Elsewhere, we generally operate in leased premises related to the facilities of our brokerage and risk management operations. We prefer to lease office space rather than own real estate. Certain of our office space leases have options permitting renewals for additional periods. In addition to minimum fixed rentals, a number of our leases contain annual escalation clauses generally related to increases in an inflation index. See Note 13 to our 2011 consolidated financial statements for information with respect to our lease commitments as of December 31, 2011.
Despite these headwinds, our operating results improved in 2011 compared to 2010 in both our brokerage and risk management segments:
Congress extended the deadline for clean coal production plants to be “placed in service” by two years, from December 31, 2009 to December 31, 2011. Tax credits on these plants can be earned for ten years from the placed-in-service date if the clean coal production plants are placed in service by December 31, 2011. In conjunction with this extension and the marketing efforts of Chem-Mod, there is increased demand for IRC Section 45 projects and the Chem-Mod technologies. Accordingly, we have invested $33.4 million in fifteen commercial clean coal production plants that we placed in service, producing refined coal using Chem-Mod’s technologies, prior to December 31, 2011 (2011 Era Plants).
Our adjusted EBITDAC margin excluding Heath Lambert was 22.4% for 2011. Our adjusted EBITDAC margin was 21.9% and 22.0% for 2010 and 2009, respectively.
The following provides non-GAAP information that we believe is helpful when comparing 2011 operating results for the corporate segment with 2010 and 2009 (in millions):
At December 31, 2011, we also held a controlling, majority interest in a limited liability company that owns two 2009 Era Plants. While these plants have produced refined coal using Chem-Mod’s technologies in the past, they are currently idle.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (Topic 220) to make the presentation of items within other comprehensive income (which we refer to as OCI) more prominent. The guidance will require companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements. Companies will no longer be allowed to present items of OCI in the statement of stockholders’ equity. Rather, companies will be required to display reclassification adjustments (e.g., changes in fair value of the derivative instruments) for each component of OCI in both net income and OCI. This is a change from the current standard, which requires reclassification adjustments to be displayed on the face of the financial statement in which OCI is reported or disclosed in the notes to the financial statements. The effective date for public companies is fiscal years, and interim periods within those years, beginning after December 15, 2011. We will be able to make the changes required by the guidance without incurring any significant costs or facing operational challenges because we already collect all of the necessary information and present it in the statement of stockholders’ equity and notes to our consolidated financial statements.
The changes in the carrying amount of goodwill for 2011 and 2010 are as follows (in millions):
The note purchase agreements contain customary provisions for transactions of this type, including representations and warranties regarding us and our subsidiaries and various financial covenants, including covenants that require us to maintain specified financial ratios. We were in compliance with these covenants as of December 31, 2011. The note purchase agreements also provide customary events of default, generally with corresponding grace periods, including, without limitation, payment defaults with respect to the notes, covenant defaults, cross-defaults to other agreements evidencing our or our subsidiaries’ indebtedness, certain judgments against us or our subsidiaries and events of bankruptcy involving us or our material subsidiaries.
In first quarter 2011, 2010 and 2009, the compensation committee approved $6.5 million, $5.9 million and $5.5 million, respectively, of cash awards in the aggregate to certain key executives under the Deferred Equity Participation Plan that were contributed to the rabbi trust in first quarter 2011 and second quarter 2010 and 2009, respectively. The fair value of the funded cash award assets at December 31, 2011 and 2010 was $28.6 million and $21.1 million, respectively, and has been included in other noncurrent assets in the accompanying consolidated balance sheet. During 2011, 2010 and 2009, we charged $3.3 million, $2.7 million and $1.9 million, respectively, to compensation expense related to these awards. During 2011, 2010 and 2009, cash and equity awards with an aggregate fair value of $0.5 million, $1.1 million and $1.1 million, respectively, were vested and distributed to employees under this plan.
A reconciliation of the beginning and ending balances of the pension benefit obligation and fair value of plan assets and the funded status of the plan is as follows (in millions):
We and our subsidiaries file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We and our subsidiaries are routinely examined by tax authorities in these jurisdictions. At December 31, 2011, we had been examined by the IRS through calendar year 2008. We have recently been notified that the IRS intends to begin an examination of calendar years 2009 and 2010 during 2012. A number of foreign, state and local examinations are currently ongoing. It is reasonably possible that our gross unrecognized tax benefits may change within the next twelve months. However, we believe any changes in the recorded balance would not have a significant impact on our consolidated financial statements.
We have identified three reportable operating segments: brokerage, risk management and corporate. The brokerage segment is primarily comprised of retail and wholesale insurance brokerage operations. The brokerage segment generates revenues through commissions paid by insurance underwriters and through fees charged to our clients. Our brokers, agents and administrators act as intermediaries between insurers and their customers and we do not assume underwriting risks. The risk management segment provides contract claim settlement and administration services for enterprises that choose to self-insure some or all of their property/casualty coverages and for insurance companies 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. The corporate segment manages our clean energy and other investments. This segment also holds all of our corporate debt. 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 as if those segments were preparing income tax provisions on a separate company basis. Reported operating results by segment would change if different methods were applied. Financial information relating to our segments for 2011, 2010 and 2009 is as follows (in millions):