Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Corporate Update (April 2012)
58 slides from Arthur J. Gallagher &'s corporate update, Apr 10, 2012
Slide 1: Clean Energy Investments Conference Call
Exhibit 99.2 ARTHUR Presented Douglas Clean CFO Conference April 11, Energy K. 2012 by: J.Howell Call GALLAGHER Investments & CO.
Slide 2: Forward-Looking Information
Information This “expects,” statements Assumed Expected The International Future Gallagher’s Additionally, Gallagher from December amount future ongoing impact probability long-term presentation those cash costs future annual will 31, “believes,” annual inof flows estimates future expected evaluatio
Slide 3: Presentation Agenda
Presentation During approximately A Clean Uses Risks Other Appendix pictorial simplified of and frequently energy the cash A uncertainties of call, for Agenda description generated investment a1.5 clean phase management asked hours energy, out questions by associated of in economics models the the d
Slide 4: What is Clean Coal Production Process?
What isCoal Clean Conventional the Plant Clean CoalCoal coal is treated Production with The Process? Chem-ModTM Solution to capture mercury, nitrogen oxides and sulfur dioxide.
Slide 5: Parts of a Clean Coal Plant and Construction Cost
Parts Average * Mixer Storage 5 Assumes of aCapital Clean 40% Coal tax Costrate Plant to Construct a Plant Approximately $1,000,000 ($600,000 After-Tax*)
Slide 6: Connecting and Housing a Plant
Plant Refined Mixer Storage Average * 6 Assumes Connected Coal Capital 40%Returns tax Cost andrate in toHousing Connect and House a Plant Approximately $4,000,000 ($2,400,000 After-Tax*)
Slide 7: Utility Utilizing the Chem-Mod Solution
Boiler Coal Turbine Water Clean * 7 NotSteam Power to Coal Generator (Furnace) scale Plant Transmission Facility Transformer Utilizing with Clean Lines The Chem-Mod™ Coal Plant* Solution
Slide 8: Simplified Plant Development Steps
Simplified Step plant Some of We Other Assuming Total Sell Connection Plant Dollar 8 built placed depreciate Portion 1to pre-tax Cost plants Step Figures the the Gallagher $2,450,000 the Clean utility’s 2Capitalized core will immediately capital Step plants through onnot Coal Once an 3power cost Ste
Slide 9: Operations of Plant and Chem-Mod LLC
Operations Unanimous LLC Plant Daily Quality Supply Construction PLR Involved 9 applications Members Manager Manager Logistics control contracts inAfter prior Vote management Manager Chemical Tax Chem-Mod Traurig on Selling clean changes management counsel “Major energy “Big Pitt Portion Supply ifag
Slide 10: Simplified Description of Chem-Mod Chemistry
Simplified The It When As Laboratory Mod Does This See 10 gets itthe Chem-Mod process achieves cools, not the mixed environmental release mixture Description tests a actually with chemical these recipe must from heats coal levels, improves prove ash risk bonding is ofupaThe unless factors patented a
Slide 11: Simplified Description of Chemistry (Continued)
Simplified In (Continued) Think The Solution Other Helps See 11 more the “coated benefits extend ofenvironmental simplistic a coated Description candies” life to the of chocolate terms, certain utility drop risk ofas The into factors may utility the candy Chem-ModTM the chemistry include: components
Slide 12: Does the New Mercury Standard Affect Clean Coal Plant Using Chem-Mod?
Does New Section These We Although by However, profitability See 12 the believe also page Mercury astandards new Clean 45 believe 2the without Mercury for environmental some and technology Coal Standards information other are Chem-Mod’s utilities the Plant different capture utilities taxUsing Comply
Slide 13: Evolution of Chem-Mod Investment and Accounting
Evolution Accounting 2004 2005 2007 Total Current At Note (1) 35), thiscurrent The slide. “Investment-Equity :–Investment All June July December impairment Cash but of anticipated GAAP 200,000 1,000,000 $100,000 Chem-Mod in three Chem-Mod $13,277,500 5,500,000 Net months’ was 2.5% results 2.5% 32% M
Slide 14: Summary of Clean Energy Investments
Summary Proceeds Clean ($ Seeking 2011 Operating Total 8.8 1. 2. 14 24.5 30.0 Millions Era 2009 2011 Energy tolong- Plants GAAP 25.0% 48.0% of under Era asBalance Investments of term Plants –-Net owned January Useful long- contracts Sheet 15 14term 3.33.4 4. 32.7 life 1,Net 100% #2012) of and 2021 c
Slide 15: Two Investment Value Streams
Two Investment Chem-Mod Clean Generate 15 pretax Coallosses Income Plantsoffset ValuebyStreams Generates to Gallagher high margin royalty tax credits (see pages 16-18) stream (see page 19)
Slide 16: Illustrative Economics of Clean Coal Plant Per Ton
Simplified $6.40 all slide. projects 16 (1) Operating Illustrative deployedCosts asEconomics of $1.04 December From of Clean 31, $2.27 2011. Coal $2.06 See Plant Estimated page Investment$ 2 forOwnership information Per Ton 2012 regarding of Coal Tax Interest on how an After-Tax risks Credit and+unc
Slide 17: Operating Costs Per Ton of Coal
Materials Operating all slide.17 projectsand Costs deployed Operating $0.72asTotal of Costs$ December $2.27Materials Per Ton 31,of 2011.See Coal $0.80 on*page an In After-Tax addition 2 for information toBasis a financial Assuming regarding incentive, 40%how Tax the risks RateLicense utility andmay
Slide 18: Gallagher's Portion of Profits/Cash Flow
Gallagher’ass of deployed Portion*$ December Per31, Ton2011See of Coalpage on an2 After-Tax for information Basis Assuming regarding how 40%risks Tax RateCompensation and uncertainties could and Other impactAdministrative the forward-looking Expenses$1.91 statements, Total including $2.06 Profits/Ca
Slide 19: Illustrative Economics of Chem-Mod Investment
Simplified Administrative, and uncertainties Illustrative Profits/Cash couldEconomics impact Flow the of forward-looking Business Chem-Mod Development Investment$ statements, & Insurance Per including Ton of$0.05 Coal implied $0.11 on an statements, $0.30 After-Tax ($0.50 on Basis this Pretax) Assum
Slide 20: Chem-Mod Opportunity
Chem-Mod by agreements coal the other forward-looking consumption investors with Opportunity• Chem-Mod for Representing statements, power In addition generation could coal including reach consumption to in Gallagher’s approximately the implied U.S.•of statements, No clean approximately revenues 150
Slide 21: Recap of Clean Energy Financial Snapshot
Recap 2019Operating Useful 9 and host including 8.8not power n/a(2)Total –life current Financial implied 2021Operating generation under run 2011 statements, SnapshotClean rate -facilities Era long- 4. 30.0 under Plants term onto 6.-this 15 48.0%2. Energy contracts Net long- 20.5 slide.21 equity term
Slide 22: Example Comparing Banking and Clean Energy Reporting
Example comparing banking XX.X included traditional raterelease, slide.22$ XX.X) costs in ofP&L 20XY Brokerage 10-Qs, Excerpt $ Year (X.X) isoperating very 10-K from Interest $or $X.X and (XX.X) Risk Press results IR and $Management (XX) Release Supplement.See banking $for XX.X Clean the and costs C
Slide 23: Simplified Illustration of Earnings Recognition
Simplified InvestmentsRevenue $75.6 quarter.This intended $75.6 toIllustration be CNet example estimates Earnings $xxxxx assumes > Annual of Gallagher’s $180.0 $xxxxx theRecognition expected $66.0 $xxxxx future $246.0 company-wide of Expenses performance.23 Clean AnnualEnergy ($xxxxx) Expected annua
Slide 24: Illustration Scenario 1: Quarterly Activity
Simplified $60.0 $75.6 26.4% rate) ($11.4) rate purposes toC$0.0 $80.0 be 100.0%REPORTED x($10.0) 40% and reassessed Illustration $0.0 $85.0 are ($17.6) ($38.0)Net $0.0 not $75.0 each intended $75.6 ($32.0) > Scenario $300.0 quarter.This Earnings EPretax GAAP ($34.0) to Percentage be1All RESULTSPret
Slide 25: Illustration Scenario 2: Equal Quarterly Activity
Simplified Investments During 19.7% (assume AFTER requires are used26.8% Quarter Credits the 40% only Illustration expected Afor effective 28.5% $60.0 $18.9 Gillustration ($7.5) $80.0 25.0% annual $18.9 >tax Scenario ($10.2) rate) $85.0 100.0%REPORTED $18.9 purposes taxCrate ($10.8) $75.0 2All x$18.
Slide 26: Illustration Scenario 3: Fourth Quarter Activity
Simplified $60.0 $0.0 100.0%REPORTED x ($11.4) to purposes 40% be$0.0 reassessed $80.0 ($24.0) ($7.9) and $75.6 Illustration $85.0 are ($38.0)Net ($32.0) $75.6 each not $75.0 GAAP intended quarter.This EPretax > ($34.0) Scenario $300.0 Earnings RESULTSPretax to ($23.6) Earnings Percentage be3All exa
Slide 27: Uses of Cash Flows Generated by Clean Energy Investments
Intended for flows influence 2011 areEra Uses not dividends.See Plants)• intended of CashCash to Flows page directly intended 2Generated forimpact information to beby Gallagher’s used Clean for: regarding Energy Acquiring dividend. how Investments• insurance risks However, andGallagher’s brokers unc
Slide 28: Illustration: Converting Cash Flows to EBITDAC
Illustration: for million tax approximately Gallagher’s payables. Other” looking this ratebeginning illustration• ÷=statements, 15 For $2.0 future Converting years a$7.5 million description on performance.* =Accordingly, million including $4.4 page ofClean taxes million 23 of ofin implied the broker
Slide 29: Converting Cash Flows and Compounding
Converting Flows* $10.1 $12.4 2017 $47 $86 $154 $107 $13 $10.6 and growth $66 $17.3 $129 are Clean $11.1 not $117 $528 in looking intended acquired Energy All $13.2 $1.15 figures statements, Cash $13.9 to Carrying Billion be onFlows $14.5 estimates this ofincluding Cash slide Additional to $15.3 Bro
Slide 30: What Risks Can Go Wrong? Overview
What risks (subheading for coal• set Canforth Intellectual Go“Risks below, Wrong?Relating property as–well Overview as torisks• those our of Investments, Environmental set RisksImportant forth in Debt greater and factors and product detail Common that inliability Gallagher’s could Stock”).• cause cl
Slide 31: Availability of Tax Credits: Ongoing Requirements
Availability ongoing requirement or operations plants• tax credits repeal credits, credits we However, conditions IRC receive retroactively• satisfy the of that Section the IRS atthere IRC to Tax least could set the 45 Section Credits forth isone level If and nothing ultimately Congress in of remove
Slide 32: Availability of Tax Credits: Phase-Out Levels
Availability levels, control 2011 implied and we the statements, 2012, could risk of the that the lose Tax threshold on the some Credits this price or slide.32 of was all (II)RISK coal ofnot/is the willtax not FACTOR rise credits close highto we enough (10-K, triggering expect page to to trigger a14
Slide 33: Coal Price vs. Phase-Out Reference Price
2005 Price 2012 1.25x$45.56 Coal regarding 2012how Est.$75.00 (EIA)* - Coal $46.79 risks $72.85 Reference IRS and $44.64 Published +0.8%+2.3% uncertainties $42.78 PricesReference and $43.74 could +1.2%+2.4%$70.40 Phase $45.00 impact Price Out$95.00 Derived $41.14 the forward-looking 2012 1.42x Start
Slide 34: Estimated Phase-Out Year(s)
Estimated According straight experience. the information line Phase toThese used Microsoft, provided. Out with documents Year(s)Important simple a See linear linear were page trendline developed 2data for DisclaimerTrendlines sets. information is formed Gallagher as an information by regarding using
Slide 35: Business Partner Risks
Business purchase future for credits.Management’s partners utilities• statements, operation any developments, have We of Risks one including equity have and limited of Relating our management been stakes co-investors rights for implied observations working to example inOur to one statements, leave c
Slide 36: Operational Risks
Operational Utilities their operations operational products• current facilitySee Chem-Mod chemicals that We using page problems, RisksRISK use anticipate 2the Chem-Mod’s technologies used• fortechnologies information wenegotiating FACTOR We may mayenvironmental not multi-pollutant have could regardi
Slide 37: Demand for Coal
Demand instead production gases, mandate utilities power Coal reserves how risks generates toxic plants’ of burning are that for and coal. ofwastewater vast CoalRISK electric use electricity, uncertainties approximately Market less enough of coal coal, power demand FACTOR discharges to the may which
Slide 38: Demand for Coal (Continued)
Demand2012 January December uadrillion forward-looking for Coal 2011.(excluding Coal(Continued)Total Generation 20%24% statements, Q byRenewables 25 including Fuel 37%Source Energy Oilimplied and liquid History Consumption other biofuels) statements, 2010 liquids Projections OtherCoal7%100 by 32%Nat
Slide 39: Demand for Coal: How Much Coal is Consumed
Demand for Coal(Continued)How 2011Source: U.S. Energy Information MuchAdministration Coal is Consumed (EIA)Note: in the Coal U.S. consumption for ElectricityisGeneration?Billions expected to decreaseofmodestly Tons 1.21.0 in 2012 0.8 0.6 and0.4 increase 0.20.02001 slightly 2002 in 2013 2003 (source
Slide 40: Demand for Coal: Electricity from Coal vs. Natural Gas
Demand According to of term AdministrationSee an electricity coal increase for supply toCoal(Continued)Electricity from the in the contracts• latest natural page actual government 2 gas for amount Scientists information generally of estimates, are coal is from working higher regarding consumed• Coal
Slide 41: Demand for Coal: Utilities Stop Burning Coal
Demand remaining be installation regarding tear down, for how potential costs Coal(Continued)If reclamation risks estimated tax andbenefits.• uncertainties and to be transportation utilities approximately Therecould stop wouldimpact burning costs be $4.0 some estimated the coal, million forward-look
Slide 42: Intellectual Property Risks
Intellectual property all. Solution.Management’s little insurance this Ifslide.42 we Chem-Mod can claims, that Property dopartially towith (or mitigate RisksRISK we ormitigates observations without andtheour risk merit, FACTOR financial partners) that regarding could other exposuresSee cannot (10-K,
Slide 43: Environmental and Product Liability Claims
Environmental and operations regulations threatened number investigation an we that environmental claims. may product regarding environment. have statements, operation and potential contractual not insurance our Furthermore, of liability cover possible ways, release and/or partners also on to and li
Slide 44: Key Personnel Risk
Keyinterests our condition.Management’s through slide.44 PersonnelRISK appropriate in our IRC compensation FACTOR Section observations (10-K, 45incentivesSee investments), page regarding 11): The possible page or our loss 2 inability for of mitigation our information chief to identify, alternatives:
Slide 45: Other Frequently Asked Questions
Other Frequently Asked Questions45
Slide 46: How Did Gallagher Get Into These Investments?
How Did Biogas from Gallagher biomassGet facilities Into These IRC Investments?• Section 29 alternative Gallagher fuel hasIRC a history Sectionof45 developing refined coal• andArealizing core group value of from five people these types provide of structured the foundation investments for our current
Slide 47: Why Has Clean Coal Been a Tax Subsidy?
Whybeen has technologies• subsidy, 2012)See a Tax which subsidizing page Subsidy Our 2is for inflated current for information energy Clean every tax-advantaged projects Coal?• year regarding by in U.S. the theinvestments governmental how U.S. Federal risks for government, over and involve policy aun
Slide 48: Status of Emerging Environmental Regulations
Status emissions power some to and statements, meet 12states of facilities• for the Emerging of anew including have discussion mercury, guidelines• In already particular, Environmental implied acid ontaken how gases These statements, the action• Chem-Mod and rules regulations Regulations?• particula
Slide 49: Strategic Alternatives for Investments in Clean Coal Plants
Any risks clean how Strategic coal and plants• Alternatives uncertainties If Gallagher for could Investments soldimpact these investments theinforward-looking Clean Coal priorPlants?• to the statements, expiration While Gallagher including of the tax continually implied credits, statements, the eval
Slide 50: What are Alternatives for Chem-Mod?
What are of expertise alternatives technologyNext Selling include: a strategic StepsChem-ModSee Granting forpartner Chem-Mod?• an to exclusive fully pagerealize We, 2 for license along information the with financial to aour strategic regarding partners, benefits partner(s) of continue how deploying
Slide 51: What is the Competitive Landscape for Mercury Control?
What emissions technology the combustion re-use51 exhaust is thecontrol specifically pipes Competitive process of technology to a coal capture for Landscape furnace mercury for thecoal mercury tofor iscapture power activated Chem-Mod?• and generation theother carbon mercury pollutants There injectio
Slide 52: Who are the Key Competitors?
Who are Solutions Norit Provide chemical specific the technology Key supplies• mercury Competitors similar Market control tofor the leading solutions52 Mercury The Chem-ModTM providers Emissions of comprehensive Control?• Solution Provides that qualifies environmental activated as a refined carbon c
Slide 53: What is the Opportunity for Chem-Mod in International Markets?
What isThe license limited• uncertainties the MostPotential Chem-ModTM could of theimpact opportunity for Chem-Mod the Solution forward-looking will in likely countries International comestatements, outside fromMarkets?• Asia, theincluding U.S. which Gallagher and is implied more Canada• holds depen
Slide 54: What Other Clean Energy Technologies Are in Gallagher's Portfolio?
What Other Mod• laboratory C-Quest testing• Clean possesses Energy We have rights, Technologies options information to acquire Are in and an Gallagher’s technology additionalPortfolio?• 19% for the interest reduction Weinhold C-Quest’s ofacarbon non-controlling global dioxide operations emissions 8%
Slide 55: For Additional Information
For Additional InformationMarsha Akin Director – Investor Relations Marsha_Akin@ajg.com Phone: 630-285-350155
Slide 56: Appendix: Coal Reference Prices
Appendix Prices 08/pdf/05-7096.pdf• 31/pdf/E6-4668.pdf• 29/pdf/E7-5733.pdf• 30/pdf/E8-9501.pdf• 09/pdf/E9-8029.pdf• 01/pdf/2010-7263.pdf• based by 19/pdf/2011-9471.pdf March statements, the on and inflation 27,the A2012. Phase including published adjustment Gallagher Out•2006 2007 2008 2009 2010 imp
Slide 57: Appendix: Estimating Phase-Out
Appendix 113.361 average year recent information asrevision the coal x AEstimating 1.7 GDP regarding price =of$80.2676.598CONSTANTEstimated implicit the (EIA) implicit how 2012 price = $46.79 risks Reference price deflator and 2012 deflator uncertainties for Price estimated the for &preceding the Ph
Slide 58: Appendix: Estimating Reference Price Data
Appendix $42.78 2012 page 2$58.49 for 2006AEstimating information $34.09(Est.)Source: (Est.) 1.4183 regarding 20122007 Reference EIA how $48.35 Electric risks PriceAvg.Cost 2007 andPower $35.48 uncertainties Monthly 1.2841 Of Markup could 2008 February Calendar impact $45.56 2012, the 2008 Coal Tabl