Exhibit 99.1
Arthur J. Gallagher & Co.
August 2005
Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995
The presentation relating to this material may contain forward-looking statements. Forward-looking statements made by or on behalf of Gallagher are subject to risks and uncertainties, including but not limited to the following: Gallagher’s commission revenues are highly dependent on premiums charged by insurers, which are subject to fluctuation; lower interest rates reduce Gallagher’s income earned on invested funds; the alternative insurance market continues to grow which could unfavorably impact commission and favorably impact fee revenue, though not necessarily to the same extent; Gallagher’s revenues vary significantly from period to period as a result of the timing of policy inception dates and the net effect of new and lost business production; the insurance brokerage industry is subject to a great deal of uncertainty due to investigations into its business practices by various governmental authorities and related private litigation; the general level of economic activity can have a substantial impact on Gallagher’s renewal business; Gallagher’s operating results, returns on investments and financial position may be adversely impacted by exposure to various market risks such as interest rate, equity pricing, foreign exchange rates and the competitive environment; Gallagher’s revenues and net earnings may be subject to reduction due to the elimination of contingent commission arrangements in 2005 and related developments in the insurance industry; and Gallagher’s effective income tax rate may be subject to increase as a result of changes in income tax laws or unfavorable interpretations of such laws or developments resulting in the loss or unavailability of Syn/Coal credits. Gallagher’s ability to grow has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to Gallagher. Accordingly, actual results may differ materially from those set forth in the forward-looking statements.
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Non-GAAP Financial Measures
Regulation G Disclosure
This presentation includes certain non-GAAP financial measures as defined under rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). As required by SEC rules, we have provided reconciliations of those measures to the most directly comparable GAAP measures, which are available on our investor relations web-site at www.ajg.com.
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Arthur J. Gallagher & Co.
World’s fourth-largest insurance brokerage and risk management services firm Public since 1984 Market capitalization of $2.6 billion Shares outstanding of 94.6 million Dividend yield of 4.1% 52-week range – $25.42 - $34.12 Traded NYSE as “AJG”
As of 6/30/05, unless otherwise indicated
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Arthur J. Gallagher & Co
Performance vs. S&P
350% 300% 250% 200% 150% 100% 50% 0%
Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05
Arthur J Gallagher & Co [AJG] S&P 500 (SPX)
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Arthur J. Gallagher & Co.
Summary: Why Invest?
$1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0
2000 Total Revenues 2004
20% CAGR
$300 $250 $200 $150 $100 $50 $0
2000 Cash Flow from Ops 2004
34% CAGR
$1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
1985 Dividends 2005 $1.12
19% CAGR
2004 cash flow from operations of $277 M
5-year average ROE of 30% is highest in peer group* Dividend yield of 4.1% indicated in 2005
Note: Amounts as originally reported for continuing operations *Through 12/31/04
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Arthur J. Gallagher & Co.
A Real Growth Story
1984 IPO (Restated for stock splits) June 30, 2005
Stock Price $1.72 $ 27.13
Market Cap $57 M $2.6 B
Tangible Net Worth $23 M $343 M
Annual Dividend/Share $.03 $ 1.12
Including Dividend Reinvestment, Compound Annual Growth Rate of 19%
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Arthur J. Gallagher & Co.
2004 Achievements
Record revenues of $1.4B and earnings from continuing operations of $188M
Total Brokerage and Risk Management revenues increased 12% Total Brokerage and Risk Management pretax earnings increased 14% Completed record 19 acquisitions Record dividend increase of 39%
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Arthur J. Gallagher & Co.
2004 Achievements
Returned $141M in cash to stockholders $56M of share repurchases or 1.8M shares $85M of paid dividends
Increased GAAP Book Value to $761M Maintained tangible net worth at nearly $400M Navigated synfuel tax credit waters
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Arthur J. Gallagher & Co.
2005 Developments
Reached agreement with Illinois’ Attorney General and Insurance Department on 5/18/05 Sold two medical claims management operations Continue divestiture of Financial Services assets Resolved Headwaters dispute Froze defined benefit pension plan effective 7/1/05
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Arthur J. Gallagher & Co.
Long-term Goals $2.0 - $2.3 billion in revenues within five years
15% year-over-year earnings growth
30%+ annual return on Average Stockholders’ Equity
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Arthur J. Gallagher & Co.
Culture Driven Success
Sales and marketing driven
Team-oriented and committed to growth Open “Small company” feel Client-focused Competitive No “C” players Niche advantaged
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Arthur J. Gallagher & Co.
Three Distinct Segments
2004
Total Revenues
Brokerage 67%
Risk Management 25%
Financial Services 8%
Pretax Earnings
Brokerage 82%
Risk Management 26%
Financial Services (8%)
Total revenues from continuing operations exclude FIN 46 impact and investment gains Pretax earnings from continuing operation excludes investment gains (no FIN 46 impact on earnings)
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Brokerage Segment
Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders
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Brokerage Segment
Contingent Commission Status
Resolved issue without a lawsuit No unlawful conduct
No longer accepting contingent commissions as a retail broker Must disclose compensation to clients Still working to get buy-in from other states
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Brokerage Segment
A Strategic Consolidator
Geographic diversity; enhance or expand capabilities Approximately 145 acquisitions in this segment from 1986 through 6/30/05 The rules: financial health, similar culture Gallagher is merger partner of choice
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Brokerage Segment
Growth & Profits
1000 900 800 700 600 500 400 300 200 100 $458M $920M
00 01 02 03 04
19% CAGR
Total Revenues
200 150 100 50 0 $89M $186M
00 01 02 03 04
21% CAGR
Pretax Earnings
2004 pretax margins of 20%
2004 growth in diluted net EPS of 12%
Note: Amounts as originally reported for continuing operations
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Brokerage Segment
Three Primary Operations
Retail Brokerage 56% (Jim Gault)
Specialty Marketing & International 26% (Dave McGurn)
Employee Benefits 18% (Jim Durkin)
As of 6/30/05
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Retail Brokerage Offices
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Retail Brokerage
Niches
Agribusiness Aviation Captives Construction Construction Project Solutions Energy Global Risk Management Healthcare Higher Education Management Liability Marine
Mergers & Acquisitions Personal Insurance Public Entity Real Estate
General Commercial Habitational Hospitality Shopping Centers
Religious/Nonprofit Restaurant Scholastic K-12 Transportation Worldwide Risk Services
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Retail Brokerage
High Growth & Profit Potential
Niches – number and size Acquisitions and hiring Alternative market
Captives Rent-a-captives Deductible plans Self-insurance
21
Specialty Marketing & International
Offices & Strategic Alliances
Specialty Marketing & International
Capabilities
Wholesale Brokerage International P&C Brokerage Programs/Program Administration Reinsurance Brokerage Captives/Rent-a-Captives CoverageFirst.com
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Employee Benefits Offices
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Employee Benefits
Capabilities
Employee Benefits Brokerage/Consulting Healthcare Data Analysis/Benchmarking Compliance Consulting Merger & Acquisition Analysis Actuarial Services
Executive Benefits/Financial Planning Human Resource Services Retirement Plan Services Employer Administrative Services Business Continuation Compensation Program Design/Analysis
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Employee Benefits
High Growth & Profit Potential
Niche marketing
Cross-selling opportunities with Retail Brokerage Merger and acquisition opportunities Assisting clients/prospects with four top priorities
Controlling health and welfare costs Providing better retirement tools/information Benefits communication and administration Compliance with federal and state regulations
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Risk Management Segment
Gallagher’s Property/Casualty Claims Management Operation “Gallagher Bassett” – Rich McKenna World’s largest multiline, third-party administrator (Business Insurance magazine) Revenue growth is all organic Fee revenues are primarily generated based on number of claims Significant barriers to entry into this business – high retention levels
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Risk Management Segment
Growth & Profits
350 300 250 200 150 100 50 0 $203M $346M
16% CAGR
2000 2004
Total Revenues
60 50 40 30 20 10 0 $28M $58M
24% CAGR
2000 2004
Pretax Earnings
2004 pretax margin of 17%
2004 growth in diluted net EPS of 47%
Note: Amounts as originally reported for continuing operations
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Gallagher Bassett Offices
Risk Management Segment
Expertise
Real-time Claims Reporting Recoveries (subrogation, salvage, etc.) Appraisal Services Litigation Management Information Management
Managed Care Services Loss Control Services Safety Programs Settlement Management Education and Training
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Risk Management Segment
High Growth & Profit Potential
Fortune 1000 companies
Outsourcing of insurance co. claims departments Captives Program business Expanding global capabilities Enhancements in systems/processes related to:
Electronic data storage Security Claims regulatory changes
Access to information via the Internet Employer communication/plan administration
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Financial Services Segment $926 Million of Cash & Investments*
Investments Allocated to Financial Services Segment
($153 M)
Cash Allocated to Brokerage Segment
($608 M)
Cash Allocated to Risk Management Segment
($165 M)
* As of June 30, 2005 – Cash & investments net of related investment borrowings
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Financial Services Segment
Net Assets and Financial Guarantees* $400 $350 $300 $250 $200 $150 $100 $362 $166
2002 2005 $70 $60 $50 $40 $30 $20 $10 $0
Net Assets*
Tax Adv
Asset Mgmt
Real Estate
Other
Low Income Housing $14M Alternative Energy $52M Asset Alliance $47M Home Office Building $12M Other $12M $ In millions
*Reflects sale of Allied World Assurance Holdings, Ltd. On 7/19/05
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Financial Services Segment
Refocused Investing
Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows
Sold Florida Community Development- 2Q 2005
Other
Exited Venture Capital investments in 2003 Sold Bermuda Insurance Investment – 3Q 2005
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Financial Services Segment
Headwaters Dispute
February 05 – Utah jury awarded damages against AJGFS of $175M with a possible additional $120M
May 05 – AJGFS reached settlement with Headwaters
Payment of $50M made in May 05 Payment of $70M due in January 06
Annual royalty for 2005 through 2007 up to a maximum of $20M per year
Q1 05 – Recorded pretax charge of $131M
($84M after tax or $.91 per diluted share)
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Arthur J. Gallagher & Co.
Why Invest?
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Arthur J. Gallagher & Co.
Revenue Growth
Total Revenues From Continuing Operations As Originally Reported ($ M) $1,600 $1,400 $1,200 $1,000 $800 $600 $400
2000 2001 2002 2003 2004 $684 $836 $1,021 $1, 221 $1,437
20% CAGR
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Arthur J. Gallagher & Co.
Profitable Growth
Total Pretax Earnings From Continuing Operations As Originally Reported ($ M) $260 $240 $220 $200 $180 $160 $140 $120 $100
2000 2001 2002 2003 2004 $121 $137 $185 $193 $237
18% CAGR
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Arthur J. Gallagher & Co.
Rising Productivity
Total Revenue Per Employee As Originally Reported $200 $190 $180 $170 $160 $150 $140 $130 $120
2000 2001 2002 2003 2004 $141,000 $137,000 $153,000 $179,000 $183,000
Note: Amounts as originally reported for continuing operations
7% CAGR
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Arthur J. Gallagher & Co.
Increasing Shareholder Value
Diluted Earnings From Continuing Operations As Originally Reported – Post Split 1/18/01 $2.20 $2.00
$1.80 $1.60
$1.40 $1.20
$1.00 $0.80
2000 2001 2002 2003 2004
18% CAGR
$1.02 $1.36 $1.41 $1.56 $2.01
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Arthur J. Gallagher & Co.
Earnings From Continuing Operations Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense
(In millions) $300 $250 $200 $150 $100 $50
2000 2001 2002 2003 2004 $88 $131 $169 $201 $236
26% CAGR
Note: Amounts as originally reported
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Arthur J. Gallagher & Co.
Since 1990, $1.5 Billion Cash Flow from Ops
Dividends Paid
($471 M)
Shares Repurchased
($444 M)
Reinvested in Operations
($549 M)
Built a balance sheet with $3.62 in tangible net worth per share and no operating debt.
As of 6/30/05
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Arthur J. Gallagher & Co.
Summary: Why Invest?
$1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0
2000 Total Revenues 2004
20% CAGR
$300 $250 $200 $150 $100 $50 $0
2000 Cash Flow from Ops 2004
34% CAGR
$1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
1985 Dividends 2005 $1.12
19% CAGR
2004 cash flow from operations of $277 M
5-year average ROE of 30% is highest in peer group* Dividend yield of 4.1% indicated in 2005
Note: Amounts as originally reported from continuing operations
* Through 12/31/04
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Culture Driven Success
The Gallagher Way
Shared values at Gallagher are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of Gallagher’s Shared Values?
1. We are a Sales and Marketing Company dedicated to providing excellence in Risk Management Services to our clients.
2. We support one another. We believe in one another. We acknowledge and respect the ability of one another.
3. We push for professional excellence.
4. We can all improve and learn from one another.
5. There are no second class citizens -everyone is important and everybody’s job is important.
6. We’re an open society.
7. Empathy for the other person is not a weakness.
8. Suspicion breeds more suspicion. To trust and be trusted is vital.
9. Leaders need followers. How leaders treat followers has a direct impact on the effectiveness of the leader.
10. Interpersonal business relationships should be built. 11. We all need one another. We are all cogs in a wheel. 12. No department or person is an island.
13. Professional courtesy is expected.
14. Never ask someone to do something you wouldn’t do yourself.
15. I consider myself support for our Sales & Marketing. We can’t make things happen without each other.
We are a team.
16. Loyalty and respect are earned -not dictated. 17. Fear is a turn-off.
18. People skills are very important at Gallagher. 20. We run to problems -not away from them.
21. We adhere to the highest standards or moral and ethical behavior.
22. People work harder and are more effective when they’re turned on -not turned off. 23. We are a warm, close Company. This is a strength -not a weakness.
24. We must continue building a professional Company -together -as a team.
25. Shared values can be altered with circumstances -but carefully and with tact and consideration for one another’s needs.
When accepted Shared Values are changed or challenged, the emotional impact and negative feelings can damage the Company.
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