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

ITASCA, Ill., May 1, 2012 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended March 31, 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."

    --  Our 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 $30.6 million.
    --  Our 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 31                                                                                                                                                                                                    Diluted Net Earnings
                                                                      Revenues                                                       EBITDAC                                                  (Loss) Per Share
    Segment                                                             1st Q 12                 1st Q 11               Chg                              1st Q 12               1st Q 11              Chg                            1st Q 12               1st Q 11              Chg
    -------                                                             --------                 --------               ---                              --------               --------              ---                            --------               --------              ---
                                                                                                                                                                                                                                                                                           
                                                                   (in millions)                                                 (in millions)
                                                                                                                                                                                                                                                                                           
    Brokerage, as adjusted                                                       $384.6                   $316.3               22%                                $64.3                  $50.8                27%                             $0.18                  $0.16               13%
                                 Gains on book
                                 sales                                            0.7                      1.1                                                    0.7                    1.1                                                    -                      -
                                 Heath Lambert
                                 integration
                                 costs                                              -                        -                                                   (4.0)                     -                                                (0.02)                     -
                                 Workforce
                                 related
                                 charges                                            -                        -                                                   (2.8)                  (1.5)                                               (0.01)                 (0.01)
                                 Acquisition
                                 related
                                 adjustments                                        -                        -                                                      -                      -                                                    -                   0.01
                                                                                                                                                                                                                                                                                           
    Brokerage, as reported                                                      385.3                    317.4                                                   58.2                   50.4                                                 0.15                   0.16
                                                                                -----                    -----                                                   ----                   ----                                                 ----                   ----
                                                                                                                                                                                                                                                                                           
    Risk Management, as adjusted                                                141.3                    130.6                8%                                 23.6                   20.5                15%                              0.10                   0.09               11%
                                 GAB Robins
                                 integration
                                 costs                                              -                        -                                                      -                   (4.2)                                                   -                  (0.02)
                                 Workforce &
                                 lease
                                 termination                                        -                        -                                                      -                   (1.1)                                                   -                  (0.01)
                                                                                                                                                                                                                                                                                           
    Risk Management, as reported                                                141.3                    130.6                                                   23.6                   15.2                                                 0.10                   0.06
                                                                                -----                    -----                                                   ----                   ----                                                 ----                   ----
                                                                                                                                                                                                                                                                                           
    Total Brokerage & Risk
                                 Management,
                                 as reported                                    526.6                    448.0                                                   81.8                   65.6                                                 0.25                   0.22
                                                                                                                                                                                                                                                                                           
    Corporate, as reported                                                       20.2                     (0.6)                                                  (5.4)                  (7.3)                                               (0.01)                 (0.08)
                                                                                                                                                                                                                                                                                           
    Total Company, as reported                                                 $546.8                   $447.4                                                  $76.4                  $58.3                                                $0.24                  $0.14
                                                                               ======                   ======                                                  =====                  =====                                                =====                  =====
                                                                                                                                                                                                                                                                                           
    Total Brokerage & Risk
                                 Management,
                                 as adjusted                                   $525.9                   $446.9               18%                                $87.9                  $71.3                23%                             $0.28                  $0.25               12%
                                                                               ======                                                                           =====                                                                       =====

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Brokerage Segment First Quarter Highlights

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

    --  The 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

    --  Adjusted 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.
    --  Adjusted 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 0.5 pts.
    --  The following provides non-GAAP information that management believes is
        helpful when comparing 2012 EBITDAC and Adjusted EBITDAC to the same
        period in 2011 (in millions):
                                  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

    --  The following provides non-GAAP information that management believes is
        helpful when comparing 2012 organic fee revenues with the same period in
        2011 (in millions):
                                     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 disasters             3.8              3.3

    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 only                     6.0%
                                                 ===

    --  Adjusted 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.
    --  Adjusted 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.
    --  The following provides non-GAAP information that management believes is
        helpful when comparing 2012 EBITDAC and Adjusted EBITDAC to the same
        period in 2011 (in millions):
                                  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 (in millions):

                                     2012                                  2011
                  Pretax           Income   Net         Pretax           Income   Net
                 Earnings           Tax  Earnings      Earnings           Tax   Earnings
                  (Loss)          Benefit  (Loss)        (Loss)         Benefit  (Loss)

    1st Quarter
    -----------
    Interest and
     banking
     costs                $(11.3)     $4.5        $(6.8)        $(10.3)     $4.1         $(6.2)
    Clean energy
     related                (2.2)      9.4          7.2           (2.6)      2.2          (0.4)
    Acquisition
     costs                  (0.6)      0.1         (0.5)          (1.7)      0.5          (1.2)
    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.

    --  Clean 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 Section 45 of the Internal Revenue Code which pass through
        in proportion to Gallagher's ownership level.
        --  Gallagher 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 $8.6 million and collectively they could
            generate approximately $4.3 million of net after-tax earnings per
            quarter through 2019.
        --  Gallagher 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 $1.5 million.  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.

-- Gallagher 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 $10.4 million and collectively they could, after ramp-up, generate for Gallagher approximately $8.0 million of net after-tax earnings per quarter through 2021. -- Gallagher 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 $0.9 million. Gallagher estimates that it will invest an additional net $2.0 million to connect and house this plant prior to the resumption of production. Once production resumes, after ramp-up, it could generate for Gallagher approximately $1.7 million of net after-tax earnings per quarter through 2021. -- Gallagher 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 $8.6 million. 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."

    --  Acquisition costs - Consists of professional fees and other due
        diligence costs related to acquisitions.
    --  Corporate - 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:

    --  Changes 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
    --  Uncertainties 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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    --  Adjusted 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.
    --  Adjusted 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.

    --  EBITDAC - Gallagher defines this measure as net earnings before
        interest, income taxes, depreciation, amortization and the change in
        estimated acquisition earnout payables.
    --  EBITDAC margin - Gallagher defines this measure as EBITDAC divided by
        total revenues.
    --  Adjusted 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.
    --  Adjusted 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.
    --  Adjusted 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.
    --  Diluted 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 (on pages 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 Segment                                                                                                                                               Reported                                           Adjustments                  Adjusted     Reported                Adjustments      Adjusted
                                                                                                                                                                                                                       -----------                  --------                             -----------      --------

    Commissions                                                                                                                                                                                         $272.0         $         -                       $272.0     $225.7               $         -           $225.7
    Fees                                                                                                                                                                                                  75.1                   -                         75.1       59.1                         -             59.1
    Supplemental commissions  (1)                                                                                                                                                                         17.1                   -                         17.1       13.5                         -             13.5
    Contingent commissions  (1)                                                                                                                                                                           19.0                   -                         19.0       16.8                         -             16.8

                                                                                                                                                                                                                               2.1                         (0.7)       1.4                       2.3             (1.1)   1.2
    Investment income and gains realized on books 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 earnout payables                                                                                                                                                                           2.5                         (0.1)       2.4                       0.8              1.2    2.0
                                                                                                                                  Expenses                                                                                   355.8                         (6.9)     348.9                     288.3             (0.3) 288.0


    Earnings before income taxes                                                                                                                                                                                              29.5                          6.2       35.7                      29.1             (0.8)  28.3
    Provision for income taxes                                                                                                                                                                                                11.8                          2.5       14.3                      11.4             (0.3)  11.1

    Net earnings                                                                                                                                                                                         $17.7                $3.7                        $21.4      $17.7                     $(0.5)           $17.2
                                                                                                                                                                                                         =====                ====                        =====      =====                     =====            =====

    Diluted net earnings per share                                                                                                                                                                       $0.15               $0.03                        $0.18      $0.16                $        -            $0.16
    Growth in diluted earnings per share                                                                                                                                                                    -6%                                              13%       -30%                                        14%
    Growth - revenues                                                                                                                                                                                       21%                                              22%         4%                                        10%
    Organic change in commissions and fees                                                                                                                                                                   3%                                               3%         2%                                         2%
    Compensation expense ratio                                                                                                                                                                              67%                                              65%        66%                                        66%
    Operating expense ratio                                                                                                                                                                                 18%                                              18%        18%                                        18%
    Effective tax rate                                                                                                                                                                                      40%                                              40%        39%                                        39%

    Workforce at end of period (includes acquisitions)                                                                                                                                                   7,987                                            7,987      6,324                                      6,324

    EBITDAC
    Net earnings                                                                                                                                                                                         $17.7                $3.7                        $21.4      $17.7                     $(0.5)           $17.2
    Provision for income taxes                                                                                                                                                                                                11.8                          2.5       14.3                      11.4             (0.3)  11.1
    Depreciation                                                                                                                                                                                           5.7                   -                          5.7        4.7                         -              4.7
    Amortization                                                                                                                                                                                          20.5                   -                         20.5       15.8                         -             15.8

    Change in estimated acquisition earnout payables                                                                                                                                                                           2.5                         (0.1)       2.4                       0.8              1.2    2.0

    EBITDAC                                                                                                                                                                                              $58.2                $6.1                        $64.3      $50.4                      $0.4            $50.8
                                                                                                                                                                                                         =====                ====                        =====      =====                      ====            =====

    EBITDAC margin                                                                                                                                                                                          15%                                              17%        16%                                        16%
    EBITDAC Growth                                                                                                                                                                                          15%                                              27%       -15%                                        14%




                                                                                                                                                                                                                            1st Qtr Ended March 31, 2012               1st Qtr Ended March 31, 2011
                                                                                                                                                                                                                            ----------------------------               ----------------------------
    Risk Management Segment                                                                                                                                         Reported                                           Adjustments                  Adjusted     Reported                Adjustments      Adjusted
                                                                                                                                                                    --------                                           -----------                  --------     --------                -----------      --------

    Fees                                                                                                                                                                                                $140.5         $         -                       $140.5     $129.9               $         -           $129.9
    Investment income                                                                                                                                                                                      0.8                   -                          0.8        0.7                         -              0.7
                                                                                                                                  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 taxes                                                                                                                                                                          19.1                   -                         19.1       11.3                       5.3             16.6
    Provision for income taxes                                                                                                                                                                             7.4                   -                          7.4        4.4                       2.1              6.5

    Net earnings                                                                                                                                                                                         $11.7          $        -                        $11.7       $6.9                      $3.2            $10.1
                                                                                                                                                                                                         =====          ==========                        =====       ====                      ====            =====

    Diluted net earnings per share                                                                                                                                                                       $0.10          $        -                        $0.10      $0.06                     $0.03            $0.09
    Growth in diluted earnings per share                                                                                                                                                                    67%                                              11%       -33%                                         0%
    Growth - revenues                                                                                                                                                                                        8%                                               8%        18%                                        18%
    Organic change in fees                                                                                                                                                                                   7%                                               7%         6%                                         6%
    Compensation expense ratio                                                                                                                                                                              60%                                              60%        63%                                        60%
    Operating expense ratio                                                                                                                                                                                 23%                                              23%        25%                                        24%
    Effective tax rate                                                                                                                                                                                      39%                                              39%        39%                                        39%

    Workforce at end of period (includes acquisitions)                                                                                                                                                   4,256                                            4,256      4,281                                      4,281

    EBITDAC
    Net earnings                                                                                                                                                                                         $11.7         $         -                        $11.7       $6.9                      $3.2            $10.1
    Provision for income taxes                                                                                                                                                                             7.4                   -                          7.4        4.4                       2.1              6.5
    Depreciation                                                                                                                                                                                           3.9                   -                          3.9        3.3                         -              3.3
    Amortization                                                                                                                                                                                           0.6                   -                          0.6        0.6                         -              0.6

    EBITDAC                                                                                                                                                                                              $23.6         $         -                        $23.6      $15.2                      $5.3            $20.5
                                                                                                                                                                                                         =====         ===========                        =====      =====                      ====            =====

    EBITDAC margin                                                                                                                                                                                          17%                                              17%        12%                                        16%
    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 Segment                                                                                                                               Reported                                                    Adjustments               Adjusted           Reported                 Adjustments    Adjusted
                                                                                                                                                    --------                                                    -----------               --------           --------                 -----------    --------

    Revenues from consolidated clean coal facilities                                                                                                                                       $15.7             $              -                       $15.7  $         -             $              -           $      -
    Royalty income from clean coal licenses                                                                                                                                                  5.3                            -                         5.3            -                            -                  -

    Income (loss) from unconsolidated clean coal facilities                                                                                                                                                              (0.9)                          -         (0.9)                        (1.1)                 -   (1.1)
    Other net revenues                                                                                                                                                                                                    0.1                           -          0.1                          0.5                  -    0.5
                                                                                                                                  Revenues                                                                               20.2                           -         20.2                         (0.6)                 -   (0.6)

    Cost of revenues from consolidated clean coal facilities                                                                                                                                17.7                            -                        17.7            -                            -                  -
    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 income taxes                                                                                                                                                                                            (16.1)                          -        (16.1)                       (16.9)                 -  (16.9)
    Benefit for income taxes                                                                                                                                                                                            (14.8)                          -        (14.8)                        (7.5)                 -   (7.5)

    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 income taxes                                                                                                                                                                                            (14.8)                          -        (14.8)                        (7.5)                 -   (7.5)
    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  (1)                                                                                                                                                                                        17.1                           -         17.1                         13.5                  -   13.5
    Contingent commissions  (1)                                                                                                                                                                                          19.0                           -         19.0                         16.8                  -   16.8

                                                                                                                                                                                                                          2.9                        (0.7)         2.2                          3.0               (1.1)   1.9
    Investment income and gains realized on books of business sales
    Revenues from clean coal activities                                                                                                                                                                                  20.1                           -         20.1                         (1.1)                 -   (1.1)
    Other net revenues - Corporate                                                                                                                                                                                        0.1                           -          0.1                          0.5                  -    0.5
                                                                                                                                  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 clean coal activities                                                                                                                                             17.7                            -                        17.7            -                            -                  -
    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 earnout payables                                                                                                                                                                      2.5                        (0.1)         2.4                          0.8                1.2    2.0
                                                                                                                                  Expenses                                                                              514.3                        (6.9)       507.4                        423.9               (5.6) 418.3


    Earnings before income taxes                                                                                                                                                                                         32.5                         6.2         38.7                         23.5                4.5   28.0
    Provision for income taxes                                                                                                                                                                                            4.4                         2.5          6.9                          8.3                1.8   10.1

    Net earnings                                                                                                                                                                           $28.1                         $3.7                       $31.8        $15.2                         $2.7              $17.9
                                                                                                                                                                                           =====                         ====                       =====        =====                         ====              =====

    Diluted net earnings per share                                                                                                                                                         $0.24                        $0.03                       $0.27        $0.14                        $0.02              $0.16
                                                                                                                                                                                           =====                        =====                       =====        =====                        =====              =====

    Dividends declared per share                                                                                                                                                           $0.34                                                    $0.34        $0.33                                           $0.33
                                                                                                                                                                                           =====                                                    =====        =====                                           =====

    EBITDAC
    Net earnings                                                                                                                                                                           $28.1                         $3.7                       $31.8        $15.2                         $2.7              $17.9
    Provision for income taxes                                                                                                                                                                                            4.4                         2.5          6.9                          8.3                1.8   10.1
    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 earnout payables                                                                                                                                                                      2.5                        (0.1)         2.4                          0.8                1.2    2.0

    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, 2012                                Dec 31, 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 Ended                                 1st Q Ended
    OTHER INFORMATION                                                                                                                                                                               Mar 31, 2012                                Mar 31, 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
                                                                                                                                                                                                                                     
    (1)                                Reported supplemental commission revenues recognized in 2012, 2011 and 2010 by quarter
                                       are shown in the financial supplement.  As previously disclosed, many insurance 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 the end of the contract period.  Accordingly,
                                       the 2010 amounts reported in the table include both a full year of 2009 supplemental
                                       commission revenues and 2010 supplemental commission revenues that were recognized by
                                       Gallagher on a quarterly basis.  This situation did not occur again in 2011 or 2012 and
                                       should not occur 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
                                       recognition of 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
                                       commissions                                 19.0                                                                                                                                         19.0
                                                                                                                                                                                                                                     
                                                                                  $36.1                                                                                                                                        $36.1
                                       Reported supplemental
                                       and  contingent
                                       commissions
                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                     
                                                        2011
                                       Reported supplemental
                                       commissions                                $13.5                                 $14.0                         $14.5                        $14.0                                       $56.0
                                                                                                                                                                                                                                     
                                       Reported contingent
                                       commissions                                 16.8                                   7.9                           9.9                          3.5                                        38.1
                                                                                                                                                                                                                                     
                                                                                  $30.3                                 $21.9                         $24.4                        $17.5                                       $94.1
                                       Reported supplemental
                                       and contingent
                                       commissions
                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                     
                                                        2010
                                       Reported supplemental
                                       commissions                                $27.9                                 $10.6                         $10.2                        $12.1                                       $60.8
                                                                                                                                                                                                                                     
                                                                       (14.7)                                    -                             -                                      -                                       (14.7)
                                       Adjustment as if
                                       supplemental
                                       commission
                                       information was
                                       provided on a
                                       quarterly basis
                                                                                                                                                                                                                                     
                                       Adjusted supplemental
                                       commissions                                 13.2                                  10.6                          10.2                         12.1                                        46.1
                                                                                                                                                                                                                                     
                                       Reported contingent
                                       commissions                                 15.5                                   8.7                           9.5                          3.1                                        36.8
                                                                                                                                                                                                                                     
                                       Adjusted supplemental
                                       and reported
                                       contingent
                                       commissions                                $28.7                                 $19.3                         $19.7                        $15.2                                       $82.9

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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