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Arthur J. Gallagher & Co. Announces Record Second Quarter 2005 Financial Results

ITASCA, Ill., July 26, 2005 /PRNewswire-FirstCall via COMTEX/ -- Gallagher today reported its financial results for the quarter and six-month period ended June 30, 2005. A printer-friendly format is available at http://www.ajg.com .

Quarter Ended June 30

                                                                Diluted Net
                                                  Net            Earnings
                           Revenues         Earnings (Loss)  (Loss) Per Share
     Segment         2nd Q     2nd Q         2nd Q    2nd Q    2nd Q    2nd Q
                       05        04   Chg      05       04       05       04
                     ($ in millions)         ($ in millions)

     Brokerage       $246.8    $223.3  11%    $33.5    $35.3    $0.35    $0.37
     Risk
      Management       89.6      86.0   4%     14.2     11.3     0.15     0.12

     Brokerage &
      Risk
      Management      336.4     309.3   9%     47.7     46.6     0.50     0.49

     Financial
      Services         34.7      24.4    -     (3.5)    (0.3)   (0.04)       -

       Impact of
        FIN 46            -      35.0    -        -        -        -        -

     Discontinued
      Operations
       Brokerage &
        Risk
        Management        -         -    -        -     (0.1)        -      -
       Financial
        Services          -         -    -      7.6     (0.1)     0.08      -

     Total
      Company        $371.1    $368.7   1%    $51.8    $46.1     $0.54  $0.49


     Six Months Ended June 30

                                                                Diluted Net
                                                 Net             Earnings
                        Revenues           Earnings (Loss)   (Loss) Per Share
     Segment        6 Mths  6 Mths         6 Mths   6 Mths   6 Mths   6 Mths
                       05      04     Chg     05       04       05        04
                    ($ in millions)          ($ in millions)

     Brokerage      $472.1    $425.8  11%    $53.9    $62.0    $0.57   $0.65
       Litigation
        Matters          -         -    -    (21.0)       -    (0.22)      -
     Risk
      Management     181.2     167.4   8%     27.4     21.4     0.29    0.23

     Brokerage &
      Risk
      Management     653.3     593.2  10%     60.3     83.4     0.64    0.88

     Financial
      Services        64.6      46.0    -     (5.5)     2.2    (0.06)   0.02
       Litigation
        Matters          -         -    -    (84.2)       -    (0.90)      -
       Impact of
        FIN 46           -      60.9    -        -        -        -       -

     Discontinued
      Operations
       Brokerage &
        Risk
        Management       -         -    -     (0.2)       -        -       -
       Financial
        Services         -         -    -      7.4     (0.6)    0.08       -

     Total
      Company       $717.9    $700.1   3%   $(22.2)   $85.0   $(0.24)   $0.90

"Given the significant demands facing Gallagher related to the industry- wide issues surrounding contingent commissions, I couldn't be more pleased with our results," said J. Patrick Gallagher, Jr., President and Chief Executive Officer. "On May 18, 2005, we reached a national agreement with regulators here in our home state of Illinois that we believe allows us to move forward in this new environment. However, we must still resolve these issues in 18 other states and 13 class action lawsuits, which are certainly distractive and consume our energies. Nonetheless, we continue to sell and provide our clients with excellent service."

Brokerage and Risk Management Combined Second Quarter Highlights - Record Earnings

-- Revenue growth of 9%, of which 2% is organic.
    -- In second quarter 2005, commission audits resulted in one-time
       commission refunds of $2.4 million, or $.02 per diluted share.
    -- Pretax margin of 18%.  The 0.4% margin reduction from 2004 results
       primarily from investments in new hires of 0.5%, foreign currency
       translation of 0.6%, increased pension costs of 0.7%, professional fees
       of 0.6% and one-time commission refunds of 0.6%, which were offset by a
       pension curtailment gain of 3%.  As previously announced, effective
       June 30, 2005, Gallagher made amendments to several employee benefit
       plans that resulted in a second quarter 2005, pretax gain of $10.0
       million.  Gallagher estimates quarterly pretax savings as a result of
       these amendments of approximately $5.0 million in both third and fourth
       quarters 2005 and approximately $3.0 million quarterly thereafter.
    -- Gallagher ceased entering into new contingent commission agreements as
       a retail broker effective January 1, 2005.  Below is a table that shows
       revenues recognized in 2004 related to 2003 retail contingent
       commission contracts and in 2005 related to 2004 retail contingent
       commission contracts.  The increase in contingent commissions in 2005
       resulted from brokers acquired in 2004.


         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


    -- 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 of 23% versus 20% in 2004.

    Brokerage Segment Second Quarter Highlights

    -- Revenue growth of 11%, of which 1% is organic.
    -- Closed five acquisitions and the pipeline remains strong.
    -- Second quarter compensation ratio was 0.4% lower than 2004.  The
       pension curtailment gain of 2.8% was mostly offset by compensation
       expense related to new hires in the retail operations of 0.5%, new
       hires and charges related to staffing changes made in Gallagher's
       London and reinsurance operations of 0.2%, increased stock option
       expense of 0.3%, increased pension costs of 0.7% and one-time
       commission refunds of 0.6%.
    -- Second quarter operating expense ratio was 2.9% higher than 2004,
       reflecting the impact of foreign currency translation of 0.6%,
       professional fees of 0.9%, increased insurance costs of 0.9% and one-
       time commission refunds of 0.2%.
    -- Pretax margin of 18%.  The 2.2% margin reduction from 2004 results
       primarily from the compensation and operating expense factors discussed
       above.

    Risk Management Segment Second Quarter Highlights - Record Earnings

    -- Diluted earnings per share growth of 25%; 32% growth in pretax
       earnings.
    -- Revenue growth of 4%, all of which is organic.  The rate of revenue
       growth is less than first quarter 2005 due to (i) reduced claim count
       frequency from existing clients in the international operations and
       (ii) reduced levels of new business in the latter part of 2004 and
       early 2005, and a slower rate of increase in claim counts from existing
       clients.
    -- Second quarter compensation ratio was 0.2% higher than 2004.  The
       pension curtailment gain of 3.5% was mostly offset by increased pension
       costs of 0.6%, lower revenues in International operations and to
       compensation expense related to new hires to support new business
       growth anticipated in the second half of 2005.
    -- Second quarter operating expense ratio was 4.6% lower than 2004 due to
       expense savings initiatives put in place in the latter part of 2004.
    -- Pretax margin of 21%.  The 4.4% margin improvement over 2004 results
       primarily from expense savings initiatives put in place in 2004 and the
       impact of the pension curtailment gain.
    -- Clients' use of Gallagher's proprietary Risx-Facs(R) system now exceeds
       18 million page views per month.

    Financial Services Segment Highlights

    -- In second quarter 2005, Gallagher completed the sale of its Florida
       Community Development investment and recorded a one time gain of $12.6
       million ($0.08 per diluted share after tax).  Because this was a
       consolidated investment with significant assets and liabilities, GAAP
       requires classification of historical revenues and expenses related to
       this investment as discontinued operations.
    -- In second quarter 2005, Gallagher received $5.8 million in cash
       comprising a $2.1 million dividend ($0.02 per diluted share after tax)
       and a $3.7 million return of capital from one of its Bermuda Insurance
       Investments.  On July 19, 2005, Gallagher sold its remaining interest
       in this investment for cash.  No gain or loss resulted from this sale.
    -- In second quarter 2005, Gallagher sold its interest in the Biogas
       Project and recognized a $1.3 million gain ($0.01 per diluted share
       after tax).
    -- Revenues and tax credits related to Gallagher's Syn/Coal investments
       may phase out if average oil prices reach certain levels.  Gallagher
       estimates that the commonly reported crude oil price would need to
       average approximately $67 per barrel for the remainder of 2005 for any
       phase-out to begin and average approximately $93 per barrel for the
       remainder of 2005 for a complete phase-out.
    -- Gallagher estimates a net loss of $.04 per diluted share in both third
       and fourth quarters 2005 for the Financial Services Segment, which was
       the same guidance as Gallagher provided for these periods in
       Gallagher's first quarter earnings release issued on April 26, 2005.
    -- Adoption of FIN 46 - In third quarter 2003, Gallagher adopted a new
       accounting pronouncement, FASB Interpretation No. 46 (FIN 46) -
       "Consolidation of Variable Interest Entities," which required the
       company to consolidate one investment not previously consolidated
       because the company does not control the investment through a majority
       voting interest.  Previously reported financial statements were not
       restated for the adoption of FIN 46.  During third quarter 2004,
       Gallagher sold a portion of its interest in this investment, which
       eliminated the requirement to consolidate the investment under the FIN
       46 rules.  This investment is now accounted for using equity method
       accounting.

The company will host a webcast conference call on Wednesday, July 27, 2005 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 more than 110 countries around the world through a network of correspondent brokers and consultants. Gallagher is traded under the symbol "AJG" on the New York Stock Exchange.

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 area of tax legislation. 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)

                                         3 Months 3 Months 6 Months 6 Months
                                           Ended    Ended    Ended    Ended
                                          June 30, June 30, June 30, June 30,
    BROKERAGE SEGMENT                       2005     2004     2005     2004

    Commissions                            $201.1   $185.3   $393.6   $358.2
    Fees                                     40.9     35.1     70.3     62.2
    Investment income - fiduciary             4.8      2.9      8.2      5.4
      Revenues                              246.8    223.3    472.1    425.8

    Compensation                            140.7    128.1    282.5    249.0
    Operating                                53.7     42.1    102.1     84.2
    Depreciation                              3.7      3.2      7.1      6.3
    Amortization                              5.2      5.7     10.4      8.6
    Litigation and contingent commission
     related matters                           -        -      35.0       -
      Expenses                              203.3    179.1     437.1    348.1

    Earnings from continuing operations
     before income taxes                     43.5     44.2     35.0     77.7
    Provision for income taxes               10.0      8.9      2.1     15.7
    Earnings from continuing operations     $33.5    $35.3    $32.9    $62.0

    Diluted earnings from continuing
     operations per share                   $0.35    $0.37    $0.35    $0.65
    Growth - revenues                         11%      11%      11%      10%
    Organic growth in commissions and
     fees  (1)                                 1%       4%       1%       2%
    Growth - pretax earnings                  -2%      15%      NMF      19%
    Compensation expense ratio                57%      57%      60%      58%
    Operating expense ratio                   22%      19%      22%      20%
    Pretax profit margin before
     litigation related matters  (2)          18%      20%      15%      18%
    Effective tax rate                        23%      20%      NMF      20%

    RISK MANAGEMENT SEGMENT

    Fees                                    $89.0    $85.6   $180.0   $166.7
    Investment income - fiduciary             0.6      0.4      1.2      0.7
      Revenues                               89.6     86.0    181.2    167.4

    Compensation                             48.4     46.3     99.8     90.7
    Operating                                20.4     23.6     41.5     46.1
    Depreciation                              2.2      2.0      4.0      4.0
    Amortization                              0.1      0.1      0.2      0.2
      Expenses                               71.1     72.0    145.5    141.0

    Earnings from continuing operations
     before income taxes                     18.5     14.0     35.7     26.4
    Provision for income taxes                4.3      2.7      8.3      5.0
    Earnings from continuing operations     $14.2    $11.3    $27.4    $21.4

    Diluted earnings from continuing
     operations per share                   $0.15    $0.12    $0.29    $0.23
    Growth - revenues                          4%      21%       8%      20%
    Organic growth in fees  (1)                4%      21%       8%      20%
    Growth - pretax earnings                  32%      43%      35%      31%
    Compensation expense ratio                54%      54%      55%      54%
    Operating expense ratio                   23%      27%      23%      28%
    Pretax profit margin                      21%      16%      20%      16%
    Effective tax rate                        23%      19%      23%      19%

    BROKERAGE & RISK MANAGEMENT COMBINED

    Commissions                            $201.1   $185.3   $393.6   $358.2
    Fees                                    129.9    120.7    250.3    228.9
    Investment income - fiduciary             5.4      3.3      9.4      6.1
      Revenues                              336.4    309.3    653.3    593.2

    Compensation                            189.1    174.4    382.3    339.7
    Operating                                74.1     65.7    143.6    130.3
    Depreciation                              5.9      5.2     11.1     10.3
    Amortization                              5.3      5.8     10.6      8.8
    Litigation and contingent commission
     related matters                            -        -     35.0        -
      Expenses                              274.4    251.1    582.6    489.1

    Earnings from continuing operations
     before income taxes                     62.0     58.2     70.7    104.1
    Provision for income taxes               14.3     11.6     10.4     20.7
    Earnings from continuing operations     $47.7    $46.6    $60.3    $83.4

    Diluted earnings from continuing
     operations per share                   $0.50    $0.49    $0.64    $0.88
    Growth - revenues                          9%      14%      10%      13%
    Organic growth in commissions and
     fees  (1)                                 2%       9%       3%       7%
    Growth - pretax earnings                   7%      21%      NMF      22%
    Compensation expense ratio                56%      56%      59%      57%
    Operating expense ratio                   22%      21%      22%      22%
    Pretax profit margin before
     litigation related matters  (2)          18%      19%      16%      18%
    Effective tax rate                        23%      20%      NMF      20%

    See notes to second quarter 2005 earnings release and non-GAAP financial
    measures on page 6.


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

                                         3 Months 3 Months 6 Months 6 Months
                                           Ended    Ended    Ended   Ended
                                          June 30, June 30, June 30, June 30,
    FINANCIAL SERVICES SEGMENT              2005     2004    2005     2004

    Investment income                       $30.9   $22.3    $60.9   $41.4
    Impact of FIN 46 on investment income       -    35.0        -    60.9
    Investment gains (losses)                 3.8     2.1      3.7     4.6
      Revenues                               34.7    59.4     64.6   106.9

    Investment expenses                      33.2    20.1     59.6    34.7
    Impact of FIN 46 on investment
     expenses                                   -    33.9        -    58.6
    Interest                                  3.0     2.4      5.6     4.3
    Depreciation                              3.1     2.2      6.4     3.9
    Impact of FIN 46 on depreciation
     expense                                    -     1.1        -     2.3
    Litigation related matters                  -       -    131.0       -
      Expenses                               39.3    59.7    202.6   103.8

    Earnings (loss) from continuing
     operations before income taxes          (4.6)   (0.3)  (138.0)    3.1
    Provision (benefit) for income taxes     (1.1)      -    (48.3)    0.9
    Earnings (loss) from continuing
     operations                             $(3.5)  $(0.3)  $(89.7)   $2.2

    Diluted earnings (loss) from
     continuing operations per share       $(0.04)     $-   $(0.96)  $0.02


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

                                         3 Months 3 Months 6 Months 6 Months
                                           Ended    Ended    Ended    Ended
                                          June 30, June 30, June 30, June 30,
    TOTAL COMPANY                           2005     2004     2005     2004

    Commissions                            $201.1   $185.3   $393.6   $358.2
    Fees                                    129.9    120.7    250.3    228.9
    Investment income - fiduciary             5.4      3.3      9.4      6.1
    Investment income - all other            30.9     57.3     60.9    102.3
    Investment gains (losses)                 3.8      2.1      3.7      4.6
      Revenues                              371.1    368.7    717.9    700.1

    Compensation                            189.1    174.4    382.3    339.7
    Operating                                74.1     65.7    143.6    130.3
    Investment expenses                      33.2     54.0     59.6     93.3
    Interest                                  3.0      2.4      5.6      4.3
    Depreciation                              9.0      8.5     17.5     16.5
    Amortization                              5.3      5.8     10.6      8.8
    Litigation and contingent commission
     related matters                            -        -    166.0        -
      Expenses                              313.7    310.8    785.2    592.9

    Earnings (loss) from continuing
     operations before income taxes          57.4     57.9    (67.3)   107.2
    Provision (benefit) for income taxes     13.2     11.6    (37.9)    21.6
    Earnings (loss) from continuing
     operations                              44.2     46.3    (29.4)    85.6

    Earnings (loss) on discontinued
     operations, net of income taxes          7.6     (0.2)     7.2     (0.6)

    Net earnings (loss)                     $51.8    $46.1   $(22.2)   $85.0

    Diluted earnings (loss) from
     continuing operations per share        $0.46    $0.49   $(0.32)   $0.90
    Diluted earnings (loss) on
     discontinued operations per share       0.08        -     0.08        -
    Diluted net earnings (loss) per share   $0.54    $0.49   $(0.24)   $0.90

    Dividends declared per share            $0.28    $0.25    $0.56    $0.50

    Other Information
    Basic weighted average shares
     outstanding (000s)                    93,790   91,096   93,135   90,736
    Diluted weighted average shares
     outstanding (000s)                    95,584   94,343   95,194   94,152
    Common shares repurchased (000s)           59        -       59      555
    Annualized return on beginning
     tangible net worth (3)                                     NMF      43%
    Number of acquisitions closed               5        3        7       10
    Workforce at end of period (includes
     acquisitions)                                            8,052    7,180

    Earnings (Loss) From Continuing
     Operations Before Litigation and
     Contingent Commission Related
     Matters, Investment (Gains)
     Losses, Pension Plan Curtailment
     Gain, Depreciation, Amortization
     and Stock Compensation Expense (4)
    Earnings (loss) from continuing
     operations                             $44.2    $46.3   $(29.4)   $85.6
    Litigation and contingent commission
     related matters                            -        -    166.0        -
    Investment (gains) losses                (3.8)    (2.1)    (3.7)    (4.6)
    Pension plan curtailment gain           (10.0)       -    (10.0)       -
    Depreciation                              9.0      8.5     17.5     16.5
    Amortization                              5.3      5.8     10.6      8.8
    Amortization of deferred comp and
     restricted stock                         1.4      2.7      4.1      4.8
    Stock compensation expense                2.0      1.3      4.2      2.5
    Tax effect                               (0.9)    (3.2)   (66.0)    (5.3)
    Earnings (loss) from continuing
     operations before, litigation
     and contingent commission related
     matters, investment (gains) losses,
     pension plan curtailment gain
     depreciation, amortization and,
     stock compensation expense             $47.2    $59.3    $93.3   $108.3

    On a diluted per share basis            $0.49    $0.63    $0.98    $1.15

    See notes to second quarter 2005 earnings release and non-GAAP financial
    measures on page 6.


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

                                              Jun 30, 2005      Dec 31, 2004

    Cash and cash equivalents                       $243.1            $224.6
    Restricted cash                                  530.1             488.9
    Unconsolidated investments - current              28.0              26.0
    Premiums and fees receivable                   1,514.2           1,355.5
    Other current assets                             160.5             132.8
      Total current assets                         2,475.9           2,227.8

    Unconsolidated investments - noncurrent          108.6             132.4
    Fixed assets related to consolidated
     investments - net                               130.8             195.6
    Other fixed assets - net                          57.3              63.4
    Deferred income taxes                            199.7             184.8
    Other noncurrent assets                           71.8              59.7
    Goodwill - net                                   224.1             219.0
    Amortizable intangible assets - net              176.2             155.2
      Total assets                                $3,444.4          $3,237.9


    Premiums payable to insurance and
     reinsurance companies                        $2,065.2          $1,838.9
    Accrued compensation and other
     accrued liabilities                             298.3             253.4
    Unearned fees                                     49.2              35.0
    Income taxes payable                              22.8              24.8
    Other current liabilities                         21.0              18.6
    Corporate related borrowings                        -                 -
    Investment related borrowings - current           35.3              41.4
      Total current liabilities                    2,491.8           2,212.1

    Investment related borrowings - noncurrent        81.7             140.0
    Other noncurrent liabilities                     128.0             124.8
      Total liabilities                            2,701.5           2,476.9

    Stockholders' equity:
    Common stock - issued and outstanding             94.6              92.1
    Capital in excess of par value                   206.1             146.4
    Retained earnings                                464.2             539.0
    Unearned deferred compensation                   (15.8)            (12.2)
    Unearned restricted stock                         (6.0)             (4.3)
    Accumulated other comprehensive earnings
     (loss)                                           (0.2)                -
      Total stockholders' equity                     742.9             761.0
      Total liabilities and stockholders' equity  $3,444.4          $3,237.9

    Other Information
    Tangible net worth  (5)                         $342.6            $386.8
    Book value per share                             $7.85             $8.26
    Tangible book value per share  (6)               $3.62             $4.20

    Notes to Second Quarter 2005 Earnings Release and 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/or 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 litigation and contingent commission related
         matters divided by total revenues.

    (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)

                                                           June 30, 2005
                                                        LOCs &
                 June 30, 2005      December 31, 2004  Financial    Funding
               Current  Noncurrent Current Noncurrent Guarantees  Commitments
    Unconsolidated
     Investments:
    Direct and
     indirect
     investments
     in Asset
     Alliance
     Corporation
     (AAC)       $0.3       $46.2    $0.8      $46.7        $-         $-

    Low income
     housing
     (LIH)
     developments:
      Bridge
       loans      3.9           -     5.2          -         -          -
      Partnership
       interests    -         1.2       -        1.5         -          -
      LIH Developer -         8.9       -        9.2         -          -

    Alternative
     energy
     investments:
      Owned
       partnership
       interests  1.2        19.1     0.9       19.1       4.4        3.0
      Biogas
       project      -           -       -       14.7         -          -
      Partnership
       interest
       installment
       sales     22.2         9.7    18.6       12.9         -          -

    Bermuda
     insurance
     investments    -        16.7       -       20.4       6.7          -

    Real estate,
     venture
     capital
     and other
     investments  0.4         6.8     0.5        7.9         -        2.0

      Total uncon-
       solidated
       invest-
       ments     28.0       108.6    26.0      132.4      11.1        5.0

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

      Net uncon-
       solidated
       invest-
       ments    $28.0      $108.6   $25.8     $118.6     $11.1       $5.0


                         Consolidated Investment Summary
                            (Unaudited - in millions)

                                                         June 30, 2005
                                                        LOCs &
                               June 30,  December 31, Financial    Funding
                                 2005        2004     Guarantees Commitments

    Home office land and
     building:
      Fixed assets              $101.5       $101.3         $-         $-
      Accumulated
       depreciation              (17.2)       (15.8)         -          -
      Non-recourse
       borrowings - current       (0.9)        (0.9)         -          -
      Recourse borrowings
       - current                     -            -          -          -
      Non-recourse borrowings
       - noncurrent              (72.7)       (73.1)         -          -
      Recourse borrowings
       - noncurrent               (3.0)        (3.0)         -          -
      Net other consolidated
       assets and liabilities      3.8          2.8          -          -

        Net investment            11.5         11.3          -          -

    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   (15.9)       (14.1)         -          -
      Non-recourse borrowings
       - current                 (31.3)        (2.6)         -          -
      Recourse borrowings
       - current                     -            -          -          -
      Non-recourse borrowings
       - noncurrent                  -        (29.9)         -          -
      Recourse borrowings
       - noncurrent                  -            -          -          -
      Net other consolidated
       assets and liabilities     (0.1)           -          -          -

        Net investment             4.5          5.2          -          -

    Syn/Coal partnerships:
      Fixed assets                15.7         15.6          -          -
      Accumulated depreciation    (5.1)        (2.8)         -          -
      Non-recourse borrowings
       - current                  (3.1)        (2.8)         -          -
      Recourse borrowings
       - current                     -            -          -          -
      Non-recourse borrowings
       - noncurrent               (6.0)        (7.7)         -          -
      Recourse borrowings
       - noncurrent                  -            -          -          -
      Net other consolidated
       assets and liabilities     (1.4)         1.6          -          -

        Net investment             0.1          3.9          -          -

    Total consolidated investments:
      Fixed assets               169.0        229.0          -          -
      Accumulated
       depreciation              (38.2)       (33.4)         -          -
      Non-recourse borrowings
       - current                 (35.3)       (24.2)         -          -
      Recourse borrowings
       - current                     -        (17.0)         -          -
      Non-recourse borrowings
       - noncurrent              (78.7)      (110.8)         -          -
      Recourse borrowings
       - noncurrent               (3.0)       (15.4)         -          -
      Net other consolidated
       assets and liabilities      2.3          2.0       12.6          -

        Net investment           $16.1        $30.2      $12.6         $-

SOURCE Arthur J. Gallagher & Co.

Marsha J. Akin, Investor Relations of Arthur J. Gallagher & Co., +1-630-773-3800
http://www.prnewswire.com