Exhibit 99
[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 RECORD
THIRD QUARTER 2003 FINANCIAL RESULTS
ITASCA, IL, October 21, 2003-- Arthur J. Gallagher & Co. today reported its
financial results for the three- and nine-month periods ended September 30,
2003. A printer-friendly format is available at www.ajg.com.
3 Months Ended September 30 Diluted
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 $ 222.3 $ 199.1 12% $ 41.7 $ 33.2 $ 0.45 $ 0.36
Risk Management 83.0 71.6 16% 8.6 4.6 0.09 0.05
Financial Services 18.5 -14.2 - -1.4 -14.5 -0.02 -0.16
Adoption of FIN 46 21.2 - - - - - -
------------------------------ ---------------------- -----------------------
Total Company $ 345.0 $ 256.5 35% $ 48.9 $ 23.3 $ 0.52 $ 0.25
============================== ====================== =======================
9 Months Ended September 30 Diluted
Revenues Net Earnings Earnings Per Share
Segment 9 Mths 03 9 Mths 02 Chg 9 Mths 03 9 Mths 02 9 Mths 03 9 Mths 02
- ------------------------ ------------------------------ ---------------------- -----------------------
($ in millions) ($ in millions)
Brokerage $ 613.1 $ 527.1 16% $ 90.4 $ 71.5 $ 0.97 $ 0.78
Risk Management 238.0 209.3 14% 24.4 18.6 0.26 0.20
Financial Services 26.0 25.9 - -17.8 1.4 -0.19 0.02
Adoption of FIN 46 21.2 - - - - - -
------------------------------ ---------------------- -----------------------
Total Company $ 898.3 $ 762.3 18% $ 97.0 $ 91.5 $ 1.04 $ 1.00
============================== ====================== =======================
Brokerage Segment Highlights - Third Quarter 2003
o Record third quarter net earnings per share - up 25% over prior
year.
o Pretax margin up to 24%.
o Improved compensation ratio.
o 2001 and 2002 organic hiring strategy delivering
better-than-expected results.
o Solid 12% revenue growth for the quarter, of which 9% is organic.
And 16% growth YTD, of which 12% is organic.
Risk Management Segment Highlights - Third Quarter 2003
o Third quarter pretax earnings up 74% over prior year and up 22% YTD.
o Claim counts continue to grow - now exceeding pre 9/11 levels.
o Pretax margin of 14% - up 5% over third quarter 2002.
o Excellent 16% revenue growth in the quarter and 14% YTD - all of
which is organic.
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Financial Services Segment Highlights - Third Quarter 2003
o We continue to reduce our investment holdings.
o Synthetic fuel production for the quarter was ahead of prior
quarters, resulting in a 24% effective tax rate versus 30% in 2002.
o Prior year third quarter included non-recurring net investment
losses of $20.2 million after tax, or $0.22 per diluted share.
o Adoption of FIN 46 - In the third quarter of 2003, the company early
adopted a new accounting pronouncement, FASB Interpretation No. 46
(FIN 46) - "Consolidation of Variable Interest Entities," which
required the company to consolidate one partially-owned investment
partnership not previously consolidated because it is not controlled
by the company through a majority voting interest. The adoption of
FIN 46 did not result in any additional debt on the company's
balance sheet nor did it have any impact on its consolidated net
earnings or stockholders' equity. The effect of consolidating this
one investment partnership on the company's consolidated statement
of earnings and balance sheet is shown on pages 3 and 6,
respectively, of this earnings release.
"We are extremely pleased with the quarter-to-quarter improvement in our
Brokerage segment's pretax margin - up 6% over second quarter 2003 and up 10%
over first quarter 2003," said President and Chief Executive Officer, J. Patrick
Gallagher, Jr. "A solid quarter of 12% revenue growth on top of third quarter
2002's growth of 36% is an outstanding achievement by our Brokerage operations.
In the first 9 months of 2003, we grew revenues by 16% over the same period in
2002. When compared to the first 9 months of 2001, our Brokerage revenues have
grown $205.2 million, or 50%. Organic growth continues to be strong at 9% for
the quarter and 12% for the first 9 months of 2003. We applaud the success of
our employees, especially the new hires who have contributed greatly to this
growth."
"Our Risk Management segment has improved its growth rate and margins despite
the post-9/11 economic slow-down. This confirms Gallagher Bassett's continued
recognition as the best and most stable claims management services provider in
the business. Gallagher Bassett's clients receive great value from our efficient
operating platform and from the service provided by its rock-solid adjustors and
seasoned management team," added Mr. Gallagher.
"AJG is stronger than ever," said Mr. Gallagher. "We have a solid balance sheet
with over $400 million in tangible net worth. And, we distribute a significant
portion of our earnings back to our shareholders every year. Since our IPO,
we've increased our cash dividend, on average, 19% per year, and so far this
year we've used $51 million to repurchase 1.9 million of our shares."
The company will host a webcast conference call on Wednesday, October 22, 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.
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 9 Months Ended 9 Months Ended
BROKERAGE SEGMENT Sep 30, 2003 Sep 30, 2002 Sep 30, 2003 Sep 30, 2002
-------------- -------------- -------------- --------------
Commissions $ 194.4 $ 178.1 $ 543.3 $ 477.9
Fees 36.3 30.0 95.1 74.5
Investment income - fiduciary 1.7 2.7 5.2 6.9
--------- --------- --------- ---------
Gross revenues 232.4 210.8 643.6 559.3
Less brokerage (10.1) (11.7) (30.5) (32.2)
--------- --------- --------- ---------
Revenues 222.3 199.1 613.1 527.1
--------- --------- --------- ---------
Compensation 120.6 110.8 353.5 307.4
Operating 41.3 36.1 123.9 104.1
Depreciation 3.0 2.7 9.0 8.0
Amortization 2.5 2.0 6.8 5.4
--------- --------- --------- ---------
Expenses 167.4 151.6 493.2 424.9
--------- --------- --------- ---------
Earnings before income taxes 54.9 47.5 119.9 102.2
Provision for income taxes 13.2 14.3 29.5 30.7
--------- --------- --------- ---------
Net earnings $ 41.7 $ 33.2 $ 90.4 $ 71.5
========= ========= ========= =========
Diluted net earnings per share $ 0.45 $ 0.36 $ 0.97 $ 0.78
Cash earnings per share (2) $ 0.49 $ 0.40 $ 1.10 $ 0.88
Growth - revenues 12% 36% 16% 29%
Organic growth in commissions and fees (3) 9% 20% 12% 17%
Growth - pretax earnings 16% 37% 17% 22%
Compensation expense ratio 52% 53% 55% 55%
Operating expense ratio 18% 17% 19% 19%
Effective tax rate 24% 30% 25% 30%
Pretax profit margin 24% 23% 19% 18%
RISK MANAGEMENT SEGMENT
Fees $ 82.8 $ 71.4 $ 237.3 $ 208.7
Investment income - fiduciary 0.2 0.2 0.7 0.6
--------- --------- --------- ---------
Revenues 83.0 71.6 238.0 209.3
--------- --------- --------- ---------
Compensation 46.3 41.8 132.0 118.1
Operating 23.0 20.8 66.7 57.9
Depreciation 2.4 2.5 7.1 6.8
Amortization -- -- -- --
--------- --------- --------- ---------
Expenses 71.7 65.1 205.8 182.8
--------- --------- --------- ---------
Earnings before income taxes 11.3 6.5 32.2 26.5
Provision for income taxes 2.7 1.9 7.8 7.9
--------- --------- --------- ---------
Net earnings $ 8.6 $ 4.6 $ 24.4 $ 18.6
========= ========= ========= =========
Diluted net earnings per share $ 0.09 $ 0.05 $ 0.26 $ 0.20
Cash earnings per share (2) $ 0.11 $ 0.07 $ 0.32 $ 0.25
Growth - revenues 16% 6% 14% 5%
Organic growth in fees (3) 16% 6% 14% 5%
Growth - pretax earnings 74% -30% 22% 1%
Compensation expense ratio 56% 59% 56% 57%
Operating expense ratio 28% 29% 28% 28%
Effective tax rate 24% 30% 25% 30%
Pretax profit margin 14% 9% 14% 13%
FINANCIAL SERVICES SEGMENT
Investment income $ 16.9 $ 14.7 $ 50.1 $ 43.1
Impact of FIN 46 on investment income 21.2 -- 21.2 --
Investment gains (losses) 1.6 (28.9) (24.1) (17.2)
--------- --------- --------- ---------
Revenues 39.7 (14.2) 47.2 25.9
--------- --------- --------- ---------
Investment expense 16.6 2.4 38.1 13.0
Impact of FIN 46 on investment expense 20.0 -- 20.0 --
Interest 2.0 2.4 6.1 7.2
Depreciation 1.7 1.7 5.4 3.7
Impact of FIN 46 on depreciation expense 1.2 -- 1.2 --
--------- --------- --------- ---------
Expenses 41.5 6.5 70.8 23.9
--------- --------- --------- ---------
Earnings (loss) before income taxes (1.8) (20.7) (23.6) 2.0
Provision (benefit) for income taxes (0.4) (6.2) (5.8) 0.6
--------- --------- --------- ---------
Net earnings (loss) $ (1.4) $ (14.5) $ (17.8) $ 1.4
========= ========= ========= =========
Diluted earnings (loss) per share $ (0.02) $ (0.16) $ (0.19) $ 0.02
Cash earnings per share (2) $ -- $ 0.07 $ 0.06 $ 0.18
See notes to the third quarter 2003 earnings release on page 5 of 6.
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Arthur J. Gallagher & Co.
Consolidated Statement of Earnings
(Unaudited - in millions except per share data)
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
TOTAL COMPANY Sep 30, 2003 Sep 30, 2002 Sep 30, 2003 Sep 30, 2002
-------------- -------------- -------------- --------------
Commissions $ 194.4 $ 178.1 $ 543.3 $ 477.9
Fees 119.1 101.4 332.4 283.2
Investment income - fiduciary 1.9 2.9 5.9 7.5
Investment income - all other 38.1 14.7 71.3 43.1
Investment gains (losses) 1.6 (28.9) (24.1) (17.2)
--------- --------- --------- ---------
Gross revenues 355.1 268.2 928.8 794.5
Less brokerage (10.1) (11.7) (30.5) (32.2)
--------- --------- --------- ---------
Revenues 345.0 256.5 898.3 762.3
--------- --------- --------- ---------
Compensation 166.9 152.6 485.5 425.5
Operating 64.3 56.9 190.6 162.0
Investment 36.6 2.4 58.1 13.0
Interest 2.0 2.4 6.1 7.2
Depreciation 8.3 6.9 22.7 18.5
Amortization 2.5 2.0 6.8 5.4
--------- --------- --------- ---------
Expenses 280.6 223.2 769.8 631.6
--------- --------- --------- ---------
Earnings before income taxes 64.4 33.3 128.5 130.7
Provision for income taxes 15.5 10.0 31.5 39.2
--------- --------- --------- ---------
Net earnings $ 48.9 $ 23.3 $ 97.0 $ 91.5
========= ========= ========= =========
Diluted net earnings per share $ 0.52 $ 0.25 $ 1.04 $ 1.00
========= ========= ========= =========
Cash earnings per share (2) $ 0.60 $ 0.54 $ 1.47 $ 1.31
========= ========= ========= =========
Dividends declared per share $ 0.18 $ 0.15 $ 0.54 $ 0.45
========= ========= ========= =========
Other Information
Diluted weighted average shares
outstanding (000s) 93,716 92,051 93,213 91,721
Common shares repurchased (000s) 1,140 477 1,894 477
Annualized return on beginning tangible
net worth (4) 33% 40%
Number of acquisitions closed 2 1 7 8
Workforce (includes acquisitions) 7,120 7,030
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Sep 30, 2003 Dec 31, 2002
------------ ------------
Cash and cash equivalents $ 178.2 $ 152.6
Restricted cash 400.5 256.3
Trading securities 49.7 58.2
Investments - current 32.6 37.9
Premiums and fees receivable 1,202.2 1,183.7
Other current assets 112.4 84.9
----------- -----------
Total current assets 1,975.6 1,773.6
Investments - long-term 135.4 168.4
Fixed assets related to consolidated investments - net 204.5 185.4
Other fixed assets - net 61.2 65.6
Deferred income taxes 110.8 102.4
Other noncurrent assets 39.6 33.1
Goodwill - net 112.8 84.2
Amortizable intangible assets - net 55.2 50.9
----------- -----------
Total assets $ 2,695.1 $ 2,463.6
=========== ===========
Premiums payable to insurance and reinsurance companies $ 1,641.3 $ 1,488.2
Accrued compensation and other accrued liabilities 195.0 165.7
Unearned fees 29.6 19.4
Income taxes payable 0.3 11.0
Other current liabilities 16.4 17.5
Corporate related borrowings -- 25.0
Consolidated investments borrowings - current 25.2 22.8
----------- -----------
Total current liabilities 1,907.8 1,749.6
----------- -----------
Consolidated investments related borrowings - long-term 125.9 128.3
Other noncurrent liabilities 70.8 57.5
Stockholders' equity:
Common stock - issued and outstanding 90.1 88.5
Capital in excess of par value 112.1 92.7
Retained earnings 409.3 361.0
Unearned deferred compensation (10.0) (6.5)
Unearned restricted stock (10.9) (7.5)
----------- -----------
Total stockholders' equity 590.6 528.2
----------- -----------
Total liabilities and stockholders' equity $ 2,695.1 $ 2,463.6
=========== ===========
Other Information
Tangible net worth (5) $ 422.6 $ 393.1
Book value per share $ 6.55 $ 5.97
Tangible book value per share (6) $ 4.69 $ 4.44
See notes to the third quarter 2003 earnings release on page 5 of 6.
(4 of 6)
Arthur J. Gallagher & Co.
Unconsolidated Investment Summary
(Unaudited - in millions except per share data)
September 30, 2003
-----------------------
September 30, 2003 December 31, 2002 LOCs &
---------------------- ---------------------- Financial Funding
Current Long-term Current Long-term Guarantees Commitments
------- --------- ------- --------- ---------- -----------
Trading Securities:
Managed directly $ 13.9 $ -- $ 17.7 $ -- $ -- $ --
Managed by third parties 35.8 -- 40.5 -- -- 6.2
------- -------- ------- -------- ------- ------
Total trading securities $ 49.7 $ -- $ 58.2 $ -- $ -- $ 6.2
======= ======== ======= ======== ======= ======
Unconsolidated Investments:
Asset Alliance Corporation (AAC)
related investments:
Direct and indirect investments in AAC $ 0.8 $ 47.9 $ -- $ 46.7 $ -- $ --
Investment guaranteed by AAC -- 9.1 -- 9.1 -- --
Low income housing (LIH) developments:
Bridge loans 14.0 -- 20.3 -- -- --
Partnership interests -- 3.2 -- 8.1 -- --
LIH Developer -- 7.6 -- 7.6 -- --
Shopping centers and other
commercial real estate -- 6.2 -- 7.3 4.1 --
Alternative energy investments:
Owned partnership interests 1.2 31.6 0.9 15.2 5.9 5.1
Partnership interest installment sales 16.6 8.7 15.0 24.3 -- --
Bermuda insurance investments -- 20.4 -- 20.4 3.2 --
Venture capital investments:
Carrying value -- 5.2 1.7 30.0 -- --
Allowances for LOCs and commitments -- (4.5) -- (0.3) -- --
------- -------- ------- -------- ------- ------
Total unconsolidated investments $ 32.6 $ 135.4 $ 37.9 $ 168.4 $ 13.2 $ 5.1
======= ======== ======= ======== ======= ======
Notes to Third 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 presented a
"Corporate" segment. For purposes of this and future presentations, the
Corporate segment has been allocated to the remaining three operating
segments.
(2) Represents net earnings before the after-tax effect of investment gains
(losses), depreciation and amortization divided by the weighted average
number of diluted shares outstanding during the period. The company's
consolidated cash earnings for the three- and nine-month periods ended
September 30, 2003 we computed as follows:
3 Months Ended Sep 30, 9 Months Ended Sep 30,
---------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings $ 48.9 $ 23.3 $ 97.0 $ 91.5
Investment (gains) losses (1.6) 28.9 24.1 17.2
Depreciation 8.3 6.9 22.7 18.5
Amortization 2.5 2.0 6.8 5.4
Tax effect (2.2) (11.3) (13.2) (12.3)
------- ------- ------- -------
Cash earnings $ 55.9 $ 49.8 $ 137.4 $ 120.3
======= ======= ======= =======
Cash earnings per share $ 0.60 $ 0.54 $ 1.47 $ 1.31
======= ======= ======= =======
Weighted shares (000s) 93,716 92,051 93,213 91,721
======= ======= ======= =======
(3) Represents the percentage increase in revenues before the impact of the
2003 and 2002 acquisitions accounted for as purchases.
(4) Represents annualized net earnings divided by total stockholders' equity
less net goodwill and net amortizable intangible assets.
(5) Represents total stockholders' equity less net goodwill and net
amortizable intangible assets.
(6) Represents tangible net worth divided by the common shares outstanding at
the end of the period.
(5 of 6)
Arthur J. Gallagher & Co.
Consolidated Investment Summary
(Unaudited - in millions)
September 30, 2003
------------------------
LOCs &
September 30, December 31, Financial Funding
2003 2002 Guarantees Commitments
---- ---- ---------- -----------
Home office land and building:
Fixed assets $ 100.7 $ 100.4 $ -- $ --
Accumulated depreciation (12.5) (10.6) -- --
Non-recourse borrowings - current (0.8) (0.7) -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent (74.2) (74.8) -- --
Recourse borrowings - noncurrent (3.0) (3.0) -- --
Net other consolidated assets and liabilities 2.1 0.7 -- --
-------- -------- ------- ------
Net investment 12.3 12.0 -- --
-------- -------- ------- ------
Florida residential development
land and improvements:
Fixed assets 54.0 50.7 -- --
Accumulated depreciation -- -- -- --
Non-recourse borrowings - current (2.8) (2.9) -- --
Recourse borrowings - current (19.3) (17.0) -- --
Non-recourse borrowings - noncurrent (3.2) (3.3) -- --
Recourse borrowings - noncurrent (12.4) (12.4) -- --
Net other consolidated assets and liabilities (4.8) (2.0) 12.6 1.5
-------- -------- ------- ------
Net investment 11.5 13.1 12.6 1.5
-------- -------- ------- ------
Airplane leasing company:
Fixed assets 51.8 51.8 -- --
Accumulated depreciation (9.6) (6.9) -- --
Non-recourse borrowings - current (2.3) (2.2) -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent (33.1) (34.8) -- --
Recourse borrowings - noncurrent -- -- -- --
Net other consolidated assets and liabilities (2.0) 0.2 -- --
-------- -------- ------- ------
Net investment 4.8 8.1 -- --
-------- -------- ------- ------
Syn/Coal partnership consolidated per FIN 46:
Cash and receivables 12.1 -- -- --
Fixed assets 33.9 -- -- --
Accumulated depreciation (13.8) -- -- --
Non-recourse borrowings - current -- -- -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent -- -- -- --
Recourse borrowings - noncurrent -- -- -- --
Net other consolidated assets and liabilities (20.4) -- -- --
-------- -------- ------- ------
Net investment 11.8 -- -- --
-------- -------- ------- ------
Total consolidated investments:
Cash and receivables 12.1 -- -- --
Fixed assets 240.4 202.9 -- --
Accumulated depreciation (35.9) (17.5) -- --
Non-recourse borrowings - current (5.9) (5.8) -- --
Recourse borrowings - current (19.3) (17.0) -- --
Non-recourse borrowings - noncurrent (110.5) (112.9) -- --
Recourse borrowings - noncurrent (15.4) (15.4) -- --
Net other consolidated assets and liabilities (25.1) (1.1) 12.6 1.5
-------- -------- ------- ------
Net investment $ 40.4 $ 33.2 $ 12.6 $ 1.5
======== ======== ======= ======
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