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Arthur J. Gallagher & Co. Announces Fourth Quarter and Full Year 2005 Financial Results

ITASCA, Ill., Jan. 31 /PRNewswire-FirstCall/ -- Gallagher today reported its financial results for the quarter and full year ended December 31, 2005. A printer-friendly format is available at http://www.ajg.com .

     Quarter Ended December 31

                                                                 Diluted
                                                               Net Earnings
                      Revenues          Net Earnings (Loss)  (Loss) Per Share
     Segment    4th Q 05  4th Q 04  Chg  4th Q 05 4th Q 04  4th Q 05  4th Q 04
                 ($ in millions)          ($ in millions)

     Brokerage    $263.9   $246.4    7%    $ 30.5  $ 35.1     $ 0.31   $ 0.37
       Contingent
        Commission
        Matters      0.7      8.2  (91%)    (22.6)    6.6      (0.23)    0.07
       Claims
        Handling
        Obligations    -        -    -       (9.8)      -      (0.10)       -

     Total
      Brokerage    264.6    254.6    4%      (1.9)   41.7      (0.02)    0.44
     Risk
      Management    95.1     90.0    6%      12.5    13.1       0.13     0.14

     Brokerage &
      Risk
      Management   359.7    344.6    4%      10.6    54.8       0.11     0.58

     Financial
      Services      16.4     28.8  (43%)     (3.1)   (5.6)     (0.03)   (0.06)

     Discontinued
      Operations
        Brokerage
         & Risk
         Management    -        -    -          -     0.4          -        -
        Financial
         Services      -        -    -          -    (0.5)         -        -

     Total
      Company     $376.1   $373.4    1%      $7.5  $ 49.1     $ 0.08   $ 0.52


     Year Ended December 31
                                                                 Diluted
                                                               Net Earnings
                      Revenues          Net Earnings (Loss)  (Loss) Per Share
     Segment     Year 05   Year 04  Chg  Year 05  Year 04    Year 05   Year 04
                 ($ in millions)          ($ in millions)

     Brokerage    $972.0   $886.4   10%    $103.9  $122.0     $ 1.08   $ 1.29
       Contingent
        Commission
        Matters     28.8     33.8  (15%)    (22.0)   27.0      (0.23)    0.28
       Claims
        Handling
        Obligations    -        -    -       (9.8)      -      (0.10)       -


     Total
      Brokerage  1,000.8    920.2    9%      72.1   149.0       0.75     1.57
     Risk
      Management   370.6    345.5    7%      52.6    46.9       0.55     0.50


     Brokerage
      & Risk
      Management 1,371.4  1,265.7    8%     124.7   195.9       1.30     2.07

     Financial
      Services     112.5    101.4   11%     (11.9)   (6.4)     (0.12)   (0.07)
       Litigation
        Matters        -        -    -      (84.2)      -      (0.88)       -
       Impact of
        FIN 46         -     69.9    -          -       -          -        -

     Discontinued
      Operations
        Brokerage &
        Risk
        Management     -        -    -       (5.2)    0.5      (0.05)    0.01
       Financial
        Services       -        -    -        7.4    (1.5)      0.07    (0.02)


     Total
      Company   $1,483.9 $1,437.0    3%    $ 30.8  $188.5     $ 0.32   $ 1.99

"We are pleased to have 2005 behind us," said J. Patrick Gallagher, Jr., President and Chief Executive Officer. "During this past year, Gallagher resolved many open issues -- we put most of the contingent commission matters to rest, we settled significant open litigation, we reorganized our international operations, we solidified our world-wide reinsurance operations under a common brand now called Gallagher Re, we froze our pension, we substantially reduced our Financial Services assets and related debt, while all along dealing with an unprecedented hurricane season and a softening insurance market place. Despite these challenges, Gallagher remains strong and our world-wide team is excited about our future. In January 2005, we increased our stockholder dividends 12% and last week we increased it another 7%, our cash flow is excellent, we have tangible net worth of over $350 million, no debt for general corporate purposes, and we have a new $450 million unsecured line of credit. Client retention is strong, we continue to hire excellent producers, there are many excellent acquisition opportunities in our pipeline, and we have been getting new client orders from both our domestic and international branches. As we enter 2006, we are positioned to continue building our world-wide brokerage and risk management businesses."

    Brokerage Segment Fourth Quarter Highlights
    -- Revenue growth of 7%, excluding contingent commissions, of which 4% is
       organic.
    -- Gallagher ceased entering into new contingent commission agreements as
       a retail broker effective January 1, 2005.  However, Gallagher will
       continue to accept contingent compensation from non-retail business and
       retail contingent commissions related to entities acquired up to one
       year from the acquisition date.  Below is a table that shows revenues
       recognized in 2004 and 2005 related to retail contingent commission
       contracts in effect prior to January 1, 2005.  The decrease in
       contingent commissions in fourth quarter of 2005 versus 2004 is
       indicative of the declining levels of such revenue, which decline is
       expected to continue in 2006 and future periods.


         Contingent Commission Income   1st Q    2nd Q    3rd Q    4th Q

         2004                           $15.9     $7.8     $1.9     $8.2

         2005                            16.7      9.4      2.0      0.7


    -- The insurance industry in general, and Gallagher individually, continue
       to be the subjects of a substantial number of regulatory and legal
       actions by many State Attorneys General and private litigants related
       to contingent commissions and various other historical business
       practices.  Gallagher has recorded a pretax charge to its fourth
       quarter 2005 earnings of $38.6 million ($23.2 million after tax, or
       $0.24 per diluted share) representing its current best estimate of the
       remaining costs to be incurred to resolve these matters.
    -- In connection with recent legal interpretations and accounting guidance
       issued by the Institute of Chartered Accountants in the United Kingdom,
       many global insurance brokerages are reassessing their obligation to
       provide future claims handling and certain administrative services for
       reinsurance brokerage clients.  Gallagher has determined that under
       certain circumstances it is obligated to provide such services based on
       its current business practices. In fourth quarter, Gallagher recorded a
       non-cash pre-tax charge of $15.0 million ($9.8 million after tax, or
       $0.10 per diluted share) to reflect the change in the estimated future
       costs to provide these services.
    -- The new hires made in the latter part of 2004 and early 2005 were
       validating in fourth quarter 2005, but still margin dilutive.
    -- Fourth quarter compensation ratio was 2.2% lower than 2004, excluding
       retail contingent commission matters.  Employee benefit plan cost
       savings of 0.8%, favorable foreign currency translation of 0.5% and a
       decrease in performance compensation expense of 2.3%, were mostly
       offset by additional stock option expense of 0.2%, new hire
       compensation costs of 1.1% and severance costs of 0.3%.
    -- Fourth quarter operating expense ratio was 5.3% higher than 2004,
       excluding retail contingent commission matters and claims handling
       obligations, mostly reflecting lease cancellation costs of 0.8%, write-
       offs of uncollectible international receivables of 0.9%, increased
       legal and professional fees of 0.7% and increased insurance costs of
       1.6%.
    -- Pretax margin of 15%, before retail contingent commission matters and
       claims handling obligations.  The 5.8% margin reduction from 2004
       results primarily from the compensation and operating expense factors
       discussed above.

    Risk Management Segment Fourth Quarter Highlights
    -- Revenue growth of 6%, all of which is organic.  Domestic revenues were
       up 12% excluding the impact of one-time revenues of $1.5 million
       previously reported in fourth quarter 2004.  International revenues
       were down 13% excluding the impact of one-time revenues of $1.2 million
       previously reported in fourth quarter 2004.  As previously announced in
       December 2005, Gallagher was awarded a new risk management client in
       Australia that should restore growth in the international operations.
    -- Fourth quarter compensation ratio was 1.9% higher than 2004.  Employee
       benefit plan cost savings of 1.5% were more than offset by increased
       staffing levels and increased stock option expense.
    -- Fourth quarter operating expense ratio was 0.7% lower than 2004 due to
       expense savings initiatives implemented in the latter part of 2004,
       which were somewhat offset by one-time costs in the international
       operations of 0.5%.
    -- Pretax margin of 17%. The 1.1% margin reduction from 2004 results
       primarily from the compensation and operating expense factors discussed
       above.

    Brokerage and Risk Management Combined Fourth Quarter Highlights
    -- Revenue growth of 8%, excluding contingent commissions and one-time
       revenues recognized in fourth quarter 2004, of which 4% is organic.
    -- Pretax margin of 16%, before retail contingent commission matters and
       claims handling obligations, a 4.6% margin reduction from 2004.
       Increased costs from investments in new hires of 0.4%, lease
       cancellation costs of 0.6%, write-offs of uncollectible international
       receivables of 0.7%, professional fees of 0.6%, increased stock option
       expense of 0.2%, severance costs of 0.2%, increased insurance costs of
       1.2% and the softening seen in the insurance market place, were
       partially offset by employee benefit plan cost savings of 1.0% and a
       decrease in performance compensation expense of 2.0%.
    -- In first quarter 2005, Gallagher sold its two medical claim management
       operations.  Historical revenues and expenses related to these entities
       have been reclassified as discontinued operations.
    -- Effective tax rate before retail contingent commission matters and
       claims handling obligations of 23% in 2005 versus 20% in 2004.
    -- Beginning January 1, 2006, Gallagher is required to adopt a new
       accounting pronouncement related to the expensing of employee stock
       options.  This will result in additional stock compensation expense of
       approximately $1.4 million per quarter ($1.2 million in Brokerage and
       $0.2 million in Risk Management) for stock options granted prior to
       2003.  Since 2003, Gallagher has been expensing stock options granted
       subsequent to 2002.

    Financial Services Segment Highlights
    -- Tax credits and tax credit-related revenues related to Gallagher's
       synthetic coal (Syn/Coal) investments will phase-out if the average of
       the commonly reported crude oil price (NYMEX Price) per barrel reaches
       certain levels.
       1)  For calendar year 2006, Gallagher estimates that the NYMEX Price
           would need to average approximately $60 per barrel for calendar
           2006 for any phase-out to begin and average approximately $74 per
           barrel for calendar 2006 for a complete phase-out.  The average
           daily NYMEX Price for 2006 through January 30 was $65.41.
       2)  During 2006, Gallagher will monitor the NYMEX Price and decide if
           it should continue to produce Syn/Coal.  Gallagher's evaluation, in
           part, will be based on the following:
           a)  If Gallagher believes the 2006 price of oil will average below
               the phase-out price and decides to continue its current
               Syn/Coal production schedule, Gallagher estimates the Financial
               Services Segment would expect to report a pretax loss of
               approximately $20 million to $25 million for 2006.  Gallagher's
               overall tax rate would be approximately 23% to 25% for 2006.
           b)  If Gallagher believes the 2006 price of oil will average above
               the phase-out price and decides to idle its Syn/Coal
               facilities, Gallagher estimates the Financial Services Segment
               could report a maximum one-time non-cash pretax charge of
               approximately $18 million related to an impairment charge on
               these facilities.  In addition, if the Syn/Coal facilities
               remain idle for all of 2006, Gallagher estimates the Financial
               Services Segment could report a pretax loss of approximately
               $5 million to $10 million for 2006.  Gallagher's overall tax
               rate would be approximately 39% to 41% for 2006.
           c)  Gallagher is currently exploring certain financial transactions
               and/or operating strategies that, if pursued, are designed to
               produce results for the Financial Services Segment and
               Gallagher's overall tax rate between scenarios (a) and (b)
               above.

The company will host a webcast conference call on Wednesday, February 1, 2006 at 9:00 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 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)

                                           4th Q   4th Q     Year     Year
                                           Ended   Ended     Ended    Ended
                                           Dec 31  Dec 31   Dec 31    Dec 31
    BROKERAGE SEGMENT                       2005    2004     2005      2004

    Commissions                            $203.0  $197.0    $784.3    $726.8
    Retail contingent commissions             0.7     8.2      28.8      33.8
    Fees                                     55.8    44.3     169.8     146.2
    Investment income - fiduciary             5.1     5.1      17.9      13.4
         Revenues                           264.6   254.6   1,000.8     920.2

    Compensation                            152.5   147.7     584.0     527.5
    Operating                                64.1    46.8     219.1     176.1
    Depreciation                              2.7     3.3      13.6      12.9
    Amortization                              4.9     4.7      20.3      17.3
    Retail contingent commission related
     matters                                 38.6      -       73.6        -
    Claims handling obligations              15.0      -       15.0        -
         Expenses                           277.8   202.5     925.6     733.8

    Earnings (loss) from continuing
     operations before income taxes         (13.2)   52.1      75.2     186.4
    Provision (benefit) for income taxes    (11.3)   10.4       3.1      37.4
    Earnings (loss) from continuing
     operations                             $(1.9)  $41.7     $72.1    $149.0

    Diluted earnings (loss) from
     continuing operations per share       $(0.02)  $0.44     $0.75     $1.57
    Growth - revenues                           4%      9%        9%        9%
    Organic growth in commissions and
     fees (1)                                   4%     -1%        2%        2%
    Growth - pretax earnings                   NMF      0%      -60%        8%
    Compensation expense ratio  (2)            58%     60%       60%       60%
    Operating expense ratio  (2)               24%     19%       23%       20%
    Pretax profit margin before retail
     contingent commission matters
     and claims handling obligations (2)       15%     21%       17%       21%
    Effective tax rate                         NMF     20%        4%       20%

    RISK MANAGEMENT SEGMENT

    Fees                                    $94.2   $89.4    $367.7    $343.8
    Investment income - fiduciary             0.9     0.6       2.9       1.7
         Revenues                            95.1    90.0     370.6     345.5

    Compensation                             53.1    48.6     205.9     187.3
    Operating                                23.9    23.2      88.2      91.8
    Depreciation                              1.8     1.8       7.7       7.8
    Amortization                              0.1     0.1       0.4       0.4
         Expenses                            78.9    73.7     302.2     287.3

    Earnings from continuing operations
     before income taxes                     16.2    16.3      68.4      58.2
    Provision for income taxes                3.7     3.2      15.8      11.3
    Earnings from continuing operations     $12.5   $13.1     $52.6     $46.9

    Diluted earnings from continuing
     operations per share                   $0.13   $0.14     $0.55     $0.50
    Growth - revenues                           6%     17%        7%       18%
    Organic growth in fees  (1)                 5%     17%        7%       18%
    Growth - pretax earnings                   -1%     60%       18%       43%
    Compensation expense ratio                 56%     54%       56%       54%
    Operating expense ratio                    25%     26%       24%       27%
    Pretax profit margin                       17%     18%       18%       17%
    Effective tax rate                         23%     20%       23%       19%

    BROKERAGE & RISK MANAGEMENT COMBINED

    Commissions                            $203.0  $197.0    $784.3    $726.8
    Retail contingent commissions             0.7     8.2      28.8      33.8
    Fees                                    150.0   133.7     537.5     490.0
    Investment income - fiduciary             6.0     5.7      20.8      15.1
         Revenues                           359.7   344.6   1,371.4   1,265.7

    Compensation                            205.6   196.3     789.9     714.8
    Operating                                88.0    70.0     307.3     267.9
    Depreciation                              4.5     5.1      21.3      20.7
    Amortization                              5.0     4.8      20.7      17.7
    Retail contingent commission related
     matters                                 38.6      -       73.6        -
    Claims handling obligations              15.0      -       15.0        -
         Expenses                           356.7   276.2   1,227.8   1,021.1

    Earnings (loss) from continuing
     operations before income taxes           3.0    68.4     143.6     244.6
    Provision (benefit) for income taxes     (7.6)   13.6      18.9      48.7
    Earnings from continuing operations     $10.6   $54.8    $124.7    $195.9

    Diluted earnings from continuing
     operations per share                   $0.11   $0.58     $1.30     $2.07
    Growth - revenues                           4%     11%        8%       12%
    Organic growth in commissions and
     fees (1)                                   4%      5%        3%        7%
    Growth - pretax earnings                  NMF      10%      -41%       14%
    Compensation expense ratio  (2)            57%     58%       59%       58%
    Operating expense ratio  (2)               25%     21%       23%       22%
    Pretax profit margin before retail
     contingent commission matters
     and claims handling obligations (2)       16%     20%       17%       20%
    Effective tax rate                        NMF      20%       13%       20%

     See notes to fourth quarter 2005 earnings release and non-GAAP financial
     measures on page 7.


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

                                            4th Q   4th Q    Year      Year
                                            Ended   Ended    Ended     Ended
    FINANCIAL SERVICES SEGMENT              Dec 31  Dec 31   Dec 31    Dec 31
                                             2005    2004     2005      2004

    Investment income                       $17.0   $27.9    $108.9     $93.3
    Impact of FIN 46 on investment income      -       -         -       69.9
    Investment gains (losses)                (0.6)    0.9       3.6       8.1
         Revenues                            16.4    28.8     112.5     171.3

    Investment expenses                      14.8    30.1     104.9      89.9
    Impact of FIN 46 on investment expenses     -       -         -       67.2
    Interest                                  3.1     2.6      11.6       9.5
    Depreciation                              2.6     2.9      11.4       9.3
    Impact of FIN 46 on depreciation
     expense                                   -       -         -        2.7
    Litigation related matters                 -       -      131.0        -
         Expenses                            20.5    35.6     258.9     178.6

    Earnings (loss) from continuing
     operations before income taxes          (4.1)   (6.8)   (146.4)     (7.3)
    Provision (benefit) for income taxes     (1.0)   (1.2)    (50.3)     (0.9)
    Earnings (loss) from continuing
     operations                             $(3.1)  $(5.6)   $(96.1)    $(6.4)

    Diluted earnings (loss) from
     continuing operations per share       $(0.03) $(0.06)   $(1.00)   $(0.07)


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

                                           4th Q   4th Q     Year     Year
                                           Ended   Ended     Ended    Ended
    TOTAL COMPANY                          Dec 31  Dec 31   Dec 31    Dec 31
                                            2005    2004     2005      2004

    Commissions                            $203.0  $197.0    $784.3    $726.8
    Retail contingent commissions             0.7     8.2      28.8      33.8
    Fees                                    150.0   133.7     537.5     490.0
    Investment income - fiduciary             6.0     5.7      20.8      15.1
    Investment income - all other            17.0    27.9     108.9     163.2
    Investment gains (losses)                (0.6)    0.9       3.6       8.1
         Revenues                           376.1   373.4   1,483.9   1,437.0

    Compensation                            205.6   196.3     789.9     714.8
    Operating                                88.0    70.0     307.3     267.9
    Investment expenses                      14.8    30.1     104.9     157.1
    Interest                                  3.1     2.6      11.6       9.5
    Depreciation                              7.1     8.0      32.7      32.7
    Amortization                              5.0     4.8      20.7      17.7
    Litigation related matters                 -       -      131.0        -
    Retail contingent commission related
     matters                                 38.6      -       73.6        -
    Claims handling obligations              15.0      -       15.0        -
         Expenses                           377.2   311.8   1,486.7   1,199.7

    Earnings (loss) from continuing
     operations before income taxes          (1.1)   61.6      (2.8)    237.3
    Provision (benefit) for income taxes     (8.6)   12.4     (31.4)     47.8
    Earnings from continuing operations       7.5    49.2      28.6     189.5

    Earnings (loss) on discontinued
     operations, net of income taxes           -     (0.1)      2.2      (1.0)

    Net earnings                             $7.5   $49.1     $30.8    $188.5

    Diluted earnings from continuing
     operations per share                   $0.08   $0.52     $0.30     $2.00
    Diluted earnings (loss) on
     discontinued operations per share        -       -        0.02     (0.01)
    Diluted net earnings per share          $0.08   $0.52     $0.32     $1.99

    Dividends declared per share            $0.28   $0.25     $1.12     $1.00

    Other Information
    Basic weighted average shares
     outstanding (000s)                    95,382  92,273    94,141    91,503
    Diluted weighted average shares
     outstanding (000s)                    97,260  94,827    96,051    94,546
    Common shares repurchased (000s)            6     613        76     1,783
    Annualized return on beginning
     tangible net worth (3)                                      8%       48%
    Number of acquisitions closed               2       5        10        19
    Workforce at end of period (includes
     acquisitions)                                            8,135     7,840

    Earnings From Continuing Operations
     Before Litigation and Contingent
     Commission Related Matters,
     Claims Handling Obligations,
     Investment (Gains) Losses, Pension
     Plan Curtailment Gain, Depreciation,
     Amortization and Stock Compensation
     Expense (4)
    Earnings from continuing operations      $7.5   $49.2     $28.6    $189.5
    Litigation and contingent commission
     related matters                         38.6      -      204.6        -
    Claims handling obligations              15.0      -       15.0        -
    Investment (gains) losses                 0.6    (0.9)     (3.6)     (8.1)
    Pension plan curtailment gain              -       -      (10.0)       -
    Depreciation                              7.1     8.0      32.7      32.7
    Amortization                              5.0     4.8      20.7      17.7
    Amortization of deferred comp and
     restricted stock                         1.5     2.7       7.1      10.0
    Stock compensation expense                2.4     1.7       8.9       5.6
    Tax effect                              (24.5)   (3.2)    (94.3)    (11.5)
    Earnings from continuing operations
     before litigation and contingent
     commission related matters, claims
     handling obligations, investment
     (gains) losses, pension plan
     curtailment gain, depreciation,
     amortization and stock
     compensation expense                   $53.2   $62.3    $209.7    $235.9

    On a diluted per share basis            $0.55   $0.66     $2.18     $2.50

    See notes to fourth quarter 2005 earnings release and non-GAAP financial
    measures on page 7.


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

                                                             Dec 31,   Dec 31,
                                                              2005      2004

    Cash and cash equivalents                                $317.8    $224.6
    Restricted cash                                           518.3     488.9
    Unconsolidated investments - current                       43.2      26.0
    Premiums and fees receivable                            1,396.8   1,350.9
    Other current assets                                      125.7     132.8
         Total current assets                               2,401.8   2,223.2

    Unconsolidated investments -
     noncurrent                                                68.6     132.4
    Fixed assets related to consolidated
     investments - net                                        126.0     195.6
    Other fixed assets - net                                   59.1      63.4
    Deferred income taxes                                     236.1     184.8
    Other noncurrent assets                                    79.7      59.7
    Goodwill - net                                            245.7     219.0
    Amortizable intangible assets - net                       172.5     155.2
         Total assets                                      $3,389.5  $3,233.3


    Premiums payable to insurance and
     reinsurance companies                                 $1,917.4  $1,838.9
    Accrued compensation and other accrued liabilities        378.3     258.4
    Unearned fees                                              35.7      25.4
    Income taxes payable                                       24.6      24.8
    Other current liabilities                                  25.0      18.6
    Corporate related borrowings                                  -         -
    Investment related borrowings - current                     5.3      41.4
         Total current liabilities                          2,386.3   2,207.5

    Investment related borrowings - noncurrent                107.6     140.0
    Other noncurrent liabilities                              126.5     124.8
         Total liabilities                                  2,620.4   2,472.3

    Stockholders' equity:
    Common stock - issued and outstanding                      95.7      92.1
    Capital in excess of par value                            236.1     146.4
    Retained earnings                                         463.7     539.0
    Unearned deferred compensation                            (14.5)    (12.2)
    Unearned restricted stock                                  (5.3)     (4.3)
    Accumulated other comprehensive earnings (loss)            (6.6)        -
         Total stockholders' equity                           769.1     761.0
         Total liabilities and stockholders' equity        $3,389.5  $3,233.3

    Other Information
    Tangible net worth  (5)                                  $350.9    $386.8
    Book value per share                                      $8.04     $8.26
    Tangible book value per share  (6)                        $3.67     $4.20

     Notes to Fourth Quarter 2005 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 and
         claims handling obligations 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, claims handling
         obligations, 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.

    Discontinued Operations
    In fourth quarter 2005, Gallagher adjusted the previously reported amount
    for its first quarter 2005 discontinued operating results for a
    $5.0 million, or $0.05 per diluted share, income tax charge, related to
    the income tax provision on the sale of one of its medical claim
    management operations that occurred in first quarter 2005.


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

                                                             December 31,
                                                                 2005
                                                         LOCs &
                     December 31,       December 31,   Financial    Funding
                        2005               2004        Guarantees  Commitments
                  Current Noncurrent Current Noncurrent

    Unconsolidated
     Investments:
    Direct and
     indirect
     investments
     in Asset
     Alliance
     Corporation
     (AAC)          $13.3     $30.2     $0.8      $46.7      $-           $-

    Low income
     housing (LIH)
     developments:
      Bridge loans    5.4         -      5.2          -       -            -
      Partnership
      interests         -       1.1        -        1.5       -            -
      LIH Developer     -       8.9        -        9.2       -            -

    Alternative
     energy
     investments:
      Owned
      partnership
      interests       0.6      14.8      0.9       19.1     4.4          0.7
      Biogas
       project          -         -        -       14.7       -            -
      Partnership
       interest
       installment
       sales         21.3       6.5     18.6       12.9       -            -

    Bermuda
     insurance
     investments        -       0.4        -       20.4     6.7            -

    Real estate,
     venture capital
     and other
     investments      2.6       6.7      0.5        7.9       -          0.6

      Total
       unconsolidated
       investments   43.2      68.6     26.0      132.4    11.1          1.3

    Non-recourse
     borrowings -
     Biogas
     project            -         -     (0.2)     (13.8)      -            -

      Net
       unconsolidated
       investments  $43.2     $68.6    $25.8     $118.6   $11.1         $1.3



                       Consolidated Investment Summary
                          (Unaudited - in millions)

                                                          December 31, 2005
                                                          LOCs &
                                     December  December  Financial    Funding
                                        31,       31,   Guarantees Commitments
                                       2005      2004

    Home office land and building:
      Fixed assets                     101.9     $101.3      $-           $-
      Accumulated depreciation         (18.3)     (15.8)      -            -
      Non-recourse borrowings -
       current                          (0.9)      (0.9)      -            -
      Recourse borrowings - current        -          -       -            -
      Non-recourse borrowings -
       noncurrent                      (72.2)     (73.1)      -            -
      Recourse borrowings -
       noncurrent                       (3.0)      (3.0)      -            -
      Net other consolidated assets
       and liabilities                   4.0        2.8     3.0            -

           Net investment               11.5       11.3     3.0            -

    Florida community development:
      Fixed assets                         -       60.3       -            -
      Accumulated depreciation             -       (0.7)      -            -
      Non-recourse borrowings -
       current                             -      (17.9)      -            -
      Recourse borrowings -
       current                             -      (17.0)      -            -
      Non-recourse borrowings -
       noncurrent                          -       (0.1)      -            -
      Recourse borrowings - noncurrent     -      (12.4)      -            -
      Net other consolidated assets and
       liabilities                         -       (2.4)   12.6            -

           Net investment                  -        9.8    12.6            -

    Airplane leasing company:
      Fixed assets                      51.8       51.8       -            -
      Accumulated depreciation         (17.7)     (14.1)      -            -
      Non-recourse borrowings -
       current                          (1.9)      (2.6)      -            -
      Recourse borrowings - current        -          -       -            -
      Non-recourse borrowings -
       noncurrent                      (28.0)     (29.9)      -            -
      Recourse borrowings -
       noncurrent                          -          -       -            -
      Net other consolidated assets
       and liabilities                  (0.4)         -       -            -

           Net investment                3.8        5.2       -            -

    Syn/Coal partnerships:
      Fixed assets                      15.6       15.6       -            -
      Accumulated depreciation          (7.3)      (2.8)      -            -
      Non-recourse borrowings -
       current                          (2.5)      (2.8)      -            -
      Recourse borrowings - current        -          -       -            -
      Non-recourse borrowings -
       noncurrent                       (4.4)      (7.7)      -            -
      Recourse borrowings -
       noncurrent                          -          -       -            -
      Net other consolidated assets
       and liabilities                  (1.3)       1.6       -            -

           Net investment                0.1        3.9       -            -

    Total consolidated investments:
      Fixed assets                     169.3      229.0       -            -
      Accumulated depreciation         (43.3)     (33.4)      -            -
      Non-recourse borrowings -
       current                          (5.3)     (24.2)      -            -
      Recourse borrowings -
       current                             -      (17.0)      -            -
      Non-recourse borrowings -
       noncurrent                     (104.6)    (110.8)      -            -
      Recourse borrowings -
       noncurrent                       (3.0)     (15.4)      -            -
      Net other consolidated assets
       and liabilities                   2.3        2.0    15.6            -

           Net investment              $15.4      $30.2   $15.6           $-

SOURCE  Arthur J. Gallagher & Co.
    -0-                             01/31/2006
    /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:  INS FIN
SU:  ERN CCA

AB-JK
-- CGTU062 --
8371 01/31/2006 17:05 EST http://www.prnewswire.com