3rd Quarter Results
Marsh & McLennan Co Inc
01 November 2005
News Release
Media Contacts: Investor Contact:
Barbara Perlmutter Jim Fingeroth Mike Bischoff
MMC Kekst and Company MMC
(212) 345-5585 (212) 521-4819 (212) 345-5470
MMC REPORTS THIRD QUARTER RESULTS
NEW YORK, NEW YORK, November 1, 2005-Marsh & McLennan Companies, Inc. (MMC)
today reported financial results for the third quarter and nine months ended
September 30, 2005. Consolidated revenues for the quarter decreased 2 percent to
$2.9 billion. Net income was $65 million, or $.12 per share, an increase from
$21 million, or $.04 per share, in the third quarter of 2004. For the nine
months of 2005, consolidated revenues were unchanged at $9.2 billion. Net income
was $365 million, or $.67 per share, compared with $856 million, or $1.60 per
share, in the 2004 period. Excluding noteworthy items described in the attached
supplemental schedules, earnings per share in the third quarter of 2005 was
$.35, a decline of 17 percent from $.42 in the same period of 2004. Excluding
the same items, earnings per share for the nine months of 2005 was $1.30,
compared with $2.11 in 2004.
In the third quarter, MMC adopted FASB Statement No. 123(R) entitled
'Share-Based Payment.' Incremental compensation expense of $37 million,
primarily related to stock options, and an increase in fully diluted shares of
2.3 million in the third quarter reduced earnings per share by slightly less
than $.05.
Michael G. Cherkasky, president and chief executive officer of MMC, said: 'MMC
continued in the quarter to make progress and take the steps which will make it
a better and more profitable company next year. Cost savings from the
restructuring programs are being realized as anticipated, and we expect to see
improved earnings performance beginning next year. Marsh continues successfully,
but slowly, to restore its business from the effects of the events of last fall.
Marsh launched its pricing initiative, and we are optimistic about its impact
for 2006. Both Kroll and Mercer's specialty consulting businesses continue to
produce impressive revenue growth, and Mercer Human Resource Consulting is
investing to enhance its position as a global leader for human resource advice,
services, and solutions. Putnam is improving its investment performance and
controlling costs diligently.'
Risk and Insurance Services
Risk and insurance services revenues declined 6 percent to $1.4 billion in the
third quarter. The percentage decline is an improvement from the first half of
the year, primarily due to market services revenues having less of an effect on
a year-over-year basis. Third quarter revenues were affected by declining
commercial insurance premium rates, a trend that has continued throughout the
year. Although it is too early to assess the total effect of recent hurricanes
on insurance marketplace conditions, insurance premium rates in U.S. property
catastrophe and certain specialty lines appear to be strengthening.
Marsh's risk management and insurance broking revenues declined 11 percent in
the third quarter to $885 million. The percentage decline in revenues and
operating income in North American operations improved, compared with the first
two quarters of 2005. Weaker revenues in Europe in the third quarter reflected
the sale of a small affinity business in France and delays due to restructuring
efforts and the implementation of compliance protocols. Strong new business
gains in Latin America and Asia Pacific led to growth in client revenues in
those regions.
Guy Carpenter's revenues in the third quarter were $207 million, compared with
$209 million last year, as new business nearly offset premium rate declines in
the reinsurance markets and higher risk retentions by clients. These marketplace
conditions have been evident throughout the year.
Related insurance services revenues rose 8 percent in the third quarter to $285
million, driven by particular strength in the claims management business.
Risk Consulting and Technology
Kroll produced strong revenue growth in the third quarter. Revenues increased 22
percent to $268 million, or 15 percent on an underlying basis, led by the
corporate advisory and restructuring businesses. Technology services had solid
growth, reflecting higher demand for mortgage-related and background screening,
as well as electronic discovery services.
Consulting
Mercer's revenues increased 4 percent in the third quarter to $936 million, a
reflection of continued excellent performance in specialty consulting. The 16
percent increase in specialty consulting revenues to $222 million was driven by
strong growth in Mercer Oliver Wyman, a leader in financial services strategy
and risk management consulting, and solid results in strategy and operations
consulting. Mercer Human Resource Consulting reported revenues of $668 million
in the quarter, compared with $666 million last year. Retirement consulting
revenues were essentially unchanged, while revenue growth in human capital
consulting was offset by declines in health and benefits consulting and HR
services.
Investment Management
Putnam's revenues in the third quarter declined 11 percent to $371 million,
consistent with the percentage declines in the prior two quarters. Average
assets under management during the third quarter were $195 billion, compared
with $209 billion in the third quarter of 2004. Net redemptions in the quarter
were $8.5 billion. Total assets under management on September 30, 2005 were $192
billion, comprising $129 billion of mutual fund assets and $63 billion of
institutional assets.
Other Items
As discussed in this year's second quarter earnings release, the 2004
restructuring program has been fully implemented, resulting in annualized cost
savings totaling $400 million, of which $300 million has been realized through
the third quarter. The 2005 restructuring program should be completed in early
2006 and result in $375 million of annualized savings in risk and insurance
services, $30 million of which was realized in the second quarter and $60
million in the third quarter of this year.
MMC's net debt position declined by over $400 million in the third quarter to
$3.8 billion from $4.2 billion as the company generated strong cash flow in the
quarter. MMC took financing actions in the quarter to enhance liquidity by
significantly extending debt maturities and to secure favorable long-term fixed
interest rates.
In September, MMC made a discretionary tax-deductible contribution to its U.S.
defined benefit retirement plan with company stock valued at $205 million. The
value of plan assets now exceeds current estimates of both accumulated and
projected plan benefit obligations.
MMC's consolidated tax rate of 27.8 percent for the third quarter primarily
reflects favorable adjustments resulting from the filing of its 2004 U.S. tax
return. MMC expects the effective tax rate on ongoing operations to be 35
percent for the fourth quarter of this year.
As previously reported, Marsh sold Crump Group, Inc., its U.S.-based wholesale
broking operation, in October. The gain on the sale will be reflected in the
fourth quarter.
The MMC Victims Relief Fund came to the aid of colleagues who lived in the areas
devastated by Hurricane Katrina and who are in need of financial assistance to
meet emergency needs. To date, contributions to the fund total $1.2 million,
including the company's donation and match of employee contributions, as well as
additional money raised by employees in fundraisers held by many MMC offices
around the world.
Conference Call
A conference call to discuss third quarter 2005 results will be held today at
10:00 a.m. Eastern Standard Time. To participate in the teleconference, please
dial (800) 811-8824 or (913) 981-4903 (international). The access code for both
numbers is 1057498. The audio webcast (which will be listen-only) may be
accessed at www.mmc.com. A replay of the webcast will be available beginning
approximately two hours after the event at the same web address.
MMC is a global professional services firm with annual revenues exceeding $12
billion. It is the parent company of Marsh, the world's leading risk and
insurance services firm; Guy Carpenter, the world's leading risk and reinsurance
specialist; Kroll, the world's leading risk consulting company; Mercer, a major
global provider of human resource and specialty consulting services; and Putnam
Investments, one of the largest investment management companies in the United
States. Approximately 59,000 employees provide analysis, advice, and
transactional capabilities to clients in over 100 countries. Its stock (ticker
symbol: MMC) is listed on the New York, Chicago, Pacific, and London stock
exchanges. MMC's website address is www.mmc.com.
This press release contains 'forward-looking statements,' as defined in the
Private Securities Litigation Reform Act of 1995. These statements, which use
words like 'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'plan,'
'project' and similar terms, express management's current views concerning
future events or results. For example, we may use forward-looking statements
when addressing topics such as future actions by our management or regulators;
the outcome of contingencies; changes in our business strategy; changes in our
business practices and methods of generating revenue; the development and
performance of our services and products; market and industry conditions,
including competitive and pricing trends; changes in the composition or level of
MMC's revenues; our cost structure; the impact of acquisitions and dispositions;
and MMC's cash flow and liquidity.
Forward-looking statements are subject to inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those
expressed or implied in our forward-looking statements include:
• the economic and reputational impact of litigation and regulatory
proceedings brought by the New York Attorney General's Office, the
Connecticut Attorney General's Office and other federal and state regulators
and law enforcement authorities concerning our insurance and reinsurance
brokerage operations;
• the economic and reputational impact of class actions, derivative
actions and individual suits brought against us by policyholders and
shareholders asserting various claims under federal and state laws;
• the impact on our investment management revenues of litigation and
regulatory proceedings relating to market-timing and other issues at Putnam;
• other developments relating to claims, lawsuits and other contingencies;
• the extent to which we are able to negotiate compensation arrangements
with clients or insurance carriers to replace the revenue stream
historically associated with contingent commissions, which we have
eliminated under Marsh's new business model;
• the continued strength of our client relationships and our ability to
retain key producers and managers;
• our success in implementing restructuring initiatives and otherwise
reducing expenses;
• the impact of competition, including with respect to pricing and the
emergence of new competitors;
• changes in the availability of, and the premiums insurance carriers
charge for, insurance products;
• the actual and relative investment performance of the Putnam mutual
funds, including the impact of changes in U.S. and global equity and fixed
income markets;
• the extent to which Putnam succeeds in reversing its recent net
redemption experience, increasing assets under management, and maintaining
management and administrative fees at historical levels;
• the impact of increasing focus by regulators, clients and others on
potential conflicts of interest;
• changes in the value of MMC's investments in individual companies and
investment funds;
• our ability to integrate acquired businesses and realize expected
synergies, savings or strategic benefits;
• MMC's ability to meet its substantial financing needs by generating cash
from operations and accessing the capital markets, including the potential
impact of rating agency actions on our cost of financing or ability to
borrow; and
• changes in the tax or accounting treatment of MMC's operations, and the
impact of other legislation and regulation in the jurisdictions in which MMC
operates.
Forward-looking statements speak only as of the date on which they are made, and
MMC undertakes no obligation to update any such statement to reflect events or
circumstances after the date on which it is made. Further information concerning
MMC and its businesses, including information about factors that could
materially affect our results of operations and financial position, is contained
in MMC's filings with the Securities and Exchange Commission.
MMC and its operating companies use their websites to convey meaningful
information about their businesses, including the anticipated release of
quarterly financial results and the posting of updates of assets under
management at Putnam. Monthly updates of total assets under management at Putnam
will be posted to the MMC website the first business day following the end of
each month. Putnam posts mutual fund and performance data to its website
regularly. Assets for most Putnam retail mutual funds are posted approximately
two weeks after each month-end. Mutual fund net asset value (NAV) is posted
daily. Historical performance and Lipper rankings are also provided. Investors
can link to MMC and its operating company websites through www.mmc.com.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
--------------- --------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- --------------
2005 2004 2005 2004
--------- -------- -------- --------
Revenue:
Service Revenue $2,850 $2,912 $9,020 $9,031
Investment Income (Loss) 48 38 156 143
--------- -------- -------- --------
Total Revenue 2,898 2,950 9,176 9,174
--------- -------- -------- --------
Expense:
Compensation and Benefits 1,816 1,716 5,585 4,947
Other Operating Expenses 887 834 2,818 2,427
Regulatory and Other Settlements - 272 - 267
--------- -------- -------- --------
Total Expense 2,703 2,822 8,403 7,641
--------- -------- -------- --------
Operating Income 195 128 773 1,533
Interest Income 13 6 33 15
Interest Expense (111) (55) (253) (153)
--------- -------- -------- --------
Income Before Income Taxes and
Minority Interest Expense 97 79 553 1,395
Income Taxes 27 52 176 527
Minority Interest Expense, Net of Tax 5 6 12 12
--------- -------- -------- --------
Net Income $ 65 $ 21 $ 365 $ 856
========= ======== ======== ========
Basic Net Income Per Share $ 0.12 $ 0.04 $ 0.68 $ 1.64
========= ======== ======== ========
Diluted Net Income Per Share $ 0.12 $ 0.04 $ 0.67 $ 1.60
========= ======== ======== ========
Average Number of
Shares Outstanding - Basic 539 521 535 522
========= ======== ======== ========
Average Number of
Shares Outstanding - Diluted 544 533 539 536
========= ======== ======== ========
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Third Quarter
(Millions) (Unaudited)
Components of Revenue Change
Three Months Ended % Change Underlying
Acquisitions/ Revenue
September 30, GAAP Currency Dispositions Underlying excluding
2005 2004 Revenue Impact Impact Revenue MSA Impact
------- ------ -------- ------- --------- ------- --------
Risk and
Insurance
Services
Risk
Management and
Insurance
Broking $885 $ 998 (11)% 1% - (12)% (10)%
Reinsurance
Broking and
Services 207 209 (1)% 1% - (2)%
Related
Insurance
Services 285 265 8% - - 8% 8%
------- ------
Total Risk and
Insurance
Services 1,377 1,472 (6)% 1% - (7)% (5)%
------- ------
Risk
Consulting &
Technology 268 218 22% - 7% 15%
------- ------
Consulting
Human Resource
Consulting 668 666 - 1% - (1)% (1)%
Specialty
Consulting 222 192 16% - - 16%
------- ------
890 858 4% 1% - 3% 3%
Reimbursed
Expenses 46 39
------- ------
Total
Consulting 936 897 4% 1% - 3% 3%
------- ------
Investment
Management 371 415 (11)% - - (11)%
------- ------
Total
Operating
Segments 2,952 3,002 (2)% - 1% (3)% (2)%
Corporate
Eliminations (54) (52)
------- ------
Total Revenue $2,898 $2,950 (2)% - 1% (3)% (2)%
======= ======
Notes
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Underlying revenue for risk management and insurance broking decreased 12% in
the third quarter, including a 2% decline related to market services agreements;
and for the risk and insurance services segment underlying revenue decreased 7%
in the third quarter including a 2% decline related to market services
agreements.
Related insurance services includes U.S. affinity, wholesale broking,
underwriting management, claims management and Marsh & McLennan Risk Capital
Holdings, which holds MMC investments in insurance and financial services
companies and the Trident funds.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. 2005 results include market services revenue of $23
million related to collections of amounts earned on placements made prior to
October 1, 2004, which had not previously been accrued.
Interest income on fiduciary funds amounted to $43 million and $35 million for
the three months ended September 30, 2005 and 2004, respectively.
Revenue includes the following investment gains and losses for the three months
ended September 30, 2005 and 2004:
Risk and Insurance Services - $45 million and $37 million, respectively.
Investment Management - $3 million and $1 million, respectively.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Nine Months
(Millions) (Unaudited)
Components of Revenue Change
Underlying
Nine Months Ended % Change Acquisitions/ Revenue
September 30, GAAP Currency Dispositions Underlying excluding
2005 2004 Revenue Impact Impact Revenue MSA Impact
------- ------- --------- ------- --------- --------- ---------
Risk and
Insurance
Services
Risk
Management
and
Insurance $3,001 $3,602 (17)% 2% - (19)% (10)%
Broking
Reinsurance
Broking and
Services 681 703 (3)% 1% - (4)%
Related
Insurance
Services 882 745 18% - 4% 14% 13%
------- -------
Total Risk
and
Insurance 4,564 5,050 (10)% 1% 1% (12)% (5)%
Services ------- -------
Risk
Consulting &
Technology 799 270 196% - 189% 7%
------- -------
Consulting
Human
Resource 2,022 2,028 - 2% - (2)% (2)%
Consulting
Specialty
Consulting 661 559 18% 2% - 16%
------- -------
2,683 2,587 4% 2% - 2% 2%
Reimbursed
Expenses 131 114
------- -------
Total
Consulting 2,814 2,701 4% 2% - 2% 2%
------- -------
Investment
Management 1,146 1,299 (12)% - - (12)%
------- -------
Total
Operating
Segments 9,323 9,320 - 1% 6% (7)% (3)%
Corporate
Eliminations (147) (146)
------- -------
Total $9,176 $9,174 - 1% 6% (7)% (3)%
Revenue ======= =======
Notes
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Underlying revenue for risk management and insurance broking decreased 19% in
the first nine months, including a 9% decline related to market services
agreements; and for the risk and insurance services segment underlying revenue
decreased 12% in the first nine months including a 7% decline related to market
services agreements.
Related insurance services includes U.S. affinity, wholesale broking,
underwriting management, claims management and Marsh & McLennan Risk Capital
Holdings, which holds MMC investments in insurance and financial services
companies and the Trident funds.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. 2005 results include market services revenue of $94
million related to collections of amounts earned on placements made prior to
October 1, 2004, which had not previously been accrued.
Interest income on fiduciary funds amounted to $114 million and $94 million for
the nine months ended September 30, 2005 and 2004, respectively.
Revenue includes the following investment gains and losses for the nine months
ended September 30, 2005 and 2004:
Risk and Insurance Services - $151 million and $100 million, respectively.
Investment Management - $5 million and $43 million, respectively.
Marsh & McLennan Companies, Inc.
Supplemental Information
(Millions) (Unaudited)
-------------- --------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- --------------
2005 2004 2005 2004
------- -------- ------- -------
Operating Income (Loss) Including
Minority Interest Expense:
Risk and Insurance Services $32 $ (61) $280 $967
Risk Consulting & Technology 33 30 103 39
Consulting 117 131 354 383
Investment Management 83 55 202 129
Corporate (a) (75) (33) (178) 3
------- -------- ------- -------
190 122 761 1,521
------- -------- ------- -------
Minority Interest Expense, Net of
Tax, Included Above:
Risk and Insurance Services 5 5 10 12
Investment Management - 1 2 -
------- -------- ------- -------
5 6 12 12
------- -------- ------- -------
Operating Income $195 $ 128 $773 $1,533
======= ======== ======= =======
Segment Operating Margins:
Risk and Insurance Services 2.3% (4.1)% 6.1% 19.1%
Risk Consulting & Technology 12.3% 13.8% 12.9% 14.4%
Consulting 12.5% 14.6% 12.6% 14.2%
Investment Management 22.4% 13.3% 17.6% 9.9%
Consolidated Operating Margin 6.7% 4.3% 8.4% 16.7%
Pretax Margin 3.3% 2.7% 6.0% 15.2%
Effective Tax Rate (b) 27.8% 65.8% 31.8% 37.8%
Shares Outstanding at End of
Period 544 526
Potential Minority Interest
Associated with the Putnam
Equity Partnership Plan Net of
Dividend Equivalent
Expense Related to MMC Common
Stock Equivalents $ 1 $ - $ 2 $ (2)
(a) Effective July 1, 2005, MMC adopted SFAS 123(R), Share-Based Payment, using
the modified prospective method of adoption. Incremental expenses of $37
million, primarily related to stock options, are included in Corporate expenses
for the three months and nine months ended September 30, 2005.
(b) The effective tax rate for the three months ended September 30, 2005
primarily reflects favorable adjustments resulting from the filing of the 2004
U.S. tax return. The effective tax rate for the three months ended September 30,
2004 reflects non-deductible settlement charges at Putnam.
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2005 2005 2005 2004 2004
-------- -------- -------- -------- --------
Mutual Funds:
Growth Equity $ 32 $ 33 $ 34 $ 38 $ 37
Value Equity 38 39 40 41 39
Blend Equity 26 26 26 28 27
Fixed Income 33 34 35 36 37
-------- -------- -------- -------- --------
Total Mutual
Fund Assets 129 132 135 143 140
-------- -------- -------- -------- --------
Institutional:
Equity 33 33 35 40 40
Fixed Income 30 30 29 30 29
-------- -------- -------- -------- --------
Total
Institutional
Assets 63 63 64 70 69
-------- -------- -------- -------- --------
Total Ending
Assets $192 $195 $199 $213 $209
======== ======== ======== ======== ========
Assets from
Non-US
Investors $ 33 $ 34 $ 35 $ 38 $ 36
======== ======== ======== ======== ========
Average Assets
Under Management:
Quarter-to-Date $195 $196 $204 $211 $209
======== ======== ======== ======== ========
Year-to-Date $198 $200 $204 $217 $220
======== ======== ======== ======== ========
Net Redemptions
including
Dividends
Reinvested:
Quarter-to-Dat
e $ (8.5) $ (7.1) $ (9.7) $ (10.7) $ (10.5)
======== ======== ======== ========
========
Year-to-Date $(25.3) $(16.8) $ (9.7) $ (51.0) $ (40.3)
======== ======== ======== ======== ========
Impact of Market/
Performance on
Ending
Assets Under
Management $ 5.6 $ 3.1 $ (4.3) $ 15.4 $ (2.1)
======== ======== ======== ======== ========
Categories of mutual fund assets reflect style designations aligned with
Putnam's various prospectuses. All quarter-end assets conform with the current
investment mandate for each product.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Quarter and Nine Months Ended September 30, 2005
(Millions) (Unaudited)
NON-GAAP MEASURES: MMC believes that investors' understanding of the results and
operations is enhanced by the disclosure of additional non-GAAP financial
information. A number of noteworthy items impacted operating income and interest
expense in 2005. MMC believes this schedule provides a concise analysis of the
effects of these items. The amounts shown in the captions Operating Income As
Adjusted and Operating Income Margin As Adjusted are non-GAAPmeasures.
Risk & Risk Consulting Investment Corporate & Total
Insurance Consulting & (a) Management Eliminations
Services (a) Technology
Quarter Ended
Operating Income $ 32 $ 33 $117 $ 83 $ (75) $190
As Reported
Restructuring 51 - - - 1 52
Charges
Other
Incremental 16 - - (12) (5) (1)
Regulatory and
Compliance (c)
Estimated Mutual - - - 1 - 1
Fund
Reimbursement
(d)
Employee 50 - 10 - - 60
Retention Awards
Stock Option - - - - 37 37
Expense
Other (e) 1 - - 4 1 6
67 - 10 (7) 33 103
Operating Income 118 - 10 (7) 34 155
Adjustments
Operating Income $150 $ 33 $127 $ 76 $ (41) $345
As Adjusted
Operating Income 11.0% 12.3% 13.6% 20.5% N/A 11.9%
Margin As
Adjusted
Nine Months
Ended
Operating Income $280 $103 $354 $202 $(178) $761
As Reported
Restructuring 195 - - - 55 250
Charges (b)
Other
Incremental 69 - - (12) (24) 33
Regulatory and
Compliance (c)
Estimated Mutual - - - 35 - 35
Fund
Reimbursement
(d)
Employee 88 - 30 - - 118
Retention Awards
Stock Option - - - - 37 37
Expense
Other (e) 11 - - 4 (2) 13
Minority - - - (1) - (1)
Interest
168 - 30 26 11 235
Operating Income 363 - 30 26 66 485
Adjustments
Operating Income $ 643 $103 $384 $228 $(112) $1,246
As Adjusted
Operating Income 14.1% 12.9% 13.6% 19.9% N/A 13.6%
Margin As
Adjusted
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share
Quarter Ended Nine Months
--------------- Ended
-------------------
Net Income, As Reported $ 65 $ 365
Operating Income Adjustments $ 155 $485
Interest Expense Adjustment (f) 34 34
Tax Effect (65) (184)
-------- ------------
124 335
------ -------
Net Income, As Adjusted $ 189 $ 700
Average Diluted Shares Outstanding (g) 544 539
------ -------
Earnings Per Share, As Adjusted $ 0.35 $ 1.30
====== =======
Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Quarter and Nine Months Ended September 30, 2004
(Millions) (Unaudited)
NON-GAAP MEASURES: MMC believes that investors' understanding of the results and operations is enhanced by the
disclosure of additional non-GAAP financial information. A number of noteworthy items impacted operating income in
2004. MMC believes this schedule provides a concise analysis of the effects of these items. The amounts shown in the
captions Operating Income As Adjusted and Operating Income Margin As Adjusted are non-GAAP measures.
---------------------------------------------------------------------------------------------------------------------
Risk & Insurance Risk Consulting (h) Investment Corporate &
Services (h) Consulting Management Eliminations Total
& Technology
Quarter Ended
---------------
Operating
Income As
Reported $ (61) $ 30 $ 131 $ 55 $ (33) $ 122
Settlements
(i) 232 - - 40 - 272
Other
Severance 24 - - 6 - 30
Incremental
Regulatory and
Compliance - - - 9 - 9
Other - - - (8) - (8)
24 - - 7 - 31
Operating
Income
Adjustments 256 - - 47 - 303
Operating
Income As
Adjusted $ 195 $ 30 $ 131 $ 102 $ (33) $ 425
Operating
Income Margin
As Adjusted 13.2% 13.8% 14.6% 24.6% N/A 14.4%
Nine Months Ended
-------------------
Operating
Income As
Reported $ 967 $ 39 $ 383 $ 129 $ 3 $ 1,521
Settlements
(i) 232 - - 140 (105) 267
Other
Severance 40 - 11 57 - 108
Incremental
Regulatory and
Compliance - - - 38 - 38
Executive Comp
Credit - - - (25) - (25)
Gain on Sale
of Italian
Venture - - - (38) - (38)
Communications - - - 15 - 15
Other - - - (4) - (4)
Minority
Interest - - - (6) - (6)
40 - 11 37 - 88
Operating
Income
Adjustments 272 - 11 177 (105) 355
Operating
Income As
Adjusted $ 1,239 $ 39 $ 394 $ 306 $ (102) $ 1,876
Operating
Income Margin
As Adjusted 24.5% 14.4% 14.6% 24.3% N/A 20.5%
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share
Quarter Ended Nine Months Ended
--------------- -------------------
Net Income, As Reported $ 21 $ 856
Operating Income Adjustments $ 303 $ 355
Tax Effect (j) (99) (78)
------- ------
204 277
------- ------
Net Income, As Adjusted $ 225 $1,133
Average Diluted Shares Outstanding 533 536
------- ------
Earnings Per Share, As Adjusted $0.42 $ 2.11
======= ======
Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14.
Marsh & McLennan Companies, Inc.
Notes to the Reconciliation of Non-GAAP Measures
--------------------------------------------------
Quarter and Nine Months Ended September 30, 2005
(a) For the three months and nine months ended September 30, 2005, market
services revenue of $22 million and $90 million, respectively, for Risk and
Insurance Services, and $1 million and $4 million, respectively, for the
employee benefits business transferred to Mercer, is included in Operating
Income As Reported and Operating Income As Adjusted.
(b) Corporate expenses in 2005 primarily included restructuring charges of $49
million related to the consolidation of office space in London. Because the
office space consolidation was driven by MMC to benefit its London operations as
a whole, rather than any particular operating company, the related charge was
recorded in corporate expenses.
(c) Regulatory and compliance costs in the risk and insurance services segment
include professional services provided by other MMC companies. The inter-company
amounts are eliminated in corporate. The credit in Investment Management relates
to insurance recoveries of amounts previously presented as Incremental
Regulatory and Compliance costs.
(d) Represents estimated costs that Putnam believes will be necessary to address
issues relating to the calculation of certain amounts paid by the Putnam mutual
funds in previous years. The previous payments were cost reimbursements by the
Putnam mutual funds to Putnam for transfer agency services related to defined
contribution operations.
(e) Other primarily reflects accelerated leasehold amortization and the bonus
impact on the insurance credit received, partly offset by a gain on the sale of
the corporate jet which was recorded in the first quarter.
(f) In addition to the noteworthy items that impacted operating income, interest
expense included a $34 million mortgage prepayment charge.
(g) For the three months and nine months ended September 30, 2005, the
implementation of SFAS 123(R) increased incremental shares by 2.3 million and .7
million, respectively.
Quarter and Nine Months Ended September 30, 2004
(h) For the three months and nine months ended September 30, 2004, market
services revenue of $43 million and $451 million, respectively, for Risk and
Insurance Services, and $3 million and $17 million, respectively, for the
employee benefits business transferred to Mercer, is included in Operating
Income As Reported and Operating Income As Adjusted.
(i) Settlements include charges related to the investigation of Marsh by New
York regulators, Putnam's settlements with the SEC and State of Massachusetts
and the final insurance settlement related to WTC in Corporate.
(j) The tax effect for the nine months ended September 30, 2004 reflects
non-deductible Putnam settlement, reserve for possible Marsh settlement at 38%
tax rate, credit related to insurance settlements at 40% tax rate and other
charges and credit at 34.5% tax rate.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
September 30, December 31,
2005 2004
------ ------
ASSETS
Current assets :
Cash and cash equivalents $ 1,237 $ 1,396
Net receivables 2,981 2,890
Other current assets 263 601
----------
Total current assets 4,481 4,887
Goodwill and intangible assets 8,015 8,139
Fixed assets, net 1,235 1,387
Long-term investments 318 558
Prepaid pension 1,565 1,394
Other assets 1,894 1,972
------------ -------
TOTAL ASSETS $17,508 $18,337
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 77 $ 636
Accounts payable and accrued liabilities 1,875 1,834
Regulatory settlements - current portion 311 394
Accrued compensation and employee benefits 1,347 1,591
Accrued income taxes 316 280
Dividends payable 93 -
----------- ----------
Total current liabilities 4,019 4,735
Fiduciary liabilities 4,210 4,136
Less - cash and investments held in
a fiduciary capacity (4,210) (4,136)
------------ ---------
- -
Long-term debt 4,929 4,691
Regulatory settlements 340 595
Pension, postretirement and postemployment
benefits 1,369 1,333
Other liabilities 1,492 1,927
Total stockholders' equity 5,359 5,056
---------- -------
Total liabilities and stockholders' equity $17,508 $18,337
========= =========
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Tuesday, 14th May 2024
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