[LOGO] Arthur J. Gallagher & Co.
FOR IMMEDIATE RELEASE CONTACT: Marsha J. Akin
Investor Relations
(630) 773-3800
www.ajg.com
ARTHUR J. GALLAGHER & CO. ANNOUNCES
SECOND QUARTER 2003 FINANCIAL RESULTS
ITASCA, IL, July 22, 2003 -- Arthur J. Gallagher & Co. today reported its
financial results for the three- and six-month periods ended June 30, 2003. A
printer-friendly format is available at www.ajg.com.
3 Months Ended June 30
Revenues Net Earnings Earnings Per Share
Segment 3 Mths 03 3 Mths 02 Chg 3 Mths 03 3 Mths 02 3 Mths 03 3 Mths 02
- ------------------------ -------------------------------- ------------------------- --------------------------
($ in millions) ($ in millions)
Brokerage $ 202.8 $ 173.3 17% $ 28.6 $ 20.6 $ 0.31 $ 0.22
Risk Management 78.3 67.7 16% 7.7 6.0 0.08 0.06
Financial Services 17.9 25.8 -31% -0.1 7.9 -- 0.09
-------------------------------- ------------------------- --------------------------
Total Company $ 299.0 $ 266.8 12% $ 36.2 $ 34.5 $ 0.39 $ 0.37
================================ ========================= ==========================
6 Months Ended June 30
Revenues Net Earnings Earnings Per Share
Segment 3 Mths 03 3 Mths 02 Chg 3 Mths 03 3 Mths 02 3 Mths 03 3 Mths 02
- ------------------------ -------------------------------- ------------------------- --------------------------
($ in millions) ($ in millions)
Brokerage $ 390.8 $ 328.0 19% $ 48.7 $ 38.3 $ 0.52 $ 0.42
Risk Management 155.0 137.7 13% 15.8 14.0 0.17 0.15
Financial Services 7.5 40.1 -81% -16.4 15.9 -0.17 0.17
-------------------------------- ------------------------- --------------------------
Total Company $ 553.3 $ 505.8 9% $ 48.1 $ 68.2 $ 0.52 $ 0.74
================================ ========================= ==========================
Brokerage Segment Highlights - Second Quarter 2003
o Record second quarter net earnings per share - up 41% over second quarter
2002.
o 32% increase in pretax net income.
o Improved compensation ratio - down to 55% from 58% in first quarter 2003.
o The company's 2001 and 2002 organic hiring strategy is delivering
better-than-expected results.
o Solid 17% revenue growth, of which 14% is organic.
Risk Management Segment Highlights - Second Quarter 2003
o Outstanding second quarter revenue growth of 16% - all organic.
o Claim counts have returned to pre-9/11 levels.
o Continued customer retention levels in excess of 98%.
Financial Services Segment Highlights - Second Quarter 2003
o New synthetic fuel project up and running.
o Prior year second quarter included net non-recurring investment gains of
$9.3 million after tax, or $0.10 per share.
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"We are extremely pleased with the pretax margin improvements seen in our
Brokerage segment during the second quarter - up 2% over second quarter 2002 and
up 4% over first quarter 2003," said President and Chief Executive Officer, J.
Patrick Gallagher, Jr. "These margin improvements contributed to our Brokerage
segment's 32% growth in pretax earnings in the second quarter and 19% growth in
the six months ended June 30, 2003. Our entire production force, including new
hires and merger partners, are all performing well. Our clients are pleased that
our niche strategy and alternative market expertise continue to provide them
with great value during this challenging pricing environment."
"Our Risk Management segment continues to improve its growth rate. Claim counts
have returned to pre-9/11 levels largely due to strong new business production,
and client retention levels continue to exceed 98%," added Mr. Gallagher.
The company will host a webcast conference call on Wednesday, July 23, 2003 at
9:00am EDT to further discuss these quarterly results. To listen, please go to
www.ajg.com.
* * * * *
Arthur J. Gallagher & Co., 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 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. Additional information
about Gallagher may be found at www.ajg.com.
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 and changes in securities
and fixed income markets as well as developments in the area of tax legislation.
Please refer to our filing 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 (1)
(Unaudited - in millions except per share data)
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
BROKERAGE SEGMENT June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
-------------- -------------- -------------- --------------
Commissions $ 180.3 $ 156.7 $ 348.9 $ 299.8
Fees 31.1 24.4 58.8 44.5
Investment income - fiduciary 1.7 2.5 3.5 4.2
------- ------- ------- -------
Gross revenues 213.1 183.6 411.2 348.5
Less brokerage (10.3) (10.3) (20.4) (20.5)
------- ------- ------- -------
Revenues 202.8 173.3 390.8 328.0
------- ------- ------- -------
Compensation 118.2 102.6 232.9 196.6
Operating 41.2 36.8 82.6 68.0
Depreciation 3.0 2.7 6.0 5.3
Amortization 2.2 2.2 4.3 3.4
------- ------- ------- -------
Expenses 164.6 144.3 325.8 273.3
------- ------- ------- -------
Earnings before income taxes 38.2 29.0 65.0 54.7
Provision for income taxes 9.6 8.4 16.3 16.4
------- ------- ------- -------
Net earnings $ 28.6 $ 20.6 $ 48.7 $ 38.3
======= ======= ======= =======
Earnings per share $ 0.31 $ 0.22 $ 0.52 $ 0.42
Cash earnings per share (2) $ 0.35 $ 0.26 $ 0.61 $ 0.49
Growth - revenues 17% 30% 19% 25%
Organic growth in commissions and fees (3) 14% 16% 14% 15%
Growth - pretax earnings 32% 11% 19% 11%
Compensation expense ratio 55% 56% 57% 56%
Operating expense ratio 19% 20% 20% 20%
Effective tax rate 25% 29% 25% 30%
Pretax profit margin 18% 16% 16% 16%
RISK MANAGEMENT SEGMENT
Fees $ 78.0 $ 67.5 $ 154.5 $ 137.3
Investment income - fiduciary 0.3 0.2 0.5 0.4
------- ------- ------- -------
Revenues 78.3 67.7 155.0 137.7
------- ------- ------- -------
Compensation 43.4 38.5 85.7 76.3
Operating 22.3 18.5 43.7 37.1
Depreciation 2.4 2.3 4.7 4.3
Amortization -- -- -- --
------- ------- ------- -------
Expenses 68.1 59.3 134.1 117.7
------- ------- ------- -------
Earnings before income taxes 10.2 8.4 20.9 20.0
Provision for income taxes 2.5 2.4 5.1 6.0
------- ------- ------- -------
Net earnings $ 7.7 $ 6.0 $ 15.8 $ 14.0
======= ======= ======= =======
Earnings per share $ 0.08 $ 0.06 $ 0.17 $ 0.15
Cash earnings per share (2) $ 0.10 $ 0.08 $ 0.21 $ 0.18
Growth - revenues 16% 4% 13% 5%
Organic growth in fees (3) 16% 4% 13% 5%
Growth - pretax earnings 21% 9% 5% 18%
Compensation expense ratio 56% 57% 55% 56%
Operating expense ratio 29% 27% 28% 27%
Effective tax rate 25% 29% 25% 30%
Pretax profit margin 13% 12% 14% 15%
FINANCIAL SERVICES SEGMENT
Investment income $ 17.9 $ 12.7 $ 33.2 $ 28.4
Investment gains (losses) -- 13.1 (25.7) 11.7
------- ------- ------- -------
Revenues 17.9 25.8 7.5 40.1
------- ------- ------- -------
Investment expense 14.2 10.9 21.5 10.6
Interest 2.0 2.6 4.1 4.8
Depreciation 1.8 1.1 3.7 2.0
------- ------- ------- -------
Expenses 18.0 14.6 29.3 17.4
------- ------- ------- -------
Earnings (loss) before income taxes (0.1) 11.2 (21.8) 22.7
Provision (benefit) for income taxes -- 3.3 (5.4) 6.8
------- ------- ------- -------
Net earnings (loss) $ (0.1) $ 7.9 $ (16.4) $ 15.9
======= ======= ======= =======
Earnings (loss) per share $ -- $ 0.09 $ (0.17) $ 0.17
Cash earnings per share (2) $ 0.01 $ -- $ 0.06 $ 0.10
See notes to the second quarter 2003 earnings release on page 5 of 5.
(3 of 5)
Arthur J. Gallagher & Co.
Consolidated Statement of Earnings
(Unaudited - in millions except per share data)
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
TOTAL COMPANY June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
-------------- -------------- -------------- --------------
Commissions $ 180.3 $ 156.7 $ 348.9 $ 299.8
Fees 109.1 91.9 213.3 181.8
Investment income - fiduciary 2.0 2.7 4.0 4.6
Investment income - all other 17.9 12.7 33.2 28.4
Investment gains (losses) -- 13.1 (25.7) 11.7
---------- ---------- ---------- ----------
Gross revenues 309.3 277.1 573.7 526.3
Less brokerage (10.3) (10.3) (20.4) (20.5)
---------- ---------- ---------- ----------
Revenues 299.0 266.8 553.3 505.8
---------- ---------- ---------- ----------
Compensation 161.6 141.1 318.6 272.9
Operating 63.5 55.3 126.3 105.1
Investment 14.2 10.9 21.5 10.6
Interest 2.0 2.6 4.1 4.8
Depreciation 7.2 6.1 14.4 11.6
Amortization 2.2 2.2 4.3 3.4
---------- ---------- ---------- ----------
Expenses 250.7 218.2 489.2 408.4
---------- ---------- ---------- ----------
Earnings before income taxes 48.3 48.6 64.1 97.4
Provision for income taxes 12.1 14.1 16.0 29.2
---------- ---------- ---------- ----------
Net earnings $ 36.2 $ 34.5 $ 48.1 $ 68.2
========== ========== ========== ==========
Earnings per share $ 0.39 $ 0.37 $ 0.52 $ 0.74
========== ========== ========== ==========
Cash earnings per share (2) $ 0.46 $ 0.34 $ 0.88 $ 0.77
========== ========== ========== ==========
Cash dividends per share $ 0.18 $ 0.15 $ 0.36 $ 0.30
========== ========== ========== ==========
Other Information
Weighted shares (000s) 93,651 92,366 92,983 91,482
Annualized return on beginning equity 18% 37%
Number of acquisitions closed 1 5 5 7
Workforce (includes acquisitions) 7,077 6,886
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
June 30, 2003 December 31, 2002
------------- -----------------
Cash and cash equivalents $ 149.0 $ 152.6
Restricted cash 285.0 256.3
Trading securities 54.3 58.2
Investments - current 38.1 37.9
Premiums and fees receivable 1,318.1 1,183.7
Other current assets 107.5 84.9
--------- ---------
Total current assets 1,952.0 1,773.6
Investments - long-term 147.7 168.4
Fixed assets related to consolidated investments - net 184.9 185.4
Other fixed assets - net 63.7 65.6
Deferred income taxes 102.3 102.4
Other noncurrent assets 38.2 33.1
Goodwill - net 100.6 84.2
Amortizable intangible assets - net 54.9 50.9
--------- ---------
Total assets $ 2,644.3 $ 2,463.6
========= =========
Premiums payable to insurance and reinsurance companies $ 1,647.6 $ 1,488.2
Accrued compensation and other accrued liabilities 154.4 165.7
Unearned fees 27.6 19.4
Income taxes payable 0.5 11.0
Other current liabilities 17.2 17.5
Corporate related borrowings 9.0 25.0
Consolidated investments borrowings - current 25.6 22.8
--------- ---------
Total current liabilities 1,881.9 1,749.6
--------- ---------
Consolidated investments related borrowings - long-term 126.7 128.3
Other noncurrent liabilities 63.2 57.5
Stockholders' equity:
Common stock - issued and outstanding 90.6 88.5
Capital in excess of par value 128.5 92.7
Retained earnings 376.6 361.0
Unearned deferred compensation (10.4) (6.5)
Unearned restricted stock (12.8) (7.5)
--------- ---------
Total stockholders' equity 572.5 528.2
--------- ---------
Total liabilities and stockholders' equity $ 2,644.3 $ 2,463.6
========= =========
Other Information
Tangible net worth (4) $ 417.0 $ 393.1
Book value per share $ 6.32 $ 5.97
Tangible book value per share (5) $ 4.60 $ 4.44
See notes to the second quarter 2003 earnings release on page 5 of 5.
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Arthur J. Gallagher & Co.
Unconsolidated Investment Summary
(Unaudited - in millions)
June 30, 2003
------------------------
June 30, 2003 December 31, 2002 LOCs &
------------------ ------------------ Financial Funding
Current Long-term Current Long-term Guarantees Commitments
------- --------- ------- --------- ---------- -----------
Trading Securities:
Managed directly $ 15.3 $ -- $ 17.7 $ -- $ -- $ --
Managed by third parties 39.0 -- 40.5 -- -- 6.2
------ ------ ------ ------ ------ ------
Total trading securities $ 54.3 $ -- $ 58.2 $ -- $ -- $ 6.2
====== ====== ====== ====== ====== ======
Unconsolidated Investments:
Asset Alliance Corporation (AAC) related investments:
Direct and indirect investments in AAC $ 0.8 $ 47.6 $ -- $ 46.7 $ -- $ --
Investment guaranteed by AAC -- 9.2 -- 9.1 -- --
Low income housing investments:
Bridge loans 18.4 -- 20.3 -- -- --
Partnership interests -- 5.5 -- 8.1 -- --
Developer -- 7.6 -- 7.6 -- --
Shopping centers and other
commercial real estate -- 6.6 -- 7.3 4.5 --
Alternative energy investments:
Owned partnership interests 1.2 30.0 0.9 15.2 5.9 3.2
Partnership interest installment sales 17.7 21.4 15.0 24.3 -- --
Bermuda insurance investments -- 20.4 -- 20.4 3.2 --
Venture capital investments:
Carrying value -- 3.9 1.7 30.0 -- --
Allowances for LOCs and commitments -- (4.5) -- (0.3) -- --
------ ------ ------ ------ ------ ------
Total unconsolidated investments $ 38.1 $147.7 $ 37.9 $168.4 $ 13.6 $ 3.2
====== ====== ====== ====== ====== ======
Notes to Second Quarter 2003 Earnings Release and Non-GAAP Financial Measures
- -----------------------------------------------------------------------------
(1) The information presented above has been reclassified to reflect the
current year presentation. In prior years, the Company has presented a
"Corporate" segment. For purposes of this and future presentations, the
Corporate segment has been allocated to each of the three operating
segments.
(2) Represents net earnings before the after-tax effect of depreciation,
amortization and investment gains (losses) divided by the weighted average
number of diluted shares outstanding during the period.
(3) Represents the percentage increase in revenues before the impact of the
2003 and 2002 acquisitions accounted for as purchases.
(4) Represents total stockholders' equity less goodwill - net and amortizable
intangible assets - net.
(5) Represents tangible net worth divided by the common shares outstanding at
the end of the period.
(5 of 5)
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