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Arthur J. Gallagher & Co. Announces First Quarter 2006 Financial Results

ITASCA, Ill., April 20 /PRNewswire-FirstCall/ -- Gallagher today reported its financial results for the quarter ended March 31, 2006. A printer- friendly format is available at http://www.ajg.com .


    Quarter Ended March 31
                                                                  Diluted Net
                                                                   Earnings
                                               Pretax Earnings    (Loss) Per
                                Revenues           (Loss)           Share
                        1st Q    1st Q         1st Q    1st Q   1st Q   1st Q
    Segment               06       05    Chg     06       05      06      05
                        ($ in millions)       ($ in millions)
    Brokerage           $224.2   $208.6   7%   $16.9     $9.8   $0.10   $0.08
      Contingent
       Commission
       Matters             1.0     16.7          1.0    (18.3)   0.01   (0.09)

    Total Brokerage      225.2    225.3         17.9     (8.5)   0.11   (0.01)

    Risk Management       98.0     91.6   7%    15.2     17.2    0.09    0.14

    Financial Services     4.3     29.9         (4.1)    (2.4)  (0.03)  (0.02)
      Litigation Matters   -       -             -     (131.0)    -     (0.91)

    Discontinued Operations
     - Brokerage and Risk
     Management            -       -             -        -       -     (0.05)

    Total Company       $327.5   $346.8        $29.0  $(124.7)  $0.17  $(0.85)


"Despite the seasonality historically seen in our first quarter numbers, we are pleased with our growth and substantial improvement in our operating segments' pretax earnings," said J. Patrick Gallagher, Jr., President and Chief Executive Officer. "Growth in our international operations improved significantly and our domestic operations showed steady progress. Across the globe, our teams are energized and our clients are embracing the changing world of transparency."

    Brokerage Segment Highlights

    --  Revenue growth of 7%, excluding contingent commissions, of which 4% is
        organic.
    --  Under its settlement with the State of Illinois, Gallagher can no
        longer accept contingent commissions on retail business effective
        January 1, 2006, except for retail contingent commissions associated
        with acquired entities for a period of up to three years after the
        acquisition date.  The following is a summary of revenues recognized
        related to retail contingent commission contracts in 2005 and 2006 (in
        millions):


        Contingent Commission Income   1st Q    2nd Q   3rd Q    4th Q
        2005                           $16.7     $9.4    $2.0     $0.7
        2006                             1.0


    --  Investment income and other for first quarter 2006 includes a
        $2.4 million one-time gain related to sales of small books of
        business.
    --  First quarter compensation expense ratio, excluding retail contingent
        commission matters, was 1.3% lower than 2005.  Employee benefit plan
        cost savings of 1.9%, favorable foreign currency translation of
        0.4% and improved new hire experience of 1.4%, were partially offset
        by additional stock compensation expense of 0.5%, primarily due to the
        adoption of a new accounting standard, and an increase in incentive
        compensation related to 2006 operating results.  The new hires made in
        the latter part of 2004 and early 2005 are continuing to validate in
        first quarter 2006.
    --  First quarter operating expense ratio, excluding retail contingent
        commission matters, was 1.3% lower than 2005 mostly reflecting
        decreased insurance costs of 0.5%, favorable foreign currency
        translation of 0.3% and expense savings initiatives put in place in
        the latter part of 2005.
    --  Pretax margin of 8%, excluding retail contingent commission matters.
        The 3.3% margin improvement over 2005 results primarily from the
        compensation and operating expense factors discussed above.
    --  Beginning January 1, 2006, Gallagher adopted a new accounting
        standard, which resulted in additional stock compensation expense of
        approximately $1.2 million in the Brokerage Segment related to stock
        options granted prior to 2003.  Gallagher had previously been
        expensing stock options granted subsequent to 2002.
    --  First quarter 2006 tax rate was 41%.  There is significant uncertainty
        as to what Gallagher's ultimate 2006 tax rate will be as discussed in
        the Financial Services Segment Highlights below.


    Risk Management Segment Highlights

    --  Revenue growth of 7%, all of which is organic.  International revenues
        were up 33%, reflecting the previously announced large new client in
        Australia.
    --  First quarter compensation expense ratio was 1.1% higher than 2005.
        Employee benefit plan cost savings of 0.8% were more than offset by
        increased stock compensation expense of 0.5%, primarily due to the
        adoption of a new accounting standard, and increased staffing levels.
    --  First quarter operating expense ratio was 2.0% higher than 2005 due to
        increased insurance costs of 1.8% and increased lease costs of 0.4%,
        which were partially offset by a decrease in professional fees of
        0.9%.
    --  Pretax margin of 16%.  The 3.3% margin reduction from 2005 results
        primarily from the compensation and operating expense factors
        discussed above.
    --  Beginning January 1, 2006, Gallagher adopted a new accounting
        standard, which resulted in additional stock compensation expense of
        approximately $0.2 million in the Risk Management Segment related to
        stock options granted prior to 2003.  Gallagher had previously been
        expensing stock options granted subsequent to 2002.
    --  First quarter 2006 tax rate was 41%.  There is significant uncertainty
        as to what Gallagher's ultimate 2006 tax rate will be as discussed in
        the Financial Services Segment Highlights below.


    Financial Services Segment Highlights

    --  Gallagher has received several indications of interest to purchase its
        investment in its home office building.  Formal terms are in
        negotiation and Gallagher expects due diligence to be complete in
        second quarter 2006.  No definitive agreement has been executed and no
        closing date has yet been determined.
    --  Information regarding IRC Section 29-related Syn/Coal facilities
        follows.
        1)  Tax credits and tax credit-related revenues associated with
            Gallagher's IRC Section 29-related Syn/Coal investments will phase
            out if the calendar year 2006 average of the commonly reported
            crude oil price (NYMEX Price) per barrel reaches certain levels.
            Gallagher estimates that the NYMEX Price would need to average
            approximately $61.00 per barrel for calendar 2006 for any
            phase-out to begin and average approximately $75.00 per barrel for
            calendar 2006 for a complete phase-out.  There was no phase-out in
            2005 or prior years.
        2)  The average daily NYMEX Price for 2006 through April 17, 2006 was
            $63.94.  The ending NYMEX Price at April 17, 2006 was $70.30.
        3)  It is not possible for Gallagher to predict what oil prices will
            average for all of calendar year 2006.  Accordingly, for purposes
            of recognizing first quarter 2006 revenues and expenses related to
            IRC Section 29-related Syn/Coal investments discussed in item (4)
            below, Gallagher assumed an average 2006 calendar year NYMEX Price
            of $68.48.  This average produces an IRC Section 29 phase out of
            approximately 53% and was determined by using actual daily closing
            prices from January 1, 2006 to April 17, 2006 and assuming that
            oil prices average $70.30 per barrel for the remainder of 2006.
        4)  During first quarter 2006, Gallagher continued to operate its
            three IRC Section 29-related Syn/Coal facilities that historically
            have generated pretax income, but relatively few tax credits for
            Gallagher.  First quarter 2006 reported revenues and expenses
            assume a 53% phase-out, whereas there was no such phase-out in
            2005.  Reported revenues and expenses related to these three
            facilities are shown below.  In addition, the table shows pro
            forma amounts for first quarter 2006 as if Gallagher had estimated
            the operating results of these three facilities under two
            different phase-out scenarios.


                                      Actual Reported
                                      1st Q     1st Q          1st Q 2006 -
                                       2006      2005           Pro Forma
                                      At 53%     At 0%      At 0%      At 100%
            ($ in millions)         Phase-out  Phase-out  Phase-out  Phase-out

            Installment sale gains    $14.8      $30.1      $31.1        $-
            Installment sale expenses  12.7       17.6       17.1        6.9

            Net installment sale gains  2.1       12.5       14.0       (6.9)

            Direct expenses             3.5        0.9        6.4        0.5



        5)  During first quarter 2006, Gallagher did not operate its two IRC
            Section 29-related Syn/Coal facilities that historically have
            generated pretax losses yet produce substantially all of
            Gallagher's IRC Section 29-related Syn/Coal tax credits.  As a
            result, Gallagher's effective tax rate increased from 23% in first
            quarter 2005 to 41% in first quarter 2006.  This would indicate an
            annual tax rate of 41% for 2006, but due to significant
            uncertainties discussed below, the annual tax rate may ultimately
            be different than what Gallagher has currently estimated.
            Reported revenues and expenses related to these two facilities are
            shown below.  In addition, the table shows pro forma amounts for
            first quarter 2006 as if Gallagher had operated these two
            facilities under three different phase-out scenarios.


                           Actual Reported          1st Q 2006 - Pro Forma
                         1st Q       1st Q              Facilities in
                          2006        2005      Production for Entire Quarter
                         Not in        In        At 0%      At 53%    At 100%
      ($ in millions)  Production  Production  Phase-out  Phase-out  Phase-out

       Direct revenues     $-        $12.8       $11.4      $11.4      $11.4

       Direct expenses     0.3        22.6        22.0       17.2       16.1

       Effective tax rate  41%         23%         21%        32%        42%



        6)  At March 31, 2006, the remaining carrying value of the five
            facilities and other related assets totaled $17.0 million.
            Gallagher has historically (and expects to continue to)
            depreciated/amortized these assets at approximately $2.0 million
            per quarter.  If Gallagher chooses to either permanently shut down
            the facilities or enter into a significantly prolonged idle
            period, all or part of this remaining carrying value could become
            impaired and require a non-cash charge against earnings in the
            period that such a determination is made.
        7)  If oil prices decrease later in 2006, Gallagher believes it could
            restart the two facilities discussed in item (5) above and
            production levels in the last half of 2006 could produce tax
            credits sufficient to lower Gallagher's overall tax rate to
            approximately 28% to 33% for full year 2006.  In addition,
            Gallagher has explored financial hedging strategies with respect
            to its IRC Section 29-related Syn/Coal facilities, but they are
            currently not believed to be cost effective.
        8)  The information provided above is highly dependent on future
            events and actual results may differ materially.  Significant
            uncertainty with respect to future events include, among others,
            Gallagher's ability to cost effectively restart previously idled
            IRC Section 29-related Syn/Coal facilities, negotiate cost savings
            with its business associates and partners, available coal stocks
            and prices, weather, plant operating capacities, oil prices, the
            actual levels of production by quarter and whether Gallagher
            elects in the future to pursue hedging strategies.  Gallagher
            cannot at this time predict whether or to what extent it will
            ultimately be able to benefit from its IRC Section 29-related
            Syn/Coal facilities nor can Gallagher definitively estimate the
            revenues, income and/or tax credits that these facilities will
            provide.

The company will host a webcast conference call on Friday, April 21, 2006 at 8:00 a.m. ET to further discuss these quarterly results. To listen, please go to http://www.ajg.com .

Arthur J. Gallagher & Co. (NYSE: AJG), an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in seven countries and does business in 120 countries around the world through a network of correspondent brokers and consultants. Gallagher is traded on the New York Stock Exchange under the symbol AJG.

This press release may contain certain forward-looking statements relating to future results. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expected, depending on a variety of factors such as changes in worldwide and national economic conditions, changes in premium rates and in insurance markets generally and changes in securities and fixed income markets as well as developments in the areas of tax legislation and crude oil prices. Please refer to our filings with the Securities and Exchange Commission, including Item 1, "Business - Information Concerning Forward-Looking Statements" and Item 1A, "Risk Factors", of our Annual Report on Form 10-K, for a more detailed discussion of these factors.



                          Arthur J. Gallagher & Co.
                        Segment Statement of Earnings
               (Unaudited - in millions except per share data)

                                             3 Months Ended     3 Months Ended
    BROKERAGE SEGMENT                          Mar 31, 2006       Mar 31, 2005

    Commissions                                     $182.2             $175.8
    Retail contingent commissions                      1.0               16.7
    Fees                                              34.7               29.4
    Investment income and other                        7.3                3.4
         Revenues                                    225.2              225.3

    Compensation                                     149.4              141.8
    Operating                                         49.1               48.4
    Depreciation                                       3.4                3.4
    Amortization                                       5.4                5.2
    Retail contingent commission related
     matters                                            -                35.0
         Expenses                                    207.3              233.8

    Earnings (loss) from continuing
     operations before income taxes                   17.9               (8.5)
    Provision (benefit) for income taxes               7.4               (7.9)
    Earnings (loss) from continuing
     operations                                      $10.5              $(0.6)

    Diluted earnings (loss) from
     continuing operations per share                 $0.11             $(0.01)
    Growth - revenues                                   0%                11%
    Organic growth in commissions and
     fees  (1)                                          4%                 1%
    Growth - pretax earnings                           NMF                NMF
    Compensation expense ratio  (2)                    67%                68%
    Operating expense ratio  (2)                       22%                23%
    Pretax profit margin before retail
     contingent commission matters (2)                  8%                 5%
    Effective tax rate                                 41%                NMF

    RISK MANAGEMENT SEGMENT

    Fees                                             $97.0              $91.0
    Investment income                                  1.0                0.6
         Revenues                                     98.0               91.6

    Compensation                                      56.1               51.4
    Operating                                         24.5               21.1
    Depreciation                                       2.1                1.8
    Amortization                                       0.1                0.1
         Expenses                                     82.8               74.4

    Earnings from continuing operations
     before income taxes                              15.2               17.2
    Provision for income taxes                         6.2                4.0
    Earnings from continuing operations               $9.0              $13.2

    Diluted earnings from continuing
     operations per share                            $0.09              $0.14
    Growth - revenues                                   7%                13%
    Organic growth in fees  (1)                         7%                12%
    Growth - pretax earnings                          -12%                39%
    Compensation expense ratio                         57%                56%
    Operating expense ratio                            25%                23%
    Pretax profit margin                               16%                19%
    Effective tax rate                                 41%                23%

    FINANCIAL SERVICES SEGMENT

    Investment income:
      Asset Alliance Corporation                      $0.9               $0.9
      Low income housing developments                  0.2               (0.1)
      IRC Section 29 Syn/Coal
       facilities:
         Three unconsolidated facilities               2.1               12.5
         Two consolidated facilities                    -                12.8
      Other alternative energy
       investments                                    (0.7)               1.0
      Home office land and building                    0.7                1.4
      Airplane leasing company                         0.8                1.0
      Real estate, venture capital and
       other investments                               0.3                0.5
                                                       4.3               30.0
    Investment gains (losses)                           -                (0.1)
         Revenues                                      4.3               29.9

    Investment expenses:
      IRC Section 29 Syn/Coal
       facilities:
         Three unconsolidated facilities               3.5                0.9
         Two consolidated facilities                   0.3               22.6
      Compensation, professional fees
       and other                                       0.6                2.9
                                                       4.4               26.4
    Interest                                           2.1                2.6
    Depreciation                                       1.9                3.3
    Litigation related matters                          -               131.0
         Expenses                                      8.4              163.3

    Earnings (loss) from continuing
     operations before income taxes                   (4.1)            (133.4)
    Provision (benefit) for income taxes              (1.7)             (47.2)
    Earnings (loss) from continuing
     operations                                      $(2.4)            $(86.2)

    Diluted earnings (loss) from
     continuing operations per share                $(0.03)            $(0.93)

     See notes to first quarter 2006 earnings release and non-GAAP financial
     measures on page 7.



                      Consolidated Statement of Earnings
               (Unaudited - in millions except per share data)

                                             3 Months Ended     3 Months Ended
    TOTAL COMPANY                              Mar 31, 2006       Mar 31, 2005

    Commissions                                     $182.2             $175.8
    Retail contingent commissions                      1.0               16.7
    Fees                                             131.7              120.4
    Investment income - Brokerage and
     Risk Management                                   8.3                4.0
    Investment income - Financial
     Services                                          4.3               30.0
    Investment gains (losses)                           -                (0.1)
         Revenues                                    327.5              346.8

    Compensation                                     205.5              193.2
    Operating                                         73.6               69.5
    Investment expenses                                4.4               26.4
    Interest                                           2.1                2.6
    Depreciation                                       7.4                8.5
    Amortization                                       5.5                5.3
    Litigation related matters                          -               131.0
    Retail contingent commission related
     matters                                            -                35.0
         Expenses                                    298.5              471.5

    Earnings (loss) from continuing
     operations before income taxes                   29.0             (124.7)
    Provision (benefit) for income taxes              11.9              (51.1)
    Earnings (loss) from continuing
     operations                                       17.1              (73.6)

    Earnings (loss) on discontinued
     operations, net of income taxes                    -                (5.4)

    Net earnings (loss)                              $17.1             $(79.0)

    Diluted earnings (loss) from
     continuing operations per share                 $0.17             $(0.80)
    Diluted earnings (loss) on
     discontinued operations per share                 -                (0.05)
    Diluted net earnings (loss) per
     share                                           $0.17             $(0.85)

    Dividends declared per share                     $0.30              $0.28

    Other Information
    Basic weighted average shares
     outstanding (000s)                             96,131             92,463
    Diluted weighted average shares
     outstanding (000s)                             97,779             94,790
    Common shares repurchased (000s)                    18                -
    Annualized return on beginning
     tangible net worth (3)                             5%                NMF
    Number of acquisitions closed                        1                  2
    Workforce at end of period (includes
     acquisitions)                                   8,248              7,975

    Earnings (Loss) From Continuing
     Operations Before Litigation
     and Contingent Commission Related
     Matters, Investment (Gains) Losses,
     Depreciation, Amortization and
     Stock Compensation Expense (4)
    Earnings (loss) from continuing
     operations                                      $17.1             $(73.6)
    Litigation and contingent commission
     related matters                                    -               166.0
    Investment (gains) losses                           -                 0.1
    Depreciation                                       7.4                8.5
    Amortization                                       5.5                5.3
    Amortization of deferred comp and
     restricted stock                                  1.8                2.7
    Stock compensation expense                         4.3                2.2
    Tax effect                                        (7.8)             (65.1)
    Earnings (loss) from continuing
     operations before litigation
     and contingent commission related
     matters, investment (gains) losses,
     depreciation, amortization and
     stock compensation expense                      $28.3              $46.1

    On a diluted per share basis                     $0.29              $0.49

     See notes to first quarter 2006 earnings release and non-GAAP financial
     measures on page 7.



                          Arthur J. Gallagher & Co.
                          Consolidated Balance Sheet
               (Unaudited - in millions except per share data)

                                               Mar 31, 2006      Dec 31, 2005

    Cash and cash equivalents                       $184.0            $317.8
    Restricted cash                                  513.6             518.3
    Unconsolidated investments - current              30.7              43.2
    Premiums and fees receivable                   1,282.6           1,396.8
    Other current assets                             119.2             125.7
         Total current assets                      2,130.1           2,401.8

    Unconsolidated investments -
     noncurrent                                       66.2              68.2
    Fixed assets related to consolidated
     investments - net                               124.3             126.0
    Other fixed assets - net                          62.8              59.1
    Deferred income taxes                            235.3             236.1
    Other noncurrent assets                           85.5              80.1
    Goodwill - net                                   259.6             245.7
    Amortizable intangible assets - net              171.3             172.5
         Total assets                             $3,135.1          $3,389.5


    Premiums payable to insurance and
     reinsurance companies                        $1,804.5          $1,917.4
    Accrued compensation and other
     accrued liabilities                             236.7             378.3
    Unearned fees                                     33.1              35.7
    Income taxes payable                              21.1              24.6
    Other current liabilities                         17.7              25.0
    Corporate related borrowings                        -                 -
    Investment related borrowings -
     current                                           6.3               5.3
         Total current liabilities                 2,119.4           2,386.3

    Investment related borrowings -
     noncurrent                                      106.0             107.6
    Other noncurrent liabilities                     130.8             126.5
         Total liabilities                         2,356.2           2,620.4

    Stockholders' equity:
    Common stock - issued and outstanding             96.7              95.7
    Capital in excess of par value                   262.2             236.1
    Retained earnings                                451.7             463.7
    Unearned deferred compensation                   (18.0)            (14.5)
    Unearned restricted stock                         (7.3)             (5.3)
    Accumulated other comprehensive
     earnings (loss)                                  (6.4)             (6.6)
         Total stockholders' equity                  778.9             769.1
         Total liabilities and
          stockholders' equity                    $3,135.1          $3,389.5

    Other Information
    Tangible net worth  (5)                         $348.0            $350.9
    Book value per share                             $8.05             $8.04
    Tangible book value per share  (6)               $3.60             $3.67


    Notes to First Quarter 2006 Earnings Release and Non-GAAP Financial
    Measures

    Non-GAAP Financial Measures
    This exhibit contains supplemental non-GAAP financial information within
    the meaning of Regulation G of the SEC's rules.  Consistent with
    Regulation G, a description of such information is provided below and a
    reconciliation of certain of such items to U.S. generally accepted
    accounting principles (GAAP) is provided elsewhere in this press release.
    Gallagher believes the items described below provide meaningful additional
    information, which may be helpful to investors in assessing certain
    aspects of Gallagher's operating performance and financial condition that
    may not be otherwise apparent from GAAP.  Industry peers provide similar
    supplemental information, although they may not use the same or comparable
    terminology and may not make identical adjustments.  This non-GAAP
    information should be used in addition to, but not as a substitute for,
    the GAAP information.

    Non-GAAP Measures Defined

    (1)  Organic growth excludes the first twelve months of net commission and
         fee revenues generated from the acquisitions accounted for as
         purchases and the net commission and fee revenues related to
         operations disposed of in each year presented.  These commissions and
         fees are excluded from organic revenues in order to determine the
         revenue growth that is associated with the operations that were a
         part of Gallagher in both the current and prior year.  In addition,
         organic growth excludes contingent commission revenues.

    (2)  Represents pretax earnings (loss) from continuing operations before
         the impact of pretax retail contingent commission related matters
         divided by total revenues, excluding retail contingent commissions.
         Compensation expense and operating expense ratios are computed using
         total revenues after excluding retail contingent commissions matters.

    (3)  Represents year-to-date net earnings divided by total stockholders'
         equity, less net balance of goodwill and amortizable intangible
         assets, as of the beginning of the year.

    (4)  Represents net earnings before the after-tax effect of the impact of
         litigation and contingent commission related matters, investment
         gains (losses), pension plan curtailment gain, depreciation,
         amortization, amortization of deferred compensation and restricted
         stock expense and stock compensation expense.

    (5)  Represents total stockholders' equity less net balance of goodwill
         and amortizable intangible assets.

    (6)  Represents tangible net worth divided by the common shares
         outstanding at the end of the period.



                          Arthur J. Gallagher & Co.
                      Unconsolidated Investment Summary
                          (Unaudited - in millions)

                                                            March 31, 2006
                                                            LOCs &
                        March 31, 2006  December 31, 2005  Financial Funding
                                 Non-              Non-     Guar-    Commit-
                       Current  current  Current  current   antees    ments
    Unconsolidated
     Investments:
    Direct and indirect
     investments in Asset
      Alliance
       Corporation (AAC):
        Common stock     $-      $16.2     $-      $15.5      $-       $-
        Preferred stock  0.1      13.3     0.1      13.3       -        -
        Debentures      13.4        -     13.2        -        -        -
        Indirectly held   -        1.3      -        1.4       -        -

      Total AAC         13.5      30.8    13.3      30.2       -        -

    Low income housing
     (LIH) developments:
      Bridge loans       5.5        -      5.4        -        -        -
      Partnership
       interests          -        1.0      -       1.1        -        -
      LIH Developer       -        9.1      -       8.9        -        -

      Total LIH
       developments      5.5      10.1     5.4     10.0        -        -

    Alternative energy
     investments:
      IRC Section 29
       Syn/Coal
       production
       receivables       3.9        -     14.9       -         -        -
      IRC Section 29
       Syn/Coal
       unamortized
       assets            6.4       5.0     6.5      6.7        -        -
      Equity interest
       in biomass
       projects and
       pipeline          0.1      13.2     0.1     13.9        -        -
      Clean energy
       related            -        0.6      -       0.7        -       0.7

      Total alternative
       energy
       investments      10.4      18.8    21.5     21.3        -       0.7

    Real estate, venture
     capital and other
     investments         1.3       6.5     3.0      6.7      17.0 (7)  0.6

      Total
       unconsolidated
       investments     $30.7     $66.2   $43.2    $68.2     $17.0     $1.3

    (7)  In 2005, Gallagher sold its ownership interest in a Florida
         residential real estate development.  Terms of the transaction
         require Gallagher to continue to post a $12.6 million letter of
         credit to guarantee $12.4 million related to certain bonds issued by
         the residential development during Gallagher's ownership of that
         development.  Gallagher will be fully indemnified from any loss that
         it may incur on these LOCs by a guarantee from an affiliate of the
         purchaser.

         Gallagher has a $4.4 million LOC outstanding related to the
         reclamation of a former IRC Section 29-related Syn/Coal site.



                       Consolidated Investment Summary
                          (Unaudited - in millions)

                                                              March 31, 2006
                                                              LOCs &
                                                              Finan-
                                            March   December   cial   Funding
                                              31,       31,   Guar-   Commit-
                                             2006      2005   antees   ments

    Home office land and building:
      Fixed assets                         $102.0    $101.9     $-      $-
      Accumulated depreciation              (18.2)    (18.3)     -       -
      Non-recourse borrowings - current      (1.0)     (0.9)     -       -
      Non-recourse borrowings -
       noncurrent                           (71.9)    (72.2)     -       -
      Recourse borrowings - noncurrent       (3.0)     (3.0)     -       -
      Net other consolidated assets and
       liabilities                            3.6       4.0     3.0      -

           Net investment                    11.5      11.5     3.0      -

    Airplane leasing company:
      Fixed assets                           51.8      51.8      -       -
      Accumulated depreciation              (18.6)    (17.7)     -       -
      Non-recourse borrowings - current      (2.0)     (1.9)     -       -
      Non-recourse borrowings -
       noncurrent                           (27.5)    (28.0)     -       -
      Recourse borrowings - noncurrent         -         -       -       -
      Net other consolidated assets and
       liabilities                           (0.5)     (0.4)     -       -

           Net investment                     3.2       3.8      -       -

    IRC Section 29 Syn/Coal
     partnerships:
      Fixed assets                           15.6      15.6      -       -
      Accumulated depreciation               (8.3)     (7.3)     -       -
      Non-recourse borrowings - current      (3.3)     (2.5)     -       -
      Non-recourse borrowings -
       noncurrent                            (3.6)     (4.4)     -       -
      Recourse borrowings - noncurrent         -         -       -       -
      Net other consolidated assets and
       liabilities                           (0.3)     (1.3)     -       -

           Net investment                     0.1       0.1      -       -

    Total consolidated investments:
      Fixed assets                          169.4     169.3      -       -
      Accumulated depreciation              (45.1)    (43.3)     -       -
      Non-recourse borrowings - current      (6.3)     (5.3)     -       -
      Non-recourse borrowings -
       noncurrent                          (103.0)   (104.6)     -       -
      Recourse borrowings - noncurrent       (3.0)     (3.0)     -       -
      Net other consolidated assets and
       liabilities                            2.8       2.3     3.0      -

           Net investment                   $14.8     $15.4    $3.0     $-
SOURCE  Arthur J. Gallagher & Co.
    -0-                             04/20/2006
    /CONTACT:  Marsha J. Akin, Investor Relations of Arthur J. Gallagher &
Co., +1-630-773-3800/
    /Web site:  http://www.ajg.com /
    (AJG)

CO:  Arthur J. Gallagher & Co.
ST:  Illinois
IN:  FIN INS
SU:  ERN CCA

AM-JK
-- CGTH052 --
3344 04/20/2006 16:22 EDT http://www.prnewswire.com