<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report under section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1998 or
[_] Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the transition period
from to
------------------------ --------------------------
Commission File Number 1-9761
ARTHUR J. GALLAGHER & CO.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2151613
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pierce Place, Itasca, Illinois 60143-3141
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(630) 773-3800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
The number of outstanding shares of the registrant's Common Stock, $1.00 par
value, as of September 30, 1998 was 17,280,729.
<PAGE>
ARTHUR J. GALLAGHER & CO.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (Unaudited):
Consolidated Statement of Earnings for the three-month and
nine-month periods ended September 30, 1998 and 1997. 3
Consolidated Balance Sheet at September 30, 1998 and
December 31, 1997.................................... 4
Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 1998 and 1997............ 5
Notes to Consolidated Financial Statements................ 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9-12
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Exhibit 27.0 - Financial Data Schedule (Unaudited)
Signatures........................................................ 14
</TABLE>
-2-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Results
Revenues:
Commissions $ 81,750 $ 72,702 $214,015 $199,197
Fees 57,233 48,127 153,648 133,254
Investment income and other 1,132 5,943 13,725 17,878
Non-recurring gains - 3,629 - 8,127
-------- -------- -------- --------
Total revenues 140,115 130,401 381,388 358,456
Expenses:
Salaries and employee benefits 70,454 63,547 203,609 182,745
Other operating expenses 41,120 38,726 118,417 114,204
-------- -------- -------- --------
Total expenses 111,574 102,273 322,026 296,949
-------- -------- -------- --------
Earnings before income taxes 28,541 28,128 59,362 61,507
Provision for income taxes 9,204 9,563 19,683 20,912
-------- -------- -------- --------
Net earnings $ 19,337 $ 18,565 $ 39,679 $ 40,595
======== ======== ======== ========
Net earnings per common share $ 1.12 $ 1.13 $ 2.33 $ 2.47
Net earnings per common and
common equivalent share 1.07 1.08 2.22 2.39
Dividends declared per common share .35 .31 1.05 .93
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,663 $ 67,178
Restricted cash 101,729 81,160
Premiums and fees receivable 260,692 217,555
Investment strategies - trading 56,266 62,681
Other 39,598 40,267
-------- --------
Total current assets 519,948 468,841
Marketable securities - available for sale 21,677 39,203
Deferred income taxes and other noncurrent assets 141,826 95,528
Fixed assets 92,724 86,758
Accumulated depreciation and amortization (65,320) (58,948)
-------- --------
Net fixed assets 27,404 27,810
Intangible assets - net 10,143 10,370
-------- --------
$720,998 $641,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Premiums payable to insurance companies $370,900 $312,349
Accrued salaries and bonuses 13,154 18,385
Accounts payable and other accrued liabilities 85,824 89,846
Unearned fees 16,284 11,608
Income taxes payable 2,889 10,783
Other 27,704 23,067
-------- --------
Total current liabilities 516,755 466,038
Other noncurrent liabilities 12,675 11,807
Stockholders' equity:
Common stock - issued and outstanding 17,281
shares in 1998 and 16,591 shares in 1997 17,281 16,591
Capital in excess of par value 11,111 4,349
Retained earnings 163,358 141,309
Accumulated other comprehensive earnings (182) 1,658
-------- --------
Total stockholders' equity 191,568 163,907
-------- --------
$720,998 $641,752
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-month period ended
September 30,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 39,679 $ 40,595
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net gain on investments and other (2,231) (3,449)
Depreciation and amortization 8,517 7,983
Increase in restricted cash (20,569) (8,017)
(Increase) decrease in premiums receivable (34,842) 32,830
Increase (decrease) in premiums payable 58,551 (6,049)
Decrease (increase) in trading investments - net 6,881 (5,335)
Decrease (increase) in other current assets 669 (4,667)
Decrease in accrued salaries and bonuses (5,231) (2,596)
(Decrease) increase in accounts payable and other
accrued liabilities (6,533) 3,902
Decrease in income taxes payable (7,894) (3,620)
Net change in deferred income taxes (775) 732
Other (3,044) 1,752
-------- --------
Net cash provided by operating activities 33,178 54,061
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (23,508) (19,918)
Proceeds from sales of marketable securities 37,228 18,536
Proceeds from maturities of marketable securities 2,459 1,289
Net additions to fixed assets (7,440) (6,900)
Other (45,764) (19,344)
-------- --------
Net cash used by investing activities (37,025) (26,337)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 12,231 7,966
Tax benefit from issuance of common stock 3,861 1,747
Repurchases of common stock (7,042) (14,536)
Dividends paid (17,126) (14,873)
Retirement of long-term debt (1,130) (1,130)
Borrowings on credit agreements 65,000 15,900
Repayments on credit agreements (57,500) (25,900)
Equity transactions of pooled companies prior to
dates of acquisition 38 (38)
-------- --------
Net cash used by financing activities (1,668) (30,864)
-------- --------
Net decrease in cash and cash equivalents (5,515) (3,140)
Cash and cash equivalents at beginning of period 67,178 57,017
-------- --------
Cash and cash equivalents at end of period $ 61,663 $ 53,877
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 911 $ 792
Income taxes paid 18,613 16,397
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been
omitted pursuant to such rules and regulations. The Company believes the
disclosures are adequate to make the information presented not misleading.
The unaudited consolidated financial statements included herein are, in the
opinion of management, prepared on a basis consistent with the audited
consolidated financial statements for the year ended December 31, 1997 and
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information set forth. The
quarterly results of operations are not necessarily indicative of results
of operations for subsequent quarters or the full year. These unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in
the Company's 1997 Annual Report to Stockholders.
2. Business Combinations
During the nine-month period ended September 30, 1998, the Company acquired
substantially all of the net assets of EBC, Inc., d/b/a Employee Benefits
of The Carolinas; Martin, Gordon & Jones, Inc.; McElveen Insurance Agency,
Inc., Flynn Associates Insurance Marketing, Inc. and four other less
significant companies in exchange for 371,000 shares of Common Stock.
These acquisitions, accounted for as poolings of interests, were not
significant to the Company and accordingly, prior period financial
statements were not restated. During the nine-month period ended September
30, 1998, the Company acquired substantially all of the net assets of two
insurance brokerage operations and effective October 1, 1998, the Company
acquired substantially all the net assets of an additional insurance
brokerage operation. These acquisitions were accounted for as purchases.
The Company paid cash in these transactions, which were not material to the
consolidated financial statements.
-6-
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
3. Earnings Per Share
The following table sets forth the computation of net earnings per common
share and net earnings per common and common equivalent share (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $19,337 $18,565 $39,679 $40,595
======= ======= ======= =======
Weighted average number
of common shares outstanding 17,297 16,434 17,040 16,426
Dilutive effect of stock options
using the treasury stock method 739 714 801 575
------- ------- ------- -------
Weighted average number of
common and common equivalent
shares outstanding 18,036 17,148 17,841 17,001
======= ======= ======= =======
Net earnings per common share $ 1.12 $ 1.13 $ 2.33 $ 2.47
Net earnings per common and
common equivalent share 1.07 1.08 2.22 2.39
</TABLE>
Options to purchase 23,000 and 81,000 shares of common stock were
outstanding during the three-month period ended September 30, 1998, and
1997, respectively, but were not included in the computation of the
dilutive effect of stock options. Options to purchase 10,000 and
1,310,000 shares of common stock were outstanding during the nine-month
period ended September 30, 1998, and 1997, respectively, but were not
included in the computation of the dilutive effect of stock options. These
options were excluded from the computations because the options' exercise
prices were greater than the average market price of the common shares and,
therefore, would be antidilutive.
4. Comprehensive Earnings
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS 130
had no impact on the Company's net earnings or stockholders' equity. SFAS
130 requires unrealized gains or losses on the Company's available for sale
securities, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive earnings.
Prior year consolidated financial statements have been reclassified to
conform to the requirements of SFAS 130.
-7-
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
4. Comprehensive Earnings (Continued)
The components of comprehensive earnings and accumulated other
comprehensive earnings are as follows (in thousands):
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $19,337 $18,565 $39,679 $40,595
Net change in unrealized gain (loss) on available
for sale securities, net of income taxes ($1,185),
$647, ($1,227) and $835, respectively (1,777) 971 (1,840) 1,253
------- ------- ------- -------
Comprehensive earnings $17,560 $19,536 $37,839 $41,848
======= ======= ======= =======
Accumulated other comprehensive earnings
at beginning of period $ 1,595 $ 1,171 $ 1,658 $ 889
Net change in unrealized gain (loss) on available
for sale securities, net of income taxes (1,777) 971 (1,840) 1,253
------- ------- ------- -------
Accumulated other comprehensive earnings
at end of period $ (182) $ 2,142 $ (182) $ 2,142
======= ======= ======= =======
</TABLE>
5. Effect of New Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosure
about Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. However,
segment information is not required to be reported in interim financial
statements in the initial year of adoption. SFAS 131 also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The Company has not completed all of the
analyses required to determine the full impact of SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which is effective for fiscal years beginning after June 15,
1999. Because of the Company's minimal use of derivatives, management does
not anticipate the adoption of SFAS 133 will have a significant effect on
the Company's consolidated operating results or financial position.
-8-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Insurance premiums and risk management income reflect the overall pricing
pressure throughout the insurance premium marketplace and the Company does not
anticipate any change through the end of this year in this competitive
environment.
Commission revenues increased by 12% to $81.8 million in the third quarter of
1998 and by 7% to $214.0 million in the first nine months of 1998 over the
respective periods in 1997. These increases are due principally to new business
production of $14.5 million in the third quarter and $38.7 million in the first
nine months of 1998 over the respective periods in 1997, substantially offset by
lost business.
Fee revenues increased by 19% to $57.2 million in the third quarter of 1998 and
by 15% to $153.6 million in the first nine months of 1998 over the respective
periods in 1997. These increases reflect new business production of
approximately $12.5 million in the third quarter of 1998 and $30.9 million in
the first nine months of 1998 over the respective periods in 1997 and are
generated primarily by Gallagher Bassett Services, Inc. (a Company subsidiary).
These increases are partially offset by lost business.
Investment income and other decreased 81% to $1.1 million in the third quarter
of 1998 and by 23% to $13.7 million in the first nine months of 1998 from the
respective periods in 1997. These decreases are due primarily to lower returns
on funds invested with outside fund managers which were adversely affected by
volatility in global stock markets in recent months.
The non-recurring gains recorded in the third quarter and first nine months of
1997 are due to gains of $3.6 million on the sale of assets recognized in the
third quarter of 1997; gains of $1.8 million related to a real estate
transaction and $1.1 million from the sale of assets recognized in the second
quarter of 1997; and gains of $1.6 million on the sale of assets and other
investments recognized in the first quarter of 1997. There were no material
non-recurring gains recorded in 1998.
Total expenses increased by 9% or $9.3 million in the third quarter of 1998 over
the same period in 1997 and increased by 8% or $25.1 million in the first nine
months of 1998 over the same period in 1997.
Salaries and employee benefits increased by $6.9 million or 11% to $70.5 million
in the third quarter of 1998 and increased by $20.9 million or 11% to $203.6
million in the first nine months of 1998 over the respective periods in 1997.
These increases are due primarily to a $4.8 million non-recurring gain
recognized in the second quarter of 1997 from the settlement of a defined
benefit pension plan at one of the Company's London subsidiaries, a 5% increase
in the number of employees in the first nine months of 1998 over the same period
in 1997, and to salary increases and associated employee benefit costs.
Other operating expenses increased by 6% to $41.1 million in the third quarter
of 1998 and by 4% to $118.4 million in the first nine months of 1998 over the
respective periods in 1997. These increases are due primarily to increases in
expenses associated with temporary employment, contract services and employee
recruitment for new business, rent and general office expenses related to new
leases and office expansions, minority interest expense and commission expenses
paid to other sub-brokers. In addition, travel and other direct employee
expenses increased in 1998 due to the growth in sales volume.
-9-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
The effective income tax rate of 32% for the third quarter and 33% for the first
nine months of 1998 is less than the effective income tax rate of 34% for the
third quarter and first nine months of 1997 and less than the statutory federal
rate of 35% due primarily to the effects of tax benefits generated by certain
investments which are partially offset by state and foreign taxes.
Net earnings per common and common equivalent share for the third quarter of
1998 were $1.07 compared to $1.08 in 1997, a 1% decrease. Net earnings per
common and common equivalent share for the first nine months decreased 7% from
$2.39 in 1997 to $2.22 in 1998. These decreases primarily reflect the non-
recurring gains in 1997 discussed above.
FINANCIAL CONDITION AND LIQUIDITY
The insurance brokerage industry is not capital intensive. The Company has
historically been profitable and positive cash flow from operations and funds
available under various loan agreements have been sufficient to fund the
operating and capital expenditures of the Company. Cash generated from
operating activities was $33.2 million and $54.1 million for the nine months
ended September 30, 1998 and 1997, respectively. Because of the variability
related to the timing of premiums and fees receivable and premiums payable, net
cash flows from operations for the Company can vary substantially from quarter
to quarter. Funds restricted as to the Company's use, primarily premiums held
as fiduciary funds, have not been included in determining the Company's overall
liquidity.
The Company maintains a $20.0 million unsecured revolving credit agreement (the
"Credit Agreement") requiring repayment of any loans under the agreement no
later than June 30, 2001. During the nine months ended September 30, 1998, the
Company borrowed $15.0 million and repaid $15.0 million of short-term borrowings
under the Credit Agreement. As of September 30, 1998, there were no borrowings
outstanding under the Credit Agreement. These borrowings were primarily used to
finance a portion of the Company's expanded investment activity on a short-term
basis. The Credit Agreement requires the maintenance of certain financial
requirements. The Company is currently in compliance with these requirements.
The Company also had two Term Loan Agreements. In January and June 1998, the
Company retired the remaining loan balances of $630,000 and $500,000,
respectively, on these Term Loan Agreements.
The Company also has line of credit facilities of $27.5 million which expire on
April 30, 1999. Periodically, the Company will make short-term borrowings under
these credit facilities to meet short-term cash flow needs. During the nine
months ended September 30, 1998, the Company borrowed $50.0 million and repaid
$42.5 million of short-term borrowings under these facilities. As of September
30, 1998, $22.5 million was outstanding under these facilities. These
borrowings were primarily used to finance a portion of the Company's expanded
investment activity on a short-term basis.
The Company has made commitments to invest additional funds in several of its
equity and tax advantaged investments. At December 31, 1997, the Company had
commitments to invest $26.0 million in these investments in 1998. In addition,
the Company contingently committed to invest an additional
-10-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION AND LIQUIDITY (Continued)
$3.0 million in 1998 related to a line of credit arrangement with one of its
equity investments. As of September 30, 1998, approximately $29.0 million had
been invested under these commitments, which were funded primarily from the
$16.2 million of net proceeds from the sales and maturities of marketable
securities, with the remainder funded from short-term borrowings.
At September 30, 1998, the Company has unconditionally guaranteed $10.0 million
of debt that was incurred by one of the Company's equity investments in 1998.
The Company has also guaranteed an aggregate $3.3 million of funds through
letters of credit for several Company managed entities domiciled in Bermuda. As
of September 30, 1998, no funds have been expended related to these guarantees.
Through the first nine months of 1998, the Company paid $17.1 million in cash
dividends on its common stock. On September 17, 1998, the Company declared a
regular quarterly cash dividend of $.35 per share payable on October 15, 1998 to
shareholders of record as of September 30, 1998. This is a 13% increase over
the quarterly dividend per share in 1997.
Net capital expenditures were $7.4 million and $6.9 million for the nine months
ended September 30, 1998 and 1997, respectively. In 1998, the Company expects
to make expenditures for capital improvements at least equal to the $11.3
million expended in the year ended December 31, 1997. Capital expenditures by
the Company are related primarily to expanded offices and updating computer
systems and equipment.
In 1988, the Company adopted a plan which has been extended through June 30,
1999, to repurchase its common stock. Through the first nine months of 1998 and
1997, the Company repurchased 215,000 shares at a cost of $8.6 million and
465,000 shares at a cost of $15.0 million, respectively. The repurchased shares
are held for reissuance in connection with exercises of options under its stock
option plans. Under the provisions of the plan, the Company is authorized to
repurchase up to 535,000 additional shares through June 30, 1999. The Company
is under no commitment or obligation to repurchase any particular amount of
common stock and at its discretion may suspend the repurchase plan at any time.
YEAR 2000 COMPLIANCE
Computer programs that have time-sensitive software may recognize the date "00"
as the Year 1900 rather than the Year 2000 which could result in system failures
or miscalculations causing disruptions of operations. With respect to this
issue, the Company has completed an assessment of its computer systems and
software and has substantially completed the necessary modifications or
replacements of its existing software so that its computer systems will function
properly in the Year 2000 and beyond. Testing and live use has taken place and
will continue into early 1999 on the computer systems, modifications and
replacements. Any additional modifications found necessary will be made at that
time. No contingency plans are deemed necessary.
The Company has evaluated the impact on operations of the Year 2000 on non-
information technology systems and has determined that any potential impact
would not be material to the Company's operations.
-11-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
YEAR 2000 COMPLIANCE (Continued)
Generally, system modifications and replacements and the associated costs were
contemplated with normal enhancements and improvements being made in conjunction
with updating financial reporting systems. To date, the cost of compliance has
not been material and is not expected to be material in the future.
The Company also has an ongoing program to review the status of Year 2000
compliance efforts of its business partners and vendors. While the Company
believes it is taking the appropriate steps to assure the Company's Year 2000
compliance, it is also dependent on business partners, vendor and client
compliance to some extent. Consequently, any Year 2000 compliance problems that
may be experienced by the Company's business partners, vendors or clients could
have a material adverse effect on the Company's future financial condition and
future operating results. No assurance can be given that the Company's and
these other entities' efforts will completely address the Year 2000 issue.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report contains forward-looking statements. Forward-looking
statements made by or on behalf of the Company are subject to risks and
uncertainties, including but not limited to the following: the Company's
commission revenues are highly dependent on premiums charged by insurers, which
are subject to fluctuation; the property/casualty insurance industry continues
to experience a prolonged soft market (despite high losses) which reduces
premiums thereby reducing commissions; continued low interest rates will reduce
the Company's income earned on invested funds; the insurance brokerage and
service businesses are extremely competitive with a number of competitors being
substantially larger than the Company; the alternative insurance market
continues to grow which could unfavorably impact commission and favorably impact
fee revenue; the Company's revenues vary significantly from quarter to quarter
as a result of the timing of policy renewals and the net effect of new and lost
business production; the general level of economic activity can have a
substantial impact on the Company's renewal business; and the Company's Year
2000 compliance efforts depend upon satisfactory completion of the modification
and testing phases of the Company's Year 2000 program and the Year 2000
compliance efforts of the Company's business partners and vendors. The
Company's ability to grow has been enhanced through acquisitions, which may or
may not be available on acceptable terms in the future and which, if
consummated, may or may not be advantageous to the Company. Accordingly, actual
results may differ materially from those set forth in the forward-looking
statements. Attention is also directed to other risk factors set forth in
documents filed by the Company with the Securities and Exchange Commission.
-12-
<PAGE>
ARTHUR J. GALLAGHER & CO.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27.0 - Financial Data Schedule (Unaudited).
b. Reports on Form 8-K. No Reports on Form 8-K were filed during the
three-month period ended September 30, 1998.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on the
5th day of November, 1998.
ARTHUR J. GALLAGHER & CO.
/s/Michael J. Cloherty
----------------------------------------
Michael J. Cloherty
Executive Vice President
Chief Financial Officer
/s/Jack H. Lazzaro
------------------------------------------
Jack H. Lazzaro
Vice President - Finance
Chief Accounting Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Arthur J. Gallagher & Co. Consolidated Financial Statements included in the
Form 10-Q for the nine month period ended September 30, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 163,392 149,118
<SECURITIES> 56,266 61,423
<RECEIVABLES> 261,760 202,188
<ALLOWANCES> (1,068) (841)
<INVENTORY> 0 0
<CURRENT-ASSETS> 519,948 446,558
<PP&E> 92,724 84,094
<DEPRECIATION> (65,320) (58,199)
<TOTAL-ASSETS> 720,998 592,102
<CURRENT-LIABILITIES> 516,755 424,502
<BONDS> 0 0
0 0
0 0
<COMMON> 17,281 16,490
<OTHER-SE> 174,287 138,725
<TOTAL-LIABILITY-AND-EQUITY> 720,998 592,102
<SALES> 367,663 332,451
<TOTAL-REVENUES> 381,388 358,456
<CGS> 203,609 182,745
<TOTAL-COSTS> 203,609 182,745
<OTHER-EXPENSES> 118,088 112,922
<LOSS-PROVISION> (582) 490
<INTEREST-EXPENSE> 911 792
<INCOME-PRETAX> 59,362 61,507
<INCOME-TAX> 19,683 20,912
<INCOME-CONTINUING> 39,679 40,595
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 39,679 40,595
<EPS-PRIMARY> 2.33 2.47
<EPS-DILUTED> 2.22 2.39
</TABLE>
