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
FOURTH QUARTER AND FULL YEAR 2003 FINANCIAL RESULTS
ITASCA, IL, January 27, 2004-- Arthur J. Gallagher & Co. today reported its
financial results for the fourth quarter and full year 2003. A printer-friendly
format is available at www.ajg.com.
Fourth Quarter Ended December 31
Diluted
Revenues Net Earnings Earnings Per Share
Segment 4th Q 03 4th Q 02 Chg 4th Q 03 4th Q 02 4th Q 03 4th Q 02
- -------------------- --------------------------------- ------------------------- ------------------------
($ in millions) ($ in millions)
Brokerage $ 235.4 $ 213.1 10% $ 39.8 $ 32.6 $ 0.43 $ 0.36
Risk Management 83.7 71.9 16% 8.1 3.6 0.09 0.04
Financial Services 21.2 13.0 63% 1.3 2.2 0.01 0.02
Impact of FIN 46 25.2 -- -- -- -- -- --
-------------------------------- ------------------------ -----------------------
Total Company $ 365.5 $ 298.0 23% $ 49.2 $ 38.4 $ 0.53 $ 0.42
================================ ======================== =======================
Year Ended December 31
Diluted
Revenues Net Earnings Earnings Per Share
Segment Year 2003 Year 2002 Chg Year 2003 Year 2002 Year 2003 Year 2002
- -------------------- --------------------------------- ------------------------- ------------------------
($ in millions) ($ in millions)
Brokerage $ 848.5 $ 740.2 15% $ 130.2 $ 104.1 $ 1.40 $ 1.13
Risk Management 321.7 281.2 14% 32.5 22.2 0.35 0.24
Financial Services 47.2 38.9 21% -16.5 3.6 -0.18 0.04
Impact of FIN 46 46.4 -- -- -- -- -- --
-------------------------------- ------------------------ -----------------------
Total Company $1,263.8 $1,060.3 19% $ 146.2 $ 129.9 $ 1.57 $ 1.41
================================ ======================== =======================
Brokerage Segment Highlights - 2003
o Record full year and fourth quarter net earnings per share - up 24%
and 19%, respectively, over prior year.
o Solid 15% revenue growth for the year, of which 10% is organic, and
10% growth in fourth quarter, of which 6% is organic.
o Pretax margin at 19% and 21% for the full year and fourth quarter,
respectively.
o Improved fourth quarter compensation ratio to 52% despite margin
drag of 1% related to expensing stock-based compensation (see below)
and the adverse impact of foreign currency translation.
Risk Management Segment Highlights - 2003
o Record full year and fourth quarter net earnings per share - up 46%
and 125%, respectively, over prior year.
o Excellent revenue growth of 14% and 16% for the year and fourth
quarter, respectively, all of which is organic.
o Increasing claim counts reflect excellent new business sales and
recovering economic conditions.
o Pretax margin of 13% for the year and fourth quarter - up 2% and 6%
respectively, over prior year. o Client retention remains strong and
client use of Gallagher's proprietary Risx-Facs system now exceeds
11 million page views per month.
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Financial Services Segment Highlights - 2003
o Synthetic fuel production for the year and fourth quarter was ahead
of prior periods, resulting in a 24% effective tax rate in 2003
versus 30% in 2002.
o Gallagher has an interest in a synthetic coal partnership that is
under examination by the IRS for the year 2000. The IRS has advised
Gallagher that their examination will be closed without any changes
being proposed. Gallagher continues to believe that all of its
synthetic coal partnerships have properly claimed tax credits.
o Significant reduction in investment holdings net of related
borrowings - down to $205.2 million at December 31, 2003 versus
$297.7 million at December 31, 2002.
o Substantial reduction in off-balance-sheet investment related
letters of credit, financial guarantees and commitments - down to
$35.1 million at December 31, 2003 from $64.6 million at December
31, 2002.
o Full year results include net after tax investment losses of $18.5
million, or $0.20 per diluted share, in 2003 and $15.4 million net
after tax, or $0.17 per diluted share, in 2002.
o Adoption of FIN 46 - In the third quarter of 2003, Gallagher early
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. 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.
Adoption of New Accounting For Stock-Based Compensation - In the fourth quarter
of 2003, the company early adopted the fair value method of accounting for
employee stock options and its employee stock purchase plan pursuant to
Statement of Financial Accounting Standards No. 123. This change in accounting
method is being applied prospectively to all awards granted since January 1,
2003 resulting in a fourth quarter charge of $1.4 million after tax, or $0.02
per diluted share, in the fourth quarter 2003. The impact on prior 2003 quarters
was not material.
"Given the current insurance rate environment, we are extremely pleased with our
Brokerage segment's growth of 10% in the fourth quarter and 15% for the full
year 2003. Brokerage revenues are up 47% since 2001 - a great testament to
Gallagher's sales culture," said President and Chief Executive Officer, J.
Patrick Gallagher, Jr.
"Our Risk Management segment finished off a spectacular year by posting 16%
revenue growth in the fourth quarter and 14% for the full year 2003. Margins
continue to improve and our client retention rates remain strong. Gallagher
Bassett continues its 40 year history of being the best and most stable claims
management services provider in the business.
"Together, our Brokerage and Risk Management segments' revenue grew 12% in the
fourth quarter, of which 9% is organic, and 15% for the year, of which 11% is
organic. Pretax income for these two combined segments grew 22% in the fourth
quarter 2003 and 19% for the full year 2003. Since 2001, pretax income for these
two segments is up 45%.
"The Gallagher team accomplished a great number of positive initiatives during
2003. We validated our hiring strategy, returned $142.7 million in cash to our
stockholders - $61.9 million in dividends and $80.8 million by repurchasing 2.9
million of our shares, increased our first quarter 2004 dividend 39% (announced
on January 22, 2004), substantially exited our venture capital investments,
significantly reduced our concentrations in other investment categories,
improved the transparency of our financial reporting, reconstituted our Board of
Directors to comprise a majority of independents (announced January 23, 2004),
paid off all of our corporate related debt, executed an increased three-year
$250 million line of credit, closed 14 acquisitions, and kept our tangible net
worth at nearly $400 million," said Gallagher.
The company will host a webcast conference call on Wednesday, January 28, 2004
at 10:00am 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 nine 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)
4th Q Ended 4th Q Ended Year Ended Year Ended
BROKERAGE SEGMENT Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
------------ ------------ ------------ ------------
Commissions $ 202.9 $ 185.0 $ 746.2 $ 662.9
Fees 40.4 34.5 135.5 109.0
Investment income - fiduciary 2.3 2.5 7.5 9.4
--------- --------- --------- ---------
Gross revenues 245.6 222.0 889.2 781.3
Less brokerage (10.2) (8.9) (40.7) (41.1)
--------- --------- --------- ---------
Revenues 235.4 213.1 848.5 740.2
--------- --------- --------- ---------
Compensation 128.6 116.6 482.1 424.0
Operating 48.3 45.9 172.2 150.0
Depreciation 3.1 2.9 12.1 10.9
Amortization 3.0 1.2 9.8 6.6
--------- --------- --------- ---------
Expenses 183.0 166.6 676.2 591.5
--------- --------- --------- ---------
Earnings before income taxes 52.4 46.5 172.3 148.7
Provision for income taxes 12.6 13.9 42.1 44.6
--------- --------- --------- ---------
Net earnings $ 39.8 $ 32.6 $ 130.2 $ 104.1
========= ========= ========= =========
Diluted net earnings per share $ 0.43 $ 0.36 $ 1.40 $ 1.13
Cash earnings per share(2) $ 0.47 $ 0.38 $ 1.57 $ 1.27
Growth - revenues 10% 26% 15% 28%
Organic growth in commissions and fees(3) 6% 16% 10% 17%
Growth - pretax earnings 13% 38% 16% 27%
Compensation expense ratio 52% 53% 54% 54%
Operating expense ratio 20% 21% 19% 19%
Effective tax rate 24% 30% 24% 30%
Pretax profit margin 21% 21% 19% 19%
RISK MANAGEMENT SEGMENT
Fees $ 83.4 $ 71.7 $ 320.7 $ 280.4
Investment income - fiduciary 0.3 0.2 1.0 0.8
--------- --------- --------- ---------
Revenues 83.7 71.9 321.7 281.2
--------- --------- --------- ---------
Compensation 46.7 41.8 178.7 159.9
Operating 23.9 22.5 90.6 80.4
Depreciation 2.3 2.5 9.4 9.3
Amortization 0.1 -- 0.1 --
--------- --------- --------- ---------
Expenses 73.0 66.8 278.8 249.6
--------- --------- --------- ---------
Earnings before income taxes 10.7 5.1 42.9 31.6
Provision for income taxes 2.6 1.5 10.4 9.4
--------- --------- --------- ---------
Net earnings $ 8.1 $ 3.6 $ 32.5 $ 22.2
========= ========= ========= =========
Diluted net earnings per share $ 0.09 $ 0.04 $ 0.35 $ 0.24
Cash earnings per share(2) $ 0.11 $ 0.06 $ 0.43 $ 0.31
Growth - revenues 16% 9% 14% 6%
Organic growth in fees(3) 16% 9% 14% 6%
Growth - pretax earnings 110% -1% 36% 1%
Compensation expense ratio 56% 58% 56% 57%
Operating expense ratio 29% 31% 28% 29%
Effective tax rate 24% 30% 24% 30%
Pretax profit margin 13% 7% 13% 11%
See notes to the fourth quarter 2003 earnings release on page 6 of 7.
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Arthur J. Gallagher & Co.
Segment Statement of Earnings (1)
(Unaudited - in millions except per share data)
4th Q Ended 4th Q Ended Year Ended Year Ended
FINANCIAL SERVICES SEGMENT Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
------------ ------------ ------------ ------------
Investment income $ 21.6 $ 17.8 $ 71.7 $ 60.9
Impact of FIN 46 on investment income 25.2 -- 46.4 --
Investment gains (losses) (0.4) (4.8) (24.5) (22.0)
-------- -------- --------- --------
Revenues 46.4 13.0 93.6 38.9
-------- -------- --------- --------
Investment expenses 15.6 5.6 53.7 18.6
Impact of FIN 46 on investment expenses 24.1 -- 44.1 --
Interest 1.9 2.3 8.0 9.5
Depreciation 2.0 1.9 7.4 5.6
Impact of FIN 46 on depreciation expense 1.1 -- 2.3 --
-------- -------- --------- --------
Expenses 44.7 9.8 115.5 33.7
-------- -------- --------- --------
Earnings (loss) before income taxes 1.7 3.2 (21.9) 5.2
Provision (benefit) for income taxes 0.4 1.0 (5.4) 1.6
-------- -------- --------- --------
Net earnings (loss) $ 1.3 $ 2.2 $ (16.5) $ 3.6
======== ======== ========= ========
Diluted earnings (loss) per share $ 0.01 $ 0.02 $ (0.18) $ 0.04
Cash earnings per share(2) $ 0.04 $ 0.08 $ 0.10 $ 0.25
Consolidated Statement of Earnings
(Unaudited - in millions except per share data)
4th Q Ended 4th Q Ended Year Ended Year Ended
TOTAL COMPANY Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002
------------ ------------ ------------ ------------
Commissions $ 202.9 $ 185.0 $ 746.2 $ 662.9
Fees 123.8 106.2 456.2 389.4
Investment income - fiduciary 2.6 2.7 8.5 10.2
Investment income - all other 46.8 17.8 118.1 60.9
Investment gains (losses) (0.4) (4.8) (24.5) (22.0)
--------- -------- --------- --------
Gross revenues 375.7 306.9 1,304.5 1,101.4
Less brokerage (10.2) (8.9) (40.7) (41.1)
--------- -------- --------- --------
Revenues 365.5 298.0 1,263.8 1,060.3
--------- -------- --------- --------
Compensation 175.3 158.4 660.8 583.9
Operating 72.2 68.4 262.8 230.4
Investment expenses 39.7 5.6 97.8 18.6
Interest 1.9 2.3 8.0 9.5
Depreciation 8.5 7.3 31.2 25.8
Amortization 3.1 1.2 9.9 6.6
--------- -------- --------- --------
Expenses 300.7 243.2 1,070.5 874.8
--------- -------- --------- --------
Earnings before income taxes 64.8 54.8 193.3 185.5
Provision for income taxes 15.6 16.4 47.1 55.6
--------- -------- --------- --------
Net earnings $ 49.2 $ 38.4 $ 146.2 $ 129.9
========= ======== ========= ========
Diluted net earnings per share $ 0.53 $ 0.42 $ 1.57 $ 1.41
========= ======== ========= ========
Cash earnings per share(2) $ 0.62 $ 0.52 $ 2.10 $ 1.83
========= ======== ========= ========
Dividends declared per share $ 0.18 $ 0.15 $ 0.72 $ 0.60
========= ======== ========= ========
Other Information
Diluted weighted average shares outstanding (000s) 93,570 92,126 93,292 91,861
Common shares repurchased (000s) 970 1 2,864 478
Return on beginning tangible net worth (4) 37% 42%
Number of acquisitions closed 7 2 14 10
Workforce (includes acquisitions) 7,206 7,111
See notes to the fourth quarter 2003 earnings release on page 6 of 7.
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Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
Dec 31, 2003 Dec 31, 2002
------------ ------------
Cash and cash equivalents $ 193.6 $ 152.6
Restricted cash 437.6 256.3
Trading securities 5.0 58.2
Investments - current 26.9 37.9
Premiums and fees receivable 1,286.4 1,183.7
Other current assets 158.4 84.9
----------- -----------
Total current assets 2,107.9 1,773.6
Investments - long-term 121.0 168.4
Fixed assets related to consolidated investments - net 205.2 185.4
Other fixed assets - net 61.0 65.6
Deferred income taxes 137.8 102.4
Other noncurrent assets 45.8 33.1
Goodwill - net 138.3 84.2
Amortizable intangible assets - net 84.6 50.9
----------- -----------
Total assets $ 2,901.6 $ 2,463.6
=========== ===========
Premiums payable to insurance and reinsurance companies $ 1,743.5 $ 1,488.2
Accrued compensation and other accrued liabilities 219.3 165.7
Unearned fees 27.3 19.4
Income taxes payable 24.3 11.0
Other current liabilities 16.0 17.5
Corporate related borrowings -- 25.0
Consolidated investments borrowings - current 30.9 22.8
----------- -----------
Total current liabilities 2,061.3 1,749.6
Consolidated investments related borrowings - long-term 122.1 128.3
Other noncurrent liabilities 99.1 57.5
----------- -----------
Total liabilities 2,282.5 1,935.4
----------- -----------
Stockholders' equity: 90.0 88.5
Capital in excess of par value 105.5 92.7
Retained earnings 442.3 361.0
Unearned deferred compensation (9.6) (6.5)
Unearned restricted stock (9.1) (7.5)
----------- -----------
Total stockholders' equity 619.1 528.2
----------- -----------
Total liabilities and stockholders' equity $ 2,901.6 $ 2,463.6
=========== ===========
Other Information
Tangible net worth(5) $ 396.2 $ 393.1
Book value per share $ 6.88 $ 5.97
Tangible book value per share(6) $ 4.40 $ 4.44
See notes to the fourth quarter 2003 earnings release on page 6 of 7.
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Arthur J. Gallagher & Co.
Unconsolidated Investment Summary
(Unaudited - in millions except per share data)
December 31, 2003
-----------------------
December 31, 2003 December 31, 2002 LOCs &
-------------------- -------------------- Financial Funding
Current Long-term Current Long-term Guarantees Commitments
------- --------- ------- --------- ---------- -----------
Trading Securities:
Managed directly $ 5.0 $ -- $ 17.7 $ -- $ -- $ --
Managed by third parties -- -- 40.5 -- -- --
------ ------ ------ ------ ------ ------
Total trading securities $ 5.0 $ -- $ 58.2 $ -- $ -- $ --
====== ====== ====== ====== ====== ======
Unconsolidated Investments:
Asset Alliance Corporation (AAC)
related investments:
Direct and indirect investments in AAC $ 1.3 $ 49.8 $ -- $ 46.7 $ -- $ --
Investment guaranteed by AAC -- -- -- 9.1 -- --
Low income housing (LIH) developments:
Bridge loans 9.5 -- 20.3 -- -- --
Partnership interests -- 3.1 -- 8.1 -- --
LIH Developer -- 7.6 -- 7.6 -- --
Alternative energy investments:
Owned partnership interests 1.5 28.3 0.9 15.2 5.9 0.2
Partnership interest installment sales 14.6 8.0 15.0 24.3 -- --
Bermuda insurance investments -- 20.4 -- 20.4 6.7 --
Real estate, venture capital and other
investments -- 3.8 1.7 37.0 2.1 5.9
------ ------ ------ ------ ------ ------
Total unconsolidated investments $ 26.9 $121.0 $ 37.9 $168.4 $ 14.7 $ 6.1
====== ====== ====== ====== ====== ======
Notes to Fourth 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 are computed as follows:
4th Quarter Ended Dec 31, Year Ended Dec 31,
-------------------------------- --------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net earnings $ 49.2 $ 38.4 $ 146.2 $ 129.9
Investment (gains) losses 0.4 4.8 24.5 22.0
Depreciation 8.5 7.3 31.2 25.8
Amortization 3.1 1.2 9.9 6.6
Tax effect (2.9) (4.0) (16.0) (16.3)
---------- ---------- ---------- ----------
Cash earnings $ 58.3 $ 47.7 $ 195.8 $ 168.0
========== ========== ========== ==========
Cash earnings per share $ 0.62 $ 0.52 $ 2.10 $ 1.83
========== ========== ========== ==========
Weighted shares (000s) 93,570 92,126 93,292 91,861
========== ========== ========== ==========
(3) Represents the percentage increase in revenues before the impact of the
2003 and 2002 acquisitions accounted for as purchases.
(4) Represents net earnings divided by total stockholders' equity less net
goodwill and net amortizable intangible assets as of the beginning of the
year.
(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.
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Arthur J. Gallagher & Co.
Consolidated Investment Summary
(Unaudited - in millions)
December 31, 2003
------------------------
LOCs &
December 31, December 31, Financial Funding
2003 2002 Guarantees Commitments
------------ ------------ ---------- -----------
Home office land and building:
Fixed assets $ 100.9 $ 100.4 $ -- $ --
Accumulated depreciation (13.2) (10.6) -- --
Non-recourse borrowings - current (0.8) (0.7) -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent (74.0) (74.8) -- --
Recourse borrowings - noncurrent (3.0) (3.0) -- --
Net other consolidated assets and liabilities 2.2 0.7 -- --
-------- -------- ------ ------
Net investment 12.1 12.0 -- --
-------- -------- ------ ------
Florida residential development
land and improvements:
Fixed assets 56.0 50.7 -- --
Accumulated depreciation -- -- -- --
Non-recourse borrowings - current (10.7) (2.9) -- --
Recourse borrowings - current (17.0) (17.0) -- --
Non-recourse borrowings - noncurrent (0.2) (3.3) -- --
Recourse borrowings - noncurrent (12.4) (12.4) -- --
Net other consolidated assets and liabilities (3.6) (2.0) 12.8 1.5
-------- -------- ------ ------
Net investment 12.1 13.1 12.8 1.5
-------- -------- ------ ------
Airplane leasing company:
Fixed assets 51.8 51.8 -- --
Accumulated depreciation (10.5) (6.9) -- --
Non-recourse borrowings - current (2.4) (2.2) -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent (32.5) (34.8) -- --
Recourse borrowings - noncurrent -- -- -- --
Net other consolidated assets and liabilities 0.9 0.2 -- --
-------- -------- ------ ------
Net investment 7.3 8.1 -- --
-------- -------- ------ ------
Syn/Coal partnerships:
Cash and receivables 19.0 -- -- --
Fixed assets 35.2 -- -- --
Accumulated depreciation (15.0) -- -- --
Non-recourse borrowings - current -- -- -- --
Recourse borrowings - current -- -- -- --
Non-recourse borrowings - noncurrent -- -- -- --
Recourse borrowings - noncurrent -- -- -- --
Net other consolidated assets and liabilities (18.4) -- -- --
-------- -------- ------ ------
Net investment 20.8 -- -- --
-------- -------- ------ ------
Total consolidated investments:
Cash and receivables 19.0 -- -- --
Fixed assets 243.9 202.9 -- --
Accumulated depreciation (38.7) (17.5) -- --
Non-recourse borrowings - current (13.9) (5.8) -- --
Recourse borrowings - current (17.0) (17.0) -- --
Non-recourse borrowings - noncurrent (106.7) (112.9) -- --
Recourse borrowings - noncurrent (15.4) (15.4) -- --
Net other consolidated assets and liabilities (18.9) (1.1) 12.8 1.5
-------- -------- ------ ------
Net investment $ 52.3 $ 33.2 $ 12.8 $ 1.5
======== ======== ====== ======
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