Exhibit 99.1
Exhibit 99.1
Arthur J.Gallagher & Co.
1
January, 2008
2
Safe Harbor Statement
Except for the historical information and discussions, certain statements contained herein relating to future results may constitute “forwardlooking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to differ materially from those expected, as discussed in Gallagher’s filings
with the U.S. Securities and Exchange Commission, 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; alternative insurance markets continue 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 will continue to be subject to reduction
due to the elimination of certain contingent commission arrangements on January 1, 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, unfavorable
interpretations of past, current or future tax laws or changes in crude oil prices or developments resulting in the loss or unavailability of
IRC Section 29-related 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. For a further discussion of certain of the matters
described above see Item 1A, “Risk Factors” in Gallagher’s Annual Report on Form 10K for the year ended December 31, 2007.
Arthur J.Gallagher & Co.
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Certain Non-GAAP Financial Measures
• This presentation includes certain information that may be considered “non-GAAP financial measures” within the
meaning of SEC regulations because it is derived from Gallagher’s consolidated financial information but is not
required to be presented in financial statements that are prepared in conformity with U.S. generally accepted
accounting principles (GAAP). Consistent with SEC regulations, a description of such information is provided below
and a reconciliation of certain of such items to GAAP is provided on our web-site at www.ajg.com.
• Pretax earnings from continuing operations for 2006 and 2005 were adjusted in this presentation to add back
charges related to litigation and contingent commission matters and claims handling obligations and to eliminate the
impact of medical and pension plan changes. Charges in 2006 related to retail contingent commission related
matters and medical plan changes totaled $9.0 million (or $5.4 million after tax) and $7.5 million (or $4.5 million after
tax), respectively. Charges in 2005 related to retail contingent commission matters and claims handling obligations
totaled $73.6 million (or $44.2 million after tax) and $5.2 million (or $3.6 million after tax), respectively. In addition,
Gallagher recognized a pension curtailment gain of $10.0 million (or $6.0 million after tax) in 2005. There were no
such charges or gains in 2001 to 2004. These adjustments, which Gallagher believes are for non-recurring items,
were made to GAAP earnings from continuing operations in 2006 and 2005 in order to calculate earnings from
continuing operations before litigation and contingent commission related matters, claims handling obligations and
medical and pension plan changes. In addition, total revenues and pretax earnings from continuing operations
exclude retail contingent commissions and are on an as originally reported basis for all periods presented in this
presentation. The term EBITDA used herein represents pretax earnings from continuing operations (excluding the
impact of the non-recurring items discussed above and retail contingent commissions) before interest, depreciation
and amortization expenses.
• Gallagher believes the “non-GAAP financial measures” included in this presentation 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.
Arthur J.Gallagher & Co.
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About Arthur J. Gallagher & Co.
• 4th Largest Insurance Broker
– Retail & Wholesale – 88% US 12% International
• 5th Largest Domestic Wholesaler
• Fastest Growing Lloyds Wholesaler (5 yrs)
• Largest P&C Third Party Administrator
– Adjusting WC, Liability & Property Claims
• More Background in Investor Profile Handout and
the Gallagher Way Book
Arthur J.Gallagher & Co.
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Two Core Businesses
• 2007 Revenues* • 2007 Pretax Earnings*
Brokerage 69%
(i.e. Selling Insurance)
Risk Management 27%
(i.e. Adjusting Claims)
Financial
Services
4%
*See important disclosures regarding Non-GAAP measures on page 3.
Brokerage 74%
Risk Management 26%
Financial
Services
Arthur J.Gallagher & Co.
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Organic Revenue Growth
Organic Revenue Growth* 2004 2005 2006 YTD 2007***
AJG** 7.0% 4.0% 6.0% 5.0%
AJG Rank 1 2 2 1
Peer Group Average 3.2% 1.3% 3.9% 1.4%
Range -0.5% to 7.0% -4.3% to 4.3% 0.0% to 8.0% -3.4% to 5.0%
* See important disclosures regarding Non-GAAP measures on page 3.
** Excludes revenues from the Financial Services Segment.
*** Reflects 12 months of data for AJG, AOC, BRO, and WSH. 9 months of data for HRH and MMC.
Arthur J.Gallagher & Co.
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Current Environment
• Fighting a Headwind
– Soft P&C Market (i.e. too much supply)
• Some predict another 2 to 4 years
– Teetering Economy (i.e. slowing demand)
• Business cutbacks?
• Slowing employee counts?
• Energy and wage inflation?
• U.S. and Even Global Recession?
Arthur J.Gallagher & Co.
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Brokerage Segment – Business Mix
• 2007 Revenues
Retail 80%
Mostly North America
See important disclosures regarding Non-GAAP measures on Page 3.
Wholesale 20%
Mostly U.S. and U.K.
Arthur J.Gallagher & Co.
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• Rapidly Expand - Domestic
– Geographical
– Expertise
• Selectively Expand - International
– Broaden Network Partners
– Targeted Acquisitions
• Profitability – Stay in Our Sweet Spot
– Middle to Upper Commercial Market
Brokerage Segment Strategy
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•Sell
•Hire
•Develop
•Acquire
Domestic Brokerage Expansion
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•Sell
•Hire
•Develop
•Acquire
Domestic Brokerage Expansion
• Brokerage Segment Revenues From Continuing Operations excluding contingent commissions.
• See important disclosures regarding Non-GAAP measures on page 3.
(In millions)
$500
$700
$900
$1,100
$1,300
11% CAGR
$753
$830
$917
$1,004
$1,110
2002 2003 2004 2005 2006 2007
$656
Arthur J.Gallagher & Co.
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•Producers that want to sell
•Producers that want access to our
network, expertise and niches
•Producers that want to be
supported by our infrastructure
•Must fit into our culture!
Domestic Expansion - Hire
Arthur J.Gallagher & Co.
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•Producers that want to sell
•Producers that want access to our
network, expertise and niches
•Producers that want to be
supported by our infrastructure
•Must fit into our culture!
Domestic Expansion - Hire
“I joined Gallagher because I focus on
Colleges and Universities and Gallagher
has the best Higher Education professionals
in the brokerage business”
“Gallagher’s benefits team was
innovative and their supporting technology
was exactly what I needed to grow
my book of business.”
Arthur J.Gallagher & Co.
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•Internships
•Career Launch
•Must fit into our culture!
Domestic Expansion - Develop
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•Internships
•Career Launch
•Must fit into our culture!
Domestic Expansion - Develop
“I was an econ and stats major, but I
thought I could sell too. I did my first
year as an intern after my sophomore
year. I was hooked!”
“Many of Gallagher’s senior execs and
field leaders came through the internship.
I like the idea of having customers but
also some day I can run a branch.”
Arthur J.Gallagher & Co.
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•Over 20,000 retail and wholesale
brokerages and agencies (P&C
and Benefits)
•Most owned by baby boomers
•Small number of consolidators
Domestic Expansion - Acquire
Arthur J.Gallagher & Co.
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•Gallagher has done over 180
deals in the last 20 years
•Typical deal is $2 to $10 million in
revenues
•2 to 5 producers supported by a
professional staff of 10 to 20
•Must fit into our culture!
Domestic Expansion - Acquire
Arthur J.Gallagher & Co.
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•Gallagher has done over 180
deals in the last 20 years
•Typical deal is $2 to $10 million in
revenues
•2 to 5 producers supported by a
professional staff of 10 to 20
•Must fit into our culture!
Domestic Expansion - Acquire
“I had the relationships with many
larger prospects, but I didn’t have the
resources to get their business. Sold
to Gallagher, brought in the experts
and now they are my client!”
“It was simple – my son and I wanted
to be a part of a global player. My son
wanted to be part of a team and I thought
I was going to slow down. Ha, I’m
rejuvenated and I’m having a blast!”
Arthur J.Gallagher & Co.
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Mergers & Acquisitions
• AJG Three Year History
– 2007 was a record year for acquisitions
– Growth led by retail operations
Annualized Revenue Acquired
(In millions)
$23
$10
$38
$16
$83
$16
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Retail Wholesale
2005 2006 2007
Number of Acquisitions Closed
7
3
9
2
18
3
0
2
4
6
8
10
12
14
16
18
20
Retail Wholesale
2005 2006 2007
Arthur J.Gallagher & Co.
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Where We Are – Retail Locations
ID
MT
WA
CA
UT
NV
AZ
NM
TX
OK
KS
NE
MN
WI
MO
AR
LA
TN
IL
WV
PA
NY
NH
ME
MA
CT
NJ
DE
MD
IA
CO
WY
SD
ND
OR
OH
MI
KY
MS AL GA
FL
SC
NC
VA
VT
RI
IN
AK
HI
Arthur J.Gallagher & Co.
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Growth Opportunities
Source for Acquisition Targets: Hales & Co., Inc. and D&B
Larger Cities Where We Are NOT
ID
67
MT
57
WA
248
CA
1,656
UT
115
NV
97
AZ
218
NM
63
TX
971
OK
175
KS
167
NE
127
MN
290
WI
308
MO
287
AR
103
LA
203
TN
305
IL
689 WV
72
PA
883
NY
1,429
NH
112
ME
113
MA
627
CT
316
NJ
706 DE
43
MD
298
IA
194
CO
187
WY
16
SD
37
ND
41 OR
170
OH
576
MI
506
KY
197
MS
105 AL
188
GA
437
FL
985
SC
169
NC
388
VA
275
VT
57
RI
84
IN
307
AK
27 HI
43
DC
25
Arthur J.Gallagher & Co.
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•Substantial London operation
•Attract experienced teams
•Opportunistic with acquisitions
•Network of independent brokers in
over 100 countries
International Expansion
Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co.
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Field
•Full-time training & career
development teams
•Full-time M&A teams
•Full-time niche & product support
teams
Brokerage – Supporting the Growth
Arthur J. Gallagher & Co.
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Back Office
• Centralized corporate systems
– General Ledger, T&E, HR, Real Estate and
Planning
• Created supporting service centers
– However, NOT client facing
• Branch manager now can focus on:
– Sell - Develop - Client service
– Hire - Acquire - Strategy
Brokerage – Supporting the Growth
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“Soft Market Play Book”
• Existing Plays
– Headcount and Wage Controls (non-production
layers)
– Expense Management
– Experienced Teams Must Quickly Deliver
Brokerage – Profitable Growth
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“Soft Market Play Book”
• New Plays
– Leveraging Scale
– Leveraging Technology
– Centralizing and Shifting Work to Lower Cost
Labor Locations
Net Effect - Headcount reduction through
attrition
Brokerage – Profitable Growth
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Brokerage Segment – EBITDA Growth*
$125
$224
$100
$140
$180
$220
$260
2002 2007
(In millions)
12% CAGR
* See important disclosures regarding Non-GAAP measures on page 3.
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• Domestic & International
• Trend Towards Unbundling
• Network vs. Dedicated Units
• Profitability
Risk Management Segment Strategy
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Risk Mgmt Segment – Revenues
From Continuing Operations*
* See important disclosures regarding Non-GAAP measures on page 3.
(In millions)
$100
$200
$300
$400
$500 12% CAGR
$292
$346
$371
$401
$444
2002 2003 2004 2005 2006 2007
$250
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• Revenue growth is all organic
• Targeting Fortune 1000 but standard
platform enables profitable service to much
smaller accounts as well
• Differentiate through client intimacy,
commitment to quality and technology
• International presence largely public entity
but leveraging US expertise to penetrate
commercial clients
Risk Mgmt – Domestic & International
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• A growing company has needs that
can often best be met in alternative
markets
• We can tailor service to clients needs
• Include on-site when appropriate
• Hard markets accelerate the drive to
alternative markets
• Soft market has slowed pace but
opportunities still exist
Risk Mgmt – Unbundling Trend
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• Leverage global technology and
standard processes to provide service
anywhere in the country
• Broaden market opportunity to smaller
clients where we don’t need to be onsite
• Move to regional operations and to
lower cost locations where possible
Risk Mgmt – Network Philosophy
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Risk Mgmt Segment – EBITDA Growth *
$37
$76
$30
$40
$50
$60
$70
$80
2002 2007
(In millions)
15% CAGR
* See important disclosures regarding Non-GAAP measures on page 3.
Arthur J. Gallagher & Co.
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Cash, Cash & Cash
• Both Brokerage & Risk Management
Businesses Generate Substantial
Cash Flow
• Neither Need Substantial Capital or
Cap Ex
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Short-cut To Understand Cash Flows
(See GAAP cash flows in Statement of Cash Flows*)
Brokerage & Risk Management Combined (In millions) 2004 2005 2006 2007
Pretax earnings from continuing operations before non-recurring
items *$ 242 $ 228 $ 229 $ 248
Non-cash expenses
Amortization expense 16 18 21 29
Stock compenation expense 15 16 25 19
Pretax earnings from continuing operations before nonrecurring
items and non-cash expenses * 273 262 275 296
Income taxes @ 20% (AMT rate) 48 46 46 50
After tax earnings from continuing operations before nonrecurring
items and non-cash expenses *$ 225 $ 216 $ 229 $ 246
Depreciation is excluded from this analysis because such approximates annual Cap Ex.
* See important disclosures regarding Non-GAAP measures on page 3.
Arthur J. Gallagher & Co.
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Cash, Cash & Cash
• Pay Dividend
– Long-cycle Industry
– Shareholders need returns while holding
��� Buy Brokers
• Repurchase Shares
• Modest Debt Levels
Arthur J. Gallagher & Co.
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Cash Flows from Operations
• Cash flow from operations in 2007 exceeded $250M
• “Free” cash flows are used for acquisitions and/or stock repurchases
$0
$50
$100
$150
$200
$250
$300
2004 2005 2006 2007
Cash Flow from Operations Summary
(In millions)
Operating Cash Flows Dividends
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Uses of Cash – 2002 through 2007
• Uses of Cash as Reported (In millions)
$0
$50
$100
$150
$200
$250
$300
2002 2003 2004 2005 2006 2007
Cash Paid for Acquisitions (net of cash acquired) Dividends Paid Stock Repurchases
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Capital Structure
• Debt offering in 2007 changed the capital structure
– However, debt still at a conservative level
– Flexibility remains with $450M line of credit capacity
1.5 NA Debt to EBITDA*
36% 4% Debt to Total Capital (Debt/(Debt + Equity))
92 98 Shares Outstanding
$3,557 $3,420 Total liabilities & stockholders’ equity
716 864 Stockholders’ equity
400 35 Total Debt
- 35 Debt - Investment
$ 400 $ - Debt - Corporate
2007 2006 (In millions)
December 31,
* See important disclosures regarding Non-GAAP measures on page 3.
Arthur J. Gallagher & Co.
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Our Goals are Simple
• Here’s how we all win:
– Target Revenue & EBITDA Growth of 15%/yr
– Push Brokerage & Risk Mgmt margins to 20%
– Control share count growth
– Return cash to shareholders
• Result - Stock price growth
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Conclusion
•Questions & Answers
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Website: www.ajg.com
Email: investor_relations@ajg.com
Marsha_Akin@ajg.com
Phone: 630-773-3800
For Additional Information
