UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
April 23, 2003
--------------
Date of Report: (Date of earliest event reported)
ARTHUR J. GALLAGHER & CO.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9761 36-2151613
---------------------- -------------------- -------------------
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification Number)
Two Pierce Place, Itasca, Illinois 60143-3141, (630) 773-3800
-------------------------------------------------------------
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
Item 9. Regulation FD Disclosure (including information being provided under
Item 12)
The following information is furnished pursuant to Item 9 "Regulation FD
Disclosure" and Item 12 "Disclosure of Results of Operations and Financial
Condition". The information furnished pursuant to Item 12 is included under this
Item 9 in accordance with SEC Release Nos. 33-8216 and 34- 47583.
On April 23, 2003, Arthur J. Gallagher & Co. ("AJG") issued a press release
setting forth AJG's first quarter 2003 earnings. A copy of AJG's press release
is attached hereto as Exhibit (99) and hereby incorporated by reference.
Exhibit Index
(99) Press release, dated April 23, 2003, issued by Arthur J. Gallagher &
Co.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Arthur J. Gallagher & Co.
/s/ Douglas K. Howell
By: ---------------------------
Douglas K. Howell
Vice President and Chief Financial Officer
Dated: April 23, 2003
[GRAPHIC OMITTED] Arthur J. Gallagher & Co.
FOR IMMEDIATE RELEASE CONTACT: Marsha J. Akin
Investor Relations
(630) 773-3800
www.ajg.com
ARTHUR J. GALLAGHER & CO. ANNOUNCES
FIRST QUARTER 2003 FINANCIAL RESULTS
ITASCA, IL, April 23, 2003-- Arthur J. Gallagher & Co. today reported its
financial results for the quarter ended March 31, 2003. A printer-friendly
format is available at www.ajg.com.
Revenues % Net Earnings Earnings Per Share
Segment 1Q 03 1Q 02 Chg 1Q 03 1Q 02 1Q 03 1Q 02
------------------ ---------------------------- -------------------- -------------------
($ in millions) ($ in millions)
Brokerage $ 188.0 $ 154.7 22% $ 20.1 $ 17.7 $ 0.22 $ 0.20
Risk Management 76.7 70.0 10% 8.1 8.0 0.09 0.08
Financial Services (10.4) 14.3 (16.3) 8.0 (0.18) 0.09
---------------------------- ------------------ -------------------
Total Company $ 254.3 $ 239.0 6% $ 11.9 $ 33.7 $ 0.13 $ 0.37
============================ ================== ===================
In the first quarter 2003, the company decided to exit from its investments in
venture capital, development stage enterprises and turn-arounds and recorded an
after-tax charge of $19.3 million, or $0.21 per share, to reduce the carrying
values to the estimated realizable value. The company does not intend to make
future investments in these investment classes. Of the company's $700 million
investment portfolio, the net carrying value of these investments totaled $31.7
million and $4.4 million at December 31, 2002 and March 31, 2003, respectively.
The company believes its other investments are sound. In addition, late in the
first quarter the company signed a new synthetic fuel deal, which is expected to
keep the effective tax rate in the mid-20s for the year.
Brokerage Segment Highlights
o Very strong first-quarter revenue growth.
o Record first-quarter earnings.
o The company's 2001 and 2002 organic hiring strategy is delivering
better-than-expected results.
o Rate environment continues to be strong.
Risk Management Segment Highlights
o Claim counts recovering to pre 9/11 levels leading to improved revenue
growth rates.
o Outstanding new business growth in the quarter and over 98% account
retention levels.
"We are extremely pleased with the outstanding 22% revenue growth achieved
within our Brokerage segment, of which 15% is organic," said President and Chief
Executive Officer, J. Patrick Gallagher, Jr. "In this very tough environment for
our clients, our niche strategy and alternative market expertise are proving
very effective in addressing their needs. We believe that we now have a full
complement of talent in place. The hiring restrictions we implemented at the end
of the third quarter have been successful and remain in force. The new producers
we added over the last two years are doing an excellent job. As a group, they
are on track to be fully self-supporting by the end of 2003, which is slightly
ahead of last year's expectations. It should take only one more renewal cycle to
bring their compensation ratio in line with our historical levels. Accordingly,
we remain confident that our strategy of investing in people during 2001 and
2002 will contribute substantially to our long-range growth."
(1 of 4)
Proforma results for the Brokerage segment, excluding revenues, compensation and
other operating expenses associated with producer expansion, are:
Revenues % Net Earnings Earnings Per Share
Brokerage Segment 1Q 03 1Q 02 Chg 1Q 03 1Q 02 1Q 03 1Q 02
----------------------------- --------------------------- -------------------- -------------------
($ in millions) ($ in millions)
As reported $ 188.0 $ 154.7 22% $ 20.1 $ 17.7 $0.22 $0.20
Estimated impact of new hires (20.1) (10.4) 3.1 2.9 0.03 0.03
--------------------------- -------------------- -------------------
Excluding new hires $ 167.9 $ 14.3 16% $ 23.2 $ 20.8 $0.25 $0.23
=========================== ==================== ===================
"Gallagher Bassett Services, the property/casualty portion of our Risk
Management segment, has improved its growth rate. Claim counts have returned to
pre 9/11 levels, new business production is very strong and retention levels
exceed 98%," said Mr. Gallagher.
"In conclusion, the rate environment is currently strong and our acquisition
pipeline remains full. We are pleased with our growth and much credit is due to
our talented team of professionals as they deliver hard-fought results in a very
tough marketplace."
The company will host a Webcast conference call on Thursday, April 24, 2003 at
11:00am EDT to further discuss these quarterly results. To listen, please go to
www.ajg.com.
* * * * *
Arthur J. Gallagher & Co., an international insurance brokerage and risk
management services firm, is headquartered in Itasca, Illinois, has operations
in seven countries and does business in more than 100 countries around the world
through a network of correspondent brokers and consultants. Gallagher is traded
under the symbol "AJG" on the New York Stock Exchange. Additional information
about Gallagher may be found at www.ajg.com.
This press release may contain certain forward-looking statements relating to
future results. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those expected, depending on a variety of factors such as
changes in worldwide and national economic conditions and changes in securities
and fixed income markets as well as developments in the area of tax legislation.
Please refer to our filing with the Securities and Exchange Commission,
including our Annual Report on Form 10-K, for a more detailed discussion of
these factors.
(2 of 4)
Arthur J. Gallagher & Co.
Segment Statement of Earnings (1)
(unaudited)
($ in millions except per share data)
BROKERAGE SEGMENT 1st Q 01 2nd Q 01 3rd Q 01 4th Q 01 1st Q 02 2nd Q 02 3rd Q 02 4th Q 02 1st Q 03
Commissions $121.3 $125.7 $136.4 $154.5 $143.1 $156.7 $178.1 $185.0 $168.6
Fees 11.3 12.8 17.0 21.2 20.1 24.4 30.0 34.5 27.7
Investment income - fiduciary 3.9 3.1 2.5 2.6 1.7 2.5 2.7 2.5 1.8
--------------------------------------- -------------------------------------- --------
Gross revenues 136.5 141.6 155.9 178.3 164.9 183.6 210.8 222.0 198.1
Less brokerage (7.4) (8.8) (9.9) (8.9) (10.2) (10.3) (11.7) (8.9) (10.1)
--------------------------------------- -------------------------------------- --------
Revenues 129.1 132.8 146.0 169.4 154.7 173.3 199.1 213.1 188.0
--------------------------------------- -------------------------------------- --------
Compensation 75.0 76.0 80.1 94.6 94.0 102.6 110.8 116.6 114.7
Other operating 28.3 28.0 28.4 37.1 31.2 36.8 36.1 45.9 41.4
Depreciation 2.1 2.2 2.2 2.5 2.6 2.7 2.7 2.9 3.0
Amortization 0.6 0.6 0.6 1.5 1.2 2.2 2.0 1.2 2.1
--------------------------------------- -------------------------------------- --------
Expenses 106.0 106.8 111.3 135.7 129.0 144.3 151.6 166.6 161.2
--------------------------------------- -------------------------------------- --------
Earnings before income taxes 23.1 26.0 34.7 33.7 25.7 29.0 47.5 46.5 26.8
Provison for income taxes 4.8 5.0 0.1 3.6 8.0 8.4 14.3 13.9 6.7
--------------------------------------- -------------------------------------- --------
Net earnings $ 18.3 $ 21.0 $ 34.6 $ 30.1 $ 17.7 $ 20.6 $ 33.2 $ 32.6 $ 20.1
======================================= ====================================== =======
Earnings per share $ 0.20 $ 0.23 $ 0.38 $ 0.33 $ 0.20 $ 0.22 $ 0.36 $ 0.35 $ 0.22
Cash earnings per share (2) $ 0.23 $ 0.26 $ 0.42 $ 0.37 $ 0.23 $ 0.26 $ 0.40 $ 0.38 $ 0.26
Growth - revenues 7% 11% 10% 18% 20% 30% 36% 26% 22%
Organic growth in commissions
and fees 10% 16% 13% 18% 14% 16% 20% 16% 15%
Growth - pretax earnings 17% 65% 15% 6% 11% 11% 37% 38% 4%
Compensation expense ratio 55% 54% 51% 53% 57% 56% 53% 53% 58%
Other operating expense ratio 21% 20% 18% 21% 19% 20% 17% 21% 21%
Effective tax rate 21% 19% 0% 11% 31% 29% 30% 30% 25%
Pretax margin 17% 18% 22% 19% 16% 16% 23% 21% 14%
RISK MANAGEMENT SEGMENT 1st Q 01 2nd Q 01 3rd Q 01 4th Q 01 1st Q 02 2nd Q 02 3rd Q 02 4th Q 02 1st Q 03
Fees $ 65.4 $ 65.0 $ 67.6 $ 65.6 $ 69.8 $ 67.5 $ 71.4 $ 71.7 $ 76.5
Investment income - fiduciary 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
--------------------------------------- -------------------------------------- --------
Revenues 65.8 65.3 67.8 65.8 70.0 67.7 71.6 71.9 76.7
--------------------------------------- -------------------------------------- --------
Compensation 35.6 36.5 37.4 40.7 37.8 38.5 41.8 41.8 42.3
Other operating 19.2 19.2 19.2 18.1 18.6 18.5 20.8 22.5 21.4
Depreciation 1.7 1.8 1.8 1.8 2.0 2.3 2.5 2.5 2.3
Amortization 0.1 0.1 0.1 0.1 - - - - -
--------------------------------------- -------------------------------------- --------
Expenses 56.6 57.6 58.5 60.7 58.4 59.3 65.1 66.8 66.0
--------------------------------------- -------------------------------------- --------
Earnings before income taxes 9.2 7.7 9.3 5.1 11.6 8.4 6.5 5.1 10.7
Provison for income taxes 1.8 1.5 - 0.5 3.6 2.4 1.9 1.5 2.6
--------------------------------------- -------------------------------------- --------
Net earnings $ 7.4 $ 6.2 $ 9.3 $ 4.6 $ 8.0 $ 6.0 $ 4.6 $ 3.6 $ 8.1
======================================= ====================================== =======
Earnings per share $ 0.08 $ 0.07 $ 0.10 $ 0.05 $ 0.08 $ 0.06 $ 0.05 $ 0.04 $ 0.09
Cash earnings per share (2) $ 0.10 $ 0.09 $ 0.12 $ 0.07 $ 0.10 $ 0.08 $ 0.07 $ 0.06 $ 0.10
Growth - revenues 19% 17% 12% 8% 7% 4% 6% 9% 9%
Organic growth in fees 19% 18% 12% 9% 7% 4% 6% 9% 10%
Growth - pretax earnings 1% 3% -3% -9% 26% 9% -31% -1% -9%
Compensation expense ratio 54% 56% 55% 62% 54% 57% 59% 58% 55%
Other operating expense ratio 29% 30% 28% 28% 27% 27% 29% 31% 28%
Effective tax rate 20% 19% 0% 11% 31% 29% 30% 30% 25%
Pretax margin 14% 12% 14% 8% 17% 12% 9% 7% 14%
FINANCIAL SERVICES SEGMENT 1st Q 01 2nd Q 01 3rd Q 01 4th Q 01 1st Q 02 2nd Q 02 3rd Q 02 4th Q 02 1st Q 03
Investment income $ 8.2 $ 5.1 $ 5.9 $ 10.0 $ 15.7 $ 12.7 $ 14.7 $17.8 $ 15.3
Gains (losses) 6.2 1.9 6.1 2.6 (1.4) 13.1 (28.9) (4.8) (25.7)
--------------------------------------- -------------------------------------- --------
Revenues 14.4 7.0 12.0 12.6 14.3 25.8 (14.2) 13.0 (10.4)
--------------------------------------- -------------------------------------- --------
Expenses 12.6 12.0 14.0 14.4 2.8 14.6 6.5 9.8 11.3
--------------------------------------- -------------------------------------- --------
Earnings (loss) before
income taxes 1.8 (5.0) (2.0) (1.8) 11.5 11.2 (20.7) 3.2 (21.7)
Provison (benefit) for
income taxes 0.4 (1.0) - (0.2) 3.5 3.3 (6.2) 1.0 (5.4)
--------------------------------------- -------------------------------------- --------
Net earnings (loss) $ 1.4 $ (4.0) $ (2.0) $ (1.6) $ 8.0 $ 7.9 $(14.5) $ 2.2 $(16.3)
======================================= ====================================== =======
Earnings (loss) per share $ 0.02 $(0.04) $(0.02) $(0.02) $ 0.09 $ 0.09 $(0.16) $0.02 $(0.18)
======================================= ====================================== =======
(1) The information presented above has been reclassified to reflect the
current year presentation. In prior years, the Company has presented a
"Corporate" segment. For purposes of this and future presentations, the
Corporate segment has been allocated to each of the three operating
segments.
(2) Represents net earnings before the after-tax effect of depreciation and
amortization expense divided by the weighted average number of shares
outstanding during the period.
(3 of 4)
Arthur J. Gallagher & Co.
Consolidated Statement of Earnings
(unaudited)
($ in millions except per share data)
TOTAL COMPANY 1st Q 01 2nd Q 01 3rd Q 01 4th Q 01 1st Q 02 2nd Q 02 3rd Q 02 4th Q 02 1st Q 03
Commissions $ 121.3 $ 125.7 $ 136.4 $ 154.5 $ 143.1 $ 156.7 $ 178.1 $ 185.0 $ 168.6
Fees 76.7 77.8 84.6 86.8 89.9 91.9 101.4 106.2 104.2
Investment income - fiduciary 4.3 3.4 2.7 2.8 1.9 2.7 2.9 2.7 2.0
Investment income - all other 8.2 5.1 5.9 10.0 15.7 12.7 14.7 17.8 15.3
Investment gains (losses) 6.2 1.9 6.1 2.6 (1.4) 13.1 (28.9) (4.8) (25.7)
-------------------------------------- --------------------------------------- -------
Gross revenues 216.7 213.9 235.7 256.7 249.2 277.1 268.2 306.9 264.4
Less brokerage (7.4) (8.8) (9.9) (8.9) (10.2) (10.3) (11.7) (8.9) (10.1)
-------------------------------------- --------------------------------------- -------
Revenues 209.3 205.1 225.8 247.8 239.0 266.8 256.5 298.0 254.3
-------------------------------------- --------------------------------------- -------
Compensation 110.6 112.5 117.5 135.3 131.8 141.1 152.6 158.4 157.0
Other operating 47.5 47.2 47.6 55.2 49.8 55.3 56.9 68.4 62.8
Depreciation 3.8 4.0 4.0 4.3 4.6 5.0 5.2 5.4 5.3
Amortization 0.7 0.7 0.7 1.6 1.2 2.2 2.0 1.2 2.1
Other investment expenses 12.6 12.0 14.0 14.4 2.8 14.6 6.5 9.8 11.3
-------------------------------------- --------------------------------------- -------
Expenses 175.2 176.4 183.8 210.8 190.2 218.2 223.2 243.2 238.5
-------------------------------------- --------------------------------------- -------
Earnings before income taxes 34.1 28.7 42.0 37.0 48.8 48.6 33.3 54.8 15.8
Provison for income taxes 7.0 5.5 0.1 3.9 15.1 14.1 10.0 16.4 3.9
-------------------------------------- --------------------------------------- -------
Net earnings $ 27.1 $ 23.2 $ 41.9 $ 33.1 $ 33.7 $ 34.5 $ 23.3 $ 38.4 $ 11.9
====================================== ======================================= ======
Earnings per share $ 0.30 $ 0.26 $ 0.47 $ 0.36 $ 0.37 $ 0.37 $ 0.25 $ 0.42 $ 0.13
====================================== ======================================= ======
Cash dividends per share $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.18
====================================== ======================================= ======
Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(unaudited)
($ in millions except per share data)
3/31/01 6/30/01 9/30/01 12/31/01 3/31/02 6/30/02 9/30/02 12/31/02 3/31/03
Cash and cash equivalents $ 128.6 $ 106.9 $ 127.8 $ 98.5 $ 103.2 $ 110.6 $ 128.6 $ 152.6 $ 165.1
Restricted cash 157.9 179.1 189.9 209.5 246.8 226.9 293.3 256.3 250.6
Premiums and fees receivable 783.4 922.1 850.1 1,117.2 1,088.8 1,255.5 1,098.4 1,183.7 1,213.6
Investment strategies -- trading 48.7 49.3 48.7 52.6 53.5 53.6 49.7 42.9 40.0
Marketable securities -- trading -- -- -- -- -- -- 14.0 15.3 15.6
Other 45.1 48.3 61.3 85.2 84.7 99.3 106.7 122.8 119.6
------------------------------------------ ---------------------------------------- -------
Total current assets 1,163.7 1,305.7 1,277.8 1,563.0 1,577.0 1,745.9 1,690.7 1,773.6 1,804.5
Marketable securities --
available for sale 24.8 22.9 18.5 18.3 16.6 15.1 -- -- --
Deferred income taxes 48.8 48.3 48.9 99.3 99.4 99.8 97.5 102.4 102.3
Other investments and notes
receivable 171.8 172.7 158.5 192.0 191.5 204.5 175.1 168.4 167.2
Other noncurrent assets 4.5 9.0 25.0 24.2 26.3 35.0 33.4 33.1 36.2
Fixed assets 265.8 271.9 277.7 283.8 292.3 355.3 365.6 367.3 376.7
Accumulated depreciation and
amortization (93.8) (98.3) (101.5) (100.6) (103.3) (114.1) (120.7) (116.3) (122.9)
------------------------------------------ ---------------------------------------- -------
Net fixed assets 172.0 173.6 176.2 183.2 189.0 241.2 244.9 251.0 253.8
Goodwill -- net 13.3 18.9 18.8 55.5 59.9 58.3 57.2 84.2 98.5
Amortizable intangible
assets -- net 4.0 3.8 4.1 9.9 12.9 48.8 51.8 50.9 54.9
------------------------------------------ ---------------------------------------- -------
Total assets $ 1,602.9 $ 1,754.9 $ 1,727.8 $ 2,145.4 $ 2,172.6 $ 2,448.6 $ 2,350.6 $ 2,463.6 $ 2,517.4
========================================== ======================================== ========
Premiums payable $ 964.0 $ 1,094.5 $ 1,065.0 $ 1,366.5 $ 1,352.0 $ 1,536.2 $ 1,458.7 $ 1,488.2 $ 1,543.4
Accrued salaries and bonuses 20.4 23.4 33.1 56.6 61.0 34.8 41.0 58.1 32.4
Accounts payable and other
accrued liabilities 110.0 116.7 108.0 111.6 114.2 112.5 108.8 107.6 112.2
Unearned fees 17.5 17.7 18.1 16.5 17.4 19.7 21.4 19.4 23.0
Income taxes payable 8.4 1.1 1.2 33.7 17.4 0.9 0.7 11.0 12.4
Borrowings on line of credit
facilities -- 8.5 5.0 35.0 50.0 65.0 35.0 25.0 --
Borrowings on line of credit
facilities -- limited
partnerships -- -- 4.4 3.6 7.1 10.1 11.9 17.0 19.7
Current portion of long--term
debt -- limited partnerships 4.1 4.1 3.1 3.2 3.2 5.3 5.7 5.8 5.8
Other 8.3 18.9 14.6 11.3 8.9 5.9 6.0 17.5 20.7
------------------------------------------ ---------------------------------------- -------
Total current liabilities: 1,132.7 1,284.9 1,252.5 1,638.0 1,631.2 1,790.4 1,689.2 1,749.6 1,769.6
------------------------------------------ ---------------------------------------- -------
Long--term debt -- limited
partnerships 99.7 99.5 96.9 96.7 96.5 132.3 129.2 128.3 127.5
------------------------------------------ ---------------------------------------- -------
Other noncurrent liabilities 32.4 34.9 35.2 39.1 40.3 43.1 44.4 57.5 60.8
------------------------------------------ ---------------------------------------- -------
Stockholders' equity:
Common stock -- issued and
outstanding 84.7 84.7 84.7 85.1 86.1 88.3 88.0 88.5 89.9
Capital in excess of par value 21.8 24.5 3.0 8.7 34.0 88.3 79.1 92.7 123.5
Retained earnings 233.0 232.0 261.9 283.8 304.6 325.9 335.9 361.0 371.4
Unearned deferred compensation -- (3.8) (3.6) (3.4) (7.3) (7.1) (6.8) (6.5) (10.8)
Unearned restricted stock -- -- -- -- (10.0) (9.2) (8.4) (7.5) (14.5)
Accumulated other comprehensive
earnings (loss) (1.4) (1.8) (2.8) (2.6) (2.8) (3.4) -- -- --
------------------------------------------ ---------------------------------------- -------
Total stockholders' equity 338.1 335.6 343.2 371.6 404.6 482.8 487.8 528.2 559.5
------------------------------------------ ---------------------------------------- -------
Total liabilities and
stockholders' equity $ 1,602.9 $ 1,754.9 $ 1,727.8 $ 2,145.4 $ 2,172.6 $ 2,448.6 $ 2,350.6 $ 2,463.6 $ 2,517.4
========================================== ======================================== ========
Other Information
Weighted shares (000s) 90,091 89,756 90,074 90,656 90,595 92,366 92,051 92,126 92,312
Tangible net worth $ 320.8 $ 312.9 $ 320.3 $ 306.2 $ 331.8 $ 375.7 $ 378.8 $ 393.1 $ 406.1
Book value per share $ 3.99 $ 3.96 $ 4.05 $ 4.37 $ 4.70 $ 5.47 $ 5.54 $ 5.97 $ 6.22
Tangible book value per share $ 3.79 $ 3.69 $ 3.78 $ 3.60 $ 3.85 $ 4.25 $ 4.30 $ 4.44 $ 4.52
Annualized return on beginning
equity 33% 31% 37% 38% 36% 37% 33% 35% 9%
Number of acquisitions closed 3 3 6 4 2 5 1 2 4
Workforce (includes acquisitions) 5,831 6,029 6,160 6,499 6,578 6,886 7,030 7,111 7,088
(4 of 4)
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