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 related to the branch facilities of our brokerage and risk management segments. 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 Notes 15 and 17 to our 2019 consolidated financial statements for information with respect to our lease commitments as of December 31, 2019.
Solution proprietary technologies principally to refined fuel plants that sell refined fuel to coal-fired power plants owned by utility companies, including those plants in which we hold interests. Based on current production estimates provided by licensees, Chem-Mod
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which require management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We believe the following significant accounting policies may involve a higher degree of judgment and complexity. See Note 1 to our 2019 consolidated financial statements for other significant accounting policies.
The brokerage segment accounted for 68% of our revenue in 2019. Our brokerage segment is primarily comprised of retail and wholesale brokerage operations. Our brokerage segment generates revenues by:
exchange acquisitions and for 2018 and 2017 repurchased 175,000, and 273,000 shares, respectively, to partially offset the impact of the issued shares.
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 2019 increased compared to 2018 primarily due to increases in interest income from our U.S. operations due to increases in interest income earned on client held funds. Investment income in 2018 increased compared to 2017 primarily due to increases in interest income from our Australia and New Zealand premium financing business, which relates to an increase in the volume of premium financing business written in 2018, and increases in interest income earned on client held funds in the U.S. due to an increase in interest rates.
The amounts initially recorded as earnout payables for our 2016 to 2019 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-
LLC. As of December 31, 2019, 2018 and 2017, we held a 46.5% controlling interest in Chem-Mod
(1) Pretax earnings (loss) are presented net of amounts attributable to noncontrolling interests of $29.8 million in 2019, $31.7 million in 2018 and $28.0 million in 2017.
Consists of the tax expense from (a) adjusting December 31, 2017 initial estimates from the U.S. tax legislation passed in the fourth quarter of 2017 and (b) the on-going
In addition, cash provided by operating activities in 2019 was unfavorably impacted by timing differences in the receipt and disbursements of client fiduciary balances in 2019 compared to 2018. 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 2019, 2018 and 2017 (in millions):
- During the period from 2009 through 2019, 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 net after-tax
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. There were $520.0 million of borrowings outstanding under the Credit Agreement at December 31, 2019. Due to the outstanding borrowing and letters of credit, $663.8 million remained available for potential borrowings under the Credit Agreement at December 31, 2019.
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 necessary for events of loss coverages is provided by underwriting enterprises.
Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim
basis. We must make our best estimate of amounts we have earned using historical averages and other factors to project such revenues. Variable consideration is recognized when we conclude that is it probable that a significant revenue reversal will not occur in future periods.
Related to our third party administration business and in certain of our brokerage operations, we are responsible for client claim funds that we hold in a fiduciary capacity. We do not earn any interest income on the funds held. These client funds have been included in restricted cash, along with a corresponding liability in premiums payable to underwriting enterprises in the accompanying consolidated balance sheet.
• Level 2 - Valuations are based on quoted market prices, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument; and
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
The following is a summary of the estimated fair values of the net assets acquired at the date of each acquisition made in 2019 (in millions):
Provisional estimates of fair value are established at the time of the 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 2.0% to 3.0% and 5.0% to 12.5% for our 2019 and 2018
At December 31, 2019, $16.2 million of letters of credit (for which we had $16.5 million of liabilities recorded at December 31, 2019) were outstanding under the Credit Agreement. See Note 17 to these consolidated financial statements for a discussion of the letters of credit. There were $520.0 million of borrowings outstanding under the Credit Agreement at December 31, 2019. Accordingly, at December 31, 2019, $663.8 million remained available for potential borrowings.
options and stock appreciation rights. The compensation committee determines the period for the exercise of a non-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
As discussed in Note 10 to these 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
return assumptions for all of the asset classes in which the plan was invested at December 31, 2019 and 2018. The return assumptions used in the valuation were based on data provided by the plan’s external investment advisors.
basis. The postretirement benefit obligation and the unfunded status of the plan as of December 31, 2019 and 2018 were $1.7 million and $2.0 million, respectively. The net periodic postretirement benefit (income) cost of the plan amounted to ($0.4 million), ($0.3 million) and ($0.3 million) in 2019, 2018 and 2017, respectively.
• We have a noncontrolling interest in one plant, which is owned by a limited liability company (which we refer to as a LLC). We have determined that this LLC is a VIE, for which we are not the primary beneficiary and therefore do not consolidate it.
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 capacity. During first quarter 2017, we relocated our corporate office headquarters to the Rolling Meadows location. No move related charges were incurred in 2019 or 2018. We recognized move related costs and lease abandonment charges of $13.2 million in 2017. Relating to the development of our corporate headquarters, we expect to receive property tax related credits under a tax-increment
Since January 1, 2002, we have acquired 556 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 2019 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-
At December 31, 2019, 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 $16.5 million. We have an equity investment in a rent-a-captive
million, respectively, have been included in noncurrent liabilities in the accompanying consolidated balance sheet. Alternative minimum tax credits of $14.3
Our 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.
As described in Note 3 to the financial statements, Gallagher completed 49 acquisitions during 2019 for total net consideration of $1,791.8 million. From these, those considered significant acquisitions from an audit perspective were (1) the acquisition of all outstanding equity of Jardine Lloyd Thompson Group plc’s global aerospace operations (JLT) for net consideration of $230.7 million and (2) the acquisition of all outstanding equity of Stackhouse Poland Group Limited (SPG) for net consideration of $331.6 million. These acquisitions have been accounted for using the acquisition method for recording business combinations. The excess of the purchase price over the estimated fair value of the tangible net assets acquired at the acquisitions date was allocated to goodwill, acquired customer