Arthur J. Gallagher & Co. Announces First Quarter 2012 Financial Results

   Arthur J. Gallagher & Co. Announces First Quarter 2012 Financial Results

PR Newswire

ITASCA, Ill., May 1, 2012

ITASCA, Ill., May 1, 2012 /PRNewswire/ --Arthur J. Gallagher & Co. (NYSE:
AJG) today reported its financial results for the quarter ended March31,
2012. A printer-friendly format and supplemental quarterly data is available
at www.ajg.com. For a description of the non-GAAP measures used to report
financial results in this earnings release, please see "Information Regarding
Non-GAAP Measures" beginning on page 5.

"Our positive operating momentum continued in the first quarter of 2012
despite it being seasonally our smallest quarter. Coming off a strong finish
in 2011, we are pleased to see another quarter of strong organic growth,
improved adjusted EBITDAC margins and improved adjusted diluted net earnings
per share," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "Our
combined Brokerage and Risk Management segments posted 18% growth in adjusted
total revenues, 4.6% organic growth in commission, fee and supplemental
commission revenues, 23% growth in adjusted EBITDAC and 12% growth in adjusted
diluted net earnings per share."

  oOur Brokerage segment had an excellent quarter. Adjusted total revenues
    were up 22%, organic commission, fee and supplemental commission revenues
    grew 3.5%, adjusted EBITDAC was up 27% and adjusted diluted net earnings
    per share increased 13%. We also completed 12 acquisitions with
    annualized revenues of $30.6million.
  oOur Risk Management segment had an outstanding quarter. Adjusted total
    revenues were up 8%, organic fees were up 7.0%, adjusted EBITDAC was up
    15% and adjusted diluted net earnings per share were up 11%. 

"We are seeing further evidence of market firming and our customers'
businesses are showing growth. Our sales and support teams are delivering
excellent client service; our M&A pipeline is full of outstanding prospects;
our operational improvement teams continue to make strides in improving
productivity and quality; and our culture is thriving across our global
enterprise."

The following provides non-GAAP information that management believes is
helpful when comparing 2012 revenues, EBITDAC and diluted net earnings (loss)
per share with the same period in 2011:

Quarter Ended March                                          Diluted Net
31                                                           Earnings
                     Revenues             EBITDAC            (Loss) Per Share
Segment              1st Q 12 1st Q  Chg  1st Q  1st Q  Chg  1st Q  1st Q  Chg
                              11          12     11          12     11
                     (in millions)        (in millions)
Brokerage, as        $384.6   $316.3 22%  $64.3  $50.8  27%  $0.18  $0.16  13%
adjusted
 Gains on book       0.7      1.1         0.7    1.1         -      -
 sales
 Heath Lambert       -        -           (4.0)  -           (0.02) -
 integration costs
 Workforce related   -        -           (2.8)  (1.5)       (0.01) (0.01)
 charges
 Acquisition
 related             -        -           -      -           -      0.01
 adjustments
Brokerage, as        385.3    317.4       58.2   50.4        0.15   0.16
reported
Risk Management, as  141.3    130.6  8%   23.6   20.5   15%  0.10   0.09   11%
adjusted
 GAB Robins          -        -           -      (4.2)       -      (0.02)
 integration costs
 Workforce & lease   -        -           -      (1.1)       -      (0.01)
 termination
Risk Management, as  141.3    130.6       23.6   15.2        0.10   0.06
reported
Total Brokerage &
Risk
 Management, as      526.6    448.0       81.8   65.6        0.25   0.22
 reported
Corporate, as        20.2     (0.6)       (5.4)  (7.3)       (0.01) (0.08)
reported
Total Company, as    $546.8   $447.4      $76.4  $58.3       $0.24  $0.14
reported
Total Brokerage &
Risk
 Management, as      $525.9   $446.9 18%  $87.9  $71.3  23%  $0.28  $0.25  12%
 adjusted

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Brokerage Segment First Quarter Highlights

  oThe following provides non-GAAP information that management believes is
    helpful when comparing certain components of 2012 organic revenues with
    the same period in 2011 (inmillions): 

                                                 1st Q 12      1st Q 11
Commissions and Fees
Commissions as reported                          $   272.0   $   225.7
Fees as reported                                 75.1          59.1
Less commissions and fees from acquisitions     (56.0)        -
Less disposed of operations                      -             (2.7)
Levelized foreign currency translation           -             (0.1)
Organic commissions and fees                     $   291.1   $   282.0
Organic change in commissions and fees           3.2%
Supplemental Commissions
Supplemental commissions as reported             $    17.1  $    13.5
Less supplemental commissions from acquisitions  (2.7)         -
Less disposed of operations                      -             (0.3)
Organic supplemental commissions                 $    14.4  $    13.2
Organic change in supplemental commissions       9.1%
Contingent Commissions
Contingent commissions as reported               $    19.0  $    16.8
Less contingent commissions from acquisitions    (2.4)         -
Organic contingent commissions                   $    16.6  $    16.8
Organic change in contingent commissions         -1.2%

  oThe following is a summary of brokerage acquisition activity for 2012 and
    2011:

                                             1st Q 12      1st Q 11
Shares issued for acquisitions and earnouts  2,472,000     902,000
Number of acquisitions closed                12            4
Annualized revenues acquired (in millions)  $    30.6  $    27.2

  oAdjusted first quarter compensation ratio shown on page 7 was 0.5 pts
    lower than the same period in 2011. This ratio was primarily impacted by
    headcount controls of 1.0 pts, partially offset by increased employee
    benefits of 0.4 pts.
  oAdjusted first quarter operating expense ratio shown on page 7 was 0.1 pts
    lower than the same period in 2011. This ratio was impacted by a
    reduction in business insurance of 0.7 pts and rent savings of 0.6 pts,
    partially offset by increased professional fees of 0.6 pts and the impact
    of the Heath Lambert acquisition of 0.5pts.
  oThe following provides non-GAAP information that management believes is
    helpful when comparing 2012 EBITDAC and Adjusted EBITDAC to the same
    period in 2011 (inmillions):

                                                    1st Q 12      1st Q 11
Total EBITDAC - see page 7 for computation          $    58.2  $    50.4
Gains from books of business sales                  (0.7)         (1.1)
Heath Lambert integration costs                     4.0           -
Workforce related charges                           2.8           1.5
Adjusted EBITDAC                                    $    64.3  $    50.8
Adjusted EBITDAC change                             26.6%
Adjusted EBITDAC margin                             16.7%         16.1%
Adjusted EBITDAC margin excluding Heath Lambert *  17.1%         16.1%

   Until the integration process is completed in 2013, we expect the Heath
* Lambert operations will reduce the overall Brokerage Segment adjusted
   EBITDAC margins.

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Risk Management Segment First Quarter Highlights

  oThe following provides non-GAAP information that management believes is
    helpful when comparing 2012 organic fee revenues with the same period in
    2011 (inmillions):

                                                      1st Q 12     1st Q 11
Domestic and international fees                       $   132.4  $   123.6
International performance bonus fees                 4.3          3.0
Adjusting fees related to international natural       3.8          3.3
disasters
Fees as reported                                      140.5        129.9
Less fees from acquisitions                           (0.7)        -
Levelized foreign currency translation                -            0.7
Organic fees                                          $   139.8  $   130.6
Organic change in fees                               7.0%
Organic change in domestic and international fees     6.0%
only

  oAdjusted first quarter compensation ratio shown on page 7 was 0.1 pts
    higher than the same period in 2011. This ratio was primarily impacted by
    increased incentive compensation of 0.9 pts, partially offset by headcount
    controls of 0.8 pts.
  oAdjusted first quarter operating expense ratio shown on page 7 was 1.2 pts
    lower than the same period in 2011. This ratio was impacted by reductions
    in business insurance of 0.6 pts and office expenses of 0.5 pts.
  oThe following provides non-GAAP information that management believes is
    helpful when comparing 2012 EBITDAC and Adjusted EBITDAC to the same
    period in 2011 (inmillions):

                                            1st Q 12      1st Q 11
Total EBITDAC - see page 7 for computation  $    23.6  $    15.2
Workforce related charges                   -             0.9
Lease termination related charges           -             0.2
GAB Robins integration costs                -             4.2
Adjusted EBITDAC                            $    23.6  $    20.5
Adjusted EBITDAC change                     15.1%
Adjusted EBITDAC margin                     16.7%         15.7%

Corporate Segment First Quarter Highlights

The following provides non-GAAP information that management believes is
helpful when comparing 2012 operating results for the Corporate Segment with
the same period in 2011 (inmillions):

                          2012                              2011
               Pretax     Income    Net         Pretax      Income   Net
               Earnings  Tax       Earnings   Earnings   Tax      Earnings
               (Loss)     Benefit   (Loss)      (Loss)      Benefit  (Loss)
1st Quarter
Interest and   $ (11.3)  $       $  (6.8)  $ (10.3)   $      $ 
banking costs             4.5                               4.1      (6.2)
Clean energy   (2.2)      9.4       7.2         (2.6)       2.2      (0.4)
related
Acquisition    (0.6)      0.1       (0.5)       (1.7)       0.5      (1.2)
costs
Corporate      (2.0)      0.8       (1.2)       (2.3)       0.7      (1.6)
               $ (16.1)  $  14.8  $  (1.3)  $  (16.9)  $      $ 
                                                            7.5      (9.4)

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Corporate Segment First Quarter Highlights (continued)

Debt, interest and banking - Gallagher has $675.0 million of long-term
borrowings outstanding under three private placement agreements, which are due
and payable in various amounts in 2014 through 2023. Gallagher also maintains
an unsecured line of credit of $500.0 million that expires July 14, 2014.
There were $92.0 million of borrowings outstanding under Gallagher's line of
credit facility at March 31, 2012.

  oClean energy investments - Gallagher holds investment positions in 14
    commercial clean coal production plants that were built and first began
    production in 2009 (the 2009 Era Plants). These plants qualify for tax
    credits under Section45 of the Internal Revenue Code which pass through
    in proportion to Gallagher's ownership level.

       oGallagher holds minority investment positions in 12 of the 2009 Era
         Plants which are producing refined coal under long-term agreements
         with utilities. At March 31, 2012, Gallagher's net carrying value of
         these investments was $8.6million and collectively they could
         generate approximately $4.3million of net after-tax earnings per
         quarter through 2019.
       oGallagher is currently seeking co-investors and long-term utility
         customers for the other two 2009 Era Plants. After co-investors'
         fundings, Gallagher intends to hold minority investment positions in
         these investments. At March 31, 2012, Gallagher's net carrying value
         of these investments was $1.5million. Gallagher estimates that it
         will invest an additional net $2.0 million to connect and house each
         of these plants prior to the resumption of production. Gallagher
         cannot predict when these plants will resume production of refined
         coal or the amount of refined coal that will ultimately be produced.

    Gallagher holds investment positions in 15 commercial clean coal
    production plants that were built and first began producing refined coal
    in fourth quarter 2011 (the 2011 Era Plants). These plants also qualify
    for tax credits under Section 45 of the Internal Revenue Code which pass
    through in proportion to Gallagher's ownership level.

       oGallagher holds minority investment positions in five of the 2011 Era
         Plants which are producing refined coal under long-term agreements
         with utilities. At March 31, 2012, Gallagher's net carrying value of
         these investments was $10.4million and collectively they could,
         after ramp-up, generate for Gallagher approximately $8.0million of
         net after-tax earnings per quarter through 2021.
       oGallagher has non-binding agreements in principle with a utility and
         co-investors for one of the majority-owned 2011 Era Plants. This
         plant is expected to resume production of refined coal in the third
         quarter of 2012. At March 31, 2012, Gallagher's net carrying value
         of this investment was $0.9million. Gallagher estimates that it
         will invest an additional net $2.0million to connect and house this
         plant prior to the resumption of production. Once production
         resumes, after ramp-up, it could generate for Gallagher approximately
         $1.7million of net after-tax earnings per quarter through 2021.
       oGallagher is currently seeking co-investors and long-term utility
         customers for the other nine 2011 Era Plants. After co-investors'
         fundings, Gallagher intends to hold minority investment positions in
         these investments. At March 31, 2012, Gallagher's net carrying value
         of these investments was $8.6million. Gallagher estimates that it
         will invest an additional net $2.0 million to connect and house each
         of these plants prior to the resumption of production. Gallagher
         cannot predict when these plants will resume production of refined
         coal or the amount of refined coal that will ultimately be produced.

  Gallagher holds a 42% controlling interest in Chem-Mod, LLC which possesses
  rights, information and technologies used for the reduction of unwanted
  emissions created during the combustion of coal. The clean coal production
  plants discussed above, as well as other unrelated parties, license and use
  Chem-Mod's technologies in the production of refined fuel. Based on current
  production estimates provided by licensees, Chem-Mod could ramp-up in the
  second and third quarters and ultimately generate for Gallagher
  approximately $2.5 million of net after-tax earnings per quarter starting in
  the fourth quarter of 2012.

  Please note that all estimates set forth above regarding the future
  quarterly earnings impact of our clean-energy investments are subject to
  significant risks, including those referred to below under "Information
  Regarding Forward-Looking Statements."

  oAcquisition costs - Consists of professional fees and other due diligence
    costs related to acquisitions.
  oCorporate - Consists of overhead allocations mostly related to corporate
    staff compensation.

Income Taxes
Gallagher allocates the provision for income taxes to its Brokerage and Risk
Management segments as if those segments were computing income tax provisions
on a separate company basis. Gallagher historically has reported, and
anticipates reporting for the foreseeable future, an effective tax rate of
approximately 38% to 40% in both its Brokerage and Risk Management segments.
Gallagher's consolidated effective tax rate for the quarter ended March 31,
2012 and 2011 was 13.5% and 35.3%, respectively. Gallagher's tax rate for
first quarter 2012 was lower than the same period in 2011 and the statutory
rate due to the impact of IRC Section 45 tax credits earned in 2012.

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Webcast Conference Call

Gallagher will host a webcast conference call on Wednesday, May 2, 2012 at
9:00 a.m. ET/8:00 a.m. CT. To listen to this call, please go to www.ajg.com.
The call will be available for replay at such website for not less than 90
days.

About Arthur J. Gallagher & Co.

Arthur J. Gallagher & Co., an international insurance brokerage and risk
management services firm, is headquartered in Itasca, Illinois, has operations
in 17 countries and offers client-service capabilities in more than 110
countries around the world through a network of correspondent brokers and
consultants.

Information Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this press
release, the words "anticipates," "believes," "contemplates," "should,"
"could," "estimates," "expects," "intends," "plans" and variations thereof and
similar expressions, are intended to identify forward-looking statements.
Examples of forward-looking statements include, but are not limited to,
statements regarding investment returns generated by Gallagher's clean energy
investments (which own commercial clean coal plants), our corporate income tax
rate, the future revenue and earnings impact of recent acquisitions, drivers
of organic growth in the Brokerage and Risk Management segments and
anticipated future results or performance of any segment or the Company as a
whole.

Gallagher's actual results may differ materially from those contemplated by
the forward-looking statements. Readers are therefore cautioned against
relying on any of the forward-looking statements, which are neither statements
of historical fact nor guarantees or assurances of future performance.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include the following:

  oChanges in worldwide and national economic conditions, changes in premium
    rates and in insurance markets generally, changes in the insurance
    brokerage industry's competitive landscape, and the difficulties inherent
    in combining the cultures and systems of different companies could impact
    the future revenue and earnings impact of recent acquisitions, drivers of
    organic growth in the Brokerage and Risk Management segments and
    anticipated future results or performance of any segment or the Company as
    a whole; and
  oUncertainties related to Gallagher's IRC clean energy investments (which
    own commercial clean coal plants) – including uncertainties related to (i)
    political and regulatory risks, including potential actions by Congress or
    challenges by the IRS eliminating or reducing the availability of tax
    credits under IRC Section 45 retroactively and/or going forward, (ii)
    maintenance of long-term permits needed to operate the plants, (iii) the
    ability to find new operating sites, if necessary, (iv) the ability to
    maintain and find co-investors, (v) utilities' future use of, or demand
    for, coal, (vi) plant operational risks, including supply-chain risks,
    (vii) the potential for divergent business objectives by co-investors and
    other stakeholders, (viii) intellectual property risks, and (ix)
    environmental risks – all could impact Gallagher's investment returns
    generated by its clean energy investments, or result in investment
    write-offs, and could also impact Gallagher's future corporate tax rate.

Please refer to Gallagher's filings with the SEC, including Item 1A, "Risk
Factors," of its Annual Report on Form 10-K for the fiscal year ended December
31, 2011, for a more detailed discussion of these and other factors that could
impact its forward-looking statements. Any forward-looking statement made by
Gallagher in this press release speaks only as of the date on which it is
made. Except as required by applicable law, Gallagher does not undertake to
update the information included herein or the corresponding earnings release
posted on Gallagher's website.

Information Regarding Non-GAAP Measures

In addition to reporting financial results in accordance with GAAP, this press
release provides information regarding EBITDAC, EBITDAC margin, Adjusted
EBITDAC, Adjusted EBITDAC margin, Adjusted EBITDAC margin excluding Heath
Lambert, Diluted Net Earnings Per Share (As Adjusted) for the Brokerage and
Risk Management segments, organic change in commission, fee and supplemental
commission revenues, adjusted revenues, expenses and net earnings, adjusted
compensation expense ratio and adjusted operating expense ratio. These
measures are not in accordance with, or an alternative to, the GAAP
information provided in this press release. Gallagher's management believes
that these presentations provide useful information to management, analysts
and investors regarding financial and business trends relating to Gallagher's
results of operations and financial condition. Gallagher's industry peers may
provide similar supplemental non-GAAP information, although they may not use
the same or comparable terminology and may not make identical adjustments.
The non-GAAP information provided by Gallagher should be used in addition to,
but not as a substitute for, the GAAP information provided. Certain
reclassifications have been made to the prior year amounts reported in this
press release in order to conform them to the current year presentation.

Adjusted presentation - Gallagher believes that the adjusted presentation of
2012 and 2011 statements of earnings, presented on the following pages,
provides stockholders and other interested persons with useful information
regarding certain financial metrics of Gallagher that may assist such persons
in analyzing Gallagher's operating results as they develop a future earnings
outlook for Gallagher. The after-tax amounts related to the adjustments were
computed using the normalized effective tax rate for each respective period.

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  oAdjusted revenues, expenses and net earnings - Gallagher defines these
    measures as revenues, expenses (including compensation expense and
    operating expense) and net earnings, respectively, each adjusted to
    exclude gains realized from sales of books of business, workforce related
    charges, lease termination related charges, acquisition related
    integration costs, litigation settlements and adjustments to the change in
    estimated acquisition earnout payables, as applicable. Acquisition
    related integration costs include costs related to transactions not
    expected to occur on an ongoing basis in the future once we fully
    assimilate the applicable acquisition. These costs are typically
    associated with redundant workforce, extra lease space, duplicate services
    and external costs incurred to assimilate the acquisition with our IT
    related systems.
  oAdjusted ratios - Adjusted compensation expense ratio and adjusted
    operating expense ratio are defined as adjusted compensation expense and
    adjusted operating expense, respectively, each divided by adjusted
    revenues.

Earnings Measures - Gallagher believes that each of EBITDAC, EBITDAC margin,
Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted EBITDAC margin excluding
Heath Lambert, and Diluted Net Earnings Per Share (As Adjusted) for the
Brokerage and Risk Management segments, as defined below, provides a
meaningful representation of its operating performance. Gallagher considers
EBITDAC and EBITDAC margin as a way to measure financial performance on an
ongoing basis. Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted EBITDAC
margin excluding Heath Lambert, and Diluted Net Earnings Per Share (As
Adjusted) for the Brokerage and Risk Management segments are presented to
improve the comparability of our results between periods by eliminating the
impact of the items that have a high degree of variability.

  oEBITDAC - Gallagher defines this measure as net earnings before interest,
    income taxes, depreciation, amortization and the change in estimated
    acquisition earnout payables.
  oEBITDAC margin - Gallagher defines this measure as EBITDAC divided by
    total revenues.
  oAdjusted EBITDAC - Gallagher defines this measure as EBITDAC adjusted to
    exclude gains realized from sales of books of business, earnout related
    compensation charges, workforce related charges, lease termination related
    charges, acquisition related integration costs, litigation settlements and
    the period-over-period impact of foreign currency translation.
  oAdjusted EBITDAC margin - Gallagher defines this measure as Adjusted
    EBITDAC divided by total revenues, as adjusted to exclude gains realized
    from sales of books of business.
  oAdjusted EBITDAC margin excluding Heath Lambert - Gallagher defines this
    measure as Adjusted EBITDAC further adjusted to exclude the EBITDAC
    associated with the acquired Heath Lambert operations divided by total
    revenues, as adjusted to exclude gains realized from sales of books of
    business and the revenues associated with the acquired Heath Lambert
    operations.
  oDiluted Net Earnings Per Share (As Adjusted) for the Brokerage and Risk
    Management segments - Gallagher defines this measure as net earnings
    adjusted to exclude the after-tax impact of gains realized from sales of
    books of business, workforce related charges, lease termination related
    charges, acquisition related integration costs, litigation settlements and
    adjustments to change in estimated acquisition earnout payables divided by
    diluted weighted average shares outstanding.

Organic Revenues - Organic change in commission, fee and supplemental
commission revenues excludes the first twelve months of net commission, fee
and supplemental commission revenues generated from acquisitions accounted for
as purchases and the net commission and fee revenues related to operations
disposed of in each year presented. These commissions and fees are excluded
from organic revenues in order to help interested persons analyze the revenue
growth associated with the operations that were a part of Gallagher in both
the current and prior year. In addition, organic growth excludes the impact
of contingent commission revenues and the period-over-period impact of foreign
currency translation. The amounts excluded with respect to foreign currency
translation are calculated by applying 2012 foreign exchange rates to the same
periods in 2011.

These revenue items are excluded from organic revenues in order to determine a
comparable measurement of revenue growth that is associated with the revenue
sources that will be continuing in 2012 and beyond. Gallagher has
historically viewed organic revenue growth as an important indicator when
assessing and evaluating the performance of its Brokerage and Risk Management
segments. Gallagher also believes that using this measure allows financial
statement users to measure, analyze and compare the growth from its Brokerage
and Risk Management segments in a meaningful and consistent manner.

Reconciliation of Non-GAAP Information Presented to GAAP Measures - This press
release includes tabular reconciliations to the most comparable GAAP measures
for adjusted revenues, expenses and net earnings, EBITDAC (onpages 7 and 8),
for Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted EBITDAC margin
excluding Heath Lambert (on pages 2 and 3, respectively, for the Brokerage and
Risk Management segments), for Diluted Net Earnings Per Share (As Adjusted)
for the Brokerage and Risk Management segments (on page 1), and for organic
change in commission, fee and supplemental commission revenues (on pages 2 and
3, respectively, for the Brokerage and Risk Management segments).

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Arthur J. Gallagher & Co.
Reported and Adjusted Statement of Earnings and EBITDAC - 1st Qtr Ended March
31,
(Unaudited - in millions except per share, percentage and workforce data)
                1st Qtr Ended March 31, 2012     1st Qtr Ended March 31, 2011
Brokerage       Reported  Adjustments  Adjusted  Reported  Adjustments  Adjusted
Segment
Commissions     $        $     -  $ 272.0  $        $     -  $ 
                272.0                            225.7                  225.7
Fees            75.1      -            75.1      59.1      -            59.1
Supplemental
commissions    17.1      -            17.1      13.5      -            13.5
(1)
Contingent
commissions     19.0      -            19.0      16.8      -            16.8
(1)
Investment
income and
gains realized  2.1       (0.7)        1.4       2.3       (1.1)        1.2
onbooks of
business sales
    Revenues    385.3     (0.7)        384.6     317.4     (1.1)        316.3
Compensation    257.1     (5.6)        251.5     210.0     (1.5)        208.5
Operating       70.0      (1.2)        68.8      57.0      -            57.0
Depreciation    5.7       -            5.7       4.7       -            4.7
Amortization    20.5      -            20.5      15.8      -            15.8
Change in
estimated
acquisition     2.5       (0.1)        2.4       0.8       1.2          2.0
earnout
payables
    Expenses    355.8     (6.9)        348.9     288.3     (0.3)        288.0
Earnings
before income   29.5      6.2          35.7      29.1      (0.8)        28.3
taxes
Provision for   11.8      2.5          14.3      11.4      (0.3)        11.1
income taxes
Net earnings   $       $   3.7   $        $       $   (0.5)  $  
                17.7                   21.4     17.7                   17.2
Diluted net     $                    $        $                    $  
earnings per    0.15      $  0.03    0.18     0.16      $    -   0.16
share
Growth in
diluted         -6%                    13%       -30%                   14%
earnings per
share
Growth -        21%                    22%       4%                     10%
revenues
Organic change
in commissions  3%                     3%        2%                     2%
and fees
Compensation    67%                    65%       66%                    66%
expense ratio
Operating       18%                    18%       18%                    18%
expense ratio
Effective tax   40%                    40%       39%                    39%
rate
Workforce at
end of period   7,987                  7,987     6,324                  6,324
(includes
acquisitions)
EBITDAC
Net earnings   $       $   3.7   $        $       $   (0.5)  $  
                17.7                   21.4     17.7                   17.2
Provision for   11.8      2.5          14.3      11.4      (0.3)        11.1
income taxes
Depreciation    5.7       -            5.7       4.7       -            4.7
Amortization    20.5      -            20.5      15.8      -            15.8
Change in
estimated
acquisition     2.5       (0.1)        2.4       0.8       1.2          2.0
earnout
payables
EBITDAC         $       $   6.1   $        $       $   0.4   $  
                58.2                   64.3     50.4                   50.8
EBITDAC         15%                    17%       16%                    16%
margin
EBITDAC Growth  15%                    27%       -15%                   14%
                1st Qtr Ended March 31, 2012     1st Qtr Ended March 31, 2011
Risk Management Reported  Adjustments  Adjusted  Reported  Adjustments  Adjusted
Segment
Fees            $        $     -  $ 140.5  $        $     -  $ 
                140.5                            129.9                  129.9
Investment      0.8       -            0.8       0.7       -            0.7
income
    Revenues    141.3     -            141.3     130.6     -            130.6
Compensation    85.4      -            85.4      82.7      (4.0)        78.7
Operating       32.3      -            32.3      32.7      (1.3)        31.4
Depreciation    3.9       -            3.9       3.3       -            3.3
Amortization    0.6       -            0.6       0.6       -            0.6
    Expenses    122.2     -            122.2     119.3     (5.3)        114.0
Earnings
before income   19.1      -            19.1      11.3      5.3          16.6
taxes
Provision for   7.4       -            7.4       4.4       2.1          6.5
income taxes
Net earnings   $       $    -   $        $       $    3.2  $  
                11.7                   11.7     6.9                   10.1
Diluted net     $                    $        $                    $  
earnings per    0.10      $    -   0.10     0.06      $   0.03   0.09
share
Growth in
diluted         67%                    11%       -33%                   0%
earnings per
share
Growth -        8%                     8%        18%                    18%
revenues
Organic change  7%                     7%        6%                     6%
in fees
Compensation    60%                    60%       63%                    60%
expense ratio
Operating       23%                    23%       25%                    24%
expense ratio
Effective tax   39%                    39%       39%                    39%
rate
Workforce at
end of period   4,256                  4,256     4,281                  4,281
(includes
acquisitions)
EBITDAC
Net earnings   $       $     -  $        $       $   3.2   $  
                11.7                   11.7     6.9                   10.1
Provision for   7.4       -            7.4       4.4       2.1          6.5
income taxes
Depreciation    3.9       -            3.9       3.3       -            3.3
Amortization    0.6       -            0.6       0.6       -            0.6
EBITDAC         $       $     -  $        $       $   5.3   $  
                23.6                   23.6     15.2                   20.5
EBITDAC         17%                    17%       12%                    16%
margin
EBITDAC Growth  55%                    15%       -18%                   10%
See "Information Regarding Non-GAAP Measures" on page 5 of 9 and notes
to first quarter 2012 earnings release on page 9 of 9.

(7 of 9)

Arthur J. Gallagher & Co.
Reported and Adjusted Statement of Earnings and EBITDAC- 1st Qtr Ended March 31,
(Unaudited - in millions except share and per share data)
                1st Qtr Ended March 31, 2012     1st Qtr Ended March 31, 2011
Corporate       Reported  Adjustments  Adjusted  Reported  Adjustments  Adjusted
Segment
Revenues from
consolidated    $       $       $        $      $       $   
clean coal      15.7       -         15.7      -        -          -
facilities
Royalty income
from clean      5.3       -            5.3       -         -            -
coal licenses
Income (loss)
from
unconsolidated  (0.9)     -            (0.9)     (1.1)     -            (1.1)
clean coal
facilities
Other net       0.1       -            0.1       0.5       -            0.5
revenues
    Revenues    20.2      -            20.2      (0.6)     -            (0.6)
Cost of
revenues from
consolidated    17.7      -            17.7      -         -            -
clean coal
facilities
Compensation    1.9       -            1.9       2.4       -            2.4
Operating       6.0       -            6.0       4.3       -            4.3
Interest        10.6      -            10.6      9.5       -            9.5
Depreciation    0.1       -            0.1       0.1       -            0.1
    Expenses    36.3      -            36.3      16.3      -            16.3
Loss before     (16.1)    -            (16.1)    (16.9)    -            (16.9)
income taxes
Benefit for     (14.8)    -            (14.8)    (7.5)     -            (7.5)
income taxes
Net loss       $       $       $       $       $       $  
                (1.3)      -         (1.3)     (9.4)      -         (9.4)
Diluted net     $        $       $        $        $       $ 
loss per share  (0.01)    -         (0.01)    (0.08)    -          (0.08)
EBITDAC
Net loss       $       $       $       $       $       $  
                (1.3)      -         (1.3)     (9.4)      -         (9.4)
Benefit for     (14.8)    -            (14.8)    (7.5)     -            (7.5)
income taxes
Interest        10.6      -            10.6      9.5       -            9.5
Depreciation    0.1       -            0.1       0.1       -            0.1
EBITDAC         $       $       $       $       $       $  
                (5.4)      -         (5.4)     (7.3)      -         (7.3)
                1st Qtr Ended March 31, 2012     1st Qtr Ended March 31, 2011
Total Company  Reported  Adjustments  Adjusted  Reported  Adjustments  Adjusted
Commissions     $        $       $ 272.0  $        $       $ 
                272.0      -                   225.7      -         225.7
Fees            215.6     -            215.6     189.0     -            189.0
Supplemental
commissions    17.1      -            17.1      13.5      -            13.5
(1)
Contingent
commissions    19.0      -            19.0      16.8      -            16.8
(1)
Investment
income and
gains realized  2.9       (0.7)        2.2       3.0       (1.1)        1.9
onbooks of
business sales
Revenues from
clean coal      20.1      -            20.1      (1.1)     -            (1.1)
activities
Other net
revenues -      0.1       -            0.1       0.5       -            0.5
Corporate
    Revenues    546.8     (0.7)        546.1     447.4     (1.1)        446.3
Compensation    344.4     (5.6)        338.8     295.1     (5.5)        289.6
Operating       108.3     (1.2)        107.1     94.0      (1.3)        92.7
Cost of
revenues from   17.7      -            17.7      -         -            -
clean coal
activities
Interest        10.6      -            10.6      9.5       -            9.5
Depreciation    9.7       -            9.7       8.1       -            8.1
Amortization    21.1      -            21.1      16.4      -            16.4
Change in
estimated
acquisition     2.5       (0.1)        2.4       0.8       1.2          2.0
earnout
payables
    Expenses    514.3     (6.9)        507.4     423.9     (5.6)        418.3
Earnings
before income   32.5      6.2          38.7      23.5      4.5          28.0
taxes
Provision for   4.4       2.5          6.9       8.3       1.8          10.1
income taxes
Net earnings   $       $       $        $       $       $  
                28.1      3.7          31.8     15.2      2.7          17.9
Diluted net     $       $        $        $       $        $  
earnings per    0.24      0.03         0.27     0.14      0.02        0.16
share
Dividends       $                    $        $                    $  
declared per    0.34                   0.34     0.33                   0.33
share
EBITDAC
Net earnings   $       $       $        $       $       $  
                28.1      3.7          31.8     15.2      2.7          17.9
Provision for   4.4       2.5          6.9       8.3       1.8          10.1
income taxes
Interest        10.6      -            10.6      9.5       -            9.5
Depreciation    9.7       -            9.7       8.1       -            8.1
Amortization    21.1      -            21.1      16.4      -            16.4
Change in
estimated
acquisition     2.5       (0.1)        2.4       0.8       1.2          2.0
earnout
payables
EBITDAC         $       $       $        $       $       $  
                76.4      6.1          82.5     58.3      5.7          64.0
See "Information Regarding Non-GAAP Measures" on page 5 of 9 and notes
to first quarter 2012 earnings release on page 9 of 9.

(8 of 9)

Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited - in millions except per share data)
                                                             Mar 31,   Dec 31,
                                                             2012      2011
Cash and cash equivalents                                    $      $   
                                                             301.8    291.2
Restricted cash                                              677.8     692.5
Premiums and fees receivable                                1,080.1   1,027.1
Other current assets                                         165.3     188.6
      Total current assets                                   2,225.0   2,199.4
Fixed assets - net                                           95.7      91.3
Deferred income taxes                                        236.5     240.2
Other noncurrent assets                                      251.5     235.8
Goodwill - net                                               1,195.6   1,155.3
Amortizable intangible assets - net                          598.4     561.5
      Total assets                                           $       $  
                                                             4,602.7   4,483.5
Premiums payable to insurance and reinsurance companies      $       $  
                                                             1,638.1   1,621.9
Accrued compensation and other accrued liabilities           214.6     304.1
Unearned fees                                                73.6      69.7
Other current liabilities                                    25.9      67.9
Corporate related borrowings - current                       92.0      10.0
      Total current liabilities                              2,044.2   2,073.6
Corporate related borrowings - noncurrent                    675.0     675.0
Other noncurrent liabilities                                 526.9     491.3
      Total liabilities                                      3,246.1   3,239.9
Stockholders' equity:
Common stock - issued and outstanding                        118.3     114.7
Capital in excess of par value                               803.8     693.2
Retained earnings                                            470.5     482.9
Accumulated other comprehensive loss                         (36.0)    (47.2)
      Total stockholders' equity                             1,356.6   1,243.6
      Total liabilities and stockholders' equity             $       $  
                                                             4,602.7   4,483.5
                                                             1st Q     1st Q
                                                             Ended     Ended
OTHER INFORMATION                                            Mar 31,   Mar 31,
                                                             2012      2011
Basic weighted average shares outstanding (000s)             116,376   109,265
Diluted weighted average shares outstanding (000s)           117,849   110,315
Common shares repurchased (000s)                             -         9
Common shares issued for acquisitions and earnouts (000s)    2,472     902
Number of acquisitions closed                                12        4
Annualized revenues acquired (in millions)                   $      $   
                                                              30.6    27.2
Workforce at end of period (includes acquisitions)           12,532    10,845
Notes to First Quarter 2012 Earnings Release
      Reported supplemental commission revenues recognized in 2012, 2011 and
      2010 by quarter are shown in the financial supplement. As previously
      disclosed, manyinsurance carriers now provide sufficient information
      for Gallagher to recognize supplemental commission revenues on a
      quarterly basis for a majority of its 2012,2011 and 2010 supplemental
      commission arrangements. However, in 2009 and prior years, most
      carriers only provided this information on an annual basis after theend
      of the contract period. Accordingly, the 2010 amounts reported in the
(1)   table include both a full year of 2009 supplemental commission revenues
      and 2010supplemental commission revenues that were recognized by
      Gallagher on a quarterly basis. This situation did not occur again in
      2011 or 2012 and should notoccur in 2013 or later years as Gallagher
      anticipates that most of the carriers will continue to provide
      information on a quarterly basis sufficient to allow recognitionof
      revenues in a similar manner in future quarters. The reported and
      adjusted supplemental commissions for 2012, 2011 and 2010 are as follows
      (in millions):
                                  Q1        Q2       Q3      Q4        Full
                                                                       Year
      2012
      Reported supplemental       $                                  $   
      commissions                 17.1                                  17.1
      Reported contingent         19.0                                 19.0
      commissions
      Reported supplemental       $                                  $   
      and contingent             36.1                                  36.1
      commissions
      2011
      Reported supplemental       $       $       $     $       $   
      commissions                 13.5      14.0    14.5    14.0      56.0
      Reported contingent         16.8      7.9      9.9     3.5       38.1
      commissions
      Reported supplemental and   $       $       $     $       $   
      contingent commissions      30.3      21.9    24.4    17.5      94.1
      2010
      Reported supplemental       $       $       $     $       $   
      commissions                 27.9      10.6    10.2    12.1      60.8
      Adjustment as if
      supplemental
      commissioninformation      (14.7)    -        -       -         (14.7)
      was provided on a
      quarterly basis
      Adjusted supplemental       13.2      10.6     10.2    12.1      46.1
      commissions
      Reported contingent         15.5      8.7      9.5     3.1       36.8
      commissions
      Adjusted supplemental and   $       $       $     $       $   
      reported contingent         28.7      19.3    19.7    15.2      82.9
      commissions

Contact: Marsha Akin
Director - Investor Relations
630-285-3501 or marsha_akin@ajg.com

(9 of 9)

SOURCE Arthur J. Gallagher & Co.
 
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