J. Patrick Gallagher - Chairman, President and Chief Executive Officer Douglas K. Howell - Corporate Vice President and Chief Financial Officer.

Michael S. Nannizzi - Goldman Sachs & Co., Inc. Adam Klauber - William Blair & Company LLC John Campbell - Stephens, Inc. Daniel Farrell - Sterne, Agee & Leach, Inc. Mark Hughes - SunTrust Robinson Humphrey Robert Glasspiegel - Janney Capital Markets Arash Soleimani - Keefe , Bruyette & Woods , Inc. Kai Pan - Morgan Stanley & Co.

LLC Scott Heleniak - RBC Capital Markets J. Paul Newsome - Sandler O'Neill & Partners Joshua D. Shanker - Deutsche Bank Securities Inc. Kenneth G. Billingsley - Compass Point Research & Trading, LLC.

Greetings and welcome to Arthur J. Gallagher & Company's Fourth Quarter 2014 Earnings Conference Call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time.

Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws.

These forward-looking statements are subject to certain risks and uncertainties that will be discussed on this call and which are also described in the Company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today. It is now my pleasure to introduce Mr. J.

Patrick Gallagher, Chairman, President and Chief Executive Officer of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin..

J. Patrick Gallagher:.

First, strong new business domestically and internationally and across both our large commercial and carrier units; secondly, client retention at about 95%; and thirdly mid single-digit growth in claim counts.

Finally, we continue to invest in our managed care offering, our IT systems and our claims analytics all with the goal of delivering industry leading claim outcomes. I want to thank all my colleagues across the globe for pushing through the whole 12 months. What a great finish we had.

We’re still in focus for integrating our new partners, selling a lot of new business and taking good care of our clients and retaining those clients and in 2014 continuing to be recognized as one of the world’s most ethical company’s. Let me finish by rephrasing why I think 2014 was in fact in our history going to be looked at it several year.

We’ve had aspirations of being a global growth enterprise since my dad open our offices in London and Bermuda in 1974. We now have 20,000 plus people spread across the globe bringing the expertise of our organization, no matter where in the world that expertise is located to our clients.

We developed more clients, we developed more mergers, we developed more geographies, we really made some giant strides in our journey in 2014 and I am very, very pleased.

Doug?.

Thanks, Pat, and good morning, everyone. What a terrific finish to a game changing year for Gallagher. All right, let’s please flip to the table on Page 2, and here some other items for you to consider as you review our results and work on your models for 2015. We’ll start with the brokerage on Page 2.

Brokerage segment adjusted EPS of $0.50, up 22% in the quarter. Foreign currency did not have much impact year-over-year in the quarter, but have the dollar remained at third quarter levels we would have earned another penny.

Looking towards 2015, if the dollars stays at current levels it will cost us about a penny in the first quarter and then about $0.02 to $0.03 in the second and $0.02 in the third. Next integration, you heard Pat’s comments that Bollinger is done and the others are moving along as planned.

Looking to 2015, we are seeing integration cost of about $0.07 to $0.09 a quarter in the first half and $0.05 to $0.06 a quarter in the second half. Again that’s $0.07 to $0.09 a quarter in the first half and $0.05 to $0.06 a quarter in the second half. Staying with brokerage, but turning to Page 3 to the organic revenue table at the bottom.

Pat gave you some flavor around the world. So let me give you some more detail behind the 4.2% organic growth in base commissions. We saw about a little over 4% came from our domestic retail operations, international was nearly 4% and domestic wholesale was around 7%. So, solid numbers around the globe, no matter how you add them up.

Second, as for supplements and contingents together organically about flat in the fourth quarter, which given we had a gangbuster fourth quarter in 2013, should be viewed as really excellent work by the team.

For 2015, we are feeling a little preference from carriers to move from supplements to contingents, but buy and large we are renewing most of our contracts as is and we see some moderate growth in these lines. Third, rate in exposure together basically have zero impact on our organic growth this quarter.

This is consistent with what we have been seen since mid-2011. So like Pat said we are in a new rate environment and still a very healthy one for that matter. Look now to Page 4, to the brokerage segment adjusted EBITDAC margin table near the bottom of the page.

Adjusted margins are up over 180 basis points about two-thirds of that results from the rolling impact of the larger deals and about a third from organic growth and expense controls. Again, that’s also great work by the team. Now let me give you some thoughts as you prepare your models for 2015 for the brokerage segment.

First, we’ve said this a lot in the past, but I can’t emphasize it enough that our brokerage segment has substantial seasonality in our first quarter. You can really see it on Page 4 of our investor supplement.

As a result, our first quarter has historically had by far our lowest margins and we historically posted a smallest amount of organic growth in the first quarter versus the latter quarters and full year. I really encourage you to reflect this dramatic first quarter seasonality in your models.

Second, given the sizeable amount of M&A we have this year, projecting rollover revenues can be difficult. So for your 2015 models assume rollover revenues about $175 million in the first quarter 2015, a $125 million in Q2, $25 million in Q3, and $10 million in Q4. Then you will need to add your pick for organic and for 2015 acquisitions.

Also when you make your pick for 2015 acquisitions, please consider that M&A historically in a quarter tends to skew towards the last month not the first month. That can have an impact in your models and we don’t control for that also. Third, also please be careful in your model investment income.

We call that our investment income has revenues from our premium financing business. While revenues are somewhat apparent in that investment income line, it isn’t easy to see the cost associated with that revenue.

That cause some confusion last quarter, so we’ve added a footnote on page 12, of the release to show the net impact to EBITDAC which is very small relatively speaking. So please make sure your models don’t have all the investment income hitting the bottom line.

Fourth, as for first quarter 2015 margins, we estimate about 80 basis points to 100 basis points of margin expansion from our larger deals as they roll into the numbers. But I am not seeing much more margin expansion from organic in the first quarter given our seasonality.

Fifth, let me give you some non-cash estimates for the first quarter for the brokerage segment. For depreciation assume about $15 million of expense, for amortization about $55 million, for acquisition earn out amortization assume about $5 million.

Then as we do more M&A for every dollar we spend you need to increase amortization by about 1% of the purchase price per quarter and that will get you close. Let's turn to Page 4 to the Risk Management segment. Really, an excellent quarter across the board. Breaking down the organic, our domestic operations grew near 12% and internationally near 17%.

Margins were nicely up over last year and we surpassed our 16% target for the year. I guess that was on Page 5. Let's turn to Page 6 to the corporate table. Overall, we came in slightly above our midpoint guidance and you’ll see the retirement de-risking strategy that we discussed in our last call and in the December 8-K.

And remember the de-risking charge is non-cash and those payments are made from plan assets, not from our corporate cash. We saw a very nice outcome on all fronts. Looking forward when you get ready to model 2015 for our corporate segment, please take a look at our investors supplement Page 15.

We provided a 2014 adjusted view and we’ve also provided our estimates for the corporate segment for each quarter of 2015. We’ve adjusted 2014 on that Page 15 for both de-risking and non-cash accounting gains on our clean-energy investments giving you an apples-to-apples view with our estimates for 2015. A few other thoughts on 2015.

First, we are still waiting for some production estimates from our utility partners, so there are still some wide ranges on the clean energy line of the estimates. Second, you’ll see that the midpoint in the clean energy estimates is about 10% up over 2000 adjusted 2014.

We see 2015 as a stair step year to 2016 where there could then be another move up in the earnings as we put a few more plants back into service this year. Third, you’ll see that our first quarter clean energy estimates were also seasonally smallest which results from the accounting rules not from production.

Affectively the accounting rules require recognition of tax credits somewhat in proportion to our pretax earnings not as such credits are generated. In our case we produce more credits in the first quarter then we can recognize in earnings, but then catch up over the following quarters. Footnote 1 on Page 16 shows this affect.

Finally, some comments on our M&A program. Excluding the large deals we did 57 mergers in 2014 at an average multiple of EBITDAC of 5.9 times in a weighted average multiple of 6.7 times. Average pro forma margins where in the very high-20s.

Second, looking towards 2015 M&A, we can spend about $400 million a nice tuck-in in bolt-on mergers in 2014 without having to issue any stock. That said there will be tax structure deals and mergers where the sellers wishes to take our shares, so of course we would do that.

Based on our pipeline, we see opportunities that might pushes over $400 million in purchase price, so if we did another $150 million to $200 million of purchase price we might need to use about 3 million to 4 million shares in 2015. Our pipeline is terrific at this point.

All right, those are my comments and like I said to start what a great way to finish a game changing year. Thanks, Pat..

Thanks, Doug. Mannie, you want to open the lines up..

Thank you. [Operator Instructions] And our first question is coming from Michael Nannizzi of Goldman Sachs. Please go ahead..

Sure, thank you. Hey, one question I had was in risk management. There's been a lot of growth there. I know you talk about the 16% margin as kind of a target.

Is there operating leverage in that model that could allow you, if you continue to see the kind of growth that you have seen to reset that to 17% this year maybe higher? Just trying to get an understanding of the leverage of that business and where the leverage might be. Thanks..

Yes, I see I think we’re targeting about 16.5% of margins, so there is some opportunity improve in the Risk Management segment..

Got it.

And just in terms of what is driving that? Is it - is there a relationship between top line and margin? Or is that just kind of that mid- to high-teens margin business no matter how big you are?.

Well, listen, no matter how big we are – that could change the answer, but I think in the size that Gallagher Bassett is right now with the investments that we want to make for improving our customer’s claim outcomes. We think 16.5% is pretty healthy and industry leading at this point..

I was going to say thesame thing Mike, this is Pat. We believe we have the industry leading margin. And I will tell you it’s not the same as the brokerage business. When you write new claims business, claims show up, and you'd better have somebody there to adjust them..

Got it, got it. Okay, great. And then just trying to get an understanding also of the comp ratios in the brokerage business. And obviously, there's a lot going into what those numbers were this year and also other operating expense.

Is there a way that we should be thinking about those pieces separately? Or is it just - is there just too much noise to be thinking about extracting or extrapolating a trend line?.

Listen, I think that our investor supplement on Pages 4 and 5 of the investor supplement provide a good historical trend on that. We see a comp ratio in the high-50s and we see a operating expense ratio in that 17% to 18% range as probably a good go forward ratio..

Got, it..

You’ve got to look at that for the entire year remember that that can cause issues on our first quarter because our comp ratio is – because of our seasonality, when I am saying that you know in the high-50s for, that’s for the year 17%, 18% for operating that’s for the year, too, but again our first quarter is so seasonal, you’ll see those numbers higher than that..

Got it. Then just wondered - one quick news point. I saw that the CFO of international had left. Can you talk about what is happening in Europe? Maybe an update on the integration and any sort of update on management out there would be helpful. Thank you..

Sure, I was just there last week and had some very good sessions with the leadership team there. And we have a CFO that was offered another opportunity to work someplace else, that we’re started to lose him. But he is a good guy and he is taking an opportunity in private equity that he thinks will be better for him. So but the team remains very solid.

Very pleased with the integration I’m seeing. As I mentioned in my prepared remarks we are now trading as Arthur J. Gallagher everywhere. We are seeing organic growth, we’re selling more than we’re losing that’s good. And I think the troops in the leadership team over the last six months really come together nicely..

Great, thank you..

Thanks Mike..

Thank you. The next question is from Adam Klauber of William Blair & Company. Please go ahead..

Thanks, good morning guys. Couple of different questions..

Good morning, Adam..

How are Noraxis and Wesfarmers doing on an organic basis? It's not included in organic, but how are they looking so far?.

Together just slightly between 0% and 1% organically between them maybe a little softer in Australia and New Zealand and little better than that in Canada. Now with that caveat, there is some difference in accounting.

We’ve tried to levelize for that as best as we can, as I give you that answer, but we are nice flat a point or two between those two units..

Okay, thanks. And I think you mentioned there is going to be some more integration cost in 2015.

Could you give us some idea I guess just more what that's about and what should be the ultimate impact of that integration cost?.

Yes, I said at the opening part of my comments, so we see $0.07 to $0.09 a quarter in the first quarter and second quarter and $0.05 to $0.06 a quarter in the third and fourth quarters. Most of that has to do with system integration, real estate consolidations and moves. We have incentive compensation for some of the teams that are working on that.

There are some employee change costs that are in that number. So there is of course lot of excess travel that goes on with it, lease abandonment charges. So it’s the common thing that you would see similar to what we get with Bollinger. We brought in 12 different units there. We moved some folks around. We rebranded, so there is cost in that.

So it’s just a standard integration cost that you would see just like Bollinger. And it takes us Adam, a year to 15 months to integrate a larger deal, maybe I’ll stretch to 18 months on some of them, really each one of them is different.

In Canada, Australia, and New Zealand it’s more extracting them from their former parent those cost, when you get into the UK, it’s a little bit more intricate as you put together Oval, Giles, the old Heath Lambert, and the old Arthur J. Gallagher.

So it depends on a country, but if you look at past Bollinger’s done and the cost were very similar when it came to that one too..

Okay. So do you think 2015 will be for, I imagine these are mainly Noraxis/Wesfarmers.

Do you think the 2015 will be mainly the end, and 2016 we shouldn't have too much? Or should these be ongoing through 2016?.

No, I think we are pretty well done by the end of 2015. There will be some drips, one of the issues when it comes to real estate abandoned the cost, so you don’t take the charge on an abandon to your last folks are out of the building.

And we would never do, but we had 300 personal offices and two people allow technically can’t take the charge until the two people move out of the building. So we would obviously not do that, we get it done faster, but there might be a little bit of that that creeps into 2016, but by and large will be done..

Okay, okay. That will be great. And then switching to the wholesale MGA segment, clearly there's been some pricing pressure on property. I noticed for most of the year you've had pretty good flow still coming from the standard market to the E&S market that helps submissions. I'm hearing some inklings that that flow is slowing down a little.

What are you guys seeing in the market?.

We had a great fourth quarter and we killed in the fourth quarter, we had a lot of activity.

I’d say the property rate decreases really did affect us in the first and seriously in the second quarter July 1, September those tend to be big months, but as we came into the fourth quarter, so that property is behind us, we just, we killed it, it was fantastic. Submission flows were up, our hit ratios were up.

Remember we are the largest MGA in the United States and so those are many times small startup businesses around the country that are coming in. That’s kind of a good sign for the economy, we are seeing small startup businesses that need cover. So I’m very bullish and we are excited about the acquisition pipeline in those businesses as well..

Okay, okay. Thanks, that's helpful. And then, Doug, on net cash provided by operations, could you give us some idea -- we have it around $350 million, 2013.

Is that going to be up materially in 2014?.

I’d say above $400 million in 2015.

So we can do $400 million with the deals mostly from our free cash flow and we have decent amount of stock, we go to $600 million of deals we are doing that, but by and large we see a cash flows being pretty strong, the nice opportunities are that we are seeing global opportunities for our - to use our cash in acquisition, so we are seeing nice opportunities in Australia, Canada and New Zealand.

And also to on that point, one of the things we’ve talked about in the past, if you look at us from a global basis on our cash taxes paid, we’re down to basically about 10% of our EBITDA overall if you just - you can’t use exactly the 10-Q or 10-K numbers, because that have some estimated taxes, but we’ve done a really job between our tax credits and our structure internationally we are paying about, only about 10% in actual cash taxes paid as a percentage of our EBITDA.

So cash flows are pretty good..

Okay, one thing, so if dividends are running in the 200 million plus range and then you have 400 million of cash flow.

How do you have 400 million for acquisitions?.

Well I took the dividends out when I got to the 200 million, so if you want to start with an EBITDA number 10% goes taxes, about 10% goes CapEx, about 5% goes to cost of reducing our taxes, 25% goes to dividends so to speak, it could get down to about 40% number of our EBITDA number that available for acquisitions..

Okay, okay. Maybe we can talk more detailed, I don’t want to take up too much time, but that’s helpful. Thanks..

Okay, thanks Adam..

Yep, thanks..

Thank you. The next question is from John Campbell with Stephens. Please go ahead..

Hey guys congrats on a good quarter and a good year..

Thank you John, appreciate it..

Absolutely. So it looks like you guys used some of that at the market stock plan in the quarter.

I think you have got about 166 or so remaining in the balance of the – I guess the next year or two, but just trying to get your thoughts on the programs for the remainder of the year and then Doug is that going to be tied to the kind of north of 400 million acquired revenues without using stock comment you just meant?.

A couple of different answers to the question is that when we talk about using stock for acquisitions, we can either use the dribble out to bring the cash in and then push that out in an acquisition or we can use stock directly to the sellers depending on the structure, but so my commentary about maybe using 3 million to 4 million share in 2015 would include – we can choose to use the dribble out to do that or we could choose to do it directly to sellers.

So they are inclusive of one another..

Okay that makes sense and then Doug just two housekeeping items here.

So what was CapEx in the quarter and then maybe if you can get us a sense for what you guys are budgeting out for the year and then is a 35% tax rate a good starting point for brokerage for the year?.

Yes to the last question, I think that in terms of CapEx the general rule of thumb is whatever we depreciate we probably spend in CapEx plus maybe 10% or 15% more of that number that’s kind of the way that we budget our CapEx. So I think that was your two pieces of the question right..

And then CapEx in the quarter?.

Oh CapEx in the quarter, hold on a second, I’ll see if I can get that. Maybe $22 million. Yeah $22 million..

Got it, okay thanks guys..

Thanks John..

Thank you. The next question is from Daniel Farrell with Sterne, Agee. Please go ahead..

Hi, good morning..

Good morning Dan..

A question on your smaller M&A - the sort of 57 other deals that you do.

How do we think about the margin of those deals coming on? I know you have talked about the larger ones having a higher margin, but when we think about smaller M&A, does that generally come on at the same margin? Is it a lower margin? And then as you bring it onto the platform, you can lift those margins up?.

Now typically the pro forma maybe a couple margin points better than lets say our overall brokerage margin segment, but then by the time we – put our employee benefit plans, we don’t really - on the smaller deals there is a not a lot of synergy opportunities Dan on the tuck-ins.

The place where we get opportunities on the smaller deals is in our capabilities and resources allows them to go out and sell more insurance..

Right. Okay..

Yes, I would say margins in general margin is pretty similar to what we’ve got..

Right..

Okay..

Pro forma..

They are in the high-20s just like ours somewhere in the 25 points..

Okay.

And then unrestricted cash of $314 million at the end of the quarter - how much would you characterize as usable cash within that number?.

So I think it’s about $200 million..

Okay..

Most of that is offshore at this point, and so as our acquisition opportunities internationally there is $200 million there. Also on our balance sheets since we’re talking about as we do have credit carryovers of almost $250 million. So that’s those are warehouse credits that we will be able to use to reduce our tax rate going forward to..

Does that factor into your previous comment that you are sort of in reality at 10% tax rate on the EBITDA? Do you factor that in when you think about it?.

Right now we are actually producing more credits than we’re using to actually warehousing some of the credits.

Some of - that the reason why is through 2015 lot of those credits have a special feature with them that allows us to reduce our AMT down to about 8% or 8.5% so those are special credits that’s okay to have in the warehouse so to speak, but that will help us reduce our cash taxes paid going forward substantially..

Okay. Great thank you very much..

Thanks, Dan..

The next question is from Mark Hughes of SunTrust. Please go ahead..

Yes, thank you. In the corporate segment, you described or suggested there would be a step-up in 2016 in the contribution from the clean coal.

Would it be similar to what we're seeing from 2014 to 2015?.

I would hope to better that. I think it’s a little early at this point to say, but we’d hope to see a betterment to what we are doing this year. You really look at it - if you look at how these things work, we get plants up and running, we put them in service and then we move into different locations during the year.

This is year there will be a lot of further work by the team and we hope to get more of those plant online towards the end of 2015. So you will see that the hard work that’s going on right now will start paying in 2016..

And so to be clear, the clean-energy-related contribution of $90 million stepping up to, say, $100 million at the midpoint for 2015, it ought to step up even faster in 2016?.

Based on what we are seeing now, yes that can change, but yes..

And then the 1Q guidance you give for corporate, does that include some de-risking, which I presume would be non-operational, and you would segregate that out when you report operating earnings? Or is this did not include the de-risking?.

There is no de-risking charge in the first quarter of 2015, there were non-cash gains in the clean-energy line in the first quarter of 2014. So we’ll treat that as a adjusted item when we report our 2015 result.

You should be able to see that on page 15 of the investor supplement, where we give you an adjust - we take reported, corporate, we adjust for the de-risking and for the non-cash clean-energy step up in basis gains, and then we give you 2015 on a comparative basis.

But we don’t see step up in basis gains in 2015 nor do we see a de-risking charge in 2015..

That rollover guidance you gave for the organic growth or to help us calculate revenue, does that include all of the deals you did through the end of 2014?.

Yes, so that is not just big deal that’s all deals through the end of 2014 does not include any organic nor does that include any 2015 mergers that we haven’t closed by 12/31/2015..

Then final question, did you give the organic growth in the benefits business?.

The benefits business was north of 4% in the fourth quarter..

Thank you very much..

Thanks, Mark..

Thank you. The next question is from Bob Glasspiegel with Janney Capital. Please go ahead..

Good morning, Gallagher..

Good morning, Bob..

Question on currency, the numbers you gave us on the impacts for Q1 through Q4 those will be adjusted out? So those are not going to be in the adjusted earnings?.

What we’ll do Bob, is typically when we present current year information in order to make a comparable, we’ll make an adjustment to the prior year. So when we get to 2015 we’ll basically adjust 2014 to remove the currency impact as an adjusted item..

Well, I guess I'm not sure I follow the answer, sorry.

Is this going to be something we should factor in as a headwind in our adjusted operating earnings? Or is it going to be neutralized?.

Well, it depends on what you start, what I would do, as I would take down the prior year 2014 by few pennies and then project half of that. I said a penny in the first quarter, two to three in the second and two in the third. So I’ve dropped down 2014 and project half of that, because that will be a new base line for 2014..

Okay. I've got to hit you offline on that.

Are you factoring in both income statement and balance sheet when you are giving those numbers?.

This is the income statement fact we don’t have balance sheet changes that go through the P&L..

No assets overseas that get marked?.

No, that goes through OCI..

Okay. And your severance charges and lease were heavy in the quarter.

Anything specifically that was driving the $0.12?.

If you look at the integration efforts that we’ve had I mean are you talking about in the integration line, you are talking about the severance and at least abandonment line..

The $0.12 for workforce and lease termination $26 million....

Well, actually you are on the $0.12 was in the acquisition integration line, but we didn’t have much in workflows and lease termination a $1.8..

Okay..

And of course it’s the $0.12 of acquisition, yes, that’s up a little bit from the guidance I gave in October by a few pennies largely had an opportunity to push forward on a couple contract terminations and we did have a nice move that if we got taking care of that allow us to take a charge in the fourth quarter..

your dividend increase is a lot slower than your EBITDA per-share growth, and you are issuing stock, so – and the shareholders are getting less of the increase in earnings – understandably, because you are using the money for deals.

Is that something we should expect? Or does the dividends and capital management start to march in line with the EBITDA growth at some point?.

I think we’ll probably keep that growth in dividend at a slower rate than EBITDA growth depending on the deal pipeline..

And the thought process behind that, Pat?.

We took our dividends up substantially number of years ago, Bob you remember that...

Yes..

I guess to a point where we kind of at constraint cash with dividend still have the best yield in the business, have share I think nicely with our shareholders our growth where we had a slowdown in the great recession, we did not deduct any of that from dividend payment and I think as we build our capital plan going forward, we see our selves being modest in dividend increase and continuing to be very acquisitive..

That was just a terrific opportunity for M&A activity right now Bob, I think that as the baby boomers are getting closer to retirement, there is really nice number of family owned entrepreneurial franchises out there, so we see lots of M&A activity that can be a good use of our cash..

Got you, thank you..

Thanks Bob..

Thanks Bob..

Thank you. The next question is from Arash Soleimani of KBW. Please go ahead..

Thanks and good morning everyone..

Good morning..

I Just wanted to follow up again on the FX question.

So just kind of making up a number here, if we were expecting, let's say -- again, making up a number -- $1.00 for 2015, does it make sense to take that down a few pennies for the FX in the adjusted EPS estimate?.

Yes I think so.

I mean for the whole year, maybe $0.02 or $0.03 and then you are going to have the impact of – the real issue is the pound spiked up during the middle of the year and then fell off, the Canadian Aussie dollar just kind of had a trickledown effect throughout the year and then kind of fell off a little bit as the Canadian dollar did in the fourth quarter.

So you get a little bit of this spike up and spike down during the year, but I think that’s probably a good way to look at it..

Okay, yes because in the press release, I think it said FX is excluded from adjusted, but it sounds like the adjustment is made to the prior-year numbers, from what you're saying..

Correct. Yes, we represent prior year to show the impact of FX that’s comparable without currency movements..

Okay, that makes sense. Thanks. And then can you -- I know you talked about some of the rollover numbers from acquisitions.

Can you just talk about the seasonality of revenues in those acquired companies and how that seasonality compares to Gallagher's historical seasonality?.

Well listen if you roll them all up and you put them all together actually it accentuates our seasonality a little bit more, we were always a small first quarter company and a lot of these transactions we’ve done has not I would say changed that much..

Okay, okay. And then the first quarter of 2014 adjustment that you guys made -- this might be, again, a better question for offline -- but if I get to the net adjusted $16.5 million that you have for the first quarter, on a per-share basis, I can't get to that $0.06. Is there something else in there that could be impacting that, or….

Sorry. Help me where are you..

So I guess it’s the corporate as adjusted page of the supplement and you start with $4.6 million as your net earnings for corporate in the first quarter and then with the adjustments it goes to negative $16.5 million and then you have negative $0.06 as the EPS for that quarter in corporate adjusted and I guess that’s page 15 of the supplement.

So basically just on a per share basis..

Yes, let me look at that offline..

Okay, that’s fair, probably a better offline question, but..

Thanks Arash..

Yes, I appreciate the answers. Thank you..

Thank you. The next question is from Kai Pan of Morgan Stanley. Please go ahead..

Good morning. Thank you for taking my call..

Good morning Kai..

First question on the organic growth in the UK and in Australia, New Zealand, Canada it looks like overseas organic is kind of slower than you had in the U.S. just wondering its just mark environment over there or if there are anything your control you can improve that organic growth going forward..

I’ll touch on some operating aspects and let Doug give you the numbers, but I think what we are finding is when we put on a nice tuck-in acquisition anywhere in the world that thing is integrated in nine months they are hitting the ground rather than Gallagher is helping them, our resources are working and they are selling more business.

Into these larger ones like Heath, Bollinger it probably takes 18-months till the troops have found the rest room, they know what they are doing, they know how to get to the resources, the resources are engaged and organic growth is influenced by the fact that they joined Gallagher.

And so I think you have to expect that to occur in Australia, New Zealand, Canada a bit and the UK.

Now also to your point the market is softer in Australia and New Zealand a bit softer in Canada, a bit softer in the UK than it is in the United States and as Doug said in his prepared remarks we are seeing almost no impact from market advances or declines in the U.S. domestic business, but that’s not true in these other countries.

And Doug can talk about the specific numbers and yes I do think that overtime as we have with our acquisitions in the United States, once they are integrated into Gallagher organic growth does improve.

Do you want to talk about the specific numbers?.

Yes, look and I think that when you look at the ones overseas right now, we are seeing nice net unit sales growth in Canada, we are having nice net unit sales growth in New Zealand, Australia is the place where brining our sales culture there will helps us do that but still they are selling some nice business there.

And then the UK, we had really nice results out of the oval acquisition, Giles was steady so I am not seeing any particular weakness as I go around the globe on that..

Okay, that's great. And then there is like a distressed situation - Towergates in the UK. You said in the past you're not interested in it.

I just wonder, given the situation over there, do you see organic opportunity from that, from competitors, such as hiring brokers or getting new business?.

Well, Kai, we’re always looking to hire good people into the organization, but I would not say that that provide us any astronomical opportunity..

Okay, that's great. And then a number of questions for Doug. Just wanted to clarify - you said a margin expansion from these large deals last year going to help you about 80 to 100 basis points.

Is that for the full year or just for the first quarter?.

That’s first quarter..

And will that help the subsequent quarter as well?.

Well, remember by the time we get to the second quarter every deal really will have been in our second quarter numbers from last year expect for Noraxis, which is the Canadian acquisition because remember we bought Oval on April 1, so that was in our second quarter 2014 numbers, we bought Wesfarmers effective mid-June. But they have a strong June.

So we picked up some of their numbers. And really Noraxis we closed on July 1st. So the impact of the roll in of the larger deals were pretty well be in our numbers. And there might be a little bit of an impact in the second quarter, but I don’t have that number in front of me..

Okay. Organically you said that you expect no expansion in the first quarter.

Is that right?.

I think it’s very hard for us to show organic growth, organic expansion in the first quarter given our seasonality..

Okay.

But you do expect some margin expansion in the latter half of the year?.

Listen I think that you know depending on what organic as we’ve said, that it’s anything above 3% we might have a chance at it. Anything below 3% its hard work to remain flat and if you get negative of course that’s hard to hold margins. But we’ll see where organic comes in and a lot better feel for that at the end of the first quarter..

Great. Lastly, if I may, you have a terrific year in terms of number acquisitions we've done. It seems like people are waiting to join the Gallagher family. And I just wonder, do you see any increase in competition in terms of getting deals, in terms of just valuation? Because you are paying still a pretty reasonable - 6 or 7 times EBITDA.

But I just wonder, is there increasing competition in terms of valuation for deals?.

If you just take a look at the size of those deals in the 57, I would say that there is competition for every single one of them, but it’s not as fierce as it is when you get bigger..

Okay, great. Well, thank you so much for all the answers..

Thank you, Kai..

Thanks, Kai..

Thank you. The next question is from Scott Heleniak of RBC Capital Markets. Please go ahead..

Hi, good morning, thanks..

Good morning, Scott..

I just want to touch on a couple questions, first in risk management. The organic growth rate was higher than the overall growth rate for that segment. And just wondered if you could refresh me on the difference. Is that just currency, then? In other words, organic….

Say your question again, the organic growth was….

It was higher in risk management. It was 12.5%, but the overall revenue growth rate, I think, was 11.5% for that unit.

So is the difference, is that currency, then?.

Yes, it is..

Yes, okay. I figured it was. Just clarifying.

And then the - I wanted to clarify on the risk management margins, the target you gave, the 16.5%, is that for this coming year? Or is that just over time you are targeting that?.

That’s 2015 target..

Okay. And then the client retention you mentioned 95% of risk management, which is very good.

Can you compare that historically is that an all-time high? Or how does it compare to previous years?.

I would say it’s pretty similar..

Okay..

Over the last couple of years is probably up a point or two..

All right. And just a question on the recent move in commodity oil prices.

Does that have any impact on your ability to utilize any of the tax credits that you have? Is there any impact on that at all?.

No, there is no phase-out based on oil prices. There is a phase-out based on coal prices, but as oil comes down and price so does coal. So that actually helps us and we are a long ways away from a phase-out in coal prices..

Okay, all right. Thanks a lot..

Thanks..

Thank you. The next question is from Paul Newsome of Sandler O'Neill. Please go ahead..

Good morning and congratulations on the quarter..

Thank you, Paul..

My first question, are you seeing claim count increases in your risk management business on kind of a same-store basis or an account-by-account basis?.

Yes, we are seeing same-stores or account-by-account up about 5%..

So given that it's mostly workers' comp, if I recall, that suggests that we would get a little bit increase in frequency of workers' comp?.

I think we are seeing frequency and more employment, so it’s not that our customers are less safe is that they have more employees..

Excellent. And then I wanted to ask a little bit of a devil's advocate question.

So if we are indeed going into a environment where rate is pretty flat, why is that necessarily a good thing for a brokerage operation, which obviously makes – you know all of them make a lot of high margins when you could argue that much of what you provide is dealing with the volatility, the inherent volatility in insurance prices, which historically have been pretty volatile.

And you needed a lot of help to make sure you were on top of what was happening in the market?.

Well, first of all our clients need a lot of help no matter what the rate environment and which you had in the past historically you get these hard markets where all breaks loose, you can’t get the insurance, it becomes a sellers market, it basically make every single one of your clients unbelievably angry and when the rates starts to settle down your loss business goes up.

In a flat rate environment you are not ticking off every single client, because prices are going crazy, you’ve got a reasonable request for increases if in fact their losses have not been good, you can help cope with their loss situation and improve their pricing by reducing loss and you don’t have somebody show up was a one-off broker with a 25% decrease in the cost of the program.

Now we are all in the level playing field, base costs were about the same that’s why my comments are now becomes an expertise game. Who do you want to hire? You want to hire the Jones's agency down the street that has a really nice guys and plays golf with you on Saturday’s, but really doesn’t have any expertise or you want Arthur J.

Gallagher that has latterly hundreds of capabilities behind us to help that client regardless of what their business is and regardless where they want to play in the world.

Give me that opportunity without having a rate declines of any substance I will outsell my loss business and I will not have to factor in rate decreases and we will do extremely, extremely well..

Thanks for the answers guys. And congratulations in the quarter..

Thank you, Paul..

Thank you..

Thank you. The next question is from Josh Shanker of Deutsche Bank. Please go ahead..

Yes, I apologize for joining a little late, but given my notoriously byzantine questions, I can't imagine anyone has asked them yet.

So the first question is; just thinking about acquisition pipeline for 2015 and your direct-to-capital ratio, is there any difference in how you think about paying for deals with cash whether it's cash on hand versus with debt issuance or paying with equity?.

Yes, of course we always think about that and I think this year is that we're kind of targeting a debt to EBITDA ratio of 2.5 X by the end of the year, our free cash flows it does leave us some more borrowing capacity towards the end of the year too, so but I don’t see us issuing a lot of dent this year and I don’t see us using a lot of stock this year, our pipeline is good right now, the multiples are reasonable out there, franchises that are coming up and for us to do 50, 60 deals again in 2015 at a nice revenue multiple like this year was $4 million I think on a size deal.

So it looks like that we can buy $200 million to $ 300 million of revenue with cash you know maybe just to smidge more debt by the end of the year and then obviously if the appetite is bigger than that we can use some of our shares, but right now when you can pick-up nice franchises in the six to seven multiple range I think that’s a good opportunity for us.

And like Pat said it bring some terrific resources to us, some great niche players that have some great, great niche – it will fit well in our niches, fit well with our products set that we all have some nice programs. There are some really nice opportunities out there right now..

Okay and switching gears a little bit, looking at the investment income book gains line; do you happen to know the number for book gains?.

Yes it’s on page two, the book gains were 4.7 in the quarter..

Okay so that’s kind of what I guessed. And if I look at that and I look at last quarter the yield on fiduciary assets seems to be close to 2%, am I crazy or I mean that seems fantastic..

I can’t speak to whether you are crazy or not, but I could probably do some math here while we are on the phone, let me work on that and see if I can get back to you.

I think that we are seeing some – we do make some nice money on our fiduciary funds in Australia and New Zealand where yields are a little bit higher there that could be influencing a little bit, but let me see if I can do the math and get back to it.

Now you did see the premium finance note on page 12, so if you take out - maybe that’s what you are looking at. If you take out the investment income on our Premium Finance business maybe that will produce a different math for you..

I think we did it, but we can get to play around with it..

Got it. Let me just look at it here while we're talking..

That’s it..

Great. Thanks Josh..

Thanks Josh..

[Operator Instructions] and the next question is from Ken Billingsley of Compass Point. Please go ahead..

Good morning. I just wanted to follow-up on adding more plants in 2015.

can you talk about how the impact of regulatory changes and I guess until the last few weeks a more milder weather, the impact that its going to have on maybe the projections that you had initially set out for plant expansion and maybe what would create maybe a slowdown in those expansion plans..

Right, so first of all regulatory changes on the appetite for coal in the U.S.

there is no new news and that the fact is that most of these plants run till 2021, it takes a long time to take a plant offline should a utility decide to do that but I just don’t see a major disruption by utility because of regulatory changes taking any of our clean energy plants offline.

If they were to do that and shutdown a utility, those plants are portable and they can be moved to another utility that hasn’t been – hasn’t shut themselves down on that.

So moving the plants around is an option, I don’t see threats by displacement of substantial amounts for natural gas in a lot of our plants that we use and frankly when we sit there and pick plants you know we are talking about 33 machines with an opportunity of thousands of boilers at plants around the country.

So most of the places that we put them in that we have a long-term view of the utilities appetite to continue to run the plants through 2021.

That said, we will get a plant from time-to-time that decides to shift to natural gas and we will take it down and we will move it, that’s why we would rather own a portfolio of 33 of them than maybe own 40% or 50% of those versus own a 100% of 15, there are some nice diversification aspects of that.

So I don’t really see the risk that you highlighted there as being a reason why we wouldn’t get more plants up in running in 2016..

Okay and regarding the natural gas, are these alternatives that are in place using natural gas or is this the infrastructure that they have built out?.

Most of them would have build out substantial infrastructure and that also just giving the gap to the plant in such volumes there are some plants there that – since it would have to have some pretty big pipes going across a long range in order to get natural gas into these plants. The rail lines are there, the coal has been coming in for decades.

So that’s a big move by the utility plants, they would have to do a smaller plant that – its not that running that many tons, they might be able to pumping up gas and then they got to retrofit their burners, its not an easy thing for them to convert to gas and it takes a long time and we have proactive conversations with the utility managers on this.

So we have insights into what they are going to be doing with their plant and we don’t see big threats from that right now..

And was it most of your plants that’s a 33 there in place, coal is the primary, there is not another alternative already in place there now..

That’s correct..

Okay. Thank you. End of Q&A.

Thank you Ken. Thanks everybody for being with us this morning. I appreciate you being on the call and thanks for your questions.

I think that its fair to say that we just finished with a incredible year and I couldn’t be any prouder of the team in what we accomplished, we just accomplished an awful lot in 2014 and I’m looking forward to continuing to our growth journey in 2015, so thanks for all of you being with us today and have a good rest of the day..

Thank you. Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation..