Arthur J. Gallagher & Co. Announces Third Quarter 2009 Financial Results

ITASCA, Ill., Oct. 27 /PRNewswire-FirstCall/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter and nine-month periods ended September 30, 2009. A printer-friendly format of this release and the supplemental quarterly data is available at www.ajg.com .

Quarter Ended September 30 Diluted Net Earnings Revenues EBITDA (Loss) Per Share 3rd 3rd 3rd 3rd 3rd 3rd Segment Q 09 Q 08 Chg Q 09 Q 08 Chg Q 09 Q 08 Chg ------- ---- ---- --- ---- ---- --- ---- ---- -- Continuing Operations $ in millions $ in millions

Brokerage $325.8 $314.4 4% $81.0 $74.3 9% $0.36 $0.38 -6% Risk Management 113.5 118.6 -4% 17.4 14.4 21% 0.09 0.08 12% ----- ----- ---- ---- ---- ----

Total Brokerage & Risk Management 439.3 433.0 1% 98.4 88.7 11% 0.45 0.46 -2%

Financial Services & Corporate 0.2 (4.8) (5.8) (14.0) (0.04) (0.02) --- ---- ---- ----- ------ -----

Total Continuing Operations $439.5 $428.2 $92.6 $74.7 0.41 0.44 ====== ====== ===== =====

Discontinued Operations - (0.04) --- -----

Total Company $0.41 $0.40 ===== =====

Nine Months Ended September 30 Diluted Net Earnings Revenues EBITDA (Loss) Per Share 9 9 9 9 9 9 Mths Mths Mths Mths Mths Mths Segment 09 08 Chg 09 08 Chg 09 08 Chg ------- -- -- --- -- -- --- -- -- --- Continuing $ in millions $ in millions Operations

Brokerage $955.4 $884.6 8% $226.6 $186.9 21% $1.03 $0.93 10% Risk Management 339.0 350.0 -3% 51.3 46.9 9% 0.25 0.25 0% ----- ---- ---- ---- ---- ----

Total Brokerage & Risk Management 1,294.4 1,234.6 5% 277.9 233.8 19% 1.28 1.18 8%

Financial Services & Corporate (0.2) (1.7) (10.3) (15.1) (0.14) (0.11) ---- ---- ----- ----- ----- -----

Total Continuing Operations $1,294.2 $1,232.9 $267.6 $218.7 1.14 1.07 ======== ======== ====== ======

Discontinued Operations (0.02) (0.29) ----- -----

Total Company $1.12 $0.78 ===== =====

3rd 3rd 9 9 Other Information Q 09 Q 08 Mths 09 Mths 08 ----------------- ---- ---- ------- ------- Shares issued in acquisitions 463,000 1,061,000 4,946,000 1,544,000 Number of acquisitions closed 2 8 11 28 Annualized revenue acquired (in millions) $2.9 $41.5 $83.7 $99.0 Book value per share at end of period $8.54 $8.16 Corporate related borrowings at end of period (in millions) $531.0 $518.0

This earnings release contains certain non-GAAP information. EBITDA, a non-GAAP measure, represents earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables. A reconciliation of EBITDA to earnings from continuing operations before income taxes (which were $63.1 million and $49.4 million in third quarter 2009 and 2008, respectively, and $180.7 million and $145.6 million in the nine-month periods ended September 30, 2009 and 2008, respectively) is included on page 7 of this earnings release.

"The Gallagher team continued to perform well in the third quarter. EBITDA growth of 11% and EBITDA margin expansion of 1.9% in our combined Brokerage and Risk Management Segments is an excellent result in this environment," said J. Patrick Gallagher Jr., Chairman, President and CEO. "For the first nine months of 2009, our Brokerage and Risk Management operations combined to grow revenues 5%, grow EPS 8%, grow EBITDA 19% and expand EBITDA margins by 2.5% from the same period in 2008. However, I continue to be concerned about the current operating environment as insurance rates remain soft and exposure units continue to decline. I believe Gallagher, and the brokerage industry as a whole, will face continued growth challenges in late 2009 and into next year. Despite this concern, I remain confident that the nearly 10,000 Gallagher world-wide associates will continue working together to help our clients navigate this difficult environment and continue to build shareholder value."

Expense Reduction Actions

Over the next few months, Gallagher expects to reduce its existing middle and back office workforce by approximately 400 positions, or approximately 4% of its global workforce, through a combination of job elimination and attrition. In connection with this action, Gallagher expects to record a nonrecurring, pretax charge in fourth quarter 2009 of approximately $10.0 to $13.0 million for related severance costs. Gallagher estimates annual pretax cost savings associated with this reduction in workforce of approximately $25.0 to $28.0 million.

Brokerage Segment Third Quarter Highlights

-- Revenue growth of 4% in the quarter. Organic revenue declined 5.5% compared to 2008. Items excluded from organic growth computations yet impacting revenues in the third quarter and nine-month periods in 2009 compared to the same periods in 2008 include the following (in millions):

3rd 3rd 9 9 Q 09 Q 08 Mths 09 Mths 08 ---- ---- ------- ------- Total revenues as reported $325.8 $314.4 $955.4 $884.6

Less adjustments to revenues: Gains realized from books of business sales 1.7 5.7 11.1 10.9 Investment income 1.0 3.6 3.5 12.5 Retail contingent commissions related to acquisitions 1.3 1.0 13.0 8.3 MGA/MGU performance income 4.6 6.2 16.1 15.4 Revenues from acquisitions in the last twelve months 38.0 - 117.6 - Revenues related to divestitures in the last twelve months - 1.2 - 9.0 Levelized foreign currency - 1.2 - 9.7 --- --- --- ---

Total revenue adjustments 46.6 18.9 161.3 65.8 ---- ---- ----- ----

Organic revenues $279.2 $295.5 $794.1 $818.8 ====== ====== ====== ======

-- Third quarter compensation expense ratio was 1.3% higher than 2008 primarily as a result of increased employee benefits of 0.6% and severance costs of 0.3% partially offset by a decrease in foreign currency translation of 0.6%. Also contributing to the increase in the third quarter compensation expense ratio was the impact of reduced book gains and investment income in 2009, as well as a decline in organic revenue in 2009. -- Third quarter operating expense ratio was 2.5% lower than 2008. The ratio was primarily impacted by lower travel and meeting expenses of 0.5%, decreased professional fees of 0.8%, decreased rent expense of 0.5%, decreased bad debt expense of 0.4% and foreign currency translation of 0.3%. These were partially offset by higher business insurance costs of 0.3%, the impact of reduced book gains and investment income in 2009 and a decline in organic revenue in 2009.

-- The change in estimated acquisition earnout payables expense in the 2009 statement of earnings relates to the adoption of a new accounting standard related to business combinations, which was effective January 1, 2009 for acquisitions completed in 2009.

Brokerage Segment Third Quarter Highlights (continued)

-- EBITDA margin of 24.9%, which was up 1.3% as compared to 2008. Certain items impacting EBITDA in the third quarter and nine-month periods in 2009 compared to the same periods in 2008 include the following (in millions):

3rd 3rd 9 9 Q 09 Q 08 Mths 09 Mths 08 ---- ---- ------- ------- Earnings from continuing operations $36.9 $36.1 $102.5 $87.2 Provision for income taxes 24.5 23.4 67.6 57.4 Depreciation 4.7 4.7 14.1 13.3 Amortization 13.7 10.1 39.8 29.0 Change in estimated acquisition earnout payables 1.2 - 2.6 - --- --- --- ---

Total EBITDA as reported 81.0 74.3 226.6 186.9

Gains realized from books of business sales (1.7) (5.7) (11.1) (10.9) Investment income (1.0) (3.6) (3.5) (12.5) Levelized foreign currency (0.7) 2.0 (0.8) 5.0 ---- --- ---- ---

Adjusted EBITDA $77.6 $67.0 $211.2 $168.5 ===== ===== ====== ======

Adjusted EBITDA Growth 15.8% 25.3% ==== ====

-- Third quarter effective tax rate was 39.9% in 2009 and 39.3% in 2008.

-- Gallagher previously shifted and diversified nearly all of its world-wide cash balances into accounts that are insured/guaranteed by various governments or governmental agencies. Most of these accounts are non-interest bearing. While Gallagher believes that these accounts are secure, there can be no assurances that governmental guarantee programs would be sufficient to repay balances in the event of a system-wide failure of the global banking system.

Risk Management Segment Third Quarter Highlights

-- Revenue declined 4% in the quarter. Organic revenue declined 2.8% compared to 2008. Items excluded from organic growth computations yet impacting revenues in the third quarter and nine-month periods in 2009 compared to the same periods in 2008 include the following (in millions):

3rd 3rd 9 9 Q 09 Q 08 Mths 09 Mths 08 ---- ---- ------- ------- Total revenues as reported $113.5 $118.6 $339.0 $350.0

Less adjustments to revenues: Investment income 0.4 1.0 1.1 3.2 Levelized foreign currency - 1.2 - 9.5 --- --- --- ---

Total revenue adjustments 0.4 2.2 1.1 12.7 --- --- --- ----

Organic revenues 113.1 116.4 337.9 337.3

Change in performance bonus revenues - 3.2 - 1.5 --- --- --- ---

Adjusted organic revenues $113.1 $113.2 $337.9 $335.8 ====== ====== ====== ======

-- Third quarter compensation expense ratio was 2.2% higher than 2008 primarily as a result of increased incentive compensation of 0.7% and increased employee benefits of 0.7%, partially offset by reduced temporary help. Also contributing to the increase in the third quarter compensation expense ratio was the impact of a decline in organic revenue in 2009.

-- Third quarter operating expense ratio was 5.4% lower than 2008 primarily reflecting foreign currency translation of 2.2%, lower travel and meeting expense of 0.6%, decreased office expenses of 1.3%, decreased business insurance costs of 0.8% and decreased professional fees of 0.3%.

Risk Management Segment Third Quarter Highlights (continued)

-- EBITDA margin of 15.3%, which was up 3.2% compared to 2008. Certain items impacting EBITDA in the third quarter and nine-month periods in 2009 compared to the same periods in 2008 include the following (in millions):

3rd 3rd 9 9 Q 09 Q 08 Mths 09 Mths 08 ---- ---- ------- ------- Earnings from continuing operations $8.7 $7.0 $25.3 $22.9 Provision for income taxes 5.6 4.1 16.7 14.2 Depreciation 3.0 3.2 8.8 9.4 Amortization 0.1 0.1 0.5 0.4 --- --- --- ---

Total EBITDA as reported 17.4 14.4 51.3 46.9

Investment income (0.4) (1.0) (1.1) (3.2) Levelized foreign currency - 2.4 (0.1) (0.1) Lease terminations - - 0.6 - Severance and other benefit charges - - 0.4 - --- --- --- ---

Adjusted EBITDA $17.0 $15.8 $51.1 $43.6 ===== ===== ===== =====

Adjusted EBITDA Growth 7.6% 17.2% === ====

-- Third quarter effective tax rate was 39.2% in 2009 and 36.9% in 2008. The increase in the third quarter 2009 tax rate compared to 2008 is the result of resolving certain income tax matters in third quarter 2008.

Financial Services and Corporate Segment Third Quarter Highlights

-- Gallagher owns 42% of Chem-Mod, LLC which has developed technologies that reduce harmful emissions from coal-fired power plants. Gallagher is in the process of building eight commercial facilities of various sizes that will produce clean-burning coal using the Chem-Mod technology and may qualify for tax credits under Internal Revenue Code Section 45 provided the facilities are placed in service by December 31, 2009.

Gallagher has signed definitive agreements with one utility to install three facilities, is negotiating contracts with another utility to install three facilities and is working with several other utilities regarding the remaining two facilities. To build and install these eight facilities, Gallagher expects to make capital investments totaling $30 to $35 million, of which $9.6 million has been made as of September 30, 2009, and expects to recover $10 to $15 million from its partners once the facilities are placed in service. Gallagher expects its net capital investment will total approximately $20 million.

There are significant uncertainties related to these investments, which must be favorably resolved in order for Gallagher to recover its capital investments and generate income from these facilities including: the completion of each facility by December 31, 2009, the timely receipt by the utility of necessary regulatory permits, the issuance of favorable IRS guidance, the subsequent availability of raw materials used in the Chem-Mod technology, and consistent operation of the facilities once they are placed in service. While it is too early to narrow the range of expected future value of these facilities, if these and other uncertainties are resolved favorably, Gallagher could generate up to $40 million of aggregate annual after-tax income from its investment in each of the next ten years from these eight facilities.

-- In addition to the $400.0 million of long-term borrowing outstanding under the Note Purchase Agreement, at September 30, 2009, Gallagher had borrowings of $131.0 million outstanding under its line of credit facility, which was used primarily to fund 2008 and 2009 acquisitions and short-term cash flow needs. The weighted average interest rate on the line of credit borrowings, which is based on a spread over short-term LIBOR, was 0.85%. The interest rate at October 23, 2009 for a sixty day borrowing on this line was 0.85%.

-- The following provides a reconciliation of third quarter income taxes as reported in the Financial Services and Corporate Segment (in millions):

2009 2008 ---- ---- Expected benefit at 40% Federal and state statutory rate $(5.0) $(8.5) Recognition and resolution of certain income tax matters related to prior years (3.6) (11.3) ---- -----

Reported benefit for income taxes $(8.6) $(19.8) ===== ======

Consolidated Company Income Taxes

Gallagher allocates the provision for income taxes to the Brokerage and Risk Management Segments as if those segments were preparing income tax provisions on a separate company basis. Gallagher historically reported, and anticipates reporting for the foreseeable future, an effective tax rate of approximately 39% to 41% in both its Brokerage and Risk Management Segments. Gallagher's consolidated effective tax rate for third quarter was 34.1% in 2009 and 15.6% in 2008. The third quarter tax rates in both 2009 and 2008 are lower than the statutory rates due to the recognition and resolution of certain income tax matters in third quarter 2009 and 2008.

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The company will host a webcast conference call on Wednesday, October 28, 2009 at 9:00 a.m. ET 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 15 countries and does business in more than 100 countries around the world through a network of correspondent brokers and consultants.

This press release is historical in nature and only speaks to the day it is dated. 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.

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, changes in premium rates and in insurance markets generally, and changes in securities and fixed income markets as well as developments in the areas of tax legislation. In addition, there are significant uncertainties related to the Section 45 investments, which must be favorably resolved in order for Gallagher to recoup these investments and generate earnings on them. These include the issuance of favorable IRS guidance, the timely receipt by the utility of regulatory permits, completion of each facility by December 31, 2009 and satisfaction of certain emissions reductions. Please refer to our filings with the Securities and Exchange Commission, including Item 1, "Business - Information Concerning Forward-Looking Statements" and Item 1A, "Risk Factors", of Gallagher's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, for a more detailed discussion of these factors.

Arthur J. Gallagher & Co. Segment Statement of Earnings (Unaudited - in millions except per share data)

3 Months 3 Months 9 Months 9 Months Ended Ended Ended Ended Sep 30, Sep 30, Sep 30, Sep 30, BROKERAGE SEGMENT 2009 2008 2009 2008 -------- -------- -------- -------

Commissions $254.3 $244.9 $755.1 $697.2 Fees 68.8 60.2 185.7 164.0 Investment income and other 2.7 9.3 14.6 23.4 --- --- ---- ---- Revenues 325.8 314.4 955.4 884.6 ----- ----- ----- -----

Compensation 190.3 179.6 572.1 522.5 Operating 54.5 60.5 156.7 175.2 Depreciation 4.7 4.7 14.1 13.3 Amortization 13.7 10.1 39.8 29.0 Change in estimated acquisition earnout payables 1.2 - 2.6 - --- --- --- --- Expenses 264.4 254.9 785.3 740.0 ----- ----- ----- -----

Earnings from continuing operations before income taxes 61.4 59.5 170.1 144.6 Provision for income taxes 24.5 23.4 67.6 57.4 ---- ---- ---- ---- Earnings from continuing operations $36.9 $36.1 $102.5 $87.2 ===== ===== ====== =====

Diluted earnings from continuing operations per share $0.36 $0.38 $1.03 $0.93 Growth - revenues 4% 8% 8% 8% Organic growth (decline) in commissions and fees (1) -6% 1% -3% 1% Compensation expense ratio (4) 58% 57% 60% 59% Operating expense ratio (5) 17% 19% 16% 20% Pretax profit margin (6) 19% 19% 18% 16% EBITDA margin (3) 25% 24% 24% 21% Effective tax rate 40% 39% 40% 40% Workforce at end of period (includes acquisitions) 5,965 5,461

RISK MANAGEMENT SEGMENT

Fees $113.1 $117.6 $337.9 $346.8 Investment income and other 0.4 1.0 1.1 3.2 --- --- --- --- Revenues 113.5 118.6 339.0 350.0 ----- ----- ----- -----

Compensation 69.9 70.4 207.9 210.9 Operating 26.2 33.8 79.8 92.2 Depreciation 3.0 3.2 8.8 9.4 Amortization 0.1 0.1 0.5 0.4 --- --- --- --- Expenses 99.2 107.5 297.0 312.9 ---- ----- ----- -----

Earnings from continuing operations before income taxes 14.3 11.1 42.0 37.1 Provision for income taxes 5.6 4.1 16.7 14.2 --- --- ---- ---- Earnings from continuing operations $8.7 $7.0 $25.3 $22.9 ==== ==== ===== =====

Diluted earnings from continuing operations per share $0.09 $0.08 $0.25 $0.25 Growth (decline) - revenues -4% 8% -3% 8% Organic growth (decline) in fees (1) -3% 8% 0% 7% Compensation expense ratio (4) 62% 59% 61% 60% Operating expense ratio (5) 23% 29% 24% 26% Pretax profit margin (6) 13% 9% 12% 11% EBITDA margin (3) 15% 12% 15% 13% Effective tax rate 39% 37% 40% 38% Workforce at end of period (includes acquisitions) 3,835 3,903

FINANCIAL SERVICES AND CORPORATE SEGMENT

Investment income (loss): Asset Alliance Corporation $- $(1.5) $- $(1.7) Alternative energy (0.1) (0.8) 0.3 3.0 Real estate and venture capital 0.3 - 0.4 (0.3) --- --- --- ---- 0.2 (2.3) 0.7 1.0 Investment losses - (2.5) (0.9) (2.7) --- ---- ---- ---- Revenues 0.2 (4.8) (0.2) (1.7) --- ---- ---- ----

Investment expenses: Alternative energy 1.1 - 2.2 (1.8) Compensation, professional fees and other 4.9 3.6 7.9 9.6 --- --- --- --- 6.0 3.6 10.1 7.8 Operating - state tax matters - 5.6 - 5.6 Interest 6.8 7.1 21.1 20.9 Depreciation - 0.1 - 0.1 --- --- --- --- Expenses 12.8 16.4 31.2 34.4 ---- ---- ---- ----

Loss from continuing operations before income taxes (12.6) (21.2) (31.4) (36.1) Benefit for income taxes (8.6) (19.8) (17.3) (25.7) ---- ----- ----- ----- Loss from continuing operations $(4.0) $(1.4) $(14.1) $(10.4) ===== ===== ====== ======

Diluted loss from continuing operations per share $(0.04) $(0.02) $(0.14) $(0.11)

See notes to third quarter 2009 earnings release and non-GAAP financial measures on page 8 of 8.

Arthur J. Gallagher & Co. Consolidated Statement of Earnings (Unaudited - in millions except per share data)

3 Months 3 Months 9 Months 9 Months Ended Ended Ended Ended Sep 30, Sep 30, Sep 30, Sep 30, TOTAL COMPANY 2009 2008 2009 2008 -------- -------- -------- --------

Commissions $254.3 $244.9 $755.1 $697.2 Fees 181.9 177.8 523.6 510.8 Investment income and other - Brokerage and Risk Management 3.1 10.3 15.7 26.6 Investment income (loss)- Financial Services and Corporate 0.2 (2.3) 0.7 1.0 Investment losses - (2.5) (0.9) (2.7) --- ---- ---- ---- Revenues 439.5 428.2 1,294.2 1,232.9 ----- ----- ------- -------

Compensation 260.2 250.0 780.0 733.4 Operating 80.7 99.9 236.5 273.0 Investment expenses 6.0 3.6 10.1 7.8 Interest 6.8 7.1 21.1 20.9 Depreciation 7.7 8.0 22.9 22.8 Amortization 13.8 10.2 40.3 29.4 Change in estimated acquisition earnout payables 1.2 - 2.6 - --- --- --- --- Expenses 376.4 378.8 1,113.5 1,087.3 ----- ----- ------- -------

Earnings from continuing operations before income taxes 63.1 49.4 180.7 145.6 Provision for income taxes 21.5 7.7 67.0 45.9 ---- --- ---- ---- Earnings from continuing operations 41.6 41.7 113.7 99.7 ---- ---- ----- ----

Loss on discontinued operations, net of income taxes - (3.9) (1.9) (27.1) --- ---- ---- -----

Net earnings $41.6 $37.8 $111.8 $72.6 ===== ===== ====== =====

Diluted earnings from continuing operations per share $0.41 $0.44 $1.14 $1.07 Diluted loss on discontinued operations per share - (0.04) (0.02) (0.29) --- ----- ----- ----- Diluted net earnings per share $0.41 $0.40 $1.12 $0.78 ===== ===== ===== =====

Dividends declared per share $0.32 $0.32 $0.96 $0.96 ===== ===== ===== =====

Other Information Basic weighted average shares outstanding (000s) 101,352 94,114 99,994 93,153 Diluted weighted average shares outstanding (000s) 101,550 94,556 100,108 93,623 Common shares repurchased (000s) 17 3 35 49 Annualized return on beginning stockholders' equity (7) 20% 14% Number of acquisitions closed 2 8 11 28 Workforce at end of period (includes acquisitions) 10,015 9,573

Arthur J. Gallagher & Co. EBITDA (2) (Unaudited - in millions)

3 Months 3 Months 9 Months 9 Months Ended Ended Ended Ended BROKERAGE Sep 30, Sep 30, Sep 30, Sep 30, SEGMENT 2009 2008 2009 2008 -------- -------- -------- --------

Earnings from continuing operations $36.9 $36.1 $102.5 $87.2 Provision for income taxes 24.5 23.4 67.6 57.4 Depreciation 4.7 4.7 14.1 13.3 Amortization 13.7 10.1 39.8 29.0 Change in estimated acquisition earnout payables 1.2 - 2.6 - --- --- --- ---

Brokerage EBITDA $81.0 $74.3 $226.6 $186.9 ===== ===== ====== ======

RISK MANAGEMENT SEGMENT

Earnings from continuing operations $8.7 $7.0 $25.3 $22.9 Provision for income taxes 5.6 4.1 16.7 14.2 Depreciation 3.0 3.2 8.8 9.4 Amortization 0.1 0.1 0.5 0.4 --- --- --- ---

Risk Management EBITDA $17.4 $14.4 $51.3 $46.9 ===== ===== ===== =====

FINANCIAL SERVICES AND CORPORATE SEGMENT

Loss from continuing operations $(4.0) $(1.4) $(14.1) $(10.4) Benefit for income taxes (8.6) (19.8) (17.3) (25.7) Interest 6.8 7.1 21.1 20.9 Depreciation - 0.1 - 0.1 --- --- --- ---

Financial Services and Corporate EBITDA $(5.8) $(14.0) $(10.3) $(15.1) ===== ====== ====== ======

TOTAL COMPANY

Net earnings $41.6 $37.8 $111.8 $72.6 Loss on discontinued operations, net of income taxes - 3.9 1.9 27.1 --- --- --- ----

Earnings from continuing operations 41.6 41.7 113.7 99.7 Provision for income taxes 21.5 7.7 67.0 45.9 ---- --- ---- ----

Earnings from continuing operations before income taxes 63.1 49.4 180.7 145.6 Interest 6.8 7.1 21.1 20.9 Depreciation 7.7 8.0 22.9 22.8 Amortization 13.8 10.2 40.3 29.4 Change in estimated acquisition earnout payables 1.2 - 2.6 - --- --- --- ---

Total Company EBITDA $92.6 $74.7 $267.6 $218.7 ===== ===== ====== ======

See notes to third quarter 2009 earnings release and non- GAAP financial measures on page 8 of 8.

Arthur J. Gallagher & Co. Consolidated Balance Sheet (Unaudited - in millions except per share data)

Sep 30, Dec 31, 2009 2008 -------- --------

Cash and cash equivalents $237.7 $194.4 Restricted cash 551.8 551.0 Investments - current (8) 0.5 0.2 Premiums and fees receivable 664.8 826.5 Other current assets 110.8 129.9 ----- ----- Total current assets 1,565.6 1,702.0

Investments - noncurrent (8) 25.3 17.9 Fixed assets - net 82.6 88.8 Deferred income taxes 272.9 300.9 Other noncurrent assets 133.9 104.1 Goodwill - net 715.6 596.4 Amortizable intangible assets - net 445.2 461.2 ----- ----- Total assets $3,241.1 $3,271.3 ======== ========

Premiums payable to insurance and reinsurance companies $1,208.4 $1,365.3 Accrued compensation and other accrued liabilities 216.7 260.1 Unearned fees 46.8 46.2 Other current liabilities 27.6 55.0 Corporate related borrowings - current 131.0 132.0 ----- ----- Total current liabilities 1,630.5 1,858.6

Corporate related borrowings - noncurrent 400.0 400.0 Other noncurrent liabilities 341.5 274.2 ----- ----- Total liabilities 2,372.0 2,532.8 ------- -------

Stockholders' equity: Common stock - issued and outstanding 101.8 96.4 Capital in excess of par value 328.8 230.4 Retained earnings 466.3 452.0 Accumulated other comprehensive loss (27.8) (40.3) ----- ----- Total stockholders' equity 869.1 738.5 ----- ----- Total liabilities and stockholders' equity $3,241.1 $3,271.3 ======== ========

Other Information Book value per share $8.54 $7.66

Notes to Third Quarter 2009 Earnings Release --------------------------------------------

Non-GAAP Financial Measures ---------------------------

This exhibit contains supplemental non-GAAP financial information within the meaning of Regulation G of the SEC's rules. Consistent with Regulation G, a description of such information is provided below and a reconciliation of certain of such items to U.S. generally accepted accounting principles (GAAP) is provided in this press release. Gallagher believes the items described below provide meaningful additional information, which may be helpful to investors in assessing certain aspects of Gallagher's operating performance and financial condition that may not be otherwise apparent from GAAP. Industry peers provide similar supplemental information, although they may not use the same or comparable terminology and may not make identical adjustments. This non-GAAP information should be used in addition to, but not as a substitute for, the GAAP information.

(1) Organic growth in commissions and fees excludes the first twelve months of net commission and fee revenues generated from the 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 determine the revenue growth that is 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 foreign currency translation.

(2) EBITDA represents earnings from continuing operations before interest, income taxes, depreciation, amortization and change in estimated acquisition earnout payables.

(3) Represents earnings from continuing operations before interest, income taxes, depreciation, amortization and change in estimated acquisition earnout payables (EBITDA) divided by total revenues.

Other -----

(4) Represents compensation expense divided by total revenues.

(5) Represents operating expenses divided by total revenues.

(6) Represents pretax earnings divided by total revenues.

(7) Represents annualized year-to-date net earnings divided by total stockholders' equity as of the beginning of the year.

(8) Investments at September 30, 2009 include the following:

Funding Current Noncurrent Commitments ------- ---------- -----------

Asset Alliance Corporation $0.2 $1.0 $-

Alternative energy: Equity interest in biomass projects and pipeline - 8.5 - Clean energy related ventures 0.3 9.7 24.0

Real estate and venture capital - 6.1 1.0 --- --- ---

Total investments $0.5 $25.3 $25.0 ==== ===== =====

SOURCE Arthur J. Gallagher & Co.