01—Abstract
Summary
Summary of the 10-K filed February 14, 2012. Cited figures are marked; the original filing is the authoritative source.
Arthur J.
Gallagher & Co. (AJG) reported strong growth in its 2011 annual report, driven by a significant increase in both brokerage and risk management segments. Total revenues reached $2.13 billiona, up from $1.86 billion in 2010, with the brokerage segment accounting for 73% and the risk management segment for 26% of revenues. The company successfully integrated numerous acquisitions, notably the acquisition of Heath Lambert, which contributed significantly to the international revenue growth, with international operations comprising 19% of total revenues by year-end 2011.
AJG demonstrated expense discipline and generated positive organic growth across its core businesses. The company's financial performance was bolstered by a recovery in commercial property/casualty rates, which showed upward trends in the latter half of the year, coupled with a robust acquisition strategy that expanded its global footprint and service capabilities. While facing headwinds from the uncertain economic environment, AJG's management highlighted improved operating results and a continued focus on expanding international operations.
The company also noted potential benefits from the 2010 Health Care Reform Legislation, which could create opportunities in its employee benefits consulting business. Investments in clean energy, specifically IRC Section 45 clean coal production plants, are expected to provide future tax credits and earnings, although subject to inherent risks and uncertainties. AJG maintained a strong balance sheet with significant cash reserves and managed its debt effectively, demonstrating a commitment to financial stability and shareholder returns.
02—Key points
Key Highlights
- Total revenues increased by 14.5% to $2.13 billion in 2011 from $1.86 billion in 2010.
- The brokerage segment remains the largest contributor to revenue, accounting for 73% of the total.
- The risk management segment also showed substantial growth, contributing 26% of total revenue.
- International operations expanded significantly, representing 19% of total revenues in 2011, up from 13% in 2010.
- AJG completed 32 acquisitions in 2011, totaling $277 million in annualized revenues, reinforcing its growth strategy.
- Organic change in commission, fee, and supplemental commission revenues was positive at 3.1% for the brokerage segment.
- The company reported a strong balance sheet with $291.2 million in cash and cash equivalents at year-end 2011.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Arthur J. Gallagher & Co. kept $0.07.
- Revenue$2.13B100.0%
- Cost of revenue−$32.0M1.5%
- Gross profit$2.10B98.5%
- Operating costs−$2.25B105.3%
- Operating income−$144.1M6.8%
- Interest, other & tax$288.2M13.5%
- Net income$144.1M6.8%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 14, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.13B$1.86B | +14.5% |
| Cost of Revenue | $32.00M$64.00M | −50.0% |
| Gross Profit | $2.10B$1.80B | +16.8% |
| Operating Expenses | $419.00M$354.60M | +18.2% |
| Operating Income | -$144.10M$163.30M | −188.2% |
| Interest Expense | $40.80M$34.60M | +17.9% |
| Net Income | $144.10M$174.10M | −17.2% |
| EPS (Basic) | $1.29$1.66 | −22.3% |
| EPS (Diluted) | $1.28$1.66 | −22.9% |
| Shares Outstanding (Basic) | 111.70M104.80M | +6.6% |
05—Questions
Frequently Asked Questions
What were Arthur J. Gallagher & Co.'s main sources of revenue in 2011?
In 2011, Arthur J. Gallagher & Co.'s primary sources of revenue were from its brokerage segment, which accounted for 73% of total revenues, and its risk management segment, which accounted for 26%. The brokerage segment's revenue was primarily generated through commissions and fees, while the risk management segment's revenue came from fees for claims settlement and administration services.
How did the company's acquisitions perform in 2011?
In 2011, Arthur J. Gallagher & Co. completed 32 acquisitions, adding approximately $277 million in annualized revenues. The company reported that these acquisitions, along with organic growth and expense discipline, contributed to improved operating results in both the brokerage and risk management segments.
What is the company's outlook on its international operations?
Arthur J. Gallagher & Co. continued to expand its international operations in 2011, with international revenues making up 19% of total revenues, an increase from 13% in 2010. The company expects this international revenue trend to continue in 2012, driven by both acquisitions and organic growth.
What significant risks does Arthur J. Gallagher & Co. face according to its 2011 10-K filing?
The company identified several key risks, including the volatility of insurance premiums and industry cycles, intense competition, the impact of economic downturns on client spending, the risks associated with its acquisition strategy, potential adverse effects from the 2010 U.S. Healthcare Reform Legislation, and risks related to its clean energy investments, particularly those concerning IRC Section 45 tax credits. Additionally, risks related to cybersecurity, employee retention, and international operations were highlighted.
06—Continue