Arthur J. Gallagher & Co. (AJG) 8-K Fourth Quarter and Full Year 2004 Financial Results

Exhibit 99

FOR IMMEDIATE RELEASE	CONTACT:	Marsha J. Akin
		Investor Relations
		(630) 773-3800
		www.ajg.com

ARTHUR J. GALLAGHER & CO. ANNOUNCES

FOURTH QUARTER AND FULL YEAR 2004 FINANCIAL RESULTS

ITASCA, IL, January 25, 2005 — Gallagher today reported its financial results for fourth quarter and year ended December 31, 2004. A printer-friendly format is available atwww.ajg.com.

Quarter Ended December 31

	Revenues						Net Earnings						Diluted Net Earnings Per Share
Segment	4th Q 04		4th Q 03		Chg		4th Q 04			4th Q 03			4th Q 04			4th Q 03
	($ in millions)						($ in millions)
Brokerage	$	256.0	$	235.4	9	%	$	41.5		$	39.8		$	0.44		$	0.43
Risk Management		96.7		83.7	16	%		13.5			8.1			0.14			0.09
Brokerage & Risk Management		352.7		319.1	11	%		55.0			47.9			0.58			0.52
Financial Services		34.2		21.2	—			(5.9	)		1.3			(0.06	)		0.01
Impact of FIN 46		—		25.2	—			—			—			—			—
Total Company	$	386.9	$	365.5	6	%	$	49.1		$	49.2		$	0.52		$	0.53
Year Ended December 31
	Revenues						Net Earnings						Diluted Net Earnings Per Share
Segment	Year 04		Year 03		Chg		Year 04			Year 03			Year 04			Year 03
	($ in millions)						($ in millions)
Brokerage	$	926.4	$	848.5	9	%	$	148.2		$	130.2		$	1.56		$	1.40
Risk Management		372.6		321.7	16	%		48.1			32.5			0.51			0.35
Brokerage & Risk Management		1,299.0		1,170.2	11	%		196.3			162.7			2.07			1.75
Financial Services		111.4		47.2	—			(7.8	)		(16.5	)		(0.08	)		(0.18	)
Impact of FIN 46		69.9		46.4	—			—			—			—			—
Total Company	$	1,480.3	$	1,263.8	17	%	$	188.5		$	146.2		$	1.99		$	1.57

“Despite the softening rates in the insurance marketplace and the disruptions in our industry resulting from the ongoing investigations by state attorneys general and other regulatory agencies, Gallagher had another strong year,” said J. Patrick Gallagher, Jr., President and Chief Executive Officer. “On a combined basis, our Brokerage and Risk Management segments posted excellent results for the year:

• 18% growth in diluted net earnings per share,

• 11% growth in revenues, of which 6% is organic,

• 14% growth in pretax earnings, and

• 18% pretax margin, a 0.5 % improvement over 2003, despite margin drag of 0.3% related to expensing stock-based compensation, 0.3% related to foreign currency translation, 0.3% related to external Sarbanes-Oxley 404 implementation costs and 0.1% related to professional fees associated with recent insurance industry regulatory developments.”

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Brokerage & Risk Management Segments Combined Fourth Quarter Highlights

• 12% growth in diluted net earnings per share.

• 11% growth in revenues, of which 3% is organic.

• 9% growth in pretax earnings.

• 19% pretax margin, despite margin drag of 0.5% related to external Sarbanes-Oxley 404 implementation costs, 0.5% related to professional fees associated with recent insurance industry regulatory developments, 0.5% related to increased amortization expense and 1.0% due to the compensation related matters discussed below in the Brokerage Segment Highlights.

Brokerage Segment Fourth Quarter Highlights

• 2% growth in diluted net earnings per share.

• 9% growth in revenues, of which -1% is organic.

• 20% pretax margin, despite margin drag of 0.6% related to external Sarbanes-Oxley 404 implementation costs, 0.6% related to professional fees associated with recent insurance industry regulatory developments, 0.6% related to increased amortization expense, and the compensation related items discussed below.

• Fourth quarter 2004 compensation ratio was 3.6% higher than fourth quarter 2003. A significant portion of the increase results from foreign currency translation of 0.4%, one-time charges related to staffing changes made in Gallagher’s London operations of 1.1% and 0.3% related to compensation levels of acquired operations.

• Closed five acquisitions and the pipeline remains strong.

• Contingent commissions were $8.2 million in fourth quarter 2004 versus $7.9 million in fourth quarter 2003. As previously announced, Gallagher will not enter into any new volume-based or profit-based contingent commissions agreements as a retail broker effective January 1, 2005. Accordingly, it is expected that future contingent commission revenues could be substantially reduced.

Risk Management Segment Fourth Quarter Highlights

• 55% growth in diluted net earnings per share.

• 16% growth in revenues; 15% growth in fees, all of which is organic.

• 58% growth in pretax earnings.

• 18% pretax margin.

Financial Services Segment Highlights

• During its third quarter conference call, Gallagher provided earnings guidance stating that the Financial Services Segment would report a loss of three to four cents per share in fourth quarter 2004. Actual results differed primarily because one Syn/Coal plant that generates installment sale gains was idle for approximately three weeks during the quarter due to equipment breakdowns and delays in the receipt of coal stock shipments.

• Synthetic fuel production in 2004 was ahead of prior year, resulting in a 20% effective tax rate for the company in 2004 versus 24% in 2003.

• 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.

Legal Developments

As announced in its third quarter earnings conference call, in response to industry developments, Gallagher retained independent counsel to perform an internal review of certain of its business practices. Such independent counsel has completed its internal review and has found no evidence that Gallagher had engaged in any price fixing or bid rigging of the type alleged in the New York Attorney General ‘s October 14, 2004 complaint against Marsh & McLennan Companies, Inc. nor has it engaged in any improper tying arrangements. However, as part of insurance industry-wide investigations, Gallagher remains the subject of investigations and regulatory proceedings by authorities in fifteen states investigating certain of its business practices, including the receipt by Gallagher of contingent commissions. Gallagher is also a defendant in eight lawsuits brought by private litigants which relate to these practices. Gallagher cannot predict the outcome of these investigations, regulatory proceedings, and lawsuits, nor their effect upon Gallagher’s business or financial condition.

In addition, previously reported litigation involving synfuel technology reached the trial stage this month with a result expected in February 2005. The plaintiff seeks damages from Gallagher’s subsidiary, AJG Financial Services, Inc., in the amount of $140 million as well as a declaratory judgment that payments would be owing on future synfuel production through the end of 2007. AJG Financial Services, Inc. seeks damages in its counterclaim in the amount of $71 million. While management continues to believe the plaintiff’s claims lack merit, the outcome of this trial cannot be predicted.

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The company will host a webcast conference call on Wednesday, January 26, 2005 at 9:00 a.m. ET to further discuss these quarterly results. To listen, please go towww.ajg.com.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in eight countries and does business in more than 100 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.

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Arthur J. Gallagher & Co.

Segment Statement of Earnings

(Unaudited - in millions except per share data)

	4th Q Ended Dec 31, 2004				4th Q Ended Dec 31, 2003			Year Ended Dec 31, 2004			Year Ended Dec 31, 2003
BROKERAGE SEGMENT
Commissions	$	215.0			$	202.9		$	801.9		$	746.2
Fees		45.7				40.4			152.4			135.5
Investment income - fiduciary		5.1				2.3			13.4			7.5
Gross revenues		265.8				245.6			967.7			889.2
Less brokerage		(9.8	)			(10.2	)		(41.3	)		(40.7	)
Revenues		256.0				235.4			926.4			848.5
Compensation		148.9				128.6			532.8			482.1
Operating		47.1				48.3			177.5			172.2
Depreciation		3.3				3.1			12.9			12.1
Amortization		4.9				3.0			18.1			9.8
Expenses		204.2				183.0			741.3			676.2
Earnings before income taxes		51.8				52.4			185.1			172.3
Provision for income taxes		10.3				12.6			36.9			42.1
Net earnings	$	41.5			$	39.8		$	148.2		$	130.2
Diluted net earnings per share	$	0.44			$	0.43		$	1.56		$	1.40
Growth - revenues		9	%			10	%		9	%		15	%
Organic growth in commissions and fees (1)		-1	%			6	%		2	%		10	%
Growth - pretax earnings		-1	%			13	%		7	%		16	%
Compensation expense ratio		56	%			52	%		55	%		54	%
Operating expense ratio		18	%			20	%		18	%		19	%
Pretax profit margin		20	%			21	%		19	%		19	%
Effective tax rate		20	%			24	%		20	%		24	%
RISK MANAGEMENT SEGMENT
Fees	$	96.1			$	83.4		$	370.9		$	320.7
Investment income - fiduciary		0.6				0.3			1.7			1.0
Revenues		96.7				83.7			372.6			321.7
Compensation		52.3				46.7			202.6			178.7
Operating		25.2				23.9			100.0			90.6
Depreciation		2.2		��		2.3			9.4			9.4
Amortization		0.1				0.1			0.4			0.1
Expenses		79.8				73.0			312.4			278.8
Earnings before income taxes		16.9				10.7			60.2			42.9
Provision for income taxes		3.4				2.6			12.1			10.4
Net earnings	$	13.5			$	8.1		$	48.1		$	32.5
Diluted net earnings per share	$	0.14			$	0.09		$	0.51		$	0.35
Growth - revenues		16	%			16	%		16	%		14	%
Organic growth in fees (1)		15	%			16	%		16	%		14	%
Growth - pretax earnings		58	%			110	%		40	%		36	%
Compensation expense ratio		54	%			56	%		55	%		56	%
Operating expense ratio		26	%			29	%		27	%		28	%
Pretax profit margin		18	%			13	%		16	%		13	%
Effective tax rate		20	%			24	%		20	%		24	%
BROKERAGE & RISK MANAGEMENT COMBINED
Commissions	$	215.0			$	202.9		$	801.9		$	746.2
Fees		141.8				123.8			523.3			456.2
Investment income - fiduciary		5.7				2.6			15.1			8.5
Gross revenues		362.5				329.3			1,340.3			1,210.9
Less brokerage		(9.8	)			(10.2	)		(41.3	)		(40.7	)
Revenues		352.7				319.1			1,299.0			1,170.2
Compensation		201.2				175.3			735.4			660.8
Operating		72.3				72.2			277.5			262.8
Depreciation		5.5				5.4			22.3			21.5
Amortization		5.0				3.1			18.5			9.9
Expenses		284.0				256.0			1,053.7			955.0
Earnings before income taxes		68.7				63.1			245.3			215.2
Provision for income taxes		13.7				15.2			49.0			52.5
Net earnings	$	55.0			$	47.9		$	196.3		$	162.7
Diluted net earnings per share	$	0.58			$	0.52		$	2.07		$	1.75
Growth - revenues		11	%			12	%		11	%		15	%
Organic growth in commissions and fees (1)		3	%			9	%		6	%		12	%
Growth - pretax earnings		9	%			22	%		14	%		19	%
Compensation expense ratio		56	%			53	%		55	%		55	%
Operating expense ratio		20	%			22	%		21	%		22	%
Pretax profit margin		19	%			19	%		18	%		18	%
Effective tax rate		20	%			24	%		20	%		24	%

See notes to fourth quarter 2004 earnings release and non-GAAP financial measures on page 6.

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Arthur J. Gallagher & Co.

Segment Statement of Earnings

(Unaudited - in millions except per share data)

	4th Q Ended Dec 31, 2004			4th Q Ended Dec 31, 2003			Year Ended Dec 31, 2004			Year Ended Dec 31, 2003
FINANCIAL SERVICES SEGMENT
Investment income	$	33.3		$	21.6		$	103.3		$	71.7
Impact of FIN 46 on investment income		—			25.2			69.9			46.4
Investment gains (losses)		0.9			(0.4	)		8.1			(24.5	)
Revenues		34.2			46.4			181.3			93.6
Investment expenses		36.0			15.6			101.9			53.7
Impact of FIN 46 on investment expenses		—			24.1			67.2			44.1
Interest		2.6			1.9			9.5			8.0
Depreciation		3.0			2.0			9.8			7.4
Impact of FIN 46 on depreciation expense		—			1.1			2.7			2.3
Expenses		41.6			44.7			191.1			115.5
Earnings (loss) before income taxes		(7.4	)		1.7			(9.8	)		(21.9	)
Provision (benefit) for income taxes		(1.5	)		0.4			(2.0	)		(5.4	)
Net earnings (loss)	$	(5.9	)	$	1.3		$	(7.8	)	$	(16.5	)
Diluted net earnings (loss) per share	$	(0.06	)	$	0.01		$	(0.08	)	$	(0.18	)
Consolidated Statement of Earnings
(Unaudited - in millions except per share data)
	4th Q Ended Dec 31, 2004			4th Q Ended Dec 31, 2003			Year Ended Dec 31, 2004			Year Ended Dec 31, 2003
TOTAL COMPANY
Commissions	$	215.0		$	202.9		$	801.9		$	746.2
Fees		141.8			123.8			523.3			456.2
Investment income - fiduciary		5.7			2.6			15.1			8.5
Investment income - all other		33.3			46.8			173.2			118.1
Investment gains (losses)		0.9			(0.4	)		8.1			(24.5	)
Gross revenues		396.7			375.7			1,521.6			1,304.5
Less brokerage		(9.8	)		(10.2	)		(41.3	)		(40.7	)
Revenues		386.9			365.5			1,480.3			1,263.8
Compensation		201.2			175.3			735.4			660.8
Operating		72.3			72.2			277.5			262.8
Investment expenses		36.0			39.7			169.1			97.8
Interest		2.6			1.9			9.5			8.0
Depreciation		8.5			8.5			34.8			31.2
Amortization		5.0			3.1			18.5			9.9
Expenses		325.6			300.7			1,244.8			1,070.5
Earnings before income taxes		61.3			64.8			235.5			193.3
Provision for income taxes		12.2			15.6			47.0			47.1
Net earnings	$	49.1		$	49.2		$	188.5		$	146.2
Diluted net earnings per share	$	0.52		$	0.53		$	1.99		$	1.57
Dividends declared per share	$	0.25		$	0.18		$	1.00		$	0.72
Other Information
Diluted weighted average shares outstanding (000s)		94,827			93,570			94,546			93,292
Common shares repurchased (000s)		613			970			1,783			2,864
Annualized return on beginning tangible net worth (2)								48	%		37	%
Number of acquisitions closed		5			7			19			14
Workforce at end of period (includes acquisitions)								8,204			7,206
Earnings Before Investment (Gains) Losses, Depreciation, Amortization and Stock Compensation Expense (3)
Net earnings	$	49.1		$	49.2		$	188.5		$	146.2
Investment (gains) losses		(0.9	)		0.4			(8.1	)		24.5
Depreciation		8.5			8.5			34.8			31.2
Amortization		5.0			3.1			18.5			9.9
Amortization of deferred comp and restricted stock		2.7			2.2			10.0			7.6
Stock compensation expense		1.7			1.8			5.6			1.8
Tax effect		(3.4	)		(3.8	)		(12.2	)		(18.3	)
Earnings before investment (gains) losses, depreciation, amortization and stock compensation expense	$	62.7		$	61.4		$	237.1		$	202.9
On a diluted per share basis	$	0.66		$	0.66		$	2.51		$	2.17

See notes to fourth quarter 2004 earnings release and non-GAAP financial measures on page 6.

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Arthur J. Gallagher & Co.

Consolidated Balance Sheet

(Unaudited - in millions except per share data)

	Dec 31, 2004			Dec 31, 2003
Cash and cash equivalents	$	224.6		$	193.6
Restricted cash		488.9			437.6
Trading securities		—			5.0
Unconsolidated investments - current		26.0			26.9
Premiums and fees receivable		1,355.5			1,286.4
Other current assets		132.8			158.4
Total current assets		2,227.8			2,107.9
Unconsolidated investments - noncurrent		132.4			121.0
Fixed assets related to consolidated investments - net		195.6			205.2
Other fixed assets - net		63.4			61.0
Deferred income taxes		184.8			137.8
Other noncurrent assets		59.7			45.8
Goodwill - net		219.0			138.3
Amortizable intangible assets - net		155.2			84.6
Total assets	$	3,237.9		$	2,901.6
Premiums payable to insurance and reinsurance companies	$	1,838.9		$	1,743.5
Accrued compensation and other accrued liabilities		253.4			219.3
Unearned fees		35.0			27.3
Income taxes payable		24.8			24.3
Other current liabilities		18.6			16.0
Corporate related borrowings		—			—
Investment related borrowings - current		41.4			30.9
Total current liabilities		2,212.1			2,061.3
Investment related borrowings - noncurrent		140.0			122.1
Other noncurrent liabilities		124.8			99.1
Total liabilities		2,476.9			2,282.5
Stockholders’ equity:
Common stock - issued and outstanding		92.1			90.0
Capital in excess of par value		146.4			105.5
Retained earnings		539.0			442.3
Unearned deferred compensation		(12.2	)		(9.6	)
Unearned restricted stock		(4.3	)		(9.1	)
Total stockholders’ equity		761.0			619.1
Total liabilities and stockholders’ equity	$	3,237.9		$	2,901.6
Other Information
Tangible net worth (4)	$	386.8		$	396.2
Book value per share	$	8.26		$	6.88
Tangible book value per share (5)	$	4.20		$	4.40

Notes to Fourth Quarter 2004 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/or 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.

(2) 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.

(3) Represents net earnings before the after-tax effect of investment gains (losses), depreciation, amortization, amortization of deferred compensation and restricted stock expense and stock compensation expense.

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

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

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Arthur J. Gallagher & Co.

Unconsolidated Investment Summary

(Unaudited - in millions)

											December 31, 2004
	December 31, 2004						December 31, 2003				LOCs & Financial Guarantees		Funding Commitments
	Current			Noncurrent			Current		Noncurrent
Unconsolidated Investments:
Direct and indirect investments in Asset Alliance Corporation (AAC)	$	0.8		$	46.7		$	1.3	$	49.8	$	—	$	—
Low income housing (LIH) developments:
Bridge loans		5.2			—			9.5		—		—		—
Partnership interests		—			1.5			—		3.1		—		—
LIH Developer		—			9.2			—		7.6		—		—
Alternative energy investments:
Owned partnership interests		0.9			19.1			1.5		28.3		4.4		0.2
Biogas project		—			14.7			—		—		—		—
Partnership interest installment sales		18.6			12.9			14.6		8.0		—		—
Bermuda insurance investments		—			20.4			—		20.4		6.7		—
Real estate, venture capital and other investments		0.5			7.9			—		3.8		—		2.0
Total unconsolidated investments		26.0			132.4			26.9		121.0		11.1		2.2
Non-recourse borrowings - Biogas project		(0.2	)		(13.8	)		—		—		—		—
Net unconsolidated investments	$	25.8		$	118.6		$	26.9	$	121.0	$	11.1	$	2.2

Consolidated Investment Summary

(Unaudited - in millions)

							December 31, 2004
	December 31, 2004			December 31, 2003			LOCs & Financial Guarantees		Funding Commitments
Home office land and building:
Fixed assets	$	101.3		$	100.9		$	—	$	—
Accumulated depreciation		(15.8	)		(13.2	)		—		—
Non-recourse borrowings - current		(0.9	)		(0.8	)		—		—
Recourse borrowings - current		—			—			—		—
Non-recourse borrowings - noncurrent		(73.1	)		(74.0	)		—		—
Recourse borrowings - noncurrent		(3.0	)		(3.0	)		—		—
Net other consolidated assets and liabilities		2.8			2.2			—		—
Net investment		11.3			12.1			—		—
Florida community development:
Fixed assets		60.3			56.0			—		—
Accumulated depreciation		(0.7	)		—			—		—
Non-recourse borrowings - current		(17.9	)		(10.7	)		—		—
Recourse borrowings - current		(17.0	)		(17.0	)		—		—
Non-recourse borrowings - noncurrent		(0.1	)		(0.2	)		—		—
Recourse borrowings - noncurrent		(12.4	)		(12.4	)		—		—
Net other consolidated assets and liabilities		(2.4	)		(3.6	)		2.7		0.6
Net investment		9.8			12.1			2.7		0.6
Airplane leasing company:
Fixed assets		51.8			51.8			—		—
Accumulated depreciation		(14.1	)		(10.5	)		—		—
Non-recourse borrowings - current		(2.6	)		(2.4	)		—		—
Recourse borrowings - current		—			—			—		—
Non-recourse borrowings - noncurrent		(29.9	)		(32.5	)		—		—
Recourse borrowings - noncurrent		—			—			—		—
Net other consolidated assets and liabilities		—			0.9			—		—
Net investment		5.2			7.3			—		—
Syn/Coal partnerships:
Fixed assets		15.6			35.2			—		—
Accumulated depreciation		(2.8	)		(15.0	)		—		—
Non-recourse borrowings - current		(2.8	)		—			—		—
Recourse borrowings - current		—			—			—		—
Non-recourse borrowings - noncurrent		(7.7	)		—			—		—
Recourse borrowings - noncurrent		—			—			—		—
Net other consolidated assets and liabilities		1.6			0.6			—		—
Net investment		3.9			20.8			—		—
Total consolidated investments:
Fixed assets		229.0			243.9			—		—
Accumulated depreciation		(33.4	)		(38.7	)		—		—
Non-recourse borrowings - current		(24.2	)		(13.9	)		—		—
Recourse borrowings - current		(17.0	)		(17.0	)		—		—
Non-recourse borrowings - noncurrent		(110.8	)		(106.7	)		—		—
Recourse borrowings - noncurrent		(15.4	)		(15.4	)		—		—
Net other consolidated assets and liabilities		2.0			0.1			2.7		0.6
Net investment	$	30.2		$	52.3		$	2.7	$	0.6

(7 of 7)

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