly compensated employees to defer compensation, including company match amounts, on a before-tax basis or after‑tax basis.  Under the terms of the Supplemental Plan, all amounts credited to an employee’s account may be deemed invested, at the employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock.  When an employee elects to have some or all of the amounts credited to the employee’s account under the Supplemental Plan deemed to be invested in the fund representing our common stock, the trustee of the trust for the Supplemental Plan purchases shares of our common stock in a number sufficient to ensure that the trust holds a number of shares of our common stock with a value equal to all equivalent to the amounts deemed invested in the fund representing our common stock.  We want to ensure that at the time when an employee becomes entitled to a distribution under the terms of the Supplemental Plan, any amounts deemed to be invested in the fund representing our common stock are distributed in the form of shares of our common stock held by the trust.  We established the trusts for the DEPP, the DCPP and the Supplemental Plan to assist us in discharging our deferred compensation obligations under these plans.  All assets of these trusts, including any shares of our common stock purchased by the trustees, remain, at all times, assets of the Company, subject to the claims of our creditors in the event of our financial insolvency.  The terms of the DEPP, the DCPP and the Supplemental

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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.

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Item 6.

Exhibits

Filed with this Form 10‑Q

 

  31.1

 

Rule 13a-14(a) Certification of Chief Executive Officer.

 

 

 

  31.2

 

Rule 13a-14(a) Certification of Chief Financial Officer.

 

 

 

  32.1

 

Section 1350 Certification of Chief Executive Officer.

 

 

 

  32.2

 

Section 1350 Certification of Chief Financial Officer.

 

 

 

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, 2020, formatted in Inline XBRL (included as Exhibit 101).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 69 -

 

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 31, 2020

By:

/s/ Douglas K. Howell

 

 

Douglas K. Howell

Vice President and Chief Financial Officer

(principal financial officer and duly authorized officer)

 

- 70 -

 ajg-ex311_7.htm

Exhibit 31.1

 

Rule 13a-14(a) Certification of Chief Executive Officer

 

 

I, J. Patrick Gallagher, Jr., certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Arthur J. Gallagher & Co.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2020

/s/ J. Patrick Gallagher, Jr.

J. Patrick Gallagher, Jr.
President and Chief Executive Officer
(principal executive officer)

 

 

ajg-ex312_8.htm

Exhibit 31.2

 

Rule 13a-14(a) Certification of Chief Financial Officer

 

 

I, Douglas K. Howell, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Arthur J. Gallagher & Co.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2020

/s/ Douglas K. Howell

Douglas K. Howell
Vice President
Chief Financial Officer
(principal financial officer)

 

 

ajg-ex321_9.htm

Exhibit 32.1

 

Section 1350 Certification of Chief Executive Officer

 

 

I, J. Patrick Gallagher, Jr., the chief executive officer of Arthur J. Gallagher & Co., certify that (i) the Quarterly Report on Form 10-Q of Arthur J. Gallagher & Co. for the quarterly period ended June 30, 2020 (the “Form 10‑Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Arthur J. Gallagher & Co. and its subsidiaries.

 

Date: July 31, 2020

 

/s/ J. Patrick Gallagher, Jr.

J. Patrick Gallagher, Jr.
President and Chief Executive Officer
(principal executive officer)

 

 

 

A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to Arthur J. Gallagher & Co. and will be retained by Arthur J. Gallagher & Co. and furnished to the Securities Exchange Commission or its staff upon request.

 

ajg-ex322_10.htm

Exhibit 32.2

 

Section 1350 Certification of Chief Financial Officer

 

 

I, Douglas K. Howell, the chief financial officer of Arthur J. Gallagher & Co., certify that (i) the Quarterly Report on Form 10-Q of Arthur J. Gallagher & Co. for the quarterly period ended June 30, 2020 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Arthur J. Gallagher & Co. and its subsidiaries.

 

Date: July 31, 2020

 

/s/ Douglas K. Howell

Douglas K. Howell
Vice President
Chief Financial Officer
(principal financial officer)

 

 

 

A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to Arthur J. Gallagher & Co. and will be retained by Arthur J. Gallagher & Co. and furnished to the Securities Exchange Commission or its staff upon request.

 

v3.20.2
Cover Page
shares in Millions
 6 Months Ended
Jun. 30, 2020
shares
Cover [Abstract]  
Document Type 10-Q
Amendment Flag false
Document Fiscal Year Focus 2020
Document Period End Date Jun. 30, 2020
Document Fiscal Period Focus Q2
Entity Interactive Data Current Yes
Entity Central Index Key 0000354190
Current Fiscal Year End Date --12-31
Entity Registrant Name ARTHUR J. GALLAGHER & CO.
Entity File Number 1-09761
Document Transition Report false
Entity Tax Identification Number 36-2151613
Entity Incorporation, State or Country Code DE
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Address, Address Line One 2850 Golf Road
Entity Address, City or Town Rolling Meadows
Entity Address, State or Province IL
Entity Address, Postal Zip Code 60008
City Area Code 630
Local Phone Number 773-3800
Entity Shell Company false
Trading Symbol AJG
Security Exchange Name NYSE
Title of 12(b) Security Common Stock, par value $1.00 per share
Entity Common Stock, Shares Outstanding 191,469,000
Document Quarterly Report true
v3.20.2
Consolidated Statement of Earnings - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues before reimbursements $ 1,551.6 $ 1,624.8 $ 3,380.8 $ 3,582.3
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
Commissions [Member]        
Total revenues $ 827.5 $ 777.7 $ 1,844.7 $ 1,718.1
Broker Fees [Member]        
Total revenues 459.7 464.7 967.0 929.4
Supplemental Revenue Member [Member]        
Total revenues 50.3 46.9 109.3 103.6
Contingent Revenue [Member]        
Total revenues 37.4 29.5 82.5 77.5
Investment income [Member]        
Total revenues 16.0 19.6 34.6 37.9
Gains On Divestitures [Member]        
Total revenues 1.0 1.9 1.2 59.0
Clean Coal Activities [Member]        
Total revenues 159.5 284.4 341.3 656.7
Other net revenues [Member]        
Total revenues 0.2 0.1 0.2 0.1
Reimbursements [Member]        
Total revenues $ 32.4 $ 33.0 $ 70.1 $ 66.1
v3.20.2
Consolidated Statement of Comprehensive Earnings - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]        
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
v3.20.2
Consolidated Balance Sheet - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
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
v3.20.2
Consolidated Balance Sheet (Parenthetical) - shares
shares in Millions
Jun. 30, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Common stock - issued shares 191.5 188.1
Common stock - outstanding shares 191.5 188.1
v3.20.2
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2020
Jun. 30, 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
v3.20.2
Consolidated Statement of Stockholders' Equity - USD ($)
$ in Millions
Total
Cumulative Effect Period Of Adoption Adjustment [Member]
Common Stock [Member]
Capital in Excess of Par Value [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect Period Of Adoption Adjustment [Member]
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Loss [Member]
Cumulative Effect Period Of Adoption Adjustment [Member]
Noncontrolling Interests [Member]
Beginning balance at Dec. 31, 2018 $ 4,569.7 $ (2.4) $ 184.0 $ 3,541.9 $ 1,558.6 $ (2.2) $ (785.6) $ (0.2) $ 70.8
Beginning balance (in shares) at Dec. 31, 2018     184,000,000.0            
Net earnings 351.7       334.1       17.6
Net purchase of subsidiary shares from noncontrolling interests (0.3)     (0.2)         (0.1)
Dividends paid to noncontrolling interests (11.0)               (11.0)
Net change in pension asset/liability, net of taxes 1.6           1.6    
Foreign currency translation, net of taxes 75.1           74.5   0.6
Change in fair value of derivative investments, net of taxes (11.8)           (11.8)    
Compensation expense related to stock option plan grants 3.6     3.6          
Common stock issued in: purchase transactions 37.0   $ 0.5 36.5          
Common stock issued in: purchase transactions (in shares)     500,000            
Stock option plans 28.1   $ 0.7 27.4          
Stock option plans (in shares)     700,000            
Employee stock purchase plan 4.7   $ 0.1 4.6          
Employee stock purchase plan (in shares)     100,000            
Deferred compensation and restricted stock (7.5)     (7.5)          
Cash dividends declared on common stock (80.3)       (80.3)        
Ending balance at Mar. 31, 2019 4,958.2   $ 185.3 3,606.3 1,810.2   (721.5)   77.9
Ending balance, (in shares) at Mar. 31, 2019     185,300,000            
Beginning balance at Dec. 31, 2018 4,569.7 $ (2.4) $ 184.0 3,541.9 1,558.6 $ (2.2) (785.6) $ (0.2) 70.8
Beginning balance (in shares) at Dec. 31, 2018     184,000,000.0            
Net earnings 473.1                
Net change in pension asset/liability, net of taxes 2.4                
Change in fair value of derivative investments, net of taxes (32.9)                
Compensation expense related to stock option plan grants 7.1                
Ending balance at Jun. 30, 2019 4,947.8   $ 186.1 3,656.5 1,839.3   (802.5)   68.4
Ending balance, (in shares) at Jun. 30, 2019     186,100,000            
Beginning balance at Mar. 31, 2019 4,958.2   $ 185.3 3,606.3 1,810.2   (721.5)   77.9
Beginning balance (in shares) at Mar. 31, 2019     185,300,000            
Net earnings 121.4       110.1       11.3
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 0.8           0.8    
Foreign currency translation, net of taxes (60.9)           (60.7)   (0.2)
Change in fair value of derivative investments, net of taxes (21.1)           (21.1)    
Compensation expense related to stock option plan grants 3.5     3.5          
Common stock issued in: purchase transactions 11.0   $ 0.1 10.9          
Common stock issued in: purchase transactions (in shares)     100,000            
Stock option plans 21.8   $ 0.5 21.3          
Stock option plans (in shares)     500,000            
Employee stock purchase plan 10.5   $ 0.1 10.4          
Employee stock purchase plan (in shares)     100,000            
Deferred compensation and restricted stock 4.2   $ 0.1 4.1          
Deferred compensation and restricted (in shares)     100,000            
Cash dividends declared on common stock (81.0)       (81.0)        
Ending balance at Jun. 30, 2019 4,947.8   $ 186.1 3,656.5 1,839.3   (802.5)   68.4
Ending balance, (in shares) at Jun. 30, 2019     186,100,000            
Beginning balance at Dec. 31, 2019 $ 5,215.5   $ 188.1 3,825.7 1,901.3   (759.6)   60.0
Beginning balance (in shares) at Dec. 31, 2019 188,100,000   188,100,000            
Net earnings $ 355.4       346.3       9.1
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 1.2           1.2    
Foreign currency translation, net of taxes (380.1)           (381.3)   1.2
Change in fair value of derivative investments, net of taxes (91.4)           (91.4)    
Compensation expense related to stock option plan grants 3.4     3.4          
Common stock issued in: purchase transactions 73.1   $ 0.7 72.4          
Common stock issued in: purchase transactions (in shares)     700,000            
Stock option plans 17.9   $ 0.4 17.5          
Stock option plans (in shares)     400,000            
Employee stock purchase plan 6.0   $ 0.1 5.9          
Employee stock purchase plan (in shares)     100,000            
Deferred compensation and restricted stock (15.0)   $ 0.3 (15.3)          
Deferred compensation and restricted (in shares)     300,000            
Cash dividends declared on common stock (86.2)       (86.2)        
Ending balance at Mar. 31, 2020 5,070.1   $ 189.6 3,909.6 2,161.4   (1,231.1)   40.6
Ending balance, (in shares) at Mar. 31, 2020     189,600,000            
Beginning balance at Dec. 31, 2019 $ 5,215.5   $ 188.1 3,825.7 1,901.3   (759.6)   60.0
Beginning balance (in shares) at Dec. 31, 2019 188,100,000   188,100,000            
Net earnings $ 517.2                
Net change in pension asset/liability, net of taxes 1.2                
Change in fair value of derivative investments, net of taxes (93.2)                
Compensation expense related to stock option plan grants $ 6.7                
Stock option plans (in shares) 900,000                
Ending balance at Jun. 30, 2020 $ 5,534.5   $ 191.5 4,051.0 2,228.3   (982.2)   45.9
Ending balance, (in shares) at Jun. 30, 2020 191,500,000   191,500,000            
Beginning balance at Mar. 31, 2020 $ 5,070.1   $ 189.6 3,909.6 2,161.4   (1,231.1)   40.6
Beginning balance (in shares) at Mar. 31, 2020     189,600,000            
Net earnings 161.8       153.7       8.1
Net purchase of subsidiary shares from noncontrolling interests 4.3               4.3
Dividends paid to noncontrolling interests (6.3)               (6.3)
Foreign currency translation, net of taxes 249.9           250.7   (0.8)
Change in fair value of derivative investments, net of taxes (1.8)           (1.8)    
Compensation expense related to stock option plan grants 3.3     3.3          
Common stock issued in: purchase transactions 110.9   $ 1.2 109.7          
Common stock issued in: purchase transactions (in shares)     1,200,000            
Stock option plans 21.9   $ 0.5 21.4          
Stock option plans (in shares)     500,000            
Employee stock purchase plan 12.4   $ 0.1 12.3          
Employee stock purchase plan (in shares)     100,000            
Deferred compensation and restricted stock (5.2)   $ 0.1 (5.3)          
Deferred compensation and restricted (in shares)     100,000            
Cash dividends declared on common stock (86.8)       (86.8)        
Ending balance at Jun. 30, 2020 $ 5,534.5   $ 191.5 $ 4,051.0 $ 2,228.3   $ (982.2)   $ 45.9
Ending balance, (in shares) at Jun. 30, 2020 191,500,000   191,500,000            
v3.20.2
Consolidated Statement of Stockholders' Equity (Parenthetical) - USD ($)
$ in Millions
 3 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Statement Of Stockholders Equity [Abstract]        
Tax effect on net change in pension asset/liability   $ 0.3 $ 0.2 $ 0.4
Net change in fair value of derivative instruments, tax $ 0.0 $ (28.9) $ (7.1) $ (4.4)
v3.20.2
Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

1.  Summary of Significant Accounting Policies

Terms Used in Notes to Consolidated Financial Statements

ASC - Accounting Standards Codification.

ASU - Accounting Standards Update.

FASB - The Financial Accounting Standards Board.

GAAP - U.S. generally accepted accounting principles.  

IRC - Internal Revenue Code.

IRS - Internal Revenue Service.

Underwriting enterprises - Insurance companies, reinsurance companies and various other forms of risk-taking entities, including intermediaries of 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. We have three reportable 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, not-for-profit, public entities, and, to a lesser extent, individuals, in the areas of insurance placement, risk of loss management, and management of employer sponsored benefit programs.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not-for-profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.  The corporate segment reports the financial information related to our debt and other corporate costs, clean energy investments, external acquisition-related expenses and the impact of foreign currency translation.  Clean energy investments consist of our investments in limited liability companies that own 35 commercial clean coal production facilities producing refined coal using Chem-Mod LLC’s proprietary technologies.  We believe these operations produce refined coal that qualifies for tax credits under IRC Section 45.  

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 for covering 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 49 countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent insurance brokers and consultants.

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, 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 Form 10-K for the year ended December 31, 2019.  In the preparation of our unaudited consolidated financial statements as of June 30, 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, right-of-use assets, investments (including our IRC Section 45 investments), income taxes, revenue recognition, deferred costs, stock-based compensation, claims handling obligations, retirement plans, litigation and contingencies.  We base our estimates on historical experience and various assumptions that we believe to be reasonable based on specific circumstances.  Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.
v3.20.2
Effect of New Accounting Pronouncements
 6 Months Ended
Jun. 30, 2020
Accounting Changes And Error Corrections [Abstract]  
Effect of New Accounting Pronouncements

2.  Effect of New Accounting Pronouncements    

Credit Impairment

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.  Under the new guidance an entity is required to measure all credit losses on certain financial instruments, including trade receivables and various off-balance sheet credit exposures, using an expected credit loss model.  This model incorporates past experience, current conditions and reasonable and supportable forecasts affecting collectability of these instruments.  An entity will apply the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.  The guidance was effective January 1, 2020.  We adopted this new guidance effective January 1, 2020 and applied the guidance to measure credit losses on our financial instruments, which included premiums and fees receivable, premium finance advances and reinsurance recoverables. The adoption did not have a material impact on our consolidated financial statements.

Disclosure Framework

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):  Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.  This new guidance modifies various disclosure requirements for fair value measurements, including in certain part those related to Level 3 fair value measurements.  The new guidance was effective January 1, 2020.  Certain portions of the guidance needed to be adopted prospectively while other portions were required to be adopted retrospectively for all periods presented.  

In August 2018, the FASB also issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20):  Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.  This new guidance modifies various disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  The new guidance was effective January 1, 2020, with early adoption permitted.  Retrospective adoption is required.  

We adopted both of the standards effective January 1, 2020. The adoption did not have any impact on our consolidated financial statements.

Intangibles - Goodwill and Other

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  The new guidance eliminates Step 2 of the goodwill impairment test.  Instead, the updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the

loss not exceeding the total amount of goodwill allocated to that reporting unit.  The new guidance was effective beginning January 1, 2020.  We adopted this new guidance effective January 1, 2020. The adoption did not have any impact on our consolidated financial statements.

Internal-use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):  Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.  This new accounting guidance requires deferral of certain implementation costs associated with a cloud computing arrangement, or hosting arrangement, thereby aligning deferral of such costs with implementation costs associated with developing internal-use software.  Accounting for the service component of a hosting arrangement remains unchanged.  An entity will defer these implementation costs over the term of the hosting arrangement, including optional renewal periods that are reasonably certain of exercise.  Amounts expensed would be presented through operating expense, rather than depreciation or amortization.  The new guidance was effective January 1, 2020.  An entity may adopt the guidance either prospectively for all cloud computing arrangement implementation costs incurred on or after the effective date, or retrospectively, including comparative periods.  We adopted this new guidance effective January 1, 2020 on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.
v3.20.2
Business Combinations
 6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Business Combinations

3.  Business Combinations

During the six-month period ended June 30, 2020, we acquired substantially all of the net assets of the following firms in exchange for our common stock and/or cash.  These acquisitions have been accounted for using the acquisition method for recording business combinations (in millions, except share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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 two- to three-year period subsequent to the acquisition date, are measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration in the foregoing table.  We will record subsequent changes in these estimated earnout obligations, including the accretion of discount, in our consolidated statement of earnings when incurred.

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 2.5% to 13.8% for our 2020 acquisitions.  We estimated future payments using the earnout formula and performance targets specified in each purchase agreement and the financial 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 were 9.0% for all of our 2020 acquisitions.  

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 30, 2020 and 2019, we recognized $7.7 million and $5.8 million, respectively, of expense in our consolidated statement of earnings related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.  During the six-month periods ended June 30, 2020 and 2019, we recognized $18.4 million and $11.4 million, respectively, of expense in our consolidated statement of earnings related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. In addition, during the three-month periods ended June 30, 2020 and 2019, we recognized $8.0 million of expense and $2.4 million of income, respectively, related to net adjustments in the estimated fair value of the liability for earnout obligations in connection with revised projections of future performance for 44 and 46 acquisitions, respectively. In addition, during the six-month periods ended June 30, 2020 and 2019, we recognized $91.6 million and $5.1 million of income, respectively, related to net adjustments in the estimated fair value of the liability for earnout obligations in connection with revised projections of future performance for 102 and 68 acquisitions, respectively. The aggregate amount of maximum earnout obligations related to acquisitions was $1,060.7 million as of June 30, 2020, of which $474.0 million was recorded in the consolidated balance sheet as of June 30, 2020, based on the estimated fair value of the expected future payments to be made.  

The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in the six‑month period ended June 30, 2020 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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, non-compete agreements and trade names in the amounts of $190.5 million, $178.4 million, $4.6 million and $14.2 million, respectively, within the brokerage and risk management segment.

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 1.5% to 3.2% and 5.0% to 15.7%, respectively, for our 2019 acquisitions for which valuations were performed in 2020.  We estimate the fair value as the present value of the benefits anticipated from ownership of the subject expiration 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 9.0% to 12.5% for our 2019 acquisitions for which valuations were performed in 2020.  The fair value of non-compete agreements was established using the profit differential method, which is an income approach based on estimated financial projections developed by management for the acquired company using market participant assumptions and various non-compete scenarios.

Expiration lists, non-compete agreements and trade names related to our acquisitions are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names), while goodwill is not subject to amortization.  We use the straight-line method to amortize these intangible

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.  Based on the results of impairment reviews during the three month and six-month periods ended June 30, 2020, we wrote off $0.2  million and $46.0 million, respectively, of amortizable assets related to the brokerage and risk management segments.  No such impairments were noted in the three-month and six-month periods ended June 30, 2019.

Of the $178.4 million of expiration lists, $4.6 million of non-compete agreements and $14.2 million of trade names related to our acquisitions made during the six-month period ended June 30, 2020, $3.4 million, $0.1 million and  zero, respectively, is not expected to be deductible for income tax purposes.  Accordingly, we recorded a deferred tax liability of $1.0 million, and a corresponding amount of goodwill, in the six-month period ended June 30, 2020, related to the nondeductible amortizable intangible assets.  

Our consolidated financial statements for the six-month period ended June 30, 2020 include the operations of the entities acquired in the six-month period ended June 30, 2020 from their respective acquisition dates.  The following is a summary of the unaudited pro forma historical results, as if these entities had been acquired at January 1, 2019 (in millions, except per share data):

 

 

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

 

 

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, 2019, nor are they necessarily indicative of future operating results.  Annualized revenues of entities acquired during the six-month period ended June 30, 2020 totaled approximately $138.1 million.  For the six‑month period ended June 30, 2020, total revenues and net earnings recorded in our unaudited consolidated statement of earnings related to our acquisitions made during the six-month period ended June 30, 2020 in the aggregate, were $16.6 million and $2.9 million, respectively.
v3.20.2
Contracts with Customers
 6 Months Ended
Jun. 30, 2020
Revenue From Contract With Customer [Abstract]  
Contracts with Customers

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

 

 

The unbilled receivables, which are included in premiums and fees receivable in our consolidated balance sheet, primarily relate to our rights to consideration for work completed but not billed at the reporting date.  These are transferred to the receivables when the client is billed.  The deferred contract costs represent the costs we incur to fulfill a new or renewal contract with our clients prior to the effective date of the contract.  These costs are expensed on the contract effective date.  The deferred revenue represents the remaining performance obligations under our contracts.

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

 

 

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, 2020, the aggregate amount of the contract price allocated to remaining performance obligations was $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

 

 

Deferred Contract Costs

We capitalize costs incurred to fulfill contracts as deferred contract costs which are included in other current assets in our consolidated balance sheet.  Deferred contract costs were $70.1 million and $98.3 million as of June 30, 2020 and December 31, 2019, respectively.  Capitalized fulfillment costs are amortized on the contract effective date.  The amount of amortization of the deferred contract costs was $208.1 million and $191.9 million for the six-month periods ended June 30, 2020 and 2019, respectively.

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.

v3.20.2
Other Financial Data
 6 Months Ended
Jun. 30, 2020
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]  
Other Financial Data

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

 

 

The premium finance advances and loans represent short-term loans which we make to many of our brokerage related clients and other non‑brokerage clients to finance their premiums paid to underwriting enterprises.  These premium finance advances and loans are primarily generated by three Australian and New Zealand premium finance subsidiaries.  Financing receivables are carried at amortized cost.  Given that these receivables carry a fairly rapid delinquency period of only seven days post payment date, and that contractually the majority of the underlying insurance policies will be cancelled within one month of the payment due date in normal course, there historically has been a minimal risk of not receiving payment, and therefore we do not maintain any significant allowance for losses against this balance.  
v3.20.2
Intangible Assets
 6 Months Ended
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

6.  Intangible Assets

The carrying amount of goodwill at June 30, 2020 and December 31, 2019 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

 

 

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2020 are as follows (in millions):

 

 

 

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

 

 

Major classes of amortizable intangible assets at June 30, 2020 and December 31, 2019 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

 

 

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

 

 
v3.20.2
Credit and Other Debt Agreements
 6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Credit and Other Debt Agreements

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

 
v3.20.2
Earnings per Share
 6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Earnings per Share

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

 

 

Anti-dilutive stock-based awards of 1.6 million and 1.3 million shares were outstanding at June 30, 2020 and 2019, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the three‑month periods then ended. Anti-dilutive stock-based awards of 1.0 million and 0.8 million shares were outstanding at June 30, 2020 and 2019, respectively, but were excluded in the computation of the dilutive effect of stock-based awards for the six‑month periods then ended.  These stock-based awards were excluded from the computation because the exercise prices on these stock-based awards were greater than the average market price of our common shares during the respective period, and therefore, would be anti-dilutive to earnings per share under the treasury stock method.
v3.20.2
Stock Option Plans
 6 Months Ended
Jun. 30, 2020
Text Block [Abstract]  
Stock Option Plans

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 non-employee directors are eligible to receive awards under the LTIP.  The compensation committee of our board of directors determines the annual number of shares delivered under the LTIP.  The LTIP provides for non-qualified and incentive stock options, stock appreciation rights, restricted stock and restricted stock units, any or all of which may be made contingent upon the achievement of performance criteria.  

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 2.2 million at June 30, 2020.  

The LTIP provides for the grant of stock options, which may be either tax-qualified incentive stock options or non-qualified options and stock appreciation rights.  The compensation committee determines the period for the exercise of a non-qualified stock option, tax-qualified incentive stock option or stock appreciation right, provided that no option can be exercised later than seven years after its date of grant.  The exercise price of a non-qualified stock option or tax-qualified incentive stock option and the base price of a stock appreciation right cannot be less than 100% of the fair market value of a share of our common stock on the date of grant, provided that the base price of a stock appreciation right granted in tandem with an option will be the exercise price of the related option.  

Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock, through a net-exercise arrangement, or through a broker-assisted cashless exercise arrangement.  The compensation committee determines all of the terms relating to the exercise, cancellation or other disposition of an option or stock appreciation right upon a termination of employment, whether by reason of disability, retirement, death or any other reason. Stock option and stock appreciation right awards under the LTIP are non-transferable.

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.  The 2020 and 2019 options expire seven years from the date of grant, or earlier in the event of certain terminations of employment.  For our executive officers age 55 or older, stock options are not subject to forfeiture upon such officers’ departure from the company after two years from the date of grant.

During the three-month periods ended June 30, 2020 and 2019, we recognized $3.3 million and $3.5 million, respectively, of compensation expense related to our stock option grants. During the six-month periods ended June 30, 2020 and 2019, we recognized $6.7 million and $7.1 million, respectively, of compensation expense related to our stock option grants.

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

 

 

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 six-month periods ended June 30, 2020 and 2019, as determined on the grant date using the Black-Scholes option pricing model, was $9.99 and $10.71, respectively.

The following is a summary of our stock option activity and related information for 2020 (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

 

 

Options with respect to 11.3 million shares (less any shares of restricted stock issued under the LTIP - see Note 11 to these unaudited consolidated financial statements) were available for grant under the LTIP at June 30, 2020.

The total intrinsic value of options exercised during the six-month periods ended June 30, 2020 and 2019 was $47.1 million and $48.3 million, respectively.  As of June 30, 2020, we had approximately $36.0 million of total unrecognized compensation expense related to nonvested options.  We expect to recognize that cost over a weighted average period of approximately four years.

Other information regarding stock options outstanding and exercisable at June 30, 2020 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

 

 
v3.20.2
Deferred Compensation
 6 Months Ended
Jun. 30, 2020
Compensation Related Costs [Abstract]  
Deferred Compensation

10.  Deferred Compensation

We have a Deferred Equity Participation Plan (which we refer to as the DEPP), which is a non-qualified plan that generally provides for distributions to certain of our key executives when they reach age 62 (or the one-year anniversary of the date of the grant for participants over the age of 61 as of the grant date) or upon or after their actual retirement.  Under the provisions of the DEPP, we typically contribute cash in an amount approved by the compensation committee to a rabbi trust on behalf of the executives participating in the DEPP, and instruct the trustee to acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions based on participant elections.  Distributions under the DEPP may not normally be made until the participant reaches age 62 (or the one-year anniversary of the date of the grant for participants over the age of 61 as of the grant date) and are subject to forfeiture in the event of voluntary termination of employment prior to then.  DEPP awards are generally made annually in the first quarter.  In addition, we annually make awards under sub-plans of the DEPP for certain production staff, which generally provide 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.  All contributions to the plan (including sub-plans) deemed to be invested in shares of our common stock are distributed in the form of our common stock and all other distributions are paid in cash.

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 2020 and 2019, the compensation committee approved $14.1 million and $10.1 million, respectively, of awards in the aggregate to certain key executives under the DEPP that were contributed to the rabbi trust in the first quarters of 2020 and 2019, respectively.  We contributed cash to the rabbi trust and instructed the trustee to acquire a specified number of shares of our common stock on the open market to fund these 2020 and 2019 awards.  During the three-month periods ended June 30, 2020 and 2019, we charged $3.7 million and $2.6 million, respectively, to compensation expense related to these awards.  During the six-month periods ended June 30, 2020 and 2019, we charged $6.0 million and $4.6 million, respectively, to compensation expense related to these awards.

In the first quarters of 2020 and 2019, the compensation committee approved $1.8 million and $2.6 million, respectively, of awards under the sub-plans referred to above, which were contributed to the rabbi trust in the first quarters of 2020 and 2019, respectively.  During the three-month periods ended June 30, 2020 and 2019, we charged $0.7 million and $0.7 million, respectively, to compensation expense related to these awards. During the six-month periods ended June 30, 2020 and 2019, we charged $1.4 million and $1.2 million, respectively, to compensation expense related to these awards.  There were no distributions from the sub-plans during the six-month periods ended June 30, 2020 and 2019.

At June 30, 2020 and December 31, 2019, we recorded $70.7 million (related to 2.9 million shares) and $64.5 million (related to 2.9 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-based awards under the plan at June 30, 2020 and December 31, 2019 was $283.8 million and $276.3 million, respectively.  During the six-month period ended June 30, 2020, cash and equity awards with an aggregate fair value of $9.8 million was vested and distributed to executives under the DEPP. During the six-month period ended June 30, 2019, cash and equity awards with an aggregate fair value of $1.3 million was vested and distributed to executives under the DEPP.  

We have a Deferred Cash Participation Plan (which we refer to as the DCPP), which is a 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 provisions of the DCPP, we typically contribute cash in an amount approved by the compensation committee to the rabbi trust on behalf of the executives participating in the DCPP, and instruct the trustee to acquire a specified number of shares of our common stock on the open market or in privately negotiated transactions based on participant elections.  In the first quarters of 2020 and 2019, the compensation committee approved $3.0 million and $2.4 million, respectively, of awards in the aggregate to certain key executives under the DCPP that were contributed to the rabbi trust in the second quarters of 2020 and 2019, respectively.  During the three‑month periods ended June 30, 2020 and 2019, we charged $1.7 million and $1.2 million, respectively, to compensation expense related to these awards. During the six‑month periods ended June 30, 2020 and 2019, we charged $3.4 million and $2.3 million, respectively, to compensation expense related to these awards. There were $7.3 million of distributions from the DCPP during the six-month period ended June 30, 2020.  There were $2.5 million of distributions from the DCPP during the six-month period ended June 30, 2019.
v3.20.2
Restricted Stock, Performance Share and Cash Awards
 6 Months Ended
Jun. 30, 2020
Text Block [Abstract]  
Restricted Stock, Performance Share and Cash Awards

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 non-employee directors.  In either case, the compensation committee may determine that the award will be subject to the attainment of performance measures over an established performance period.  Stock awards and the related dividend equivalents are non-transferable and subject to forfeiture if the holder does not remain continuously employed with us during the applicable restriction period or, in the case of a performance-based award, if applicable performance measures are not attained. The compensation committee will determine all of the terms relating to the satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a restricted stock award upon a termination of employment, whether by reason of disability, retirement, death or any other reason.  

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, 2020, 2.2 million shares were available for grant under the LTIP for such awards.

In the first quarters of 2020 and 2019, we granted 405,900 and 399,900 restricted stock units, respectively, to employees under the LTIP, with an aggregate fair value of $34.9 million and $31.8 million, respectively, at the date of grant.  These 2020 and 2019 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, vest in full based on continued employment through March 12, 2025 and March 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.  Future 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, 2020 and 2019, we recognized $9.5 million and $8.4 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020. During the six-month periods ended June 30, 2020 and 2019, we recognized $20.1 million and $14.8 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020.  The total intrinsic value of unvested restricted stock units at June 30, 2020 and 2019 was $228.5 million and $199.7 million, respectively.  During the six-month period ended June 30, 2020, equity awards (including accrued dividends) with an aggregate value of $30.6 million, were vested and distributed to employees under this plan.  During the six-month period ended June 30, 2019 equity awards with an aggregate fair value of $2.0 million, were vested and distributed to employees under this plan

Performance Share Awards

On March 12, 2020 and March 14, 2019, pursuant to the LTIP, the compensation committee approved 82,500 and 73,600, respectively, of provisional performance share awards, with an aggregate fair value of $7.1 million and $5.8 million, respectively, for future grants to our officers and key employees. Each performance share award was equivalent to the value of one share of our common stock on the date such provisional award was approved. At the end of the performance period, eligible participants will receive a number of earned shares based on the growth in adjusted EBITDAC per share (as defined in our 2020 Proxy Statement). Earned shares for the 2020 and 2019 provisional awards will fully vest based on continuous employment through March 12, 2023 and March 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.  During the six-month periods ended June 30, 2020 and 2019, equity awards (including accrued dividends) with an aggregate fair value of $12.5 million and $5.7 million, were vested and distributed to employees under this plan.

Cash Awards

On March 12, 2020, pursuant to our Performance Unit Program (which we refer to as the Program), the compensation committee approved provisional cash awards of $18.4 million in the aggregate for future grants to our officers and key employees that are denominated in units (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 one-year performance period based on our financial performance and a three-year vesting period measured from January 1 of the year of grant.  At the discretion of the compensation committee and determined based on our performance, the eligible officer or key employee will be granted a percentage of the provisional cash award units that equates to the EBITAC growth achieved (as defined in the Program).  At the end of the performance period, eligible participants will be granted a number of units based on achievement of the performance goal and subject to approval by the compensation committee.  Granted units for the 2020 provisional award will fully vest based on continuous employment through January 1, 2023.  The ultimate award value will be equal to the trailing twelve-month price of our common stock on December 31, 2022, multiplied by the number of units subject to the award, but limited to between 0.5 and 1.5 times the original value of the units determined as of the grant date.  The fair value of the awarded units will be paid out in cash as soon as practicable in 2023.  If an eligible employee leaves us prior to the vesting date, the entire award will be forfeited.  We did not recognize any compensation expense during the six-month period ended June 30, 2020 related to the 2020 provisional award under the Program.  

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 not 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 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 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, 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 periods ended June 30, 2020 and 2019, we recognized $0.9 million and $2.2 million to compensation expense related to these 2018 awards, respectively. During the six-month periods ended June 30, 2020 and 2019, we recognized $3.5 million and $4.1 million, respectively, to compensation expense related to restricted stock unit awards granted in 2012 through 2020.  

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 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 fully vested on January 1, 2020.  During the three-month period ended June 30, 2019, we recognized $2.6 million to compensation expense related to these 2017 awards.  During the six-month period ended June 30, 2019, we recognized $5.0 million to compensation expense related to these 2017 awards.  

During the six-month period ended June 30, 2020, cash awards related to the 2017 provisional award with an aggregate fair value of $18.9 million (221,600 units in the aggregate) were vested and distributed to employees under the Program.  During the six-month period ended June 30, 2019, cash awards related to the 2016 provisional award with an aggregate fair value of $22.4 million (341,000 units in the aggregate) were vested and distributed to employees under the Program.  
v3.20.2
Investments
 6 Months Ended
Jun. 30, 2020
Equity Method Investments And Joint Ventures [Abstract]  
Investments

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

 

 
v3.20.2
Derivatives and Hedging Activity
 6 Months Ended
Jun. 30, 2020
Derivative Instruments And Hedging Activities Disclosure Abstract  
Derivatives and Hedging Activity

13.  Derivatives and Hedging Activity

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, 2020.

The notional and fair values of derivatives designated as hedging instruments are as follows at June 30, 2020 and December 31, 2019 (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

 

 

(1)

Included within foreign exchange contracts at June 30, 2020 were $253.7 million of call options offset with $253.7 million of put options, and $11.7 million of buy forwards offset with $73.9 million of sell forwards.  Included within foreign exchange contracts at December 31, 2019 were $342.0 million of call options offset with $342.0 million of put options, and $12.1 million of buy forwards offset with $43.8 million of sell forwards.

The effect of cash flow hedge accounting on accumulated other comprehensive loss for the three-month and six-month periods ended June 30, 2020 and 2019 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(1)

For the three-month and six-month periods ended June 30, 2020, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.1 million and $0.4 million, respectively.  

We estimate that approximately $11.3 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.  During the three months ended June 30, 2020, we settled approximately $66.0  million of interest rate contracts hedges with a notional value of $350.0 million that will be amortized into interest expense in future periods.

 
v3.20.2
Commitments, Contingencies and Off-Balance Sheet Arrangements
 6 Months Ended
Jun. 30, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments, Contingencies and Off-Balance Sheet Arrangements

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, 2020 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

 

 

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 - See Note 7 to these unaudited consolidated financial statements for a summary of the amounts outstanding under the note purchase agreements, the Credit Agreement and Premium Financing Debt Facility.

Operating Lease Obligations - Our corporate segment’s executive offices and certain subsidiary and branch facilities of our brokerage and risk management segments are located in a building we own at 2850 Golf Road, Rolling Meadows, Illinois, where we have approximately 360,000 square feet of space and will accommodate approximately 2,000 employees at peak pre-pandemic capacity.

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 non-affiliated tenants under operating sublease arrangements.  In the normal course of business, we expect that certain of these leases will not be renewed or replaced.  We adjust charges for real estate taxes and common area maintenance annually based on actual expenses, and we recognize the related revenues in the year in which the expenses are incurred.  These amounts are not included in the minimum future rentals to be received in the contractual obligations table above.

Outstanding Purchase Obligations - The amount disclosed in the contractual obligations table above represents the aggregate amount of unrecorded purchase obligations that we had outstanding at June 30, 2020. These obligations represent agreements to purchase goods or services that were executed in the normal course of business.

Off-Balance Sheet Commitments - Our total unrecorded commitments associated with outstanding letters of credit, and financial guarantees as of June 30, 2020 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Since commitments may expire unused, the amounts presented in the table above do not necessarily reflect our actual future cash funding requirements.  See the Off‑Balance Sheet Debt section below for a discussion of our letters of credit.  All of the letters of credit represent multiple year commitments that have annual, automatic renewing provisions and are classified by the latest commitment date.  

Since January 1, 2002, we have acquired 568 companies, all of which were accounted for using the acquisition method for recording business combinations.  Substantially all of the purchase agreements related to these acquisitions contain provisions for potential earnout obligations.  For all of our acquisitions made in the period from 2016 to 2020 that contain potential earnout obligations, such obligations are measured at fair value as of the acquisition date and are included on that basis in the recorded purchase price consideration for the respective acquisition.  The amounts recorded as earnout payables are primarily based upon estimated future potential operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date.  The aggregate amount of the maximum earnout obligations related to these acquisitions was $1,060.7 million, of which $474.0 million was recorded in our consolidated balance sheet as of June 30, 2020 based on the estimated fair value of the expected future payments to be made.  

Off-Balance Sheet Debt - Our unconsolidated investment portfolio includes investments in enterprises where our ownership interest is between 1% and 50%, in which management has determined that our level of influence and economic interest is not sufficient to require consolidation.  As a result, these investments are accounted for under the equity method.  None of these unconsolidated investments had any outstanding debt at June 30, 2020 or December 31, 2019, that was recourse to us.

At June 30, 2020, we had posted two letters of credit totaling $9.4 million, in the aggregate, related to our self‑insurance deductibles, for which we had a recorded liability of $17.1 million.  We have an equity investment in a rent-a-captive facility, which we use as a placement facility for certain of our insurance brokerage operations.  At June 30, 2020, we had posted seven letters of credit totaling $7.5 million to allow certain of our captive operations to meet minimum statutory surplus requirements plus additional collateral related to premium and claim funds held in a fiduciary capacity, one letter of credit totaling $0.9 million for collateral related to claim funds held in a fiduciary capacity by a recent acquisition, and one letter of credit totaling $0.5 million as a security deposit for a 2015 acquisition’s lease.  These letters of credit have never been drawn upon.

Litigation, Regulatory and Taxation Matters - We are a defendant in various legal actions incidental to the nature of our business including but not limited to matters related to employment practices, alleged breaches of non‑compete or other restrictive covenants, theft of trade secrets, breaches of fiduciary duties and related causes of action.  We are also periodically the subject of inquiries, investigations and reviews by regulatory and taxing authorities into various matters related to our business, including our operational, compliance and finance functions.  Neither the outcomes of these matters nor their effect upon our business, financial condition or results of operations can be determined at this time.

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 us, Chem‑Mod LLC and 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 are defending this matter vigorously.  Litigation is inherently uncertain and it is not possible for us to predict the ultimate outcome of this matter and the financial impact to us.  We believe the probability of a material loss is remote.

As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under investigation by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in connection with these operations.  Additionally, the IRS has initiated audits for the 2012 tax year, and subsequent years, or over 100 of the micro-captive underwriting enterprises organized and/or managed by us.

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 currently 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 its micro‑captive advisory business. We are in the process of responding to the subpoena.

We are fully cooperating with both the IRS investigation and the Department of Justice investigation.   We are not able to reasonably estimate the amount of any potential loss in connection with these investigations.

 

On December 7, 2018, a class action lawsuit was filed against us, Artex and other defendants, in the United States District Court for the District of Arizona. The named plaintiffs are micro-captives and related entities and owners who had IRC Section 831(b) tax benefits disallowed by the IRS. 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 IRC Section 831(b) micro-captive 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. On August 5, 2019, the trial court granted the defendants’ motion to compel arbitration and dismissed the class action lawsuit.  Plaintiffs appealed this ruling to the United States Court of Appeals for the Ninth Circuit, which held an oral argument on the appeal on July 7, 2020.  We will continue to defend against the 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, nor are we able to reasonably estimate the amount of any potential loss in connection with this lawsuit.

Contingent Liabilities - We purchase insurance to provide protection from errors and omissions (which we refer to as E&O) claims that may arise during the ordinary course of business.  We currently retain the first $10.0 million of every E&O claim.  Our E&O insurance provides aggregate coverage for E&O losses up to $350.0 million in excess of our retained amounts.  We have historically maintained self-insurance reserves for the portion of our E&O exposure that is not insured.  We periodically determine a range of possible reserve levels using actuarial techniques that rely heavily on projecting historical claim data into the future.  Our E&O reserve in the June 30, 2020 consolidated balance sheet is above the lower end of the most recently determined actuarial range by $3.0 million and below the upper end of the actuarial range by $5.8 million.  In addition to this E&O reserve, in the three-month period ended June 30, 2020, we established provisions for potential unusual pandemic related claim defense and other costs.  We can make no assurances that the historical claim data used to project the current reserve levels will be indicative of future claim activity.  Thus, the E&O reserve level and corresponding actuarial range could change in the future as more information becomes known, which could materially impact the amounts reported and disclosed herein.

Tax-advantaged Investments No Longer Held - Between 1996 and 2007, we developed and then sold portions of our ownership in various energy related investments, many of which qualified for tax credits under IRC Section 29.  We recorded tax benefits in connection with our ownership in these investments.  At June 30, 2020, we had exposure on $108.0 million of previously earned tax credits.  Under the Tax Act, a portion of these previously earned tax credits were refunded in 2019 for tax year 2018, according to a specific formula.  Under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was passed on March 27, 2020, we have accelerated the refund of all remaining credits on April 17, 2020.  The remaining credits were refunded in second quarter of 2020.  In 2004, 2007 and 2009, the IRS examined several of these investments and all examinations were closed without any changes being proposed by the IRS.  However, any future adverse tax audits, administrative rulings or judicial decisions could disallow previously claimed tax credits.  

Due to the contingent nature of this exposure and our related assessment of its likelihood, no reserve has been recorded in our June 30, 2020 consolidated balance sheet related to this exposure.
v3.20.2
Supplemental Disclosures of Cash Flow Information
 6 Months Ended
Jun. 30, 2020
Cash And Cash Equivalents [Abstract]  
Supplemental Disclosures of Cash Flow Information

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

 

 

The following is a reconciliation of our end 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, 2020 and 2019 (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

 

 

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 use of common stock to fund our 2020 employer matching contributions to the 401(k) plan, which we plan to do in February 2021.
v3.20.2
Accumulated Other Comprehensive Loss
 6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Accumulated Other Comprehensive Loss

16.  Accumulated Other Comprehensive Loss

The after-tax components of our accumulated other comprehensive 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

)

 

The foreign currency translation during the six-month period ended June 30, 2020 primarily relates to the net impact of changes in the value of the local currencies relative to the U.S. dollar for our operations in Australia, Canada, the Caribbean, India, New Zealand and the U.K.  

During the six-month periods ended June 30, 2020 and 2019, $3.1 million and $3.6 million, respectively, of expense related to the pension liability was reclassified from accumulated other comprehensive loss to compensation expense in the statement of earnings.  During the six-month periods ended June 30, 2020 and 2019, $2.5 million and $1.9 million of income, respectively, related to the fair value of derivative investments, was reclassified from accumulated other comprehensive loss to the statement of earnings.  During the six‑month periods ended June 30, 2020 and 2019, no amounts related to foreign currency translation were reclassified from accumulated other comprehensive loss to the statement of earnings.  
v3.20.2
Segment Information
 6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Segment Information

17.  Segment Information

We have three reportable segments: brokerage, risk management and corporate.  

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 manages our 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.  We allocate the provision for income taxes to the brokerage and risk management segments using the local country statutory rates.  Reported operating results by segment would change if different methods were applied.

Financial information relating to our segments for the three-month and six-month periods ended June 30, 2020 and 2019 is as follows (in millions):

 

 

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

 

 

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, 2020 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

 

 

 


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

 

 

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

 

 

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

 

 

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

 

 
v3.20.2
Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Nature of Operations and Basis of Presentation

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. We have three reportable 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, not-for-profit, public entities, and, to a lesser extent, individuals, in the areas of insurance placement, risk of loss management, and management of employer sponsored benefit programs.  Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not-for-profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises.  The corporate segment reports the financial information related to our debt and other corporate costs, clean energy investments, external acquisition-related expenses and the impact of foreign currency translation.  Clean energy investments consist of our investments in limited liability companies that own 35 commercial clean coal production facilities producing refined coal using Chem-Mod LLC’s proprietary technologies.  We believe these operations produce refined coal that qualifies for tax credits under IRC Section 45.  

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 for covering 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 49 countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent insurance brokers and consultants.

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, 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 Form 10-K for the year ended December 31, 2019.  In the preparation of our unaudited consolidated financial statements as of June 30, 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

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, right-of-use assets, investments (including our IRC Section 45 investments), income taxes, revenue recognition, deferred costs, stock-based compensation, claims handling obligations, retirement plans, litigation and contingencies.  We base our estimates on historical experience and various assumptions that we believe to be reasonable based on specific circumstances.  Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.
v3.20.2
Business Combinations (Tables)
 6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisition Method for Recording Business Combinations

During the six-month period ended June 30, 2020, we acquired substantially all of the net assets of the following firms in exchange for our common stock and/or cash.  These acquisitions have been accounted for using the acquisition method for recording business combinations (in millions, except share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 
Summary of Estimated Fair Values of Net Assets Acquired

The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in the six‑month period ended June 30, 2020 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 
Summary of Unaudited Pro Forma Historical Results The following is a summary of the unaudited pro forma historical results, as if these entities had been acquired at January 1, 2019 (in millions, except per share data):

 

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

 

 
v3.20.2
Contracts with Customers (Tables)
 6 Months Ended
Jun. 30, 2020
Revenue From Contract With Customer [Abstract]  
Summary of Unbilled Receivables, Contract Assets and Contract Liabilities from Contracts with Customers

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

 
Summary of Changes in Deferred Revenue Balances

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

 
Summary of Expected Revenue Related to Performance Obligations 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

 

 
v3.20.2
Other Financial Data (Tables)
 6 Months Ended
Jun. 30, 2020
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]  
Summary of Major Classes of 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

 

 
v3.20.2
Intangible Assets (Tables)
 6 Months Ended
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Carrying Amount of Goodwill Allocated by Domestic and Foreign Operations

The carrying amount of goodwill at June 30, 2020 and December 31, 2019 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

 

 
Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2020 are as follows (in millions):

 

 

 

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

 

 
Major Classes of Amortizable Intangible Assets

Major classes of amortizable intangible assets at June 30, 2020 and December 31, 2019 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

 
Estimated Aggregate Amortization Expense

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

 
v3.20.2
Credit and Other Debt Agreements (Tables)
 6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Summary of Corporate and Other Debt

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

 
v3.20.2
Earnings per Share (Tables)
 6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Computation of Basic and Diluted Net EPS

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

 
v3.20.2
Stock Option Plans (Tables)
 6 Months Ended
Jun. 30, 2020
Text Block [Abstract]  
Black-Scholes Option Pricing Model with Weighted Average

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

 
Stock Option Activity and Related Information

The following is a summary of our stock option activity and related information for 2020 (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

 
Other Information Regarding Stock Options Outstanding and Exercisable

Other information regarding stock options outstanding and exercisable at June 30, 2020 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

 
v3.20.2
Investments (Tables)
 6 Months Ended
Jun. 30, 2020
Equity Method Investments And Joint Ventures [Abstract]  
Investments Reported in Other Current and Non-Current Assets

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

 

 
v3.20.2
Derivatives and Hedging Activity (Tables)
 6 Months Ended
Jun. 30, 2020
Derivative Instruments And Hedging Activities Disclosure Abstract  
Summary of Notional and Fair Values of Derivative Instruments

The notional and fair values of derivatives designated as hedging instruments are as follows at June 30, 2020 and December 31, 2019 (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

 

 

(1)

Included within foreign exchange contracts at June 30, 2020 were $253.7 million of call options offset with $253.7 million of put options, and $11.7 million of buy forwards offset with $73.9 million of sell forwards.  Included within foreign exchange contracts at December 31, 2019 were $342.0 million of call options offset with $342.0 million of put options, and $12.1 million of buy forwards offset with $43.8 million of sell forwards.
Summary of Amounts of Derivative Gains (Losses) Recognized In Accumulated Other Comprehensive Loss

The effect of cash flow hedge accounting on accumulated other comprehensive loss for the three-month and six-month periods ended June 30, 2020 and 2019 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(1)

For the three-month and six-month periods ended June 30, 2020, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.1 million and $0.4 million, respectively.  

We estimate that approximately $11.3 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.  During the three months ended June 30, 2020, we settled approximately $66.0  million of interest rate contracts hedges with a notional value of $350.0 million that will be amortized into interest expense in future periods.

 
v3.20.2
Commitments, Contingencies and Off-Balance Sheet Arrangements (Tables)
 6 Months Ended
Jun. 30, 2020
Commitments And Contingencies Disclosure [Abstract]  
Contractual Obligations 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, 2020 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

 

 
Off-Balance Sheet Commitments

Off-Balance Sheet Commitments - Our total unrecorded commitments associated with outstanding letters of credit, and financial guarantees as of June 30, 2020 were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
v3.20.2
Supplemental Disclosures of Cash Flow Information (Tables)
 6 Months Ended
Jun. 30, 2020
Cash And Cash Equivalents [Abstract]  
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

 

 
Summary of Cash, Cash Equivalents and Restricted Cash

The following is a reconciliation of our end 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, 2020 and 2019 (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

 
v3.20.2
Accumulated Other Comprehensive Loss (Tables)
 6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Schedule of Accumulated Other Comprehensive Loss Attributable to Controlling Interests

The after-tax components of our accumulated other comprehensive 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

)
v3.20.2
Segment Information (Tables)
 6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information by Segment

Financial information relating to our segments for the three-month and six-month periods ended June 30, 2020 and 2019 is as follows (in millions):

 

 

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

 
Summary of Revenues by Type and Segment

Revenues by type and segment for the three-month period ended June 30, 2020 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

 

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 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

 

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

 
Summary of Geographical Location and Segment

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

 

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

 

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

 
v3.20.2
Summary of Significant Accounting Policies - Additional Information (Detail)
 6 Months Ended
Jun. 30, 2020
Country
Segment
Facility
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Number of reportable segments | Segment 3
Number of commercial clean coal production facilities | Facility 35
Number of countries in which the company has operations 49
Number of countries in which the company does business through a network of correspondent brokers and consultants 150
v3.20.2
Effect of Accounting Pronouncements - Additional Information (Details)
Jun. 30, 2020
ASU 2016-13 [Member]  
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]  
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] true
Change in Accounting Principle, Accounting Standards Update, Adoption Date Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Immaterial Effect [true false] true
ASU 2018-13 [Member]  
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]  
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] true
Change in Accounting Principle, Accounting Standards Update, Adoption Date Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Immaterial Effect [true false] true
ASU 2018-14 [Member]  
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]  
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] true
Change in Accounting Principle, Accounting Standards Update, Adoption Date Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Immaterial Effect [true false] true
ASU 2017-04 [Member]  
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]  
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] true
Change in Accounting Principle, Accounting Standards Update, Adoption Date Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Immaterial Effect [true false] true
ASU 2018-15 [Member]  
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]  
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] true
Change in Accounting Principle, Accounting Standards Update, Adoption Date Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Immaterial Effect [true false] true
v3.20.2
Business Combinations - Acquisition Method for Recording Business Combinations (Detail)
shares in Thousands
 6 Months Ended
Jun. 30, 2020
USD ($)
shares
Business Acquisition [Line Items]  
Common Shares Issued | shares 961
Common Shares Issued $ 98,100,000
Cash Paid 148,000,000.0
Accrued Liability 1,800,000
Escrow Deposited 9,000,000.0
Recorded Earnout Payable 142,900,000
Total Recorded Purchase Price 399,800,000
Maximum Potential Earnout Payable $ 261,100,000
Capsicum Reinsurance Brokers LLP (CRB) [Member]  
Business Acquisition [Line Items]  
Common Shares Issued | shares 584
Common Shares Issued $ 62,900,000
Cash Paid 64,500,000
Recorded Earnout Payable 119,000,000.0
Total Recorded Purchase Price 246,400,000
Maximum Potential Earnout Payable 209,100,000
Hanover Excess and Surplus Inc and Hanover Finance Inc (HES) [Member]  
Business Acquisition [Line Items]  
Cash Paid 30,100,000
Escrow Deposited 3,000,000.0
Recorded Earnout Payable 200,000
Total Recorded Purchase Price 33,300,000
Maximum Potential Earnout Payable $ 9,300,000
CRES Insurance Services, LLC [Member]  
Business Acquisition [Line Items]  
Common Shares Issued | shares 288
Common Shares Issued $ 28,500,000
Cash Paid 1,500,000
Escrow Deposited 1,000,000.0
Recorded Earnout Payable 5,300,000
Total Recorded Purchase Price 36,300,000
Maximum Potential Earnout Payable $ 7,300,000
Nine Other Acquisitions [Member]  
Business Acquisition [Line Items]  
Common Shares Issued | shares 89
Common Shares Issued $ 6,700,000
Cash Paid 51,900,000
Accrued Liability 1,800,000
Escrow Deposited 5,000,000.0
Recorded Earnout Payable 18,400,000
Total Recorded Purchase Price 83,800,000
Maximum Potential Earnout Payable $ 35,400,000
v3.20.2
Business Combinations - Additional Information (Detail)
 3 Months Ended 6 Months Ended 222 Months Ended
Jun. 30, 2020
USD ($)
Entity
Jun. 30, 2019
USD ($)
Entity
Jun. 30, 2020
USD ($)
Entity
Jun. 30, 2019
USD ($)
Entity
Jun. 30, 2020
USD ($)
Entity
Business Acquisition [Line Items]          
Accretion of the discount on acquisition $ 7,700,000 $ 5,800,000 $ 18,400,000 $ 11,400,000  
Income (expense) related to net adjustments to estimated fair value of liability for earnout obligations $ (8,000,000.0) $ 2,400,000 $ 91,600,000 $ 5,100,000  
Number of companies acquired | Entity 44 46 102 68 568
Aggregate amount of maximum earnout obligations related to acquisitions     $ 1,060,700,000    
Aggregate amount of maximum earnout obligations related to acquisitions, recorded in consolidated balance sheet     474,000,000.0    
Goodwill $ 190,500,000   190,500,000   $ 190,500,000
Expiration lists 178,400,000   178,400,000   178,400,000
Non-compete agreements 4,600,000   4,600,000   4,600,000
Trade names 14,200,000   14,200,000   14,200,000
Total revenues 1,586,300,000 $ 1,669,400,000 3,458,400,000 $ 3,670,600,000  
Brokerage and Risk Management [Member]          
Business Acquisition [Line Items]          
Goodwill 190,500,000   190,500,000   190,500,000
Expiration lists 178,400,000   178,400,000   178,400,000
Non-compete agreements 4,600,000   4,600,000   4,600,000
Trade names 14,200,000   14,200,000   14,200,000
Brokerage [Member]          
Business Acquisition [Line Items]          
Impairment wrote off of amortizable assets 200,000   46,000,000.0 $ 0  
Brokerage [Member] | Expiration Lists [Member]          
Business Acquisition [Line Items]          
Business acquisition not deductible for income tax purposes 3,400,000   3,400,000   3,400,000
Brokerage [Member] | Non-Compete Agreements [Member]          
Business Acquisition [Line Items]          
Business acquisition not deductible for income tax purposes 100,000   100,000   100,000
Brokerage [Member] | Trade Names [Member]          
Business Acquisition [Line Items]          
Business acquisition not deductible for income tax purposes $ 0   $ 0   $ 0
Minimum [Member] | Expiration Lists [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     2 years    
Minimum [Member] | Non-Compete Agreements [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     2 years    
Minimum [Member] | Trade Names [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     2 years    
Maximum [Member] | Expiration Lists [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     15 years    
Maximum [Member] | Non-Compete Agreements [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     6 years    
Maximum [Member] | Trade Names [Member]          
Business Acquisition [Line Items]          
Estimated useful lives of intangibles assets, years     15 years    
2020 Acquisitions [Member] | Valuation, Market Approach [Member] | Measurement Input, Discount Rate [Member] | Minimum [Member]          
Business Acquisition [Line Items]          
Measurement input 2.5   2.5   2.5
2020 Acquisitions [Member] | Valuation, Market Approach [Member] | Measurement Input, Discount Rate [Member] | Maximum [Member]          
Business Acquisition [Line Items]          
Measurement input 13.8   13.8   13.8
2020 Acquisitions [Member] | Valuation, Income Approach [Member] | Measurement Input, Discount Rate [Member]          
Business Acquisition [Line Items]          
Measurement input 9.0   9.0   9.0
2018 Acquisitions [Member] | Valuation, Market Approach [Member] | Measurement Input, Long-term Revenue Growth Rate [Member] | Minimum [Member]          
Business Acquisition [Line Items]          
Measurement input 1.5 1.5 1.5 1.5 1.5
2018 Acquisitions [Member] | Valuation, Market Approach [Member] | Measurement Input, Long-term Revenue Growth Rate [Member] | Maximum [Member]          
Business Acquisition [Line Items]          
Measurement input 3.2 3.2 3.2 3.2 3.2
2018 Acquisitions [Member] | Valuation, Income Approach [Member] | Measurement Input, Long-term Revenue Growth Rate [Member] | Minimum [Member]          
Business Acquisition [Line Items]          
Measurement input 9.0 9.0 9.0 9.0 9.0
2018 Acquisitions [Member] | Valuation, Income Approach [Member] | Measurement Input, Long-term Revenue Growth Rate [Member] | Maximum [Member]          
Business Acquisition [Line Items]          
Measurement input 12.5 12.5 12.5 12.5 12.5
2017 Acquisitions [Member] | Valuation, Income Approach [Member] | Minimum [Member]          
Business Acquisition [Line Items]          
Attrition rate     5.00% 5.00%  
2017 Acquisitions [Member] | Valuation, Income Approach [Member] | Maximum [Member]          
Business Acquisition [Line Items]          
Attrition rate     15.70% 15.70%  
Business Acquisition [Member]          
Business Acquisition [Line Items]          
Trade names $ 14,200,000   $ 14,200,000   $ 14,200,000
Annualized revenue of business acquisitions     138,100,000    
Total revenues     16,600,000    
Net earnings     2,900,000    
Business Acquisition [Member] | Brokerage [Member]          
Business Acquisition [Line Items]          
Expiration lists 178,400,000   178,400,000   178,400,000
Non-compete agreements 4,600,000   4,600,000   4,600,000
Deferred tax liability $ 1,000,000.0   $ 1,000,000.0   $ 1,000,000.0
v3.20.2
Business Combinations - Summary of Estimated Fair Values of Net Assets Acquired (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Business Acquisition Actual Revenue And Pre Tax Income Loss [Line Items]  
Cash $ 4.2
Other current assets 40.9
Fixed assets 0.4
Noncurrent assets 10.4
Goodwill 190.5
Expiration lists 178.4
Non-compete agreements 4.6
Trade names 14.2
Total assets acquired 443.6
Current liabilities 39.7
Noncurrent liabilities 4.1
Total liabilities assumed 43.8
Total net assets acquired 399.8
CRES [Member]  
Business Acquisition Actual Revenue And Pre Tax Income Loss [Line Items]  
Cash 1.5
Other current assets 15.2
Goodwill 24.6
Expiration lists 9.3
Non-compete agreements 0.4
Trade names 1.0
Total assets acquired 52.0
Current liabilities 15.7
Total liabilities assumed 15.7
Total net assets acquired 36.3
CRB [Member]  
Business Acquisition Actual Revenue And Pre Tax Income Loss [Line Items]  
Noncurrent assets 7.6
Goodwill 119.0
Expiration lists 103.3
Non-compete agreements 3.3
Trade names 13.2
Total assets acquired 246.4
Total net assets acquired 246.4
HES [Member]  
Business Acquisition Actual Revenue And Pre Tax Income Loss [Line Items]  
Cash 0.3
Other current assets 4.0
Noncurrent assets 0.8
Goodwill 13.1
Expiration lists 19.5
Non-compete agreements 0.5
Total assets acquired 38.2
Current liabilities 4.4
Noncurrent liabilities 0.5
Total liabilities assumed 4.9
Total net assets acquired 33.3
Nine Other Acquisitions [Member]  
Business Acquisition Actual Revenue And Pre Tax Income Loss [Line Items]  
Cash 2.4
Other current assets 21.7
Fixed assets 0.4
Noncurrent assets 2.0
Goodwill 33.8
Expiration lists 46.3
Non-compete agreements 0.4
Total assets acquired 107.0
Current liabilities 19.6
Noncurrent liabilities 3.6
Total liabilities assumed 23.2
Total net assets acquired $ 83.8
v3.20.2
Business Combinations - Summary of Unaudited Pro Forma Historical Results (Detail) - USD ($)
$ / shares in Units, $ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Business Combinations [Abstract]        
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
v3.20.2
Contracts with Customers - Summary of Unbilled Receivables, Contract Assets and Contract Liabilities from Contracts with Customers (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Contract With Customer Asset And Liability [Abstract]    
Unbilled receivables $ 736.7 $ 556.4
Deferred contract costs 70.1 98.3
Deferred revenue $ 519.6 $ 503.8
v3.20.2
Contracts with Customers - Summary of Changes in Deferred Revenue Balances (Detail)
$ in Millions
 6 Months Ended
Jun. 30, 2020
USD ($)
Deferred Revenue Arrangement [Line Items]  
Deferred revenue beginning balance $ 503.8
Incremental deferred revenue 307.8
Revenue recognized during the six-month period ended June 30, 2020 included in deferred revenue at December 31, 2019 (289.8)
Impact of change in foreign exchange rates (6.2)
Deferred revenue recognized from business acquisitions 4.0
Deferred revenue ending balance 519.6
Brokerage [Member]  
Deferred Revenue Arrangement [Line Items]  
Deferred revenue beginning balance 337.2
Incremental deferred revenue 230.4
Revenue recognized during the six-month period ended June 30, 2020 included in deferred revenue at December 31, 2019 (214.2)
Impact of change in foreign exchange rates (6.2)
Deferred revenue recognized from business acquisitions 4.0
Deferred revenue ending balance 351.2
Risk Management [Member]  
Deferred Revenue Arrangement [Line Items]  
Deferred revenue beginning balance 166.6
Incremental deferred revenue 77.4
Revenue recognized during the six-month period ended June 30, 2020 included in deferred revenue at December 31, 2019 (75.6)
Deferred revenue ending balance $ 168.4
v3.20.2
Contracts with Customers - Additional Information (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Revenue From Contract With Customer [Abstract]    
Remaining performance obligations $ 519.6  
Deferred contract costs 70.1 $ 98.3
Amortization of deferred contract costs $ 208.1 $ 191.9
v3.20.2
Contracts with Customers - Summary of Expected Revenue Related to Performance Obligations (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 519.6
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-07-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 342.1
Remaining performance obligation, expected timing of satisfaction, period 6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 120.3
Remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 29.8
Remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2023-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 11.5
Remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 5.6
Remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2025-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 10.3
Remaining performance obligation, expected timing of satisfaction, period
Brokerage [Member]  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 351.2
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-07-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 263.4
Remaining performance obligation, expected timing of satisfaction, period 6 months
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 79.1
Remaining performance obligation, expected timing of satisfaction, period 1 year
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 6.7
Remaining performance obligation, expected timing of satisfaction, period 1 year
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2023-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 1.0
Remaining performance obligation, expected timing of satisfaction, period 1 year
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 0.5
Remaining performance obligation, expected timing of satisfaction, period 1 year
Brokerage [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2025-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 0.5
Remaining performance obligation, expected timing of satisfaction, period
Risk Management [Member]  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 168.4
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-07-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 78.7
Remaining performance obligation, expected timing of satisfaction, period 6 months
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 41.2
Remaining performance obligation, expected timing of satisfaction, period 1 year
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 23.1
Remaining performance obligation, expected timing of satisfaction, period 1 year
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2023-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 10.5
Remaining performance obligation, expected timing of satisfaction, period 1 year
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 5.1
Remaining performance obligation, expected timing of satisfaction, period 1 year
Risk Management [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2025-01-01  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 9.8
Remaining performance obligation, expected timing of satisfaction, period
v3.20.2
Contracts with Customers - Summary of Expected Revenue Related to Performance Obligations 1 (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 519.6
Brokerage [Member]  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations 351.2
Risk Management [Member]  
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]  
Expected revenue related to performance obligations $ 168.4
v3.20.2
Other Financial Data - (Other Current Assets) (Details) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]    
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
v3.20.2
Intangible Assets - Carrying Amount of Goodwill Allocated by Domestic and Foreign Operations (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Goodwill [Line Items]    
Total goodwill $ 5,756.4 $ 5,618.5
Unites States [Member]    
Goodwill [Line Items]    
Total goodwill 3,284.0 3,196.9
United Kingdom [Member]    
Goodwill [Line Items]    
Total goodwill 1,250.6 1,190.7
Canada [Member]    
Goodwill [Line Items]    
Total goodwill 439.2 454.4
Australia [Member]    
Goodwill [Line Items]    
Total goodwill 427.6 427.0
New Zealand [Member]    
Goodwill [Line Items]    
Total goodwill 211.6 218.1
Other Foreign [Member]    
Goodwill [Line Items]    
Total goodwill 143.4 131.4
Brokerage [Member]    
Goodwill [Line Items]    
Total goodwill 5,686.7 5,548.9
Brokerage [Member] | Unites States [Member]    
Goodwill [Line Items]    
Total goodwill 3,250.9 3,163.8
Brokerage [Member] | United Kingdom [Member]    
Goodwill [Line Items]    
Total goodwill 1,237.1 1,177.8
Brokerage [Member] | Canada [Member]    
Goodwill [Line Items]    
Total goodwill 439.2 454.4
Brokerage [Member] | Australia [Member]    
Goodwill [Line Items]    
Total goodwill 417.1 416.5
Brokerage [Member] | New Zealand [Member]    
Goodwill [Line Items]    
Total goodwill 201.8 208.0
Brokerage [Member] | Other Foreign [Member]    
Goodwill [Line Items]    
Total goodwill 140.6 128.4
Risk Management [Member]    
Goodwill [Line Items]    
Total goodwill 66.9 66.6
Risk Management [Member] | Unites States [Member]    
Goodwill [Line Items]    
Total goodwill 33.1 33.1
Risk Management [Member] | United Kingdom [Member]    
Goodwill [Line Items]    
Total goodwill 13.5 12.9
Risk Management [Member] | Australia [Member]    
Goodwill [Line Items]    
Total goodwill 10.5 10.5
Risk Management [Member] | New Zealand [Member]    
Goodwill [Line Items]    
Total goodwill 9.8 10.1
Corporate [Member]    
Goodwill [Line Items]    
Total goodwill 2.8 3.0
Corporate [Member] | Other Foreign [Member]    
Goodwill [Line Items]    
Total goodwill $ 2.8 $ 3.0
v3.20.2
Intangible Assets - Changes in Carrying Amount of Goodwill (Detail)
$ in Millions
 6 Months Ended
Jun. 30, 2020
USD ($)
Goodwill [Line Items]  
Beginning Balance $ 5,618.5
Goodwill acquired during the period 190.5
Goodwill adjustments due to appraisals and other acquisition adjustments 29.2
Foreign currency translation adjustments during the period (81.8)
Ending Balance 5,756.4
Brokerage [Member]  
Goodwill [Line Items]  
Beginning Balance 5,548.9
Goodwill acquired during the period 190.5
Goodwill adjustments due to appraisals and other acquisition adjustments 27.9
Foreign currency translation adjustments during the period (80.6)
Ending Balance 5,686.7
Risk Management [Member]  
Goodwill [Line Items]  
Beginning Balance 66.6
Goodwill adjustments due to appraisals and other acquisition adjustments 1.3
Foreign currency translation adjustments during the period (1.0)
Ending Balance 66.9
Corporate [Member]  
Goodwill [Line Items]  
Beginning Balance 3.0
Foreign currency translation adjustments during the period (0.2)
Ending Balance $ 2.8
v3.20.2
Intangible Assets - Major Classes of Amortizable Intangible Assets (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Amortizable intangible assets, net $ 2,226.0 $ 2,318.7
Expiration Lists [Member]    
Finite-Lived Intangible Assets [Line Items]    
Amortizable intangible assets, gross 4,342.8 4,246.0
Accumulated amortization (2,203.2) (2,004.3)
Amortizable intangible assets, net 2,139.6 2,241.7
Non-Compete Agreements [Member]    
Finite-Lived Intangible Assets [Line Items]    
Amortizable intangible assets, gross 67.0 68.4
Accumulated amortization (54.0) (52.5)
Amortizable intangible assets, net 13.0 15.9
Trade Names [Member]    
Finite-Lived Intangible Assets [Line Items]    
Amortizable intangible assets, gross 107.2 91.8
Accumulated amortization (33.8) (30.7)
Amortizable intangible assets, net $ 73.4 $ 61.1
v3.20.2
Intangible Assets - Estimated Aggregate Amortization Expense (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]  
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
v3.20.2
Credit and Other Debt Agreements - Summary of Corporate and Other Debt (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Semi-annual payments of interest $ 4,651.6 $ 4,613.6
Less unamortized debt acquisition costs on Note Purchase Agreements (7.6) (6.9)
Semi-annual payments of interest, Net 4,644.0 4,606.7
Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 4,448.0 3,923.0
Fixed Rate of 3.48%, Balloon Due June 24, 2020 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest   50.0
Fixed Rate of 3.99%, Balloon Due July 10, 2020 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 50.0 50.0
Fixed Rate of 5.18%, Balloon Due February 10, 2021 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 75.0 75.0
Fixed Rate of 3.69%, Balloon Due June 14, 2022 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 200.0 200.0
Fixed Rate of 5.49%, Balloon Due February 10, 2023 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 50.0 50.0
Fixed Rate of 4.13%, Balloon Due June 24, 2023 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 200.0 200.0
Floating Rate of 1.65% LIBOR Plus Balloon Due August 2, 2023 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Quarterly payments of interest 50.0 50.0
Fixed Rate of 4.72%, Balloon due February 13, 2024 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 100.0 100.0
Fixed Rate of 4.58%, Balloon Due February 27, 2024 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 325.0 325.0
Floating Interest Rate of 1.40% LIBOR Plus Balloon Due June 13, 2024 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Quarterly payments of interest 50.0 50.0
Fixed Rate of 4.31%, Balloon Due June 24, 2025 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 200.0 200.0
Fixed Rate of 4.85%, Balloon due February 13, 2026 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 140.0 140.0
Fixed Rate of 4.73%, Balloon Due February 27, 2026 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 175.0 175.0
Fixed Rate of 4.40%, Balloon Due June 2, 2026 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 175.0 175.0
Fixed Rate of 4.36%, Balloon Due June 24, 2026 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 150.0 150.0
Fixed Rate of 3.75%, Balloon Due January 30, 2027 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 30.0  
Fixed Rate of 4.09%, Balloon Due June 27, 2027 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 125.0 125.0
Fixed Rate of 4.09%, Balloon Due August 2, 2027 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 125.0 125.0
Fixed Rate of 4.14%, Balloon Due August 4, 2027 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 98.0 98.0
Fixed Rate of 3.46%, Balloon Due December 1, 2027 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 100.0 100.0
Fixed Rate of 4.55%, Balloon Due June 2, 2028 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 75.0 75.0
Fixed Rate of 4.34%, Balloon due June 13, 2028 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 125.0 125.0
Fixed Rate of 5.04%, Balloon due February 13, 2029 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 100.0 100.0
Fixed Rate of 4.98%, Balloon Due February 27, 2029 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 100.0 100.0
Fixed Rate of 4.19%, Balloon Due June 27, 2029 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 50.0 50.0
Fixed Rate of 4.19%, Balloon Due August 2, 2029 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 50.0 50.0
Fixed Rate of 3.48%, Balloon Due December 2, 2029 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 50.0 50.0
Fixed Rate of 3.99%, Balloon Due January 30, 2030 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 341.0  
Fixed Rate of 4.44% Balloon Due June 13, 2030 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 125.0 125.0
Fixed Rate of 5.14%, Balloon due March 13, 2031 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 180.0 180.0
Fixed Rate of 4.70%, Balloon Due June 2, 2031 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 25.0 25.0
Fixed Rate of 4.09%, Balloon Due January 30, 2032 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 69.0  
Fixed Rate of 4.34%, Balloon Due June 27, 2032 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 75.0 75.0
Fixed Rate of 4.34%, Balloon Due August 2, 2032 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 75.0 75.0
Fixed Rate of 4.59%, Balloon due June 13, 2033 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 125.0 125.0
Fixed Rate of 5.29%, balloon due March 13, 2034 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 40.0 40.0
Fixed Rate of 4.48%, Balloon Due June 12, 2034 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 175.0 175.0
Fixed Rate of 4.24%, Balloon Due January 30, 2035 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 79.0  
Fixed Rate of 4.69% Balloon Due June 13, 2038 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 75.0 75.0
Prime or LIBOR Plus up to 1.45%, Expires June 7, 2024 [Member] | Multi Currency Credit Agreement [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 100.0 520.0
Fixed Rate of 5.45%, balloon due March 13, 2039 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 40.0 40.0
Fixed Rate of 4.49%, Balloon Due January 30, 2040 [Member] | Note Purchase Agreements [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 56.0  
Interbank Rates Plus 1.100% Expires July 18, 2021 [Member] | AUD Denominated Tranche [Member] | Facility B [Member] | Premium Financing Debt Facility [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 93.1 142.1
Interbank Rates Plus 0.575% Expires July 18, 2021 [Member] | AUD Denominated Tranche [Member] | Facility C and D [Member] | Premium Financing Debt Facility [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 6.1 18.8
Interbank Rates Plus 0.600% Expires July 18, 2021 [Member] | Premium Financing Debt Facility [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest 103.6 170.6
Interbank Rates Plus 0.600% Expires July 18, 2021 [Member] | NZD Denominated Tranche [Member] | Facility C and D [Member] | Premium Financing Debt Facility [Member]    
Debt Instrument [Line Items]    
Semi-annual payments of interest $ 4.4 $ 9.7
v3.20.2
Credit and Other Debt Agreements - Summary of Corporate and Other Debt (Parenthetical) (Detail)
 6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Premium Financing Debt Facility [Member]    
Debt Instrument [Line Items]    
Periodic payments of interest and principal, expiry date 2021 2021
Fixed Rate of 3.48%, Balloon Due June 24, 2020 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.48% 3.48%
Periodic payments of interest and principal, expiry date 2020 2020
Fixed Rate of 3.99%, Balloon Due July 10, 2020 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.99% 3.99%
Periodic payments of interest and principal, expiry date 2020 2020
Fixed Rate of 5.18%, Balloon Due February 10, 2021 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.18% 5.18%
Periodic payments of interest and principal, expiry date 2021 2021
Fixed Rate of 3.69%, Balloon Due June 14, 2022 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.69% 3.69%
Periodic payments of interest and principal, expiry date 2022 2022
Fixed Rate of 5.49%, Balloon Due February 10, 2023 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.49% 5.49%
Periodic payments of interest and principal, expiry date 2023 2023
Fixed Rate of 4.13%, Balloon Due June 24, 2023 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.13% 4.13%
Periodic payments of interest and principal, expiry date 2023 2023
Floating Rate of 1.65% LIBOR Plus Balloon Due August 2, 2023 [Member]    
Debt Instrument [Line Items]    
Periodic payments of interest and principal, expiry date 2023 2023
Quarterly payments of interest rate 1.65% 1.65%
Quarterly payments of interest, description 90 day LIBOR plus  
Fixed Rate of 4.72%, Balloon due February 13, 2024 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.72% 4.72%
Periodic payments of interest and principal, expiry date 2024 2024
Fixed Rate of 4.58%, Balloon Due February 27, 2024 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.58% 4.58%
Periodic payments of interest and principal, expiry date 2024 2024
Floating Interest Rate of 1.40% LIBOR Plus Balloon Due June 13, 2024 [Member]    
Debt Instrument [Line Items]    
Periodic payments of interest and principal, expiry date 2024 2024
Quarterly payments of interest rate 1.40% 1.40%
Quarterly payments of interest, description 90 day LIBOR plus  
Fixed Rate of 4.31%, Balloon Due June 24, 2025 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.31% 4.31%
Periodic payments of interest and principal, expiry date 2025 2025
Fixed Rate of 3.75%, Balloon Due January 30, 2027 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.75% 3.75%
Periodic payments of interest and principal, expiry date 2027 2027
Fixed Rate of 4.85%, Balloon due February 13, 2026 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.85% 4.85%
Periodic payments of interest and principal, expiry date 2026 2026
Fixed Rate of 4.73%, Balloon Due February 27, 2026 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.73% 4.73%
Periodic payments of interest and principal, expiry date 2026 2026
Fixed Rate of 4.40%, Balloon Due June 2, 2026 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.40% 4.40%
Periodic payments of interest and principal, expiry date 2026 2026
Fixed Rate of 4.36%, Balloon Due June 24, 2026 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.36% 4.36%
Periodic payments of interest and principal, expiry date 2026 2026
Fixed Rate of 4.09%, Balloon Due June 27, 2027 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.09% 4.09%
Periodic payments of interest and principal, expiry date 2027 2027
Fixed Rate of 4.09%, Balloon Due August 2, 2027 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.09% 4.09%
Periodic payments of interest and principal, expiry date 2027 2027
Fixed Rate of 4.14%, Balloon Due August 4, 2027 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.14% 4.14%
Periodic payments of interest and principal, expiry date 2027 2027
Fixed Rate of 3.46%, Balloon Due December 1, 2027 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.46% 3.46%
Periodic payments of interest and principal, expiry date 2027 2027
Fixed Rate of 3.99%, Balloon Due January 30, 2030 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.99% 3.99%
Periodic payments of interest and principal, expiry date 2030 2030
Fixed Rate of 4.55%, Balloon Due June 2, 2028 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.55% 4.55%
Periodic payments of interest and principal, expiry date 2028 2028
Fixed Rate of 4.34%, Balloon due June 13, 2028 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.34% 4.34%
Periodic payments of interest and principal, expiry date 2028 2028
Fixed Rate of 4.09%, Balloon Due January 30, 2032 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.09% 4.09%
Periodic payments of interest and principal, expiry date 2032 2032
Fixed Rate of 5.04%, Balloon due February 13, 2029 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.04% 5.04%
Periodic payments of interest and principal, expiry date 2029 2029
Fixed Rate of 4.98%, Balloon Due February 27, 2029 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.98% 4.98%
Periodic payments of interest and principal, expiry date 2029 2029
Fixed Rate of 4.19%, Balloon Due June 27, 2029 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.19% 4.19%
Periodic payments of interest and principal, expiry date 2029 2029
Fixed Rate of 4.19%, Balloon Due August 2, 2029 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.19% 4.19%
Periodic payments of interest and principal, expiry date 2029 2029
Fixed Rate of 4.24%, Balloon Due January 30, 2035 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.24% 4.24%
Periodic payments of interest and principal, expiry date 2035 2035
Fixed Rate of 3.48%, Balloon Due December 2, 2029 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 3.48% 3.48%
Periodic payments of interest and principal, expiry date 2029 2029
Fixed Rate of 4.44% Balloon Due June 13, 2030 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.44% 4.44%
Periodic payments of interest and principal, expiry date 2030 2030
Fixed Rate of 4.49%, Balloon Due January 30, 2040 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.49% 4.49%
Periodic payments of interest and principal, expiry date 2040 2040
Fixed Rate of 5.14%, Balloon due March 13, 2031 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.14% 5.14%
Periodic payments of interest and principal, expiry date 2031 2031
Fixed Rate of 4.70%, Balloon Due June 2, 2031 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.70% 4.70%
Periodic payments of interest and principal, expiry date 2031 2031
Fixed Rate of 4.34%, Balloon Due June 27, 2032 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.34% 4.34%
Periodic payments of interest and principal, expiry date 2032 2032
Fixed Rate of 4.34%, Balloon Due August 2, 2032 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.34% 4.34%
Periodic payments of interest and principal, expiry date 2032 2032
Fixed Rate of 4.59%, Balloon due June 13, 2033 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.59% 4.59%
Periodic payments of interest and principal, expiry date 2033 2033
Fixed Rate of 5.29%, balloon due March 13, 2034 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.29% 5.29%
Periodic payments of interest and principal, expiry date 2034 2034
Fixed Rate of 4.48%, Balloon Due June 12, 2034 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.48% 4.48%
Periodic payments of interest and principal, expiry date 2034 2034
Fixed Rate of 4.69% Balloon Due June 13, 2038 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 4.69% 4.69%
Periodic payments of interest and principal, expiry date 2038 2038
Fixed Rate of 5.45%, balloon due March 13, 2039 [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 5.45% 5.45%
Periodic payments of interest and principal, expiry date 2039 2039
Prime or LIBOR Plus up to 1.45%, Expires June 7, 2024 [Member] | Credit Agreement [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 1.45% 1.45%
Periodic payments of interest and principal, expiry date 2024 2024
Facility B [Member] | Interbank Rates Plus 1.100% Expires July 18, 2021 [Member] | Premium Financing Debt Facility [Member] | AUD Denominated Tranche [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 1.10% 1.10%
Facility B [Member] | Interbank Rates Plus 1.150% Expires July 18, 2021 [Member] | Premium Financing Debt Facility [Member] | NZD Denominated Tranche [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 1.15% 1.15%
Facility C and D [Member] | Interbank Rates Plus 0.575% Expires July 18, 2021 [Member] | Premium Financing Debt Facility [Member] | AUD Denominated Tranche [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 0.575% 0.575%
Facility C and D [Member] | Interbank Rates Plus 0.600% Expires July 18, 2021 [Member] | Premium Financing Debt Facility [Member] | NZD Denominated Tranche [Member]    
Debt Instrument [Line Items]    
Periodic Payment of Interest 0.60% 0.60%
v3.20.2
Earnings Per Share - Computation of Basic and Diluted Net EPS (Detail) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Earnings Per Share [Abstract]        
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
v3.20.2
Earnings Per Share - Additional Information (Detail) - shares
shares in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Earnings Per Share [Abstract]        
Anti-dilutive stock-based awards shares outstanding 1.6 1.3 1.0 0.8
v3.20.2
Stock Option Plans - Additional information (Detail) - USD ($)
$ / shares in Units, $ in Millions
 3 Months Ended 6 Months Ended
Mar. 12, 2020
Mar. 14, 2019
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Stock Option Plans [Line Items]                
Compensation expense related to stock option grants     $ 3.3 $ 3.4 $ 3.5 $ 3.6 $ 6.7 $ 7.1
Total intrinsic value of options exercised             47.1 $ 48.3
Total unrecognized compensation cost related to nonvested options     $ 36.0       $ 36.0  
Weighted average period, years             4 years  
Black-Scholes Option Pricing Model [Member]                
Stock Option Plans [Line Items]                
Weighted average fair value per option for all options             $ 9.99 $ 10.71
Long Term Incentive Plan [Member]                
Stock Option Plans [Line Items]                
Maximum number of shares available             2,200,000  
Shares available for grant     11,300,000       11,300,000  
Long Term Incentive Plan [Member] | Officer and Key Employees [Member]                
Stock Option Plans [Line Items]                
Shares available for grant 1,590,740 1,283,300            
Stock options granted, exercise percentage, on the third anniversary date of the grant 34.00% 34.00%            
Stock options granted, exercise percentage, on the fourth anniversary date of the grant 33.00% 33.00%            
Stock options granted, exercise percentage, on the fifth anniversary date of the grant 33.00% 33.00%            
Long Term Incentive Plan [Member] | Minimum [Member]                
Stock Option Plans [Line Items]                
Minimum exercise price of stock options, percent of fair market value of a share of common stock on the date of grant             100.00%  
Period of service from grant date stock options awarded not subject to forfeiture             2 years 2 years
Long Term Incentive Plan [Member] | Minimum [Member] | Executive Officer [Member]                
Stock Option Plans [Line Items]                
Minimum age of employee with not subject to award forfeiture on condition compliance             55 years 55 years
Long Term Incentive Plan [Member] | Maximum [Member]                
Stock Option Plans [Line Items]                
Maximum period for the exercise of stock options, years             7 years 7 years
2017 Long Term Incentive Plan [Member]                
Stock Option Plans [Line Items]                
Number Of Periods Options Expire             7 years  
v3.20.2
Stock Option Plans - Black-Scholes Option Pricing Model with Weighted Average (Detail) - $ / shares
 6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]    
Expected dividend yield $ 1.80 $ 1.72
Expected risk-free interest rate 0.70% 2.50%
Volatility 17.30% 15.60%
Expected life (in years) 5 years 4 months 24 days 5 years 6 months
v3.20.2
Stock Option Plans - Stock Option Activity and Related Information (Detail) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
 6 Months Ended
Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Shares Under Option, Beginning balance 7.9
Shares Under Option, Granted 1.6
Shares Under Option, Exercised (0.9)
Shares Under Option, Forfeited or canceled (0.1)
Shares Under Option, Ending balance 8.5
Shares Under Option, Exercisable at end of year 2.9
Shares Under Option, Ending unvested and expected to vest 5.3
Weighted Average Exercise Price, Beginning balance $ 56.40
Weighted Average Exercise Price, Granted 86.17
Weighted Average Exercise Price, Exercised 44.95
Weighted Average Exercise Price, Forfeited or canceled 63.26
Weighted Average Exercise Price, Ending balance 63.12
Weighted Average Exercise Price, Exercisable at end of year 46.99
Weighted Average Exercise Price, Ending unvested and expected to vest $ 70.67
Weighted Average Remaining Contractual Term (in years), Ending balance 4 years 29 days
Weighted Average Remaining Contractual Term (in years), Exercisable at end of year 2 years 1 month 13 days
Weighted Average Remaining Contractual Term (in years), Ending unvested and expected to vest 5 years 3 days
Aggregate Intrinsic Value, Ending Balance $ 291.1
Aggregate Intrinsic Value, Exercisable at end of year 144.0
Aggregate Intrinsic Value, Ending unvested and expected to vest $ 140.8
v3.20.2
Stock Option Plans - Stock Options Outstanding and Exercisable (Detail) - $ / shares
shares in Millions
 6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum $ 43.71  
Range of Exercise Prices, maximum $ 86.17  
Option Outstanding, Number Outstanding 8.5  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 4 years 29 days  
Option Outstanding, Weighted Average Exercise Price $ 63.12 $ 56.40
Options Exercisable, Number Exercisable 2.9  
Option Exercisable, Weighted Average Exercise Price $ 46.99  
Exercise Prices Range $ 43.71 - $ 43.71 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 43.71  
Range of Exercise Prices, maximum $ 43.71  
Option Outstanding, Number Outstanding 1.6  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 2 years 8 months 15 days  
Option Outstanding, Weighted Average Exercise Price $ 43.71  
Options Exercisable, Number Exercisable 1.0  
Option Exercisable, Weighted Average Exercise Price $ 43.71  
Exercise Prices Range $ 46.17 - $ 46.87 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 46.17  
Range of Exercise Prices, maximum $ 46.87  
Option Outstanding, Number Outstanding 1.5  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 1 year 3 months 29 days  
Option Outstanding, Weighted Average Exercise Price $ 46.43  
Options Exercisable, Number Exercisable 1.5  
Option Exercisable, Weighted Average Exercise Price $ 46.43  
Exercise Prices Range $ 49.55 - $ 56.86 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 49.55  
Range of Exercise Prices, maximum $ 56.86  
Option Outstanding, Number Outstanding 1.4  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 3 years 8 months 15 days  
Option Outstanding, Weighted Average Exercise Price $ 56.83  
Options Exercisable, Number Exercisable 0.4  
Option Exercisable, Weighted Average Exercise Price $ 56.85  
Exercise Prices Range $ 70.74 - $ 70.74 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 70.74  
Range of Exercise Prices, maximum $ 70.74  
Option Outstanding, Number Outstanding 1.2  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 4 years 8 months 15 days  
Option Outstanding, Weighted Average Exercise Price $ 70.74  
Option Exercisable, Weighted Average Exercise Price 70.74  
Exercise Prices Range $ 79.59 - $ 79.59 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 79.59  
Range of Exercise Prices, maximum $ 79.59  
Option Outstanding, Number Outstanding 1.2  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 5 years 8 months 15 days  
Option Outstanding, Weighted Average Exercise Price $ 79.59  
Exercise Prices Range $ 86.17 - $ 86.17 [Member]    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]    
Range of Exercise Prices, minimum 86.17  
Range of Exercise Prices, maximum $ 86.17  
Option Outstanding, Number Outstanding 1.6  
Option Outstanding, Weighted Average Remaining Contractual Term (in years) 6 years 8 months 12 days  
Option Outstanding, Weighted Average Exercise Price $ 86.17  
v3.20.2
Deferred Compensation - Additional Information (Detail) - USD ($)
shares in Millions, $ in Millions
 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Investments And Employee Deferred Compensation Plan [Line Items]              
Deferred Equity Participation Plan, distributions to key executives, age         age 62 (or the one-year anniversary of the date of the grant for participants over the age of 61 as of the grant date) or upon or after their actual retirement.    
Deferred Equity Participation Sub-plans, distributions requisite service description         we annually make awards under sub-plans of the DEPP for certain production staff, which generally provide 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.    
Deferred Equity Participation Sub-plans, distributions to key executives, age         age 65    
Deferred Equity Participation Plan (DEPP) [Member]              
Investments And Employee Deferred Compensation Plan [Line Items]              
Awards approved by committee, value   $ 14.1   $ 10.1      
Charge to compensation expenses related to awards $ 3.7   $ 2.6   $ 6.0 $ 4.6  
Unearned deferred compensation, value         $ 70.7   $ 64.5
Unearned deferred compensation, shares         2.9   2.9
Total intrinsic value of unvested equity based awards         $ 283.8   $ 276.3
Cash and equity awards with aggregate fair value vested and distributed to participants         9.8 1.3  
Deferred Equity Participation Plan Sub Plans [Member]              
Investments And Employee Deferred Compensation Plan [Line Items]              
Awards approved by committee, value   1.8   2.6      
Charge to compensation expenses related to awards 0.7   0.7   1.4 1.2  
Distributions from the sub-plans         0.0 0.0  
Deferred Cash Participation Plan (DCPP) [Member]              
Investments And Employee Deferred Compensation Plan [Line Items]              
Awards approved by committee, value   $ 3.0   $ 2.4      
Charge to compensation expenses related to awards $ 1.7   $ 1.2   3.4 2.3  
Cash and equity awards with aggregate fair value vested and distributed to participants         $ 7.3 $ 2.5  
v3.20.2
Restricted Stock, Performance Share and Cash Awards - Additional Information (Detail)
 3 Months Ended 6 Months Ended
Mar. 12, 2020
USD ($)
shares
Mar. 14, 2019
USD ($)
shares
Jun. 30, 2020
USD ($)
shares
Mar. 31, 2020
USD ($)
shares
Jun. 30, 2019
USD ($)
shares
Mar. 31, 2019
USD ($)
shares
Jun. 30, 2020
USD ($)
TIME
shares
Jun. 30, 2019
USD ($)
shares
Dec. 31, 2019
shares
Mar. 31, 2018
shares
Mar. 15, 2018
USD ($)
shares
Mar. 16, 2017
USD ($)
shares
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Share-based compensation, shares outstanding | shares     8,500,000       8,500,000   7,900,000      
Restricted Stock Units (RSUs) [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Shares granted in the period | shares       405,900   399,900            
Fair value of grants in period       $ 34,900,000   $ 31,800,000            
Share based payment award vesting date       Mar. 12, 2025   Mar. 14, 2024            
Period of service from grant date stock options awarded not subject to forfeiture             2 years 2 years        
Restricted stock or unit expense     $ 9,500,000   $ 8,400,000   $ 20,100,000 $ 14,800,000        
Unvested Restricted Stock [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Total intrinsic value     228,500,000   199,700,000   228,500,000 199,700,000        
Equity awards with an aggregate fair value             30,600,000 2,000,000.0        
Performance Shares [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Equity awards with an aggregate fair value             $ 12,500,000 5,700,000        
Shares authorized | shares 82,500 73,600                    
Performance share awards approved, Fair value $ 7,100,000 $ 5,800,000                    
Performance awards period, years 1 year                      
Vesting period, years 2 years                      
2017 Performance Share Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Provisional awards, terms             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).          
Cash-based compensation awards, expenses         2,600,000     5,000,000.0        
Performance awards expiration date             Jan. 01, 2020          
2019 Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Cash-based compensation awards, expenses         0     0        
Performance awards expiration date             Jan. 01, 2022          
2020 Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Cash-based compensation awards, expenses     1,900,000       $ 4,100,000          
2018 Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Cash-based compensation awards, expenses     $ 900,000   $ 2,200,000              
Performance awards expiration date           Jan. 01, 2021            
Restricted Stock Unit Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Cash-based compensation awards, expenses             $ 3,500,000 $ 4,100,000        
2017 Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Provisional compensation cash award approved for future grant by compensation committee, units | shares     221,600       221,600          
Cash-based compensation awards, expenses             $ 18,900,000          
2016 Provisional Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Provisional compensation cash award approved for future grant by compensation committee, units | shares         341,000     341,000        
Cash-based compensation awards, expenses               $ 22,400,000        
Executive Officer [Member] | Restricted Stock Units (RSUs) [Member] | Minimum [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Minimum age of employee with not subject to award forfeiture on condition compliance 55 years           55 years 55 years        
Officer and Key Employees [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Performance awards period, years 1 year                      
Officer and Key Employees [Member] | Cash Awards [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Provisional awards, terms             The ultimate award value will be equal to the trailing twelve-month price of our common stock on December 31, 2022, multiplied by the number of units subject to the award, but limited to between 0.5 and 1.5 times the original value of the units determined as of the grant date.          
Vesting period, years 3 years                      
Provisional compensation cash awards approved for future grant by compensation committee, value $ 18,400,000 $ 16,500,000                 $ 15,000,000.0 $ 14,300,000
Provisional compensation cash award approved for future grant by compensation committee, units | shares 213,000,000,000 206,800 200,000     190,000 200,000     242,000 219,000 255,000
Ultimate award value, multiples of original value of the units, minimum | TIME             0.5          
Ultimate award value, multiples of original value of the units, maximum | TIME             1.5          
Cash-based compensation awards, expenses             $ 0          
Long Term Incentive Plan [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Share-based compensation, shares outstanding, Value     $ 4,000,000.0       $ 4,000,000.0          
Share-based compensation, shares outstanding | shares     2,200,000       2,200,000          
Shares granted in the period | shares             2,200,000          
Long Term Incentive Plan [Member] | Minimum [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Period of service from grant date stock options awarded not subject to forfeiture             2 years 2 years        
Long Term Incentive Plan [Member] | Executive Officer [Member] | Minimum [Member]                        
Common Stock Options Restricted Stock Warrants And Changes In Capitalization [Line Items]                        
Minimum age of employee with not subject to award forfeiture on condition compliance             55 years 55 years        
v3.20.2
Investments - Investments Reported in Other Current and Non-Current Assets (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Schedule of Equity Method Investments [Line Items]    
Assets $ 30.4 $ 40.0
Funding Commitments 2.1  
Chem-Mod LLC [Member]    
Schedule of Equity Method Investments [Line Items]    
Assets 4.0 4.0
Chem-Mod International LLC [Member]    
Schedule of Equity Method Investments [Line Items]    
Assets 2.0 2.0
Clean-Coal Investments [Member] | Controlling Interest [Member] | Twenty 2011 Era Clean Coal Plants [Member]    
Schedule of Equity Method Investments [Line Items]    
Assets 19.8 29.2
Funding Commitments 2.1  
Clean-Coal Investments [Member] | Noncontrolling Interests [Member] | One 2011 Era Clean Coal Plant [Member]    
Schedule of Equity Method Investments [Line Items]    
Assets 0.2 0.3
Other Investments [Member]    
Schedule of Equity Method Investments [Line Items]    
Assets $ 4.4 $ 4.5
v3.20.2
Derivatives and Hedging Activity - Summary of Notional and Fair Values of Derivative Instruments (Detail) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Derivatives, Fair Value [Line Items]    
Notional Amount $ 612,200,000 $ 831,700,000
Derivatives Assets 3,500,000 21,200,000
Derivative Liabilities 91,600,000 52,400,000
Interest Rate Contracts [Member]    
Derivatives, Fair Value [Line Items]    
Notional Amount 550,000,000.0 800,000,000.0
Interest Rate Contracts [Member] | Other current Assets [Member]    
Derivatives, Fair Value [Line Items]    
Derivatives Assets   2,800,000
Interest Rate Contracts [Member] | Other noncurrent Assets [Member]    
Derivatives, Fair Value [Line Items]    
Derivatives Assets   5,400,000
Interest Rate Contracts [Member] | Accrued compensation and other current liabilities [Member]    
Derivatives, Fair Value [Line Items]    
Derivative Liabilities 31,500,000 25,000,000.0
Interest Rate Contracts [Member] | Other noncurrent Liabilities [Member]    
Derivatives, Fair Value [Line Items]    
Derivative Liabilities 50,000,000.0 23,000,000.0
Foreign Exchange Contracts [Member]    
Derivatives, Fair Value [Line Items]    
Notional Amount [1] 62,200,000 31,700,000
Foreign Exchange Contracts [Member] | Other current Assets [Member]    
Derivatives, Fair Value [Line Items]    
Derivatives Assets [1] 1,100,000 4,500,000
Foreign Exchange Contracts [Member] | Other noncurrent Assets [Member]    
Derivatives, Fair Value [Line Items]    
Derivatives Assets 2,400,000 8,500,000
Foreign Exchange Contracts [Member] | Accrued compensation and other current liabilities [Member]    
Derivatives, Fair Value [Line Items]    
Derivative Liabilities [1] 4,800,000 1,800,000
Foreign Exchange Contracts [Member] | Other noncurrent Liabilities [Member]    
Derivatives, Fair Value [Line Items]    
Derivative Liabilities $ 5,300,000 $ 2,600,000
[1] Included within foreign exchange contracts at June 30, 2020 were $253.7 million of call options offset with $253.7 million of put options, and $11.7 million of buy forwards offset with $73.9 million of sell forwards.  Included within foreign exchange contracts at December 31, 2019 were $342.0 million of call options offset with $342.0 million of put options, and $12.1 million of buy forwards offset with $43.8 million of sell forwards.
v3.20.2
Derivatives and Hedging Activity - Summary of Notional and Fair Values of Derivative Instruments (Parenthetical) (Detail) - Foreign Exchange Contracts [Member] - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Call Options [Member]    
Derivatives, Fair Value [Line Items]    
Foreign exchange derivative contracts $ 253.7 $ 342.0
Put Options [Member]    
Derivatives, Fair Value [Line Items]    
Foreign exchange derivative contracts 253.7 342.0
Forward Contracts [Member] | Call Options [Member]    
Derivatives, Fair Value [Line Items]    
Foreign exchange derivative contracts 73.9 43.8
Forward Contracts [Member] | Put Options [Member]    
Derivatives, Fair Value [Line Items]    
Foreign exchange derivative contracts $ 11.7 $ 12.1
v3.20.2
Derivatives and Hedging Activity - Summary of Amounts of Derivative Gains (Losses) Recognized In Accumulated Other Comprehensive Loss (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss [1] $ 8.1 $ (29.4) $ (125.4) $ (46.6)
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Loss into Earnings (1.3) (1.2) (2.5) (1.9)
Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing 0.5 0.4 0.7 0.8
Interest expense [Member] | Interest Rate Contracts [Member]        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss [1] 6.1 (25.8) (108.1) (46.7)
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Loss into Earnings (0.3) (0.3) (0.6) (0.6)
Commission revenue [Member] | Foreign Exchange Contracts [Member]        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss [1] 2.0 (3.6) (17.3) 0.1
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Loss into Earnings (0.1) (0.1) (0.5) (0.2)
Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing (0.1) (0.2) (0.3) (0.4)
Compensation expense [Member]        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Loss into Earnings (0.5) (0.4) (0.8) (0.6)
Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing 0.4 0.3 0.6 0.7
Operating expense [Member]        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Loss into Earnings (0.4) (0.4) (0.6) (0.5)
Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing $ 0.2 $ 0.3 $ 0.4 $ 0.5
[1] For the three-month and six-month periods ended June 30, 2020, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.1 million and $0.4 million, respectively.
v3.20.2
Derivatives and Hedging Activity - Summary of Amounts of Derivative Gains (Losses) Recognized In Accumulated Other Comprehensive Loss (Parenthetical) (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Derivative Instruments, Gain (Loss) [Line Items]          
Other comprehensive income (loss), foreign currency transaction and translation adjustment, net of tax $ 249.9 $ (380.1) $ (60.9) $ 75.1  
Foreign Exchange [Member]          
Derivative Instruments, Gain (Loss) [Line Items]          
Other comprehensive income (loss), foreign currency transaction and translation adjustment, net of tax $ 0.1       $ 0.4
v3.20.2
Derivatives and Hedging Activity - Additional Information (Detail) - USD ($)
$ in Millions
 3 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2020
Interest Rate Contracts [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Settlement value of interest rate contracts hedges $ 66.0  
Notional value of contracts settled $ 350.0  
Scenario, Forecast [Member]    
Derivative Instruments, Gain (Loss) [Line Items]    
Estimated pretax loss to be reclassified from accumulated other comprehensive loss into earnings   $ 11.3
v3.20.2
Commitments, Contingencies and Off-Balance Sheet Arrangements - Contractual Obligations (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Note Purchase Agreements [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 $ 50.0
Contractual Obligations, Payments Due by Period, 2021 75.0
Contractual Obligations, Payments Due by Period, 2022 200.0
Contractual Obligations, Payments Due by Period, 2023 300.0
Contractual Obligations, Payments Due by Period, 2024 475.0
Contractual Obligations, Payments Due by Period, Thereafter 3,348.0
Contractual Obligations, Payments Due by Period, Total 4,448.0
Multi Currency Credit Agreement [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 100.0
Contractual Obligations, Payments Due by Period, Total 100.0
Premium Financing Debt Facility [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 103.6
Contractual Obligations, Payments Due by Period, Total 103.6
Interest On Debt [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 97.7
Contractual Obligations, Payments Due by Period, 2021 190.8
Contractual Obligations, Payments Due by Period, 2022 185.1
Contractual Obligations, Payments Due by Period, 2023 175.8
Contractual Obligations, Payments Due by Period, 2024 158.0
Contractual Obligations, Payments Due by Period, Thereafter 745.3
Contractual Obligations, Payments Due by Period, Total 1,552.7
Total Debt Obligations [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 351.3
Contractual Obligations, Payments Due by Period, 2021 265.8
Contractual Obligations, Payments Due by Period, 2022 385.1
Contractual Obligations, Payments Due by Period, 2023 475.8
Contractual Obligations, Payments Due by Period, 2024 633.0
Contractual Obligations, Payments Due by Period, Thereafter 4,093.3
Contractual Obligations, Payments Due by Period, Total 6,204.3
Operating Lease Obligations [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 57.4
Contractual Obligations, Payments Due by Period, 2021 105.8
Contractual Obligations, Payments Due by Period, 2022 83.1
Contractual Obligations, Payments Due by Period, 2023 65.3
Contractual Obligations, Payments Due by Period, 2024 46.3
Contractual Obligations, Payments Due by Period, Thereafter 88.1
Contractual Obligations, Payments Due by Period, Total 446.0
Less Sublease Arrangements [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Receivable by Period, 2020 (0.3)
Contractual Obligations, Payments Receivable by Period, 2021 (0.5)
Contractual Obligations, Payments Receivable by Period, 2022 (0.3)
Contractual Obligations, Payments Receivable by Period, 2023 (0.2)
Contractual Obligations, Payments Receivable by Period, 2024 (0.2)
Contractual Obligations, Payments Receivable by Period, Thereafter (0.7)
Contractual Obligations, Payments Receivable by Period, Total (2.2)
Outstanding Purchase Obligations [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 37.7
Contractual Obligations, Payments Due by Period, 2021 42.8
Contractual Obligations, Payments Due by Period, 2022 27.7
Contractual Obligations, Payments Due by Period, 2023 13.6
Contractual Obligations, Payments Due by Period, 2024 8.7
Contractual Obligations, Payments Due by Period, Thereafter 31.0
Contractual Obligations, Payments Due by Period, Total 161.5
Total Contractual Obligations [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Contractual Obligations, Payments Due by Period, 2020 446.1
Contractual Obligations, Payments Due by Period, 2021 413.9
Contractual Obligations, Payments Due by Period, 2022 495.6
Contractual Obligations, Payments Due by Period, 2023 554.5
Contractual Obligations, Payments Due by Period, 2024 687.8
Contractual Obligations, Payments Due by Period, Thereafter 4,211.7
Contractual Obligations, Payments Due by Period, Total $ 6,809.6
v3.20.2
Commitments, Contingencies and Off-Balance Sheet Arrangements - Additional Information (Detail)
 3 Months Ended 6 Months Ended 222 Months Ended
Jun. 30, 2020
USD ($)
ft²
Entity
LetterOfCredit
Jun. 30, 2019
Entity
Jun. 30, 2020
USD ($)
ft²
Entity
Employee
LetterOfCredit
Company
Jun. 30, 2019
Entity
Jun. 30, 2020
USD ($)
ft²
Entity
LetterOfCredit
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Number of square feet | ft² 360,000   360,000   360,000
Number of employees will accommodate at new facility | Employee     2,000    
Number of companies acquired | Entity 44 46 102 68 568
Aggregate amount of maximum earnout obligations related to acquisitions     $ 1,060,700,000    
Aggregate amount of maximum earnout obligations related to acquisitions, recorded in consolidated balance sheet     474,000,000.0    
Income tax credits and adjustments     $ 108,000,000.0    
Security Deposit [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Number of letters of credit issued | LetterOfCredit 1   1   1
Collateral [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Number of letters of credit issued | LetterOfCredit 1   1   1
Self-Insurance Deductibles [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Number of letters of credit issued | LetterOfCredit 2   2   2
Rent-A-Captive Facility [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Number of letters of credit issued | LetterOfCredit 7   7   7
Errors And Omissions [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Insurance claims, amount retained     $ 10,000,000.0    
Amount of losses in excess of retained amounts $ 350,000,000.0   350,000,000.0   $ 350,000,000.0
Letter of Credit [Member] | Security Deposit [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Debt 500,000   500,000   500,000
Letter of Credit [Member] | Collateral [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Debt 900,000   900,000   900,000
Letter of Credit [Member] | Self-Insurance Deductibles [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Debt 9,400,000   9,400,000   9,400,000
Liabilities recorded on self-insurance 17,100,000   17,100,000   17,100,000
Letter of Credit [Member] | Rent-A-Captive Facility [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Debt $ 7,500,000   $ 7,500,000   $ 7,500,000
Minimum [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Ownership interest 1.00%   1.00%   1.00%
Number of micro-captive insurance companies organized or managed | Company     100    
Minimum [Member] | Errors And Omissions [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Actuarial range value $ 3,000,000.0   $ 3,000,000.0   $ 3,000,000.0
Maximum [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Ownership interest 50.00%   50.00%   50.00%
Maximum [Member] | Errors And Omissions [Member]          
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]          
Actuarial range value $ 5,800,000   $ 5,800,000   $ 5,800,000
v3.20.2
Commitments, Contingencies and Off-Balance Sheet Arrangements - Off-Balance Sheet Commitments (Detail)
$ in Millions
 6 Months Ended
Jun. 30, 2020
USD ($)
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Amount of Commitment Expiration by Period - 2020 $ 2.2
Amount of Commitment Expiration by Period - 2021 0.2
Amount of Commitment Expiration by Period - 2022 0.2
Amount of Commitment Expiration by Period - 2023 0.2
Amount of Commitment Expiration by Period - 2024 0.2
Amount of Commitment Expiration by Period - Thereafter 18.6
Total Amounts Committed 21.6
Funding Commitments [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Amount of Commitment Expiration by Period - 2020 2.1
Total Amounts Committed 2.1
Financial Guarantees [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Amount of Commitment Expiration by Period - 2020 0.1
Amount of Commitment Expiration by Period - 2021 0.2
Amount of Commitment Expiration by Period - 2022 0.2
Amount of Commitment Expiration by Period - 2023 0.2
Amount of Commitment Expiration by Period - 2024 0.2
Amount of Commitment Expiration by Period - Thereafter 0.3
Total Amounts Committed 1.2
Letters of Credit [Member]  
Commitments Contingencies And Off Balance Sheet Arrangements [Line Items]  
Amount of Commitment Expiration by Period - Thereafter 18.3
Total Amounts Committed $ 18.3
v3.20.2
Supplemental Disclosures of Cash Flow Information - Cash Flow (Detail) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash And Cash Equivalents [Abstract]    
Interest paid $ 91.7 $ 74.6
Income taxes paid, net $ 20.0 $ 31.2
v3.20.2
Supplemental Disclosures of Cash Flow Information - Cash Equivalents And Restricted Cash (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2019
Dec. 31, 2018
Cash And Cash Equivalents [Abstract]        
Cash and cash equivalents $ 349.7 $ 604.8 $ 512.3  
Restricted cash 2,653.0 2,019.1 2,034.3  
Total cash, cash equivalents and restricted cash $ 3,002.7 $ 2,623.9 $ 2,546.6 $ 2,236.8
v3.20.2
Supplemental Disclosures of Cash Flow Information - Additional Information (Detail) - Qualified Contributory Savings and Thrift 401(k) Plan [Member] - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Defined Benefit Plan Disclosure [Line Items]    
Matching contributions by employer, percentage 100.00%  
Percentage of eligible compensation for matching contributions by employer 5.00%  
Matching contributions vesting schedule 5 years  
Contribution expense to plan $ 30.3 $ 29.3
v3.20.2
Accumulated Other Comprehensive Loss - Schedule of Accumulated Other Comprehensive Loss Attributable to Controlling Interests (Detail)
$ in Millions
 6 Months Ended
Jun. 30, 2020
USD ($)
Accumulated Other Comprehensive Income Loss [Line Items]  
Balance as of December 31, 2019 $ (759.6)
Balance as of June 30, 2020 (982.2)
Pension Liability [Member]  
Accumulated Other Comprehensive Income Loss [Line Items]  
Balance as of December 31, 2019 (56.5)
Net change in period 1.2
Balance as of June 30, 2020 (55.3)
Foreign Currency Translation [Member]  
Accumulated Other Comprehensive Income Loss [Line Items]  
Balance as of December 31, 2019 (674.8)
Net change in period (130.6)
Balance as of June 30, 2020 (805.4)
Fair Value of Derivative Investments [Member]  
Accumulated Other Comprehensive Income Loss [Line Items]  
Balance as of December 31, 2019 (28.3)
Net change in period (93.2)
Balance as of June 30, 2020 (121.5)
Accumulated Other Comprehensive Loss [Member]  
Accumulated Other Comprehensive Income Loss [Line Items]  
Balance as of December 31, 2019 (759.6)
Net change in period (222.6)
Balance as of June 30, 2020 $ (982.2)
v3.20.2
Accumulated Other Comprehensive Loss - Additional Information (Detail) - USD ($)
 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]    
Expense related to pension liability reclassified from accumulated other comprehensive earnings $ 3,100,000 $ 3,600,000
Income related to fair value of derivative investments reclassified from accumulated other comprehensive earnings 2,500,000 1,900,000
Foreign currency translation reclassified from accumulated other comprehensive earnings $ 0 $ 0
v3.20.2
Segment Information - Additional Information (Detail)
 6 Months Ended
Jun. 30, 2020
Segment
Segment Reporting [Abstract]  
Number of reportable segments 3
v3.20.2
Segment Information - Schedule of Segment Reporting Information by Segment (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Segment Reporting Information [Line Items]          
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 21,306.2 19,200.3 $ 19,634.8
Operating Segments [Member] | Brokerage [Member]          
Segment Reporting Information [Line Items]          
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 18,405.6 16,464.3  
Operating Segments [Member] | Risk Management [Member]          
Segment Reporting Information [Line Items]          
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 929.1 847.9 929.1 847.9  
Operating Segments [Member] | Corporate [Member]          
Segment Reporting Information [Line Items]          
Total revenues 159.7 284.5 341.5 656.8  
Earnings 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 $ 1,971.5 $ 1,888.1  
v3.20.2
Segment Information - Summary of Revenues by Type and Segment (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Segment Reporting Information [Line Items]        
Total revenues $ 1,584.0 $ 1,657.8 $ 3,450.9 $ 3,648.4
Revenues before reimbursements 1,551.6 1,624.8 3,380.8 3,582.3
Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1,201.1 1,131.2 2,636.7 2,513.1
Revenues before reimbursements 1,201.1 1,131.2 2,636.7 2,513.1
Risk Management [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 223.2 242.1 472.7 478.5
Revenues before reimbursements 190.8 209.1 402.6 412.4
Corporate [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 159.7 284.5 341.5 656.8
Revenues before reimbursements 159.7 284.5 341.5 656.8
Commissions [Member]        
Segment Reporting Information [Line Items]        
Total revenues 827.5 777.7 1,844.7 1,718.1
Commissions [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 827.5 777.7 1,844.7 1,718.1
Broker Fees [Member]        
Segment Reporting Information [Line Items]        
Total revenues 459.7 464.7 967.0 929.4
Broker Fees [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 269.1 256.1 564.9 517.9
Broker Fees [Member] | Risk Management [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 190.6 208.6 402.1 411.5
Supplemental Revenue Member [Member]        
Segment Reporting Information [Line Items]        
Total revenues 50.3 46.9 109.3 103.6
Supplemental Revenue Member [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 50.3 46.9 109.3 103.6
Contingent Revenue [Member]        
Segment Reporting Information [Line Items]        
Total revenues 37.4 29.5 82.5 77.5
Contingent Revenue [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 37.4 29.5 82.5 77.5
Investment income [Member]        
Segment Reporting Information [Line Items]        
Total revenues 16.0 19.6 34.6 37.9
Investment income [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 15.8 19.1 34.1 37.0
Investment income [Member] | Risk Management [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 0.2 0.5 0.5 0.9
Net gains on divestitures [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1.0 1.9 1.2 59.0
Net gains on divestitures [Member] | Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1.0 1.9 1.2 59.0
Clean Coal Activities [Member]        
Segment Reporting Information [Line Items]        
Total revenues 159.5 284.4 341.3 656.7
Clean Coal Activities [Member] | Corporate [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 159.5 284.4 341.3 656.7
Other Net Losses [Member]        
Segment Reporting Information [Line Items]        
Total revenues 0.2 0.1 0.2 0.1
Other Net Losses [Member] | Corporate [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 0.2 0.1 0.2 0.1
Reimbursements [Member]        
Segment Reporting Information [Line Items]        
Total revenues 32.4 33.0 70.1 66.1
Reimbursements [Member] | Risk Management [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues $ 32.4 $ 33.0 $ 70.1 $ 66.1
v3.20.2
Segment Information - Summary of Geographical Location and Segment (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Segment Reporting Information [Line Items]        
Total revenues $ 1,584.0 $ 1,657.8 $ 3,450.9 $ 3,648.4
Unites States [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1,086.1 1,176.7 2,486.5 2,754.0
United Kingdom [Member]        
Segment Reporting Information [Line Items]        
Total revenues 269.1 258.7 535.0 472.6
Australia [Member]        
Segment Reporting Information [Line Items]        
Total revenues 81.6 78.8 146.3 147.3
Canada [Member]        
Segment Reporting Information [Line Items]        
Total revenues 59.7 59.5 116.9 117.9
New Zealand [Member]        
Segment Reporting Information [Line Items]        
Total revenues 41.2 45.3 72.0 79.6
Other Foreign [Member]        
Segment Reporting Information [Line Items]        
Total revenues 46.3 38.8 94.2 77.0
Brokerage [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1,201.1 1,131.2 2,636.7 2,513.1
Brokerage [Member] | Unites States [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 740.8 685.3 1,746.7 1,691.8
Brokerage [Member] | United Kingdom [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 260.9 248.7 515.4 452.4
Brokerage [Member] | Australia [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 56.9 58.8 100.0 104.8
Brokerage [Member] | Canada [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 58.2 58.4 114.4 115.6
Brokerage [Member] | New Zealand [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 38.0 41.2 66.0 71.5
Brokerage [Member] | Other Foreign [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 46.3 38.8 94.2 77.0
Risk Management [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 223.2 242.1 472.7 478.5
Risk Management [Member] | Unites States [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 185.6 206.9 398.3 405.4
Risk Management [Member] | United Kingdom [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 8.2 10.0 19.6 20.2
Risk Management [Member] | Australia [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 24.7 20.0 46.3 42.5
Risk Management [Member] | Canada [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 1.5 1.1 2.5 2.3
Risk Management [Member] | New Zealand [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 3.2 4.1 6.0 8.1
Corporate [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues 159.7 284.5 341.5 656.8
Corporate [Member] | Unites States [Member] | Operating Segments [Member]        
Segment Reporting Information [Line Items]        
Total revenues $ 159.7 $ 284.5 $ 341.5 $ 656.8